Bitauto Holdings Limited  (NYSE: BITA) Q1 2020 Earnings Call Transcript

Bitauto Holdings Limited  (BITA) Q1 2020 earnings call dated June 12, 2020

Corporate Participants:

Andy Xuan Zhang — Chief Executive Officer and Director

Ming Xu — Chief Financial Officer

Xiaoke Liu — President

Unidentified Speaker

Analysts:

Eddy Wang — Morgan Stanley — Analyst

Binbin Ding — JPMorgan — Analyst

Nick Hu — Financial Contoller, Yixin

Zhenyang Chen — CICC — Analyst

Presentation:

Operator

Hello and thank you for standing by for Bitauto’s First Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. After the management’s prepared remarks, there will be a question-and-answer session. And today’s conference is being recorded. If you have any objection, you may disconnect at this time.

I would now like to turn the meeting over to your host for today’s conference.

Unidentified Speaker

Thank you. Welcome to Bitauto’s first quarter 2020 earnings conference call. Speakers from the Company today are Mr. Andy Zhang, CEO; Mr. Xiaoke Liu, President; and Mr. Ming Xu, CFO.

After management’s prepared remarks, Andy, Xiaoke, and Ming will be available to answer your questions. In addition, Mr. Jiang Dong and Mr. Nick Hu, President and Financial Controller of Yixin will be available to answer your questions related to Yixin.

Before we proceed, please note that discussions today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities and Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include but are not limited to those outlined in our public filings with the SEC, including registration statement on Form F1. Bitauto does not undertake any obligations to update any forward-looking statement except as required under applicable law.

This call will include discussions of certain unaudited non-GAAP financial measures. Please refer to our earnings release, which was issued earlier today for reconciliations of these unaudited non-GAAP measures to the most directly comparable unaudited GAAP measures.

As a reminder, this conference is being recorded. In addition, a live and archived webcast of the conference will available on our website.

I will now turn the call over to Andy Zhang, CEO of Bitauto.

Andy Xuan Zhang — Chief Executive Officer and Director

Hello, everyone, and thank you for joining us for our first quarter 2020 earnings conference call. During the quarter, the COVID-19 outbreak significantly impacted economies in China and throughout the world, affecting most industries including the automobile sector. With the subsequent nationwide lockdown, new passenger vehicle sales for the first quarter of 2020 declined significantly year-over-year. While the difficult industry environment adversely impacted our advertising transaction businesses, we are however pleased that our key operational metrics maintained stable growth throughout.

According to QuestMobile, daily active users of Bitauto media app and the combined DAU of both the Bitauto media app and Auto Pricing app increased by 259% and 46% respectively, in April 2020 compared with October 2018, when we introduced the upgraded Bitauto app.

Despite the industry headwinds, our overall number of sales leads remained resilient, showing with only a slight 2.6% decline year-over-year for the quarter. And the proportion of our organic sales leads maintained an upward trajectory, reaching 73%.

As a result of ongoing improvement in the quantity and the quality of our sales leads, our subscription business continued to gain recognition from our dealer customers. As a result, our annual retention rate for paying subscribers achieved a record high in the first quarter of 2020 and with more dealer customers operating to our premium and deluxe premium service packages, we further enhanced our ARPU for the period.

Despite the downturn in the first quarter, our advertising business will be recovering robustly as auto sales rebound recently and automakers become increasingly aware of our improved traffic and the sales leads.

We have also continued to make progress in our long-term strategic brand building campaign during the first Chinese New Year holiday. Our intensive advertising push across multiple channels, helped to raise our profile among consumers as demonstrated by a surge in third-party index scores during the period.

In May, we rolled out new TV commercials and the posters to accompany our Auto Pricing Bargaining Shopping Season campaign, further enhanced Bitauto’s brand awareness among the general public.

During the quarter, decreased automobile sales volumes and the reduced consumption level significantly impacted the Yixin’s transaction business. Yixin’s total transactions volume were approximately 52,000 units, representing a 64.6% year-over-year decrease.

