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LexinFintech Holdings Ltd. (NASDAQ:LX)
Q3 2019 Earnings Call
Nov 18, 2019, 6:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the LexinFintech Third Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would like to hand the conference over to your first speaker today, Mr. Tony Hung, Senior Director of Capital Markets. Thank you. Sir, please go ahead.

Tony Hung -- Investor Relations

Thank you, operator. Hello everyone, and welcome to the Lexin's third quarter 2019 earnings conference call. The Company's results were issued earlier today and are posted online. Joining me today on the call are Mr. Jay Xiao, our Founder, Chairman and Chief Executive Officer; Mr. Craig Zeng, our Chief Financial Officer; Mr. Ryan Liu, our Chief Risk Officer; Mr. Stanley Zhou [Phonetic], our Senior Financial Director and other members of our team. For today's agenda, Mr. Xiao will provide an overview of our recent performance and highlights. Mr. Zeng will discuss our financial results, and Mr. Liu will discuss our credit performance.

Before we continue, I refer you to our safe harbor statement in the earnings press release which applies to this call as we will make forward-looking statements. Also this call includes discussions or certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures.

Finally, please note that unless, otherwise stated all figures mentioned during this conference call are in renminbi. I will now turn the call over to our CEO, Mr. Xiao, whom I will translate for.

Jay Wenjie Xiao -- Chairman and Chief Executive Officer

[Foreign Speech] Hello, everyone. I am very pleased to announce the execution of our new consumption platform strategy and our strong active customer growth, has once again allowed us to achieve strong growth in our business. This quarter for the first time, our registered users reached over 60 million, an increase of 92.2% year-on-year. Our new active customers for the quarter was 2.5 million, a very strong increase of 265%. Our sales was RMB3.2 billion, an increase of 72%. Our gross profit was RMB1.7 billion, an increase of 122% allowing us to achieve our eighth straight quarter of double-digit growth since our IPO.

[Foreign Speech] We can see that in our year-to-date, Lexin in the three areas of consumption scenarios, financial services and customer benefits and privileges have continue to push forward on our strategy of the new consumption platform connecting our customers were many online and offline consumption scenarios activating millions of new consumption request, which has demonstrated in the increasing growth of our platform. Where in single state, Lexin's own consumption platform achieved over RMB100 million in GMV in under 10 minutes, less than half the time it took last year. Lexin with our partner, Xiaomi, NetEase Kaola, [Indecipherable] and 18 other e-commerce platforms together created a new single state installment market, increasing the number of daily installment purchase by 3.8 times and increasing GMV by 540%.

In addition Lexin's new membership benefits card, Le Card has today connected other benefit cards including movies, dinning, music, travel and other benefits and products like by educated young adult customers. At the end of the third quarter, Lexin's paid membership product has already served over 1.5 million customers.

[Foreign Speech] We are deeply aware of and appreciate the fact that as the number of our customers grow, our responsibility to protect our customers grows as well. In the third quarter, we introduced our Yonggang [Phonetic] User Protection Program 2.0 system for protecting customers, using AI and big data technology to protect against over-consumption, to protect against fraud and to protect our users' private data or what we call the three protections. We believe that with our technology capabilities, which has been accumulated over the past six years, we can provide hundreds of millions of customers with a safe, convenient and sustainable service and in turn enable Lexin to continue to grow in a stable and sustainable manner.

[Foreign Speech] In addition, Lexin's AI laboratory and big data center has introduced our new Lexin [Phonetic] AI smart finance platform, which is not only being deployed across all our business lines to increase efficiency, but is also providing Lexin's financial technology with greater security and safety.

[Foreign Speech] As a result of our strong capabilities, Lexin has gained the trust of the broadest and most diversified group of institutional funding partners. To-date we have established with over 100 large national banks, insurance companies and consumer finance companies, strategic cooperation agreements positioning ourselves as the leader in our industry in diversified funding.

[Foreign Speech] Lexin's new consumption platform strategy is continuing to release the inherent consumption potential of China's millions of educated young adult customers giving us confidence in the future of our Company. As a result, we have adjusted our full year loan origination guidance to RMB115 billion to RMB125 billion as compared to last year's RMB66 billion, a growth of 74% to 90%. Recently AC Nielsen's reports on the leverage levels of China's view also review that China's use debt levels as measured by monthly payment as a percentage of monthly income was only 12.5% and still exhibits great potential for growth. In accordance with the government's macro policies encouraging consumption, we have reason to believe that leading player serving the emerging educated young adult consumer population will have further room to grow and develop.

