Q2 2022 Dada Nexus Ltd Earnings Call

August 23, 2022

Good morning, ladies and gentlemen, and thank you for standing by for <unk> second quarter 2022 earnings conference call.

At this time all participants are in a listen only mode.

After the managements prepared remarks, there will be a question and answer session. As a reminder, today's conference call is being recorded.

I will now turn the meeting over to your host for today's call Ms. Caroline Dong head of Investor Relations for data.

Please proceed Carolyn.

Okay.

Thank you operator, Hello, everyone and thank you for joining our second quarter rich and he can speak to your earnings conference call on the call today from data we have Mr. Chairman.

Chairman and CEO .

Yeah, well you can of course.

He called me President, Mr. Bastian, CFO and Mr. Jiang will founder and CTO.

We supply will talk about our operations and company highlights then Mr. Chen will discuss the financials and guidance. They will all be available to answer your questions. During the Q&A session that follows.

Before we begin I'd like to remind you that based on this call with me. All these statements. Please refer to our latest the safe Harbor statement seems though Ernie Thrasher lists all of our sites.

Which applies to this call also during this call we will discuss certain non-GAAP financial measures. Please also refer to our earnings press release, which contains a reconciliation of non-GAAP measures to the comparable GAAP measures.

And I'm like please know that our lives otherwise stated all figures mentioned during this conference call are in RMB is now my pleasure to introduce our chairman and CEO . Mr. Phillips. Please go ahead.

Thank you Carolina.

Thank you all for joining us today.

Today with mixed emotions I announced my resignation from that as chairman of the board and CEO .

I'd like to take this chance to everyone.

Our journey together.

I'm inspired and I'm proud of what do we have achieved I believe this transition will pick that up to the next chapter and we are now more ready than ever before to return the leaf.

I'm extremely pleased to announce that Jeff Hey, Dan.

Our vice President and my trusted partner has been appointed as our precedent.

Jeff has been.

And instrumental in our tremendous growth in the past eight years and our deepened the collaboration with JD such.

Such contribution speaks for itself.

This demonstrates that our strategy of execution and the leadership capabilities. He has won the trust and support from the team and the board.

While I'm also thrilled to welcome Mr niche.

<unk> seen between two joiners.

As the chairman of the board.

Under the leadership of Jeff Julien.

Long standing so far it is from.

<unk> Dot com.

So that will be in good hands.

I look forward to the continued strong partnerships with J D to create more compelling value for our shareholders and the society.

Now, let's discuss our second quarter results, we're pleased to announce another strong quarter in which the group maintained the rapid revenue growth with continuously improving operating efficiency.

During the second quarter of <unk>, turning to total net revenue increased by 55% and adjusted net loss margin narrowed by 20 percentage points year over year.

I would like to highlight some general market developments before providing more updates on the two platforms.

Ken will go through our financial results in greater detail.

Yeah.

Starting with the current <unk>.

That's really in the regulatory environment, Although group fully right the pro employment CRO consumption policies.

Recently, we so far the consumption recovery and employment stability.

Participation in major government less promotional events, such as Sunday Sunday to international consumption season in Shanghai.

As well as the pilots program of work related injuries issuance for writers.

Meanwhile, as China ends to promote the robust development of the platform economy.

Firmly supports regulatory policies.

<unk> opportunity of high quality growth to develop our platform in fully complying with regulations.

We believe our innovative and a solid business model can play a part in improving the efficiency of resource allocation and facilitating the progress of the domestic economy.

On the anti epidemic fronts, we actively cooperated with local governments and your Shanghai Beijing and other cities affected by COVID-19 during the second quarter to maintain the local supply of daily necessities.

Leveraging our strengths as an on demand at retail and deliver its platform to fully embrace our social responsibilities.

In June .

Received and appreciation leather from the Shanghai Municipal Commission of Commerce.

Our group's significant contribution to the COVID-19 fight in Shanghai, where our highly valued by the local government.

I would like to provide some updates on our deepening cooperation with JD com.

During the second quarter, the <unk> shelf now ourselves to go the unified brands for all on demand the retail services within JD ecosystem more than tripled year over year.

For search result optimization in second quarter, we fairly further expand is chophouse merchant base and product offerings to improve the.

<unk> ability for one hour delivery options in each local grid.

As a result, our search exposure rate E J D increased by 3% points compared with the previous quarter.

For nearby or Fuji.

Have food anything, though we further rollout this entry point to more cities. So far nearby has covered or cities nationwide English we have launched to the shelf in our service.

Driven by the improvements he exposure click through rates and the conversion rate the GMB from nearby have increased by more than 80% year or quarter over quarter.

Now, let me walk you through the operational highlights of our two platforms D. D D J and I don't know before going into details I would like to highlight the results of June 18th Scranton promotion, a major mid year online shopping festival in China.

Both J D D J and that are now made breakthroughs in this year's promotion.

For JBT J D N V on the peak day surpassed RMB 600 minute.

And Jamie during the promotional increased by more than 70% year over year.

Or that or no.

Number of daily others delivers exceeded 10 million for two consecutive days.

Now, let's spend more time J D D J, the leading local on demand the retail platform in China.

As of the end of June so they sent it to the number of annual active users on D. D. D. J increased by 42% year over year to $72 8 million.

Retailer empowerment brand cooperation and technology innovation continues to be the Foucault yourself J D. D. J in the second quarter I will elaborate on each of the three areas.

Firstly.

We have continued our efforts to empower retailers.

With the supermarket category, we have now established partnerships with 87 out of the top 100 supermarket chains in China.

In addition to Onboarding more powerful hundreds supermarket, hence we're also signing up more local original leaders.

Oliver.

Supermarket category is gaining momentum in shop now.

Thanks to the increase.

In online traffic and our conversion rate as well as offline customer acquisition.

Jamie of supermarket, and merchants and yourself now channel increased by multiple times year over year.

Let's move on to the consumer electronics and home appliance category.

Based on our consumer.

Consumer insights are the grid level, we continue to move the right product supplies online.

During the second quarter more than tens of thousands of consumer electronics and home appliance stores were newly launched on J D. D J.

In the smartphone subcategory.

As the largest also self platform for Xiaomi products.

We established an official partnership with Xiaomi brand in the second quarter.

As of now there are more than 3000 sell me home stores, let's say down J D D J <unk>.

We generated I mean home the Xiaomi home source increased by more than 10 times year over year in the second quarter.

In the PC and accessories.

Category, we further expanded offerings in the penetrated new settlements.

During the quarter, we formed new partnerships with leading brands, including panel and Aurora.

In the home appliance subcategories in collaboration with merchants, we enhance our service capability.

Integrated delivery installation and after sales service a large home appliances.

As a result, the JV of home appliance sub category more than doubled on a sequential basis.

And the mom and baby category, we facilitated the cooperation between leading retailer chains, and mom and baby brands, such as waste and elite.

As a result, GMB of mom and baby channels on J D D J more than tripled year over year.

We're also working more closely with trends in the liquor category, such as JD literate worth <unk> and 1919 Yashili Alger.

JV off liquor stores more than doubling year over year.

Yeah.

In the home and furniture category.

We have further penetrated smart home products for example in the second quarter GDP, Jay has established partnerships with more than 10 smart lock chance.

So tenants, including like a tide.

This should and abroad to solvent smart source online.

Providing users with a convenient one stop shopping experience integrating delivery and.

Sure.

Secondly, we continue to push forward our cooperation with sprint.

During the quarter, we continued to.

Sulfide our leadership in the auto space in terms of both the number of brands, we work with and the depth of engagement with our brands.

Our online marketing services recorded year over year growth exceeding over 80% in the quarter.

In the second quarter, we further expanded our diversified brand partner base with strikes.

Several new partnerships with food and beverage brands, such as you enter you suddenly and somebody talked about as well as beverage alcohol brands, such as the auto and <unk>.

In addition, we sign of mom and baby brand, such as our boss and pharmaceutical brands such as Johnson.

We also saw impressive results from our brand marketing campaigns.

June 1st TDD, J teamed up with 11 mom and baby brands, including waste and huggies to launch a joint marketing campaign.

It's creating a virtual mom and baby shop at offers extensive product and good price and available for one hour delivery.

