X Financial

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.xiaoyingroup.com. On the call today from X Financial are Mr. Ken Lee, President, Mr. Frank Fu-Ya Zheng, Chief Financial Officer, and Mr. Noah Kaufman, Chief Financial Strategy Officer. Mr. Lee will start with a brief overview of our business progress and financial performance. Then Mr. Kaufman will go over some key Q1 metrics and highlights. After that, Mr. Cheng will share updates on financials, regulatory insights, and our 2025 outlook. Afterwards, Mr. Lee, Mr. Cheng, and Mr. Kaufman will be available to answer your questions during the Q&A session. I remind you that this call may contain forward-looking statements. Enter the C. Popper Prohibitions 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 defer materially from those described in these statements. Further information on these and other risks can be found in our IPC 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. Ken Lee,

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 a 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 make informed borrowing decisions and manage repayments with confidence. Despite the typical seasonal impact from Chinese New Year, we achieved a sequential growth in both loan volume and revenue. Total revenue reached RMB 1.94 per 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 a continual progress on asset quality as of March 31st, 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 a further portfolio of stability. Now, I will turn the call to Noah to go over some key Q1 metrics and highlights.

Yeah, thank you, Kent. 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 35.15 billion RMB in loan originations, marking a 63.4% year-over-year increase. Our total loan outstanding balance, excluding loans over 60 days delinquent, reached 58.4 billion RMB, growing by more than 33% from Q1 2024. We facilitated over 3.14 million loans with an average loan amount of approximately 11,181 RMB. On the financial highlights, Total revenue grew to 1.94 billion RMB, up 13.4% sequentially, and 60.4% year-over-year, primarily driven by higher borrow volumes and originations. Our income from operations expanded substantially, reaching 573 million RMB, up 52% year-over-year. This demonstrates our improved operational leverage and discipline expense management. Our average funding costs 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.

Thank you, Noah. It's great to speak with everyone today. I will provide additional insights into our probability metrics, liquidity, and the strategic plans for the capital allocation. Non-GAAP adjusted net income for Q1 reached RMB $467 million, increased 44.9% year-over-year, reflecting sustained earnings strength. Basic earnings per ADS improved significantly to USD 1.50 cents, approximately 45.6% year-over-year increase, underscoring enhanced profitability per share. Return on equity increased to 25.5%, rising 1.4% points year-over-year and 3.2 points sequentially, reflecting our sustained financial discipline and growing operation efficiency. Our liquidity remains strong, position us well to support ongoing operations, investments, and capital returns. Share repurchase plan. We have recently authorized a new share repurchase plan that allow us to buy back up to 100 million U.S. worth of our Class A shares and ADS. This authorization will be in effect for an 18-month period running from January 1, 2025 to November 30, 2026. This new authorization comes in addition to our existing purchase plan approved last December, which still has approximately $15.9 million remaining. regulatory environment update. The regulatory environment in China remains dynamic and we remain fully committed to compliance and align 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 regulatory phases and remain focused on responsible execution and evolving framework. 2025 growth outlook. Based on current trends, ex-financial expect a 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 continuous strong demand and consistent execution following a robust first quarter. With that, I will pass the call back to our president, Ken Lee, for closing remarks.

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.

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

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our rosters. The first question today comes from Kenning Zhao with Norton Andrews. Please go ahead.

Hi, I'm Kenning from Norton Andrews. 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 market economic environment and the loan market. And, well, it's not big, but the delinquency rate has also picked 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, oh, can I have a second question?

Can we get this question first and then you can ask the next one? Sure, of course. Thank you. 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 our assessment of the future environment. That being said, I think right now, based on our historic trend and our analytical analysis, that I think the overall environment is still good for the portfolio growth. That is why we are still focused on the growth at this moment. Another thing from this is that since the second half of last year, we have invested a lot in acquiring new customers. 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 uptake from the lower level that we achieved somewhat last year is that I would say that that probably was the bottom part of our delinquency rate. So even with this uptake, 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 uptake, but those uptakes will be more than offset by our overall scale. That basically means that our profit will not be impacted by the delinquency.

