X Financial (XYF) Q2 2026 Earnings Call Transcript

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DATE

Monday, Aug. 24, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• President - Kan Li
• Chief Financial Officer - Frank Fuya Zheng
• Chief Financial Strategy Officer - Noah Kauffman

TAKEAWAYS

• Total Loan Facilitated and Originated -- RMB 11.63 billion, representing a 70.2% decrease year over year as management prioritized credit quality over origination volume.
• Total Outstanding Loan Balance -- RMB 24.97 billion, a 61.5% decrease year over year due to the reduced scale of quarterly origination activity.
• Active Borrowers -- 720,258 individuals, a 74.8% decrease year over year as the company focused on higher-quality borrower segments.
• Average Loan Amount -- RMB 12,712 per transaction, up 21.3% year over year reflecting a shift in transaction mix toward higher-quality borrowers.
• Cumulative Active Borrowers -- 20.46 million as of June 30, 2026, an increase of 9.1% year over year since the company's inception.
• Total Net Revenue -- RMB 993.6 million, down 56.3% year over year primarily driven by substantially lower loan facilitation service fees.
• Loan Facilitation Service Fees -- RMB 198.6 million, an 85.5% decrease year over year in line with lower origination volumes.
• Post-origination Service Fees -- RMB 159.6 million, down 41.2% year over year consistent with the smaller outstanding loan portfolio.
• Guarantee Income -- RMB 224.9 million, an increase of 119.3% year over year due to the recognition of revenue from the existing guaranteed loan portfolio.
• Financing Income -- RMB 277.7 million, a 13.2% decrease year over year.
• 31 to 60-Day Delinquency Rate -- 1.73%, improving from 2.61% at the end of the previous quarter due to refined underwriting standards for newer vintages.
• 91 to 180-Day Delinquency Rate -- 9.09%, representing a sequential improvement from 9.95% but remaining elevated compared to 2.91% in the prior year.
• Operating Margin -- 19.6%, up from 12.0% in the previous quarter due to lower operating costs and reduced credit-related provisions.
• Total Operating Costs and Expenses -- RMB 798.6 million, a 50.0% decrease year over year reflecting tight control of discretionary spending.
• Borrower Acquisition and Marketing Expense -- RMB 149.5 million, down 80.2% year over year as the company prioritized capital efficiency over growth.
• Aggregate Credit-Related Provisions -- RMB 183.1 million, a 36.4% decrease year over year reflecting encouraging sequential improvements in credit trends.
• Provision for Contingent Guarantee Liabilities -- RMB 57.6 million, down from RMB 207.4 million in the prior year reflecting a decline in the estimated average loan loss rate.
• Provision for Credit Losses for Deposits -- RMB 95.3 million, an increase from RMB 727,000 in the prior year due to a write-off involving one specific funding institution.
• Net Income -- RMB 47.0 million, a 91.1% decrease year over year driven by the reduction in origination activity.
• Non-GAAP Adjusted Net Income -- RMB 165.8 million, representing a 104.3% sequential increase as credit and cost actions improved core profitability.
• Basic Net Income per ADS -- RMB 1.26, an increase from RMB 0.96 in the previous quarter.
• Non-GAAP Adjusted Basic Net Income per ADS -- RMB 4.44, up from RMB 2.10 in the first quarter of 2026.
• Equity-to-Asset Ratio -- 64.1%, compared with approximately 57% at the end of the first quarter, reflecting a strongly capitalized balance sheet.
• Share Repurchases -- $12.49 million, representing approximately 2.63 million ADSs repurchased between Jan. 1 and Aug. 14, 2026.
• Cash Dividend -- $0.28 per ADS, declared as part of the company's semiannual dividend policy for shareholders of record as of Sept. 10, 2026.

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RISKS

• President Li stated, "the 91- to 180- day rates, in particular, remained elevated as earlier delinquency balances continue to season through the portfolio," noting that the company is not declaring victory on credit quality.
• Management warned that if emerging regulatory requirements for internet-based lending in China are implemented as currently understood, the company's operating results may be materially and adversely affected.

