Ladies and gentlemen, thank you for standing by, and welcome to Fangdd Network Group Limited Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the managements’ prepared remarks, we will have a 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, Ms. Linda Li, the company's Director of Capital Markets. Please go ahead, Linda.

Thank you, operator. Hello, everyone, and thank you for all joining us on today's call. The company has announced its first quarter 2021 financial results today. An earnings release is now available on the company's IR website. Today, you will hear from our Co-CEO, Mr. Xi Zeng, 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. Jiaorong Pan, will go over our financials before we open up the call for questions. Our management team will deliver your remarks in Chinese, and I will provide an 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 the filings with the SEC. With that, I will now turn the call over to our Co-CEO, Mr. Xi Zeng. Please go ahead, sir.

[Foreign Language] I will do the translation. Hello, everyone, and welcome to our second quarter 2021 earnings call. I would like to start the call by reviewing some of the changes and opportunities we observed in the real estate market during the quarter. First, low sales and tightened financing has forced real estate companies to shorten the cash conversion cycle. According to the National Bureau of Statistics, the total volume of real estate transactions in China increased by 17.2% year-over-year to RMB5.4 trillion in the second quarter of 2021. Major cities in China has rolled out regulatory measures to control the property market and tighten loans. As a result, the real estate market growth rate in the second quarter slowed, dropping by 70 percentage points sequentially. And new regulation for managing the concentration of real estate loan was introduced. Banks continue to tighten lending standards facing price drop for weak sales, lacking of financing access and maturing outstanding debt. There is an urgent need for real estate companies to accelerate sales and shorten the cash conversion cycle to maintain sustainable cash flow. Second, real estate companies is in a long-term process of digitalization with a focus on digital marketing. Due to declining margins, real estate companies has begun focusing more attention on the digitalization of their businesses with so many business areas and use cases to consider, many of which requires very large scale and long-term transformation. Companies need to first focus their efforts to maximize their results in the short term. Because of the digital marketing direct contribution to sales performance, it has become the first area of focus for many real estate companies. According to CRIC's data, all the top 50 real estate companies have already started using their own digital marketing platform as of 2020, while just 12 of the companies were using this platform in 2018. Third, the era of reckless competition on real estate transaction platform is gradually passing as efficiency is becoming the trend of the next phase of development. The competition strategy – the competitive strategy of increasing commissions and the lowering gross profit is becoming less effective due to the patent regulations. As the market enters into a phase of steady development, platform's technological capabilities and our provisional businesses will become the key to competitiveness. We adhere to the national regulation principle that housing is for living in, not for speculation. We believe the relevant policies will help promote healthy and stable development of the real estate market in the long run. In response to the policy changes in the real estate industry and digitalization trend, we have renewed our mission to improve real estate transaction efficiency and funding new experience. The renewed mission, vision is to serve thousands, hundreds of thousands of properties, millions of real estate agencies and tens of millions families to facilitate trillions of transactions and become the trusted real estate platform for our customers. During the quarter, we remained committed to our growth strategies and continue to focus on the development of our platform under three core businesses. We continue to develop our business fundamentals and improve gross margins, awarding the competition through subsidies. Total closed-loop GMVs facilitated on our platform was RMB29.6 billion in the second quarter of 2021. Our revenues grew by 37.9% to RMB401.4 million and the gross margin improved by 36 percentage points to 15.6% on the quarter-over-quarter basis. We continue to make progress on the development of our platform to provide agencies with an open, independent and technology-enabled platform. With our door-door property sales APG and Cone, we continue to focus on developing new video continent and data collaborations with midstream media platforms to optimize agent operations management and marketing tools, improve agent efficiency and strengthen our stickiness for our platform. In the second quarter, the number of active agents on our platform reached 250,000, representing a quarter-over-quarter increase of 13%. Next, I'd like to discuss our three primary business lines. For new property sales are further increased the number of property listings on our platform and improved overall profitability. During the quarter, we improved the overall quality of our listing properties while continue to grow our scale, leveraging [indiscernible] our parking space plus product, [indiscernible], the quality improving product for listing and other real estate transaction solution products. We further expanded our collaboration with property developers and improved our gross margins. Meanwhile, we continue to build our cooperation with key agents, and we partnered with banks and optimized machine algorithm and efficiency. In the second quarter, our closed-loop new property transaction GMV increased 15.7% to RMB18.9 billion from RMB16.4 billion in the first quarter of 2021. The number of new property projects on our platform reached 1,930 as distribution revenues increased by 32.1% to RMB358.8 million on quarter-to-quarter basis. For our property cloud SaaS solutions, we are witnessing early success from our pilot projects with key developers as we refined and upgrade our systems. During the quarter, we established various tools of agencies, marketing campaigns and digital media channels to help developers strengthen their ability to launch projects through their own channels. With the launch of agents own function, developers can build the real-time dynamics of their stocks and connect it with the key contacts, allowing developers to further improve the efficiency for new business launches and agency assignment process. Furthermore, we have expanded the scope of the management display board and launched I Am Automate, smart question-and-answer function, improving developer efficiency and user experience. In terms of pilot projects, we selected a bench project and a benchmark project and further enhanced their efficiencies through digital marketing channels. For example, while our project collaboration with China Railway Real Estate Group Corporation Limited completed 54 transactions in June, while our project collaboration with CMB Real Estate Corporation Limited completed 78 transactions during its opening sale. As a result, revenues from our SaaS solutions in the second quarter was RMB2.3 million. Our resale property business maintained a steady development during the quarter. Based uncertain in the macro environment, we continue to leverage our innovative business model to sustain our growth in revenue and gross profit. In the second quarter, our core new resale property transaction GMV reached RMB10.6 billion, revenues from resale property transactions increased by 114.4% sequentially to RMB40.3 million. Lastly, please allow me to share an update on our current outlook and expectations. Going forward, we will continue to leverage our platform to better facilitate transactions without sacrificing our margins by improving ourselves from competition on subsidies. We'll build more collaborations with real estate developers and agencies, expand our geographic coverage and develop our benchmark projects through our property cloud SaaS solutions. Business entered a phase of steady development, will continue enhancing innovation and technology-enabled franchising system and Tinghaozhu service business model. Due to the impact of COVID-19 on certain core markets and the resulted uncertain in the company's business performance in the near-term, the company expects its revenue to be between RMB250 million to RMB300 million in the third quarter of 2021. This forecast only reflects the company's current preliminary views on the market and operational conditions, which are subject to change. With that, I will turn the call over to our CFO, Mr. Jiaorong Pan, to review this quarter's financial results.

