Q3 2025 X Financial Earnings Call

Speaker #1: Hello and welcome to the X Financial Q3 2025 earnings conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions.

Speaker #1: To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker #1: Please note, this event is being recorded. I would now like to turn the conference over to Victoria Yu. Please, go ahead.

Speaker #2: Thank you, Operator. Hello, everyone, and thank you for joining today's call. The company's financial results were released earlier today and are available on our Investor Relations website at ir.ingroup.com.

Speaker #2: 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.

Speaker #2: Mr. Li will start with a brief overview of our business progress and financial performance. Then Mr. Kauffman will go over some key Q3 metrics. After that, Mr. Zheng will share updates on the financials.

Speaker #2: Regulatory insights and our 2025 outlook. Afterward, Mr. Li, Mr. Zheng, and Mr. Kauffman will be available to answer your questions during the Q&A session.

Speaker #2: I remind you that this call may contain forward-looking statements, and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Speaker #2: Such statements are based on management's current expectations and involve known or unknown risks and uncertainties, as well as other factors. These factors are difficult to predict, and many are beyond the company's control.

Speaker #2: These may cause actual results, performance, or achievements to differ materially from those described in these statements. Further information on these and the other risks can be found in our SEC filings.

Speaker #2: 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.

Speaker #2: It is now my pleasure to introduce Mr. Kan.

Speaker #2: Li. Thank

Speaker #3: You, Victoria. And hello, everyone. The third quarter of 2025 marked a very different phase for our business. Compared with the strong momentum we experienced in the first half of the year, after a record performance in Q2, we deliberately moderated our growth pace to navigate a more regulated and disciplined operating environment.

Speaker #3: During the quarter, we facilitated an originated RMB 33.64 billion in loans, representing an 18.7% increase year over year, but a 13.7% decline sequentially from the previous quarter.

Speaker #3: This moderation was intentional as we prioritized asset quality and risk management over near-term volume expansion. Our team remained focused on maintaining prudent risk discipline while serving qualified borrowers and protecting portfolio health.

Speaker #3: Enhancing our technology platform, data analytics, and underwriting precision to improve decision-making and efficiency. Strengthening partnerships and operational processes to support long-term scalability under evolving regulatory standards.

Speaker #3: We also continued improving borrower experience by simplifying application flows, accelerating approval times, and expanding transparency across our credit and repayment channels. At the same time, we refined our collection infrastructure and monitoring systems to proactively manage credit risk and improve repayment outcomes.

Speaker #3: These initiatives allow us to better serve customers while protecting the platform's long-term stability. Despite a softer operating backdrop, we maintained solid profitability and positive earnings. Total net revenue reached RMB 1.96 billion, reflecting a 23.9% increase year over year.

Speaker #3: The down 13.7% sequentially from Q2 record level. This performance demonstrates our ability to adapt quickly and maintain resilience through disciplined execution and operational control.

Speaker #3: Credit quality: We did observe early signs of credit pressure during the quarter, consistent with broader market trends. As of September 30th, our 31 to 60-day delinquency rate rose to 1.85%, compared with 1.16% at the end of Q2 and 1.02% a year ago.

Speaker #3: Our 91 to 180-day delinquency rate increased to 3.52%, up from 2.91% in Q2 and 3.22% in Q3 2024. This movement reflects a more cautious borrower environment and rising repayment stress among certain segments.

Speaker #3: In response, we lightened our underwriting criteria, reinforced collection effectiveness, and expanded borrower engagement. While we expect conditions to remain challenging in the short term, these steps position us well to preserve asset quality and protect the long-term stability of our platform.

Speaker #3: With that, I'll now turn the call over to Noah Kauffman, who will walk through additional financial and operational highlights from the third quarter.

Speaker #3: quarter. Thank you. Great, Noah.

Speaker #4: Hello, everyone. It's great to speak with you again. As Kan mentioned, the third quarter required a measured approach following a very strong first half.