SUMMARY

X Financial (NYSE:XYF) management reported a strategic focus on credit quality and balance sheet preservation, which led to a deliberate contraction in loan facilitation volumes and active borrower counts during the second quarter. The company stated that sequential improvements in delinquency rates and operating margins reflect the impact of tighter underwriting standards and rigorous cost controls implemented over the past several quarters. Leadership indicated that liquidity remains a priority as the firm navigates regulatory developments and challenging macroeconomic conditions in the Chinese consumer credit market. Management confirmed a continued commitment to shareholder returns through active share repurchases and the declaration of a semiannual cash dividend.

• CFO Zheng indicated the company intends to remain publicly traded in the U.S., stating, "In China, being a listed company is kind of a privilege and a special status," while noting that privatization would likely prevent the business from listing again in the future.
• Noah Kauffman explained that elevated delinquency rates are concentrated in older loan paper seasoning through the portfolio, while recent vintages originated under stricter criteria are performing better.
• Management reported that the company has increased automation across its servicing and collections operations while concentrating origination in internally operated channels where unit economics are strongest.
• Noah Kauffman noted that as the loan book contracts, cash is freed up, providing the company the ability to maintain a healthy dividend even after a challenging year.
• The company reported that a specific provision for credit losses for deposits was associated with one funding institution that has delayed the return of guarantee funds according to schedule.

INDUSTRY GLOSSARY

• ADS: American Depositary Share, representing six Class A ordinary shares of X Financial traded on the NYSE.
• Delinquency Rate: The percentage of the total outstanding loan principal that is past due by a specified number of days.
• ROE: Return on Equity, a financial ratio that measures net income as a percentage of shareholders' equity.
• Xiaoying Credit Loan: The company's primary loan product, which has comprised substantially all of its facilitated loans since 2021.
• Non-GAAP: Financial measures that exclude certain items like share-based compensation or investment-related gains/losses to show core operating performance.

Full Conference Call Transcript

Operator: Good day, and welcome to the X Financial Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Victoria Yu. Please go ahead.

Victoria Yu: Thank you, operator. Hello, everyone, and thank you for joining today's call. Our financial results for the second quarter ended June 30, 2026, were released earlier today and are available on the company's Investor Relations website at ir.xiaoyinggroup.com. On the call today from X Financial are Mr. Kan Li, President; Mr. Frank Fuya Zheng, Chief Financial Officer; and Mr. Noah Kauffman, Chief Financial Strategy Officer. Mr. Li will begin with an overview of our business performance and key operational developments. Mr. Kaufman will then review the second quarter financial performance, followed by Mr. Zheng, who will cover the detailed financial results, capital position and outlook. After the prepared remarks, Mr. Li, Mr. Zheng and Mr.

Kaufman will be available to answer your questions during the Q&A session. I remind you that this call may contain forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and involve known or unknown risks, uncertainties and other factors. These factors are difficult to predict and many are beyond the company's control, which may cause actual results, performance and achievements to differ materially from those described in these statements. Further information on these and other risks can be found in our SEC filings.

The company undertakes no obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required by law. And it is my pleasure to introduce Mr. Kan Li.

Kan Li: Thank you, Victoria, and hello, everyone. In the second quarter of 2026, we maintained the disciplined operating approach that has defined our approach over the past several quarters. Conditions remain challenging, and we continue to place credit quality, liquidity and balance sheet strength ahead of near-term origination volume. During the quarter, we facilitated and originated RMB 11.63 billion in loans, a decline of 70.2% year-over-year and 20.5% sequentially from the first quarter. The pace of contraction moderated meaningfully from the first quarter, consistent with our measured approach to origination in the current environment. Operationally, we continue to concentrate origination in our internally operated channels where borrower quality and unit economics are strongest. Underwriting criteria for newer vintages were refined further.

Automation was extended across servicing and collections, and discretionary spending remained tightly controlled. The average loan amount per transaction rose to RMB 12,712, up 8.3% from the prior quarter and 21.3% year-over-year, reflecting a shift in transaction mix toward higher-quality borrowers. From a volume standpoint, we served approximately 720,258 active borrowers in the quarter, down 74.8% year-over-year and 24.7% from the prior quarter. We facilitated approximately 0.91 million loans during the period. Outstanding loan balance at the quarter end stood at RMB 24.97 billion, a decline of 61.5% from the same period of 2025 and 29.2% from the year of the first quarter -- from the end of the first quarter. Credit quality.

