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Cango Inc. Reports Fourth Quarter and Full Year 2019 Unaudited Financial Results

Date: 2020-03-24
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SHANGHAI, Mar. 23, 2020 /PRNewswire/ -- Cango, Inc. (NYSE: CANG) ("Cango" or the "Company"), a leading automotive transaction service platform in China, today announced its unaudited financial results for the fourth quarter and full year of 2019.

Fourth Quarter 2019 Financial and Operational Highlights

• Total revenues increased by 36.6% to RMB438.5 million (US$63.0 million) from RMB321.1 million in the same period of 2018, outperforming the high end of the Company's guidance by 9.6%.

• After-market services facilitation revenues increased to RMB89.6 million (US$12.9 million), or 20.4% of total revenues in the fourth quarter, continuing to serve as an important driver for the Company's revenue growth.

• Income from operations increased by 231.0% to RMB117.7 million (US$16.9 million) from RMB35.6 million in the same period of 2018.

• Net income increased by 96.8% to RMB102.4 million (US$14.7 million) from RMB52.0 million in the same period of 2018. Non-GAAP net income increased by 86.7% to RMB123.2 million (US$17.7 million) from RMB66.0 million in the same period of 2018.

• The amount of financing transactions the Company facilitated in the fourth quarter of 2019 reached RMB9,575.1 million (US$1,375.4 million). The total outstanding balance of financing transactions the Company facilitated was RMB40,031.7 million (US$5,750.2 million) as of December 31, 2019.

• M1+ and M3+ overdue ratios for all financing transactions that remained outstanding and were facilitated by the Company were 0.85% and 0.40%, respectively, as of December 31, 2019, as compared to 0.85% and 0.33%, respectively, as of September 30, 2019.

• The number of dealers covered by the Company was 49,238 as of December 31, 2019, compared to 49,396 as of September 30, 2019. The decrease was a result of Cango’s efforts to optimize the efficiency of its dealership network by removing certain dealers that failed to meet the Company’s standards for operating risks and/or transaction referral capabilities.

Full Year 2019 Financial and Operational Highlights

• Total revenues increased by 31.9% to RMB1,440.1 million (US$206.9 million) from RMB1,091.4 million in the full year of 2018.

• After-market services facilitation revenues increased by 104.0% to RMB206.0 million (US$29.6 million), continuing to serve as an important driver for the Company's revenue growth.

• Income from operations increased by 16.8% to RMB323.3 million (US$46.4 million) from RMB276.7 million in the full year of 2018.

• Net income increased by 31.9% to RMB404.9 million (US$58.2 million) from RMB306.9 million in the full year of 2018. Non-GAAP net income increased by 43.1% to RMB487.1 million (US$70.0 million) from RMB340.3 million in the full year of 2018.

• The amount of financing transactions the Company facilitated in the full year of 2019 reached RMB28,054.3 million (US$4,029.7 million).

• M1+ and M3+ overdue ratios for all financing transactions that remained outstanding and were facilitated by the Company were 0.85% and 0.40%, respectively, as of December 31, 2019, as compared to 0.74% and 0.37%, respectively, as of December 31, 2018.

• The number of dealers covered by the Company continued to grow on yearly basis, reaching 49,238 as of December 31, 2019, compared to 46,565 as of December 31, 2018.

We recognized revenue for the fourth quarter of 2019 in accordance with ASC 605, Revenue recognition (“ASC 605”). Pursuant to the relevant guidance of the Financial Accounting Standard Board, we recognized revenue for full year 2019 in accordance with ASC 606, Revenue recognition (“ASC 606”). As a result, our revenue for full year 2019 was RMB1,440.1 million (US$206.9 million), lower than the amount that we would have recognized under ASC 605. For further information, see “Adoption of New Accounting Standard.”

Mr. Jiayuan Lin, Chief Executive Officer of Cango, commented, "We once again delivered strong financial and operating results in the fourth quarter, despite growing macroeconomic uncertainties and industry-wide challenges. Our robust performance is a testament to our ongoing efforts in the optimization of our dealership network, refinement of our cross-selling strategies, and effectiveness of our collaborations with key strategic partners. During the fourth quarter, we further improved the efficiency of our dealership network by removing certain underperforming dealers, which enabled us to better standardize and augment the quality of our service offerings across our network. We also established a solid foothold within China’s car insurance market as our car insurance facilitation business achieved significant growth in the fourth quarter under our cross-selling strategy.

