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spk07: Ladies and gentlemen, thank you for standing by, and welcome to USEN's conference call for the quarter ended September 30th, 2022. 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. Jack Wong. Please go ahead, Jack.
spk04: All right. Thank you, operator. Hello, everyone. Welcome to Yuxin's earnings conference call for the quarter ended September 30, 2022. On the call with me today, we have BK, our founder and CEO, and John Lin, our CFO. BK will review business operations and company highlights followed by John, who will discuss our financials and guidance. They will both be available to answer your questions during the Q&A session that follows. Before we proceed, I would like to remind you that this call may contain forward-looking statements, which are inherently subject to risks and uncertainties that may cause actual results to differ from our current expectations. For detailed discussions of the risks and uncertainties, please refer to our filings with the SEC. Now with that, I will turn the call over to our CEO, DK. Please go, Hester.
spk02: Thank you, Jack. Hello, everyone. I am very happy to meet you again through the phone call. Thank you for attending our phone call. In order to communicate with investors around the country, I will use Chinese and English to share with you the latest business progress of the company.
spk04: Hello, everyone. It's a pleasure to have you join our earnings conference call today. For the convenience of both domestic and international investors, I will review our business progress in both English and Chinese.
spk02: During this call today, I will review our major business highlights,
spk04: of the past quarter, and then share our recent business progress and our thoughts on long-term prospects.
spk02: In the second quarter of 2023, which is from July to September 2022, our retail sales reached 3,109 units, which increased by nearly 30% and increased by 203%. 2022 is a very difficult year for the Chinese auto market. Our retail transaction volume in the second quarter of fiscal year 2023
spk04: which ended on September 30, 2022, reached 3,109, representing an increase of almost 30% quarter-over-quarter and 203% year-over-year. 2020 has, 2022 has been a rather difficult year for China's used car market. Specifically, the COVID restrictions constantly disrupted business activities and decelerated economic activities and consumer spending. As a result, in the quarter between July and September, China's used car transactions fell 5% year over year, which was rarely seen in the past years. Despite facing those macro and industry-wide challenges, we continued to deliver significant business growth. This demonstrates the resilience and vitality of our IRC-based omni-channel used car business model we have built.
spk02: On the basis of a significant increase in sales, our brand and customer satisfaction are also continuing to increase. At the end of last year, we began to invest in operations in Hefei's major stores. In less than a year, we have achieved considerable success in the Hefei regional market. Youxin has become the first brand in Wutishi to buy second-hand cars from consumers in Hefei. The market share rate is close to 10%. The NPS score of Youxin in July to September has stabilized at the highest 61 points in the industry.
spk04: On top of our rapid growth in transaction volume, our brand reputation and customer satisfaction levels also continued to grow. Since we launched our Hefei Superstore at the end of last year, we have achieved the resounding success in Hefei's regional market in less than a year. Our market share in Hefei is close to 10%, and is expected to increase further. While our brand has occupied the most mindshare from used car buyers in Hefei as well as its surrounding cities, our Net Promoter Score, or NPS, was 61 in the past quarter, maintaining at the top of the industry. More than 25% of transactions in the quarter came from referrals by existing customers.
spk02: At the same time, the efficiency of commercial operations is also continuing to improve. At the end of the car launch, our multi-channel car network has been running well, particularly in the two regional markets of Xi'an and Hefei. The competitiveness is very prominent. From the standstill of individual customers to the standstill of car owners, it is nearly 60%. In September, the time from the car to the warehouse to the market has been further reduced, and the speed of storage cycle is also continuing to increase. Although the epidemic disturbance in October and November has fluctuated, it basically returned to the September level in December. It is expected that all data indicators for next year will continue to improve.
spk04: At the same time, our ongoing efforts in improving operation efficiency continued to yield results. On the vehicle acquisition front, our car sourcing channels worked fairly well. Particularly in Xi'an and Hefei, where we established our IRCs and superstores, we have unrivaled capabilities to acquire high-quality used car supplies. Close to 60% of our vehicle acquisitions came from individual customers. In September, we further accelerated our operation process between used car acquisitions and listing them for sales. These refinements in turn continued to accelerate our sales turnovers. Although we experienced severe COVID-induced disruptions throughout October and November, Our operations have returned to the level of September, and we expect our operating metrics to continue improving in 2023.
spk02: Today, I would like to share with you another important milestone in the development of U-shaped business. In order to better meet the demand for second-hand cars in Xi'an and surrounding areas, we completed the upgrade of Xi'an's major shopping malls in December and officially started operating. The upgraded Xi'an Grand Market is China's largest all-engine two-wheeled car market in the northwest region, with a total area of 150,000 square meters. It is composed of two parts, a two-wheeled car manufacturing plant and a warehouse market. The manufacturing plant is equipped with the leading modernized water-flow line equipment in the industry, with a annual production of up to 40,000 units, to ensure the supply of super-large-scale high-quality two-wheeled car products. The sales volume of the warehouse market has increased from the previous 600 units to a total of 3,000 units, covering all mainstream models. To provide consumers with sufficient vehicle purchase options, Today, I am excited to share another key milestone we have achieved. As we have announced last week in December 2022, we completed the relocation and upgrade.
spk04: of our Xi'an IRC and Superstore to better fulfill the market demand for used cars in the city of Xi'an and its surrounding areas. The upgraded IRC and Superstore reopened for business at the new location as the largest fully self-owned used car marketplace in northwest China. The upgrade expanded the IRC's total floor area to 150,000 square meters and is comprised of a used car reconditioning factory as well as a warehouse-style superstore. Powered by industry-leading equipment and advanced reconditioning techniques, the reconditioning factory has an annual capacity of 40,000 units to ensure that Yushin has a super large-scale supply of high-quality used cars. The warehouse-style superstore expanded its showroom capacity from 600 vehicles previously to 3,000 vehicles now to offer an extensive selection of used cars to our customers. In addition, the IRC houses an integrated customer service center and brought in a branch office of the vehicle administration office on site. As such, Customers can have access to auto financing, insurance, extended warranty, accessories upgrade, as well as title transfer and registration services. On the same day, they purchase their vehicles for a comprehensive and efficient one-stop used car buying experience. The new Xi'an IRC is a benchmark representation of Yuxin's business philosophy of driving the transformation of China's used car industry through advanced manufacturing, new retail experience, and digital empowerment.
spk02: As we empower our reconditioning process with advanced equipment, technology and supply chain capabilities,
spk04: we can ensure a solid supply of high-quality used cars and create more value opportunities for used cars as products. With the mass production we conducted in our own IRC factory, we have refined control over the manufacturing process and can significantly reduce the reconditioning costs driven by economy of scale.
spk02: When we create a super market with a large number of vehicles and a perfect service experience, our offline market will naturally become the first brand of local second-hand cars. Consumers must consider choosing high-quality vehicles and a full-fledged first-hand second-hand car purchase experience in the traditional trading market, which constitutes our unparalleled industrialized advantage in the regional second-hand car market.
spk04: Our superior store environment, massive selection of used cars, and comprehensive services made our superstore a top brand and a must-see for consumers shopping for used cars. Our high-quality used car offerings and one-stop used car buying experience are our key competitive advantages over the traditional used car market.
spk02: When we enter this traditional industry with digitalization and intelligent technology, we spend 11 years and energy to digitalize the process and systematize the management. We use digital technology to standardize the production and display of non-standard second-hand car products, which greatly improves the operational efficiency of the second-hand car business and forms a unique super-large-scale second-hand car management ability.
