Uxin Limited

Ladies and gentlemen, thank you for standing by, and welcome to the Yuxing earnings call for the quarter ended December 31st, 2021. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. 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 you for today's conference call. Ms. Joyce Tang, I am the director of the company. Please go ahead, ma'am.

Thank you, operator. Hello, everyone. Welcome to Yuxin's earnings conference call for the quarter ended December 31st, 2021. On the call today are DK, founder and CEO of Yuxin, and John Lin, CFO of Yuxin. DK 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 proper 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. Yuxin 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, Big K. Please go ahead.

Thank you, host. Hello, everyone. Thank you for joining our earnings compass 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 third quarter of 2022, that is, from October to December of 2021, we are very happy that our performance continues to maintain a strong growth. The total sales volume of this quarter is 4865 units, which increased by 111% compared to last year, and increased by 33%, of which the retail sales volume of 1657 units increased by 61% compared to the previous quarter. Although one of our important business cities is Xi'an, We are pleased that our business maintains its robust growth throughout the third quarter of fiscal year 2022, which spans from October to December 2021. Total transaction volume grows by 111% year-over-year,

to 4,879 units in the quarter, and grow 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 launch, has effectively helped us mitigate some of the negative impacts from the disruptions in Xi'an.

Hefei's IRC, after half a year of preparation, officially opened in mid-November 2021. On the basis of our first IRC Xi'an model running, after the full process of re-planning, upgrading, and building, Hefei's IRC has initially realized the commercial model of storage and online integration. The Hefei IRC officially opens for business in mid-November 2021 after six months of preparation. With the successful model of our Xi'an IRC as the foundation, we redesigned the source operation process through a series of upgrades and improvements.

As such, we have equipped our Hefei IRC with an omni-channel 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 after-sales guarantees, creating the superior used car shopping experience that has been widely welcomed by customers since opening.

我们的消费者净推荐值,就是NPS,连续五个季度提升。 本季度的NPS得分是59分,又达到了一个新的高点。 上季度这一分值是56。 我们不断在采购、销售、交付、售后等各个环节进行优化,不断提升消费者的满意度。 我们会持续升级迭代我们的产品和服务,用客户口碑的传播来推动高质量的销售增长。 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 after-sales 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 strengthen 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 this matrix has proven the effectiveness of our efforts, we will continue to expand into sourcing channels to purchase vehicles from consumers.

We also roll out our used NEV business in this quarter. We have already developed core NEV inspection capabilities

such as for battery and motor inspections, while expanding our used NEV after-sales services. We currently have five of the best-selling NEVs on sale, including Tesla, NIO, Li Auto, Xiaopeng, and BYD.

In terms of the optimization of the supply chain, this quarter has also achieved useful results. We have further optimized the coordination mechanism of the various parts of the supply chain, and greatly shortened the time from the purchase of vehicles to the warehouse to the preparation of the retail status. Moreover, the continuous optimization of our supply chain also yields very encouraging results. By improving the synergies between each process throughout the supply chain cycle,

We reduce the time needed to make the 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.

Hefei RRC, the Kaiye. 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. 展望2022财年的第四季度,也就是自然年2022年的1到3月份。

Xi'an has experienced double the impact of the epidemic closure and the traditional spring festival. Xi'an is the second-largest provincial city in the country since the Wuhan epidemic in 2020. Now, after the Spring Festival, Xi'an's ILC has only begun to recover gradually. It has now returned to its normal level before the epidemic. At the same time, it has benefited from the good growth trend of Hefei ILC. We expect that our retail sales will continue to grow in March this year.

Now, moving on to our expectations for the fourth quarter of fiscal year 2022. During the three 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, given by robust performance of our Hefei IIC, we expect our retail sales to continue to grow in the fourth quarter.

Our team has very strong execution and cohesion. Thank you to everyone in the team for their hard work. Although the COVID-19 pandemic has brought us a lot of challenges, but with our joint efforts, we have quickly overcome all kinds of difficulties and adjusted to the best state. 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 in experience, skills,

and Team United, and we are grateful to everyone's hard work and dedicated contributions. 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 vision.

Next, let's have CFO John to introduce the financial situation of this quarter.

