Q2 2020 Cango Inc Earnings Call
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Good morning, and good evening, everyone. Welcome Kingold Inc.'s second quarter 2020, <unk> earnings Conference call.
This time all participants are in I'll listen only mode. It's called it's also being broadcast live on the company's IR website.
Joining us today are Mr., Jiwon, Lee Chief Executive Officer, and Mr., Michael Johnson, Chief Financial Officer of the company.
Following management's prepared remarks, we will conduct acuity session.
But again I refer you to the Safe Harbor statement in the Companys earnings belief, which also applies to the conference call today as management will make forward looking statements. Please note. This call is being recorded with that I will now turn the call over to Mr. Jiwon Lee CEO of can't go. Please go ahead Sir.
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Hi industry has seen abruptly and dramatically impacted my coping 19 since the beginning of constituency the difficult conditions persisted through the end of second quarter, and a recovery wasn't fluid and our previous expectations. The no I make ranch market segments I sort of domestic brands will impact is moving in a higher end segment Angie.
Joint venture Brian.
Despite the unfavorable conditions, we continue to make meaningful progress you know strategic initiatives.
It's worth noting that all insurance precipitation services did is a very strong performance in a second quarter.
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Revenue exceeding the high end up the guidance range by approximately 10% in particular aftermarket revenue grew to 52.5 million RMB accounting for 19.1. The center of the total thanks to happen to optimize the cost structure and improve operating efficiency. The gross margin stayed at a healthy level in the second quarter.
I want to regain positive operating income mainly attributable to effective cost control and improved asset quality as a result hills opposed snow management Overthinking, our net profit increased to 70.2 million RMB.
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We're not willing to judge as you kind of what she now yields and Bhatia, Joe you start GP.
But we generally don't control your other future being junk, Google because I've got a budget together in a second quarter, we continue to build on our core autumnal visitation business the aftermarket derivative solicitation.
Also achieved an outstanding performance Leeny feel fairly strong growth of insurance visitation business.
Particularly the car insurance business that we have rigorous they promoted grew significantly in the sequential basis competing 18000 transactions in the second quarter more than double the previous quarter. In addition, our health insurance products continue to gaining popularity and re recorded more than 10000 transactions in a second quarter.
To ensure facilitation as a whole is no longer slides on business instead be whos promising growth potential as an independent business line looking forward, we will continue to explore more channels and categories to meet the increasingly diverse needs of consumers.
Addition, global extend our insurance product portfolio to include those that have higher transaction value.
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Moving to our FX holiday in the first quarter and a coffee 19 economic left to an uptick in our delinquency rate. However in the second quarterly overall delinquency has improved thanks to resumption of economic activities and as one of our debt collection efforts as of June Thirtyth Cdtwenty B M plant overdue ratio has improved to 1.5.
9% from 2% in the previous quarter Oneone enhance some of the lump sum of last quarter and one plus delinquencies have moved to the EMS three plus category, but it is within a reasonable range overall, our customer delinquency has improved considerably in the second quarter compared with the third quarter and we remain confident.
In our ability to maintain the quality of our assets going forward.
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This is really what are your time pardon goodwill to how you're talking to a considerable here since our inception, we have emphasized the importance of risk management and regarded as the cornerstone of our business development, we strive to create value for all parties in the hotel transaction value chain by strictly managing risks actively exploring in over time.
Managed management methods and offerings safe and professional Onestop Auto finance services with comprehensive control advanced Technology Fund methodology for Casino management can go facilitated auto loans have been performing well over the years, we will continue to develop our insurance in risk management.
Remain committed to supporting all industry participants as they evolve and drive innovation in industry.
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In July and a fifth annual China Auto Finance International Summit in Shanghai can go received with that auto Finance risk management Innovation Award.
Summit is one of the most recognized and respected events in the auto finance industry candidates will carefully so that's it from the industry, including OEM theaters Auto finance companies Trust funds and bank.
