Good morning and good evening, everyone. Thank you for standing by, and welcome to TuanChe Limited's Third Quarter 2019 Earnings Call. [Operator Instructions] This call is being recorded today, 26th of November 2019. Now I will 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 Third Quarter 2019 Earnings Conference Call. We have released our annual results earlier today, and it is 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 provision of the U.S. Private Security (sic) [ 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 this and other risks and uncertainties is included our earning release and our registration statements filed with the SEC. TuanChe does not assume any obligation to update any forward-looking statements, expect 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, who'll be followed by Mr. Zhihai Mao, the company's Chief Financial Officer, who'll 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 on our third quarter earnings call today. Since the second half of 2018, new car sales in China have plunged continuously. In September 2019, new car sales fell by 5.2% in comparison to the prior year period, marking the 15th month of declines in the past 16 months following year-over-year decreases of 4.3% in July and 6.9% in August. The contraction in September significantly dampened of with a turnaround in the second half of the year as many experts in the Chinese auto industry had previously expected. Slowing economics growth and the crippling trade war with the United States also added to the automakers' unprecedented slump. These adverse conditions have directly impacted our financial performance in the quarter, and we expect similar challenges to persist throughout the fourth quarter as well. However, despite the revenue contractions in the new term -- in the near term, we are valoring this macro headwind and making headway in the repositioning of our business for a favorable growth prospect in the long term. In fact, in light of the unprecedented industrial downturn, we have started to adjust our growth strategies proactively. During the third quarter, we were primarily focused on: one, shifting towards more prudent expansion strategy for our core auto show business to garner market share; two, accelerating the development of our new business initiatives to rejuvenate growth; and three, establishing strategic partnerships to explore additional monetization opportunities. We are confident that our progress in these areas and our industry-leading position will help us to mitigate short-term setbacks, while guiding us back into a healthy growth trajectory in turn. First, for our core auto show business, we continued to expand our coverage leadership during the third quarter in spite of the adverse market conditions. Although,…

Thank you, Wei. Hello, everyone. Before I start, please be reminded that beginning January 1, 2019, we changed our revenue classifications and decided to report our net revenues under the following segments: first, offline marketing services, auto shows; second, offline marketing services, professional -- special promotion events; and the third, virtual dealership, online marketing services and others. Now before I move on to our third quarter financial results, please also note that all numbers said here are in RMB terms and all percentage comparisons are on year-over-year basis, unless otherwise noted. During the quarter, our total revenue decreased by 12.7% to CNY 135.6 million from CNY 155.3 million in the same period last year, primarily due to the slowdown in offline marketing services revenues, which decreased by 15.6% year-over-year to CNY 129.7 million from CNY 153.6 million in the same period last year. The total gross merchandise volume, or GMV, of new automobile sales transactions facilitated decreased by 0.9% to CNY 10.5 billion from CNY 10.6 billion in the same period last year. Meanwhile, the number of automobile sales transactions facilitated during the quarter decreased by 6.0% to CNY 76,800 from CNY 81,700 in the same period last year. As Mr. Wen mentioned earlier, such decrease was primarily attributable to the slowing macro economy as well as the persisting challenges in the automotive industry. Our strategy to rejuvenate our growth has started to show results in the quarter as offline marketing services revenues generated from our special promotion events reached CNY 6.0 million. The solid performance of special promotion events continues to give us confidence about our business growth prospects. In addition to our offline marketing services business, revenues from our virtual dealership, online marketing services and others increased to CNY 5.9 million during the third quarter compared to CNY…

[Operator Instructions] Your first question comes from the line of Jack Vander Aarde from Maxim Group.

Just a few questions from me. I believe you mentioned certain national celebration activities or something similar to that resulted in some auto show events being canceled in the quarter. Can you talk about how many auto shows you would have expected to organize during the quarter if those factors weren't involved?

Wait -- Jack, this is Cynthia. Please wait for me to translate the questions. [Foreign Language]

[Foreign Language]

[Interpreted] Jack, we have, like, canceled over 10% of our auto shows due to the national celebration event. So that would be approximately 20 to 30 events.

Okay. That's helpful. And then I wanted to follow up on your partnership with Easyhome. I didn't hear you guys talk about this quarter, but it seems like that's a significant opportunity to help drive increased auto show events. Can you provide an update on your partnership with Easyhome? What that contributed to this quarter? And how that's coming along?

Sure. Please wait for the translation first. [Foreign Language]

[Foreign Language]

[Interpreted] Jack, we are continuing cooperating with Easyhome in over 40 cities, as we disclosed last quarter. And due to that, we need to, like, arrange the shows together with Easyhome due to the different resource allocation. So that's still ongoing. And then we do not disclose further details. It will be like similar cities just like last quarter.

Okay. That's helpful. And then turning to the virtual dealership business. I know it's an early stage business model. I think last quarter, you guys discussed, you had 10 locations. Can you talk about how many locations you currently have? Or how many locations you ended third quarter with?

