Boqii Holding Limited

Ladies and gentlemen, thank you for standing by and welcome to BOCHE's fiscal year 2024 first half earnings conference call. Currently all participants are in listen only mode. Later we will conduct the question and answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I will turn the call over to Elle, Bochy's Head of Investor Relations. Elle?

Okay, thank you, Operator, and thank you all for waiting for us to start a conference call. And good morning, everyone. Welcome to Bochy's Fiscal Year 2024 First Half Earnings Conference Call. Today, Ms. Lisa Tang, Co-CEO and CFO, as well as Mr. Loyal Dai, our financial VP. We released results earlier today. The earning results is available on the SEC website. A replay of the call will be available on the site later today. 我们今天已经发布了业绩公告,可以在SEC官网查阅。 稍后电话会议的回放也会上传至公司的IR网站。 Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public findings with the SEC. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. At the beginning of the meeting, please note that today's discussion will include the pre-trial statement made according to the Security Act of the U.S. private securities lawsuit in 1995. The pre-trial statement involves the risk and uncertainty of the employer. Therefore, the actual performance of the company may be expected to be realistically different from what is expressed today. Further information about these risks and uncertainties has been submitted to the U.S. Securities Exchange Commission in the public document. Please note that certain financial measures that we use on this call, such as non-GAAP net loss, non-GAAP net loss margin, EBITDA, and EBITDA margin are expressed on a non-GAAP basis. Our GAAP results and accelerations of GAAP to non-GAAP measures can be found in our earnings press release. Also, please be reminded that all as otherwise stated, all figures mentioned during the conference call are in Chinese RMB. With that, let me now turn the call over to our co-CEO and CFO, Ms. Lisa Tang. Thank you, Elle, and many thanks to everyone for joining the call today.

At the beginning of fiscal year 2024, despite the challenges of market uncertainty, we made great strides in revenue mix enhancement and cost control. With high margin private labels showcasing its resilience and indirect costs, also seeing a notable drop in amount and percentage to revenue, laying the foundation for a solid first half. As part of the manager team, we totally believe that we are moving in the right direction and we maintain confidence in the development of China's pet industry. We will continue to work diligently and passionately and we will keep a keen eye on market dynamics and opportunities so that we can generate sustainable returns to our shareholders Let's pass your time to Al to further update you on the operationals and the business developments in first half 2024. Thank you, Lisa.

In fact, despite the uncertainties in the macro economy, China's pet economy continues to demonstrate its potentials. According to the latest report, the penetration rate of households on pets in China is expected to continue its rising trend reaching 22% in 2023. That number is still way behind that in the United States and Europe, suggesting substantial room for expansion. By 2025, it is predicted that China's pet market will hit RMB 811.4 billion, representing a kicker of 19.8% from 2021 to 2025. Thank you, Lisa. In fact, although the Hong Kong economy is full of variables, China's pet market still shows obvious potential. The latest industry data shows that China's pet family number penetration rate is rising year by year. In 2023, it is expected to reach 22%, but it is still behind the European and American countries, reflecting that the overall market has a huge room for expansion. By 2025, China's pet market will reach 8,114 billion yuan. All these reassure us that China's pet market is going to eventually rebound. Hence, during the first half, Bochus focuses on strengthening its market position, enhancing its brand profile, improving its users' thickness, refining its product offerings, and streamlining its business operations. in preparation for the better ways in the future. In particular, customer loyalty will be the major factor a growth driver for the group as the listed pet company. In the meanwhile, we delivered satisfactory results for our private label. Leveraging our extensive user data and excellent big data capability, we were able to optimize our private label's product offerings to better cater pet parents' needs while reducing our carrying costs for non-performing FKUs. We believe that the loyalty of users will be the main driving force behind the growth of the group as a pet listed enterprise. We are also very pleased to have achieved good results in our free brand period. Through the rich user data and contact data capability, we have optimized the product category of free brands in the period. On the one hand, we are more fully committed to meet the latest needs of pet parents. At the same time, we have reduced the cost burden of long-term sales products. Although the group suffered a drop in overall GMV, GMV of private labels actually enjoyed an increase of 2.1% to RMB 212.9 million. Its revenue contribution to overall revenue also rose from 17.8% to 26.4%, leading to a stable performance in gross margins and post-fulfillment margins. with gross margins standing firm at 20%, and post-fulfillment margins enjoying an uptick of 170 basis points to 11.2%. As we grow as a brand, along with the comprehensive content and customized product selection on offer, there was also rising user stickiness, which was reflected in the historic low CC, down by 46%. year-over-year to merely RMB 2.8. Customer purchase frequency also increased from 1.32 last year to 1.34 this year. With growth seen across both new and existing customers, 凭借日益增长的品牌知名度, 丰富多样的资讯内容和精心挑选的产品选择, Overall, we remain confident in our unique positioning in China's expanding past market. We have observed encouraging trends, including a significant rise in the number of pets and the increasing popularity of pet e-commerce, which bodes well for the future of us as a pet industry aggregator. We will continue our journey to establish a well-rounded ecosystem that delivers value to both pet parents and brand partners. We are ideally asking about building upon our leading position, hopefully creating a more Our resilience and impact for industry presence in the future. 我们也将继续努力拓展生态圈的覆盖及服务能力, 致力为养宠父母和品牌合作伙伴提供更高的价值。 未来我们将持续巩固行业领先地位, 积极打造根据韧性和影响力的国企品牌。 I will now turn the call over to our financial VP, Loyal, who will share more details on our financials.

