Earnings Call: Q1 2022

Sep 24, 2021

Earnings release

Ladies and gentlemen, thank you for standing by, and welcome to Uxin's Earnings Conference Call for the Quarter Ended June 30, 2021. At this time, all participants are in a listen only mode. After management's prepared remarks, there will be a Q and 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 turn the call over to your host for today's conference call, Ms. Shaoyan Zhu. Please go ahead, ma'am. Thank you, operator. Hello, everyone. Welcome to Uxin's earnings conference call for the quarter ended June 30, 2021. On the call today are DK, Founder and CEO and John Lin, CFO. D. K. 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 and 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 Harbor provisions of the U. S. Private Securities Litigation 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. Uxin does not undertake any obligations to update any forward looking statements, except as required under applicable law. For more information about potential risks and uncertainties, please refer to our filings with the SEC. With that, I will now turn the call over to our CEO, D. K. Please go ahead, sir. Hello, everyone. Thank you for joining our earnings conference call today. To better communicate with both domestic and international investors, my prepared remarks today will be in both English and Chinese. The Q1 of fiscal year 2022, which ended on June 30, was one of the most challenging quarters with experience over the last 10 years. We were under huge capital constraints and yet to keep business growth. In current May, we managed to deliver solid results despite all the challenge and achieved sustainable growth in terms of revenue and sales compared with the previous quarter. At the same time, we continue to do efforts on cost and expense control and our operational costs sorry, our operational loss substantially decreased in the quarter. In the Q1 of fiscal year 2022, although we were only able to maintain a relatively small retail industry due to cash constraints, we still achieved to enhance our fundamental capabilities in vehicle sourcing, reconditioning, sales and deliveries. All the progress we achieved this quarter has built a solid foundation for our future business expansion and the replication of our CN IRC model. For vehicle sourcing, we continue to extend to upstream of our used car acquisition network for our inventory owning model. Our solid branding and strong supply chain resources with both individual car owners and car dealerships have enabled us to start more high quality used vehicles at reasonable prices. In terms of car reconditioning capabilities in Xi'an IRC, we continue to refine the whole process by standardizing end to end procedures, improving flow efficiency between key staff, upgrading equipment and technologies and optimizing staffing in the production lines. After several months of operation, the quality of our reconditioned vehicles has fully examined. This has enabled us to offer stable supply of high quality and valuable money cars for our customers. In terms of vehicle sales and after sales services, we remain committed and focused on creating long term value for our customers. We seriously follow-up on customer feedback and continuously improve each step of the customer experience from sales delivery to after sales support. During the quarter, our sales net promoter score or NPS increased to 44. The continued improvement of NPS has also enabled us to achieve decent sales conversion despite relatively small retail inventory, which gives us great confidence to continue to scale our inventory and boost sales. After receiving the 1st tranche of the new investment in July, our business has been recovering as expected and gradually is moving to high quality growth momentum. We scale up our operations in 3 aspects: vehicle sourcing, reconditioning, capacity and offline showroom expansion. Investments in these 3 key areas help increase our available for sale inventory. This offers our customers more selections and helps build a better experience throughout the car purchasing journey and thus bring higher sales conversions. In order to increase inspection and reconditioning capacity in the long run, Yuxing and Changfeng County Government of Perfec City has recently entered into a strategic partnership to jointly invest in and build a used car inspection and reconditioning plant. With a total investment of up to RMB2.5 billion, the plant is expected to have an annual production capacity of 60,000 to 100,000 vehicles once it is in operation. This production capacity will provide Yuxin with a stable and large supply of high quality used vehicles in the coming years. Going forward, we will continue to provide high quality products and services to our customers whose sales conversion fits our strong supply chain capabilities and deliver steady sales growth in a higher return. This year marks Yoo Sing's 10th anniversary, which we just celebrated on September 9. In the past decade, we have experienced both exciting and tough times. Uxin has become stronger because of all of the challenges we have overcome as one team. It all started with the