Uxin Ltd

NASDAQ:UXIN

Earnings Call Transcript 2024-Q3

[Operator]

Good day, and welcome to the Uxin Third Quarter Fiscal Year 2024 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Jack Wang. Please go ahead, Jack.

[Jack Wang]

Thank you, operator. Hello, everyone. Welcome to Uxin's earnings conference call for the third quarter of fiscal year 2024 and December 31, 2023. On the call with me today we have, DK, our Founder and CEO; as well as [ John ] Lin, our CFO. DK will reveal business operations and company highlights, followed by [ John ] who will discuss our financials and our guidance. They will both be available to answer your questions during the Q&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 current expectations. For detailed discussions of the risks and uncertainties, please refer to our filings with the SEC.Now I'll turn the call over to our CEO, DK. Please go ahead, sir.

[Dai Kun, executive]

[Interpreted] Hello, everyone, and thank you for joining us today. I'm pleased to reconnect with you all on the call. To facilitate communication with both domestic and international investors, I will share our company's latest progress in both Chinese and English.I will begin by reviewing the key highlights from this quarter before sharing the work we are currently engaged in and our plans for the future.In the third quarter of fiscal year 2024 from October to December 2023, the domestic new car market in China has began another round of price reduction, which also impacted the used car industry. Despite these challenging external conditions, we continue to see growth in our retail business, with total retail sales for first quarter reaching 3,081 vehicles. This represents a 34.7% increase quarter-over-quarter and a 5.2% increase year-over-year.In addition our superstores are operating more smoothly than ever, maintaining a highly efficient turnover of vehicles of less than 30 days and achieving an industry-leading Net Promoter Score or NPS of over 60 for 8 consecutive quarters.Currently, we're focusing on enhancing the scalability of our profitability. It's worth noting that in January 2024, we achieved EBITDA profitability at a store level for the first time. We are confident that within the calendar year of 2024 we will reach EBITDA profitability at the company level as well. The diligent efforts of the past few months has advanced us significantly towards this goal, and today I'm pleased to share our progress in 3 major areas.Firstly, our vehicle sales system continued to evolve and mature, maintaining a robust vehicle turnover rate. Despite the market's volatility in recent quarters, we have further enhanced our vehicle pricing capabilities, allowing us to rapidly adjust prices in response to market shifts, ensuring that our pricing can always be competitive.The inherent branding strength of our physical superstores has also become increasingly evident and our comprehensive customer services have received wider recognition, further boosting customer acquisition and sales conversions. During the intense new car price competition in the first 3 months of 2024, our store operations demonstrated the premium with vehicle turnover remaining stable despite the market luxuries.And secondly, while maintaining vehicle turnover efficiency, our profitability has substantially increased. This improvement stems from our superior quality, service and branding over traditional car dealers, which enabled us to effectively achieve the favorable market level price differentials for our vehicles.Additionally, leveraging our superstores, we have launched customized, diverse and cost-effective value-added products in collaboration with our supply chain partners. The penetration rate of financial products, insurance, accessories, extended warranties and maintenance services are rapidly increasing, which will continue -- which will contribute further to our gross margin in the future.Thirdly, we have conducted comprehensive business reviews and optimizations to initiate a new round of cost reductions and efficiency enhancements. In our retail operations, we have rigorously refined our processes and fully utilized digital management tools.Specifically, we have meticulously [ development ] costs in all areas, optimized our workforce structure and enhanced the cost of the efficiency ratio to improve the operating cash flow of our superstores. Notably, following the spring festival, we realigned our organizational structure to better meet the development needs of our superstores, and executed a series of initiatives to further reduce costs and expenses. Starting from April, we expect these efforts to save us over [ RMB 15 million ] in our quarterly costs and expenses going forward.As you have seen, we implemented a cautious vehicle acquisition strategy in the past few quarters in response to the recent price wars in the new car market, which helped us maintain a relatively low inventory level. Now our pricing, sales and operational capabilities are very well equipped to manage market fluctuations effectively. So we have started to increase our inventory levels, anticipating that our end of year on-hand inventory will reach approximately 4,000 units, which is around 3 to 4x [ for ] third quarter inventory level.This expanded inventory will provide consumers with more options and enable us to achieve monthly EBITDA breakeven before September 2024 as well as company-wide EBITDA of profitability in the December quarter of 2024.Additionally, as part of our strategic development plans, we are on track to complete the [ site ] selection and operational preparation for 1 to 2 new superstores within 2024. This initiative will further strengthen our integrated network of online operations and offline superstores. Our business model has garnered significant recognition from local governments, especially following their visits to our Hefei and Xi'an superstores.Consequently, we have received active invitations from these regions to establish new superstores. We're currently advancing implementation plans with several cities, which will propel Uxin's nationwide expansion and drive business growth in the coming years.Earlier in March, the company launched a new round of financing in which I personally participated as an investor. My personal commitments reflects my confidence in the substantial opportunities for development in China's used car market, the competitive strength of using superstore model and its robust growth trajectory. I am deeply committed to steering Uxin towards becoming a leader in China's used car industry.And with that, I would like to turn the call over to our CFO, [ John ], to walk through the financial results.