spk04: When we entered this traditional industry with digital and intelligent technologies, we spent over 11 years to build digitized processes and management systems. From inspection, reconditioning, to exhibition and sales, we leveraged our system and data to standardize the business processes, which had long been a non-standard category. Such digitized systems and standardized processes significantly improved our efficiency in operating our used car business. Our technology advantages constitute our unique capability to manage used car businesses at a super large scale in China, setting us apart from the highly fragmented small used car dealers.
spk02: For the future of the Chinese car industry and the business model created by Youxin, we are very confident We have seen a huge revolutionary opportunity in the second-hand car industry in China. After the strong control of October and November, China's epidemic has been completely released. The Chinese economy in the post-pandemic era will gradually recover. We are looking forward to the coming 2023. As the country's series of second-hand car good policies land, Youxin will continue to expand its business through the regional layout of the IRC. With strong product power, brand power and service power,
spk04: We have complete confidence in the business model we developed as well as in the future prospects of the used car industry. We are embracing a massive revolutionary opportunity in China's used car market. We experienced stringent COVID control measures in October and November, but look forward to a rebound in the Chinese economy in 2023 as China has begun easing COVID restrictions. As regulators continue to implement more industry-boosting policies across the nation, we will carry out further efforts for expanding our business footprint through our original IRC network. with strong brand equity as well as leading product and service capabilities will enable us to continue driving the transformation of China's used car industry into the next development stage.
spk02: And with that, I'd like to turn the call over to our CFO, John, to walk
spk04: working through the financial results. Please, John.
spk03: Okay. Thank you, DK, and hello, everyone. Since we have both domestic and foreign investors attending our call,
spk04: Our remarks will be delivered in both Chinese and English for everyone's convenience. Now I will provide a closer look at our financial results from the second quarter of fiscal year 2023, which is the three months ended September 30, 2022.
spk03: Although the Chinese second-hand car industry has encountered a major challenge overall, the growth of retail businesses in this quarter is very prominent. As DK mentioned, sales have reached 3,109 units. The share price has increased by 29% and the share price has increased by 20,000. At the same time, with the optimization of the storage structure, our average retail price has dropped from 145,000 last quarter to 120,000 this quarter. So the total sales of retail is 3.7 billion yuan. The share price has increased by 7% and the share price has increased by 79%. The adjustment of our storage structure is basically complete. In the long term, the retail price will stabilize between 110,000 and 120,000 yuan. We will maintain the storage structure at the level that is most suitable for market demand. With the improvement in the ability to prepare for U-sync detection, and the increase in the number of vehicles, we have a larger proportion of purchased vehicles entering retail channels for sales. This quarter's retail sales exceeded the sales of wholesale for the first time in the past six quarters. We also expect that retail sales will continue to increase in the next nine quarters.
spk04: While China's used car industry faced major challenges in the quarter, we still maintained a robust growth momentum in our retail business. Our retail transaction volume grew by an impressive 203% year-over-year and 29% quarter-over-quarter to reach 3,109 this quarter. At the same time, as we further optimized our inventory structure, our average selling price, or ASP, decreased from 145,000 RMB in the previous quarter to 120,000 RMB this quarter. Retail vehicle sales revenue totaled 330 million RMB, up 7% sequentially and 79% year-over-year. We have completed major inventory restructuring and expect that our retail ASB will stabilize between 110 and 120,000 RMB. In addition, with continuous improvements in our used car inspection and reconditioning capabilities, as well as capacity for our showrooms, we were able to sell a higher portion of our acquired vehicles through retail channels. Vehicles we sold through retail had exceeded wholesale for the first time in the past six quarters. and we expect higher retail sale contributions in the coming quarters.
spk03: 本季度的T售销量是3000台,较上季度基本持平。 随着更多符合零售上架标准的车辆 进入零售渠道不再继续批发处理, 零售车辆的均价也从上个季度的8.6万元下降到本季度的8.11万元。 二季度的P售总收入是2.38亿元,较上季度完毕下降10%。
spk04: Wholesale transaction volume was 3,000 this quarter, essentially flat compared to the previous quarter. During the quarter, we reconditioned an increasing number of acquired vehicles to meet our retail standards. As more vehicles were sold through retail, the ASP of wholesale vehicles also declined from 86,000 RMB in the previous quarter to 81,000 RMB this quarter. Wholesale vehicle sales revenue for the second quarter was 238 million RMB down 10% compared to the previous quarter.
spk03: Our total revenues, including both retail and wholesale,
spk04: remained relatively stable compared to the previous quarter at 619 million RMB and up 79% year-over-year. Retail vehicle sales revenue contributed to 60% of our total revenues this quarter, and we expect continuous growth for this percentage in the quarters ahead.
spk03: In the context of a downturn in the market, we decreased the value of cars that sold for a longer period of time. In order to accelerate the adjustment of the warehouse structure to the most suitable state of market demand, we accelerated the rotation of high-end cars through a certain price adjustment in July to September. These active changes in the market allowed Maoli to be at a lower level.
spk04: The gross margin for the quarter was 1.3%, up slightly from 1.1% in the previous quarter. During the market slowdown, we recorded a price impairment on some of our inventories. Meanwhile, we also optimized our inventory structure and accelerated the turnover of high-priced vehicles through various pricing strategies between July and September. These proactive actions hindered our margin expansion and capped our gross margin at a low percentage level.
spk03: China has experienced a strong control of the epidemic in the region from October to November, and after the release of the epidemic in December, it has entered a high peak of infection in various regions, which has still had a significant impact on the domestic second-hand car market as a whole. However, we are glad to see that the sales situation of Youxin has taken the lead in the market and has quickly rebounded. Various supply and demand data returned to the high water level in the early stage in December. We expect that after the first round of epidemic infection, the interest rate will continue to improve.
spk04: Following the stringent COVID control in various Chinese regions during October and November, China relaxed many of the control measures in December and infection rates are approaching their peaks. These sweeping changes have had substantial impacts on the domestic used car market. However, we're pleased to see that our sales performance has rebounded rapidly ahead of the market with various operating metrics in December starting to return to previous highs we have seen. Moreover, we expect our growth margin to continue improving after the initial COVID infection peak passes to return to a reasonable level in the calendar year 2023.
spk03: to implement the concept of cost reduction to daily management, so that our business can operate at the level of reasonable investment costs.
spk04: Total operating expenses for the quarter were basically flat compared to the previous quarter. While we are currently in a stage of rapid business growth, we remain committed to implementing cost reduction and efficiency improvement initiatives into our daily operations for business expansion at an optimal ROI.
spk03: As DK mentioned earlier, the completion of our CNIRC upgrade was a major milestone for us.
spk04: We expect that the accelerated sales growth in Xi'an and its surrounding areas, combined with our continued cost optimization, will enable our upgraded Xi'an Superstore to generate positive operating profit on a single-store basis within 12 months.
spk03: 本季度的 Non-Gap 口径的运营亏损是人民币9240万元, 较上季度增加约750万。 I will not repeat the specific numbers here. As before, I would like to talk about the non-currency impact of this quarter's financing supply value assessment. This quarter will be different from the last quarter because of the change in the stock price, resulting in an additional loss of RMB 1,150 million in the change of the supply value of the Warrant part of the financing agreement signed in 2021.
