Uxin Q4 2023 Earnings Call Transcript

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August 14, 2023

There are 4 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Uxin's Earnings Conference Call for the 4th Quarter and Full Fiscal Year Ended March 31, 2023. 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, Mr. Jack Wong.

Operator

Please go ahead, Jack.

Speaker 1

Thank you, operator. Hello, everyone. Welcome to Uxin's earnings conference call for the Q4 and full fiscal year ended March 31, 2023. On the call with me today, we have D. K, our Founder and CEO and Zhang Lin, our CFO.

Speaker 1

D. K. Will review business operations and company highlights followed by Zhang, 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 proceed, I would like to remind you that this call may contain forward looking statements, which are inherently subject to risks and uncertainties that may cause actual results to differ from our expectations.

Speaker 1

For detailed discussions of the risks and uncertainties, please refer to our filings with the SEC. Now with that, I will turn the call over to our CEO, D. K. Please go ahead, sir. Good day to everyone and thank you for joining for your continued interest and support.

Speaker 1

It's a pleasure to welcome you on our earnings call today. To better communicate with our domestic and international investors, I will be discussing our performance over the last fiscal year as well as providing insights into our prospects in both Chinese and English. The 2023 fiscal year, which is spent from April 2022 to March 2023 presented a myriad of challenges. Uxin along with numerous other Chinese enterprises tighten navigate the societal and economic headwinds caused by the COVID-nineteen pandemic. Despite these obstacles, our online and offline used car retail operations experienced phases of growth, moments of stagnation and subsequent resurgence.

Speaker 1

Nevertheless, we managed to overcome these hurdles and delivered a commendable performance. Our retail transactions increased to 10,703 units, recording a remarkable year over year growth of 105%. Notably, our Net Promoter Score or NPS remained consistently high at approximately 60 points over 6 consecutive quarters, solidifying our position as an industry leader. The excellent quality of our used car offerings combined with our exceptional customer service received increasing recognition from our expanding customer base. Furthermore, Uxin's offline superstores have become the benchmark for industry upgrades within China's used car sector.

Speaker 1

China's flourishing used car market is a force to be reckoned with already at a staggering RMB1 1,000,000,000,000 level with a whopping 320,000,000 vehicles, China boasts the world's largest car ownership. Each year, a significant number of vehicles enter the circulation stage, fueling the swift growth of the used car industry. In the first half of twenty twenty three, the nation witnessed a remarkable surge in used car transactions, reaching approximately 9,000,000 units, showing a notable 15% increase compared to the previous year. Drawing from the mature market experience in the automotive industry, China is progressively pivoting towards a trajectory dominated by stock car transactions. We project that used car transactions in China will soon exceed 20,000,000 units per year with still a remarkable growth potential 3 to 4 times.

Speaker 1

While the upgrade and consolidation of China's e store industry are still in their early stages, the unique characteristics of each vehicle, the extremely fragmented market structure and the lengthy intricate transaction chains have all hindered the industry transition towards brand oriented, large scale and standardized development. Yuxin's pioneering model of offline superstore plus online nationwide purchase model, as a new format in the industry has completed the leap from 0 to 1. This model centered around advanced production, modern retail experience and data driven operations has laid a solid foundation for the next stage of scalable profitability. First, state of the art reconditioning factories with advanced equipment and technology guarantee the supply of top quality used car products. The supply of ultra large scale high quality used cars is inseparable from modernized reconditioned factories with suitable production capacity.

Speaker 1

Following the launch of our new Xi'an Superstore, which is also the largest in Northwest China with a scale of up to 3,000 units, the transparent factory 1.0 management system that Yuxin has explored and developed for 1.5 years has also been put into use. This system seamlessly integrates inspection, evaluation and repair processes, while employing an extensive range of digital monitoring tools to streamline the entire operational management spectrum. Full scale efficiency is enhanced by the system's intelligent workshop planning, real time tracking of vehicle and material status and authentic data on work hours and costs. By leveraging Uxin's transparent factory 1.0 system, we have established the most advanced reconditioning factory management system in China's used car industry. Furthermore, we continue to upgrade our reconditioning techniques, introduce the latest technologies such as 3 d printing, smart repair and develop an integrated parts supply system.

