Thank you for standing by, and welcome to the Quhuo Limited '22 H2 earnings conference call. [Operator Instructions] I would now like to hand the conference over to management. Please go ahead..

Thank you, operator. Hello, everyone. Welcome to Quhuo second half and full year of 2022's earnings conference call. The company's results were released earlier today and are available on our IR website. On the call today are Chairman and CEO, Leslie Yu; CFO, Barry Ba.

Leslie will review business operations and company highlights, followed by Barry, who will discuss financials and guidance. They will be available to answer your questions in the Q&A session that follow.

Before we begin, I would like to remind you that this call may contain forward-looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such commitments 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 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 the US Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement 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, [Joanna]. Thank you all for joining our second half and full year of 2022 earning conference call. In 2021, we proposed a strategy to improve profitability after increasing revenues. We achieved this goal with full-year revenue growth of 56% in 2021, followed by gross profit growth of 43.9% in 2022.

Since the execution of this strategy at the beginning of 2021, we had made several initiatives to expand revenue, which was mentioned in the 2021 annual report. To be more specific, in terms of on-demand delivery solutions, we increased the number of delivery orders we fulfilled by expansion into new geographic markets in 2021.

In the mobility service solutions, we enlarged the customer base and the service scope of shared-bike maintenance solutions and commenced the freight service solutions in July 2021.

In the housekeeping and accommodation solutions, we started the in-depth operation of [Chantou] and acquired Lailai to expand our solutions offering of hotels and B&Bs to enlarge the customer base of our housekeeping solutions.

Those initiatives has maintained a stable income scale and achieved substantial increase in profits in 2022 despite the impact of COVID-19 on localized life service. With full-year revenue of RMB3,820.4 million and a gross profit of RMB252.7 million in 2022, Quhuo achieved a gross margin of 6.6%, higher than the 4.4% in 2021.

And we achieved a historical turnaround in several figures, including operating income, adjusted EBITDA, adjusted net income. These results show the effectiveness of the company's strategy to improve profitability after increasing revenues and the trust with the ability of the company's team to implement the strategy.

We believe that the company's business model is sustainable. And it has very short payback period, with an average payback period of about 12 months. Next, let's move on to the [six] categories offered by Quhuo. We provide two categories of services on the gig economy platform.

So first one is order fulfillment services for platforms, which mainly involves on-demand delivery solutions and mobility service solutions.

Most of our clients in order fulfillment service platforms are well-known consumption service platforms, such as Meituan, Didi, Eleme, as well as some large chain catering enterprises, such as KFC, McDonald's, [Latching Colti], and so on.

In this service, we provide standardized research products to our customers through executing lean management operations and charge a service fee for each order fulfilled. The revenue generated from this part is [RMB3.474 billion] in 2022, and the gross margin increases to 6.6% in 2022 from 4.1%? In 2021.

The second one entails our housekeeping and accommodation services provided under SaaS service model.

Our SaaS ability encompass the Quhuo path to the promised sales and a service team dedicated to maintaining the upkeep of the platform, including customer service and technology support, with which we focus on empowering small- and medium-sized localized life service providers and helping them expand their revenue and improve efficiency.

This mainly serves housekeeping and accommodation partners in the second half of 2022. The primary source of revenue for SaaS service products is a commission collected from the partners based on the GMV charges of our platform.

We have always believed that technology plays a huge role in business growth, efficiency improvement, and partner empowerment.

So we are committed to using our experience and management capabilities, accumulated over the past 10 years in the field of local life services, to develop SaaS services that can empower local life service providers based on the power of technology.

Through SaaS service, we can connect the brand of Quhuo and the business resources on Quhuo local life platform to small- and medium-sized local life service providers, optimize their operational efficiency and compliance, and help the service provider reduce operational risks while increasing profits.

Currently, this technology platform is capable of empowering various verticals, such as laundry, hotel, B&B, and our jobs in catering and housekeeping. Relying on SaaS system, Quhuo helps these service providers to integrate online chatting and business resources from multiple platforms.

Based on the core management and operational capabilities accumulated over the years as well as multi-channel brand building, Quhuo has expanded its operational strategy from urban B&B operation to rural B&B operation, achieving successful cases of light investment and detailed operation and empowering more than 8,000 customers.

The chat model trained by AI, which has received a lot of the attention recently, will be tentatively integrated into the business by Quhuo in the future. For example, we can use AI to increase the efficiency in training and recruiting these workers.

