Uxin Restricted (NASDAQ:UXIN) Q2 2024 Earnings Name Transcript November 28, 2023 8:00 AM ET
Jack Wang – IR, Blue Shirt Group
Kun Dai – Chairman and CEO
Feng Lin – CFO
Convention Name Individuals
Fei Dai – Tianfeng Securities
Girls and gents, thanks for standing by, and welcome to Uxin’s First and Second Quarter of Fiscal 12 months 2024 Earnings Convention Name. Presently, all individuals are in a listen-only mode. After administration’s ready remarks, there shall be a Q&A session. Right now’s convention name is being recorded. When you’ve got any objections, you could disconnect presently.
I’d now prefer to introduce your host for at present’s convention name, Mr. Jack Wang. Please go forward, Jack.
All proper. Thanks, operator. And hi there, everybody. Welcome to Uxin’s earnings convention name for the primary and second quarters of fiscal yr 2024 ended June 30, 2023, and September 30, 2023, respectively. On the decision with me at present we have now DK, our founder and CEO, in addition to Feng Lin, our CFO. DK will evaluation enterprise operations and firm highlights, adopted by John, who will focus on our financials and steering. They’ll each be out there to reply your questions throughout the Q&A session that follows.
Earlier than we proceed, I want to remind you that this name could include forward-looking statements that are inherently topic to dangers and uncertainties that will trigger precise outcomes that differs from our present expectations. For detailed discussions of the dangers and uncertainties, please consult with our filings with the SEC.
Now, I’ll flip the decision over to our CEO, DK. Please go forward, sir.
[Foreign Language] [interrupted] Good day, everybody. Thanks for becoming a member of our earnings name. I’m happy to reconnect with you all at present on the decision and to facilitate talk with home and worldwide traders. I’ll share our firm’s newest progress in each Chinese language and English.
Because of the financing transactions with the federal government of Hefei Metropolis previously month, we postponed the discharge of our first quarter monetary outcomes. Right now we’re presenting the efficiency of the primary and second quarters of fiscal yr 2024 protecting April to September 2023. I’ll first evaluation the important thing highlights of the previous two quarters after which share a few of our achievements and future objectives.
Within the first quarter of fiscal yr 2024, from April to June 2023, we witnessed that the top of a automobile shopping for surge initially fueled by pent-up demand throughout the pandemic. Subsequently, the aggressive pricing methods of recent automobiles starting in March continued to reverberate by way of China’s used automobile market. This shift led to a cautious strategy by shoppers who adopted a wait and see stance on buying used automobiles. Aligned with these market dynamics, we opted for a prudent automobile acquisition technique, sustaining decrease stock ranges. Consequently, our retail transaction quantity within the first quarter noticed a 25% lower from the earlier quarter, totaling 1,687 items. Nevertheless, within the second quarter between July and September, we strategically elevated our stock ranges, leading to a major rebound in retail transaction quantity to 2,287 items, a notable 36% sequential development and much surpassing the business’s common development price of 5% in transaction quantity.
All through this era, we successfully maintained the turnover base of our automobiles on sale earlier than 45, whereas concurrently enhancing our profitability as our gross margin has expanded to six.2% from 1.3% in the identical interval final yr. A notable achievement in September was our Hefei superstore reaching constructive EBITDA, contributing to an almost 50% year-over-year discount within the firm’s total adjusted EBITDA loss. Moreover, we constantly upheld the business’s highest web promoter rating, or NPS, sustaining a rating round 60 factors for seven consecutive quarters. This efficiency underlines the success of our superstore mannequin and signifies that our enterprise operations are progressing alongside a sturdy and wholesome development path.
It is usually value highlighting that our state-of-the-art Changfeng Superstore in Hefei Metropolis commenced its trial operations in September 2023. Encompassing an enormous space of 450,000 sq. meters, the Changfeng Superstore options the world’s most superior used automobile reconditioning manufacturing unit and the biggest warehouse-style used automobile retail superstore with a capability to showcase as much as 10,000 automobiles. The enlargement of our stock at this facility is ready to considerably bolster the corporate’s enterprise development within the forthcoming years.
