Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to ATRenew Inc. Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after management's prepared remarks. Please note, this event is being recorded.

I will now turn the call over to the first speaker today. Mr. Jeremy Ji, Director of Corporate Development and Investor Relations for the company. Please go ahead, sir..

Thank you. Hello, everyone and Welcome to ATRenew's fourth quarter and full year 2021 earnings conference call. Speaking first today is Kerry Chen, our Founder, Chairman and CEO; and he will be followed by CFO Rex Chen. After that, we'll open the call to questions from analysts.

Our fourth quarter and full year 2021 financial results were released earlier today. The earnings release, investor slides accompanying this call and filings with the U.S. SEC are available on our company's website at ir.atrenew.com. There will also be a transcript following this call.

For today's agenda, Kerry will share his thoughts on our fourth quarter and full year performance as well as a review on our business strategy, followed by Rex, who will address the financial highlights. Both Kerry and Rex will join the Q&A session.

Please note that some of the information you will hear during our discussion today will consist of forward-looking statements and I refer you to our Safe Harbor statements in the earnings press release.

Any forward-looking statements at ATRenew make on this call are based on assumptions as of today and ATRenew does not take any obligation to update on assumptions on these statements. Also, this call includes discussions of certain non-GAAP financial measures.

Please refer to our earnings release which contains a reconciliation of non-GAAP measures to GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB and all comparisons are on a year-over-year basis. I'd now like to turn the call over to Kerry for business and strategy updates..

one, how we deploy and manage the nationwide edge as store network; two, some newly updates on the city level service integration model; three, how we balance the scale expansion and raising take rate of marketplaces; and four Paipai's sales performance during the spring festival. First, on store operations.

In 2021, we added 576 new stores, growing the total number of offline stores to 1,308. This greatly exceeds our previous guidance of 200 new openings at the beginning of 2021. The store network covers 214 cities, an increase of 43 cities compared to the end of 2020, shouldering in-person delivery and fulfillment.

Riding on geographic expansion, we also deepened penetration in lower-tier cities and increased density of stores in existing markets in order to further enhance sourcing capabilities and expand service coverage to individual consumers.

Among other stores, 595 were self-operated AHS stores, where we meet our consumers' recycling demand directly as well as provide trading services for JD's new device sales. Notably, store economics set a new record high in the fourth quarter as monthly average revenues per self-operated store exceeded RMB690,000 while achieving a net margin of 3.7%.

Leveraging our strengths in such industry-leading UE, self-operated AHS stores continue to enhance our competitive mode on the supply side across different use cases and contribute to both the top line and bottom line growth of the 1P business.

Meanwhile, the number of 20-operated [ph] AHS stores reached 692, including standard franchise stores with the same format of self-operated ones. Partner stores, we started and accelerated to open since 2021 and were incorporated in local retailer stores.

Together, these 20-operated [ph] stores have contributed to our channel penetration and brand recognition, especially in lower tier markets.

In addition, we have 21 Paipai selection retail stores that provide a premium guaranteed and integrated online/offline shopping experience to customers The second aspect I would like to address is the city level service integration model.

As introduced and emphasized in the third quarter earnings call, we reallocated resources in each city and integrated our core capabilities of three major business lines locally to establish our cohesive operating unit to penetrate deeper across local markets and to enhance local sourcing capability as well as transaction efficiency.

We then review the financial performance of each city and provide incentives accordingly. The city level service integration model has proven to be the right path for growth, judging by our progress in the fourth quarter.

Local penetration rate equivalent to the trading volume of pre-owned devices divided by the sales volume of new devices recorded significantly sequential increases of 46% in Langfang, Hebei Province and 53% new and Huzhou, Zhejiang province. In the first quarter 2020, we have launched 22 pilot cities.

It turns out that 18 out of them achieved faster growth compared with the baseline. B2B GMV increased by over 100% in 12 cities, including Shenyang, Nanchang and Hefei. We remain steadfast in the city level service integration strategy and will leverage it for refined analysis on local operations.

It enables us to improve our sourcing process, promote recycling at city level, serve our customers better and in turn, generate additional service revenue. Compared with the baseline, we expect to generate an extra GMV growth of 40% in the pilot cities.

Third, we have a comprehensive take rate of 4.8% for our marketplaces in the fourth quarter and we will balance the rising take rate and healthy growth of the platform in the long run.

