Cango Inc.

Q1 2021 Earnings Conference Call

6/1/2021

spk00: Good morning and good evening, everyone. Welcome to Cango Incorporated's first quarter 2021 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. Joining us today are Mr. Jiayuan Lin, Chief Executive Officer, and Mr. Yongyi Zhang, Chief Financial Officer of the company. Following management's prepared remarks, we will conduct the Q&A session. Before we begin, I refer you to the safe harbour statement in the company's earnings release, which also applies to the conference call today, as management will make forward-looking statements. With that said, I am now turning the call over to Mr. Jiayuan Lin, CEO of Kango. Please go ahead, sir.
spk05: Hello, everyone, and welcome to CanGo's 2021 First Quarter on Earnings Call.
spk02: China's gradual economic recovery and various targeted stimulus policies are set to more widely revive auto consumption across the country in 2021. As a result, auto sales surge and consumer spending continue to gain momentum in the first quarter of 2021. On the other hand, we also noted that the pressure on the supply side caused by auto parts shortage has increased significantly. and will likely bring uncertainties in the overall pace of the industry's recovery.
spk05: At Kenco, we made steady progress across our business lines in the first quarter as total revenues grew to 1.1 billion RMB, surpassing the high end of our previous guidance range by approximately 7%.
spk02: Operating income sustained its growth moment in the quarter and came in at 160 million RMB compared to a loss from operations of 81.3 million RMB in the same period of 2020. Net loss for the quarter was 274 million RMB, primarily attributable to an investment loss of 447 million RMB in Li Auto.
spk05: Since we first launched, Tango has devoted itself to building a reliable, efficient, and exceptional automotive transaction services platform.
spk02: Those core values and aspirations remain just as important to us today as we aim to provide consumers with creative products and the best customer service experience. while also propelling China's automotive industry forward by connecting dealers, financial institutions, OEMs, and other industry resources. We remain firmly committed to our long-term vision and have continued to steadily advance our business development plans during the quarter, further deepening our roots across our three main business lines, car trading, transactions, aftermarket services facilitation, and automotive financing facilitation, and form a closed loop with our services. As a result, we are revolutionizing the relationships among different parties along the auto value chain while also empowering and creating value for all of them.
spk05: Let me expand. First, I would like to start with our car trading transactions business. As Cango's main gross driver, car trading transactions generate its revenues of
spk02: 572 million RMB in the first quarter, accounting for approximately 50.9% of total revenues. Bridging supply and demand in the auto market and relying on our technology-driven online platform and extensive dealership network in the lower tier markets, we have formed close partnerships with various traditional car manufacturers and new energy vehicle makers. Building on its foundation, We have integrated all the participants along the car trading transaction chain to jointly explore innovative channel strategies in the lower-tier markets.
spk05: In April, CanGo entered a strategic agreement with Zhengzhou Nissan to jointly develop a new retail model for automotive transactions in China's lower-tier markets.
spk02: Under the terms of the agreement, both parties will collaborate and innovate in areas of automotive sales and marketing in lower-tier markets through the development of a new automotive retail model. Additionally, Kengo will also provide auto financial products and services to all customers of Zhengzhou Nissan's certified secondary dealer stores. Meanwhile, we are currently in negotiations for potential collaborations with various other OEMs.
spk05: In the first quarter, we will continue to invest in the basic capabilities of car trading and service. First of all, Canggu built its own customer channels and private traffic economy model, which will be expanded nationwide. As of the end of the first quarter, it has been promoted to 10 provinces. Currently, our registered economy has more than 10,000 people, and it is equipped with 456 branch retailers. Traditional retailers and channels are constantly expanding their economy network. We will continue to improve the logistics layout of the warehouse, until the end of the first quarter, to build 101 front warehouses in collaboration. The total capacity is nearly 3.3 million cars, covering 79 cities across the country, accelerating our distribution network layout in the lower market.
