Q4 2022 KLDiscovery Inc Earnings Call
Thank you. Don Wilson, Chief Financial Officer of KL Discovery. Hi, my name is Nancy I talked to you about Silicon Valley and New York master plan.
Selling and marketing expenses were RMB itself into 333 million in Q4 compared to RMB $809 million in the same care opportunities when you want.
This increase was mainly due to the consolidation of a shouldn't do.
Thank you, operator. Welcome to KL Discovery's Q4 in full year 2022 conference call. Today's call contains forward-looking statements. These statements are not guaranteed of future performance.
Research and development expenses decreased by 31, 1% to RMB 509 million.
Mainly due to the decrease of personnel costs and the sharp as competition lots of it sort of secret Tycho.
Actual results may differ materially from these forward-looking statements due to assumptions, risks, and uncertainties that are described in more detail in our earnings press release issued yesterday and filing for the SEC.
Income from operations was RMB 387 million in Q4 compared to loss from operations of RMB 284 million in Q4, 2021.
TAIL discovery undertakes no obligation to amend, update, or clarify these forward-looking statements made as of today unless required by law.
The increase in gross margin in the decreasing operating expenses have brought about as the increase in operating margin due to play 3% in Q4 from 96, 7% in Q4 2021.
During this call, we will also present non-GAAP financial measures such as EBITDA and adjusted EBITDA, which were not prepared in accordance with GAAP. Reconciliation to the most directly comparable GAAP measures to the non-GAAP financial measures are shown in detail in our press release issued last night, along with definitions for those terms and a discussion of certain limitations.
Our non-GAAP income from operations was.
RMB salt into 339 million.
non-GAAP operating margin reached 8% in Q4 compared to a negative two 2% in the same period 2021.
Management believes that our presentation of non-GAAP financial measures provides useful supplemental information to investors regarding our results of operations.
Adjusted EBITDA was RMB 2000, 164 million in Q4 compared to RMB 484 million in Q4 2021.
Our non-GAAP financial measure should only be considered in addition to and not as a substitute for or superior to any GAAP measure.
Net income was RMB 372 million in Q4.
Please refer to our press release on how to access the replay of this call. I will now turn the call over to our CEO , Chris Weiler.
Compared to a loss of RMB 933 million.
Q4, 2021.
Thanks, Don, and good morning, everyone. Thanks for joining us today for KL Discovery's fourth quarter and full year 2022 Financial Results Conference call. My name is Chris Weiler, and I am the CEO and co-founder of KL Discovery.
GAAP net income was RMB.
547 million in Q4 compared to RMB 42 million in the same period of 2000.
Turning to our financial detail and physical year 2022.
I want to start off today's call by saying how proud I am of our global team.
<unk> revenue decreased by 24, 9% year over year to RMB six people or some big wells. The GTA V declined by 32, 3% to RMB 2600 out of the nine 6 billion due to the soft market sentiment on the COVID-19 disruptions.
We had an outstanding Q4 and are starting off 2023 with tremendous momentum.
Our strategic plans, corporate culture, and world-class technology have positioned us well in a challenging macroeconomic environment.
Of course package the Paquito narrower decrease of 12, 9% year over year to RMB 13 8 billion.
However, it is our global team's execution.
that helped us achieve these results.
Our team members have remained steadfast, worked hard, and have risen to every challenge presented to them. The KLD global family continues to inspire me and is a true test of our company's character and perseverance that is making KLD a stronger company every day.
Gross margin increased by three one percentage points to 22, 7% in 'twenty to 'twenty two.
Our loss from operations was RMB 800 circuits remaining into literally two compared to a loss from operations of RMB, One 4 billion in <unk> 2021.
I'm proud to be leading this team and I am truly grateful for their commitment, teamwork, and loyalty.
I am pleased to report that the fourth quarter was a record for KLD. We delivered the highest revenue quarter in company history with $85.8 million, which is a 15% increase over our revenue from the third quarter of 2022. Our net loss came in at $5 million, setting another record as the lowest in company history.
Operating margin was lucky one 4% in 2022.
Got you a 91, 7% in 2021, primarily due to a graduate of the higher gross profit margin, which was partially offset by the increase of spending your home renovation on the furniture and the emerging on the author services in 2022 compared to 20 to do what.
non-GAAP income from operations was RMB, two 3 billion in Q2.
To get to compared to RMB, one 4 billion in 2021.
non-GAAP operating margin was three 8%.
217% in 2021.
and us achieving the highest EBITDA and adjusted EBITDA quarter in company history.
