X Financial

NYSE:XYF

Q1-2025 Earnings Call

[Operator]

Hello, and welcome to the X Financial First 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, executive]

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 Q1 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 Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and involve known or unknown risks, uncertainties and other factors. These factors are difficult to predict and many are beyond the company's control, which may cause actual results, performance or achievements to differ materially from those described in these statements. Further information on these and other risks can be found in our SEC filings. The company undertakes no obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required by law.

It is now my pleasure to introduce Mr. Kan Li.

[Kan Li, executive]

Thank you, Victoria, and hello, everyone. We are pleased with how 2025 has begun. In the first quarter, we facilitated RMB 35.15 billion in loans, an 8.8% sequential increase and 63.4% growth year-over-year. It was one of our strongest quarters for originations, reflecting solid borrower demand and continued progress in risk management. Our team remained focused on expanding opportunities through both new partnerships and existing relationships, enhancing our technology platform and underwriting models to support profitability and scalability, balancing growth and risk as we broaden access to qualified borrowers.

We are also working to improve the borrower experience by delivering faster decisions, simplifying application processes and enhancing transparency. In parallel, we continue to strengthen platform reliability and support tools to help customers informed borrowing decisions and manage repayment with confidence. Despite the typical seasonal impact from Chinese New Year, we achieved sequential growth in both loan volume and revenue. Total revenue reached RMB 1.94 billion, up 13.4% from Q4 and over 60% year-over-year. These results reflected steady progress in growing the platform responsibly.

Operational and credit quality update. We also made continued progress on asset quality. As of March 31, our 31 to 60-day delinquency rate was 1.25% compared to 1.61% a year ago, reflecting a 22% improvement year-over-year. The 91 to 180-day delinquency rate was 2.7%, down from 4.7% in Q1 2024, a 37% reduction year-over-year. These improvements reflect disciplined borrower screening and underwriting practices. We have also continued to enhance borrower engagement and repayment behavior through timely communication and tailored repayment assistance programs. These initiatives have contributed meaningfully to our risk management outcomes and supported further portfolio stability.

Now I will turn the call to Noah to go over some key Q1 metrics and highlights.

[Noah Kauffman, executive]

Yes. Thank you, Kan. Hello, everyone. It's a pleasure to speak with you today. Let me share several highlights from our Q1 operational and financial performance. On the operational metrics, we facilitated approximately RMB 35.15 billion in loan originations, marking a 63.4% year-over-year increase. Our total loan outstanding balance, excluding loans over 60 days delinquent, reached RMB 58.4 billion, growing by more than 33% from Q1 2024. We facilitated over 3.14 million loans with an average loan amount of approximately RMB 11,181.

On the financial highlights, total revenue grew to RMB 1.94 billion, up 13.4% sequentially and 60.4% year-over-year, primarily driven by higher borrower volumes and originations. Our income from operations expanded substantially, reaching RMB 573 million, up 52% year-over-year. This demonstrates our improved operational leverage and disciplined expense management. Our average funding cost improved year-over-year, supported by a more optimized funding structure and sustained commitment from our core institutional partners. This reflects the strength of our platform and deepening trust within our funding network. With these metrics, we continue to see notable gains in operational efficiency and market positioning.

I'll now hand the call over to Frank to walk through the financials, discuss capital allocation priorities, provide regulatory insights and outline our growth outlook for 2025.

[Fuya Zheng, executive]

Thank you, Noah. It's great to speak with everyone today. I will provide additional insights into our profitability metrics, liquidity and the strategic plans for the capital allocation. Non-GAAP adjusted net income for Q1 reached RMB 457 million, increased 44.9% year-over-year, reflecting sustained earnings strength. Basic earnings per ADS improved significantly to USD 1.5 and approximately 45.6% year-over-year increase, underscoring enhanced profitability per share. Return on equity increased to 25.5%, rising 1.4 percentage points year-over-year and 3.2 points sequentially, reflecting our sustained financial discipline and growing operational efficiency. Our liquidity remains strong, positions us well to support ongoing operations, investments and capital returns.