Speaker 1

As a result, the recondition time and cost per vehicle has been further reduced. Compared to a year ago, the time it takes for each car to go from factory intake to shelf sale has dropped by 70%, taking an average of only 4 days. 2nd, Superstore's focus on people, products and venues has reshaped the way consumers buy and sell used cars, a leapfrog consumer experience that surpasses traditional marketplaces. For the majority of consumers in China, buying a used car can be a challenging and uncertain experience. Traditionally, the process involves visiting up to hundreds of shops scattered across a used car marketplace, searching for specific models, inspecting multiple vehicles and haggling with various dealers over prices.

Speaker 1

Yet this tedious process offers no guarantee of purchasing a reliable used car at a fair price or receiving adequate after sales support. In the past year, Uxin has revolutionized the used car buying experience by embracing modern retail standards. Our superstores offer consumers a relaxed and enjoyable car buying experience comparable to that of modern shopping malls. When customers step into our superstores, they will be greeted by a bright and spacious venue filled with thousands of carefully selected exhibition vehicles. Our cars are conveniently displayed according to the modern retail shelf mode, making it easy to compare different models.

Speaker 1

We have implemented a scoring system based on the national standard, ensuring clarity and ease of understanding. Customers can be certain that our prices are transparent with no hidden fees. Beyond the traditional dealership experience, we provide one stop solution for all your needs, including financing insurance, extended warranty, accessory upgrade and other value added services. To further enhance customers' convenience, we have an on-site vehicle administration office, allowing customers to complete all transaction transfer procedures on the same day. This eliminates unnecessary delays and ensures a smooth and efficient process.

Speaker 1

We are delighted to share that our sports stores in Xi'an and Hefei have quickly become the go to destinations for used car purchases in their respective cities. Within just one year of opening, we have established ourselves as the leading brand in local used car recognition. The positive word-of-mouth within the consumer group has created a network effect, attracting a steady spin of native traffic to our superstores. 3rd, Uxin's underlying digital decision making forms a highly competitive mode in large scale used car operations. Uxin's business process is managed on a per vehicle basis With the system's capacity built upon this singular vehicle dimension, our proprietary drip irrigation system, like the irrigation practices in modern agriculture that cater to each individual crop, runs through every step of the used car transaction chain from car acquisition, reconditioning, sales and delivery to after sales services.

Speaker 1

We make business decisions based on data at the vehicle level, which constitute our core competitive advantage that sets us apart from traditional car dealerships. Taking vehicle pricing as an example, Uxin has established intelligent pricing model based on more than a decade of accumulated massive Chinese used car transaction data. The model determines the individual price of each vehicle based on its age, condition, mileage, color and other parameters, while also considering factors such as customer demand, current inventory structure, offline test drive feedback and real time market conditions for dynamic adjustments. By continuously training relevance parameters and iterating the pricing system using large scale actual transaction data, Uxin's initial pricing becomes more accurate and the adjustment process becomes timelier, this leads to continuous improvement in sales efficiency with the average time from listing to sale being less than just 4 days 45 days. As our sales volume increases, the number of parameters that can be input into the system also increases, enriching our price decision anchors and expanding the boundaries of our pricing capabilities, the flywheel effect of digital systems is scale increasing, which is the key to continuously solidifying competitive advantages in our ultra large scale used car operation system and one of our important modes.

Speaker 1

Over the past year, in addition to progress in our business, our financial situation has also improved towards long term health. At the beginning of this year, we completed the restructuring and repayment of the 2019 convertible notes, effectively resolving the majority of our historical debt and greatly optimizing the structure of our balance sheet. This allows us to better allocate resources to future business development. Furthermore, we have actively promoted cooperation with banks in credit supply chain financing, obtaining credit lines of approximately RMB300 1,000,000 from several reputable banks. These arrangements have facilitated the increased efficiency of our capital utilization, These efforts will support the achievement of our business plans for fiscal year 2024.

