X Financial XYF Q1 2025 Earnings Call Transcript

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DATE

Tuesday, May 20, 2025, at 7:30 a.m. EDT

CALL PARTICIPANTS

Chief Executive Officer — Kent Li

Chief Financial Officer — Frank Fuya Zheng

President — Noah Kauffman

Investor Relations — Victoria Yu

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TAKEAWAYS

Loan Originations: Facilitated RMB 35.15 billion in new loans, up 8.8% sequentially and 63.4% year over year.

Total Revenue: Reached RMB 1.94 billion, a 13.4% increase from Q4 2024 and over 60% year over year.

Asset Quality: 31 to 60-day delinquency rate improved to 1.25% (from 1.61%); 91 to 180-day delinquency rate declined to 2.7% (from 4.7%).

Total Loan Outstanding Balance: RMB 58.4 billion, excluding loans over 60 days delinquent, up over 33% year over year.

Loans Facilitated: Over 3.14 million processed, with an average loan amount of RMB 11,181.

Income from Operations: RMB 573 million, up 52% year over year, reflecting improved operational leverage and expense management.

Non-GAAP Adjusted Net Income: Reached RMB 467 million, a 44.9% increase year over year.

Basic Earnings per ADS: USD 1.50, up approximately 45.6% year over year.

Return on Equity: Increased to 25.5%, up 1.4 percentage points year over year and 3.2 percentage points sequentially.

Share Repurchase Program: New buyback plan authorized for up to $100 million of Class A shares and ADS, effective January 1, 2025 to November 30, 2026, in addition to $15.9 million remaining from a previous plan.

Q2 2025 Outlook: Management expects facilitated and originated loan amounts to range from RMB 37.5 billion to RMB 39.5 billion.

Regulatory Environment: Management described the recent National Financial Regulatory Administration notice as reinforcing "responsible credit assets and financial stability" and committed to regulatory compliance.

SUMMARY

X Financial (NYSE:XYF) delivered double-digit sequential and year-over-year growth in loan originations and revenue, which management attributed to rising borrower demand and disciplined risk management. The company reported substantial improvements in adjusted net income, operational leverage, and return on equity. Despite seasonally negative effects, delinquency rates declined across key periods, with management citing enhancements to technology, underwriting, and customer engagement. Management indicated confidence in the near-term growth outlook and described increased regulatory oversight as a constructive industry development.

Chief Financial Officer Zheng said, "We have recently authorized a new share repurchase plan allowing us to buy back up to $100 million worth of our Class A shares and ADS."

Chief Executive Officer Li stated, "our delinquency rate will still have some uptick, but those upticks will be more than offset by our overall scale. That basically means that our profit will continue to grow despite minor increases in delinquency rates."

Management reiterated that preparation for a new regulation is underway and indicated the company remains "fully compliant with the new regulation before the October 1st deadline."

The company signaled it "will keep the same pace in the acquisition effort in the second quarter" and aims to achieve 30% volume growth this year, pending any regulatory impacts in the fourth quarter.

INDUSTRY GLOSSARY

ADS: American depositary share, a U.S.-traded equity share representing a specified number of shares in a foreign company.

Delinquency Rate (31-60/91-180 Day): The percentage of outstanding loans that are 31 to 60 days, or 91 to 180 days, past due but not yet written off, used as an indicator of portfolio credit quality.

Loan Origination: The process by which a lender approves and funds new loans for borrowers, relevant here as a measure of business activity volume for X Financial's marketplace.

Full Conference Call Transcript

Kent Li: Thank you, Victoria, and hello, everyone. We are pleased with our 2025 headwinds. In the first quarter, we facilitated RMB 35.15 billion in loans, an 8.8% sequential increase and 63.4% growth year over year. It was one of our strongest quarters for origination, reflecting solid borrower demand and continued progress in risk management. Our team remained focused on expanding opportunities through both new partnerships and existing relationships, enhancing our technology platform and underwriting models to support profitability and scalability. Balancing growth and risk as we broaden access to qualified borrowers, we are also working to improve the borrower experience by delivering faster decisions, simplifying application processes, and enhancing transparency.

