X Financial (XYF) Q1 2026 Earnings Transcript

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DATE

Thursday, May 28, 2026 at 7:30 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Kan Li
• Chief Financial Officer — Noah Kauffman
• Chief Operating Officer — Fuya Zheng
• Investor Relations — Victoria Yu

TAKEAWAYS

• Total Loan Origination -- RMB 14.63 billion, down 58.4% year over year and 35.8% sequentially from the fourth quarter due to management’s focus on portfolio integrity.
• Active Borrowers -- 956,520 served in the period, a decline of 60.6% year over year and 43.5% sequentially from Q4 2025.
• Outstanding Loan Balance -- RMB 35.3 billion as of quarter end, 39.6% lower year over year.
• Net Revenue -- RMB 1.18 billion (USD 170.5 million), decreasing 39.3% year over year and 19.9% sequentially from Q4 2025.
• Total Operating Costs and Expenses -- RMB 1.04 billion (USD 150.1 million), down 28.5% sequentially and 24.1% year over year, mainly driven by reduced borrower acquisition and marketing spend.
• Provisions -- RMB 282.9 million (USD 41 million), a sharp decrease from RMB 669.3 million in Q4 2025 but still more than double the RMB 135.5 million from the prior year period.
• Income from Operations -- RMB 140.7 million (USD 20.4 million), down 75.4% year over year but showing sequential recovery from Q4 2025.
• Operating Margin -- 12%, up from 1.4% in Q4 2025 yet well below the 29.6% margin a year earlier.
• Net Income -- RMB 37.9 million (USD 5.5 million) versus RMB 57.2 million in Q4 2025 and RMB 458.1 million in Q1 2025.
• Net Profit Margin -- 3.2%, lower than 3.9% in the prior quarter and 23.6% in the previous year.
• Return on Equity -- 1.9%, reflecting the substantially reduced earnings base.
• Borrower Acquisition and Marketing Expense -- RMB 219.8 million (USD 31.9 million), down from RMB 709 million in the same period of last year.
• Guarantee Income -- More than tripled year over year, offsetting some of the origination decline.
• Share Repurchases -- Approximately 1.8 million ADS repurchased for USD 8.2 million between January 1 and May 15, 2026; USD 39.8 million remains under the program through November 30, 2026.
• Balance Sheet -- Total assets of RMB 13.6 billion and shareholders’ equity of RMB 7.8 billion, with an equity-to-asset ratio of about 57% and total cash including restricted cash of RMB 2.4 billion.
• Q2 2026 Origination Outlook -- Expected loan origination between RMB 11.5 billion and RMB 12.5 billion, reflecting continued conservative posture.
• Regulatory Visibility -- Management states, “limited visibility into the ultimate scope and direction of implementation;” new requirements may “materially and adversely affect” future results.

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RISKS

• Chief Financial Officer Kauffman said, If current and emerging regulatory requirements are implemented as currently understood, the company's operating results may be materially and adversely affected and historical levels of profitability should not be assumed to be indicative of future performance.
• Management noted borrower activity borrower activity continued to contract in the first quarter. and credit conditions remained under pressure highlighting further tightening of approval criteria and elevated credit costs.
• 31- to 60-day delinquency rate was 2.61%, down from 2.9% in Q4 2025 but more than double the 1.25% a year ago; 91- to 180-day delinquency rate rose to 9.95% compared with 6.31% in Q4 2025 and 2.73% a year ago.
• Net income and profit margin have sharply declined due to persistent high credit provisions and lower volume, with net income at RMB 37.9 million (USD 5.5 million), well below prior year levels.

SUMMARY

Management executed a deliberate reduction in loan origination and borrower acquisition activities to enhance portfolio integrity amid evolving regulatory pressures and heightened industry-wide credit stress. Loan origination, revenue, and borrower activity all contracted sharply, while guarantee income provided a partial offset. Rising delinquencies and materially increased provisions continue to constrain net income and profitability. Capital allocation remained shareholder-friendly, as evidenced by continued share repurchases, while liquidity and capital positions remain solid. Uncertainty stemming from the shifting regulatory environment clouds the outlook, with management cautioning that profitability may face additional pressure as new regulations are implemented.

