Ladies and gentlemen, thank you for standing by and welcome to Uxin's Earnings Conference Call for the quarter ended March 31, 2020. 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'd 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 Earnings Conference Call for the quarter ended March 31, 2020. On the call today are D.K., Founder and CEO; and Zhen Zeng, CFO. D.K. will review business operations and the company highlights, followed by Zhen, who will discuss financials and guidance. They will both be available to answer your questions during the Q&A session. 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 the company's filings with the SEC. With that, I will now turn the call over to our CEO, D.K. Please go ahead.

Thank you, Nancy. Hello, everyone. Thank you for joining our earnings conference call today. So far this year 2020 has presented as many challenges for our business, as it has created exciting achievements, making another significant milestone for Uxin. In addition to the divestiture of the loan facilitation business, we also successfully removed all historical guarantee obligations, as we transferred XinWang Bank-related loans to Golden Pacer, and settled the remaining guarantee liabilities associated with the historically facilitated loans for the other major financing partners of ours. These achievements have enabled us to fully resolve our auto financing-related issues, so we can focus squarely on our streamlined 2C online used car transaction business. We are driving sustainable growth for our shareholders. As a first mover in China's used car market, we believe that auto financing is a natural and convenient option to facilitate the desire to buy a used car. Built on this foundation of our expertise in the used car industry, we initiated partnerships with our financing partners under the business model of loan facilitation, but we needed to provide guarantees for all facilitated loans. As much as the market opportunity is for used car financing, and as much as our financing-related volume grew rapidly in recent years, these guarantee liabilities have, in fact, put significant pressure on our cash flow. We also experienced a tightening regulatory environment for the overall financing industry, and an economic downturn, which only intensified the pressure we faced. As we continue to operate in this environment, we believe that well-funded banks and licensed financial institutions are better positioned to play their role as loan providers while also taking on the credit risk given their strong skills in risk management and capacity for higher risk tolerance. With the drag of guarantee liabilities behind us, Uxin ushers in a new phase of development. We have evolved from a financing-oriented platform to a transaction-centric online used car dealer, who offers quality value-for-money used cars, premium purchasing services, and online one-stop convenience. These key value propositions have reshaped our core customer base into a group of consumers who are willing to pay for quality and premium services. To further enhance customer experience, we upgraded our used car transaction value chain and migrated every sales step online. We developed a team of inventory selectors to discover the highest quality cars that offer the best value for money, from a nationwide pool of cars. Only these qualified cars are then eligible to be inspected and sold on our platform. We are also in the process of planning advanced refurbishments to further enhance car quality. We replaced our offline sales team with an online consulting team that delivers timely vehicle consulting services and facilitates a seamless self-service purchasing experience. We also enhanced the responsiveness and quality of our after-sales services to ensure high customer satisfaction. Our differentiated product and service offering is critical for easing customers' concerns about buying used cars online. Our expanded value proposition has strengthened the Uxin brand, built trust in our service, improved the customer experience, and increased NPS among customers. We strongly believe that creating meaningful customer value and earning customer trust are keys to establish stronger