LexinFintech Holdings Ltd. (LX) Q4 2025 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Lexin Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Will Tan. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to our fourth quarter 2025 earnings conference call. Our results were released earlier today and are currently available on our IR website. Today, you will hear from our Chairman and CEO, Mr. Jay Wenjie Xiao, who will provide an update on our overall performance and the strategies of our business. Our CRO, Mr. Arvin Zhanwen Qiao, will then provide more details on our risk management initiatives and updates. Lastly, our CFO, Mr. James Zheng, will discuss our financial performance. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call as we will be making forward-looking statements. Last, please note that all figures are presented in RMB terms and all comparisons are made on a quarter-over-quarter basis unless otherwise stated. Please kindly note Jay and Arvin will give their whole remarks in Chinese first, then the English version will be delivered by Jay's and Arvin's AI-based voices. With that, I'm now pleased to turn over the call to Mr. Jay Wenjie Xiao, Chairman and CEO of Lexin.

[Interpreted] Hi, everyone. Thanks for joining us today for our fourth quarter 2025 earnings call. In the fourth quarter, we optimized our business operations within the new regulatory framework, successfully achieving our objectives of stabilizing scale and mitigating risk. During this period of industry adjustment, our unique business ecosystem demonstrated its differentiated advantages, leading to a significant rebound in active users. Guided by our long-term oriented philosophy, we are seeing the resilience of our multi-business synergy become increasingly evident, further strengthening our ability to navigate business cycles. In the fourth quarter, our loan volume reached RMB 50 billion and revenue reached RMB 3 billion. Number of active users stood at 4.53 million with 884,000 new active users. For the full year of 2025, total loan volume was RMB 205.3 billion. Net profit was RMB 1.7 billion, representing a year-over-year increase of 52.4%. Next, I will walk you through the key initiatives we have undertaken since the fourth quarter. First, we proactively aligned our operations with the new regulatory requirements, adhering to a high standard of compliance. Following the official implementation of the new regulations in Q4 and building on the earlier completion of business adjustments and system deployment, we remain focused on our customer-centric strategy to further optimize our product matrix and personalized service experience. By operating prudently within the regulatory framework, we have not only enhanced our long-term sustainability and risk resilience, but also effectively connected financial services with market demand. Through our diversified business lines, including online consumer finance, installment e-commerce and off-line inclusive finance, we continue to support the real economy and foster healthy growth in consumer spending. Second, we have comprehensively strengthened our risk management to ensure steady business development. Since the fourth quarter, the industry has faced an upward trend in credit risk. In response, we optimized our risk strategies and maintained stringent standards for new loan quality. By incorporating more real-time data dimensions, we have enhanced the proactiveness and precision of our risk identification, leading to a month-over-month improvement in risk indicators for new loans. Regarding our existing portfolio, we focused on refined operations for high-quality assets. By optimizing credit line allocations and implementing a differentiated pricing framework, we enhanced both product competitiveness and the customer experience, ensuring the continued stability of our existing assets. Overall, we successfully stabilized our risk profile during the quarter with asset quality remaining steady and key risk indicators improving monthly. Since the beginning of 2026, several key risk indicators have shown a positive trajectory in January and February. Specifically, day 1 delinquency ratio of our total assets decreased by over 10% from its peak in October last year. Third, our unique business ecosystem has demonstrated greater strength during this period of industry transition. Our installment e-commerce business remained deeply integrated with daily consumption scenarios. In the fourth quarter, we continued to optimize our supply chain, expanding our offerings across essential categories such as food, apparel and household goods. During major e-commerce events like Double 11 and Double 12, we ramped up our marketing efforts. Through initiatives such as interest-free promotions, we drove steady growth in both user engagement and transaction volume, further reinforcing our differentiated advantages in installment e-commerce. During the quarter, we continued to invest in our customer acquisition capabilities, which effectively fueled growth in new users with credit line. At the same time, we focused on deepening engagement with high-quality existing customers, utilizing differentiated pricing and credit line strategies to drive a sustained rise in user activity. Furthermore, our off-line inclusive finance, tech empowerment and overseas businesses all achieved steady growth, further underscoring the overall resilience of our diversified ecosystem. Fourth, we deeply integrated AI technology to elevate the user service experience. During the fourth quarter, we continued to advance our applications of large models. Our customer service AI agents are now successfully deployed in core scenarios, including credit approvals, transactions and repayments. These agents maintain a response accuracy of over 90% with an average response time of under 3 seconds. Notably, in the credit approval stage, the human intervention rate was only 3.4%, significantly boosting both efficiency and user satisfaction. Looking ahead, we will expand these automated services to nighttime hours to achieve seamless 24/7 coverage. During the quarter, we further implemented large models in key risk management processes. For example, in compliance quality assurance, our AI-assisted system is gradually replacing traditional rule-based monitoring, raising our QA accuracy to 89%. In risk strategy, our strategy generation AI agents perform deep modeling of customer data to automate the creation and full process evaluation of differentiated risk strategies, consistently improving decision-making precision and response efficiency. In user operations, our credit line adjustment AI agents accurately identify user needs during their dialogues with customers and provide self-service guidance. This not only reduces manual service costs, but also enhances the user experience. The company has always adhered to a user-centric service philosophy, positioning consumer rights protection as a core competitive advantage. In the fourth quarter, we continued to standardize our service processes and optimize intelligent routing, leading to a measurable improvement in overall efficiency and response times. We also refined our tiered customer service model, enhancing our self-service platform to drive higher user satisfaction. During the quarter, a series of macro policies supporting consumption and the county-level economy were rolled out, anchoring the direction for industry development. We have always closely aligned with national policy requirements, fully leveraged our own advantages and increased investment in consumption scenarios and products tailored for micro and small business owners. Through measures such as interest-free and low-interest promotions, complemented by an enriched product supply and comprehensive services, we are delivering tangible support for the consumption rebound and injecting financial vitality into the growth of micro and small businesses. As we enter 2026, we are optimistic about the market's development potential. We are well positioned to seize growth opportunities while upholding a high standard of compliance and a customer-centric philosophy. By deepening our diversified business ecosystem, we will continue to strengthen our operational resilience and our ability to navigate market cycles. Next, I'll hand over the floor to our CRO, Arvin. Thanks.

