Cango - Q2 2024
August 29, 2024
Transcript
Operator (participant)
Good morning and good evening, everyone. Welcome to Cango Inc.'s second quarter twenty twenty-four 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 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.
Jiayuan Lin (CEO)
Hi, 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 2.500 million and 2.552 million units, respectively, reflecting a year-on-year declines 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 for current assets and liabilities, closely monitoring our risk exposure. As of June thirtieth, our total outstanding loan balance stood at approximately CNY 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 CNY 2.7 billion of outstanding balance of loans, where the company bears credit risks have not been provided with full debt allowance, full bad debt allowance, or full risk assurance liabilities. As the new car market growth rates slows, we are increasingly recognizing the used car market's immense potential and 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 Used 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 delivery, which drove steady business growth. By the end of the second quarter, our Cango Used 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 a strong reputation and abundant vehicle inventories to ensure a diverse range of listings on Cango Used 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.
[Foreign language]
We also established strategic partnerships with numerous major used car markets nationwide in the second quarter, enabling real-time synchronization of their vehicle listings with Cango U-Car to better meet users' specific demands. Currently, Cango U-Car hosts over two hundred and sixty thousand vehicle listings. By integrating extensive offline vehicle inventory, we have effectively enhanced user engagement on the Cango U-Car app.
[Foreign language]
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 room, 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.
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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 twenty nineteen, export volumes have surged over tenfold, with a significant increase in the average value of exported vehicles. Supportive guidelines and favorable policies from government departments 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.
[Foreign language]
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 product and services offerings.
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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 sustained value across our core business lines. Our website allows overseas buyers to more conveniently and directly access China's high-quality used car inventories, and we aim to position this website as the premier gateway for exporting Chinese used cars.
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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.
Michael Zhang (CFO)
Thanks, Jiaying. 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 RMB 45.1 million, compared with RMB 675.4 million in the same period 2023. Guarantee income, which represented a fee income earned on the non-contingent aspect of a guarantee, was RMB 20.9 million in the second quarter of 2024. This was presented separately from the contingent aspect of a guarantee, pursuant 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 RMB 26.5 million from RMB 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 RMB 4 million from RMB 12.2 million in the same period, 2023. General and administrative expenses in the second quarter were RMB 39.2 million, compared with RMB 36.8 million in the same period, 2023. Research and development expenses in the second quarter of 2024 decreased to RMB 1.7 million from RMB 7.7 million in the same period, 2023.
Net gain on contingent risk assurance liability in the second quarter was RMB 10.3 million, compared with a net loss of RMB 1.6 million in the same period, 2023. Net recovery on provision for credit losses in the second quarter was RMB 33 million, compared with a net loss of RMB 10.2 million in the same period, 2023. We recorded RMB 47 million in income from operations in the second quarter of 2024, compared with a loss of RMB 8.9 million in the same period, 2023. Net income in the second quarter of 2024 was RMB 86 million. Non-GAAP adjusted net income in the second quarter of 2024 was RMB 90.7 million.
On a per-share basis, basic and diluted net income per ADS in the second quarter of 2024 were 0.83 and 0.76 respectively, and non-GAAP adjusted basic and diluted net income per ADS in the same period were 0.87 and 0.80 respectively. Moving on to our balance sheet. As of June 30, 2024, the company had cash and cash equivalents of RMB 649.5 million, compared with RMB 1.2 billion as of March 31st, 2024.
As of June 30, 2024, the company had short-term investments of RMB 2.7 billion, compared with RMB 2.3 billion as of March 31st, 2024. Looking ahead to the third quarter of 2024, we are now predicting our total revenue to be between RMB 20 million and RMB 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. Operators, we are now ready to take questions.
Operator (participant)
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Jiang Weidong with CITIC Securities. Please go ahead.
Jiang Weidong (Equity Research Analyst)
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可以。
[Foreign language]
Thank you very much. I'm Jiang Weidong from CITIC Securities. I have two questions on used car market development. So my first question is: how does 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?
