X Financial (NYSE:XYF) Q3 2025 Earnings Call Transcript

X Financial (NYSE:XYF) Q3 2025 Earnings Call Transcript November 21, 2025

Operator: Hello, and welcome to the X Financial Third 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 Q3 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 provision 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 the 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. 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. During the quarter, we facilitated and originated RMB 33.64 billion in loans representing an 18.7% increase year-over-year, but 13.7% decline sequentially from the previous quarter. 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, enhancing our technology platform, data analytics and underwriting precision to improve decision-making and efficiency, strengthening partnerships and operational process to support long-term scalability under evolving regulatory standard.

We also continued improving borrower experiences by simplifying application flows, accelerating approval times and expanding transparency across our credit and repayment channel. At the same time, we refined our collection infrastructure and monitoring system to proactively managing credit risk and improve repayment outcomes. 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 though 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.

Credit quality. We did observe early signs of credit pressure during the quarter, consistent with broader market trends. As of September 30, 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. 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. 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.

With that, I’ll now turn the call over to Noah, who will walk through additional financial and operational highlights from the third quarter. Noah?

Noah Kauffman: 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. 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. 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.

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 clearer and more consistent framework will ultimately favor disciplined, well-capitalized and transparent platforms. 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 RMB 33.64 billion in loans, up 18.7% year-over-year and ended the period with RMB 62.83 billion in outstanding loan balance, up 37.3% from last year. We facilitated approximately 3.48 million loans, representing a 32% increase year-over-year with an average loan size of RMB 9,654.

Our active borrower base was approximately 2.44 million, 14.4% lower sequentially, but 24.2% higher year-over-year. 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. We also continued to strengthen our AI-driven analytics to improve borrower identification and early delinquency detection. On financial positioning, from a financial perspective, the third quarter reflected the necessary adjustment phase following our record first half. Profitability remained positive but contracted sequentially as overall activity normalized.

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

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. 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. With that, I’ll now hand the call over to Frank to discuss our financial performance in greater detail.

Go ahead, Frank.

Fuya Zheng: 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. The year-over-year growth was supported by higher average loan balances and the carryover effect of prior facilitation activity, where the sequential decline reflect our intentional reduction in loan volumes. Income from operations was RMB 331.9 million down 29.9% year-over-year and 46.4% sequentially, primarily due to higher provision for credit losses and a guarantee liability. Our operation margin was 18.5% compared with 29.7% in Q2 and 32.2% a year ago.

Net income came in at RMB 421.2 million, up 12.1% year-over-year, but down 20.2% sequentially. Non-GAAP adjusted net income was RMB 438.2 million, up 1% from last year and down 26.1% from Q2. Basic and diluted earnings per ADS were RMB 10.56 and RMB 10.08 respectively, while return on equity stood at 21.5%. These results reflect the impact of higher provision and lower volume, but also show that our core business remains profitable and cash generative despite a more cautious operational environment. Balance sheet liquidity. Our balance sheet remains strong. Total assets stood at RMB 14.69 billion, up 26.4% year-over-year and the total shareholders’ equity was RMB 7.93 billion, up 15% year-over-year. We ended the quarter with approximately RMB 1.55 billion in cash and restricted cash, providing ample liquidity to support operations and capital returns.

Capital returned to the shareholders. From January 1, 2025, through November 20, 2025, X Financial repurchased an aggregate of approximately RMP 4.26 million ADS, including approximately 3.80 million ADS and 2.76 million Class A ordinary shares, for a total consideration of approximately $67.9 million under its share repurchase program. The company now has approximately $48 million remaining under its existing $100 million share repurchase plan, 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 the shareholder value. Repurchases under the program remains subject to market conditions and other factors and may be modified or suspended at the management’s discretion.

Outlook for Q4 2025. Based on current trends, X Financial expects the total loan amount facilitated and originated in the fourth quarter of 2025 to be in the range of RMB 21 billion to RMB 23 billion. The total loan amount facilitated and originated for the full year 2025 is expected to be in the range of RMB 128.82 billion to RMB 130.8 billion. This guidance reflects a measured 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 optimization rather than aggressive volume expansion. The company remains attentive to evolving regulatory landscape and the changing credit conditions while maintaining confidence in resilient borrower demand, prudent risk control and disciplined execution to support sustained long-term growth.

