Dingdong (Cayman) Ltd ADR

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the Ding Dong Limited third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. Please note that this event is being recorded. I would now like to turn the conference over to the first speaker today, Nicky Zhang, Director of Investor Relations. Please go ahead, sir.

Thank you. Hello everyone and welcome to Dingdong Third Quarter 2023 Earnings Call. With me today are Mr. Changlin Liang, our founder and CEO, and Mr. Song Wang, our Head of Finance. You can refer to our Third Quarter 2023 financial results on our IR website at ir.100.me. You can also access a replay of this call on our IR website. when it becomes available a few hours after its conclusion. For today's call, management will go through their prepared remarks first, which will be followed by a question and answer session. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call. As we will be making forward-looking statements, please note that all numbers stated in the following management prepared remarks are in RMB terms, and we will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported in our earnings release and filings with the SEC. I will now turn the call to our first speaker today, the founder and the CEO of Dingdong, Mr. Liang.

Thank you, investors, analysts, and friends of Dingdong. Welcome to the Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3

Hello, everyone, and welcome to the Dingo's third quarter 2023 earnings call. During the call today, I'll briefly review our operating performance during the quarter, share some thoughts on our instant delivery retail business, and update you on some of our key business development.

First of all, I would like to review the performance of Q3 in 2023. In Q3, Dingo bought 51.4 billion yuan. Q4 2022 Q4 2022 Q4 2022 Q4 2022 Q4 2022

In the third quarter, we recorded 5.14 billion RMB in revenue, a 6.2% sequential increase. GMV grew by 6.4% sequentially to 5.67 billion RMB, and net operating cash flow was 130 million RMB. Non-GAAP net income margin was 0.3%, marking our fourth consecutive quarter of non-GAAP profitability. as we continue to prioritize our strategy of efficiency first with due consideration of scale. In addition, we achieved quarterly profitability on a GAAP basis for the second time since Q4 of 2022.

The continuous profit of four consecutive seasons is very meaningful to Dingdong Grocery and our industry. First, it shows that we have gone through a difficult period. Earlier, due to the adjustment of the public environment and the change in competition pattern, the public questioned and worried about Dingdong Grocery's survival. Today's achievement has shown that we have survived firmly. Second, Dingdong Grocery's combat capability and rapid response capability have been verified again. When there is a major change in society, many of the abilities and effective methods that were sought in the past may no longer be effective. And rapid response capability and anti-reflection capability are the basic capabilities of survival. It will lead Dingdong Grocery to continue to achieve success in multiple commercial environments. Third, Dingdong Grocery is the leading venture capital in this industry, and it is also the only venture capital in the current venture capital. Sustaining profitability over the past four consecutive quarters on a non-GAAP basis is critical for both Deng Dong and the industry.

First of all, it indicates that we have successfully navigated the difficult macroeconomic and competitive environment we found ourselves in, with many doubting the sustainability of the sector. Second, it reflects the corporate flexibility and adaptability we maintain. With the market continuing to change rapidly, these attributes will remain critical to our long-term sustainability. Third, among the leading companies competing in the sector, We're the first to achieve profitability. It was a long and difficult journey to get here, but we stuck to our principles and vision, which kept us on the right path. Lastly, having reached a profitability milestone, we're constantly and confidently looking to the future, where we will maintain a sustainable long-term growth.

Thank you. Thank you. As I previously mentioned, GMV for the third quarter increased 6.4% sequentially. This growth was largely driven by a 6% increase in total order volume

and an 11.7% increase in average order volume per station. While a soft macroeconomic environment led to a decline in the average selling price of some of our top selling fresh grocery SKUs and dampened consumers' willingness and needs to stock up following the pandemic, our average order value remained stable year over year with a 0.5% sequential increase thanks to our continuing efforts to optimize product and enhance our product development capabilities. Building on our previous initiative, we have now upgraded and optimized almost 100 front-line fulfillment stations over the past 10 months across China. In particular, front-line fulfillment stations that were upgraded in Q1 and Q2 have already seen their GMV increase by 15.2% sequentially. This year, GMV fell by 13.0%.

On a year-over-year basis, third quarter GMV decreased by 13%. Within this decrease, 9.8% was actionable,

attributable to the suspension of operations for a number of cities and stations starting in Q4 last year. In addition, the return to post-COVID normalcy during the summer holiday season also impacted GMV as consumers increased offline consumption and resumed holiday travel.

