Uxin Ltd (UXIN) 2021 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, 2020. (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 Nancy Song, Investor Relations Director of Uxin. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to Uxin's Earnings Conference Call for the Quarter Ended September 30, 2020. On the call today are D.K., our Founder and CEO; and Zhen Zeng, our CFO. D.K. will review business operations and company highlights, followed by Zhen, 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 obligation to update any forward-looking statements, except as required under applicable laws. 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.

Thank you, Nancy. Hello, everyone. Thank you for joining our earnings conference call today. The September quarter marked our transition to an inventory-owning model. Now we are pleased to report that we have successfully made the transition, which gives us better control over order flow and supply chain management. With our online product and service offerings being continuously optimized, we are also very pleased with the progress we made in better serving our customers as a nationwide online used car dealer.

Not only have we raised the bar in delivering enhanced customer experience, but we also validated our efforts by receiving improved customer satisfaction feedback during the quarter. The completion of our shift to an inventory-owning model, coupled with our unique offering of an online used car buying experience further strengthens our ability to maximize customer value through our dedicated approach: offering quality value-for-money used cars, alongside best-in-class purchasing services.

In fine-tuning our products and services, we focused on 3 initiatives during the September quarter in order to deliver better customer experience: First, we enhanced used car quality by adopting stricter standards in selecting and inspecting cars and improved the car conditions by introducing standard and well-rounded reconditioning services. In terms of car quality, by leveraging the massive used car data generated from our historical car inspections and through our experience in processing car insurance claims over the past 3 years, we have developed an extensive and deep understanding of car performance for certain makes and models in relation to manufacture dates or mileage. This data-driven knowhow allows us to effectively exclude those types of cars with manufacturing defects or relatively high failure rates. In addition, we also raised the standards for inspecting cars to further ensure that the cars' components are all in great shape. These standards enhanced the quality of our overall used car inventory and allowed us to gain greater customer satisfaction and trust in Uxin.

In terms of car condition, an additional step of refurbishment enhances the car's like-new condition, allow us to consistently offer customers a more attractive and great value alternative to buying a new car.

Second, with the use of highly effective online communication tools and methods, we [restructured] (corrected by company after the call) and continued to refine the process of serving our customer online throughout the life cycle of our purchasing and driving of cars.

Let me explain. Once a customer plays a purchase order with us, there will be a dedicated service team assigned to this customer. The service team consists of an online sales consultant who is responsible for handling the purchase order, an online service consultant for handling all paperwork or documents for title transfer and license plate registration, an auto financing specialist who is responsible for processing loan application-related documentation if the customer finances his car, and an aftersales manager who is responsible for responding to any aftersales inquiries, such as car maintenance or insurance claims, after the customer drives away his car. As we standardize the way of delivering services at each key sales and aftersales point, we significantly increased the responsiveness of our service personnel and improve customer satisfaction as a result of our service delivery.

Third, we shortened the waiting period between initial order and final delivery of the cars. We further improved the entire fulfillment process, including optimization of logistic planning and car delivery as well as execution of more timely title transfer. We also introduced new policies that the customers are entitled to for certain claims, if customers receive a car later than our promised delivery time.

As a result of these enhancements, we saw our net promoter score, or NPS, significantly increase to 30 for the reported quarter from only 10 for the June quarter. It is worth mentioning as well that our NPS exceeded 45 in the month of September, indicating the increasing traction of our products and services as well as growing customer loyalty.

As we benefit from improved customer satisfaction and greater willingness to recommend Uxin to others, we are confident that we can secure around 1,400 deposit-required purchase orders this month. Our dedication to offering quality value-for-money used cars and the best-in-class purchasing services, which are also our key growth drivers, contributes markedly to satisfying the increasing demand from a new group of customers who are more willing to pay a premium for high-quality cars and services.

Catalyzed by these 2 drives, the expansion of our customer base and increase in transaction volume does present us with a different growth path, but we believe this new customer group has the potential to consistently contribute to our long-term growth, and we are already starting to receive more purchase orders from customer referrals. Once we hit critical mass as our new customer base expands, we believe that customer trust and word-of-mouth referrals will translate into solid and sustainable long-term volume growth, further solidifying our brand and market position.

We are confident that this will provide a firm foundation for our further business development and for generating more long-term value for shareholders.

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

Okay. Thanks, D.K. Hello, everyone. Thanks for joining us today. As we made the transition to an inventory-owning model, we continued to enhance our operational efficiency across the board. Our focus on handpicking used cars now enables us to allocate our inspection resources to only specific qualified cars and helps to optimize inspection costs. In addition, we are also able to reduce sales and relevant administrative expenses as we streamlined our sales process by migrating every sales step online.

With a fundamentally optimized cost and expense structure in place, we believe that we will achieve better operating leverage in the long term as we achieve scale, strengthen trust in the Uxin brand and benefit from positive word-of-mouth referrals among customers.

