Uxin Ltd (UXIN) 2022 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Uxin Earnings Call for the Quarter Ended December 31, 2021. (Operator Instructions) Today's conference call is being recorded. If you have any objections, you may disconnect at this time.

I will now 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 December 31, 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 financial 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 the SEC.

With that, I will now turn the call over to our CEO, 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 still be in both English and Chinese.

We are pleased that our business maintained its robust growth throughout the third quarter of fiscal year 2022, which spanned from October to December 2021. Total transaction volume grew by 111% year-over-year to 4,879 units in the quarter and grew by 33% compared with last quarter. Specifically, retail transaction volume was 1,671 units, an increase of 61% compared with last quarter. Although the resurgence of COVID-19 cases in Xi'an, where our first IRC is located, resulted in a citywide lockdown in last December, the strong growth momentum of our second IRC in Hefei generated since its launched has essentially helped us mitigate some of the negative impacts from the disruptions in Xi'an.

The Hefei IRC officially opened for business in mid-November 2021 after 6 months of preparation. With the successful model of our Xi'an IRC as a foundation, we redesigned the stores operation process through a series of upgrades and improvements. As such, we have equipped our Hefei IRC within omnichannel sales model, integrating online sales into its warehouse-style operation. We offer our customers a diverse selection of high-quality and cost-effective vehicles, premium transaction services, hassle-free aftersales guarantees, creating the superior used car shopping experience that has been widely welcomed by customers since opening.

As evidence of our improved customer experience, our NPS continued to rise for the fifth consecutive quarter to reach a new record high of 59 in the third quarter from 56 in the prior quarter. This is a testament to our persistent efforts in optimizing all aspects of our operations to better fulfill the customer needs from vehicle sourcing to transaction, delivery and aftersales services. Going forward, we will continue to refine and upgrade our products and services which will be the key for driving high-quality sales growth through customer reputation.

In terms of vehicle sourcing, we are actively increasing the number of cars we purchase from consumers. For example, around 25% of used cars in the retail inventory was procured from customers in this quarter. Notably, we further strengthened our used car purchase services from local consumers, which enable us to further reduce procurement costs while boosting sales conversion rates in the region. As these metrics have proven the effectiveness of our efforts, we will continue to expand into sourcing channels to purchase vehicles from consumers.

We also rolled out our used NEV business in this quarter. We have already developed core NEV expansion capabilities, such as for battery and motor inspections while expanding our used NEV aftersales services. We currently have 5 of the best-selling NEVs on sale, including Tesla, NIO, Li Auto, Xpeng and BYD.

Moreover, the continuous optimization of our supply chain also yield very encouraging results. By improving the synergies between each process throughout the supply chain cycle, we reduced the time needed to make a car we procure ready for sale by 30% in the quarter. In the meantime, we leverage our big data analysis of market dynamics and consumer preferences to ensure we keep an optimal selection of cars in our inventory. As such, our improved vehicle selection approach enable us to further refine and localize the structure of our vehicles in inventory.

To bolster the opening of the Hefei IRC this quarter, we also ramped up our new media marketing strategy. By leveraging live streaming and short-form video content on popular platforms, our marketing material had expanded its customer coverage and garnered excellent response and feedback. We were able to successfully reach our target customers, significantly improving our marketing efficiency and reducing its cost through this new marketing strategy.

Now moving on to our expectations for the fourth quarter of fiscal year 2022. During the 3 months ending March 31, 2022, we have experienced a lockdown in Xi'an as well as the expected Chinese New Year holiday off-season. As you know, Xi'an was the second provincial capital city in China to shut down since the outbreak in 2020. Our Xi'an IRC began to recover after the Chinese New Year holiday, and business is now back to its standard level before COVID-19. However, driven by robust performance of our Hefei IRC, we expect our retail sales to continue to grow in the fourth quarter.

Although the impact of the epidemic in Xi'an has brought forth new challenges, I have no doubt that our team has the capabilities to overcome these obstacles. We have a team that has strength and experience, skills and team unity, and we are grateful to everyone's hard work and dedicated contribution. We have the right strategy in place, and we will continue to provide customers with high-quality products and services. Our commitment to driving high-quality growth through customer reputation and creating long-term value for our customers and shareholders will always serve as the foundation of our business leadership.

With that, I'd like to turn the call over to our CFO, John, 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 our financial performance in the quarter ended December 31, 2021.

In this quarter, our retail sales volume increased by 61.3% quarter-over-quarter, and our overall sales volume increased 33.4% quarter-over-quarter. As a result, despite the COVID-19 impact starting from mid-December, our revenue grew 46.5% quarter-over-quarter and slightly beat the revenue guidance we shared last time.

Contribution from our Hefei IRC was the key driver of our sales and revenue growth in the third quarter. The new IRC significantly boosted the scale of our retail inventory. In the second quarter, we only had one IRC in Xi'an with a total inventory of about 600 cars. The newly added Hefei IRC can reach up to 2,500 cars inventory. The increased inventory enabled us to ramp up our sales, enhance our operational efficiency and improve our one-stop car shopping experience to our customers. Thanks to the opening of Hefei IRC, we can keep our retail growth momentum both in Q3 and will be in Q4.

With the opening of Hefei IRC in Q3, we incurred additional costs and expenses on construction, renovation, site rental and new employees. We also invested in additional marketing for customer acquisition in Hefei City as well as the entire Anhui Province to maximize our brand in the regional markets.

Other than that, we continue to operate our business in the leanest way possible. We plan carefully, and we only invest in key areas that will expand our vehicle acquisition, improve our technology leadership and refine our supply chain systems.

Our business progress and operational optimization have been executed steadily following our long-term development plan, and we received a further capital injection from our strategic investors.

With respect to the financing transaction with NIO Capital and Joy Capital, last Friday, on March 25, we received a USD 10 million from the second close. We also expect to receive the remaining USD 12.5 million from the second closing in the coming months. In addition, we are on track with the investors about the execution of the USD 165 million warrant.

Now I will run through some key financials. All numbers are in RMB terms unless otherwise noted. Total revenue was CNY 506.6 million, representing a quarter-over-quarter growth of 46.5% and a year-over-year growth of 56.9%. Gross margin was 4.1%, stable compared with 4.2% last quarter.

Total operating expenses were CNY 120 million compared to CNY 85.9 million in the prior quarter and CNY 188.3 million in the same period the last time. As I shared earlier, during this quarter, we incurred expenses on preparation of the launch of the new Hefei IRC, and we also invested in additional marketing.

Non-GAAP adjusted loss from continuing operations was CNY 68.6 million compared with CNY 43.2 million last quarter and CNY 162.5 million in the same period last year.

Similar to last quarter, there was a fair value impact related to our financing transaction. The share price was USD 1.58 per ADS on December 31, 2021, compared with USD 2.76 per ADS on September 30, 2021. This resulted in a noncash gain of RMB 1.36 billion from fair value change of the warrant liabilities and forward liabilities on our balance sheet. I would like to reiterate that this fair value impact was a noncash gain and was not a result of our operations.

Consequently, net income from continuing operations was a net gain of RMB 1.28 billion in the third quarter compared with a net loss of RMB 1.71 billion in the last quarter and a net loss of RMB 172.9 million in the same period last year. If removing the fair value adjustment impact, the non-GAAP adjusted net loss from continuing operations was RMB 80.2 million compared with a net loss of RMB 56.9 million and a net loss of RMB 171 million in the same period last year.

Then about our cash position. As of December 31, 2021, we had a cash and cash equivalents of RMB 161.3 million.

Moving on to our Q4 guidance. In the fourth quarter, we are facing 2 major challenges. One is the citywide lockdown in Xi'an from late December to late January, and the other one is the traditional spring festival off-season in February. We expect our total revenues to be in the range of RMB 440 million to RMB 460 million for the 3 months ended March 31, 2022.

Although our revenue growth slows down a little bit, we expect our retail sales volume to continue to increase. Please note that this forecast reflects our current and preliminary views on the market and operational conditions which are subject to changes.

So that concludes our prepared remarks. Thanks.

(Operator Instructions) And our first question comes from Karl Birkenfeld with American Trust.

Okay. Yes. Given recent increased COVID-related lockdown in China, what is the impact to your vehicle inventory center and retail sales growth from 2022 going forward calendar year? I'm sorry, I don't speak Chinese. So...

All right, that's no problem. I got your question. So yes, this is D.K. I still try to use Chinese to answer the question, and my colleague will translate to English.

[Interpreted] Okay. Our business was definitely affected by the resurgence of COVID-19 in the Chinese New Year off-season. In particular, operations of our Xi'an IRC was severely disrupted by COVID-19. However, as we successfully launched our Hefei IRC in November last year, its robust performance helped us mitigate some of the impact. After the Chinese New Year holiday, our Xi'an IRC has also resumed its growth trajectory as its sales volume has surpassed its pre-COVID level.

During the fourth quarter, our Xi'an IRC continued to experience disruptions caused by lingering COVID effects. However, we expect strong momentum of our Hefei IRC to enable us to offset the impact and sustain our growth in terms of retail sales volume. In fact, for the full fiscal year of 2022, we expect both retail and total sales volumes to achieve solid sequential growth.

Also, we are always able to conduct our business across the country. When certain regions are impacted by COVID, our online and off-line sales model has integrated up of our off-line superstores with our Uxin online super mall. This integration allows us to better diversify risks and minimize the impact of COVID-19.

Thanks for the question.

(Operator Instructions) Our next question comes from Ying Ying with China Securities.

(foreign language)

Sorry, [Ying]. Please go ahead.

(foreign language)

Okay. Please allow me to translate the question to English. The first question is, can you share more details on the trend of inventory turnover and average selling price during 2021? Also, what's your view on the current competition with Guazi as well as traditional car dealers?

[Interpreted] Okay. So your first question on turnover. Our 2 IRCs are at different stage of development of maturity as we launched our Xi'an IRC in March 2021 and our Hefei IRC in November 2021. Overall, our turnover is around 60 days as a whole.

As for the average transaction price, our current price of retail vehicles is around RMB 140,000 for this month. Going forward, we will continue to diversify our selection of vehicles. And as such, I think our average price will reduce to around RMB 100,000 to RMB 120,000, which is more suitable for the diverse needs for customers.

Regarding competition, we and our peers are all focused on developing a business model that can facilitate our development. The used vehicle market is immense and highly fragmented. We all share the common goal of bringing innovation to this traditional industry and creating a better shopping experience for our customers.

In terms of our advantage, customers are our focus as we have always prioritized customer perception to improve the quality of our growth. We have the largest self-operated store to provide customers with a wide selection of vehicles to choose from. We also have our own Inspection and Reconditioning Center with industry-leading technology and capabilities. All vehicles we sell undergo a number of itemized inspections and reconditioning procedures to ensure our cars have a high standard of quality. We also have the most advanced online and off-line integrated retail model.

We were the first one in China to sell used car online nationwide, removing the geography barriers for customers. Now our vehicles are delivered to the doorsteps of our customers in more than 200 cities across China within 4 days. In addition, our largest scale and centralized warehouse-style retail model has better cost efficiency.

For the next question from Ying Ying is that, what are your plans to fund your future expansions?

[Interpreted] Okay. As we mentioned before, we signed a financing agreement with NIO Capital and Joy Capital in June 2021 for the total consideration of USD 315 million. As part of this agreement, we received the first tranche of $100 million in July 2021. The second tranche has a total consideration of USD 50 million. On March 25 this year, we received $10 million of the second tranche. As such, we have received totally $137.5 million for the financing and about $37.5 million from the second tranche, and we expect to receive the remaining $12.5 million soon.

On top of this, there are still a total of $165 million warrants to be exercised by investors. We are currently working on the warrant program with our investors based on the pace of our expansion and its need for cash injection. With this money, we aim to continue augmenting and expanding our IRC levers to sustain our business growth in the long term as we set the bar for used car products and services. Thanks for your questions.

Our next question comes from Fei Dai with TS Securities.

(foreign language) I'd repeat my question in English. According to the financial report, COVID obviously have had a positive impact on the company's performance. Will the expansion of the company in the future rely more on off-line heavy assets? What do you think of the future development of the China used car market? How will the company cope with the change that has been seen now?

[Interpreted] Our off-line investments are mainly channeled into our IRC, or Inspection and Reconditioning Centers. These investments enable us to scale our reconditioning capabilities. As we scale up, we are able to better manage the reconditioning process and centralize the procurement of reconditioning consumables, which gives us more negotiation power with our upstream suppliers. At the same time, we are constantly refining our reconditioning technologies and process, leading to higher efficiency. This improvement will help us reduce our costs. As such, our investment in IRCs further fortify our competitive moats.

We are committed to the omnichannel sales model that integrates online sales with warehouse-style operations. Regardless of whether consumer buy online or visit our off-line stores directly, the quality and price of vehicles they see are the same. We have accumulated extensive experience in online sales from building and operating China's leading online used car shopping destination Uxin online super mall. A lot of consumers know our name through our online reputation.

Meanwhile, we are accelerating our penetration into regional markets while expanding our off-line influence. So our online and off-line operations and synergies can complement each other.

In 2021, the used car market in China continued to grow as its sales volume exceeded 17 million units or RMB 1 trillion in transaction value. NEVs have been on the rise in recent years, and they will definitely be an important component of the market in the future. For retail, no used car dealership had a market share of more than 1% in terms of sales volume in China as that market remains to be massive and highly fragmented.

In recent years, consumers are increasingly comfortable with buying used cars. However, the major pain points of the traditional used car industry are yet to be addressed. This is why we are actively developing our self-operated used car sales model to strengthen our reconditioning and service capabilities. In addition, we are also developing services for NEVs. We made all of these investments in order to provide customers with reliable and safe used car products to fulfill their needs for high-quality used cars.

While we maintain an efficient operating system, we will keep investing to strengthen our core competitiveness and further improve our operational efficiency. Thank you for your question.

We've reached the end of the question and answer (inaudible) hand the conference back to management for any closing remarks.

Thank you for joining our conference call today. We are looking forward to see you next time. Bye-bye.

(foreign language) Thank you.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.

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