Total GMB of participating brands increased nearly four flows.

The year over year basis.

On June 17th.

<unk> with J D. S June 18th screened promotion that started as H P. M. We partnered with 23 brands, including P&G, Pepsico and E Hi, Kerry to launch a live streaming campaign with the slogan.

Racing others at APM Deliverers, who is also up by nine P. M.

On the day of the live streaming have in.

Total <unk> of these brands increased by more than three times year over year.

Certainly.

We also continued our efforts to empower retailers and brands with innovative technologies.

And then <unk>.

June the high ball system over Omnichannel also operating system for retailers.

Being deployed by more than 200 merchants around.

7700 retailer stores.

Yes, hi.

<unk> have successfully penetrated new categories.

Including like pet stores, and the mother and baby stores, while serving more supermarkets and convenience stores.

The continuous rolling out new high both features to address what merchants need most and helps them wherever they see challenges.

One example is that we launched a new module, enabling merchants to directly connect to Jd's warehouse system sort of high book once they source supplies from J D.

This helps retailers procurement staff say significant labor hours.

Rudolf merchants adopting this module saw their procurement efficiency improved by three times.

Our earth grid systems, or Quinn's hook, which helps brands boost itself by providing them with high grade ore by store self data has been welcomed by a growing number of brands.

In addition.

Sharp now becomes an increasingly important channel for brand sales growth.

We upgraded Sequencers SKU analysis feature to help brands simultaneously monitor the availability of their goods at both J D. D. J N shop, now so that brands K, improving the product supply and self.

Our digitized in store picking service setup.

<unk> also made significant progress.

Since the establishment of our partnership with care for we have helped us prove picking fulfillment rate.

Customer experience and cost efficiency.

For example, customer complaint rates related with picking was lowered by <unk>.

I have three months after.

Further to utilize the startup kicking <expletive>.

As a result of the impressive results we have continued to deepen our collaboration with tell for now.

Now that are picking covers all of the churn.

Key OXXO stores.

Driven by expanded store coverage and the increased penetration of that are kicking in partnering stores. The total number of orders fulfilled by that are kicking in the second quarter increased by more than three times year over year.

Now, let's move to that are now the leading local on demand delivery platform in China.

While total revenue maintained rapid growth I don't know operating efficiency also improved significantly as we optimize pricing strategy and the merchant portfolio.

I will start with our K or Tim merchant business.

Revenue of our on demand delivery services to K merchants increased by 45% year over year, while average gross profit per other turned positive.

Our ability to provide integrated fulfillment services, consisting of warehousing management picking and delivery gives us unique advantages. Therefore, we continue to consolidate our leading position in the supermarket category.

In the second quarter revenue generated from supermarket.

<unk> increased by over 50% year over year.

In addition, we sign up new supermarket chains, like Walmart who may.

And the restaurant and beverage category revenue generated from beverage maintained rapid growth more than doubling year over year.

Moving onto our SME and the CTC business.

<unk> increased by over 70% year over year, while we continued to optimize <unk> economy is significantly year over year.

Thanks to our further penetration into lower tier cities, others for field for SME merchants increased by more than 40% year over year.

Lastly on last mile services.

For last mile delivery, we continue to leverage our flexible cross sourcing network to ensure the procurement of JD logistics, others, especially amidst the pandemic and during peak promotional campaigns.

For a pickup service.

Others Manhattan.

Long growth momentum, mainly driven by our further penetration into virus picking scenarios.

And to wrap up I would like to say a few words on ESG.

As sustainable development plays an increasingly important role in Chinas economic strategy, we are committed to creating value integrating social responsibility with corporate strategy.

Empowering our partners caring for our employees developments and satisfying consumer needs.

So that we can achieve a resolve that bring benefits to the company our shareholders and the society at large.

At the end of June we released our first ESG report, providing stakeholders with a comprehensive overview of our efforts and progress on key ESG issues.

Going forward, we will continue to integrate ESG initiatives into.

So our long term development strategy and actively shoulder our corporate social responsibility.

With that I will now pass the call over to Dr. Chen to go over our financials for the quarter. Thank you.

Thanks Philip.

We go over the numbers just a few housekeeping items in advance.

But we believe year over year comparisons the most useful way to judge our performance. Therefore, all percentage changes I'm going to give will be on that basis.

And all figures are in renminbi, unless otherwise noted.

The total net revenues in the second quarter increased by 55% to $2 3 billion net revenue from that are now increased by 37% to $816 million, mainly driven by the increases in order volume of intra city delivery.

Services to chain merchants.

Net revenues from <unk> increased by 66% to one 5 billion, mainly due to the increase in JV, which was driven by increases in the number of active consumers and average order size.

The increase in online marketing services revenue as a result of the increasing promotional activities also contributed to the revenue growth of ADT Jay.

Moving over to the expenses side operations and support.

One 4 billion. The increase was primarily due to an increase in <unk> cost as a result of increasing order volume for intra city delivery services provided to various chain merchants on the platform and the retailers on the <unk> platform.

Selling and marketing expenses were $1 2 billion. The increase was primarily due to the growing absolute dollar amount of incentives to J P J consumers and increasing advertising and marketing expenses to attract new consumers to J D. D J platform.

The amortization of the opinions cooperation agreement and rising from share subscription transaction with J P. Dot com in February this year.

G&A expenses.

100 million flat year over year is a result of our expenses control measures.

R&D expenses rose to 160 million, mainly attributable to increasing research and development personnel cost as the company continues to strengthen its technology capabilities.

non-GAAP net loss attributable to ordinary shareholders of data with 300, and a $96 million.

non-GAAP net loss margin was 17% improving by more than 20 percentage points year over year, and six percentage points quarter over quarter. In addition to daily Djs direct margin turned positive during the quarter, making a remarkable remarkable milestone in our path.

<unk> to profitability.

As of June 30, 2022 the company had 435 billion in cash cash equivalents restricted cash and short term investments.

Through our $17 million share repurchase authorization authorization announced in March 2022.

June 32019, Q, we had repurchased approximately.

$33 million, so 88 this and this.

Such as program.

In terms of our outlook for the third quarter of 2022, we expect total net revenue to be between two point certified in the 245 in <unk>.

Representing year over year growth rate of 39% to 45%.

In addition, we expect the net loss margin in the third quarter of 2022 should continue to significantly narrow year over year and achieved sequential improvement for the sixth consecutive quarter.

This concludes our prepared remarks and.

And operator, we are now ready to begin the Q&A session. Thank you.

Thank you.

Ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced.

If you wish to cancel your request please press star two.

If you are on speakerphone, please pick up your handset to ask your question.

We will wait for a moment, while the question queue assembles.

Okay.

First question is from the line of Ronald Keung from Goldman Sachs. Please go ahead.

Thank you. Thank you.

Back and Caroline too.

Two questions first is how should we think about this executive and board changes.

Would there be a future CEO role as I think you have now.

President and chairman, respectively, and also see an increase in independent directors. So is that part of a board change to align with some of the Hong Kong stock exchange guidelines and any comments on eventual lifting or dual primary listing in Hong Kong.

And my second question is on the encouraging 18 percentage points improvement in net margins if you like that so.

As user subsidy rates trended so far and are we continuing to expect the direct margin breakeven this year and EBIT turnaround by next year. Thank you.

Okay. So thank you for the question Rona.

The first question, yes, so we have actually net added one independent director and now actually three out of six.

Directors independent, which is fully compliant with substantial Hong Kong listing rule and also right now four out of six board directors are female directors wishes wish him very.

I guess aside and.

They all have.

Very solid international backgrounds, and we hope that all of those.

Directors will contribute to.

The growth of the company in the future also we will be proactively.

Push forward to Hong Kong.

<unk> procedures.

To protect our shareholders.

Shareholders' interest and also.

I want to thank for their contribution.

Of.

But as to the due to the company for the past eight years. So after internal discussions we are not positioning our CEO low and actually president Jeff will be executing.

And be responsible and in charge of the daily operation and report to the board in the future.

And about the second question.

Yes, so actually in our overall subsidies ratio.

<unk> is actually decreased by 20 bps.

Compared to the first quarter so in.