In parallel, we continue to strengthen platform reliability and support tools to help customers make informed borrowing decisions and manage repayment with confidence. Despite the typical seasonal impact from Chinese New Year, we achieved sequential growth in both loan volume and revenue. Total revenue reached RMB 1.94 billion, up 13.4% from Q4 and over 60% year over year. These results reflected steady progress in growing the platform responsibly. Operational and credit quality update. We also made continued progress on asset quality. As of March 31st, our 31 to 60-day delinquency rate was 1.25%, compared to 1.61% a year ago, reflecting a 22% improvement year over year.

The 91 to 180-day delinquency rate was 2.7%, down from 4.7% in Q1 2024, a 37% reduction year over year. These improvements reflect disciplined borrower screening and underwriting practices. We have also continued to enhance borrower engagement and repayment behavior through timely communication and tailored repayment assistance programs. These initiatives have contributed meaningfully to our risk management outcomes and supported further portfolio stability. Now I will turn the call to Noah to go over some key Q1 metrics and highlights.

Noah Kauffman: Thank you, Kent. Hello, everyone. It's a pleasure to speak with you today. Let me share several highlights from our Q1 operational and financial performance. On the operational metrics, we facilitated approximately RMB 35.15 billion in loan originations, marking a 63.4% year-over-year increase. Our total loan outstanding balance, excluding loans over 60 days delinquent, reached RMB 58.4 billion, growing by more than 33% from Q1 2024. We facilitated over 3.14 million loans with an average loan amount of RMB 11,181. On the financial highlights, total revenue grew to RMB 1.94 billion, up 13.4% sequentially and 60.4% year over year, primarily driven by higher borrow volumes and originations.

Our income from operations expanded substantially, reaching RMB 573 million, up 52% year over year. This demonstrates our improved operational leverage and disciplined expense management. Our average funding costs improved year over year, supported by a more optimized funding structure and sustained commitment from our core institutional partners. This reflects the strength of our platform and deepening trust within our funding network. With these metrics, we continue to see notable gains in operational efficiency and market positioning. I'll now hand the call over to Frank to walk through the financials, discuss capital allocation priorities, provide regulatory insights, and outline our growth outlook for 2025.

Frank Fuya Zheng: Thank you, Noah. It's great to speak with everyone today. I will provide additional insights into our profitability metrics, liquidity, and strategic plans for capital allocation. Non-GAAP adjusted net income for Q1 reached RMB 467 million, an increase of 44.9% year over year, reflecting sustained earnings. Basic earnings per ADS improved significantly to USD 1.50, approximately a 45.6% year-over-year increase, underscoring enhanced profitability per share. Return on equity increased to 25.5%, widening 1.4 percentage points year over year and 3.2 percentage points sequentially, reflecting our sustained financial discipline and growing operational efficiency. Our liquidity remains strong, positioning us well to support ongoing operations, investments, and capital returns. Share repurchase plan.

We have recently authorized a new share repurchase plan allowing us to buy back up to $100 million worth of our Class A shares and ADS. This authorization will be in effect for an 18-month period running from January 1, 2025, to November 30, 2026. This new authorization comes in addition to our existing repurchase plan approved last December, which still has approximately $15.9 million remaining. Regulatory environment update. The regulatory environment in China remains dynamic, and we remain fully committed to compliance and alignment with the overall policy direction. The recent notice from the National Financial Regulatory Administration affirms the current trajectory with a clear focus on responsible credit assets and financial stability.

