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spk02: Ladies and gentlemen, thank you for standing by and welcome to FANGDT Network Group Limited's second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will have a question and answer session. Please note that this event is being recorded. I'd now like to hand the conference over to your speaker host today, Ms. Linda Lee, the company's Director of Capital Markets. Please go ahead, Linda.
spk04: Thank you, operator. Hello, everyone, and thank you for all joining us on today's call. The company has announced its second quarter 2021 financial results today. An earnings release is now available on the company's IR website. Today, you will hear from our co-CEO, Mr. Xi Zheng, who will start the call with an overview of the current industry dynamics and the details of our development strategies in the quarter. Afterwards, our CFO, Mr. will go over our financials before we open up the call for questions. Our management team will deliver your remarks in Chinese and I will provide English translations. Before we continue, I would like to refer you to our safe harbor statement in our earnings price which applies to this call, and we will be making forward-looking statements. Please also note that we will discuss non-GAAP measures today, which are more closely explained and reconciled to the most comparable measures reported under the generally accepted accounting principles in our earnings release and the filings with the SEC. With that, I will now turn the call over to our co-CEO, Mr. Cesar. Please go ahead, sir.
spk01: Hello, everyone. Welcome to the second quarter of 2021. First of all, let's talk about the changes and opportunities of the industry in the second quarter of 2021. First, real estate sales are gradually weakening, plus the tightening of financing, and the housing market is actively seeking refunds. According to statistics, in 2021, China's real estate sales in the second quarter of 2021 were 5.4 trillion yuan, with a growth of 17.2 billion yuan. Under the influence of the regulation policy and the tightening of the mortgage, the rate of the second quarter dropped by 70% in the first quarter. After the launch of the real estate loan centering system, the banks tightened the real estate loan. Under the pressure of the sale gradually turning into financing tightening and debt centering down, the real estate needs to speed up sales. The second aspect is that the real estate market is waiting for the long-term development of real estate to be digitized. Digital marketing is a major focus. The current competition between real estate companies has led to a decline in profits. Real estate companies are gradually paying attention to digital transformation to increase efficiency. However, due to the rapid growth of digitalization, The transformation is large, the chain is long, and there are many scenarios. The digital transformation needs to be found in the short term to see the results. So from the sales performance, many companies will use marketing as a very important factor in the digital transformation. According to the data from Columbia, the defense of the 50 wall has now been invested in of the digital marketing platform. In 2018, only 24% of real estate companies made such a mistake. Thirdly, the age when real estate trading service platforms compete with each other will gradually pass, and the efficiency competition between platforms will become a trend. Trading platforms in the past, through low-cost competitive strategies, will gradually fail due to the control of developers. We estimate that the market will enter a stable period of development. The technology capability and operational efficiency of the trading platform will become the key to competitiveness. Since then, VendorDuo has actively responded to the policy of national rent-free. It has always adhered to neutral market views and promoted the development of good health in the industry. The change in the policy of real estate industry in the second quarter of 2021 is a new trend in digitalization. The company has also launched a second start-up competition to upgrade the company's mission to make asset trading more efficient, and to make the user experience more beautiful. The company's vision is to serve 100,000 buildings, millions of businesses, and tens of thousands of families, and to become a multi-billion-dollar digital trading platform that customers trust. In the second quarter, the company will continue to surround a platform and three core business strategic layout to develop and manage. In terms of business platform, The second quarter, the platform recruited 250,000 managers, In terms of the three businesses, the first point is to look at the new housing distribution business. In the new housing distribution business, we have strengthened the control over housing resources and continued to optimize the profitability. In the second quarter, on the one hand, we pay attention to the scale of the business, and on the other hand, we strive for growth in the quality of collaboration and cooperation. to improve the depth of cooperation with developers, as well as the effective growth of the net profit of the project. On the other hand, through the cooperation of the key business partners for the key project, we achieved the accurate matching of the supply chain finance and the commission with the bank. In the second quarter, We have 18.9 billion RMB in new houses, 16.4 billion RMB growth per quarter, and 15.7% growth. We have 1,930 new house services, 3.6 billion RMB in sales, and 32.1% growth per quarter. Our second business, our cloud-based SaaS business, has built up a operating system and continuously optimized products. The four-point effect of NVP is initially presented. In terms of product optimization,防云SaaS helps developers to strengthen the resource activation ability of free channels through the construction