On the similar time, we signed an fairness funding settlement with the native authorities of Hefei Metropolis on the finish of September. Underneath this settlement Hefei Building Funding North Metropolis Industrial Funding will commit as much as RMB1.5 billion over the subsequent 10 years to Uxin’s Hefei subsidiary to assist the operation and growth of our used automobile superstore within the metropolis of Hefei. The town’s benefit is strategic location, favorable enterprise surroundings, properly established automotive business and sturdy upstream and downstream provide chains provide substantial assist, fostering Uxin’s continued enterprise development.
Reflecting on our expertise, for the reason that relocation and improve of our Xi’an superstore in December 2022, it has efficiently reached EBITDA profitability by September 2023, simply 10 months into its operation. Our Hefei Superstore, which started its trial operations in September 2023, is on an identical path, with an goal to achieve adjusted EBITDA profitability by March 2024 and even earlier. Leveraging the scalable profitability of our superstores mixed with our ongoing efforts in price management and optimization, we have now established a transparent technique in direction of the corporate’s total profitability, and our purpose is to achieve total EBITDA profitability by September 2024 or sooner.
Over the past two years, we have now considerably enhanced our administration capabilities and operational effectivity, surpassing business norms and edging us nearer to our profitability targets. In the course of the name at present, I want to spotlight 4 key areas of growth.
Firstly, we have now efficiently accomplished the coaching of our AI-powered automobile pricing system. This superior system autonomously and intelligently units costs for automobiles, contemplating components similar to situation, age, coloration, and mileage. It additionally dynamically adjusts the quotes in response to buyer curiosity, suggestions from offline check drives, and market circumstances. This place in pricing strengthens our aggressive place in each buying and promoting, guaranteeing an optimum automobile turnover effectivity of 30 days to 45 days.
Secondly, by leveraging the environment friendly operation of our innovative used automobile reconditioning manufacturing unit, we have now been in a position to speed up automobile turnover and slash reconditioning price, all whereas sustaining the availability of used automobiles at an excellent massive scale. The mixing of refined reconditioning applied sciences and gear ensures superior automobile high quality. We have pioneered the business’s most superior clear manufacturing unit administration system, facilitating built-in knowledge transmission for inspection, prognosis, and restore, whereas enabling real-time monitoring of our workforce, automobiles, and supplies. This technique optimizes the manufacturing course of throughout the board, implements clever parallel processing of workshop duties, and has dramatically decreased the timeframe from automobile consumption to gross sales itemizing to solely three to 4 days.
We stay dedicated to establishing an optimum price and expense technique, a construction throughout varied sides of our enterprise. That is highlighted by the substantial price reductions achieved by way of provide chain integration and large-scale automobile reconditioning. Moreover, we have leveraged developments in operational processes incorporating revolutionary applied sciences like 3D printing and sensible restore, which has led to groundbreaking enhancements in price management methods.
Lastly, we have now confirmed the benefits of our offline superstores in attracting clients. By way of our superstores, we offer an enormous array of auto choices, distinctive customer support, and all-encompassing after-sales assist, all of which had quickly cultivated a sturdy status amongst clients in regional markets. Inside only one yr of operations, our Xi’an and Hefei superstores have ascended to change into the main manufacturers in native used automobile market recognition. Now we have distinctly observed that as our offline tremendous shops evolve, there’s a marked improve in natural meals site visitors, which considerably lowers the price related to buying new clients.
Our enterprise mannequin is now totally refined and with confidence we anticipate that the corporate will attain total profitability by or earlier than September 2024. In our long-term strategic imaginative and prescient, we see the superstore mannequin as swiftly adaptable throughout varied areas in China. Our enlargement technique into new cities will combine much more revolutionary approaches, guaranteeing an enhanced price effectiveness and accelerated profitability for every superstore.
With that, I want to flip the decision over to our CFO to stroll you thru the monetary outcomes. John, please.
[Foreign Language] [interrupted] Thanks, DK. And hi there, everybody. I’ll present a better have a look at our monetary outcomes from the primary and the second quarter of fiscal yr 2024.
DK has already supplied an outline of our retail transaction volumes for these durations. Within the face of the fluctuating market circumstances for the primary quarter of 2024, we adopted a prudent automobile acquisition technique and opted to keep up comparatively low stock ranges. As such, our retail transaction quantity within the first quarter decreased by 25% sequentially to 1,687 items. In the course of the second quarter, we elevated our stock ranges enabling us to develop our retail transaction quantity by 36% to 2,287 items within the second quarter.
Our retail gross sales income within the second quarter reached RMB249 million, representing a sequential improve of 33% from RMB187 million within the first quarter. In response to the evolving financial panorama, we diligently refined our stock construction to align with present market calls for. This strategic adjustment is mirrored within the common promoting worth or ASP of our retail automobiles, which decreased from RMB120,000 in the identical interval final yr to roughly RMB110,000 during the last two quarters.
Our wholesale enterprise section remained comparatively secure with a transaction quantity of 1,567 items and a gross sales income of RMB95 million within the first quarter in comparison with 1,597 items with a gross sales income of RMB99 million within the second quarter. General, our complete revenues for the second quarter had been RMB356 million, a sequential improve of 23% from RMB298 million — sorry, RMB289 million within the first quarter. Moreover, we additional accelerated our stock turnover, elevated the penetration price of our value-added providers and decreased the per-vehicle prices, because of the efficiencies gained from our modernized manufacturing unit operations. Consequently, we noticed a considerable enchancment in our gross margin. Particularly, within the first quarter and second quarters of fiscal yr 2024, our gross margins had been 6.1% and 6.2% respectively. This represents a year-over-year improve of 5 and 4.9 share factors. Trying forward, we anticipate additional enhancements in our gross margins, fueled by a rise in revenues from our monetary, insurance coverage, and premium upkeep and restore providers, coupled with price reductions achieved by way of increased gross sales quantity.
On the entrance of working bills the second quarter confirmed a slight uptick to RMB91.6 million in comparison with RMB87.8 million within the earlier quarter. This improve was largely because of the price related to opening our Hefei Changfeng Superstore, together with bills associated to website relocation. Regardless of this, we have now maintained stringent management over our working bills, guaranteeing they continue to be secure. This disciplined strategy to managing bills is essential to our technique for attaining our projected profitability sooner or later.
Loss from operations narrowed by 35% year-over-year to RMB63.2 million within the first quarter and 38% year-over-year to RMB66.4 million within the second quarter. Because of the federal government’s funding in Uxin’s Hefei subsidiary and the monetary leasing of the Hefei Superstore property, our Changfeng Superstore in Hefei Metropolis has recorded substantial non-cash fees, together with depreciation, amortization, and monetary bills. To supply a clearer image of our precise enterprise efficiency, we have now began disclosing adjusted EBITDA from this yr and are utilizing it as a key metric to judge our operations. Adjusted EBITDA which removes the consequences of stock-based compensation and different one-time or non-cash gadgets from the usual EBITDA affords a extra correct reflection of our firm’s profitability.
The advance in our gross margin and a steady refinement of our price and expense construction has led to a considerable enhancement in our profitability. A testomony to this progress is our Xi’an Superstore, which achieved constructive adjusted EBITDA in September this yr. Within the first quarter, our company adjusted EBITDA was a lack of RMB46.6 million, representing a discount of RMB29.6 million, or 39%, from a lack of RMB36.3 million in the identical interval final yr. Adjusted EBITDA within the second quarter was a lack of RMB45.9 million, representing a discount of RMB41 million, or 47% from RMB86.9 million in the identical interval final yr.
I want to reiterate the revenue goal DK simply talked about. Our goal is to achieve adjusted EBITDA profitability on the retailer stage by March 2024, and prolong this to all the firm by September 2024.
We’re assured in our trajectory in direction of prime quality sustainable growth and our robust monetary place is a cornerstone for future enterprise development and profitability targets. In September, we entered into an fairness funding settlement with the Hefei native authorities’s funding platform. Underneath this settlement, they’ve dedicated to investing as much as RMB1.5 billion in Uxin’s Hefei subsidiary over the subsequent decade, with the primary trench of roughly RMB150 million basically accomplished. Moreover, we have now organized with our traders to finalize the remaining disbursement of almost $30 million from earlier funding rounds earlier than the top of the yr. Furthermore, we not too long ago secured new stock financing from two monetary establishments amounting to a complete credit score line of near RMB300 million.
For the third quarter of fiscal yr 2024 between October and December 2023, we anticipate a return to regular development in gross sales as market circumstances enhance and stock ranges improve. Our retail transaction quantity is predicted to be round 3,100 items, whereas the ASP for retail automobiles is predicted to be round RMB105,000. We additionally count on our wholesale transaction quantity to be round 1,400 items, with ASP anticipated to be round RMB67,000. We estimate that our complete revenues, together with retail automobile gross sales income, wholesale automobile gross sales income, and value-added providers income to be within the vary of RMB410 million to RMB430 million.
And that concludes our ready remarks at present. Operator, we’re now prepared for questions.
Thanks. [Operator Instructions] Right now’s first query comes from [Kai Qian] (ph) with CITIC Securities. Please go forward.
[Foreign Language] So I’ve one other query which is about altering the gross revenue margin. So within the second quarter of 2023, which suggests from the April to September, we have now achieved a giant progress on the rebound of our development revenue. And we keep presently, we’re on the third quarter of 2023. So we all know there are lots of components that contribute to that rebound. So may you give us extra detailed details about the load of various components, particularly the contribution from Xi’an IRC operation?
[Foreign Language] [interrupted] Hello, that is John and I will deal with that query. Our gross revenue margin has seen a notable enchancment, rising from 1.3% in the identical interval final yr to six.2% this quarter. The expansion in gross revenue for a retail automobile primarily stems from two facets: automobile gross sales and worth added providers. Within the final quarter, the year-over-year enchancment in gross revenue was roughly 70% pushed by automobile gross sales and 30% by worth added providers.
The uptake in gross revenue from automobile gross sales might be attributed to the success of our massive superstore mannequin. This success interprets to extra correct threat pricing, elevated gross sales effectivity, and a quicker stock turnover. Moreover, because the market stabilizes, the worth unfold in our used automobile gross sales has considerably improved in comparison with the earlier yr.
At Uxin, we leverage our superstores and factories to offer a complete array of worth added providers, together with finance, insurance coverage, prolonged warranties, equipment, upkeep, and repairs. This enterprise mannequin represents a pure benefit over conventional used automobile sellers. We will provide clients extra appropriate finance and insurance coverage merchandise, cost-effective equipment, and obtain gross sales conversions by way of an offline superstore expertise that surpasses conventional used automobile marketplaces. We’re constantly bettering the penetration price of our worth added providers and we consider that there’s nonetheless a major potential for additional development.
And with our Xi’an IRC up and operating, the discount in reconditioning prices has certainly made a noticeable impression on gross margin enchancment. As DK talked about earlier, our clear manufacturing unit system that includes the world’s most superior used automobile reconditioning manufacturing unit facilitates built-in end-to-end course of administration for inspection, prognosis, and restore. This has considerably improved automobile turnover effectivity and decreased the [time] (ph) price. On the similar time, we proceed to roll out superior reconditioning gear and processes, similar to 3D printing and sensible repairs, whereas integrating the spare elements provide system. Consequently, the reconditioning time and value per automobile has additional decreased. As of now, the reconditioning price per automobile is greater than 50% decrease than a yr in the past. The optimization of the reconditioning course of alongside contributed about 1.5 share factors to the advance in our gross revenue margin. And that us my reply to your query.
[Foreign Language] [indiscernible] retail transaction quantity quarter [indiscernible] from July of September. However do you suppose at present within the final fourth quarter, possibly within the subsequent few months this secure pattern might be continued and there could also be not robust purchasing tax on the brand new automobile market. And so in 2024, our retail transaction quantity will bounce and might be continued within the subsequent yr. Thanks.
[Foreign Language] [interrupted] Hello. That is DK. And I’ll deal with the gross sales perspective of your query first. So from July to September 2023 after new automobile costs stabilized, the used automobile market progressively returned to regular. Our gross sales quantity started to get well in July, exhibiting a 35% development within the September quarter in comparison with the June quarter. In the identical interval, the home used automobile market solely noticed a median sequential transaction quantity development price of 5%. So our efficiency considerably exceeded the market.
Concerning the ASP of retail automobiles, each within the September and June quarters our ASP remained secure at round RMB110,000. At the start of the yr, it was about RMB120,000, and in the identical interval final yr, it was about RMB140,000. The ASP of retail automobiles skilled a slight decline, primarily because of our proactive optimization of the stock construction to align with the present financial circumstances and market calls for. So after finishing the adjustment of our automobile construction, our stock now primarily consists of used automobiles aged three to eight years. General, the impression of the brand new automobile market on us has lessened. Beginning in October, new automobiles underwent a brand new spherical of worth reductions. However our ASP has remained comparatively secure. And that is my reply to your query.
Thanks. And our subsequent query at present comes from Fei Dai with TF Securities. Please go forward.
[Foreign Language] On condition that present financial circumstances are fairly difficult, so on the corporate’s perspective is there any modifications in market pattern and shopper conduct? How is the corporate addressing the impression of economic system change? That’s my first query. Thanks.
Hello, that is DK, and I’ll reply that query. So for us, attaining profitability actually facilities round three key facets. Firstly, it entails constantly evaluating stock ranges by way of affordable pricing. Secondly, it necessitates sustaining the present effectivity of gross sales turnover. And thirdly, it includes an ongoing dedication to drive price discount and improve effectivity.
So probably the most notable potential impression that we observe is the market volatility stemming from the continues discount in new automobile costs. On the automobile acquisition aspect, the more and more aggressive pricing methods within the new automobile market this yr had repercussions within the used automobile market, reducing the acquisition costs for used automobiles. Leveraging our AI-driven digital pricing system, we are able to decide probably the most affordable acquisition costs. Prospects promoting their automobiles could require a while to regulate their worth expectations, doubtlessly influencing the tempo of stock improve.
And on the gross sales entrance, as evident from the market response throughout the brand new automobile worth discount wave in March, clients could undertake a wait-and-see strategy to buying used automobiles. Nevertheless, we’re assured in constantly increasing stock and sustaining a wholesome gross sales turnover inside 45 days by leveraging our retail competitiveness mannequin for automobile choice, dynamically adjusting stock construction, using AI methods for digital pricing with well timed market suggestions, and benefiting from the excessive gross sales conversion effectivity pushed by our main model affect and status in areas that we function.
And moreover, we anticipate the brand new automobile market to return to a brand new secure stage. The value reductions are positively not sustainable. And we additionally count on the availability and demand within the used automobile market to normalize. We’re assured in attaining our profitability objectives. That would be the reply to your query.
All proper. Thanks.
Thanks. This concludes our query and reply session. I might like handy the decision again to administration for any closing remarks.
Thanks all once more for becoming a member of at present’s name and on your continued assist in Uxin. We look ahead to talking with you once more sooner or later.
Thanks. This concludes at present’s convention name. We thanks all for attending at present’s presentation. It’s possible you’ll now disconnect your strains and have a beautiful day.