spk04: Our non-GAAP adjusted loss from continuing operations increased by approximately 7.5 million RMB from the last quarter to 92.4 million RMB this quarter. The detailed financial statements were published in our earnings release online, so I will not repeat the numbers here. However, same as before, I will explain the fair value impact related to our financing transactions. The changes in our share price between the end of this quarter and the end of last quarter resulted in a loss of 11.5 million RMB due to the fair value change of warrants related to the financing agreement we signed in 2021. This is a non-cash loss based on US GAAP financial treatment and does not reflect our business operations.
spk03: As for the next quarter's performance outlook, from October 10 to November, the cities of Xi'an and Hefei, where the two markets are located, have continued to experience high-intensity epidemic control and even silence management of the entire city. Our trend of increase in sales has been greatly affected. Since December, the national epidemic prevention policy has been released. Although Hefei, Xi'an, and many other cities are now at the peak of the epidemic,
spk04: Moving on to our guidance for the next quarter, during October and November, COVID outbreaks in both Xi'an and Hefei, where our IRCs are located, resulted in intense control measures and citywide lockdowns, which largely impacted our sales growth momentum. After China started lifting COVID restrictions in December, infections in Xi'an, Hefei, and many other cities are reaching estimated peak levels. Although market consumption has been slow to recover, our December retail transaction volume has rebounded to its September level.
spk03: The overall sales situation fell slightly from July to September. The retail sales are expected to reach 2,800 units and increase by 65% in total. The average price of the retail single car is RMB110,000. The retail sales are expected to reach 2,000 units. The average price of the retail single car is RMB70,000. The total sales income, including retail sales income, retail sales income, and increased service income, is expected to be between RMB4.5 billion and RMB4.6 billion. Based on these impacts, we expect our total transaction volume to slightly decline in the third quarter of fiscal year 2023, which is the three months ending December 31, 2022.
spk04: Our retail transaction volume is expected to be around 2,800 units, representing a 65% year-over-year growth, while the ASP for retail vehicles is expected to be around 110,000 RMB. We also expect our wholesale transaction volume to be around 2,000 units, with ASP expected to be around 70,000 RMB. We estimate that our total revenues, including retail vehicle sales revenue, wholesale vehicle sales revenue, and value-added service revenue, to be in the range of 450 million RMB to 460 million RMB. Once the peak of this COVID infection cycle passes and the economy begins to recover, we believe that our business will return to its high-quality growth trajectory in the coming new year.
spk03: And that concludes our prepared remarks today.
spk04: Operator, we're now ready for questions.
spk07: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. And for the benefit of everyone on today's call, please ask your question first in Chinese and then repeat it in English. We will now pause momentarily to assemble our roster. And today's first question comes from Tom Kerr at Zacks Investment Research. Please go ahead.
spk08: Hello. Can you provide more details on the COVID disruptions and how it affected consumer purchasing? In other words, did it improve the online purchasing part of the business? Thank you.
spk04: All right, thanks, Tom. Let me translate that question first.
spk02: Okay, thank you, Tom. COVID definitely had a significant impact on used car consumption. COVID's near-term impact on the economy has affected consumers' demand and willingness for car purchases.
spk04: During stringent containment measures, delivery logistics and offline operations were also constantly disrupted. So consumers had no way to complete their purchases. Now that we are at the peak of the first COVID infection cycle after the COVID restrictions were lifted, so many customers are staying at home dealing with their infections.
spk02: For Youxin, in such an industry environment, we achieved a significant growth in sales in July to September, and the sales increased by more than 200%. This is also very proud. October and November, because Xi'an and Hefei, two sellers, encountered different levels of economic management in the city, the sales were inevitably affected. But as the epidemic was controlled in December, Youxin's sales situation was leading to a rapid rebound in the market. All of the top data in recent weeks have exceeded the previous high point.
spk04: So from our perspective, we are obviously proud of our ability to deliver impressive business growth between July and September, where our retail transaction volume more than tripled in such a challenging environment. In October and November, we experienced COVID controls and city lockdowns in Xi'an and Hefei, and that's where our IRCs are located. And these disruptions certainly impact our sales. However, as China started easing COVID control measures in December, our sales performance has recovered ahead of the market, as many of our operating metrics in the recent couple of weeks have exceeded our previous highs.
spk02: After the pandemic, we can clearly see the market returning to normal. We are looking forward to 2023. After the pandemic,
spk04: Since China relaxed the COVID control measures, we have already seen a strong market recovery. That's why we are excited about opportunities in 2023. Once the peak passes, we believe the entire used car market will see a strong rebound. And that's the answer to Tom's question. Operator, let's move on to the next.
spk07: Absolutely. Our next question today comes from Jihao Wang with China Securities. Please go ahead.
spk13: 我是那个中银件头的经纪人王家浩。 然后我先用中文提问吧,然后我再用英文讲一下。 我的第一个问题是,咱们这个CMI厂的升级对公司这个二手车交易后续的一个影响可不可以做一个展望? 然后呢, Now I will speak in English. What is the impact of the upgrade of our CN Superstore on the company's used car transactions? Is the current increase in the storage capacity from 600 units to 3,000 units sufficient from the supply perspective? And will the customer demand for used cars improve following easing of college restrictions? Thank you.
spk02: Thank you, Jiahao. Let me answer this question. All right, thank you, Jiahao. Let me address your question about expanding our Xi'an Superstore's showroom capacity from 600 units to 3,000 units. A few aspects.
spk04: First of all, our previous 600 used car showroom capacity was no longer enough to meet the demand for our customers in Xi'an. So we decided to expand the scale of our superstore, which benefits us in multiple areas.
spk02: The expansion made our superstore the largest used car marketplace in China's Northwest region, which
spk04: further enhances our value propositions to our customers with a wider vehicle selection, larger store scale, and better shopping experience. These improvements also strengthen our market share and market position in the region, which in turn will continue to fill our business growth. As such, we created additional headroom for our future sustainable sales growth.
spk02: In addition, the upgrade does not only expand the scale of Xi'an's market, but more importantly, we have created a new two-wheeled business model that combines a fully-formatted advanced technology factory and a warehouse market. We can control the quality of the two-wheeled vehicle better and optimize the cost.
spk04: Additionally, the upgrade didn't just expand our CN superstore scale. We also developed an innovative used car model that combines our advanced reconditioning factory and warehouse-style superstore. This combination enabled us to have a better control over the quality of our used car offerings and further refine our cost. 这个说到3000台的升级在供给端是否足够?
spk02: Currently, our CN Superstore has fulfilled the market demand in CN as well as adjacent cities. So we believe that our current showroom capacity of 3,000 used cars is sufficient.
spk04: We have an omni-channel sales network powered by our IRCs, and we have the flexibility to adjust our inventory supplies to balance the demand in different regions.
spk02: In the future, we will continue to open new IRCs based on the market situation and the company's strategic plan to engage in business and warehouse expansion. This is a must.
spk04: Going forward, we will also continue to develop new IRCs for business growth and inventory expansion based on market conditions and our strategic plans.
spk02: Thank you for answering this question.
spk13: Okay, thank you. I have a second question. The second question is that I would like to ask the company Can management comment on the current used car market dynamics, including market size, competitive landscape, growth potentials, and policy directions? Thank you.
spk02: So I will break down our view of the market into a few aspects as well.