We can also use AI technology in our B&B business, where operators can use it to assist online information maintenance of B&B Hotels, intelligent check-in, and self checkout of travelers. Looking ahead to 2023, with it, Quhuo existing business will continue to grow.

During the past three years that COVID-19 has been influencing the global economy, and the company whose main business is on-demand delivery, mobility service, housekeeping, accommodation have been affected seriously.

With the full end of pandemic control and social restrictions completely lifted, on-demand delivery, mobility, and housekeeping and accommodation services are expected to make a rapid rebound in 2023. In 2023, Quhuo embarked on a new expansion. And we have officially launched Quhuo's international business in February 2023.

Quhuo International will take full advantage of China's core strengths in both industry and Internet, manufacturing capabilities in new energy vehicles, and material internet technology and operational expertise to export industry plus Internet products and services to overseas partners.

We aim to empower overseas partners with operational capability and technology of mobility services, such as online live selling and on-demand delivery, along with the export of Chinese electronic vehicles and more pace. This strategy has achieved the initial results, generating revenue from others.

Quhuo is expected to give or play to its core competitive advantages in the industry, with existing technical and business capabilities and help our partners make considerable progress in overseas markets. We are confident that Quhuo's global business will bring a new growth curve to the company. This concludes my statement.

I now will turn the call over to our Chief Financial Officer, who will discuss our financial results for the year of 2022. Thank you..

Thank you, Leslie. Hello, everyone. Welcome to Quhuo's second half and full year of 2022 conference call. Please be reminded that all amounts quoted here will be in RMB unless stated otherwise. Before I delve into our full-year results, I would like to draw your attention to something notable and that occurred during the second half year of 2022.

For the six months ended December 31, 2022, revenue was RMB1,956.6 million, slightly declined compared to 2021, which were RMB2,187 million. Now, let's look at the segment results. Our revenue from on-demand food delivery solution were RMB1,874.9 million, which represents a 9% decline from RMB2,071 million in the second half year of 2021.

This decrease was primarily due to the reduction in the number of delivery orders caused by the regional resurgence of COVID-19 in multiple areas during the later year of 2022.

The revenue from our mobility service solutions, which includes shared-bike maintenance, ride hailing, and freight service solutions, amounted to RMB51.6 million, reflecting a decrease of 23.5% from RMB67.4 million in the second half of 2021, which was primarily due to the reduce of customer demands resulting from the regional resurgence of COVID-19 in multiple areas during the second half of 2022.

The revenue from our housekeeping and accommodation solutions were RMB30 million, which indicates a decrease of 37.6% from the RMB48.2 million in the second half year of 2021. This was primarily due to the reduce of customer demand caused by the regional resurgence of COVID-19 in multiple areas during the second half of 2022.

The cost of revenues was RMB 1,797.8 million, representing a 12.8% year-over-year decrease, primarily in line with the reduced of customer demand resulting from COVID-19. Our G&A expense were RMB114.1 million, representing a slight increase of 2% from RMB111.8 million in the second year of 2021.

R&D expenses were RMB5.4 million, representing a decrease of 50.8% from RMB10.9 million in the second half of 2021, primarily due to the decrease in the headcount and overall compensation level for our research and development personnel, as we restructured our R&D team.

Speaking of income, our operating income was RMB43.7 million compared to an operation loss of RMB54.2 million in the second half of 2021. We recorded an other loss, net, of RMB17.8 million compared to other loss, net, of RMB6.6 million in the second half of 2021, primarily due to fluctuation in fair value of our investment in the mutual fund.

Income tax expense was RMB14.3 million, representing an increase of 75.2% from RMB8.2 million in 2021. Net income attributable to Quhuo Limited was RMB11.8 million compared with net loss attributable to Quhuo Limited, RMB46.4 million in the second half year of 2021.

Adjusted EBITDA was RMB47.8 million compared with adjusted EBITDA loss of RMB23.3 million in the same period of 2021. Adjusted net income was RMB 17.4 million compared with adjusted net loss of RMB53.0 million in the second half year of 2021. Now, let's move on to the full year of 2022.

During the fiscal year of 2022, total revenue was RMB3,820.4 million compared with a total revenue of RMB4,025.3 million in 2021. And for the breakdown, the revenue from our on-demand food delivery solution was RMB3,638.7 million, which indicate a decrease of about 5% from RMB3,829 million in 2021.

