Uxin Limited [UXIN] Conference call transcript for 2021 q3
2021-09-24 13:12:07
Fiscal: 2022 q1
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Uxin's Earnings Conference Call for the Quarter Ended June 30, 2021. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a Q&A session. Today’s conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to your host for today's conference call, Ms. . Please go ahead, ma'am.
Unidentified Company Representative: Thank you, operator. Hello, everyone. Welcome to Uxin's earnings conference call for the quarter ended June 30, 2021. On the call today are D.K., the Founder and CEO; and John Lin, CFO. D.K will review business operations and company highlights, followed by John, who will discuss financials and guidance. They will both be available to answer your questions during the Q&A session that follows. Before we start, I would like to remind you that this call may contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on management's current knowledge and assumptions about future events that involve known or unknown risks and uncertainties, which could cause actual results to differ materially from those in the forward-looking statements. Uxin does not undertake any obligations to update any forward-looking statements, except as required under applicable law. For more information about the potential risks and uncertainties, please refer to our filings with the SEC. With that, I will now turn the call over to our CEO, D.K. Please go ahead, sir.
Kun Dai: Hello, everyone. Thank you for joining our earnings conference call today. To better communicate with both domestic and international investors, my prepared remarks today will be in both English and Chinese. The first quarter of fiscal year 2022, which ended on June 30 with one of the most tracking quarters with experienced over the last 10 years. We will end a huge capital constraints and yet to keep business grow. Encouragingly, we managed to deliver solid results despite all the challenge and achieved sustainable growth in terms of revenue and sales compared with the previous quarter. At the same time, we continue to do efforts on cost and expense control and our operational costs -- sorry, our operational loss substantially decreased in the quarter. In the first quarter of fiscal year 2022, although we were only able to maintain a relatively small retail inventory due to cash constraints, we still achieved to enhance our fundamental capabilities in vehicle sourcing, reconditioning, sales and delivery. All the progress we achieved this quarter has built a solid foundation for our future business expansion and the replication of our Xi’an IRC model. For vehicle sourcing, we continue to extend to upper stream of our used car acquisition network for inventory-owning model, our solid branding and strong supply chain resources with both individual car owners and car dealerships have enabled us to source more high-quality used vehicles at reasonable prices. In terms of car reconditioning capabilities in Xi’an IRC, we continue to refine the whole process by standardizing end-to-end procedures improving flow efficiency between key steps, upgrading equipment and technologies and optimizing snapping in the production lines. After several months of operations, the quality of our reconditioned vehicles has fully examined. This has enabled us to offer stable supply of high quality and value for money cars for our customers. In terms of vehicle sales and after sale services, we remain committed and focused on creating long-term value for our customers. We seriously follow up on customer feedback and continuously improve each step of the customer experience from sales delivery to after-sale support. During the quarter, our sales net promoter score, or NPS, increased to 44%. The continued improvement of NPS has also enabled us to achieve decent sales conversion despite relatively small retail inventory, which gives us great confidence to continue to scale our inventory and boot sales. After receiving the first tranche of the new investment in July, our business has been recovering as expected and gradually resuming to high-quality growth momentum with scale up our operations in three aspects, vehicle sourcing, reconditioning capacity and off-line showroom expansion. Investments in these three key areas have increased our available for steel inventory. This offers our customers more selections and helps build a better experience throughout the car purchasing journey and thus bringing higher sales conversion. In order to increase inspection and reconditioning capacity in the long run, Uxin and Changfeng County Government of Hefei City have recently entered into a strategic partnership to jointly investing and build a used car inspection and reconditioning plant with a total investment of up to RMB2.5 billion. The plant is expected to have an annual production capacity of 60,000 to 100,000 vehicles once it is in operation. This production capacity will provide us with a stable and less supply of high-quality used vehicles in the coming years. Going forward, we will continue to provide high-quality products and services to our customers, food sales conversion fueled by our strong supply chain capabilities and deliver steady sales growth near higher returns. This year marks Uxin 10th anniversary, which we just celebrated on September 9. In the past decade, we have experienced both exciting and tough times Uxin has become stronger because of all of the challenges we have overcome as one team. It all started with the mission to make it easy to every Chinese customer to own a quality used vehicle. This is the solid foundation that drives our passion to provide customers with high-quality value-for-money used cars and best-in-class services. We are confident and determined to continue contributing to the long-term healthy development of China's used car industry. With that, I'd like to turn the call over to our CFO to walk you through the financial results. John, please?
John Lin: Okay. Thanks, D.K. Hello, everyone. Thanks for joining us today. As D.K. just mentioned, we had a very challenging quarter on both business operation and financial resources for the quarter ended June 30, 2021. As you all know, we announced our agreement into a binding investment term sheet on April 1, and we received the first tranche of the financing on July 12. Therefore, from April to June, we were running an Xi’an IRC business with very limited resources. However, we still managed to deliver continued growth in terms of both vehicle transaction volume and the revenue. To achieve the above progress, we spent tremendous efforts to leverage our capital efficiently. Our team has successfully built up effective car sourcing channels with strong supplies; however, we were only able to maintain a relatively small retail inventory in Xi’an IRC due to the capital constraints. Therefore, to balance the car sourcing supply and our cash capacity, we increased the percentage of vehicles sold through our wholesale channels for the quarter ended June 30, 2021. The closing of the first tranche of the financing transactions in July substantially improved our cash position and the ability to expand the business. The daily car reconditioning productivity of our Xi’an IRC was more than doubled, and we began to build up retail inventories rapidly. We expect the Company's performance to continue improving in the following quarters. During the quarter ended June 30, 2021, we continue to streamlining our business process to build a very lean organization. Spend where it matters the most has become our management philosophy that we are relentlessly pursuing ways to boost our operational efficiency. Let me give you one example. I joined Uxin in August of 2019 about two years ago. At that time, we had approximately 800 employees. Today, our employee headcount is less than 700. Just let you get an idea of how determined we have been to gain operational efficiency. Our continued efforts paid off. The non-GAAP adjusted loss from continuing operations substantially decreased in this quarter. Full details on quarter ended June 30, 2021, are available in our earnings release. So now I will run through some key numbers. All numbers are in RMB, unless otherwise stated. Transaction volume was 3,011 units this quarter compared with 1,719 units sold last quarter and 3,887 units sold in the same period last year. Retail volume was 679 units, and the wholesale volume was 2,332 units. Vehicles that did not pass our retail standards were sold through our wholesale channels. As I said earlier, we had to increase the proportion of vehicles sold through our wholesale channels in order to boost the cash turnover. Total revenues were RMB278 million compared with RMB196 million last quarter and RMB62 million in the same period last year, up by 42% quarter-over-quarter and 348% year-over-year. Retail vehicle sales revenue was RMB92 million compared with nil in the same period last year. Wholesale vehicle sales revenue was RMB177 million. Gross margin was 4% compared with 4.6% in the previous quarter and a negative 28.4% in the same period last year. Total operating expenses were RMB83 million, a RMB41 million drop from RMB124 million in the previous quarter and a RMB68 million drop from RMB151 million in the same period last year. Overall labor costs and expenses, excluding severance pay, decreased by over 30% quarter-over-quarter and 72% year-over-year due to the restructuring of organizations following our business model transformation. Looking ahead, we believe our ongoing efforts at cost savings will benefit our financials in the long run. Non-GAAP adjusted loss from continuing operations, which excludes the impact of share-based compensation, was RMB45 million for the three months ended June 30, 2021, and compared with RMB98 million in the previous quarter and RMB133 million in the same period last year. Net loss from continuing operations was RMB69 million for the three months ended June 30, 2021, compared with RMB133 million in the previous quarter and RMB152 million in the same period last year. Then about our cash position. As of June 30, 2021, we had cash and cash equivalents of RMB124 million. For our financing transactions of up to $350 million, we received the first tranche of $100 million in July, and we are well on track to close the remaining tranches. That sums up our results for the three months ended June 30, 2021. Moving on to our guidance. We expect our total revenues to be in the range of RMB310 million to RMB330 million for the three months ended September 30, 2021. This forecast reflects our current and preliminary views on the market and operational conditions, which are subject to changes. That concludes our prepared remarks. Thanks.
Unidentified Company Representative: Thank you, John. Operator, we would like to open the call for questions now.
Operator: Your first question comes from the line of Eddy Wang from Morgan Stanley. Please ask your question.
Eddy Wang: Let me translate myself. I have two questions. First is a little about the short term. We noticed that the shortage of the auto chips have quite an active impact of the China's new car sales starting from the second quarter of this year. So I just want to know whether or not the shortage of the auto chips in the new car will have some positive impact on the used car. That's the number one question. And the second question is that, as we know that the EV sales as a percentage of total new car sales in China has been increasing in the past few years, and we have we are expecting that this proportion will go even further in the next couple of years. So I just want to hear your view on the strong sales of EV impact on the used car industry in the longer term? Thank you.
Kun Dai: I think in the short term, the shortage of ships has a boosting effect on the used car industry. It takes longer for new cars to be delivered. This drops up car prices as the supply of the new cars in the market is reduced. Some of the new car buyers may decide to purchase a used car in that. However, we don't think the shortage of chips will be a long-term issue and will be eventually soft. Well, putting aside the issue of chip supply, the market size of the used car sale is also rapidly growing. In China, the level of car ownership is already much higher than before. The existing vehicles in the market have started to gradually enter the used car market. On the other hand, consumers have become increasingly receptive to used cars. In addition, the industry policies have also become more favorable, such as lifting restrictions on cross-region transfers, reducing value-added taxes on used cars and adopting electronic registration. This all provides positive tailwinds for the development of the used car industry. So for Uxin what we focus more on is to deliver high-quality used cars and provide a full set of best-in-class services from sales delivery to after-sale support and therefore, create good value for our customers and the industry as a whole. Meanwhile, we also work hard to control on expenses boost our operational efficiency in order to create long-term value for our shareholders. For your second question, yes, the sales of new vehicle -- electric vehicles have been increased very rapidly in recent years. We agree new energy costs will be the mainstream ones in the future market. After a decade of development, Uxin has established a proven and complete system that covers used vehicle sorting, inspection, sales delivery and after-sales support. We have already started to work on inspection standards, reconditioning process and after-sale services for used EV cars. And we will launch related service soon, especially the used EV cars and our inventory-only model.
Operator: Your next question comes from . Please ask your question.
Unidentified Analyst: I repeat my question in English. Company Xi’an IRC has been in operation for nearly half a year, and you also received the first tranche of the new investments in July. It seems like everything goes in the right direction regarding your future plan. Can you give us some color on your strategic focus and core factors to drive sales growth in the future? Thank you, D.K.
Kun Dai: Before July, we were indeed in a huge capital constraint. As a result, we were unable to procure vehicles on a large scale then carryout reconditioning and with our inventory. After the funding was in place, our business has recovered immediately. Now both our car procurement capability and the production capacity are picking up rapidly, fully in line with our expectations. And we continue to improve our product and service capabilities in light of the increasing inventories through our customer demand will naturally bring more sales conversions. We will further expand our production capacity and increase inventory so as to provide customers with more selections. Meanwhile, with the improved reputation among customers, our IRC's regional influence has also enhanced. In addition, the gradually increasing customers repeat will also drive high-quality sales growth. Therefore, the flywheel impact of our entire business model will rapidly drive our business growth. After nearly half a year of operation in Xi’an IRC operating model has matured and is ready to be replicated. Going forward, in addition to continuing to strengthen using influence and competitiveness with existing regional markets, we are also prepared to invest in IRC in more new regions to promote our business expansion. And in addition, business we hope will also kick off soon.
Operator: There are no further questions on the line. I would now like to hand the conference back to . Please continue.
Unidentified Company Representative: Thank you, again, for joining today's call and for your continued support in Uxin. We look forward to speaking to you again soon in the future. Thank you.
Kun Dai: Bye-bye.
John Lin: Thank you. Bye-bye.
Operator: Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.
