X Financial (NYSE:XYF) Q2 2025 Earnings Call Transcript

X Financial (NYSE:XYF) Q2 2025 Earnings Call Transcript August 19, 2025

Operator: Hello, and welcome to the X Financial Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Victoria Yu. Please go ahead.

Victoria Yu: 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.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 start with a brief overview of our business progress and financial performance. Then Mr. Kauffman will go over some key Q2 metrics and highlights. After that, Mr. Zheng will share updates on financials, regulatory insights and our 2025 outlook. Afterwards, Mr. Li, 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 and 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. Kan Li.

Kan Li: Thank you, Victoria, and hello, everyone. We are very pleased with our continued momentum in 2025. In the second quarter, we facilitated RMB 38.99 billion in loans, a 10.9% sequential increase and a strong 71.4% growth year-over-year. This was another standout quarter for originations, supported by robust borrower demand and continued advance in risk management. Our team remains committed to expanding market opportunities through both new partnerships and the deepening of existing relationships, further strengthening our technology platform and underwriting models to drive profitability and scalability, carefully balancing growth opportunities with prudent risk management as we increase — as we increase access to qualified borrowers.

We also continue improving borrower experience by speeding up decision-making, streamlining applications and enhancing transparency. Simultaneously, we have made meaningful enhancements to platform reliability and borrower-facing tools, empowering users to make informed credit decisions and managing repayments confidently. Despite the ongoing regulatory environment and macroeconomic uncertainty, we delivered significant sequential growth in loan volume and revenue. Total revenue reached RMB 2.27 billion, up 17.3% sequentially and notably higher at 65.6% growth year-over-year. These results reflected disciplined execution and ongoing expansion of our platform and capabilities. Operational and credit quality update. We also continued making positive strides in asset quality.

As of June 30, our 31- to 60-day delinquency rate improved to 1.16%, down from 1.29% a year ago, reflecting nearly a 10% improvement year-over-year. The 91 to 180 days delinquency rate was 2.91%, substantially lower than the 4.38% in Q2 2024, demonstrating a meaningful 33% reduction year-over-year. This improvement highlights our continued commitment to disciplined borrower screening and rigorous underwriting practices. We have also proactively improved borrower engagement, leveraging timely communication and customized repayment assistance programs. These initiatives continue to drive better borrower behavior, significantly contributing to the stability and the quality of our portfolio. With that, I’ll now turn it over to Noah, who will walk through additional financial and operational highlights from the second quarter.

Noah Kauffman: Great. Thank you. Hello, everyone. It’s great to speak with you today. Let me highlight some key points from our Q2 operational and financial results. On operational metrics, we facilitated approximately RMB 38.99 billion in loan originations, up significantly by 71.4% year-over-year. Our total outstanding loan balance, excluding loans delinquent more than 60 days, reached RMB 64.91 billion, representing an increase of 55.3% from Q2 2024. Total number of loans facilitated increased substantially to approximately 3.72 million, reflecting a growth of 70.8% year-over-year with an average loan size of RMB 10,476. Our active borrower base grew meaningfully, reaching approximately 2.85 million, a notable 73.7% increase year-over-year.

On the financial highlights, our total net revenue reached RMB 2.27 billion, reflecting strong sequential growth of 17.3% and impressive 65.6% year-over-year growth driven by increased loan origination volumes and continued expansion of our loan facilitation services. Income from operations increased meaningfully to RMB 675.1 million, rising by 45.8% year-over-year, underscoring our continued focus on operating leverage and disciplined expense management. We reported non-GAAP adjusted net income of RMB 593.2 million, reflecting robust year-over-year growth of 58.3%, demonstrating continued profitability momentum as we scale our business. Importantly, we delivered this bottom line growth while maintaining operating margins near 30%, even as we increased borrower acquisition spending, reflecting strong unit economics and platform efficiency.

In addition, the weighted average number of basic shares outstanding declined approximately 14.4% year-over-year, contributing to meaningful growth in earnings per ADS alongside strong net income performance. This reflects our ongoing commitment to capital return through our share repurchase program, which Frank will speak on more in a moment. At the same time, with net income up 27% year-over-year and only modest growth in total equity, our implied return on equity expanded significantly, affirming the strength and efficiency of our earnings model and our ability to generate high returns on capital while maintaining a conservative balance sheet. Our strong Q2 results reflect consistent execution, improved operational efficiency and resilient asset quality amidst a challenging regulatory and market environment.

I’ll now hand it over to our CFO, Frank, who will dive deeper into these financial results, provide an update on our capital return strategy and share insights on regulation and growth outlook for the remainder of 2025. Thank you. Go ahead, Frank.

Fuya Zheng: Thank you, Noah. It’s great to speak with everyone today. Let me provide additional highlights of our profitability metrics, liquidity position, strategic capital allocation and the regulatory environment for the second quarter of 2025. Financial and profitability measures. Non-GAAP adjusted net income for Q2 reached RMB 593.2 million, USD 82.8 million, up significantly by 58.3% year-over-year, reflecting strong core profitability driven by prudent expense control and high-quality loan growth. Non-GAAP adjusted net income per ADS basically improved significantly to RMB 14.6, USD 1.98, representing 85.8% increase year-over-year, underscoring the effectiveness of operational leverage and enhanced profitability per share.

