Uxin Ltd (UXIN) 2022 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Uxin's Earnings Conference Call for the Fourth Quarter and Fiscal Year ended March 31, 2022. (Operator Instructions) Today's conference call is being recorded. (Operator Instructions) I would now like to turn the call over to your host for today's conference call, Ms. Joyce Tang, IR Director of the company. Please go ahead, ma'am.

Thank you, operator. Hello, everyone. Welcome to Uxin's earnings conference call for the quarter ended March 31, 2022. On the call today are D.K., Founder and CEO; and John Lin, CFO. D.K. will review business operations and company highlights, followed by John, who will discuss financials and guidance. They will both be available to answer your questions during the Q&A session that follows.

Before we start, I would like to remind you that this call may contain forward-looking statements made under the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on management's current knowledge and assumptions about future events that involve known or unknown risks and uncertainties, which could cause actual results to differ materially from those in the forward-looking statements.

Uxin does not undertake any obligations to update any forward-looking statements, except as required under applicable law. For more information about the potential risks and uncertainties, please refer to our filings with SEC.

With that, I will now turn the call over to our CEO, D.K. Please go ahead.

Thanks, Joyce.

[Interpreted]

Hello, everyone. Thank you for joining our earnings call today. To better communicate with both domestic and international investors, my prepared remarks today will still be in both English and Chinese.

In the fourth quarter last year, I elaborated on our growth strategies and business model transformation in order to provide our customers a hassle-free used car purchase experience with massive high quality and value for money vehicle financials, as well as superior before-and-after self-services. Having successfully transitioning from our third-party commission-based model to an inventory-owning model, we opened Xi'an IRC, our first vehicle inspection and reconditioning center as well as a warehouse-type superstore.

In the fiscal year 2022, we have continued in the same direction and remain committed to our mission of creating an industry-leading used car buying experience with the customer-centric approach. Despite the variety of challenges we faced, such as the repeat resurge of COVID, we have made significant progress in car, the used car offering, one-stop service, customer-centric experience and social responsibility.

In the fiscal year 2022, we achieved our business goals for the year. Total transaction volume for the year was 15,755 units, representing a 49% year-over-year growth. Total retail transaction volume for the year was 5,211 units, maintaining sequential growth momentum in every quarter of the year.

Total revenues were RMB 1.64 billion, representing a 149% year-over-year growth. Our Xi'an IRC's operations were disrupted by COVID countermeasures in the fourth quarter, which is also the traditional used car off-season due to the Spring Festival holidays. However, we achieved a higher retail transaction volume as a result of the sales ramp-up in our Hefei IRC. While we still occasionally face COVID-related challenges, we are committed to executing our development plan and sustaining our growth momentum.

After building our first IRC in Xi'an, we opened our second IRC in Hefei in November 2021. This is the first phase of our Hefei IRC. The whole Hefei IRC is backed by our joint investment of RMB 2.4 billion with Hefei Changfeng government. Hefei is renowned for its booming auto industry with favorable policies, leading vehicle manufacturers, as well as mature upstream and downstream supply chains.

Consolidating these resources, we plan to leverage our expertise and state-of-the-art technologies to recondition vehicles at a super-large scale. The designed production capacity is expected to be between 6,000 (sic) [60,000] and 100,000 units annually to ensure a stable and reliable supply of high-quality and cost-effective used cars. The project is progressing well, and the completion of the Hefei IRC will serve as a solid foundation for Uxin to gain customer trust and fuel its sustainable business growth in the long term.

In the past fiscal year, we have heavily invested in the refinement of our used car supply chain, especially in vehicles acquisitions, inspections, and reconditioning. We have established acquisition channels to purchase used cars from individual consumers, auction platforms, auto manufacturers, and car dealerships. Direct purchases from individual consumers accounted for 30% of our total acquired vehicles in the fourth quarter. The increasing proportion of such direct purchase allows us to further reduce our acquisition costs, which will ultimately enable us to offer more competitive pricing to our customers.

As for vehicle inspections, we actively upgraded and optimized our inspection equipment and system powered by Check Auto. Check Auto is our national-patented used car inspection system, to ensure that our retail vehicles fulfill or surpass all national standards. On the reconditioning front, we further streamlined workflows and introduced modern techniques. These initiatives help as improve vehicle quality with lower costs through economy of scale under our IRC operations. To maximize the end-to-end supply chain efficiency, we have developed an integrated information system covering the whole process from vehicle acquisition, inspection and recondition, to sales and after-sales services.

