Baozun Inc. (NASDAQ:BZUN) Q2 2022 Earnings Conference Call August 23, 2022 8:00 AM ET Company Participants Wendy Sun – Senior Director of Corporate Development and Investor Relations Vincent Qiu – Chairman and Chief Executive Officer Arthur Yu – Chief Financial Officer Tracy Li – Vice President-Strategic Business Development Conference Call Participants Alicia Yap – Citi Thomas Chong – Jefferies Joyce Ju – Bank of America Charlie Chen – China Renaissance Leo You – CLSA Operator Good morning, ladies and gent ...

Baozun Inc. (NASDAQ:BZUN) Q1 2022 Earnings Conference Call May 26, 2022 8:00 AM ET Company Participants Wendy Sun - Investor Relations Director of Baozun Vincent Qiu - Chairman and Chief Executive Officer Arthur Yu - Chief Financial Officer Tracy Li - Vice President of Strategic Business Development Conference Call Participants Thomas Chong - Jefferies Vicki Wei - Citi Joyce Ju - Bank of America Sophia Tan - Credit Suisse Charlie Chen - China Renaissance Operator Good morning, ladies and gentlemen, and than ...

Financial Performance - Total net revenue for Q1 2022 was RMB 1,984.2 million (USD 313.0 million), a year-over-year decrease of 1.8%[6] - Operating loss was RMB 41.2 million (USD 6.5 million), compared to an operating profit of RMB 52.9 million in the same period last year[6] - Net loss attributable to ordinary shareholders was RMB 122.4 million (USD 19.3 million), compared to a net profit of RMB 1.3 million in the same period last year[6] - Total Gross Merchandise Volume (GMV) for Q1 2022 was RMB 16,997.5 million, an increase of 28.4% year-over-year[10] - Product sales revenue was RMB 680.8 million (USD 107.4 million), down 29.9% from RMB 971.8 million year-over-year, primarily due to optimization of the product structure in the distribution business[19] - Operating expenses totaled RMB 2,025.3 million (USD 319.5 million), up from RMB 1,967.6 million in the same period last year[20] - The company reported a basic and diluted net loss per American Depositary Share of RMB 1.87 (USD 0.29) for Q1 2022[9] - The company experienced a significant decline in online store operations revenue, with a total net revenue of RMB 1,073.1 million (USD 169.3 million), down 19% year-over-year[19] - The company reported a net loss of RMB 125,554 for the three months ended March 31, 2022, compared to a net profit of RMB 2,132 for the same period in 2021[57] - Gross profit margin for the three months ended March 31, 2022, was approximately 70.0%, down from 59.3% in the same period of 2021[54] - Operating loss for Q1 2022 was RMB 41,170 million, compared to a profit of RMB 52,911 million in Q1 2021, indicating a decline in operational performance[68] Revenue Breakdown - Service revenue increased by 24.3% year-over-year to RMB 1,303.3 million (USD 205.6 million)[6] - Service revenue increased by 24.3% to RMB 1,303.3 million (USD 205.6 million) from RMB 1,048.7 million in the same period last year, driven by acquisitions contributing RMB 205.3 million (USD 32.4 million) in incremental revenue[20] - Non-distribution GMV was RMB 16,232.9 million, a year-over-year increase of 33.4%[11] Cash and Assets - Cash, cash equivalents, and restricted cash as of March 31, 2022, were RMB 3,375.7 million (USD 532.5 million), down from RMB 4,699.8 million as of December 31, 2021[27] - Cash and cash equivalents decreased to RMB 3,365,645 as of March 31, 2022, from RMB 4,606,545 as of December 31, 2021, representing a decline of 27%[44] - The company’s total current assets were RMB 7,357,038 as of March 31, 2022, down from RMB 9,203,980 as of December 31, 2021, a decrease of 20.1%[44] - As of March 31, 2022, total assets amounted to RMB 10,405,154, a decrease of 15.5% from RMB 12,318,980 as of December 31, 2021[44] - Total liabilities decreased to RMB 4,156,650 as of March 31, 2022, down 28.8% from RMB 5,837,631 as of December 31, 2021[47] Shareholder Actions - The board authorized a new share repurchase plan of USD 80 million, with 2.3 million ADS repurchased for approximately USD 19.9 million during Q1 2022[28] Non-GAAP Measures - The company utilizes non-GAAP financial measures to assess its business performance, including operating profit (loss) and net profit (loss) after excluding stock-based compensation and intangible asset amortization from acquisitions[33] - Non-GAAP operating profit (loss) is calculated by excluding stock-based compensation expenses and the impact of intangible asset amortization from acquisitions, providing a clearer view of operational performance[35] - The company believes that using non-GAAP measures facilitates