In spite of the uncertainties in effect, we’re confident that Yixin’s industry leadership and the clear competitive advantages will allow us to further strengthen relationships with business partners and capture more business opportunities in the months ahead.

We’ll remain committed. Looking ahead, we look to remain committed to our core business strategies to enhance Bitauto’s long-term industry leadership. First, we will increase and improve our content, product and service offerings. We also aim to strengthen our efforts to increase mobile traffic, as well as the quantity and quality of our sales leads in order to optimize customer ROI on the Bitauto’s platforms.

Second, we will increase and improve our content and product and service offerings — sorry — second, we will continue our strategic investment in brand building to help broaden our user base and further raise our brand value among consumers and business partners.

Third, building on the strong customer feedback in the first quarter of our AI-based, result-driven marketing solutions, who will work to further expand this business with mainstream automakers. We are confident that our advanced data driven marketing solutions will significantly improve the effectiveness of our automaker customers and help them sell more cars in this challenging market, challenging environment.

Finally, Yixin will continue to adopt conservative risk assessment standards and work closely with our business partners to overcome industry challenges while rolling out diversified products and improved customer service in order to create new growth drivers.

In summary, Bitauto will remain devoted to enhance our competitiveness and the offerings as a leading provider of Internet content and the marketing services and transaction services for China’s automobile industry, exploring ways to add value to auto users and owners, automakers and dealers as the economy begins to recover.

Finally, as you may just see, earlier today we issued a press release announcing that Bitauto has entered into a definitive agreement for the ongoing — for the going-private transaction originally announced last September. The transaction is expected to close in the second half of 2020, subject to its customary closing conditions and the shareholder approval. For further details, please refer to the press release on our IR website.

With that, I’ll turn the call over to Ming, to go over the financials.

Ming Xu — Chief Financial Officer

Thank you, Andy. Good evening and good morning, everyone. In the first quarter, revenue from our advertising and transaction business was impacted during the COVID-19 outbreak. However, we have seen a strong recovery in these businesses as the automobile market picked up in April.

Our profitability during first quarter was under pressure, mainly due to the increasing provision for credit losses of finance receivables by Yixin, as well as Bitauto’s continued investment in branding and marketing initiatives. While we are still closely monitoring and assessing the impact of COVID-19 on our business, particularly on asset quality in our transaction services, with the worst of epidemic likely behind us and the automotive industry starting to recover, we are confident that our operating and the financial performance will continue to improve for the rest of 2020.

In the long run, we believe Bitauto’s strategies will enhance operating efficiency and create strong value for our shareholders.

Now, let’s look at our Q1 2010 financial highlights before moving to Q&A. Please note that I will reference mainly to financial figures in RMB in the following discussion.

Bitauto reported revenue of RMB1.74 billion in the first quarter of 2020 compared to RMB2.73 billion in the corresponding period in 2019. Revenue from the advertising and subscription business in first quarter of 2020 was RMB775.4 million compared to RMB897 million in corresponding period in 2019, mainly due to the decrease in marketing spending by automakers caused by the continued decline in new car sales and offset by slight growth in our subscription business.

Revenue from the transaction service business in the first quarter of 2020 was RMB849.7 million compared to RMB1.65 billion in corresponding period in 2019, mainly due to the weak passenger vehicle sales after the COVID-19 outbreak.

Revenue from the digital marketing solutions business in the first quarter of 2020 was RMB113.1 million compared to RMB187.9 million in the corresponding period in 2019. Cost of revenue in the first quarter of 2020 was RMB629.1 million compared to RMB1.07 billion in the corresponding period in 2019. Cost of revenue as a percentage of revenue in the first quarter of 2020 was 36.2% compared to 39% in corresponding period in 2019.