Speaker #4: We deliberately tempered origination growth to ensure prudent risk management and operational stability amid an evolving regulatory environment. I'll begin with an update on that context and then discuss our operational and financial positioning.

Speaker #4: On the regulatory environment, China's fintech sector remains under close supervision, with regulators continuing to prioritize consumer protection, transparency, and responsible lending practices. During the quarter, authorities reiterated these objectives and discussed further measures to lower borrowing costs for consumers and promote more sustainable development across the online lending industry.

Speaker #4: We fully support these efforts and continue to operate with a compliance-first mindset. While these changes may continue to exert pressure on industry pricing and profitability, we believe that a clear and more consistent framework will ultimately favor disciplined, well-capitalized, and transparent platforms.

Speaker #4: Our long-standing commitment to regulatory alignment and strong internal controls remains a core foundation of our business. On the operational overview, during the quarter, we facilitated ¥33.64 billion in loans, up 18.7% year over year, and ended the period with an outstanding loan balance of ¥62.83 billion, up 37.3% from last year.

Speaker #4: We facilitated approximately 3.48 million loans, representing a 32% increase year over year, with an average loan size of 9,654 RMB. Our active borrower base was approximately 2.44 million, 14.4% lower sequentially but 24.2% higher year over year.

Speaker #4: These figures demonstrate the resilience of our franchise, even as we moderated new origination activity to preserve credit quality. We refined our risk models, reduced exposure to lower-tier channels, and focused more heavily on established, higher-quality borrower sources.

Speaker #4: We also continued to strengthen our AI-driven analytics to improve borrower identification and early delinquency detection. From a financial perspective, the third quarter reflected a necessary adjustment phase following our record first half. Profitability remained positive but contracted sequentially as overall activity normalized.

Speaker #4: Year-over-year, revenue and earnings growth was supported by the scale achieved earlier in the year, though we recognize that the operating environment will likely remain challenging for several quarters.

Speaker #4: Our focus now is on cost efficiency and disciplined execution, ensuring that every aspect of our expense structure reflects today's more measured pace of activity.

Speaker #4: We also maintained a conservative capital position and ample liquidity. Our balance sheet continues to generate healthy cash flow and remains a source of strength for the organization.

Speaker #4: We are managing funding and capital deployment with caution, maintaining flexibility to adapt to any future regulatory or market adjustments. Our financial strategy remains centered on capital efficiency and long-term value preservation.

Speaker #4: We continue to deliver returns on equity above 20%, supported by tight cost management and share repurchases that have reduced our outstanding share count. Even as industry conditions soften, we remain focused on stability, liquidity, and financial discipline rather than pursuing growth at the expense of prudence.

Speaker #4: Looking ahead, our priorities remain clear: safeguard asset quality, strengthen liquidity, and maintain financial resilience. The external environment may stay uncertain, but our disciplined financial management and focus on operational control position X Financial to navigate continued volatility and adjust responsibly as the market evolves.

Speaker #4: With that, I'll now hand the call over to Frank to discuss our financial performance in greater detail. Go ahead, Frank.

Speaker #2: Thank you, Noah. Hello, everyone. I will walk through our third quarter financial results and discuss our capital position and outlook. The financial highlights: In the third quarter of 2025, total net revenue was RMB 1.96 billion, representing a 23.9% increase year over year, but a 13.7% decline from Q2.

Speaker #2: The year-over-year growth was supported by higher average loan balances and the carryover effect of acquired facilitation activity. While the sequential decline reflects our intentional reduction in loan volumes, income from operations was RMB 331.9 million, down 29.9% year over year and 46.4% sequentially.

Speaker #2: Primarily due to higher provision for credit losses and guarantee liability, our operating margin was 18.5%, compared with 29.7% in Q2 and 32.2% a year ago.

