Q2 2017 Leju Holdings Ltd Earnings Call
Aug 31, 2017 AM EDT
LEJU - Leju Holdings Ltd
Q2 2017 Leju Holdings Ltd Earnings Call
Aug 31, 2017 / 11:00AM GMT
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Corporate Participants
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* Annie Huang
* 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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* Binbin Ding
JP Morgan Chase & Co, Research Division - Analyst
* Ming Xu
UBS Investment Bank, Research Division - Director and Research Analyst
* Tianxiao Hou
T.H. Capital, LLC - Founder, CEO, and Senior Analyst
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Presentation
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Operator [1]
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Hello, and thank you for standing by for Leju's Second Quarter 2017 Earnings Conference Call. (Operator Instructions) Please note that today's conference call is being recorded.
I would now like to turn the meeting over to your host for today's conference, Ms. Annie Huang, Leju's Investor Relations Director.
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Annie Huang, [2]
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Hello, everyone, and welcome to Leju Second Quarter 2017 Earnings Conference Call. Today, we'll update you regarding our financial results for the second quarter ended June 30, 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 second quarter 2017; Mr. Li-Lan Cheng, our Acting CFO, will then discuss the financial results in more detail. We will then open the call to questions.
Before we continue, please allow me to read you 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're 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 on audited GAAP financial information as well as some unaudited non-GAAP financial measures. Our press release contain a reconciliation of the unaudited non-GAAP measure 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 CEO, Geoffrey He. He-dong, please go ahead.
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Yinyu He, Leju Holdings Limited - CEO [3]
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Thanks, everyone, for joining us on the call today. We continued to face a challenging operating environment as market conditions didn't show significant improvement during this quarter. Restrictive policies were announced in late 2016 and early this year, such as price ceilings, require a holding period and the tightening of mortgage lendings as well as limitations on marketing activities, were strictly enforced in this quarter and further expanded into some lower cities -- lower-tier cities. As a result, demand for marketing activities was sharply reduced in both primary and secondary markets, which continued to place a negative impact on our operatings and results.
Despite the headwinds we faced, we remain committed to enhancing our brand recognition and the raising of our market shares through continuous investment in product innovation and strategic partnerships while continuing to invest in our strategic initiative in the home furnishing market. In the primary market, we continued to improve and diversify our content offerings through expanded partnerships to further enhance our media interest. In return, our differentiated product and service offerings helped to secure long-term relationships with leading developer clients as they recognize our value as a leading marketing platform. Meanwhile, we were also pleased to see our mobile marketing strategy achieve good results as our mobile advertising contributed to 1/2 our advertising revenue.
In home furnishing business, our contractor platform continued its healthy development. During this quarter, we focused on empowering the contractors through effective marketing and innovative products along the home furnishing process chain. In the future, we will continue to improve our platform to provide more streamlined and reliable services to consumers and the contractors. Looking ahead, we don't expect market conditions to improve significantly in major cities in the near future, but we believe that our solid market position and differentiated service and product offerings have laid a solid foundation for our future growth. In the near term, we will continue to closely monitor market development and the regulatory change to make necessary adjustment to reduce costs and operating losses.
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, Geoffrey. Good morning, and good evening, everyone. For the second quarter of 2017, we recorded total revenues of $92.7 million, a 41% decrease from the second quarter of 2016 as a result of restrictive policies implemented by local governments. Our e-commerce services revenues decreased by 46% year-over-year to $63.7 million due to decreases in both the number of discount coupons redeemed and the average price per discount coupon. During this quarter, we generated e-commerce revenues from 51 cities, and it contributed approximately 69% of our total revenues.
Our online advertising services revenues for this quarter declined by 28% to $24.8 million as a result of a decrease in property developers' online advertising demand. It contributed 27% of our total revenues this quarter.
Our listing service revenues decreased by 26% to $4.2 million from the same period last year as a result of a decrease in secondary home sales. Our cost of revenues increased by 31% to $19.2 million from the same quarter of 2016 as a result of increased cost of advertising resources we purchased, partially offset by decreased staff cost of the editorial department as a result of headcount change.
Our selling, general and administrative expenses decreased by 12% to $117.9 million from the same quarter last year. This decrease in overall SG&A was primarily due to a decrease in marketing expenses and commission expenses relating to our e-commerce business.
As changes in market environment continue to have a negative impact on our operating conditions and business outlook, we incurred goodwill impairment charge of $41.2 million based on the impairment assessment review.
Non-GAAP loss from operations was $37.4 million for the second quarter of 2017 compared to a non-GAAP income from operations of $16.5 million for the second quarter of 2016. Non-GAAP net loss attributable to Leju shareholders was $42.3 million compared to non-GAAP net income attributable to Leju shareholders of $15.2 million for the same quarter of 2016.
For the first half of 2017, we recorded $161 million in total revenues, a 41% decrease from the same quarter of last year. Our e-commerce revenues decreased by 50% to $101.8 million from the same quarter of last year as a result of a decrease in both the number of discount coupons redeemed and average price per discount coupon. It contributed 63% of our total revenues for the first half of 2017.
