Q2 2019 Earnings Call
At this time all participants.
After todays presentation, there will be an opportunity to ask questions and that will tend to call. The witches host speaker host today Ms. <unk>.
I I do a bunch of the company. Please go ahead.
Hello, everyone and welcome to <unk> second quarter 2000, <unk> earnings Conference call. The company's earnings results were released earlier today and are available on <unk> website at <unk> on news wants of its people would continue. Please note that the discussion today will contain forward looking statements made under the safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of Nike basketball.
Forward looking statements involve inherent risks and uncertainties as such our future results may be materially different from those expressed a day.
Further information regarding these and other risks and uncertainties is included in our neighbor list and our registration statement filed with the FTC Perjure does not assume any obligation to update any forward looking statements, except as required by law.
Today, you will hear from Mr. away when the company's Chief Executive Officer, who will comment on our operating results.
He'll be followed by Mr. Troy mouth, the company's Chief Financial Officer will provide additional details on our children.
Revealed the company's financial results and discuss the financial outlook. Following managements prepared remarks, well open up the call for questions.
With that said I would now like to turn the call over to out the Oh just a one please go ahead sir.
Hello, and thank you everyone for joining us on our second quarter earnings call today.
During the quarter costs us in China continue to two pounds due to the uncertainty in the macro economic environment.
And I liked it.
Right.
Regulatory changes.
According to the China Association of automobile manufacturers passenger vehicle sales for the dropped by more than 14% in the Fourq Cobalts couldn't do 19th.
Despite these adverse market conditions.
We continue to to.
Good our prudent expansion.
So did you.
Into New York City.
Hello, Trulicity is underpinned our coach woman Melinda.
Importantly, our net revenues in the second quarter off on the 19th increased by 11.9% to be 200, and a 3.5 million.
Such goes what's driving by the strong performance on level fly much services.
Which generated I M b well hunger the on the 96.
One for meeting in revenues during the quarter an increased the bye.
8% year over year. The addition.
The continuing to ramp up often using it.
And your trade him, including Georgia dealership and online marketing services also contributed to our growth in the quarter.
During the second quarter, all the new 19.
Chewed success in three key yes.
Wow.
Expanding our core auto show business into lower tier city markets.
To accelerating the development of optimized for special events.
And the three.
Progressing in a word to virtual dealership and online marketing services.
Our success in this area and a strong brand.
Equity enabled us to maintain a healthy growth trajectory throughout the MACT downtime in the quarter.
For.
For our core auto show business.
We continue to expand into lower tier cities, while maintaining our industry, leading locked show being forced on the second tier cities.
Despite China's economic slowdown continuing.
In the first half of the 19th no choice. It is how many extra.
A significant consumption upgrade.
In fact.
While the big city rather than.
A more disposable income.
It is they are pure in low tier cities and the County district.
Who are more willing to spend a preview oh aspirational purchase it.
In view of this marks the Kid.
We proactively.
Walked into two and continue to position our first mover advantage in these high growth potential markets during the quarter.
As our resort.
We successfully organized to sort of hung up on the 44 auto shows.
Across longer than the 86 cities.
During the second quarter off the United Kingdom.
Compared to.
219 auto shows in 100 to under 16 cities in the prior year period.
It's consistent improvement.
The auto show geographic coverage.
Once again demonstrated demonstrates the effectiveness of our prudent expansion strategy.
Well that's it for me.
Well that's it for me Oh, what brands are recognition on the fourth of our MCCSR leadership.
Let them and they will continue to accelerate the development all caught them a customized special promotion events.
Uh huh.
Due to expected usually I expected changes, including the government.
Automobile regulation under their challenging.
<unk> economic environment.
Both Oems and the fourth dealer.
I'll comment earlier under significant pressure to reduce their inventory.
Well accelerating.
The development of our compromise the special promotion promotional events.
We help the customer.
So often to optimize both both their consumer terrorism and the sale of conversion rate.
As I was our service fees generated from our special promotional event.
Exceeded our previous.
Like patients.
The corridor.
Contributing I M B 5.8 million to our total revenue.
Thirdly, our visit family.
Hello.
Acquisition.
Oh long yet international have made meaning for appropriate.
The only I used a leading cisco developer that to create.
Hmm.
Oh, sorry, I'm supposed to see cloud systems for China automotive industry.
Oh, yes.
Flagship Sop product Oh.
South portico Trump will provide.
Although dealer with social work the on services by facilitating the effective flow of information between auto dealers on the customer.
This acquisition, but I never have to help although dealer.
She's ties operation.
Produce.
Actionable and that's another thing.
He has to be ourselves.
Did it couple of it is.
