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Boqii Holding Limited American Depositary Shares, representing Class A Ordinary Shares
Q2 2022 Earnings Conference Call
11/30/2021
spk08: Good day, ladies and gentlemen. Thank you for standing by, and welcome to BOSHE's fiscal 2022 second quarter earnings conference call. Currently, all participants are in 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 Lowe, BOSHE's IR manager. Mandy?
spk04: Thank you, Operator, and good morning, everyone. Welcome to Boqi's fiscal 2022 September quarter earnings conference call. Joining us today are Mr. Louis Liang, CEO and Chairman of Boqi, Ms. Lisa Tang, Co-CEO and CFO of Boqi, Mr. Kai Fang, Chief Strategy Officer, and Mr. Loyal Dai, Financial Director of the company. We released results earlier today. The press release is available on the company's IR website at ir.wochi.com, as well as from Newswire Services. A replay of the call will be available on the site 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 will 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 are 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 also note that certain financial measures that we use on a call such as adjusted net loss, adjusted net loss margin, EBITDA and EBITDA margin are expressed on a non-GAAP basis. Our GAAP results and reconciliations of GAAP to non-GAAP measures can be found in our earnings press release. Please also be reminded that unless otherwise stated, All figures mentioned during the call are in Chinese R&B. With that, let me now turn the call over to our co-CEO and CFO, Ms. Lisa Tang. Over to you, Lisa.
spk03: Okay, thank you, Mandy. Thank you very much for participating in the second quarter of the 2022 fiscal year. At the end of the second quarter of the fiscal year, we successfully signed with New Jiao. We celebrated a new milestone and entered a new stage of development. Thank you, Mindy. And once again, we welcome for everyone attending the call today. We celebrated our new milestone at the end of Q2 of the last fiscal year. As we have successfully admitted on the NYSE, It opened a new chapter for us. Shouldering the expectations of investors on the pet industry at large, we continued to strengthen Fortis positioning in pet vertical by enhancing our group along the value chain and improving our product and service offering with the goal of creating more values for end users and shareholders. In this quarter, we continued to deliver satisfied orders on the top line, achieving 23% of the same price increase. This growth is also of high quality. Our net profit rate increased from 18.6% in the same period last year to 19.7%. The net profit rate after retailing increased significantly from 5.9% last year to 9.2%. Behind the bright data reflects the recognition of the supply chain on both ends of the wave ecosystem chain. In this quarter, we delivered solid financial results with top-line reporting of YY growth of 23.1 percent, and our gross profit margin have improved from 18.6 percent to 19.7 percent this year. Post-fulfillment margin also increased significantly from 5.9 percent to 9.2 percent. Behind all these daring numbers, They also point to the fact that Boqi is enjoying growing recognition from both ends of the supply chain, effectively connecting their parents with vendors. For users, we can provide a solid supply of purchase demand, selection of brands, and competitive price sales. And through various animal-friendly ecological extensions, we can deepen the recognition of Boqi by pet and non-pet users. For a user perspective, we are a one-stop shop with extension products and service assortment. Our premier quality is being competitive in prices. Through our established ecosystem, We are also able to strengthen our brand name as well as inference to patch or non-patch owners. Ever since our listing, we have achieved a growth of more than 20% in the number of active buyers for five consecutive quarters. This was no exception in Q2, as we saw a worldwide growth of 23.5%. With the continuous selection of brands and products, we have provided 690 brands until 930. The total number of SKUs has reached 24,000. Compared to the number of brands at 630 last year, the number of SKUs at 750 is 17,000. There is a significant growth. In addition to exploring new products and new brands for users, we have also increased the support for small and medium-sized brands. By operating experience for pet precision flow, we can help these brands grow more efficiently and healthily. It also allows our users to enjoy the benefits of more high-quality brands. Because of this, our service revenue has maintained a three-fold high-speed growth in the past few seasons. In the past one season, it has also completed a 11-fold equal growth, reflecting the value of Boqi's brand promotion for the brand's output, including high-efficiency investment in new media channels such as Douyin, warehouse delivery, and distribution and transportation