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Boqii Holding Limited American Depositary Shares, representing Class A Ordinary Shares
Q3 2022 Earnings Conference Call
3/4/2022
spk05: Ladies and gentlemen, thank you for standing by, and welcome to Bo Chee's fiscal 2022 third 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 Lu, Boqi's IR Manager. Mandy?
spk02: Thank you, Andrew, and good morning, everyone. Welcome to Boqi's fiscal 2022 third quarter earnings conference call. Joining us today are Ms. Lisa Tang, co-CEO and CFO, Mr. Kai Fang, Chief Strategy Officer, and Mr. Loyal Dai, Financial VP of Boqi. We released results earlier today. The press release is available on the company's IR website at ir.ochi.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 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 note that certain financial measures that we use on the 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. Also, please be reminded that unless otherwise stated, all figures mentioned during the conference call are in Chinese Renminbi. With that, let me now turn the call over to our co-CEO and CFO, Ms. Lisa Tang. Over to you, Lisa.
spk01: Thank you, Mandy, and many thanks to everyone for joining the call today. During Q3 for Physical Tucson 2022, We continued to enhance our value chain position as an end-to-end connector, creating values for both pet parents and industry partners. As we enriched our SKUs, further expanded our distribution network and introduced creative initiatives to satisfy the growing needs of pet parents. We were able to engage more users. On top of that, we observed the struggle for precise vertical traffic of our industry partners, while our proven private domain user traffic has enabled us to grow top-line while contributing the sales and marketing spend. Therefore, we shared our user pool with industry partners and provided effective marketing solutions for brand owners to penetrated markets and educated parents in China. We continue to report pricing performance across our operation figures against the fierce market competition. Active buyers increased by 17.8% quarter-over-quarter, or 26.3% year-over-year. And the number of orders increased by 19.2% quarter-over-quarter, pointing towards our expanding brand value and improving customer engagement. Such thickness was able to translate to growth in total revenue up by 6.3% year-over-year. Remarkably, our gross profit margin increased from 17.9% in Q3 of fiscal year 2021 to 23.1% in Q3 2022. We intend to continue working in users' degrees under cost selling with our rich portfolio of products to effectively turn our traffic into meaningful sales revenue. We remain dedicated to supporting the development of small to mid-sized brands with our established capabilities in supply chain, warehousing, SaaS, membership system, and offline extensive distribution network. We offer brands a cost-effective solution to target the right customer group. This has translated into a significant growth in online marketing, information services, and other revenue. From 0.2% of total revenue in Q3 of fiscal 21 to 4.6% of total revenue in this quarter. As the Instra As the infrastructure for such service revenue is already in place, its marginal cost remains low. Together with our rising post-fulfillment margin, we are confident to reach breakeven in near future. Gucci is looking not just a sustainable growth in user base, but also a comprehensive network infrastructure that allows us to connect the sellers and the buyers. As we achieved a new low in CAC of RMB 8.5 per user, we believe our closed-loop system has taken shape and we will further improve our servicing capabilities. Looking ahead, China's pet industry is expected to continue its growth, reaching more than 400 billion yuan by 2023 according to market research. Huge opportunities lie behind the increasing penetration and expanding needs of parents and the underserved branding owners. Now I will turn the call over to the CSO Kai Fang, who will share more details about our strategy and financial highlights.
spk03: Thank you Lisa, and thanks everyone for joining us tonight, or today. On top of our general business overview, I'd like to share more detailed financial information that will be moving steadily toward profitability this quarter and onwards. First, we are pleased to see a healthy revenue breakdown. Product sales continue to pick up, mostly powered by our self-operated segment. We were able to roughly maintain a 40-60 split between self-owned channels versus third-party channels contribution. We believe such plan is well-balanced between efficiency, acquiring new traffic, and retaining user loyalty within our own community. The strong growth in user base and the traffic should also lay the solid foundation for future business expansion. This quarter, Our gross profit was RMB 76.9 million, up by 37% year over year. And our gross margin increased to 23.1%. This is mainly driven by improved margin of optimized SQU matrix and higher margin contribution from our value-add services. Fulfillment expenses. slightly increased to 37.7 million RMB as compared to 33.6 million RMB in the same period of last year. Fulfillment as percentage of revenue was 11.3% versus 10.7% in the same period of last year. This increase was primarily due to the increase in stock handling cost and the packaging cost as a result of the increase in the proportion of the pet supply products which was higher packaging required. Post-fulfillment gross margin increased to 11.8% compared to 7.2% in the same period of last year. Our total sales and marketing expense were RMB 48.3 million, down by 12.4% from 55.1 million RMB in the same period of last year. Sales and marketing expenses as percentage of total revenue was 14.5%, down from 17.6% in the same period of last year. The decrease was mainly due to the decrease in the share-based compensation expense of RMB 11.4 million when compared to the same quarter of fiscal year 2021. G&A expense were RMB 22.3 million, down by 64% from the RMB 61.8 million in the same quarter of fiscal year 2021. GNA expense as a percentage of total revenue was 6.7, down from 19.8% in the same quarter of last fiscal year. We ended this quarter with cash, cash equivalent, and short-term investment of RMB 315.7 million, compared to RMB $339.4 million as of September 30th in 2021. With no major CapEx or SIN, strong credit line backup, and we are very close to the break-even point. We believe we are cash sufficient in our operational and the new initiatives. To conclude, 4G delivered a set of solid results in this quarter, with meaningful progress in the execution of growth strategies. We remain committed to investing more resources to build our pet ecosystem. We believe that by leveraging our leading market position in the pet industry, strong execution, and the business development strategies, we can capture the promising business opportunity and deliver value-add for both parents and our brand partners. And we are moving steady to the break-even point and profitability. Now, let's move on to the Q&A questions. Operator, you might open the line up for the questions. Thank you.
spk05: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1, on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Darren Afti with Roth Capital. Please go ahead.
spk04: Yes. Good morning. Good evening. Thanks for taking my questions. Just a few, if I may. In the press release, you called out challenging market conditions in light of your growth. I'm just kind of curious what you're referring to, that COVID, supply chain, kind of something else. And then I guess, you know, when do you see those challenging market conditions improving?
spk02: Thank you, Darren. I will quickly answer that. All right, Kai, go ahead.
spk03: Hi, Darren. Thanks for the question. Actually, that's a very good one. So we're talking about the challenging market condition will have impact on our top line as well as bottom line. So far, we can see a very steady demand in terms of domestic market. But unfortunately, for our offline business as well as our offline traffic, they're heavily impacted by the by the COVID situation, and that impacts our supply chain as well. And due to the COVID situation, we are seeing some tough, especially for the cross-border business, we are seeing some headwind in terms of the logistics. So, therefore, as you can see, some of the imported products in our SKU line up get impacted in the last quarter, end of the quarter before last. We hopefully, with medication and vaccination situation improved, and we can contain, and people will find a way to coexist with the COVID-19 in better and have less impact on people's normal life and have less, especially in the cross-border supply chain.
spk04: So can I follow up on that? Are you seeing demand from customers and actually not being able to fill demand because you don't have the products because of supply chain issues?
spk03: Yes. So I'll put it this way. It's like we did see a lot of traditional overseas imported products, that were undersupplied. And the domestic supplies, the domestic brands are trying their best to fulfill the gap, but we do see a lot of gaps that are on the field.
spk04: Great. That's helpful. Another one, if I may. Your gross margin was exceptionally strong in the quarter, and I know typically it's seasonally pretty strong. But I just want to understand, I appreciate the online marketing piece is showing a lot of strength, and that's a higher margin business. But, like, can you speak to a couple things with gross margin? One, like, what's the gross margin you're seeing on your product business? And then number two, like, how sustainable is that level going forward? Have you changed something? structurally that you feel like you're confident those gross margins can be elevated in the future.
spk01: Okay. In this quarter, we saw very solid growth of gross profit margin in our product sales part.
spk02: It has increased from 17.9% to 21.4% compared to the same period last year. And if we break this down, the contribution was from all across the categories, including staple food, as well as pet care products.
spk01: So this was actually brought, was actually driven by two reasons. Firstly, because we increased the support for the small to mid-sized brands.
spk02: and they have higher margin compared to other brands. And secondly, because we have kind of adjusted the product mix, which has also helped the increase in the product sales margin.
spk01: Second, in the product sales section, the last quarter was actually the year-end big vinegar quarter. Usually, the horsepower rate will be relatively low. The past adjustments have basically seen results. Now we are more confident that there will be a balance between the future growth and the increase in horsepower.
spk02: And because if we look to the future, we will see two drivers for the GPM. Of course, one part is from the information services and other revenue because it has higher margins, and we also foresee that this will constitute an increasing part of total revenue. And secondly, this will be contributed from the product sales part. Because in Q3 of the fiscal year, it's the December quarter, and we usually have the e-commerce promotions. So in this quarter, product sales, GPM will be quite low. So we are very confident that in the future quarters, this number will continue to pick up. And in the longer term, we will have more balance between the overall growth, the overall revenue growth, as well as the GPM improvements.
spk04: Great. And then just two more if I could. You mentioned reaching profitability or breakeven, whatever the metric is, several times in your press release. I'm just kind of curious what level of quarterly sales you kind of have to be at to achieve that goal.
spk00: Hi, Darren. This is Loyal. As Lisa mentioned, with our GPM continued improvement, we expect our total revenue, when our total revenue achieved 400 million IMB, we expect we will achieve the break-even.
spk04: Thanks, Loyal. And then just last one for me. I know you have some time to address this, but I'm sure there's a lot of investors on the call that want to know, but just can you speak high level what some of the initiatives are that you're thinking about in terms of consideration for kind of the share price requirements for NASDAQ to get back to being in accord with their requirements? Thanks.
spk03: Yeah, sure. Hi, Jeremy. So We are fully aware of the kind of NASDAQ share stock price requirement, and we will take two approaches. One approach will be a fundamental approach. We'll continue to do our diligent work in terms of investor relationships, and we are trying to get more investors who recognize our intrinsic value to be able to take advantage of this price. It's one approach on one hand. And on the other hand side, we are fully aware of all the technical efforts that the company can take in terms to meet the requirements, such as reverse fleet of the stock. I'm just quoting one. So, therefore, we will definitely keep investors in the public eye. be aware should we have more concentrated plan to meet that requirement.
spk04: Great. Thank you.
spk05: This concludes our question and answer session. I would like to turn the conference back over to Mandy Lu for any closing remarks.
spk02: Thank you, Andrew, and thank you all for participating in today's call and for your support. We appreciate your interest and look forward to reporting to you again on our progress in the next quarter. Thank you.
spk05: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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