Good morning and good evening, ladies and gentlemen. Thank you for standing by to welcome to TuanChe Limited Third 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’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 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 third quarter 2020 earnings call. We are pleased to report third quarter results that demonstrate -- demonstrated our momentum in rebuilding revenues and reducing net losses both in the wake of the severe market conditions brought about by COVID-19 earlier in the year.

While our net revenues were RMB100 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 recovery in offline marketing services as gradual resumption of our offline auto shows that began in May is making steady progress.

In addition to the sequential quarter-over-quarter recovery of revenue, we further exited on our rigorous cost containment measures, mitigating our net loss attributable to the company’s shareholders to RMB41.2 million, compared with RMB46.8 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 offline marketing services.

As we’ve talked on our second quarter earnings call, and COVID-19 pandemic increasingly under control in China, we started to progressively resume our offline events in late May, while keeping in accordance with 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 RMB82.6 million in net revenues and ready to form auto shows from 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, and 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 a 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 and momentum in the fourth quarter on and beyond.

Strategically for offline marketing services, we will continue to focus on generating higher ROI, but also further leveraging our deep insights in automotive transactions and have developed, optimized and targeted a special promotion -- promotional event 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 dealerships, online marketing services and others reached RMB15.4 million, increasing 168.9% year-over-year. This was primarily driven by successful online promotion events that were held during third quarter.

Our strategic collaboration with Baidu Youjia and Webank and the revenues generated from our acquisition of Longye International Limited in January 2020.

If there is a silver lining to the leverages -- ravages caused by the pandemic, it has been the phenomenal growth in the digital economics of online services, including streaming events, are benefiting from this trend, and we have been -- we have seen sustained positive revenue contribution from this segment.

A key factor in this success has been the collaboratively – 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 a 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 these engagements, we not only become an integral part of the ecosystem that contributes value through strong OEM and dealer relationships, but we also gain significant exposure for our own events through their extensive reach, as well as gain 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 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 multitude of dynamic forces that are now rapidly reshaping the industry, we are confident that drawing our -- 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 Yu, our Deputy CFO, for 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 to -- 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 offline 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 continue to execute rigorous cost and expense control measures.

By doing so, we were able to register an increased gross margin of 72.1% and a reduction of total operating expenses by 21.4% year-over-year, leading to a 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 omni-channel 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 RMB100 million, decreasing 26.2% from RMB135.6 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 offline services recovered and our online services maintain solid performance.

As we progressively resumed our offline auto shows, our offline marketing services revenues generated from these auto shows decreased by 33.2% to RMB82.6 million from RMB123.6 million in the third quarter of 2019. The offline marketing services revenues generated from auto shows increased by 147.6% over the second quarter of 2020 of RMB33.4 million.

Revenues generated from special promotion events in the third quarter of 2020 were RMB2.0 million compared with RMB6.0 million in the third quarter of 2019 and RMB1.5 million in the second quarter of 2020.

Revenues from our virtual dealership, online marketing services and others increased by 160.9% to RMB15.4 million during the quarter compared with RMB5.9 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 a completed acquisition of Longye International Limited in January 2020. Our gross profit in the third quarter decreased by 22.6% to RMB72.1 million from RMB93.2 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 same -- 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 RMB91.6 million from RMB108.8 million in the third quarter of 2019 and increased by 88.6% compared with the second quarter of 2020.

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 offline events.

General and administrative expenses were RMB15.9 million, significantly lower compared with RMB25.0 million in the third quarter of 2019 and RMB28 million G&A expenses in the second quarter of 2020. primarily due to the decrease in stock compensation expenses.

Research and development expenses decreased by RMB7.1 million from RMB12.2 million in the third quarter of 2019 and RMB8.3 million in the second quarter of 2020, primarily due to the decrease in stock compensation expenses.

Our loss from continuing operations was RMB42.6 million in the third quarter, lower compared with RMB52.8 million in the same period last year, and slightly higher compared with RMB41.8 million in the second quarter of 2020, respectively.

Excluding the effects of share-based compensation expenses, adjusted net loss attributable to the company's shareholders was RMB38.3 million in the third quarter of 2020, compared with RMB36.9 million in the same period last year.

Adjusted basic and diluted net loss per ordinary share were both point RMB0.13 in the third quarter compared with RMB0.13 in the same period last year. Adjusted EBITDA was a loss of RMB37 million in the third quarter compared with a loss of RMB37.9 million in the same period last year. Now turning to our balance sheet.

At the end of third quarter 2020, we had cash and cash equivalents, time deposits and short-term investments of RMB183.0 million. For the fourth quarter of 2020, we expect our net revenues to be between approximately RMB145 million and RMB155 million, representing a year-over-year approximate decrease of 20.7% to 15.2%.

This primarily -- this is primarily attributable to the estimated declining number of offline 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 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. Please go ahead.

Hi. Good evening to you guys and good morning for me. Thanks for taking my questions. I'll start with just hoping you can provide some perspectives 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 easy home stores? Just a general update there from the financial health and appetite from consumers. Thank you..

Yes. Nice to meet you again, Jack, and let me translate the question first. We can identify a rebound -- a strong recovery of the consumers’ confidence in the big-ticket items consumptions like autos, and it can be reflected by some market data we observe right now.

The auto market is recovering just at the same speed as the macro market and the consumer confidence is recovering at the same time. And this recovery is a continuous -- is a continuous trend except and rather not short-term momentum. Our major operation partners are the OEMs and dealers.

And from our knowledge, the acceleration is continuing improving throughout this few quarters throughout 2020..

Great. Thank you, Cynthia, for translating that for me. I appreciate that. 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, the two 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 -- are businesses closed down anymore or is everything pretty much completely opened up again?.

Okay. Let me translate first. The vaccine is just invented and it's still a long run for everybody to get a vaccine in the future just as the same in U.S and Europe. The China -- the Chinese people are still very cautious in public areas and everybody -- most of them still keep their mask on.

The offline consumption has been strongly recovered and as we can see in most of the malls in Beijing. But the pandemic is hitting a few cities in China too because due to the cost from the outbreak in U.S and Europe. So, we are still expecting that may still, in fact, impact our auto shows in some -- certain cities..

Okay. Thank you. That's helpful. I mean, obviously, as expected, the vaccine and everything, these are long-term -- 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 two 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 facilitate auto sales have facilitate -- or have trended on a weekly basis over the fourth quarter? Like would you expect the auto shows from offline events to increase in Q4 from this third quarter?.

Let me translate the question first. In the third quarter, auto passenger car sales in China continue to recover.

Trends started in May, increased by 7.8% year-over-year and it 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 bolster consumer confidence.

The robust third quarter was followed by 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.

Our offline business has also gradually and slowly recovered starting in the end of May, and now our offline auto shows and special promotion event 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 show we can hold right now..

Okay. Thank you. That’s helpful. Yes, yes, it's great. And then, I guess just one 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. 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 show.

And then for those more remote cities with lower ROIs and maybe even lead to a loss while holding long-term auto shows, we would turn to our new online auto shows and online special promotion events to cover those areas, and that would be a more cost-effective way.

Does that answer your question?.

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

Thank you very much, Jack.

Operator, is 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 our website or the PR -- Piacente Group Investor Relations. Thank you..

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