Uxin Limited

Thank you for standing by and welcome to USEN's earnings conference call for the first quarter of fiscal year 2023. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. If you wish to ask a question, please press the star key followed by the number one on your telephone keypad. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I'd now like to turn the call over to your host for today's conference call, Ms. Joyce Tang, IR Director of the company. Please go ahead, ma'am.

Thank you, Operator. Hello, everyone. Welcome to UCI's next conference call for the call ending June 30, 2022. On the call today are DK, Founder and CEO, and Zhonglin, CFO. DK will review 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 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 Security Mitigation 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 take any obligation 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 findings with the SEC. With that, I will now turn the call over to our CEO, DK. Please go ahead.

Thank you, Joyce. 谢谢主持人。 大家好,很高兴跟各位朋友 再一次通过电话会的形式见面。 感谢大家来参加我们的业绩电话会。 为了方便和国内外投资者进行交流, 我将继续用中英文的形式 和大家分享公司的最新进展。 Hello, everyone. Thank you for joining our Enies Conference call today.

to better communicate with both domestic and international investors. My prepared remarks today will still be in both English and Chinese.

This quarter, sales of 2407 units in retail increased by 30% and increased by more than 250%. We continue to win the trust of consumers with high-quality car frames, clear processes, transparent fees, and reliable service. In Hefei and Xi'an, the two places where we prepare the warehouse center have a good market share. As the largest single-seater second-hand car sales market in the East and West China Seas, our brand influence and customer satisfaction continue to increase.

In the first quarter of fiscal year 2023, which was from April to June 2022, we maintained our growth momentum despite repeat COVID resurgence across the nation. Our retention volume increased by 30% quarter-over-quarter and more than 250% year-over-year to 2,407 units. We continue to gain charts among consumers with our high-quality vehicles, efficient processes, transparent pricing, and reliable services. We also continue to expand our market share leadership in both Xi'an City and Hefei City, where our two IRCs are located. The two IRCs are the largest 100% self-owned youth consumer stores in East China and Northwest China, respectively. Our regional branding and customer reputation have been growing rapidly.

In this quarter, our net promoter score was 60, remaining stable at the industry's top level. Customer reputation through word-of-mouth recommendations

started to see our business grow. About 25% of our retail sales in the quarter were generated from customer referrals.

In order to better improve the customer experience, more accurately and objectively display the information of the retail car, help consumers make easier and more convenient car choices, 我们依据中国二手车鉴定评估技术规范, 细化落实检测项目超过700项, 为每一台车辆提供清晰详细的二手车放分级评分报告。 We refined our over 700 inspection checkpoints and launched our National Standard Vehicle Dashboard Program based on National Youth Car Appraisal and Evaluation of Technical Specifications Standards.

The program further improves our customers' shopping experience, enhances the presentation of retail vehicle information in a more accurate and intuitive way, and helps our customers make their decisions more easily and conveniently. Each retail vehicle is provided with a percentile score based on detailed yet easy-to-understand information on vehicle conditions.

The consumer can clearly see the description and detailed images of the car frame, such as the appearance of the car, the engine compartment, the driver's compartment, the start, the road, the chassis, and the car frame, and the description and detailed images of the car frame. We will export the complex information of each car and each frame to the consumer in a standardized way, effectively improving the consumer's sense of the real car frame, speeding up the purchase decision, and improving the purchase experience.

Consumers can see our category of ratings for each retail vehicle, including grades for the exterior appearance, engine compartments, cockpit, emission test, road test, chassis, and etc. Instead of a highly complex report, we use simplified, standardized, and visualized ways to tell our customers the pros and cons of the cars and their price savings. As such, our customers can understand the car easily, make comparisons easily, and make purchase decisions easily. The program is very well received by our customers.

In this quarter, our operation efficiency continues to improve across the whole business process. For example, the reconditioning time from vehicle acquisition to listing for sale is reduced by about 50%.