Net loss was RMB south into 397 million in 'twenty to a neutral compared to RMB 525 million in 2021.
non-GAAP net income.
RMB 2000, 843 million in 2022 compared to RMB 2290, 4 million in 2021.
and sales and marketing while still delivering these impressive financial results.
Now I'd like to highlight supporting financial highlights for the full year, firstly try not to be released to the market experienced a severe adjustment you can tune into neutral.
Our managed review offering continues to deliver solid results driven by the positive reputation in our antitrust and cyber incident response practices.
Talking to Peco Research Institute.
As I mentioned on prior calls, we conduct our managed review work remotely, which has allowed us to not only reduce our real estate expense, but also maximize our global talent pool to ensure our resources are used to their fullest capacity so that every engagement creates a stellar client experience.
This is new housing market through 31% a year well data on the CRC show the new home sales bumped the Congress top hundred developers tumbled, 42%.
However, due to all of our diversified the business structure under better retention of our high quality services capacity.
Nebula, our end-to-end eDiscovery and review platform, continues to grow and is gaining significant traction with our customers.
T T V. So amount of 432%.
Thanks to the stronger much efficient dedicated for the new home buying and home business.
Q4 was our highest revenue quarter for Nebula, with revenue up 23% compared to Q4 of 2021.
As well as the increasing the proportion of the home renovation and furnishing services with the harmonic sufficient right.
Our investment in R&D is paying off as we are seeing larger and more complex engagements sold in Nebula as well as many of our top clients choosing Nebula for their e-discovery needs for the first time.
Although revenue declined by only 25% year on year.
The smaller construction compare it with some market adjustments.
More encouragingly over.
Our client portal continues to impress our clients and I'm thrilled with the impact it is making for our business.
Lung cancer, that's perfect. So a <unk> booking growth of 24% for the full year opportunity to neutral on the serious of cost optimization measures.
In 2022, we launched Client Portal, the first real-time reporting dashboard for our clients to access critical case and financial metrics.
The value of the platform has a populous.
Impressive results in perfect hockey measurement.
including up-to-date reporting on current period work-in-progress spending.
Secondly.
Oh, the one part of your business, which is the home construction services delivered a strong performance in your profitability on the financial health.
In 2023, we have already released the first of several planned features to aid users in tracking real-time budget performance.
And achieved a remarkable result in cost and expense optimization.
We are underway on work to give on-demand access to complex matter and portfolio reports as well as access to our alerting system.
In terms of the cost control the fifth call. So far for one part apices fell by over one third year on year in Q4, and the variable cost as a percentage of revenue dropped around six percentage points year over year.
This alerting capability allows users to create bespoke notifications to let them know immediately when certain conditions have been met during the course of their case.
such as illegal matters spend nearing their budget or a certain amount of data process produced or hosted.
In face of the market downturn.
We also made a forceful matters to us to go down the P&L, you'll need for operational management.
I'm also excited to announce that we will be bringing this innovative technology to Europe by releasing client portal Enemia in the first half of this year.
Encouraging that this is key to focus on the pathetically indicators. So it was a performance evaluations.
What do your job well made a considerable effort in 'twenty two nature to deepen this operation under treatment notable results.
Across all our platforms, we are seeing outstanding growth in the volumes of data in KLD's technology. Year over year, inbound data received and processed grew by 10%, with explosive growth in the second half of last year, which saw record high months and quarters resulting in 18% growth in Q422 over Q322 and 45% growth in Q422 over Q421. This is further proof that our technology, services, global footprint, and our
Proposal for loss, making stores.
And by seven percentage points in 2022 from 'twenty to 'twenty one.
Then he and Geoff to connect your stores agent productivity ratio in cities, including Beijing, Shanghai increased to $1 three two to be too, but at 1.2 in 2021.
The adjustment Puma new agent compensation efficiency also helped reduce our cost.
In addition in tuned into nature, we continue to explore strategic collaborations with the state owned if developers.
by seven client support models have all converged to make KLD a compelling choice for any law firm, corporation, or government agency. During 2022.
Let's approach us bump those partnership accounting for 45% of all the south and careful striking from between two one the right thing.
We were focused and vigilant on executing our strategic initiatives by investing in them while simultaneously lowering our costs such as real estate occupancy and optimizing our digital marketing initiatives. We are enjoying the benefits of a more efficient cost structure due to all our systems and process improvements over the past several years. We have built up significant top line momentum as we continue to execute our strategic plan to strengthen the company. We are also growing revenue in EBITDA under difficult market conditions. I believe that as the economy recovers, we will be able to maintain the economic recovery that came with the EBITDA.
