Good evening, everyone. Welcome to the Cango, Inc. First Quarter 2020 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 to 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 will now turn the call over to Mr. Jiayuan Lin, CEO of Cango. Please go ahead, sir.

Hello, everyone. Welcome to Cango's First Quarter 2020 Finance Call. Over the past few months, the COVID-19 outbreak has spread the globe and caused severe disruption to our normal way of life and work. On behalf of all of us here at Cango, I want to extend our gratitude towards the clinical workers, community workers and many more working on the frontline of the pandemic. The courage you have shown in the face of such adversity is truly inspiring. The work all of you have done in support of the greater good continues to motivate us every day. The auto industry in China was definitely impacted by the outbreak in the first quarter, which has triggered some broader structural change in the industry. It was largely in line with our expectations. As a result of the pandemic economic impact, the demand for passenger cars has reduced significantly. At the same time, although people are more interested in buying cars as a result of the pandemic, it has not been enough to offset the greater loss of purchasing power across Chinese homes -- Chinese households. In particular, low- and mid-range car models as well as costs produced by domestic manufacturers were impacted more than high-end car models and those manufactured through joint ventures with foreign firms. We expect the market to begin a slow recovery in the second quarter and demand forecasted returning with its pre-pandemic levels until at least the third quarter of this year. Of course, as the situation continues to resolve, we expect to have more visibility on the general health of the industry and to provide our outlook in turn. For the first quarter of 2020, due to the severe disruptions caused by the pandemic, our total revenues decreased by 30% year-on-year. However, we maintained the gross…

Thanks, Jiayuan. Hello, everyone, and welcome to our first quarter 2020 earnings call. Before I start to review our financials for the quarter, please note that unless otherwise stated, all numbers are in RMB terms and all percentage comparisons are on a year-over-year basis. During the first quarter of 2020, as expected, the Chinese automotive industry was significantly impacted by COVID-19 outbreak. As a result of these unprecedented operating challenges, our total revenue in the first quarter was CNY246 million compared to CNY351.7 million in the same period of 2019. However, as mentioned earlier, we made solid progress in expanding our insurance service offerings during the period. Consequently, our off-market services facilitation business continued to perform well with its revenue growing to CNY49.1 million or 19.9% of total revenues in the period. Now let's move on to our cost and expenses during the quarter. Total operating costs and expenses in the first quarter of 2020 was CNY327.3 million compared to CNY282.3 million in the same period of last year. The increase in operating cost and expenses was due to the significant increase in net loss on risk assurance liabilities, mainly caused by the COVID-19 pandemic. Cost of revenues in the first quarter 2020 decreased by 30.7% to CNY90.6 million from CNY130.8 million in the same period last year. As a percentage of total revenues, cost of revenue in the first quarter of 2020 decreased slightly to 36.8% from 37.2% in the same period last year. Sales and marketing expenses in the first quarter of 2020 increased slightly to CNY45.8 million from CNY45.5 million in the same period of last year. As a percentage of total revenues, sales and marketing expenses in the first quarter of 2020 increased to 18.6% from 13% in the same period of 2019. General and administrative…

[Operator Instructions]. Our first question comes from Lucy Li with Goldman Sachs.

I have three questions in here. The first one is on the basis of Q2 outlook. We read from the earnings statement that we are expecting revenue between RMB230 million to RMB250 million in second quarter, which implies roughly flat quarter-on-quarter. However, we think from the macro or overall consumption perspective, there has been a pretty significant recovery or improvement in the past 2 months. So wondering if management could share with us the numbers you have observed, for example, in terms of facilitation volume or dollar amount in April and May? The second question is on asset quality. Given that the asset quality could be improving going forward, could the management, one, share the latest delinquency trends? And secondly, on the net loss on risk assurance liability, if the work is behind us, should we anticipate like a much less significant number going forward? Or potentially, can we expect any buyback? And then thirdly is on the business strategy going forward. The first part on MYbank and OneConnect. Can you share with us the business model? And related to that, the likely fee rate for the loans originated with MYbank? And secondly is on the online strategy, if you can add more color.

