LexinFintech Holdings Ltd. (NASDAQ:LX) Q4 2024 Earnings Conference Call March 18, 2025 10:00 PM ET

Company Participants

Will Tan - Investor Relations
Jay Xiao - Chairman and Chief Executive Officer
Arvin Qiao - Chief Risk Officer
James Zheng - Chief Financial Officer

Conference Call Participants

Alex Ye - UBS
Yada Li - CICC

Operator

Good day, and thank you for standing by. Welcome to LexinFintech Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.

After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to your host today, Mr.

. Will Tan. Please go ahead.

Will Tan

Thank you, operator. Hello, everyone. Welcome to our fourth quarter 2024 earnings conference call.

Our results were released earlier today and are currently available on our IR website. Today, you will hear from our Chairman and CEO, Mr. . Jay Wenjie Xiao, who will provide an update on our overall performance and strategies.

Our CRO, Mr. . Arvin Zhanwen Qiao, will then provide more details on our risk management initiatives and updates. Lastly, our CFO, Mr.

. James Zheng, will discuss our financial performance. Before we get started, I'd like to remind you of our safe harbor statement in our earnings press release, which also applies to this call. During the call, we may refer to business outlooks and forward-looking statements, which are based on our current plans, estimates and projections. The actual results may differ materially and we do not assume any obligations to update any forward-looking statements, except as required under applicable laws.

Last, please note that all figures are presented in RMB terms and all comparisons are made on quarter-over-quarter basis, unless otherwise stated. Please kindly note, that Jay and Arvin will give their whole remarks in Chinese first, then the English version will be delivered by Jay's and Arvin's AI-based voices. With that, I'm now pleased to turn over the call to Mr.

. Jay Wenjie Xiao, Chairman and CEO of Lexin. Please.

Jay Xiao

Thanks for joining us today for our fourth quarter 2024 earnings call. In the fourth quarter, we maintained a prudent operating strategy, focusing on expanding high-quality assets and optimizing profitability. Driven by enhanced risk management system and advanced data analytics capabilities, we further reduced overall portfolio risk and delivered consistent profit growth.

As of quarter end, our outstanding loan balance stood at RMB110 billion. During the fourth quarter, our GMV was RMB52 billion. Revenue was RMB3.7% billion, and non-GAAP profit was RMB390 million.

Performance has been improving for multiple consecutive quarters and both revenue and profit have entered a clear growth trajectory. Now, I'd like to share a few key highlights of our fourth quarter performance. First, new loans facilitated have consistently maintained high quality, resulting in a continued decline in overall portfolio risk and sequentially improving profitability.

Compared to the third quarter, leading risk indicators for new loans, first payment default, FPD over seven days improved by 8% and FPD over 30 days decreased by about 9%. On total loan portfolio, day one delinquency ratio decreased by 4%, 90 days delinquency ratio decreased by 3%. The improvement in risk performance is primarily attributed to our long-term and continuous investment in risk identification, capabilities and risk management tools.

In terms of risk identification capabilities, we introduced multi-dimensional third-party data, developed tailored data systems and identification models for segmented customer groups, strengthened real-time user risk identification and leveraged the latest big model technology to improve model stability. As a result, the accuracy of risk identification improved by 15% compared to the previous quarter, while stability improved by 10%. On the risk management tools front, we established a risk control laboratory for intelligent risk testing in the fourth quarter, creating a new paradigm of small-scale experiments.

AB testing, long-term observations and dynamic strategy evolution. This approach ensures that every risk management, decision and strategy iteration is grounded in data-driven insights and robust analytical support. In the fourth quarter, we significantly enhanced our efforts in targeting and managing high-quality customer segments.

We expanded customer acquisition channels and scenarios by developing conciliar-based models and revamping the lifecycle strategy framework, leading to continuous growth in new active users. Meanwhile, we upgraded and optimized the credit line decision-making system based on a rapid testing and validation approach, significantly enhancing the accuracy of risk and credit line matching. Thanks to these initiatives, the competitiveness and profitability of our high-quality customer segments in the fourth quarter. High-quality assets increased substantially and the steady growth of our prime customer base further strengthened the stability and sustainability of our business.

