Uxin Limited

Ladies and gentlemen, thank you for standing by and welcome to Eugene's earnings conference call for the quarter ended December 31st, 2022. 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 questions, 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.

Thank you, operator. Hello, everyone. Welcome to UCI's earnings conference call. Fourth quarter ended December 31st, 2022. On the call with me today, we have CK, our founder and CEO, and John Lin, our CFO. CK will review business operations and company highlights, followed by John, who will discuss our financials and guidance. They will both be available to answer 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. CK, please go ahead, sir.

Thanks, Jack. Hello, everyone. Thank you for joining our earnings conference call today. To accommodate both domestic and international investors, I will provide an overview of our business progress in both English and Chinese. I will start today's call by reviewing the key focal points of our efforts this quarter and then share an update on the direction we're pursuing as well as the recent market trend. During the third quarter of fiscal year 2023, from October to December 2022, the stringent COVID control measures created huge impacts and fluctuations in the market. Despite such impacts, our retail sales volume for the quarter reached 2,928 units, representing an impressive 77% year-over-year growth.

In the recent quarter, we have consistently directed our resources towards enhancing customer service, optimizing supply chain efficiency, and managing costs to reinforce the competitive edge of used car business in the industry.

As we persist in strengthening our customer service capabilities,

and improving the car buying experience, our solid reputation and growing recognition among customers continued to advance. From October to December 2022, our NPS score of 60 remained at the top level in the industry for four consecutive quarters. This achievement is a testament to our success in building a product and service system that effectively meets our customers' needs over a long period of time Driven by our commitment to elevated hospitality, improved car buying experience, and refined vehicle standards, quality, and after-sales services.

To further improve operation efficiency, we manage every step

of vehicle circulation on an hourly basis and reduced the waiting time vehicles spend on the production line. By implementing a series of actions, such as standardizing processing hours and upgrading our dynamic time tracking system, we were able to reduce the time from acquiring a used car to listing for sale to around six days by the end of 2022, a 60% reduction compared to the same period last year. Going forward, we will continue to optimize our production process, strengthen cross-team coordination, automate spare part management, etc. Our goal is to create an industry-leading, transparent factory on used carbon conditioning to maximize our production efficiency.

In addition, we focus on the system construction of industrial production, fine-tuning the particle density management, and systematically improving the cost control ability of each link. We designed and developed a low-end management system that is suitable for large-scale two-wheeled vehicles. Single-car is the management unit, and it cooperates with various business tasks. This is similar to the precise production of each farm by fine-tuning the production of each farm by fine-tuning the production of each farm by fine-tuning the production of each farm by fine-tuning the production of each farm by fine-tuning the production of each farm by fine-tuning the production of each farm by fine-tuning the production of each farm by fine-tuning the production of each farm by fine-tuning the production of each farm by

At the same time, we're dedicated to fine-tuning our production management to systematically improve our cost control capabilities. For using super large-scale used car operations, we have implemented a so-called drip irrigation system that evaluates and assigns various tasks or actions to each individual car. This is similar to modern agricultural production where precise timing and dosage of irrigation are applied to each crop. This approach involves developing balanced reconditioning tasks for each vehicle based on factors such as price, mileage, condition, branding, et cetera. By making precise judgments on all intermediate costs and implementing customized reconditioning solutions for each vehicle, we have substantially reduced our overall reconditioning costs.

In addition, we have already shared with you in the last quarter phone call that we completed the upgrade and transformation of Xi'an's major market in December 2022, and built the largest all-terrain two-wheel car market in northwest China. The upgraded Xi'an market is composed of two parts of the two-wheel car remodeling factory and the warehouse market. It has a comprehensive ability to detect, prepare, measure, and increase the value of the vehicle. It is a standard sales model that can be scaled and copied in the future. From the business situation of the last few months, CN's sales operation has been on track. With the advantages of the human goods market in three aspects compared to the traditional market, the sales conversion rate has increased rapidly. A perfect and convenient station is the experience of buying a car, which is highly praised by customers. With the gradual rise of customer storage, CN's sales will bring us more and more sales contributions.

Additionally, as mentioned in our previous earnings call, we upgraded and transformed our Xi'an Superstore in December 2022, establishing it as the largest fully self-operated used car superstore in Northwest China. The revamped Xi'an IRC features two components, a used car reconditioning factory and a warehouse-style superstore, offering comprehensive in-house services such as vehicle inspection, reconditioning, exhibition and sales, value-added services, and DMV services. This all-inclusive store model paves the way for large-scale replication in the future. Recent month performance data indicates that our HEN IRC operations are on track. Capitalizing on the all-encompassing advantages over traditional used car dealers, our sales conversion rate has consistently improved and our customers have highly recognized our convenient one-stop car buying experience. As we gradually build up its inventory, the CNIRC will increasingly contribute to our sales growth this year.

In the recent market situation, we have observed that China's defense policy has turned around. The economic environment and consumer confidence are recovering. At the same time, the first quarter of 2023 is the fourth quarter of our fiscal year. China's car market has experienced a huge price fluctuation. Regarding the current market conditions, we have observed a recovery in the economic environment and consumer confidence

China aids its COVID policies. At the same time, the Chinese auto market has experienced a significant price fluctuation in the first three months of 2023, which is our first quarter of fiscal year 2023. Starting from January, Tesla was the first to announce a significant price reduction. Our AI pricing system analyzed the sellability of vehicle prices and concluded that the price reductions by best-seller models like Tesla would trigger a series of chain reactions and lead to price volatility. Therefore, we implemented prudent vehicle acquisition strategies throughout the quarter starting from January, successfully minimizing the impact caused by new car price volatilities in February and March.

As the first quarter of 2023 is over, we see that the market has gradually stabilized in April. In April, we noticed that the auto market has been stabilizing. Looking forward, with our solid reputation, growing brand recognition, improved business efficiency, and reduced production costs,

We are confident in delivering sustained high-quality sales performance and achieving profitability on a single-store basis in the calendar year of 2023.

That's all for today. Next, let's have CFO John show you the financial situation.

With that, I'll turn the call over to CFO John to walk you through the financial results. John, please.

Thank you, DK. Hello, everyone. Thank you, DK, and hello everyone. Since we have both domestic and foreign investors attending our call, 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 third quarter of fiscal year 2023, which is the three months ended December 1st, 2022.

As DK just shared, due to the spread of COVID-19, our sales dropped in October and November. After the spread of COVID-19 in the second week of December, even though all regions have entered the peak of infection, it has had a major impact on the domestic market. As DK mentioned earlier, our retail sales from October through November were disrupted by strict COVID control measures.

Although these measures were lifted in the second week of December, the used car market across different regions continued to face challenges due to the varying infection rates. However, we are delighted to report that our sales have made a remarkable rebound and are outpacing the industry in business recovery. In fact, in December alone, we retailed 1,350 units, surpassing our pre-pandemic record levels.

The retail sales in the third quarter have reached 2,928 units, only 26% lower than in the second quarter, and 77% higher than in the same period last year. As a comparison, China's second-hand car trade fell 8% in October and 12% in the same period. Our average price dropped from 120,000 yuan in the previous quarter to 112,000 yuan in this quarter. Overall, the total retail revenue is Our retail transaction volume was 2,928 units, only 6% lower than the second quarter and up 77% year to year.