[Foreign Speech] Next I'd like to invite our CFO, Craig, to discuss our recent financial performance.

Craig Yan Zeng -- Chief Financial Officer

Thank you, Jay, and hello, everyone. I'm pleased to announce that we have once again delivered a strong results in the interest of time, I will not go over line item by line items of our financials. For a more detailed discussion of our third quarter 2019 results, please refer to our earnings press release. As Jay mentioned, total operating revenue for the third quarter 2019 reached RMB3.2 billion, driven by strong growth in our financial service income, which reached RMB2.2 billion, of which loan facilitation was RMB1.9 billion. Adjusted net income was RMB714 million, reflecting our continued strong growth and performance.

Fully diluted adjusted net income, per income per ADS was RMB3.86. We continue to see the future potential of our business model. In the performance of our customer cohort whom we acquired in the first quarter of 2015, whose balance is now RMB13,778 and whose 30 day delinquency rate is approximately 1.19% which is a stable level of quarter activity rates at 42.7%. Our operating leverage, operating expense as a percentage of the average loan balance is now 6.5% in the quarter and the non-advertisement marketing, advertising, G&A and R&D was 1.3%, 3.1%, 1% and a 1.1% of average loan balance, respectively.

We currently have 62.6 million registered users and 16.7 million customer with credit line, up from 9.6 million in September 30, 2018. We acquired nearly 2.5 million new active customers in the third quarter. Overall, our average credit limit was RMB9,488, while our average tenor is now 13.3 months, our weighted average APR was 26.6%, in term of our funding for the quarter, only 6.5% of our funding for new loan origination came from our Juzi Licai platform and the 93.5% of our funding for new loan origination came from our institution funding partners.

And as Jay mentioned, we are pleased to announce that we now expect total 2019 low automation to be in a range of RMB115 billion to RMB225 billion versus our previous guidance of RMB115 billion.

Next, Ryan will discuss our credit situation. Ryan, please.

Ryan Huanian Liu -- Chief Risk Officer

Thank you, Craig. We continued our strong performance in this quarter. In spite ARPU certain factors are affecting others in our industry. Our credit quality continues to be high, and we expect our credit statistics and the charge-off ratio to remain at the same level at its core for this quarter. Our 90 day plus delinquency ratio remains low at 1.4%. And then we continue to see strong performance as our lifetime charge-off ratio is approximately 2.5%.

We fully expect our strong performance to continue for the full year 2019. With that, I conclude our prepared remarks. Operator, please proceed.

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 Jacky Zuo from China Renaissance. Please ask your question.

Jacky Zuo -- China Renaissance -- Analyst

Thanks. [Foreign Speech] So I will translate my questions. So congrats on the results. I have three questions. So first is about our Le Card product. Just wanted to check -- so what's the percentage of the loan origination from Le Card as of our total loan originations? And what is the new user or new borrowers' contribution from Le Card and the related question is about the competition on this virtual credit card, a solution we recently saw that -- for example, WeChat, sorry, WeBank also launched a related, sorry, similar product called [Indecipherable]. So just want to get your view about the future competition on this virtual credit card products.

And second question is about the recent business trend, including the loan origination growth. Asset quality and also our sales and marketing expense as we -- we've seen, we actually spent over RMB500 million on sales and marketing in the third quarter. So just want to check our borrower acquisition pace in the fourth quarter. And the last question is about the regulation, so we've seen that regulator is encouraging the lenders with strong capital base and strong capability to be licensed. So what is our current situation in terms of applying license such as consumer finance company license or online microlending company license. Thank you.

Jay Wenjie Xiao -- Chairman and Chief Executive Officer

[Foreign Speech] So Jacky, on your questions, I'll answer the first and third one and I'll leave the question on the fourth quarter and the situation there for Craig, our CFO. On Le Card, as you know, it has demonstrated very, very strong growth. It's a very, very convenient product and as we're looking into the fourth quarter and beyond, it continues to be very strong contributing greatly to customer acquisition and other numbers. It can make up something like say maybe 20% to 30% new loan originations and perhaps this will continue to grow and certainly it's helping our customers with their needs.

