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Qudian Inc.  (NYSE:QD)
Q4 2018 Earnings Conference Call
March 18, 2019, 7:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

See all our earnings call transcripts.

Prepared Remarks:

Operator

Hello, ladies and gentlemen. Thank you for standing by for Qudian Incorporated's Fourth Quarter and Full Year 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, Ms. Annie Huang, Director of Capital Markets for the Company. Annie, please go ahead.

Annie Huang -- Director of Capital Markets

Hello, everyone; and welcome to Qudian's Fourth Quarter and Full Year 2018 Earnings Conference Call. The Company's results were issued via newswire services earlier 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, CEO; and Mr. Carl Yeung, our CFO, 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 will be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the Company's 20-F is included in the Company's 20-F as filed with the US SEC. 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 reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.

We also posted a slide presentation on our IR website providing details on our results in the quarter and the full year 2018. We will reference those results in our prepared remarks but will not refer to specific slides during our discussion.

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

Min Luo -- Chairman and Chief Executive Officer

Thank you, Annie. I want to continue to thank all investors, analysts and media, who have taken the interest to join today's call. I have fine results to share. Then Carl Yeung will take you through more detail. We ended 2018 with another record quarter with RMB778.8 million of non-GAAP net income and achieved our (inaudible) target set in the beginning of 2018.

If we exclude foreign exchange loss and charges from one-time scaling down of Dabai Auto business, our underlying profit was RMB850.2 million for the quarter, a record quarterly earning for us. Throughout 2018, the market had all kinds of concerns, but it is (inaudible). Thanks to our solid execution and our institutional funding and user scale (ph) as well as very early efforts in beginning regulatory compliance. I'm encouraged that we achieved quarterly operating and financial results while operating under legal annual interest rate and continued to disprove this contract.

And for 2018, we added I believe we delivered into what we said. First our massive user base continues to grow vis-a-vis operate, manages. Our registered users grew to 71.8 million, and outstanding borrowers grew to 5.3 million since the end of the last quarter despite what has been too soft. User engagement through Alipay's, dedicated channel for online third-party service provider, officially ended in August 2018. So the fourth quarter was the first complete quarter without lists of credits (ph). Yet our registration and active outstanding borrowers continued to grow from the third quarter. This proves that an innately affordable and attractive service doesn't require costly marketing or special channels to successfully grow. For the year, as a result of our commitment in delivering risk-adjusted returns and a conservative risk management approach, our asset quality was tact within our capital levels.

During 2018, we made several carefully calculated management decisions to make sure asset quality was obtainable. First, we remained selective in several new users in light of increased delinquency and elevated credit risk in the industry during early 2018. Second, we prolonged the loan tenure for high quality borrowers with solid backlog while decreasing the loan size in line with their income growth, and making sure monthly repayment remain affordable. For example, average monthly principal and fees repaid in the fourth quarter was around RMB600. And the like new (inaudible) borrower default until it's losing and affordable credit line, and gets that credit record its loans. Third, we do not provide adequate loans. On first pay, the borrower is late, the entire credit line is taken away. And finally, thanks to all -- to our fully licensed this is, institutional funding structure, the majority of loan relationships are legally between licensed (inaudible) and the followers therefore, delinquency are reported to PBOC (inaudible) for these borrowers for the first time, a strong incentive not rely on the payment.

On regulatory risk, there were various new regulations and the guidance issued in 2018 for Internet finance. Yet we are the first in the industry to shift from being a direct lender to being a pure platform, assisting loans between borrowers and licensed institutional funding partners with annual interest rate pack under legal path (ph). Therefore there are no material regulatory uncertain swaps. We successfully spent our population with existing funding partners in full -- in funding size and scope, and secured 19 new funding sources compared with a year ago.

Looking into 2019, we are confident about our earnings outlook through active regions in our existing user base and the available funding. Yearly income related to risk taking, we are excited by the prospect that we move our balance sheet as a goal of change. As you may recall, we launched our traffic referral channel in the third quarter to referrals excess borrower checking through other lending and a compliant Internet financial service providers. The fourth quarter saw encouraging development in terms of revenue contribution of RMB30 million.

In addition to traffic referral, as part of our open-platform initiative. We recently started to refer transactions that we cannot fund through our licensed institutional lender partners, where we do not -- where we do no undertake any risk other than a greater margin compared to traffic refer. Finally, with a clear focus on our core consumption finance business, we will continue to explore emerging opportunities to keep our team challenged with cost, managed within our target. I'm confident we are well-positioned in delivering long-term growth for our shareholders.

With that, I will now turn the call over to our CFO, Carl Yeung, who will discuss more about our our operation.

