Uxin Limited

Hello and welcome to the USHEEN first quarter fiscal year 2025 earnings conference call. All participants are in a listen only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I will now like to turn the conference over to Jack Wong. Please go ahead.

All right. Thank you, Arbiter. Hello, everyone. Welcome to Yuxin's earnings conference call for the first quarter ended June 30, 2024. On the call today with me, we have DK, our founder and CEO, and John Lin, our CFO. DK will review business operations and company highlights, followed by John, who will discuss financials and guidance. They will both be available to answer your questions during the Q&A session that follows. Before we 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. And now with that, I will turn the call over to our CEO, DK. Please go ahead, sir.

Hello, everyone. Thank you for joining us today. I am pleased to reconnect with you all on the call.

And to facilitate communications with both domestic and international investors, I will share our company's latest progress in both Chinese and English.

During the first quarter of fiscal year 2025, which covers April to June 2024, our superstore operations maintain strong momentum. Despite ongoing disruptions,

in the used car market caused by the aggressive pricing competition in the new car market. We achieved retail sales of 4,090 units for the quarter, representing a 31% increase sequentially and an impressive 142% growth year over year. Our vehicle turnover efficiency also maintained very healthy with the inventory turnover days at approximately 30 days.

As our business continues on this rapid growth trajectory, customer satisfaction has also reached new heights.

After maintaining the highest net promoter score in the industry for nine consecutive quarters at around 60, we further improved this quarter, reaching an NPS of 65. Our customers increasingly recognize the quality of our products and the level of service we provide, further solidifying the competitive advantage of Yuxin's offline superstore model.

In our shareholder letter last quarter, we outlined our expectation to achieve adjusted EBITDA profitability company-wide by the December quarter of 2024.

The strong business momentum over the past few months has brought us even closer to this goal. And today, I would like to highlight three key areas we're focusing on to drive continued growth.

First, continue to steadily increase the storage level. After June this year, the price of new cars is relatively mild, and the market's demand for second-hand cars is gradually warming up. We are starting to stretch the storage level again. It is expected that the stock level at the end of this year will be two to three times that of the beginning of the year, which will meet the needs of more consumers. This will also promote the continued growth of retail sales in the next few seasons.

First, we are steadily increasing our inventory levels. Since June, the intensity of new car price wars has begun to ease and consumer demand for used cars has gradually picked up. In response, we've resumed expanding our inventories and we expect to increase our inventory to two to three times its size at the beginning of the year by the end of 2024. This will provide a wider selection of vehicles to meet customer demand and drive continued retail sales growth over the next three quarters.

Second, increase the number of personal car owners. With the promotion of the brand's popularity in the city and surrounding cities, we have gained a lot of original sales traffic and have more opportunities to collect cars from individual car owners. Currently, the total number of cars collected from individual car owners is more than 60%, which means that we are at the forefront of the supply chain in terms of collecting cars. There is more space to ensure a reasonable level of sales and price difference, which also helps to strengthen our competitive advantage in the regional market.

Second, we are increasing the proportion of vehicles we acquire from individual car owners. As our brand presence grows in the cities where our superstores are located, as well as in the surrounding areas, we are seeing a substantial rise in the organic traffic from individual car owners looking to sell or trade in their vehicles. Currently, over 60% of the vehicles we acquire come directly from private owners, placing us at the forefront of the supply chain. This not only helps us to secure better pricing margins, but also strengthens our competitive edge in regional markets.

Third, we're focusing on enhancing the penetration of value-added services.

through our one-stop shopping experience at our offline super stores and reconditioning centers. We continue to expand high-margin services such as financing, insurance, extended warranties, premium accessories, and vehicle maintenance. This strategy will further improve our profit-force margin.

In addition, based on the business model successfully verified at the current stage, we are also continuing to promote the expansion of our new sales platform. In addition, we are continuing to expand our network of super stores,

building on the success of our current business model. In July, we reached a strategic partnership with the local government in Zhengzhou to establish a new superstore in the city. We are also actively engaging with several other cities and expect to finalize one to two more strategic partnerships with the local government soon. This expansion will significantly enhance Yuxin's market presence in new regions, driving further sales growth and improving our overall business performance.

