Dingdong (Cayman) Ltd. Q3 FY2022 earnings call

Product Development - Conviction in pursuing a better life: Founded to address mothers' concerns over children's food safety, dedicated to safer, healthier products. - Creating value for consumer and society: Emphasizes value creation instead of zero-sum competition, advocates clean label, develops low carb, low GI products. - Providing solutions: Develops products like Mom's Choice with traceability and scientific nutrition to meet consumer needs. ### Operational Performance - Q3 revenue RMB5.94 billion, non-GAAP net loss margin 4.8%. - Narrowed non-GAAP net loss margin from 31.9% last year. - Confident of approaching non-GAAP breakeven in Q4 2022. - Key drivers: Product development, service upgrades, supply chain efficiency. - GMV to revenue conversion rate 91.3%, up 3.1 percentage points. - Fulfillment expense ratio down 10.5 percentage points, AOV up 25%, front-line fulfillment stations delivery efficiency up 15.8%, in-warehouse staff efficiency up 29.6%. - Marketing expense ratio down 4.8 percentage points, customer acquisition cost per new active user dropped 32.6%.

In Q3 2022, revenue was RMB5.94 billion. The non-GAAP net loss margin was 4.8%. GMV to revenue conversion rate was 91.3%, up 3.1 percentage points from a year ago. Gross margin for the third quarter was 30%, up 11.8 percentage points from a year ago. Fulfillment expense ratio for Q3 was 26.8%, down 10.5 percentage points year-over-year. Marketing expense ratio for the third quarter was 2.1%, down 4.8 percentage points from a year ago. G&A expense ratio declined to 2% from 2.5% a year ago. R&D expense ratio grew slightly to 4.3% from 4.2% a year ago. GAAP net loss margin was 5.8%, narrowed by 26.7 percentage points from a year ago. Non-GAAP net loss margin was 4.8%, narrowed by 27.1 percentage points compared to Q3 last year. In the first three quarters of 2022, revenue grew 23.1% while gross profit grew 58.2% year-over-year.

- Expect to be close to non-GAAP breakeven in Q4 2022. - Anticipate returning to year-over-year growth trajectory in Q4. - Believes infrastructure investment in food R&D, culture technology, and technical data algorithms will strengthen competitive advantage and create long-term value.

Q: Given the overall weak macro environment, any change in consumers’ behavior?

A: Young consumers paying more attention to health and wellness, trend of meal for one with balanced nutrition, diversification of meals with changes and surprises, increase in processed food ratio. Core focus remains on quality, diversity, speed, and affordability.

Q: Strategy in a certain area and operation so far?

A: Mom’s Choice products have over 88 million average monthly GMV nationwide, half from Shanghai. GMV and gross profit margin of Mom’s Choice higher than national average. Develop scientific and nutritious food solutions for children based on different families' needs.

Q: Competitive landscape, especially in competition with other on-demand players?

A: Dingdong doesn't focus on competition but on value creation. Enhances product development, supply chain, and service capabilities. Goes deep into supply chain, develops differentiated products, optimizes frontline fulfillment stations, and uses dual standardization in management.

Q: Whether the frontline fulfillment station business model would really make profit and when Dingdong achieve profit?

A: Expect to roughly achieve non-GAAP breakeven in Q4. Depends on creating value for users, industry profit margins, and engagement in supply chain. Since adopting efficiency first strategy, gross margin up over 11 percentage points, fulfillment expenses down 10 percentage points, loss ratio narrowed by over 26 percentage points.