of economic malls through the construction of economic malls through the construction of economic malls through the construction of economic malls through the construction of economic malls through the construction of economic malls through the construction of economic malls through the construction of economic malls and distribute the efficiency of the agent. At the same time, it enriches the data dimension of the management board, and the automatic Q&A of IAM is online, and the implementation of the smart reply, which improves the efficiency and experience of the developer's use of the self-reporting large-scale products. In terms of the four points of NVP, we have implemented the strategy of project benchmarking, and selected the benchmarking as a model for projects such as construction and launch of heavy metal. For example, in June of a certain project of heavy metal, It has delivered 54 projects. The first launch of the project has delivered 78 projects. It has realized the effect of the project's digitalized marketing. At the end of the second quarter, the defense and SaaS business has achieved a revenue of 233 million yuan. Third, in the second-hand defense business, the second-hand defense business is stable and developing. Although affected by the market control of the second-hand house, the second-hand house still plays the advantage of model innovation, achieving a continuous growth in income and profit. In the second quarter, the second-hand house returned 10.6 billion yuan to JNV, achieving a revenue of 40.32 million yuan, a growth of 14.4%. Finally, I would like to share the future prospects and expectations of the second-hand house. In the third quarter, Fangduoduo's new distribution business will insist on playing the advantage of platform efficiency, not making subsidies for scale to promote business development. And we are in the SaaS business, through Fangduoduo's city system, agent system, group of developers, and cooperation, to establish a standard project, hoping to achieve business growth quickly. In terms of second-hand business, we will maintain a stable growth trend, deepening the model of our second-hand platform, and strengthening the business model that we are good at. Due to the current COVID-19 pandemic, business in core cities has had a major impact, and it is expected that the performance of company Q3 will also bring certain uncertainty. I will do the translation.
spk04: Hello everyone and welcome to our second quarter 2021 earnings call. I would like to start the call by reviewing some of the changes and opportunities we observed in the real estate market during the quarter. First, low sales and tightened financing has forced real estate companies to shorten the cash convention cycle. According to the National Bureau of Statistics, The total volume of real estate transactions in China increased by 17.2% year-over-year to 5.4 trillion RMB in the second quarter of 2021. Major cities in China have rolled out regulatory measures to control the property market and tighten loans. As a result, The real estate market growth rate in the second quarter slowed, dropping by 70 percentage points sequentially, and new regulation for managing the concentration of real estate loans was introduced. Banks continued to tighten lending standards, facing pressure for weak sales, lacking of financing access, and the maturing outstanding There is an urgent need for real estate companies to accelerate sales and shorten the cash conversion cycle to maintain sustainable cash flow. Second, real estate companies in a long-term process of digitalization with a focus on digital marketing. Due to declining margins, real estate companies have began focusing more attention on the digitalization of their businesses. With so many business areas and use cases to consider, many of which require very large-scale and long-term transformation, companies need to first focus their efforts to maximize their results in a short term because of the digital marketing's direct contribution to sales performance. It has become the first area of focus for many real estate companies. According to CRSC's data, all the top 50 real estate companies have already started using their own digital marketing platform as of 2020. while just 12 of the companies were using this platform in 2018. Third, the era of reckless computation on real estate transaction platform is gradually passing, and efficiency is becoming the trend of the next phase of development. The competitive strategy of increasing commissions and the low ingress profit is becoming less effective due to the regulations. As the market enters into a phase of steady development, a platform's technological capabilities and operational efficiencies will become the key to competitiveness. We adhere to the national regulation principle that housing is for living in. We believe the relevant policies will help promote healthy and stable development of the real estate market in the long run. In response to the policy changes in the real estate industry and digitalization trends, we have renewed our mission to improve real estate transaction efficiency and the funded use experience. We renew mission is to serve hundreds of thousands of properties, millions of real estate agencies, and tens of millions families to facilitate trillions of transactions and become the trusted real estate platform for our customers. During the quarter, we remained committed to our growth strategies and continue to focus on the development of our platform and three core businesses. We continue to develop our business fundamentals and improve growth margins, avoiding the competition through subsidies. Total closed-loop GMV facilitated on our platform was in the second quarter of 2021. Our revenues growth by 37.9% to 401.4 million RMBs and the growth margin improved by 36 percentage points to 15.6% on the quarter over quarter basis. We continue