That concludes my updates for today.

I will now turn the call over to our CFO, John, to discuss the financials in more detail. John, please go ahead.

Thank you, DK. Hello, everyone. Because there are domestic and foreign investors participating, we will still use Chinese and English to share with you the financial situation of the company's first quarter of 2025.

Thank you, DK, and hello, everyone. Since we have both domestic and international investors joining us today, I will be presenting our first quarter financial results for the fiscal year of 2025 in both Chinese and English.

Looking back at the first quarter of the fiscal year, that is, from June to June of the year of the year of the year of the year of the year of the year of the year of the year of the year of the year of the year of the year of the year of the year of the year of the year of the year of Looking back at the first quarter of fiscal year 2025 between April and June of 2024, we continued to experience some market disruptions

due to the ongoing price wars in the new car market. However, the overall used car market has shown signs of recovery, with nationwide used car sales increasing by 6.4% year over year. Importantly, our offline superstore model is now fully operational and strengthened by our brand, product, and service capabilities, enabling us to achieve record sales in the quarter. Our quarterly retail transaction volume reached 4,090 units, representing a 31% sequential increase and a significant 142% year-over-year growth. The total retail vehicle sales revenue for the first quarter was 325 million RMB, reflecting a 74% year-over-year increase. The average selling price of retail vehicles decreased from 111,000 RMB in the same period last year to 79,000 RMB this quarter. The substantial increase in transaction volume offset the impact of the lower ASP on overall revenue.

On the wholesale front, our wholesale transaction volume in the quarter was 1,515 units, representing a slight 3% year-over-year decline, with the total wholesale vehicle sales revenue

of 63.9 million RMB. As a result of the above, our total revenues in the first quarter were 401 million RMB. Our gross margin was 6.4%, which remains stable compared to the previous quarter. With the market gradually recovering and the increased penetration of our value-added services, we anticipate further room for gross margin improvement going forward.

With our performance and operating efficiency greatly improved, we also continue to monitor the strict cost-benefit control. This quarter, EBITDA losses after the adjustment are 33.9 million RMB, which is 58.9 million RMB less than last quarter.

As our performance and operational efficiency improved significantly, coupled with our continued focus on strict cost control, our adjusted EBITDA loss for the quarter was 33.9 million RMB, reflecting a reduction of 5.9 million RMB from the previous quarter and a reduction of 12.8 million RMB, or 27% year over year.

About the performance of the second quarter of 2025, that is, from July to September of 2024, our retail sales are expected to be 5,800 to 6,000 units, with an increase of more than 40%. The total sales income is expected to be 4.8 billion to 5 billion RMB. In the second quarter of this year, the EBITDA loss after adjustment will be greatly reduced to less than 10 million RMB. Looking ahead to the second quarter of fiscal year 2025, between July and September 2024, we expect the retail transaction volume to reach between 5,800 to 6,000 units, representing a sequential growth of over 40%.

Total revenues are expected to be between 480 million RMB and 500 million RMB. We also anticipate that our adjusted EBITDA loss will narrow significantly to under 10 million RMB, and we remain confident in achieving positive adjusted EBITDA in the third quarter, which runs from October to December 2024.

We have recently reached a $7.5 million financing agreement with a listed company in Hong Kong. This amount of funds will further support the company's increase in vehicle inventory, promoting our continued growth in retail sales. The main focus of our future use of funds is to increase inventory. In addition, some other financing arrangements are also in the plan to promote the company's rapid growth of future business.

Recently, we secured a US$7.5 million financing agreement with Deedai, a company listed on the Hong Kong Stock Exchange. This capital injection will further support the company's efforts to increase vehicle inventory, driving continued growth in our retail sales. In the near term, our primary focus for capital allocation will remain on increasing inventory. In addition, we have other financing plans currently in progress ensuring that we have sufficient capital to support the rapid growth of our future business.

