Q1 2023 Uxin Ltd Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to USIN's Earnings Conference call for the first quarter of fiscal year 2023.

At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session.

If you wish to ask a question, please press the star key followed by the number 1 on your telephone keypad. Today's conference call is being recorded. If you have any objections, you may disconnect at this time.

I'd now like to turn the call over to your host for today's conference call, Ms. Joyce Tang, IR Director of the company. Please go ahead, ma'am.

Thank you, operator.

Hello everyone. Welcome to using a NIST conference call for the call ending June 30, 2022. On the call today are DK, founder and CEO , and John Ling, 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 start, I would like to remind you that this call may contain forward-looking statements made under the safe public provision of the U.S. Private Security Mitigation Reform Act of 1995. These statements are based on management's current knowledge and assumptions about future events that involve known or unknown risks and uncertainties, which could cause actual results to differ materially from those in the forward-looking statements.

Youxin does not take any obligation to update any board-looking statements except as required under applicable law. For more information about the potential risks and uncertainties, please refer to our findings with the FEC.

With that, I will now turn the call over to our CEO DK. Please go ahead.

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Hello everyone. Thank you for joining our earnings comments call today to better communicate with both domestic and international investors. My prepared remarks today will still be in both English and English.

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In the first quarter of fiscal year 2023, which was from April to June 2022, we maintained our growth momentum despite repeat COVID resurgence across the nation. Our retail production volume increased by 30% quarter over quarter and more than 250% year over year to 2,407 units. We continue to gain trust among consumers with our high communities.

efficient processes, transparent pricing, and reliable services. We also continue to expand our market share leadership in both GICG and HOAICG, where our two IRCs are located.

The two IRCs are the largest of 100% self-owned youth car shippers stores in East China and North West China respectively.

Our regional branding and customer reputation has been growing rapidly.

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In this quarter, our net promoter score was 60, remaining stable at an industry top level. Customer reputation through word-of-mouth recommendations started to fuel our business growth. About 25% of our retail sales in the quarter were generated from customer referrals.

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We refine our over 700 expansion checkpoints and launch our National Standard Vehicle Dashboard Program based on National Youth Card Appraisal and Evaluation of Technical specification standards.

The program further improves our customers' shopping experience, enhance the presentation of retail vehicle information in a more accurate and intuitive way, and help our customers make their decisions more easily and conveniently.

Each retail vehicle is provided with a percentile score based on detailed yet easy to understand information on vehicle conditions.

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Consumers can see our categorial ratings for each retail vehicle, including grades for the exterior appearance, engine compartments, cockpit, emission test, road test, chassis, and etc. In terms of a highly complex report, we use simplified, standardized, and visualized ways to tell our customers the pros and cons of the cars and their flight savings.

As such, our customers can understand the car easily, make comparisons easily, and make purchase decisions easily. The program is very well received by our customers.

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In this quarter, our operation efficiency continues to improve across the whole business process. For example, the reconditioning time from vehicle acquisition to listing for sale is reduced by about 50%. We also reduced our retail turnover date by about 48% compared to one year ago. We will be faster and faster in warehousing, reconditioning, listing, selling, and manufacturing.

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The Ministry of Commerce and 15 other relevant departments have been actively implementing a series of business and tax-oriented supportive policies to boost the youth car industry in China.

Following previous measures to reduce the value added testing and digitize vehicle registration measure-wide, the regulators have completely lifted restrictions on cross-regional circulation of used cars with national emissions standard 5 or above.

The accounting method and tax payment have also been modified to promote self-owning business models from commission-based agency models.

All these policies will significantly help streamline use-card transaction processes, promote efficiency circulation, reduce operation costs, and facilitate working capital financing.

Finally, all major uphills that have hindered this kind of industry development in the past decade have been completely removed.

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the state regulators will begin strengthening oversight of use card operations, requiring all dealerships to operate as compliant legal enterprises instead of running the business as individuals.

This will mark the gradual ending of the small-sized, highly fermented, unpleasant and fragile business operations which are currently dominating the U.S. car industry in China.

These policies signify that well-branded, scalable, and compliant used vehicle companies to fly and become major market players.

As new opportunities emerge, we believe that customer trust, vehicle quality and service capabilities which we have been consistently pursuing as our fundamental principles will be the most important foundation for the future growth of the used car industry in China.

You see, as a youth company's leaders in China, we benefit from these favorable policies and suspend our high quality growth on the back of the industry tailwinds.

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I'm pleased to see that we have built a solid foundation with continuous improvement in all business aspects over the past year. Our transformative of pathways to management systems, supply chain processes, as well as product and service qualities will set the stage for our next phase of growth.

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Looking ahead into the fiscal year 2023, we expect that our retail sales will continue to grow each quarter. Our key on IRC size will extend to a much larger size. Our perfect IRC will continue to operate at its full capacity. At the same time, the construction, the triple IRC co-invested better, and the perfect C.C. is constantly increasing to reach.

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All sites are set on the long term. We are committed to providing high-quality vehicles, creating a superior shopping experience, and offering satisfactory services to our customers.

We are confident that our dedication to customer reputation will drive sustainable, high-quality business growth and ultimately generate long-term returns for our shareholders.

I will pass the phone to my dear friend John .

Thanks, BK. Hello everyone. Welcome to our earnings call for the first quarter of this year's 2023, which is the three months ended June 30, 2022.

Since we have international and domestic audiences on the call, we will walk you through our key financial reports in both English and Chinese.

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Driven by a 29% quarter over quarter growth in our overall transaction volumes, our total revenues were RMB 626 million, increasing 23.8% quarter over quarter and 125% year over year.

Specifically retail sales revenues were RMB 348.4 million, increasing 9.1% quarter over quarter, and 279% year over year.

the retail revenue growth was mainly driven by the 30% quarter-over-quarter sales volume growth.

At the same time we have been optimizing our inventory structure to better meet mid-range demand of mid-range price cards.

That's we are targeting water and metal cloth customers.

The average selling price of retail cars dropped to RMB 145,000 in Q1 from RMB 180,000 in the prior quarter. The ASP will further decrease to RMB 118,000 in the next quarter and remain relatively stable in the future.

Although the decreasing ASPE partially accepts the increase in revenue growth from retail sales volume, an optimized inventory structure with more widely accepted price range will lay a healthier foundation for our long-term sales growth.

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Gross margin was 1.1% for the three months ended June 30, 2022, compared with 0.2% in the last quarter. As I just mentioned, we had been shifting towards mainstream mid-range price vehicles, so we accelerated the sales of the higher price vehicles through price adjustment. This led to some write-offs of unsold inventories to improve turnover.

These actions led to a currently low gross margin. If we excluded the impact of inventory adjustment, our gross margin would be at the 4% level.

While the entry structure becomes more and more reasonable as planned, we expect our course margin to improve quarter over quarter this year toward a normal course margin level.

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We continued our stringent expense management, and the total operating expenses were relatively stable compared with the prior quarter. Although our retail sales volume continued to grow, the overall sales were relatively stable compared with the prior quarter.

we reduce the overall customer acquisition costs.

Thanks to our cost-effective marketing channels and strategies.

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To not get adjusted loss from continuing operations, this quarter was RMB 84.9 million, an improvement of 11 million compared to the prior quarter. As our business continues to grow and our inventory adjustment is finalizing, we expect to see further improvements in the remainder of the fiscal year.

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The detailed financial statements were published in our earnings reviews online, so I won't ask to repeat the numbers here. But I do want to answer this one thing as usual.

As in the first quarter of fiscal year 2023, similar to the past quarters, there was a fair value impact related to our financing transactions.

The share price was 42 cents per avi on June 30, 2022.

And on March 31, 2022, the share price was $1.02 per ADS.

So this resulted in a non-cash gain of RMB 252 million.

the fund's fair value change of the world's liabilities and forward contract assets on our balance sheet. I would like to answer this again, but this fair value impact was a non-cash gain and not a result of our operations.

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In the end of August , the company issued ordinary shares to Clearview at a price of $1.03 per ADX in exchange for fully releasing the company's obligations under a convertible note with an aggregated principal amount of $12.6 million. Today NIO Capital has made further payments based on a further grid phone payment schedule as part of its total $100 million to keep it investment to support our services.

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About next quarter's forecast, in addition to revenue guidance, we have added guidance on transaction volumes and average selling prices to give you a better picture of our business progress.

For the three months ending September 30, 2022, the company expects its retail transaction volume to be around 3,000 units, representing an increase of 25% quarter-over-quarter and an increase of 192% year-over-year.

The average selling price for retail cards is expected to be around RMB 118,000.

The company also expects its wholesale transaction volume to be around 2,800 units, with AIC expected to be around RMB 82,000. The company estimates that its total revenues, including retail vehicle sales revenue, wholesale vehicle sales revenue, and value-added services revenue, should be in the range of RMB 590 million to RMB 610 million.

Thank you.

Thank you.

This concludes our remarks. Hopefully we're now ready to take the questions.

Thank you. If you wish to ask a question, please press star then 1 on your telephone.

If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2.

When asking a question, please state your questions in Chinese first, then repeat them in English for the convenience of everyone on the call. At this time, we'll pause momentarily to assemble our roster.

Thank you..

The first question comes from...

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Retail sales will be the most important indicator of our performance. To provide more clarity on our business growth trends and operating results, we have expanded our guidance to include our expectations of transaction volumes and average selling prices in addition to revenue outlook starting this quarter. We expect retail sales to maintain its growth momentum in the fiscal year of 2023.

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As more consumers recognize our products and services, our retail sales will continue to grow.

