Cango Inc.

Good morning and good evening, everyone. Welcome to Kengo Inc's fourth quarter and four-year 2022 earnings conference call. At this time, all participants are in a listener-only mode. This call is also being broadcast live on the company's IR website. Joining us today are Mr. Jiaoyuan Lin, Chief Executive Officer, and Mr. Michael Zhang, Chief Financial Officer of the company. Following management's prepared remarks, we will conduct the Q&A sessions. Before we begin, I refer you to the safe harbor statement in the company's earnings release, which also applies to the conference call today, as management will be making forward-looking statements. With that said, I am now turning the call over to Mr. G.I.U.N. Lin, CEO of Tender. Please go ahead, sir.

Hi everyone and welcome to CanGo's 4th quarter and 4th year 2022 earnings call. In the face of the challenges caused by the complex and severe external environment, Canggu is moving steadily along a new strategic path to show a stronger business flexibility.

In 2022 was a challenging year. Multiple headwinds, including COVID pandemic, supply chain disruptions and chip shortages, continue to create significant uncertainties in the auto industry. In addition, political and economic turmoil worldwide have profoundly impacted all aspects of society, including China's auto industry. Despite its complex and challenging external environment, Kengo has steadily progressed along its new strategic roadmap, demonstrating strong resilience.

2022 is the year of the actual transformation and upgrade of Canggu. In terms of new car transactions, the Canggu Good Car Small Procedure was launched last year. In June, the Canggu Good Car App was launched. In October, the series of standardized service products was gradually launched. Through multi-system, all-in-one platforms, we provide car dealers with a comprehensive solution of one-stop car transactions as the core. In terms of second-hand vehicles, in May, the Cangguo U-Car small program will be launched. At the end of the year, the Cangguo U-Car APP will be formed, covering the functions such as driver, patrol car, market price, transaction support service, and digitalized service, to meet the various business needs of second-hand car manufacturers.

CanGo underwent significant transformations in 2022. For the new car trading transactions business, we launched our CanGo HaoChe app in June following the successful debut of the CanGo HaoChe mini program in 2021. We gradually integrated an array of standardized service products into the multi-system all-in-one platform in October, providing dealers with one-stop comprehensive car trading solutions centering on car sources. For the used car trading transactions business, we launched our CanGo U-Car mini program in May and developed our CanGo U-Car app at the end of 2022. CanGo U-Car app encompasses functions such as vehicle sourcing, online car research, online auctions, transaction support services, and other digital services to meet the diverse needs of used car dealers.

Since then, our new car plus second-hand car's dual-platform, dual-circle pattern has been basically established. Market feedback on the needs of car manufacturers has also been constantly verifying the rationality of long-term transformation of trading platforms. Platform value is initially displayed through one-stop service. In the fourth quarter of 2022, the company achieved a total income of RMB 4.9 billion, which increased by 17%. Among them, the total revenue of the car trade service business was RMB 4.3 billion, which exceeded 88%, which increased by 24.2%. In 2022, the company achieved a total income of RMB 19.8 billion, which increased by 24.2%.

As a result, our automotive transaction service platform covering both the new car and used car markets has been largely established. Strong market feedback and dealer demand testifies to the validity of our transformation into a transaction service platform with one-stop service proposition. Total revenues in the fourth quarter of 2022 were 490 million RMB, up 17% quarter over quarter. Revenue from card trading transactions was 430 million RMB, up 24.2% quarter over quarter, accounting for over 88% of total revenues. The whole year total revenues were 1.98 billion RMB, of which revenue from car trading transactions was 1.6 billion RMB, accounting for over 80%.

In the current business development stage, car financial services are no longer our business focus, but it is the starting point of the journey, and it is also a strong support for our transformation of the car trading service platform. As we upgrade the optimization of the automotive finance service business, the quality of assets is constantly improving, and the overall asset balance of the company is good. As of the end of December 2022, we will reduce the balance from 46.7 billion yuan at the end of 2021 to 25.6 billion yuan. It is expected that the scale will be further reduced in 2023. We will continue to reduce the risk of long-term health asset status and strong cash fees, not only to ensure our stable business, but also to make full efforts to transform into a car trading service platform, and to make us confident to grasp the new opportunities of the post-pandemic era and achieve long-term stable high-performance development.

