Leju Holdings Ltd Earnings Call

Jun 14, 2017 AM CEST
Thomson Reuters StreetEvents Event Transcript
E D I T E D   V E R S I O N

LEJU - Leju Holdings Ltd
Leju Holdings Ltd Earnings Call
Jun 14, 2017 / 11:00AM GMT 

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Corporate Participants
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   *  Annie Huang
      Leju Holdings Limited - Senior Investor Relations Manager
   *  Li-Lan Cheng
      Leju Holdings Limited - Acting CFO
   *  Yinyu He
      Leju Holdings Limited - CEO

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Conference Call Participants
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   *  Robert W. Cowell
      86Research Limited - Research Analyst
   *  Tianxiao Hou
      T.H. Capital, LLC - Founder, CEO, and Senior Analyst
   *  Wei Xiong
      UBS Investment Bank, Research Division - Associate

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Presentation
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Operator   [1]
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 Thank you for standing by, and welcome to the First Quarter 2017 Leju Holdings Limited Earnings Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today, the 14th of June 2017.

 I would now like to hand the conference over to your first speaker today, Annie Huang, Senior Investor Relations Manager. Please go ahead.

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 Annie Huang,  Leju Holdings Limited - Senior Investor Relations Manager   [2]
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 Hello, everyone, and welcome to Leju's First Quarter 2017 Earnings Conference Call.

 Today, we will update you regarding our financial results for the first quarter 2017. If you would like a copy of the earnings press release or would like to sign up for our email distribution list, please go to our IR website at ir.leju.com.

 Leading the call today is Mr. Geoffrey He, our CEO, who will review operational highlights for the first quarter 2017. Mr. Li-Lan Cheng, our acting CFO, will then discuss the financial results in more detail.

 Before we continue, please allow me to review Leju's safe harbor statement. Some of the statements during this conference call are forward-looking statements made under the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but not limited to, those outlined in our public filings with the SEC. You are encouraged to review the forward-looking statement section of our Annual Report filed with the SEC for additional information concerning factors that could cause those differences. Leju does not undertake any obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law. Our earnings press release and this call include discussions of unaudited GAAP financial information as well as some unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. Please note that unless otherwise stated, all figures mentioned during this conference call are in U.S. dollars. I will now turn the call over to Leju's CEO, Geoffrey He. He-zong, please go ahead.

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 Yinyu He,  Leju Holdings Limited - CEO   [3]
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 Thanks, everyone, for joining us on today's call. During this quarter, our business continued to face challenges as a result of the tightening government policies implemented in the late last year and further expanded in this year. Local government in many cities imposed limitations on selling prices, holding period, availability of mortgage loan as well as advertising activities, which greatly affected our operations and the results, especially our e-commerce and the secondary listing businesses.

 Our e-commerce business has grown into the largest contributor to our revenues over the past few years, and we have continued to modify our platforms with innovative features to improve user experience. The government-imposed low price ceiling in the current market mean that few developers can provide additional discounts, which is the core element of our e-commerce model. However, we believe the model itself is well understood and well accepted. Moreover, the current regulatory environment will not last forever.

 Our focus on innovation has paid off for us in our online advertising business. We have recorded an 18% revenue growth in this quarter in a very difficult market with policies restricting marketing activities by developers. This result is mainly due to our continued efforts in both product innovation and improving customer services. As mentioned last quarter, we launched our new cross-platform target marketing products last December, and our developer clients recognize the merits of this product and were very open to adopting them. During a difficult market, our ability to continue to stick with our clients and provide them with effective products help to solidify our long-term relationships with developers and to secure advertising mandates.

 Meanwhile, our mobile traffic and ad ranking continue to grow as we invested in raising Leju's brand awareness and the expanded partnerships with leading mobile platforms to further enhance our media influence.

 In the secondary market, as we expanded our service in existing cities, we continue to invest in our listing platform to ensure better ROI and customer service for our clients amidst difficult market conditions. Despite the industry headwinds, we continued to grow our paying agents by 12% to more than 43,000 paying clients. In the home furnishing market, as we remain focused around building brand awareness and improving customer service, our contractor platform continued its strong growth, with GMV recorded this quarter doubled year-over-year.