Return on equity further improved to approximately 27.9% in Q2, increased both sequentially and year-over-year. As Noah mentioned, our improved ROE reflects both core earnings growth and capital efficiency, supported by disciplined equity management and reinvestment. This demonstrates our continued financial discipline and increased operation efficiency as we scale. Our liquidity remains robust, giving us the flexibility to fund strategic growth initiatives, invest in technology and borrower acquisition and return capital to shareholders, primarily through our ongoing share repurchase program. Share repurchase plan from January 1, 2025, through August 15, 2025, X Financial repurchased an aggregate of approximately 16.7 million Class A ordinary shares, including approximately 2.3 million ADS for a total consideration of approximately USD 47.7 million under its share repurchase plans.

The company’s previous USD 50 million repurchase authorization has been fully utilized. The company now has approximately USD 68.2 million remaining under its new USD 100 million share repurchase program, which is effective through November 30, 2026. This ongoing share repurchase activity underscores our confidence in the company’s and this program remains subject to market conditions and regulatory guidelines and our discretion regarding capital allocation priorities. Dividend update. As part of our semiannual dividend policy, the Board has approved a cash dividend of USD 0.28 per ADS, which is equivalent to approximately USD 0.0467 per ordinary share. Shareholders of record as of September 26, 2025, will be entitled to receive the dividend and the payments are expected to be distributed on and around October 15, 2025.

ADS holders will receive their dividend payments through our depository, the Bank of New York Mellon shortly thereafter with the timing subject to brokerage processing. Regulatory environment update. The regulatory environment in China continues to evolve, and we remain fully committed to compliance and alignment with the government’s policy goals. Recent regulatory guidance from the National Financial Regulatory Administration emphasize responsible lending practice, consumer protection and financial stability, areas where we remain fully aligned. While evolving regulations may introduce incremental compliance obligations for industry participants, we view these changes positively as they support a sustainable industry landscape and encourage responsible innovation.

We will continue to proactively engage with regulatory authorities ensuring our operations adhere strictly to evolving standards, and we believe our platform is well positioned to navigate those changes while continue to create long-term value. 2025 growth outlook. Based on current trends, X Financial expects the total return amount facilitated and originated in the third quarter of 2025 to be in the range of RMB 32 billion to RMB 34 billion. This represents a deliberate moderation from record Q2 levels as management place great emphasis on asset quality and profitability over pure volume growth. The company remains attentive to the challenges and uncertainties from the evolving regulatory environment while maintaining confidence in resilient borrower demand and disciplined execution.

With that, I will hand the call back to our President, Kan Li, for closing remarks.

Kan Li: Thank you, Frank. As we move further into 2025, we remain confident in our strategic path rooted in robust underwriting practices, prudent risk controls and continued operational enhancements. Our strong financial position and unwavering commitment to long- term value creation give us confidence in our ability to deliver sustained and profitable growth.

Victoria Yu: This concludes our prepared remarks. We will now open the call for questions. Operator, please go ahead.

Operator: [Operator Instructions] The first question comes from [ Randy Balaton ] with NPS Trading.

Unidentified Analyst: Congratulations on a good quarter. I do have 2 questions. The first one is, can you guys provide some light on the pivot that you’ve made on providing loan growth at the beginning of the year to switching to asset quality? And then the second question is, do you guys see opportunity to run the company leaner through artificial intelligence?

Q&A Session

Kan Li: Sorry, I didn’t hear your first question clearly. Can you repeat that, please?

Unidentified Analyst: Yes, yes. Can you provide some information or some color on the pivot that you guys have had from providing loan growth or going from loan growth at the beginning of the year and switching over to asset quality as your prioritization?

Kan Li: Okay. I think asset quality has always been our priority no matter what. So I think at the beginning of the year that we provide roughly 30% increase in our scale. I think we maintain our expectation on that. I don’t see any significant change from our original expectation. That being said, that asset quality obviously has always been our top priority. So based on the environment that we are seeing right now, I think we are paying even more attention to making sure that our — we are not growing our portfolio just for the sake of growth. But that being said, I still don’t see — we still maintain our expectation that we will likely finish the whole year by reaching that goal. I think that’s your first question. The second one is about the AI application.

We have already been leveraging AI largely in our client management space, like the collections, the customer service. So we have already been utilizing AI to replace some of the live agents before. This is — this will be a continued growth, and I don’t see that we will sort of reach the end stage, and this will be an ongoing development from our side. And obviously, we are very interested in developing our AI capability in order to reduce the future cost and this certainly aligned with our profitability goal.

Unidentified Company Representative: I think if I just add one thing, Randy, is we have an investor deck that’s been released this last quarter that highlights all the AI capabilities that we’re testing internally. So that may be helpful.

Operator: [Operator Instructions] 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, back to you.

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