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spk03: Ladies and gentlemen, thank you for standing by and welcome to FANGDD Network Group Limited's third quarter 2021 earnings 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 turn the conference over to your host speaker today, Ms. Linda Lee, the Company's Director of Capital Markets. Please go ahead, Linda.
spk01: Thank you, operator. Hello, everyone, and thank you all for joining us on today's call. The company has announced its third quarter 2021 financial result today, as earnings release is now available on our 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. Jiao Rongpan, will go over our financials before we open up the call for questions. Our management team will deliver their 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 release. which applies to this call, and we will be making looking forward statements. Please also note that we will discuss non-GAAP measures today, which are more thoroughly 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. Xi Zheng. Please go ahead, sir.
spk04: China's first-tier cities The sales of second-hand houses fell by 32%. Shenzhen fell by 81%. The market's pessimism has risen. Developers' credit risk has been exposed. In the short term, the launch of dual maintenance and acceleration of real estate at the same time shows that the stable market is expected to remain the focus of the short-term market. The control policy will not be obviously relaxed. Therefore, The real estate market will continue to go down, adding to the overseas debt that developers are about to receive. The risk of credit for developers will be further increased. The second point is that the digital investment of real estate companies is growing historically. The competitive pattern of the market has not yet been formed. The real estate industry relies on the end of the era of high leverage expansion to prevent In the face of a competitive industry environment, digital transformation is a long-term way for most companies to find a long-term solution. According to the data of the media, the digital investment of more than 90% in 2021 has been improved. of which 26% of the real estate income has increased by more than 30%. The digital transformation will still be a focus of real estate investment, but due to the impact of the transformation model, team genes, and talent in many aspects, the digital transformation of the real estate industry is still at an early stage, and the market is not competitive yet. Third, under the background of real estate investment, The new housing distribution market is over-exploited, competition is increasing, and the field of asset service will become a new wave. On July 2, the State Council Office issued an opinion on accelerating the development of protective leaseholds, and proposed non-residential storage houses such as commercial offices, factories, and warehouses that are low-efficiency. It is allowed to be changed to protective leaseholds, support professionalized and scaled-down leaseholds, lease companies, under these backgrounds, The demand of the government, developers and consumers will stimulate the product innovation services provided by real estate, professional operation services, political services, and many other types of service markets. It will form a South China Sea market of real estate services. Under the background of market change, in the third quarter of 2021, many have continued to follow the pace of the government in policy and rules. to actively adapt to the changes in the real estate market and the economic industry, and to properly adjust our strategic direction. We are actively reducing the scale and controlling the risks of new houses, focusing on strategic customers, and quickly exploring the business of asset services. Under the premise of maintaining the efficiency, by adjusting the scale and layout of the business, we can improve the company's stable management At the same time, we continue to explore opportunities for future growth. First of all, we, Vendor's business platform, have strengthened the compliance operation and focus on cost efficiency. On the platform compliance level, we respond to the demand of the country for data security and personal information security. In the third quarter, Vendor has moved all data to Huawei's cloud storage. to the existing products, and to complete the comprehensive management of users and business information. In terms of platform business service, through the comprehensive sorting of organizational structure and team, we strengthen the coordination and integration of cross-region, and meet the market and customer needs of the region, and improve the efficiency of operation. As a result of the decline in the overall scale of the entire industry, the third quarter of the year, the number of managers and business owners in the third quarter of the year, the number of managers and business owners in the third quarter of the year, the number of managers and business owners in the third quarter of the year, the number of managers and business owners in the third quarter of the year, the