Our CRO, Arvin, will provide further details regarding our risk management initiatives later. The second highlight is the improved efficiency and quality of our refined operations further strengthened our differentiated competitive advantage. During the fourth quarter, business lines in our ecosystem, conciliar finance, e-commerce, inclusive finance, and overseas business made notable progress.

For online consumer finance business, we deepened our exploration of customer acquisition and operations with segmented customer groups and developed tailored outreach strategies. For the e-commerce business, we revamped our risk management system for installment e-commerce platform, leveraging real-time risk control, order level risk management and an upgraded product supply chain to better meet consumers' needs for installment payments and hassle-free shopping. As a result, e-commerce profit entered a fast-growing track in the fourth quarter.

For offline inclusive finance business, we refined our sales management system, focusing on serving small businesses owners in lower tier cities by enhancing one-on-one services for core customer groups, loans originated from fourth and fifth-tier cities and below accounted for over 65% of the total GMV. Our inclusive finance business has now been profitable for three consecutive quarters. For overseas business, we strengthened fundamental capabilities in risk management and mid-to-back office support while commoditizing localized operations and exploring new customer acquisition models.

This led to a significant drop in new customer acquisition costs and improved operating continuity and stability. While overseas business is still in the early phase, we remain committed to driving its steady growth. During the quarter, our Intelligent Credit Platform, ICP, gained further traction with its share of GMV continued to rise.

This model has enabled effective collaboration with financial partners, leveraging complementary strengths to drive sustained growth in both revenue and net profit. Thanks to the consistent improvement in our overall asset quality, our assets have gained greater acceptance among financial institutions. This has diversified and strengthened our funding sources and structure, while [indiscernible] our overall funding cost.

The third highlight is technology. We placed a strong emphasis on research and development and its practical applications. In the fourth quarter, we invested RMB151 million in research and enhanced our industry-leading competitive edge.

A key focus has been on AI big models. We have completed our localized deployment of leading large models such as [DeepSeek] and developed our proprietary large model, Singularity. Now Singularity model is deeply embedded in our daily operations, enhancing efficiency across customer service, telemarketing, collections, coding and data analysis.

In research and development, it's now fully adopted by our development teams assisting and generating code 860,000 times monthly and offering 210,000 quality improvement suggestions in 2024, boosting coding efficiency by approximately 35%. Additionally, leveraging DeepSeek has allowed us to deploy a private large model with lower computational costs, opening new avenues for applications in risk management, operating refinement and workforce efficiency. We believe AI holds immense potential to transform our core capabilities and we will continue to invest in AI to maintain our competitive edge and drive greater value.

In addition to the above-mentioned highlights, Consumer Rights Protection is always a core competitive advantage and key strength. In the fourth quarter, we further enhanced digital and systematic development of consumer protection. Leveraging tools like AI large models, we optimized product server touchpoints, identified service gaps in real-time and refined communication mechanisms to improve the overall consumer experience, earning greater trust from our customers.

In supporting small and micro businesses, we actively uphold the principles of inclusive finance. Through continuous innovation in products and services, we have improved the accessibility and convenience of our financial services helping small businesses address challenges in financing. Throughout the year, we facilitated over RMB30 billion loans for small and micro-business.

Looking ahead to 2025, amid the current macro and industry environment, we will continue to adhere to prudent operating strategy privatizing risk management and driving further derisking and asset structure optimization. We are confident in achieving significant profit growth this year. We will strengthen our differentiated offerings in credit lines and pricings and refine our operating systems to meet the diverse financial needs of our customers at all levels, delivering high-quality services throughout their life cycle.

Additionally, we will proactively broaden our business boundaries to foster consistent growth of our business performance. Starting this year, we will increase our dividend payout ratio to 25% of net profit. As profit continues to grow, we plan to further enhance dividends, consistently boosting shareholder returns.