In anticipation of the rising era of new energy vehicles, Uxin is proactively expanding its business in this domain. Our used car offerings now cover multiple mainstream NEV brands including Tesla, NIO, Li Auto, XPeng, BYD, et cetera. We have proactively built in vehicle acquisition channels and developed inspection, reconditioning, and service capabilities specially designed for used NEVs. Targeting on expanding existing service types, we are establishing strategic partnerships with NEV manufacturers, suppliers of spare parts, as well as NEV dealerships. With solid strategic and operational initiatives, Uxin is well prepared for the opportunities in the rising NEV market.

Based on our in-depth understanding of customers' used car purchasing behaviors in China, we have upgraded our sales channels from online only to an omni-channel approach. In 2018, we launched the Uxin Nationwide Online Shopping Mall, making us the first to offer one-stop online cross-region purchase services in the used car industry in China. After 4 years of operations, we managed to achieve best-in-class cross-region online transaction capabilities and experiences for our consumers. On top of our leading online model, we opened IRCs in Hefei and Xi'an as a type of warehouse superstores. The IRCs enable regional customers to have a direct in-store experience through visiting, selecting, consulting, test-driving, and purchasing their favorite cars.

Especially, the first phase of our Hefei IRC is currently the largest self-owned used-car superstore in China. The IRC has a total floor area of nearly 100,000 square meters and a capacity for 2,500 retail vehicles with compact, midsize and luxury models from 52 brands. Our Hefei and Xi'an IRCs and warehouse superstores have become famous and popular used car shopping destinations in their respective regions. Both stores have gained leading regional market shares that are still growing. The regional brand recognition and reputation among customers will further strengthen our credibility nationwide and boost our online sales.

Our commitment to providing high-quality vehicle products and superior customer service is paying off. We are now one of the most trusted used car brands in China. In the fourth quarter, our Net Promoter Score, NPS, increased by 45% year-over-year to 61%, making it the sixth consecutive quarter with NPS improvements. We vigorously analyze and respond to customers' feedback in all aspects, from sales to delivery and after-sales services. We are encouraged by the NPS increase and will remain focused on its further improvements. Uxin believes that reputation among customers is the ultimate driver of sustainable and high-quality business growth.

Used car industry is an integral component of China's circular economy. The healthy circulation of used cars serves to extend the vehicle life cycles and maximize their residual values. It also plays a critical role in lowering production wastes, reducing disposal pollutions, and improving resources utilization. As an industry leader, Uxin takes the concept of environmental protection seriously and acts as a pioneer in energy conservation and emission reduction. In July 2022, we released our inaugural ESG report. The report highlighted how we integrated sustainable development principles into our business planning, IRC design and construction and daily operations. Uxin is determined to lead China's used car industry to evolve in a more socially responsible and green direction.

China's used car market is experiencing its golden age of growth. It is reported that China has become the world's largest auto market measured by vehicle units by 2021. Building on that, China's used car market is already massive with more than 17 million units sold in 2021. It also has tremendous growth potential compared to developed markets.

The used car industry has become a key area of focus to state regulators, who have introduced multiple supporting policies in the past 4 years. Notably, in July 2022, the Ministry of Commerce, together with 16 other state departments, published an official notice to stimulate auto circulation and consumption. The notice included comprehensive measures to facilitate cross-region registration and filing, regulate accounting treatments and invoice issuance, and remove restrictions on used car business operations.

In 2021, government policies required the digitization of car documents and more than 300 cities have implemented electronic title transfer and registration. In 2020, the used car transaction value added tax was reduced from 2% to 0.5%. All these policies and initiatives demonstrated regulators' strong guidance to build a unified national market for used car transactions. Additionally, the policies also booked and promoted strong-brand, large-scale, and compliant used car companies in the industry.

We have been deeply rooted in the industry for over 11 years as a used car e-commerce company with nationwide coverage and regional market penetration. We believe that Uxin as a well-branded, super-large-scale, highly socially responsible company in the used car industry will fly well when the tailwind arrives.

In the new fiscal year 2023, Uxin will focus on the following 3 priorities. First, to significantly expand our brand recognition and credibility among customers to boost sales and market shares. We aim to gain more customers by enabling them to experience our products and services. Second, to further upgrade the end-to-end supply chain information system, AI pricing system, intelligent inventory management system, et cetera, at an individual vehicle level. Third, to continuously optimize operational efficiency to control cost and expenses with the ultimate target of profitability in the mid to long term.

Once again, I would like to thank our customers for their trust and every member in our Uxin family for their hard work. I'm so grateful for the strong support from our shareholders and investors. We will stay committed and focused to shape the industry in the new era and deliver sustainable returns to our shareholders on our journey to high-quality growth.