This decrease was primarily due to the reduction in the number of delivery orders caused by the regional resurgence of COVID-19 in multiple areas during 2022.

The revenue from our mobility service solution was RMB108.1 million, reflecting a decrease of 1.9% from RMB110 million in 2021, which was primarily due to reduced customer demand caused by the regional resurgence of COVID-19 in multiple areas during 2022.

The revenue from our housekeeping and accommodation solutions was RMB73.6 million, indicating a decrease of 14.6% from RMB86.2 million in 2021. This was primarily due to reduced of customer demand caused by the regional resurgence of COVID-19 in multiple years during 2022.

Regarding the cost of revenue, it amounted to RMB3,567.7 million, representing a 7.3% year-over-year decrease, primarily due to the decrease in service fees paid to workers, which was in line with the decrease of number of delivery orders resulting from the regional resurgence of COVID-19 in multiple locations in 2022. And let's move on to expenses.

Our G&A expenses amounted to RMB213.6 million, reflecting a decrease of 11.3% from RMB240.7 million. This reduction was mainly due to a decrease in share-based compensation expense, which decreased from RMB86.9 million in 2021, down to RMB19.8 million in 2022.

R&D expense were RMB12.5 million, representing a decrease of 77.7% from RMB20.1 million in 2021, primarily due to the decrease in headcount and the average compensation level of our R&D personnel, as we restructured our R&D team. As our CEO has mentioned earlier, in 2021, we proposed a strategy of improving profitability after increasing revenues.

The effectiveness of this strategy was proven in 2022, as our operating income increased despite the challenging market conditions. Operating income was RMB70 -- sorry, RMB35.6 million compared to operating loss of RMB139-point million in 2021.

And other loss, net, was RMB26.1 million compared to other loss, net, of RMB34 million in 2022 -- sorry, in 2021, primarily due to the fluctuation in fair value of our investment in the mutual fund. Income tax expense was RMB21 million compared -- representing an increase of seven or 74.6% from RMB12 million in 2021.

Net loss attributed to Quhuo Limited was RMB13.1 million compared to a net loss attributed to Quhuo Limited of RMB157.9 million in 2021. Adjusted EBITDA was RMB80 -- sorry RMB58.6 million compared with adjusted EBITDA loss of RMB72.7 million in 2021. Adjusted net income was RMB3.3 million compared with adjusted net loss of RMB122.3 million in 2021.

In terms of balance sheet in 2022, as of December 31, 2022, the company has cash, short-term investment, and restricted cash of RMB165.4 million, and short-term debt of RMB65 -- RMB65.4 million. This concludes my prepared remarks. Thank you for your attention. We are now pleasured to take your questions. Operator, please go ahead..

Thank you. [Operator Instructions] [Serena Wong], Tiger Brokers..

Hi. Thank you for taking my questions. I want to know what the strategy in 2022 is to improve profitability after increasing the revenues.

So what's the company strategy in 2023?.

Yeah. Thanks for the question. This is Leslie. The strategy for 2021 and in 2022 is to improve profitability after increasing revenues, with focusing on achieving an increase in scale, which include both revenue and profit.

From 2023 to 2025, in the view of the strategy, we will extend our long industry ecosystem to localized life, gradually transforming from a localized life out of – or human service provider to a localized life operation service provider. For example, a [indiscernible] of operation in being in a big industry.

The project, [Chantou], is currently in a leading position in this segment field and has empowered more than a thousand small and medium-sized homestay service providers after two years’ operation. We provide a SaaS system and online check-in kind of brand operation in multi-platforms.

We provide offline housekeeping, supply chain services for decoration, and consumable products. So [arms is] Quhuo empower more small and medium-sized localized service providers through our SaaS services and also relying on our national-wide operating network and leveraging accumulated technical capabilities and management expertise over the years.

Also, the business resources, we formed through long-term cooperation with consumption online platforms. We started to gradually realize superimposition and upgrading of the role from order fulfilment service provider to operation service provider in 2023 to 2025. Yeah. Thanks for the question. Thank you..

Thank you. [Operator Instructions] There are no further questions at this time, I'll hand the call back to the management team for closing remarks..

Yeah. Thanks, operator. And we don’t have further remarks. Just thank you..

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day..

Thank you. You too..