Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to TuanChe Limited Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After prepared remarks by the management team, there will be a question-and-answer session. 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 second 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 provisions 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 these and other risks and uncertainties is included in our earnings release and our Registration Statement filed with the SEC. TuanChe does not assume any obligation 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 developments. He 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 second quarter 2020 earnings call.

In the second quarter, we are pleased to report 63.3% year-over-year reduction of net losses attributable to the company's shareholders, primarily driven by the acceleration of our rigorous cost measures and online strategy, despite a year-over-year decrease of 73.1% in net revenues and a year-over-year decrease of 70.1% in gross profit due to material COVID-19 related impact.

Net loss attributable to the company's shareholders in the second quarter of 2020 was RMB40 million compared with RMB108.9 million in the second quarter of 2019. Let's take a thorough look at the second quarter performance of our business segments while also providing additional detail on our strategic and operational priorities.

First, our offline marketing services. As we have discussed in our first quarter earnings call and in the press releases prior to today, out of concern for public health and in accordance with all national and local regulatory guidelines on COVID-19 prevention and control, we held a very few offline events in April 2020.

These events gradually resumed in late May. Given that the suspension of events lasted for the significant part of the second quarter, our operating and financial performance for offline marketing services continued to be materially affected by the pandemic.

We organized 61 total shows across 56 cities compared with 344 auto shows in 186 cities in the second quarter of 2019. That being said, our offline auto shows and special promotion events are now mostly back to normal in some cities we operate. China's auto market has also begun to show strength.

In July, China's auto retail sales increased 7.7% year-over-year, the highest level since May 2018. In this context, we are optimistic we can deliver a significant quarter-over-quarter improvement in the third quarter for our offline marketing services, while making sure the health and safety of our employees and customers remains our top priority.

Strategically, we will continue to assess and adjust the pace of resumption of our offline business and focus on generating higher ROIs. We will also further leverage our deep insights in automotive transactions and develop customized and targeted special promotion events for each auto dealer and OEM.

Next, let me move on to our growth initiative in virtual dealership and online marketing services.

Our revenues from virtual dealerships, online marketing services and others, reached RMB19.9 million, increasing 180% year-over-year, primarily driven by successful online sales events that were held during the second quarter, and most notably, the live streaming promotion events was conducted in collaboration with Tmall Auto during the week of June 18, 2020.

Such encouraging results were propelled by our unique integration of touch points and channels for online customer acquisition and marketing with offline promotion activities, which not only creates a seamless and holistic shopping experience for consumers, but also helps auto OEMs and dealers effectively reach customers and achieve increased sales conversion rates.

Now, I would like to add more color on live streaming and its role in automotive sales. First of all, e-commerce transactions facilitated by live streaming has experienced a very fast growth in recent years. In 2019, live streaming accounted for about 4% of China's e-commerce GMV.

As consumer behavior shifted faster online this year due to the impact of the pandemic, live streaming penetration is expected to reach a rate of 7% to 9% according to iMEDIA Research.

On the other hand, since the purchase decision surrounding a car is much more dynamic and protected compared to general consumer products, completing an auto transaction entirely online has been proven difficult.

But given our successes in combining online live streaming with offline infrastructure and capabilities, we expect live streaming promotion events to become the central component for the acceleration of full digitalization of automotive marketing.

And we see ourselves increasingly well-positioned to empower both the consumers and the manufacturers and dealers in the end, capturing the enormous opportunity associated with the changes in the automotive retail industry.

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

Thank you, Mr. Wen. Hello, everyone. Thank you for joining us. As our CEO, Mr.

Wen, just mentioned, while COVID-19 pandemic was effectively contained in China, the China -- the company continued to hold fewer auto shows and special promotion events during the second quarter of 2020 than usual, in accordance with government guidelines and for the best interest of public health.

This has resulted in a 73.1% year-over-year decline in net revenues to RMB54.7 million in the second quarter.

Nevertheless, as our offline events gradually resumed operations since late May and our virtual dealership and online marketing services registered strong growth, our net revenues and gross profit both rebounded strongly from first quarter, achieving 464.9% and 658.3% quarter-over-quarter growth, respectively.