On all optimized several social media marketing campaign.
Sonya have Arthur.
Rather than to develop it Ah I poured in store traffic solution and to maximize auto dealer you store monetization happens relative.
This system uses high definition camera equipped with AI based the facial recognition and the biometric technology to produce precise.
Marty phase data user profiles.
Well the only for Profire analysis the system matches.
How come or who is the most beautiful ourselves other than the deals.
The dealership.
While starving the profiles for future [noise].
Well on the infection.
It's become improvement.
In food [laughter], essentially under bizarre <unk> auto dealer in store traffic management process, while reducing labor costs and mitigating risks off the lows of loosing ratable sales leads.
We are confident that that is a unique value or provide enough to auto dealer.
So these social CRM services.
Writing House I would you know stickiness.
In summary, Austria.
Expanding to low tier city markets with high growth potential.
I'm showing from missing.
Those are in the second quarter.
As we continue to enhance our service.
Offering.
Oh, yeah, and the auto dealer.
We improved our ability to capture additional market the shower into June .
Decided recurrent DLA I've ever watched the conditions.
Ah pumped into that this work combined with our national Oh, one nationwide the service coverage.
It was diversified.
Revenue, a screen and the strong brand equity well, well 40 will fortify our market leading position going forward.
Now, let's turn the call to I'll say Apple misled try now. Please go ahead Sir.
Thank you Wayne Hello, everyone before I start piece would be reminded that it beginning January onest 2019, we change over revenue classifications and decided to report all the data revenues ended a fully new segments first offline marketing services, although shows.
Second offline marketing services special promotional event that a third works with leadership online marketing services and orders.
Now before I move on to our second quarter financial results. Please also note that all numbers stay this year RMB terms and a whole percentage comparisons are year over year basis, unless otherwise noted.
Despite a challenging marketing conditions in the second quarter, our revenues increased by 11.9% to 203.5 meters from 181.9 million in the same period last year.
Primary treatment better revenue growth from our offline marketing services, which increased by 8.0% year over year to 196.4 meeting from a 181.8 meters in the same period last year.
It is worth highlighting that awful in marketing services revenues generated from our special promotional events reached 5.8 million in the second quarter compared to 0.8 meeting in the first quarter of 2019.
Based on the performance of a special promotion events.
We have a confidence in the business gross perspective that I expect that we will continue to contribute to our long term growth going forward.
Despite its a new car sales in China, continuing to decline in the second quarter.
The total gross merchandise volume of new automobiles sold through offline events increased by 7.8% to 15.2 billion from a 14.1 billion in the same period last year.
Next to our prudent expansion strategies.
Meanwhile, the number of automobile sales transactions for senator during the quarter increased by 12.0% to 110.4 thousand from 98.6 thousand in the same period last year.
Your decision to our offline marketing services business. We also continued ramp up of a new growth initiatives during the second quarter.
Revenues from boards were dealerships.
All other marketing services and orders increased to 7.1 million for the second quarter.
Our gross profit in the second quarter increased by 9.0% 244.0 made it from 132.2 million and gross margin fell slightly to somebody 0.8% from 72.6% in the same period last year.
In the second quarter setting on a marketing expenses increased to 217.5 million from 109.6 million in the same period last year.
Primarily due to increased incentive compensation expenses as well as our advertising and promotional activities, which not only continue to boost all girls, but also for our stringent of run influence.
Selling and marketing expenses for the second quarter included a share based compensation expenses of 71.5 million compared to 7.1 million units in period last year.
General and administrative expenses increased 28.1 million from the 22.9 million in the same period last year, which was due to a headcount increase as a result of a business expansion during the second quarter.
To a lesser extent, we also incurred higher professional fees and our ongoing expenses as a public company in the second quarter of 2019.
General <unk> administrative expenses included a share based compensation expenses of 7.5 meters at about that all loans of 6.8 million in the second quarter.
Research and development expenses increased to 9.9 million from 3.9 million in the same period last year as a result of our efforts to improve and innovate our product and service offerings.
Consequently, a loss from continuing operations was 111.4 million in the second quarter compared to 4.2 million in the same here last year.
Excluding the effect of share based compensation expenses for better loss before and then the impairment of investment.
Adjusted net loss attributable to the shut companies to shareholders was 29.3 million in the second quarter.
Compared to other income of 16.1 million in the same period last year.
Well just few diluted loss per share was RMB 10 cents in the second quarter compared to a gain of RMB 17 cents in the same period last year.
Adjusted EBITDA was a loss of 30.4 million in the second quarter compared to an adjusted EBITDA of 17.7 million in the same period last year.