So we certainly see that we're getting a lot of new active customers from this. And as mentioned, the growth and the active rates continue to be very, very strong. Now with regards to the competition. I think it's perhaps worth pointing out that we are still targeting the same type of customers and also a lot of the customers that we're serving, were in fact already our existing customers. So in fact, we're actually serving the same customer and also, we're not changing our fundamental customer profile.

Now, why is this important. It's important because, WeBank and some of the other competitors out there, they serve fundamentally different customers. Customers that are not our customers that have the different profile. So as a result, we are not really seeing significant competition or potential competition from them as they're actually fundamentally targeting a different group.

[Foreign Speech] On the licensing and the licensing situation, I think we've been consistent in saying that ultimately, we're not a financial institution. And fundamentally, we don't want to rely on any particular license per se, but as you said, the companies that are highly compliant, the companies that are good, they will basically get the respect and attention and certainly if we have the opportunity, we will certainly focus on potentially acquiring additional licenses. Now, as you know, we already have the internet microloan licenses and other licenses and we will continue to accumulate the proper licenses. However, and specifically the license that may be coming we'll disclose more about it at the appropriate time, when the time becomes closer.

[Foreign Speech] And so I think Jacky given the -- for the overall guidance for the year, we've revised it upwards a bit, that kind of answers some of your questions regarding the numbers for the fourth quarter and how things are looking. Now that said, on one hand, we're very fortunate in that, nearly all of our funding now is institutional funding.

However, there is always certain uncertainties associated with institutional funding at year-end, so hence, there is some risk there but that said again our overall guidance for the full year has been raised. So ultimately, in spite of the uncertainty, certainly the fourth quarter numbers are looking higher than they were before.

Now on customer acquisition, I think ultimately, as you know, we are very analytical about these things and it always depends on returns, the effectiveness, how the different channels work. So right now the return certainly are very good. It will take us something like three months, maybe, maximum six months to recover the typical costs and certainly we've spent a lot in the third quarter. But ultimately, because we're very analytical about this and it depends on the returns we can get on the channel, we'll have to adjust accordingly in the future. So it depends on the situation. But again, the third quarter was definitely a bit of a high and potentially in the future we may adjust downward slightly. Hope that answers your questions?

Jacky Zuo -- China Renaissance -- Analyst

[Foreign Speech]

Operator

[Operator Instructions] Your next question comes from the line of Eddie Leung from Bank of America Merrill Lynch. Please ask your question.

Eddie Leung -- Bank of America Merrill Lynch -- Analyst

[Foreign Speech] So I have a two quick follow-up questions, the first one is about user demographics. Understood that Jay already saying that, not much change in terms of the user profile, but still curious on whether we have seen some different trends recently given the fast user growth in terms of, let's say gender, age groups and geographical location. And then secondly also a follow-up question on regulation. Recently, we have seen views about certain proposal on regulation on private companies using user data for credit analysis. So just wondering if we have any thought on how we positioned against such a proposal? Thank you.

Jay Wenjie Xiao -- Chairman and Chief Executive Officer

[Foreign Speech] And so, Eddie, with regards to your question, with regards to our customers and what changes we have seen, I think it's first, important to emphasize that we're continuing to serve China's educated young adult cohort or China's high growth cohort, now channels may change, the acquisition methods may change, but ultimately these are still the customers that we're going after, currently about one-third of the customers are being acquired from online sources in particular online direct advertising, about one-third is from referrals or some natural traffic and then about one-third is offline, but fundamentally, the customers, they're still 24 [Phonetic], they're still 25 [Phonetic].

Now, with regards to the online customer acquisition source, it is a very results-driven particular channel, it's a very effective channel and even though it is a new channel that really, we only used very widely this year, it's still the same customers that we're going after. So, at the core of it -- on the answer to your question, how has the customers change, no obvious changes, perhaps, the only thing is that, given that we're acquiring them online, we're just slightly more conservative with the credit that we give them, so we will prefer that we give them some credit and then let them use it and then give them additional credit based on that assessment.