In this quarter, the share price of the US military has been further improved. The US military has reached 4.2 times. On the basis of the last quarter's four times, the US military has steadily improved further. The share price of the green card members has reached 6.9 times. Dingdong Grocery continues to satisfy the consumer's needs by continuously building the ability of the product, cultivating the user's heart to eat whatever they want, and continuously satisfying the consumer's needs. Q3, the US military's trading users worth more than 560 yuan per month, To cite the impact, our users are accessing our services more frequently than ever.

The average monthly user order frequency increased on both a year-on-year and sequential basis, increasing to 4.2 orders during the quarter, up from 4 last quarter. Notably, Dingdong members averaged 6.9 orders per month. We continue to develop our product offerings to foster a culture of using Dingdong for all food-related needs. As a result, nearly 1 million users during the quarter generated monthly ARPU of more than 560 RMB, accounting for more than 48.8% of total GMB. We'll continue to focus on serving the needs of both new and existing users.

In the area, Shanghai was affected by the high-best of the same period of the epidemic last year. Although the same level of GDP is still falling, it is still less than 11% of the same level. At the same time, the Q3 level is returning to normal growth, reaching 7.8%. Jiangsu and Zhejiang, on the basis of the growth of Q2, are proud of our continued expansion of the size of our lower-end users. At the same time, the lower-end of old users has also significantly improved. Q3 The government has continued to achieve the same double-digit growth. At the same time, the overall growth of Jiangsu and Zhejiang regions has been achieved in four consecutive seasons, covering the overall profit of the region after the cost of the headquarters. Looking at the geographical breakdown, our performance in Shanghai was impacted by the high base effect created during the same period last year

when pandemic restrictions were impacting the region. While GMV in Shanghai declined year over year, the rate of decline narrowed sharply to less than 10%. On a sequential basis, however, Shanghai GMV increased 7.8% in Q3. At the same time, GMV growth picked up significantly in Jiangsu and Zhejiang provinces. As our user base there, they continued to expand and existing users placed more orders. These two provinces built on their strong growth momentum last quarter, delivering double-digit growth on both an annual and sequential basis in Q3. Moreover, each region was profitable for the past four consecutive quarters, even after allocating headquarter expenses. Sustainable and stable profitability provides us with additional human resources, operational know-how, and cash to drive growth initiatives in North and South China, where we stabilize the build-out during the quarter and see significant room to further optimize our operations going forward.

Next, I would like to talk to you about Dingdong Grocery's thoughts on the current retail industry and sales environment, as well as the main progress of our current business. We believe that after the epidemic, the global economic growth has slowed down further, and the sales of users has changed. Next, I'll share our perspective on the current state of the instant delivery retail industry and the overall consumer environment before moving on to cover some of our key business developments.

As the global economy slows, consumer preferences and shopping habits are changing, and retailers really need to adapt to a complex new environment. What consumers want most in a current environment is certainty, and instant delivery retail can cater to this by providing reliable service, stable quality assurance, and competitive pricing.

The basic ability of Dingdong Grocery is in line with these new changes and market needs. Everyone who knows us knows that since Dingdong Grocery was founded, the three core competitors have been built, which are extreme commodity power, superior service power, and the pursuit of extreme cost-effectiveness and price-effectiveness through supply chain systems. The so-called first step, no matter how the market environment changes, we have been walking on the right path and have never changed.

Our core abilities have been directly aligned with these changes in consumer preferences. Since our inception, we have focused on cultivating three core competencies, solid product development capabilities, services that exceed expectations, and a robust supply chain that delivers optimal cost effectiveness and maps a maximum value for money products. Despite changing market conditions, we remain steadfast in our commitment to these values.

In terms of serviceability, Tintor MySite is closer to the consumer through the self-sufficiency front window that is closest to the user, and can be better satisfied with the current consumer demand. It is effective in achieving high-quality delivery of fresh and food quickly and in a timely, efficient and determined way to deliver to home in a timely manner to provide higher cost-effectiveness of fresh and food for current generation families and to provide services that exceed expectations for users.

Let me further expand on our service capabilities. We're able to meet high demand among urban consumers for quick and efficient delivery of groceries and other products through a network of self-operated frontline fulfillment stations in 29 minutes or less, something that we have become synonymous with. We're able to provide families with affordable, high-quality fresh food and other products through a timely and reliable home delivery service. Service is critical to exceeding customer expectations.

