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China’s Fang Holdings releases report on second quarter 2018

By Victoria Haviland 0 Comments NEWS, News

Leading Chinese real estate online portal, Fang Holdings Limited has recently announced its unaudited financial results for the second quarter, ending on June 30, 2018.

Second Quarter 2018 Highlights

  • Total revenues were $74.4 million, a decrease of 32.4% from the corresponding period in 2017.
  • Operating income was $16.7 million. Non-GAAP operating income was $20.8 million.
  • Net loss attributable to Fang's shareholders was $26.6 million, which was primarily due to the change in fair value of equity securities of $80.3 million in accordance with new accounting pronouncement, and the income tax benefits of $38.3 million related to the effect of change in fair value of equity securities and the reversal of previously recorded ASC 740 (FIN 48) income tax and interest liability. Fully diluted loss per ADS was $0.06.
  • Non-GAAP net income attributable to Fang's shareholders was $55.9 million. Non-GAAP fully diluted income per ADS was $0.13. A description of the adjustments from GAAP net loss to non-GAAP net income attributable to Fang's shareholders and fully diluted income per ADS is detailed in the Reconciliation Statement following this press release.
  • Adjusted EBITDA was $27.4 million. A description of the adjustments from GAAP net loss to Adjusted EBITDA is detailed in the Reconciliation Statement following this press release.

First Half 2018 Highlights

  • Total revenues were $137.2 million, a decrease of 37.6% from the corresponding period in 2017.
  • Operating income was $12.8 million. Non-GAAP operating income was $21.4 million.
  • Net loss attributable to Fang's shareholders was $71.4 million, which was primarily due to the change in fair value of equity securities of $122.6 million in accordance with new accounting pronouncement, and the income tax benefits of $42.5 million related to the effect of change in fair value of equity securities and the reversal of previously recorded ASC 740 (FIN 48) income tax and interest liability. Fully diluted loss per ADS was $0.16.
  • Non-GAAP net income attributable to Fang's shareholders was $57.6 million. Non-GAAP fully diluted income per ADS was $0.13. A description of the adjustments from GAAP net loss to non-GAAP net income attributable to Fang's shareholders and fully diluted income per ADS is detailed in the Reconciliation Statement following this press release.
  • Adjusted EBITDA was $34.5 million. A description of the adjustments from GAAP net loss to Adjusted EBITDA is detailed in the Reconciliation Statement following this press release.

"Fang's technology-driven open platform is speeding up its offerings of upgraded products and services to real estate companies and professionals as well as home buyers and sellers," said Vincent Mo, Chairman and CEO of Fang.com. "We aim to serve and empower our clients and recover our market share sustainably."

Second Quarter 2018 Results

Revenues

Fang reported total revenues of $74.4 million in the second quarter of 2018, a 32.4% decrease from $110.1 million in the corresponding period of 2017, primarily due to the decline in e-commerce services revenue.

Revenue from listing services was $33.2 million in the second quarter of 2018, a decrease of 21.7% from $42.3 million in the corresponding period of 2017, caused by the decreased number of paying members.

Revenue from marketing services was $25.1 million in the second quarter of 2018, a decrease of 28.3% from $35.0 million in the corresponding period of 2017, primarily due to slowdown in the real estate market and the continued impacts of tightening policies.

Revenue from value-added services was $8.4 million in the second quarter of 2018, an increase of 17.9% from $7.1 million in the corresponding period of 2017, primarily due to a rising demand for our database and research services.

Revenue from Internet financial services was $6.0 million in the second quarter of 2018, an increase of 121.8% from $2.7 million in the corresponding period of 2017, driven by increased demand for products on our diversified loan platform.

Revenue from e-commerce services was $1.7 million in the second quarter of 2018, a decrease of 92.4% from $22.9 million in the corresponding period of 2017. The decline was primarily due to Fang's transformation back to a technology-driven open platform model.

Cost of Revenue

Cost of revenue was $8.1 million in the second quarter of 2018, a decrease of 83.4% from $48.7 million in the corresponding period of 2017. The decrease in cost of revenue was mainly caused by the optimization in our cost structure under the technology-driven open platform model, and the reversal of $9.2 million of previously recorded ASC450 business tax and interest liability.

Operating Expense

Operating expenses were $49.6 million in the second quarter of 2018, a decrease of 26.4% from $67.4 million in the corresponding period of 2017.

