Uxin Ltd Q1 FY2025 Earnings Call

Hello, and welcome to the Uxin First Quarter Fiscal Year 2025 Earnings Conference Call. All participants are in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Jack Wang. Please go ahead.

All right. Thank you, operator. Hello, everyone. Welcome to Uxin's earnings conference call for the first quarter ended June 30, 2024. On the call today with me, we have DK, our Founder and CEO; and John Lin, our CFO. DK 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 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. And now with that, I will turn the call over to our CEO, DK. Please go ahead, sir.

Hello, everyone. Thank you for joining us today. I’m glad to connect with you all on the call, and to facilitate communication with both domestic and international investors, I will share our company's latest progress in both Chinese and English. During the first quarter of fiscal year 2025, which covers April to June 2024, our superstore operations maintained strong momentum despite ongoing disruptions in the used car market due to aggressive pricing competition in the new car market. We achieved retail sales of 4,090 units for the quarter, representing a 31% sequential increase and an impressive 142% growth year-over-year. Our vehicle turnover efficiency also remained healthy with inventory turnover days at approximately 30 days. As our business continues on this rapid growth trajectory, customer satisfaction has reached new heights. After maintaining the highest Net Promoter Score in the industry for nine consecutive quarters at around 60, we further improved this quarter, reaching an NPS of 65. Our customers increasingly recognize the quality of our products and level of service we provide, further solidifying the competitive advantage of Uxin's offline superstore model. In our shareholder letter last quarter, we outlined our expectation to achieve adjusted EBITDA profitability company-wide by the December quarter of 2024. The strong business momentum over the past few months has brought us even closer to this goal. Today, I would like to highlight three key areas we are focusing on to drive continued growth. First, we are steadily increasing our inventory levels. Since June, the intensity of new car price wars has begun to ease and consumer demand for used cars has gradually picked up. In response, we resumed expanding our inventories, and we expect to increase our inventory to two to three times its size at the beginning of the year by the end of 2024. This will provide a wider selection of vehicles to meet customer demand and drive continued retail sales growth over the next three quarters. Second, we are increasing the proportion of vehicles we acquire from individual car owners. As our brand presence grows in the cities where our superstores are located, as well as in the surrounding areas, we are seeing a substantial rise in organic traffic from individual car owners looking to sell or trade in their vehicles. Currently, over 60% of the vehicles we acquire come directly from private owners, placing us at the forefront of the supply chain. This not only helps us secure better pricing margins but also strengthens our competitive edge in regional markets. Third, we are focusing on enhancing the penetration of value-added services through our one-stop shopping experience at our offline superstores and reconditioning centers. We continue to expand high-margin services such as financing, insurance, extended warranties, premium accessories, and vehicle maintenance. This strategy will further improve our profit gross margin. Additionally, we are continuing to expand our network of superstores, building on the success of our current business model. In July, we reached a strategic partnership with the local government in Zhengzhou to establish a new superstore in the city. We are also actively engaging with several other cities and expect to finalize one to two more strategic partnerships with the local government soon. This expansion will significantly enhance Uxin's market presence in new regions, driving further sales growth and improving our overall business performance. That concludes my updates for today. I will now turn the call over to our CFO, John, to discuss the financials in more detail. John, please go ahead.

Thank you, DK, and hello, everyone. Since we have both domestic and international investors joining us today, I will be presenting our first quarter financial results for the fiscal year of 2025 in both Chinese and English. Looking back at the first quarter of fiscal year 2025, between April and June of 2024, we continued to experience some market disruptions due to the ongoing price wars in the new car market. However, the overall used car market has shown signs of recovery, with nationwide used car sales increasing by 6.4% year-over-year. Importantly, our offline superstore model is now fully operational and backed by our brand, product, and service capabilities, allowing us to achieve record sales in the quarter. Our quarterly retail transaction volume reached 4,090 units, reflecting a 31% sequential increase and a notable 142% year-over-year growth. The total retail vehicle sales revenue for the first quarter was RMB325 million, showing a 74% year-over-year increase. The average selling price of retail vehicles dropped from RMB111,000 in the same period last year to RMB79,000 this quarter. The substantial growth in transaction volume mitigated the impact of the lower average selling price on overall revenue. On the wholesale front, our wholesale transaction volume for the quarter was 1,515 units, marking a slight 3% year-over-year decline, with total wholesale vehicle sales revenue of RMB63.9 million. Consequently, our total revenues in the first quarter amounted to RMB401 million. Our gross margin was 6.4%, which remained stable compared to the previous quarter. As the market gradually recovers and the penetration of our value-added services increases, we anticipate further improvement in gross margin going forward. As our performance and operational efficiency have improved significantly, alongside a continued focus on strict cost control, our adjusted EBITDA loss for the quarter was RMB33.9 million, down RMB5.9 million from the previous quarter and down RMB12.8 million or 27% year-over-year. Looking ahead to the second quarter of fiscal year 2025, between July and September 2024, we expect retail transaction volume to reach between 5,800 and 6,000 units, representing over 40% sequential growth. Total revenues are projected to be between RMB480 million and RMB500 million. We also expect our adjusted EBITDA loss to significantly narrow to under RMB10 million, and we are confident in achieving positive adjusted EBITDA in the third quarter, which runs from October to December 2024. Recently, we secured a $7.5 million financing agreement with Dida, a company listed on the Hong Kong Stock Exchange. This capital infusion will further support our efforts to increase inventory, driving continued growth in retail sales. In the near term, our main focus for capital allocation will be on increasing inventory. Additionally, we have other financing plans currently underway to ensure we have enough capital to support the rapid growth of our future business. And that concludes the prepared remarks for today. Thank you all. We are now ready to begin the Q&A session.