Through adjustment of the operating structure, optimization of the initial line-up and other methods, we have improved the speed and efficiency of the process. Within the 40 minutes of this quarter, the time-to-time ratio has increased by 6.8%. The shortest time-to-date is 14.3 minutes. We're committed to delivering orders in a timely manner through a reliable delivery service.

In Q3, we improved order fulfillment efficiency by restructuring our delivery capacity and optimizing scheduling. As a result, we saw a 6.8 percentage point year-over-year increase in rush orders delivered within 40 minutes, while the average earliest available time slot for scheduled order delivery was brought forward by 14.3 minutes compared to the same period last year. During the quarter, we optimized our network of regional processing centers to bring them in line with the more stable post-pandemic supply chain environment. As a result, fulfillment expense ratio for regional processing centers decreased by 2.7 percentage points year-over-year and 0.3 percentage points sequentially.

From the point of view of commercial efficiency, commercial efficiency is the first driving force for the development of digital grocery business. Since this year, We are always around the direction of cross-FPU and narrow-FQ. In the internal product structure, in the product power between the regions, we continue to make choice and exchange. Q3, we sold more than 5 million SQ in a month, called Q1, and raised 10. G&V accounted for 4% of the market share. The market share of over 10 million SQ was reduced to 3%. G&V accounted for 2% of the market share. Through the strategy of G&V SQ and the advantage of supply chain and commodity power, we created a head-to-head single product. Through our high-quality supply chain and scale sales, we made the purchase price of the product the lowest. From then on, the product has more price competitiveness. Enhancing the proportion of head-to-head products, shortening the剩余 of long-term products, and increasing the turnover rate of products.

Our product development capabilities remain the core driving force of our business. This year, we implemented a strategy of extensive SPUs and concentrated SKUs, where we expand SPUs within a product category and allocate more capacities to top-selling SKUs and phase out slow-moving ones across different regions. In Q3, we offered 10 more SKUs with monthly sales exceeding 5 million when compared to Q1. GMV contribution from the SKUs with monthly sales exceeding 5 million increased by 4 percentage points during the period. Over the same time frame, we had three more SKUs with monthly sales exceeding 10 million. GMV contribution from the SKUs with monthly sales exceeding 10 million increased by two percentage points. Our SKU selection strategy and strong product development capabilities enable us to create more top-selling products. Additionally, our efficient supply chain and a larger scale of these products enable us to minimize sourcing costs and maintain a price competitive product offering. Through this strategy, we have boosted contribution to GMV from best sellers, spaced out excessively long-tail products and improved product turnover rate.

同时在Q3我们也通过场景运营 提供常态折扣及动态折扣 把更多的利益让渡给消费者 Q3每单优惠金额较Q1提升了17% This shows that we have the ability to meet the needs of user change, so that users can buy better products at a lower price on Dingdong, and the sustainable scale effect of profit-making can be brought to the scale. The scale effect of head products will directly affect the value of purchase, and this is where the firm competitiveness of companies lies. We will continue to move forward with this as a basis, and bring greater value to consumers.

During Q3, we offered both regular and dynamic scenario-based discounts to pass on more savings to consumers. The discount amount per order increased by 17% compared to Q1, which shows that we can meet the changing needs of our users and offer better products at lower prices. Our focus on selling products with better prices and discounts and quick turnover creates a scale effect. An increasing concentration of best-selling products strengthens our bargaining power during the procurement process. This dynamic represents our powerful competitive advantage and will continue executing this approach to offer greater value to consumers.

We are not only a retail channel company, but also a food industry that possesses product development and production capabilities. We have always provided differentiated food for users. The consumer does not only buy vegetables in Dingdong, but also buy vegetables in Dingdong. Our free brand not only develops and produces by ourselves through our 12 private factories, but we also use the open mentality to provide excellent industrial enterprises in Shangyou. For example, in the third quarter, we cooperated with the Shangyou supply chain to develop the Dingdong handmade paper leather series of rice noodles. We selected a core factory after the precise survey of the users, and created the leading hand-made bun, thin-skinned like a paper, with a surface point series of corners. The factory is a leading manufacturer and is deeply involved in research and development. We're more than just a retail company.

