Cango Inc. (CANG) on Q1 2021 Results - Earnings Call Transcript
Operator: Good morning and good evening, everyone. Welcome to Cango Incorporated First Quarter 2021 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'm now turning the call over to Mr. Jiayuan Lin, CEO of Cango. Please go ahead, sir.
Jiayuan Lin:
Caroline Li: Hello, everyone, and welcome to Cango's 2021 first quarter earnings call. China's gradual economic recovery and various targeted stimulus policies are set to more widely revive auto consumption across the country in 2021. As a result, auto sales surged as consumer spending continued to gain momentum in the first quarter of 2021. On the other hand, we also noticed that the pressure on the supply side caused by auto part shortage has increased and will likely bring uncertainties in the overall pace of industry's recovery. At Cango, we made steady progress across our business lines in the first quarter as total revenues grew to RMB 1.1 billion, surpassing the high end of our previous guidance range by approximately 7%. Operating income sustained in growth moments in the quarter and came in at RMB 160 million compared to a loss from operations of RMB 81.3 million in the same period of 2020. Net loss for the quarter was RMB 274 million primarily attributable to an investment loss of RMB 447 million in Li Auto. Since we first launched, Cango has devoted itself to building a reliable, efficient and exceptional automotive transaction services platform. Those core values and aspirations remain just as important to us today as we aim to provide consumers with creative products and the best customer service experience while also propelling China's automotive industry forward by connecting dealers, financial institutions, OEMs and other industry resources. We remain firmly committed to our long-term vision and have continued to steadily advance our business development plans during the quarter, further deepening our roots across our three main business lines: car trading, transactions, aftermarket services facilitation and automotive financing facilitation and form a close loop with our services. As a result, we are revolutionizing the relationships among different parties along the auto value chain while also empowering and creating value for all of them. Let me expand. First, I would like to start with our car trading transaction business as Cango's main growth driver. Car trading transactions generated revenues of RMB 572 million in the first quarter, accounting for approximately 50.9% of total revenues. Bridging supply and demand in the auto market and relying on our technology-driven online platform and extensive dealership network in the lower-tier markets, we have formed close partnerships with various traditional car manufacturers and new energy vehicle makers. Building on this foundation, we have integrated all the participants along the car trading transaction chain to jointly explore innovative channel strategies in the lower tier markets.
Yongyi Zhang: Thanks, Jiayuan. Hello, everyone, and welcome to our first quarter 2021 earnings call. Before I started 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. We are excited about our solid start to the year as first quarter revenues surged 357% year-over-year to reach a new record high of RMB 1.1 billion, once again exceeding our guidance range. Our car trading transaction business continued to perform well and served as a crucial growth driver with revenue contribution climbing to more than 50% of total revenue at RMB 571.6 million. Revenues from our auto financing facilitation and aftermarket services facilitation were also robust at RMB 411.7 billion and RMB 62.5 million, respectively, in the first quarter. Now let's move on to our cost and expenses during the quarter. Total operating cost and expenses in the first quarter 2021 were RMB 964.2 million compared to RMB 327.3 million in the same period of 2020. The increase was mainly due to the related costs incurred by our car trading transaction business primarily as a result of increase in revenues from our car trading transactions. Sales and marketing expenses, general and administrative expenses and research and development expenses each decreased as a percentage of total revenue in the first quarter of 2021 compared to the same period last year. Cost of revenue in the first quarter of 2021 increased to RMB 769 million from RMB 90.6 million in the same period 2020. As a percentage of total revenue, cost of revenue in the first quarter was 68.4% compared to 36.8% in the same period 2020. And the change was primarily due to an increase in the amount of car trading transactions. For automotive financing facilitation and aftermarket services facilitation cost of revenue as a percentage of relevant revenues was around 35.6% in the first quarter 2021. Sales and marketing expenses in the first quarter of 2021 were RMB 57.8 million compared to RMB 45.8 million in the same period 2020. As a percentage of the total revenue, sales and marketing expenses in the first quarter of 2021 was 5.1% compared to 18.6% in the same period 2020. General and administrative expenses in the first quarter 2021 were $61.4 million compared to $57.4 million in the same period 2020. As a percentage of total revenue, general and administrative expenses in the first quarter 2021 was 5.5% compared to 23.3% in the same period 2020.
Operator: Your first question comes from Shelley Wang with Morgan Stanley. Please go ahead.
Shelley Wang:
Caroline Li: Okay. I'm Shelley Wang from Morgan Stanley. I have two questions. The first question is what is your outlook for the demand in the second half of 2021. And -- but in particular, it has something to do with your business of auto loan facilitation. So that's why I asked this question. Also, in particular, I would like to know about your outlook for the demand in the lower-tier cities?
Jiayuan Lin:
Caroline Li: So to answer your first question, so far, we see demand in the auto markets remain strong, and we have -- but we have concerns about the supply side. We think that the pressure of insufficiency of supply will likely persist for some time to come. And also, there is this issue of chip shortage. And we think that the need of high-end brands and foreign stores in mega cities will be prioritized. So we expect the domestic auto brands the domestic auto brands in lower-tier markets to face more pressure in the second half of this year.
Jiayuan Lin:
Caroline Li: And to answer your second question with traditional auto manufacturers, we expand our alternative financing facilitation business through our nationwide dealership network. So this is mostly an off-line collaboration. But in terms of collaboration with NEV manufacturers, it is an online-based model. Because the NEV manufacturers, they adopt direct selling model and they have their own showrooms. And also, they have a very simple and easy process that enables customers to complete test driving and vehicle ordering online. So we are currently deepening our cooperation with NEV manufacturers by embedding auto insurance products and services into their mobile app, for example, to help them better provide insurance products and services to their customers. And this kind of collaboration model not only improves overall efficiency but also conforms to our partners' business models. So under the direct selling model, our automotive financing facilitation service is embedded into the car owners' platform, and this helps boost our shares.
Operator: Your next question comes from Derek Su with Goldman Sachs. Please go ahead.
Derek Su:
Caroline Li: This is Derek from Goldman. I have two short questions. First is about the car trading business. I would like to understand more about the margin. Generally speaking, how much is the cost of purchasing cars and how much is ASP? And what is the guidance for 2021? And the second question is about the aftermarket services. Do we have any plan of expanding services besides ensuring sales such as collaboration with repairing stores?
Jiayuan Lin:
Caroline Li: Thank you, Derek. So to answer your first question, we have different pricing strategies across car models and regions for our car trading transaction business. It really depends on our -- the results of our research and also the judgment of our team. For us, it is more important to empower dealers by getting low prices from OEMs and sharing more profits with dealers to improve their trading capacity. And for the car trading transaction business gross margin in the first quarter, it was -- it has improved up to about 1.3% in Q1 this year. And we expect the chip shortage in the auto industry to continue, and this will definitely have an impact on our car trading transaction business. But at the same time, we are pushing ahead our partnerships with various OEMs. So if all goes well, then the annual trading volume is expected to reach 45,000 units.
Jiayuan Lin:
Caroline Li: And for second question, the -- our service range in the aftermarket business. While the focus of our aftermarket service facilitation remains on insurance product for now, while we are also tying set to information referral and maintenance services. However, so far, it is still in the early stage of development. Since the start of this year, we have introduced pilot vehicle delivery and repair services in some regions. As we develop more business, as we expand our market in the future, we will integrate resources and try to standardize the management and service of our partner workshops. Of course, we will invest more in selecting the right partners and gradually develop auto part component services as well as auto care service and also like definite driving business. So overall speaking, we plan to cover a wide of services for aftermarket facilitation business. That's all from me.
Operator: Thank you. We have no further questions at this time. I will hand the call back to management for closing remarks.
Jiayuan Lin:
Caroline Li: Thank you for joining us. That closes the Q1 2021 earnings call.
Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