Speaker #2: Net income came in at RMB 421.2 million, up 12.1% year over year, but down 20.2% sequentially. Non-cap adjusted net income was RMB 438.2 million, up 1% from last year, and down 26.1% from Q2.

Speaker #2: Basically, undiluted earnings per ADS were RMB 10.56 cents and RMB 10.08, respectively, while return on equity stood at 21.5%. These results reflect the impact of a high provision and lower volume, but also show that our core business remains profitable and cash-generative despite a more cautious operational environment.

Speaker #2: Balanced liquidity. Our balance remains strong. Total assets stood at RMB 14.69 billion, up 26.4% year over year, and total shareholders' equity was RMB 7.93 billion, up 15% year over year.

Speaker #2: We entered the quarter with approximately RMB 1.55 billion in cash and distressed cash, providing excellent liquidity to support operations and capital returns to the shareholders.

Speaker #2: From January 1st, 2025, through November 20th, 2025, X Financial repurchased an aggregate of approximately 4.26 billion ADS, including approximately 3.8 million ADS and 2.676 million Class A ordinary shares.

Speaker #2: For a total consideration of approximately US$

Speaker #1: The U.S. dollar has possibly $48 million remaining under the existing $100 million share purchase plan, which is effective through November 30th, 2026.

Speaker #1: This program underscores the company's confidence in its long term growth outlook and its commitment to enhancing shareholder value . The purchases under the program remain subject to market conditions and other factors , and may be modified or suspended , and the management discretion outlook for Q4 2025 based on current trends , X Financial expects the total loan amount , facility , and originates in the fourth quarter of 2025 to be in the range of RMB 21 billion to RMB 23 billion .

Speaker #1: The total loan amount facilitated and originated for the full year 2025 is expected to be in the range of RMB 128.8 billion to RMB 30.8 billion.

Speaker #1: This guidance reflects a major pace of origination following the sequential decline in the third quarter and the management's continued focus on asset quality, credit discipline, and the probability of rather than aggressive volume expansion.

Speaker #1: The company remains attentive to involving the regulatory landscape and the changing credit conditions while maintaining confidence in resilient borrower demand. Prudent risk control and disciplined execution are in place to support sustained long-term growth.

Speaker #1: With that , I hand the call back to our President Kennedy for closing , closing , closing remarks .

Speaker #2: Thank you . Frank . The third quarter marked a period of recalibrating for our company . We made a deliberate choice to prioritize quality and discipline over near-term growth , ensuring our platform remains resilient amid a changing operating landscape .

Speaker #2: While we expect challenges to persist in the coming quarters , we remain confident in our ability to navigate them with prudence , maintain profitability , and position X Financial for steady , sustainable performance over time .

Speaker #2: Okay, this concludes our prepared remarks.

Speaker #3: We will now open the call for questions. Operator, please go ahead. Thank you.

Speaker #4: We will now begin the question and answer session . To ask a question , you may press star , then one on your touch tone phone .

Speaker #4: 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, please press star, then two.

Speaker #4: At this time, we will pause momentarily to assemble our roster. The first question today comes from Chen Yang with Rangel. Please go ahead.

Speaker #5: Hello . Thank you for taking my question . So , so my first question is around the take rate guidance . So the management has provided guidance on the fourth quarter loan origination volume , which is quite 30% lower than prior levels .

Speaker #5: What would be the expected take rate for the fourth quarter, given the current risk situation, which may be stabilizing or deteriorating in the past week or so?

Speaker #5: Or the past two months ? And my second question is around the capital allocation . So given the business volume is already lower since the third quarter and maybe even further reduced in the coming years , the return on equity will may drop significantly in the future .

Speaker #5: So, is the company considering returning more capital to shareholders and keeping the company running on a smaller book while achieving higher capital efficiency?

Speaker #5: I will So also translate my question in Chinese if that would help . So . The . The . The . Take rate in la .

Speaker #5: On . On . On the . On . Like a the . The .

Speaker #1: Thank you for your question. This is Frank. I will answer your question and let my colleague answer your return on capital question.