number of managers and business owners in the third quarter of the year, the number of managers and business owners in the third quarter of the year, the number of managers and business owners in the third quarter of the year, the number of managers and business owners in the third quarter of the year, the number of managers and business owners in the third quarter of the year, the number of managers and business owners in the third quarter of the year, the number of managers and business owners in the third quarter of the year, the number of managers and business owners in the third quarter of the year, the number of managers and business owners in the third quarter of the year, the number of the scale of non-core cities and regional business service providers. At the same time, in cooperation with developers, by assessing the previous credit, focusing on reliable housing, away from high-end housing, the developers in the city have done a good job of controlling the bad debt collection. In the future, developers with existing credit risks, according to the legal process, and effectively control risks. From the development of strength, the profit of the project, the cycle of repayment, the proportion of the commission, and other angles, to establish a system of evaluation indicators for the project, and to select high-profit, high-profit high-profit high-profit high-profit high-profit high-profit high-profit high-profit high-profit high-profit high-profit high-profit high-profit high-profit high-profit high-profit The GMV of XinFang Bihuan is 92.9 billion yuan, and the number of XinFang projects serving the platform is 1,815. At the same time, we build up the business capability of asset services in the upgrade of XinFang business model, and gradually explore the feasibility of multi-product asset services, and continue to improve the ability of expansion, capital, sales, and customs personnel to promote the landing of high-quality projects. Once again, in the SaaS business, we focus on strategic customers to build a collaborative framework for the group. In the third quarter, VendorDuo will further upgrade the cooperation mode with the local group to complete the local internal marketing management system. VendorDuo's C-end and B-end apps are connected to each other. After the two systems are connected, VendorDuo's C-end app has already launched the official flagship store of the local group, which gathers the real-time sales information of all buildings in the suburb. and the internal system of the economy, and use the platform's big data to drive online financial marketing. At the same time, the economy can use the free system to achieve customer management, and reduce the conversion cost of cooperation with VendorSaaS. The third system, the economy has already launched 30 projects in VendorSaaS. In addition, SaaS has also launched functions such as IM, telephone, and consultation, and has achieved the ability to The third quarter, SaaS business achieved a revenue of 323.7 million yuan, with a growth rate of 38.8%. In the second-hand market, in the face of the fast movement of the second-hand market, on the one hand, the time-saving loss greatly reduced the cost of offline transactions, On the other hand, in the second-hand real estate business, continue to promote and help the second-hand real estate trading field to be a new service model for old and small houses. By accelerating the sales of second-hand houses, establish a better wind control mode and other methods to maintain the healthy development of business. Under the circumstances of industry environment impact, In the third quarter, the company's overall second-hand business will pay off 59.2 billion yuan in GMV. Finally, I would like to share with you the future prospects and expectations of Vendor. In the fourth quarter, Vendor will base its overall business on the basis of commercial platforms. In terms of large-scale business, it will further deepen the deep cooperation with strategic group developers to achieve a speedy marketing growth after system change. In the field of new house asset services, on the one hand, we want to reduce the credit risk of developers in the new house distribution business, and actively reduce the scale. On the other hand, we want to promote a multi-product product service model, asset service model, and promote the quality of services, and achieve the growth of revenue. In terms of second-hand business, in the face of market conditions, we will reasonably control the speed of second-hand business development to ensure the steady development of the second-hand old and small updated business model. Due to the decline in the market and industry environment, the company's Q4 performance has brought great uncertainty. We expect the overall revenue of the company to be between RMB1.3 billion and RMB1.5 billion. The forecast also reflects our initial view on the market and operating situation. These views may change in the future. My speech ends here. Next, I would like to invite our Chief Financial Officer, Ms. Pan Jianlong, to summarize the financial performance of this quarter.
