Earnings Labs

Quhuo Limited (QH)

Q1 2021 Earnings Call· Fri, Jun 25, 2021

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Transcript

Operator

Operator

Good day, ladies and gentlemen. Welcome to Quhuo's First Quarter 2021 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. [Operator Instructions] Now I'd like to turn the conference over to your host for today's conference call, Annia Sun, Investor Relations Director of Quhuo. Please go ahead.

Annia Sun

Analyst

Thank you, operator. Hello, everyone. Welcome to Quhuo First 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 our CFO, Sandra Ji. Lastly, we will review business operations and company highlights followed by Sandra, who will discuss financials and guidance. And they will both be available to answer your questions during 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 Private Securities Legislation Form 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 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 this and other risks, uncertainties and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company doesn't 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.

Leslie Yu

Analyst

Thank you, Annia, and thank you all for joining our first quarter 2021 earnings conference call. We are pleased to deliver strong growth momentum in Q1 with revenue increased by 116% year-over-year to RMB 846 million, driven by solid performance across our business segment, the solid results reflected as the prosperous, dynamic and healthy flexible workforce market and our leading position in the Chinese gig economy. For 2021, offering a multi-scenario deployment has been at the forefront of our initiatives to scale the business, and we have made good progress to offer workers a diversified range of open jobs. Thousands of job seekers can now find more suitable career opportunities in our platform and earn higher income. Now let me walk you through our key business performance in Q1. First, let's look at our fixed revenue contributor on-demand food delivery business. As life returns to normalcy with fewer restrictions and as economy recovers from COVID-19, we continue to witness ongoing evolution of consumer behavior in China. The on-demand food delivery service has become not only [ uneffective ] during workdays but also a high-quality source of fresh and healthy food for family gatherings. This was especially evident for this year's spring festival. Demand for food delivery increased year-over-year compared with the same period in previous years as people were encouraged to stay in place for the popular holiday. We view this unprecedented strong demand as a test for the resilience of our large delivery network as well as a terrific opportunity to sustain our leading position and expand market share. On one hand, we stepped up our efforts to stabilize the existing rider teams to ensure sufficient capacity to fulfill incoming orders while we actively launched more recruiting programs to hire additional riders. We provided extra benefits to both existing…

Wenting Ji

Analyst

Thanks, Leslie. Hello, everyone. Welcome to Quhuo's First Quarter 2021 Call. Please be reminded that all amounts quoted here will be in Renminbi unless stated otherwise. For the first quarter of this year, our total revenues were CNY 846.5 million, representing an increase of 115.6% year-over-year primarily due to rapid growth across all business segments. Revenues from on-demand food delivery solutions were CNY 815.4 million, representing increase of CNY 109.5 million (sic) [109.5%] from CNY 389.3 million in the first quarter of last year, 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. From the beginning of this year, we combined shared-bike and ride-hailing solutions together to form a new business segment named mobility service Solution. Revenues from mobility service solution were CNY 17.1 million, representing an increase of 455.7% from CNY 3.1 million in the first quarter of 2020, primarily due to our enlarged customer base and service scope in shared-bike solutions and the increase in the number of ride-hailing drivers on our platform. Revenues from housekeeping and accommodation solutions were CNY 13 million, representing a significant increase from CNY 0.2 million in the first 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, respectively. Cost of revenues were CNY 868.8 million, representing an increase of 127.7%, year-over-year, primarily attributable to the strategic temporary subsidy policy for workers that were adopted to meet the rapid growth in demand as a result of the changing customer behaviors and our continuing expansion. General and administrative expenses were CNY 44.2…

Operator

Operator

[Operator Instructions] We have a question from the line of Darren Aftahi from ROTH.

Darren Aftahi

Analyst

Can you hear me?

Wenting Ji

Analyst

Yes, we can hear you.

Darren Aftahi

Analyst

Yes, great. Two questions. So Leslie, your comments on cost normalizing post the first quarter. So with your gross margin being negative, and I understand last time on the call, you talked about how input costs were higher with the workers, so in the months of April, May and June is almost done, has your food delivery business gross margin gone back into the positive? And is there any reason to think that, that won't be the case for the remainder of the year?

Leslie Yu

Analyst

Yes, this turned to the positive, and we believe that it will last for the rest of the year, yes.

Darren Aftahi

Analyst

And has that trended back to sort of the normal levels that you've seen in the past? Or is cost of maintaining your rider's [ share ] base going to be elevated going forward?

Leslie Yu

Analyst

Yes. I'll consider that is going back to the normal level, and we are also happy to say that the general and administration expense -- we are still keeping decline.

