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Edited Transcript of BITA earnings conference call or presentation 5-Sep-19 12:00pm GMT

Q2 2019 Bitauto Holdings Ltd Earnings Call

Beijing Sep 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Bitauto Holdings Ltd earnings conference call or presentation Thursday, September 5, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Liu Xiaoke

Bitauto Holdings Limited - COO

* Ming Xu

Bitauto Holdings Limited - CFO

* Xiaozheng Liu

Yixin Group Limited - CFO

* Xuan Zhang

Bitauto Holdings Limited - CEO & Director

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Conference Call Participants

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* Binbin Ding

JP Morgan Chase & Co, Research Division - Analyst

* Hillman Chan

Citigroup Inc, Research Division - Research Analyst

* Xiaomeng Zhuang

BofA Merrill Lynch, Research Division - Associate

* Zhenyang Chen

China International Capital Corporation Limited, Research Division - Associate

* Zhenyu Chen

Macquarie Research - Analyst

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Presentation

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Operator [1]

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Hello, and thank you for standing by for Bitauto's Second Quarter 2019 Earnings Conference Call. (Operator Instructions) Today's conference is being recorded. If you have any objections, you may disconnect at this time.

Now I'd like to turn the meeting over to your host for today's conference.

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Unidentified Company Representative [2]

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Thank you. Welcome to Bitauto's Second Quarter 2019 Earnings Conference Call. Speakers from the company today are Mr. Andy Zhang, CEO; Mr. Xiaoke Liu, COO; and Mr. Ming Xu, CFO. After management's prepared remarks, Andy, Xiaoke and Ming will be available to answer your questions. In addition, Catherine Liu, CFO of Yixin, will be available to answer your questions related to Yixin.

Before we proceed, please note that discussion 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 statements 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'll now turn the call over to Andy Zhang, CEO of Baidu -- Bitauto.

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Xuan Zhang, Bitauto Holdings Limited - CEO & Director [3]

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Hello, everyone, and thank you for joining us for our second quarter 2019 earnings conference call. Q2 remained a challenging quarter for the auto industry as a whole. According to the Chinese Association of Automobile Manufacturers, China's total sales of new passenger vehicles decreased by approximately 14.3% year-over-year in the second quarter of 2019. In spite of the sustained weakness in passenger vehicle sales in China, Bitauto continued to achieve steady top line growth in the second quarter, with total revenue reaching RMB 2.79 billion, up 8.9% year-over-year. In particular, our transaction services business expanded market share amid the industry downturn with revenue increasing by 17.2% year-over-year in the second quarter to RMB 1.49 billion and transaction volume up 34% year-over-year to 138,000 units.

Revenue from our advertising and subscription business was RMB 1.01 billion for the second quarter compared to RMB 1.07 billion in the corresponding period in 2018, reflecting the reduced marketing spendings by our automaker and dealer customers. We are, however, pleased to see further improvement in mobile traffic as well as in quantity and quality of our sales leads. Our continuous efforts to enhance content and user experience, starting with the rollout of our upgraded auto media app in October last year continued to pay off.

Looking at our traffic. According to Questmobile, in July 2019, DAU for the Bitauto media app increased by over 200% compared with that of October 2018. In addition, the combined DAU of both the Bitauto media app and Auto Pricing app increased by over 60% during the same period.

Our total number of sales leads increased in the second quarter by 37% year-over-year. More importantly, our organic sales leads, which typically feature better quality and higher conversion rates, accounted for over 50% of our total sales leads in the second quarter, and continued to rise in July and August.

During the second quarter -- during the quarter, we further enhanced user-generated content in areas, including user review, Q&A and retail pricing, particularly for new car models. These efforts helped us strengthen our competitive advantage in the market and attracted more users.

We also made substantial progress in enhancing our product offerings. Our AI-based marketing solution, which we launched in the first quarter of this year, has already received very positive feedback from automaker customers. We are working on enhancing this product offering and expect to rollout -- roll it out to all of our automaker customers and see more meaningful revenue growth in the coming quarters.

