Ladies and gentlemen, thank you for standing by, and welcome to Uxin's Third Quarter 2018 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 objections, you may disconnect at this time. I'll now turn the call over to Nancy Song, Investor Relations Director of Uxin. Please go ahead.
Thank you, operator. Hello, everyone. Welcome to Uxin third quarter 2018 conference call. Today, DK, our founder and CEO, and Zhen , our CFO, will discuss our financial results for the third quarter. Following the prepared remarks, Henry Tsai, our Head of Corporate Finance, will join DK and Zhen to address any 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 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 the SEC. With that, I will now turn the call over to our CEO, DK, please.
Thank you, Nancy. Hello, everyone. We are pleased to report another strong performance for the third quarter of 2018. Our focus on providing a broader selection of used car, digital transparency, and a one-stop solution continues to translate into an outstanding user experience, and a growing demand from both consumer and dealers. We again delivered a robust top-line growth, with revenue up 60% year-over-year, which exceeded the high end of our guidance. This reflect increase in the transaction volume number of loans facilitated and take rate during the quarter. Our 2C business remained the premium growth driver for the business. The revenue for our 2C business, including both transaction facilitation and the loan facilitation, increased by 109% year-over-year. Transaction volume for our 2C business reached 129,000 used cars, up 53% year-over-year. This is equivalent to GMV of RMB 10.2 billion.
Our transaction facilitation take rate was 1.4%, compared to 0.7% in Q3 last year. The increase reflects the strength of our brand and the pricing power, as well as the increasing traction of our service among users. Our transaction facilitation revenue increased by 165% year-over-year during the quarter. Loan facilitation continued to be important for consumers and increased together with the growth in volume and transactions. The average service fee rate for loan facilitation increased to 6.9%, up from 6.1% a year ago, with loan facilitation revenue growth by 96% year-over-year. The increase in service fee rate was mainly due to the ongoing diversification of our loan products. We also enhanced our risk management through analysis of large volume of transaction and user behavior data collected by our platform, as well as enhancement in our pre- and post-financing management capability.
This led to an improvement in our M3+ delinquency rate to 1.43% as of the end of Q3 2018, from 1.53% as of the end of Q2 this year. Let me share some updates on key areas of our operation before Zhen gives the greater detail on our financial performance shortly. First, enriching selection of used cars, Uxin is dedicated to providing consumers with the broadest selection of used cars from different regions across China. At the end of third quarter, we had 290,000 cars available to be purchased real-time via our network. Second, digital transparency. We are also committed to setting the industry benchmark for transparency by standardizing and digitalizing used car inspections, and increasing the accuracy of used car evaluations.
Through our standardized and proprietary inspection process and the recently launched VR-enabled online car viewing experience, we differentiated our service by bringing a more professional and interactive experience to our users. Our Manhattan pricing system analyzes data from over 5.8 million car inspections and 1.8 million transactions to accurately estimate used car values. This enables us to reduce information gap between sellers and the buyers, and bring much greater price transparency. Last but not least, we continue to focus on making Uxin a one-stop service platform. On top of offering a broad cross-regional selection of used cars, we are also able to provide car financing options, arrange title transfers, and used car delivery with the support of our service and the fulfillment network. This full suite of offering enables us to deliver a seamless and comprehensive used car purchasing experience on one platform.
With our determination to enhance value proposition for our users, we are confident that we can extend our market leadership in China, serve the used car market, and build a sustainable business over the long term. I would like to turn the call over to our CFO, Zhen Zeng, to talk through our financials. Thank you.
Well, thanks, DK. Hello, everyone. Thanks for joining us. Let me walk you through our financial performance in the third quarter of 2018. Note that all numbers are in RMB, unless otherwise stated. Please note that some numbers I refer to are non-GAAP. You can find a reconciliation of these numbers in our earning release. In the third quarter, total revenues increased by 60% to RMB 864 million, from RMB 541 million in the third quarter of 2017. The increase was primarily due to the increase in the transaction volume, amount of loan facilitated, and the take rate, particularly from our 2C business.
Drilling down to our 2C and 2B business units, 2C transaction facilitation revenue was RMB 139 million, an increase of 155% from RMB 52 million in the third quarter of 2017, primarily due to a 53% increase in the transaction volume and a 35% increase in GMV of used cars sold through our 2C business. Our 2C transaction facilitation take rate was 1.4% in the third quarter of 2018, up from 0.7% in the third quarter of 2017. 2C loan facilitation revenue increased by 96% to RMB 474 million, primarily driven by the increase in the volume and amount of loan facilitated. Our service fee rate was 6.9% during the quarter, up from 6.1% in the third quarter of 2017. The increase in service fee rate was primarily driven by the ongoing diversification of our loan products with more tenure and down payment options.