investors' assessment of its financial and operational performance, despite the limitations of these measures[36] - The non-GAAP net profit (loss) excludes stock-based compensation, intangible asset amortization, and unrealized investment losses, reflecting a more accurate financial picture[35] - The company emphasizes that non-GAAP financial measures should not be considered in isolation or as a substitute for GAAP measures, as they may not reflect all income and expenses impacting operations[36] - The company’s management uses non-GAAP measures to formulate business plans and evaluate financial performance without the influence of non-cash expenses[35] Strategic Outlook - The CFO highlighted a focus on operational efficiency, cash flow management, and cost control amid macroeconomic uncertainties[16] - The company expressed confidence in its long-term business outlook and strategic initiatives despite short-term market volatility[16] - The company acknowledges the inherent risks and uncertainties in forward-looking statements regarding its operational and business outlook[39] - The company provides a comprehensive overview of its financial performance and strategies in its filings with the U.S. Securities and Exchange Commission[39] Operational Metrics - The number of online store operating partners reached 345 as of March 31, 2022, up from 333 as of December 31, 2021[11] - The company is a leader in the Chinese brand e-commerce service industry, providing end-to-end e-commerce solutions and empowering a diverse range of brands for growth and success[40] - The one-stop solutions offered by the company cover all core areas of e-commerce operations, including information solutions, online store operations, digital marketing, customer service, warehousing, and fulfillment[40] Share Performance - The company’s diluted loss per share for the three months ended March 31, 2022, was (0.62) compared to earnings of 0.01 for the same period in 2021[61] - The diluted earnings per ADS for Q1 2022 was $0.00, down from $0.82 in Q1 2021[68]

Financial Performance - In 2021, the company's GMV reached approximately 71 billion RMB, representing a year-on-year growth of 27.6%, with non-Tmall channels accounting for 31% of the total, an increase of 500 basis points[5]. - The company reported a revenue of RMB 1.5 billion for the year ended December 31, 2021, representing a 20% increase compared to RMB 1.25 billion in 2020[145]. - The gross merchandise volume (GMV) for the year was RMB 8.2 billion, up 15% from RMB 7.1 billion in 2020[145]. - The company reported a net income of RMB 300 million for 2021, a 10% increase from RMB 272 million in 2020[145]. - Total net revenue for the year reached RMB 9,396,256, representing a significant increase of 6.2% compared to the previous year[148]. - Operating profit decreased to RMB 7,021, down from RMB 558,677 in the prior year, indicating a decline of approximately 98.7%[148]. - The company reported a net loss attributable to ordinary shareholders of RMB 219,830, compared to a profit of RMB 425,992 in the previous year, marking a shift of 151.7%[152]. - The company’s diluted earnings per share (EPS) for ordinary shareholders was reported at RMB (1.02), compared to RMB 2.23 in the previous year, a decline of 145.8%[152]. - The company expects revenue growth of 25% for the upcoming fiscal year, projecting revenue to reach RMB 1.875 billion[145]. - Non-GAAP net profit for Baozun Inc. is calculated by excluding non-cash expenses, providing a clearer view of core operational trends[168]. Strategic Initiatives - The company is focusing on strategic acquisitions to enhance competitiveness, with a strategy centered on capability enhancement, industry integration, regional expansion, and brand building[8]. - The company formed a strategic alliance with Fosun Fashion Group to capture opportunities in the growing Chinese luxury goods market[111]. - Baozun acquired Yishang to further expand its influence in the fashion brand sector[115]. - The acquisition of FULL JET was completed to strengthen the luxury goods business[117]. - The company has completed the acquisition of a local e-commerce platform, which is expected to contribute an additional RMB 500 million in revenue annually[145]. - The company launched the "Spark Program" in 2021 to enhance the professional capabilities of trainees while improving the leadership skills of mentors[98]. Market Expansion - The company aims to strengthen its presence in the Asian market and enhance technology commercialization in the long term[13]. - Market expansion plans include entering two new international markets by the end of 2022, targeting a 10% increase in overall market share[145]. - The company is adapting to post-pandemic growth opportunities by embracing a multi-channel growth strategy[89]. Employee Engagement and Development - The company achieved an employee satisfaction rate of 88.5% in the latest survey, marking a steady increase over five consecutive years[12]. - The company emphasized the importance of employee mental health, conducting psychological consultation events in 2021 to support staff well-being[100]. - The company is enhancing its training programs, including leadership, project management, and marketing management, to support employee development[70]. - The company has implemented a comprehensive training program covering business ethics, legal compliance, and supply chain safety education[60]. Technology and Innovation - The company is investing RMB 200 million in new technology development for enhanced online-to-offline (O2O) services[145]. - The company is focused on innovation, leveraging algorithms to empower digital marketing and utilizing a SaaS platform to enhance customer expansion in real-time retail[88]. - Baosheng E-commerce aims to leverage technological innovation and customer demand as engines for growth, aspiring to become a global brand e-commerce partner[18]. Social Responsibility and Ethics - The company emphasizes a commitment to social and environmental responsibilities, contributing to a better society[35]. - The company is committed to environmental protection and social responsibility, addressing complex societal challenges[91]. - The company published its first Environmental, Social, and Governance (ESG) report, demonstrating its commitment to social responsibility[121]. - Baosheng E-commerce maintains a strong focus on integrity as a cornerstone of its business operations, promoting a culture of honesty and openness[39]. - The company is actively involved in public welfare donations and the cultivation of high-quality e-commerce talent[36]. Financial Metrics and Assets - Total assets rose to RMB 12,318,980, an increase of 17.6% from RMB 10,474,691 in the previous year[158]. - Cash and cash equivalents increased to RMB 4,606,545, up from RMB 3,579,665, reflecting a growth of 28.6% year-over-year[158]. - The company’s total liabilities increased to RMB 5,837,631, up from RMB 4,332,088, indicating a rise of 34.7%[158]. - The company’s inventory net amount increased to RMB 1,073,567, reflecting a growth of 4.7% from RMB 1,026,038[158]. - The company's goodwill increased from RMB 13,574 thousand in 2020 to RMB 397,904 thousand in 2021, indicating a substantial growth of approximately 2845.5%[200].

PART I [ITEM 3. KEY INFORMATION](index=7&type=section&id=ITEM%203.%20KEY%20INFORMATION) Outlines Baozun's corporate structure, VIE reliance, regulatory risks including potential delisting, cash transfers, and dividend restrictions - Baozun Inc. is a Cayman Islands holding company, operating primarily through PRC subsidiaries and a Variable Interest Entity (VIE), Shanghai Zunyi, which contributed **8.6% of total net revenues in 2021**[24](index=24&type=chunk) - The company faces significant delisting risk under the HFCA Act due to the PCAOB's inability to inspect its China-based auditor, potentially leading to a U.S. trading prohibition by **2024** or as early as **2023**[27](index=27&type=chunk)[29](index=29&type=chunk) Cash Transfers Between Parent and Subsidiaries (2019-2021) | Flow | 2019 (RMB in thousands) | 2020 (RMB in thousands) | 2021 (RMB in thousands) | | :--- | :--- | :--- | :--- | | Capital contributions from Parent to Hong Kong subsidiaries | 1,369,590 | — | — | | Capital contributions from Hong Kong subsidiaries to PRC subsidiaries | 548,905 | 608,841 | 383,585 | | Loans from Hong Kong subsidiaries to PRC subsidiaries | 15,000 | 371,925 | 867,646 | | Repayment from Hong Kong subsidiaries to Parent | — | — | 2,256,302 | | Amounts paid by VIE to PRC subsidiaries | 652,675 | 735,580 | 757,749 | - Dividend distribution from PRC subsidiaries is restricted, requiring a **10% statutory reserve fund** until it reaches **50% of registered capital**; the total restricted amount was **RMB 2,345 million (US$368.0 million) as of December 31, 2021**[39](index=39&type=chunk) Condensed Consolidating Statement of Operations Highlights (VIE vs. Consolidated) | Metric (RMB in thousands) | Year | VIE and VIE's Subsidiaries | Consolidated Totals | | :--- | :--- | :--- | :--- | | **Net Revenues** | 2021 | 809,547 | 9,396,256 | | | 2020 | 869,580 | 8,851,563 | | | 2019 | 626,912 | 7,278,192 | | **Net (Loss) Income** | 2021 | 47,090 | (205,963) | | | 2020 | 87,897 | 426,534 | | | 2019 | 65,279 | 281,891 | [Risk Factors](index=15&type=section&id=D.