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Edited Transcript of UXIN.OQ earnings conference call or presentation 23-Sep-19 12:00pm GMT

Q2 2019 Uxin Ltd Earnings Call

Sep 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Uxin Ltd earnings conference call or presentation Monday, September 23, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kun Dai

Uxin Limited - Founder, Chairman & CEO

* Nancy Song

Uxin Limited - IR Director

* Zhen Zeng

Uxin Limited - CFO

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Conference Call Participants

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* Ashley Xu

Crédit Suisse AG, Research Division - Associate

* Eddy Wang

Morgan Stanley, Research Division - Research Analyst

* Rebecca Y. Wen

JP Morgan Chase & Co, Research Division - Analyst

* Ronald Keung

Goldman Sachs Group Inc., Research Division - Executive Director

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to Uxin Second Quarter 2019 Earnings Conference Call. (Operator Instructions) Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Nancy Song, Investor Relations Director of Uxin. Thank you. Please go ahead.

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Nancy Song, Uxin Limited - IR Director [2]

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Thank you, operator. Hello, everyone. Welcome to Uxin Second Quarter 2019 Conference Call. Today, D.K., our Founder and CEO; and Zhen Zeng, our CFO, will discuss our financial results for the second quarter. Following the prepared remarks, D.K. and Zhen will be available to answer your questions.

Before we start, I'd like to remind you that our statements today will contain forward-looking statements that we make 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 risks and uncertainties, which could cause actual results to differ materially from our expectations. Uxin does not undertake any obligation to update any forward-looking statement, except as required under applicable laws.

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.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [3]

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Thank you, Nancy. Hello, everyone. Thank you for joining our second quarter 2019 earnings conference call.

As you may already know, we announced a proposed transaction with Golden Pacer to divest our loan facilitation related business this July. As a result, going forward, we will completely divest our 2C intra-regional business, no longer provide guarantee services for the 2C cross-regional business, divest the corresponding assets and liabilities, and therefore, significantly relieve ourself of guarantee obligation for the existing loan balance of the loans previously facilitated by us. Our 2C business now solely consists of online used car transactions, which previously were recorded as "2C cross-regional transactions". The corresponding revenue streams are now commission revenue and the value-added service revenue.

Before we dive into more details of the proposed transaction, let me first give a quick recap of our second quarter performance. It is important to note that the financial impact of the proposed transaction has already been reflected in our second quarter results as required by the accounting policy.

With relevant revenue, costs and operating expenses of discontinued operations excluded from our financial results, we are pleased to report another strong quarter with 58% year-over-year increase in total revenue to RMB 439 million. In particular, our 2C business continued a strong growth path. In the second quarter, our 2C revenue substantially increased 11x year-over-year to RMB 322 million, contributing 73% of total revenues.

Looking at our 2C business in more detail. We continued to see robust momentum in our online used car transaction volume during the quarter. We completed over 24,500 unit transactions in our online shopping mall, up 500% year-over-year. This not only reflects the growing traction of our one-stop online used-car-buying products and services, but also demonstrated consumers' increasing acceptance of buying used cars online from us without actually seeing the car when making the purchase decision. As we create the sales opportunity and control the entire shopping [process] (corrected by company after the call), coupled with our comprehensive product and service offerings, we have maintained our strong ability to monetize online used car transactions and recorded a total 2C take rate of 11.2% per unit in the quarter, equivalent to a per-unit revenue of over RMB 13,000. We have also made notable progress on penetrating lower-tier cities. Our nearly 800 franchisees contributed over 30% of total 2C transaction volume in the quarter, significantly up from a low-teen percentage in first quarter.

Move on to our [2B] (corrected by company after the call) business. Because of our change of approach in serving consumers with car-selling needs as well as dealers' growing preference to sell used cars on our 2C platform, as expected, our 2B transaction volume declined by 57% year-over-year to 39,500 units, but with take rate slightly increased to 3.7% in the quarter from 3.5% in a year ago period. Even though 2B revenue decreased to RMB 68 million, 2B business continues to serve as a complementary pillar of our business as it strengthens our relationship with dealers by offering them a highly efficient auction channel to improve inventory turnover. We may also continue to provide favorable terms to our dealer customers on the 2B platform so as to maintain customers stickiness and encourage them to expand collaboration on our 2C platform at the same time.

With that, let me now share more color on the proposed transaction with Golden Pacer. As we divest our loan facilitation related business, we will only provide financing product referral services going forward for those customers who want to finance their cars purchased from our online shopping mall, and we no longer need to provide any guarantee services. Accordingly, we will be freed from putting down restricted cash as deposit at bank's escrow account. This will greatly lower our capital needs, improve cash flow, and therefore, create a more favorable operating environment for our long-term development.

In addition, the divestiture will allow us to fully focus on fulfilling online used car transactions, which is exactly our growth priority and strategy. We have always been a transaction-centered platform since day one. Now with our evolved model of a national online used car dealer, we are even better positioned to make the most of our strong suit in executing online transactions. More importantly, we firmly believe that to purchase used car online is a clear and accelerating trend in China's used car market, mirroring exactly what has happened in the mature markets overseas. Our strategy to focus all our resources on the online transaction area will enable us to better capture the massive market opportunities brought by this trend.

With our 2C business becoming a pure player, we will be better suited to utilize our innovative supply chain and infrastructure to provide consumer with four core values through our one-stop online used car product and service offerings.

First, a national-wide selection of used cars. As opposed to limited local selection, we are able to expand our inventory from local to national reach by operating a virtual national inventory system with over 18,000 offline dealers being our inventory suppliers. In the second quarter, we provided a real-time selection of over 110,000 used cars in our online shopping mall. More importantly, under our national online used car dealer model, we don't take on actual inventory risks. Only when we receive 100% certainty purchase order from the consumer who pay a 10% deposit for the purchase in advance, do we start to procure the inventory from the supplier.

Second, online standardization for unstandardized products. Our standardized video inspection reports and VR display for used cars create higher transparency on car conditions. In addition, our sales consultants will also visit the customer in person and help them interpret the video inspection reports, introduce car specifics, assist them in selecting the car they prefer, and help them execute the purchase. All of these will give consumers great peace of mind in buying a big-ticket item online.

Third, a one-stop online purchasing experience. In addition to selling a used car, we also provide financing and insurance product referrals and comprehensive warranty program as value-added service, plus comprehensive return policies, to better meet consumers' various needs and offer overall solutions.

Fourth, national fulfillment services. We have built up a national logistic network to make sure every used car we sell online can be delivered to the consumer on time. We also provide offline title transfer assistance to ensure a seamless and hassle-free ownership transfer between cities. Our well-rounded fulfillment services make online shopping for a used car finally as convenient as buying any other standardized product online.

Looking ahead, we are excited about our growth potential in the years to come. We believe our new more focused business structure will boost our core values and more importantly, enable us to leverage the market trend and growth opportunities in online used car transactions in China.

Despite the headwinds that China's overall auto market has been facing since last year, we believe the used car market is more resilient in a down cycle because of used cars' better price-to-performance. There is great growth potential in the coming years in the size of the China market. It is, of course, important to note that with earlier adoption of China Six, the new emission standard, several regions experienced a drop in used car sales to some extent, and we have felt a certain effect as well. However, we believe the used car market will gradually digest the effect and the macro environment will improve after short-term adjustment.

Amidst this environment, we have completed 38,000 online used car transactions on our platform in full year 2018, and aim to complete over 100,000 units this year. We are excited about the achievement to date, and the target we set for 2019. It demonstrates we have been winning over trust from a fast-growing group of consumers, who have accepted the revolutionary way of purchasing used car online from us without seeing the actual car when they make the purchase decision. This is particularly encouraging that our online used car transaction model has not only proven well-accepted, but also has led us into a whole new chapter in China's used car sector.

We are confident that as we continue to enhance our value proposition to consumers and consistently execute our growth strategy to expand online used car transaction business, we can maintain a strong momentum in the transaction volume, further increase our market share and build a more sustainable business over the long term.

With that, I would like to turn the call over to our CFO, Zhen Zeng to talk through our financials. Zhen, please go ahead.

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Zhen Zeng, Uxin Limited - CFO [4]

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Okay. Thanks, D.K. Hello, everyone. We are pleased to deliver another set of strong results for the second quarter. Before we go through the financial details, let me give you an overview of how the proposed transaction with Golden Pacer reshapes our financial profile. Please note that all the discussion and comparison below are on an apple-to-apple basis.

Given this divestiture and in accordance with the applicable accounting standards, we significantly relieve ourselves of guarantee obligations for the existing loan balance of RMB 33.2 billion as of June 30, 2019, for the used car loans previously facilitated by us. In addition, assets of RMB 3.9 billion and liabilities of RMB 0.9 billion were reclassified as assets/liabilities held for sale on our consolidated balance sheet as of June 30, 2019. And results of operations related to the divested business were reported at net (loss)/income from operations of discontinued operations. Revenue of discontinued operations and its corresponding cost of revenue and operating expenses for the second quarter of 2019 were RMB 464 million, RMB 89 million and RMB 378 million, respectively.

The proposed divestiture will effectively lower our capital needs and improve our cash flow, setting a solid foundation for our sustainable growth going forward.

And P&L-wise, our 2C revenue streams now include commission revenue and value-added service revenue. As D.K. mentioned earlier, our strong ability to monetize online used car transactions remains unchanged. We are confident that we can build up the scale in the top line for 2C online used car transaction on a more solid and sustainable basis as we fully focus on expanding this business pillar.

The proposed transaction is expected to temporarily impact the gross margin due to our cost structure. Our cost of revenues mainly includes the salary of inspection professionals and the costs related to off-line logistics and title transfer. These cost items are more associated with our continuing operations, so the majority remain within the listco. We are confident that the gross margin will further improve over time as we continue to achieve better economies of scale, convert more used car sales without adding too many used cars inspected, and further optimize logistic routes and better utilize our delivery capacity with the transaction volume growing larger. Our ability on the front is evidenced by our gross margin improvement to 53% in the quarter from 42% in the prior year period.

In terms of operating expenses, the proposed divestiture will save us a significant portion of the operating expenses mainly due to the relevant employees will be transferred to Golden Pacer accordingly. We have also streamlined business operations to improve employee productivity. As we continue to take prudent measures in cost and expense management, we believe our fast-growing online used car transaction volume will bring us greater economies of scale and higher operating leverage.

With all the measures in place and being executed, combined with our more focused business model and streamlined operations, we are confident that we will be able to achieve profitability as soon as possible in the coming years.

Now let me walk you through our financial details for the second quarter. Please note that all discussion below relates to continuing operations only. All numbers are in RMB unless otherwise stated. Also please note that some numbers I refer to are non-GAAP. You can find a reconciliation of these numbers in our earnings release.

In the second quarter, total revenues increased by 58% to RMB 439 million from RMB 277 million in the prior year period. The increase was primarily due to the increases in 2C transaction volume, GMV, commission rate and value-added service take rate.

Drilling down to our business pillars:

In terms of our 2C business, total 2C revenue was RMB 322 million, representing a substantial increase of 11x year-over-year from RMB 28 million in the prior year period. Online used car transaction volume increased by 500% year-over-year to 24,585 units, and its corresponding GMV increased by 482% year-over-year to RMB 2,864 million.

Moving on to more details:

Commission revenue was RMB 179 million, representing a substantial increase of 893% from RMB 18 million in the same period last year, primarily due to the increases in the transaction volume, GMV and commission rate. Benefiting from our enhanced service, improved user experience and higher pricing power, commission rate increased to 6.2% from 3.7% in the same period last year.

Value-added service revenue was RMB 144 million, representing a substantial increase of 14x from RMB 10 million in the same period last year, primarily due to the increases in transaction volume, GMV and VAS take rate. The VAS take rate increased to 5% from 1.9% in the same period last year, due to our optimized services, which result in higher pricing power and higher percentage of 2C online used cars transactions that are successfully referred with VAS.

In terms of our 2B business:

2B transaction facilitation revenue was RMB 68 million, representing a decrease of 57% year-over-year. Our take rate for 2B transaction facilitation slightly increased to 3.7% from 3.5% in the prior year period.

Cost of revenues increased by 27% year-over-year to RMB 205 million. The increase was primarily due to the increases in fulfillment cost, which was correspondingly driven by the increase in our transaction volume, as well as the increase in salaries and benefits of employees engaged in car inspection, quality control, customer service and after-sales service.