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. The number is a little bit skewed. If you take another look, if you look at our Q1 income statement under the operation cost expenses, the first one is origination and services. Basically, it's operation expenses. The second one is the marketing acquisition, you know, customer acquisition. And the third one is general and administration cost. And so that's three generally cost. But the rest of us who found like a provision this way and a provision that way, if you add up together, this is all risk-related cost. If you add up this quarter, Q1, and you add up Q4, last quarter, all the provisions together, you will find all the Q1 provision is about 60 million RMB less than last quarter. But among this 60 million, actually because this 57, almost 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 $57 million, actually the cost, Apple to Apple, at the cost related, you know, you take out all the, you know, the risk related to the guaranteed business, actually we have like a three, four million less cost to compare with Q4. So overall, the conclusion is, you know, the risk situation is remain basically the same. Not much better, not much worse. That's the thing. But having said that, we all, because this regulatory new development will be coming in October, we will prepare, and because of that, there will maybe some uptake, cause the risk of situation with an uptake down the road, but not in the Q1, not in the Q2. We haven't found the risk situation change much at all. That's why we continue to invest a lot in customer acquisition also. Thank you.

Thank you for the detailed answer. 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 repurchase any during the April market volatility, and should we expect you continue the aggressive stock buybacks as you did last year? Thank you.

Yes, because QWINC has no open window, so we usually do the buyback during the open window from the old shareholders. Right now, the incoming open window, we're pretty much sure the remaining almost $60 million will be used up in the coming open window, and we will very likely kick in to the buyback during the non-window period also. So that's why we have this newly authorized $100 million to cover that. I hope I answered your question.

Yes, certainly. Thank you very much, and thank you again for the wonderful culture.

As a reminder, if you would like to ask a question, please press star then 1 to be joined into the question queue. The next question comes from Alex Yee with UBS. Please go ahead.

Hi, good evening. Thanks for taking my question. This is Alex from UBS. So I have two questions, if I may. So first one 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 loan application or credit demand in the last two months in April or May. Have you seen any softening trend given a lot of the noise on the macro front? And the second question is a 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 going above 24%. And then do you see anything we need to adjust our current practice in order to ensure that we're more compliant?

Thank you. Okay, I'll first answer the 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 gradually into a better product, which largely means the lower fees and the higher lines. And our growth has largely grown from this strategy. So, you ask about April or May or June, that our growth path will always be like that. In terms of our founding 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. We are going to make some adjustments, but I don't see, our company has always been confident that we will be fully compliant with the new regulation before the October 1st deadline, so we are not particularly concerned about that. 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. I think our growth prospects will not be changed based on whatever that we are providing to the company and for the investor.

Hi, Alex. First of all, welcome to our earning call. Welcome. Regarding the learning to space, you asked the same question again. 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 spend very aggressively in acquisition in the Q1, and we will keep the same pace in terms of acquisition effort in the second quarter. So based on our current forecast for Q2, This year, we're ahead of the 30 percent, the volume goes for this year, but we have no intention to increase the forecast anytime soon because we will see when in the Q3 what's the effect of the regulatory policy impact on the industry. So the white car, you know, a little bit uncertain regarding Q4 volume, and that's what I'm trying to say. And so overall, I think we are confident to achieve 30% volume goals for this year, but other than, but maybe not more, it's all because Q4 volume is kind of in the limbo right now. Regarding the prepare for the new regulatory a possible regulatory impact. We do some talking to the people and talking to the regular, mostly our institution partners and some regulatory authorities. And we are prepared some technology-wise. If there's no new policy can come down, and we can accommodate it very quickly, efficiently from technology operation-wise. Other than that, like anybody else, we don't know much what's going to come down. Thank you.

Understood. Thank you very much.

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

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. I'll bring her back to you. Thank you. The conference is now concluded.

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