Uxin Limited (NASDAQ:UXIN) Q3 2022 Earnings Conference Call July 28, 2022 8:00 AM ET
Company Participants
Joyce Tang – IR Director
Kun Dai – CEO
John Lin – CFO
Conference Call Participants
Karl Birkenfeld – American Trust Investment Services
Yin Ying – China Securities
Operator
Ladies and gentlemen, thank you for standing by and welcome to Uxin Earnings Call for the Fourth Quarter and Fiscal Year Ended March 31, 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, Ms. Joyce Tang, IR Director of the company. Please go ahead, ma’am.
Joyce Tang
Thank you, operator. Hello, everyone. Welcome to Uxin’s Earnings Conference Call for the quarter ended March 31, 2022. On the call today are DK, Founder and CEO, and John Lin, CFO. DK will review business operations and company highlights, followed by John, who will discuss financial and guidance. They will both be available to answer your questions during the Q&A session that follows.
Before we start, I would like to remind you that this call may contain forward-looking statements made under the Safe Harbor Provision of the US Private Securities Litigation Reform Act of 1995. These statements are based on management’s current knowledge and assumptions about future events that involve knowing or unknown risks and uncertainties, which could cause actual results to differ materially from those in the forward-looking statements. Uxin does undertake any obligations to update any forward-looking statements, except as required under applicable law. For more information about the potential risks and uncertainties, please refer to our filings with the SEC.
With that, I will now turn the call over to our CEO, DK. Please go ahead.
Kun Dai
[Foreign Language]
Joyce Tang
Hello everyone. Thank you for joining our earnings conference call today. To better communicate with both domestic and international investors, my clear remark today will still be in both English and Chinese.
In the first quarter last year, I elaborated on our growth strategies and business model transformation in order to provide our customers a hassle-free use card purchase experience with massive high quality and valuable money vehicle connections, as well as superior before and after self-services.
Having successfully transitioning from a third party commission based model to inventory-only model, we open here, IRC, our first vehicle inspection and reconditioning center, as well as a warehouse superstore. In the year 2022, we have continued in the same direction and remain committed to our mission of creating and industry-leading youth car buying experience is the customer centric approach is find the variety challenges we face, such as the research of COVID we’ve made significant progress in called to use car offering once what service Customer-centric experience and social responsibility.
In fiscal year 2022, we achieved our business skills for the year. Total transaction volume for the year was 15,755 units. We’re presenting a 49% year-over-year growth. Total retail transaction volume for the year was 5,111 units. Continue sequential growth momentum in our quarter of the year, total revenues were RMB1,464 billion representing a 149% year-over-year growth.
Our Xi’an IRC’s operations were disrupted by COVID countermeasures in the fourth quarter, which is also the traditional used car off-season due to the Spring Festival holidays. However, we achieved a higher retail transaction volume as a result of the sales ramp-up in our Hefei IRC. While we still occasionally face COVID-related challenges, we are committed to executing our development plan and sustaining our growth momentum.
After building our first IRC in Xi’an, we opened our second IRC in Hefei in November 2021. This is the first phase of our Hefei IRC. The whole Hefei IRC is backed by our joint investment of RMB2.5 billion with Hefei Changfeng government. Hefei is renowned for its booming auto industry with favorable policies, leading vehicle manufacturers, as well as mature upstream and downstream supply chains.
Consolidating these resources, we plan to leverage our expertise and state-of-the-art technologies to recondition vehicles at a super large scale. The designed production capacity is expected to be between 60,000 and 100,000 units annually to ensure a stable and reliable supply of high-quality and cost-effective used cars. The project is progressing well, and the completion of the Hefei IRC will serve as a solid foundation for Uxin to gain customer trust and fuel its sustainable business growth in the long term.
In the past fiscal year, we have heavily invested in the refined refinement of our use card supply chain, especially in vehicle acquisitions in fashion and reconditioning. We have established acquisition channels to purchase used cards from individual consumers, auction platforms, auto manufacturers, and car dealerships direct purchase from individual consumers account for 30% of our total acquired vehicles in the fourth quarter.
The increasing proportion of such direct purchase allow us to further reduce our acquisition costs, which will ultimately enable us to offer more competitive pricing to our customers.
As for vehicle inspection, we actively upgraded and optimized our inspection and system and diligence powered by chat auto. Chat is our national patent used car inspection system to ensure that our retail vehicles fulfil or the path all national standards only conditioning front, be further streamline workflows and introduce modern techniques. This initiative help us improve vehicle quality with lower cost through economic of scale under our IRC operations.