Carl Yeung -- Chief Financial Officer

Thank you, Min; and hello, everyone. First, I'd like to touch base on a couple of highlights for the quarter and full-year 2018. 2018 marked another milestone for us as we achieved our guidance, while operating under the regulatory compliance APR cap. We achieved a non-GAAP net income of RMB2.55 billion after investment in new opportunities, and solid execution of our $300 million repurchase program, a clean delivery of what we guided at the beginning of the year. Moreover, if we excluded some non-operating charges of underlying profit for 2018, reached RMB2.68 billion, substantially ahead of our RMB2.5 billion guidance. Our solid results were attributable to our growing user base, low operating costs, regulatory compliant operating structure and solid asset quality.

In 2018, our loan book saw growth of 69.9% year-on-year, and this further demonstrated the strong demand from our users with reliable funding to serve. In addition, our asset quality remained healthy throughout 2018, validating management's decision to lower the management's decision to lower the risk exposure of our loan book in light of increased delinquencies and elevated credit risk in the industry during early 2018. Our vintage delinquency rates slightly increased as loan tenure increased from 2.5 months in 2017 to 8.1 month in 2018 for our high quality users. We were delighted to see our outstanding borrower base reach 5.3 million following the termination of paid marketing on Alipay, while our sales and marketing decreased 49.4% year-on-year for our core consumption finance business. This again proves our capability in sustaining users growth without relying on expenses largely (ph).

Looking into 2019, our outstanding loan balance have grown to RMB22 billion by March 15, 2019. Therefore, we are well on track to achieve our full year non-GAAP net income guidance of RMB3.5 billion, excluding non-operating costs and charges. Qudian is committed to delivering shareholder value. Therefore, the Company will continue to undertake new challenges, investments where we believe further new growth may emerge in addition to helping to keep our talent base challenged, sharp and intellectually growing. We shall do so responsibly with the priority that our core consumption finance operations are not interrupted and targets delivered.

One example is in 2018, with meeting earnings guidance as our top priority, we quickly scaled back Dabai Auto business when macro auto sales were slowing in order to reduce overhead and avoid potential risk exposure in asset residuals. Another example is the successful launch of our open-platform initiative. During its inaugural operations in the fourth quarter of 2018, open-platform contributed RMB30 million in revenues, carrying no material cost of operation on our dormant user base. We'll look to invest in production further by launching various services to activate or attract high-quality potential borrowers or our partners. These initiatives demonstrated our Company's execution strength and our focus. Looking ahead, any excess capital that cannot be deployed for value will be returned to our shareholders via buybacks or other shareholder value enhancing means.

Now, let me share with you some key financial highlights. In the interest of time, I will not go through the line items one by one. For more detailed discussions of our fourth quarter and full-year 2018 results, please feel free to refer to our press -- earnings release just issued earlier.

Total revenues for the full year 2018 increased by 61.1% to RMB7.69 billion, mainly driven by strong growth in our loan facilitation income, from off-balance sheet transactions, and a ramp up of Dabai Auto business. Non-GAAP net income for the full-year 2018 increased by 14.4% year-on-year to RMB2.55 billion or RMB7.92 per diluted ADS.

Particularly, I want to highlight that our underlying profit reached RMB2.68 billion for the full-year 2018, if we were to exclude the financial -- foreign exchange loss of RMB90.8 million, and a specific charge of RMB37 million incurred by scaling down of Dabai Auto business.

Our asset quality was stable. 2018 provision for receivables increased by 94.8% to RMB1.18 billion. This was primarily due to an increase in weighted loan tenure from 2.5 months to 8.1 months during 2018.

We will continue to benefit from word of mouth marketing by providing a better and more affordable product offering. Following the termination of engaging users through the Alipay dedicated channel for third-party service providers, we incurred sales and marketing expenses associated with our core consumption finance business further decreased while we continue to successfully attract and retain users.

For full-year 2018, excluding expenses associated with Dabai Auto, sales and marketing expenses decreased by again 49.4% to actually RMB201.6 million from 2017.

Finally, we continue to maintain a low leverage. As of end of 2018, our equity is RMB10.8 billion while outstanding loan balance was just RMB19 billion. In addition, we had cash and cash equivalents of RMB2.5 billion and and restricted cash of RMB339.8 million. We believe our low leverage model and strong balance sheet and sufficient cash reserves will continue to help sustain long-term growth.

Now, again on guidance, we remain fully confident in our growth platform given our outstanding loan balance have grown to now RMB22 billion, we are reaffirming our previous guidance and expect our total non-GAAP net income for the full year of 2019 will be greater than RMB3.5 billion, after excluding non-operating costs and charges, which would represent a 37.3% increase from what we achieved in 2018. This above outlook is based on certain market conditions and reflects the Company's preliminary expectations as to market conditions, its regulatory and operating environment, as well as customer demand, which are all subject to change.

