Q4 2023 Cango Inc Earnings Call

Participants

Lin Jiayuan; Chief Executive Officer, Co-Founder, Director; Cango Inc

Zhang Yongyi; Chief Financial Officer, Director; Cango Inc

Presentation

Operator

Good morning and good evening, everyone. Welcome to Cango Inc.'s fourth quarter and fiscal year 2023 earnings conference call. At this time, all participants are in a listen-only mode, and 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 be making forward-looking statements.
With that said, I am now turning the call over to Mr. Jiayuan Lin, CEO of Cango. Please go ahead, sir.

Lin Jiayuan

(interpreted) Hello, everyone, and welcome to Cango's fourth-quarter 2023 earnings call.
2023 proved to be a year of resilience in the face of headwinds. While a long-term economic recovery remained on the horizon, the confluence of domestic and international factors caused a temporary slowdown. This resulted in slower-than-anticipated growth and dampened consumer confidence.
In the automotive sector, the traditional fuel vehicle market contracted steadily, while new energy vehicles where EVs experienced a new market share, sparking fierce competition within the segment. Transports became the norm in the auto sales landscape triggering a necessary restructuring within the industry. This shift saves the larger players and accelerated the survival of the fittest scenario.
Dealerships, particularly smaller ones in lower-tier markets, faced a significant operational challenges, especially in the latter half of the year.
In spite of challenging market environment in 2023, Cango delivered total revenue of RMB130 million in Q4 and RMB1.7 billion for the full year. The company strategically reduced the total outstanding financing of facility financing transactions to approximately RMB10 billion by year end. Our credit metrics remain stable within, 1%-plus and 3%-plus delinquency rates at 2.66% and 1.37%, respectively, reducing our risk exposure further. To mitigate this dynamic market, Cango implemented cost reduction measures and efficiency enhancements successfully lowering operating expenses.
As of December 31st, 2023, the company posted RMB3.33 billion in cash, cash equivalents and short and investment, as well as restricted cash that is bank deposits and short-term investments. This strong financial foundation provides a springboard for sustainable growth of our existing businesses and build out exploration of new into this.
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We took proactive steps to streamline our operations space included clearing our new car inventory and consolidating our platforms into a single powerful solution. In Q4, we successfully merged our new car platform, Cango culture into Cango, your comps, our used car platform. This strategic move optimizes resource allocation and boost operational efficiency. The upgraded Cango Yokohama now functions as a comprehensive online marketplace that connects upstream vehicle suppliers, aftermarket service providers and downstream more dealers in lower-tier cities. This integrated platform offers users a full suite of services throughout the year used car transaction process catering to three main scenarios that is online auctions, dealer-to-dealer transactions and brokers. This is field Kendall. Your call goes beyond facility contracts, facilitating transactions. We provide a robust ecosystem of services. This includes access to historical vehicle reports, vehicle evaluation and inspection, logistics and delivery insurance solutions and supply chain financing. All revenue streams, well, Prem primarily come from upstream store rentals, membership subscriptions and transaction related services.
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We streamline operations within the integrated Cango UCaaS platform in Q4. This included the introduction of a fixed price, dental and transaction service for cross-regional used car purchases. This innovative service simplifies and secures long distance transactions by offering price verification vehicle inspection guarantees and delivery services.
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Q4 38 apps during third party sellers have set of stores on Cango your car offering a comprehensive selection of vehicles, including new and used cars, along with traffic generation services. By leveraging our expertise in sales funnel management, we identified 9,887 potential business leads in Q4 with the display converted a significant portion of leases providing services to 3,499 online small dealers and facilitating 530 used car transactions.
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Besides attracting third-party sellers, we are also maximizing engagement and exploring new opportunities through our self operated stores. These stores offer a diverse range of services in all key areas. First, the repossessed car management because we handled repossessed vehicles primarily sourced from our auto financing business and collaborations with other lenders. Seven pace to be lead conversion will transform individual customer needs into tradable assets, facilitating transactions between them and dealers on our platform we initially focused on existing financing customers, but now we have expanded lead sources in Q4 to boost conversion rates.
