Token Cat Ltd (TC) 2020 Q3 法說會逐字稿

Good morning, and good evening, ladies and gentlemen. Thank you for standing by to welcome the TuanChe Limited Third Quarter 2020 Earnings Conference Call. (Operator Instructions) Today's conference call is being recorded.

I would now like to turn the call over to your host today, Ms. Cynthia Tan, IR Director of the company. Please go ahead, ma'am.

Hello, everyone, and welcome to TuanChe's Third Quarter 2020 Earnings Conference Call. We have released our earnings results earlier today, and it is now available on our IR website as well as on Newswire services.

Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today. Further information regarding this and other risks and uncertainties is included in our earnings release and our registration statements filed with the SEC. TuanChe does not assume any obligation today to update any forward-looking statements, except as required by law.

Today, you'll hear from Mr. Wei Wen, the company's Chief Executive Officer, who will provide an overview of our growth strategies and business development; who will be followed by Mr. Chenxi Yu, [Ronnie], the company's Deputy Chief Financial Officer, who will provide additional details on the company's financial results and discuss the financial outlook. Following management's prepared remarks, we'll open up the call to questions.

With that said, I would now like to turn the call over to our CEO, Mr. Wei Wen. Please go ahead, sir.

Hello, and thank you, everyone, for joining us today on our third quarter 2020 earnings call. We are very pleased to report third quarter results that demonstrate our momentum in rebuilding revenues and reducing net losses, both in the way of the severe market conditions brought about by COVID-19 earlier in the year.

While our net revenues or RMB 100 million or 26.2% lower compared with the same quarter last year, we exceeded the top end of our guidance range by 5.3% and improved 82.7% over the second quarter. This was primarily driven by a recovery in off-line marketing services as the gradual resumption of our off-line auto shows that began in May is making steady progress.

In addition to the sequential quarter-over-quarter recovery of revenue, we further executed on our rigorous cost containment measures, mitigating our net loss attributable to the company's shareholders to RMB 41.2 million compared with RMB 46.8 million in the same quarter last year.

Let's take a closer look at the third quarter performance of our business segments while also providing additional detail on our strategic and operational priorities. First, our off-line marketing services. As we have discussed on our second quarter earnings call, as the COVID-19 pandemic become increasingly under control in China, we started to progressively resume our off-line events in late May while keeping accordance with all local and the national regulatory guidelines on COVID 19 prevention and control.

We organized 152 auto shows in 107 cities in the third quarter compared with 212 auto shows in 150 cities in the same period of 2019, but improving from 61 auto shows across 56 cities in the second quarter. As a result, we delivered RMB 82.6 million in net revenues generated from auto shows, down 33.2% year-over-year but increasing 147.6% quarter-over-quarter.

Our quarterly number of special promotion events decreased by 66.7% to 64 from 192 in the third quarter last year while its revenue declined 67.1% year-over-year. As we resumed our operations, auto sales in China also rebounded. In the third quarter, China's auto retail sales increased 7.9% year-over-year, which was the first quarter of year-over-year sales growth in 2 years as the broad economic recovery bolstered consumer confidence.

The robust third quarter was followed by continuous strength in October and November, with 8% auto retail sales growth in both months, giving us further confidence in our recovery of momentum in the fourth quarter and beyond. Strategically, for off-line marketing services, we will continue to focus on generating higher ROIs. We are also further leveraging our deep insights in automotive transactions and have developed customized and targeted special promotional events for each auto dealer and OEM.

Next, let me move on to our growth initiatives in virtual dealership and online marketing services. Our revenues from virtual dealership, online marketing services and others reached RMB 15.4 million, increasing 160.9% year-over-year. This was primarily driven by successful online promotion events that were held during the quarter, our strategic collaboration with Baidu Youjia and Webank and the revenues generated from our acquisition of Longye International Limited in January 2020. If this is a silver lining to the leverages caused by the pandemic, it has been the phenomenal growth in the digital economy.

Our online services, including live streaming events, are benefiting from this trend, and we have seen sustained positive revenue contribution from this segment. A key factor in this success has been the collaborative partnerships we've established with TMall and Baidu Youjia, the auto segment of the giant Baidu portal. In our cooperation with Baidu Youjia, we have expanded its sales network to over 80 cities across China, where we have served operations aiming to improve sales efficiency and conversion rates for OEMs and the dealers.

We have also made solid progress in live streaming promotional events as we look to accelerate the full digitalization of automotive marketing with online retail platform partnerships such as the one we have with TMall. Through this engagement, we not only become an integral part of the ecosystem that contributes value through strong OEM and dealer relationships, but we also gained significant exposure for our own events through their extensive reach as well as gained valuable user data and insight in further developing our digital offerings within the area of automotive marketing. We see a clear and defined pathway to increasing opportunities that play to our strengths in multi-channeled automotive transaction facilitation.

Core to our value proposition is assisting to -- is assisting automotive OEMs and the dealers in optimizing their marketing efforts, user acquisition strategies and conversion rates in order to create a shopping and buying experience for customers that is smooth, natural and effortless. With the magnitude of dynamic forces that are now rapidly reshaping the industry, we are confident that drawing on our years of honed expertise and executing on our multi-pronged strategies will position us to deliver sustained shareholder value in the long term.

