Uxin Limited

Ladies and gentlemen, thank you for standing by and welcome to Uxine's earnings conference call for the quarter ended September 30th, 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, Ms. Joyce Stank. I am director of the company. Please go ahead, ma'am.

Thank you, operator. Hello, everyone. Welcome to Yuxin's earnings conference call for the quarter end September 30, 2021. On the call today are DK, founder and CEO of Yuxin, and Zhong Lin, CFO of Yuxin. DK will review business operations and company highlights, followed by Zhong, 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 provision of the U.S. Private Security Litigation Reform Act of 1995. These statements are based on management's current knowledge and assumptions about future events. They involve known or unknown risks and uncertainties. which could cause actual results to differ materially from those in the forward-looking statement. Yuxin does not undertake any obligation to update any forward-looking statement, 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, Steve Pei. Steve Pei, please go ahead.

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. In the second quarter of fiscal year 2022, which ended on September 3rd, we maintained solid growth in terms of both sales volume and revenue.

Total transaction volume in the quarter was 3,648 units, which is an increase of 21% compared with last quarter. The retail transaction volume was 1,027 units, an increase of 51% compared with last quarter. 在客户口碑上,我们在提升车辆品质和客户体验上所做的努力获得了回报。

In terms of our reputation in customer,

Our persistent efforts to improve vehicle qualities and service experience have generated good results. In the quarter, our Self-Net Promoter Score, or NPS, increased for the fourth consecutive quarter to 56, a new record high versus 42 in the previous quarter. Going forward, we will continue to optimize and upgrade the quality of our products and services in order to provide best-in-class once-over-the-top purchasing experience to our customers, and drive high-quality sales growth through positive word-of-mouth.

In November, we came to an important stage in the development of our business. Based on the C&I IRC model, we launched the second U-SYN IRC in Hefei, Anhui Province. Huadong Region is the largest area of trade in domestic second-hand vehicles. Anhui Province is one of the fastest areas in the development of Huadong vehicle consumption. Our second ILC in Hefei is an important step in the strategic expansion plan. Currently, the total area of Hefei ILC is close to 100,000 square meters. The total warehouse size is about 2,000 units. Currently, Hefei ILC sells nearly 1,500 vehicles. It covers a variety of vehicles from 52 brands such as domestic, joint, luxury, etc. It is the largest self-driving second-hand car market in China. The market of Hefei has improved significantly in terms of the management level and service system construction. Since its opening, our vehicle quality and service have been recognized by consumers. Our customers have also reached a new level and have achieved good feedback locally. Our sales are also steadily climbing. After the construction of Hefei ILC, We completed an important milestone in our business development in just November. With our CI IRC successfully launched and running, we launched our second IRC in Hefei, Anhui Province,

East China holds the largest amount of used car transactions, and Anhui province is one of the fastest-growing areas for car consumption in the region. The rollout of a second IIC in Hefei represents a key strategic step in our business expansion. Specifically, Phase 1 of the Hefei IIC covers a total area of about 100 square meters with a warehousing capacity of up to 2,000 vehicles. Currently, the combined number of vehicles available for sale in Hefei is roughly 1,500, covering 52 brands in a large collection of economic and luxury models. As far as we know, this is the largest self-owned used car IRC in China. Compared to Sian IRC, the Hefei IRC's domestic hour improvement In self-manual quality, operational management, and service assistance, since we began operating in mid-November, the new Hefei IRC has been well-received among customers for its vehicle quality and services. The vehicle sales volume has been growing steadily week over week. When the construction is fully completed, the Hefei IRC will be one of the most advanced used car production centers that features streamlined operations, automation, digitalization, and business intelligence. It will be a one-stop used car purchase destination, offering vehicle acquisition, inspection, refurbishment, demonstration, sales, and after-sales service.

We are improving the system of our new energy vehicles. In terms of vehicle sourcing,

We have expanded our pool of vehicles to include leading domestic and foreign electronic vehicle brands. We are building our EV business operations by establishing sourcing channels, inspection standards, and refurbishment process especially designed for EVs. This will enable us to provide high-quality and reliable used EVs to our customers. We believe this will provide new growth drivers for Yuxin in the coming era of electric vehicles. Meanwhile, we also hope that we can leverage our extensive inspection and reconditioning capabilities to drive the healthy development of the used EV market in China.

