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Qudian Inc. (NYSE:QD)
Q2 2018 Earnings Conference Call
August 24, 2018, 7:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, ladies and gentlemen. Thank you for standing by for Qudian Corporation's second quarter 2018 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded.

I will now turn the call over to your host, Miss Annie Huang, Director of Capital Markets for the company. Annie, please go ahead.

Annie Huang -- Director of Capital Markets

Hello, everyone. Welcome to Quadian's second quarter 2018 earnings conference call. The company's results were issued via newswire services early today and were posted online. You can download the earnings press release and sign up for the company's distribution list by visiting our website at ir.qudian.com. Mr. Min Luo, our Founder, Chairman, and Chief Executive Officer and Mr. Carl Yeung, our Chief Financial Officer, will start the call with their prepared remarks.

Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today.

Further information regarding these and other risks and uncertainties is included in the company's prospectus as filed with the US Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable law.

Please also note that Qudian's earnings press release and this conference call includes discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Qudian's press release contains a risk calculation of the unaudited non-GAAP measures to the un-audited and most directly comparable GAAP measures.

We also posted a slide presentation on our IR website providing details on our results in the quarter. We will reference those results in our prepared remarks but will not refer to specific slides during our conversation.

I will now turn the call over to our CEO, Min Luo. Please go ahead.

Min Luo -- Founder, Chairman, and Chief Executive Officer

Thank you, Annie. In the second quarter, we achieved a [inaudible] net income and delivered a quarter of strong data. During the quarter, we continue to grow our core online consumer finance business, while the new Dabai Auto business maintained conservative growth, with a focus on profitability.

Last quarter's proactive de-risking to tighten credit policies and adjust the product strategy worked well into the second quarter. As a result, we achieved a robust year on year growth of 42.3% in loan balance, while seeing market improvement in risk metrics and asset policy.

The M1+ delinquency rate by vintage declined to less than 1% for new loans generated this year. The total delinquency rate increased slightly due to legacy of loans generated last year, but also shows tapering of trends. In addition, as our registered users grows and reached 67.9 million, we can focus on our growth on activating and monetizing our large existing user base instead of over-reliance on expensive marketing.

Our strong data analytics capability in assessing customer credit further differentiated us and allowed to successfully dynamically adjust profitability. During the second quarter, we were able to increase the average loan time and [inaudible] among our highest quality users in line with their income to meet their increasing consumption spending demand without raising the burden of monthly repayment, while at the same time maintaining high credit quality.

In addition, we continued to diversify our funding sources through partnerships and remain committed to strict compliance with both existing and new laws and regulations. Our core business is on solid footing.

I would also like to share an update on Dabai Auto. During the second quarter, the Dabai Auto business generated conservative healthy growth as we continued to operational and supply chain efficiency. During the second quarter, we sold 8,474 cars and decreased our delivery times to 13 weeks. At the same time, our credit performance was in line with expectations and delinquency caps at the low level.

While the demand for auto financial is large, we intend to stay with a direct lease model and not offer [inaudible] to limit exposure to [inaudible]. Dabai represents our efforts to leverage our existing user base by offering a diversified service scope. Going forward, we look to optimize operational efficiency and grow the business at a prudent pace without sacrificing profitability.

Regarding the financials, Carl will provide more details regarding the agreement on the dedicated channel for the parts services providers. I wish to assure the management community that we expect to continue to maintain a healthy relationship in the many other areas within financial while we focus our coverage as an ecosystem service provider.

Looking ahead, we will further grow our business by focusing on our core online consumer finance business, continuing to invest in technology and expanding our funding sources, while also prudently growing our new Dabai Auto business.

With further clarity from regulators and many players existing in the online consumer finance industry, our competitive advantage of being regulatory compliant, our risk analytics, and the cost structure driven by technology, big data, and software development deeply impact our business model. We all have to [inaudible] long-term growth and further solidify our leadership position.

With that, I will now turn the call over to our CFO, Carl Yeung, who will recap our key operating metrics and financial results.

Carl Yeung -- Chief Financial Officer

Thank you, Min. That's great. Hello, everyone. First, I would like to touch base on a couple of highlights in the quarter. We achieved a new milestone by achieving record net income while navigating a maturing regulatory environment. Our non-GAAP net income increase by 42% year on year to ¥737.6 million as a result of successfully growing our loan balance while managing risk appropriately.

Our asset quality showed more improvement as we successfully implemented tighter credit policies and adjusted our product strategy. Our provision to unbalance loan facilitation amounts was less than 2% compared to less than 4% last quarter as a result of a decrease in the M1+ delinquency rate for new loans generated starting from the last quarter.