Now I will turn this call over to Chenxi, our Deputy CFO, for a closer look at our financial performance in the third quarter.

Thank you, Mr. Wen. Hello, everyone. Thank you for joining us. As our CEO Mr. Wen just mentioned, against the backdrop of a recovering consumer market, we are pleased with the recovery in our top line revenues versus the second quarter and the moderation in the year-over-year decrease, which was supported by growing off-line market activities and the robust performance of our online segments, maintaining the strength in the prior quarter.

Net revenues from virtual dealership, online marketing services and others grew 160.9% year-over-year. Furthermore, we continued to execute rigorous cost and expense control measures. By doing so, we were able to register an increased gross margin of 72.1% and the reduction of total operating expenses by 21.4% year-over-year, leading to bottom line improvement.

As we look ahead to the end of the year, we are building on this performance momentum and further strengthening the service capabilities that serve as the foundation of our unique omnichannel platform. We have a solid foundation to capture long-term prospects in the changing industry and provide real benefits to all in our value chain.

Now I would like to walk through our third quarter 2020 financial results. Before I start, please note that all numbers stated in my following remarks are in RMB terms unless otherwise noted. Our total revenues in the third quarter were RMB 100 million, decreasing 26.2% from RMB 135.6 million in the same period last year. This was a result of the continued adverse impact of the COVID-19 pandemic. The decrease was partially offset by the year-over-year revenue growth of virtual dealerships, online marketing services and others.

Compared with the second quarter of this year, total revenues increased by 82.7% as our off-line services recovered and our online services maintained solid performance. As we progressively resumed our off-line auto shows, our off-line marketing services revenues generated from these auto shows decreased by 33.2% to RMB 82.6 million from RMB 123.6 million in the third quarter of 2019. The off-line marketing services revenues generated from auto shows increased by 147.6% over the second quarter of 2020 of RMB 33.4 million.

Revenues generated from special promotion events in the third quarter of 2020 were RMB 2.0 million compared with RMB 6.0 million in the third quarter of 2019 and RMB 1.5 million in the second quarter of 2020.

Revenues from our virtual dealership, online marketing services and others increased by 160.9% to RMB 15.4 million during the quarter compared with RMB 5.9 million in the third quarter 2019, primarily due to our continuous expansion of our online marketing services, including live streaming promotion events and collaboration with Baidu Youjia and Webank. The year-over-year growth was also helped by revenue generated from our completed acquisition of Longye International Limited in January 2020.

Our gross profit in the third quarter decreased by 22.6% to RMB 72.1 million from RMB 93.2 million in the third quarter of 2019, but increased by 67.5% quarter-over-quarter. Our gross margin increased to 72.1% from 68.7% in the same period last year, primarily due to the change in the revenue mix.

In the third quarter, selling and marketing expenses decreased by 15.8% to RMB 91.6 million from RMB 108.8 million in the third quarter of 2019, an increase by 88.6% compared with the second quarter of 2010. As our operations continue to recover, the year-over-year decrease was primarily due to the decrease in promotion expenses and staff compensation expenses as a result of cost control measures taken by the company and reduced number of off-line events.

General and administrative expenses were RMB 15.9 million, significantly lower compared with RMB 25.0 million in the third quarter of 2019 and RMB 28 million G&A expenses in the second quarter of 2020, primarily due to the decrease in staff compensation expenses.

Research and development expenses decreased by RMB 7.1 million from RMB 12.2 million in the third quarter of 2019 and RMB 8.3 million in the second quarter of 2020, primarily due to the decrease in staff compensation expenses.

Our loss from continuing operations was RMB 42.6 million in the third quarter, lower compared with RMB 52.8 million in the same period last year and slightly higher compared with RMB 41.8 million in the second quarter of 2020, respectively.

Excluding the effect of share-based compensation expenses, adjusted net loss attributable to the company's shareholders was RMB 38.3 million in the third quarter of 2020 compared with RMB 36.9 million in the same period last year. Adjusted basic and diluted net loss per ordinary share were both RMB 0.13 in the third quarter compared with RMB 0.13 in the same period last year.

Adjusted EBITDA was a loss of RMB 37 million in the third quarter compared with a loss of RMB 37.9 million in the same period last year.

Now turning to our balance sheet. At the end of third quarter 2020, we have cash and cash equivalents, time deposits and short-term investments of RMB 183.0 million.

For the fourth quarter of 2020, we expect our net revenues to be between approximately RMB 145 million and RMB 155 million, representing year-over-year approximate decrease of 20.7% to 15.2%. This is primarily attributable to the estimated declining number of off-line events that is expected to be held in the fourth quarter of 2020 due to the COVID-19 pandemic.

This forecast reflects the company's current and preliminary views on the market and operational conditions as well as the influence of the COVID-19 pandemic, which are all subject to change.

This concludes our prepared remarks for today. Operator, we are now ready to take questions. Thank you.

(Operator Instructions) The first question today comes from Jack Vander Aarde with Maxim Group.