 The current market conditions are indeed encouraging. However, while we expect the tightening policies will continue to negatively impact our business in the next few quarters, we are confident in our business model and our market position as the top integrated marketing platform for developers and buyers. We also believe that the long-term fundamentals of real estate market remains strong, and we have -- we will be able to capture further growth once the market returns to normal.

 I will now turn the call to our acting CFO, Mr. Li-Lan Cheng, who will review our financial highlights for the quarter.

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 Li-Lan Cheng,  Leju Holdings Limited - Acting CFO   [4]
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 Thank you, He-zong, and good morning, and good evening, everyone. For the first quarter of 2017, we recorded total revenues of $68.3 million, a 40% decrease year-over-year due to decreases in e-commerce service revenue and listing service revenue as a result of restrictive government policies. Our e-commerce service revenues decreased by 56% year-over-year to $38.1 million as both the number and the average price per discount coupon redeemed decreased. During the quarter, we generated e-commerce revenue from 52 cities, and e-commerce revenue contributed approximately 56% of our total revenue this quarter.

 Our online advertising services revenue for this quarter increased by 18% to $25.8 million as a result of the increased online advertising mandate we received due to our newly launched marketing product. Online advertising contributed 38% of our total revenues this quarter.

 Our listing service revenues for the first quarter of 2017 decreased by 14% to $4.4 million from the same period last year. The lower revenue was due to a decrease in secondary home sales.

 Our selling, general and administrative expenses were $100.5 million, a decrease of 11% from the same quarter of 2016. This is primarily due to decreased marketing expenses related to our e-commerce business.

 Our non-GAAP loss from operations was approximately $41.8 million for the first quarter of 2017 compared to $7.4 million for the same quarter of 2016. Non-GAAP loss attributable to Leju's shareholders was approximately $24.2 million compared to $5.3 million for the same quarter of 2016.

 As of March 31, 2017, our cash and cash equivalents balance was approximately $219.8 million. For the first quarter of 2017, our net cash used in operating activities was $55.7 million, mainly attributable to non-GAAP net loss of $24.7 million, a decrease in accrued payable and welfare expenses of $8.4 million and a decrease in income tax payable and other tax payable of $26.3 million, partially offset by a decrease in customer deposit of $5.1 million.

 Looking ahead, we estimate that our second quarter 2017 total revenues will be approximately between $75 million and $80 million, which would represent a decrease of approximately 49% to 53% from the same period of 2016. This forecast reflects the company's current and preliminary view, which is subject to change.

 This conclude our prepared remarks. We're now ready 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) We will now take our first question from Ming Xu from UBS.

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 Wei Xiong,  UBS Investment Bank, Research Division - Associate   [2]
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 This is Wei Xiong calling from UBS on behalf of Ming Xu. First, could management share your outlook on the property market for the second half of 2017? Do you foresee any further downside from the current market conditions? And our second question is, we noticed that the tax benefit for this quarter is quite significant, so could management give some more color on this? And also, how should we expect this line item to trend in the next couple of quarters?

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 Yinyu He,  Leju Holdings Limited - CEO   [3]
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 Okay. As to the market, everybody knows that the government imposed very strict limitations on the marketing activities of the developers, especially the selling approval and put the price ceiling on the new houses. So, so far, we didn't see any change to these policies. And looking forward in the next few quarters, I think these policies will not be changed, especially in the near future such the -- for the market. And as you know, our e-commerce model is based on the discounts. And currently, the government, actually when they issued a new approval of selling and the ceiling of the price is usually about 80% or 85% to the market price. So it is very hard for developers to give actual additional discounts. So there is a negative impact to our e-commerce business. However, we think that such kind of the market, it's not a long-term, sustainable market situation. We think when the market goes back to the normal, so for the normal marketing activities of the developers, there will be discounts. it's a very usual tool for everybody to use to market their products. So still, we think the policies, it is short term, so nobody knows how short the term is.

