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Boqii Holding Limited American Depositary Shares, representing Class A Ordinary Shares
Q3 2021 Earnings Conference Call
3/3/2021
spk04: Good day, ladies and gentlemen. Thank you for standing by and welcome to Boche's December quarter 2020 earnings conference call. Currently, all participants are in a 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 Mandy Law, Boche's IR manager. Mandy?
spk05: Thank you, operator, and good morning, everyone. Welcome to Co-Chief's December Quarter 2020 Earnings Conference Call. Joining us here today are Mr. Louis Liang, our Chief Executive Officer, Ms. Lisa Tang, Co-Chief Executive Officer and CFO, as well as Mr. Kai Fang, Chief Strategy Officer, and Loyal Dai, our Financial Director, and Minghao Zhou, our VP Capital Market, will also join the Q&A session. We released our results earlier today. The press release is available on the company's IR website at ir.bochi.com, as well as from Newswire Services. A replay of the call will be available on our IR website later today. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. 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 this and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statement except as required under applicable law. Please note that certain financial measures that we use on this call, such as adjusted net loss, EBITDA, and EBITDA margin, are expressed on a non-GAAP basis. Our GAAP results and reconciliations of GAAP and non-GAAP measures can be found in our earnings press release. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese RMB. With that, I would now turn the call over to our co-CEO and CFO, Lisa Chang. Please go ahead, Lisa.
spk03: Thank you, Mandy, and thanks everyone for joining us on the call. We are pleased to report strong quarterly results with solid operational and financial growth, which demonstrated our dedication to execution and customer bonding. As an omni-channel, verticalized platform for all things pet in China, We are satisfied to needs of pet owners, both big and small, through our diversified business segments, such as Boji Mall, Boji Community, private labels, and membership services. During the reporting period, our total revenue grew 23.2% year-over-year, from RMB 254.1 million to RMB 312.9 million. CNV rose 51.5%, reaching IMB 763.8 million. Our chart plan growth indicates the effectiveness of our ecosystem strategy to more accurately match customers and the merchandises. We continue to provide traffic optimization for brands, no matter for big brands or emerging ones, domestic or imported. We help brands to locate the target customer group that matches their brand and product positioning. In this way, brands no longer need to invest heavily in non-precise traffic, which is exactly the biggest pain point of brands in China now. Our traffic value for brands means that we have deeper moat in the supply chain. In the future, serving brands remain one of the core tasks of 4T. As our supply chain value becomes more recognized, the company will continue to enjoy its competitive edge when we grow our revenue scale and change it into profitability. As we provide more brands and enrich SKUs to our users, in fiscal Q3, active users will percent year-over-year, reaching 1.5 million, while average spending per user reached RMB 504.1, up 25.3 percent year-over-year. Average order size grew 21.3 percent year-over-year, reaching RMB 315.2. We have also improved our operating efficiency. This is natural in the culture with RMB. $13.5 million, a significant improvement compared with RMB $16.8 million in the same period of fiscal 2020. We are on the right track to reach positive operating cash flow, a key milestone on our path to profitability. And now I will turn the call over to our Chief Strategy Officer, Kai Fang. and give you more details on our strategy and financial highlights. Kai.