%20Risk%20Factors) - Business risks include dependency on China's e-commerce market growth, reliance on key brand partners (**top 10 accounted for 48.2% of total net revenues in 2021**), and significant reliance on the Tmall platform (**69.3% of total GMV in 2021**)[57](index=57&type=chunk)[63](index=63&type=chunk)[68](index=68&type=chunk) - The company reported a net loss of **RMB 206.0 million in 2021**, a reversal from **RMB 426.5 million net income in 2020**, primarily due to a **RMB 210.0 million unrealized investment loss** and weaker operational profitability[65](index=65&type=chunk) - Corporate structure risks arise from reliance on VIE contractual arrangements, which if deemed non-compliant by the PRC government, could lead to severe penalties[53](index=53&type=chunk)[183](index=183&type=chunk)[189](index=189&type=chunk) - Risks in China include uncertainties in PRC law enforcement, such as the E-Commerce Law, and potential CSRC approval requirements for offshore offerings, impacting future financing[54](index=54&type=chunk)[200](index=200&type=chunk)[213](index=213&type=chunk) - Securities risks include high trading price volatility and significant delisting threat from U.S. exchanges under the HFCA Act due to PCAOB inspection limitations[55](index=55&type=chunk)[243](index=243&type=chunk)[276](index=276&type=chunk) [ITEM 4. INFORMATION ON THE COMPANY](index=74&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) Provides Baozun's history, dual listing, business models, e-commerce capabilities, and its organizational structure with a PRC VIE [History and Development of the Company](index=74&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) Founded in 2007, Baozun has grown into a leading e-commerce service provider, with key milestones including its Nasdaq IPO in May 2015 and a global offering on the Hong Kong Stock Exchange in September 2020, accelerating growth through strategic acquisitions and a significant investment from Cainiao into its logistics arm, Baotong - The company was founded in **2007**, listed its ADSs on Nasdaq in **May 2015**, and completed a global offering on the Hong Kong Stock Exchange in **September 2020**, raising net proceeds of approximately **HK$3,511.4 million (US$450.2 million)**[305](index=305&type=chunk)[309](index=309&type=chunk)[316](index=316&type=chunk) - In **2021**, Baozun acquired several complementary businesses to enhance its service offerings, including Full Jet, eFashion, MoreFun, BolTone, and BaoBest[319](index=319&type=chunk) - In **September 2021**, Cainiao, an Alibaba subsidiary, made a **30% equity investment** in Baotong, Baozun's logistics holding company, for **US$217.9 million** to develop fulfillment and e-commerce opportunities[320](index=320&type=chunk) [Business Overview](index=77&type=section&id=B.%20Business%20Overview) Baozun is a leading brand e-commerce service provider in China, offering end-to-end solutions across IT, store operations, digital marketing, customer service, and fulfillment, serving 333 brand partners as of year-end 2021 - Baozun is a leader in China's brand e-commerce service industry, holding a **7.9% market share by GMV in 2019**, and served **333 brand partners** for store operations as of December 31, 2021[322](index=322&type=chunk)[323](index=323&type=chunk) Key Operating Metrics (2019-2021) | Metric | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | **Total GMV (RMB in millions)** | 44,410.3 | 55,687.4 | 71,053.9 | | Distribution GMV (RMB in millions) | 3,849.5 | 4,334.6 | 4,335.7 | | Non-distribution GMV (RMB in millions) | 40,560.8 | 51,352.8 | 66,718.2 | | **Total Net Revenues (RMB in millions)** | 7,278.2 | 8,851.6 | 9,396.3 | | Product Sales Revenue (%) | 47.0% | 44.1% | 41.2% | | Services Revenue (%) | 53.0% | 55.9% | 58.8% | - The company's top five customers accounted for **19.2% of total net revenues in 2021**, while its top five suppliers accounted for **59.7% of purchases**, indicating some concentration risk[393](index=393&type=chunk)[394](index=394&type=chunk) - As of December 31, 2021, Baozun directly operated **57 warehouses** with an aggregate gross floor area of approximately **1,135,000 square meters**, fulfilling **50.4 million outbound orders in 2021**[359](index=359&type=chunk) [Organizational Structure](index=112&type=section&id=C.