[Interpreted] Thanks, Jay. Next, I will provide a review of our key initiatives and achievements in risk management for the fourth quarter. The fourth quarter of 2025 marked the full implementation of the new loan facilitation regulations. The resulting liquidity tightening across the sector created significant headwinds for both industry scale and risk performance. In response to the cyclical volatility, we maintained a disciplined approach to risk management throughout the quarter, increasing our mix of prime assets and optimizing our portfolio structure to ensure overall stability. Specifically, in the fourth quarter day 1 delinquency ratio of total assets increased by 7% and 90 days plus delinquency ratio edged up by 3% quarter-over-quarter. On a month-over-month basis, our risk indicators saw a marginal decline in November and December after peaking in October, signaling that asset risk performance has begun to stabilize. In December day 1 delinquency ratio declined by 8% compared to October. We will sustain our rigorous risk controls through the first half of 2026 to reinforce this downward trajectory and gradually bring our asset risks back within our target risk appetite. Next, I would like to walk you through the key risk management initiatives we have implemented during the fourth quarter. First, we continue to intensify the identification and management of high-risk customers. From a modeling perspective, we accelerated the iteration of our risk models by implementing automated weekly updates. By incorporating the most recent default samples into our training sets every week, we were able to more rapidly capture and learn the shifting characteristics of delinquent borrowers in the current market environment. On the strategy front, we integrated a broader range of real-time data dimensions, including cross-platform borrowing, delinquency history, leverage ratios, personal income and employment stability. This allowed us to apply more stringent transaction interception and credit exposure controls to customers exhibiting frequent borrowing, excessive cross-platform debt or high debt-to-income ratios. Furthermore, we reinforced our day 1 delinquency management across the entire portfolio. We placed a particular emphasis on improving the identification of high-risk cohorts at the earliest stage of delinquency while optimizing the frequency of repayment reminders and strengthening our auto deduction efficiency and payment clearing infrastructure. Second, we continue to refine our operational capabilities for high-quality assets, consistently increasing the mix of prime assets and optimizing our portfolio structure. At the data and modeling level, we continuously optimized our prime customer identification capabilities. We developed dedicated strategies, including credit line allocation, pricing and repayments tailored to prime segments, comprehensively enhancing our offer competitiveness. In addition, we deepened our one-on-one exclusive services for prime customers through account management services via instant messaging, interactive supplementary document submission and dedicated manual reviews for large ticket loans, we provided customized reoffer based on customer needs, thereby boosting customer satisfaction and retention. Third, regarding our installment e-commerce business, we significantly intensified consumer support during the fourth quarter through initiatives tailored for the Double 11 and Double 12 shopping festivals. During these events, we provided dedicated temporary credit lines to support large ticket purchases, particularly in the 3C and consumer electronics categories. Additionally, for our top-tier prime customers, we launched 12- and 24-month interest-free installment campaigns to further accelerate high-quality volume growth. Looking ahead to the first quarter of 2026, we will continue to strengthen risk controls over existing and new loans while intensifying our efforts in managing and phasing out high-risk segments to ensure a sustained downward trend in risk levels. Next, I will hand over to our CFO, James, to provide a review of the company's financial performance for the fourth quarter.