spk07: Thanks, Lisa. And thanks, everyone, for joining the call today. These solid results indicate our relentless effort to optimize our assortment both for customer selections and operational efficiency. Our focus remains on our long-term strategy, especially with resources we now have through the IPO proceeds and the improving operational cash position. Boqi was founded to be a comprehensive vertical pet care ecosystem. Through our omni-channel platform with over 570 brand partners and our time-tested infrastructure, we now provide a comprehensive offering of differentiated products that fulfill the high frequency consumption needs of pets. We aim to provide a unique value proposition for the pets and pet's parents in an integrated fashion with food, supplies, and service on a single platform. We aim to seamlessly integrate our digital and physical channels to better serve our customers. This year, We will ramp up our offline strategy that offers customers the bocce standard service, including but not limited to grooming, pet boarding, personal training, and other services. We will provide offline pet care and services to our customers via our own flagship stores as well as franchised community stores. With our strategy, we invested in China's largest pet service chain, PetDog. And our interactions with our over 23 million registered users, we are confident that we can efficiently develop an offline network with unique value proposition. We will also launch a brand new membership system to improve user experience and synchronize our multiple touching points with members. Now let's turn to the financial results. Before I go into details, please note that unless I state otherwise, all numbers presented are in RMB and for the December quarter of 2020, which is the third quarter of fiscal year 2021. All percentage changes are on a year-over-year basis unless otherwise specified. Detailed analysis is contained in Earnings Press Release, which is available on our IR website. I'm going to highlight some of the key points here. Our total revenue increased by 23.2% to RMB 312.9 million. Revenue generated from Boqi Mall was RMB 114.1 million, up 25%, while revenue generated from third-party e-commerce platforms also grew by 22.4%, reaching RMB 198.2 million. We remain active on major e-commerce platforms to increase our exposure and enhance our brand recognition by a broader user base. The percentage of revenue generated from Bo Chi Mo was 36.4% versus 35.9% in the same period last year. Gross profit was RMB 56.1 million. Our gross margin was 17.9%. Total operation expense were RMB 150.5 million, up by 67.3%. This increase was primarily due to a share-based compensation of RMB 51.4 million allocated to our sales and marketing as well as G&A expenses. This share-based compensation was vested based on our performance since the IPO. Fulfillment expense was RMB 33.6 million, down by 7.9%. As a percentage of total revenue, there were 10.7% versus 14.3% in the same quarter of last year. We continue to work closely with our brand partners and the delivery service providers to improve the utilization of our warehouses. In the meantime, the relocation of one of our warehouses to Wuhu was continued to help reduce our delivery service prices compared to the same period last year. Sales and marketing expenses were RMB 51.1 million, up by 53.2%. G&A expenses were RMB 61.8 million, up by 252.7%. And please be reminded, those included one of share-based compensation. After including the influence of share-based compensation, The proportion of sales and marketing expense revenue was 13.9%, down by 30 basis points. GNA expense portion of revenue was generally flat with the same period last year. Net loss was RMB 81.9 million, compared to net loss RMB 56.4 million in the same quarter of last year. Adjusted net loss, which will exclude the share based composition and fair value change of derivative liabilities, will be RMB 31.5 million. Compared to the adjusted net loss of RMB 60.8 million in the same quarter of last year, we consider this a remarkable improvement. We believe our strong business results will give us tremendous flexibility to support our growth and enable us to rapidly execute our strategy. To conclude, Boqi had another strong quarter. We are on a compelling growth strategy. We continue to devote resources to further optimize our product selection, and diversify our revenue stream to capture opportunities in the expanding pet market. We are confident in our ability to lead this industry and are fully committed to creating value for both our customers and shareholders. I will end up here and shall we now start the Q&A session. Operator?
spk04: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question, please press star then two. At this time, we'll pose momentarily to assemble our roster. The first question today comes from Darren Aftek. with Ross Capital Partners. Please go ahead.
spk00: Hi, everybody. Congratulations on your results and good evening. A few questions, if I may. First, starting on membership, it looks like membership numbers have been fairly flat the last few quarters, but it jumped by 200,000 in the quarter. Anything specifically you could talk to on the improvement? And then also, I'm curious on the relative engagement of those members in the quarter. And then, Kai, I think you said in your prepared remarks that there's going to be a transition to a new membership model. It seems more omni-channel in nature. If you could maybe just expand on that thought, that'd be great.
spk07: I would say, like, thanks, Darren. It's a good question, and I will try to answer it. And I would say, well, in the past, we only counted the paid member as well as the prepaid member as our members. I don't think that will be the way in the future because like any other in our new membership programs, we are going to expand our member base and offer more customers and members tiered benefits so that will increase the purchase and cohort rate of the members. And as well as for that, I would like to put another number to say why we are expanding the membership base. So for the last quarter, the total spending customers on our platform increased from the previous quarter to 1.5 million users spent on our platform. And this number was only 1.2 million for the previous quarter. So it depends how we define member and how we serve them better. I think that definitely we are going to broad our definition and service for members.
spk00: Great. A few more, if I may. What was AOV in the quarter?
spk01: Yeah, the AOV of this quarter is 260. Sorry, the 260 is the same quarter of fiscal 2020 AOV, and this quarter AOV is 315. We have an increase of 21%.
