Cango Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 23, 2023

There are 3 speakers on the call.

Operator

Good morning and good evening, everyone. Welcome to Cango Inc. 2nd 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. Yongyi Zhang, Chief Financial Officer of the company. Following management's prepared remarks, we will conduct a question and answer session. Before we begin, I would like to 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

With that said, I would now like to turn the call over to Mr. Jiayuan Lin, CEO of Cango. Please proceed, sir.

Speaker 1

Hi, everyone, and welcome to Cango's Q2 2023 earnings call. Despite ongoing stimulus policies from both central and local authorities with car consumption, consumer confidence stayed low in the first half of twenty twenty three. Moreover, the intense price war in China's auto market disrupted the pricing structure of the automotive industry, creating a widespread sense of caution. In response to the market trends, our focus throughout Q2 of 2023 has been to enhance our service capabilities across our platform. This was achieved by gaining a deep understanding of dealer demand and continuously refining our resource allocation along the automotive value chain.

Speaker 1

Consequently, we were able to make further strides in diversifying revenue streams anchored in automotive transactions, capitalizing on the potential of our business model. In Q2, the company reported total revenues of RMB 680 1,000,000, representing a robust year on year increase of 134%. 34%. Of this, revenues from car trading transactions accounted for RMB560 1,000,000 making a significant year on year growth of 157 percent and a contribution of 83% to our overall revenue. Moreover, by the end of June 2023, the total outstanding balance of financing transactions we facilitated decreased from RMB20.7 billion as of March 31, 2023 to RMB16.6 billion, thereby further mitigating our risk exposure.

Speaker 1

The M1 plus and M3 plus overdue ratios also saw a decrease from 2.33% and 1.29% as of March 31, 2023 to 2.12% and 1.09%, respectively. Now, I'd like to share more details on the major progress we've made with our different business lines. Firstly, new car trading transactions. We witnessed a total of 5,893 cars sold through Cango Auto within the second quarter, reflecting a year on year growth of 157.2 percent and a quarter over quarter increase of 52.3%. In the first half of twenty twenty three, Tango Hotel recorded a total of 9,760 car sales, indicating a modest year on year growth of 7%.

Speaker 1

As of June 2023, the total number of dealers engaged on Cango Houser rose to 11 1066, a year on year growth of 34.3%. Furthermore, the Cango Houtiao app saw over 1,000,000 page views by the end of Q2, attracting more than 96,000 unique visitors. We improved our transaction supporting services in the 2nd quarter to provide one stop service experience for dealers and help them grow their business and profitability. For example, we launched auto and non auto insurance products to help dealers cross sell and increase customer loyalty while creating new profit streams. We also added a car loan product to the Tango Houtiao app allowing car buyers to pay in full or installment.

Speaker 1

Dealers only need to input car buyer information, pay the down payment and the deposit and they can enjoy a seamless one stop service from ordering to loan applications administration. This solution helps dealers with new inventory related cash flow pressure into net debt turnover ratio and lower operating costs. Aims to support small and medium sized dealers by addressing their various business challenges such as vehicle inventory, auto financing, warehousing and logistics. To this end, we started a a As we move forward, we will understand Jilu's diverse needs better and use our digital infrastructure to support a full sales cycle with digital services from manufacturing to sales, improving efficiency at every step. Through these initiatives, we will boost dealers' efficiency and loyalty and help the auto industry grow in the long term.

Speaker 1

Regarding our outlook for the new car market, new car sales increased in May June, but decreased by 6.3% month on month and 2 0.3% year on year in July according to CTEA data. With more sales promotions by vehicle manufacturers and possible sharp price swings, especially in a weak consumption environment, our focus in the next stage of the new car trading business will be on avoiding potential vehicle inventory Next, on used car trading, we improved the functions of Cango You Car in the 2nd quarter using our advanced big data and digital technologies. The Cango You Car app provides secure, reliable and efficient services to used car dealers and individuals nationwide, such as historic vehicle condition reports, vehicle evaluations, online auctions, online car searches, used car listings and self operated or proprietary used car purchases. By the end of Q2 of 2023, we had 6,900 registered used car dealers on the Tango You Car app, a mini program with over 6 111,000 page views and over 31,000 unique digits. In the 2nd quarter, we sold 651 used cars on Kangol Yule Car.

