Good morning and good evening, ladies and gentlemen. Thank you and welcome to Yunji’s Second Quarter 2020 Earnings Conference Call. With us today are Mr. Shanglue Xiao, Chairman and Chief Executive Officer; Mr. Chen Chen, Chief Financial Officer; Mr. Hui Ma, Chief Strategy Officer and Chief People Officer; and Ms.

Kaye Liu, Investor Relations Director of the company. Now, I’d like to hand the conference over to your first speaker for today, Ms. Kaye Liu, IRD of Yunji. Please go ahead, ma’am..

Hello, everyone. Welcome to our second quarter 2020 earnings call.

Before we start, please note that this call will contain forward-looking statement 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 related events that involve known or unknown risks, uncertainties and other factors affecting the any industry.

These forward-looking statements can be identified by certain terminologies such as will, expect, anticipates, continue or other statement or expressions. For detailed discussion of these risks and uncertainties, please refer to our stated documents filed with the US SEC.

Any forward-looking statements that we take on this call are based on assumptions as of today and within are expressly qualified entirely by cautionary statements with factors and details of the company filing with the SEC. Yunji do not undertake any obligation to update this statement effect as required on applicable law.

With that, I will now turn over to Shanglue Xiao, Chairman and CEO of Yunji..

Hello, everyone. Welcome to Yunji’s second quarter 2020 earnings call. Despite the impact of the epidemic, we generated a total RMB7.8 billion in GMV and RMB 1.49 billion in revenues during the second quarter as a result of our outstanding team work. In the second quarter, we also achieved a non-GAAP net profit for three consecutive quarters.

Additionally, the upgrades we made to our membership enrollment system also helped us to ramp-up the total number of transacting members on our platform to 12.2 million for 12-months ended June 30, 2020.

Ever since our IPO as a leading membership basis, social e-commerce platform, we are committed here building our platform that benefit all participants by continuously investing in our supply chain upgrade and community network optimization. First, I would like to provide an overview of the current development of our supply chain.

In the first half year of 2020, many quality suppliers and the leading manufacturers has find it difficult to adapt their business and grow their online traffic in the context of the new business environment.

Retail business are having a hard time promoting their quality products and in generating sales also, especially in comparison to those top e-commerce brands capable of producing engaging content and providing more differentiated products.

Meanwhile, many users have experienced a consumption upgrade and are start on the lookout for an increasingly broader range of quality products that they are able to purchase at attractive prices.

In light of these developments and in recognition often the pain points, we have established our long-term strategy offer, supporting private labels and in joint-venture brands on the supply side, utilizing our resources to empower sales managers on the service side and refining our platform experience and the user value proposition on the user side.

This strategy is helping us to achieve cost effective business growth without compromising our margins and then generate favorable returns for our suppliers and partners.

Now, turning to our partnership, on the previously call, we discussed our commitment to establishing deep cooperation with top company in a fast moving consumer goods industry to further diversify our supply chain. As such, during the quarter, we continue to identify and resolve many of these company’s pain points.

For example, one of our partner company is on publicly traded skin care and cosmetic company with outstanding product design capability, patented technology and affluent annual product sales. However, as a result of previously aiming its marketing efforts at the mid to low-end of the market.

It has not been able to successfully market its high-end products. No growth is related sales on its own. We are working with this company to jointly develop a new medical aesthetic brand on high-end and provide targeting marketing solutions on our platform.

These solutions were quite effective at helping the company to fill their marketing gap, allowing the company to reach the higher-end of the market, and providing the company with the resources necessary to reach its previous record for every transaction value and as well as the profit margin.

Our ability to deliver these outstanding results is largely a product of our service managers who were able create and share highly engaging content with our targeted users, by utilizing their product's for and efficient beauty effect. This arrangement was also quite beneficial for our service managers.

As these types of products produce a higher take rate and as such, provided service managers with a good income. We have developed a three line medical aesthetic product through this partnership to-date. Moreover, as a result of our precision marketing capability, each of these products has achieved a positive user feedback back rate about 95%.

Under our partnership program with top emerging brands and a publicly traded fast-moving consumers company, we also partner with some big brands that contribute RMB2 million in the annual sales.

Through this partnership, we co-produced the product often quality equal to that of their existing product line and then ultimately send these products into our positive product duration model, where we create more exposure for them through producing similar types of products.