To maximize it end to end supply chain efficiency, we have developed an integrate information system covering the whole process from vehicle acquisition, inspection and recondition to self and after self-services,
In anticipation of the rising error of new era, new energy vehicles, you see it for actively expanding its business in this domain. Our use car offering now have a much mainstream brand, including Tesla, C auto cellphone, etcetera. We have proactively building vehicle acquisition channels and developed inspection reconditioning and service capabilities by especially designed for use. Targeting on expanding existing services pipe, we are establishing strategic partnerships with any EV manufacturers, suppliers of spare parts as well as NEV dealerships.
We start with strategy and operational initiative. Uxin is well prepared for the opportunities in the rising NEV market. Based on our in-depth understanding of customers use have purchasing behaviors in China. We have upgraded our self-channels for online only to an army channel approach.
In 2018 we launched the Uxin nationwide online shopping mall, making us the first to offer one store online cross region purchase services in the used car industry in China. After four years of operations, we managed to achieve best-in-class cross region online transaction capability and experiences for our customers.
On top of our leading online model, the overall IRC includes NCM [ph] as the type of warehouse superstore. The IRC enable regional customers to have a direct install experience through leasing, selecting, consulting, test driving and purchasing their favorite car.
Actually the first phase of our IRC is currently the largest self-owned used in China. The IRC has a total floor area of nearly 100,000 square meters and the capacity for 2,500 retail vehicles compact, a luxury remodel from 62 brands. Our NCI and IRC and warehouse store that become famous and popular use cash driving vaccinations in their respective region. Both stores have gained leading regional market shares, they are still growing. The regional brand recognition and reputation among customers will largest our capability nationwide and boost our online sales.
Our commitment to providing high quality vehicle product and superior customer service is paying off. We are now one of the most effective use conference in China. In the fourth quarter, our net promoted score NPS increased by 45% year-over-year to 61%, making it the six consecutive quarter with NPS improvement.
We rigorously analyse and respond to customer feedback in all assets from sales to delivery and after sales services. We are encouraged by the NPS increase and will remain focused on its further improvement. Uxin believe that reputation among customers is the ultimate driver of sustainable and high quality business growth.
Used car industry is an integral component of China’s special economy. The healthier population of news cars, just to extend the vehicle lifestyle and maximize their residual value. We also plays a role in lowering production wait, reducing possible pollution and including resulted utilization. As an industry leader, Uxin concept of environmental protection seriously, and act as a pioneer in energy conservation in emission reduction.
In July 2022, we released our inaugural ESV report. The report highlighted how we integrate sustainable development principles into our business planning, IRC design and construction and daily operations. Usually it’s dependent to lead China’s used car industry to evolve in the most socially responsible and regulation.
China used car market is experiencing its golden age of growth. It is reported that China has become the world’s largest auto market measured by vehicle units by 2021. Building on that, China’s used car market is already massive with more than 17 million units sold in 2021. It also has tremendous growth potential compared to developer market.
The used car industry has become a key area of focus to stay regulators who have introduced micro supporting policies in the past four years. Notably in July 2022, the mainstream of commerce together with existing other state departments, publishing an official notice to stimulate auto circulation and consumption. The notice included comprehensive measures to both region restrictions and filing regulate accounting treatments and invoice issuance, and remove restriction on used car business operation.
In 2021, government policy required that the digitization of car document and more than 300 cities have implemented electronic title transfer and registration. In 2020, the used card suspension add test was reduced from 2% to 0.5%. All policies and initiative demonstrated regulatory strong guidance to build a unified national market for used car transaction.
Additionally, the policies also focus on promoting strong brands, large scale and compliance US used car companies in the industry. We have been deeply rooted in the industry for over 11 years as the youth car eCommerce company with nationwide coverage and regional market penetration. We believe that Uxin is a well branded super logic scale, highly socially responsible company in the used car industry will fly well when the tailwind arrives.
In the new fiscal year 2023, usually we focused on the following three part audit. First, so to make simply extend our brand recognition and credibility among customers to boost sales and market shares, we aim to gain more customers by enabling them to experience our product and services. Second, to further upgrade the end to end supply chain information system, systems, intelligence inventory management systems, etcetera, at an individual vehicle level. Third, to continuously optimize operational efficiency to control costs and experience expenses with a target of possibility in the mid to long term.
