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spk02: Good day, ladies and gentlemen. Welcome to Chihua's fourth quarter and first year 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 at this time. And I'd like to turn the conference over to your host for today's conference call, Annison, Investor Relations Director of Chihuahua. Please go ahead.
spk03: Thank you. Thank you, operator. Hello, everyone. Welcome to Chihuahua Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. The company's results were released earlier today, and we are available on our IR website. On the call today are Leslie Yu, Chairman and CEO, co-founder Barry Ba, and CFO Sandra Lastly, we will review business operation and company highlights, followed by Sandra Zee, who will discuss financials and guidance. They will be both available to answer your questions during the Q&A session afterwards. Before we begin, I would like to remind you this call may contain forward-looking statements made under the Safe Harbor Prohibition of Private Security Legislation Act of 1995. Such statements are based on management's current expectations and the current market and operation and related to the events that involve known or unknown risks and certainties 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 actual results, performance, or achievements to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties, and factors is included in the company's filing with U.S. Securities and Exchange Commission. The company doesn't undertake any obligation to update any forward-looking statements as a result of new information, future remains or otherwise, except as required under law. With that, I will now turn the call over to our Chairman and CEO, Mr. Lesley Yu, Please go ahead.
spk01: Thank you, Annie, and thank you all for joining our fourth quarter and fiscal year 2020 earnings conference call. We are pleased to deliver solid performance across all business sectors in the first four years since we went public in July 2020. We experienced an extremely difficult year due to the impact of COVID-19, which disrupted life and the global economy. Its impact on the business of our partners actively influenced our operations. Having said that, I'm proud that we overcame many obstacles and saw our encouraging improvement in financial performance, thanks to our team's work and the management system of Shufo+. For the full year of 2020, our revenues increased by 25% year-over-year to RMB 2.6 billion, Although the year was extremely challenging, we managed to deliver solid growth. Our adjusted net income increased by 48% year-over-year to RMB 76 million, and adjusted EBITDA increased by 44% year-over-year to RMB 134 million. We believe that such improvement in our profitability reflects our capability in efficiency enhancement under the management of large-scale economy. In 2020, we encountered multiple challenges. The combined impact of COVID-19 and related containment measures had an adverse impact across various business segments. As the economy slowed down, domestic travel and daily activities were reduced. and many people preferred to stay home for safety reasons, all of which have dramatically affected the mobility and hotel business. In addition, travel restrictions made it tougher to recruit riders for our delivery service, and a subsequent labor shortage drove up overall labor costs. However, leveraging our strong operational capabilities and industry-leading tech-powered management system, we have taken this challenge as an opportunity to further increase the gap with our peers and solidify our leading position in the workforce operations sector. Here, I will highlight some of the measures we took to navigate through the tough market environment. Firstly, we managed to maintain our revenue growth through enlarged business scope and coverage, such as fresh food delivery, food box project with Meituan and SDLE, and through cooperating with new customers, such as Hello, Shellbike, and McDonald's, and through extending to new service sectors by acquisition, such as acquiring Lai Lai and Cheng Tu. Secondly, we kept investing our R&D to refine chipboard-class management systems to improve our operational efficiency and restructuring our workflow and reduce manly management efforts. At the same time, we kept investing in our people through our online training system and on-ground hand-to-hand practice. We have developed an extensive management network consisting of about 1,000 experienced front-end managers. who are expert in the workforce management and possess service operating capabilities to promptly adjust to changing market dynamics. Thanks to them, we are able to achieve lower operating management cost 5.05% year over year, even in such difficult situation of COVID-19. Thirdly, in front of the hardness of labor shortage, we'll continuously upgrade our internal online leverage system based on our established large labor pool. And this helps us to maintain strong recruitment capabilities without significantly increasing acquisition costs during the pandemic. At the same time, our workers found it easy to seek growing job opportunities in our platform across our various solutions, which effectively increased the labor thickness and reduced the cost. 2020 was a truly challenging year, but it was also filled with opportunities to scale our business. We adjusted the challenges head-on and adapted our strategies to diversify into more service offerings and made solid progress across targeted and new segments. Our call-on-demand food delivery business maintained its leading position in the sector with about a 25% year-over-year increase in the number of average monthly delivery orders in 2020. revenues from the on-demand food delivery solutions increased by 30% year-over-year. During the year, we rolled out our grocery and fresh food delivery business and contributed 50 million RMB for a new revenue in 2020. We are confident of scaling up the business with an accelerated growth rate in 2021. For mobility sector, operation with HALO and DB and achieved 45% revenue growth year-over-year, further solidify our presence in the mobility service sector. In 2021, we will extend our mobility service to retail and consuming customers. For the housekeeping solution business, we made a significant progress in 2020. We entered into investment agreement to acquire a majority state in Lai Lai, which is specializing housekeeping solutions for hotels and B&B. In October 2020, during the fourth quarter, we also invested in Chengdu, a leading home state service provider in China. We believe that this investment will accelerate our pace and allow us to establish a solid foothold in housekeeping solution sector. To date, our service covers over 1,000 hotels, 2,700 B&Bs nationwide. Leveraging synergies with Leila and Chengchu will affect our housekeeping solutions to make a meaningful contribution to both our revenue and margin in 2021. In 2020, we have further adapted our diversified solutions strategy and made strategic investment to scale up certain business sectors. We believe that COVID-19 has profoundly and permanently changed the lifestyle of Chinese customers and consumers, which will benefit the on-demand workforce business and shared economy markets. With the adverse impact of the pandemic gradually subsiding, we expect to deliver better performance with the execution of our proven strategy in 2020. Leveraging our large-scale workforce pool and extensive on-the-ground infrastructure, we will further invest in employment exchange and professional training service to provide front-to-end career service for Chinese workforce. We believe we are well-positioned to capture more growth opportunities ahead and deliver sustainable long-term growth for our shareholders. This concludes my prepared remarks. I will now turn the call over to our CFO, Sandra, who will discuss our key financial results for the quarter and fiscal year.
