Uxin Limited (NASDAQ:UXIN) Q2 2023 Earnings Call Transcript
Uxin Limited (NASDAQ:UXIN) Q2 2023 Earnings Call Transcript December 30, 2022
Operator: 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.
Jack Wang: 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.
Jack Wang: Hello, everyone. It's a pleasure to have you join our earnings conference call today. For the convenience of both domestic and international investors, I will review our business progress in both English and Chinese. During this call today, I will review our major business highlights of the past quarter and then share our recent business progress and our thoughts on long-term prospects. Our retail transaction volume in the second quarter of fiscal year 2023, which ended on September 30, 2022 reached 3,109, representing an increase of almost 30% quarter-over-quarter and 203% year-over-year. 2022 has been a rather difficult year for China's used car market. Specifically, the college students constantly disrupted business activities and decelerated economic activities and customer spending.
As a result, in the quarter between July and September, China's used car transactions fell 5% year-over-year, which was rarely seen in the past years. Despite facing those macro and industry-wide challenges, we continued to deliver significant business growth. This demonstrates the resilience and vitality of our IRC-based omni channel used car business model we have built. On top of our rapid growth in transaction volume, our brand reputation and customer satisfaction levels also continued its growth. Since we launched our Hefei superstore at the end of last year, we have achieved the resounding success in Hefei's regional market in less than a year. Our market share in Hefei is close to 10% and is expected to increase further, while our brand has occupied the most monitored from used car buyers in Hefei, as well as its surrounding cities.
Our net promoter score or NPS was 61 in the past quarter, maintaining at the top of the industry. More than 25% of transactions in the quarter came from referrals by existing customers. At the same time, our ongoing efforts in improving operation efficiency continued to yield results. On the vehicle acquisition front, our car sourcing channels worked fairly well, particularly in Xi'an and Hefei, where we established our IRCs and superstores, we have unrivaled capabilities to acquire high quality used car supplies. Close to 60% of our vehicle acquisitions came from individual customers. In September, we further accelerated our operation process between used car acquisitions and listing them for sales. These refinements in turn continue to accelerate our sales turnovers.
Although we experienced severe COVID induced disruptions throughout October and November, our operations have returned to the level of September and we expect our operating metric to continue improving in 2023. Today, I'm excited to share another key milestone we have achieved. As we have announced last week in December 2022, we completed the relocation and upgrade of (ph) and IRC in superstore to better fulfill the market demand for used cars in the city of Xi'an and surrounding areas. The upgraded IRC and superstore we opened for business at the new location as the largest fully self-owned used car marketplace in Northwest China. The upgrade expanded the IRC's total floor area to 150,000 square meters and is comprised of a used car reconditioning factory, as well as a warehouse power superstore.
Powered by industry leading equipment and advanced reconditioning techniques, the reconditioning factory has an annual capacity of 40,000 units to ensure that Uxin has a super large scale supply of high quality used cars. The warehouse style superstore expanded its showroom capacity from 600 vehicles previously to 3,000 vehicles now to offer an extensive selection of used cars to our customers. In addition, the IRC houses integrated customer service center and brought in a branch office of the vehicle administration office on-site. As such, customers can have access to auto financing, insurance, expanded warranty, accessories upgrade, as well as title transfer and registration services from the same base they purchase their vehicles for a comprehensive and efficient one-stop used car buying experience.
The new Xi'an IRCs that benchmarked representation of Uxin's business philosophy of driving the transformation of China's used car industry through advanced manufacturing, new retail experience and digital empowerment. As we empower our reconditioning process with advanced equipment, technology and supply chain capabilities, we can ensure a solid supply of high quality used cars and create more value opportunities for used cars as product. With the mass production we conducted in our own IRC factory, we have refined control over the manufacturing process and can significantly reduce the reconditioning costs driven by economy of scale. Our superior store environment, massive selection of used cars, and comprehensive services made our superstore a top brand and a mass fee for consumers shopping for used cars.
Our high quality used car offerings and one-stop used car buying experience are our key competitive advantages over the traditional used car market. When we entered this traditional industry with digital and intelligent technologies, we spent over 11-years to build digitized processes and management systems from inspection, reconditioning to exhibition and sales we leveraged our system and data to standardize the business processes, which had long been a non-standard categories, such digitized systems and standardized processes significantly improved our efficiency in operating our used car business. Our technology advantages constitute our unique capability to manage used car businesses at a super larger scale in China, setting us apart from the highly fragmented small used car dealers.
We have complete confidence in the business model we developed, as well as in the future prospects of the used car industry. We are invoicing a massive revolutionary opportunity in China's used car market. We experienced stringent COVID control measures in October and November. We look forward to a rebound in the Chinese economy in 2023, as China has begun easing COVID restrictions. As regulators continue to implement more industry boosting policies across the nation, we will carry out further efforts for expanding our business footprint through our original IRC network, our strong brand equity, as well as leading product and service capabilities will enable us to continue driving the transformation of China's used car industry into the next development stage.
