Uxin Limited

Ladies and gentlemen, thank you for standing by and welcome to Eugene's first and second quarter of fiscal year 2024 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a Q&A session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce your host for today's conference call, Mr. Jack Wong. Please go ahead, Jack.

All right. Thank you, operator. And hello, everyone. Welcome to Yuxin's earnings conference call for the first and second quarters of fiscal year 2024. Ended June 30, 2023, and September 30, 2023, respectively. On the call with me today, we have DK, our founder and CEO, as well as Jiang Lin, our CFO. DK will review business operations and company highlights, followed by John, who will discuss our financials and guidance. They will both be available to answer your questions during the Q&A session that follows. Before we proceed, I would like to remind you that this call may contain forward-looking statements, which are inherently subject to risks and uncertainties that may cause actual results that differ from our current expectations. For detailed discussions of the risks and uncertainties, please refer to our filings with the SEC. Now I will turn the call over to our CEO, DK. Please go ahead, sir. Hello, everyone. Thank you for joining our earnings call. I'm pleased to reconnect with you all today on the call and to facilitate communication with both domestic and international investors. I will share our company's latest progress in both Chinese and English.

Due to the previous few months of financing transactions with the government, the company has delayed the release of a quarter of its performance. Due to the financing transactions with the government of Hefei city in the past month, we postponed the release of our first quarter financial results.

Today we're presenting the performance of the first and second quarters of fiscal year 2024 covering April to September 2023. I will first review the key highlights of the past two quarters and then share some of our achievements and future goals.

Consumers have a strong desire to buy second-hand cars. In this market situation, we have taken a cautious inventory strategy. The inventory is controlled at a low level. In the first quarter, the retail sales of 1,687 units decreased by 25%. In the second quarter of last year, which is July to September, we started to increase the inventory level. In the second quarter, the retail sales rose to 2,287 units, which increased by 36%. This is a 5% exchange rate that exceeds the same period in the industry.

In the first quarter of fiscal year 2024, from April to June 2023, we witnessed the end of a car buying surge initially fueled by pent-up demand during the pandemic. Subsequently, the aggressive pricing strategies of new cars beginning in March continued to reverberate through China's used car market. This shift led to a cautious approach by consumers who adopted a weed and seed stance on purchasing used cars. Aligned with these market dynamics, we opted for a prudent car acquisition strategy, maintaining lower inventory levels. Consequently, our retail transaction volume in the first quarter saw a 25% decrease from the previous quarter, totaling 1,687 units However, in the second quarter between July and September, we strategically increased our inventory levels, resulting in a significant rebound in retail transaction volume to 2,287 units, a notable 36% sequential growth, and far surpassing the industry's average growth rate of 5% in transaction volume.

In this process, our car sales number remained stable for 45 days. The level of profit is constantly increasing. The interest rate has increased from 1.3% in the same period as last year to 6.2%. In September, EBITDA, which was first sold in Xi'an, has returned. The EBITDA loss after the company's overall adjustment is nearly 50% lower than last year. At the same time, we have maintained the highest level of industry in the last seven seasons of NPS at about 60%. Our large-scale sales model has been successfully verified. The business operation is already on the track of positive development.

Throughout this period, we effectively maintained the turnover base of our vehicles on sale below 45, while simultaneously enhancing our profitability as our gross margin has expanded to 6.2% from 1.3% in the same period last year. A notable achievement in September was our Xi'an Superstore reaching positive EBITDA, contributing to a nearly 50% year-over-year reduction in the company's overall adjusted EBITDA loss. Additionally, we consistently upheld the industry's highest Net Promoter Score, or NPS, maintaining a score around 60 points for seven consecutive quarters. This performance underlines the success of our SuperStore model and signifies that our business operations are progressing along a robust and healthy growth path.

It is worth mentioning that the Hefei Changfeng two-wheel drive super vending machine, which was fully built by Youxin, began its business in September 2023. The total construction area of the Hefei Changfeng vending machine reached 450,000 square meters, including a world's most advanced two-wheel drive manufacturing factory and a world's largest two-wheel drive warehouse vending machine, which can accommodate up to 10,000 vehicles. With the increase in storage size, the growth of the company's business will continue in the next few years.