Hi, everyone. Thanks, Arvin. I will now provide a detailed overview of our fourth quarter financial results. Please note that all figures are presented in renminbi terms and all comparisons are made on a quarter-over-quarter basis, unless otherwise stated. The fourth quarter marked a pivotal transition for the industry as the new regulatory framework officially came into force. We have strictly followed the regulatory requirements, ensuring that the comprehensive interest rate for all new loans is capped at or below 24%. Following the implementation of these new regulations, we observed elevated volatility in industry-wide credit risk. This complex market environment created challenges for our performance. In the fourth quarter, our net income recorded RMB 214 million. This sequential decrease was primarily driven by the pricing adjustment to strictly complying with the 24% cap, coupled with the contraction in loan volume resulting from our prudent strategy to proactively manage risk exposure. Furthermore, heightened market volatility led to increased credit costs and more conservative provisioning. Lastly, operating expense did not decline proportionately with the revenue due to the fixed cost and expense recognition seasonality. Now let's take a holistic review of our fourth quarter financial results. First, net revenue of the credit business, which is derived by adding up credit facilitation service income and the tech empowerment service income, net of credit costs, including provisions and fair value changes and the funding cost was RMB 1.4 billion, representing a RMB 586 million decrease quarter-over-quarter. The overall decline was primarily driven by a RMB 132 million drop in credit facilitation service income stemming from contracted loan volume in our online consumer finance business that decreased overall pricing. During the fourth quarter, weighted average APR of new loans originated was 21.7%, a 140 basis point decline quarter-over-quarter. This was compounded by approximately RMB 185 million increase in credit costs, reflecting elevated risk volatility and our prudent provisioning. Additionally, our tech empowerment service income decreased by RMB 286 million, mainly due to the wind down of the ICP business, although this was partially offset by revenue growth in our value-added services. Second, net revenue of the e-commerce business, defined by e-commerce revenue net of cost of inventory sold increased by RMB 56 million to RMB 167 million. So the total net revenue summing the credit and e-commerce business added up to RMB 1.5 billion, a 26% or RMB 530 million decrease quarter-over-quarter. On the expense side, operating expenses, including the sales and marketing, research and development, general and administrative expenses, processing and servicing costs decreased by 11% or RMB 147 million to RMB 1.2 billion. As I mentioned earlier, because the 11% reduction in operating expenses was outpaced by the 26% decline in net revenue, the difference weighed on our net profit for the quarter. Tax and others decreased by RMB 76 million to RMB 86 million. Consequently, total expenses added up to RMB 1.3 billion, a decrease of RMB 223 million. By deducting total expenses of RMB 1.3 billion from the total revenue of RMB 1.5 billion, we arrived at a net income of RMB 214 million, a decrease of RMB 307 million quarter-over-quarter. Although the complex environment posed challenges to our performance, we demonstrated our operational resilience. Next, I will elaborate on 3 key business highlights that underscore our strength during this transitional period, the resilience of our business ecosystem, our prudent provision coverage and further reductions in funding costs, the resilience of our business ecosystem. Amid the cycle of adjustment, while our online consumer finance business was significantly impacted, other business lines actually provide critical stability, specifically regarding our e-commerce business, although the GMV declined slightly as a result of our prudent operational strategy, gross profit continued to achieve steady growth, recording RMB 167 million during the fourth quarter. Notably, the e-commerce gross margin calculated as the gross profit divided by GMV reached 7.8%, representing a quarter-over-quarter increase of 295 basis points. In parallel, our tech empowerment business continued to expand, acting as a vital counterbalance to the volume decline in the online consumer finance business. And this model, where we work together with the Internet super platforms like ByteDance and the banking partners, we assist our banking partners with customer risk assessment while assuming the corresponding credit risk. Given the better quality of this consumer base, these loans carry lower pricing. It is worth highlighting that since this model recognized