Ladies and gentlemen, thank you for standing by. And welcome to Uxin's Conference Call for the Quarter Ended September 30th 2022. 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, Mr. Jack Wang. Please go ahead, Jack.

Hi, thank you, operator. Hello, everyone. Welcome to Uxin's earnings conference call for the quarter ended September 30, 2022. On the call with me today, we have D.K., our Founder and CEO; and John Lin, our CFO. D.K. will review business operations and company highlights, followed by John, who will discuss our financials and 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 with that, I will turn the call over to our CEO, D.K. Please go ahead, sir.

Hello, everyone. It's great to have you with us for our earnings conference call today. To accommodate both domestic and international investors, I will discuss our business progress in English and Chinese. During this call, I will highlight our major business developments from the past quarter and provide insights into our recent progress and long-term outlook. In the second quarter of fiscal year 2023, which ended on September 30, 2022, our retail transaction volume reached 3,109, marking a nearly 30% increase quarter-over-quarter and a 203% growth year-over-year. The year 2022 posed significant challenges for China's used car market, particularly as college student disruptions slowed business activities and reduced customer spending. Consequently, from July to September, used car transactions in China dropped 5% year-over-year, a rare occurrence. Despite these macroeconomic and industry-wide challenges, we achieved notable business growth, highlighting the resilience of our IRC-based omni-channel used car business model. In addition to our rapid growth in transaction volume, our brand reputation and customer satisfaction continued to rise. Since launching our Hefei superstore last year, we have achieved remarkable success in the Hefei market, capturing nearly 10% market share, which we anticipate will grow further. Our brand remains the most recognized among used car buyers in Hefei and surrounding areas. Our net promoter score (NPS) was 61 last quarter, keeping us at the forefront of the industry, with over 25% of transactions stemming from referrals by existing customers. Furthermore, our ongoing initiatives to enhance operational efficiency yielded positive results. Our car sourcing channels performed well, especially in Xi'an and Hefei, where we established our IRCs and superstores, enabling us to acquire high-quality used car supplies. Nearly 60% of our vehicle acquisitions came from individual customers. In September, we streamlined the process from vehicle acquisition to sales listing, further accelerating our sales turnover. Although we faced significant COVID-related disruptions in October and November, our operations have returned to pre-disruption levels, and we expect continued improvement in 2023. I'm excited to announce another key milestone we reached. As we shared last week, we have completed the relocation and upgrade of our ROC and IRC superstore to effectively meet the increased demand for used cars in Xi'an and its surrounding areas. The upgraded IRC and superstore now represent the largest fully self-owned used car marketplace in Northwest China, expanding the total floor area to 150,000 square meters. This includes a used car reconditioning factory and a warehouse superstore. Equipped with state-of-the-art technology and reconditioning techniques, the factory has an annual capacity of 40,000 units, ensuring a robust supply of high-quality used cars. The warehouse-style superstore has increased its showroom capacity from 600 to 3,000 vehicles, providing a wide selection for our customers. Additionally, the IRC features a comprehensive customer service center and the on-site presence of a vehicle administration office, allowing customers to access auto financing, insurance, warranty options, accessories upgrades, and title transfer services, all in one convenient location. The new Xi'an IRC embodies our commitment to transforming China's used car industry through advanced manufacturing, innovative retail experiences, and digital integration. By enhancing our reconditioning process with sophisticated equipment, technology, and supply chain capabilities, we can guarantee a steady supply of high-quality used cars and create more value opportunities. Our own IRC factory allows us to exercise refined control over the manufacturing process, significantly lowering reconditioning costs through economies of scale. Our appealing store environment, extensive variety of used cars, and comprehensive services have established our superstore as a leading brand and a must-visit destination for consumers. Our quality used car offerings and streamlined buying experience set us apart from traditional used car markets. After entering this conventional industry with digital and intelligent technologies, we invested over 11 years in developing digitized processes and management systems, covering everything from inspection to reconditioning and sales. We harnessed our system and data to standardize business processes that have traditionally lacked consistency. These digitized systems and standardized processes have greatly enhanced our operational efficiency. Our technological advantages allow us to manage a used car business on a significantly larger scale in China, differentiating us from the fragmented market of small used car dealers. We are confident in the business model we have created and in the future potential of the used car sector. We foresee a major transformative opportunity in China's used car market. Following the strict COVID measures experienced in October and November, we anticipate a rebound in the Chinese economy in 2023, as the country begins to ease restrictions. With regulators continuing to introduce supportive policies for the industry, we will further expand our business footprint through our original IRC network. Our strong brand reputation, coupled with our superior product and service capabilities, will empower us to drive the transformation of China's used car industry into its next phase of growth.

Thank you, D.K., and hello, everyone. To accommodate our domestic and foreign investors, our remarks will be given in both Chinese and English. I will now discuss our financial results for the second quarter of fiscal year 2023, covering the three months that ended on September 30, 2022. Despite facing significant challenges in China's used car industry this quarter, we achieved strong growth in our retail business. Our retail transaction volume rose by an impressive 203% year-over-year and 29% quarter-over-quarter, reaching 3,109 this quarter. Concurrently, as we optimized our inventory structure, our average selling price decreased from RMB145,000 in the previous quarter to RMB120,000 this quarter. Retail vehicle sales revenue reached RMB330 million, which reflects a 7% sequential increase and a 79% increase year-over-year. We have completed significant inventory restructuring and anticipate that our retail average selling price will stabilize between RMB110,000 and RMB120,000. Additionally, with ongoing improvements in our used car inspection and reconditioning processes, as well as increased showroom capacity, we managed to sell a greater share of our acquired vehicles through retail channels. For the first time in six quarters, retail sales surpassed wholesale sales, and we expect this trend to continue in the coming quarters. Wholesale transaction volume reached RMB3,000 this quarter, remaining stable compared to the previous quarter. During this period, we reconditioned more acquired vehicles to meet retail standards. As retail sales increased, the average selling price of wholesale vehicles dropped from RMB860,000 in the previous quarter to RMB81,000 this quarter. Wholesale vehicle sales revenue for the second quarter was RMB238 million, a decline of 10% from the previous quarter. Our total revenues, encompassing both retail and wholesale, remained stable at RMB619 million, which is up 79% year-over-year. Retail vehicle sales accounted for 60% of our total revenues this quarter, and we expect this percentage to continue growing in upcoming quarters. Our gross margin for the quarter stood at 1.3%, which is a slight increase from 1.1% in the previous quarter. Amid the market slowdown, we experienced price impairments on some of our inventories. However, we optimized our inventory structure and expedited the turnover of high-priced vehicles through various pricing strategies from July to September. These proactive measures affected our margin expansion, limiting our gross margin to a low percentage level. Following stringent COVID controls in various regions of China during October and November, restrictions were eased in December, and infection rates are nearing peak levels. These significant changes have greatly impacted the domestic used car market. Nonetheless, we are pleased to see our sales performance rebound quickly, with numerous operating metrics in December returning to previous highs. We expect our gross margin to improve continuously once the initial COVID infection peak is past, aiming for a reasonable level in calendar year 2023. Total operating expenses for the quarter were largely unchanged compared to the previous quarter. Although we are currently in a period of rapid growth, we remain dedicated to implementing cost reduction and efficiency improvement initiatives into our daily operations for optimal return on investment. As D.K. noted earlier, the completion of our Xi’an IRC upgrade was a major milestone. We anticipate that accelerated sales growth in Xi’an and surrounding areas, along with ongoing cost optimization, will allow our Xi’an superstore to achieve positive operating profit on a per-store basis within the next 12 months. Our non-GAAP adjusted loss from continuing operations increased by approximately RMB7.5 million from the last quarter, reaching RMB92.4 million this quarter. Detailed financial statements are available in our earnings release online, so I will refrain from repeating the figures here. However, I would like to address the fair value impact concerning our financing transaction. The fluctuations in our share price from the end of this quarter to the end of last quarter resulted in a loss of RMB11.5 million due to fair value changes of warrants associated with the financing agreement we signed in 2021. This represents a non-cash loss based on U.S. GAAP financial treatment and does not reflect our operational performance. Moving on to our guidance for the next quarter, the COVID outbreaks in October and November in Xi'an and Hefei, where our IRCs are located, led to severe control measures and citywide lockdowns that significantly affected our sales growth. After China began to lift COVID restrictions in December, infection levels in Xi’an, Hefei, and many other cities approached estimated peak levels. Although market consumption has been slow to recover, our retail transaction volume in December has bounced back to September levels. Accordingly, we expect our total transaction volume to slightly dip in the third quarter of fiscal year 2023, which covers the three months ending December 31, 2022. Our retail transaction volume is anticipated to be around 2,800 units, reflecting a 65% year-over-year growth, while the average selling price for retail vehicles is expected to be around RMB110,000. We also project our wholesale transaction volume to be near 2,000 units, with an expected average selling price around RMB70,000. We estimate that our total revenues, including retail vehicle sales revenue, wholesale vehicle sales revenue, and value-added service revenue, will be between RMB450 million and RMB460 million. Once the peak of this COVID infection cycle is surpassed and the economy begins to recover, we believe our business will revert to a high-quality growth trajectory in the upcoming New Year. That concludes our prepared remarks today. Operator, we are now open for questions.

Thank you. We will now begin the question-and-answer session. For the benefit of everyone on today's call, please ask your question first in Chinese and then repeat it in English.

Hello. Can you provide more details on the COVID disruptions? And how it affected consumer purchasing, in other words, did it improve the online purchasing part of the business? Thank you.

Thank you, Tom. COVID definitely had a significant impact on used car consumption.

Thank you, Tom. The near-term economic effects of COVID have influenced consumer demand and their willingness to purchase cars. During strict containment measures, delivery, logistics, and offline operations faced ongoing disruptions, preventing consumers from completing their purchases. Now that we are experiencing the peak of the first COVID infection cycle after restrictions have been lifted, many customers are remaining at home tending to their infections. From our perspective, we are pleased with our impressive business growth between July and September, during which our retail transaction volume more than tripled despite these challenges. However, in October and November, we encountered COVID controls and city lockdowns in Xi'an and Hefei, where our IRCs are situated, which certainly affected our sales. Fortunately, as China started to ease COVID control measures in December, our sales performance rebounded ahead of the market, with many of our operating metrics in the last few weeks surpassing our previous highs. Since the relaxation of COVID controls, we've observed a robust market recovery, which is why we are optimistic about the opportunities in 2023. Once this peak subsides, we anticipate a strong rebound across the entire used car market. That's the response to Tom's question.

Absolutely. Our next question today comes from China Securities. Please go ahead.

Now I will speak in English. What is the impact of the upgrade of our Xi’an superstore on the company's used car transactions? Is the current increase in storage capacity from 600 units to 3,000 units sufficient from the supply perspective, and will customer demand for used cars improve following the easing of COVID restrictions?

Thank you. Let me address your question about expanding our Xi'an superstore showroom capacity from 600 units to 3,000 units. Our previous capacity was no longer sufficient to meet the demand from our customers in Xi'an, so we decided to expand. This expansion positions our superstore as the largest used car marketplace in Northwest China, which enhances our value propositions to customers with a wider selection of vehicles, a larger store, and an improved shopping experience. These enhancements have also strengthened our market share and position in the region, which will continue to drive our business growth and create additional room for sustainable sales growth in the future. Additionally, the upgrade has not only increased the size of our Xi'an superstore but also allowed us to create an innovative used car model that merges our advanced reconditioning factory with a warehouse-style superstore. This integration has improved our control over the quality of our used car selection and helped us optimize our costs. At present, our Xi’an superstore meets the market demand in Xi'an and nearby cities, leading us to believe that our showroom capacity of 3,000 used cars is adequate. We operate an omnichannel sales network supported by our IRCs, giving us the ability to adjust our inventory to balance demand across different regions. Moving forward, we intend to continue developing new IRCs to support business growth and inventory expansion based on market conditions and our strategic plans.

Can management provide insights on the current dynamics of the used car market, including the size of the market, the competitive landscape, growth opportunities, and policy directions? Thank you.