Once again, I would like to thank our customers and every member in our Uxin family for their work. I’m so grateful for the strong support from our shareholders and Uxin. We will stay committed and focused to straight industry in the new era and delivers sustainable returns to our shareholders on our journey for high quality growth.
I’d like to turn the call over to our CFO to run you through the financial results, John please.
John Lin
Okay. Thanks DK. Hello everyone. Thank you all for joining us today. I will walk you through some key financial results in the quarter and in the March 31, 2032, as well as the full fiscal year 2022. During the fourth quarter, despite the COVID and off season impact detail shared earlier, our total revenues were RMB507 million, pretty much the same level compared to the third quarter since the retail sales volume ramp up in the survey IRC. Specifically, our retail revenue were RMB319 million representing a 37% quarter-over-quarter growth and 156% year-over-year, driven by higher retail.
As for overall fiscal year 2022, it was our first full year of operation under the inventory owning model. Driven by our continued sales growth momentum, our total transaction bottom was 15,755 units representing a 49% year-over-year growth and our total four year revenues were RMB1.6 billion, representing a 150% year-over-year growth.
When we look at the gross margin of fourth quarter, as you can see in the three quarters, our gross margin was stable at around 4%. However, in the fourth quarter it fell to 0.2%. The reason was that the experience to see IRC lockdown for more than one month due to COVID and February was the traditional Chinese New Year off season. So used car transactions were almost a frozen for month. So we help to proactively restructure our inventories and accelerate the sales of the long age vehicles through pricing adjustments.
The inventory management actions compressed our gross margin in the first quarter. As a result, the overall gross margin for fiscal year 2022 was 2.9%. We observe after the Chinese New Year clear upwards traveling in our retail sales, and we do expect our gross ghost margining to gradually return to a reasonable level in the following quarters.
We continued our stringent expense management in the fourth quarter. The total operating expenses were RMB119.4 million relatively stable compared with the first quarter. As I repeated every time, the culture of reducing unnecessary spend is already one of the company’s culture in Uxin. We have been proactively seeking opportunities to optimize organizations, increase operation efficiency and promote cost effective technology.
As a result, our fiscal year 2022 operating expenses were RMB409 million representing a 48% decrease year-over-year. Consequently, the non-GAAP addressed a loss from continuing operation was RMB96.1 million in the fourth quarter compared with RMB8.6 million in the third quarter. The full fiscal year non-GAAP adjusted the loss from continuing operation was RMB96.1 as was a substantially narrowed by 56% compared with fiscal year 2021.
Other than the financial results, I would like to share some of our recent development in financing and reliability to restructuring. Last year, we announced the USD350 million investment by Neo Capital and Capital [ph] and by now we have received USD150 million from the investment. So remaining USD165 million is in a form of warrants. The investors still retain a right to exercise the warrants with a total amount of up to USD165 million. On top of that, yesterday, we closed an additional USD100 million follow on investment from Neo Capco [ph].
In addition, we also recently completed the difference of ordinary shares to 58.com in exchange for the full release of the company’s USD63 million obligations under the convertible notes issued to 58.com.
We believe closing of these transactions allow us to substantially streamline our financial resources and it devotes more focus to execution of our long-term growth strategies. We plan to accelerate the pace of our expansion, strengthen our recognition capabilities and further digitize our supply chain, and we are confident that our investment in these areas will enable us to provide customers with more eco selections and a better one style hazard-free shopping experience.
The detailed financial statements were published in — our earning released online. So I will not repeat the numbers here at this time, but I do want to emphasize one thing. In the fourth quarter, similar to the past quarters, there was a fair value impact related to our financing transactions. The share price was USD1.02 per ADS, as on March the 31, 2022 and on January 03, 2022, our share price was USD1.57 per ADS.
So this resulted in a non-cash gain of RMB476.8 million from fair value change of the world liabilities and forward liabilities on our balance sheet. I would like to emphasize again, that this fair value impact was a non-cash gain and not result of our operations.
In regards to the first quarter guidance in fiscal year 2023, we currently expect our total revenues to be in a range of RMB600 million to RMB620 million for the three months ended the 2022. Please know that this forecast to reflect our current preliminary rate use on the market and operational conditions, which are subject to changes.
So this concludes our prepared remarks. Thanks everyone and operator, we’re ready to receive the questions.
Question-and-Answer Session
Operator
We will now begin the question-and-answer session. [Operator instructions] Our first question will come from Karl Birkenfeld with American Trust Investment Services. You may not go ahead.
Karl Birkenfeld
Good evening, gentlemen. Congratulations on your outstanding financial performance in light of the circumstances with COVID. I am the Managing Director at American Trust and I have a coverage in China. I have two questions. The first is through our news media report in the United States, we know that China continues to keep COVID zero policy that restricts travel and lockdown, the potential of risk areas. What’s the economic outlook in consumer sentiment, will this affect Uxin business going forward?
Joyce Tang
The implementation of COVID measures we will still have an impact, city-wide lockdown in particular will limit people’s activities. We will certainly comply with all governments COVID prevention policies. In terms of our financial results, the disrupted operation of our CIRC, which intent affect our financial performance, the closure of our IRC during the lockdown capital hour, overall sales slow our inventory turnover and compress our growth margin in the fourth quarter of this year.
However, this impact are temporary. This June, our business has fully recovered after China started COVID restriction and lifted Shanghai lockdown. That’s the answer to this question. Thank you.
Karl Birkenfeld
Great. Thank you very much. The second question is can you break down your vehicle acquisition by source and what are the differences between these channels in terms of cost, average prices and turnover?
Joyce Tang
Our acquisition mainly include individual car owners, auction companies and dealerships of new cars. This dealership partner with us rent their customers, trading their vehicle.
Regarding the cost, our acquisition cost only consists of the vehicles purchase price, and there are no other causes in the acquisition process. Also there’s no material difference in the averaging selling price and turn over between this acquisition office. However, purchasing directly from individual car owners simplifies acquisition process.
So generating a higher growth margin, as such we highly value individual car owners as acquisition score, which contributed to our 30% of our total acquisition compared to 15%, the middle of the last year percentage to continue climbing going forward. That’s the answer to the question. Thank you.
Operator
Our next question will come from [indiscernible] with TF Securities. You may now go ahead.
UnidentifiedAnalyst
Repeat my question in English, in 2022, what optimization has the company made on the user side online platform? What is the company’s current arrangement from purchase to delivery of the car? What technic upgrading and optimizations and has been made this year compared to 2021 about the online car buying platform, what kind of competitive advantages or diverse that the company has? Thank you.
Joyce Tang
We implemented several upgrades to the online purchase of our vehicle. One of this upgrades is the complete self-service online order and purchase process for customers. The process that not require any salesmen intervention and allows the customer to make a more independent and the right decision, they can then complete the transactions smoothly.
Another example, as to operate the online display of our vehicle information; now customers can view each car with basic condition and rating as well as the vehicle conditions force that we implemented under the national standard. The display of this indicators enable customers to make a more comprehensive assessment of the vehicles online to form a purchase decision.
In terms of the logistic and network, our delivery network now our 20 cities network, we also plan to gradually expand our network in the future.
First our resource has higher quality as we have the highest centre for the repositioning. So we can have the lowest return rate in the industry. Secondly, after years of effort, we have built a robust system for vehicle delivery and local ownership registration. Our delivery efficiency is very high. Usually our customers can receive their vehicles around 72 hours after they place the order. Thirdly, all of our vehicles are self-owned. So we have better control of the vehicles and the transaction. That’s answer to the question. Thank you.
Operator
Our next question will come from Yin Ying from China Securities. You may now go ahead.
Yin Ying
Thank you, Yin Ying from China Securities. Given the electric vehicle sales have called out with gasoline cars, can you share more about your expansion plans in this market? Are the margins different from gasoline cars and how many new vehicle — new energy vehicles do your customer have in your inventory?
Kun Dai
Is the critical that we are focusing on and investing in. As you know gasoline Amy vehicles are built very differently. This is why in the past few months, we have established separate systems and since for the testing and maintaining of used new vehicles.
From a market perspective, China’s used EV market is directly tied to the overall of the used EV market is directly tied to the overall ownership. As again for 2021, China’s passenger car ownership reached $300 million while EV ownership was around $8 million or less than 3% of the total. As of now, NEV accounted for 5% to 6% of our inventory. From a business perspective, our NEV offering are quite popular among customers. NEV is in our inventory also have a stronger sales performance. Additionally, we made cover. They’re welcomed by consumers, such as Tesla, Leo, Lee Auto. In the industry, we are leading the industry in both self-capacity and self-performance of new energy use cars. Thank you for your question.
Operator
Thank you. We have reached the end of question-and-answer session. I would now like to hand the conference back over to Joyce for closing remarks.
Joyce Tang
Thank you for everyone joining our call today. We look forward to — we look forward to see you next time, bye, bye.
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