Lexinfintech Holdings Ltd. (LX) Q3 2020 Earnings Call Transcript

Lexinfintech Holdings Ltd. (LX 3.21%)
Q3 2020 Earnings Call
Nov 24, 2020, 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 2020 earnings conference call. [Operator instructions] I must advise you that this conference is being recorded today. And I'd like to hand the conference over to your first speaker today, Mr. Tony Hung, senior director of capital markets.

Thank you, and please go ahead, sir.

Tony Hung -- Senior Director of Capital Markets

Thank you, operator. Hello, everyone, and welcome to Lexin's third-quarter 2020 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 Zhao, 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, please note that this call includes discussions of 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 Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

Thank you, everyone. I'm pleased to announce that we've once again reported strong growth and I'm pleased to say that our new growth is higher quality, lighter, and more agile.

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

In the third quarter, we continue to pursue our new consumption strategy and our total registered users increased by 69.6%, reaching 106 million. Our active users reached 7.4 million, an increase of 21.3%. This growth enabled us to achieve CNY 48.3 billion in new loan originations, an increase of 30.6%, with revenues of CNY 3.2 billion, gross profit of CNY 978 million, and EBIT of CNY 499 million.

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

A more important goal for change is in the continued improvement in the quality of our revenues. Currently, Lexin is already shifting rapidly from an asset- or capital-heavy risk-bearing guaranteed loan facilitation model into a technology-driven nonrisk-bearing loan facilitation model. Under this model, Lexin will utilize its advanced technology to service and enable financial institutions to increase their operational efficiency. And Lexin's technology services can encompass customer acquisition, internal systems build-out, and operations management for our partners.

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

This has enabled Lexin's third-quarter platform and technology revenues to reach CNY 1.13 billion, representing 36% of total revenues, of which, our riskless 2B technology revenues was CNY 614 million, which increased 159% year on year. Within new transactions, the risk was pure technology portions reached 40% and since October has already surpassed 50%. Under this model, financial institutions were better risked, enabling us to generate higher-quality profits, being more compliant with the direction of regulators and regulations, and in the long-term, enable Lexin to develop a lighter, more agile, and more nimble model, providing greater room for growth.

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

Consumption has been the number one driver for China's economy for the past six years now, becoming both in name and reality, the Chinese economy stabilizer and anchor. At the same time, as China's per capita GDP passes the milestone of USD 10,000 per capita, increasing domestic demand and promoting consumption will continue to offer tremendous potential and represents one of the most vital and core components to the government's rapidly developing new dual circulation strategy.

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

In the future, we will continue to explore opportunities with our new consumption strategy and establish multiple new products and businesses. Our Lehua Card membership program has already seen initial results and we have released our new Fenqile app, creating a system that covers all consumption scenarios and providing a more open new consumption platform. We will endeavor to capture the opportunities provided by the world's largest consumption market, focusing on products and services that is centered on new consumption, opening greater room for growth. We are fully confident in our ability to achieve the CNY 170 billion to CNY 180 billion loan origination guidance that we set out before the COVID-19 pandemic.

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

Another item which I'd also like to report to everyone is that as an Internet platform with over 100 million registered users, our responsibility to our users and their hopes and aspirations are always our highest priority. In August, Fenqile initiated a new and comprehensive brand upgrade campaign, adjusting our brand to the consumption changes of our young customers, and promoting our [Foreign language], or Just right is just perfect brand. We aim to use our knowledge of our young customers' product preferences and desires to accompany and grow with them, our millions and millions of young customers. Our new branding reflects Lexin's long-term focus has strengthened the positive image around our brand and has received recognition and gained trust from various parts of society.

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

Next, I'd like to invite our Craig, CFO -- our CFO, Craig, to discuss our recent financial performance.

Craig Zeng -- Chief Financial Officer

Thank you, Jay, and hello, everyone. I'm pleased to announce that we have, once again, delivered strong results. In the interest of time, I will not go over line item by line item of our financials. For a more detailed discussion of our third-quarter results, please refer to our earnings press release.

