Uxin Ltd (UXIN) 2022 Q1 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 June 30, 2021. (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. Xiaoyan Su. Please go ahead, ma'am.

Thank you, operator. Hello, everyone. Welcome to Uxin's earnings conference call for the quarter ended June 30, 2021. 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 provisions 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 the SEC.

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

[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.

The first quarter of fiscal year 2022, which ended on June 30, with one of the most challenging quarters we've experienced over the last 10 years. We were under huge capital constraints and yet to keep business grow. Encouragingly, we managed to deliver solid results despite all the challenges and achieved sustainable growth in terms of revenue and sales compared with the previous quarter. At the same time, we continue to do efforts on cost and expense control and our operational loss substantially decreased in the quarter.

In the first quarter of fiscal year 2022, although we were only able to maintain a relatively small retail inventory due to cash constraints, we still achieved to enhance our fundamental capabilities in vehicle sourcing, reconditioning, sales and delivery. All the progress we achieved this quarter has built a solid foundation for our future business expansion and the replication of our Xi'an IRC model.

For vehicle sourcing, we continued to extend to upper stream of our used car acquisition network for our inventory-owning model. Our solid branding and strong supply chain resources with both individual car owners and car dealerships have enabled us to source more high-quality used vehicles at reasonable prices.

In terms of car reconditioning capabilities in Xi'an IRC, we continued to refine the whole process by standardizing end-to-end procedures, improving flow efficiency between key steps, upgrading equipment and technologies and optimizing staffing in the production lines. After several months of operations, the quality of our reconditioned vehicles [has been fully examined] (corrected by the company after the call). This has enabled us to offer stable supply of high-quality and value-for-money cars for our customers.

In terms of vehicle sales and after-sales services, we remain committed and focused on creating long-term value for our customers. We seriously followed up on customer feedback and continuously improved each step of the customer experience from sales, delivery to after-sale support. During the quarter, our sales Net Promoter Score, or NPS, increased to 44. The continued improvement of NPS has also enabled us to achieve decent sales conversion despite relatively small retail inventory, which gives us great confidence to continue to scale our inventory and boost sales.

After receiving the first tranche of the new investment in July, our business has been recovering as expected and gradually resuming to high-quality growth momentum. We scaled up our operations in 3 aspects, vehicle sourcing, reconditioning capacity and off-line showroom expansion. Investments in these 3 key areas help increase our available-for-sale inventory. This offers our customers more selections and help build a better experience throughout the car purchasing journey and thus, bringing higher sales conversions.

In order to increase inspection and reconditioning capacity in the long run, Uxin and Changfeng Country Government of Hefei City has recently entered into a strategic partnership to jointly invest in and build a used car inspection and reconditioning plant with a total investment of up to RMB 2.5 billion. The plant is expected to have an annual production capacity of 60,000 to 100,000 vehicles once it is in operation. This production capacity will provide Uxin with a stable and large supply of high-quality used vehicles in the coming years.

Going forward, we will continue to provide high-quality products and services to our customers, boost sales conversion fueled by our strong supply chain capabilities and deliver steady sales growth [and] (corrected by the company after the call) higher returns.

This year marks Uxin's 10th anniversary, which we just celebrated on September 9. In the past decade, we have experienced both exciting and tough times. Uxin has become stronger because of all the challenges we have overcome as one team. It all started with the mission to "make it easy to every Chinese customer to own a quality used vehicle". This is the solid foundation that drives our passion to provide customers with high-quality value-for-money used cars and best-in-class services. We are confident and determined to continue contributing to the long-term healthy development of China's used car industry.

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. Thanks for joining us today. As D.K. just mentioned, we had a very challenging quarter on both business operation and financial resources for the quarter ended June 30, 2021. As you all know, we announced our agreement into a binding investment term sheet on April 1, and we received the first tranche of the financing on July 12. Therefore, from April to June, we were running Xi'an IRC business with very limited resources. However, we still managed to deliver continued growth in terms of both vehicle transaction volume and the revenue.

To achieve the above progress, we spent tremendous efforts to leverage our capital efficiently. Our team has successfully built up effective car sourcing channels with strong supplies. However, we were only able to maintain a relatively small retail inventory in Xi'an IRC due to the capital constraints. Therefore, to balance the car sourcing supply and our cash capacity, we increased the percentage of vehicles sold through our wholesale channels for the quarter ended June 30, 2021.

The closing of the first tranche of the financing transactions in July substantially improved our cash position and the ability to expand the business. The daily car reconditioning productivity of our Xi'an IRC was more than doubled, and we began to build up retail inventories rapidly. We expect the company's performance to continue improving in the following quarters.

During the quarter ended June 30, 2021, we continued streamlining our business process to build a very lean organization. "Spend where it matters the most" has become our management philosophy [and] (corrected by the company after the call) we are relentlessly pursuing ways to boost our operational efficiency. Let me give you one example. I joined Uxin in August of 2019, about 2 years ago. At that time, we had approximately 8,800 employees. Today, our employee headcount is less than 700. Just let you get an idea of how determined we have been to gain operational efficiency.

Our continued efforts paid off. The non-GAAP adjusted loss from continuing operations substantially decreased in this quarter. Full details on quarter ended June 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 3,011 units this quarter compared with 1,719 units sold last quarter and 3,887 units sold in the same period last year. Retail volume was 679 units, and the wholesale volume was 2,332 units. Vehicles that did not pass our retail standards were sold through our wholesale channels. As I said earlier, we had to increase the proportion of vehicles sold through our wholesale channels in order to boost the cash turnover.