Now, I'll turn the call over to our CRO, Arvin. Thanks.

Arvin Qiao

Thanks, Jay. Next, I will provide a review of our key initiatives and achievements in risk management for the fourth quarter. In the fourth quarter, we remained committed to our strategy of prioritizing asset quality focusing on scale stability and profitability enhancement through three key initiatives and have achieved solid results.

Compared to the third quarter leading risk indicators for new loans, first payment default, FPD, over seven days declined by about 8% in the fourth quarter. On total loan portfolio, day one delinquency ratio decreased by 4% and 90 days delinquency ratio decreased by 3% quarter-over-quarter. The continued decline in risks was achieved by the following key initiatives we've taken.

First, to enhance the accuracy and stability of risk identification, we have introduced new high-quality data sources while conducting deeper data mining and joint modeling with our existing core data sources to improve model performance. At the same time, we have ramped up the development of dedicated scoring models for different business lines, products and customer segments. Compared to general models, dedicated models use more targeted modeling samples, which significantly improve prediction accuracy.

In terms of model stability, we have addressed uncertainties in model predictions caused by factors such as missing data and noise by employing algorithms to quantify the specific uncertainties, thereby enhancing prediction stability. These optimization measures have led to about a 15% improvement in risk identification accuracy and a 10% increase in model stability. Second, we have upgraded our credit line management capabilities by adopting the test-and-learn approach.

Leveraging our strategy laboratory, we conducted credit line experiments across different customer segments to identify the optimal fit among credit line, borrower risk and user conversion. This approach has enabled us to optimize credit lines for various user groups, improve the accuracy of credit allocation and balanced business growth and risk control, which has ultimately helped drive scale growth driven by a more competitive credit line for high-quality customers and mitigate risks from reducing credit line for high-risk customers. Third, we have optimized and restructured our risk identification and decision-making system for API scenarios. We developed dedicated risk identification models for each core API scenario and enhanced risk screening upfront through joint modeling with API scenarios.

Furthermore, based on the customer characteristics and profiles of different channels, we have implemented a differentiated full suite of strategies covering admission, transactions, credit amount and pricing. This enables us to meet the credit needs of customers from various traffic platforms while effectively keeping risk within our preferred range. Thanks to these upgrades, GMV of our API channels increased by about 23% quarter-over-quarter, while risk of new assets declined by 10% compared to the prior quarter.

Fourth, we implemented differentiated Purdue day reminder strategies tailored to groups with different probabilities of default. Meanwhile, for customers with repeated delinquencies, we launched a dedicated project focusing on optimizing repayment date settings, increasing the binding rate of frequently used bank cards and improving the rate of auto-bid agreements as the share of new assets from Prime Plus customers continue to grow, day one delinquency ratio of the total portfolio has continued to decline consistently. Last but not least, in terms of risk control tool development, we have completed the construction of a risk control laboratory and fully applied it into our operations advancing our risk management approach towards a combination of risk prediction and risk experimentation.

The new risk control laboratory has established an end-to-end process, covering experiment design, credit allocation, dynamic adjustments, result evaluation. With the laboratory, we cannot only directly set experimental variables such as admission rules, tiering of credit line and pricing models, but can also generate different strategies with one click, which significantly reduces deployment time. Also, the risk control laboratory supports intelligent traffic segmentation and dynamic sample isolation, enabling real-time millisecond traffic distribution as well as multilayered experiment isolation at the user device and request levels.

Furthermore, through dynamic bucketing algorithm based on user profiles and risk stratification, the laboratory ensures the independence of samples between experimental and control groups effectively avoiding data contamination. In 2025, we'll continue to improve our risk management capabilities, comprehensively covering risk identification, risk decision-making and risk tool development. This will drive continued decline in risk, improvement in profit and stable growth in scale.

Next, I will hand over to our CFO, James, to provide a review of the Company's financial performance for the fourth quarter.

James Zheng

Thanks, Arvin. I will now provide a detailed overview of our fourth quarter financial results. Please note that all comparisons are made on a quarter-over-quarter basis unless otherwise stated.

