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spk02: Ladies and gentlemen, welcome to Q4 third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. If you have any objections, you may disconnect now. I'd now like to turn the conference over to your host for today's conference call, Anderson, investor relations director of Chihuahua. Please go ahead.
spk03: Thank you. Thank you, operator. Hi, hello, everyone. Welcome to Chihuahua's third quarter 2020 earning conference call. The company's results were released earlier today and are available on our IR website. On the call today, Leslie Yu, chairman of CEO, co-founder Barry Ban, and CFO Sandra Zee, Lastly, we will review business operations and company highlights, followed by Sandra Zee, who will discuss financial and guidance. They will both be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you this call may contain forward-looking statements. May enter the Safe Harbor Provision of Private Security Legislation form, Act of 1995. Such statements are based on management's current expectations and the current market and operating conditions and related 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 material from those in the forward-looking statements. For the information regarding this and other risks, uncertainties, and factors, it includes in the company's filing with U.S. Security and Exchange Commission. The company doesn't 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, Please go ahead.
spk00: Thank you, Ania, and thank you all for joining our third quarter 2020 earning course. During the third quarter, despite the ongoing impact of COVID-19, we are very pleased to report a significant improvement in our bottom line. We achieved further growth on revenue, gross profit, and net income. Along with the rapid growth of revenues and sales coverage, our adjusted net income reached 61 million RMB, which is more than four times the increase year-over-year, and a new record high since our inception. There are three major drivers behind this number. Firstly, thanks to our unique and refined management system, Q4+. which enabled us to maintain both rapid growth and stronger profitability than our peers, even in the rapidly changing COVID-19 microenvironment. Relying on the Q4plus Management System, we easily expand our management team to cover more business areas without adding more people. Relying on the Q4plus Management System, we are able to manage 1,000 business circles, like one circle, and take care of 50,000 workers, like one worker. The system's efficiency and effectiveness contribute to the 3% gross profit increase and more than four times net income increase year over year. Secondly, thanks for the seven years accumulated labor pool, we continued to maintain our competitive advantage in recruiting workers at lower cost compared to many peers. While many of our peers are facing the challenge of labor shortage in China, our online internal referral system with our 180,000 talent pool easily supplies the workforce for our further expansion and support our rapid growth. which also contributes to the 3% gross profit increase and more than four times net income increase year-over-year. Third, thanks for leveraging the on-ground infrastructure, large-scale workforce pool, and scalable, modulable management system, we are able to access and fast-expand more localized life service sectors with very few resource investments. During the third quarter, we nearly have no further investment to gain 2.5 million orders new revenue growth increase in fresh and grocery sector, which is about six times increase compared with second quarter, which also contributes to our 3% growth profit increase and more than four times net income increase. During the third quarter, we keep exploring the business opportunities in localized live service markets and duplicate our proven business capabilities from food delivery sector to other localized service sector. In October, we applied a majority stake in LanLan Information, which is a leading gig economy platform that specializes in housekeeping solutions for hotels and B&Bs in China. Leveraging our on-ground infrastructure, workforce flow, and the management system, we further expanded our housekeeping service coverage to 22 cities in China and provided services for over 1,900 B&Bs and 1,200 hotels. We have very positive expectation to have very solid operational and financial performance for the fourth quarter in the housekeeping solution sector. We are on the road with concrete and specific target to become the leading gig economy platform of localized life service sectors, including the food service, transportation service, housekeeping solution, and healthcare solution service. So that concludes my prepared remarks. I will now turn the call over to our speaker, Sandra, who will discuss our key financial results this quarter. Thank you.
