Ladies and gentlemen, thank you for standing by, and welcome to Uxin's first quarter 2019 earnings conference call. At this time, all participants are in listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. If you have any objection, you may disconnect at this time. I would now like to turn the call over to Nancy Song, Investor Relations Director of Uxin. Please go ahead.
Thank you, operator. Hello, everyone. Welcome to Uxin's first quarter 2018 conference call. Today, DK, our Founder and CEO, and Zhen Zeng , our CFO, will discuss our financial results for the first quarter. Following the prepared remarks, DK and Jin will be available to answer your questions. Before we start, I would like to remind you that our statements today will contain forward-looking statements that we make under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements are made based on management's current knowledge and assumptions about future events that involve risks and uncertainties, which could cause actual results to differ materially from our expectations. Uxin does not undertake any obligations to update any forward-looking statements, except as required under applicable laws. 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, DK, please.
Thank you, Nancy. Hello, everyone. Thank you for joining our first quarter 2019 earnings conference call. We are pleased to start the year with another strong quarter of growth, as well as a significant improvement on the bottom line. Total revenue in the quarter increased by 55% year-over-year and exceeded RMB 1 billion, once again beating the high end of our guidance. Thanks to great economics of scale and more effective cost control. Gross margin improved to 70% from 66% in the same period one year ago. We also continued to gain operating leverage during the quarter, which enable us to cut adjusted net loss by over 50% year-over-year to RMB 231 million, and significantly reduce adjusted net loss as a percentage of total revenue to 23% from 74% in the same period last year.
Before we dive into operations, I'd like to highlight that starting from the first quarter this year, we will only disclose the transaction volume and the corresponding operational metrics for the transaction with the generated revenues. With this change, transaction volume growth will serve as better indicator of our revenue growth. By excluding free of charge transactions, investors can get a clear picture of the take rate that we can actually charge from one used car, it will better demonstrate our ability to enhance monetization and the development of our cross-region and intra-region business. In addition, this will reflect how we are more focused on the transaction, which have generated monetization potential and a better margin profile. The new method of disclosure has been applied to all the metrics of this earnings call.
I will provide some further color on our operating, starting with our 2C business, which continued to be the primary growth driver for Uxin. We facilitate transactions for over 78,000 used car on our 2C platform, up 40% from the same period a year ago. Revenues from transaction facilitation services increased by 224% year-over-year to RMB 308 million. Far outpacing of the growth of over 2C business and contribute to 35% of total 2C revenues, which we are expanding our loan facilitation services. We are also continuously improving our risk management process. We management to keep the M3+ delinquency rate relatively stable at 1.45% as of first quarter of 2019, a similar level to the 1.41% as of the previous quarter. The cross-region business continued to play an increasingly integral role in driving the growth of our 2C business.
We maintained the growth momentum for the peak season in the first quarter and facilitated over 20,000 cross-region transactions in the first quarter, up almost 50 times year-over-year. The cross-region business contributed 26% of total 2C transaction volume and 32% of total 2C revenues, up from only 1% of transaction volume and revenues in the same period last year. As we control 100% of the entire shopping process and provide unique value to customer through our national wider selection of used car and a better price, we are naturally able to generate a higher take rate in our cross-region business. In the first quarter, we generate a total take rate of 12.6% for cross-region business transaction. Of which 6.2% was for the transaction facilitation fee, and 6.4% was for the loan facilitation services. During the quarter, we also made significant progress expanding our business in lower tier cities.
We previously noted that we are now adopting a franchising model to expand our service network and complement the service centers that we operate directly. With the expansion of our cross-region business, our franchise model has gained significant traction from local merchants across the country. As of end of the quarter, we had over 1,300 service centers across China, of which over 600 was operated by ourselves, and over 700 by franchisees. The majority of the franchised service centers were operating gradually throughout the quarter. On average, these franchised service centers were fully up and running for 1.3 months during the quarter. Collectively, they contribute a low teens percent of total cross-region transactions. Our service network covered over 400 prefecture-level cities, or 900 cities and regions at all level of China administrative divisions, including the prefecture-level city, county-level city, and the districts.