management capabilities. At present, this part of the revenue accounts for 5.7% of the overall revenue, Meanwhile, we continue to expand our brand and product selection. At the end of September, we were providing 24,000 SKUs from 690 brands, compared with more than 17,000 SKUs from 516 brands at the end of June last year. revenue from online marketing and information services has more than doubled over the past few months. Specifically, in Q2, we also saw an 11 times worldwide increase in this segment of revenue, showcasing the recognition of BOTI's capability in brand incubation as well as in effective marketing on new media channels such as TikTok. Currently, revenue from online marketing and information services has already reached 5.7% of total revenue, and we believe this will continue to contribute to our gross margin and constitute one of the key differences in terms of our ecosystem when compared to the generic platforms. 目前中国宠物行业相处的阶段相较于其他的大类目依然处于相对早期。 A large number of mid-to-low-end brands are in the rise of tens of millions. For the brand, under the industry situation of more than 25% of the market share, in all corners, whether it is comprehensive e-commerce, offline stores, pet hospitals, it is difficult to obtain a precise flow with a large scale. On the line, the flow of platforms is not precise enough. The flow cost of flagship stores is more or less the same, suppressing the profit space of the brand. Even so, when it reaches a certain volume, As China's pet industry is still in its early stages, especially when compared to the other mature categories, like women apparel. These are numerous small and mid-sized brands that are living on terms of million RMB in GMB. Combining the fact that pet owners are just above 25% of the total population, it is difficult for most of the pet brands to secure sizable yet effective traffic. Let it be integrated e-commerce platforms, offline stores or hospitals. For online channels, the much diluted pack traffic on generic platforms and the high setup cost of flagship stores are squeezing the profit margin of rent. Even if they have made huge investments in the store, once they reach certain GMV scale, the growth rate is very likely to stay flat. Talking about offline, Although the in-store traffic is exactly what the brands want, stores are scattered around the country and lack of chain management requiring brands to invest heavily in sales team to build up to offline channel no matter through direct sales or distributions. The sales points are hard enough to engage, let alone brand awareness or education. The one-stop service provided by Boqi and the accurate flow are exactly what these brands need. With the full adjustment of the channels, the ratio of our private channels and the third-party channels is stable at about 4 to 6. We can continue to acquire new pet users through the East Fire platform, and we can generate users through multiple benefits in the private channel, and create emotional connections through content deepening with users. Because Boqi provides a large number of brands with different consumption levels and products across various categories and chains, Whether it is inside or outside the station, the cost of goods can be effectively reduced. Until this year 930, our single-user cost of goods has dropped to 9.9 RMB, creating a historical low. This should also create the lowest cost of goods in China since then. In such a cooperation mode, the brand can invest more effective resources into brand construction, formula optimization, and polishing products. And Boqi can pass Hence, we believe Winsdorf Supply Chain and Marketing Solutions is the way to go for such small to medium size. After a short period of adjustment, Booty is now on a 14 to 16 split between self-operating and third-party channels. We believe such mix will enable our brand owners to attract new pet parents through the use of integrated platforms. While branding customer loyalty through consistent and educational content to Boise's self-operating channel. Riding our extensive brand mix and SKU selections, we have demonstrated our ability to effectively lower user acquisition costs. As of 30 September, our user acquisition cost has gone further down to a historical low of RMB 9.9 per user. which shall also have broken the record as the lowest customer acquisition cost among all vertical platforms in China. Under such flexible arrangement, brand owners can devote more resources to brand DNA as well as formulation and product development. And Bozi will handle customer origin supported by its 100 plus 2C channels and extensive distribution network as a patch vertical player. We see more of our values in helping industry to grow and providing a localized and professional solution that is down-to-earth and cost-effective. 接下来我想把时间交给公司的CSO房凯,让大家进一步去解析和业务和财务亮点。 And now I shall pass to our CSO Kai, and she will tell you more about our business and financial highlights. Thank you, Lisa.
