Ladies and gentlemen, thank you for standing by, and welcome to FangDD's Network Group Limited Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the managements' prepared remarks, we will have question-and-answer session. Please note that this event is being recorded. I'd now like to hand the conference over to your speaker host today, Mr. Warren Wen, Financial Controller of the Company. Please go ahead, Warren.

Thank you, operator, and hello, everyone, and thank you all for joining us on today's call. The Company has announced its fourth quarter and full year 2020 results today, and earnings release is now available on the Company's IR website. Today, you will hear from our Co-CEO, Mr. Zeng Xi, who will the call with a review of our progress, the current industry dynamics and details of our development strategies in 2020. Afterwards, our CFO, Mr. Pan Jiaorong, will go over with our financials before we open up the call for questions. Our management team will deliver their remarks in Chinese, and I will provide English translation. Before we continue, I would like to refer you to our Safe Harbor statement in our earnings press release, which applies to this call as we will be making forward-looking 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 our filings with the SEC. And with that, I will now turn the call over to our Co-CEO, Mr. Zeng Xi. Please go ahead, sir.

[Foreign Language]

Hello, everyone, and welcome to our fourth quarter 2020 earnings call. And Mr. Zeng would like to start off the call with a review of the real estate market in 2020. During 2020, real estate developers started to adopt digital marketing in their operations. However, developers faced increasing cost pressure as they rely more on the sales channel to achieve a higher turnover rate while sales channel commissions continued to increase rapidly. The COVID-19 pandemic in 2020 also further accelerated the digitalization of various industries as more consumers moved online in general, the reliance on online sales channels from homebuyers have resulted in the rapid development of digital real estate transaction services. However, as the real estate industry moves to focus on reducing inventory and the government's implementation of serious initiatives in 2020, such as the property price caps and the three red lines policy, developers have faced additional pressure on their profit margins. As a result, reducing costs and improving turnover efficiency have become core issues for developers. Based on the data from our Real Estate Digital Research Institute, the commission rate for ordinary residential property sales exceeded 3% in 2020. According to a report from CSC Financial, the average commission rate for the resale property has remained below 2% for the past two years. As a result, we believe that the increasing trend in commission rate for new construction property is neither long-term nor sustainable. Developers are always located at the first ring of the value chain for the real estate agent service sector, and the adoption of digital marketing solutions may reshape the role that platform plays as their sales channels going forward. We have also observed a series of structural changes in the real estate agent service sector. The advancement of the platform has led to a significant change in the allocation of agents as well as a decline in the number of large-scale agencies. However, as the competition intensifies, small- and medium-sized agencies, or we call it SMAs, have remained stable while the quality of the agents has continued to improve to catch up to the competition. In Shanghai, for example, SMAs accounted for over 60% of all agencies in the city in 2020. According to the data from our Real Estate Digital Research Institute, we believe that the overall allocation of a capable agent is becoming increasingly polarized as a portion of these agents drawn the leading platforms and the rest drawn SMAs as part of their start-up ventures. Additionally, we also witnessed the unprecedented competition in the sector during the year. Platforms competing in new construction properties started offering irrationally high subsidies and full advances of the commissions so that to quickly ramp up their transaction volumes. Believing that higher subsidies will translate into higher market share, players from other industry were also attracted to the agent service sector, which fueled the vicious subsidy competition even more. In our opinion, the low frequency nature of the real estate transaction and the profit seeking nature of the real estate agents suggests that the subsidy will only generate higher sales performances in the short-term and such tactics and sustainable means of the competition. Instead, we believe that long-term growth will be driven by those innovative service offerings capable of improving agent service efficiencies. And with that, I will now -- Mr. Zeng will now provide an overview of the strategic business plans that we've developed in 2020. With our SaaS solution at the core of our business, we position ourselves as a pioneer of the digitalization in Chinese real estate service industry. Now we have established a development road map with our platform on the standard and our three -- and with our three key business