So the introduction of then these products at attractive price points has resulted in more profitable sales. Similarly, we recognize that selling those products provided by our incubated brands and a differentiated supply chain has a higher profit potential than that of a simply marketing and promoting other products from third-party brands.

Looking ahead as our supply chain continues to improve; we believe that this model will also help to boost our platform sales and materially improve our growth trajectory in return. Beyond these developments, we also continue to improve our community network and explore a better social sharing product systems for promotion and marketing.

In the second quarter, we began to explore developing a professional vertical community based on our insights on service managers and members’ interests and capability, which already generated some favorable results.

Currently, we have established a two professional vertical community for food and health supplement categories and achieved high user engagement in both communities. For example, one of our health supplement product generating over RMB500 million in GMV in just two months.

Going forward, we plan to develop more vertical communities for different categories based on business demands. In the meantime, we also focused on improving the capabilities of our service managers and our vertical communities.

For example, we cooperated with the top training institutions to bring in lecturers experienced in marketing and training to provide our service managers with highly relevant training sessions.

In addition to boosting service managers’ marketing skills, loitering skills and managing capabilities; these trainings also helped to improve the quality and the authenticity of the products-related content produced by these service managers and increased engagement of the members.

In the same community with key service managers; we believe that this combination of service manager upgrades along with our promotion and marketing system implement will serve to further enhance the core competencies of our business model going forward.

As we advance throughout the remainder of 2020 and beyond, we remain confident that our highly effective marketing models will continue to drive long-term value through the integration of quality product, premium content, and an efficient content distribution.

With that, I will return the call over to our CFO, Rex Chen, to go through our financial results..

Thank you, Shanglue. Hello, everyone. Before I go through our financial results, please note that all numbers stated in the following remarks are in RMB terms, and our comparisons and percentage changes are on a year-over-year basis, unless otherwise noted.

We continued to accelerate our business transformation and to refine our membership enrollment system during the second half of 2020. In this quarter, an increasing amount of transactions were made through our marketplace business and recognized our net basis.

In addition, competition through China’s e-commerce industry continue to ramp up during the period as a larger industry players increases our spending on promotional campaigns and buyer subsidies during e-commerce mid-year shopping festival.

In line with our long-term goals, we decided to forgo the distractions of such short-term gains and instead focus our attention on refining our operational efficiency and the bolstering our brand awareness.

We continued to advance towards healthy profitability during the second quarter of 2020 as a result of these efforts, as well as the progress made on other fronts including supply chain and the product differentiation. GMV in the second quarter of 2020 was RMB7.8 billion compared with RMB8.2 billion.

GMV related to marketplace revenues in the second quarter of 2020 increased by122.7% to RMB4.9 billion from RMB2.2 billion. Revenues in the second quarter of 2020 were RMB1.5 billion compared to RMB3.1 billion. Gross margin in the second quarter of 2020 improved to 29.1% from 22.2%.

Non-GAAP net income in the second quarter of 2020 were RMB20.1 million compared with non-GAAP net loss RMB39.2 million. Such results reflect the successful execution of our new strategy described by our CEO which is to improve the profitability in the near term and high quality growth in the long run. Let’s now take a closer look at our financials.

Revenues from net sales of merchandise in the second quarter of 2020 were RMB1.3 billion compared to RMB2.73 billion and accounted for 87.4% of our total revenues in the period.

This decrease was due to the transfer of business to our marketplace business model, which was in line with our continuous efforts to improve our operating efficiency and the operating efficiency of our merchants' revenues from our marketplace business in the second quarter of 2020 increased to RMB159.6 million from RMB53 million.

This increase was driven by an increase in the number of quality brands and the merchants on our platform. It was also due to the higher take rates that we secured by strengthening our existing partnerships with brands and attracting new brands through our growing community influence.

Revenues from our membership program in the second quarter of 2020 were RMB12.3 million and wholly consisted of the deferred revenue from prior paying members compared to RMB267.6 million.

This decline was in line with our long-term growth plans and due to the refinement of our membership and enrollment system, which allowed users to register on our Yunji app as a member and the Yunji membership benefit is free of charge for year. Gross margin in the second quarter of 2020 expanded to 29.1% from 22.2%.

This expansion was primarily due to traditional sales of high margin products, development of products from emerging brands and our own private label products. And the increasing number of brands moving to our marketplace business from our merchandise sales format, which caused a shift in the proportion of sales from a gross basis to a net basis.