Our network of independent dealers continued to grow to over 30,000 during the second quarter, with more than 3,600 paying customers at the end of August. We will look to further tap into this market segment and explore tailored offerings to increase monetizing going forward.

Now moving to our transaction services business. Yixin continued to strengthen its industry leadership and grew faster than the overall industry, facilitating approximately 138,000 financed automobile transactions during the quarter, representing a year-over-year increase of 34%. Yixin's loan facilitation services grew over 250% year-over-year and contributed 49% of its total financed automobile transactions, up from 19% in the same period last year. Its new core services revenues, which include revenues from loan facilitation transactions and new self-operated financing lease transactions facilitated during the period, reached RMB 589.9 million, representing a 46.9% year-over-year increase.

Looking ahead, we will continue to focus on executing our core business strategies. First, we will continue to enhance Bitauto's value proposition through improving content and user experience. We're also looking at ways to better promote the Bitauto brand to improve brand awareness and enlarge our user base, which we believe will strengthen our ability to bring higher-quality sales leads to our automaker and dealer customers and enable them to raise the effectiveness of their marketing spending on Bitauto media platforms.

Second, we will further rollout our AI-based marketing solution to automaker customers to achieve incremental growth in our advertising business.

Third, we will drive revenue growth in our subscription business through enhancing ARPU as we mitigate -- as we migrate more dealer customers to premium and deluxe premium packages and through expanding our dealer coverage network and increasing monetization among independent dealers.

Fourth, Yixin will continue to increase its loan facilitation services and further improve its technology capabilities to provide better product and services to consumers, financial institution partners and auto dealers.

As we continue to enhance Bitauto's value proposition, through improving content and user experience, increasing traffic and developing products, which enable automakers and dealers to raise the effectiveness of their marketing spending, we're confident in our strategy to build Bitauto into China's top online automobile media and transaction services platform.

With that, I'll turn the call over to Ming to go over the financials.

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Ming Xu, Bitauto Holdings Limited - CFO [4]

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Thank you, Andy. Good evening, everyone. We delivered positive top line growth in the second quarter despite a challenging industry environment. More importantly, our effort to improve traffic and content are bearing fruit, and are increasingly recognized by our automaker and dealer customers as they focus more on the effectiveness and ROI of their marketing spending.

Looking ahead, in addition to continuous improvement in traffic and content, we will also focus more on Bitauto's brand-building initiatives to accelerate the growth of our user base.

Although our efforts to enhance our traffic, content and brand awareness will involve higher operating expenses, we believe these inputs will bring long-term value to our businesses and we'll view them as investments rather than mere expenses. As we continue to strengthen the competitiveness of Bitauto's products and services, expand our user base and enhance user experience, we are confident that we will continue to grow revenue and reduce customer acquisition costs in the long run.

Now let's look at our Q2 2019 financial highlights before moving to Q&A. Please note that I will reference mainly to financial figures in RMB in following discussion.

Bitauto reported revenue of RMB 2.79 billion for the second quarter of 2019, representing an 8.9% increase from the corresponding period in 2018. The increase in revenue was attributable to the growth of the company's transaction services business.

Revenue from the advertising and subscription business for the second quarter of 2019 was RMB 1.01 billion, compared to RMB 1.07 billion in the corresponding period in 2018, mainly due to decreased spending -- marketing spend by our automakers and dealer customers, reflecting the sustained decline in new car sales.

Revenue from the transaction services business for the second quarter of 2019 was RMB 1.49 billion, representing a 17.2% increase from RMB 1.27 billion in the corresponding period in 2018, mainly attributable to the growth of the company's loan facilitation services.

Revenue from the digital marketing solutions business for the second quarter of 2019 was RMB 294.7 million, representing a 31.2% increase from [RMB 224.6 million] (corrected by company after the call) in the corresponding period in 2018.