In comparison, the total used car transaction volume in China declined 8% sequentially and 12% year over year in the three months between October and December. Our average selling price declined from 120,000 RMB in the previous quarter to 112,000 RMB in this quarter. Overall, retail revenue totaled 329 million RMB, down 12% sequentially and up 41% year-over-year.

The sales volume of T-SHOW, 1,969 units, decreased by 33%. In an unfavorable market environment during the pandemic, Total transaction volume was 1,969 this quarter.

down 33% compared to the previous quarter. During the pandemic, we faced an unfavorable market environment and adopted a prudent vehicle sourcing strategy. We priced vehicles that did not meet the retail standards more cautiously and reduced our vehicle acquisition volumes. As a result, the ASP of wholesale vehicles decreased from 81,000 RMB in the previous quarter to 67,000 RMB in this quarter. Our total wholesale sales revenue for the third quarter was 132 million RMB, which represents a 45% sequential decline from the previous quarter. Our total revenues, including both retail and wholesale, was 471 million RMB, down 24% sequentially, primarily due to lower wholesale revenue. On a year-over-year basis, our total revenues decreased by 7%.

In the case of a decline in the market, we have reduced the number of cars that have a longer sales time. At the same time, in order to speed up the turnover, we accelerate the turnover of high-priced cars by adjusting the price by a certain amount in October to December. These active changes in the market make the profit still at a low level. We expect that from the fourth quarter, the profit will start to improve significantly. In the next year, the profit will reach more than 5%.

Course margin for the quarter was 0.6%, down from 1.3% in the previous quarter. During the market downturn, we took proactive steps to refine our inventory structure. As a result, we recorded write-downs on some of our unsold vehicles. We also implemented various pricing strategies to accelerate the turnover of high-priced vehicles between October and December. These actions, in response to the challenging market conditions, had a short-term impact on our gross margin. Looking ahead, we expect to see improvements in our gross margin starting in the fourth quarter, and we anticipate that it will exceed 5% in the coming year.

We have also been insisting on strictly controlling the cost-sufficiency. We have implemented this concept into our daily management, so that our business model can be implemented on reasonable investment, investment, cost-benefit ratio.

Total operating expenses for the quarter reduced by 11% from the previous quarter. As we navigated through the pandemic, we have taken a measured approach to our marketing expenses in order to manage our overall operating costs effectively. Even as our business grows rapidly, we remain committed to implementing cost reduction and efficiency improvement measures in our daily operations. This strategy will help us expand our business at an optimal ROI while maintaining our focus on financial discipline.

Please visit our website for more details. I will not repeat the details here. As before, I would like to talk about this quarter, because of the non-currency impact of the supply and value assessment of financing. Our long gap adjusted loss from operations was 85.6 million RMB down 6.9 million RMB from the previous quarter. The detailed financial statements were published

in our earnings released online, so I will not repeat the numbers here. Same as before, there's a fair value impact related to our financing transactions. The changes in our stock price resulted in a gain of 1.5 million RMB due to the fair value change of warrants related to the financing agreement we signed in 2021. This is a non-cash gain based on U.S. GAAP financial treatment and does not reflect our business operations.

Regarding the important progress of the company's finance, in 2019, we conducted a 2.3 billion US dollars loan to investors, and in 2021, we carried out a payment plan for the debt. We are very happy to share with you that we have completed all the remaining $61.6 million of payment obligations by March 31st. I am also excited to share an update on our financial position. In 2019, we secured a $230 million convertible financing with our investors. And in 2021, we successfully restructured

our payment plan. As of March 31st, we have fulfilled all remaining payment obligations, totaling $61.6 million. This successful payment completion of our convertible note cleared most of our historical liabilities of large amounts while significantly strengthening our balance sheet structure, enabling us to further improve our financial flexibility and better focus our resources on future business development opportunities.

In June 2022, we signed a $100 million financing agreement with our investors. To date, our investors have successfully completed their payments.

of $80 million. The remaining $20 million will also be completed as per the agreed-upon payment schedule.

Welcome to the 4th quarter of 2023. The Spring Festival in 2023 will be in the summer of January. The Spring Festival is the traditional holiday in China. The three-week period after the Spring Festival is the traditional period of second-hand trading. In the second week of March, the new car industry in China will start a large-scale price drop. Although the actual sales price of new cars has not significantly decreased, the audience sentiment of potential users who buy second-hand cars is relatively serious. We maintained a stable purchase strategy in January to February, and did not pursue high purchases. The reasonable degree of storage structure has also been steadily improved. Our current storage sales level is lower, with about 800 storage units left. Although 2400 storage units left last November have significantly decreased, it will also significantly reduce the fluctuation of new car prices and our impact. For the fourth quarter of fiscal year 2023, the Chinese New Year was on January 22nd, and the holiday season traditionally lasts until the Lantern Festival on February 5th.

with the three weeks around it being an off-season for used car transactions. Additionally, we observed a widespread trend of price reductions for new cars in China in the second week of March, which has caused potential buyers to become more hesitant in purchasing used cars. Despite the recent price fluctuations, we remain prudent in our vehicle acquisition strategies during January and February. enabling us to maintain a healthy and stable inventory expansion pace. Currently, our retail inventory level is relatively low, with approximately 800 units available for sale. In comparison, we had 2,400 used cars in our retail inventory in November 2022. The reduced size of our inventory helped minimize the impact of new car price fluctuations on our business. Encouragingly, given the market situation, Our sales turnover efficiency continued to improve and achieved better margin profiles compared to the third quarter. However, the low inventories level would restrain our sales performance, and we expect our retail sales in the fourth quarter to decrease compared to the third quarter.

Due to the impact of the increase in the market environment due to the decline of the upper-class industries, We expect that in the fourth quarter of 2023, that is, from 1 to 3 in 2023, the overall sales situation will drop by three quarters. The sales volume is expected to be 2100 units. The sales volume is expected to be 1170,000 RMB. The sales volume is expected to be 1300 units. The sales volume is expected to be 52,000 RMB. The total sales revenue includes retail sales revenue, wholesale sales revenue, and increased service revenue.

Considering seasonal and market factors, we anticipate a decrease in transaction volume during the fourth quarter of fiscal year 2023, ended on March 31, 2023, compared to the previous quarter. We project that our retail transaction volume will reach approximately 2,100 units with an anticipated ASP of 117,000 RMB for retailed cars. Our wholesale transaction volume is expected to be around 1,300 units with an ASP of approximately 52,000 RMB. Our total revenues, which include retail and wholesale vehicle sales revenue, as well as value-add service revenue, are estimated to range between 310 million RMB to 330 million RMB.

Based on the outlook for the fourth quarter, from April to March of 2023, the sales volume of the whole year is expected to reach 10,500 units, which is 104% of the total growth. The sales volume is expected to be 9,300 units, which is 9% of the total growth. In line with our fourth quarter outlook, we're now projecting for the full fiscal year of 2023, which concluded on March 31, 2023. Our retail transaction volume will reach approximately 10.5 thousand units

reflecting a year-over-year growth of 104%. Meanwhile, our wholesale transaction volume is anticipated to reach around 9.3 thousand units, representing a year-over-year decline of 9%. Furthermore, we estimate that our total revenues for the fiscal year, including retail vehicle sales revenue, wholesale vehicle sales revenue, and value-add services revenue, will be in the range of 2.02 billion RMB to 2.04 billion RMB, representing a year-over-year increase of 23 to 25 percent. And that concludes our prepared remarks today. Operator, we are now ready to take questions.

