Good day, ladies and gentlemen. Welcome to Quhuo Third Quarter 2020 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 now.

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..

Thank you. Thank you, operator. Hi and hello everyone. Welcome to Quhuo third quarter 2020 earnings conference call. The company’s result was 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 CFO, Wenting Ji.

Leslie will review business operation and company highlights followed by Wenting Ji, who will discuss financials and guidance. 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 this call may now 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 operating conditions and related to 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.

For the information regarding these and other risks, uncertainties and factors is included in the company’s filing 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 head..

Thank you, Annia, and thank you all for joining our third quarter 2020 earnings call. During the third quarter, despite the ongoing impact of COVID-19, we are very pleased to report a significant improvement in our bottom-line. We achieved further growth on revenue, gross profit and net income.

Along with a rapid growth of revenues and service coverage, our adjusted net income reached RMB61 million, which is more than four times increase year-over-year, and our new record high since our inception. There are three major drivers behind this number.

Firstly, thanks for our unique and refined management system, Quhuo +, which enabled us to maintain both a rapid growth and a stronger profitability than our peers even in the rapid changing COVID-19 marketing environment.

Relying on our Quhuo + management system, we easily expanded our management team to cover most of these areas without adding more people.

Relying on our Quhuo + management system we are able to manage 1,000 business hotels like 1 hotel and peak sale of 50,000 workers like 1 worker that this trends efficiency and the effectiveness contributes to the 3% gross profit increase and more than four times net income increase year-over-year.

Secondly, thanks for the seven years accumulated to the labor force, we continued to maintain our competitive advantage including worker at lower cost compared to many peers.

While many of our peers are facing the trends of labor charges in China, our online internal referral system with our 180,000 [indiscernible] easily surprise the workforce for our further expansion and support our rapid growth, which also contributes to the fully potent gross profit increase by more than four times net income increase year-over-year.

Third, thanks for leveraging the on growing infrastructure, large skilled workforce and scalable marginable management system. We are able to access and further extend more localized life service sectors with very few results investment.

During the third quarter we nearly have no further investment to gain 2.5 million orders new rent building growth increase in fresh and growth rate sector, which is about six times increase compared with second quarter, which also contributes to our 3% gross profit increase and more than four times net income increase.

During the third quarter, we keep exploring the business opportunities in localized live service market. And duly paid our prudent business capabilities from food delivery sector to other localized service sectors.

In October, we have tied our majority spaces in lifestyle information, which is the leading dig economy platform that specialized in housekeeping solutions for hotels and B&Bs in China.

Leveraging our on growing infrastructure, workforce and management system, we further expanded our housekeeping service coverage to 22 cities in China and provided services for over 1,900 B&Bs and 1,200 hotels.

We have very positive expectation to have very solid operational and financial performance for the fourth quarter in the housekeeping solution sector.

We are on the road with concrete and a specific target to become the leading dig economy platform of localized life service sectors including the food service, transportation service, housekeeping solutions and healthcare solution and services. So that concludes my prepared remarks.

I will now turn the call over to our CFO, Wenting Ji, who will discuss our key financial results for the quarter. Thanks..

Thank you, Leslie. Hello everyone. Welcome to Quhuo’s third quarter 2020 call. Please be reminded that all amounts reported here will be in renminbi, unless stated otherwise. Our revenues were RMB769.5 million, represents an increase of 20.8% year-over-year, primarily due to the increase in revenues generated from on-demand food delivery solutions.

Revenues from on-demand food delivery solutions were RMB758.8 million, represents an increase of 20.3% from RMB630.4 million in the third quarter of 2019, primarily due to the increase in delivery orders fulfilled as a result of the continuing expansion into new geographical markets and the rapid growth of grocery and fresh food delivery, which contributed revenues of RMB18.1 million in this quarter.

Revenues from shared-bike solutions were RMB4.1 million, representing a decrease of 22.8% from RMB5.3 million in the third quarter of last year, primarily due to the decline of business volume in some cities where we operated.

