Q4 2022 Dingdong (Cayman) Ltd Earnings Call
CEO and missiles.
Our SSO.
You can refer to our fourth quarter 2020 to financial results on our IR website at IR 100.
You can also access a replay of this call all AB appetite one eight.
It it becomes available a few hours after its conclusion.
Yeah.
For today's call management will provide the output powder remarks first.
And then we will be hosting a question and answer session.
Before we continue I would like to refer you to our safe Harbor statement in our earnings press release.
<unk> also apply to this call.
As we will be making forward looking statements pace.
<unk> note that all numbers stated in the following management's prepared remarks are in RMB terms.
And we will discuss non-GAAP measures today, which are more thoroughly extend and the rate comes out to be.
Most comparable measures reported in our earnings release and filings with SEC.
I will now turn the call to your offer to speaker today, the founder and CEO of being Don May sell down.
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Thank you everyone and welcome to <unk> fourth quarter 2022 earnings Conference call. That's first with you the quarter's operational results.
Revenue of $6 2 billion reflected a 13, 1% year over year growth.
We recorded GAAP net profit for the first time, a 49.88 million with non-GAAP net profit of $116 million.
One and a half years, we grew from a net loss margin of 37, 2% to a net profit margin of one 9% and as a result of our dedication and validates the strategy of efficiency first with due consideration of scale.
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Meanwhile, our operating net cash inflow in Q4 was 0.6 8 billion. We also achieved positive operating cash flow for the full year of 2022.
As of December 31st 2022, our cash and cash equivalents were $1 86 billion and short term investment were 464 billion. We believe that this strong cash position speaks volumes about our resilience in adversity.
We also firmly believe that we will be able to realize our vision and mission create value for all consumers and society and create long term and sustainable value for our shareholders.
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In addition, we also advanced our product development capability through direct sourcing contract farming in house, R&D and production and private labels, forming a flywheel effect.
In 2022, we kept growing existing strong categories, such as prepared foods and chicken spoofed E Mom's choice.
Forming a number of differentiated thing Don exclusive products with monthly sales of over 3 million RMB each.
Moreover, foreseeing the clean labeling trends in the food industry, we created about 320 quality products with clean labeling attributes.
We refined our customer profiling according to consumption scenarios and built that Shin young planets page for younger user cohort to meet the increasingly precise needs of millennials and Gen Z in body management nutrition and health.
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Next I'd like to share with you my thoughts and ideas.
Kingdom is the startup that is dedicated to providing safe healthy and delicious food, while innovating to improve people's lives.
We firmly believe in building, a better life and creating value for consumers and society instead of engaging in a zero sum game without peers for users and market share.
The seats theory suggests an infinite number of small things combine to create the universe. Therefore, we dream big and small while remaining resilient to counteract vulnerability and entropy.
During this process, we stay true to our roots.
<unk> disciplined while keeping an easy mind.
These beliefs and convictions go beyond profitability, there I won't steal all the passion and drive of sport guaranteeing our achievements today and in the future.
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I would like to also discuss our plans for 2023 in early January the company held its annual management meeting, where we summarize the experience and lessons we have learned since our inception and made plans for the longer term future.
We also agreed that we would hold course on our current development strategy, while remaining innovative.
Specifically speaking will deepen our penetration into existing markets and continuously tap into our users' needs to achieve profitability.
At the same time, we will emphasize innovation, particularly in food products developed and launched new food products catering to a broader range of users.
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In 2023, given the increased demand for healthier food products post pandemic, we plan to promote product innovations across several areas to address the changing needs. These.
These areas include the increased use of clean labeling nutritional upgrades and customizing health food products for specific demographics.
Specifically speaking will first develop healthier prepare food that is not only delicious, but cook with little or no oil in a low in calories salt and sodium.
We will take the lead in promoting products with clean labels.
Second we will improve the nutritional value of food and beverages.
For example will bring out low Gi rise in pasta, no cod bakery products low carb beer high fiber beverages, and low fat and low sodium seasonings.
Third we will develop powerful functional food and nutrition products for children middle aged and senior citizens.
Finally for millennials and Gen Z, who are weight and health conscious we have launched the Qingdao planet piece that can quickly generate a healthy diet plan that matches individual needs with calculated an archived calorie data.
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Another one of our goals for 2023 is to strengthen our strategic cooperation with our suppliers.
In late February we will hold a supplier conference to commend our product developers suppliers and service providers for their excellent products. We're highly aware that it takes a large number of exceptional companies to meet the ever changing needs of consumers in a market as vas at China.