Q2, actually our consumer incentives decreased to four 5% as a percentage of <unk> and in the third quarter, we expected.

Incentive ratios will be.

Decrease the more.

And that they will all be contributing to our Derek.

<unk> margin level and for the whole year.

We maintained.

Forecast is that the direct margin will be turning positive and.

The company will be turning.

Positive profit in there.

The first half of next year.

Yeah.

Wonderful thank you.

Thanks.

Thank you Ron.

Thank you.

Our next question comes from the line of Thomas Chong from Jefferies. Please go ahead.

Hi, good morning.

And my question is my first question is about the competitive landscape as we are seeing an increase in loan bore interest at the elevated into the space.

These days.

Or like a softball, medial and just where in the past.

<unk> also launched Costar.

How should we think about the competitive.

H J J M.

And my second question is about.

After the board change.

Should we think about our cooperation with our JV going forward.

Accelerating synergies with JD. Thank you.

Okay.

Nick.

We can now call last week.

Cynthia.

<unk> <unk>.

Chances are it will appear.

So when I see you said that this is high quality news.

Ddos is plenty for us to have some charters hifi working cheater youll see.

New Digesters.

Only <unk>.

<unk> and our needs through the winter.

The agenda shown Jasper Kenai.

So about <unk> <unk> due to the outflow of chapter two pages.

Okay. So.

This is Jeff so.

First and.

For most our positioning as a pure play marketplace an hour.

Enabling digitization capabilities has enabled us to.

<unk> was more extensive extensively with those all those leading chamber teams and our brands.

So which makes us more competitive in the.

Right.

The quality and prices of product price.

We will maintain the tin heightened lease proposal Susan in terms of yield.

Yes, so as we always tell our partners as a pure market pays we never compete.

Compete with our retail partners. So we are now engaging retaining ourselves so.

That's why.

No those retailers are more willing to work with us.

Alright.

<unk>.

<unk> here.

Yes <unk>.

Alright.

Who canceled anti ship such as CTO.

Yes.

Shelf into this issue.

And the utility.

Well most of those orders are hidden agenda.

And so some chunky chunky entitled Hanmi continues on GAAP.

Yes, Sean.

So Nancy we schedule the details.

So even though our competitors.

The city is more.

The impact to.

Our profit.

Two assets very limited an hour.

So our intention ratios decreased sequentially. So the rationale behind it is that the subsidies on the driver of the demand, but it needs to be continuous filled with high quality supplies. So pattern patterning with Lowe's, leading retailers gave us a clear age.

On the supply chain front over our peer and so.

So for the long term.

The fit on to the <unk> the usage sooner than that.

<unk>.

So shame on us for.

Cause you to see the central team in disability achieved onto <unk> <unk> to <unk>.

Since reaching certain local unions and the jump into Asia, which end newfield kind of chicken Ciabatta Susan yes.

The tongue GMP, the EQ quality define.

This is Jeff I am putting retained aware Matthew soon.

Sue will that go towards pretty soon.

And you also can't what Apple and Google and Yahoo.

Tonya EQ energy plan until funds went into some solvency ratio.

Hum.

Down the hall.

Sudhakar <unk> powergen homeless bunzl.

So some <unk>, we can do that.

Uh huh.

A couple of them.

<unk> <unk>, one could we do to you.

Suddenly ourselves with Chile.

Okay. So.

And we also enable our.

Retail partners with our capabilities.

In digitalization. So for example, take hydro system as an example also.

We continued rolling out our new hybrid features to address.

What merchants need most and help them reduce cost while enhancing.

The operating efficiencies so.

As of today as of June 30.

Is being deployed in around 7700 retail chain stores.

And another example is our integrated fulfillment solutions, consisting of warehousing management picking and delivery so.

There is a key difference between the on demand and retail and the food delivery.

So.

This is the picking and packing in the in the in the retail stores. So our integrated fulfillment solutions enable retailers to reduce the order picking time, while our other picking service to help them mitigate labor.

Labor shortage through it.

Innovative digitize digitize the crowd sourcing model, which are more highly valued by our retail partners.

And lastly, our culture.

Earth grid systems helps brands boosted sales by optimizing channel supply.

And then down to each like.

The grades of the area.

Champs needed some media solutions user.

<unk> see too many <unk>.

<unk> foods as it sounds LTV.

<unk> had a PD <unk> application.

And we are also proactively to expand across different <unk>.

Categories.

And in our capabilities in the <unk>.

Settlement.

Digitization can.

Easily.

Capex to extend from the most complicated of supermarket categories to other categories like <unk> categories appliance categories. As we have said before so this is also.

Clearly accurate capability of our platform compared to our peer company.

200, <unk> <unk> Sandler O'neill.

Hum.

<unk> saw some business.

<unk> sales, which is up <unk> 18 based on keeping Samsung champion in shelf.

First of all smartphone and the Wuxi.

We can Tom Salesforce on Assembly artisan shall we say.

<unk> hundred 90 <unk>.

As of June <unk>, the impact you would you say <unk> <unk>.

And assemblies to show you some of our key item, which was superwoman.

Panel.

And also the brand partnership so a tougher on the top retailers, we have extensive partnerships with the brands and since the <unk>.

Retail chains on our platform are critical offline distribution channels too many consumer product brands, we can.

Offer our brand partners, the integrated marketing services across both online and offline channels and also as well as digitization tools pursue our collaboration brands are not only able to generate more sales, but also improve their consumer insights in the channel.

Insights.

And we can also leverage jd's resulted to bring more brands on board and in particular like the brands in consumer electronics, where JD enjoy strong consumer mind share.

So.

And our peer is actually lagging us in terms of number of the <unk>.

Brands in the depths of the engagement with the brands.

<unk> consolidated debt.

<unk> changed our full year <unk> seen consumer.

It's important.

Some ability to South Dakota, Jamie to be 10 times.

Yes, let's talk about the collaboration with JD. So we continue to deepen our cooperation with JD com and during the quarter as the second quarter of this year, Jamie of shop, no sharp chabot more than tripled year over year.

<unk> this is <unk> <unk>.

On the social profoundly Mbt's center pattern yet.

In the second quarter, we further expanded the shop now merging.

<unk> and the product offerings to improve the availability of one hour delivery.

<unk> seen each local grid. So as a result, our search exposure rate in JV increased by three percentage points quarter over quarter.

Let's see how <unk> chunghwa soy or subsequent using HIFU license.

Hi.

On the <unk>.

Thank you.

Food is another chimney.

And on top of us.

The details of course these are slow to CME food chain towable businesses.

So for nearby <unk> tab.

We further rolled out this entry points to more cities. So far at the nearby tab has covered or cities nationwide in which we have launched <unk> services.

Driven by the improvement in exposure click through rate and conversion rate.

<unk> from nearby tab increased by more than 80% quarter over quarter.

And.

Contributing 10% of the shaft <unk> Jamie.

Sure.

Thank you Thomas.

Thank you.

Okay.

Thank you.

Our next question comes from the line of Eddie Leung from Bank of America Merrill Lynch. Please go ahead.

Good morning, guys.

Two quick questions.

First one is about consumer.

Behavior.

Could you give us an update on.

No observations.

Hum.

While consumers up to lane in the months after the opening of Shanghai and Amit.

Patient for example, any change in the past.

Okay.

And then secondly.

Could you also remind us.

D J.

You mentioned that gap.

Continuously going up.

Okay. So let me answer the second question first and our passive first Eric.

Eric to answer so.

The average order value of our <unk> surgical platform in Q2 was 225, RMB, which is.

Which is increasing by 10 RMB.

Care to our first quarter and in the long term. We think we will continue to drive up the average order value as we as we said so we will.

Have more.

Diversified.

Various <unk>.

New categories products and they are all.

With higher <unk> and the contribution contribute.

Positive there can margin to the platform, which would also not only help us to increase.

The diversity of our products to be offered to the consumers and also at cash due to our profit improvement.

And Ed ill give you.

Some.

Update on both the supply side and demand side from short term and long term perspective, our observation.

So.

In short term, we are seeing from the supply side from the supply side.

We are working with the.

Key merchants chance with the strong supply chain.