mission to make it easy to every Chinese customer to own a quality used vehicle. This is the solid condition that drives our passion to provide customers with high quality value for money used cars and best in class services. We are confident and determined to continue contributing to the long term healthy development of China's used car industry. With that, I'd like to turn the call over to our CFO to walk you through the financial results. John, please. Okay. Thanks, D. K. Hello, everyone. Thanks for joining us today. As D. K. Just mentioned, we had a very challenging quarter on both business operation and the financial resources for the quarter ended June 30, 2021. As you all know, we announced our agreement into a binding investment term sheet on April 1. Now we received the first tranche of the financing on July 12. Therefore, from April to June, we were running Xi'an IRC business with very limited resources. However, we still managed to deliver continued growth in terms of both vehicle transaction volume and the revenue. To achieve the above progress, we spend tremendous efforts to leverage our capital efficiently. Our team has successfully built up effective car sourcing channels with strong supplies. However, we were only able to maintain a relatively small retail inventory in Tian IRC due to the cut cost constraints. Therefore, to balance the car sourcing supply and our cash capacity, we increased the percentage of vehicles sold through our wholesale channels for the quarter ended June 30, 2021. The closing of the first tranche of the financing transactions in July substantially improved our cash position and the ability to expand the business. The daily car reconditioning productivity of our Xi'an IRC was more than doubled, and we began to build up retail inventories rapidly. We expect the company's performance to continue improving in the following quarters. During the quarter ended June 30, 2021, we continue to streamlining our business process to build a very lean organization. Spend where it matters the most has become our management philosophy that we are relentlessly pursuing ways to boost our operational efficiency. Let me give you one example. I joined Uxin in August 2019, about 2 years ago. At that time, we had approximately 8,800 employees. Today, our employee headcount is less than 700. Just to let you get an idea of how determined we have been to gain operational efficiency. Our continued efforts paid off. The non GAAP adjusted loss from continuing operations substantially decreased in this quarter. Full details on quarter ended June 30, 2021 are available in our earnings release. So now I will run through some key numbers. All numbers are in RMB unless otherwise stated. Transaction volume was 3,011 units this quarter, compared with 17 19 units sold last quarter and 3887 units sold in the same period last year. Retail volume was 679 units and the wholesale volume was 2,332 units. Vehicles that did not pass our retail standards were sold through our wholesale channels. As I said earlier, we have to increase the proportion of vehicles sold through our wholesale channels in order to boost the cash turnover. Total revenues were RMB278 1,000,000 compared with RMB196 1,000,000 last quarter RMB62 1,000,000 in the same period of last year, up by 42% quarter over quarter and 3 48% year over year. Retail vehicle sales revenue was RMB92 1,000,000 compared with NIL in the same period last year. Wholesale vehicle sales revenue was RMB177 1,000,000. Gross margin was 4% compared with 4.6% in the previous quarter and an active 28.4% in the same period last year. Total operating expenses were RMB83 1,000,000, a RMB41 1,000,000 drop from RMB124 1,000,000 in the previous quarter and a RMB68 1,000,000 drop from RMB151 1,000,000 in the same period last year. Overall labor costs and expenses excluding severance pay decreased by over 30% quarter over quarter and 72% year over year due to the restructuring of organizations following our business model transformation. Looking ahead, we believe our ongoing efforts at cost saving will benefit our financials in the long run. Non GAAP adjusted the loss from continuing operation, which excludes the impact of share based compensation, was RMB45 1,000,000 for the 3 months ended June 30, 2021, compared with RMB98 1,000,000 in the previous quarter and RMB133 1,000,000 in the same period last year. Net loss from continuing operations was RMB 69 1,000,000 for the 3 months ended during the 30, 2021, compared with RMB133 1,000,000 in the previous quarter and $152,000,000 in the same period last year. Then about our cash position, as of June 30, 2021, we had a cash and cash equivalents of RMB124 1,000,000. For our financing transactions of up to US315 million dollars we received the first tranche of US100 million dollars in July, and we are well on track to close the remaining tranches. That sums up our results for the 3 months ended June 30, 2021. Moving onto our guidance, we expect our total revenues to be in a range of RMB310 1,000,000 to RMB330 1,000,000 for 3 months ended September 30, 2021. This forecast reflects our current and preliminary views on the market and operational conditions, which