Our online advertising revenues, contributing 31% of our total revenues, decreased by 10% from the same period of last year to $50.6 million due to a decrease in developers' marketing demand. While our listing revenues decreased by 20% to $8.6 million as a result of decrease in secondary home sales for the first half of 2017.
Non-GAAP loss from operations was $79.2 million compared to non-GAAP income from operations of $9.2 million for the first half of 2016. Non-GAAP net income -- non-GAAP net loss attributable to Leju shareholders was $66.5 million compared with non-GAAP net income attributable to Leju shareholders of $9.9 million for the same period last year.
As of June 30, 2017, our cash and cash equivalents balance was $192.5 million. Our net cash flow used -- our net cash flows used in operations for the second quarter of 2017 were $29.5 million, mainly attributable to non-GAAP net loss of $42.5 million, partially offset by an increase in accrued marketing and advertising expenses and other current liabilities of $13.2 million.
Looking ahead, we estimate that our third quarter 2017 total revenues will be approximately between $85 million to $95 million from the same period last year, which represents a decrease of between 45 -- 48% to 54% from the same quarter of last year. Please note that this forecast reflects our current and preliminary view, which is subject to change.
This concludes 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) And we will take an opening question from Tian Hou of T.H. Capital.
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Tianxiao Hou, T.H. Capital, LLC - Founder, CEO, and Senior Analyst [2]
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I have a question. So the performance or the business results has been not really satisfaction in the last couple of quarters. And as the company indicated, you guys don't think the policy front is going to have a meaningful or some kind of structural, how to say, turnaround. So in that case, so I was wondering how do you guys going to cope with the current sectors? So on the one hand, the business continue to fly. And on the other hand, I want to know what you guys are going to do to really change the current perspective to resume potential growth? So that's my quick question.
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Yinyu He, Leju Holdings Limited - CEO [3]
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Okay, thank you for your question. Actually -- hello, yes. Can you hear me? Yes.
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Tianxiao Hou, T.H. Capital, LLC - Founder, CEO, and Senior Analyst [4]
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Yes.
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Yinyu He, Leju Holdings Limited - CEO [5]
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Actually, our business is divided into 3 parts. One is the primary sector, second is the secondary sector and the third one is the home furnishing sector. And our major revenue source is from the primary sector, e-commerce business, which actually was greatly impacted by the policies and the current market. But we think that from the developer side actually, say, we're in need of that e-cost model. So the model itself is very stable. The problem is because of the price savings and the selling price of the houses, say, sold to the home buyers actually is they don't give the discounts. But I think the situation itself is short term, although we don't know how long it will be. But for the long term, I think that the model itself is stable. And on normal market, discounts will appear. Whenever the discount appears, I think we -- our business model, our e-commerce business will go back to normal. On the other hand, actually, we enhanced our efforts to advertising, especially the mobile advertising market. So way you can see that the decrease ratio of our advertising revenue is much smaller than the e-commerce side. We're also investing our multiple platform strategy to provide a total solution to developers which, actually, we already see very encouraging efforts from the developers. So from the business model side, I think we make all what we can do and do our best to -- actually to maintain our leadership market position with our developers. On the other hand, given that very low visibility over the market change in the near future, we -- actually, we are doing some internal adjustment, including the team adjustment and also the cost structure. I think this will also help us. In the next few quarters, you can see some results.
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Tianxiao Hou, T.H. Capital, LLC - Founder, CEO, and Senior Analyst [6]
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I see. I see. The other question is related to what you have seen before for Qiang Gong Zhang. So how does that go?
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Yinyu He, Leju Holdings Limited - CEO [7]
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Actually, I think the Qiang Gong Zhang platform itself is gaining very healthy development. And also from this quarter, I think that we also provided more innovative tools to the contractors. Currently, more and more contractors are joining our platform. And I think the revenue -- from the revenue side, you can see that we gradually increased revenue from the contractors. So later on, I think we'll further invest in this platform. But give us some time. I think it will be a very interesting platform of our Leju business. From long term, it was a very strategic investment.
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Operator [8]
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We will take our next question from Binbin Ding of JPMorgan.
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Binbin Ding, JP Morgan Chase & Co, Research Division - Analyst [9]
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I have a few questions regarding the overall real estate ad market. So first is, does management think the overall online plus offline real estate ad market is still growing? Because for the first half of '17, the transaction value of the commercial properties in China is actually still growing at over 10% in China. So I'm assuming they are putting equally or percentage some budget from their revenue into the online advertising, the entire advertising market. The second question is when we talk about the ad market, one point we usually make is the online media or platforms are actually taking the market share or budget from offline. I'm wondering if it is the same case within the real estate ad market? The third one is within the online real estate ad market, given both us and SouFun are seeing a declining advertising revenue, who do you think are taking revenue from us?