[Feng Lin, executive]

[ Okay ]. [Interpreted] Thank you, DK, and hello, everyone. I will provide a closer look at our financial results from the third quarter of fiscal year 2024. As DK just highlighted, the Chinese automotive market in 2023 was characterized by multiple rounds of price wars, and the market fluctuations had also impacted the used car sector. As our superstore model has become increasingly mature, our sales system has enhanced its capability to respond rapidly to market fluctuation, enabling timely adjustments in vehicle pricing and sustaining high levels of vehicle turnover.From October to December 2023, even though our inventory levels were only half of what they were in the same period last year, we almost doubled our sales turnover rate, achieving a total retail transaction volume of 3,081 units. This represents a 35% increase quarter-over-quarter and a 5% increase year-over-year.Our total retail revenue for the third quarter reached RMB 319.2 million, a 28% increase from RMB 248.9 million in the previous quarter. In response to the current economic conditions and market demand, we actively optimized our inventory structure. However, the fine-tuned competition in the industry over recent quarters [ led to ] a reduction in the average selling price or ASP of our retail vehicles, which decreased from RMB 112,000 in the same period last year to RMB 104,000 this quarter.And in terms of wholesale, the third quarter saw our transaction volume [ reached ] 1,273 units, passing a 20% decrease quarter-over-quarter and 35% decrease year-over-year. The wholesale revenue declining to RMB 82.2 million. As our superstore model is not operating at full effectiveness, we are increasingly focusing on our retail segment, which naturally reduces the proportion of our wholesale business.Considering these factors, our total revenues for the third quarter increased 15% to RMB 410.5 million from RMB 356.1 million in the second quarter.Despite intensified competition within the industry this quarter, we successfully maintained a high vehicle turnover and a healthy inventory structure, achieving a gross margin of 4.8%, down 1.4 percentage points from the previous quarter. However, as DK just emphasized, our capacity to respond to market fluctuations has enhanced and our pricing adjustments have become more prompt.Consequently, we anticipate that gross margin will recover to about 6.5% in the upcoming quarter. With the increasing revenue contributions from value-added services such as financing, insurance, accessories, maintenance and repairs, we're optimistic about achieving significant improvements in our gross margin going forward.Our total operating expenses for the third quarter were RMB 99.8 million. Through our diligent routine management, we continued to implement stringent cost and expense controls, achieving a stable level of operational expenditures in line with previous quarters. Moreover, we have recently completed a new round of organizational optimizations and executed a series of initiatives to further reduce costs and expenses.Starting in April, these adjustments will result in the monthly reduction of fixed expenses by RMB 5 million, accumulating a quarterly decrease of over RMB 15 million.Our adjusted EBITDA loss for the quarter was RMB 43.8 million, a decrease of RMB 33.6 million from the adjusted EBITDA loss of RMB 76.4 million in the same period last year, narrowing a loss by 43%. This also represents a 5% sequential reduction from the adjusted EBITDA loss of RMB 45.9 million in the previous quarter.In addition, we closed an equity financing round in March, raising approximately USD 34.8 million. Our CEO, DK, has shown his commitment to our future by personally investing in this one as well. These funds will be used to expand our inventory, in targeting a three to four-fold increase by the end of 2024, which we anticipate will significantly amplify our sales growth trajectory.There is still substantial potential for increased sales and profitability at our existing superstores. We have already achieved EBITDA profitability for our superstores as of January 2024. The improvement in vehicle turnover efficiency enhanced the margin profiles and the effective implementations of company-wide cost reductions and efficiency gains will contribute to improved financial performance going forward. We are confident in achieving monthly EBITDA breakeven by September 2024 and [ attain ] company-wide EBITDA profitability in the December quarter of 2024.Now moving on to the guidance for the fourth quarter. January through March, which included the Chinese New Year holiday is traditionally an off-season for the used car industry. Nevertheless, we're maintaining a high level of sales turnover efficiency, and we forecast a total retail transaction volume of approximately 3,100 units and wholesale transaction volume of above 900 units.We expect our total revenues to be between RMB 300 million to RMB 320 million with gross margin rebounding to above 6.5%.And that concludes our prepared remarks today. Operator, we are now ready for questions.

[Operator]

[Operator Instructions]Our first question today comes from the line of Fei with TF Securities please go ahead.

[Fei Dai, analyst]

[Interpreted] In the first 3 months of 2024, the Chinese car market has once again started an intense price war. Can you provide some insight into the impact of new car price on the used car market and on Uxin?.

[Dai Kun, executive]

[Interpreted] This is DK and I'll address that question. The price reduction trend in the new car market that began in 2023 have certainly exerted a two-fold impact on the used car sector. Initially we observed a depreciation in the value of used car models and parallel to the new car price drops. This was followed by a sales stagnation of the affected used cars, resulting in inventory depreciation, which has definitely impacted the used car business.Throughout this cycle, dealerships armed with the most comprehensive market insights, the agility to respond promptly, and the capacity to maintain high sales turnovers have demonstrated the least impact and navigating through 2 waves of new car price reductions in the period of March to May and October to December of 2023, we have systematically strengthened our approaches and strategies to effectively manage market volatility.Since the BYD price reductions in late February this year, we have cataloged price changes for nearly 1,000 car models. Our operational data indicates that the ramifications of this year's price reductions on Uxin have substantially diminished compared to those experienced in 2023.Specifically, we performed very well in 2 particular areas. First, the most profound impact of new car price reductions is felt in the segment of low mileage used cars. Our current inventory structure is actually quite healthy and well curated between a relatively small portion of vehicles under 3 years old, while primarily targeting both ages between 3 and 10 years.Secondly, we maintained our sales efficiency at an exceptionally high level. Our in-house pricing system is [ pointing ] to automatically monitor market trends, ensuring the timely data collection on new car price fluctuations and rapid adjustments to our base pricing.With an overall vehicle turnover of less than 30 days, we have substantially exceeded the industry norm, effectively mitigating the potential inventory depreciation as a result of the price decline.Furthermore, given the new cars are standardized products with transparent manufacturing and compliance costs, and considering that the net profit margins for many automakers now hover below 5%, there is a limit to the depth of new car price reductions. We expect the market will soon find a new balance, which should lead to stabilization in the used car market. And relative to our current position, there is a significant opportunity to improve our profitability per vehicle. As market conditions level out, we foresee a smooth progression to stronger performance levels. And that's our answer to the first question. Operator, let's move on.

[Operator]

The next question comes from the line of Gary [indiscernible] with WTR.

[Unknown Analyst]

We see that the Chinese government is currently promoting policies that encourage vehicle trade-ins for newer models. Could you please discuss the specific impact of this policy in the used car industry and on your business operations?

[Dai Kun, executive]

[Interpreted] This is DK, and will address that question. The national government has indeed emphasized the development of the auto industry. Recently we have observed that the automobile has ascended to become the primary economic pillar, overtaking real estate. The used car market plays a pivotal role in the entire life cycle of a vehicle and is crucial in driving automotive consumption.Regarding the trade-in subsidy policy you mentioned, this initiative encourages customers to upgrade their vehicles more frequently. This [ trade-in ] has brought a surge of well-valued models into the used car market, enhancing the supply and positively impacting national used car transaction volumes.As a leader in China's used car industry, Uxin is at the forefront of supporting and facilitating the implementation of the trade-in policy. We have partnered with the local governments where our superstores operate to develop practical fit in programs. Our superstores act as the main platforms for these vehicle exchanges hosting a range of trade-in events.This strategy not only broadens our vehicle sourcing channels, but also boosts customer traffic at our superstores, which in turn further enhances our sales conversion opportunities.We view the trade-in policy in China's auto industry as a long term initiative. There are numerous business models yet to be explored and we're optimistic about unlocking further potential for revenue and profit growth. And that will be our answer to the second question.

[Operator]

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

[Jack Wang]

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

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]