2023-05-18 16:00Q1 2023 Financial and Operational Overview Qifu Technology showed operational growth and strategic shift towards capital-light model, despite a decline in financial performance Business Highlights Qifu Technology demonstrated solid operational growth in Q1 2023, expanding user base and loan volumes, with the capital-light model dominating Key Operational Metrics (as of March 31, 2023) | Metric | Q1 2023 | YoY Growth | | :--- | :--- | :--- | | Cumulative Consumers with Potential Credit Needs | 214.5 million | 11.2% | | Cumulative Users with Approved Credit Lines | 46.0 million | 15.6% | | Cumulative Borrowers with Successful Drawdown | 27.7 million | 10.8% | | Total Facilitation and Origination Loan Volume | RMB 109.5 billion | 10.7% | | Capital-Light Model Loan Volume | RMB 61.3 billion | 15.0% | | Total Outstanding Loan Balance | RMB 171.3 billion | 16.8% | | Capital-Light Model Outstanding Loan Balance | RMB 104.5 billion | 32.6% | | 90 day+ Delinquency Rate | 2.18% | N/A | - The capital-light model, including ICE and other technology solutions, accounted for 56.0% of the total loan volume in Q1 20232 Financial Highlights Q1 2023 saw a year-over-year decline in total net revenue and net income, yet healthy operating margins were maintained Q1 2023 Key Financial Metrics | Metric | Q1 2023 (RMB million) | Q1 2022 (RMB million) | YoY Change | | :--- | :--- | :--- | :--- | | Total Net Revenue | 3,599.2 | 4,320.0 | -16.7% | | Income from Operations | 1,007.0 | 1,359.3 | -25.9% | | Non-GAAP Income from Operations | 1,053.5 | 1,411.3 | -25.3% | | Net Income | 929.8 | 1,174.4 | -20.8% | | Non-GAAP Net Income | 976.3 | 1,226.4 | -20.4% | - The company reported an operating margin of 28.0% and a non-GAAP operating margin of 29.3% for the first quarter8 Management Commentary Management expressed confidence in business growth, highlighted improving risk metrics, and a strong cash position - CEO Haisheng Wu noted that total loan facilitation and origination volume reached RMB 109.5 billion, up 10.7% YoY, with the capital-light model contributing 56% of the volume10 - CFO Alex Xu highlighted a strong financial position with approximately RMB 9.0 billion in cash and cash equivalents and RMB 1.8 billion in cash from operations, enabling growth and increased dividend payouts12 - CRO Yan Zheng reported continued improvement in overall risk metrics, with the Day-1 delinquency rate improving to 4.1% and 30-day collection rates recovering noticeably12 Detailed Financial Results This section details Q1 2023 financial performance, including revenue, costs, profitability, and asset quality trends Revenue Analysis Q1 2023 total net revenue decreased to RMB 3,599.2 million, driven by declines in Credit Driven and Platform Services Revenue Breakdown (RMB million) | Revenue Category | Q1 2023 | Q1 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Total Net Revenue | 3,599.2 | 4,320.0 | -16.7% | | Credit Driven Services | 2,630.6 | 2,920.6 | -9.9% | | Platform Services | 968.6 | 1,399.4 | -30.8% | - The year-over-year decrease in Loan facilitation and servicing fees-capital light was mainly due to a decline in average IRR and an adjustment related to early repayment17 - Financing income increased to RMB 1,065.9 million from RMB 789.2 million YoY, primarily due to growth in the average outstanding balance of on-balance-sheet loans16 Operating Costs and Expenses Total operating costs decreased to RMB 2,592.1 million, mainly due to lower provisions and reduced sales and marketing expenses Operating Costs Breakdown (RMB million) | Expense Category | Q1 2023 | Q1 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Total Operating Costs & Expenses | 2,592.1 | 2,960.8 | -12.5% | | Facilitation, origination and servicing | 640.3 | 614.9 | +4.1% | | Funding costs | 159.0 | 103.8 | +53.2% | | Sales and marketing | 422.2 | 552.6 | -23.6% | | Provision for contingent liability | 680.3 | 961.9 | -29.3% | - A reversal of prior quarters' provisions was noted for accounts receivable, contract assets, and contingent liabilities, as loans