Speaker #1: No one . No one take take a capital return question . You started . You know , start to see the the effect of , you know , impact of this so-called new regulation in the third quarter .

Speaker #1: You know, a little bit. But I think the full impact will not be fully realized in another quarter or so.

Speaker #1: So , so I think , you know , at this time , whatever talking about next year regarding even take , take , take , take rate is very premature .

Speaker #1: And it will be very wide. But we also did not, you know, disclose the take rate before, so we are not going to do that.

Speaker #1: But having said that , I think that it's a new regulatory regime will have , you know , material negative impact on everything on volume , margin and profitability .

Speaker #1: And , you know , take , take is is a part of a , you know , factor key of profitability . So you will you know , we you you will , you will , you can assume the take review will have a material negative impact in the future .

Speaker #1: That's I can add the best I can . I can discuss with you . Norma , do you want to have a second second question to answer ?

Speaker #6: Yeah . Yeah . Thanks for the question . On capital return . You know , capital return remains an important part of our strategy .

Speaker #6: We've been making active share repurchases , buying approximately 67.9% through November 20th . And as Frank mentioned before , we still have about 48 million remaining under the $100 million authorization , which run through November 2026 .

Speaker #6: We'll continue to use the program in a disciplined manner, subject to market conditions, and we view repurchases at current valuation levels as an attractive investment in our own business.

Speaker #6: On the dividends , of course , we maintain a recurring dividend . And based on the current profitability profile , even with the industry wide margin pressure that , you , Frank , just spoke to , we expect to be able to maintain and sustain the dividend at the current level .

Speaker #6: We believe having sufficient we believe we have sufficient earnings power and balance sheet strength to support that commitment and more broadly , just in terms of how we think about capital allocation , the board regularly evaluates optimal capital allocation , including balancing growth , shear organic repurchases and dividends .

Speaker #6: And so today's share price buybacks , I think , still remain a compelling use of capital . But we remain open minded and focused on whichever option delivers the highest long term value for shareholders .

Speaker #6: So in summary , we intend to executing continue the buyback program prudently , maintain the current dividend and allocate capital in the way that best supports sustainable growth for shareholders .

Speaker #5: Thank you .

Speaker #4: The next question comes from Joseph Martelli with Spark Capital. Please go ahead.

Speaker #7: Good Hi . evening . Thanks for taking my question . How does the team view the regulatory environment going ahead into early 2026 ?

Speaker #7: And may we have more of an uptick in delinquencies? Thank you very much.

Speaker #2: Yeah I'll take that question . I think again , it's very difficult to forecast what the regulators , what the regulators will do in the future .

Speaker #2: So our approach has always been just be compliant with whatever regulations specifies . So that being said , what we saw right now is regulators is very focused , very focused on the consumer protection .

Speaker #2: And so our approach has considering that we have lowered our loan volume , that we are not aggressively growing our portfolio . And in the sense that we are trying to we are trying to shrink our portfolio a bit in order to making sure that we are not generate a lot of complaints from our side .

Speaker #2: I think that's probably what we can do at this moment . Sorry . What's your I think you have the the can you repeat your second part of .

Speaker #2: .

Speaker #7: I was just asking about the delinquencies, the uptick in them and how we might see that continuing. Yeah, I think.

Speaker #2: We do . Yeah , I think whenever there's a huge impact on on the on the , on the industry and especially considering that the overall economy in China right now is , is not like it's not at the greatest time .

Speaker #2: So I think it's natural for us to see an uptick in the portfolio delinquency. I think that's what we're experiencing. Right?

Speaker #2: Our forecast again , the forecast feature is is very difficult for us , but we do think that the delinquency rate will continue to to climb .

Speaker #2: And frankly , just mentioned that we think it's going to take 1 or 2 quarters for it to 40 to stabilize . So even though that we are not we are we are not sure when it's going to stabilize .