• Finance chief Kauffman stated, The first quarter results reflect a business in transition, revenue and profitability well below prior year levels as we work through a period of elevated credit costs and reduced origination activity, but with early signs of sequential stabilization and operating performance.
• Fuya Zheng emphasized that the decline was driven primarily by the significant reduction in loan origination activity we have been deliberately pursuing and was partially offset by growth in guarantee income and financing income.
• Management expects the near-term outlook remains cautious. with industry pricing, funding conditions, and origination activity likely to remain pressured for the foreseeable future.
• The company’s equity-to-asset ratio of 57% and RMB 2.4 billion in cash, including restricted cash, demonstrate a focus on liquidity and risk resilience.

INDUSTRY GLOSSARY

• ADS: American Depositary Share, a U.S.-traded equity share representing foreign company stock.

Full Conference Call Transcript

Kan Li: Thank you, Victoria, and hello, everyone. In the first quarter of 2026, we continue to operate with a high degree of discipline as the operating environment remained challenging. Carrying forward the more conservative posture we adopted in the second half of 2025, we further reduced the pace of activity in Q1, keeping our business closely aligned with evolving supervisory expectations while maintaining an unwavering focus on credit quality and risk management. During the quarter, we facilitated and originated RMB 14.63 billion in loans, a decline of 58.4% year-over-year and 35.8% sequentially from the fourth quarter. This pullback was deliberate as we continue to place greater priority on portfolio integrity and long-term balance sheet stability over near-term origination volume.

Operationally, we made further progress on a number of key initiatives during the quarter. We continued shifting our origination mix toward internally operated channels to deepen borrower relationships and reduce reliance on higher cost third-party traffic. Underwriting criteria were further tightened, compliance infrastructure was strengthened and we continued rolling out process automation across servicing and collections, all with the goal of improving operational efficiency while keeping our cost base lean. From a volume standpoint, borrower activity continued to contract in the first quarter. We served approximately 956,520 active borrowers, down 60.6% year-over-year and 43.5% from the prior quarter. We facilitated approximately 1.25 million loans during the period with an average loan size of RMB 11,741 per transaction.

Outstanding loan balance at the quarter end stood at RMB 35.3 billion, a decline of 39.6% from the same period of 2025. Credit quality. Credit conditions remained under pressure in the first quarter, consistent with the broader stress we and other across the industry have been observing. As of March 31, our 31- to 60-day delinquency rate was 2.61% compared with 2.9% at the end of Q4 2025 and 1.25% as of the same period of 2025. Our 91- to 180-day delinquency rate increased to 9.95% compared with 6.31% at the end of Q4 2025 and 2.73% as of the same period of 2025.

The data reflects a borrower base under continued financial strain, consistent with what we are seeing across the broader consumer credit industry. We have addressed this by further narrowing our approval criteria, deploying more resources into collections and pulling back on our origination in segments where repayment risk has risen most sharply. Higher credit costs weighed on quarter's financial results, and we accepted that trade-off knowingly. Protecting the integrity of the portfolio matters more to us than defending short-term earnings. Looking ahead, our focus is on keeping credit quality stable, managing liquidity carefully and running the business with the same level of discipline we have maintained throughout this period.

With that, I'll turn the call over to Noah, who will cover the key financial results for the first quarter as well as the regulatory environment.

Noah Kauffman: Great. Thank you, Kan. Hello, everyone. It's great to speak with you again. Kan walked through the operational and credit developments, so I'll take you through the financial results for the quarter and then provide an update on the regulatory landscape. In the first quarter of 2026, total net revenue was RMB 1.18 billion or USD 170.5 million, representing a 39.3% decline year-over-year and a 19.9% decline sequentially from Q4 2025. Total operating costs and expenses came in at RMB 1.04 billion or USD 150.1 million, down 28.5% sequentially and 24.1% year-over-year.

The year-over-year cost reduction was driven by the sharp pullback in borrower acquisition and marketing spend, which fell from RMB 709 million in Q1 2025 to RMB 219.8 million this quarter. Total provisions were RMB 282.9 million or USD 41 million, down substantially from RMB 669.3 million in Q4 2025, which was a meaningful sequential improvement, but still well above the RMB 135.5 million we recorded in the same period last year, continuing to weigh on profitability relative to prior year levels. On the discretionary spending side, we maintained tight control.

Borrower acquisitions and marketing expense was RMB 219.8 million or USD 31.9 million in the first quarter, significantly below the RMB 709 million we spent in Q1 2025 as we continue to prioritize capital efficiency over volume growth. Income from operations recovered to RMB 140.7 million or USD 20.4 million, a 75.4% decrease year-over-year, but a meaningful rebound from the depressed Q4 2025 level. Operating margin improved to 12%, up from 1.4% in Q4 2025, that is still well below the 29.6% recorded in the prior year period. Income before income taxes was RMB 136.8 million or USD 19.8 million as the sequential improvement in operating results was partially offset by investment-related items below the operating line.

