Uxin Restricted (UXIN) CEO Kun Dai on Q1 2021 Outcomes – Earnings Name Transcript

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Uxin Restricted (NASDAQ:UXIN) Q1 2021 Earnings Convention Name September 8, 2020 8:00 AM ET

Firm Contributors

Nancy Music – Investor Relations Director

Kun Dai – Founder and Chief Govt Officer

Zhen Zeng – Chief Monetary Officer

Operator

Women and gents, thanks for standing by and welcome to Uxin’s Earnings Convention Name for the Quarter Ended June 30, 2020. And right now, all contributors are in listen-only mode. And after administration’s ready remarks, there might be a question-and-answer session. As we speak’s convention name is being recorded. If in case you have any objections, chances are you’ll disconnect right now. I might now like to show the decision over to Nancy Music, Investor Relations Director of Uxin. Please go forward.

Nancy Music

Thanks, operator. Good day, everybody. Welcome to Uxin’s earnings convention name for the quarter ended June 30, 2020. On the decision right now are D.Okay., our Founder and CEO; and Zhen Zeng, our CFO. D.Okay. will overview enterprise operations and the corporate highlights, adopted by Zhen, who will talk about financials and steerage. They each might be obtainable to reply your questions throughout the Q&A session that follows.

Earlier than we begin, I wish to remind you that this name could include forward-looking statements made beneath the Secure Harbor provisions of the U.S. Personal Securities Litigation Reform Act of 1995. These statements are made based mostly on administration’s present information and assumptions about future occasions that contain recognized or unknown dangers and uncertainties, which might trigger precise outcomes to vary materially from these within the forward-looking statements. Uxin doesn’t undertake any obligations to replace any forward-looking statements, besides as required beneath relevant legislation. For extra details about the potential dangers and uncertainties, please confer with our filings with the SEC.

With that, I’ll now flip the decision over to our CEO, D.Okay. Please go forward.

Kun Dai

Thanks, Nancy. Good day, everybody. Thanks for becoming a member of our earnings convention name right now. In the latest two quarters, the impression of coronavirus pandemic continued to create the challenges for general financial. Given the present macro setting, we’re glad that we efficiently accomplished the divestiture of our mortgage facilitation enterprise and relieved ourselves of the historic assure legal responsibility. With this enterprise change in place, the monetary impression of divesting the mortgage facilitation enterprise, actually its monetary ensures and divesting the B2B enterprise was and can proceed to be mirrored in our monetary statements for the quarter ended June and September 30, 2020. Together with this enterprise divestiture, now we have shifted our enterprise technique from market enterprise groups to a core focus and shifted our progress technique from being a financing-driven to 1 that’s in used – utilized in automobile high quality and repair oriented.

Underneath the beforehand – earlier financing-driven strategy, the place we skilled speedy transaction quantity progress, we had been additionally weighed down by a major underlying credit score threat and value constraints on movement, as a result of now we have to take all of the assure liabilities and buyback as a default mortgage when it’s delinquent property meet sure standards. Now, with this information behind us, we’re coming into into a brand new part of growth as a transaction oriented on-line used automobile seller, the place our focus is squarely on providing high-quality value-for-money used automobiles and the premium buying companies. We imagine that repeatedly enhanced used automobile high quality and the buying companies is the easiest way to maximise buyer worth and acquire extra buyer belief and word-of-mouth referrals. Though it takes time to construct a status and develop at scale with this used automobile and service-oriented strategy.

