Operator
Hello, and welcome to the X Financial Fourth Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity for questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Victoria Yu. Please go ahead.
Thank you, Operator. Hello, everyone, and thank you for joining today's call. Our financial results for the first quarter and fiscal year ended December 31, 2025, were released earlier today and are available on the company's investor relations website at ir.xioyingroup.com. On the call today from X-Financial are Mr. Kent Li, President, Mr. Frank Fu Yajeng, Chief Financial Officer, and Mr. Noah Kaufman, Chief Financial Strategy Officer. Mr. Li will begin with an overview of our business performance and key operational developments. Mr. Kaufman will then discuss the regulatory environment and the fourth quarter financial performance, followed by Mr. Zheng, who will review the full financial results, capital position, and outlook. After the prepared remarks, Mr. Li, Mr. Zheng, 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, 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, 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 follow-up-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. In the fourth quarter of 2025, we continued to operate with heightened discipline as the external environment became more demanding. Following a strong first class, we deliberately moderated activity in Q4 to remain aligned with evolving supervisory expectations and to prioritize credit quality and prudent risk management. During the quarter, we facilitated and originated RMB 22.77 billion in loans, representing a 29.5% decline year-over-year and a 32.3% decline sequentially from the previous quarter. This moderation was intentional, reflecting our focus on protecting portfolio health and and maintaining long-term stability rather than pursuing near-term volume expansion. For the full year 2025, we facilitated and originated RMB $130.6 billion in loans, up 24.5% from RMB $104.9 billion in 2024. This full-year performance reflects the scale we achieved earlier in the year and our ability to operate with the disciplining and market and regulatory conditions involved. During the quarter, we focused on strengthening the stability of our core operations through disciplining the channel management, tighter risk controls, and continued efficiency improvements. We increased the proportion of activity on internal operated platforms to enhance customer stability and reduce dependence on higher cost external traffic sources. We also further tightened underwriting standards, strengthened compliance processes, optimized operational workflows, and expanded automation across services and collection functions to improve efficiency without increasing headcount. From an operational standpoint, borrower activity moderated meaningfully in the fourth quarter. We served approximately 1.69 million active borrowers, down 20.2 percent from a year ago and down 30.7 percent sequentially. We facilitated approximately 2.47 million loans in the quarter with an average loan amount per transaction of RMB 9,226. We ended the quarter with RMB 50.5 billion in outstanding loan balance, down 3.6% from the same period of 2024. Credit quality. We did observe continued credit pressure during the quarter, consistent with broader market trends and a more cautious industry-wide risk posture. As of December 31, our 31-to-60-day delinquency rate increased to 2.9% compared with 1.85% at the end of Q3 and 1.17% a year ago. Our 91-to-180-day delinquency rate increased to 6.31% compared with 3.52% at the end of Q3 and 2.48% a year ago. These movements reflected rising repayment stress among certain segments, as well as a more conservative approach to risk. In response, we tightened underwriting criteria, enhanced collection strategies, and adjusted capital deployment to preserve balance sheet resilience. As credit costs increased, we chose to prioritize stability and risk management, which affected short-term earnings but strengthens the foundation of the business. We believe this more cautious stance is appropriate given current conditions. Our near-term priorities remain clear, safeguard portfolio quality, preserve liquidity, and maintain discipline in operations. With that, I will now turn the call to Noah, who will walk through P4 quarter financial performance and profitability trends, along with a brief regulatory update.
Thank you, Kent. Hello, everyone. It's great to speak with you again. Ken covered the operational and credit picture for the quarter, so I'll focus on the financial performance and our profitability profile in Q4. On the regulatory environment, the regulatory environment governing Internet-based lending in China continued to evolve meaningfully during 2025, with authorities increasingly refining and strengthening oversight across the entire consumer credit chain. The most significant development was Notice 9, issued by the National Financial Regulatory Administration on April 1, 2025, which requires commercial banks to strictly control total borrowing costs. While Notice 9 does not explicitly stipulate a hard cap, in practice, a 24% annum ceiling on total borrowing costs for a single loan is generally being implemented and enforced across the industry. Importantly, 24% may not represent the outer boundary of that pricing pressure. Regulatory authorities have continued to tighten borrowing cost caps applicable to microcredit and consumer finance companies, and those entities may face de facto requirements set below that level. The pace and manner of implementation across different institution types and jurisdictions remain highly uncertain, and we currently have no reliable basis on which to predict the ultimate scope or trajectory of these limitations. If current and emerging requirements are implemented as we currently understand them, our operating results will be adversely and materially affected relative to prior years. The magnitude of that impact is subject to significant uncertainty, and investors should not assume our historical profitability levels are indicative of future performance, including the possibility of operating losses in future periods. Notice 9 also requires commercial bank head offices to implement whitelist management systems for loan facilitation platform operators, prohibiting cooperation with institutions not on those lists. This has introduced additional uncertainty around our funding relationships, and implementation practices vary across banking groups and their subsidiaries. Future regulatory guidance could alter how those determinations are made in ways that affect our authorized funding relationships, and this is just one example of the broader unpredictability we are navigating. Separately, payment institution rating measures issued by the People's Bank of China in December 2025 extend regulatory oversight further across the lending chain, adding to compliance burdens and operational costs for industry participants. We are closely monitoring all of these developments as they continue to evolve in 2026. At this stage, management has limited visibility into the ultimate scope, pace, and