Quhuo Limited
Q4 2020 Earnings Call Transcript

Published: 1 May 2021

[Operator:]

Good day, ladies and gentlemen, welcome to Quhuo's Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. Today's conference call is being recorded. I'd now 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:]

Thank you. Thank you, operator. Hello, everyone, and welcome to Quhuo Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. The company's results were released earlier today and which are available on our IR website. On the call today are Leslie Yu, Chairman and CEO; Co-Founder, Barry Bank; and the CFO, Sandra Ji. Leslie will review business operations and company highlights followed by Sandra Ji, who will discuss financials and guidance.

[Leslie Yu:]

Thank you, Annia, and thank you all for joining our fourth quarter and fiscal year 2020 earnings conference call. We are pleased to deliver solid performance across all business sectors in the first full year results since we -- Quhuo went public in July 2020. We experienced an extremely difficult year due to the impact of the COVID-19, which disrupted life and the global economy. Its impact on the business of our partners negatively influenced our operations. Having said that, I'm proud that we overcame many obstacles and saw our encouraging improvement in financial performance, thanks to our team's work under the management system of Quhuo Plus. For the full year of 2020, our revenues increased by 25% year-over-year to RMB 2.6 billion. Although the yield was extremely challenging. We managed to deliver solid growth. Our adjusted net income increased by 48% year-over-year to RMB 76 million, and our adjusted EBITDA increased by 44% year-over-year to RMB 134 million. We believe that such improvement in our profitability reflects our capability and efficiency enhancement under the management of large-scale economy. In 2020, we encountered market challenges. The combined impact of COVID-19 and the related containment measures had an adverse impact across the various business segments as the economy slowdown. Domestic turmoil and daily activities were reduced, and many people prefer to stay home for safety reasons, all of which has dramatically affected the mobility and hotel business. In addition, travel restrictions made it tougher to recruit riders for our delivery service and a subsequent delivery shortage drove up overall labor costs.

[Wenting Ji:]

Thanks, Leslie. Hello, everyone. Welcome to Quhuo's Unaudited Fourth Quarter and Fiscal Year 2020 Call. Please be reminded that all amounts quoted here will be in Renminbi unless stated otherwise. I will start with our Q4 numbers first. Revenues were CNY 871.7 million, representing an increase of a 32% year-over-year, primarily due to the increase in revenues generated from our on-demand food delivery solutions. Revenues from on-demand food delivery solutions were CNY 847.5 million represent an increase of 30% from CNY 652 million in the fourth quarter of 2019, primarily due to the increase in delivery orders fulfilled as a result of the continued expansion into new geographic markets, and the rapid growth of our grocery and fresh food delivery business, which contributed revenues of CNY 36 million in this quarter.

[Operator:]

Your first question comes from Darren Aftahi from ROTH Capital Partner.

[Darren Aftahi:]

A couple, if I may. Could you speak to the declines in gross margin? And I think in particular, the food service piece. Just what's kind of the reasoning behind that? And is that something we should expect going forward?

[Wenting Ji:]

Yes, Darren. Yes, the decline of gross margin for on-demand food delivery solutions was mainly due to -- in fourth quarter of this year was mainly due to the increase of service fees paid to our riders as a percentage of total revenues and the increase of the hiring expenses as a percentage of revenues because in the fourth quarter, yes, in the market, the difficulties of the hiring of new riders were keeping increasing. So we have to pay extra pays to hire more riders to fulfill the increasing orders. That's the main reason.

[Leslie Yu:]

I think to add one more point that in our on-demand food delivery, a pretty large percentage of our orders are in the north part of China. In Q4, in 2020, that part of China is, especially Northeast part of China, was hit quite seriously by pandemic, such as big cities, Shenyang, Harbin, Dalian, our major cities always have people containment and policies during that period of time. So they caused a serious shortage of the laborers. That's a major reason why there is a big difficulty to recruit those laborers and increase our recruitment cost.

[Darren Aftahi:]

So if I could add, has that changed at all in 2021 year-to-date in terms of the cost to hire riders in the northern part of China?

[Wenting Ji:]

I think in first quarter of 2021, yes, the situation is still there, especially in the spring fest in February, during spring festival, due to the government's policy to let people stay in what they are in to spend the holiday rather than going back to their hometown. So yes, as a result, the orders was increasing rapidly compared to last year. So -- to -- in order to fulfill that orders successfully, we have to pay much higher fees to part-time riders to do that work. So in this -- the -- in first quarter of this year, the situation, well we didn't see a better trend, but in -- I think in Q -- second quarter, yes, the things are getting better.

[Darren Aftahi:]

Great. And then as we look at 2021, can you just talk about just the broader strategy amongst fresh food, housekeeping and on-demand food delivery and kind of what your growth initiatives are? And are there any kind of residual setbacks from COVID that would inhibit growth in any of those segments?

[Leslie Yu:]

Yes. For 2021 on the food delivery part, we expect it to still keep growing. And for housekeeping and mobility, we expect it will be dramatically and increasing their growth because the pandemic impact in China is getting subsiding. And the people are getting back to normal. And this is a good chance for us to growing the new 2 sectors, which including the mobility and the like bike-sharing and the ride-hailing announced for the housekeeping sections like for the hotel. And at the same time, in 2021, we will building the infrastructure, which will support for a series of services from recruiting blue-collar workers, to providing vocational training that will increase the opportunities for better job in Quhuo platform. And we believe that the growth will -- much better than 2020. And our initiatives will enhance the stickiness of label in Quhuo platform, and we expect the long-term competitive advantage across various industries. Yes, thank you.

[Darren Aftahi:]

Great. And just last one for me. As a result of COVID, at least in the United States, things like logistics there have been fees put on by folks like FedEx and UPS that have increased the cost of kind of logistical platforms. Are you seeing anything in your sort of sourcing of workforce where fees have increased as a result of COVID and they're going to be permanent, whether that's by the Chinese government or any regulatory body?

[Leslie Yu:]

I think for the whole market national-wide and the labor cost, and even for the recruiting fee, actually is increasing and comparing with last year. But for Quhuo platform, we have been benefited from our internal reference system and also benefited from our penetration into the recruiting service to blue-collars. And so considering the turnover rate and the recruiting cost in Quhuo was management cost, we're still thinking that it's reasonable. And that's the reason why we can achieve lower management cost and also we achieved better, we call this a net -- a EBITDA in 2020, yes.

[Operator:]

Our next question comes from Thomas Chan from Nomura.

[Thomas Chan:]

I have a question regarding our revenue per order, especially for the food delivery business. How do we see the trend in 2021? And for the revenue per order for the trend in growth rate on the fresh food business?

[Leslie Yu:]

For food delivery, and we consider the growth, and we are still keeping -- if we quote the number from our major customers Meituan and which is maybe about like 30%, but for fresh food and grocery rate delivery, we can see that the growth rate would be much higher. Because in 2020, actually that grocery and food -- fresh food delivery is a pretty new sector in our revenue, but this contributed on more than CNY 50 million revenue in 2020.

[Operator:]

[Wenting Ji:]

This is Sandra. Just a gentle reminder. We will upload the Excel version of all the financial statements and the key financial and operating data on our IR website. You can check the details after this call. Thank you.

[Operator:]

[Wenting Ji:]

Hi. Hello, speaker. So if there's nobody going to read the question, so let's close the conference, please.

[Operator:]

Thank you. With that, we conclude our conference for today. Thank you for participating. You may all disconnect.