Selling expenses were $19.0 million in the second quarter of 2018, a decrease of 17.7% from $23.1 million for the corresponding period of 2017, primarily due to the decrease in advertising and promotional expenses.

General and administrative expenses were $33.8 million in the second quarter of 2018, a decrease of 22.5% from $43.6 million for the corresponding period of 2017, primarily due to the effective cost control.

Operating Income

Operating income was $16.7 million in the second quarter of 2018, compared to operating loss of $6.1 million in the corresponding period of 2017, primarily attributable to the downsized e-commerce services and effective cost control.

Change in fair value of equity securities

Change in fair value of equity securities for the second quarter of 2018 was $80.3 million. The amount represents changes in fair value of equity securities in accordance with FASB ASU 2016-01, which became effective on January 1, 2018.

Income Tax Benefits

Income tax benefits were $38.3 million in the second quarter of 2018, compared to income tax benefits of $0.6 million in the corresponding period of 2017, primarily due to the effect of change in fair value of equity securities and the reversal of previously recorded ASC 740 (FIN 48) income tax and interest liability.

Net Loss and EPS

Net loss attributable to Fang's shareholders was $26.6 million in the second quarter of 2018, compared to net loss of $2.1 million in the corresponding period of 2017, which is caused by change in fair value of equity securities. Loss per fully-diluted ordinary share and ADS were $0.30 and $0.06 in the second quarter of 2018, compared to loss of $0.024 and $0.005, respectively, in the corresponding period of 2017.

Adjusted EBITDA

Adjusted EBITDA, defined as non-GAAP net income before income taxes, interest expenses, interest income, depreciation and amortization, was $27.4 million in the second quarter of 2018, compared to $1.3 million in the corresponding period of 2017.

Cash

As of June 30, 2018, Fang had cash and cash equivalents, restricted cash (current and non-current) and short-term investments of $481.8 million, compared to $547.1 million as of December 31, 2017. Net cash generated from operating activities was $41.3 million in the second quarter of 2018, compared to cash flow generated from operating activities of $23.1 million in the same period of 2017.

First Half 2018 Results

Revenues

Fang reported total revenues of $137.2 million for the first half of 2018, representing a decrease of 37.6% from $219.9 million for the corresponding period in 2017, primarily due to the decline of e-commerce services.

Revenue from listing services was $59.9 million for the first half of 2018, a decrease of 21.6% from $76.4 million for the corresponding period in 2017, caused by the decreased number of paying members.

Revenue from marketing services was $42.4 million for the first half of 2018, a decrease of 32.0% from $62.4 million for the corresponding period in 2017, primarily due to slowdown in the real estate market and the continued impacts of tightening policies.

Revenue from value-added services was $15.0 million for the first half of 2018, an increase of 11.4% from $13.4 million in the corresponding period in 2017, primarily due to a rising demand for our database and research services.

Revenue from internet financial services was $11.0 million for the first half of 2018, an increase of 123.2% from $4.9 million for the corresponding period in 2017, driven by increased demand for products on our diversified loan platform.

Revenue from e-commerce services was $8.9 million for the first half of 2018, an 85.8% decrease from $62.8 million for the same period in 2017. The decline was primarily due to Fang's transformation back to a technology-driven open platform model.

Cost of Revenue

Cost of revenue was $28.4 million for the first half of 2018, a decrease of 74.1% from $109.5 million for the corresponding period in 2017. The decrease in cost of revenue was mainly caused by the optimization in our cost structure under the technology-driven open platform model, and the reversal of $9.2 million of previously recorded ASC450 business tax and interest liability.

Operating Expenses

Operating expenses were $96.1 million for the first half of 2018, a decrease of 21.6% from $122.6 million for the corresponding period in 2017.

Selling expenses were $34.7 million for the first half of 2018, a decrease of 25.4% from $46.5 million for the corresponding period in 2017, primarily due to the decrease in advertising and promotional expenses.

General and administrative expenses were $64.6 million for the first half of 2018, a decrease of 13.9% from $75.0 million for the corresponding period in 2017, primarily due to the effective cost control measures.

Operating Loss/Income

Operating income was $12.8 million for the first half of 2018, compared to operating loss of $12.2 million for the corresponding period in 2017, primarily due to the downsized e-commerce services and effective cost control.

