Quhuo - Earnings Call - H2 2024

Transcript

Operator (participant)

Good day, and welcome to the ChuHo Second Half of twenty twenty four and Fiscal Year Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Keeshu Wang, Investor Relations. Please go ahead.

Qishu Wang (Associate Manager of Investor Relations)

Thank you, operator. Hello, everyone. Welcome to Quhua's twenty twenty four full year and second half 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 and CFO, Barry Zhang.

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 and 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 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 relate 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. Further information regarding these or 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 the law. With that, I will now turn the call over to our Chairman and CEO, Mr. Leslie Yu.

Please go ahead.

Leslie Yu (Chairman, CEO & Director)

Thank you, Qiu, and thank you all for joining our twenty twenty four earnings conference call. Twenty twenty four is a pivot year for Qiyoungo as we embark on a strategic transformation. In the face of a complex and ever changing market environment, we have chosen to define growth through value sharing strategies, replacing zero sum games with ecosystem empowerment, and breaking business boundaries through model innovation. Our goal is to achieve a path of corporate development that balances both commercial and social value. I will now share the company's performance and strategic achievements over the past year, focusing on the three things of deepening, empowering and innovation and a look ahead to the future vision of Quhua.

Firstly, the strategy of deepening is targeted at strengthening the business foundation and unlocking profit potential. In 2024, QiHua achieved revenue of RMB3 billion with adjusted EBITDA of RMB9 million. The company demonstrated excellent performance with positive EBITDA for three consecutive fiscal years. Adjusted net income reached RMB1.6 million. In terms of cost control, general and administrative expenses decreased by 19% year on year, reflecting our ongoing efforts to improve operational efficiency.

R and D expenses decreased by 13% year on year, with the IT team achieving continuous cost reduction and efficiency improvement through AI technology, optimizing labor input while ensuring saturation and upgrade of technology. This effort injected more resources into high potential business, driving the health cycle of our business ecosystem. Since the second half of twenty twenty four, we have been focusing on deeply cultivating high quality business and structurally enhancing profitability. In the second half of twenty twenty four, gross profit for bike maintenance and ride building services grew by 15216% year on year respectively. The used vehicle support business has leveraged AI technology in the vehicle inspection process, achieving an intelligent upgrade of the inspection workflow.

This has significantly improved individual operational efficiency, driving the gross profit margin of the business from 1.8% to 6.2%, with the gross profit increasing by 11.5% year on year. Our housekeeping and accommodation services restructured the operational system through our sales development booking platform, achieving an increase in gross profit margin from 26% to 36% throughout the year, continuously strengthening the profit contribution of the business line. In a complex and ever changing market environment, we firmly believe that maintaining business quality amidst uncertainty will generate momentum for long term development. Secondly, the strategy of empowering. The strategy of empowering is targeted at stimulating collaborative dynamics and driving ecosystem synergy.

Since the launch of our used vehicle export business, represented by Qubo International in May 2023, it has quickly become a new growth engine for Qubo in the past year and a half. By the end of twenty twenty four, Qipu International had exported over 3,500 cars overseas to the Middle East, Eastern Europe and Western Asia and established Kana's and recognize the used vehicle certification brand and service system. Leveraging our experience and technological accumulation in the localized live service market, our used vehicle export business follows a technology plus resources output model. By empowering overseas dealers with ride feeling operational capability and computing overseas operational centers and vehicle showrooms, we create a win win ecosystem from vehicle procurement to local sales and operations. For example, in September 2024, we reached a strategic cooperation with Broad Auto, as the electric vehicle dealer in Azerbaijan.

The mobility platform both to jointly establish Azpaijan ride hailing operation center. In addition to providing Chinese quite cost performance vehicle resources, we also improved the local ride hailing operations in Azpaijiang collaboratively. On one hand, Chubo International helped local partners achieve real time route optimization and data analysis via its online SANT platform, ensuring quick response to order demands while monitoring vehicle usage, including maintenance cycles and fuel consumption to ensure long term operational performance. On the other hand, Quhu International exported mature ride hailing master management experience. Providing offline training and hands on guidance for local partners' operation staff, including precise matching of drivers and order demands, using AI data analysis to predict high demand hotspots, and achieve dynamic dispatching during actual operations.

Through comprehensive technology plus resources, export solutions, local dealers in Azerbaijan can quickly match vehicles to ride hailing companies, enabling seamless integration from vehicle scale to match the application. This has increased the sales speed of inventory vehicles and transformed pure sales margin gains into vehicle leasing operational revenue. The success of technology past resources solution in Azerbaijan's Thailand not only drove our partner BOSS Auto to place three additional orders, that also demonstrated the visibility of global reputation of local solutions and highlighted the immense potential to lead supply chain partners in building ecological cooperation. In the future, we will replicate the Beizhou model in more overseas markets throughout the technology and management empowerment. We will establish deep collaborative win win relationships with upstream and downstream partners globally, building a global automotive export and operational ecosystem.

