Boqii Holding Ltd (BQ) 2022 Q4 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by and welcome to Boqii's fourth-quarter and fiscal year 2022 earnings conference call. (Operator Instructions)

As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time.

Now, I will turn the floor over to Mandy Luo, Boqii's IR Manager. Mandy?

Thank you, operator, and good morning, everyone. Welcome to Boqii's fourth-quarter and fiscal year 2022 earnings conference call. Joining us today are Mr. Louis Liang, Chairman and CEO; Ms. Lisa Tang, Co-CEO and CFO; as well as Mr. Kai Fang, our Chief Strategy Officer. (spoken in Chinese)

We released results earlier today. The press release is available on the company's IR website at ir.boqii.com, as well as from Newswire services. A replay of the call will be available on the site later today. (spoken in Chinese)

Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today.

Further information regarding this and other risks and uncertainties are included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statement, except as required under the applicable law. (spoken in Chinese)

Please note that certain financial measures that we use on the call, such as adjusted net loss, adjusted net loss margin, EBITDA, and EBITDA margin are expressed on a non-GAAP basis. Our GAAP results and reconciliations of GAAP to non-GAAP measures can be found in our earnings press release. (spoken in Chinese)

Also, please be reminded that unless otherwise stated, all figures mentioned during the call are in Chinese renminbi. (spoken in Chinese)

With that, let me now turn the call over to our Chairman and CEO, Mr. Louis Liang. (spoken in Chinese)

Over to you, Louis.

Okay. Thank you, Mandy. And many thanks to everyone for joining the call today. Fiscal year 2022 represent another trending year for every one of us, whether you are from the US, China, or other parts of the world.

Before we start, no matter where you are, we appreciate your utmost confidence and support in Boqii. And we are glad that we were able to deliver encouraging results despite the frustrating COVID-19 pandemic. (spoken in Chinese)

Reflecting on our operations, the [severe] supply chain disruption in China has no doubt created difficulties to our daily operations and put close the pressure on our fulfillment.

The regional outcome has also limit spending and affected the performance of the retail market, yet not all were negatives. As the lockdowns have led to more time at home, more time with our beloved pets, and in return, delivering the sales of pet products, ranging from daily necessity to healthcare, cleaning and grooming products. (spoken in Chinese)

As a result, we were able to deliver a growth in GMV and revenue, as well as improve our efficiency and expand our margins.

But more importantly, we pride ourselves on delivering the required pet products to the large community despite lockdowns and supply chain disruptions. That would not be possible if we are without our extensive in-house facilities and proven fulfillment capability. (spoken in Chinese)

Looking back, we aim to be the reliable and trusted platform for pet parents since day one, and I believe we have done so, especially during the pandemic. We firmly believe our value is much more than a simple e-commerce business.

As a leading platform with extensive product range, extensive outreaching channel, engaging in community, and rich content, we have funded an ecosystem that can effectively connect pet parents and industry partners.

As we continue to close in [scope], we believe we are well positioned to capture the listing products and serve needs for our pet parents, as well as the marketing needs of the underserved [SEMES]. (spoken in Chinese)

Financially, we are also moving closer to breakeven. We have the utmost confidence that if we all facilitate our value, recovery, and generated shareholder return, this would also provide us the capital to explore other opportunities and go beyond organic growth, adding further growth impacts to our business. (spoken in Chinese)

However, we'll remain optimistic in our future development. As senior management, we will continue to work with passion, while keeping a keen eye on our operation, as well as potential market opportunities in order to repay your trust and confidence.

Let me pass the time to our Co-CEO, Lisa, to update you on our achievement during the year. (spoken in Chinese)

Thank you, Louis. During the year, Boqii has put great effort to enhance its infrastructure. That includes improving our warehousing efficiency, expanding our online marketing capability, increasing our offline top points, as well as reaching new collaboration with industry partners, our hospital SaaS, and the pet-friendly stays, all in the hope to better serve our pet parents and the branded partners. (spoken in Chinese)

Supported by our expanding SKU selection of [26,624] this year, a year-over-year growth of 33.5%, along with our growing brand equity and the introduction of new membership program. We were able to attract new users and boost retention during the year.

Our active buyer has increased by 30.4% year over year to 5 million, with the number of orders also increased by 52.5% to 9.8 million for the year.

During the steady growth in the user base, our GMV and the product sales also recorded satisfactory improvement, increased by 19.4% and 17.4% respectively. (spoken in Chinese)

Our community engagement strategy also proved to be a success. By offering users a platform to discuss interactions and to make purchases, Boqii has become a go-to place for pet parents, satisfying their product, service, and the social needs, as 80% of pet parents in the PRC are first-generation pet owners. The useful pet care is -- our platform have also made us a good information hub. (spoken in Chinese)

Supported by our comprehensive outreaching channels, including [app], mini program, WeChat account, and the video channel that will give us the key private traffic, as well as third-party traffic from search engine, Tmall, JD, TikTok, and Xiaohongshu, which will give us significant volume. We are able to create vibrant ecosystem that is characterized by high user thickness, low retention costs, and a high sales conversion.

Specifically in fourth quarter, our customer acquisition costs had reached a new low of RMB5.7, which highlights the rising thickness of Boqii brands, as well as the effectiveness of our strategy and the measures for user acquiring, including the revamped membership program. (spoken in Chinese)

This growing thickness also allow us to do more for our industry partners, as our brand-new partners offer net cost-effective marketing solutions due to the unspecified traffic mix of other e-commerce platform. Boqii, with a group of closely tied pet parents, represents a much more effective marketing channel, especially for small to midsize-branded partners, who have limited budgets in marketing by riding on our rich user base, user database, and their action data.

We can also provide marketing intelligence to our branded partners so that we can make swifter business decision in this product mix and the supply chain.

As a result, we were able to deliver a remarkable 5.3 times year-over-year increase in the revenue from online marketing and the information services reaching RMB49.1 million. (spoken in Chinese)

We would also like to bring to your attention, too, that our private labels have made good progress during the year. Its SKU grew by 59.4% to 5,643, and the revenue also grew by 15.8% year over year to RMB42 million in this quarter.

Gross profit margin of our private labels also reported a significant enhancement from 26.9% last Q4 to 33.4% this Q4. (spoken in Chinese)

Financial-related growth in the product sales and the online marketing and information services have brought our revenue to a new high of RMB1.19 billion, up 17.4% year over year as we continue to grow in scale and in GMV, as well as factoring in the high margin nature of our online marketing business.

Our gross profit margin and the post-fulfillment margin also reported a record high of 20.5% and a 9.2% for the year respectively, layering a solid foundation of future turnarounds. We are confident that we will achieve breakeven in the coming quarters. (spoken in Chinese)

And now, I will turn the call over to our CSO, Kai Fang, who will share more details on our financials and the future strategy. Kai? (spoken in Chinese)

Okay. Thank you, Lisa. In the following, I would like to share more on our financial performance for the year. Despite the supply chain disruption and the customer market difficulties brought by COVID-19, we still delivered strong results in the year with a steady growth from four quarters. (spoken in Chinese)

Our full-year revenue grew 17.4% to RMB1.2 billion, with notable increase in revenue from online marketing and the information service.

Gross profit was RMB242.7 million, up 29.6% from the fiscal year 2021. And gross margin driven by the increasing product GPM and the growing contributions from online marketing. And the information service was about 20.5%, up by 200 basis points. (spoken in Chinese)

Our total sales and marketing expenses were RMB171 million, up by 6.7% from RMB160.2 million. Sales and the marketing expenses as a percentage of total revenue was 14.4% down from 15.8% from last year, mainly due to the lower customer acquisition costs enjoyed from the growing revenue contributions of Boqii Mall, as well as the adoption of more cost-efficient channels across our marketing and information [revenue]. (spoken in Chinese)

Fulfillment expenses slightly increased to RMB134 million, as compared to RMB120.2 million in last fiscal year. Fulfillment expenses as a percentage of revenue was 11.3% down from 11.9% in the fiscal year 2021, mainly due to the improved utilization of warehouses and the lower delivery service price through negotiation with third-party service providers. As a result, post-fulfillment margin increased to 9.2%, compared to 6.6% in last year. (spoken in Chinese)

General and administrative expenses were RMB76.2 million, down by 33.1% from RMB114 million in fiscal year 2021. General and the administrative expenses as a percentage of total revenue was 6.4% down from 11.3% in fiscal year 2021.

The decrease was mainly due to lower share-based expenses of RMB11.7 million compared to RMB42.1 million in the last fiscal year, with order about -- that has led to a lowering adjusted net loss for the year of RMB121.2 million versus RMB149.6 million last year. As mentioned by Lisa, we are confident of our breakeven in the coming quarters. (spoken in Chinese)

On our financial position as of March 31, 2022, if excluding the RMB181 million or long-term debt, our effective debt-to-asset ratio stood at 44.8%. As we are in the progress of completing shareholders of ODI, the company is expected to receive the equivalent amount in US dollars from overseas, which will be recorded in equity after repaying the RMB181 million of long-term debt.

And with no major CapEx sourcing under a strong credit line backup, we believe we are cash sufficient to support our operation and to pursue new initiatives, especially with our CAC achieving new low end as we get closer to our breakeven point. (spoken in Chinese)

Operationally, to expand our business scope and provide all-round-year services to our branded partners and pet parents, we actively explored collaboration opportunities during the year. We have established a strategic partnership with Evetsoft, one of the leading pet hospital SaaS companies, covering over 3,500 pet hospitals to provide hospitals with convenient tools such as online medical services, membership management, notification and reminder, and event promotion.

Supported by our strong supply chain capability, we were able to transform the procurement system of hospitals, moving them from less reputable and the possibility of unreliable supplier to our well-regarded and reliable platform.

