Good day, ladies and gentlemen, thank you for standing by and welcome to Boqii’s Fiscal 2022 Third 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. Now, I will turn the call over to Mandy Luo, Boqii’s IR Manager. Mandy?

Thank you, Andrew, and good morning everyone. Welcome to Boqii’s fiscal 2022 third quarter earnings conference call. Joining us today are Ms. Lisa Tang, Co-CEO and CFO; Mr. Kai Fang, Chief Strategy Officer; and Mr. [indiscernible], Financial VP of Boqii. We released 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 our site later today. Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the US 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 this 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 statement except as required under applicable law. Please note that certain financial measures that we use on the call, such as adjusted net loss, adjusted 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. Also, please be reminded that unless otherwise stated, all figures mentioned during the conference call are in Chinese renminbi. With that, let me now turn the call over to our Co-CEO and CFO, Ms. Lisa Tang. Over to you, Lisa.

Thank you, Mandy. And many thanks to everyone for joining the call today. During Q3 for fiscal 2022, we continued to enhance our value chain position at an end-to-end connected, creating value for both pet parents and industry partners. As we enriched our SKUs, we further expanded our distribution network and introduced creative initiatives to satisfy the growing needs of pet parents. We were able to engage more users. On top of that, we observed the struggle for precise vertical traffic of our industry partners. While our proven private domain user traffic has enabled us to grow topline while controlling the sales and marketing spend. Therefore, we shared our user pool with industry partners and provided effective marketing solutions for brand owners through penetrated market and educated the pet parents in China. We continue to report pleasing performance across our operation figures against the fierce market competition. Active buyers increased by 17.8% quarter-over-quarter or 6.3% year-over-year. The number of orders increased by 19.2% quarter-over-quarter, pointing towards our expanding brand value and improving customer engagement. Such growth was able to translate to an internal revenue increase of 6.3% year-over-year. Remarkably, our gross profit margin increased from 17.9% in Q3 of fiscal year '21 to 23.1% in Q3 2022. We intend to continue our key user stickiness and cost savings with our rich portfolio of products to effectively turn our traffic into meaningful sales revenue. We remain dedicated to supporting the development of small to mid-size brands with our established capabilities in supply chain, warehousing, our membership system, and distribution network. We offer brands a cost-effective solution to target the right customer group. This has translated into a significant growth in online marketing, information facilities, and other revenue from 0.2% of total revenue in Q3 of fiscal '21 to 4.6% of total revenue in this quarter. As the infrastructure for such service revenue is already in place, its marginal cost remains low. Together with our fulfillment margin, we are confident to reach breakeven in the near future. Boqii is looking for not just a sustainable growth in user base, but also a comprehensive network and inverse juncture that allows us to connect the sellers and the buyers. As we achieved a new low in CAC of RMB5.5 per user, we believe our closed-loop system has taken shape and we will further improve our servicing capabilities. Looking ahead, China's pet industry is expected to continue its growth, reaching more than 400 billion RMB by 2023 according to market research. Huge opportunities lie behind the increasing penetration and expanding needs of pet parents and pet owners.

Thank you, Lisa. And thanks everyone for joining us tonight or today. On top of a general business overview, I'd like to share more detailed financial information that we're moving steadily towards profitability this quarter and onwards. First, we are pleased to see a healthy revenue breakdown. Product sales continue to pick up, mostly powered by our self-operated segment. We were able to roughly maintain a 40:60 split between self-owned channels versus third-party channels contribution. We believe this balance is well-maintained between efficiency, acquiring new traffic and returning user loyalty within our own communities. The strong growth in user base and traffic should also lay a solid foundation for future business expansion. This quarter, our gross profit was RMB76.9 million, up by 37% year-over-year. Our gross margin increased to 23.1%, mainly driven by improved margin of optimized SKU matrix and higher margin contribution from our value-added services. Fulfillment expenses slightly increased to RMB37.7 million compared to RMB33.6 million in the same period of last year. Fulfillment as a percentage of revenue was 11.3% versus 10.7% in the same period of the last year. This increase was primarily due to the increase in staff handling cost and packaging cost as a result of increasing proportion of the pet supply products, which require higher packaging. Post-fulfillment, the gross margin increased to 11.8% compared to 7.2% in the same period of last year. Our total sales and marketing expense was RMB48.3 million, down by 12.4% from RMB55.1 million in the same period of last year. Sales and marketing expenses as a percentage of total revenue was 14.5%, down from 17.6% in the same period of last year. The decrease was mainly due to the decrease in the share-based compensation expense of RMB11.4 million when compared to the same quarter of fiscal year 2021. G&A expenses were RMB22.3 million, down by 64% from RMB61.8 million in the same quarter of fiscal year 2021. G&A expense as a percentage of total revenue was 6.7%, down from 19.8% in the same quarter of last fiscal year. We ended this quarter with cash, cash equivalents, and short-term investments of RMB315.7 million compared to RMB339.4 million as of September 30, 2021. With no major CapEx seen, strong credit line backing us up and we are very close to the breakeven point, we believe we are cash sufficient in our operational and new initiatives. To conclude, Boqii delivered a set of solid results this quarter with meaningful progress in executing our growth strategies. We remain committed to investing more resources to build our pet ecosystem. We believe that by leveraging our leading market position in the pet industry, strong execution, and the business development strategies, we can capture the promising business opportunity and deliver value for pet parents and our brand partners. And we are moving steadily towards the breakeven point and profitability.