The first question comes from Fei Dai with TF Securities. Please go ahead.

Congratulations on the strong quarterly results and positive outlook. My first question is, can you elaborate on the specific factors driving the strong retail sales growth and do you think this growth rate is sustainable? The second question is, we noticed from the quarterly report that the company's cash position as of June 30 is relatively low. Could you provide more detail on your financial management plans and how you will support future business growth? Thank you.

So this is DK. I will address your first question and then John will address the second. There are three key factors driving the significant increase in sales. First, the overall used car market is starting to recover. Earlier in the year, aggressive pricing competition in the new car market severely impacted the used car sector, with many consumers hesitant to make purchasing decisions. However, as we moved into midyear, the price wars began to ease, and we've seen a noticeable rebound in demand for used cars. Second, as our operations have matured, we've built a stronger presence in the cities where our superstores are located. Our brand, product offerings, and service capabilities have all improved significantly, leading to higher sales conversion rates. We've reached a tipping point where our growth is now accelerating. Third, as we observed the market recovery, we proactively expanded our inventory levels, providing customers with a wider selection of vehicles, which enabled us to better meet consumer demand, resulting in higher sales conversion. Looking ahead, we expect sales growth to remain strong. For the next quarter, we are forecasting a sequential growth of over 40%, and by the end of the year, we plan to increase inventory one to two times compared to the beginning of the year, with total inventory reaching 3,000 to 4,000 units. At the same time, we're confident in maintaining high inventory turnover levels, keeping us on a sustained growth trajectory.

Hi, this is John. I will address your second question about cash. It is true that our cash levels have been relatively low over the past few quarters. However, our operating cash flow has improved significantly, and we've secured new investments to further enhance our liquidity. We are also very efficient with our cash usage, and while ensuring operational stability, a majority of our funds have been directed towards increasing retail inventory. That's why, even though our cash balance might seem low, it's important to note that our inventory levels have been steadily rising, which has fueled continued sales growth. Over the coming quarters, our primary focus for cash allocation, including the recent financing, will remain on boosting inventory levels. Overall, we operate under two core financial principles: first, ensuring the company's financial position is secure, and second, fully supporting our business growth. This demands a high level of financial management, and we've made substantial efforts to both increase our cash inflow and manage expenses. As our sales and profitability have improved, both of our superstores are now adjusted EBITDA positive. We are transitioning from burning cash to generating cash. Meanwhile, our investors continue to show strong confidence in Uxin's business prospects. In early September, we secured $7.5 million in financing from Dida. We have additional financing plans currently progressing as scheduled. Also, we've implemented multiple rounds of cost-saving and efficiency-enhancing initiatives resulting in a reduction of fixed monthly expenses compared to the same period last year. As for the new superstores in other regions, we will require additional funding for their launch and inventory buildup, which will primarily be supported through a combination of local government investment and our own capital. Based on our extensive experience in building and operating the Hefei and Xi'an superstores, as well as favorable local policies, the start-up costs for new stores are entirely manageable and remain at a very reasonable level. So, to summarize, our financial management remains solid and stable as we continue on our path towards long-term sustainable growth, and we are confident in the ongoing improvement of our cash position.

Operator, can we move on to the next.

Jack, we have a question we received. I'll take the opportunity to ask it. We have a question from Gary with Water Tower Research. He wanted to know if you could share more about your recent observations on market conditions, especially since the company has mentioned that price competition in the new car market has eased somewhat, and how consumer demand for used cars has been evolving in the current economic environment.

This is DK. I will address this question. That is correct. The price competition in the new car market has been quite intense over the past year. This year's economic conditions have posed significant challenges. Sales growth for new cars in the first half of this year was only around 5%. We've seen several popular models experiencing price cuts three to four times since the first quarter of last year, with cuts reaching around 30%. These aggressive pricing strategies in the new car market have led to a continuous decrease in average transaction prices in the used car market, where our current average price per vehicle is just over RMB70,000. We believe that in the long run, these lower vehicle prices have opened up a broader market, enabling more consumers to purchase better vehicles with smaller budgets. This dynamic is also causing consumers to increasingly view used cars as a high-value purchasing option. Regardless of the economic situation or market environment, consumer expectations for product and service quality are consistently increasing, raising the bar for superior used car dealerships. Our integrated model of offline superstores and online national sales capacity can fulfill the broadest consumer needs, and we are highly recognized for our services. With an average sales turnover of about 30 days, which is significantly faster than the industry average of 55 to 60 days, our sales growth and customer satisfaction, as measured by our industry-leading Net Promoter Score, consistently exceed industry averages. Therefore, no matter how market conditions fluctuate, we are confident in our business operations, maintaining a trajectory of continuous improvement with new breakthroughs each month.

And that's our answer to what is our researcher’s question. Operator, can we move on?

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

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

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.