Earnings Call: Q4 2019

Apr 27, 2020

Earnings release

Ladies and gentlemen, thank you for standing by. Welcome to Uxin's 4th Quarter and Full Year 2019 Earnings Conference Call. At this time, all participants are in a listen only mode. Of Uxin. Please go ahead. Thank you, operator. Hello, everyone. Welcome to Uxin's Q4 and full year 2019 earnings conference call. On the call today are DK, Founder and CEO and Jin Zeng, our CFO. DK will review business operations and the company highlights, followed by Jin, who will discuss financials and the 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 obligation to update any forward looking statements, except as required under applicable law. For more information about the potential risks and uncertainties, please refer to the company's filings with SEC. With that, I will now turn the call over to our CEO, C. K. Go ahead, please. C. Wei:] Thank you, Nancy. Hello, everyone. Thank you for joining our Q4 and full year 2019 earnings conference call. We are pleased to finish off the year on such a solid note with our 2C revenue increased by 65% to RMB388 1,000,000 in the quarter. Not only did we record over 28,300 online used car transactions during the quarter, but we also increased our total 2C take rate to 11.7%, which is equivalent to a per unit revenue of over RMB13,700. 2019 market an important milestone for Uxin as we shaped our strategy focus to 2C online transactions. Throughout the year, we continued to improve our platform by optimizing product and service offering, enhancing service quality and strengthening our fulfillment capability and infrastructure. What encourage us the most is we helped over 97,000 consumers buy their car of choose online without the need to visit a dealership in person. This is a truly differentiated and innovative car buying experience for the average consumer. In China, when compared with the traditional way of spending weeks or even months visiting several dealerships to send the ideal car. With the nationwide online selection of inspected and certified used car, we have customers conveniently buy a car that might not be able available in their local market and enable them to find better deals across the country by simplifying comparing each car's price to performance. Coupled with the professional service and the convenience we deliver, our business model offers consumer a unique value proposition that reinforce our competitive position in the market and increase barriers to entry. This will help us generate long term sustainable growth going forward. We are now currently focused on our TC Online transaction business, diversifying from the loan facilitation, service car and the 2B business will allow us to devote all our attention and resource toward developing and scaling up our 2C online business. In additional, the diversity of our loan facilitation business enables us to drive further growth without incurring additional guaranteeing obligations or credit risk starting from November 2019. This will place us on a much stronger footing for the next stage of our development. As we move further into 2020, we are currently aware of the challenge created by both the softening macro environment and volatility created by the coronavirus outbreak. China's news card industry has been severely impacted by the pandemic with disruption taking place across the industry's infrastructure and the supply chain. During the Q1, we saw considerable barriers to the used car purchase process and fulfillment due to people reinforced from offline activities, temporarily closed the local used car market and the dealerships and the challenging used car logistic and the title transfer. As a result, our business operations during the Q4 were also severely disrupted, while the used car industry has been recovering steadily in recent weeks and overall operations gradually returning to normal. It will take some time before the market completely digest the overall impact. With this in mind, we expect the outbreak will continue to win on our results for the Q2. That said, we believe the outbreak presents just as many opportunities as it does challenging and remaining confident in our ability to save the long term growth opportunities in China news car market. Buying news online continues to turn upward in China. Since we launched our 2C online news car transaction services in earlier 2018, we have been dedicated to transforming the entire buying process and the transaction online each step in the sales process. The outbreak is actually accelerating our online initiative as offline activities remain significantly constrained. In response to the situation, we immediately intend to stage to adopt our business, service model upgrade and cost structure optimization. On the service model front, we upgrade our products, standardized base and transform the way consumers are served and procedures they go through to complete a purchase to facilitate the customers' self help online buying experience. Instead of assigning a sales consultant to assist in an offline in person purchase once a customer demonstrated their intention to purchase online. We are now offering online sales consulting and assistance services. Going forward, customer will be empowered to complete the purchase entirely online all by themselves, including learning about and selecting the car, making the payment and filling all purchase related documents. During the entire buying process, our online consultants are always available to address any issues that the consumer may have in order to facilitate a smooth online transaction. As a result, the service model for online consulting and assistance will simplify the process of serving customers, increase sales productivity and even truly enable us to significantly reduce sales headcount. On the cost structure front, in response to outbreak of coronavirus, we immediately