[Foreign Language] Let me do the translation. Thank you, Zeng. Now I will provide a closer look at our financial results for the second quarter of 2021. Before I start, please note that all numbers are in RMB terms and all comparisons are made on a sequential basis, unless otherwise noted. Revenue in the second quarter of 2021 increased by 37.9% to RMB401.4 million from RMB291 million in the first quarter of 2021. During the second quarter, we continue to optimize revenue mix and prioritized new revenue generation from value-added services and new business initiatives. This includes our SaaS solutions for various platform participants as we continue our efforts to diversify our future revenue streams. Now let me take a look at our revenue breakdown for the second quarter of 2021. Net revenue from new property transaction services increased by 32.1% to RMB358.8 million in the second quarter of 2021 from RMB271.6 million in the first quarter of 2021, primarily due to a 15.7% increase in GMV from new property transactions to RMB18.9 billion in the second quarter of 2021 from RMB16.4 billion in the first quarter of 2021. Net revenue from resale property transaction services increased by 114.4% to RMB40.3 million in the second quarter of 2021 from RMB18.8 million in the first quarter of 2021, primarily due to revenue contribution from our comprehensive real estate service platform under our financial business model and the home renovation service platform, Tinghaozhu. This growth was achieved despite a 21.7% decrease in GMV for resale property transaction to RMB10.6 billion in the second quarter of 2021 from RMB13.6 billion in the first quarter of 2021. The decline in GMV was mainly due to the change of fee structures for resale property listings. Revenues from SaaS solutions increased by 268.4% to RMB2.3 million in the second quarter of 2021 from RMB0.6 million mainly in the first quarter of 2021. The increase was primarily attributable to an increase in the number of projects. Cost of revenue in the second quarter of 2021 increased by 31.5% to RMB338.9 million from RMB257.7 million in the first quarter of 2021. This increase was due to two factors: first, high commission fees were paid to agents for service rendered, which resulted from increasing transaction commissions; second, there was an increase in costs related to various value-added service and SaaS solutions that we offered to marketplace users during the second quarter of 2021 to diversify our future revenue stream. Gross profit in the second quarter of 2021 increased by 87.5% to RMB62.5 million from RMB33.3 million in the first quarter of 2021. Gross margin in the second quarter of 2021 increased to 15.6% from 11.4% in the first quarter of 2021. Operating expenses in the second quarter of 2021 increased by 46.2% to RMB205.1 million from RMB140.3 million in the first quarter of 2021. This included share-based compensation expenses of RMB11.1 million and RMB11.9 million in the second quarter and the first quarter of 2021, respectively. Now let's take a look at the breakdown of operating expenses for the second quarter in 2021. Sales and marketing expenses in the second quarter of 2021 decreased to RMB13.1 million from RMB37.9 million in the first quarter of 2021. This decrease was primarily due to adjustments we made to the personnel composition of our sales department. This allowed us to reduce the spending on market activities related to new property transaction services in order to focus more on our new SaaS solutions and other value-added services. Product development expenses in the second quarter of 2021 was RMB64.5 million compared to RMB37.3 million in the first quarter of 2021. This increase was attributable to the increase in personnel-related expenses following the company's decision to focus more on the research and development of its value-added service and SaaS solutions. General and administrative expenses in the second quarter of 2021 were RMB127.5 million compared to RMB65.2 million in the first quarter of 2021. This increase was mainly due to the increase in provision of allowance for doubtful accounts on accounts receivable due from some developers of RMB79.1 million in the second quarter from RMB20 million in the first quarter and some developers encountered lightened financial conditions in the quarter. Net loss was RMB139 million in the second quarter of 2021 compared to RMB104.8 million in the first quarter of 2021. The net loss was narrowed to RMB59.9 million in the second quarter of 2021 from RMB84.8 million in the first quarter of 2021, if we take the provision of allowance for doubtful accounts effect out of consideration. Non-GAAP net loss was RMB127.9 million compared to non-GAAP net loss of RMB93 million in the first quarter of 2021. The non-GAAP net loss would be narrowed to RMB48.8 million in the second quarter of 2021 from RMB72.9 million in the first quarter of 2021, if we take the provision of allowance for doubtful accounts effect out of consideration. Basic and diluted net loss per ADS in the second quarter of 2021 were both RMB1.64. In comparison, basic and diluted net loss per ADS in the first quarter of 2021 were both RMB1.27. Each ADS represents 25 of the company's Class A ordinary shares. As of June 30, 2021, the company had cash, cash equivalent, restricted cash and short-term investments of RMB749.4 million, short-term bank borrowing of RMB290.7 million, and unutilized bank facilities of RMB379.5 million. For the second quarter of 2021, net cash used in operating activities was the RMB53 million. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

