Yunji Inc.

Ladies and gentlemen, thank you and welcome to Yunji's third quarter 2020 earnings conference call. With us today are Mr. Shang Luesiao, Chairman and Chief Executive Officer, Mr. Chen Qian, Chief Financial Officer, Mr. Hui Ma, Chief Strategy Officer and Chief People Officer, Mr. Cheng Qi Zhang, Vice President of Finance, and Ms. Kay Liu, Investor Relations Director of the company. Now I would like to hand the conference over to your first speaker for today, Ms. Kay Liu, IRD of Yunji. Thank you. Please go ahead, ma'am.

Hello, everyone. Welcome to our third quarter 2020 earnings call. Before we start, please note that this call will contain forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995 that are based on our current expectations and current market operating conditions and relate to events that involve known or unknown risk. uncertainties, and other factors of Yunjian and its industry. This forward-looking statement can be identified by terminology such as well, expect, anticipate, continue, or other similar impressions. For the detailed discussion of these risks and uncertainties, please refer to our related documents filed with the USFCC. Any forward-looking statements that we make on this call are based on assumptions as of and are especially qualified entirely by cautionary statement, risk factors, and details of the company filing with SEC. Yunji does not undertake any obligation to update this statement if passed as required on applicable law. With that, I will now turn over to Shangyue Xiao, Chairman and CEO of Yunji.

Third quarter 2020 earnings goal. Third quarter 2020 earnings goal.

In the third quarter, we generated a total GMV of 9.4 billion RMB and total revenues of 1.07 RMB due to our promotion of fast-moving merchandise with high repeat purchase rates.

And moreover, we also reduced our net loss by 14.9% year-over-year. And it's in time the upgrades we made to our membership enrollment system helped us continue increasing the number of transacting members on our platform, which reached 13 million for 12 months, ended September the 30th, 2020. 云集作为会员电商已经坚持了五年。

We have made a lot of changes in the past five years, and we have been exploring the form of membership. Let our membership model have more vitality. We provide more benefits and better consumer experience for our members. Let more members fall in love with sharing. Let the members who love sharing be trained into sales members. Sales members can learn the knowledge of segmentation in our education and training. Become a host, a leader, and earn a more stable income.

Mingji has been on the path to becoming a full-fledged membership-based social e-commerce platform for the past five years. Over the course of this period, we have made many changes and continued to explore new forms of membership to further improve the value of our membership model. As a result, we have not only provided our members with more benefits and a better e-commerce experience, but also further cultivated our members' growing passion For sharing LeanWell, we have also focused on helping our members to hone in their sales potential by providing them with additional sales training. By providing our members with education and training, we have further enraged members' knowledge of different segments and enabled them to earn stable income as either streamers or group leaders in our community. 作為一家領先的會員制社交電商平台,

Since our IPO, as we strive to create a win-win value proposition,

for all participants in our ecosystem. We have continued to invest in upgrading our supply chain and optimizing our community to become China's leading membership-based social e-commerce platform. More specifically, we have also continued to develop and introduce more mega-heat products into our community. by continuously optimizing our supply chain and discover more members with the sales potential through introducing more products that better simulate member sharing activities.

We focus on the beauty, food, health products and other areas in the supply chain to create super single products, help the high-quality supply chain and advanced manufacturing to solve the traffic bottlenecks and transformation difficulties. and provide more high-quality products for our users. In this year's Double 11, we have sold nearly 20% of our free and joint-brand products. The total sales of one of our exclusive health food products has exceeded 500 million in the first quarter. Compared to other products, these special products have higher horsepower and better user feedback, which is loved by our sales members and users.