And that concludes the prepared remarks for today.

Thank you all. And operator, we're now ready to begin the Q&A session.

We will now begin the question and answer session. To ask a question, you may press star, then one, on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Faye Dye with TF Securities. Please go ahead.

Hello, I am Daifei, a researcher at Tianfeng Securities. I am very happy that the company has announced a very good performance and performance guidance. I have two questions to ask. The first question is, I would like to ask what are the specific factors that drive the company's sales to grow so strongly, and whether such a growth trend can continue. The second question is, we saw from the company's record that the company's 630 cash level is at a relatively low position. Translate in English. Congratulations on the strong quarterly results and positive outlook. My first question is, can you elaborate on the specific factories driving the strong retail sales growth, and do you think this growth trade is sustainable? The second question is, We noticed from the quarterly reports that the company's cash position as of June 30 is relatively low. Could you provide more detail on your financial management plans and how you will support future business growth? Thank you.

Thank you, Daifei. Let me answer the first question, and then please answer the second one. Regarding the rapid increase in sales, Let's summarize the three reasons. The first is that the overall market of second-hand cars is starting to return to the beginning of the year. New cars have a strong price range. It has a great impact on the second-hand car market. Consumers are more optimistic. Since the end of the year, the price range has been relatively relaxed. Consumers are warming up to the demand for second-hand cars. The second is that as the operation is gradually mature, the influence of the city we sell is getting bigger and bigger. The overall improvement of brand power, product power and welfare, the efficiency of sales transformation has become higher. We have reached a point where sales have exploded. So this is DK.

I will address your first question, and then John will address the second. So there are three key factors driving the significant increase in sales. First is the overall used car market is starting to recover. Earlier in the year, the aggressive pricing competition in the new car market had a severe impact on the used car sector, with many consumers hesitant to make purchasing decisions. However, as we moved into mid-year, the price wars had begun to ease, and we've seen a noticeable rebound in demand for used cars. Second, as our operations have matured, we've built a stronger presence in the cities where our superstores are located. Our brand product offerings and service capabilities have all improved significantly, leading to higher sales conversion rates. we've reached a tipping point where our growth is now accelerating. And third, as we observed the market recovering, we proactively expanded our inventory levels, providing customers with a wider selection of vehicles. And this enabled us to better meet consumer demand, resulting in higher sales conversions.

Looking ahead, we expect sales growth to remain strong.

For the next quarter, we are forecasting a sequential growth of over 40%. And by the end of the year, we plan to increase inventory by one to two times compared to the beginning of the year, with total inventory reaching 3,000 to 4,000 units. At the same time, we're confident in maintaining high inventory turnover levels, keeping us on a sustained growth trajectory.

OK. The second question is about funds. The company's cash in the last few seasons is indeed at a relatively low level. In this process, we can see that the cash flow of the company's business is actually improving significantly. It has also acquired new investments to supplement our liquidity. Our cash use efficiency is very high. Our operating capital is also fully guaranteed. Because our funds are fully invested in the level of sales and storage. Hi, this is John. I will address your second question about cash. It is true that our cash levels have been relatively low over the past few quarters.

However, our operating cash flow has improved significantly, and we've secured new investments to further enhance our liquidity. We are also very efficient with our cash usage, and so while ensuring operational stability, the majority of our funds have been directed towards increasing retail inventory. That's why, while our cash balance may seem low, it's important to note that our inventory levels have been steadily raising. which has fueled continued sales growth. Over the coming quarters, our primary focus for cash allocation, including the recent financing, will remain on boosting inventory levels.

We have two principles in terms of funding management. One is to ensure the company's financial security, and the other is to fully support the company's business growth. This requires a very high level of funding management. We have also done a lot of work on open source and interoperability.

Overall, we operate under two core financial principles. First, ensuring the company's financial position is secure. And second, fully supporting our business growth. This demands a high level of financial management, and we've made substantial efforts to both increase our cash inflow and manage expenses.

