Earnings Call: Q2 2021

Aug 26, 2021

Earnings release

Good morning and good evening, ladies and gentlemen. Thank you and welcome to Yunji's Second Quarter 2021 Earnings Conference Call. With us today are Mr. Shang Louie Shao, Chairman and Chief Executive Officer Chenqi Zhang, Vice President of Finance and Ms. Cai Liu, Investor Relations Director of the company. Now, I would like to hand the conference over to first speaker today, Ms. Kei Liu, IRD of Yunji. Please go ahead, ma'am. Hello, everyone. Welcome to our Q2 2021 earnings call. Before we start, please note that this call will contain forward looking statements within the meaning of Private Securities Litigation Reform Act of 1995 that are based on our current expectations and current marketing operation conditions and related to events that involve known or unknown risks, uncertainties and other factors of Yunxian's industry. These forward looking statements can be identified by terminology 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 filed with the U. S. SEC. Any forward looking statements that we make on this call are based on assumptions as of today and are expressly qualified entirely by cautioning statements, risk factors and details of the company filing with SEC. Weinxi do not undertake any obligation to update this statement as required on applicable law. With that, I will now turn over to Shanghe Zao, Chairman and CEO of Yunxi. Hello, everyone. Welcome to Yunji's 2nd quarter 2021 earnings call. Based on productive selection and social sharing, Linji's marketing model has established a complete and healthy life cycle. The cycle starts with the product selection, promotion by our service managers and a purchase facilitation. And while our service managers benefit from promotional incentives, our members have a better understanding of the product through the service managers' introductions, receive cost effective products that satisfy their needs, establish trust with Bingjie's platform and our sharing based model and conduct repeat purchases. Meanwhile, our service managers will earn and combine delivering services. Kanban Prosperity has also been RMB's unremitting vision since its establishment. To create more user value and offer products with better quality, we remain focused on 3 core strategies: highly curated product selection, differentiated supply chain and a specialized retail system. In May 2021, we launched the sales portal on our Winji app as one of the core portals for our curated product selection strategy, aiming to become the portal for max heat products across all of the Internet. Our Winji 99 portal funnels our platform's core traffic to a refined production of the market hit products across all categories. The addition of this section reinforces our refined supply chain strategy as well as the cultivation of the market product sales by connecting RNG members to employee items with viral appeal. By focusing on highly cost effective products, we have millions of members access Qui products from all over the world. The Yunxi 99 special sales portal features a curated selection of up to 99 products each day. These 99 products are vigorously screened and selected through strict criteria and a basic pool selection process. Of the 99 products, the top 10 best sellers will be highly recommended and provide you with more resources and support. Providing such high quality brands at affordable prices enhances the Yunji shopping experience and encourages purchases. We will continue to optimize our product selection and utilize data driven insights to enhance the LingQ shopping experience and As for our differentiated supply chain strategy, we recently celebrated the 11th anniversary of our credit label skincare brand, SOLOlife. By utilizing our social sharing capabilities, we have helped SOLOlife to better express its brand value and assume we are a large group of loyal users over the years. By the end of 2020, SOLOlife had become a skin care brand with annual sales of more than RMB 1,000,000,000 on the Yunji platform and cultivated multiple mega heat products with 100 of 1,000,000 in unit sales. Within our differentiated supply chain metrics, we also introduced a number of unique products in various categories. For example, the first batch of fun, our newly developed line of beauty drinks, which included 85,000 products, was sold out within just 57 seconds of its launch. We are currently optimizing production capacity and shipping speed and look forward to these product lines' performance after our production capacity has improved. We chose to differentiate our strategic focus on the health industry for a number of reasons. First, we believe that the tailwinds generated by the health industry brings tremendous value to not only us but also our members. More importantly, we want to provide our service managers and members with methods to include their vehicle's brand and beauty. It is also our sincere help bank. Our sales managers will develop a lifelong career on our platform that benefits not only themselves but also their families. Next, let me share the initiatives we have taken to utilize a specialized retail system and online traffic. These have helped millions of service managers discover and develop life changing career opportunities. Most often, our service managers are women. We train our service managers to deliver professional services to our members and hope that they can graduate a decent monthly salary of tens of thousands of RMB. They are not only service managers, but also experts in various fields. They are entrepreneurs who help for a change in their life. We offer them many training programs in areas such as health management and marketing so that they can become experts