[Foreign language]
Jiayuan Lin (CEO)
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.
Jiang Weidong (Equity Research Analyst)
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And as our vehicle inventory grows and market coverage expands, 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.
[Foreign language]
Jiayuan Lin (CEO)
Thank you very much. That's for your first question.
Jiang Weidong (Equity Research Analyst)
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So thank you. And my second question is that the Chinese government has actually published a lot of favorable policies to support the development of used car market. So what about the challenges that your company faces in promoting the used car cross-border transactions?
[Foreign language]
Thank you for your question. So for the challenges, first of all, the cross-border transactions usually come with relatively high logistics costs, including expenses for transportation, for insurance, and also for warehousing. And to better control these costs, we have partnered with third-party companies who have established and well-established cross-border logistics capabilities.
Jiayuan Lin (CEO)
[Foreign language]
And secondly, tariff policies and trade barriers in different countries greatly impact the import and export of used car vehicles, I mean used vehicles. On this, we will continue to monitor policy changes and develop flexible strategies to adapt to these changes.
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Also, regulations and standards for used vehicles vary across countries, including safety, emissions, and quality requirements. So, to address this, we will ensure that all vehicles traded meet the standards of the target markets.
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In addition, used car transactions very often involve a relatively long transaction cycle due to their unique market characteristics, including but not limited to, vehicle condition assessments, selection by buyers, multiple rounds of price negotiations, and necessary legal and financial reviews. Buyers typically need more time to look into the vehicle's maintenance, history, performance, and pricing before making a purchasing decision. So naturally, this extended transaction cycle also poses a challenge for cross-border used vehicle transactions.
[Foreign language]
Thank you. That's for your second question.
Jiang Weidong (Equity Research Analyst)
[Foreign language]
Thank you very much. No more questions from me.
Operator (participant)
The next question comes from Emerson Zhu with Goldman Sachs. Please go ahead.
Jhune Zhu (Equity Research Analyst)
Thank you, management. I am Emerson Zhu from Goldman Sachs. I have two main questions here. The first question is on the financial side. I see that the company's revenue guidance is declining. So, I want to ask if there will be continued contraction going forward? The second question is, I want to ask how the management balances the long-term development strategy and the short-term performance pressure? Thank you.
Thank you. I have two questions. The first question is on finance. So I noticed that the company has decreased your revenue guidance. So will you continue to do that in the future? And the second question is, how will the management balance your long term strategy against your short term performance pressure?
Jiayuan Lin (CEO)
[Foreign language]
Okay, on your first question on guidance re of revenue, we are strategically scaling back our existing business. We have reallocated the company's resources, optimized staffing, and we have also implemented effective measures to reduce operational costs in response to market changes and internal demand.
[Foreign language]。
Moving forward, we will continue to evaluate business development from a strategic perspective, while leveraging our unique business model to drive ongoing cost reduction and efficiency improvements. We are confident that these adjustments and refinements will enable us to respond more agilely to market changes and deliver greater value to our shareholders.
[Foreign language]
On your second question, well, firstly, we have adopted an integrated approach to strategic planning. We have established a comprehensive strategic planning process to ensure alignment between short-term performance goals and our long-term vision. This involves maintaining continuous communication to ensure all stakeholders have a clear understanding of the company's strategy and direction. In the short term, we will focus on enhancing execution, efficiency, controlling costs, and driving revenue growth to ensure robust financial performance.
[Foreign language]
Secondly, we have, you know, broken down our goals into different phases and also made flexible adjustments. We have established a very clear objectives and targets for different phases that supports both short-term performance and long-term strategic implementation. At the same time, we maintain strategic flexibility, allowing us to adapt our plans in response to market and technological changes, and swiftly respond to external environmental shifts.
[Foreign language]
Thank you.
Operator (participant)
That concludes the question and answer session. Thank you once again for joining Cango's second quarter twenty twenty-four earnings conference call today. Have a great day!