With that, I'd like to turn the call over to our CFO, to walk you through the financial results. John, please?

Okay. Thanks, D.K. Hello, everyone. Thank you all for joining us today. I will walk you through some key financial results in the quarter ended March 31, 2022, as well as the full fiscal year 2022.

During the fourth quarter, despite the COVID and off-season impacts, D.K. shared earlier, our total revenues were RMB 505.7 million, pretty much the same level compared to the third quarter. Thanks to the retail sales volume ramp up in our Hefei IRC. Specifically, our retail revenue is RMB 319 million, representing a 37% quarter-over-quarter growth and 156% year-over-year, driven by higher retail transaction.

As for the overall fiscal year 2022, it was our first full year of operation under the inventory-owning model, driven by our continued sales growth momentum, our total transaction volume was 15,755 units, representing a 49% year-over-year growth, and our total full year revenues were RMB 1.6 billion, representing a 133% year-over-year growth.

When we look at the gross margin in the fourth quarter, as you can see in the first 3 quarters, our gross margin was stable at around 4%. However, in the fourth quarter, it fell to 0.2%. The reason was that we experienced the Xi'an IRC lockdown for more than 1 month due to COVID. And February was the traditional Chinese New Year off-season. So used car transactions were almost frozen for a month. So we have to proactively restructure our inventories and accelerate the sales of the [particularly long aged] vehicles through pricing adjustments. The inventory management actions compressed our gross margin in the fourth quarter.

As a result, the overall gross margin for fiscal year 2022 was 2.9%. We did observe after the Chinese New Year a clear upward trending in our retail sales, and we do expect our gross margin to gradually return to a reasonable level in the following quarters.

We continued our stringent expense management in the fourth quarter. The total operating expenses were RMB 119.4 million, relatively stable compared with the third quarter. As I repeated every time, the culture of reducing unnecessary spending is one of the company's culture in Uxin. We have been proactively seeking opportunities to optimize organizations, increase operational efficiency and promote cost-effective technology. As a result, our fiscal year 2022 operating expenses were RMB 409 million, representing a 48% decrease year-over-year.

Consequently, the non-GAAP adjusted loss from continuing operation was RMB 96.1 million in the fourth quarter compared with RMB 68.6 million in the third quarter. The full fiscal year non-GAAP adjusted loss from continuing operation was RMB 96.1 million. It was substantially narrowed by 56% compared with fiscal year 2021.

Other than the financial results, I would like to share some of our recent developments in financing and liabilities restructuring. Last year, we announced the USD 315 million investment by NIO Capital and Joy Capital. And by now, we have received USD 150 million from the investment. The remaining USD 165 million is in the form of warrants. The investors still retain the right to exercise the warrants with a total amount of up to USD 165 million.

On top of that, yesterday, we closed an additional USD 100 million following the investments from NIO Capital. In addition, we also recently completed the issuance of ordinary shares to 58.com in exchange for the full release of the company's USD 63 million obligations under the convertible notes issued to 58.com.

We believe closing of these transactions allow us to substantially streamline our financial resources and devote more focus to execution of our long-term growth strategy. We plan to accelerate the pace of our expansion, strengthen our reconditioning capabilities and further digitize our supply chain. And we are confident that our investments in these areas will enable us to provide customers with more vehicle selections and a better one-stop hassle-free shopping experience.

The detailed financial statements were published in our earnings release online, so I will not repeat the numbers here at this time, but I do want to emphasize one thing. As in the fourth quarter, similar to the past quarters, there was a fair value impact related to our financing transactions. The share price was USD 1.02 per ADS on March 31, 2022. And on January 3, 2022, the share price was USD 1.57 per ADS. So this resulted in a noncash gain of RMB 476.8 million from fair value change of the warrant liabilities and forward liabilities on our balance sheet. I would like to emphasize again that this fair value impact was a noncash gain and not a result of our operations.

In regard to the first quarter guidance in fiscal year 2023, we currently expect our total revenues to be in the range of RMB 600 million to RMB 620 million for the 3 months ended June 30, 2022. Please note that this forecast reflects our current preliminary views on the market and operational conditions, which are subject to changes. So this concludes our prepared remarks. Thanks, everyone. And operator, we are ready to receive the questions.

We will now begin the question-and-answer session. (Operator Instructions) Our first question will come from Karl Birkenfeld with American Trust Investment Services. You may now go ahead.

