Q3 2023 Dingdong (Cayman) Ltd Earnings Call
Good morning, and good evening, ladies and gentlemen, thank you for standing by and welcome to the Ding-dong Ltd third quarter 2023 earnings Conference call.
At this time all participants are in a listen only mode.
Please note that this event is being recorded.
I would now like to turn the conference over to first speaker today, Mickey Yang Director of Investor Relations. Please go ahead Sir.
Thank you Hello, everyone and welcome to <unk> quarter 2023 earnings call.
With me today are Mr. Tony Liang, our founder and CEO and Mr Song Wang our head that's very nice.
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Also access a replay of this call on our website when it comes available a few hours after its conclusion.
For today's call management will go through their prepared remarks, first which will be followed by a question and answer session.
Before we continue I would like to refer you to safe Harbor statement in our earnings press release.
We shall itself applies to this call.
As we will be making forward looking statements. Please 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 explained and reconciled to the most comparable <unk>.
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Reported in our earnings release and filings with the SEC.
I would now turn the call to your first test speaker today, the founder and CEO of Athene, Don Let me say that al.
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Hello, everyone and welcome to the Dingo third quarter 2023 earnings call.
During the call today I'll briefly review our operating performance during the quarter share some thoughts on our insulin delivery retail business and update you on some of our key business development.
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In the third quarter, we recorded 5.14 billion renminbi in revenue a 6.2% sequential increase GMB grew by six 4% sequentially to 5.67 billion RMB and net operating cash flow was 130 million RMB.
non-GAAP net income margin was 0.3%, marking our fourth consecutive quarter of non-GAAP profitability as we continue to prioritize our strategy of efficiency first with due consideration of scale in.
In addition, we achieved quarterly profitability on a GAAP basis for the second time since Q4 of 'twenty 'twenty 2022.
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Sustaining profitability over the past four consecutive quarters on a non-GAAP basis is critical for both Gainesville and the industry.
First of all it indicates that we have successfully navigated the difficult macroeconomic and competitive environment, we found ourselves in with many doubting the sustainability of the sector.
Second it reflects the corporate flexibility and adaptability, we maintained with the market continuing to change rapidly. These attributes will remain critical to our long term sustainability.
Alright, among the leading companies competing in this sector were the first to achieve profitability. It was a long and difficult journey to get here, but we stuck to our principles and vision, which kept us on the right path.
Lastly, havent reached profitability milestone, we're constantly and confidently looking to the future what we will maintain a sustainable long term growth.
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As I previously mentioned G. M V for the third quarter increased six 4% sequentially.
Growth was largely driven by a 6% increase in total order volumes and an 11.7% increase in average order volume per station.
While a softer macroeconomic environment led to a decline in the average selling price of some of our top selling fresh grocery S. T use and dumped in consumers' willingness and need to stock up following the pandemic.
Average order value remained stable year over year with a 0.5% sequential increase thanks to our continuing efforts to optimize product mix and enhance our product development capabilities.
Building on our previous initiatives, we have now upgraded and optimize almost 101 like fulfillment stations over the past 10 months across China.
In particular frontline fulfillment stations that were upgraded in Q1, and Q2 has already seen their G. M D increased by 15.2% sequentially.
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On a year over year basis third quarter G. M V decreased by 13% within this decreased nine 8% was actually the bowl attributable to the suspension of operations for a number of cities and stations starting in Q4 last year. In addition, the return to post Covid.
Normalcy during the summer holiday season also impacted G. M D as consumers increase offline consumption ever seemed holiday travel.
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Just like the impact our users are accessing our services more frequently than ever he average monthly user order frequency increased on both a year on year and sequential basis, increasing to 4.2 orders during the quarter up from four last quarter, notably Kingdom members averaged $6.
Eight orders per month, we continue to develop our product offerings to foster a culture of using thing, though for all food related needs. As a result, nearly 1 million users during the quarter generated monthly our pool of more than 560, RMB accounting for more than 48, 8% of total G. M D.
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We will continue to focus on serving the needs of both new and existing users.
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Looking at the geographical breakdown our performance in Shanghai was impacted by the high base effect created during the same period last year when pandemic restrictions were impacting the region, while G. M D and Shanghai declined year over year the rate of decline narrowed sharply so less than 10%.
On a sequential basis, however, Shanghai G M D increased seven 8% in Q3 at.
At the same time Gen V growth picked up significantly in Jiangsu and it's really jumped provinces as our user base their art compete that they continue to expand and existing users placed more orders.
These two provinces built on their strong growth momentum last quarter, delivering double digit growth on both an annual and sequential basis in Q3 Mauro.
Moreover, each region was profitable for the past four consecutive quarters, even after allocating headquarter expenses.
Sustainable and stable profitability provides us with additional human resources operational know house and cash to drive growth initiatives in north and South China, well, we stabilized and we stabilized the build out during the quarter and see significant room to further optimize our operations going forward.
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Next I'll share our perspective on the current state of the insulin delivery retail industry and the overall consumer environment before moving on to cover some of our key business developments.
As the global economy slows consumer preferences, and shopping habits are changing and retailers really needs to adapt to a complex new environment, what consumers want mostly in a current environment is certainty and instant delivery retail can cater to desk by providing reliable service stable quality assurance and competitive.
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Our core abilities has been directly aligned with these changes in consumer preferences. Since our inception, we have focused on cultivating three core competencies solid product development capabilities services that exceed expectations and a robust supply chain that delivers optimal.
Cost effectiveness and maps and maximum value for money products.
Despite changing market conditions, we remain steadfast in our commitment to these values.
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Let me further expand our service capabilities, we're able to meet high demand among urban consumers for quick and efficient delivery of groceries and other products through our network and our network of self operated frontline fulfillment stations in 29 minutes or less something that we have become synonymous with we're able to.
Families with affordable high quality fresh food and other products through a timely and reliable home delivery service service is critical to exceeding customer expectations.
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We're committed to delivering orders in a timely manner to our reliable delivery service in Q3, we improved order fulfillment efficiency by restructuring our delivery capacity and optimizing scheduling as a result, we saw a 6.8 percentage point year over year increase in rush orders.
<unk> delivered within 40 minutes, while the average earliest available timeslot for scheduled order delivery was brought forward by 14.3 minutes compared to the same period last year.
During the quarter, we optimized our network of regional processing centers to bring them in line with the more stable post pandemic supply chain environment.
As a result fulfillment expense ratio for regional processing centers decreased by 2.7 percentage point year over year, and 0.3 percentage points sequentially.
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Our product development capabilities remain the core driving force of our business. This year, we implemented a strategy of extensive S. P use and concentrated it skews, where we expand U S. Q U S. P used within a product category and allocate more capacities to top selling skus.
And face outflow moving ones across different regions in.
In Q3, we offered 10 more skus with monthly sales exceeding 5 million when compared to Q1.
<unk> contribution from D. S. T use with monthly sales exceeding 5 million increased by four percentage points during the period.
Over the same timeframe, we had three more skus with monthly sales exceeding 10 million.
Can be a contribution from desk you use with monthly sales exceeding 10 million increased by two percentage points are asking this election strategy and strong product development capabilities enable us to create more top selling products.
Additionally, our efficient supply chain and a larger scale of these products enable us to minimize the sourcing costs and maintain a price competitive product offering.
With this strategy, we have boosted contribution T. G. M V from bestsellers staked out excessively long tail products and improved product turnover rates.
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During Q3, we offered both regular and dynamic scenario based discount to pass on more savings to consumers.
Discount amount per order increased by 17% compared to Q1, which shows that we can meet the changing needs of our users and also a better product at lower prices.
Our focus on selling products with better prices and discounts and quick turnover creates a scale effect and increasing concentration of best selling products strengthens our bargaining power during the procurement process.
Dynamic represent our powerful competitive advantage and we will continue executing this approach to offer greater value to consumers.
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Well more than just a retail company in fact, we're a food company with R&D and production capabilities. Our top priority has always been to provide our customers with unique high quality product.
As we grow our customers are not only buying products on zing dong. They are increasingly binding don't branded products.
We developed and produced a private label product in 12 self operated factories. In addition to cooperating with high quality upstream suppliers.