The attach rates of loan facilitation service remained relatively stable at around 46% in the quarter. In terms of our 2B business, our 2B transaction facilitation revenue reached RMB 191 million, representing an increase of 21% year-over-year, primarily due to the increase in take rate. Our take rate for 2B transaction facilitation was 4.5% in the third quarter of 2018, up from 3.2% in the third quarter of 2017. As we noted last quarter, we have adopted a different approach to serving customers with car selling needs. Excluding this impact, our B2B business achieved 18.6% year-on-year growth in the number of transactions. Cost of revenues increased by 56% year-over-year to RMB 305 million for third quarter of 2018, compared to RMB 196 million in the same period last year.
The increase was primarily due to the increase in the number of personnel engaged in our car inspection, quality control, customer service, and after-sale services, as well as the cost of the title transfer, registration, and the fulfillment expenses, which was in line with the increase in our transaction volume. Gross margin was 65% in the third quarter of 2018, compared to 64% in the same period last year. Total operating expenses was RMB 1,102 million. Non-GAAP operating expenses, excluding share-based compensation, was RMB 1,025 million, representing a 40% increase year-over-year. Sales and marketing expenses increased by 40% year-over-year to RMB 755 million, compared to RMB 541 million in the same period last year. The increase was primarily due to an increase in the number of employees, which was partially offset by the decrease in the branding expenses. Branding expenses decreased to RMB 211 million.
We also saw an increase of conversion efficiency, which reflects more accurate customer targeting and the ramp-up of sales consultant productivity. As a result of increasing operating leverage, sales and marketing expenses, including share-based compensation expenses as a percentage of total revenue, decreased to 88% during the quarter from 100% in the third quarter of 2017. G&A expenses increased by 3% year-over-year to RMB 266 million in the third quarter of 2018, from RMB 259 million the same period last year. The increase was primarily attributed to the increase in the number of employees and offices expenses, which was partially offset by the decrease in the share-based compensation expenses. G&A expenses, excluding the impact of share-based compensation expenses, was RMB 190 million, representing 22% of total revenues in the quarter, compared to 23% in the third quarter of 2017.
R&D expenses increased by 68% year-over-year to RMB 82 million in the third quarter of 2018 from RMB 49 million in the corresponding period last year. The increase was primarily due to the increase in salary and benefit expenses of employees engaged in research and development, as well as the expenses related to the development of our IT system. R&D expenses, excluding the impact of share-based compensation expenses, was RMB 82 million, representing 9% of total revenues in the quarter at the same level of quarter three of 2017. We are confident that our increase in operating leverage and prudent approach to expenses management will continue to improve our profitability over time. Gains from the guarantee liability was RMB 2.4 million, compared to a loss of RMB 19 million in the prior- year period.
The slight gain was the result of a relative stable delinquency rate compared to that of the second quarter of 2018. Loss from operation in the third quarter of 2018 was RMB 543 million, compared to a loss of RMB 523 million in the prior year period. Non-GAAP loss from operations, which exclude the share-based compensation expenses, was RMB 466 million compared to RMB 385 million in the same period last year. Non-GAAP loss from operations as a percentage of total revenue was 54% in the third quarter of 2018, decreased from 71% in the third quarter of 2017. The change in fair value of derivative liability was new in the third quarter of 2018, compared to a loss of RMB 238 million in the same period last year.
We no longer see any impact of derivative liability, as the preferred share was converted into ordinary share at time of IPO. Net loss in quarter three 2018 was RMB 594 million, compared to a net loss of RMB 766 million in the prior year period. The narrowed net loss was primarily due to the decrease in loss from the fair value change of derivative liability. Non-GAAP adjusted net loss, which exclude share-based compensation expenses, was RMB 517 million in the quarter, compared to a loss of RMB 390 million in the prior year period. Non-GAAP adjusted net loss as a percentage of total revenue was 60% in the quarter three of 2018, decreased from 72% in the third quarter of 2017. Turning to our cash position.
As of 30th September 2018, Uxin had cash and cash equivalents of RMB 677 million, compared to RMB 292 million as 31st of December 2017. The company also had a restricted cash of RMB 1,838 million compared to RMB 1,617 million as of 31st of December 2017. Finally, turning to the guidance. For the fourth quarter of 2018, we expect the total revenues to be the range of RMB 1.02 billion-RMB 1.06 billion. This forecast reflects the company's current and the preliminary views on the market and operating conditions, which are subject to change. This concludes our prepared remarks.
Thank you, Mr. Zhen. Operator, we'd like to now open the call for questions.
Sure. Ladies and gentlemen, we'll now begin the question-and-answer session. If you wish to ask a question, please press star followed by one on telephone keypad and wait for your name to be announced. If you wish to cancel a request, please press the pound or hash key. Once again, if you wish to ask a question, please press star followed by one on telephone keypad and wait for your name to be announced. Our first question comes from the line of Eddy Wang from Morgan Stanley. Please ask your question.
