Uxin Limited

Good day and welcome to the USHN third quarter 2024 earnings conference call. All participants will be in a 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. 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 Jack Wong. Please go ahead.

Thank you, Arbiter. Hello, everyone. Welcome to Yuxin's earnings conference call for the third quarter ended September 30, 2024. On the call today with me, we have DK, our founder and CEO, and Zhang Lin, our CFO. DK will review business operations and company highlights, followed by Zhang, 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. 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'm pleased to reconnect with you all on this call. Before we start, as before, we will be sharing our company's latest progress in both English and Chinese.

to accommodate our domestic and international investors.

We are very happy that we have achieved a high-quality growth in our performance this quarter. In July to September of 2024, the sales volume of the quarter sales reached 6,005 units, with a 47% return rate and a 163% return rate. The sales efficiency of the vehicle remained in a healthy state, and the stock turnover remained within 30 days, which is far below the average level of the Chinese industry in 55 to 60 days. We're excited to report another quarter of high-quality growth. From July to September 2024, our quarterly retail transaction volume reached 6,005 units, representing a sequential increase of 47% and a year-over-year growth of 163%.

Our vehicle sales efficiency remains robust, with inventory turnover days maintained below 30 days, much lower than the Chinese industry average of 55 to 60 days. Our gross profit margin also expanded to 7%, marking a new high since we transitioned to our self-operated business. We anticipate that retail transaction volume in the next quarter will be 7,800 units to 8,100 units, representing a year-over-year increase of over 150%.

Customers' satisfaction with U-sync shopping carts has been maintained at the highest level in the industry for 11 consecutive seasons. This season's NPS has been improved to 66%. Relying on advanced smart factories to build high-quality second-hand car products, fully protected sales service systems, and fully digitalized technology applications, our super-market model has a significant advantage over traditional car manufacturers. Customer satisfaction with purchasing vehicles from Yuxin has remained at the highest level in the industry for 11 consecutive quarters, with our net promoter score rising to 66 this quarter.

By leveraging advanced intelligent reconditioning factories to produce high-quality used cars, a comprehensive and reliable sales service system, and the application of full-stack digital technology, our superstore model offers significant advantages over traditional car dealerships. The sales conversion rate of customers visiting our stores exceeds 40%. As our base of transacting customers continues to grow, Our positive reputation is reaching potential customers more rapidly, further consolidating our competitive advantage in regional markets.

It is worth mentioning that in the second-hand car transaction process such as transmission, inspection, preparation, sales, delivery, and delivery, we have obtained the recognition of the industry by the efforts of standardizing the non-standard second-hand car products and the results obtained. Importantly, used car transactions have traditionally been considered non-standard processes. However, our efforts

and achievements in standardizing the entire transaction process from inspection and reconditioning to sales, delivery, and after-sales services have been increasingly recognized by the industry. Earlier this month, we were honored to be named a corporate standard leader in China's used car industry by eight government ministries, including the State Administration for Market Regulation, the National Development and Reform Commission, the Ministry of Science and Technology, the Ministry of Industry and Information Technology, the Ministry of Finance, and the People's Bank of China. We will continue to elevate our product and service standards, leading the high-quality development of China's used car industry.

All business actions are also in full swing. First of all, we will steadily improve the storage level to meet the needs of consumers. At the same time, we use the one-stop trading environment of offline stores to increase the service penetration rate to increase the contribution to horsepower. In addition, gradually supplement and optimize the configuration of sales personnel to adapt the business scale to further increase the demand. In addition, due to the increase in the number of customers, we have further improved the service network. In the city and other areas where the store is located, there are a number of after-sales maintenance service network points. At this time, we can be closer to customers in the physical space to meet the needs of customer vehicle daily maintenance and maintenance.

We are also actively executing various business initiatives. First, we are steadily increasing our inventory levels to meet the strong consumer demand for power purchases. At the same time, by leveraging the one-stop transaction service environment of our offline super stores, we are enhancing the penetration of value-added services to contribute more to our gross profit. Second, we're gradually supplementing and optimizing our super store staffing to accommodate the demands of our expanding business scale. Additionally, as our existing customer base grows, we're further improving our service network by deploying additional maintenance service outlets in other areas of the cities where our superstores are located. This allows us to be physically closer to our customers, meeting their daily vehicle maintenance and servicing needs.