spk03: Thanks, Leslie. Hello, everyone. Welcome to Two Boards on Audit Day, fourth quarter, and the fiscal year 2020 call. Please be reminded that all amounts quoted here will be in renminbi unless stated otherwise. I will start with our Q4 numbers first. Revenues were $871.7 million, representing an increase of 32% year-over-year, primarily due to the increase in revenues generated from our on-demand food delivery solutions. Remedies from on-demand food delivery solutions were $847.5 million, representing an increase of 30% from $652 million in the first quarter of 2019, primarily due to the increase in delivery orders fulfilled as a result of the continued expansion into new geographic markets and the rapid growth of our grocery and fresh food delivery business. which contributed revenues of $36 million in this quarter. Revenues from share buy solutions were $10.6 million, representing an increase of $119.3 million from $4.8 million in the first quarter of 2019, primarily due to our expanding customer base and service goals. Revenues from ride-hailing solutions were 4.6 million, representing an increase of 55.2% from 3 million in the first quarter of 2019, primarily due to the increase in the number of vehicles we list to right-hitting drivers on our platform. Revenues from housekeeping solutions and other services were 8.4 million, representing a significant increase from $205,000 in the first quarter of 2019, primarily due to our enlarged customer base for provision of our housekeeping solutions, including hotels and B&Bs. Our gross profits were $40.1 million, representing a decrease of 7% year-over-year, primarily due to the decrease in gross profits of on-demand food delivery solutions. The gross profit of on-demand food delivery solutions was $35.3 million, representing an increase of 15.4% compared to the first quarter of 2019, primarily due to increase in service fees paid to our riders, insurance expenses, and higher expenses as a percentage of revenues. Our operating expenses consist of G&A expenses and R&D expenses. And G&A expenses account for a majority portion, which were 43.0 million, representing an increase of 26.3% from 34.1 million in the first quarter of 2019. The increase was primarily due to increases in share-based compensation, rental office expenses, If excluding share-based compensation, our general expenses increased by 19.1% year-over-year, as the percentage of revenues will decline to 4.3% from 4.7% in the first quarter of 2019. As such, we believe that we achieved unit cost savings along with our business growth. Our net income, attributable to Tuva Limited, 12 million compared with the net loss of 242,000 in the first quarter of 2019. Adjusted EBIT was 15.5 million representing increase of 63.6% from 9.5 million in the first quarter of 2019. The adjusted net income was 15 million representing increase of 481.9% from 2.6 million in the fourth quarter of 2019. Now let's move over to the four-year 2020 financial results. The revenues were 2.6 billion, representing an increase of 25.5 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 2.5 billion, representing an increase of 25.1% from $2 billion in 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 deliveries. Revenues from ShellBank maintenance solutions were $21.5 billion. which remained relatively stable compared with 21.2 million in 2019. Revenue from ride-hailing solutions were 10.1 million, representing an increase of 45.7 cents from 6.9 million in 2019, primarily due to the increase in the number of vehicles we listed to ride-hailing drivers on our platform. Revenue from health-free solutions and other services were $12.4 million compared with $262,000 in 2019, primarily due to our expanded provision of housekeeping solutions to hotels and B&Bs. Gross profit was $192.1 million, representing increase of 80.6% year-over-year, primarily due to increase in gross profit of on-demand food delivery solutions in 2020. June expenses were $203.3 million, representing an increase of 26.1% from $161.2 million in 2019. The increase was primarily due to increase in staff costs, share-based compensation, and rental office expenses, partially offset by the decrease in professional fees. Excluding share-based compensation, our daily expenses increased by 27.4% from 96.4 million in 2019. Net income attributed to Chihuahua Limited was 3.4 million compared with the net loss of 11.8 million in 2019. Adjusted EBITDA was 130.6 million, representing an increase of 40%. from $93.1 million in 2019. Adjusted net income was $77.1 million representing increase of 50.1% from $51.4 million in 2019. 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. We will now begin the question and answer session. To ask a question, you will need to press star 1 on your telephone. To withdraw your question, please press the pound or hash key. Please stand by while we compile the question and answer roster. Your first question comes from Darren from Roth Capital Partners. Please ask your question.