segments. First of all, as a platform, we are committed to empowering more agencies through our SaaS offering to continue expanding our agency base. As an independent third-party platform, we provide agencies with a comprehensive set of standardized digital and smartphone tools, making us the ideal service provider to fulfill the needs of SMA. As a result, the number of agents on our platform continued to grow in 2020 for the ninth consecutive year in a row. In the fourth quarter, number of active agents on our platform exceeded 283,000, representing an increase of 19% from the same period of 2019. More importantly, the number of active agents who act as our SaaS solution increased by 30.2% year-over-year to 557,000, of these active agents, 85% came from SMA. Across our business segments, we remain focused on strengthening our SaaS product to better facilitate transactions without getting involved in the subsidy competition. For agency services, we further upgraded our SaaS offering while continuing to strengthen our off-line operating capabilities. We launched version 5.0 of our Duoduo property sales app to optimize the way that we establish. We build and maintain relationship between agents and property buyers. During the fourth quarter, we accelerated our agent development system while introducing a series of two such as online property promotion, virtual property viewings and online chat rooms to help agents to connect to more property buyers and manage their client base more effectively online. As a result, in the fourth quarter, our agent development system achieved an agency retention rate of 88.64%. Meanwhile, as we refine our SaaS service, we further expanded the coverage of our off-line service team to 124 cities in the fourth quarter. We also established China's first digital registry for agencies, which now covers more than 1 million agents from 288,000 agencies operated by 19,000 independent companies. From our property listings, we continue to improve our collaboration with developers. In the fourth quarter, for example, we focused on expanding our collaboration with key developers and developer projects while prioritizing the quality of their real estate projects by categorizing the properties through our SaaS solutions and creating a feedback for agencies and developer projects. We further refined our property lease management profits. As a result, during the quarter, the number of new construction property projects on our platform increased to 3,479, representing a year-over-year increase of 11.26% and a sequential increase of 19.23%. For the full year of 2020, we provided services to 5,825 new construction property projects, representing a year-over-year increase of 24.15%. The number of cities covered by our new construction property project also expanded by 22% year-over-year to 204 cities nationwide, and our property listings and agency base, which are the two key drivers of our new construction property sales business, have maintained their robust growth. However, pressurized by short-term impact, the closed-loop transaction GMV of our new construction property was RMB30.9 billion in the fourth quarter, representing a sequential decrease of 6.25% and RMB107.9 billion in the full year of 2020, representing a year-over-year decrease of 23.6%. Although our decision not offered subsidies will have a short-term impact on our closed-loop transaction volume, we remain confident about our long-term growth prospects. Secondly, we have observed increasing market opportunity for developer side SaaS solutions. In response, we launched our property Cloud SaaS solutions. According to the data from CRIC, 60% of top 50 real estate development in China reported increasingly their investment in the digitalization of their operations during 2020, where the average annual investment of this developer reaching RMB100 million in the period. Around this digitalization investment, developers were highly focused on online marketing, solutions to drive that digitalization. Nonetheless, due to the lack of technology capabilities and high upfront investment costs required to build their own systems, most real estate developers usually rely on third-party SaaS solution tools to digitalize their business. Frost Sullivan estimate that the market size of the real estate product in China will grow at a CAGR of 49.3% to RMB15.9 billion by 2024. During the fourth quarter, in response to the developers' demand, we leveraged the agency resources, data and product expertise that we have accumulated over the last nine years to develop and launch our property sales SaaS solution for real estate developers. This solution enables the developer to interact with the platform's most suitable agent and improve the developers' transaction efficiencies by digitalizing their sales cycle. First, it leverages property project management and customer profile analysis services to digitalize the transaction process. Second, it offers coupons for sales events and enables agents to share property details across their personal network to digitalize the customer acquisition process. Third, it provides features that can categorize agencies and manage individual agent performance to digitalize the sales channel management process. Fourth, to digitalize