In the midst of continuous improvement in sales, continuous improvement in labor, and continuous optimization of costs, This quarter, we have achieved EBITDA profit at the market level. We will implement the plan in October to December, which is the next quarter, to achieve the goal of the entire company's EBITDA profit.

Driven by continuous sales growth, ongoing improvements in gross profit margins, and consistent expense optimization, we have achieved adjusted EBITDA profitability at the superstore level this quarter. We remain on track to achieve our goal of company-wide adjusted EBITDA profitability in the upcoming December quarter.

Based on the second-hand car super market model successfully verified at the current stage, our new market expansion is also in progress. Based on the cooperation signing of Zhengzhou's aviation port area, we are very happy to complete the cooperation signing with Wuhan. Wuhan is an important city in China's central region, with a population of 14 million and a volume of 4 million cars. Building on our proven superstore model, the expansion of our new superstores

is progressing smoothly. Following our cooperation agreement with the Zhengzhou Airport Economic Zone, we're pleased to announce that we have entered into another cooperation agreement with the city of Wuhan. Wuhan is a major city in central China with a population of 14 million and a vehicle ownership of 4 million. Additionally, Wuhan has a well-developed automotive industry value chain that is known as China's Auto Valley, offering massive potential for business development. Our super stores in Zhengzhou and Wuhan are expected to commence operations next year. Furthermore, we are in discussions with several other cities. The expansion of new super stores will significantly enhance Yuxin's market presence in new regions, driving future sales growth and financial performance.

That's all for today. Next, CFO Jiang will show you the financial situation. Jiang, please.

And that concludes my remarks for today. And now I will let our CFO, John, to provide a closer look at our financials. John, please go ahead.

Okay. 感谢DK。 大家好。 那今天我们用中文和英文与大家分享公司的业绩情况。 首先需要说明的是,为了更契合投资者的习惯, 我们在本季度进行了财年变更。 财年区间由当前的每年4月1日到次年的3月31日,

Thank you, DK. Hello, everyone. We will deliver our remarks in both Chinese and English to communicate better with you. And first, I would like to note that to better align with the common practice in the investment community, we have adjusted our fiscal year this quarter. Our fiscal year now runs from January 1st to December 31st each year, instead of the previous period from April 1st to March 21st.

In July to September of 2024, which is the third quarter of the fiscal year, we again achieved a very strong growth in performance. The sales increased significantly on the basis of the new high in the previous quarter. The sales of this quarter was 6,005 units, which increased 47% in average, and increased 163% in the same period last year.

For the period from July to September 2024, which is now the third quarter of fiscal year 2024, we once again delivered very strong growth. Transaction volume increased significantly on top of last quarter's record high. Quarterly retail transaction volume reached 6,005 units, representing a sequential growth of 47% and a substantial year-over-year growth of 163%.

This quarter, total retail vehicle sales revenue was 440 million RMB.

representing a sequential increase of 37% and a year-over-year increase of 79%. The average selling price of retail vehicles decreased from 109,000 RMB in December last year to 74,000 RMB this quarter. The strong increase in transaction volume had offset the impact of lower vehicle prices on overall revenue.

In terms of wholesale sales, As for the wholesale segment, our third quarter wholesale transaction volume was 1,041 units

a sequential decrease of 31% and a year-over-year decrease of 35%, with total wholesale vehicle sales revenue of 37.8 million RMB. Combining retail and wholesale, total revenues for the third quarter were 497 million RMB, representing a sequential increase of 24% and a year-over-year increase of 40%.

This quarter's net profit rate is 7%, which is a significant increase compared to last quarter. Our gross profit margin was 7%, an improvement from the previous quarter. Importantly, our gross margin is on an upward trend. And with the market recovering and higher penetration of value-added services, we anticipate significant room for further improvement. While our performance and operational efficiency have improved substantially, we continue to enforce strict cost and expense control.

This quarter, our adjusted EBITDA loss was 9.2 million RMB, a reduction of 73% quarter over quarter and 80% reduction year over year.

Looking ahead to the fourth quarter of 2024, our retail transaction volume is expected to continue its growth trend reaching 7,800 units to 8,100 units, with total revenues projected to be between 560 million RMB and 580 million RMB.

We also plan to achieve positive adjusted EBITDA for the company in the fourth quarter.