It is also worth highlighting that our state-of-the-art Changfeng Superstore in Hefei City commenced its trial operations in September 2023. Encompassing a vast area of 450,000 square meters, Changfeng Superstore features the world's most advanced used car reconditioning factory and the largest warehouse-style used car retail superstore. with a capacity to showcase up to 10,000 vehicles. The expansion of our inventory at this facility is set to significantly bolster the company's business growth in the forthcoming years.

At the same time, we signed an equity investment agreement with the local government of Hefei city at the end of September.

Under this agreement, Hefei Construction Investment, North City Industrial Investment, will commit up to 1.5 billion RMB over the next 10 years to using Hefei's subsidiary to support the operation and development of our used car superstore in the city of Hefei. The city's advantages, strategic location, favorable business environment, well-established automotive industry, and robust upstream and downstream supply chains offer substantial support to fostering Yuxin's continued business growth.

Xi'an Supermarket has completed a half-day upgrade in December 2022. In 10 months, it has achieved EBITDA transfer in September 2023. Hefei Supermarket has started its business in September 2023. Our goal is to achieve EBITDA transfer in March 2024 or before that. Reflecting on our experience, since the relocation and upgrade of our CN superscore in December 2022, it has successfully reached EBITDA profitability by September 2023, just 10 months into its operation.

Our Hefei Superstore, which began its trial operations in September 2023, is on a similar path with an objective to reach adjusted EBITDA profitability by March 2024 or even earlier. Leveraging the scalable profitability of our superstores combined with our ongoing efforts in cost control and optimization, we have established a clear strategy towards the company's overall profitability And our goal is to reach overall EBITDA profitability by September 2024 or sooner.

Over the last two years, we have significantly enhanced our management capabilities and operational efficiency.

surpassing industry norms, and edging us closer to our profitability targets. During the call today, I would like to highlight four key areas of development.

First of all, we have completed training based on the vehicle pricing system in the AI core. Our system has been able to price independently based on the parameters such as different vehicles, trucks, vehicles, colors, and travel, and combined with customer attention, offline price feedback, market, and so on, First, we have successfully completed the training of our AI-powered vehicle pricing system. This advanced system autonomously and intelligently sets prices for vehicles

considering factors such as condition, age, color, and mileage. It also dynamically adjusts the quotes in response to customer interest, feedback from offline test drives, and market conditions. This position in pricing strengthens our competitive position in both purchasing and selling, ensuring an optimal vehicle turnover efficiency of 30 to 45 days.

Based on the high-efficiency operation of the second-hand car manufacturing plant leading the industry, we can increase the speed of vehicle flow and reduce the cost of preparation on the basis of the supply of the second-hand car. The introduction of advanced manufacturing technology and equipment ensures the output of vehicle quality. By building the most advanced transparent factory management system in the entire industry, we have achieved the transmission of single-body data, real-time monitoring of human and vehicle materials, and the best setting in the world. The tasks in the car are smartly distributed and processed in parallel.

Secondly, by leveraging the efficient operation of our cutting-edge used car reconditioning factory, we have been able to accelerate vehicle turnover and slash reconditioning costs, all while maintaining the supply of used cars at a super large scale. The integration of sophisticated reconditioning technologies and equipment guarantees superior vehicle quality, We've pioneered the industry's most advanced transparent factory management system, facilitating integrated data transmission for inspection, diagnosis, and repair while enabling real-time monitoring of our workforce, vehicles, and materials. This system optimizes the production process across Ford, implements intelligent parallel processing of workshop tasks and has dramatically reduced the time frame from vehicle intake to sales listing to only three to four days. We remain committed to establishing an optimal cost and expense structure across various facets of our business. This is highlighted by the substantial cost reductions achieved through supply chain integration and large-scale vehicle reconditioning. Furthermore, we've leveraged advancements in operational processes incorporating innovative technologies like 3D printing and smart repair, which have led to groundbreaking improvements in cost control strategies.