Thank you. If you wish to ask a question, please press star then 1 on your telephone. and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Ask any question in Chinese, please restate your question in English immediately afterwards for the convenience of everyone on the call. Again, to ask a question, please press star one.

Hi, operator.

We're getting some feedback that there might be a technical issue on the call, so people are not able to join. So we'll take this opportunity to go over some questions we have received offline. And the first question I will direct to our CODK. Are there any remaining COVID-19 issues, particularly in the region where the two IRCs are located? 现在线路我们应该是稍微有点技术问题, 所以有一些人接不上来。 那我就代表投资人来问一下我们之前说到过的问题。 第一个问题请我们的CEO DK回答一下。 目前新冠疫情对我们的运营是否还有什么影响, 特别是在两个IRC所在的城市?

So from October to November in 2022, the COVID-19 pandemic

significantly impacted our business, affecting everything from vehicle acquisition to sales and logistics. However, since the second week of December 2022, when the epidemic prevention policies were lifted, the market has rebounded rapidly. As of now, COVID no longer poses any impact on our operations. I'll move on to the second question we received. Is the upgrade and build-out of the CNIRC 100% complete at this point? And do you have any plans for future upgrades? I will also direct that question to our CEO, DK. The second question is whether the CNIRC upgrade has been completed 100%. And in the future, is there any plan for further upgrades?

The expansion of CNIRC has been completed 100%. Now, as the largest all-terrain two-wheeled vehicle market in the Northwest, our stop area has expanded to 3,000 units of capacity, which is five times more than before. The gradual climb can provide customers with more choices and will also bring corresponding sales transformation. With the completion of the construction of CNIRC's advanced two-wheeled vehicle remodeling factory, we have also launched a more comprehensive post-sales maintenance service, providing a wide range of car products, add-ons, and body choices to fully satisfy customers' needs. The expansion and upgrade of our IRC in Xi'an is 100% complete. As the largest used car superstore in northwest China with 100% self-owned inventory,

we have expanded our showroom capacity to 3,000 vehicles, which is five times larger than before. The increase in inventory will provide customers with a much wider selection, which will in turn drive our sales conversions. With the completion of our state-of-the-art used power reconditioning factory in Xi'an, we are now offering comprehensive after sales maintenance services, and also providing an extensive selection of vehicle accessories, modifications, and upgrades to meet the diverse needs of our customers. On top of that, we are now capable of exporting our cutting edge used car reconditioning capabilities externally. The CN IRC is our first fully formed IRC and superstore with full functions. All of its operations from management processes and service standards So business systems are now capable of being replicated in other cities.

SBC Automarket stabilizes in April.

we will increase our inventory to drive sales growth. Simultaneously, we will continue the expansion of our ERC network in a steady pace, in accordance with our cash position and strategic planning. Our expansion plans are already underway, and we look forward to updating everyone on our progress in due course. And I will move on to the next question, which comes from TF Securities. The question is about we think that the company has really fully repaid the $61.6 million convertible note. So can you please provide more details on these arrangements and its impact on your future business development? I will direct that question to John to answer. Let me translate it into Chinese. The question is from Tianfeng Securities. They are concerned that the company has recently made $61.6 million, all of which are left over from customer transfer. So, can you please explain in detail the arrangement of this matter and the impact it will have on the company's future business development? Please answer our CFO Zhang's question.

Yes, we have recently issued a notice, which is mainly about two aspects. That is correct. We have recently issued an announcement with two major updates. Firstly, we have received $80 million from the planned total of $100 million

from the subscription agreement of the Senior Convertible Preferred Shares Fund with NEO Capital in June 2022.

Another one is what you mentioned, the increase in the amount left over from the 6,160 million US dollar transfer debt. In 2019, we carried out 2.3 billion US dollar transfer debt financing, followed by several remittances of transfer debt. There are about 60% of the transferable debt turned into positive shares, and the rest is arranged to be paid in installments. Before this repayment, we have a total of 6,160 million US dollars left to repay. This is also the largest amount of historical debt that the company needs to pay by March 31, 2023. Secondly, as you asked, we have announced our full repayment of the remaining $61.6 million convertible note balance. In 2019, we raised $230 million through convertible note financing and underwent several restructurings.

As a result, about 60% of the convertible notes were converted into Yuxin's shares, with the remainder was to be paid in installments. As of March 31, 2023, the outstanding liability of $61.6 million represented Yuxin's largest historical debt. After comprehensive evaluations, we have decided to fully repay and clear the outstanding obligations from the convertible note, which will bring three significant benefits to our company.

Firstly, with the full repayment

of the remaining convertible note, our balance sheet structure is greatly improved. After the payment, our historical debt that we need to pay in the future has been significantly reduced, which will enhance our financial safety, making the long-term financial structure of using much healthier. 第二点是可转债的完全清偿为公司未来的潜在融资创造了更好的条件。

It has always been a major concern for the company's potential investment in long-term long-term long-term long-term long-term long-term long-term long-term long-term long-term long-term

Secondly, the complete repayment creates better conditions for potential financing in the future. The outstanding convertible loan had been a major concern for potential investors who are interested in the company. With the full repayment, the investment risks of Yuxin has significantly decreased, allowing future investment funds to focus on our business development rather than debt repayment. Accompanied by our efforts to achieve profitability on a single store basis this year, this repayment will enable us to plan for a series of capital market initiatives from a more favorable position.

PC3 is a long-term project that has been established by our collaboration with financial institutions. Currently, we are working with several well-known domestic financial institutions to further promote supply chain financing. Conversion debts often sweep up the barriers between us and our cooperation. The vehicle procurement phase is the most used phase in the positive business model. The widespread landing of the purchasing chain finance can significantly reduce the cost of free capital in the process of vehicle procurement. When we enter a new area according to the business plan and establish a new market, the need for funds will also be greatly reduced. Although the company has greater flexibility in the rhythm of business expansion, it is strange and slow, and also brings higher investment and output returns to our business model.

Thirdly, the complete repayment has laid the foundation for cooperation with domestic financial institutions. At present, we are actively collaborating with several well-known domestic financial institutions to implement various forms of supply chain financing partnerships. With the full repayment of convertible notes, it has cleared the way for smoother cooperation between us and financial institutions. Vehicle acquisition is a capital-intensive process in our business model. With the implementation of supply chain financing, it will significantly reduce the need for our own cash in the vehicle acquisition process. As we continue to expand into new areas and establish new superstores in accordance with our business plans, our funding needs will be significantly reduced. This provides greater flexibility in our pace of business expansion, allowing us to move faster or slower as necessary, while simultaneously bringing a higher return on investment to our business model.

最后我想和大家再说的是, Youxin 是一家坚持长期主义的公司。 Youxin 的财务管理也匹配业务的发展目标, 有着长期的规划。 Finally, I would like to emphasize that at Yuxin, we prioritize sustained growth and long-term value. Our financial management is also strategically planned in line with our long-term business development goals.

With this successful receipt of Neo Capital's investment and the full repayment of our convertible note, we can move forward with greater agility and feel our high-quality development in the future. And that's the answer to the question earlier. Now we have another question from Static Security. The question is, how do you see the impact of price cuts in early March? on the used car market? And what are your strategies in response to price cuts on both electric and gasoline cars? I will direct this question to our CEO, DK, to address. The next question is from Zhongxin. What do you think about the impact of the price cut on the second-hand car market in early March? And what should we do about the price cut for electric cars and diesel cars? Please let our CEO, DK, answer this question.