Speaker 1

Looking ahead into the 2024 fiscal year, we will primarily focus on 3 key areas based on our current strategic planning. First, the launch of our new flagship superstore in Hefei. We would like to inform everyone that the construction of the flagship superstore, which is jointly invested by us and the Hefei government, has entered the final stage of equipment and system collaboration after 1.5 year construction period. We plan to commence trial operations in August and have the grand opening within this calendar year. The new superstore has a total area of 450,000 square meters and consists of the world's most advanced used car conditioning factory and the largest used car sales area, which can accommodate up to 10,000 vehicles for display and sale when reaching full capacity.

Speaker 1

The Hefei flagship superstore serves as Houston's central hub for our expansion plans in the used car industry, anchoring in Hefei by expanding its reach across the Anhui province and facilitating sales nationwide. It is an important joint initiative for both Yuxin and the local government of Hefei to promote the development of the automotive aftermarket industry in Anhui province and build a leading brand in China's East car industry. Secondly, achieving profitability of our superstores. After over a year of consistent development, Yixin's superstores have continuously improved sales efficiency, increased gross profit margin and substantially improved overall cost structure. As a result, our gross profit margin is expected to exceed 6% for the Q1 of fiscal year 2024.

Speaker 1

Our midterm gross profit margin target will be 10% or above. In the past few months, due to disturbances in the new car market, Uxin has maintained a prudent purchasing strategy and has not significantly increased inventory. Starting from August, we will accelerate the increase in vehicle inventory to generate more sales conversions. We have confidence in achieving positive EBITDA for the Xi'an and Hefei stores by the end of this year. Thirdly, completing the expansion planning of 2 to 3 new superstores.

Speaker 1

Based on the proven success of Uxin's offline superstore model, we are actively strategizing for expansion into new regions. We aim to finalize location selection and operational preparations for 2 to 3 new superstores to further enhance our regional coverage and branding as well as improve synergy between cohesive online and offline sales networks. These efforts will lay a solid foundation for our business growth in the coming years. The Chinese used car sector is vast with a significant potential and our tenacity will ensure our growth to be exponential. While holding our commitment to value creation, we believe there are spectacular opportunities ahead to serve consumers in the used car business we are passionate about and to generate greater returns for our shareholders, employees and society at large.

Speaker 1

Once again, I extend my deepest gratitude for your unwavering trust and support. I sincerely welcome you to visit our superstores to experience it firsthand as well as explore our products and services on our mobile platform. We also look forward to achieving new milestones in the new fiscal year at Uxin. John, please. And with that, I'd like to turn the call over to our CFO to walk you through our financial results.

Speaker 1

John, please. Thank you, D. K, and hello, everyone. Since we have both domestic and foreign investors attending our call, our remarks will be delivered in both Chinese and English for everyone's convenience. Now I will provide a closer look at our financial results for the Q1 fiscal year of 2023.

Speaker 1

Looking back at the Q4 of fiscal year 2023, which covered the period from January to March 2023, the quarterly retail transaction volume reached 2,259 units, a growth of 22% year over year. We experienced a 23% decrease compared to the previous quarter, mainly due to the impact of the traditional week season during the spring festival holiday with most of the used car transactions halted for nearly a month. Also in March, the aggressive pricing promotion in China's new car sector also affected the used car market, with customers showing stronger wait and see sentiment. The total retail sales revenue for the Q4 amounted to RMB264 1,000,000, a 17% year over year decrease. This was primarily attributed to the average selling price of retail vehicles dropping from RMB173,000 in the same period last year to RMB117,000 in this quarter.

Speaker 1

The decline in ASP reflects our proactive optimization of inventory structure over the past year. In terms of wholesale, the transaction volume for this quarter reached 1348 units, a 32% decrease compared to the previous quarter. Based on our operational experience during peak and off peak seasons, we proactively reduced the overall inventory acquisition before the spring festival, which led to a course funding decrease in wholesale transactions. The ASP of wholesale vehicles also decreased from RMB67000 in the previous quarter to RMB65000 in this quarter. Consequently, the total wholesale sales revenue for the 4th quarter amounted to RMB73.6 billion, a 44% quarter over quarter decrease.