Abilities, and they're much more resilient to the turbulence.

Therefore.

This challenging environment.

The retailers or the retailer we have been working with are much stronger.

To deal with the challenge at the same time most of the retailers are facing.

Difficulties to get offline customers in stores Thats, why they really need to expand the <unk> business, that's why our partnership with the.

Retailers has been further.

Crews over the last couple of quarters, so thats from the supply side and from the demand side.

We're seeing that.

For example in July after Shanghai reopened and.

The Kobe.

<unk> two.

<unk> happen in <unk>.

Different cities across July and August .

It is absolutely, bringing some uncertainties and we're seeing the confidence of the consumers and their willingness to pay or do you have some way to recover and it does.

<unk> impact on our business as well, so I think going forward.

<unk>.

We're confident in.

We believe that the.

The demand side will.

Pick up over time, while our supply side remained very strong and for the long term I think.

On demand the retail penetration as a percentage of the local retail is still very low at the single digits. That's why the.

The room for long term growth.

Just tremendous.

Most of the retailers and brands believed that <unk> is the future.

Absolutely number one.

Growth area for the foreseeable future. So we are very much confidence.

Thank you Philip and thank you.

Okay.

Thank you. Our next question comes from the line of Alicia Yap.

From Citigroup. Please go ahead.

Hi, Thank you good morning management, Thanks for taking my questions and congrats on the solid results.

I have a follow up on the competitive landscape for J D D J.

I think you know, we're also seeing more payers actually.

<unk> non supermarket category that reach I think J D.

That are actually used to at Joseph Bank.

So can management comment.

The landscape, especially for non supermarket category.

Hum.

How would that take.

Well Ethan.

Margin from volume growth in the future and then I'll follow up on that is what else what can we expect for the direct margin target for JD D. J.

I mean.

Medium term, which is two to three years. Thank you.

Hi, Alicia I'll give you some of my thoughts and see if <unk> has anything to add.

So we are seeing more players coming onboard in the non supermarket category.

But.

More assay followers as we have been quite successful expanding in the market.

Supermarket category so they're following.

Without too much of the development.

If you breakdown.

The so called non supermarket category, you will see that.

The category, we're talking about mainly covers like.

Consumer electronics.

Mom and baby <unk> parenting Lakers or the home appliance so all of those.

Category has very different.

Consumer mindsets are comparing two restaurant food delivery. So this is totally different.

As there is.

This is very.

Remote.

Re mostly linked for any consumers to think of like buying a smartphone where buying a.

As home appliance from a restaurant food delivery platform. So I think that's the key.

And for JD, we are there.

We're happy and we're I think we're very lucky to have deeply collaborate with JD that.

The consumers come onboard until they have the strong mindset.

This category of products.

And with the development of our shop now business. So we can.

Easily leverage the traffic and the consumer mindset on those categories I think those are.

The advantages we enjoy that all of the other players.

It's very difficult for them to build similar mind share in.

Anytime soon.

Yeah and also about the.

But the take rate and also about the direct margin.

So.

All of those.

New categories actually we are.

If we subsidy we have we are subsea <unk> subsidy subsidizing much less compared to the supermarket categories, So which means that they all generate positive.

Broker margin.

To the to the company. So we are welcoming all of those.

New categories onboard and at other trained in our Companys direction March J D. D. J direct margin level, we actually in Q2, our gross margin positive two.

4%, so we are expecting.

In the direct margin level to be further increase increasing two 1% or more than 1% in the second half of this year.

And we believe it will be keeping to increasing.

2023.

Which is.

Sure.

Which is very key and essential to the company's overall.

<unk> profit.

The breakeven.

Yes.

Okay.

Thank you.

Our next question comes from the line of Andre Chang from Jpmorgan. Please go ahead.

Thank you management for taking my question.

Have a follow up question regarding our cooperation with JD. So now with this no infrastructure laid out right nor shop now and nearby tab.

Adds slowed et cetera, So I wonder how we will drive further no.

Growth.

Driven by our accomplishments J D.

For example will there be more AD load or like there will be more exposure or at from different category beyond electronics, FMC G etcetera, or we are going to promote more to get more visibility for.

Consumers within JD ecosystem et cetera, so any color for the drivers in the second half and in next year.

To increase our traffic contribution from J D will be helpful. Thank you.

Hi, Andrew I'll also give you some of my perspectives NFC is.

The rest of the team has anything more to add so in terms of the driver of our growth on J D. I think there are a few key things. We're looking at that number one is the penetration of the user base.

So we have we are fully aligned with JD to increase the penetration of consumer on JD com.

So now the penetration is still at the.

Single digits, while quickly growing and then we.

Are aiming at a 50% penetration in the long term. So I think this is the number one driver.

In short term and the long term.

There are few things to help for us to improve the penetration for example, like the exposure so we're getting more and more.

Space.

If you will on JD com in your you are able to see some more and more often everywhere.

Same time, we are expanding geographically and also bringing more of the more supply from various category. So therefore when people are searching browsing.

From various categories.

Now they can see us more and more often because before we don't even have the supply of the products in that kind of that new categories now as we spend and bring more stores and supply to onboard the customers are able to see them on SEDAR com.

So all of those helps us to improve the.

Improve the.

Exposure and the penetration in terms of promotion I don't think it will be a heavy promotion driven.

<unk> at all.

And.

Other than that we actually can fully leverage or the <unk>.

Existing successful promotion.

<unk> already like the June 18th or <unk>.

A double 11, and so on so forth. So JD has.

Lot of our successful promotion and now we can.

<unk> together with them so I think.

Those are the strategies, we are looking at.

Okay.

Sorry for <unk> assets.

SaaS and Paas.

All of Asia.

To help with some concern the ishares at maturity.

<unk>.

The local and social.

While <unk> social essentially in the first place.

<unk> been thought.

Hello.

So this is clearly a chunk, let's say G&A.

Chipotle are tending toward the mid <unk>.

<unk>, social gambling and chip.

We're <unk>.

In January she said it too cheap.

Chip.

<unk> will.

Yes.

<unk> me answer yes, our courses.

And then so the tissue P&L two collapses Rps, so don't meet with Julian and of which you can do the program.

Simona Kingdom this year, so dilution union.

Total lunches before EMEA itself with us into the fault zone <unk>.

Sure.

<unk>.

<unk>, what you can do about loans and retention.

Okay. So.

Our further.

Elaborate on the exposure opportunities for for example.

And if your if a consumer is searching.

The fresh produce products in their search tab, there will be more exposure to the shop now.

Choices. So for the next step we will export exposed we will spend two more category product for example of those.

<unk> products are big bulk products in the soup market and also we will further increased exposures in different channels like that.

The second second clean.

Channels and also when the consumers.

Placing the orders so when they finish and complete the orders there will be recommendation for then for the nearby stores and this is all in the testing procedures and so we are very confident that we are.

As in the shop nine J D J.

Acquiring more traffics and consumer mines within the JD ecosystem.

Thank you Andrea.

Thank you.

Our next question comes from the line of <unk> Zhang from UBS. Please go ahead.

Hi, Thank you management for taking my question.

My question is around I wanted to follow up on that.

<unk> side of vintage that you guys mentioned just now I.

I Wonder how do we see that churn rate of merchants, especially on the SME side. After the very challenging second quarter will that effect.

Our potash supply.

Certain long tail categories I understand this may not be an issue with our partnership with a leading supermarket chain, but I do believe we do have a large number of smaller merchants on the platform. So just wanted to hear your thoughts on that thank you.

Sure so for our supply side.

So our strategy is to firstly work with the key chance.

Not only supermarket chains, but also other vertical.

Specialty store tenants like our consumer electronics mom and baby liquor and so on so all of those the cage, hence retailers are much more resilience.

And all of them are still there and the business are relatively well.

So we're not seeing any substantial impact from the supply side and on the other hand.

We were actually happily seeing that almost all of our.

Retailer partners have strengthened partnership with us because they're seeing more challenges and are looking for our help so I think the partnership between the.

With our retailers has actually improved and we are very much confident that we will be able to going through all the turbulence.

Any like circumstances.

Okay.

Thank you.