And that concludes our prepared remarks for today. Thank you, everyone. Operator, we are now ready to begin the Q&A session. Thank you. 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 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. Once again, to ask a question, please press star then 1. The first question today comes from Gary Dvorak with Water Tower Research. Please go ahead.

Hey, everyone. So we've seen that in previous years, China's used card transaction volumes grew by double digits annually. But now in recent months, the growth rate has significantly slowed. I think the year-over-year growth is like around 5% from January through September. So could you share whether the development of China's used car market is slowing down or not, the reasons behind the trend and your outlook for the market's future?

All right, thanks, Gary. Let me translate that question first. The question is, we saw that the exchange volume of Chinese second-hand cars every year is two-digit. But in the past few months, we have observed a significant slowdown in the growth rate. In the first to ninth months, China's second-hand car trade volume is about 5% higher than the growth rate. So I would like to ask Guan Licheng if the development of the second-hand car market is slowing down and what is the reason and what is our future outlook on the market? Please answer that question, DK.

Okay, thank you. I will answer it. Indeed, this year, whether it is a second-hand car or a new car, the growth rate of the trade volume has slowed down. Okay, thanks for the question.

Yeah, thanks for the questions. This is DK, and this year we have observed a moderation in the growth rate for both new and used car transactions in China. And specifically, the production and sales of new cars have increased by approximately 2% year-over-year, while used car transactions have grown by about 5%. The primary factors contributing to this slowdown include fluctuations in the economic environment, which have somewhat suppressed consumer demand for cars. And additionally, the used car market faced headwinds due to price reductions in new cars during the first half of the year, which impacted consumer sentiment towards purchasing used vehicles.

But in the long term, we are still very confident in the development of the second-hand car market. On the one hand, the number of people driving cars in China is less than one-third of that of the United States, and the total number of cars is still increasing. On the other hand, the second-hand car market is still in the early stages of development.

However, despite these short-term challenges, we remain highly confident in the long-term prospects of China's used car market. First, China's per capita car ownership is still less than one-third that of the United States, and the overall car ownership in the country continues to rise. Second, the Chinese used-car market is still in a very early stage of development. We expect it will maintain double-digit transaction volume growth in the coming years. In fact, since the second half of this year, we've already begun to see a rebound in used-car transaction volumes.

For EOSIN, the same increase in retail sales in these few seasons is about 150%. Although the occupancy rate in the two operating markets in the two cities has exceeded 15%, but because we currently choose to rely on the urban growth of offline markets, the occupancy rate within our national scope is still very low, which means that we still have a wide growth space. In the next few years, we will have a number of new markets in operation every year, which will drive our sales to continue to grow. The sales increase will be far greater than the increase in the market share.

So for us, we've achieved around 150% year-over-year growth in retail transaction volume over the past few quarters. While our market share in the two cities where our current superstores are located has exceeded 15%, our nationwide market share remains relatively low because we're currently focusing on deepening our presence through our offline superstore model in these cities. And this indicates a significant high room for growth. In the coming years, we plan to open several new superstores every year, which will drive sustained growth in our sales volume. And we believe that our sales growth rate will significantly outpace that of the overall market. And that's our answer to the question, operator. We can move on to the next.

Thank you.

The next question comes from Fei Dai with TF Securities. Please go ahead.

Hello, GK. It's encouraging to see the company expanding with new stores. Could you provide the timeline for the two new stores planted in Zhengzhou and Wuhan, from construction to operating to achieving individual stores' profitability? Also, what impact will this have on the company's financial performance in 2025? Thank you. Okay. Okay.

The two new markets are in the middle of planning. The Wuhan market is expected to open in the first half of next year, that is, the first half of 2025. The Zhengzhou market is expected to open in the second half of next year. Hi, this is John and I will address your questions.

Both of our new stores are progressing as planned. The Wuhan store is expected to open in the first half of 2025, while the Zhengzhou store is anticipated to open in the second half of 2025. And now, building on the experience and refinement from our Superstore models in Xi'an and Hefei, we've already fully validated this concept and accumulated valuable operational know-how. So as a result, we expect these new stores to reach breakeven within 6 to 12 months after opening.

Regarding the impact of financial statements, this depends on the rhythm of our opening and opening. New stores need to invest a part of their operating funds first, mainly in the purchase of equipment for the entire factory and the investment of car parts. This part of the funds will gradually be invested as the storage size increases, so there will not be too much money needed to open stores.

Regarding the impact on our financial performance, this will largely depend on the rollout schedule of the new locations. Prior to opening, we will need to invest operating capital primarily for purchasing equipment for reconditioning facilities and acquiring vehicles. This investment will be phased in gradually as our inventory levels grow, so the initial capital requirement for each new store won't be substantial. We also anticipate a normal level of operating losses during the first six months after a store opens, but starting around the sixth month, we expect the impact on our income statement to begin turning positive. Okay, this is my answer to this question. Thank you, Jeffrey. So that's our answer to your first question.

Thank you, Director. The second question is, the company has been mentioning the increase in stock storage in the past few seasons. There is a 30% increase in stock storage assets every season. I have two questions here. The first is, from the perspective of market demand, how do you plan to raise the level of stock storage in different cities? The second question is, Translate in English. Over the past few quarters, the company has consistently mentioned increasing inventory, with inventory assets growing by about 13% each quarter. I have two questions. The first is, from a market demand perspective, how do you plan the upper limit of inventory levels in different cities? The second is, will the 30-day turnover rate decrease as inventory increase? And how does the company plan to balance inventory levels and the turnover decisions? Thank you.

Hello, Daifei. Let me answer. And this is a PK and our address that question our approach.

to planning inventory levels in different cities is closely tied to the local car ownership levels and our targeted market share in those regions. For example, in a city with approximately 500,000 registered vehicles, and considering that new cars typically enter the used car market after about seven years, the annual used car transaction volume in this city will be around 70,000 units. And this translates to approximately 4,000 units per month.

The market share of the two cities in Xi'an and Hefei has reached more than 15%. The final market share target is more than 20%. From this point of view, we can only reach a 130% market share in the U.S. compared to the leading two-wheeled car companies in the United States, which has an outstanding advantage. Therefore, we can support a 1,000-seater market with a market share of about 6,000 units per 500,000 cars. In our existing markets like Xi'an and Hefei, we have achieved a market share exceeding 15% with an ultimate goal of surpassing 20%. To put this into perspective and also to highlight our competitive advantage and effective business model,

The leading used car companies in the U.S. generally attain around a 3% market share only. So based on these metrics, in cities with 500,000 vehicles, capturing 20% of the monthly used car transaction, which would be around 1,200 units, supports the operation of a superstore with an inventory capacity of approximately 1,000 cars. In larger cities such as Zhengzhou and Wuhan where car ownership is around 5 million, our super stores can effectively manage inventory capacities of around 10,000 cars. So when entering a new city, we first established an inventory plan that aligns with the city's car ownership levels and our market share objectives. We then progressively scale our inventory in line with sales growth, which helps us enhance market penetration while efficiently managing resources.

Since March of this year, we have been steadily increasing our inventory. The level of inventory at the end of September is twice that of the end of March. The monthly sales amount is twice that of the end of March. The growth of sales is faster than the improvement of inventory. The turnover rate of inventory has been accelerating. On the one hand, this is due to the resurgence of demand in the market. On the other hand, with the constant expansion of the scale, consumers are choosing more and more. For us, the trend of buying cars in large stores is becoming more and more obvious. It has formed the destination effect and the weight of traffic. The attractiveness of the brand is increasing. More and more customers are coming. The inventory of our current two stores has not yet reached the planned top line.

Since March of this year, we have been steadily increasing our inventory levels. By the end of September, our inventory was approximately double that of March end levels. Notably, our monthly sales have more than doubled during the same period, meaning sales growth has outpaced inventory growth. So we've actually achieved an acceleration in inventory turnover rather than a decrease. This is due to several factors. First, the market has been recovering with strong demand driving higher sales volumes. And second, as we expand our scale, consumers benefit from a wider selection of vehicles available in our super stores. The increase of our variety enhances our brand attractiveness, effectively making our stores the preferred destination for used car purchases. As a result, more customers are drawn to our brand, improving sales efficiency. Currently, the inventory levels at our two existing superstores have not yet reached their planned limits. So we aim to maintain an inventory turnover rate of around 30 days, even as we continue to increase inventory. And that's our answer to your second question.

Thank you, David. Thank you, David.

This concludes our question and answer session. I would like to turn the conference back over to the company 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 next quarter. Thank you.

Thank you.

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