Danke Announces Unaudited First Quarter of 2020 Financial Results
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BEIJING, June 10, 2020 /PRNewswire/ — Phoenix Tree Holdings Limited ("Danke" or the "Company") (NYSE: DNK), one of the largest co-living platforms in China with the fastest growth, today announced its unaudited financial results for the first quarter ended March 31, 2020.
FINANCIAL AND OPERATING HIGHLIGHTS
All comparisons are made on a year-over-year ("yoy") basis.
For the Quarter Ended March 31, 2020
- Revenues increased 62.5% to RMB1,939.6 million (US$273.9 million) from RMB1,193.8 million.
- Net loss was RMB1,234.4 million (US$174.3 million) compared to RMB816.2 million. Net margin improved by 4.8 percentage points.
- Adjusted net loss (1) was RMB978.9 million (US$138.2 million) compared to RMB799.1 million. Adjusted net margin improved by 16.4 percentage points.
- Adjusted EBITDA (2) was negative RMB578.3 million (US$81.7 million) compared to negative RMB549.6 million. Adjusted EBITDA margin improved by 16.2 percentage points.
- The number of apartment units operated increased 46.8% to 419,030 units as of March 31, 2020, from 285,349 units as of March 31, 2019.
FINANCIAL RESULTS
For the Quarter Ended March 31, 2020
Revenues were RMB1,939.6 million (US$273.9 million) in the first quarter of 2020, representing an increase of 62.5% yoy from RMB1,193.8 million in the first quarter of 2019. The revenue growth was primarily due to an increase in opened apartment units through organic growth and, to a lesser extent, an increase in opened apartment units through the acquisition of Aishangzu (3) in March 2019. The Company had 415,459 opened apartment units as of March 31, 2020, and 270,337 opened apartment units as of March 31, 2019.
Operating expenses were RMB3,101.6 million (US$438.0 million) in the first quarter of 2020, representing an increase of 58.5% yoy from RMB1,957.0 million in the first quarter of 2019.
- Rental cost increased 67.5% yoy to RMB1,955.7 million (US$276.2 million) from RMB1,167.6 million primarily due to an increase in the number of opened apartment units.
- Depreciation and amortization increased 67.0% yoy to RMB328.3 million (US$46.4 million) from RMB196.5 million primarily due to an increase in the number of apartment units renovated and opened.
- Other operating expenses increased 105.6% yoy to RMB250.6 million (US$35.4 million) from RMB121.9 million. The increase was primarily attributable to (i) a loss on early termination of rental agreements due to the early termination of certain leases with property owners, which was primarily due to the adverse impact of the COVID-19 pandemic and resulted in a loss for the related leasehold improvements and deposits to the property owners for the first quarter of 2020, (ii) an increase in cost of services as the Company operated more apartment units, and (iii) an increase in incentives for apartment sourcing as the Company had more opened apartment units and recorded more amortized commissions and lead generation fees for sourcing such apartments in the first quarter of 2020. The following table sets forth a breakdown of other operating expenses, expressed as an absolute amount and as a percentage of revenues, for the periods indicated:
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Three Months Ended March 31, |
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|
2019 |
2020 |
||||||||
|
RMB |
% |
RMB |
US$ |
% |
|||||
|
(in thousands, except for percentages) |
|||||||||
|
Other operating expenses: |
|||||||||
|
Cost of services |
56,603 |
4.7 |
76,070 |
10,743 |
3.9 |
||||
|
Payroll cost |
36,877 |
3.1 |
41,514 |
5,863 |
2.1 |
||||
|
Incentives for apartment sourcing |
15,628 |
1.3 |
30,008 |
4,238 |
1.5 |
||||
|
Other expenses |
12,776 |
1.1 |
32,315 |
4,563 |
1.8 |
||||
|
Loss on early termination of rental |
– |
– |
70,671 |
9,981 |
3.6 |
||||
|
Total |
121,884 |
10.2 |
250,578 |
35,388 |
12.9 |
||||
- Pre-opening expense decreased 89.0% yoy to RMB9.2 million (US$1.3 million) from RMB83.3 million primarily due to a significantly lower number of pre-opening apartment units during the quarter compared to the prior year period. During the first quarter of 2020, in response to the COVID-19 outbreak, the Company significantly slowed down the rate of sourcing new apartments.