During the second quarter, we further increased average credit size to ¥1,430.00 and credit tenure to around seven months for high-quality customers, while keeping the overall delinquency rate at a low level. This allowed us to enhance profitability while raising borrowers' repayment burden.

Meanwhile, we continued our efforts to diversify funding sources and entered into new funding arrangements with regulated and licensed institutional funding partners during the second quarter. We believe this combination of stable and diversified funding sources and our stockpile of liquidity reserves enables us to maintain confidence in our liquidity position and sustained long-term growth.

We firmly believe Qudian's strategy of not relying on individuals for funding, but rather, utilizing stable licensed and regulated institutional funding sources will further differentiate us and avoid the liquidity concerns that some P2P businesses in China may be struggling today with. We remain confident about future growth as the industry continues to evolve and mature.

Now, to give further color on the agreement with Ant Financial relating to user engagement through Alipay's dedicated channel for online third-party service providers that expires this month, both parties have decided not to renew the agreement. The original term of the agreement was for one year. It is now a business decision that it is not necessary to further renew it.

As disclosed in the business updates in November 2017, since the end of 2017, the company successfully engages the majority of borrowers through its independent app through various promotional efforts. Therefore, this expiration is not expected to have material impact to the operations of the company in light of our 2018 Q1 and now the strong 2018 Q2 results. In fact, this will further reduce the company's sales and marketing costs related to borrower engagement.

Again, this is one of the many areas where we collaborate and expiration does not affect the overall relationship for us being an equal system participant. Looking ahead, there is a robust demand for consumption credits and the regulatory environment is becoming increasingly stable and mature. With delinquency managed within expected ranges and volume growing healthily on the consumption credit side, we do hope to grow the Dabai business at a much more prudent pace and lower expected unit sales for 2018 from 100,000 to between 25,000 to 30,000 units.

Considering these factors, we wish to provide an assertive tone on our full-year 2018 guidance for non-GAAP net income to be more than ¥2.5 billion. In light of the strength of our business fundamentals, as of June 27th, we have purchased approximately $149.7 million under the repurchase plan announced last December, which demonstrates our confidence in our business and commitment to drive long-term growth for our shareholders. We expect to continue to purchase shares in the open market. Given our view of the visible disconnect between the company's value and fundamentals.

At this point, I apologize. My voice is not feeling too well. I would like to ask Annie, our Director of Capital Markets to continue the details discussion on the management discussion analysis of the financial results.

Annie Huang -- Director of Capital Markets

Sure, Carl. Total revenues were ¥2,243.7 million, an increase of 124.7% from ¥998.4 million for the same quarter of 2017, mainly driven by growth of revenues from sales income generated by Dabai Auto business and the loan facilitation income and others. Financing income totaled ¥895.1 million, an increase of 7.8%, from ¥830.5 million for the same quarter of 2017, due to an increase in loan balance as a result of increases in average loan size in turn, partially offset by decreasing active borrowers as a result of tightening credit policies.

Loan facilitation income and others substantially increased to ¥452.1 million from ¥15.2 million for the same quarter of 2017 as a result of a substantial increase in off-balance sheet transactions and the adoption of ASC 606 revenue from contracts with customers, effective January 1, 2018. Prior to the adoption of ASC 606, the loan facilitation service income was limited to the amount that's not contingent on delivery of the undelivered post-origination services. Upon adoption of ASC 606, total consideration is allocated between the loan facilitation service and post-origination services performance obligation.

Loan facilitation service income is recognized when the service is rendered. For example, successfully matching borrowers with institutional funding partners, the amount recognized is limited to the amount of variable considerations that are probably not to be reversed in future periods.

Accordingly, the timing of revenue recognition for loan facilitation service income connected in periodical installments will be recognized earlier under ASC 606. The adoption of ASC 606 resulted in an increase of ¥156.7 million in loan facilitation income for the second quarter of 2018.

Sales income was ¥784.8 compared to nil in the second quarter of 2017 as a result of the launch of the Dabai Auto Business. Sales commission fees decreased by 29.9% to ¥105.9 million from ¥151.1 million for the second of 2017 as a result of a decrease in the GMV relating to the merchandise credit business.

Total operating costs and expenses increased by 263.7% to ¥1,473.1 million from ¥405 million for the same quarter of 2017. Cost of revenues increased by 387.8% to ¥947.8 million from ¥194.3 million for the second quarter of 2017, primarily due to costs incurred by the Dabai Auto business, partially offset by a slight decrease in funding costs associated with our core online consumer finance business.

