Quhuo Limited (QH) Q2 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Quhuo's First Half Year of 2022 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. If you may have any objections, you may disconnect at this time. I would now like to turn the call over to Ms. [indiscernible]. Thank you, and over to you.

Thank you, Operator. Hello, everyone. Welcome to Quhuo's First Half Year of 2022's Earnings Conference Call. The company's results were released earlier today and are available on our IR website. On the call today are Chairman and CEO, Leslie Yu; CFO, Barry Ba. Leslie will review business operations and the company highlights followed by Barry, who will discuss financials and guidance. They will be available to answer your questions in the Q&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 and relate 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 or achievements to differ materially from those in the forward-looking statements. Further information regarding this 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.

Thank you, [indiscernible], and thank you all for joining our first half of 2022 earnings conference call. We are very pleased that in the first half of 2022, Quhuo has continued its strategy of revenue growth first and profit growth later in 2021. While total revenue growth [indiscernible] in the first half of the year, gross profit increased by 89.6% year-on-year. The increase in revenue came from the increased demand for community service products and the expansion of the coverage of service cities and business districts. In terms of gross profit, thanks to the improvement of the company's operating efficiency and the strengthening of the cost control, we further reduced the cost of revenue and achieved an increase in gross profit margin. The gross margin in the first half of 2022 was 5.0% compared to 2.7% in the same period last year. At the same time, general and administrative expenses decreased by 22.8% year-on-year. Our adjusted EBITDA was RMB 10.8 million compared with a loss of RMB 49.4 million in the same period last year, which shows that our profitability has improved significantly. At the same time, we have endeavoring to reduce dependency on individual business lines and major consumers. On the basis of the solid foundation of on-demand delivery solutions, our community service business has paced into a higher growth stage. In terms of segmented revenue, mobility service solution increased by 32.2% year-on-year, and housekeeping and accommodation solutions increased by 24.7% year-on-year. Now I would like to share with you specifically how we have provided continuously high-quality services around the four essential living needs of: Food, clothing, housing, and transportation for the community in the first half of 2022, even under the compact international situation and the domestic epidemic control. In the first half of 2022, the dynamic zero policy prevents people from travelling freely, which led to an increase in the demand for home services. Our business service covers the majority of the areas with strong economic demand in first and second tier cities in China, providing services that meet the basic needs of the community. In addition to the continuous development of our existing business sectors, such as on-demand delivery solutions, mobility service solutions, housekeeping and accommodation solutions, it also includes our pioneering exploration in laundry services. In terms of order procurement service for platforms, such as Meituan, B&B, ELE, et cetera, including on-demand delivery solutions and mobility service solutions, we have built Quhuo's competitiveness through lean management operations and a national-wide infrastructure network. In terms of the operation of our home service platform, including housekeeping and accommodations solutions and laundry in China, we plan to empower more community service providers to expand the revenue and improve efficiencies through the SaaS system and services. Let's take a look at how Quhuo enables small community service providers to expand their income and improve efficiency through the SaaS system and services. In the process of providing community services for a long time, it is found that most participants of community services are very fragmented. And the service capacities are limited, such as the demand and the capacity of community services are fully matched and it is difficult to achieve cross-regional deployment and the needs of consumers. In order to solve the above problems, we have begun testing and implementing a community ecosystem based on 10 years of community service experience, yielding SaaS tools to link community service provider and production capacities since the second half of 2021. Note, we are taking the laundry solution as a business entry into community service. Laundry factories, logistics, distribution and the community store owners are connected by our laundry order SaaS management system, and the community residents are involved in our community service platform through community store owners, for instance. Community shop owners who are operators of grocery stores, create delivery points or gyms could have the ability to meet residents laundry needs through the laundry factories involved in our SaaS system. They can deliver the clothes to the laundry factories through the instant delivery system on the service platform after receiving the laundry needs from consumers. We are cooperating with more than 70 laundry factories, having [indiscernible] and achieving trial operation results in Beijing and beyond. In the future, we jointly promote our community service ecosystem with our own team and franchise partners, relying on over 130 cities and 1,200 business districts across the country, which were covered by the existing cities networks of Quhuo and empower existing community service provider by SaaS service to link and match the needs of millions of families in the community more precisely through the way of taking multiple services in both side to expand income and the capacity sharing to improve efficiencies. We will constantly enrich service scenarios, increase the service output of the community, enlarge the community service network, strengthen the competitive mode of regional services and upgrade the ability to fulfill the essential social demand, focusing on the essential living needs of the community residents. At the same time, I would like to emphasize the social value created by Quhuo in its business development. The real employment situation, in which many companies experiencing a wave of layoffs due to the economic downturn triggered by pandemic. Based on this situation, stabilizing employment has become one of the priorities of the government and the new forms of employment represented by the gig economy has caused widespread attention. As a leading gig economy platform in the community service field, our business and the platform provide a large number of blue-collar workers with employment and entrepreneur opportunities. For employment, the Quhuo platform links enterprise and individual workers precisely connects suitable jobs and the needs and promote efficient production capacity matching. At the same time, Quhuo provides diversified services to assist capacity providers to adapt the 2 new scenarios more quickly and planned clear development reasonably, including safe and security and vocational training. Furthermore, Quhuo provides an entrepreneur platform for some workers who have a higher pursuit of career prospectors, where they can obtain support. Quhuo has helped nearly 500,000 workers to find jobs, of which 22.06% have a college degree or above. We will sustainably produced the social value of promoting employment, stabilizing income and helping entrepreneurship in future development. Finally, I would like to conclude that the essential leading service demand for the community is a long-term constant demand. And for this reason, the catering, clothing, travel and accommodation industries are enduring. The attempt in the past 3 years has limited more and more consumers to rely on order online and deliver offline services, further increasing the penetration rate and reuse rate of the internet. As an Internet technology company, Quhuo continuously improve satisfaction rate of community services through technology and offline empowerment. The 10 years experience throughout the operational platform services has accumulated our permanent solution in the community service market and the community ecological service ecosystem of SaaS service will further enhance the bargaining power and the profitability of Quhuo. Therefore, we are confident that the future development of Quhuo will have long-term and sustainable social and commercial value. This concludes my prepared statements. I will now turn the call over to our CFO, Barry Ba, who will discuss our financial results for the first half of 2022.

