Cango Inc.

Q2 2023 Earnings Conference Call

8/24/2023

spk02: Good morning and good evening, everyone. Welcome to Kengo Inc.' 's second quarter 2023 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 conclude we will conduct a question and answer session. Before we begin, I would like to refer you to the Safe Harbor Statement and the company's earnings release, which also applies to the conference call today, as management will make forward-looking statements. With that said, I would now like to turn the call over to Mr. Jai-Wang Lin, CEO of Kengo. Please proceed, sir.
spk01: Hello, everyone. Welcome to the second quarter of 2023,
spk05: Hi everyone, and welcome to CanGo's 7th Quarter 2023 Earnings Call. Despite ongoing stimulus policies from both central and local authorities to boost car consumption, consumer confidence stayed low in the first half of 2023. Moreover, the intense price war in China's auto market disrupted the pricing structure of the automotive industry, creating a widespread sense of caution.
spk01: continue to improve the configuration of industrial resources, and further develop our business model potential of multi-purpose service transformation by car trading. In the second quarter of 2023, the company achieved a total income of RMB 6.8 billion, which increased by 134%. Among them, the car trading service business earned RMB 5.6 billion, which increased by 157%, and accounted for a total income of 83%. As of the end of June 2023, The car loan from the stock market has been reduced from RMB207 billion at the end of March 2023 to RMB166 billion. The risk threshold continues to be narrowed. The M1 and M3 have a 2.33% and 1.29% at the end of the first quarter, and have been reduced to 2.12% and 1.09% respectively.
spk05: In response to the market trends, our focus throughout Q2 of 2023 has been to enhance our service capabilities across our platform. This was achieved by gaining a deep understanding of data demand and continuously refining our resource allocation along the automotive value chain. Consequently, we were able to make further strides in diversifying revenue streams anchored in automotive transactions, capitalizing on the potential of our business model. In Q2, the company reported total revenues of 680 million RMB, representing a robust year-on-year increase of 134%. Of this, revenues from card trading transactions accounted for 560 million, making a significant year-on-year growth of 157% and a contribution of 83% to our overall revenue. Moreover, by the end of June 2023, the total outstanding balance of financing transactions we facilitated decreased from 20.7 billion as of March 31st, 2023 to 16.6 billion, thereby further mitigating our risk exposure. The M1 plus and M3 plus overdue ratios also saw a decrease from 2.33% and 1.29% as of March 31st, 2023 to 2.12% and 1.09% respectively. Now I'd like to share more details on the major progress we've made with our different business lines.
spk01: First day new car trading transactions. We witnessed the total of 5,893 cars sold through Kangoo Hao Che within the second quarter,
spk05: reflecting a year-on-year growth of 157.2% and a quarter-over-quarter increase of 52.3%. In the first half of 2023, Kengo Houcher recorded a total of 9,760 car sales, indicating a modest year-on-year growth of 7%. As of June 2023, the total number of dealers engaged on Kengo Houcher rose to 11,066, a year-on-year growth of 34.3%. Furthermore, the Tango Hotel app saw over 1 million page views by the end of Q2, attracting more than 96,000 unique visitors. We improved our transaction supporting services in the second quarter to provide one-stop service experience for dealers and help them grow their business and profitability. For example, we launched auto and non-auto insurance products to help dealers cross-sell and increase customer loyalty while creating new profit streams.
spk01: At the same time, the Good Car App has released a separate purchase function to support full management or separate payment purchase. It only provides a one-stop package solution for car owners to reduce the financial pressure of car owners. Car owners only need to provide customer information, payment deposit and guarantee, and can enjoy the full process of one-stop service from the first order to the completion of the bottom-up procedure. It is easy to solve the problem of car owners' storage and use of funds, thereby increasing the turnover rate of mobile assets and reducing the cost of business.
spk05: We also added a car loan product to the CanGo Hotel app, allowing car buyers to pay in full or in installments. Dealers only need to input car buyer information, pay the down payment and the deposit, and they can enjoy a seamless one-stop service from ordering to loan applications and administration. This solution helps dealers reduce inventory-related cash flow pressure due to asset turnover ratio and lower operating costs.
spk01: In the second quarter, we began to deliver parts of the region to new cars and achieved good results. In the future, we will continue to stabilize and fully realize the needs of car manufacturers, create truly valuable underlying digitalized infrastructure, provide full chain of digitalized services from car manufacturers to land channels, release the efficiency of each link,
spk05: to support small and medium-sized dealers by addressing their various business challenges such as vehicle inventory, auto financing, warehousing, and logistics. To this end, we started a pilot cross-region delivery program for new car services in some parts of China in the second quarter, and it was very successful. As we move forward, we will understand dealers' diverse needs better and use our digital infrastructure to support their full sales cycle with digital services from manufacturing to sales, improving efficiency at every step. Through these initiatives, we will boost dealers' efficiency and loyalty and help the auto industry grow in the long term. 另一方面,我们也看到经历五六月份新车销量整体上升的阶段之后,进入七月份,
spk01: According to the Chen Lianhui data, the sales of new cars decreased by 6.3%, and the same decreased by 2.3%. As the whole car production enterprise, which may appear, further increases in sales, and as the price of cars fluctuates, especially in the context of increased consumer demand, it is possible that the storage of cars will be a risk, and will become the focus of the next stage of the company's new car trading business. We will control the corresponding trading scale more carefully.
spk05: Regarding our outlook for the new car market, new car sales increased in May and June, but decreased by 6.3% month-on-month and 2.3% year-on-year in July, according to CPCA data. With more sales promotions by vehicle manufacturers and possible sharp price swings, especially in a weak consumption environment, our focus in the next stage of the new car trading business will be on avoiding potential vehicle inventory risk and we will control our transaction skills more carefully.
spk01: 接下来是二手车交易方面的进展。 二季度,倡股优车APP功能进一步完善,依靠大数据和数字科技, 倡股优车APP为全国二手车商及个人提供安全可靠多样高效的二手车交易相关服务, 涵盖历史车况查定,车辆评估,限时报价, 在线巡车车员发布,自应二手车采购, Since the end of the second quarter, there have been 6,900 second-hand car dealerships that have registered second-hand car dealerships such as Canggu Youche, APP, and Xiao Chengxu. The total number of PVUVs has exceeded 61.1 million and 3.1 million. Canggu Youche has completed 651 second-hand car deals in the second quarter.
spk05: Next, on used car trading, we improved the functions of Kengo Your Car in the second quarter using our advanced big data and digital technologies. The Kengo Your Car app provides secure, reliable, and efficient services to used car dealers and individuals nationwide, such as historic vehicle condition reports, vehicle evaluations, online auctions, online car searches, used car listings, and self-operated or proprietary used car purchases. By the end of the second quarter of 2023, we had 6,900 registered used car dealers on the CanGo Your Car app, a mini program with over 611,000 page views and over 31,000 unique visitors. In the second quarter, we sold 651 used cars on CanGo Your Car. 自行车员一直是趁股优策全链路服务能力的起点和重要保障。
spk01: The unique advantage of our self-driving vehicle is that it is based on our past 10 years of car financial business. It mainly includes self-driving second-hand cars and rich and high-quality vehicles such as financial storage vehicles. In the future, we will continue to work hard to develop the potential of the vehicle, expand the channel of personal vehicle acquisition, increase the conversion rate, and continue to build the difference-making advantage of long-term luxury vehicles in the vehicle sector.
spk05: Our proprietary vehicle inventory is the core of Kangaroo Cars' full-service capabilities and our main advantage. It comes from the auto-financing business we have developed over the last decade, which includes trading and we possess cars from over 2 million auto-financing customers as well as other high-quality used car sources. We will keep exploring more potential vehicle inventory resources in the future. By increasing the channels to acquire used cars from individuals, raising transaction conversion rates, and strengthening repossessed car conversion channels, we will make Kangoo U-Car more distinctive and competitive in vehicle inventory.
spk01: After receiving online auction support in April, Kangoo U-Car upgraded its auction function in June, and registered a second-hand car dealer.
