Quhuo Q3 2021 Earnings Call Transcript

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November 29, 2021

There are 6 speakers on the call.

Operator

Good day, and ladies and gentlemen, welcome to Chuhua's Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After the management's prepared remarks, there will be a Q and A session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time.

Operator

I would now like to turn the conference over to your host for today's conference call, Mr. Eric Yuan. Please go ahead.

Speaker 1

Okay. Thank you, operator. Hello, everyone. Welcome to Quho's Q3 2021 earnings conference call. The company's results were released earlier today and available on our website.

Speaker 1

On the call today are Leslie Yu, Chairman and CEO Co Founder, Barry Ba and CFO, Andrew Ji. Leslie will review business operations and the company highlights, followed by Sandro, who will discuss financials and guidance. They will be available to answer your questions in the Q and A session that follows. Before we begin, I would like to remind you that this call may contain forward looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions related to the 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 and achievements to differ materially from those in the forward looking statements.

Speaker 1

Further information regarding these and other risks, uncertainties and factors is included in the company's filings with the US 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 law. With that, I will now turn the call over to our Chairman and CEO, Mr. Leslie Yu. Please go ahead, sir.

Speaker 2

Thank you, Eric, and thank you all for joining our Q3 2021 earnings call. We are pleased to report another strong quarter. For Qiguo, the total revenues grew by 44% year over year, reaching RMB1.1 billion, in line with our prior guidance. All of our 3 main business lines on demand for delivery, mobility and housekeeping solutions all enjoyed a continued strong demand with our top line growth outpacing set of the industry. Now let me walk you through our key business performance in Q3.

Speaker 2

First, let's look at our biggest revenue contributor, the on demand delivery business. Its revenue reached RMB1.05 billion, up 38% year over year, exceeding the RMB1 1,000,000,000 mark for the first time. For Q3, the aggregate number of delivery orders were 159,000,000, up 59 year over year. This growth rate was clearly faster than the industry average, showing our ability to quickly gain market share. This impressive results in our on demand food delivery business were enabled by our strategy to aggressively penetrate into new cities and expand our service network.

Speaker 2

By Q3, we provided our on demand delivery services in 1231 business circles across 87 cities nationwide, compared with 1067 business circles across 70 cities in the same period in 2020. In addition, we expand our coverage of serving Qing Merchants directly, including supermarkets and the Qing Restaurants. This so called new retail business gained a strong momentum in Q3. We believe that the COVID-nineteen containment measures across China served as a positive catalyst for our clients in metro areas to adopt new ways to purchase living necessities. They place orders online and get instant delivery offline.

Speaker 2

This positions Qiguo very well in capturing new business opportunities in this burgeoning segment, as evidenced by our community and the grocery delivery, enjoying explosive growth in Q3 with revenue up 2 62% year over year. Furthermore, our expanded network is enabling Qiguo to sustain our leading position on business scale and service quality, while also improve our operational efficiencies and cost structure. Moving to our housekeeping solutions business, Q3 revenues increased 5 38 percent year over year to RMB21 1,000,000 with a GMV of RMB462 1,000,000. We are pleased to announce that our housekeeping solutions has become our 2nd largest business line. For our Mobility business, this strategic segment continued its strong growth in Q3 with revenues reaching RMB34.6 million, up 3 64%, 65% year over year and 35% quarter over quarter.

Speaker 2

Besides share buy growth rate failing starting July this year, we launched our freight service for industry customers by fulfilling end to end intercity and long distance transportation orders. We believe this is a very promising business with huge market potential. All above reflected our growing brand awareness and the resulting in market share gains in this lucrative category. Let me now provide another update on our exciting multi scenario deployment. While we see enable these workers to have multiple jobs, on our platform to optimize their overall income.

Speaker 2

In Q3, the cumulative number of workers who engaged in 2 or more types of jobs on our platform reached about 22,700, increasing 28% quarter over quarter. Female workers accounted for 16% of the total group, increasing from 10% in the previous quarter. For riders with an average monthly income of at least RMB5000, they represented more than 54,000 workers accounting for 51% of total group, flat with the previous quarter. In Q3, we would like also to highlight the importance of our aggressive investment in Xuhua's technology platform, reflected by the doubling of our R and D, research and development expenses from a year ago. We believe these expenditures will enhance our competitiveness by improving operational efficiency and service quality while expanding our services to more sectors.

