Quhuo Ltd (QH) 2021 Q2 法說會逐字稿

Good day, ladies and gentlemen. Welcome to Quhuo's Second Quarter 2021 Earnings Conference Call. (Operator Instructions) Today's conference call is being recorded. (Operator Instructions) I would now like to turn the conference over to your host for today's conference call, Mr. Eric Yuan. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to the Quhuo's Second Quarter 2021 Earnings Conference Call. The company's results were released earlier today and are available on our IR website. On the call today are Leslie Yu, Chairman and CEO; Co-Founder, Barry Ba; and CFO Sandra Ji. Leslie will review business operations and company highlights, followed by Sandra, who will discuss financials and guidance. So they will be available to answer your questions during the Q&A session that follows.

So before we begin, I would like to remind you that this call will 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 and 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.

Further information regarding these and other risks, uncertainties and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements 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.

Thank you, Eric, and thank you for joining our second quarter 2021 earnings conference call. We are pleased to report another strong quarter as our total revenue grew by 81% year-over-year and almost reached a milestone of RMB 1 billion, thanks to strong demand for our services and our large network of workforce across the country. All 3 of our main business lines, on-demand delivery, mobility services and housekeeping solutions cover the needs of people's daily necessities and saw robust growth momentum in the second quarter.

In addition, our gross profit margin quickly rebounded from the prior quarter, as labor costs normalized to standard level. As a result, we achieved adjusted net income of RMB 10 million, a significant improvement from the first quarter. These results reflect the economy of scale of our business model and the strong execution of our multi-scenario deployment strategy. Now let me walk you through our key business performance in Q2. First, let's look at our biggest revenue contributor, the on-demand delivery business. As the COVID-19 pandemic remained largely under control in Q2 nationwide, albeit with some small-scale resurgence in a few regions, people's lives were generally returning to normal. Taking advantage of the solid demand for on-demand delivery sources, our revenues maintained healthy growth and reached RMB 942 million in Q2, up 74% year-over-year.

The trend we see in the current market is that premium delivery providers like Quhuo are taking market share from cloud-sourced providers. This has given us a window of opportunity to aggressively expand our presence in existing markets and penetrate new ones. In the second quarter of 2021, we provided services in 1,205 business circles across 139 cities nationwide, compared with 950 (sic) [952] business scales across 75 cities in the same period in 2020. For Q2, the overall number of average monthly delivery orders were 45 million, up 85% year-over-year. On the cost side, if you recall from our last earnings call, we observed that labor shortage were mitigated after more migrant workers returned to cities after the Chinese New Year holiday and has helped to strike a balance in demand and supply levels. Our gross margin significantly improved in Q2 on a sequential basis.

Next, I would like to give you an update on our housekeeping solutions. In Q2, revenue sustained its rapid growth momentum, increasing 67% sequentially to RMB 22 million. We continued to expand our service capability to meet the growing demand. In June, the number of housekeeping orders from hotels increased by 120% from a quarter ago and the number of rooms of B&Bs that were served by us increased by 250% from a quarter ago.

In addition to traditional housekeeping services, we began to provide more value-added services to strengthen our relationship with B&B operator clients. We launched our proprietary housekeeping SaaS solution, Quchengdan Property Management System or PMS to connect homestay operators with multi-marketing channels and room rental platforms.

As a central hub, PMS gives both B&B operators and housekeeping managers an easier way to check orders and listings in addition to very user-friendly data visualization tours and real-time information.

Powered with (inaudible) new service orders from the system, PMS managers can send workers to serve our clients immediately. Our mobility business, which includes shared-bike and ride hailing solutions also delivered solid performance -- Revenues increased by 337% year-over-year and 50% quarter-over-quarter to RMB 26 million. In the second quarter, the number of orders for our mobility business grew approximately 60% from prior quarter.

Now I want to give you some updates about the progress of our multi-scenario deployment initiative. We aim to offer the workers on our platform better flexibility in terms of job selection by matching skill sets better and increasing their income with more job opportunities. At the same time, offering multi-scenario services can enable us to achieve optimal use of resources and improve efficiency and (inaudible) costs.

According to our statistics as of Q2 2021, the cumulative number of workers engaged in 2 or more job types on our platform reached 17,700, an additional 2,000 compared with the prior quarter. In the meantime, we continued to strengthen our mandatory occupational and safety training for riders, which has also led to increase the income for our premium riders. In Q2 2021, riders with an average monthly income of at least RMB 5,000 accounted for 54% of the total group compared with 45% a quarter ago.

We are also constantly exploring new business models and potential revenue streams. In July, Quhuo reached a strategic cooperation agreement with Gemeite Technology, a leading smart community IoT cloud platform. We have been working together to launch (inaudible) that target services catering to the direct (inaudible) housekeeping market.

