Bitauto Holdings Limited  (NYSE: BITA) Q2 2020 Earnings Call Transcript

Bitauto Holdings Limited  (NYSE: BITA) Q2 2020 Earnings dated August 24, 2020

Corporate Participants:

Andy Xuan Zhang — Chief Executive Officer and Director

Ming Xu — Chief Financial Officer

Operator

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

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

Unidentified Speaker

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

Before we proceed, please note that discussions today will contain certain 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 be 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 second quarter 2020 earnings call. In the second quarter, China’s domestic automobile industry remained challenging with sluggish retail passenger vehicle sales and the rising levels of dealer inventories, especially considering a resurgence of the COVID-19 outbreak in some major cities in June. While these factors adversely impacted our business, we are confident that the gradual macroeconomic recovery across many industries will present strong opportunities for Bitauto in the months ahead.

Looking at our advertising and the subscription businesses, weak vehicle sales and increasingly fierce competition in China’s online automobile advertising sector put pressure on our advertising business during the second quarter. However, our subscription business achieved mild revenue growth, thanks to the slight increase in Bitauto’s paying subscriber base.

Turning to our transaction services business, during the quarter, Yixin recorded about 69,000 total transactions in the second quarter, representing a year-over-year decrease of approximately 49.9%. Decrease was primarily driven by Yixin’s more conservative risk control approach. Looking ahead, in response to the uncertainties in China’s overall environment and particularly the automobile sector, we will stay focused on our core strategies — strategic initiatives. First, we will continue to upgrade and improve our content and product offerings, which we believe will provide better value to automobile consumers, car owners, automakers, and dealer customers. Second, we continue focusing on our ongoing strategic brand building campaigns to further raise Bitauto’s brand recognition in order to expand our user base and enhance user engagement. Third, Yixin will continue to optimize its conservative risk assessment methodology and strengthen its dealer and financial institution partnerships to explore opportunities as China’s automobile market recovers. We believe our efforts will help strengthen Bitauto’s position as the leading provider of Internet content and the marketing services and transaction services for China’s auto industry.

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, everyone. Despite the gradual recovery of China’s economy in the second quarter of 2020, automobile sector continued to underperform on a relative basis, impacting our top line results. Additionally, we continued to see margin pressure during the quarter due to our ongoing investments in user acquisition as well as our strategic branding and marketing initiatives. For the long run, we believe these investments will form a solid foundation to attract more users to Bitauto and enhance our value proposition to our automakers and dealer business partners.

Now, let’s look at our Q2 2020 financial highlights. Please note that I will reference financial figures in RMB. Bitauto reported revenue of RMB1.96 billion in the second quarter of 2020, compared to RMB2.79 billion in the corresponding period in 2019. Revenue from the advertising and subscription business in the second quarter of 2020 was RMB1.03 billion, representing a 2.2% increase from RMB1.01 billion in the corresponding period in 2019. Revenue from the transaction services business in the second quarter of 2020 was RMB738 million, compared to RMB1.49 billion in the corresponding period in 2019, mainly due to a weak passenger vehicle sales following the COVID-19 outbreak and more cautious underwriting standards imposed by Yixin. Revenue from the digital marketing solutions business in the second quarter of 2020 was RMB190.3 million, compared to RMB294.7 million in the corresponding period in 2019.

Cost of revenue in the second quarter of 2020 was RMB654 million, compared to RMB1.12 billion in the corresponding period in 2019. Cost of revenue as a percentage of revenue in the second quarter of 2020 was 33.4%, compared to 40% in the corresponding period in 2019. Gross profit in the second quarter of 2020 was RMB1.3 billion, compared to RMB1.67 billion in the corresponding period in 2019. Selling and administrative expenses in the second quarter of 2020 were RMB1.8 billion, representing a 10.1% increase from the corresponding period in 2019. The increase was primarily due to increase in provision for credit losses of the receivables related to Yixin and the increase in marketing expenses associated with the Company’s branding and marketing efforts, partly offset by the decrease in amortization of intangible assets related to the strategic cooperation with JD.com and a decrease in expenses related with personnel. Product development expenses in the second quarter of 2020 were RMB147 million, representing a 3.7% increase from the corresponding period in 2019. Share-based compensation, which was allocated to related operating expense line items, was RMB55 million in the second quarter of 2020, compared to RMB100 million in the corresponding period in 2019.

Non-GAAP loss from operations in the second quarter of 2020 was RMB594 million, compared to non-GAAP income from operations of RMB215 million in the corresponding period in 2019. Net loss in the second quarter of 2020 was RMB536 million, compared to net loss of RMB136 million in the corresponding period in 2019. Net loss attributable to Bitauto in the second quarter of 2020 was RMB369 million, compared to net loss attributable to Bitauto of RMB146 million in the corresponding period in 2019. Non-GAAP net loss in the second quarter of 2020 was RMB447 million, compared to non-GAAP net income of RMB216 million in the second quarter of 2019. Non-GAAP net loss attributable to Bitauto in the second quarter of 2020 was RMB334 million, compared to RMB — net income attributable to Bitauto of RMB155 million in the corresponding period in 2019. Basic and diluted net loss per ADS, each representing one ordinary share in the second quarter of 2020, amounted to RMB5.15 and RMB5.15 respectively. Net non-GAAP basic and diluted net loss per ADS in the second quarter of 2020 amounted to RMB4.65 and RMB4.65 respectively.

As of June 30, 2020, the Company had cash and cash equivalents and restricted cash of RMB8.6 billion. Cash used in operating activities, cash provided by investing activities, and cash used in financing activities in the second quarter of 2020 were RMB831 million, RMB3.3 billion, and RMB2.2 billion respectively.

In addition, given Yixin’s scale and significance to Bitauto, I would also like to share with you some of Yixin’s operating and financial highlights for Q2 2020. Bitauto’s controlled subsidiary Yixin, a primary operator of the Company’s transaction service business, facilitated approximately 69,000 financed transactions for the three months ended June 30, 2020, representing a year-over-year decrease of approximately 49.9%. The decrease was primarily driven by Yixin’s more conservative risk control methodology. The total aggregate financing amount facilitated through Yixin’s loan facilitation services and self-operated financing business was approximately RMB5.38 billion. Amid the challenging macroeconomic environment, Yixin continued to adopt conservative risk control methodology and to focus on its loan facilitation services. For the three months ended June 30, 2020, Yixin facilitated approximately 53,000 financed transactions, representing a year-over-year decrease of 21% and approximately 77% of Yixin’s total financed transactions. In the second quarter of 2020, on the U.S. GAAP, Yixin’s total revenue were RMB745 million, representing a year-over-year decrease of 50%. New core services revenue, which includes revenues from loan facilitation transactions and new self-operated financing lease transactions facilitated by Yixin during the period, were RMB258 million, representing a year-over-year decrease of 57%. As of June 30, 2020, 90 days plus past due ratio and 180 days plus past due ratio for all financed transactions were 2.46% and 1.4% respectively. On the U.S. GAAP, Yixin’s provision for credit losses of financial receivables in the second quarter of 2020 was RMB321.4 million.

With that, I’d like to start the Q&A session. Operator, please go ahead.

Operator

[Operator Instructions] 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. If you have any further questions, please contact our IR team. Thank you and good night.

Operator

[Operator Closing Remarks]