In terms of specific product categories, we are very focused on beauty, food and health supplements. As such, in order to better cultivate MaxSeed products, we maintain ongoing investment into these private label and joint venture brands during the third quarter. As a result of these investments, many quality suppliers and leading manufacturers have been able to adapt their business and grow their online traffic to persist. in the face of an important business environment. In addition, the suppliers and the manufacturers also provided and platform users with more premium products at attractive prices. For example, during this year's W11 Shopping Festival, our private label and joint venture brands contributed nearly 20% of our total festival GMV. And moreover, during the third quarter of the GMV of our health supplement products sold exclusively on our platform, In comparison to our products with lower growth profit and less positive user feedback, these Max Heat products generating higher profits on our platform were endorsed by our members with sales potential and were celebrated by our users. 社群渠道上我們發現銷售型會員和服務經理最大的訴求是一份可以賺錢的兼職工作。

In our social e-commerce community, we have found that the strongest demand of investment markets with sales, financial, and service managers

is to earn additional income through part-time jobs. These individuals do not necessarily demand a diverse portfolio of supply categories nor an excessive number of product types. Instead, they are more interested in magazine products, renewable profitability, professional product information training, and convenient office sales service. In order to meet such demands, we have built a highly refined and differentiated supply chain as well as a professional training system for both our service managers and all our members with sales potential.

Every day, we actively select six kinds of food, and our sales team members, as the team leader, recommend it to the users. At the same time, we have hired senior lecturers in the marketing and training fields to train and improve the community in the field of food optimization. The optimization of the professionalized community makes a sales team member an expert in the field, and becomes a more effective information launcher. to accurately reach the target users and continue to communicate. In September, more than 70% of users repurchased. This is a recognition of cloud quality and professionalization. At the same time, it also has significantly improved sales members' income as team leaders. In addition to the food team, we also launched a healthy and beautiful vertical community. The subsequent seasons will continue to report on the progress of these communities.

Since as early as last year, we have made significant progress in the cultivation of our food category supply chain, introducing multiple products to generate millions of MB in sales. Meanwhile, this year, we have replicated our successful experience in the creation of popular high-quality food products in other product categories. In September, for example, we have launched a trial food wherein our members with the sales potential serve as group leaders to make daily introductions to our platform users of six different delicious food products. At the same time, we also hire senior lecturers specialized in marketing and training to better train individuals in our social e-commerce community and further educate our members with sales potential on the food product category. This type of targeted food product category training has enabled members with sales potential to become assets in the field while also enabling these SIEM members to become trusted sources of information in eyes of the users. Consequently, our members have developed the ability to reach their target users more accurately as well as maintain high touch relations with these targeted users at the same time. As a result, we observed repeat purchases from more than 70% of platform users in September. This continues to demonstrate the strength of both our product quality and professional merchandising capabilities, which have helped to significantly improve the incomes of our members with sales potential since these members began serving as group leaders. Beyond the food product category, we also launched community groups focused on the health and beauty categories in the quarter. Over the coming quarters, we will be sure to continue providing everyone with updates on our progress in developing these product communities.

During the quarter, on the marketing front, we also continue to make meaningful progress in both the establishment of an innovative marketing channel and the utilization of a diverse content format, such as short-form video and live streaming, which have enabled us

to better present and promote those products sourced from our quality supply chain. Going forward, we plan to further leverage our supply chain's competitive advantages in cost control and operational efficiency, establish collaborations with top and mid-tier streamers to introduce more products to our e-commerce community, and provide support and resources to more of those joint venture brands and emerging brands with high growth potential. In summary, we continue to boast the competitive advantages of our differentiated supply chain while further optimizing our membership-based ecosystem during the third quarter. Looking ahead, we plan to continue exploring those new models and marketing formats capable of creating win-win arrangements for our members, suppliers, and users alike. At the same time, we will prioritize the execution of those new initiatives, which will further propel our advancement towards our long-term goal of a healthy profitability.

And with that, I will turn the call back to our CFO, Rex Chen, to go through our financial results.

Before I go through our financial results, please note that all numbers stated in the following remarks are in IMB terms, and all comparisons and percentage changes are on a year-over-year basis, unless otherwise noted. In light of the increasing competition in the industry, we decided to forego the destruction of such short-term gains and instead focus our attention on refining our operational efficiency and bolstering our brand awareness. In the quarter, we collaborated with regional agricultural providers to create innovative products and further promote the revitalization of our industry. rural areas and made our live streaming show different. As a result, we continue to steadily advance towards healthy profitability during the third quarter of 2020 and reduced our net loss to $43.6 million from $51.3 million. Let's now take a closer look at our financials. Our total revenues in the third quarter of 2020 were $1.1 billion. Revenues from net sales of merchandise in the third quarter of 2020 were $0.92 billion compared to $2.47 billion and accounting for 85.2% of our total revenues in the period. This decrease was due to the transfer of business to our marketplace business model, which was in line with our continuous efforts to improve our operating efficiency and the operating efficiency of our merchants. Revenues from our marketplace business in the third quarter of 2020 increased to $130.4 million from This increase was driven by an increase in the number of quality brands and merchants on our platform. It was also due to the higher tech rates that we secured by both strengthening our existing partnerships with brands and leveraging our growing community influence to attract new brands to our platform. Revenues from our membership program in the third quarter of 2020 were $4.9 million compared to $206.7 million and wholly consisting of deferred revenues from prior paying members in line with our long-term growth plans. This decline was due to the refinement of our membership enrollment system, which allowed users to register on our Engie app as members and enjoy membership benefits free of charge for one year. Gross margin in the third quarter of 2020 was 29.5% compared to 17.8%. This increase was due to the higher gross margin of the mega-hit products that we introduced in the quarter. How we improved the subsidy structure and enhanced operating efficiency. Now turning to our operating expenses. Fulfillment expenses in the third quarter of 2020 decreased by 55%. to $90.5 million. This decrease was mainly due to, first, reduced warehousing logistic expenses as a result of lower merchandise sales and increased logistic efficiency. Second, reduced third-party payment transaction fees due to lower commission rates. And third, lower personnel costs due to headcount optimization. Sales and marketing expenses in the third quarter of 2020 decreased by 14%. 2.9% to $158.9 million, driven by the decrease in member management fees as we continue to improve the efficiency of our member management operations. Technology and content expenses in the third quarter of 2020 decreased by 53% to $42.3 million from $19.1 million. This decrease was mainly due to our realization of better contract terms with our server provider, which helped to reduce our server costs and partially due to a decrease in personnel costs as a result of headcount optimization. General and administrative expenses in the third quarter of 2020 decreased by 18.6% to $51.8 million, or 4.9% of total revenues from $63.7 million. This decrease was mainly due to our continuous efforts in headcount optimization. Overall, total operating expenses in the third quarter of 2020 decreased by 46% to $343.6 million from $636.4 million. This decrease was driven by our continuous improvements to logistic efficiency, ability to secure better partnership terms, and increased member management efficiency, which resulted from our continued improvement of service management relationships. Loss from operations in the third quarter of 2020 decreased to $24.4 million from $118 million. Net loss in the third quarter of 2020 decreased to $43.6 million from $51.3 million. Adjacent net loss in the third quarter of 2020 was $36.4 million. million compared to 24.9 million basically diluted net loss per share attributable to ordinary shareholders in third quarter of 2020 were both 0.02 compared to 0.02 in the same period of 2019. now let's also take a look at our cash and liquidity positions during the quarter our ability to maintain a healthy level of working capital despite our macro headwinds and uncertainties in the period enabled us to support our operational liquidity demands. As of September 13, 2020, we had a total of $1.2 billion in cash and cash equivalents, restricted cash and short-term investments on our balance sheet. Going forward, we will continue to drive the development of both our marketplace and the merchandise sales. Binance will also plan to leverage this of our value proposition for users, service providers, and suppliers to launch new initiatives and developers. While cross-branding synergies through the foregoing of partnerships looking ahead, we remain confident that these growth strategies will enable us to bolster our core financials at a steady pace, augment our overall profitability, and continue laying the foundation for our healthy growth and future profitability over a long term. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. To ask questions on the phone, please press star 1 on your telephone and wait for a name to be announced. If you wish to cancel your request, please press the pound or hash key. You may ask your questions in Mandarin and repeat in English. Once again, to ask questions, please press star 1. There will be a short silence while questions are being collected. Thank you. There are no questions at this time. I would like to turn the call back to management for closing.

Thank you for joining us today. Please do not hesitate to contact us if you have any further questions, and we're looking forward to talking with you next quarter.

Ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect your lines. Thank you. you Thank you. Thank you.

