Uxin Limited

Good day and welcome to the USHE third quarter fiscal year 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Jack Wang. Please go ahead, Jack.

All right. Thank you, operator. Hello, everyone. Welcome to Yuxin's earnings conference call for the third quarter of fiscal year 2024 and December 31st, 2023. On the call with me today, we have DK, our founder and CEO, as well as John Lin, our CFO. DK will review business operations and company highlights, followed by John, who will discuss our financials and our 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 findings with the SEC. Now I'll turn the call over to our CEO, DK. Please go ahead, sir.

Hello everyone. Thank you for joining us today. I'm pleased to reconnect with you all on the call. To facilitate communication with both domestic and international investors, I will share our company's latest progress in both Chinese and English. I will review the key highlights from this quarter before sharing the work we are currently engaged in and our plans for the future. In the third quarter of 2024, that is, from October to December 2023, the domestic new car market began a new downward trend. the second-hand car market has also been affected to a certain extent. In such a challenging external environment, we maintain a growth trend in retail business. In the entire quarter, retail sales amounted to 3,081 units, which increased by 34.7% and increased by 5.2%. The operation of supermarkets is also more smooth. At present, the turnover of resold vehicles has maintained a super high efficiency within 30 days and has reached the industry's highest level of NPS of more than 60 points in eight consecutive quarters.

In the third quarter of fiscal year 2024, from October to December 2023, the domestic new car market in China began another round of price reduction, which also impacted the used car industry. Despite these challenging external conditions, we continue to see growth in our retail business, with total retail sales for the quarter reaching 3,081 vehicles. This represents a 34.7% increase quarter-over-quarter and a 5.2% increase year-over-year. In addition, our superstores are operating more smoothly than ever, maintaining a highly efficient turnover of vehicles of less than 30 days and achieving an industry-leading net promoter score, or NPS, of over 68 consecutive quarters.

At this stage, we are starting to pay more attention to improving the scale of our business. It is worth mentioning that in January of 2024, we have achieved EBITDA profit at the market level for the first time. We are confident to achieve EBITDA profit for the entire company in 2024. The recent months of work have also brought us closer to achieving this goal. At the conference, I mainly want to share the progress of three aspects.

Currently, we're focusing on enhancing the scalability of our profitability. It's worth noting that in January 2024, we achieved EBITDA profitability at a store level for the first time. We are confident that within the calendar year of 2024, we will reach EBITDA profitability at the company level as well. The diligent effort of the past few months has advanced us significantly toward this goal. And today, I'm pleased to share our progress in three major areas.

First, the vehicle sales system is more mature, and the vehicle is maintained in good health. After several seasons of fluctuation in the market, our vehicle pricing capacity has increased further. We can adjust the price more quickly to respond to the changes in the market, and ensure that the vehicle has market competitiveness. First, our vehicle sales system continued to evolve and mature, maintaining a robust vehicle turnover rate.

Despite the market's volatility in recent quarters, we have further enhanced our vehicle pricing capabilities, allowing us to rapidly adjust prices in response to market shifts, ensuring that our pricing can always be competitive. The inherent branding strength of our physical super stores has also become increasingly evident, and our comprehensive customer services have received wider recognition, further boosting customer acquisition and sales conversions. During the intense new car price competition in the first three months of 2024, our store operations demonstrated resilience, with vehicle turnover remaining stable despite market fluctuation.

Second, while maintaining the efficiency of the car, the profit and loss ability is greatly improved. On the one hand, this benefits the advantages of quality, service, brand, and other aspects compared to traditional car manufacturers, making it easier for us to obtain normal market-level car price differences. On the other hand, based on the sales scene of the large-scale market, we and our partner suppliers have launched customized, diversified, and cost-effective added products. The penetration rate of all kinds of added products such as finance, insurance, products, health care, and maintenance is rapidly increasing. In the future, we will provide more labor contributions.

Secondly, while maintaining vehicle turnover efficiency, our profitability has substantially increased. This improvement stems from our superior quality, service, and branding over traditional car dealers, which enabled us to effectively achieve favorable market-level price differentials for our vehicles. Additionally, leveraging our superstores, we have launched customized, diverse, and cost-effective value-added products in collaboration with our supply chain partners. The penetration rate of financial products, insurance, accessories, extended warranties, and maintenance services are rapidly increasing, which will contribute further to our gross margin in the future.

Third, complete business recovery and optimization, complete the new version of the降本提效, Thirdly we have

conducted comprehensive business reviews and optimizations to initiate a new round of cost reduction and efficiency enhancement. In our retail operations, we have rigorously refined our processes and fully utilized digital management tools. Specifically, we have meticulously examined costs in all areas, optimized our workforce structure, and enhanced the cost of efficiency ratio to improve the operating cash flow of our superstores. Notably, following the Spring Festival, we realigned our organizational structure to better meet the development needs of our superstores and executed a series of initiatives to further reduce costs and expenses. Starting from April, we expect these efforts to save us over 15 million RMB in our quarterly costs and expenses going forward.

