Uxin Ltd (UXIN) 2021 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 ended [March 31, 2021] (corrected by the company after the call). (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, Mr. Eric Yuan. Please go ahead, sir.

Thank you, operator. Hello, everyone. Welcome to Uxin's Earnings Conference Call for the Quarter ended March 31, 2021, and the Full Fiscal Year 2021.

On the call today are D.K., the Founder and CEO; and John Lin, CFO. D.K will review business operations and the company highlights, followed by John, who will discuss financials and the 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 it 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 members, my prepared remarks today will be in both English and Chinese.

We are pleased to report another solid performance for the quarter ended March 31, 2021. In spite of a slower quarter in the Chinese domestic used car market due to the Chinese New Year holiday and the constraints on our working capital, we still delivered our operational targets set last quarter. As you can see from our guidance for the quarter ended June 2021, Uxin has returned to a solid growth trajectory following our successful transformation into an inventory-owning model.

From October 2020 to July 12, 2021, we faced challenge of sustaining sufficient working capital for our operations. This also put significant pressure on our ability to continue as a going concern. Despite the pressing financial constraints, we overcame many difficulties and delivered some key achievements.

First of all, we transformed our business into an inventory-owning model instead of only being a platform-based model. This was a critical decision driven by the enormous pressure on our business from the combined impact of COVID-19 and severe capital constraints. We faced the challenge head on and successfully transformed the business with a stronger foundation of a much linear and efficient operation.

As a customer-centric company, we believe the key to creating customer value is to continuously improve our customer satisfaction. In our used car transaction, the key to customer transaction -- the customer satisfaction is to enhance vehicle quality and provide best-in-class after-sales services. Under an inventory-owning model, we can better control over the quality of vehicles. Our veteran team acquired used cars in more than 40 cities across China and only the ones that met our strict standards in terms of quality and the value for money were added to our vehicle inventory.

Customers come first. In order to better implement our goal of improving customer satisfaction, we have been closely monitoring our sales net promoter Score, or NPS, since the second quarter of 2020. Our committed efforts in the past year have generated some impressive results. We were happy to see that our NPS remained at 42 in the March quarter, the same as the previous quarter despite the negative impact on vehicle deliveries during the Chinese New Year holiday.

To put the much improved score in perspective, our NPS was only 10 when we just started to monitor this metric in the quarter ended June 2020. Maintaining an industry high NPS of 42 for 2 consecutive quarters reflected the stronger customer recognition of our premium quality used vehicles and services. It also demonstrated that we are heading in the right direction with our inventory-owning business model. Moving forward, we will conduct regular assessments and the necessary improvements to our products and services based on customers' feedback in order to provide the best-in-class car purchasing experience in the industry.

After more than year of effort, we divested our loan facilitation business and settled our remaining guarantee liability in the second half of 2020. In order to meet our customers' financial needs, we established a new cooperation model with the financial institutions to provide third-party auto loan financing options which we no longer undertake any credit risks.

We also made sustained efforts to optimize our operational costs. We adjusted our organizational structure accordingly following our business model transformation. Meanwhile, we're consistently refining every step in our business process in order to further boost our operational efficiency. In the March quarter of 2021, our operational loss decreased by 40% quarter-over-quarter to RMB 98 million. In the next quarter, we expect our operational loss to further narrow down. So far, we have developed a set of refined operational models that we believe are well aligned with our business development. Even during the time when our cash liquidity was tight, such operational models still allowed us to focus our resources and capital on creating long-term value for our customers.

Our first inspection and reconditioning center or IRC in Xi'an was officially in operation in March 2021. As the important infrastructure part of our business transformation, IRC has been designed to service a range of functions, including vehicle refurbishment, warehousing and exhibition. Establishing our own IRC allows us to have stronger control and management over the front end of our supply chain. In the past 6 months, we have optimized our business process in relation to the IRC business. As our inventory of used vehicles increases, we are expecting better operating leverage driven by our investment in IRC.

During March quarter of 2021, we expanded our sourcing of vehicles to individual car owners. This enriched our channels for sourcing high-quality vehicles and allowed us to empower the supply chain with our expertise in used cars from the very beginning. We also established strict inspection standards, so only select premium vehicles that met our online retail requirements will be refurbished and featured on our proprietary online platform. Those that do not meet our standards will be sold to wholesalers through offline dealerships. Vehicle wholesale is an efficient channel to sell used cars. While our working capital was constrained, the wholesale vehicle sales business enabled us to accelerate cash flow while maintaining our penetration rate for the acquisition of premium used vehicles.

