Ladies and gentlemen, thank you for standing by, and welcome to Uxin's Earnings Conference Call for the First Quarter of Fiscal Year 2023. 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 your host for today's conference call, Ms. Joyce Tang, IR Director of the Company. Please go ahead, ma'am.

Thank you, operator. Hello, everyone. Welcome to Uxin's earnings conference call for the quarter ending June 30, 2022. On the call today are D.K., 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 Provision 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 take any obligation 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.

Thank you, Joyce. 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 still be in both English and Chinese. In the first quarter of fiscal year 2023, which was from April to June 2022, we maintained our growth momentum despite peak COVID resurgence across the nation. Our retail transaction volume increased by 30% quarter-over-quarter and more than 250% year-over-year to 2,407 units. We continue to gain trust among consumers with our high core vehicles, efficient processes, transparent pricing and reliable services. We also continue to expand our market share leadership in both in Xi’an CD and Hefei CD, where our two IRCs are located. The two IRCs are the largest 100% self-owned used car superstores in East China and Northwest China, respectively. Our regional branding and customer application has been growing rapidly. In this quarter, our Net Promoter Score was 60, remaining stable at an industry top level, consumer reputation through word of mouth recommendations started to fuel our business growth. About 25% of our retail sales in the quarter were generated from customer referrals. We refined our over 700 expansion chatbots and launched our National Standard Vehicle Dashboard program based on national used car appraisal and evaluation of mechanical clarification standards. The program further improved our customers' shopping experience. It has the presentation to retail vehicle information in a more accurate and intuitive way and helps our customers make their decisions more easily and conveniently. Each retail vehicle is provided with a percentage score based on easy-to-understand information about vehicle conditions. Consumers can see our categorical rating for each retail vehicle, including aspects such as the interior appearance, engine components, cockpit, emission tests, road tax checks, and etc., in the form of a highly compliant report. We use simplified, standardized, and visual ways to tell our customers the pros and cons of the cars and the potential savings. As such, our customers can understand the car easily, make comparisons easily, and make purchase decisions easily. The program is very well received by our customers. In this quarter, our operation efficiency continued to improve across the whole business process. For example, the reconditioning time from vehicle acquisition to listing for sale is reduced by about 50%. We also reduced our retail turnover days by about 48% compared to one year ago. Going forward, we will be faster and faster in warehousing, reconditioning, listing, selling, and shipping, etc. This will be our primary focus. The Ministry of Commerce and other relevant departments have been actively implementing a series of business and test-oriented supportive policies to boost the used car industry in China. Following previous measures to reduce value-added tax rates and digitize vehicle reputations nationwide, regulators have completely lifted restrictions on cross-regional circulation of used cars with National Emission Standard five or above. The accounting method and tax payments have also been modified to promote job-oriented business models over commission-based agency models. All these policies will significantly help streamline used car transaction processes, resulting in more efficient circulation, reduced operation costs, and facilitate working capital financing. Finally, all major obstacles that have hindered used car industry development in the past decade have been completely addressed. Starting from next year, the same regulators will begin strengthening oversight of the used car operations, requiring all dealerships to operate as compliant vehicle enterprises instead of conducting the business as individuals. This will mark the gradual end of the small-sized highly segmented informal business operations, which are currently dominating the used car industry in China. These policies signify a well-branded, scalable, and compliant used vehicle companies to thrive and become major market players. As new opportunities emerge, we believe that customer satisfaction, vehicle quality, and service capability, which we have been consistently pursuing as our fundamental principles, will be the most important foundation for the future growth of the used car industry in China. Uxin, as a used car business leader in China, will benefit from this favorable policy and sustain our high-quality growth on the back of the industry tailwind. We celebrated Uxin's 11th anniversary this year on September 9. I'm pleased to see that we have built a solid foundation with continuous improvement in all business aspects over the past year. Our transformative upgrades to management systems, supply chain processes as well as product and service quality will set the stage for our next phase of growth. Looking ahead into fiscal year 2023, we expect our retail sales to continue growing each quarter. Our Xi'an IRC will extend to a much larger size. Our Hefei IRC will continue to operate at near capacity; at the same time, the construction of the Super IRC, co-invested and in operation, is currently included. All of our business plans have been making steady progress. In the long term, we are committed to providing high-quality vehicles, creating a superior shopping experience, and offering satisfactory services to our customers. We are confident that our dedication to customer satisfaction will drive sustainable high-quality business growth and ultimately generate long-term returns for our shareholders. I will pass the phone to my CFO, John, please.

