Yiren Digital(YRD) - 2024 Q1 - Quarterly Report

Executive Summary Yiren Digital concluded 2023 with strong financial and operational performance, exceeding guidance and strategically focusing on AI integration with a robust balance sheet CEO and CFO Commentary Yiren Digital concluded 2023 with strong financial and operational performance, exceeding previous guidance. The company is strategically focusing on AI integration across its operations, expanding AI expertise to B2B and B2C clients, and exploring strategic AI partnerships and investments. A robust balance sheet with RMB5.8 billion in cash and cash equivalents supports future growth initiatives - Yiren Digital achieved double-digit annual growth in both top and bottom lines for FY2023, surpassing previous guidance[5] - The company is establishing itself as an AI-driven financial and lifestyle services platform, integrating AI through its 'AI Lab' initiative to boost efficiency and customer experience[5] - Strategic plans include expanding AI expertise beyond fintech to other sectors, empowering B2B and B2C clients, and pursuing strategic partnerships and investments in high-quality AI companies[5] Key Financial Position as of December 31, 2023 | Metric | Amount (RMB) | | :--------------------- | :------------- | | Total cash and cash equivalents | 5.8 billion | Operational Highlights The company's 2023 operational performance was marked by significant growth in financial services and consumption & lifestyle, alongside mixed results in insurance brokerage due to regulatory changes Financial Services Business The financial services business demonstrated significant growth in Q4 2023 and fiscal year 2023, driven by strong demand for small revolving loan products and improved customer acquisition efficiency. Total loans facilitated and outstanding performing loans saw substantial increases Financial Services Business Key Metrics (Q4 2023 vs. Q3 2023 & Q4 2022) | Metric | Q4 2023 (RMB) | Q3 2023 (RMB) | YoY Change (Q4 2023 vs Q4 2022) | QoQ Change (Q4 2023 vs Q3 2023) | | :-------------------------------- | :------------ | :------------ | :------------------------------ | :------------------------------ | | Total loans facilitated | 11.6 billion | 9.8 billion | +70.6% (from 6.8 billion) | +18.7% | | Number of borrowers served | 1,371,501 | 1,204,012 | +59.1% (from 862,226) | +13.9% | | Outstanding balance of performing loans | 18.3 billion | 15.1 billion | +61.9% (from 11.3 billion) | +20.9% | Financial Services Business Key Metrics (FY 2023 vs. FY 2022) | Metric | FY 2023 (RMB) | FY 2022 (RMB) | YoY Change | | :-------------------------------- | :------------ | :------------ | :--------- | | Total loans facilitated | 36.0 billion | 22.6 billion | +59.3% | | Total number of borrowers served | 2,891,901 | 1,606,893 | +80.0% | Insurance Brokerage Business The insurance brokerage business experienced a decrease in client numbers and gross written premiums in Q4 2023, primarily due to product changes under new regulations affecting life insurance volume. However, cumulative client numbers and full-year gross written premiums still showed growth Insurance Brokerage Business Key Metrics (Q4 2023 vs. Q3 2023 & Q4 2022) | Metric | Q4 2023 | Q3 2023 | YoY Change (Q4 2023 vs Q4 2022) | QoQ Change (Q4 2023 vs Q3 2023) | | :-------------------------------- | :------ | :------ | :------------------------------ | :------------------------------ | | Number of insurance clients served | 102,556 | 123,693 | +20.2% (from 85,314) | -17.1% | | Gross written premiums (RMB) | 1,208.7 million | 1,428.5 million | -9.5% (from 1,335.5 million) | -15.4% | Insurance Brokerage Business Key Metrics (FY 2023 vs. FY 2022) | Metric | FY 2023 | FY 2022 | YoY Change | | :-------------------------------- | :------ | :------ | :--------- | | Cumulative number of insurance clients | 1,283,102 | 924,824 | +38.7% | | Total number of insurance clients served | 358,278 | 431,701 | -17.0% | | Total gross written