Speaker #2: Our approach can only be that we are trying to be very stringent in our credit policy. That is why you see our portfolio scale begin to drop.

Speaker #1: Let me just say a few more words and . The disclosure . 91 days and 180 days . Dimension rate . As for the Q3 is like a 3.52% , which is higher than previous quarter 2.91 .

Speaker #1: And you know, the previous previous 3.22%, you know, so it's higher than the previous quarter and higher than last year.

Speaker #1: But we have been you know , everyone is having tried to everyone's best to its best to control it . If you know by the time you know we try the the is still still developing .

Speaker #1: Still not stabilized yet , but we believe maybe in a months to it should be it should be stabilized unless there's a more more you know , negative impact from new new measure .

Speaker #1: We're coming down . Otherwise we we we fully anticipate within like 1 or 2 months , it will be stabilized . You know , very soon , 1 or 2 months , I hope I hope that will add some color to your question .

Speaker #7: Yes . Thank you .

Speaker #4: For your .

Speaker #6: If I could just add a little bit to, you know what? What Frank and Ken have already said just on the delinquency side.

Speaker #6: So of course , we see higher delinquencies in Q3 . You know , consistent with the broader industry environment . The macro backdrop has been challenging , and that's affected .

Speaker #6: Borrower repayment behavior across multiple segments . In response . Of course , we've tightened underwriting standards and shifted , you know , further toward higher quality borrowers and intensified our collection and verification process .

Speaker #6: These actions basically give us confidence that we can appropriately , we'll be appropriately reserved for current delinquencies and potential losses . But I think a key point that both , you , Frank and Kent , were pointing to is that the loans , you know , typically have a duration of 10 to 12 months .

Speaker #6: And so, when delinquencies rise in a particular period, those vintages generally run off within a few quarters. The newer vintages, originated under the tighter underwriting, become a larger share of the book.

Speaker #6: The result is a natural credit cycle effect , where you have elevated delinquencies from prior vintages working through the system , and then performance gradually reverts towards historical norms as the tightened vintages season the entire industry is , of course , in a contractionary phase , with most platforms tightening risk criteria and pulling back from higher risk segments .

Speaker #6: While this environment temporarily put pressure on borrowers and repayment behavior , it also sets the foundation for better quality vintages going forward . So if the older , weaker vintages mature and exit the portfolio , we expect credit metrics to gradually normalize over the medium term .

Speaker #6: Though near-term volatility is still possible and presumably likely , our focus remains on prudent underwriting and disciplined portfolio management , and strong collections .

Speaker #6: And we will continue to provision conservatively and manage the book to ensure losses remain within our tolerance . That's all for me . But but thanks for the question , Joseph .

Speaker #4: As a reminder, if you would like to ask a question, please press star, then one to join the question queue. The next question comes from Ramsey with NTS Trading.

Speaker #4: Please go ahead .

Speaker #8: Hello everyone . Thank you for the call today . I have two questions . Well , the first one is given the concerns around the credit quality .

Speaker #8: I'm curious if any of the funding partners have reduced their funding commitments or changed or structured their terms. And then the second question, which I think...

Speaker #8: Noah, you did go over, but I want to know if management, or what it would take for management, to consider being more aggressive on the share buyback program.

Speaker #8: Just given the depressed price, have you guys ever considered anything such as an accelerated share purchase program? That is all. Yes.

Speaker #6: Hey rim . Hey , this is Noah . Thanks very much for your question . So I guess first to the first part on the funding and liquidity , our funding and liquidity position remains stable as of September .

Speaker #6: We held about 1.5 billion RMB in total cash and restricted cash, which provides a solid liquidity buffer for our operations. We manage liquidity conservatively and maintain sufficient cash to support near-term needs across servicing, collection, and platform operations.

Speaker #6: On the funding side , we work with a diverse network of institutional partners , including banks and licensed consumer finance companies that originate loans through the platform , and these relationships have been built over many years , and the vast majority of our partners have completed the required regulatory whitelisting and continue to operate with us normally .