There are no further questions at this time I will now hand back the conference to MS. Caroline Dong for closing remarks.

Thank you operator in closing on behalf of that management team, we'd like to thank you for your participation in today's call. If you require any further information feel free to reach out.

Thank you for joining us today. This concludes the call.

Thank you the context of data has now concluded. Thank you for your participation you may now disconnect your lines.

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Good morning, ladies and gentlemen, and thank you for standing by for a.

Second quarter 2022 earnings conference call.

At this time all participants are in a listen only mode.

After the management's prepared remarks, there will be a question and answer session.

As a reminder, today's conference call is being recorded.

I will now turn the meeting over to your host for today's call Ms. Caroline Dong head of Investor Relations for data.

Please proceed Carolyn.

Okay.

Thank you operator.

Hello, everyone and thank you for getting our second quarter.

Earnings Conference call on the call today from data we have missed that.

Chairman and CEO .

Yes. Thank you.

Incoming president Mr. <unk>, Chen CFO and Mr. <unk> Yang co founder and CTO.

Mr. <unk> will talk about our operations and company highlights then Mr. Chen will discuss the financials and guidance. They will all be available to answer your questions. During the Q&A session that follow.

Before we begin I would like to remind you that this conference call, including statements. Please refer to the safe Harbor statements in there Ernie Thrasher lists all of our site.

We shall find todays call also during these calls.

Discuss certain non-GAAP financial measures. Please also refer to our earnings press release, which contains a reconciliation of non-GAAP measures to the comparable GAAP measures.

And unlike please know that our lives otherwise stated all figures mentioned during this conference call are in RMB.

Now my pleasure to introduce our chairman and CEO .

Please go ahead.

Thank you Caroline.

Thank you all for joining us today.

Today with mixed emotions I announced my resignation from data as chairman of the board and CEO .

I would like to take this chance to thank everyone who.

Join our journey together.

And inspired and I'm proud of what we have achieved I believe this transition will pick that up to the next chapter and we are now more ready than ever before to return the leaf.

I'm extremely pleased to announce that Jeff.

Our vice President and my trusted business partner has been appointed as our precedent.

Jeff has been instrumental in our tremendous growth in the past eight years and our deepened the collaboration with JD.

Such contribution speaks for itself.

With demonstrated our strategy execution and leadership capabilities. He has won the trust and support from the team and the board.

Meanwhile, I'm also thrilled to welcome missed this.

In between to join Us.

As the chairman of the board.

Under the leadership of Jeff Julien back and with the <unk>.

<unk> so far it is from leading Antares.

Com.

We'll be in good hands.

I look forward to the continued strong partnerships with steady to create more compelling value for our shareholders and the society.

Now, let's discuss our second quarter results, we're pleased to announce another strong quarter in which the group maintained rapid revenue growth with continuously improving operating efficiency.

During the second quarter of 2022 total net revenue increased by 55% and adjusted net loss margin narrowed by 20 percentage points year over year.

I would like to highlight some general market developments before providing more updates on the two platforms.

Gotcha.

Our financial results in greater detail.

Starting with the current.

Industry and regulatory environment that our group fully in breast <unk>.

Employment CRO consumption policies.

Currently with a further consumption recovery and employment stability through participation in major government less promotional events, such as <unk> and the two international consumption season in Shanghai.

Well as the pilots program of work related injuries insurance for riders.

Meanwhile, as China and to promote the robust development of the platform economy.

Firmly supports regulatory policies.

We will seize the opportunity of high quality growth to develop our platform in fully compliance with regulations.

We believe our innovative and a solid business model can play a part in improving the efficiency of resource allocation and facilitating the progress of the domestic economy.

On the anti epidemic front, we actively cooperated with local governments in Shanghai, Beijing and other cities affected by COVID-19 during the second quarter to maintain the local supply of daily necessities.

Leveraging our strengths as an on demand at retail and deliver a platform to fully embrace our social responsibilities.

In June .

<unk> received an appreciation leather from the Shanghai Municipal Commission of Commerce.

Other groups significant contribution to the COVID-19 fight in Shanghai, we're highly valued by the local government.

I would like to provide some updates on our deepened cooperation with steady dot com.

During the second quarter, the <unk> shop now ourselves to go the unified brands for all on demand the retail services within JD ecosystem more than tripled year over year.

For search result optimization in second quarter, we further further expanders chophouse merchant base and product offerings to improve the availability of one hour delivery options in each local grid.

As a result, our search exposure rate in JV increased by 3% points compared with the previous quarter.

For nearby or 14.

Putting teamed up with further rollout this entry point to more cities. So far nearby has covered or cities nationwide English we have launched the sharpen our service.

Driven by the improvement in exposure click through rates and the conversion rate the GMB from nearby have increased by more than 80% year or quarter over quarter.

Now, let me walk you through the operational highlights of our two platforms DJ and that are now before going into details I.

I would like to highlight the results of June 18th Grand promotion, a major mid year online shopping festival in China.

Both J D D J and that Enel made breakthroughs in this year's promotion.

For JBT the Dnb on the peak day surpassed RMB 600 million.

And Jamie during the promotional increased by more than 70% year over year.

For that Enel <unk>.

Number of daily others delivers exceeded 10 million for two consecutive days.

Now, let's spend more time on the DDG, the leading local on demand the retail platform in China.

As of the end of June 2022, the number of annual active users on <unk> increased by 42% year over year to $72 8 million.

Retailer empowerment brand cooperation and technology innovation continues to be the <unk> in the second quarter I will elaborate on each of the three areas.

Firstly, we have continued in our efforts to empower retailers.

Beginning with the supermarket category, we have now established partnerships with 87 out of the top 100 supermarket chains in China.

<unk> two onboarding more top 100 supermarket chains, we're also setting up more local original leaders.

Moreover, <unk>.

Supermarket category is getting momentum in shop now.

Thanks to the increase.

In online traffic and conversion rate as well as offline customer acquisition.

Jamie of supermarket, and merchants and yourself now channel increased by a multiple times year over year.

Let's move onto the consumer electronics and home appliance category.

Based on our consumer.

Consumer insights as a grid level, we continue to move the right product supplies online.

During the second quarter more than 10000, consumer electronics and home appliance stores were newly launch on JD D. J.

In the smartphone subcategory.

As the largest also sells platform for xiaomi products.

We established an official partnership with Xiaomi brand in the second quarter.

As of now there are more than 3000, <unk> home stores, let's say down J D D J.

<unk> generated.

Home the Xiaomi home stores increased by more than 10 times year over year in the second quarter.

And the PC accessories.

Category, we further expanded offerings under penetrated new settlement.

During the quarter, we formed new partnerships with leading brands, including panel.

At Aurora.

In the home appliance subcategories in collaboration with merchants, we enhance our service capability.

Integrated delivery installation and after sales service a large home appliances.

As a result, the GMB of home appliance sub category more than doubled on a sequential basis.

And the mom and baby category, we facilitated the cooperation between leading retailer chance and mom and baby brands, such as waste and elite.

As a result, <unk> mom and baby channels on JD DJ more than tripled year over year.

We're also working more closely with trends in the liquor category, such as JD Lipper Award <unk> and.

<unk> 1919, Yahoo agile.

JV off liquor stores more than doubling year over year.

Yeah.

In the home and furniture category.

We have further penetrated smart home products for example in the second quarter GDP DJ has established partnerships with more than 10 smart lock tenants tenants law.

The tenants, including like.

Tidy should and abroad to solvent smart source online.

Providing users with a convenient one stop shopping experience integrating delivery.

Yes.

Secondly, we continue to push forward our cooperation with sprint.

During the quarter, we continued to.

Solid fight our leadership in the auto space in terms of both the number of brands, we work with them.

And the depth of engagement with our brands.

Our online marketing services recorded year over year growth exceeding over 80% in the quarter.

In the second quarter, we further expanded our diversified brand partner base with.

Strikes.

Several new partnerships with food and beverage brands, such as <unk> and <unk> as well as beverage alcohol brands, such as the auto and Motorola.

In addition, we sign up mom and baby brands, such as a bot and pharmaceutical brands such as Chantal.

We also saw impressive results from our brand marketing campaigns.