In fact, we're a food company with R&D and production capabilities. Our top priority has always been to provide our customers with unique, high-quality products. As we grow, our customers are not only buying products on Ding Dong, they are increasingly buying Ding Dong branded products. We develop and produce private label products in 12 self-operated factories, in addition to cooperating with high-quality upstream suppliers. In Q3, we worked closely with our upstream supply chain to create the Ding Dong handmade thin skin series of rice flour products. After conducting extensive research on consumer preferences, we carefully selected a factory to produce these handmade paper thin wrappers for wontons, dumplings, and other pastries. The factory manages the production process while Ding Dong leads research and development. By cooperating directly with the factory, we're able to ensure the quality of these innovative products. Our Dingdong handmade thin skin products are delicious, affordable, and high quality, making them a hit with customers. Since their launch at the end of August, they have generated more than 16 million RMB in sales in just over two months.

I'll conclude with a few words on our outlook.

Looking ahead, we're confident that we'll achieve non-gap profitability for the fourth quarter and full year in 2023. We remain focused on sustaining the healthy and high-quality growth of the business. Thank you all very much. I would now like to invite Wang Song, our head of finance, to review the company's financial performance.

Thank you, President Liang. Hello, everyone. 在向大家介绍我们的财务情况之前,先说明一下,我们的所有数字都是以人民币为单位的。 Thank you, Mr. Lam. And hello, everyone. Before I review our financial performance, please note that all of our figures are in RMB. 2023年Q3,丁东买菜实现营收51.4亿元,让该可净利润率0.3%,经营性现金流净流入1.3亿元。 During Q3 of 2023, we generated 5.14 billion RMB in revenue, with a non-GAAP net profit margin of 0.3%,

and net operating cash inflow of 130 million RMB. We're pleased to report that we achieved GAAP profitability for the second time since the Q4 of last year. Amid a rapidly changing external environment, we remained committed to prioritizing our strategy of efficiency first with due consideration scale. Through these efforts, we have now achieved non-GAAP profitability for four consecutive quarters,

Next, let's take a look at Q3's specific financial situation. Q3's GNV is 56.7 billion yuan, revenue is 51.4 billion yuan, and the ratio has increased by 6.4% and 6.2% respectively. This is mainly due to our order volume and AOV ratio has increased by 6% and 0.5%. This shows that our users' annuality is further strengthened, and the product structure and product power are further optimized. At the same time, the GNV and revenue have decreased by 13% and 13.5% respectively. In addition, Let's take a closer look. Q3 recorded GMV of 5.67 billion RMB and revenue of 5.14 billion RMB, representing an increase of 6.4% and 6.2%, respectively.

as compared to the second quarter this year. The increases were mainly due to a 6% increase in order volume and a 0.5% increase in ALV relative to the prior quarter. These figures indicate improved user loyalty driven by our optimized product structure and product development capabilities. However, GMV and revenue decreased by 13% and 13.5% year-over-year, respectively. It is also worth noting that we saw double-digit GMV growth in Jiangsu and Zhejiang provinces on both a year-over-year and sequential basis. In addition, our growth rate in South and North China has now stabilized, where we're a relatively new player facing intense competition.

The Q3 net profit is 30.4%, which is 0.4% higher than last year. This is due to the constant improvement of our fresh supply chain and its operating capacity and efficiency. We use our supply chain and product advantages to create top-notch products, continue to manage long-term low-end products, and increase the efficiency of supply chain. The overall inventory turnover of Dingdong Grocery has been reduced to 10.7 days. In Q3, gross profit margin increased by 0.4 percentage points year-over-year, reaching 30.4%.

This was driven by the continuous improvement of our operational capabilities and efficiency as we expanded along the supply chain. Our extensive SPUs concentrated SKU strategy allowed us to leverage our supply chain and product development capabilities to create top selling products while managing slow moving ones. This approach also helped us improve supply chain efficiency, resulting in a company-wide turnover time of only 10.7 days and 4.5 days for frontline fulfillment stations. Our end-to-end loss rate was kept below 1.5%. This helped us utilize economies of scale while improving our bargaining power and optimizing our product mix. As a result, our gross profit margin remains stable while maintaining our ability to provide significant value to our users.

Q3's exchange rate is 23.3%, which is 3.5% better than last year. We have achieved significant success in Q3 with the improvement of the exchange rate this year. This quarter, we have completed the plan for the improvement of the network layout of the risk center and the warehouse network at the beginning of the year. The exchange rate of the warehouse has also improved by 2.7%. The front-end warehouse has been further improved through detailed operation. At the same time, our warehouse's daily order volume has increased by 6.6%, which has further improved the efficiency of operation.

