Yunji Inc.

Good morning and good evening, ladies and gentlemen. Thank you and welcome to UNG's first quarter 2021 earnings conference call. With us today are Mr. Shang-Lu Hsiao, Chairman and Chief Executive Officer, Cheng-Ki Zhang, Vice President of Finance, and Ms. K. Lu, Investor Relations Director of the company. Now I would like to hand the conference over to first speaker today, Ms. K. Lu, IRD of UNG. Please go ahead, ma'am.

Hello, everyone. Welcome to our first quarter 2021 earnings call. Before we start, please note that this call will contain forward-looking statements within the meaning of the Private Security Licensing 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 affecting its industry. These forward-looking statements can be identified by terminology such as will, expect, anticipate, continue, or other similar expressions. For detailed discussion of these risks and uncertainties, please refer to our latest document filed with USCCC. Any forward-looking statement that we make on this call are based on assumptions as of today and are expressly qualified entirely by cautionary statement, risk factors, and details of the company filing with the SEC. Yunxi does not undertake any obligation to update this statement except as required on the applicable role. With that, I will now turn over to Shangyue Zhao, Chairman and CEO of Yunxi.

Hello, everyone, and welcome to Yunji's first quarter 2021 earnings call. The competition in the e-commerce industry to this day has formed a large-scale advantage in terms of customer value in terms of how much, how fast, how good, and how little. Yunji, as the first brand of member e-commerce, we want to continue the decentralized strategy of supply chain, to meet the needs of customers' simple shopping. We have upgraded Jingxuan as the main strategy of Yunji. We do not pursue the short-term distribution of sales, but are more focused on the construction of products with high-end value, to choose the best for our members, and to have products with higher member value.

We celebrated our sixth corporate anniversary on May 16, 2021. During this year's celebration, featuring the theme, Prime to Perform and Turn Over a New Leaf through Enhanced Strategies, I introduced our newly elevated business strategy to our employees and service managers. In today's fiercely competitive e-commerce industry in China, the top players have already established certain advantages through economies of scale, with values focusing on more, faster, better, and more cost-effective. As a leading membership-based e-commerce platform, we continue to strengthen our focus on product selection and refinement to better implement our supply chain differentiation strategy and provide customers with a more convenient e-commerce experience. We don't pursue and discipline the short-term sales growth, Instead, we focus on cultivating a mega-heat product pool by introducing quality products with greater appeal and better product market fit for our members.

We have established a special team to help us bring back the best-selling products on the market. Our special team has both a strong ability to force customers to discover products and a strong ability to create content to design the most attractive whole for the product. We also have a very good display capability to cooperate with our service managers to convey the content of the product to consumers. At the end of 2021, we are planning to establish a high-quality, high-quality, high-quality brand that updates our carefully selected high-performance products every day.

To execute this new component of our strategy, we established a special working group for our mega-heat product supply chain. Led by our executive president, Eric Yee, this working group was formed to elaborate the team's exceptional capabilities in business development, content creation, and product presentation to curate popular products. optimally present them to consumers and produce and distribute associated content to customers for a comprehensive targeted sales approach. By the end of 2021, we aim to develop a portfolio of magazine products covering a variety of categories featuring economical premium quality products. 从产品化供应链的品类上来说,

We believe that the three vertical fields of health, beauty, and food have a very high market share, and these markets are more compatible with our users' needs, and can provide a higher membership value. We will use these three vertical fields as the center, and train our service managers to become the beauty, health, and food experts in the vertical field, and attract more consumers with more professional services.

In terms of our differentiated supply chain, we believe the potential for our primary vertical markets in health, cosmetics, and food products presents the greatest opportunities. These three categories strongly align with the demand from our user base and provide them with additional membership values. We train our service managers to ensure they are knowledgeable and experienced with products in these three verticals, empowering them to attract more customers through professional, in-depth service. Meanwhile, we will also continue to develop new products that accurately target our key markets via our private label brand and joint venture brand initiatives.