Hi, DK, Michael, Henry, and Nancy. Good evening. Thank you for taking my question, and congratulations on the great results. I have three questions. The first one is about the 2C business take rate. We have witnessed an impressive increasing trend of 2C take rate this year, especially for the third quarter, take rate increased around 20 basis points sequentially, where the volume growth is also higher than that of the second quarter. Would you please give more details about how you are managing to achieve this and how we could expect the take rate trend in the fourth quarter and onwards? This is my first question. My second question is about the delinquency rate. The M3+ delinquency rate also improved 10 basis points versus the second quarter.
Also, I would like management to give more details about how we can achieve this and how is the trend in the next few quarters. On a separate note, I noticed that the restricted cash balance at the third quarter end actually is quite similar versus the second quarter end. I'm just wondering. Our auto finance partners have lowered the requirement in terms of the deposit as a percentage of the outstanding loan balance we facilitated. Basically, which means that there's any more favorable terms from our auto finance partners. This is second one. The last question is about the overall market, because we have noticed that the new car industry demand in this third quarter has been weak. Do you expect any negative impact from this weak demand to the used car industry in the short term?
Although, so far I think, our third quarter volume growth and the fourth quarter guidance seems quite immune from this weak demand in China, but I just want to hear your thoughts about any source of the weak new car demand and the impact to the used car industry. Thank you.
Okay. Thank you, Eddy. This is DK. All right, we get all three questions. I think, I would like to take the questions very first. Is that okay if I turn into Chinese and Henry will help me to translate? Okay.
Sure. Thanks, Eddy. I think, number one, that was a great question. New cars obviously saw an impact from the broader economy in Q3. For the first time, we saw new cars YoY trend actually declined in 2018. Obviously, as we look at our business in used cars, we feel like used car environment is a lot more constructive than new cars. Especially with a lot of consumers are very focused on affordability, which actually plays to used car strengths.
Okay.
Right. In terms of our own business, we feel that our model is unique in a way whereby we are actually providing users with a great used car purchasing experience by moving people's buying behavior from offline to online. That will actually accelerate our own growth. Also with our strength and scalability of business model, we continue to expand our market share. We feel that not only is used cars more constructive than broader new car environment, we will continue to outgrow the broader used car market as well.
Okay. Thank you.
Okay, Eddy. It's Michael here. I would like to address your question on take rates and delinquency rate and also the cash. For the 2C take rate drivers. In this quarter, our 2C transaction facilitation take rate was 1.4% compared to 0.7% in the same period last year. This is mainly because we have been enhancing our service capabilities to better cater to car buyers' different needs. This also demonstrates consumers' higher appreciation of Uxin's unique value proposition. That is a broader car selection enabled by the cross-regional transactions and a better car conditions and the price transparency and the one-stop services. With this integrated offering, we have been able to gain greater pricing power while increasing scale. This also enable us to deliver more value to dealers as we help them increase inventory turnover efficiency.
For the loan, our service fee rates for our loan facilitation also increased to 6.9% in this quarter, compared to the 6.1% in the third quarter last year. This is mainly because we provided more diversification selection of the loan products to meet various consumer needs and continue to optimize the loan product offering mix. For the long run, we are confident that we can continue to increase our 2C take rate by adding more value-added service and optimizing our product mix. For the delinquency rates improvement are saying, in this quarter, our three-plus delinquency rates continue to improve as we are enhancing our risk management capability, as well as the pre and post financing management capability. We also taken a prudent approach to credit assessment, especially when entering new fields.
As China's largest used car transaction platform, Uxin has aggregated massive transaction and user behavior data, as well as used car condition data. We have a deeply understanding not only of vehicle but also for the people, which gave us unique advantages in evaluating used car residual value and assessing user credit worth of risk profile. As we expanding our used car financing business, we have also accumulated rich experience in risk management and capital optimizing our pre and post financing management capabilities. We will continue to invest in the strengthening our risk management system and drive to enhance credit performance to loan facilitations through our platform. For your last question, for the risk-free cash. Our financing partner has been pleased with the credit performance of our user and our collateral management capability.
As a result, we have been able to negotiate a better term with them, such as deposit that is required to hold at bank's escrow account. We are confident that as they learn more about our platform and get more confident of our track record, we will be able to continue to improve the terms. In addition, we have looking for a new way to work together with financing partners that will enhance our liquidity position. We will have more updates for you in the coming quarters.
Okay. Thank you. Thank you, Michael. Thank you, DK, Henry. Very clear. Thank you for taking my question.
Thanks, Eddy.
Thank you. Once again, if you wish to ask a question, please press star followed by one on telephone keypad and wait for your name to be announced. Once again, if you wish to ask a question, please press star followed by one on telephone keypad and wait for your name to be announced. Once again, if you wish to ask a question, please press star one. As there are no questions at this time, I'll hand the call back to Nancy. Please continue.
Thank you, everyone, for joining today's call and for your continued support for Uxin. We look forward to speaking to you again in the near future. Thank you.
Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.