Total operating revenue reached RMB 3.2 billion in the quarter and credit-oriented service income reached RMB 2.0 billion. Platform-based service income reached RMB 614 million, representing an increase of 159% from the third quarter of 2019. Adjusted net income was RMB 443 million. Fully diluted adjusted net income for the quarter per ADS was RMB 2.15.

Our operating leverage -- operating expense as a percentage of average loan balance was 3.5% for the quarter and our advertising marketing, advertising, G&A, and R&D was 0.8%, 1.4%, 0.6% and 0.7% of average loan balance, respectively. We currently have 106 million registered users and our customers with credit line reached to 25.2 million, up by 51%, compared to September 30, 2019. We acquired nearly 1.7 million new active customers in the third quarter. For the quarter, our average tenor was 11.4 months, our nominal APR was 15%.

The ongoing COVID-19 outbreak has brought and continue to bring many challenges and uncertainty to our business, but we believe that with the continued determined efforts of our team, we will still be able to achieve our initial stated guidance of RMB 170 billion to RMB 180 billion in the loan origination for the year. Next, Ryan will discuss our credit situation. Ryan, please.

Ryan Liu -- Chief Risk Officer

Thank you, Craig. We continued our [Inaudible] credit performance in this quarter. In spite of challenged conditions in the market, our credit quality continues to be high and within expected levels. And we fully expect our credit status to continue to perform well and at expected levels.

Our 90-day plus delinquency ratio climbed from the second quarter to 2.6% in the third quarter. And we continue to see stable improving credit performance as our lifetime charge-off ratio has stabilized. This is consistent with our previous statements and falling with within our range of expectations, and we fully expect our performance to remain stable and continue to improve toward the end of 2020 and into 2021. With that, I conclude our prepared remarks.

Operator, please proceed with 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

[Foreign language] Thanks, management for taking my questions. I have three questions. Number one is about your loan volume guidance and the trend for next year. So I actually observed that our loan growth is better than most peers.

So what is our outlook for next year? And second question is about our asset quality. Can management share with us some color about the short-term delinquency rates, collection rates, and the vintage loss for the new loans originated in the first nine months this year? And any write-back provision we can expect in the coming months or quarters? And lastly is about the regulation. We saw the news that the overall trend for regulation is to ask the fintech giants for deleverage and the market is also concerned about the upcoming tightening on the loan origination -- loan presentation model. So do we have some color on the regulatory trend? That would be very helpful.

Thank you.

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

So, Jay, answered the first question. With regards to the guidance, so as mentioned, we certainly look forward to accomplishing the guidance this year. That's been quite challenging, given that we actually gave the guidance originally during the time that was, not only pre-COVID, but also at a period of time when we were growing the fastest. And clearly, if you can see from the results, the first quarter, we, like many others, were impacted and it was quite challenging.

Then the second half, we adjusted and through the team's efforts and hard work, we now feel very, very strongly and confident that we can achieve our guidance for this year. The Singles' Day for this year was also particularly good. And when we look at the fourth quarter, it looks like it may be possible that we once again, create a new high when it comes to loan origination. Now next year overall, we believe that things should continue to be good, and overall, not surprisingly, things are improving.

Obviously, COVID-19 situation is coming under control gradually over time and especially in China, consumption in China continues to be strong and recover. And in fact, as we mentioned, a little bit earlier just now. The Singles' Day this year is better than last year overall, so we can really see the strength in consumption. So if next year, the overall economy is better, there's no reason why things shouldn't be better.

And plus, in addition, it should be noted the asset quality continues to improve. So if that's the case, then obviously, we certainly believe that next year should be pretty good. And obviously, when we have something more precise, we'll be sure to communicate to everyone about our expectations for next year.

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

OK. [Foreign language]

Tony Hung -- Senior Director of Capital Markets

So I think with regards to your question on the asset quality trend. This quarter, things overall continues to improve, and for example, the FPD7 declined from about 2.3% to 2.2% plus. In general, every single bucket of statistics that Ryan will look at looks better. The M1 is better by 5%, selections are better, vintages, the 30-day delinquency in the third quarter is now better by 30%.

And generally speaking, the third quarter, the new loan origination, the asset quality looks good and we see this trend continue and continuing to exhibit itself next year. Now a lot of the quality performance won't show up until next year's results, but we certainly see this trend continuing.