Speaker 2

A clear illustration of our progress on the technology front is the rollout this quarter of our new led fixed platform, including a new family oriented housekeeping services. Our goal is to extend our world class housekeeping service capabilities from hotels and restaurants to directly to home and communities. The market size of which is expanded to reach the trading R and D level. The LED fixed platform integrates intelligent inspection, robots and sensors to monitor water and electricity consumption, which can effectively reduce labor cost for property management and improve efficiency and service quality. With adoption of this smart system by more property management companies, we will set up service stations near communities and fully utilize resources of workers at hotels and property management companies within 5 kilometers of service stations.

Speaker 2

Meanwhile, through cooperation with more property management companies, we can also mobilize our existing housekeeping workforce and our infrastructures to engage in the community housekeeping services, creating a win win solutions for our parties. Finally, let me talk about our continued efforts in driving profitability in Q3. In spite of operating constraints from the strength COVID-nineteen content measures and with heightened competition, we were still able to achieve RMB19 1,000,000 net income result in Q3, compared with a net loss of RMB10 1,000,000 in the same period last year. Adjusted net income for Q3 was RMB28 1,000,000. The results reflected our commitment to sustainable profitability as we continued to advance our lucrative business model.

Speaker 2

This concludes my prepared remarks. I will now turn the call over to our CFO, Sandra Han, who will discuss our financial results for the Q3. Thank you.

Speaker 3

Thanks, Leslie. Hello, everyone. Welcome to Quho's Q3 2021. Please be reminded that all amounts quoted here will be in renminbi unless stated otherwise. For this quarter, our total revenues were RMB1155.5 million, representing increase of 43.7 percent year over year, primarily due to the rapid growth of our major business lines.

Speaker 3

Revenues from on demand delivery solutions were RMB1047 1,000,000, representing an increase of 0.38 percent from 758,800,000 in Q3 of 2020, primarily due to the increase in the number of delivery orders we fulfilled as a result of the industry growth as our continued penetration and expansion into new geographic markets. Revenues from mobility service solutions consisting of share back maintenance, ride heating and the freight service solutions were RMB34.6 million, representing an increase of 364.5 percent from RMB7.4 million in Q3 of 2020, primarily due to our enlarged customer base and the service scope for share buyback maintenance solutions and the commencement of freight service solutions in July 2021. Revenues from housekeeping and accommodation solutions were RMB21.9 million, representing a significant increase of 5 38 percent from RMB3.4 million in the Q3 of 2020, primarily because we enlarged our customer base for housekeeping and accommodation solutions to include hotels and the BSPs following our acquisition of Laila and Tencentu Home. Our cost of revenues were RMB1055.1 million, representing increase of 53.2% year over year, primarily due to our business expansion, which resulted in increased costs proportionate to our revenue growth and the incremental hiring expenses and equipment costs to expand the workforce on our platform and to secure additional resources in preparation for the anticipated increased demand of our solutions and our continuous business expansion plan in the Q4.

Speaker 3

General and administrative expenses were RMB56,200,000 representing a decrease of RMB45.6 million from RMB103.2 million in Q3 of last year. The decrease was primarily due to the decrease in share based compensation expenses from RMB72 1,000,000 in the Q3 of last year to RMB9.1 million in Q3 of this year, primarily because we incurred substantial share based compensation expenses in the Q3 of 2020 as we satisfied the performance conditions of our share incentive awards upon completion of our initial public offering then. Excluding share based compensation expenses, general and administrative expenses increased by 51% year over year, primarily due to the increase in staff costs in line with the rapid growth of our house keeping solutions and professional service fees and expenditures in connection with our business expansion plan. Our research and development expenses were RMB 6,300,000, representing an increase of CNY 180,900,000 from CNY 3,000,000 in Q3 of 2020, primarily due to the incurrence of our sourcing expenses to develop a new subsystem for our housekeeping solutions and the increase in staff costs as we enlarge our research and development team. The operating loss was RMB 19,300,000 compared to operating loss of RMB 24,000,000 in Q3 of last year.

Speaker 3

Excluding share based compensation expenses, the adjusted operating loss was RMB 10,200,000 compared to adjusted operating profit of RMB 48,000,000 in Q3 of 2020. We recorded other income net of RMB 39,200,000 compared to other income net of RMB 32,100,000 in Q3 of 2020, primarily due to the increase in fair value change of investments in mutual funds. We also recorded income tax benefits of CNY 800,000 compared to income tax expenses of CNY 15,800,000 in the Q3 of 2020, primarily due to the lower estimated annual effective tax rate for the Q3 of 2021. Net adjusted EBITDA was $35,100,000 compared to adjusted EBIT of $85,100,000 in Q3 of 2020. The adjusted net income was $28,200,000 compared to adjusted net income of $61,300,000 in Q3 of 2020.

