Q1 2023 Quhuo Ltd Earnings Call

Participants

Qishu Wang; Associate Manager of IR; Quhuo Limited

Leslie Yu; Chairman of the Board, Director, and CEO; Quhuo Limited

Barry Ba; Director, VP, and CFO; Quhuo Limited

Zei Yu; Analyst; Tiger Brokers

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Quhuo first half year of 2023's earnings conference call. After management's prepared remarks, there will be a question-and-answer session. Today's conference call is being recorded. (Operator Instructions)
I would now like to turn the call over to Ms. Qishu Wang. Please go ahead, Qishu.

Qishu Wang

Thank you, operator. Hello, everyone. Welcome to Quhuo's first half year of 2023's earnings call 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; CFO, Barry Ba. Leslie will review business operations and the company highlights, followed by Barry, who will discuss financials and guidance. They will be available for answers 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 Legislation Reform Act of 1995. Such statements are based on management's current expectations and the 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 these and 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 statement 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

Thank you, Qishu. Thank you all for joining our first half of 2023 earnings conference call.
Following the increasing value first and improving profitability later, actually in 2022, Quhuo continued to enhance profitability and optimize costs in the first half year of 2023. Meanwhile, based on our mobility service solutions, we have embarked on the creation of a second growth trajectory for our business, which has yielded significant achievements.
Of its current domestic income condition, Quhuo achieved a massive improvement in its financial results during the first half of 2023. Generally speaking, in the first half of 2023, Quhuo achieved a 78.6% year-on-year decrease in net losses and an 87.0% decrease in adjusted net losses. Adjusted EBITDA also increased by 2.8%, reaching RMB11.1 million.
First, the mobility service solutions and housekeeping services have delivered satisfactory results. Furthermore, we made progress in cost and expense control through technology optimization. In the first half of 2023, overall operating costs decreased by 5.7% year on year. General and administrative expenses decreased by 18% to RMB80.1 million (sic - see press release, "RMB81.6 million"), and the research and development expenses decreased by 7.2% to RMB6.6 million.
Considering the current economic condition in the domestic market, we also managed asset-liability allocation, resulting in an increase in interest income from RMB191,000 in the first half of 2022 to RMB742,000. Interest expenses also decreased by 38.6% from RMB3.8 million in the first half of 2022 to RMB2.3 million in the first half of 2023.
As you may know, our kinds of demand delivery solutions and mobility service solutions are mainly well-known consumer service platforms such as Meituan, Eleme, Didi, and major chain restaurants like KFC, McDonald's, and Luckin Coffee. Through platform fulfillment services, Quhuo offers clients streamlined management operations and standardized service products while charging service fees for order fulfillment. In the first half of 2023, the service revenue from on-demand delivery and mobility solutions, excluding vehicle export solutions, amounted to RMB1.7 billion.
Our housekeeping and accommodation services are provided on the SaaS plus service model. The SaaS plus service model primarily offers a comprehensive solution for housekeeping and accommodation and other community service providers, encompassing services such as online traffic, orders, payment, and customer support. Additionally, we provide value-added services like human resource management, financial management, and data analysis, helping such providers enhance management efficiency and decision-making capabilities, thereby improving service quality and user satisfaction, leading to increased revenue.
Meanwhile, the primary source of revenue for SaaS plus service product is the commission collected from partners based on the GMV charges through our platform. In the first half of 2023, the revenue from housekeeping and accommodation solutions and other services amounted to RMB28.2 million.
In the first half of 2023, we actively expanded the second growth curve. In February, Quhuo officially launched an international business under Quhuo International. After preparation in March and April, we officially launched the vehicle export solutions in May. As of now, the results have been significant.