We imagine that that is the important thing to sustaining our long-term aggressive benefits and reaching sustainable progress. So as to create the perfect worth and expertise throughout your entire worth chain for our clients, we upgraded our used automobile transaction course of and migrated each gross sales step on-line. In remodeling our enterprise, now we have upgraded the important thing factors all through our service course of. We construct a gaggle of stock selectors to curate value-for-money used automobile from throughout the nation, make sure that the best requirements of automobile high quality meets by cautious inspection, simplify our pricing construction to facilitate the shopper’s buying choices, supply skilled consultants and buying companies in a well timed trend from our on-line gross sales consultants, work with extra financing companions to supply diversified and used automobile finance product and enhance general mortgage strategy approval charges for our buyer, supplier will run program and after-sales companies and makes your entire buying course of extra handy and environment friendly for our clients. All these efforts have translated into higher buyer satisfaction and better belief in our Uxin model, evidenced by our elevated web promoter rating amongst our clients.

To additional improve the shopper expertise, we are going to reinforce our position as China’s main on-line used automobile seller and start to construct personal stock of used automobiles this month. This can assist us higher management our provide chain for used automobile and ship larger transaction certainty to our clients. As we transfer up the provision chain and assess used automobiles at extra favorable acquisition value, we could have better flexibility in providing extra aggressive pricing to our clients, additional constructing the difficulty as a chart information and go-to-online choice for purchasing used automobile.

In distinction to the native offline sellers’ conventional method of buying stock based mostly solely on particular person expertise and consumer case, our stock benefit comes from our robust information and analytics functionality, we are going to take a extra scientific and systematic strategy to obtain used automobile by analyzing the in depth consumer conduct, used automobile and transactional information aggregated on our platform through the years. We’ll selectively construct our stock base on our proprietary evaluation of buyer desire, a automobile’s value-for-money desire in addition to real-time market dynamics and developments. As well as, we are going to supply refurbishments as a brand new service by reconditioning our automobile to a like-new situation earlier than handing it over to our clients. This might be one other key step in making certain the perfect general buying expertise because the reconditioning can additional improve a automobile’s value-for-money efficiency. We imagine that our data-driving and quality-focused stock technique will additional improve buyer satisfaction, whereas enabling us to realize a sooner stock turnover. This might be one other vital milestone for us in solidifying our place as China’s main nationwide on-line seller and providing high-quality value-for-money used automobile and the premium companies.

With that, I wish to flip the decision over to our CFO to stroll you thru the monetary outcomes. Zhen please?

Zhen Zeng

Okay. Thanks, D.Okay. Good day, everybody. Thanks for becoming a member of us right now. As DK talked about within the finishing the web transformation of our transaction course of, now we have additionally restructured our price and bills to adapt to the brand new enterprise and the service mannequin. We now have a streamlined stock sourcing and automobile inspection group, on-line gross sales marketing consultant group and back-office assist groups. As well as, larger buyer satisfaction and extra word-of-mouth referrals additionally translate into extra natural visitors and decrease want for exterior visitors acquisition. All these elements will improve our long-term operational effectivity as we obtain better scale over time. Because of the tax price that was carried out in China since Could this 12 months, the used automobile sellers now solely must pay 0.5% off of a used automobile gross sales. This implies we now have a extra accommodative fiscal setting through which to function because the precise seller. We’ll work with our monetary establishments within the type of stock financing to selectively constructing our personal stock, so that it’ll enable us to adequately handle our money movement. Accessing used automobiles at extra engaging acquisition prices by transferring up, the provision chain is not going to solely reinforce our management over stock, but in addition assist us to doubtlessly drive margin growth over the long term. We imagine this revamped stock technique will higher place us to generate long-term worth for our shareholders, whereas maximizing the shopper worth and expertise.

Now, let me stroll you thru our monetary particulars for the quarter ending in June. Please word that the outcomes I’ll talk about associated to persevering with operations solely. All numbers are in RMB until in any other case acknowledged. Additionally please word that some numbers I confer with are non-GAAP numbers. You’ll find a reconciliation of those numbers on the backside of our earnings launch. Within the three months ended June 30, 2020, whole revenues had been RMB62 million in contrast with the RMB389 million in the identical interval final 12 months. The lower was primarily as a result of lower within the 2C transaction quantity and GMV because of financial downturn attributable to the COVID-19 pandemic in addition to the lead time that we have to absolutely ramp up its upgraded transaction course of. Our whole 2C income was RMB52 million in contrast with RMB341 million in the identical interval final 12 months. On-line used automobile transaction quantity was 3,887 models for Three months finish June 30, 2020 and its corresponding GMV was RMB426 million.

