Quhuo Limited (QH) Earnings Call Transcript & Summary

Good day, and welcome to Quhuo Limited '23 H2 and Full Year Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Qishu Wang. Please go ahead.

Hello, everyone. Welcome to Quhuo's Second Half and Full Year of 2023's 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; 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 provision of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operation conditions and relating to the events that involve known or unknown risks 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 effects 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, Qishu. And thank you all for joining our Second Half and Full Year 2023 Earnings Conference Call. In 2023, Quhuo achieved a total revenue of RMB 3.7 billion with a gross profit of RMB 166.6 million. The adjusted net income reached RMB 5.5 million, representing a remarkable growth of 64.7% compared to the full year of 2022. The company achieved positive results in various key financial indicators, such as net income and income share of ordinary shares, marking a historical achievement. Thanks to the strategy of the improved profitability of the increase in revenues implemented by the company starting in 2021. We have achieved outstanding performance with positive EBITDA in 4 consecutive financial reporting periods. Additionally, in 2023, we successfully identified the dual engines driving the second growth curve of our company's business, namely the -- vehicle export solutions and SaaS Plus services, leading to a significant improvement in the company's profitability. In terms of vehicle export solutions in the full year 2023, we successfully exported approximately 1,900 units of vehicles from China to countries and regions like Jordan, generating a revenue of RMB 154 million for the company. Within a short span of 7 months with an investment of RMB 30 million in working capital, we achieved an average monthly revenue of RMB 22 million. The [ high cash lower rate ] and the short-term payment cycle in the international trade arena confirmed, the sustainability and replicability of this business. The used vehicle export business was initiated with the official launch of Quhuo International in February 2023, and it went live in May 2023. Since then, Quhuo has set its insights on the international market, entering a new phase of global development. Looking back at the achievements of Quhuo International, several factors have contributed to its success. Firstly, the broad overseas market had a strong demand of new energy vehicles, providing favorable conditions for the export of such vehicles. Secondly, China's dominant position in the global market for new energy vehicles have led to rapid growth in the used vehicle export industry. Chinese customs data shows [indiscernible] 69,000 used vehicles exported from China in 2022, and the total exceeded 160,000 in 2023. Market projections indicate that the volume of Chinese used vehicle export is expected to reach 400,000 vehicles by 2025. Lastly and most importantly, Quhuo possesses unique advantage that differentiated us from other used vehicle traders. On the technological and operational front, Quhuo's mobility solutions management team has deep expertise in the lifesaving sector for over 5 years. They also have more than 2 decades of experience and resources in the vehicle trading industry, which has provided them with a pro forma understanding of the used vehicle export market and the ecosystem. Additionally, Quhuo has accumulated over 10 years of professional capabilities in large-scale operations and technology. In terms of the consortium, Quhuo has partnered with multiple automobile brands and expanded our reach to medium and large scale auto manufacturers, dealerships and the used vehicle market through our existing wide selling business since the first half of 2023, establishing a national wide vehicle sourcing network. In terms of vehicle refurbishment, Quhuo has accumulated a well-sourced vehicle maintenance and retail resources through our previous ride-hailing operations. We have also established our unique network of vehicle refurbishment resources through self-construction and partnerships. Furthermore, at the sales channel level, Quhuo currently has close cooperation with 58 overseas distributors worldwide, providing stable sales channels and new opportunities for market expansion. All these factors together build Quhuo's competitive advantage in the global used vehicle trade market, signaling vast business prospects and expand its development potential. Another important engine for the second growth curve is the empowerment of SaaS Plus service, primarily focused on housekeeping and accommodation solutions nowadays. Starting from the first half of 2023, the company began piloting the transition to the SaaS Plus service empowerment model, in the housekeeping services after successfully validating our sales operating model. After 6 months of market validation, the company's housekeeping and accommodation solutions began a comprehensive transition towards a SaaS Plus empowered model, starting in the second half of 2023. This