competitive advantages and barriers to entry. This is a core strategic goal that will allow Uxin to drive sustainable long-term growth. Equally as important, I want to highlight that the transformation of our business and service model is not just about cost savings, but rather about fundamentally optimizing our overall cost structure, increasing long-term operational efficiency, and improving cash flow. Our focus on selecting the best value used cars effectively reduces inspector headcount, so we only need to dedicate inspection resources to a smaller number of better-value-for-money cars. Additionally, a simplified transaction process coupled with transparent pricing lowers the reliance on salespeople, who were previously needed to meet customers in person to navigate the complex process of buying a used car. As a result, our current online sales team is only about one-tenth the size of the previous offline team. With a fundamentally optimized cost structure in place, we believe we have created a clear path to profitability and are thus better positioned to create long-term value for our shareholders. We are confident that the net effect will reinforce our competitive advantages and further differentiate us from our peers. We believe that online purchasing of used cars in China will continue to grow and we are excited about the opportunity going forward. While focusing on future growth, we are also aware of the challenges we are facing. The first is related to how we can better serve customers who need a financing plan. When we provided loan facilitation services and took on the credit risk, we had better control over loan approval rates, approving efficiency, and flexibility of financing options. Without providing these services and guarantees, we now rely on developing a best-in-class used car financing supermarket to meet customers' diversified needs. Given the current weakened economic environment, banks and financial institutions tend to be more conservative in carrying out financing business. As a result, it will take some lead time before approval rates reach a satisfactory level and more financing options are available in the supermarket. We are actively working with our financing partners to find the right balance between growing scale and managing risk. The second challenge is that it takes time to build Uxin as a trusted online dealer. On top of quality value-for-money used cars, we must focus on providing the best possible service to each of our customers. To achieve this long-term goal, we will have to pass on selling those cars that are seemingly competitively priced but are unable to meet our quality requirement. Building reputation takes time, but a trusted brand will create a more sustainable growth path. China's used car market has great growth potential, but customers have been underserved for quite a long time. With a determination to become our customers' most trusted online car vendor, we aim to become the first company in the industry that wholeheartedly creates meaningful and long-lasting customer value. We will only sell a car to our customers that we would also sell to our most loved friends and family. This is our pledge, and though we understand the challenge in taking this approach, we firmly believe that it is the best way to achieve sustainable success. For almost a decade, Uxin has built a well-known brand focused on developing strong and integrated capabilities in conducting professional and high-standard car inspections, providing service across the supply chain, and offering well-rounded warranty programs and after-sales services. All have been building blocks in bolstering the strategic online transformation of our business and service model. There is no better time than now to face our challenge head-on and capture the opportunity before us. We believe this approach underpins the long-term strategy that will elevate Uxin to the next stage of growth and development, and we are excited about our ability to create unique and optimal customer value, thereby generating sustainable long-term value for our shareholders. With that I'd like to turn the call over to our CFO to walk you through the financial results. Zhen, please?