spk00: And thanks, everyone, for joining our call. We would also like to share with you industry major business developments in our pet ecosystem as well as our financial data during this quarter. 感谢Lisa,也感谢再次大家能包容参加波及的业绩发布会。 在此,请允许我首先分享一下在过去的一个季度之中, First, we have reached a strategic partnership with Eversoft, an established leader in the pet hospital sales market. Together, we will launch an online procurement platform called Doctor's Choice, Yixing Yixuan. catering the procurement needs of over 3,500 independent pet hospitals and small hospital chains across the country. Over the last 11 years, Eversoft has been committed to create specialized data management solutions to drive the operating efficiency of independent pet hospitals. Eversoft now has a market share of 27%, covering over 300, 500 pet hospitals and clinics, providing them with tailored thought solutions. In this partnership, Bochi brought our supply chain expertise to the table. We supply those independent pet hospitals with over 600 SKUs from 65 different brands. The new procurement platform covers not only medical and healthcare products, but also snacks and food as pet hospitals aim to diversify its revenue resources. Together, we provide those hospitals with a convenient online procurement system which offers better choice, broader selections, and hassle-free fulfillment. We believe the collaboration would establish a disruptive approach to address the procurement problem of over 10,000 independent pet hospitals nationwide. for more than 3,500 independent pet hospitals and small hospital systems to provide high-quality and stable order service. In the past 11 years, Shunde Software has been committed to creating specialized data service management to improve the purchasing model of independent pet hospitals. With the recognition of pet hospitals all over the country, Shunde Software has already achieved the market share of more than 3,500 independent pet hospitals with a rate of up to 27%. This cooperation Boqi will fully play out our leading supply chain in the industry, storage, transportation, operation, after-sales service, and other size and technology advantages, and jointly create B2B co-operative malls that can provide independent pet hospitals with negative energy, and build a stable and convenient upstream supply system. At the beginning of the cooperation, we will provide more than 600 SKUs from 65 different brands. The product range ranges from medicines, medical supplies, to food and other types of products. 我们希望通过这个颠覆性的供应链解决方案, 可以系统的、有效的解决全国超过一万家的独立宠物医疗机构在采购方面的痛点, 以更高效、更便捷、更全面且节约成本的线上方式实现采购模式的迭代。 We also launched our brand new membership program in July. In the new membership program, we provide comprehensive benefits for the pet owners, such as points redemption, free of charge product trial, 24-hour butler service, night medical emergency, birthday gift, and offline social events. By reading the data, we are proud to say that this is a membership loved by our customers. For example, the points redemption ratio was as high as 30%. Members' loyalty directly leads to consumption. 17% of the activated members have been shopped with us in the past quarter. In terms of purchase frequency and output value, members on the new programs are 3.1 times and 2.5 times more than non-member users. We are thrilled by the initial success with further promote new membership program among our spending customers. 本季度内,我们也正式推出了全新的波奇佳会员系统。 In this new member system, we use our own ecological balance to balance the advantages. Our members have provided from the simplest direct points exchange, new long-term products, online pet health care, birthday gifts, night care, to offline pet gatherings, and other multi-dimensional all-round welfare systems. From the current active member behavior data, we can be proud to say that we have provided what the pet owners want. The average points exchange rate of members is up to 30%. Last but not least, This October, we established a strategic partnership with China's largest hotel chain, Huazhou Group. Together, we aim to provide pet-friendly staycation experiences in over 100 Blossom House brand hotels in the coming three years. In this partnership, we will provide pet care-related training to hotel staff, upgrade hotel room facilities to accommodate pets, operate an in-hotel daycare center for the pets, and offer specialized design activities for pets and pet parents. Going forward, Bochi will co-develop more pet tourism products with Huazhou to benefit our customers. 尤为值得一提的是,今年十月份,我们与中国最大的酒店集团,Huazhou集团, 建立了战略合作伙伴关系。 