shift allows other small- and medium-sized live service providers to utilize to mature operating [ business and sales ] products to better meet customer needs. This transformation of the business model drove rapid growth in the [indiscernible] of the housekeeping and accommodation solutions in 2023, reaching RMB 514 million, a 53% increase compared to 2022. Furthermore, thanks to the successful implementation of SaaS Plus service empowered, the profitability of the business segment significantly improved. The gross profit increased by 48.7% year-on-year, and the gross profit margin rose from 13.4% to 26.4% in housekeeping and accommodation solutions sector. What's even more pleasing is that the empowerment of SaaS Plus service has also led to significant cost decrease. The overall operating cost of housekeeping and accommodation solutions decreased by 35.5% with a remarkable [indiscernible] decrease in operating cost of the hotel services, showcasing significant cost reduction effects. Throughout the year 2023 through the innovative impairment of SaaS Plus service, we not only significantly enhanced the capabilities of local service providers but also deeply integrated subsystem into our business operations, achieving significant transformation results. Since strategy effectively reduced the cost of the entire supply chain, improved operation efficiency and brought significant economic benefits to the company. Overall, Quhuo's revenue is primarily from 3 types: platform fulfillment service; SaaS Plus service; and international trade and technology service. Platform fulfillment service is risky business segment that achieved or venture into and serve as the cornerstone of the company. It mainly involves on-demand delivery and mobility service solutions and generates revenue through service fee for order fulfillment. This segment is an important component of the company's revenue, has been steadily developing. In 2023, the revenue from fulfillment services reached RMB 3.5 billion SaaS Plus service, as mentioned earlier, is one of the engine for the second growth curve, focusing primarily on housekeeping and accommodation services, generic revenues to charge you for flexible employment platform services. The great achievement made by SaaS Plus service in 2023 have given us confidence to establish extensive cooperation with more new customers and extended SaaS Plus service into more business areas. Currently, we are in discussion with leading medical institutions, long-term rental platforms and senior-living apartments in China, intending to enter the medical and elderly care industries. International channel revenue is another engine for the second growth curve, derived from mobility solutions, especially in the used vehicle export business, facing various pain points in international trade of used vehicles, such as authentic transactions, transparency of processes, guarantee of vehicle qualities and inadequate aftersales services. Quhuo International [indiscernible] use a vehicle export trading platform called Carnuxt. This platform aims to create achieve marketing environment for car manufacturers, dealers and consumers while providing one-stop solutions to challenges related to the quality of used vehicle products, sales channels and aftersales services. Recently, there has been a push in China for a new round of large-scale equipment renew and consumer goods trading programs, which was about the more used vehicles entering market. This aligns with the growing demand for used vehicles in overseas markets, leveraging the advantages of Carnuxt trading platform and high-quality services aim to see this business opportunity consolidate our leading position in the international trade of used vehicle and explore greater market potential for used vehicles in China. SaaS Plus, Quhuo's 3 major service models have jointly constructed and integrated and diversified the commercial landscape. With the cornerstone sector being the fulfillment services, which serve as a stabilizing force for the company's revenue and profits. Meanwhile, the SaaS Plus service and international trade served as vital for the company's creative business expansion, leading to higher opportunities for overall business growth. [indiscernible] seek to diversify the company's income streams and enhance profitability, thereby opening up significant growth potential for the company. In conclusion, we're through the transformation of the SaaS Plus business or Quhuo International expansion efforts. Quhuo has brought about new opportunities in the employment market. In the future, we will also extend our mature on-demand delivery service to overseas markets. Through a partnership with local on-demand service platforms, we aim to further develop global delivery services. providing more choices and opportunities for workers, both domestically and abroad. This initiative will contribute to promoting employment growth, enhancing good labor market flexibility and further driving sustainable socioeconomic development. I conclude my prepared remarks here, and now I would like to turn the call to our CFO, Barry to provide further insights into our financials...