premiums (RMB) | 4,893.0 million | 3,936.6 million | +24.3% | - The decrease in Q4 2023 insurance client numbers and gross written premiums was primarily due to a decline in life insurance volume following product changes under new regulations[3][4] Consumption and Lifestyle Business The consumption and lifestyle business experienced substantial growth in Q4 2023 and fiscal year 2023, driven by a continuous increase in paying customers on its e-commerce platform Consumption and Lifestyle Business Key Metrics (Q4 2023 vs. Q3 2023 & Q4 2022) | Metric | Q4 2023 (RMB) | Q3 2023 (RMB) | YoY Change (Q4 2023 vs Q4 2022) | QoQ Change (Q4 2023 vs Q3 2023) | | :-------------------------------- | :------------ | :------------ | :------------------------------ | :------------------------------ | | Total gross merchandise volume | 692.7 million | 563.2 million | +137.1% (from 292.1 million) | +23.0% | Consumption and Lifestyle Business Key Metrics (FY 2023 vs. FY 2022) | Metric | FY 2023 (RMB) | FY 2022 (RMB) | YoY Change | | :-------------------------------- | :------------ | :------------ | :--------- | | Total gross merchandise volume | 1,960.3 million | 687.8 million | +185.0% | - The growth in GMV was mainly due to the continuous growth of paying customers on the e-commerce platform[4] Fourth Quarter 2023 Financial Results Q4 2023 saw increased total net revenue and net income, driven by financial services and consumption, despite varied operating costs and a slight rise in delinquency rates Revenue Analysis (Q4 2023) Total net revenue for Q4 2023 increased by 17.1% year-over-year, primarily driven by strong growth in financial services and consumption & lifestyle businesses. The insurance brokerage business, however, saw a significant decline due to regulatory changes Q4 2023 Net Revenue by Business Segment | Segment | Q4 2023 Revenue (RMB) | Q4 2022 Revenue (RMB) | YoY Change | | :-------------------------------- | :-------------------- | :-------------------- | :--------- | | Total Net Revenue | 1,274.3 million | 1,088.1 million | +17.1% | | Financial Services Business | 781.3 million | 639.2 million | +22.2% | | Insurance Brokerage Business | 98.2 million | 199.0 million | -50.7% | | Consumption and Lifestyle Business and others | 394.8 million | 249.9 million | +58.0% | - The increase in financial services revenue was attributed to persistent and growing demand for small revolving loan products[6] - The decrease in insurance brokerage revenue was due to declined sales of life insurance attributed to product changes under new regulations[6] - The increase in consumption and lifestyle revenue was primarily attributed to the continuous growth in gross merchandise volume driven by an expanding base of paying customers[6] Operating Costs and Expenses (Q4 2023) Operating costs and expenses in Q4 2023 showed varied trends. Sales and marketing expenses increased with business volume, while origination and servicing costs decreased due to lower life insurance sales. R&D expenses rose due to AI investments, and G&A remained stable Q4 2023 Operating Costs and Expenses | Expense Category | Q4 2023 (RMB) | Q4 2022 (RMB) | YoY Change | | :-------------------------------- | :------------ | :------------ | :--------- | | Sales and marketing expenses | 205.7 million | 103.4 million | +98.9% | | Origination, servicing and other operating costs | 184.7 million | 211.6 million | -12.7% | | Research and development expenses | 47.6 million | 32.9 million | +44.7% | | General and administrative expenses | 50.5 million | 52.3 million | -3.5% | | Allowance for contract assets, receivables and others | 98.7 million | 55.7 million | +77.2% | - Sales and marketing expenses increased primarily due to the growth of financial services business volume[7] - Origination, servicing and other operating costs decreased due to the decline in sales of life insurance products attributed to product changes under new regulations[7] - Research and development expenses increased