Q1 2026 X Financial Earnings Call

May 28, 2026

Operator: Hello, and welcome to the X Financial Q1 2026 Earnings Conference Call. I would now like to turn the conference over to Victoria Yu. Please go ahead.

Speaker #2: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on a touchtone phone.

Speaker #2: 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.

Speaker #2: Please go ahead. Thank you, operator. Hello, everyone, and thank you for joining today's call. Our financial results for the first quarter ended March 31, 2026, were released earlier today and are available on the company's investor relations website at ir.gaoxiaoyingroup.com.

Victoria Yu: Thank you, operator. Hello, everyone, and thank you for joining today's call. Our financial results for Q1 ending 31 March 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 the key operational developments. Mr. Kauffman will discuss the regulatory environment and the Q1 financial performance, followed by Mr. Zheng, who will review the financial results, capital position, and outlook. After the prepared remarks, Mr. Li, Mr. Zheng, and Mr. Kauffman will be available to answer your questions during the Q&A session.

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 begin with an overview of our business performance and key operational developments. Mr. Kauffman will then discuss the regulatory environment and the first quarter financial performance.

Speaker #2: Followed by Mr. Zheng, who will review the financial results, capital position, and outlook. After the prepared remarks, Mr. Li, Mr. Zheng, and Mr. Kauffman will be available to answer questions during the Q&A session.

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

Victoria Yu: I remind you that this call may contain forward-looking statements and that is safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on the 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 this statement. 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. Kan Li.

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: 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.

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 Li.

Speaker #3: Thank you, Victoria. And hello, everyone. In the first quarter of 2026, we continued to operate with a high degree of discipline, as the operating environment remains challenging.

Kan Li: Thank you, Victoria, and hello, everyone. In Q1 of 2026, we continued to operate with a high degree of discipline as the operating environment remained challenging. Carrying forward the more conservative posture we adopted in H2 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 Q4. This pullback was deliberate as we continued 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Kan Li: 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 Q1. 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 ended stood at RMB 35.3 billion, a decline of 39.6% from the same period of 2025. Credit quality.

Speaker #3: 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.

Speaker #3: From a volume standpoint, borrower activity continued to contract in the first quarter, which served approximately 956,520 active borrowers, down 60.6% year over year and 43.5% from the prior quarter.

Speaker #3: 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 quarter-end stood at RMB 35.3 billion, a decline of 39.6% from the same period of 2025.

Speaker #3: Credit quality. Credit conditions remained under pressure in the first quarter, consistent with the broader stress we and others across the industry have been observing.

Kan Li: Credit conditions remained under pressure in Q1, consistent with the broader stress we and others across the industry have been observing. As of 31 March, our 31- to 60-day delinquency rate was 2.61%, compared with 2.9% at 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 end of Q4 2025, and 2.73% as of the same period of 2025. The data reflects a borrower base under continuous 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.

Speaker #3: As of March 31st, our 31-to-60-day delinquency rate was 2.61%, compared with 2.90% at the end of Q4 2025, and 1.25% as of the same period in 2025.

Speaker #3: 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 in 2025.

Speaker #3: The data reflects a borrower-based underlying financial strength, 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.

Speaker #3: Higher credit costs weighed on the 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.

Kan Li: 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 Q1, as well as the regulatory environment.

Speaker #3: 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.

Speaker #3: 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.

Speaker #4: Great. Thank you, Ken. Hello, everyone. It's great to speak with you again. Ken 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.

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 Q1 2026, total net revenue was RMB 1.18 billion, or $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 $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.

Speaker #4: In the first quarter of 2026, total net revenue was RMB 1.18 billion, or $170.5 million US dollars, representing a 39.3% decline year over year and a 19.9% decline sequentially from Q4 2025.

Speaker #4: Total operating costs and expenses came in at RMB 1.04 billion, or $150.1 million U.S. dollars, 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.

Speaker #4: Total provisions were ¥282.9 million RMB, or $41 million US dollars, down substantially from ¥669.3 million RMB in Q4 2025. This was a meaningful sequential improvement but still well above the ¥135.5 million RMB we recorded in the same period last year, continuing to weigh on profitability relative to prior-year levels.

Noah Kauffman: Total provisions were 282.9 million RMB, or $41 million, down substantially from 669.3 million RMB in Q4 2025, which was a meaningful sequential improvement but still well above the 135.5 million RMB 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 acquisition and marketing expense was RMB 219.8 million, or $31.9 million in Q1, 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 $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, though still well below the 29.6% recorded in the prior year period.

Speaker #4: On the discretionary spending side, we maintained tight control. Borrower acquisition and marketing expense was RMB 219.8 million, or $31.9 million US dollars 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.

Speaker #4: Income from operations recovered to RMB 140.7 million, or $20.4 million, a 75.4% decrease year over year, but a meaningful rebound from the depressed Q4 2025 level.

Speaker #4: Operating margin improved to 12%, up from 1.4% in Q4 2025, though this is still well below the 29.6% recorded in the prior-year period. Income before income taxes was ¥136.8 million RMB, or $19.8 million US dollars, as the sequential improvement in operating results was partially offset by investment-related items below the operating line.

Noah Kauffman: Income before income taxes was RMB 136.8 million or $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 $5.5 million in Q1, 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 Q1 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.

Speaker #4: Net income was RMB 37.9 million, or $5.5 million US dollars in the first quarter, compared with RMB 57.2 million in Q4 2025 and RMB 458.1 million in Q1 2025.

