QandK international Group Ltd (NASDAQ: QK) Q1 2020 earnings call dated Sep. 30, 2020
Corporate Participants:
Rene Vanguestaine — Investor Relations
Chengcai Qu — Chief Operating Officer
Zhichen Sun — Chief Financial Officer
Presentation:
Operator
Good morning ladies and gentlemen, and thank you for standing by for Q&K’s First Half Fiscal Year 2020 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference call is being recorded.
I will now turn the meeting over to your host for today’s call, Mr. Rene Vanguestaine. Please proceed, Rene.
Rene Vanguestaine — Investor Relations
Thank you, AJ. Hello, everyone and thank you for joining us today. Qingke’s first half fiscal year 2020 earnings release was distributed earlier today and is available on our IR website at ir.qk365.com as well as on GlobeNewswire Services. On the call today from Qingke, we have Mr. Chengcai Qu, Chief Operating Officer; and Mr. Frank Sun, Chief Financial Officer. Mr. Qu will review the business operations and company highlights. He will deliver the prepared remarks in Chinese and Mr. Sun will deliver the same content in English. Mr. Sun will then discuss the financials and guidance. If you have any questions or require any further information, please write to the company’s IR Department at ir@qk365.com at any time following this call. Before we begin, I’d like to remind you that this conference call contains forward-looking statements as defined in the Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based upon management’s current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company’s control, which may cause the company’s actual results, performance, or achievements to defer materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors are included in the company’s filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.
It is now my pleasure to introduce our Chief Operating Officer, Mr. Qu. Mr. Qu, please go ahead.
Chengcai Qu — Chief Operating Officer
Thank you, Rene. [Foreign Speech] Thank you, Rene, and thanks everyone for joining our earnings call today. [Foreign Speech] With that, I would go back to our prepared remarks regarding our operating key points in the first half of the year. [Foreign Speech] During the first half of fiscal year 2020, due to the impact of the COVID-19 pandemic, our average occupancy rate decreased to 87.7% from 90.9% in the first half of 2019. Therefore, we continued to pursue our defensive strategy as a pioneer in China’s long-term apartment rental market. We have the most experience managing our business through the economic cycle. Our experience tells us that during economic downturns, especially facing this pandemic, consolidating our internal resources, further improving operating efficiency, and focusing on asset quality improvement is much more important than aggressive expansion.
We believe that, as the industry weeds out weaker players through the economic downturn and the pandemic, the industry will become more mature and rational with the remaining companies pursuing growth based on asset quality and operating efficiency. We believe we will be able to capture abundant opportunities based on our substantial competitive advantages when the time comes. Benefitting from the abovementioned strategies, our net revenues for the period increased by 6.5% year-over-year while non-GAAP adjusted EBITDA was negative RMB72 million, compared with a loss of RMB93 million in the same period of fiscal year 2019.
[Foreign Speech]
Such results demonstrate our ability to weather economic downturns. We owe such resilience to our strategies positioning. Our focus is on the market segment with monthly rental below RMB2,000 which accounts for approximately 80% of the market in China. Geographically speaking, we are focused on Yangtze mega-city cluster centered around Shanghai, which is a strategic region of China with vibrant growth.
[Foreign Speech]
Although the long-term apartment rental industry will not be spared from challenges related to the broader economic pressures and the impact of COVID-19, we should still recognize that it is still a nascent industry as the central government makes housing policy a priority nationwide, such as housing for living, not for speculation, and allowing renters to enjoy the same rights as homeowners. Both the supply and demand in the rental housing market are on the rise in China. We believe that the highest-quality industry leaders will be able to increase their market share meaningfully in the next stage of our industry development.
[Foreign Speech]
As China’s first long-term apartment rental platform listed in the U.S., we will continue to strengthen our technology and management capabilities to further improve our user experience while scaling our business with the aim to become the standard setter for China’s long-term rental industry.
[Foreign Speech]
Now, I will pass the call over to our CFO, Frank, to discuss our financial results. Thank you.
Zhichen Sun — Chief Financial Officer
Thank you, Mr. Qu. Now, let’s go over the first half of fiscal year 2020 financial results in details. We believe year-over-year comparisons are the best way to review our performance. All percentage changes I’m going to give will be on that basis but again, please note that all figures I mention will be in RMB unless otherwise stated. Total net revenues increased 6.5% to RMB627 million. Breaking this down, rental service revenue increased 6% to RMB556 million from RMB525 million in the same period of last year mainly driven by an increase in leased-out rental unit nights, that’s partially offset by a decrease in average monthly rental after discount for rental prepayment due to COVID-19 pandemic.
Net revenues from value-added services and others increased by 12% to RMB71 million from RMB64 million in the same period of last year, primarily due to an increase of revenues from broadband internet and utility services, which is in line with the increase in leased-out rental unit nights, that’s partially offset by a decrease in revenue from indemnity as a decreased number of tenants and landlords terminate their leases with us before expiration of the lock-in period and we forfeited their deposits or received compensation from them for such termination. Total operating costs and expenses were RMB1,080 million compared with RMB815 million in the same period of last year. That’s primarily due to an increase in impairment losses, operating costs and the G&A expenses, partially offset by a decrease in selling and marketing expenses, pre-operation expenses and the research and development expenses.
In particular, operating costs increased to RMB682 million from RMB632 million for last year, that’s generally in line with our revenue growth. Selling and marketing expenses decreased to RMB41 million from RMB56 million in the same period of last year, primarily due to cost saving efforts. G&A expenses increased to RMB65 million from RMB52 million in the same period of last year, mainly due to increase in expenses related to our IPO and the share-based compensation. Pre-operation expenses decreased to RMB13 million from RMB28 million in the same period of last year primarily due to fewer rental units being developed in the first half of fiscal year 2020 in contrast to the expansion in the same period of fiscal year 2019.
Impairment losses increased to RMB250 million from RMB21 million in the same period of last year. That’s primarily due to provisions were provided for the impact of COVID-19 pandemic on our business. All-in-all, loss from operation increased to RMB453 million from RMB227 million in the same period of last year, mainly due to all the factors I just mentioned. Interest expenses, net increased to RMB62 million from RMB45 f million in the same period of last year, that’s primarily attributable to the increased average balance of capital leases and other financing and bank borrowings compared with the same period of last year.
Fair value change of contingent earn-out liabilities was gain of RMB97 million compared with the loss of RMB30 million in the same period of last year. Loss before income taxes increased to RMB417 million from RMB302 million in the same period of last year. Adjusted EBITDA was negative RMB72 million compared with negative RMB93 million in the same period of last year. As of March 31, 2020, we had cash and cash equivalent of RMB126 million and a restricted cash of RMB9 million. Basic and diluted loss per share were both RMB0.34 compared with a basic and diluted loss per share of RMB0.96 during the same period of fiscal year 2019.
This concludes our prepared remarks. Thank you, all, for joining us.
Operator
Rene, over to you now. Rene, over to you.
Rene Vanguestaine — Investor Relations
Yeah. Thank you, AJ. In closing, on behalf of the Qingke management team, we’d like to thank you for your participation in today’s call. If you require any further information or are keen to visit us in China, please don’t hesitate to let us know. This concludes the call. Good night, all.
Operator
[Operator Closing Remarks]