Uxin Ltd (UXIN) 2022 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Uxin's Earnings Conference Call for the Quarter Ended September 30, 2021. (Operator Instructions) Today's conference call is being recorded. If you have any objections, you may disconnect at this time.

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 September 30, 2021.

On the call today are D.K., Founder and CEO of Uxin; and John Lin, CFO of Uxin. 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 provisions of the US 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 the SEC.

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

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

In the second quarter of fiscal year 2022, which ended on September 30, we maintained solid growth in terms of both sales volume and revenue. Total transaction volume in the quarter was 3,648 units, which is an increase of 21% compared with last quarter. The retail transaction volume was 1,027 units, an increase of 51% compared with last quarter.

In terms of our reputation in customers, our persistent efforts to improve vehicle quality and service experience have generated good results. In the quarter, our sales net promoter score, or NPS, increased for the fourth consecutive quarter to 56, a new record high versus 42 in the previous quarter. Going forward, we will continue to optimize and upgrade the quality of our products and services in order to provide best-in-class one-stop car purchasing experience to our customers and drive high-quality sales growth through positive word of mouth.

We completed an important milestone in our business development in this November. With our Xi'an IRC successfully launched and running, we launched our second IRC in Hefei, Anhui Province. East China holds the largest amount of used car transactions and Anhui Province is one of the fastest-growing areas for car consumption in the region. The rollout of our second IRC in Hefei, which represents a key strategic step in our business expansion. Specifically, Phase 1 of the Hefei IRC covers a total area of about 100,000 square meters with a warehousing capacity of up to 2,000 vehicles. Currently, the combined number of vehicles available for sale in Hefei is roughly 1,500, covering 52 brands and a large collection of economy and luxury models.

As far as we know, this is the largest self-owned used car IRC in China. Compared to Xi'an IRC, the Hefei IRC demonstrates our improvements in sales value quality, operational management and sales and service systems. Since we began operating in mid-November, the new Hefei IRC has been well received among customers for its vehicle quality and services. The vehicle sales volume has been growing steadily week over week. When the construction is fully completed, the Hefei IRC will be one of the most advanced used car production center that features streamlined operations, automation, digitalization and business intelligence. It will be a one-stop used car purchase destination, offering vehicle acquisition, inspection, refurbishment, demonstration, sales and after sales-service.

In terms of vehicle sourcing, we have expanded our pool of vehicles to include leading domestic and foreign [electric] (corrected by the company after the call) vehicle brands. We are building our EV business operation by establishing sourcing channels, inspection standards and refurbishment process, especially designed for EVs. This will enable us to provide high-quality and reliable used EVs to our customers. We believe this will provide new growth drivers for Uxin in the coming era of electric vehicles. Meanwhile, we also hope that we can leverage our extensive inspection and reconditioning capabilities to drive the healthy development of the used EV market in China.

In terms of vehicle reconditioning capabilities, we continued to optimize and streamline our work process to improve both quality and efficiency. Based on our market research, majority of used car dealers in China only offer very limited, or the most basic level of reconditioning services before selling the vehicles to customers. At Uxin, we have cumulated an integrated database of refined reconditioning standards and processes through years of operations. Thus, we can utilize our scale advantage in procurement to optimize reconditioning costs and can offer our customers high-quality vehicles at attractive prices.

Meanwhile, we actively invest in reconditioning equipment and technology to further boost our efficiency. In Hefei IRC, our average time and cost required to recondition a car decreased more than 50% compared to the time when the Xi'an IRC was just launched. We will continue to focus on improving every business process to strike a good balance among quality, cost and efficiency.

Recently, we have closed part of the second tranche of the financing transaction ahead of the original schedule. Following our development plans, we will expand vehicle acquisition, enhance refurbishment capabilities and optimize supply chain. Investments in these key areas will enable us to increase available-for-sale inventory and further improve the car purchasing experience of our customers.

Finally, I would like to once again thank our customers and shareholders for their continuous support and our team for their hard work and dedication. This will be a long and fruitful journey, and we will have a long way to go. The smooth operations of the Xi'an IRC over the past six months and the newly launched Hefei IRC, has given us great confidence in our business.