implemented a temporary workload based staffing program company wide to fortify our cash flow and financial position by bringing costs and expenses under carefully control. More important, we optimized our cost structure according to our current service model. On top of reducing sales expense by simplifying the buying and servicing process, we are also streamlining the corresponding corporate management structure and the process. All this adjustment not only enable us to reduce cost and expense for better unit economics, but also allow us to improve overall operation efficiency. As the impact of outbreak being too fit, we believe the used car market will gradually buoy back into in the coming quarters, catalyzed by people's growing performance for owning their own car and pent up demand for used cars the upgrade has created. With upgraded service model and optimized cost structure already in place, we will benefit from further growth opportunities once the market rebounds. With our focus squarely on becoming a one stop online destination for buying used car. We are confident we will be able to further solidify our market leading position as a nationwide online used car dealer and create long term value for our shareholder. Before I turn the call to Deng for our financial details, I want to extend our deepest sentences to all those who faced and continue to face extreme difficult as a result of the coronavirus outbreak. I want to also express our simply gratitude to those who fought and continue to fight on the frontline to complete the disease. Thank you. 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. Mentioned already highlighted, we are pleased to see our continuing business generally to solid and consistent top line growth and the gross margin improvement throughout 2019. If back out the account loss from the guarantee liabilities and the provision for credit losses, which are primarily associated with our historical financial assets, our adjusted loss from continuing operations continued to narrow for the 4th consecutive quarter of RMB135 1,000,000 in the Q4 of 2019. As we continue developing our 2C online used car transaction business, we thought incurring additional credit risk going forward. As a result of the divestiture of our loan facilitation business, we have also taken active measures to assess and manage the impact from the guaranteed obligations associated with our historical loan that we are not transferred to Golden Pisa. In the Q4 of the last year, a series of regulations in relation to lending and debt collection, including the prohibition on extreme debt collection practices were jointly issued by the relevant authorities. This adversely affected the delinquency rate as well as the collection and repossession rate in the connection with our historical loans. After reevaluating the loan performance, we made a significant provision for the credit losses and incurred additional loss from a guarantee liabilities for the Q4. Moving into the Q1 of 2020, in response to the new accounting standard for credit losses, effect on January 1, 2020 and the outbreak of coronavirus, we have fully reviewed the quality of our historical financial assets again and carefully assess other relevant impacts. As a result, a significant provision for credit losses and the loss from currency liabilities will be provided for the Q1 of 2020. But we believe the impact from the fluctuation of asset quality on our further cash flow will be limited with careful control and a proper solution already in place to manage the guarantee obligations associated with this portion of loans. Under the current arrangement with our financing partners, we believe the cash flow for buying back further default loans as a result of our historical guarantee obligations will be carefully controlled at a limited level going forward. Looking ahead, as D. K. Just mentioned, the transformation of our service model will have us effectively reduce corresponding cost and expenses and improve operational efficiency. In addition to reducing sales headcount by providing online consulting and assistance services, we are also able to reduce the inspection related costs by focusing on selecting and inspecting higher price to performance used car based on our accumulated experience and the knowledge in the inventory. Benefiting from the streamlined cooperation management structure and the process, we are able to bring our headquarter relatively expensive and optimizing an efficient level. In addition, our cash position will be strengthened in the coming quarters as a result of our recent divestiture and sufficient to support our business development in next 12 months. This will provide us a greater flexibility to invest in our further generate long term sustainable growth. Now let me walk you through our financial details for Q4 and the full year 2019. Please note that the results I will discuss related to continuing operations only. All numbers are in RMB unless otherwise stated. Also, please note that some numbers I refer to are non GAAP numbers. You can find the reconciliation of these numbers at the bottom of our earnings release. In the Q4, total revenue increased by 61 percent to RMB456 1,000,000 from RMB289 1,000,000 in the same period last year. The increase was primarily due to the increases in 2C transaction volume, GMV, commission rate and VAS take rate. Our total 2C revenue was RMB388 1,000,000, up to 65% year over year from RMB236 1,000,000 in the same period last year. Online used car transaction volume increased by 26% year over year to 28,302 units and its corresponding GMV increased by 32% year over year to RMB3308 1,000,000. Looking at 2 revenue streams of our 2C business, commission revenue was RMB207 1,000,000, up 69% from RMB123 1,000,000 in the same period last year, primarily due to the increase in the transaction volume, GMV and