X Financial Q4 2025 Earnings Call - Deliberate pullback as Notice Nine and rising delinquencies squeeze revenue and push provisions higher

Conference Operator, Conference Moderator: Hello, and welcome to the X Financial fourth quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today’s presentation, there will be an opportunity for questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Victoria Yu. Please go ahead.

Victoria Yu, Investor Relations, X Financial: Thank you, operator. Hello, everyone, and thank you for joining today’s call. Our financial results for the fourth quarter and the fiscal year ended December 31, 2025 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. Ken Lee, President, Mr. Frank Fuya Zheng, Chief Financial Officer, and Mr. Noah Kauffman, Chief Financial Strategy Officer. Mr. Lee will begin with an overview of our business performance and key operational developments. Mr. Kauffman will then discuss the regulatory environment and fourth quarter financial performance, followed by Mr. Zheng, who will review the full financial results, capital position and outlook. After the prepared remarks, Mr. Lee, Mr. Zheng, and Mr. Kauffman 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, or 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. It is now my pleasure to introduce Mr. Kent Li.

Ken Lee, President, X Financial: Thank you, Victoria, and hello, everyone. In the fourth quarter of 2025, we continued to operate with heightened discipline as the external environment became more demanding. Following a strong first half, we deliberately moderated activity in Q4 to remain aligned with evolving supervisory expectations and to prioritize credit quality and prudent risk management. During the quarter, we facilitated and originated CNY 22.77 billion in loans, representing a 29.5% decline year-over-year and a 32.3% decline sequentially from the previous quarter. This moderation was intentional, reflecting our focus on protecting portfolio health and maintaining long-term stability rather than pursuing near-term volume expansion.

For the full year 2025, we facilitated and originated RMB 130.6 billion in loans, up 24.5% from RMB 104.9 billion in 2024. This full year performance reflects the scale we achieved earlier in the year and our ability to operate with discipline as market and regulatory conditions evolved. During the quarter, we focused on strengthening the stability of our core operations through disciplined channel management, tighter risk controls, and continued efficiency improvements. We increased the proportion of activity on internal operated platforms to enhance customer stability and reduce dependence on higher cost external traffic sources. We also further tightened underwriting standards to strengthen the compliance processes, optimize operational workflows, and expanded automation across services and collection functions to improve efficiency without increasing headcount.

From an operational standpoint, borrower activity moderated meaningfully in the fourth quarter. We served approximately 1.69 million active borrowers, down 20.2% from a year ago and down 30.7% sequentially. We facilitated approximately 2.47 million loans in the quarter, with an average loan amount per transaction of RMB 9,226. We ended the quarter with RMB 50.5 billion in outstanding loan balance, down 3.6% from the same period of 2024. Credit quality. We did observe continued credit pressure during the quarter, consistent with broader market trends and a more cautious industry-wide risk posture.

As of December 31, our 31- to 60-day delinquency rate increased to 2.9% compared with 1.85% at the end of Q3, and 1.17% a year ago. Our 91- to 180-day delinquency rate increased to 6.31% compared with 3.52% at the end of Q3, and 2.48% a year ago. These movements reflect rising repayment stress among certain segments, as well as a more conservative approach to risk. In response, we tightened underwriting criteria, enhanced the collection strategies, and adjusted capital deployment to preserve balance sheet resilience. As credit costs increased, we chose to prioritize stability and risk management, which affected short-term earnings but strengthens the foundation of the business. We believe this more cautious stance is appropriate given current conditions.

Our near-term priorities remain clear, safeguard portfolio quality, preserve liquidity, and maintain discipline in operations. With that, I’ll now turn the call to Noah Kaufman, who will walk through fourth quarter financial performance and profitability trends, along with a brief regulatory update.