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 Li-Lan Cheng,  Leju Holdings Limited - Acting CFO   [4]
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 Wei, I'll answer your second question regarding the tax benefit. The number you see each quarter is not isolated for that quarter. It's based on our current forecast for the full year profitability. It also has to do with which specific entities within Leju generates profits versus losses. So that number -- the difference between the pretax and the after tax losses for the first quarter should not be -- you should not take that as an indication for the full year difference. So that number is likely to fluctuate as we progress later into the year.

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Operator   [5]
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 We will now take our next question from Tian Hou from T.H. Capital.

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 Tianxiao Hou,  T.H. Capital, LLC - Founder, CEO, and Senior Analyst   [6]
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 I have a question related to your O2O initiative, which you've started several quarters ago, Qiang Gong Zhang. So would you please give us some, I would say, updates on that program? And also, a follow-up on the first analyst question regarding the future of domestic real estate market. So I wonder if the government doesn't allow anyone to sell and/or if they allow people to sell, sell at a certain price and that will definitely impact the transaction volume. So how do you see the future impact of this policy on your business? And also, how do you think this policy will evolve like going forward like in 2018? So that's my 2 questions.

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 Yinyu He,  Leju Holdings Limited - CEO   [7]
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 Okay. For your first question is about our contractor platform. Actually, this model running quite well in the first quarter, and we continued our product innovation on this platform. And we will actually launch some new services this quarter on this platform to give more features and more functions to help the contractors to gain deals and also help the consumers have better experience during the renovation of their houses. So this platform still does well. We also improved the operation of this platform. We adjusted this model a little bit to save cost and to raise efficiency. And so we -- you can see that actually this model is starting to generate revenues. And we hope that in the coming quarters, this model will gradually contribute more revenues to our business. And also, we think it's a very innovative platform for our Leju group, actually, because it is more frequent than the homebuyers. The home renovators, actually, the frequency, I would say, is higher than the homebuyers. So that's for your first question. For -- as to your second question, you know that all these restrictive policies to the developer -- to the house market, new house market has only one aim, it's to keep the price, keep the price stable. So when -- and all these measures for the government to issue is that, that can show the speed of issuing new sales permits and also put the price ceiling on these. So, so long as the price can keep stable, I think that the policies will not be changed. So in the coming future or in the near future, I think this policy will not be changed. We are thinking that for -- actually, the price is price ceiling and currently, government gave to the developers are usually lower than the market price. We think this phenomenon will not be long-term sustainable.

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Operator   [8]
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 (Operator Instructions) We will now take our next question from Robert Cowell from 86Research.

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 Robert W. Cowell,  86Research Limited - Research Analyst   [9]
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 I guess I'm looking at the margins, and I see on the revenue side you're doing something to kind of adjust to the changing business environment. But on the cost side, it seems like our cost structure is still a little bit fixed. So I guess I'm interested, going forward, do you think there's a need to kind of adjust the cost structure to the market environment? And what can we do to kind of move that cost structure down?

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 Li-Lan Cheng,  Leju Holdings Limited - Acting CFO   [10]
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 Robert, we are making adjustments to our cost structure to the extent we can, but there's a limit of how much you can change within 1 or 2 quarters. As we run a large online platform, there's certain -- a fair amount of cost that are fixed. And even for the cost that are -- that should be variable, for instance, cost and expenses related to the e-commerce business, just because within 1 or 2 quarters the government policies limit how much -- how many coupons we can sell, so limit our revenues, doesn't mean that we can stop or we'll drastically reduce all the marketing-related expenses. We still need to help developers promote their projects. We still need to incur marketing expenses. So if the current low -- negative market conditions sustain for longer term, then we'll obviously look at more areas for potential changes. But we are doing what we can within the time frame.

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Operator   [11]
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 (Operator Instructions) As there are no further questions in the queue at this time, I would like to turn the call back for any additional or closing remarks.

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 Annie Huang,  Leju Holdings Limited - Senior Investor Relations Manager   [12]
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 This concludes today's call. If you have any follow-up questions, please contact us at the numbers or e-mails provided on our earnings release and on our website. Thank you.

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Operator   [13]
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 Thank you. That now concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.




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