spk01: Hello everyone and welcome to our third quarter 2021 earnings call. I would like to start the call with reviewing some of the changes and opportunities we observed in the real estate market during the quarter. First, the real estate market rapidly cooled off and expected to continue its downward trend in the short term. During the third quarter, impact by the macroeconomic regulation and the tightening of the mortgage loan, the real estate market rapidly cooled off. According to the National Bureau of Statistics, the total volume of the real estate transactions in China decreased by 14.1% year-over-year to RMB 4.2 trillion in the third quarter of 2021. According to data released by the real estate industry digitization research institution, total transaction volume for resale property in the tier one cities decreased by 32% year over year in the third quarter of 2021. The most notable year over year decrease occurred in Shenzhen, which saw an 81% decline in total transaction volume for resale property during the quarter of 2021. Market sentiment has become more bearish and the developer's credit risk has been revealed to the market. In the short term, the author's ties have emphasized the principle of keeping the real estate market stable and protecting the legitimate rights and interests of housing consumers. accelerating the launch of the pilot property tax reform schemes. This suggests that the control and the regulation measures won't be relaxed significantly, and we believe that the near-term focus of the government remains on stabilization, real estate market expectations. As a result, we believe the real estate market will continue its downward trajectory In addition, as real estate developers are entering peak season for repayment of overseas debts, their credit risk will further intensify. Second, real estate developers increased investment in digital transformation despite the downward trend and the competitive landscape continues to evolve. with the error of irrational expansion driven by high leverage coming to the end. Differentiation among real estate developers continues to increase, as the industry faces declining margins and increasing competition with high inventory levels. Most real estate developers have realized that refined operations and management through digitalization is a long-term solution. According to the data released by the TMT Post, more than 90% of the real estate developers participating in the survey increased investment in digital transformation in 2021. 26% of these developers increased their investment in digital transformation by more than 30% year-over-year. This data indicates that digital transformation remains an important area of investment for developers. However, digital transformation of the real estate industry is still at an early stage of development, and the competitive landscape is far from stable. limited by the multiple factors such as transformation model options, the fundamental characteristics of the management, and the liability of the talent. Third, under the current context of the housing is for living in, not for speculation. Computation in the new property distribution market has intensified, driven by excessive supply. Meanwhile, we are seeing new market opportunities emerge from the real estate asset management service sector. On June 2, the General Office of the State Council issued the opinion accelerating the development of affordable rental housing. It states that idle and efficient commercial offices, factories, where housing and other non-residential buildings are allowed to be converted into affordable residential housing. It also encourages specialized large-scale residential leasing enterprises to operate and manage affordable residential housing. According to the WIN data, ROE of eight share listed companies in China was 11.25% in 2020, marking a historical low since the financial crisis in 2018. As a result, real estate developers has an urgent need for asset revitalization for retirement fund and stabilization their ROE. In addition, buyers are becoming more demanding in terms of service qualities and transaction transparency. As a result, under the current context that housing is for living in, not for speculation, more innovation service will emerge as a result of the involving needs of the government, developers, and consumers, which will drive product innovation and development of diversified service for the real estate assets, professional operations, while added services, and more. In a radically changing market environment, we continue to closely follow the involving regulatory policies and clients' requirements to proactively adopt to change in the real estate market and agent service sector. Implementing a number of initiatives, property adjustment our strategic direction. Our initiatives include proactively reducing the distribution of new properties, enhancing risk control efforts, focusing on our SaaS business on key accounts, and establishing a benchmark. and quickly exploring the real estate asset service business. While maintaining the efficiency of our operations, we have adjusted our business skills, layout, and the strategic direction to improve the robustness and compliance of our business operations. At the same time, we have continued exploring growth opportunities for the future. We adhere to maintaining client operations and focus on cost control. In response to government regulations on data security and privacy, we migrated all our data to Huawei Cloud in this third quarter. We also conducted comprehensive reflection on our current product based on the regulatory requirements and achieved full compliance in our management of users' and agents' information. For agent service on