Cango Inc. (CANG) Earnings Call Transcript

Good morning, and good evening, everyone. Welcome to Cango Inc.'s Second Quarter 2024 Earnings Conference Call. [Operator Instructions] 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 harbor 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 Cango. Please go ahead, sir.

[Interpreted] Good morning, everyone, and welcome to Cango's Second Quarter 2024 Earnings Call. In the second quarter of 2024, the automotive market remained sluggish, presenting significant challenges for the industry. According to the China Association of Automobile Manufacturers, vehicle production and sales in June reached [ 2.50 million ] and 2.552 million units, respectively, reflecting a year-on-year decline of 2.1% and 2.7%, respectively. Passenger vehicle sales in June fell by 2.3% year-on-year. Although sales of new energy vehicles continue to outpace the market, their growth has not been sufficient to alter the industry's overall downward trajectory. In response to these challenges, we continue to implement strict cost control and risk management strategies reinforcing our financial stability through disciplined expense management and cost-efficiency measures. Meanwhile, we maintain meticulous oversight of current assets and liabilities closely monitoring our risk exposure. As of June 30, our total outstanding loan balance stood at approximately RMB 6.2 billion with M1+ at 2.93% and M3+ at 1.57%. Our credit risk exposure has been decreased to a low level with only RMB 2.7 billion of outstanding balance of loans where the company bears credit risks have not been provided with full bad debt allowance or full risk assurance liabilities. As the new car market growth rate [ rose ], we are increasingly recognizing the used car market's immense potential opportunities. As such, we have further streamlined our business processes, enhanced service quality and strengthened the customer experience. Over the past quarter, we focused on enhancing the competitiveness of Cango U-car by ensuring a consistent supply of high-quality vehicles, optimizing dealer experience -- I mean optimizing dealer service experiences and supply chain management and improving the convenience and security of cross-regional deliveries, which drove steady business growth. By the end of the second quarter, our Cango U-car app has accumulated over 130,000 page views. During the quarter, we facilitated the transaction of 266 vehicles and successfully auctioned 124 vehicles across our platform. Meanwhile, we identified and onboarded new partners with strong reputation and abundance vehicle inventories to ensure a diverse range of listings on Cango U-car. To enhance operational efficiency, we implemented rigorous management practices, refined key processes such as vehicle listing, transaction facilitation and customer service. These efforts have increased resource, utilization efficiency and improved overall operational effectiveness. We also established strategic partnerships with numerous major used car markets nationwide in the second quarter, enabling real-time synchronization of vehicle listings with Cango U-car to better meet users' specific demand. Currently, Cango U-car hosts over 260,000 vehicle listings. By integrating extensive offline vehicle inventory, we have effectively enhanced user engagement on the Cango U-car app. We have further enriched our user experience by establishing exclusive member communities through private traffic management, regularly providing members with benefits and event updates to boost user engagement and loyalty. We have also established a set of refined operational processes and management guidelines focused on safeguarding seller dealers rights. This includes implementing streamlined transaction rules and risk prevention mechanisms as well as providing comprehensive training and support, all of which are designed to help seller dealers improve their operational efficiency. Next, I would like to highlight some key advancements that Cango has made in the area of cross-border used car transactions. Since China began allowing the export of used vehicles in 2019, export volumes have surged over tenfold with a significant increase in the average value of exported vehicles. Supportive guidelines and favorable policies from government department and authorities have fostered the growth of the used car export sector. We are optimistic about the promising prospects in the export market for used vehicles, particularly those in the NEV segment. Since its launch in March 2024, our international used car platform, autocango.com, has quickly gained traction among global audience. To date, it has attracted over 180,000 visits with more than 20,000 registered users across 207 countries and regions worldwide. Autocango.com hosts over 85,000 high-quality used car SKUs offering more than 60,000 different models. In the second quarter, we significantly expanded autocango.com's market coverage as well as its range of products and services offerings. Under our traffic-first strategy, Cango has been focusing on establishing a primary traffic gateway connecting China's used car dealers with overseas buyers. We believe that this streamlined asset-light and traffic-focused operational approach will enable us to control operating costs while creating the same value across our core business lines. Our website allows overseas buyers to more contingency and directly access China's high-quality used car inventories, and we aim to position this website as a premier gateway for exporting Chinese used cars. Moving forward, Cango will continue to deepen our partnership with overseas markets, further refining Autocango's functionality and services to better serve car users, both at home and abroad. Next, I will turn the call over to our Chief Financial Officer, Michael Zhang, for a review of the company's financial performance.

Thanks, Jiayuan, and hello, everyone, and welcome to our second quarter 2024 earnings call. Before I start to review our financials, please note that unless otherwise stated, all numbers are in RMB terms and all percentage comparisons are on a year-over-year basis. Total revenue in the second quarter 2024 were CNY 45.1 million compared with CNY 675.4 million in the same period 2023. Guarantee income, which represented the fee income earned on the noncontingent aspect of a guarantee, was CNY 20.9 million in the second quarter of 2024. This was presented separately from the contingent aspect of a guarantee pursuit to the adoption of ASC 326 since January 1, 2023. Now let's move on to our cost and expenses during the quarter. Cost of revenue in the second quarter decreased to CNY 26.5 million from CNY 615.8 million in the same period 2023. As a percentage of total revenues, cost of revenue in the second quarter 2024 was 58.8% compared with 91.2% in the same period 2023. Sales and marketing expenses in the second quarter decreased to CNY 4 million from CNY 12.2 million in the same period 2023. General and administrative expenses in the second quarter were CNY 39.2 million compared with CNY 36.8 million in the same period 2023. Research and development expenses in the second quarter 2024 decreased to CNY 1.7 million from CNY 7.7 million in the same period 2023. Net gain on contingent risk assurance liability in the second quarter was CNY 10.3 million compared with a net loss of CNY 1.6 million in the same period 2023. Net recovery on provision for credit losses in the second quarter was CNY 33 million compared with a net loss of CNY 10.2 million in the same period 2023. We recorded CNY 47 million in income from operations in the second quarter 2024 compared with a loss of CNY 8.9 million in the same period 2023. Net income in the second quarter 2024 was CNY 86 million. Non-GAAP adjusted net income in the second quarter of 2024 was CNY 90.7 million. On a per share basis, basic and diluted net income per ADS in the second quarter of 2024 were CNY 0.83 and CNY 0.76, respectively, and non-GAAP adjusted basic and diluted net income per ADS in the same period were CNY 0.87 and CNY 0.8, respectively. Moving on to our balance sheet. As of June 30, 2024, the company had cash and cash equivalents of CNY 949.5 million compared with CNY 1.2 billion as of March 31, 2024. As of June 30, 2024, the company had short-term investment of CNY 2.7 billion compared with CNY 2.3 billion as of March 31, 2024. Looking ahead to the third quarter of 2024, we are now predicting our total revenue to be between CNY 20 million and CNY 25 million. Please note that this forecast reflects our current and preliminary views on the market and operational conditions, which are subject to change. This concludes our prepared remarks. Operator, we are now ready to take questions.

[Operator Instructions] The first question comes from [ Way Lung Jiang with Citic Securities ].

[Interpreted] I'm Jiang Lung from Citic Securities. I have 2 questions on used car market development. So my first question is, how is your strategic partnership with major used car markets help improve your market position? And what about the contribution by these partnerships to your financial performance?

[Interpreted] Thank you for your question. So by collaborating with major used car markets, we have expanded our supply channels and diversified our vehicle offerings. In addition, these partnerships allow us to leverage their geographic coverage and market penetration, providing our customers with a broader range of choices. So our extensive offerings comprehensively address our clients' evolving needs, increasing their stickiness on our platform. And as our vehicle inventory growth and market coverage expand, our transaction volume has naturally increased. This higher volume not only creates economies of scale, reducing unit costs but also strengthens our bargaining power. This enhanced position has enabled us to negotiate more favorable terms with suppliers and customers alike, further improving our profit margins. Thank you very much, that's for your third question.

[Interpreted] And my second question is that the Chinese government has actually published a lot of favorable policies to support the development of used car markets. So what about the challenges that company faces in promoting the used car cross-border transactions?