mainly attributed to ongoing investment in AI upgrades and technological innovations[7] - Allowance for contract assets, receivables and others increased primarily attributed to the growing volume of loans facilitated on the platform[8] Net Income and Profitability (Q4 2023) Yiren Digital reported a significant increase in net income for Q4 2023, driven by business volume recovery and optimized business structure. Adjusted EBITDA also saw a healthy increase Q4 2023 Net Income and Profitability | Metric | Q4 2023 (RMB) | Q4 2022 (RMB) | YoY Change | | :-------------------- | :------------ | :------------ | :--------- | | Net income | 571.3 million | 485.2 million | +17.7% | | Adjusted EBITDA (non-GAAP) | 684.8 million | 645.1 million | +6.2% | | Basic income per ADS | 6.5 | 5.4 | +20.4% | | Diluted income per ADS | 6.5 | 5.4 | +20.4% | - The increase in net income was primarily due to the recovery of business volume and optimization of the business structure[8] Cash Flow and Balance Sheet Highlights (Q4 2023) In Q4 2023, net cash generated from operating activities decreased slightly, while net cash provided by financing activities significantly increased. The company maintained a strong cash and cash equivalents position, along with growth in various investment balances Q4 2023 Cash Flow Summary | Cash Flow Activity | Q4 2023 (RMB) | Q4 2022 (RMB) | YoY Change | | :-------------------------------- | :------------ | :------------ | :--------- | | Net cash generated from operating activities | 417.2 million | 471.9 million | -11.5% | | Net cash used in investing activities | (260.3 million) | 283.1 million (provided) | N/A (shift from provided to used) | | Net cash provided by financing activities | 332.3 million | (54.6 million) (used) | N/A (shift from used to provided) | Key Balance Sheet Items as of December 31, 2023 | Item | Dec 31, 2023 (RMB) | Sep 30, 2023 (RMB) | QoQ Change | | :-------------------------------- | :----------------- | :----------------- | :--------- | | Cash and cash equivalents | 5,791.3 million | 5,438.0 million | +6.5% | | Held-to-maturity investments | 10.4 million | 4.8 million | +116.7% | | Available-for-sale investments | 438.1 million | 338.1 million | +29.6% | | Trading securities | 76.1 million | 74.2 million | +2.6% | Asset Quality (Q4 2023) Delinquency rates for loans past due for 15-89 days slightly increased in Q4 2023 compared to Q3 2023. Cumulative M3+ net charge-off rates for loans originated in 2020 and 2021 slightly decreased, while 2022 originations saw a slight increase Delinquency Rates as of December 31, 2023 | Delinquency Period | Dec 31, 2023 | Sep 30, 2023 | Change | | :----------------- | :----------- | :----------- | :----- | | 15-29 days | 0.9% | 0.8% | +0.1% | | 30-59 days | 1.4% | 1.2% | +0.2% | | 60-89 days | 1.2% | 1.0% | +0.2% | Cumulative M3+ Net Charge-Off Rates as of December 31, 2023 | Loan Origination Year | Dec 31, 2023 | Sep 30, 2023 | Change | | :-------------------- | :----------- | :----------- | :----- | | 2020 | 7.8% | 7.9% | -0.1% | | 2021 | 6.4% | 6.5% | -0.1% | | 2022 | 4.7% | 4.5% | +0.2% | Fiscal Year 2023 Financial Results Fiscal year 2023 demonstrated substantial growth in total net revenue and net income, reflecting increased business volume across all segments and healthy cash generation Revenue Analysis (FY 2023) Total net revenue for fiscal year 2023 increased significantly by 42.6% year-over-year, with all business segments contributing to growth. Financial services and consumption & lifestyle businesses were the primary drivers of this expansion FY 2023 Net Revenue by Business Segment | Segment | FY 2023 Revenue (RMB) | FY 2022 Revenue (RMB) | YoY Change | | :-------------------------------- | :-------------------- | :-------------------- | :--------- | | Total Net Revenue | 4,895.6 million | 3,434.6 million | +42.6% | | Financial Services Business | 2,515.1 million | 1,959.7 million | +28.3% | | Insurance Brokerage Business | 963.8 million | 