LexinFintech Holdings Ltd. (LX) Q2 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to Lexin's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Head of Capital Markets, Mr. Will Tan. Thank you. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to our second quarter 2026 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 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 will also apply to this call as we will be making forward-looking statements. Last, please note that all figures are presented in renminbi 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. Please.

[Interpreted] Hi, everyone. Let me start by sharing our business performance for the second quarter of 2026. Since the second quarter, the industry operating environment has faced ongoing headwinds. Most notably, in late June, risk events involving certain peers triggered a widespread tightening and even suspension of funding supply across the industry, severely impacting the industry landscape and shaking market confidence. As a result, our loan facilitation operations across both online consumer finance and offline inclusive finance were materially affected. We swiftly took the following decisive measures to mitigate the impacts on us. First, driving cost efficiency to enhance resilience through market cycles. We rapidly streamlined our organizational structure, optimized headcount and accelerated AI adoption. These measures effectively reduced operating expenses and enhanced our long-term sustainability through industry cycles. Second, tightening risk controls to maintain stable asset quality. We proactively scaled back overall loan volume and adopted a prudent approach to new loan originations. This ensures the risk profile of new loans remains well controlled, safeguarding the long-term stability and resilience of our business. Third, strengthening financial discipline to enhance operational efficiency. We prioritized the recovery of receivables and security deposits and drove a measured and steady scale down of facilitated loan balance, safeguarding our funding security and operational stability. Fourth, advancing our diversification strategy and accelerating business transformation. In our non-loan facilitation operations, we leveraged years of ecosystem advantages to accelerate our transition from a guarantee-backed model to a tech-empowered model, laying a solid foundation for business recovery. We have always placed compliance at the forefront of our operations. Despite current industry headwinds, we continue to demonstrate strong operational resilience, maintain organic cash generation capability and ensure long-term operational safety and reliability. Now let me walk you through our second quarter business performance. In the second quarter, we achieved a loan volume of RMB 55.43 billion, generated revenue of RMB 3.19 billion and net profit of RMB 101 million. On the risk front, while day 1 delinquency ratio picked up due to broader industry headwinds, our 30-day collection rate showed an improvement. Despite current industry volatility, we remain confident in our long-term prospects. Let me explain why. First, our deep integration with consumption scenarios gives our e-commerce business unique advantages. Supported by favorable policies and growing consumer demand, we expect our e-commerce business to enjoy healthy growth going forward. We will continue to refine our supply chain system around essential consumer needs and enhance overall operational efficiency. Second, our fintech empowerment business serving corporate clients maintains rapid growth, continuously satisfying licensed institutions' demands for high-quality assets. Backed by years of expertise in digital technology, we have established a clear market-leading position. In the second quarter, our fintech empowerment business delivered solid growth and achieved profitability. As this business well aligns with future regulatory directions and has long-term commercial value, we will continue to increase our investments in this area. Third, AI adoption across our operations has delivered tangible cost savings. AI has been effectively deployed across the entire business processes. Over 100 AI agent roles are currently deployed across key operational scenarios, such as intelligent strategy generation, compliance check, post-loan management and smart customer services, all contributing to our cost reduction targets. In the second quarter, our operating expenses decreased by 17.6% quarter-over-quarter. As AI adoption continues to gain traction, we expect further cost reductions in the third quarter. Looking ahead, the impact of the stand-alone event may persist and industry uncertainties remain significant. We will continue to adopt a prudent operational approach by adopting the following initiatives. First, we will continue to strengthen our operational management, improve our financial position and advance the development of non-loan facilitation business like e-commerce to navigate this industry headwind with confidence. Second, we are adjusting our dividend policy to an annual distribution to provide sufficient capital reserves and a financial buffer for our business transformation. Third, we will accelerate AI investment, particularly in the tech-empowered service space and work with our partners to expedite the recovery of funding supply. When industry certainty gradually emerges, we will actively explore various shareholder return initiatives in light of our own circumstances, enabling our investors to better share in the value created by the company. With that, I will now turn the call over to our CRO, Arvin. Thank you.