Revenues from ride-hailing solutions were RMB3.3 million, representing an increase of 171.2% from RMB1.2 million in the third quarter of last year, primarily due to the increase in the number of vehicles we leased to ride-hailing drivers on our platform.

Revenues from housekeeping solutions and other services were RMB3.4 million, compared to nil in the third quarter of last year and representing an increase of 803.3% from the second quarter of this year, primarily due to our expanded provision of housekeeping solutions to B&Bs.

Our gross profit was RMB80.9 million, representing an increase of 70.4% year-over-year, primarily due to the increase in gross profit of on-demand food delivery solutions. Our gross margin was 10.5%, compared with 7.5% for the third quarter of last year, which underscores the strength and the flexibility of our platform.

Our general and administrative expenses were RMB103.2 million, representing an increase of 211.4% compared with the third quarter of last year.

The increase was primarily due to the increases in, first, share-based compensation as the IPO performance conditions of our share incentive plan was satisfied upon the completion of our initial public offering. And second, staff costs as a result of an increase in the number of our operating staff.

The general and administrative expenses would have increased by 8.6% from RMB28.7 million in the third quarter of 2019 after excluding the share-based compensation. And as a percentage of revenues, would have declined to 4.1% from 4.5% in the third quarter of 2019. As such, we maintained unit cost savings along with business growth.

The adjusted EBITDA was RMB85.1 million, representing an increase of 201% compared to RMB28.3 million in the third quarter of 2019. The adjusted net income reached RMB61.3 million, representing an increase of 447.5% from RMB11.2 million in the third quarter of 2019. We will endeavor to improve our profitability further going forward.

I think this concludes our prepared remarks. Thank you for your attention. We are now happy to take your questions. Operator, please go ahead..

Thank you, ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Darren Aftahi from ROTH. Please go ahead..

Hi. Good evening. Thanks for taking my questions. Just a few if I may. First, maybe could you speak to a few of your segments on food, it looks like your orders, I think, were up 17% or 18% year-on-year. I know Ele.me and Meituan were closer to kind of the high 20s if not 30.

Can you talk about your strategic positioning in the food delivery? And then I guess, within that question, it seems like fresh food and grocery becoming a more meaningful part of the industry.

Just what's the overall strategy there and how can you gain share going forward to accelerate that growth?.

Yes, thank you for the question. As I mentioned, we are practicing to become the leading gig economy company localized life service, which were included growth, transportation, housekeeping and healthcare.

So what we are doing, you may find, we call it the premium delivery service, which is only just the potholes that made fines and four business service coverage. So it made us grow, we include the different sectors, also included like premium delivery and included crowdsourcing and we also include other sectors.

So compared with maintenance strategy for the whole life service for the whole life service online platform and we booked it on the offline service platform.

So we cannot – we call it as apple-to-apple to compare with growth with maintenance growth, but we can see that the growth based on our year-over-year and compared with the last quarter we can see growth from the two – both side. And also we have the whole we call it the different target on the gig platform of localized service.

So Meituan suggest, we will have a major customer, but we didn’t think that as apple-to-apple compared ratio with maintenance growth for up voting the sector and compare it with our business sector and business target, it is a very original and reasonable. Thank you..

And maybe on the housekeeping side, so what's your strategy going into 2021 and how does the majority of investment in Lalai kind of impact that? And then my last question is, I think Leslie, you made – mention about the scale of the platform and how you can increase the workforce without really increasing too much on cost side.

So I'm somewhat curious what kind of revenue level can be operating platform support before you need to make material investments set another way, how profitable can this business become before you have to reinvest for capital into the business?.

As for the gig economy platform for localized service and we will define our business service, which is very related to the distance of the consumers, for example, usually we were divided that business to quite three to five kilometers earlier and where the consumers will have the, we call these frequent and – frequent consumer behaviors, which were included for the transportation or housekeeping.