For B2B business, we are devoted to offering a high-quality transaction platform to mid and small merchants, empowering them with digital tools of efficient sourcing, inventory management, sales, logistics and balance management. We take a small fraction of service fees out of the value we create.

In 2021, our high-quality services earned endorsement from merchants, leading to a 33% year-over-year increase in registered merchant accounts. The trust and the confidence we obtained from merchants also evidence why we can successfully adjust the fee structure for certain service items.

Looking ahead, we will continue to balance our need to increase the take rate and our desire to expand the scale of B2B marketplace. We hope to achieve sustainable and high-quality growth in the coming quarters as we unfold the city level service integration strategy.

Our positioning for PJT Marketplace is to build a basic service for the industry rather than to harvest the fruit aggressively.

We are ready to fulfill third-party retailers growing demand to trading better to attract more merchants and their supply to the online marketplace as we continue to increase customer engagement and improve the service experience. Fourth, let me quickly cover Paipai's development.

We achieved stable growth in B2C platform GMV and reached new high in service take rate, thanks to an improved brand recognition, tighter control over self-operated supply chain and improvement in aftersales services. In the fourth quarter, take rates for mobile category and the Paipai consignment model exceeded 10% for the first time ever.

We also collaborated with JD Group's marketing campaign related to the naming rights of CCTV New Year's Gala and provided full-scale services. During the holiday, GMV for Paipai marketplace grew by 71% year-over-year. Furthermore, we achieved year-over-year sales growth of over 300% on both [indiscernible].

In terms of profitability, we further refined our management and achieved a non-GAAP fulfilled gross margin of 14.6% with longer operating profit reaching RMB9.7 million in the fourth quarter. We also saw meaningful improvements in fulfillment and G&A efficiency.

As the non-GAAP fulfillment expenses and non-GAAP G&A expenses declined remarkably as a percentage of total revenues. We believe such efficiency can be further improved as a result of our persistent execution of city level service integration strategy and wider implementation of automated inspection systems.

Operating an internet plus recycle business, ATRenew is evolving with the circular economy advocated by Chinese government. In 2022, we aim to serve our customers well while upholding our position as an important partner in JD's ecosystem.

We routine this in supply chain capabilities, continue upgrading automation technologies and optimize cost structure and margins. With no doubt, city level service integration strategy stays core to our business and drives organic growth across local markets in China. We are confident in our sustained growth without compromising profitability.

With that, I will hand the call over to our CFO, Rex to go over the financials..

Thanks, Kerry and hello, everyone. We are very pleased to report that we have achieved the profitability milestone while delivering fourth quarter revenues that exceeded our previous guidance. I will start by sharing some of our financial highlights before we go into a more detailed look at the numbers.

Please note that all amounts are in RMB and our comparisons are on a year-over-year basis, unless otherwise stated. In the fourth quarter 2021, we delivered 48.2% revenue growth to achieve total revenues of over RMB2.4 billion, exceeding the high end of our previous guidance range provided in the third quarter earnings conference call.

Total GMV grew by over 50.7%, driven by strong growth in both product sales GMV and online marketplace GMV. In this quarter, the commission rate of our third-party marketplaces rose to 4.8% at the group level, marking a historical high.

This is a testament that our merchants, users, technology PJT and the Paipai marketplace for digitalized safe and convenient transactions. Bidding center transactions continue to show very strong growth. Gross margin at the group level was 26.1% in the fourth quarter.

Gross margin for our 1P business stabilized at 13.3% sequentially as we rolled out a nationwide strategy to secure sources of supply at our best efforts. This further meets consumers' demand for easy recycling and treating while obtaining greater consumer market share.

In the fourth quarter, we meaningfully optimize the cost structure through reducing fulfillment costs, both at the storefronts and at operation centers. The progress is evidenced by a strong expansion in the non-GAAP fulfilled gross margin, reaching 14.6% and representing an increase of 140 basis points over a year ago.

Notably, as previously mentioned, we delivered a non-GAAP operating income of RMB9.7 million in this quarter. We expect to continuously optimize operational efficiency and improve our non-GAAP operating margin. We aim at achieving operating profit throughout 2022 in the non-GAAP measures. Now let's take a detailed look at the financials.

So overall increase in GMV was driven by a strong growth in both product sales GMV and the online marketplace GMV which increased by 52.9% and 50%, respectively. Product sales GMV growth was mainly driven by improved efficiency in sourcing through the growing density and the penetration rate of AHS stores in China.

Another driver is a singles day campaign of e-commerce and the live streaming platforms which we have shared currently in the third quarter conference call.

