Good morning, and good evening, everyone. Welcome to Cango Inc.'s Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] This call is also being broadcast live on the company's IR website.

Joining us today are Mr. Jiayuan Lin, Chief Executive Officer; and Mr. Yongyi Zhang, Chief Financial Officer of the company. Following management's prepared remarks, we will conduct the Q&A session. Before we begin, I refer you to the safe harbor statement in the Company's earnings release, which also applies to the conference call today, as management will make forward-looking statements.

With that said, I am now turning the call over to Mr. Jiayuan Lin, Chief Executive Officer of Cango. Please go ahead, sir.

Jiayuan Lin - Founder and Chief Executive Officer

[Foreign Speech]

Hi, everyone, and welcome to Cango's fourth quarter and full year 2022 earnings call.

[Foreign Speech]

2022 was a challenging year. Multiple headwinds including COVID pandemic, supply chain disruptions and chip shortages continue to create significant uncertainties in the auto industry. In addition, political and economic turmoils worldwide have profoundly impacted all aspects of society, including China's auto industry. Despite these complex and challenging external environment, Cango has [Indecipherable] along its new strategic roadmap, demonstrating strong resilience.

[Foreign Speech]

Cango underwent significant transformations in 2022 for the new car trading transactions business, we launched our Cango Haoche app in June following the successful depot of the Cango Haoche mini-program in 2021. We gradually integrated an array of standardized service products into the multi-system, all-in-one platform in October, providing dealers with one-stop comprehensive car trading solutions centering on car sources. For the used-car trading transactions business, we launched our Cango U-Car mini-program in May and develop our Cango U-Car app at the end of 2022. Cango U-Car app encompasses functions such as vehicle sourcing, online car research, online auctions, transaction support services, and other digital services to meet the diverse needs of used car dealers.

[Foreign Speech]

As a result, our automotive transaction service platform, covering both the new car and used car markets, has been largely established. Strong market feedback and dealer demand testifies to the [Indecipherable] of our transformation into a transaction service platform with one-stop [Indecipherable] proposition. Total revenues in the fourth quarter of 2022 were RMB419 million, up 17% quarter-over quarter. Revenue from car trading transactions was RMB430 million, up 24.2% quarter-over-quarter, accounting for over 88% of total revenues. The full year total revenues were RMB1.98 billion, of which revenue from car trading transactions was RMB1.6 billion, accounting for over 80%.

[Foreign Speech]

Currently, automotive financing facilitation is not our primary focus, but it was our launch pad and continues to strongly support our transformation into an automotive transaction service platform by optimizing our automotive financing facilitation business. We have continuously improved the quality of assets, resulting in a healthy balance sheet. The total outstanding balance of financing transactions we facilitated decreased from RMB46.7 billion as of December 31, 2021, to RMB25.6 billion as of December 31, 2022. [Indecipherable] to decrease further over 2023. In addition to ensuring all stable operation, the ever-decreasing risk exposure healthy assets and strong cash reserves gave us the confidence to fully embrace our transformation and grasp new opportunities in the post-pandemic world.

[Foreign Speech]

Now, I would like to take you through more details of our business developments.

[Foreign Speech]

Now, let's begin with the new car trading transactions business. As of December 31, 2022, Cango Haoche has engaged 2,112 dealers, up 58% year-on-year. During the fouth quarter, we sold a total of 3,938 cars, up 11.8% from the previous quarter. For the full year 2022, we sold a total of 16,490 cars, and conversion rate was 2.1%, on par with the industry. Also, during the full year 2022, accumulated page views and unique visitors on Cango Haoche App were over 660,000 and 57,000, respectively.

[Foreign Speech]

[Indecipherable] new cars, we have established collaboration with various OEMs and cost suppliers, expanding our vehicle sources. We're also diversifying by brand and model. Specifically, we forged deep collaborations with GAC Mitsubishi, Dongfeng Motor Group, FAW-Volkswagen and FAW-Audi in the fourth quarter. Furthermore, our sales teams continue to develop vehicle sources and sales models based on the characteristics of each regional market, prompting a steady increase in the number and stickiness of channels.

[Foreign Speech]

With respect to our transaction facilitation services, we have largely completed Cango Haoche service product matrix, with the addition of several upgraded intelligent tools and products during the fourth quarter, further improving facilitation efficiency and dealer experience. Dealers cannot easily access a wide range of transactions supporting services on the platform, including customer leads generation, logistics, financial services, and insurance services among others. All of our platform service products are gaining traction and have made good progress by the end of the year.