With cooperation intentions reached for over 3,000 units, the contract of 1,720 units had been signed and more than 200 units delivered. In May alone, the service generated revenue of RMB11.98 million and achieved profitability. The remaining service contracts that have been signed but not yet fulfilled are expected to continue bringing financial returns to the company in the second half of the year. Quhuo International will continue to increase investment in this business, gradually building a network of automotive dealerships in 58 countries and regions around the world, including Jordan and the United Arab Emirates.
According to the media report, the total volume of China's used cars in 2021 was approximately 15,000 vehicles. Within just one month of Quhuo's vehicle export solutions going live, the volume of signed contracts already accounted for 20% of the total exports for the entire year of 2021. The report indicates that China's used car exports are expected to exceed 100,000 vehicles in 2023.
With a predominant focus on electronic vehicle exports, this is said to provide Quhuo's internationalization efforts with an even greater room for extensive development. We believe that the achievements Quhuo has made in the vehicle export solutions are partly attributed to China's domestic vehicle scrappage policies and the [rare criticals] of the electric industry.
However, even more crucial is Quhuo's extensive data and operational experience in ride-hailing services. The business team of Quhuo's mobility service solutions has been deeply rooted in the ride-hailing service for over five years and possesses more than two decades of experience and resources in the automotive export field.
Currently, Quhuo has become one of the key partners of China's largest ride-hailing platform, Didi. All the above allows our business team of Quhuo's mobility service solutions to connect with various large and medium-sized automotive manufacturers, dealerships, and in the second-hand car market, allowing us to swiftly access information on vehicles for sale and establish close relationships with relevant entities.
Our close collaboration with overseas dealers has led to robust communication and cooperation ties. This formidable network of partnerships has laid a strong foundation for Quhuo's international expansion, enabling us to see then early presence in overseas market. Leveraging our material ride-hailing business line, operational experience, accumulated data, and diversified vehicle resources, we achieved profitability within just one month of launching this service.
In future, Quhuo will leverage its second-hand car repair capabilities for streamlined operations. Currently, the overseas expansion of used cars is on a fast track of development. Electric vehicles are the main source driving China's used car export, accounting for about 70%.
In addition to serving ride-hailing drivers and providing these unused car sales, Quhuo possesses robust car repair capabilities. While offering ride-hailing solutions, the company has accumulated significant resources for vehicle maintenance and repair, creating a unique network of vehicle repair resources.
Relying on Quhuo International's long-standing network of overseas dealerships and the increasing volume of used car domestically, Quhuo will continue to build its core advantage in optimizing used car repair. By establishing and collaborating our repair centers nationwide, Quhuo aims to enhance efficiency through standardized process, create international used car certification standards, and optimize the environment for international used car transactions. For instance, setting up a refurbishment center at vehicle source locations, completing used car repairs and condition reparating, and ensure vehicles are shipped on the same day when they reach the port to reduce logistic costs.
Through innovative transaction models of domestic operations plus international export, Quhuo International will become the company's second growth wave and explore entirely new realms of development, which will boost the company's revenue and profitability, providing a broader scope for growth. Moreover, it will offer various industrial stakeholders more business opportunities and avenues for collaboration.
It will not only foster the development of international automotive trade and bring forth opportunities arising from the booming electric vehicle industries to overseas countries and regions, but also actively assume a positive corporate social responsibility in global energy conservation and emissions reduction.
We are confident that Quhuo International is offering a more diversified range of products and services to our clients, catering to the varied needs of different regions and markets. This will create additional revenue streams for us, propel overall company growth, and unlock substantial business opportunities and growth potential.
This concludes my statement. I will now turn the call over to our CFO, who will discuss our financial results for the first half of 2023.