Gross profit increased by 101% to RMB 234 million from RMB 116 million in prior year period. Gross margin increased to 53% in the quarter, compared to 42% in the prior year period, driven by the better economies of scale.

Total operating expenses was RMB 577 million. Non-GAAP operating expenses, excluding share-based compensation, were RMB 550 million.

Sales and marketing expenses decreased by 14% year-over-year to RMB 347 million. The decline reflects our continuous efforts to enhance operating efficiency.

Sales and marketing expenses, excluding share-based compensation expenses of nil, as a percentage of total revenue decreased to 79% during the quarter from 144% in the prior year period.

G&A expenses decreased by 81% to RMB 174 million. The decrease was primarily attributable to the decrease in share-based compensation expenses.

G&A expenses, excluding share-based compensation expenses, were RMB 147 million, representing 33% of total revenue in the quarter compared to 31% in the prior year period.

R&D expenses increased by 28% to RMB 56 million. The increase was primarily due to the increase in the salaries and benefits expenses.

R&D expenses, excluding share-based compensation expenses, were RMB 56 million, representing 13% of total revenue in the quarter, compared to 10% in the prior year period.

Loss from continuing operations was RMB 342 million, a decrease from RMB 1,258 million in the prior year period.

Non-GAAP loss from continuing operations, which excludes share-based compensation expenses, was RMB 315 million, a decrease from RMB 398 million in the prior year period. Non-GAAP loss from continuing operations as a percentage of total revenue was 72%, a significant decrease from 143% in the prior year period.

Fair value change of derivative liabilities was nil in the quarter, compared to a gain of RMB 1,544 million in the prior year period. We no longer see any impact of derivative liabilities, as the preferred shares were converted into ordinary shares at the time of IPO.

Net loss from continuing operations was RMB 360 million, compared to a net income from continuing operations of RMB 285 million in the prior year period. The change was mainly due to that fair value change of derivative liabilities no longer existed in the quarter, compared to a gain in the same period last year.

Non-GAAP net loss from continuing operations, which excludes share-based compensation expenses, was RMB 333 million in the quarter, a decrease from RMB 399 million in the prior year period. Non-GAAP net loss from continuing operations as a percentage of total revenue was 76%, decreasing significantly from 144% in the prior year period.

Turning to our cash position. As of June 30, 2019, we have cash and cash equivalents of RMB 783 million.

Moving on to the guidance. Factoring in the divestiture of our loan facilitation related business to Golden Pacer, we expect the total revenue for the third quarter of 2019 to be in the range of RMB 440 million to RMB 460 million, excluding the loan facilitation related business. This forecast reflects the company's current and [preliminary] (corrected by company after the call) views on the market and operational conditions, which are subject to change.

That concludes our prepared remarks.

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Nancy Song, Uxin Limited - IR Director [5]

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question comes from the line of Eddie Wong from Morgan Stanley.

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Eddy Wang, Morgan Stanley, Research Division - Research Analyst [2]

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(foreign language) I have 2 questions. The first is that given our current strategy is more concentrated on the online used car transaction business, may I have your view on the used car e-commerce industry? That means that for the industry-wise, we have passed the stage of market share as the first priority and leading used car platforms leverage on their own advantages and more focus on their own strategies. And what's the implication in terms of the competition? Will the competition among this leading platform be not as intense as before? This is the first question. And the second question is about the -- our strategic investor wuba. Is there any incorporation or synergy we can share after they become our strategic investor in the second quarter?

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [3]

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(foreign language) Okay.

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Nancy Song, Uxin Limited - IR Director [4]

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Yes. So look at the overall industry. So over the past few years, all the industry players are trying different models. We don't want to take more time to look back about the history, but now let me introduce how we look at the comparable mature markets in the U.S.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [5]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [6]

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Yes. So if we look at the U.S. market, 2 main players are CarMax and Carvana. So look at CarMax. After their decades of operations, based on their current volume, their current market share is around 2%. If we look at Carvana, the U.S. online used car e-commerce platform, based on their volume projection this year, their market share would be like 0.5%.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [7]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [8]

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Yes. So purchasing a used car is a low-frequency activity. So normally, it would take like 3 to 4 years before a consumer to buy a second car. So if we look at the transaction frequency, if we look at -- for our B2B business, if we take more higher volume or the sale, it will be the right strategy. But it is not necessarily true for our 2C business because for individual purchasers there will be more -- take more years before they can buy their second car. So in this case, we would -- we care more -- or the consumers care more about the service. And for us, we care more about service and -- as well as the per-unit margins and how we can drive down the per unit cost. So that's our focus.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [9]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [10]

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Yes. So for online used car transactions, we believe the ceiling is quite high. So because the -- actually for traditional way of purchasing used car, the selection in a local city is quite limited. But for us, our real-time inventory supply on our platform is -- was about 110,000 used cars in Q2. So we believe we are the best choice for the consumers. So we believe chasing for the high quality of services and to maintain high level of per-unit revenue as well as achieve better margin profile for per unit will be our target and focus.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [11]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [12]

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Yes. So wuba and us are 2 leading used-car platforms for China's consumers. But in terms of the traffic corporation over the past few months, if investors look at wuba's application, our inventory has already been available on their platform and also our customized and standardized video inspection reports are also available on wuba's application, as well as their customer profile, customer information are also there. So we also have the algorithms being optimized to pre-assess what the consumers' preferences are as well.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [13]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [14]

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Yes. So our cooperation with wuba has been benefiting us quite a lot. We get more users from wuba. So over the past 3 months, if we look at the effective users, it's actually accounting for about 15% of our total effective users.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [15]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [16]

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Yes. Our high-quality inventory have been available on wuba platform will also benefit wuba's user and their customers to have a better purchasing experience.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [17]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [18]

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Yes. When we move to the next level of our corporation, we will work more on the inventory data sharing as well as user data sharing. So based on the data analytics and who viewed our models, we will enhance our ability to recommend relevant inventory to the consumers. So as we mentioned, the previous 2 benefits we can mutually enjoy from each other, we believe will further drive the synergies of all of it. Thank you.

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Operator [19]

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Next questions comes from the line of Ronald Keung from Goldman Sachs.

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Ronald Keung, Goldman Sachs Group Inc., Research Division - Executive Director [20]

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(foreign language) I have 2 questions, D.K., Michael and Nancy. First is I see enough focus on interregional. So can you share what is the profile of your buyers maybe in the last quarter by city tiers, so we can understand how lower-tier city are focused or what kind of focus be on the user side? And how do we see cross-regional volumes will track as a percentage of nationwide transactions and our market share in that segment? Second is, could you walk through some of the unit economics? We hear unit revenue per car is now around RMB 13,000, so I want to hear what is the path to profitability based on the current model on the revenue side and maybe on the cost side? And are there any sort of volumes that we need to reach in order to cover the fixed cost and toward path of profitability?

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [21]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [22]

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Yes. So I'd like to address this question from 2 aspects. So for the past 20 months, if we look at our online used car transaction in our interregional business, our clientele are normally the group of consumers with relatively high purchasing budget. They're normally, the mid- to high-end customers. This is also evidenced by our ASP of around RMB 110,000 currently. So this group of consumers are carrying more about the rich selection of used cars. So normally they have their preference of certain car makes and models, interiors and colors, et cetera.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [23]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [24]

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Yes. So this group -- this type of consumers normally have higher requirements for the used cars and services. So they care more about the car condition, the after-sales services as well as the convenience of the service. So all of the focus they care about are more in line with our value proposition to the consumers actually.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [25]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [26]

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Yes. So no matter in top-tier cities or lower-tier cities, our product and service offerings are equally attractive to them. So even for Beijing, the top-tier city in China, our inventory collection are also attractive to them. If we look at the price range of -- the car price of our current ASP, RMB 110,000, if we look at this car price range, our selection can be like 20- to 30-fold larger than the local selection in Beijing.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [27]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [28]

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Yes. We've started to penetrate into lower-tier cities since last December. So if we look at our own transaction volume, about 40% comes from the lower-tier cities and 60% from top-tier cities.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [29]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [30]

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Yes. Going forward, we will penetrate into more lower-tier cities because our value proposition are more stronger in those city tiers.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [31]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [32]