Okay. Thanks, D.K., hello, everyone. Welcome to our earnings call for the first quarter of fiscal year 2023, which is the three months ended June 30, 2022. Uxin has both international and domestic audiences on the call; we will walk you through our key financial results in both English and Chinese. Driven by a 29% quarter-over-quarter growth in our overall transaction volumes, our total revenues were RMB626 million, increasing 23.8% quarter-over-quarter and 125% year-over-year. Specifically, retail sales revenues were RMB348.4 million, increasing 9.1% quarter-over-quarter and 279% year-over-year. The retail revenue growth was primarily driven by a 30% quarter-over-quarter sales volume growth. At the same time, we have been optimizing our inventory structure to better meet mainstream demand for mid-range priced cars as we are targeting broader middle-class customers. The average selling price of retail cars shifted to RMB145,000 in Q1 from RMB180,000 in the previous quarter. The ASP is expected to further decrease to RMB118,000 in the next quarter and remain relatively stable in the future. Although the decrease in ASP partially offsets the increase in revenue growth from retail sales volume, an optimized inventory structure with a more widely expected price range will lay a healthier foundation for our long-term sales growth. Gross margin was 1.1% for the three months ended June 30, 2022, compared with 0.2% in the last quarter. As I just mentioned, we have been shifting towards mainstream mid-range priced vehicles; thus, we accelerated the sales of higher-priced vehicles through price adjustments. This led to some write-offs of unsold inventories to improve turnover. These actions led to a current move in gross margin; if we excluded the impact of inventory adjustments, our gross margin would be at the 4% level. While the inventory structure becomes more and more reasonable as planned, we expect our gross margin to improve quarter-over-quarter this year toward a normal gross margin level. We continued our stringent expense management, and total operating expenses were relatively stable compared with the prior quarter. Although our retail sales volume continued to grow, we managed to reduce the overall customer acquisition costs, thanks to our cost-effective marketing channels and strategy. The non-GAAP adjusted loss from continuing operations this quarter was RMB84.9 million, an improvement of RMB11 million compared to the prior quarter. As our business continues to grow and our inventory adjustment finalizes, we expect to see further improvements in the remainder of the fiscal year. The detailed financial statements were published in our earnings release online, so I will not repeat the numbers here. But I do want to address one thing as usual. At the end of the first quarter of fiscal year 2023, similar to the past quarters, there was a fair value impact related to our financing transactions. The share price was RMB0.42 per ADS on June 30, 2022. On March 31, 2022, the share price was $1.02 per ADS. So this resulted in a non-cash gain of RMB252 million from fair value change of the warrant liability and forward contract assets on our balance sheet. I would like to emphasize again that fair value impact was a non-cash gain and not a result of our operations. We are proactively optimizing the balance sheet. At the end of August, the Company issued ordinary shares to clear obligations at a price of $1.03 per ADS in exchange for fully releasing the Company's obligations under a convertible note with an aggregate principal amount of $2.6 million. Today, New Capital estimates further payments as part of its total $100 million strategic investment to support our C&IB expansion and superior construction. About next quarter's forecast, in addition to revenue guidance, we have added guidance on transaction volumes and average selling prices to give you a better picture of our business progress. For the three months ending September 30, 2022, the Company expects its retail transaction volume to be around 3,000 units representing an increase of 25% quarter-over-quarter and an increase of 192% year-over-year. The average selling price for retail cars is expected to be around RMB118,000. The Company also expects a wholesale transaction volume to be around 2,800 units with ASP expected to be around RMB82,000. The Company estimates that its total revenues, including retail vehicle sales revenue, wholesale vehicle sales revenue, and value-added services revenue to be in the range of RMB590 million to RMB610 million. This concludes our prepared remarks. Operator, we are now ready to take the questions.

Our first question comes from Yang. Please go ahead.

Okay. I will repeat the question in English again. We noticed that you are expanding your outlook disclosure. Your retail transactions are expected to grow, while wholesale transactions are expected to decline. How should we expect the two businesses to perform going forward?

D.K., please go ahead.

Okay. Retail sales will be the most important indicators of our performance to provide more clarity on our business growth trends and operating results. We have expanded our guidance to include our expectations of transaction volumes and average selling prices in addition to revenue outlook starting this quarter. We expect retail sales to maintain its growth momentum in fiscal year 2023. As more consumers recognize our products and services, our retail channels will continue to grow. Additionally, as we expand our inventory size and enhance our vehicle acquisition and reconditioning capabilities, we will have more retail standard vehicles, which will also contribute to the growth of our retail sales. Wholesale business is an effective supplement to our retail sales. As our retail sales force becomes more potent, we will retain more vehicles and naturally decrease the percentage of wholesale business. In the long term, we expect 75% of our total sales to come from retail and the remaining 25% from wholesale. That's my answer to the question.