Total revenues were RMB 278 million compared with RMB 196 million last quarter and RMB 62 million in the same period last year, up by 42% quarter-over-quarter and 348% year-over-year. Retail vehicle sales revenue was RMB 92 million compared with nil in the same period last year. Wholesale vehicle sales revenue was RMB 177 million.

Gross margin was 4% compared with 4.6% in the previous quarter and a negative 28.4% in the same period last year.

Total operating expenses were RMB 83 million, a RMB 41 million drop from RMB 124 million in the previous quarter and a RMB 68 million drop from RMB 151 million in the same period last year. Overall labor costs and expenses, excluding severance pay, decreased by over 30% quarter-over-quarter and 72% year-over-year due to the restructuring of organizations following our business model transformation. Looking ahead, we believe our ongoing efforts at cost savings will benefit our financials in the long run.

Non-GAAP adjusted loss from continuing operations, which excludes the impact of share-based compensation, was RMB 45 million for the 3 months ended June 30, 2021, compared with RMB 98 million in the previous quarter and RMB 133 million in the same period last year. Net loss from continuing operations was RMB 69 million for the 3 months ended June 30, 2021, compared with RMB 133 million in the previous quarter and RMB 152 million in the same period last year.

Then about our cash position. As of June 30, 2021, we had cash and cash equivalents of RMB 124 million. For our financing transactions of up to USD 350 million, we received the first tranche of USD 100 million in July, and we are well on track to close the remaining tranches. That sums up our results for the 3 months ended June 30, 2021.

Moving on to our guidance. We expect our total revenues to be in the range of RMB 310 million to RMB 330 million for the 3 months ended September 30, 2021. This forecast reflects our current and preliminary views on the market and operational conditions, which are subject to changes.

That concludes our prepared remarks. Thanks.

Thank you, John. Operator, we would like to open the call for questions now.

(Operator Instructions) Your first question comes from the line of Eddy Wang from Morgan Stanley.

(foreign language)

Let me translate myself. I have 2 questions. First is a little about the short term. We noticed that the shortage of the auto chips have quite a negative impact of the China's new car sales starting from the second quarter of this year. So I just want to know whether or not the shortage of the auto chips in the new car will have some positive impact on the used car. That's the number one question.

And the second question is that as we know that the EV sales as a percentage of total new car sales in China has been increasing in the past few years, and we have -- we are expecting that this proportion will go even further in the next couple of years. So I just want to hear your view on the strong sales of EV's impact on the used car industry in the longer term.

[Interpreted] I think in the short term, the shortage of chips has a boosting effect on the used car industry. It takes longer for new cars to be delivered. This drives up car prices as the supply of the new cars in the market is reduced. And some of the new car buyers may decide to purchase a used car instead. However, we don't think the shortage of chips will be a long-term issue and will be eventually solved.

Well, putting aside the issue of chip supply, the market size of the used car sale is also rapidly growing. You know, in China, the level of car ownership is already much higher than before. The existing vehicles in the market have started to gradually enter the used car market. On the other hand, consumers have become increasingly receptive to used cars. In addition, the industry policies have also become more favorable, such as lifting restrictions on cross-region transfers, reducing value-added taxes on used cars and adopting electronic registrations. This all provides positive tailwinds for the development of the used car industry.

So for Uxin, what we focus more on is to deliver high-quality used cars and provide a full suit of best-in-class services from sales delivery to after-sale support and therefore, create good value for our customers and the industry as a whole. Meanwhile, we also work hard to control cost and expenses, boost our operational efficiency in order to create long-term value for our shareholders.

For your second question, yes, the sales of new vehicle -- electric vehicles have been increasing very rapidly in recent years. We agree new energy costs will be the mainstream ones in the future market. After a decade of development, Uxin has established a proven and complete system that covers used vehicle sourcing, inspection, sales delivery and after-sale support. We have already started to work on inspection standards, reconditioning process and after-sale services for used EV cars, and we will launch related services soon, especially the used EV cars under our inventory-only model.

Your next question comes from Fei Dai from Tianfeng Securities.

(foreign language)

I repeat my question in English. Company's Xi'an IRC has been in operation for nearly half a year, and you also received the first tranche of the new investments in July. It seems like everything goes in the right direction. Regarding your future plan, can you give us some color on your strategic focus and core factors to drive sales growth in the future?

[Interpreted] Before July, we were indeed under huge capital constraint. As a result, we were unable to procure vehicles on a large scale, then carry out reconditioning and build our inventory. After the funding was in place, our business has recovered immediately. Now both our car procurement capability and production capacity are picking up rapidly, fully in line with our expectations. And we continued to improve our product and service capabilities. In light of the increasing inventory, strong customer demand will naturally bring more sales conversions. We will further expand our production capacity and increase inventory so as to provide customers with more selections.

Meanwhile, with the improved reputation among customers, our IRC's regional influence has also enhanced. In addition, the gradual increase in customer referral rate will also drive high-quality sales growth. Therefore, the flywheel effect of our entire business model will rapidly drive our business growth.

After nearly half a year of operation in Xi'an IRC, our operating model has matured and is ready to be replicated. Going forward, in addition to continuing to strengthen using influence and competitiveness in existing regional markets, we are also prepared to invest in IRCs in new regions to promote our business expansion. And in addition, our business in Hefei will also kick off soon.

(Operator Instructions) There are no further questions in the line. I would now like to hand the conference back to [Chao Yang Su]. Please continue.

Thank you, again, for joining today's call and for your continued support in Uxin. We look forward to speaking to you again soon in the future. Thank you.

(foreign language) Bye-bye.

Thank you. Bye-bye.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.

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