Q2 2024 Uxin Ltd Earnings Call
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<unk> prepared remarks, we will have.
Our discussion today.
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.
Alright, Thank you operator, and Hello, everyone and welcome to <unk> earnings Conference call for the first and second quarter yourself fiscal year 2024 ended at June 32023, and September 32023, respectively.
On the call with me today, we have D K, our founder and CEO as well as John been always CFO.
BK will review business operations and company highlights followed by John who will discuss our financials and guidance they.
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 U S. D C.
Now I will turn the call over to always CEO Dk. Please go ahead Sir.
Thank you all.
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Hello, everyone and thank you for joining our earnings call.
I'm pleased to reconnecting with you all today on the call.
So they've had a communication with both domestic and international investors I will share with company's latest progress in both Chinese and English.
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Due to the financing transactions with the government of course, they used to be in the past month, we postpone 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.
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In the first quarter of fiscal year 2024 from April to June 2023.
Witnessed at the end of a current volume surge initially fueled by pent up demand during the pandemic.
Subsequently be aggressive pricing strategies of new cars beginning in March continued to reverberate through China's used car market.
This shift who might have a cautious approach by consumers, who adopted and we didn't see stance on purchasing used cars.
Along with these market dynamics, we opted for a prudent card acquisition strategy, maintaining lower inventory levels.
Consequently.
Our retail transaction volumes in the first quarter saw a 25% decrease from the previous quarter totaling 1680.
87 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 2287 unit.
Notable 36% sequential growth and as far as the pricing your inventory.
Industry average growth rate of 5% in transaction volume.
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Throughout this period, we have effectively maintained a turnover based off our vehicles on sale below 45, while simultaneously.
He is leaving how do you think our profitability as our gross margin has expanded to six 2% from one 3% in the same period of last year.
A notable achievement in September with our Xi'an superstore, and reaching positive EBITDA.
Tribute into a nearly 50% year over year reduction in the Companys overall adjusted EBITDA loss. Additionally, we consistently upheld the industry's highest net promoter score or NPS, maintaining a score of 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.
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It is a it is also worth highlighting that our state of the art chunk from the superstores and of course ACD commenced its trial operations in September 2023.
Encompassing a vast area the 450000 square meters of transform the superstore futures the world's most advanced Super.
Advanced used car reconditioning factory and the largest the warehouses that we used car retail superstore with a capacity to showcase up to 10000 vehicles.
The expansion of our inventory at this facility is set to significantly bolster the company's business growth in the forthcoming years.
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At the same time that we signed an equity investment agreement with the local government of course basically at the end of September.
And then just agreement with a construction investment in North Sea industrial investment will come in up to $1 5 billion RMB over the next 10 years to using square for a subsidiary to support the operation and development of our used car superstores CD of coffee.
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At the wrong pages strategic location favorable business environment, well established automotive industry and robust upstream and downstream supply chain offer substantial support of fostering Houston's continued business growth.
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Reflecting on our experience since the relocation and upgrade of our CRM Super scoring in December 2022.
<unk> has successfully reached the EBITDA profitability by September 2023, just 10 months into its operation.
Our core Facebook store, which began trial operations in September 2023, it's on a similar path with an objective to reach adjusted EBITDA profitability by March 'twenty, 'twenty, four or even earlier.
Reaching the scalable profitability of our superstores combine that with our ongoing efforts in cost control and optimization.
We have established a clear strategy towards the company's overall profitability.
Our goal is to reach overall EBITDA profitability by September 2024 or sooner.
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What are the last two years, we have significantly enhanced our management capabilities and operational efficiency, surpassing industry norms, and edginess closer to our profitability targets.
On the call today, I would like to highlight four key areas of development.
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Firstly, we have successfully completed the training of our AI powered vehicle pricing system.
This advanced system.
So not a ton of monthly and intelligently that's prices for vehicles, considering factors such as completion H color on mileage.
They also dynamically adjust our quotes and in response to customer interest feedback from offline test price and market conditions.
Disposition in pricing strengthens our competitive position in both purchasing and selling ensuring an optimal vehicle turnover efficiency of 30 to 45 days.
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Secondly by leveraging the efficient operation of our cutting edge East part Reconditioning factory.
Have you been able to accelerate vehicle turnover and slash reconditioning costs, all while maintaining the supply of used cars at a super large scale.
Integration of sophisticated reconditioning technologies and equipment guarantees superior vehicle quality.
We've pioneered the industry's most advanced transparent factory management system.
<unk> integrated data transmission spring inspection diagnosis and repair, while enabling real time monitoring of our workforce vehicles and materials.
System Optimizes the production process across the board.
Implement intelligent parallel processing of workshop tasks and has dramatically reduced the timeframe from vehicle intake to sales listing to only three to four days.
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We remain committed to establishing an optimal cost and expense strategy.
Structure across various facets of our business.
This is highlighted by the substantial cost reductions achieved there were supply chain integration and large scale vehicle reconditioning.
