X Financial Q1 FY26 earnings call XYF

Management carried forward the more conservative posture adopted in the second half of 2025 and further reduced the pace of activity in Q1, explicitly prioritizing portfolio integrity and long-term balance-sheet stability over near-term origination volume. The company continued shifting its 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 process automation continued rolling out across servicing and collections to improve efficiency while keeping the cost base lean. Kan Li characterized the volume pullback as deliberate and aligned with evolving supervisory expectations.

Credit conditions remained under pressure, consistent with stress management says it and others are observing across the broader Chinese consumer credit industry, with the data reflecting a borrower base under continued financial strain. A notable divergence emerged: the early-stage 31–60 day delinquency rate improved sequentially while the late-stage 91–180 day rate rose sharply, suggesting prior-vintage stress flowing through even as tightening slows new deterioration. The response was to further narrow approval criteria, deploy more resources into collections, and pull back origination in the segments where repayment risk has risen most sharply. Management accepted the earnings cost knowingly — as Kan Li put it, 'Protecting the integrity of the portfolio matters more to us than defending short-term earnings.'

Total net revenue was RMB 1.18B (USD 170.5M), down 39.3% year-over-year and 19.9% sequentially, driven primarily by the deliberate reduction in origination activity and partially offset by growth in guarantee income and financing income. Total operating costs and expenses fell to RMB 1.04B (USD 150.1M), down 24.1% year-over-year and 28.5% sequentially, led by the sharp pullback in borrower acquisition and marketing spend. Income from operations recovered to RMB 140.7M (USD 20.4M) — down 75.4% year-over-year but a meaningful rebound from the depressed Q4 2025 level — while income before income taxes of RMB 136.8M was partially offset by investment-related items below the operating line. Net income was RMB 37.9M (USD 5.5M) versus RMB 57.2M in Q4 2025 and RMB 458.1M in Q1 2025; basic earnings per ADS were RMB 0.96 (USD 0.14) versus RMB 10.92 a year ago.

Across business lines the pattern tracked the overall volume pullback: facilitation fees fell sharply as origination volume dropped, while post-origination fees 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 the existing guaranteed loan portfolio, and financing income was broadly stable. Management referred investors to the 6-K for the full line-item breakdown.

The regulatory environment governing internet-based lending in the People's Republic of China continued to evolve during the quarter, with authorities further strengthening oversight across the consumer credit business chain. Noah Kauffman stated that management has limited visibility into the ultimate scope and direction of implementation, and issued an explicit warning: if current and emerging requirements are implemented as currently understood, operating results may be materially and adversely affected, and historical levels of profitability should not be assumed indicative of future performance. He framed Q1 as 'a business in transition' — revenue and profitability well below prior-year levels amid elevated credit costs and reduced origination, but with early signs of sequential stabilization in operating performance.

The balance sheet remains well capitalized, with total assets of approximately RMB 13.6B and shareholders' equity of approximately RMB 7.8B at quarter-end, and total cash including restricted cash of approximately RMB 2.4B — a position management described as in good shape to navigate the current environment. The share repurchase program continued during the quarter, which management framed as an ongoing commitment to returning value to shareholders while maintaining balance-sheet strength. The near-term stance remains capital preservation, disciplined origination and cost control, with updates promised as the regulatory picture becomes clear. The call concluded with no analyst questions taken in the Q&A session.