Net income was RMB 37.9 million or USD 5.5 million in the first quarter compared with RMB 57.2 million in Q4 2025 and RMB 458.1 million in Q1 2025. Net profit margin was 3.2% compared with 3.9% in the prior quarter and 23.6% a year ago. Return on equity was 1.9% for the quarter, reflecting the substantial reduced earnings base. On the regulatory environment, the regulatory environment governing Internet-based lending in the People's Republic of China continued to evolve during the first quarter of 2026 with authorities further strengthening oversight across the consumer credit business chain. The company continues to monitor these developments closely. However, management has limited visibility into the ultimate scope and direction of implementation.

If current and emerging regulatory requirements are implemented as currently understood, the company's operating results may be materially and adversely affected and historical levels of profitability should not be assumed to be indicative of future performance. The first quarter results reflect a business in transition, revenue and profitability well below prior year levels as we work through a period of elevated credit costs and reduced origination activity, but with early signs of sequential stabilization and operating performance. We are managing carefully through this environment. With that, I'll hand things over to Frank to take you through the detailed financial results per ADS metrics, non-GAAP adjustments and the balance sheet.

Fuya Zheng: Thank you, Noah, and hello, everyone. I will walk through the key financial highlights for the first quarter, then cover the balance sheet, capital returns and our outlook. Please note that all numbers stated are in RMB and rounded up. Full details are available in the 6-K filed with the SEC. Financial results. The total net revenue for the first quarter was approximately RMB 1.2 billion, down around 39% from the same period of last year and about 20% from the prior quarter. The decline was driven primarily by the significant reduction in loan origination activity we have been deliberately pursuing and was partially offset by growth in guarantee income and financing income.

Operation income was RMB 141 million with an operation margin of 12%, well below 29.6% we recorded a year ago, with a meaningful recovery from the 1.4% we reported in the fourth quarter of 2025. The improvement sequentially reflects the benefit of the lower origination-related provisions as our credit tightening measures took hold. Net income for the quarter was RMB 38 million compared with RMB 458 million in the same period of last year. The sharp year-over-year decline reflects substantially higher credit provisions and the substantially lower revenue base. Non-GAAP adjusted net income was RMB 81 million.

On a per ADS base, basic earnings were RMB 0.96 or USD 0.14 compared with RMB 10.92 a year ago and non-GAAP adjusted basic earnings per ADS were RMB 2.8 or USD 0.30. Revenue mix. Across our business lines, the pattern was consistent with the overall volume pullback. Facilitation fees fell sharply as origination volume dropped. Post-origination fee declined more modestly, in line with the smaller outstanding portfolio. On the positive side, guarantee income more than tripled year-over-year, reflecting continued recognition of revenue from our existing guaranteed loan portfolio. Financing income was broadly stable. For the full breakdown by line item, please refer to the 6-K. Balance sheet and liquidity.

Our balance sheet remains well capitalized at the end of the quarter. Total assets were approximately RMB 13.6 billion and the shareholders' equity was approximately RMB 7.8 billion, giving us an equity-to-asset ratio of around 57%. We remain in a solid liquidity position and with total cash, including restricted cash of approximately RMB 2.4 billion and the balance sheet is in good shape to navigate the current environment. Capital return to the shareholders. We continued our share repurchase program during the quarter. From January 1 through May 15, 2026, we repurchased approximately 1.8 million ADS for the total approximately USD 8.2 million. We have approximately USD 39.8 million remaining under the existing program, which runs through November 30, 2026.

This reflects our ongoing commitment to returning value to the shareholders while maintaining balance sheet strength. Business outlook. Our near-term outlook remains cautious. The regulatory environment continues to evolve quickly, and we have limited visibility into the full scope and timing of the implementations. We expect these dynamics to continue to influence our industry pricing, funding conditions and origination activity for the foreseeable future. For the second quarter of 2026, we expect total loan origination to be in the range of RMB 11.5 billion to RMB 12.5 billion, consistent with our continued focus on quality over volume. We remain focused on capital preservation, disciplined origination and cost control. We will keep investors updated as the regulatory picture becomes clear.

That concludes our prepared remarks. We will now take questions. Operator, please go ahead.

Operator: [Operator Instructions] We are showing no questions at this time. 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. Thank you. 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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