Uxin Restricted (NASDAQ:UXIN) Q2 2024 Earnings Name Transcript November 28, 2023 8:00 AM ET
Firm Individuals
Jack Wang – IR, Blue Shirt Group
Kun Dai – Chairman and CEO
Feng Lin – CFO
Convention Name Individuals
Fei Dai – Tianfeng Securities
Operator
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 members are in a listen-only mode. After administration’s ready remarks, there might be a Q&A session. At the moment’s convention name is being recorded. You probably have any objections, chances are you’ll disconnect presently.
I might now prefer to introduce your host for at present’s convention name, Mr. Jack Wang. Please go forward, Jack.
Jack Wang
All proper. Thanks, operator. And whats up, everybody. Welcome to Uxin’s earnings convention name for the primary and second quarters of fiscal 12 months 2024 ended June 30, 2023, and September 30, 2023, respectively. On the decision with me at present we now have DK, our founder and CEO, in addition to Feng Lin, our CFO. DK will evaluate enterprise operations and firm highlights, adopted by John, who will focus on our financials and steerage. They’ll each be accessible 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 which 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.
Kun Dai
[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 prior to now month, we postponed the discharge of our first quarter monetary outcomes. At the moment we’re presenting the efficiency of the primary and second quarters of fiscal 12 months 2024 overlaying April to September 2023. I’ll first evaluate the important thing highlights of the previous two quarters after which share a few of our achievements and future targets.
Within the first quarter of fiscal 12 months 2024, from April to June 2023, we witnessed that the top of a automotive 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 via China’s used automotive market. This shift led to a cautious method by shoppers who adopted a wait and see stance on buying used automobiles. Aligned with these market dynamics, we opted for a prudent automotive 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 models. 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 models, a notable 36% sequential progress and much surpassing the business’s common progress charge of 5% in transaction quantity.
All through this era, we successfully maintained the turnover base of our autos 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 12 months. A notable achievement in September was our Hefei superstore reaching constructive EBITDA, contributing to a virtually 50% year-over-year discount within the firm’s general adjusted EBITDA loss. Moreover, we constantly upheld the business’s highest internet 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 strong and wholesome progress 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 unlimited space of 450,000 sq. meters, the Changfeng Superstore options the world’s most superior used automotive reconditioning manufacturing facility and the most important warehouse-style used automotive retail superstore with a capability to showcase as much as 10,000 autos. The growth of our stock at this facility is ready to considerably bolster the corporate’s enterprise progress within the forthcoming years.
On the identical time, we signed an fairness funding settlement with the native authorities of Hefei Metropolis on the finish of September. Beneath this settlement Hefei Building Funding North Metropolis Industrial Funding will commit as much as RMB1.5 billion over the following 10 years to Uxin’s Hefei subsidiary to assist the operation and improvement of our used automotive superstore within the metropolis of Hefei. The town’s benefit is strategic location, favorable enterprise atmosphere, nicely established automotive business and strong upstream and downstream provide chains supply substantial assist, fostering Uxin’s continued enterprise progress.
Reflecting on our expertise, because the 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 analogous 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 now have established a transparent technique in direction of the corporate’s general profitability, and our objective is to achieve general EBITDA profitability by September 2024 or sooner.
During the last two years, we now have considerably enhanced our administration capabilities and operational effectivity, surpassing business norms and edging us nearer to our profitability targets. Through the name at present, I want to spotlight 4 key areas of improvement.
Firstly, we now have efficiently accomplished the coaching of our AI-powered automobile pricing system. This superior system autonomously and intelligently units costs for autos, contemplating components reminiscent of 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, making certain an optimum automobile turnover effectivity of 30 days to 45 days.
Secondly, by leveraging the environment friendly operation of our leading edge used automotive reconditioning manufacturing facility, we now have been in a position to speed up automobile turnover and slash reconditioning price, all whereas sustaining the provision of used automobiles at a brilliant giant scale. The mixing of subtle reconditioning applied sciences and tools ensures superior automobile high quality. We have pioneered the business’s most superior clear manufacturing facility administration system, facilitating built-in information transmission for inspection, prognosis, and restore, whereas enabling real-time monitoring of our workforce, autos, and supplies. This method optimizes the manufacturing course of throughout the board, implements clever parallel processing of workshop duties, and has dramatically lowered 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 numerous sides of our enterprise. That is highlighted by the substantial price reductions achieved via provide chain integration and large-scale automobile reconditioning. Moreover, we have leveraged developments in operational processes incorporating progressive applied sciences like 3D printing and good restore, which has led to groundbreaking enhancements in price management methods.