in the fields of cosmetics, health and sales. These trainings enable them to reach customers with a more professional attitude and improve their marketing skills. The professional marketing skills are practical in use and also boost our sustainable development. Going forward, we hope that more leaders will emerge from within our service manager group, and we will focus on supporting these leaders while making our specialized retail system more complete and efficient. During the Q2, we maintained the entrepreneurial spirit and continued to conduct innovative initiatives. In terms of user retention, we set up a special group to better reach users, engage inactive users and strengthen users' consumption frequency. In addition to developing new traffic channels, this group worked hard on content marketing and created their own original short form videoed content. Meanwhile, we have also been preparing for our online streaming sessions on 3rd party live streaming platforms, where I will host a session myself. With that, I will turn the floor over to Mr. Chenxi Zhang, our Vice President of Finance, to go through the financial results. Thank you, Xiaoyue. Hello, everyone. Before I go through our financial results, please note that all numbers stated in the following remarks are in renminbi terms, and all comparisons and percentage changes are in a year over year basis unless otherwise noted. Starting this year, we're committed to enhancing our supply chain differentiation strategy, upgrading our product selection with our UMAP kit product curation strategy and refining our membership management system. We have also shifted our mindset to focus on sustainable long term growth as we further improved our efficiency and the employee structure. After several quarters of adjustments, our refined operations have resulted in significant improvements in our profitability despite some fluctuations in our quarterly sales. During this quarter, we recorded our operating income of $16,000,000 and a net income of $17,000,000 compared with operating loss of RMB45 1,000,000 and a net loss of RMB17 1,000,000 in a year ago. Now let's take a closer look at our financials. Total revenue were RMB571 1,000,000 compared to RMB1487 1,000,000 a year ago. Revenue from sales of merchandise were RMB472 1,000,000 and revenue from our marketplace business were RMB88 1,000,000, In line with our renewed long term growth strategy, we further optimized our selection of suppliers and merchants, which caused the revenue decrease in both our marketplace business and the merchandise sales during this quarter. As a result, gross margin improved to RMB75 1,000,000 or 75 percentage compared to 29 percentage a year ago. During this quarter, we improved our operating efficiency by carefully selecting quarterly suppliers and products, removed certain products that were more included to face pricing and subsidize competition and focus on our depreciation supply chain and market product offerings. As a result, gross margin improved accordingly. Turning to our operating expenses. Fulfillment expenses were CNY15 1,000,000 or 8.8 percentage of total revenues compared to $129,000,000 or 8.7 percentage of total revenue a year ago. Sales and marketing expense were $61,000,000 compared to 2 28,000,000 a year ago. As a percentage of total revenues, sales and marketing expenses were reduced to 10.8 percentage from 15.4 percentage in the same period last year. This decline was due to decreased business promotion expenses and the reduced member management fees, resulting from the improvement of our member management efficiency. Technology and content expenses were RMB32 1,000,000 or 5.7 percent of total revenues compared to $59,000,000 or 3.9 percent of total revenue a year ago. General and administrative expenses were $43,000,000 or 7.5 percent of total revenues compared to CNY71 1,000,000 or 4.8 percent of total revenue a year ago. This decrease was mainly due to a a decrease in share based compensation expenses. Total operating expenses in the 2nd quarter decreased to RMB187 1,000,000. We recorded an income from operation of RMB16 1,000,000 as compared to a loss of RMB45 1,000,000 a year ago. Net income was RMB17 1,000,000 compared to a net loss of RMB17 1,000,000 a year ago. Adjusted net income was RMB24 1,000,000 compared with RMB20 1,000,000 a year ago. Basic and diluted net income per share attributable to ordinary shareholders were both RMB0.01 compared to basic and diluted net loss per share attributable to ordinary shareholders of $0.01 in the same period of 2020. Moving on to liquidity. As of June 13, 2021, we had a total of CNY1.1 billion in cash and cash equivalents, restricted cash and short term investments on our balance sheet. Our liquid assets were sufficient enough to cover our payable obligations, and we did not hold any long term bank loans or debt on our balance sheet. As we continue to execute our supply chain depreciation and product curation strategy, we remain focused on our long term growth objectives and profitability. We are confident that our innovation strategy and refined operation capability will continue to drive our sustainable development going forward. This concludes our prepared remarks for today. Operator, we are now ready to take questions. Thank you. Ladies and gentlemen, we will now begin the question and answer It seems we don't have any questions from the line yet. Presenters, please continue. I don't see any questions from the line yet. Presenters or management, please continue. Thank you for joining us today. Please do not hesitate to contact us if you have further questions and we look forward to talking with you next quarter. Thanks. Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.