%20Organizational%20Structure) Baozun Inc. is a Cayman Islands holding company controlling PRC operations through wholly-owned subsidiaries and a VIE, Shanghai Zunyi, to comply with PRC foreign ownership restrictions, maintaining control through contractual agreements for financial consolidation - The company utilizes a VIE structure to comply with PRC regulations; the VIE, Shanghai Zunyi, is **80% owned by CEO Vincent Wenbin Qiu** and **20% by co-founder Michael Qingyu Zhang**[493](index=493&type=chunk) - Control over the VIE is established through four key contractual arrangements: an Exclusive Call Option Agreement, a Proxy Agreement, Equity Interest Pledge Agreements, and an Exclusive Technology Service Agreement[496](index=496&type=chunk)[497](index=497&type=chunk)[498](index=498&type=chunk)[500](index=500&type=chunk) - The VIE contributed **8.6% of the company's total net revenues** for the year ended December 31, 2021[502](index=502&type=chunk) [ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS](index=116&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) Analyzes Baozun's financial performance, highlighting 2021 revenue growth, a net loss, strong liquidity, and capital resources Consolidated Financial Highlights (2019-2021) | Metric (RMB in thousands) | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | **Total Net Revenues** | 7,278,192 | 8,851,563 | 9,396,256 | | Product Sales | 3,422,151 | 3,906,611 | 3,873,589 | | Services | 3,856,041 | 4,944,952 | 5,522,667 | | **Income from Operations** | 383,653 | 558,677 | 7,021 | | **Net Income (Loss)** | 281,891 | 426,534 | (205,963) | | **Net Income (Loss) per ADS (Basic)** | 4.85 | 6.82 | (3.05) | - The net loss in **2021** was primarily driven by a **RMB 210.0 million unrealized investment loss**, mainly from a decrease in iClick Interactive's trading price, and a **134.7% increase in general and administrative expenses** due to accounts receivable write-downs and new headquarters costs[562](index=562&type=chunk)[568](index=568&type=chunk) Non-GAAP Financial Measures Reconciliation (2021) | Metric (RMB in thousands) | 2021 | | :--- | :--- | | Net loss attributable to ordinary shareholders | (219,830) | | Add: Share-based compensation expenses | 196,547 | | Add: Amortization of intangible assets from acquisition | 15,574 | | Add: Unrealized investment loss | 209,956 | | Less: Tax effect of amortization | (2,645) | | **Non-GAAP net income attributable to ordinary shareholders** | **199,602** | - As of December 31, 2021, the company had a strong liquidity position with **RMB 4,606.5 million** in cash and cash equivalents, and available credit facilities of **RMB 991.7 million**[598](index=598&type=chunk) Summary of Cash Flows (2019-2021) | Cash Flow (RMB in thousands) | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | 301,396 | 310,014 | (96,107) | | Net cash (used in) provided by investing activities | (1,133,451) | (616,367) | 375,820 | | Net cash provided by financing activities | 1,776,891 | 2,666,837 | 749,953 | [ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](index=138&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) Details Baozun's governance, board, senior management, compensation, employee count, and dual-class share ownership structure - The board of directors consists of **eight members**, including four independent directors, with key executive officers including co-founder Vincent Wenbin Qiu (Chairman & CEO) and co-founder Junhua Wu (Director & Chief Growth Officer)[631](index=631&type=chunk)[666](index=666&type=chunk) - In **2021**, aggregate fees, salaries, and benefits for directors and executive officers amounted to approximately **RMB 19.8 million**, excluding equity-based compensation, with **1,615,416 restricted share units** also granted to this group[645](index=645&type=chunk) - The company utilizes two primary share incentive plans, the **2014 Plan** and the **2015 Plan**, to grant options and restricted share units to employees, directors, and consultants[648](index=648&type=chunk)[649](index=649&type=chunk)[650](index=650&type=chunk) - As of December 31, 2021, the company had **8,821 full-time employees**, a significant increase from **6,076 in 2020**, partly due to acquisitions, with the largest group (**6,075**) in front-end functions like store operations and customer service[683](index=683&type=chunk) Beneficial Ownership and Voting Power of Key Individuals (as of March 31, 2022) | Name | Percentage of total ordinary shares | Percentage of aggregate voting power | | :--- | :--- | :--- | | Vincent Wenbin Qiu (CEO) | 5.3% | 29.5% | | Junhua Wu (CGO) | 3.0% | 