revenue over the loan tenure rather than upfront and it carries lower take rate consistent with its lower risk nature, it creates a temporary time lag between the revenue recognition and the loan volume. However, this mix shift is accretive to our long-term asset quality and steady financial performance. Furthermore, our off-line inclusive finance business progressed steadily, maintaining stable risk performance and acting as a stabilizer for our overall portfolio. The resilience of our business ecosystem demonstrates that we have built a comprehensive product matrix that serves a broad spectrum of the market. Our business lines now cover a wide range of interest tiers from competitive rates for prime users to standard rates for the mass market. This allows us to effectively match users with the right products, maximizing our reach and retention amidst the evolving regulatory environment. Second, prudent provision coverage. In the fourth quarter, impacted by heightened volatility in industry risk, our total credit costs, including the 3 provision line items and the fair value changes of financial guarantee derivatives in the income statement rose by RMB 185 million to RMB 1.3 billion. While we observed early signs of improvement in December following our credit tightening measures, overall risk indicators remain at elevated level, and we expect that the industry will need time to fully digest risks. Consequently, we adopted a more prudent approach to provisioning for new loans facilitated during this period. To better illustrate our provisioning strength, I'd encourage you to focus on the gross provision, which excludes the impact of the net accounting policies in item change in fair value of financial guarantee derivatives and loan values in the income statement. Specifically, the gross provision ratio of new loans calculated as the gross provisions divided by the capital-heavy new loan volume increased by 27 basis points from the third quarter to 7.24%. Please note that for an apple-to-apple comparison, this volume metric excludes loans from tech empowerment services. This level stands well above our historical peak vintage charge-off rate of around 6.1%. We view this elevated provisioning ratio, not just as a reflection of the current volatility, but also as a buffer to future-proof our performance against potential macro uncertainties. Third, the optimization of funding costs. With the implementation of the new policy, institutional funding that was previously allocated to segments priced above 24% was released in the fourth quarter, resulting in ample funding supply. Consequently, our funding cost declined substantially from 4.4% in third quarter to 3.8%. Looking ahead to 2026, as the industry landscape shifts to a new normal stage and the new regulatory framework, we anticipate a structural flight to quality. Funding will increasingly congregate towards platforms that are fully compliant and possess strong risk management capabilities. Currently, we have successfully secured our place on a wide list of our key funding partners, laying a solid foundation for our steady development in the future. To summarize, the above 3 highlights mainly impacted the net revenue side of the income statement. On the cost and expense side, total operating expenses reduced by 11% or RMB 147 million to RMB 1.2 billion, mainly due to the decrease of sales and marketing expenses, reflecting our disciplined approach to user acquisitions during this industry transition. However, our total operating expense reduction was slower than the decline in the net revenue. This was primarily due to fixed costs and seasonal impacts. For balance sheet items, as of December 31, our cash position, which includes cash, cash equivalents and restricted cash was approximately RMB 4.0 billion. Shareholders' equity remained solid at about RMB 12 billion. To conclude, I'd like to reaffirm our commitment to enhancing shareholder value. As of March 2026, we have repurchased $39 million worth of ADS alongside the CEO's personal purchase of over USD 10 million worth of ADS. On the dividend front, our Board of Directors has approved a dividend of USD 0.188 per ADS, bringing our total dividend for 2025 to USD 0.2382 per ADS. This represents a more than 100% increase compared to USD 0.182 in 2024. On the foundations of our current shareholder return policy, we continue to evaluate opportunities and explore different ways to ensure we deliver optimal value to our shareholders. Looking ahead, while our asset quality continues to show positive momentum, we maintain a prudent approach given the ongoing macroeconomic uncertainties. We expect total loan origination to remain relatively stable in the first quarter of 2026. That's all our prepared remarks for today. Operator, we're now ready to take questions.