Ryan Liu -- Chief Risk Officer

Or just the one question, the FPD7 is improving from 2.3% to 1.8%.

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

So I think everybody has heard various voices and different opinions on the whole subject, what the regulators are saying with regards to your third question, Jacky. But overall, I think at the end of the day, what the regulators and the government wants to do is to continue to promote the healthy regulator growth of the industry. I think the regulators and the government as a whole, also very clearly and have spoken out clearly, recognizing the technology contributions that have been made to the sector and the improvements that have been made by companies such as ourselves. And what the regulators are also seeking is to pursue a fair market for everyone and for everyone who's in similar businesses to be treated equally.

It can't be someone who's doing something very equivalent to another entity and somehow they get special treatment. Now we can see very clearly, and I think many people recognize this, that the new policies as a whole, have very, very limited impact on us. Our use of micro loan license at less than 1%, whatever the regulation is or has been about the ABS, etc., that also has a limited impact. So really, we don't see much impact to us on the regulatory front.

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

So on the whole loan facilitation model as, Jacky, I think, you're fully aware and you certainly have written a bit on, the CBIRC, I mean, earlier this year, they clearly established who does what and what the rules are on the loan facilitation model. So this has been clearly established and we have been doing everything to be fully compliant with the firmly established rules and regulations. And this is why we are pursuing, very actively, the profit sharing model, which utilizes our technology and it's asset-light, to equally compliant with the goals of the regulators. In these instances, the financial institutions will, of course, take on the risk as the regulators have wanted and indicated in the past.

And we will receive a pure service fee for the service that we provide and how picking the right clients for the financial institutions. And this is clearly more compliant with all the regulatory directions and goals that people have been following for quite a long time, actually now. And this is in addition, consistent with the government's goal on the internal circulation part of the dual circulation strategy or promoting consumption and we can even see actually some of the recent announcements that you do see the potential loosening of various leverage and constraints. So in this environment, we're becoming actually more and more compliant with the regulatory directions.

And we believe that, based on the current situation, in a fairer market, Lexin is going to have many, many opportunities. And we are even going to have opportunities, potentially, to do certain things that we couldn't do before in this fairer market. So overall, we're actually quite positive on the direction of the regulatory environment and the opportunities that it will potentially offer.

Jacky Zuo -- China Renaissance -- Analyst

[Foreign language]

Questions & Answers:

Operator

Your next question comes from the line of Ethan Wang from CLSA. Please ask your question.

Ethan Wang -- CLSA -- Analyst

[Foreign language] I have two questions. The first is a follow-up question on asset quality. So, although we are seeing improving asset quality trends, however, if we divide provision by the loan origination, there's still an uptick from the last quarter. So just wondering what is the reason behind and there are also some investment-related loss in other income.

Is that also related to asset quality? Just want to get some more color on that. And the second question is on the take rate. So if we divide by the service revenue by the loan origination amount, the ratio actually also goes up a bit, compared to last quarter. So just wondering what is the driving force behind when the interest rate is going lower and when we are transferring -- transitioning to capitalized model.

Yes. Thank you.

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

Yeah. So I think on the asset quality, in terms of the outstanding situation, if you will, I think we certainly have to take a conservative approach, given that the COVID-19 situation and other factors still are impacting the economy. So for some of these numbers, we may need to be a little bit more conservative. Provisions, I think you also have to divide that between the new and old.

And clearly, the new is getting better and we can see the trends, we can see this happening, but for some of the old clients, we have to be, as mentioned, a little bit more conservative about some of these things. So hence, we do have actually a few different things going on. That's not necessarily a reflection of just the new or positive trend.

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

So I think, first, let me touch on the other income, since you have asked that first. As Craig just mentioned, I think within that, there's a few things, not the least of which is a FX loss because we do have a U.S. dollar CB, etc., and we did see improvement in the value of the renminbi. So you have things like that going on.

On the second question that you have on the take rate, well, it's definitely not that simple. We definitely can't make that type of simple calculations. Includes some future items, includes some tax items and runoff, so you certainly, you can't view that as just the current or the future, rather it's a combination of different things, part of it under the new accounting standard, but again, needs to be runoff first. So there's a few different things going on there and it may be worthwhile for us to have a more detailed offline discussion on the calculations in the future.