Going forward, we will remain committed to our current development direction and contribute to the long-term and healthy development of the Chinese used car industry. We believe all our efforts and investment today will pay off in the future.

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

Okay. Thanks, D.K. Hello, everyone.

Let me walk you through our financial performance in the quarter ended September 30, 2021. The business was growing steadily in this quarter. We started to increase our available-for-sale inventory in Xi'an IRC, since we received the first tranche of the new investment in early July, and then reached full capacity at around 600 cars in mid-August. The improved inventory level enabled us to ramp up our retail sales volume.

The retail volume increased 51% quarter-to-quarter, and overall sales volume increased 21% quarter-to-quarter. As a result, our revenues increased by 24.5% compared to last quarter. Meanwhile, we spent tremendous amount of efforts to [optimize] (corrected by the company after the call) our cost and expense structure, build a lean organization and drive efficient operational processes. The impact has been reflected in our continuously improving operational loss.

One thing I would like to comment specifically is the fair value impact of the issuance of senior convertible preferred stock as a result of our financing deal with NIO Capital and Joy Capital. Because the stock price rose significantly since the company announced entering into a binding term sheet with these two investors on April 1, 2021, this led to a paper loss of RMB1,654.9 million, or $256.8 million, which impacted net profit. This loss is purely driven by accounting treatment. It's a non-cash item and has no impact on our cash flow, and it is not related to our business operation.

With respect to the financing transaction with NIO Capital and Joy Capital that we announced earlier, as part of the second closing of $50 million, we have received $27.5 million in cash ahead of schedule. We expect to receive the remaining $22.5 million in the coming months as planned. As D.K. said earlier, we will leverage the capital to continue investing in key business initiatives, including increasing car inventory, optimizing reconditioning technologies and our supply chain to drive further high-quality business growth.

As we announced earlier, Uxin has been included in the MSCI Global Small Cap Index-China Index, effective on November 30, 2021. This is the first time that Uxin has joined the MSCI Index. We see this as a recognition of Uxin's business performance and China's used car industry potentials. The used vehicle industry in China has huge opportunities, and we believe Uxin is well-positioned to lead the dynamic growth of this promising market. Full details of the quarter ended September, the 30, 2021, are available in our earnings release.

So now, I will run through some key numbers. All numbers are in RMB, unless otherwise stated. Transaction volume was 3,648 units for the three months ended September 30, 2021, compared with 3,011 units last quarter and 2,653 units in the same period last year.

Total revenue was RMB345.9 million for the three months ended September 30, 2021, compared with RMB277.8 million last quarter and RMB76.4 million in the same period last year. Gross margin was 4.2% for the three months ended September 30, 2021, compared with 4% last quarter and a negative 22.4% in the same period last year.

Loss from continuing operations was RMB45.9 million for the three months ended September 30, 2021, compared with RMB50.7 million last quarter and RMB162.6 million in the same period last year. Non-GAAP adjusted loss from continuing operations was RMB43.2 million for the three months this quarter, compared with RMB44.6 million last quarter and RMB178.3 million in the same period last year.

Fair value impact of the issuance of senior convertible preferred shares resulted in a loss of RMB1,654.9 million for the three months ended September 30, 2021. As discussed earlier, the impact was mainly due to a significant rise in stock price since the company announced a press release about entering into the deal. The fair value impact was a non-cash charge. Driven by this, net loss from continuing operation was RMB1,714.6 million for the three months ended September 30, 2021, compared with RMB258.9 million in the same period last year. If removing the fair value adjustment impact, the non-GAAP adjusted net loss from continuing operations was RMB56.9 million for the three months ended September 30, 2021, compared with RMB274.6 million in the same period last year.

Then about our cash position. As of September 30, 2021, we had cash and cash equivalents of RMB230.6 million. Moving on to our guidance. We expect our total revenues to be in the range of RMB480 million to RMB500 million for the three months ending December 31, 2021. This forecast reflects our current and preliminary views on the market and operational conditions, which are subject to changes. This concludes our prepared remarks. Thanks.

So, operator, we are ready to receive the questions. Thank you.

Certainly, sir. (Operator Instructions) We have the first question. This is coming from the line of Fei Dai from TF Securities.

