Ladies and gentlemen, thank you for standing by. Welcome to Uxin's Second Quarter 2019 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Nancy Song, Investor Relations Director of Uxin. Thank you, please go ahead.

Thank you, Operator. Hello, everyone. Welcome to Uxin's second quarter 2019 conference call. Today, DK, our Founder and CEO; and Zhen Zeng, our CFO, will discuss our financial results for the second quarter. Following the prepared remarks, DK and Zhen will be available to answer your questions. Before we start, I like to remind you that our statements today will contain forward-looking statements that we make under the safe harbor provisions 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 risks and uncertainties, which could cause actual results to differ materially from our expectations. Uxin does not undertake any obligations to update any forward-looking statement, except as required under applicable law. For more information about the potential risks and uncertainties, please refer to the company's filings with the SEC. With that, I will now turn the call over to our CEO. DK, please.

Thank you, Nancy. Hello, everyone. Thank you for joining our second quarter 2019 earnings conference call. As you may already know, we announced proposed transaction with Golden Pacer to divest our loan facilitation related business this July. As a result, going forward, we will completely divest our 2C intra-regional business, no longer provide a guarantee services for the 2C cross-regional business, divest the corresponding assets and liability, and therefore, significantly relieve ourself of guarantee obligation for the existing loan balance of the loan previously facilitated by us. Our 2C business now solely consisted of online used car transactions, which previously were recorded as 2C cross-regional transactions. The corresponding revenue streams are now commission revenue and value-added service revenue. Before we dive into more details of the proposed transaction, let me first give a quick recap of our second quarter performance. It is important to note that the financial impact of the proposed transaction has already been reflected in our second quarter results, as required by the accounting policy. With relevant revenue costs and operating expenses of discontinued operations excluded from our financial results. We are pleased to report another strong quarter with 58% year-over-year increase in total revenue to RMB439 million. In particular, our 2C business continued a strong growth path. In the second quarter, our 2C revenue substantially increased 11 times year-over-year to RMB322 million, contributing 73% of total revenues. Looking at our 2C business in more detail, we continued to see robust momentum in our online used car transaction volume during the quarter. We completed over 24,500 unit of transactions in our online shopping mall, up 500% year-over-year. This not only reflects the growing traction of our one stop online used car buying products and services but also demonstrated consumers increase acceptance of buying used cars online from…

Okay. Thanks, DK. Hello, everyone. We are pleased to deliver another set of strong results for the second quarter. Before we go through the financial details, let me give you an overview on how the proposed transaction with Golden Pacer reshaped our financial profile. Please note that all the discussion and the comparison below are on an apple-to-apple basis. Given the divestiture and in accordance with the applicable accounting standards, we significantly relieve ourselves off guarantee obligations for existing loan balance of RMB33.2 billion as of June 30, 2019 for the used car loans previously facilitated by us. In addition assets of RMB3.9 billion and the liabilities of RMB0.9 billion were reclassified as assets and liabilities held for sale on our consolidated balance sheet as of June 30, 2019. And result of operations related to the divested business were reported as net loss or income from operations of discontinued operations. Revenue of discontinued operations and its corresponding cost of the revenue and operating expenses for the second quarter of 2019 were RMB464 million, RMB89 million and RMB378 million respectively. The proposed divestiture will effectively lower our capital needs flow and improve our cash flow, setting a solid foundation for our sustainable growth going forward. And P&L-wise, our 2C revenue stream now include commission revenue and value-added service revenue. As DK mentioned earlier, our strong ability to monetize online used car transactions remains unchanged. We are confident that we can build up the scale in the top line for 2C online used car transaction on a more solid and sustainable basis, as we're fully focused on expanding this business pillar. The proposed transaction is expected to temporarily impact the gross margin due to our cost structure. Our cost out revenues mainly includes the salary of inspection professionals and the cost relative…

Thank you, Mr. Zhen. Operator, we'd like to open the call for questions now.

[Operator Instructions] First question comes from the line of Eddy Wang from Morgan Stanley. Please go ahead.

Hi, DK and Zhen, and Nancy. I have two questions. The first is that, given our current strategy, is more concentrated on the online used car transaction business. May I have your view on your used car e-commerce industry? Does that mean that, for the industry wise, we have past the stage of market share as the first priority and leading used car path - used car platform leverage own advantages spend and more focused on their own strategies. And what's the implication in terms of the competition? Where the competition among these leading platform be not as intense as before. This is the first question. And second question is about the - our strategic investors UBA, is there any incorporation or synergy we can share after they become our strategic investor in the second quarter. Thank you.