commission rates. The unique value proposition we are now able to offer consumer along with improved user experience and the higher pricing cover resulted in the commission rate expanding to 6.3% from 4.9% in the same period last year. Value added service revenue was RMB180 1,000,000 up to 60% from RMB113 1,000,000 in the same period last year, primarily due to the increases in the transaction volume, GMV and the VAS take rate. VAS take rate increased to 5.5% in the Q4 of 2019 from 4.5% in the same period last year, primarily due to our higher pricing power as a result of our increasingly optimized and diversified services. Looking at other businesses, other revenue was RMB79 1,000,000 in the Q4 of 2019, up 46% from RMB54 1,000,000 in the same period last year. Cost of revenues increased by 21% year over year to RMB190 1,000,000. The increase was primarily due to an increases in salaries and benefits for employees engaged in car inspection, quality control, customer service and up to sales services, as well as an increase in the fulfillment costs driven by an increase in the transaction volume. Gross profit increased by 109% to RMB276 1,000,000 from RMB132 1,000,000 in the same period last year. Gross margin increased to 59% in the quarter from 46% in the same period last year, driven by the growing economics of the skill and optimize the cost structure. Total operating expenses was RMB862 1,000,000. Non GAAP operating expenses, excluding the impact of share based compensation were RMB853 1,000,000. Sales and marketing expenses decreased by 31% year over year to RMB255 1,000,000. The decrease was driven by our continuous efforts to enhance operating efficiency. Share based compensation expenses associated with the sales and marketing expenses were nil during the quarter. As a percentage of total revenue, sales and marketing expenses excluding share based compensation expenses decreased to 55% from 127% in the same period last year. And G and A expenses increased by 20% to RMB125 1,000,000. The increase was mainly due to an increase in salaries and benefits as well as the professional fees. G and A expenses excluding share based compensation expenses were RMB8 1,000,000 were RMB116 1,000,000. As a percentage of total revenue, G and A expenses excluding share based compensation expenses was were 25%, compared with 12% in the same period last year. R and D expenses increased by 26% to RMB41 1,000,000. The increase was primarily due to the increase in IT infrastructure services related expenses. R and D expenses, including share based compensation expenses was of RMB0.6 600,000 or RMB40 1,000,000. As a percentage of total revenues, RMB expenses excluding share based compensation expenses were 9%, a decrease from 11% in the same period last year. Loss from the guarantee liabilities were RMB170 1,000,000. We incurred guarantee liabilities associated with the remaining guarantee obligations from the portion of the historical facilitated loans, which were now transferred to Golden Aser. In addition, due to the impact from a series of regulation relating to the lending and the debt collection in the Q4 of 2019, the performance of the aforementioned portion of the loan were adversely affected, which leads to a significant loss from guaranteed liabilities in the reported quarter. Provision for credit losses was RMB271 1,000,000 compared with NIO in the same period last year. Due to the impact of aforementioned new regulations in relation to learning and debt collection and impairment was incurred as a result of adversely performance of the company's financial assets, which mainly includes loans recognized as a result of payment under the guarantee and financial lease receivables. Loss from the continuing operations was RMB 586,000,000 compared with RMB 368,000,000 in the same period last year. If not taking into account guarantee liabilities and provision for credit losses, loss from continuing operations would be RMB144 1,000,000. Non GAAP loss from continuing operations, which exclude the impact of share based compensation was RMB577 1,000,000 compared with the RMB300 1,000,000 in the prior year period. If not taking into account guaranteed liabilities and provision for credit losses, non GAAP loss from the continuing operation would be RMB130 5,000,000. Net loss from the continuing operation was RMB589 1,000,000 compared with RMB392 1,000,000 in the same period last year. If not taking into account guarantee liabilities and provision for credit losses, net loss from continuing operation would be RMB148 1,000,000. Non GAAP net loss from continuing operations, which exclude the impact of share based compensation was RMB580 1,000,000 in the quarter, compared with the RMB323 1,000,000 in the same period last year. If not taking into account guaranteed liabilities and provision for credit losses, non GAAP net loss from continuing operation would be RMB139 1,000,000. Turning to our cash position, as of 31st December, 2019, we have a cash and cash equivalent of RMB478 1,000,000. That's our 4th quarter results. Now let me briefly go through some highlights of our full year results. For full year 2019, total revenues increased by 141% to RMB1588 1,000,000 from RMB659 1,000,000 in the prior year. Total 2C revenue was RMB1347 1,000,000, up to 265 year over year from RMB370 1,000,000 in the prior year. Online used car transaction volume increased by 154% year over year to 97,100 units and its corresponding GMV increased by 155% year over year to RMB11268 1,000,000. Looking at 2 revenue streams of our 2C business, commission revenue was RMB711 1,000,000, up to 2 58% from RMB203 1,000,000 in the prior year. Commission rate increased to 6.3 percent from 4.6 percent in the prior year. Value added service revenue was RMB636 1,000,000 up to 2 82 percent from RMB156 1,000,000 in the prior year. VAS take rate increased to 5.6% from 3.8% in the prior year. Gross profit increased by 2 74% to RMB899 1,000,000 from RMB240 1,000,000 in the prior year. Gross margin increased to 57% in 2019 from 36% in the prior year. Loss from continuing operation was RMB1292 1,000,000, a decrease from RMB2488 1,000,000 in the prior year. Non GAAP loss from continuing operations, which exclude the impact of share based compensation was RMB1208 1,000,000, a decrease from RMB1486 1,000,000 in the prior year. Net loss from continuing operations was RMB1328 1,000,000 compared with RMB1352 1,000,000 in the prior year. Non GAAP net loss from continuing operations, which excludes the impact of share based compensation was RMB1243 1,000,000 in the 2019, a decrease from RMB1535 1,000,000 in the prior year. Moving on to our guidance. For the 3 months and of 31st March, 2020, taking into account of the factors mentioned earlier regarding the coronavirus and the business divestiture, we expect our total revenue from continuing operations to be in a range of RMB80 1,000,000 to RMB85 1,000,000. This forecast reflects our current and primarily view on the market and operational condition and is based upon the current situation and uncertainty associated with the coronavirus outbreak, which are subject to change. That concludes our prepared remarks. Thank you, Mr. Zeng. Operator, we'd like to open up all for questions now. Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question comes from the line of Ronald Keung from Goldman Sachs. Please ask your question. Hi, thank you. Thank you, D. K, Michael, Nancy and team. So I have two questions. Firstly, just given the current virus situation and your Q1 guidance of revenue down around 78% to 79%, which is the RMB80 1,000,000 to RMB85 1,000,000. Just want to hear how are we seeing the March trends and the recovery path recently in April? And when do we see or expect levels to return to more normalized level through the year? And my second question would be on your loan business, which has been divested, but it seems like there's still some that haven't moved on to Golden Pacer. So at the current situation, current level, what should we expect to see on an impact more on a cash flow perspective from now on? Or would it be more on non cash P and L, Well, just want to hear is there anything from the cash flow on your cash that we should be aware of? Thank you. So because of the outbreak of the coronavirus, the used car factor in Q1 has been significantly disrupted, mainly because the closed used car market and the vehicle bureau locally, they don't go back to full operation. And the second thing is that because of some of the highway has been closed, we cannot deliver the car to the consumers. So the fulfillment has been constrained during the period of time. So basically all the transaction volume in Q1 happened in January before the Chinese New Year. So volume in February March, basically there is no transaction volume happened in these two months. Yes. So entering into April, we didn't see significant pickup in the volume. So based on our current knowledge, we think it will be the second half of the year, we will see significant recovery in our volume. So in Q2, basically, the transaction volume will be constrained by 3 factors. The first one is because although the outbreak has been largely contained in China, but there are few local governments have adopted strict measures to in response to the outbreak. And also because of the softening natural environment, consumers' ability to afford by the car will be due to this situation now. For those consumers who are very eager to buy a car at the very moment, they normally want to have the car within a couple of days. But our current fulfillment period of time normally lasts for around 2 weeks, so including the logistics, tire transfers and vehicle restoration, etcetera. So we are not able to meet these type of demand for consumers who are not willing to wait. So the overall used car demand in the market now basically are the cars with price range at low end or to mid end. But if you look at our average selling price, our platform is basically RMB120000. So our used car selection price range is basically mid to high end. So this type of car, if we look at our conducting volume, it will recover a little bit slower than the low price end cars. Our full recovery will depend on the development of the outbreak. So based on our based on current situation, we expect to see a significant recovery starting from the second half of this year. If we use last December as the normalized level, we expect to see we can return back to that level next year in the 1st of next year, 2021. Thank you. Hello, Renan. This is Michael here. So I'll address your second question. So for the cash flow and the provision of our guarantee and credit risk. So given the regulatory changes in the last Q4 and the coronavirus outbreak in the Q1, we have fully reviewed our historical financial assets and assessed the relevant impact on the asset quality. In the Q4 last year, we made a provision for credit losses of about RMB270 1,000,000 and incurred a loss from the guarantee liabilities of RMB170 1,000,000. In this Q1, taking into the account of the new accounting standards for credit losses, which at the same time take consideration of the coronavirus operators. We will provide a significant provision for credit losses and the loss from guarantee liabilities as well to sufficiently reflect the impact. This item will hit our P and L, but won't affect the cash flow too much. Overall speaking, so as we have divested our loan facilitation business since last November, starting from this point, we don't need to take any guarantee obligations for the new loans referred through our platform. So we now can drive our business growth without incurring any guarantee credit risk or cash outflow and our guaranteed obligations. Regarding our historical loans, more