Now, this concludes our prepared remarks. We would like to open the line for questions. Operator, please go ahead.

Questions and Answers:

Operator

Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Your first question comes from the line of John Cai from Morgan Stanley. Please ask your question.

John Cai -- Morgan Stanley -- Analyst

Hi. Good evening, management. Thank you for taking my questions. And first of all, congratulations on the successful delivery of the 2018 earnings guidance. So I think it's great to see that the Company is committed to deliver shareholder value. So my first question is on the capital management or cash spending plan to put it in other words. So first of all, I would like to know, is there any CapEx related to the -- our new headquarter in Xiamen. I think, we have a lender that potentially needs some development. And secondly, I've seen that the -- on the balance sheet, that is other current assets has been experienced very high growth in the fourth quarter. So is there any more explanations on these items, and is it correlated to the loans balance, and at what percentage points? And finally, is on the share buybacks. So it's mentioned in the press release that excessive capital will be returned to the shareholders. So I just wonder any data we can track to asses whether the capital is excessive. So yeah, and I think that's my questions. Thank you.

Carl Yeung -- Chief Financial Officer

Thank you, John. Again, I appreciate it. We are very focused on delivering shareholder value. As you mentioned, the top priority is meeting and actually exceeding guidance. It's a big question in capital management given our very strong balance sheet, as well as a very high cash level. Regarding CapEx, we don't expect to have very, very large CapEx versus our balance sheet. You mentioned the new building in Xiamen that we are currently undertaking and building. The actual spending in just 2018 was very minimal, is only about RMB100 million versus a RMB10 billion plus balance sheet, this was not much. And mostly the building cost will be financed by low interest bank loans, so it will not have a strain on the actual balance sheet or cash base.

Regarding your question on the other current assets, these are mainly in things such as core inventory, and that would be reducing over time as we roll back our Dabai Auto business.

On the third question of share buyback, we are very focused on shareholder value. As you saw, last year -- last 12 months, we put together a $200 million buyback program. We spent $270 million buying back shares. Looking into the next 12 months and 24 months, we continue to look for opportunities where it's the right time for us to go into the market. But as a top priority, we look to deliver that RMB3.5 billion net income guidance. Given our current regulatory compliant and stable operating structure, we look to put more of that cash into our product, the design that we work with our funding partners. We did a self-check -- we checked internally in terms of what the returns are, that's about a 20%-plus return yield on deploying that cash. And it's a great opportunity to enhance our strong balance sheet and net income through that way.

So if you were to ask me simply, the priority of our cash flows, we try to use as much of that cash as possible to go into our high-yielding products that we worked with, the lending that we do through our partners, and then we look for investment opportunities that will allow the Company to grow further. And then, finally, of course, if there's any excess capital, we'll go through the normal routes such as buybacks and perhaps maybe at some point another, in the future, dividend.

John Cai -- Morgan Stanley -- Analyst

Yeah. And thank you. So, can I just have a quick follow-up on the share buybacks? So I think -- obviously, we don't have enough clarity on the delivery of the 2019 guidance until probably the second half of the year. So does that mean we won't do any share buyback in the first-half, yeah, so on the timing, basically, yeah?

Carl Yeung -- Chief Financial Officer

Sure. Thank you for following up with that. We have a pretty good confidence in delivering the RMB3.5 billion. The math to us is pretty simple. On an average loan balance, we take a conservatively net pick of roughly 13% to 15%, using a mix of capital of our own money and external funding. If we were just to use our own money to lend to banks, to these borrowers, it will be excess of 20% return.

If you look at our -- we gave some color in terms of where we are today. We exited 2018 with a RMB19 billion outstanding loan balance. As of March 15th, the average -- the loan balance was already at RMB22 billion. To achieve a RMB3.5 billion, if you work through the back of the envelope, all we need to do is carry a average loan balance of RMB25 billion throughout the whole year. So we're pretty confident in delivering that number. But right now, our priority is to make sure as much as a profit is secured, so we're putting that cash to use right now.

John Cai -- Morgan Stanley -- Analyst

Thank you very much.

Carl Yeung -- Chief Financial Officer

Thank you, John.

Operator

Your next question comes from the line of Charles Zhou from Credit Suisse. Please ask your question.

Charles Zhou -- Credit Suisse -- Analyst

Hi, Lianzhu and Carl, hi, congratulations on your very solid set of results. And we also see the market and we also see the market react positively to your results. I have two questions. So the first one is that, we saw that in August last year so 3D (ph) and strategic partner, Alipay's dedicated online channel has expired, and also in early December, I think, the Ant Director, Mr. Zhu also resigned from Qudian's Board. So given this fact is and still a financial investor for the Company? So this is the first one.