Thanks, Leslie. Hello everyone, thanks joining us in Quhuo's First Year of 2022 Conference Call. Please be reminded that all amounts coded here will be in RMB that are stated otherwise. Total revenue of Quhuo were RMB 1,863 million in the first year of 2022, which remained relatively stable compared with RMB 1,838 million in the first year of 2021. Let's further breakdown. Revenue from on-demand delivery solution for RMB 1,753.8 million, representing a slight increase from RMB 1,757 million in the first year of 2021. Revenue from mobility service solutions, consisting of share-bike maintenance, ride hailing, and freight service solutions for RMB 56.5 million, representing an increase of 32.2% from RMB 42.7 million in the first 3 years of 2021, primarily due to our first -- our enlarged customer base and the service scope for shared-bike maintenance solutions, and also the commencement of freight solution in July of 2021. Revenue from housekeeping and accommodation solutions were RMB 43.4 million, representing an increase of 24.7% from RMB 34.8 million in the first year of 2021, primarily due to our enlarged customer base for housekeeping and accommodation solutions, which include hotels, B&Bs, as part of the network synergies we have achieved following the business expansion of our housekeeping and accommodation solutions. On the whole, what we have achieved is basically consistent with our strategic direction. The cost of revenue were RMB 1,769 million, representing a decrease of RMB 18.9 million year-over-year, primarily attributed to the increase of our operation efficiency. As a result, gross profit improved significantly, reaching RMB 93.9 million in the first half year of 2022, which has increased by 89.6% year-over-year corresponding to a gross margin of 5% compared with 2.7% in the same period last year. General and administrative expense were RMB 99.5 million, representing a decrease of 22.8% from RMB 122.9 million in the first year of 2021. The decrease of -- the decrease was primarily due to the decrease in the share-based compensation expense from RMB 50.3 million in the first year of 2021, down to RMB 12.5 million in the first year of 2022. R&D expense was RMB 7.2 million, representing a decrease of 22% from RMB 9.2 million in the first year of 2021, primarily due to the decrease in average compensation for research and development personnel after restructuring our R&D team. Net loss attributed to Quhuo Limited was RMB 25 million as compared to RMB 111 million in the first year of 2021, which is a big increase -- a big decrease in the loss shows our consistent of -- consistent improvement in our profitability. Adjusted net loss was RMB 14.1 million as compared to adjusted net loss of RMB 69.3 million in the first year of 2021. Adjusted EBITDA was RMB 10.8 million as compared to adjusted EBITDA loss of RMB 49.4 million in the first year of 2021. In terms of the balance sheet, as June 30, 2022, the company has cash and short-term investment of RMB 148 million and short-term debt of RMB 107 million. This concludes my prepared remarks. Thank you for your attention. We are now ready to take your questions. Operator, please go ahead.