Recently, we have secured key financing, which we believe is a game changer for our business going forward. We were glad to onboard 2 prominent investors, NIO Capital and Joy Capital, who share the same respect for Uxin's business strategies and have entered into definitive agreements for a total investment of up to USD 315 million into the company. We closed the first tranche of the financing transaction on July 12 and are well tracked to close the remaining tranche. The additional funding addressed the pressing working capital issue that we were faced with in the past 6 months. Going forward, we will remain committed to our current business model and the strategic direction and steadily expand our business network.

Like other great companies, we believe that the temporary difficulties we have encountered were only going to make us stronger and more resilient. We will continuously expand our experience and learn from our successes and challenges even at the toughest times. In response to many factors, we made a few decisive but painful decisions and adjustments that we believe will benefit us in the long term.

We understand that only when we genuinely place our customers at heart can we achieve sustainable development. We believe that our committed focus on the quality of our products and services will drive organic and sustained business growth in the long run.

I would like to thank all our customers for their continued trust and support even during our most difficult times.

I would also like to thank the entire Uxin team for their dedication, innovative spirit, positive work attitude and for their strength and resilience over the years. With a strong customer-centric model, we were able to continuously steer the development of Uxin in the right direction.

I would like to thank the 2 new investors and our shareholders for supporting Uxin's strategic transformation and our continued trust in our management team.

Now that we have addressed the liquidity issue, we believe a new exciting chapter for Uxin lies ahead.

Going forward, we will continue to explore new opportunities to further unlock the potential of our IRCs. While maintaining the quality of our used vehicles and customer satisfaction, we will focus on expanding our vehicle inventory and boosting our efficiency on refurbishing used cars. With our comprehensive measures, we believe our production capacity and business scale will steadily increase. We are confident that our sustained efforts and investments will generate greater return for our shareholders in the long term.

With that I would like to turn the call over to our CFO, John, who will walk through the financial results. John, please.

Okay. Thanks, D.K. Hello, everyone. Thanks for joining us today. As D.K just mentioned, Uxin underwent some significant and profound changes in the fiscal year 2021. Also, after we shifted into the inventory-owning model, the accounting treatment for revenue recognition and the structure of cost expenses were also adjusted accordingly.

Therefore, the financial data in the first fiscal year 2021 was not directly comparable with the data for the fiscal year 2020. Overall speaking, our total vehicle sales in the fiscal year 2021 were lower than the prior fiscal year, but we were able to dramatically improve our operational efficiency.

As you all know in the past year, we went through a tough time. So the company took resolute but carefully planned actions to reduce costs and expenses. This led to a much lower operational loss in the fiscal year 2021 comparable to fiscal year 2020. If you look at the results just released, our total vehicle sales in the fourth quarter were lower than the previous quarter. First, in this quarter, we had the Chinese New Year holiday. So Q4 was traditionally off season for the Chinese used car market. Second, our efforts to expand our vehicle inventory was restrained by our cash constraints. But at the same time, we continue to vigorously reduce cost and expenses and the benefit of those actions were further reflected -- will be further reflected on our financials in the next quarter.

As a result, despite lower sales volume and revenue in the fourth quarter, our operational loss decreased by RMB 64 million, and this led to the first time in our history that our quarterly operational loss has dropped below the RMB 100 million. One thing I want to mention is that on July 12, we successfully closed the first tranche of our new financing. Also, convertible note holders converted USD 69 million into ordinary shares. This significantly reduced our repayment obligations. At the same time, the company entered into several payable waiver agreements. The company was exempted from the repayment of payables of approximately RMB 120.4 million or around USD 18.7 million. These efforts have dramatically improved our cash position.

Full details on our fourth quarter ended March 31, 2021, and the annual financial results are available in our earnings release. So now I will run through some key numbers. All numbers are in RMB unless otherwise stated.

Online used car transaction volume was 1,719 units this quarter. This was lower than 2,307 units sold last quarter. As I said earlier, it was a traditional off season in the Chinese used car market.

Total revenues were RMB 196 million. Retail vehicle sales revenue was RMB 125 million, while the wholesale vehicle sales revenue was RMB 51 million. As you can see, in this quarter, we broke down the revenue stream to retail and wholesale vehicle sales revenues. If the cars we acquired did not meet our quality standards to lease and sell through our proprietary online platform, we sell to wholesale dealers. In order to accelerate the cash turnover, we sometimes need to choose to sell more cars under our wholesale channels.

Gross margin was 4.6% compared with 2.9% in the previous quarter. The increase was mainly due to the company's continued focus on cost management. We stayed focused on optimizing our business operations and will address our gross margin accordingly through the development strategy of the company.