In Q3, we worked closely with our upstream supply chain to create the dingo handmade thin skin theories of rice flours products.
After conducting extensive research on consumer preferences, we carefully selected a factory to produce these handmade paper thin wrappers for one tonnes dumplings and out of pastries.
The factory managers the protection process Wilding don't these research and development.
By cooperating directly with the factory, we're able to ensure the quality of these innovative products are.
Are they don't have made thin skin product or a delicious affordable and high quality, making them a hit with customers.
Since their launch at the end of August they have generated more than 16 million RMB in cells in just over two months.
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I'll conclude with a few words on our outlook looking ahead, we're confident that we'll achieve non-GAAP profitability for the fourth quarter and full year in 2023, we remain focused on sustaining a healthy and high quality growth of the business.
You all very much I would now like to invite one phone our head of finance to review the company's financial performance.
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Thank you Mr Lam and Hello, everyone before I review, our financial performance. Please note that all of those papers are in RMB.
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During Q3 of 'twenty suite, we generated 5.14 billion or B in revenue with a non-GAAP net profit margin of 0.3% and net operating cash inflow of 130 million RMB well.
We're pleased to report that we achieved GAAP profitability for the second time since Q4 of last year.
Amid a rapidly changing external environment, we remain committed to prioritizing our strategy of efficiency first with due consideration scale.
Through these efforts we have now achieved non-GAAP profitability for four consecutive quarters.
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Let's take a closer look Q3 record of G. M V. A 567 billion RMB and revenue of 5.14 billion RMB, representing an increase of six 4% and six 2% respectively.
Compared to the second quarter this year.
The increases were mainly due to a 6% increase in volume and a 0.5% increase in L. V. We're late relative to the prior quarter.
These figures to indicate improved ease of loyalty driven by our optimized product structure and product development capabilities.
However, G M V and revenue decreased by 13% and 13, 5% year over year, respectively.
It is also worth noting that we saw double digit GMB growth in Jiangsu Zhejiang provinces on both a year over year and sequential basis.
In addition, our growth rate in South and North China has now stabilized well, we're a relatively new player facing intense competition.
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In Q3 gross profit margin increased by 0.4 percentage points year over year, reaching 34%.
This was driven by the continuous improvement of our operational capabilities and efficiency as we expanded along the supply chain.
Our extensive S. P use concentrated skus strategy allowed us to leverage our supply chain and product development capabilities to create top selling products, while managing flow moving ones.
This approach also helped us improve supply chain efficiency, resulting in a company wide turnover time, only 10.7 days and 4.5 days for frontline fulfillment stations.
Our end to end loss rate was kept below one 5%. This helped us utilize economies of scale, while improving our bargaining power and optimizing our product mix.
As a result, our gross profit margin remained stable, while maintaining our ability to provide significant value to our users.
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All fulfillment expense ratio in Q3 was 23, 3% an improvement of three five percentage points compared to the same period last year.
Reflecting the substantial impact of this year's optimization measures.
We completed the optimization of our network of regional processing centers. Additionally, the fulfillment expense ratio for regional processing centers improved by two seven percentage points year over year.
<unk> refined our operations to improve labor efficiency and optimize labor cost in frontline fulfillment stations.
Our stations have also seen a six 6% year over year increase in average daily order volume for boosting operational efficiency.
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Selling and marketing expense ratio in Q3 was one 9% 0.2 percentage point improvement from the same period last year, we continued to leverage our product strengths to engage users and enhance our brand image.
Compared to the same period last year general and administrative expenses ratio improved by 0.5 percentage points and is now at one 7%.
Similarly, R&D expense ratio improved by 0.4 percentage points and is now at three 9%.
We remained committed to investing in research and development focusing on food research agricultural technology and technical data algorithms and you believe that investing in these areas will enhance our competitive edge and deliver long term value to our investors.
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We achieved a non-GAAP net profit margin of 0.3% in Q3, a year over year increase of five one percentage points.
This marks our fourth consecutive quarter of non-GAAP profitability and the second with a positive GAAP net profit margin since Q4 of 2022.
Mr. Miao mentioned, our primary goal is to offer customers. The most cost effective and high quality products to our exceptional services will achieve this by focusing on our core competencies product development service and I T enable supply chain capabilities.
Leveraging these strengths will continue to improve our operational efficiency and profitability.
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We recorded a positive net operating cash inflow of 130 million RMB during the quarter by end of Q3, we had a total of 5.63 billion RMB in cash cash equivalents short term restricted cash and short term investments.
We maintain close relationships with banks and our credit line or pure credit liquidity loans, which can be used at any time has reached 1.14 billion RMB.
Additionally, credit lines for supply chain financing stood at 9.6 billion RMB.
We're constantly optimizing all financing structure to ensure the efficiency used of all funds.
Compared with the end of September last year, our short term borrowing balance decreased by 564 million RMB.
Additionally, we're also committed to empowering our suppliers with supply chain financing.
As of the end of Q3, our supply chain finance loan balance with cheap 0.8 1 billion R. B.
After deducting the balance of short term loans to fund balance now stands at 194 billion RMB.
When compared to the same period last year, we achieved a net increase of nearly 320 million on a beach in cellphone funds.
Additionally, the improving profitability of our core business provides us with more adequate finance reserves to respond to changes in our market as well as for future operations.
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This concludes our speech today operator, we can now start the question and answer session.
We will now begin the question answer session.
To ask a question you May Press Star then one on your Touchtone phone.
When asking a question. Please state your question in Chinese first then repeat your question in English for the convenience of everyone on the call.
The first question today comes from Thomas Chong with Jefferies. Please go ahead.
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Seller translate myself, thanks management for taking our questions and congratulations on changing fourth conservative quarter on non-GAAP profitability and that of course, you have GAAP profit profitability and recently some of our peers such as home and you don't really have adapting our strategies can't provide an overview of the.
Competition, landscaping, which thing don't call me okay. Thanks.
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This shortfall addresses how is your muscle Saddam or should it be it because I get that there's always a woman didn't do well no matter if that changes all the Korea.
Thank you for your question before dwelling into the details our frontline fulfill my grandmother I'd like to provide you with an overview of our markets and highlight the key differentiators between our model and that of our competitors.
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The market for fresh groceries in China, as fast and accurate it cannot be not.
<unk> as a startup didn't don't is committed to providing value to consumers. We believe that many different business models can thrive in this market.
As discussed earlier, we believe instant delivery retail will bring the sector back to the basics of providing efficient service better product development capabilities and competitive pricing.
In today's world efficiency and low prices are critical factors that everyone considers when making purchasing decisions.
Prices result from an improvement in efficiency not a compromise in quality.
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All of her daughter, Philippine peso sudden that Jago. She says Molly you don't you don't.
It's how do you why don't you, let all women.
Kim guys solve it so yeah, yeah, well the lingo guys. That's all being gone she came to the bathroom because it says by Julian with boiler issues Youre totally you would've found with yet another good job quite so good.
Yeah, I'll do that.
As for fresh grocery products, we continue to work directly with farmers on the ground cutting out numerous intermediaries and the supply chain. So not fresh products. We have increased the proportion of private label products and in house production to boost our gross profit while attracting consumers without exceptional part.
Thanks.
In essence, our approach Intel's, improving our product supply maintaining quality control from the source meeting a diverse range of user needs and responding promptly to demand.
To Oh agenda. She knew she was oh well, there's some in the theater in San Diego you also though when we're going to let you know that means a challenge I'll, let us all be bureau suicide. So on the patent holder youre looking like over the Zalviso, we couldn't go that far away.
So I'm gonna teach was Oh boy it good job.
Quite as pure that's killed a career or will you wait till I saw who usually sushi says it's neutral shocks I about food. You also took hold up so you'll probably need to be able to show with or without banking there shouldn't do her. She also totally SK joggers go golfing industry. You go that's what I did.
Given the current economic environment I believe our product positioning is relatively advantageous.
We mainly focus on offering products that are everyday lives staples.
For instance, vegetables are a core category and we enjoy strong customer loyalty in this category.
The leverage that we implemented that strategy us extensive S. P use concentrated that's can use this approach will allow us to offer a wider range of options to our customers, while still focusing on our best selling products building on our existing advantages and capabilities. We also plan to increase our investment in promote.
And discounts to try to drive sales of our top selling product.
In doing so we aim to offer a better touch points to customers, who are more price sensitive and deeper market penetration.
How severe.
Thank you.
Yeah.
The next question comes from Sofia Chi with Daiwa. Please go ahead.
Okay.
Oh, that's right Yeah of course, we went into the market.
And that was on the call Alex its always hard to fit that downturn and I'm sure you'll have some countries that are being built out.
So we don't know, what's your daughter and she played a hotel that's usually don't meet.
Let me translate myself hardness around thanks for taking my question and congrats on another solid quarter could you elaborate on those growth strategy under the current macro environment as well as the competitive landscape will be the key driver for the gross going forward. Thanks.
I'll sit here almost exactly a good formula kind of go into Ti. If I'm you know she is home shield.
And she also Julia let's shoot Torrejon subdue got puzzled. She says boy theory Wyman you have Atmos societies, Jonathan Dr. Toby O'brien, the sizzle, it isn't really I'm not sure.
If you go so yeah forgot something we'll figure out who the truth to that I know that's usually a house is it Alex shoot you need who's Oh man with getting jobs, Guangzhou, while now probably sooner than that.
Yeah.
Thank you for the question, let me break it down into a few different aspects first metrics in Jiangsu and Georgetown are improving rapidly for example, G. M. D grows in these provinces increased by over 13% sequentially and up about 10% year over year, both markets have achieved overall profitability before.
I can set of quarters, even after allocating headquarter expenses.
We aim to further strengthen the scale and profitability of these two regions and pay more attention to the global opportunities in south and North China.
Anyway, you found me and so it's really a single time, yeah, well month, but if people don't want the Soviet King for told me if I missed those axes of that'd be a teacher loved by him to sit in a bottle up I missed the daily foundry drink Danielle told me that she said ours, yet nyota, yeah children, who will walk you through each.
She had a lawyer, who you're going to start asking for it if it you lose it on in your body.
I saw that because as you thought about what else is just somebody over the long shot.
So if you figure at all this and she said she says Oh.
So curious how old are they shall be though she told that sushi module or celgene to shipping for well I wont bother T cells one yet.
Another aspect is that our user consumption frequency has increased this quarter both year over year by seven 8% and sequentially by 4%. This is a very positive trend for our business. We've also seen it consistent growth in ever shady order volume for our frontline fulfillment stations both.
Year on year and sequentially.
In addition, we have found that the longer customers use our service the more orders they tend to place.
And that's H users, who joined our platform in 2017, it placed about six orders per month, while the 2018 cohort placed 5.4 orders per month.
This suggests that our existing users are highly loyal intend to increase their order frequency over time.
We're confident that we'll achieve sustained growth by meeting customer needs and retaining users for a longer term.
Or does.
I'm also looking back you know that all of our shops.
Okay.
Maria yourself please sundar.
Uh huh.
But it is so affordable towards subordinate paywall her she also.
So really in Ward County Yell at me.
It's always a P Schott, who thought you said something about.
Got it.
Yeah for the song tender time, Yeah, well, Michigan Charlevoix.
And it's the lions share of it.
Yeah, well I mean, I'm not sure about.
During the third quarter, we collaborated with third party platforms, such as Alabama, which helped US achieve an average monthly G. N V of over 50 million RMB.
A year over year increase of 82%.
We also partner with <unk> to offer local life services.
By promoting and selling our products via live streaming, we're reaching new customers with our instant home delivery services supported by our food chain order fulfillment capabilities.
We launched this program in September and achieved daily sales of 340000 RMB.
October our average daily sales volume increased by 78%, reaching 600000 RMB per day.
I sit here.
Thank you.
Yeah.
As a reminder, if you have a question. Please press star then one to be joined into the Q. That's star then one to join the queue.
The next question comes from charging Chen with Sea Ice T. C. Please go ahead.
And I don't know.
Who come online ticketing to push outs, how should you it sounds like some people do show in Shanghai, Shanda up usually teen season.
As you know true I've seen institutional knowledge in the old rule you know Don.
We're telling you that you know short term borrowing and he's trying to do.
Cashman Pushout, that's you wonder is it should it yourself.
It's somebody else you cant, let me translate myself Oh, let's try that.
I know cause to several improvements in our financial metrics compared to the last quarter lifetimes when looking at your operating cash flow. It was a net outflow I'm off quarter right.
Is that the inflow. This quarter also short term borrowing amount you'll come in liabilities also improved significantly can you. Please elaborate on these development. Thank you.
Oh I shouldn't be live in Q2, and as you know a job you almost how often they don't want someone else like that.
Randall Thank you I met a woman. So thank you for your question I'll, let our head of finance Mr wants them to answer this one thank you.
Oh <expletive> that'll take our Shanghai, Josh J I'll, just I'll take a shot when my Shanghai, Shenzhen, and Guangzhou negotiate better pricing from Sasha Dodge at a woman so for I'm, sorry, yeah in Kenya.
Yeah, I think Judy with them they are different in shop Genesis equaled NGF limitations at Joliet, Felicia, It's Michael I'll take that one so that's what really changed in Shanghai that you're able to drive that down.
Gotcha question. So your shelves open model kind of thought.
But in general, especially out of yes, yes, I'll give you ended up changing and changing in general.
Thank you earlier, we provided you with an update on our current cash position and credit lines in the second quarter, we paid the yearend bonus for the previous year, which impacted our cash flow last quarter, but not this one.
Additionally, we make some inventory preparations in September for China's National day in October, resulting in a net outflow of operating cash is.
Despite these circumstances, we benefited from improved sales volume and achieve a net operating cash inflow of approximately 130 million in this quarter.
She forgot to check what's out on a bunch of different way somebody from over LIBOR for Xiaomi and how much Edwin that'd be Joshua yeah.
Yeah, that's about Virginia home chicken that channel. It was launched in general have you all compete Union thoughtful you all up I think this was on Daniel Thiago vessel, the French on body going into general thoughts about that either.
Well, that's the info couch it yes, I got you yeah sorry.
And also what might be a little harder for Google and that's all well and that's all you're going to also downtown Doc chicken when it's all one off it's off with Oh, My Gosh, you won't create especially when it's all shifting huddle I thought you also Jim Pi being like Greens, I'll kick off and deal with the agenda for especially in so Paulo.
He is off so don't want a bunch of people that you go build a channel you'll walk youll ship without pumping change at all.
In.
Our interest bearing liability structure, we have three types of short term borrowings. The first involves the bank borrowings, which is relatively small amounting to about 510 million RMB major domestic banks provide these loans to improve our liquidity.
The balance of these borrowings has decreased significantly by 43, 9% compared to last year.
The second type of referred to and the second type is referred to as we burst factoring or a supply chain finance and amounts to about 2.81 billion RMB.
The third one is in notes payable and amounts to about 271 million RMB.
Our collaboration with high quality service providers has been crucial to our success given that we have the complex supplier network with many upstream suppliers.
Main objective is to work closely with diesel players to develop superior brands, while providing them with stable financial support resulting in mutual benefit of both parties.
So that is why we provide a letter to use short term borrowings to them.
In some we have further optimized our short term liability structure, leading to a net decrease of 564 million RMB in interest bearing liabilities year over year.
Cause I'm all that Codell contingent upon you a whole messaging through the James you always said you wouldn't see that changing until they are also telling you.
So James Engineering, you talked about you said long, particularly the guys are telling me that he should go towards that.
Yeah sure anybody in suburbia, especially at that time, whether that's the type of dialogical, you'll often maybe I'll gotcha.
At the end of Q3, our cellphone fund balance was 1.94 billion RMB after deducting the balance of short term borrowings.
We also have sufficient cash reserves, our net interest income and expenses increased by 21.04 million on the year over year due to the improvement of the overall operating efficiency of fun and financing structure, there's optimization helped us to strengthen our balance sheet structure and it.
The performance of the P&L.
Okay.
As there are no further questions I'd like to hand, the conference back over to management for closing remarks.
Thank you again for joining our call today, if you have any further questions. Please feel free to contact us.
Request goes through all of that site.
We look forward to speaking with everyone next earnings call have a good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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