spk02: During the first quarter, we also continued enhancing our service capabilities related to car trading transactions. First, our independent sales reps currently cover more than 10 provinces and bringing private traffic flow that targets more segmented customer groups. At the end of the first quarter, we had more than 10,000 independent sales reps and 456 sub-dealers. The continuous expansion of our traditional dealership network plus the private traffic generated by our independent sales reps helps us effectively reach our customers and offer more quality products and services in the lower-tier markets. In addition, we continue to improve the layout of our warehousing and logistics. By the end of first quarter, we have co-developed 101 warehouses with a total capacity of approximately 33,000 parking spaces and covering 79 cities across the country, boosting the expansion of our distribution network in the lower-tier markets. 车是由增量切换存量
spk05: The car market and service industry are constantly growing in the value chain of car traffic. It relies on nearly 50,000 car sales networks nationwide and more than 1.8 million car customers. Car market service is also an important part of the entire business map of the carbon car trading service platform. In the first quarter, the car market business, which is mainly based on insurance, continues to make significant contributions to the company's revenue. The current total income of RMB 6,253 million. This quarter, we will continue to optimize the organizational structure and internal operating system of the insurance sales team, significantly improving energy production. At the same time, our cooperation with new energy car manufacturing companies is also further deepening. Through the introduction of car insurance products and services to the car service app of new energy manufacturers, we will assist customers in providing better insurance products and services. As China's auto market enters a new phase of development after years of high-speed growth, it transitions from meeting the needs of first-time purchasers to the replacement and upgrade needs, further boosting the growth potential of aftermarket services.
spk02: Relying on a network of nearly 50,000 registered dealers nationwide and more than 1.8 million automotive financing customers, aftermarket services facilitation is now an integral part of our auto construction services platform. In Q1, aftermarket services facilitation revenues were 62.5 million RMB. We continue to optimize the organizational structure and operating mechanisms of our direct sales team during the quarter, achieving a significant increase in per capita productivity. We are also simultaneously deepening our cooperation with NEV manufacturers by embedding auto insurance products and services into their mobile apps to help them better provide insurance products and services to their customers and improve overall efficiency. We are also exploring aftermarket services deeply to discover more opportunities and create a brand new industrial ecology of people, auto, and life. Finally, our automotive financing facilitation business grew steadily in this quarter. We facilitated 10.4 billion RMB financing transactions up 134% year-on-year. Our automotive financing facilitation revenues were 412 million RMB up 243% year-on-year. As of March 31st, the total outstanding balance of financing transactions facilitated by the company reached 47.5 billion RMB.
spk05: In terms of asset quality, as of March 31, 2021, the company's M1 and M3 car loans have increased by 1.23% and 0.54%. For the problem of increased expectation, we will further increase the strength of the scene and channel wind control, and combine feature identification engine and improvement of model and other digital methods to achieve the effect of difference wind control.
spk02: Turn into asset quality, as of March 31st, the M1 plus and M3 plus overdue ratio increased to 1.23% and 0.54% respectively. To address rising overdue ratio, we continue to strengthen on-site and channel risk controls, along with additional digital measures such as feature recognition engines and model improvements. to deliver differentiated risk controls. At the same time, we have assembled a dedicated team to improve the efficiency of post-sum collection.
spk05: In terms of dealership networking,
spk02: We continue to work on improving our network efficiency, and as a result, we have terminated relationships with dealers that do not meet our standards for client service, traffic quality, and traffic generation capabilities. By the end of first quarter, we had 47,017 registered dealers. Meanwhile, we have expanded into the higher-end segment with innovative product offerings. As of March 31st, we have covered more than 9,000 forest dealers of approximately 40 high-end OEMs including Mercedes-Benz and BMW and established partnerships with several leading dealer groups in China.
spk05: Smart and new energy vehicles featured recently held 2021 Shanghai International Auto Exhibition.
spk02: With the government-supported policies, China has become the world's largest manufacturer and market for NEVs several years in a row and accounts for over 50% of the total number of NEVs in the world. Kengo has always been optimistic about the huge potential in this market and actively cooperates with leading NEV makers in China, aiming to leverage each other's advantages to explore new distribution channels in the lower-tier markets. 展望未来受供应链影响
spk05: We will pay close attention to and actively respond, and adjust the business model in accordance with the trend of change in the industry through innovative products, and steadily move towards a fixed strategic goal.
spk02: Looking ahead, we see the impact of international supply chain uncertainty lingering. The chip shortage in the automotive industry will likely persist for a long time. This is expected to have an impact on our overall business. Concurrently, domestic financial supply and regulatory environment are also undergoing profound changes. We will closely watch and actively respond to the situation as it develops. proactively step up efforts to cope with any form of uncertainty and keep pace with the changing industry trends through continuous product innovations, which plays us on a step-by-step pace to achieve our established strategic goals.
spk05: With that, I will now turn the call over to our CFO, Michael Zhang, to review our financial performance in more detail.