[Foreign Speech] Sorry, Eddie with regards to your question around privacy concerns and some of the things that have been issued out there. I think first it's perhaps important to emphasize that when it comes to data and the use of data we're pretty conservative and we try to make sure that there is minimal impact or intrusion and we use the minimal amounts of data that we need. So, in particular for things such as contracts and GPS data as well as other information, there's three principles that we definitely have to abide by at least internally, one, as mentioned, we want to minimize the intrusion and also minimize the use of -- in particular sensitive information.

So this is something that very much internally we have as a policy. Second, we obviously have to do all this with the customers' permission. So, it's only with the customers' permission and authorization that we use any of the data. And then finally we definitely cannot use any of this data for things such as collections or pursuing debts

So regards to the overall situation, everything that we do is compliant with the law with the nation's law and the -- by the companies that have gotten into problems in the past, quite often they were using the data in a discrete way to make profits. So this is something that also we don't do, we certainly don't involve in those types of practices.

Eddie Leung -- Bank of America Merrill Lynch -- Analyst

[Foreign Speech] Thank you.

Operator

Your next question comes from the line of Alex Ye from UBS. Please ask your question.

Alex Ye -- UBS -- Analyst

[Foreign Speech] Sorry I will clearly translate my first question. So my first question is about the proposed use of the $300 million of cumulative [Phonetic] loans that Lexin issued earlier. And related to that, we have seen on the news that Lexin has invested into newly established private bank in Jiangxi province with a stake of 10% shareholdings, just wondering could you have some additional insight on that. And how would that investment help our business in the future?

And my second question is about the asset quality. So we have seen the 90 days plus delinquency ratio has remained stable in the Q3, but we also see some, we have two fair value items in the P&L to have seen the negative losses in this quarter, which may reflect some of the -- that's according to the fluctuations. So just wondering if we could have an update on our underlying trend on the asset quality and related to that, we have seen some of the banks turning more conservative on their credit card loans this year. So, I'm wondering how -- what's the management's view on that?

Jay Wenjie Xiao -- Chairman and Chief Executive Officer

[Foreign Speech] So, Alex, with regards to the CB, as you know, we have disclosed, quite a bit of information as well once we made the announcement. And as you know the CB was for $300 million, the conversion price around $14. And with PAG, one of the top investors in the sector, certainly very, very well respected I think by everyone and they have been in fact absorbing us for quite a long time. Now with regards to the use of proceeds, certainly, the use will be for future plans and operations, and then again the terms of the proceeds was quite good and it will certainly help us drive our future growth for our shareholders in the future. Now on the Yumin Bank investment, it's the 18th private bank in China. And as I think you know we have a 10% stake. It is a completely new bank, and its of itself, this provides a lot of value, given that there is no legacy problems.

First, as you know, private bank licenses are very, very rare in China. And it's a very rare opportunity for us to participate in one, especially a new one, we believe that in this situation, we can have a strategic cooperation, as well as deploy our technology to help the bank grow and to achieve the vision of becoming a technology bank in their place. It will also help us greatly with issues around compliance and also deepen the cooperation with financial institutions. Also as a shareholder, it will be easier to gain trust from this bank and also within the context of the situation. And on this point, of course for the future, we are constantly pushing the plans and also have a very, very clear plan to work together with the bank in the future.

[Foreign Speech] So I think, when we look at the situation with the credit quality, there is a very, very unique situation in 2018 with the P2P and the third quarter. And at the time certainly, we made different tests and adjustment, but because of the situation with the P2P, we faced basically a climate whereby it was actually a little bit difficult to deal with the borrowers in that particular quarter. But since then as you can see from our other statistics. We've made some fairly big adjustments to adapt to what was basically a unique situation in that case, so hence as to not repeat the mistakes with the past. But again on that particular quarter, third quarter, 2018. Yes, there certainly was a clear deterioration in credit quality.

[Foreign Speech] And so, on the fair value changes, the financial delivers [Phonetic] the guarantees. I think we all know that, that's an account that will be looked at every single quarter. And depending on where the numbers are, there may be some adjustments up and down accordingly. So there may be, if you will, some fluctuations in that, but that is essentially a normal part of our business.

[Foreign Speech] So a part of this of course is the fact that we acquired a lot of new customers in the third quarter. So naturally as the new customers come in, this will then in turn increase some of the credit costs or the potential provisioning. And as these are new customers, we also have to within the quarter or period remove the bad ones and protect the bad credit. So this in turn will naturally under our model, generate some of the fluctuations.