Secondly, from my memory, I think, you also have three private equity investors who are -- have some intention to sell their stakes of Qudian; and I think, this is also one of the overhang to the upside of the share price for now. So can you maybe give us some update like how much they have now, and how is your communication, and what is the progress so far? Thank you.

Carl Yeung -- Chief Financial Officer

Thank you, Charles. You hit the nail on the head. So first of all, Alipay remains a good partner for us. We are committed to the Alipay ecosystem for payments and user engagement as usual as with any other partner. Actually, from the very technical relationship between us and Alipay has been arm's length, so there hasn't been really anything special between us. They did give us that channel prior to August 2018. As you saw, this is a really good quarter as we -- this a full quarter where we didn't have that channel anymore and how ask any borrower continue to grow. I think, it's a testament of how strong and attractive our product is.

And given that has expired and Chao Zhu has left the Board and financial as far as we know, he is still a financial investor of the Company. As to what would they do with that stake it's up to them. Regardless of the stake is there or not, it will not have any material impact to our operations because from the get-go, all the transactions are arm's length.

Now, there comes a practical question, if they do exit, would they have impact on our share price. Now, I believe, Ant financial is a sophisticated organization run by very smart people. So from the conversations that we've had, we understand that they will make the right decisions. I can't say yes or no when, but they will make the right decisions and it would have hopefully very little impact.

The second question comes about the other private equity investors who may not have executed and had a impact on the price, frankly in the past 12 months. And we not disclose exactly what they are; all you can do is refer to their filings because those conversations (inaudible). As far as we can tell, most of the selling should be done. There may be other positives, yes or no, but it's up to investors type what their actions are. But as far as we know, the most (technical difficulty) has been stable.

Charles Zhou -- Credit Suisse -- Analyst

Okay. Thank you.

Carl Yeung -- Chief Financial Officer

Thank you, Charles. Appreciate that.

Operator

Your next question comes from the line of Jacky Zuo from Deutsche Bank. Please ask your question.

Jacky Zuo -- Deutsche Bank -- Analyst

Good evening, management. Thank you for giving me the opportunity to ask. So I have three questions, basically all related to numbers. First one, can you give us the loan origination volume number for Q4, and also break down that into on and off loan volume, that would be great?

And second question is on cash flow. So what is the ticket size, what is the loan tenure, and how -- what is the percentage for repeat borrowers for Q4; and also any product change for our cash loan product, because we actually keep lengthening the loan tenure for this cash loan product?

And third question is about the funding mix. So I guess, that's a routine question like, how to break that down into our own funding and institutional funding, and what's the percentage from like trusts, consumer finance companies and other institutions? Thank you so much.

Carl Yeung -- Chief Financial Officer

Okay. Thanks a lot, Jacky. Appreciate the question. And I'll be as helpful as I can per our disclosure. Number one is, volume of transaction in the fourth quarter, the volume was just about RMB13 billion, and the mix of that is about 57% off-balance sheet versus 43% on-balance sheet for the quarter.

In terms of the cash loan tenure, that was in the fourth quarter, 10.4 months and the average ticket size was RMB1,491, so pretty much the same as the previous quarter, third quarter. The repeat borrowing ratio is high. It's about 90.4%, basically remained stable through first, second and third quarter of 2018.

And in terms of the funding mix, the funding mix has been even more off-balance sheet. If you look at the outstanding loan balance of basically about RMB19 billion, right now close to 50% is off balance sheet, and then the remaining is again on balance sheet was a mix of our own money (technical difficulty) I guess, in trusted loans, first, some small amount of roughly around 10%. So it's a 40% and 50%, I think. We think this is a really good way to operate a compliance structure of all the noise mixed base and small capital.

Jacky Zuo -- Deutsche Bank -- Analyst

That's very helpful. Thank you.

Carl Yeung -- Chief Financial Officer

Yeah. Thank you, Jacky, appreciate it.

Operator

Your next question comes from the line of Victor Wang from CICC. Please ask your question.

Victor Wang -- CICC -- Analyst

Thank you for delivering again a very strong set of numbers. Carl, my question is really on regulatory as well as the funding side, and not on the numbers, but on the direction. If you look at the regulatory environment, I would say given that your business, it's not a P2P structured business, it seems that the regulatory attitude regarding to -- so it's a loan business to retail, to household has been a much more benign, compared to six, 12 months ago, and also the monetary environment is becoming more loosened. Will that have a positive impact on your funding availability and the pricing going forward. You find that it is now easier for you to secure funding when negotiating with funding partners, and on the funding cost side, will that also means that funding costs will be lower going forward?

