Good day, ladies and gentlemen, welcome to Quhuo's Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. [Operator Instructions] 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. 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. They will be both available to answer your questions during the Q&A session afterwards.

Before we begin, I would like to remind you this call may contain forward-looking statements made under the safe harbor provision of Private Securities Legislation Reforms Act of 1995.

Such statements are based on management's current expectations and the current market and operating expectations 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 or 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 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..

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.

However, leveraging our strong operational capabilities and industrial-leading tech power management system, we have taken this challenge as an opportunity to further increase the gap with our peers and solidify our leading position in the workforce operations sector.

Here, I will highlight some of the measures we took to navigate through the tough market environment. Firstly, we managed to maintain our revenue growth through enlarged business scope and coverage. Such as fresh food delivery food box project with Meituan and Hello Inc.

And through cooperating with new customers such as Hello, shared-bike and McDonald and through extending to new service sectors, by acquisitions such as acquiring Lailai and Chengtu.

Secondly, we kept investing on R&D and to refine ship or pass [ph] management system to improve our operational efficiency and restructuring our workflow and reduced mainly management efforts. At the same time, we kept investing in our people through our online training system and on-ground hand-to-hand practice.

We have developed an extensive management network consisting of about 1,000 experienced front-end managers who are expert in with the workforce management and best service operating capabilities to promptly adjust to changing market dynamics.

Thanks to them, we are able to achieve lower operating management cost, 5.05% year-over-year even in such difficult situation of COVID-19.

Thirdly, in front of the hardness of labor shortage will continuously upgrade our internal online leverage system based on our established large labor pool, and this helped us to maintain strong recruitment capabilities without significantly increasing acquisition costs during the pandemic.

At the same time, our workers found it easy to seek growing job opportunities in our platform across our various solutions, which effectively increased the labor stickiness and it reduced the cost. 2020 was a truly challenging year, but it was also filled with opportunities to scale our business.

We are adjust to challenges head-on and adapted our strategy to diversify into more service offerings and made solid progress across targeted and new segments. Our core on-demand food delivery business maintained its leading position in the sector with about 25% year-over-year increase in the number of average months they deliver orders in 2020.

Revenues from the on-demand food delivery solutions increased by 30% year-over-year. During the year, we rolled out our grocery and the fresh food delivery business and they contribute RMB 50 million fully in new revenue in 2020. We are confident of scaling up the business with an accelerated growth rate in 2021.

For mobility sector, we did operation with Hello and Didi and achieved a 45% revenue growth year-over-year. Further solidify our presence in the mobility service sector. In 2021, we will extend our mobility service to retail into consuming customers. For the housekeeping solution business, we made significant progress in 2020.

We entered into investment agreement to acquire a majority stake in Lailai, which is specialized in housekeeping solutions for hotels and B&Bs. In October 2020, during the fourth quarter, we also invested in Chengtu, a leading homestay service provider in China.

We believe that this investment will accelerate our pace and allow us to establish a solid foothold in the housekeeping solutions sector. To date, our service cover over 1,000 hotels, 2,700 B&Bs national-wise.

Leveraging synergies with Lailai and Chengtu, we expect our housekeeping solutions to make a meaningful contribution to both our revenue and margin in 2021. In 2020, we have first adapted our diversified solutions strategy and made strategic investment to scale up certain business sectors.

We believe that COVID-19 has profoundly and permanently changed the lifestyle of Chinese customers and consumers, which will benefit on-demand workforce business and share the economy markets. With the adverse impact of the pandemic gradually subsiding, we expect to deliver better performance with the execution of our proven strategy in 2020.

Leveraging our large-scale workforce pool and extensive on-the-ground infrastructure, we will further invest in employment exchange and professional training service to provide front-to-end career service for Chinese workforce.

We believe we are well positioned to capture more growth opportunities ahead and deliver sustainable long-term growth for our shareholders. This concludes my prepared remarks. I will now turn the call over to our CFO, Sandra, who will discuss our key financial results for the quarter and fiscal year..

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.

