Cango Inc

NYSE:CANG

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, and good evening, everyone. Welcome to Cango Inc.'s Third Quarter 2024 Earnings Conference Call. [Operator Instructions].

Joining us today are Mr. Jiayuan Lin, Chief Executive Officer; and Mr. Jansen, Financial Director of Cango. Following management's prepared remarks, we will conduct a Q&A session. Before I 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 to Mr. Jiayuan Lin, CEO of Cango. Please go ahead.

[Jiayuan Lin, executive]

[Foreign Language]

Hello, everyone, and welcome to Cango's Third Quarter 2020 Earnings Call.

In the third quarter of 2024, Cango's overall business performance remained stable, highlighted by total revenue of RMB 26.95 million, and operating profit of RMB 25.24 million and a net profit of RMB 67.88 million. These solid results were primarily driven by our implementation of stricter cost control and risk management strategies, which significantly improved operational efficiency.

For postal management, we reinforced monitory mechanisms and risk assessments effectively maintaining a low nonperforming loan ratio and ensuring asset quality and stability. As of September 30, our total outstanding loan balance was approximately RMB 4.8 billion with M1 at 3.17% and M3+ at 1.76%. We also reduced our credit risk exposure not fully covered by bad debt allowance for risk assurance liabilities to RMB 1.7 billion, -- the company's total cash, cash equivalents and short-term investments amounted to approximately RMB 3.8 billion, an increase of RMB 9.27 million compared to the end of the previous quarter. In the development, we prioritize driving growth as the Cango UCA app and our overseas used car operations. By the end of the third quarter, the Cango U-car app had accumulated a total of 280,000 page views, an increase of 21% from last quarter. We strengthened Cango's competitive advantages in vehicle inventory during the quarter by establishing strategic partnerships with numerous used car marketplaces enabling real-time updates of vehicle listings and ensuring a diverse and abundant supply of vehicles on Cango U-car app.

Meanwhile, we introduced a rapid vehicle inspection and listing service in close collaboration with professional third-party inspection teams we conduct thorough background checks and comprehensive vehicle condition assessments for each vehicle and provide buyers with detailed vehicle history reports and inspection data, enhancing transparency in transactions. Additionally, our nationwide logistics network offers buyers a variety of delivery and transport options to better meet diverse customer needs.

Our community operations team fosters user engagement through a range of online and offline activities, including exclusive online auctions, on-site visits and members only discounts. We also continuously collect and analyze user feedback to refine our service processes, ensuring we consistently improve customer satisfaction. .

On our used car as for service, where we continue to make significant progress this quarter. Our international used car platform, AutoCango.com, has accumulated over 370,000 page views and nearly 60,000 registered users since its launch in March 2024. The platform now offers more than 100,000 used car SKUs covering over 65,000 different models. .

To better serve our customers and enhance our brand image continuously optimizing autocango.com's content and improving the overall user experience. Autocango.com Cmap now both over 500,000 pages thanks to consistent content updates and technological improvements. This growth reflects our commitment to content development and drive increased user engagement with information we provide.

Our content development efforts have also driven positive changes in search engine optimization autocango.com's visibility in search engine results pages or SRP in short, has exceeded 2.41 million impressions and is expected to surpass 4 million by the end of this year. This means that an increasing number of people can find and access our website through search engines boosting our brand exposure. As we continue to expand into overseas markets, we have already received inquiries from over 130 countries and regions regarding vehicle purchases. .

Looking ahead, we will continue to focus on enhancing autocango.com's, quality and functionality to meet the diverse needs of users in different regions. At the same time, we will strengthen our data analysis capabilities to gain a more accurate understanding of the characteristics of our target market and user demographics. Building on this foundation, we will develop databased scientific marketing strategies in that achieving a more balanced global growth. .

Existing business, we are also actively pursuing forward-looking strategic investment opportunities on a global scale. We will focus on high-quality projects that complement our core competencies of brain technological innovation by establishing an international cooperation network, strengthening communication with leading global companies and actively participating in the collaborative development of overseas markets or overseas projects, we aim to showcase our company's strength and vision on a broader stage.

Now I would like to hand the call over to our Financial Director, Ryan Tan, who will share our financial performance for this quarter. .

[Unknown Executive]

Thanks, Mr. Ling. Hello, everyone. I am Brian Sun, Financial Director of Canal. -- and welcome to our third quarter 2021 earnings call. Before I 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 revenues in the third quarter of 2024 were RMB 27.0 million compared with RMB 353.6 million in the same period of 2023. Guarantee income which represented the fee income earned on the noncontingent aspect of a guarantee was RMB 14.4 million in the third quarter of 2024. That was represented separately from the contingent effect 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 third quarter decreased to RMB 23.3 million from RMB 304.6 million in the same period of 2023. As a percentage of total revenues, cost of revenue in the third quarter of 2024 was 83% compared with 86.1% in the same period of 2023. Sales and marketing expenses in the third quarter decreased to RMB 3.4 million from RMB 9.9 million in the same period of 2023.

General and administrative expenses in the third quarter were RMB 45.2 million compared with RMB 34.7 million in the same period of 2023. Research and development expenses in the third quarter decreased to RMB 1.4 million from RMB 7.0 million in the same period of 2023. The Net gain on contingent risk assurance liabilities in the third quarter was RMB 7.1 million compared with a net loss of RMB 3.5 million in the same period of 2023. Net recovery on provision for credit losses in the third quarter of 2024 was RMB 74.4 million compared with RMB 66.9 million in the same period of 2023. We recorded RMB 35.2 million in income from operations in the third quarter of 2024 compared with a loss of RMB 87.8 million in the same period of 2023.