To deepen the cooperation with property management companies, workers on (inaudible) platform can directly provide various housekeeping services for millions of households, thereby, expanding our service capabilities to individual families instead of only servicing enterprise clients. These strategic developments are in line with our multi-scenario deployment strategy. At present, this cooperation has been launching in Tianjin, Changsha and Changcheng.

In conclusion, we are strongly motivated by the tremendous growth opportunities ahead of us, as we rapidly scale our platform to meet growing demand in various service areas. We remain fully committed to delivering long-term value and profitable growth for our shareholders. This concludes my prepared remarks. I will now turn the call over to our CFO Sandra, who will discuss our financial results for the second quarter.

Thanks, Leslie. Hello, everyone. Welcome to Quhuo's Second Quarter 2021 Call. Please be reminded that all amounts quoted here will be in RMB unless stated otherwise.

Our total revenues were CNY 991.8 million, representing an increase of 81.1% year-over-year, primarily due to rapid growth of our major business lines. Revenues from on-demand delivery solutions were CNY 942.2 million, representing an increase of 74.1% from CNY 541.3 million in the second quarter of 2020, primarily due to the increase in delivery orders fulfilled as a result of the industry growth in the aftermath of COVID-19 and our continued penetration and expansion into new geographic markets.

Revenues from mobility service solutions consisting of shared-bike maintenance and ride hailing solutions were CNY 25.7 million, representing an increase of 336.9% from CNY 5.9 million in the second quarter of 2020, primarily due to our enlarged customer base and the service scope in shared-bike maintenance solutions and the increase in the numbers of ride-hailing drivers on our platform.

Revenues from housekeeping and accommodation solutions were CNY 21.8 million, representing a significant increase from CNY 0.4 million in the second quarter of 2020. This was primarily due to our enlarged customer base for provision of housekeeping and accommodation solutions including hotels and B&Bs as part of the network synergy we achieved following the acquisition of Lailai and Chengtu Home.

The cost of revenues was by CNY 920 million, representing an increase of 88.8% year-over-year, primarily attributable to increased labor costs in line with our continuing business expansion. The general and administrative expenses were CNY 84.7 million representing an increase of 187.2% from CNY 29.5 million in second quarter of 2020. The increase was primarily due to the increase in: one, share-based compensation from CNY 1.3 million in the second quarter of 2020 to CNY 44.4 million in the second quarter of 2021; and two, professional service expenses.

If -- excluding share-based compensation, the general and administrative expenses increased by 42.9% year-over-year. And as a percentage of revenues declined to 4.1% from 5.1% in the second quarter of 2020. As such, we maintained unit cost savings along with business growth. Research and development expenses were CNY 4.5 million, representing an increase of 63.6% from CNY 2.7 million in the second quarter of 2020, primarily due to the increase in compensation for research and development personnel.

The operating loss was CNY 14.7 million compared to operating profit of CNY 29.6 million in the second quarter of 2020. Excluding share-based compensation, the adjusted operating profit was CNY 29.7 million, relatively stable as compared to CNY 30.9 million in the second quarter of last year.

We also recorded other loss net of CNY 7 million, which compared to other income net of CNY 3.6 million in the second quarter of last year, primarily due to the decrease in fair value change of investment in a mutual fund.

The income tax expense was CNY 11.2 million, which remained relatively stable as compared to CNY 11.5 million in the second quarter of 2020. The adjusted EBITDA was CNY 29.1 million, representing a significant improvement from adjusted EBITDA loss of CNY 78.5 million in the first quarter of 2021. The adjusted net income was CNY 9.9 million, also representing a significant improvement from adjusted net loss of CNY 79.3 million in the first quarter of 2021. And we will endeavor to improve our profitability further going forward.

Now on our guidance. For the third quarter of 2021, we expect total revenues to be in the range of CNY 1.1 billion to CNY 1.2 billion, representing an increase of 43% to 56% year-over-year. The forecast reflects our current and preliminary views on market and its operational conditions, which is subject to change.

This concludes our prepared remarks. Thank you for your attention. We are now happy to take your questions. Operator, please go ahead.

(Operator Instructions) We have the first question from the line of Darren Aftahi from ROTH Capital.

First on sort of a multi-scenario deployment. Pretty good numbers there (inaudible) increasing like 2,000 workers quarter-over-quarter. Could you talk a little bit about, one, how many cities that's in now? I think on the last call, you said it was 48. And then where do they stand in terms of which services they're doing? I mean I'd have to guess the main one is still food delivery, but is there any second one where the majority of that multi-scenario is being deployed?

Yes. Thanks for the question, Darren, this is Leslie. And usually that we have 2 types of multi-scenario deployment and which is mainly (inaudible) we call it peak and low time for live consumer scenarios. For example, our rider for the delivery usually (inaudible) in the lunch time and evening time. And in the morning and afternoon time, normally, they can be sent to do the work for the shared-bike maintenance or also the shared-motor maintenance work. And on the other side, for housekeeping and solution and usually the workers are females and they can work for the hotel for the room cleaning in the noon time and in the evening time, and they can work for like the KFC or other restaurants for the restaurant cleaning.