We see increased oversight as a positive step that supports long-term industry development and reflects growing recognition of our role. While evolving rules introduce high compliance requirements, they also create space for innovation and more sustainable growth. We continue to engage proactively with regulatory bodies and remain focused on responsible execution within the evolving framework. 2025 growth outlook. Based on current trends, X Financial expects the total loan amount facilitated and originated in the second quarter of 2025 to be in the range of RMB 37.5 billion to RMB 39.5 billion, reflecting continued strong demand in the first quarter. With that, I will pass the call back to our President, Kent Li, for closing remarks.

Kent Li: Thank you, Frank. As we progress through 2025, we remain confident in our strategic direction, grounded in strong underwriting, disciplined risk management, and ongoing operational improvement. With a solid financial foundation and a clear focus on long-term value creation, we are well-positioned for sustainable and profitable growth. Thank you.

Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, you may do so. The first question today comes from Kenning Zhao with Norton Andrews. Please go ahead.

Kenning Zhao: Hi. I'm Kenning from Norton Andrews. Congratulations, and thank you for the great performance in the first quarter. Well, my first question is there's strong growth in your business, both in new loan origination and active users. You mentioned there will be further growth. I wonder if that means you like the current macroeconomic environment and the loan market? And, well, it's not big, but the delinquency rate has also ticked up a little bit compared to the end of last year. If the loan volumes continue to grow, should we expect further increases in the delinquency rate? And, oh, can I have a second question?

Can we get this first question answered first, and then you can ask me the next one?

Kent Li: Of course. Thank you. Responding to your, I think you mentioned several questions in your comments. So let's focus on them one by one. The first one, how we view the current environment. I think our company has never tried to grow our portfolio for the sake of growth. So we are always trying to manage our portfolio based on our assessment of the future environment. That being said, I think right now, based on our historic trend and our analysis, the overall environment is still good for portfolio growth. That is why we are still focused on growth at this moment.

Another thing is that since the second half of last year, we have invested a lot in acquiring new customers. So as these customers mature in our portfolio, we are able to offer them better lines and better products, so they stick with us longer. That is also the best foundation for our growth. In terms of the delinquency rate, I think the reason you see an uptick from the lower level we achieved somewhat last year is that I would say that probably was the bottom part of our delinquency rate. So even with this uptick, I think our delinquency rate with regard to our portfolio is still very healthy. So we are not particularly concerned about that.

And going forward, we do expect that our delinquency rate will still have some uptick, but those upticks will be more than offset by our overall scale. That basically means that our profit will not be impacted by a certain frequency.

Frank Fuya Zheng: Let me add also regarding the delinquency rate. That number is actually as a risk profile situation from last quarter to Q1 is actually stable. And the number is a little bit skewed, and if you take another look, if you look at our Q1 income statement under the operation expense cost expenses, the first one is automation and services. It's basically operation expenses. The second one is the marketing acquisition, customer acquisition. And the third one is general and administration cost. So those are the three general costs. But the rest, like provision this way and provision that way, if you add up together, this is all risk-related cost.

If you add up this quarter, Q1, and you add up Q4 last quarter, all the provisions together, you will find the Q1 provision is about RMB 60 million less than last quarter. But the amount is RMB 60 million actually, because this RMB 57 million is related to our own insurance business, which means because our own insurance business, the revenue you book in one period and the cost you book the whole thing together in one time. Because last quarter, Q4, they did more, well, you know, first the guarantee company did more business so they have more of that.

So if you take out this RMB 57 million, actually, the cost apple to apple, the cost related to, you know, you take out all the, you know, the risk related to the guarantee business, actually, we have a, like, RMB 3-4 million less cost on Q1 compared with Q4. So overall, the conclusion is, you know, the risk situation remains basically the same. Not much better, not much worse. That's the thing. But having said that, we all expect because this regulatory development will be coming in October, we will prepare and there will be costs because of that, there may be some uptick, you know, cost risk situation with some uptick down the road, but not in Q1.

Not in Q2. We haven't found this situation change much at all. That's why we continue to invest a lot in customer acquisition also.