In order to enhance user experience, we have been promoting on-site services across country. Upon request, our sales consultant can visit a customer at their workplace or home, help them in When we first engage with them. However, if the customer insists on seeing the car in person, but doesn't require financing, we will no longer accompany him to visit an offline dealership or assist him with the purchase process on-site. In the quarter, we generated a total take rate of 8.4% for cross-region used car transaction, of which 2.5% was for the transaction facilitation services, and 5.9% was for the loan facilitation services. Moving on to our 2B business, transaction volume decreased by 43% to 36,500 used cars during the quarter.
The decline was primarily due to our change of the approach in serving customer with car selling needs as well as dealers' growing preference to sell used cars on our 2C platform, which was further bolstered by the growth of our 2C cross-region business. B2B transactions facilitation take rate was 3.8%, down from 4.3% in the previous quarter. Strategically, the 2B business will continue to serve as a complementary pillar of our business that strengthens our relationship with dealer and expands the inventory available for our 2C customers. Given that, we may continue to provide favorable terms to our dealers on the 2B platform, so as to maintain stickiness as well as encourage dealers to expand the collaboration in the 2C business, especially cross-region transactions. Now, I'd like to briefly discuss our new strategic partnership with 58.com. 58.com's used car business in complementary with Uxin business model.
We believe our partnership will lead to many synergies. 58 Used Car is a well-established classified category on 58.com's platform, with a huge volume of targeted used car traffic and a large user business. By combining their traffic with our deep expertise in fulfilled used car transactions throughout the entire value chain, we are confident that we will improve monetization and generate significant value for both companies. More importantly, in recent year, 58.com has been penetrating into lower tier city as well. This is aligned with our strategic focus on cross-region transactions and the expansion of our service network into lower tier city across China. Through our strategic cooperation, we are confident that. After several years, we have continuously evolved Uxin's business model to better meet customer demand, and we have experienced rapid growth of both transaction volume and revenue.
As we continue to expand our business, we will increase our focus on achieving more sustainable growth by implementing the following three initiatives. First, we will continue shifting our resource to the cross-region business, where we see a huge market opportunity. In addition to targeting this significant growth potential, our strategic focus on cross-region transaction will enable us to generate greater revenue and take us one step closer to profitability. Second, we will continue to improve our operation efficiency by taking a more strict approach to cost control and expense management. Third, we will adopt more stringent risk control procedure and concentrate our resource on used car assets with better risk profiles. We have already been reviewing our loan facilitation business and are taking a more prudent approach when facilitating a loan. This will ensure that we build an even strong foundation and improve cash flow.
Together, this initiative will help us build a more sustainable business over the long term and take us one step closer to profitability. With that, I would like to turn the call over to our CFO, Zhen Zeng , to talk through our financials. Zeng, please.
Okay. Thanks, DK. Hello, everyone. Thanks for joining us today. Now let me walk you through our financial details on the first quarter of 2019. Please note that all numbers are in RMB, unless otherwise stated. Also, please note that some numbers I refer to are non-GAAP. You can find a reconciliation of these numbers in our earnings release. In the first quarter, total revenue increased by 55% to RMB 1,004 million, from RMB 649 million in the prior year period. The increase was primarily due to the increases in the To C transaction volume, transaction facilitation take rate, and amount of loans facilitated. Drilling down to our business pillars. In terms of our To C business, total To C revenue was RMB 883 million, representing an increase of 94% year-over-year from RMB 454 million in the prior year period. Moving on to more details.
Revenue of To C cross-regional business was RMB 284 million, representing a significant increase of 54 times from only RMB 5 million in the prior year period. Cross-regional transaction volume increased substantially by 48 times to 20,647 units from only 420 units in the prior year period. The corresponding GMV increased to RMB 2,268 million from RMB 67 million in the prior year period. Cross-regional transaction facilitation revenue increased substantially by 47 times to RMB 140 million from only RMB 3 million in the prior year period, primarily due to the increase in the transaction volume, GMV, and the transaction facilitation take rate of the used cars sold through our cross-regional business. Take rate for the cross-regional transaction facilitation increased to 6.2% from 4.4% in the prior year period, primarily driven by our enhanced service user experience and higher pricing power.