the cost management process, it offers features the analysis to the viewership, budget and the conversion rate of the marketing campaign, thus enabling developers to select their own commission rates while managing their costs effectively. Under this new business model, we generally set service fees from our SaaS solutions on an annual or monthly basis. By using our total property sales app, developers are able to assess follow the agents on our platform in their respective cities with a single tap of their finger. Meanwhile, our new developer direct sales feature has well received and welcomed by our platform agencies. By providing more high-quality online property listings and enabling agencies to directly serve developers, this feature helps agencies to improve the customer conversion rate. Since launching the app, we have a pilot partnership programs for our property sales SaaS solution with more than 30 of the top developers, including China Banking, Jindal Corporation, China Overseas Events and Investment Limited, and the Country Garden Holding Company Limited. Based on the data from our Real Estate Digital Research Institute, there are county more than 45,000 property projects listed for sale in China. This represents immense market potential for our property sales SaaS solution, which adopt a monthly retainer model for its system service and value-added service fees. And for our resale property business, we remain focused on investing and investing in developing our new growth initiatives. During the fourth quarter, we established a strategic partnership with Centaline Property Agency, which enabled us to further enhance our closed-loop resale property transaction capabilities. As a result, our closed-loop resale property transaction GMV in the fourth quarter increased by 15.4% sequentially while our closed-loop resale property transaction GMV in 2020 increased by 15.26% year-over-year to reach RMB73.1 billion. We also launched a new platform Yuancui through our partnership with Centaline. On Yuancui, we will leverage our technology capabilities, effective management process, and brand influence to develop and innovative new and technology-enabled franchising system. With Yuancui’s top SaaS offerings, we can provide operational and service support to our franchise stores by integrating our extensive resources into the platform. Yuancui has already enabled more capable agents to complete closed-loop transaction on its platform. As of the end of the fourth quarter, for example, Yuancui has expanded into 28 cities to cover 3,940 agents across 455 agencies. Moreover, we develop our off-line transaction service infrastructure by building a network for off-line transactions. Currently, the network includes 11 managed transaction service center in Shanghai dedicated to provide high-quality transaction services to SMAs on our platform. In addition, our network also interfaced with a number of banks and other financial institutions, including the Industrial and Commercial Bank of China, China Construction Bank, Industrial Bank, Bank of Communications and the China Bohai Bank to integrate their financial services, such as secure loans, mortgage loans and multiple payments to other lenders. And during the fourth quarter, closed-loop transaction completed through our network increased by 35.9% sequentially and the GMV of this transaction also increased by 45.9% sequentially. As for our asset inventory business, we continue to provide effective operation support services. We leverage our effective operations and sale support services to help developers monetize those parking spaces that typically have lower turnover rates. As such, we efficiently reduced parking spaces inventory for developers. Lastly, please allow me to share an update on our current outlook for the fourth quarter. Looking into 2021, we will remain focused on upgrading our total property sales SaaS solution for agencies on our platform. This will accelerate the digitalization of agency operations which will improve the abilities of agencies to close deals on our platform and thus ramp up the revenue and profit growth of our new construction property transaction business. Meanwhile, we aim to increase our investment in building our development service system with our property sales SaaS solution at its core. This system will fulfill developers' need for digital marketing solutions that aim at lower the cost and capable of helping developers to improve their turnover efficiency. Such efforts will help to bring more property listing onto our platform as well as accelerate the revenue growth of our SaaS service and other value-added services. Lastly, we plan to invest more in our resale property segment. We will leverage our online sales solutions off-line coverage to establish leading retail property transaction service model, enabling this segment to ramp up its revenue and achieve a breakeven. Based on these expectations, we are constantly forecasting our revenue to be between RMB270 million and RMB290 million in the first quarter of 2021. This forecast is based on our current views of the market environment which are subject to change. And with that, I will turn the call over to our CFO, Mr. Pan Jiaorong, to review the quarter's financial results.

