Yiren Digital Ltd. 2026 Q2 Earnings Call

Good morning and good evening, everyone. Today's call features presentations by our founder, Chairman, and CEO, Mr. Ning Tang, and our CFO, Mr. William Hui. Before we begin, we'd like to remind you that discussions during this call contain forward-looking statements made under the Safe Harbor provision of U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties, and factors that can cause actual results to differ materially from those contained in any such statement. For the information regarding such risks, uncertainties, or factors is included in the company's filings with the U.S. Securities and Exchange Commission. We do not undertake any obligation to update any forward-looking statement, except as required under applicable law. During the call, we will be referring to certain non-GAAP financial measures and supplemental measures to review and assess the company's operating performance.

These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP financial measures and the reconciliation of GAAP measures, please refer to our earnings press release. As a reminder, this conference is being recorded, and investor presentation and the webcast replay of this conference call will be available on Yiren Digital's IR website. I will now turn the call over to the company CEO, Mr. Tang, for opening remarks.

Thank you, Stephanie. Hi, everyone. Thank you all for joining us. The second quarter was a demanding period for Yiren Digital, but it also marked the meaningful progress in our transformation. We are encouraged to see broad improvement in the credit environment, with credit conditions recovering more quickly than we had anticipated. At the same time, we are using this period of recovery to accelerate an important transition in our business model. Across our lending and insurance businesses, we are moving towards a more technology-driven asset-light revenue model that relies increasingly on AI, digital distribution, and our ability to deliver higher value services to customers and partners. This transformation is about more than improving our existing business. We are building the foundation for broader technology and AI ecosystem that can apply our AI capabilities across new industries and diversify our sources of revenue over time.

During this quarter, we made progress in three areas that are particularly important to this strategy. First, we continue to improve credit quality. Second, we further invested in technology and talent across our insurance platform to support long-term growth. Third, we increased the application of AI across our operations. These developments and our ongoing initiatives are helping us build a more resilient, technology-driven, and diversified business. Looking at each of our businesses in more detail. In the credit solution business, we facilitated RMB 6.3 billion in loans in the second quarter. While this was down 29% quarter-over-quarter, the outstanding balance of performing loans declined 30% to RMB 15.1 billion. As I mentioned, the credit environment has improved substantially. We are taking this opportunity to further evolve our lending model.

Rather than returning to the previous scale of our risk-taking business, we are increasingly focused on an asset-light and a referral model. Our AI capabilities are an important enabler of this transition. Our customer acquisition and precision marketing platform allow us to identify and match customer demand more efficiently and direct the qualified traffic to our lending partners. More importantly, the same customer acquisition capabilities can also support other financial services, creating opportunities to increase the value of our customer relationships beyond lending. This shift allows us to focus more on our technology and customer acquisition capabilities while reducing our reliance on capital and the credit cycle. Turning to the operating results. Repeat borrowers accounted for a record of 82% of total loans facilitation volume. Compared with 78% in the first quarter and 77% in the same period last year.

The 31 to 60 day delinquency rate declined to 2.0% from 2.7%. The 61 to 90 day rate declined to 2.4% from 3.2%, while the one to 30 day rate remained stable at 2.5%. These trends reflect the broader recovery in credit conditions together with our combined focus on acquiring and serving higher quality borrowers in a more efficient manner. Turning to our insurance brokerage business. We continue to expand both the scale and the reach of the platform. The number of insurance clients increased 14% from the fourth quarter and 281% year-over-year to approximately 453,000. We issued more than 918,000 new policies, up 177% year-over-year, while gross written premiums increased 2% sequentially to approximately RMB 839 million.

The insurance brokerage revenue increased 16% year-over-year, supported by the continued expansion of Internet insurance distribution and the steady growth in traditional insurance operations, particularly in new business. On a sequential quarter basis, revenue was affected by lower than estimated renewal rates. However, this was offset by stronger new policy production across both traditional and digital channels, demonstrating the value of our omni-channel strategy. The rapid expansion of our client base and policy issuance also gives us a larger customer base from which to build recurring engagement. The next phase of our strategy is to translate this customer reach into stronger retention, renewal, and revenue quality. In the second half of this year, we will continue to improve product matching, digital customer acquisition, ongoing engagement, and service efficiency across the insurance platform. We are also encouraged by the diversification of revenue streams within our insurance segment.