[Operator instructions] We have a question coming from the line of Lisa Thompson from Zacks Investment. Please go ahead.

Good evening, okay.

Hi, Lisa.

It's going to be hard with just one question now. So I think probably my biggest question would be you took a very large bad debt reserve this quarter. And so far this year, you're already almost double what you took last year. Could you go into more detail as to what the problem is? Did you have a couple of developers go bankrupt? Is there any chance of collecting any of that money? Just describe the situation. And then what you expect in the next couple of quarters? Are you going to keep taking higher reserves?

Okay. Let me translate the questions to our CEO. [Foreign Language]

[Foreign Language] Okay. Let me translate answers. It's right for the developers to go bankrupt now. The reason for the decline in the scale of income is the strategy. We have changed our strategy to not making subsidies but to pay more attention to gross profit. That is the common strategy changes and also affected by the market, the recent market, the COVID-19 influence in the recent terms. And the active trading had also the impact by the regulations. So maybe that will influence our revenues. So this is the – we don't think that it's the market reason, but nothing to do with the bankruptcy with the developers.

So is there any hope of collecting any of that?

Lisa, could you repeat your question? I didn't hear you clearly.

Is there any hope that you can collect some of that bad debt allowance back again, if they're not bankrupt?

Okay. I will translate the question to the managers. [Foreign Language]

[Foreign Language] Okay. Let me translate the questions. Recycling of account receivable is normal right now. And there is no creditor quality for us to receive our accounts receivable because each developer's sales are the most basic of their operations. The commission payments actually exceed right now. But if there are some – if the developers has some risk or maybe they are going bankrupt, we'll give a close look and list all informations. So we will reduce the cooperation with this kind of real estate developers.

Okay. Thank you. Can I ask another question or am I restricted to one?

Actually, we prefer to have one question from each participant. But Lisa, if you have more questions, maybe we can arrange a backup call later.

That’ll be great. Thank you.

Okay. Thank you, Lisa.

[Operator Instructions] We do not have any further questions at this moment. I would like to hand the conference back to our host for any ending remarks. Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation, you may disconnect now.