28% in Q1.
The propulsion was a 41% for the wheel between the two new tools on top of this trend with your managers to have a new whole much efficient way to increase moderately in 2022.
Also the possibility of already existing home construction services to try to educate a quarter over quarter due to the pandemic impact on a full year basis.
The contribution margin off of existing home business reached 13 nine 8%.
Up to eight percentage points from 28, 21, driven by stronger operating leverage due to the fixed cost optimization on the higher revenue contribution from platform services.
We will be in excellent position to continue to grow profitably, invest further in the business, and stay committed to customer excellence.
That's all we're running it was fun to think home services continued to respond when it's bad just pisses, well if input photo and profitability.
I will now turn the call over to Don Wilson, our CFO .
He's a wheel for 22, new to the contribution margin of new home transaction services reached 23, 6%.
Four four percentage point bump 'twenty to do what they.
Mainly driven by the increase of the percentage of the hypothetical protests and a significant fixed cost reductions.
For the full year of 2022, our revenue was $317.4 million, which was slightly less than that.
But thinking of a strategy of strictly balancing risk and appropriate you a high volatile market.
$320.5 million in 2021. However, when you consider the macroeconomic headwinds we experienced throughout 2022, our revenue results in 2022 were an accomplishment punctuated by a record-setting Q4.
In particular, new home contribution margin climbed to 26, 2% in Q4.
The other record hot since all realistic.
I'll need to buy incrementally improvement since the new home market you saw a high tier cities.
Nebula revenue for fourth quarter was the highest in our history and up 23% compared to the fourth quarter of 2021.
With the increased interest in home under new home contribution margin or gross margin for the field between neutral neutral.
Consistent with prior quarters, we continue to gain momentum with more Nebula customers and others.
Pumpkin, notably to 22, 7%.
Likewise, our nebula utilization metrics for active users, data hosted, and active repositories are up significantly in the fourth quarter of 22 versus the fourth quarter of 21. We continue to be diligent about seeking operating efficiencies to reduce costs and improve our profitability.
Up three one percentage points year over year.
Certainly in terms of the operating expenses, while maintaining all of the investment in the new business, including home renovation and the furniture, although total non-GAAP expenses in 2020 to decline by 20% year over year to RMB 11 8 billion.
Our Q4 2022 net loss of $5 million.
So productivity over the platform accretion king in terms of their support to frontline agent increased by 20% year over year banjo opportunity to neutral.
was a 32% improvement from the Q4-21 net loss of $7.3 million.
Q4 2022 EBITDA was $18.3 million compared to Q4 21 EBITDA of $13.8 million, while Q4 2022 adjusted EBITDA was $20.4 million compared to Q4 21 adjusted EBITDA of $15.3 million.
For new home business, we continue to promote and commissioning devolved model truly sure most secured commission collect bi platform and agents.
And this would be up to protest so soon.
Commissions accounted for 44% hope out of a total commissioning in Q4.
Both EBITDA and adjusted EBITDA are up 33% compared to prior year, and Q4 2022 adjusted EBITDA was the highest adjusted EBITDA in company history. We continue to invest in research and development and sales and marketing year over year. We believe that these investments, along with our Nebula platform, will contribute to higher
Up from 20% in Chihuahua.
In Q4 commissioning the votes are counted over 36 myself Commission from state owned give others under 14, 9% offset from private developers.
Under such effort in 2022, we had a bad debt provision reaching back.
If RMB 206 meeting, but the new home business.
The RMB $201 million for the whole group comparable was a bad debt provision of RMB, one 3 billion into a digital one.
Just to reflect all the crystal ball for talking mostly put into accounting treatment well ever sightings of achievements under our risk control measurement, which is a sharp focus on receivable collection and improving the central for the security of agents.
challenging macro environment, yet our cost-cutting efforts and strategic investments over recent years have led to strong financial results in the fourth quarter of 2022, while building a solid foundation for the future. And that there is a fair amount of macroeconomic uncertainty for 2023.
Firstly.
Our home renovation on the finishing business has gained considerable traction.
Benefiting from powerful synergies between pay clinician to our pro forma revenue opportunity there true amounted to RMB six 2 billion.
We are continuing not to provide guidance for 2023 at this time. As for KLD, we continue to be agile and move forward with a strong foundation. The team is energized as we enter 2023 with a momentum and a very satisfied customer base.
Revenue totaled.
$2 1 billion in Q4, 13% quarter over quarter.
Specifically, we are co tried yourselves in Hangzhou, and Beijing exceeded RMB, one bit age with.
I would like to turn the call over to Chris for final comments. Chris?
Thank you, Don, and I just want to thank everybody for joining us this morning. Have a great rest of the quarter and...
With Hangzhou achieving city level profitability.
Beijing break even into a second half opportunity to neutral.
Thanks for joining us. Appreciate it.
Our leading growth not just top cities demonstrate our ability to achieve the fastbreak suits in school children to the right cell stage, while making notable improvement in your profitability.
This concludes today's conference call. Thank you for your participation. You may now disconnect.
Aided by our flip or supply chain build outs college delivery under digitalization capabilities. We are confident that we will accomplish as a high quality dysfunction you most cities.
Firstly, our cash position and cash flow remains robust that's sufficient.
We have a solid capital measurement.
But agile to neutral neutral to a combined balance of cash cash like items totaled RMB 78 3 billion.
U S dollar you're about 11 4 billion up by RMB, One 1 billion from end of September on the RMB seven 3 billion from until 2021.
Among wage so a combined balance of cash cash equivalents restricted cash on the shouting investments was RMB 61, playing one period.
So if our longterm crush like items that are included into long term investments amounted to RMB 72 billion.
Net operating cash flow was RMB, two 6 billion in Q4 remaining positive for the fifth quarter Euro. Moreover.
Moreover, we have a theater with your policies in Silicon Valley Bank under credit Suisse.
We haven't mentioned a steadfast commitment to risk control under renewable amendment cash collection from new home business I think cities, new home revenue for six quarters and little.
Totally RMB 35 point library for the full year with.
With cash to revenue ratio at 125.
Yeah, Yeah, so with that to 64 days in Q4, shortening by 14 days from Q3, and the 28 days from the same period of 2021.
Turning to the guidance of the fourth quarter of 2000 and finished right.
We expect total net revenues to be between RMB 18.0, Betty to $18 5 billion in Q1, representing an increase of approximately 43, 4% to 47, 4% from the same period of 2022.
This forecast.
The potential impact of the recent real estate related policies.
Democratize cognitive covered status as well as release of the pent up demand in 2022.
Constitutes its current and the preliminary view of our business situation on the market condition, which are subject to change.
Anthony in Q4 of last year.
Policy relief unique keeps water doze off on a larger scale on both supply and demand side.
In early December Covid, 19, curbs or optimized sympson infection, how quickly picked out driving an option in pocket market.
Notably since the beginning of this year home prices <unk> sequential decline transactions start to rebound, we think it should be able to rationally and the update.
The recent uptick can be attributed to two factors.
Once the higher sales volume, partially attenuated by the release of pent up demand once the pandemic situation used Richard further illustrates that the housing demand.
Default not eliminate.
The other reason is that the market expectation has gradually improved against the backdrop of macro economy recovery under successive introduction of a surplus of your policies.
I think eventful tended to lead to a pop the haynesville Waco, numerous unexpected shocks demand policy C.
Well interest here well be pressed forward with our program.
Programmatic approach to promote economy recovery under the Boston market confidence.
Supporting the housing upgrades onto a path of initiatives.
Responding domestic demand.
That's an enterprise way well remain equally practical and rational.
The always uphold marquee neutral.
This study launch and market development is aligned with the fundamental interest of the consumers so garments.
Industry.
It has been under well continue be our belief.
Industry enduring wildly dispute among staple transaction volume on the process brokers some fluctuation.
That's the market stability to sustainable transactions, which accentuate the value of agents.
Agents should be it's a counter force towards a market ups and downs.
All of our social responsibility as well as professional with dignity.
In 2023 hour, one button to waste strategy worldwide, most diversified your vitamins and the continuous scale use function, which opposed to a higher requirement for operational stability resource allocation or the profitability.
As such all worth it.
Our strategy will remain focused on the sense of if this is the accretion.
The basis of to optimize the cost and expenses structure in 'twenty two new tool.
This year, we're well with purpose from efficiency purposes goes on to continue to improve the service quality at.
At the same time, where well continue to strictly control the risks balanced the relationship between the efficiency receivable collection under CECO under.
The scale goes under promote cooperation with upstream and downstream, although the condition of the safe accounts receivable.
Ultimately neutral marquee room, well fully confident in the housing market is stable development in the long run.