Change in fair value of equity securities

Change in fair value of equity securities for the first half of 2018 was $122.6 million. The amount represents changes in fair value of equity securities in accordance with FASB ASU 2016-01, which became effective on January 1, 2018.

Income Tax Benefits/Expenses

Income tax benefits was $42.5 million for the first half of 2018, compared to income tax expenses of $4.3 million for the corresponding period in 2017, primarily due to the effect of change in fair value of equity securities and the reversal of previously recorded ASC 740 (FIN 48) tax and interest liability.

Net Loss and EPS

Net loss attributable to Fang's shareholders was $71.4 million for the first half of 2018, compared to net loss attributable to Fang's shareholders $14.1 million for the corresponding period in 2017, which is caused by change in fair value of equity securities. Loss per fully diluted ordinary share and ADS were $0.80 and $0.16, respectively, for the first half of 2018, compared to loss per fully diluted ordinary share and ADS of $0.16 and $0.03, respectively, for the corresponding period in 2017.

Cash

As of June 30, 2018, Fang had cash and cash equivalents, restricted cash (current and non-current) and short-term investments of $481.8 million, compared to $547.1 million as of December 31, 2017. Net cash generated from operating activities was $34.3 million in the first half of 2018, compared to net cash generated from operating activities of $12.1 million for the same period in 2017.

Business Outlook

Based on current market conditions and current operations, Fang will increase the expenditure on marketing and promotion, Fang's non-GAAP net income is expected to be profitable for the fiscal year ending December 31, 2018. These estimates represent management's current and preliminary view, which are subject to change.

Change of Board Members

Fang has appointed Mr. Shaohua Zhang, founder and managing director of Beijing Beyondal Electric Co., Ltd., as an independent director and member of the audit committee of the Board. Mr. Minqiang Bi has recently resigned from the Board due to personal reasons. Fang thanks Mr. Bi for his efforts and contributions to the company.

About Non-GAAP Financial Measures

To supplement Fang's consolidated financial results presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), Fang uses in this press release the following measures defined as non-GAAP financial measures by the United States Securities and Exchange Commission: (1) non-GAAP operating (loss)/income, (2) non-GAAP net (loss)/income and (3) non-GAAP basic and diluted (loss)/earnings per ordinary share and per ADS (4) adjusted EBITDA. The presentation of the non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliation of GAAP and non-GAAP Results" set forth at the end of this press release.

Fang believes that these non-GAAP measures help identify underlying trends in Fang's business that could otherwise be distorted by the effect of the change in fair value of equity securities, and the expenses and gains that Fang includes in income from operations and net income. Fang believes that these non-GAAP measures provide useful information about its operating results, enhance the overall understanding of its past performance and future prospects and allow for greater visibility with respect to key metrics used by Fang's management in its financial and operational decision-making. A limitation of using these non-GAAP financial measures is that share-based compensation, investment income, change in fair value of equity securities, interest income and expenses, income tax expenses, and depreciation expenses have been and will continue to be a significant recurring item that will continue to exist in Fang's business for the foreseeable future. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliation between non-GAAP financial measures and their most directly comparable GAAP financial measures.

New accounting pronouncements

The new revenue recognition standard (ASU No. 2014-09 'Revenue from Contracts with Customers') was released in 2014 and becomes effective for Fang with effect from January 1, 2018. Fang has elected to adopt the new standard (ASC 606 - 'Revenue from Contracts with Customers') using cumulative effect method for all contracts that are not completed contracts at the date of initial application. Under this transition method, the new standard is applied from January 1, 2018 without restatement of comparative period amounts. The cumulative effect of initially applying the new standard is reflected as an adjustment to opening retained earnings as of January 1, 2018 in the amount of $0.3 million.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which is an amendment which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance includes the requirement that equity investments that do not result in consolidation and are not accounted for under the equity method be measured at fair value with changes in the fair value recognized in net income. An entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.  Fang adopted this standard from the quarter beginning January 1, 2018, and Fang recognized a cumulative-effect adjustment to retained earnings of $163.8 million as of January 1, 2018 for the after-tax unrealized gains of available-for-sale equity securities previously recognized in accumulated other comprehensive income.

SOURCE Fang Holdings Limited
Edited by V. Haviland

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