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spk01: Ladies and gentlemen, thank you for standing by and welcome to Uction's earnings conference call for the fourth quarter ended March 2021. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a Q&A session. 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 Yuen. Please go ahead, sir.
spk03: Thank you, operator. Hello, everyone. Welcome to Yuxin's earnings conference call for the quarter ended March 31st, 2021, and the full fiscal year 2021. On the call today are DPay, the founder and CEO, and John Lin, CFO. DK will reveal 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 poll may contain forward-looking statements made under the proper provisions of the US 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 would cause actual results to form materially from those in the forward-looking statements. UCHIN does not undertake any obligations to update any forward-looking statements except as acquired under applicable law. For more information about the potential risks and uncertainties, please refer to our findings with the SEC. With that, I will now turn over to our CEO, CK. Please go ahead, sir.
spk04: Hello, everyone. Thank you for joining our earnings conference call today to better communicate with both domestic and international investors.
spk03: My prepared remarks today will be in both English and Chinese. We are pleased to report another solid performance for the quarter ending March 31st, 2021. In spite of a slower quarter in the Chinese domestic US car market due to the Chinese New Year holiday and the constraints on working capital, we still delivered our operational target set last quarter. As you can see from our guidance for the quarter ended June 2021, Yuxin has returned to a solid growth trajectory. Following our successful transformation into an inventory-only model. From October 2020 to July 12, 2021, we faced the challenge of sustaining sufficient working capital for our operations. This also put significant pressures on our ability to continue as a going concern. Despite the pressing financial constraints, we overcame many difficulties and delivered some key achievements.
spk04: First, we firmly completed the transition from the original platform mode to the operating mode. As a company with a fundamental value for customers, we believe that the key to creating customer value is to improve customer satisfaction. In the second-hand car trade, the core of improving customer satisfaction is to improve the quality of the vehicle. Under the self-serve self-serve mode, we can carry out more comprehensive quality control of the stored vehicle. A team of selectors with excellent experience conducts vehicle selection in more than 40 cities across the country. Only vehicles with quality and cost-effectiveness that meet all requirements can be selected as excellent self-serve vehicles.
spk03: First of all, we transformed our business into an inventory-only 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 a severe capital constraint. 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 on customer satisfaction. In a used car transaction, the key to customer satisfaction is to enhance vehicle quality and provide best-in-class after-sales services. Under an inventory-only model, we can have better control over the quality of vehicles. Our mentoring team acquired used cars in more than 40 cities across China, and only the ones that have met our strict standards in terms of quality and the value for money were added to our vehicle inventory.
spk04: In order to better implement the goal of improving customer satisfaction, we use customer reputation as a key observation indicator, and from the second quarter of 2020, we will continue to monitor NPS and customer recommendation. After this year's efforts, We have made a huge improvement. Even with the impact of this year's Spring Festival on the delivery of vehicles, our NPS remained at 42 in the first quarter of 2021, and remained the same as in the previous quarter. In June last year, when we began to observe this indicator, NPS was only at 10. For two consecutive quarters, NPS has maintained a high level in the industry, showing customers' high recognition of our vehicles and services. It also shows that U-SYNC's business model is in the right direction. 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.
spk03: 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 March improved score in perspective, our NPS was only 10 when we just started to monitor this matrix. in the quarter ended June 2020. Maintaining an industry high NPS of 42 for two consecutive quarters reflected a 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.
spk04: In the second half of 2020, after more than a year of hard work, we have completely completed the glass of financial assets and cleared the risk of historical financial assets to us. While completing the financial chart, we are still in the new business model
spk03: After more than a year of effort, we've invested our loan facilitation business and settled our remaining guaranteed liability in the second half of 2020. In order to meet our customers' financial needs, we established a new corporation a model with the financial institutions to provide third-party auto-loan financing options, which will no longer undertake any credit risk.
spk04: We have continued to optimize our operating costs. Our organizational structure has been upgraded according to the adjustment of the business model. At the same time, all parts of the business are under economic management and continuously improving operating efficiency. In the first quarter of 2021, the operating losses of our single quarter decreased to 98 million RMB. Compared to the previous quarter, the operating losses of 1.62 billion RMB decreased by 40%. We expect that the operating losses of the next quarter will continue to shrink. We have formed a very suitable economic operation model for the development of the company. Even in the past period of very tense funds, we can also invest our limited funds and resources into long-term value for customers.
spk03: We also made sustained efforts to optimize our operational cost. We adjusted our organization structure accordingly following our business model transformation. Meanwhile, we consistently refined 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 the capital on creating long-term value for our customers.
spk04: In March this year, we officially invested in IRC, the first preparation warehouse center in Xi'an. IRC is an important action in the process of the U-shape transformation of self-driving modes. In IRC, we not only improve the quality of the vehicle, but also the display and other functions of the vehicle, so that we can integrate and control the various parts of the second-hand car supply chain better. Our first inspection and reconditioning center or IRC in Xi'an was officially in operation in March 2021 as an important infrastructure part of our business transformation. IRC has been designed to service a range of functions including
spk03: 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 six 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.