Looking into 2020, we are faced with the immediate complications of the COVID-19 outbreak. At the current stage, our top priority is protecting the health and well-being of our employees as well as our dealer partners. As such, we have mobilized our team to secure and distribute facemasks and other protective gear to our colleagues and their families across China. In addition, we have bought COVID-19 personal insurance to all employees, free of charge. At the same time, we also established a special-purpose fund to secure special health insurance policies for a large portion of our dealers’ employees and their families.

In terms of our business performance, the epidemic is expected to severely disrupt auto dealers’ operations in the first quarter. In addition, the epidemic is likely to adversely affect consumers’ disposal income and the market’s demand for cars. We expect to experience a decrease in the number of financing transactions, as well as an increase in delinquencies for outstanding transactions as a result of the epidemic. We facilitated 39,138 financing transactions in January and February of 2020, as compared to 71,765 in the same period in 2019. At this point, it is not possible to predict when the epidemic will be effectively contained in China or when its economic impacts will be fully mitigated. Therefore, it may continue to adversely affect our business after the first quarter of 2020.

However, we remain fully confident in the strength of our business model, which had been proven in 2019 as we sustained our growth and business expansion against a backdrop of macroeconomic pressure and an underwhelming automotive market. Our previous success in navigating through adverse market conditions demonstrates our potential to further cement our industry leadership once the epidemic is contained and the industry resumes its growth trajectory.

Mr. Yongyi Zhang, Chief Financial Officer of Cango, stated, "Despite a challenging macroeconomic environment and a stagnating auto market in China, we concluded 2019 with a set of solid fourth quarter results as our total revenues increased by 36.6% year over year to RMB438.5 million. Notably, our after-market services facilitation business continued to serve as an important growth engine, contributing RMB89.6 million or 20.4% of our total revenues in the fourth quarter. Meanwhile, as a result of our efforts to optimize our cost management, we also expanded our profitability in the fourth quarter, as our net income increased by 96.8% to RMB102.4 million. Now, while we assess and monitor the financial impact of the COVID-19 outbreak, we are also actively strengthening our core competencies, which we believe will position us well for the opportunities that will potentially arise after the epidemic.”

Fourth Quarter 2019 Financial Results

REVENUES

Total revenues in the fourth quarter of 2019 increased by 36.6% to RMB438.5 million (US$63.0 million) from RMB321.1 million in the same period of 2018. Revenues from after-market services facilitation in the fourth quarter of 2019 increased to RMB89.6 million (US$12.9 million) from RMB43.0 million in the same period of last year.

OPERATING COST AND EXPENSES

Total operating cost and expenses in the fourth quarter of 2019 increased to RMB320.8 million (US$46.1 million) from RMB285.6 million in the same period of 2018.

• Cost of revenue in the fourth quarter of 2019 increased by 1.8% to RMB157.2 million (US$22.6 million) from RMB154.5 million in the same period of 2018. As a percentage of total revenues, cost of revenue in the fourth quarter of 2019 decreased to 35.9% from 48.1% in the same period of 2018. As a result, the Company’s gross profit margin in the fourth quarter of 2019 expanded to 64.1% from 51.9% in the same period of 2018, further demonstrating the Company’s increased economies of scale as well as the effectiveness of its cost control initiatives.

• Sales and marketing expenses in the fourth quarter of 2019 increased by 17.5% to RMB55.2 million (US$7.9 million) from RMB47.0 million in the same period of 2018. As a percentage of total revenues, sales and marketing expenses in the fourth quarter of 2019 decreased to 12.6% from 14.6% in the same period of 2018. The decrease was a result of the Company’s efforts to maintain stable sales and marketing expenses while growing its revenues concurrently.

• General and administrative expenses in the fourth quarter of 2019 increased by 26.3% to 66.1 million (US$9.5 million) from 52.3 million in the same period of 2018. This increase was mainly caused by higher share-based compensation expenses during the quarter. As a percentage of total revenues, general and administrative expenses in the fourth quarter of 2019 decreased to 15.1% from 16.3% in the same period of 2018.

• Research and development expenses in the fourth quarter of 2019 decreased to RMB18.6 million (US$2.7 million) from RMB19.9 million in the same period of 2018. As a percentage of total revenues, research and development expenses in the fourth quarter of 2019 decreased to 4.2% compared to 6.2% in the same period of 2018.

INCOME FROM OPERATIONS

Income from operations in the fourth quarter of 2019 increased by 231.0% to RMB117.7 million (US$16.9 million) from RMB35.6 million in the same period of 2018.

NET INCOME

Net income in the fourth quarter of 2019 increased by 96.8% to RMB102.4 million (US$14.7 million) from RMB52.0 million in the same period of 2018. Non-GAAP adjusted net income increased by 86.7% to RMB123.2 million (US$17.7 million) from RMB66.0 million in the same period of 2018. Non-GAAP adjusted net income excludes the impact of share-based compensation expenses. For further information, see "Use of Non-GAAP Financial Measure."