Sales and marketing expenses increased by 68.5% to ¥160.6 million from ¥95.3 million for the second quarter of 2017. The increase was primarily due to expenses associated with the new Dabai Auto business, partially offset by a decrease in sales marketing expenses for our core small credit business as a result of a significant increase in repeat transactions directly on our apps.

General and administrative expenses increased by 154.8% to ¥69.1 million from ¥27.1 million for the second quarter of 2017. The increase was primarily attributable to increases in travel expenses and administrative fees payable to trust companies as a result of increased use of trust funding.

R&D expenses were ¥36.9 million and remained flat from the second quarter of 2017. Provision for loan principal, financing service fee receivables, and other receivables increased by 357.3% to ¥220 million from ¥48.5 million for the second quarter of 2017. The increase was primarily due to an increase in the loan balance and the M1+ overdue loan principals and financing service fee receivables.

As of June 30th, 2018, the total balance of outstanding principal and financing service fee receivables for on balance sheet transactions for which any installment payment was more than 30 calendar days past due was ¥537 million and the balance of allowance for principal and financing service fee receivables at the end of the period were ¥580.6 million, indicating M1+ delinquency coverage ratio of 1.1x.

Income for operations were ¥773.8 million, an increase of 27.3% from ¥607.9 million from the second quarter of 2017. Net income attributable to Qudian shareholders increased by 42.4% to ¥724.2 million or ¥2.19 per diluted ADS, compared to ¥508.5 million or ¥1.70 per diluted ADS for the second quarter of 2017. Non-GAAP net income attributable to Qudian shareholders increased by 42% to ¥737.6 million or ¥2.23 per diluted ADS, compared to ¥519.4 million or ¥1.74 per diluted ADS for the second quarter of 2017.

As of June 30th, 2018, the company had cash and cash equivalents of ¥2,904.6 million and restricted cash of ¥1,458.5 million. For the second quarter of 2018, net cash provided by operating activities were ¥672.5 million, mainly attributable to net income of ¥724.2 million.

Net cash used in investing activities was ¥2,137.3 million, mainly due to payments to originate loan principal of ¥12,070 million and payments to originate finance lease receivables of ¥704.5 million and partially offset by proceeds from collection of loan principal of ¥10,904.8 million. Net cash used in financing activities was ¥560.2 million, mainly comprised of repayments of borrowings of ¥1,696.3 million, partially offset by proceeds of borrowings of ¥1,206.4 million.

For the full year of 2018, we're confident in the expectations for non-GAAP net income to be over ¥2.5 billion. Meanwhile, for the Dabai Auto business, we expect the number of vehicles sold during the full year 2018 to be between 25,000 to 30,000, down from the previous guidance of 100,000 units as we focus on enhancing profitability. This outlook is based on the current market conditions and reflects the company's preliminary estimates of regulatory, market, and operating conditions and customer demand, which are all subject to change.

This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.

Questions and Answers:

Operator

We will now begin the question and answer session. If you wish to ask a question, please press *1 on the telephone and wait for your name to be announced. If you wish to cancel that request, please press the # key. For the benefit of all participants on today's call, if you wish to ask a question to management in Chinese, please repeat your question in English. Once again, it's *1 for questions.

Our first question comes from the line of Alice Li from Credit Suisse. Please ask your question.

Alice Li -- Credit Suisse -- Analyst

Hi, thanks for taking my question. I have two questions, both about the cooperation with Ant Financial. The first one is on the user engagement. You mentioned that the user engagement from the Alipay will not be renewed. I would like to know what percentage of your volume facilitated in the first and second quarter came from your own app.

Also, I would like to know what's the number of new borrowers in your platform in the first half of this year and how is the customer acquisition cost? This is my first question. My second question is about the cooperation in the credit assessment. Because it is reported that the cooperation with the credit score has also been terminated, I would like to know if there is any update on this and how will this affect your credit risk management. Thanks very much.

Carl Yeung -- Chief Financial Officer

Thank you, Alice. This is Carl, the Chief Financial Officer of the company. Thank you for the questions, very insightful. So, first of all, relating to cooperation with Ant Financial -- as we have previously disclosed and discussed, as early as November 2017, we have been proactive in promoting and marketing the users into our app.

In fact, to address your question regarding the first and second quarter numbers, approximately 96% of total transactions facilitated were in our independent app. This has been proven over eight months now. That's why we have the confidence to say that we do not necessarily rely on this particular way of acquiring users to transactions. That's why we have disclosed that this change will not have any material impact to our operations with a track record of over eight months of doing so. So, that's kind of the first part.