Trying on the two income streams of our 2C enterprise, fee income was RMB29 million in contrast with the RMB179 million in the identical interval final 12 months, primarily as a result of decreases within the transaction quantity on GMV. Our fee fee expanded barely to 2.7% from 6.2% in the identical interval final 12 months because of our steady effort to supply a nationwide collection of finest worth for cash used automobiles in addition to the standard transaction companies to the shopper. Worth-added service income was RMB23 million in contrast with RMB152 million in the identical interval final 12 months primarily as a result of decreases within the transaction quantity and GMV. VAS decreased barely to five.4% from 5.7% in the identical interval final 12 months because of pricing adjustment throughout the COVID-19 interval.

Taking a look at different enterprise, different income was RMB11 million for the three months ended June 30, 2020 in contrast with RMB48 million in the identical interval final 12 months. The lower was primarily as a result of divestiture of the corporate’s salvage automobile associated enterprise in January 2020. Price of revenues decreased by 53% year-over-year to RMB80 million. The lower was primarily as a result of lower in salaries and advantages from workers partaking in automobile inspection, high quality management, customer support and after-sales service in addition to the lower in achievement price resulting from a lower within the transaction quantity.

Gross margin was detrimental 28.4% for the three months ended June 30, 2020 in contrast with the gross margin of 55.9% in the identical interval final 12 months. Whole working bills was RMB151 million. Non-GAAP working bills, which excluded the impression of share-based compensation, was RMB156 million. Gross sales and advertising and marketing bills decreased by 61% year-over-year to RMB116 million. The lower was primarily resulting from a lower within the salaries and advantages bills because of the adoption of the versatile workload-based staffing program and a few mixture of the worker contracts ensuing from our enterprise mannequin improve in addition to the lower within the visitors acquisition price.

Gross sales and advertising and marketing bills, excluding the impression of our share-based compensation, had been RMB111 million. G&A bills decreased by 29% to RMB87 million, the lower was primarily resulting from a lower within the salaries and advantages because of adoption of a versatile workload-based staffing program and a few mixture of worker contracts outcomes from our enterprise mannequin improve in addition to the lower within the share-based compensation bills and partially offset by the surveillance price because of some termination of worker contracts and a goodwill impairment of RMB9.5 million recorded within the reported quarter.

G&A bills, excluding the impression of the share-based compensation, was RMB98 million. RMB bills decreased by 29% to RMB23 million, the lower was primarily resulting from a lower within the salaries and advantages bills because of the adoption of the versatile workload-based staffing program and a few mixture of worker contracts ensuing from our enterprise mannequin improve. R&D bills, excluding the impression of our share-based compensation, was RMB24 million. Achieve from the assure liabilities was nil for the three months ended June 30, 2020. We incurred the assure liabilities related to the remaining assure obligations from its historic facilitated loans that had been transferred to Golden Pacer.

We adopted Accounting Requirements Replace of 2016-13 Monetary Instrument, Credit score Losses, measurements of the credit score loss on monetary devices on January 1, 2020 beneath a modified retrospective methodology earlier than the adoption of ASC 326, acquire or loss associated to ensure liabilities accounted for the beneath the better of the quantity decided on ASC 460 and the quantity decided beneath ASC 450 was recorded because the acquire or loss from assure liabilities. After the adoption of ASC 326, anticipated credit score losses from a contingent assure legal responsibility shall be accounted for, along with and individually from the stand prepared assure liabilities accounted for beneath ASC 460 and the supply for the contingent assure liabilities is at the moment recorded inside provision for credit score losses and the aid from the stand prepared assure liabilities accounted for beneath ASC 460 is at the moment recorded inside different working earnings.