Now let me walk you through our financial details for the quarter ending in September. Please note that the results I will discuss are related to the continuing operations only. All numbers are in RMB, unless otherwise stated. Also, please note that some numbers I refer to are non-GAAP numbers. You can find a reconciliation of these numbers at the bottom of our earnings release.

In the 3 months ended September 30, 2020, total revenues were RMB 76 million, compared with RMB 397 million in the same period last year. The decrease was primarily due to the decreases in the 2C transaction volume and GMV as a result of our business model transformation. We upgraded our entire used car transaction process and migrated every sale step online, beginning in June 2020, and we are now building our customer base by using online sales staff as opposed to an offline sales team.

Our total 2C revenue was RMB 61 million compared with RMB 334 million in the same period last year. Our online used car transaction volume was 2,653 units with corresponding to 2C GMV being RMB 293 million. This figure includes 308 units sold from our owned inventory with corresponding 2C GMV being RMB 36 million. In comparison, 2C used car transaction volume was 23,566 units with the corresponding GMV being RMB 2,828 million in the same period last year.

Let's now look at the 3 revenue streams of our 2C business. Commission revenue was RMB 13 million compared with RMB 176 million in the same period of last year primarily due to the decrease in transaction volume and GMV. Our commission rate decreased to 5.2% for the 3 months in September 30, 2020, from 6.2% in the same period last year. The decrease in the commission rate was mainly because we lowered the transaction fees across the board since August 2020 so as to offer more competitive prices to the customers.

Value-added service revenue was RMB 12 million compared with RMB 158 million in the same period last year, primarily due to the decreases in transaction volume and GMV. VAS take rate decreased to 4.7% from 5.6% in the same period last year as a result of our reduced service fee since August 2020 in order to offer more competitive price to the customers.

Vehicle sales revenue was RMB 36 million compared with 0 in the same period last year. Vehicle sales revenue is recognized on a gross basis when we sell our own inventory. We shifted to an inventory-owning model since September 2020, as we disclosed in the last quarter's earnings release.

Looking at other business. Our other revenue was RMB 15 million for the 3 months ended September 30, 2020, compared with RMB 62 million in the same period last year. The decrease was mainly due to the divestiture of our salvage car related business in January 2020.

Cost of revenues decreased by 45% year-over-year to RMB 93 million. The decrease was primarily due to a decrease in salaries and benefits for employees engaged in the car inspection, quality control, customer service and after-sales services, as well as a decrease in the fulfillment costs due to the lower transaction volume. This was partially offset, however, by an increase in vehicle acquisition costs relating to our beginning to build inventory since September 2020.

Gross margin was negative 22.4% for the 3 months end September 30, 2020, compared with a gross margin of 56.9% in the same period last year.

Total operating expenses was RMB 319 million. Non-GAAP operating expenses, which exclude the impact of share-based compensation, were RMB 334 million.

Sales and marketing expenses decreased by 74% year-over-year to RMB 76 million. The decrease was mainly due to the decrease in the salaries and benefits expenses as a result of headcount reduction and the lower marketing expenses.

Sales and marketing expenses excluding the impact of share-based compensation were RMB 76 million.

G&A expenses decreased by 18% to RMB 56 million. The decrease was mainly due to a reverse in the share-based compensation expenses.

General expenses, excluding the impact of share-based compensation, were RMB 71 million.

R&D expenses decreased by 45% to RMB 19 million. The decrease was primarily due to a decrease in salary and benefits expenses as a result of the headcount reduction. Our R&D expenses excluding the impact of the share-based compensation were RMB 20 million.

Loss from guarantee liabilities was 0 for the 3 months end September 30, 2020. We incurred guarantee liabilities associated with the remaining guarantee obligations from our historically-facilitated loans that were not transferred to Golden Pacer. We adopted Accounting Standards Update 2016-13 Financial Instruments - Credit Losses: Measurement of the Credit Losses on Financial Instruments on January 1, 2020, under a modified retrospective method.

Before the adoption of ASC 326, the gain or loss accounted for that related to guarantee liabilities, was greater of either of the amount determined based on the ASC 460 and the amount determined under ASC 450, and was recorded as a gain or loss from the guarantee liabilities.

After the adoption of ASC 326, expected credit losses of the contingent guarantee liabilities shall be accounted for in addition to and separately from the stand ready guarantee liabilities accounted for under ASC 460, and the provision for the contingent guarantee liabilities is currently recorded within provision for credit losses; and the gain released from the stand ready guarantee liabilities accounted for under ASC 460 is currently recorded within other operating income.

Provision for credit losses, net was RMB 168 million for the 3 months ended September 30, 2020. In order to settle our remaining guarantee liabilities, on April 23, 2020, we entered into a supplemental agreement with one of our major financing partners with regards to our historically-facilitated loans. Pursuant to the supplemental agreement we signed in April, such financing partner agreed to set a cap on the amount of cash we would use to fulfill our guarantee obligations from 2020 to 2022.

