Q3 2020 Cango Inc Earnings Call
Earnings Conference call and.
This time, all participants are in and listen only about this.
This call is also being broadcast live on the company's IR web site.
Joining us today are Mr., Chen and Chief Executive Officer, and Mr. Michael Zone.
Financial Officer and the company.
Following management's prepared remarks, and we'll conduct a few and <unk> session.
Before we begin I refer to you to the Safe Harbor statement and the Companys earnings release, which also applies to the conference call today and.
Management will make forward looking statements with that I now turn the call over to Mr. Zhu Ling CEO of can GAAP. Please go ahead Sir.
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During the year and told me you close a total of these aren't you tell us what kind of the only and jobs would be handled the total <unk> budget do you need when judging Subodh, you and I mean, [laughter] and the second half of this year Chinas auto market or free gain momentum with gradual recovery and know what you see with steady progress across our business. We are pleased to see a significant.
And those all financial and operational cash that's all.
Total revenue in the current quarter and was approximately 435 million RMB outperforming the high end of all guidance range by approximately 32% in particular, our aftermarket service [noise].
The city tissue revenue grew to 68.9 million RMB accounting for nearly 15.8% of total Oh trading transaction business also contributed considerable revenue and her team this quarter, reaching 70.4 million RMB operating income and sustained growth momentum from the previous quarter and keep me parts and.
Good day 135 million RMB, maybe after the boat to always buckets of cost control initiatives.
Finally, our net income all these calls that were close to 1.8 bit and I'd, mainly attributable to the fleet, the cutting back and and gain from the hotel [noise].
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Our deep and wide cost and dealership network and you know its upgrades and you know vision so products and services are the main drivers for our sustained growth. We are committed to building and integrated Praful Necip all parties in automotive value chain, well bring safe professional and efficient auto transaction related products and services.
By implementing our key growth strategy and the stuff right extending out well cool and new businesses, we are witnessing increasing demand for our products and services, which is leading to improved operating efficiency and gain market share.
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It's always a cool auto loans facilitation business in the third quarter, we facilitated 7.5 billion RMB financing transaction.
EBITDA from the same period of last year, marking the first get rid of year on year growth and the pandemic outbreak as of September Thirtyth Twentytwenty.
Total I'll send imbalance and financing transactions the company facilitated reached 38.9 billion RMB.
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To go and that she said you know moving tied to de weight in terms of a dish and network without proactive expansion and four I'd go with an introduction of new products. The number of new data is growing again and the end of the party and so we have had a total of 46248 registered users nationwide and taking our leading position and auto fine.
Anything with the most extensive coverage of data for new cars in China.
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More importantly, opt and what to optimize.
The off on our loans dealership network over the past quarter by terminating relationships with dealers that would not up to our standard for all non-GAAP operating risks and Tropic generation capabilities, we have seen and thinking it significant improvements and overall operating efficiency in a low and to your market. Additionally, I body more diversified product and.
So this is our views and becoming more active and along with the auto market recovery transaction volume steadily increase.
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Really we mention that future consumer demand for these studies and Doug such significant significance day with more consumers and customers pursuing higher and Brian well can go we plan on expanding into high end and luxury segments of the market well flow rate our floor and store network when did go and strategic plan.
The mine, we have set up a dedicated team to target high and Brent since the inception of financial lives. We have established a partnership with Mvpds, then BMW and Audi to name just a few and the number of four and students partnering with us and rapidly increasing it.
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And volume contributed by four and thought I'd been double with month by month and all efforts to develop the business before and enables us to capture potential in this market and help can go gain further market share going forward, we plan to deploy more resources to improve lease coverage.
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Into asset quality during the third quarter and deal by deal ratio. What's continues day improved and the overall asset quality and was close to the pre buy and time make level as of September 30, as 2020, the and one frac overdue ratio decreased to 1.11% from 1.59% as of June Thirtyth and.
And <unk> and we plan to open your ratio decreased to 0.53% from 0.84% during the same period.