Thank you, Er. In the following, I'd like to share more on our financial performance for the fiscal half of fiscal year 2024. We continue to execute our strategic adjustment and business optimization. Thank you, Er. Next, I will share more about Boqi's financial performance in the first half of 2024. Our revenue for the first half of fiscal year 2024 was RMB389.4 million, down by 34% year-on-year, as a result of the worsening consumer sentiment and consumption downgrade in China. Overall gross profit margin only decreased by 100 basis points to 20%, with gross profit reaching RMB 77.9 million. We also made notable efforts on cost of control as we improved the operational efficiency of our logistics services. Fulfillment expenses as a percentage of revenue for the first half year decreased to 8.9% compared to 11.6% over last year. Fulfillment expenses decreased 49.4% to RMB 34.5 million. That lays the foundation of an improving post-fulfillment margin, increasing from 9.5% last year to 11.2%. Sales and marketing expenses decreased. 28.6% to IMB 45.4 million, mainly due to the growing efficiency of customer acquisition from more cost-efficient channels. General and administrative expenses were RMB 32.2 million compared to RMB 22.1 million for the first half year of fiscal 2023. The increase was mainly due to the increase in share-based compensation expenses. That came to a net loss of RMB 37.7 million in the first half of fiscal year 2024, and the non-GAAP net loss is RMB 34.2 million. We did equity line and pipe transaction in the first half year of 2024, and the related expenses of RMB 7 million is recorded in net loss. Also, in the first half year, For the first time, we applied the rule of ASC 326 of expected credit loss model to assess credibility of account receivable and other receivable. And the expected credit loss of RMB 3 million is recorded in net loss. If excluding above 2.1 of effect, our net loss is RMB 27.7 million. representing an improvement of 6% compared to the same period of last year. And the non-GAAP net loss is IMB 24.2 million, representing an improvement of 15%, which shows our capacity of break-even in the short-term future. 通常我们的报表净亏损是3770万人民币, non-GAAP净亏损是3420万人民币。 We did FDLine and Pipe transactions in the first half of the year, and we recorded a total of 7 million yuan in net loss. In addition, we used ASC 326's fast transfer method for the first time in the second half of the year, which is the expected credit loss model, to evaluate our receivables. This led to a total of 3 million yuan in net loss, which we recorded for the first time in net loss. On our financial position as of 30 September 2023, our effective debt-to-asset ratio stood at 39.5%. Our total cash and cash equivalents were RMB 86.8 million, a drop of RMB 72.8 million, mainly due to a decrease of RMB 71 million in short-term borrowings compared to 31st March 2023, with no major capex forcing and a strong credit line backup We believe we are cash sufficient to support our operation and pursue new initiatives. Besides, in September 2023, we entered into certain financing agreements with third-party investors, which will also provide us additional capital to explore our new business opportunities. We believe that... We will continue to strengthen our reach and control throughout the value chain. This includes investments collaborations and strategic initiatives that would reinforce our closed-loop community. We believe this approach would allow us to become not only the go-to place for pet parents, but also the go-to partner for brands, manufacturers, distributors, and developers in China or soon to be in China. 展望未来我们将继续加强对价值链的 Here wraps up my summary. Let's now move on to the Q&A session. Operator Thank you.