Speaker #6: Regarding our funding costs , we we did a general rise in funding rates from 2024 into 2025 , in line with the broader industry trends .

Speaker #6: However , on a quarter to quarter basis , funding costs have been relatively stable and we've not experienced any material disruption in accessing funding .

Speaker #6: And so looking ahead as regulatory implementation becomes clearer in both banks and platforms , adapt fully to the new framework , we're hopeful that the funding will costs gradually normalize from the elevated levels seen this year .

Speaker #6: You know , basically clarity and consistency in the regulatory environment should also help reduce risk premiums over time . So we'll continue to maintain prudent liquidity management , keeping adequate cash reserves and coordinating closely with funding partners and ensuring our platform remains compliant and attractive from a risk management standpoint .

Speaker #6: As far as what would motivate us to do a more aggressive buyback , I don't know , Frank , do you have any any comments on that ?

Speaker #1: Yes . You know , you know , we have a we have almost continuously to do buybacks in this year from , from May , May 2025 , all the way down to late , late November .

Speaker #1: And we did most buybacks from open market . And we are still believe you know , the buyback is the best way to return shareholder value .

Speaker #1: But you know , the result is not that great . You know and currently our stock is you know , a little bit higher , you know , maybe 5,060% higher than the same period last year .

Speaker #1: But a lot of our peers , you know , their stock is already below last year period . But almost everyone the balance sheet is more strong than you know at this time .

Speaker #1: Balance sheet is more strong than than than , you know than than last the same time last year . So I think the market is assumed will not just don't have a , you know , the , the stock price .

Speaker #1: Tell us , you know , the market believe us probably don't even have a future . And also we will waste our money in our hand .

Speaker #1: And you know , just just just waste it . Otherwise , you know , not not make anything new . But I think that is not , you know , the belief we have we we think we have a we can do we believe we can do both .

Speaker #1: We can , you know , take care of the shareholder return and maybe do something new and whether Chinese cash loan market is totally dead or not , once again , you know , we we will have that judgment maybe later on , you know , maybe in another quarter or two .

Speaker #1: But I think even with with our new regulatory regime , I think we are you know , we are we are , you know , still have a we still at least we still have cash to do something new .

Speaker #1: Right . Try something new . So , so that's regarding the buyback and also I say it again , you know , you know , we are as normal already say that we are we are determined to maintain the current dividend rate , which is $0.28 for two times in a year .

Speaker #1: So based on , current stock price , $9 is 6% yield . So I think , you know , even without buyback is decent return for for the shareholder .

Speaker #1: It's you put the better than money in the bank . Right . And and so that's that's our thinking . You know we will continue to do and we will maybe rely on more next year .

Speaker #1: Relying more on the dividend dividend side instead of on buyback side . And that's , that's , that's , that's how I say thank you .

Speaker #8: I think that makes sense. Thank you.

Speaker #6: Yeah , yeah . Just to add on really quickly too , what I think is the valuation became , you know , deeply disconnected from the fundamentals of the stock trades at levels that imply , you know , excessive credit or regulatory , you know , risk relative to our performance or , you know , buybacks would become the highest return on capital .

Speaker #6: But I think it's at stands , you know , historically it's always a trade off between , you know , Roy from organic growth versus share repurchases versus dividends .

Speaker #6: I hope that answers your question.

Speaker #9: Question .

Speaker #8: Yeah . And we could say too , now , right . Right now the markets are pricing that that is the case . But it's just of a matter what makes the most sense for .

Speaker #4: This concludes our question-and-answer session. I would like to turn the conference back over to Victoria Yu for any closing remarks.

Speaker #3: Thank you , everyone , for joining us today . If you have additional questions , please reach out to our Investor Relations team directly .

Speaker #3: We appreciate your interest and look forward to speaking with you again soon. Operator, back to you.