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. .

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.

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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. .

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 and new riders to increase our attractiveness. As a result, we outperformed the industry and enjoyed stronger [ raw ] order volume growth during this spring festival period compared with previous years. .

For Quhuo, the number of average monthly delivery orders was 35.9 million, up 113% year-over-year. On the cost side, due to seasonal volatility in labor costs and increased spending on benefits and an expanded team of riders, we reported a loss for this quarter.

We view this as a short-term phenomenon and remain fully confident in our strategic direction to reinforce and grow our workforce. .

We believe we have a real opportunity window to take advantage of our growing reputation and expand our resources to capture demand as it grows. This will give us a competitive edge down the road as we become the employer of choice for a growing number of blue collar and migrant workers seeking better job opportunities in cities. .

Going into Q2, as more migrant workers returned to the labor market and ease the labor shortages, we have seen the supplier-demand balance return to normal level. We believe this will normalize our cost structure and improve our profitability in Q2 and the rest of 2021. .

Next, I would like to give you an update on our housekeeping solutions. In Q1, revenues from housekeeping and accommodation solutions increased 51x year-over-year. After completing our investment in Lailai, our leading on-demand workforce platform set specializing housekeeping solutions for hotels and B&Bs in China.

We were able to quickly integrate Lailai into our platform and ramp up our service capacity. Together, we currently serve a number of large-scale international hotel chains and thousands of B&Bs nationalwide. We are optimistic this business has strong growth potential going forward. .

Our mobility businesses, which includes shared-bike and ride-hailing solutions continued a strong recovery in the first quarter. Revenues increased by 455% year-over-year.

In Q1, we added 3 more cities for our mobility services and the strong synergies have been created as our robust technology platform can support our multiple business [indiscernible]. .

Now I want to go over the progress of our strategic initiative called Multi-scenario Deployment. Our goal is to increase job's diversity and work opportunities and provide flexibility to help workers find best jobs for the [indiscernible] and the evolving skill sets in order to increase their income. .

Currently, our [ net ] frontline management networks for label management and operations have enabled us to largely utilize our labor force on the Multi scenarios. We believe this will help us scale and expand our entire network over time.

As of the end of March 2021, we provided services to 1,066 business [ circles ] across 122 cities nationwide, among which our 48 cities where we provided 2 or more type of services compared with only 8 cities of Multi-scenario Deployment a year ago. .

Offering Multi-scenario services can significantly improve the efficiency of our operation and the entire gig economy industry. Many of the service scenarios such as on-demand food delivery and the ride hailing have our parent peaks and troughs in usage every day, resulting in kind of great waste of human resources and fixed assets put in place. .

Our platform empowers workers to engage in different jobs at different time period, leveraging diverse vocational skills training and daily management. In this way, we can achieve better use of resources, improve efficiency and save costs.

According to our statistics as of Q1 2021, the number of registered workers on our platform reached nearly 240,000 compared with 98,000 a year ago. The cumulative number of workers we engaged in 2 or more types of jobs on our platform has reached 15,500 increasing by about 4,000 from the end of 2020. .

The rapid development of our multi-scenario services has also made the gender mix more balanced. Thanks to our rapid expansion in the housekeeping business recently, the proportion of female workers registered on our platform has been close to 10% in Q1, more than doubled from a year ago. .

In addition, the quick expansion of our platform and the decreasing turnover rate of workers also resulted in an increase in the average compensation of our workers. In Q1 2021, riders with an average monthly income of at least RMB 5,000 accounted for 46% of total group compared with 33% a year ago. .

In summary, our strategic priority for 2021 is to rapidly scale up our platform. With the continuous diversification of services and growing workforce on our platform, we believe we will play an increasingly important role in China's gig economy and capture more market share going forward. .

This concludes my prepared remarks. I will now turn the call over to our CFO, Sandra, who will discuss our financial results for the quarter. .

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.

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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 million, which includes share-based compensation of CNY 5.9 million, representing an increase of 60.6% from CNY 27.5 million in the first quarter of last year. The increase was primarily due to the increase in stock compensation -- share-based compensation, rental and office expenses.

Excluding share-based compensation, general and administrative expenses increased by 46.2% year-over-year. And as a percentage of our total revenues declined to 4.5% from 6.7% in the first quarter of 2020. .

Research and development expenses were CNY 4.7 million, representing an increase of 82.3% from CNY 2.6 million in the first quarter of 2020, primarily due to the increase in compensation for research and development personnel. .

Operating loss was CNY 70.8 million compared to CNY 19.1 million in the first quarter of 2020. Excluding share-based compensation, the adjusted operating loss was CNY 65.0 million compared to CNY 17.8 million in the first quarter of 2020. .

We also recorded other loss, net, of CNY 20.4 million compared to other income, net, of CNY 3.3 million in the first quarter of 2020, which primarily due to the decrease in fair value changes of investment in a mutual fund. .

The income tax benefit was CNY 7.3 million compared to the income tax expense of CNY 2.9 million in the first quarter of 2020, primarily due to the improvement of estimated annual effective tax rate. .

The adjusted EBITDA loss was CNY 78.5 million compared to adjusted EBITDA loss of CNY 10.4 million in the first quarter of 2020. .

The adjusted net loss was CNY 79.3 million compared to adjusted net loss of CNY 20.3 million in the first quarter of 2020. .

This concludes our prepared remarks. Thank you for your attention. We are now happy to take any of your questions. Operator, please go ahead. .

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

Can you hear me?.

Yes, we can hear you. .

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?.

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

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?.

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. .

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?.

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. .

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?.

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. .

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

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?.

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?.

Correct. .

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. .

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. .

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

Okay.

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

Yes. .

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 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..