Yes. So look at the overall interest rate. So over the past years, auto industry players are trying different models. We don't want to take more time to look back about the history. But now, let me introduce how we look at the comparable metro market in the U.S. Yes. So we'll look at the U.S. market two - mainly two players, CarMax and Carvana. So look at CarMax after their decades of operation, based on their current volume, their current market share is around 2%. If we look at Carvana, the U.S. online used car e-commerce platform based on their volume projection this year, their market share would be like 0.5%. Yes, so personally used car is a low frequency activity. So normally it would take like three to four years before a consumer to buy a second car. So if we look at the transaction frequency. If we look at - for our 2B business, if we take more higher volume or the sale, it will be the right strategy, but it is not necessarily true for our 2C business because the costs for individual purchasers - there will be more - take more years before they come buying their second car. So in this case way, we care more - or the consumers care more about the service. And for us, we care more about service and as well as the per unit margins and how we can drive down the per unit cost, so that's our focus. Yes, so for online used car transactions, we believe the selling is quite high. So because for traditional way of purchasing used car, the selection in a local city is quite limited. But for us, our real time inventory supply on our platform was about 110,000 used cars in…

Thank you for the questions. Next question comes from the line of Ronald Keung from Goldman Sachs. Please go ahead.

Thank you for taking my question. And I have two questions, DK, Zhen or Nancy. First is what I see we're now focused on inter-regional, so can you share what is the profile of your buyers maybe in the last quarter by city tiers, so we could understand how lower tier city are focused or what kind of focus we are on the user side and how do we see cross-regional volumes will track as a percentage of nationwide transactions and our market share in that segment. Second is, could you walk through some of the unit economics? We hear unit revenue per car is now around RMB13,000. So want to hear what is the path to profitability based on our current model? On the revenue side and again the cost side and are there any sort of volumes that we need to reach in order to cover the fixed cost and to the path of profitability? Thank you.

Yes. So I like to address this question from two effects, so for the past 20 months, if we look at our online used car transaction in our inter-regional business, our clientele are normally the group of consumers with relatively high purchasing budgets. They're normally the mid to high end customers. This is also evidenced by our ASP of around RMB110,000 currently. So this group of consumers are caring more about rich selection of used cars. So normally they have their preference of certain car makes and models, interiors and colors etc.. Yes. So this group - this type of consumers normally have higher requirements for the used cars and services. So they care more about the car conditions, the aftersales services as well as the convenience of the service. So all of the focus they care about are more in line with our value proposition to the consumers actually. Yes. So no matter in top tier - for top tier cities or lower tier cities, our product and service offerings are equally attractive to them. So even for Beijing the top tier city in China, our inventory selection also attracted to them. If we look at the price range of the car price of our current ASP RMB110,000, if we look at this car price range, our selection can be like 20 to 30 fold larger than the local selection in Beijing. We've started penetrating to lower tier cities since last December. So if we look at our own transaction volume, about 40% comes from the lower tier cities and 6% from top tier cities. Yes, going forward, we will penetrate into more lower tier cities because our value proposition are more stronger in those city tiers. Yes, if we look at market share in certain cities, if we look at top tier cities, our market share there was close to 1%. If we look at low tier cities, our value proposition is stronger in those cities. Our market share will be almost close to 2%. If we look at the transaction volume, whether it's in credit or inter-regional on our platform, actually, the consumers don't know where the inventory is located. So but if we look at the breakdown. 92% are the cross-regional transactions and only 8% happened locally.