<unk> not provided a stable environment for over long term development, but also offers a great opportunity for us to further elevate the quality of our operations.
Going forward, we will continue to forge ahead with the enduring strengths you know all of our Hearts.
On the fifth Hot wings, with tenacity and optimism.
Powered by our relentless pursuit of creating dispensable value for the Boston, leaving service sector and all of our society.
So that concludes my prepared remarks, we would like now to open the call to questions. Operator. Please go ahead.
Thank you if you wish to ask your question. Please press star one on your telephone and wait for your name to be announced.
If you wish to cancel your request please press star two.
If you were on a speaker phone please.
The handset.
Questions.
For the benefit of all participants on today's call. Please limit yourself to one question and if you have additional questions you can reenter the queue.
If you were going to ask the question in Chinese please follow with English translation.
Today's first question comes from Timothy Zhao with Goldman Sachs. Please go ahead.
Yes. Thank you management for taking my question and congratulations on the strong results and at year.
On the industry outlook can you just share your updated outlook for the existing home and new home market proteinase, three especially related to the strong growth of the home ballroom in China over the past two months could you share some color on how much about the rebounded from the pent up demand.
And how sustainable do a thing if the current run rate in the home market. Thank you.
Okay.
Okay.
Timothy regarding to the recent market performance to the uncertainty caused by COVID-19 cities the Chinese restaurant.
<unk> has a shift back towards our pursuit of a wireless security on the growth from precautionary saving under risk aversion.
In terms of the relative to the policies.
So we're overselling the stimulus policies released across country in 'twenty to neutral.
Parents with roughly 450 tightening policies into your opportunity to get one.
As a result support for a market recovery.
Accumulating we saw.
Increase the policy support into somebody in a generally.
We're almost to the strong second tier cities Lucentis Air home purchase and the mortgage restrictions.
But most of the cities for example, don't glad to Foshan implemented the food relaxation.
<unk> 10, just policy changed how the support of poaching opt into market.
According to a recent real estate the monkey data.
Consumer sentiment towards the housing market also has significantly improved on the demand side.
So you're seeing home cells.
With a transaction of our platform before the Chinese new year holiday in January we'll close two doses in July 2021.
And it's amongst leaves in home T V are prevalent in February was close to the historical high in March 2021.
Once at the GTA V of tier one cities in February was just eight 6% lower since the peak of March 2021 while the GTA V for the stronger tier two cities and the weaker tier two cities, but cursory on care for cities grew 11, 3% on a five 5% from.
The 22, new one peep respectively.
Particularly stronger tier two cities show the strong momentum with the Chengdu Suzhou 19, Zhengzhou in the Tianjin all exceeded the high points of March 'twenty to do what by 20%.
This strength was partly due to a onetime release of the pent up demand accumulated during the epidemic.
When you're home self.
Also demonstrate a notable recovery trends.
New home subscription growth to the partnership.
Generally growing 20% year over year in February of a new home for prescription increased by 148% year over year from a lower base in 2022, reaching the level of a June 2021.
Driving our year on year, New home sales growth since February of this year.
Hosting regarding housing prices. Despite the very strong momentum in transaction volume Fortunately, we havent seen significant fluctuation youre holding prices.
Generally practice for both the casino and the new home ended a long take of the marquee trial across the country.
In February it has been.
Home price grow one 6% quarter over quarter, but still posted a year over year decline 5%.
That's an increasing number of customer lists our homes, while upgrading demand to meet the relaxed with government policies. This year. So a number of listed existing home national wide grow 10% year over year.
So I'm always seeking home listing catch some market supply and demand the drug can be balanced.
Okay.
We still hold a neutral marquee view the recent rebound in transaction volume demonstrates a housing market high resilience and you'll have 50 pumps came on site.
Just to show chain rebound to what's driven by several factors, including normalized as construction demand.
One time covering off to accumulate.
Pentarchy, Mark do you want to put them into our shop.
You've been really a release of a future purchase needs from the customers who are concerned with a potential housing price drops.
Just talk to us today towards the south devoting being built up reaching a virtual tie.
Speaking to a margin neutral way for them to market will gradually normalize under will enter into a more stable growth stage over the long run.
Tomorrow.
We have also noticed that the regulator in total volume of its being under new home subscriptions on pretzel began to steadily normalized.
Regarding the future market in terms of the lucky to sustainability.
All of our analysis of the top 30 cities waste.
That's a market to be relatively stable in the future or fourth tier cities.
So average floor space of the house transact until homebuyers demo profit since this year were very similar to the price of three years.