Additionally, as we expand our inventory size and enhance our vehicle acquisition and inspection and reconditioning capabilities, we will have more retail standard vehicles, which will also contribute to the growth of our retail sales.

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Wholesale business is an effective supplement to our retail sales. As our retail sales force becomes more potent, we will retail more vehicles and naturally decrease the percentage of wholesale business.

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In the long term, we expect 75% of our total sales to come from retail and the remaining 25% will from wholesale.

That's my answer to the question. Thank you.

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The next question comes from Tom Kerr from Zacks Investment Research. Please go ahead.

Hello, my question is about vehicle acquisition. Do direct purchases from consumers still represent about one-third of vehicle acquisitions, and is that share growing?

And then just generally, how should we think about car sourcing costs, you know, given the series of favorable policies that's been implemented.

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Hello, Tom. This is DK. I will answer your question.

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Our direct purchases from consumers accounted for nearly 40% of our total acquisition this quarter, and we expect this percentage to increase further. Currently, we collect cards from consumers, mainly from the two IRC locations in Tianhe City and Hebei City, as well as their surrounding cities.

These are our primary sources of direct purchases from consumers.

However, as we expand our inventory size, we will also increase the percentage of vehicles we purchase from consumers in other locations.

especially after the removal of cross-regional transfers, which facilitates the national circulation of high quality costs.

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In terms of our vehicle acquisition costs, they mainly consist of the vehicle's purchasing price and the related transaction costs, such as title transfers and delivery logistics. In the long term, we will continue to reduce our acquisition costs. After restrictions are lifted, we can access a broader selection of vehicle sources.

We can effectively view our inventory by analyzing the market data of vehicle pricing in different regions.

This will enable us to further reduce our vehicle acquisition costs.

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The implementation of the new policies, such as regulations on the final transfer registration, will benefit companies like us. In addition, with the implementation of electronic filing, temporary license plates, and new test treatments, we can reduce our transaction costs in vehicle by doses of dollars.

Yes, we do need the three other functions tools from government government. We put together the organizing

We were the first in the industry to start selling used cars nationwide. We have also established the industry's most advanced delivery routing system with dynamic optimization.

We have kept our logistics thoughts relatively low in the industry.

With the increase in volume and improving exam-mates of scale, our logistic course will also continue to liquid.

That's it for this session.

That's my answer to your question. Thank you.

I have one more quick question.

Yes, on these favorable policies, do they all start October 1 or have some already been implemented that you're

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In 2022 to today, we saw a number of high-profile industry policies. These policies signify the government's commitment to developing the use-card industry by solidifying well-branded dealerships as a mainstream transaction model in the market. Consequently, the state regulators limited the total number of use-cards and individual is able to trade every year.

Whereas, dealerships are now able to complete vehicles transferred directly. These measures have effectively instituted use costs as commercial products.

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In fact, from the state regulatory perspective, we still need more companies that can provide high quality vehicles and reliable services as the driving force to revitalize the used car industry and win customers' love for used cars as a product. The direction of this new national policy is highly consistent with our perception of the market and the characteristics of our business. The used car industry is currently experiencing its most significant growth in the industry.

crucial changes in decades and we hope to take full advantage of such tailwinds to fuel our growth.

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I just want to emphasize about any updates since October 1st. Can you share? Yeah. Thanks for your time.

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The next question comes from...

Okay, the next question. Next question comes from Faye Dye from TF Securities. Please go ahead.

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I've got two questions. The first one is how is the company's current financing situation? How are the funds being used?

What's the company plan to do with these funds in the future?

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After publishing the updated series, please take into consideration the attending series in Japan, and the Thank you for your attention.

New capital has made payments based on further a three-point payment schedule as part of its total $100 million US strategy investment. The payment is proceeding in an orderly manner. We will utilize the funds mainly to expand our inventory size, enhance our reconditioning process, and support the extension of the CRIIC and the development of the quote A superstore that's currently in the construction.

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Till now, what is the transaction scenario and the process of the company's consumer? What is the proportion of online and offline transactions? Thank you.

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Currently, 25% of our transactions are generated purely from online. For the remaining 75% customers, we prefer to visit our stores in person and see the vehicles offline before purchasing a car.

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However, all the customers generally look at the vehicle's license. The difference is whether they are located close to our IRCs or not. For customers near our source, they are more willing to visit us offline after checking out the vehicle's office. For more information, visit IRCs.gov

During the visit, they can understand the real conditions of the vehicle before picking them up on site.

For customers who located further away from our IRAs, they will order and purchase online.

This is a great phone.

Thank you for your questions.

Thank you. We have reached the end of the question and answer session. I would like to hand the call back to...

Joyce Tang for any closing remarks.

Thank you, everyone, for joining our call today. We look forward to seeing you next time.

Bye bye.

The conference is now concluded. Thank you. Okay, bye-bye.

Thank you. The conference is now concluded. Let me now disconnect.