We also reduced our retail turnover days by about 48% compared to one year ago. Going forward, we will be factor and factor in warehousing, reconditioning, listing, selling, and shipping, etc.

This will be our relative focus. 近期,中国商务部等17个部委密集发布和落地多项二手车行业的利好政策。

After the country's five national emissions standard second-hand car line-up problem has been fully canceled after the policy of tax reduction, digital file convenience, and ED transaction, the second-hand car product property problem has also been solved. This not only will further regulate and simplify the second-hand car process, promote high-efficiency circulation of second-hand cars, but also reduce corporate costs and increase financing convenience. This time, in the past ten years, the unique and broken points that obstructed the circulation of second-hand cars will be fully resolved.

The Ministry of Commerce and 15 other relevant departments have been actively implementing a series of business and task-oriented supportive policies to boost the used car industry in China. Following previous measures to reduce value-added tax rates and digitize vehicle registration nationwide, the regulators have completely lifted restrictions on cross-regional circulation of used cars with National Emission Standard 5 or above. The accounting method and tax treatment have also been modified to promote self-owning business models from commission-based agency models. All these policies will significantly help streamline use-card transaction processes, promote efficiency circulation, reduce operation costs, and facilitate working capital financing. Finally, all major obstacles that have hindered used car industry development in the past decades have been completely removed.

Starting from next year, the state regulators will begin strengthening oversight of used car operations, requiring all dealerships to operate as compliant legal enterprises instead of running the business as individuals.

This will mark the gradual ending of the small-sized, highly fermented, unpleasant, and franchise business operations which are currently dominating the used car industry in China. These policies signify that well-branded, scalable, and compliant used vehicle companies will thrive and become major market players. As new opportunities emerge, we believe that customer trust, vehicle quality, and service capabilities which we have been consistently pursuing as our fundamental principles, will be the most important foundation for the future growth of the used car industry in China. Youxin, as a used car business leader in China, will benefit from this variable policy and sustain our high-quality growth on the back of the industry tailwind.

On September 9, 2022, we celebrated Youxin's 11th birthday. Looking back at the past year, we have set a solid foundation for the next stage of development in the management system construction, supply chain process polishing, product service optimization, and other aspects, and are constantly improving. Yuxin is fully prepared for the next stage of development.

We are celebrating Yuxin's 11th anniversary this year on September 9th.

I'm pleased to see that we have built a solid foundation with continuous improvement in all business assets over the past year. Our transformative upgrades to management systems, supply chain processes, as well as product and service qualities will set a stage for our next phase of growth.

We expect that in 2023, Youxin's retail sales will continue to increase. Xi'an Warehouse will expand, Hefei Warehouse will continue to operate, and Hefei Changfeng Factory is also under construction.

我们的各项业务规划都在稳步的推进中。 Looking ahead into the fiscal year 2023, we expect our retail sales will continue to grow each quarter. Our TRN IRC size will extend to a much larger size. Our surface IRC will continue to operate at its full capacity. At the same time, the construction of the super IRC co-invested by us and the surface cities Its country includes we. All of our business plans have been making steady progress.

我们是一家长期主力的公司。 我们将坚持为顾客提供好品质的车辆, 创造好的体验和提供满意的服务。 坚持以口碑推动高质量的增长, 为股东带来长期的回报。 好,我的发言到这里。 那下面有请我们的CFO John,谢谢。

Our sights are set on the long-term. We are committed to providing high-quality vehicles, creating a superior shopping experience, and offering satisfactory services to our customers. We are confident that our dedication to customer reputation will drive sustainable, high-quality business growth and ultimately generate long-term returns for our shareholders. I will pass the phone to my dad, Bob John. Please.