In the previous few seasons of the new car price war, we have adopted a relatively cautious collection strategy. The storage level is at a low level. Our pricing ability, sales ability, and operation ability have fully responded to the fluctuation of the market market. We are now starting to steadily increase the storage. It is expected that at the end of this year, the number of resold vehicles will reach about 4,000 units, which is about three to four times the number of resold in this quarter. More sufficient storage will bring more choices to consumers, and will bring significant sales growth to push for the implementation of

as you have seen we implemented a conscious vehicle acquisition strategy in the past few quarters in response to the recent price wars in the new car market which helped us maintain a relatively low inventory level now our pricing sales and operational capabilities are very well equipped to manage market fluctuations effectively. So we have started to increase our inventory levels, anticipating that our end of year on-hand inventory will reach approximately 4,000 units, which is around three to four times our third quarter inventory level. This expanded inventory will provide consumers with more options and enable us to achieve monthly EBITDA breakeven before September 2024, as well as company-wide EBITDA profitability in the December quarter of 2024.

At the same time, according to the current development plan, we will complete the selection and management preparation of one to two new markets in 2024, complete the online and offline large market network, Additionally, as part of our strategic development plans

We are on track to complete the site selection and operational preparation for one to two new superstores within 2024. This initiative will further strengthen our integrated network of online operations and offline superstores. Our business model has garnered significant recognition from local governments, especially following their visit to our Hefei and Xi'an superstores. Consequently, we have received active invitations from these regions to establish new super stores. We're currently advancing implementation plans with several cities, which will propel Yixing's nationwide expansion and drive business growth in the coming years.

The company has made a new round of financing in March this year. I personally also bought shares in this round of financing. For the development opportunities of the Chinese second-hand car industry, the competitive advantage of the Yuxin large-scale market model, and the current growth trend of the company's business, I am very confident that I will put all my heart and soul into leading Yuxin to become a leading company in the second-hand car industry.

Earlier in March, the company launched a new round of financing in which I personally participated as an investor. And my personal commitments reflect my confidence in the substantial opportunities for development in China's East Core market the competitive strength of Houston's superstore model, and its robust growth trajectory. I am deeply committed to steering Houston towards becoming a leader in China's used car industry.

And with that, I would like to turn the call over to our CFO, John, to work through the financial results.

Thank you, DK. Hello, everyone. Next, I will share with you the financial situation of the company's third quarter of the fiscal year in 2023.

Thank you, DK. Hello, everyone. I will provide a closer look at our financial results from the third quarter of fiscal year 2024.

As DK just mentioned, the Chinese car market in 2023 has experienced several new car price peaks. The turbulent new car market has also had an impact on the second-hand car market. With the maturity of the market, As DK just highlighted,

The Chinese automotive market in 2023 was characterized by multiple rounds of price wars, and the market fluctuations had also impacted the used car sector. As our superstore model has become increasingly mature, our sales system has enhanced its capability to respond rapidly to market fluctuations, enabling timely adjustments in vehicle pricing and sustaining high levels of vehicle turnover. From October to December 2023, Even though our inventory levels were only half of what they were in the same period last year, we almost doubled our sales turnover rate, achieving a total retail transaction volume of 3,081 units. This represents a 35% increase quarter-over-quarter and a 5% increase year-over-year.

Our total retail revenue for the third quarter reached 319.2 million RMB, a 28% increase

from 248.9 million RMB in the previous quarter. In response to the current economic conditions and market demand, we actively optimized our inventory structure. However, the heightened competition in the industry over recent quarters led to a reduction in the average selling price, or ASP, of our retail vehicles, which decreased from 112,000 RMB in the same year last year to 104,000 RMB this quarter.

In terms of wholesale sales, the wholesale sales in the third quarter amounted to 1,273 taels, down by 20% and down by 35%. The wholesale income amounted to 0.82 billion yuan. At this stage, our wholesale model has completely run out. We are more focused on car sales. The proportion of wholesale sales will gradually decrease.

And in terms of wholesale, the third quarter saw our transaction volume reach 1,273 units, marking a 20% decrease quarter over quarter and 35% decrease year over year. The wholesale revenue is declining to 82.2 million RMB. As our superstore model is not operating at full effectiveness, we are increasingly focusing on our retail segment, which naturally reduces the proportion of our wholesale business.

Considering these factors, our total revenues for the first quarter increased 15% to 410.5 million RMB from 356.1 million RMB in the second quarter. In the industry competition of this quarter, on the basis of maintaining a high sales cycle and healthy storage structure, we achieved a 4.8% interest rate, down 1.4% compared to the previous quarter. But as DK just introduced, we have improved our response capability to the market, and the response response to the price is more timely. We expect that in the next quarter, the interest rate will rise to 6.5% or more.