Our fulfillment expense ratio in Q3 was 23.3%, an improvement of 3.5 percentage points compared to the same period last year, reflecting the substantial impact of this year's optimization measures. We completed the optimization of our network of regional processing centers. Additionally, the fulfillment expense ratio for regional processing centers improved by 2.7 percentage points year over year. We have refined our operations to improve labor efficiency and optimize labor costs in frontline fulfillment stations. Our stations have also seen a 6.6% year-over-year increase in average daily order volume, further boosting operational efficiency.

Q3's marketing cost is 1.9%, which is 0.2% better than last year. We will continue to use our business power to occupy the new users, improve Dingdong's brand image, The management cost has been increased from 0.5% to 1.7% in the same period as last year. The development cost has been increased from 0.4% to 3.9% in the same period as last year. We will continue to invest in food development, agricultural technology, and technical data calculation. We believe that the investment of the three basic facilities in the above three aspects will strengthen the competitive advantage of Dingdong and create long-term value for investors.

Selling and marketing expense ratio in Q3 was 1.9%, a 0.2 percentage point improvement from the same period last year. We continue to leverage our product strengths to engage users and enhance our brand image. Compared to the same period last year, the general administrative expenses ratio improved by 0.5 percentage points and is now at 1.7%. Similarly, R&D expense ratio improved by 0.4 percentage points and is now at 3.9%. We remained committed to investing in research and development, focusing on food research, agricultural technology, and technical data algorithms. We believe that investing in these areas will enhance our competitive edge and deliver long-term value to our investors.

In Q3 of 2023, we achieved 0.3% of the net profit rate under the long-term trend. We also increased by 5.1%. This has allowed us to maintain profit under non-Gap Coaching for the fourth consecutive quarter. At the same time, we have also achieved profit under Gap Coaching in Q3. As stated in both cases, we will use our high-quality service to provide consumers with extremely cost-effective and quality products based on the three core competitiveness of commodity, service, and supply chain system capabilities. At the same time, we will also use the supply chain capabilities and system capabilities of our whole chain to continue to improve our operating efficiency and profit capabilities.

We achieved a non-GAAP net profit margin of 0.3% in Q3, a year-over-year increase of 5.1 percentage points. This marks our fourth consecutive quarter of non-GAAP profitability and a second with a positive GAAP net profit margin since Q4 of 2022. As Mr. Liang mentioned, our primary goal is to offer customers the most cost-effective and high-quality products through our exceptional services. will achieve this by focusing on our core competencies, product development, service, and IT-enabled supply chain capabilities. Leveraging these strengths will continue to improve our operational efficiency and profitability.

Q3, we achieved a positive cash flow. The cash flow was 1.3 billion yuan. With Q3, cash and cash-related transactions, short-term limited funds, and short-term investments were 56.3 billion yuan. We have always maintained close cooperation with the bank. As of Q3 end, we can use the credit liquidity loan at any time. The net profit is 11.4 billion yuan. The net profit of supply chain finance is 9.6 billion yuan. On the basis of optimizing free funds and using efficiency, we continue to optimize the financing structure. Compared to the end of September last year, our short-term loan amount decreased by 5.6 billion yuan. At the same time, we will continue to serve our suppliers through supply chain finance. At the end of Q3, our supply chain financial loan amounted to 28.1 billion yuan. After shortening the loan amount, our actual free fund amounted to 19.4 billion yuan. Compared with Q3 last year, free funds nearly increased to 3.2 billion yuan. As our core business profitability continues to improve, we are capable of self-improvement, providing more financial reserves for us to respond to market changes and future operations.

We recorded a positive net operating cash inflow of 130 million RMB during the quarter. By the end of Q3, we had a total of 5.63 billion RMB in cash, cash equivalents, short-term restricted cash, and short-term investments. We maintain close relationships with banks, and our credit line for pure credit liquidity loans, which can be used at any time, has reached 1.14 billion RMB. Additionally, Credit lines for supply chain financing stood at 9.6 billion RMB. We're constantly optimizing our financing structure to ensure the efficiency used of our funds. Compared with the end of September last year, our short-term borrowing balance decreased by 564 million RMB. Additionally, we're also committed to empowering our suppliers with supply chain financing. As of the end of Q3, Our supply chain finance loan balance was 2.81 billion RMB. After deducting the balance of short-term loans, the fund balance now stands at 1.94 billion RMB. When compared to the same period last year, we achieved a net increase of nearly 320 million RMB in self-owned funds. Additionally, the improving profitability of our core business provides us with more adequate finance reserves, to respond to changes in the market as well as for future operations.