Third, the B2B transaction facilitation, we provide transaction and logistics support for small dealer to dealer sales. And for sake, we have expanded our insurance services. Our insurance teams over of it offers comprehensive coverage, including auto insurance. And as of Q4, now auto options. I will enjoy high growth insurance for key regional clients.
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I bet with that, let me turn to what you should have for the time being put onto more flattish in Q3, how your content on the fresh imminently?
Henry, I'll call we understand you correctly. You can engineer Omni-Path from logical foundation. In Q4, we deployed essentially a platform leveraging our digital expertise to optimize resource matching for vehicle inventory, customer needs and auto financing. This powerful tool combined with our standardized, streamlined and intelligent transaction services aims to create a nationwide network for efficient use Koch circulation. Furthermore, we remain dedicated to empowering small dealerships. We offer services that help them reduce operating costs and diversify revenue streams, especially during challenging market conditions. Ultimately, our goal is to enhance their survival rate and overall success. Cango vision remains steadfast to become an industry leader by continuously refining and offering top-notch services and products across the entire automotive value chain.
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We see significant potential in China's burgeoning used car export market. Unlike the fierce competition within the domestic market in China as the world's largest auto manufacturer and the consumer versus the back haul of used cars, it goes by for exporters. Additionally, government policies are fostering a more transparent regulated used car market is translating to higher quality and more reliable vehicles that are competitors internationally. Furthermore, China's robust auto manufacturing and parts supply chain keep used car prices competitive globally, leveraging its position as the top international trading nation from China boasts a well-developed logistics network, ensuring efficient it secure delivery of used cars to international buyers.
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China's position as the world's leading auto airport with over 5 million vehicles shipped in 2023 and a projected upwards trend presents a compelling opportunity for the used car export market. Recognizing this potential Cango is actively pursuing the discounting incentives, leveraging our extensive experience and our present China's domestic auto market, combined with the advantage of being a US-listed company, which brings us access to capital and broader market reach. We've launched a comprehensive used car information exchange and export service platform. This innovative platform integrating both online and offline resources, caters specifically to auto dealers, the emerging and developing countries by partnering risk by partnering with Cango. These international derisking easy access to China's vast pool of used vehicles, a significant advantage in today's global market.
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Also Cango, our cross-border used car information exchange platform or triple W. auto Cango.com was launched in early March 2024, with an in-process inventory exceeding 75,000 SKUs. This platform is constantly growing with approximately 501,000 new vehicles added replay, leveraging cutting edge AI technology. Auto can go in Howard Hughes is with an intuitive search experience, making it easier than ever to find the perfect car. Furthermore, our platform prioritizes using directions ensuring eight pages to each customer's evolving needs, transparency, efficiency and U.S. acuity. Off back to Q4 to Cango, we are committed to providing a seamless and secure experience for all users with the ultimate goal of becoming the go-to platform for overseas buyers seeking high-quality used cars from China.
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Could you further bingo in terms of social and digital journey while acknowledging the current market complexities, we remain bullish on the long-term potential of China's auto industry and the strength of Tangoe's end-to-end service model in 2024, we are committed to solidifying our position within the Purdue transaction market, pioneering digital innovation and leveraging AI to enhance our platform and user experience as well as expanding our offerings by introducing new products and services across the entire value chain by working along with our dealer partners. These initiatives will allow us to create significant value and become a key player in China's dynamic technology-driven automotive landscape.
Sure.
Mr. Jacques, when the CFO, Tony, we you go away from channel and what's happened to the telco channel.
Now hand over to our Chief Financial Officer. Michael, how are you of the Company's financial performance?

