Cango Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 27, 2023

There are 4 speakers on the call.

Operator

Good morning and good evening, everyone. Welcome to Cango Inc. Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. This call is also being broadcast live on the company's IR website.

Operator

Joining us today are Mr. Jiayuan Lin, Chief Executive Officer and Mr. Yongzhi Zhang, Chief Financial Officer of the company. Following management's prepared remarks, we will conduct the Q and A session. Before we begin, I refer you to the Safe Harbor statement in the company's earnings release, which also applies to the conference call today as management will make forward looking statements.

Operator

As a reminder, today's conference is being recorded. With that said, I am now turning the call over to Mr. Jiayuan Lin, CEO of Cango. Please go ahead, sir.

Speaker 1

Hello, everyone, and welcome to Cango's 3rd quarter 2020 3 earnings call. In the Q3 of 2023, both production and demand continue to be under strength. Despite introduction of economic stimulus measures, overall consumer confidence has yet to fully recover. The automotive market in China is characterized by intricate dynamics. Although the post pandemic era in 2023 saw a resurgence in consumer demand for automobiles, it has been slow to pick up pace.

Speaker 1

As a result, major auto manufacturers have rolled out discount policies on new car purchases, leading to a sustained decrease in retail prices. In the 1st 3 quarters, the overall sales in the automotive market exhibited a modest recovery with new energy vehicles and EVs in short and exports serving as the primary drivers of market growth. On distribution, the profitability of car dealers has been severely impacted by pricing wars. Consequently, they have transitioned towards an on purchasing to alleviate inventory accumulation and operational stress. As per data released earlier by the China Automobile Dealers Association, 50% of auto dealers reported losses in the first half of this year, the highest level in recent years.

Speaker 1

Indeed, the impact extends beyond car dealers, all parties in the automotive finance automotive finance chain, including Cango, have faced unprecedented pressure. In Q3 2023, the company's total revenues amounted to RMB354 1,000,000, making a year on year decline of 15.1 percent, Despite incurring a net loss of RMB49.09 million due to goodwill impairment, our overall operating efficiency and reduced financial provisions helped us achieve a smaller net loss compared to RMB130 1,000,000 in the same period of last year. As of September 30, 2023, we managed to shrink the total outstanding balance of financing transactions to RMB13.1 billion while maintaining M1 plus and M3 plus at a steady rate of 2.42% and 1.24%, respectively. Since the beginning, we have strived to gain an in-depth understanding of dealers' needs. In 2022, we initiated a significant transformation of our business by venturing to the automobile trading segment.

Speaker 1

To facilitate new car trading activities, we launched the Cango How to App and Mini Program and gradually introduced the standardized service products for October 2022. With our multi system all in one platform, Cango offers a comprehensive one stop solution for automotive transactions across the country. Presently, we have built a robust network of warehouses In relation to used car In relation to used car transactions, we launched the Kango You Car Mini program in May 2022. And by the end of 2022, we introduced the Kango You Car app to the market. Equipped with a range of features such as used car listings, car searches, online auctions, transaction support services and digital services, Cango You Car addresses a wide array of business needs for used car dealers.

Speaker 1

To date, the total number of registered used car dealers on our platform has surpassed 7,000. As we are continuing to expand our product and service offerings across the entire industry value chain and strengthen our partnerships with dealers, we are gaining a more precise understanding of the market. The new car market in China is reaching saturation with a significant decline in first time new car buyers. However, we noticed an increasing trend among consumers to expand their car collection as well as a growing demand for vehicle replacement and upgrades. Both Forex and non Forex dealers are exploring used car business, while used car dealers are venturing into the sale of new cars.

Speaker 1

The traditional boundaries between car sales channels are becoming increasingly blurred. In light of the changing market trends and demands, have made some adjustments to our strategy. Our goal is to offer a comprehensive end to end service for both new and used car dealers across the country. To achieve this, we have integrated our offerings on the Tango Haoche platform into the Tango You Car platform. This integration and upgrade will allow us to focus our resources on Tango You Car and significantly enhance operational efficiency.

Speaker 1

Moving forward, we aim to develop a multi store model and expand our ecosystem beyond self operated stores. This will include vehicle sources, insurance services and more by welcoming more third party stores to our platform. As of now, some regional logistics companies and car generation service providers have already joined our community. Their feedback is highly valuable as it allows us to continually refine our offerings and improve our supply chain services, ultimately enabling downstream dealers to better serve end customers. During the Q3 of 2023, we sold 2,399 new cars, including 27 vehicle models across 18 auto brands as 23 car series.