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

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

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 today comes from Chen Yang with [indiscernible].

Q&A Session

Unknown Analyst: 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. 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 or the past 2 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 may drop significantly in the future. So is the company considering returning more capital to shareholders and keep the company running on a smaller book while higher capital efficiency? So I will also translate my question in Chinese, if that would help. [Foreign Language].

Fuya Zheng: This is Frank. I’ll answer your take rate question and let Kan answer your return on capital question. Noah will take a capital return question. You start to see the effect of impact of this so-called new regulation in the third quarter a little bit. But I think the full impact will not be fully realized in another quarter 2 or so. So I think at this time, whatever talking about next year regarding even take rate is very premature, and we have a very wide guess gap. But we also did not never disclosure to take rate before. So we are not going to do that. But I will say that, I think that this new regulatory regime will have a material negative impact on everything on volume, on margin, on profitability, and take rate is part of a effect of profitability.

So you will — you will — you can assume the take rate will have a material negative impact in the future. That’s I can — at the best I can discuss with you. Noah, do you want to have a second question to answer?

Noah Kauffman: Thanks, Chen, for the question. So on capital return. Capital return remains an important part of our strategy. We’ve been making active share repurchases, buying approximately [ $67.9 million ] through November 20. And as Frank mentioned before, we still have about $48 million remaining under the $100 million authorization, which runs through November 2026. We’ll continue to use the program in a disciplined manner subject to market conditions, and we view repurchases at current valuation levels and attractive investment in our own business. 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 Frank just spoke to, we expect to be able to maintain and sustain the dividend at the current level.

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 organic growth, share repurchases and dividends. 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. So in summary, we intend to continue executing the buyback program prudently, maintain the current dividend and allocate capital in the way that best supports sustainable growth for shareholders.

Operator: The next question comes from Joseph Martelli with [ Spark Capital ].

Unknown Analyst: How does the team view the regulatory environment going ahead into early 2026? And may we have more color on the uptick in delinquencies?

Kan Li: I’ll take that question. I think, again, it’s very difficult to forecast what the regulators will do in the future. So our approach has always been just be compliant with whatever regulations specified. So that being said, what we saw right now is regulators are very focused — very focused on the consumer protection. So our approach has — considering that we have lowered our loan volume, that we are not aggressively growing our portfolio in the sense that we are trying to shrink our portfolio a bit in order to making sure that we are not generating a lot of complaints from our side. I think that’s probably what we can do at this moment. Sorry, what’s your — I think you have the — can you repeat second part of it?

Unknown Analyst: I was asking about the delinquencies, the uptick in them and how we might see that continuing?

Kan Li: Yes. I think we do. Yeah, I think whenever there’s a huge impact on the industry and especially considering that the overall economy in China right now is not at the greatest time. 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 now. Our forecast, again, the forecast future is very difficult for us, but we do think that the delinquency rate will continue to climb. So Frank just mentioned that we think it’s going to take 1 or 2 quarters for it to stabilize. So even though that we are not sure when it’s going to stabilize. And 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.

Fuya Zheng: Let me just say a few more words. On the redisclosure of 91 days and 180 days delinquency rate for the Q3 is like 3.52%, which is higher than previous quarter 2.91% and the previous 3.22%. So it’s higher than previous quarter, higher than last year. We have been — everyone is having — trying to — everyone’s best — to its best to control it. By the time we try — the delinquency rate is still developing, still not stabilized yet. But we believe maybe in a month or 2, it should be stabilized. Unless there’s more negative impact from the new measures were coming up. Otherwise, we fully anticipate within like 1 or 2 months, delinquency rate will be stabilized very soon in 1 or 2 months. I hope that will add some color to your question.