- Sales and marketing expenses decreased 9.7% yoy to RMB204.0 million (US$28.8 million) from RMB225.9 million. The decrease was primarily attributable to a decrease in advertising expenses due to the Company’s proactive actions to control costs and expenses. The result was partially offset by: (i) an increase in incentives for apartment renting, and (ii) an increase in payroll cost for sales and related support teams as a result of the recognition of the share-based compensation ("SBC") expenses upon the completion of the Company’s initial public offering ("IPO") in January 2020. The following table sets forth a breakdown of sales and marketing expenses, expressed as an absolute amount and as a percentage of revenues, for the periods indicated:
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Three Months Ended March 31, |
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|
2019 |
2020 |
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|
RMB |
% |
RMB |
US$ |
% |
|||||
|
(in thousands, except for percentages) |
|||||||||
|
Sales and marketing expenses: |
|||||||||
|
Advertising expenses |
120,264 |
10.1 |
73,176 |
10,334 |
3.8 |
||||
|
Payroll cost |
58,665 |
4.9 |
67,697 |
9,561 |
3.5 |
||||
|
Incentives for apartment renting |
37,434 |
3.1 |
56,032 |
7,913 |
2.9 |
||||
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Other expenses |
9,557 |
0.8 |
7,057 |
997 |
0.3 |
||||
|
Total |
225,920 |
18.9 |
203,962 |
28,805 |
10.5 |
||||
- General and administrative expenses increased 142.0% yoy to RMB273.7 million (US$38.7 million) from RMB113.1 million primarily due to the recognition of a substantial amount of SBC expenses upon the completion of the Company’s IPO in January 2020 and a majority of which was allocated to general and administrative expenses.
- Technology and product development expenses increased 25.6% yoy to RMB61.0 million (US$8.6 million) from RMB48.6 million as a result of SBC expenses but partially offset by the Company’s proactive cost and expense controls.
- Impairment of long-lived assets were RMB19.1 million (US$2.7 million) in the first quarter of 2020 compared to nil in the prior year period. The recognition of the impairment was due to the underperformance of certain apartment units relative to their projected operating results during the Company’s impairment test in the first quarter of 2020. The underperformance of these apartment units was primarily caused by the impact of COVID-19 pandemic.
- SBC expenses included in the operating expenses items above were RMB206.3 million (US$29.1 million) in the first quarter of 2020 compared to RMB1.5 million in the prior year period. Because the exercisability of the share options granted by the Company was conditional upon the completion of its IPO, the Company did not recognize any SBC expenses related to the share options granted beforehand. Upon the completion of its IPO, the Company immediately recognized a substantial amount of SBC expenses associated with vested option awards in the first quarter of 2020. The following table sets forth a breakdown of SBC expenses, expressed as an absolute amount and as a percentage of revenues, for the periods indicated:
|
Three Months Ended March 31, |
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|
2019 |
2020 |
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|
RMB |
% |
RMB |
US$ |
% |
|||||
|
(in thousands, except for percentages) |
|||||||||
|
SBC expenses included in: |
|||||||||
|
Other operating expenses |
– |
– |
14,320 |
2,022 |
0.7 |
||||
|
Sales and marketing expenses |
– |
– |
18,771 |
2,651 |
1.0 |
||||
|
General and administrative expenses |
1,481 |
0.1 |
140,943 |
19,905 |
7.2 |
||||
|
Technology and product development |
– |
– |
32,267 |
4,557 |
1.7 |
||||
|
Total |
1,481 |
0.1 |
206,301 |
29,135 |
10.6 |
||||
As a result of the above, operating loss was RMB1,162.1 million (US$164.1 million) in the first quarter of 2020 compared to RMB763.2 million in the first quarter of 2019.
Interest expenses were RMB84.7 million (US$12.0 million) in the first quarter of 2020, representing an increase of 15.2% yoy from RMB73.5 million in the first quarter of 2019. The increase was attributable to an increase in interest expenses related to rent financing and additional bank loans. The following table sets forth a breakdown of interest expenses, expressed as an absolute amount and as a percentage of revenues, for the periods indicated:
|
Three Months Ended March 31, |
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|
2019 |
2020 |
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|
RMB |
% |
RMB |
US$ |
% |
|||||
|
(in thousands, except for percentages) |
|||||||||
|
Interest expenses |
|||||||||
|
Interest expenses related to rent financing |
50,066 |
4.2 |
56,151 |
7,930 |
2.9 |
||||
|
Other interest expenses |
23,454 |
2.0 |
28,578 |
4,036 |
1.5 |
||||
|
Total |
73,520 |
6.2 |
84,729 |
11,966 |
4.4 |
||||
Net loss was RMB1,234.4 million (US$174.3 million) in the first quarter of 2020 compared to RMB816.2 million in the first quarter of 2019. Net margin improved by 4.8 percentage points to negative 63.6% from negative 68.4%. Adjusted net loss was RMB978.9 million (US$138.2 million) in the first quarter of 2020 compared to RMB799.1 million in the prior year period. Adjusted net margin improved by 16.4 percentage points to negative 50.5% from negative 66.9%.
