Edited Transcript of BQ.N earnings conference call or presentation 1-Dec-22 1:00pm GMT

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Q2 2023 Boqii Holding Ltd Earnings Call Dec 2, 2022 (Thomson StreetEvents) -- Edited Transcript of Boqii Holding Ltd earnings conference call or presentation Thursday, December 1, 2022 at 1:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Mandy Luo Boqii Holding Ltd - IR * Lisa Tang Boqii Holding Ltd - Co-CEO & CFO ================================================================================ Conference Call Participants ================================================================================ * Matt Ma China Securities - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, ladies and gentlemen. Thank you for standing by, and welcome to Boqii's fiscal 2023 first-half earnings conference call. Currently, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I will turn the call over to L, Boqii's Head of Investor Relations. L? -------------------------------------------------------------------------------- Mandy Luo, Boqii Holding Ltd - IR [2] -------------------------------------------------------------------------------- Thank you, operator. And good morning, everyone. Before the conference starts, I need to explain that I am currently at home. And my cat is sick, so there may be some voices. And I hope you could understand it. Okay. Then, welcome to Boqii's fiscal 2023 first-half earnings conference call. Joining us today are Ms. Lisa Tang, Co-CEO and CFO; Mr. [Loyal Day], our Financial VP; and Ms. L, our Head of Investor Relations. (spoken in Chinese) We released results earlier today. The press release is available on the company's IR website at ir.boqii.com as well as from newswire services. A replay of the call will be available on the site later today. (spoken in Chinese) Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties are included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. (spoken in Chinese) Please note that certain financial measures that we use on this call such as non-GAAP net loss, non-GAAP net loss margin, EBITDA, and EBITDA margin are expressed on a non-GAAP basis. Our GAAP results and reconciliations of GAAP to non-GAAP measures can be found in our earnings press release. (spoken in Chinese) Also, please be reminded that unless otherwise stated, all figures mentioned during the conference call are in Chinese RMB. (spoken in Chinese) With that, let me now turn the call over to our Co-CEO and CFO, Ms. Lisa Tang, to go over our first-half performance and highlights. Over to you, Lisa. (spoken in Chinese) -------------------------------------------------------------------------------- Lisa Tang, Boqii Holding Ltd - Co-CEO & CFO [3] -------------------------------------------------------------------------------- Thank you, L, and many thanks to L's cat and wish she will recover soon. And many thanks to everyone for joining the call today. During the first half of fiscal 2023, thanks to the efforts of our colleagues, and many thanks to the customers and the partners, despite the uncertainties of the epidemic, we still achieved the main goals set before and completed the path optimization from obtaining accurate traffic and integrating upstream and downstream ensure for building the delivery. At the same time, we also rationally analyzed the influence of the various environmental factors and actively faced the challenges from raw materials, manufacturing, and logistics, which further improved the integration, timeliness, and the risk resistance of our system. (spoken in Chinese) Due to the impact of the above market environment leading to a year-over-year slight decrease of 2.4% in revenue to RMB589.6 million during the first half. In spite of this, we still actively searched market opportunities, adjusted appropriately our operating strategies, and achieved satisfactory results in the first half as we continue to integrate upstream and downstream of the industrial chain, optimize our product mix, and adjust the product categories. (spoken in Chinese) During the first half of fiscal year '23, our GMP reported a notable increase to 240 basis points to 21.0%, among which the GMP of private label increased from 27.4% to 33.0%. Our post-fulfillment margin also increased 130 basis points to 9.5%. (spoken in Chinese) On company management, we also further optimized our cost structure and achieved remarkable success. Our operating expenses were able to report 21.0% year-over-year decrease in the first half. In terms of revenue, we also dropped from 32.2% of total revenue to 26.1% of total revenue, highlighting our effectiveness in cost control. (spoken in Chinese) That lays the foundation for a narrowing loss from operations and the net loss, which decreased by 64.2% to RMB29.6 million from RMB82.6 million and 62.0% (sic - see press release, "64.0%") to RMB29.5 million from RMB81.9 million, respectively. All this has demonstrated our business reliance and improving profitability. (spoken in Chinese) Looking back to our journey, Boqii has established its leading position as the go-to pet platform in China by creating values for pets, brand partners, and pet parents. We will continue to expand our ecosystem in the future. And we hope to become the preferred channel for our users as well as the leading market development as we further expand our product selection and network reach. (spoken in Chinese) Now, let me pass the call to L again to further update you on the market insights and our operations in the first half. (spoken in Chinese) -------------------------------------------------------------------------------- Mandy Luo, Boqii Holding Ltd - IR [4] -------------------------------------------------------------------------------- Okay. Thank you, Lisa, for the review of performance and business highlights. (spoken in Chinese) Despite the uncertainties and challenges, we remain optimistic about the future of China's pet market. According to the iResearch white paper, it is projected that the industry will reach RMB445.6 billion in value, which is USD66.1 billion by 2023, with steady growth of the market and the possibility of continued growth in the future. Hence, we will continue to be committed to enable the industry upstream and downstream, precise product positioning, and expand our online and offline reach, so that we will further establish ourselves as the leading pet ecosystem in China and to become the go-to platform for pet parents and brand partners. (spoken in Chinese) On traffic approach, we put in notable efforts on breaking circle linkage and user, sorry, engagement during the first half. Our number of orders increased by 4.1% year over year to 5.03 million. We also delivered a strong growth in active users increasing 16.4% year over year to a record high of about 3.81 million. Our [CC] also reported 54.1% year-over-year decrease to RMB5.2 from RMB11.3 in the same period last year, which is our record low. All these pointed to the fact that online community remains vibrant with new traffic and high stickiness laying a solid foundation for future growth. (spoken in Chinese) And as one of the company's strategies, we also made great strides in our private-label business in the first half as a key way to build close cooperation with upstream and tap into new product categories that would drive sales satisfaction and customer stickiness. Our private-label business reported an encouraging performance during the first half with revenue increasing 30.9% year over year to RMB105.1 million and gross profit margin increasing by 560 basis points year over year to 33% from 27.4%. The revenue contribution of such high-margin business has also increased from 13.3% of total revenue last year to 17.8% this year. (spoken in Chinese) In addition, supported by our increasingly solid financial position and strong operating cash flow, we also believe we may need better infrastructure and support along the supply chain so that we can maintain our competitiveness and expand our ecosystem. Hence, we are actively exploring potential cooperation, investments, or acquisition opportunities with other upstream and midstream players. And we will be more than happy to update you in the future. (spoken in Chinese) We believe that the improving financials should be translated to an increase in investment value especially as we demonstrated our improving profitability for successive quarters. On the other hand, the increase in financial strength should also allow us to pursue more options in boosting shareholders' return in the long-term future. (spoken in Chinese) Now, I will turn the call over to our Financial VP, Loyal Day, who will share more details on our financials. Loyal? (spoken in Chinese) -------------------------------------------------------------------------------- Unidentified Company Representative [5] -------------------------------------------------------------------------------- Thank you, L. Now please allow me to walk you through our financial highlights in the first half of fiscal year 2023. Before I go into details, please note that all numbers presented are in RMB and are for the six months ended September 30, 2022, unless stated otherwise. All percentage changes are on a year-over-year basis unless otherwise specified. (spoken in Chinese) In this first half, our total revenue decreased 2.4% to RMB589.6 million, primarily due to the recurrence of COVID-19, which led to a modest decrease in product sales revenue of 1.5% year over year to RMB568.7 million. (spoken in Chinese) In terms of fulfillment, we integrated our back office service system and completed the upgrade of several fulfillment models such as intelligent sorting and cloud warehouses to further enhance our services capability and risk resistance as a response to the price increase and control restrictions faced by the logistics system in the post-COVID era resulting in increased transportation and operation costs. In the first half of fiscal year 2023, our fulfillment expenses slightly decreased -- slightly increased from 10.4% of revenue last year to 11.6% of revenue this year. Lastly, maintained at RMB68.2 million, yet our post-fulfillment gross margins still reported an increase from 8.2% last year to 9.5% this year as a result of the gross profit margin increase by 240 basis points from 18.6% to 21%. (spoken in Chinese) Our total sales and marketing expenses were RMB63.5 million, down by 29% from RMB89.5 million over the same period last year. Sales and marketing expenses as a percentage of total revenue was 10.8%, down from 14.8% primarily due to the cost savings generated from reducing advertisement expenses and increasing proportion of revenue generated from more cost-efficient channels. (spoken in Chinese) General and administrative expenses in this period were RMB22.1 million, down by 48.4% from RMB 42.8 million in the same period of fiscal year 2022. General and administrative expenses as a