Yunji Inc.

Morning and good evening, ladies and gentlemen. Thank you and welcome to Yungi's second quarter 2022 earnings conference call. With us today are Mr. Shang-Lu Zhao, Chairman and Chief Executive Officer, Mr. Peng Zong, Vice President of Finance, and Ms. Kate Liu, Investor Relations Director of the company. Now I would like to hand the conference over to our first speaker today, Ms. Kate Liu, IRD of Yungi. Please go ahead, ma'am.

Hello, everyone. Welcome to our second quarter 2022 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 operation conditions and relate to events that involve known or unknown risks, uncertainties, and other factors of the industry. These forward-looking statements can be identified by the terminology such as wealth, expect, anticipate, continue, or other similar expressions. For detailed discussion of these risks and uncertainties, please refer to our related documents filed with US SEC. Any forward-looking statement that we make on this call will be based on assumptions as of today and are expressly qualified entirely by the cautionary statement, risk factors, and details of the company filing with SEC. Please do not undertake any application say this statement is set as required on the applicable law. With that, I will now turn over to Shangyue Xiao, Chairman and CEO of Yunji.

Hello everyone. Welcome to Yunji's 7th Quarter 2022 Earnings Call.

We have been through a challenging and uncertain second quarter.

Today, in the first half of the year, the epidemic broke out in many places, and many important cities across the country implemented strict protection measures. The company is responsible for the corporate and social responsibility to ensure the experience of travel, and to deliver the necessary materials to customers in time. We actively coordinate logistics resources, and exchange courier companies such as Shunfeng Expressway for some areas, and we exchange and exchange goods for some products.

During the second quarter, we successfully navigated through the authenticity and the volatility brought about by the challenging micro backdrop. Wide-thread resurgence of the pandemic and related control measures affected a number of major cities across China. In the face of these highways, we retained our focus on optimizing our platform's user experience while upholding our social responsibility. to ensure users received outstanding fulfillment services and timely delivery of the urgently needed orders. We nimbly and proactively deployed our logistic resources. For example, in some networks, we switched our express delivery service to those providers, such as , whose service remained unaffected by the pandemic. Furthermore, we optimized our inventory structure by transferring products between warehouses to ensure they are ready, available to people, delivered to users.

At the same time, we have also been affected to a certain extent by the supply chain, especially the customs and factories in the areas where the epidemic is serious. Unfortunately, some of the products have not been sold on time according to the original plan. Since June this year, the supply chain and cross-border logistics have gradually recovered, As in China, our supply side was also affected by the macro headwinds to a certain extent. In 2020, some products could not be released from

customs or shipped out from factories in those regions severely affected by the pandemic. Unfortunately, this means that these products were not available for purchase on our platform during the originally planned promotional period. Since June this year, the situation has quickly improved and our supply and cross-border logistics chains have both gradually recovered. Our private label product inventory has now been delivered, securing sufficient stock for merchandise sales during the Nasdaq quarter. Furthermore, we have taken pre-amateur measures to mitigate potential future COVID-related supply chain disruptions by increasing our inventories of private label products and cross-border merchandise.

In the past 100 years, we have adhered to the strategy of free brands, actively enriching brand content, and developing new products that are more suitable for target users. Big health brands have made up for During the first half of this year,

We adhered to our strategy of developing exclusive private label products, actively enriched our productive offerings, and developed a variety of fresh user-centric products. Our big health brand continues to contribute to the diversification and enrichment of the product category. During the first half of 2020, we developed more than 10 original new products for wave management, skincare and body revitalization under our travel label. These innovative products are scheduled to be launched in succession on our platform. Meanwhile, we upgraded our product formulas with positive results. Our second generation food and vegetable press candy reaching the milestone of 5 million sales within one minute and 10 million sales within 20 minutes upon its launch on June 14, 2022.

And our skincare brand, SUYE, has made some new attempts in the field of content marketing and free brand launch. We have hired a well-known female star in China as the online spokesperson for the new product of Shuiguang skincare products. Based on this, SUYE team has produced many attractive short videos to improve the brand power online and offline, and has attracted more people from all over the world. I believe that in the future, these flows will On the cosmetic front,

We carry out fresh content marketing and brand development initiatives for our travel-able skincare brand, Suye. As part of these efforts, we appointed our popular Chinese female celebrity as the brand's spokesperson for our new product line, containing ingredients used in mesotherapy treatments. In addition, Suye's marketing team produced a number of engaging short videos. These videos successfully boosted online and offline brand awareness and attractive beauty levels from both our own and third-party platforms. We are confident that these augmented traffic flows will serve as a solid foundation for future product commercialization. During three years, 12 anniversary celebrations will launch a number of the new skincare products that contain ingredients used in medical aesthetics under the three-year brand, generating over 21 million RMB sales during the anniversary celebration promotions.