[Foreign Language] A - Warren Wen: Okay. Thank you and CFO will now provide a closer look into the fourth quarter financial results. Before beginning, please note that all the numbers are in RMB terms unless otherwise indicated. And revenue in the fourth quarter of 2020 decreased to RMB622.4 million. The decrease was attributable to the Company's plan to reallocate resources between the revenue from commission, which had lower profit margins due to the intensified market competition and revenue from value-added services and new business initiatives, such as we launched SaaS solution for various platform participants, with which the Company attempted to diversify into future revenue stream and increase profit margins. And revenue in the fourth quarter of 2020 -- but of course, revenue in the fourth quarter 2020 decreased to RMB570.6 million, and the decrease is attributable to the decrease in the commission payable to the agents; and at the same time, because the Company -- because of the Company's plan to diversify the future income stream so that the Company provides various SaaS solutions and resulting in the relevant cost increases. And the gross profit in the fourth quarter of 2020 decreased to RMB51.8 million. Gross margin in the fourth quarter of 2020 decreased to 8.3%. Operating expenses in the fourth quarter of 2020, which included share-based compensation expenses of RMB24.3 million, decreased by 85.7 to RMB128.3 million from RMB199.7 million in the same period of 2019, which included share-based compensation expenses of RMB745.9 million. Sales and marketing expenses in the fourth quarter of 2020 increased to RMB32.2 million from RMB17.1 million in the same period of 2019. The increase was primarily due to the Company's increased spending on brand recognition and promoting and marketing activities related to its new SaaS solution offer to various platform participants in the fourth quarter of 2020. Product development expenses in the fourth quarter of 2020 were RMB17.9 million compared to RMB506.8 million in the same period of 2019. This decrease was primarily attributable to the decrease of the share-based compensation expenses in the fourth quarter of 2020 to RMB15.6 million from RMB435.1 million in the same period of 2019. To a lesser extent, the decrease was also due to the Company's decision to shift its focus to expanding the size of a product development team to optimizing operating efficiency as well as optimize its product development structure with a focus on the Company's SaaS solution, which lead to the decrease in your personnel-related expenses in the period. General and administrative expenses in the fourth quarter of 2020 were RMB25.2 million compared to RMB375.9 million in the same period of 2019. This decrease was mainly due to the decrease in share-based compensation expenses in the fourth quarter of 2020 to RMB8.7 million from RMB310.8 million in the same period of 2019. To a lesser extent, the decrease also resulted from the Company's effort in implementing cost control initiatives in response to the impact of COVID-19. Net loss in the fourth quarter of 2020 was RMB92.8 million compared to the net loss of RMB691 million in the same period of 2019. And non-GAAP net loss in the fourth quarter of 2020 was RMB68.5 million. Basic and diluted net loss per American depository shares ADS in the fourth quarter of 2020 were both 1.15. In comparison, the Company's basic and diluted net loss attributable to the ordinary share per ADS in the same period of 2019 were both RMB22, each ADS represent 25-plus A ordinary shares of the Company. Now, I will also briefly review our full year results. Revenue in 2020 is RMB2,451.3 million. Cost of revenue in 2020 is RMB2,036.8 million. Gross profit in 2020 is RMB414.5 million. Gross margin in 2020 is 16.9%. Operating expenses in 2020, including share-based compensation expenses of RMB102.8 million, decreased by 50.5% to RMB640.5 million from RMB1,293.8 million in 2019. Sales and marketing expenses in 2020 were RMB38 million compared to RMB48.4 million in 2019. Product development expenses in 2020 were RMB301.4 million compared to RMB725 million in 2019. General and administrative expenses in 2020 were RMB301.1 million compared to RMB520.4 million in 2019. And net loss in 2020 was RMB221.4 million compared to RMB510.4 million in 2019. Non-GAAP net loss in 2020 was RMB118.6 million. Basic and diluted net loss per ADS in 2019 were both RMB2.76. As of December 31, 2020, we had cash and cash equivalents, restricted cash and short investments of RMB945 million, short-term bank borrowings of RMB443.4 million as well as utilized banking facilities of RMB460.5 million. For the fourth quarter of 2020, net cash used in operating activity was RMB225.9 million. And that concludes our prepared remarks for today. And operator, we are now ready to take questions.