to make progress on the development of our platform to provide agencies with an open, independent, and technology-enabled platform. With our Door-to-Door Property Sales App at Korn, we continue to focus on developing new video content and different collaborations with the mainstream media platforms to optimize agent operations management and marketing tools, improve agent efficiency, and strengthen our thickness for our platform. In the second quarter, the number of active agents on our platform reached 250,000, representing a quarter-over-quarter increase of 13%. I'd like to discuss our three primary business lines. For new property sales, our further increased the number of property listings on our platform and improved overall profitability. During the quarter, we improved overall quality of our listing properties while continued to grow our scale, leveraging our parking space pass product. Xiaofongyuanbao and Kuaitongbao, the quality improving products for listing and other real estate transaction solution products. We further expanded our collaboration with property developers and improved our growth margins. Meanwhile, we continue to build our cooperation with key agents, and we partnered with banks and optimized matching algorithm and efficiency. In the second quarter, our closed-loop new property transaction GMV increased 15.7% to 18.9 billion RMB from 16.4 billion RMB in the first quarter of 2021. The number of new property projects on our platform reached 1,930. as distribution revenues increased by 32.1% to 358.8 million RMB on a quarter-to-quarter basis. For our property cloud SaaS solutions, we are witnessing early success from our pilot projects with key developers, and we refined and upgraded our systems. During the quarter, we established various tools of agencies, marketing champions, and digital media channels to help developers strengthen their ability to launch projects through their own channels. With the launch of agents' own function, developers can view the real-time dynamics of their storms and connect it with the context. allowing developers to further improve efficiency for new business launches and agency assignment process. Furthermore, we have expanded the scope of the management display board and launched RM Automate smart question and answer function, improving developer efficiency and user experience. In terms of pallet projects, we selected a benchmark project and further enhanced their efficiencies through digital marketing channels. For example, one of our project collaboration with China Real Estate Group Corporation Limited completes 54 transactions in June. While our project collaboration with C&B Real Estate Corporation Limited completed 78 transactions during its opening sale. As a result, revenues from our sub-solutions in the second quarter was 2.3 million RMB. Our resale property business maintained steady development during the quarter. Despite the uncertain in the market environment, we continue to leverage our innovative business model to sustain our growth in revenue and growth profit. In the second quarter, our closed-loop resale property transaction GMP reached 10.6 billion RMB. Revenues from resale property transactions increased by 100%. 14.4% sequentially to 40.3 million RMB. Lastly, please allow me to share an update on our current outlook and expectations. Going forward, we will continue to leverage our platform to better facilitate transactions without sacrificing our margins. by improving ourselves in competition on subsidies. We vote more collaborations with real estate developers and agencies, expand our geographic coverage, and develop our benchmark projects through our property cloud SaaS solutions. Businesses enter a phase of steady development We will continue enhancing innovation and technology-enabled franchising system and Qinghao 2 service business model. Due to the impact of COVID-19 on certain core markets and the result is uncertain in the company's business performance in the near term, the company expects its revenue to be betrothed 250 million RMB to 300 million RMB in the third quarter of 2021. This forecast only reflects the company's current preliminary reviews on the market and operational conditions, which are subject to change. With that, I will turn the call over to our CFO, Mr. Zhao Rongpan. to reveal this quarter's financial results. increase by 37.9%. In the second quarter of 2021, the company continues to optimize the income structure and focus on developing innovative new business and increasing service income. As the SaaS solution provided by the company market users, the company is committed to realizing the diversification of future income sources. Now let's take a look at the income chart after the second quarter of 2021. The second quarter of the new housing business income in 2021 is 3.59 billion RMB. The first quarter of the new housing business income in 2021 is 2.72 billion RMB, which increases by 32.1%. The main benefit from the new housing transaction donated by the company is 16.4 billion RMB from the first quarter of 2021, which increases to 18.9 billion RMB. The second quarter of the new housing business income in 2021 is 40.32 billion RMB. As of the first quarter of 2021, the number of 1,881,000 has increased by 114.4%. This is mainly due to the benefits of providing comprehensive economic platform services under the Jiameng business model and the second-hand house decoration service business. However, due to the change in the second-hand house payment model, the second-hand house repayment transaction donated from the first quarter of 2021, 13.6 billion RMB, reduced to 10.6 billion RMB, with a 21.7% reduction. The second quarter of 2021 is RMB 233 million, with a 630 million increase of 268.4% in the first quarter of 2021, mainly due to the increase of the SaaS solution program service project. The cost of the second quarter of 2021 is RMB 3.39 