[Interpreted] In the second quarter, under the ongoing impact of the new regulation, funding supply across the industry remained tight, leading to a rebound in asset risk within our existing portfolio. Day 1 delinquency ratio across our total assets rose by roughly 9.5% quarter-over-quarter, while 90-day plus delinquency ratio rose from 3.5% to 3.6%. In the third quarter, as funding supply tightened further and new loan originations dropped sharply, we expect risk indicators on our outstanding loan portfolio to continue trending upward on a sequential basis. Compounded by a shrinking loan balance, the 90-day plus delinquency ratio is expected to rise further. Regarding the risk management of our existing portfolio, we continue to strengthen early-stage collections and implement differentiated SMS repayment reminders among other measures to control the magnitude of risk elevation. Meanwhile, we are stepping up provisioning and ensuring an orderly runoff of these existing assets. On the new loan front, we proactively raised our underwriting standards in response to the evolving risk landscape during the second quarter, limiting the quarter-over-quarter uptick in FPD30 to a minor level of around 4.6%. For the third quarter, we will maintain tight entry criteria, strengthen risk assessment for borrowers with cross-platform debt and filter out high-risk applicants to maintain a stable risk profile for our new loans. On the technology front, our continued investments and explorations in AI-driven risk control are yielding meaningful results. In credit approval, our credit assessment agent has evolved from merely assisting human reviewers to making autonomous decisions. Notably, its risk detection capability is 3x that of manual review for autonomous rejections and 1.2x for review recommendations, and it continues to iterate rapidly. Beyond that, we are building an internal risk control agent expert platform by integrating underlying big data, domain expertise across risk management roles and localized LLM capabilities into a seamless closed loop. We are enabling AI-driven expertise and standardization across the majority of our risk management tasks. This initiative has not only boosted the output efficiency of general risk models and routine strategies by over 5x, but also positioned us well for future tech empowerment and risk solution offerings to the industry. Looking ahead, while risk may experience short-term fluctuations due to industry headwinds, we are confident that with stringent risk control in place, we can ensure an orderly runoff of existing assets and steady asset quality for new loans, laying a solid foundation for sustainable operations. Next, I will hand over to our CFO, James, to provide a review of the company's financial performance for the second quarter.

