Good day, and welcome to the Uxin Third Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Jack Wang. Please go ahead.

Thank you, operator. Hello everyone. Welcome to Uxin's earnings conference call for the third quarter ended September 30, 2024. On the call today with me, 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 financials and guidance. They will both be available to answer your questions during the Q&A session that follows. Before we proceed, I’d 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’ll turn the call over to our CEO, D.K. Please go ahead, sir.

Hello, everyone. Thank you for joining us today. I'm glad to connect with you all on this call. Before we start, I will be sharing our company's latest progress in both English and Chinese to accommodate our domestic and international investors. We're excited to report another quarter of significant growth. From July to September 2024, our quarterly retail transaction volume reached 6,005 units, showing a sequential increase of 47% and a year-over-year growth of 163%. Our vehicle sales efficiency remains strong, with inventory turnover days kept below 30 days, which is much lower than the Chinese industry average of 55 to 60 days. Our gross profit margin also increased to 7%, a new high since transitioning to our self-operated business. We expect retail transaction volume in the next quarter to range from 7,800 to 8,100 units, reflecting a year-over-year increase of over 150%. Customer satisfaction with purchasing vehicles from Uxin has remained the highest in the industry for 11 consecutive quarters, with our Net Promoter Score rising to 66% this quarter. By utilizing advanced intelligent reconditioning factories to produce high-quality used cars, a comprehensive sales service system, and full-stack digital technology, our superstore model offers substantial advantages over traditional car dealerships. The sales conversion rate of customers visiting our stores exceeds 40%. As our base of transacting customers continues to grow, our positive reputation is reaching potential customers more swiftly, further solidifying our competitive advantage in regional markets. Importantly, used car transactions have often been seen as non-standard processes. However, our efforts to standardize the entire transaction process, from inspection and reconditioning to sales, delivery, and after-sales services, have been increasingly recognized by the industry. Earlier this month, we were honored to be named a corporate standard leader in China's used car industry by eight government ministries, including the State Administration for Market Regulation and the People's Bank of China. We will continue to elevate our product and service centers, leading the high-quality development of China's used car industry. We are also actively executing various business initiatives. First, we are steadily increasing our inventory levels to meet the strong consumer demand for car purchases. At the same time, by leveraging the one-stop transaction service environment of our offline superstores, we are enhancing the penetration of value-added services to contribute more to our gross profit. Second, we're gradually supplementing and optimizing our superstore staffing to meet the demands of our expanding business scale. Additionally, as our existing customer base grows, we're further improving our service network by deploying additional maintenance service outlets in nearby areas of the cities where our superstores are located. This allows us to be closer to our customers, fulfilling their daily vehicle maintenance and servicing needs. Driven by continuous sales growth, ongoing improvements in gross profit margins, and consistent expense optimization, we achieved adjusted EBITDA profitability at the superstore level this quarter. We remain on track to meet our goal of company-wide adjusted EBITDA profitability in the upcoming December quarter. Building on our proven superstore model, the expansion of our new superstores is progressing smoothly. Following our cooperation agreement with the Zhengzhou Airport Economic Zone, we are pleased to announce another agreement with the city of Wuhan, which has a population of 14 million and 4 million vehicles. Wuhan also boasts a well-developed automotive industry value chain known as China's Auto Valley, presenting vast potential for business growth. Our superstores in Zhengzhou and Wuhan are expected to commence operations next year. Furthermore, we are in talks with several other cities. The expansion of new superstores will greatly enhance Uxin's market presence in new regions, driving future sales growth and financial performance. And that concludes my remarks for today. Now I will hand it over to our CFO, John, for a closer look at our financials. John, please go ahead.

Thank you, D.K. Hello, everyone. We will deliver our remarks in both Chinese and English to better connect with you. First, I want to mention that to align with common practices in the investment community, we have adjusted our fiscal year this quarter. Our fiscal year now runs from January 1 to December 31 each year, instead of the previous period from April 1 to March 21. For the period from July to September 2024, now the third quarter of fiscal year 2024, we achieved very strong growth once again. Transaction volume rose significantly from last quarter's record high, with quarterly retail transaction volume reaching 6,005 units, marking a sequential growth of 47% and a substantial year-over-year growth of 163%. This quarter, total retail vehicle sales revenue was RMB440 million, reflecting a sequential increase of 37% and a year-over-year increase of 79%. The average selling price of retail vehicles fell from RMB109,000 in the same period last year to RMB74,000 this quarter. The significant increase in transaction volume offset the impact of lower vehicle prices on overall revenue. In the wholesale segment, our third quarter wholesale transaction volume was 1,041 units, a sequential decrease of 31% and a year-over-year decrease of 35%, with total wholesale vehicle sales revenue of RMB37.8 million. Combining retail and wholesale, total revenues for the third quarter were RMB497 million, representing a sequential increase of 24% and a year-over-year increase of 40%. This quarter, our gross profit margin was 7%, an improvement from the previous quarter. Importantly, our gross margin is trending upwards. With the market recovering and an increased uptake of value-added services, we see significant potential for further improvement. While our performance and operational efficiency have improved considerably, we continue to implement strict cost and expense control. This quarter, our adjusted EBITDA loss was RMB9.2 million, down 73% quarter-over-quarter and down 80% year-over-year. Looking ahead to the fourth quarter of 2024, we expect our retail transaction volume to continue its growth trend, reaching between 7,800 units and 8,100 units, with total revenues projected to be between RMB560 million and RMB580 million. We also aim to achieve positive adjusted EBITDA for the company in the fourth quarter. That concludes our prepared remarks for today. Thank you, everyone. Operator, we are now ready to begin the Q&A session.

Thank you. We will now start the question-and-answer session. The first question today comes from Gary with Water Tower Research. Please go ahead.

Hi, everyone. So we've seen that in previous years, China's used car transaction volumes grew by double digits annually. But now in recent months, the growth rate has significantly slowed, think the year-over-year growth is like around 5% from January to September. So could you share whether the development of China's used car market is slowing down or not, the reasons behind the trend and your outlook for the market's future?

All right. Thanks, Gary. Let me translate that question first.

Okay. Thanks for the question. This is D.K. This year, we have noticed a slowdown in the growth rate for both new and used car transactions in China. Specifically, the production and sales of new cars have increased by about 2% year-over-year, while used car transactions have grown by roughly 5%. The main factors contributing to this slowdown include changes in the economic environment, which have dampened consumer demand for cars. Additionally, the used car market faced challenges due to price reductions in new cars during the first half of the year, affecting consumer sentiment towards purchasing used vehicles. However, despite these short-term challenges, we remain very confident in the long-term potential of China's used car market. First, China's per capita car ownership is still less than one-third of that in the United States, and overall car ownership in the country continues to rise. Second, the Chinese used car market is still in its early stages of development. We expect it will experience double-digit transaction volume growth in the coming years. In fact, since the second half of this year, we have already begun to see a rebound in used car transaction volumes. We have achieved around 150% year-over-year growth in retail transaction volume over the past few quarters. While our market share in the two cities where our current superstores are located has surpassed 15%, our nationwide market share remains relatively low because we are currently focusing on expanding our offline superstore model in these cities. This indicates significant room for growth. In the coming years, we plan to open several new superstores annually, which will drive ongoing growth in our sales volume. We believe that our sales growth rate will significantly surpass that of the overall market.

And that's our answer to the question. Operator, we can move on to the next.

Okay, thank you.

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

Hello D.K. Is encouraging to say the company expanding with new stores. Could you provide the timeline for the two new stores planned in Zhengzhou and Wuhan from construction to operating to achieving individual stores profitability? Also, what impact will this have on the company's financial performance in 2025? Thank you.

This is John, and I will address your questions. Both of our new stores are progressing as planned. The Wuhan store is expected to open in the first half of 2025, while the Zhengzhou store is anticipated to open in the second half of 2025. Building on the experience and refinements from our superstore models in Xi'an and Hefei, we have fully validated this concept and accumulated valuable operational know-how. As a result, we expect these new stores to reach breakeven within 6 to 12 months after opening. Regarding the impact on our financial performance, this will largely depend on the rollout schedule of the new locations. Before opening, we will need to invest operating capital primarily for purchasing equipment for reconditioning facilities and acquiring vehicles. This investment will be phased in gradually as our inventory levels grow, so the initial capital requirements for each new store won't be substantial. We also anticipate a normal level of operating losses during the first six months after a store opens, but starting around six months in, we expect the impact on our income statement to begin turning positive. That's our answer to your first question.

Over the past few quarters, the company has consistently reported increasing inventory, with inventory assets growing by about 13% each quarter. I have two questions. From a market demand perspective, how do you plan for the upper limit of inventory levels in different cities? Will the 30-day turnover rate decrease as inventory increases? How does the company plan to balance inventory levels and turnover?

And this is D.K., and I will address that question. Our approach to planning inventory levels in different cities is closely tied to the local car ownership levels and our targeted market share in those regions. For example, in the city with approximately 500,000 registered vehicles, considering that new cars typically enter the used car market after about seven years, the annual used car transaction volume in the city will be around 70,000 units, translating to approximately 4,000 units per month. In our existing markets like Xi'an and Hefei, we have achieved a market share exceeding 15%, with an ultimate goal of 20%. To put this into perspective and also to highlight our competitive advantage and effective business model, the leading used car companies in the US generally attain around a 3% market share only. Based on these metrics, in cities with 500,000 vehicles, capturing 20% of the monthly used car transactions, which will be around 1,200 units, supports the operation of a superstore with an inventory capacity of approximately 1,000 cars. In larger cities, such as Zhengzhou and Wuhan, where car ownership is around 5 million, our superstores can effectively manage inventory capacities of around 10,000 cars. When entering a new city, we first establish an inventory plan that aligns with the city's car ownership levels and our market share objectives. We then progressively scale our inventory in line with sales growth, enhancing market penetration while efficiently managing resources. Since March of this year, we have been steadily increasing our inventory levels. By the end of September, our inventory was approximately double that of March end-levels. Notably, our monthly sales have more than doubled during the same period, meaning sales growth has outpaced inventory growth. We've actually achieved an acceleration in inventory turnover rather than a decrease. This is due to several factors. First, the market has been recovering with strong demand driving higher sales volumes. Second, as we expand our scale, consumers benefit from a wider selection of vehicles available in our superstores. This increase in variety enhances our brand attractiveness, effectively making our stores the preferred destination for used car purchases. As a result, more customers are drawn to our brand, improving sales efficiency. Currently, the inventory levels at our two existing superstores have not yet reached their planned limits. We aim to maintain an inventory turnover rate for around 30 days, even as we continue to increase inventory. That's our answer to your second question.

This concludes our question-and-answer session. I would like to turn the conference back over to the company 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 next quarter. Thank you.

Thank you.

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