12.7% | | Alibaba Investment Limited | 13.1% | 8.2% | [ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS](index=152&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) Outlines major shareholders and significant related party transactions, including those with Alibaba and Softbank affiliates - The company's relationship with its VIE, Shanghai Zunyi, is governed by a series of contractual arrangements that provide effective control and economic benefits[698](index=698&type=chunk) - Significant transactions with Alibaba Group include service fees paid to Tmall, which amounted to **RMB 752.8 million (US$118.1 million) in 2021**[699](index=699&type=chunk) - In **2021**, Cainiao, a subsidiary of Alibaba, made a **30% equity investment** in Baotong (Baozun's logistics arm) for **US$217.9 million**, with an agreement including a call option for Cainiao to increase its stake to **60%** starting from **July 2023** and a redemption right under certain triggering events[700](index=700&type=chunk) - In **2021**, the company repurchased **19,042,105 Class A ordinary shares** from Tsubasa Corporation (a Softbank subsidiary) for approximately **US$105.0 million** in a privately negotiated transaction[730](index=730&type=chunk) [ITEM 8. FINANCIAL INFORMATION](index=156&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) Refers to consolidated financial statements, highlights key legal proceedings, and states the company's dividend policy - A securities class action lawsuit filed in **2019**, alleging false and misleading statements, was voluntarily dismissed without prejudice in **November 2020**[734](index=734&type=chunk) - In **September 2021**, a subsidiary initiated an arbitration proceeding against a distributor for a **US$22.2 million payment default**, leading the company to record an allowance of **RMB 93.3 million (US$14.6 million)** for accounts receivable in **2021**[735](index=735&type=chunk) - The company has no present plan to pay cash dividends and intends to retain available funds and future earnings to operate and expand its business[738](index=738&type=chunk) [ITEM 9. THE OFFER AND LISTING](index=157&type=section&id=ITEM%209.%20THE%20OFFER%20AND%20LISTING) Details the company's dual listing on Nasdaq for ADSs and the Hong Kong Stock Exchange for Class A ordinary shares - The company's ADSs are listed on The Nasdaq Global Select Market under the symbol "**BZUN**" since **May 21, 2015**[740](index=740&type=chunk) - The company's Class A ordinary shares are listed on the Hong Kong Stock Exchange under the stock code "**9991**" since **September 29, 2020**[742](index=742&type=chunk) [ITEM 10. ADDITIONAL INFORMATION](index=158&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) Covers corporate information, dual-class share structure, PRC exchange control and dividend regulations, and tax implications - The company has a dual-class share structure: Class A ordinary shares are entitled to **one vote per share**, while Class B ordinary shares are entitled to **ten votes per share**, with Class B shares convertible into Class A shares on a one-for-one basis[756](index=756&type=chunk)[760](index=760&type=chunk) - PRC regulations permit dividend payments from PRC subsidiaries only out of accumulated after-tax profits and require setting aside at least **10% of after-tax profit** into a statutory reserve fund until it reaches **50% of registered capital**[808](index=808&type=chunk) - The company believes it was not a Passive Foreign Investment Company (PFIC) for the **2021 tax year** but notes that the significant decline in its ADS market price increases the risk of becoming a PFIC in the future[837](index=837&type=chunk) [ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=159&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Outlines the company's exposure to market risks, including foreign exchange, interest rate, and credit risks - The company's primary market risk is foreign exchange risk, as revenues and expenses are mostly in RMB, while some financial assets are in U.S. dollars, meaning a significant revaluation of the RMB could materially affect financial results[854](index=854&type=chunk) - As of December 31, 2021, the company held **RMB 2,990.8 million** in RMB-denominated cash and investments, and **US$247.5 million** in USD-denominated cash and investments[857](index=857&type=chunk) - Credit risk is present in accounts receivable; the company recorded an allowance for doubtful accounts of **RMB 118.7 million (US$18.6 million)** as of December 31, 2021[862](index=862&type=chunk) [ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES](index=177&type=section&id=ITEM%2012.%20DESCRIPTION%20OF%20SECURITIES%20OTHER%20THAN%20EQUITY%20SECURITIES) Focuses on American Depositary Shares (ADSs), detailing depositary fees and conversion procedures for Class A ordinary shares - The depositary, JPMorgan Chase Bank, N.A., charges fees for ADS services, including up to **US$5.00 per 100 ADSs** for issuance or cancellation, and up to **US$0.05 per ADS** for cash distributions[866](index=866&type=chunk)[867](index=867&type=chunk) - The report outlines the procedures for investors to convert Class A ordinary shares trading in Hong Kong into ADSs for trading on Nasdaq, and for converting ADSs back into Class A ordinary shares for trading in Hong Kong[883](index=883&type=chunk)[886](index=886&type=chunk) PART II [ITEM 15. CONTROLS AND PROCEDURES](index=185&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management and auditors concluded disclosure and internal financial reporting controls were effective as of December 31, 2021 - Management concluded that the company's disclosure controls and procedures were effective as of **December 31, 2021**[906](index=906&type=chunk) - Management assessed the company's internal control over financial reporting as effective as of **December 31, 2021**, excluding newly acquired businesses from **2021** which constituted **4.0% of net assets** and **5.8% of revenues**[910](index=910&type=chunk) - The independent registered public accounting firm, Deloitte Touche Tohmatsu Certified Public Accountants LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of **December 31, 2021**[911](index=911&type=chunk)[913](index=913&type=chunk) [Corporate Governance and Other Matters](index=187&type=section&id=Corporate%20Governance%20and%20Other%20Matters) Covers corporate governance, audit committee, code of conduct, accountant fees, share repurchases, and foreign private issuer exemptions Principal Accountant Fees (2020-2021) | Fee Type (in thousands) | 2020 (US$) | 2021 (US$) | | :--- | :--- | :--- | | Audit Fees | 1,713.4 | 1,123.8 | | All Other Fees | 183.9 | 188.3 | | **Total** | **1,897.3** | **1,312.1** | - In **2021**, the board authorized two share repurchase programs totaling **US$175 million**; by year-end, the company had repurchased **9,063,910 ADSs** (or equivalent shares) under these programs[927](index=927&type=chunk)[928](index=928&type=chunk)[931](index=931&type=chunk) - As a foreign private issuer, the company follows home country (Cayman Islands) practices in lieu of certain Nasdaq rules, including not being required to have a majority of independent directors on its board[934](index=934&type=chunk)[936](index=936&type=chunk) PART III [ITEM 18. FINANCIAL STATEMENTS](index=190&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) Presents audited consolidated financial statements for 2019-2021, including auditor's report and key financial statements Consolidated Balance Sheet Highlights | (RMB in thousands) | As of Dec 31, 2020 | As of Dec 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **10,474,691** | **12,318,980** | | Cash and cash equivalents | 3,579,665 | 4,606,545 | | Accounts receivable, net | 2,188,977 | 2,260,918 | | Inventories | 1,026,038 | 1,073,567 | | Goodwill | 13,574 | 397,904 | | **Total Liabilities** | **4,332,088** | **5,837,631** | | Short-term loan | — | 2,288,465 | | Long-term loan | 1,762,847 | — | | **Total Equity** | **6,133,603** | **5,059,669** | - The company completed several business acquisitions in **2021** for a total purchase consideration of **RMB 569.6 million**, resulting in the recognition of **RMB 247.9 million** in intangible assets and **RMB 383.5 million** in goodwill[962](index=962&type=chunk) - In **2021**, the company repurchased **27,191,731 shares** for **US$164.9 million**; of these, **19,042,105 shares** were subsequently retired[1142](index=1142&type=chunk) - As of December 31, 2021, the amount of restricted net assets in PRC entities not available for distribution was **RMB 2,345.1 million**[1161](index=1161&type=chunk)

Baozun Inc. (NASDAQ:BZUN) Q4 2021 Earnings Conference Call March 10, 2022 7:00 AM ET Company Participants Wendy Sun - Director, Investor Relations Vincent Wenbin Qiu - Chairman of the Board of Directors and Chief Executive Officer Arthur Junrui Yu - Chief Financial Officer Tracy Chunlu Li - Strategic Business Development VP Conference Call Participants Thomas Chong - Jefferies Charlie Chen - China Renaissance Joyce Ju - Bank of America Securities Robin Leung - Daiwa Operator Good morning, ladies and gentlem ...