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Edited Transcript of LEJU earnings conference call or presentation 25-Nov-19 12:00pm GMT

Q3 2019 Leju Holdings Ltd Earnings Call

Shanghai Dec 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Leju Holdings Ltd earnings conference call or presentation Monday, November 25, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Li-Lan Cheng

Leju Holdings Limited - Acting CFO

* Michelle Yuan

Leju Holdings Limited - Deputy CFO

* Yinyu He

Leju Holdings Limited - CEO

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Conference Call Participants

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* Xiaotian Hou

T.H. Capital, LLC - Founder, CEO & Senior Analyst

* Charles Song

T.H. Capital - Analyst

* Xiaomeng Zhuang (Miranda Zhuang)

BofA Merrill Lynch, Research Division - Associate

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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 Third Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note that today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Ms. Michelle Yuan, Leju's Deputy CFO.

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Michelle Yuan, Leju Holdings Limited - Deputy CFO [2]

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Hello everyone and welcome to Leju's Third Quarter 2019 Earnings Conference Call. Today, we will update you regarding our financial results for the third quarter ended September 30, 2019. If you would like a copy of the earnings press release, or would like to sign up for our e-mail 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 third quarter 2019. 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 are not limited to those outlined in our public filings with the SEC. You are encouraged to review the "Forward-Looking Statements" 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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Thank you to everyone for joining us on today's call. We are pleased that both our total revenue and e-commerce revenue reached a record high in the third quarter. Since the second half of this year, increasing demand for marketing services from developers as a result of added pressure to reduce inventories have driven significant growth in our e-commerce business.

Our top-down strategy has allowed us to seize market opportunities, expand our customer base and increase the average number of projects under cooperation per customer, all of which provide a solid foundation to grow our project pipeline throughout the fourth quarter and next year.

So far, in our e-commerce business line, we have reached strategic agreements with over 80 developers, over 1/3 of which are exclusive. Among China's top 100 developers, we have reached strategic agreements with over 60 developers and have discussions with 90 developers in total. Some of the agreements signed in the second half of the year will last until next year, boosting our reputation among developers and laying a solid project pipeline foundation for us.

Meanwhile, we are implementing our top-down strategy targeting small and medium-sized real estate enterprises. As part of this, we are forming regional alliances and strengthening the construction of our regional media influence by organizing private regional conferences.

By communicating directly with the developers, CEOs and the regional management, more and more developers have begun to appreciate our competitive edge in both e-commerce and online advertising which has helped us to extend our project pipeline into next year.

Our new media business has also made great progress this quarter. So far, we have concluded content exchange partnerships with over 300 Chinese local mainstream media, including print and TV media, internet media platforms, radios and magazines.

Our content production efficiency has also improved with the help of our AI technologies. Both of these differentiate us from our competitors and will create a strong competitive barrier for our online advertising business in the future. In addition, in the third quarter, our profit remained stable with continued positive cash inflow generated from operations.

In the fourth quarter, we will hold our annual gala award ceremony for China's property related industry, including managers and CEOs from the real estate, home furnishing and property management sectors. In addition to being an important industry event, it is also a festive opportunity for industry leaders to catch up, celebrate their mutual accomplishments and exchange ideas with each other. As the organizer of the event, our professional real estate vertical media platform, Leju Finance, will hold in-depth interviews with selected outstanding managers and CEOs, which will be widely spread across our internal and external cooperative channels, further enhancing our media influence and the customer relationships.

Now I will 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 third quarter of 2019, we recorded total revenues of $185.4 million, a 39% increase from the same quarter of 2018.

Our e-commerce services revenues for this quarter increased by 58% to $153.4 million, as a result of an increase in the number of discount coupons redeemed, partially offset by a decrease in the average price per discount coupon redeemed. E-commerce service revenues contributed 82.8% of our total revenue this quarter.

Our online advertising services revenues for this quarter decreased by 13% to $31.5 million, as a result of a decrease in property developers' demand for online advertising. Online advertising services contributed 17% of our total revenues this quarter.

Our listing services revenue for this quarter decreased by 34% to $0.5 million from the same quarter last year as a result of a decrease in demand from secondary real estate brokers.

Our cost of sales for this quarter decreased by 22% to $13.2 million from the same quarter last year, primarily due to decreased cost of advertising resources purchased from media platforms related to our online advertising business.

Our selling, general and administrative expenses increased by 48% to $157 million from the same quarter last year. This increase was primarily due to increased marketing expenses related to our e-commerce business.

Income from operations was $15.8 million for the third quarter of 2019, an increase of 40% from the same quarter of 2018. Net income attributable to Leju shareholders was $11.2 million for the third quarter of 2019, an increase of 63% from the same quarter of 2018.

Non-GAAP income from operations was $19.5 million for the third quarter of 2019, an increase of 25% from the same quarter of 2018. Non-GAAP net income attributable to Leju shareholders was $14.1 million for the third quarter of 2019, an increase of 37% from the same quarter of 2018.