our platform, we improved operational capabilities for agents to serve the need of folks, market, and customers through a couple measures. On one hand, we conducted a comprehensive evaluation and optimization of our organizational and team structure. On the other hand, We enhanced cooperation and improved resources integration between the different regions and areas. However, during the downward impact of the overall real estate industry, the total number of closed-loop agents on our platform was 10.6 thousand in the third quarter. Second, in terms of new property distribution business, we proactively reduce of the scale of the new property distribution and enhance our risk control. We focus on the business development in the Yangtze River Delta, Guangdong, Fujian, Zhejiang coastal city, and other key provincial capital cities. At the same time, we trimmed down our service team in non-com cities. For cooperation with developers, We also take initiative to access credit risk and focus on the reliable developers while ruling out high-risk developers. During our cooperation, we rated developers' credit worthiness and mark corresponding provision for that debt in order to control credit risk. Following the conclusion of our cooperation, we implement our pre-established internal procedures to manage developers with high credit risk with the aim of mitigating the risk of default. We have developed a project evaluation index system based on the multiple criteria, including developer strengths, project growth margin, receivable circle, commission split, and so on. Based on the evaluation results, we selected premium projects with high productivity and profitability and allocated additional resources towards human resources, capital, and technology for key projects. Due to the impact of the market downturn and our business model adjustments, Close-loop GMV of new property was the RMB 9.3 billion and the number of new property projects served was 1,815 in the third quarter of 2021. In terms of upgrading our business model for new properties, we established business capabilities for assets management service. We gradually explore possibilities for serving multiple categories in real estate assets. We have also continued to improve the capabilities for our personnel in business development, capital, sales, and risk control to promote an implementation of a high-quality project. Third, for our properties as solution business, We focused on key account and establishing a benchmark. During the third quarter, we further developed our cooperation with GaleDAO and integrated Gamedeo's internal sales management system with our C and B apps. Following this system integration, we launched Gamedeo's official flagship stores. in our 2C app. This store aggregates real-time information to Gamedel's properties for sales and cynics with its internal system, allowing us to provide precision online marketing services by leveraging our platform's big data and analytics. At the same time, Gamedev is able to manage customers through its self-operated system, thus reducing the transition cost of cooperating with us by means of our SaaS solution. As of the end of the third quarter, Gamedev has launched 30 property projects using our SaaS solution digital marketing service. In addition, We added instant messaging and telephone consultation features to our SaaS system during the third quarter, enabling seamless connection between the home buyers, agents, and the property sales galleries. In the third quarter, our revenue from SaaS solution business increased by 38.8% sequentially to RMB 3.2 million. Fourth, we are quickly reacting to the rapid cooldown of the property resale market in the two ways. On one hand, we implemented loss control measures to substantially reducing the skills of Yuan Cui business. On the other hand, we continue to execute our innovative asset service model in the resale property transaction service space through our team how-to product. We have sustained a healthy development in this segment through accelerating property sales and optimizing our risk control model. Under the impact of the marketing environment, our closed-loop resale property transaction GMV was RMB 5.9 billion in the third quarter. Lastly, please allow me to share an update on our current outlook and expectations. In the first quarter, our overall business development will continue to be based on our platform for agents. In terms of our SaaS solution business, we will continue to deepen our cooperation with King Accounts to unleash our value in digital marketing after the system integration. In terms of new property asset service, we will continue to execute our restrict risk control measures to manage developer credit risk for our new property distribution business. At the same time, we will continue to develop our asset service for real estate categories. We will continue to revitalize our assets, increase the scale of the project we serve, and drive improvement in our financial performances. In terms of the resale property, we will maintain a reasonable pace of business development under the current marketing environment and ensure a sufficient supply of the resale housing as we refine our business model to achieve steady development. Due to the downward trend of the industry environment, we face great uncertainty in the first quarter performances. As a result, we expect our revenue in the first quarter to be between RMB 130 million and RMB 150 million. This forecast only reflects our current preliminary preliminary view on the market and operational conditions, which are subject to change. With that, I will turn the call over our CFO, Mr. Jiao Rong Pan, to reveal this quarter's financial results. Hi, Pan. Thank you, Zhenxi.