spk03: Thanks, Jiayuan. Hello, everyone, and welcome to our first quarter 2021 earnings call. Before I started to review our financials, please note that unless otherwise stated, all numbers are in IMB terms and all percentage comparisons are on a year-over-year basis. We are excited about our solid start to the year as first quarter revenues surged 357% year-over-year to reach a new record higher of $1.1 billion. once again exceeding our guidance range. Our card trading transactions business continued to perform well and served as a crucial growth driver, with revenue contribution climbing to more than 50% of total revenue at $571.6 million. Revenues from auto financing facilitation and off-market services facilitation were also robust at $411.7 billion and $62 respectively in the first quarter. Now let's move on to our costs and expenses during the quarter. Total operating costs and expenses in the first quarter of 2021 were $964.2 million compared to $327.3 million in the same period of 2020. The increase was mainly due to the related costs incurred by our car trading transaction business. Primarily as a result of increasing revenues from our card trading transactions, sales and marketing expenses, general and administrative expenses, and research and development expenses each decreased as a percentage of total revenue in the first quarter of 2021 compared to the same period last year. Cost of revenue in the first quarter of 2021 increased to $769 million from $90.6 million in the same period 2020. As a percentage of total revenue, cost of revenue in the first quarter was 68.4% compared to 36.8% in the same period, 2020. And the change was primarily due to an increase in the amount of card trading transactions. For automotive financing facilitation and off-market services facilitation, cost of revenue as a percentage of relevant revenues was around 35.6% in the first quarter, 2021. Sales and marketing expenses in the first quarter of 2021 were $57.8 million compared to $45.8 million in the same period, 2020. As a percentage of the total revenue, sales and marketing expenses in the first quarter of 2021 was 5.1% compared to 18.6% in the same period, 2020. General and administrative expenses in the first quarter of 2021 61.4 million compared to 57.4 million in the same period of 2020. As a percentage of total revenue, general and administrative expenses in the first quarter of 2021 was 5.5 percent compared to 23.3 percent in the same period of 2020. Research and development expenses in the first quarter of 2021 were 13.6 million compared to 12.6 million in the same period 2020. As a percentage of total revenues, research and development expenses in the first quarter of 2021 was 1.2 percent compared to 5.1 percent in the same period 2020. Net loss on risk assurance liability in the first quarter of 2021 was 21.7 million compared to a net loss of 76.9 million in the same period 2020. Net loss on risk assurance liability in the first quarter of 2021 was mainly due to an uptick in delinquent loan balance and default rate since the beginning of 2021. We recorded income from operations of $159.5 million in the first quarter of 2021 compared to a loss from operations of $81.3 million in the same period of last year. Due to the fair value change of the company's investment in Li Auto, we recorded net loss of $273.9 million in the first quarter of 2021. Non-gas adjusted net loss in the first quarter of 2021 was $254 million. On a per share basis, diluted net loss per ADS in the first quarter of 2021 was 1.84 and diluted non-GAAP adjusting net loss per ADS in the same period was 1.7. Moving on to our balance sheet, as of March 31st, 2021, we had cash and cash equivalents of 1.6 billion compared to 1.4 billion as of December 31st, 2020. As of March 31st, 2021, the company had short-term investment of $2.6 billion compared to $4.3 billion as of December 31, 2020. The decrease was mainly due to the partial disposal and the change in fair value change of the company's investment in Li Auto. Looking ahead to the second quarter of 2021, we expect our total revenues to be between $900 million and $950 million. Please note that this forecast reflects our current and preliminary views on market and operational conditions, which are subject to change. This concludes our prepared remarks. Operator, we are now ready to take questions. Thank you.
spk00: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Your first question comes from Shelly Wong with Morgan Stanley. Please go ahead.
spk01: Hello, I'm Sherry from Morgan Stanley. I have two questions to ask. The first one is to ask about the demand for cars in the second half of the year. Because this will affect our main car industry, especially in the low-end cities. What is the demand for cars? Then the second is, I would like to ask, when we are working with new car manufacturers to make new cars, and then insurance products, because my understanding is that they may be in the direct sales mode, which is not the same as traditional insurers. Then when we cooperate with them to make these car insurance, what is the difference between the cooperation mode and traditional car companies? Just these two questions, thank you. Okay, I want to ask first.
spk03: Okay.