Operator: [Operator Instructions]…

Noah Kauffman: Joseph, if I could just add a little bit to what Frank and Kan have already said just on the delinquency side. So — of course, we see higher delinquencies in Q3 consistent with the broader industry environment. The macro backdrop has been challenging, and that’s affected borrower repayment behavior across multiple segments in response. Of course, we’ve tightened the underwriting standard and shifted further towards higher-quality borrowers and intensified our collection and verification process. These actions basically give us confidence that we can appropriately — will be appropriately reserved for current delinquencies and potential losses. But I think a key point that both Frank and Kan were pointing to is that the loans typically have a duration of 10 to 12 months.

And so when delinquencies rise in a particular period, those vintages generally run off within a few quarters and the newer vintages originated under the tighter underwriting become a larger share of the book. 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. While this environment can temporarily put pressure on borrowers and repayment behavior, it also sets the foundation for better quality vintages going forward. So as the older weaker vintages mature and exit the portfolio, we expect credit metrics to gradually normalize over the medium term.

The near-term volatility is still possible and presumably likely. Our focus remains on prudent underwriting and disciplined portfolio management and strong collections, and we will continue to provision conservatively and manage the book to ensure losses remain within our tolerance. That’s all for me, but thanks for the question, Joseph.

Operator: [Operator Instructions] The next question comes from [ Ramzi ] with NTS Trading.

Unknown Analyst: I have 2 questions. Well, the first one is given the concerns around the credit quality, 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, Noah, you did go over, but I want to know if management — or what would it take for management to consider being more aggressive on the share buyback program, just given the depressed price? And have you guys ever considered anything such as an accelerated share purchase program? That is all yes.

Noah Kauffman: 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, we held about RMB 1.5 billion 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. 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 white listing and continue to operate with us normally.

Regarding our actual funding costs, we did see a general rise in funding rates from 2024 into 2025, in line with the broader industry trends. However, on a quarter-to-quarter basis, funding costs have been relatively stable, and we’ve not experienced any material disruption in accessing funding. And so looking ahead, as regulatory implementation becomes clear and both banks and platforms adapt fully to the new framework, we’re hopeful that the funding costs will gradually normalize from the elevated levels seen this year. 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.

As far as what would motivate us to do a more aggressive buyback. I don’t know, Frank, do you have any comments on that?

Fuya Zheng: Yes. We have almost continuously to do the buyback in this year from May 2025 all the way down to late November. And we did most of buybacks from open market. We still believe the buyback is the best way to return shareholder value. But the result is not that great. And currently, our stock is a little bit higher, maybe 50%, 60% higher than the same period last year. But a lot of our peers, their stock is already below last year’s period. But almost everyone, the balance sheet is more strong than — at this time, the balance sheet is more strong than the same time last year. So I think the market is assuming we’re not just — don’t have — the stock price tells us the market believe us probably do not even have a future.

And also, we will waste our money in our hand and just waste it. Otherwise, not make anything new. But I think that is not the belief we have. We think we have — we can — we believe we can do both. We can take care of the shareholder return and maybe do something new. And whether Chinese cash loan market is totally dead or not, once again, we will have that judgment to maybe a little bit long, maybe in another quarter or 2. But I think even with that new regulatory regime, I think we are — we still have — at least we still have cash to do something new, right, to try something new. So that’s regarding the buyback. And also, I’d say it again, we are — as Noah already said, we are determined to maintain the current dividend rate which is $0.28 for 2 times in a year.

So based on current stock price, $9, it is a 6% yield. So I think even without buyback, it’s a decent return for the shareholder. It’s better than you put the money in the banks, right? And so that’s our thinking. We will continue to do and we will maybe rely on more next year, rely more on the dividend side instead on the buyback side. And that’s what I try to say. Thank you.

Noah Kauffman: Just to add on really quickly to what — I think as the valuation became deeply disconnected from the fundamentals of the stock trades at levels that imply excessive credit or regulatory risk relative to our performance. Buybacks would become the highest return on capital. But I think as it stands, historically, it’s always a trade-off between ROIC from organic growth versus share repurchases versus dividends. Hope that answers your question.

Unknown Analyst: We can say too now, right now, the markets are pricing that isn’t the case. But it’s just a matter of what makes the most sense for X via…

Operator: 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.