Gross profit in the first quarter of 2020 was RMB1.11 billion compared to RMB1.67 billion in the first — in the corresponding period in 2019. Selling and administrative expenses in the first quarter of 2020 were RMB2.45 billion, representing a 63.3% increase from the corresponding period in 2019. This increase was primarily due to the increase in provision for credit loss of finance receivable and the increase in marketing expenses associated with the company’s branding and marketing efforts, partially offset by the decrease in share-based compensation and expense related to personnel.

Product development expenses in the first quarter of 2020 were RMB147 million, representing an 8.4% decrease from the corresponding period in 2019. Share-based compensation, which was allocated to related operating expenses line items was RMB78.2 million in the first quarter of 2020 compared to RMB144.2 million in the corresponding period in 2019.

Non-GAAP loss from operations in the first quarter of 2020 was RMB1.3 billion compared to non-GAAP from operations of RMB365.8 million in the corresponding period in 2019. Net loss in the first quarter of 2020 was RMB1.28 billion compared to net income of RMB92.8 million in the corresponding period in 2019.

Net loss attributable to Bitauto in the first quarter of 2020 was RMB832.1 million compared to net income attributable to Bitauto of RMB32.5 million in the first quarter in the first quarter of 2019.

Non-GAAP net loss in the first quarter of 2020 was RMB1.04 billion compared to non-GAAP net income of RMB284.7 million in the corresponding period in 2019. Non-GAAP net loss attributable to Bitauto in the first quarter of 2020 was RMB644 million compared to non-GAAP net income attributable to Bitauto of RMB152 million in the corresponding period in 2019.

Basic and diluted net loss per ADS, each representing one ordinary share in the first quarter of 2020 amounted to RMB11.61 and RMB11.61 respectively. Non-GAAP basic and diluted net loss per ADS in the first quarter of 2020 amounted to RMB8.97 and RMB8.97, respectively.

As of March 31, 2020, the company had cash and cash equivalent and restricted cash of RMB8.3 billion. Cash provided by operating activities, cash provided by investing activities and cash used in financing activities in the first quarter of 2020 were RMB210 million, RMB4.1 billion and RMB3.5 billion, respectively.

In addition, given Yixin’s scale and a significance to Bitauto, I would also like to share with you some of Yixin’s operating and the financial highlights for Q1 2020.

Bitauto’s controlled subsidiary, Yixin, the primary operator of the company’s transaction service business facilitated approximately 52,000 financed transactions for the three months ended March 31, 2020, representing a year-over-year decrease of approximately 64.6%. The decrease was primarily due to the sharply decreased trading volume of China automobile transactions and the lowered customer consumption capability caused by the outbreak of COVID-19.

The total aggregate financing amount facilitated through Yixin’s loan facilitation services and self-operated financing business was approximately RMB3.9 billion. Amid the challenging macroeconomic environment, Yixin continued to adopt a conservative risk control methodology to focus on its loan facilitation businesses.

For the first quarter 2020, Yixin facilitated around 50,000 financed transactions, representing a year-over-year decrease of 48% and approximately 96% of Yixin’s total financed transactions.

In the first quarter of 2020, under U.S. GAAP, Yixin’s total revenues were RMB862 million, representing a year-over-year decrease of 48%. New core services revenues, which include revenues from loan facilitation transactions and new self-operated financing lease transactions facilitated by Yixin during the period, were RMB221.2 million, representing a year-over-year decrease of 56.7%.

As of March 31, 2020, 90-day plus days past due ratio and 180 days plus — 180 plus days past due ratio for all financed transactions, including third-party loan facilitations, were 2.6% and 1.6%, respectively. Under U.S. GAAP, Yixin’s provision for credit losses of finance receivables in the first quarter of 2020 was RMB1.07 billion.

With that, I will turn to guidance for the second quarter of 2020. Bitauto currently expects to generate revenue in the range of RMB1.85 billion to RMB1.95 billion in the second quarter of 2020. This forecast takes into consideration of seasonality factors in Bitauto’s businesses and excludes any impact of foreign currency fluctuation. The above range reflects management’s current and preliminary view, which is subject to change.