billion, The main reason for the increase of RMB2.58 billion in the first quarter of 2021 is that One, due to the increase in new business revenue, we need to pay the economic and commercial transactions and service fees. Two, in order to achieve the diversification of future income sources, in the second quarter, we will provide various SaaS solutions and innovative value-added services to various users in the company market, leading to the increase in relevant costs. The net profit of the second quarter of 2021 increased from RMB 3,332,000 in the first quarter of 2021 to RMB 6,249,000, which increased 87.5%. The net profit of the second quarter of 2021 increased from 11.4% in the first quarter of 2021 to 15.6%. The operating expenses of the second quarter of 2021 including RMB1,109,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000 In 2021, the sales and marketing fees of the second quarter decreased from RMB37.86 million in the first quarter of 2021 to RMB13.14 million. The reduction in sales and marketing fees is mainly due to the optimization of the structure of sales personnel in the second quarter of 2021, and the reduction in marketing investment in new houses. And in the promotion and marketing activities of the brand promotion and marketing activities of the brand promotion and marketing solutions for brand participants and brand solution projects. In the second quarter of 2021, the product development fee was 64,480,000 yuan. In the first quarter of 2021, the product development fee was 37,260,000 yuan. The increase in product development fees is mainly due to the development of innovation and development of product development projects and brand solution projects. The second quarter of 2021, the management fee was RMB1.28 billion, and the first quarter of 2021 was RMB65.2 million. The management fee increase is mainly due to the financial situation that is more tense for some developers, and the proposed revenue account is simply over 7,909 million RMB. In 2021, the first quarter of the first quarter of 2021, the first quarter of the first quarter of 2021, the first quarter of 2021, the first quarter of 2021, the first quarter of 2021, the first quarter of 2021, is reduced from 84.8 million RMB in the first quarter of 2021 to 59.3 million RMB. The total loss of the U.S. general accounting standard is 1.28 billion RMB, while the first quarter of 2021 was 9,298 million RMB. If we remove the impact of the reduction of revenue accounts, the total loss of the U.S. general accounting standard in the second quarter of 2021 From the second quarter of 2021, 72,940,000 RMB decreased to 48,840,000 RMB. In the second quarter of 2021, U.S. stock market share of U.S. stock market share of U.S. stock market share of U.S. stock market share of U.S. stock market share of U.S. stocks, U.S. stocks, U.S. stocks, U.S. stocks, U.S. stocks, Let me do the translation. Thank you, Steve. Now I will provide a closer look at our financial results for the second quarter of 2021. Before I start, please note that all members are in RMB terms. and all comparisons are made on a sequential basis unless otherwise noted. Revenue in the second quarter of 2021 increased by 37.9% to 401.4 million from 291 million in the first quarter of 2021. During the second quarter, we continue to optimize revenue mix and prioritize new revenue generation from value added services and new business initiatives. This includes our SaaS solutions for various platform participants as we continue our efforts to diversify our future revenue streams. Now, let me take a look at our revenue breakdown for the second quarter of 2021. Net revenue from new property transaction services increased by 32.1% to $358.8 million in the second quarter of 2021, from $271.6 million in the first quarter of 2021, primarily due to a 15.7% increase in GMV from new property transactions to $18.9 billion in the second quarter of 2021 from $16.4 billion in the first quarter of 2021. Net revenue from resale property transaction services increased by 114.4% to $40.3 in the second quarter of 2021 from 18.8 million in the first quarter of 2021, primarily due to revenue contribution from our comprehensive real estate service platform under our financial business model and the home renovation service platform, Ting Hang Zhu. This growth was achieved The difference is 21.7% decrease in GMV for resale property transactions to 10.6% in the second quarter of 2021 from 13.6% in the first quarter of 2021. The decline in GMV was mainly due to the change of fee structures for resale property listings. Revenues from sub-solutions increased by 268.4% to 2.3 million in the second quarter of 2021, from 0.6 million in the first quarter of 2021. The increase was primarily attributable to an increase in the number of projects. Cost of revenue in the second quarter of 2021 increased by 31.5% to $338.9 million from $257.7 million in the first quarter of 2021. This increase was due to two factors. First, high commission fees were paid to agents for service rendered. which resulted from increasing transaction commissions. Second, there was an increase in cost related to value added service and such solutions that we offered to marketplace users during the second quarter of 2021 to diversify our future revenue streams. Growth profit in the second quarter of 2021 increased by 87.5% to 62.3 million in the first quarter of 2021. Growth margin in the second quarter of 2021 increased to 15.6% from 11.4% in the first quarter of 2021. operating expenses in the second quarter of 2021 increased by 46.2% to 205.1 million from 140.3 million in the first quarter of 2021. This included share-based compensation expenses of 11.1 million and 11.9 million in the second quarter and the first quarter of 2021 respectively. Now let's take a look at the breakdown of operating expenses for the second quarter in 2021. Sales and marketing expenses in the second quarter