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In addition to strengthening all cool auto loans and limitations business during the third quarter.
Continued pursuit of extending our aftermarket facilitation business in particular, our reinsurance facilities and so this is achieved and outstanding performance during the quarter. It is worth noting not with the debt.
Our key accounts sales team and call center for our insurance business and this quarter, which greatly improve the conversion rate, although overall insurance facilitation visit the team acquired new customers, meaning from outside of our registered dealership network, including repair shops and on the aftermarket service providers now Kale kit.
Hey, sales alone and insurance products have become important drivers for all future growth.
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Washington, and Oregon.
On insurance visitation and services have shown.
Great growth potential looking.
Looking ahead, we will continue to explore other premium reinsurance transaction channels and categories to meet increasingly diverse needs of consumers as well as expand out insurance product offerings to include loans insurance categories, Ohio transaction values as our products become more diversified.
And say that's true the needs of consummate customers and consumers the entire service experience will become more enriched for them.
And so.
Focus on aftermarket services, and which will further enhance our technology capabilities to improve the cost and experience stick and these and engagement and is in time to pay day sales business model mentioned above will help us expand our customer base and bring new growth opportunities.
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Let's turn to the leading technology based automotive transactions.
And we'll always be monitoring the latest market trends and taking them into consideration with nothing all growth strategies, new energy vehicles, and unique and inevitable trends and evolution of the automotive industry, we have well and then convenience.
And have begun to invest in DC and owning documenting atkinson.
To bring significant investment return and strategic cooperation opportunities following its listing on NASDAQ only investment in the auto was not only made full financial returns, but also from a.
Strategic perspective, and well hit our business model is highly aligned with and any v. operation of model and leveraging our extensive experience industry experience China's largest offline new dealership, new car dealership network and our industry know how and when commodities, we are able to empower the and you manufacture.
Yes, and helped and realize the last mile of their direct sales.
Total.
And time, our why Nokia networks and all the growth. So these capabilities enable us to provide additional value by helping those and you see.
No the whole process online and truly provide our customers with efficient affordable transparent and simple one stops.
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Current baby autos service partner nationwide, and copper or test hospitals in Shanghai, and leveraging our successful experience and increasing popularity of and we are looking forward to be flat, establishing close partnerships with more and easy Oems in the future we have high confidence in the growth potential of and Hebei and will continue.
And deepen our exploration and is viewed and accelerate the healthy development of the whole industry.
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And now I'd like to discuss our new independent sales Rep initiative. This new sales Rep network completely independent finishes now work through social Steve Fisher and by utilizing agents social relations to amplify our marketing efforts and maximize Uma gross.
In a cost effective way and Chris.
Direct access to our target customers and build up our private tropic roaming and close the transaction loop through.
Through our technology platform utilizing social tools.
We are offering products services and technological power through these registered agent network will know platform, we can reach consumers and lower tier markets more effectively and our anyway.
And in return and provide them with better products and services.
We started our pilot project English and now we do area and its July we have seen a very satisfying rate GAAP as of now we have more than 4000 registered agents and we expect to expand these new business models and China on a region in the future.
We hope so Joe you follow me.
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Turning now to our car trading transactions business, we have made a lot more inc.
Areas and the beginning of this year and we have built.
Our destiny and team and process in a simple.
And the head of the business segment does and industry veteran with over 15 years of experience in this area and we start to see stronger developments and will mean, even more meaningful revenue contribution in the coming quarters.
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And Elton distance and coffee.
Well, the 19 and free.
Good day market Volatilities and created a lot of opportunities for us to explore new business and models. We are very pleased with outperform and early stage all consistent exploration innovation demonstrate our management team.
Net acumen and our ability to follow the industry trends and strong management application capability.
We remain committed to providing a more users and product mix.
Product mix around automotive financing and transaction, while at the same time low deepening our dealership network and expanding our service footprint.
Sure sure like you and your warm and associates, how one cellular week last week, we shall also bungie to that's how we share with that I will now turn the call over to our CFO, Michael Jones will review our financial performance in this quarter.