spk04: For the size of the market, China is already the world's largest auto market in terms of vehicle ownership. All these vehicles on the road right now at some point will need to go through secondary market circulation. As a result, based on China's current scale of car ownership, we believe that our used car market in the next few years will expand from 20 million transactions per year right now to the same level as in the U.S. at about 45 million transactions per year.
spk02: On the competition front, the current market landscape is still relatively fragmented, while small dealers dominate the transaction market. We believe that some of them will gradually transit towards
spk04: branded and standardized operations, but some of them small car dealers will run out of business. We have developed a innovative business model in the market as we provide customers with a new and improved shopping experience. Through our digital transformation, stronger production capabilities, and higher vehicle quality, we believe that in the current competitive landscape, we have more significant advantages in all aspects.
spk02: In terms of growth space, our Hefei market has already proven that in a year's time, we have occupied about 10% of the market share in Hefei. From now on, we still have a lot of room for improvement, and Yuxin may occupy 20% of the market share in the single market in Hefei in the future. The success of the single market will drive us to protect the major cities in the country. We believe that Yuxin's growth space in the Chinese market will be larger than that of our Pierce Company in the United States.
spk04: In terms of growth potential, our Hefei Superstore has already proved that we have garnered about 10% of the market share in Hefei within a year of operation. Moreover, we still have a lot of headroom for further improvement, and we expect to gain about 20% market share in Hefei in the future. Importantly, our success in a single market will enable us to replicate the formula in other major cities nationwide, and we believe that Yuxin has higher growth potential in China than our counterparts in the U.S.?
spk02: In terms of policy, I will briefly summarize. The first is that the current government is fully encouraging this brand sales behavior and restrictions on the original traditional irregular economic behavior. It requires that every natural person in a year not be able to trade more than two cars. This policy restriction will suppress and remove the previous irregular economic behavior.
spk04: I will also briefly summarize some of the key policies. First, the government is clearly encouraging compliant dealership operations while strengthening oversight over unlawful practices. So, for example, new regulations require that each individual can only trade less than two used cars in a year. And this policy restriction will eliminate the illegitimate operations that were largely unregulated in the industry before, thus standardizing the market and creating a healthier environment for compliant businesses to grow.
spk02: In addition, there is the issue of tax reform. Tax reform has greatly reduced the flexibility of traffic. Moreover, the reform of the used car tax system also significantly reduced the complexity of vehicle title transfers and also reduced the cost of our business operations.
spk04: At the same time, the implementation of electronic vehicle profiles and online registrations also enabled us to further expand our access to used cars and improve transaction efficiencies. 整体来看,国家近几年奥尔车行业的大量基于政策正在逐渐落地,政策方面是受支持的,整体商业环境也会越来越好。 So overall, China has been implementing a larger number of industry-boosting policies. The regulatory support has definitely improved and will continue to improve the overall industry environment. All right, that's our answer. All right, thank you. That's our answer to the China security question.
spk07: Thank you. And our next question today comes from Fei Dai with TF Securities. Please go ahead.
spk10: Translate my question in English. We saw your transaction volume grew by 60% in the second quarter, while the industry total transaction dropped by 5%. Can you elaborate on what's behind your growth in a challenging market? Thank you.
spk03: Hello, David. Let me answer your question. Just like what you just said, the second-hand car industry, like many other industries, has been affected in July to September. The industry has also seen a decline in trading volume. Therefore, it is not easy for the company to achieve a sales growth of more than 200% in such a large environment. And not only is the growth of sales, but also our customer satisfaction,
spk04: Sure, Daifei. The used car industry, like you said, and like many other industries, experienced headwinds during July and September. As the industry recorded a rarely seen year-over-year decline in transaction volume, it was particularly difficult for us to achieve a year-over-year growth of over 200% in our retail transaction volume under such market conditions. In addition to transaction growth, our customer satisfaction level also continued to improve.
spk03: This is not only the team's hard work, but also the team's execution. It also shows the advantage of creating this kind of business model of the second-hand car. Our business model has a comprehensive advantage over traditional second-hand car dealerships.
spk04: This was made possible by the execution efforts of the entire Houston team. Our achievements also demonstrated the resilience and the vitality of the business model we built. Compared to traditional used car dealerships, our model has a few complete advantages. 首先呢,是我們可以依託我們自己再製造工廠,先進的再製造工廠。
spk03: to achieve a very high-quality second-hand car product. This is far ahead of traditional car manufacturers. Our factory, through the management of the water-flow line, advanced production equipment, and the entire process, is ready to carry out the car production. So, through the advanced factory, we can ensure a large-scale, high-quality, stable, high-quality second-hand car supply. This is a major reason why our customers choose us, although the environment is not good.
spk04: The first is that we leverage our advanced reconditioning factory to develop our used car product offerings, product capabilities far ahead the traditional car dealers. We utilize our assembly line management advanced reconditioning equipment and processes to recondition our vehicles. Our advanced reconditioning factory ensures that we have a stable supply of high quality used cars on a large scale. And high-quality used cars is an important reason that customers choose us in a challenging market environment.
spk03: Buying a second-hand car is no longer like shopping at a farmer's market or a flea market, but more like shopping at a modern Costco, Sam's Club, or a retail store. Customers can get a real-time experience of choosing a car, buying a car, buying a car, and buying a car. So every time we enter a new regional market, whether it's Hubei,
spk04: The second is that we have developed a very innovative new retail experience for used car purchases. Our fully self-owned superstore is far superior compared to the traditional used car market in terms of vehicle selection, purchase process, service experience and after-sales services. In our superstore, buying a used car is no longer like going to a farmer's market, but more like going to a modern IKEA or Costco or Sam's Club supermarket. Our customers can enjoy a one-stop experience, starting from choosing a car, transferring the titles, and accessing the after-sales services in the store. We have become a must-see landmark for local used car consumers in every regional market we enter, whether it's Xi'an or Hefei.
spk03: The third one is that U-SYN has implemented digital management on the whole of the business. This allows us to better understand the market and customers, and to make adjustments to the business faster based on market changes. U-SYN has been in this industry for 11 years. China has established the best second-hand car data library and digital technology. This allows us to better understand our customers' needs and produce quality products. By using a more intelligent pricing system, we can adjust the price based on market changes. This allows us to better optimize the structure of the warehouse to match the needs of the market. More accurately, we can acquire more customers through multiple channels. Through digitalization, we can carry out more detailed analysis and management of the entire business. This is the unique advantage
spk04: And thirdly, we digitized the management of the entire process, enabling us to better understand our customers and the market so we can dynamically adjust our operations based on market changes. With Yuxin's 11 years of development in the industry, we have developed the best database and digital technologies in China's used car industry. Digitization allows us to better understand the needs of our customers so we can better select our used car offerings. Our intelligent pricing system also enables us to dynamically adjust prices based on market changes. As such, we can better optimize our inventory structure and improve precision of our user acquisition efforts through different channels. We also leverage our digital systems to execute a better analysis and management of our business, thus creating our unique capability to manage used car operations at a super-large scale.
spk03: This is the main reason for the rapid growth of the Chinese car industry. We also hope that through our model, what we do can drive the Chinese second-hand car industry to upgrade and develop to a more mature stage. And that's how we managed to deliver growth under a challenging market environment.
spk04: We hope to drive the upgrade and development of China's used car industry to a more mature stage through what we're doing. And I'm fully confident in our business model. As COVID passes and the industry as a whole starts to recover, we will sustain our high-quality growth in 2023.