Finally, the natural advantages of offline large-scale sales are also verified. We provide a large number of car options through the super-sized sales market, and a comprehensive sales guarantee for high-quality customer service. The good customer reputation is rapidly spreading in the regional market. Xi'an and Hefei are both in the first place in the first year of investment operations. We can clearly see that with the continuous mature operation of offline sales, the flow of natural power is greatly improved, and the cost of the customer is significantly reduced.

Lastly, we have proven the inherent advantages of our offline superstores in attracting customers. Through our superstores, we provide a vast array of vehicle options, exceptional customer service, and all-encompassing after-sales support, all of which had rapidly cultivated a robust reputation among customers in regional markets. Within just one year of operations, our Xi'an and Hefei superstores has ascended to become the leading brand in local used car market recognition. We have distinctly noticed that as our offline super stores evolve, there is a marked increase in organic food traffic, which significantly lowers the cost associated with acquiring new customers.

Our business model is now fully refined, and with confidence we anticipate that the company will reach overall profitability

filed before September 2024. In our long-term strategic vision, we see the Super Store model as swiftly adaptable across various regions in China. Our expansion strategy into new cities will integrate even more innovative approaches, ensuring enhanced cost-effectiveness and accelerated profitability for each Super Store.

I will share here today.

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

Thank you, DK. And hello, everyone. I will provide a closer look at our financial results from the first and the second quarters of fiscal year 2024. Just now DK has shared the retail sales of the first and second quarter. In the first quarter of 2020, we chose a more cautious collection strategy in the fluctuating行情, maintaining a relatively low storage level. Our retail sales are 1687 taels, which is down by 25%. From the second quarter, we started to raise the storage level. In the second quarter of the year, our retail sales are 2287 taels, which is 36% higher.

DK has already provided an overview of our retail transaction volumes for these periods. In the face of the fluctuating market conditions for the first quarter of 2024, we adopted a prudent vehicle acquisition strategy and opted to maintain relatively low inventory levels. As such, our retail transaction volume in the first quarter decreased by 25% sequentially to 1,687 units. During the second quarter, we increased our inventory levels, enabling us to grow our retail transaction volume by 36% to 2,287 units in the second quarter.

In the second quarter, we increased our inventory levels, enabling us to grow our retail transaction volume by 36% to 2,287 units in the second quarter. In the second quarter, we increased our inventory levels, enabling us to grow our retail transaction volume by 36% to 2,287 units in the second quarter.

Our retail sales revenue in the second quarter reached 249 million RMB, representing a sequential increase of 33% from 187 million RMB in the first quarter. In response to the evolving economic landscape, we diligently refined our inventory structure to align with current market demands. This strategic adjustment is reflected in the average selling price or ASP of our retail vehicles, which decreased from 120,000 RMB in the same period last year to approximately 110,000 RMB over the last two quarters. The retail business is basically stable. The retail sales in the first quarter is 1,567.

The retail income is 0.95 billion RMB. Our wholesale business segment remained relatively stable with a transaction volume of 1,567 units and a sales revenue of 95 million RMB in the first quarter compared to 1,597 units with a sales revenue of 99 million RMB in the second quarter. In the second quarter, our total revenue is RMB 3.56 billion. In the first quarter, RMB 2.89 billion increased by 23%. As the inventory continued to accelerate, the steady increase in service penetration rate, as well as the reduction in the single-car production brought by the large-scale production of modern factories, our profit rate significantly improved. In the first quarter of 2024 and the second quarter of 2024, the profit rate was 6.1% and 6.2%. In the same year last year, we increased by 5% and 4.9%. Overall, our total revenues for the second quarter were 356 million RMB, a sequential increase of 23% from 289 million RMB in the first quarter.

Furthermore, we further accelerated our inventory turnover, increased the penetration rate of our value-added services, and reduced per-vehicle costs thanks to the efficiencies gained from our modernized factory operations. As a result, we saw a substantial improvement in our gross margin. Specifically, in the first quarter and second quarters of fiscal year 2024, our gross margins were 6.1% and 6.2% respectively. This represents a year-over-year increase of 5 and 4.9 percentage points. Looking ahead, we anticipate further enhancements in our gross margins fueled by an increase in revenues from our financial, insurance, and premium maintenance and repair services, coupled with cost reductions achieved through higher sales volumes.