Congratulations on your outstanding financial performance in light of the circumstances with COVID. I'm a Managing Director at American Trust and I have a coverage in China. I have 2 questions. The first is through our news media report in the United States, we know that China continues to keep COVID Zero Policy that restricts travel and lock down the potential risk areas. What's the economic outlook and consumer sentiment? Will this affect Uxin business going forward?

All right. Thank you, Karl.

[Interpreted]

The implementation of COVID countermeasures will still have an impact. If you were in lockdown, in particular, you limit people's activities. we will certainly comply with all the government's COVID prevention policies.

In terms of our financial results, the lowdown in Xi'an disrupted operation of our Xi'an IRC, which in turn affected our financial performance. The closure of our Xi'an IRC during the lockdown tapered our overall sales, lowered our inventory turnover and compressed our gross margin in the fourth quarter of this year.

However, these impacts are temporary. Since June, our business has fully recovered after China started to ease COVID restrictions and lifted Shanghai's lockdown. That's the answer to the question.

Great. The second question is, can you break down your vehicle acquisition by source? And what are the differences between these channels in terms of cost, average prices and turnover?

[Interpreted]

Okay. Our acquisition sources mainly include individual car owners, auction companies and dealership of new cars. This dealership partners with us when their customers are trading their vehicles.

Regarding the cost, our acquisition costs only consists of the vehicle's purchase price, and there are no other costs in the acquisition process. Also, there's no material difference in the average selling price and turnover between these acquisition sources.

However, purchasing directly from individual car owners simplifies the acquisition process. So generating a higher gross margin, as such, we highly value individual car owners as an acquisition source, which contributed to 30% of our total acquisitions compared to 15% in the middle of the last year. We expect this percentage to continue climbing going forward. That's the answer to the question.

Our next question will come from Fei Dai with TF Securities. You may now go ahead.

(foreign language)

Repeating my question in English. In 2022, what optimization has the company made on the user side online platform? What is the company's current arrangement from purchase to delivery of the car, what technique upgrading and optimization has been made this year compared to 2021 about the online car buying platform? what kind of competitive advantages or drivers that the company has?

[Interpreted]

We implemented several upgrades to the online purchase of our vehicles. One of these upgrades is the complete self-service online orders and purchase process for customers. This process does not require any settlement, intervention and allows the customers to make them more independent in their application. They can then complete the transaction smoothly.

Another example, is the upgrade to the online display of our vehicles detailed information. Now customers can view each car with its specific conditions and ratings as well as the vehicle condition scores that we implemented under the national standard. The display of these indicators enable customers to make a more comprehensive assessment of the vehicles online to form a purchase decision.

In terms of the logistic and the network, our delivery network now covers 20 cities (technical difficulty) . We also plan to gradually expand our network in the future.

First, our resource has higher qualities as we have the highest standard for the reconditioning, so we can have the lowest return rate in the industry. Secondly, after years of efforts, we have built a robust system for vehicle delivery and local ownership and registration. Our delivery efficiency is very high. Usually, our customers can receive their vehicles around 72 hours after they place the order. Thirdly, all of our vehicles are self-owned, so we have better control of the vehicles and the transaction. That's the answer to the question.

Our next question will come from Qing Yang from China Securities.

[Interpreted]

Qing Yang from China Securities. Given the electric vehicle sales have caught up with gasoline cars, can you share more about your expansion plans in this market? Are the margins different from gasoline cars and how many new energy vehicles do you personally have in your inventory?

[Interpreted]

NEV is a critical segment that we are focusing on and investing in. As you know, NEV and gasoline vehicles are built very differently. This is why in the past few months, we have established (inaudible) for the testing and maintaining of used new vehicles.

Through the market perspective, China's used EV market [unit has come to demand]. The growth of the used EV market is directly tied to the overall ownership. At the end of 2021, China's passenger car ownership reached 300 million while NEV ownership was around 8 million or less than 3% of the total.

As of now, NEV accounted for 5% to 6% of our inventory. From a business perspective, our NEV offerings are quite popular among customers. NEV in our inventory also has a stronger sales performance. Additionally, we mainly cover mainstream NEV brands. They are welcomed by consumers such as Tesla, NIO, XPeng, BYD and Li Auto.

Comparing with the peers in the industry, we are leading the industry in both sales capacity and sales performance of new energy used cars.

Thank you. We have reached the end of question-and-answer session. I would now like to hand the conference back over to Joyce for closing remarks.

Thank you everyone joining our call today. We look forward to seeing you next time. Bye-bye.

Bye-bye.

Thank you, everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

[Portions of this transcript that are marked as Interpreted were spoken by an interpreter present on the live call.]