In the fourth quarter, we advanced our business transformation efforts maintaining a prudent operating strategy, while strengthening our risk management framework and driving business optimization. We are pleased to report the key performance metrics continued their upward trend from the third quarter aligning with our expectations and delivering steady growth. These results underscore the effectiveness of our strategic directions and highlight the progress we've made in executing our initiatives.

During the quarter, driven by a decline in credit cost, including the provisions and fair-value changes of financial guaranteed derivatives, our net income increased by 17% to RMB363 million, even though the total GMV remained relatively stable. Net income increased by 54% compared to net income adjusted for the investment losses in the same period of last year. The net income take rate calculated as the net income divided by the average loan balance increased from 1.09% in the third quarter to 1.31% in the fourth quarter advancing by 22 basis points, well on track of our profit margin expansion roadmap.

Before delving into the financial line items, I would like to share some highlights that contributed to this sustainable and in-line growth result. First, there is an increased overall take rate due to the continued asset quality improvement. In the fourth quarter, we achieved revenue take rate of 6.22%, a 36 basis improvement from 5.86% in third quarter.

Even though the overall APR charged to users actually decreased by more than 100 basis point, as we focused more on high-quality customers. The weighted average APR for loans now stands at 23.88%. This take rate was calculated as the sum of revenue from credit facilitation and tech empowerment services and net of funding and credit cost divided by the average loan balance.

The primary driver of this increase in take rate was continued improvement in asset quality. Our credit costs, which include all provisions and the changes in fair value of financial guaranteed derivatives and loans at a fair value decreased by 5% or RMB73 million to RMB1.5% billion in the fourth quarter, reflecting enhanced risk performance. This improvement stems from our risk management initiatives previously highlighted by Jay and Arvin.

All our key risk indicators showed continued improvement in the fourth quarter. Specifically, on the loan balance side, day one delinquency rate declined by 4% and the 90 day delinquency ratio declined by 3%. The risk performance of new loans aligned with our expectations with the first payment default rate over seven days decreasing by about 8% and FPD over 30 days decreasing by almost 9%.

Additionally, we shortened the loan duration from 13.24% months to 13.13% months. Second, further decrease in funding costs. As another driver of our take rate improvement, our funding cost for new loans facilitated decreased by 26 basis points.

Encouraged by our improved risk performance, our funding partners have been highly supportive offering favorable terms in both funding cost and supply. We also expanded and diversified our funding sources with the number of financial partners growing to 63 in the fourth quarter. Looking ahead, we expect that the continued improvements in asset quality, deeper collaborations of our funding partners and more diversified funding mix will lead to further optimization in funding costs, although it may not be as significant as before.

Third, more balanced and healthy revenue mix. Our revenue structure was optimized through several initiatives, including lower APR, increased capital-light loan volume and the diversification of business lines. In the fourth quarter, as we continue to execute our strategy to optimize risk exposure, we focus on acquiring high-quality customers, which led to a decrease in APR for the newly originated loans and a corresponding decline in the credit facilitation service income.

However, this decline was offset by a 57% increase in tech empowerment service income, which represents income from our capital-light model and other services. The tech empowerment income accounted for 16% of our total income up from 11% in the previous quarter. The growth in tech empowerment income was primarily driven by increased volume from our Intelligent Credit Platform, ICP platform.

As an important component of our capital-light model, ICP was designed to match borrowers with a risk rating beyond our preferred range with financial institutions and other platforms through a trust traffic redistribution platform. In the fourth quarter, the loan originations under the ICP model increased to 14% of total new loan volume. Furthermore, to enhance customer experience and provide more comprehensive services, we facilitated insurance products as well as certain royalty programs as a retention effort.

Revenue from these initiatives also contributed to the growth in the tech empowerment service income. Last but not least, our installment e-commerce platform income, a complementary component of our core credit facilitation service, grew by 12% quarter-over-quarter and account for 9% of total income. Fourth, improvement in customer acquisition efficiency.