[Operator Instructions] First question is from Alex Ye from UBS.

[Interpreted] So I have 2 questions. The first one is given the new regulatory environment, so how is Lexin's development strategy going to change going forward? And then second question is, could management share with us some of the key operating performance outlook for this year?

[Interpreted] So this is the translation for Jay's answer. With the full implementation of the new regulation, the industry has entered a new phase centering on quality and compliance. Industry resources will increasingly concentrate on platforms that demonstrate both quality and compliance. Under such new regulatory environment, the key to Lexin's business resilience lies in our user-centric approach and our ability to serve customers across different segments. Our unique business ecosystem enable us to engage and serve users with varying risk profiles and achieve stable growth amid market fluctuations. Specifically, we actively respond to regulatory guidance by adhering to a high standard of compliance. Building on the current regulatory requirements, we further lowered the overall loan rates. In the fourth quarter, the average loan rate on our new loans was 21.7%, which will be further lowered in 2026. Furthermore, we remain deeply committed to the off-line inclusive finance market and serve the micro and small business owner segment. Leveraging our installment e-commerce platform, we enriched the supply of products on our platform across diverse and essential life service categories to tap into the consumption potential of our users. Meanwhile, with the steady expansion of our technology solution empowerment and overseas business, the revenue structure is becoming more diversified, strengthening our long-term operational resilience under the new regulatory framework. Last but not least, we adhere to a user-centric service philosophy, being consumer protection as a key part of enhancing our operational resilience. Moving forward, we will continue to improve efficiency and experience of our customer service through process standardization, intelligent task routing and refined operation, further strengthening consumer rights protection. Regarding the second question about the outlook of our business operation in the year of 2026. With risk level stabilizing, we will adopt a more proactive user acquisition strategy. By enhancing the customer experience and product competitiveness, we will focus on high-quality segments to bring our business back on to a path of steady normalized growth, more specifically on our key operational initiatives. In terms of products and customer segments, we will focus on the refined management of high-quality assets. By optimizing credit line allocation and building a differentiated pricing system, we aim to strengthen both product competitiveness and customer experience. This will reinforce our user-centric operational capabilities to serve different segments of customers and enable us to expand and better serve prime segments. In terms of asset quality, we will improve our customer mix and enhance asset quality by ramping up on acquisition of more high-quality customers. By far, we have already observed early signs of risk stabilization and improvement in asset quality. Barring any new macroeconomic shocks, we expect the industry to gradually digest the existing risk, bringing overall risk metrics back within our risk appetite. This will lay a solid foundation for proactive customer acquisition and business recovery. And in terms of loan origination, we'll continue to invest in and strengthen our customer acquisition capabilities. Driven by our improved product competitiveness and proactive customer acquisition strategy, we expect our loan volume to gradually return to a normalized growth range following a period of bottoming out and stabilization.

Next question is from Judy Zhang from Citi.

[Interpreted] Now let me translate the 2 questions. The first question is regarding on the risk outlook. Can management share with us the company's latest risk performance and the future outlook? And the second question is what is the outlook for the company's full year financial performance for this year?

