Earnings Call: Q2 2021

Aug 25, 2021

Earnings release

Good day, ladies and gentlemen. Welcome to Cuhall's Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. 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 Xuho's Q2 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, Hugh Co Founder, Barry Pa 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 in the Q and 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 Q2 2021 earnings conference call. We are pleased to report another strong quarter as total revenue grew by 81 percent year over year and almost reached a milestone of RMB1 1,000,000,000. Thanks to strong demand for our services and our large network of workforce across the country. Also, our main business lines, on demand deliveries, mobility Lastly, our main business lines, on demand deliveries, mobility services and housekeeping solutions cover the needs of people's daily necessities and saw robust growth momentum in the Q2. In addition, our gross profit margin quickly rebounded from the supplier quarter as labor costs normalized to standard level. As a result, we achieved adjusted net income of RMB10 1,000,000, a significant improvement from the Q1. These results reflect the economy of scale of business model and the strong execution of our multi cellular deployment strategy. Now let me walk you through our key business performance in Q2. First, let's look at our fixed revenue contributor, the on demand delivery business. As the COVID-nineteen 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 services, our revenues maintained healthy growth and reached RMB942 1,000,000 in Q2, up 74% year over year. The trend we see in the current market is that premium delivery providers like Chiho are taking market share from cloud sourced providers. This has given us a window opportunity to aggressively expand our presence in existing markets and manage new wins. In the Q2 of 2021, we provided services in 1205 Business Circles across 100 and 39 cities nationwide compared with 9 50 business circles across 75 cities in the same period in 2020. For Q2, the overall number of average monthly delivery orders were 45,000,000, 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 the 2 cities after Chinese New Year holiday and 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, revenues sustained its rapid growth momentum, increasing 67% sequentially to RMB22 1,000,000. We continued to expand our service capability to meet 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 and Bs that were served by us increased by 2 50% from a quarter ago. In addition to traditional housekeeping services, we began to provide more value added services to strengthen our relationship with BNB operator clients. We launched our proprietary housekeeping SaaS solution, Quchandan 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 tools and real time information. Upon receiving these new service orders from the system, PMA's managers can send workers to serve our clients immediately. Our mobility business, which includes geod bike and ride fitting solutions also delivered solid performance. Revenues increased by 3 37% year over year and 50% quarter over quarter to RMB26 million. In the Q2, 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 biotechnology scenario deployment initiative. We aim to offer the workers on our platform better flexibility in terms of job selection by matching their skill sets better and increasing their income with job opportunities. At the same time, offering multi scenario services can enable us to achieve optimal use of resources and improve efficiency and save our 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 RMB5000 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, Qiu reached a strategic cooperation agreement with GeMei Tu Technology, a leading smart community IoT cloud platform. We have been working together to launch our brands and target services catering to the direct to home housekeeping market. Through deepened cooperation with property management companies, workers on XUGO's platform and directly provide various housekeeping services for millions of households, thereby extending 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 launched in Tianjin, Changsha and Shenzhen. 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, who will discuss our financial results for the second quarter. Thanks, Sachi. Hello, everyone. Welcome to Xuho's Q2 2021 call. Please be reminded that all amounts quoted here will be renminbi unless stated otherwise. Our total revenues were RMB 991,800,000 representing an increase of 81.1% year over year, primarily due to revenue growth of our major business lines. Revenues from on demand delivery solutions were RMB 942,200,000 representing an increase of 74.1 percent from RMB 541,300,000 in the Q2 of 2020, primarily due to the increase in delivery orders fulfilled as a result of the industry growth in the aftermath of COVID-nineteen and our continued penetration and expansion into new geographic markets. Revenues from mobility service solutions consisting of share bike maintenance and Raheil solutions were $25,700,000 representing an increase an increase of $336.9 from $5,900,000 in the Q2 of 2020, primarily due to our enlarged customer base and the service scope in shared life maintenance solutions and the increase in the numbers of ride hailing drivers on our platform. Revenues from representing a significant increase from $400,000 in the Q2 of 2020. This was primarily due to our enlarged customer base for provision of housekeeping and accommodation solutions, including hotels and BMDs as part of the network synergy we achieved following the acquisition of Lai Lama and Chengdu Home. The cost of revenues was $920,000,000 representing an increase of $88,000,000 and 0.8 percent year over year, primarily attributable to increased labor costs in line with our continuing business expansion. The general and administrative expenses were RMB 84,700,000, representing an increase of 187.2 percent from RMB 29,500,000 in the Q2 of 2020. The increase was primarily due to the increase in, 1, share based compensation from $1,300,000 in the Q2 of 2020 to $44,400,000 in Q2 of 2021 and to 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 Q2 of 2020. As such, we maintained unit cost savings along with business growth. Research and development expenses were $4,500,000 representing an increase of $63,600,000 from $2,700,000 in the Q2 of 2020, primarily due to the increase in compensation for research and development personnel. The operating loss was $14,700,000 compared to operating profit of $29,600,000 in Q2 of 2020. Excluding share based compensation, the adjusted operating profit was $29,700,000 relatively stable as compared to $30,900,000 in the Q2 of last year. We also recorded other loss net of RMB7 1,000,000, which compared to other income net of RMB3.6 million in the Q2 of last year, primarily due to the decrease in fair value change of investments in a mutual fund. The income tax expense was $11,200,000 which remains relatively stable as compared to $11,500,000 in Q2 of 2020. Adjusted EBITDA was $29,100,000 representing a significant improvement from adjusted EBITDA loss of $78,500,000 in Q1 of 2021. The adjusted net income was $9,900,000 also representing a significant improvement from adjusted net loss of $79,300,000 in the Q1 of 2021, and we will endeavor to improve our profitability further going forward. Now on our guidance. For Q3 of 2021, we expect total revenues to be in the range of $1,100,000,000 to $1,200,000,000 representing an representing an increase of 43% to 56% year over year. The forecast reflects our current and preliminary views on the 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. Thank you, ma'am. Ladies and gentlemen, we will now begin the question and answer We have the first question from the line of Derwin Hasniel from Roth Capital. Please ask your question. Hey, good morning, good afternoon. Thanks for taking my question. First on sort of the multi stereo deployment, pretty good numbers there with 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. This is Leslie. And usually that we have 2 types of multi scenario deployment and which is mainly when caused by the, we call this peak and low time for live consumer scenarios. For example, our riders for food delivery usually they say in the lunchtime and evening time. And in the morning and afternoon time, normally they can be sent to do the work for the share bike maintenance or for the share motor maintenance work. And on the other side, for housekeeping and solution, usually the workers are females and they can work for the hotel for the room cleaning and in the noontime. And in the evening time, they can work for like the KFC or other restaurants for the restaurant cleaning. So normally that is the 2 major types of the multi scenario deployment. And now we also have been working with Gamut Technology and we started to build services for the family units. That's what majorly happened for our marketing scenario in Quho'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 it in the past on the food delivery side. I think in Q1, it was roughly RMB 7.50, RMB 7.5. Yes. For Q2, the average value of order is RMB 7. Got it. And then 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 Q1 of this year was a special quarter due to the stay at home policy in China and the spring festival. From this quarter, yes, 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 Q3 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, the currency for housekeeping side, we are doing in two 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 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 schedule work at the property companies. For example, we work with some several property management companies and together to deliver the service for directly to home housekeeping. And for this property management company, they already manage us like the large suburban area and they are a lot of the house growth and they can reach, but their demands, they cannot meet. So during this kind of cooperation, they can provide our services to the they can provide our services to their existing householders in the suburban area. So that's the 2 major ways for currently how we expand our business in a faster way. We're using the way of cooperation with existing property management companies and also we together work with existing hotel service providers. And on the other side, for B and B side, we use our 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 conclusion, our expansion is scheduled with we connect different resources and based on our core competence in the management and in the technology development. Yes. Thank you. We have the next question from the line of Georgios Kisarnes from Exclusive Capital. Please ask your question. Yes, hi. Even though your the mobility service solutions, housekeeping and accommodation, they're 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 two 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 two segments growing in the same way over the next year or so? I think from our side, these two segments of housekeeping and mobility, we are growing very fast and as we can see 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 we that's the faster way for us to consolidate these resources in short term and then we the way that's the fastest way for us to consolidate these resources in short term and then we can empower with our technology competence and our management competence. So we expect that these 2 sectors will have much faster growing pace. The reason why we can the reason we're observing they are small because at the same time for our major business like food delivery, it still keep a fast growing speed. So that's why if we put them together, we cannot see that maybe they are too small. But for the growing speed and we expect that we can contribute especially for this year and we'll have a certain significant percentage of our total revenue. Yes, thank you. Thank you. Just a small follow-up. Do you have an estimated TAM total addressable market of these two segments in the markets you serve? Is there some sort of estimate you guys have come up with? I mean, not North China, just where you do business. I mean, it's if you have. Especially for housekeeping market, I think it's very large. And we call it in Chinese, we call it 1 Yi. Trailing RMB. Yes. Trailing RMB value because this sector is not just for enterprise business needs, but is largely demanded by household family units. Currently, in this market, it's very fragmental and especially for household, they prefer standard service from standard service for their housekeeping. But unfortunately, and this market, normally it's individual and they provide a service for this household and they are service dependent and varied from different people. So we consider this is the large market and not requested by the enterprise clients and also is very needed by household and they want standard mobility services, actually that is included not only for the like we call it ride hailing and also include the shared bike and also include the shared motor. And growth for these sectors 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 is the bidding market. Yes. Thank you. Thank