In terms of vehicle preparation, we focus on continuously optimizing the engineering design and improving the efficiency of the preparation environment. After our research, most of the second-hand car manufacturers on the market have only maintained a basic level of preparation analysis. We have accumulated large data analysis capabilities through years of platform operation, established a unified information system and database, refined and optimized preparation standards, and reduced the cost of preparation through our scale-up advantage, allowing consumers to buy higher quality cars at a lower price. At the same time, we are also continuously investing in preparation technology and upgrading preparation equipment. In terms of future reconditioning capabilities, we continue to optimize and streamline our work process to improve both quality and efficiency based on our market research.

Majority of used car dealers in China only offer very limited or the most basic level of reconditioning service before selling the vehicles to customers. At Youxi, we have accumulated an integrated database of refined reconditioning standards and process through years of operations. Thus, we can utilize our skill advantage in procurement to optimize reconditioning cost and can offer our customers high-quality vehicles. an attractive price. Meanwhile, we actively invest in reconditioning equipment and technology to further boost our efficiency. In Hefei IRC, our average time and cost required to recondition a car decreased more than 50% compared to the time when the Xi'an IRC was just launched. We will continue to focus on improving every business process to strike a good balance among quality, cost, and efficiency.

Recently, we have closed part of the second tranche of the financing procession ahead of the original schedule.

Following our development plan, we will expand vehicle acquisition, enhance replenishment capabilities, and optimize supply chain. Investment in these key areas will enable us to increase available wholesale inventory and further improve the car purchasing experience of our customers. 最后我想再一次感谢客户和股东一直以来的支持,以及公司全体员工的努力和奉献。

This will be a long and fulfilling journey. There are still many things we need to do. The success of CyanIRC's six-year operation and HefeiIRC's repeated experience gave us a lot of confidence. We will continue to stick to a fixed development route. Through our efforts, we will promote the Chinese car industry to develop in a more long-term healthy direction. I also believe that the investment we made today will bring us good returns in the future.

Finally, I would like to once again thank our customers and shareholders for their continuous support and our team for their hard work and dedication. This will be a long and fruitful journey, and we will have a long way to go. The smooth operations of the Xi'an IRC over the past six months and the newly launched Hefei IRC has given us great confidence in our business. Going forward, we will remain committed to our current development direction and contribute to the long-term and healthy development of the Chinese used car industry. We believe all our efforts and investments today will pay off in the future. With that, I'd like to turn the call over to our CFO, John, to warn you through the financial results. John, please go ahead.

Okay. Thanks, DK. Hello, everyone. Let me walk you through our financial performance in the quarter ended September 30, 2021. The business was growing steadily in this quarter. We started to increase our available for sales inventory in Xi'an IRC since we received the first tranche of the new investment in early July, and it reached the full capacity at around 600 cars in mid-August. Improved inventory level enabled us to ramp up our retail sales volume. The retail volume increased 51% quarter to quarter, and overall sales volume increased 21% quarter to quarter. As a result, our revenues increased by 24.5% compared to last quarter. Meanwhile, we spent tremendous amount of efforts to minimize our cost and expense structure, build a lean organization, and drive efficient operational processes. the impact has been reflected in our continuous improving operation law. One thing I would like to comment specifically is the fair value adjustment impact of the issuance of senior convertible preferred stock as a result of our financing deal with NEO Capital and Joy Capital. Because the stock price rose significantly since the company announced entering into a binding term sheet with these two investors on April the 1st of 2021, This led to a paper loss of RMB 1,654.9 million RMB, or US dollar 256.8 million, which impact net profit. This loss is purely driven by accounting treatment. It is a non-cash item, and it has no impact on our cash flow. And it is not related to our business operation. With respect to the financing transaction with Neo Capital and Joy Capital that we announced earlier, as part of the second closing of US dollar 50 million, we have received US dollar 27.5 million cash ahead of schedule. With respect to receive the remaining US dollar 22.5 million in the coming months as planned. As DK said earlier, we will leverage the capital Continue investing in key business initiatives, including increasing car inventory, optimizing reconditioning technologies, and our supply chain to drive further high-quality business growth. As we announced earlier, UCI has been included in MSCI Global Small Cap Index, China Index, effective on November 30, 2021. This is the first time that Yuxin has joined the MSCI index. We see this as a recognition of Yuxin's business performance and China's used car industry potentials. The used vehicle industry in China has huge opportunities, and we believe Yuxin is well positioned to lead the dynamic growth of this promising market. Full details of the quarter ended September the 30th, 2021 are available in our earnings release. So now I will run through some key numbers. All numbers are in RMB, unless otherwise stated. Transaction volume was 3,648 units for the three months ended September the 30th, 2021, compared with $3,000. and 11 units last quarter, and 2,653 units in the same period last year. Total revenue was RMB 345.9 million for the three months ended September 30th, 2021, compared with RMB 277.8 million last quarter, and RMB 76.4 million in the same period last year. Growth margin was 4.2% for the three months ended September 30th, 2021, compared with 4% in the last quarter and a negative 22.4% in the same period of last year. The loss from continuing operation was RMB 45.9 million for the three months ended September 30th, 2021, compared with RMB 50.7 million last quarter and RMB 162.7 2.6 million in the same period of last year. The non-GAAP adjusted the loss from continuing operation was RMB 43.2 million for three months this quarter, compared with RMB 44.6 million last quarter and RMB 178.3 million in the same period of last year. The fair value of impact of issuance of the senior convertible preferred shares resulted in a loss of RMB 1,654.9 million for three months ended September 30, 2021. As discussed earlier, the impact was mainly due to the significant rise in the stock price since the company announced a price raise about entering into the deal. The fair value impact was non-cash charged. Driven by this, net loss from continued operation was RMB $1,714.6 million for the three months ended September 30, 2021, compared with RMB $258.9 million in the same period last year. If removing the fair value adjustment impact, the non-GAAP adjusted net loss from continued operation was RMB $156.9 million for the three months ended September 30, 2021, compared with RMB 274.6 million in the same period last year. Then about our cash position. As of September 30, 2021, we had a cash and a cash equivalent of RMB 230.6 million. Moving on to our guidance, we expect our total revenues to be in a range of RMB 480 million to RMB 500 million. for the three months ending December 31, 2021. This forecast reflects our current and preliminary views on the market and operational conditions, which are subject to changes. This concludes our preparatory remarks. Thanks. So, operator, we are ready to receive the questions. Thank you.

So, ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. If you wish to cancel the request, you can press the pound or hash key. Once again, it is star 1 on your telephone keypad to ask a question. Please note there might be a slight pause as we collate the questions. We have the first question. This is coming from the line of Faye Day. From DF Securities, please go ahead.

BK, hello. My question is, from last... Hello. My question is, from last quarter's financial situation, we noticed that the company's car wholesale business contributed more revenue to the company's overall performance. From this quarter's point of view, this proportion is also further optimized. May I ask if the company... repeat my question in English. Judging from the financial situation of the last quarter, we noticed that the wholesale vehicle business has contributed more revenue to the overall performance of the company. Judging from this quarter, this proportion is being further optimized. How does the company understand the development of the business and what will be the impact on the retail vehicle business in the future? Thank you.

Okay. Currently, our retail sales and wholesale sales are about 1 to 2. Because of Youxin's brand and influence and popularity, many consumers will see us as an option to sell old cars. But from the current situation, one is due to our location, which is the limitation of the retail warehouse. The second is to control the size of the cash occupied in the vehicle warehouse. The third is our sales ability. In this, we are still in the process of climbing. So we are not going to put all of our personal vehicles that have been purchased into it. All of them have been converted into our retail vehicles. Then there is a part of this. It does not meet our retail standards. Then this part of the vehicle, we will send it out. Then with this one now.

In UC, currently, the sales breakdown between our retail and wholesale business is one to two. Given our brand impact and market reputation, many customers come to us to sell their used vehicles. However, currently, we don't sell all the used cars sourcing from individual car owners. through our retail business for a few reasons. First, we have to consider the space capacity. Meanwhile, we would like to control the level of cash tied up in our inventory. Also, it takes time to increase our sales capacity. Therefore, for the costs that are not up to our retail standard and those that are beyond our inventory capacity, we will sell through our wholesale business and accelerate our inventory turnover rate.

In the long run, this percentage breakdown will gradually change as our retail inventory level gradually increases and Hefei and CNIRC

have both been in operation. Our retail sales will for sure gradually climb. We expect the sales breakdown between retail and wholesale to be 2 to 1, ideally, which means retail sales will be twice as much as wholesale sales.

Thank you. Thank you.

Thank you.

Shall we move to the next question? We have the next question. This is coming from the line of Jay Jin from China Securities. Please go ahead.

Hello, Mr. Guan. I have two questions. One is about the impact of supply value change on profit and loss. Can you explain it to us? The second is about cash flow. Because our Sorry, could you please repeat your question in English? I have two questions. The first one is about the land loss. Could you explain the impact of the fair value change for the net loss? The second question is about the cash flow. What's the expectation of the following quarter's cash flow? Okay.