The second part was the number of new borrowers in -- I'll just basically say approximately 30% of new borrowers are registered through the specific contracts under this agreement. So, that is going to change, but we have confidence in that the remaining 60% of the new registration will continue to come to our platform.

In fact, if you look at the overall structure of our user base, we have a very, very interesting opportunity to further growth without actually acquiring users. We have over 67 million registered users and as disclosed in the filings we just had, we only had in serving approximately 5 million borrowers out of 67 million.

Also, we mentioned that the average transaction size for these active borrowers is only around ¥1,400. Therefore, we have a lot of room to grow, number one, activating a number of users, over 60 million of them, who are not borrowing credit, even within the people who are actively borrowing, the credit utilization to the credit limit granted is only at 60%. Therefore, we have significant room to further grow.

I think in conclusion, if you ask us about the sales and marketing costs, we currently don't have any intention to do any active promotion of sales and marketing until perhaps at least 2020. We will probably see a lot of growth between now and then.

Then the final question relating to the credit assessment, we continue to collaborate with Ant Financial on the data analytics and that has not changed. We do not know whether this will change in the future, but let me assure you, number one, we are a big data company. The sesame credit that we're talking about or you mentioned is one of the 1,000 variables that we assess in a borrower situation.

So, we have developed our own data techniques to assess the credit quality and it has been proven successful. If you look at from Q1 to Q2, where the sesame credit was in place, we have seen Q1 provision to transaction volume was 3.2%, while we added additional risk metrics to further tighten our credit policy. That provision ratio in Q2 was only half of that. It's now 1.6%. That just goes to show how strong our own data analytics is.

Alice Li -- Credit Suisse -- Analyst

That's very helpful. Thank you very much.

Carl Yeung -- Chief Financial Officer

No, thank you. Thank you for the question.

Operator

Our next question comes from the line of Victor Wang from CICC. Please ask a question.

Victor Wang -- CICC -- Analyst

Hello, Carl and to you Mr. Luo. I have two questions. The first one is the strategy or the two to three-year target for Dabai Auto. Originally, QD had a rather aggressive target of 100,000 units to be arranged in 2018 and now, the target has been officially brought down to 25,000 to 30,000. In a two or three-year horizon, what is your current planning for this business and what are the key parameters or the key data points that will help you to make the final decision whether to further accelerate or further contain the business scale?

The second question is about your view on the regulatory environment. On one hand, QD does not rely on P2P platform and business model at all, which has given you clear advantage relative to the P2P players, but on the other hand, the overall cashflow industry is clearly under more direct competition coming from not only the commercial banks, but also coming from the players like Ali or Tencent.

So, what is your immediate term view for QD's key competitive advantage and what will be your -- is there any cap or anything that will concern you in the longer-term for the overall business, I would say, strategy or the potential market scale? Thank you.

Carl Yeung -- Chief Financial Officer

Victor, thank you. It's always great to hear from you. Thanks for the question. Regarding the question on Dabai, it's a very simple answer for us. It's about profitability. So, all of our strategies and decisions are to make sure Dabai becomes a profitable business. So, for the next two to three years, we believe the market continues to be very, very large. The word profitability entails also risk. So, we like to only do the risk we accept.

If you look at some of the numbers we're doing now, we've leased over 10,000 units of cars. The M1+ delinquency number of cars is only 20-something. It just goes to show how conservative of a company we are. This strategy is built upon our business model of doing direct leases only and not doing lease backs. So, we continue to direct lease only. There's no question on demand.

We're lowering this guidance because out of ten customers that come to our doors, eight to nine of them want a lease back. They want the title to be theirs. Unfortunately, at this moment, we're not comfortable with that kind of risk yet. So, we continue to look to a profitable, sustainable growth in the next two to three years given the risk appetite that we have. So, that's kind of Dabai Auto.

Relating to the regulatory environments, thank you very much for observing we're not a P2P. So, we clearly don't have a lot of the issues that many P2P companies face. So, regarding regulation, we can actually reaffirm and confirm that we are fully compliant with regulation 141 issued on December 1st pertaining to cash lending. So, right now, we're fully compliant with other requirements stipulated by the PDOC plus the CBIRC in the way that we work with licensed financial institutions, the way we do risk transfers, and allow our funding partners to do the risk assessments themselves.

So, there is no question regarding regulation compliance for us. There's no unclarity about that. We've grown this business in 2018 Q2 from Q1, not because of regulatory relax or tightening because it's all clear to us because the risk was right, so we continue growing.

Now, you mentioned about some of the competition potentially from commercial banks or banks in general plus some of the internet finance players. We believe we have a clear advantage in accumulating the vast number of transactions. I do not believe there are many players that have more transaction records and data than Qudian.