Cross-regional loan facilitation revenue significantly increased by 64 times to RMB 144 million from only RMB 2 million in the prior year period, primarily due to the increases in the financing transaction volume and the amount of loan facilitated, as well as the increase in the loan facilitation take rate of the used car facilitated through our cross-regional services. Take rate for cross-regional loan facilitation increased to 6.4% from 3.3% in the prior year period. Revenue of To C intra-regional business was RMB 599 million, representing an increase of 33% of RMB 449 million in the prior year period. Intra-regional transaction volume increased by 4% year-over-year to 57,630 units, and its corresponding GMV increased by 22% year-over-year to RMB 6,624 million.
Intra-regional transaction facilitation revenue increased by 83% to RMB 168 million from RMB 92 million in the prior year period, primarily due to the increases in the transaction facilitation take rate and GMV of the used cars sold through our intra-regional services. Take rate for intra-regional transaction facilitation increased 2.5% from 1.7% in the prior year period. Intra-regional loan facilitation revenue increased by 21% to RMB 402 million, from RMB 357 million in the prior year period, primarily due to the increases in the financing transaction volume and amount of loans facilitated for the used cars sold through our intra-regional services. Take rate for intra-regional loan facilitation remained at 5.9% compared to the prior year period.
In terms of our 2B business, our 2B transaction facilitation revenue was RMB 17 million, representing a decrease of 36% year-over-year, primarily due to the decline of transaction volume, which reflects our ongoing strategy shift to the 2C business. The decrease of 2B transaction volume was mainly because of a change of approach in serving customers with car selling needs, as well as the dealers' growing preference for retail transactions through our 2C platform. Our take rate for 2B transaction facilitation increased to 3.8% from 3.5% in the prior year period. Cost of revenues increased by 33% year-over-year to RMB 296 million compared to RMB 222 million in the prior year period.
The increase was primarily due to the increase in cost of fulfillment, title transfer, and the registration, which were correspondingly driven by the increase in the transaction volume, as well as the increase in the salary and the benefit of employees engaged in the car inspection, quality control, customer service, and after-sales services. Gross profit increased by 66% to RMB 708 million from RMB 427 million in the prior year period. Gross margin increased to 70% in the quarter, compared to 66% in the prior year period. Total operating expenses was RMB 969 million. Non-GAAP operating expenses, excluding share-based compensation, was RMB 915 million. Sales and marketing expenses slightly increased by 8% year-over-year to RMB 681 million, compared to RMB 633 million in the prior year period. The minimal increase reflects our continuous efforts to enhance operating efficiency and improve conversion rate.
Sales and marketing expenses as a percentage of total revenue decreased to 68% during the quarter, decreasing from 97% in the prior year period. G&A expenses increased by 17% to RMB 188 million from RMB 161 million in the prior year period. The increase was primarily attributable to the increase in the share-based compensation expenses. G&A expenses, including share-based compensation expenses, was RMB 135 million, representing 13% of total revenue in the quarter, decreased from 24% in the prior year period. R&D expenses increased by 17% to RMB 80 million from RMB 68 million in the prior year period. The increase was primarily due to the increase in the salary and the benefit expenses. R&D expenses, excluding share-based compensation expenses, was RMB 79 million, representing 8% of total revenue in the quarter, decreasing from 10% in the prior year period.
We are confident that our increasing operating leverage and a prudent approach to expenses management will continue to improve our profitability over time. Loss from guarantee liability was RMB 20 million, compared to a loss of RMB 18 million in the prior year period. The loss was primarily due to the fluctuation in the delinquency rate from the first quarter of 2018. Loss from operations was RMB 261 million, a decrease from RMB 453 million in the prior year period. Non-GAAP loss from operations, which exclude the share-based compensation expenses, was RMB 208 million, a decrease from RMB 451 million in the prior year period. Non-GAAP loss from operations as a percentage of total revenue was 21%, a significant decrease from 69% in the prior year period. Fair value change of derivative liabilities was new in the quarter, compared to a loss of RMB 359 million in the prior year period.