Currently, automotive financing facilitation is not our primary focus, but it was our launchpad and continues to strongly support our transformation into an automotive transaction service platform. By optimizing our automotive financing facilitation business, we have continuously improved the quality of assets, resulting in a healthy balance sheet. The total outstanding balance of financing transactions we facilitated decreased from $46.7 billion as of December 31, 2021 to $25.6 billion as of December 31, 2022, with balance number to decrease further over 2023. In addition to ensuring our stable operation, the ever-decreasing risk exposure, healthy assets, and strong cash reserves give us the confidence to fully embrace our transformation and grasp new opportunities in the post-pandemic world.

下面我将具体谈一谈我们的一些业务进展情况。 Now I would like to take you through more details of our business development. In the fourth quarter, there were 3,938 sales cars, with a growth of 11.8%. The platform has accumulated 16,490 sales cars throughout the year, with a total sales rate of 2.1% throughout the year, which is basically equal to the level of the industry. In 2022, the total PV of Canggu Good Car App broke 660,000, with a total UV of more than 57,000.

Now, let's begin with the new car trading transactions business. As of December 31, 2022, Kangoo Hotel has engaged 10,112 dealers, up 58% year-on-year. During the fourth quarter, we sold a total of 3,938 cars, up 11.8% from the previous quarter. For the full year 2022, we sold a total of 16,490 cars, Conversion rate was 2.1% on par with the industry. Also, during the full year 2022, accumulated page views and unique visitors on CanGo HowTo app were over 660,000 and 57,000 respectively.

In terms of self-driving business, we have reached cooperation with multi-family airports and drivers, broadening the range and quantity of old self-driving vehicles. In the fourth quarter, we have also established deep cooperation with Guangqi Shandong, Dongfeng Group, Yixi Dazhong, and Yixi Audi. On the other hand, the sales team continues to rely on the characteristics of the regional markets to do multidirectional exploration in vehicle backpacks and sales models, and to increase the number of channels and annuality steadily.

For our self-owned new cars, we have established cooperation with various OEMs and car suppliers, expanding our vehicle sources while also diversifying by brand and model. Specifically, we forged deep collaborations with GAC Mitsubishi, Dunford Motor Group, FAW Volkswagen, and FAW Audi in the fourth quarter. Furthermore, our sales teams continue to develop vehicle sources and sales models based on the characteristics of each regional market, prompting a steady increase in the number and stickiness of channels. With respect to our transaction facilitation services, we have largely completed CanGo How-To's service product metrics with the addition of several upgraded intelligent tools and products during the fourth quarter, further improving facilitation efficiency and dealer experience. Dealers can now easily access a wide range of transactions supporting services on the platform, including customer leads generation, logistics, financial services, and insurance services, among others. All of our platform service products are gaining traction and have made good progress by the end of the year.

At the same time, through the creation of advantageous C-end vehicles, storage vehicles, self-driving vehicles, one-to-one combination and other services, cultivate the platform usage habits of car manufacturers, and improve the platform consistency of car manufacturers. In the fourth quarter, we also established a professional inspection team across the country for car manufacturers and C-end customers to provide second-hand car, car volume detection, car volume overhaul, underpressure, and other temporary second-hand car trading and political services to further increase the turnover rate.

While enhancing our new car platform, we also continue to build our used car platform. Following the launch of our CanGo used car mini program in mid-2022, we focused on acquiring new users and increasing engagement. At the same time, by leveraging our advantages, such as abundant used car sources and one-on-one matching services, we groomed dealers' behavior on our platform and improved their platform's thickness. We have also established professional technician teams and car service teams across the country in the fourth quarter, providing dealers and customers with one-stop value-adding services including car billing, car inspection, and car loan transfers to further improve our matching conversion rate.