The operating cost of the second quarter is 9,160 million yuan. The second quarter showed a slight uptick.

to 91.6 million RMB compared to 87.8 million RMB in the previous quarter. This increase was largely due to the cost associated with opening our Hefei Changfeng Superstore, including expenses related to site relocation. Despite this, we have maintained stringent control over our operating expenses, ensuring they remain stable. This disciplined approach to managing expenses is key to our strategy for achieving our projected profitability in the future.

Loss from operations narrowed by 35% year over year to 63.2 million RMB in the first quarter and 38% year over year to 6.4 million RMB in the second quarter. Because the government platform has invested in Uxin Hefei's subsidiary, in addition to the financing and rental processing of Hefei Supermarket's site, Hefei Changfeng Supermarket has generated a large non-cash non-現金的折舊貪銷和財務費用. In order to more reasonably and more clearly show the actual business performance of the company, from this year onwards, we have specifically disclosed the EBITDA after the adjustment, and as the core indicator for measuring the business operating results. The EBITDA after the adjustment,

As a result of the government's investment in Yuxin's Hefei subsidiary and the financial leasing of the Hefei Superstore property, our Changfeng Superstore in Hefei City has recorded substantial non-cash charges, including depreciation, amortization, and financial expenses. To provide a clearer picture of our actual business performance, we have started disclosing adjusted EBITDA from this year and are using it as a key metric to evaluate our operations. Adjusted EBITDA, which removes the effects of stock-based compensation and other one-time or non-cash items from the standard EBITDA, offers a more accurate reflection of our company's profitability.

As the interest rate increases and the cost-benefit structure continues to be optimized, our profitability and ability are also greatly improved. Xi'an Maichang has led a beta transfer after the adjustment in September this year. In the first quarter of last year, the total cost of the adjustment after the beta was 46.6 million yuan, which is 7,630 million yuan in the same period as last year. After the adjustment, the loss of the beta was reduced to 29.6 million yuan. The loss has increased by 39%. The improvement in our gross margin and a continuous refinement of our cost and expense structure has led to a substantial enhancement in our profitability.

Attachment to this progress is our Xi'an Superstore, which achieved positive adjusted EBITDA in September this year. In the first quarter, our corporate adjusted EBITDA was a loss of 46.6 million RMB, representing a reduction of 29.6 million RMB or 39% from a loss of 36.3 million RMB in the same period last year. Adjusted EBITDA in the second quarter with a loss of 45.9 million RMB, representing a reduction of 41 million RMB or 47% from 86.9 million RMB in the same period last year. I would like to reiterate the profit target DK just mentioned. Our aim is to reach adjusted EBITDA profitability at the store level by March 2024 and extend this to the entire company by September 2024.

We are confident in our trajectory towards high quality

sustainable development, and our strong financial position is a cornerstone for future business growth and profitability objectives. In September, we entered into an equity investment agreement with the Hefei local government's investment platform. Under this agreement, they have committed to investing up to 1.5 billion RMB in Yuxin's Hefei subsidiary over the next decade. with the first branch of roughly 150 million RMB essentially completed. Additionally, we have arranged with our investors to finalize the remaining disbursement of nearly 30 million US dollars from previous funding rounds before the end of the year. Moreover, we recently secured new inventory financing from two financial institutions amounting to a total credit line of close to 300 million RMB.

In the third quarter of 2024, which is the 10th to 12th of 2023, with the increase in the quality of the market and storage vehicles, we expect the overall sales situation to return to a track that continues to grow. The retail sales are expected to be 3100 units, and the single car price is expected to be 10,500 yuan RMB. The wholesale sales are expected to be 1,400 units, and the single car price is expected to be 670,000 yuan RMB. For the third quarter of fiscal year 2024, between October and December 2023, we anticipate a return to steady growth in sales as market conditions improve and inventory levels increase. Our retail transaction volume is expected to be around 3,100 units.

while the ASP for retail vehicles is expected to be around 105,000 RMB. We also expect our wholesale transaction volume to be around 1,400 units, with ASP expected to be around 67,000 RMB. We estimate that our total revenues, including retail vehicle sales revenue, wholesale vehicle sales revenue, and value added services revenue, to be in the range of 410 million RMB to 430 million RMB. And that concludes our prepared remarks today. Operator, we're now ready for questions.

Thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then 2. If you are on a speakerphone, please pick up the handset to ask your question. When asking a question in Chinese, please restate your question in English immediately afterwards for the convenience of everyone on the call. Today's first question comes from Kai Keng with CIPIC Securities. Please go ahead.

Thank you for the opportunity to ask questions here. At the same time, congratulations on the closer relationship between us and the Hefei city government. Of course, before I return to our performance, I would like to ask that in our, including the Q2 and Q3, which correspond to the past two seasons, in terms of the factors of its strength improvement, can you tell us the difference in the range of contribution of each of us, especially the reduction in the repair cost of Xi'an for our overall So I have another question, which is about changing the gross profit margin. So in the second quarter of 2023, which means from the start of September, we have achieved a big progress on the rebound of our gross profit. And we maintain and decide why the third quarter of 2023. So we know there are a lot of factors that contribute to that rebound. So could you give us more detailed information about the weight of different factors, especially the contribution from CNS IRC operation?

OK. Hi, this is John and I will address the questions.

Our gross profit margin has seen a notable improvement, rising from 1.3% in the same period last year to 6.2% this quarter. The growth in gross profit for a retail vehicle primarily stems from two aspects, vehicle sales and value added services. In the last quarter, the year-over-year improvement in gross profit was approximately 70% driven by vehicle sales and 30% by value added services.

The uptick in gross profit from vehicle sales can be attributed to the success of our large superstore model.

This success translates to more accurate pricing, increased sales efficiency, and a faster inventory turnover. Additionally, as the market stabilizes, the price spread in our used car sales has significantly improved compared to the previous year.

This is our natural business advantage compared to the traditional two-wheel drive. We can get more suitable financial insurance products for our customers, and higher value for money. Also, through online shopping malls, we can fully lead the purchase experience of the traditional two-wheel drive market, and achieve sales transformation in this mode. The penetration rate of our increased service has been increasing. In the future, we think there is still room for improvement.

At EUSIN, we leverage our superstores and factories to provide a comprehensive array of value-added services, including finance, insurance, extended warranties, accessories, maintenance, and repairs. This business model represents a natural advantage over traditional used car dealers. We can offer customers more suitable finance and insurance products, cost-effective accessories, and achieve sales conversions through an offline superstore experience that surpasses traditional used car marketplaces. We are consistently improving the penetration rate of our value-added services, and we believe that there is still a significant potential for further growth.

The Xi'an IRC, which is the establishment of our ready-made factory, is indeed a great help in reducing the cost of preparation. It has a significant impact on the contribution of labor. Just now, DK mentioned that we now have the world's most advanced second-hand car manufacturing factory. We have already implemented a transparent factory-related system. We have been working closely with the management of power lines and other processes. We have greatly improved the performance of the vehicle flow, reducing the loss of time cost. At the same time, we have also continuously introduced the most advanced equipment, the most advanced technology, including 3D printing, smart repair, etc. And combined with our overall equipment supply system. Our single-car preparation time and cost have been further reduced. And with our Xi'an IRC up and running, the reduction in conditioning costs has indeed made a noticeable impact on gross margin improvement.

As DK mentioned earlier, our transparent factory system featuring the world's most advanced used car reconditioning factory facilitates integrated end-to-end process management for inspection, diagnosis, and repair. This has significantly improved vehicle turnover efficiency and reduced the time cost. At the same time, we continue to roll out advanced reconditioning equipment and processes, such as 3D printing and smart repairs, while integrating the spare parts supply system. As a result, the reconditioning time and cost per vehicle has further decreased. As of now, the reconditioning cost per vehicle is more than 50% lower than a year ago. The optimization of the reconditioning process along contributed about 1.5 percentage points to the improvement in our gross profit margin. And that is my answer to your question.