Thanks, Arvin. I will now provide a detailed overview of our second quarter financial results. Please note that all figures are presented in renminbi terms and all comparisons are made on quarter-over-quarter basis, unless otherwise stated. During the second quarter, we continued to advance our business transformation and the new regulatory framework that took effect in the fourth quarter last year, achieving progress that largely met our expectations. However, the landscape has shifted notably just before the second quarter ended. Before I dive into our second quarter financial details, I would like to briefly address recent developments that have created some uncertainty for the industry. Recently, risk events involving certain industry players have triggered heightened regulatory scrutiny. This raised caution among funding partners, leading to an ongoing sector-wide tightening of funding supply. This has impacted loan volumes across industry, including Lexin. That being said, I would like to emphasize 2 key points to our investors. First, compliance has always been our operational bottom line. We have never engaged in any similar noncompliant practices and our business operations stand up to strict scrutiny. Second, we currently have a cash position of RMB 2.5 billion, which provides a financial buffer to help us navigate industry volatility and ensure the steady operations of our business. I will talk more about the impact of these recent developments and our countermeasures later in my remarks. With this context, let's now review our second quarter financial performance. During the second quarter, total loan origination volume was RMB 55 billion, representing a 4.3% decrease sequentially due to the continuous decline in our consumer finance business and partially offset by the steady growth of our fintech empowerment business and e-commerce business. Total revenue came in at RMB 3.2 billion, and net income stood at RMB 101 million. Now let me dive into the details and walk you through the key numbers. First, the net revenue of the credit business, which is derived by adding up credit facilitation service income and tech empowerment service income, net of credit costs, which consists of provisions and fair value changes and funding costs, was RMB 981 million, representing a 32.5% or RMB 473 million decrease quarter-over-quarter. This was due to the decline of both credit facilitation service income and tech empowerment service income. Specifically, credit facilitation service income representing our capital-heavy business, decreased by 43.6% to RMB 508 million, primarily driven by lower loan volumes in our online consumer finance business, rising funding costs and our prudent decision to maintain adequate provisioning. Meanwhile, our tech empowerment service income, representing our capital-light business, decreased by 14.4% to RMB 473 million. This was mainly attributable to the revenue decrease from value-added services and the scale down of legacy ICP portfolio. Second, net revenue of the installment e-commerce business, defined as the installment e-commerce revenue net of cost of inventory sold, increased by RMB 122 million to RMB 329 million. So the total net revenue, summing the credit business and the installment e-commerce business, added up to RMB 1.3 billion, a 21.1% or RMB 351 million decrease quarter-over-quarter. On the expense side, operating expenses, including sales and marketing, research and development, general and administrative expenses and processing and servicing costs decreased by 17.6% or RMB 244 million to RMB 1.2 billion. Tax and others decreased by 9.3% or RMB 6 million to RMB 62 million. Consequently, total expenses added up to RMB 1.2 billion, a decrease of 17.2% or RMB 251 million. By deducting the total expenses of RMB 1.2 billion from the total net revenue of RMB 1.3 billion, we arrived at a net income of RMB 101 million, a decrease of 49.7% or about RMB 100 million quarter-over-quarter. To sum up, the decrease in this quarter's net income was largely attributable to 3 combined factors: a revenue decrease resulting from the ongoing scale down of our loan facilitation business due to regulatory impact, an increase in provisioning driven by our prudent risk approach and despite our cost optimization efforts, expense reduction lagged the top line contraction, temporarily squeezing our near-term profitability. Now I would like to walk you through the 3 key highlights from this quarter. First, the growing diversification of our business mix. While our overall loan origination volume experienced a minor decline of 4.3% in the second quarter, our fintech empowerment service successfully bucked the trend with continued growth of 8%. As a result, the loan volume contribution from our fintech empowerment and e-commerce business has now reached 45%. As we discussed last quarter, the steady expansion of our fintech empowerment business continues to lay the groundwork for highly visible long-term revenue pipeline and higher asset quality. Complementing this pivotal shift, our installment e-commerce business maintained a steady momentum, continuing to serve as reliable stabilizer for our broader portfolio. Second, the solid growth and expanding profitability of our installment e-commerce business. Consistent with our strategy from the previous quarter, we maintained a disciplined approach, prioritizing asset quality and risk control over sheer volume expansion amidst the current macro environment. As a result, our e-commerce loan volume maintained stable at RMB 2.3 billion. More importantly, our ongoing focus on operational refinement yielded solid profitability improvement. Gross profit for this segment reached RMB 329 million, representing a 58.7% increase, while gross margin -- gross profit margin expanded from 9.4% last quarter to 14.1%. By seamlessly integrating consumption scenario into our broader ecosystem, this segment continues to serve as a valuable revenue driver, adding another layer of resilience to our diversified revenue streams. Third, our prudent provisioning strategy. The industry dynamics unfolding in late June, including a tightened funding supply and an anticipated upward tick in sector-wide risk resulting from peer-level risk events, which I noted earlier, have introduced new market complexity. Incorporating these cautious forward-looking industry expectations into our risk assessment models, we adopted a more conservative provisioning approach for our second quarter portfolio. As a result of this strict and prudent stance, our overall credit cost increased 9.6% sequentially to RMB 1.4 billion during the quarter. To better understand of our provisioning, let's look at our gross provision metrics. By stripping out the net accounting impact of fair value changes, our gross provision ratio for new capital-heavy loans was at 7.8%, higher than the last quarter. Furthermore, our provision coverage ratio remained robust at 230%. Now let's move on to our operating expense items. On the cost and expense side, our total operating expenses decreased by 17.6% or RMB 244 million to RMB 1.1 billion, mainly due to the decrease of the sales and marketing expenses of RMB 165 million and partially offset by a onetime decrease in G&A expenses, driven by costs associated with our organizational optimization. For balance sheet items, as of June 30, our cash position, which includes cash, cash equivalents and restricted cash was approximately RMB 2.5 billion. Shareholders' equity remains solid at about RMB 12 billion. Now turning to our business outlook. As I mentioned earlier, the recent risk events involving certain players have created sector-wide impacts and Lexin has not been immune to these headwinds. Specifically, we are facing 2 main challenges: first, a contraction in new loan volumes; and second, the liquidity squeeze resulting from funding supply has constrained some borrowers' cash flows and could potentially impair their repayment capacity, leading to increased risk volatility in the coming quarters. Against this backdrop, we are taking proactive and decisive measures to navigate this environment. First, we are maintaining dialogue with our funding partners to reinforce mutual trust. This ensures that we are well positioned to resume normal funding supply as soon as the market conditions permit. Second, amidst the industry-wide funding squeeze, we are prioritizing cash flow management while cost optimization and operational efficiency, including staff reduction to safeguard our core business fundamentals. Third, like Jay mentioned earlier, we are proactively exploring new business models centering on technology empowerment services for B end consumers. These initiatives will safeguard our long-term sustainable growth and lay a solid foundation for our future business trajectory. Looking ahead, given the regulators heightened their scrutiny to resolve the risks associated with certain industry players, along with the potential introduction of new industry regulations, we have limited visibility on when funding partners will resume normal operations and the exact time line for our loan volumes to normalize remains uncertain. Compounded by the industry-wide liquidity squeeze, we expect our revenue to further decrease and the credit risks and costs to trend upward in the third quarter, for which we will make adequate provisions. Additionally, we have initiated a series of organizational optimization to navigate industry uncertainties with the resulting onetime expenses primarily recognized in the third quarter. Consequently, we expect the company to record a net loss in the third quarter. As for the remainder of the year, due to the limited visibility at this time, we will provide further guidance as the year progresses. In light of ongoing industry uncertainties, the Board has made a decision to adjust our dividend distribution policy from a semiannual to annual payment. Therefore, any potential dividend declarations for 2026 will be assessed when we announced our fourth quarter results in early 2027. This proactive step allows us to optimize liquidity, fortify our core operations and maintain strategic flexibility needed to navigate near-term market volatility. I want to emphasize that delivering shareholder value remains our top priority, and we view this as a prudent adjustment that may be temporary as the market visibility improves, and the Board will actively reassess our capital allocation strategy and explore renewed initiatives to drive shareholder returns. In conclusion, while navigating this industry-wide transition, we are taking decisive and proactive measures to safeguard our liquidity, protect the long-term shareholder value and pivot ourselves for sustainable growth once the market normalizes. Operator, we are now ready to open the lines for questions.