[Foreign Speech]

While enhancing our new car platform, we also continued to build our used car platform following the launch of Cango U-Car mini-program in mid-2022, we focused on acquiring new users and increase engagement at the same time, by leveraging our advantages, such as [Indecipherable] used car sources and one-on-one matching services, with [Indecipherable] dealers behavior on our platform and improve their platform stickiness. We also established professional technician teams and car service teams across the country in the fourth quarter, providing dealers and customers with one-stop value-adding services including car viewing, car inspection, and car loan transfers to further improve our matching conversion rate.

[Foreign Speech]

As of the end of 2022, there were 4,492 registered dealers on Cango U-Car, we expect number of transactions on the platform to pick-up over time. As of December 31, 2022, the accumulated page views and unique visitors on Cango U-Car mini-program were over 410,000 and 23,000, respectively. In January 2023, we officially launched Cango U-Car app, dealers evolving demand with five functional modules covering vehicle sourcing, car searching, online auctions, transaction support services, and other digital services. Moving forward, we will continue to improve Cango U-Car and its related products and services.

[Foreign Speech]

Through Cango U-Car's digital platform, we aim to form a broad and deep network for the used car segment, efficiency, connecting used car sources, customers and funds supplemented by standardized support services spending the entire transaction chain. With these advantages, Cango can promote truly efficient cross regional circulation of used cars across the country, streamline the used car transaction process and increase dealers operating profits. Going forward, we will continue to advance the platform's digitalization, creating a closed-loop transaction ecosystem integrating online and offline services. Through lease ecosystem, we can move offline services online and further standardize them, and never to standardize the used car [Indecipherable] and services. Meanwhile, we will redouble our efforts to improve dealer stickiness and enhance their engagement on our platform, leveraging Cango's solid channel network and customer base develop over 10 years to provide them with premium car resources.

[Foreign Speech]

New digital infrastructure is an essential part of our transformation. In 2022, we continued to enhance our R&D efforts to holistically improve our digital business capabilities by building a proprietary information on digital center that integrates information digital and intelligent technologies. Cango has created a unique competitive advantage to propel the sustainable development of our automotive transaction service platform. Cango [Indecipherable] framework has taken shape and we expect to steadily increase our operation capacity and efficiency as we improve each function.

[Foreign Speech]

Forging new pass-through unchartered territories never easy as we transform from a leading auto financing service provider to an integrated automotive transaction service platform, both the scope of our offerings and our business model have undergone a sea change. However, one thing never wavered, our determination to companies more on medium-sized dealers in lower-tier markets on our journey to success and empower them to achieve their goals by providing them with the products and services they need.

[Foreign Speech]

When we established Cango 12 years ago, we homed in on a huge consumption potential and imbalance between supply and demand in the lower-tier markets. Taking automotive financing facilitation services as our launch pad, Cango gradually build a solid network covering nearly 50,000 dealers nationwide, and we have worked closely with our dealers to provide premium financing facilitation services to our customers ever since. A decade later, many of the small and medium dealers we partner with have grown into a larger and more diversified business - multiple services and diverse needs. We have been with them in every step of the way, continuously pushing our business boundaries to offer effective solutions to address their unmet needs, as well as one-stop services that help our dealers lower their operating costs and refine their business efficiency. As always, our ultimate goal is to make car purchases easy, simple and enjoyable.

[Foreign Speech]

The macroeconomy and the overall auto industry are undergoing profound and lasting changes. Although we still see challenges ahead in 2023, we have high expectations for the future and great confident in the long-term development of China's auto industry. Cango will continue to focus on our vision and mission, while further improving our standardized automotive transaction service ecosystem. Together with our dealer partners, we remain dedicated to promoting the recovery and development of the overall industry.

[Foreign Speech]

Next, I will turn the call over to Michael Zhang, our CFO, who will take you through the company's financial performance.

Yongyi Zhang - Chief Financial Officer

Thanks, Jiayuan. Hello, everyone, and welcome to our fourth quarter and full year 2022 earnings call. Before I started to review our financials, please note that unless otherwise stated, all numbers are in RMB terms and all percentage comparisons are on the year-over-year basis.