spk02: I'm Shirley Wang from Morgan Stanley. I have two questions. The first question is, what is your outlook for the demand in the second half of 2021? And in particular, it has something to do with your business of auto loan facilitation. So that's why I asked this question. Also, in particular, I would like to know about your outlook for the demand in the lower tier cities. And the second question is about your partnership and collaboration with new energy vehicle manufacturers. We understand that actually these manufacturers usually adopt a direct sales model. So in your collaboration with these NEV makers, based on your observation, how is their model different from traditional car manufacturers? I mean, how is your collaboration with them different from your collaboration with traditional car manufacturers? 我们也确实感知到国产自主品牌以及下层市场的压力会比较大。 So to answer your first question, so far we see demand in the auto market remains strong, but we have concerns about the supply side. We think that the pressure of insufficient supply will likely persist for some time to come. And also, there is this issue of the chip shortage, and with think that the needs of high-end brands and forest stores in megacities will be prioritized. So we expect the domestic auto brands and lower-tier markets to face more pressure in the second half of this year.
spk05: Our car insurance service is involved in the car owner platform.
spk02: To answer your second question, with traditional auto manufacturers, we expand our automated financing facilitation business through our nationwide dealership network. So this is mostly an offline collaboration. But in terms of collaboration with any female manufacturers, it is an online-based model. Because the NEV manufacturers, they adopt direct selling model, and they have their own showrooms. And also, they have a very simple and easy process that enables customers to complete test driving and vehicle ordering online. So we are currently deepening our cooperation with NEV manufacturers by embedding auto insurance products and services into their mobile apps, for example, to help them better provide insurance products and services to their customers. And this kind of collaboration model not only improves overall efficiency, but also conforms to our partners' business models. So under the direct selling model, our automotive financing facilitation service is embedded into the car owner's platform, and this helps boost our shares. Thank you.
spk00: Your next question comes from Derek Zhu with Goldman Sachs. Please go ahead.
spk04: Hello, I'm Derek from Goldman Sachs. I have two short questions. The first one is about our car transaction service. I want to know about our margin, which is what our import price and export price are like, and our outlook for 2021. The second one is about our car market service. 就是我们现在是否有任何去扩展我们这个服务品类的计划, 就比如说跟维修厂有更多的合作。 我来翻译一下吧。 This is Derek from Goldman. I have two short questions. First, it's about the card trading business. I would like to understand more about the margin. Generally speaking, how much is the cost of the purchasing cards and how much is the ASP? And what is the guidance for 2021? And the second question is about the aftermarket services. Do you have any plan of expanding the services besides the insurance sales, such as collaboration with repairing stores?
spk03: 谢谢Derek 关于第一个问题,车交易 关于进货和出货价格,不同的车型以及不同的区域 定价策略都是不一样的 取决于公司的业务团队调研和专业的判断
spk05: Thank you, Derek. To answer your first question, we have different pricing strategies across car models and regions for our car trading transaction business. It really depends on the results of our research and also the
spk02: judgment of our team. For us, it is more important to empower dealers by getting low prices from OEMs and sharing more profits with dealers to improve their trading capacity. And for the casualty trading transaction business gross margin in the first quarter, it has improved up to about 1.3% in Q1 this year. and we expect the chip shortage in the auto industry to continue, and this will definitely have an impact on our car trading transaction business. But at the same time, we are pushing ahead our partnerships with various OEMs. So if all goes well, then the annual trading volume is expected to reach 45,000 units. 第二个问题,关于我们的保险和汽车后市场服务业务,
spk05: We are still focusing on insurance products, but we are also trying to extend service to car owners and maintenance and maintenance services. At this stage, we have not started yet. From this year on, we have already developed four car repair services in some areas. With the accumulation of our traffic, we will integrate resources, standardize and standardize the management and service of repair shops, select high-quality partners, gradually develop car accessories, car beauty, maintenance, and price.
spk02: And for your second question, our service range in the aftermarket business, while the focus of our aftermarket service facilitation remains on insurance products for now, while we are also trying to expand to information referral and maintenance services. However, so far, it is still in the early stage of development. Since the start of this year, We have introduced pilot vehicle delivery and repair services in some regions. As we develop more business, as we expand our market in the future, we will integrate resources and try to standardize the management and service of our partner workshops. Of course, we will invest more in selecting the right partners and gradually develop auto component services as well as auto care service and also like definitely driving business so overall speaking we plan to cover a lot of services facilitation business that's all for me thank you
spk00: We have no further questions at this time. I will hand the call back to management for closing remarks.
spk05: Thank you. The conference has now concluded. Thank you for attending today's presentation.
spk02: You may now disconnect.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-