spk04: Thanks, Leslie. Hello, everyone. Welcome to Chih-Hua's third quarter 2020 call. Please be reminded that all amounts quoted here will be renminbi unless stated otherwise. Our revenue were $769.5 million, representing an increase of 20.8% year over year, primarily due to the increase in revenues generated from on-demand food delivery solutions. Revenues from on-demand food delivery solutions were $758.8 million, representing an increase of 20.3% from $630.4 million in the third quarter of 2019, primarily due to the increase in delivery orders fulfilled as a result of the continuing expansion into new geographic markets and the rapid growth of grocery and fresh food delivery, which contributed to revenues of $18.1 million in this quarter. One news from ShellBank Solutions, 4.1 million, representing a decrease of 22.8% from 5.3 million in the third quarter of last year, primarily due to the decline of business volume in some cities where we operated. Revenues from live feeding solutions were 3.3 million, representing an increase of 171.2% from 1.2 million in the third quarter of last year. primarily due to the increase in the number of vehicles we list to ride-hailing drivers on our platform. Revenues from hog-picking solutions and other services were $3.4 million compared to new in the third quarter of last year, representing an increase of 803.3% from the second quarter of this year. primarily due to our expanded approbation of housekeeping solutions to B&Bs. Our gross profit was $80.9 million, representing an increase of 70.4% year-over-year, primarily due to the increase in gross profit of on-demand food delivery solutions. Our gross margin was 10.5%, compared with 7.5% for third quarter of last year, which underscores the strength and the flexibility of our platform. Our general and administrative expenses were $103.2 million representing an increase of 211.4% compared with the third quarter of last year. The increase was primarily due to The increase in first share-based compensation as the IPO performance conditions of our share incentive plan was satisfied upon the completion of our initial public offering. And the second, staff cost as a result of an increase in the number of our operating staff. The general and the administrative expenses would have increased by only 8.6% from the $28.7 million in the third quarter of 2019 after excluding the share-based compensation. As a percentage of revenues, it would have declined to 4.1% from 4.5% in the third quarter of 2019. As such, we maintained unit cost savings along with business growth. The adjusted EBITDA was 85.1 million representing an increase of 201% compared to 28.3 million in the third quarter of 2019. The adjusted net income reached 61.3 million representing an increase of 447.5% from 11.2 million in the third quarter of 2019. We will endeavor to improve our profitability further. I think this concludes our prepared remarks. Thank you for your attention. We are now happy to take your questions. Operator, please go ahead.
spk02: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question now, please press star 1 on your telephone and write for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Once again, ladies and gentlemen, style one for questions. Your first question comes from the line of Darren F. Duffy from Roth. Please go ahead.
spk01: Hi. Good evening. Thanks for taking my questions. Just a few, if I may. First, maybe could you speak to a few of your segments on food It looked like your orders, I think, were up 17% or 18% year on year. I know Elmay and Mechuan were closer to kind of the high 20s. It's not 30. Can you kind of talk about your strategic positioning in the food delivery? And I guess within that question, it seems like fresh food and grocery is becoming more a more meaningful part of the industry, just what's the overall strategy there and how can you kind of gain share going forward to accelerate that growth?
spk00: Yeah, thanks for the question. As I mentioned, we are targeting to become the leading gig economy company of localized life service, which will include food, transportation, housekeeping, and healthcare. So what we are doing in MateFinds, we call it the premium delivery service, which is only just a part of the MateFinds and for business service coverage. So MateFinds growth will include different sectors, also include like premium delivery and include the cloud sourcing, and may also include the other business sectors. So compared with the MateFinds strategy for the whole live service for the whole live service online platform, and we focused on the offline service platform. So we cannot, we call it Apple to Apple to compare with the growth, with Meituan's growth. But we can see that the growth based on our year-over-year and compared with the last quarter, we can see the growth from the Chubot side. And also, we have the whole, we call it the different target on the gig platform of localized service. So Mekai is just one of our major customers, but we didn't think that Apple to Apple cooperation with Maitland's growth for the outdoor business sector and compared with our business sector and business target is very rational and reasonable. Thank you.
spk01: And maybe on the housekeeping side, so what's your strategy going into 2021 and how does the majority investment in Malai kind of impact that. And then my last question is, I think, Leslie, you made mention about the scale of the platform and how you can increase the workforce without really increasing too much on the cost side. So I'm somewhat curious, what kind of revenue level can the operating platform support before you need to make material investments? Said another way, how profitable can this business become before you have to reinvest more capital into the business?