Through this kind of cooperation, we have not only enhanced the operational efficiency of the supply chain, but also provided a sustainable solution for the international market, laying a solid foundation for future global business expansion. The third part, the strategy of innovation. The strategy of innovation is targeted at activating the existing network and opening new growth frontiers. Innovation has always been the core driving force of Qiwi's development. How to leverage innovation to expand the value of existing resources and break the revenue boundaries of customer business is an ongoing challenge for enterprise growth.

Through multi dimensional exploration in product plus services, platform plus ecosystem and technology plus scenarios, Xuhua reached strategic cooperation with leading domestic food group, New World. Leveraging Xuhua's on demand delivery network covering nearly 100 cities across China, we jointly built a distribution system for beef products, realizing the value added value of the infrastructure network for delivery services, marking the transformation from service provider to supply chain enabler. In this partnership, we will combine newer deep expertise in the beef supply chain with cheaper network advantage in on demand delivery, jointly promoting the implementation of the on demand production real time fulfillment model in the restaurant beef supply chain. Specifically, after merchants place and pay for their orders, new orders will prepare the beef according to demand, complete the cutting, packaging and cold chain processing, and use QiHua's on demand delivery network to quickly deliver fresh beef to restaurants. We expect this model to significantly reduce intermediate storage processes, ensuring beef freshness while reducing merchant inventory pressure and enhancing overall supply chain efficiency.

Additionally, through our proprietary Chico Plus technology platform, we have optimized delivery routes to achieve precise matching of delivery capacity, enabling new world beef products to reach end customers within hours after slaughter. Following successful pilot runs, this model will be gradually scaled and contribute significant revenue in the future. It marks a key upgrade of our on demand delivery business from basic fulfillment services to supply chain empowerment and is becoming a new growth driver for the company. In the future, QiHo will further explore and refine this new catering supply chain model based on its infrastructure and site network in its on demand delivery field. The partnership with New World is just a starting point, and this model is expected to be extended to other catering sectors with high requirements for ingredient preservation, providing flexible and efficient supply chain services from more food suppliers and restaurant businesses.

While pursuing commercial value, we always keep in mind that the company's social responsibility. As of 2024, Quho's platform has provided flexible employment opportunities for over eight and thirty thousand workers from delivery riders to B and B housekeepers. We not only provide jobs, but also create a safety net for them through commercial insurance and vocational training. At the same time, our business innovations are creating long term social value. The new energy vehicles exported overseas reduce carbon emissions by tens of thousands of tons annually.

And the fresh beef direct supply chain model with new work reduces ingredient wastage for restaurants. In 2024, Quhua's strategy was deeply integrated into stabilizing cash flow business as a foundation and expanding business through innovation, driving the company's continuous development with both commercial success and social value. We will continue to optimize operating models and resources allocation, seize key market opportunities and create more social value while generating business value. That concludes my remarks. Next, I will hand the call over to our CFO, who will provide a detailed overview of our financial performance.

Thank you.

Zhen Ba (Co-Founder, CFO, VP & Director)

Thanks, Leslie. Hello, everyone. This is Barry. I'm the CFO of QiHo Group. Welcome to Quhua's second half year of twenty twenty four conference call.

Please be reminded all amounts total here will be RMB unless stated otherwise. Before I delve into our full year results, I would like to draw your attention to something notable that occurred during the February. Total revenue was RMB 1,426,900,000.0 compared with total revenue of RMB 1,966,100,000.0 in the February, representing a decrease of 27.4%. Revenues from our demand for delivery solutions were RMB1329.4 million compared with million in the second half of twenty twenty three, representing a decrease of 24.6. The decrease was primarily because we optimized our business by disposing some of several underperforming service stations, which led to a decrease in revenue scale.

Revenue from mobility service solutions consisting of share back maintenance, recurring vehicle export solutions and the flight service solutions for RMB74.7 million compared with RMB174.3 million in the February, representing a decrease of 57.4%. The decrease was primarily due to a decrease in the units of vehicles sold in our vehicle export solution business. Revenues from housekeeping and accommodation solutions and other services were RMB22.9 million compared with RMB27.5 million in the second half of twenty twenty three, primarily due to the decrease in housekeeping service for hotels as a result of our shift of focus to other business model. Cost of revenue was RMB1378 million, representing a year over year decrease of 26.2% primarily in line with the decrease in our total revenue. G and A expense were RMB77.8 million representing a significant decrease of 24.2% from RMB102.7 million in the second half of twenty twenty three.

The decrease were primarily driven by first, a decline in the professional service fee from million in the second half of twenty twenty three to RMB22.6 million in the second half of twenty twenty four. And second, a reduction of welfare and business development expense and office expense from RMB21.4 million in the second half of twenty twenty three to RMB16.1 million in the second half of twenty twenty four. These savings were largely the result of our effective expense control through engagement of more cost effective service providers, elimination of unnecessary costs and optimization of our employee role and responsibilities. R and D expense remained relatively stable at RMB5.8 million in the second half of twenty twenty four and RMB5.7 million in second half of twenty twenty three. Our other income net was million in the second half of twenty twenty four and RMB10.7 million in the second half of twenty twenty three, primarily due to the disposal of investment in the mutual fund.

