Uxin Limited

Q3 2021 Earnings Conference Call

4/28/2021

spk00: Ladies and gentlemen, thank you for standing by and welcome to Yosef's earnings conference call for the quarter ended December 31, 2020. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question and answer session. And 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, Eric Yuan. Please go ahead, sir.
spk04: Thank you, Operator. Hello, everyone. Welcome to YouQin's earnings conference call for the quarter ended December 2020. On the call today are DK, founder and CEO, and John Lin, CFO. DK will reveal 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. 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 current knowledge and assumptions about future events that involve known or unknown risks and uncertainties, which could cause actual results to deform materially from those in the forward-looking statements. Yuxin does not undertake any obligations to update any forelooking statement, except as required under the applicable law. For more information about potential risks and uncertainties, please refer to our findings with the SEC. With that, I will now turn the call over to our CEO, DK. Please go ahead, sir.
spk02: Thank you, Eric. Hello, everyone. Thank you for joining our earnings conference call today. We are pleased to report that we have completed our strategic transformation into an inventory-owning model in the quarter ended December 31, 2020. The majority of online used car transactions in December was sold from our own inventory. This successful transaction reflects our commitment and ongoing efforts to better serve our customers with our online products and services. Operating as a national wide online used car dealer with our own inventory, we now have much strong control and management over the entire services and supply chain. From the selection and quality of our used car inventory, to online car consulting for buyers and customer services, and our own delivery and after sale services national wide. Two strengths. our ability to provide a used car of high quality and valuable money. We are building our own inspection and reconditioning center, or IRC, where we can refurbish selected inventory to a like new condition. Our first IRC in Xi'an has been operating since March 2021. Through our new network of IRC, we can reflect facilitate in-house refurbishing for better control of quality and consistency so that the used car will sell meet our own quality excellent standards. We're also able to better serve the markets within the services reviews of each IRC location. Moreover, with this ongoing improvements to our product and the services offerings, we have been closely monitoring our net promoter score of NPS. We have seen our NPS increase to 42 during the report quarter. Up from 30 in the quarter ended September 30, 2020. And only 10 in the quarter ended June 30, 2020. The significant improvement in NPS is the recognition by our customers of our value proposition that we are providing even higher quality value for money used car and the best in class online car purchasing services. It also give us greater confidence that we have the right development strategy in place and are hiding in the right direction with our online business. The increasing NPS core has also strengthened our behalf that our word-on-mouth referral strategy will provide a formal foundation for further development and will generate solid and sustainable long-term growth, reinforce our brand and market position in China. China's USECOM market has huge growth potential, and the Chinese government continues to introduce preferential policies for the industry. The value add tax on used car sales has been cut to 0.5% from 2% in May 2020. The General Office of the State Council has recently required all regions to remove restriction on cross region transactions and the title transfer of used car. The government has also published its blueprint for the digital documentation of used car. Registration and other documentation will be completely digitized for online transmission and recognition. This will simplify the documentation process, reduce title transfer costs, and increase efficiency of cross-region used car transactions. Digital document will be in testing in design region in June, expand to major cities in September, and be adopted nationwide in first half of next year. As a leading online used car dealer in China, Yuxin believes this policy will create a more efficient and sustainable environment for the used car business in the long run. We will closely monitor government policies, improve vehicle quality, and develop services to a high level to contribute to the transaction of China used car industry. Last week, we entered into a strategic partnership with JD.com to launch our self-operated online store for used car transactions through JD's platform. Collaboration will provide customers with one-stop online used car purchasing solution, including used car inspection, purchasing, insurance, and after-sales services, and includes plan for joint development of data management, technology, inspection standards, and integrated supply chain in the used car business. We are committed to using big data and internet technology to empower the used car industry in order to raise industry standard and the level of services. We believe cooperation with GD.com will offer our customer a higher quality and a more reliable used car purchasing experience than exists in the market as present. As a result, We are very pleased with the progress we have made this quarter. We are also encouraged by the recognition of our success by two well-established Asia funds, and we have entered into a binding term sheet for a potential investment of up to $300 million. This investor has expressed a strong belief in the potential of China's used car market. They have acknowledged Yuxin's leading market position, strong branding, and capacity to provide high-quality cars and services to customers. We are glad that they also share the same respect for Yuxin's business model, growth strategy, and execution plans. The financing is proceeding as expected. We will work closely with these investors to transform China's used car industry and create long-term value for our customers. With that, I'd like to turn the call over to our CFO to walk you through the financial results. John, please.
spk03: Okay. Thanks, DK. Hello, everyone. Thanks for joining us today. I will walk you through the financial results for the quarter ended December 31, 2020. Our online used car transaction volume was 2,307 units this quarter. The majority was sold from our own inventory. Since we have shifted to an inventory-owning model, our revenue recognition and the structure of costs and expenses are more in line with our industry peers. We believe this will facilitate the understanding of our business and financials. Since we have settled the majority of our remaining guaranteed liability in July 2020, from this quarter, the impact of the discontinued loan facilitation business on operating expenses has been minimized. As a result, our financial performance will better reflect our core business. Moreover, during this quarter, we improved overall potential operational efficiencies through strict cost management. We target to grow the business at the most efficient cost level. We believe our ongoing cost-saving efforts will be productive and benefit our financials in the coming quarters. Now let me walk through the financial details for the quarter ended December 31, 2020, which is the third quarter of our fiscal year 2021. All numbers are in RMB unless otherwise stated. Total revenue were $323 million. This is recognized on a growth space as a result of the transformation into the inventory-owning model. Our total 2C revenue was $303 million, the majority of the revenue coming from our vehicle sales. Growth margin was 2.9% compared with negative 22.4% in the last quarter and 59% 59.2% in the same period last year. Due to the adoption of the inventory-only model, revenue recognition and the components of cost were significantly different from the corresponding period in 2019 and also the last quarter. However, we believe this is more comparable with our industry peers. With the transformation completed, we expect that the gross margin will rise gradually in the coming quarters. Total operating expenses were $188 million compared with $318 million last quarter and $862 million in the same period last year. Total operating expenses decreased mainly due to our continuing actions in cost and expenses cutting and also the decrease in the loss related to guaranteed liabilities for historically facilitated loans. To talk more about the cost and expenses, we also improved overall operational efficiency through spirit-stripped cost management. As part of our strategy, we aim to grow our business at the most efficient level. The marketing expenses decreased by around 50% year-over-year. Rent expenses and professional fees decreased by 72% compared with the corresponding period in 2019. Due to the adoption of the inventory owning model, the most salaries and the benefits for employees engaged in car sourcing, inspections, after sales services have been reclassified as sales and marketing expenses, whereas before, such items were classified as cost of revenues. So, labor expenses, overall speaking, the labor expenses of a total operating expenses this quarter may not be comparable with previous quarters. Overall speaking, cost and expenses, excluding severance pay, the labor cost decreased by 63% year-over-year and 9% quarter-over-quarter. Looking ahead, we believe our ongoing efforts at cost and expenses saving will be productive and benefit our financials in the long run. The non-GAAP adjusted the loss from continuing operations, excluding the impact of share-based was $162 million for the three months ended December the 31st of 2020, compared with $178 million last quarter and $577 million in the same period last year. The net loss was $173 million for the three months ended December the 31st 2020, compared with $259 million last quarter and $967 million in the same period last year. About our cash position. As of December 31, 2020, we had cash in the cash equivalents of $288 million compared with $219 million as of September 30, 2020. Assuming the potential investment of up to $300 million is completed, our cash position will be significantly improved. We believe that this will help remove the ongoing concerns on continuing operations. This investment is subject to the company's fulfillment of the terms in the binding term sheet. That sums up our results for the three months ended December 31, 2020. Moving to our guidance. The quarter ended March 31, 2021 was the traditional off-season in Chinese used car market due to the Spring Festival holiday. With the adoption of the inventory-owning model, we expect our total revenue to be in a range of RMB 190 million to RMB 200 million for the three months ended March 31st, 2021. With continued focus on cost and expense management, its gross margin is expected to increase to around 5% and the non-GAAP adjusted loss from continuing operation is expected to be less than RMB 110 million. The forecast reflects our current and preliminary views on the market and also the operational conditions, which are subject to changes. That concludes our prepared remarks. Thanks.
