Good day, ladies and gentlemen, thank you for standing by and welcome to Boqii's Fiscal 2023 First Quarter Earnings Conference Call. Currently all participants are in listen-only mode. Later, we will conduct a 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. [Operator Instructions] Now, I will turn the call over to Luo, Boqii's Head of Investor Relations.

Luo?.

Thank you, operator, and good morning everyone. Welcome to Boqii's fiscal 2023 first quarter earnings conference call. Joining us today are Ms. Lisa Tang, Co-CEO and CFO; and Mr. [indiscernible] our Financial VP. [Foreign Language] We released the results earlier today.

The press release is available on the company's IR website at ir.boqii.com as well as from Newswire services. A replay of the call will be available on the site later today. [Foreign Language] 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. Our 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 are included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statements except as required under applicable law.

[Foreign Language] 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 reconciliations of GAAP to non-GAAP measures can be found in our earnings press release.

[Foreign Language] And also please be reminded that unless otherwise stated, all figures mentioned during the conference call are in Chinese RMB. [Foreign Language] With that let me now turn the call over to our Co-CEO and CFO, Ms. Lisa Tang to go over our Q1 performance and highlights. Over to you, Lisa..

[Foreign Language] Thank you, Luo, and many thanks to everyone for joining the call today. Looking back into this quarter, Boqii has sustained the pressure from COVID-19 across its entire supply chain, ranging from disruption in local production to challenges in logistics.

[Foreign Language] Despite all the challenges, Boqii remains committed to its mission of serving as reliable and trusted platform to connect pet parents and the brand partners supported by extensive product range, extensive channel, engaging community and rich content.

As we continue to strengthen our brand among pet parents, we were able to achieve our recovery in GMV and the revenue of 20.7% and the 27.1% from the last quarter respectively.

[Foreign Language] We also continued to invest and enhance our big data analytics capability, so that we can become one of the major go-to places for industry partners, who are looking for our forward-looking perspective on pet market trends allowing them to quickly identify further market trends and capture the subsequently market opportunities.

Hence our high margin online marketing and information services were able to continue its growing trend reporting at 14.7% year-over-year growth in revenue during the quarter highlighting the increasing marketing adoption.

[Foreign Language] Our private label also performed well writing our improving big data analytics capability at the point identify the growth potential in product categories, such as pet supplies and the healthcare products, and has subsequently made adjustments to our existing product portfolio.

As a result, we were able to report our satisfactory increase in revenue of 27.3% year-over-year. The growth has not only demonstrated our ability to respond to market needs, but more importantly highlighting our resilience despite operating on a downward cycle.

[Foreign Language] Our strong performance in private label together with continued efforts to enhance infrastructure further improved warehouse efficiency and expanding on the marketing capability led to satisfactory margin expansion of 313 basis points year-over-year with post fulfillment margin hitting 10.6% reflecting our outstanding operational capabilities.

[Foreign Language] Any change in cost control, reporting the loss from operational – operations were RMB9.8 million narrowing by 76.4% year-over-year and the net loss was significantly dropped by 66.8% year-over-year to RMB12.4 million for the quarter, which is the best quarter so far.

The improvement on cost control also gives us a much leaner structure to go forward as we fully validate our ability to achieve profitability.

[Foreign Language] Boqii being the leading platform in China shall become one of the key beneficiaries as we continue to expand and strengthen our ecosystem and enhance our value proposition to pet parents and the industry partners.

[Foreign Language] Now let me pass the turn to Hao to update further on operationals and community engagement during the quarter..

[Foreign Language] Okay, thank you, Lisa, for the market insight and business highlights.

On a long-term horizon, we believe in the potential of China's pet market, as it remains underpenetrated and underserved, according to the white paper on China's pet industry in 2021, its market size is expected to reach RMB269.3 billion in 2022 and RMB445.6 billion in 2023.

For us the strong growth as well as the low industry concentration should leave ample space for us to grow and capture. [Foreign Language] As a platform that aims to become an end to end connector between brand partners and pet parents, we have been striving to expand our offering and community.