If a transaction to help improve in many parts of home upgrade on the <unk> demand for the property waiting for a provider we're off on 19th square meters.
In addition, the.
A description of a purchased by local and then on local restaurants has also been stable.
For second tier ticket home upgrade the Marvell has significantly stimulated just drove a 3% increase in share of transact the house over 90% over 90 square meters.
The 5% increase in percentage of our customer aged over 65.
A 4% increase in percentage of non local homebuyers.
Going forward, such marquee to mentioned mud spirit the volatilities in the short term due to the structural change Nevertheless, with a non local taking root in the city's most popular policies under stabilizing housing prices.
Home upgrade your mountain from the local restaurant macro fallout and the matter pre installed 80 months apart and it helps the market stabilized in the long run.
For the existing home market in 'twenty two.
They solve a neutral market view recruiting lately with that so you're seeing home market will grow by around 15% year over year in 'twenty to industry, whereas at prices remains relatively stable.
Regarding so plenty of upsides for the market that you didn't just transaction unit of listing on the new home, even China accounted for only $43 five herself a total number of new homes in 22 new tool.
On the type of charter rate.
It's new homes. It was only 0.7% what is the normal rate at least the 1% is it.
Totally.
We need to consider the potentially unfavorable factors.
Such as the impact from the global economy slowdown.
Growing geopolitical tensions and the muted I spoke rose on it's a monthly column on the Hudson team bombed.
Well no hallmarks of intrinsic to industry.
Just back to the total <unk> of the market in 'twenty two the street to remain at the same level as a utility.
Hudson Project Liberty has it become less of a concern for consumers with deployments over the financing policies for developers.
Improvement of its our phone instead of US was gradually a resumption of the project construction.
In the meantime, we saw price stabilizing home upgrade Piedmont will reach impact treats in your home market.
The new home market recovery will further is real estate developers cash flow constraints.
Recently, <unk> auction, which was the city like Hum drawing the pseudo wrote several private developers appear to answer Atlanta auctions list, probably give up for renewed society, but the land auction in more areas is also a critical indicator.
Or pump failures tried a housing market that has seen greater Hudson at Lowe's looking back short term uncertainties habitable under one lesson to be overly optimistic or pessimistic about the sub trends.
That's the way navigates through the types of market volatility on the cycles.
Our unwavering belief in the long term outlook for the housing market remains steadfast.
Were formulated able to set against the backdrop of the whole thing is what do you mean not supposed to be accretion.
Thinking home market will increasingly take center stage.
While new home operations demand among refined approach to Kotick surveys will come to the forefront.
Unfortunately change it's approaching thank you we can see.
Thank you. Thank you and our next question today comes from.
Churn with Citigroup. Please go ahead.
And this is Harry trial on Citigroup since management pose the question opportunity and also congratulation on the very solid at the Readouts for the fourth quarter and also for the whole year. So my question would be that those do home and existing home markets will it be ensuring a healthier.
And the more stable development stage in 2023 can management share with us where that the company will dynamically adjust its strategies in response to changing market conditions, such as channel expansion to gain more market share.
Ah you target market this year and will you expand that soon being job or down being just stores. What is expansion strategy in markets, where you have a red team deemed though market share such as Shanghai, Guangdong and Fujian and how will you deal with the competition with the Dell could beat us. Thank you.
Okay.
Thank you Harry.
Our view on the market share that way.
We don't operate with a market share as all of our Kpis.
The legend team has always been a very intrusive co principal of taking care of customers on the <unk>.
<unk> service provider to be close to customers.
Nevertheless, we must reach a certain skus threshold, the safety wise to realize and that works fine.
Rescue you fast hope all of our core business.
To fully benefit from the ability of our agents and our store network.
Infrastructure are wrong, so leaving services.
Therefore, we need to pay attention to scale.
Need to achieve the sufficient to schools through COVID-19, and empowering our connectors starting to agents.
He is going home transaction services, just round off a massive market correction has presented us with opportunities.
<unk> two is to go faster underway anticipate a greater number of customers well George Coty services open up I pay cost this year.
In past two years, it's a market correction was long and deep resulted insignificantly. He got surprised by the reductions in various regions.
Do we have a better capacity retention the number of agents in 25 cities, even increase year over year agile opportunity to neutral.
Moreover, we have a focus on retaining high quality agents, which will all source to benefit the most from the mercury rebound during the recovery cycle.
But if you skip in different cities.