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Yes. If we look at market share in certain cities, if we look at top-tier cities, our market share there was close to 1%. If we look at lower-tier cities, our value proposition is stronger in those cities, our market share would be almost close to 2%.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [33]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [34]

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If we look at the transaction volume, whether it's intra-regional or interregional on our platforms, actually the consumers don't know where the inventory is located. So -- but if we look at the breakdown, 92% are the cross-regional transactions and only 8% happened locally.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [35]

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(foreign language)

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Zhen Zeng, Uxin Limited - CFO [36]

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Okay. Thanks, Ronald. It's Michael here. Sorry. I'll address your second question on unit economics and path to profitability. And for our top line, I think our current total 2C take rate was about 11.2%. Or to say, our per unit revenue of one car is over RMB 13,000. So we are confident that we can continuously to increase our 2C take rate and we still have the room or space to increase that because we are continuing to enhance our value proposition to our consumer.

And for our cost, and I think there are nearly 2 items, one is the inspections and one is logistic and title transfer. And for the -- our inspections, that's mainly the salaries and benefits on inspection professionals. And our strategy is that we don't expect to add too many the professionals to inspect more used car in the future. Instead, we're focused more on the conversion from cars inspected to the cars sold. So we also will filter the car for inspection by the suitable price range and no material damage car conditions. So we'll select the cars, which will be inspect in order to save the inspection productivity only for those qualified cars. With optimized inventory structure. We believe we can sell much more cars without inspecting equally that many. This will greatly drive down the per-unit inspection cost.

And for the logistic and delivery, as we grow our transaction volume, we are able to further optimize the delivery route planning and better utilize our delivery capacity. This will also significantly lower our per-unit delivery cost.

And our ability to -- on the front is actually evidenced by our gross margin improvement to 53% in the quarter from 42% in the prior year period. And looking ahead, we are confident that we can further improve gross margin, as we continue to grow our scale, increase the take rate and optimize each the cost item.

And for the OpEx, we're now more focused on the conversion of our traffic. So we will continue to optimize the traffic acquisition channel to generate more cost-effective sales leads and enhance the conversion rates. And with the traffic spending stabilized at a current level, we are confident to lower the per unit traffic acquisition cost as well. And for your -- for the number I think that with all the optimization measures in place, we believe I -- we can reach a break-even point when we carry out about 50,000 cars per quarter.

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Operator [37]

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Next questions come from the line of Ashley Xu from Crédit Suisse.

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Ashley Xu, Crédit Suisse AG, Research Division - Associate [38]

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(foreign language) 2 questions from me representing Tina. The first one is about target volume growth for this year in 2C business, and what would be the key drivers? And the second question is about the cross-regional business. What do you see as the major challenges ahead and how to solve them?

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [39]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [40]

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Yes. So with our first half transaction volume was over 44,000 units, we're looking at over 100,000 transactions for the whole year.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [41]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [42]

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Yes. So look at -- longer term, as we just mentioned, based on our value propositions, we believe we can further drive our transaction volumes. So the first one is the wise section of used cars. And now based on our AI intelligence system, we have a better understanding of people's preference and know which type of inventory are more preferred by the consumers and that we enhance our inventory structure.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [43]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [44]

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The rest 3 of the values are the online standardization, one-stop purchasing experience and our offline fulfillment network. So for the online standardization, we will enhance our ability to provide the most accurate conditions for -- car conditions for the consumers. And for the one-stop solution, we will enrich our value-added services. And for the fulfillment, we will make it -- make the delivery more convenient to the consumers. So all of the 3 values will build up our brand and increase the word-of-mouth among the consumers.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [45]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [46]

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Yes. So the third driver is our sales productivity and -- sales productivity. So because online car transaction is whole new model for the consumers as well as for our sales force, so how to convince consumers to buy the car without seeing the car in the first place is important. So thus, seniority of our sales staff are important for us to drive up the volume. So if we look at our salespeople, if they have been with us more than 12 months, there sales conversion rate is much higher than the new guys in terms of if we receive the same bunch of sales leads. So our focus will be increasing sales productivity and conversion rate from our sales force.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [47]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [48]

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Yes. So for your second question, the challenges this year we think comes more from the macro side. So the first one is -- the overall auto market is facing some headwinds, though the used car market is less affected than the new car market.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [49]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [50]

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Yes. The -- another factor is the early adoption of China 6 new emission standard. So the early adoption did drag the used car sales in some cities, about 40 cities in China. Given the China 6 standard is pretty newly introduced, there are actually like, I mean there are no enough used car inventory supplied in the used car market.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [51]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [52]

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Yes. For the overall auto market, we think the market condition will improve because we think the current car ownership in China is still low. So with the macroeconomy is picking up, the auto market will pick up as well. Regarding the China 6 new emission standard, the government policy actually rules out these 40 cities from the restrictions of the car cross-regional transaction. But besides that, we don't see more cities will adopt the new standard in the short term.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [53]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [54]

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Yes. So if we look at -- looking into next year, in the first half, we think there will be more used car with high -- I mean the new emission-standard used car will be supplied to the market.

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Operator [55]

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The last question comes from the line of Rebecca Wen from JP Morgan.

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Rebecca Y. Wen, JP Morgan Chase & Co, Research Division - Analyst [56]

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This is Rebecca from JP Morgan. I'm asking for Alex Yao. So my first question is, what's the reason for the massive uptick of the second 2C transaction take rate from 6% to 11% in the second quarter? Could you provide us with some breakdown and also any guidance for the take rate in the second half of the year or longer term? And the second question is, on the business model transition, what's the long-term implication to business risk and scalability?

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Zhen Zeng, Uxin Limited - CFO [57]

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So I will address your first question about the take rate. So in terms of the total 2C take rate, so as a result of the divestiture, our 2C revenue stream now is converted to the commission revenue and value-added services revenue. Accordingly, we charge the commission rate and value-added service take rate from the consumer. So thanks to the sales opportunity we create, our control of the entire shopping process and our comprehensive product and service offering, our ability to monetize the online used car transaction remains as strong as before. So this is evidenced by our total 2C take rate to 11.2% per unit in the quarter, up from 5.6% in the same period last year.

I think our strong monetization ability is also well supported our -- by our unmatched value propositions to the consumer. So like D.K. mentioned, we have the 4 main the value propositions. First, the nationwide selection of used car, which is much wider than the local market can provide. And the second, the online standardization for the unstandardized products, such as the standardized video inspection report and VR display for the used car, and -- which creates higher transparency on the car condition and thus gave the consumer greater peace of mind of buying the used car online. And the third is one-stop online purchasing experience, which means we recommend the value-added service to the vast -- to meet the consumer's various needs. And the last but not least, national service and fulfillment network, which make online purchase of used car as convenient as buying any other standardized product online.

So we believe our -- the 4 core value propositions enable us to maintain our total 2C take rate at a similar level to that before we divest the loan facilitation related business.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [58]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [59]

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Yes. As we previously mentioned, online used car transactions will be an accelerating trend globally because it brings greater value to consumers that we just mentioned, the wide selection of used cars as well as better prices provided to the consumers. So they have higher saying or bargaining power during the process, and the third one is the transparency on the car conditions. So with the online used car transaction product and service offerings, consumers can finally enjoy standard services, in the used car, when they purchase used car the same as they purchase new car.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [60]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [61]

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Yes. So amidst this trend, I think the largest risk for us is all about execution that needs to say how we can further enhance user experience, because this is a whole new experience for consumers to purchase the car without seeing the car -- actually physically seeing the car. So how we can convince them to choose to do so is more important.

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Kun Dai, Uxin Limited - Founder, Chairman & CEO [62]

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(foreign language)

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Nancy Song, Uxin Limited - IR Director [63]

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Yes. So the transparency on car conditions, how we can help consumers to better understand the car's conditions as well if we can deliver the car in time, whether we can provide well-rounded after services and product. All of the 3 things are very important to enhance user experience. So I think our challenges are more on this route. That is why we will focus not only our capital or our resources on this business, but also for our -- all of the management and our employees will work together towards this initiative.

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Operator [64]

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Thank you for the questions. There are no more questions on the line. I'd like to hand the call back to management for closing.

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Nancy Song, Uxin Limited - IR Director [65]

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Thank you, everyone, for joining our call today, and for your continued support for Uxin. We look forward to speaking to you again in the near future. Thank you.

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Operator [66]

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Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect your lines.