Zhang Yongyi

Thanks, Jiayuan, and hello, everyone, and welcome to our fourth quarter and full year 2023 earnings call.
Before I started to review our financials, please note that unless otherwise stated, all numbers, I RMB terms and all percentage comparisons are on a year-over-year basis. Total revenue in the fourth quarter 2023 were 130.2 million compared with 487.1 million in the same period 2020 to guarantee income, which represents the fee income earned on a non-contingent aspect of our guarantee was 42.1 million in U.S. in the fourth quarter.
Now let's move on to our cost and expenses during the quarter. Total operating costs and expenses in Q4 2023 were 159.1 million compared with 698.7 million in the same period 2022. Cost of revenue in the fourth quarter decreased to 110.9 million from 481.7 million in the same period 2022 as a percentage of total revenues, cost of revenue in the fourth quarter of 2023 was 85.1% compared with 98.9% in the same period 2022. Sales and marketing expenses in the fourth quarter decreased to 4.4 million from 19.2 million in the same period 2022 as a percentage of total revenues, sales and marketing expenses in the fourth quarter of 2023, we're 3.4% compared with 4% in the same period 2022. General and administrative expenses in the fourth quarter decreased to 45.6 million from 66.2 million in the same period 2022 as a percentage of total revenues.
General and administrative expenses in Q4 2023 were 35% compared with 13.6% in the same period 2022. Research and development expenses in Q4 decreased to 7.3 million from 8.4 million in the same period 2022 as a percentage of total revenues.
Research and development expenses in Q4 2023 were 5.6% compared with 1.7% in the same period 2022. Net loss on contingent risk assurance liability in the fourth quarter were 22.2 million. Net recovery on provisions for credit losses in the fourth quarter or $31.2 million. The recovery was primary due to the positive impact of collections of financing receivables. We recorded 28.9 million in loss from operation in the fourth quarter of 2023 compared with 211.6 million in the same period 2020 to net loss in the fourth quarter was $103.8 million. Non-gaap adjusted net loss in the fourth quarter was $99.2 million on a per share basis basic and diluted net loss per ADS in the fourth quarter 2023 were both 0.95 respectively. Our non-GAAP adjusted basic and diluted net loss per ADS in the same period were both 0.91 respectively. For the full full year of 2023, our total net revenue were 1.7 billion. Total operating cost and expenses were 1.8 billion. Net loss was $37.9 million and non-GAAP adjusted net income was 0.6 million. Basic and diluted net loss per ADS were both 0.31. Non-gaap adjusted basic net income per ADS was 0.01 and non-GAAP adjusted diluted net income was zero respectively.
Moving on to our balance sheet. As of December 31, 2023, the company had cash and cash equivalents of 1 billion compared with $665.6 million as of September 30th, 2023. As of December 31, 2023, the company had short-term investments of 635.1 million. While the Company had restricted cash current bank deposit held for short-term investments of 1.7 billion. As of September 30th, 2023, the company had short-term investments of EUR2.4 billion.
Looking ahead to the first quarter 2024, we are now projecting our total revenues to be between A. and B. EUR50 million and IMBU. EUR100 million. Please note that this forecast reflects our current and preliminary view on the market and operating operational conditions, which are subject to change.
This concludes our prepared remarks. Operator, we are now ready to take questions, please.

Question and Answer Session

Operator

(Operator Instructions) The first question, (inaudible). Thank you, (Inaudible).

(Interpreted) At Emerson from Goldman Sachs asks three questions. First question, we noticed that a company has entered a strategic partnership with TomTom mobility, kind of management share some details on the progress. And second question is that we noticed the Company's current state houses, essential cash position, not a company cannot issue dividends, our distributors to distribute dividends. And my third question is what are the key factors in Cango, your call before and after integration?