We no longer see any impact of derivative liability as the preferred share was converted into ordinary share at the time of IPO. Net loss was RMB 285 million, a decrease from a net loss from RMB 839 million in the prior year period. The narrowed net loss was primarily due to greater operating leverage and a decrease in loss from fair value change of derivative liabilities. Non-GAAP net loss, which excludes the share-based compensation expenses, was RMB 231 million in the quarter, a decrease from RMB 478 million in the prior year period. Non-GAAP net loss as a percentage of total revenue was 23%, decreasing significantly from 74% in the prior year period. Turning to our cash position. As of March 31st, 2019, we have the cash and cash equivalent of RMB 455 million compared to RMB 801 million as of December 31st of 2018.
We have short-term deposits and other investment products of RMB 597 million, compared to RMB 596 million as of December 31st, 2018. We have unrestricted cash of RMB 20,025 million, compared to RMB 2,013 million as of December 31st of 2018. Before we move on to the guidance, I'd like to highlight our determination to implement of initiatives at DK outlined, which will help drive the substantial growth of our business. Our strategy focusing on building the cross-regional business will fuel our growth, and our initiatives to improve cost control and strictly manage risk will enhance our operating efficiency and move us steadily towards profitability. Factoring the measures that we are taking, we expect the total revenue for the second quarter of 2019 to be in a range of RMB 900 million-RMB 950 million. This forecast reflects the company's current and primary view on the market and operational conditions, which are subject to change.
That concludes our prepared remarks.
Thank you, Mr. Zeng. Operator, we'd like to open the call for questions now.
Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Again, it's star one to ask questions. The first question comes from the line of Eddy Wang from Morgan Stanley. Please ask the question.
Hey, DK, Michael, Nancy, [Non-English
Hello, Eddy.
[Non-English content]
Mm-hmm.
[Non-English content]. I have two questions.
The first is about that you have been talking about to implement three new initiatives, including the shift more resources to cross-region transactions, improved operations efficiency, as well as focus on the used car assets with better risk profile. Can you give us more color on how such initiatives will be reflected on the operations as well as the financial matrix in terms of the transaction volume growth, proportion of the cross-region transaction, loan attach rate, and advertisement spending in the next few quarters. This is the first question. Second question is, actually, I would like to have your view on the competitive landscape of the used car e-commerce industry. On the one hand, we actually noted that the demand of both new car and used car are relatively weak year-to-date in China.
On the other hand, we have also noticed some of our competitors are claiming to increase their investment in the used car business. Our new initiatives seem to me that is to focus more balance between the sustainable growth with profitability. Does it mean that you think the used car e-commerce industry has come to a stage that profitability is becoming one of the most important targets of all the used car e-commerce companies? Thank you.
Okay, Eddy. It's Michael here. I'll address your first question. Overall speaking, after a year of the rapid development, we think now is the right time for us to shift our focusing on a high quality and a more sustainable growth. We have been continuously optimizing our business model and operations, and we have identified great market opportunity to see, especially for the cross-regional business. More importantly, we have built the core capability to carry out the business and have the first-mover advantage. In order to capture this market opportunity, I think we will shift the key resource to our cross-regional transaction and become more focusing on expanding this core business. Using our new disclosure method, we are looking at around 40% of the transaction volume coming from the cross-regional transaction this year.
Concentrating within the cross-regional business will not only give us more sustainable growth, but also take us one step closer to the profitability. To ensure this high-quality growth, starting from the second quarter, we have been conducting an overall for the whole company in-depth review of our business operations, operational efficiency, and cash flow. For some of the low margin and/or the low efficient business, such as new car loan facilitation business, we've decided to stop the business. For the loan products of the headcount or geographic regions, we streamlined relative headcount and operations. At the same time, we have decided to take more conversation approach to our loan facilitation business. Going forward, we will commit our resource to used car asset with better risk profiles. We will also adopt strict risk control process and be more prudent when facilitating the loan.
Regarding some of the intra-regional loans with less satisfactory risk profile or low cash flow performance, we were also cutting back this portion of volume. We are confident that it will lead a more sustainable business and improve the cash flow. Since we no longer provide on-site transaction facilitation service to the local transaction without financing package and not disclose the free of charge transaction financing attach rate will seem higher. I think the intra-regional business, our loan attach rate was 100%, and for the cross-regional is around 80%-85%. We will also take strict measure to manage cost expenses to ensure that we are maximizing the impact of every RMB we spend and continue to optimize the operational efficiency. Compared to the last year, our branding expenses will be greatly reduced in this year.