Furthermore, we've leveraged advancements and operational processes, incorporating innovative technologies like <unk> printing smart repair, which has led to a groundbreaking improvements in cost control strategies.
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Lastly, we have proven the inherent advantages of our offline superstores in attracting customers.
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 Seattle and coffee superstores.
As I spend data to become the leading brands in local used car market recognition.
We have distinctly and noticed that I saw were offline superstores evolve various a marked increase in organic foot traffic.
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Our business model is now fully refined and with confidence and we anticipate that the company will reach overall profitability by or before September 2024.
All of our long term strategic vision, we see the superstore model S swiftly adaptable across various regions in China.
Our expansion strategy into new cities will integrate even more innovative approaches ensuring enhanced cost effect cost effectiveness and the accelerated.
Profitability for each superstore.
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With that I'd like to turn the call over to our CFO to walk through.
Are you through the financial results.
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Dk and Hello, everyone I will provide a closer look at our financial results from the first and second quarters of fiscal year 2024.
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BK has already provided an overview of our retail transaction volumes for these periods.
In the face of fluctuating market conditions for the first quarter fiscal year 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 1000.
687 units.
During the second quarter, we increased our inventory levels, enabling us to grow our retail transaction volume by 36% to 2287 units in the second quarter.
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Our retail sales revenue in the second quarter reached 249 million RMB, representing a sequential increase of 33% or more.
187 million RMB in the first quarter.
Sponsor to the evolving economic landscape, we diligently refined our inventory structure to align with current market demand.
This strategic.
The adjustment is reflected in the average selling price or ASP of RV retail vehicles, which decreased from 1000, sorry, 100 120000 RMB in the same period last year to approximately 110000 RMB over the last two quarters.
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Our wholesale business segment remained relatively stable with a transaction volume of 1567 units and a sales revenue of 95 million RMB in the first quarter compared to 1597 units with a sales revenue of 99 million RMB in the second quarter.
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Overall, our total revenues for the second quarter were 356 million RMB, a sequential increase of 23%.
$298 million, sorry, 289 million RMB in the first quarter.
Furthermore, we further accelerated our inventory turnover increased the penetration rate of our value added services.
Reduced per vehicle cost thanks to the efficiencies gained affirm our modernized factory operations.
Results that we saw a substantial improvement in our gross margin.
In the first quarter and second quarters of fiscal year 2024 hour gross margins, we're at six 1% and six 2% respectively. This represents a year over year increase of five and four nine 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 <unk>.
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On the front of operating expenses, our 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 costs associated with opening our a chunk on the 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.
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Loss from operations narrowed by 35% year over year to $63 2 million RMB in the first quarter and 38% year over year to $66 4 million RMB in the second quarter.
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Thanks Shlomo.
Alicia.
As a result of the government's investments that your investment in us and scope a subsidiary and the financial leasing of the office Superstore property, our transform Super scoring coffee city has recorded a substantial noncash charges, including depreciation amortization and financial expenses.
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.
<unk>, which removes the effects of stock based compensation and other one time or noncash items from the standard EBITDA offers a more accurate reflection of our company's profitability.
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The improvement in our gross margin and a continuous refinement of our cost and expense structure.
That's led to a substantial enhancement in our profitability.
Testament to this progress is our Xi'an, Supersport, 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.
$29 6 million RMB or 39% of Afirma loss of $36 3 million RMB in the first period that last year in the same period of last year.
Adjusted EBITDA in the second quarter with a loss of $45 9 million RMB, representing a reduction of 41 million RMB, 447% from $86 9 million RMB in the same period last year.
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I would like to reiterate the profit target PK just mentioned.
Aiming to reach adjusted EBITDA profitability at the store level by March 2024, and extend those to the entire company by September of 2024.
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We are confident in our trajectory towards high quality sustainable development and our strong financial position is a cornerstone for us.
Future business growth and profitability objectives.
September we entered into an equity investment agreement with the local government investment platform under.
Under this agreement we have they have committed to investing up to $1 5 billion RMB in Houston score for a subsidiary over the next decade.
With the first trench of roughly 115 million RMB essentially completed.
Additionally, we have a range of with our investors to finalize the remaining disbursement of nearly 30 million U S dollars from previous funding round before at 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.
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For the third quarter of fiscal year 2024 between October and December 2023 <unk>.
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 3100 units, while the asp's for retail vehicles.
We expect that to be around 105000 RMB.
We also expect our wholesale transaction volume to be around 1400 units with <unk> expected to be around 67000 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, two 430 million RMB.
These charges are all looking at your vehicle that cafe kind of news to.
Sheryl Mcquade with Avenue.
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 two.
If you're on a speaker phone 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 Collin County.
<unk> Securities. Please go ahead.
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Alright.
Gross profit margin has seen a notable improvement rising from one 3% in the same period last year to six 2% this quarter.
The growth in profit.
Profit for a retail vehicles, 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.
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The uptick in gross profit from vehicle sales can be attributed to the success of.
Our large superstore model.