[Operator Instructions] Our first question comes from the line of Judy Zhang of Citi.

[Foreign Language] Let me translate. I got 2 questions. The first question is, what's your take on the recent risk events in the industry? How has it affected the industry and your business? And what steps are you taking in response? And second question is, how do you expect the risk trend to evolve in the third quarter?

[Interpreted] This is the translation for Jay's remarks. The recent risk events involving certain peers have triggered a crisis of confidence among funding providers, causing a broad-based tightening and even suspension of funding supply across the industry. That said, these are isolated cases, though they do involve potential criminal conduct, and we wouldn't be surprised to see more regulatory measures follow. We expect funding supply in the loan facilitation sector to remain tight for a while and the adjusting [indiscernible] yields will likely last longer than initially expected. As for us, we've always operated strictly in compliance with regulations, and we don't have any of the issues at these institutions. But we're not immune to the broader industry trend. With funding supply tightening, our loan facilitation business took a meaningful hit in July. As a result, new loan originations have contracted notably and asset quality is facing further volatility in line with the broader market. That said, we are in a solid position. We have ample capital reserves and organic cash generation capability to meet the needs of ongoing operations. We remain on the whitelist of major funding partners, which should allow us to resume loan origination as soon as conditions allow. And we have sufficient provision in place to manage an orderly wind down of existing portfolio. In response to the new environment, we are accelerating our transaction, focusing on a few key areas. First, we are doubling down on our diversification strategy and accelerating on our tech empowerment transition. As economic growth continue to provide underlying support for credit demand, we see a clear industry trend for financial institutions to develop their role lending business compliantly. We are well positioned to ride this trend with our tech empowerment model, i.e., leveraging our capabilities in traffic, risk management, AI and operations to help financial institutions grow their lending business in a low-risk and sustainable way. We've been building our ecosystem for years, and we are advancing transition from a guarantee-backed loan facilitation model to a tech-empowered model. And that position us well for long-term sustainable growth ahead. Meanwhile, it's worth stressing that our e-commerce business will keep growing steadily and continue to contribute profit. These diverse businesses are our differentiated advantages compared with our peers. Second, we are driving cost efficiency to strengthen our ability to navigate industry cycles. We've rolled out a series of organizational streamlining and efficiency measures, and we expect management costs to come down by 30% to 40%. As a result, we are seeing faster decision-making, significantly higher productivity per employee and a stronger foundation for long-term operational sustainability and resilience to market cycles, all of which create the runway we need to execute our transformation. Third, we are deepening our AI integration across the board in key operations, risk management and customer services. By embedding AI more deeply into our processes, we are simplifying workflows, improving efficiency and further reducing operating costs so that we stay lean and agile even in a volatile environment. Looking ahead, we don't expect the regulatory and funding environment to ease anytime soon. Recovery will take time. In the near term, we will stay disciplined, continue to adopt prudent operational approach and ensure an orderly wind down of risk assets. Over the medium to long term, we will accelerate the transition to a tech-empowered model by empowering financial institutions with our technology solutions and driving our operational efficiency through AI so that we are well adapted to the new regulatory landscape and position for long-term sustainable growth. Thanks.