This wave of car market fluctuation actually started from the beginning of January, when the price of Tesla has already gone down. At that time, the entire car market was still in the middle of the epidemic, and there were fewer and fewer people in the car market. So our fellow car dealers are all collecting cars at a high price. Until the end of February, new cars began to appear in the trend of price drop. Many consumers who originally wanted to buy second-hand cars turned to the official website. On the market, there was a lot of turnover on the stock car market. The entire Chinese second-hand car industry has been greatly affected.

Market volatility began to surface in early January when Tesla announced a price reduction. At that time, the used car market was still recovering from the impact of COVID, with high demand and limited supply resulting in most used car dealers purchasing cars at higher prices. From late February, industry-wide new car price cuts started across various brands. Consumers who initially intended to buy used cars decided to adopt a wait-and-see approach, leading to turnover pressure on inventory in the used car industry and a notable impact on the market.

But our AI pricing model has been used to scan free-of-charge data and data from outside the market. In January, when we analyzed the stock cars in the same car market economy, we felt that the market was in a state of emergency. So in the first quarter of 2023, we insisted on a cautious mining strategy and maintained a lower stock level. Under a lower stock size and a reasonable stock structure, we controlled the risk of a new car price fluctuation.

We were minimally affected by the recent fluctuations in new car prices. We rely on our sophisticated big data analysis and information systems to make informed business decisions, which are also guided by our strict management governance disciplines. Following the easing of COVID restrictions, the Chinese used car market experienced a rapid recovery, with most used car dealers purchasing vehicles at elevated prices in January and February. However, our AI pricing model continually scanned and analyzed both internal and external market data, conducting vehicle competitive analysis in the market, and came to the conclusion that current market acquisition price has deviated from its reasonable level. Following the analysis, we implemented a prudent vehicle acquisition strategy and maintained low inventory levels throughout the first three months of 2023. With a relatively low inventory scale and a reasonable inventory structure, we have controlled our risk exposure to fluctuations in new car prices and minimized the impact of price fluctuations. As such, our inventory turnover efficiency in the first three months of 2023 was not affected, and the profit contribution per vehicle has also increased.

In the past 11 years, the AI pricing capability and systematization and management decision-making mechanisms trained in business data have been tested in the past two years' severe market environment. This has further increased our confidence in the U-shaped business model and management capability, and laid the foundation for the next business.

Our AI pricing capability, based on over 11 years of data, as well as our systematic decision-making mechanism, has withstood the challenges of the market under extreme conditions, especially in the past two years. This further bolsters our confidence in our business model and management capabilities and provides a solid foundation for our future business expansions.

Now that the first three months of 2023 have passed, we have observed that China's new and used car market has been stabilizing since April.

We anticipate that the rest of the year will not see the same level of volatility observed earlier this year. As such, we expect China's used car sales to grow by approximately 15% year-over-year in 2023. With this in mind, we plan to gradually increase our inventory and achieve a far higher growth rate than the industry average. Okay, this is my answer. Thank you. And that's the answer to the earlier question. We have received another question from . So the question is about based on our experience in Xi'an and Hefei, how long does it take for one of our stores to break even? We talked about single store break even earlier. So what's the company's key plans to achieve that? I will direct the question to our CFO, John, to address. So, according to our experience in Xi'an and Hefei, it will take a long time for one of our stores to open and close. In the phone call, we mentioned that in 2023, single-store stores will achieve profit. Please explain in detail where our main focus is to achieve single-store profit. Please answer our CFO Zhang. Okay.

After the past two years of hard work, the scale of the operation management system and the growth of business has been more clear. We are in a new area to establish a new market. From 0 to achieve profit, it is expected to take 12 to 18 months. We can now achieve profit balance when the sales volume of the market is around 1,000 units per month. We are also working hard to achieve profit balance through further optimization of business.

After two years of hard work, we are now very clear about the management systems, operations specifics, and business growth trajectories of each of our IS and superstores. When we establish a new superstore in a new area, we expect it to take about 12 to 18 months from the initial launch to achieving profitability. Currently, we are able to achieve breakeven when the monthly retail sales volume of a single superstore When a single store reaches around 1,000 units, we are also continuing to optimize the business and strive to achieve profitability at even lower sales volumes.

One of our main business objectives this year is to achieve week-even on a single store basis.

To achieve that, we have identified three key areas of focus.

The first is to gradually increase inventory, maintain a higher sales cycle, and increase retail sales. As DK mentioned earlier, in the first quarter of 2020, we adopted a strategy of steady sales to reduce the negative impact of the fluctuation of the market. Therefore, the external sales inventory is still at a relatively low level, but our sales cycle is constantly increasing. From April, we will gradually increase storage and maintain high sales growth. On the basis of this, the monthly sales volume of single-storey stores will gradually reach 1,000 units. In September 2022, the monthly sales volume of single-storey stores in Hefei will be close to 1,000 units. This year, under the same and even lower sales volume, Hefei's Hefei store will be able to achieve a balance of profit and loss in single-storey stores.

Firstly, we plan to increase our inventory levels while maintaining high sales turnover to boost retail transaction volume. As CK has mentioned earlier, in the first three months of 2023, we adopted a prudent acquisition strategy to minimize the negative impact of market fluctuations. As a result, our in-store inventory levels are currently relatively low. However, our sales turnover has been steadily increasing in the first three months of 2023. Starting from April, we will gradually ramp up our inventory and aim to achieve a monthly retail sales volume of 1,000 units per store while maintaining high sales turnover. In September 2022, our Hefei Superstore had achieved 1,000 retail sales. If similar or even lower retail sales is achieved, In 2023, our Hefei Superstore would break even and start to generate profit.

The second is to further increase the trade level of single-car income. In recent sales, we have clearly found that the competitiveness in the industry, especially in terms of product, service, and brand power, has been better reflected. The trade power of our car sales has begun to significantly increase. At the same time, with the completion of the construction of the new market and the construction of the entire factory, The second area of focus is to further increase the gross margin of each vehicle we sell.

In the past month, we have observed that our advantages, product strength, service quality, and branding power have resulted in a notable increase in our gross profit from vehicle sales. Additionally, with the opening of our new super stores and the completion of our advanced reconditioning factory, we will gradually grow our revenue and gross profit contribution from high-margin value-added services. such as the vehicle financing, insurance, after-sales maintenance, accessory upgrades, and others.

The third is to continue to promote business management and maintain this effect. We continue to optimize business and management processes, improve the knowledge of digitalized systems, and introduce more advanced second-hand car manufacturing technology to reduce business costs and improve management efficiency.

Thirdly, we will continue our drive for lean management and maintain our focus on cost reduction and efficiency improvement. We will continually refine our business and management processes, enhance our digital systems, incorporate cutting-edge used car reconditioning technologies, and reduce operational costs. across all aspects of our business. By doing so, we will improve our management efficiency to ensure that each of our stores can achieve profitability at a monthly sales volume 1,000 vehicles or lower.

Just now, DK also shared with you that we are very confident in achieving a single market profit in 2023. Please take a look at our sales performance. Thank you.

As CK has shared earlier, we are very confident in our ability to achieve single-store profitability by 2023. Please stay tuned for our performance in achieving this goal. Thank you. Okay, that's all the questions we have received from the investment community. We are sorry about the technical issue that you are experiencing. Hopefully, we get to sort this out.

when we talk to you next quarter. Thank you.