With the constant growth of the demand for pets for travel, we use our own eco-system advantages to work with Huazhou Group to build more than 100 hotels in China and the newly opened Huajiantang Hotel as a hotel label for domestic pets. Boqi will provide employee pets for nursing training, upgrade and renovation of pets in rooms, standard design of pet treatment process, and operation support for hotel pets service nursing center, Previously, Lisa had already briefly shared our view on revenue and gross profit performance. In the following, we will discuss further regarding expense and net loss for this quarter. Quarterly gross profit was RMB 55.7 million. up by 30.7% year-over-year, which leads to a gross margin of 19.7%. Fulfill expenses slightly increased to $29.6 million as compared to $29 million in the same period of last year. Fulfillment cost as percentage of revenue was 10.5% versus 12.7% in the same period last year. Post-fulfillment gross margin increased to 9.2% compared with 5.9% in the same period last year. Our early investment in the nationwide fulfillment infrastructure continued to contribute to the reduction in fulfillment expenses as percentage of revenue and improve our operational efficiency. Our total sales and marketing expenses were RMB 44 million, up 40.3% from the 31.3 million in the same period of last year. Sales and marketing expenses as percentage of total revenue were 15.6%, up from 13.7% in the same period of last year. The increase were primarily due to the increase of personal expenses related to discontinued COVID-19 government subsidies for medical insurance, house funding, and social insurance for the employees, as well as increased expenses for business expansion and investment in emerging channels. 本季度的销售推广费用为人民币4,400万,较去年同期的3,100万增加了约1,000万左右。 GNA expenses were RMB 23.2 million, up by 39% from RMB 16.7 million in the same period of last year. GNA expenses as percentage of total revenue were 8.2%, compared with 7.3% in the same period of last year. The increase was primarily due to the increase in share-based compensation expenses, as well as the increase in professional fees after we became a public-traded company. 一般性管理费用较去年同期增加39%,达到人民币2320万,主要增加来自于非现金的员工期权奖励以及上市后所需的相关中介服务费用的结算。 We ended this quarter with cash, cash equivalent, and short-term investment of RMB 339.7 million, compared with RMB 415 million as of June 13, 2021. We usually experience a relative low point of cash in Q2 of each fiscal year as we settle the accounts payables resulted from the 618 promotions and stock up the preparation for the W11 promotions. which results in a sudden increase in the prepayment. To conclude, Ho Chi delivered another solid culture with a meaningful progress in execution of a quality growth strategy. We remain committed to invest and build up our pet ecosystem. because that's the right thing, would offer unparalleled value for the past parents and our brand partners. Now let's start with the Q&A session. Operator?
spk08: We will now begin the question and answer session. If you would like to join the question queue, press star, then 1. If you are using a speakerphone, please pick up your handset before pressing the keys. If you would like to remove yourself from the question queue, Press star, then two. We will pause momentarily to assemble our roster. And the first question comes from Darren Aftahi with Roth Capital Partners. Please go ahead.
spk07: Good evening, and thanks for taking my questions. Just a couple if I may. Could you speak to on your membership business of the 1.6 million active buyers, How many of those are currently members, and then how you plan to kind of improve that figure going forward?
spk00: Hi, Darren. Nice meeting you again, and great question. So far, we are at a very nuanced and early stage of formally launching the membership program, and we have about 30,000-ish active members. The next stage of our membership programs will focus on, A, further promoting our member activation of a membership among our spending customers. B, we would further enrich the benefits system, leveraging our platform advantage. Regarding the membership program, I want to say that because this membership will be exactly like the membership program of airline company and hotel chains, so it's free to activate. Therefore, definitely, we are confident that with good enough benefit system, we should able to get a very optimized numbers and members to be the spending customers to be our member.
spk04: Let me repeat the question and answer from the analyst. The question from the analyst is how many members there are among the 1.6 million buyers this quarter. How will this number increase in the future? This is the answer from Mr. Fang Kai. In this quarter, we have 30,000 members because of the newly launched member project. Darren, you can continue your question. Great, thanks.
spk07: Two more, if I may. Could you just speak to the strength in the online marketing segment, kind of what's driving that, and then how sustainable that is, and just the impact it's having on gross margins?
spk04: This question is about the service revenue of this quarter, which is the part of our other revenue, the online marketing. Why is the revenue of this part increasing so fast? Can it continue in the future? And then I would like to ask him to explain it to us.