As of December 31, 2022, there will be more than 410,000 and 23,000 PVUVs. In January, we will officially launch the app, which covers the five main functions such as driver, patrol car, market price, transaction support service, and digitalization service. It will fully meet the needs of various businesses in the car industry and will continue to treat and optimize.

As of the end of 2022, there were 4,492 registered dealers on Kangaroo Car. We set a number of transactions on the platform to pick up over time. As of December 31, 2022, the accumulated page views and unique visitors on Kangaroo Car mini program were over 410,000 and 23,000 respectively. In January 2023, we officially launched Kangaroo Car's app. dealers evolving demand with five functional modules covering vehicle sourcing, car searching, online auctions, transaction support services, and other digital services. Moving forward, we will continue to improve Kangoo Ucar and its related products and services.

to support the standardization and standardization of the whole chain of services, to really promote the cross-region efficient circulation of second-hand cars across the country, to improve the second-hand car trading efficiency, and to improve the business profits of car manufacturers. Next, we will continue to invest in platform digitization construction, to build online trading systems, to connect online and offline, and to standardize offline services. On the one hand, the second-hand car is a non-standardized product, On the other hand, the standardization of second-hand car transactions is also a standardization of non-standard services. At the same time, we focus on car users. Through the channels and customers accumulated over the past 11 years, we will collect car users and further improve the connection between car companies and improve the activity of platform transactions.

Through KangarooCard's digital platform, we aim to form a broad and deep network for the used car segment, efficiently connecting used car sources, customers, and funds, supplemented by standardized support services spanning the entire transaction chain. With these advantages... CanGo can promote truly efficient cross-regional circulation of used cars across the country, streamline the used car transaction process, and increase dealers' operating profits. Going forward, we will continue to advance the platform's digitalization, creating a closed-loop transaction ecosystem integrating online and offline services. Through this ecosystem, we can move offline services online and further standardize them, endeavor to standardize the used car profits and services. Meanwhile, we will redouble our efforts to improve dealer stickiness and enhance their engagement on our platform, leveraging Tango's solid channel network and customer base developed over 10 years to provide them with premium car resources.

In the process of platform transformation, the digitalization of new infrastructure is the most important part. In 2022, we have also increased our research and development efforts, focusing on the overall construction of digitalized business capabilities, independently building a digitalized information and digitalization center, and forming a technology system that digitalizes, digitalizes, and intelligentizes the body, building and protecting the price of the platform. Currently, our new car and second-hand car trading platform system is out of shape. As the basic capabilities of each port continue to deteriorate, the performance and operation capabilities of platforms are greatly improving.

New digital infrastructure is an essential part of our transformation. In 2022, we continue to enhance our R&D efforts to holistically improve our digital business capabilities. By building a proprietary information and digital center that integrates information, digital, and intelligent technologies, Kengo has created a unique competitive advantage to propel the sustainable development of our automotive transaction service platform. Kengo's dual-platform framework has taken shape, and we expect to steadily increase our operation capacity and efficiency as we improve each function. Forging a new path through uncharted territory is never easy, and as we transform from a leading auto financing service provider to an integrated automotive transaction service platform, both the scope of our offerings and our business model have undergone a sea change. However, one thing never wavers, our determination to accompany small and medium-sized dealers in lower-tier markets on their journey to success and empower them to achieve their goals by providing them with the products and services they need. 公司成立之初,灿骨敏锐地捕捉到了面积广大,人口众多的下层市场巨大的消费潜力和供需失衡。

to build a network that covers 50,000 car dealers nationwide. And based on this, we have brought quality car financial services to consumers. Ten years of light, we have accompanied the small and medium-sized car manufacturers along the way. Many have grown into comprehensive car manufacturers with multiple service scenarios and multiple business needs. All the way, we continue to broaden the boundaries of business and work with car manufacturers to face the pain points of car users, customers, funds, and other aspects of business. When we established CanGo 12 years ago, we honed in on a huge consumption potential and imbalance between the supply and demand in the lower-tier markets.