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, DK. 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 impacts 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 operation efficiency, and improve our one-stop car shopping experience to our customers. Thanks to the opening of Hefe IRC, we can keep our retail growth momentum both in Q3 and will be in Q4. With the opening of Hefe IRC in Q3, we incurred additional costs and expenses on construction, renovations, site rental, and new employees. We also invested in additional marketing for customer acquisition in Hefe City, as well as the entire Anhui Province to maximize our branding 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 operation 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 NEO Capital and Joy Capital, last Friday, or March the 25th, we received 10 million U.S. dollars from the second closing. We also expect to receive the remaining 12.5 million U.S. dollars from the second closing in the coming months. In addition, we are on track with investors about the execution of the 165 million U.S. dollar warrant Now I will run through some key financials. Our numbers are in RMB terms, unless otherwise noted. Total revenue was $506.6 million, representing a quarter-over-quarter growth of 46.5% and a year-over-year growth of 56.9%. Growth margin was 4.1%, stable compared with 4.2% last quarter. Total operating expenses were $120 million compared to $85.9 million in the prior quarter and $188.3 million in the same year of 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 the loss from continuing operations was $60 million. 68.6 million compared with 43.2 million last quarter and 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 1.58 US dollar per ADS on December 31st, 2021 compared with 2.76 U.S. dollars per ADS from September 30, 2021. This resulted in a non-cash gain of 1.36 billion RMB 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 non-cash gain and was not a result of our operations. Consequently, net income from continuing operations was a net gain of 1.28 billion RMB in the third quarter, compared with a net loss of 1.71 billion in the last quarter and a net loss of 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 80.2 million, compared with a net loss of 56.9 million and a net loss of 171 million in the same period last year. Then about our cash position. As of December 31st, 2021, we had a cash and cash equivalents of 161.3 million RMB. Moving on to our Q4 guidance. In the fourth quarter, we are facing two 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 $460 million for the three 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.

Ladies and gentlemen, if you have a question or a comment at this time.

Ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touch-tone telephone. If your question has been answered or you wish to move yourself from the queue, please press the pound key. When asking a question, state your question in Chinese first, then repeat in English for the convenience of everyone on the call. We'll pause for a moment to compile our Q&A roster. Again, ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touch tone telephone. And again, when asking your question, please ask the question first in Chinese and repeat it in English for the convenience of everyone on the call. And our first question comes from a call Brickenfeld with American trust.

Okay. Um, yes. Um, given the recent increased COVID related lockdown in China, What is the impact to your vehicle inventory center and retail sales growth for 2022 going forward calendar year? I'm sorry, I don't speak Chinese.

All right, no problem. I got your question. So this is DK. I still try to use Chinese to answer the question, and my colleagues will translate to English. Indeed, our business has been affected by both the epidemic and the traditional spring season, especially Xi'an. Because of the epidemic, it has been greatly affected. But since we opened in November last year in Hefei, the sales have been very good since then. From now on, after the festival, Our business was definitely affected by the resurgent of COVID-19 and the Chinese New Year off-season. In particular, operations of our CNIRC were severely disrupted by COVID-19.

However, as we successfully launched our Hebei IIC in November last year, its robust performance helped us mitigate some of the impacts. After the Chinese New Year holiday, our CNIIC has also resumed its growth trajectory as its sales volume has surpassed its pre-COVID level.

During the fourth quarter, our CIIC continued to experience disruptions caused by lingering COVID effects.

However, we expect a strong momentum of our Hebei 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 volume 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 offline sales model has integrated

our offline super stores with our using online super mall. This integration allows us to better diversify risk and minimize the impact of COVID-19. Thanks for the question.

Again, ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touch-tone telephone. Our next question comes from Yingying with China Securities. Your line is open. You can ask your question, Yingying. If your line is muted, could you please unmute the line? The China Securities Company, you can go ahead and ask your question. Your line is open.

We can't hear you.

I'm sorry.

I'm sorry. I have two questions. The first question is about the change in the turnover rate and the exchange rate of cars in 2021. From the market point of view, what is the advantage of the competition between the company and Guazi? The second question is, in the future,

Okay. Sorry, Yingying, please go ahead.

Okay, please allow me to translate the questions 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 glass as well as traditional car theaters?

Okay, I'll answer the first question, and then Jun will answer the second one, okay? From the situation of the turnover rate, Xiantang opened in March last year, and now it's been running for just a year. Hefei opened in November last year, and now it's been running for more than three months. Okay, for your first question on turnover,

Our two IRCs are at different stage of development of maturity. As we launched our CN IRC in March 2021 and our COVID IRC in November 2021. Overall, our turnover is around six 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 to diversify our selection of vehicles. 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. In terms of competition, I think we and YouShang are all in a mode that is suitable for our own development.

The Chinese auto market is very large and very scattered. In fact, we hope to have more fresh blood to this traditional industry. As long as it can bring good shopping experience to the consumer, I think everyone has a chance. From the competitive advantage of Youxin itself, first of all, from the consumer's shopping experience, Youxin has the largest single-scale auto market. In this way, it brings customers the most abundant choice of vehicle products. Then we pay great attention to the high quality growth brought by customer reputation and transmission. So we have our own factory. And then the craftsmanship and technology are leading in the industry. All the vehicles have gone through a variety of detailed tests and high-level repairs to ensure the quality of the second-hand car. So our current model is the most advanced retail model combined with the online and offline. So Youxin was the first to do second-hand car online shopping in the country. Regarding computation,

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 fermented. 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 offline integrated retail model. We were the first one in China to sell used car online nationwide, removing the geography barrier for customers. Now, our vehicles are delivered to the doorsteps of our customers in more than 200 cities across China within four days. In addition, our large-scale and centralized warehouse-style retail model has better cost efficiency. For the next question from Yingying, it's that what are your plans to fund your future expansion?

Okay, let me answer this question. Last year, in June 2021, the company signed a 3.15 billion U.S. dollar financial agreement with Future Capital and Future Capital. This agreement is a three-piece agreement. The first piece of the financial agreement, 1 billion U.S. dollar, was signed in July last year. The second batch of funds is a total of US$50 million, including the US$10 million received last Friday, which is March 25th. The second batch of funds has accumulated US$3,750 million. The remaining US$1,250 million is expected to arrive soon. In addition to this, the third batch also has a total of US$1.65 billion of warrants in the hands of investors. Currently, the company's business promotion and the demand for funds In accordance with the original financing plan, the investors will promote the landing of the following warrants. After these funds are in place, we will support the company to continue to build the benchmark of second-hand car products and services, to improve our current IRTC and to expand the new IRC, and to promote the long-term development of business.

Okay, as we mentioned before, we signed a financing agreement with New York Capital and Joy Capital in June 2021 for the total consideration of $350 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 $50 million. On March 25th this year, we received $10 million of the second change. As such, we have received totally $137.5 million for the financing and about $37.5 million from the second change. 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 Warren program with our investors based on the pace of our expansion and its need for cash ingestion. With this money, we aim to continue accumulating and expanding our IRC networks 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 TF Securities.

Hello, DK. According to this quarter's financial report, Hefei's new RRJ's opening has had a positive impact on the company's performance. I would like to ask if the future company's scale will be expanded and will it rely more on the investment of heavy assets? The second question is, how does the company see the future development of the domestic second-hand car market? How is the company going to respond to the changes that we can already see? Repeat my question in English. According to the financial report, Jose ALC has had a positive impact on the company's performance. Will the expansion of the company in the future rely more on offline 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? Thank you.

Okay, let me answer. First of all, let me answer the first question. The offline investment is mainly for LRC, which is actually manufacturing factories. LRC's investment helps us to carry out the preparation of FANXIN on a large scale, and then control the preparation of the preparation section, and the intensive purchase of the preparation type of consumables, which will also improve our advantage over the upstream suppliers. Our offline investments are mainly channels into our IRC, or Inspiration 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 reconditioned 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. These improvements will help us reduce our costs. As such, our investment in IRCs will just fortify our competitive amounts.

The self-sufficiency of the vehicle is inseparable from the storage of the vehicle. So we always insist that the storage is an online integrated marketing model. So for consumers, the choice is very flexible. Whether it is to buy online or to visit our online market, the quality and price of the vehicle seen by consumers are the same. Online operation and online sales, we have accumulated years of experience. Online all-in-one service can maintain the leading position of the industry. Consumers know YouXin from the online market.

We are committed to the omni-channel sales model that integrates online sales with warehouse-style operations. Regardless of whether consumers buy online or visit our offline 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, Yuxin 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 offline influence. So, our online and offline operations can synergize and complement each other.

The second question is about the future development of the market. In 2021, domestic second-hand car sales have exceeded 1.7 billion units, and sales have exceeded 10 billion units. Second-hand car sales and sales have continued to maintain stable growth. In recent years, active new energy car sales have also become an important part of the future second-hand car market. In terms of retail sales, domestic retail sales are now larger than 1% of the market, and second-hand car dealerships have not yet appeared.

In 2021, the used car market in China continues to grow, as its sales volume exceeds 17 million units, or 1 trillion RMB in transaction value. Any ways 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 the market remains to be massive and highly fermented. 从未来的发展来看,现在二手车消费者对二手车的认可度和接受度在逐渐提高,但是行业痛点还没有根本的解决。

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.

Thank you. We've reached the end of the question and answer session. I'd like to thank the management for any closing remarks.

Thank you for joining our conference call today. We're looking forward to seeing you next time.

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