The next question comes from Tom Kerr from Zacks Investment Research.

My question is about vehicle acquisition. Do direct purchases from consumers still represent about one-third of vehicle acquisitions? And is that share growing? And then just generally, how should we think about car sourcing costs given the series of favorable policies that have been implemented?

Hello, Tom. This is D.K. I will answer your question. Our direct purchases from consumers accounted for nearly 40% of our total acquisitions this quarter, and we expect this percentage to increase further. Currently, we collect cars from consumers mainly from the two IRC locations in Xi'an city and Hefei city as well as the surrounding cities. These are our primary sources of direct purchases from consumers. However, as we expand our inventory size, we will also increase the percentage of vehicle repurchase from consumers in other locations, especially after the removal of cross-regional transfers, which facilitates the national calculation of high-quality costs. Sorry, I didn't finish. In terms of our vehicle acquisition costs, they mainly consist of the vehicle purchasing price and the related transaction costs such as title transfers and delivery logistics. In the long term, we will continue to reduce our acquisition costs. Other restrictions are lifted; we can assess a broader selection of vehicle sources. We can effectively fill our inventory by analyzing the market data of vehicle pricing in different regions. This will enable us to further reduce our vehicle acquisition costs. The implementation of the new policies, such as regulations on client and service registrations, will benefit companies like us. In addition, this implementation of electronic filing, temporary license plates, and new test treatments will allow us to reduce our transaction costs in vehicle sales by thousands of dollars. We were the first in the industry to start selling used cars nationwide. We have also established the industry's smooth advanced delivery routing system with dynamic optimization. We have kept our logistics costs relatively low in the industry. With the increase in volume and improving economies of scale, our logistics costs will also continue to decrease. That's my answer to your question. Thank you.

I have one more quick question. Yes. On these favorable policies, do they all start on October 1? Or have some already been implemented that you're seeing?

In 2022 to today, we saw a number of high-profile industry policies. These policies signify the government's commitment to developing the used car industry by solidifying well-branded dealerships as the mainstream transaction model in the market. Consequently, the state regulators limited the total number of used cars that individuals are able to trade every year, whereas dealerships are now able to complete vehicle transfers directly. These measures have effectively transformed used cars into commercial products. In fact, from the same regulatory perspective, we still need more companies that can provide high-quality vehicles and reliable services as the driving force to crystallize the used car industry and win customers' love for used cars as products. The direction of these new national policies is highly consistent with our perception of the market and the characteristics of our business. The used car industry is currently experiencing its most crucial changes in decades, and we hope to take full advantage of such tailwinds to fuel our growth. Sorry. Yes. Yes, I want to just emphasize any updates since October 1. Yes.

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

Repeat my question in English. I've got two questions. The first one is how is the Company's current financing situation, how are the funds being used? What's the Company plan to do with these funds in the future?

New capital has made payments based on a three-point payment schedule as part of its total $100 million strategic investment. The payment is proceeding in an orderly manner. We will utilize the funds mainly to expand our inventory size, enhance our reconditioning process, and support the expansion of the Xi'an IRC and the development of the Hefei superstore which is currently under construction.

Okay. Please go ahead.

Yes. Sorry, please go ahead.

Repeat my question in English. Do you know, what is the transaction scenario and the process of the Company's consumer? What is the proportion of online and offline transactions?

Currently, 25% of our transactions are generated purely from online. For the remaining 75%, customers prefer to visit our stores in person and see the vehicles offline before purchasing a car. However, all customers generally look at the vehicle listings; the difference is whether they are located close to our IRCs or not. For customers near our stores, they are more willing to rely on us offline after checking out the vehicle offerings. During the visit, they can understand the real conditions of the vehicles before picking them up on site. For customers who are located further from our IRCs, they will order and purchase online.

Thank you for your questions.

We have reached the end of the question-and-answer session. I would like to hand the call back to Joyce Tang for any closing remarks.

Thank you, everyone, for joining our call today. We look forward to seeing you next time. Bye-bye.

The conference has now concluded.

Bye-bye.

Thank you. The conference is now concluded. You may now disconnect.