Cost of revenue for the second quarter of 2019 was RMB 1.21 billion (sic) [RMB 1.12 billion], representing an 18.7% increase from the corresponding period in 2018. The increase was primarily due to the increase in commissions associated with loan facilitation services. Cost of revenue as a percentage of revenue in the second quarter of 2019 was 40% compared to 76.7% (sic) [36.7%] in the corresponding period in 2018.

Gross profit for the second quarter of 2019 was RMB 1.67 billion, representing a 3.1% increase for the corresponding period in 2018.

Selling and administrative expenses were RMB 1.64 billion for the second quarter of 2019, representing a 17.1% increase from the corresponding period in 2018. This increase was primarily due to the increase in marketing expenses associated with the company's mobile apps and the increase in allowance for doubtful accounts receivable from the services Yixin no longer provides, due to the general economic slowdown in recent periods.

Product development expenses were RMB 142.1 million for the second quarter of 2019, representing a 12.7% decrease from the corresponding period in 2018.

Share-based compensation, which was allocated to the related line items of operating expenses, was RMB 99.9 million in the second quarter of 2019, compared to RMB 151.6 million in the corresponding period in 2018.

Non-GAAP income from operations in the second quarter of 2019 was RMB 215.4 million compared to non-GAAP income from operations of RMB 429.1 million in the corresponding period in 2018.

Net loss in the second quarter of 2019 was RMB 136.2 million compared to net income of RMB 27.4 million in the corresponding period in 2018. Net loss attributable to Bitauto in the second quarter of 2019 was RMB 145.5 million compared to net income attributable to Bitauto of RMB 2.7 million in the corresponding period in 2018.

Non-GAAP net income in the second quarter of 2019 was RMB 216 million compared to non-GAAP net income of RMB 353.7 million in the corresponding period in 2018. Non-GAAP net income attributable to Bitauto in the second quarter of 2019 was RMB 155.3 million compared to non-GAAP net income attributable to Bitauto of RMB 257.3 million in the corresponding period in 2018.

Basic and diluted net loss per ADS, each representing 1 ordinary share, in the second quarter of 2019 amounted to RMB 2.06 and RMB 2.06, respectively. Non-GAAP basic and diluted net income per ADS in the second quarter of 2019 amounted to RMB 2.17, USD 0.32 and RMB 2.21 -- RMB 2.12, USD 0.31, respectively.

As of June 30, 2019, the company has cash and cash equivalents and restricted cash of RMB 7.45 billion. Cash provided by operating activities, cash used in investing activities and cash used in financing activities in the second quarter of 2019 were RMB 110.3 million, RMB 196.2 million and RMB 1.88 billion, respectively.

Numbers of employees totaled 8,396 as of June 30, 2019, including employees of entities in which Bitauto has acquired and holds controlling interests as of such date. This represents a 6.4% year-over-year increase.

In addition, given Yixin's scale and significance to Bitauto, I would also like to share with you some Yixin's operating and financial highlights for Q2 2019.

As of June 30, 2019, Yixin's accumulated total financed automobile transactions reached approximately 1.4 million and its accumulated aggregate auto financing amount exceeded RMB 100 billion. As a leading player in this industry, Yixin has enjoyed leadership advantages during business development.

Despite the sustained weakness in passenger vehicle sales in China, in the second quarter of 2019, Yixin facilitated approximately 138,000 financed automobile transactions and the aggregate automobile financing amount facilitated through its loan facilitation services and self-operated financing business was approximately RMB 11.01 billion.

In the quarter, Yixin achieved faster growth than the industry. It's financed automobile transactions, both new and used, achieved an increase of approximately 34% from the corresponding period, while China's total sales of new and used passenger vehicles decreased by approximately 7% compared to the same period last year, according to the data from the China Association of Automobile Manufacturers and the China Automobile Dealers Association.