Carl Yeung -- Chief Financial Officer

Okay. Victor, I appreciate that. It's a super good question. This is plan other to make all this thing work. And right now, we don't keep -- we have actually broaden our own lending license in the end of 2017, so we don't rely on the so called (technical difficulty) any more. We have shifted completely with a institutional lender relationship where we has began to not have a direct borrower-lender relationship. That transaction is done at a license (technical difficulty) and a trust for consumer lending. So it's already regulated (ph) pretty much no need to (technical difficulty). It's It's a good way to assess any regulatory concerns.

Now, regarding the so-called macro liquidity, I want to put into a more consumer based lending, we (technical difficulty) as a overall very positive theme for success for us because we are in -- as we do our job, that's helping back or helping other financial institutions get their lending in people who (technical difficulty) people. So between both collateral (ph) with institutions who want to assist, past year alone, we added 19 licensed institutions to join our partners.

Regarding clarify, I'll be very realistic. I think, the current funding (technical difficulty) is very lower on the mix of 7% share annualized (technical difficulty) funding, so I doubt there will be more room. But one thing I want to add regarding this whole overall formal question is, as a point that our CEO, Mr. Min mentioned, we are really excited about our open-platform.

As you know, all that RMB19 billion, and right now RMB22 billion of transactions that we are doing, we have best underwriting, OK, we're taking some form of risk. But we're excited because we have initiated (technical difficulty) transaction, while funding partners does not undertake (technical difficulty). So the aspect of growth that we would further remove cash on the balance sheet, remove regulatory concerns in the quarter, so that we are probably (technical difficulty) company. I think that will be well on multiples to a certain point.

Victor Wang -- CICC -- Analyst

Thank you, Carl.

Carl Yeung -- Chief Financial Officer

Thank you, Victor.

Operator

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

Linda Sun-Mattison -- Bernstein -- Analyst

Hello, Carl. Thank you for the good result. I just want to go back to the guidance of RMB3.5 billion earnings for 2019. Can you give us a guideline on how much you see this coming from the loan facilitation fees and others? I understand that in -- starting in January, the government has tightened rural and urban commercial banks, smaller banks from cross-border Qudian (inaudible). So I just want to know whether this would have any impact on you, and specifically on the business of loan facilitation? And on the back of that I can spend enough of the loan balance multiplied by a take rate or interest rate whatever you call that, but what is the handle some credit cost you have in mind given the second quarter of '18, you giving an M1 delinquency ratio has popped up? Thank you very much, Carl.

Carl Yeung -- Chief Financial Officer

Thank you, Linda, good to hear from you, and a keen observation. So RMB3.5 billion, we're in very good shape in delivering that. If you were to help -- ask me to help (technical difficulty) the understanding how that we see, I think (technical difficulty) about 70% (ph) on average loan balance. Whether it's on or off balance sheet, does not have a material impact to that take rate, whether it's funded by our own balance sheet or it's funded by our funding partners (technical difficulty) So right now, that mix still half and half, basically, so you see a take rate of roughly about 15%.

So if you roll back RMB3.5 billion of net profit on 15%, that gets under RMB25 billion of average loan balance you have maintain for 2019. And yet again, already at RMB22 billion, (ph) on March 15th, so we're in a really good shape on that. So you think that you are very close to that regulation, but indeed, off-balance sheet arrangements. The PRC regulators doesn't split this. About a month ago, we all and (inaudible) as well, and regional commercial banks in participating in theses transactions where they do not have a branch or licence to do so. I'm happy to report that the majority of our funding partners carry nationwide license in either two forms; either they are a Internet license bank or they are a nationwide joint stock bank, where they have a branch in every province that we issue -- we help them, sorry correctly saying is, we help them operate loans in. So we have no impact in that respect. And if you were to look at our numbers in a practical sense, our outstanding loan balance of right now RMB22 billion, half of it comes from the institutional funding partners roughly RMB11 billion. RMB 11 billion for any single bank who is a nationwide joint stock bank is literally a drop in the pond. So carrying that RMB22 billion loan balance up to the next 30, the next 40 should not have any various thoughts. We're very confident in doing so.

Now, in terms of credit cost, yes, there is a good observation. Regarding our M1+ vintage increase, there's a very simple mathematical reason why. The reason is, the calculation of M1 delinquency is basically the delinquent amount divided by the transaction volume. So as we elongate the loans, have our user carrying a loan balance as bigger, over time, the transaction volume can go down for our highest quality borrowers. So it's not either the apple-to-apple comparison, as the denominator goes shrink, the number will increase as a percentage. So as a roughly calculation, our annualized, basically, loss rate, if you were to compare to a traditional financial institution, is somewhere around just under 6%, and that 6% is very stable across 2017-2018.

Linda Sun-Mattison -- Bernstein -- Analyst

Carl, so if I understand this correctly, your M1 delinquency ratio, the denominated transactions volume, because you have extended the duration now, the transaction volume like-for-like actually shrink, and that contribute to the pop-up in the Q2 2018 delinquency ratio, right? But if we can use that, use a loan balance as denominator, we shouldn't see that pop-up, is that understanding correct?