Okay. Thanks, D.K. Hello, everyone. Thanks for joining us today. We are glad that we have removed the remaining guarantee obligations for the outstanding loan balance of RMB 12 billion. The cash outflow associated with this portion of loans will be limited in the next few years under a scheduled payment plan. In addition, we have settled a maturing US$50 million of a convertible note with PacificBridge, which will remove a near-term obligation. Both settlements create a more favorable business environment for our long-term growth. As D.K. highlighted, we are more confident now than ever in the prospect of further growth as a result of the transformation of our business and the service model. Under our fundamentally optimized cost structure, we will be able to achieve monthly operating breakeven at a much lower volume level compared with last year. Therefore we will be in an even better position to create long-term value for our shareholders. Now let me walk you through our financial details for the quarter ending in March. Please note that the results I will discuss relate to continuing operations only. All numbers are in RMB unless otherwise stated. Also, please note that some numbers I refer to are non-GAAP numbers. You can find a reconciliation of these numbers at the bottom of our earnings release. In the three months ended March 31, 2020, total revenues were RMB 104 million compared with RMB 336 million in the same period last year. The decrease was primarily due to decreases in the 2C transaction volume and GMV as a result of disruption caused by the COVID-19 pandemic on our business operations. Our 2C revenue was RMB 88 million compared with RMB 284 million in the same period last year. Online used car transaction volume is 6,584 units for the three months ended March 31, 2020 and its corresponding GMV was RMB 723 million. Looking at two revenue streams of our 2C business, commission revenue was RMB 48 million compared with RMB 149 million in the same period last year, primarily due to decreases in the transaction volume and GMV. The unique value proposition we are now able to offer our customers, along with the improved user experience and higher pricing power, resulted in the commission rate expanding to 6.6% from 6.3% in the previous quarter. Value-added service revenue was RMB 40 million compared with RMB 135 million in the same period last year, primarily due to decreases in the transaction volume and GMV. VAS take-rate slightly increased to 5.6% from 5.5% in the previous quarter. Looking at other businesses, other revenue was RMB 15 million in the three months ended March 31, 2020 compared with RMB 51 million in the same period last year. Cost of structures decreased by 29% year-over-year to RMB 111 million. The decrease was primarily due to reductions in salaries and benefits from employees engaging in car inspection, quality control, customer service, and after-sales services, as well as a decrease in fulfillment costs due to a decreased transaction volume. Gross margin was negative 6.6% for the three months ended March 31, 2020 compared with a gross margin of 53.4% in the same period last year. Total operating expenses were RMB 2,235 million. Non-GAAP operating expenses excluding the impact of share-based compensation were RMB 2,267 million. Sales and marketing expenses decreased by 45% year-over-year to RMB 190 million. The decrease was mainly due to a reduction in salaries and benefits. Share-based compensation expenses associated with sales and marketing expenses were nil during the quarter. G&A expenses decreased by 14% to RMB 75 million. The decrease was mainly due to reductions in salaries and benefits as well as share-based compensation expenses. G&A expenses excluding share-based compensation expenses of negative RMB 13 million were RMB 105 million. R&D expenses decreased by 4% to RMB 31 million. The decrease was primarily due to declines in salaries and benefits expenses. R&D expenses excluding share-based compensation expenses of negative RMB 2 million were RMB 33 million. Loss from guarantee liabilities was nil for the three months ended March 31, 2020. We incurred guarantee liabilities associated with the remaining guarantee obligations from our historically facilitated loans which were not transferred to Golden Pacer. We also adopted the Accounting Standards Update of 326 during the period, on which further information can be found in our earnings release. After the adoption of ASC 326, expected credit losses for contingent guarantee liabilities shall be accounted for in addition to and separately from the stand-ready guarantee liabilities accounted for under the previous accounting standard. The provision for the contingent guarantee liabilities is currently recorded within provision for credit losses, and the gain released from the stand-ready guarantee liabilities accounted for under ASC 460 is currently recorded within other operating income. Provisions for credit losses were RMB 1,940 million for the three months ended March 31, 2020. Due to the impact of the COVID-19 pandemic, a significant impairment of RMB 1,039 million was incurred due to adversely affected performance of our historically facilitated loans mainly including loans recognized as a result of the payment under guarantee. After the adoption of ASC 326, a provision of RMB 804 million for contingent guarantee liabilities measured under the current expected credit losses model is recorded within the provision for credit losses. Loss from continuing operations was RMB 2,186 million compared with RMB 295 million in the same period last year. Loss from continuing operations was primarily due to a significant provision for credit losses of RMB 1,940 million recorded for this quarter. Non-GAAP loss from continuing operations, which excludes the impact of share-based compensation, was RMB 2,218 million compared with RMB 245 million in the prior year period. On a non-GAAP basis, loss from continuing operations was also materially impacted by a significant provision for credit losses recorded for the quarter. Net loss from continuing operations was RMB 2,034 million compared with RMB 296 million in the same period last year. Net loss from continuing operations was primarily incurred by a significant provision for credit losses of RMB 1,940 million recorded for this quarter. Non-GAAP net loss from continuing operations, which excludes the impact of share-based compensation, was RMB 2,066 million in the quarter compared with RMB 246 million in the same period last year. On a non-GAAP basis, net loss from continuing operations was also materially impacted by a significant provision for credit losses recorded for this quarter. Turning to our cash position. As of March 31st, 2020, we have cash and cash equivalents of RMB 343 million. That sums up our results for the three months ended March 31st, 2020. Moving on to our guidance for the three months ending June 30th, 2020. Taking into account all the factors mentioned earlier regarding the coronavirus and the business divestiture, we expect our total revenue from continuing operations to be in the range of RMB 60 million to RMB 65 million. This forecast reflects our current and preliminary views on the market and operational conditions and is based upon the current situation and uncertainties associated with the coronavirus outbreak, which are subject to change. That concludes our prepared remarks.