In addition to aforementioned take rate increase, funding costs decrease and the revenue mix enhancement, we are committed to optimizing our sales and marketing expenses by improving customer acquisition efficiency. By leveraging advanced risk identification and management systems combined with our deep expertise in traffic distribution, we have strengthened our ability to target users more accurately, identify potential customers and deliver better user acquisitions with higher approval rates. As a result, new active users, excluding the ICP business, grew by 23% quarter-over-quarter, while the cost per active user decreased by 21%.

We will continue to invest capital to acquire more users for the long-term sustainable growth. Now, I will go through our key financial line items. On the revenue side, credit facilitation service income decreased by 9% quarter-over-quarter, mainly driven by the decrease in new loan pricing.

The APRs for the new loans originated in Q4 decreased by more than 100 basis points. The tech empowerment service income increased by 57% driven by increased volume from our capital-light ICP and income generated from value-added services like insurance products and user royalty programs. E-commerce business revenue increased by 12% due to the increase in the GMV momentum.

On the cost and expenses side, credit costs, including the provisions and fair-value changes of financial guaranteed derivatives and loans at fair value decreased by 5% quarter-over-quarter due to a consistent improvement in our asset quality. Total operating expenses, which include processing and servicing costs, sales and marketing, R&D and G&A expenses, remained relatively stable at RMB1.3% billion. Driven by the aforementioned factors, our net profit in the fourth quarter increased by 17% to RMB363 million.

Our net profit margin as a percentage of total revenue increased from 8.5% to 9.9%. For balance sheet items, as of year-end 2024, our cash position, which includes cash, cash equivalents and restricted cash was approximately RMB4.1% billion. Shareholders' equity remained solid at about RMB10.7% billion.

Our provision coverage ratio remained sufficient at approximately 255% at the end of fourth quarter. As Jay mentioned, we are committed to providing sustainable values to our shareholders. We are pleased to announce the Board of Directors has approved a cash dividend of $0.11% per ADS for the second half of 2024. Equivalent to approximately 20% of total net profit for the second half of 2024.

As a reminder, as we announced last quarter, effective from January 1st this year, our cash dividend payout will be raised to 25% of net income. The payout will be announced in August when we announce Q2 results. In the future, we are open to increase the cash payout ratio as appropriate to align with the growth of profitability.

Looking ahead, while our performance continues to show positive momentum, we remain prudent in light of ongoing macroeconomic uncertainties. Therefore, we expect Q1 GMV to be flat with Q4, also due to the Chinese New Year seasonality. For 2025 all year, we expect flat to single-digit year-on-year GMV growth depending on the macro, alongside a significant rise in net profit, driven by profit margin expansion underpinned primarily by continuous asset quality improvement and our overall business transformation.

This concludes our prepared remarks for today. Operator, we are now open to take questions.

Operator

[Operator Instructions] Our first question comes from the line of [Yuheng Wang] from Goldman Sachs. Please go ahead.

Unidentified Analyst

I will translate my question. The first question is, what's our business plans for 2025. And the second is what is our AI-related business layout and the specific applications of AI technologies such as DeepSeek and what are our future plans about AI.

Thank you.

Jay Xiao

Let me translate for Jay. Thank you, Yuheng. In 2025, our strategy remains prioritizing asset quality, focusing on profitability enhancement. With our priority on asset quality, we aim to profitability enhancement and scale stability.

In terms of risk, we will continue to upgrade our risk management system. The new loans we facilitated this quarter, credit performance is in line with our expectation and we will drive the continuous decline of key risk indicators in the future. In terms of profitability, we are committed to driving significant growth in net income by leveraging continuous enhancement in risk performance, optimized funding structures and costs and improved operational efficiency.

In terms of scale, our goal is to achieve stable growth by improve efficiency of customer acquisition through our high-quality client engagement and enhanced synergies with our partners and platforms, offline inclusive finance and e-commerce business. We also will increase our investment in customer acquisition this year to further enhance the -- improve the efficiency of customer acquisition. Despite the overall positive momentum, our performance may experience volatilities due to macroeconomic headwinds and seasonality fluctuations.