Let's now move to our operating expenses. Fulfillment expenses in the second quarter of 2020 decreased by 56.5% to RMB129 million. This decrease was mainly attributable to first reduced warehousing and the logistic expenses caused by lower in merchandise sales and the increased logistics efficiency.

Second, reduced third-party payment transaction fees due to lower commission rate; and third, lower personnel costs as a result of head count optimization.

Sales and the marketing expenses in the second quarter of 2020 decreased by 32.7% to RMB228.4 million, which was attributable to the decreasing member management fees as we continue to improve the efficiency of our member management operations.

Technology and content expenses in the second quarter of 2020 decreased to RMB58.6 million from RMB91.6 million. This decrease was mainly due to our realization of better counter terms with our certain provider, which helped to reduce our total costs, as well as partially due to the decrease in personnel costs as a result of head count optimizations.

General and administrative expenses in the second quarter of 2020 increased by 8.1% to RMB70.7 million or 4.8% of total revenues from RMB65.4 million.

This increase was mainly due to first increased share-based compensation expenses resulting from new grants of share based awards, and second increased the professional service fees including auditor and attorney fees, which were partially offset by reduced personnel costs as a result of head count optimization.

Overall, total operating expenses in the second quarter of 2020 decreased by 38.6% to RMB486.6 million from RMB792.9 million.

This reduction was due to our ongoing improvements to our logistics efficiency, increased member management efficiency as a result of enhanced service manager relationships and our ability to secure better terms with our partners.

Loss from operations in the second quarter of 2020 were RMB45.2 million including share-based compensation expenses of RMB37.6 million compared with RMB103.9 million. Net loss in the second quarter of 2020 was RMB17.5 million compared with RMB4.5 million.

Adjusted net income in the second quarter of 2020 was RMB20.1 million, compared with an adjusted net loss of RMB39.2 million. Basic and diluted net loss per share attributable to ordinary shareholders in the second quarter of 2020 were both RMB0.01 compared with RMB0.28 in the same period of 2019.

Now, let's also take a look at cash and liquidity positions. During this quarter, our ability to maintain a healthy level of working capital despite the macro headwinds and uncertainties in the period enabled us to support our operational liquidity demand.

As of June 30, 2020, we had a total of RMB1.7 billion in cash and cash equivalents, restricted cash and short-terms investments in our balance sheet. Looking ahead, we plan to continue accelerating the development of both of our marketplace business and the merchandise sales business.

At the same time, we also aim to leverage our competitive value proposition for users' service managers and the quality suppliers in order to explore new initiatives and other partnerships with strong synergetic potential.

Going forward, we believe that such efforts will enable us to not only enhance our core financials at a steady pace but also ramp-up our overall profitability, setting the stage for high-quality growth in the long run. This concludes our prepared remarks for today. Operator, we are now ready to take questions..

[Operator Instructions] And your first question comes from the line of Ivy Liu from Credit Suisse. Ivy, the line is now open..

I will quickly translate myself. So, could management share more color in the current strategies on merchandising capabilities especially with regards to those self-owned brands and JV brands? Thanks..

Okay. Our commodity supply chain has more than contributed by the connection with B end consumers and our member consumers. So, we’re going to see in that where labor force and resources in the development of the private label and the joint venture brand.

And so for the products high in margin and high in the repurchase rate, we’re going to do promote more private label in the healthcare and in cosmetic and in food. And then for the medium level margin and the medium level repurchase rates product, we’re going to do cooperate with some publicly traded company to do more joint venture brands.

And then for one of the joint venture brands, we promoted ATM, it’s called the [indiscernible] Act and then it has been quite popular among the consumers and the repurchase rate has been 50%. And today, we just launched a new product that is called Yunji ID Facial Cream and GMV for today has reached RMB1 million.

And also, we can see such partnership model has been quite popular among our upstream partners like those JV brands and the private labels. And also it able to promote the values for our members because they are longing for those products; good in price and high in quality.

And also it will generate more values for our service managers because they also want to promote such popular products in high quality and also they would like to increase their income.

And also, we can see the partnership within the China high-quality manufacturing companies and the mainstream consumer product companies will be the main strategy for our supply chain. That’s for your questions. Thank you..

There are no questions at this time. I’ll hand back to the management for closing..

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..

That does conclude our conference for today. Thank you for participating. You may all now disconnect..