spk00: That's great. Thanks, Loyal. And then just two more, if I may. The private label and branded mix in the quarter. And then also I noticed your fulfillment costs dropped quite a bit as a percentage of revenue. I know you made some changes on inventory and adjusted the location of your warehouse facilities. I'm just kind of curious how sustainable is that 10% level as a percentage of revenue and can that improve going forward? Thank you.
spk01: Okay. The first question about the private label and the GMV from private label accounts for About 15% of this quarter and the rest is from the non-private label.
spk05: Yes, 15% from private labels and 85% from non-private labels and I think Loyal will continue to answer the fulfillment question.
spk01: As the percentage of fulfillment cost as percentage of revenue of this quarter is about 10% and In the future, we are confident that the fulfillment cost percentage will decrease to 7% to 8% as a revenue, because we will continue to relocate our warehouses in the middle China, like Wuhan or Changsha, and the China West, like Chengdu and Chongqing.
spk00: Great. Thank you.
spk04: The next question comes from Bo Pai with Oppenheimer. Please go ahead.
spk06: Hi, everyone. Good evening. Luis, Lisa, Kai, Mandy, and Loya. So I have a couple questions, if I may. So first, can management broadly talk about the outlook for 1Q in 2021? what are some key factors do we need to consider to think about the growth for first quarter and the whole year and then I noticed like during the Chinese New Year people were encouraged to stay where they were and I'm just wondering was there if there was any impact on our business so that's question one and then Question two is, I noticed how GMV growth continued to be faster than revenue growth in the December quarter, which I believe was due to consumer promotions and discounts. Can you talk about this trend and how should we think about this trend in the next couple of quarters? Thank you.
spk05: I think Kai will answer the first question. Is Kai still online?
spk07: Yeah, sure. Hey, thanks for the good question. I think to answer your first question, and we definitely see with this new mixture of the brand new membership program and offline efforts, we were able to see stronger growth because we have more touching point with our customers, and also there's a synergy we can achieve from both online and offline line of business. And unfortunately, I cannot give you exactly timing when our new programs will be launched, but it will be very soon. That's something I assure you.
spk06: Okay.
spk07: And regarding the impact of the first quarter of 2021, we have to say yes, because people are encouraged to stay where they are for this period. And we also respond in terms of operation. Yes, we do operate through the full Chinese New Year holidays. Therefore, we are seeing a significant increase in our revenues. from last year for the same period, which is the first quarter of the calendar year. But unfortunately, I cannot give you any on-audit guidance at this moment.
spk06: Can you also talk about the GMV growth and revenue growth difference? Thank you.
spk01: I will answer the second question. We think that the GMV and the revenue trend will continue. our GMV and revenue from Baltimore is growing bigger and bigger. From this quarter, Baltimore GMV accounts for over 40%. And the same quarter of fiscal 2020, Baltimore GMV debt accounts for about 35%. We think in the future, Baltimore GMV will achieve about 50% because we provide more discount and coupons importing more. So the gap between our total GMV and revenue will continue the trend with this quarter.
spk06: Thank you, Loya. Can I just ask one more question, which is about the new membership program and our offline initiatives. Can you just talk about what is our progress now? Do we plan to open more offline store, maybe some potential timelines as well? Thank you.
spk07: Okay. Thanks, Paul. First of all, regarding the new membership program, yes, we are in the process like... finalizing the details of the new membership programs. And unfortunately, I want to keep this a surprise to our members and customers. Therefore, I cannot share too much details, but the thing I can share with you will be, it will be totally from different from any other membership programs. No, regardless where it's our own or other e-commerce platform is using as of now. So, We hope this will be a game changer. And most importantly, we hope this will increase our users' sickness and improve their experience with Boji across all the channels. And regarding the offline, yes, we are in the process of opening up our flagship in the Shanghai municipal area. and as well as we are working with a couple of test trial points for our franchisee models. But as I mentioned earlier, I wish I could tell you the exact date, but it depends on many various factors. Some will actually cannot be that accurate. It will be very soon. It will be very soon. That's something I can tell you.
spk06: Okay. Thank you. That's very helpful.
spk04: This concludes our question and answer session. I would now like to turn the conference back over to Ms. Lisa for any closing remarks.
spk02: Hi, thank you, operator, and thank you all for participating on today's call. We appreciate your interest and look forward to reporting to you again next quarter on your progress. Thank you.
spk04: This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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