Q4 2023 Quhuo Ltd Earnings Call

Participants

Qishu Wang; Associate Manager of Investor Relations; Quhuo Ltd

Leslie Yu; Chairman of the Board, Chief Executive Officer, Founder; Quhuo Ltd

Zhen Ba; Chief Financial Officer, Vice President, Director; Quhuo Ltd

Zei Yu; Analyst; Tiger Broker

Presentation

Operator

Good day and welcome to the Quhuo Limited '23H2 and full year earnings conference call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Qishu Wang. Please go ahead.

Qishu Wang

Thank you, operator. Hello, everyone, welcome to Quhuo second half and full year of 2023's earnings conference call. The company's results were released earlier today and are available on our website.
On the call today are Leslie Yu, Chairman and CEO; 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 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 operation conditions and relating to the events that involve known or unknown risk, 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 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 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.

Leslie Yu

Thank you, Qishu, and thank you all for joining our second half and full year of 2023 earnings conference call. In 2023 Quhuo achieved a total revenue of RMB3.7 billion, with a gross profit of RMB166.6 million. The adjusted net income reached RMB5.5 million, representing a macro growth of 64.7%, compared to the full year of 2022.
The company achieved a positive result in various key financial indicators, such as net income and income per share of ordinary shares. Marking a historical achievement thanks to the strategy of the improved profitability after increasing revenues, implemented by the company starting in 2021.
We have achieved outstanding performance with positive EBITDA in four consecutive financial reporting periods. Additionally, in 2023, we successfully identified the dual engines driving the second growth curve of our company's business, namely the used vehicle export business and a SaaS+ services, leading to our significant improvement in the company's profitability.
In terms of vehicle export solution in the full year of 2023, we successfully exported approximately 1,900 used vehicles from China to countries and regions like Jordan, generating a revenue of RMB154 million for the company. Within a short span of seven months with an investment of RMB30 million in working capital, we achieved an average monthly revenue of RMB22 million. The high cash turnover rate and the short-term payment cycle in the international trade arena confirmed the stability and replicability of this business.
The used vehicles export business was initiated with the official launch of Quhuo International in February 2023, and it went live in May 2023. Since then, Quhuo has set its insights on the international market, entering a new phase of global development. Looking back at the achievements of Quhuo International, several factors have contributed to its success:
Firstly, so for our oversea market has a strong demand for new energy vehicles, providing favorable conditions for the export of such vehicles. Secondly, China's dominant position in the global market for new energy vehicles has led to rapid growth in the used vehicles export industry. Chinese customs data shows that there were 69,000 used vehicles exported from China in 2022. And the total exceeded 160,000 in 2023. Market projection indicate that the volume of Chinese used vehicle export is expected to reach 400,000 vehicles by 2025. Lastly and most importantly, Quhuo possesses unique advantage that differentiates us from other used vehicle traders.
On the technological and operational front, Quhuo's mobility solutions management team has deep expertise in the right trading sector for over five years. They also have more than two decades of experience and resources from the vehicle trading industry, which has provided them with a profound understanding of the used vehicle export market and ecosystem. Additionally, Quhuo has accumulated over 10 years of professional capabilities in large scale operations and technology.
In terms of vehicle sourcing. Quhuo has partnered with multiple automobile brands and expanded our reach to medium and large-scale auto manufacturers, dealerships, and used vehicle market through our existing ride-hailing business since the first half of 2023, establishing a national wide vehicle social network.
In terms of vehicle refurbishment. Quhuo has accumulated a wealth of vehicle maintenance and repair resources through our previous ride-hailing operations. We have also established our unique network of vehicle refurbishment resources through self-construction and partnerships.
Furthermore, at the sales channel level, Quhuo currently has close cooperation with 58 overseas distributors worldwide, providing stable sales channels and new opportunities for market expansion. All these factors together, build Quhuo's competitive advantage in the global used vehicle trading market, signaling faster business prospects and the expanded development potential.
Another important engine for the second gross growth is the empowerment of SaaS+ service. Primarily focused on housekeeping and accommodation solutions nowadays. Starting from the first half of 2023, the company began piloting the transition to the SaaS+ service empowerment model in the housekeeping services after successfully validating our sales operating model.
After six months of market validation, the company's housekeeping and accommodation solutions began a comprehensive transition towards a SaaS+ empowered model starting in the second half of 2023. This shift allows other small and medium-sized life service providers to utilize Quhuo's mature operations businesses and service products to better meet customer needs. This transformation of the business model drove rapid growth in the GMV of housekeeping and accommodation solutions in 2023, reaching RMB514 million, up 53% increase compared to 2022.
Furthermore, thanks to the successful implementation of SaaS+ service empowerment, the profitability of that business segment significantly improved. The gross profit increased by 48.7% year-on-year, and the gross profit margin rose from 13.4% to 26.4% in housekeeping and accommodation solutions sector.
What's even more pleasing is that the improvement SaaS+ service has also led to significant cost decrease. So overall, operating cost of housekeeping and accommodation solutions decreased by 35.5%, with a remarkable 53.4% decrease in the operating cost of hotel services, showcasing significant cost reduction effect.
Throughout the year 2023 through the innovative empowerment of SaaS+ service will not only significantly enhance the capabilities of low-cost service provider, but also deeply integrate such system into our business operations, achieving significant transformation results. This strategy effectively reduced the cost of the entire supply chain, improved operating efficiency, and brought significant economic benefit to the company. Overall, Quhuo's revenue is primary these types, platform fulfillment service, SaaS+ service, and international trade and technology service.
Platform fulfillment service is the earliest business segment that Quhuo ventured into. And it serves as the cornerstone of the company. It mainly involves on-demand food delivery and mobility service solutions, and it generates revenues through service fee for order fulfillment. This segment is an important component of the company's revenue as it being steadily developing. In 2023, the revenue from fulfillment services reached RMB3.5 billion.
SaaS+ service as mentioned earlier is one engine for the second growth curve, focusing primarily on housekeeping and accommodation services. It generates revenue through charging for flexible employment platform services. The great achievement made by SaaS+ service in 2023 have given us confidence to establish extensive cooperation with more new customers and expand the SaaS+ service scheme into more business areas. Currently, we are in discussion with leading medical institutions, long-term rental platforms, and senior living apartments in China, intending to enter the medical and elderly care industries.
International channel revenue is another engine for the second growth curve deriving from mobility solutions, especially in the used vehicle export business. Facing various pain points in the international trade of used vehicles, such as authentic of transactions, transparency of processes, guarantee of vehicle qualities, and inadequate after-sales services. Quhuo International will launch a unique used vehicle export trading platform called, Carnuxt. This platform aims to create achievable win marketing environment for car manufacturers, dealers, and consumers while providing one-stop solutions to challenges related to the quality of the used vehicle products, sales channels, and after-sales services.
Recently, there has been a push in China for a new round of large-scale equipment renewal and in consumer goods trade in programs, which will result in more used vehicles entering the market. This aligns with the growing demand for used vehicles in oversea markets. Leveraging the advantages of Carnuxt trading platform and high-quality services to aim to seize this business opportunity, consolidate our leading position in the international trade of used vehicle and explore growth, greater market potential for used vehicles in China.
Thus far, Quhuo's three major service models have jointly constructed and integrated and diversified commercial landscape. With the cornerstone sector being the fulfillment services, which serve as a stabilizing performance for the company's revenue and profit. Meanwhile, SaaS+ service and international trade serve as vital drives for company's property business expansion, leading to higher opportunities for overall business growth. They also seek to diversify the company's income streams and enhance its profitability, thereby opening up significant growth potential for the company.
In conclusion, whether through the transformation of the SaaS+ business or Quhuo International expansion efforts, Quhuo has brought about new opportunities with the employment market. In the future, we will also extend our mature on-demand delivery service to oversea markets. Through partnership with local on-demand service platforms, we aim to further develop global delivery services, providing more choices and opportunities for workers, both domestically and abroad. This initiative will contribute to promoting employment growth, enhancing labor marketing flexibility, and further driving sustainable social economic development.
I concluded my prepared remarks here. And now I would like to turn the call to our CFO, Barry, to provide further insights into our financial (technical difficulty)

Zhen Ba

Thanks, Leslie. Hello, everyone, welcome to Quhuo's second half and full year of 2023 conference call. Please be reminded that all amounts quoted here will be RMB unless stated otherwise. Before I delve into our full year result, I would like to draw your attention to something notable that occurred during the second half of 2023. For the six months ended December 31, 2023, revenue was RMB1,966.1 million, a slightly increase, compared with 2022 in the same period, which was RMB1,956.6 million.
Now let's look at the segment result. Revenue from on-demand food delivery solution were RMB1,763.2 million, representing a decrease about 6% from RMB1,874.9 million in the second half of 2022, primarily because we enjoyed more preferential policies and subsidies during the second half of 2022, primarily because we enjoy subsidy amid the COVID-19 pandemic, which was significantly reduced in the six months ended in December 31, 2023, following the relief of the pandemic.
Revenue from mobility service solutions, consisting of shared-bike maintenance, ride-hailing, vehicle export solutions, and freight service solutions, were RMB175.3 million, representing an increase of 239.6% from RMB51 million in the second half year of 2022, primarily due to the success of vehicle export solutions, which generated revenue of RMB142.5 million.
Revenue from housekeeping and accommodation solutions and other services were RMB27.5 million, representing a decrease about 8.3% from the RMB30 million in the second half of 2022, primarily due to the transition of business model in hotel services. The cost of revenue was RMB1,866.3 million, representing 3.8% year-over-year increase, primarily in line with the increase of total revenues.
General and administrative expenses were RMB102.7 million, representing a decrease of 9.9% from RMB114.1 million in the second half of 2022, primarily due to the improvement in company management efficiency and the decrease in share-based compensation expense from RMB7.3 million in the second half of 2022 to a net benefit of RMB4.3 million in the second half of 2023.
R&D expense were RMB5.7 million, representing an increase of 6.6% from RMB5.4 million in the second half of 2022, primarily due to increased investment in SaaS+ technology. Speaking of income, we recorded other income, net, of RMB10.7 million compared to other loss, net, of RMB17.8 million in the second half of 2022, primarily due to the fluctuation in the fair value of our investment in a mutual fund.
Income tax expense were RMB1.4 million compared to the income tax expense of RMB14.3 million in the second half of 2022, primarily due to the lower estimated annual effective tax rate for the second half of 2023. Net income attributable to Quhuo Limited was RMB13 million, compared with net income attributable to Quhuo Limited of RMB11.8 million in the second half of 2022.
Adjusted EBITDA was RMB24.1 million, compared with adjusted EBITDA of RMB47.8 million in the second half of 2022. Adjusted net income was RMB7.4 million, compared to the adjusted net income of RMB17.4 million in the second half of 2022.
Now, let's move to the full year of 2023. During the fiscal year of 2023, total revenue was RMB3,702.4 million, compared with total revenue of RMB3,820.4 million in 2022.
As for the breakdown. Revenue from on-demand food delivery solutions was RMB3,412.8 million, representing a decrease of 6.2% from RMB3,638.7 million in 2022, primarily due to -- we enjoyed more preferential policy and the subsidy during 2022 amid the COVID-19 pandemic, which was significantly reduced in 2023 following the relief of the pandemic.
Revenue from mobility service solutions were RMB233.8 million, representing an increase of 116.4% from RMB108.1 million in 2022, primarily due to the increase -- the success of vehicle export solutions. And we exported around 1900 units of new energy vehicles and electric mopeds from China to the oversea market and generated revenue of RMB154.5 million.
Revenue from housekeeping and accommodation solutions and other services were RMB55.7 million, representing a decrease of 24.2% from RMB73.6 million in 2022, primarily due to the transaction of the business model in hotel service. Regarding the cost of revenue, which was RMB3,435.8 million which remained relatively stable as compared to the cost of revenue in 2022.
Now let's move to expenses. G&A expense were RMB184.3 million, representing a decrease of 13.7% from RMB213.6 million, primarily due to the decrease in share-based compensation expense from RMB19.8 million in 2022 to a net benefit of RMB0.5 million in 2023. R&D expense remained relatively stable at RMB12.4 million in 2023, compared with RMB12.5 million in 2022.
As our CEO Leslie said before, in 2021, we proposed a strategy of improving profitability after increasing revenue. The effectiveness of this strategy was proven in 2022 and 2023 as we have achieved a positive EBITDA for four consecutive half years, which is a remarkable accomplishment milestone. It signify the company's consistent positive profitability over the past two years, demonstrating our stable and sound operational performance.
Other income, net was RMB,16.7 million, compared to other loss, net of RMB26.1 million in 2022, primarily due to the fluctuation in the fair value of our investments in a mutual fund. Income tax benefit was RMB0.9 million, compared to income tax expense of RMB21 million in 2022, primarily due to the lower estimated annual effective tax rate for the year 2023, and the increase in deferred tax asset benefits. Net income attributed to Quhuo Limited was RMB3.3 million, compared with net loss attributable to Quhuo Limited of RMB13.1 million in 2022.
Adjusted EBITDA was RMB35.2 million, compared with adjusted EBITDA of RMB58.6 million in 2022. Adjusted net income was RMB5.5 million, compared with adjusted net income of RMB3.3 million in 2022. In terms of the balance sheet in 2023. As of December 31, 2023, the company has cash short-term investments, and restricted cash of RMB114.8 million and short-term debt of RMB92.7 million.
This concludes my prepared remarks. Thank you for your attention. We are now pleased to take your questions. Operator, please go ahead.

Question and Answer Session

Operator

(Operator Instructions) It appears we have no questions at this time. I would like to turn the conference back over to management for closing remarks.

Qishu Wang

I'm sorry, we want to wait for -- if there's any investor who wants to have a question. Maybe give us some more minutes. Okay, so if there is no more question, we will finish our conference call here. Thank you, everyone for listening and if you have more questions, you can find us and contact us from our website. Okay, thank you, everyone, and goodbye.

Operator

Pardon me, it looks like we do have some questioners who have dialed in. The first one is from Bill Lee with Tiger Broker. Please go ahead.

Zei Yu

Thank you. This is Zei Yu from Tiger. Thank you to the management for sharing. My question is what is Quhuo strategic plan for the next steps? Thank you.

Leslie Yu

Okay, this is Leslie, I'm the CEO of Quhuo. Regarding the future plan for trade -- over the past decade, we concentrated building our core competence is a lean operation through our self-operating model. But we expected after the expiration in 2023, from 2024 onwards, we would like to define our strategy from self-operation to collaborative empowerment, which means we will explore more opportunities in collaboration and more focusing on empowerment.
So we consider three main areas to implement this collaborative empowerment strategy. And the first phase on domestic side, we will focus on providing SaaS+ service empowerment. Not just empowering local life service operators in housekeeping and accommodation. We also, we are extending our SaaS+ service to broader business areas. For example, like elderly care, because China is now aging population and medical services, and also, we will empower on outcome rental apartments.
On the international trading side, where we are more focused on empowering our trading partners worldwide. So we plan to launch our trading platform, we call this Carnuxt, which we are working closely with our 58 service dealers worldwide. We plan to transform them into our regional operational collaborative service partners. They will work together with us to further explore opportunities worldwide to address the issues of transparency and securities for used vehicle export trade.
With this initiative, and we hope that we can, through issuing Carnuxt certificates, provide more quality assurance for our trading partners worldwide and expand more opportunities in the development of new energy vehicles. And obviously, further increasing Quhuo's market share and revenue in international -- in this market.
And another part of collaborative empowerment we think about is on-demand delivery business. We did some investigation and feasibility studies, and we believe that oversea on-demand delivery market is characterized by significant consumer scale and a high growth potential.
As the projection data, that is set. Set's the market size of solvency margin for on-demand delivery is reached about more than 600 billion by 2032. But however, we see the problems and the problems like, poor service experience and high delivery cost and also sufficient capacity to handle large volumes of orders in the peak time. So we think these are good opportunities for Quhuo.
So in 2024, we will focus on Southeast Asia and the Middle East as our pioneer stations for overseas expansion and we will cooperate with the local on-demand platform and some restaurants and also localized life service providers. And we will mainly through (technical difficulty) -- of poor service experience and a high cost in the oversea delivery service market.
And we believe that the experience, expertise, and also the technology, what we accumulated in the past 10 years in China, we will empower our working partners in oversea, and we expect to achieve more business growth in oversea market. And our plan is by 2025, we aim to achieve the business implementation in more than five new countries and explore other regional markets and furthermore.
So about our future plans. In summary, in 2024, we're considering that firstly, we will maintaining our domestic cornerstone business stable growth and at the same time, we will actively seek a growth opportunity in oversea market. So you enhance the company's profitability and growth space through the international expansion of used vehicle and also on-demand delivery together with our domestic SaaS+ service. Thank you very much. Hope that can clarify that what we are going to do in the future, yeah. Thank you.

Qishu Wang

Okay operator, please check if there's more question.

Operator

(Operator Instructions) There are no further questions at this time. I would like to hand the call back over for closing remarks.

Qishu Wang

Okay, if there's no more question, we will finish our conference call here and thank you, everyone for listening tonight. If there's (technical difficulty) -- more questions, you can contact us from the IR website. Okay, so that's all. Thank you, goodbye.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.