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spk05: Ladies and gentlemen, welcome to Chihuahua's first quarter 2021 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. I'd like to turn the conference over to your host for today's conference call, Anna Sun, Investor Relations Director of Qi Huo. Please go ahead.
spk04: Thank you. Thank you, operator. Hello, everyone. Welcome to Qi Huo first quarter 2021 earnings conference call. The company's results were released earlier today and are available on our RIA website. On the call today are Leslie Yu, Chairman and CEO, co-founder Barry Ba, and our CFO Sandra Ji. Lastly, we will review business operation and company highlights, followed by Sandra, who will discuss financials and guidance. They will both be available to answer your question during 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 Provision of Private Security Legislation form, Act of 1995. Such statements are based on the management current expectation and current market and operating condition and related 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 a company's control, which may cause the company's actual results, performance, and achievements. to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties, and factors include in the company's filing with the U.S. Securities and Exchange Commission. The company doesn't take 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.
spk01: Thank you, Ania, and thank you all for joining our first quarter 2021 earnings conference call. We are pleased to deliver strong growth momentum in Q1, with revenues increased by 116% year-over-year to RMB $846 million. Given by solid performance across all business segments, the solid results reflected the prosperous, dynamic, and healthy flexible workforce market and our leading position in the Chinese gig economy. For 2021, offering a multi-scenario deployment has been at the forefront of our initiatives to scale the business, and we have made good progress to offer workers a diversified range of open jobs. Thousands of job seekers can now find more suitable career opportunities in our platform and earn higher incomes. Now, let me walk you through our key business performance in Q1. First, let's look at our biggest revenue contributor, the on-demand food delivery business. As life returns to normalcy with fewer restrictions and the economy recovers from COVID-19, we continue to witness the ongoing evolution of consumer behaviors in China. The on-demand food delivery service has become not only a necessity during work days, but also a high-quality source of fresh and healthy food for family gatherings. This was especially evident for this year's Spring Festival. Demand for food delivery increased year-over-year compared with the same period in previous years, as people were encouraged to stay in place for the popular holiday. We viewed this unprecedented strong demand as a test for the resilience of our large delivery network, as well as a terrific opportunity to sustain our leading position and expand market share. On one hand, we stepped up our efforts to stabilize existing rider teams to ensure sufficient capacity to fulfill incoming orders, while we actively launched more recruiting programs to hire additional riders. We provided extra benefits to both existing and new riders to increase our effectiveness. As a result, we outperformed the industry and enjoyed stronger raw order volume growth during this Spring Festival period compared with previous years. For children overall, the number of average monthly delivery orders was 35.9 million, up 113% year-over-year. On the cost side, due to seasonal volatility in labor costs and increased spending on benefits and an expanded team of riders, we reported a loss for this quarter. We view this as a short-term phenomenon and remain fully confident in our strategic direction to reinforce and grow our workforce. We believe we have a real opportunity window to take advantage of our growing reputation. and expand our resources to capture demand as it grows. This will give us a competitive edge down the road as we become the employer of choice for a growing number of blue collar and migrant workers seeking better job opportunities in cities. Going into Q2, as more migrant workers returned to the labor market and eased labor shortages, we have seen the supplier demand balance return to normal level. We believe this will normalize our cost structure and improve our profitability in Q2 and the rest of 2021. Next, I would like to give you an update on our housekeeping solutions. In Q1, revenues from housekeeping and accommodation solutions increased 51 times year over year. After completing our investment in LaiLai, a leading on-demand workforce platform that specializes in housekeeping solutions for hotels and B&Bs in China, we were able to quickly integrate LaiLai into our platform and ramp up our service capacity. Together, we currently serve a number of large-scale international hotel chains and thousands of B&Bs nationwide. We are optimistic this business has strong growth potential going forward. Our mobility businesses, which includes shield bike and ride-sitting solutions, continued their strong recovery in the first quarter. Revenues increased by 455% year-over-year. In Q1, we added three more cities for our mobility services, and strong synergies have been created as our robust technology platform can support our multiple business similarities. Now I want to go over the progress of a strategic initiative called multi-scenario deployment. Our goal is to increase jobs diversity and work opportunities and provide flexibility to help workers find the best jobs for their existing and evolving skill sets in order to increase their incomes. Currently, our metrics for frontline management networks for labor management and operations has enabled us to largely utilize our labor force on the multi-scenarios. We believe this will help us scale and expand our entire network over time. As of the end of March 2021, we provided services to 1066 business circles across 122 cities nationwide, among which there were 48 cities where we provided two or more type of services, compared with only eight cities of multi-scenario deployment a year ago. Offering multi-scenario services can significantly improve the efficiency of our operation and the entire gig economy industry. Many of the service scenarios, such as on-demand food delivery and ride selling, have apparent peaks and troughs in usage every day. resulting in a kind of great waste of human resources and fixed assets put in place. Our platform empowers workers to engage in different jobs at different time periods, leveraging diverse vocational skills, training, and daily management. In this way, we can achieve better use of resources, improve efficiency, and save costs. According to our statistics as of Q1 2021, the number of registered workers on our platform reached nearly 240,000, compared with 98,000 a year ago. The cumulative number of workers who engaged in two or more types of jobs on our platform has reached 15,500, increasing by about 4,000 from the end of 2020. The rapid development of our multi-scenario services has also made the gender mix more balanced. Thanks to our rapid expansion in the housekeeping business recently, the proportion of female workers registered on our platform has been close to 10% in Q1, more than doubled from a year ago. In addition, the quick expansion of our platform and the decreasing turnover rate of workers also resulted in an increase in the average compensation of our workers. In Q1 2021, riders with an average monthly income of at least RMB 5,000 accounted for 46% of total group, compared with 33% a year ago. In summary, Our strategic priority for 2021 is to rapidly scale up our platform. With the continuous diversification of services and the growing workforce on our platform, we believe we will play an increasingly important role in China's gig economy and capture more market share going forward. This concludes my prepared remarks. I will now turn the call over to our CFO, Sandra, who will discuss our financial results for the quarter.