So that on the one hand we can become the one stop destination for pet parents that will satisfy their information, interaction, products and services needs and on the other hand becoming the preferred option for brand partners to reach pet parents.

[Foreign Language] Riding on our growing brand equity as well as established infrastructure, we were able to attract a growing number of brands to join our platform during the quarter with the number of brands increasing by 14.1% to 745 in the quarter from 653 in the same period last year.

SKU also reported an increase of 25.9% from 22,732 in the same period last year to 28,620 this quarter. [Foreign Language] The growth of product category and selections along with our comprehensive outreaching channel’s layout combined online and offline enabled us to continuously enrich our highly sticky traffic pool.

In this quarter, our active users increased by 11.4% year-over-year and 20.8% quarter-over-quarter to 1.83 million. Our customer acquisition cost also hit a new low of RMB5.2 million compared to RMB12.8 million in the same period last year.

[Foreign Language] And we believe the record [indiscernible] highlights our high customer stickiness, as well as the potential end user organic growth that expanding community should also lay a solid foundation for our future product sales and service revenue growth.

[Foreign Language] All in all, along with our products portfolio optimization and cost control effort, we were able to report the loss from operations worth RMB9.8 million narrowing by 76.4% year-over-year, as we are now really close to breakeven and in a much better position to generate long-term value for our shareholders.

[Foreign Language] Now, I will turn the call over to our Financial VP, [indiscernible], who will share more details on our financials. [Indiscernible]..

Thank you [indiscernible]. Now please allow me to walk you through our financial highlights for the quarter. Before I go into details, please note that all numbers presented are in RMB and are for the first quarter of fiscal year 2023 unless stated otherwise. All percentage changes are on a year-over-year basis unless otherwise specified.

[Foreign Language] In this quarter our total revenue slightly decreased 2.1% to RMB315.1 million, primarily due to the decline in revenue from product sales, which dropped 2.7% from RMB311.5 million to RMB303.2 million due to the impact of COVID-19.

However, revenue from the higher margin online marketing and information services increased by 14.7% to RMB11.9 million.

[Foreign Language] The increase in contributions from service income, as well as improvement of private labels and enhancement in product portfolio gas rather delivered an increase in gross profit from RMB56.4 million to RMB17.7 million, up 25.3% year-over-year. Gross profit margin also enjoyed a significant enhancement of 419 basis points to 22.4%.

[Foreign Language] In terms of expenses due to the supply chain disruption as well as lockdown from COVID-19, our fulfillment expenses for the quarter slightly increased from 10.2% of revenue last year to 11.8% of revenue this quarter. Last year we maintained at RMB37.4 million.

However, as we were able to gradually increase our gross profit margin, our post fulfillment gross margin also increased to 10.6% compared to 7.3% last year. [Foreign Language] Our total sales and marketing expenses were RMB31.7 million, down by 30.3% from RMB45.5 million in the same period of last year.

Sales and the marketing expenses as a percentage of total revenue was 10.2%, down from 14.1% in the same quarter of last year.

The decrease was primarily due to the decline of advertising expenses amount to RMB14 million resulting from the lower expenditure for cost of saving and the increased production of revenue generated from more cost efficient channels.

[Foreign Language] Quarterly G&A expenses were RMB11.5 million, down by 41% from RMB19.6 million in the same quarter of fiscal year 2022. G&A expenses as a percentage of total revenue was 3.7% down from 6.1%, primarily due to the decreases in SBC expenses.

[Foreign Language] That came down to a net loss of RMB12.4 million for the quarter versus a net loss of RMB37.4 million last year, representing a significant drop of 66.8% EBITDA wise it also dropped 74.6% year-over-year from RMB35.6 million last a year to RMB9.0 million this quarter.

Non-GAAP net loss narrowed significantly by 66.7% year-over-year to RMB10.5 million from RMB31.5 million last quarter.

[Foreign Language] On our financial position as of 30 June 2022, if excluding the RMB159 million of long-term debt, our effective debt-to-assets ratio stood at 48.9% as we are in the progress of completing shareholders ODI, the company is expecting to receive the equivalent amount in U.S.

dollars from overseas, which will be recorded in equity after repaying, RMB159 million of long-term debt.