spk04: During March quarter of 2021, we expanded our software vehicles to individuals
spk03: 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 dealership. 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.
spk04: Recently, we have completed a key concept that is important to the company. Recently, we have the TOT financing.
spk03: which we believe is a game changer for our business going forward. We were glad to onboard two prominent investors, Neo Capital and Joy Capital, who share the same respect for UChain's business strategy and have entered into definitive agreements for total investment of up to $315 million into the company. We closed the first tranche of the financing transaction on July 12th, and are well-trapped to close the remaining tranches. The additional funding addressed the pressing working capital issue that we were faced with in the past six months. Going forward, we will remain committed to our current business model and strategy direction and steadily expand our business network.
spk04: We are very proud of these temporary difficulties that we have experienced, making our team more resilient. At the most difficult time, we continue to summarize and think, and make many difficult but long-term value decisions and changes. We are firmly aware that when we really put the users in the first place, we will have a long-term development space. When we look back and care about the product, care about the quality, and care about the service quality, our explosiveness and inner power will continue to grow.
spk03: Like all 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.
spk04: I would like to thank all our customers for their continued trust and support even during our most difficult times.
spk03: I would also like to thank the entire Youxin 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 Youxin in the right direction.
spk04: I would also like to thank the two new investors and Youxin's current shareholders for their recognition of Youxin's strategic direction and trust in the management team.
spk03: I would like to thank the two new investors and our shareholders for supporting Yuxin's strategic transformation and their continued trust in our management team.
spk04: Now that we have addressed the liquidity issue, we believe a new exciting chapter for Yuxin lies ahead. In the next step, we will gradually release the ability of IRC. Under the premise of ensuring the quality and satisfaction of self-driving vehicles, we will focus on gradually increasing the storage capacity and improving the efficiency of IRC preparation. In the future, 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.
spk03: We will focus on expanding our vehicle inventory and boosting our efficiency on refurbishing With our comprehensive measures, we believe our production capacity and business field will steadily increase. We are confident that our sustained efforts and investment will generate greater return for our shareholders in the long term.
spk04: With that, I would like to turn the call over to our CFO, John.
spk03: who will walk you through the financial results. John, please. Okay. Thanks, DK. Hello, everyone. Thanks for joining us today. As DK just mentioned, UT 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. The financial data in the 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 residue of 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 a Chinese New Year holiday, so Q4 was a traditional off-season for the Chinese 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 costs and expenses. And the benefit of those actions will be further reflected on our financials in the next quarter. As a result, despite lower sales volume and revenue in the first quarter, our operational loss increased by 64 million RMB. And this led to the first time in our history that our quarterly operational loss has dropped below the 100 million RMB. One thing I want to mention is that on July the 12th, we successfully closed the first tranche of our new financing. Also, convertible note holders converted 69 million US dollars into ordinary shares. This significantly reduced our repayment applications. At the same time, the company entered into several payable waiver agreements. The company was exempted from the repayment of payables of approximately 120.4 million RMB or around 18.7 million US dollars. These efforts have dramatically improved our cash positions. Full details on our fourth quarter ended March 31st, 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 use card 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 revenue were $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 also sometimes need to choose to sell more cars under our wholesale channels. Growth 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 we addressed our gross margin accordingly to the development strategy of the company. Total operating expenses were $124 million. A $64 million drop from the $188 million in the previous quarter. Overall labor costs and expenses, including service pay, increased 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 cost saving will benefit our financials in the long run. The non-GAAP adjusted the loss from continuing operation, which excludes the impact of share-based compensation, was $98 million for the three months ended March 31, 2021, compared with $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 $133 million for the three months ended in March 31, 2021, compared with $173 million in the previous quarter. Then about our cash position. As of March 31, 2021, we had cash and cash equivalent of $193 million. That sums up our results for the three months ended March the 31st, 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 three months ended June the 30th, 2021. The non-GAAP adjusted allows from continuing operations. It's expected to be less than RMB $50 million. This forecast reflects our current and preliminary views on the market and the operation conditions, which are subjected to change. That concludes our prepared remarks today. Thanks. Operator, we are ready to take questions now. Thank you.
spk01: Certainly. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Once again, if you wish to ask a question, you may press star and the number one on your telephone keypad. Your first question comes from the line of Eddie Wang of Morgan Stanley. Please ask your question.