In the quarter, through its loan facilitation services for financing partners, Yixin facilitated approximately 67,000 financed automobile transactions, representing an increase of over 250% from the corresponding period in 2018 and approximately 49% of Yixin's total financed automobile transactions.

In the second quarter of 2019, under U.S. GAAP, Yixin's total revenue reached RMB 1.5 billion; new core services revenues, which include revenues from loan facilitation services and new self-operated financing lease transactions Yixin facilitated during the period reached RMB 589.9 million. Gross profit reached RMB 689 million. Net income was RMB 4.4 million and non-GAAP net income was RMB 94.4 million.

In the second quarter of 2019, Yixin's non-GAAP net income is calculated as net income excluding share-based compensation of RMB 55.8 million, amortization of intangible assets resulting from asset and business acquisitions of RMB 34.2 million and offset by tax effect of RMB 0.04 million. In the second quarter of 2019, Yixin entered into certain transactions with other subsidiaries of Bitauto, which have been eliminated upon Bitauto's consolidation of Yixin. The cost of revenue and expenses that Yixin recorded for the services purchased from those subsidiaries of Bitauto amounted to RMB 4.2 million.

As of June 30, 2019, Yixin had cash and cash equivalents and restricted cash of RMB 4.38 billion, total finance receivable of RMB 34.44 billion, and total borrowings, including bank borrowings and asset-backed securitization debts, of RMB 27.03 billion.

As of June 30, 2019, 90-plus days -- 90-day plus, including 180-day plus past due ratio and 180-day plus past due ratio for all financed transactions, including the third-party loan facilitation, were 1.06% and 0.58%, respectively. 90-day plus, including 180-day plus past due ratio and 180-day plus past due ratio for Yixin's self-operated financing business were 1.29% and 0.77%, respectively.

To give you some background on the increase of -- in our past due ratios, since 2019, various local governments started to implement much stricter rules and the guidance on delinquent consumer accounts' payable -- payment collection and in order to better comply with this new rules and guidance, we used litigation as our primary priority collection method. Litigation usually take a longer time for collection, and our delinquent ratios increase accordingly in the nearest term. However, we believe, in the long term, this will help regularize the overall industry practice and further improve consumers' user experience.

On the U.S. GAAP, Yixin's provision for credit losses of finance receivable for the second quarter of 2019 was RMB 195.8 million, the balance of provision for credit losses of finance receivables was RMB 437.3 million as of June 30, 2019.

For the second quarter of 2019, there was an increase in allowance for doubtful accounts receivable from the services to auto dealers Yixin no longer provides. In consideration of the general economic slowdown in recent periods, Yixin made such allowance for doubtful accounts receivables. Allowance for doubtful accounts receivable was RMB 137 million in the second quarter of 2019 compared to RMB 1.9 million in the corresponding period in 2018. Yixin expects that allowance for doubtful accounts receivable to decrease significantly in the future.

With that, I will turn to guidance for the third quarter of 2019. Bitauto currently expects to generate revenue in the range of RMB 2.65 billion, to RMB 2.75 billion in the third quarter of 2019, representing a 2.8% decrease to 0.9% increase from the corresponding period in 2018. This forecast takes into consideration of seasonality factors in Bitauto's business and excludes any impact of foreign currency fluctuation. It reflects management's current and preliminary view, which is subject to change.

Let's now start the Q&A session. Andy, Xiaoke and myself and Yixin CFO, Catherine Liu, are available to take your questions. Operator, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line Binbin Ding of JPMorgan.

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Binbin Ding, JP Morgan Chase & Co, Research Division - Analyst [2]

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My first question is a high-level one about auto market. So can management gave us some color in terms of the trend of passenger vehicle sales for the rest of 2019 and maybe potentially 2020 as well? It seems that July and August sales were still very weak, and we noted that the government has announced some stimulus policies on auto consumption at the end of August. So shall we expect these policies to help auto sales to stabilize in the next few months?

My follow-up question is on the transaction services. So in the second quarter, I noted that your loan facilitation service contributed to roughly 50% of the total financed automobile transaction. And that percent seems to have declined from over 60% in 1Q. So how shall we look at the future trend of the contribution from our loan facilitation services? And from operational and technology perspective, how do you balance consumers' exposure to your own self-operated financing products or third-party loan? What is algo behind that?

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Ming Xu, Bitauto Holdings Limited - CFO [3]

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Thank you, Binbin. So our COO, Xiaoke Liu, will answer the first question; and Catherine will answer the second question.

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Liu Xiaoke, Bitauto Holdings Limited - COO [4]

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[Interpreted] Okay. So let me translate briefly. So as you can see, the auto sales in June recovered briefly, but we believe that was mainly caused by the temporary demand or caused by the migration from China 5 to China 6 emission standards. After that, we see the auto sales growth dropping again in July. It actually dropped by 5% year-over-year and 16% month-over-month. Year-to-date, we still -- from January to July, we still have minus 8.8% decrease. And in August, we -- as -- according to the data from the CPCA, actually in the first week, we saw the wholesale data decreasing by 31% year-over-year. It recovers slightly in Q2 and Q3, but still quite weak. In Q4, we saw internally from our website, we saw a slight increase in consumers purchasing intention reflected by the willingness of them to be sales leads. But that was only a very mild increase. We still need to monitor that data very closely.

And in terms of inventory, we saw that even though like in June, the clearance sales of many dealers helped them to clear some inventory but the overall inventory level in July and August remains quite high. So in July and the latest development in July, so far we still see the auto demand quite weak. And -- for example, this week, the Chengdu auto show starts today actually. And we saw from the attendance number and also from the activities of carmakers that actually it's still a very lukewarm attendance number.

Now towards the end of August, we saw the government actually release some -- central government release some policies to support the auto industry. We believe that was quite encouraging, but still it takes time for the local governments to implement those policies. And so far, we believe the process is still quite slow. We haven't seen a very explicit or very clear timetable from the local governments.

And also like today, for example, the Ministry of Commerce also announced certain intention to help the automakers and auto industry. We believe this is encouraging because the government, seems that the government has now realizing -- realized the significance and importance of auto industry and started to offer -- willing to offer help, but still it takes time for detailed policies to come out and to be implemented. So simply speaking, we believe that the auto industry remained challenging from what we see. That's for the first question. And Catherine will answer your second question.

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Xiaozheng Liu, Yixin Group Limited - CFO [5]

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For your second question, in the first quarter, Yixin's loan facilitation contributed over 60% of the total transaction volume. And in the second quarter, it contributes 49%, which reflects some short-term adjustments. But in the third quarter, from the current loan facilitation business, we expect our loan facilitation will still increase. And we think -- we expected that in the second half of the year, our loan facilitation will -- the percentage of the loan facilitation will be back to over 60%. Okay.

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Binbin Ding, JP Morgan Chase & Co, Research Division - Analyst [6]

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And the follow-up is on the, how do you balance your consumer's exposure to your self-operated balancing products versus the third-party loans? I think there should be some algo to decide what kind of products will be accommodated to this consumer?

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Xiaozheng Liu, Yixin Group Limited - CFO [7]

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Currently, we actually have -- we are working with about 10 financial institutions for our loan facilitation services. And then, also we have self-operated financing businesses. So for, our self-operated business, we view it as one of the capital channels for us. So among this, let's say, 11 or above channels, we will balance it based on a lot of factors, such as the cost of the capital, the convenience of the approval process, et cetera. So we -- that's our goal to have a more smart sort of matching system for various funding channels. And then we view our self-operated financing business just as one of the funding channel.

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Operator [8]

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Our next question is from the line of Hillman Chan of Citigroup.

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Hillman Chan, Citigroup Inc, Research Division - Research Analyst [9]

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Also just a follow-up on that Binbin question previously. Could management share more on the auto advertising outlook for second half specifically by different channels, online, off-line and also the ad format? And is it also possible to share more feedback from your OEMs and dealers customers for their budget planning for the rest of the year, please?

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Liu Xiaoke, Bitauto Holdings Limited - COO [10]

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[Interpreted] Thank you for the question. Xiaoke will answer the question. So Hillman, as you know, we actually see, in the first quarter and second quarter, a lot of the other online media platforms actually reported declining growth in their -- actually year-over-year decline in their online advertising revenue. So the main reason we believe is that because of the weak auto sales and outlook, the automakers are cutting their branding spending. So on the other hand, these OEMs, starting from Q2, they become increasingly focused -- focusing their advertising spend on the performance ads. So that's a brief overview of what is happening in the advertising -- online advertising market.

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Hillman Chan, Citigroup Inc, Research Division - Research Analyst [11]

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Just one follow-up question. As the whole industry, including us and also Autohome are delivering more and more online sales leads for the industry but meanwhile the volume, the car retail volume is trending down. So how should we think about that going forward, the discrepancy going forward?

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Ming Xu, Bitauto Holdings Limited - CFO [12]

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Thank you, Hillman. Yes, you're right. So we believe this -- so as you know, this basically implies the effectiveness or the quality of the sales leads is declining. And I think this actually means that the dealers and increasingly the OEMs. So previously, mainly the dealers care about leads and quality, but now increasingly the OEMs are also caring about sales leads and tying the sales leads with their spending on our platforms. So going forward, everyone -- every advertiser, big and small, will pay more attention to the effectiveness of their spending and to sales -- quality of sales leads.

So actually, we believe this is both a challenge and opportunity for us. By opportunity, we think that this requirement will actually be more beneficial to the bigger leading platforms like us and like our main competitor because we are able to deliver sales leads and large quantity of sales leads to the advertisers, but the smaller platform actually are weaker in their ability to provide sales leads and even weaker in their ability to -- capability to provide high-quality sales leads to the customers.

And so we are actually working internally both on the -- on our product and also on our commercial solutions to the customers so that we come up with new ways to encourage more users to leave their sales leads and to ensure that these people will actually go to the stores, will actually interact with the dealers and we try to -- try our best to make sure that they will eventually buy a car, hopefully. So this actually also opens the window for us to try out different ways of pricing our product with our -- particularly with our dealer customers. This is -- we're trying out different forms of commercial product to reach that goal.

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Operator [13]

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Next question is from the line of Frank Chen of Macquarie.

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Zhenyu Chen, Macquarie Research - Analyst [14]

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I noted that Bitauto achieved very encouraging user traffic growth and sales leads growth. And could management share with us user acquisition strategy going forward? And what should we think of the budget on the users and our branding? We see good growth in both user and sales leads. How should we better monetize this in the future?

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Liu Xiaoke, Bitauto Holdings Limited - COO [15]

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[Interpreted] Thank you for your question. Xiaoke will answer briefly your 2 questions. So as you know, we rolled out the upgraded Yiche app starting from October of last year. So far, we are still achieving a very healthy growth in both traffic and sales leads that the app generates. So as we are speaking now, the sales leads generated by our 2 apps actually are now contributing to the majority of our total sales leads generated every day. And through very close tracking and multi-channel tracking we are doing, we are convinced that the quality of these apps -- these organic apps are much better than the sales leads we used to get from other channels.

So through our operation in the past 10 months, we have also further focused on our strategy -- on positioning our app as a marketplace going forward. And we believe this positioning is based on the -- is also in line with the users' perception of our app -- of our services.

So in the recent months, we are also adding more content and also particularly tech-driven content, for example, AI-driven, big data-driven content and also user-generated content into our apps. The focus -- the purpose for that is to further increase the conversion of users leaving a sales lead and also to improve the quality of those sales leads.

So going forward, we will further diversify the sales lead generation user cases and to extend the user case from a purely price discovery to cover the whole purchasing and ownership cycle of a car so that we can generate more sales leads out of our users. So we -- through the -- our efforts, we also realized that the consumers' brand perception of different, although information platform of different verticals actually have -- plays a role in the willingness to leave a contact and also contact to leave a sales lead and also play a role -- important role in the quality of -- eventual quality of those sales leads. So as a result, we plan to roll out a campaign to further promote our brand and help to raise the awareness and brand perception of the Yiche brand among the potential car buyers and the car owners. So with this continuous focus and optimization on the user acquisition channels and also on this branding campaign, we believe that in the third and fourth quarter -- in the coming quarters, we will maintain this strong momentum in user acquisition and user -- and sales leads growth.

So now turning to your question about the monetization. So with this growth in our user base, we are also looking at ways to monetize these users. And we noticed, as we have mentioned before, that the OEMs are increasingly focused on the effectiveness of their marketing spend on the performance of their marketing spending.

So in Q2, we rolled out -- we formerly rolled out our AI-based marketing solutions to the OEMs. So this product, based on our technology capabilities in big data and in the user profiling, to provide a more effective and -- more effective ways for the OEMs to get sales leads and particularly high-quality sales leads with their marketing spending. And since we rolled out that product, it has been increasingly recognized and accepted by the -- by our OEM customers.

So in the past few months, since May, actually we are seeing increasing number of customers that use our AI marketing solution in the -- month-over-month. So as I mentioned before, going forward, we will provide this business AI marketing solution on a more diversified sales lead generation user cases and provide these product -- commercial products to our customers.

Yes, we believe that the trend is very clear that the OEMs are becoming more and more focused on the quality of their -- on the effectiveness of their marketing spend. So we believe that this is a trend that to -- not only us or our competitors but actually across the online marketing industry that the platforms are using technologies to raise the effectiveness of their marketing solutions. And we believe, we are also -- this trend will also benefit us to -- and this going forward will becoming an increasingly important contributor to our advertising revenue. Thank you.

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Operator [16]

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Our next question is from the line of Gary Chen of CICC.

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Zhenyang Chen, China International Capital Corporation Limited, Research Division - Associate [17]

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This is Gary from CICC on behalf of Zhao Liping. I have 2 questions. First is about Yixin. As you mentioned, loan facilitation services contributed roughly 49% of total transactions in this quarter and might still reach over 60% in the half -- in the second half year. And what is your expectation for this ratio from a more long-term vision and how do we reach this target? And the second question is about our cash flow. Could management give more color about the outflows of our cash and what's the reasons behind that?

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Ming Xu, Bitauto Holdings Limited - CFO [18]

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Thank you, Gary. Catherine will answer your first question about loan facilitation, and I'll address the second question regarding cash flow.

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Xiaozheng Liu, Yixin Group Limited - CFO [19]

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Our loan facilitation services is our business focus. So we will keep increase our loan facilitation partners and our businesses. We think in the next 2 or 3 years, our loan facilitation services will still keep increasing. I think, eventually, it will be, sort of, majority of our business. I hope this answers your question.

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Ming Xu, Bitauto Holdings Limited - CFO [20]

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Thank you, Gary. Regarding your second question about cash flow, the cash outflow in investing activities is mainly caused by the new self-operated auto finance businesses of Yixin, and yes, that's the main reason for investing cash outflow. For the financing outflow is mainly caused by 2 reasons. First one is the repayment of borrowing and asset-backed securities by Yixin. And secondly, as we have announced before, in the second quarter, we actually pay back the convertible bonds that we borrowed from -- we issued to PAG in 2019 -- sorry, in 2016. And so we repaid the remaining outstanding amount of that convertible bond in Q2, which was slightly over USD 100 million. And so that caused -- that's the main reason for -- the 2 reasons for cash outflow in the financing activities. However, as you can see, the cash flow of ours and also -- ourselves and also including the whole group remains very healthy and robust.