At the moment, we have accumulated over 100-something million actual lending then repayments. This is a volume that I don't believe anyone is close in terms of number of transactions. This allows us to have significant insight in actual borrower behavior. That is why you can see the delinquency performance is actually industry-leading edge. That gives us a sustainable competitive advantage over potential entrants or players.

Also, to just drive home the point, we are one of the lowest cost operators in this sector. To facilitate a credit transaction of ¥1,400 at 36% APR and below, it's very difficult to do and we've been able to do that using very large-scale data and technology, have very little people involved. If you take out Dabai, the entire business that supports the current credit, online credit part is only less than 1,000 people. That's kind of the advantage that we have over all of our peers. Thank you, Victor.

Operator

Thank you. Our next question comes from the line of Richard Xu, Morgan Stanley. Please ask your question.

Richard Xu -- Morgan Stanley -- Managing Director

Hi, Mr. Luo, hi, Carl. Thanks for taking my question. I also have two questions. Firstly, basically, I'm looking at quarterly active borrowers have been relatively stable. I understand that given the environment, it has been conservative.

But going forward, what would be the strategy for what you're going to do to increase the active borrow base or do you want to increase the volume for borrowers, loan balance per borrower? What's the strategy? Are you actively inviting more from your existing client base or are they actively still applying for these types of cash credits? That's the first question.

Secondly, also on Dabai Auto business, can you talk about the trend of profitability? From the past two quarters, any experience or any lessons learned from what type of business is more profitable and what would help improve or achieve more profitability for this business going forward?

Carl Yeung -- Chief Financial Officer

Hi, Richard. Always good to hear from you too. So, thanks for the questions. Number one, regarding the user, basically, and the loan balance, we have a lot of things in mind to drive growth. These are fairly achievable, or at least within arms' reach of what we have today. First of all, it's a 67 million registered user base of 5 million borrower balance.

Obviously, these 67 million registered users have an intent to borrow. We were just not offering the right credit size yet. So, offering the right product across these borrowers is something that we continue to explore and that will increase the active and borrower will balance with us from what we have today.

Secondly, we are increasing the so-called loan balance and the tenure for our existing user base to drive profitability as you've seen the development trend over Q4, Q1, and now Q2. We've been doing that at a very conservative base. Last year, our average transaction size was just under ¥1,000 and in this second quarter, it's ¥1,400. So, we've grown that a little bit.

We can see visibly that we can increase that to as far as ¥3,000 without any basic change in the risk profile of the entire portfolio. So, we have a lot of room to grow. We're not in a rush to do so. We would like to be conservative and monitor market risk appropriately. This is kind of in our DNA to be conservative. So, we'll do these two things.

Regardless, still, our app is ranked among the top apps across many app stores in China. That naturally drives a lot of traffic too. In the most conservative scenario, we still believe going ahead, we expect to drive at least 1 million to 2 million new registered users about every quarter. So, that's still a large incoming base that we can work with.

Right now, we're not in a situation where we're actively looking for users. We have too many users to deal with, to be very honest. So, we've been conservative in the way we're providing credits. So, there's a lot of room, basically, to drive that loan balance across a growing userbase.

Secondly, on Dabai on profitability, it's a very, very keen question. Now, on a kind of gross level, we actually expect to turn Dabai into a cashflow positive plus profitable business as early as next month. This is the execution kind of capability at Qudian we have. We're doing this by a combination of several assets. Number one, we're optimizing the number of stores that we have. So, we have, in fact, closed some stores that don't generate traffic and we are adding resources to stores that generate the traffic. So, we're optimizing the resources that we have.

Secondly, there's a lot of efficiency to be done in the supply chain as well. We are cutting our delivery times to now 13 days. This is actually industry-leading in the entire auto leasing business. By decreasing that delivery day, we can be much better at inventory, storing car costs, warehousing, and things like that. So, this combination of efficiency will drive that profitability. Again, we're happy to say that we look to be on a gross level profitable as early as next month.

Richard Xu -- Morgan Stanley -- Managing Director

Actually, on the answer to the first question, do you know how many of the 67 million registered users, how many are still visiting the app on a quarterly or monthly basis and how many at least borrowed once from the firm? I don't know if you have data on that.

Carl Yeung -- Chief Financial Officer

Yeah. I can share with you one data point. Our current MAU is somewhere between 15 million to 20 million unique users every month. So, it's an incredible number. It's just simply incredible. We're just working with five million of them.

Richard Xu -- Morgan Stanley -- Managing Director

Thank you.

Carl Yeung -- Chief Financial Officer

Thank you, Richard.