Speaker 1

So as a result of the above factors, total revenues for the Q1 was RMB344 1,000,000, a 27% decrease compared to the previous quarter, mainly due to the impact of the spring festival off season break off peak season and fluctuations in the domestic new car market. Compared to the same period last year, there was a 32% decrease. While our retail transaction volume increased, this was offset by declines in our wholesale transaction volume and the average selling prices of the vehicles. As we transitioned post COVID, our operations have realigned to a healthy growth trajectory. The inventory structure gradually returned to a healthy level with sales turnover and profitability continuously improving.

Speaker 1

In the Q4 of fiscal year 2023, although we were still dealing with the residual impact of the epidemic, our gross profit margin rebounded to 2.3% compared to 0.6% in the previous quarter and 0.2% in the same period last year. We believe there's still substantial headroom for growth in our gross profit margin. We anticipate that in the Q1 of fiscal year 2023, which is the 3 months between April June 2023, our gross profit margin will rise to over 6%, reaching a new high in the past 3 years. The total operating expenses for this quarter amounted to RMB113 1,000,000 with a 9% increase compared to the previous quarter. This was primarily due to a non cash expense of RMB17 1,000,000 from the impairment loss of historical financial assets.

Speaker 1

The accounting treatment for our historical financial assets has been mostly completed and it will no longer have a significant impact on our financial statements in the future. Excluding this one time impact, operating expenses for this quarter were approximately RMB100 1,000,000, a decrease of 3% compared to the previous quarter. Non GAAP operating loss for this quarter was RMB46.7 million, a decrease of RMB38.9 million compared to the previous quarter. This included a one time gain of RMB48 1,000,000 from historical debt restructuring. If we exclude this impairment loss of financial assets and the gain from debt restructuring, non GAAP operating loss for the Q4 decreased by approximately RMB4 1,000,000 compared to the 3rd quarter.

Speaker 1

Regarding the performance for the full fiscal year of 2023, despite the impact of the pandemic on our business development pace in the 1st three quarters, we still achieved a significant increase in retail transaction volume and revenue for the entire fiscal year. Our retail transaction volume for the full year was 10,703 units, a 105% year over year growth and our retail sales revenue was RMB1.31 billion, a 68% increase year over year. Total revenues were RMB2.06 1,000,000,000, a 26% increase year over year. Non GAAP loss from operations for the full fiscal year was RMB310 1,000,000, an increase of RMB57 1,000,000 compared to the previous fiscal year, mainly due to the decline in gross profit margin. Detailed information on our full year results can be found in the earnings release we just published and our upcoming annual report, so I won't go into further details here.

Speaker 1

Turning to the current landscape. In the past few months, we have been delighted to see strong momentum in business development. With the end of the price war in the new car market, the overall situation in the used car market has stabilized. Our inventory structure has become healthier and sales turnover has further accelerated. The penetration rate of our value added services such as finance, insurance, maintenance and accessory upgrades, which has high gross margins continued to improve.

Speaker 1

All of these have further enhanced the profitability of our business, laying a solid foundation for achieving our target of having our superstores breakeven this year. In the past few months, Uxin has adopted a prudent acquisition strategy, maintaining a low level of inventory. As we begin to rapidly expand our inventory scale, the profitability brought by sales conversion is only a matter of time, and we will make every effort to achieve positive EBITDA at both of our Xi'an and Hefei superstores by the end of 2023. We have also taken active steps to enhance our financial planning and strengthen our cash positions. We completed the restructuring and repayment of all 2019 convertible notes earlier this year, completely resolving the single largest historical burden.

