X Financial Reports Third Quarter 2019 Unaudited Financial Results

SHENZHEN, China, Nov. 20, 2019 /PRNewswire/ -- X Financial (NYSE: XYF) (the "Company" or "we"), a leading technology-driven personal finance company in China, today announced its unaudited financial results for the third quarter ended September 30, 2019.

Third Quarter 2019 Financial Highlights

• Net revenues in the third quarter of 2019 increased by 4.5% to RMB866.8 million (US$121.3 million) from RMB829.5 million in the same period of 2018.
• Income from operation in the third quarter of 2019 decreased by 14.5% to RMB234.7 million (US$32.8 million) from RMB274.5 million in the same period of 2018.
• Net income attributable to X Financial shareholders in the third quarter of 2019 decreased by 33.5% to RMB131.6 million (US$18.4 million) from RMB197.9 million in the same period of 2018.
• Non-GAAP^[1] net income attributable to X Financial shareholders in the third quarter of 2019 decreased by 31.6% to RMB170.0 million (US$23.8 million) from RMB248.5 million in the same period of 2018.
• Net income per basic and diluted American depositary share ("ADS")^[2] in the third quarter of 2019 were RMB0.84(US$0.12) and RMB0.82(US$0.11) respectively, compared with RMB1.40 and RMB1.30, respectively, in the same period of 2018.
• Non-GAAP net income per basic and diluted ADS in the third quarter of 2019 were RMB1.08(US$0.15) and RMB1.06(US$0.15), respectively, compared with RMB1.76 and RMB1.64, respectively, in the same period of 2018.

Third Quarter 2019 Operational Highlights

• Total loan facilitation amount^[3] in the third quarter of 2019 was RMB10,750 million, representing an increase of 42.2% from RMB7,560 million in the same period of 2018 and an increase of 5.7% from RMB10,172 million in the second quarter of 2019.
• The loan facilitation of Xiaoying Credit Loan^[4] in the third quarter of 2019 was RMB8,086 million, representing an increase of 17.6% from RMB6,879 million in the same period of 2018 and an increase of 6.1% from RMB7,619 million in the second quarter of 2019. Xiaoying Credit Loan accounted for 75.2% of the Company's total loan facilitation amount, compared with 91.0% in the same period of 2018.
• Total outstanding loan balance^[5] as of September 30, 2019 was RMB19,606 million, compared with RMB20,789 million as of September 30, 2018 and RMB19,821 million as of June 30, 2019.
• Total number of loans facilitated^[6] of Xiaoying Term Loan^[7] in the third quarter of 2019 was 727,360, representing a decrease of 6.3% from 775,957 in the same period of 2018 and an increase of 1.7% from 715,209 for the second quarter of 2019.
• Average loan amount per transaction^[8] of Xiaoying Term Loan in the third quarter of 2019 was RMB12,848, representing an increase of 32.4% from RMB9,706 in the same period of 2018 and a decrease of 0.1% from RMB12,865 for the second quarter of 2019.
• Average consumption amount per user^[9] of Xiaoying Revolving Loan^[10] in the third quarter of 2019 was RMB5,668, representing an increase of 19.3% from RMB4,752 for the second quarter of 2019.
• The delinquency rates for all outstanding loans that are past due for 31-90 days and 91–180 days as of September 30, 2019 were 2.95% and 4.50%, respectively, compared with 3.10% and 4.99%, respectively, as of June 30, 2019, and 3.51% and 3.36%, respectively, as of September 30, 2018.
• Number of active borrowers in the third quarter of 2019 was 840,137, representing an increase of 30.9% from 641,743 in the same period of 2018 and an increase of 5.7% from 795,032 in the second quarter of 2019.
• The amount of cumulative borrowers each of whom made at least one transaction on the Company's lending platform as of September 30, 2019 was 5,433,901.
• Total cumulative registered users reached 34,968,473 as of September 30, 2019.
• Number of active individual investors^[11] in the third quarter of 2019 was 63,320, representing a decrease of 48.0% from 121,757 in the same period of 2018 and a decrease of 20.1% from 79,218 in the second quarter of 2019.
• The cumulative number of active individual investors as of September 30, 2019 was 498,214, compared with 424,616 as of September 30, 2018, and 489,880 as of June 30, 2019.
• The Gross Merchandise Value ("GMV")^[12] of Xiaoying Online Mall^[13] amounted to RMB77.4 million, representing an increase of 557.2% from RMB11.8 million in the second quarter of 2019.

