Yunji Inc.

Good morning and good evening, ladies and gentlemen. Thank you and welcome to Yungi's first quarter 2022 earnings conference hall. With us today are Mr. Shang Liu, Chairman and Chief Executive Officer, Mr. Peng 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 our first speaker today, Ms. Kay Liu, IRD of Yungi. Please go ahead, ma'am.

Hello everyone. Welcome to our first quarter 2022 earnings call. Before we start, please note that this call will contain forward-looking statements within the meaning of the Private Securities Integration 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 the industry. These forward-looking statements can be identified by a terminology such as will, expect, anticipate, continue, or other similar expressions. For detailed discussion of these risks and certainties, please refer to our related document file with USFCC. Any forward-looking statement that we make on this call are based on assumptions as of today and are expressly qualified entirely by cautioning statements, risk factors, and details of the company filing with SEC. Yunji does not undertake any application to update this statement as best as required on applicable law. With that, I will now turn over to Shang-Rui Zhao, Chairman and CEO of Yunji.

Hello, everyone. Welcome to Yunji's first quarter 2022.

On May 16, half a month ago,

Our company celebrated the 7th anniversary of the 7th anniversary of the 7th anniversary of the 7th anniversary of the 7th anniversary of the 7th anniversary of the 7th anniversary of the 7th anniversary of the 7th anniversary of the 7th anniversary of the

Two weeks ago, on May 16th, we celebrated our seventh corporate anniversary. During 2022, we further refined the product curation strategy. We have been executing in the process since our inception. In the first quarter of 2022, we continue to improve our product quality and launch the WG Select certification program. Under the program once a week, we apply the most stringent quality assessment criteria to our product selection process, certify those products we deem as the best with the WG Select label, and ensure peace of mind for our members who chose to purchase those certified products.

The cloud selection certification is the certification after the product has been selected. We select the selected products every week. The comprehensive sales index, the recommended index for each customer, the resale index, the quality stability index, the evaluation index, and the five major categories are selected. And on the third of every week, the food festival of the cloud system will open. At the same time, we will also invite some health and nutrition experts. In the form of live broadcasts, we will interact with our service managers and members to provide you with a healthy lifestyle.

Our NG Select Certification Program is conducted using detailed user feedback and behavior data collected through our platform. During the workplace product review and certification process, we integrate key performance indicators such as sales volume, category access recommendations, research rates, product quality, visibility, and aesthetic managers' individual product recommendations to select the finest items and then market them as flagship products during Linji's food festival promotion every Wednesday. In addition, we provide fuel assets in health and nutrition to interact with our service managers and members through live streaming and live dance on how to live a healthy lifestyle.

Let me introduce the challenges and uncertainties that the external environment has brought us in the first half of this year, as well as our response. During the first half of this year, facing external challenges and microeconomic uncertainty, we responded with great resilience and agility by leveraging our diversified service offerings.

by ensuring management capabilities and optimize the business operations. Going forward, we will continue to capitalize on our core expense while exploring innovative strategies to grow all of our product segments sustainably.

Since the beginning of the first quarter of this year, due to the impact of the pandemic, some of our cooperative manufacturers and free brands have been affected to a different extent by raw materials and production. The free-range brand persists on high standards and high requirements in product materials and origin. The development and equipment production of some products is affected. I will see you again in a few months.

The pandemic resurgence in the first quarter of this year affected the sourcing and production process of both our manufacturing partners and our own private labels. Not willing to relinquish the high standards we have set for our private label in terms of production materials and sourcing origins, we suffered the unavoidable delay in some of our new product development, production and resourcing.

It seems that in the past two years, we have broadened the category of free brands, especially the development of food and large healthy free brands, and filled the gap in the high-end mass-produced consumer goods industry. Currently, we have excellent free brand products in terms of free products and flexible demand. Because our new product development channel is more rich, many new patents have been developed during the epidemic. For example, free brands in large healthy brands Thank you.

is that the progress we've made over the past two years in private labels, especially in the categories of gourmet food and health supplements, has fully compensated our prior deficiency in high purchase frequency consumer staples. Fortified by our robust and abundant product development channel, we successfully launched new Max Heat products even during the pandemic recovery, thus establishing a firm foothold in both consumer discretionary and consumer staples categories. For example, in our private label health supplements category, we recently introduced a slew of new products, including multivitamin candy, European-style bread, and toothpaste. Each of these qualities addresses consumers' desire for health and beauty from a different angle. They synchronize with the demographic profile of an elementary community in a greater health vertical, so perfectly that they were able to easily achieve a single-day million RMB sales record.

In the food industry, we have developed Western-style Italian noodles, Chinese-style hand-pulled pancakes, and other new products to satisfy more different food preferences and enrich the table of the mothers. For some of the common products on the table, we have also made health upgrades, such as the milk and eggs that the mothers like very much. In the milk products, we have recommended to the mother-in-law users the free brand Mu Le Yuan's water milk, as well as ordinary milk. Water milk has a higher nutritional value and tastes better. In this food category, we have developed a novelty product such as specialty Italian pasta and a gourmet Chinese pancake to bring a greater value of entry to the users of young mothers and babies.

and to better satisfy their diverse food preferences. We have managed to add a health and a nutrition flag even to the most commonplace consumer staple, such as milk and eggs. For example, we recommend to young mothers a back row milk for their private label and which offers high nutritional value and a better taste than cow's milk. And also, under the Yunji Fly Certification Program, we recommend to use several of the fresh, free-of-sand antibiotics and hormones to ensure the safety for the entire family.

In the face of the COVID-19 pandemic, Yunji's food industry has raised awareness among Shanghai citizens. The social responsibility of the labor and enterprise is to contact local suppliers in Shanghai as soon as possible. together with our service manager to organize the purchase of consumer goods. The order amounted to nearly one million yuan that day. We are also very grateful to the suppliers who have worked with us for many years for the support of Yunji Food and Yunji Shanghai users. The supplier has always been a close partner of Yunji in the food industry and has been welcomed by Yunji users, with a good performance of 10 million sales per day.

We sympathize with the Shanghai residents. upheld our social responsibilities and responded promptly with religious measures. We immediately got in touch with a partner supplier of ours with a local storage facility in Shanghai, rallied our service managers to embark on a good purchase campaign and a fulfilled order tailing close to 1 million RMB within the first day of the lockdown. I would like to take this opportunity to publicly express our sincere gratitude to this kind of supplier for its unwavering support to ING and to our Shanghai-based users. This supplier has been collaborating with us in the food business for years. Its wide popularity with our users has garnered a sales record of 10 million Bs within a single day.

In the case of offline activity, We actively explore the online and offline expansion. We have chosen the beauty brand as the pioneer. Through short video marketing, we help beauty brands to become more popular. We believe that good content can be dragged out and left to the user. Under the efforts of the live broadcast team, several brands have successfully emerged. Among them, the number of video broadcasts of JME products has exceeded millions of times, attracting a large number of new customers from different fields. Currently, most of the apartment sales of private companies are made up of third-party live platforms. Live platforms already have a stable daily sales.

While the Pan-Sum made the decision to restrict the offline promotional activities, we have also actively explored alternatives such as expanding our online marketing events to third-party platforms. Having chosen cosmetics as our priority category, we utilized the short video marketing to successfully enhance the brand awareness and probably the visibility of our private label cosmetics products. With the result, only high quality content can stand above quote, stand over competition, and increase user loyalty. Our bullying is validated by the success case of a friend, Su Yan, of the crowd-labeled cosmetic series. Through the high-volume marketing video produced by our live streaming team, Su Yan debuted online with them. As a short video about the existing gel products, garnered millions of user views and attracted a crowd of new customers from various coupons. As of now, our private label products have achieved the majority of their public sales through third-party marketing platforms and maintain a steady daily sales volume.

Our development has grown exponentially. In the past few months, in order to reduce the gathering, we have reduced a lot of offline activities. We have translated more training and interaction into the online world. We regularly launch professional達人, online knowledge sharing and live interaction activities in various vertical fields, so that our service managers can also attend online classes and continue to improve themselves and grow together with the cloud.

Our business growth goes hand-in-hand with the development of our service managers. During the past few months, to comply with pandemic restrictions, we were forced to cancel many of our offline events and move our interactive training sessions online. We have produced the out-of-work knowledge sharing and aspect interaction sessions. through live streaming so that our fellow managers can attain online education, improve their skills, and grow with us continually.

With that, I will turn the call over to Mr. Peng Zheng, our Vice President of Finance, to go through the financial results.

Thank you.

Thank you, Shangyuan. Hello, everyone. Before I go through our financial results, please note that all numbers stated in the following remarks are in RMB terms, and all comparisons and percentage changes are on a year-over-year basis unless otherwise noted. It has been a difficult start to 2022, with the recurrence of COVID causing lockdowns in Shanghai and stricter pandemic prevention and control measures in many other regions. Despite challenging market conditions, our repurchase rate remained stable at 80.2% and our gross margin improved both on a quarter-over-quarter and a year-over-year basis. We managed our costs efficiently by diligently optimizing the cost structure of our self-operated private label products, thus demonstrating our business resilience in the face of macro headwinds and supply interruptions. As a result of this resilience, we were able to achieve positive operating margin of 0.6% for this quarter, compared to a negative operating margin of 2.9% a year ago. In addition to achieving breakeven to positive operating margins for four consecutive quarters, our cash position is strong enough to allow us to navigate through the market downturn and uncertain macro environment. Now, let's take a closer look at our financials. Total revenues were $343 million compared to $675 million a year ago. Revenues from sales of merchandise were $291 million and revenues from our marketplace business were $47 million. This decrease was primarily due to outbreaks of COVID during early 2022. These COVID outbreaks lead to temporary lockdowns and delays in production and operation of our suppliers especially private label suppliers, third-party merchants, third-party logistics service providers and other business partners. This created temporary shortages of certain merchandise and delays in logistics service as well as delays to our private label suppliers' research and development and new product launch processes. This has negatively affected and may continue to negatively affect our revenues and operations depending on the future direction of the pandemic. Nevertheless, we improved our gross margin to 44% compared to 35% a year ago as a result of successful execution of our product curation strategy and excellent performance of our private label product. Now let's take a look at our operation expenses. Fulfillment expenses were $49 million compared to $65 million a year ago. This was primarily due to reduced personnel costs as we refined our staffing structure and lower service fees charged by third-party payment settlement platforms. Sales and marketing expenses were $51 million compared to $96 million a year ago, mainly due to the decrease in member management fees. Technology and content expenses were 24 million compared to 38 million a year ago. The decrease was mainly due to reduced server costs and lower personnel costs as we optimized our staffing structure. General and administrative expenses were 31 million compared to 74 million a year ago. This was primarily due to a decrease in share-based compensation expenses and reduced the personnel cost as we refine our staffing structure. Total operating expenses in the first quarter decreased to $155 million from $273 million in the same period of 2021. We recorded an income from operation of $2 million compared to a loss of $20 million a year ago. Net loss was $37 million compared with net loss of $4 million a year ago and adjusted net loss was $31 million compared with adjusted net income of $17 million a year ago. This was due to financial loss, which was a mark-to-market investment loss rather than a cash loss. Basic and diluted net loss per share attributable to ordinary share holders were both $0.02 compared with new in the same period of 2021. Moving on to liquidity, As of March 31, 2022, we had a total of $743 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet. Our accounts payable reduced to RMB $203 million as of March 31, 2022, compared with RMB $255 million as of December 31, 2021. Our liquid assets were sufficient to cover our payable obligations and we did not hold any long-term bank loans or debts on our balance sheet. Despite near-term macro uncertainties, we are confident that our resilient business model and our new product curation and supply chain depreciation strategies will allow us to optimize our entire business cost structure and help us to navigate the current challenges through agile and flexible operations. This concludes our prepared remarks for today. Operator, we are now ready to take questions

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star, then 2. When asking the question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone on the At this time, we will pause momentarily to assemble our roster. The first question today comes from Journey Chan, a private investor. Please go ahead.

Let me quickly translate myself. Can management comment about the impact of the pandemic to our business performance in second quarter? And can you share your views on the recovery of consumption after epidemic? Thank you.

Thank you for your question. There is still great uncertainty about the impact of this epidemic on the second quarter. The company operates efficiently with a very defined service offering.

with various business lines going hand-in-hand. Also, we have a solid financial foundation to resist the risk.

Even in the end of May, logistics efficiency and cross-border transportation recovery are still relatively slow. Yunji will closely monitor the dynamic of the epidemic, properly adjust the warehouse and cooperate with logistics companies, and work hard to serve more consumers.

Till the end of May, the recovery of logistic tunnels and cross-border transportation 1st and 2nd generations, some of the new products' development and stocking have been affected to a certain extent. The development of new products in the first generation has been polished by the whole company and its partners.

Every new product will go through the original source, factory and planting site actual inspection, multiple testing, testing, evaluation and multiple sampling. The recent demand and logistics restrictions have affected the development and stocking of some of our new products. Some samples designed for cross-border logistics are also delayed to a certain extent. Fortunately, after two years of hard work, Yunji currently has several teams operating different types of free brands, and has been under the pressure of new products development.

During the end of the first quarter and the second quarter, the development of stocking of some new products were affected. The development of the latest new products has undergone multiple processes to help the company and its partners. Each new product will go through onsite inspection, multi-party evaluation, and multiple proofing. Wind travel and logistics restrictions have affected development and stocking of some of our new products, and some sample shipments involving cross-border logistics have also been delayed. Fortunately, after nearly three years of hard work, B&G Franklin has multiple teams operating its private brands of different categories, showing the impression of new product development. In the first half of the year, we still have many new products broken through.

Regarding the issue of consumption recovery after the pandemic, we predict that it may have an impact on the product structure in the short term. According to the National Bureau of Statistics, the consumer's demand for flexible products has not been restored. After this epidemic, we expect that the demand for fresh products will increase. And our Yunji Food Free Brand and supplier partners are able to meet the consumer's demand for health and food. We look forward to sending Yunji-special food to consumers all over the country after the logistics crash.

Regarding the recovery of the consumption of the epidemic, we think it may have an impact on the commodity structure in the short term, according to the survey of the National Bureau of Statistics. The elastic demand has not recovered yet. After the epidemic, we decided that users' demand for the soft-turning of the elastic products will increase, and the injury prevalence will increase. are able to meet consumer demand for healthy food. We look forward to delivering green juice landmark food to consumers all over the country after the project is done.

Thank you.

Thank you.

Since there appears to be no further questions at this time, I'd like to hand the conference back to management for any closing remarks.

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. Bye.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.