Speaker 1

The structure of our assets and liabilities has been greatly optimized, allowing us to grow the business in a much better condition. Additionally, in July, we revised the stock warrant agreements with 2 investors and the prospective financing is progressing on track. Moreover, as D. K. Mentioned earlier, we have established cooperation with several renowned banks and obtained RMB200 1,000,000 in inventory financing and credit.

Speaker 1

These partnerships will significantly increase the efficiency of using our own funds and provide robust financial support for inventory climbing and business expansion. Overall, our financial situation is moving towards long term health. Regarding our outlook for the Q1 of fiscal year 2024, which spans from April to June 2023, we anticipate overall sales to return to a sustained growth trajectory due to market stabilization and the increase in inventory vehicles. We project retail transaction volume to be 1600 units with a retail ASP of RMB110000. Wholesale transaction volume is projected to reach 1600 units with a wholesale ASP of RMB61000.

Speaker 1

Our total revenues, including retail sales revenue, wholesale sales revenue and value added service revenue are expected to range between RMB270 1,000,000 and RMB290 1,000,000. Furthermore, we foresee a notable increase in our gross margin, with expectations that our gross margin for the next quarter will exceed 6%. And that concludes our prepared remarks for today. Operator, we're now ready to take the first question.

Operator

Thank And our first question will come from Tom Kerr of Zacks Investment Research. Please go ahead.

Speaker 2

Hello, good morning. Can you discuss any recent market trends or any significant changes in consumer purchasing behavior lately?

Speaker 1

All right. Let me translate that question first. And this is a translation from our CEO, D. K. Indeed, as we highlighted during our previous earnings call, the onset of aggressive pricing strategies in the new car market since January had a significant impact on the used car sector.

Speaker 1

Consumers increasing uncertainty over additional reductions in new car prices led to a noticeable hesitation, particularly when considering premium used car priced over RMB 100,000. However, since June, we've seen the market start to stabilize and our sales efficiency has been on an upward trajectory. Our inventory turnover rate of vehicles on sale in the last month standing at approximately 40 days has surpassed the previous monthly record. As our brand presence amplifies in the regions where our superstores are located, we will further strengthen the network effect among our consumer base. Looking ahead, we remain confident in our capacity to continue expanding our market share within those territories.

Speaker 1

And that's our answer to your first question, Tom.

Speaker 2

Okay. Thank you. One more question. Can you provide further commentary on future IRCs? Are you looking at many regions or any specific areas for expansion?

Speaker 1

All right. Let me translate that question first. So as we've mentioned earlier, our ongoing commitment to growth, we're mapping out the establishment of 2 to 3 additional superstores in the fiscal year of 2023. So in determining the loan locations, we will be evaluating a range of criteria, including population density, the use of our market size, regional economic vitality, geographical positioning and local government incentives. Each new establishment with each new establishment, our aim is to fortify Uxin's position as a leader in the local used car market, improving our penetration into offline markets, while bolstering our brand synergy with our online operations.

Speaker 1

So for more detailed information and also timely updates on our ongoing and future developments, I would encourage you and our investors to stay connected through our IR website or official WeChat account, Douyin or TikTok and Twitter.

Speaker 2

Okay. Thank you for the answers.

Speaker 1

Yes. Thank you.

Speaker 2

Thank you for

Speaker 1

all the questions I have. Operator, let's move on to next.

Operator

The next question comes from Fei Dai of TF Securities. Please go ahead.

Speaker 3

Repeat my question in English. You mentioned in your earnings release that there will be a significant improvement in gross margin next quarter. Where does the momentum for the gross margin expansion come from? What are your long term gross margin targets? Thank you.

Speaker 1

So this is a translation from our CFO, John. As you pointed out, our recent operational performance has been promising, especially the marked improvement in our gross margin. For the quarter, spending April to June, as we've mentioned earlier, our gross margin had already reached 6%. So looking forward, we forecast further growth throughout the fiscal year of 2024 aiming for a mid term target of 10% with aspirations for even higher margin in the long term. So our gross profit for retail vehicle primarily stems from 2 sources, the gross profit from vehicle sales and the gross profit from value added services.