spk02: Now, I will give a detailed explanation of our financial performance in the third quarter of 2021. In 2021, the revenue of the third quarter was RMB1.69 billion. In 2021, the revenue of the second quarter of RMB4.01 billion decreased by 57.8%. The main reason for the decline in revenue is that the real estate market continues to fall. The company platform's total debt return of RMB296 billion from the second quarter of 2021 fell to RMB152 billion, which decreased by 48.5%. In order to deal with the current low-income real estate market, we strategically adjusted the business scale. For new houses, the company strategically lowered the sales business scale in order to avoid bad competition. For second-hand houses, we took measures such as greatly reducing the return of original business. Although there are many challenges, we still continue to optimize the income structure and focus on developing innovative business and increasing service income. including the SaaS solution provided by our market users. In the third quarter of 2021, the service income of the SaaS solution was 323.7 million yuan, which increased by 38.8% to 233.2 million yuan in the second quarter of 2021, mainly due to the increase in the service project of the SaaS solution provided by our developers. First, for the second-hand trading market that continues to be low in response, we strategically greatly reduced the original return business with higher profits. Second, the company strategically reduced the business scale of the new and second-hand houses, which led to a relative decrease in the revenue of the editorials. In 2021, the profit and loss cost of the three systems increased to RMB3.16 billion, including the capital expenditure based on the stock. RMB1,170,000. In the second quarter of 2021, RMB2.05 billion increased by 54.3%, including RMB1,110,000 based on stock expenditure in the second quarter of 2021. Now let's take a look at the business fee list of the third quarter of 2021. The sales and market expenses of the third quarter of 2021 In the second quarter of 2021, RMB 1313.9 million was reduced to RMB 856.8 million. The reduction in sales and market fees is mainly due to the optimization of sales personnel's intelligence adjustment and personnel structure in the third quarter of 2021. Reducing the marketing investment of new houses, greatly reducing the original second-hand trading service business, will focus on brand promotion and marketing activities that provide SaaS solutions to all participants of the platform. In the third quarter of 2021, the product development cost was RMB4031.4 million, and in the second quarter of 2021, it was RMB6447.9 million. The drop in product development cost is mainly due to our decision to stop further research and investment in raw materials business, and continue to focus on innovation, promotion, and business, as well as on the research and development of SaaS solutions, and on the increase in employee investment, resulting in a reduction in relevant labor costs. The third part, in 2021, the management cost of the three seasons was RMB2.68 billion, which includes the amount of money that will be used to deal with the financial situation of some developers who are becoming more nervous, and the amount of money that will be used to receive from developers, and the amount of money that will be used to receive from other developers The bad debt is 2.02 billion RMB. In 2021, the second quarter is 1.27 billion RMB, including the bad debt of 7,909 million RMB. In addition, based on the future of the real estate market, we will continue to lower the prediction, take the initiative to reduce the cost and optimize the structure of the personnel, increase the compensation cost of personnel in this quarter, and realize long-term management costs. The net loss of the third quarter of 2021 is 3.55 billion RMB, including the financial situation that makes some developers more nervous, and the so-called revenue from the revenue of developers and the continued decline of the second-hand trading market, corresponding to the greatly reduced original tax business, and the so-called revenue from personal accounts, commercial and non-formal assets, etc. The net loss is 2.53 billion RMB. In the second quarter of 2021, the net loss was 1.39 billion yuan. In the third quarter of 2021, the net loss of non-US public accounting standards was 3.43 billion yuan, and in the second quarter of 2021, the net loss of non-US public accounting standards was 1.28 billion yuan. In the third quarter of 2021, the net loss of the basic and corrupting net loss of U.S. stock ADS was 4.13 yuan, Compared to the second quarter of 2021, the net loss of ADS per share is 1.64 yuan. As of September 30, 2021, companies with cash and cash-related prices are limited to cash and short-term investment of 6.33 billion RMB, short-term bank loan of 2.20 billion RMB, and 1.8 billion RMB for the use of bank receivables. We are committed to safe control of cash flow, increase revenue reduction, and improve the company's continued operating capacity. In the third quarter of 2021, the cash used for operating activities was RMB12,780,000. Compared to the second quarter of 2021, the cash used for operating activities was RMB5,296,000, which significantly reduced to RMB40,180,000. 好,今天的发言到此结束,我们可以开始问答环节,谢谢。 Thank you, Xi. Now I will provide a closer look at our third quarter financial results in 2021.