Credit trends showed encouraging sequential improvement in the second quarter, although overall conditions remain challenging. As of June 30, our 31- to 60-day delinquency rate was 1.73%, compared with 2.61% at the end of Q1 2026 and 1.16% as of the same period of 2025. Our 91- to 180-day delinquency rate improved to 9.09%, compared with 9.95% at the end of Q1 2026 and 2.91% as of the same period of 2025. Both rates improved from the prior quarter, the first sequential improvement we have recorded in several quarters, which we attribute to the tighter underwriting standards applied to recent vintages and additional resources deployed in collections.

That said, both rates remained well above prior year levels, and the 91- to 180- day rates, in particular, remained elevated as earlier delinquency balances continue to season through the portfolio. We are not declaring victory on credit. We are maintaining the same conservative stance until the improvement proves durable. With that, I'll turn the call over to Noah, who will take you through the financial results for the second quarter.

Noah Kauffman: Thank you, Kan. Hello, everyone. It's great to speak with you again. Kan covered the operational and credit developments, so I'll take you through the financial performance for the second quarter. In the second quarter of 2026, total net revenue was RMB 993.6 million or USD 146.4 million, representing a 56.3% decline year-over-year and a 15.5% decline sequentially from Q1 2026. The year-over-year decline primarily reflects substantially lower loan facilitation volumes, partially offset by higher guarantee income. Total operating costs and expenses came in at RMB 798.6 million or USD 117.7 million, down 22.9% sequentially and 50% year-over-year.

Borrower acquisition and marketing expense was RMB 149.5 million or USD 22 million, down from RMB 219.8 million in the first quarter and RMB 756.3 million in the same period last year, as we continue to prioritize capital efficiency over volume growth. Aggregate credit-related provisions were RMB 183.1 million or USD 27 million, down 35.3% sequentially from RMB 282.9 million in the first quarter and 36.4% below the same period last year. Within that, the provision for contingent guarantee liabilities declined to RMB 57.6 million with the guaranteed loan portfolio broadly unchanged from both comparison periods. The decrease primarily reflected the reversal of a portion of provisions recognized in prior periods as the loan loss rate declined during the quarter.

Provision for credit losses for deposits and other financial assets increased to RMB 95.3 million. Income from operations was RMB 194.9 million or USD 28.7 million, a 71.1% decrease year-over-year, but an increase of 38.6% sequentially. Operating margin improved to 19.6%, up from 12% in the first quarter, though still below the 29.7% recorded in the prior year period. Income before income taxes was RMB 220 million or USD 32.4 million.

Net income was RMB 47 million or USD 6.9 million in the second quarter, compared with RMB 37.9 million in Q1 2026 and RMB 528 million in the same period last year, with income tax expense and investment-related items below the operating line accounting for the difference from pretax income. Net profit margin was 4.7%, compared with 3.2% in the prior quarter and 23.2% a year ago. Return on equity was 2.4% for the quarter, reflecting the reduced earnings base. Taken together, the second quarter represents a second consecutive quarter of sequential improvement in operating performance. Revenue is still finding its floor, but margins, provisions, and net income all moved in the right direction.

On the regulatory front, the environment continued to evolve during the quarter. We are monitoring developments closely and have nothing new to report beyond the disclosure in our Form 6-K. With that, I'll hand things over to Frank to take you through the detailed results per ADS metrics, non-GAAP adjustments and the balance sheet. Go ahead, Frank.

Fuya Zheng: Thank you, Noah, and hello, everyone. I will walk you through the key financial highlights for the second quarter and then cover the balance sheet, capital returns and our outlook. Please note that all numbers stated are in RMB and rounded. Full details are available in the 6-K filed with the SEC. Financial results. Total net revenue for the second quarter was approximately RMB 994 million, down around 56% from the same period last year and about 16% from the prior quarter. The decline continues to reflect the deliberate reduction in origination activity we have been pursuing, partially offset by growth in the guarantee income.

