Good morning and good evening everyone. Thank you for standing by and welcome to TuanChe Limited Second Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Now, I'll turn the call over to your speaker host today, Ms. Cynthia Tan, IR Director of the Company. Please go ahead, ma'am.

Hello, everyone, and welcome to TuanChe's second quarter 2019 earnings conference call. The Company's earnings results were released earlier today and are available on our 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 comment on our operating results. He will be followed by Mr. Troy Mao, the Company's Chief Financial Officer, who will provide additional details on TuanChe's performance, review the Company's financial results, and discuss the financial outlook. Following management's prepared remarks, we will open up the call for questions. With that said, I would now like to turn the call over to our CEO, Mr. Wen. Please go ahead, sir.

Hello and thank you everyone for joining us on our second quarter earnings call today. During the quarter, car sales in China continued to plunge due to the uncertainties in the macroeconomic environment and unexpected regulatory changes. According to the Chinese Association of Automobile Manufacturers, passenger vehicle sales further dropped by more than 14% in the first half of 2019. Despite these adverse market conditions, we continued to execute our prudent expansion strategies into lower-tier cities and sustained our growth momentum. Importantly, our net revenues in the second quarter of 2019 increased by 11.9% to RMB203.5 million, that growth was driven by the strong performance of our offline market services, which generated RMB196.4 million in revenues during the quarter and increased by 8% year-over-year. In addition, the continued ramp-up of new business initiatives, including virtual dealership and online marketing services, also contributed to our growth in the quarter. During the second quarter of 2019, we achieved success in three key areas; one, expanding our core auto show business into lower-tier city markets; two, accelerating the development of customized special events; and three, progressing in our virtual dealership and online marketing services. Our success in these areas and a strong brand equity enabled us to maintain a healthy growth trajectory throughout the market downturn in the quarter. First, for our core auto show business, we continued to expand into lower-tier cities while maintaining our industry-leading market share in first- and second-tier cities. Despite China's economic slowdown continuing in the first half of 2019, lower-tier cities have experienced a significant consumption upgrade. In fact, while big-city residents have more disposable income, it is their peers in lower-tier cities and county districts who are more willing to spend a premium on aspirational purchases. In view of this marketing trend, we proactively worked to…

Now, let's turn the call to our CFO, Mr. Troy Mao. Please go ahead, sir.

Thank you, Wei. Hello, everyone. Before I start, please be reminded that beginning January 1st, 2019, we changed our revenue classifications and decided to report our net revenues under the following new segments; first, offline marketing services, auto shows; second, offline marketing services, special promotion events; and third, auto dealership, online marketing services, and others. Now, before I move on to our second-quarter financial results, please also note that all numbers stated here are in RMB terms and all percentage comparisons are on a year-over-year basis unless otherwise noted. Despite challenging market conditions in the second quarter, our revenues increased by 11.9% to RMB203.5 million from RMB181.9 million in the same period last year, primarily driven by the revenue growth from our offline marketing services, which increased by 8% year-over-year to RMB196.4 million from 181.8 million in the same period last year. It is worth highlighting that offline marketing services revenues generated from our special promotion events reached RMB5.8 million in the second quarter compared to RMB0.8 million in the first quarter of 2019. Based on the performance of our special promotion events, we have confidence in the business growth prospects and expect that it will continue to contribute to our long-term growth going forward. Despite new car sales in China continuing to decline in the second quarter, the total gross merchandise volume of new automobiles sold through our offline events increased by 7.8% to RMB15.2 billion from RMB14.1 billion in the same period last year. Thanks to our prudent expansion strategies. Meanwhile, the number of automobile sales transactions facilitated during the quarter increased by 12% to RMB110,400 from RMB98,600 in the same period last year. In addition to our offline marketing services business, we also continued ramp-up of new growth initiatives during the second quarter. Revenues from auto dealerships,…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have our first question coming from the line of Allen Klee of Maxim Group. Please go ahead.

I'd like to start with what you just finished talking about the regulatory changes. Could you help us maybe how you think the path will be of getting through this uncertainty kind of your best guess of how long it might last and then get back to a little bit more clear situation and higher sales, hopefully?

Let me translate to Mr. Wei Wen.

About regarding your question on how long we'll get to a normal market standard, we expect the impact from national five standard transition to national six standard will last for about one quarter. The impact will be mainly on the third quarter of 2019.

Okay, but then, just to follow up. Does it have an impact on cars that -- what about -- there's a bunch of cars that will not meet the standard, so does that mean that the overall demand will naturally drop, or your understanding is that they'll get reconfigured to meet the standard?

Let me translate.

The national No. 6 standard is not implemented in all areas of China. We expect about 70% of the highly polluted cities and areas already implemented the standard, but still, there are remaining areas where the No. 5 standard vehicles can be sold and registered. So, we expect the automakers will move the inventory to other areas to sell through.

And then, just if I look at the number of auto shows you put on, it was quite impressive -- the growth rate year-over-year -- but it looks like for each auto show, I'm guessing you're making less money. Is that a function that you're moving into smaller cities, or that there's less booths that are being taken up? How should we think about the growth rate in auto shows, and then, the revenue that you'll make per auto show?

Let me translate first.

The two factors you mentioned are actually part of the reason, but the most prioritized reason is that our industry customers' marketing budgets are greatly reduced due to current market conditions. The secondary reason for the unparalleled growth in our revenue-per-hour auto show growth is, as you mentioned, we actually turned into smaller cities, where there will be less brands and less booths, and thus, lower revenue per auto show.

Does that answer your question?

Yes, thank you. And then, for virtual dealerships, could you perhaps -- is there any metrics of the number of virtual dealers that you've done, and how that compares, and how you think about how that can potentially grow going forward?

Let me translate first.

We have launched our auto dealership business in various cities across China, but actually, we are more focused on the iteration and exploration of the product and business model for now. We successfully launched a whole new groundbreaking flagship store of our virtual dealership at the end of the second quarter. This flagship store covers an area of over 1,000 square meters, with independent showcases for 10 different auto brands, which will break the traditional limits of single-brand 4S dealership stores. It is also fully digitalized, equipped with our AI-based in-store traffic management system together with our Cheshangtong system, which is part of our synergy from our acquisition of Longye Corporation in progress. This will allow us to efficiently manage the store and improve the sales conversion rate. We define this new business model as the new car supermarket or new car more. We are seeing very promising progress for now in our flagship store model, and we will further expand the model into other suitable locations once ready.

Does that answer your question?

Yes. Thank you so much. Maybe just following up on what you've mentioned on Longye. Can you fill us in, in terms of -- is this at the point that it -- has it closed, and have the shares been issued? If they have been, maybe related to that, in terms of the $20 million buyback you've announced, can you say how much of that has been utilized?

Allen, let me answer your question. Even though there are still uncertainties in terms of regulatory requirements, we expect to close the acquisition of Longye by the end of Q3, so right now, we have not consolidated Longye yet. Regarding the $20 million buyback program, since the board approval, we have initiated buyback activities from the open market. You will definitely expect to see the results from Q3 financials. Right now, we cannot disclose more than that.

Okay, thank you. And then, maybe my last one, and then I'll get back in the queue. Last quarter, you talked about a partnership you were going to be entering in with Easyhome, which I think had around 200 potential locations. Could you maybe provide an update of where that stands?

Let me translate.

Actually, our cooperation with Easyhome is progressing very smoothly for now. We already have 42 other shows in 40 cities, with our venue cost since our cooperation announced in late April. We will further bring our auto show to Easyhome's over 300 home furnishing malls in 200 cities across China and improve the consumer experience and cost efficiency of our future auto shows and virtual dealerships.

Does that answer your question?

Yes, thank you so much.

Thank you. Next question is from the line of Laura Liu of Stone Street Group. Please go ahead.

Thank you. This is Laura. Can you please tell us a bit more the color of the background and the role of the new COO, Mr. Yuan, like his expertise? And also, how is he going to help the Company to grow in the long run?