spk06: Thanks, Leslie. Hello, everyone. Welcome to the first quarter 2021 call. Please be reminded that all month of this year will be a new year, unless anything is otherwise. For the first quarter of this year, our total revenues were $846.5 million, representing an increase of 115.6% year-over-year. primarily due to rapid growth across all business segments. Revenues from on-demand food delivery solutions were $815.4 million, representing increase of $109.5 million from $389.3 million in the first quarter of last year, primarily due to the increase in delivery orders fulfilled as a result of the industry growth in the aftermath of COVID-19 and our continued penetration expansion into new geographic markets. From the beginning of this year, we combined the shared bike and ride-hailing solutions together to form a new business segment named Mobility Service Solutions. Revenues from Mobility Service Solutions were $17.1 million, representing an increase of 55.7% from 3.1 million in the first quarter of 2020, primarily due to our enlarged customer base and service scope ensured by solutions and the increase in the number of ride-hailing drivers on our platform. Revenues from housekeeping and accommodation solutions were 13 million, representing a significant increase from 0.2 million in the first quarter of 2020. This was primarily due to our enlarged customer base for provision of housekeeping and accommodation solutions, including hotels and the B&Bs, as part of the network synergy we achieved following the acquisition of Laila and Chengdu Home, respectively. Cost of revenues were $868.8 million, representing an increase of 127.7% year-over-year primarily attributable to the strategic temporary subsidy policy for workers that were adopted to meet the rapid growth in demand as a result of the changing customer behaviors and our continuing expansion. General and administrative expenses were $44.2 million, which includes share-based compensation of $5.9 million. representing an increase of 60.6% from 27.5 million in the first quarter of last year. The increase was primarily due to the increase in staff compensation, share-based compensation, rental and office expenses. Excluding share-based compensation, general and administrative expenses increased by 46.2% year-over-year, and as a percentage of our total revenues, declined to 4.5% from 6.7% in the first quarter of 2020. Research and development expenses were 4.7 million, representing an increase of 82.3% from 2.6 million in the first quarter of 2020, primarily due to the increase in compensation for research and development personnel. operating loss was $70.8 million compared to $19.1 million in the first quarter of 2020. Including share-based compensation, the adjusted operating loss was $65.0 million compared to $17.8 million in the first quarter of 2020. We also reported our loss net of 20.4 million compared to our income net of 3.3 million in the first quarter of 2020, which primarily due to the decrease in fair value changes of investment in a mutual fund. The income tax benefit was 7.3 million compared to the income tax expense of 2.9 million in the first quarter of 2020. primarily due to the improvement of estimated annual effective tax rate. The adjusted EBITDA loss was 78.5 million compared to adjusted EBITDA loss of 10.4 million in the first quarter of 2020. The adjusted net loss was 79.3 million compared to adjusted net loss of 20.3 million in the first quarter of 2020. This concludes our prepared remarks. Thank you for your attention. We are not happy to take any of your questions. Operator, please go ahead.
spk05: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, press star 1 on your telephone and white for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Please stand by while we compile the question and answer roster. Once again, if you wish to ask a question, please press star 1 on your telephone keypad. We have a question from the line of from Rolf. Please go ahead.
spk03: Good morning. Can you hear me?
spk05: Yes, we can hear you.
spk03: Hello? Yes, great. Good evening. Two questions. So, Leslie, your comments on cost normalizing post the first quarter. So with your gross margin being negative, and I understand from last time on the call you talked about how input costs were higher with the workers. So in the months of, you know, April, May, and June is almost done, has your food delivery business gross margin gone back into the positive, and is there any reason to think that that won't be the case for the remainder of the year?
spk01: Yes, it's turned to the positive, and we believe that it will last for the rest of the year, yes.