Speaker 3

For the balance sheet, as of September 30, 2021, we had cash, short term investments and restricted cash of RMB 257,100,000, short term debt of RMB 140,600,000. Now move to our financial outlook for the next quarter. For the Q1 of 2021, we expect the total revenues to be in the range of RMB10.50 million to RMB11.50 million, representing an increase of 20.6% to 32% year over year. The forecast reflects our current and preliminary views on the market and its operational conditions, which is subject to change. I think this concludes our prepared remarks.

Speaker 3

Thank you for your attention. We are now happy to take your questions. Operator, please go ahead.

Operator

Thank you. We will now begin the question and answer session. Your first question comes from Dylan Hesselman from ROTH Capital Partners. Please ask your question.

Speaker 4

Hi, good morning, good afternoon. Hope everyone's doing well. Thanks for taking my questions. First, I know some of the other gig economy companies in China talked about some weakness in consumer demand from both the COVID variant of Delta and then some flooding and other macro impacts. Did you guys see anything similar in 3Q?

Speaker 4

And if so, have any of those trends normalized for 4Q?

Speaker 2

Hi, this is Leslie. And even though the COVID-nineteen continued the measurement across the overall China, we can see we capture the business opportunity and we have very strong growth. So compared with our according to our growth, we consider that the market for on demand delivery and for housekeeping and for mobility is still very strong. And we expect that the Q4 as indicated by Zhenhua Yin's financial outlook, we're still expanding that will be huge demand and we will maintain this growth. Although there will be like a swing factor followed up by Q4, So we mainly focused on the profitability driven in Q4.

Speaker 2

But we expected that the demand for the service and for the revenue growth is still strong. Thank you.

Speaker 4

Thanks. And secondly, your gross margins were a little bit under pressure again in 3Q, down a bit more from 2Q versus what they were last year. How much of that is one time in nature from some of the platform expenses you incurred to grow in terms of like technology and hardware? And then what's sort of like a steady state forward gross margin outlook for 4Q and beyond?

Speaker 5

I would like to explain the reason why the gross profit is a little bit down in Q3. That is because we have recruited a lot of stuff preparing for this Q4, because we are already expecting very strong growth compared with last year. Overall, it's about 80% growth compared with last year. So for this coming winter, we need to prepare people in advance because in this year, particularly in the market, the labor is more the supply of the labors compared with last few years is relatively limited. So we have to get more people on board with us prepared for the Q4.

Speaker 5

And also because we are facing some extreme weather according to the forecast for this winter, so we're prepared for our winter equipment a little bit early and it's a full impairment in Q3. That's a reason why we a little bit of cost has been increased in our operational cost, but it's one off investment in the winter equipment and also in labor recruitment cost.

Speaker 3

And I can give you a rough picture of the 4th quarter gross profit margin. We expect the margin will be better than this quarter. Thank you.

Speaker 4

Got it. Thank you. That's helpful.

Speaker 3

One more if I may. Can you

Speaker 4

sort of talk a little bit more about the multi city deployment? What's your go to market strategy there? Like how do you select which cities I'm sorry, not multi city, multi service, which cities get the multi service and how do you onboard some of your workers onto that platform?

Speaker 2

For multiple jobs alternative and also we consider the smart scenario deployment. Actually that we this is a national wide strategy. And we basically will provide for our workers for multi job opportunities. But for these workers possibly and they have not have this kind of skill or capability. So we have online training system and together equipped with inside coaching.

Speaker 2

So with these 2 systems, we'll help them to adapt them to the new job opportunities and help them to get the income, more income. Besides of that, we have called this screen system. Yes, we have screen system on Quhua Plus. This screen system will help to record and this personnel and the qualification and their skill set and their work record in the system. And we use a kind of like the algorithms to help us to identify and match the people to the right jobs.

Speaker 2

And when these people are in the system being matched and we will encourage them and provide them with the training program and now some kind of encouragement and they will be better easier and also be encouraged to work in the new job opportunities. That's how we can keep more workforce in our platform to have more job opportunities and increasing about 20% quarter over quarter. Yes. Thank you.

Speaker 4

Great. Thank you. That's it for me.

Operator

There are no further questions at this time. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.

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