Let’s now start the Q&A session. Andy, myself, Xiaoke and Yixin’s Nick are available to take your questions. Operators, please go ahead.

Questions and Answers:

Operator

Thank you. [Operator Instructions]. Our first question is from the line of Eddy Wang of Morgan Stanley. Please go ahead.

Eddy Wang — Morgan Stanley — Analyst

Hi, Andy, Xiaoke, Ming, thank you for taking my question. I have one question regarding your Auto Pricing business. So as mentioned that the first quarter, the pricing business actually was significantly impacted by the pandemic. But we have seen that in April and May, the auto sales actually have been recovered and in May have rebounded quite strong.

So, just want to know, do you have seen any recovery of the Auto Pricing business in the second quarter so far? And maybe you can also share with us about the — your view on the auto market in the second half of this year, that will be very helpful. Thank you.

Andy Xuan Zhang — Chief Executive Officer and Director

Sorry, would you mind translating your question by yourself?

Eddy Wang — Morgan Stanley — Analyst

Oh, yes. [Foreign Speech]

Xiaoke Liu — President

Thank you for the question, Eddy. I am Xiaoke, President of the Bitauto. I will take your questions.

Okay. So, as you mentioned, the auto sales rebounded quite strongly in April and in May, actually in May it returned to positive growth for quite a long time. Actually, we foresaw this rebound back in — as early as April, based on our experience about the industry and also based on our data, our traffic. And we expect that this could continue into June.

So, we understand the need from the OEMs to try to attract as many customers as possible in this period. So, that’s why we launched our event, which is the auto bargaining season. And we offer that product to our OEM customers.

So, with the help of these new sales events, the bargaining season and also traditional 66 event, we actually see very strong reception from our OEM customers and we see solid recovery of the advertising revenue for ourselves.

And we also noticed that in the latest — in the recent events — months, actually the OEMs are paying increasing attention or focus on sales leads. Although they traditionally you can think of them as brand advertisers, but now they’re increasingly focusing on the sales leads.

And that I think also plays into our strategy and our transformation in the past one to two years. We — actually, now we have seen very strong growth in the quantity and quality of our sales leads. And that also helps us to — and that also are getting recognized by our OEM customers.

So last year, as you’ll recall, we made important investments and R&D efforts into our big data product and AI-driven advertising product. And these efforts have been — are bearing fruits right now. We are seeing very strong reception and recognition of our products from our OEM customers. Currently, we have 19 major OEMs signing — using our products, and that also helps our Q2 advertising revenue.

So, with all that preparations in-house, different products, and also with the recognition from our OEM customers, we believe that — we’re confident that our advertising business will have a pretty good performance in Q2 and likely in the second half of the year. Thank you.

Eddy Wang — Morgan Stanley — Analyst

Thank you, Xiaoke. Thank you, Ming.

Operator

And next question is from the line of Binbin Ding of JPMorgan. Please ask your question.

Binbin Ding — JPMorgan — Analyst

[Foreign Speech]. I will translate myself.

So, my first question is on the COVID-19 impact on dealer subscription business. Can you give us some color on the trend of the number of paying dealers in the first quarter, and maybe also initial trend into the second quarter? I noticed Autohome reported earlier a roughly 10% decline in paying number of dealers in 1Q. So, just wondering if management has seen a similar trend because of the shutdown of dealer shops in the first quarter? And how will that impact the renewal rate of the dealership contracts in the following quarters?

My second question is regarding the provision of Yixin, which increased substantially in the first quarter. So, how should we look at the trend in the next few quarters? Thank you.

Andy Xuan Zhang — Chief Executive Officer and Director

Thanks, Binbin. I’ll take the first question, and Nick, the Financial Controller of Yixin will take the second question.

So, I think in the first quarter and also in the — so far in the second quarter, we haven’t seen a large-scale close down of dealerships. I think you also read from the news and also some of the research reports that the dealers actually are being helped by the OEMs and also by the banks during the COVID-19 period, and also which helped them to get through.