Operator

Thank you. Our next question comes from the line of Jacky Zuo from Deutsche Bank. Please ask your question

Jacky Zuo -- Deutsche Bank -- Analyst

Hi, Mr. Luo. Hi, Carl. Just a question first on the funding side. So, I observed that our loan balance reached nearly ¥15 billion at the end of the second quarter. I remember in the first quarter, we disclosed that our loan balance was ¥14.6 billion around that. So, since July, the growth was kind of slowed down. So, I just wonder from the funding side, do you see some kind of constrain recently and what was the pipeline to onboard more funding partners? What's the funding mix currently or as of second quarter?

You also mentioned the funding cost decreased year on year. So, what was the recent funding cost trend as well as in the second quarter? So, that's the first question. Another one related to this is beyond this year, looking to '19 and '20, what kind of loan balance growth are you looking at? And last one is a small one -- what kind of tax rate are you going to see for the following quarter? For this quarter, our tax rate is still low, like 10%. Thank you.

Carl Yeung -- Chief Financial Officer

Thanks, Jacky. Appreciate the questions. So, on the funding side, thank you for observing the loan balance numbers. We have proactively slowed down a little bit more in terms of versus exiting Q1 in terms of loan balance because Q1 was just a very, very conservative quarter for us. We were in the process of essentially asking users to leave the platform because there's so much risk going on in the market, multiple lending behaviors. So, we were able to accelerate at a much faster pace between Q1 to Q2.

Now, into Q2, we saw a bit of change in the P2P space. So, we want to be conservative and grow that loan balance at a prudent pace. Now, that we have to keep in mind is all based on our reaffirmation that our net income is expected to be over ¥2.5 billion. So, we are on track with that. We're managing that growth. We're managing that risk in line to make sure we exceed that number but we don't absorb too much risk.

Now, in terms of the funding pipeline, again, thank you for observing our comments on the lower funding costs. Because of the value we're providing to our funding partners in providing big data and providing a very, very high cost-efficient way to transact with users, we've been able to be selective in the type of funding partners that we work with. Through this process, we have actually reduced our volumes with some of the higher cost-based funding providers and worked with more lower cost-based funding providers. That's one of the key drivers of that.

In addition, we've been deploying quite a bit of our unused cash just sitting there to help facilitate loan transactions through licensed funding channels. So, that's driving efficiency and lowering our funding costs overall. The second question is a tricky one. Basically, it's going to be providing some kind of expectations for beyond 2018.

Unfortunately, we do not provide any guidance beyond 2018 year, but I can point you toward what we feel. Based on the current massive user base that we have, again, without much sales and marketing effort, we believe there is a sustainable long-term growth rate of anywhere between 30% to 50% for the foreseeable few years in terms of bottom line.

Jacky Zuo -- Deutsche Bank -- Analyst

Just last one on the tax rates -- what kind of tax rates are you looking at?

Carl Yeung -- Chief Financial Officer

Yeah. So, we believe 10% is probably the right way to think about the going forward tax rate.

Jacky Zuo -- Deutsche Bank -- Analyst

Okay. Thank you so much.

Carl Yeung -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Linda Sun-Mattison from Bernstein. Please ask your question.

Linda Sun-Mattison -- Sanford C. Bernstein -- Analyst

Hi, Carl and Mr. Luo. I have a couple questions. The first one -- can I just dive down a little bit into the financial customer engagement channel? Carl, you mentioned that 30% of registered users are coming from the channel. I'm just wondering whether you have different credit approval for the 30%? Is 70% your own app?

With that, Carl, you mentioned about really penetrate your 67 million registered users, but I do recall that your credit approval rate is around 50%, just less than 50%. You have to cap the approval rate to maintain credit quality. So, I'm just wondering whether there's any change in the approval rate of the registered user.

Carl Yeung -- Chief Financial Officer

Okay. That's the one question we have, right? Thank you, Linda. Good to hear from you.

Linda Sun-Mattison -- Sanford C. Bernstein -- Analyst

Yeah. I'll ask another question because it's a long question. Sorry about that.

Carl Yeung -- Chief Financial Officer

Okay. Yeah. Again, on the new registered users, it's about 30% on the specific paid marketing channel under this contract that expired. We're not too worried about that at all because we've been very selective about new customers. Our approval rate for new customers versus approval rate for repeat borrowers is significantly different. Now, we don't necessarily disclose that because it's an industry trade secret, but the overall approval rate is somewhere around 50%, like you observed.