Mr. Justin Tang, the Founder, Chief Executive Officer and Chairman of the Company, commented, "We are pleased to report a solid quarter with strong financial and operational performance. In particular, I would like to highlight the following significant progress we have made across our business."

"Firstly, we are conducting business in stringent compliance with relevant laws and regulations in China to fully protect the interests of our investors and borrowers. Our access to personal information was fully authorized by our users and we have discontinued relationships with certain unqualified data providers. To strengthen our strong risk control capabilities, we enhanced our risk models based on different sets of data sources and metrics during the quarter."

"Secondly, we believe that controlling the loan process early on is critical and has become more efficient over time. Over the past six months, we have strengthened our risk control capabilities and adopted strict control and evaluation of borrowers in the very beginning of the process, this has helped us to sustain healthy growth and reduce loan defaults in their later stages. "

"Moreover, as we mainly rely on early stage risk control to reduce the loan defaults instead of relying on debt collection efforts, we outsourced debt collection to third-party agencies and implemented very strict control and management to monitor the debt collection process. Employees from these third-party agencies are mainly from credit card divisions of commercial banks, they are well versed in using polite methods to collect debt. For example, we have stringent requirements with respect to the use of polite words in the calls, the proper recording of the calls, and the restriction of call frequency in a certain period of time and etc."

"Thirdly, we are very pleased to report that institutional funding accounted for 35.7% of the loans facilitated through our platform in the third quarter this year, increasing from 26.7% in the previous quarter. In particular, the proportion of funding from institutions increased to 52.4% of the total loans facilitated in October 2019. We expect that all the funding for new loans will come from institutional partners or our own capital from the early of next year."

"Lastly, it is very encouraging to see our revolving loan product Yaoqianhua, previously known as Xiaoying Wallet, growing very rapidly. Transaction volumes for Yaoqianhua jumped significantly to RMB1,405 million this quarter from RMB971 million in the last quarter and the outstanding loan balance increased to RMB949 million as of September 30, 2019 from RMB578 million as of June 30, 2019. Yaoqianhua has an approved cumulative credit line of RMB4.8 billion and currently has a credit utilization rate of around 20.1% as of September 30, 2019."

"Furthermore, for the users of Yaoqianhua, we are able to offer more diversified services to enhance the user experience and improve our own operational capabilities. We are planning to gradually transition from a pure financial service provider to a comprehensive business service provider."

"In conclusion, we are very confident in our future growth prospects and ability to create long-term value for our investors and shareholders. We are dedicated to continually provide the most user-friendly and convenient financial and business services to borrowers. China's consumer finance market is huge and we believe there is enormous potential for our products to drive future growth." 

Mr. Simon Cheng, President of the Company, added, "We are very glad to report a solid quarter where we saw a significant improvement in our delinquency ratio. We are moving to higher quality customer segments because of changing macroeconomic and regulatory environment .We will continue to strengthen our risk control capabilities and provide the best loan services to our customers."

"China has unparalleled consumption potential that's unmatched by any other markets in the world. Our newly developed revolving product, Yaoqianhua, is generating strong growth momentum. The number of transactions for Yaoqianhua in the third quarter of 2019 increased to 3.8 million from 2.9 million in the second quarter of 2019. As of September 30, 2019, the number of active users of Yaoqianhua was around 330,000, representing an increase from around 220,000 as of June 30, 2019. We believe that the number of Yaoqianhua users will keep rapid growing. The business will gradually account for a larger percentage of revenue as revolving product has a longer customer life time and offers multiple types of cross sell opportunities."