Share repurchase plan. We have recently authorized a new share repurchase plan that allows us to buy back up to USD 100 million worth of our Class A shares and ADS. This authorization will be in effect for 18-month period running from January 1, 2025, through November 30, 2026. This new authorization comes in addition to our existing repurchase plan approved last December, which still has approximately USD 15.9 million remaining.

Regulatory environment update. The regulatory environment in China remains dynamic, and we remain fully committed to compliance and aligns with the overall policy direction. The recent notice from the National Financial Regulatory Administration affirms the current trajectory with a clear focus on responsible credit assets and financial stability. We see increased oversight as a positive step that supports long-term industry development and reflects growing recognition of our role. While evolving rules may introduce high compliance requirements, they also create space for innovation and more sustainable growth. We continue to engage proactively with regulators and remain focused on responsible execution and the evolving framework.

2025 growth outlook. Based on current trends, X Financial expects the total loan amount facilitated and originated in the second quarter of 2025 to be in the range of RMB 37.5 billion to RMB 39.5 billion, reflecting continued strong demand and consistent execution following a robust first quarter.

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

[Kan Li, executive]

Thank you, Frank. As we progress through 2025, we remain confident in our strategic direction grounded in strong underwriting, disciplined risk management and ongoing operational improvements. With a solid financial foundation and a clear focus on long-term value creation, we are well positioned to sustainable and profitable growth. Thank you.

[Victoria Yu, executive]

Operator, back to you. We can go to the Q&A session.

[Operator]

[Operator Instructions] The first question today comes from [ Kenny Zhao with Norton Anders ].

[Unknown Analyst]

I'm [ Kenny from Norton Anders ]. Congratulations, and thank you for the great performance in the first quarter. Well, my first question is, there's a strong growth in your business, both in new loan origination and active users. And you mentioned there will be further growth. I wonder if that means you like the current macroeconomic environment and the loan market. And well, it's not big, but the delinquency rate has also ticked up a little bit compared to the end of last year. If the loan volumes continue to grow, should we expect further increase in the delinquency rate? And can I have a second question?

[Kan Li, executive]

Can we get this first question first and then you can answer the next one.

[Unknown Analyst]

Of course.

[Kan Li, executive]

I think you mentioned several questions in your comments. So let's get to them one by one. The first one is how we view the current environment. I think our company has never tried to grow our portfolio for the sake of growth. So we're always trying to manage our portfolio based on the current -- based on our assessment of the future environment.

That being said, I think right now, based on our historic trend and based on our analysis that I think the overall environment is still good for the portfolio growth. That is why that we are still focused on the growth at this moment. Another thing from this is that since the second half of last year that we have been investing a lot in acquiring new customers. So as these customers mature in our portfolio, we are able to offer them better lines, better products. So they stick with us longer. That is also the best foundation for our growth.

In terms of the delinquency rate, I think the reason that you see an uptick from the lower level that we achieved somewhat last year is that I would say that, that probably was the bottom of our delinquency rate. So even with this uptick, I think our delinquency rate with regard to our portfolio is still very healthy. So we are not particularly concerned about that. And going forward, we do expect that our delinquency rate will still have some uptick, but those uptick will be more than offset by our overall scale. That basically means that our profit will not be impacted by the delinquency.

[Fuya Zheng, executive]

Let me add a few words regarding the delinquency rate. That number is actually -- the risk profile situation from last quarter to Q1 actually is stable. And the number is a little bit skewed. And if you take another look, if you look at our Q1 income statement under the operation cost and expenses, the first one is origination and services, basically, it's operational expenses. The second one is the marketing acquisition -- customer acquisition. And the third one is general and administration costs. And so that's generally cost.

But the rest of it from like a provision this way and provision that way, if you add up together, this is all risk-related cost. If you add up this quarter, Q1 and you add on Q4 last quarter, all the provision together, you will find all the Q1 provision is about RMB 60 million less than last quarter. But among this RMB 60 million, actually because this RMB 57 million, almost RMB 57 million is related to our own insurance business, which means because our own insurance business, the revenue you book on one period and the cost you're booking the whole thing together in one time.

