Cango Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 29, 2024

There are 3 speakers on the call.

Operator

Good morning and good evening, everyone. Welcome to Congo Inc. 2nd Quarter 2024 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. Jiayin Lin, Chief Executive Officer and Mr. Yongyi 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

With that said, I am now turning the call over to Mr. Jia Yin Lin, CEO of Cango. Please go ahead, sir.

Speaker 1

Hi, everyone, and welcome to Cango's 2nd quarter 2024 earnings call. In the Q2 of 2024, the automotive market remained sluggish, presenting significant challenges for the industry. According to the China Association of Automobile Manufacturers, vehicle production and sales in June reached 2,500,000 and 2,552,000 units respectively, reflecting a year on year declines of 2.1% and 2.7% respectively. Passenger vehicle sales in June fell by 2.3% year on year. Although sales of new energy vehicles continue to outpace the market, their growth has not been sufficient to bolster the industry's overall downward trajectory.

Speaker 1

In response to these challenges, we continue to implement strict cost control and risk management strategies, reinforcing our financial stability through disciplined expense management and cost efficiency measures. Meanwhile, we maintained meticulous oversight for current assets and liabilities, closely monitoring our risk exposure. As of June 30, our total outstanding loan balance stood at approximately RMB6 200,000,000 with M1 plus at 2.93 percent and M3 plus at 1.57%. Our credit risk exposure has been decreased to a low level with only RMB2 point 7,000,000,000 of outstanding balance of loans where the company bears party risk have not been provided with full debt allowance or full risk assurance liabilities. As the new car market growth rate slows, we are increasingly recognizing the used car market immense potential opportunities.

Speaker 1

As such, we have further streamlined our business processes, enhanced service quality and strengthened the customer experience. Over the past quarter, we focused on enhancing the competitiveness of Cango Yuka by ensuring a consistent supply of high quality vehicles, optimizing dealer experience I mean, optimizing dealer service experiences and supply chain management and improving the convenience and security of cross regional deliveries, which drove steady business growth. By the end of the Q2, our Kangoyuka app has accumulated over 130,000 page views. During the quarter, we facilitated the transaction of 266 vehicles and successfully auctioned 124 vehicles across our platform. Meanwhile, we identified and onboarded new partners with a strong reputation and abundant vehicle inventories to ensure a diverse range of listings on Cango U Car.

Speaker 1

To enhance operational efficiency, we implemented rigorous management practices, refined key processes such as vehicle listing, transaction facilitation and customer service. These efforts have increased resource utilization efficiency and improved overall operational effectiveness. We also established strategic partnerships with numerous major used car markets nationwide in the Q2, enabling real time synchronization of their vehicle listings with Kangou Yuka to better meet users' specific demands. Currently, Cango YUKA hosts over 260,000 vehicle listings. By integrating extensive offline vehicle inventory, we have effectively enhanced user engagement on the Cango YUKA app.

Speaker 1

We have further enriched our user experience by establishing exclusive member communities through private traffic management, regularly providing members with benefits and event updates to boost user engagement and loyalty. We have also established a set of refined operational processes and management guidelines focused on safeguarding seller dealers' rights. This includes implementing streamlined transaction rules and risk prevention mechanisms as well as providing comprehensive training and support, all of which are designed to help seller dealers improve their operational efficiency. Next, I would like to highlight some key advancements that Cango has made in the area of cross border used car transactions. Since China began allowing the export of used vehicles in 2019, export volumes have surged over 10 fold with a significant increase in the average value of exported vehicles.

Speaker 1

Supportive guidelines and favorable policies from government departments and authorities have fostered the growth of the used car export sector. We are optimistic about the promising prospects in the export market for used vehicles, particularly those in the NEV segment. Since its launch in March 2024, our international used car platform autokango.com has quickly gained traction among global audience. To date, it has attracted over 180,000 visits with more than 20,000 registered users across 207 countries and regions worldwide. Autokango.com hosts over 85,000 high quality used car SKUs offering more than 60,000 different models.

Speaker 1

In the Q2, we significantly expanded autokango.com's market coverage as well as its range of product and services offerings. Under our traffic first strategy, Cango has been focusing on establishing a primary traffic gateway connecting China's used car dealers with overseas buyers. We believe that this streamlined, asset light and traffic focused operational approach will enable us to control operating costs while creating sustained value across our core business lines. Our website allows overseas buyers to more conveniently and directly access China's high quality used car inventories, and we aim to position this website as the premier gateway for exporting Chinese used cars. Moving forward, Kango will continue to deepen our partnership with overseas markets, further refining AutoCango's functionality and services to better serve car users, both at home and abroad.

Speaker 1

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, Xiaoying. Hello, everyone, and welcome to our Q2 2024 earnings call. Before I start to review our financials, please note that unless otherwise stated, all numbers in the RMB terms and all percentage comparisons are on a year over year basis. Total revenue in the Q2 2024 were RMB45.1 million compared with RMB675.4 million in the same period 2023. Guarantee income, which represented a fee income earned on a non contingent aspect of our guarantee, was RMB20.9 million in the Q2 2024.

Speaker 2

This was presented separately from the contingent aspect of a guarantee pursued to the adoption of ASC 326 since January 1, 2023. Now let's move on to our cost and expenses during the quarter. Cost of revenue in the Q2 decreased to RMB26.5 million from RMB615.8 million in the same period of 2023. As a percentage of total revenues, cost of revenue in the Q2 2024 was 58.8% compared with 91.2% in the same period of 2023. Sales and marketing expenses in the 2nd quarter decreased to RMB4 1,000,000 from RMB12.2 million in the same period of 2023.

Speaker 2

General and administrative expenses in the Q2 were RMB39.2 million compared with RMB36.8 million in the same period of 2023. Research and development expenses in the Q2 of 2024 decreased to CNY1.7 million from CNY7.7 million in the same period of 2023. Net gain on contingent risk assurance liability in the Q2 was CNY10.3 million compared with a net loss of CNY1.6 million in the same period of 2023. Net recovery on provision for credit losses in the 2nd quarter was CNY33 million compared with a net loss of CNY10.2 million in the same period of 2023. We recorded CNY47 1,000,000 in income from operations in the Q2 of 2024 compared with a loss of CNY8.9 million in the same period of 2023.

Speaker 2

Net income in the Q2 of 2024 was RMB86 1,000,000. Non GAAP adjusted net income in the Q2 of 2024 was RMB90.7 million. On a per share basis, basic and diluted net income per ADS in the Q2 of 2024 were RMB0.83 and RMB0.76 respectively and non GAAP adjusted basic and diluted net income per ADS in the same period were RMB0.87 and RMB0.8 respectively. Moving on to our balance sheet. As of June 30, 2024, the company had cash and cash equivalents of RMB949.5 million compared with RMB1.2 billion as of March 31, 2024.

Speaker 2

As of June 30, 2024, the company had short term investment of RMB2.7 billion compared with RMB2.3 billion as of March 31, 2024. Looking ahead to the Q3 of 2024, we are now predicting our total revenue to be between RMB20 1,000,000 RMB25 1,000,000. Please note that this forecast reflects our current and preliminary views on the market and operational conditions, which are subject to change. This concludes our prepared remarks. Operator, we are now ready to take questions.

Operator

We will now begin the question and answer The first question comes from Wei Leung Jiang with Citic Securities. Please go ahead.

Speaker 1

Thank you very much. I'm Jiang Wei Rong from Citi Securities. I have two questions on used car market development. So my first question is how's your strategic partnership with major used car markets help improve your market position? And what about the contribution by these partnerships to your financial performance?

Speaker 1

Thank you for your question. So by collaborating with major used car markets, we have expanded our supply channels and diversified our vehicle offerings. In addition, these partnerships allow us to leverage their geographic coverage and market penetration, providing our customers with a broader range of choices. So our extensive offerings comprehensively address our clients' evolving needs, increasing their stickiness on our platform. And as our vehicle inventory grows and market coverage expands, our transaction volume has naturally increased.

Speaker 1

This higher volume not only creates economies of scale reducing unit costs, but also strengthens our bargaining power. This enhanced position has enabled us to negotiate more favorable terms with suppliers and customers alike, further improving our profit margins. Thank you very much. That's for your first question. Thank you.

Speaker 1

And my second question is that the Chinese government has actually published a lot of favorable policies to support the development of used car market. So what about the challenges that your company faces in promoting the used car cross border transactions? Thank you for your questions. So for the challenges, 1st of all, the cross border transactions come usually come with relatively high logistics costs, including expenses for transportation, for insurance and also for warehousing. And to better control these costs, we have partnered with 3rd party companies who have established and well established across all the logistics capabilities.

Speaker 1

Secondly, tariff policies and trade barriers in different countries greatly impact the import and export of used car vehicles I mean used vehicles. Unless we will continue to monitor policy changes and develop flexible strategies to adapt to these changes. Also, regulations and standards for used vehicles vary across countries, including safety, emissions and quality requirements. So to address this, we will ensure that all vehicles traded meet the standards of the target markets. In addition, used car transactions very often involve a relatively long transaction cycle due to their unique characteristics, including but not limited to vehicle condition assessments, selection by buyers, multiple rounds of price negotiations, unnecessary legal and financial reviews.

Speaker 1

Buyers typically need more time to look into the vehicle's maintenance history, performance and pricing before making a purchasing decision. So naturally, this extended transaction cycle also poses a challenge for cross border used vehicle transactions. Thank you. That's for your second question. Thank you very much.

Speaker 1

No more questions from me.

Operator

The next question comes from Emerson Xu with Goldman Sachs. Please go ahead.

Speaker 1

Thank you. I have two questions. The first question is on finance. So I noticed that the company has decreased your revenue guidance. So will you continue to do that in the future?

Speaker 1

And the second question is how will the management balance your long term strategy against your short term performance pressure? Okay. On your first question on guidance of revenue, we are strategically scaling back our existing business. We have reallocated the company's resources, optimized staffing, and we have also implemented effective measures to reduce operational costs in response to market changes and internal demands. Moving forward, we will continue to evaluate business development from a strategic perspective, while leveraging our unique business model to drive ongoing cost reduction and efficiency improvements.

Speaker 1

We are confident that these adjustments and refinements will enable us to respond more agilely to market changes and deliver greater value to our shareholders. On your second question, well, firstly, we have adopted an integrated approach to strategic planning. We have established a comprehensive strategic planning process to ensure alignment between short term performance goals and our long term vision. This involves maintaining continuous communication to ensure all stakeholders have a clear understanding of the company's strategy and direction. In the short term, we will focus on enhancing execution, efficiency, controlling costs and driving revenue growth to ensure robust financial performance.

Speaker 1

Secondly, we have broken down our goals into different phases and also made flexible adjustments. So we have established a very clear objectives and targets for different phases that supports both short term performance and long term strategic implementation. At the same time, we maintain strategic flexibility allowing us to adapt our plans in response to market and technological changes and swiftly result to external environmental shifts. Thank you.

Operator

And that concludes the question and answer session. Thank you once again for joining Cango's Q2 2024 Earnings Conference Call today. Have a great day.

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