Ethan Wang -- CLSA -- Analyst

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

Ethan, can you translate that for us? Thanks.

Ethan Wang -- CLSA -- Analyst

Sure, sure. Just a quick follow-up on take rate. So just wondering if management can give us some more color or guidance on the future trend of the take rate. Thank you.

Craig Zeng -- Chief Financial Officer

Yeah. We didn't give any guidance on the take rate trend. But basically, it's quite a -- it's relatively stable on the different models like we have this profit sharing model, we have this direct lending model. So relatively, it's quite stable, but it's a mix, it's changing.

[Foreign language]

Ethan Wang -- CLSA -- Analyst

[Foreign language] Got it. Thank you.

Operator

Your next question comes from the line of Sanjay Jain from Aletheia Capital. Please ask your question.

Sanjay Jain -- Aletheia Capital -- Analyst

Thank you, management for your presentation. A few questions. Let me start with a follow-up on the profit sharing model. As per my calculation, your take rate in profit sharing or the fee rate seems to have fallen from 7.8% in the fourth quarter of last year to 6.8% in the second quarter and further to 6.5% in the third quarter.

I mean I know your numbers internally could be different from what I'm trying to estimate, but can you confirm that the fee in profit sharing is down by 100-plus basis points compared to the fourth quarter? And is this because this is the cracks of the profit sharing model that the losses for banks have gone up, so they are passing on those losses to you and that's why your fee has fallen?

Tony Hung -- Senior Director of Capital Markets

OK. Sanjay, I'll translate that for the team.

Sanjay Jain -- Aletheia Capital -- Analyst

Yes, please translate that for me.

Tony Hung -- Senior Director of Capital Markets

[Foreign language]

Stanley Zhao -- Senior Financial Director -- Analyst

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

So Sanjay, that was Stanley saying that our profit sharing model, at least in our case, there's no risk to us. I mean, we don't have to give something to the banks or the financial institutions. It doesn't get that high. So there isn't that mechanism going on, at least under our profit sharing model.

Now with regards to the profit sharing numbers, it may be worthwhile for us to touch base offline to try to tie all the numbers together. Stanley doesn't have the fourth-quarter calculation from last year handy, but based on what we see from earlier this year, it was much more like between 3.2% to 3.4%. So it's nothing that high, like over 6% or over 7%. That just is probably something nuanced in the calculation, but it certainly hasn't fallen dramatically.

And again, at least in our model, we don't really need to give anything to the banks per se.

Sanjay Jain -- Aletheia Capital -- Analyst

OK. OK. Yeah. Sure, we can discuss offline.

My second question is on the process of matching a loan to a bank partner and I know you have explained this in the past, but let me ask again. When you receive a loan and it's acceptable in your scoring criteria and suppose the borrower is also satisfying the criteria owed to you by more than one funding partner. How do you select which funding partner the loan goes to? And then what options or choice does the funding partner have? Can they say more than yes or no? Can they say that, look, you know you are sending the CNY 5,000 loan. I can take CNY 3,000 or you are sending me around CNY 5,000 loan at my way, but at 24% I would like to get 26% from this customer.

So how does it work? And if that bank says, no, then how -- does the loan go to the next one or is it syndicated or kind of shared? And the final question on that is that there you call in a little bit, say, 1% of each loan.

Tony Hung -- Senior Director of Capital Markets

OK, let me translate that for the team. So, Sanjay [Foreign language]

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

Yeah. So, Sanjay, what Jay wants to emphasize is that when we connect the user to the funding partner via the Wormhole system, it's a very comprehensive and complex system. It's based on all the different funding partners' requests and all the things that they have included into the system. And emphasis is definitely on providing high-quality customer service which means speed.

So on that basis, what would happened always is it would be a one-to-one. So there's no syndication, there's no splitting. So always, it's a one-to-one, then obviously, there's no co-lending, so there's none of that going on. So that's the big picture logic.

Now also within this is, that there's other considerations as well, based on the potential profitability, the interest, the risk. We also need to decide what is perhaps the most appropriate funding model to use, whether it's loan guarantee, profit sharing, etc. So there's a few different things that are going on here.