After rigorous reviewed by a panel of experts from leading financial institutions candle stood out from competition with our innovative risk management system and received the risk management Innovation Award as the recognition of outstanding performance and relentless efforts in risk management.
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This year, Mark Kingold turns anniversary in the past two years, we have grown from auto finance company to a leading automotive transaction service platform in China, We have established partnerships with tens of thousands of auto dealers certainly more than 1.5 million customers. We have participated in the rapid development and term formation of Chinas auto financing.
Larry and witness to changing consumer behavior and preferences in the past decade as a pioneering industry. We will always remain true to our vision and values and we are excited to start a new chapter leveraged in big data and innovative technologies to provide customers with safe professional and efficient auto finance services welcome.
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Looking ahead, given the changing consumer behavior, which further fintech emergence of new business models, we believe Chinas auto finance industry has very promising growth process. The government has also relax condition for consumer credit applications for car purchases, which has helped unleashed higher demand.
Tango enjoys first mover advantage is emerging market in a lower tier cities.
Comprehensive product and service offerings, and deep partnerships with financial institutions, where in a very strong position to gain market share and strengthen our competitive advantages with the rapid development of mobile Internet digital services are becoming one of the new drugs.
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We are actively enhancing our online business with new tools, such as key contracts and online selling.
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Onto culture, you'll want to other Todd how cogent Saddam followed up with our vote builder to use our total adjacent LG usually in the second half we welcome to implement the following four strategic priorities first they will continue to develop the aftermarket services as one of the primary revenue growth drivers seven day for the core auto.
Non facilitation business, we will continue all efforts to expand into higher end segment with innovative product offerings. We have built a dedicated team to develop the segment.
It's worth noting that during the second quarter, we serve otezla sourcing Shanghai and we will further explore the untapped growth potential in this market segment set they will continue to build up the auto transaction facilitation business in a second quarter, we have assembled especial team focusing on his area and we expect to see stronger development in the coming.
Orders.
Finally, we will further improve our operating efficiency and optimize our cost structure, while we extend into mid to high end markets. We believe there is also a big opportunity for us to further improve the efficiency of our deal lowered here dealer network.
By the end of the seven quota the number of register dealers have reduced to 44.5 thousand as we continue to optimize our network efficiency by terminating relationships with theaters that would not up to our standards in terms of operating risk entrant traffic generation capability.
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Oh Jeez, you from regional jet Vincent hung and the while things that will actually go Kubota tool. We will provide forward as we have done for the past decade with a high steps on the long term and plans to achieve more milestones along the way.
Additionally, our usual and associated how what's on your last week, we shall go support.
With that I will now turn the call that our CFO, Michael down to review our financial performance during the second quarter.
Thanks, Joe, Yes, Hello, everyone and welcome to our second quarter 2020 earnings call.
Before I started to review our financials for the quarter. Please note that unless otherwise stated all numbers I RMB terms and all percentage comparisons on a year over year basis.
I missed cobot 19 patent mix, we generated 274.1 billion in the total revenue in the second quarter 2020.
Outperforming the hot end of our previous guidance by approximately 10%.
Decision, our aftermarket service facilitation business continue to serve as an important growth driver generating 52.5 million in revenues for the second quarter and accounting for approximately 19% of total revenue.
Now, let's move out to our cost and expenses during the quarter total operating cost and expenses in the second quarter of 2020 were RMB 207.4 million compared to 252 million in a set in the same period of last year.
This was in line with the decreasing accompanies sales volume.
Cost of revenue in the second quarter 2020 decreased by 18.3% to 102.8 million from 125.8 million in the same period last year.
As a percentage of total revenue cost of revenue in the second quarter 2020 was 37.5% compared to 37.4% in the same period or 2019.
Sales and marketing expenses in the second quarter 2020 was 42.4 million compared to 44.5 million in a same period last year.
As a percentage of total revenue sales had a marketing expenses in the second quarter 2020 increased to 15.5% from 13.2% in the same period last year.