Net income in the third quarter of 2024 was RMB 67.9 million. Non-GAAP adjusted net income in the third quarter of 2024 was RMB 71.3 million. On a per share basis, basic and diluted net income per ADS in the third quarter of 2024 were 0.66% and 0.6, respectively. -- and a non-GAAP adjusted basic and diluted net income per ADS in the same period were RMB 0.69 and 0.53, respectively.

Moving on to our balance sheet. As of September 30, 2024, the company had cash and cash equivalent of RMB 691.8 million compared with RMB 949.5 million as of June 30, 2024. We -- as of September 30, 2024, the company had short-term investments of RMB 3.1 billion compared with RMB 2.7 billion as of June 30, 2021.

Looking ahead to the fourth quarter of 2024, we are now predicting our total revenues to be between RMB 15 million and RMB 17.5 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.

[Operator]

[Operator Instructions]

Today's first question comes from Emerson Joe with Goldman Sachs. Please go ahead.

[Unknown Analyst]

I have 2 questions. first question is considering the mode recovery of the Chinese economy, how does the company view the potential impact of the future macroeconomic environment on your business? And the second question is, what specific vehicle quality assurance measures has the company taken to ensure the safety and reliability of used costs.

[Unknown Executive]

Thank you, Emerson, for your questions. On your first question, China's moderate economic recovery, well, we believe positively impact our business. The improvement in the macroeconomic environment helps boost consumer confidence and purchasing power, which in turn stimulates demand growth in the automotive market -- specifically for the used car market as economic conditions improve, more people may be inclined to upgrade their upgrade or vehicles or purchase a car for the first time, this will drive an increase in used car transactions.

And we will continue to monitor macroeconomic indicators and market dynamics to respond quickly to potential economic changes. We believe that by consistency enhancing operational efficiency and strengthening customer experience and leveraging our digital capabilities, the company can mitigate the potential impact of macroeconomic fluctuations on our business -- in addition, we are actively exploring new growth opportunities and value-adding services to adapt to and meet the market's evolving needs. .

On your second question, how we are ensuring the safety and reliability of use cost. Well, we collaborate with reputed or dealers and regularly set our partners to ensure they provide high-quality vehicles that meet our standards -- each vehicle undergoes over 100 professional technical inspections before being listed covering areas such as bacteria, interior and mechanical performance. .

Detailed inspection report is also provided for each vehicle, including but not limited to key information such as mileage and condition descriptions for buyers' preference -- we have also established a dedicated team to get a feedback respond promptly to any complaints and continuously improve processes to enhance overall service quality. .

[Operator]

The next question comes from Pingyue Wu with CITIC Securities. Please go ahead. .

[Pingyue Wu, analyst]

I have 2 questions for the management. And the first question is, how does the company plan to further integrate with your overseas markets and what are the plans for optimizing auto Cango's features and services?

My second question is on risk control and management. what measures can go taken in terms of cost control and risk management strategies to improve operational efficiency and improve your financial structure and how will these measures continue to impact the company's future performance.

[Unknown Executive]

On your first question, we are currently conducting comprehensive research on overseas markets and actively engaging with local partners to secure more localized support and resources -- for example, we have thoroughly examined the customs clearance policies of various African countries and established import custom clearance agency partnerships in 4 nations to date. Our net debt is to gradually develop a business agency framework in Africa in at providing services to potential clients in key areas such as customs clearance and logistics, among others.

Additionally, we plan to actively showcase our brand image through social media and other platforms to enhance our international feasibility. We will also offer multilingual support to ensure that users worldwide can seamlessly access our services. By early 2025, AutoCango.com will be available in 15 languages, further improving user experience and expanding our market reach.

In terms of functionality improvement, we are introducing a direct sourcing feature for the Chinese used car market on AutoCango.com. We are also enabling online queries, but to allow overseas users to quickly access information on the condition and prices of used vehicles further enhancing [indiscernible].

Last but not least, we are dedicated to developing talent with an international perspective and cross-cultural communication skills to enhance our operational capabilities in overseas markets. We plan to recruit international students in Shanghai for internship programs providing them with valuable practical experience while infusing over -- I mean, well, infusing our team with fresh blood including global insights. Our goal is to create a diverse and globally competitive team that can better serve clients from various cultural backgrounds and advance the company's globalization efforts.

On your second question on cost control and risk management strategies. Well, firstly, on cost control, we have streamlined our business processes, automated approval workflows and enforce strict budget management systems to ensure disciplined spending. We also leveraged cloud computing services to replace legacy IT infrastructure, significantly reducing hardware investments and maintenance costs. In addition, by fostering on-time partnerships with top-tier suppliers we have secured more favorable pricing terms. We conduct regular performance evaluations and phase out underperforming suppliers to minimize procurement costs. Moreover, we have strategically optimized workforce allocation and upgraded our training and development programs to elevate the team's expertise and service quality.

In terms of risk management, we have established a robust internal control system that clearly defines risk management ownership at various levels and strengthen internal audits to promptly identify and rectify potential issues. Additionally, we closely monitor changes in the macroeconomic conditions and their impact on our business. ensuring that all operations comply with relevant laws and regulations, and we follow closely to the developments in policies and regulations and adjusting our corporate strategy as necessary. .

The sustained positive impact of these measures is reflected in the company's financial statements, improvements in the balance sheet improved cash flow and enhanced profit performance have all laid a solid foundation for the company's net base of strategic development. .

That is all from my side. Thank you. That concludes the question-and-answer session. Thank you once again for joining Cango's Third Quarter 2024 Earnings Conference Call today. Have a great day.

And that closes today's earnings call. Thank you all for joining us.