Taking automotive financing facilitation services as our launchpad, Kengo gradually built a solid network covering nearly 50,000 dealers nationwide, and we have worked closely with our dealers to provide premium financing facilitation services to our customers ever since. A decade later, many of the small and medium dealers we partnered with have grown into larger and more diversified businesses. multiple services and diverse needs. We have been with them every step of the way, continuously pushing our business boundaries to offer effective solutions to address their unmet needs, as well as one-stop services to help our dealers lower their operating costs and refine their business efficiency. As always, our ultimate goal is to make car purchases easy, simple, and enjoyable.

The current global economy and the entire automotive industry are experiencing profound and lasting changes. Although 2023 is still full of uncertainties and potential challenges, our long-term development in the Chinese automotive industry and the opportunities brought by the post-pandemic era are full of expectations and confidence. Canggu will always be focused on our mission and vision. continue to build and improve the standardization of the automotive trading service platform, and collect our car company partners to work together to promote the recovery and development of the industry.

The macroeconomy and the overall auto industry are undergoing profound and lasting changes. Although we still see challenges ahead in 2023, we have high expectations for the future and great confidence in the long-term development of China's auto industry. Tango will continue to focus on our vision and mission while further improving our standardized automotive transaction service ecosystem. Together with our dealer partners, we remain dedicated to promoting the recovery and development of the overall industry. Next, I will turn the call over to Michael Zhang, our CFO, who will take you through the company's financial performance.

Thanks, Xiaoyu. Hello, everyone, and welcome to our fourth quarter and four-year 2022 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 on the year-over-year basis. Our fourth quarter performance once again illustrates the strength and the resilience of our strategy and business model. Fourth quarter total revenues were $487.1 million. Car trading transaction business delivered revenues of $431.1 million, continuing to play an essential role in our platform. Now let's move on to our cost and expenses during the quarter. Total operating cost and expenses in the fourth quarter of 2022 was $698.7 million compared with $1,207.6 million in the same period, 2021. Cost of revenue in the fourth quarter of 2022 decreased to $481.7 million from $880.7 million in the same period, 2021. As a percentage of total revenue, Cost of revenue in the first quarter of 2022 was 98.9%, compared with 83.8% in the same period, 2021. The change was primarily due to a higher contribution for our card trading transaction to total revenues. Card trading transaction normally presents higher cost revenue ratio, thus pushing up the overall ratio. Sales and marketing expenses in the fourth quarter of 2022 decreased to $19.2 million from $73.8 million in the same period, 2021. As a percentage of total revenues, sales and marketing expenses in the fourth quarter of 2022 was 4%, compared with 7% in the same period, 2021. General and administrative expenses in the fourth quarter of 2022 decreased to $66.2 million from $86.2 in the same period of 2021. As a percentage of total revenues, general and administrative expenses in the fourth quarter of 2022 was 13.6% compared with 8.2% in the same period of 2021. Research and development expenses in the fourth quarter of 2022 decreased to 8.4 million from 23.6 million in the same period of 2021. As a percentage of total revenues, research and development expenses in the fourth quarter of 2022 was 1.7%, compared with 2.2% in the same period, 2021. Net loss on risk assurance liability in the fourth quarter of 2022 was $62.8 million, compared with $84.6 million in the same period, 2021. We recorded loss from operations of $211.6 million in the first quarter of 2022 compared with $157 million in the same period, 2021. Net loss in the first quarter of 2022 was $558.9 million. Non-GAAP adjusted net loss in the first quarter of 2022 was $539.9 million. On a per share basis, Dilute net loss per ADS in the first quarter of 2022 was 4.13, and diluted non-GAAP adjusted net loss per ADS in the same period was 3.99. For the full year of 2022, our total net revenues were $2 billion. Total operating costs and expenses were $2.9 billion. Net loss was $1,111.2 million and non-GAAP adjusted net loss was $952.7 million. Diluted net loss per EDS was $8.11 and diluted non-GAAP adjusted net loss per EDS was $6.95. Moving on to our balance sheet, as of December 31st, 2022, we had cash and cash equivalents of $378.9 million compared with $745 million as of September 30, 2022. As of December 31, 2022, the company had short-term investment of $1.9 billion, compared with $2.7 billion as of September 30, 2022. Looking ahead to the first quarter of 2023, we're now predicting our total revenues to be between $515 million and $500 million. Please note that this forecast reflects our current preliminary view on the market and operational conditions, which are subject to change. This concludes our prepared remarks. Operator, we are now ready to take questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you are on a speakerphone, please pick up the handset to ask your questions. Your first question comes from Shelley Wang from Morgan Stanley. Please go ahead.

Hello, everyone. I'm Sherry from Morgan Stanley. I have two questions for the management. The first question is that we see that the company is optimizing the business of car financial services. We see that some of our risk assets are also... The second question is that we also see that the company has made very good progress on this trading platform. I would like to ask the management level, for example, in this Thank you, Guanyin.

Thank you. Good morning. I have two questions. The first question is, as Kengo has optimized its automotive financing facilitation business, we have also observed a significant decrease in the company's risky assets. So how does this positively impact the company's transformation? And the second question is that based on the data disclosed by Kenco, appears that the company has made substantial progress in transformation towards a car trading transaction service platform. So what are your advantages compared with your industry peers like other platforms? And also, what are your advantages compared with dealers in this industry?

Thank you, Shirley. Let me answer your two questions. Regarding the first question, in the past, when we did residential business, the amount of assets produced would bring huge cash flow pressure to the company, and even directly affect the company's operating order. So we actively retracted residential business.

I will take your two questions. Thank you, Shelley, for your two questions. To answer your first question, our automotive financing facilitation business generated assets on a larger scale that significantly affected the company's cash flow and could even direct the impact on our viability.

Since the end of December 2022, we have reduced the amount from 46.7 billion to 25.6 billion from the end of 2021. It is expected that the size will be further reduced in 2023. We will invest more cash flow into the purchase of self-driving vehicles.

The total outstanding balance of financing transactions we facilitated decreased from $46.7 billion as of December 31, 2021 to $25.6 billion as of December 31, 2022, with balance number to decrease further over 2023. And we plan to invest the freed-up cash flow in our expansion of self-owned vehicle inventory.

Regarding the second question, currently, our new second-hand car platform has been redesigned and some trading data has been generated. This has verified the business logic of our entire trading platform transformation, which also shows that we can do it from the business side and that there are processes that can be maintained. After the business model runs through, our next step is to complete the scale operation of the entire business model to increase profitability.

On your second question, currently both our new car and used car platforms have taken shape and are generating transactions with a lot of data for us to refer to. In addition to validating the logic behind our transformation, the data shows that we possess the capabilities and processes and capacity required to support our car trading transaction business. Once this new model... Fully running and smoothly, our next steps will be to holistically scale up the business operations and improve profitability.

Thank you. That's all from me.

Thank you. Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. Your next question comes from John Lin from Goldman Sachs. Please go ahead.

Thank you for giving me the opportunity to ask a question. My name is John Lin from Goldman Sachs. Thank you.

Thank you for giving me this opportunity to ask questions to the management. So I have two questions. The first question is, what is your outlook for China's auto market in 2023? And specifically, what is your outlook for your automotive transaction service platform in 2023? And the second question is, could you give us more colors on the development of the current used car business in detail? Thank you.

Thank you, John. Let me answer your two questions. One is about the first question. From the demand point of view, the consumer's consumption needs have been eliminated in the past three years of the epidemic. So we think that this part of the supply and demand will gradually be released. At the same time, it also depends on the degree of economic recovery and the support of policies.

Thank you, John. I will take your two questions. On the first question, on the demand side, three years of pandemic policies actually have created a backlog of consumer demand, and we believe this pent-up demand for car purchases will gradually be released. Of course, this is subject to the overall level of economic recovery and policy support.

From the supply side, many traditional car brands launched many new models at the beginning of the year, and new energy vehicles also reduced production costs due to the decrease in the supply price of lithium-ion batteries, and their vehicle procurement taxes will continue to be exempted.