Okay. Thanks, DK. Hello, everyone. Welcome to our earnings call for the first quarter of this year, 2023, which is the three-month end of June 30th, We will walk you through our key financial results in both English and Chinese. 受益于本季度总销量,环比增加29%,本季度总收入为6.26亿人民币,环比增加23.8%,同比增长125%。 Driven by a 29% quarter-over-quarter growth in our overall transaction volumes, our total revenues were RMB $626 million, increasing 23.8% quarter-over-quarter and 125% year-over-year. Specifically, retail sales revenues were RMB 348.4 million, increasing 9.1% quarter-over-quarter and 279% year-over-year. The retail revenue growth was mainly driven by the 30% quarter-over-quarter sales volume growth, At the same time, we have been optimizing our inventory structure to better meet mainstream demands of mid-range priced cars as we are targeting broader middle-class customers. The average selling price of retail car swaps to RMB 145,000 in Q1 from RMB 180,000 in the prior quarter. The ASP will further decrease to RMB 118,000 in the next quarter and remain relatively stable in the future. Although the decreasing ASB partially upsets the increase in revenue growth from retail sales volume, an optimized inventory structure with more widely accepted price range will lay a healthier foundation for our long-term sales growth. We mentioned earlier that the direction of the company's storage structure adjustment is to increase the value of mainstream and medium-price vehicles. Therefore, by adjusting the sales price, we will accelerate the sales cycle of high-end vehicles and reduce the impact of part-vehicle vehicles. If we exclude the impact of storage adjustment, the risk of this quarter will be around 4%. We expect that in the next few quarters, the structure of the storage will gradually adjust to a合力水平 according to the rhythm of the plan, and the risk will continue to improve in the next few quarters. World's margin was 1.1% for the three months under June 30, 2022, compared with 0.2% in the last quarter. As I just mentioned, we have been shifting toward mainstream mid-range priced vehicles, so we accelerated the sales of the higher priced vehicles through price adjustment. This led to some red-offs of unsold inventories to improve turnover. These actions led to a currently low world's margin If we excluded the impact of the inventory adjustment, our gross margin would be at the 4% level. While the inventory structure becomes more and more reasonable as planned, we expect our gross margin to improve quarter over quarter this year toward a normal gross margin level. We continued our stringent expense management, and the total operating expenses were relatively stable compared with the prior quarter. Although our retail sales volume continued to grow, we reduced the overall customer acquisition costs thanks to our cost-effective marketing channels and strategies. The non-GAAP adjusted loss from continuing operation this quarter was RMB 84.9 million, an improvement of 11 million compared to the prior quarter. As our business continues to grow and our inventory adjustment is finalizing, we expect to see further improvements in the remainder of the fiscal year. Because the stock price on March 31st is US$1.02 per ADS, the stock price on June 30th is US$0.42 per ADS, which will lead to a 2.52 billion RMB income from the 2021 signing of the Warrant Company's Warrant Company. This is just based on the financial handling of the U.S. accounting system, which is a non-money income and does not reflect the company's income. The detailed financial statements were published in our earnings release online, so I will not repeat the numbers here. But I do want to answer this one thing as usual. At the end of the first quarter fiscal year 2023, similar to the past quarters, there was a fair value impact related to our financing transactions. The share price was 42 cents per ADA on June 30, 2022. And on March 31st, 2022, the share price was $1.02 per ADS. So this resulted in a non-cash gain of RMB 252 million from fair value change of the world liability and forward contract assets on our balance sheet. I would like to emphasize again that this fair value impact was a non-cash gain and not a result of our operations. The company is continuing to work hard to optimize its asset debt. At the end of August, we issued an A-class shareholder to ClearWoo with a price of $1.03 per APS. In addition to the advantage of the left-over $1,266 million debt to ClearWoo in 2019, Future Capital also paid $100 million in new investment agreements to the company according to the plan. We are practically optimizing the balance sheet. In the end of August, the company issued ordinary shares to clear due at a price of $1.03 per ADS in exchange for fully releasing the company's obligations under the convertible note with an aggregated principal amount of $12.6 million. Today, Neo Capital has made further payments based on their great fund payment schedule as part of its total $100 million strategic investment to support our CNIRC expansion and Hefei Super IRC construction. 关于下一个季度的业绩展望,除了收入指引外,我们这次增加了销量和单车售价的指引,以便于大家更好地了解我们的业务进展。 We expect that in the second quarter of 2023, that is, from June 2022, retail sales will reach 3,000 units, with a growth rate of 25% and a growth rate of 192%. We expect that retail sales will reach 2,800 units, with a growth rate of 8.2 million yuan. The total sales revenue, including retail sales revenue, retail sales revenue, and government service revenue, About next quarter's forecast, in addition to revenue guidance, we have added guidance on transaction volumes and average selling prices to give you a better picture of our business progress. For the three-month ending September 30, 2022, the company expects its retail transaction volume to be around 3,000 units, representing an increase of 25% quarter-over-quarter and an increase of 192% year-over-year. The average selling price for retail cars is expected to be around RMB 118,000. The company also expects its wholesale transaction volume to be around 2,800 units, with AISP expected to be around RMB 82,000. The company estimates that its total revenues, retail vehicle sales revenue, wholesale vehicle sales revenue, and value-added services revenue to be in the range of RMB 590 million to RMB 610 million. This concludes our fair remarks. Operator, we are now ready to take the questions. Thank you.