Yunji only has the brand Juzhengzhou. The other core is food. Our intention to make Yunji's food is to hope that our users can gradually get out of the warehouse and eat all kinds of food in the world. We extend this vision to short video content marketing. China is a big country. Each place has its own special taste. We update the theme food sharing video of each person's hometown dish on the video number every week. Food is another strategic focus.

within our private label brand metrics. Our original brand concept for Gu Mei Yun Ji was to enable our users to enjoy delicious food from all over the world without having to leave their home. This concept was also visually illustrated and amplified in our food category's short video marketing content. China is a vast country with abundant resources. and each region possesses its own unique cuisine. We updated our social media account on a weekly basis, with videos streamed around sharing a dish from my hometown. This stream is designed to involve viewers' nostalgia with hometown tastes while stimulating their interest in delicious food from diverse locations. Currently, each shot video on our Gu Mei Ling Ji official account on third-party platforms received around 1 million views constantly. We will continue to invest in content development on our own and third-party platforms. We are confident that our compelling marketing content will substantially improve brand awareness and create a significant value in the near and long term.

The pandemic has also caused a change in the public's consumption mentality. In an uncertain red-light environment, Meanwhile, the pandemic has brought about certain changes

in consumer behavior and mindset. Faced with an uncertain microenvironment, consumers are increasingly cautious with personal expenditures. As a result, market demand for discretionary products has declined. As a social e-commerce platform that maintains close relationships with its users, we aim to provide a valuable and trustworthy service that exceeds expectations. As in time, we constantly try to provide more attractive services to inspire customers. As such, we have enhanced our own service system while launching more value-added services.

We have upgraded the services in the large health vertical community. In some active communities, we have organized four nutritionist consultations and evaluation services. In these four services, we have arranged professional nutritionists in various vertical communities. We upgraded service provision in our healthcare category community groups by piloting a nutritional consulting service.

where users are provided with professional advice and feedback. For the pilot service, we designated professional nutritionists to cover each community group and organized a nine-line streaming group closet with a team of professionals and sports experts. During this period, 90.6% of the trial users were successfully retained and they engaged with nutritionists on a daily basis.

Looking ahead, in order to deliver ever higher levels of service to our users,

We will increase investment in the development of service managers during the second half of this year. Having implemented various strategic initiatives to reduce costs, improve operating efficiency, and develop private label brand products over the past year, our growth margin has improved significantly. This improved growth margin enables us to increase service managers' income as an incentive to reward outstanding performance.

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

Thank you, Shangyuan. Hello, everyone. Before I go through our financial results, please note that all numbers stated in following remarks are in RMB terms, and all comparisons and percentage changes are on a year-over-year basis, unless otherwise noted. During the quarter, we were once again faced with the resurgence of COVID-19 and associated lockdown measures in Shanghai and across the country. Compared to the same period last year, Our repurchase rate remained relatively stable at 79% and our gross margin improved, even in the face of these headwinds. We intensified our focus on optimizing cost structures and developing our private label brands, enabling our business to navigate safely through the present micro uncertainties. Furthermore, we invested in our fulfillment partner base to ensure the delivery of products even within areas under strict pandemic control measures. Our cash position remains strong enough for us to successfully steal through the current market downturn and adverse economic environment. We will continue to reward our shareholders through share buybacks. Now let's take a closer look at our financials. Total revenue were $284 million compared to $571 million a year ago. Revenues from sales of merchandise were $237 million and revenues from our marketplace business were $42 million. This decline in revenues was primarily the result of continued COVID outbreaks, particularly during April and May. The pandemic-related lockdowns disrupted our supply chain, with our third-party suppliers, merchants, and logistics service providers being particularly affected. Consumers' willingness to spend was also impacted, with uncertain macro conditions. fostering desire among consumers to save rather than spend. These factors combine to create merchandise shortages, logistical delays, and stagnating consumer demand, all of which negatively affected our operations during the first half of 2022. Their continued impact depends upon the future direction of the pandemic. And though we are seeing signs that the worst of the pandemic is behind us, we will remain vigilant and respond nimbly to further developments. Despite these challenges, we improved our growth margin to 40.6% compared to 35.1% a year ago as a result of sustained customer loyalty to our private labels and effective product duration strategy. Now let's take a look at our operating expenses. Fulfillment expenses were 43 million compared to 50 million a year ago. This was primarily due to lower warehousing and logistics costs resulting from a reduction in the quantity of merchandise sold as well as reduced service fees from third-party payment settlement platforms. These savings offset the heightened logistics costs that resulted from us maintaining our supply chain flexibility during the pandemic lockdown period. Sales and marketing expense were $58 million compared to $61 million a year ago, mainly due to the decrease in member management fee, which was partially mitigated by an increase in private label promotion expenses. Technology and content expenses were $24 million compared to $32 million a year ago. The decrease was mainly due to the reduction in personnel costs as a result of staffing structure refinements and reduced server costs. General and administrative expenses were $32 million compared to $43 million a year ago. This was primarily due to reduced personnel costs as a result of refinements to our staffing structure and professional service fees. Total operating expenses in the second quarter decreased to $157 million from $187 million in the same period of 2021. We recorded a loss from operations of $30 million compared to an income of $16 million a year ago. Net loss was $25 million compared with net income of $17 million a year ago, while adjusted net loss was $17 million compared with adjusted net income of $24 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders were both $0.01. Compared with basic and diluted net earnings per share attributable to ordinary shareholders one cent in the same period of 2021. Moving on to liquidity, as of June 30, 2022, we had a total of $645 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet. Compared to $743 million as of March 31, 2022, the decrease was partially caused by cash use in our share repurchase program. 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. On March 17, 2022, we announced our 2022 share repurchase program. As of June 30, 2022, we have repurchased over 6 million American depository shares, representing over 60 million Class A ordinary shares from the open market with cash for an aggregate aggregate amount of approximately 7 million. Furthermore, our board of directors has approved an extension of the repurchase program for another six months. We intend to continue to be optimistic in repurchasing shares when we view our stock price as disconnected from the underlying fundamentals of the business. While we face the significant macro challenges in the first half of 2022, We are confident that our resilient and flexible business model, updated supply chain, improved product curation, and optimized cost structure will power growth regardless of future alternatives. We have achieved solid progress and we expect to carry the optimized cost structure into the post-pandemic year, which we believe will bring long-term value to our shareholders. 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 touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. 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. At this time, we will pause momentarily to assemble our roster. Again, if you have a question, that's star one. Our first question comes from Ethan Yu from First Trust China. Please go ahead.

Thank you for accepting my question. Thanks for taking my question as a rant. Including the past June 18 promotions, GMVs via short videos and live streaming are growing rapidly. Could you share some colors or views on this trend? Thank you.

谢谢您的提问。 Thank you for your question. Live streaming is not a new format, and we have done a lot of attempts. For us, live streaming is more like accountant marketing than direct sales, especially for private label promotion. Marketing comes in many forms. and we believe that high-value groups and supply chains are the cornerstones of sales.

In fact, content marketing is something that we have been doing since the founding of Yunji, and it is also something that we pay great attention to. Whether it is pictures or videos, it is very important for the transmission of information. We have a group of parents and service managers who love to share, and it is also a sharing of content. In SaaS content marketing, it is what Avingi has been doing since establishment, and we have focused on this area a lot. Actually, either the photos or articles

They are the important channels for us to deliver the information. We have a group of mother users and service managers who love to share shopping experience. That is also a kind of content sharing. Live streaming and short videos make sharing more vivid. We are more than welcome to afford live streaming and short videos as a sharing method to bring fancy content and shopping experience to users.

Recently, our third-party platform has a lot of video accounts for Yunjin American Food. The video account will publish interesting content every week. It has a lot of millions of broadcasted short videos. After that, we will also try to deliver live in the video account. We mainly promote our free brand products and our Yunjin certified high-quality supply chain products.

Rimsley Gourmet Yunji official account on third-party platform has grown rapidly. The account outputs interesting content every week and has many short videos that receives around 1 million views constantly. Later, we will also try to organize live streaming sales on these accounts to promote private label products and Yunji's deluxe high-quality supply chain.

I hope these useful videos So we hope that these high quality contents and efficient live streaming could bring more value to our platform and users.

Thank you. Thank you.

Again, if you have a question, please press star, then 1. There are no further questions at this time. I'd like to hand the conference back to management for 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.

The conference has now concluded. Thank you for attending today's presentation.