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

So with regards to the funding partners' choices, they obviously also have the choice to reject the credit that we provide and many do. But of course, different funding partners have different rejection rates. Some are very familiar with our customers, very familiar with the risk, and as a result, they would have low rejection rates. Some are, for whatever reasons, more risk-averse and will have a higher rejection rate.

And as you know, if a, rejects the credit, then it immediately goes to b. And then if after that, for whatever reason, somehow, nobody accepts the credit, then obviously, we will actually have to close the transaction. I think it's also worth emphasizing that maybe -- and this is not necessarily an exact comparison, but maybe it's somewhat like the ride-sharing platform, DiDi, here in China. There's a lot of different calculations that someone actually goes through when they hail a cab.

I mean, it could be something on the platform, someone outside of direct platform, etc. It depends on the distance, it depends on the profitability, etc. So there's definitely quite a few different things going on that's quite complicated in the background.

Sanjay Jain -- Aletheia Capital -- Analyst

OK. OK. So just to be clear, the bank can only accept or reject a proposal when it comes from you.

Tony Hung -- Senior Director of Capital Markets

[Foreign language]

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

As a whole, I mean, all these discussions have to occur before the funding partner is put into the system. We have to basically discuss the parameters well in advance. That way, that when the actual transaction comes in, the efficiency and the customer experience is fast. So in that sense, it can only be yes or no.

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

I think, Jay, also wants to add that typically, when we work with your average financial institution, they begin on a platform with a high rejection rate because they are quite conservative, not surprisingly. And also, they would recognize and at least, we will recognize that the efficiency there is not the highest. But then we take steps to help them increase their efficiency and also develop their own risk control systems. So this year, we have a specific fintech team that is working very directly with the banks, improving the risk control system and also increasing their efficiency to help them preserve the quality of the assets and also help them build the model and the data and we can see that we're making actually good inroads and it may become a bigger part of our revenues in the future.

Sanjay Jain -- Aletheia Capital -- Analyst

OK. Fair enough. Thank you. My last question, your loan origination volume this year has been very impressive and it's growing quite nicely on last year, and last year itself was very, very strong growth on the previous year.

So I just want to reconfirm my impression about your customer profile. So my impression, based on our chats over the years, is that you have young college-educated customer cohort, from 25-, 26-year old. So has there been any change in that, any deviation? Are you moving up in terms of the age profile or going more into Tier 3, Tier 4, Tier 5 cities or less educated? Maybe going into polytechnic rather than college? You know various parameters on the customer profile side, have they changed? And as your customers age, then what is your value proposition to them vis-a-vis, say, borrowing unsecured loan from a bank?

Tony Hung -- Senior Director of Capital Markets

[Foreign language]

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

So you're absolutely right on the core profile of our young customers. And as a whole, our customers have changed a little bit. You can imagine some of the customers have been with us the longest, five to six years. Quite often, they are now very, very white collar and sometimes, they might even have their own businesses or operations, if you will.

And they may, in fact, use the credit that we provide for some of these activities. So on that note, we certainly would potentially need to have greater scale and more services on that. We also see that based on our experience and our operations and the model and our ability to assess and manage risk, that we now do have the ability to move toward lower tier cities to encompass more different types of customers with different degrees and diversify. So there is also that going on as well and certainly, this will help continue to improve with our growth.

So hence, it's driving our growth and it's also driving our ability to continue to drive our growth.

Sanjay Jain -- Aletheia Capital -- Analyst

OK. Can you share some data about what percentage is now outside of, say, Tier 1, Tier 2 cities. What percentage is outside of the 25-, 26-year college-educated kind of group?

Tony Hung -- Senior Director of Capital Markets

OK, Sanjay, but this will have to be the last question from your side. So I will translate for the team. [Foreign language]

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

So I think that might be a little bit too detailed at this time. And just very quickly, our average age is actually still 25, but I think, we can get into some of the more details later.

Sanjay Jain -- Aletheia Capital -- Analyst

OK. Thank you very much. I appreciate it.

Tony Hung -- Senior Director of Capital Markets

For active customers, it's 25, yeah. Sorry.

Sanjay Jain -- Aletheia Capital -- Analyst

Thank you.