I think with this initiatives, our top line of this year will be lower than the previous expected. Our bottom line will be further improved. We believe we can build an even stronger foundation for our long-term growth.
Hello, Eddy. This is DK. I'm addressing your second question. I use Chinese to answer the question, and Nancy help me to translate.
Yeah.
Okay, fine.
Yeah. I think the key difference from previous years is the different models between different players are very clear now. Some of the players are choosing an asset heavy model, and some of the competitors are choosing the traffic direction model. For us, for Uxin, we are a firm believer of the B2C model, and our key value is in the whole supply chain.
[Non-English content]
We have been prepared for cross-regional services for quite many years. Starting from 2011, when we established, we've been fully prepared for all the capabilities. We have been doing a lot of things throughout the value chain. From how we secure the car inventory, to car inspection, to standardization and to the digitization, as well as the offline fulfillment such as logistics and the title transfer. All of these are the whole new used car purchasing experience to Chinese consumers. We believe the market or the barrier we've been set is quite high. It's not something other competitors can catch up with within a very short time of period.
[Non-English content]
Our focus on the sustainability and high quality of the growth doesn't mean that we will slow down our pace. Instead, we will more concentrate our resources on the core business, which is our cross-regional business. Our goal is not only to maintain our market leadership for the moment. More importantly, we will extend our market leadership in the future.
[Non-English content]
Thank you.
[Non-English content]
[Foreign language] Eddy.
Thank you. The next question comes from the line of Ronald Keung, from Goldman Sachs. Please ask your question.
Thank you, DK, Michael and Nancy. [Foreign language]
OK.
[Non-English content]. So thank you DK, Michael and Nancy. I think I have two questions. Firstly is on giving the focus on cross-regional that we've talked about, and I've heard DK talked about the strategies and the uniqueness of our business model there. Just want to hear how do you see the market size could be ultimately?
How many cities do you plan to cover in the lower tier cities through your cell phone and franchise models?
How do you see the total volumes could reach in terms of lower tier consumption power for these used cars? I'm thinking one of the potential challenges is always that as a buyer, we haven't seen the car, we haven't test-driven it. To make a decision on the spot without touching and seeing the car, what else besides the video or the sales agent talk about the inspection report, what else can we offer to increase the confidence of a buyer using our platform and buying these car assets from other cities? The second about the disclosure change, can you just outline what exactly you have changed there, particularly as we mentioned about volumes that are not generating submission revenues are no longer counted.
Could you give us some apples to apples GMV and volume numbers, possibly for fiscal last year, full year 2018 under this new definition that could help us compare more apples to apples from this year onwards? Thank you.
Thank you, Ronald. I will address your first question. I use Chinese to answer, then Nancy will help me to translate. Ronald,
The online positioning of used car transactions is a future trend for the China's used car market as well as it's also true for the U.S. or European market. For our cross-regional transactions, we provide two key unique values to the consumers. One is the wide selection of used cars, nationwide selections. Especially for the consumers in the lower tier cities, whether they can find this car is very important. For lower tier cities, we can enlarge the used car transactions as high as thousands of folds. For higher cities, we can provide as high as 20 times of more used car selections. This is first value we provide. For the second value is to increase the overall efficiency of the used car industry.
We can cut the unnecessary procedures in between we can close the price gap between different markets we can provide better prices to the consumers.
Okay.
I think we can guide our consumers to change their shopping behavior, especially by the capabilities we provide the digitalization. The first thing is how we can better display the used cars online. First we provide on top of the text plus picture inspection report, we also provide video inspection report as well as the VR functions. Consumers will have a better idea of how this car performs even without seeing the car in person. We will increase their comfort level to purchase the car online. Secondly, we provide well-rounded warranty services to the consumers. We provide a 30-day quality issue return policy, or we provide a one year or 20,000 kilometers warranty program to the consumers. Also, for the super value cars, we also provide a three day no reason ask return policy.
All of these will increase the people's trust to purchase online.