General and administrative expenses in the second quarter of 2020 were 66 million compared to.
53.5 up 63.4 million in a same period 2019.
As a percentage of total revenue general and administrative expenses in the second quarter 2020 increased to 24.1% from 15.9% in the same period last year.
Research and development expenses in second quarter of 2020 were 12.9 million compared to 12.2 million in a same period last year.
As a percentage of total revenue research and development expenses in the second quarter, two southern 20 increased to 4.7% from 3.6% in the same period to southern 19.
Net gain on risk assurance liability in the second quarter 2020 were 42.9 million compared with a net loss of seven is 6.9 million in this first quarter 2020.
Net gain our reinsurance liability was mainly due to a decrease in the delinquent loan balance and default rate.
We recorded income from operations I'll stick to 6.7 million in the second quarter 2020, compared with 84.3 million in the same period last year.
Net income in the second quarter 2020 was 70.2 million non-GAAP adjusted net income in the second quarter of 2020 was 92.3 million.
On a per share basis, our diluted net income.
Hey, Phds in a second quarter 2020 was 0.47 and our diluted non-GAAP adjusted net income per Ats in the same period was 0.61.
Moving onto our balance sheet as of June 32020, we have tasha and a cash equivalents of 2 billion compared to 2.7 billion as of March to 30. The first 2020, mainly due to the dividend paid in may and a repayment of debt.
Looking ahead to the third quarter 2020.
We expect our total revenue to be between 300 million and a 330 million.
Please note that this forecast reflects our current and preliminary review on the market and operational conditions, which are meeting considerations of the uncertainties in the market cost by Colby 19 outbreaks and are therefore subject to change.
This concludes our prepared remarks, operator, we're now ready to take question.
Third we will now begin the question and answer session to ask a question you make press Star then one on your Touchtone phone.
Our using speakerphone, please pick up your handset before pressing Nicky.
So we saw your question. Please press Star then Q.
Our first question will come from Shelley Wong with Morgan Stanley.
Thank you Paul.
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Okay.
So I have a three questions and from Morgan Stanley. The first one is about the Q3 performance well actually we are seeing be chinas auto market to 10 for the better in.
Starting from now and we're also seeing strong growth in sales for some Chinese brands, such as China and look we want. So my question is that how well this trend help with our business in Q3 and the second question is about overdue ratio and we do see Nazi overdue ratio for the second quarter in.
Proof.
However, it still remain at an Apple higher land and land the net of last year. So even overdue ratio continue to improve while not generate more gain for risk assurance liabilities and it's a question is valid longer term growth strategy right. Now we have carpet 45000 theaters, so what about your growth ex that.
Station in two or three Years' time, how many do you expect to cover and well down the road new growth drivers for you for a longer 10 are you going to cover more Forex stores are you going to work with mortgage and auto Brian.
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What is the longer term growth strategy for the business.
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Thank you should be for your questions I want to take your first question and then our CEO CFO will answer the Nektar two questions. Okay about two question.
On the impacts of the growth of Chinese Brian.
Sales of on our business well.
With the lapse the recovery trend, it's similar to what we have reserved in the second quarter and actually compare with the first and second tier.
Cities, there is no significant improvement in demand in the lower tier cities, yet and actually tango is the strongest in those the lower tier markets. So and also for the year growth in sales of Lisa Chinese brands actually they are mainly attributable to the servicing the forex is stores.
So there is some.
Support to our business, but limited indeed.
Okay.
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I wanted to add some points to the first question well, yes. We also observe the recovery in sales for Chinese brands, such as China Unequivocal and we also are seeing positive contribution by neatly comp rate to our business growth in the second quarter actually by the end of the second quarter. We already saw these are positive impact.
However, as we said earlier tangoe focused mostly on the lower tier.
Markets and in these lower tier market I think erotic thrillers.
He wants to take some time for the demand to recover we're in particular, we need to see.