Our fourth quarter performance once again illustrate the strength and the resilience of our strategy and business model. Fourth quarter total revenues were RMB487.1 million. Car trading transaction business delivered revenues of RMB431.1 million, continuing to play an essential role in our platform.

Now, let's move on to our cost and expenses during the quarter. Total operating costs and expenses in the fourth quarter of 2022 was RMB698.7 million, compared with RMB1,207.6 million in the same period 2021. Cost of revenue in the fourth quarter of 2022 decreased to RMB481.7 million from RMB880.7 million in the same period 2021. As a percentage of total revenue, cost of revenue in the fourth quarter of 2022 was 98.9%, compared with 83.8% in the same period 2021. The change was primarily due to a higher contribution from our car trading transaction to total revenues. Car trading transaction normally presents higher cost revenue ratio, thus pushing up the overall ratio.

Sales and marketing expenses in the fourth quarter of 2022 decreased to RMB19.2 million from RMB73.8 million in the same period 2021. As a percentage of total revenues, sales and marketing expenses in the fourth quarter of 2022 was 4%, compared with 7% in the same period 2021.

General and administrative expenses in the fourth quarter of 2022 decreased to RMB66.2 million from RMB86.1 million in the same period of 2021. As a percentage of total revenues, general and administrative expenses in the fourth quarter of 2022 was 13.6% compared with 8.2% in the same period 2021.

Research and development expenses in the fourth quarter of 2022 decreased to RMB8.4 million from RMB23.6 million in the same period of 2021. As a percentage of total revenues, research and development expenses in the fourth quarter of 2022 was 1.7%, compared with 2.2% in the same period 2021.

Net loss on risk assurance liability in the fourth quarter of 2022 was RMB62.8 million compared with RMB84.6 million in the same period 2021.

We recorded loss from operations of RMB211.6 million in the fourth quarter of 2022, compared with RMB157 million in the same period 2021.

Net loss in the fourth quarter of 2022 was RMB558.9 million. Non-GAAP adjusted net loss in the fourth quarter of 2022 was RMB539.9 million. On a per share basis, diluted net loss per ADS in the fourth quarter of 2022 was RMB4.13, and diluted non-GAAP adjusted net loss per ADS in the same period was RMB3.99.

For the full year 2022, our total net revenues were RMB2 billion, total operating costs and expenses were RMB2.9 billion, net loss was RMB1,111.2 million and non-GAAP adjusted net loss was RMB952.7 million. Diluted net loss per ADS was RMB8.11 and diluted non-GAAP adjusted net loss per ADS was RMB6.95.

Moving on to our balance sheet, as of December 31, 2022, we had cash and cash equivalents of RMB378.9 million, compared with RMB745 million as of September 30, 2022. As of December 31, 2022, the company had short-term investment of RMB1.9 billion, compared with RMB2.7 billion as of September 30, 2022.

Looking ahead to the first quarter of 2023, we now predicting our total revenues to be between RMB550 million and RMB500 million. Please note that this forecast reflects our current and preliminary view on the market and operational conditions which are subject to change.

This concludes our prepared remarks. Operator, we are now ready to take questions.

Question & Answers

Questions and Answers:

[

Operator

[Operator Instructions] Your first question comes from Shelley Wang from Morgan Stanley. Please go ahead.

Shelley Wang - Morgan Stanley - Analyst

[Foreign Speech]

Thank you. Good morning. I have two questions. The first question is, as Cango has optimized it's automotive financing facilitation business, we have also observed a significant decrease in the company's risky assets. So, how does this positively impact the company's transformation? And the second question is based on the data disclosed by Cango appears that the company has made substantial progress in transformation towards car trading transaction service platform. So, what are your advantages compared with your industry peers like other platforms and also how the - what is your - what are your advantages compared with dealers in this industry?

Jiayuan Lin - Founder and Chief Executive Officer

[Foreign Speech]

I'll take your two questions. Thank you, Shelley, for your two questions. To answer your first question, our automotive financing facilitation business generated assets on a larger scale not significantly affected the company's cash flow and could even directly impact on our viability.

[Foreign Speech]

The total outstanding balance of financing transactions we facilitated decreased from RMB46.7 billion as of December 31, 2021, to RMB25.6 billion as of December 31, 2022. We spent a number to decrease further over 2023 and we plan to invest the freed up cash flow in our expansion of self-owned vehicle inventory.

[Foreign Speech]

And on your second question, current stage, both our new car and used car platforms have taken shape and are generating transactions with a lot of data for us to refer to. In addition to validating the logic behind our transformation, the data shows that [Indecipherable] capabilities and processes and capacity required to support our car trading transaction business. Once this new model fully running and smoothly, our next steps will be to holistically scale up the business operations and improve profitability.

Shelley Wang - Morgan Stanley - Analyst

[Foreign Speech]

Thank you. That's all from me.

Operator

[Operator Instructions] Your next question comes from John [Phonetic] from Goldman Sachs. [Foreign Speech] Thank you. Thank you for giving me this opportunity to ask questions the management. So, I have two questions. The first question is, what is your outlook for China's auto market in 2023? And specifically, what is your outlook for your automotive transaction service platform in 2023? And the second question is, could you give us more colors on the development of the car and used car business in detail? Thank you.

Jiayuan Lin - Founder and Chief Executive Officer

[Foreign Speech]

Thank you, John. I will take your two questions. On first question, on the demand side, three years of pandemic policies actually have created a backlog of consumer demand and we believe this pent-up demand for car purchases will gradually be released. Of course, this is subject to the overall level of economic recovery and policy support.

[Foreign Speech]

On the supply side, traditional car brands launched many new models at the beginning of the year and NEV, new energy vehicle, production costs have also decreased as lithium battery supply prices have fallen. Furthermore, NEVs will continue to enjoy an exemption from vehicle purchase taxes.

[Foreign Speech]

So, in 2023, we expect to see more auto market transactions, compared with 2022.

[Foreign Speech]

On your second question on our used car business, we launched a Cango U-Car app at the start of 2023, including an exceptional range of functions covering historical vehicle condition reports, vehicle evaluation, online auctions, online car searching, used car listing and other digital services. As of the end of 2022, there were 4,492 registered users on Cango U-Car. As of December 31, 2022, the accumulated page views and unique visitors on Cango U-Car mini-program were over 410,000, and 23,000 respectively. We expect number of transactions on the platform to pick-up over time.

[Foreign Speech]

At the same time, by leveraging our advantages, such as abundant used car sources to give you some examples, some of these used cars come from those sold by the consumers and also those repossessed cars, of course, we also have our own cars. So, by taking advantage of these abundant used car sources and the one-on-one matching services, we have successfully groomed the dealers' platform usage behavior and improved their platform stickiness. We have also established professional technician teams and car service teams across the country in the fourth quarter, providing dealers and customers with one-stop value-adding services such as car viewing, car inspection, car loan transfers, etc.

[Foreign Speech]

Thank you. That's my answer to these two questions.

John - Goldman Sachs - Analyst

[Foreign Speech]

Thank you.

Operator

Thank you. Your next question comes from Brian Lee [Phonetic] from [Indecipherable]. Please go ahead.

Brian Lee - - Analyst

I'll just ask Christian directly in Chinese.

[Foreign Speech]

My question is, only abandoned car sources is one of the company's strongest advantages, how will the company leverage and consolidate its advantage in the future?

Jiayuan Lin - Founder and Chief Executive Officer

[Foreign Speech]

Thank you, Lee, for your question. You are absolutely right that car sources is one of our strong advantages in our new car and used car service platform. Our goal is to provide a better service experience to car buyers and car dealers through our car trading transaction business. With a more diversified vehicle supply, we can better meet the individual needs of customers in the lower-tier markets. We hope to leverage our advantages in car sources to increase customer stickiness and encourage customers to use other services on our platform.

[Foreign Speech]

So on the new car sources, we will step-up our efforts to explore and develop further our collaborations and partnerships with OEMs. In the fourth quarter, we build deep collaborations with GAC Mitsubishi, Dongfeng Motor, FAW-Volkswagen and FAW-Audi. We also became the most important sales platform for GAC Mitsubishi's new Outlander model.

[Foreign Speech]

On used car sources, historically, we have this advantage of having access to a lot of repossessed cars. So in the future, we will use this as a leverage to grow and scale up our used car business.

Brian Lee - - Analyst

Thanks, got it.

Operator

Thank you. We have no further questions at this time, I'll hand the call back to management for closing remarks.

Jiayuan Lin - Founder and Chief Executive Officer

[Foreign Speech]

Thank you, all, for joining us. That closes today's call. Thank you.

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CANGO INC

Q4 2022

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