We will adjust our growth strategies in real-time based on the evolving environment.

Jay Xiao

Let me translate. As reported, Lexin is one of the first financial platforms in China to implement a DeepSeek model. Following the deployment of DeepSeek V2 in May 2023, Lexin have recently upgraded to DeepSeek R1.

By leveraging over a decade of industry expertise and data accumulation, we have conducted the pretraining and localized deployment on DeepSeek and developed Singularity AI, our own financial large model. We have deeply applied AI technology to improve research and development efficiency and boost tour innovation and business enablement. Our large model has been fully deployed in core operation workflows, including telemarketing, customer service and collections.

Through continuous optimization of dialogue flow trades and user conversion, we have demonstrated substantial improvement in both operation efficiency and customer experience. Also, we applied this advanced technology into our collection process. As Arvin just mentioned, we use this to improve the collection efficiency for delinquency customers.

In the future, we will strategically intensify technology investment with a primary focus on advancing deployment of DeepSeek R1. We will implement comprehensive process optimization across all business segments, explore its application in key areas of risk management and leverage technology to further enhance our risk management capabilities. Thanks, Yuheng.

Operator.

Operator

Thank you for the questions. One moment for the next question. Our next question comes from Alex Ye from UBS.

Please go ahead.

Alex Ye

I will translate for my question. So first question is about the Company's ongoing investment in your risk management capabilities. Can you share with us some more color in terms of the latest progress on the achievement you have made and especially what's the current gap or differences versus your peers.

Second question, it's about the outlook for your risk management metrics. So what are the main targets that you aim to achieve in this year and which are some of the most important indicators that you would suggest investors to track. Thank you.

Jay Xiao

Let me translate. Overall, we achieved significant improvement of risk management capability for this quarter. Overall, our risk management capability has reached industry level and in specific technology -- technical aspects, we are already at the industry-leading position.

We have comprehensively restructured and upgraded key risk management process, including risk identification, decision-making, risk pricing and post-loan management. These enhancements have significantly improved the accuracy and stability of our risk management system. Meanwhile, we have upgraded our decision-making methodologies such as test-and-learn and low-end growth frameworks for credit line and pricing decisions.

And we also improved our risk tools such as dedicated risk control laboratories and risk robots to validate and support our key risk decisions. As a result, our key risk indicators, including 90 days delinquency ratio and FPD 30 days ratio have improved for two consecutive quarters, which underscore the tangible benefits yielded by our risk management transformation efforts. Despite these achievements, our overall performance still has some gaps compared to our peers, mainly dragged by legacy loans.

However, as the proportion of high-quality new loan increases and the decrease of legacy loan, we expect the overall portfolio quality to further improve. Our goal is still to prioritizing asset quality, focusing on scale stability and profit enhancement. Building upon the established risk framework, we will further optimize it as follows. In terms of risk detection, we will optimize asset structure by increasing the inflow of high-quality customers.

Also, we will refine our collection strategy through differentiation and intelligent collection tools, ensure a continuous decline in risks for both new loan and loan balance. In terms of scale, by enhancing specialized customer acquisition capabilities across all channels and improving offer competitiveness, we will drive the inflow of high-quality new customers, activate potential customers and expand credit admission through our e-commerce platform, thereby promoting high-quality asset growth and strengthening the Company's ability to navigate credit cycle. In terms of profitability enhancement, we will upgrade the pricing strategies for customer segments with different risks.

And we will further improve third-party data to further enhance our accuracy. We will improve the ROI of data costs and by utilize collection tools such as intelligent case allocation and collection assistant to improve our collection costs. Meanwhile, we will leverage AI and large models to further enhance our efficiency and accuracy.

On AI model level, we will strengthen our risk identification capabilities for different customer segments and scenarios. For example, by using customer retention model to predict customer less, we can implement targeted retention strategies. By using competitiveness model to identify users' key demand, we can improve offer competitiveness and effectively enhance high-quality customer acquisition and potential customer activation.