For our top performing cities, we will continue to explore the opportunity in.
In specific market segments, such as the middle to high end market.
Market et cetera.
These are cities, where it's a competitive environment, we saw business he's found us actually.
Lucky very fast paced starting in the second half of last year.
That's all we're better capacity and retention our business called out governance.
Our focus the operations under our community from a training generated remarkable results.
Even pick up opportunities.
The city rents are still a lot of room for improvement.
You all have a scale and it's a murky right can be Fred mentioned.
For example in Shanghai are trading on the market.
Our market penetration is still significantly lower in Beijing.
Despite our business into cities, we will activate new commenced a series of initiatives.
Such as our established more connections to the high quality service quite us investing in all of our brand on the service quality on the strengthening operational efficiency.
Regarding to the new home consumer services.
This year, we will consistently emphasized the risk aversion that's top priority that's weighted into your opportunity to get to on the 2021.
We are not proactively loosening, our risk controls or compromise the business security.
Especially it's a Chicago for agents and receivable collection, you changes so called the pro forma skills dysfunction.
But the way we will also make a dynamic adjustment depending on to market under the recovery of the developers.
Europe is the cash flow situation improves.
Our receivable payment tourists will improve as well, which will lead to the upgrade to our routine newspaper quite get ranking system.
So it includes a privately run king will allow us to expand our cooperation.
The addressable market for all of our new home construction services May also sponsors.
Meanwhile, new home trying to sell smoking has seen significant increase in concentration into recently bundle much correction.
Our better and safer receivable collection under health and new home business pound off against the trust from a larger number of service provider and the agent on the sector.
They connect was with E C at the phone Joseph Channel.
Coming to a cornerstone of the continued dysfunction off of new home construction services as the market.
Mark you've recovered.
Henry.
Thank you and our next question today comes from John <unk> with Barclays. Please go ahead.
Thank you very much for taking my question.
And let me add my congratulations on the very strong results and the guidance and you talked about improving the efficiencies of your agents and all through our stores.
Just wondering could you talk about.
Again, if you have any for the stores and agents for for this year.
We have already improved their productivity and quite a bit last year, how can you improve the productivity further.
From here, while not losing the very strong cultural and the performance element of the equation. Thank you.
The settlement itself.
Although we have no plans for significant dysfunction.
And the agents.
That's what I mentioned last quarter, our focus is on improving postop on per agent efficiency, while you kind of think that Adrian com.
At this time consuming a lot of it goes to function.
This approach will not change.
When it went to income of stalls and agent increased steadily cut the industry retain high quality people under chips are healthy.
Yes.
Furthermore, given the car to the trend of balanced supply and demand market.
And so both are a precise zones of housing is falling off a speculation right to not anticipate a significant increase in industry capabilities. Following this market recovery.
All clients for the agent stores. This year include the following.
Regarding the scale store wise, we plan to focus on the large and the high quality stores under drives the on boarding of Hangzhou, who stores for new homes themselves to our platform connects stores agent Wise, we plan to recruit agents during the screen recruiting season utility to sweep.
After which we expect to maintain a stable agent count just improves increasing also propulsion for middle level agents under the increasing the number of agents in two cities, which need a skills function.
Regarding the cost and efficiency, let me talk about the store productivity forced into niche industry, we expect to receive a significant improvement in your store productivity as a result of our ongoing efforts in large store door and agent ranking system comes out governance hartzell kidney.
We are committed to improving the amendment of the lossmaking under new efficient stores underweight believes that so you'd be.
Any efficiency could be temporary.
Regarding the agent productivity, the general agent productivity hydro huge room to improve in the long run.
Beijing could be a benchmark, where all the agents productivity you had the three to four times higher than the industry average.
40th Jacques in 'twenty, two neutral excluding pay tune of Shanghai.
Then just agent productivity was one three times that all connect to agents and other targeted this year is to further increase this ratio to one four times.
For two or you want a bigger connect stores, although we will not set a specific target for agent productivity. This year.
Well improve our range of operating metrics to improve the agent productivity metrics improved cross sell cross browser cooperation ratio accompanying the home tours by home listing agent price difference mentoring that between the lithium transaction prices.
Soon drove debates ratio or one transaction.
In terms of the culture.
Could it into value taking good care of customers.
Flipping to baidu, showing successful experience and infrastructure to the industry.
Empower and the Intouch inefficiency.
We believe the antibody of protecting the interests of the service providers pay information timely way.
<unk> interbody of improving the industry code of contact and help give us all participants to work with the central for security in the furnace.