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you. Thank you. you Thank you. Ladies and gentlemen, thank you for standing by and welcome to Eugene's earnings conference call for the quarter ended December 31st, 2022. 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 questions, 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.

Thank you, Operator. Hello, everyone. Welcome to UCI's earnings conference call. Fourth quarter ended December 31st, 2022. On the call with me today, we have CK, our founder and CEO, and John Lin, our CFO. CK will review business operations and company highlights, followed by John, who will discuss our financials and guidance. They will both be available to answer 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.

CK, please go ahead, sir. Thanks, Jack. Hello, everyone. Thank you for joining our earnings conference call today. To accommodate both domestic and international investors, I will provide an overview of our business progress in both English and Chinese. I will start today's call by reviewing the key focal points of our efforts this quarter and then share an update on the direction we're pursuing as well as the recent market trend. During the third quarter of fiscal year 2023, from October to December 2022, the stringent COVID control measures created huge impacts and fluctuations in the market.

Despite such impacts, our retail sales volume for the quarter reached 2,928 units, representing an impressive

77% year-over-year growth.

In the recent quarter, we have consistently directed our resources towards enhancing customer service, optimizing supply chain efficiency, and managing costs to reinforce the competitive edge of used car business in the industry.

As we persist in strengthening our customer service capabilities,

and improving the car buying experience, our solid reputation and growing recognition among customers continued to advance. From October to December 2022, our NPS score of 60 remained at the top level in the industry for four consecutive quarters. This achievement is a testament to our success in building a product and service system that effectively meets our customers' needs over a long period of time driven by our commitment to elevated hospitality, improved car buying experience, and refined vehicle standards, quality, and after-sales services.

To further improve operation efficiency, we manage every step

of vehicle circulation on an hourly basis and reduced the waiting time vehicles spend on the production line. By implementing a series of actions, such as standardizing processing hours and upgrading our dynamic time tracking system, we were able to reduce the time from acquiring a used car to listing for sale to around six days by the end of 2022, a 50% reduction compared to the same period last year. Going forward, we will continue to optimize our production process, strengthen cross-team coordination, automate spare part management, etc. Our goal is to create an industry-leading, transparent factory on used carbon conditioning to maximize our production efficiency.

In addition, we are very focused on the system construction of energy production, fine-tuning the particle density management, and systematically improving the cost control ability of each link. We designed and developed a low-end management system that adapts to the large-scale two-wheeled vehicle operation, using single vehicles as management units, and cooperating with each business task. This is similar to the precise production of each farm by fine-tuning the production of each farm by fine-tuning the production of each farm by fine-tuning the production of each farm by fine-tuning the production of each farm by fine-tuning the production of each farm by fine-tuning the production of each farm.

At the same time, we're dedicated to fine-tuning our production management to systematically improve our cost control capabilities. For using super large-scale used car operations, we have implemented a so-called drip irrigation system that evaluates and assigns various tasks or actions to each individual car. This is similar to modern agricultural production where precise timing and dosage of irrigation are applied to each crop. This approach involves developing balanced reconditioning tasks for each vehicle based on factors such as price, mileage, condition, branding, et cetera. By making precise judgments on all intermediate costs and implementing customized reconditioning solutions for each vehicle, we have substantially reduced our overall reconditioning costs.

In addition, we have already shared with you in the last quarter phone call that we completed the upgrade and transformation of Xi'an's major trade fair in December 2022, and built the largest all-terrain two-wheel car trade fair in northwest China. The upgraded Xi'an trade fair is composed of two parts of the two-wheel car remodeling factory and the warehouse market. It has a comprehensive capability such as testing and preparation, vehicle quantity display, increase in value, and service of car dealerships. It is a standard market form that can be scaled in the future. From the recent few months of business situation, C&M's operation has been on track. With the advantage of the traditional market all over the world in terms of people, goods, and factories, sales conversion rate continues to increase, and the perfect and convenient one-stop shopping experience is highly praised by customers. With the gradual rise of customer storage, C&M will bring us more and more sales contributions.

Additionally, as mentioned in our previous earnings call, we upgraded and transformed our Xi'an Superstore in December 2022, establishing it as the largest fully self-operated used car superstore in Northwest China. We revamped Xi'an IRC features two components, a used car reconditioning factory and a warehouse-style superstore, offering comprehensive in-house services such as vehicle inspection, reconditioning, exhibition and sales, value-added services, and DMV services. This all-inclusive store model paves the way for large-scale replication in the future. Recent month performance data indicates that our HEN IRC operations are on track. Capitalizing on the all-encompassing advantages over traditional used car dealers, our sales conversion rate has consistently improved, and our customers have highly recognized our convenient one-stop car buying experience. As we gradually build up its inventory, the CNIRC will increasingly contribute to our sales growth this year.

In the recent market situation, we have observed that China's defense policy has turned around. The economic environment and consumer confidence are recovering. At the same time, the first quarter of 2023 is the fourth quarter of our fiscal year. China's car market has undergone a huge price fluctuation. Starting in January, Tesla's price dropped sharply. Regarding the current market conditions, we have observed a recovery in the economic environment and consumer confidence since China eased its COVID policies.

At the same time, the Chinese auto market has experienced a significant price fluctuation in the first three months of 2023, which is our first quarter of fiscal year 2023. Starting from January, Tesla was the first to announce a significant price reduction. Our AI pricing system analyzed the sellability of vehicle prices and concluded that the price reductions by best seller models like Tesla would trigger a series of chain reactions and lead to price volatility. Therefore, we implemented prudent vehicle acquisition strategies throughout the quarter starting from January, successfully minimizing the impact caused by new car price volatilities in February and March.

Following the end of the first quarter of 2023, we saw that the market was gradually stabilizing in April. In April, we noticed that the auto market has been stabilizing. Looking forward, with our solid reputation, growing brand recognition, improved business efficiency, and reduced production costs,

We are confident in delivering sustained high-quality sales performance and achieving profitability on a single-store basis in the calendar year of 2023.

我今天先分享到这里。 接下来请我们的CFO John为大家展示财务上的情况。 With that, I'll turn the call over to CFO John to walk you through the financial results. John, please. 感谢DK,大家好。

Thank you, DK, and hello everyone. Since we have both domestic and foreign investors attending our call, 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 third quarter of fiscal year 2023, which is the three months ended December 1st, 2022.

As DK mentioned earlier, due to the spread of the COVID-19 pandemic, our sales dropped in October and November. After the spread of the COVID-19 pandemic in the second week of December, even though all regions have entered the peak of the pandemic, it has had a significant impact on the domestic market. As DK mentioned earlier, our retail sales from October through November were disrupted by strict COVID control measures.

Although these measures were lifted in the second week of December, the used car market across different regions continued to face challenges due to the varying infection rates. However, we are delighted to report that our sales have made a remarkable rebound and are outpacing the industry in business recovery. In fact, in December alone, we retailed 1,350 units, surpassing our pre-pandemic record levels.

The retail sales in the third quarter have reached 2,928 units, only 26% lower than in the second quarter, and 77% increased in the same period as last year. As a comparison, China's second-hand car trade fell 8% in October and 12% in the same period. Our average price dropped from 120,000 yuan in the last quarter to 112,000 yuan in this quarter. Overall, the total retail revenue is Our retail transaction volume was 2,928 units, only 6% lower than the second quarter and up 77% year to year.