Speaker #4: 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 substantially reduced earnings base.

Speaker #4: 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.

Speaker #4: 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.

Noah Kauffman: 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 Q1 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, 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 for ADS metrics, non-GAAP adjustments, and the balance sheet.

Speaker #4: The first quarter results reflect a business in transition. Revenue and profitability are well below prior-year levels as we work through a period of elevated credit costs and reduced origination activity.

Speaker #4: But with early signs of sequential stabilization in 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.

Speaker #3: Frank, 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.

Frank Fuya Zheng: Thank you, Noah, and hello, everyone. I will walk through the key financial highlights for Q1, then cover the balance sheet, capital returns, and our outlook. Please note that all numbers stated in RMB and rounded up. Full details are available in the 6-K file with SEC. Financial results. The total net revenue for Q1 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 the 29.6% we recorded a year ago, with a meaningful recovery from the 1.4% we reported in Q4 2025.

Speaker #3: Please note that all numbers stated are in RMB and rounded up. Full details are available in the 6-K filing with the SEC. Financial results: the total net revenue for the first quarter was approximately RMB $1.2 billion.

Speaker #3: 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, which we have been deliberately pursuing.

Speaker #3: And this was partially offset by growth in guarantee income and financial financing income. Operating income was RMB 141 million, with an operating margin of 12%, well below the 29.6% we recorded a year ago.

Speaker #3: With a meaningful recovery from the 1.4% we reported in the fourth quarter of 2025. The improvement sequentially reflects the benefit of low origination-related provisions, as our credit tightening measures took hold.

Frank Fuya Zheng: The improvement sequentially reflects the benefit of the loan 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 low revenue base. Non-GAAP adjusted net income was RMB 81 million. On a per ADS base, basic earnings were RMB 0.96, $0.14, compared with RMB 10.92 a year ago, and the non-GAAP adjusted basic earnings per ADS were RMB 2.8 or $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 guarantee loan portfolio. Finance income was broadly stable.

Speaker #3: 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 a substantially lower revenue base.

Speaker #3: Non-GAAP adjusted net income was RMB 81 million. On a per ADS basis, basic earnings were RMB 0.96, or $0.14, compared with RMB 10.92 a year ago. Non-GAAP adjusted basic earnings per ADS were RMB 2.8, or $0.30.

Speaker #3: Revenue mix. Across our business lines, the pattern was consistent with the overall volume pullback. Facilitation fees fell sharply as origination volume dropped. Post-origin fees declined more modestly, in line with the smaller outstanding portfolio.

Frank Fuya Zheng: 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 guarantee loan portfolio. Finance income was broadly stable.

Speaker #3: On the positive side, guarantee income more than tripled year over year, reflecting continued recognition of revenue from our existing guarantee loan portfolio. Finance income was broadly stable.

Speaker #3: For the full breakdown by line item, please refer to the 6-K. Balance sheet and liquidity—our balance sheet remained well capitalized at the end of the quarter.

Frank Fuya Zheng: For the full breakdown by line item, please refer to the 6-K. Balance sheet and liquidity. Our balance sheet remained 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 assets ratio of around 57%. We remained a solid liquidity position, and with total cash including restricted cash of approximately RMB 2.4 billion and the balance is in good shape to navigate the current environment. Capital return to the shareholders. We continue our share repurchase program during the quarter. From 1 January to 15 May 2026, we repurchased approximately 1.8 million ADS for a total of approximately $8.2 million. We have approximately $39.8 million remaining under the existing program, which runs through 30 November 2026. This reflects our ongoing commitment to returning value to the shareholders while maintaining balance sheet strength.

Speaker #3: Total assets were approximately RMB 13.6 billion, and shareholders' equity was approximately RMB 7.8 billion, giving us an equity-to-assets ratio of around 57%.

Speaker #3: We maintained a solid liquidity position, with total cash, including restricted cash, of approximately RMB 2.4 billion. The balance sheet is in good shape to navigate the current environment.

Speaker #3: 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 a total of approximately $8.2 million.

Frank Fuya Zheng: Capital return to the shareholders. We continue our share repurchase program during the quarter. From 1 January to 15 May 2026, we repurchased approximately 1.8 million ADS for a total of approximately $8.2 million. We have approximately $39.8 million remaining under the existing program, which runs through 30 November 2026. This reflects our ongoing commitment to returning value to the shareholders while maintaining balance sheet strength.

Speaker #3: We have approximately $39.8 million remaining under the existing program, which runs through November 30, 2026. This reflects our ongoing commitment to returning value to shareholders while maintaining balance sheet strength.

Speaker #3: 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.

Frank Fuya Zheng: 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 Q2 2026, we expect total loan origination to be in the range of RMB 11.5 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.

Speaker #3: 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 to 12.5 billion, consistent with our continued focus on quality over volume.

Speaker #3: We remain focused on capital preservation, discipline, origination, and cost control. We will keep investors updated as the regulatory picture becomes clear. That concludes our prepared remarks.

Speaker #3: We will now take questions. Operator, please go ahead.

Speaker #1: 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.

Operator: I would like to turn the conference back over to Victoria Yu for any closing remarks.

Speaker #1: 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.

Speaker #1: Once again, to ask a question, please press star, then one to join the question queue. We are showing no questions at this time. I would like to turn the conference back over to Victoria Yu for any closing remarks.

Operator: I would like to turn the conference back over to Victoria Yu for any closing remarks.

Speaker #4: 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.

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.

Speaker #4: Thank you. Operator, back to you.

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