If you wish to ask a question, please press star then one on your telephone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. When asking a question, please state your questions in Chinese first, then repeat them in English for the convenience of everyone on the call. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Ying from Ying. Please go ahead.

OK.

I will repeat the question in English again. We noticed that you're expanding your outlook disclosure. Your retail transactions are expected to grow, but wholesale transactions are expected to decline. How should we expect the two businesses to perform going forward? ZK, please go ahead.

Okay. We tell ourselves to be the most important educators of our performance to provide more clarity on our business growth trends

And operating results, we have expanded our guidance to include our expectations of transaction volumes and average selling prices in addition to revenue outlook starting this quarter. We expect retail sales to maintain its growth momentum in the fiscal year of 2023.

As more consumers recognize our products and services, our retail sales will continue to grow.

Additionally, as we expand our inventory size and enhance our vehicle acquisition and inspection and reconditioning capabilities, we will have more retail standard vehicles, which will also contribute to the growth of our retail sales. 批售是整個業務的有效支持和補充,隨著我們零售的銷售能力越來越強,

we can sell more vehicles through retail. Therefore, the proportion of wholesale sales will decrease.

Wholesale business is an effective supplement to our retail sales. As our retail sales force becomes more potent, we will retail more vehicles and naturally decrease the percentage of wholesale business.

From a long-term perspective, the proportion of retail sales and wholesale sales

In the long term, we expect 75% of our total sales to come from retail and the remaining 25% will from wholesale.

That's my answer to the question. Thank you.

The next question comes from Tom Kerr from Zach's Investment Research. Please go ahead.

Hello. My question is about vehicle acquisition. Do direct purchases from consumers still represent about one-third of vehicle acquisitions? And is that share growing? And then just generally, how should we think about car sourcing costs, you know, given the series of favorable policies that's been implemented?

Hello, Tom.

This is DK. I will answer your question.

Our direct purchases from consumers accounted for nearly 40% of our total acquisitions this quarter.

and we expect this percentage to increase further. Currently, we collect cars from consumers, mainly from the two IRC locations in Xi'an City and Hebei City, as well as their surrounding cities. These are our primary sources of direct purchases from consumers. However, as we expand our inventory size, we will also increase the percentage of vehicles we purchase from consumers in other locations, especially after the removal of closed regional transfers, which facilitates the national circulation of high-quality cars.

Sorry, I didn't finish. Okay.

In terms of our vehicle acquisition costs, they mainly consist of the vehicle's purchasing price and the related transaction costs.

such as title transfers and delivery logistics. In the long term, we will continue to reduce our acquisition costs. After restrictions are lifted, we can access a broader selection of vehicle sources. We can effectively fill our inventory by analyzing the market data of vehicle pricing in different regions. This will enable us to further reduce our vehicle acquisition costs.

The implementation of the new policies such as regulations on the fine transfer registrations

will benefit like-companies like us. In addition, with the implementation of electronic filing, temporary license plates, and new test treatments, we can reduce our transaction costs in the vehicle by thousands of dollars.

The last point is that Youxin has established the most advanced road oil planning system in the industry and maintained dynamic optimization. Therefore, the cost of road oil has been low in the industry.

We were the first in the industry to start selling used cars nationwide. We have also established an industry-smooth advanced delivery routing system with dynamic optimization. We have kept our logistics costs relatively low in the industry. With the increase in volume and improving economies of scale, our logistic costs will also continue to decrease. That's my answer to your question. Thank you.

I have one more quick question. Yes, on these favorable policies, do they all start October 1? or have some already been implemented that you're seeing?

In 2022 to today, we saw a number of high-profile industry policies. These policies signify the government's commitment to developing the used car industry

by solidifying well-branded dealerships as the mainstream transaction model in the market. Consequently, the state regulators limited the total number of used cars an individual is able to trade every year, whereas dealerships are now able to complete vehicle transfer directly. These measures have effectivity in future used cars as commercial products.

China China China China China China

In fact, from the state-regulated perspective, we still need more companies that can provide high-quality vehicles and reliable services as the driving force to revitalize the used car industry and win customers' love for used cars as a product. The direction of this new national policy is highly consistent with our perception of the market and the characteristics of our business. The used car industry is currently experiencing its most crucial changes in decades, and we hope to take full advantage of such tailwinds to fuel our growth.

From the perspective of market response, the impact of the pandemic in the first half of this year Sorry, yeah.

Yeah, that's all. Yeah, Tom just emphasized about any updates since October 1st. All right, all right, okay. Can you share? Yeah. Yeah. Yeah. 麻煩您多分享一些10月1號以後新政以來的一些政策和變化以及影響,謝謝。

The next question comes from... Okay, the next question.

Yep, next question comes from Fei Dai from TF Securities. Please go ahead.

Repeat my question in English.

I've got two questions. The first one is, how is the company's current financing situation? How are the funds being used? What's the company plan to do with these funds in the future? Thank you.

Hello, everyone. I'm John. I'm here to answer your question.

The company previously disclosed a new home in the future. New capital has made payments based on further agreed upon payment schedules

as part of its total $100 million US dollar strategy investment. The payment is proceeding in an orderly manner. We will utilize the funds mainly to expand our inventory size, enhance our reconditioning process, and support the expansion of the CNIRC and the development of the superstore that's currently in the construction.

That's the question.

Okay. Please go ahead. Sorry, please go ahead. Okay. Repeat my question in English. Till now. What is the transaction scenario and the process of the company's consumer? What is the proportion of online and offline transactions? Thank you.

Hello, Debi. The process of the transaction scenario is like this. Now, 25% of the customers are completely online. And 75% of the customers will come to the scene to see the car and park the car.

Currently, 25% of our transactions are generated purely from online. For the remaining 75%, customers will prefer to visit our stores in person and see the vehicle offline before purchasing a car.

This is the reason behind the difference. In fact, all customers will first online browse their vehicles before buying. The difference is that customers who are close to Hefei IRC or CNIRC However, all the customers generally look at the vehicle's license. The difference is whether they are located close to our IRCs or not. For customers near our stores,

they are more willing to visit us offline after checking out the vehicles online. During the visit, they can understand the real conditions of the vehicles before picking them up on site. For customers who are located further away from our IRC, they will order and purchase online.

Thank you, Guan Yifeng. Thank you for your questions.

Thank you. We have reached the end of the question and answer session. I would like to hand the call back to Joyce Tang for any closing remarks.

Thank you everyone for joining our call today. We look forward to seeing you next time.