Speaker 1

We have seen market improvements in both areas. So the uptick in our vehicle sales growth process is due to the combination of our sales margin steady recovery and the significant decrease in our reconditioning cost. The past 2 years presented challenges with the pandemic causing disruptions and dampening market activity. This led to extended inventory sales cycle, significant inventory depreciation and a contraction in our sales margins. However, post pandemic, our inventory structure has improved with older vehicles making up a smaller fraction and the average sales cycle reducing to within 45 days.

Speaker 1

Consequently, our sales margins are trending back to standard levels. Moreover, the inauguration of our CN reconditioning facility and the integration of the state of the art reconditioning techniques, coupled with our transparent digital management system has significantly elevated our overall efficiency. Under the scaled production, our reconditioning costs per vehicle, per retail vehicle have dropped by an average of 70% compared to last year. Collectively, these elements have fueled our gross margins resurgence in vehicle sales. Our high margin value added services, including the finance, insurance, repair and other value added services have seen the continuously increasing penetration rates.

Speaker 1

Revenue generated from these services per retail vehicle has surged by above 30% compared to 6 months ago, making it another key driver for our gross profit growth. Our cutting edge larger scale reconditioning facilities empower us to offer a comprehensive suite of value added services to our used car buyers, similar to what new car for us shops offer, but with a distinct cost advantage. This sets using superstore large showroom model apart from traditional used car marketplaces and small used car dealerships. We are heartened by the market enhancements in our gross margin, which bolsters our confidence in obtaining EBITDA profitability for our superstores this year. As we start scaling up our inventory, achieving profitability from our large scale sales, it's just a matter of time.

Speaker 1

We're committed to achieving EBITDA profit for our 2 major superstores in Hefei and Xi'an within 2023. And that's our answer to your question. Operator, can we move on?

Operator

The next question comes from Kai Keng of Citix. Please go ahead.

Speaker 1

Do you think that currently some auto dealerships trying to expand into the used car business will intensify competition and pose challenges to using and compared to those leadership in sales in used car sector and where are you seeing this stand? Thank you. This is a translation from our CEO, D. K. So thank you for the question.

Speaker 1

The transformation and industry upgrade in China's used car market is well underway. We genuinely welcome all responsible participants committed to fostering trust with consumers and elevating the industry standard. Going forward in China's used car landscape, those retailers who emphasize product quality, customer experience, integrity and compliance will undoubtedly be at the forefront. And collectively, we have the potential to steer the industry towards stronger growth and broader expansion. So it's my belief that the used car sector is not a winner takes all market.

Speaker 1

Each retail model can find its niche and flourish. To draw from a mature market analogy, consider the U. S. Where CarMax, its leading used car retailer, captures less than 3% of the market share, whereas branded dealerships represent around 40%. It's not about cup roll competition.

Speaker 1

Each player taps into their strength, catering to a specific brand or pricing segment, thereby nurturing their customer base and establishing mutual respect within the market. So compared to our U. S. Peers, both we and new car dealerships in China still have significant growth potential in capturing market share. And in comparison to new car dealerships delving into the used car arena, our unique selling proposition is the contrast between our expensive super stores and the more niche specialty stores.

Speaker 1

So operating under warehouse style super store model, we emphasize volume and turnover. We pride ourselves on the vast array of choices available to customers with thousands of vehicles under a single roof. Moreover, we possess the industry's most advanced larger scale used car reconditioning factory. With a streamlined reconditioning process and cutting edge digital management, we offer a cost effective solution without compromising on vehicle quality. When comparing vehicle types and pricing with new car dealerships, we believe our portfolio is both compelling and competitively priced.

Speaker 1

And that essentially sums it up. Thank you for the question. Thank you.

Operator

That concludes our call today. I will now hand the call back to management for any closing remarks.

Speaker 1

All right. Thank you. Thank you again for joining today's call and for your continued support for Uxin. We look forward to speaking to you again very soon in the future. Thank you.

Speaker 1

Bye bye. Bye bye. Thank you.

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Uxin Q4 2023
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