GMV for online marketplaces, including PJT and the Paipai increased by 50% mainly driven by; first, stronger merchants demand and higher transaction frequency; and the second is the growth of B2C consignment model, as the 1P business contributes to profit and the 3P business is still loss-making at this stage.

We strive to achieve more balanced growth rates of 1P GMV and 3P GMV from non-setting profitabilities, higher priority during business expansion. In the fourth quarter, total revenues increased by 48.2% to RMB2,435.8 million. Net product revenues increased by 43.9% to RMB 2,076 million. While net sales revenues increased by 78.3% to RMB359.9 million.

Growth in net product sales revenues were driven by continued increases in the density of our AHS stores and our reinforced trading collaboration with jd.com.

Growth in service revenues was driven by growing transaction volumes and an increase in the monetization capabilities of our marketplaces, reflecting a growing demand for our digital solutions and the technology impairment by merchant users.

We believe the expansion of commission rates should be organic as we see the balance between the growing take rate and the growth in scale as we prioritize the betterment of our ecosystem participants in the long run through more added services, including repair program [ph], we aim to serve our customers well with ample service options instead of imposing comparing fees.

Next, turning to our operating expenses to provide greater clarity on the change in our actual operating base expenses. We will discuss our non-GAAP operating expenses which better reflect the views of management. The reconciliations of GAAP and non-GAAP results are available in our six filings with the SEC.

Operating costs and expenses increased by 50.1% to RMB2,573.2 million. Non-GAAP operating expenses which exclude share-based compensation expenses and amortization of intangible assets resulting from business acquisitions increased by 48.9% to RMB2,437.7 million. Merchandize costs increased by 45.6% to RMB1,800.5 million.

This is in line with the growth of the 1P product sales revenues. Fulfillment expenses increased by 52.8% to RMB290.1 million, excluding RMB10.3 million in share-based compensation expenses which we will refer to as SPC from here on. Non-GAAP fulfillment expenses increased by 47.3% to RMB279.8 million.

The increase was primarily due to the growing costs related to fulfillment personnel, logistics and operating centers costs as the company's business continues to scale. Notably, we have relocated our Shenzhen operating center to Dongguan a city nearby at lower cost.

Meanwhile, advancing automation capabilities there, we target to complete the full scale automation of Dongguan operating center in the first half of 2022, further reducing inspection costs per device by 20% in South China.

At the same time, for products with low selling prices and relaxed delivery requirements, we brought in economical logistic provider to optimize fulfillment costs. Selling and marketing expenses increased by 74% to RMB368.8 million.

The increase was primarily due to an increase in costs related to business development, sales promotion and increasing personnel to match the growing scale of our business, excluding SBC expenses and the amortization of intangible assets from business acquisitions, non-GAAP selling and marketing expenses increased by 100.2% to RMB271.7 million.

Non-GAAP measures, selling and marketing expenses as a percentage of total revenues was 11.2% in the fourth quarter, slightly increased by 0.7 percentage points sequentially. To provide more color on selling expenses through investments in advertisements, promotions and campaigns reached RMB92 million.

Coupons on Paipai was RMB63 million, representing an increase of RMB23 million compared with the fourth quarter of 2020. Commission expenses were RMB56 million and increased in line with the growth in scale and the new large streaming sales model.

For context, Paipai consignment model launched in 2021 and thus related sales promotion expenses were new to this category. We expect those coupons on Paipai to decelerate as B2C and the consignment sales getting on track. Overall sales and marketing expenses as of total revenue remained relatively stable throughout 2021.

G&A expenses increased by 41% to RMB51.9 million. Excluding SBC expenses, non-GAAP G&A expenses decreased by 10.6% to RMB32.9 million. Similar to the third quarter, the decrease in G&A expenses showed an improved cost efficiency in our middle and back offices.

Technology and content expenses increased by 35.8% to RMB62 million, the increase was primarily due to increases in personnel costs related to the expansion of our research and development activities.

Excluding SBC expenses and amortization of intangible assets resulting from business acquisitions, non-GAAP technology and content expenses increased by 38% to RMB52.7 million. As a result, our non-GAAP operating income was RMB9.7 million in the fourth quarter of 2021.

Non-GAAP operating margin was 7.4% compared with negative 1.5% in the previous quarter. As of December 31, 2021, cash and cash equivalents, restricted cash, short-term investments, funds receivable from third-party payment service providers and JD on the balance sheet totaled RMB2.6 billion.