spk02: Hey, DK Zhang. Thank you for accepting my question. I have two questions to ask. I will ask them in Chinese first, and then I will translate them for you. The first question is actually still want to ask about the situation of the entire car market, because in the second quarter, I saw that the demand for the new car is actually lower than expected. I don't know if the situation of the second-hand car market is the same as the trend of the new car. Actually, I don't know, from your expectation, when will the second-hand car market see a relatively good market environment that is accelerating growth? This is the first question. The second question is related to our entire strategy and competition. Because DK also made a more detailed introduction, that is, we are now taking an inventory-owning business model. I see that some of them may be considered to be our main They actually used to be in this mode, but I heard rumors in the market that their model may also be added to the Marketplace model, etc. I would like to take this opportunity to ask DK, how do you see the market? In the end, for the second-hand car platform, why did we finally choose such a model at this time? I have two 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 market 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. SDK 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, you know, do you think this model will be the mainstream model going forward for all these online used car platform, or you will think that, you know, a different model will also have a, you know, different chance in this, you know, used car market in China? Thank you.
spk04: Hello, Eddie. Thank you for attending our call and questions. Let me briefly answer this question. Regarding the entire market, from this year's perspective, the market trend of second-hand cars is getting better and better. I think there are mainly several reasons for this. First of all, second-hand cars are a market that is driven by goods and resources. The market stock is constantly growing, and the average age of the total number of cars is also increasing. We can also clearly see that young users are actually more and more interested in second-hand cars, and the demand for second-hand cars is constantly increasing. Especially the high-quality and high-performance second-hand cars in the market, the competitiveness is very obvious. After serious selection and preparation, the second-hand cars we delivered today already have the quality of the new car, but the price is much cheaper than the new car. This is a product that can fully bring value to the user. On the other hand, I would like to talk about the policy. In the past three years, China continues to encourage second-hand car transactions. In 2019, the two countries proposed a problem of breaking the line. Then in 2020, they adjusted the tax policy of the whole second-hand car. Then in 2021, they quickly introduced the second-hand car transfer policy. The whole transaction is much more convenient. In July of this year, the country talked about the guidance of the circular economy policy, which also encourages the development of the second-wheel car industry. So I think the policy environment is also a very strong window. From the point of view of the long-term development of the second-wheel car, I think it will be a process of steady and continuous rise. Please translate for me, Eric. Thank you. OK.
spk03: 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, you know, wheeling cars from the potential buyers is stronger. And the customers have become more adaptive to select a used car, in particular for those with high value for money cars. After careful screening and refurbish, the quality of used cars sold on our platform is approaching the level of new ones, while their price is much cheaper and much more competitive. This brings substantial value to our customers. And on the second hand, with so 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 transactions. 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. Thank you.
spk04: The second question is about competition. In fact, after 10 years of development, one of our very important reflections is the problem of dominating the industry and dominating the pattern. Today, we very deeply believe that the second-hand car industry is not a win-win industry. In such an industry, we think the most important thing is to do our best. We have our own clear product positioning. We have our own clear customer positioning. We have our own way of improving products and sales and channels. In these matters, we are more concerned about how to make each car better, how to serve each consumer well, and how to build a good reputation environment. In my opinion, in terms of competition, no matter what model they use, as long as they are willing to strengthen the trust of the customers, increase the transparency of the second-hand car industry, and create a future second-hand car trading environment, I think they are more like-minded in some sense. Secondly, I think competition is actually happening in terms of serving users and improving quality. I think the competition in these positions is very interesting.
spk03: So in terms of competition, after 10 years of development, we now formally believe that used car marketing in China is not a winner-takes-all market. The critical thing is to take 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 channel. We focus on how to make each car on our platform better and make our customer 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 market participants to learn from each other and keep improving themselves. Thanks, Eddie. Thank you, Eddie.
spk02: Thank you, DK, for your answer. I also hope that the company will do better and better in the new fiscal year. Thank you. Thank you, Eddie.
spk01: Once again, if you wish to ask a question, please press star and the number 1 on your telephone keypad. Your next question comes from the line of Fei Dai of TianFeng Future. Can you please ask your question?
spk00: Can you hear me?
spk03: Yes, we can hear you.
spk00: Hi, TK. I'm Fei Dai from TianFeng Future. I have a question. Thank you for attending our press conference. Let me answer this question.
spk04: First of all, I want to say that the new investors are highly in agreement with us on the strategy. In fact, you can pay attention to NIO is a user company. They are extremely concerned about users. This matter is highly consistent with our concept of transformation after transformation. It is because of the transformation in 2020, we put users first, put the quality of the vehicle first, and put NPS first. We have a highly consistent relationship with the strategy and value level of the new investors.
spk03: First of all, we and our new investors have strong consensus on strategies. So in particular, you can see Neo is a consumer-facing company, which actually pays great attention to customers, which is highly aligned with our business philosophy. But because of our business transformation in 2020, We regard user needs, vehicle quality, and NTS as the most important things for us. And we have established a consensus with our new investors on strategies and value propositions.
spk04: After the investment is in place, the core investment part must be to create core value for investors. These are the points I mentioned above. Dig deep on these and be solid. So after receiving the investment, we will work together on a key strategy in France and enhance our
spk03: 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 vehicle inventory and scale up our business. Thank you. Thank you.
spk01: Are there no further questions? This will conclude today's conference call. You may now disconnect your line. Thank you.
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