Total operating expenses were RMB 124 million, a RMB 64 million drop from the RMB 188 million in the previous quarter. Overall, labor costs and expenses excluding severance pay decreased by over 40% quarter-over-quarter due to the restructuring of human resources following our business model transformation. We also significantly reduced our marketing expenses. Looking ahead, we believe our ongoing efforts at the cost savings will benefit our financials in the long run. The non-GAAP adjusted loss from continuing operations, which excludes the impact of share-based compensation, was RMB 98 million for the 3 months ended March 31, 2021 compared with RMB 162 million in the previous quarter.

As I mentioned earlier, this is the first quarter the loss is below RMB 100 million. Net loss from continuing operation was RMB 133 million for the 3 months ended March 31, 2021 compared with RMB 173 million in the previous quarter.

Then about our cash position. As of March 31, 2021, we had cash and cash equivalents of RMB 193 million. That sums up our results for the 3 months ended March 31, 2021.

Moving on to our guidance. We expect our total revenues to be in the range of RMB 260 million to RMB 280 million for the 3 months ended June 30, 2021. The non-GAAP adjusted loss from continuing operations is expected to be less than RMB 50 million. This forecast reflects our current and preliminary views on the market and the operational conditions, which are subject to change. That concludes our prepared remarks today. Thanks.

Operator, we are ready to take questions now. Thank you.

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

(foreign language)

I have 2 questions. First is about the used car industry. We noticed that in the second quarter of this year, the new car sales actually was weaker than we expected. I'm not sure what kind of market condition of the used car market in China. And when do you expect that the used car markets could see some recovery or even accelerate in terms of the transaction volume going forward?

My second question actually is regarding to the competition as well as the business model. As D.K mentioned that we are now mainly adopting the inventory-owning business model. So how do you think the competition going forward among the different business model adopted by different used car platform? And why you choose this model? And how do you think -- do you think this model will be the mainstream model going forward for all these online used car platforms? Or you will think that a different model will also have a different chance in this used car market in China?

[Interpreted] Thanks, Eddy. In terms of the market, we think the trend is getting better for sure. On the one hand, the size of the existing market is growing. So the number of the vehicles available for sale is kept increasing and the interest of viewing cars from the potential buyers is stronger. And the customers have become more adaptive to select a used car, in particular, on those with high value for money cars.

After careful screening and [refurbishment] (corrected by the company after the call), the quality of used cars sold on our platforms is approaching the level of new ones. While their price is much cheaper and much more competitive, this brings potential value to our customers. And on the second hand, we saw favorable policies towards this market in the past few years. In 2019, used cars are allowed to be transferred between the sellers and the buyers who are in different cities. And in 2020, government reduced the related VAT for used car transaction. And earlier this year, we saw the launch of digital registrations for transactions, which makes the whole process much more convenient. And in the past July, the new circulation economic policy also promotes the development of our sector. So we are welcoming the golden window of time from the perspective of policymaking.

Okay. So in terms of competition, after 10 years of development, we now formally believe that used car market in China is not a winner takes all market. The critical thing is to take the advantage of our own strengths. We need to have a clear mind of what type of products we want to offer and know the profiles of our customers. And we know how to consistently improve our products and sales channels. We focus on how to make each car on our platform better and make our customers satisfied.

So in our view, if other industry players are willing to improve the trust of consumers, increase the transparency and do positive things for the overall industry, we actually like to treat them more as our allies rather than competitors. So in addition, we think the real competition happens on the level of customer service and product quality. Such competition is beneficial to the whole industry as it drives the market participants to learn from each other and keep improving themselves.

(foreign language)

(Operator Instructions) Your next question comes from the line of Fei Dai of Tianfeng Securities. Please ask your question.

(foreign language) To repeat my question in English. Uxin recently raised investment from NIO Capital and Joy Capital. How will you use this money to promote the development of your new business model?

[Interpreted] First of all, we and our new investors have strong consensus on strategies. So in particular, you can see NIO is a consumer-facing company, which actually pays great attention to customers, which is highly aligned with our business philosophy. So because of our business transformation in 2020, we regard user needs, vehicle quality and NPS as the most important things for us. And we have established a consensus with our new investors on strategies and value propositions.

So after receiving the investment, we will work together on key strategic fronts and enhance our digital and automation capabilities to further improve our vehicle quality control and production efficiency. In addition, the additional financing capital will also allow us to expand our inventory and scale up our business.

As there are no further questions, this will conclude today's conference call. You may now disconnect your lines. Thank you.

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