spk03: And has that trended back to sort of the normal levels that you've seen in the past, or is cost of maintaining your ridership base going to be elevated going forward?
spk01: Yeah, I would consider that it's going back to the normal level, and we are Also happy to say that the general administration expense we are still keeping decline.
spk03: Great. And then your comments on multi-scenario deployment, so 48 cities. I'm curious a couple things on that topic. So you're in 48 cities versus, I think, eight. Where can that go? And then in terms of the number of services per city, where do you think that figure can go? And do you have the appropriate infrastructure on a technology basis, whether it's analytics, artificial intelligence, to actually optimize your rider? So I guess what I'm trying to get at is, How efficient is your workforce space today, even though you've increased it to 48 cities with two or more types of service versus where you think it actually can be in the future? And if there's any investment you would need to make, what is that?
spk01: Firstly, we are happy to say that for the delivery sector, And the efficiency and what we call the productivity for each food delivery workforce is increasing. And the average is about more than 30 and even someone is reaching to the 40. But unfortunately, the productivity and the increase for food delivery, it's only happened in the peak time for food delivery industries. So we are trying to copy this efficiency to other working scenarios, such as like share bike maintenance and such like for the ride heading. And in order to do that, our technology platform has contributed great efforts to help us to manage this multi-scenario deployment by hour in daily operations. So the technology is helping us to enable this workforce with vocational skill set by online trainings and together with our on-ground training. And then they will to match the skill set with each workforce together with the time requirement and the skill requirement for each different multi-scenarios. So with the support of our technology platform, we are able to better match our workforce on the platform to different working scenarios and to manage them to fulfill the orders in different time zones. Yeah, thank you.
spk03: Great. If I could squeeze one more in. Just with where your share price is, In capital allocation strategy, I'm just kind of curious if there's any thought about potentially doing a buyback or whether you think that capital investment is best deployed for growth.
spk01: We consider that the live service market in China is very large. And the market players are fragmental and we call it maybe small. And Chihuahua already has a predominant position and we believe we can make it even better. What we need is only time, and also we have the time to further prove to the capital market. Thank you.
spk02: Thank you, Leslie. Thank you.
spk05: Great. Thank you. Our next question comes from the line of Thomas Shen from Nomura. Please go ahead.
spk02: Hi, good morning, good evening, management. Thank you for taking my question. I have a question on our growth outlook. How do we see our on-demand food delivery revenue for the rest of the year? I understand we have a more normalized phase in the second half of this year. And I would like to touch upon how do we see our revenue per order for the food delivery business going forward? Thank you.
spk06: I'm afraid I can't give an accurate growth rate for the revenue growth for the rest of the year, but I can say that we are quite happy with the revenue growth. for the rest three quarters, and both in on-demand food delivery and for mobility service solution and the housekeeping solution. As far as we can see, all the three business lines will achieve significant growth for the rest of the year. So your second question is about the revenue per order, right?
spk02: Correct. Thank you.
spk06: Per order. Yeah. Actually, currently, you can calculate that revenue per order for first quarter is around 7.6 RMB per order. For the rest of the year, we expect the price will be relatively stable around this kind of level. There won't be significant change, according to our opinion.
spk02: Thank you. Could I follow up on a question on the food delivery business? I understand the authority has been or considering policies to boost or enhance food delivery workers' social benefits, including some kind of social insurance. How do we, what's our take on this policy, and if there will be any impact on our margins going forward?
spk06: Okay, our co-founder Barry will answer this question.
spk00: Talking about the social security policy, right?
spk02: Yes, thank you.
spk00: Okay. We have noticed that currently there are some local governments have put out a policy about riders should have the social security policy. But we have to notice that by the end of May, Our prime minister, Mr. Li Keqiang, has in a central committee meeting, he has the point that we have noticed there are over 2,000, sorry, there are 200 million staff people working on the gig economy currently in China. And it's very important to keep the jobs and maintain the stability of the job and the security of the society. And he also mentioned that this is a new type of job, cannot be fit into the old system. And so the central government is currently discussing and developing some kind of a new type of social security focused on the gig economy stuff. And according to our information that, according to the prime minister, He mentioned that the insurance company should give up some profit and the government will compensate part of the loss for the security company. So, insurance company, which means according to our understanding, in the future, in the near future, this kind of social insurance issue is going to be solved by commercial insurance. which have already been covered by our now. Currently, we already provide the third-party insurance and the labor injury insurance on a commercial insurance basis to our riders. So in the near future, we didn't see it's going to be a big impact to us because this is a policy we've already been taking, and this is a cost we already have currently right now. I don't think this is going to be a big impact to us in the near future. Thank you.
spk05: Thank you. As a reminder, ladies and gentlemen, if you wish to ask a question, please press star 1 on your telephone keypad. Once again, ladies and gentlemen, to ask a question, please press star 1 on your telephone keypad. Great. Thank you. Is there no further questions? So with that, we conclude our conference for today. Thank you for participating. May all of this connect.
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