Speaker 1

In the 1st 9 months of 2020 3, we sold a total of 12,138 cars, including 3,151 new energy vehicles. In terms of used car, the auction transaction volume on the Tango UCAR platform reached nearly 300 in the Q3 of 2023, doubling quarter over quarter. We also facilitated over 600 transactions, marking a 20% increase quarter over

Speaker 2

quarter.

Speaker 1

As we continue to improve our online services and supply chain management, while fostering greater synergies across online and offline operations, we are building a self reinforcing closed loop ecosystem. In addition to strategic and service upgrades, we remain committed to accelerating our digitalization and leveraging advanced technologies to empower business. With a focus on big data and and productivity and operational excellence, in turn, enabling our partners to achieve increased efficiency. In September, our innovative digital product, DEI Ascent Guard won the 2023 CDI Product Digital Innovation Award. This recognition is a testament to the digital innovations that we have implemented across our business operations.

Speaker 1

In the future, we will leverage the power of big data and digital technologies to more accurately classify our dealer partners and launch value adding products and services tailored to their specific needs. Additionally, we will actively explore new areas to seek growth opportunities, including the potential expansion into used car markets abroad by continuously refining our business operations, elevating profitability and strengthening our core competitive edges, we are confident that we can secure the sustained momentum required to mitigate the ever evolving business environment. Next, I will hand over to Michael Zhang, our CFO, for a review of the company's financial performance.

Speaker 2

Thanks, Xiaoyuan. Hello, everyone, and welcome to our Q3 2023 earnings call. Before I started to review our financials, please note that unless otherwise stated, all numbers are in RMB terms and our percentage comparisons on a year over year basis. Our total revenues for the Q3 were 353.6 $600,000 Among them, revenues from the card trading transaction business were 263,800,000 or 74.6 percent of total revenues. Now let's move on to our costs and expenses during the quarter.

Speaker 2

Total operating costs and expenses in the Q3 of 2023 were $441,400,000 compared with $608,800,000 in the same period of 2022. Cost of revenue in the Q3 of 2023 was $304,600,000 compared with $388,700,000 in the same period of 2022. As a percentage of total revenues, cost of revenue in the Q3 of 2023 was 86.1% compared with 93.3% in the same period of 20 22. Sales and marketing expenses in the Q3 of 2023 decreased to $9,900,000 from $17,900,000 in the same period of 2022. As a percentage of total revenues, sales and marketing expenses in the Q3 of 2023 were 2.8% compared with 4.3% in the same period of 2022.

Speaker 2

General and administrative expenses in the Q3 of 2023 decreased to $34,700,000 from $57,800,000 in the same period of 2022. As a percentage of total revenues, general and administrative expenses in the Q3 of 2023 were 9.8% compared with 13.9% in the same period of 2022. Research and development expenses in the Q3 of 2023 decreased to RMB7 1,000,000 from RMB10.2 million in the same period 2022. As a percentage of total revenues, research and development expenses in Q3 of 2023 were 2% compared with 2.4% in the same period of 2022. Net loss on contingent risk assurance liability in the Q3 of 2023 was RMB 3,500,000.

Speaker 2

Net recovery on provisions for credit losses in the Q3 of 2023 was 66,900,000. The recovery was primarily due to the positive impacts from the collections of financing receivables. Impairment loss from goodwill in the Q3 of 2023 was 148 700,000. The provision for goodwill impairment is based on the profit forecast associated with historical trends and the prevailing current conditions of market downturn. We recorded a loss from operations of $87,800,000 in the same period in 2023 compared with $192,300,000 in the same period in 2022.

Speaker 2

Net loss in the Q3 of 2023 was $49,100,000 Non GAAP adjusted net loss in the Q3 of 2023 was $41,200,000 dollars On a per share basis, basic and diluted net loss per ADS in the Q3 of 2023 were both 0 point $45,000,000 respectively and non GAAP adjusted basic and diluted net loss per ADS in the same period were both 0.38 respectively. Moving on to our balance sheet, as of September 30, 2023, we had cash cash equivalents of $665,600,000 compared with $589,400,000 as of June 30, 2023. As of September 30, 2023, the company had short term investment of $2,430,000,000 compared with $2,060,000,000 as of June 30, 2023. Looking ahead to the Q4 of 2023, we are now predicting our total revenues to be between 100,000,000 115,000,000 Please note that these forecasts reflect our current and preliminary view on the market and operational conditions, which are subject to change. This concludes our prepared remarks.