As a result, a release of contingent guarantee liabilities of RMB 86 million was recognized for the quarter ended June 30, 2020, representing the time value of the potential cash outflow. Subsequently, on July 23, 2020, we entered into another supplemental agreement with the same financing partner to entirely settle our remaining guarantee liabilities associated with the historically-facilitated loans for such financing partner. This supplemental agreement amended and restated the agreement we signed in April.

Pursuant to the agreement we signed in July, we are entitled to settle all our remaining guarantee liabilities under the condition that we pay the settlement amount in installments from 2020 to 2025 based on an agreed schedule.

As a result, the aforementioned previously recorded time value of the contingent guarantee liabilities in the amount of RMB 84 million was reversed, based on the time value determined up to August 8, 2020, which was the closing day of the supplemental agreement which we signed in July.

Loss from continuing operations was RMB 163 million compared with RMB 188 million in the same period last year. Non-GAAP adjusted loss from continuing operations, which excludes the impact of share-based compensation, was RMB 178 million compared with RMB 190 million in the same period last year.

Net loss from the continuing operations was RMB 259 million compared with RMB 202 million in the same period last year.

Non-GAAP adjusted net loss from continuing operations, which excludes the impact of share-based compensation, was RMB 275 million in the quarter compared with RMB 204 million in the same period last year.

Turning to our cash position. As of September 30, 2020, we had cash and cash equivalents of RMB 219 million. In addition, as we completed a new round financing of USD 25 million in October 2020, we received a cash consideration in the same month, which supplemented our cash position. That sums up our results for 3 months ended September 30, 2020.

Now moving on to our guidance. With the adoption of our inventory-owning model, we expect our average selling price to remain at a similar level as before, and we expect our total revenue to be in the range of RMB 275 million to RMB 290 million, and the gross margin to be positive and in the single-digit percentage range for the December quarter 2020. And as we continue to improve overall operating efficiency, we also expect our adjusted loss from operations to narrow slightly from the September quarter. This forecast reflects our current and preliminary views on the market and operational conditions, which are subject to change.

That concludes our prepared remarks.

Thank you, Mr. Zeng. Operator, we'd like to open the call for questions now.

(Operator Instructions) We have our first question coming from the line of Eddy Wang from Morgan Stanley.

(foreign language) I have 2 questions. The first question is about the outlook of the used car industry in next year. And the second question is that you mentioned you have been doing a lot of efforts to improve the overall NPS score and the user experience. So going forward, what kind of the efforts will you continue to do to further improve the user experience in terms of the NPS?

Okay. Thank you, Eddy. All right. I will take those 2 questions. So first, about the industry. Just recently, China Auto Dealers Association has promoted and implemented several used car policies, frankly here. In this industry environment, I think, it will be a new start for the used car industry next year, that is the whole sector will move forward in full compliance with relevant used car policies further implemented and upgraded. This will enhance the entire industry to develop from a used car brokerage model toward to a more organized business model. We are participating as more regulated. Currently used car VAT tax has already been cut from 2% of sales to 0.5%. At the same time, there are also some enhancements in policies relating to vehicle temporary property registration and the title transfer.

And we can say Beijing introduced a new license plate allocation policies earlier this month. As a pilot city, I believe, Beijing will launch and implement specific plans next year as a response to these policies mentioned above. So there will be favorable government policies in place and specific implementation carried out by pilot city as a reference for other cities and regions to learn from. The development in regulatory compliance and the implementation of policies will bring positive changes to the used car industry, including higher engagement of industry players and customers' high acceptance of buying used cars. But this change will gradually take place.

From what we have seen currently, all these policies will benefit Uxin as we now operate as an online used car dealer. First, as a business entity, our adoption of inventory-owning model will be fully supported by the policies. In addition, the used car tax cut can also help to lower our tax expenses when we are operating under the inventory-owning model. And for promoting of vehicle temporary property registration and digitalization of the title transfer process, it will significantly simplify the fulfillment process as customers purchase used cars online from us, which will lead to a much improved delivery efficiency. At the same time, relevant fulfillment costs can also be optimized correspondingly. So I think following all of these policies, I think next year, the used cars, the total transaction volume could increase. And from our forecast it is around 2 digits, around 10% to 15%. And so that's the answer for the first question.

And the second question about the NPS improvement. I think this year, we really found some very efficient ways to improve the NPS. I think we are mainly focused on the 2 aspects, quality and the condition of used cars and best-in-class purchasing services. These 2 things is the most sensitive to improve the NPS. So next year, we are keeping to enhance all our ability and the resource invested into these 2 areas. And we believe that we can keep to improve the customer satisfaction and also improve the NPS.

Yes. And I want to say some more. For example, we focused on strengthening our ability to reconditioning the car. So next year, we will build our owned reconditioning center to enhance our refurbishing ability of Uxin ourselves, and to bring the like-new condition used cars to our customers. Yes. And that's the second question, the answer is.

I would now like to turn the call over to Nancy Song for any closing remarks. Thank you.

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

Thank you. That concludes the conference for today. Thank you for your participation. You may all disconnect your lines now. Thank you.