[Interpreted] This is the translation for Arvin's answer. The fourth quarter was the first quarter after the implementation of the new regulation and was a critical period for the entire industry to digest the impact of the new regulation. While industry-wide risk has begun to show signs of stabilizing, it will take some time for this risk to be fully clear and return to the level before the first half of 2025. In response to this round of risk cycle, we continue to strengthen our risk management in Q4 by increasing the proportion of high-quality assets and optimizing our asset structure, ensuring risk remain under control. Regarding the specific performance, although the overall risk indicator in Q4 was higher than that in Q3, on a month-over-month basis, starting from the month of November, we have started to see rates trend down for multiple months consecutively, signaling a downward trend, and we expect this downward trend to continue. Despite this improvement, it's important to note that risk levels remain elevated in the fourth quarter. Looking ahead to the first quarter of 2026, we will continue to strengthen risk control over loans while intensifying our efforts in managing and phasing out high-risk segments to ensure a sustained downward trend in risk levels and gradually bringing the loan risk back within our target risk appetite in the second half of 2026.

Okay. I will take on the second question regarding the financial guidance. The fourth quarter of 2025 was indeed one of the most challenging periods absorbing the concentrated impact of several factors. This include revenue compression from pricing adjustments, the deliberate scale down of loan volume in our consumer finance business, a shift in the pace of revenue recognition driven by changes in our business mix due to the tech empowerment business volume growth, short-term uptick in our credit risk and the seasonal impact on our operational expenses. For the first quarter of this year, as I stated earlier, we expect the loan volume of originations to be at a similar level as our fourth quarter. Given the ongoing macroeconomic uncertainties and lower visibility, we are not providing a full year financial guidance for 2026 at this point. However, I would like to share a few variables that may impact our financial performance. Looking ahead, our full year financial performance will be primarily influenced by the following dynamics. On the revenue side, number one, volume. While our overall loan volume will remain stable or even grow a little bit, the short-term revenue contribution from a tech empowerment business, Shuke Ye will be relatively modest. This is due to its lower credit cost, lower pricing profile and relatively slower revenue recognition accounting schedule. Second is the pricing. The proactive downward adjustment to our overall pricing will also continue to weigh on all of our top line. On the cost and expense side, number one, funding costs. In the near term, frequent regulatory window guidance directed at funding partners has led to a somewhat tightened funding supply in the first quarter. Moving forward, our funding costs will be influenced by a combination of the broader regulatory environment, the quality of our customer cohorts and the overall funding liquidity. Second, the credit cost. As risk progressively stabilize and we pivot towards higher-quality customer cohorts, we anticipate a gradual optimization of our credit cost while maintaining an ample provision. Third point is the operating expenses. We'll persistently drive cost reduction and efficiency initiatives to optimize our operational leverage and steadily lower our operating expenses. So in summary, in view of the macro uncertainties, we will maintain prudent in our overall business strategy and execution at the same time, optimize the profit and the shareholder value and strive to build a long-term healthy and sustainable business.

Next question is from [ Claire Wang ] from Goldman Sachs.

[Interpreted] I'll quick translate my question. What's the company's future plan for enhancing shareholder returns in terms of both share buyback and cash dividend.

[Interpreted] So first, starting from the second half of 2025, our dividend payout ratio was raised to 30% of outstanding annual net profit. This actually puts us at the forefront of the industry. On top of cash dividends as of today, we have repurchased USD 39 million worth of ADS, completing 80% of our current repurchase program. I have also fully executed my personal USD 10 million share repurchase plan. This action reflects the management's firm confidence in the company's outlook and its long-term intrinsic value. Following this earnings release, we will continue to execute the remaining portion of our share repurchase program, delivering our commitment to enhance shareholder returns. Looking ahead, we will closely monitor market dynamics and based on our actual operational needs, actively explore diverse initiatives, including further repurchases to create sustainable value for our shareholders.

Thank you. I will now hand the conference back to Will Tan for closing comments.

Thank you. This conference is now concluded. Thank you for joining us today's call. If you have any more questions, please do not hesitate to contact us. Thanks again.

Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]