Several of our private labels include our cosmetic brands, Solo Life and PMS, our food brands, Li Ba Tian and Mars Chef, and our health supplement brands, including Smart Life and Uni Beauty.

As of March 31st, 2021, our weight loss supplement, Smart Life, achieved 975 million RMB in total sales. It took only a year from its launch for us to grow the Smart Life brand to a billion RMB in sales. In the past few years, our private label brand successfully developed many popular products that are highly praised and endorsed by our members. Through these mega-hit products, we will be able to provide members with a more innovative and enhanced e-commerce experience. Furthermore, we are able to extend the commercial lifecycle for successful products in health, cosmetics, and food verticals by releasing additional product versions with new or enhanced features. In addition to our longstanding categories of strengths, we will also increase efforts in product review and development for categories where user needs are relatively large, such as maternal and infant care as well as household products. Our household products brand, The Meaning of Home, provides users with daily necessities, such as paper towels, toiletries, and cleaning products. We also host periodic promotions for these fast-moving consumer goods.

Regardless of the product category, product quality and safety are non-negotiable when selecting products to introduce on our platform. A significant number of our users are mothers who take care of their whole family.

So we will continue to provide products that the whole family can safely consume.

We are also acutely aware that today's consumers are dealing with significant information overload. Much of the information they are bombarded with daily is complex and lengthy.

This shifts our approach to content development so that we can present concise and valuable product content that stands out and easily captures the attention of consumers. Our next step is to help our service managers optimize product content production and share e-commerce experiences by leveraging multiple content forms, including images and short-form videos. This will ensure that aesthetic content stream is accessible on external platforms. to promote our differentiated supply chain and products, broadening our brand influence.

We believe that service managers are one of our most valuable resources. We hope that our service managers can make more effective promotions through our training, gain self-improvement, earn people, and earn long-term income. We will continue to enrich the content of offline training and online education, and provide more opportunities for service managers to participate in learning and experience. We believe that our service managers are some of our most valuable assets.

We execute training with the intent to provide service managers with the means to enhance their marketing skills, establish their own brand influence, and live a better life through improving their financial means. We will also continue to diversify offline and online educational content offerings to provide service managers with additional opportunities to improve. We envision a future where our service managers are a multi-talented group that can push sales, attract new users, and professionally serve and manage customer groups. With that, I will turn the call With that, I will turn the call over to our CFO, Rex Chen, to go through our financial results in the first quarter.