[Interpreted] This is the translation for Arvin's remarks. Following the industry risk event in late June, we did see some volatilities in a few risk indicators recently, driven by a sector-wide liquidity shock. Looking ahead to Q3, with funding supply tightening further and our active risk management measures in place, new loan originations will decline materially. As a result, we expect existing portfolio risk to remain upward pressure sequentially. Compounded by a further contracting loan balance, the 90 days plus delinquency ratio is expected to rise further. On the collection side, due to the industry-wide regulatory campaign and higher compliance requirements for loan collection practices, our collection rate will also see a decline. That said, with our prudent risk approach and adequate provisioning, we have the capability to manage an orderly wind down of existing risk assets. Our goal is to keep any risk fluctuations within our risk appetite.

The next question will come from the line of Alex Ye of UBS.

[Foreign Language] So my question is, given the impact of recent industry risk events, how should we think about the financial performance for the second half of the year?

This is James. I'm going to take this question. Looking ahead to the second half, the overall market visibility still remains limited given the ongoing uncertainties around the funding supply recovery and the regulatory trends. So as a result, we are not providing any specific financial guidance at this point. However, against the backdrop of sector-wide liquidity tightening, we expect our third quarter performance to be under pressure, mainly due to the following factors. On the revenue side, obviously, the sector-wide funding tightening had a material impact on our new loan originations and supply in July and August, the last 2 months. If this situation continues, our Q3 loan origination volume will come down a lot, which will directly weigh on our top line. On the cost and expense side, there are 2 structural factors at play. One is the credit cost. Liquidity tightening across the sector has led to an uptick in default risks within our existing portfolio. In line with our prudent risk management approach, we will set aside sufficient provisions for the associated potential risks, which obviously will drive up the credit cost for the quarter. Second, the operating expenses. In Q3, we proactively streamlined our organizational structure, optimized headcount and enhanced efficiency. This generated a one-off severance-related cost, which will temporarily drive up our G&A expenses for the quarter. Over the long run, however, the benefits of these cost savings and efficiency initiatives will gradually flow through to our financials. So if I factor in all of this, we expect the company to record a net loss in the third quarter. For Q4, we'll update our business and financial guidance as we get more clarity on the regulatory front. While the short-term performance is under pressure, we are steadily resolving existing portfolio risks, advancing our technology-empowered transformation and driving organizational efficiency. This will, for sure, solidify our capital-light operation foundations and position ourselves well for steady, resilient growth under the new regulatory cycle.

Our next questions will come from the line of Yujie Jing of CICC.

[Foreign Language] Let me quickly translate my question. Following the change to your dividend policy, how should we view your long-term plans to return value to shareholders?

[Interpreted] In response to the recent industry volatility triggered by recent events at certain peers, the Board, after careful evaluation, has decided to change our dividend distribution from a semiannual to an annual schedule. The Board believes that maintaining ample liquidity and financial flexibility and preserving sufficient capital reserves and financial buffer for our business transformation will help us navigate the industry adjustment more smoothly and that in turn, will better protect long-term shareholder interest. I would like to stress that our commitment to creating and returning value to shareholders has not wavered. As the industry gradually recovers and the business performance improves over time, the Board will actively evaluate a range of shareholder return options, including share buybacks, based on our specific circumstances at that time. Thank you.

Thank you for the questions. At this time, there are no further questions from the line. I would like to hand the call back to management for closing.

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

That concludes today's conference call. Thank you for your participation. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]