Alex Ye -- UBS -- Analyst

That's very helpful. Thanks for that.

Operator

Your next question comes from the line of Lucy Li from Goldman Sachs. Please ask your question.

Lucy Li -- Goldman Sachs -- Analyst

[Foreign Speech] My question would just be two quick follow-up on the topics already mentioned previously. The first one is, again on the fair value change of the financial guaranteed derivative, because in the statement, it's mentioned that this change is a result of the remeasurement. So just wanted to make -- so just wanted to double check with you that we are not observing changes, fundamental changes in terms of the asset quality for the total book.

And then the second question again on the new client acquisition, just wanted to know, what's the proportion on ongoing basis that's contributed by the new customers in terms of the loan -- loan facilitation volume. And also related to that, where do we see our TAM or ceiling in terms of the target customer cohort. Thank you.

Jay Wenjie Xiao -- Chairman and Chief Executive Officer

[Foreign Speech] So with regards to your questions. I think overall, as you know, under 606, we have to do a forecast and in terms of the forecast for the asset quality and the outlook. Certainly, we don't see any deterioration in asset quality, at least not right now, everything is looking very stable and so hence, yes, our asset quality continues to be fine.

With regards to the customers and the composition, yes there's definitely a higher percentage of new customers within the active, but in terms of the old customers and how they are behaving and the retention rates, it's still very much about the same. So, no real changes there. So it's really just more new customers and longer-term perhaps something like in the medium term at least 30% of the active customers are new customers will be what we consider a healthy number. And of course we have a very mature and sophisticated management system for managing the new customers credit to ensure that they continue to grow with us.

So ultimately in terms of the customer mix profile and our operations around it, yes, some of the numbers have changed, where fundamentally not too much has changed with regards to our operations. Now with regards to your question of whether if there is some type of ceiling for customer acquisition, what we see certainly is that there is a very free environment, at least for us, so in that sense, we also see that this is reflecting the consumption upgrade, the new consumption, many of the things that we see in the Chinese economy. So actually, we don't really see a ceiling right now for the customer acquisition.

Operator

[Operator Instructions] Your next question comes from the line of Martin Ma from Nomura. Please ask your question.

Martin Ma -- Nomura -- Analyst

[Foreign Speech] In the third quarter of this year, APR was recorded [Phonetic] 26.6%. And from the 4Q of last year, we can see a clear trend of pickup in APR. That is -- I mean is it because, Lexin has a larger share of business from new customers. And what do you -- is there any differences in terms of APRs provided to both customers and new customers. And the second question is about the delinquency ratio, when we compare the third quarter delinquency ratio within the first half number, there is a very strong improvement. Is it because -- it is because of the strong loan balance growth during the quarter, or it is because, they've been in the quality of new openings is better than the old business. Thank you.

Jay Wenjie Xiao -- Chairman and Chief Executive Officer

[Foreign Speech] Okay. I guess let me translate first. So, yes, you're absolutely right. The APR, the rise in APR is a function of a few things, one of which would be the number of new customers as well as the loan amount. And yes, indeed, the new customers would have higher APRs, but obviously as we continue to work with our new customers as they become our recurring customers, the APR will come down and we have to determine the actual risks and adjust the APR accordingly. Now, also Jay, would like to emphasize that, of course, our new customers will, they become our old customers, and as we continue to work with them we believe that not only will the APR for them come down, but overall that the APR for our entire platform should not continue to rise. So it's basically exactly as you said, it's essentially a function of the number of new customers.

[Foreign Speech] So with regards to the credit numbers, we've always maintained a very conservative policies and we certainly haven't changed our policies with regards to our customers and customer acquisition. With regards specifically to the decrease in the delinquency, there's a couple of reasons for that, one, definitely, partially, it was due to the strong growth, so the denominator if you will, in the equation impacted the overall numbers, but also, because we don't loosen the policies, we continue to maintain a very, very strict policy, so hence our overall performance was a reflection of that as well.

Martin Ma -- Nomura -- Analyst

[Foreign Speech]

Tony Hung -- Investor Relations

I'm sorry, Martin, can you translate that?