Thanks, Leslie . Hello, everyone. Welcome to Quhuo's Second Half and Full Year of 2023 Conference Call. Please be reminded that all amounts quoted here will be RMB unless stated otherwise. Before I go into our full year results, I would like to draw your attention to something notable that occurred during the second half of 2023. For the 6 months ended December 31, 2023, revenue was RMB 1,966.1 million a slight increase compared with 2022 same period, which was RMB 1,956.6 million. Now let's look at the segment results. Revenue from on-demand food delivery solutions were RMB 1,763.2 million, representing a decrease of about 6% from RMB 1,874.9 million in the second half of 2022, primarily because we enjoyed more preferential policies and subsidies during the second half of 2022, primarily because we enjoyed subsidy amid the COVID-19 pandemic, which was significantly reduced in the 6 months ended December 31, 2023, following the relief of the pandemic. Revenue from mobility service solutions, consisting of shared-bike maintenance, ride-hailing, vehicle export solutions and freight service solutions were RMB 175.3 million, representing an increase of 239.6% from RMB 51 million in the second half year of 2022, primarily due to the success of vehicle export solutions, which generated revenue of RMB 142.5 million. Revenue from housekeeping and accommodation solutions and other services were RMB 27.5 million, representing a decrease about 8.3% from RMB 30 million in the second half of 2022, primarily due to the transition of business model in hotel services. The cost of revenue was on the RMB 1,866.3 million, representing 3.8% year-over-year increase, primarily in line with the increase of total revenues. General and administrative expense were RMB 102.7 million, representing a decrease of 9.9% from RMB 114.1 million in the second half of 2022, primarily due to the improvement in company management efficiency and a decrease in share-based compensation expense from RMB 7.3 million in the second half of '22 to a net benefit of RMB 4.3 million in the second half of 2023. R&D expense were RMB 5.7 million, representing an increase of 6.6% from RMB 5.4 million in the second half of 2022, primarily due to increased investment in SaaS Plus technology. Speaking of income, we recorded other income net of RMB 10.7 million compared to other loss, net of RMB 17.8 million in the second half of 2022, primarily due to the fluctuation in the fair value of our investment in the mutual fund. Income tax expense were RMB 1.5 million compared to the income tax expense of RMB of 14.3 million in the second half of 2022, primarily due to the lower estimated annual effective tax rate for the second half of 2023. Net income attributable to Quhuo Limited was RMB 13 million compared with net income attributable to Quhuo Limited of RMB 11.8 million in the second half of 2022. Adjusted EBITDA was RMB 24.1 million compared with adjusted EBITDA of RMB 47.8 million in the second half of 2022. Adjusted net income was RMB 7.4 million compared to the adjusted net income of RMB 17.4 million in the second half of 2022. Now let's move to the full year of 2023. During the fiscal year of 2023, total revenue was RMB 3,072.4 million. compared with total revenue of RMB 3,820.4 million in 2022, a further breakdown. Revenue from on-demand food delivery solutions was RMB 3,412.8 million compared -- representing a decrease of 6.2% from RMB 3,638.7 million in 2022, primarily due to we enjoyed more preferential policy and subsidy during 2022 amid the COVID-19 pandemic, which was significantly reduced in 2023 following the relief of the pandemic. Revenue from mobility service solutions were RMB 233.8 million, representing an increase of 116.4% from RMB 108.1 million 2022, primarily due to the increased -- the success of vehicle export solutions with exported around 1,900 units of new energy vehicles and electric mopeds from China to the overseas market and generated revenue of RMB 154.5 million. Revenue from housekeeping and accommodation solutions and other services were RMB 55.7 million, representing a decrease of 24.2% from RMB 73.6 million in 2022, primarily due to the transition of the business model in hotel service. Regarding the cost of revenue, which was RMB 3,535.8 million, which remained relatively stable as compared to the cost of revenue in 2022. Now let's move to expenses. G&A expense were RMB 184.3 million, representing a decrease of 13.7% from RMB 213.6 million, primarily due to the decrease in share-based compensation expense from RMB 19.8 million in 2022 to a net benefit of RMB 0.5 million in 2023. R&D expense remained relatively stable at RMB 12.4 million in 2023 compared with RMB 12.5 million in 2022. As our CEO, Leslie said before, in 2021, we proposed a strategy of improving profitability after increasing revenue. The effectiveness of this strategy was proven in 2022 and 2023 as we have achieved positive EBITDA for 4 consecutive half years, which is a remarkable accomplishment, and signify the company's consistent profitability over the past 2 years, demonstrating a stable and sound operational performance. Other income, net was RMB 16.7 million compared to other loss, net of RMB 26.1 million in 2022, primarily due to the fluctuation in the fair value of our investment in the mutual fund. Income tax benefit was RMB 0.9 million compared to the income tax expense of RMB 21 million in 2022, primarily due to the lower estimated annual effective tax rate for the year 2023 and the increase in deferred tax asset benefit. Net income attributed to Quhuo Limited was RMB 3.3 million compared with net loss attributed to Quhuo Limited of RMB 13.1 million. Adjusted EBITDA was RMB 35.2 million compared with adjusted EBITDA of RMB 58.6 million. Adjusted net income was RMB 5.5 million compared with adjusted net income of RMB 3.3 million in 2022. In terms of the balance sheet in 2023 -- as of December 31, 2023, the company has cash, short-term investments and restricted cash of RMB 114.8 million and short-term debt of RMB 92.7 million. This concludes my prepared remarks. Thank you for your attention. We are now pleased to take your questions. Operator, please go ahead.

[Operator Instructions] It appears we have no questions at this time. I would like to turn the conference back over to management for closing remarks.

I'm sorry, you want to wait for -- if there is any investor want to have a questions. Maybe give us more -- 5 minutes. Okay. So if there is no more question, we will finish our conference call here. Thank you, everyone, for listening. And if you have more questions, you can find us and compare it from our IR website. Okay. Thank you, everyone, and good bye.

Pardon me, it looks like we do have some questions who have dialed in. The first one is from [ Bill Lee ] with [indiscernible]