QFIN(QFIN) - 2023 Q4 - Annual Report

Executive Summary & Business Highlights Qifu Technology demonstrated robust business and financial growth in Q3 2023, driven by expanding user base, increased loan facilitation, and strong profitability, despite macroeconomic uncertainties Third Quarter 2023 Business Highlights Qifu Technology achieved robust Q3 2023 business growth, driven by increasing partners and consumers, with significant light-capital model contributions and a 1.82% over-90-day delinquency rate Platform User and Loan Data (As of September 30, 2023): | Metric | Sep 30, 2023 | Sep 30, 2022 | YoY Growth | | :--- | :--- | :--- | :--- | | Cumulative Connected Consumers | 227.9 Million | 203.5 Million | 12.0% | | Cumulative Approved Credit Line Users | 49.2 Million | 43.0 Million | 14.4% | | Cumulative Successful Borrower Withdrawals | 29.4 Million | 26.3 Million | 11.9% | | Loan Facilitation and Origination Volume (Q3 2023) | RMB 123,148 Million | RMB 110,675 Million | 11.3% | | Light-Capital Model Loan Volume (Q3 2023) | RMB 69,579 Million (56.5% of total) | RMB 64,583 Million | 7.7% | | Loan Balance | RMB 189,100 Million | RMB 160,020 Million | 18.2% | | Light-Capital Model Loan Balance | RMB 116,283 Million | RMB 91,196 Million | 27.5% | | Weighted Average Contract Term (Q3 2023) | 11.23 Months | 12.27 Months | - | | Over-90-Day Delinquency Rate (As of Sep 30, 2023) | 1.82% | - | - | | Repeat Borrower Contribution Rate (Q3 2023) | 91.5% | - | - | Third Quarter 2023 Financial Highlights The company achieved significant financial growth in Q3 2023, with total net revenue, operating income, and net income all increasing year-over-year, demonstrating strong profitability and operational efficiency Key Financial Data for Q3 2023: | Metric | Q3 2023 (RMB Million) | Q3 2023 (US$ Million) | Q3 2022 (RMB Million) | | :--- | :--- | :--- | :--- | | Total Net Revenue | 4,281.0 | 586.8 | 4,144.1 | | Operating Income | 1,388.9 | 190.4 | 1,158.3 | | Non-GAAP Operating Income | 1,432.2 | 196.3 | 1,207.8 | | Operating Margin | 32.4% | - | - | | Non-GAAP Operating Margin | 33.5% | - | - | | Net Income | 1,137.7 | 155.9 | 988.4 | | Non-GAAP Net Income | 1,181.0 | 161.9 | 1,037.9 | | Net Income Attributable to the Company | 1,142.0 | 156.5 | 992.8 | | Net Income Margin | 26.6% | - | - | | Non-GAAP Net Income Margin | 27.6% | - | - | Management Commentary Management emphasized strategic adjustments towards refined operations to enhance profitability and high-quality growth amidst a stalled macroeconomic recovery and weak consumer sentiment, while proactively managing asset quality fluctuations - CEO Haisheng Wu stated the company adjusted its strategy to focus on refined operations for better profitability and high-quality growth, with Q3 loan facilitation and origination volume increasing by 11.3% YoY, approximately 56% of which was facilitated through the light-capital model, while also reducing overall funding costs through optimized customer acquisition and new ABS issuance[7] - CFO Guojiang Xu noted robust Q3 financial performance with RMB 4.28 billion in total revenue and RMB 1.18 billion in non-GAAP net income despite macroeconomic uncertainties, supported by continuous operational efficiency improvements and strong cash reserves of approximately RMB 8.2 billion in cash and cash equivalents and RMB 1.2 billion in operating cash flow[8] - CRO Yan Zheng indicated that key risk indicators fluctuated in Q3 due to macroeconomic uncertainties, prompting the company to swiftly tighten credit assessment standards, resulting in a Day-1 delinquency rate of 4.6% and a 30-day collection rate of approximately 87%, with a commitment to prudent risk management[8] Detailed Financial Performance (Q3 2023) The company's Q3 2023 financial performance shows continued revenue growth across credit-driven and platform services, alongside strategic adjustments in operating costs and expenses to maintain profitability Total Net Revenue Total net revenue reached RMB 4.281 billion in Q3 2023, demonstrating sustained revenue growth both year-over-year and quarter-over-quarter Total Net Revenue (RMB Million): | Period | Q3 2023 | Q3 2022 | QoQ (Q2 2023) | | :--- | :--- | :--- | :--- | | Total