Net income for the quarter was RMB 47 million, up 23.8% from RMB 38 million in the first quarter and down substantially from RMB 528 million in the same period last year. Non-GAAP adjusted net income was RMB 166 million, up 104.3% sequentially and down 72% year-over-year. We view the sequential improvement in both measures as an early indication that our credit and cost actions are taking hold. On a per ADS basis, basic earnings were RMB 1.26 or USD 0.19, compared with RMB 0.96 in the prior quarter and RMB 12.6 a year ago. Non-GAAP adjusted basic earnings per ADS were RMB 4.44 or USD 0.65. Revenue mix.

Across our business lines, loan facilitation service fees declined 85.5% year-over-year to RMB 199 million, in line with low origination volumes. Post-origination service fee decreased 41.2% to RMB 160 million, consistent with the smaller outstanding portfolio. Guarantee income more than doubled year-over-year to RMB 225 million, reflecting continued recognition of revenue from our existing guaranteed loan portfolio. Finance income was RMB 278 million, down 13.2%. For the full breakdown by line item, please refer to the 6-K. Balance sheet and liquidity. Our balance sheet remains strongly capitalized at the end of the quarter.

Total assets were approximately RMB 12.1 billion, and shareholders' equity was approximately RMB 7.8 billion, giving us an equity-to-asset ratio approximately 64%, up from around 57% at the end of the first quarter. So total cash, including restricted cash, were approximately RMB 2 billion. Liquidity remained ample for the current environment. Capital return to the shareholders. We continue to repurchase shares during the period. From January 1, 2026, through August 14, we repurchased approximately 2.63 million ADSs for a total consideration of approximately USD 12.49 million. We have approximately USD 35.5 million remaining under the existing USD 100 million program, which runs through November 30, 2026. Returning capital to shareholders remains an important part of our capital allocation framework.

Dividend update. As a part of our semiannual dividend policy, the Board has approved a cash dividend of USD 0.28 per ADS, which is equivalent to approximately USD 0.0467 per ordinary share. Shareholders of record as of September 10, 2026, will be entitled to receive the dividend, and the payments are expected to be distributed on and around September 28, 2026. ADS holders will receive their dividend payments through our depository at the Bank of New York Mellon shortly thereafter, with timing subject to the brokerage processing. Business outlook. Turning to the outlook. Given the material uncertainties in the current operation environment, we are not providing quantitative guidance for the third quarter at this time.

Our priorities are unchanged: capital preservation, disciplined origination, rigorous cost control and protecting the balance sheet. We will resume providing guidance when visibility improves. That concludes our prepared remarks, and we'll now take the questions. Operator, please go ahead.

Operator: [Operator Instructions] The first question today comes from [ Brian Guard ] with Warburg Asset Management.

Unknown Analyst: I'm very pleased to see that the results have been improving in the last quarter. My question is quite a broad one. I'm a relatively new shareholder to the company. I want to understand theoretically why this company is publicly traded given that tangible book value is over USD 20 per ADS. Why don't you just take this company private?

Fuya Zheng: Let me try to answer that question. Again, I think the previous investor asked a similar question before. In China, being a listed company is kind of a privilege and a special status. If we privatize, we might lose the opportunity for current business to be listed again because if you want -- if a Chinese-based company tries to be listed overseas, you need to get approval from the government. And based on our current industry situation, as least for our industry, is not going to be a list. So that's probably the main reason you will rarely see the Chinese-listed company in the U.S. go private.

Many years ago, some companies did this kind of thing, and they tried to change venue and tried to be listed in Hong Kong or in China, but it's not -- in generally, everyone don't see -- still prioritize or prefer to be listed in the U.S. That's why.

Unknown Analyst: Given that there's such a large gap, what's going to be your process for maybe returning more cash to shareholders or driving the company towards a much higher valuation that's much more close to, say, U.S. style valuations?

Fuya Zheng: U.S., compared with U.S. valuations is probably kind of our rich goal. And based on the current business and the current regulation environment, and I think the best way to -- for us and also from investor perspective, as we find new revenue sources, basically reengineer the company to -- other than facilitation business as we are, that probably is the best way. And we are doing the best we can. And basically, based on the very low volume right now, we are doing almost the maximum buyback in the normal buybacks though -- and still preserve enough capital to explore new business opportunity, even though those new venture opportunities are far, not very clear at this point.