For the first 9 months of 2019, we recorded $465.8 million in total revenues, a 38% increase from the same period last year.

Our e-commerce revenues increased by 52% to $362.6 million for the first 9 months of 2019, as a result of an increase in the number of discount coupons redeemed, partially offset by a decrease in the average price per discount coupon redeemed. E-commerce services contributed 77.9% of our total revenues for the first 9 months.

Our online advertising revenues, contributing 21.9% of total revenues, increased by 4% to $101.8 million for the first 9 months of 2019, due to an increase in property developers' demand for online advertising, while our listing revenues decreased by 44% to $1.4 million, as a result of a decrease in secondary real estate brokers' demand for the first 9 months.

Income from operations was $8.7 million compared to loss from operations of $10.2 million for the same period of 2018. Net income attributable to Leju shareholders was $7 million for the first 9 months of 2019, compared to a net loss attributable to Leju shareholders of $14.9 million for the same period of 2018.

Non-GAAP income from operations was $19.9 million for the first 9 months of 2019, an increase of 611% from the same period of 2018. Non-GAAP net income attributable to Leju shareholders was $15.9 million for the first 9 months of 2019, compared to non-GAAP net loss attributable to Leju shareholders of $4.4 million for the same period of 2018.

As of September 30, 2019, our cash and cash equivalents balance was $171 million. Our net cash flows generated in operating activities for the third quarter of 2019 were $10.9 million, mainly attributable to a non-GAAP net income of $14.2 million, an increase in accrued marketing and advertising expenses and other current liabilities of $21.1 million, an increase in advance from customer of $6 million and an increase in income tax payable and other tax payable of $4.7 million, partially offset by an increase in accounts receivable and contract assets of $18.4 million and an increase in customer deposits of $18.2 million.

Looking ahead, we estimate that our fourth quarter 2019 total revenues will be approximately between $200 million and $210 million, which represents an increase of approximately 61% to 69% from the same quarter of last year. Please note, this forecast reflects our current and preliminary view, which is subject to change.

This concludes our prepared remarks. We are 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) Your first question comes from the line of Miranda Zhuang from Bank of America.

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Xiaomeng Zhuang (Miranda Zhuang), BofA Merrill Lynch, Research Division - Associate [2]

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My first question is regarding the e-commerce business. The e-commerce business has been performing very well. Can management elaborate more on your efforts to push this business? And what's your outlook for this business going to next year?

And then my second question is about the online advertisement business. It seems that this quarter this business show a decline in revenue, but it seems that the competitors, for example, like SouFun or like 58, Anjuke, they saw like a growth for the advertising business. So can management comment on the competition landscape in this business segment and your outlook for the new home advertising market in next year? Thanks.

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Yinyu He, Leju Holdings Limited - CEO [3]

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Okay. Thanks for the questions. For the first question, I think our record high revenue from the e-commerce line actually is a result of our efforts, top-down strategy in the past 2 years. First, I think we formed quite closer alliance with the top management of the developers to make them know how competitive our e-commerce business is. So through that top-down strategies, I think we get more developers and more projects to cooperate with us.

The other side is that, actually, our e-commerce business is based on our systems that, actually, we think it is quite advanced in the industry and compared to some smaller e-commerce service providers. So gradually, the developers think when they want to do e-commerce, actually, Leju is a very good partner for them. And for them, I think they only need one partner to closely cooperate with them. So I think it is a result of our top-down strategy.

Looking ahead, I think as we are closing more strategic agreements with developers, especially from now on, we actually have already reached cooperation with 90% of the top 100 developers, and we are going down to try to cooperate with some smaller developers to lay a good foundation for our next year's growth. So on the e-commerce side, I think we are still very optimistic for the first quarter and even for next year. That's the first one.

I think the second one is that because the market was a little bit cooling down in the third quarter, putting more pressures for developers to doing more marketing activities, so more developers actually are using our e-commerce services. So this is the second reason.

As to our advertising business, it is true that we experienced some down trend in the third quarter. But first is because of we changed accounting principle for our home furnishing advertising revenue, so that's the first reason. And the second reason is because more developers actually are cooperating with us on the e-commerce side. So at the same time, we cannot get the revenue from both e-commerce and advertising from one developer, so that is why I think our advertising revenue was partially offset by our e-commerce.

It is true that the competition on advertising is quite fierce on the primary sector, with more and more competitors are coming into the market with their leads-driven advertising. However, we will also launch some leads-driven advertising in the near future. But I think we are putting them in the package of our advertising. We have a different strategy because we have a very strong brand and brand promotion advertising sector. So on the market, I think, to most developers, reality is,Leju is a very strong industry media, and we have very big brand awareness for them, especially for their projects when they want the brand promotion.

And the third one is that the leads-driven advertising. So we were trying to provide them by package or a total solution to them. So the competitive structure is very different from SouFun or from Anjuke. Both of them actually -- now the -- when they're on a market, they only sell leads-driven advertising.