And in the future 2021, we expect here we have the significant revenue structure change and we are the better for the food price and we have dealership growth, that’s of course housekeeping and transportation part. We also contribute significant share in the total revenue of Quhuo.

And for the both product, another new two sectors for transportation and housekeeping, we will leverage our own ground existing infrastructure and management team, and which we will contribute half the growth by these fueling investment.

About the revenue growth, we expect for another new sector, transportation and housekeeping were significant growth, but on the profit side, we expect that it wouldn't contribute to large to the total group – Quhuo group’s profitable, because we are still in the growth path and our target and objective is set for other new two sectors is to increase the size of the business and better utilize our existing facilities to expand the coverage and increase our revenue.

Thank you..

And maybe if I could ask one last one, I heard you mentioned healthcare as part of the platform, maybe if you could just expand on that. Thank you..

Yes. So healthcare, which is aligning with the trend in China, maybe aligning with other country as well, because the people is getting involved in China and more and more, we call it healthcare required emerging in China. And healthcare a very [indiscernible] strategy, which will be like complimentary sector to the housekeeping solution service.

Why we expand our housekeeping solution service into each small, we call it a community or obtained unit. On the healthcare we have become another major business service to take care of keeping getting old in China. Thank you..

Thank you..

Your next question comes from the line of Shi Jialong from Nomura. Please ask your question..

Thanks for taking my call. Good evening management. Congratulations on a very solid quarter. And I have two housekeeping questions. The first question is about the gross margin for your on-demand food delivery service, and this gross margin has been on the improving trends for the past few quarters.

So just wonder how much more room the gross margin for the food delivery service may have to further improve in the next few quarters? And if it’s had continued to improve then what will be the drivers for further improvement? And my second question is about the grocery and fresh food delivery service which saw a big jump in this quarter in terms of order volume.

And so I have two questions related to this.

So first, which platform are you currently providing delivery service for? And second, in China, the community grocery group by business is a very hot nowadays, and just wondering if management has any plans to tap into this fast growing segment of the grocery market?.

Yes. Thanks for questions. The first question is about the gross profit. On the business sector and different levels for food delivery side, we can say to it that these will be mature, et cetera. And we have spent about seven years on to manage the piece of business so with our expertise.

So we expect it as growth margin for our mature sectors where keep growing and therefore, other two sectors – for the new sectors and our target for transportation and housekeeping is a more focusing on the expansion. So we expect that for this to receptions and our major target for them in – for currently, which is not for the profit side.

But – because of this other two new sectors are able to leverage all our – competitive cases. So the outgrowth of profit and we called management costs under the infrastructure cost will be a much less than what we first started with the full utility rate. And for second question is about maybe you've called the community, and community approaches.

Yes. It's about the community. Maybe you can have done it. I don't know how to explain it. But currently, we’re way [indiscernible] with DB and with quite few way cutters community and so with the platform. And what did we, it was a subject, let me just say this, we provided included transportation services to that.

For transportation services part, we included a service for the passengers and we also included service for life in the safety truck occasion like for community business.

And mainly, we provided the, we call it, thought with our service, using the transportation vehicles, the kind of thing we've had and to help them to our fields and facilities required to the consumers. So hopeful, we are corporated with [indiscernible] and we building this sector. Thank you..

Thank you very much. Can I have a quick up, you said you are already working with community group by service.

And then in Q3, what was the size of this business? What was the other revenue?.

You mean the community group by….

Group by, yes, yes.

Or the revenue size?.

Currently, we don't have any revenues from this sector. Actually, we are trying to find the efficient and a better way for both us and to the community group by company to both our efficiency further. Actually, at this stage we asked you under – on the track, we will ask you on negotiating with them.

And yes no revenues for now, ways back to, we could begin the business cooperation, I assume..

Got it. Thank you very much for the color. Thank you. Congratulations again..

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