Thank you. you

Good morning and good evening, ladies and gentlemen. Thank you and welcome to Yunji's third quarter 2020 earnings conference call. With us today are Mr. Shang Luesiao, Chairman and Chief Executive Officer, Mr. Chen Chen, Chief Financial Officer, Mr. Hui Ma, Chief Strategy Officer and Chief People Officer, Mr. Cheng Qi Zhang, Vice President of Finance, and Ms. Kay Liu, Investor Relations Director of the company. Now I would like to hand the conference over to your first speaker for today, Ms. Kay Liu, IRD of Yunji. Thank you. Please go ahead, ma'am.

Hello, everyone. Welcome to our third quarter 2020 earnings call. Before we start, please note that this call will contain forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995 that are based on our current expectations and current market operating conditions and relate to events that involve known or unknown risks, uncertainties, and other factors of Yunjian and its industry. This forward-looking statement can be identified by terminologies such as well, expect, anticipate, continue, or other similar expressions. For the detailed discussion of these risks and uncertainties, please refer to our related documents filed with the USFCC. Any forward-looking statements that we make on this call are based on assumptions as of today and are especially qualified entirely by cautionary statements, risk factors and details of the company filing with SEC. Yunji does not undertake any obligation to update this statement if passed as required on applicable law. With that, I will now turn over to Shangyue Xiao, Chairman and CEO of Yunji.

Hello, everyone. Welcome to RingG Third Quarter 2020 Earnings Call. In the third quarter, we generated a total GMV of 9.4 billion RMB in total revenues.

of 1.07 RMB billing due to our promotion of fast-moving merchandise with high repeat purchase rates. Moreover, we also reduced our net loss by 14.9% year-over-year. At the same time, the upgrades we made to our membership enrollment system helped us continue increasing the number of transacting members on our platform. which reached 13 million for 12 months, ended in September the 30th, 2020.

Yunji, as a member e-commerce, has been persisting for five years. Over the past five years, we have made many changes, and we have been exploring the form of membership, making our membership model more viable. We provide more benefits and better consumer experience for members, making more members love sharing, and training members who love sharing into sales members, the members of the sales team learn the knowledge of the segmentation field in our education and training, and become the anchor and leader to earn a more stable income.

Winji has been on the path to becoming a full-fledged membership-based social e-commerce platform for the past five years. Over the course of this period, we have made many changes and continued to explore new forms of membership to further improve the value of our membership model. As a result, we have not only provided our members with more benefits and a better e-commerce experience, but also further cultivated our members' growing passion for sharing. Meanwhile, we have also focused on helping our members to hone in their sales potential by providing them with additional sales training. By providing our members with education and training, we have further enraged members' knowledge of different segments and enable them to earn stable income as either streamers or group leaders in our community.

As a leading member-based social e-commerce platform, over the past year, we have continued to invest in supply chain upgrade and community channel optimization, and have become a company where all participants can win together.

Since our IPO, as we strive to create a win-win value proposition for all participants in our ecosystem, we have continued to invest in upgrading our supply chain and optimizing our community to become China's leading membership-based social e-commerce platform. More specifically, we have also continued to develop and introduce more mega-heat products into our community by continuously optimizing our supply chain and discover more members with the sales potential through introducing more products that better simulate member sharing activities. 我们在供应端深度扶持自由及合资的品牌,重点在美妆和

food, health care products, etc. to build super single products. Helping the high-quality supply chain and advanced manufacturing to solve its traffic bottlenecks and transformation difficulties. Also providing more high-quality products for our users. This year, Double 11, our free brand and joint brand sales accounted for nearly 20%. Our exclusive health food sales in the first quarter, the total sales have exceeded 500 million.

In terms of specific product categories, we are very focused on beauty, food, and health supplements. As such, in order to better cultivate Max Heat products, we maintain ongoing investment into these private label and joint venture brands during the third quarter. As a result of these investments, many quality suppliers and leading manufacturers have been able to adapt their business and grow their online traffic to persist in the face of an important business environment. In addition, these suppliers and manufacturers also provide and platform users with more premium products at attractive prices. For example, during this year's W11 Shopping Festival, Our private label and joint venture brands contributed nearly 20% of our total festival GMV, and moreover, during the third quarter, the GMV of our health supplement products sold exclusively on our platform exceeded 500 million RMB. In comparison to other products with lower gross profit and less positive user feedback, these market products generating higher profits on our platform We're endorsed by our members with sales potential and we're celebrated by our users.

On the community channel, we found that the biggest demand for sales members and service managers is a job that can make money. They don't need a rich supply chain. They don't need too many products. What they need most is good, super single products, reasonable profits, professional knowledge training of products, and convenient sales services.

In our social e-commerce community, we have found that the strongest demand of investment markets with sales, financial, and service managers is to earn additional income through part-time jobs. These individuals do not necessarily demand a diverse portfolio of supply categories nor an excessive number of product types. Instead, there are more interest in magazine products, renewable profitability, professional product information training, and convenient office sales service. In order to meet such demands, we have built a highly refined and differentiated supply chain, as well as a professional training system for both our service managers and our members with sales potential. 早在去年,我們就在水果這個細分領域深耕供應鏈,打造了多個百萬爆款。

This year, we have applied the experience of creating high-quality fruit to a wider range. In September, we made an attempt to launch a food group. Every day, we actively selected six kinds of food, which were recommended to users by our sales committee members as team leaders. At the same time, we invited senior teachers in the marketing and training fields, and in the field of food optimization, to conduct training and supplementation for the community. With the professionalization of the community, each sales member becomes a leader in the field, becomes a more effective information launcher, more accurate to reach target users, and continue to communicate. In September, more than 70% of users repurchased in a single month. This is a recognition of cloud quality and professionalization. At the same time, it also made the sales member a leader, and the income was significantly improved.

Since as early as last year, we have made significant progress in the cultivation of our food category supply chain, introducing multiple products to generate millions of MB in sales. Meanwhile, this year, we have replicated our successful experience creation of popular high-quality food products in other product categories. In September, for example, we have launched a trial food group wherein our members with sales potential serve as group leaders to make daily introductions to our platform users of six different delicious food products. At the same time, we also hire senior lecturers specialized in marketing and training to better train individuals in our social e-commerce community and further educate our members with sales potential on the food product category. This type of targeted food product category training has enabled members with sales potential to become experts in the field while also enabling these team members to become trusted sources of information in eyes of the users. Consequently, our members have developed the ability to reach their target users more accurately as well as maintain high touch relations with these targeted users at the same time. As a result, we observed repeat purchases from more than 70% of platform users in September. This continues to demonstrate the strength of both our product quality and professional merchandising capabilities. which have helped to significantly improve the incomes of our members with sales potential since these members began serving as group leaders. Beyond the food product category, we also launched community groups focused on the health and beauty categories in the quarter. Over the coming quarters, we will be sure to continue providing everyone with updates on our progress in developing these product communities.

During the quarter on the marketing front,

We also continue to make meaningful progress in both the establishment of an innovative marketing channel and the utilization for diverse content formats, such as short-form video and live streaming, which have enabled us to better present and promote those products sourced from our quality supply chain. Going forward, we plan to further leverage our supply chain's competitive advantages in cost control and operational efficiency, establish collaborations with top and mid-tier streamers to introduce more products to our e-commerce community, and provide support and resources to more of those joint venture brands and emerging brands with high growth potential.

We will continue to enhance the positive advantages of decentralized supply chain, and at the same time, we will further enhance the eco-system of membership mode. In summary, we continue to boast the competitive advantages of our differentiated supply chain while further optimizing our membership-based ecosystem during the third quarter. Looking ahead, we plan to

continue exploring those new models and marketing formats capable of creating win-win arrangements for our members, suppliers, and users alike. At the same time, we will prioritize the execution of those new initiatives, which will further propel our advancement towards our long-term goal of healthy profitability. Before I go through our financial results, please note that all numbers stated in the following remarks are in IMB terms, and all comparisons and percentage changes are on a year-over-year basis, unless otherwise noted.

