Boqii Limited [BQ] Conference call transcript for 2021 q4
2022-03-03 09:29:06
Fiscal: 2022 q3
Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.:
Operator: 00:01 Good day, ladies and gentlemen, thank you for standing by and welcome to Boqii’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. 00:31 Now, I will turn the call over to Mandy Luo, Boqii’s IR Manager. Mandy?
Mandy Luo: 00:41 Thank you, Andrew, and good morning everyone. Welcome to Boqii’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. , Financial VP of Boqii. We released results earlier today. The press release is available on the company's IR website at ir. boqii.com, as well as from Newswire Services. A replay of the call will be available on our site later today. 01:18 Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the US 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. 02:03 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. 02:34 With that, let me now turn the call over to our Co-CEO and CFO, Ms. Lisa Tang. Over to you, Lisa.
Lisa Tang: 02:45 Thank you, Mandy. And many thanks to everyone for joining the call today. During Q3 for fiscal 2022 we continued to enhance our value chain position at an end-to-end connected, creating values for both pet parent 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 topline, while controlling the sales and marketing spend. 03:38 Therefore we shared our user pool with industry partners and provided effective marketing solution for brand owners through penetrated market and educated the pet parents in China. We continue to report pleasing performance across our operation figures against the fierce marketing competition. Active buyers increased by 17.8% quarter-over-quarter or 6.3% 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 was able to translate to grow the internal revenue up by 6.3% year-over-year. Remarkably our gross profit margin increased from 17.9% in Q3 of fiscal year ‘21 to 23.1% in Q3 2022. We intend to continue our key users stickiness and cost savings with our rich portfolio of products to effectively turn our traffic into meaningful sales revenue. 05:03 We remain dedicated to supporting the development of small to mid-size brands with our established capabilities in supply chain, warehousing, membership system and 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 facilities, and other revenue from 0.2% of total revenue in Q3 of fiscal 21 to 4.6% of to total revenue in this quarter. As the infrastructure for such service revenue is already in place it's marginal cost remains low, together with our fulfillment margin we are confident to reach breakeven in near future. 06:08 Boqii is looking not just a sustainable growth in user base, but also a comprehensive network and inverse juncture that allows us to connect the sellers and the buyers. As we achieved a new low in CAC of RMB5.5 per user, we believe our closed-loop system has taken shape and we will further improve our servicing capabilities. Looking ahead, China's per industry is expected to continue its growth, reaching more than 400 billion event by 2023 according to market research. Huge opportunities lie behind the increasing penetration and expanding needs of pet parents and the owners. 07:04 Now, I will turn the call over to our CSO, Kai Fang, who will share more details about our strategy and the financial highlights. Kai?
Kai Fang: 07:17 Thank you, Lisa. And thanks everyone for joining us tonight or today. On top of a general business overview, I'd like to share more detailed financial information that we're moving steadily towards profitability this quarter and onwards. 7:32 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 40:60 split between self-owned channels versus third party channels contribution. We believe such brand is well balanced between efficiency, acquiring new traffic and returning user loyalty within our own communities. 08:02 The strong growth in user base and traffic should also lay the solid foundation for future business expansion. This quarter, our gross profit was RMB76.9 million, up by 37% year-over-year. And our gross margin increased to 23.1%, this is mainly driven by improved margin of optimized SKU matrix and higher margin contribution from our value-added services. 08:36 Fulfillment expenses slightly increased to RMB37.7 million as compared to RMB33.6 million 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 staff handling cost and the packaging cost as a result of increasing proportion of the pet supply products, which will higher packaging required. Post the fulfillment gross margin increased to 11.8% compared to 7.2% in the same period of last year. 09:20 Our total sales and marketing expense were RMB48.3 million, down by 12.4% from RMB55.1 million in the same period of last year. Sales and marketing expenses as a 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 RMB11.4 million when compared to the same quarter of fiscal year 2021. 09:55 G&A expenses were RMB22.3 million, down by 64% from the RMB61.8 million in the same quarter of fiscal year 2021. G&A 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 equivalents and short-term investments of RMB315.7 million compared to RMB339.4 million as of September 30, 2021. 10:37 With no major CapEx were seen, strong credit line back up and we are very close to the breakeven point, we believe we are cash sufficient in our operational and new initiatives. To conclude, Boqii delivered a set of solid results in this quarter with meaningful progress in execution of our 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 post pet parents and our brand partners. And we are moving steady to the breakeven point and profitability. 11:34 Now let's move on to the Q&A questions. Operator, you may open the line up for questions. Thank you.
Operator: 11:43 Thank you. We will now begin the question-and-answer session. First question comes from Darren Aftahi with Roth Capital. Please go ahead.
Darren Aftahi: 12:21 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. Is that COVID? Supply chain? Kind of something else? And then I guess, when do you see those challenging market conditions improving?
Lisa Tang: 12:47 Thank you, Darren. All right. Kai, go ahead.
Kai Fang: 12:54 Hi, Darren. Thanks for the question. Actually that's a very good one. So when talking about the challenging market conditions 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 is heavily impacted by the COVID situation and that impact our supply chain as well. And due to the COVID situation, we are seeing some tough -- especially for the cross-border business, we see some headwind in terms of the logistics. So therefore, as you can see, some of the imported products in our SKU lineup get the impact in the last quarter, and the quarter before last. 13:52 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 has less impact on people's normal life and have less -- especially in the cross-border supply chain.
Darren Aftahi: 14:19 So, can I follow up on that. Are you -- the demand from customers and actually not be able to fulfill demand because you don't have the products because of supply chain issues?
Kai Fang: 14:34 Yes. So putting this way, it’s like -- we did see a lot of traditional overseas imported products that were under-supplied. And domestic -- the domestic supplies – the domestic brands are trying their best to fulfill the gap, but we do see a lot of gap that are on the field.
Darren Aftahi: 15:04 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 of things with gross margin; one, like what's the gross margin you're seeing on your product business; and then number 2, 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.
Lisa Tang: 15:58 In this quarter we saw very solid growth of gross profit margin in our product and our product sales part that 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, pet supplies, as well as pet care products. 16:49 So this was actually brought, was actually driven by 2 reasons. Firstly, because we increased the support for the small to mid-size brands and they have higher margin compared to other brands. And secondly, because we have changed -- we have kind of adjusted the product mix, which has also helped the increase in the product sales margin. 17:27 And look, because if we look to the future, we will see 2 drivers for the GPM. Of course, one part is from the information services and other revenue, because it has higher margins and it will -- we also foresee that this will constitute an increasing part of total revenue. And secondly, this will be contributed from the sales -- product sales part, because in Q3 of the fiscal year is 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 balance -- we will have a more balanced -- we'll have more balance between the overall growth -- the overall revenue growth as well as the GPM improvements.
Darren Aftahi: 18:55 Great. And then just 2 more if I could. You mentioned profit -- reaching profitability 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.
A –Unidentified Speaker: 19:26 Hi, Darren, this is . As Lisa mentioned with our GPM continued improvement, we expect our total revenue -- our total revenue achieved RMB400 million. We expect we will achieve the breakeven.
Darren Aftahi: 19:52 Thanks, . And then just last one from 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.
Kai Fang: 20:22 Yeah, sure. Hi, Darren. So we are fully aware of what kind of NASDAQ share stock price requirement. And we will take 2 approach; 1, our approach will be fundamental approach. We will continue to work in terms of investor relationships and we are trying to get more investors who recognize our intrinsic value to able to take advantage of this price. This is like -- this one is like one approach on one hand. And on the other hand side we are fully aware of, like all the technique that the company can take in terms to full fee to meet the requirements, such as reverse fleet of the stock. I'm just quoting one. So therefore, we will definitely keep investors and the public be aware, should we have more concentrated -- concrete plan to meet that requirements.
Darren Aftahi: 21:29 Great, thank you.
Operator: 21:36 This concludes our question-and-answer session. I would like to turn the conference back over to Mandy Luo for any closing remarks.
Mandy Luo: 21:45 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.
Operator: 21:58 The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