Amidst the COVID-19 and macroeconomic challenges, we remained focused on optimizing our cost structure, which resulted in a 66.8% year-over-year reduction in operating expenses and significantly reduced our net losses, both year-over-year and sequentially.

We are closely monitoring the circumstances and will adjust our operation strategy accordingly, while keeping a disciplined cost structure in order to deliver positive returns for our shareholders in the long run. Now I would like to walk through our second 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 second quarter were RMB54.7 million, decreasing 73.1% from RMB 203.5 million in the same period last year. This was a result of the adverse impact of the COVID-19 pandemic and the sluggish Chinese economy.

The decrease was partially offset by the steady growth of virtual dealerships and online marketing services and others. Compared with the first quarter this year, total revenues increased by 464.9%, as our offline services recovered and our online services made strong progress.

Due to the continued adverse impact of the COVID-19 pandemic, our offline marketing services revenues generated from auto shows decreased by 82.5% to RMB33.4 million from RMB190.6 million in the second quarter of 2019. The offline marketing services revenue generated from auto shows increased 486.5% over the first quarter of 2020 of RMB5.7 million.

Revenues generated from special promotion events in the second quarter of 2020 were RMB1.5 million compared with RMB5.8 million in the second quarter of 2019 and RMB0.3 million in the first quarter of 2020.

Revenues from our virtual dealership, online marketing services and others increased by 180% to RMB19.9 million during the quarter compared with RMB7.1 million in the second quarter of 2019 and achieved a quarter-over-quarter growth of 438.3%, primarily due to our continuous expansion of online marketing services, including commencements of live streaming promotion events.

The year-over-year growth was also helped by revenues generated from our completed acquisition of Longye International Limited in January 2020. Our gross profit in the second quarter decreased by 70.1% to RMB43 million from RMB144 million in the second quarter of 2019, but increased by 658.3% quarter-over-quarter.

Our gross margin increased to 78.6% from 70.8% in the same period last year, primarily due to the change in the revenue mix. In the second quarter, selling and marketing expenses decreased by 77.7% to RMB 48.6 million from RMB 217.5 million in the second quarter of 2019 and increased by 53.1% compared with the first quarter of 2020.

The year-over-year decrease was primarily due to decrease in promotion expenses and stock compensation as a result of cost measure controls -- cost control measures taken by the company and reduced offline events.

General and administrative expenses were RMB28 million compared with RMB28.1 million in the second quarter of 2019 and RMB24.3 million G&A expenses in the first quarter of 2020. Research and development expenses decreased by RMB 8.3 million from RMB9.9 million in the second quarter of 2019, primarily due to the company cost control measures.

R&D expenses were flat compared with the first quarter of 2020. Our loss from continuing operations was RMB41.8 million in the second quarter, which is lower compared with RMB111.4 million in the same period last year and RMB59 million in the first quarter of 2020.

Excluding the effects of share-based compensation expenses, adjusted net loss attributable to the company's shareholders was RMB32.8 million in the second quarter compared with RMB 29.3 million in the same period last year, and improved significantly from a loss of RMB 51.9 million in the first quarter of 2020.

Adjusted basic and diluted net loss per ordinary share were both RMB0.11 in the second quarter compared with RMB0.1 in the same period last year.

Adjusted EBITDA was a loss of RMB32.1 million in the second quarter compared with a loss of RMB30.4 million in the same period last year, and improved substantially from a loss of RMB50.7 million in the first quarter this year. Now turning to our balance sheet.

At the end of second quarter of 2020, we had cash and cash equivalents, time deposits and short-term investments of RMB200.4 million. For the third quarter 2020, we expect our net revenues to be between approximately RMB90 million and RMB95 million, representing a year-over-year approximate decrease of 33.6% and 29.9%.

This is primarily due to the estimated declining number of offline events that is expected to be held in the third 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 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 of Maxim Group..

So I guess I'll just start with the China auto environment as a whole. If you could just kind of summarize what you're seeing in terms of new vehicle sales and the opportunities. Or if basically the market is getting more healthy and steady and consistent, if there's any green sky or blue skies ahead.

Or do you expect it to remain choppy relative to where you were a few months ago when we last spoke?.

Okay. Great. Nice to talk to you again, Jack, and let me translate the first question. [Foreign Language].

[Foreign Language].

In the second quarter, the new car sales in China started to rebound. It increased by 1.8% and 2.9% year-over-year, respectively, in May and June. And in July, the auto retail sales increased by 7.7% year-over-year. This is the highest level we've seen since May 2018.

And this is also helped by the government's measure to contain COVID-19 pandemic domestically as well as different local governments have taken policies to promote auto sales and domestic consumptions.

So the market environment is much -- have been much improved since second quarter, and we are having quite optimistic forecast for now on the market side..

[Foreign Language].

Does that answer your question, Jack?.

Yes. Yes, that was fantastic. And then another question I have is as it relates to the second quarter and your results. Gross margin -- while revenue continues to be pressured, and obviously so, gross margin was pretty significantly high. It was in the high 70s, which was a pretty exceptional performance for gross margin.

And you guys mentioned in the prepared remarks that this is due to mix primarily.

But is there anything else that was helping the gross margin profile this quarter besides just mix?.

Do you need my translation? Let me take your question..

So yes, the gross margin for our company has improved significantly from -- well, at higher 70s. This is mainly due to the change in the revenue mix. Because in the second quarter, our online marketing services has grown strongly. So -- and the gross profit for that revenue side has been over 80%. So that's the main reason our gross margin has improved.

Does that answer your question?.

Okay. Understood. That's helpful. Yes. Yes, it does.

And then I guess, just in terms of how about automobile transaction sales? Are you guys noticing any -- of the automobiles you did facilitate to sell during the quarter, are there any noticeable trends? Or, I don't know, I guess, in terms of the markets you serve within China, did you see a noticeable trend shift in how many vehicles you're able to sell through the virtual dealer platform? Or at least how you're enticing maybe new leads? Is that driving the virtual platform? I'm just wondering if there's anything longer term or midterm in the strategy for the offline business that you have.

And how that relates to the online business you have? How is the omnichannel strategy working as a whole basically?.

Yes. Sure, Jack. Let me translate your question, and maybe we'll take -- answer that on another respect. Okay. [Foreign Language].

[Foreign Language].

We are still seeing an upside trend on the China new -- China auto market new car sales in August. And we are expecting the traditional high consumption season in the fourth quarter, starting from September. And so if there is no another hit from the COVID-19 pandemic, we are seeing very positive market sales trends in the overall market..

[Foreign Language].

But as we mentioned in our prepared remarks, the user behavior is shifting online now. So this year, we have made significant progress in our online auto shows and online special promotion events.

Although we have been cooperating with Alibaba since -- for several years by now, the depth of the cooperation has improved significantly since the end of last year.

We have launched a lot -- a number of online live streaming, special promotion event on Tmall Live, and our online program provides a solution that is win-win for both OEMs, dealers and consumers..

[Foreign Language].

And from our perspective, the online business has generated higher gross margins. As Chenxi just mentioned, it should be around 80% or even higher. And on the other side, besides Tmall Auto, we have been also cooperating with Baidu Youjia, and that is the auto segment of the Baidu portal, which is the largest search engine in China.

So we have been their sales representatives in all of China and generated a related data product. So this also contribute to our online marketing revenues since first quarter of this year, and will continue to be a bigger part of our online marketing revenue throughout the year.

Does that answer your question, Jack?.

Yes. Absolutely. That more than answers my question. I appreciate the added color. The last thing is just as you look -- a forward-looking question again. You guys have done a nice job, especially with Q2 again, of controlling your operating expenses during this climate that we're in today.

Just in terms of the directional pattern for the rest of the year, how would you expect the operating expenses to trend as you look forward? Or -- and how much of it is kind of variable and it just depends as we go along here? Or is there anything concrete you can say about operating expenses and the trend?.

Okay. Ronnie will take your question..

Well, in terms of operating expenses, we will expect that the operating expenses will grow because some of it are related to our operations, to our offline and online services. So as our revenues recover, the expenses will grow.

But in terms of the overhead side of the operating expenses, we'll try our best to control that, to take more cost cutting measures. So while the overall operating expense will grow, but for the overheads, it will remain the same or similar..

Great. Thanks for the question. We're looking forward to see you next time.

And operator?.

This concludes the earnings conference call today. You may now disconnect your lines..

Thank you..

Thank you..

Thank you..