spk00: Thank you. As a reminder, to ask a question, you need to press par 1 on your telephone. And to withdraw your question, press the pound or hash key. And please stand by while we compile. the Q&A roster. Once again, please press star 1 for your questions. Our first question comes from the line of Tom Hamilton of Park Hill Capital. Your line is open. Please go ahead.
spk01: Hi, everyone. Thanks for taking my question. We're happy to see the work you've been doing on your strategic transformation. Would you give us more color on what's happening with your IRC in Xi'an, your Inspection and Reconditioning Center? Thank you.
spk04: Manager, we are very happy to see that the company's strategic transformation has made progress. So I would like to ask you to introduce in more detail the current operation of our ILC in Xi'an.
spk02: Thank you. Okay. Thank you. Let me talk about it and then ask Eric to help me translate it. The ILC in Xi'an started from December last year and started to be selected and pre-constructed, and then started to be put into operation in March this year. The area of Xi'an's super market is about 24,000 square meters, including three major parts of the exhibition hall, warehouse area, and decoration area. After it is completed, it can accommodate more than 1,000 exhibition cars. This will be the largest single-brand second-hand car flagship store in the northwest region. At present, there are more than hundreds of cars in the exhibition hall. OK, thanks for the question.
spk04: For our Xi'an IRC, we started to select its location and construct from December 2020 and put it into operation in the past March. The IRC covers an area of approximately 24,000 square meters, including an exhibition hall, warehouse zone, and a refurbished zone. Once completed, the IRC can hold over 1,000 vehicles, making it the largest flagship store of used car in Northwestern China and are a single brand. So currently we have already stored hundreds of vehicles in the exhibition hall. The IRC is scheduled to officially open for business this May. The Xi'an IRC represents a major breakthrough in our business development. as a nationwide online used car dealer, allowing us to have much stronger control over the entire service and supply chain, providing our customers with used cars of high quality and value for money, as well as a full range of solutions.
spk02: Only 20% of the selected vehicles can enter Youxin's Zilin warehouse. Each vehicle in the warehouse has been tested and verified by more than 300 authority units. Youxin has inspected every vehicle for consumers who do not have professional testing equipment and testing experience. At the same time, we also use our own exclusive technology to prepare the vehicles in advance to greatly improve the quality of the vehicles. At the same time, Xi'an's Zilin large sales network carries functions such as storage, testing, preparation, and display. Thank you.
spk04: In terms of vehicle sourcing, our team is doing that job in about 40 cities across China, with only about 20% finally admitted to our in-house inventory. So every single vehicle in our inventory has to pass more than 300 tests during the inspection process. So leveraging our professional testing equipment and extensive inspection know-how, we effectively help customers choose cars of good quality. Meanwhile, we also apply our in-house developed technologies to refurbish the vehicles to further enhance their quality before they go to market. At the same time, our CNIRC serves multiple functions, such as warehousing, inspection, refurbishment, and vehicle demonstration. It also provides vehicle registration services, offering customers one-stop car purchasing experience. local customers can come to our IRC and check out the car in person. They can also pick up the car on site rather than wait for delivery. Overall, the development of Xi'an IRC is in line with our prior expectation, and we believe it will positively contribute to the development of the used car market in northwestern China once it is officially launched. Thank you.
spk00: Thank you. Ladies and gentlemen, that concludes the conference for today, and thank you for participating.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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