Carl Yeung -- Chief Financial Officer

That's correct. So if you were to look at the actual volume of transactions, 2017, we had RMB88.9 billion of volume in 2017, but only a RMB57.9 billion in volume in 2018, while our net profit continue to grow because our outstanding loan balance has increased, right. So that's what -- yes, that's right.

Linda Sun-Mattison -- Bernstein -- Analyst

Yeah. Thank you very much, Carl.

Carl Yeung -- Chief Financial Officer

Thank you, Linda.

Operator

Your next question comes from the line of Martin Ma (ph) from Nomura. Please ask your question.

Martin Ma -- Nomura -- Analyst

Hi. Good morning. Good morning, management. Here I have two questions. The first one is, last Friday there was a exposure of high interest on cash credit platform like 714 (ph) platforms by the 315 (ph) evening last Friday, and there may be a new round of expressions by the regulators, so any readings from you guys on that? And my second question is from the adoption of new accounting rules. I observed that there is a new accounting rule for FY '18, so are the numbers for one comparing '18 and '17 numbers, are the '17 numbers also under the new accounting standard? Thank you.

Carl Yeung -- Chief Financial Officer

Thank you, Martin, very up to speed on what's going on in China. So just on March 15, last Friday, CCTV, the annual show to basically expose ad operators came, and it mentioned a lot of high interest loan platforms, legal platforms, and they named about a 100 plus companies, ultimately. We are not on that list because we operate a regulatory compliant API. In fact, we are so compliant that again, we're not on that list.

What's my take on what's ahead for the sector, I think, it's great that regulators, the media exposes these platforms. Because Qudian is also on a mission to destroy the guys. We provide a lower interest product, a friendlier service to help, the traditional financial institutions carry out so-called inclusive finance to help the Chinese economy grow in a properly regulated manner. So what I would envision happen, I think, several analysts already came up with notes and I highly agreed is that, the regulator already released regulation 141 in December 2017. They carried -- it mentioned specifically how platforms should approach and work with financial institutions, what the interest rate can be. All they need to do now that the law says, is 36% API are in. I don't think that the regulators need to sort of tighten things anymore, just send the police and arrest these guys. I think, that's what they're going to do. And there has been two cases already of companies exposed on 315, on March 31, -- as of March 15, and have police raided these companies. It's great and we love these guys. So the industry will be more healthier if high interest rate platforms go away, I think, consumers will get less; overall, it would be a better tomorrow for everyone. Hope that answers the question. I cannot predict any further whether regulators will go, but I think this is a very reasonable arrangement for just send the police and arrest these guys.

Number two, regarding operation, adoption of ASC 606, we adopted ASC 606, for our off-balance transactions in January 2018. We are one of the first Internet finance companies among the other based in the US to adopt this accounting standard as public. It had a good contribution to our 2018 revenues, and ultimately net income. But it will not affect -- we did not adopt in 2017, because there was accounting principle that was pronounced on the back of 2017, so we adopted it in 2018.

Don't worry about early recognition of revenue. I can help you understand that. All the funding arrangements that we have for these off-balance sheet transactions, we negotiate without funding (technical difficulty) on a loan balance basis. So, as a transaction it's run up, it will get refueled by our funding partners who will continue to be able to recognize these revenues in the way our loan balance. So, it's very different from the other transaction volume driven platform. We are much more stable in that way. That's why we have good confidence in delivering that RMB3.5 billion in 2019. Is that answering the question, Martin?

Martin Ma -- Nomura -- Analyst

Yeah, yeah. Thank you very much, Carl, they're very clear.

Carl Yeung -- Chief Financial Officer

Thank you, Martin.

Operator

Your 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. So, I just want to understand more about the new loan referral model that you mentioned earlier like for your financial institutions where you don't take credit risk. So, I'm wondering like what would be the inner economics or the takeaway there, and how does that compare to the existing model where you do have the credit guarantee? And also like in terms of the progress so far like how much loans has been facilitated under the model, and also, who are the like key financing -- financial institutions that you're working with? Thank you.

Carl Yeung -- Chief Financial Officer

Thank you, Daphne. Yes, we are very excited, to say the least, about this open-platform opportunity for us. As you know, even out of the RMB22 billion of loan balance where we do underwriting, we already have an equity of above RMB11 billion, which makes us one of the lowest leverage company in the industry. I said a lot about us that our risk preference, we really like low risk and how do you extend this opportunity or this business bigger without creating more leverage. So if we look at our user base, we have 70-plus -- 71 million now of registered users, we're serving 5 million-plus of with underwriting, that means there is 5 million-plus users that does not make (technical difficulty).