Provision of credit score losses, web was RMB74 million for the three months ended June 30, 2020. The reversal of the supply for credit score losses had been primarily as a result of launch of assure liabilities of RMB86 million because of a supplemental settlement reached between us and one in all our main financing companions in April 2020 almost about our historically-facilitated loans. Pursuant to this supplemental settlement, this financing accomplice agreed to set a cap on the amount of money we would wish to satisfy its assure legal responsibility with this financing accomplice from 2020 to 2022. Loss from persevering with operations was RMB128 million in contrast with RMB223 million in the identical interval final 12 months.

Non-GAAP adjusted loss from persevering with operations, which exclude the impression of share-based compensation, was RMB133 million in contrast with RMB196 million in the identical interval final 12 months. Web loss from persevering with operations had been RMB152 million in contrast with RMB241 million in the identical interval final 12 months. Non-GAAP adjusted web loss from persevering with operations, which excludes the impression of the share-based compensation had been RMB157 million within the quarter in contrast with RMB214 million in the identical interval final 12 months. Turning to our money place, as of June 30, 2020, now we have money and money equivalents of RMB241 million. That sums our outcomes for the three quantities ended June 30, 2020.

Shifting on to our steerage, beginning this month, September 2020, we are going to construct our personal used automobile stock. We’ve began to pick value-for-money used automobiles out there, procure these automobiles and organize for the reconditioning and refurbishment to function them to a like-new situation earlier than promoting them to our clients. We’re at the moment assessing related income recognition in accordance with ASC 606 for promoting its personal stock. For the three months ended September 30, 2020, making an allowance for the continual impression of the COVID-19 pandemic, improve progress of our enterprise mannequin and the finished enterprise divestitures, excluding the revenues to be acknowledged beneath promoting our personal stock ranging from September 2020. We anticipate our whole revenues from persevering with operations to be within the vary of RMB33 million to RMB35 million, which embrace fee income, value-added service income and different income.

If making an allowance for a part of the revenues to be acknowledged beneath promoting our personal stock, for which a portion of the revenues generated in September 2020 perhaps acknowledged on a gross foundation, we anticipate our whole revenues from persevering with operations for the three months ended September 30, 2020 to rise to a spread of RMB65 million to RMB70 million. This forecast displays our present and preliminary view in the marketplace and operational circumstances and relies upon the present scenario and uncertainties related to the COVID-19 pandemic, that are topic to alter. This forecast can be based mostly on our preliminary accounting evaluation of such inventory-owning enterprise mannequin, which perhaps topic to refinement and revision. That concludes our ready remarks.

Nancy Music

Thanks, Mr. Zhen. Operator, we wish to open the decision for questions now.

Query-and-Reply Session

Operator

Thanks. [Operator Instructions] We’ve our first query from the road of Eddy Wang of Morgan Stanley. Please go forward.

Unidentified Analyst

Hello. That is Michael. Thanks for taking my query. Let me translate myself. So my query is about, the long-term outlook of the used automobile business in China, particularly for the following few years. So – and beneath that background, I feel what’s the benefit of the stock taking enterprise mannequin we are going to undertake, sure, simply need to hear your ideas on that? Thanks.

Kun Dai

Up to now 1 or 2 years upgrading product high quality and companies is a keynote in each consumer-facing business and sector and high-quality manufacturing and satisfaction companies are the inspiration of promoting extra clients and constructing status. Underneath this setting, the place people are extremely related with one another and the knowledge trade is extremely efficient constructing status and gaining phrase of mouth referrals is vital to our firm’s long-term sustainable progress and that is additionally very true within the used automobile business, after over a decade of growth, we’re their final business senders and actually, the business – the used automobile business sadly had a lower than passable status. We imagine being sincere and honest when servicing clients providing them high-quality used automobiles and premium companies is the easiest way to remodel your entire business and obtain a wholesome and long-term progress for the general sector.