spk03: This is the answer to your question.
spk04: And that's our answer to TF Security's questions.
spk07: Thank you. Ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Jack Long for closing remarks.
spk04: Thank you, everyone, again for joining our call today and for your continued support in Yuxin. We look forward to speaking to you again soon in the future. We wish you all a nice day and a happy new year ahead.
spk07: Thank you. Ladies and gentlemen, this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day. Thank you. Thank you. Ladies and gentlemen, thank you for standing by, and welcome to USEN's conference call for the quarter ended September 30th, 2022. 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. Jack Wong. Please go ahead, Jack.
spk04: All right. Thank you, operator. Hello, everyone. Welcome to Yuxin's earnings conference call for the quarter ended September 30, 2022. On the call with me today, we have BK, our founder and CEO, and John Lin, our CFO. BK will review business operations and company highlights followed by John, who will discuss our financials and guidance. They will both be available to answer your questions during the Q&A session that follows. Before we proceed, I would like to remind you that this call may contain forward-looking statements, which are inherently subject to risks and uncertainties that may cause actual results to differ from our current expectations. For detailed discussions of the risks and uncertainties, please refer to our filings with the SEC. Now with that, I will turn the call over to our CEO, DK. Please go, Hester.
spk02: Thank you, Jack. Hello, everyone. I am very happy to meet you again through the phone call. Thank you for attending our phone call. In order to communicate with investors around the country, I will use Chinese and English to share with you the latest business progress of the company.
spk04: Hello, everyone. It's a pleasure to have you join our earnings conference call today. For the convenience of both domestic and international investors, I will review our business progress in both English and Chinese.
spk02: During this call today, I will review our major business highlights
spk04: of the past quarter, and then share our recent business progress and our thoughts on long-term prospects.
spk02: In the second quarter of 2023, which is from July to September 2022, our retail sales reached 3,109 units, with a net growth of nearly 30% and a net growth of 203%. 2022 is a very difficult year for the Chinese auto market. Our retail transaction volume in the second quarter of fiscal year 2023
spk04: which ended on September 30, 2022, reached 3,109, representing an increase of almost 30% quarter-over-quarter and 203% year-over-year. 2020 has, 2022 has been a rather difficult year for China's used car market. Specifically, the COVID restrictions constantly disrupted business activities and decelerated economic activities and consumer spending. As a result, in the quarter between July and September, China's used car transactions fell 5% year over year, which was rarely seen in the past years. Despite facing those macro and industry-wide challenges, we continued to deliver significant business growth. This demonstrates the resilience and vitality of our IRC-based omni-channel used car business model we have built.
spk02: On the basis of a significant increase in sales, our brand and customer satisfaction are also continuing to increase. At the end of last year, we began to invest in operations in Hefei's major stores. In less than a year, we have achieved considerable success in the Hefei regional market. Youxin has become the first brand in Wutishi to buy second-hand cars from consumers in Hefei. The market share rate is close to 10%. The NPS score of Youxin in July to September has stabilized at the highest 61 points in the industry.
spk04: On top of our rapid growth in transaction volume, our brand reputation and customer satisfaction levels also continued to grow. Since we launched our Hefei Superstore at the end of last year, we have achieved the resounding success in Hefei's regional market in less than a year. Our market share in Hefei is close to 10%, and is expected to increase further. While our brand has occupied the most mindshare from used car buyers in Hefei as well as its surrounding cities, our Net Promoter Score, or NPS, was 61 in the past quarter, maintaining at the top of the industry. More than 25% of transactions in the quarter came from referrals by existing customers.
spk02: At the same time, the efficiency of commercial operations is also continuing to improve. At the end of the car launch, our multi-channel car network has been run successfully, particularly in the two regional markets of Xi'an and Hefei. The competitiveness is very prominent. From the standstill of personal customers to the standstill of car owners, it is nearly 60%. In September, the time from the car to the warehouse to the market has been further shortened, and the speed of storage cycle is also continuing to increase.
spk04: At the same time, our ongoing efforts in improving operation efficiency continued to yield results. On the vehicle acquisition front, our car sourcing channels worked fairly well. Particularly in Xi'an and Hefei, where we established our IRCs and superstores, we have unrivaled capabilities to acquire high-quality used car supplies. Close to 60% of our vehicle acquisitions came from individual customers. In September, we further accelerated our operation process between used car acquisitions and listing them for sales. These refinements in turn continued to accelerate our sales turnovers. Although we experienced severe COVID-induced disruptions throughout October and November, Our operations have returned to the level of September, and we expect our operating metrics to continue improving in 2023.
spk02: Today, I would like to share with you another important milestone in the development of U-shaped business. In order to better meet the demand for second-hand cars in Xi'an and surrounding areas, we completed the upgrade of Xi'an's major shopping malls in December and officially started operating. The upgraded Xi'an Market is China's largest all-terrain two-car market in the northwest region, with a total area of 150,000 square meters. It is composed of two parts, a two-car remodeling factory and a warehouse market. The remodeling factory is equipped with the leading modernized flow line equipment in the industry, with a annual production of up to 40,000 units, to ensure the supply of super-large-scale high-quality two-car products. The sales volume of the warehouse market has increased from the previous 600 units to a total of 3,000 units, covering all mainstream models. To provide consumers with sufficient vehicle purchase options, Today, I am excited to share another key milestone we have achieved. As we have announced last week in December 2022, we completed the relocation and upgrade.
spk04: of our Xi'an IRC and Superstore to better fulfill the market demand for used cars in the city of Xi'an and its surrounding areas. The upgraded IRC and Superstore reopened for business at the new location as the largest fully self-owned used car marketplace in northwest China. The upgrade expanded the IRC's total floor area to 150,000 square meters and is comprised of a used car reconditioning factory as well as a warehouse-style superstore. Powered by industry-leading equipment and advanced reconditioning techniques, the reconditioning factory has an annual capacity of 40,000 units to ensure that Yushin has a super large-scale supply of high-quality used cars. The warehouse-style superstore expanded its showroom capacity from 600 vehicles previously to 3,000 vehicles now to offer an extensive selection of used cars to our customers. In addition, the IRC houses an integrated customer service center and brought in a branch office of the vehicle administration office on site. As such, Customers can have access to auto financing, insurance, extended warranty, accessories upgrade, as well as title transfer and registration services. On the same day, they purchase their vehicles for a comprehensive and efficient one-stop used car buying experience. The new Xi'an IRC is a benchmark representation of Yuxin's business philosophy of driving the transformation of China's used car industry through advanced manufacturing, new retail experience, and digital empowerment.
spk02: As we empower our reconditioning process with advanced equipment, technology and supply chain capabilities,
spk04: we can ensure a solid supply of high-quality used cars and create more value opportunities for used cars as products. With the mass production we conducted in our own IRC factory, we have refined control over the manufacturing process and can significantly reduce the reconditioning costs driven by economy of scale.
spk02: When we create a super market with a large number of vehicles and a perfect service experience, our offline market will naturally become the first brand of local second-hand cars. Consumers must consider choosing high-quality vehicles and a full-fledged first-hand second-hand car purchase experience in the traditional trading market, which makes us an unparalleled industrialized advantage in the regional second-hand car market.