percentage of total revenue was 3.7%, down from 7.1% primarily due to the decrease in share-based compensation expenses, staff costs, and professional fees. (spoken in Chinese) That came down to a net loss of RMB29.5 million in the first half versus a net loss of RMB81.9 million in the same period last year, representing a significant drop of 64%. EBITDA-wise, it also dropped from a loss of RMB77.1 million last year to a net loss of RMB22.9 million this year. (spoken in Chinese) We ended this period with cash, cash equivalents, and short-term investment of RMB210.3 million. With our strong cash on hand, healthy gearing, and improving profitability, we believe we are cash sufficient in our operation. (spoken in Chinese) Taking a broader view, we are cautiously optimistic about the market condition and remain fully confident with our strategy and execution. Supported by our expanding brand portfolio of 704 brands in the first half along with an 8% year-over-year increase in SKUs to 26,008, we believe we are well equipped to capture market opportunities. (spoken in Chinese) This will wrap up my summary. And let's now move on to the Q&A session. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) [Jin Ming], Guosheng Securities. -------------------------------------------------------------------------------- Unidentified Analyst [2] -------------------------------------------------------------------------------- (spoken in Chinese) -------------------------------------------------------------------------------- Mandy Luo, Boqii Holding Ltd - IR [3] -------------------------------------------------------------------------------- Okay. (spoken in Chinese) Let me translate. Jin Ming, which from the Guosheng Securities asked us about two questions. But firstly, she congratulates us on our good performance in the first half of fiscal 2023. And her two questions is -- first is, which sector is the company's strategic focus in the future? And second question is, are there any expectations for the future revenue proportion and gross margin and net margin of private labels? Okay. (spoken in Chinese) -------------------------------------------------------------------------------- Lisa Tang, Boqii Holding Ltd - Co-CEO & CFO [4] -------------------------------------------------------------------------------- (spoken in Chinese) -------------------------------------------------------------------------------- Mandy Luo, Boqii Holding Ltd - IR [5] -------------------------------------------------------------------------------- Okay. Let me translate. For the first question that Jin Ming asked us about the company's strategic focus in the future, and we answered that we will further optimization of the supply chain and will create a rail mechanism of supply chain with continuous feedback from big data in the pet industry and to make the supply chain to the best. And in addition, we will invest more resources into the private labels and to further develop our private labels. (spoken in Chinese) -------------------------------------------------------------------------------- Unidentified Company Representative [6] -------------------------------------------------------------------------------- (spoken in Chinese) Based on our platform's big data capabilities and our rich user profile, we adjusted product mix in the first half year. We added some new SKUs such as snacks and health care products to satisfy the needs of pet parent in multiple dimensions. The revenue share of private label has increased from 13.9% in the first half of last year to 18.5% in this year. And it's expected to exceed 20% in the short-term future. And the gross margin of our private label has also increased a lot from 27.4% to 33%. And if that is to increase continuously, we expect it will exceed 35% in the short-term future. That's our response. Thank you. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- (Operator Instructions) Matt Ma, China Securities. -------------------------------------------------------------------------------- Matt Ma, China Securities - Analyst [8] -------------------------------------------------------------------------------- (spoken in Chinese) -------------------------------------------------------------------------------- Mandy Luo, Boqii Holding Ltd - IR [9] -------------------------------------------------------------------------------- (spoken in Chinese) Okay. Let me translate, first. Matt Ma, which from China Securities, asked us about will the company consider buying back or increasing shares in the future? (spoken in Chinese) Okay. Let me translate. So for the question about the buyback and increased shares, we answered that we will evaluate market conditions to determine the timing and details of the buyback or increasing shares program. Okay. I have finished my answer. -------------------------------------------------------------------------------- Matt Ma, China Securities - Analyst [10] -------------------------------------------------------------------------------- (spoken in Chinese) -------------------------------------------------------------------------------- Mandy Luo, Boqii Holding Ltd - IR [11] -------------------------------------------------------------------------------- (spoken in Chinese) -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks. Do you have any closing remarks? And ladies and gentlemen, it appears that there are no closing remarks today. So 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.