Revenues from shared-bike solutions were CNY 10.6 million, representing an increase of CNY 119.3 million from 4.9 -- CNY 4.8 million in the fourth quarter of 2019, primarily due to our expanding customer base and service scopes.

Revenues from ride-hailing solutions were CNY 4.6 million, representing an increase of 55.2% from CNY 3 million in the first quarter of 2019, primarily due to the increase in the number of vehicles we listed to ride-hailing drivers on our platform.

Revenues from housekeeping Solutions and other services were CNY 8.4 million representing an increase -- significant increase from CNY 205,000 in the first quarter of 2019, primarily due to our enlarged customer base provision of our housekeeping solutions, including hotels and B&Bs.

Our gross profit were CNY 40.1 million, representing a decrease of 7% year-over-year, primarily due to the decrease in gross profit of on-demand food delivery solutions.

Gross profit of on-demand food delivery solutions was CNY 35.3 million, representing an increase of 15.4% compared to the fourth quarter of 2019, primarily due to increase in service fees paid to our riders, insurance expenses and higher expenses as a percentage of revenues.

Our operating expenses consist of G&A expenses and R&D expenses, and G&A expenses account for a majority portion, which were CNY 43 million, representing an increase of 26.3% from CNY 34.1 million in the fourth quarter of 2019. The increase was primarily due to increases in share-based compensation, rental OpEx expenses.

If excluding share-based compensation, our general expenses increased by 19.1% year-over-year, as a percentage of revenues, were declined to 4.3% from 4.7% in the fourth quarter of 2019. As such, we believe that we achieved unit cost saving along with our business growth.

Our net income attributable to Quhuo limited was CNY 12 million compared with a net loss of CNY 242,000 in the fourth quarter of 2019. Adjusted EBITDA was CNY 15.5 million, representing an increase of 63.6% from CNY 9.5 million in the fourth quarter of 2019.

The adjusted net income was CNY 15 million, representing an increase of 481.9% from CNY 2.6 million in the fourth quarter of 2019. Now let's move over to full year 2020 financial results.

The revenues were CNY 2.6 billion, representing an increase of 25.5% 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 CNY 2.5 billion, representing an increase of 25.1% from CNY 2 billion in 2019, primarily due to the increase in delivery orders built as a result as the continuing expansion into new geographic markets and the rapid growth of grocery and fresh food deliveries.

Revenues from shared-bike maintenance solutions were CNY 21.5 million, which remained relatively stable compared with CNY 21.2 million in 2019.

Revenue from ride-hailing solutions were CNY 10.1 million, representing an increase of 35.7% from CNY 6.9 million in 2019, primarily due to the increase in the number of vehicles we listed to ride-hailing drivers on our platform.

Revenues from housekeeping solutions and other services were telepoint CNY 4 million compared with CNY 262,000 in 2019, primarily due to our expanded provision of housekeeping solutions to hotels and B&Bs. Gross profit was CNY 192.5 million, representing an increase of 18.6% [Technical Difficulty] of on-demand food delivery solutions in 2020.

G&A expenses were CNY 203.3 million, represented an increase of 26.1% from CNY 161.2 million in 2019. The increase was primarily due to increase in staff costs, share-based compensation and rental an office expenses, partially offset by decrease in professional fees.

Excluding share-based compensation, our G&A expenses increased by 27.4% from CNY 96.4 million in 2019. Net income attributed to Quhuo limited was CNY 3.4 million compared with a net loss of CNY 11.8 million in 2019. Adjusted EBITDA was 134 -- CNY 130.6 million, representing an increase of 40% from CNY 93.1 million in 2019.

Adjusted net income was CNY 77.1 million, representing an increase of 50.1% from CNY 51.4 million in 2019. This concludes our prepared remarks. Thank you for your attention. We are now happy to take your questions. Operator, please go ahead..

[Operator Instructions] Your first question comes from Darren Aftahi from ROTH Capital Partner..

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?.

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..

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..

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?.

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..

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?.

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..

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?.

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..

Our next question comes from Thomas Chan from Nomura..

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?.

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 Instructions].

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 Instructions].

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

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