I will break down our view of the market into two aspects as well. For the size of the market, China is already the world's largest auto market in terms of vehicle ownership. All these vehicles currently on the road will eventually need to go through secondary market circulation. Therefore, based on China's current scale of car ownership, we believe that our used car market will expand from 20 million transactions per year to approximately 45 million transactions per year, matching the level seen in the U.S. over the next few years. On the competition front, the current market landscape is still relatively fragmented, where small dealers dominate the transaction market. We believe that some of them will gradually transition towards branded and standardized operations, while others will go out of business. We have developed an innovative business model in the market, providing customers with a new and improved shopping experience. Through our digital transformation, stronger production capabilities, and higher vehicle quality, we believe we have significant advantages in all aspects within the current competitive landscape. In terms of growth potential, our Hefei superstore has already shown that we have acquired about 10% of the market share in Hefei within a year of operation. Furthermore, we still have plenty of room for improvement, and we anticipate achieving about 20% market share in Hefei in the future. Importantly, our success in one market will allow us to replicate the approach in other major cities across the country, and we are confident that Uxin has greater growth potential in China compared to our competitors in the U.S. I will also briefly summarize some of the key policies. First, the government is clearly encouraging compliant dealership operations while strengthening oversight over unlawful practices. For example, new regulations require that each individual can only trade less than two used cars in a year. This policy restriction will eliminate the illegitimate operations that were largely unregulated in the industry before, thus standardizing the market and creating a healthier environment for compliant businesses to grow. Moreover, the reform of the used car tax system has significantly simplified vehicle title transfers and reduced our business operation costs. Additionally, the introduction of electronic vehicle profiles and online registrations has allowed us to expand our access to used cars and enhance transaction efficiencies. Overall, China has been implementing numerous policies that boost the industry. The regulatory support has undoubtedly improved and will continue to enhance the overall industry environment.

Thank you.

Thank you. And our next question today comes from Fei Dai with TF Securities. Please go ahead.

I'll translate my question to English. We noticed that your transaction volume increased by 60% in the second quarter, while the total transaction in the industry declined by 5%. Could you explain what has driven your growth in this challenging market? Thank you.

Sure, Dai Fei. The used car industry, as you mentioned, faced challenges during July and September. The industry experienced an unusual year-over-year decline in transaction volume, making it particularly tough for us to achieve over 200% year-over-year growth in our retail transaction volume in such market conditions. Alongside transaction growth, our customer satisfaction levels have continued to improve, thanks to the efforts of the entire Uxin team. Our results also highlight the resilience and vitality of the business model we have established. Our model offers significant advantages compared to traditional used car dealerships. The first is that we leverage our advanced reconditioning factory to develop our used car product offerings well ahead of traditional car dealers. We utilized our assembly line management, advanced reconditioning equipment, and processes to recondition our vehicles. Our advanced reconditioning factory ensures that we have a stable supply of high-quality used cars on a large scale, and high-quality used cars is an important reason that customers choose us in a challenging market environment. We have developed a very innovative new retail experience for used car purchases. Our fully self-owned superstore is significantly better than the traditional used car market in terms of vehicle selection, purchase process, service experience, and after-sales services. In our superstore, buying a used car is now more akin to shopping at a modern IKEA or a large supermarket, rather than visiting a farmers' market. Customers can enjoy a seamless experience from selecting a car and transferring titles to accessing after-sale services, all within the store. We have established ourselves as a must-visit destination for used car buyers in every region we enter, whether it's Xi'an or Hefei. And thirdly, we have digitized the management of the entire process, which allows us to better understand our customers and the market, enabling us to adjust our operations based on market fluctuations. Through Uxin's 11 years of development in the industry, we have built the most comprehensive database and advanced digital technologies in China's used car sector. This digitization helps us grasp our customers' needs more effectively, allowing for better selection of our used car offerings. Our intelligent pricing system permits us to adjust prices dynamically based on market conditions, optimizing our inventory structure and enhancing the precision of our user acquisition efforts across various channels. We also utilize our digital systems for improved analysis and management of our business, establishing our unique capability to manage used car operations on a large scale. And that's how we managed to deliver growth under a challenging market environment. We hope to drive and upgrade the development of China's used car industry to a much more advanced stage through what we're doing. I'm fully confident that as COVID passes and the industry as a whole starts to recover, we will sustain our high-quality growth in 2023. And that's how we managed to deliver growth under a challenging market environment. We hope to drive and upgrade the development of China's used car industry to a much more advanced stage through what we're doing. I'm fully confident that as COVID passes and the industry as a whole starts to recover, we will sustain our high-quality growth in 2023.

And that's how we answer to TF Securities questions.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Jack Wang for closing remarks.

Alright. Thank you, everyone, again, for joining our call today and for your continued support in Uxin. We look forward to speaking to you again soon in the future. We wish you all a nice day, and Happy New Year ahead.

Thank you. Ladies and gentlemen, this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.