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 they are 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, 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 a 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 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 by 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 into 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 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 have experienced 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 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 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 the COVID-19 pandemic was effectively contained in 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 the 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 RMB203.5 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 the commencement 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 RMB48.6 million from RMB217.5 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 a decrease in promotion expenses and stock compensation as a result of 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 in G&A expenses in the first quarter of 2020. Research and development expenses decreased by RMB8.3 million from RMB9.9 million in the second quarter of 2019, primarily due to the company's 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 RMB29.3 million in the same period last year and improved significantly from a loss of RMB51.9 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 RMB0.10 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 the 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 are 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.

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.

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. This is also helped by the government's measure to contain COVID-19 pandemic domestically as well as different local governments taking policies to promote auto sales and domestic consumption. So the market environment has improved significantly since the second quarter, and we have a quite optimistic forecast for now on the market side.

Does that answer your question, Jack?

Yes, that was fantastic. I have another question regarding the second quarter and your results. Even though revenue is under pressure, gross margin was significantly high, reaching the high 70s, which is an exceptional performance. You mentioned in the prepared remarks that this is mainly due to mix. Is there anything else contributing to the gross margin profile this quarter aside from the mix?

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

The gross margin for our company has improved significantly from the high 70s. This is mainly due to the change in the revenue mix. In the second quarter, our online marketing services have grown strongly, and the gross profit from that revenue stream has exceeded 80%. That's the primary reason for the improvement in our gross margin. Does that answer your question?

Okay, understood. That's helpful. Yes, it does. How about automobile transaction sales? Are you noticing any trends with the automobiles you facilitated for sale during the quarter? In terms of the markets you serve in China, did you see a shift in the number of vehicles sold through the virtual dealer platform? How are you attracting new leads, and is that driving the virtual platform? I'm curious if there are any long-term or midterm strategies for your offline business and how that connects with the online business. How is the omnichannel strategy performing overall?

Yes. Sure, Jack. Let me clarify your question, and perhaps we will address that from another angle.

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

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 for several years, the depth of the cooperation has improved significantly since the end of last year. We have launched a number of online live streaming special promotion events on Tmall Live, and our online program provides a solution that is a win-win for both OEMs, dealers, and consumers.

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 also been cooperating with Baidu Youjia, which is the auto segment of the Baidu portal, the largest search engine in China. So we have been their sales representatives throughout all of China and generated related data products. So this also contributes to our online marketing revenues since the first quarter of this year, and will continue to be a bigger part of our online marketing revenue throughout the year.

Yes, that certainly answers my question. I appreciate the additional details. My final question is forward-looking. You've managed well with your operating expenses, particularly in Q2, given the current climate. As you consider the remainder of the year, how do you anticipate operating expenses will trend? Is the outcome largely variable and dependent on circumstances, or can you provide any specific insights regarding the trend in operating expenses?

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 is 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 will try our best to control that, to take more cost-cutting measures. So while the overall operating expenses will grow, for the overheads, it will remain the same or similar.

Great. Thanks for the question. We're looking forward to seeing you next time. And operator?

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

Thank you.

Thank you.

Thank you.