Bitauto Holdings' (NYSE:BITA)
Q3 2013 Earnings Conference Call
November 7, 2013 08:00 ET
Rachael Layfield - IR
William Li - Chairman & CEO
Andy Zhang - CFO
Gregory Chow - Citigroup
Adam Gold - Espial Capital
Hello and thank you for standing by for Bitauto’s Third Quarter 2013 Earnings Conference Call. (Operator Instructions). I would now like to turn the meeting over to your host for today’s conference Rachael Layfield. Please go ahead ma'am.
Thank you. Welcome to Bitauto’s third quarter 2013 earnings conference call. Joining us from the company today are Mr. William Li, Chairman and CEO, and Mr. Andy Zhang, CFO, Bitauto. After their prepared remarks, William and Andy will be available to answer your questions.
Before we proceed, please note that discussions today will contain forward looking statements made under the Safe Harbor provisions of the U.S. Private Securities and Litigation Reform Act of 1995. Forward looking statements are subject to risks and uncertainties which may cause actual results to differ materially from our current expectations.
Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC, including registration statement on form F-1. Bitauto does not undertake any obligations to update any forward looking statements, except as required under applicable law. This call will include discussions of certain unaudited non-GAAP financial measures. Please refer to our earnings release, which was issued earlier today for reconciliations of these unaudited non-GAAP measures to the most directly comparable unaudited GAAP measures. As a reminder, this conference is being recorded. In addition, a live and archived webcast of the conference will be available on our website.
I will now turn the call over to William Li, Chairman and CEO of Bitauto, and I will translate his remarks for you.
Hello everyone and thank you for joining us for our third quarter 2013 earnings conference call. I’m pleased to announce we maintained healthy growth in the third quarter with year-over-year revenue growth at 6.8% and very encouraging non-GAAP profit growth of 112.4% year-over-year. Both revenue and non-GAAP diluted profit per ADS exceeded our company guidance. In the third quarter our core bitauto.com advertising and EP platform businesses continued to deliver stable growth of 42.6% and 40.5% respectively.
Looking at the key developments in the third quarter. As you will see from today’s press release Bitauto has entered into an agreement to establish a joint venture with Kelley Blue Book’s (indiscernible) a leading provider of new and new clients information in the United States and the China Automobile Dealers Association CADA, a national organization representing automobile dealers in China. The joint venture will provide China wide vehicle valuation product via web and mobile to consumers, automakers, auto-dealers along with insurance, finance and other automotive related companies that seek vehicle valuation.
We see increasingly strong demand for vehicle valuation products particularly in China’s used car market which is currently underserved and is now entering a period of rapid development. We believe the car valuation product developed by the joint venture will serve as a central hub for the development of China’s new and used car industry.
And also pleased to announce we made significant progress in the development of our mobile offering. So far we have been extremely encouraged by consumer response to our mobile app. In particular those providing car pricing information. In the first nine months of 2013 over 11 million new users activated our Android and iOS app. An additional key focus of our mobile strategy is to deliver more cost effective sale leads to auto dealers and I’m pleased to say that in the third quarter almost 25% of sales leads were generated by consumers completing our online vehicle purchase application via mobile.
Going forward we will continue to increase investment in our mobile offerings. And we will continue to execute on our three core growth strategy. Firstly, we will enhance the range of services and products available on our EP platform. Secondly, we will continue to work on raising Bitauto.com’s brand recognition. And thirdly we will continue to invest in taoche.com. With that I’ll invite our CFO Mr. Andy Zhang to go through our Q2, 2013 financial and business results in further details.
Thank you William. Hello everyone, in the third quarter we were encouraged by the stable growth we saw in our Bitauto advertising business and the EP platform business which well reflects the continuing ability of our products and services through response of the changing needs of automakers and dealers. Our continued focus on improving operating efficiencies across the Bitauto businesses helped drive improve year-over-year growth in operating profit and significant growth in non-GAAP profit in the third quarter. These results demonstrate a fundamental scalability of our two core businesses as well as the increasing demand of automakers and dealers for Bitauto‘s online marketing services.
Now look into our financial highlights for the third quarter of 2013, Bitauto reported revenue of RMB 378.2 million, $61.8 million for the third quarter of 2013 representing a 36.8% increase from the corresponding period in 2012. The increase revenue is attributable to the growth of Bitauto.com advertising business, the EP platform business and the digital marketing solutions business. Gross profit for the third quarter of 2013 was RMB 281.4 million, $46 million representing a 39.1% increase from the corresponding period in 2012.