So how do we do? One thing that we're doing is to send traffic to other Internet finance company, making sure partners for -- also (technical difficulty) partners. But the greater opportunity is that we (technical difficulty) transact our funding partners. So it's actually not -- if you send beyond just traffic, and transactions to your partner, they're willing to give you a very handsome take on their revenue shift. In fact, what is pretty good right now is to know for -- risk funded loan balance, we take about a close to 15% net take under loan balance. The deal that we're negotiating and governments execute are with these traffic referrals, we can get close to 10% to 12%, somewhere between there of the actual loan balances (technical difficulty) but we're not taking any risk at-all, however no underwriting. So it's actually a way there for us to scale much, much more (technical difficulty) the 5 million that we have, is that the 10 million (technical difficulty) out of the 71 million. So, that's kind of we get opportunities that I'm really excited.

So you have one number that you asked. I cannot disclose the number yet. We will disclose exact loan balance when we come when we report the first quarter, it's going to be really nice.

Daphne Poon -- Citi -- Analyst

Okay, sure. Thank you.

Carl Yeung -- Chief Financial Officer

Thank you, Daphne.

Operator

Your next question comes from the line of John Cai from Morgan Stanley. Please ask your question.

John Cai -- Morgan Stanley -- Analyst

Hi. Yeah. Thank you for taking my questions again. So I have two follow-up questions. I think, the first one is on the customer referral business. So can we have some more details on who are the institutions and what are their APRs? Do we have a check on that, because obviously after last Friday, I think, there's a heightened regulatory expectations on this business, particularly on who we refer to. So -- and then the second question is on the guidance. So I think we need to grow to like on an average RMB25 billion for 2019 for -- to deliver the '19 earnings guidance. But I think, my calculation shows that the loan balance per outstanding borrower has already grown to like RMB3,600 already, so I think, can the management share more on how we grow our loan balance broken down by the new borrowers, and also the per borrower outstanding loans, and where we get the new customers? Thank you very much.

Min Luo -- Chairman and Chief Executive Officer

Thank you very much John, for the two follow up. I'll answer the easy one first. The customer grow business, again we generated RMB30 million in risk-free revenue, essentially profit in the fourth quarter 2018. So it's a great quarter that we started off with. I can share not a material impact to our financials, yet. We are doing a run rate of about RMB200,000 a month -- a day, doing these referrals on a day-to-day basis. So it's a stable a risk-free revenue source for us. We are very conservative, so we do background checks in every partner engagement. We are aware of what exactly happens at most (inaudible) we're named on March 15th. So we are very, very careful. Actually, a lot of partners because we (technical difficulty) too high. So mainly for the companies that we're partnering with, so consumer finance companies, bank credit cards, and certain P2P (ph) platform that very reasonable interest rates. So process (ph) is working. It's going to be a stable, a quick source of income, but the credit part is again, our transaction referrals -- the traffic referral is a small thing.

Now, on guidance, (technical difficulty) if you work on the back of the math and it's going to stay (technical difficulty) in the carry a RMB25 billion average loan balance for the year. So essentially, despite (technical difficulty) RMB30 billion ending balance for 2019. (technical difficulty) in many ways. We can do (technical difficulty) RMB3,000 per person. Obviously, that's one sort of outcome. Another outcome is -- and that's something that we think is a direction that we -- as you saw from the third quarter of 2018, we exited with 4.9 active borrowers, and (technical difficulty) 5.3 million by the (technical difficulty) We continue -- we're continuing to (technical difficulty) So we like that number to grow. But we also add on more loan balance for our borrowers because we have been too conservative before. Your math is roughly around right, it's around RMB3,000 per loan balance per borrower right now. And we think that we can safely add that to roughly RMB5,000 without seeing material change in our delinquencies. So that's something that we think would head us nicely to the RMB30 billion loan balance by the end of the year.

John Cai -- Morgan Stanley -- Analyst

Thank you very much.

Carl Yeung -- Chief Financial Officer

Thank you, John.

Operator

(Operator Instructions). Your next question comes from the line of Matthew Larson from National Securities. Please ask your question.

Matthew Larson -- National Securities -- Analyst

Thanks for taking the call. I got on a little late, so this might have already been addressed. But congratulations for the quarter. Your growth is quite attractive, your stock prices, though, kind of languishing near to low. And I'm not sure if you comment on any new share repurchases. You've got the RMB300 million that you had authorized back in December, which was on top of a previous uncompleted one. It didn't look like you repurchased any shares thus far. If that's the case, why not, because there's been plenty of opportunity, because the stock has traded a lot of volume right down really near the low, could you comment on that, please?