Ladies and gentlemen, we will now begin the question-and-answer session. Kindly note, when asking a question, please state your question in Chinese first then we receive your question in English for the convenience of everyone on the call. [Operator Instructions] We have a question coming from the line of Lisa Thompson from Zacks Investment. Please go ahead.

Good morning. Sorry, I can't ask my question in Chinese, sir. I would like to know given your change in strategy for this year, what do you expect gross margins to be going forward? And also, what are your plans for spending on operating expenses?

Let me translate your question first. [Foreign Language] Pardon me, do you -- are you asking the operating expenses in the coming year or the medium-term or long term?

This year.

This year, you mean 2021?

Yes.

[Foreign Language]

So to answer your first question, we will have two model coexists for the year 2021. The first one is the new property sales commission revenue. Property will remain a gross profit margin at a similar level with 2020 at 15% to 20%. And at the same time, we have newly launched a SaaS solution offering to our developer base, which is a SaaS model with monthly or annually subscription fee income with gross profit margin at 60% to 80% in the years to come.

[Foreign Language]

For the product development expenses, we believe because our product development team is pretty much mature up to now, and we believe the increase in percentage in comparison with 2020 well within 10% to 20%. And regarding the sales and marketing expenses, because we have established a strong presence on the off-line service to our agent base and the developer and our off-line service team are pretty much mature and we believe that team could be reused again and again in the future so that we believe the percentage in the increased -- percentage of as an increase in the sales and marketing expenses probably will remain stable. That is the increase will be minimum. And do I answer your question, madam?

Does that add then to around the same amount as you spent in 2020 to be RMB640 million?

RMB 640 million, you mean -- what do you mean by.

Total operating expenses.

Total operating expenses. [Foreign Language]

[Foreign Language]

Okay. So Co-CEO anticipated there will be a minimum increase of this overall operating expenses by like 10% -- within 10%.

Okay. And as far as gross margins is expected to increase from this 8% going forward?

[Foreign Language]

[Foreign Language]

The answer is really yes because we have launched the SaaS Solution offering to our developer base with a much higher gross profit margin, as said before. And as far as the penetration rate and the percentage of this type of revenue increases for the years to come and we believe the overall gross profit margin will increase in the following quarter and years.

[Foreign Language]

And also to our traditional commission -- based commissioning revenue, we believe with continue invest service to our developed per base and our agent base. We also believe the gross profit margin as a percentage will continue to increase in the years to come.

Okay. Great. One last question. Just for us U.S. folks, could you just describe the state of the Chinese real estate market now? Is it 100% back to normal or are you still recovering from shutdowns?

[Foreign Language]

[Foreign Language]

Okay. I'm happy to say that basically, the Chinese real estate market is basically back to normal. And we anticipated in the future few years and the transaction volume of the entire country probably remain a very as high as possible, like RMB15 trillion for new construction property and RMB6 trillion for second-hand property -- resale property.

[Foreign Language]

And another point we have noticed is the local government, the Chinese government is controlling the selling prices of the new construction property price and also the resale property price, and so that developer's profit margin is dropping significantly and so that the developers is taking whatever effort to build up their own sales team so that to reduce the cost from selling the property so that this is one of the opportunity that we have seen for our future development, in particular, our digitalization for the sales channel. Is there any other questions?

Sir, we do not have any questions at this moment. Back to you. We do not have any further questions at this moment. Back to you, sir.

Okay. That will conclude today's earnings release conference call. Thank you, operator.

Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect now.

Thank you.