Thank you, Laura. Let me translate the question first.

First of all, we warmly welcome Mr. Hui Yuan to join our TuanChe family. Mr. Yuan has over 18 years of experience in China's automotive industry. He specializes in the management of product development operations, sales, and marketing. Mr. Yuan was once President and Chairman of the Product and Technology Committee of Bitauto Holdings, and after leaving Bitauto, as Founder and CEO of Huimaicho. He co-founded XiongmaoCar. Before launching his career in the automotive industry, Mr. Yuan also held product R&D positions in several Chinese internet companies, including Dangdang.com. As our new COO of the Company, Mr. Yuan will oversee the development of our omni-channel marketplace as well as the ongoing optimization of user experience. In addition, he will lead the Company's efforts in product research and development, online marketing, big data operations, and new sales and marketing initiatives.

Does that answer your question, Laura?

Yes. Thank you very much. Also, I'm interested in the synergy of the merger with Longye. I'm not sure if you can just tell us more about the synergy of this acquisition?

Let me translate first.

As we mentioned in previous remarks, the acquisition is still ongoing. Longye is a leading SaaS provider in the auto industry, we believe its rich product line not only efficiently complements and enriches the existing business line of TuanChe, but also provides great strategic value and synergy for future developments. First of all, Longye's flagship Cheshangtong CRM product allows the sales personnel to directly interact with highly targeted consumers. This will provide a one-stop, one-on-one service from pre-sale consultation to post-sale maintenance. By providing direct interaction and reducing unnecessary levels in the sales funnel, the Cheshangtong CRM systems not only greatly improves the consumer conversion rate, but also provides an efficient tool in sales and stock management. In addition, as we mentioned in previous remarks, Longye also recently developed an AI digital store solutions that maximizes auto dealers' in-store monetization capabilities. This system is using high-definition cameras equipped with AI-based facial recognition to produce precise, multifaceted user profiles to facilitate sales personnel to enhance consumer conversion rate and management efficiency. We are confident that this product offer will enable us to help our industry customers to digitize their operation, utilize the big data analytics, optimize their social media marketing campaigns, improve their sales capabilities, and eventually broaden our industry customer base and enhance user techniques. On the other hand of the synergy, we will also implement the Cheshangtong CRM and AI system for the operation and management of our own virtual dealership flagship stores and achieve efficient remote control and management.

Does that answer your question, Laura?

Yes, that's great. Yes, thank you.

Thank you. We have a question from Allen Klee of Maxim Group. Please go ahead.

Yes, hi. I had two follow-ups. The first was your sales and marketing expense in the second quarter of '19 increased to RMB217.5 million, but tell me if it's correct that this had an unusual amount of stock-based comp, so if I took a more normalized amount of stock-based comp that would be more of a reasonable run rate going forward? Thank you.

Hi, Allen. This is Troy. Let me take your question. You noted there's a significant increase in Q2 in terms of share-based compensation expense for sales and marketing personnel. Even though we cannot make a guarantee, we will treat it as a one-time event, so we don't expect a similar pattern will be maintained going forward.

That's great. Thank you so much. My last question, this is really not a fair question; I apologize, but I'm going to do it anyway. If you did not see the regulatory change impact on the results during this quarter, even given the tough macro environment you're in, do you think that you would have hit your guidance for 2Q '19?

Let me translate the question first.

Hi, Allen. Actually, this regarding the national six standard implementation impacts, the macro economy slowdown is still our major reason for our revenue slowdown. So, even excluding that impact, we are still seeing stronger-than-expected market headwinds, so this is why we missed our guidance.

Okay, thank you so much.

As a follow-up the national six standard implementations actually enlarged our pressures in meeting our guidance.

Thank you. [Operator Instructions] No more questions as of this time. I would now like to hand the conference back to the management. Please go ahead.

Okay, thank you for joining us on today's call and looking forward to seeing you next quarter. Thank you.

Thank you. Ladies and gentlemen, that does conclude the conference today, and thank you for participating. You may now all disconnect.