On the one hand, with a significant increase in sales and an increase in profit, both of our retailers have implemented EBITDA reform. As our sales and profitability has improved, both of our sources are now adjusted EBITDA positive.

We are transitioning from burning cash to generating cash. Meanwhile, our investors continue to show strong confidence in Yuxin's business prospects. In early September, we secured $7.5 million in financing from Dita, and we have additional financing plans currently progressing as scheduled.

On the other hand, the company is continuing to promote various actions to increase its capital. Currently, the fixed monthly fee has dropped by more than RMB10 million last year.

Also, we've implemented multiple rounds of cost-saving and efficiency-enhancing initiatives, resulting in a reduction of approximately 2 million RMB in fixed monthly expenses compared to the same period last year.

As for the new super stores in other regions, we will require additional funding for their launch and inventory build-up, which will primarily be supported through a combination of local government investment and our own capital.

Based on our extensive experience in building and operating the Hefei and Xi'an superstores, as well as favorable local policies, the startup costs for new stores are entirely manageable and remain at a very reasonable level.

Overall, UC's financial management is relatively safe and stable. As the company develops towards long-term health, we are also full of confidence in the improvement of financial status.

So to summarize the answer, our financial management remains solid and stable. As we continue on our path towards long-term sustainable growth, we are confident in the ongoing improvement of our cash position. Operator, can we move on to the next?

Again, if you have a question, please press star, then 1.

Hi, operator. We have a question we received, so I'll just take the opportunity to ask. So we have a question from Gary with Water Tower Research. He wanted to know that since the company has been talking about that the price competition in the new car market has eased somewhat, can you share more about your recent observations on market conditions and how consumer demand for used cars has been evolving in the current economic environment. We have a question from Gary from Streetart. He wants to ask, the company has been mentioning that the price of the new car market has declined a little. Can you please share with the company how you feel about the recent market situation? What are the changes in the consumer demand for second-hand cars in the current economic situation? Okay, let me answer this question.

Hi, this is DK. We'll address this question. So that is correct. The price wars in the new car market have been quite intense over the past year.

And this year's economic conditions have posed significant challenges. Sales growth for new cars in the first half of this year was only around 5%. And we've observed several popular models experiencing price cuts three to four times since the first quarter of last year, with price cuts reaching around 30%.

The fierce competition and price decline in the new car market have naturally led to a constant decline in second-hand car market sales. These aggressive pricing strategies in the new car market have naturally led to a continuous decrease in the average transaction prices in the used car market.

where our current average price per vehicle is just over 70,000 RMB. We believe that in the long run, these lower vehicle prices have opened up a broader market, enabling more consumers to purchase better vehicles with smaller budgets. And this dynamic is also causing consumers to increasingly view used cars as a high-value purchasing option.

But no matter what kind of economic situation and market environment, the demand for product quality and service level of consumers is getting higher and higher. The threshold of excellent second-hand car dealerships will also become higher and higher. The one-stop shopping model combined with U-synch's offline wholesale and online shopping can fully meet the needs of the largest number of consumers. Service is also deeply recognized by consumers. Our average turnover per day is about 30 days, which is far above the average level of the industry for 55 to 60 days. Regardless of the economic situation or market environment, consumer expectations for product and service quality are consistently increasing, raising the bar for superior used car dealerships.

Our integrated model of offline super stores and online national sales capacities can fulfill the broadest consumer needs and we're highly recognized for our services. With an average sales turnover of about 30 days, which is significantly faster than the industry average of 55 to 60 days, our sales growth and customer satisfaction as measured by our industry-leading night promoter store both consistently exceed industry averages. And therefore, no matter how market conditions fluctuate, we are confident in our business operations, maintaining a trajectory of continuous improvement with new breakthroughs each month. And that's our answer to what is our researcher's question. Operator, can we move on?

Yes. 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 again for joining today's call and for your continued support in Yuxin. We look forward to speaking with you again in the very near future. Thank you.

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