In light of the increasing competition in the industry, we decided to forego the destruction of such short-term gains and instead focus our attention on refining our operational efficiency and bolstering our brand awareness. In the quarter, we collaborated with regional agricultural providers to create innovative products and further promote the revitalization of our rural areas and made our live streaming show different. As a result, we continue to steadily advance towards healthy profitability during the third quarter of 2020 and reduced our net loss to 43.6 million from 51.3 million. Let's now take a closer look at our financials. Our total revenues in the third quarter of 2020 were $1.1 billion. Revenues from net sales of merchandise in the third quarter of 2020 were $0.92 billion compared to $2.47 billion and accounting for 85.2% of our total revenues in the period. This decrease was due to the transfer of business to our marketplace business model, which was in line with our continuous efforts to improve our operating efficiency and the operating efficiency of our merchants. Revenue from our marketplace business in the third quarter of 2020 increased to $130.4 million from It is 6.3 million. This increase was driven by an increase in the number of quality brands and merchants on our platform. It was also due to the higher upgrades that we secured by both strengthening our existing partnerships with brands and leveraging our growing community influence to attract new brands to our platform. Revenues from our membership program in the third quarter of 2020 were $4.9 million compared to $206.7 million and wholly consisting of deferred revenues from prior paying members in line with our long-term growth plans. This decline was due to the refinement of our membership enrollment system, which allowed users to register on our Engie app as members and enjoy membership benefits free of charge for one year. Gross margin in the third quarter of 2020 was 29.5% compared to 17.8%. This increase was due to the higher gross margin of the mega hit products that we introduced in the quarter. Our improved subsidy structure and enhanced operating efficiency. Now turning to our operating expenses. Fulfillment expenses in the third quarter of 2020 decreased by 55%. to $90.5 million. This decrease was mainly due to, first, reduced warehousing logistic expenses as a result of lower merchandise sales and increased logistic efficiency. Second, reduced third-party payment transaction fees due to lower commission rates. And third, lower personnel costs due to headcount optimization. Sales and marketing expenses in the third quarter of 2020 decreased by 14%. 2.9% to $158.9 million driven by the decrease in member management fees as we continue to improve the efficiency of our member management operations. Technology and content expenses in third quarter 2020 decreased by 53% to $42.3 million from $19.1 million. This decrease was mainly due to our realization of better contract terms with our server provider which helped to reduce our server costs and partially due to a decrease in personnel costs as a result of headcount optimization. General and administrative expenses in the third quarter of 2020 decreased by 18.6% to $51.8 million, or 4.9% of total revenues from $63.7 million. This decrease was mainly due to our continuous efforts in headcount optimization. Overall, total operating expenses in the third quarter of 2020 decreased by 46% to $343.6 million from $636.4 million. This decrease was driven by our continuous improvements to logistic efficiency, ability to secure better partnership terms, and increased member management efficiency, which resulted from our continued improvement of service management relationships. Loss from operations in the third quarter of 2020 decreased to $24.4 million from $118 million. Net loss in the third quarter of 2020 decreased to $43.6 million from $51.3 million. Adjudicated net loss in the third quarter of 2020 was $36.4 million compared to $24.9 million. Basically, the diluted net loss per share attributable to ordinary shareholders in the third quarter of 2020 was both $0.02 compared to with 0.02 in the same period of 2019. Now let's also take a look at our cash and liquidity positions. During the quarter, our ability to maintain a healthy level of working capital despite our macro headwinds and uncertainties in the period enabled us to support our operational liquidity demands. As of September 30, 2020, we had a total of $1.2 billion in cash and cash equivalents, restricted cash and short-term investments on our balance sheet. Going forward, we will continue to drive the development of both our marketplace and the merchandise sales. Binance will also plan to leverage the strengths of our value proposition for users, service providers, and suppliers to launch new initiatives and developers. While CrossBinance synergizes through the foregoing of partnerships, looking ahead, we remain confident that these growth strategies will enable us to bolster our core financials at a steady pace. augment our overall profitability and continue laying the foundation for our healthy growth and future profitability over a long term. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. To ask questions on the phone, please press star 1 on your telephone and wait for a name to be announced. If you wish to cancel your request, please press the pound or hash key. You may ask your questions in Mandarin and repeat in English. Once again, to ask questions, please press star 1. There will be a short silence while questions are being collected. Thank you. There are no questions at this time. I'd like to turn the call back to management for closing.

Thank you for joining us today. Please do not hesitate to contact us if you have any further questions, and we're looking forward to talking with you next quarter.

Ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect.