Filing Summary
Filing identity: The supplied filing is TuanChe Limited’s Form 20-F for the fiscal year ended December 31, 2019, not “Token Cat Ltd.” The filing reports annual results rather than a standalone 2019 fourth-quarter period. Financial statements are prepared under U.S. GAAP and audited by PricewaterhouseCoopers Zhong Tian LLP.
Business Context and Reporting Period
TuanChe operates primarily in China through subsidiaries and contractual variable-interest entities. Its businesses include auto shows and other offline marketing services, virtual dealership services, online marketing, special promotion events and related services. In 2019, it organized 1,055 auto shows in 233 cities, facilitated 354,355 automobile sales transactions and generated approximately RMB47.5 billion of GMV.
- ADSs trade on Nasdaq under “TC”; each ADS represents four Class A ordinary shares.
- The electric-vehicle dealership business was discontinued in 2018 and generated no discontinued-operation loss in 2019.
- In January 2020, TuanChe completed its acquisition of Longye International, including the Cheshangtong social CRM cloud-services business, for total consideration of RMB200 million in cash and securities.
Key Financial Metrics
| RMB in thousands, except per-share data | 2018 | 2019 | Change |
|---|---|---|---|
| Net revenue | 651,013 | 644,773 | Down 1.0% |
| Cost of revenue | 183,369 | 186,541 | Up 1.7% |
| Gross profit | 467,644 | 458,232 | Down 2.0% |
| Gross margin | 71.8% | 71.1% | Down 0.7 percentage points |
| Operating expenses | 535,681 | 719,269 | Up 34.3% |
| Operating loss | (68,037) | (261,037) | Materially wider |
| Net loss | (78,700) | (251,299) | Materially wider |
| Adjusted EBITDA | 7,482 | (143,868) | Turned negative |
| Adjusted net income/(loss) | 3,276 | (140,331) | Turned negative |
| Basic and diluted loss per share from continuing operations | (RMB0.90) | (RMB0.85) | Improved per share |
2019 revenue consisted primarily of auto-show services of RMB603.4 million, special promotion events of RMB19.8 million and virtual dealership, online marketing and other services of RMB21.6 million. Auto-show revenue declined 6.3%, partly offset by growth in newer service lines.
- Selling and marketing expense increased 32.4% to RMB572.0 million, or 88.7% of revenue, driven principally by higher advertising and promotion costs and sales-staff compensation.
- General and administrative expense increased 23.2% to RMB103.9 million, including higher allowance for doubtful accounts.
- Research and development expense increased to RMB43.3 million from RMB19.3 million.
- Share-based compensation was RMB110.0 million in 2019, compared with RMB78.1 million in 2018.
- Accounts receivable, net increased to RMB72.4 million from RMB52.3 million, while the allowance for doubtful accounts increased to RMB14.2 million from RMB0.5 million.
Cash Flow, Liquidity and Debt
- Cash and cash equivalents were RMB193.9 million at December 31, 2019, compared with RMB578.6 million at December 31, 2018. Including restricted cash, total cash, cash equivalents and restricted cash were RMB195.4 million.
- Net cash used in operating activities increased to RMB161.8 million from RMB53.3 million.
- Net cash used in investing activities was RMB187.5 million, including RMB99.1 million for a bridge loan related to the Longye acquisition, RMB69.8 million placed into time deposits and RMB13.2 million for property, equipment, software and other non-current assets.
- Net cash used in financing activities was RMB37.2 million, primarily reflecting RMB26.2 million of employee-share repurchases and RMB13.7 million of open-market share repurchases.
- The filing states that borrowings outstanding at December 31, 2019 were fully repaid or otherwise not outstanding; the disclosed bank facilities had been fully repaid by the relevant dates.
- Net current assets were RMB389.3 million at year-end. Management stated that available cash, time deposits and anticipated operating cash flows were sufficient for at least 12 months from issuance of the financial statements, while acknowledging COVID-19-related liquidity risks.
- Future minimum operating lease commitments totaled RMB19.4 million, comprising RMB1.4 million for auto-show venues and RMB18.0 million for office space.
Material Changes Versus the Prior Comparable Period
- Revenue was broadly flat, but auto-show revenue declined despite the number of shows increasing from 851 to 1,055.
- Operating expenses grew substantially faster than revenue, causing the operating loss to widen from RMB68.0 million to RMB261.0 million.
- Net loss increased from RMB78.7 million to RMB251.3 million. The 2018 loss included RMB35.1 million of preferred-share redemption accretion; no such charge was recorded in 2019.
- Adjusted EBITDA declined from positive RMB7.5 million to negative RMB143.9 million.
- Cash declined by approximately RMB384.6 million, reflecting operating losses, the Longye bridge loan, time-deposit placements and share repurchases.
- Virtual dealership transactions increased from 961 to 1,878, with related GMV increasing from approximately RMB94.5 million to RMB229.5 million.
- The company repurchased approximately 1.7 million ordinary shares for RMB15.1 million and repurchased 6.4 million vested restricted shares from employees for approximately US$4.8 million.
Guidance, Outlook, Risks and Unusual Items
- Management expected first-quarter 2020 revenue of approximately RMB9.0 million to RMB10.0 million, representing a year-over-year decline of approximately 92.7% to 91.9%, primarily because COVID-19 caused cancellation of offline events.
- COVID-19 disrupted events, customer operations and collections. The company implemented furloughs, reduced recruitment and moderated expansion, and warned that further cost reductions could be required.
- The filing identifies material liquidity, accounts-receivable collection, customer-retention, automotive-industry, weather, event-permitting, competition and regulatory risks.
- The company’s cooperation with a commercial bank for auto-loan referrals could potentially be viewed as unlicensed financing-guarantee activity. The regulatory interpretation remained uncertain, and the company was working to modify the arrangement.
- Management concluded that internal control over financial reporting was ineffective as of December 31, 2019 because of two material weaknesses: insufficient U.S. GAAP and SEC-reporting personnel, and inadequate formal closing policies and controls. Remediation was not complete.
- The company uses a PRC VIE structure for restricted telecommunications-related operations. Changes in PRC foreign-investment rules or enforcement could impair control, consolidation or access to economic benefits.
- Substantially all operations and revenue are in China. The company faces currency-control, dividend-repatriation, PRC regulatory, tax, data-privacy and audit-inspection risks.
- The filing states that no material legal proceedings were pending and no material off-balance-sheet guarantees or similar arrangements were reported.
Most Important Facts to Verify
- Confirm that the intended issuer is TuanChe Limited, ticker “TC,” rather than Token Cat Ltd., and that the requested period is the full fiscal year rather than Q4 alone.
- Review the audited financial statements and notes for the RMB251.3 million net loss, RMB161.8 million operating cash burn and year-end cash composition.
- Assess whether COVID-19 revenue declines and delayed collections created a liquidity shortfall after December 31, 2019.
- Verify completion, valuation and accounting for the RMB200 million Longye acquisition and the issuance of 8,366,444 consideration shares.
- Evaluate the two unresolved material weaknesses in internal control and the status of remediation.
- Review the legal and financial exposure associated with the bank referral arrangement and the PRC VIE structure.
- Reconcile share repurchases, restricted-share activity, outstanding shares and the dual-class voting structure.