Martin Ma -- Nomura -- Analyst

Yeah, yeah. Thank you very much. And a follow-up question on the 4Q guidance, is it -- as we have seen that, you guys have revised up the full-year guidance by around 10%, is it largely due to the strong performance of Double 11 sales in the last week or another reasons behind that?

Jay Wenjie Xiao -- Chairman and Chief Executive Officer

[Foreign Speech] So, Martin, it's safe to say that we had a very good Singles Day, we did very well there. We had good numbers in growth. But that said, there is definitely no direct relation per se between Singles Day and the ways in the guidance. Rather, it has a lot to do given the time of the year already, the scale that we've achieved over the full year. In particular, our number of customers, the growth of our platform. So it has more to do with our operating model, than Singles Day per se.

Martin Ma -- Nomura -- Analyst

[Foreign Speech] Thank you very much.

Operator

Your next question comes from the line of Yiran Zhong from Credit Suisse. Please ask your question.

Yiran Zhong -- Credit Suisse -- Analyst

[Foreign Speech] I'll translate that. Firstly, I have two questions. Firstly, on the assisted lending model, what's the latest percentage of non-guarantee model versus the guarantee model. And how is the funding cost for that versus the guarantee model? And secondly, as a follow-up to the question previously on APR, we also see that the revenue net revenue take rate has seen sequential decline Q-on-Q in 3Q and wonder what's the reason behind that?Thank you.

Jay Wenjie Xiao -- Chairman and Chief Executive Officer

[Foreign Speech] And also with regards to the loan facilitation the two models off balance sheet, if you will, or just passing the risk completely off balance sheet and the other model where you do have the risk reserves, we've been doing both for quite a long time, and we have to adjust, how much we use of each or do of each based on, if you will, what the circumstances are to make the most reasonable or correct adjustment. But to answer your question more directly, it's currently something like less than 20% that is effectively off balance sheet.

And ultimately the regional trade off that we have to consider is a question around the Company's profitability and some other considerations as well. So if we do more off balance sheet, obviously we have to give up some profitability, essentially, that then goes to the institutional funding partner. Now is that trade off worth it, I guess it depends on other going on in the operations at the time and ultimately this is simply just a risk-reward trade-off. And if we can control the risk and we are confident in our ability to control the risk, then why would we want to give up the profitability. Now there is clearly benefits to both models to both, having reserves and not having reserves, but ultimately we have to make a decision based again on the profitability as well as our own cash and other situations.

[Foreign Speech] And so with regards to the changes we are seeing a bit in the take rate, there is definitely multiple factors that are going on here. And I think it can only be described as being a little bit complex, clearly there is the on and off that we talked about earlier, and also if you do more of one and obviously you're going to give up some profitability. And in turn that impacts the take rates, but then that in turn then also ties into other things around our future plans and anything that we might have, if you will, for the next year. So it's a little bit more complicated but ultimately, if we had to sum up the take rate, it would be stable, it's still generally stable within where we expect it to be.

Yiran Zhong -- Credit Suisse -- Analyst

Okay, thanks. Thank you, Wenjie Xiao [Phonetic].

Operator

Your next question comes from the line of Alan Kuang from Aletheia Capital. Please ask your question.

Alan Kuang -- Aletheia Capital -- Analyst

[Foreign Speech] My question is on funding cost. Can you share with us what's the latest numbers for the retail as well as for institutional funding. In the Q2 presentation, we saw that institutional funding is a lot more expensive than retail funding and usually continue to replace P2P funding with institutional funding, should we expect the overall funding cost to go up in future and would that have a negative impact on the Company's overall profitability? That's my question.

Jay Wenjie Xiao -- Chairman and Chief Executive Officer

[Foreign Speech] So on the funding cost and in particular the individual versus institutional, they can be different and the individual currently cheaper, but they're not really significantly cheaper. So again example where they're particularly close and the fourth quarter of last year when capital is a bit more abundant on both, we saw that was basically something like 7.9% versus 7.8%. And part of this also just has to do with how certain costs are accounted for, so the individual sometimes, the operating cost, the various cost of operating it are not included. But overall, you can say that ultimately, the individual funding, it's pretty stable at somewhere around 8%.

Institutional, however, it can be more complicated, it's fairly stable as well, but as mentioned earlier, with regards to the loan facilitation and different models and different reporting and whether the risk is on or off. Once you include that into the math, then you get numbers that are little bit different and perhaps less stable, but once you take that out. You'll probably still get something like 8% plus or so. So ultimately, there is a difference, but it's probably not that significant.