731.8 million | +31.7% | | Consumption and Lifestyle Business and others | 1,416.7 million | 743.1 million | +90.6% | - The increase in financial services revenue was driven by the growing demand for small revolving loan products[13] - The increase in insurance brokerage revenue was driven by improved customer acquisition and serving capabilities[13] - The increase in consumption and lifestyle revenue was due to the continuous growth of paying customers on the e-commerce platform[13] Operating Costs and Expenses (FY 2023) For fiscal year 2023, sales and marketing expenses and origination/servicing costs increased in line with overall business growth. R&D expenses remained stable, while G&A expenses saw a slight decrease FY 2023 Operating Costs and Expenses | Expense Category | FY 2023 (RMB) | FY 2022 (RMB) | YoY Change | | :-------------------------------- | :------------ | :------------ | :--------- | | Sales and marketing expenses | 656.6 million | 574.0 million | +14.4% | | Origination, servicing and other operating costs | 976.2 million | 776.8 million | +25.7% | | Research and development expenses | 148.8 million | 151.9 million | -2.0% | | General and administrative expenses | 231.1 million | 271.8 million | -14.9% | | Allowance for contract assets, receivables and others | 288.2 million | 188.2 million | +53.1% | - Sales and marketing expenses increased primarily due to the growth of financial services business volume[14] - Origination, servicing and other operating costs increased due to the rapid growth of the overall business scale[14] - Allowance for contract assets, receivables and others increased primarily attributed to the growing volume of loans facilitated on the platform[14] Net Income and Profitability (FY 2023) Yiren Digital achieved substantial growth in net income and Adjusted EBITDA for fiscal year 2023, reflecting the overall increase in business volume and improved operational efficiency FY 2023 Net Income and Profitability | Metric | FY 2023 (RMB) | FY 2022 (RMB) | YoY Change | | :-------------------- | :------------ | :------------ | :--------- | | Net income | 2,080.2 million | 1,194.9 million | +74.1% | | Adjusted EBITDA (non-GAAP) | 2,578.5 million | 1,570.3 million | +64.8% | | Basic income per ADS | 23.5 | 13.7 | +71.5% | | Diluted income per ADS | 23.3 | 13.6 | +71.3% | - The increase in net income was driven by the growing business volume[15] Cash Flow Highlights (FY 2023) Net cash generated from operating activities for fiscal year 2023 increased, indicating healthy cash generation from core operations FY 2023 Cash Flow from Operating Activities | Metric | FY 2023 (RMB) | FY 2022 (RMB) | YoY Change | | :-------------------------------- | :------------ | :------------ | :--------- | | Net cash generated from operating activities | 2,171.0 million | 1,849.4 million | +17.4% | Business Outlook Yiren Digital projects total revenue for 2024 to be between RMB5.8 billion and RMB6.8 billion, anticipating a healthy net profit margin 2024 Revenue Projection Based on its preliminary assessment, Yiren Digital projects total revenue for the full year of 2024 to be between RMB5.8 billion and RMB6.8 billion, anticipating a healthy net profit margin Full Year 2024 Revenue Projection | Metric | Projection (RMB) | | :-------------------- | :--------------- | | Total Revenue | 5.8 billion to 6.8 billion | | Net Profit Margin | Healthy | - The projection is based on the Company's preliminary assessment of business and market conditions and is subject to changes and uncertainties[16] Corporate Information The company has adopted a new cybersecurity policy, utilizes non-GAAP measures for performance assessment, and operates as an AI-powered financial and lifestyle services platform Recent Development In response to new SEC rules, Yiren Digital has adopted a Cybersecurity Incident Response Policy and established a cybersecurity risk management committee. This initiative highlights the company's commitment to exceeding