Sure. [Foreign Language]

[Foreign Language]

[Interpreted] We actually are continuing refine our business model of the virtual dealership model. Currently, we are focused on the penetration of the model into counties and towns across China that have -- that are historically underserved. We actually called out our pilot shop in a -- on a county level. So far, we have achieved like encouraging results on our pilot store as our virtual dealership services are very well received by the car buyers and industry partners in these under-penetrated market. Based on the orders, our pilot stores have gathered so far, we are optimistic about our ability to get over 30% of the local market share in these areas. This is only the data from our pilot store -- shop. While we continue to optimize and standardize the operation model, we are confident that our virtual dealership service will help us unlock the tremendous potential in countries and help nationwide. Does that answer your question, Jack?

Yes. Could you -- is there -- are you able to provide how many specific locations you ended the quarter with? Or is that not something you can provide?

[Foreign Language]

[Foreign Language]

[Interpreted] We don't provide our exact location right now. But according to our research, the county levels that we can -- actually penetrated is over 1,000 across China.

Okay. Got it. That's helpful. And then I noticed gross margin for this quarter was the lowest it's been as -- historically, as far as I can tell from my data that I have. Can you talk about what dragged gross margin this quarter? And then where do you see gross margin looking at Q4 and thereafter? Do you expect this level? Or do you expect it to increase back to like 70%, 71%?

Jack. This is Zhihai. Let me answer your question. Definitely, we experienced a minor decline in gross margins compared to the same period last year, mainly due to the average revenue per show decreased due to the current market conditions in the automotive industry. We still incur similar fixed amount -- fixed costs, such as venue fees, poster setup fees. So with -- the decrease in top line, definitely, impacted our gross margins this quarter. We expect similar trends -- a similar level of gross margins for the fourth quarter this year.

Got it. That's helpful. And then my last question is regarding the China auto environment as a whole. Last quarter you talked about an impact, a headwind from auto OEMs providing concessions to prepare for tighter emission standards. Do you expect that to continue to have any sort of headwind on the top line? Or have you passed that obstacle? Is that no longer a factor on revenue growth?

Sure. Please wait for the translation. [Foreign Language]

[Foreign Language]

[Interpreted] Actually, the emission standard shift mainly impacts the market for July and August. And when it enters to the later part of the third quarter, the market becomes more stabilized. But actually, many industry experts primarily expected a turnaround in the new car sales by the second half of 2019; however, the market contraction persisted in the third quarter.

That's helpful. And then how about looking at Q4 then? Do you expect that headwind to have subsided? Or is there still aftermath kind of effects dragging on that as it relates to the new emission standards? Are you past that obstacle? Or will it continue into Q4 a little bit?

Sure. Please wait a second. [Foreign Language]

[Foreign Language]

[Interpreted] We actually expect the headwinds will continue at least for the fourth quarter. Our primary partners, including OEMs and their authorized dealers are operating under increasing pressure to reduce their sales and marketing budgets in such adverse market conditions. Based on our observation, many OEMs are actually running very low on budget as we approach the end of the year. This is why we have proactively shifted toward a more prudent approach and increased our focus on the quality of our expansion. First, we constantly strengthen our ability to facilitate other transactions from OEMs. As a result, the revenue contribution from direct contracts with automakers actually increased to 11.3% of our total revenue in the quarter from 2% in the same period last year. In addition, we also make strides and -- in diversify our product and revenue streams, including special promotion events, [indiscernible], et cetera. Facing an unprecedented industry downturn, we are confident that our unique ability to provide industry customers with a high ROI and attractive value proposition will enable us to grow their top line sales performance, making us their ideal partners going forward. Does that answer your question, Jack?

Yes, yes. That's great. It's very helpful. And that's all my questions from me.

Thank you.

[Operator Instructions] Your next question comes from the line of Laura Liu from Stone Street Group.

I just have one question today. So I'm very interested in the collaboration between the company and the Tmall Auto. Can you just tell us more about the details of that?

Sure. Please wait a little bit. [Foreign Language]

[Foreign Language]

[Interpreted] First of all, our partnership with Tmall Auto has already been in the pipeline for a few years so far. Both companies remain committed to improve the shopping experience throughout the entire transaction cycle for all consumers by leveraging our superior collaboration process. We are really excited about commercial potential of our partnership. This is actually proven by our strong performance during the November 11 shopping festival a few weeks ago. Utilizing both our leading capabilities in offline event organization and Tmall's massive stream of our online traffic, we successfully held auto shows in about 100 cities nationwide during the November 11 festival, attracting 107 other brands and approximately 500,000 consumers. We cannot comment too much on the future development of our partnership at this point so far. However, we are actively exploring new innovative ways to combine our resources. In the near future, our goal is to create a better, smarter and more efficient online to offline auto transaction process for all types -- for all car buyers in China. We will keep everyone up-to-date on our progress in the coming quarters. Does that answer your question, Laura?

Yes. Great. That's very helpful.

Thank you very much.

[Operator Instructions] Thank you. We have no further questions at this time. And I'd now like to hand the conference back to management for closing remarks.

Okay. Thank you, everyone, for joining us on our call. See you next quarter. Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]