If you look at some of these numbers, you basically can get a feel for how it looks like. The percentage of transactions totally for the last eight months from this paid marketed specific channel is only about 2%. So, although our new registered users is somewhere around 30%, it's only about a 2% contribution to the actual transaction revenues and profits. Therefore, it doesn't really affect essentially anything.

Linda Sun-Mattison -- Sanford C. Bernstein -- Analyst

Just on top of that, you used to disclose average ticket size and duration. I think that's one of the key selling points to investors because small tickets, short duration, therefore the credit risk is more diversified and the turnover rate is higher. So, use it to change direction when you see something wrong in the market, like what you did in December.

Now, you have stopped disclosing this set of numbers. I'm just wondering is there any reason that this indicates some change in your overall strategy? You mentioned about ticket size of ¥3,000. I know it doesn't sound very high to white collar professionals working in Shanghai, but how does this ¥3,000 ticket size compare with your average borrower, their income profile?

Carl Yeung -- Chief Financial Officer

Sure. Thank you, Linda. We thrive based on small credit. We understand that. It's the data and the volume that's driving so much of the value. In fact, in Q2, we did disclose just now in the discussion our average transaction size in Q2 was about ¥1,400. That is still a very, very low number.

I like to help and guide by understanding this one situation. If we look at last year's number, it was just under ¥1,000, approximately over two months. So, if you add in the APRs and everything, the average repayment per month is somewhere around ¥300-something. So, it's actually slightly over ¥300-something. It's close to ¥400. Sorry about that.

But now, if you look at this current quarter of ¥1,400 and over seven months, the average repayment is just around ¥200-something. So, we do pay a keen attention in terms of the monthly income of our active borrower base. We make sure it doesn't overburden them. What we have done in the last several months is to make the loan size bigger, but make the monthly repayment lower to reduce risk. That has shown a kind of positive impact in terms of delinquency rates.

Now, some may argue -- and I'll ask the question for you that if you have a longer duration, does that risk sit further in the back? We are acutely aware of this potential risk, but we're comfortable that it's not going to likely happen because we're also observing internal data points. The total outstanding delinquents -- the total receivable of a delinquent balance and that balance has been growing at basically a slower rate of loan volume growth. So, in fact, we're seeing lower and lower risk. That's what we're seeing.

Linda Sun-Mattison -- Sanford C. Bernstein -- Analyst

Carl, may I just ask one last question? I do apologize for other people on the phone. Just a very quick one. Your loan facilitation fee has grown very strongly, which is a good thing, but I can't really understand -- what kind of fee in terms of percentage of facilitation are you getting? I look at your total loan balance is ¥15 billion as of second quarter. To generate that amount, that means you have to do a lot of loans to make the numbers work.

Carl Yeung -- Chief Financial Officer

Sorry, Linda. I am not quite sure your question because our fee is actually calculated on a fairly simply method. We take the transaction and we make sure that the total APR we charge is 36%. That's how we calculate the fee structure.

Linda Sun-Mattison -- Sanford C. Bernstein -- Analyst

Thank you.

Carl Yeung -- Chief Financial Officer

Yeah, thank you.

Operator

Our next question comes from the line of [inaudible] from CH Capital. Please ask a question.

Unknown Analyst -- CH Capital -- Analyst

Hi, Carl. So, two questions -- one is related to your funding partners and also the business, if you see your own balance sheet to do the loans. So, I wonder if you could give us some color about the composition of your funding partners, who they are what do you do for them? That's number one. Also, related to this and going forward, what's the composition in terms of the loan, how much comes from you, how much comes from your funding partner? That is the first question.

The second is related to the delinquency rate. This quarter delinquency rate is kind of a low. I wonder how you envision the delinquency rate going forward. That's the question. Thank you.

Carl Yeung -- Chief Financial Officer

Thank you, [inaudible], really keen questions, as was everybody. Thank you. So, in terms of the funding structure, the 2018 June 30th loan balance of ¥15 billion, approximately 36% were self-funding, basically our own capital deployed via licensed funding channels. So, there is a channel that is licensed that we can fund these loans with.

Then the on-balance sheet funding is approximately 35%, which basically entails trust. So, these are external funding through basically various asset management companies or banks. They also fund these transactions to licensed trust structures.

Then approximately 29% is from so-called off-balance sheet funding transactions, which are basically essentially bank funding, where we essentially send the users along with the data to the bank and they originate these loans themselves. We take a service fee for that. So, this is kind of the funding structure, 36%, 35%, and about 30% by the end of 2018, June 30th.

So, going forward, we see this as a pretty stable way to fund these transactions. We don't expect big changes to this funding structure. By the way, we are fully compliant with 141. We have introduced all the necessary license guarantee companies across all these transactions since two months ago. So, it all looks good from here.