Wrap it into value of our hundreds of thousands of acts as a service provider who housing serving the community for many years.
Stop is just unique moat in home services.
And we did it and so that over time.
This is what we have been doing not perfectly but a way of all are we think of them as strong.
Thank you Anthony.
Thank you and our next question today comes from Jon Lamm UBS. Please go ahead.
Yes.
Thank you will and also congratulation for that.
So my question is regarding on the cost optimization.
So we have seen that in the third quarter last year, the cost optimization was fairly effective.
Is there any room for further improvement in the cost optimization.
And also can be expense ratio.
Quarter last year. Thank you. Thank you true could be used to use for the subsequent profitability okay.
Thank you John .
For cost of expense for revamp the business.
We quickly implemented a series of cost reduction and efficiency has some initiatives into native Youtube. Consequently, so of costs and expenses for one but the business will optimize to reach the level in the year of 2019, which we believe is relatively sustainable.
In terms of the cost control.
Fourth quarter opportunity to neutral so fixed cost of are one part of the business fell by 36% year over year under the suburban cost as a percentage of revenue dropped by five six percentage point year over year.
In terms of expenses, the total amount of non-GAAP operating expenses.
Climbed by 70% year over year to the same level into your 2019. So your expense reduction will be most significantly if we exclude the impact from the consolidation of the shouldn't do.
Commissioning of the volatile accounted for 44% of total New Home Commission, Inc. Fourth quarter up from 20% in the first quarter.
Sure. It's a collection of the new home renewables mitigating the negative impact of the new home better provisions RV expenses.
In 2023, our platforms, even poughkeepsie, well see even greater improvement.
We will implement an incentive to develop in the region are already seeing employees.
We also helped to offset the cost of such an initiative sort of continuous cost control of the non personnel expenses.
In addition, we hope to improve the agents, but acuity, but technology investment to reduce or times spend envelope activity matters Hudson loadings in Jupiter Walker, where do you spend more time with our families under contributing to afford the industrial optimization as well as potential platform.
Better improvements.
In all of our financing strategy for Bombardier business, well remain focused on efficiency.
With optimize the calls into these different level, you can tune into neutral way well supported coffee growth cost effectively.
Meanwhile, we will continue to strictly control risk and strike a balance between the efficiency receivable collection speed under the SKU expulsion.
But to ensure the security of the accounts receivable, where will you kind of our cooperation with partners in upstream and downstream.
For tooling business regarding over home renovation in the furniture business. In addition to making sure. It's total loss ratio without another further expand well capture opportunities to reinforce our fundamental capabilities, including the put us supply chain under service delivery ability.
Best in high quality service providers.
The whole blue well reflect some of our redundancy investment that we made during the last round of market growth.
And while continuing to promote our business goes strictly controlled cost and expense to balance it just goes SUNS to profitability.
John .
Yes.
Sorry can I ask one more question.
So you also mentioned about the tooling. So what is your plan regarding on scale expansion.
<unk> improved plan for tooling.
In terms of deal.
Changing chi for expansion and also the scale of investment.
Could I say that for the full surface home renovation and finishing our model.
You had shifted the CLO two <unk> in 2022 is 2020 see a critical year to go from one to 10.
Michelle.
Key focus of St goes into contingency.
Yeah.
Okay.
So a question.
20000 tour was a year of our two wings was born.
Okay.
Well, we have a tech stack corporate bonds out home that are racing in the prediction business hours.
Rental business.
Given that these things in more cities.
On the home renovation on the furniture side, our total cone contract sales bucked, the trend and increased by more than 30% year over year.
With total revenue, you're sitting and eating in both Beijing and Hangzhou, we reached the first milestone of over 1 billion.
Annual contract yourselves.
And for a rental assumptions, we enter some new cities in 2022, and the total number of rental units under management and you'll see you'll see.
Got it.
Mm 120000.
'twenty to 'twenty, three we really kind of finished the benchmark cities achieved.
That's true.
And then Mac commitment and investment to build long term kind of entities in 2023, and two Wednesday. So we will build on the current momentum in our cities. We enter we will not be pursuing a comprehensive unwrap your scale your pension.
First instead of focusing on short term and rapid.
Scaling its pension we will continue to discuss it pretty rapidly.
Long term kind of benefits, including the ability to extend our services and to provide better online appearances.
As well as our.
On my operations of our supply chain.
Innovation capabilities.
Specification for Chinese consumers and professionalism of our centers.
Writers.
And based on kind.