Sure. So up to now 1 or 2 years, an increasing number of shoppers are turning away from new automobiles and selected to purchase used automobiles. This isn’t just because they can’t afford shopping for a brand new automobile, however extra about they’ve now have a extra common consumption philosophy. They need to spend much less on a used automobile, however get a like-new situation, which is sort of pretty much as good as a brand new automobile. With this development an increasing number of used automobile sellers will come up keen to supply high-quality used automobiles and premium companies. And in flip with this profit, an increasing number of shoppers may even selected to purchase used automobiles as properly and affected by the comfortable macro economic system, general, used automobile business will see a really gradual progress fee right here, however subsequent 1 12 months or 2, we expect it’s going to steadily recuperate to a double-digit progress. We determined to construct our personal stock of used automobiles now is definitely inspired and pushed by our high quality focus and a buyer referral technique. We imagine providing high-quality worth for cash in used automobiles and premium buying companies will witness larger buyer satisfaction and status as properly, extra buyer belief and word-of-mouth referrals is not going to solely enhance our automobile gross sales, but in addition enhance our skill to drive long-term market growth because of the standard premium our clients are keen to pay us.

We began to construct our stock now, as a result of we predict now we have three, 4 benefits. The primary one is in regards to the digitalization and clever information analytics each our historic transactions and the present transactions truly exist in all in digital kind, so do our buyer behaviors and their preferences aggregated on our capital. So, this permits us to properly handle the provision and demand in addition to the promoting costs with completely completely different decision-making capabilities from the standard used automobile sellers. And our present digital capabilities enable us precisely predict the month-to-month gross sales of sure automobile makes and mannequin even to foretell the turnover of the precise mannequin and this completely guides us to choosing automobiles and construct our personal stock.

And the second is about {our capability} to comprehend purely on-line used automobile transaction and companies at the moment in China’s used automobile market, we are literally the one one who is ready to promote automobiles utterly from on-line. Our clients can simply make the acquisition choice after studying our used automobile digital profile on-line. As well as, our clients are capable of make these choices with out the must be assisted by offline gross sales workers all through your entire course of and in addition our achievement functionality covers over 300 cities and counties mixed throughout China. Our clients can obtain their automobiles that meet and even past their expectations inside days after they make the acquisition on-line. Our pure on-line method of promoting used automobiles considerably strengthen our skill of matching automobiles with shoppers on a nationwide stage, which additionally ensures larger likelihood of sooner turnover.

The third one is about our benefits in the fee construction. And our price construction is definitely basically completely different from that of conventional offline sellers. So in contrast to them, we don’t must have the in depth offline bodily showrooms and we don’t want a big offline gross sales group both. Such benefits truly allow us to develop right into a nationwide on-line used automobile seller with robust operational effectivity and the potential to develop at scale.

So, wanting on the macro setting now it’s truly a superb timing for us to take this strategy given the present used automobile taxation creates a extra variable setting for us to construct the stock. And since Could of this 12 months, the used automobile tax minimize in China permits seller solely must pay 0.5% of used automobile gross sales as tax in contrast with 2% beforehand and with tax fee, our general tax bills will enhance a lot as in contrast with earlier than. And as well as, for the automobiles which will procure upfront, the automobile cycles are literally with us. So, we’re capable of work with monetary establishments on stock financing. So, when all the pieces ramps up, the macro setting truly additionally helps our choices. Thanks, Eddie.

Unidentified Analyst

Thanks.

Operator

Thanks. I might now like handy the convention again to Ms. Nancy Music for closing remarks. Please go forward.

Nancy Music

Thanks once more for becoming a member of our name right now and to your continued assist in Uxin. We’re wanting ahead to talking with you once more sooner or later. Thanks.



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