Good day, everyone, and thank you for joining us for Boqii's Fiscal 2023 First Quarter Earnings Conference Call. All participants are currently on mute. We will have a question-and-answer session later, and we will provide instructions for that. Please note that this call is being recorded; if you have any concerns, you can disconnect now. I will now hand 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. Hao Liang, our Financial VP. 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. 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. 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. And also please be reminded that unless otherwise stated, all figures mentioned during the conference call are in Chinese RMB. 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.

Thank you, Luo, and many thanks to everyone for joining the call today. Looking back into this quarter, Boqii has sustained pressure from COVID-19 across its entire supply chain, ranging from disruptions in local production to challenges in logistics. Despite all the challenges, Boqii remains committed to its mission of serving as a reliable and trusted platform to connect pet parents and the brand partners supported by an extensive product range, extensive channels, an engaging community, and rich content. As we continue to strengthen our brand among pet parents, we were able to achieve a recovery in GMV, with revenue increasing by 20.7% and 27.1% from the last quarter respectively. We have also continued to invest and enhance our big data analytics capability, allowing us to become one of the major go-to places for industry partners looking for our forward-looking perspective on pet market trends, allowing them to quickly identify and capture market opportunities. Hence, our high-margin online marketing and information services continued its growing trend, reporting a 14.7% year-over-year growth in revenue during the quarter, highlighting the increasing market adoption. Our private label also performed well, driven by our improving big data analytics capability, allowing us to identify growth potential in product categories such as pet supplies and healthcare products, leading to adjustments in our existing product portfolio. As a result, we reported a 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 highlighted our resilience despite operating in a downward cycle. Our strong performance in private label, together with continued efforts to enhance infrastructure, further improved warehouse efficiency and expanded our marketing capability, leading to satisfactory margin expansion of 313 basis points year-over-year, with post-fulfillment margin hitting 10.6%, reflecting our outstanding operational capabilities. Any change in cost control has led to a loss from operations of RMB9.8 million, narrowing by 76.4% year-over-year, and the net loss significantly dropped by 66.8% year-over-year to RMB12.4 million for the quarter, which is the best quarter so far. The improvement in cost control also gives us a much leaner structure to move forward, as we fully validate our ability to achieve profitability. Boqii, being the leading platform in China, is positioned to become one of the key beneficiaries as we continue to expand and strengthen our ecosystem and enhance our value proposition to pet parents and industry partners. Now let me pass the turn to Hao to update further on operations and community engagement during the quarter.

Okay, thank you, Lisa, for the market insights 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. 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 offerings and community so that on one hand we can become the one-stop destination for pet parents that satisfies their information, interaction, products and services needs, and on the other hand become the preferred option for brand partners to reach pet parents. 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 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. The growth of product category and selections, along with our comprehensive outreach channels 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. We believe the record highlights our high customer stickiness, as well as the potential for end-user organic growth that an expanding community should lay down a solid foundation for our future product sales and service revenue growth. All in all, along with our product portfolio optimization and cost control efforts, we reported a loss from operations of 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. Now, I will turn the call over to our Financial VP, who will share more details on our financials.

Thank you. 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. In this quarter, our total revenue slightly decreased by 2.1% to RMB315.1 million, primarily due to the decline in revenue from product sales, which dropped by 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. The increase in contributions from service income, as well as improvements in private labels and enhancements in product portfolio, led to 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%. In terms of expenses, due to the supply chain disruption as well as lockdowns 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 it 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. 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 marketing expenses as a percentage of total revenue were 10.2%, down from 14.1% in the same quarter of last year. The decrease was primarily due to the decline in advertising expenses amounting to RMB14 million resulting from lower expenditure for cost savings and the increased efficiency of revenue generated from more cost-efficient channels. 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 were 3.7%, down from 6.1%, primarily due to decreases in stock-based compensation expenses. This 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 by 74.6% year-over-year from RMB35.6 million last 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. On our financial position as of 30 June 2022, excluding the RMB159 million of long-term debt, our effective debt-to-assets ratio stood at 48.9%. As we are in the process 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 the RMB159 million of long-term debt. We ended this quarter with cash, cash equivalents, and short-term investments of RMB247.4 million. With our strong cash on hand, stable current ratio, and healthy growth, as well as the closing gap with breakeven point, we believe we are sufficient in our operations and continue to be solid. Last but not least, as Lisa mentioned, our purchase value always goes beyond business, as it is our mission to care to the best of our ability, especially during challenging times. We went one step ahead during the quarter through a series of donations and activities that promote caring for pet dogs as well as stray dogs and cats, supported by our Yunda supply chain. We're also able to donate pet supplies to various caring centers, satisfying the daily needs of thousands of stray dogs and cats. Looking ahead, we will continue with our efforts and see equal importance between business growth and care for pets.

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 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 for your question. We expect that our gross margin can reach 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 revenue will continuously increase, and the gross margin for third-party revenue is much higher than for product sales. Secondly, we expect an increased proportion of our private labels, and private labels have a gross margin that is also higher than that of non-private label 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 members versus non-members, we find that spending by members is about twice as much as that of non-members in this quarter.

Got it. And then last one for me. On the supply chain, I know in the last couple of quarters you've talked about how it has been a little bit of a challenge to procure some international brands. I'm curious about the June quarter or 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?

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 for these products through our private labels and domestic small and medium-sized brands. We also saw during this quarter that the share of private labels increased from 13% to 17%. Conversely, the proportion of the Top 10 brands fell from 51% to 48%. We think that by leveraging this strategy we can decrease the impact of challenges from overseas brands.

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

Our private label, 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 products?

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

That's helpful. Thank you. Appreciate it.

Thank you.

Thank you. The next question comes from Shenwan Lee with CITIC Securities. Please go ahead.

The gross margin for gin is approximately 33%, while the non-private label gross margin is around 20%. In the future, we anticipate our gross margin on private labels to range from 35% to 40%. Therefore, we expect our total gross margin to reach 30% going forward.

Thank you. The gross margin on our private labels is projected to be between 35% to 40% in the future, which is why we anticipate our overall gross margin to reach 30%.

Did you have a follow-up, Shenwan Lee?

Thank you. We expect our total gross margin to reach 30% in the future. That's helpful. Thank you, I appreciate it. The next question comes from Shenwan Lee with CITIC Securities. Please go ahead. Did you have a follow-up, Shenwan Lee?

Thank you. Appreciate it.

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

The next question comes from Shenwan Lee with CITIC Securities. Please go ahead. Did you have a follow-up, Shenwan Lee? Okay. If you're ready for the next question; the next questioner is Carol Yang with Huafu Securities. Please go ahead.

Please go ahead, Shenwan Lee. Do you have a follow-up question? If you’re ready for the next question, Carol Yang with Huafu Securities is up next. Please go ahead.

Please go ahead.

Did you have a follow-up, Shenwan Lee? Okay. If you're ready for the next question; the next questioner is Carol Yang with Huafu Securities. Please go ahead.

Okay. Well, is there any follow-up, Ms. Ling? 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.