regulatory standards and proactive risk management - Yiren Digital adopted a Cybersecurity Incident Response Policy in response to recent SEC rules on cybersecurity risk management[17] - A cybersecurity risk management committee has been established, chaired by Mr. Ning Tang, to enhance corporate governance efficiency and transparency[17] - The company emphasizes a proactive stance towards risk management related to information technology and data protection to maintain stakeholder trust[17] Non-GAAP Financial Measures Yiren Digital uses non-GAAP financial measures like adjusted EBITDA to assess operating performance, believing they offer useful insights into core operating results and enhance understanding of past performance and prospects. The company provides reconciliations to U.S. GAAP measures - Adjusted EBITDA and adjusted EBITDA margin are used as supplemental non-GAAP measures to review and assess operating performance[18] - These non-GAAP measures provide useful information about core operating results and enhance the overall understanding of past performance and prospects[18] - The company compensates for limitations of non-GAAP measures by reconciling them to the nearest U.S. GAAP performance measure[18] About Yiren Digital Yiren Digital Ltd. is an AI-powered platform in China offering comprehensive financial and lifestyle services. Its mission is to improve customers' financial well-being and quality of life through digital financial services, tailored insurance solutions, and premium lifestyle services, supporting clients' financing needs and overall well-being - Yiren Digital Ltd. is an advanced, AI-powered platform providing a comprehensive suite of financial and lifestyle services in China[22] - The company's mission is to elevate customers' financial well-being and enhance their quality of life by delivering digital financial services, tailor-made insurance solutions, and premium lifestyle services[22] - It supports clients at various growth stages, addressing financing needs from consumption and production activities, and aims to augment the overall well-being and security of individuals, families, and businesses[22] Financial Statements and Supplementary Data This section provides detailed unaudited consolidated financial statements, including statements of operations, balance sheets, operating highlights, non-GAAP reconciliations, and asset quality metrics Unaudited Condensed Consolidated Statements of Operations The unaudited condensed consolidated statements of operations provide a detailed breakdown of Yiren Digital's revenues, operating costs, expenses, and net income for Q4 2023 and fiscal year 2023, showing significant growth in total net revenue and net income year-over-year Key Figures from Statements of Operations (Q4 2023 vs. Q4 2022) | Metric | Q4 2023 (RMB) | Q4 2022 (RMB) | | :-------------------------------- | :------------ | :------------ | | Total net revenue | 1,274,310 | 1,088,076 | | Total operating costs and expenses | 587,214 | 456,024 | | Net income | 571,268 | 485,235 | Key Figures from Statements of Operations (FY 2023 vs. FY 2022) | Metric | FY 2023 (RMB) | FY 2022 (RMB) | | :-------------------------------- | :------------ | :------------ | | Total net revenue | 4,895,633 | 3,434,620 | | Total operating costs and expenses | 2,300,851 | 1,962,756 | | Net income | 2,080,197 | 1,194,871 | Unaudited Condensed Consolidated Balance Sheets The unaudited condensed consolidated balance sheets as of December 31, 2023, show an increase in total assets and total equity compared to the previous year, reflecting a strengthened financial position. Cash and cash equivalents, contract assets, and loans at fair value all increased Key Figures from Balance Sheets (as of Dec 31, 2023 vs. Dec 31, 2022) | Metric | Dec 31, 2023 (RMB) | Dec 31, 2022 (RMB) | | :-------------------------------- | :----------------- | :----------------- | | Total assets | 10,276,916 | 8,536,095 | | Total liabilities | 