Speaker 1

Our proprietary vehicle inventory is the core of Cango U Car's full service capabilities and our main advantage. It comes from the auto financing business we have developed over the last decade, which includes tradings and repossessed cars from over 2,000,000 auto financing customers as well as other high quality used car sources. We will keep exploring more potential vehicle inventory sources in the future by increasing the channels to acquire used cars from individuals, raising transaction conversion rates and strengthening repossessed cars and conversion channels, we will make Tango Yoca more distinctive and competitive in vehicle inventory. We upgraded Kangou UCaa's online functions in June after getting the online auction license in April. All registered used car dealers now are able to list their used cars for B2B options.

Speaker 1

This gives used car dealers another tech powered sales channel helping them sell faster and better. We also set up an in house inspection team in the 2nd quarter to provide more professional services as we cover more of the used car trading transaction service chain. Our trained technicians offer professional services such as vehicle condition checks, price evaluations and documentation verification. Besides, our on-site service team of over 100 experts is now offering basic vehicle inspection dollar related services, working closely with vehicle inspection professionals to improve our overall service efficiency. Digital capabilities are essential to improve service capacity across the platform as we drive changes in our platform business ecosystem, we have also been working on group wide digital made our core resources smarter with digital operations, lowering costs and increasing efficiency.

Speaker 1

We also plan to use data exchanges to share our industry expertise and the know how we have gained over the last decade with more stakeholders empowering more segments and industries. We listed our 1st data product on Shanghai Data Exchange in May with our car dealer operational index query. It covers the operational data of more than 80 1,000 forex dealers and non forex dealers nationwide and ranks dealers from multiple dimensions such as enterprise information, operating information, risk information, etcetera. It provides reference indicators for the overall operations of dealers. It is the 1st data index that includes comprehensive operational information on car dealers in lower tier markets in the country and it can be a tool for assessing the financial position and ongoing concern of car dealers in these markets.

Speaker 1

We will keep innovating in technology and keep the industry grow healthily and steadily. Next, I will turn the call over to our Chief Financial Officer, Michael Zhang, for a review of the company's financial performance.

Speaker 2

Thanks, Jiayuan. Hello, everyone, and welcome to our Q2 2023 earnings call. Before I started to review our financials, please note that unless otherwise stated, all numbers are in RMB terms and all percentage comparisons on a year over year basis. Our total revenue for the Q2 grew by 133.6 percent to RMB675,400,000, of which the car trading transactions business revenues were RMB562,800,000 or 83.3 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 Q2 of 2023 were $684,400,000 compared with $643,300,000 in the same period of 2022. Cost of revenue in the Q2 of 2023 was $615,800,000 compared with $272,700,000 in the same period of 2022. As a percentage of total revenues, cost of revenue in the Q2 of 2023 was 91.2% compared with 94.3% in the same period 2022. Sales and marketing expenses in the Q2 of 2023 decreased to $2,200,000 from $41,800,000 in the same period of 2022. As a percentage of total revenues, sales and marketing expenses in Q2 of 2023 were 1.8% compared with 14.5 percent in the same period of 2022.

Speaker 2

General and administrative expenses in Q2 of 2023 decreased to 36 800,000 from RMB124,700,000 in the same period 2022. As a percentage of total revenues, general and administrative expenses in Q2 of 2023 were 5.5% compared with 43.1% in the same period of 2020 Research and development expenses in Q2 of 2023 decreased to RMB7,700,000 from RMB12,900,000 in the same period of 2022. As a percentage of total revenues, research and development expenses in the Q2 of 2023 were 1.1% compared with 4.4% in the same period of 2022. Net loss on contingent risk assurance liabilities in the Q2 2023 was RMB 1,600,000. Provision for credit losses in the Q2 of 2023 was RMB10.2 million.

Speaker 2

We recorded a loss from operations of RMB8.9 million in the Q2 of 2023 compared with RMB354.1 million in the same period of 2022. Net income in the Q2 of 2023 was RMB 36,200,000. Non GAAP adjusted net income in the Q2 of 2023 was RMB48,200,000. On a per share basis, basic and diluted net income per ADS in the Q2 of 2023 were RMB0.27 and RMB0.26, 2, respectively. And non GAAP adjusted net basic and diluted net income per ADS in the 2nd in the same period was 0.36 and 0.35, respectively.

Speaker 2

Moving on to our balance sheet. As of June 30, 2023, we had cash and cash equivalents of RMB589,400,000 compared with RMB696,600,000 as of March 31, 2023. As of June 30, 2023, the company had short term investment of RMB2.1 billion compared with RMB2 1,000,000,000 as of March 31, 2023. Looking ahead to the Q3 of 2023, we are now predicting our total revenues to be between RMB300 1,000,000 RMB350 1,000,000. Please note that this forecast reflects our current and preliminary view on market and operational conditions, which are subject to change.

Speaker 2

This concludes our prepared remarks. Operator, we are now ready to take questions.

Operator

Thank you. We will now begin the question and answer And our first question today will come from Helen. Please proceed with your question.

Speaker 1

As a stimulus like policies we see to both like the consumption have been graduated released since August. So could management comment on the auto market in the second half of the year? First of all, thank you for your question. As the stimulus policies are being implemented, we do see an effect on the car sales and also on the car market as a whole. However, if you look at the July numbers, the retail sales volume of passenger vehicles in July was about 1,770,000, decreasing by 6.3% quarter over quarter and down 2.3% year on year according to data from China Passenger Car Vehicle Association CPCA.

Speaker 1

And this indicates that the higher land expected delivery figures were actually mainly due to order backlogs in the previous periods. Also, the base for comparison, I. E, the numbers of the same period last year was relatively high. So the auto market's overall sales volume may decline actually in the second half of the year. That's all from Nick.

Speaker 1

Okay. Market Regarding this question, actually we are positively cautious about the plan of going overseas and the business units are studying the feasibility. And as we are not auto manufacturer and do not control the production process, the car export business model and potential profitability still need to be explored.

Operator

Thank you. Our next question will come from Sophia Zhu with Goldman Sachs. Please proceed with your question.

Speaker 1

Thank you. I have two questions. The first question is on the macro environment. As we understand that on August 9, the U. S.

Speaker 1

President Joe Biden signed an executive order that will prohibit the new U. S. Investments in China in sensitive technologies. So as a new company listed on New York Stock Exchange, well, Cango be affected by this order and how well the company cope with it? That's the first question.

Speaker 1

And the second question is related to your company's business. So could you share with us more information on the gross margin of both the new car and used car business? Platform, our services are not affected by the orders sector. Moreover, the order exempts publicly traded securities and some other investments and we will definitely follow the situation closely. On your second question, the gross margin on new car transactions is generally about 1%.

Speaker 1

It really depends on car model though, with some models reaching 2%. Our business model involves centralized purchasing cars from OEMs and then selling them to small and medium sized dealers. As we do not control the production process, our gross margin lease gross margin will remain stable for a while. And on used cars, since the price of used cars really depends on the condition of the cars, the gross profit for each car can vary from RMB1000 to RMB2000.

Operator

Thank you. That concludes our question and answer session. I would now like to turn the conference over back to Mr. Jiayuan Lin for any closing remarks.

Speaker 1

Thank you all for your interest in and support of Cango. And that concludes today's earnings call. Thank you.

Operator

Thank you very much. The conference has now concluded. Thank you everybody for joining today's presentation. You may now disconnect your lines.

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Earnings Conference Call
Cango Q2 2023
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