Darren Aftahi

Analyst

Great. And then your comments on Multi-scenario Deployment. So 48 cities. I'm curious on a couple of things on that topic. So you're in 48 cities versus, I think, 8. Where can that go? And then in terms of the number of services per city where do you think that figure can go? And do you have the appropriate infrastructure on a technology basis, whether it's analytics, artificial intelligence, that actually optimize your riders. So I guess what I'm trying to get at is how efficient is your workforce base today, even though you've increased it to 48 cities with 2 more types of service versus where you think it actually can be in the future? And if there's any investment you would need to make like what is that?

Leslie Yu

Analyst

Firstly that -- we are happy to see that food delivery sector and the efficiency and what we call it product [indiscernible] for each food delivery, workforce is increasing and is now -- average is about more than 30 and even somewhere it's reached to the 40. But unfortunately, the productivity and the increased [ positive range ] has only happened in the peak time for food delivery industries. So we are trying to compare this efficiency to other working scenarios such as -- like shared-bike maintenance and such like [ force ], the right hailing. And in order to do that, our technology platform has contributed great efforts to help us to manage this Multi-scenario Deployment by our in-daily operations. So the technology is helping us to enable this workforce with vocational skill set by online training and together with our on-ground training. And at the end [ we will ] -- to match the skill set with each workforce together with the time requirement and the skill requirements for each different multi scenarios. So with the support of our technology platform, we are able to better match our workforce on the platform to different working scenario and to manage them to fulfill the orders in different time zone. Yes. Thank you.

Darren Aftahi

Analyst

Great. Just if I could squeeze one more in. Just with where your share price is and capital allocation strategy. I'm just kind of curious if there's any thought about potentially doing a buyback or whether you think that capital investment is best deployed for growth?

Leslie Yu

Analyst

We consider that the live service market in China is very large. And some market players are fragmental and we call them, may be, small. And Quhuo already have the predominant position, and we can make them even better. What we need is only time. And also, we have the time to further prove to the capital market. Thank you.

Operator

Operator

Our next question comes from the line of Thomas Chan from Nomura.

Thomas Chan

Analyst

I have a question on our growth outlook. How do we see our on-demand food delivery revenue for the rest of the year? I understand we have a more normalized space in the second half of this year. And I would like to touch upon how do we see our revenue per order for the food delivery business going forward?

Wenting Ji

Analyst

At [ first ], I can't give accurate growth rate for the revenue growth for the rest of year. But I can say that we are quite happy with the revenue growth for the next 3 -- for the last 3 quarters. And both in on-demand food delivery and for mobility service solution and the housekeeping solution. As far as we can see both [indiscernible] business lines will achieve significant growth for the rest of the year. And -- so your second question is about the revenue per order, right?

Thomas Chan

Analyst

Correct.

Wenting Ji

Analyst

Per order. Actual -- currently, you can calculate that revenue per order for first quarter is around RMB 7.6 per order. And for the further revenue, we expect the price will be relatively stable around this kind of level. There won't be significant change according to our opinion.

Thomas Chan

Analyst

Could I follow up on a question on the food delivery business. I understand the authority has been [ newly ] considering policies to boost our enhanced food delivery workers, social benefits, including some kind of social insurance. How do we -- what's our take on this policy and if there will be any impact on our margins going forward.

Wenting Ji

Analyst

Okay. I will [ move ] on to [ Barry ] to answer the question.

Zhen Ba

Analyst

Okay. Talking about -- you mean the social policy -- social security policy, right?

Thomas Chan

Analyst

Yes.

Zhen Ba

Analyst

Okay. We have noticed that, currently, there are some local government have put out a policy about -- riders should have the social policy -- social security policy. But we have to notice that by the end of May, our Prime Minister, Mr. Li Keqiang, is running the senior committee meeting. He has the point that we have noticed there are over 2,000-- sorry, there are 200 million staff -- people working on the gig economy currently in China. And it is very important to keep the jobs and maintain the sustainability of the job and security of the society. And he also mentioned that this is a new type of job, it cannot be fit into the old system. And so the central government is -- currently is discussing and developing some kind of a new type of social security focused on the gig economy [ staff ]. And according to our information, that -- according to the Prime Minister, he mentioned that the insurance company should give up some profit. And the government view -- compensate part of the last -- for the security company. So which -- insurance company, which means that according to our understanding, in the future -- in the near future, this kind of social insurance issue is going to be solved by commercial insurance. We're already being covered [ in ] the country right now. Currently, we already provide the third-party insurance and the labor injury insurance on commercial insurance basis to our country travel riders. So in the near future, we didn't see it's going to be a big impact to us because this is a policy already been taken, and this is the cost we already have in country right now. So I don't think this is going to be a big impact to us in the near future.

Operator

Operator

[Operator Instructions] Thank you. And there are no further questions. So with that, we conclude our conference for today. Thank you for participating. You may all disconnect.