NET INCOME PER ADS

Basic and diluted net income per American Depositary Share (ADS) in the fourth quarter of 2019 were both RMB0.62 (US$0.09). Non-GAAP adjusted basic and diluted net income per ADS in the fourth quarter of 2019 were both RMB0.76 (US$0.11). Each ADS represents two of the Company's Class A ordinary shares.

BALANCE SHEET

As of December 31, 2019, the Company had cash and cash equivalents of RMB2,002.3 million (US$287.6 million), compared to RMB1,851.2 million as of September 30, 2019.

Full Year 2019 Financial Results

REVENUES

Total revenues in the full year of 2019 increased by 31.9% to RMB1,440.1 million (US$206.9 million) from RMB1,091.4 million in the same period of 2018. Revenues from after-market services facilitation in the full year of 2019 increased to RMB206.0 million (US$29.6 million) from RMB101.0 million in the full year of 2018.

OPERATING COST AND EXPENSES

Total operating cost and expenses in the full year of 2019 increased to RMB1,116.8 million (US$160.4 million) from RMB814.7 million in the full year of 2018.

• Cost of revenue in the full year of 2019 increased by 25.4% to RMB539.3 million (US$77.5 million) from RMB430.1 million in the full year of 2018. As a percentage of total revenues, cost of revenue in the full year of 2019 decreased to 37.4% from 39.4% in the full year of 2018. As a result, the Company’s gross profit margin in the full year of 2019 expanded to 62.6% from 60.6% in the full year of 2018, further demonstrating the Company’s increased economies of scale as well as the effectiveness of its cost control initiatives.

• Sales and marketing expenses in the full year of 2019 increased by 15.3% to RMB192.8 million (US$27.7 million) from RMB167.2 million in the full year of 2018. As a percentage of total revenues, sales and marketing expenses in the full year of 2019 decreased to 13.4% from 15.3% in the full year of 2018. The decrease was a result of the Company’s efforts to maintain stable sales and marketing expenses while growing its revenues concurrently.

• General and administrative expenses in the full year of 2019 increased to RMB236.6 million (US$34.0 million), or 16.4% of total revenues, from RMB151.1 million, or 13.8% of total revenues, in the full year of 2018. The increase was mainly due to higher share-based compensation expenses.

• Research and development expenses in the full year of 2019 increased to RMB57.4 million (US$8.2 million) from RMB46.7 million in the full year of 2018. As a percentage of total revenues, research and development expenses in the full year of 2019 decreased to 4.0% compared to 4.3% in the full year of 2018.

INCOME FROM OPERATIONS

Income from operations in the full year of 2019 increased by 16.8% to RMB323.3 million (US$46.4 million) from RMB276.7 million in the full year of 2018.

NET INCOME

Net income in the full year of 2019 increased by 31.9% to RMB404.9 million (US$58.2 million) from RMB306.9 million in the full year of 2018. Non-GAAP adjusted net income increased by 43.1% to RMB487.1 million (US$70.0 million) from RMB340.3 million in the full year of 2018. Non-GAAP adjusted net income excludes the impact of share-based compensation expenses. For further information, see "Use of Non-GAAP Financial Measure."

NET INCOME PER ADS

Basic and diluted net income per American Depositary Share (ADS) in the full year of 2019 were RMB2.59 (US$0.37) and RMB2.58 (US$0.37) respectively. Non-GAAP adjusted basic and diluted net income per ADS in the full year of 2019 were RMB3.13 (US$0.45) and RMB3.12 (US$0.45) respectively. Each ADS represents two of the Company's Class A ordinary shares.

Adoption of New Accounting Standard

The Company qualifies as an “emerging growth company”, or EGC, pursuant to the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. An EGC may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include a provision that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards.

Starting from fiscal year 2019, and interim periods within fiscal year 2020, Cango adopted new accounting standards over revenue recognition (“ASC 606”) and financial instruments (“ASU 2016-01”).

The financial data for fourth quarter 2019 and for fourth quarter 2018 are not adjusted and are reported in accordance with legacy GAAP.

The financial data for full year 2019 is presented in this release under the new accounting standard of ASC 606 and ASU 2016-01, while the financial data for full year 2018 is presented under legacy GAAP.

Business Outlook

For the first quarter of 2020, the Company expects total revenues to be between RMB180 million and RMB210 million. This forecast reflects the Company's current and preliminary views on the market and operational conditions, which are subject to change.