On June 1st TDD, J teamed up with 11 mom and baby brands, including wastes and huggies to launch a joint marketing campaign.

As creating a virtual model in baby shop at offers extensive product and good price and available for one hour delivery.

Total GMB of participating brands increased nearly four flows.

A year over year basis.

On June 17th.

Hey occurring with J D is June 18th screened promotion that started as APM, we partnered with 23 brands, including P&G, Pepsico and Hi, Kerry to launch a lifestyle.

Campaign with our slogan.

Placing orders at APM, they deliver to our das rose by 98.

On the day of the live streaming and <unk>.

<unk> of these brands increased by more than three times year over year.

Certainly.

We also continued our efforts to empower retailers and brands with innovative technologies.

At the end of June the high bar system, our Omnichannel also operating system for retailers.

Has been deployed by more than 200 merchants in around <unk>.

7700 retailer stores.

Yes, hi.

<unk> have successfully penetrated new categories.

Including like pet stores, and the mother and baby stores, while serving more supermarkets and convenience stores.

We continued rolling out new highball features to address what merchants need most and help them wherever that see challenges.

One example is that we launched a new module, enabling merchants to directly connect to Jd's warehouse system sort of high book once they source supplies from J D.

This helps retailers procurement staff say significant labor hours.

Rudolf merchants adopting this module saw their procurement efficiency improved by three times.

Our earth grid systems, or <unk>, which helps brands boost itself by providing them with high grade ore by store self data has been well count.

Growing number of brands.

In addition.

As shelf now becomes an increasingly important channel for brand sales growth, we upgraded consoles SKU analysis features to help brands cereal.

Tenuously monitor the availability of their goods at both J D D J and chopped up so that brands K, improving the product supply and self.

Our digitized in store picking service that are picking up.

Also made significant progress.

Since the establishment of our partnership with Carrefour, we have helped us.

<unk> picking fulfillment rate.

Customer experience and cost efficiency.

For example, customary compliant rate related with picking was lowered by <unk>.

Three months after the quarter.

It's utilized to South Africa.

As a result of the impressive results we have continued to deepen our collaboration with tier four now.

Now picking covers all of the churn.

The key OXXO stores.

Driven by expanded store coverage and the increased penetration of that picking in partnering stores. The total number of orders fulfilled by that are kicking in the second quarter increased by more than three times year over year.

Now, let's move to that are now the leading local on demand delivery platform in China.

While total revenue maintained rapid growth and announced operating efficiency also improved significantly as we optimize pricing strategy and the merchant portfolio.

I will start with our K or merchant business.

Revenue of our on demand delivery services to K merchants increased by 45% year over year, while average gross profit for other turned positive.

Our ability to provide integrated fulfillment services, consisting of warehousing management picking and delivery.

<unk> unique advantages therefore, we continue to consolidate our leading position in the supermarket category.

In the second quarter revenue generated from the supermarket.

<unk> increased by over 50% year over year.

In addition, we sign up new supermarket channels like Walmart who may.

And the restaurant and beverage category revenue generated from beverage is maintained rapid growth more than doubling year over year.

Moving onto our SME and CPC business.

Others fulfilled increased by over 70% year over year, while we continued to optimize unit economy is significantly year over year.

Thanks to our further penetration into lower tier cities, others fulfilled for SME merchants increased by more than 48% year over year.

Lastly on last mile services.

For a pickup service.

Others Smith <unk>.

<unk> growth momentum, mainly driven by our further penetration into virus picking scenarios.

And to wrap up I would like to say a few words on ESG.

As sustainable development plays an increasingly important role in Chinas economic strategy, we are committed to creating value integrating social responsibility with copper our strategy.

Empowering our partners caring for our employees development and satisfy consumer needs.

So that we can achieve a without that bring benefits to the company our shareholders and the society at large.

At the end of June we released our first ESG report, providing stakeholders with a comprehensive overview of our efforts and progress on key.

Ft issues.

Going forward, we will continue to integrate ESG initiatives into.

So our long term development strategy and actively shoulder our corporate social responsibility.

With that I will now pass the call over to Dr. Chen to go over our financials for the quarter. Thank you.

Thanks for that.

So we go over the numbers just a few housekeeping items in advance.

But we believe year over year comparisons are the most useful way to judge our performance. Therefore, all percentage changes I'm going to give will be on that basis.

And all figures are in renminbi, unless otherwise noted.

Services to chain merchants.

Net revenues from <unk> increased by 66% to one 5 billion, mainly due to the increase in JV, which was driven by increases in the number of active consumers and average order size.

The increase in online marketing services revenue as a result of the increasing promotional activities also contributed to the revenue growth after ADT Jay.

Moving over to the expenses side operations and support.

Costs were $1 4 billion. The increase was primarily due to an increase in <unk> costs. As a result of increasing order volume for intra city delivery services provided to various chain merchants on the platform and the retailers on the <unk> platform.

Selling and marketing expenses were $1 2 billion. The increase was primarily due to the growing absolute dollar amount of incentives to JBT, J consumers and increasing advertising and marketing expenses to attract new consumers to JBT J platform.

The amortization of the business cooperation agreement in writing from share subscription transaction with J P. Dot com in February this year.

G&A expenses.

$100 million flat year over year is a result of our expenses control measures.

R&D expenses rose to 160 million, mainly attributable to the increasing research and development personnel costs as the company continues to strengthen its technology capabilities.

non-GAAP net loss attributable to ordinary shareholders of data was 300 and a 96 minutes.

non-GAAP net loss margin was 17% improving by more than 20 percentage points year over years, and six percentage points quarter over quarter. In addition to daily Dj's direct margin turned positive during the quarter, making a remarkable remarkable milestone in our path.

<unk> to profitability.

As of June 30, 2022 the company had four point 35 billion in cash cash equivalents restricted cash and short term investments.

Through our $17 million share repurchase authorization authorization announced in March 2022.

June 32019, Q, we had repurchased approximately.

$33 million of Adi.

This and this.

Purchase program.

Terms of our outlook for the third quarter of 2022.

<unk> total net revenue to be between two point 35 billion and a $2 45 billion.

Representing year over year growth rate of 39% to 45%.

In addition, we expect the net loss margin in the third quarter of 2022 to continue to significantly narrow year over year and achieved sequential improvement for the sixth consecutive quarter.

This concludes our prepared remarks.

And operator, we are now ready to begin the Q&A session. Thank you.

Thank you.

Ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced.

If you wish to cancel your request please press star two.

If you are on speakerphone, please pick up your handset to ask your question.

We will wait for a moment, while the question queue assembles.

Okay.

Our first question is from the line of Ronald Keung from Goldman Sachs. Please go ahead.

Thank you. Thank you.

Back and Caroline.

Two questions first is how.

How should we think about business executive and board changes.

Would there be a future CEO role as I think you have now field.

President and chairman respectively.

And I also see an increase in independent directors. So is that part of a board change to align with some of the Hong Kong stock exchange guidelines and any comments on eventual lifting or dual primary listing in Hong Kong.

And my second question is on the encouraging 18 percentage points improvement in net margins that reflect that back so.

As user subsidy rates trended so far and are we continuing to expect the direct margin breakeven this year and EBIT turnaround by next year. Thank you.

Okay. So thank you for the question Rona.

The first question, yes, so we have actually net added one independent director.

And now actually three out of six.

Directors independent, which is fully compliant with substantial Hong Kong listing rule and also right now four out of six board directors are female directors wishes wish him very I.

Diversified and.

They all have very solid international backgrounds.

We hope that all of those.

Directors will contribute to that.

Growth of the company in the future and also we will be proactively.

Push forward the Hong Kong.

<unk> procedures.

To protect our.

Shareholders' interest.

And also.

I want to thank for their contribution.

<unk>.

Relative to the.

A company for the past eight years. So after internal discussions we are not positioning our CEO low and actually president Jeff.

Executing.

And be responsible and in charge of the daily operation and report to the board in the future.

And about the second question.

Yes, so actually our overall subsidies ratio.

<unk> is actually decreased by 20.

Yes.

Compared to the first quarter so in 'twenty.

And in Q2 actually our consumer incentives a decrease of 245% as a percentage of <unk> and in the third quarter, we expected.