Thank you, Shanglue. Hello, everyone. Before I go through our financial results, Please note that all numbers stated in the following remarks are in Renminbi terms, and for the first quarter of 2021, while all comparisons and percentage changes are on a year-over-year basis, unless otherwise noted. Starting in 2021, we committed to enhancing our supply chain differentiation strategy to include our new market product curation strategy, and further development of our private label products, We are focusing on the lifetime value of our customers and no longer emphasize GMV. We also remain committed to effective cost control as we further refine our membership management system and enhance our employee structure. While our decision to forego short-term sales gains in favor of more sustainable growth caused fluctuations in our quarterly sales. We believe these efforts will further drive our progress towards healthy profitability in the long run. Now, let's take a closer look at our financials for this quarter. In the first quarter of 2021, our total revenue was $675 million, compared to $1,649,000 in a year ago. Revenues from sales merchandise were $572 million, and revenue from marketplace business were $95 million. As previously mentioned, the decline in total revenue was mainly due to our decision to improve our product curation strategy by implementing our Medkit Product Pro initiative. The initiative focused on introducing products with stronger repurchase potential and great customer appeal. Growth margin in the first quarter of 2021 was 35% compared to 30% a year ago. The improvement in growth margin was due to our supply chain depreciation strategy. Turning to our operation expense, fulfillment expense in the first quarter of 2021 was $65 million compared to $178 million a year ago. The decrease was mainly attributed to reduced warehouse and logistics expenses, which resulted from our improved logistics efficiency, lower merchandise sales, and reduced personal costs from staff fee restructure refinement. Sales and marketing expenses in the first quarter of 2021 were $96 million, compared to $251 million a year ago. As a percentage of total revenue, sales and marketing expense in the quarter decreased to 14% from 15% a year ago. This decrease was in line with our long-term growth strategy and was mainly due to our reduction in membership management fee as we improve our member management efficiency and decrease promotion expenses. Technology and accountant expense in the first quarter of 2021 was 38 million or 5.6% of total revenue compared to 58 million or 3.5% of total revenue a year ago. The decrease was mainly due to the decrease in personal costs as we further refined our staff structure. General and administrative expense in the first quarter of 2021 was $74 million compared to $75 million a year ago, mainly due to the decrease in share-based compensation expenses. Overall, in the first quarter of 2021, total operations expense decreased to $273 million and the loss from operations was $20 million. Net loss was $4 million compared to $13 million a year ago. But adjusted net income in the first quarter of 2021 was $17 million compared with $26 million a year ago. Basic and diluted net loss per share attributable to ordinary share in the first quarter of 2021 were both 0.002 compared with $0.01 in the same period of 2020. Finally, let's take a look at our cash and debt liquidation position. As of March 30, 2021, we had a total of $1.2 billion in cash, cash equivalent, with credit cash and short-term investments on our balance sheet. We will actively explore further investment opportunities in high-potential emerging brands. Looking ahead. We will commit to executing our supply chain differentiation strategy by upgrading our magnetic product curation system and developing private label products to widen our economic mode and improve our profitability. At the same time, we will remain disciplined in our cost control and allocate resources to areas which are in line with our long-term growth objectives. While we recognize the intense level of competition in the industry, we also believe that the strategies we now have in place will serve as a solid bedrock for our substantial goals and expansion going forward. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Certainly. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the found or hash key. When asking the question, please state your question in Chinese first, then immediately repeat your question in English for the convenience of everyone in the call. Once again, if you wish to ask a question, it's star and the number one on your telephone keypad. Your first question comes from the line of Ethan Yu of First Trust Group Incorporated. Please ask your question.

Hi, good evening. Thanks for taking my question. Is the management team able to evaluate the difference between us and Wang Yi Yan and Jingdong and Jingdao? The second question is about our membership system. We noticed that the temporary membership fee has dropped from RMB398 to RMB199 recently, and the company has also added a new membership indicator. I would like to learn from the management team about the carbon and innovation of the company in the membership mode and how to improve membership quality in the future. I will quickly translate for myself. I have two questions. The first question is about our private label business. In connection with the rapidly growth of our marketplace business, what's the distinct market strategy for our private label products? In addition, could you please give us some comments on the differentiation between us and other private label e-commerce brands like NetEase, LifeEase, Jingdong Dingdao, etc.? ? And my second question is about the membership system. We have noted that the membership fee has been adjusted from RMB 398 to 199 in the recent days. Beyond that, the company also has a series of enrollment incentives and a new metric of our membership system. We are wondering about the company's explorations or innovations on the membership enrollment system and what's our strategy to improve the quality of our vendor. Thank you.

Thank you for your question. I am the CEO of Yunji, Xiao Shangliu. I will answer your two questions. First of all, in the development of this free brand, we will focus more on the two major categories of health and beauty. Because these two categories actually require people to share, recommend, and communicate with each other. We know that we sell health products. If we don't recommend health products carefully, these health products may not be able to sell very well. For example, these brands such as Tanshen Beijian below the line are like this. Then cosmetics products, The mainstream channel is the offline shop. We will find that no matter how big the shop is, it also needs a shop assistant to do the sales. These two products can play a role in the advantages of cloud-level community sales and the advantages of our service manager's shop assistant. China China China China The labor space will also be relatively low, and competition will be more intense. So in the development of our free brand, we are more looking forward to combining our community, our service managers, their growth, and their professional knowledge. Yes, and another thing is that we hope that these brands will have the opportunity to enter mainstream e-commerce platforms, including search platforms like Tianmao and Jindong. We also hope to have the opportunity to Thank you for your questions.

and I will take your questions. For your first question, for our private labels, we will be more focused on these two categories, that is health products and cosmetics, because these two categories of products need more sharing and representation of users. If people want to buy some health products, if there are no shopping curators, perhaps they don't know what to buy. And for cosmetics, most of the cosmetics are offline and people go buy these cosmetic products at department stores. And all these products have shopping curators, even if it is a very luxury brand. So we can see that shopping curators are very necessary. So in this sense, we'd like to leverage our advantage of service managers of our community. This is very different from Yanshan or Jingzhou. What they sell the most are daily necessities. And their net profit is very low. And in this area, the competition is more fierce. So we hope that we can further leverage our advantage in community. And we can combine our advantage and further enhance the professional knowledge of our service managers. In the future, we also hope to make further use of our strength in our own platforms. And we also want to be settled in some major e-commerce platforms such as Tianmao and other video e-commerce platforms. So after we have more traffic on our own platform, we will make further moves to other major e-commerce platforms.

The second question is also a very good question. We have evaluated the value of our members. We believe that our membership value has a lot of room for improvement. We have also compared the entire industry. Many platforms are also The direction of e-commerce is in the eyes and development. After comprehensive evaluation, we found that we need to be more honest and objective in facing our customer values. Then we hope to reduce the threshold appropriately. We hope to effectively reach more target users. On this basis, we hope to spend more time and energy to maintain the most superior part of these new users to be able to restore and store for a long time. Compared to how we improve the quality of the members, I think it is more important to emphasize how we improve the value of the members. Because the so-called improvement of the quality of the members actually matches the value of the members of the cloud. Therefore, we have also reorganized and upgraded our user value. In the past, we had a lot of retail models like Sam's and Costco. We also tried to select 5,000 SQs and 6,000 SQs to recommend to our members. uh uh uh, The best selling products among the best-selling products, maybe one-thousandth of the products, one-hundredth of the products and one-thousandth of the products, then to build our user value. In fact, there are also a lot of good learning approaches. For example, in the field of live broadcast, the products recommended by our super broadcasters every day are the most popular and popular products. We hope that in the future, we can make the top 100 head broadcasters uh uh uh This is what we are thinking about at the member value level. If the member value continues to increase, it will naturally attract the customers we expect to serve. Thank you for your second question.

It is a very good question. We believe that we still have much room to explore to further enhance the value of our members. After our evaluation, we found that we decided to lower the benchmark of becoming a member of UNT because we want to attract more target users. And based on that, we will devote more time and energy to ensure that our users can get the recommendations of the best products so that they can repeat purchase. Compared to enhance the quality of members, we believe that to further enhance the value of our members is more important. We have reflected on the value of our members. In the past, we regarded Costco and Sam as our examples. We also tried to select over 5,000 SKO products to recommend to our members. But after two to three years of practice, we found that our consumers need more selected more refined recommendations. So from this year we plan that in the next five years we will recommend products to our consumers in a more targeted and more refined way. We will recommend mega-hit products to them. In the future we will launch daily recommendations and we will select the top one product from 1,000 products so that our consumers and users can get a more refined recommendation. We will also learn from the good practices from other platforms such as live streaming. We hope that we will quickly recommend and introduce the products the products introduced by the top streamers, top 100 streamers, and to share them to our members. In doing so, we will help our members to save time and they will have more choices of economical and quality products. So I believe in this way, we will further enhance the value of our members and attract more quality members. That's all.

Okay.

Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. As there are no further questions at this time, I'd like to hand the conference back to the management for the closing remarks.

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

This concludes today's conference call. Thank you for participating. You may now disconnect.