Now turning to our balance sheet at the end of June 2019, we had a 364.3 million in cash and cash equivalents.
Let me also give a brief overview of our half year results.
For the first half of 2019, Oh net revenues increased by 21.2% year over year to 326.4 million.
Driven by the 17.4% year over year revenue gross yeah offline marketing services.
Gross profit for the first half of 2019 increased by 19.3% year over year to 232.9 million.
Gross margin was 71.4% compared to 72.5% in the first half of 2018.
Well just the net loss attributable to the company to shareholders for the first half of two southern nitrogen was 44.8% admitted.
Compared to net income of 3.3 million in the first half of 2018.
Adjusted EBITDA for the first half 2000 nitrogen was a loss of 48.2 million compared to an adjusted EBITDA of 6.5 million in the first half of 2018.
Before I discuss our outlook for the third quarter.
I would like to provide us some color on the recent regulatory changes and how they have impacted auto industry in China.
Originally planned for July .
2020, China unexpectedly released a new national six centers.
Some of the words Streeteasy extenders for auto you mentioned on July 1st 2019.
These auto emissions standards already be introduced 15 seriously pollute the Cds and the provinces.
And we will soon be introduced to other cities as well.
Due to these regulations cars that have failed to meet a new emission standards, probably in barred from production sales and a registration in targeted areas. During the second quarter. The majority of any region was planning to purchase cars. The later their vehicle purchases to wait around to the new emission standards took effect as a result, Oems and an auto dealers desperate and reduce their human stories of cars and able to meet the new standards, Russia to introduce unprecedented vehicle. These calls that in doing so temporarily boosted their car sales in June .
However, at the Tightest Chinese car makers hope you don't the process Adobe engines, and also parse that to comply with the new centers the supply of new cars have been slow to catch up.
Folder, creating uncertainties for car sales in the remainder of 2019.
Metaphor up decent marketplace trends in the third quarter of 2019, we expect our net revenues to be between approximately 160 million and 170 million representing an approximate at year over year growth of 3.0% to 9.5%.
Please note that these forecasts reflect our current and the preliminary views on the market. It not operational results conditions, which are subject to change. This concludes our prepared remarks for the day.
Operator, we're now ready to take questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session.
Three questions. Please press star one on your telephone and rate seems to be.
And the cancer the request please press the pound.
Once again it is one to ask a question.
Yeah. Good question coming from the line of Allen Klee of Maxim Group.
Hey, Scott.
Yes, Hello, I'd like to start with what you just finished talking about the regulatory changes could you help us maybe how you think the pass will be of.
Getting through this uncertainty kind of your best guess of how long it might last and then get back to I'm, a little bit more clearer situation and.
Higher sales hopefully.
Let me translate to mid to late one.
Sure let me just shift the personal coach I can do that.
So that kind of Goldman Sachs.
Okay, well done, but sometimes oh, well conclude that took a drop I know you don't you get you to just a few though.
About regarding your question on how long, we'll get to a normal mcus tender, we expect the impact from national fix that national five vendor concession to national fix vendor will last for about one quarter expect Oh, the Impella Dimming me on Oh, the third quarter of 2019.
Okay, but then just to follow up does it have an impact on.
Cars that.
What about Theres, a bunch of cars that will not meet the standards. So does that mean that the overall demand will just naturally drop or <unk>.
Your your under your understanding is that they will they'll get reconfigured to to meet the standard.
Let me translate.
Isn't that different shape before.
I'll turn the tool so not the central sure sure sure sure my sons, and excluding the CHMP will push us all the different things that you go to the <unk>.
Clarksons your shoes Indra that's true one firm will have you pulled in this year.
As usual I'm your topic I'm going to actually come up with this own loose you, though Philadelphia, so you're talking about you're going to quit on his yeah Neil.
Shifting to the bladder cancer Institute.
The national standard off the national numbers to extend or if not implemented in all areas of China. There's still a we expect about 70% of the Hollywood.
Okay. That's helpful. Thank you so much and then I'm just if I look at the number of.
Of auto shows you put on that was it was quite impressive that the growth rate.
Year over year, but it looks like for each.
For each auto show I'm guessing, you're making less money is that a function of that you're moving into smaller cities or that there's less boots that are being taken up or how should we think about that.
The growth rate in auto shows and then kind of the revenue that you'll make per auto shows.
Yes.
[laughter].
Sure So just.
Okay.
<unk> <unk> <unk> <unk>.
Uh huh.
The two factors you mention a actually a pop up the reason, but the main the most I already tight reason is that our marketing our industry cost him. His marketing budgets are greatly reduced due to current market conditions.
Yeah, well deal with it.
And I guess I should.