In comparison, the total used car transaction volume in China declined 8% sequentially and 12% year over year in the three months between October and December. Our average selling price declined from 120,000 RMB in the previous quarter to 112,000 RMB in this quarter. Overall, retail revenue totaled 329 million RMB, down 12% sequentially, and up 41% year-over-year.

The sales volume of T-SHOW, 1,969 units, decreased by 33%. In an unfavorable market environment during the pandemic, Total transaction volume was 1,969 this quarter.

down 33% compared to the previous quarter. During the pandemic, we faced an unfavorable market environment and adopted a prudent vehicle sourcing strategy. We priced the vehicles that did not meet the retail standards more cautiously and reduced our vehicle acquisition volumes. As a result, the ASP of wholesale vehicles decreased from 81,000 RMB in the previous quarter to 67,000 RMB in this quarter. Our total wholesale sales revenue for the third quarter was 132 million RMB, which represents a 45% sequential decline from the previous quarter.

Our total revenues including both retail and wholesale was 471 million RMB, down 24% sequentially, primarily due to lower wholesale revenue. On a year-over-year basis,

Our total revenue is decreased by 7%.

Our total revenue is decreased by 7%. Our total revenue is decreased by 7%. We expect that from the 4th quarter, the net profit will start to significantly improve. In the next year, it will reach more than 5%.

The gross margin for the quarter was 0.6%, down from 1.3% in the previous quarter. During the market downturn, we took proactive steps to refine our inventory structure. As a result, we recorded write-downs on some of our unsold vehicles. we also implemented various pricing strategies to accelerate the turnover of high-priced vehicles between October and December. These actions, in response to the challenging market conditions, had a short-term impact on our gross margin. Looking ahead, we expect to see improvements in our gross margin starting in the fourth quarter, and we anticipate that it will exceed 5% in the coming year.

Total operating expenses for the quarter reduced by 11% from the previous quarter.

As we navigated through the pandemic, we have taken a measured approach to our marketing expenses in order to manage our overall operating costs effectively. Even as our business grows rapidly, we remain committed to implementing cost reduction and efficiency improvement measures in our daily operations. This strategy will help us expand our business at an optimal ROI while maintaining our focus on financial discipline.

The loss of non-GAAP operations in this quarter is RMB85.6 million, which is 6.9 million less than in the previous quarter. Please visit our website for detailed financial data. I will not repeat the numbers here. As before, I would like to talk about the impact of this quarter on the non-currency impact of financing supply value assessment. Our non-GAAP adjusted loss from operations was 85.6 million RMB down 6.9 million RMB from the previous quarter. The detailed financial statements were published

in our earnings released online, so I will not repeat the numbers here. Same as before, there's a fair value impact related to our financing transactions. The changes in our stock price resulted in a gain of 1.5 million RMB due to the fair value change of warrants related to the financing agreement we signed in 2021. This is a non-cash gain based on U.S. GAAP financial treatment and does not reflect our business operations.

Regarding the important progress of the company's finance, in 2019, we invested $2.3 billion in transferable debt with investors, and in 2021, we resumed the payment plan for debt. We are very happy to share with you that we have completed all the remaining $61.6 million of payment obligations by March 31. I am also excited to share an update on our financial position. In 2019, we secured a $230 million convertible financing with our investors. And in 2021, we successfully restructured

our payment plan. As of March 31st, we have fulfilled all remaining payment obligations, totaling $61.6 million. This successful payment completion of our convertible note cleared most of our historical liabilities of large amounts while significantly strengthening our balance sheet structure, enabling us to further improve our financial flexibility and better focus our resources on future business development opportunities.

In June 2022, we signed a $100 million financing agreement with our investors. To date, our investors have successfully completed their payments.

of $80 million. The remaining $20 million will also be completed as per the agreed-upon payment schedule.

Welcome to the 4th quarter of 2023. The spring festival of 2023 is in the summer of January. The whole spring festival is the traditional Chinese holiday. The first three weeks after the spring festival is the traditional time of second-hand trading. In the second week of March, the whole new car industry began a large-scale price drop. Although the actual sales price of new cars has not significantly decreased, the viewership of current users who buy second-hand cars is relatively serious. We maintained a steady purchase strategy from January to February, and did not follow the trend of higher purchases. The reasonable degree of storage structure has also been steadily improved. Our current storage sales level has dropped, with about 800 storage units left. Although the number of 2400 storage units left over last November has significantly decreased, it will also significantly reduce the impact of new car price fluctuations on us. For the fourth quarter of fiscal year 2023, the Chinese New Year was on January 22nd, and the holiday season traditionally lasts until the Lantern Festival on February 5th.

with the three weeks around it being an off-season for used car transactions. Additionally, we observed a widespread trend of price reductions for new cars in China in the second week of March, which has caused potential buyers to become more hesitant in purchasing used cars. Despite the recent price fluctuations, we remain prudent in our vehicle acquisition strategies during January and February. enabling us to maintain a healthy and stable inventory expansion pace. Currently, our retail inventory level is relatively low, with approximately 800 units available for sale. In comparison, we had 2,400 used cars in our retail inventory in November 2022. The reduced size of our inventory helped minimize the impact of new car price fluctuations on our business. Encouragingly, given the market situation, Our sales turnover efficiency continued to improve and achieved better margin profiles compared to the third quarter. However, the low inventory level restrained our sales performance, and we expect our retail sales in the fourth quarter to decrease compared to the third quarter.

Due to the impact of the increase in the market environment due to the decline of the listed industries, We expect that in the fourth quarter of 2023, that is, from 1 to 3 in 2023, the overall sales situation will drop by three quarters. The sales volume is expected to be 2,100 units. The retail unit price is 11.7 million RMB. The wholesale sales volume is expected to be 1,300 units. The retail unit price is expected to be 5.2 million RMB. The total sales income includes retail sales income, wholesale sales income, and increased service income.

Considering seasonal and market factors, we anticipate a decrease in transaction volume during the fourth quarter of fiscal year 2023, ended on March 31, 2023, compared to the previous quarter. We project that our retail transaction volume will reach approximately 2,100 units with an anticipated ASP of 117,000 RMB for retailed cars. Our wholesale transaction volume is expected to be around 1,300 units with an ASP of approximately 52,000 RMB. Our total revenues, which include retail and wholesale vehicle sales revenue, as well as value-add service revenue, are estimated to range between 310 million RMB to 330 million RMB.

Based on the outlook for the fourth quarter, from April 2022 to March 2023, the sales volume of the whole year is expected to reach 10,500 units, which is 104% increase. The sales volume of the whole year is expected to be 9,300 units, which is 9% decrease. In line with our fourth quarter outlook, we're now projecting for the full fiscal year of 2023, which concluded on March 31, 2023. Our retail transaction volume will reach approximately 10.5 thousand units,

reflecting a year-over-year growth of 104%. Meanwhile, our wholesale transaction volume is anticipated to reach around 9.3 thousand units, representing a year-over-year decline of 9%. Furthermore, we estimate that our total revenues for the fiscal year, including retail vehicle sales revenue, wholesale vehicle sales revenue, and value-add services revenue, will be in the range of 2.02 billion RMB to 2.04 billion RMB, representing a year-over-year increase of 23 to 25 percent.

And that concludes our prepared remarks today.

Operator, we are now ready to take questions.