"We expect institutional investors to fund almost all new loan products on our platform since the early of next year as P2P lending products are to be gradually phased out. We have been actively negotiating with our funding partners including CITIC Trust, Kunlun Bank, Blue Ocean Bank, Huishang Bank, Yantai Bank among others, to further lower our funding costs and provide the best services to our customers."

"Going forward, market consolidation will result in fewer players in the sector which we believe will create enormous opportunities for us to grow. While the current regulatory environment is very challenging, we believe we have a lot of opportunities ahead of us to explore the market in the long run."

Mr. Kevin Zhang, Chief Financial Officer of the Company, commented, "We finished the quarter with solid operational and financial results. Total loan facilitation amount was 10,750 million for the quarter, showing a significant increase year-over-year, while net revenues came in at RMB866.8 million, which also increased on a year-over-year basis."

"We are glad to see the number of active borrowers increased significantly to 840,137 in the quarter, which demonstrates continued strong demand from the market. The delinquency rates for all outstanding loans that are past due for 31-90 days and 91–180 days as of September 30, 2019 were 2.95% and 4.50% respectively, compared with 3.10% and 4.99%, respectively as of June 30, 2019. We believe this reflects the improving quality of our loans as we acquire higher quality borrowers."

"In addition, we are pleased to see the proportion of institutional funding and revenue contribution from the loan assistance business continuing to grow. As of September 30, 2019, the credit line provided by our institutional partners was around RMB38.4 billion and has since been expanded to RMB48.4 billion by the end of October 2019. We are determined to operate in compliance with related laws and regulations, and are actively making a transition to a mode of combination of loan assistance and loan facilitation through small loan license."

"What's more, the loan products we facilitated that were covered by ZhongAn Insurance have decreased to 77.2% in the third quarter 2019. We will continue to reduce our insurance coverage rate to lower our customers' borrowing costs and develop alternative ways to provide guarantees for certain loan products."

"Going into next year, we will continue the transformation of our business to ensure it is fully compliant with regulations, reduce costs and improve efficiency, and create more value for our customers and shareholders."

Third Quarter 2019 Financial Results

Net revenues in the third quarter of 2019 increased by 4.5% to RMB866.8 million (US$121.3 million) from RMB829.5 million in the same period of 2018, primarily due to an increase in transaction volumes of Xiaoying Credit Loan and Yaoqianhua this quarter when compared with the same period of 2018. The increase was partially offset by a significant increase in the proportion of the revenue generated by the loans facilitated through the Consolidated Trusts which was recorded over the life of the underlying financing using the effective interest method.

Loan facilitation service fees under the direct model in the third quarter of 2019 decreased by 17.2% to RMB562.1 million (US$78.6 million) from RMB678.6 million in the same period of 2018, primarily due to a shift in strategy to attract more institutional investors through the intermediary model.

Loan facilitation service fees under the intermediary model in the third quarter of 2019 increased by 62.0% to RMB86.6 million (US$12.1 million) from RMB53.4 million in the same period of 2018, primarily due to an increase in the total volume of products offered under the intermediary model as the Company shifted its strategy to attract more institutional investors.

Post-origination service fees in the third quarter of 2019 increased by 73.1% to RMB80.3 million (US$11.2 million) from RMB46.4 million in the same period of 2018, primarily due to an increase in transaction volumes of Xiaoying Credit Loan over the last twelve months for loans with a weighted average contractual terms of 10~12 months. Revenues from post-origination services are recognized on a straight-line basis over the term of the underlying loans as the services are being provided.

Financing income in the third quarter of 2019 increased by 1106.9% to RMB110.9 million (US$15.5 million) from RMB9.2 million in the same period of 2018, primarily due to the newly established trusts this year.

Other revenue in the third quarter of 2019 decreased by 35.8% to RMB26.9 million (US$3.8 million) from RMB41.9 million in the same period of 2018, primarily due to a decrease in penalty fees.

Origination and servicing expenses in the third quarter of 2019 increased by 60.4% to RMB456.5 million (US$63.9 million) from RMB284.6 million in the same period of 2018, primarily due to the following factors (i) an increase in collection expenses for the cumulative effect of the growing business, (ii) an increase in customer acquisition costs for the recently launched revolving credit product, Yaoqianhua and (iii) an increase in interest expense related to loans facilitated through the Consolidated Trusts.

General and administrative expenses in the third quarter of 2019 decreased by 9.5% to RMB61.2 million (US$8.6 million) from RMB67.6 million in the same period of 2018, primarily due to a decrease in consulting service fees compared to the same period of 2018.

Sales and marketing expenses in the third quarter of 2019 decreased by 43.0% to RMB25.9 million (US$3.6 million) from RMB45.3 million in the same period of 2018, primarily due to a reduction in promotional and advertising expenses. 

Provision for contingent guarantee liabilities in the third quarter of 2019 was nil, compared with RMB33.6 million in the same period of 2018, primarily because there has been no deterioration in estimated default rates of the loans subject to guarantee liabilities facilitated in prior periods.

Provision for accounts receivable and contract assets in the third quarter of 2019 decreased by 23.5% to RMB88.6 million (US$12.4 million) from RMB115.7 million in the same period of 2018, primarily due to a change in estimated default rates and a decrease in accounts receivable and contract assets recognized as more revenue generated by the loans facilitated through the Consolidated Trusts was recorded over the life.

Income from operation in the third quarter of 2019 decreased by 14.5% to RMB234.7 million (US$32.8 million) from RMB274.5 million in the same period of 2018.

Income before income taxes and gain from equity in affiliates in the third quarter of 2019 was RMB144.0 million (US$20.2 million), compared with RMB230.3 million in the same period of 2018.

Income tax expense in the third quarter of 2019 was RMB20.5 million (US$2.9 million) compared with an income tax expense of RMB34.4 million in the same period of 2018. The decrease was primarily due to the fact that (i) one major subsidiary of the Company became a qualified enterprise in the fourth quarter of 2018 that enjoys a preferential income tax rate of 15% from 2018 to 2020, and (ii) one major subsidiary of the Company was certified as software enterprise in early May 2019 that enjoys a preferential income tax rate of 12.5% from 2019 to 2021.

Net income attributable to X Financial shareholders in the third quarter of 2019 was RMB131.6 million (US$18.4 million), compared with RMB197.9 million in the same period of 2018.

Non-GAAP net income attributable to X Financial shareholders in the third quarter of 2019 was RMB170.0 million (US$23.8 million), compared with RMB248.5 million in the same period of 2018.

Net income per basic and diluted ADS in the third quarter of 2019 were RMB0.84(US$0.12) and RMB0.82(US$0.11), respectively, compared with RMB1.40 and RMB1.30, respectively, in the same period of 2018.

Non-GAAP net income per basic and diluted ADS in the third quarter of 2019 were RMB1.08(US$0.15) and RMB1.06(US$0.15), respectively, compared with RMB1.76 and RMB1.64, respectively, in the same period of 2018.

Cash and cash equivalents was RMB931.0 million (US$130.2 million) as of September 30, 2019, compared with RMB931.0 million as of June 30, 2019.

Business Outlook

X Financial currently expects the total loan facilitation for the fourth quarter of 2019 to be around RMB 8,000 million to RMB 9,000 million. This forecast reflects the Company's current and preliminary views, which are subject to changes.

Conference Call

X Financial's management team will host an earnings conference call at 8:00 AM U.S. Eastern Time on Thursday, November 21, 2019 (9:00 PM Beijing / Hong Kong Time on the same day).

Dial-in details for the earnings conference call are as follows:

Please dial in ten minutes before the call is scheduled to begin and provide the passcode to join the call.

A replay of the conference call may be accessed by phone at the following numbers until November 28, 2019:

Additionally, a live and archived webcast of the conference call will be available at http://ir.xiaoyinggroup.com.