spk04: Our superior store environment, massive selection of used cars, and comprehensive services made our superstore a top brand and a must-see for consumers shopping for used cars. Our high-quality used car offerings and one-stop used car buying experience are our key competitive advantages over the traditional used car market.
spk02: When we enter this traditional industry with digitalization and intelligent technology, we spend 11 years and energy on the process of digitalization and systematization of management. We use digital technology to produce and demonstrate standardization of non-tourist second-hand car products, which greatly improves the operational efficiency of the second-hand car business and forms a unique super-large-scale second-hand car management ability.
spk04: When we entered this traditional industry with digital and intelligent technologies, we spent over 11 years to build digitized processes and management systems. From inspection, reconditioning, to exhibition and sales, we leveraged our system and data to standardize the business processes, which had long been a non-standard category. Such digitized systems and standardized processes significantly improved our efficiency in operating our used car business. Our technology advantages constitute our unique capability to manage used car businesses at a super large scale in China, setting us apart from the highly fragmented small used car dealers.
spk02: For the future of the Chinese car industry and the business model created by Youxin, we are very confident We have seen a huge revolutionary opportunity in the second-hand car industry in China. After the strong control of October and November, China's epidemic has been completely released. China's economy in the post-pandemic era will gradually recover. We are looking forward to the coming 2023. As the country's series of second-hand car good policies land, We will continue to expand business through the regional layout of the IRC. With strong product power, brand power and service power,
spk04: We have complete confidence in the business model we developed as well as in the future prospects of the used car industry. We are embracing a massive revolutionary opportunity in China's used car market. We experienced stringent COVID control measures in October and November, but look forward to a rebound in the Chinese economy in 2023 as China has begun easing COVID restrictions. As regulators continue to implement more industry boosting policies across the nation, we will carry out further efforts for expanding our business footprint through our original IRC network. with strong brand equity as well as leading product and service capabilities will enable us to continue driving the transformation of China's used car industry into the next development stage.
spk02: And with that, I'd like to turn the call over to our CFO, John, to walk
spk04: working through the financial results. Please, John.
spk03: Okay. Thank you, DK, and hello, everyone. Since we have both domestic and foreign investors attending our call,
spk04: Our remarks will be delivered in both Chinese and English for everyone's convenience. Now I will provide a closer look at our financial results from the second quarter of fiscal year 2023, which is the three months ended September 30, 2022.
spk03: Although the Chinese second-hand car industry has encountered major challenges overall, the growth of retail businesses in this quarter is very prominent. As DK mentioned earlier, sales have reached 3,109 units. The share price has increased by 29% and the share price has increased by 209,000. At the same time, with the optimization of the storage structure, the average sale price has dropped from 145,000 last quarter to 120,000 this quarter. So the total sales volume of retail is 3.7 billion yuan. The share price has increased by 7% and the share price has increased by 79%. The adjustment of our storage structure is basically complete. In the long term, the sale price will stabilize between 110,000 and 120,000 yuan. We will maintain the storage structure at the level that is most suitable for market demand. With the improvement in the ability to prepare for U-sync detection, and the increase in the number of vehicles, we have a larger proportion of purchased vehicles entering retail channels for sales. This quarter's retail sales exceeded the sales of wholesale for the first time in the past six quarters. We also expect retail sales to continue to increase in the next nine quarters.
spk04: While China's used car industry faced major challenges in the quarter, we still maintained a robust global momentum in our retail business. Our retail transaction volume grew by an impressive 203% year-over-year and 29% quarter-over-quarter to reach 3,109 this quarter. At the same time, as we further optimized our inventory structure, our average selling price, or ASP, decreased from 145,000 RMB in the previous quarter to 120,000 RMB this quarter. Retail vehicle sales revenue totaled 330 million RMB, up 7% sequentially and 79% year-over-year. We have completed major inventory restructuring and expect that our retail ASB will stabilize between 110 and 120,000 RMB. In addition, with continuous improvements in our used car inspection and reconditioning capabilities, as well as capacity for our showrooms, we were able to sell a higher portion of our acquired vehicles through retail channels. Vehicles we sold through retail had exceeded wholesale for the first time in the past six quarters. and we expect higher retail sale contributions in the coming quarters.
spk03: 本季度的T售銷量是3000台,較上季度基本持平。 隨 著更多符合零售上架標準的車輛進入零售渠道不再繼續批發處理, 零售車輛的均價也從上個季度的8.6萬元下降到本季度的8.11萬元。 二季度的P售總收入是2.38億元,較上季度完比下降10%。
spk04: Wholesale transaction volume was 3,000 this quarter, essentially flat compared to the previous quarter. During the quarter, we reconditioned an increasing number of acquired vehicles to meet our retail standards. As more vehicles were sold through retail, the ASP of wholesale vehicles also declined from 86,000 RMB in the previous quarter to 81,000 RMB this quarter. Wholesale vehicle sales revenue for the second quarter was 238 million RMB down 10% compared to the previous quarter.
spk03: Our total revenues, including both retail and wholesale,
spk04: remained relatively stable compared to the previous quarter at 619 million RMB and up 79% year-over-year. Retail vehicle sales revenue contributed to 60% of our total revenues this quarter, and we expect continuous growth for this percentage in the quarters ahead.
spk03: In the context of a downturn in the market, we have reduced the value of cars that have been on sale for a longer period of time. In order to accelerate the adjustment of the warehouse structure to the most suitable state of market demand, we have accelerated the rotation of high-end cars through a certain price adjustment in July to September. These active changes in the market have allowed Maoli to be at a lower level.
spk04: The gross margin for the quarter was 1.3%, slightly up from 1.1% in the previous quarter. During the market slowdown, we recorded a price impairment on some of our inventories. Meanwhile, we also optimized our inventory structure and accelerated the turnover of high-priced vehicles through various pricing strategies between July and September. These proactive actions hindered our margin expansion and capped our gross margin at a low percentage level.
spk03: China has experienced a strong control of the epidemic in various regions from October to November, and after the release of the epidemic in December, it has entered a high peak of infection in various regions. It still has a strong impact on the domestic second-hand car market as a whole. However, we are happy to see that the sales situation of Youxin has been ahead of the market and has quickly rebounded. Various financial data returned to the high water level in the early stage in December. We expect that after the first round of the epidemic, the interest rate will continue to improve.
spk04: Following the stringent COVID control in various Chinese regions during October and November, China relaxed many of the control measures in December and infection rates are approaching their peaks. These sweeping changes have had substantial impacts on the domestic used car market. However, we're pleased to see that our sales performance has rebounded rapidly ahead of the market with various operating metrics in December starting to return to previous highs we have seen. Moreover, we expect our growth margin to continue improving after the initial COVID infection peak passes to return to a reasonable level in the calendar year 2023.
spk03: The idea of reducing the cost-effectiveness is integrated into the daily management, allowing our business to operate at the level of reasonable investment costs.
spk04: Total operating expenses for the quarter were basically flat compared to the previous quarter. While we are currently in a stage of rapid business growth, we remain committed to implementing cost reduction and efficiency improvement initiatives into our daily operations for business expansion at an optimal ROI.
spk03: As DK mentioned earlier, the completion of our CNIRC upgrade was a major milestone for us.
spk04: We expect that the accelerated sales growth in Xi'an and its surrounding areas, combined with our continued cost optimization, will enable our upgraded Xi'an Superstore to generate positive operating profit on a single-store basis within 12 months.