Lastly, we now have confirmed some great benefits of our offline superstores in attracting prospects. By our superstores, we offer an unlimited array of auto choices, distinctive customer support, and all-encompassing after-sales assist, all of which had quickly cultivated a strong fame amongst prospects in regional markets. Inside only one 12 months of operations, our Xi’an and Hefei superstores have ascended to develop into the main manufacturers in native used automotive market recognition. We now have distinctly seen that as our offline tremendous shops evolve, there’s a marked improve in natural meals site visitors, which considerably lowers the associated fee related to buying new prospects.
Our enterprise mannequin is now absolutely refined and with confidence we anticipate that the corporate will attain general profitability by or earlier than September 2024. In our long-term strategic imaginative and prescient, we see the superstore mannequin as swiftly adaptable throughout numerous areas in China. Our growth technique into new cities will combine much more progressive approaches, making certain 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.
Feng Lin
[Foreign Language] [interrupted] Thanks, DK. And whats up, everybody. I’ll present a better have a look at our monetary outcomes from the primary and the second quarter of fiscal 12 months 2024.
DK has already supplied an summary of our retail transaction volumes for these intervals. Within the face of the fluctuating market circumstances for the primary quarter of 2024, we adopted a prudent automobile acquisition technique and opted to take care of comparatively low stock ranges. As such, our retail transaction quantity within the first quarter decreased by 25% sequentially to 1,687 models. Through the second quarter, we elevated our stock ranges enabling us to develop our retail transaction quantity by 36% to 2,287 models 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 autos, which decreased from RMB120,000 in the identical interval final 12 months to roughly RMB110,000 during the last two quarters.
Our wholesale enterprise section remained comparatively steady with a transaction quantity of 1,567 models and a gross sales income of RMB95 million within the first quarter in comparison with 1,597 models with a gross sales income of RMB99 million within the second quarter. General, our complete revenues for the second quarter have 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 charge of our value-added companies and lowered the per-vehicle prices, due to the efficiencies gained from our modernized manufacturing facility operations. Consequently, we noticed a considerable enchancment in our gross margin. Particularly, within the first quarter and second quarters of fiscal 12 months 2024, our gross margins have been 6.1% and 6.2% respectively. This represents a year-over-year improve of 5 and 4.9 proportion factors. Wanting 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 companies, coupled with price reductions achieved via greater 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 now have maintained stringent management over our working bills, making certain they continue to be steady. This disciplined method to managing bills is vital to our technique for reaching 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 expenses, together with depreciation, amortization, and monetary bills. To offer a clearer image of our precise enterprise efficiency, we now have began disclosing adjusted EBITDA from this 12 months and are utilizing it as a key metric to judge our operations. Adjusted EBITDA which removes the results of stock-based compensation and different one-time or non-cash gadgets from the usual EBITDA provides a extra correct reflection of our firm’s profitability.
The development 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 12 months. 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 12 months. 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 12 months.
I want to reiterate the revenue goal DK simply talked about. Our intention is to achieve adjusted EBITDA profitability on the retailer degree by March 2024, and prolong this to the complete firm by September 2024.
We’re assured in our trajectory in direction of top quality sustainable improvement and our sturdy monetary place is a cornerstone for future enterprise progress and profitability aims. In September, we entered into an fairness funding settlement with the Hefei native authorities’s funding platform. Beneath this settlement, they’ve dedicated to investing as much as RMB1.5 billion in Uxin’s Hefei subsidiary over the following decade, with the primary trench of roughly RMB150 million basically accomplished. Moreover, we now have organized with our traders to finalize the remaining disbursement of practically $30 million from earlier funding rounds earlier than the top of the 12 months. Furthermore, we just lately 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 12 months 2024 between October and December 2023, we anticipate a return to regular progress in gross sales as market circumstances enhance and stock ranges improve. Our retail transaction quantity is anticipated to be round 3,100 models, whereas the ASP for retail autos is anticipated to be round RMB105,000. We additionally anticipate our wholesale transaction quantity to be round 1,400 models, 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 companies 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.
Query-and-Reply Session
Operator
Thanks. [Operator Instructions] At the moment’s first query comes from [Kai Qian] (ph) with CITIC Securities. Please go forward.
Unidentified Analyst
[Foreign Language] So I’ve one other query which is about altering the gross revenue margin. So within the second quarter of 2023, which implies from the April to September, we now have achieved a giant progress on the rebound of our progress revenue. And we keep presently, we’re on the third quarter of 2023. So we all know there are loads 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?
Feng Lin
[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 12 months 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 companies. 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 companies.