And incentive ratios will be.

Decrease more.

And that they will all be contributing to our.

Derek can margin level and for the whole year.

We maintained.

Forecasted that direct margin will be turning positive in.

The company will be attending.

<unk> profit in the first half of next year.

Wonderful thank you.

And thanks.

Thank you Rhonda.

Yes.

Thank you.

Our next question comes from the line of Thomas Chong from Jefferies. Please go ahead.

Hi, Good morning, Thanks management for taking my questions.

First question is about the competitive landscape as we FCA increase in loan bore interest at the elevated into the space.

These days.

For example, like a softball medial and.

<unk> also launched <unk>.

How should we think about the competitive.

H J J M.

And my second question is about.

After the board change.

Should we think about our cooperation with our JV going forward.

The accelerating synergies with JD. Thank you.

Okay.

Nick.

We can now call last week.

India.

Panama assets passive Montana Asia.

The Cherokee facility CBE.

<unk> you said that this is high quality news.

<unk> heard some chatter SIFI.

Welcome to Cheetah usage.

New digester to meet that.

Dsos of our fluent and our needs through the winter.

The agenda <unk> with Keybanc.

So about <unk> <unk> due to the outflow to age as any.

Okay. So.

This is Jeff so.

First and.

For both our positioning as a.

Pure play marketplace an hour.

Enabling digitization capabilities has enabled us to.

<unk> was more extensive extensively with those all those leading trimble routines in our brands.

So which makes us more competitive in the.

Right.

Policy and prices of product price.

We will maintain the skin tightening with proposal.

Also heard in Tucson in terms of yield.

Yes, so as we always tell our partners as a pure market pays we never.

Pete with our retail partners. So we are now engaging retaining ourselves.

So.

That's why.

And those retailers are more willing to work with us.

Alright.

It.

Sounds like the push here.

Liquidity.

Alright.

Sure.

Mutated enzyme ship such as CTO.

Yes.

Shelf into the tissues.

And the utility.

When local assortment the Hilton Santa <unk>.

Some chunky chunky high this holiday season.

The Canadian Shan Shan <unk> schedule that you can use.

Even though our competitors fantasy cities more.

Impacted.

Our profit to US is very limited an hour.

As I said so.

Sure intensive ratios or decrease sequentially. So the rationale behind is that the subsidies on the driver of the demand.

It needs to be continuous fulfilled with high quality supplies, so pattern patterning with Lowe's, leading Richard US gave us a clear age on the supply chain front over our peer and.

So for the long term.

The $3 two at the time the usage Susan.

<unk>.

So Shannon <unk>, who see the central <unk> achieved onto two.

2000, <unk> <unk> to the full year.

His vision.

<unk> jumped into Asia, which hanging fruit kind of chicken Sheila and Susan.

Hello <unk>.

This is Jeff I am putting any time soon.

Soon the suit.

Sue will that go towards a peaceful.

Thank you.

Okay.

<unk> and <unk>.

Tanya <unk> defined <unk> solvency ratio.

Hum.

Tom.

And I don't know Sudhakar too volatile homeless bunzl into some <unk>.

<unk> been a couple of them.

Now Tijuana La Quinta the shift to.

<unk> one code that we do to you.

She also Chile.

Okay. So.

And we also enable our.

Retail partners with our capabilities.

In Digitization. So for example, take hydro system as an example also.

We continued rolling out our new hybrid features to address.

What merchants need most and help them reduce cost while enhancing.

The operating efficiencies so as of today as of June <unk>. It has been deployed in around 7700 retail chain stores.

And another example is our integrated fulfillment solutions, consisting of warehousing management picking and delivery so.

There is a key difference between the on demand and retail and the food delivery.

No.

This is the picking and packing in the in the in the retail stores.

Our integrated fulfillment solutions enable retailers to reduce the order picking times and while our other picking service to help them mitigate labor.

Labor shortage through it.

Innovative digitize digitize the crowd sourcing model, which are more highly valued by our retail partners.

And lastly, our culture or the Earth grid systems helps brands boosted sales by optimizing channel supply.

Down to each like.

The grades of the area.

Champs needed some media solutions user.

On the smartphone and the sheet too many things.

<unk> foods add some LTE.

Now host questions.

<unk> hundred <unk>.

The <unk> acquisition.

And then we are also proactively to expand.

<unk> different.

Categories.

So and our capabilities.

The settlement.

Of Digitization can use.

Easily.

Capex too.

And from the most complicated market categories to other categories like <unk> categories appliance categories. As we have said before so this is also.

PRA Azure capability of our platform compared to our peer company.

300, <unk> 70 on one year.

Mrs.

<unk> so the issue some isn't it.

<unk> sales, which is up <unk> <unk> in shelf.

Versus smartphone in the Wuxi.

We can touch the salesforce on the 10 year artisan shall we say to each other.

These are the 290.

As of June <unk> will be cleaning equipment can do.

The impact <unk> said since it uses the <unk> the feedback was water and.

Certainly some challenges some of our key titles, which was superwoman.

Panel.

And also the brand partnership so tougher on the top retailers, we have extensive partnerships with the brands and things.

The retail chains on our platform are critical offline distribution channels too many consumer product brands, we can.

Offer our brand partners integrated marketing service across both online and offline channels.

So as well as Digitization tools pursue our collaboration brands are not only able to generate more sales, but also improve their consumer insights and the China insights.

And we can also leverage jd's resulted to bring more brands on board and in particular like the brands in consumer electronics, where JD enjoy strong consumer mind share.

So.

And our peer is actually lagging us in terms of both number of the brands in the depths of the engagement with the brands.

<unk> consolidations.

<unk> changed our full year <unk>.

19%.

Jeff will comment on it.

Some ability to assure cycle, Jamie it is 10 months.

Yes, let's talk about the collaboration with JD. So we continue to deepen our cooperation with JD com and during the quarter as the second quarter of this year Jamie of shop now shall should go more than tripled year over year.

And it was cool.

The <unk> <unk>.

Social above only <unk> is in a sense of that yet.

In the second quarter, we further expanded the shelf now merging.

Base and the product offerings to improve the availability of one hour delivery.

Options in each local grid. So as a result, our search exposure rate in JV increased by three percentage points quarter over quarter.

Let's see how <unk> chunghwa soil assure sequencing heightened senses.

Hi.

<unk> heard some quality centers.

Chad.

Diesel food is another Jimmy.

And on top of and as it is.

These are solid Jimmy food chain.

The bad news.

So for nearby Fujian tab.

We further rolled out this entry points to more cities, so far and the nearby tab has covered or cities nationwide in which we have launched <unk> services.

Driven by the improvement in exposure click through rate and conversion rate.

<unk> from nearby tab increased by more than 80% quarter over quarter.

And.

Contributing 10% of <unk> Jamie.

Sure.

Thank you Thomas.

Thank you.

Okay.

Thank you.

Our next question comes from the line of Eddie Leung from Bank of America Merrill Lynch. Please go ahead.

Good morning, guys.

Two quick questions.

First one is about consumed.

Behavior.

Could you give us an update on.

On our observations of consumer.

While consumers are pooling in the months after the opening of Shanghai.

Amit inflation for example, any change there.

And then secondly could you also remind us.

<unk>.

P. J I think you mentioned that gap.

Continuously going up.

Okay. So let me answer the second question first and our passive <unk>.

John there so.

Sure.

The average order value of our <unk> surgical platform.

Q2 was 225, RMB, which is.

Which is increasing by 10 RMB compared to our first quarter and in the long term. We think we will continue to drive up.

Order value as we as we said so we will.

Have more.

Diversified.

Various.

New categories products and they are all.

With higher.

Contribution contribute.

Positive direct margin to the platform, which would also not only help us to increase.

The diversity of our products to be offered to the consumers and also contribute to our profit improvement.

And ill give you.

Some.

Update on both the supply side and demand side from short term and long term perspective, our observation.

So.

In short term, we are seeing from the supply side from the supply side.

We are working with the.

Key merchants chance with the strong supply chain.

Abilities, and they're much more resilient to the turbulence.

Therefore under this challenging environment.

The retailers or the retailer we have been working with are much stronger.