than half has been transferred to Golden Pays already and the rest are still with us, but we already have a proper solution in place to manage the guarantee obligations and corresponding cash flow. Xinyuan Bank related loans are the portion that has been transferred to Golden Pacer. So for this part, the Golden Paper will take fully guarantee obligations for this historical portion and be held responsible for buying back further default loans. So there won't be any cash outflow from us. Instead, we can have additional cash inflow going forward from this portion of loan when Xinyuan Bank related with free cash can fully cover the actual loss from the guarantee liabilities. Meaning, if there eventually will be a net cash inflow after the maturity of this portion of loan, we will be entitled for 85% of such amount of net cash. Regarding the loan that we not transfer, over 90% are loans for WeBank and the remaining small portion is sitting on our own balance sheet. So for the re band portion and the current arrangement with our financing partner, the further cash off flow as a result of course funding guarantee will be controlled at a limited level and won't impact our cash position much. For the remaining small portion of our own balance sheet, it represents the loan we historically bought back and a guarantee. So going forward, we will only be cash inflow from this depending on how much we can collect back. So overall, we believe the impact of divest loan facilitation on our operating cash flow will be limited. It also will ease out along with the maturity of all these loans. Additionally, our cash position can be strained as we will receive additional cash as a result of the business divestiture and the efficiency to support our business development in the next 12 months. Your next question comes from the line of Eddie Huang from Morgan Stanley. Please ask your question. Hi, D. K. Michael, Nancy. Please let me translate myself. So as I mentioned that the COVID-nineteen outbreak has accelerated your transformation of the entire buying process and transaction online of each step in the sales process. Just one, would you please elaborate more about the have you witnessed any long term trend in the industry in the used car industry that you believe such online transformation will benefit? And how do you compare with your the online transformation the model versus your major competitors? Thank you. So our key strategy for 2020 is to accelerate our progress and degree of enabling online car connection. So we believe the online card transactions can bring unparalleled customer value, at the same time can create great growth opportunities for ourselves as well. With our online used car conducting model through our online nationwide selection of used cars and services, we can provide consumers with high price to performance used cars as well as a simplified and transparent purchase process as well as the well rounded after sales warranty services. When we are connecting online to a higher degree, our operations will become more efficient, which will bring our costs and expenses to a much lower level. So on one hand, the consumers can enjoy better prices. On the other hand, we can also continue to improve our financial performance by the fueling the process. The outbreak actually accelerates the conditions online user transaction because of being very cautious about personal offline contact amidst the outbreak and the consumers growing preference for online purchases, their acceptance for buying new cards online actually also gets increasingly higher as well. So right following the upgrade, we have fully devoted ourselves to upgrading our online transaction model. So we have been working on 3 areas. The first one is we transformed and upgraded our products and the service process. So consumers will be able to complete the online searches in a more simplified and straightforward way, while without the need to be assisted by our offline sales. So second, based on our analysis in our transaction data, we have accumulated extensive expertise and the know how in selecting high performance used car inventory. So it will not only help consumers to find the car of their choice more quickly and accurately, in return it can also help us to reduce our inspection related costs. So the third one is we upgraded our service package. So now consumers can have a 3 day free test flight. Also we extend our 30 days policy return policy to 1 year and extend the warranty coverage as well. So all of these will eliminate consumers' concerns to buy a used car online. With all these matters in place, our cost structure will be significantly changed and therefore optimized. With more accurate selection of used car inventory and the consumers' self help online purchase, we are able to reduce costs and expenses accordingly. Our condensed sales conversion and the simplified service process will also help us improve our operational efficiency. All of these will eventually be reflected in our optimized cost structure. Our upgraded strategy this year is actually of long term significance. Our optimized structure will enable us to narrow our losses and take us to the breakeven point at a lower volume level and will strengthen our ability to our profitability as well. So at the same time, we now can devote more resources and energy to create customer value for our consumers. So all these changes will not only ensure our business continuity during the coronavirus outbreak, but also creates more solid conditions for our future growth once the market rebounds. There are no further questions at this time. I would like to hand the conference back to Ms. Nancy Song. Please continue. Thank you again for joining our call today and for your continued support in NuXin. We look forward to speaking to you soon in the future. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect.