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Boqii Holding Limited American Depositary Shares, representing Class A Ordinary Shares
Q4 2022 Earnings Conference Call
6/6/2022
spk04: Good day, ladies and gentlemen. Thank you for standing by, and welcome to BOCHE's fourth quarter and fiscal year 2022 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 floor over to Mandy Liu, BOCHE's IR Manager. Mandy?
spk06: Thank you, Operator, and good morning, everyone. Welcome to Boqi's fourth quarter and fiscal year 2022 earnings conference call. Joining us today are Mr. Louis Liang, Chairman and CEO, Ms. Lisa Tang, Co-CEO and CFO, as well as Mr. Kai Fang, our Chief Strategy Officer. Thank you, Director. Good morning, everyone. We released 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 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 involving 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 the 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. 同时也提请投资者注意, 本次电话会议上使用的某些财务指标, 如金调整净亏损率, EBITDA和EBITDA利润率是以non-GAAP的形式呈现, 我们的GAAP结果以及GAAP到non-GAAP之间的调和, 请参考最新业绩新闻稿。 Also, please be reminded that unless otherwise stated, all figures mentioned during the call are in Chinese renminbi. With that, let me now turn the call over to our chairman and CEO, Mr. Louis Liang. Over to you, Louis. Thank you, Mandy.
spk00: And many thanks to everyone for joining the call today. The fiscal year 2022 represents another challenging year for every one of us. Whether you are from the US, China, or other parts of the world, Before we start, no matter where you are, we appreciate your utmost confidence and support in BOKI, and we are glad that we were able to deliver encouraging results despite the frustrating COVID-19 pandemic. Thank you very much for attending today's phone call meeting. Whether you are from the United States, China, or other regions, 2022 is undoubtedly a year full of challenges. Thank you very much for your confidence and support for Boqi. The COVID-19 pandemic is still ongoing. Uncertainty still exists, but we have still given outstanding results. Reflecting on our operations, the self-supply chain disruption in China has no doubt created difficulties to our daily operations and put close pressure on our fulfillment. The regional lockdown has also limited spending and affected the performance of the retail market, yet not all were negatives. As the lockdowns have lead to more time at home, more time with our beloved pets, and in return, delivering the sales of pet products ranging from daily necessities to health care, cleaning and grooming products. In the past quarter, the impact of the pandemic on the public chain has brought great difficulties to our daily operations. The travel cost has also been constantly rising, and regional closure has limited consumption and affected the overall performance of the retail market. But during the closure, we have more time to stay at home and have more time to be with our beloved pets. These factors have promoted the sale of pet products, including daily necessities, health products, cleaning products, and beauty products, etc. As a result, we were able to deliver a growth in GMB and revenue, as well as improve our efficiency and expand our margins. But more importantly, we provide ourselves on delivering the required pet products to the large community, despite lockdown and supply chain disruptions. That would not be possible if we are without Our extensive in-house facilities and proven fulfillment capability. Because of this, we have realized the growth of GMB and income, while increasing efficiency and expanding profitability. What makes us even happier is that we can provide pet products to large community families in the event of closure and supply chain interruptions. We believe that this all depends on the extensive freedom Looking back, we aim to be the reliable and trusted platform for pet parents since day one. And I believe we have done so, especially during the pandemic. We firmly believe our value is much more than a simple e-commerce business. As a leading platform with extensive product range, extensive outreach channel, engaging community, and rich content, we have formed an ecosystem that can effectively connect pet parents and industry partners. As we continue to grow in scale, we believe we are well positioned to capture the leasing products and service needs for our pet parents, as well as the marketing needs of the underserved SEMES. Since the establishment of Boqi, we have always hoped to become a reliable and reliable service platform for pet families. Especially during the pandemic, I believe we have already proven the value and capability of Boqi. We believe that the value of Boqi is far more than just a simple e-commerce platform. As the leader of pet platforms, we have a diverse product category, a wide range of access channels, a highly interactive community, and a rich content. All these capabilities help us to build an ecosystem Financially, we are also moving closer to breakeven. We have the utmost confidence that it will facilitate our value recovery and generated shareholder return. This would also provide us the capital to explore other opportunities and go beyond organic growth, adding further growth impact to our business. We will continue to work with passion while keeping a keen eye on our operations. operation as well as potential market opportunities in order to repay your trust and confidence. Let me pass the time to our co-CEO, Lisa, to update you on our achievement during the year. 总的来说,我们对未来的发展很乐观,作为管理层,我们将继续努力经营,密切关注公司的运营以及潜在的市场机会,以回报大家的信任和信心。 Thank you, Luis. During the year, Boqi has put great effort to enhance its infrastructure.
