LexinFintech Holdings Ltd. (LX) Earnings

Management highlights

- Diversified Ecosystem Development as New Growth Engine * The diversified business ecosystem (including installment e-commerce, offline inclusive finance, and FinTech empowerment) demonstrated strong operational resilience amid industry and macro challenges, with combined loan volume reaching nearly 50% of total GEV, growing faster than the legacy online consumer finance business and becoming the company's new core growth driver. * Yunxi Technology PRO solution for FinTech empowerment efficiently connects internet traffic platforms and financial institutions, enabling precise traffic distribution and stable asset acquisition for partners, creating mutual benefits for all three involved parties. * Installment e-commerce refined its supply chain, penetrated full-category consumption scenarios, added 150 well-known leading brands, launched a dedicated brand outlet channel with over 20 international and domestic fashion/sports brands, and saw 43% quarter-over-quarter transaction growth for participating brands; ongoing promotions for peak consumption seasons drove 35.7% quarter-over-quarter growth in high-quality user orders for 3C digital products. * Offline inclusive finance expanded county-level market布局, launched industry-tailored risk models and credit strategies for small and micro businesses in agriculture, forestry, animal husbandry and fishery, matching customer funding needs with local financial institutions to support county-level economic development. - Risk Management and Asset Quality Optimization * Continued optimization of risk strategies, with large model AI applications improving risk identification efficiency and accuracy; newly launched AI-powered credit report interpretation and interactive credit enhancement functions enabled more accurate user identification and personalized credit pricing/line allocation for high-quality customers. * Dedicated prime segment management for white-collar workers and small and micro business owners delivered 56% quarter-over-quarter growth in prime white-collar loan volume and 30% growth in prime small and micro customer loan volume, driving overall improvement in new loan quality. * The company implemented end-to-end anti-fraud systems, assisted public security authorities in cracking down on an illegal fraudulent syndicate in Shandong Province, leading to the arrest of over 40 suspects, and strengthened full-process compliance for consumer protection. - Operational and User Experience Improvement * Strengthened cross-team coordination to enable faster issue response and more efficient closed-loop problem resolution; optimized intelligent service routing, queuing strategies and peak warning mechanisms to significantly improve customer service efficiency and core service metrics. * Enhanced user tiered care through refined behavior analysis, improving overall user satisfaction; increased investment in consumer protection infrastructure aligned with regulatory requirements, maintaining a prudent provision strategy with a 258% coverage ratio that exceeds historical peak charge-off rates.

Guidance

- Total loan originations for Q2 2026 are expected to remain relatively stable quarter-over-quarter, with the gradual recovery trend observed in Q1 continuing at a modest pace. - Management maintains a prudent outlook for full-year 2026 amid lingering macroeconomic uncertainty; online consumer finance will continue to face near-term pressure, but solid growth from diversified ecosystem businesses will offset this contraction and keep overall performance stable. - Revenue will benefit from improving asset quality, which reduces required provision top-ups for existing capitalized portfolios and supports growth in FinTech empowerment revenue; over the long term, the higher contribution from diversified ecosystem businesses will create a more stable overall revenue base. - Credit costs are expected to decline as risk metrics continue to improve, barring major unforeseen macro or regulatory changes; the company will maintain its conservative provisioning approach. - Operating expenses will be managed to improve operational efficiency and gradually optimize the overall expense ratio, even as the company continues to invest in ecosystem expansion and user experience upgrades. - Management's core priority is to maintain stable risk levels in Q2, laying the foundation for continued recovery and high-quality growth through the rest of 2026, with a long-term goal of returning overall risk levels to within the company's target risk appetite.

Segment performance

LeXin reports its core business segments with the following Q1 2026 performance (all figures in Renminbi): 1. Online consumer finance (credit facilitation service, capital-heavy segment): Credit facilitation service income declined 10% quarter-over-quarter to 2.28 billion, representing 69% of total revenue, as the business continued to face volume and pricing headwinds amid macro uncertainty. 2. FinTech empowerment (2B digital technology) segment: Tech empowerment service income rose 382 million quarter-over-quarter, contributing 11.6% of total revenue. Loan volume under the SHUKE partnership model surged to 21 billion, and this segment now accounts for a growing share of the company's diversified ecosystem. 3. Installment e-commerce segment: Gross profit (net of inventory cost) increased 41 million quarter-over-quarter to 208 million, representing 6.3% of total revenue. Gross margin expanded 169 bps to 9.4% sequentially, while transaction GME remained stable at 2.2 billion. 4. Offline inclusive finance segment: Loan volume contribution to total GEV reached nearly 20% as part of the non-online consumer finance ecosystem (which totaled 49% of overall GEV, up from 42% sequentially). The business has expanded to nearly 100 counties, serving over 4 million small and micro merchants, with stable risk performance and steady loan volume growth. 5. Overseas business: Achieved stable growth in loan volume, profitability, and asset quality, acting as an additional stabilizer for the overall business portfolio.

Risks & headwinds

- Lingering macroeconomic uncertainty continues to create pressure on the legacy online consumer finance business, with ongoing volume and pricing headwinds that negatively impact near-term revenue. - Changing industry regulatory requirements create operational adjustment challenges, requiring continuous updates to compliance processes and business practices. - Industry risk levels have only just begun to steadily decline after the impact of new regulatory changes, and full recovery of risk metrics to target appetite levels remains a gradual process. - Fraudulent and illegal activities such as agent-assisted complaints continue to pose operational and reputational risks, requiring ongoing investment in detection and prevention systems.

Analyst Q&A

• Q: What is the company's outlook on the new regulatory environment and what measures is it taking to adapt? What is the latest update on asset quality trends and forward-looking risk outlook? /

  A: Management notes that the industry is maturing and becoming more standardized, with greater focus on compliance and user experience. This presents both challenge and opportunity, as market consolidation opens up more growth space for compliant operators. LeXin will maintain a customer-centric strategy, continue optimizing asset mix and risk resilience, grow diversified ecosystem businesses, explore new customer segments, and embed compliance across all processes from product design to post-sale service to adapt. For asset quality, Q1 2026 saw a 7% quarter-over-quarter drop in day-one delinquency for total assets, and an expected 6% drop in FPD30 for new loans, with 30-day collection rates improving steadily. The company will continue strengthening risk management to sustain this improving trend in Q2, with a goal of stabilizing risk to support full-year recovery.

• Q: What is the company's financial performance outlook amid the changing regulatory and macro environment? /

  A: Management expects continued macro uncertainty in 2026, and will maintain a prudent operational approach, with no specific numerical guidance provided at this time. Total loan volume will remain stable quarter-over-quarter, as growth from FinTech empowerment and installment e-commerce offsets continued pressure on online consumer finance. Near-term revenue will be supported by lower provision requirements from improving asset quality, while the gradual revenue recognition of FinTech business will build a more stable long-term revenue base. Credit costs will trend down as risk improves, and the company will focus on improving operational efficiency to optimize the overall expense ratio.

• Q: What are the company's plans for enhancing shareholder returns? /

  A: The company previously announced a plan to cancel 20 million ADS, representing approximately 12% of total outstanding shares, but has temporarily suspended new share repurchases amid ongoing macro market uncertainty. Management always prioritizes balancing shareholder returns and capital efficiency, and will flexibly restart the share repurchase and return program when market conditions allow. The company's long-term goal is to steadily increase sustainable long-term returns for shareholders through consistent operational improvements.