[Non-English content]
Yeah. In longer term, if we look at in 10 years horizon online transaction of used car, the advantages is quite clear. We believe there will be as high as 50% of consumers will choose to purchase the car online. Especially for the cars with car price above 80,000 RMB. People will be more price sensitive and they will be more prudent when choosing the car. Online transaction will give them more comfortable. Also with our cross-regional transactions, we provide a whole new purchasing experience to the consumers. The consumers who are purchasing through our cross-regional services, they feel very happy about it. We believe this will be the trend going forward.
[Non-English content]
Yes. Starting from Q4 2017 or early 2018, we started to launch this cross-regional transactions. We've seen consecutive quarters of volume growth very rapidly. This is also the evidence that our cross-regional transactions is gaining traction among consumers. Thank you.
Okay, Ronald, it's Michael here. I'll address your second question. We change the disclosure method. On the apple-to-apple basis for the full year of 2018, the total 2C transaction is 255,000 used cars and the GMV is RMB 27 billion. For the intra-regional, the transaction volume is 220,000 used cars and the GMV is RMB 23 billion. For the cross-regional, the transaction volume is 38,000 and the GMV is RMB 4 billion. Okay. Thanks Ronald.
[Foreign language] Ronald.
Thank you. [Foreign language] DK, [Foreign language] Michael.
Okay。
Thank you. The next question comes from the line of Nick Lai from JP Morgan. Please ask your question.
[Non-English content]. My simple question is number one, our partnership with 58, what does that mean to our revenue and profit if we could quantify that?
Yeah or not. Secondly, management talk about marketing spend saving and cutting, what does it mean to our volume and profit in the rest of the year? Thanks.
OK， [Non-English content]
Yeah. 58.com has a massive targeted used car traffic and a large user base. They've been also penetrated into lower tier cities in recent years. This is highly in line with our strategy in the cross-regional transactions. By leveraging their traffic and their resources in the lower tier cities, we believe we can further expand our cross-regional transactions. In return, we will help 58.com to further monetize their traffic as well. We believe the synergy is quite great.
[Non-English content
Yeah. After three years of branding investment, Uxin brand is highly recognized by the consumers, especially with purchase-minded consumers. We believe it is the right time to control the branding budget and also it is practical. We don't see any material impact on our volume and we believe it won't impact in the near future as well.
[Non-English content]
Yeah. Car purchasing is a heavy decision-making process. It will take quite a long time before they can finally make the purchase. People normally will choose from platform to platform and compare the used cars. We believe invest more in branding will have a limited impact. Yeah.
[Non-English content]
[Foreign language] Thank you very much.
[Non-English content]
Thank you. We have the last questions from the line of Monica Chen from Credit Suisse. Please ask your question.
[Non-English content]. So I will quickly translate my questions.
My question is about the market outlook for this year. The year-to-date used car transaction volume looks quite weak compared to the growth rate in last year. Given the macro uncertainties for this year, how do you management think about the second half market outlook? What is our expectation on the transaction volume growth for this year? To achieve this target, what your management think about the biggest opportunity and the challenges for this? Thank you.
OK， [Non-English content] Monic. [Non-English content]
Yeah. The car market in China has been quite challenging for quite a few time. The new car market has been declining year-over-year. For the used car market, the growth is still slowing down on the way. I think this trend will continue in the next few months.
[Non-English content]
Yeah。
[Non-English content]
If you look at our last year, third quarter and fourth quarter, as well as this year's fourth quarter growth, we maintain very high growth both in transaction volume and revenue growth. This is especially thanks to our professional transactions. I think this high growth is mainly because our professional connections or our total connections are still relatively low compared to the whole market. We are still benefiting from the people's online condition of their purchasing behavior. This is also why we are less impacted than the whole market. Looking into the remainder of 2019, we are still look at very decent or high-quality growth. As we previously mentioned, we are focused more on the sustainability of our growth, even though our top-line growth or volume growth will be lower than previously expected.
[Non-English content]
Yeah. With all the initiatives in place, we believe our profitability of this year will be highly improved. Thank you.
[Non-English content] Monica。
[Non-English content] Nancy。
Thank you. I will now hand over to Nancy for closing remarks.