spk07: That includes improving our warehouse efficiency, expanding our online marketing capability, increasing our offline top points,
spk08: as well as reaching new collaborations with industry partners on hospital staff and the pet friendly states, all in the hope to better serve our pet parents and the branded partners. Thank you, Louise. In 2022, Boqi will actively strengthen its infrastructure, including increasing storage efficiency, expanding online marketing capabilities, increasing offline points, and establishing new cooperation with industry partners. supported by our expanding SKU selection of 26,624 this year, a year-over-year growth of 33.5%, Along with our growing brand equity and the introduction of new membership programs, we were able to attract new users and boost retention during the year. Our active buyer has increased by 13.4% year-over-year to 5 million, with the number of orders also increased by 52.5% to 9.8 million for the year. During the steady growth in the user base, our GMV and product sales also recorded satisfactory improvement, increased by 19.4% and 17.4% respectively. 国企的SKU选择也不断扩大,达到了26,624个,同比增长33.5%。 At the same time, with the continued improvement of brand value and the support of the new membership plan, the Group has also achieved good results in attracting new users and current users in this year. Our active buyers have increased by 30.4%, reaching 5 million people. The number of orders this year has also increased by 52.5%, reaching 9.8 million orders. Our community engagement strategy also proved to be a success. By offering users a platform to discuss, interact, and make purchases, Wochi has become a go-to place for preparing satisfying their product, service, and social needs. As 80% of pet parents in the PRC are first-generation pet owners, the useful pet care tips on our platform have also made us a good information hub. supported by our comprehensive or reaching channels, including OPT, mini-program, WeChat account, and video channel that will give us sticky private traffic, as well as third-party traffic from search engine, Tmall, JD, TikTok, and Xiaohongshu, which will give us significant volume. We are able to create vibrant ecosystem that is characterized by high user thickness, low retention costs, and high sales conversion. Specifically, in fourth quarter, our customer acquisition costs has reached a new low of RMB which highlights the rising thickness of 4G brands, as well as the effectiveness of our strategy and measures for user acquiring, including the revamped membership program. 全渠道布局覆盖甚广,包括了APP,小程序,微信账号和视频渠道, 这些都带来了高粘性的私域流量。 In addition, the third-party apartment channels of search engines, Tianmao, Jindong, Douyin, and Xiaohongshu have been introduced to further enrich our traffic pool. We have been able to create a high user annuality, low storage cost, and high sales conversion ecosystem. In the fourth quarter, our customer cost has reached a new low of RMB5.7, which has highlighted the further improvement of the brand annuality. This growing stiffness also allows us to do more for our industry partners, as our branded partners often lack cost-effective marketing solutions due to the unspecified traffic mix of other e-commerce platforms. Mochi, with a group of closely tied parents, represents a much more effective marketing channel, especially for small to mid-sized branded partners who have limited budget in marketing. By riding on our rich user database and action data, we can also provide marketing intelligence to our branded partners so that we can make swift business decisions in this product mix and the supply chain. As a result, we were able to deliver a remarkable 5.3 times year-over-year increase in the revenue from online marketing and information services, reaching RMB 49.1 million. We can provide market information to our brand partners. We will also like to bring to you attention to that our private labels have made good progress during the year. It's SKU Group by 69.4 percent to 5,643, and the revenue also grew by 15.8 percent year-over-year to RMB 42 million in this quarter. Gross profit margin of our private labels also reported a significant enhancement from 26.9 percent last Q4 to 33.4 percent this Q4. It is worth noting that our free brand has also made good progress in this year. CSKU has increased by 69.4%, reaching 5,643. The income this quarter has increased by 15.8%, reaching 4,200,000 RMB. Our free brand's net profit has also increased significantly, from 26.9% in the fourth quarter of last year to 33.4% in the fourth quarter of this year. Financially, the growth in the product sales and online marketing and information services have brought our revenue to a new high of RMB 1.19 billion, up 17.4% year-over-year. As we continue to grow in scale and GMV, as well as factoring in the high margin natural of our online marketing business, our gross profit margin and the post-fulfillment margin also reported a record high of 20.5% and 9.2% for the year, respectively. Layering a solid foundation of future turnaround, we are confident that we will achieve break-even in the coming quarters. And now I will turn the call over to our CSO, Kai Fang. We'll share more details on our financials and the future strategy. Thank you, Lisa. In the following, I'd like to share more on our financial performance for the year. Despite the supply chain disruption and the
spk02: Thank you, Lisa. Next, I would like to share with you more about the financial performance of Boqi in this quarter and this year. Although the COVID-19 pandemic brought a challenge to the middle of the supply chain and the middle of the consumer market, we have still achieved impressive performance this year. The four quarters have stable performance growth. Our four-year revenue grew 17.4% to IMB $1.2 billion, with notable increase in revenue from online marketing and information service. Cross-profit was IMB $242.7 million, up 29.6% from the fiscal year 2021. And cross-modeling driven by the increasing product GPM and growing contributions from online marketing and the information service was 20.5%, up by 200 basis points. Our annual revenue has increased by 17.4%, reaching RMB 11.9 billion. Among them, our online marketing and service revenue has increased significantly. This year's net profit is RMB 2.43 billion, which is 29.6% compared to last year. Our total sales and marketing expenses were RMB 171 million, up by 6.7% from 162%. and $60.2 million. Sales and marketing expenses as a percentage of total revenue was 14.4%, down from 15.8% from last year, mainly due to the lower customer acquisition costs, enjoyed from the growing revenue contributions of VoiciMore, as well as the adoption of more cost-efficient channels across our marketing innovation teams Our total sales and marketing fees are RMB1.7 billion, which is 6.7% higher than last year's RMB1.602 billion. Our total sales and marketing fees are 14.4% lower than last year's 15.8%. This is mainly due to the further decrease in the cost of our customers, as well as the increase in the contribution of our double-layer income, and we have adopted a more cost-effective channel in our marketing activities. Fulfillment expenses slightly increased to $134 million compared to $120.2 million in the fiscal year. Fulfillment expenses as a percentage of revenue was 11.3% down from 11.9% in the fiscal year 2021, mainly due to the improved utilization of warehouses and lower delivery service price through negotiation with third-party service providers. As a result, post-fulfillment margin increased to 9.2% compared to 6.6% in last year. From last year's $1.2 billion, we increased to $1.34 billion. The revenue from the fee-to-pay section is 11.3%, which is 11.9% lower than that of 2021. This is mainly due to the further increase in the utilization rate of our warehouses, and the reduction in the price of the services delivered by the third-party logistics service providers. Therefore, the net profit after the fee-to-pay section increased from 6.6% last year to 9.2%. General and administrative expenses were IMB 76.2 million, down by 33.1% from IMB 114 million in fiscal year 2021. General and administrative expenses as a percentage of total revenue was 6.4%, down from 11.3% in fiscal year 2021. The decrease was mainly due to lower share SBC expenses of IMB 11.7 million compared to IMB 42.1 million in the fiscal year. With all the above, that has led to layering adjusted net loss for the year of IMB 121.2 million versus IMB 149.6 million last year. As mentioned by Lisa, we are confident our break-even is coming quarter. From last year's 42.1 million yuan reduction to this year's 11.7 million yuan reduction, this has led to the net loss after this year's adjustment from last year's 1.496 billion yuan reduction to this year's 1.2 billion yuan reduction. As Lisa mentioned, we are confident to achieve a balance of profit and loss in the future. On our financial position as of 31st March 2022, if excluding the IMB 181 million of long-term debt, our effective debt-to-asset ratio stood at 44.8%. As we are in the progress of completing shareholders' ODIs, the company is expected to receive the equivalent amount in U.S. dollars from overseas, which will be recorded in equity after repaying the IMB 181 million of long-term debt. And with no major capex forcing and a strong credit line backup, we believe we are cash-sufficient to support our operation and pursue new initiatives. especially with our CAC achieving new low-end as we get closer to our break-even point. After repaying the long-term debt of RMB 1.8 billion, the company will receive US dollar funds from abroad and enter the full range of projects on the stock market. In addition, we do not have significant capital expenditure in the future. At the same time, we have a very sufficient budget in the bank. We believe that we will have enough cash to support our operation and seek new development in the future. Especially as our customer cost has reached a new low in history, we are also getting closer to a balance of profit and loss. 3,500 pet hospitals to provide hospitals with convenient tools such as online medical services, membership management, notification and reminder, and event promotion. Supported by our strong supply chain capability, we were able to transform the procurement system of hospitals, moving them from less reputable and possibility unreliable supplier to our well-regarded and reliable platform. We believe the collaboration will establish a new standard for professional and personalized path medical services and will provide strong traffic to our product sales business. In terms of company operation, in order to expand the business scope, We have been actively exploring opportunities for all-round services for small brand partners and pet families over the past year. In 2013, we established a strategic cooperation relationship with the domestic leading pet hospital, SAS, to learn about software. We also believe that this cooperation will On the other hand, we also made progress in the strategic partnerships with industry parents, including Huazhu, to provide customized pet-friendly staycation experience under the Blossom House brand. fashion brands to offer crossover products as well as commercial property companies such as BFC, the Mix City, and CRC to co-host events. We have also entered the cooperation into the entertainment industry by collaborating with Bilibili. On the other hand, we have also made progress in strategic cooperation with other industry partners. For example, we and Huazhou Hotel provide customized pet friendly accommodation experience through Huajiantang Hotel, and cross-border with fashion brands and commercial real estate companies such as BFC, Wanxiangcheng, and Huarun. We also look to do good while doing well. In the last 14 years since our inception, we have been contributing to larger communities through a series of donations and activities that promote path adoption. In the recent wave of COVID-19 in the PRC, we were able to reach 447 communities across 12 districts in Shanghai through COVID. group purchases supported by our Azure supply chain. At a time when logistics was extremely difficult, we also took on our responsibility as a corporate citizen by donating pet supplies to various caring centers such as Bowen Temple and other centers in Shanghai and Chengdu, satisfying the daily needs of thousands of stray dogs and cats. At the same time, Bosnia and Herzegovina is actively participating in and promoting public activities. In the past 14 years since its establishment, we have been promoting pet breeding and donation activities for a wide community through a series of activities. In China's recent wave of COVID-19, we have used flexible supply chains to support cross-border activities, which has resulted in the benefit of 447 small communities in 12 districts in Shanghai. In times of extreme financial difficulties, we have also taken on the public responsibility of the enterprises. We have donated pets, food and necessities to many love centers such as Bao Wen Temple, as well as other centers in Shanghai and Chengdu, which have met the daily needs of thousands of stray cats and dogs. Over the years, thanks to our 5 million spending customers, we have achieved these excellent results. In the upcoming quarters, we expect the trend to continue long into the future. As we further expand our portfolio offerings, strengthen our supply chain, and establish more multi-experience touchpoints, we believe the strong growth movement in active buyers and post-fulfillment margin will make us stand out in the increasingly challenging pet market. In the meantime of business growth, we will also continue our mission of carrying pets to our best ability. Whether it is by product sales to our pet parents, marketing service to our branded partners, or community service and donations to those in need, we will also stay vigilant to the changing dynamic in our industry in order to best serve our pet owners and industry powers in order to generate a fruitful return to our shareholders. Let's now move on to the Q&A section. Operator.
spk04: Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one. To remove yourself from the question queue, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the numbers to ensure the best sound quality. Once again, that is star and then one to join the question queue. Our first question today comes from Darren Deftahi from Roth Capital Partners. Please go ahead with your question.
spk03: Hi. Thanks for taking my question, and good evening. I'm just kind of curious, if you could... Maybe try and quantify how bad COVID impacted your business during the quarter and then post-March. How has that changed?
