Uxin Limited (NASDAQ:UXIN) Q2 2024 Earnings Call Transcript
Uxin Limited (NASDAQ:UXIN) Q2 2024 Earnings Call Transcript November 28, 2023
Uxin Limited beats earnings expectations. Reported EPS is $-0.13, expectations were $-0.43.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Uxin's First and Second Quarter of Fiscal Year 2024 Earnings Conference Call. 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 would now like to introduce your host for today's conference call, Mr. Jack Wang. Please go ahead, Jack.
Jack Wang: All right. Thank you, operator. And hello, everyone. Welcome to Uxin's earnings conference call for the first and second quarters of fiscal year 2024 ended June 30, 2023, and September 30, 2023, respectively. On the call with me today we have DK, our founder and CEO, as well as Feng Lin, our CFO. DK 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 that differs from our current expectations. For detailed discussions of the risks and uncertainties, please refer to our filings with the SEC. Now, I will turn the call over to our CEO, DK. Please go ahead, sir.
A customer smiling delightedly after driving away in their new car from the automotive retail shop.
Kun Dai: [Foreign Language] [interrupted] Hello, everyone. Thank you for joining our earnings call. I am pleased to reconnect with you all today on the call and to facilitate communicate with domestic and international investors. I will share our company’s latest progress in both Chinese and English. Due to the financing transactions with the government of Hefei City in the past month, we postponed the release of our first quarter financial results. Today we're presenting the performance of the first and second quarters of fiscal year 2024 covering April to September 2023. I will first review the key highlights of the past two quarters and then share some of our achievements and future goals. In the first quarter of fiscal year 2024, from April to June 2023, we witnessed that the end of a car buying surge initially fueled by pent-up demand during the pandemic.
Subsequently, the aggressive pricing strategies of new cars beginning in March continued to reverberate through China's used car market. This shift led to a cautious approach by consumers who adopted a wait and see stance on purchasing used cars. Aligned with these market dynamics, we opted for a prudent car acquisition strategy, maintaining lower inventory levels. Consequently, our retail transaction volume in the first quarter saw a 25% decrease from the previous quarter, totaling 1,687 units. However, in the second quarter between July and September, we strategically increased our inventory levels, resulting in a significant rebound in retail transaction volume to 2,287 units, a notable 36% sequential growth and far surpassing the industry's average growth rate of 5% in transaction volume.
Throughout this period, we effectively maintained the turnover base of our vehicles on sale before 45, while simultaneously enhancing our profitability as our gross margin has expanded to 6.2% from 1.3% in the same period last year. A notable achievement in September was our Hefei superstore reaching positive EBITDA, contributing to a nearly 50% year-over-year reduction in the company's overall adjusted EBITDA loss. Additionally, we consistently upheld the industry's highest net promoter score, or NPS, maintaining a score around 60 points for seven consecutive quarters. This performance underlines the success of our superstore model and signifies that our business operations are progressing along a robust and healthy growth path. It is also worth highlighting that our state-of-the-art Changfeng Superstore in Hefei City commenced its trial operations in September 2023.
Encompassing a vast area of 450,000 square meters, the Changfeng Superstore features the world's most advanced used car reconditioning factory and the largest warehouse-style used car retail superstore with a capacity to showcase up to 10,000 vehicles. The expansion of our inventory at this facility is set to significantly bolster the company's business growth in the forthcoming years. At the same time, we signed an equity investment agreement with the local government of Hefei City at the end of September. Under this agreement Hefei Construction Investment North City Industrial Investment will commit up to RMB1.5 billion over the next 10 years to Uxin's Hefei subsidiary to support the operation and development of our used car superstore in the city of Hefei.
The city's advantage is strategic location, favorable business environment, well established automotive industry and robust upstream and downstream supply chains offer substantial support, fostering Uxin's continued business growth. Reflecting on our experience, since the relocation and upgrade of our Xi'an superstore in December 2022, it has successfully reached EBITDA profitability by September 2023, just 10 months into its operation. Our Hefei Superstore, which began its trial operations in September 2023, is on a similar path, with an objective to reach adjusted EBITDA profitability by March 2024 or even earlier. Leveraging the scalable profitability of our superstores combined with our ongoing efforts in cost control and optimization, we have established a clear strategy towards the company's overall profitability, and our goal is to reach overall EBITDA profitability by September 2024 or sooner.
Over the last two years, we have significantly enhanced our management capabilities and operational efficiency, surpassing industry norms and edging us closer to our profitability targets. During the call today, I would like to highlight four key areas of development. Firstly, we have successfully completed the training of our AI-powered vehicle pricing system. This advanced system autonomously and intelligently sets prices for vehicles, considering factors such as condition, age, color, and mileage. It also dynamically adjusts the quotes in response to customer interest, feedback from offline test drives, and market conditions. This position in pricing strengthens our competitive position in both purchasing and selling, ensuring an optimal vehicle turnover efficiency of 30 days to 45 days.
Secondly, by leveraging the efficient operation of our cutting edge used car reconditioning factory, we have been able to accelerate vehicle turnover and slash reconditioning cost, all while maintaining the supply of used cars at a super large scale. The integration of sophisticated reconditioning technologies and equipment guarantees superior vehicle quality. We've pioneered the industry's most advanced transparent factory management system, facilitating integrated data transmission for inspection, diagnosis, and repair, while enabling real-time monitoring of our workforce, vehicles, and materials. This system optimizes the production process across the board, implements intelligent parallel processing of workshop tasks, and has dramatically reduced the timeframe from vehicle intake to sales listing to only three to four days.
We remain committed to establishing an optimal cost and expense strategy, a structure across various facets of our business. This is highlighted by the substantial cost reductions achieved through supply chain integration and large-scale vehicle reconditioning. Furthermore, we've leveraged advancements in operational processes incorporating innovative technologies like 3D printing and smart repair, which has led to groundbreaking improvements in cost control strategies. Lastly, we have proven the advantages of our offline superstores in attracting customers. Through our superstores, we provide a vast array of vehicle options, exceptional customer service, and all-encompassing after-sales support, all of which had rapidly cultivated a robust reputation among customers in regional markets.
Within just one year of operations, our Xi'an and Hefei superstores have ascended to become the leading brands in local used car market recognition. We have distinctly noticed that as our offline super stores evolve, there is a marked increase in organic food traffic, which significantly lowers the cost associated with acquiring new customers. Our business model is now fully refined and with confidence we anticipate that the company will reach overall profitability by or before September 2024. In our long-term strategic vision, we see the superstore model as swiftly adaptable across various regions in China. Our expansion strategy into new cities will integrate even more innovative approaches, ensuring an enhanced cost effectiveness and accelerated profitability for each superstore.
With that, I would like to turn the call over to our CFO to walk you through the financial results. John, please.
Feng Lin: [Foreign Language] [interrupted] Thank you, DK. And hello, everyone. I will provide a closer look at our financial results from the first and the second quarter of fiscal year 2024. DK has already provided an overview of our retail transaction volumes for these periods. In the face of the fluctuating market conditions for the first quarter of 2024, we adopted a prudent vehicle acquisition strategy and opted to maintain relatively low inventory levels. As such, our retail transaction volume in the first quarter decreased by 25% sequentially to 1,687 units. During the second quarter, we increased our inventory levels enabling us to grow our retail transaction volume by 36% to 2,287 units in the second quarter. Our retail sales revenue in the second quarter reached RMB249 million, representing a sequential increase of 33% from RMB187 million in the first quarter.