are subject to changes. That concludes our prepared remarks. Thanks. Thank you, John. Operator, we would like to open the call for questions now. Thank you. Your first question comes from the line of Eddie Huang from Morgan Stanley. Please ask your question. Let me translate myself. I have two questions. First is a little about the short term. We noticed that the shortage of the auto trips have quite an active impact of the China's new car sales starting from the Q2 of this year. So just want to know whether or not this shortage of in the auto shift in the new car will have some positive impact on the used car. That's the number one question. And the second question is that as we know that the EV sales as a percentage of total new car sales in China has been increasing in the past few years, and we have we are expecting that this proportion will go even further in the next couple of years. So just want to hear your view on the strong sales of EV's impact on the used car industry in the longer term. Thank you. I think in the short term, the shortage of proceeds has a boosting effect on the use of the industry. It takes longer for new cars to be delivered. This just of car prices as the supply of the new cars in the market reduced. Some of the new car buyers may decide to purchase a used car instead. However, we don't think the shortage of chips will be a long term issue and will be eventually Well, putting aside the issue of chip supplies, the market size of the used car is also rapidly growing. In China, the level of car ownership is already much higher than before. The existing vehicles in the market have started to gradually enter the used car market. On the other hand, consumers have become increasingly receptive to used cars. In addition, the industry policies have also become more favorable such as lifting restrictions on cross region sensors, reducing value added taxes on used cars and adopting electronic registration. This all provides positive tailwind for the development of the used car industry. So for UC, what we focus more on is to deliver high quality used cars and provide a full suite of best in class services from sales delivery to after sales support and therefore create good value for our customers and the industry as a whole. Meanwhile, we also work hard to control costs and expenses, boost our operational efficiency in order to create long term value for our shareholders. For your second question, yes, the sales of new vehicle and electric vehicles have increased very rapidly in recent years. We are doing new energy cars will be the mainstream ones in the future market. After a decade of development, Uxin has established a proven and complete system that covers used vehicle sourcing, inspection, sales delivery and after sales support. We have already started to work on inspection standards, reconditioning process and after sales services for used EV cars and we will launch related service soon, especially the used EV cars and our inventory only model. Thank you. Your next question comes from Fei Dai from Tienfeng Securities. Please ask your question. Repeat my question in English. Company's CIRS has been in operation for nearly half a year and you also received the first tranche of the new investments in July. It seems like everything goes in the right direction. Regarding your future plan, can you give us some color on your strategic focus and the core sectors to drive sales growth in the future? Thank you, Before July, we were indeed under huge capital constraint. As a result, we were unable to procure vehicles on a less deal than carry out reconditioning and build our inventory. After the funding was in place, our business has recovered immediately. Now both our car procurement capability and the production capacity are picking up rapidly, fully in line with our expectations. And we continue to improve our product and service capabilities in light of the increasing inventories to our customer demand will naturally bring more sales conversions. We will further expand our production capacity and increase inventory, so as to provide customers with more selections. Meanwhile, with the improved reputation among customers, our IRC's regional influence has also enhanced. In addition, the gradual increase in customers' referral rate will also drive high quality sales growth. Therefore, the flywheel effect of our entire business model will rapidly drive our business growth. After nearly half a year of operation in CNRC, our operating model has matured and is ready to be replicated. Going forward, in addition to continuing to strengthen using influence and competitiveness in existing regional markets, we are also preparing to invest in IRCs in more new regions to promote our business expansion. And in addition, our business in Hefei will also kick off soon. Thank you. There are no further questions on the line. I would now like to hand the conference back to Xiaoyan Su. Please continue. Thank you again for joining today's call and for your continued support in Yuting. We look forward to speaking to you again soon in the future. Thank you. Thank you. Bye bye. Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.