Thank you, Lucy. I will take your first 2 questions. And Mr. Lin Jiayuan will take your third question. Well, for the first question, you asked about the question now behind our guidance. Well, we've provided guidance for 2 reasons. Firstly, while indeed, it needs balancing -- I mean based on our observations of the market in April and May, we do -- we also do see some recovery in the consumer demand. However, as indicated in Mr. Lin's statement, in the sense of the lower-tier cities, the recovery has been much slower than expected. While in the first-tier cities and the second-tier cities and also in the foreign stores and low distributors, these dealers of luxury brands, they are recovering much faster than those -- than their counterparts in the lower-tier cities. Now foreign stores and [indiscernible] those dealers distribute domestic variants and also lower- and mid-range cars. So overall speaking, based on what we have observed, the consumer demand in the lower-tier cities has been quite soft and has been recovering market more slowly. So although, we expect the business volume in Q2 to rebound, we don't think it will rebound significantly, mainly because of the slower recovery pace in the lower-tier city. And the second reason is because of a change of the partnership model with WeBank. While in the past, our partnership model with WeBank is deposit-based, that is we take risk. But now, we have changed to a nondeposit model, that is we do not take risk. And this has resulted in a change in our fee structure, particularly the take rate. Well, after we adopt the new partnership model, the one-off net take rate has reduced compared to the previously arranged provisioned take rate. So throughout the life cycle of loans, we will look…

The next question comes from John Cai with Morgan Stanley.

So my first question is also related to the asset quality. I think we have made most of the provision in the first quarter, so I just wanted to get a sense of the loss as a percentage of the exposure. Probably, can the management provide us with the risk taken balance at the beginning and at the end of the quarter? And related to that is when we make the move on this, do we need to assign a higher loss ratio given the macro uncertainty in the coming quarters? And how would this loss assumption compare with the first quarter of maybe 2019? That's my first question.

John, I'll take your question. Well, as of the end of March, for those loans, which we take risk, that is we provide deposits, the balance is about RMB20 billion. And in terms of provision adequacy, actually, since the early -- this early midyear after the outbreak of the pandemic, we have already done a full test for the adequacy of our provision rate. And based on our test, I think of our provision for those loans with deposits, that is loans where we take risk, is adequate. Well, in Q1, we do see a big impact by the risk assurance liability from our gains and losses, so we have made necessary adjustments based on the asset default. That is our historical assets and then we look at our historical -- our existing provision and also look up to the impact of the pandemic. So based on our current expectations, outlook for the pandemic and also for economic recovery, well, we think that our provision is adequate. So if there is no further negative impact or negative turn in the economy, then we should be fine.

So my second question is about the competitive landscape. Firstly, I want to focus on secondary dealers. Just wondered, as you noticed this decline of dealer coverage in the first quarter on a sequential basis -- I understand that we have made some proactive structural adjustments of our dealer mix, but I would like to get some colors from the management on how they see the operating environment for these smaller dealers. Are they facing significant challenges? And should we expect this dealer coverage number to continue to go down? And also related to the supply, I think, can the management comment on how we see the auto finance suppliers in the secondary dealer levels? And the key metric is probably the commission paid to the car dealers. What's the number now versus maybe the past year?

Okay, I will take your question. Firstly, based on my personal observation, the number of secondary or non-foreign dealers indeed will decrease because of the pandemic and because of the slow growth of China's economy. So we expect that the non-foreign or second-hand dealers will face a lot of challenges. I mean if you look at the resumption of work and production with the non-parts reports, they are recovering much more slowly than their counterpart in the second- and first-tier cities. Your second question is about the competitive landscape. Well, what we are seeing more and more smaller players, including financing platforms and also competitors. They are actually gradually exiting from this market. We are seeing more consolidation, and we are seeing these smaller competitors reaching the peak of their performance. So they are gradually declining. And most of the competition on markets are on prices. Well, not just on condition rate, in fact.

So my next question is about the luxury or other dealership markets. So just wondering what's our strategy to target these Tier 1, Tier 2-city dealers? And you mentioned in the case of Tesla and it seems that it's based on our relationship with ICBC. And then ICBC, hence, a partnership with Tesla. And as a result, we can offer the auto finance products in these Tesla stores in Shanghai. And just wonder if that's -- if we follow a similar path to develop this on Tier 1, Tier 2 dealer coverage. And also in the case of Tesla, do we know how many auto finance suppliers are in the Tesla stores are in Shanghai?

Okay. For our strategy, we're targeting the higher-end segment of the market -- well, such as the higher-end brands. While we haven't formalized our strategy for this market segment, yet, however, we do think that customers in this segment demand high-level experience. And so this is where we are going to work on in the future. However, we haven't finalized and formalized our strategy for this market segment yet. We are still testing, and we are still exploring opportunities. Regarding your question on Tesla. Well, Tesla actually has 9 auto financing service providers in the country. So where we compete -- where do we compete? Well, we compete on the service capabilities that is how we serve the Tesla customers and how we can help generate sales beat for the salespeople of Tesla. With these 2 fronts, then we will get more market share.

We have no further questions at this time. I will hand the call back to management for closing remarks.

Thank you all for your interest, and thank you all for your support for Cango. That's all for today's conference call. Thank you.