Noah Kauffman, Chief Financial Strategy Officer, X Financial: Thank you, Kent. Hello, everyone. It’s great to speak with you again. Kent covered the operational and credit picture for the quarter, so I’ll focus on the financial performance and our profitability profile in Q4. On the regulatory environment, the regulatory environment governing Internet-based lending in China continued to evolve meaningfully during 2025, with authorities increasingly refining and strengthening oversight across the entire consumer credit chain. The most significant development was Notice Nine, issued by the National Financial Regulatory Administration on April 1, 2025, which requires commercial banks to strictly control total borrowing costs. While Notice Nine does not explicitly stipulate a hard cap, in practice, a 24% per annum ceiling on total borrowing costs for a single loan is generally being implemented and enforced across the industry. Importantly, 24% may not represent the outer boundary of that pricing pressure.

Regulatory authorities have continued to tighten borrowing cost caps applicable to microcredit and consumer finance companies, and those entities may face de facto requirements set below that level. The pace and manner of implementation across different institution types and jurisdictions remain highly uncertain, and we currently have no reliable basis on which to predict the ultimate scope or trajectory of these limitations. If current and emerging requirements are implemented as we currently understand them, our operating results will be adversely and materially affected relative to prior years. The magnitude of that impact is subject to significant uncertainty, and investors should not assume our historical profitability levels are indicative of future performance, including the possibility of operating losses in future periods. Notice Nine also requires commercial bank head offices to implement whitelist management systems for loan facilitation platform operators, prohibiting cooperation with institutions not on those lists.

This has introduced additional uncertainty around our funding relationships, and implementation practices vary across banking groups and their subsidiaries. Future regulatory guidance could alter how those determinations are made in ways that affect our authorized funding relationships. This is just one example of the broader unpredictability we are navigating. Separately, payment institution rating measures issued by the People’s Bank of China in December 2025 extend regulatory oversight further across the lending chain, adding to compliance burdens and operational costs for industry participants. We are closely monitoring all of these developments as they continue to evolve in 2026. At this stage, management has limited visibility into the ultimate scope, pace and direction of implementation, and the potential impact on our business, financial condition and results of operations cannot be determined with any degree of certainty. On fourth quarter financial performance.

In the fourth quarter of 2025, total net revenue was RMB 1.47 billion, or $209.9 million, representing a 14.1% decrease year-over-year and 25.1% decrease sequentially from Q3. Total operating costs and expenses were RMB 1.45 billion or $207 million, down 9.5% sequentially, but up 22.3% year-over-year. The year-over-year increase was driven primarily by materially higher credit related provisions, while operating expenses also reflected our continued efforts to align spending with a more measured pace of activity. Credit related provisions were the primary factor weighing on the fourth quarter results.

Total provisions were RMB 669.3 million, or $95.7 million, reflecting higher expected credit losses and a more conservative provisioning across in response to elevated risk indicators during the period. We also continued to take a disciplined approach to discretionary spending. For example, borrower acquisition and marketing expense was RMB 212.2 million, or $30.3 million in Q4, reflecting a substantial reduction compared with both the prior quarter and the same period last year as we prioritized efficiency and risk discipline.

As a result, income from operations was RMB 20.2 million or $2.9 million, a 96.2% decrease year-over-year and a 94.4% decrease sequentially. Operating margin decreased to 1.4% compared with 18.5% in Q3 and 30.7% in the same period last year. Below operating income, the quarter remained profitable, but at a level that underscores the degree of near-term credit pressure. Income before income taxes was RMB 31.2 million, or $4.5 million, reflecting the cumulative effect of lower revenue and elevated provisioning.

Net income was CNY 57.2 million, or $8.2 million in Q4, compared with CNY 421.2 million in Q3 and CNY 385.6 million in Q4 of last year. Net profit margin was 3.9% compared with 21.5% in the prior quarter and 22.6% a year earlier. Return on Equity decreased to 2.9%, reflecting substantially lower net income during the quarter. Taken together, Q4 reflects a materially different earnings profile compared with earlier periods, driven primarily by higher credit costs and a more measured level of activity. We are managing through this phase with a conservative financial posture and maintaining flexibilities as conditions evolve.