2,191,367 | 2,505,282 | | Total equity | 8,085,549 | 6,030,813 | | Cash and cash equivalents | 5,791,333 | 4,271,899 | | Contract assets, net | 978,051 | 626,739 | | Loans at fair value | 677,835 | 54,049 | Operating Highlights (Detailed) This section provides detailed operational metrics and segment-specific revenue and expense breakdowns for Q4 2023 and fiscal year 2023, reinforcing the trends observed in the operational highlights and financial results sections Detailed Operating Highlights (Q4 2023 vs. Q4 2022) | Metric | Q4 2023 (RMB) | Q4 2022 (RMB) | | :-------------------------------- | :------------ | :------------ | | Amount of loans facilitated | 11,645,528 | 6,783,523 | | Number of borrowers | 1,371,501 | 862,226 | | Gross written premiums | 1,208,717 | 1,335,488 | | Gross merchandise volume | 692,733 | 292,086 | | Financial services business revenue | 781,306 | 639,167 | | Insurance brokerage business revenue | 98,158 | 199,027 | | Consumption & lifestyle business revenue | 394,846 | 249,882 | Detailed Operating Highlights (FY 2023 vs. FY 2022) | Metric | FY 2023 (RMB) | FY 2022 (RMB) | | :-------------------------------- | :------------ | :------------ | | Amount of loans facilitated | 36,036,301 | 22,623,101 | | Number of borrowers | 2,891,901 | 1,606,893 | | Gross written premiums | 4,893,042 | 3,936,588 | | Gross merchandise volume | 1,960,344 | 687,848 | | Financial services business revenue | 2,515,119 | 1,959,732 | | Insurance brokerage business revenue | 963,822 | 731,797 | | Consumption & lifestyle business revenue | 1,416,692 | 743,091 | Reconciliation of GAAP to Non-GAAP Measures This section provides the reconciliation of net income (GAAP) to Adjusted EBITDA (non-GAAP) for both Q4 2023 and fiscal year 2023, along with the Adjusted EBITDA margin, demonstrating the company's operational profitability excluding certain non-cash or non-recurring items Adjusted EBITDA Reconciliation (Q4 2023 vs. Q4 2022) | Metric | Q4 2023 (RMB) | Q4 2022 (RMB) | | :-------------------------------- | :------------ | :------------ | | Net income | 571,268 | 485,235 | | Interest (income)/expense, net | (29,880) | (3,439) | | Income tax expense | 140,818 | 159,285 | | Depreciation and amortization | 1,806 | 2,537 | | Share-based compensation | 828 | 1,494 | | Adjusted EBITDA | 684,840 | 645,112 | | Adjusted EBITDA margin | 53.7% | 59.3% | Adjusted EBITDA Reconciliation (FY 2023 vs. FY 2022) | Metric | FY 2023 (RMB) | FY 2022 (RMB) | | :-------------------------------- | :------------ | :------------ | | Net income | 2,080,197 | 1,194,871 | | Interest (income)/expense, net | (80,749) | 26,302 | | Income tax expense | 565,163 | 300,512 | | Depreciation and amortization | 7,116 | 26,430 | | Share-based compensation | 6,751 | 22,136 | | Adjusted EBITDA | 2,578,478 | 1,570,251 | | Adjusted EBITDA margin | 52.7% | 45.7% | Delinquency and Charge-Off Rates This section presents detailed delinquency rates for various past-due periods and cumulative M3+ net charge-off rates by loan origination period, providing insights into the credit quality and performance of the loan portfolio Delinquency Rates (as of December 31, 2023) | Delinquency Period | Rate | | :----------------- | :--- | | 15-29 days | 0.9% | | 30-59 days | 1.4% | | 60-89 days | 1.2% | Cumulative M3+ Net Charge-Off Rates by Loan Origination Period (as of December 31, 2023) | Loan Issued Period | Total Net Charge-Off Rate | | :----------------- | :------------------------ | | 2019 | 11.3% | | 2020 | 7.8% | | 2021 | 6.4% | | 2022 | 4.7% | | 2023Q1-Q3 | 2.8% | M3+ Net Charge-Off Rate by Loan Origination Quarter (Selected) | Loan Issued Period | 4 Month Book | 7 Month Book | 10 Month Book | 13 Month Book | | :----------------- | :----------- | :----------- | :------------ | :------------ | | 2022 Q1 | 0.6% | 2.5% | 3.8% | 4.5% | | 2022 Q2 | 0.4% | 2.2% | 3.6% | 4.1% | | 2022 Q3 | 0.5% | 2.7% | 4.1% | 4.7% | | 2022 Q4 | 0.6% | 3.0% | 4.6% | N/A | | 2023 Q1 | 0.5% | 3.1% | N/A | N/A |