Operator

Your next question comes from the line of Steven Chan from Haitong International. Please ask the question.

Steven Chan -- Haitong International -- Analyst

[Foreign language] My question is, just to follow up on the provision charges. You mentioned that the Q-O-Q rise in provision charges in Q3 was partly due to some of the increase -- an increase in provision charges for some of the old customers. I just want to clarify, whether it is related to some weakening in the asset quality or delinquency of old customers or is it more related to prudence? If it is related to prudent attitude, will there be potential write-back in the coming quarters? And also from a credit cost concept, which is defined as the provision charges as a percent of average loan outstanding. Do you think that the Q4 credit costs will likely to return to the Q2 level? Or it will just stay at the Q3 level? So that's the first question.

And second question is the customer -- based on my own estimation, the customer acquisition cost per head seems to decline in Q3 versus that in Q2. What's the rationale behind? And do you have any guidance for Q4 on the trend of this customer acquisition costs? Thanks.

Tony Hung -- Senior Director of Capital Markets

[Foreign language]

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

And so, Steven, on the provisions, I think we have to monitor the customer behavior very carefully. And based on data that we're seeing from the old customers, which are primarily the customers that we acquired in the second half of last year, 2019, Q3, Q4 via the online advertising method. The customer behavior requires us to be a little bit more conservative and I think in the fourth quarter, we'll certainly, again, play to a very similar approach and just see how the customers behave.

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

Yeah. I think, Steven, as you know, that our customer acquisition strategy, actually has been quite stable overall in terms of our approach and the type of cost that we would like to get the customers are at. So you'll never see any, really, significant rise or any significant fall on a per customer basis. You might see something like what you see in the current quarter.

It seems stable or lower and there'll be very specific reasons for that, but nothing in terms of like a particular trend one way or another. So in the third quarter, it was no small part to the fact that we were using less online ads and more cooperation, partnerships, which inherently are lower cost. That's certainly one or two major reasons. Another reason is that, in general, the third quarter is very favorable for us to acquire customers.

That's always been the case, but again, overall, no, there's no real, shall we say, long-term drop or rise or trend or otherwise and it's actually, in general, quite stable. So again, I think it's the same strategy that you're familiar with, that you've heard from us in the past.

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

So I think, also, Steven, you know and I believe I've talked about it in the past. We've always emphasized a diversification of customer acquisition and working with different channels. So that's always been something that we set out to construct. So this year, for example, we will do more of Lehua Card, more of working with various platforms and having various cooperation, and avoiding some of, if you will, the standardized traffic that has occurred in the past.

Right now, in particular, we're doing a lot more of [Inaudible] music, a Tencent video. Many other online videos where somebody opens an account on the Lehua Card, we give a membership and this, in all, will basically bring up, at least in the near-term, some more stability to our costs as we pursue this type of channels in the near future.

Steven Chan -- Haitong International -- Analyst

[Foreign language] My last question is I think that the management guidance last time is that you aim to achieve a vintage of 4% or even below in second half of this year. But if we take a look at the first three quarters, Q3, the vintage is still around 4.5%. So, do you still have the confidence? Or can you give us another guidance on this vintage trend in Q4? Do you still -- are you still very confident that you can -- you're able to achieve a vintage of 4% by the end of this year?

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Tony Hung -- Senior Director of Capital Markets

So basically, for the fourth quarter, for the new loans, for 4%. Yeah. We're full of confidence. We should be able to accomplish that for the new loans.

Steven Chan -- Haitong International -- Analyst

[Foreign language] Thank you.

Operator

[Operator instructions] As there are no further questions. [Operator signoff]

Duration: 68 minutes

Call participants:

Tony Hung -- Senior Director of Capital Markets

Jay Xiao -- Founder, Chairman, and Chief Executive Officer

Craig Zeng -- Chief Financial Officer

Ryan Liu -- Chief Risk Officer

Jacky Zuo -- China Renaissance -- Analyst

Ethan Wang -- CLSA -- Analyst

Sanjay Jain -- Aletheia Capital -- Analyst

Stanley Zhao -- Senior Financial Director -- Analyst

Steven Chan -- Haitong International -- Analyst

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