spk03: 本季度的 Non-Gap 口径的运营亏损是人民币9240万元, 较上季度增加约750万。 As for the specific financial data, please refer to our online performance disclosure. I will not repeat the specific numbers here. As before, I would like to talk about the non-financial loss of this quarter's financing supply value assessment. This quarter will be different from the previous quarter due to the change in the stock price, resulting in an additional loss of RMB 1,150 million in the change in the supply value of the Warrant part of the financing agreement signed in 2021.
spk04: Our non-GAAP adjusted loss from continuing operations increased by approximately 7.5 million RMB from the last quarter to 92.4 million RMB this quarter. The detailed financial statements were published in our earnings release online, so I will not repeat the numbers here. However, same as before, I will explain the fair value impact related to our financing transactions. The changes in our share price between the end of this quarter and the end of last quarter resulted in a loss of 11.5 million RMB due to the fair value change of warrants related to the financing agreement we signed in 2021. This is a non-cash loss based on U.S. GAAP financial treatment and does not reflect our business operations.
spk03: As for the next quarter's performance outlook, both Xi'an and Hefei will continue to experience high-frequency epidemic control and even silence in the whole city from October 10 to November. Our growth in sales has been greatly affected. Since the beginning of December, the national epidemic prevention policy has been released. Although Hefei, Xi'an, and many other cities are now at the peak of the epidemic,
spk04: Moving on to our guidance for the next quarter, during October and November, COVID outbreaks in both Xi'an and Hefei, where our IRCs are located, resulted in intense control measures and citywide lockdowns, which largely impacted our sales growth momentum. After China started lifting COVID restrictions in December, infections in Xi'an, Hefei, and many other cities are reaching estimated peak levels. Although market consumption has been slow to recover, our December retail transaction volume has rebounded to its September level.
spk03: The overall sales situation fell slightly from July to September. The retail sales are expected to reach 2,800 units and increase by 65% in total. The average price of the retail single car is RMB110,000. The retail sales are expected to reach 2,000 units. The average price of the retail single car is RMB70,000. The total sales income, including retail sales income, retail sales income, and increased service income, is expected to be between RMB4.5 billion and RMB4.6 billion. Based on these impacts, we expect our total transaction volume to slightly decline in the third quarter of fiscal year 2023, which is the three months ending December 31, 2022.
spk04: Our retail transaction volume is expected to be around 2,800 units, representing a 65% year-over-year growth, while the ASP for retail vehicles is expected to be around 110,000 RMB. We also expect our wholesale transaction volume to be around 2,000 units, with ASP expected to be around 70,000 RMB. We estimate that our total revenues, including retail vehicle sales revenue, wholesale vehicle sales revenue, and value-added service revenue, to be in the range of 450 million RMB to 460 million RMB. Once the peak of this COVID infection cycle passes and the economy begins to recover, we believe that our business will return to its high-quality growth trajectory in the coming new year.
spk03: And that concludes our prepared remarks today.
spk04: Operator, we're now ready for questions.
spk07: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. And for the benefit of everyone on today's call, please ask your question first in Chinese and then repeat it in English. We will now pause momentarily to assemble our roster. And today's first question comes from Tom Kerr at Zacks Investment Research. Please go ahead.
spk08: Hello. Can you provide more details on the COVID disruptions and how it affected consumer purchasing? In other words, did it improve the online purchasing part of the business? Thank you.
spk04: All right, thanks, Tom. Let me translate that question first.
spk02: Okay, thank you, Tom. COVID definitely had a significant impact on used car consumption. COVID's near-term impact on the economy has affected consumers' demand and willingness for car purchases.
spk04: During stringent containment measures, delivery logistics and offline operations were also constantly disrupted, so consumers had no way to complete their purchases. Now that we are at the peak of the first COVID infection cycle after the COVID restrictions were lifted, so many customers are staying at home dealing with their infections.
spk02: For Youxin, in such an industry environment, we achieved a significant growth in sales in July and September, and the sales increased by more than 200%. This is also very proud. October and November, because Xi'an and Hefei, two retailers in the city, encountered different levels of economic and trade management, sales were inevitably affected. But as the epidemic was controlled in December, Youxin's sales situation was leading to a rapid rebound in the market. All of the top data in recent weeks have exceeded the previous high point.
spk04: So from our perspective, we are obviously proud of our ability to deliver impressive business growth between July and September, where our retail transaction volume more than tripled in such a challenging environment. In October and November, we experienced COVID controls and city lockdowns in Xi'an and Hefei, and that's where our IRCs are located. and these disruptions certainly impact our sales. However, as China started easing COVID control measures in December, our sales performance has recovered ahead of the market, as many of our operating metrics in recent couple of weeks have exceeded our previous highs.
spk02: After the pandemic, we can clearly see the market returning to normal. We are looking forward to 2023.
spk04: Since China relaxed the COVID control measures, we have already seen a strong market recovery. That's why we are excited about opportunities in 2023. Once the peak passes, we believe the entire used car market will see a strong rebound. And that's the answer to Tom's question. Operator, let's move on to the next.
spk07: Absolutely. Our next question today comes from Jihao Wang with China Securities. Please go ahead.
spk13: Hello, everyone. Can you hear me? I'm Jihao Wang from China Securities. I'll start with a Chinese question and then I'll speak in English. My first question is about the upgrade of our CMI to the company's Now I'll speak in English. What is the impact of the upgrade of our CN Superstore on the company's used car transactions? Is the current increase in the storage capacity from 600 units to 3,000 units sufficient from the supply perspective? And will the customer demand for used cars improve following easing of college restrictions? Thank you.
spk02: All right, thank you. Let me address your question about expanding our Xi'an Superstore's showroom capacity from 600 units to 3,000 units.
spk04: aspects. First of all, our previous 600 used car showroom capacity was no longer enough to meet the demand for our customers in Xi'an. So we decided to expand the scale of our superstore, which benefits us in multiple areas.
spk02: First, after expanding the scale, we have become the largest second-hand store in the entire northwest region. This has improved the value of our customers to a greater extent. The choice is richer, the scale is larger, and the experience is better. At the same time, we have strengthened our market position in this market rate and market position, and we have further rebounded our business. This brings space for our future continuous sales growth.
spk04: The expansion made our superstore the largest used car marketplace in China's northwest region, which further enhances our value propositions to our customers with a wider vehicle selection, larger store scale, and better shopping experience. These improvements also strengthened our market share and market position in the region, which in turn will continue to fuel our business growth. As such, we created additional headroom for our future sustainable sales growth.
spk02: Additionally, the upgrade didn't just expand our CN super sports scale. We also developed an innovative used car model that combines our advanced reconditioning factory
spk04: and warehouse-style superstore. This combination enabled us to have a better control over the quality of our used car offerings and further refine our cost.
spk02: Is the upgrade to 3,000 units sufficient at the supply end? Currently, Xi'an Warehouse is mainly to meet the needs of Xi'an and surrounding areas. We use IRC-based online and offline business channels for sales network.
spk04: Currently, our CN Superstore has fulfilled the market demand in CN as well as adjacent cities. So we believe that our current showroom capacity of 3,000 used cars is sufficient. We have an omni-channel sales network powered by our IRCs and we have the flexibility to adjust our inventory supplies to balance the demand in different regions. Going forward, we will also continue to develop new IRCs for business growth and inventory expansion based on market conditions and our strategic plans.
spk02: Can management comment on the current used car market dynamics, including market size?
spk13: competitive landscape, growth potentials, and policy directions. Thank you.
spk04: So I will break down our view of the market into a few aspects as well. For the size of the market, China is already the world's largest auto market in terms of vehicle ownership. All these vehicles on the road right now at some point will need to go through secondary market circulation. As a result, based on China's current scale of car ownership, we believe that our used car market in the next few years will expand from 20 million transactions per year right now to the same level as in the U.S. at about 45 million transactions per year.
spk02: In terms of the financial structure, the domestic market is relatively scattered. Even the trading market is made up of more small car manufacturers. On the competition front, the current market landscape is still relatively fragmented.
spk04: while small dealers dominate the transaction market. We believe that some of them will gradually translate towards branded and standardized operations, but some of them, small car dealers will run out of business. We have developed a innovative business model in the market as we provide customers with a new and improved shopping experience. Through our digital transformation, stronger production capabilities and higher vehicle quality, we believe that in the current competitive landscape, we have more significant advantages in all aspects.
spk02: We believe that in the current competitive landscape, we have more significant advantages in all aspects. We believe that in the current competitive landscape, we have more significant advantages in all aspects. We believe that in the current competitive landscape, we have more significant advantages in all aspects. We believe that in the current competitive landscape, we have more significant advantages in all aspects. We believe that in the current competitive landscape, we have more significant advantages in all aspects. In terms of growth potential, our Hefei Superstore has already proved that we have garnered about 10% of the market share in Hefei within a year of operation. Moreover, we still have a lot of headroom for further improvement
spk04: and we expect to gain about 20% market share in Hefei in the future. Importantly, our success in a single market will enable us to replicate the formula in other major cities nationwide, and we believe that Yuxin has higher growth potential in China than our counterparts in the U.S.
spk02: In terms of policy, I will briefly summarize. First, the current government is fully encouraging this brand sales behavior. I will also briefly summarize some of the key policies. First, the government is clearly encouraging compliant dealership operations while strengthening oversight.
spk04: over unlawful practices. So for example, new regulations require that each individual can only trade less than two used cars in a year. And this policy restriction will eliminate the illegitimate operations that were largely unregulated in the industry before, thus standardizing the market and creating a healthier environment for compliant businesses to grow.
spk02: More with the reform of the used car tax system also
spk04: significantly reduced the complexity of vehicle title transfers and also reduced the cost of our business operations. At the same time, the implementation of electronic vehicle profiles and online registrations also enabled us to further expand our access to used cars and improve transaction efficiencies.
spk02: Overall, China has been implementing a larger number of industry-boosting policies. The regulatory support has definitely improved and will continue to improve the overall industry environment.
spk04: Thank you. All right, that's all we're answering to. All right, thank you. That's all we're answering to. Thank you.
spk07: Thank you. And our next question today comes from Fei Dai with TF Securities. Please go ahead.
spk10: Hello, Mr. Guan. Can you hear me? Yes, you can.
spk06: Hello.
spk10: I'm Fei Dai from TF Securities. Translate my question in English. We saw your transaction volume grew by 60% in the second quarter. while the industry total said transactions dropped by 5%. Can you elaborate on what's behind your growth in a challenging market? Thank you.
spk03: Hello, David. Let me answer your question. Just like what you just said, the second-hand car industry is the same as many other industries. Sure, exactly. The used car industry, like you said,
spk04: Many other industries experienced headwinds during July and September. As the industry recorded a rarely seen year-over-year decline in transaction volume, it was particularly difficult for us to achieve a year-over-year growth of over 200% in our retail transaction volume under such market conditions. In addition to transaction growth, our customer satisfaction level also continued to improve.
spk03: This was made possible by the execution efforts of the entire Yuxin team.
spk04: Our achievements also demonstrated the resilience and the vitality of the business model we built. Compared to traditional used car dealerships, our model has a few complete advantages.
spk03: First of all, we can rely on our own new factory to achieve a very high-end second-hand car product with a long line of traditional car manufacturers. Our factory manages advanced production equipment and equipment for the production of new vehicles. So we can guarantee a large-scale, high-quality, stable, high-quality second-hand vehicle supply through our advanced factory. This is an important reason why our customers choose us despite the bad environment.
spk04: The first is that we leverage our advanced reconditioning factory to develop our used car product offerings, product capabilities far ahead the traditional car dealers. We utilize our assembly line management advanced reconditioning equipment and processes to recondition our vehicles. Our advanced reconditioning factory ensures that we have a stable supply of high quality used cars on a large scale. And high-quality used cars is an important reason that customers choose us in a challenging market environment.
spk03: Buying a second-hand car is no longer like shopping at a farmer's market or a flea market. It's more like shopping at a modern Costco, Sam's Club, or a retail store. Customers can get a real-time experience of choosing a car, buying a car, buying a car, and selling a car. So every time we enter a new regional market, whether it's Hubei,
spk04: The second is that we have developed a very innovative new retail experience for used car purchases. Our fully self-owned superstore is far superior compared to the traditional used car market in terms of vehicle selection, purchase process, service experience and after-sales services. In our superstore, buying a used car is no longer like going to a farmer's market, but more like going to a modern IKEA or Costco or Sam's Club supermarket. Our customers can enjoy a one-stop experience, starting from choosing a car, transferring the titles, and accessing the after-sales services in the store. We have become a must-see landmark for local used car consumers in every regional market we enter, whether it's Xi'an or Hefei.
spk03: The third one is that U-SYN has achieved digital management on the full scale of the business. This allows us to better understand the market and customers, and to make adjustments to the business faster based on the market changes. U-SYN has been in this industry for 11 years. to establish China's best second-hand car industry database and digital technology. This allows us to better understand our customers' demand for mass-produced products. By using a more intelligent pricing system, we can adjust the price based on market changes. We can also optimize the structure of the warehouse to match the needs of the market. More accurately, we can acquire more customers through multiple channels. Through digitalization, we can carry out more detailed analysis and management of the entire business. This is the unique advantage
spk04: And thirdly, we digitized the management of the entire process, enabling us to better understand our customers and the market so we can dynamically adjust our operations based on market changes. With Yuxin's 11 years of development in the industry, we have developed the best database and digital technologies in China's industry. Digitization allows us to better understand the needs of our customers so we can better select our used car offerings. Our intelligent pricing system also enables us to dynamically adjust prices based on market changes. As such, we can better optimize our inventory structure and improve precision of our user acquisition efforts through different channels. We also leverage our digital systems to execute a better analysis and management of our business, thus creating our unique capability to manage used car operations at a super-large scale.
spk03: This is the main reason for the rapid growth of the Chinese car industry. We also hope that through our model, what we do can drive the Chinese second-hand car industry to upgrade and develop to a more mature stage. And that's how we managed to deliver growth under a challenging market environment.
spk04: We hope to drive the upgrade and development of China's used car industry to a more mature stage through what we're doing. And I'm fully confident in our business model. As COVID passes and the industry as a whole starts to recover, we will sustain our high-quality growth in 2023.
spk03: This is the answer to your question.
spk04: And that's our answer to TF Security's questions.
spk07: Thank you. Ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Jack Long for closing remarks.
spk04: Thank you, everyone, again for joining our call today and for your continued support in Yuxin. We look forward to speaking to you again soon in the future. We wish you all a nice day and a happy new year ahead.
spk07: Thank you. Ladies and gentlemen, this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
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