We believe their collaboration will establish a new standard for professional and personalized pet medical services. And it will provide strong traffic to our product sales business. (spoken in Chinese)

On the other hand, we also made progress in the strategic partnerships with industry partners, including Huazhu, to provide customized pet-friendly vacation experience under their Blossom House brand; fashion brands to offer across our products, as well as commercial property companies such as BFC, the [Mitsugi], and the CRC to co-host pet events. We have also entered cooperation into the entertainment industry by collaborating with Bilibili. (spoken in Chinese)

We also look to do good while doing well. In the last 40 years since our inception, we have been contributing to larger communities through a series of donations and activities that promote pet adoption.

In the recent wave of COVID-19 in the PRC, we were able to reach 447 committees across 12 districts in Shanghai through group purchases supported by our major supply chain.

At the time, when logistics was extremely difficult, we also took on our responsibility as a corporate citizen by donating pet supplies to various caring centers such as [Paw and Temper] and other centers in Shanghai and in Chengdu, satisfying the daily need of thousands of stray dogs and cats. (spoken in Chinese)

Over the year, thanks to our 5 million spending customers, we have achieved these excellent results. In the upcoming quarters, we have the trend to continue long into the future as we further expand our portfolio offerings, strengthen our supply chain, and establish more experienced touch points, we believe the strong growth momentum in active buyers and the post-fulfillment margin will make us standout in the increasingly challenging pet market. (spoken in Chinese)

In the meantime, our business growth, we will also continue our mission of caring pets to our -- best of our ability, whether it is by product sales to our pet parents, marketing service to our branded partners, or community service and the donations to those in need.

We will also stay vigilant to the changing dynamic in our industry in order to best serve our pet owners and industry partners in order to generate a fruitful return to our shareholders. (spoken in Chinese)

Let's now move on to the Q&A section. Operator? (spoken in Chinese)

(Operator Instructions) Darren Aftahi, ROTH Capital Partners.

Hi. Thanks for taking my question and good evening. I'm just kind of curious if you could maybe try and quantify how bad COVID impacted your business during the quarter? And then post-March, how has that changed?

(interpreted) Darren, thank you for your question. Actually, as you all know, Shanghai's pandemic started from early March, and that has really impacted the supply chain and the pet supply chain as well. So it was not like the situation back in 2020, and we did see some influences.

However, during the pandemic, we also developed a new way to connect with our customers. We use [group buy] as mentioned in the earnings call. That has made up for some of the sales drops, but still, we saw some influence from the pandemic.

On the other hand, we are also seeing that the pandemic hurt the offline scenario even harder, and that might have longer influences. But still during this time, we see the online demand is still there.

If we can find a solution to the logistics and the supply chain block, we believe we -- which is also what we are doing right now, we believe we can set up this influence in some time, and that will not hurt our overall sales.

Great. And then a couple more, if I may. You touched on your membership program. I am just kind of curious, could you give any general sense for the level of spend of members versus nonmembers in the quarter?

Hi, Darren. This is Kai. I'm sorry. I was dropped off, I guess, into -- due to some bad signal. Regarding the membership program, yes, we are still seeing the same pattern with the member versus nonmember spending.

In general, the member spending about kind of three times over the nonmembers over the same quarter and in terms of post -- our [P&T], as well as the margin contribution. So -- but we see some -- like kind of a little bit flat in terms of like growth rate, which means that we are kind of still seeing growth rate. But we do not see kind of acceleration of the growth rate in terms of adding the members, mainly due to that -- as we mentioned earlier.

For the membership program, it's not only about online discount. It's more about kind of a many other multi-offline plus online benefit to the members. So on that front, we are still working hard.

But once that one number could definitely play -- reflect how strong like our brand recognitions, like with our members will be -- our CAC costs drove dramatically from the 12-ish to the RMB5.7 per customer. That would be including the nonmembers. So average that out, you will see like how [growing] our membership programs are.

Great. And then two more for me. One, what level of revenue gets you to adjusted EBITDA breakeven? And then I may have asked this on the last call, but just given where your stock is and your cash position, what are your general thoughts about a shareholder buyback plan? Thanks.

Okay. Maybe I'll just -- before we jump on to the detailed financial numbers, I will just kind of touch upon the buyback plan. Yeah, definitely, we are open for the buyback plan, and it's in our wardrobe.

And given the current market condition, and we think -- if I kind of follow you up in terms of the -- to the old ADRs in general. Therefore, we will -- deliberately choosing the best timing; that's the company best for the buyback. So we are not rushing to market, but definitely it's in our wardrobe.

And, Darren, one point to add is that we expect that when our quarterly revenue achieves between RMB350 million and RMB400 million. Meanwhile, our GPM reached 25% and we will achieve breakeven, maybe in the December quarter or the September quarter.

Great. Thank you, Louis.

(Operator Instructions) And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the floor back over to management for any closing remarks.

(spoken in Chinese)

Hi, Darren, and hi, investors. Lisa just made some final remarks regarding the questions from some retail investors. I believe that will be the end of our sharing today. And thank you for your time and attention. We'd like to see you in the next call as well.

Ladies and gentlemen, that will conclude today's presentation. We do thank you for joining. You may now disconnect your lines.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.