Speaker 2

Operator, we are now ready to take questions.

Operator

Thank And today's first question comes from Ping Yoon Wu with CIC Securities. Please go ahead.

Speaker 3

Let me translate my question. My first question is about how do we think about the auto market for the Q4 2023 and what about next year? And will the price war between the OEMs will continue? My second question is about what's our dividend plan for this year? Thank you.

Speaker 1

Thank you very much for your questions. To answer your first question on our outlook for the auto market for next quarter and the next year, In the Q3, we saw a slowdown in passenger vehicles retail sales volume growth and sales for the Q4 were boosted by the National Day holiday and the Singles Day shopping festival. As the market is approaching year end with strong sales promotions, we expect the strong discounts to continue, driving a quarter over quarter increase in sales volumes. And for our outlook on next year, well, I would like to share my thoughts from 2 perspectives. First, we think new energy vehicles will continue to outperform according to the CPCA, that is China Passenger's Car Association's data, as of the end of September, NEV's market penetration rate has already reached 36.9% and their growth momentum is expected to continue throughout next year, driven largely by more targeted and effective incentive policies for national and regional governments.

Speaker 1

Secondly, on the used car market, we expect to continue to grow. For the 1st 9 months of this year, used cars total sales volume exceeded RMB13 1,000,000 with the total market I mean GMV gross market value close to about RMB860 1,000,000,000. This is a $1,000,000,000,000 market and we expect that China's used car market still has great growth potential. On your second question about the dividend payment, well, since our IPO, Cango has distributed cash dividends totaling nearly US500 million dollars Meanwhile, since April 2021, the company has been actively rewarding our investors in improving stock value in various ways, including share repurchase program. Looking ahead, Cango will remain prudent regarding financial management and continue to enhance capital allocation efficiency, we will prioritize investment in areas with high ROI and value, creating long term shareholder value.

Operator

And our next question comes from Emerson Zhou with Goldman Sachs.

Speaker 1

Thank you very much for giving me this opportunity to ask 2 questions. The first question is, has the dealers' operational environment improved in the lower tier markets after the pandemic restrictions been lifted? And the second question is, what is the rationale behind the merge of the Cango Haozhou platform and the Cango Yuka platform? Could you elaborate on Thank you for your questions. On your first question on the lower tier market, while CACO's customers are primarily based in 3rd tier and 4th tier cities, so we have deeply felt the changes in the lower tier markets over the past 2 years.

Speaker 1

According to CPCA's data, 40% of dealers in China shut down their businesses in 2022. More than half of dealers are now operating at a loss, and on average, about 11 foreign stores close down every day. Small and medium auto dealers are having an even greater difficulty staying afloat. They have either merged with others to survive or switch to used car transactions. Some are also trying new sales channels such as live streaming e commerce.

Speaker 1

At the same time, consumer demand differs from region to region. NEB sales volume is higher in submarkets compared to the North, for example, and NEP's penetration rate is also higher in cities with more charging stations. Furthermore, A0 class and below as well as luxury cars are selling better than other classes. Our decision to integrate Kangohao's offerings into the Tango U Car platform is primarily based on our deep market insights gained over the past 2 years. We noticed that China's new car market is near saturation.

Speaker 1

On consumption, there is a noticeable decline in first time new car buyers, while there is an upward trend in consumers looking for additional cars and rising demand for vehicle replacement and upgrades. On the distribution side, both ForRise dealers and used car dealers have begun establishing their own used car sales channels in response to changing consumer needs. This is a blurred area now because the boundary between the traditional new car and used car channels are becoming increasingly integrated. So that's why we are integrating the 2 platforms, Cango Haoche and Cango You Car platform, so that customers can now purchase new cars while trading in their used cars on the same platform. This integration, we believe, will not only greatly improve our operational efficiency, but also will enable us to better serve our car dealers.

Speaker 1

I think that's all from my side.

Operator

Thank you. And ladies and gentlemen, there are no further questions. I'd like to turn it back to management for closing remarks. Thank you. This concludes today's conference call.

Operator

We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

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Earnings Conference Call
Cango Q3 2023
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