Now, secondly, your question regarding delinquency rate, yes, in Q2, our loan provision to the loan transaction volume was half of Q1. I think basically, the worst has past. Q1 was a challenging period in terms of the overall risk in the market and we've basically seen things return to normal. I think this provision is sustainable going forward, but I'd like to still remind the global investment community that there may be changes in the overall environment of the Chinese economy, the user base, different changes in the industry, but we will be the first to react and basically through the right risk adjusted profits.

Unknown Analyst -- CH Capital -- Analyst

Thank you, Carl.

Operator

Thank you. The next question comes from the line of Daphne Poon from Citi. Please ask your question.

Daphne Poon -- Citi -- Analyst

Hi, thanks for taking my question. I have two questions. First is a follow-up on the asset quality and also the funding cost trend. You mentioned earlier that there has been some change, actually, in the delinquency rate because of what's happening on the P2P side.

So, can you tell us what is the matter of change in the delinquency rate in the past two months? Second, on the funding costs, also related to the P2P, the wave of collapse, we do see more P2P platforms now trying to fight for institutional funding. So, whether that has any spillover effect in terms of your funding cost over the past two months.

Secondly, I want to understand more about your longer-term customer acquisition strategy. So, I think I got the point that in the near-term, you can still sustain the growth by further monetizing on the existing over 60 million registered user base, but from a longer-term, for example, in a two to three-year point of view, say after the industry consolidation, what do you think will be our key competitive advantage in terms of attracting new borrowers versus some of the other larger payers?

Also, currency -- our customer acquisition cost is still much lower than most of the other players. So, do they expect in the longer run this gap to be leveled? Thank you.

Carl Yeung -- Chief Financial Officer

Thanks, Daphne. So, first of all, in terms of the asset quality, basically in the last two months, we've seen stability, similar delinquency levels from when we exited Q2. We have to be very thankful of what happened in Q1. The delinquency uptake in Q1 helped our AI and machines learn a lot about multiple borrowers.

So, first of all, the current situations with the P2P is happening more on the funding side, where the funding is being withdrawn. The asset quality hasn't really turned extremely bad. It's more about the liquidity that this P2P company is facing because they're being withdrawn on funding.

Because of this fundamental nature of the change in the industry, it's not about borrowers turning bad. We're much better at identifying the bad borrowers now. We have seen the delinquency to be within well-expected ranges and it's been stable. There has been a lot of P2P players entering into the institutional funding game.

It's great because it's a testament to the validity of our business model, the sustainable nature of the way we operate our business. We are working with these institutional funding partners for a much longer period of time in much larger sizes. Down the core, it's a business. This business is about asset quality. I think we are a public company. Many of the largest P2P players are public companies. Just look at our asset quality. We have confidence to say that we have some of the industry-leading asset quality.

So, if you're a funding partner, would you prefer to work with the lowest risk player providing the most efficient platform or somebody else. So, we don't worry about that kind of competition at the moment. But again, we are always trying to push ourselves to be more efficient, be better at analyzing data so this competitive edge remains.

Yes, longer-term customer acquisition strategy -- like I said, based on the current existing user base that we have, we don't foresee growing sales and marketing at least until 2020, but still be able to deliver the numbers as we discussed in the guidance. Now, this is based on the existing user base.

I'd like to also add that without any external sources of traffic, just on natural traffic alone, user-initiated engagement is searching for our platform either through our app store or other open platforms, but we're adding about 1 million to 2 million new registered users every quarter in light of the so-called changes in the financial agreements.

So, we're still quite comfortable in terms of growing without sales and marketing for as long as I can see. Thank you, Daphne.

Operator

Thank you. I will now hand the call back to management for closing remarks.

Annie Huang -- Director of Capital Markets

Thank you once again for joining us today. If you have further questions, please feel free to contact Qudian's investor relations department through the contact information provided on our website.

Operator

This concludes today's conference call. You may now disconnect. Thank you.

Duration: 67 minutes

Call participants:

Annie Huang -- Director of Capital Markets

Min Luo -- Founder, Chairman, and Chief Executive Officer

Carl Yeung -- Chief Financial Officer

Alice Li -- Credit Suisse -- Analyst

Victor Wang -- CICC -- Analyst

Richard Xu -- Morgan Stanley -- Managing Director

Jacky Zuo -- Deutsche Bank -- Analyst

Linda Sun-Mattison -- Sanford C. Bernstein -- Analyst

Unknown Analyst -- CH Capital -- Analyst

Daphne Poon -- Citi -- Analyst

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