spk00: As for the gig economy platform for localized service and we will define our business service which is very related to the distance of the consumers For example, usually we will divide the business circle as three to five kilometers and area, and where the consumers will have the frequent consumer behaviors, which will include food, transportation, or housekeeping. In the future, 2021, we expect there will be significant revenue structural change and will be better for the food part and we will still keep close, but for the housekeeping and transportation part, we also contribute significant part share in the total revenue of the Chihuahua. And for another new two sectors, for transportation and housekeeping, they will leverage our on-ground existing infrastructure and management team, which will contribute their fast growth but with fewer investments. About the revenue growth we expect for another new sector, transportation and housekeeping will be will be significant growth, but from the profit side, we expect it wouldn't contribute to large to the total group, cheaper groups are profitable because they are filling the growth path and our target and objective set for other neutral sectors is to increase the size of the business and better utilize our existing to expand their coverage and increase their revenue. Thank you.
spk01: And maybe if you could ask one last one. I heard you mention healthcare as part of the platform. Maybe if you could just expand on that. Thank you.
spk00: Yeah, so healthcare, which is aligned with the trend in China, maybe is aligned with other countries as well, because the people are getting old in China and more and more, we call it healthcare requests now emerging in China. And healthcare, we haven't started yet, but which will be like supplementary sector to the housekeeping solution service. While we expand our housekeeping solution service into each small, we call it community or family unit, and healthcare will become another major business service to take care of the people getting old in China. Thank you.
spk01: Thank you.
spk02: Your next question comes from the line of Shi Jialong from Nomura. Please ask your question.
spk05: Thanks for taking my call. Good evening, management. Congratulations on a very solid quarter. I have two housekeeping questions. The first question is about the gross margin for your on-demand food delivery service. This gross margin has been only improving in the past few quarters. So I just wonder, how much more room the gross margin for a food delivery service may have to further improve in the next few quarters. And if it does continue to improve, then what will be the drivers for its further improvement? My second question is about the grocery and the fresh food delivery service, which saw a big jump in this quarter in terms of order volume. So I have two questions related to this. First, which platform are you currently providing delivery service for? And second, in China, the community grocery group buy business is very hot nowadays, and I just wonder if management has any plans to tap into this fast-growing segment of the grocery market?
spk00: Yeah, thanks for the question. And the first question is about the gross profit. And we define our business sector into different levels. For like the food delivery side, we consider that this is our We have spent about seven years to manage this business with our expertise, so we expected that the growth margin for our material sectors will keep growing. Other two sectors, for the new sectors and our target for transportation and housekeeping is more focusing on the expansion. So we expect that for these two sections and our major target for them currently is not for the profit side, but because of these other two new sectors are able to leverage our existing facilities. So there are gross profit and there are we call management cost and the infrastructure cost will be much less than what we first start with for the deal raise. And for the second question is about maybe it's called we community and community purchase? Yeah, it's about the community, maybe electronic. I don't know how to explain it. But currently, we already cooperate with DD and with quite a few, we call it community and service platforms. And the media service we provided, we included a transportation service partner. For transportation service part, we include the service for the passengers and we also include the service for like in the city transportation, like for community business and mainly we will provide the, we call it the door-to-door service using the transportation vehicles currently we have and to help them to to fulfill the service request to the consumers. Currently, we are cooperating with Meituan and with DD in this sector. Thank you.
spk05: Thank you very much. Can I have a quick follow-up? You said you are already working with DD and Meituan on this community group by service. In Q3, what was the size of this business? What was the order volume?
spk04: You mean the community group buying?
spk05: Yeah, or the revenue size.
spk04: Currently, we don't have any revenues from this sector. Actually, we are trying to find an efficient and better way for both us and the community to improve both our efficiency further. Actually, at this stage, we are still on the track. We are still negotiating with them and no revenues for now. begin the business cooperation soon.
spk05: Got it. Thank you very much for the color. Thank you. Congratulations again.
spk02: Thank you. As a reminder, ladies and gentlemen, if you wish to ask a question now, please press star 1 on your telephone keypad. Once again, there's still one for questions, ladies and gentlemen. Thank you, as there are no further questions. With that, we conclude our conference for today. Thank you for participating. You may all disconnect.
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