Thank you, Mr. Lin. I have another question to ask. In the last quarter of last year, we saw a fast recovery of the exchange rate. Do you think the market is stable now? In fact, the price of the retail market and the supply and demand have regained stability, and in the early next year or longer, this stability may continue. We may not be able to receive such a shock from the new car market. In this background, is it with our brand awareness and the gradual effect of the large-scale market model? So we saw starting retail transaction volume quarter coming up last quarter of 2023, so from dry to September. So do we think currently in the fourth quarter, or maybe in the next few months, this stable trend can be continued, and there may be not strong shock impacts on the new car market. And so in 2024, our retail transaction volume with bond trend can be continued in the next year. Thank you.

Hello, Kankai. I'm Dai Kun. Let me answer your question. First, let's talk about sales. Because I think you asked about the combination of sales and sales price. This is the last question about sales. Hi, this is DK and I will address the sales perspective of your question first.

So from July to September 2023, after new car prices stabilized, the used car market gradually returned to normal. Our sales volume began to recover in July, showing a 35% growth in the September quarter compared to the June quarter. In the same period, the domestic used car market only saw an average sequential transaction volume growth rate of 5%. So our performance significantly exceeded the market.

From the retail price of single-car vehicles, from July 7th to June 4th to June 6th, it was around 110,000 yuan. Now the total is stable. In the beginning of the year, it was about 120,000 yuan. In the same period of last year, it was about 140,000 yuan. The price of retail vehicles has dropped a bit. One of the main reasons is that we have optimized the storage structure. The second reason is that in the current economic situation, the whole new car and the large market economy are going down. Regarding the ASP of retail vehicles, both in the September and June quarters, our ASP remained stable at around 110,000 RMB.

At the beginning of the year, it was approximately 120,000 RMB, and in the same period last year, it was around 140,000 RMB. The ASP of retail vehicles experienced a slight decline in our practice optimization of the inventory structure to align with the current economic conditions and market demands. So after completing the adjustment of our vehicle structure, our inventory now mainly consists of used cars aged three to eight years. Overall, the impact of the new car market on us has lessened. Starting in October, new cars underwent a new round of price reductions, but our ASP has remained relatively stable. And that's my answer to your question.

Thank you. And our next question today comes from Fei Day with TF Securities. Please go ahead.

Given that the current economy conditions are quite challenging, from the company's perspective, is there any change in market trades and consumer behavior? How is the company addressing the impact of economic change? This is my first question.

Thank you. Okay, I will answer this question. I think the main goal of achieving the balance of the silver and the silver is three things. One is to continue to raise the stock level of the sales at a reasonable price. Two is to maintain the current sales cycle efficiency. Three is to continue to promote the reduction in energy efficiency.

Hi, this is DK, and I will answer that question. So for us, attaining profitability really centers around three key aspects. Firstly, entails consistently evaluating inventory levels through reasonable pricing. Secondly, it necessitates maintaining the current efficiency of sales turnover. And thirdly, involves an ongoing commitment to drive cost reduction and enhance efficiency. So the most notable potential impact that we observe is the market's volatility, stemming from the continual reduction in new car prices. On the vehicle acquisition side, the increasingly competitive pricing strategies in the new car market this year had repercussions in the used car market, lowering the acquisition prices for used cars. Leveraging our AI-driven digital pricing system, we can determine the most reasonable acquisition prices. Customers selling their cars may require some time to adjust their price expectations, potentially influencing the pace of inventory increase.

At the sales end, just as we saw the market reaction from the new car price drop in March, customers may re-experience the feeling of buying a second-hand car.

And on the sales front, as evident from the market response during the new car price reduction wave in March, customers may adopt a wait-and-see approach to purchasing used cars.

However, we're confident in continuously expanding inventory and maintaining a healthy sales turnover within 45 days by leveraging our retail competitiveness model for vehicle selection.

dynamically adjusting inventory structure, utilizing AI systems for digital pricing with timely market feedback, and benefiting from the high sales conversion efficiency driven by our leading brand influence and reputation in regions that we operate.

And furthermore, we anticipate the new car market to return to a new stable level. The price reductions are definitely not sustainable.

And we also expect the supply and demand in the used car market to normalize. We're confident in achieving our profitability goals. And that will be the answer to your question. All right, thank you.

Thank you. This concludes our question and answer session. I'd like to hand the call back to management for any closing remarks.

Thank you all again for joining today's call and for your continued support in using. We look forward to speaking with you again in the future.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.