Thanks, Joe and Hello, everyone and welcome to our third quarter 2020 earnings call.
Before I started to review our financials for the quarter. Please note that unless otherwise stated all numbers I and the terms and all percentage of compressors on a year over year basis.
Total revenue was pay me at 434.9 million in the third quarter 2020, once again outperforming our previous guidance range. In addition, our aftermarket services facilitation business continue to serve as an important growth driver generating up.
60, 68.9 million, Inc. Revenues for the third quarter and accounting for approximately 15 or 16% of total revenue.
Current trading trends such as been is also become.
A meaningful growth driver this quarter contributing 17.4 million in revenues no.
Now, let's move to our cost and expenses during the quarter total.
Total operating cost and expenses in this quarter to southern 20 was 304 million compared to 261.6 million in the same period 2019. This was in line with the increase in the company's sales volume and related costs incurred by car trading transactions.
Cost of revenue in a so called 2020 increased by 44.2% to 180.9 million up from 125.4 million in the same period 2019 and is.
Percentage of total revenues cost of revenue and so quarter of 2020 was 41.6% compared to 35.7% in the same period in 2019.
Excluding these financial impact from the current trading true such as cost of revenue as a percentage of total revenue was 30.3% so quarter to southern non team.
Sales and marketing expenses, and so quarter 2020.
41.9 million compared to 27.6 million and the same period 2019.
As a percentage of total revenue sales and marketing expenses in the so called for 2020 decreased to 9.6% from 13.5% in the same period last year.
Good day.
The increase a deep and the decrease was a result of the company's effort to improve the efficiency of cost and the marketing spending while growing its revenue current currently.
General and administrative expenses in the third quarter 2024.
40, or 52.2 million compared to a 52.3 million in the same period in 2019 as.
As a percentage of total revenue is general and administrative expenses and the so called or to southern 20 decreased to 12% from 14.9, Chris that percentage in the same period last year.
Research and develop expenses third quarter 2020 were 14.2 million compared to 13.2 million in the same period and 2019 as a percentage of total revenue research and development expenses, so quarter to southern 20 decreased to 3.3% from 3.8% and.
The same period last year net.
Okay, and risk assurance liability and the so called our 2020 was 12.9 million compared to a net loss of 7.5 million in the same period last year Netscape, our risk assurance liability was mainly due to a decrease in the delinquent loan balance and default rate.
We reported income from operations of 134.5 million in the third quarter 2020, compared with 89.7 million in the same period last year.
Net income in the third quarter 2020 was 1760 9.4 million non-GAAP adjusted net income and and so call. It off 2020 was 1780 3.2 million.
On a per share basis, our diluted net income per 80 EPS in the third quarter 2020 was 11.78 and our diluted and non-GAAP adjusted net income for 80 EPS in the same period was 11.8.
Seven.
Moving onto our balance sheet as of September 20, 32020, we had cash and cash equivalents of 1.4 billion compared to 2 billion as of June 32000, 20 million due to the fact that that the company and vast is certain about our cash in term deposit and repay debt.
As of September 32020, the company had a long term investment of 2.3 billion compared to 551.5 million debt as of June 32020 day increase was mainly due to the change in fair value of the company's investment in the.
Auto low.
Looking ahead to the fourth quarter 2020, we expect our total revenue to be between 700 million and the 750 million. Please.
Please note that this forecast reflects our current and preliminary view and market and operational conditions, which are made in consideration of uncertainties, Inc. Market caused by the Cobi 90 outbreak and are therefore subject to change.
This concludes our prepared remarks, and operator, we are now ready to take questions.
Thank you.
We will now begin the question and answer session and.
Ask a question you May press Star then one and your catch downtown if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two and.
And the benefit all participants and today's call. If you wish to ask your question and.
The company management and Chinese place immediately repeat your question and English.
Pause momentarily to assemble our roster.
The first question today comes from Shelley Wang with Morgan Stanley. Please go ahead.
