Yunji Inc.

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Yungi's Third Quarter 2022 Earnings Conference Call. With us today are Mr. Shenglu Zhao, Chairman and Chief Executive Officer, Mr. Peng Zong, Vice President of Finance, and Ms. Kay Wu, Investor Relations Director of the company. As a reminder, this conference call is being recorded. Now I would like to hand the conference over to our first speaker today, Ms. Kay Lu, IRD of Yunji. Please go ahead, ma'am.

Hello, everyone. Welcome to our third quarter 2022 earnings call. Before we start, please note that this call will contain forward-looking statements within the meaning of the Private Security Liquidation Reform Act of 1995 that are based on our current expectations and current market operation conditions related to events that involve known or unknown risk. uncertainties, and other factors of Yunxi and its industry. These forward-looking statements can be identified by the terminology such as will, expect, anticipate, continued, or other similar expressions. For detailed discussion of these risks and uncertainties, please refer to our related documents filed with USACC. Any forward-looking statements that we make on this call are based on assumptions as of today, and they are expressly qualified in the entirely by cautionary statement risk factors and details of the company's filing with SEC. Yunji does not indicate any application to update this statement if that is required on the applicable law. With that, I will now turn over to Shangrui Xiao, Chairman and CEO of Yunji.

Hello everyone, welcome to Yunji's third quarter in 2022 opening this morning. In the face of uncertainty in this quarter, we will focus on self-improvement, including the ability to improve customer service, the ability to serve entrepreneurs, the ability to develop free brands, optimize our product structure, and be fully prepared for sustainable high-quality development. In the third quarter, as a standard for traditional e-commerce, we have more time to improve our own technology and services, and use the product as the core, and use short videos as the main expression, exploring the possibilities of e-commerce.

We once again faced a volatile and uncertain microenvironment during the third quarter. Against this backdrop, we dedicated ourselves to improving our capabilities while reinforcing our business' sustainability. We launched a variety of initiatives, including enhancing our service provision, augmenting our private label product development process, and optimizing our inventory structure. This timely and agile response has elevated our resilience and put us on the path to sustainable high-quality growth. In addition, we took advantage of the e-commerce sector's usual third quarter off-season to further evolve our innovative technology and upgrade our services. As in time, we deepened our exploration of e-commerce potential by focusing on our mega-heat products and driving the use of short videos as our main consumer marketing tool.

Let's take a look at our product selection strategy. Consumers are switching away from well-known global labels and are purchasing a more diverse range of friends.

We responded to these emerging trends by realigning our product selection strategy to focus on high-quality domestic brands at competitive prices and market-heated products in live streaming channels. Through continual analysis of our core users' consumption habits and pricing preferences, we have maintained a relatively high repurchase rate despite the current micro headwinds. Furthermore, by refining the details and accuracy of our product descriptions, we fostered the mindset of a carefully considered purchase decision, allowing us to successfully maintain a low product return rate.

At the marketing end, entrepreneurship is one of the core values of Yunji, especially reflected in the emphasis on women's entrepreneurship and self-improvement. In an environment of high employment pressure, Yunji develops tools, On the marketing side, entrepreneur-oriented has always been one of our core values, especially when it comes to empowering women to launch businesses and enhance their lives through self-improvement.

In a current environment where employment prospects are uncertain, we further invest in our service managers by developing innovative features that make sharing increasingly convenient, efficient, and fun. Furthermore, we reinforce their competence in their chosen career by encouraging them to work hard and earn more. As a result of these initiatives, our service managers' sales conversion rates have steadily increased.

On the expression of sales, after three weeks of preparation, Yunji officially launched Yunji e-shop. Yunji e-shop is a functional version developed for entrepreneurs. The traditional pattern sales and the live content with higher thresholds are concentrated into a faster and simpler sales short video. Cooperating with Yunji e-shop's service insurance allows consumers to enjoy high-quality, high-price products, allowing brands to accurately, efficiently,

Turn into our marketing promotions. Following the in-depth preparation during the third quarter, we officially launched our ING Dynamic Showcase for service managers. The showcase runs traditional graphical marketing content and live streaming, creating short promotional videos for featured products. By integrating these innovative marketing tools with our platform service guarantee, We deliver affordably priced, high-quality products to customers while providing brands with a low-cost solution to promote their products more efficiently and accurately.

云集小店的选品上,除了自由品牌和美食外, 云集从Top100的直播间选出爆款,快速反应,集合到云集平台。 云集的服务经理们可以在云集小店爆款之中查看商品详情, dynamic showcase.

plays a key role in helping our service managers to sharpen their focus on serving our users. The showcase features a wide product selection selected from our private labels, our range of gourmet food, and trending market products from the top 100 live streaming channels. Our service managers can export the showcase products, choose those they are interested in, and synchronize them with my showcase function. Our innovative one-click function allows service managers to effortlessly generate product-related content to share with users or on social media. On the other hand, our technological innovation improves service managers' efficiency by saving them time and energy. On the other hand, it makes it easier for them to generate sales, allowing service managers and young mothers to boost their incomes through our platform. We are confident that range-economic showcase, leveraging offshore video marketing, will foster users' sharing behavior and increase user engagement time.

The impact of the pandemic this year should be the biggest in the past three years. Especially in terms of travel, the short-term pandemic is still very severe. The economy and consumption are still facing greater challenges. We also saw opportunities for development in the challenges. In the past, we have heard a lot of positive voices.

This year the impact of the COVID-19 will probably be the most severe we have seen since the pandemic began. This is especially true when it comes to our fulfillment services. In the near term, the situation remains severe and the turbulence will weigh on consumption and the microeconomy. Among these challenges, there are also reasons for optimism and opportunities for growth. We still hear many positive voices, and our users continue to value their health, still love to eat delicious and nutritious food, and will always enjoy cultivating hobbies. 用户对于健康美丽生活的向往是我们自由品牌情精的原动力。

The driving force behind the development of our private label brand

has always been our users' desire for a healthy and a beautiful life. We have made a substantial progress in developing our private labels and their popularity continues to grow. During the recent W11 Shopping Festival, they were the most in demand brands in the cosmetics and healthcare categories on our platform. Our healthcare brand introduced a slew of new offerings, including liver and kidney care products, augmenting our product metrics to better satisfy the healthcare needs of our users. For example, our friends, the Amina Leaf Tablets garnered over 10 million RMB sales in a single day during their initial and follow-up rounds of the sales.

In the food-free brand, we tried more flavors and types of food. From rice to white wine before the business fair, We have continued to innovate and iterate

in our gourmet food category by introducing more flavors and a wider choice of products. These unique offerings range from family tables, such as rice to Chinese liquid for business banquets, allowing us to capture the full spectrum of the user demand to better satisfy users' diverse food preferences. We have expanded our gourmet food private label product metrics. Our offerings now include well-known products such as European-style bread and other items that our service managers promote and introduce to our users. For example, Baiyueshan freeze-dried sea buckthorn powder was originally a niche health food, largely unknown to our users. Thanks to our promotional efforts, it became a sensation, generating over 5 million RMB in sales during the launch day.

The tree leaf brand has celebrated its 12th anniversary. In early 2016, the tree leaf cooperated with the Henan Huangjia Disman Group and studied thai ingredients for many years, and developed anti-dust products around the ingredients that are strong and effective. The production of medical ingredients and service products is also slowly taking shape. During the anniversary ceremony, the total sales of the tree leaf brand broke 21 million. The tree leaf is the main force of the makeup brand in the strategy of Yunji Free Brands. I hope that the tree leaf will become a faithful partner for women in the field of anti-dust.

During the third quarter, our tech-empowered travel label, Sujie, celebrated its 12th anniversary. Since 2016, Sujie has partnered with a Dutch company to research peptides and develop a wide variety of anti-aging products that better meet people's skincare needs. Notably, these products contain professional ingredients specifically found in medical aesthetics. We were delighted to see that Suye generated over 21 million RMB in sales during its anniversary month, showing high user demand for quality products that deliver innovative and effective anti-aging solutions. Suye has become the go-to choice for women's anti-aging products and the cornerstone of our private label beauty brand strategy.

Recently, the country has released many good news related to precision prevention. Looking ahead, we are confident that the current challenges will be transversely. As I just mentioned, we see clear reasons for optimism, and we were encouraged by China's recently optimized COVID-19 controls.

People will always want a better life and we stand ready to serve more and more families going forward. With that, I will turn the court over to Mr. Zhang Hong, our Vice President of Finance, to go through the financial results.

Thank you, Shangyue. 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. During the third quarter, we faced a volatile microenvironment and ongoing pandemic controls, both of which presented challenges to our business. In response, we further refined our product selection and optimized our relationships with suppliers, sacrificing near-term sales while building a solid foundation for our company's long-term success. Our repeat purchase rate remains stable at 79% and we once again improve our gross margin. Beyond this, operating expenses and total cost of revenues both declined as we continue to optimize the cost structure of our business. We finished the quarter in a healthy cash position and this combined with our persistent focus on efficient operations will allow us to continue to weather an unpredictable market. Going forward, we will continue to reward our shareholders through share buybacks. Now let's take a closer look at our financials. Total revenue were $239 million compared to $438 million a year ago. Revenues from sales of merchandise were $197 million, and revenues from our marketplace business were $38 million. This decrease was primarily due to the company's continued strategy to refine its product selection across all categories and optimize its selection of suppliers and merchants, causing near-term decrease in sales. Consumers' willingness to spend on discretionary products in 2022 has also declined compared with that in the same period of 2021. Despite these challenges, we improved our gross margin to 49.4% compared to 43.2% a year ago as a result of sustained customer loyalty to our private labels and the effective product curation strategy. Now let's take a look at our operating expenses. Fulfillment expenses were 37 million compared to 41 million a year ago. This was primarily due to reduced warehousing and logistics expenses due to lower merchandise sales and decreased service fees charged by third-party payment settlement platforms. Sales and marketing expenses were 47 million compared to 60 million a year ago. This was mainly due to the reduction in personnel costs as a result result of staffing structure refinements and a decrease in member management fees. These reductions were partially offset by increase in private label promotion expenses. Technology and content expenses were $17 million compared to $29 million a year ago. The decrease was mainly due to the reduction in personnel costs as a result of staffing structure refinements and reduced cloud service server costs. General administrative expenses were $38 million compared to $65 million a year ago. This was primarily due to reduced personnel costs as a result of refinement to our staffing structure, lower professional service fees, and a decrease in share-based compensation expenses. Total operating expenses in the third quarter decreased to $139 million from $194 million in the same period of 2021. We recorded a loss from operations of $18 million compared to an income from operations of $18 million a year ago. Net loss was $38 million compared with net income of $61 million a year ago, while adjusted net loss was $30 million compared with adjusted net income of $76 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders were both $0.02. compared with basic and diluted net-in earnings per share attributable to ordinary shareholders of $0.03 in the same period of 2021. Moving on to liquidity, as of September 30, 2022, we had a total of $571 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet, compared to $645 million as of June 30, 2022. 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 the persistent challenges of today's macro environment, we are confident that our efforts to optimize costs, refine our business model, improve product curation, and ensure high-quality service for our users will serve us well now and into the future. We have made steady progress in our quest for long-term, stable growth, and we will continue to adjust our business strategies to offer maximum 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 touch-tone phone. If you are using a speakerphone, we ask that you 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, and then repeat your question in English for the convenience of everyone on the call. Today's first question comes from Ethan Yu at First Trust China. Please go ahead.

Let me make a quick translation. Thanks for taking my question. Recently, there has been a lot of good news about China easing the COVID policies. Could you comment on this trend and tell us more about what measures will the company do to grab this opportunity of a possible recovery in consumer, in private consumption. Thank you.

Thank you for your question. There are certainties and uncertainties in the recovery of the epidemic. First of all, in terms of certainties, we believe that the most difficult time of the epidemic is about to pass. In terms of uncertainties, as a comprehensive e-commerce, customers from 1,000 cities such as Beishangguang to Inner Mongolia and other remote areas in Xinjiang are covered. Thank you for your question.

The recovery of the epidemic has been uncertainty and uncertainty. First of all, in terms of certainty, we believe that the most difficult time of the epidemic is about to come. In terms of the uncertainty, As a comprehensive e-commerce platform, Yunji has a wide customer base from the first tier cities such as Beijing, Shanghai, and Guangzhou to remote areas such as Xinjiang and inter-Mongolia. We believe that the recovery of consumption will not be explosive, but an oddly slow, uneven recovery based on regions and product categories.

From the supply chain side, the supply chain of our private label is relatively easy to grasp.

and we will flexibly adjust the production and marketing strategies of various categories according to the recovery situation. For the third-party supply chain, as a highly curated platform, our high-quality best-seller pool can quickly adapt to the market changes.

From the market's habits, I believe that in the three-year epidemic, consumers' sense of crisis will not go away so quickly. In the short term, must-have goods, From the perspective of the market habits,

I think that after three years of the epidemic, consumer's panic will not fade away so quickly, and the stocking demand for the necessities may still exceed the demand for the dispersionary products in the short term. In addition, global economic depression this year are not only affected by the epidemic, but also factors such as climate change and international relations. In the long run, we still believe in users yearning for a better life we will enhance our business and management capabilities and maintain a healthy financial position to cope with the challenges and opportunities brought by the micro-environment.

Thank you.

Thank you, Shanwei. Thank you. I have one more question. Thank you.

Thank you. And ladies and gentlemen, as there are no further questions at this time, I'd like to hand the conference back to the 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. Thanks. Bye.

This conference is now concluded. Thank you for attending. You may now disconnect.