Okay, thanks, DK. It's Zhen. Sorry, I will address your second question on unit economics and to probability and full of top line, I think our current proposal to see take rate was about 11.2% or to say in our per unit, revenue of one car is over RMB13,000. So we are confident that we can continuously to increase our to 2C take rate and we do have the remarks base to increase that because we are continue to enhance our value proposition to our consumer and a full account. And I think there are a million to item one is the inspection and the one has to - it. Again, the title transfer and the for the other inspection. And that's mainly the salary and benefits on that inspection professionals in our strategy is we don't expect to aid to many the professionals to inspect more used car in the future. Instead, we focused more on the conversions from the cars is back to the car sold. So we all also will print a few car 40 inspection by the sustainable price range and no material damage car conditions. So we'll select the car which will be intact in order to save the inspection productivity. Only for those qualified cars with optimize the inventory structure. We believe we can sell much more cars without inspecting equally that many. This will greatly drive down the per unit inspection cost. And for the logistic end delivery as we grow our transaction volume, we are able to further optimize the delivery route planning and better utilize our delivery capacity. This will also significantly lower our per unit delivery costs. In our ability to - on the front it’s actually evidenced by our gross margin improved to 53% in the quarter from 42% in the prior year period. And looking ahead, we are confident that we can further improve gross margin as we continue to grow our skill increase our take rate and the optimize each - the cost item. And for the OpEx, we now more focus on the conversion of our traffic. So we will continue to optimize the traffic acquisition China to generate more costly effective sales lead. And enhance the conversion rates and with the traffic spending stabilized at a current level we are confident to lower the per unit traffic acquisition cost as well. And for the number, I think that with - all the optimization measure in the place, we believe - we can reach breakeven point, when we carry out about 50,000 cars per quarter. Thanks Ron.

Thank you for the questions. Next question comes from the line of Ashley [indiscernible] from Credit Suisse. Please go ahead.

Thanks management for taking my questions, two questions from me representing Tina. The first one is about target volume growth for this year into 2C business and what would be the key drivers. And the second question is about the cross-regional business what do you see as the major challenges ahead and how to solve them? Thank you.

Yes, so with our first half collection volume was over 44,000 units we are looking at over 100,000 transactions for the whole year. Yes so look at longer term as with we just mentioned based on our value proposition. We believe, we have further drive our transaction volume, so the first one is the wide selection of used cars. And now based on our AI intelligence system, we have a better understanding of people's preference and know which type of inventory are more preferred by the consumers and that we enhance our inventory structure. As rest three of the values are the online standard addition we’ll stop purchasing instruments and our offline fulfillment network. So for the online standard addition we will enhance our ability to provide the most accurate conditions for hard conditions for the consumers and for the rest of solution when we’ll reach our value added services and the product fulfillment? We will make it - make the delivery more convenient to the consumer. So all of the three values will build up our brand and increase the word of mouth among the consumers. Yes for the third driver is our sales productivity. So because use online carrying transaction is whole new model for the consumers as well as for our sales force so how to convince consumers to buy the car without seeing the car in the first place is important. So the seniority of our skilled staff are important for us to drive up the volumes. So if we look at our sales people, if they think with us for more than 12 months, their sales can verily is much higher than the new guys, in terms of - if they receive the same bunch of sales fleet. So our focus will be increasing the…

Thank you for the question. The last question comes from the line of [indiscernible] from JPMorgan. Please go ahead.

This is Rebecca on JPMorgan. I'm asking for [Alex Yale]. So my first question is, what's the reason for the massive uptick of the second 2C transaction take rate from 6% to 11% in the second quarter? Could you provide us with some breakdown? And also, any guidance for the take rate in the second half of the year or longer term? And second question is on the business model transition with long term implication to business risk and scalability? Thank you.

So, okay, I'll address your first question about take rate this might be it. So, in terms of the total to 2C rate, so as a result of that feature over to 2C revenue stream now, it's virtually commission revenue and a value added service revenue. Accordingly, we change the commission rate and value added service to take rate from the consumer. So thanks, to the sales opportunity, we create our controlling and the entire shopping process and our comprehensive product and the service offerings of our ability to monetize online use card transaction remains as strong as before. So this is evidenced by our total 2C take rate to 11.2% per unit in the quarter, half from 5.6% in the same period last year. I think, our strong monetization ability is also well supported our - by our unmatched value proposition due to the consumer. So like deep dimension, we have the four - value proposition first the nationwide selection of used car, which is much wider than the local market can provide. And the second is the online standardization for the unstandardized product such as the standardized video inspection report and we already play for the used car, in which creates higher transparency on the car condition and that's gave the consumer greater peace of mind buying the used car online. And the third is a one stop-online purchasing experience, which means we - which means as a value added service to the - to meet the consumer's various needs. And the last, but not least, national service and the fulfillment network, which make online purchases of used car as convenient as buying another standardized product online. So, we believe our - the four core value propositions enable us to maintain our total 2C take rate at a…

Thank you for the questions. There are no more questions from the line. I'd like to hand the call back to management for closing.

Thank you, everyone for attending our call today and for your continued support for Uxin. We look forward to speaking to you again in the near future. Thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect your lines.