So normally that is the 2 major types of multi-scenario deployment. And now we also have been working with Gemeite Technology, and we've started to build the services for the family units. That's what majorly happened for our multi-scenario in Quhuo's platform. Thank you.

Got it. And then also on the food delivery side, what was average order value in the quarter?

Sorry, we can't hear you clearly. Can you repeat it?

Sure. Average order value or average revenue per order, I guess, is the way that you've defined in the past on the food delivery side. I think in Q1, it was roughly $7 -- RMB 7.50 -- RMB 7.5.

Yes, for -- the average value of order is RMB 7.

Got it. And then I saw a good lift in gross profit margin this quarter compared to Q1. How confident are you that you can continue to grow that 7.2 figure back to sort of, I guess, where you were this time last year in the 10% to 11% range?

As we mentioned before, the first quarter of this year was a special quarter due to the stable policy in China due to the spring festival. On this quarter, as far as we are concerned, we can see that the gross margin is back into normal track. For the next 1 or 2 quarters, I'm afraid I can't give accurate or specific guidance for the gross margin, but it won't be much different from this quarter. But it may not be that much compared to the same period of last year, especially the third quarter last year.

Got it. And last one for me. On the housekeeping side, have you looked into adding any more partners that can help you really ramp up your scale, both geographically, but just in different penetrations in the cities you're already in?

Yes. And actually, currently for housekeeping side and we doing in 2 ways. And one way is that we work with the existing housekeeping and we use our system and use our management team and use our large network of facilities to help them to get the work and get the business and also help them to manage the services.

On the other side, we together work with property companies. For example, we work with some several property management companies to -- together to deliver the service directly to home housekeeing. And for this property management company is already managed by large suburban area and there are a lot of the households they can reach but their demands we cannot meet.

So during this kind of cooperation, we can provide our services to their existing householders in the suburban areas. So that's the 2 major ways for currently how we expand our business in a faster way. We're using (inaudible) cooperation with existing property management companies and also we together work with the existing hotel service providers.

And on the other side, for B&B side, we use our PMA -- PMS system to connect to the property owners and help them to better get the orders from different platforms and provide services to them. So in concluding, our expansion (inaudible) we connect the different resources and based on our core competency in management and in the technology development.

(Operator Instructions) We have the next question from the line of (inaudible) from Exclusive Capital.

Even though your mobility service solutions, housekeeping and accommodation, they are growing very, very fast, they're still very tiny or very, very small, I would say, part of your overall revenue mix. My question is, can you give us some color if these 2 segments will continue to grow as you have seen over the past year or so? I mean, insofar as housekeeping was partially answered by the previous caller. But -- insofar as the overall growth picture, do you see these 2 segments growing in the same way over the next year or so?

I think from our side on these 2 segments of our housekeeping and mobility, we are growing very fast as we can see in the past few quarters. And we can expect that even faster growing [speed] in the next quarter. And comparing with the -- if we're considering the market for housekeeping and mobility currently in China, actually that they are more like we call this existing business volume. So when we approach the whole market, we use corporate and we use merge and then we -- that's the faster way for us to consolidate these resources in the short term and then we can empower with our technology, core competence and our management competence.

So we expect these 2 sectors will have a much faster growing pace. The reason why we can -- the reason we're observing they're small because at the same time for our major business like food delivery is still keep a faster-growing speed. So that's why if we put them together, we cannot say that maybe they are so small. But for the growing speed and we expect that they can contribute, especially for this year and will have a certain significant percentage of our total revenue, yes. Thank you.

Just a small follow-up. Do you have an estimated TAM, total addressable market, of these 2 segments in the markets you serve? Is there some sort of estimate you guys have come up with? I mean not in all of China, just where you do business? I mean it's -- if you have, it's...

Especially for housekeeping market, I think it is very large. And we call it -- in Chinese, we call it (foreign language). Sorry (foreign language).

Because this sector is not just for enterprise service needs but is largely demanded by household family units. Currently this market is very fragmented, and especially for household, they prefer standard service from -- standard service for their housekeeping.

But unfortunately, currently in this market normally is individual and they provide service for this household. And there are service standard and varied from different people. So we consider this is the large market and not requested by enterprise clients and also is very needed by household.

And they want the standard service, and they don't want to replace their housekeeping service people very frequently because it will cost much for them. And for mobility services, actually, that is included not only for like we call it with ride hailing and also include shared-bike and include shared-motor. And growth for this sector -- for these 3 sectors and they are growing very fast in China, especially, we can see that for the ride hailing side and for the shared-bike side. And maybe this side is a little bit smaller than the housekeeping side, but we still consider that it is [big] market, yes.

(Operator Instructions) Ladies and gentlemen, as there are no further questions, that concludes today's conference call. Thank you for participating. You may all disconnect.