The uptake in gross revenue from automobile gross sales will be attributed to the success of our giant superstore mannequin. This success interprets to extra correct threat pricing, elevated gross sales effectivity, and a sooner stock turnover. Moreover, because the market stabilizes, the worth unfold in our used automotive gross sales has considerably improved in comparison with the earlier 12 months.
At Uxin, we leverage our superstores and factories to supply a complete array of worth added companies, together with finance, insurance coverage, prolonged warranties, equipment, upkeep, and repairs. This enterprise mannequin represents a pure benefit over conventional used automotive sellers. We will supply prospects extra appropriate finance and insurance coverage merchandise, cost-effective equipment, and obtain gross sales conversions via an offline superstore expertise that surpasses conventional used automotive marketplaces. We’re constantly enhancing the penetration charge of our price added companies and we imagine that there’s nonetheless a major potential for additional progress.
And with our Xi’an IRC up and working, the discount in reconditioning prices has certainly made a noticeable influence on gross margin enchancment. As DK talked about earlier, our clear manufacturing facility system that includes the world’s most superior used automotive reconditioning manufacturing facility facilitates built-in end-to-end course of administration for inspection, prognosis, and restore. This has considerably improved automobile turnover effectivity and lowered the [time] (ph) price. On the identical time, we proceed to roll out superior reconditioning tools and processes, reminiscent of 3D printing and good repairs, whereas integrating the spare elements provide system. Consequently, the reconditioning time and price per automobile has additional decreased. As of now, the reconditioning price per automobile is greater than 50% decrease than a 12 months in the past. The optimization of the reconditioning course of alongside contributed about 1.5 proportion factors to the development in our gross revenue margin. And that us my reply to your query.
Unidentified Analyst
[Foreign Language] [indiscernible] retail transaction quantity quarter [indiscernible] from July of September. However do you assume at the moment within the final fourth quarter, possibly within the subsequent few months this steady pattern will be continued and there could also be not sturdy procuring tax on the brand new automotive market. And so in 2024, our retail transaction quantity will bounce and will be continued within the subsequent 12 months. Thanks.
Kun Dai
[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 automotive costs stabilized, the used automotive market regularly returned to regular. Our gross sales quantity started to recuperate in July, displaying a 35% progress within the September quarter in comparison with the June quarter. In the identical interval, the home used automotive market solely noticed a median sequential transaction quantity progress charge of 5%. So our efficiency considerably exceeded the market.
Relating to the ASP of retail autos, each within the September and June quarters our ASP remained steady at round RMB110,000. At the start of the 12 months, it was about RMB120,000, and in the identical interval final 12 months, it was about RMB140,000. The ASP of retail autos 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 influence of the brand new automotive market on us has lessened. Beginning in October, new automobiles underwent a brand new spherical of worth reductions. However our ASP has remained comparatively steady. And that is my reply to your query.
Operator
Thanks. And our subsequent query at present comes from Fei Dai with TF Securities. Please go forward.
Fei Dai
[Foreign Language] On condition that present financial circumstances are fairly difficult, so on the corporate’s perspective is there any adjustments in market pattern and client conduct? How is the corporate addressing the influence of financial system change? That’s my first query. Thanks.
Kun Dai
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 via cheap pricing. Secondly, it necessitates sustaining the present effectivity of gross sales turnover. And thirdly, it entails an ongoing dedication to drive price discount and improve effectivity.
So probably the most notable potential influence that we observe is the market volatility stemming from the continues discount in new automotive costs. On the automobile acquisition facet, the more and more aggressive pricing methods within the new automotive market this 12 months had repercussions within the used automotive market, reducing the acquisition costs for used automobiles. Leveraging our AI-driven digital pricing system, we are able to decide probably the most cheap acquisition costs. Clients promoting their automobiles could require a while to regulate their worth expectations, probably influencing the tempo of stock improve.
And on the gross sales entrance, as evident from the market response throughout the brand new automotive worth discount wave in March, prospects could undertake a wait-and-see method to buying used automobiles. Nevertheless, we’re assured in repeatedly 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 fame in areas that we function.
And moreover, we anticipate the brand new automotive market to return to a brand new steady degree. The worth reductions are undoubtedly not sustainable. And we additionally anticipate the provision and demand within the used automotive market to normalize. We’re assured in reaching our profitability targets. That would be the reply to your query.
Fei Dai
[Foreign Language]
Kun Dai
All proper. Thanks.
Operator
Thanks. This concludes our query and reply session. I would like at hand the decision again to administration for any closing remarks.
Jack Wang
Thanks all once more for becoming a member of at present’s name and to your continued assist in Uxin. We look ahead to talking with you once more sooner or later.
Operator
Thanks. This concludes at present’s convention name. We thanks all for attending at present’s presentation. You could now disconnect your strains and have a beautiful day.