And.
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And I think I will translate the question first of all congratulations to the management for your outstanding performance in the third quarter and I have actually I actually have three questions well and.
And there's no question you said volume outlook for your fourth quarter performance and your performance for next year well. If you look at the monthly sales off the.
And see the copper and in China, we are witnessing zone.
Rebound in Chinas auto market in particular, the China.
Domestic Oems such as such as <unk> and great wall and based on your presentation, you and your guidance for net quota for your revenue is about 700 million to seven point 750 million. So could you share with us your out.
Oh look your performance, Inc, fourth quarter and for now do you have any more details and also which business line do you expect to contribute more to the well.
Growth in the fourth quarter and they caught your core core non business or new business.
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Thank you very much could start shooting for your questions well and.
D. I from third quarter, two for true current week that new car market to continue its a strong rebound, especially in and his cities well in our previous quarter presentation, we mention that actually in the first half of this year and the new and here market segments have been relatively snow in Pennsylvania.
Recovery, however, and as of quarter. These.
These lower tier markets definitely picked up.
Recovery speed, especially the two brands that you mentioned, China and a great war. So it does yeah. So you observations arlo same as ours well in terms of our quote.
<unk>.
Guidance for the fourth quarter and.
So I definitely we've got to see and stable growth and steady growth in the fourth quarter in terms of our performance metrics and on our guidance for the fourth quarter, well and actually in the third quarter, we already see you know equivalents.
Revenue contribution from our new business line. So in the fourth quarter, we bat no significant contribution to our top line from our current trading transaction business.
No actually it ends of the guidance, both fourth quarter and weeks that you know the current trading transaction business contributing 40% to our business growth.
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Okay and my second question is about the polarized and dealership network rollout in your presentation and you mentioned that Tango Ah plan zone.
Exploring and developing youre seeing the higher and market segments. However, in the Florida market, we already see and of our car financing services offered by the premium brands such as BMW. So how are you going to differentially differentiate yourself and these are competition and and my second question.
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Insurance reform auto insurance.
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And finally, a lot take your questions. The first question about how are we going to gain market share in the forests detergent market well indeed in China for a dealership market is huge and we.
And we.
We are also seeing and a strong effort by the by banks and the FCC total financing company to a you know a development and the effort for and it is market, however, well for park and market share and we are not very ambitious and we only aim for 10% to 15% of the market share and how are we going to gain market share, while it's going to be.
Now on our differentiated services well first of all we over acreage and services and for our customers and only and a hand, we also.
Different from offline and service providers by offering and a strong service capabilities online and for example, like <unk> and and like all punishing with and so and and actually we have received the very good feedback for how cost and this from and four hour and you know.
On line so.
So this is how we are going to be different from the EPS. These so again, we are not going to compete directly and with against the EPS. These inc. And because we are not so ambitious in terms of our market share.
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So the simple to legs and just one thing about our product offering in the fourth market well. We are also you know selling the banks and products to our customers in these markets so and.
Actually compared with their local banks, where for US those are located our partner banks. They are strong they have and they have a stronger financial position and the offering lower cost of capital.
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And well.
And your third question the impact of the insurance fee true reform policies and launched in September well. Indeed, these new policies have that put some pressure on non insurance precipitation business. However, we have already taken some countermeasures and mediate two and.
Mitigate the pressure Matt first of all we are working with larger insurers and to all that better products and services to our customers react by gaining market share in the industry transformation and second sales we are.
Combining our insurance products and services with all car financing business and none of what we are utilizing cross sell and strategies to all the more diversified mix of products and services to all cost and the improving their experience. In addition, we are stepping up efforts to build up our.
Okay and model key accounts sales model and so lots and we are able to integrate our resources in this regard and to prepare ourselves for market developments in the next year.
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Hi, John seem true thesis is it.
Okay.
And next question comes from day that time with Goldman Sachs. Please go ahead.
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Well first of all congratulations and a management on and off any performance and its a quota and we are also very excited by your outlook for the fourth quarter My questions I'm of the industry competition and could you give us some more colors and be shrunk the market trends in both the.
For our markets and the door tier market and things so the third quarter or not in other words, the past pandemic cash markets, So and its Oh and my question nothing on auto financing.
And the second question is could you share with us so your observations.
And the a and market share.
She come your market share and a development and you know how is it going to be in the future.
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Tom This is our Jingwei you, good jingwei and whole chew up and good chimpanzee. That's how would you will you issue some dormant yeah and Ivy machines, you such a good times with a function and stayed there you're going to see a woman to undercut us well assess and should also more highly synergistic machine and showing them new and she so how are you good user one with that thought.
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Yeah. Thanks to the over 10 years old and development. We are now well recognized by our partner Bank for our high quality service and very well design business protests, which deliver very good experience to our customers and consumers and that's why banks working with us I have.
And to provide with a low cost of capital our products.
And then three that we are able to further improve and Inc.
Enhance our core business and that's for the core business and and for our new business lines over the past few months, we have developed an initiative.
Panicked and implemented a series of initiatives to develop and new business lines and the initial results have given us more confidence in our future and our strategic direction and these new business lines and we initiatives include our efforts to expand into the higher and for us.
Its doors and and easy market as well as established as well and setting up the sales Rep initiative of flow far out for our insurance product and also in addition, we are and we have this is athletes and that they launched all car trading transaction business.
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Sure.
Thank you I would like to add a few observations from my thought well first of all on the demand side well in fact during the pandemic and after the pandemic you know and he and market. We are seeing the from dish the market conditions for the more data.
And Chang changing significantly well, what I mean is that a smaller dealers and a lower tier markets. They are in the guarantees advantaged position now and although we are seeing a rebound in market demand in the recent months the conditions and for the dealers have improved to slow.
They do the smaller dealers they need strong partners to help them get access to more resources and got out and actually help improve their service capabilities and this is where can go can offer value to our partners in b or new and tier markets and this is also why.
Where we see the valuable stock market low a multiyear market is and this trend is a very out of a very well.
Okay, and the pandemic and so far as a the key is to establish to help establish ecology four based on our platform by and all that and you know a diverse range of services and products and it definitely day will give us more room to grow and.
Also will help lead theaters in a low income lower tier markets to growth together with us and all the all the demand side and second point I would like to make is about the Oh, hi, higher tier or the first and 17 cities and also the higher and the market segment that is the flow.
Laura Submarkets, but Todd touched upon by me Sterling well again in these markets we might market segments, we are seeing some and that need here by our partners for example in terms of.
So the efficiency and process efficiency. So we do see a lot up about a lot of opportunities for us to a facility and to drive our parents and actually things that July when we established our team and the past is that a three to four months. We are already achieved in your business there.
Gross for our for our partnership with four of those and luxury and premium brands.
And the future, we believe that with our strong service capabilities and also our high quality financing resources, we well be able to further drive low growth of our fall right the market segment.
And on the supply side, well and Congo is the current is China's leading auto financing platform and and joined the pandemic and we are seeing profound changes in the <unk> and in competition.
In the industry competition actually things last year, we already are.
So you know the trend of the market consolidation and this year the debt consolidation has picked up as pace in fact, so in the future and we believe only platforms that have anything unique and they have they are unique.
Core competency and that our April and the.
So I you know well designed ER business, the strategy and not over strong product and services to customers well be able to survive and growth.
[laughter].
Okay and.
John.
That's true.
The hotel and you can see.
Sure.
Thank you very much for your losses and congratulations again on the strong performance.
Sure David.
Again, if you have a question. Please press Star then one.
[laughter].
We have no further questions at this time I would now like and hand, the call back and management for any closing remarks.
Oh.
Oh well.
And does the debt.
So hopefully that's a day associated idea that close it's a day Sony poor. Thank you all for your participation.
Thank you.
This conference is now concluded. Thank you for attending today's presentation you may now disconnect.
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