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Operator [21]

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Our next question is from the line of Miranda Zhuang of Bank of America.

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Xiaomeng Zhuang, BofA Merrill Lynch, Research Division - Associate [22]

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So I have a quick question. So we have seen the company's digital marketing business, which is essentially the auto ad agency business deliver very strong growth of over 30% year-over-year. Given that the whole auto advertising budget is declining, so I'm curious to learn the reason behind the growth of the business. And how should we think about the business for second half of the year?

And my second question is related to the auto finance. So yes, it's again very inspiring to see the very strong growth of the auto finance volume, which is clear, outperformed the industry, so suggesting that Yixin is taking market share. So I'm curious to know that, in your mind, who are we getting the market share from. Like, is it more from the banks or AFCs or other auto finance lease companies? And for the mid- to long-term, do we have any target for Yixin's market share?

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Ming Xu, Bitauto Holdings Limited - CFO [23]

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Thank you, Miranda. I will answer your question regarding CIG, and Catherine will answer the question on Yixin. So regarding CIG, as you know, they actually -- their revenue includes mainly 2 parts. The one -- number one is the traditional revenue stream of agency, which is rebate from media. And for that part actually in Q2, the performance is in line with the overall advertising -- online advertising market of China. And they have -- and at the same time, they also have a second part of the revenue, which is more project based -- basically projects they do with their customers. So actually in Q2, we see a very strong growth in this project-based revenue.

And going to second part, this project is actually more ad hoc and it's very difficult. We have a very limited visibility on this project-based revenue. And for the rebates, actually going into second half, I think it's very closely in line with what will happen in the auto industry. If the auto industry remain weak and the advertisers will remain very careful in their marketing spend, and that will also influence CIG's business. Catherine, do you want to answer question on market share?

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Xiaozheng Liu, Yixin Group Limited - CFO [24]

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Sure. I think to your second question, Yixin is taking market share, I think, generally because the industry is consolidating. I think from -- since the beginning of last year, the whole finance industry experienced, I think, the macro -- from micro situation wise, there's general credit tightening policies. And also, I think from the primary market and the secondary market, the auto finance companies' valuation is undervalued, which resulted a lot of the -- I think the capital is not -- does not flow into this market as much as, let's say, in 2016, 2017. So as a result, I think, our competition, we think, it's less.

And also for the auto finance industry, this is actually an industry with pretty high entry barrier. So I think from the competition wise, we think that as the leader in the industry, we're enjoying the consolidating benefit. So that's why we enjoyed the faster growth than the industry growth.

As to your point, are we competing, I think we are competing, but we are also cooperating with banks and auto finance companies. For example, our loan facilitation services, we have partners that are banks and possibly auto -- large auto finance companies as well. So we -- for those institutions, we are actually partners with them. But of course, in terms of the product wise, we are competing with other banks, other auto finance companies' products in the market. But I think from Yixin's past experience, since we started the business in 2015, we have demonstrated we have pretty strong execution team and attractive products for consumers.

So that's the reason why we are gaining market share and become the leader. And we believe that with this leadership and our execution team, we will continue to be the leader in the industry and enjoy the leadership advantages. And we will also try to enlarge our competitive advantages by improving our technologies and increasing our loan facilitation partners and increase our operating efficiency. Hope this answers your questions.

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Operator [25]

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We are now approaching the end of the conference call. I will now turn the call over to Bitauto's CFO, Ming Xu, for closing remarks.

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Ming Xu, Bitauto Holdings Limited - CFO [26]

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Once again, thank you for joining us today. Please don't hesitate to contact us if you have any other -- further questions. Thank you for your continued support. And we look forward to talking with you in the coming months.

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Operator [27]

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Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]