On the supply side, traditional car brands launched many new models at the beginning of the year, and NEV, new energy vehicle production costs, have also decreased as lithium battery supply prices have fallen. Furthermore, NEVs will continue to enjoy an exemption from vehicle purchase taxes.

So compared to 2022, we think that the car market in 2023 will be a year of more frequent transactions.

so in 2023 we expect to see more auto market transactions compared with 2022. uh

By the end of 2022, there will be 4,492 registered car dealerships. By December 31, 2022, there will be more than 110,000 and 230,000 registered car dealerships. We expect that the transaction data of the second-hand car will gradually increase with the expansion of the platform.

On your second question on our used car business, we launched the CanGo Used Car app at the start of 2023, including an exceptional range of functions covering historical vehicle condition reports, vehicle evaluation, online auctions, online car searching, used car listing, and other digital services. As of the end of 2022, there were 4,492 registered users on Kangoo Youcar. As of December 31st, 2022, the accumulated page views and the unique visitors on Kangoo Youcar mini program were over 410,000 and 23,000 respectively. We expect a number of transactions on the platform to pick up over time.

At the same time, based on the historical business of Canggu, we have created an advantageous storage vehicle. C-DAN and self-driving cars, one-to-one service, training car manufacturers' platform usage habits, and increasing platform connectivity. In the fourth quarter, we also set up professional testers and trucking teams all over the country to provide testers and C-DAN customers with test vehicles, vehicle testing, vehicle over-pressure, and other one-stop ASO car service.

At the same time, by leveraging our advantages, such as abundant used car sources, to give you some examples, some of these used cars come from those sold by the consumers and also those repossessed cars. Of course, we also have our own cars. So by taking advantage of these abundant used car sources and one-on-one matching services, we have successfully groomed the dealers' platform usage behavior and improved their platform stickiness. We have also established professional technician teams and car service teams across the country in the fourth quarter, providing dealers and customers with one-stop value-adding services such as car viewing, car inspection, car loan transfers, etc., Thank you. That's my answer to these two questions.

Thank you.

Thank you. Thank you. Your next question comes from Brent Lee from Bamboo Works. Please go ahead.

Hello, this is Brent from Bamboo Works. I just have a question directly in Chinese. My question is that owning abandoned car sources is one of the company's strongest advantages. How will the company leverage and consolidate these advantages in the future?

Thank you, Li. Let me answer your question. First, I agree with your point of view that the number of new and second-hand cars is an important factor. So we do car trading in order to provide a more extreme service experience for car buyers and car dealers, and to provide more diverse car buyers with personalized needs for lower-end market customers. So we hope to use the advantage of the members to increase the connectivity with customers, so that customers are willing to choose other services on our platform.

Thank you, Lee, for your question. You are absolutely right that car sources is one of our strongest advantages in our new car and used car service platform. Our goal is to provide a better service experience to car buyers and car dealers through our car trading transaction business. With a more diversified vehicle supply, we can better meet the individual needs of in car sources to increase customer stickiness and encourage customers to use other services on our platform.

In terms of the new car, we will increase the cooperation of the main factory. We will work hard to develop and develop in this area. In the fourth quarter, we established a deep cooperation with Guangqi Sanlin, Dongfeng Group, Yiqi Dazhong and Yiqi Audi, and became a relatively important sales platform for the new Oland.

And so on the new car sources, well, we will step up our efforts to explore and develop further our collaborations and partnerships with OEMs. In the fourth quarter, we built deep collaborations with GAC, Mitsubishi, Dongfeng Motor, FAW Volkswagen, and FAW Audi. We also became the most important sales platform for GAC Mitsubishi's new Orlando model.

In terms of the second-hand car, based on our historical background, we are currently at an advantage in terms of the stock market. We will use this as a starting point to continuously broaden our second-hand car market.

On used car sources, well, historically, we have this advantage of having access to a lot of repossessed cars. So in the future, we will use this as a leverage to further grow and scale up our used car business.

Thank you. This is my answer.

Thank you.

Thanks. Got it.

Thank you. We have no further questions at this time. I will hand the call back to management for closing remarks.

Thank you all for joining us. That closes today's call.

Thank you.