The secondary can that the secondary reason for the unparalleled growth in our revenue per hour auto show growth is that we actually turned into as you mentioned actually turned into smaller cities, where there will be last brands unless boot.
And thus lower revenue per auto show that was your question.
Oh, yes, thank you and then for.
For virtual dealerships could you perhaps.
Is there any metrics of the number of virtual dealers that you've done and how that compares and how you think about how that can potentially grow going forward.
[noise] Oh, let me translate from a balance sheet.
And Oh.
Oh, you mean, we'll make a decision yet you that you should have a share a year ago she joined us.
Yes single a woman Oh gosh again that you are attempting to put on to get us and just your whole woman's argued the more seeking the lucky Ted Kennedy go.
Sessenge onto where you go to Washington <unk>.
Oh no.
Let me translate.
Oh, we have launched our auto dealership business in various cities across China, but actually we are more focused on the exploration and exploration of the product for him and business model for now.
So and we successfully launched a whole new groundbreaking flagship store of our virtual dealership at the end of the second quarter.
Oh, hi, good seeing them wanting that she didn't Ah lisanti your troubled each thinking you are thinking about how much time rental did all their time does slow down a chunk. We youre should go put on that she doesn't matter that will either renting.
Are these flagship store covers an area of over a 1000 square meters with independent showcases for 10 different auto brands, which will bring the traditional limits of single brand for F dealership Thor.
Oh, Taiwan trenches, how this will require the just on Monday other glennie Pitarrilla Woman's you two grandchildren and deferrals of argument Glenn as you know.
Yes, sure jealousy arms shovels you don't just on the phone lines International go to Nicole I know you guys are also showing increases in costs. All you that in England shuttles she'll go to <unk>.
Oh, It also fully digitalized equipping with our AI based in store traffic management system, but again with Cook other with our social CRM system, which is a part of our synergy from our acquisition of long Yeah cooperation in progress. This will allow us to go for it on a holiday getting as you call a sad when someone comes your whole woman down the Hooker furniture gives you two I'm not you heard the district.
We define this new business model as the new car Super more supermarkets.
Or the new car more we are seeing very promising programs for now in our flagship store model and will further expand the model into other said well locations once ready.
Does that answer your question.
Yes. Thank you so much and then maybe just following up on what you mentioned on long Island.
Can you fill us in in terms of is this at the point that that it hasn't closed and have the shares have been issued and then if they have been.
Maybe related to that in terms of the 20 million U.S. dollar buyback you've announced.
Can can you say like how much of that has been utilized.
Oh sure I, let me answer your question.
Even though there are still uncertainties. It was a regulatory requirement we expect to close.
The acquisition of long year or by the end of Q3. So right now we have an outage a consolidated a long year yet.
Regarding that plenty of meeting our buyback program you know it seems that the board approval. So we have a unique created the Bakken buyback activities from the open market you will definitely expect to see the results from a Q3 financials right now we cannot disclose more than that.
Okay. Thank you and then maybe my last one and then I'll get back in the queue is last quarter you talked about a partnership you were going to be entering in with the easy home, which I think had around two 200 potential locations.
Could you maybe provide an update of where that stands.
[noise].
[noise] Oh, Lisa let me try it sounds as though the second tranche of data here, so if I'm going to change.
Well no Mckenzie our concern throughout going seen gosh, if we know some either.
Actually our cooperation with its home is progressing very smoothly for now.
Ah Tomo solution, we're trying to avoid it and you that's was or how should a 300 out once you've obviously charge on the on the older sort of for them.
We already have 42 other shows in 40 cities without revenue caused since our cooperation announced in late April .
Well the Dunkin' has 500, yet to them not to answer the second one then number at all the time. She does somebody goes out on somehow she she's going to address Cushing yards on the go with younger company ownership.
We'll further bring out auto show too easy homes over 300 home furnishing mode in 200 cities across China, and improve the consumer experience and cost efficiency out of our future auto shows and Richard that was thank you Vincent Laura can you. Please tell us a bit more on like the color of the background and also developing new COO Mr. Yang I'm like he's extra keys and also how is he going to help the company to grow in the long run.
Thank you Laura let me translate the question first I'm just trying to show 'em dish on kept when you get into laser based imaging.
You got that.
Oh, so as you know if at all really playing a new good launch I would underline first of all first of all were warmly welcome Mr. equate them to John I'll touch a family.
So of course, you Shibani and even Nikolay LPG is that fully along you to draw yet shouldn't do one.
Joe you think that it's actually are you talking about using social issues on the unfunded of uneven Mr. Yen has over 18 years of experience in China automotive industry, a heat exercise in the management of product a product development operation.
Sales and marketing.
Oh I hear from Tucker Trajenta, you should you time literally each widget equal foundation them okay.
Oh Thats your joint venture 10, Nick and I have had that on don't want them Dendreon went on them. So chiller at one end a chunky of a somewhat managing it.
Before launching his career in the automotive industry is taking and also how far that I'm deep position in several Chinese internet companies, including Onboarding costs fleets onto the CEO Fiona you know junk food.
A woman looking that yeah sure you'll go to yen I highlighted when you bought 12 onto our dropping for the time being involved she's going to want to leave you with young Windoor you shall go sell sort of 400.
As our new COO of the company Mr. Graham will oversee the development of our omni channel marketplace as well as the ongoing optimization of user experience.
In addition, he will lead the company is the synergy of this acquisition.
Let me translate for and you don't want to go.
They don't forget Jatin budget singled that out as it was sorry.
Well and cement controller nigam were jumping or other things single.
As we mentioned in previous remark the acquisition is still ongoing.
Fully any dealings in the south goes on that will suddenly it's hard to know.
Well for the coming through to you, but absolute entre to the utilities you feel you to put on so first of all it is underway that avago get other counties out there if I could on showing a loan yeah, a leading SaaS provider in auto industry. We believe it's the reach product lines are not only efficiently combination and in which the existing business longer uptime true, but also provide great strategic value and synergy for the future development.
[noise] Susanna Niccolo year, that's how the <unk> she didn't jumping through the water cooled once you Glenn as you know.
Separately on Korea country don't seem to understand that a coating Jeff why don't you go back on the Oh, George and also for the you'd have to fool not identified several other Sunday.
And then go occasion for our co to argue that Ocean. Yes, you can leave you with other social or you know why don't you.
Our first are the color one if you don't do selectively Colo.
That's it I can do that you called out you know the autumn Guinea opinion only took us at home. She on Pitarrilla fusion launch in the <unk> should be I got to say, how he is intending to do it with a young with Ah Onez, Australia, a kick us off so he did a Hollywood bunnies.
In addition, as we mentioned in previous remark media also recently developed an eight iron digital store solutions that maximize auto dealers installments of hesitation capabilities.
This that this system, if you don't meet their marketing campaigns and improved access capabilities and eventually bought it.
Our industrial customer base and enhance uses techniques.
Lumina well my happy about Jim has hit home you warm and fuzzy 13 yards on tremendous gene. Let me just say on costs I'll do the interim loan pool.
On the other hats off the thing that she will also implement their social CRM and as system or the operation and management for our own virtual dealership flagship stores and a chip efficient remote control and management does that answer your question Laura.
[noise] Oh, yes, that's right yeah. Thank you.
Thank you we have a question from adamantly of Maxim Group. Please go ahead.
Oh, Yes, I had two follow ups the first was.
Your sales and marketing expense in the second quarter of 19.
Increased HM.
To 217.5 million RMB, but but tell me if it's correct that.
That this this had an unusual amount of stock based comp.
And so if I took a more normalized amount of stock based comp that would be more of a reasonable run rate going forward. Thank you.
Alan This is Troy, let me take your question Oh, Yes, you you noted there is a significant increase in their Q2 in terms of share based compensation expense for sales and marketing personnel Oh, we even though we cannot make it guarantees and we were able to treat a onetime event Ah. So we do expect at a similar pattern will be maintained going forward.
That's great. Thank you so much and then my last question. This is really not a fair question I apologize, but I didn't if you.
Yes, but but I'm going to do it anyway [laughter] if.
If you did not see the regulatory change or impact on the results. During this quarter, even given the tough macro environment. You're in do you think that you would have hit your guidance for Twoq Q1 9.
Let me translate the question first.
Oh, good warm analytical shovels on what isn't until he was sort of like a woman yesterday attitude I couldn't handle the guidance.
And just to give them judicial someone's usually use only true true so that seem to Colo Colo with Oh. He he goods are to do just what your whole. It today you sound you should you should hold us say, Cuba, we don't need yes.
So you really do the dishes, but without a lock and with or without a home when you de <unk>.
Sure sure sure.
Yeah sure sure sure Jared image in in meeting our guidance.
Okay. Thank you so much.
Thank you.
Thank you once again for those who wish to ask a question. Please press star one on your telephone and waste we need to be announced.
[noise].
No question at this time I would now like to have the confidence back to the management. Please go ahead.
Okay. Thank you for drilling on todays call and.
Looking forward to see you next quarter. Thank you.
Thank you, ladies and gentlemen that doesn't do they cost with sports a day and thank you for participating.
Human Oh, that's good.