Is that okay?

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Xiaomeng Zhuang (Miranda Zhuang), BofA Merrill Lynch, Research Division - Associate [4]

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Yeah. For the full outlook for the new home advertising marketing next year?

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Yinyu He, Leju Holdings Limited - CEO [5]

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You mean advertising market?

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Xiaomeng Zhuang (Miranda Zhuang), BofA Merrill Lynch, Research Division - Associate [6]

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Yeah.

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Yinyu He, Leju Holdings Limited - CEO [7]

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I think the advertising, the total -- because the cake is there, and we don't see a very big rise in the advertising budget for the -- from developers. And the second is that, I think, more developers will begin to think about the brand awareness next year. This year, the off-line distribution, the sales distribution service is quite strong and the top 2 budget from the advertising from the developers. I think this trend will be a little bit changed in the next year. So we think the advertising market, it's not so -- it will not be so bad next year. So for us, I think we still have a quite good chance to pick up and back to the right trend.

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Operator [8]

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Your next question comes from the line of [Charles Song] from T.H. Capital.

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Charles Song, T.H. Capital - Analyst [9]

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Congratulations for the strong quarter. My question is regarding the gross margin. We see some improvement on your gross margin, and I want to know what is the reason and what's the future trend?

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Li-Lan Cheng, Leju Holdings Limited - Acting CFO [10]

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This is Li-Lan. I assume by gross margin, you're talking about cost of sales relative to revenue?

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Charles Song, T.H. Capital - Analyst [11]

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Yes, yes.

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Li-Lan Cheng, Leju Holdings Limited - Acting CFO [12]

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Cost of sales here, the biggest mover here is advertising resource cost we purchased. So there's a slight improvement. I think that the gross margin for our advertising business is generally stable. It may vary from quarter-to-quarter based on the product mix of the advertising packages we sell or the packages that developers want. So the decrease in cost is partially correlated with the decrease in advertising revenue, but in addition to that, there's some minor improvement in the gross margin for the advertising business.

The e-commerce, most of the cost and expense related to e-commerce is in the SG&A category.

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Operator [13]

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Your next question comes from the line of Tian Hou from T.H. Capital.

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Xiaotian Hou, T.H. Capital, LLC - Founder, CEO & Senior Analyst [14]

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The question is this, so you guys have been doing the e-commerce and property advertising for a while, and you know what, your -- how to say, a lot of business is subject to the housing environment and policies. So I wonder if there are any other kind of business you can do that can be resilient and anticycle? So that is one question.

The second one is, there are some new vendors in the market, and how do you see their market position relative to you and also relative to the market? For example, the new company called Beike. So okay, that's my 2 questions.

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Yinyu He, Leju Holdings Limited - CEO [15]

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Thank you for the questions. And the first one is because we are industry, so it is very hard that we perform outside of industry trend. However, I think a too warm or too cool market is not for us. But if the market goes to stable, it will be better for us because the marketing trends and the marketing budgets and the market demands of the developers will keep stable. So it is good for us. So when the market goes to stable, which I think should be the normal standards of China's real estate property. Going too hot or going to cool, it's only a very shorter period when you looking back to the industry history.

On the other hand, actually, we put a lot of efforts to develop some new tools to help the developers to facilitate their trade, I think, it's not so related to the sales volume of the industry. For example, actually, we cooperate with several industry high-tech companies like Mingyuan or SenseTime, our AI technologies, our system improvement, so that we can develop some new products that help the developers to manage their off-line channel sales, something like that. I think we already achieved some revenue from this kind of products. I think in the future, I think this trend will growing bigger and bigger and when timing is suitable, I think we will report revenue from these new products. That's the first one.

The second one as to Beike I think I'm not sure if you are talking about the primary sector or the secondary market sector. For the primary sector, Beike is now more like an off-line distribution sales provider. They use their agents to sell their primary sector from the developers, and of course, we already heard a lot of noise about that because they want to control the market or they control the take rate of the distribution commissions and something like that.

We think because we are a platform, our aim is to help all the related parties, including developers and including the distribution sales companies, they can play well on the platform. So we are not so competitive. So that's the first one.

The second one is, we don't think that the off-line distribution channel will take most of the sales of the developers. The reason is quite simple is developers cannot afford such a high take rate for a long time. I think some things will be changed in the next year. Especially, I think this model, the off-line channel model, we don't think it's stable and should take a long time.

For us, I think we see the opportunities, actually, how to help the developers to manage their channels, how to make the channels more clear, more transparent, more sunny. I think these opportunities should be Leju's efforts because we are developing these tools or systems to the developers. We call it e-commerce tools business or you can say it's B2B business. We are incubating this line of business.

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Operator [16]

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(Operator Instructions) There are no further questions at this time. I would like to hand the conference back to today's presenters. Please continue.

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Michelle Yuan, Leju Holdings Limited - Deputy CFO [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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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect.