Lexin(LX) - 2024 Q2 - Quarterly Report

Executive Summary & Business Outlook The company reports mixed Q2 2024 results with controlled loan growth, improved profitability from lower funding costs, and a new dividend announcement Management Commentary Management reports healthy sequential growth in revenue and profit despite a weak credit environment, driven by strategic overseas expansion and record-low funding costs - Despite a soft consumer demand and weak credit environment, the company achieved a 12% quarter-over-quarter growth in both total operating revenue and net profit[1] | Metric | Q2 2024 Value | Change vs Q1 2024 | | :--- | :--- | :--- | | Loan Origination | RMB 51.1 billion | -12% | | Total Operating Revenue | RMB 3.6 billion | +12.3% | | Net Profit | RMB 227 million | +12.4% | - Key strategic achievements in the quarter include: * Accelerated growth in international operations, which is outpacing the domestic business * Funding cost hit a historical low, effectively boosting profitability compared to Q1 2024 * Early signs of improvement in overall risk performance metrics, extending into July[1] - The company declared a semi-annual cash dividend of US$0.072 per ADS, representing approximately 20% of total net income for the six-month period[1] Operational and Financial Highlights The quarter saw mixed results with declining operational metrics and net income, despite strong year-over-year revenue growth Operational Highlights Operational metrics show a decline in active users, loan originations, and e-commerce GMV, coupled with a rising delinquency ratio | User Metric | As of June 30, 2024 | YoY Change | | :--- | :--- | :--- | | Total Registered Users | 219 million | +10.2% | | Users with Credit Lines | 43.3 million | +5.8% | | Active Loan Users (Q2) | 4.2 million | -16.4% | | Loan & Credit Metric | Q2 2024 | YoY Change | | :--- | :--- | :--- | | Total Loan Originations | RMB 51.1 billion | -20.1% | | Outstanding Loan Balance | RMB 115 billion | +0.9% | | 90 day+ Delinquency Ratio | 3.7% | (vs 3.0% as of Mar 31, 2024) | | First Payment Default Rate (30d+) | Below 1% | N/A | - GMV for the installment e-commerce platform service was RMB 933 million, a decrease of 37.2% from Q2 2023[4] Financial Highlights Total operating revenue grew 19.1% YoY, but net income attributable to shareholders saw a significant 36.3% decline | Financial Metric (Q2 2024) | Amount (RMB) | YoY Change | | :--- | :--- | :--- | | Total Operating Revenue | 3,641 million | +19.1% | | Credit Facilitation Service Income | 2,669 million | +24.9% | | Tech-empowerment Service Income | 535 million | +36.5% | | Installment E-commerce Income | 437 million | -17.0% | | Net Income (Attributable) | 227 million | -36.3% | | Adjusted Net Income (Attributable) | 250 million | -39.0% | Detailed Financial Results (Q2 2024) This section details the key drivers of revenue growth, changes in operating costs, and factors impacting the decline in overall profitability Operating Revenue Revenue growth was driven by strong performance in credit facilitation and tech-empowerment services, offsetting declines in financing and e-commerce income - Credit facilitation service income increased by 24.9% YoY, with loan facilitation and servicing fees growing 51.5% due to better control over early repayment behaviors[8] - Tech-empowerment service income rose 36.5% YoY, mainly due to an increase in loan facilitation volume under the profit-sharing model[10] - Financing income decreased by 10.6% YoY, primarily due to a decrease in the origination of on-balance sheet loans[9] Operating Costs and Expenses Operating costs were mixed, with a significant decrease in funding costs being offset by higher servicing expenses and increased provisions for loan losses - Funding costs saw a substantial decrease of 41.8% YoY to RMB 90.5 million, driven by lower funding costs for on-balance sheet loans[10] - Processing and servicing costs increased by 16.3% YoY to RMB 519 million, primarily due to higher expenses for risk management and collection[11] - Provision for contingent guarantee liabilities rose to RMB 935 million from RMB 722 million in Q2 2023, driven by increased outstanding off-balance sheet loans and weaker loan performance[12] Profitability Gross profit grew YoY, but net income fell sharply due to a significant loss from the change in fair value of financial guarantee derivatives - Gross profit increased by 35.4% YoY to RMB 1,348 million[12] - A loss of RMB 368 million was recorded for the 'Change in fair value of financial guarantee derivatives and loans at fair value', a reversal from a RMB 130 million gain in Q2 2023, significantly impacting profitability[13] - Net income decreased by 36.3% YoY to RMB 227 million[13] Recent Developments The company announced the approval and details of its semi-annual cash dividend for the first half of 2024 Semi-Annual Dividend The board approved a semi-annual dividend of US$0.072 per ADS, representing about 20% of H1 2024 net income - A dividend of US$0.036 per ordinary share, or US$0.072 per ADS, has been approved for the six-month period ended June 30, 2024[13] - The dividend payout represents approximately 20% of the total net income for the first half of 2024[1] - The dividend is scheduled to be paid on October 18, 2024, to shareholders of record as of the close of business on September 16, 2024[13] Financial Statements and Supplementary Data This section presents the unaudited condensed financial statements, a reconciliation of GAAP to non-GAAP measures, and supplementary credit performance data Unaudited Condensed Consolidated Financial Statements The statements show total assets of RMB 23.0 billion and total equity of RMB 10.1 billion, with Q2 revenue of RMB 3.64 billion and net income of RMB 227 million | Condensed Balance Sheet | As of June 30, 2024 (RMB thousands) | | :--- | :--- | | Total Assets | 23,019,381 | | Total Liabilities | 12,928,468 | | Total Shareholders' Equity | 10,090,913 | | Condensed Income Statement | For Q2 2024 (RMB thousands) | | :--- | :--- | | Total Operating Revenue | 3,640,688 | | Gross Profit | 1,348,093 | | Net Income | 226,531 | Reconciliation of GAAP and Non-GAAP Measures Adjusted non-GAAP net income was RMB 250 million after excluding items like share-based compensation, resulting in an adjusted diluted EPS of RMB 1.49 per ADS | GAAP to Non-GAAP Reconciliation | Q2 2024 (RMB thousands) | | :--- | :--- | | Net Income (GAAP) | 226,531 | | Add: Share-based compensation | 23,119 | | Add: Interest expense on convertible notes | 373 | | Add: Investment loss | (260) | | Adjusted Net Income (Non-GAAP) | 249,763 | - Adjusted diluted net income per ADS was RMB 1.49 for Q2 2024, compared to RMB 2.19 in Q2 2023[24] Supplementary Credit Performance Data Supplementary data includes vintage charge-off curves and first payment default rates, indicating improved quality for recent loan originations - The Vintage Charge-Off Curve provides a visual representation of the cumulative loss rates for loan originations by quarter[25] - The First Payment Default (30+) rate for new loan originations has trended downwards and remained below 1.0% through the first half of 2024[4][26]