spk01: Before I begin, please note that all numbers are in RMB terms, unless otherwise noted. Revenue in the third quarter of 2021 decreased by 57.8% to RMB 169.2 million from RMB 401.4 million in the second quarter of 2021. The consequential decrease was mainly due to several factors. First, the real estate market continued downturn led to a 48.5% sequential decrease in total closed-loop GMV facilitated on our platform. And second, our strategic adjustments to our business skills to manage the downturn in the real estate transactions market. For the new property transaction service business, with the strategically reduce our business scale to avoid vicious competition. For the resell property transaction service business, we substantially reduced our venture business to avoid further losses in the third quarter. Despite the current challenges, we continue to optimize revenue mix and prioritize the generation of revenue from well-added services and the new business initiatives, including our SaaS solution for various platform participants. Revenue from SaaS solution increased by 38.8% to RMB 3.2 million in the start quarter of 2021 from RMB 2.3 million in the second quarter of 2021. The increase was primarily attributable to an increase in the number of new property projects, which will provide the solutions for developers. Cost of revenue in the third quarter of 2021 decreased by 51.8 to RMB 163.2 million from RMB 338.9 million in the second quarter of 2021. The decrease was primarily due to the significant drop in revenue for both new property and resale property transaction services, which resulted in a decrease in the commission fees payable to agents from their services surrounded. Growth profit in the third quarter of 2021 decreased by 90.4% to RMB 6 million from the RMB 6 62.5 million in the second quarter of 2021. Growth margin in the third quarter of 2021 decreased to 3.5% from 15.6% in the second quarter of 2021. The decline was mainly due to our strategic reduction of our Yuan Cui business to cut losses and our strategic adjustment to reduce our business skills in resale property transactions and new property transactions. Operating expenses in the fourth quarter of 2021, which included RMB 11.7 million in share-based compensation expenses, increasing by 50% 4.3% to RMB 316.4 million from RMB 205.1 million in the second quarter of 2021, which included RMB 11.1 million in share-based compensation expenses. Let's take a look at the breakdown of operating expenses for the third quarter of 2021. Sales and marketing expenses in the third quarter of 2021 decreased to RMB 8.6 million from RMB 13.1 million in the second quarter of 2021. The decrease was primarily due to optimization of staff composition on unfolded sales department by reducing spending on marketing activities related to the new property transaction services. Our reduction of the venture business of our increased focus on new SaaS solution and the other value added services offered to various platform participants in the third quarter of 2021. Product development expenses in the third quarter of 2021 was RMB 40.3 million, compared to RMB 64.5 million in the second quarter of 2021. This decrease was attributable to a decrease in personnel-related expenses following our decision to haunt further investment in research and development for Yuan Cui business and heightened focus on the research and development for our value-added services and SaaS solutions. General and administrative expenses in the third quarter of 2021 was RMB 267.5 million compared to RMB 127.5 million in the second quarter of 2021. This increase was mainly due to two reasons. First, was the increasing in provision of impairment assets such as account receivable due from developers and other account receivable from project deposits to RMB 201.9 million in the third quarter of 2021 from RMB 79.1 million in the second quarter of 2021. Second, based on our judgment regarding the continued downturn in the real estate transaction market. We reduced redundant staff to improve our operating efficiency and optimized our composition of our staff structure, which increased the current quarters for the purpose of long-term expenses saving. Net loss was RMB $355 million in the third quarter of 2021, which included the impairment of accounts receivable due from developers because of their tight financial conditions, as well as the impairment of goodwill, assets and accounts receivable due from the individual as a result of the company's substantial reductions of Yuan Cui business under the situation of continuous downturn of the resale property transaction market. This is compared to the net loss of RMB 139 million in the second quarter of 2021. Non-GAAP net loss was RMB 343.4 million in the third quarter of 2021, compared to a non-GAAP net loss of RMB 127.9 million in the second quarter of 2021. Basic and diluted net loss per American depository share in the third quarter of 2021 was both RMB 4.13 In comparison, our basic and diluted net loss contributable to ordinary shares holders per ADS in the second quarter of 2021 was both RMB 1.64. Each ADS represents 25 of our Class A ordinary shares. And September 30, 2021, we had cash and cash equivalents Restricted cash and short-term investment of RMB 632.9 million. Short-term bank borrowing of RMB 220.2 million. And unutilized bank facilities of RMB 180 million. We contributed to keep our cash flow at safe level by increasing the cash inflow and reducing the cash flow outflows to improve our abilities of going concern. On the third quarter of 2021, net cash used in operating activities decreased to be RMB 12.8 million from RMB 53 million in the second quarter of 2021, highly decreased about RMB 40.2 million. This concludes our repaired remarks for today. Operator, we are ready to take questions.
spk03: Certainly, ma'am. 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 please wait for your name to be announced. If you wish to cancel your request, you can press the pound or hash key. Once again, hit the star followed by 1 on your telephone keypad if you wish to ask a question. We have no further questions at this moment. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect your lines now.
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