direction of implementation, and the potential impact on our business financial condition and results of operations cannot be determined with any degree of certainty. On fourth quarter financial performance, in the fourth quarter of 2025, total net revenue was $1.47 billion RMB or $209.9 million, representing a 14.1% decrease year-over-year and 25.1% decrease sequentially from Q3. Total operating costs and expenses were $1.45 billion RMB, or $207 million, down 9.5% sequentially, but up 22.3% year-over-year. The year-over-year increase was driven primarily by materially higher credit-related provisions, while operating expenses also reflected our continued efforts to align spending with a more measured pace of activity. Credit-related provisions were the primary factor weighing on fourth quarter results. Total provisions were 669.3 million RMB, or $95.7 million U.S., reflecting higher expected credit losses and a more conservative provisioning across in response to elevated risk indicators during the period. We also continue to take a disciplined approach to discretionary spending. For example, borrower acquisition and marketing expense was $212.2 million RMB or $30.3 million in Q4, reflecting a substantial reduction compared with both the prior quarter and the same period last year as we prioritized efficiency and risk discipline. As a result, income from operations was $20.2 million RMB or $2.9 million, a 96.2% decrease year-over-year and a 94.4% decrease sequentially. Operating margin decreased at 1.4% compared with 18.5% in Q3 and 30.7% in the same period last year. Below operating income, the quarter remained profitable, but at a level that underscores the degree of near-term credit pressure. Income before income taxes was $31.2 million RMB or $4.5 million U.S. dollars, reflecting the cumulative effect of lower revenue and elevated provisioning. Net income was $57.2 million RMB or $8.2 million U.S. dollars in Q4, compared with 421.2 million RMB in Q3 and 385.6 million RMB in Q4 of last year. Net profit margin was 3.9% compared with 21.5% in the prior quarter and 22.6% a year earlier. Return on equity decreased to 2.9%, reflecting substantially lower net income during the quarter. Taken together, Q4 reflects a materially different earnings profile compared with earlier periods, driven primarily by higher credit costs and a more measured level of activity. We are managing through this phase with a conservative financial posture and maintaining flexibilities as conditions evolve. With that, I'll now hand a call over to Frank to discuss the full-year financial results per ADS metrics, non-GAAP profitability, and our balance sheet and liquidity position.
Thank you, Noah, and hello, everyone. I will walk through our full-year financial results and then discuss our balance sheet, liquidity, and outlook. And full-year financial highlights. For the full-year 2025, total net revenue was R&D $7.64 billion or U.S. dollar $1.09 billion, representing a 30.1% increase for R&B $5.87 billion in 2024. Income from operations was R&B $1.63 million or U.S. dollar $233.1 million compared with R&B $1.87 billion in 2024. Our full-year operation margin was 21.3% compared with 31.9% in the past year, reflecting a higher credit-related provisions and a more cautious operation posture in the second half. Net income for the full year was R&B $1.46 billion, or U.S. dollar, $209.4 million, compared with R&B $1.54 billion in 2024. Full year gap net profit margin was 19.2% compared with 26.2% in 2024. On a non-GAAP basis, a just net income was R&B $1.56 billion or U.S. dollar $223 million for the fiscal year 2025 compared with R&B $1.54 billion in 2024. Per ADS and the non-GAAP metrics, on a per-ADS basis for the full year, net income per ADS was R&B $36 or U.S. $5.15 and the R&B $35.22 or U.S. $5.04 on a basic and diluted basis, respectively. Compared with the R&B $31.98 basic R&B $31.50 diluted in 2024. Non-GAAP adjusted income per ADS was R&B 38.34 or US$5.48 and R&B 37.50 or US$5.36 on a basic and diluted basis respectively compared with R&B 31.98 basis and R&B 3144 diluted in 2024. For additional Q2 counts, NARGAAP adjusted their income in the first quarter of R&B $31.3 million and U.S. dollar $8.8 million NGAP adjusted earnings per ADS was R&B 1.56 or U.S. 22 cents on both a basic and diluted basis. Balance sheet and liquidity. Our balance remain solid as of December 31st, 2025. Total assets were IMB 14.667 billion or U.S. dollar 2.1 billion. Total liability was IMB 6.83 billion or U.S. dollar 976.5 million or total equities total shareholder equities was IMB 7.84 billion or U.S. dollar 1.12 billion. The end of the year was the IMB 987.6 billion or U.S. dollar 141.2 billion in cash and the cash equivalents and the IMB 1.115 billion and U.S. dollar $133.9 billion in restricted cash, and for total cash, including restricted cash of approximately $2.13 billion, or U.S. dollar, $305.1 million. Capital returns to shareholders. As of March 15, 2026. Under the company's U.S. dollar 100 million share repurchase program, the company had repurchased an aggregate of approximately 3.79 million ADS, including approximately 3.37 million ADS and 2.53 million class A ordinary shares. For a total consideration of approximately U.S. US$53.85 million. The company now has approximately US$46.15 million remaining under the Shared Repurchase Program, 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 shareholder value. The purchases in the program remain subject to market conditions and other factors and may be modified or suspended at management discretion. Business outlook, given involving regulatory developments and limited visibility into the whole regional policy measures will be implemented across different jurisdictions. Our near-term outlook remains cautious. The full impact of these changes on funding availability, pricing dynamics, and the overall industry activity is still uncertain and may take time to become clear. We are prioritizing asset quality, discipline risk management, cost control, and the preservation of liquidity and operational flexibility. As the regulatory expectation continues to develop, we are adapting our operation approach to maintain compliance while safeguarding the long-term stability of the business. While we believe our platform is well positioned to navigate a more straining environment, additional policy adjustments or implementations could further affect industry economics and the growth perspectives. We will continue to monitor developments closely and will update our outlooks as greater clarity emerges. This concludes our prepared remarks, and we will now open the call for questions. Operator, please go ahead.
Operator
We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. 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 roster. This concludes our question and answer session. I would like to turn the conference back over to Victoria Yu for any closing remarks. Of course.
Thank you, everyone, for joining us today. If you have additional questions, please switch 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
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