Kenning Zhao: Thank you for the detailed answer. Well, my second question is about the repurchase. You haven't repurchased any shares in the first quarter, but you have approved another share repurchase program. Just wondering if you repurchased any, like, during April's market volatility, and should we expect you to continue the aggressive stock buybacks as you did last year? Thank you.

Frank Fuya Zheng: Yes. Because Q1 has no open window, so we usually do the buyback during the open window from the old shareholders. Right now, I mean, the incoming open window, we pretty much show, you know, the remaining, almost RMB 60 million is locked, it will be used up in the coming open window, and we will very likely kick into the buyback during the, you know, down window period also. So that's why we have this newly authorized RMB 100 million to cover that. I hope it answers your question.

Kenning Zhao: Yes, sir. Thank you very much, and thank you again for the wonderful call.

Operator: The next question comes from Alex Ye with UBS. Please go ahead.

Alex Ye: Hi. Good evening, management. Thanks for taking my question. It's Alex from UBS. So I have two questions, if I may. So the first one is regarding your loan growth guidance for the next quarter. Is it still going to be a bit of a good growth? Just wondering, what's driving the growth behind and how do you see, you know, the underlying loan application or credit demand in the last two months in April or May? Have you seen any suffering trend given a lot of the noise on the macro front? And the second question is a bit on your funding supply.

So given, you know, there has been this new regulatory announcement since April, I'm wondering, have you heard any feedback from your funding partners with regard to their attitude towards this loan pricing, which is going above 24%? And then do you see anything we need to adjust in our current purchase order to ensure that we're more compliant? Thank you.

Kent Li: Okay. I'll first answer the first question about the growth. As I mentioned to the last investor, our growth has always been based on our assessment of the upcoming risk environment. So at this moment, I think that the way we grow our portfolio has always been acquiring new customers, getting the customers on board, and gradually introducing them to better products, which largely means lower fees and higher lines. Our growth has largely grown from this strategy. So you asked about April or May or June. Our growth path has always been like that. In terms of our funding institutional partners, right now, we are in very close conversation with them about the upcoming changes.

And at this moment, what I can say is that we expect there will be changes. We are going to make some adjustments, but I don't see our company has always been confident we will be fully compliant with the new regulation before the October 1st deadline. So we are not particularly concerned about that. That being said, any new regulation will always bring some small shocks to the industry. So we do expect that there will be some shocks in our industry. It's just that I think our company is in a very good position to take those shocks.

So our growth, I think our growth prospect will not be changed based on whatever we are providing to the investors.

Frank Fuya Zheng: Hi, Alex. First of all, welcome to our earnings call. Welcome. Regarding the, let me just basically ask the same question again. And I think we really took advantage of the good risk environment since the second half of last year. So our run rate is, you know, at the end of last year, it's already pretty high, and you saw that we spent very aggressively in acquisition in Q1, and we will keep the same pace in the acquisition effort in the second quarter. So based on our current forecast, we look to Q2 this year, we are ahead of, you know, 30% the gross volume growth for this year.

But we are not, you know, not have no intention to increase the forecast anytime soon because we will, you know, see when in Q3, you know, what's the effect, you know, the regulatory policy impact on the industry. So the YCAA, you know, they look at the insertion regarding Q4 volume, and that's what I'm trying to say. And so overall, I think we are confident to achieve 30% volume growth for this year. But other than that, maybe not more, it's all because Q4 volume is kind of in limbo right now.

Regarding the preparation for the new regulatory, possible regulatory impact, we do some, you know, talking to the people and, you know, talking to the regulatory mostly our institutional partners, and with some regulatory authorities. And we are preparing some, you know, technology-wise, you know, if the deal there's no new policy can come down, and we can accommodate it very quickly, efficiently, you know, from technology operation-wise. Other than that, we, you know, like anybody else, we don't know much of what's going to come down. Thank you.

Alex Ye: Understood. Thank you very much.

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

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