spk05: Good evening. Thanks for taking my questions. Could you speak to the declines in gross margin, and I think in particular the food service piece? Just what's kind of the reasoning behind that, and is that something we should expect going forward?
spk03: Yeah, Darren. Yeah, the decline of gross margin for on-demand food delivery solutions was mainly due to in the first quarter of this year was mainly due to the increase of service fees paid to our riders as a percentage of total revenues and the increase of the highway expenses as a percentage of revenues because in the first quarter in the market The difficulties of hiring new writers were keeping increasing so we have to pay extra fees to hire more writers to fulfill the increasing orders. That's the main reason.
spk00: I think to add one more point. In our own democracy delivery, a pretty large percentage of our orders are in the north part of China. In Q4 in 2020, that part of China, especially the northeast part of China, was hit quite seriously by the pandemic. Such as big cities, Shenyang, Harbin, and Dalian are major cities, all have people contentment policies during that period of time. So it caused a serious shortage of laborers. That's a major reason why there is a big difficulty to recruit those laborers and increase our recruitment costs.
spk05: Thanks for that, Daring Saunders. So if I could add, has that changed at all in 2021, year to date, in terms of the cost to hire writers in the middle of our time?
spk03: I think in first quarter of 2021, yeah, the situation is still there, especially in February during Spring Festival due to the government policy to let people stay in what they are in to spend the holiday rather than going back to their hometown. So yeah, as a result, The order was increasing rapidly compared to last year. So in order to fulfill that order successfully, we have to pay much higher fees to part-time drivers to do that work. So in the first quarter of this year, the situation where we didn't see a better trend. But I think in second quarter, yeah, things are getting better.
spk05: Great. And then as we look at 2021, can you just talk about just the broader strategy amongst fresh food housekeeping and on-demand food delivery and kind of what your growth initiatives are. And are there any kind of residual setbacks from COVID that would inhibit growth in any of those segments?
spk01: Yeah, for 2021 and for food delivery part, we expect to still keep growing. And for housekeeping and mobility, we expect it would be dramatically and increasing their growth. Because the pandemic impact in China is getting subsiding and the people are getting back to normal. And this is a good chance for us to grow in the new two sectors, which including the mobility and life-sharing and right-hailing and also for the housekeeping sections, like for the hotel. And at the same time, in 2021, we will be building the infrastructure, which will support a series of services from recruiting blue-collar workers, providing vocational training that will increase the opportunities for better job in Qigong platform. And we believe that the growth will be much better than 2020, and our initiatives will enhance the thickness of labor in Qigong platform, and we expect long-term competitive advantage across various industries. Yeah, thank you.
spk05: Great. And this last one for me, as a result of COVID, you know, at least in the United States, things like logistics, there have been fees put on, you know, by folks like FedEx and UPS that have increased the cost of kind of logistical platforms. Are you seeing anything in your, you know, sort of sourcing of workforce that where fees have increased as a result of COVID and they're going to be permanent, whether that's by the Chinese government or any regulatory body?
spk01: I think for the whole market nationwide and the labor cost and even for the recruiting fee actually is increasing and comparing with last year. But for Qi Huo platform, we've benefited from our internal referee system and also benefited from our penetration into the recruiting service to blue colors. And so considering the turnover rate and the recruiting cost in Qi Huo's management cost, we're still thinking that it's reasonable. And that's the reason why we can achieve lower management cost and also we achieve a better, we call this EBITDA in 2020. Yeah. Thank you. Great. Thank you.
spk02: Thank you. Our next question comes from Thomas Shen from Nomura. Please ask your question.
spk04: Hi, management. Thank you for taking my question. I have a question regarding our revenue per order, especially for the food delivery business. How do we see the trend in 2021 and for the revenue per order for the trend in grocery and fresh food business? Thank you.
spk01: For food delivery, we consider the growth and we are still keeping the number from our major customers, Meituan, which is maybe about 30%. But for fresh food and grocery delivery, we consider that the growth rate will be much higher. Because in 2020, actually that grocery and fresh food delivery is a very new sector in our revenue, but this contributes more than 50 million revenue in 2020. Thank you.
spk02: Thank you. As a reminder, ladies and gentlemen, if you wish to ask a question, please press star 1 on your telephone keypad.
spk03: Hi, this is Sandra. Just a gentle reminder, we will upload the Excel version of all the financial statements and the key financial operating data on our website. You can check the details after this course. Thank you.
spk02: Once again, ladies and gentlemen, to ask a question, please press star 1 on your telephone.
spk03: Hi, hello, speaker. So if there's nobody on the question, so let's close the conference, please.
spk02: Thank you. With that, we conclude our conference for today. Thank you for participating. You may disconnect.
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