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Yinyu He, Leju Holdings Limited - CEO [10]
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Okay, thank you for your question. For the first one is that we think that the online advertising market, the key to win this market is the mobile sector. Actually, more and more developers, especially the big brand developers say they are gradually be familiar with the mobile advertising model. So it is still in a transition period that they are -- the advertisers, developers, actually, they are shifting their budgets from the PC to mobile. Second one is that we think the mobile advertising -- from the mobile advertising market, we already have a very, actually, innovative way to provide a total solution mobile -- total mobile solutions rather than only advertising on Leju platform. We actually, through partnerships with a lot of frequent mobile platforms, like Toutiao, like UC, we actually are creating a new solution that help the developers; they can put ads on the multiple mobile platforms rather than only on Leju. So we think it's the trend for the industry because the developers are actually in need of total solution. For the advertising market growth, actually, the other problem, because of the price ceilings in big cities, especially in the first-tier cities, that the developers actually they don't have a problem to find the consumers. So this greatly reduces their intention to ads, but we still think it's a short-term situation. Actually, we already see that the phenomenon that in some cities there, the demand of the market is changing. And we think the market is still changing. For the advertising growth, I think when the market goes to normal, it will go back to normal. For the second one is that it is true that the developer needs a total solution, including that online and offline services. But it really depends on how effective your online services can bring the leads to the developers. If your online service can provide effective leads, then they will reduce your cost offline. So it is a balance, for your second question, yes. As to the third question, I think it is true that the other developers -- other platforms, house platforms like SouFun, our competitors, we are also concentrating on the advertising market from now on. But I think we have a strategy that from the last year we released is that -- our multiple mobile structure. This will help us to gain leading positions in the future competition.
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Li-Lan Cheng, Leju Holdings Limited - Acting CFO [11]
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Also, this is the Li-Lan Cheng, just to follow-up on Geoffrey's answer. Regarding your last question, I don't think anyone's taking market share away from Leju or SouFun. You see advertising revenue decreasing for both Leju and SouFun but also for -- I mean, first of all, in the new home market, at least, there's no other major competitors that contributes a meaningful market share. But even them, for instance, Baidu, their new home advertising revenue was also -- declined. And this is more of a reflection of what Geoffrey talked about is that the overall reduction in the demand for advertising by developers when they were forced to sell new homes at below-market price and buyers were just lining up to buy, so there was no -- that took away a lot of demand for advertising.
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Operator [12]
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(Operator Instructions) We will take our next question from Ming Xu of UBS.
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Ming Xu, UBS Investment Bank, Research Division - Director and Research Analyst [13]
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So I just have one question. So with the second half -- second quarter past us and third quarter almost past us, so what's your feeling on the, I would say, the impact from all these property restriction -- restrictive policies? Is it getting tighter or actually it is -- there's no further restriction in Q3? And now at where we currently stand, so what's your expectation for 2018? And particularly, are we going to see any meaningful recovery in the property market in 2018? Do we have such a visibility now?
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Yinyu He, Leju Holdings Limited - CEO [14]
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Okay. In the second quarter, it's true that the policies were further tightened in most big cities and even the lower cities. And for this quarter, for the third quarter, we see several lower-tier cities, 3 -- Tier 3 or Tier 4 cities, local governments imposed some policies. But overall, I think it's a stable quarter for the policy restriction. For the market movement, I think we already see some cities -- as I said, the demand for the homes, the balance is a bit changing because some cities -- there are some developers in some big cities beginning to offer discounts. And more importantly, because the policies on the homebuyer mortgages that potential buyers -- the number of the potential buyers is getting decreased. So we think that the situation will be a little improved in the next quarter. And from long term, I think next year, there'll be some change.
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Li-Lan Cheng, Leju Holdings Limited - Acting CFO [15]
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Again, to follow up, we don't expect, on the policy front, things will reverse course. I mean, government will not, I don't think in the short term or in the near to medium term, relax any of these policies, unless there's a major collapse in the macroeconomic front, which is unlikely. It's more about the market, both developers and consumers, adjusting to the new regulatory environment and finding sort of a new balance. From the end of last year through the second quarter of this year, it was all about imposing limits on pricing, imposing various limits. And it was quite sudden and quite severe. But if these restrictive policies have their intended effect, which in our past experience, after a period of time transaction volumes start to fall and stabilize at a lower level, and then developers realize they still need to push their products out, they still need to complete their operating target, so developers start to think about marketing under the new environment -- in the new environment. And including advertising strategy, including discounts, that's when, at least for us, for Leju, opportunities will begin to come because then we can talk to developers about how we implement their new marketing strategies. So like He-dong just said, we were seeing in some select cities things start to -- are beginning to move. But realistically, I think for our operating environment to have major improvement, you're looking at next year.
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Operator [16]
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(Operator Instructions) As we appear to have no further audio questions, I would like to turn the call back to the speakers for any additional or closing remarks.
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Annie Huang, [17]
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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 [18]
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Thank you that will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.
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