Carl Yeung -- Chief Financial Officer

Sure. Matthew, thank you. We roughly adjusted, I like to provide more details on your question, and we're happy to do that. So if you look at our first set of RMB300 million repurchase, we spent RMB270 million of $300 million repurchase, we spent $270 million of that, and that was basically in 2018. The reason for that is because we set a RMB2.5 billion earnings guidance in early 2018. We were quite confident that even without us deploying so much of our capital in our highly attractive, high yielding products that we work with our partners, we can still make that RMB2.5 billion. So we spent $270 million buying stock back -- $270 million buying stock back. In 2018, that was the case.

In 2019, we have a bigger number that we need to deliver RMB3.5 billion; that's roughly RMB1 billion more. And we think it would be more comfortable for us, at least for now, to deploy more of that cash in that 20-plus annualized yield using that cash right now. So again, my top priority right now is make sure our earnings guidance are met. And then secondly, we'll look at possible investments that will take this Company further in terms of either users or the way we operate a regulatory compliant operation, then we think about buying back more shares. Does that make sense, Matt?

Matthew Larson -- National Securities -- Analyst

Yeah. I mean, of course, you're growing very rapidly in a very difficult environment. And I frankly, don't know why the stock is trading as low as it is other than the whole sector has been under pressure because of the regulatory environment. You seem to be one of the companies that will persevere and be a winner, which has its advantages, there'll be market share pick up, you're very liquid now. And you're trading, you do the RMB3.5 billion at current -- of currency translation rates, that's -- well, that's like less than three times earnings. I mean, it's a -- in it you're growing 40% bottom line, so there is a disconnect there. And it looks like you had some sellers that were maybe original investors in your Company, which has put some pressure on the stock, each time you've announced -- pre-announced strong forward earnings guidance, the stock has seemingly look like it's wanted to move higher, only to fall back. So I'm a larger investor -- I'm a large investor and -- but if buying your stock back at 2.5 times earnings isn't attractive, I mean, where do you are going to get that opportunity? I mean, it seems to me just a gift that you're able to do so, because you have the liquidity. So it must be something you look at every day, because you could easily buy some bag without moving the market even with the volume that your Company trades each day. So I guess, the threat that to people who feel that your Company doesn't deserve a higher price, that you still haven't even bought any shares back is a positive, right? I mean, -- but I guess, it would be a nice opportunity to sell stock at RMB24 on the IPO and to buy it back at RMB5, I mean, what a great transaction. I mean, doesn't that seem as a worthy use of your funds also?

Carl Yeung -- Chief Financial Officer

Yeah, Matt, thank you for these very keen observations. We're with you. We have a focus on delivering shareholder value. And I think, for now, there is a lot of still misconception about bundling us with P2P players, the -- what's happening after Alipay, things like that, so -- and plus, there's not been too much help from our IPO shareholders, of course. So all that mix is -- it doesn't help the stock, thus this relatively interesting valuation.

We're going to be here long-term and our focus is to make that earnings grow our balance sheets in the way of assets, and perhaps in two years our cash will just take the Company away, if needed. But we're here going to be here for long-term. We like being a public company, we like being challenged, we like the feedback we get from the investors helping us grow. So, yes, your concern -- your remarks are all correct, we understand. Leave that to us. Leave that to our quarterly results with time to deliver.

The shareholders who have been selling a short-term problem, at some point it will be done, and at some point there will be reasonable smart investors who understand how operations is sustainable, it's strong, it's no leverage, it's got great returns. So this is the wonder of capital markets, right? And we believe in that.

Matthew Larson -- National Securities -- Analyst

Sorry. I must say this, that your market capitalization, it's attracted to a market cap conversation. it's attracted to a lot of institutional investors so that you could probably draw in new investors by not shrinking the amounts of the flows. So there are -- you know, ancillary benefits for being a market -- a company of your size instead of shrinking it. But you're right, you can -- the way you're going in a couple of years, you could just go private, I guess, if nobody is going to give you a valuation. So, all right, keep up the good work. Thanks for the answer. I appreciate the time.

Carl Yeung -- Chief Financial Officer

Great. Thank you, Matthew. I appreciate your insights.

Operator

There are no further questions at this time. I would like to hand the conference back to today's presenters, please continue.

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

Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may all disconnect.

Duration: 69 minutes

Call participants:

Annie Huang -- Director of Capital Markets

Min Luo -- Chairman and Chief Executive Officer

Carl Yeung -- Chief Financial Officer

John Cai -- Morgan Stanley -- Analyst

Charles Zhou -- Credit Suisse -- Analyst

Jacky Zuo -- Deutsche Bank -- Analyst

Victor Wang -- CICC -- Analyst

Linda Sun-Mattison -- Bernstein -- Analyst

Martin Ma -- Nomura -- Analyst

Daphne Poon -- Citi -- Analyst

Matthew Larson -- National Securities -- Analyst

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