To deal with the challenge at the same time most of the retailers are facing.

Difficulties to get offline customers in stores Thats, why they really need to expand <unk> business, that's why our partnership with the.

Retailers have been further.

Crews over the last couple of quarters, so thats from the supply side and from the demand side.

We're seeing that.

For example in July after Shanghai reopened and the Colgate <unk>.

<unk> two.

<unk> been in.

Different cities across July and August .

It is absolutely bring some uncertainties and we're seeing the confidence of the consumers and their willingness to pay or do you have some way to recover and it does have some impact on our business as well so I think going forward.

Dean.

We're confident in.

We believe that the.

Demand side will.

Pick up over time, while our supply side remained very strong.

And for the long term I think the.

On demand the retail penetration as a percentage of the local retail is still very low at the single digits. That's why the.

The room for long term growth is just tremendous and most of the retailers and brands believed that <unk> is the future.

Absolutely number one.

Growth area for the foreseeable future. So we are very much confidence.

Thank you Philip and thank you.

Okay.

Thank you.

Our next question comes from the line of Alicia Yapp from Citigroup. Please go ahead.

Hi, Thank you good morning management, Thanks for taking my questions and congrats on the solid results.

I have a follow up on the competitive landscape for J D D J.

So I think we're also seeing more players actually more questions.

Non supermarket category.

J D.

Actually used to at Joseph Bank.

So can management comment.

Hmm.

Especially for the non supermarket category.

Intensified.

So how would that take.

Well even.

Margin from volume growth in the future and then a follow up on that is what else. What can we expect for the direct margin target for JD DJ in Denmark I mean.

Medium term, which is in two to three years. Thank you.

Hi, Alicia I'll give you some of my thoughts and see if <unk> have anything to add.

So we are seeing more players coming onboard in the non supermarket category.

But.

More assay followers as we have been quite successful expanding in that market.

Supermarket category, so they're following years without too much of the development. So if you breakdown the.

So called non supermarket category, you will see that.

The category, we're talking about mainly covers like.

Consumer electronics.

Mom and baby <unk> parenting, the Lakers or home appliance so all of those.

Categories has very different.

Consumer mindsets are comparing two restaurant food delivery. So this is totally different.

Is there it is.

Remote.

Mostly linked for any consumers to think of like buying a smartphone where buying a home.

Home appliance from restaurant food delivery platform, So I think thats the key.

And for JD, we are there.

We're happy and we're I think we're very lucky to have deeply collaborate with JD that.

The consumers come onboard until they have the strong mindset to buy those category products.

And with the development of our shop now business. So we can.

Easily leverage the traffic and the consumer mindset on those categories I think those are.

The advantages we enjoy that all of the other players.

It's very difficult for them to build similar mindshare.

Anytime soon.

Yeah and also about the.

But the take rate and also about the direct margin so.

No.

All of those.

New categories actually we are.

If we subsidy, we assess where subsea <unk> subsidy subsidizing much less compared to the supermarket categories, So which means that they all generate positive.

Broker margin.

To the to the company. So we are welcoming all of those new categories onboard.

And about the trend of an hour.

Our company's direction March <unk> margin level.

And actually in Q2, our direct margin positive two.

4%, so we are expecting.

In the direct margin level to be further increase increasing two 1% or more than 1% in the second half of this year.

And we believe it will be keeping to increasing.

2023.

Which is.

Sure.

Which is very key and essential to the company's overall.

<unk> profit.

Breakeven.

Yes.

Okay.

Thank you.

Our next question comes from the line of Andre Chang from Jpmorgan. Please go ahead.

Thank you management for taking my question.

Have a follow up question regarding our cooperation with JD. So now with this no infrastructure laid out right nor shop now and nearby tab.

It slowed et cetera, So I wonder how we will drive further.

The growth.

Driven by GE are accomplishing TD.

Consumers within JD ecosystem et cetera, so any color for the drivers in the second half and in next year.

To increase our traffic contribution from J D will be helpful. Thank you.

Hi, Joe also give you some of my perspectives.

<unk>.

The rest of the team has anything more to add so in terms of the driver of our growth on JD I think there are a few key things were looking at number one is the penetration of the user base.

So we have we're.

Fully align with JD to increase the penetration of consumer on JD com.

So now the penetration is still at the.

Single digits, while quickly growing and then we.

Our aiming at 50% penetration in the long term. So I think this is the number one driver.

In short term and the long term.

There are few things to help for us to improve the penetration for example, like the exposure so we're getting more and more.

Space.

If you will on Jay did comment you are you able to see some more and more often everywhere at the same time, we are expanding geographically and also bringing more of the more supply from various category. So therefore.

People are searching browsing.

From various categories.

Now they can see us more and more often.

Because before we don't even have the supply of the products in our kind of that new categories now as we spend and bring more stores and supplies onboard the customers are able to see them on SEDAR com.

All of those helps us to improve the.

Improve the.

Exposure and the penetration in terms of promotion.

Don't think it will be a heavy promotion driven.

Expansion at all.

And.

Other than that we actually can fully leverage or the <unk>.

Existing successful promotion.

Onto the already like the June 18th or <unk>.

A double 11, and so on so forth. So JD has.

Lot of our successful promotion and now we can.

<unk> together with them so I think.

Those are the strategies, we are looking at.

Okay.

Well certainly for <unk> Ses.

SaaS and Paas.

Thank you.

To help with future bulk lump sum the ishares at maturity.

<unk>.

Sit idly on the local and social.

When the social channel, which engine digestion social sanctioned firstly.

<unk> been thought.

<unk>.

So listen it's clearly a chunk, let's say T chalet.

Chipotle and they'll turn toward the permit to be issued.

Power Gen Asia and middle.

Social shareholding and chip.

We'll take in Jinhui, She said it too.

Cheetah <unk>.

<unk>.

Yes.

Also in the answer.

Our courses.

And then so the Ctrip qunar two collapses.

So don't meet with Julian and of which you can do the program.

<unk> Kingdom this year, so the loosening in our new hotel lunches before EMEA itself with us into the fault zone.

Sure Scott.

<unk>, what you can do about loans and retention.

Okay. So.

I will further.

To elaborate on the exposure opportunities for for example.

If a consumer is searching.

The fresh produce products in their search tab, there will be more exposure to the shop now.

The choices so for the next step we will export exposed we will spend a few more category product for example of those.

Heavier products are big power products in the supermarket.

So we will further increased exposures in different channels like that.

The second second clean.

Channels and also when the consumers.

As in the shop now in the J D J.

Acquiring more traffics and consumer mines within the JD ecosystem.

Thank you Andrea.

Thank you.

Our next question comes from the line of <unk>.

<unk> from UBS. Please go ahead.

Hi, Thank you management for taking my question.

My question is around I wanted to follow up on that.

Supply side of vintage that you guys mentioned just now.

I Wonder how do we see that the churn rate of merchants, especially on the SME side. After the very challenging second quarter will that affect our potash supply.

For certain long tail categories I understand this may not be an issue with our partnership with a leading supermarket chain, but I do believe we do have a large number of smaller merchants on the platform. So just wanted to hear your thoughts on that thank you.

Sure.

For our supply side.

So our strategy is to firstly work with the key chance.

Not only supermarket chains, but also other vertical specialty store tenants like our consumer electronics mom and baby liquor and saw so orders the cage, hence retailers are much more resilient and all of them are still there and the business are.

Relatively well.

So we're not seeing any substantial impact from the supply side and on the other hand.

We're actually happily seeing that almost all of our.

Retailer partners have strengthened partnership with our speakers today are seeing more challenges and are looking for our help so I think the <unk>.

Other shifts between the.

With our retailers has actually improved and we are very much confident that we will be able to going through all the turbulence.

Any like circumstances.

Thank you.

There are no further questions at this time I will now hand back the conference to MS. Caroline Dong for closing remarks.

Thank you operator in closing on behalf of the management team, we'd like to thank you for your participation in today's call. If you require any further information feel free to reach out.

Thank you for joining us today. This concludes the call.

Thank you the conference of data has now concluded. Thank you for your participation you may now disconnect your lines.

Q2 2022 Dada Nexus Ltd Earnings Call

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