Despite intensified competition within the industry this quarter, we successfully maintained a high vehicle turnover and a healthy industry structure, achieving a gross margin of 4.8%, some 1.4 percentage points from the previous quarter. However, as DK just emphasized, our capacity to respond to market fluctuations has enhanced, and our pricing adjustments have become more prompt. Consequently, we anticipate the gross margin will recover to about 6.5% in the upcoming quarter. With the increasing revenue contribution from value-added services, such as financing, insurance, accessories, maintenance, and repairs, we're optimistic about achieving significant improvements in our gross margin going forward.

The operating cost of the third quarter of this year is 9,980 million yuan. In the daily business management, we continue to observe the strict cost-benefit control. The cost of regular operating expenses in this quarter is relatively stable compared to the previous few quarters. In addition, we have recently completed a new round of organizational optimization adjustment and a series of cost-deficit action. Starting from April, the fixed cost of each month will be reduced by 5 million yuan in three quarters.

Our total operating expenses for the third quarter were 99.8 million RMB. Through our diligent routine management, we continued to implement stringent cost and expense controls, achieving a stable level of operational expenditures in line with previous quarters. Moreover, we have recently completed a new round of organizational optimization and executed a series of initiatives to further reduce costs and expenses. Starting in April, these adjustments will result in a monthly reduction of fixed expenses by 5 million RMB, accumulating in a quarterly decrease of over 15 million RMB.

The EBITDA loss after this quarter has been adjusted to 4,380 million yuan, which is the same as last year's loss of 76.4 million yuan. Our adjusted EBITDA loss for the quarter was 43.8 million RMB, a decrease of 32.6 million RMB

from the adjusted EBITDA loss of 76.4 million RMB in the same period last year, narrowing the loss by 43%. This also represents a 5% sequential reduction from the adjusted EBITDA loss of 45.9 million RMB in the previous quarter.

In addition, we closed an equity financing round in March, raising approximately 34.8 million USD.

Our CEO, BK, has shown his commitment to our future by personally investing in this round as well. These funds will be used to expand our inventory, targeting a three- to four-fold increase by the end of 2024, which we anticipate will significantly amplify our sales growth trajectory.

We have a lot of room for growth in sales and profits. We have achieved great profits in sales in January of 2024. There is still substantial potential for increased sales and profitability at our existing superstores. We have already achieved EBITDA profitability

for our superstores as of January 2024. The improvement in vehicle turnover efficiency enhanced the margin profiles and the effective implementation of company-wide cost reductions and efficiency gains will contribute to improved financial performance going forward. We're confident in achieving monthly EBITDA break-even by September 2024 and attain company-wide EBITDA profitability in the December quarter of 2024.

Regarding the performance of the next quarter, from January to March of 2024, due to the spring holiday period, which is also the traditional sales period of the second-hand car industry, we still maintain a higher sales cycle efficiency. It is expected that the overall sales volume will be 3,100 units, and the sales volume will be 900 units. The total income will rise to more than 6.5% from 300 million to 320 million yuan.

Now, moving on to the guidance for the fourth quarter, January through March, which included the Chinese New Year holiday, is traditionally an off-season for the used car industry. Nevertheless, we're maintaining a high level of sales turnover efficiency, and we forecast a total retail transaction volume of approximately 3,100 units and wholesale transaction volume of about 900 units. We expect our total revenues to be between 300 million to 320 million RMB, with gross margin rebounding to above 6.5%. And that concludes our prepared remarks today.

Operator, we're now ready for questions. We will now begin the question and answer session.

To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up the handset before pressing the keys. To withdraw your question, please press star then 2. When asking a question in Chinese, please restate your question in English immediately afterwards for the convenience of everyone on the call. At this time, we will pause momentarily to assemble our roster. And our first question today comes from the line of Fei Dai with TF Securities. Please go ahead.

Hello, DK. Can you hear me? Yes, we can. Hello, this is the first quarter of this year. My question is, this is the first quarter of this year, and the Chinese car market has started a fierce price war. I would like to ask you about the impact of the new car price war on the second-hand car market and on our company. In the first three months of 2024, the Chinese car market has once again started an intense price war. Can you provide some insight into the impact of new car price war on the used car market and on using? Thank you.

Hello, Daifei. Let me answer this question. Hi, this is DK, and I'll address that question.

The price reduction trend in the new car market that began in 2023 have certainly exerted a twofold impact on the used car sector. Initially, we observed a depreciation in the value of used car models parallel to the new car price drops. This was followed by sales stagnation of the affected used cars, resulting in inventory depreciation, which has definitely impacted the used car business.