Because the last quarter, Q4, they did more -- our guarantee company did more business, so they have more of that. So you take out this RMB 57 million, actually, the cost apple-to-apple the cost related, we take out all the risk related to the guarantee business, actually, we have like a 3 million, 4 million less cost in Q1 compared with Q4.

So overall, the conclusion is the risk situation remains basically the same, not much better, not much worse. That's the thing. But having said that, we all expect, because this regulatory new development will be coming in October, we will prepare and because of that, there may be some uptick -- cost risk situation with some uptick down the road, but not in the Q1 -- not in the Q2. We haven't found the riskj situation change much at all. That's why we continue to invest a lot in customer acquisition also.

[Unknown Analyst]

Well, my second question is about the repurchase. You haven't repurchased any shares in the first quarter, but you have approved another share repurchase program. Just wondering if you repurchased any like during the April market volatility? And should we expect you continue the aggressive stock buybacks as you did last year?

[Fuya Zheng, executive]

Yes. Because Q1, there's no open window, so we usually do the buyback during the open window from the old shareholders. Right now, I mean, the incoming open window, we're pretty much sure, the remaining almost USD 60 million is not -- it will be used up in the coming open window, and we are very likely to kick in to the buyback during the non-window period also. So that's why we have this newly authorized USD 100 million to cover that. I hope I answered your question.

[Operator]

[Operator Instructions] The next question comes from Alex Ye with UBS.

[Xiaoxiong Ye, analyst]

This is Alex from UBS. So I have 2 questions, if I may. So first 1 is regarding your loan growth guidance for the next quarter. It seems it's still going to be a bit of a good growth. So just wondering what's driving the growth behind? And how do you see the underlying application of credit demand in the last 2 months, in April or May. Have you seen any softening trend given a lot of the noise on the macro front and so on? Yes.

And second question is a little bit on your funding supply. So given there has been this new regulatory announcement since April. So I'm wondering have you heard any feedback from your funding partners with regard to their attitude towards this loan pricing, which is growing above 24%. And then do you see anything we need to adjust our current practice in order to ensure that we are more compliant?

[Kan Li, executive]

Okay. I'll answer the first question about the growth. As I mentioned in the last investor that our growth has always been based on our assessment for the upcoming risk environment. So at this moment, I think that the way that we grow our portfolio has always been acquiring new customer and get the customer on board and graduate them into a better product, which largely means lower fees and higher lines. And our growth has largely growing from this strategy. So you asked about April or May or June, that our growth path will always be like that.

In terms of our funding institutional partners, right now, we are in very close conversation with them about the upcoming changes. And at this moment, what I can say is that we expect there will be changes, and we are going to make some adjustment, but I don't see -- our company has always been confident that we will be fully compliant with the new regulation before the October 1 deadline. So we are not particularly concerned about that. But that being said, any new regulation will always bring some small shocks to the industry. So we do expect there will be some shocks in our industry. It's just that I think our company are in a very good position to take those shocks. So I think our growth prospects will not be changed based on whatever that we are providing for the investor.

[Fuya Zheng, executive]

Alex, first of all, welcome to our earnings call and webcast. And regarding -- let me just basically answer the same question again. And I think we really took advantage of the risk environment, good risk environment since the second half of last year. So our run rate at the end of last year is already pretty high and you see that we spent very aggressively in customer acquisition in Q1. And we will keep the same pace in terms of acquisition effort in the second quarter.

So based on our current forecast of the Q2 this year, we are ahead 30%, the gross volume growth for this year. But we will not have intention to increase the forecast anytime soon, because we will see in Q3 what's the effect on the regulatory policy impact on the industry. So there's a little bit uncertainty regarding Q4 volume, that's what I try to say. And so overall, I think we are confident to achieve 30% volume growth for this year. But maybe not more, it's all because Q4 is kind of in the limbo right now.

Regarding the prepare for the new possible regulatory impact, we do some talking to the people and talking to the -- mostly our institutional partners and some regulatory authorities. And we are prepared some technology-wise, if there's new policy kick come down and we can accommodate very quickly, efficiently from technology operation-wise. Other than that, like anybody else, we don't know much what's going to come down.

[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, executive]

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. Thank you.

[Operator]

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