And 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 keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble the roster. Our first question today will come from Zoe Zhao of CICC. Please go ahead.

Good evening. Can you hear me?

Yes, we can hear you.

Hello, Mr. Gu. I'm a resident of a Chinese company. I'm very happy to see that the business situation of the company has improved. I have two questions. The first one is that I see that the income of our company is still decreasing. I want to ask why this is not the case. How do you judge the future income trend? Secondly, you mentioned that there is a 10-point improvement in the profit and loss of non-GAAP. When will the company be able to achieve profit? Thank you. Thank you for your question. Let me answer it.

As mentioned in our ER, there are two reasons for the decline. The first one is the strategic adjustment of our business. We have made some improvements to our product combination. The second one is the impact of the decline of Chinese consumption in the first half of the year. In the future, we think that with the completion of our product structure optimization and the entire As described on our ER, the decrease is primarily due to the optimization of product mix related to our business strategy and the worsening consumer sentiment and consumption downgrade in China. In the future, we expect our revenue to stabilize as we we will finish the optimization of our product mix and as the economy recovers in the short-term future. 不知道有没有回答到您的问题,谢谢。 然后另外第二个问题, 我们预计短期内很快还是会实现公司的break-even. We expect we will... we will make the break even in the short-term future. Thank you.

Thank you.

Our next question today will come from Lisa Lau of Jefferies. Please go ahead.

Hi, management. Thanks for taking my questions. This is Lisa Liao from Jefferies. So currently, I have two questions for you. The first one, I want to learn about has the company's dealings to be resolved? This is the first one. And secondly, could we get more like some color from you about the expenses such as S&D, G&A, and R&D, and any reduction further to expect in the future? Okay, thank you. Thank you for your questions, and I will answer the first question. The company has already resolved the listing risk in October this year, and

We successfully listing transferred from NYSE to NYSE American, where the company meets its compliance requirements and currently has no listing risk. 谢谢您的问题。 我来回答就是第一个问题,就是公司目前其实在今年十月份的时候已经成功地化解了退市的风险, 而且我们已经成功地从NYSE转版到了NYSE American这个板块。 In NYC American, the company is currently in compliance with its contractual requirements, and there is currently no retirement risk. The second question, we will let Loyal answer it.

Okay, the second question is about the company's three fees. In the second half of the year, the return amount of our three fees was RMB 1.1 billion, which was 1.5 billion in the same period last year, and it was significantly reduced to 27.1%. Among them, we need to mention the fee for the trip, which is 3,450,000 yuan, which is 49.4% down compared to the same period last year. The net income is also down from 11.6% last year to 8.9%. In addition, our sales fee is also 28.6% down compared to the same period last year. has reached 45.4 million yuan in the past half of the year. Lastly, our management expenses are 32.2 million yuan. Compared to the same period of the same year, there is a certain increase of 22.1 million yuan. The main reason is the impact of the financial crisis. In the future, we believe that the three fees will further reduce the space. As we continuously improve the efficiency of our logistics services, Our total operating expenses over the first half year were RMB 110 million, representing a decrease of 27.1% from RMB 100 million. and $54 million for the same period of last year, especially for our fulfillment expenses. As we improved the operational efficiency of our logistics services, our fulfillment expenses as a percentage of total revenue for the first half year has decreased to 8.9% compared to 11.6% of last year, and the fulfillment expenses amount decreased significantly. 49.4 percent to IMB 34.5 million. And our sales and marketing expenses were IMB 45.4 million, representing a decrease of 28.6 percent from IMB 63.5 million for the first half year of last year. Last year, our GNA expenses were RMB 32.2 million compared from RMB 22.1 million over the same period of last year, which is primarily due to the share-based compensation expenses increase. In the future, as we continue to improve our logistics service efficiency and the the customer acquisition efficiency, we expect that our operating expenses will be able to maintain the downward trade and the percentage of our revenue will also decrease in the short-term future. Thank you.

Thank you.

Thank you.

Seeing no more questions in the queue, let me turn the call back to Ms. L. Lai for closing remarks.

Okay. Thank you, Operator, and thank you all for participating in today's call. We appreciate your interest and look forward to reporting to you again on our progress in the next reporting period. 我们希望在下次的业绩发布时再次为大家汇报集团的业务成果。 Thank you all again. This concludes the call. You may now disconnect.