This concludes our speech today. Operator, we can now start the question and answer session.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. When asking the question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone on the call. The first question today comes from Thomas Chong with Jefferies. Please go ahead.

Thank you for accepting my question. So I'll translate myself. Thanks, management, for taking the questions. And congratulations on trading force conservative quarter on non-gap profitability and another quarter of gap profitability. And recently, some of our peers, such as Herman Yonghui, have adapted their strategies. Can you provide an overview of the competition landscape in which Dingdong Curric operates? Thanks.

好,谢谢您的问题。 先给大家简单介绍一下我们所处的这个市场,以及我们和其他模式的一些区别, 然后再给大家介绍一下我们 Dingdong 买菜前置仓的特点。 Thank you for your question.

Before drawing into the details of Frontline Fulfillment Grid Model, I'd like to provide you with an overview of our market and highlight the key differentiators between our model and that of our competitors.

First of all, China's fresh market is a very large market. We always think that as long as it is a model that is valuable to users, it can survive. Fresh is not a monopoly market. We also talked about it above. After the epidemic, technology sales will return to the business nature. The market for fresh groceries in China is vast and fractured. It cannot be monopolized. As a startup, Dingdong is committed to providing value to consumers. We believe that many different business models

can thrive in this market. As discussed earlier, we believe instant delivery retail will bring the sector back to the basics of providing efficient service, better product development capabilities, and competitive pricing. In today's world, efficiency and low prices are critical factors that everyone considers when making purchasing decisions. Low prices result from an improvement in efficiency, not a compromise in quality. As for fresh grocery products, we continue to work directly with farmers on the ground, cutting out numerous intermediaries in the supply chain. For non-fresh products, we have increased the proportion of private label products and in-house production to boost our gross profit while attracting consumers with our exceptional products. In essence, our approach entails improving our product supply, maintaining quality control from the source, meeting a diverse range of user needs, and responding promptly to demand.

With the current economic situation, I think the positioning of our products is still relatively advantageous. We are more focused on products that are well-known and strongly related. For example, vegetables are our traditional advantageous product. Our consumers will be more connected. Based on our advantageous product, we will pay more attention to the strategy of wide SQ and narrow SQ. We will also focus on the advantageous ability. Given the current economic environment, I believe our product positioning is relatively advantageous. We mainly focus on offering products that are everyday life staples. For instance,

Vegetables are a core category, and we enjoy strong customer loyalty in this category. To leverage this, we implemented a strategy of extensive SPUs, concentrated SPUs. This approach will allow us to offer a wider range of options to our customers while still focusing on our best-selling products. Building on our existing advantages and capabilities, we also plan to increase our investment in promotions, and discounts to further drive sales of our top selling products. In doing so, we aim to offer better touch points to customers who are more price sensitive and a deeper market penetration. Thank you.

The next question comes from Sophia Chi with Daiwa. Please go ahead.

Let me translate myself. Hi, Mr. Liang. Thanks for taking my question and congrats on another solid quarter. Could you elaborate on Dingdong's growth strategy under the current macro environment? as well as the competitive landscape will be the key driver for the growth going forward. Thanks.

Thank you. Let's look at this issue from the following aspects. On the one hand, it is from the area. Currently, the multi-area indicators of Jiangsu and Zhejiang are increasing rapidly, including the growth of more than 13% in Jinwei and Huami, and the growth of more than 10% in Tongbi. These two areas have four consecutive seasons to achieve the overall profit of the area after covering the total cost of the headquarters. Next, as we continue to measure the size and profit of these two areas, we will also pay more attention to the growth of Huanan and Hubei.

Thank you for the question. Let me break it down into a few different aspects. First, our metrics in Jiangsu and Zhejiang are improving rapidly. For example, GMV growth in these provinces increased by over 13% sequentially and around 10% year-over-year. Both markets have achieved overall profitability for four consecutive quarters, even after allocating headquarter expenses. We aim to further strengthen the scale and profitability of these two regions and pay more attention to the growth opportunities in South and North China. 另外一方面,在整体经营层面,我们本季度用户的消费品质同比环比都在提升,分别提升了7.8%和4.0%。

We believe that the overall frequency will have a great room for improvement in the future.