Okay. 我先用中文来回答, 然后请George在英文来翻译一下。 First, I would like to answer the question of fair value adjustment. As we explained earlier, this is a loss on the account. This was announced by us and two investors on April 1st this year. It is related to a 3.15 billion US dollar financing transaction. From our perspective, After the announcement, our stock price has made a big change, especially the stock price has risen a lot. Therefore, there will be a fair value adjustment in the accounting process, because according to our agreement, the investment of the new investor is preferred stock, so based on the processing of the US GAAP, there will be such a Okay. This is a paper lot related to our financing transaction, which was announced earlier this year. It's a purely accounting treatment under the U.S. GAAP recalculation. Due to the change in supply,

After the announcement of the deal with Neo Capital and Joy Capital, the rise of using stockpiles resulted in the loss of our incoming payments. However, this is a non-cash item which will not have any impact on the company's cash flow status, and it's not related to our business development.

Okay. Now, about your second question, about the cash flow, we are talking about the future capital and future capital After the financing, our current status is still relatively sufficient. In July, we received the first $100 million. The second $50 million, we used $27.5 million. We also issued an announcement and received it in advance. This is before our previous planned time. This reflects the confidence and recognition of a new investor in the company's business status and business development. We are also working with investors to promote the next Warrant acquisition. We will continue to provide funding support for future business development. This is all going smoothly according to the plan. Based on the current funding, our business progress is relatively smooth. Our inventory is constantly expanding and our volume is steadily increasing. We have also made very effective arrangements for the use of current and future funds.

In terms of cash flow conditions, after receiving the funding from investors, we have ample cash on balance sheet. We received the first change of $100 million in July, and we are closing the second change of $50 million, which is also ahead of the original schedule. This reflects the investors' full recognition and confidence of our operation and business development. Meanwhile, the follow-up warrants, a part of the transaction, also progress well as we are working closely with investors. Such funding will support our future business development. As of today, our business is doing well and keeps expanding, with the continuous growth of our vehicle inventory. Overall speaking, as we have made sound plan of the usage of our cash, I believe our cash balance is sufficient.

Okay, thank you. Okay, thank you.

Appointer, please go ahead to next question.

We have the next question. This is coming from the line of Ping Wei Wu from CITIC Securities. Please go ahead.

Hello, can you hear me?

Yes, you can. Thank you.

Good evening. I'm Wu Ping Yue from CITIC Securities. I want to ask you a question about new energy sources. I saw a report saying that new energy sources have already entered the second-hand car industry. Let me translate to English. And my question is about the electric vehicle used cars And on the one hand, it grows very fast. And however, there's some other problems, for example, the discount or how to estimate its values. And I would like to hear from you about what's our plans and views about the secondhand electric vehicles. Thank you.

Yes, we have already started the new energy car business. The new energy car as a major trend in the car industry is that the current maintenance is relatively small, but we can clearly see that the car owners of new energy cars have increased in the desire to change cars and replace them. When it comes to gasoline cars, people will change cars faster. So we also saw that the second-hand cars of new energy cars are actually very popular with consumers. So from this point of view, the new energy car and the second-hand fuel car will be a very big market in the future.

We have launched our used EV business. EV is a major trend in auto industry. Although the pool of existing EVs is still in a relevant small amount, there is a clear sign that the demand from owners of EV cars to switch or upgrade their vehicles is increasing, and the use of EVs is increasing. electronic vehicles are popular and sellable in the market. The potential market size for used electronic vehicles will be as large as conventional gas-powered used cars, although there are some differences between these categories in terms of inspection, reconditioning, pricing, and sales.

We have already launched our used electronic vehicle business. Currently, we offer used EV of multiple well-known EV brands. Meanwhile, we continue to build up our electronic vehicle service systems.

and refine our capabilities on a number of fronts, including inspection, pricing, and after-sales service. We are also exploring the best way to sell used electronic vehicles. We hope to contribute to the healthy development of used electronic vehicle markets in China by leveraging our extensive know-how and capabilities in used vehicle markets built up through years of operations.

Okay, thank you.

Thank you. We have no further questions at this moment. I would like to hand the conference back to our host for any ending remarks. Please take over.

Thank you, operator. Thank you for all investors joining us today. We look forward to seeing you next time. Goodbye.

Goodbye. Goodbye. Thanks. Thank you. That concludes our conference call for today. Thank you all for your participation. You may disconnect.