Alan Kuang -- Aletheia Capital -- Analyst

Okay, thank you for the color. Thanks for the answers.

Operator

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

John Cai -- Morgan Stanley -- Analyst

[Foreign Speech] So I have three questions about risk, customer acquisitions and product. So the first one is on the risk. It seems that, on balance sheet provision as a percentage of the, on balance sheet principal, this ratio remain relatively high for the -- for these two quarters? Is there any content impact on that? Or is this a normal ratio going forward?

The second question is on the customer acquisition, we mentioned about one set of the traffics acquired on line. Just wonder, is that a fixed percentage or will dynamically change that according to some metrics, and I'll show what's the metrics about, of that, we are looking at like, customer acquisition cost or etc. And just wonder if it would, feels like harder for me that the customer acquired online seems to be more difficult to retain. I'm not sure if that's the same as the management fees.

And the final questions is about the tenor. It seems there is a slight increase of our loan tenor to 13.3 months, not very big difference, but it seems a bit strange given that we have a higher portion of new customer this quarter. Just wonder how to elaborate on that trend. Thank you.

Jay Wenjie Xiao -- Chairman and Chief Executive Officer

[Foreign Speech] Okay. So John regards to the customer acquisition, so, certainly for the online customer acquisition we have, if you will, a full lead develop strategy method, a suite, if you will, on customer acquisition and plans associated with that. Plus, you can get a greater investor scale with the online methods in particular under the full suite of solutions that we developed internally, so hence the effectiveness is quite high. It's quite efficient and we're going to recover the cost in three months or less. So hence we'll definitely continue to do more, but ultimately we'll do more of that appropriate levels and depending on the overall situation. Now offline has a lot of benefits as well. It's much more precise. We can be clear about some of these things. Obviously, it's also face to face, perhaps maybe a little bit surprising is a fact that actually offline is even more effective. We can recover costs perhaps in something like a month. So hence it's just adjusting the right amount of mix, if you will, based on the circumstance. Now on the new customers on the on line, as mentioned earlier, definitely need for the new customers, a particular period of operations. And then longer term, of course, the new customers will move to -- become old customers, and this in terms of impacts our operations.

But in terms of the tenor and the 13.3 months, it doesn't really have anything per se to do with new customers. It's not related to that, it's much more, the overall product and the product designs and the product mix that our customers are using. And another way perhaps to look at it as you know, the tenor, average tenor for the previous quarter was 12.8 months and 13.3 months, isn't that big a difference. So it's kind of within the normal range of operations and based on how we manage our customers.

[Foreign Speech] So regards to the on-off balance sheet and the managing risk and what you say -- the accounts. Yes. You will be definitely very astute and ultimately the on balance sheet in terms of the risk. Yeah, you could say it's higher that would definitely be true. Now, has that been because of any major changes or anything like that? No, definitely not. Everything in general is more or less the way that it was before. There's definitely -- has not been any changes over adjustment. And as I think we know and we've talked about many, many times when we manage the Company and we run the whole Company as a whole, we look at the whole book, we don't look at it as basically on off risk but rather we look at the, the rest of the entire portfolio.

John Cai -- Morgan Stanley -- Analyst

[Foreign Speech] Thank you, and congratulations on the results.

Tony Hung -- Investor Relations

Thanks, John.

Operator

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

Tony Hung -- Investor Relations

Operator. If there is no further questions at the time. I think we can conclude the call.

Operator

[Operator Closing Remarks]

Duration: 79 minutes

Call participants:

Tony Hung -- Investor Relations

Jay Wenjie Xiao -- Chairman and Chief Executive Officer

Craig Yan Zeng -- Chief Financial Officer

Ryan Huanian Liu -- Chief Risk Officer

Jacky Zuo -- China Renaissance -- Analyst

Eddie Leung -- Bank of America Merrill Lynch -- Analyst

Alex Ye -- UBS -- Analyst

Lucy Li -- Goldman Sachs -- Analyst

Martin Ma -- Nomura -- Analyst

Yiran Zhong -- Credit Suisse -- Analyst

Alan Kuang -- Aletheia Capital -- Analyst

John Cai -- Morgan Stanley -- Analyst

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