spk03: Thank you very much. Thank you very much. Thank you very much. Thank you very much. Thank you very much. Currently, most of the Chinese pet brands are in a state of rapid growth. The brand hopes to have an effective channel to reach users, to accurately convey their brand ideas and brand advantages to their audience. We are currently the country's best and should be the only comprehensive service provider. In terms of numbers, this part of the service has been recognized by the brand. Secondly, based on the principle of the US GAAP, part of the overall revenue will be adjusted to the product's profit. Therefore, from another perspective, the overall revenue of non-product sales has reached 7% of our overall revenue. However, part of it is adjusted to the product's profit. Therefore, the number of feedback on the comprehensive report will be less than this.
spk04: So, Darren, answering your first question regarding the high growth rate of the service revenue, the first, the logic why brands are working with us or they are willing to pay money to us is because the market of pet has grown really at a fascinating speed. But in the meantime, we are seeing that middle to small scale brand, they lack effective traffic to market on. and they can't really find such traffic through different channels, be it online or offline. But for us, we have omnichannel, and on top of sales for that product, we also offer different values, including marketing, helping them make an advertisement on emerging channels, and doing many other brand awareness programs. So they are willing to spend it with us. And turning to the numbers, we are very glad to see that in this quarter, This service revenue has picked up by 11 times, and this is a remarkable achievement, sustaining the growth in the last few quarters. Lisa further added that because of some of the rules of the U.S. GAAP, some of our revenue were calculated into the gross profit, were canceled down as the cost of our goods sold. That's why if combining the overall part, the total service revenue actually contributes to around 7% of total revenue instead of the 5.7% number shown on our financial statements. And I will ask Lisa the second question about the GP.
spk03: I understand. The growth of the consumer income is not very much affected by the current interest rate. The interest rate in product sales is still maintaining a relatively stable growth rate. But in the long term, based on more and more cooperation with the brand, we will be able to provide differentiated products in different channels for users, whether in new products or differentiated products for users. Darren, regarding the gross profit margin, yes, it does have some positive effect on the GPM.
spk04: but we see more values on the other parts of our ecosystem because as brands are working with us more closely by trusting us to help them market their products and invest in their users, they also give us other privileges such as giving us the first chance to release their new products, like to give us differentiated products, and also give us other support on the supply chain. And we think this will continue. And of course, we also have GPM app drivers from other parts of the business as well.
spk07: Great, thank you. And then this last one for me, and I'll pass it on. You know, we've heard from other Chinese e-commerce providers and service providers that, you know, obviously COVID is still an impact, but there's been a slowdown in consumer demand. I'm just curious kind of your thoughts on both and whether there's any impact on your business going forward. Thanks.
spk01: Okay, let me answer this question.
spk03: It will have some impact on us. For example, in terms of the number of this quarter, our industry, in fact, the entire cross-border business has been affected by some of the customs policy. So the income of our entire seabed business is actually a little bit more than last year. A lot of goods may not be able to come in. But if it's not this impact, I believe we may give better numbers. But in general, because the number of pets in the pet industry is very strong, the characteristics of the cross-finance cycle of the entire industry are very obvious. And the industry is in a multi-dimensional, with a potential for rapid growth. Not only domestic new domestic products, but also cross-border products have a positive growth. So it will be in a stage where even part A is affected, but part B's growth can still maintain a relatively strong growth rate.
spk04: Yes, Darren, answering your questions, the management does observe the slowing down of the needs in some other e-commerce players, but we are not really affected by this trend. If you look at the revenue, this quarter is still growing at a very strong rate, although we were partly affected by the COVID because some of the cross-border e-commerce products, they can't really enter China because of some limitations or the transportations. So we were small affected. But looking at the macro trend, the industry is still growing at a fast trigger. And from the past experience, we are not affected by the economic cycle. So we will continue to grow, driven by the different demands of the industry, including from domestic brands or international brands. And we don't see that trend slowing down.