Thank you. We will now begin the question-and-answer session. First question comes from Darren Aftahi with Roth Capital. Please go ahead.

Yes, good morning, good evening. Thanks for taking my questions. Just a few if I may. In the press release you called out challenging market conditions in light of your growth. I'm just kind of curious what you're referring to. Is that COVID? Supply chain? Kind of something else? And then I guess, when do you see those challenging market conditions improving?

Thank you, Darren.

Hi, Darren. Thanks for the question. Actually, that's a very good one. So when talking about the challenging market conditions, it has impacted our top line as well as bottom line. So far, we can see a very steady demand in terms of the domestic market, but unfortunately for our offline business, as well as our offline traffic is heavily impacted by the COVID situation, and that impacts our supply chain as well. Due to the COVID situation, we are seeing some tough conditions, especially for the cross-border business. We see some headwinds in terms of the logistics. Therefore, as you can see, some of the imported products in our SKU lineup were impacted in the last quarter and the quarter before last. Hopefully, with medication and vaccination situations improving, we can contain it, and people will find a way to coexist with COVID-19 in better conditions, causing less impact on people's normal life, and less – especially in the cross-border supply chain.

Can I follow up on that? Are you experiencing customer demand that you are unable to meet because of product shortages related to supply chain issues?

Yes. So putting it this way, we did see a lot of traditional overseas imported products that were under-supplied. The domestic brands are trying their best to fulfill the gap, but we do see a lot of gaps that are on the field.

Great, that's helpful. Another one, if I may. Your gross margin was exceptionally strong in the quarter and I know typically it's seasonally strong. But I just want to understand; I appreciate that the online marketing piece is showing a lot of strength and that's a higher margin business. But can you speak to a couple of things with gross margin; one, what's the gross margin you're seeing on your product business; and then number two, how sustainable is that level going forward? Have you changed something structurally that you feel confident those gross margins can be elevated in the future?

In this quarter, we saw very solid gross profit margin growth in our product sales segment that increased from 17.9% to 21.4% compared to the same period last year. If we break this down, the contribution was from all across the categories, including staple food, pet supplies, and pet care products. This was driven by two reasons. Firstly, because we increased support for small to mid-size brands, which have higher margins compared to other brands, and secondly, because we adjusted the product mix, which has also helped the increase in product sales margin. If we look to the future, we foresee two drivers for gross profit margin improvements. One part will be from the information services and other revenue, because it has higher margins and we foresee that this will constitute an increasing part of total revenue. Secondly, this will be contributed by the product sales because in Q3 of the fiscal year is the December quarter, and we usually have e-commerce promotions. Therefore, in this quarter, product sales gross profit margin will be relatively low. So we are very confident that in future quarters, this number will continue to pick up. In the longer term, we aim to have a balance between overall revenue growth and gross profit margin improvements.

Great. And then just two more if I could. You mentioned profit – reaching profitability or breakeven, whatever the metric is, several times in your press release. I'm just kind of curious what level of quarterly sales you kind of have to be at to achieve that goal.

Hi, Darren. As Lisa mentioned, with our gross profit margin continuing to improve, we expect our total revenue to reach RMB400 million. We anticipate achieving breakeven.

Thanks. I have one last question. I know you have some time to address this, but I'm sure many investors on the call want to know if you could provide a high-level overview of the initiatives you are considering to meet the share price requirements for NASDAQ to ensure compliance with their standards. Thank you.

Yeah, sure. Hi, Darren. So we are fully aware of the NASDAQ share stock price requirement. We will take two approaches; one, our fundamental approach. We will continue to work in terms of investor relationships and we are trying to get more investors who recognize our intrinsic value to take advantage of this price. This is one approach. On the other hand, we are fully aware of all the technical methods that the company can take to meet the requirements, such as a reverse split of the stock. Therefore, we will definitely keep investors and the public aware should we have more concrete plans to meet those requirements.

Great, thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Mandy Luo for any closing remarks.

Thank you, Andrew, and thank you all for participating in today's call and for your support. We appreciate your interest and look forward to reporting to you again on our progress in the next quarter. Thank you.

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