At the AI tool level, we will continue to develop our intelligent risk management capacity -- capabilities. For example, we will continue to leverage tools such as strategic robots and decision-making laboratory to enhance the accuracy and efficiency of strategic decision-making. Regarding performance tracking, in addition to 90 days delinquency ratio and FPD over 30 days ratio, which we regularly disclose, we will also communicate the quarterly trends of FPD seven days of new assets and the day one delinquency ratio of total portfolio, which could facilitate a more comprehensive understanding of our asset quality.

Thank you. Operator, we are ready for next question.

Operator

Thank you for the questions. The final question comes from the line of Yada Li from CICC. Please go ahead.

Yada Li

Then I'll do the translation.

James Zheng

Okay. I will. Go ahead. Yada, go ahead.

Yada Li

Okay. Then I'll do the translation. So first of all, could you elaborate more about the trend of unit economics and the main drivers.

Second, I was wondering how to view the OpEx in 2025, especially in sales and marketing expenses, will the Company become more active in customer acquisition in the following quarters. And the last, do you expect to deliver more value to the shareholders, and any further plans. That's all.

Thank you.

James Zheng

Okay. I will take the first two questions and then ask Jay to answer the third question. First, in terms of the user economics, as we have been communicating with the market, if you look at the net profit margin of the Company, it is calculated as the net income divided by the average loan balance.

It will increase significantly to reach the industry average level in the next two years. Obviously, the primary driver for the asset -- is the asset quality improvement, particularly for the new loans issued since the second half of last year. As an example, in Q4, if you look at the provisions, it was reduced about by 5% compared to the previous quarter.

So, as you know, the total loan portfolio is a mix of the old legacy loans and better quality new loans. As we have more better quality new loans, and the old loans will mature and lapse, therefore, the overall asset quality will continue to improve, which will lead to sustained profitability improvement or net profit margin expansion. Other factor obviously contributing to the improved profitability is the reduction in the funding cost.

As our asset quality continues to improve, our assets receives more acceptance from the financial institution partners and the funding costs were declined accordingly. So as a demonstration of the -- our profitability improvement, we can take a look in the net profit margin in the last four quarters in 2024. It started from 0.66% in Q1, 0.77% in Q2, 1.09% in Q3, and 1.31% in Q4.

So we expect the net profit margin to continue to sequentially improve in the next two years to eventually reach the industry average level. One reminder, of course, is that we may experience certain fluctuations in the degree of the profit margin improvement from quarter to quarter, due to the impacts of seasonality, accounting rules or any other timing factors. But we are very confident the overall net margin expansion trajectory will not change.

As for the second part of the question, the OpEx, basically to continue to support the user acquisition and the business growth, i.e., the expanding new marketing channels, upgrading risk control systems, hiring top talents and increasing AI technology investment, we do expect the absolute amount of the Company's operating expenses to increase in 2025, although it will be at a slower pace than the overall company profitability improvement. The operational efficiency improvement is another factor that contributes to the margin expansion. So we will continue to work hard to balance the need of investing for the future and also the need to sustain the sequential profitability improvement.

So that's the answer, if you will, for the first two questions, and the last one is for Jay.

Jay Xiao

Let me translate. As we announced previously, our cash dividend payout will be raised to 25% of net income effective from January 1st this year. The dividend will be announced in August when we disclose our second quarter results.

We are committed to returning values to our shareholders. This year is our business and financial result turnover year. We expect our net income will increase significantly in 2025.

And we are open to increase the cash dividend payout ratio as appropriate to align with shareholders' expectations. Thanks. Operator.

Operator

Thank you for the questions. We have no more questions from the line. I would like to hand the call back to management for closing.

Will Tan

Thank you. This conference is now concluded. Thank you for joining today's call.

If you have any more questions, please do not hesitate to contact us. Thanks again.

Operator

That does conclude today's conference call. You may now disconnect.