Another aspect is that our user consumption frequency has increased this quarter, both year-over-year by 7.8% and sequentially by 4%. This is a very positive trend for our business. We've also seen a consistent growth in average daily order volume for our frontline fulfillment stations, both year-on-year and sequentially. In addition, we have found that the longer customers use our service, the more orders they tend to place. On average, users who joined our platform in 2017 placed around six orders per month, while the 2018 cohort placed 5.4 orders per month. This suggests that our existing users are highly loyal and tend to increase their order frequency over time. We're confident that we'll achieve sustained growth by meeting customer needs and retaining users for longer term.

This quarter, we are cooperating with third-party platforms. For example, in Arama, we have achieved sales of more than 50 million yuan of GNV. During the third quarter, we collaborated with third-party platforms such as Elema,

which helped us achieve an average monthly GNV of over 50 million RMB, a year-over-year increase of 82%. We also partner with Douyin to offer local live services. By promoting and selling our products via live streaming, we're reaching new customers with our instant home delivery services supported by our full chain order fulfillment capabilities. We launched this program in September and achieved daily sales of 340,000 RMB. In October, our average daily sales volume increased by 78%, reaching 600,000 RMB per day. Thank you.

As a reminder, if you have a question, please press star then 1 to be joined into the queue. That's star then 1 to join the queue. The next question comes from Jaijing Chen with CICC. Please go ahead.

Please go ahead. Let me translate myself. Hello, Mr. Liang. I noticed several improvements in your financial metrics compared to the last quarter. For instance, when looking at your operating cash flow, it was a net outflow last quarter, but it's a net inflow this quarter. Also, short-term borrowings among your current liabilities also improved significantly. Can you please elaborate on these developments? Thank you.

Thank you for your question. I'll let our head of finance, Mr. Wang Song, to answer this one.

Thank you.

Thank you. Earlier, we provided you with an update on our current cash position and credit lines.

In the second quarter, we paid the year-end bonus for the previous year, which impacted our cash flow last quarter, but not this one. Additionally, we made some inventory preparations in September for China's National Day in October, resulting in a net outflow of operating cash. Despite these circumstances, we benefited from improved sales volume and achieved a net operating cash inflow of approximately $130 million in this quarter.

The short-term loan will be divided into three parts. The first part is the loan to the bank. The ratio is about 5.1 billion yuan. This is mainly the credit transfer loan provided by the domestic cooperating banks. The loan amount is the same as last year. It has been greatly reduced by 43.9%. The second part is the counterbalance, which is about 28.1 billion yuan. The third part is about 3.7 billion yuan. These two parts are mainly for better service providers. We have a large number of upstream suppliers. And the supplier network is very complex. In terms of our interest-bearing liability structure, we have three types of short-term borrowings. The first involves bank borrowings, which is relatively small, amounting to about 510 million RMB.

Major domestic banks provide these loans to improve our liquidity. The balance of these borrowings has decreased significantly by 43.9% compared to the last year. The second type is referred to as reverse factoring or supply chain finance and amounts to about 2.81 billion RMB. The third one is notepayable. and amounts to about 271 million RMB. Our collaboration with high quality service providers has been crucial to our success, given that we have a complex supplier network with many upstream suppliers. Our main objective is to work closely with these suppliers to develop superior brands while providing them with stable financial support, resulting in mutual benefits of both parties. Now, that is why we provide the latter two short-term borrowings to them. In sum, we have further optimized our short-term liability structure, leading to a net decrease of 564 million RMB in interest-bearing liabilities year-over-year.

Q3, after Q2 short-term, our actual free funds are 19.4 billion yuan, and the cash reserves remain sufficient. At the end of Q3, our self-owned fund balance was 1.94 billion RMB after deducting the balance of short-term borrowings. We also have sufficient cash reserves.

Our net interest income and expenses increased by 21.04 million RMB year over year due to the improvement of the overall operating efficiency of funds and financing structure. This optimization helped us to strengthen our balance sheet structure and improve the performance of the P&L.

As there are no further questions, I'd like to hand the conference back over to management for closing remarks.

Thank you again for joining our call today. If you have any further questions, please feel free to contact us or request us through our IR website. We look forward to speaking with everyone in our next earnings call. Have a good day.

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