Thank you, Mr. Zhen. Operator, we'd like to open the call for questions now. Thank you.

Your first question comes from Eddy Wang of Morgan Stanley. Please go ahead with your question.

Hi, management. Thank you for taking my question. I have a big-picture question regarding the company’s business model, particularly its initiatives to transition some offline aspects to online, especially in the first half of this year. Can you provide more insight, especially in relation to the used car industry? We understand that due to COVID-19, the market was challenging in the first quarter and hasn't improved significantly in the second quarter. We anticipate that the market may not recover robustly in the second half of this year, and it seems that the used car industry will require time for substantial growth. I believe your adjustments to the business model have been well considered, and I would like to hear your thoughts on how these adjustments relate to the used car industry's current situation. Thank you.

In the second quarter, the markets are not performing well. We anticipate that in the latter half of this year, the market may not experience a strong recovery. Over the long term, it will still take time for the used car industry to achieve substantial growth. I believe you have carefully considered your business model changes. I would like to hear your thoughts, particularly regarding improvements to your business model in the used car industry. Thank you.

Last year, we experienced an economic downturn, and as we entered this year, COVID-19 further impacted the overall macroeconomy. In the first half of this year, our main focus was to eliminate all historical guarantee liabilities. We are no longer encumbered by our historical loan book of about RMB 37 billion, and all guarantee liabilities have been shed. This shift allows us to move away from credit risk, which is our approach to dealing with the economic challenges. Additionally, given the overall delinquency in the financing industry, this strategy has also enabled us to enhance our overall cash flow.

Our goal is to eliminate all historical guarantee liabilities, which means we are no longer responsible for our past loan book of about RMB 37 billion. All guarantee liabilities have been removed from our balance sheet. This shift helps us reduce credit risk as we navigate the economic downturn. Additionally, given the overall delinquency rates in the financing industry, this approach has also assisted us in enhancing our overall cash flow.

Yeah. So, in the first half of this year, the used car market also took a big hit from the macroeconomy, also considering the economic downturn we are in now. And also the other factor is that we see the new car market, the new car price has been reduced significantly, which has also had a significant impact on all the residual value of used cars.

In the first half of this year, the used car market took a big hit from the macroeconomy, considering the economic downturn we are currently experiencing. Additionally, the new car market has seen significant price reductions, which have greatly affected the residual values of used cars.

The transaction volume of used cars is relatively low in the first half of this year. However, as the macro economy stabilizes and new car prices settle, we expect the new car market to gradually improve in the second half of this year.

The new car market has seen a significant reduction in prices, which has notably impacted the residual values of used cars. The transaction volume of used cars has been relatively low in the first half of this year. However, we anticipate that as the macro economy stabilizes and new car prices stabilize, the new car market will gradually improve in the second half of this year.

Yes. So under these circumstances even though the macro economy will be picking up, it may not be as good as previous years. So for us, our key focus is to prioritize quality. You can see we divested the non-core business in the previous quarters.

We look at the stabilization of the macro economy and the stabilization of new car prices, and we expect the new car market to gradually improve in the second half of this year. Yes, under these circumstances, even though the macro economy will be improving, it may not be as strong as in previous years. Therefore, our key focus is to prioritize quality. You can see that we divested from non-core businesses in previous quarters.

So in terms of the customer base, previously we wanted to cover or service all car buyers in the market. But now we only focus on consumers who care more about quality and services.

Yes. So given the current circumstances, even though the macro economy is expected to improve, it may not match the performance of previous years. Therefore, our primary objective is to prioritize quality. As you can see, we divested our non-core business in earlier quarters. In terms of our customer base, we have shifted our focus from trying to serve all car buyers in the market to concentrating on consumers who value quality and services more.

So in terms of the business model, previously we cared more about scale. But now it's more about quality.

We have divested the non-core business in the previous quarters. Previously, we aimed to serve all car buyers in the market, but now we focus specifically on consumers who prioritize quality and service. In terms of our business model, our earlier emphasis was on scale, but now we are prioritizing quality.

Yes. So our results actually come from the quality we can deliver, the services we can deliver, and also the standardization we can provide, as well as the transparency of the whole buying process. Overall, we now need more word of mouth and higher NPS scores from customers. So customer loyalty will be the key driver for our sustainable growth, especially under economic downturns or less favorable macro environments.

Our results come from the quality and services we deliver, the standardization we provide, and the transparency of the buying process. Moving forward, we need more word of mouth and higher net promoter scores from customers. Customer loyalty will be crucial for our sustainable growth, especially during economic downturns or challenging macro environments.