Besides the traditional commission-based revenue, we are beginning to generate revenue from our technology and consulting services provided to our insurance partners. Now, let me turn to AI, which is increasingly becoming an integral part of how Yiren Digital operates. Over the past several years, we have built proprietary AI models, our Magic Cube multi-agent platform, and specialized capabilities across customer acquisition, customer service, risk management, asset recovery, and internal operations. At this stage of our AI transformation, the most important measure is not the number of tools we have launched. It's whether these technologies are producing measurable improvements in real business processes. We are seeing that impact across multiple areas. We have also started generating external commercial traction, including initial sales of our customer acquisition and the precision marketing technology and consulting services to insurance partners.

For asset recovery, the level of automation reached a record high with the human handling rate declining from 45.0% to 24.9%. In customer operations, the autonomous resolution rate of text-based agents increased from approximately 60% to nearly 80%. Automated quality inspection now covers more than 2 million service records each day. These applications reduce repetitive work, improve consistency, and allow our employees to focus their time and expertise on situations that require human judgment. AI is also strengthening risk diversification and control. As disclosed in our 2025 ESG report, which was published in July 2026, our HawkEye fraud detection system and the Beijing multi-model verification engine helped the company avoid approximately RMB 165 million in potential losses associated with borrower fraud during 2025.

While this is an operation risk indicator rather than a financial metric, it demonstrates the practical value of our AI capabilities in strengthening risk identification and operational control. During the second half, we will continue to expand AI deployment across customer acquisition, service, risk management, asset recovery, compliance, and internal decision-making. Our approach remains focused on practical applications with clear objectives, measurable performance indicators, appropriate accountability, and human oversight. As these systems become more capable, we will also continue strengthening data governance, model monitoring, and security controls. The next stage of our strategy is to expand the capabilities and experience we have developed internally into AI-native opportunities beyond the financial services. We believe our established businesses give us real operating scenarios, engineering capabilities, data, proprietary know-how, and risk management experience. We can then combine these capabilities with external innovation through select partnerships, investments, and where appropriate, potential acquisitions.

Over the past several quarters, we have used this approach to identify and support a number of AI-native companies across different application areas, including education, entertainment, and other emerging sectors. Through our technology capabilities, AI expertise, and value-added support, which includes AI infrastructure, engineering resources, business development, and corporate governance, we seek to provide these companies with more than capital. Our goal is to help promising AI businesses accelerate product development, commercialization, and market expansion while creating strategic connectivity with our broader platform. During the period between May and July, we identified four high-potential AI-native companies that we believe have differentiated product and attractive application potential. We have entered into warrant agreements with the founders of these companies that provide us with the option, subject to specified terms and milestones, to acquire a controlling stake at pre-agreed exercise prices.

The AI application companies with which we have entered into warrant agreements are primarily focused on education and entertainment use cases. We believe that as the AI industry continues to evolve beyond the current focus on infrastructure and computing investment, AI applications will become an increasingly important area of value creation. Education and entertainment are among the areas where we see particularly strong potential for AI to deliver more personalized, engaging, and differentiated experiences to users. By combining AI with proprietary content, user data, and domain-specific applications, these companies have the potential to develop new ways of delivering value to consumers and create scalable AI-native businesses. This is consistent with our broader strategy of building an AI ecosystem that extends beyond infrastructure into applications with direct user engagement and commercial potential. These relationships did not begin with the warrant agreements.

We began working with these 4 companies in 2024 when they were still at an early stage of development and had limited or virtually no revenue. Since then, we have provided early-stage support beyond capital, including assistance with strategy, team development, technology, product definition, distribution, and risk management. Through years of closely working together, we have established a deep trust with these entrepreneurial partners who have chosen to explore a deeper, more strategic relationship with us. We believe this approach can create a pipeline of long-term strategic partnerships and, where appropriate, deeper ownership relationships that have the potential to broaden Yiren Digital's capabilities and its revenue mix over time. These are not isolated minority investments. They form part of a consistent strategy that we are executing with discipline. We believe the warrant and acquisition strategy provides a disciplined and capital-efficient way to build our AI application portfolio.