Thank you. If you wish to ask a question, please press star then 1 on your telephone. and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Ask any question in Chinese, please restate your question in English immediately afterwards for the convenience of everyone on the call. Again, to ask a question, please press star 1.

Hi, Alberto.

We're getting some feedback that there might be a technical issue on the call, so people are not able to join. So we'll take this opportunity to go over some questions we have received offline. And the first question I will direct to our CODK. Are there any remaining COVID-19 issues, particularly in the region where the two IRCs are located? Right now, we have a technical problem, so some people can't get in. So I'll ask the investors the questions we've talked about before. The first question is from our CEO, DK. Does the COVID-19 pandemic have any impact on our operations, especially in cities with two IRCs?

From October to November in 2022, the COVID-19 pandemic

significantly impacted our business, affecting everything from vehicle acquisition to sales and logistics. However, since the second week of December 2022, when the epidemic prevention policies were lifted, the market has rebounded rapidly. As of now, COVID no longer poses any impact on our operations. I'll move on to the second question we received. Is the upgrade and build-out of the CNIRC 100% complete at this point? And do you have any plans for future upgrades? I will also direct that question to our CEO, DK. The second question is whether the CNIRC upgrade has been completed 100%. And in the future, is there any plan for further upgrades?

The expansion of CNIRC has been completed 100%. Now, as the largest all-terrain two-wheel car market in the Northwest, our stop area has expanded to 3,000 units of capacity, which is five times more than before. The gradual climb can provide customers with more choices and will bring corresponding sales transformation. With the completion of the construction of CNIRC's advanced two-wheel car remodeling factory, we have also launched more comprehensive after-sales maintenance services, and provided a rich set of car products to add to the upgrade selection. The expansion and upgrade of our IRC and CN is 100% complete.

As the largest used car superstore in northwest China with 100% self-owning inventory, we have expanded our showroom capacity to 3,000 vehicles, which is five times larger than before. The increase in inventory will provide customers with a much wider selection, which will in turn drive our sales conversions. With the completion of our state-of-the-art used car reconditioning factory in Xi'an, we are now offering comprehensive after sales maintenance services, and also providing an extensive selection of vehicle accessories, modifications, and upgrades to meet the diverse needs of our customers. On top of that, we are now capable of exporting our cutting edge used car reconditioning capabilities externally. The CN IRC is our first fully formed IRC and superstore with full functions. All of these operations from management processes and service standards So business systems are now capable of being replicated in other cities.

The auto market stabilizes in April.

we will increase our inventory to drive sales growth. Simultaneously, we will continue the expansion of our ERC network in a steady pace, in accordance with our cash positions and strategic planning. Our expansion plans are already underway, and we look forward to updating everyone on our progress in due course. And I will move on to the next question, which comes from TF Securities. The question is about we think that the company has really fully repaid the $61.6 million convertible note. So can you please provide more details on these arrangements and its impact on your future business development? I will direct that question to John to answer. I will translate it into Chinese. This question is from Tianfeng Securities. They are concerned that the company has recently spent $61.6 million, all of which are left in the cash transfer debt. So, can you please explain in detail the arrangement of this matter and the impact on the company's future business development? Please answer our CFO Zhang. Yes, we recently issued a notice, mainly on two aspects.

That is correct. We have recently issued an announcement with two major updates. Firstly, we have received $80 million from the planned total of $100 million.

from the subscription agreement of the Senior Convertible Preferred Shares Fund with NEO Capital in June 2022.

Another one is what you mentioned, the increase in the amount left over from the 6,160 million USD transfer. In 2019, we carried out 2.3 billion USD transfer financing, followed by several transfers. There are about 60% of the transferable debt turned into positive shares, and the rest is arranged to be paid in installments. Before this repayment, we have a total of $6,160 million left to repay. This is also the largest amount of debt paid by the company as of March 31, 2023. Secondly, as you asked, we have announced our full repayment of the remaining $61.6 million convertible note balance. In 2019, we raised $230 million through convertible note financing and underwent several restructurings.

As a result, about 60% of the convertible notes were converted into UCIN's shares, with the remainder was to be paid in installments. As of March 31, 2023, the outstanding liability of $61.6 million represented UCIN's largest historical debt. After comprehensive evaluations, we have decided to fully repay and clear the outstanding obligations from the convertible note, which will bring three significant benefits to our company.

Firstly, with the full repayment

of the remaining convertible note, our balance sheet structure is greatly improved. After the payment, our historical debt that we need to pay in the future has been significantly reduced, which will enhance our financial safety, making the long-term financial structure of using much healthier. 第二点是可转债的完全清偿为公司未来的潜在融资创造了更好的条件。

For Qingchang, large-scale transfer debt has always been a major concern of the company's current investment. When we transfer all the transfer debt, investors can reduce the risk of positive investment. Investment funds can also focus on the development of the business, rather than Qingchang's historical debt. As the company achieves a single profit this year, we can use a better state to carry out a series of planning for the capital market.

Secondly, the complete repayment creates better conditions for potential financing in the future. The outstanding convertible loan had been a major concern for potential investors who are interested in the company. With the full repayment, the investment risks of Yuxin has significantly decreased, allowing future investment funds to focus on our business development rather than debt repayment. Accompanied by our efforts to achieve profitability on a single store basis this year, this repayment will enable us to plan for a series of capital market initiatives from a more favorable position.

PC3 is a long-term project that has also established a foundation for our cooperation with financial institutions. Currently, we are working with a number of well-known domestic financial institutions to actively promote supply chain financing. Transaction debt has often cleared up the barriers between us. Car procurement is the most money-saving part of the positive business model. The expansion of the supply chain finance can significantly reduce the cost of free funds in the process of car procurement. When we enter a new area according to the business plan and establish a new market, the need for funds will also be greatly reduced. Thirdly, the complete repayment has laid the foundation for cooperation with domestic financial institutions.

At present, we're actively collaborating with several well-known domestic financial institutions to implement various forms of supply chain financing partnerships. With the full repayment of convertible notes, it has cleared the way for smoother cooperation between us and financial institutions. Vehicle acquisition is a capital-intensive process in our business model. With the implementation of supply chain financing, it will significantly reduce the need for our own cash in the vehicle acquisition process. As we continue to expand into new areas and establish new superstores in accordance with our business plans, our funding needs will be significantly reduced. This provides greater flexibility in our pace of business expansion, allowing us to move faster or slower as necessary, while simultaneously bringing a higher return on investment to our business model.

最后我想和大家再说的是, Youxin 是一家坚持长期主义的公司。 Youxin 的财务管理也匹配业务的发展目标, 有着长期的规划。 Finally, I would like to emphasize that at Yuxin, we prioritize sustained growth and long-term value. Our financial management is also strategically planned in line with our long-term business development goals.

With this successful receipt of NEO Capital's investment and the full repayment of our convertible note, we can move forward with greater agility and feel our high-quality development in the future. And that's the answer to the question earlier. Now we have another question from Static Security. The question is, how do you see the impact of price cuts in early March? on the used car market? And what are your strategies in response to price cuts on both electric and gasoline cars? I will direct this question to our CEO, DK, to address. The next question is from Zhongxin. What do you think about the impact of the price cut on the second-hand car market in early March? And what should we do about the price cut for electric cars and diesel cars? Please let our CEO, DK, answer this question.