Yes. So in terms of our sales team, we now replaced all offline sales with online sales, which will provide us with higher operating efficiency.

We need more word of mouth and higher NPS scores from customers. Customer loyalty will be the key driver for our sustainable growth, especially in economic downturns or less favorable macro environments. In terms of our sales team, we have replaced all offline sales with online sales, which will provide us with higher operating efficiency.

Yeah. So Chinese consumers have the highest acceptance of purchasing online. So we believe online purchase for used cars will increasingly be adopted, bringing lots of benefits for consumers, such as a wide selection of used cars and a more convenient buying process without unnecessary costs incurred when they go offline to buy a car.

Chinese consumers have the highest acceptance of purchasing online. We believe that online purchases for used cars will see increased adoption, offering many advantages for consumers, including a wide selection of used cars and a more convenient buying process without the extra costs that can arise when buying a car offline.

Yeah. So we launched our pure online purchasing product this June. We've seen pretty good acceptance from our customers. The challenges now actually come from the financing approval rates. Given we don't provide guarantees anymore and started a new cooperation model with our financing partners, it takes time before we make the whole process smoother. If you look at the non-financing attached transactions, it has already recovered to about 60% of last year's level. So now the key issue is all about the financing process. The financing partners need time to take credit risk by themselves now. They need to develop new financing products to adapt to the current situations, and they also need more time to find a balanced approval rate. But overall, we don't see any problem with customers' acceptance of buying cars online.

If we examine the non-financing attached transactions, it has already rebounded to around 60% of last year's level. The main focus is now on the financing process. Financing partners require time to assess credit risk independently. They need to create new financing products that are suited to current conditions, and they also need additional time to establish a balanced approval rate. However, we generally do not perceive any issues with customers' willingness to purchase cars online.

Yes. That's all the answers. Thank you, Eddy.

Your next question comes from the line of Ronald Keung of Goldman Sachs. Please ask your question.

Thank you. Hey, D.K., Michael, Nancy. So I have two questions. The first is about your second quarter revenue guidance. Can you share some of the volume drivers behind that? How have we seen volumes trending and our expectations into the second half, particularly given now the kind of streamlined cost structure? What kind of volume do we need to reach to reach a breakeven point? Second is on our lower finance approval rates that we've seen so far. What are we doing or what could we do to address or help drive on this challenge? Taking macro aside, what can we do to increase that approval rate? Thank you.

Can you share some insights on the factors driving our volume? How have volumes been trending and what are our expectations for the second half, especially with our streamlined cost structure? What volume do we need to achieve to reach break-even? Additionally, we've noticed lower finance approval rates so far. What actions are we taking or could we take to address and improve this challenge? Excluding macroeconomic factors, how can we boost that approval rate? Thank you.

Yes. Our pure online business model hasn't been fully available until this June. So under the new online service model, the starting point for us is the monthly transaction volume of 1,000 units. Our current breakeven point comes at a monthly volume of around 5,500 units. We are expecting it will take about six to eight quarters before we reach this point.

Yes. Our pure online business model hasn't been fully available until this June. So under the new online service model, the starting point for us is the monthly transaction volume of 1,000 units. Our current breakeven point comes at a monthly volume of around 5,500 units. We are expecting it will take about six to eight quarters before we reach this point.

Yes. So, like Ronald mentioned, the key bottleneck now is the financing approval rate. If we look at our non-financing tax volume, it has already returned to about 60% of last year's level. This relatively low approval rate is mainly because banks have changed their risk control model as they have to take credit risk by themselves. For us, without taking the guarantees, we're moving with the banks in a direction more compliant with the current regulatory environment. Considering the macroeconomic environment and the higher delinquency rate over the past year, banks tend to be more conservative in approving loans. The current approval rate is relatively low now. Our approach to address this issue is to cooperate with more financing partners who have different risk appetites. It will take time before we get the whole process smoother and everything ready for the banks themselves, as our customer base has changed to higher-end, quality consumers, so their loan performance will be much better than before. When the banks see this risk and customer profile, they will give us better approval rates. Thank you, Ronald. Thank you again for joining our call today and for your continued support in Uxin. We look forward to speaking to you again in the future.

Bye-bye.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.