Of note, funds receivable from third-party payment service providers and funds in JD account recorded as amount due from related parties totaled RMB583.1 million. These cash topped up in company's JD -- JD Pay account, WeChat Pay account and Alipay [ph] accounts to support efficient recycling and transaction services. As I recall, we announced a U.S.

$100 million share repurchase program on 28 December 2021 out of the management's strong confidence in the company's solid fundamentals and growth momentum. Now, turning to outlook. For the first quarter of 2022, the company currently expects its total revenues to be between RMB2,150 million and RMB2,200 million.

We expect to achieve stable and healthy growth in 2022. The recurrence of COVID-19 variants might impose an adverse impact on our store operations, warehouses and merchant transactions in 2022. This forecast already reflects the company's current and preliminary views on the market and the operational conditions which are subject to change.

This concludes our prepared remarks for today. Operator, we are now ready to take your questions..

[Operator Instructions] Our first question today comes from Lucy Li with Goldman Sachs. Please go ahead..

The question is on our next stage of growth and 10 in general. So in 2021, the company -- the proposed transaction volume exceeded 30 million pieces. So how do we assess the future growth potential going forward? And the second question is regarding our own business, 1P versus 3P.

We observed that the 1P business delivered fast growth in both 4Q and this year. So I wonder if we are going to put more emphasis on the 1P business compared to 3P for example. Thank you..

Okay, thanks for the questions. To address the first one, we believe there is a great credential for growth. Firstly, on the addressable market, the number of devices transacted on our platform this year reached a record high of over RMB30 million.

However, this is still a small portion compared with 590 million new electronic devices sold in China annually according to CIC. In addition, other devices, including phones, tablets and laptops, et cetera, totaled RMB2.7 billion, indicating a low rate of recycling.

Secondly, on our penetration rate at city level, our services have relatively little presence locally. It was low single-digits in 70% of the cities in China, as we mentioned on the last earnings call. We are poised to increase that through steadfast implementation of our city level service integration strategy.

To answer your question to business priority, we plan to seek an accelerated growth of 1P business with steady profit and a healthy growth of 3P GMV with more attention to the efficiency and profitability of the marketplaces. Looking back at 2021, GMV of 1P business increased by 69.6% year-over-year, outlining the growth rates over the past years.

We attribute this to the solid progresses in new store openings, a stronger trading partnership with JD and expanding 1P direct to retail business on Paipai.

The stores continue generating profit, in the fourth quarter 2021, net margin of mature stores reached 4.0%, improving our confidence in serving more customers and top up our efforts in these stores. We expect to open 200 new standard AHS stores in 2022.

Furthermore, we aim to add 500 partner stores, i.e., store-in-store, a new format in collaboration with local partners as a part of the city level service integration strategy. This is to facilitate trading and to expand consumer reach through the synergy with JD and mobile brands and it helps to grow our footprint in local retail scenarios.

We take city level service integration model, the key to the next stage of growth for PJT and Paipai marketplace. This will be achieved through sourcing premium goods more efficiently.

In the first quarter of 2022, we have launched a service integration model in 22 pilot cities to highlight the growth rate of B2B business in 12 pilot cities exceeded 100%, including Shenyang, Nanchang and Hefei provincial capital. By leveraging the city level service integration model, we dive deep into this B2B business.

We digitalized the transactions and encourage online transactions. Not only do we serve dealers but also new device retailers, thus forming a closed loop from recycling from users when buying a new device through inspection at our facilities and directly to the retail end.

Next question?.

The next question comes from Joyce Ju with Bank of America. Please go ahead..

We have seen the take rate reached 4.8% this quarter. Could management help us elaborate a little bit in terms of how do you take rates improve and the future trends in terms of how it could further improve? Thank you..

Thank you, Joyce. Let me take your question. As you can see, service revenue increased by 78.3% year-over-year in this quarter, surpassing the growth rate of platform GMV. This was due to the increase in take rate for both PJT and Paipai marketplaces.

So in the fourth quarter, the overall take rate, as you mentioned, was 4.8%, a 0.2% increase sequentially. Amongst the take rate of PJT marketplace was, in average, it was 4.5%, while the take rate of Paipai in average was 5.4% which was 0.6% and 1.2% higher than the same period last year, respectively.

For PJT marketplace, we started to charge an inspection service fee and consignment service fee from sellers in Q3 which led to an increased integrate for PJT marketplace by 0.6% compared with the same period last year.

In the future, we will continue to expand and diversify our value-added services, such as maintenance services and supply chain financing services to increase the corresponding take rate. The take rate of the Paipai model on Paipai marketplace remained stable compared to the same period last year.

The increase of take rate on Paipai was mainly due to the increase in the take rate of its consignment business. Take rate of consignment model was 10.7%, a significant increase of 4% sequentially. GMV of consignment model accounted for 18% of Paipai platform GMV in recent quarters.

The consignment model is being quickly adopted by merchants due to the complexity and fragmentation of the preowned electronic transaction industry chain. The cycle has faced numerous challenges when distributing to consumers. So the consignment model of Paipai is burden of retail and offer small merchants.

In the future, we strive to reach our balance between scale expansion and leasing platform take rate. We will provide more service options and take tighter control over the operations and merchant ratings which we believe will be conducive to the long-term development of the platform business..

Got it. Thank you..

The next question comes from Ella Ji with China Renaissance. Please go ahead..

Thank you for taking my questions and congratulations on a strong quarter. My question is regarding your margin outperformance. We wanted to, if management can provide more color regarding the main driver behind your margin outperformance? And how is the outlook for 2022 and onwards.

And then within the expenses, we do see that sales and marketing has gone up in the quarter. Could you also provide more color regarding the sales and marketing expenses, the investment level also in 2022 and onwards? Thank you..

Okay. For the first question regarding profitability, yes, we are confident to continue enhancing our operational efficiency and reach full year non-GAAP profitability target in 2022 and going forward. Our path to profitability can be divided into three aspects.

First, as the gross margin improves due to the stable 1P pricing strategy and the increasing proportion of the service revenue which can contribute the higher gross margin. Secondly, the fulfillment efficiency improved significantly due to more orders at store level in Q4 and better processing usage of our fixed facility.

So our middle and back offices took tighter control of headcount and benefited from the economy of scale. As you can see in the decrease of the non-GAAP G&A expenses and this percentage as of total revenues.

So for second question regarding selling expenses, non-GAAP selling and marketing expenses accounted for 11.2% of total revenue, increasing by 7.7% sequentially. Selling and marketing expenses mainly included personnel cost expenses for our B2B sales team.

Channel fees and commission fees paid to JD as well as promotion and marketing fees for each different business lines. For this quarter, the year-over-year growth was mainly due to the expansion of our Paipai consignment businesses, new channel sales and the 1P direct 2C sales.

We invested RMB63 million in coupons and RMB33 million in advertisements for brandings and the promotion of new channels, including live streaming, the JD Paipai flagship stores and the Paipai off-line stores. Furthermore, variable costs increased in line with our business expansion.

The sequential increase compared with Q3 was due to the distribution of some coupons and marketing promotion activities for Paipai 2C sales related to the Singles Day shopping festival, above 12 and the Paipai anniversary campaigns.

As we leverage multiple marketing approaches, we believe non-GAAP operating profit closely reflects our views on the performance of the business. Non-GAAP operating profit was RMB9.7 million in this quarter and the margin was 0.4%. We anticipate a positive non-GAAP operating margin in content to and expected to continue expanding.

Next?.

The next question comes from [indiscernible]. Please go ahead..

As the pandemic situation in many areas has been quite serious recently. I would like to ask you a question about the impact on the company. What's the impact of your performance in last year? Your offline store has increased significantly, while the pandemic affect off-line business was measured that the company take to deal with it? Thank you..

The COVID [ph] recurrence in 2021 had challenged our operations multiple times but the overall adverse impacts were limited and controllable. This was primarily due to the scattered storefronts and operation facilities, AHS stores spread across 214 cities. Temporary closure of stores in some cities has limited impact on the overall performance.

There were seven regional operation centers and 95 city level operation stations nationwide. When there's a regional shutdown, the nearby facilities are able to step up. For example, our operation stations in the neighboring cities handle the orders for Shenzhen and Dongguan during their recent incidents.

Although our business showed resilience, we can't predict the material negative impact on our business caused by the recurrences of COVID-19 variants. We will continue to prioritize safety, keep ourselves prepared and our workplaces clean and stay flexible. Thank you..

As there are no further questions at this time, I'd like to hand the conference back to our management for closing remarks..

Thank you. A replay of today's call will be available on our IR website shortly followed by a transcript when ready. If you have any additional questions, please feel free to e-mail us at ir@atrenew.com. Have a good day..

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