Lin Jiayuan

Obviously, Amazon quite equal, WIN-T to economy LinkShare and the push on pushing into sort of pushing it to the way you go to conferences and new circles and conduct routine food?
Yes, our telco that you secure your questions, coaches onto your phone for the GE assets via one, wish you all the old telco Zonda, Taiwan law portfolios, new townhouse was in control prior to our pencil sharp and sit on the ESG front?
Thank you, Amazon, for your questions. The first for your first question, while telecom authority is a leading domestic shared mobility platform, it provides users with smarter, cleaner and healthier travel experiences. And Cango was a powerhouse in automotive trading and aftermarket businesses. Our extensive network of fast vehicle inventory will enable us to continue to seize opportunities in China's high-growth lower-tier markets, Motel One, myself on the IT tools systems that will hold has shipped on time. If you have other photo, your efficiencies and home equities at home with Azure time actually came from both parties are working together on the back-end system and program development. We will provide regular updates to keep everyone informed of the latest developments as they unfold.
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On your second question, since going public, we've established a track record of rewarding shareholders with consistent dividend to further solidify confidence in Tangoe's long-term growth trajectory of further dividend plans. We are maintaining a prudent approach carefully considering factors like overall strategic, our business development and our cash flow positions to ensure a sustainable dividend policy.
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Joe, you gave for Q4, you seem to have questions about Item four. And so wondering how full a yield after you tell who user has not been much interconnection to the joint conduct?
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You have total control your understanding here on your third question, prior to integration, can you call functions as a standalone platform dedicated to used car transactions, this included 14 vehicles, facilitating cost pressures and hosting online auctions. Following the integration of Cango, your car has evolved beyond the used car platform in our comprehensive marketplace, featuring third party sellers of new car sales, insurance and traffic generation services we are committed to continuously expanding this ecosystem by integrating even more third-party vendors, fostering a more dynamic and a very enriching user experience.
Nutrition.
Thank you, Ashley.
Thank Keith.

Operator

Your next question comes from (inaudible).

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I'm hoping to hear from. We take Securities.
I have two questions. The first question is could management share your insights for 2023 automotive market and provide outlook for 2020? For? My second question is on the used car export business. What about the progress and has the company considered working with some KOLs policies.
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Lin Jiayuan

Thank you for your questions. On your first question. And despite a sluggish start in 2023, the automotive market accelerated towards the latter part of the year and into early 2024. This momentum was fueled by a series of promotional activities caused by car manufacturers. We anticipate these price reductions to persist for some time. However, the intense competition within the industry has resulted in margin pressure for various players throughout the supply chain.
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Siemens went toward Golden sun tan questions, yada yada, yada, yada, yada, our 2024 outlook, a penetration rate has been surging over a year's growth from 28% in 2022 to 35% in 2023 and is expected to reach 40% by 2020 for these rapid shifts, intensifying competition within the AUV. segment as well as the completion of the vehicle segment. While traditional gasoline-powered vehicles remain profitable, their market share is contracting rapidly. A Visa experiencing robust sales growth by manufacturers are currently absorbing significant losses. So this contrasting dynamic presents substantial pressure on the overall market.
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On your second question, our used car for business for a now in March 2024, we launched auto Cango, the first of its kind cross-border information exchange platform for used car market. Also Chango bridges the gap in information services by connecting domestic Chinese used car dealers with foreign buyers, specifically targeting auto dealers in that can drive markets across emerging economies. The Virgin China's position as the world's largest auto market, auto Cango empowers the international buyers with easy access to a vast pool of quality used car powered by innovative AI technology. Our platform streamlines the user experience, enhancing vehicle discovery, search efficiency and user interaction to precisely meet evolving customer needs. Also Cango prioritizes transparency, efficiency and security throughout the entire transaction process, ensuring a smooth and secure experience for all parties involved.
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Zhang Yongyi

First, a profitability. We prioritize ventures with clear business models and transparent cost structures. And seventh, a long-term growth potential. However, to ensure efficient resource allocation, we conduct regular assessments within defined timeframes.

Thank you.

Operator

Thank you. We have no further questions at this time. I will now hand the call back to management for closing remarks.

Lin Jiayuan

Just thank you all for your participation in today's earnings call.