In this process, the most comprehensive, most timely, and the fastest-selling car sales have been the least affected. Youxin has been through three to five months in 2023 and two rounds of new car prices in October and December. At present, the technology and strategy to resist the fluctuation of new car market prices are improving day by day. From the fall of February this year, the price of Biadi has started to drop. We have already recorded the new car price drop of nearly 1,000 Western-style cars. From the current business data, this year's price drop has significantly reduced the impact of Youxin in 2023.

Throughout these cycles, dealerships armed with the most comprehensive market insights, the agility to respond promptly, and the capacity to maintain high sales turnovers have demonstrated the least impact. Navigating through two waves of new card price reductions in the periods of March to May and October to December of 2023, we have systematically strengthened our approaches and strategies to effectively manage market volatility. Since the BYD price reductions in late February this year, we have cataloged price changes for nearly 1,000 car models. Our operational data indicates that the ramifications of this year's price reductions have substantially diminished compared to those experienced in 2023.

There are two aspects worth mentioning. Specifically, we performed very well in two particular areas. First, the most profound impact of new car price reductions is felt in the segment of low mileage used cars.

Our current inventory structure is actually quite healthy and well curated, featuring a relatively small portion of vehicles under three years old, while primarily targeting those aged between three and ten years.

On the other hand, our sales efficiency is very high. Our自然的定价系统对市场行情自动巡航,对新车价格变化的采集,和对在售车辆价格的调整非常及时, The sales cycle of the entire vehicle is now within 30 days, which is much higher than the average level of the industry. This greatly reduces the price drop caused by the decline in vehicle prices.

Secondly, we maintain our sales efficiency at an exceptionally high level. Our in-house pricing system is fine-tuned to automatically monitor market trends, ensuring the timely data collection on new car price fluctuations and rapid adjustments to our vehicle pricing. With an overall vehicle turnover of less than 30 days, we have substantially exceeded the industry norm, effectively mitigating the potential inventory depreciation as a result of the price decline.

In addition, because new cars are standard industrial products, they have clear manufacturing and rental costs. Now, the net profit of many whole car manufacturers is less than 5%. Therefore, we predict that the price of new cars will not always drop, but will reach a steady state, and the second-hand car market will also remain stable. Compared to the current stage, our single-car operating capacity still has a lot of room for improvement. After the end of the business cycle, we will naturally have a better performance performance.

Furthermore, given the new cars are standardized products with transparent manufacturing and compliance costs, and considering that the net profit margins for many automakers now hover below 5%, there is a limit to the depth of new car price reduction. We expect the market will soon find a new balance, which should lead to stabilization in the used car market. And relative to our current position, there is a significant opportunity to improve our profitability per vehicle. As market conditions level out, we foresee a smooth progression to stronger performance levels.

Thank you.

And that's our answer to the first question. Operator, let's move on.

The next question comes from the line of Gary Dvorak with WTR. Please go ahead.

Hi. Good evening. We see that the Chinese government is currently promoting policies that encourage vehicle trade-ins for newer models. Could you please discuss the specific impact of this policy on the used car industry and on your business operations?

Let me translate his question. He wants to ask, I understand that the Chinese government is recently promoting the policy of resuscitation. So, can the company share the specific impact of this policy on the second-hand car industry and on the company's business? Thank you. OK.

The development of the country's car industry is indeed very important. Recently, we have also seen that cars have become the first economy-based industry to surpass real estate. Hi, this is DK, and we'll address that question.

The national government has indeed emphasized the development of the auto industry. Recently, we have observed that automobiles have ascended to become the primary economic pillar, overtaking real estate. The used car market plays a pivotal role in the entire lifecycle of a vehicle. and is crucial in driving automotive consumption.

Regarding the trade-in subsidy policy you mentioned, this initiative encourages customers to upgrade their vehicles more frequently.

This trend has brought a surge of well-valued models into the used car market, enhancing the supply and positively impacting national used car transaction volumes.

Youxin, as a leading company in the Chinese car industry, is also actively responding to the policy landing of Rescuing Huanxin. We design the landing plan of Rescuing Huanxin with the relevant departments of the local government. As a leader in China's used car industry, Yuxin is at the forefront of supporting and facilitating the implementation of the trade-in policy. We have partnered with local governments where our super stores operate

to develop practical trading programs. Our superstores act as the main platforms for these vehicle exchanges, hosting a range of trading events. This strategy not only broadens our vehicle sourcing channels, but also boosts customer traffic at our superstores, which in turn further enhances our sales conversion opportunities.

We view the trading policy in China's auto industry as a long-term initiative.

There are numerous business models yet to be explored, and we're optimistic about unlocking further potential for revenue and profit growth. Thank you. And that will be our answer to the second question.

This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

All right. Thank you all again for joining today's call and for your continued support in UCN as well. We look forward to speaking with you again very soon in the future. Thank you.

Bye-bye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.