Yunji Inc.

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Yungi's first quarter 2023 earnings conference call. With us today are Mr. Xiong-Le Zhao, Chairman and Chief Executive Officer, Mr. Peng Zong, Vice President of Finance, and Ms. Kay Liu, 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 Liu, Investor Relations Director of UNG. Please go ahead, ma'am.

Hello, everyone. Welcome to our first quarter 2023 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 during the industry. This forward-looking statement can be identified by terminologies such as well, expect, anticipate, continue, or other similar expressions. For a detailed discussion of these risks and uncertainties, please refer to our related document file with USFCC. Any forward-looking statements that we make on this call are based on assumptions as of today. And I personally qualified entirely by cautionary statement, risk factors, and details of the company filing with ICC. Yunji did not undertake any obligation to update this statement, except as required by applicable law. With that, I will now turn over to Shang Liu, Chairman and CEO of Yunji.

Hello, everyone. Welcome to Yunji's first quarter of the call call conference in 2023.

Hello, everyone. Welcome to Yunjie's first quarter 2023 earnings table. I'm delighted to announce that we celebrate our eighth corporate anniversary on May 16, 2023. It has now been three years since the outbreak of COVID. And during the first half of this year, consumption has been gradually and steadily recovering. And at the same time, consumers have been yearning for more fulfilling and enriching lives. During our anniversary celebration with employees, partners, and service managers in attendance, we took the opportunity to announce an exciting new initiative, leveraging our brand and ready-for-community service competitive advantages. We will embark on a comprehensive exploration of gourmet food, beauty, and healthcare. We will delve into interconnectedness of these categories and their role in enhancing quality of life.

Local life is the growth trend of consumerism in recent years. In March of this year, we will upgrade our previous food and neighborhood groups to super supply chain projects. We use super supply chain to build a food cloud to serve the super supply chain leaders of community e-commerce, to bring high-quality food from all over the country and even all over the world through our super supply chain leaders to a 500-meter radius, so that each super supply chain leader is connected to the user every day and every hour. In the super supply chain project, the products that sell hot bags England, yes, local communities that I say.

have emerged as a new growth trend in the consumption sphere. In line with this trend, during March, we integrated our existing food and neighborhood groups into our community e-commerce service, Super Supply Chain. This service offers exclusive products to users with a particular focus on the gourmet food category. Super Supply Chain leverages super community leaders to bring a wide selection of affordable gourmet food from all over the country and around the world to users' doorsteps. Under this model, every super community leader is closely connected to users, residing within a 500-meter radius, facilitating high-frequency interactions on a daily or even hourly basis to encourage repeat purchases. The most popular products featured in the super supply chain will subsequently become available for regular purchase. Furthermore, we have set up an innovation department dedicated to expanding the reach of our community e-commerce service beyond our current community. This department will explore community e-commerce in untapped commercial networks and actually connect with new group leaders. Beyond expanding the scope of our service, these initiatives will build brand awareness, drive sales, and in the last two, deliver more comprehensive local community services.

In recent activities, I have seen many service managers from all over the country. They all love beauty and love life very much. Yunji hopes to protect their love of beauty, and to create more free brand products around the beauty from inside to outside. Currently, we already have free brand products that cover natural care, In the future, we are planning to find more possibilities on this beautiful track.

Due to recent offline events, I had the privilege of meeting service managers from all over the country. I was highly impressed by their professionalism, unwavering passion for beauty and a zeal for life. To further enhance our support for them, we are a community of developing and expanding our range of private label products that address both internal and internal beauty needs. At present, our diverse portfolio of private label products encompasses natural supplements, body management, oral care, hair loss prevention, skin care, personal care, and more. Going forward, we will actively explore further opportunities and possibilities in the realm of beauty, ensuring that we continue to meet the evolving needs of our users.

In the free brand field of mass consumption, In order to make cloud-based manufacturing reach thousands of households and suit more families, we have launched a new free brand, Meiji Green Oil. Meiji Green Oil is a new generation of healthy cooking oil. The content of the second oil is more than 50%. The goal of the fat-balance balance is to start a new revolution in the oil industry, which is indispensable in Chinese and American food. Healthy cooking oil is a new concept that requires a lot of user education. We use experts to interpret live broadcasts, offline press conferences, etc., In line with our strategy of a developing mass market, private label products are dedicated to a broader range of families and their diverse needs. We recently launched a brand new consumer product, Everyday Light Oil.

The product is a next-generation healthy cooking oil with diethylglycerol content of over 50% and a well-balanced composition of fatty acids. We developed the oil with the intention of making it an indispensable ingredient in Chinese cuisine, sparking a revolutionary change in the edible oil industry. Recognizing that healthy cooking oil is a relatively novel concept, We employed a number of strategies to promote it as a new and healthy lifestyle choice to our community and among our users. These strategies include app live presentations, offline events, and a combination of graphics, informative articles, and engaging short videos. Thanks to these efforts, Everyday Light Oil's launch was a resounding success, with sales exceeding 5 million units on its first launch.

A recent phenomenon is people's increasing consciousness of the importance of abusing

their own immune systems. Capitalizing on this trend, we are intensifying our efforts to develop health care products for our private label portfolio. These products empower individuals to pivot from a reactive health care approach to actively nurturing their health and well-being. During the first quarter, we saw a significant surge in usage amount for health care products. Within Qingzhi Yang Probiotics and Calcium tablets, proving to be especially popular. We proactively responded to this growing demand by launching a number of new offerings, including the addition of a crude oil to our product lineup.

In the first half of this year, we have been active in the market, holding offline salons, product summits, and online events. In March alone, we attracted more than 2,000 service managers. Since February, we have held On the marketing front,

We energized the community engagement in the first half of the year by holding a range of offline events, including Salon's production site visit and a new product launch ceremony. During the month of March alone, our activities garnered the participation of more than 2,000 service managers. Since February, we have organized a variety of events, including the Middling Sales Launching Plan offline kickoff meeting in Changsha, and this to Xinjiang where our own Youjiang private label milk is sourced. For our everyday life, we held a thousand-person study tour in Yunnan, giving participants a deeper understanding of the product. These events also foster mutual support and inspire individuals to embrace a healthy lifestyle, cultivating a stronger sense of belonging and collective pride among our citizens.

In addition, the company's research and exploration of AI nutritionists, AI customer service and AI community management are closely monitored by the research and development department. We plan to continue to launch these innovative projects in the second quarter to bring new experiences and more efficient services to users and service managers. AI nutritionists will provide individualized nutrition suggestions to users. AI customer service will provide efficient individualized customer support. AR community management will help us better understand community needs and solve problems in time. Yunji has tens of thousands of service managers and a large number of images and video materials. The training of this AR product provides a powerful information base. I believe that these resources can help us apply AR technology more effectively and bring more high-quality support and solutions to our business.

In line with our commitment to technological innovation, our research and development department is actively engaged in exploring and developing AI nutritionists, AI customer support, and AI community management. We aim to gradually roll out these initiatives during the second quarter, delivering a fresh experience and a more efficient round-the-clock service to our users and service managers. Upon their introduction, our AI nutritionists will provide personalized nutrition advice, ensuring that users receive tailored recommendations for their individual needs. By implementing AI customer service, we will rapidly and accurately deliver more efficient and personalized customer support. Furthermore, AI community management will help us to gain deeper insights into the needs and preferences of our community. allowing us to remotely address issues as they rise. With tens of thousands of service managers and a vast collection of graphical, textual, and short video content, we present an intensive set of resources that were set as a robust training center for our AI-powered services. By fully leveraging these resources, we can apply AI more rapidly and effectively and deliver high-quality support and solutions to our users. For our service managers, we provide more than just a job. We prevent a pathway to achieving a harmonious work-life balance. We are also committed to providing products and services that enable our users to live more healthily. Moreover, we are dedicated to offering opportunities to ordinary individuals while making it easier for people to lead. better and more fulfilling life. With that, I will turn the call over to Mr. Peng Zhang, our Vice President of Finance, to go through the financial results.

Thank you, Shang Niu. 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 presenting changes are on a year-on-year basis unless otherwise noted. After navigating the challenges of last year, we spent the first quarter of 2023 implementing a number of strategic upgrades to adapt to the post-COVID environment. Responding to shifting consumer trends, we refocused our private label product development to capture growing interest in immunity enhancement, allocating more resources for the cultivation of healthcare and nutritional therapy products. This initiative combined with other efforts such as online repurchase reminders, contributed to an 80.2% repurchase rate during the quarter. Meanwhile, our gross margin improved to 47.7% as our attempts to enhance user loyalty bore fruit. Despite pressure on our top line from our ongoing product mix requirements and optimization efforts, our net loss narrowed by 37.8% from the same period last year. and we recorded operating profit for the quarter. We are confident that our emphasis on efficiency and our ability to respond to emerging consumer trends leave us well positioned for the future. Now let's take a closer look at our financials. Total revenues were $179 million compared to $343 million a year ago. Revenues from sales and merchandise were $143 million and revenues from our marketplace business were $33 million. This change was primarily due to our continuous strategy to refine our product selection across all categories and optimize our selection of suppliers and merchants, which has a near-term impact on sales. Meanwhile, consumer confidence and spending power still have yet to fully recover. Despite these challenges, we improved our gross margin to 47.7% compared to 44.2% a year ago. This was the result of sustained consumer loyalty to our private labels and our effective product curation strategy. Now let's take a look at our operating expenses. Fulfillment expenses were 27 million compared to 49 million a year ago. This was primarily due to reduced warehousing and logistics expenses, due to lower merchandise sales, reduced personnel costs as a result of staffing structure refinements, and a decrease in share-based compensation expenses. Sales and marketing expenses were $30 million compared to $51 million a year ago. This was mainly due to a reduction in personnel costs as a result of staffing structure refinements, a decrease in member management fees, and a reduced business promotion expenses. Technology and content expenses were $13 million compared to $24 million a year ago. The decrease was mainly due to a reduction in personnel costs as a result of staffing structure refinements and reduced Cloud service server costs. General and administrative expenses were $15 million compared to $31 million a year ago. This was mainly due to reduced personnel costs as a result of staffing structure refinement, lower professional service fees, and a decrease in share-based compensation expenses. Total operating expenses in the first quarter decreased to $85 million from $155 million in the same period of 2022. We recorded an income from operations of $1 million compared to $2 million a year ago. Net loss was $23 million compared with $37 million a year ago, while adjusted net loss was $27 million compared with $31 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders were both $0.01 compared with $0.02 in the same period of 2022. Moving on to liquidity, as of March 31st, 2023, we had a total of $568 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet, compared to $669 million as of December 31st, 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. Looking ahead, we will take advantage of the post COVID recovery trend by cultivating our private label products while continuing to emphasize operational efficiency. We will foster synergistic collaborations between our online and offline initiatives with the goal of enhancing customer loyalty and attracting new users. These strategic approaches will lay a strong foundation for our future development and will position us to deliver long-term value to our shareholders. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

We will now begin a question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, you will need to 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. Once again, that was star then one to ask a question, and at this time, we will pause momentarily to assemble the roster. And our first question will come from Ethan Yu of First Trust China. Please go ahead.

Thank you, Manager Chen. This is my question. Good evening. We have noticed that the flow of economic travel in China and the rest of the world is fast, but there is still not enough confidence in the general consumer. Manager Chen, what impact does this have on our business? Are there any targeted measures made by the company? Also, what specific measures have the private sector taken to deepen the public's We have observed rapid recovery in offline economy, tourism, and intercity mobility, but overall the consumer confidence remains unstable. How does this impact your business and what specific measures has the company taken? Additionally, what specific initiatives has your company implemented or plan to implement to enhance our brand awareness of Yunji and our private label product. Thank you.

Thank you for your question.

Wingy believes in the connection between people, both online and offline has its own advantages. Before the pandemic, Wingy operated with a marketing model that combined online communities and offline salons. The offline salons helped bridge the gap between the company's service managers and customers, fostering trust and providing a better experience with our products. This became even more important as we developed more private labels, as cultivating customer trust and education becomes paramount. 我們的私有品牌本質為用戶提供更安心、更優質商品的原則。

We are committed to the production of raw materials and cooperate closely with leading enterprises and factories, so that we can carry out research and research on the production and processing of goods. After the city's recovery, we invited some top service providers to return to the team of research and learning, witness the birth of cloud-based manufacturing, and share real experiences with the community.

Our private labels adhere to the principle of providing consumers with peace of mind and high-quality products. We insist on sourcing directly from the place of origin and have deep partnerships with leading companies and factories. This allows us to impact and trade the production and processing of our goods. As the cities resume their flow, we have invited some top service managers to join us in exploring and learning, witnessing the birth of made in UNG manufacturing, and sharing authentic experience with virtual communities.

Furthermore, we are establishing a new brand center in Hangzhou

setting as a hub to display our private label capabilities. We hope to attract more product brands and incubate more private label products.

We will also use some of the back-up anchors of video platforms to do brand education and product education. In addition, offline, We will also put the resources of the elevator media into our product and brand promotion and promotion. These elevator media, we will, according to the customer retention and density of our sub-sector, choose one by one to test and then to strengthen the promotion. In short, the original And for some quite a mature drawing to label products,

We are going to make more education to our customers by the middle level influencers from the top platforms. And we are going to take a better use of those offline media to do the advertising and the publicity of the products based on our existing customers and the intensity of our customers. from city to city, we're going to do the testing to do the promotion of the joint label products. And so for our publicity, we mainly will use four channels, the existing online channels and the self-made content and the mid-level influencers online and also the offline media.

Thank you for your question.

Thank you for your question.

Thank you. Thank you.

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. Bye.

The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.