Operating profit in the third quarter of 2013 was RMB 76.3 million, $12.5 million representing a 119% growth increase from the corresponding period in 2012. The increase was primarily due to business scalability and an increase in operation efficiency. IFRS profit in the third quarter of 2013 was RMB 72.3 million, $11.8 million a 121% increase from the corresponding period in 2012. Basic and diluted profit per ADS each representing one ordinary share in the third quarter of 2013, amounted to RMB 1.83 $0.30 and RMB 1.74, $0.28 respectively. Breaking down this to each of our business segments. Revenue from the Bitauto.com advertising business for the third quarter of 2013 was RMB 182.4 million, $29.8 million representing a 42.6% increase from the corresponding period in 2012.
The increase was attributable to better brand recognition of Bitauto.com website. Revenue from the EP Platform business for the third quarter of 2013 was RMB 133.5 million, $21.28 million representing a 40.5% increase from the corresponding period in 2012.
The increase was attributable to an increase in both the number of paid subscribers and the months of paid subscription from the corresponding period in 2012. The company reported 32,573 months of paid subscription for the period. Revenue from the taoche.com business for the third quarter of 2013 was RMB 28 million, $800,000 representing a 3.9% decrease from the corresponding period in 2012. Revenue from the digital marketing solutions business for the third quarter of 2013 was RMB 57.5 million, $9.4 million representing an increase of 18.6% from the corresponding period in 2012 which reflects an increase in a number of advertising customers and increase in spending our advertising and events by certain customers in the first quarter. As the September 30, 2013 the company had cash and the cash equivalence of RMB 636.1 million, $103.9 million. Cash from operating activities, cash used in investing activities such as capital expenditures and the cash from financing activities in the third quarter of 2013 were RMB 113.9 million, $18.6 million, RMB 3.7 million, $0.6 million and RMB 2.9 million, $0.5 million respectively.
Gross fill-ins in the third quarter of 2013 was RMB 560.3 million, $91.6 million compared to RMB 398.4 million, $65.1 million in the corresponding period in 2012. Bills receivable representing short term loans receivable issued our financial institutions that entitle the company to receive the full face amount from the financial institutions at maturity, which generally range from 3 to 6 months from the date of issuance was RMB 25.1 million, $4.1 million as of September 30, 2013 compared to RMB 68.8 million, $11.2 million as of December 31, 2012.
Trade receivable was RMB 767.1 million, $125.3 million as of September 30, 2013 compared to RMB 472.1 million, $77.1 million as of December 31, 2012. This increase was due to an increase in gross billings, with that I will turn to guidance for the fourth quarter of 2013. Bitauto currently expects to generate revenue in the range of RMB 465 million, $76 million to RMB 475 million, $77.6 million in the fourth quarter of fiscal year 2013 representing a 31% to 33.8% year-over-year increase. Bitauto apparently expects non-GAAP diluted earnings per ADS each representing one ordinary share to be approximately RMB 2.18, $0.36 to RMB 2.23, $0.36 in the fourth quarter of 2013.
This forecast takes into consideration seasonality factors in Bitauto business and excludes any impact of foreign currency fluctuation. It reflects management’s current and preliminary view which is subject to change. Thank you for listening. We’re now ready for your questions. Operator?
(Operator Instructions). We have the first question from the line of Gregory Chow from Citigroup. Please ask your question.
Gregory Chow - Citigroup
My question is about mobile. And pardon both at the (indiscernible) the least you say with the mobile. I think with you the traffic shifting from PC to mobile, so what's the management's view about it's impacts to the traditional display advertising and what is Bitauto's advantage around mobile compared to the competitors. And if possible, I want to get your client to mobile traffic as percentage of total traffic. Thanks.
At the mobile we believe that consumers are in more demand in terms of service, the demand for information and news becomes less compared to the desktop end. So the display advertising is obviously mobile devices are not really build up for a strong display advertising platform as with desktop would do. I think that’s evidential to everyone. At the mobile and especially our auto pricing app has been receiving quite a bit welcoming among consumers. It really resolved the problem of a specific needs for consumers looking for car pricing and a discounts and coupons, and so on and so forth. So that really resolved the problems while consumers are seeking to meet a specific need. And also in terms of number of sales leads that we can bring to our customers especially dealerships, leveraging off our mobile products we noticed that almost 25% of those leads come from our mobile products that’s very encouraging for us.
So as long as we’re able to continue to bring, deliver and bring a sales leads to the dealerships we will be further solidify our grounds for our business model. So our positioning we believe that we’re looking at higher quality users who had this specific need on transecting the vehicle, car, we believe that we have very strong advantage with those consumers, with those customers.
(Operator Instructions). We have the next question from the line of Adam Gold from Espial Capital. Please ask your question.
Adam Gold - Espial Capital
My question, actually, was on mobile as well. I didn't see the percentage of traffic or revenue that's currently from mobile. Did you say what that percentage was?
We have been able to deliver the sets for my customer’s dealerships, so we believe that on the mobile and we’re looking for this quality traffic from the mobile who can actually deliver those sales leads eventually to my dealerships. We don’t believe that it's comparable for the traffic from desktop end to mobile end. While we’re actually my focus has always been on being able to deliver results for the dealerships. We have yet to single out or we have yet to create a mobile specific products for our dealership at this point but you know going forward obviously we will as soon as we have solidified our leadership in this area obviously this is something that we look into the future but at this point we’re just happy that we have almost quarter of our sales leads come from our mobile platforms to our dealership customers and if the situation persists we believe that revenue generation or monetization from the mobile end will be something that we will think of in the future. Thank you.
Adam Gold - Espial Capital
One more question, it kind of was on the adjustable market. How do you think about the size of the pie that you're operating in, and the $1.5 billion or so this year, what is that you think representative of the total pie, and how much is already on line, so your share of online? Two questions there.
I think the overall, according to my third party research we’re looking at about $1.5 billion market for auto industry spending on the internet. You know according to the guidance that’s been given out to the public today we’re looking at somewhere little over RMB 1.4 billion revenue, I will say that’s approximately between 15% - 20% of that market that we have penetrated, that’s our share in terms of revenue.
Adam Gold - Espial Capital
And how much of your a pilot not on line?
We’re estimating that the entire market spending on market, the entire auto industry spending on marketing is about $10 billion so in essence we’re about 15% of those (indiscernible) spend online at this point. This number I believe it will be much larger in the U.S., therefore I think we have a huge room to grow in terms of a percentage of revenue marketing spending online by the industry. Thank you.
We have the next question from the line of Andy Yeung from Oppenheimer. Please ask your question.
Andy Yeung - Oppenheimer & Co.
My question is regarding your joint venture with Kelley Blue Book and China Automobile Dealers Association. Can you give us some colors on the structure of the joint venture, and would you also be a minority owner of the joint venture, or a majority owner of the joint venture? And also, how does this new joint venture impact your taoche operation? Thanks.
The taoche structure will be 40% by BITA and the 40% by Kelley Blue Book’s and a 20% by CADA, China Automobile Dealers Association. In terms of how you would impact us I think what we’re thinking as Bitauto as a whole is that we are witnessing the rising of the used car industry, we believe that there is few areas that you know that will be, we need to involve ourselves in considering the purchasing cycle of consumers when they are considering buying a used car. Obviously we already own taoche.com which is primarily the number one online used marketplace here in China. You know this is a place where we have a huge amount of listed inventories, where we can provide those inventories to consumers. Obviously when you consider a consumer who is looking to either sell or purchase a used vehicle I think the first thing that comes to their mind is really looking at what they have currently and wanting to find what the value is for the vehicle’s that they currently own before they pursue any sort of transaction. So I think used car valuation products will also be another popular area and there also be another part, another step before completing a transaction for consumers. You know we’re bringing Kelley Blue Book almost a 100 year old brand from the U.S. to China and we’re bringing in CADA their authoritative data collected throughout the industry dealer association and also we’re working together to bring this unique product to the market and in essence we’re thinking that we’re bringing more values to the consumers in searching, in seeking the valuations of their used vehicles. I think it doesn’t really; it gives us another row [ph] to extend our used car businesses going forward.
(Operator Instructions). Since there are no questions on the telephone line we’re now approaching the end of the conference call. I would now like to turn the call over to Bitauto’s CFO Andy Zhang for closing remarks.
Once again thank you for joining us today. Please don’t hesitate to contact us if you’ve any further questions. Thank you for your continued support and we look forward to talking with you in the coming months.
Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.
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