I'll start with -- just hoping you could provide some perspective on what you're seeing in terms of consumer purchase appetite for big ticket items such as new cars. And then just an update on the overall financial health of your various auto partners and virtual dealers and Easyhome stores. Just a general update there from the financial health and appetite from consumers.

Yes. Nice to meet you again, Jack, and let me translate questions first. (foreign language)

(foreign language)

[Interpreted] We can identify a rebound -- a strong recovery of the consumers' confidence in the big ticket items consumptions like autos, and this can be reflected by some market data we observe right now.

(foreign language)

[Interpreted] The auto market is recovering just at the same speed as the macro market, and the consumer confidence is recovering at the same time.

(foreign language)

[Interpreted] And this recovery is a continuous trend except -- and rather not short-term momentum.

(foreign language)

[Interpreted] Our major operation partners are the OEMs and dealers. And from our knowledge, their situation is continuing improving throughout these few quarters throughout 2020.

Great. That's good to hear, and that certainly does seem to be the case. And then maybe my next question here is just sticking with kind of the COVID recovery subject on the economy. With -- at least in the U.S. and Europe, 2 recent vaccines have been approved for COVID. Just wondering what the impact is from vaccines in China. And how -- just kind of where the economy is as a whole with the COVID vaccines rolling out? And how that's -- like is business -- are businesses closed down anymore? Or is everything pretty much completely opened up again?

Okay. Let me translate first. (foreign language)

(foreign language)

[Interpreted] The vaccines is just invented and is still a long run for everybody to get vaccines in the future, just as the same in U.S. and Europe.

(foreign language)

[Interpreted] The Chinese people are still very cautious in public areas and everybody -- most of them still keep their mask on.

(foreign language)

[Interpreted] But the off-line consumption has been strongly recovered and -- as we can see in most of the malls in Beijing.

(foreign language)

[Interpreted] But the pandemic is hitting a few cities in China too because -- due to the cause from the outbreak in U.S. and Europe. So we are still expecting that may still impact our auto shows in some -- certain cities.

Okay. That's helpful. So it sounds -- I mean, obviously, as expected, the vaccine and everything, these are longer-term initiatives still, but at least it's -- the ball has been starting to roll here. So that's a good positive sign that the trend is positive, at least. So happy to hear that.

Next question. Since there's only about 2 weeks remaining in the fourth quarter, so are there any preliminary data points maybe you can share in terms of how auto sales, your TuanChe-facilitated auto sales have trended on a weekly basis over the fourth quarter? Like would you expect the auto shows from off-line events to increase in Q4 from this third quarter?

Let me translate the question first. (foreign language)

(foreign language)

[Interpreted] In the third quarter, auto passenger car sales in China continue to recover trend starting in May, increased by 7.8% year-over-year, and this is driven by effective control of COVID-19 pandemic domestically and various government policies to promote auto sales as well as broad economy recovery that bolstered consumer confidence. The robust third quarter was followed by a continuous trend in October and November with a 9.3% and 11.6% auto passenger car sales growth, respectively. So that gives us further confidence in the sales outlook in the fourth quarter and 2021.

(foreign language)

[Interpreted] Our off-line business has also gradually and slowly recovered starting in the end of May. And now our off-line auto shows and special promotion events are now mostly back to normal in most cities we operate. But there's still lingering uncertainties in terms of the pace of recovery and the recent COVID-19 cases reported in Xinjiang, Dalian and Sichuan in the third quarter and fourth quarter as well as potential threat of a second wave of COVID-19 in the fourth quarter globally continue to give us uncertainty affecting the company's operation and financial results. So as far as we are concerned, we are still uncertain on the number of auto shows we can hold right now.

Okay. That's helpful. Yes, yes. That's great. And then I guess just 1 more question for me. Another update I kind of found interesting that you guys provided in your numbers from the press release was the number of cities that TuanChe has sales operations in, that number slightly declined Q-over-Q relative to the Q2 level. It was a slight decline, but it sounds like this may have been somewhat intentional. So I'm wondering if that is correct. And then are you exiting certain areas that maybe because they have less potential positive ROI?

Let me translate the question first. (foreign language)

(foreign language)

[Interpreted] That is a great question. Regarding to the cities we operated, we have -- as you can observe, we have maintained those cities with higher ROIs and more -- higher frequencies in auto shows. And then for those more remote cities with lower ROIs and maybe even lead to a loss when holding long-term auto shows, we would turn to new online auto shows and online special promotion events to cover those areas, and that would be a more cost-effective way.

That's interesting. Yes, it does. That sounds like a good move. So I'm happy to hear that as well. It sounds like a strategic repositioning a bit. So I guess, your revenue this quarter, congrats on that. You exceeded your guidance, exceeded my estimates. It's good to hear things are turning around, and I wish you the best.

Thank you very much, Jack. Operator, are there any further questions?

I'm sorry. There are no further questions. I'd like to turn the call back over to management for closing remarks.

Okay. Thank you once again for joining us today. If you have further questions, please feel free to contact TuanChe Investor Relations through the contact information provided on the website or The Piacente Investor Relations. Thank you.

This concludes the earnings conference call. You may now disconnect your lines. Thank you for attending.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]