facilitated in previous quarters performed better than expected23 Profitability Analysis Profitability declined year-over-year, with income from operations at RMB 1,007.0 million and net income at RMB 929.8 million Profitability Metrics (RMB million) | Metric | Q1 2023 | Q1 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Income from Operations | 1,007.0 | 1,359.3 | -25.9% | | Net Income | 929.8 | 1,174.4 | -20.8% | | Net Income Attributed to the Company | 934.1 | 1,179.5 | -20.8% | | Non-GAAP Net Income | 976.3 | 1,226.4 | -20.4% | - Net income per fully diluted ADS was RMB 5.64 (US$0.82), while Non-GAAP net income per fully diluted ADS was RMB 5.92 (US$0.86)2527 Delinquency Rate by Vintage Historical cumulative 30-day+ and 180-day+ delinquency rates by loan vintage are provided to assess asset quality trends - The report includes charts and tables displaying historical cumulative 30 day+ and 180 day+ delinquency rates by loan origination vintage to track asset quality27 Corporate Actions and Outlook This section outlines changes in dividend policy and reiterates the company's business outlook for the full year 2023 Changes in Dividend Policy The Board approved a new semi-annual dividend policy, increasing the payout ratio to 20%-30% of net income, effective H1 2023 - The dividend policy was changed from a quarterly payout of 15%-20% of net income to a semi-annual payout of 20%-30% of net income for the previous six-month period3132 - The new dividend policy is effective immediately as of May 18, 2023, and no quarterly dividend was declared for Q1 2023 in light of this change32 Business Outlook Qifu Technology reiterates its full-year 2023 guidance for loan facilitation and origination volume, maintaining a prudent approach - The company maintains its 2023 outlook for loan facilitation and origination volume to be between RMB 455.0 billion and RMB 495.0 billion33 - This guidance represents a projected year-on-year growth of 10% to 20%33 Unaudited Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, operations, cash flows, and GAAP reconciliation Balance Sheet As of March 31, 2023, total assets were RMB 40.9 billion, liabilities decreased, and total equity increased to RMB 19.7 billion Key Balance Sheet Items (RMB thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | 5,128,335 | 7,165,584 | | Loans receivable, net (Total) | 21,376,379 | 18,484,656 | | Total Assets | 40,879,366 | 40,343,170 | | Total Liabilities | 21,152,035 | 21,411,873 | | Total Equity | 19,727,331 | 18,931,297 | Statement of Operations Q1 2023 statement of operations shows net income of RMB 929.8 million, a decrease from RMB 1,174.4 million YoY Q1 2023 Income Statement Summary (RMB thousands) | Line Item | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total net revenue | 3,599,174 | 4,320,047 | | Total operating costs and expenses | (2,592,144) | (2,960,778) | | Income from operations | 1,007,030 | 1,359,269 | | Income before income tax expense | 1,102,113 | 1,390,786 | | Net income | 929,822 | 1,174,357 | | Net income attributable to the Company | 934,109 | 1,179,498 | Statement of Cash Flows Q1 2023 operating activities generated RMB 1.76 billion cash, while investing activities used RMB 3.56 billion, resulting in a net cash decrease Q1 2023 Cash Flow Summary (RMB thousands) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | 1,761,091 | 1,419,597 | | Net cash used in investing activities | (3,564,207) | (2,441,645) | | Net cash provided by financing activities | 38,940 | 1,077,034 | | Net (decrease) in cash and cash equivalents | (1,767,019) | 51,166 | | Cash, cash equivalents, and restricted cash, end of period | 8,745,344 | 8,811,113 | GAAP to Non-GAAP Reconciliation This section reconciles GAAP to non-GAAP measures, excluding share-based compensation of RMB 46.5 million for Q1 2023 Q1 2023 GAAP to Non-GAAP Reconciliation (RMB thousands) | Metric | GAAP | Share-based Compensation | Non-GAAP | | :--- | :--- | :--- | :--- | | Income from operations | 1,007,030 | 46,496 | 1,053,526 | | Net income | 929,822 | 46,496 | 976,318 |