Net Revenue | 4,281.0 | 4,144.1 | 3,914.3 | | YoY Growth | 3.3% | - | - | | QoQ Growth | 9.4% | - | - | Net Revenue from Credit Driven Services Net revenue from credit-driven services increased both year-over-year and quarter-over-quarter, primarily driven by significant growth in financing income, despite a decrease in loan facilitation and service fees under the heavy-capital model and guarantee liability release income Net Revenue from Credit Driven Services (RMB Million): | Revenue Category | Q3 2023 | Q3 2022 | QoQ (Q2 2023) | | :--- | :--- | :--- | :--- | | Net Revenue from Credit Driven Services | 3,071.0 | 2,941.1 | 2,788.7 | | Loan Facilitation and Service Fees - Heavy Capital | 479.2 | 582.9 | 395.5 | | Financing Income | 1,369.9 | 877.1 | 1,188.7 | | Guarantee Liability Release Income | 1,165.7 | 1,447.6 | 1,158.6 | | Other Service Fees | 56.1 | 33.6 | 45.9 | - Loan facilitation and service fees under the heavy-capital model decreased YoY primarily due to shorter loan terms, while the QoQ increase was mainly due to higher heavy-capital loan volume and extended effective terms[9] - Financing income increased both YoY and QoQ, primarily driven by the growth in the average balance of on-balance sheet loans[10] Net Revenue from Platform Services Net revenue from platform services increased both year-over-year and quarter-over-quarter, primarily due to a significant rise in referral service fees and other service fees, offsetting a decline in loan facilitation and service fees under the light-capital model Net Revenue from Platform Services (RMB Million): | Revenue Category | Q3 2023 | Q3 2022 | QoQ (Q2 2023) | | :--- | :--- | :--- | :--- | | Net Revenue from Platform Services | 1,210.1 | 1,203.0 | 1,125.6 | | Loan Facilitation and Service Fees - Light Capital | 863.9 | 1,040.2 | 887.8 | | Referral Service Fees | 234.2 | 85.4 | 160.9 | | Other Service Fees | 112.0 | 77.4 | 76.9 | - Loan facilitation and service fees under the light-capital model decreased YoY due to lower light-capital loan volume and shorter effective terms, and QoQ due to reduced light-capital loan volume[11] - Referral service fees significantly increased both YoY and QoQ, primarily driven by higher loan volume facilitated through ICE[11] Total Operating Costs and Expenses Total operating costs and expenses decreased year-over-year but increased quarter-over-quarter in Q3 2023, primarily influenced by lower sales and marketing expenses, higher financing costs, and increased provisions for loans and contingent liabilities Total Operating Costs and Expenses (RMB Million): | Expense Category | Q3 2023 | Q3 2022 | QoQ (Q2 2023) | | :--- | :--- | :--- | :--- | | Total Operating Costs and Expenses | 2,892.2 | 2,985.9 | 2,732.8 | | Facilitation, Origination and Servicing Expenses | 639.8 | 617.3 | 648.0 | | Financing Costs | 160.2 | 138.5 | 165.2 | | Sales and Marketing Expenses | 529.6 | 624.1 | 436.5 | | General and Administrative Expenses | 95.4 | 102.7 | 112.8 | | Provision for Loans Receivable | 509.0 | 191.5 | 483.3 | | Provision for Contingent Liabilities | 831.6 | 1,142.8 | 757.6 | - Sales and marketing expenses decreased YoY primarily due to lower unit customer acquisition costs, while the QoQ increase was mainly due to a higher number of new users and a slight increase in unit costs[13] - Provision for loans receivable increased both YoY and QoQ, primarily due to the growth in on-balance sheet loan origination volume[15] - Provision for contingent liabilities decreased YoY but increased QoQ, reflecting the company's consistent approach to assessing provisions and an increase in off-balance sheet loan facilitation volume[16] Income from Operations & Net Income The company achieved significant growth in operating income and net income in Q3 2023, with strong performance across both GAAP and non-GAAP metrics, reflecting successful efforts to enhance profitability in a challenging macroeconomic environment Operating Income and Net Income (RMB Million): | Metric | Q3 2023 | Q3 2022 | QoQ (Q2 2023) | | :--- | :--- | :--- | :--- | | Operating Income | 1,388.9 | 1,158.3 | 1,181.5 | | Non-GAAP Operating Income | 1,432.2 | 1,207.8 | 1,234.7 | | Operating