About X Financial

X Financial (NYSE: XYF) (the "Company") is a leading technology-driven personal finance company in China focused on meeting the huge demand for credit from individuals and small-to-medium-sized enterprise owners. The Company's proprietary big data-driven risk control system, WinSAFE, builds risk profiles of prospective borrowers using a variety data-driven credit assessment methodology to accurately evaluate a borrower's value, payment capability, payment attitude and overall creditworthiness. X Financial has established a strategic partnership with ZhongAn Online P&C Insurance Co., Ltd. in multiple areas of its business operations to directly complement its cutting-edge risk management and credit assessment capabilities. ZhongAn Online P&C Insurance Co., Ltd. provides credit insurance on X Financial's investment products which significantly enhances investor confidence and allows the Company to attract a diversified and low-cost funding base from individuals, enterprises and financial institutions to support its growth. X Financial leverages financial technology to provide convenient, efficient, and secure investment services to a wide range of high-quality borrowers and mass affluent investors which complements traditional financial institutions and helps to promote the development of inclusive finance in China.

For more information, please visit: http://ir.xiaoyinggroup.com.

Use of Non-GAAP Financial Measures Statement

In evaluating our business, we consider and use non-GAAP measures as supplemental measures to review and assess our operating performance. We present the non-GAAP financial measures because they are used by our management to evaluate our operating performance and formulate business plans. We also believe that the use of the non-GAAP financial measures facilitates investors' assessment of our operating performance.

We use in this press release the following non-GAAP financial measures: (i) net income, (ii) net income attributable to X Financial shareholders, (iii) net income per basic ADS, and (iv) net income per diluted ADS, each of which excludes share-based compensation expense. These non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. These Non-GAAP financial measures have limitations as analytical tools, and when assessing our operating performance, investors should not consider them in isolation, or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP.  

We mitigate these limitations by reconciling the non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures, which should be considered when evaluating our performance. We encourage you to review our financial information in its entirety and not rely on a single financial measure.

For more information on these Non-GAAP financial measures, please see the table captioned "Reconciliations of GAAP and Non-GAAP results" set forth at the end of this press release.

New Accounting Pronouncements

On February 25, 2016, the FASB issued Accounting Standard Update ("ASU") No. 2016-02, Leases, which requires lessees to record lease liabilities and right-of-use assets as of the date of adoption and was incorporated into GAAP as Accounting Standards Codification ("ASC") Topic 842. The Company adopted the new standard prospectively effective January 1, 2019, using a modified retrospective basis method under which prior comparative periods are not restated. As of January 1, 2019, the Company had some operating leases for its offices with the remaining contractual terms of 16~46 months. Under the terms of the lease, the Company will pay base annual rent (subject to an annual fixed percentage increase), plus fixed property management fees. The ROU assets were recorded as "Other non-current assets", and the current and non-current portions of the lease liabilities were recorded as "Accrued expenses and other current liabilities" and "Other non-current liabilities" in the Condensed Consolidated Balance Sheets. There was no cumulative adjustment to our retained earnings.

Exchange Rate Information

This announcement contains translations of certain RMB amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB7.1477 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System as of September 30, 2019.

Safe Harbor Statement

This announcement contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "potential," "continue," "ongoing," "targets," "guidance" and similar statements. The Company may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the "SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Any statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements that involve factors, risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors and risks include, but not limited to the following: the Company's goals and strategies; its future business development, financial condition and results of operations; the expected growth of the credit industry, and marketplace lending in particular, in China; the demand for and market acceptance of its marketplace's products and services; its ability to attract and retain borrowers and investors on its marketplace; its relationships with its strategic cooperation partners; competition in its industry; and relevant government policies and regulations relating to the corporate structure, business and industry. Further information regarding these and other risks, uncertainties or factors is included in the Company's filings with the SEC. All information provided in this announcement is current as of the date of this announcement, and the Company does not undertake any obligation to update such information, except as required under applicable law.

For more information, please contact:

X Financial
Ms. Jennifer Zhang
E-mail: ir@xiaoying.com

Christensen

In China
Mr. Christian Arnell
Phone: +86-10-5900-1548
E-mail: carnell@christensenir.com

In US 
Ms. Linda Bergkamp
Phone: +1-480-614-3004
Email: lbergkamp@christensenir.com

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SOURCE X Financial