[Operator Instructions] The first question comes from Darren from Aftahi.

Just a quick question. Since -- I'm wondering if you can maybe give a state right now of just the Chinese economy and since there's chatter about loosening restrictions on the COVID policy, how your business has maybe been impacted in the September quarter and then maybe even to October and November and maybe if trends have improved at all in the growth of your business, and specifically, on the on-demand delivery side and any other segments you kind of would indulge in?

Yes, actually, that COVID-19 has been last several years in China. But lately, we are focusing on the community services and -- so we are providing a service for the 4 essential people needs. We call it food, clothing, housing and accommodation. So actually, that if we look at the first half of 2022, the total revenue of on-demand delivery solution still is facing slow growth and for our mobility service solution and housekeeping and accommodation also achieved a very satisfying growth. So actually, that this situation will still last for our quarter 4. So we believe that in quarter 4, we will achieve better results not only in the revenue, but also in the gross profit. Yes. In addition, because the dynamic zero policy will still prevent people to going out. And currently, that most people have to rely on order online and delivery offline services, so which also increased the reuse rate of Internet and which also help us to further grow our business regions and increase our income.

Great. And just maybe one follow-up. Is it challenging to find workers to fulfill your fulfilment network, just given the zero COVID policy. Are you able to procure the proper assets?

Excuse me, I beg your pardon, Darren?

Hello, Darren, we lost a few words, we didn't catch that quite clearly. Can you say it again, please?

Sure. Not a problem. My question was just around if it's -- given the lockdown policy and people ordering online and whatnot, is it challenging to fulfill the riders and drivers for your fulfillment network kind of given the macro backdrop?

Yes I got it. Yes. Sorry about that -- for misunderstanding. Actually, because people being locked out, which are also including that workforce being locked out. So actually, the people are not travel freely and which is actually stabilized that our workforce. Of course, at the same time, we provide all kinds of support to help this workforce to settle down and help them to focus on the work to provide the services. So maybe it's not probably speaking, but actually that -- we call this the flow rate of the workforce is lowing down. And currently, that we are facing less challenging in the recruiting and the deployment.

[Operator Instructions] The next question comes from [Karina Wang from Tiger Brokers].

My question is, how will the company strategy there actually improve or change in the future?

Yes. Thanks for the question. And actually, that we can see a little bit of some change in even subscribed and adjust share with the audience. And yes, there will be some changes in our strategic directions. We will maintain the continuous development of other fulfillment services for platforms, such as Meituan, Didi and to further optimize the efficiency and improve the profit. At the same time, we will jointly promote our community service ecosystem. And together with our own teams and franchise partners in over 130 cities and 1,200 business districts, which is already covered by our existing service network. So we will empower existing community service providers by our SaaS plus service to link and match the needs of millions of families in the community. And what we -- the way we are doing is that we will stack multiple services in one side, so that they can expand their income. And also, we will let the capacity sharing of the platform, so they can improve efficiencies. So if we call that the difference between the strategic direction, I would say that previously, in the last 10 years, we may learning the business mainly on our own team, but now that we will organize the social resources and all the service providers together to do the business and to grow up together.

[Operator Instructions] Ladies and gentlemen, as there are no further questions. I would now like to turn the call over to Mr. [indiscernible] Wang for closing comments. Over to you, Ms. [indiscernible] for closing.

Okay. So if there are no other questions, we can finish our today's conference call.

Yes. Thanks for joining our conference call. Thank you.

Thank you.

Thank you very much. Ladies and gentlemen, with this, we conclude today's earnings call. Thank you all for joining us, and you may now disconnect your lines.