Margin | 32.4% | 27.9% | - | | Non-GAAP Operating Margin | 33.5% | 29.1% | - | | Net Income | 1,137.7 | 988.4 | 1,093.4 | | Non-GAAP Net Income | 1,181.0 | 1,037.9 | 1,146.6 | | Net Income Attributable to the Company | 1,142.0 | 992.8 | 1,097.4 | | Diluted Net Income per ADS | 6.94 | 6.18 | - | | Non-GAAP Diluted Net Income per ADS | 7.20 | 6.48 | - | Operational Metrics & Asset Quality Qifu Technology continued to expand its user base and loan facilitation scale in Q3 2023, with the light-capital model dominating loan volume and outstanding balances, while proactively managing asset quality fluctuations Loan Facilitation & User Growth The company continued to expand its user base and loan facilitation scale in Q3 2023, with the light-capital model dominating loan volume and outstanding balances and achieving strong growth User and Loan Scale Growth (As of September 30, 2023): | Metric | Sep 30, 2023 | Sep 30, 2022 | YoY Growth | | :--- | :--- | :--- | :--- | | Cumulative Connected Financial Institution Partners | 155 | - | - | | Cumulative Connected Consumers | 227.9 Million | 203.5 Million | 12.0% | | Cumulative Approved Credit Line Users | 49.2 Million | 43.0 Million | 14.4% | | Cumulative Successful Borrower Withdrawals | 29.4 Million | 26.3 Million | 11.9% | | Loan Facilitation and Origination Volume (Q3 2023) | RMB 123,148 Million | RMB 110,675 Million | 11.3% | | Light-Capital Model Loan Volume (Q3 2023) | RMB 69,579 Million | RMB 64,583 Million | 7.7% | | Loan Balance (As of Sep 30, 2023) | RMB 189,100 Million | RMB 160,020 Million | 18.2% | | Light-Capital Model Loan Balance (As of Sep 30, 2023) | RMB 116,283 Million | RMB 91,196 Million | 27.5% | Asset Quality & Delinquency Rates Affected by macroeconomic uncertainties, the company's asset quality experienced fluctuations, prompting management to swiftly tighten credit assessment standards, with a 1.82% over-90-day delinquency rate, a 4.6% Day-1 delinquency rate, and an approximately 87% 30-day collection rate in Q3, while repeat borrower contribution remained high at 91.5% Asset Quality Metrics (Q3 2023): | Metric | Value | | :--- | :--- | | Over-90-Day Delinquency Rate (As of Sep 30, 2023) | 1.82% | | Day-1 Delinquency Rate (Q3 2023) | 4.6% | | 30-Day Collection Rate (Q3 2023) | Approx. 87% | | Repeat Borrower Contribution Rate (Q3 2023) | 91.5% | - Management stated that key risk indicators fluctuated in Q3 due to macroeconomic uncertainties impacting consumer sentiment and financial conditions, leading the company to swiftly tighten credit assessment standards[8] - The report includes charts for over-30-day and over-180-day delinquency rates by loan origination year, excluding loans under "ICE" and other technology solutions[19] Corporate Actions & Business Outlook The company is committed to enhancing shareholder value through share repurchases and has adjusted its Q4 and full-year 2023 loan volume outlook, reflecting a cautious approach to business planning and risk management amidst slower-than-expected macroeconomic recovery Update on Share Repurchase The company has executed approximately $80 million of its $150 million share repurchase program initiated in June 2023, demonstrating its commitment to enhancing shareholder value through buybacks - The company announced a 12-month share repurchase program of up to $150 million on June 20, 2023[22] Share Repurchase Status (As of November 16, 2023): | Metric | Value | | :--- | :--- | | Number of ADSs Repurchased | Approx. 4.9 Million | | Total Cost | Approx. $80 Million | | Average Repurchase Price | Approx. $16.2 per ADS | Business Outlook Given the slower-than-expected macroeconomic recovery and ongoing uncertainties, the company has adopted a prudent approach to business planning and risk management, adjusting its total loan volume expectations for Q4 and full-year 2023 - The company expects total loan volume for Q4 2023 to be between RMB 116 billion and RMB 126 billion[23] - The company anticipates total loan volume for the full year 2023 to be between RMB 473 billion and RMB 483 billion, representing a YoY increase of 15%-17%[23] - This outlook reflects the company's current and preliminary views and may be subject to significant changes due to a slower-than-expected macroeconomic recovery and ongoing uncertainties[23] Company Information & Disclosures This section provides essential information about Qifu Technology, its mission, the use of non-GAAP financial measures, and important disclaimers regarding exchange rates and forward-looking statements About Qifu Technology Qifu Technology is a leading credit-tech platform in China, dedicated to providing comprehensive technology services that assist financial institutions, consumers, and small and medium-sized enterprises throughout the loan lifecycle, making credit services more accessible and personalized - Qifu Technology is a leading credit-tech platform in China, offering comprehensive technology services to financial institutions, consumers, and small and medium-sized enterprises[1][25] - Services cover the entire loan lifecycle, including borrower acquisition, initial credit assessment, funding matching, and post-lending services[25] - The company aims to make credit services more accessible and personalized for consumers and SMEs through its credit-tech offerings[25] Use of Non-GAAP Financial Measures Statement The company utilizes non-GAAP financial measures, adjusted for share-based compensation expenses, to supplement US GAAP financial results, aiming to better identify underlying business trends, enhance understanding of past performance and future prospects, and aid management decision-making, while emphasizing that these non-GAAP metrics are not substitutes for or superior to GAAP results and may differ from those of other companies - The company uses non-GAAP financial measures to supplement US GAAP financial results, adjusted by excluding share-based compensation expenses[26][28] - Non-GAAP metrics include operating income, operating margin, net income, net income margin, net income attributable to the company, and diluted net income per ADS[28] - The company believes non-GAAP measures help identify underlying business trends, enhance understanding of operating results, and provide useful information for management decisions, but stresses they should not be considered as substitutes for or superior to GAAP results[28] Exchange Rate Information & Safe Harbor Statement The report specifies the RMB to USD exchange rate and includes a standard safe harbor statement, cautioning that forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from expectations - Unless otherwise stated, all RMB to US$ conversions use the exchange rate of US$1.00 to RMB 7.2960 as published in the H.10 statistical release of the Federal Reserve Board on September 29, 2023[29] - Forward-looking statements in the report are protected by the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995, involving inherent risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements[30] - Factors influencing results include the company's growth strategies, collaboration with 360 Group, changes in laws and regulations, brand recognition, market acceptance, industry trends, government policies, and macroeconomic conditions in China and globally[30] Unaudited Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, cash flows, and comprehensive income, providing a snapshot of the company's financial position and performance Unaudited Condensed Consolidated Balance Sheets As of September 30, 2023, the company's total assets and total liabilities both increased compared to the end of 2022, with a significant rise in net loans receivable and a decrease in cash and cash equivalents Key Balance Sheet Data (RMB Thousand): | Metric | Dec 31, 2022 | Sep 30, 2023 | | :--- | :--- | :--- | | Total Assets | 40,343,170 | 46,039,070 | | Total Liabilities | 21,411,873 | 24,909,430 | | Total Equity Attributable to Qifu Technology | 18,847,156 | 21,053,214 | | Cash and Cash Equivalents | 7,165,584 | 4,938,298 | | Net Loans Receivable | 15,347,662 | 23,469,654 | Unaudited Condensed Consolidated Statements of Operations For Q3 2023 and the first nine months, the company's total net revenue and net income both increased year-over-year, demonstrating sustained profitability, with diluted net income per ADS also showing improvement Key Statements of Operations Data (RMB Thousand): | Metric | Q3 2022 | Q3 2023 | First 9 Months 2022 | First 9 Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Net Revenue | 4,144,129 | 4,281,026 | 12,647,375 | 11,794,524 | | Operating Income | 1,158,250 | 1,388,873 | 3,528,303 | 3,577,403 | | Net Income | 988,354 | 1,137,690 | 3,137,667 | 3,160,889 | | Net Income Attributable to the Company | 992,835 | 1,142,047 | 3,152,172 | 3,173,596 | | Diluted Net Income per ADS | 6.18 | 6.94 | 19.62 | 19.22 | Unaudited Condensed Consolidated Statements of Cash Flows Net cash generated from operating activities decreased year-over-year in Q3 2023 but increased for the first nine months, while net cash used in investing activities significantly increased for the first nine months, and net cash from financing activities decreased Key Cash Flow Statement Data (RMB Thousand): | Metric | Q3 2022 | Q3 2023 | First 9 Months 2022 | First 9 Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | 1,592,127 | 1,243,893 | 4,130,038 | 4,766,559 | | Net Cash from Investing Activities | (2,981,196) | (2,260,922) | (5,675,628) | (9,262,095) | | Net Cash from Financing Activities | 881,092 | 702,952 | 3,010,269 | 1,978,079 | | Net (Decrease) Increase in Cash and Cash Equivalents | (500,896) | (309,143) | 1,469,383 | (2,506,965) | Unaudited Condensed Consolidated Statements of Comprehensive Income Total comprehensive income increased year-over-year in Q3 2023, but slightly decreased for the first nine months, primarily influenced by net income and foreign currency translation adjustments Key Comprehensive Income Statement Data (RMB Thousand): | Metric | Q3 2022 | Q3 2023 | First 9 Months 2022 | First 9 Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Income | 988,354 | 1,137,690 | 3,137,667 | 3,160,889 | | Other Comprehensive Income | 36,950 | 4,051 | 80,270 | 20,724 | | Total Comprehensive Income | 1,025,304 | 1,141,741 | 3,217,937 | 3,181,613 | | Comprehensive Income Attributable to Ordinary Shareholders | 1,029,785 | 1,146,098 | 3,232,442 | 3,194,320 | Unaudited Reconciliations of GAAP and Non-GAAP Results This section provides unaudited reconciliations between GAAP and non-GAAP financial results, highlighting the impact of adjustments, primarily share-based compensation expenses, on key performance indicators Non-GAAP Net Income Reconciliation By excluding share-based compensation expenses, the company's non-GAAP net income and non-GAAP net income attributable to shareholders are higher than their GAAP counterparts, leading to improved non-GAAP net income margins and diluted net income per ADS Non-GAAP Net Income Reconciliation (RMB Thousand): | Metric | Q3 2022 | Q3 2023 | First 9 Months 2022 | First 9 Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Income (GAAP) | 988,354 | 1,137,690 | 3,137,667 | 3,160,889 | | Add: Share-based Compensation Expenses | 49,550 | 43,289 | 148,383 | 143,032 | | Non-GAAP Net Income | 1,037,904 | 1,180,979 | 3,286,050 | 3,303,921 | | GAAP Net Income Margin | 23.8% | 26.6% | 24.8% | 26.8% | | Non-GAAP Net Income Margin | 25.0% | 27.6% | 26.0% | 28.0% | | Net Income Attributable to the Company (GAAP) | 992,835 | 1,142,047 | 3,152,172 | 3,173,596 | | Non-GAAP Net Income Attributable to the Company | 1,042,385 | 1,185,336 | 3,300,555 | 3,316,628 | | Diluted Net Income per ADS (GAAP) | 6.18 | 6.94 | 19.62 | 19.22 | | Diluted Net Income per ADS (Non-GAAP) | 6.48 | 7.20 | 20.55 | 20.08 | Non-GAAP Income from Operations Reconciliation By excluding share-based compensation expenses from GAAP operating income, the company's non-GAAP operating income is higher than its GAAP counterpart, resulting in an improved non-GAAP operating margin Non-GAAP Income from Operations Reconciliation (RMB Thousand): | Metric | Q3 2022 | Q3 2023 | First 9 Months 2022 | First 9 Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Operating Income (GAAP) | 1,158,250 | 1,388,873 | 3,528,303 | 3,577,403 | | Add: Share-based Compensation Expenses | 49,550 | 43,289 | 148,383 | 143,032 | | Non-GAAP Operating Income | 1,207,800 | 1,432,162 | 3,676,686 | 3,720,435 | | GAAP Operating Margin | 27.9% | 32.4% | 27.9% | 30.3% | | Non-GAAP Operating Margin | 29.1% | 33.5% | 29.1% | 31.5% |