Noah Kauffman: Yes, this is Noah Kauffman. Just to add kind of to what like Frank was saying. So we have had 2 consecutive quarters of sequential credit improvements. And so the credit metrics, at least over the last couple of quarters, have moved a bit in the right direction. And so the cost base is also getting a bit leaner. So I think, certainly, what Frank says is true, going private is sort of like a one-way door. And so coming back to the public market, especially the Chinese headquartered fintech, is very difficult.

And so I think with a couple of quarters kind of moving in the right direction, we're very focused on what are the operational efficiencies that we can add, obviously, as APRs have come down. And then beyond that, what are areas of like organic growth. And certainly, with the strength of the balance sheet, we have the ability to -- as the loan book comes down, cash is freed up. So certainly, we have the ability to continue to pay quite a healthy dividend. But I think on the back of maybe, call it, like a rough year, really rough year, we're not quite ready to throw in the towel.

I think things are going in a little bit better direction, and we're obviously watching it.

Operator: [Operator Instructions] The next question comes from [ Kenning Zhao ] with [ Norton Andrews ].

Unknown Analyst: I'm from [ Norton Andrews ]. My first question is that there's a significant decrease in provision for contingent guarantee liabilities, down from like RMB 200 million in the first half in 2025 to RMB 57.6 million this half year. I see there's a significant decrease in loan balance -- outstanding loan balance, but the delinquency rate has jumped as well. So I wonder why did you make such adjustment, like, is there some evidence from the most recent vintages? Yes, that's my first question.

Noah Kauffman: Yes. [ Kenning ], this is Noah. Thanks for your question. Yes, the main driver is the loss rate assumption. So the guaranteed portfolio itself was broadly unchanged against both the comparison period. So I don't believe it's a size effect. And what moved in our estimate was the average loss rate on the book, which came down during the quarter. And because a portion of that we reserved in prior periods, we were no longer required at that level to reverse it. So that reversal is what makes the line look as low as it does. So I treat that way rather than as a new lower run rate for the provision.

On your second point, you're right that the 2 things sit somewhat uncomfortably next to one another, and the distinction that I draw is between the stock and the flow. So the elevated delinquencies that you're seeing are concentrated in older paper that's seasoning through the portfolio. That's roughly like 91 to 180 bucket, and it's still very high, whereas the recent vintages originated under the materially tighter criteria are performing better than what preceded them. And so both delinquency buckets improved sequentially for the first time in several quarters.

So the reserve reflects where we think losses on the book are and it's actually -- and where it's composed of today, which is increasingly newer vintages rather than the old book as it looked a year ago. Did you have a second question?

Unknown Analyst: Yes, if I may. There's another item like provision for credit losses for deposits and other financial assets. It wasn't material before, but it jumped from -- it's quite big now. It's like RMB 95 million, I think -- RMB 95 million from only like RMB 700,000 before. May I ask what's in that item?

Fuya Zheng: That involved from the institutional...

Unknown Analyst: From the comprehensive income....

Fuya Zheng: Yes, yes. That involved with one funding institution, and the business with them is already basically gone -- finish, and they haven't returned to our guarantee money yet. So that guarantee money is kind of in real. So it doesn't mean it will eventually will not return to us. But I think for whatever reason, it's behind schedule. So we took a cautious to accounting-wise to write them off at this time. That's about it. So only involve one institution funding partner.

Unknown Analyst: Right. I understand. Okay. Yes, that's -- yes, if I may, one more question, but actually, it's quite similar to the previous one, like, if you have any further capital return plans apart from the existing ones given the current market?

Fuya Zheng: At this point, we are doing all we can under the normal buyback circumstances and rules. We don't have a particular -- at this time, we don't have particular buyback or prioritization plan at this moment.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Victoria Yu for any closing remarks.

Victoria Yu: Okay. Thank you, everyone, for joining us today. If you have additional questions, please reach out to our Investor Relations team directly. We appreciate your interest and look forward to speaking with you again soon. Operator, back to you.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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