of 2021 decreased to 13.1 million from 37.9 million in the first quarter of 2021. This decrease was primarily due to adjustments we made to the personal position of our user sales department. This allowed us to reduce the spending on market activities related to new property selection services in order to focus more on our new set solution and other value added services. product development expenses in the second quarter of 2021 was 64.5 million compared to 37.3 million in the first quarter of 2021. This increase was attributable to the increase in personal related expenses following the company's decision to focus more on the research and development of its value-added service and SaaS solutions. General and administrative expenses in the second quarter of 2021 were 127.5 million compared to 65.2 million in the first quarter of 2021. This increase was mainly due to the increase in provision of allowance for accounts receivable from some developers of 79.1 million in the second quarter from 20 million in the first quarter. And some developers encountered lightened financial conditions in the quarter. Net loss was 139 million in the second quarter of 2021 compared to 104.8 million in the first quarter of 2021. The net loss was narrowed to 59.9 million in the second quarter of 2021 from 84.8 million in the first quarter of 2021. if we take the provision of allowance for doubtful accounts effect out of consideration. Non-GAAP net loss were 127.9 million compared to non-GAAP net loss of 93 million in the first quarter of 2021. The non-GAAP net loss would be narrowed to 48.8 million in the second quarter of 2021 from 72.9 million in the first quarter of 2021 if we take the provision of allowance for doubtful accounts effect out of consideration. Basic and diluted net loss per ADS in the second quarter of 2021 were both 1.64. In comparison, basic and diluted net loss per ADS in the first quarter of 2021 were both 1.27. Each ADS represents 25 of the company's Class A ordinary shares. As of June 30, 2021, the company had cash equivalent, restricted cash, and short-term investment of $749.4 million, short-term bank borrowing of $290.7 million, and unutilized bank facilities of $379.5 million. For the second quarter of 2021, net cash used in operating activities was $53 million. This concludes to our prepared remarks for today. Operator, we are now ready to take questions.
spk02: Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. due to time constraint, we request you to kindly ask one question per person. Once again, it is star one to ask a question. We have a question coming from the line of Lisa Thompson from Zach's Investment. Please go ahead.
spk03: Good evening. Hi, Lisa. Okay, this is going to be hard with just one question now. So, I think my Probably my biggest question would be, you took a very large bad debt reserve this quarter, and so far this year you're already almost double what you took last year. Could you go into more detail as to what the problem is? Did you have a couple of developers go bankrupt? Is there any chance of collecting any of that money? Just describe the situation and then what you expected. in the next couple of quarters are you going to keep taking higher reserves?
spk04: Okay, let me translate the questions to our CEO.
spk01: OK, the number of bankrupt companies in China is still relatively small. Compared to last year, the main reason for the decline in our income is that we insist on not doing the competitive strategy of the stock market. We hope that our business will improve. So we pursue a company-based strategy that is not limited to the size of the business. OK, let me translate answers. It's right for the developers to go back now.
spk04: The reason for the decline in the scale of income is the strategy. We have changed our strategy to not making subsidies, but to pay more attention to growth profit. That is the common strategy changes. And also affected by the market, the recent market, the COVID-19 influence in the recent terms and the active active trading has also the impact by the regulation. So maybe that will be includes our revenue. So this is the, we don't think that it's marketing reasons, but nothing to do with the bankruptcy with the .
spk03: So is there any hope of collecting any of that?
spk04: Hi, Lisa. Could you repeat your question? I didn't hear you clearly.
spk03: Is there any hope that you can collect some of that debt allowance back again if they're not bankrupt?
spk04: Okay, I will translate the question to the managers. What are your thoughts on the recovery of the sales accounts? The recovery of the sales accounts is normal.
spk01: There are no major difficulties at the moment. We expect that in the future, because of the development of various companies, sales is still a very important part of the management process. OK, let me translate the question. Recycling of account receivables is normal right now.
spk04: And there is no difficulty for us to receive our accounts receivable. Because these developer cells are the most basic of their operations, the commission payments actually seep right now. But if the developers have some risk or maybe they go in background, we give a close look and list all information. So we will reduce cooperation with these kinds of real estate developers.
spk03: Okay, thank you. Can I ask another question or am I restricted to one?
spk04: Actually, we prefer to have one question from each participant. But Lisa, if you have more questions, maybe we can arrange a backup call later. That would be great.
spk03: Thank you.
spk04: Thank you Lisa.
spk02: Once again, ladies and gentlemen, it is followed by one to ask a question. We do not have any further questions at this moment. I would like to hand the conference back to our host for any ending remarks. Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect now.
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