Business context and reporting period
Uxin Limited operates online used-car marketplaces in China: Uxin Used Car (2C) and Uxin Auction (2B), with related financing facilitation and transaction services. This is the company’s annual Form 20-F for the fiscal year ended December 31, 2018, prepared under U.S. GAAP—not a 2017 Q4 filing as the request metadata suggests. The filing provides annual comparisons for 2017 and 2018, but not a complete standalone Q4 income statement or cash-flow statement.
Unless otherwise noted, figures below are in RMB millions. U.S. dollar equivalents are included where useful; the filing uses different exchange rates in different sections.
Financial and operating highlights
| Metric | FY 2017 | FY 2018 | Change / context |
|---|---|---|---|
| Revenue | 1,951.4 | 3,315.4 (US$483.1) | Up 69.9% |
| Gross profit / margin | 1,203.6 / 61.7% | 2,176.5 / 65.6% | Margin improved 3.9 percentage points |
| Operating loss | (1,823.2) | (2,565.9) | Loss widened 40.7% |
| Net loss | (2,747.8) | (1,538.3) (US$224.1) | Loss narrowed, primarily reflecting a noncash derivative fair-value gain |
| Net cash used in operations | (1,834.2) | (2,281.3) (US$332.4) | Cash outflow increased |
| Net cash used in investing | (1,498.2) | (1,474.4) (US$214.8) | Cash outflow remained substantial |
| Net cash from financing | 3,288.8 | 4,274.1 (US$622.7) | Supported by IPO, convertible notes and other financing |
| Cash and cash equivalents at year-end | 292.0 | 801.0 (US$116.7) | Does not include restricted cash or short-term investments |
FY 2018 total assets were RMB7,349.4 million and total liabilities RMB4,977.7 million. Shareholders’ equity was RMB2,371.6 million, versus a deficit of RMB8,181.6 million at year-end 2017, reflecting the IPO and conversion of preferred shares as well as other equity transactions.
At year-end 2018, restricted cash was RMB2,013.0 million, primarily related to loan guarantees, and short-term investments were RMB596.1 million. Borrowings totaled RMB1,106.4 million, including RMB624.6 million of short-term borrowings; convertible notes were RMB1,188.2 million. The notes had US$175 million principal, bore 6% and 6.5% interest, and were due June 27, 2019 unless converted or repaid earlier.
Revenue mix shifted further toward 2C: 2C revenue was RMB2,419.4 million, including RMB373.7 million from cross-regional transactions, while 2B transaction-facilitation revenue was RMB606.6 million. Loan-facilitation revenue represented 53.5% of total revenue. Total used-car transactions facilitated reached 814,498, up 28.4%; platform GMV was RMB55.1 billion, up 26.9%. 2C transactions reached 494,826 and 2C GMV RMB39.8 billion. 2B GMV fell about 12% to RMB15.3 billion.
Material changes versus FY 2017
- Revenue growth was driven by 2C expansion, increased loan facilitation, higher take rates and the launch of cross-regional consumer transactions. 2C revenue rose 106.0%; loan-facilitation revenue rose 87.8%.
- Gross margin improved as revenue grew faster than cost of revenue. However, operating expenses rose to RMB4,742.4 million, including sales and marketing of RMB2,687.0 million and general and administrative expense of RMB1,724.1 million.
- General and administrative expense increased 186.7%, substantially reflecting IPO-related and other share-based compensation. Total share-based compensation was RMB1,052.0 million in 2018, compared with RMB165.9 million in 2017.
- Operating loss widened despite higher gross profit. Net loss narrowed partly because the company recorded a RMB1,185.1 million gain on the fair-value change of derivative liabilities; the comparable 2017 item was an RMB885.8 million loss. This gain was not operating cash generation.
- Cash used in operations increased to RMB2,281.3 million. Investing cash outflow included increased restricted cash and short-term investments. Financing cash inflow included IPO and convertible-note proceeds.
- Guarantee liabilities rose from RMB173.9 million to RMB321.3 million. The delinquency rate for used-car loans 90 or more days past due increased from 1.37% at year-end 2017 to 1.41% at year-end 2018.
- Beginning in the second half of 2018, Uxin changed its consumer-seller approach in the 2B channel, connecting sellers with dealers without directly providing the former inspection and related services; management attributed the 2B GMV decline partly to this change. A franchised service-center model was introduced in December 2018.
Outlook, risks, contingencies and unusual items
- Management stated that cash and cash equivalents, additional financing and anticipated operating cash flows were expected to meet working-capital and capital-expenditure needs for the next 12 months. The company also cautioned that it may need additional capital. This outlook must be considered alongside substantial operating cash burn and the June 2019 convertible-note maturity.
- Management expected sales and marketing, research and development, and public-company compliance costs to continue, and anticipated sales and marketing expense to rise in absolute terms. The filing gives no specific revenue, profitability or cash-flow guidance.
- Uxin guaranteed principal and accrued unpaid interest on consumer auto loans facilitated through its platform. The outstanding principal balance was RMB27.6 billion at year-end 2018, plus accrued unpaid interest, representing the maximum potential guarantee payments disclosed. Guarantee liabilities were RMB321.3 million; the two figures measure different exposures.
- Loan funding was concentrated among a small number of financing partners. The company disclosed partner liquidity constraints, prefunding obligations, and RMB521.9 million of advances to consumers on behalf of financing partners at year-end 2018; the filing says this balance was subsequently paid by financing partners.
- Six putative shareholder securities class actions related to the 2018 IPO were pending by the filing date. The company said it could not estimate the outcome or possible loss. It also disclosed ongoing trademark and unfair-competition disputes and no accrual for those cases at year-end 2018.
- Two material weaknesses in internal control over financial reporting had been identified in the 2016 and 2017 audits: insufficient accounting/reporting personnel with appropriate U.S. GAAP and SEC expertise, and inadequate documented close procedures for expense cutoff and accruals. Management described remediation efforts but did not state that the weaknesses were fully remedied. Disclosure controls were deemed effective as of December 31, 2018; the filing did not include a management ICFR assessment or auditor attestation.
- Other material risk areas include the PRC VIE structure and evolving foreign-investment rules, regulatory uncertainty for loan guarantees and online consumer finance, data privacy and security, competition, customer trust, collateral recovery and loan defaults. The filing also notes limited business-liability and business-interruption insurance.
- Uxin reported a strategic partnership with Taobao announced in December 2018. It also began direct financing-lease arrangements for selected borrowers in late 2018, in addition to loan facilitation.
Most important facts an investor should verify
- Confirm that the intended period is FY 2018: this filing does not provide standalone 2017 Q4 financial statements or a clear quarterly comparison.
- Check the status and repayment or conversion of the US$175 million convertible notes due June 27, 2019, and subsequent liquidity or refinancing developments.
- Assess recurring operating cash burn separately from financing inflows and the noncash derivative gain; distinguish unrestricted cash from restricted cash and short-term investments.
- Review loan delinquency trends, guarantee calls and recoveries, collateral values, financing-partner concentration, and whether guarantee exposure or prefunding needs changed after year-end.
- Track expense discipline and share-based compensation, particularly the effect of IPO-related awards on reported losses and dilution.
- Verify the status and potential financial impact of shareholder litigation, regulatory and licensing matters, VIE-related risks, and remediation of the disclosed internal-control weaknesses.