Stronger rebound in the purchasing power of the consumers. So yes, indeed, we expect to see positive contribution to our business growth in a few suite and in a longer term from the recovery of the Chinese auto brands, and and and other brand as well, but indeed.
For the real impact on our business to happen, we still need to see the better purchasing power in the lower tier cities.
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And about the second question there is the overdue ratio improvement and its impact on bookings in the risk insurance liabilities.
And well in a second quarter, thanks to our post no management in particular, our debt collection efforts, we have seen an improvement in our ultra deal ratio actually the some.
And in some overdue ratios in particular and one class ratio has dropped significantly over the second quarter and this is mainly attributable as I said earlier, our postum management efforts and Thats why in a second quarter. We have recognized about 40 million gain in our index in the changes in office that fair value.
Of the risk assurance liabilities and the early study from early Q3, we are see in continuing improvement in Lisa post loan management metrics and if these trends continues we actually do see an opportunity to recognize more games in risk insurance liabilities and Inc.
You want when the pandemic was at its peak.
Can go in fact aggressively made more provisions for the for our assets and and that's why.
And that's why you are seeing higher provisions in our Q3 on our books, but so thanks to a resumption of economic activities and also thanks to our coastal management efforts, we are seeing better asset quality in the second quarter and until and threw out to the early Q3. So.
And with this trend going out we expect to see you know and lower provision in the future and we could reverse some of the revision that we made earlier and I recognize them as gain in our reinsurance liability.
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Good question on our future growth strategy, let me first of all talk about the channel side, well, we will continue to explore opportunities to increase.
Our dealer partners in and asked a few years well.
First of all we will continue to optimize our.
Our relationship with the announced Forex stores in the lower tier cities and actual product as you heard earlier, we are now gradually terminating partnerships with no sat dealers, who do not meet our standards on service.
Then on service level and also in traffic generation capabilities and these are all efforts by rights to improve the operating efficiency on in a lower tier as seen a network and on the other hence we are also working on building relationships with forest stores of the higher end the brands and we have established a dedicated team.
To develop based market segment and so.
So we are actively exploring these new channels and we are investing heavily too.
Expand our relationships with the Oh for right the stores. So overall, peaking in the necessary. Yes, we expect the number of Adidas, who work with us to increased to about 60000, 45000, which well see the.
Now for US now for rack stores in the lower tier cities and about 15000 of which well before I stores of the higher end Brent.
Let's turn to USANA or May include forward Tivo in broader timing.
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In addition, we will further improve our product and service offerings to our with our dealer is the technology to improve productivity as well as traffic generation activities of our dealers because we should not just to catch the number of Adidas, who are working with it also their importance for us to improve.
Per store activity and also postal productivity because these matters will have a direct bearing on our business growth. So these days and these are some of the prior priorities we are going to work our internet.
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So Jim.
The.
Tangent driver.
And so today, while at the core business of Tangoe has being the car auto loan facilitation business as accessing time, we are investing halfway to grow our aftermarket.
Business actually your as you can see from our results the country contribution from this business to our revenue has increased quite significantly and also in the aftermarket business line reinsurance visitation business has performed outstanding make and you can see.
So the contribution by this insurance facilitation business, where our revenue has grown significantly. So we expect lots actually we expect these a insurance and division facilitation business to grow into.
Core and any depend a bit line business line costs can go in the future.
So why the final want me to generate you go and do not sure Joe either John D train it onto it.
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Got you could be our digital journey equally in China.
In addition, we have also set up a dedicated team to a to grow our auto transaction facilitation business. So thanks to our efforts and investments.
We expect the auto transection facilitation business to make positive contribution to our business as CFO and to our revenue growth in a third quarter and in the following quarters.
Great. Thank you.
Hi, Dan if you have a question. Please press Star then one.
[laughter].
We have no further questions at this time I will hand, the call back to management for closing remarks.
Right.
Oh Gee, that's our job no, but still hopefully they'll help create your thoughts digital Sheila. Thank you all for your participation that currency todays earnings call.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.