Barry Ba

Thanks, Leslie. Hello, everyone. Welcome to Quhuo's first half year of 2023 conference call. Please be reminded that all amounts for the year will be RMB unless stated otherwise.
The first year of 2023 total revenue is RMB1,736.3 million, compared with total revenue of RMB1,863.8 million in the first year of 2022.
As further breakdown, revenues from our on-demand delivery solutions were RMB1,649.6 million, representing a decrease of 6.5% from RMB1,763.8 million in the first half year of 2022, primarily because we enjoyed more preferential policies during the first year of 2022 amidst the COVID-19 pandemic, which was significantly reduced in the six months ended June 30, 2023 following the relief of the pandemic.
Revenues from mobility service solutions, consisting of shared bike maintenance, ride hailing, freight service solutions, and newly launched vehicle export solutions, were RMB58.5 million, representing an increase of 3.6% from RMB56.5 million in the six months ended June 30, 2022, primarily due to two major points. One is the commencement of vehicle export solutions, which generated revenue of RMB12 million; and second, our enlarged customer base and the service scope for ride-hailing solution service.
Revenues from housekeeping and accommodation solutions and other services are RMB28.2 million, representing a decrease of 35.2% from RMB43.5 million in the first six months ending June 30, 2022, primarily due to the construction of the business model in hotel and accommodation service.
Overall, Quhuo realized a number of financial data improvements amidst the current economic conditions in domestic market.
Cost of revenue was RMB1,669.5 million, representing a decrease of 5.7% year over year, primarily attributed to the decrease in our labor costs and hiring expenses.
Our G&A expense were RMB81.6 million, representing a decrease of 18% from RMB99.5 million in the six months ended June 30, 2022, primarily due to the decrease in two major points: one, to the share-based compensation expense has decreased from RMB12.5 million in the first year of 2022 down to RMB3.9 million in the first year of 2023; and the second, the welfare and business development expense and office expense has decreased from RMB29.5 million in the first year of 2022 down to RMB17.3 million in the first year of 2023.
Our R&D expenses were RMB6.6 million, representing a decrease of 7.2% from RMB7.2 million in the six months ended June 30, 2022, primarily due to the decrease in the average compensation level for our R&D personnel as a restructured result of our R&D team.
Other income was RMB6 million compared to the losses of RMB8.3 million in the first half of 2022, primarily due to the increase in our fair value change on investment in the mutual fund.
The income tax benefit was RMB2.4 million as compared to income tax expense of RMB6.7 million in the first year of 2022, primarily due to the increase in our deferred tax asset benefit.
And net loss attributed to Quhuo Limited was RMB9.6 million as compared to RMB25 million in the first year of 2022.
Adjusted net loss was RMB1.8 million, as compared to adjusted net loss of RMB14.1 million in the first year of 2022.
And our adjusted EBITDA was -- is the earning of RMB11.1 million, as compared to adjusted EBITDA of earning RMB10.8 million in the first year of 2022.
In terms of the balance sheet, as of June 30, 2023, the company has cash, short-term investment, and restricted cash of RMB178.2 million and short-term debt of RMB95.7 million.
This concludes my prepared remarks. Thank you for your attention. We are now pleased to answer your questions. Operator, please go ahead.

Question and Answer Session

Operator

(Operator Instructions) [Zei Yu], Tiger.

Zei Yu

Hi, this is Zei Yu from Tiger. I have a question. Quhuo always focused on localized community-like services. Is there some relation between the newly launched vehicle export solution and the company's original business? And can it establish a complementary relationship with the existing business? That's my question.

Leslie Yu

Thanks for the question. This is Leslie. I would like to explain the relationship between second-hand car export and what we are focusing on localized community service.
Firstly, our vehicle export solution has a very strong connection with our existing business. The vehicle export solution actually derives from our mobility sector as an asset management initiative. This portion of our business will leverage the vehicle information and the maintenance resources we have accumulated in the mobility business to provide vehicle rescue value management services for our mobility clients, thereby extending and expanding our offerings within the local community service sector.
On the other hand, as we progress with the vehicle export business, it allows us to expand into the global market, broadening our service reach to more diverse regions and opening up a greater market potential.
So in summary, while the vehicle export solutions operates in different domains, it is a derivative and extension of our core business. Through the organic fusion of technology, data, and operational experience, it forms a beneficial relationship with our original business, offering fresh moments and opportunities for our company's growth. Thank you.

Operator

(Operator Instructions) There are no further questions at this time. I'll now hand the call back to management for closing remarks.

Qishu Wang

Okay. Thank you everyone for listening. Thank you. That's all.

Leslie Yu

Thank you.

Operator

That concludes today's conference. Thank you for attending, and you may now disconnect.