In response to the evolving economic landscape, we diligently refined our inventory structure to align with current market demands. This strategic adjustment is reflected in the average selling price or ASP of our retail vehicles, which decreased from RMB120,000 in the same period last year to approximately RMB110,000 over the last two quarters. Our wholesale business segment remained relatively stable with a transaction volume of 1,567 units and a sales revenue of RMB95 million in the first quarter compared to 1,597 units with a sales revenue of RMB99 million in the second quarter. Overall, our total revenues for the second quarter were RMB356 million, a sequential increase of 23% from RMB298 million -- sorry, RMB289 million in the first quarter.
Furthermore, we further accelerated our inventory turnover, increased the penetration rate of our value-added services and reduced the per-vehicle costs, thanks to the efficiencies gained from our modernized factory operations. As a result, we saw a substantial improvement in our gross margin. Specifically, in the first quarter and second quarters of fiscal year 2024, our gross margins were 6.1% and 6.2% respectively. This represents a year-over-year increase of 5 and 4.9 percentage points. Looking ahead, we anticipate further enhancements in our gross margins, fueled by an increase in revenues from our financial, insurance, and premium maintenance and repair services, coupled with cost reductions achieved through higher sales volume. On the front of operating expenses the second quarter showed a slight uptick to RMB91.6 million compared to RMB87.8 million in the previous quarter.
This increase was largely due to the cost associated with opening our Hefei Changfeng Superstore, including expenses related to site relocation. Despite this, we have maintained stringent control over our operating expenses, ensuring they remain stable. This disciplined approach to managing expenses is key to our strategy for achieving our projected profitability in the future. Loss from operations narrowed by 35% year-over-year to RMB63.2 million in the first quarter and 38% year-over-year to RMB66.4 million in the second quarter. As a result of the government's investment in Uxin's Hefei subsidiary and the financial leasing of the Hefei Superstore property, our Changfeng Superstore in Hefei City has recorded substantial non-cash charges, including depreciation, amortization, and financial expenses.
To provide a clearer picture of our actual business performance, we have started disclosing adjusted EBITDA from this year and are using it as a key metric to evaluate our operations. Adjusted EBITDA which removes the effects of stock-based compensation and other one-time or non-cash items from the standard EBITDA offers a more accurate reflection of our company's profitability. The improvement in our gross margin and a continuous refinement of our cost and expense structure has led to a substantial enhancement in our profitability. A testament to this progress is our Xi'an Superstore, which achieved positive adjusted EBITDA in September this year. In the first quarter, our corporate adjusted EBITDA was a loss of RMB46.6 million, representing a reduction of RMB29.6 million, or 39%, from a loss of RMB36.3 million in the same period last year.
Adjusted EBITDA in the second quarter was a loss of RMB45.9 million, representing a reduction of RMB41 million, or 47% from RMB86.9 million in the same period last year. I would like to reiterate the profit target DK just mentioned. Our aim is to reach adjusted EBITDA profitability at the store level by March 2024, and extend this to the entire company by September 2024. We are confident in our trajectory towards high quality sustainable development and our strong financial position is a cornerstone for future business growth and profitability objectives. In September, we entered into an equity investment agreement with the Hefei local government's investment platform. Under this agreement, they have committed to investing up to RMB1.5 billion in Uxin's Hefei subsidiary over the next decade, with the first trench of roughly RMB150 million essentially completed.
Additionally, we have arranged with our investors to finalize the remaining disbursement of nearly $30 million from previous funding rounds before the end of the year. Moreover, we recently secured new inventory financing from two financial institutions amounting to a total credit line of close to RMB300 million. For the third quarter of fiscal year 2024 between October and December 2023, we anticipate a return to steady growth in sales as market conditions improve and inventory levels increase. Our retail transaction volume is expected to be around 3,100 units, while the ASP for retail vehicles is expected to be around RMB105,000. We also expect our wholesale transaction volume to be around 1,400 units, with ASP expected to be around RMB67,000.
We estimate that our total revenues, including retail vehicle sales revenue, wholesale vehicle sales revenue, and value-added services revenue to be in the range of RMB410 million to RMB430 million. And that concludes our prepared remarks today. Operator, we're now ready for questions.
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