Net loss per basic and diluted share was RMB0.87 (US$0.12) compared to RMB3.95 in the prior year period. Adjusted net loss per basic and diluted share (4) was RMB0.69 (US$0.10) compared to RMB3.88 in the prior year period.
EBITDA was negative RMB833.8 million (US$117.8 million) in the first quarter of 2020 compared to negative RMB566.7 million in the prior year period. EBITDA margin improved by 4.5 percentage points to negative 43.0% from negative 47.5%. Adjusted EBITDA was negative RMB578.3 million (US$81.7 million) in the first quarter of 2020 compared to negative RMB549.6 million in the prior year period. Adjusted EBITDA margin improved by 16.2 percentage points to negative 29.8% from negative 46.0%.
Cash and restricted cash were RMB4,226.4 million (US$596.9 million) as of March 31, 2020.
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KEY OPERATING METRICS |
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As of |
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March 31, |
June 30, |
September 30, |
December 31, |
March 31, |
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2019 |
2019 |
2019 |
2019 |
2020 |
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Number of cities in which the |
9 |
10 |
13 |
13 |
13 |
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Number of apartment units the |
|||||||||||
|
Pre-opening apartment units (1) |
15,012 |
5,160 |
14,835 |
7,081 |
3,571 |
||||||
|
Opened apartment units (2) |
270,337 |
341,213 |
391,911 |
431,228 |
415,459 |
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|
Total |
285,349 |
346,373 |
406,746 |
438,309 |
419,030 |
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Number of apartment units the |
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|
Beijing, Shanghai and Shenzhen |
176,746 |
192,268 |
213,866 |
223,753 |
207,046 |
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|
Other cities |
108,603 |
154,105 |
192,880 |
214,556 |
211,984 |
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|
Total |
285,349 |
346,373 |
406,746 |
438,309 |
419,030 |
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(1) Represent apartment units that are within the pre-opening period (i.e., the period between the effective date of the lease with the property owners and |
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(2) Represent apartment units that achieve ready-to-move-in status, including those rented out and to be rented out. |
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Three Months Ended |
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March 31, |
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2019 |
2020 |
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|
RMB |
RMB |
US$ |
|||||
|
Average revenues per rented-out unit per month (1) |
2,225 |
2,015 |
285 |
||||
|
Average leasing cost per unit per month (2) |
1,599 |
1,498 |
212 |
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|
(1) Represents the revenues recognized in the period presented divided by rented-out unit days (i.e., the simple sum of the number of days the Company |
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(2) Represents leasing cost (i.e., the sum of rental cost and pre-opening expense) recorded in the period presented divided by total unit days (i.e., the simple |
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As of |
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March 31, |
June 30, |
September 30, |
December 31, |
March 31, |
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2019 |
2019 |
2019 |
2019 |
2020 |
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Occupancy rate (1) |
77.8% |
89.0% |
86.9% |
76.7% |
75.6% |
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(1) Represents the aggregate number of rented-out apartment units as a percentage of the number of opened apartment units as of a given date. |
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SHARES OUTSTANDING
As of the date of this press release, the Company had approximately 1,828.8 million ordinary shares outstanding. The total number of shares outstanding excludes shares reserved for future issuances upon exercise or vesting of awards granted under the Company’s share incentive plans. Each American Depositary Share (ADS) represents ten Class A ordinary shares.
BUSINESS OUTLOOK
Based on current market and operating conditions, the Company expects revenues for the second quarter of 2020 to be between RMB1,850 million and RMB1,950 million. This forecast reflects the Company’s current and preliminary views, which is subject to change and substantial uncertainties, particularly in view of the potential impact of the COVID-19 outbreak, the effects of which are difficult to analyze and predict.
CONFERENCE CALL
A conference call and webcast to discuss Danke’s financial results and guidance will be held at 8:00 a.m. U.S. Eastern Time (8:00 p.m. Beijing Time) on June 10, 2020. Interested parties may listen to the conference call by the dialing numbers below:
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United States: |
1-888-317-6003 |
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Mainland China Domestic: |
4001-206115 |
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Hong Kong: |
800-963976 |
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International: |
1-412-317-6061 |
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Conference ID: |