This wave of car market fluctuation started from the beginning of January, when the price of Tesla dropped. At that time, the entire car market was still in the process of reshuffling due to the pandemic. In general, the demand for cars was high and the number of car users was low. Then, the dealers of our peers were all collecting cars at a high price. Until the end of February, new cars began to appear in the trend of price drop. Many consumers who originally wanted to buy second-hand cars turned to the official website. On the market, there was a lot of turnover pressure on the stock car market. The entire Chinese second-hand car industry was greatly affected.

The market volatility began to surface in early January when Tesla announced a price reduction. At that time, the used car market was still recovering from the impact of COVID, with high demand and limited supply resulting in most used car dealers purchasing cars at higher prices. From late February, industry-wide new car price cuts started across various brands. Consumers who initially intended to buy used cars decided to adopt a wait-and-see approach, leading to turnover pressure on inventory in the used car industry and a notable impact on the market.

But our AI pricing model actually scan the free-for-all data and the data outside the market. In January, when we analyzed the stock cars in the same car market economy, we felt that the situation was abnormal, and we made an abnormal judgment. So in the first quarter of the whole year 2023, we insisted on implementing a cautious mining strategy and maintained a low stock level. Under a low stock size and a reasonable stock structure, we controlled the risk gap caused by the fluctuation of new car prices.

We were minimally affected by the recent fluctuations in new car prices. We rely on our sophisticated big data analysis and information systems to make informed business decisions, which are also guided by our strict management governance disciplines. Following the easing of COVID restrictions, the Chinese used car market experienced a rapid recovery, with most used car dealers purchasing vehicles at elevated prices in January and February. However, our AI pricing model continually scanned and analyzed both internal and external market data, conducting vehicle competitive analysis in the market, and came to the conclusion that current market acquisition price has deviated from its reasonable level. Following the analysis, we implemented a prudent vehicle acquisition strategy and maintained low inventory levels throughout the first three months of 2023. With a relatively low inventory scale and a reasonable inventory structure, we have controlled our risk exposure to fluctuations in new car prices and minimized the impact of price fluctuations. As such, our inventory turnover efficiency in the first three months of 2023 was not affected, and the profit contribution per vehicle has also increased.

Our AI pricing capability and systematization and management decision-making mechanisms trained in business data in the past 11 years have been tested in the past two years' severe market environment. This has further increased our confidence in the new business model and management capability, and laid the foundation for our next business.

Our AI pricing capability, based on over 11 years of data, as well as our systematic decision-making mechanism, has withstood the challenges of the market under extreme conditions, especially in the past two years. This further bolsters our confidence in our business model and management capabilities and provides a solid foundation for our future business expansions.

Now that the first three months of 2023 have passed, we have observed that China's new and used car market has been stabilizing since April.

We anticipate that the rest of the year will not see the same level of volatility observed earlier this year. As such, we expect China's used car sales to grow by approximately 15% year-over-year in 2023. With this in mind, we plan to gradually increase our inventory and achieve a far higher growth rate than the industry average. Okay, this is my answer. Thank you. And that's the answer to the earlier question. We have received another question from . So the question is about based on our experience in Xi'an and Hefei, how long does it take for one of our stores to break even? We talked about single store break even earlier. So what's the company's key plans to achieve that? I will direct the question to our CFO, John, to address. So, based on our experience in Xi'an and Hefei, how long does it take for one of our stores to open and close? In the phone call, we mentioned that in 2023, the single-store store will achieve profit. Please explain in detail where our main starting point is to achieve single-store profit. Please answer our CFO Zhang. Okay.

After the past two years of hard work, we have been able to clearly see the trajectory of the operation management system and the growth of business in the single and multi-faceted market. We have established a new market in a new area, and we expect it to take 12 to 18 months to achieve profit from zero. We can now achieve profit balance when the sales volume of the market is around 1,000 units per month. We are also working hard to achieve profit at a lower sales level through further optimization of business.

After two years of hard work, we are now very clear about the management systems, operation specifics, and business growth trajectories of each of our IS and superstores. When we establish a new superstore in a new area, we expect it to take about 12 to 18 months from the initial launch to achieving profitability. Currently, we are able to achieve breakeven when the monthly retail sales volume of a single superstore When a single store reaches around 1,000 units, we are also continuing to optimize the business and strive to achieve profitability at even lower sales volumes.

One of our main business objectives this year is to achieve week-even on a single store basis.

To achieve that, we have identified three key areas of focus.

The first is to gradually increase inventory, maintain a small sales cycle, and improve retail sales. As DK mentioned earlier, we adopted a strategy of steady sales in the first quarter of 2020-2013 to reduce the negative impact of market fluctuation. So currently, the external sales inventory is still in a relatively low level, but our sales cycle is constantly improving. From April, we will gradually increase storage. On the basis of maintaining high sales standards, the monthly sales volume of single-storey stores will gradually reach 1,000 units. In September 2022, the monthly sales volume of single-storey stores in Hefei will be close to 1,000 units. This year, under the same and even lower sales volume, Hefei's Hefei store will be able to achieve a balance of profit and loss in single-storey stores.

Firstly, we plan to increase our inventory levels while maintaining high sales turnover to boost the retail transaction volume. As DK has mentioned earlier, in the first three months of 2023, we adopted a prudent acquisition strategy to minimize the negative impact of market fluctuations. As a result, our in-store inventory levels are currently relatively low. However, our sales turnover has been steadily increasing in the three months of 2023. Starting from April, we will gradually ramp up our inventory and aim to achieve a monthly retail sales volume of 1,000 units per store while maintaining high sales turnover. In September 2022, our Hefei Superstore had achieved 1,000 retail sales. If similar or even lower retail sales is achieved, In 2023, our Hefei Superstore would break even and start to generate profit.

The second step is to further increase the trade level of single-car income. In recent sales, we have clearly found that the competitiveness in the industry, especially in terms of product, service, and brand power, has been better reflected. The trade power of our car sales has begun to significantly increase. At the same time, with the completion of the construction of the new market and the construction of the factory, The second area of focus is to further increase the gross margin of each vehicle we sell.

In the past month, we have observed that our advantages, product strength, service quality, and branding power have resulted in a notable increase in our gross profit from vehicle sales. Additionally, with the opening of our new superstores and the completion of our advanced reconditioning factory, we will gradually grow our revenue and gross profit contribution from high margin value-added services, such as vehicle financing, insurance, after-sales maintenance, accessory upgrades, and others.

The third is to continue to promote business management and continue to reduce cost-effectiveness. We will continue to optimize business and management processes, enhance the knowledge of digitalized systems, and introduce more advanced second-hand car manufacturing technology to reduce business costs and enhance management efficiency.

Thirdly, we will continue our drive for lean management and maintain our focus on cost reduction and efficiency improvement. We will continually refine our business and management processes, enhance our digital systems, incorporate cutting-edge used car reconditioning technologies, and reduce operational costs. across all aspects of our business. By doing so, we will improve our management efficiency to ensure that each of our stores can achieve profitability at a monthly sales volume 1,000 vehicles or lower.

Just now, DK also shared with you that we are very confident in achieving a single market profit in 2023. Please take a look at our sales performance. Thank you.

As CK has shared earlier, we are very confident in our ability to achieve single-store profitability by 2023. Please stay tuned for our performance in achieving this goal. Thank you. Okay, that's all the questions we have received from the investment community. We are sorry about the technical issue that you are experiencing. Hopefully, we get to sort this out.

when we talk to you next quarter. Thank you.