John, please. And with that, I'd like to turn the call over to our CFO, John to walk you through the financial results. Please turn.
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Jack Wang: Thank you, D.K., and hello, everyone, since we have both domestic and foreign investors attending our call. Our remarks will be delivered in both Chinese and English for everyone's convenience. Now I will provide a closer look at our financial results from the second quarter of fiscal year 2023, which is the three months ended September 30, 2022. While China's used car industry faced major challenges in the quarter, we still maintained robust growth momentum in our retail business. Our retail transaction volume grew by an impressive 203% year-over-year and 29% quarter-over-quarter to reach 3,109 this quarter. At the same time as we further optimize our inventory structure, our average selling price or ASP decreased from RMB145,000 in the previous quarter to RMB120 this quarter, a RMB120,000 this quarter.
Retail vehicle sales revenue totaled RMB330 million, up 7% sequentially and 79% year-over-year. We have completed major inventory restructuring and expect that our retail ASP will stabilize between RMB110,000 and RMB120,000. In addition, with continuous improvements in our used car inspection and reconditioning capabilities, as well as capacity for our showrooms, we were able to sell a higher portion of our acquired vehicles through retail channels. Vehicles we sold through retail had exceeded wholesale for the first time in the past six quarters and we expect higher retail sales contribution in the coming quarters. Wholesale transaction volume was RMB3,000 this quarter essentially flat, compared to the previous quarter. During the quarter, we reconditioned an increasing number of acquired vehicles to meet our retail standards.
As more vehicles were sold through retail, the ASP of wholesale vehicles also declined from RMB860,000 in the previous quarter to RMB81,000 this quarter. Wholesale vehicle sales revenue for the second quarter was RMB238 million, down 10%, compared to the previous quarter. Our total revenues including both retail and wholesale remained relatively stable, compared to the previous quarter as RMB619 and up 79% year-over-year. Retail vehicle sales revenue contributed to 60% of our total revenues this quarter and we expect continuous growth for this percentage in the quarters ahead. Gross margin for the quarter was 1.3%, up slightly from 1.1% in the previous quarter. During the market slowdown, we recorded a price impairment on some of our inventories.
Meanwhile, we also optimized our inventory structure and accelerated the turnover of high priced vehicles through various pricing strategies between July and September. These proactive actions hindered our gross -- our margin expansion and capped our gross margin at a low percentage level. Following the stringent COVID control in various Chinese regions during October and November, China relaxed the many of the control measures in December and the infection rates are approaching their peak. These sweeping changes have had substantial impacts on the domestic used car market. However, we're pleased to see that our sales performance has rebounded rapidly ahead of the market with various operating metrics in December starting to return to previous highs we have seen.
Moreover, we expect our gross margin to continue improving after the initial COVID infection peak passes to return to a reasonable level in the calendar year 2023. Total operating expenses for the quarter were basically flat, compared to the previous quarter. While we are currently in a stage of rapid business growth, we remain committed to implementing cost reduction and efficiency improvement initiatives into our daily operations for business expansion at optimal ROI. As D.K. mentioned earlier, the completion of our Xi'an IRC upgrade was a major milestone for us. We expect that the accelerated sales growth in Xi'an and its surrounding areas combined with our continued cost optimization will enable us to or will enable our operated Xi'an superstore to generate positive operating profit on a single store basis within 12-months.
Our non-GAAP adjusted loss from continuing operations increased by approximately RMB7.5 million from the last quarter to RMB92.4 million this quarter. The detailed financial statements were published in our earnings release online, so I will not repeat the numbers here. However, same as before, I will explain the fair value impact related to our financing transaction. The changes in our share price between the end of this quarter and the end of last quarter resulted in a loss of RMB11.5 million, due to the fair value change of warrants related to the financing agreement we signed in 2021. This is a non-cash loss based on U.S. GAAP financial treatment and does not reflect our business operations. Now moving on to our guidance for the next quarter, during October and November COVID outbreaks in both Xi'an and Hefei, where our IRCs are located resulted in intense control measures and citywide lockdowns, which largely impacted our sales growth momentum.
After China started lifting COVID restrictions in December, infections in Xi'an, Hefei and many other cities are reaching estimated peak levels. Although market consumption has been slow to recover, our December retail transaction volume has rebounded through September level. Based on these impacts, we expect our total transaction volume to slightly decline in the third quarter of fiscal year 2023, which is the three month ending December 31, 2022. Our retail transaction volume is expected to be around 2,800 units, representing a 65% year-over-year growth, while the ASP for retail vehicles is expected to be around RMB110,000. We also expect our wholesale transaction volume to be around 2,000 units with ASP expected to be around RMB70,000. We estimate that our total revenues, including retail vehicle sales revenue, wholesale vehicle sales revenue and value-added service revenue to be in the range of RMB450 million to RMB460 million.
Once the peak of this COVID infection cycle passes, and the economy begins to recover, we believe that our business will return to its high quality growth trajectory in the coming New Year. And that concludes our prepared remarks today. Operator, we are now ready for questions.
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