We ended this quarter with cash, cash equivalents, and short-term investment of RMB247.4 million with our strong cash on hand, stable current ratio, healthy growing, as well as the clothing gap with the breakeven point, we believe we are sufficient in our operation and continue to be solid.

[Foreign Language] Last but not least, as Lisa mentioned, purchase value always go beyond a business which is mission or caring path to best of our ability, especially during the challenging times.

We went one step ahead during the quarter through a series of donations and activities that promote pet dogs as well as stray dogs and cat caring spotted by our Yunda supply chain.

We're also able to donate pet supplies to various carrying centers such as VIE [ph] in Shanghai and [indiscernible] in Chengdu satisfying the daily need of thousands of stray dogs and cats. Looking ahead, we will continue with our good deeds as well as we see equal importance between business growth and pet wear being.

[Foreign Language] Here up in my summary. Let's now move on to the Q&A section.

Operator?.

[Operator Instructions] The first question comes from Darren Aftahi with Roth Capital Partners. Please go ahead..

Yes. Good evening. Thanks for taking my question. Good to speak with all of you. A couple, if I may. I just want to start; your gross margin continues to kind of improve, congratulations on that.

Where do you think the upper limit is on gross margins as you go forward and what are the initiatives you can put in place to kind of get there?.

Hi, Darren, thanks, this is [indiscernible]. Thanks for your question. So we expect that our gross margin can go up to 30% in the future..

And how do you get there from kind of that 2022 level today?.

Firstly we expect that our proportion of third-party [ph] revenue we'll continuously increase and the third-party [ph] revenue gross margin is much higher than the product sales. Secondly, we expect an increased proportion of our private labels and the private labels gross margin is also higher than the non-private labels brands..

Great. That's helpful.

And then can you talk about what spend was for members versus non-members in a quarter and kind of how that's trending over the last couple of quarters?.

About the spending of many – any difference between the members and non-members, we find that spending of members is about twice as non-members of this quarter..

Got it. And then last one for me. On the supply chain, I know in the last couple of quarters you kind of talked about how it's a little bit of a challenge to procure some international brands.

I'm curious either in the June quarter or kind of what you've seen in July and August and part of September thus far? Are you seeing any loosening in the supply chain and your ability to procure international brands and if not, are you substituting those with domestic brands?.

Okay. Thank you, Darren. Thanks for your question. The link and the timeliness of overseas brands entering China really have not recovered significantly. We plan to make up for the demand of this part of products through our own – through our private labels and domestic small and medium size brands.

And we also see during this quarter, the share of the – the proportion of the private labels increased from 13% to 17%. Well, the proportion of the Top 10 brands fell from 51% to 48%. So we think through this by leveraging – leveraging this strategy we think we can – we can decrease the influence of the overseas brand stuff, yes..

Just one more, if I may add in that comment, like, what's the gross margin you're seeing on your private label versus any kind of brand for that matter?.

Our private – hi there, you mean the private labels, the gross margin?.

Yes.

I guess what I'm asking is what is the gross margin you're seeing on private label versus branded product?.

Darren, this quarter our private label gross margin is about 33%, and the non-private labels gross margin is about 20%. In the future we expect our gross margin or private labels we achieve 35% to 40%. So that's why we expect our total gross margin; we achieve 30% in the future..

That's helpful. Thank you, [indiscernible]. Appreciate it..

Thank you..

Thank again. [Operator Instructions] The next question comes from Shenwan Lee [ph] with CITIC Securities. Please go ahead..

[Foreign Language].

[Foreign Language].

Did you have a follow up Shenwan Lee [ph]?.

[Foreign Language].

[Foreign Language].

Okay. If you're ready for the next question; the next questioner is Carol Yang [ph] with Huafu Securities. Please go ahead..

[Foreign Language].

[Foreign Language].

[Foreign Language].

[Foreign Language].

Okay. Well, is there any follow-up Ms. Ling? Okay. This concludes our question-and-answer session and Boqii's Fiscal 2023 First Quarter Earnings Conference Call. Thank you for attending today's presentation. You may now disconnect..