spk05: We upgraded Kangoo U-Car's online functions in June after getting the online auction license in April. All registered used car dealers now are able to list their used cars for B2B options. This gives used car dealers another tech-powered sales channel, helping them sell faster and better. We also set up an in-house inspection team in the second quarter to provide more professional services as we cover more of the used car trading transaction service chain. Our trained technicians offer professional services such as vehicle condition checks, price evaluations, and documentation verification. Besides, our on-site service team of over 100 experts is now offering basic vehicle inspection and other related services, working closely with vehicle inspection professionals to improve Our overall service efficiency. digital capabilities are essential to improve service capacity across the platform. As we drive changes in our platform business ecosystem, we have also been working on group-wide digital transformation. By using a data-centric approach to improve operating efficiency and optimize business processes, We have made our core resources smarter with digital operations, lowering costs, and increasing efficiency. We also plan to use data exchanges to share our industry expertise and know-how we have gained over the last decade with more stakeholders, empowering more segments and industries.
spk01: In May, our first data product, Car Salesman Management Index, was successfully listed in the Shanghai Data Exchange. The index covers more than 80,000 CS stores and comprehensive stores across the country. From corporate information, management information, risk information, and other dimensions, it is evaluated for retailers to provide reference indicators for the overall business situation of retailers. This is also the index of the data of the first mass-summed market comprehensive car retailers' management information in the current market. We listed our first data product on the Shanghai Data Exchange in May with our Car Dealer Operational Index query.
spk05: It covers the operational data of more than 80,000 forest dealers and non-forest dealers nationwide and ranks dealers from multiple dimensions, such as enterprise information, operating information, risk information, et cetera. It provides reference indicators for the overall operations of dealers. It is the first data index that includes comprehensive operational information on car dealers in lower-tier markets in the country, and it can be a tool for assessing the financial position and ongoing concern of car dealers in these markets. We will keep innovating in technology and keep industry grow healthily and steadily. Yes, I will turn the call over to our Chief Financial Officer, Michael Zhang, for a review of the company's financial performance.
spk00: Thanks, Jiayuan. Hello, everyone, and welcome to our second quarter 2023 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. Our total revenue for the second quarter grew by 133.6% to $675.4 million, of which the card trading transactions business revenues were $562.8 million, or 83.3% of total revenues. Now let's move on to our costs and expenses during the quarter. Total operating costs and expenses in the second quarter of 2023 were $684.4 million compared with $643.3 million in the same period, 2022. Cost of revenue in the second quarter of 2023 was $615.8 million compared with $272.7 million in the same period, 2022. As a percentage of total revenues, cost of revenue in the second quarter of 2023 was 91.2% compared with 94.3% in the same period, 2022. Sales and marketing expenses in the second quarter of 2023 decreased to $12.2 million from $41.8 million in the same period, 2022. As a percentage of total revenues, sales and marketing expenses in the second quarter of 2023 were 1.8% compared with 14.5% in the same period of 2022. General and administrative expenses in second quarter of 2023 decreased to $36.8 million from $124.7 million in the same period of 2022. As a percentage of total revenues, general and administrative expenses in second quarter of 2023 were 5.5% compared with 43.1% in the same period, 2022. Research and development expenses in the second quarter of 2023 decreased to $7.7 million from $12.9 million in the same period, 2022. As a percentage of total revenues, research and development expenses in the second quarter of 2023 were 1.1% compared with 4.4% in the same period, 2022. Net loss on contingent risk assurance liabilities in the second quarter of 2023 was $1.6 million. Provision for credit losses in the second quarter of 2023 was $10.2 million. We recorded a loss from operations of $8.9 million in the second quarter of 2023, compared with $354.1 million in the same period, 2022. Net income in the second quarter of 2023 was $36.2 million. Non-GAAP adjusted net income in the second quarter of 2023 was $48.2 million. On a per share basis, basic and dilute net income per ADS in the second quarter of 2023 were $0.27 and $0.26 respectively, and non-GAAP adjusted net basic and dilute net income per ADS in the same period was 0.36 and 0.35 respectively. Moving on to our balance sheet, as of June 30, 2023, we had cash and cash equivalents of $589.4 million compared with $696.6 million as of March 31, 2023. As of June 30, 2023, the company had short-term investment of $2.1 billion compared with $2 billion as of March 31, 2023. Looking ahead to the third quarter of 2023, we are now predicting our total revenues to be between $300 million and $350 million. Please note that this forecast reflects our current and preliminary view on market and operational conditions, which are subject to change. This concludes our prepared remarks. Operator, we are now ready to take questions.
spk02: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If your question has been answered and you wish to withdraw your question, please press star then two. We will pause for one moment to assemble our roster. And our first question today will come from Helen. Please proceed with your question.
spk03: stimulus-like policies we see to boost consumption have been graduated, released since August. So could management comment on the auto market in the second half of the year?
spk01: However, according to the data of the Youth Association, the sales volume of XIAYI used vehicles in July reached 1,775,000, but the down payment reached 6.3%, and the down payment reached 2.3%. This means that the over-expected delivery data was actually affected by the accumulation of pre-order orders, and the number of orders in the same period last year was relatively high. So we expect that the total sales volume of the car in the second half of the year may still fluctuate.
spk05: First of all, thank you for your question. As the stimulus policies are being implemented, we do see an effect on the car sales and also on the car market as a whole. However, if you look at the July numbers, the retail sales volume of passenger vehicles in July was about 1.77 million, decreasing by 6.3% quarter-over-quarter and down 2.3% year-on-year, according to data from China Passenger Car Association, CPCA. And this indicates that the higher than expected delivery figures were actually mainly due to order backlogs in the previous periods. Also, the base for comparison, i.e., the numbers of the same period last year, was relatively high. So the auto market overall sales volume may decline, actually, in the second half of the year.
spk01: 回答结束。 That's all from me.
spk03: Okay. 那我还有一个following的一个question, 就是现在实际上我们也会看到说, Chinese automakers actually started to tap into the overseas market since this year. I'm wondering if management can share with us more color if the company has any plans to explore the global market as well.
spk01: Regarding this question, actually we are positively cautious about the plan of going overseas.
spk05: and the business units are studying the feasibility. And as we are not auto manufacturer and do not control the production process, the car export business model and potential profitability still need to be explored.
spk01: Thank you.
spk05: Thank you.
spk02: Thank you. Our next question will come from Sophia Zhu with Goldman Sachs. Please proceed with your question.
spk04: Thank you, Director Chen. I have two questions. The first question is related to Hongguan. As you all know, in August, President Biden signed an executive order restricting investment in China. As a company listed by New Jiao, what impact will this have on us and how will the company prepare to respond? Thank you.
spk05: I have two questions. The first question is on the macro environment. As we understand that on August 9th, the U.S. President Joe Biden signed an executive order that will prohibit new U.S. investments in China in sensitive technologies. So as a new company listed on New York stock exchange, well, can go be affected by this order and how well the company cope with it? That's the first question. And the second question is related to your company's business. So could you share with us more information on the gross margin of both the new car and used car business?
spk01: Okay. Okay, so on your first question on the executive order, we have seen the order and the latest coverage and the news.
spk05: As China's leading automotive transaction service platform, our services are not protected by the order sector. Moreover, the order exempts publicly traded securities and some other investments, and we will definitely follow the situation closely.
spk01: On your second question, the gross margin of new car transactions is generally about 1%. It really depends on the car model though, with some models reaching 2%.
spk05: Our business model involves centralized purchasing cars from OEMs and then selling them to small and medium-sized dealers. As we do not control the production process, our gross margin on new car transactions is relatively low. Since our peers maintain a similar gross margin level, we believe this gross margin will remain stable for a while. 二手车因为是一车一矿,车价不等,所以单车的利润在一千元到两千元不等。 And on used cars, since the price of used cars really depends on the condition of the cars, the gross profit for each car can vary from 1,000 RMB to 2,000 RMB.
spk01: Okay. That's all from me.
spk05: Thank you.
spk02: Thank you. That concludes our question and answer session. I would now like to turn the conference over Back to Mr. Jiayuan Lin for any closing remarks.
spk01: Thank you all for your interest and support for Tango.
spk05: And that concludes today's earnings call. Thank you.
spk02: Thank you very much. The conference is now concluded. Thank you everybody for joining today's presentation. You may now disconnect your lines.
Disclaimer

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