Cingal is willing to be an enabler that connect great companies to create value for consumers and society.
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You know Matt.
So you ship us non-GAAP reporting.
That does not mean all of a sudden yet until we see deals to get non-GAAP . According to their unique.
Plenty twenty-three March D N of three years of the pandemic, we expect drastic changes in consumer demand.
Nonetheless, we'll respond proactively and strengthen our capabilities in product development service provision and supply chain building.
Based on our current operating situation, we expect to maintain non-GAAP profitability for both Q1 and the full year of 2023.
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Today is February 13th and spring has come everything is sprouting and growing despite the cold winter just like the situation in China.
We're fully confident in the recovery and growth potential of the post pandemic economy, and our country and you know of course.
This concludes my speech next I would like to invite Mr. Bula CFO of the company to introduce the financial results. Thank you all.
Okay.
Thank you, Mr <unk> and Hello, everyone.
Walk you through our detailed financial results. Please note that all numbers stated the following remarks RMB terms.
Product development capability has become tingles cultures, and the primary growth driver since we implemented this charge of efficiency first there was still consideration of scare in Q3 2021.
As a result, we maintain quality growth in 2022 with annual revenue of $24 2 billion up 24% year over year. Meanwhile, we significantly optimize our operating efficiency gross margin and gross margin.
The conversion rate from <unk> to revenue was 92.3% increasing by three seven percentage points from a year ago non-GAAP net loss margin was two 4% a substantial improvement of 28 percentage points year over year. We also achieved a P.
Wholesale operating cash flow for the full year of 2022.
<unk> had to 2023, we are confident that we can achieve our full year non-GAAP breakeven.
Now, let's look at the financial results of Q4 2022.
Our revenue reached a $6 2 billion up 13, 1% year over year. We are also pleased to report our record of positive net margin of 0.8% under GAAP and a non-GAAP net margin of one 9% both significantly exceeding the forecast made in Q3.
Since we shifted our strategic focus to efficiency first in Q3 2021.
I will now get net margin has improved by 33.8 percentage points from a net loss of.
So the one 9% to a net profit of one 9%, which was achieved in less than a year and a half.
Such a rapid and significant optimization is a testament to the vitality and the profitability of the frontline fulfillment models in fresh grocery E. Commerce. It also shows effectiveness of deeply developing and engaging our supply chain and essentially all product developer.
<unk> capability.
Expect to stand by this strategy for a long time to come.
In Q4, the gross margin was 32.9% up five two percentage points from a year ago and at the gross profit was 2.04 billion up 34, 2% year over year, we deepened our partnerships with many upstream producers to.
Advanced our fresh grocery products.
For the non fresh groceries, we've focused on building private labels in house R&D and its their production and processing our assembly lines.
We also offer the door to door deliveries of it captured higher downstream margins such extensive coverage of the whole supply chain generated a stable gross profit margin for the company.
The fulfillment expense ratio in Q4 was 24, 1% down 8.5 percentage points year over year, reflecting those higher operational efficiency in Q4.
The sales and marketing expense ratio in Q4 was one 5% down five one percentage points driven by our product development capability that has generated a continuous organic traffic.
Consumers can and its data for the differentiated it into exclusive products, which also lowered as acquisition cost per new transacting user by 47, 7% year over year, and 26, 1% quarter over quarter.
G&A expense ratio remained stable at two 4% compared to the same quarter last year benefiting from the scary effect, we optimize the R&D expense ratio to four 2% from five 2% year over year.
As always we will keep investing in the infrastructure R&D such rather for the development agriculture technology and technical data algorithms, which were forged a greater advantage for the company.
In Q4, we achieved a positive GAAP net margin of 0.8% for the first time optimize the by 20.8 percentage points from a year ago and non-GAAP net margin of one 9% optimized by 20 points to seven percentage points year.
For the year significantly exceeding the forecast.
<unk> covered a 19 had only minor then they impact our covered cities and regions in October and in November and our Q4 entered a trajectory of profitability in October .
To break it down modestly we achieved a positive non-GAAP net profit in October and a positive GAAP net profit in November and December it's been five years. Since <unk> was founded in 2017, and we are pleased to see our efforts pay off and our business model.
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The operating cash inflow in Q4 was 682 million and the actual operating cash inflow was increased to 900 and a $6 million through the introduction of supply chain finance.
As of the end of Q4, the balance of cash cash equivalents restricted cash and short term investments was 6.5 billion.
According to the IC the size of China's food and other grocers market was 11.9 trillion in 2021.
Take Shanghai as an example.
With our reputation population of about $25 million shall have annual for the consumption expenditure is about 10000 per capita.
In 2022, our JV in Shanghai with over $12 billion, that's translated to a 5% penetration rate in Shanghai food consumption markets. We are confident of doubling that number in the long term generating annual revenue of over 20 billion in the city.
Alone.
In addition, the total consumption of our current cities and regions is about five times debt to Shanghai, which in the long term will create $101 billion in annual revenue that is why they don't have a higher growth ceiling.
As we move ahead into 2023, we would like to discuss our outlook Q1s are typically affected by seasonality. According to our check record with lower revenue and profitability in.
In Q1, 2023, we expect a slow season for urban fresh grocery consumption due to the pent up Earth to return home and travel during the Chinese new year.
Nevertheless, despite the seasonality impact and extra frontline labor costs on holidays, we are confident of achieving non-GAAP breakeven for both Q1 and as a whole year of 2023. This concludes our prepared remarks for today operator, we are now.
Two quick questions.
Yeah.
We will now begin the question and answer session.
I'll ask a question you May press Star then one on your Touchtone phone.
Yes.
Speaker phone please pick up your handset before.
Okay.
To withdraw your question. Please press Star then two.
When asking a question. Please state your question in Chinese first then.
Taking your question in English for the convenience of everyone in the call.
At this time, we will pause momentarily to assemble the roster.
And our first question will come from Joyce.
<unk> of America Securities. Please go ahead.
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Good evening management, congrats on the profit, making this quarter.
In the past couple of months Euro actually you know a lot of a constrained in terms of social activities because of the pandemic just try to understand to what extent.
The profitability this quarter was the cause of the Hum.
Control pandemic control, how should we expect the profitability outlook for this year or going forward is it going to be a sustained trend of profit making.
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Thank you Joyce for your question first of all since Q3 in 2021 thing don't have been committed to efficiency firmly moving towards profitability step by step.
Our gross profit margin in Q4 of 2022 was up nearly 15 percentage points compared with Q3 in 2021, which was achieved within one and a half years.
More than 13 percentage points have been optimized in the fulfillment expense ratio and over five percentage points and our marketing spending ratio.
As mentioned in the prepared remarks, our non-GAAP net profit margin went up more than 33 percentage points.
The ability to optimize the P&L. So efficiently has validated the vitality and profitability of <unk> business model.
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Now, let's look at the Q4 results in Q4 over 80% of our inner cities achieved positive operating profit at the city level on a monthly basis in November 2022, when the pandemic had a minor impact on I'll cover cities and regions, we achieved a GAAP net profit.
More than 10 million.
Moreover, we expect that this profitability to be sustainable and stable, allowing us to achieve non-GAAP breakeven in Q1 of 2023 and even the whole year of 2023.
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Now if we look at the structure of our P&L gross profit margin and fulfillment expense ratio are two key elements. There optimization is because we have been committed to the construction of the supply chain and our product development capability for a long time to build our strength.
Such a long time investment has objectively improved our gross profit margin over time.
While within one and a half years the delivery riders efficiency has increased by more than 25%. The frontline warehouse staff efficiency has grown by more than 40% with utility bills down by more than 20% year over year, which in turn led to the rapid optimization.
Our fulfillment expense ratio.
These are the fundamental driver of our P&L optimization.
Regarding the pandemic as an impetus to the business. It was more on the overall online penetration rate.
Because during the pandemic the insufficient supply in the traditional market gave users a good opportunity to experiencing Don differentiated product in depth.
Based in Guangzhou, China traditional living and being in the charger.
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On the other hand, our operation experienced many challenges in the face of the pandemic control such as the <unk> supply chain relatively difficult recruitment restricted order fulfillment and some additional expenses incurred for a pandemic prevention.
These difficulties will be resolved when the pandemic control loosens up.
In summary, the above mentioned results have validated that <unk> business model is welcome in the market and can generate value for users and society. Therefore, our profitability is sustainable. Thank you.
Thank you Sir.
The next question comes from actually of Credit Suisse. Please go ahead.
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Thank you for your question I think is a start up committed to providing healthy delicious and innovative food products to improve people's lives.
We firmly believe that product development capability is our core strength. Therefore in addition to jointly developing quality and differentiated foods with partners being done is also innovating developing and producing processed food products.
This is walking down who is doing.
Our margin.
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Currently Greece cells accounted for 11, 4% you often don't see M D.
For the past two years <unk> has created many popular brands such as daily Fresh thing don't tell my Gwen boxing crayfish, Black Diamond family and bounce bakery.
Quality has always been a priority in Goodyear.
In 2022, the moderate or battle with views on <unk> products with 40% less than the whole companies.
<unk> products also had a 100% passing me for inspection.
In December 2022, <unk> had 80 S. K used with monthly <unk> exceeding 1 million each.
In summary, our EMEA.
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Compared with 2021, Greece, GMB has more than doubled in 2022.
<unk> is growing rapidly and is expected to have higher revenue, which will add greater value to the company's product development capability. Thank you.
The next question comes from Thomas Chong of Jefferies. Please go ahead.
Uh-huh Tony based on water.
Good morning, Tony.
Thank you Michelle.
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Okay.
You may now begin my questions.
Prepared remarks.
I will talk about.
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The guidance, we solve it.
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Thank you for your question at the management meeting in January we summarized our experience of the past six years and realized that the times an environment, we're changing things.
<unk> has also enter a different stage of development.
We must learn from the past practices to avoid future mistakes.
We have the following three conclusions.
First we have achieved a scale of cells, resulting from our previous hard work.
By leveraging the scale, we can surf and understand our customers better.
With a deeper understanding of the consumers. We can also develop and innovate food, while enabling our partners to create value for consumers and society with us together.
Please go ahead.
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The zombie confirmed <unk> food are suffering too so you'll be users.
Therefore, we had a tenant that for which our veto power voltages for that future.
Second unlike our peers, we have never been in decisive regarding specific business model, while our peers constantly delta their existing model switching things up and trying to find the optimal solution. We knew that the essence of our business was to serve consumers more conveniently.
With better product so.
So we adopted the simplest and most convenient frontline fulfillment grid model, sometimes the best way is the most straightforward Napa strangers on the most surprising one.
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Third based on the understanding of our business model, we have been a deeply engaging the supply chain. These efforts include direct sourcing contract farming food R&D and processing building regional centers, establishing a quality control mechanism and so on.
The construction of the supply chain is time consuming and investment is relatively large so it may not be able to produce outcomes immediately.
However, in the long run it will allow us to serve consumers better and form a competitive moat.
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At the same time, we have also summed up the mistakes to avoid which were born out of an aggressive user base and scale expansion by using low prices and excessive marketing to attract bargain hunters.
These activities brought false prosperity to the company that didn't last.
Haste makes wakes.
The business. We are engaged in is very grounded and requires us to be more patients.
We need to cultivate the supply chain and product development capability for the longer run without haste.
Yes.
Okay.
Thank you.
The next question comes from Robin Leung of dialogue. Please go ahead.
Hi, Thanks, I wanted to touch on with a tier one.
Downtown and therefore, you and John touch on Uh Huh.
Hi, Joe.
He said I said hydro.
One of the things you know thanks management for taking my question management mentioned.
<unk> remarks, and I think they will.
Strength in the collaboration with our partners could management share more on these partnerships. Thank you.
Hi, Susan.
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Turning to the time you did that Sudan is opened up.
In the huge market with ever changing consumer needs, we need to expand our partnership to create value for users. Therefore, we will break through the traditional party and party b relationship between suppliers and retailers and support each other in depth.
Regarding the business model will allow joint operation on certain categories with our partners to leverage everyone's strengths.
On the technology side will actively contribute to big data and technology to improve cooperation efficiency and our partnerships.
Furthermore, we developed an innovative supply chain finance more vigorously at a financial level to support our partners.
At the same time, we'll proactively consider investing in certain excellent partners. In addition, staying dome itself is a startup that has always been an innovative that's why we plan to support active actively innovating partners in areas such as user survey testing initial product <unk>.
<unk> and marketing among others.
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Consensus panel data.
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Pleasure to be Salvages, a more coverage.
So there you have to hold a whole bunch of demand, but with a crystal ball assortment, sorry, you alluded silly, but therefore italia and without the change you'll see is you can build a usual CFO job.
In the nearly six years of their nose operation. We have also established very good cooperative relationships with many excellent companies. This is because we share similar values mutual trust support and responsibility.
Especially during the three years of the pandemic, we overcame many difficulties together to fulfill the promise to consumers.
These excellent partners are reliable guarantee for a kingdom continuous progress and they are also valuable resources that we have accumulated in the past six years.
In 2023, we'll partner with more exceptional companies around the world. Thank you.
Okay.
There are no further questions at this time I'd like to hand, the conference back to management for closing remarks.
Okay. Thank you for joining our call today.
Do you have any further questions. Please feel free to contact us.
Our request is through our IR website.
We look forward to speaking with everyone being our next earnings call have a good day.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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