So, actually, even though they didn’t manage to sell a lot of cars during that period, I think most of them actually survived. And as a matter of fact, if you pay attention to the share price performance of the dealership companies in this year, actually, you can see that a lot of them actually performed quite well.

And so, for us, actually, we — directly to answer your question, we actually — if you read in our earnings release, we actually saw a record high retention rate for our dealership business in the first quarter of 2020.

So, well, technically from December to January, there were some declines in the number of dealerships but that quickly rebounded. I think currently, we are now already close to or above end of 2019 level.

I think, fundamentally — we were actually pretty comfortable with our performance of the dealership business — the subscription business. I think, fundamentally, that was helped by our — that was driven by our strong and remarkable improvement in the quality and quantity of our sales leads during the past one to two years. I think the dealers are feeling more comfortable and experience a very cost effective ROI on using our products. And that’s actually the key reason they choose to stay with our platform and more dealers are using our platform. And we have been able to actually — even though we have announced last year that we won’t raise the price this year, but actually we have been seen a slight ARPU increase due to the mix improvement. More dealers are upgrading to our deluxe and premium packages.

That’s my answer to your question. And then Nick will answer your question regarding the asset quality of Yixin.

Nick Hu — Financial Contoller, Yixin

Yes. Thank you, Binbin, for your question regarding the provision of Yixin. So, in the first quarter of 2020, and due to the outbreak of COVID-19, most economic activities in China were shut down. And our customers’ payment capabilities were massively impacted for sure, especially in February and March.

So, this just pushed up our delinquency ratio without exceptions. And in responding to such challenging environment, we adopted very conservative accounting policies. So, we booked about RMB1 billion of provision in the first quarter.

And starting from April, we’ve seen some recovery from first quarter. We see the recovery of daily repayments from our customers and also the improvement of the delinquency situation.

However, at this moment, the macro is still very challenging, and the situation is somehow uncertain at this point. So, we will still adopt a very conservative risk control methodology in the second quarter, and to closely monitor our delinquency situation. Thank you.

Operator

Thank you. The next question is from the line of Zhenyang Chen of CICC. Please go ahead.

Zhenyang Chen — CICC — Analyst

[Foreign Speech]. Good evening, management. Thanks for taking my questions. My question is on our own APP, we have updated our APP for a while, and we could find that our DAU data has already shown some reasonable improvements. I’m wondering how this helps our advertising and subscription business? Thank you.

Xiaoke Liu — President

Okay, thank you. I’m Xiaoke, I will take the question.

So, we have been upgrading and optimizing our product, the Yiche APP, for more than a year, and actually we started our three-year rebranding campaign in October of last year.

So, so far, we have seen a very strong growth in every major operating metrics in the past 18 months, particularly regarding the sales lead, I think we have seen especially strong growth in terms of — in the area of sales leads.

So, I think, the — if you do some ground channel testing in the industry, you will know that all the major OEMs and dealerships are improving their perception and their relationship with us. And all that improvement is being driven by the improvement in the quality and quality of our sales leads.

So, with the slowing macro economy and the impact of the COVID-19 epidemic, so we are seeing that — as I talked — as I mentioned before, we’re seeing increasing demand and focus on sales leads from both our OEMs and dealer customers.

As evidenced by the — there is, as I mentioned, improved retention rate or renewal — contract renewal rate of our subscription business, and also there’s a mixed upgrade as has been described, and all those really are a vote of confidence from our customers. Thank you.

Zhenyang Chen — CICC — Analyst

Thanks.

Operator

Thank you. We are now approaching the end of the conference call. I will now turn the call over to Bitauto’s CFO, Ming Xu, for closing remarks.

Ming Xu — Chief Financial Officer

Once again, thank you for joining us today and thank you for your continuous support. Please don’t hesitate to contact us if you have any further questions and we look forward to talking with you in the coming months.

Operator

[Operator Closing Remarks]