(foreign language) Repeat my question in English. Judging from the financial situation of the last quarter, we noticed that the wholesale vehicle business has contributed more revenue to the overall performance of the company. Judging from this quarter, this proportion is being further optimized. How does the company understand the development of the business? And what will be the impact on the retail vehicle business in the future?

[Interpreted] In Uxin, currently, the sales breakdown between our retail and wholesale business is 1:2. Given our brand impact and market reputation, many customers come to us to sell their used vehicles. However, currently, we don't sell all the used car sourcing from individual car owners through our retail business for a few reasons. First, we have to consider the space capacity. Meanwhile, we would like to control the level of cash tied up in our inventory. Also, it takes time to increase our sales capacity. Therefore, for the cars that are not up to our retail standards and those beyond our inventory capacity, we will sell through our wholesale business and accelerate our inventory turnover rate.

In the long run, this percentage breakdown will gradually change. As our retail inventory level gradually increase and the wholesale and Xi'an IRC are both in operations, our retail sales will, for sure, gradually climb. We expect the sales breakdown between retail and wholesale to be 2:1 ideally, which means retail sales will be twice as much as wholesale sales.

Operator, we will go to the next question.

Certainly. We have the next question. This is coming from the line of Ge Jin from China Securities.

(foreign language)

Yes. Sorry, could you please repeat your question in English? No?

Let me translate for him.

Okay. I have two questions. First one is about the net loss. Could you explain the impact of the fair value change for the net loss? The second question is about the cash flow. What's the expectation of the following quarter's cash flow?

[Interpreted] Okay. This is a paper loss related to our financing transaction, which was announced earlier this year. It's a purely accounting treatment under the US GAAP reconciliation due to the change in stock price. After the announcement of the deal with NIO Capital and Joy Capital, the rise of Uxin's stock price resulted in the loss of our income statements. However, this is a non-cash item, which will not have any impact on the company's cash flow status and it's not related to our business development.

In terms of cash flow condition, after receiving the funding from investors, we have ample cash on balance sheet. We received the first tranche of $100 million in July, and we are closing the second tranche of $50 million, which is also ahead of the original schedule. This reflects investors' full recognition and confidence of our operation and business development. Meanwhile, the follow-on warrants, a part of the transaction, also progress well as we are working closely with investors. Such funding will support our future business development. As of the date, our business is doing well and is expanding with the continuous growth of our vehicle inventory. Overall speaking, as we have made a sound plan of the usage of our cash, I believe our cash balance is sufficient.

Operator, please go ahead to next question.

Certainly. We have the next question. This is coming from the line of Pingyue Wu from CITIC Securities.

(foreign language) Let me translate to English. My question is about the electric vehicle used cars. And on the one hand, it's very fast growth, very fast, however, there are some other problems, for example, the discount or how to estimate its values. And I would like to hear from you about what are our plans and views about the second-hand electric vehicles?

[Interpreted] We have launched our used EV business. EV is a major trend in auto industry. Although the pool of existing EVs is still in the relatively small amount, but there is a clear sign that the demand from owners of EV cars to switch or upgrade their vehicles is increasing and the used [electric] (corrected by the company after the call) vehicles are popular and saleable in the market. The potential market size for used electronic vehicles will be as large as conventional gas-powered used cars, although there are some differences between these categories in terms of inspection, reconditioning, pricing and sales.

We have already launched our used [electric] (corrected by the company after the call) vehicle business. Currently, we offer used EVs of multiple well-known EV brands. Meanwhile, we continue to build out our electronic vehicles' service systems and refine our capabilities on a number of fronts, including inspection, pricing and after-sales service. We are also exploring the best way to sell used [electric] (corrected by the company after the call) vehicles. We hope to contribute to the healthy development of used electronic vehicle market in China by leveraging our extensive know-how and capabilities in used vehicle market build up through use of operations.

Thank you. We have no further questions at this moment. I would like to hand the conference back to our host for any ending remarks. Please take over.

Thank you, operator. Thank you for all investors joining us today. We look forward to seeing you next time. Goodbye.

Goodbye.

Goodbye. Thanks.

Thank you. That concludes our conference call for today. Thank you all for your participation. You may disconnect now.

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