spk03: And then I would like to add a little more about the impact of COVID-19. The domestic COVID-19 is also recurrent in some places. The impact of this is more for what we see is for the offline pet stores. The entire offline industry will be affected in some areas. And because of such a situation, we have reached a cooperation with pet medicine in this quarter. We also hope that in such a big commercial environment where the age is not very good, And also, one thing to add is that we still see the
spk04: emergence of COVID situation in some parts of China from time to time. That's why the offline business, especially the offline pet store and hospitals were affected by the COVID. But in the meantime, we think it is also a good time to consolidate resources. That's why we announced a news today that we are working with EVEXSOFT, the offline hospital SAS solution provider to try to empower the offline independent hospitals because there are a lot of them while they lack professional supply chain. And we want to offer that to them to use this kind of period to really empower them and help providing better medical service to the end users, i.e., our customers.
spk07: Great. Thank you.
spk04: Thank you, Darren.
spk08: Our next questions come from Ming Chen with Goldman Sachs. Please go ahead.
spk06: Sir, thank you. I'm just wondering, could you elaborate more what's driving your online marketplace revenue?
spk04: Sure. Online marketplace. What are the drivers of our own revenue increase?
spk01: Is it related to the question or answer?
spk04: Are you talking about goods and services? Two parts. He asked about the online marketplace. It should be said that our main business, e-commerce business, plus we can talk about why the revenue increase is so fast.
spk01: This is divided into three points. The first point is the big environment. Although the whole epidemic has affected the economy, but the pet economy, because it is a sustainable consumer economy, so
spk04: 我们也借了这个行业的一个趋势吧,我们还是在成长的。 The first question is very macro. The COVID situation doesn't really affect the pet industry. Actually, it helps us with some tailwinds. That's why we are seeing more consumptions in the field. 第二点是从...
spk01: The second question is because we are in the industry for over 13 years, and we already have a lot of users. Still, we see the active buyer number growing at a K girl of about 20% every quarter.
spk04: That's why they are driving our revenue growth on the marketplace part. And then the third question is because in addition to customer engagement, we also have been working on a supply chain for many years. As you can see from the latest numbers, we are working with over 600 brands. Because of our years of experience in this industry, we understand what the users need to understand about the brands and their products. So the brands can trust us to promote that product to the users. That's why you can see the continued growth momentum in our revenue segment, online marketing, and other revenue part. And you will see this trend continue. Ming, do you have further questions?
spk06: No further questions from me.
spk04: Thank you, Ming.
spk08: As a reminder, if you would like to ask a question, press star, then 1 to join the queue. The next question comes from Majid Mohammed with Shuri. Please go ahead. Hello, Majid Mohammed. Your line is live. You might be muted on your end.
spk05: Sorry. Yeah. Hello there. First of all, congratulations on your results. Some excellent work there. I have two quick questions. The first is, you plan to reach profitability by the end of the year. Are we to assume that you'll be reaching profitability next quarter? And finally, the cash position, you have around $50 million in cash. Is that enough for future investments, or do you plan to raise capital? Thank you very much.
spk04: Yes, the second question is about our profit performance. You mentioned some of your expectations about the break-even. Can you tell us again about the plan for the break-even? And the second question is whether our cash is sufficient.
spk01: To answer the first question, we are actually improving our profits, so our profit performance is relatively optimistic. We expect to increase our profit performance Yeah, answer your question, Muhammad.
spk04: You can see our GPM, gross profit margin, is improving, and also the expenses are shrinking, so we do see a break-even point by the end of the first half of next fiscal year. That's before September next year. And your second question about cash.
spk00: And I will address the cash position question. As mentioned that, we're in strong cash position with over 339 million RMB on our cash recruitment balance sheet. Definitely, it's more than enough to burn to until next year and even the year after next. So, we're very strong in terms of cash position. To answer the question about cash flow, you can see that we currently have 3.4 billion yuan in cash on our account. According to our expected profit by next year, we will definitely have enough cash to support our operations, our investment in the ecological chain, and some other investment and capital expenses that we need.
spk02: In addition, we have sufficient bank facility of 300 million RMB from our banks. And we have no large size of CapEx. Thank you.
spk08: This concludes our question and answer session. I'll turn it back over to management for any closing remarks.
spk03: Okay. Thank you, operator, and thank you all for participating in today's call and the first part. We appreciate your interest and look forward to reporting to you again on our progress in the next quarter. Thank you.
spk08: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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