With that, I’ll now hand the call over to Frank to discuss the full year financial results per ADS metrics, non-GAAP profitability, and our balance sheet and liquidity position.

Frank Fuya Zheng, Chief Financial Officer, X Financial: Thank you, Noah, and hello, everyone. I will walk through our full year financial results and then discuss our balance sheet, liquidity and outlook. Full year financial highlights. For the full year 2025, total net revenue was RMB 7.64 billion or $1.09 billion, representing a 30.1% increase from RMB 5.87 billion in 2024. Income from operations was RMB 1.63 billion or $233.1 million compared with RMB 1.87 billion in 2024. Our full year operating margin was 21.3% compared with 31.9% in the prior year, reflecting a higher credit-related provisions and a more cautious operational posture in the second half.

Net income for the full year was RMB 1.46 billion or $209.4 million, compared with RMB 1.54 billion in 2024. Full year GAAP net profit margin was 19.2% compared with 26.2% in 2024. On a non-GAAP basis, adjusted net income was RMB 1.56 billion or $223 million for the fiscal year 2025, compared with RMB 1.54 billion in 2024. Per ADS and the non-GAAP metrics.

On a per ADS basis for the full year, net income per ADS was RMB 36 or $5.15 and RMB 35.22 or $5.04 on a basic and diluted basis, respectively, compared with RMB 31.98 basic and RMB 31.50 diluted in 2024. Non-GAAP adjusted net income per ADS was RMB 38.34 or $5.48 and RMB 37.50 or $5.36 on a basic and diluted basis, respectively, compared with RMB 31.98 basic and RMB 31.44 diluted in 2024.

For additional Q2 context, non-GAAP adjusted net income in the first quarter was RMB 31.3 million and $8.8 million. Non-GAAP adjusted earnings per ADS was RMB 1.56 or $0.22 on both a basic and diluted basis. Balance sheet and liquidity. Our balance sheet remains solid as of December 31, 2025. Total assets were RMB 14.667 billion or $2.1 billion. Total liability was RMB 6.83 billion or $976.5 million. Total shareholder equities was RMB 7.84 billion or $1.12 billion.

the end of the year with the RMB 987.6 billion or $141.2 billion in cash and cash equivalents, and RMB 15 billion and $133.9 billion in restricted cash, and total cash, including restricted cash of approximately RMB 2.13 billion or $305.1 billion. Capital return to shareholders. As of March 15, 2026, under the company’s $100 million share repurchase program, the company had repurchased an aggregate of approximately 3.79 million ADS, including approximately 3.37 million ADS and 2.53 million Class A ordinary shares for a total consideration of approximately $53.85 million.

The company now has approximately $46.15 million remaining under the share repurchase program, which is effective through November 30, 2026. This program underscores the company’s confidence in its long-term growth outlook and its commitment to enhancing shareholder value. The repurchases under the program remain subject to market conditions and other factors and may be modified or suspended at management’s discretion. Business outlook. Given evolving regulatory developments and the limited visibility into how regional policy measures will be implemented across different jurisdictions, our near-term outlook remains cautious. The full impact of these changes on funding availability, pricing dynamics, and the overall industry activity is still uncertain and may take time to become clear. We are prioritizing asset quality, disciplined risk management, cost control, and the preservation of liquidity and operational flexibility.

As the regulatory expectations continue to develop, we are adapting our operation approach to maintain compliance while safeguarding the long-term stability of the business. While we believe our platform is well-positioned to navigate a more stringent environment, additional policy adjustments or implementation actions could further affect industry economics and the growth prospects. We will continue to monitor developments closely and will update our outlook as greater clarity emerges. This concludes our prepared remarks, and we will now open the call for questions. Operator, please go ahead.

Conference Operator, Conference Moderator: We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you’re 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, please press star then two. At this time, we will pause momentarily to assemble our roster. 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, Investor Relations, X Financial: 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.

Conference Operator, Conference Moderator: Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.