spk05: This question is about the impact of COVID-19. How big is the impact of the pandemic on our business? Will it affect the performance of our business in March? Okay, let me answer that.
spk08: As you all know, in March, Shanghai was in a state of lockdown. This lockdown will cause a surge in supply chains, and the pandemic will be different from the previous one in 2020. This has an impact on the logistics supply chain. But at the same time, because we have changed the way of purchasing to reach more than two types of users in Shanghai, so we have provided basic product protection. So there is a certain protection and return to sales, but it still cannot completely eliminate the impact of sales. But at the same time, we also found that the epidemic will further limit the current consumer scene. A large number of shops are closed. Darren, thank you for your question.
spk06: Actually, as you all know, Shanghai's pandemic started from early March, and that has really impacted the supply chain and the pet supply chain as well. So it was not like the situation back in 2020, and we did see some influences. However, during the pandemic, we also developed a new way to connect with our customers. We used Group Buy, as mentioned in Ernest's call, that has increased that has made up for some of the sales drops, but still, we saw some influence from the pandemic. On the other hand, we're also seeing that the pandemic hurt the offline scenario even harder, and that might have longer influences. But still, during this time, we see the online demand is still there. If we can find a solution to the logistics and the supply chain block, which is also what we are doing right now, we believe we can set off this influence in some time. And that will not hurt our overall sales.
spk03: Great. And then a couple more, if I may. You touched on your membership program. I'm just kind of curious. Could you give any general sense for the level of spend of members versus non-members in the quarter?
spk01: Hi, Darren. Hi. Sorry, Ellis. I was dropped off accidentally due to some bad signal. Regarding the membership program, yes, we are still seeing the same pattern with the member versus non-member spending. In general, the member is spending about three times over the non-member, over the same quarter. In terms of both, the RPA and the U.S. will add some margin contribution. But we see some like kind of a little bit flat in terms of like growth rate, which means that kind of still the same growth rate, but we didn't see kind of acceleration of the growth rate in terms of the members, meaning due to that, as we mentioned earlier, for the membership program, it's not only about online discount. It's more about kind of many other multi-offline plus online benefits to the members. So... On that front, we're still working hard. But one number could definitely reflect how strong our brand recognition is. Like with our members, our CAC costs drop dramatically from the 12-ish to the 5.7 RMB per customer. That would be including the number of members. So average that out, you will see how loyal our membership programs are.
spk03: Great. Two more for me. One, what level of revenue gets you to adjusted EBITDA break-even? And then I may have asked this on the last call, but just given where your stock is and your cash position, what are your general thoughts about a shareholder buyback plan? Thanks.
spk01: Okay. Maybe I'll just, before we chip on to the detailed financial numbers, I'll just kind of chip on the buyback plan. Yeah, definitely we are open for the buyback plan, and it's in our wardrobe. And given the current market condition, we think it's like a falling rock in terms of all the ADRs in general. therefore we will deliberately choosing the best timing that's of the company best for the for the buyback so we are not rushing through market but definitely eating our water and darren uh
spk02: One point to add is that we expect that when our quarterly revenue achieves between $350 million and $400 million, meanwhile, when our TPM reaches 25%, we will achieve break-even, maybe in the December quarter or the September quarter.
spk03: Great. Thank you, Loyal.
spk04: And once again, if you would like to ask a question, please press star and 1. To withdraw your questions, you may press star and 2. And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the floor back over to management for any closing remarks.
spk08: In addition to the community, in the past few years, we have also achieved Thank you for your question. Secondly, I also saw that investors have asked if the company currently plans to return to the Hong Kong stock market or return to the A stock market. Regarding this question, I would like to say that if we please pay attention to the official announcement of the company and our website, if we have such a plan, we will first let investors know our thoughts on this in the announcement. Thank you for your questions.
spk06: Lisa, hi, Darren, and hi, investors. Lisa just made some final remarks regarding the questions from some retail investors. I believe that will be the end of our sharing today, and thank you for your time and attention. We'd like to see you in the next call as well.
spk04: Ladies and gentlemen, that will conclude today's presentation. We do thank you for joining. you may now disconnect your lines.
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