This success translates to more accurately pricing increase the sale of efficiency faster inventory turnover. Additionally, as the market stabilizes the price spread in our used car sales has significantly improved compared to the previous year.
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Our midterm can afford the shareholding issues adhesion careful an element of that.
As you've seen we leverage our superstores and factories to provide a comprehensive array of value added services, including finance insurance extended warranties accessories maintenance and repairs.
Business model represents a natural advantage over traditional used car dealers.
We can offer our customers more suitable financing insurance product cost effective accessories and achieve sales conversions through an offline superstore experienced peso deposits traditional used car marketplaces we.
We are consistently improving the penetration rate of our value added services and we believe that there is still significant potential for further growth.
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During the quarter.
And with orders Sheehan, IRC up and running the risk reduction and reconditioning costs has indeed made a noticeable impact on the gross margin improvement.
I mentioned earlier, our transparent factories system, featuring the worlds most advanced used car reconditioning factory and facilitate integrated end to end process management for inspection diagnosis and repair. This has significantly improved the vehicle turnover efficiency and reduce the power cost either.
At the same time, we're continuing to roll out the violence reconditioning equipment and processes, such as three D printing and smart repairs, while integrating the spare parts supply system as a result, reconditioning time and cost per vehicle.
The decrease.
Now the reconditioning cost per vehicle is more than 50% lower than a year ago.
Optimization of the reconditioning process, along contributed about one five percentage points to the improvement in our gross profit margin.
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So don't look like without that address your question Tyler.
Thank you all and thank you to capture both the sale of the Dutch.
Okay I've been treated at home more so that you got to get the wholesale commercial footprint.
J P J, thank you too.
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We are currently in the fourth quarter, maybe in the next few months.
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There may be not as strong a sharp impact from the new car market.
Paul.
Transactional volume with bond sense, you may continue.
Yes. Thank you.
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Hi, This is dk and I will address.
The sales perspective of your question first so from July to September 2023, after a new car prices stabilized the used car market gradually returned to normal our sales volumes began to recover in July and showing a 35% growth in the September quarter compared to the June.
Quarter.
In the same period of the domestic used car market only fall in average sequential transaction volume growth rate of 5%. So our performance significantly exceeded the market.
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Regarding Fiat S. P. A lethal vehicles, both in the September and June quarters, or ASP remained stable at around 110000 RMB Abbott.
Chemo for urea was approximately 120000 RMB in the same period last year was around 140000 RMB.
The ASP of retail vehicles experienced a slight decline many deep software practice optimization of inventory structure.
Along with the current economic conditions and market demand.
So after completing the adjustment of our vehicle structure.
Inventory now mainly consists of used cars age of three to eight years.
Overall, the impact of the new car market Amas has lessened starting in October new cars under when a new round of pricing reductions, but our ASP has remained relatively stable.
Essentially what else might oxygen.
That's my answer to your question.
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Thank you and our next question today comes from say <unk> with <unk> Securities. Please go ahead.
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Hey, Bill.
Today's meeting.
Can you give a sense of your entrepreneurs.
Given the current economy conditions are quite challenging from the company's perspective is there any change in market trends and costs.
So we'll have to share with you.
As a company at closing.
Oh well.
Economy.
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Hi, Yes. This is PK and I will answer that question.
So for us.
Attaining profitability you really centers around three key aspects firstly in house consistently evaluating inventory levels through a reasonable pricing secondly.
And that's it.
Necessitates maintaining the current efficiency of sales turnover and thirdly involves.
Ongoing commitment to drive cost reduction and enhancing efficiency.
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So the most notable potential impact that we observe.
Market volatility stemming from the a continual reduction in new car prices.
On the vehicle acquisition side at the increasingly competitive pricing strategies in the new car market. This year had the repercussions in the used car market lowering the acquisition prices for used cars.
Leveraging our AI driven digital pricing system a system, we can determine the most reasonable acquisition prices.
<unk> selling their cars may require some time to adjust their price expectations potentially influencing the pace of inventory increase.
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And on the sales front as evident from the market response during the new car price reduction waived in March <unk>.
Customers may adopt a wait and see approach to purchasing and used cars.
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However were confident and continuously expanding inventory and maintaining a healthy sales turnover within 45 days by leveraging our lead held competitiveness model for vehicle selection dynamic dynamic dynamically adjusting inventory structure utilizing AI systems for a digital pricing with time.
Market feedback and benefiting from the highest that was conversion efficiency driven by our leading brand influence and reputation in regions that we operate.
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And Furthermore, we anticipate the new car market to return to a stable level.
The price reductions are definitely not sustainable and we obviously expect the supply and demand in the used car market to normalize where our confidence in achieving our profitability goals.
How you sounded a little quite honestly.
And that will be the answer to your question.
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Hello, Kevin.
Josh.
Alright, thank you.
Yeah.
Thank you.
Concludes our question and answer session.
But 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 Houston, We look forward to speaking with you all again in the future.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation.
May now disconnect your lines and have a wonderful day.
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[music].
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