Income tax benefit were RMB15.7 million as compared to income tax expense of RMB1.5 million in the second half of twenty twenty three, primarily due to the reversal of unrecognized tax benefits recognized during the years that have been passed the retroactive period. Net income attributable to Qubo Limited was RMB48.1 million compared with net income attributable to Tubei Limited of RMB11.7 million in the second half of twenty twenty three. Adjusted EBITDA was RMB43.8 million compared with adjusted EBITDA of RMB24.1 million in the second half of twenty twenty three. Adjusted net income was RMB4.8 million compared with adjusted net income of RMB7.4 million in the second half of twenty twenty three. Now let's move on to the full year of 2024.

During the fiscal year of 2024, total revenue were 3,046,800,000.0, a decrease of 17.7% compared with total revenue of RMB 3,702,400,000.0 in 2023. Revenue from on demand for delivery solutions were RMB2828.5 million compared with million in 2023, representing a decrease of 17.1. The decrease was primarily due to the optimization of our business by disposing of several underperforming service station, which led to a decrease in revenue scale. Revenue from mobility service solutions were million compared with million in 2023, representing a decrease of 25.1. The decrease was primarily due to the reduction in vehicles sold in our vehicle export solution business.

Revenues from housekeeping and accommodation solutions and other services were RMB43.2 million compared with RMB55.7 million in 2023, primarily due to the decrease of housekeeping service for the hotels as a result of our shift of focus to other business model. Cost of revenue were million, representing a year over year decrease of 15.9%, generally in line with the decrease of our total revenue. G and A expense were RMB148.6 million in 2024, representing a decrease of RMB19.4 million from RMB184.3 million in 2023. This reduction was due to one decrease the first, a decrease in professional service fee from million in 2023 to RMB37.2 million in 2024 and the second, a decrease in welfare and business development expense and office expense from RMB38.6 million in 2023 to RMB28.4 million in 2024. This savings reflect our expense control measures, including more cost effective service providers, eliminating unnecessary costs and optimizing employee roles and responsibilities.

R and D expense were RMB10.7 million in 2024, representing a decrease of 13,700,000.0 from RMB12.4 million in 2023, primarily due to a lower average compensation level for our research and development personnel resulting from the restructuring of our R and D team. Other expense net was million in 2024 as compared to other income net of RMB16.7 million in 2023, primarily due to the fluctuation in the fair value of our investment in the mutual fund in 2023. Income tax benefit was RMB18.3 million in 2024 as compared to RMB0.9 million in 2023, primarily due to the reversal of unrecognized tax benefit recognized in previous years that has passed the retroactive period. Net income attributable to Quhu Limited was RMB1.6 million in 2024 as compared to RMB6 million in 2023. Adjusted EBITDA was RMB9.1 million in 2024 as compared to adjusted EBITDA of million in 2023.

Adjusted net income was RMB1.9 million in 2024 as compared to RMB5.5 million in 2023. In terms of balance sheet, at 12/31/2024, the company has cash, cash equivalents and restricted cash of million and the short term debt of RMB112.8 million. This concludes my prepared remarks. Thank you for your attention. We are now pleased to take your questions.

Operator, please go ahead taking questions.

Operator (participant)

We will now begin the question and answer session. The first question comes from Ling Jin with Tiger. Please go ahead.

Speaker 4

Hi, for your introduction. And Mr. Yu, my question is what's the current progress of the cooperation with New and what are the company's ex expectation? Thank you.

Zhen Ba (Co-Founder, CFO, VP & Director)

Okay. I'll answer this question. This is Eric. Our partnership with New World, our leading is a leading agriculture company in China. It marks Qi was transform transformation from a service partner to a supply chain enabler.

With Qiubo's national wide on demand delivery network, the efficiency of the beef delivery to merchandise has been significantly improved. During the pilot testing phase, several merchant the merchants have already experienced the efficiency gained by

the new model. And at

the same time, both parties will join us to establish a joint venture to incubate restaurant brand, new restaurant brands. Now the brand incubation, store rebranding and the franchising are already in test. By 2025, the corporation is expected to contribute significant revenues becoming a new growth driver for the company. In the future based on the infrastructure and the station networks station network resources in on demand delivery sector, Qiu Huo will further explore improve our new restaurant supply chain model. The collaboration with New World is just in the beginning, and we expect to expand this model to others other food service providers that require high stand for food preservation, providing flexible and the efficient supply chain service to more merchants.

So that's my answer to the question.

Speaker 4

Okay. I get it. Thank you Mr. Ba.

Operator (participant)

This

concludes our question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.