Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the ATRenew Incorporated Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after managements' prepared remarks. Please note today's 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 of the Company. Please go ahead, sir..

Thank you. Hello, everyone, and welcome to ATRenew's third quarter 2022 earnings conference call. Speaking first today is Kerry Chen, our Founder, Chairman and CEO; and he will be followed by Rex Chen, our CFO. After that, we will open the call to questions from analysts. Our third quarter 2022 financial results were released earlier today.

The earnings release and investor slides accompanying this call are available at our IR Web site, ir.atrenew.com. There will also be a transcript following this call for your convenience. For today's agenda, Kerry will share his thoughts of our quarterly performance and business strategy, followed by Rex, who will address the financial highlights.

Both Kerry and Rex will join the Q&A session. Let me cover the Safe Harbor statement. 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 statement that management makes on this call are based on assumptions as of today and that ATRenew does not take any obligations to upgrade our 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..

Hello, everyone, and welcome to ATRenew's third quarter 2022 earnings conference call. in the third quarter, we faced a challenging macro environment, and then the control measures remain strict and consumer demand for new phone [indiscernible].

Responding to these challenges, our teams proactively adjusted their operational strategies to meet consumer demand for convenient and trustworthy recycling services.

As a result, revenues reached the high-end of the guidance range we provided last quarter and we achieved our non-GAAP operating profit compared to a non-GAAP operating loss in the second quarter. I'd like to take this opportunity to express my gratitude to our staff for their efforts and perseverance in the face of adversity.

Let's start by taking a look at our revenues. During the third quarter, we achieved growth in line with our expectations as our revenue increased 29.2% year-over-year to RMB2.54 billion. Revenues for our 1P business rebounded significantly increasing by 33.7% year-over-year.

This increase was driven by our steady progress in store openings and recycling operations, increased a revenue contribution from self-operated 2C retail products and stronger pricing power from big data analysis. The growth of service revenues flattened as we put tighter control over products that were in authorized or in poor condition.

We believe this helps the sustainable growth of our marketplaces. As a result, the overall commission rate of our marketplaces with 4.45% in the third quarter, remaining stable compared with the same period last year. Turning to efficiency.

During the quarter, we continue to increase our fulfillment efficiency by further improving our inspection process and continuing to reduce operating costs. Our non-GAAP fulfillment expenses, and selling and marketing expenses as percentages of total revenue declined to 10.7% and 9.8%, respectively.

This represents respective decreases of 290 basis points and 63 basis points compared to the same period of last year. These improvements reflect the effectiveness of our initiatives to continuously improve our cost structure. In the third quarter, we achieve a non-GAAP operating profit of RMB10.8 million.

This was in contrast to the loss-making performance in the second quarter. In an unfavorable market environment and facing various headwinds, our monetization capability once again demonstrates the counter cyclical nature of the circular economy. We also improved our inventory and cash flow management.

During the third quarter, we improved inventory management as our business especially our 1P, 2C recycle and retail business recovered from the adverse impact of the COVID resurgence. The inventory turnover days were reduced to 26, marking a year-on-year and a quarter-over-quarter improvement.

As at the end of the third quarter, our comprehensive cash reserves totaled RMB2.67 billion. We obtained a cash inflow from operating activities of RMB101 million during the third quarter, making a third consecutive quarter with positive operating cash flow.

With abundant cash on hand and continuous positive operating cash flow, we have sufficient resources to consolidate the main businesses and invest in the strategic development areas. Going forward, we keep our core strategic focuses clear and consistent.

We will continue our commitment to the four focuses as we've discussed during the previous earnings conference call. First, we will continue to promote our city-level service integration model. Second, we will continue to expand the service coverage and fulfillment capability of the multi category recycling offering.

Third, we will continue to convert more of our 1P product supplies to consumer retail through our value-added capabilities including refurbishment. Lastly, we will further increase our operating efficiency by continuing to deploy automation technologies.

Let's start by discussing the implementation of our city-level service integration strategy, which will solidify the foundations of our business growth and further increase our penetration rate.

During the third quarter, our city-level service integration strategy continues to support a healthy growth of our core business of mobile phone and consumer electronics recycling.

By integrating our front-end recycling capabilities between C2B and B2B offerings, we were able to better serve the highly localized market demand of the electronics category.

Complex pandemic control measures during the third quarter have affected of our operations in cities that contributed a significant proportion of our business, such as Tianjin and Chengdu. However, we also saw a delightful rebound in GMV among 42 city clusters compared to the second quarter.

31 city clusters achieve GMV growth on a year-over-year basis, a greater number than last quarter. In addition, 26 cities outpaced our national average in scale expansion on a yearly basis, while our quarterly basis 20 city clusters outpaced the national average recycling penetration rate.

Of now [indiscernible], the first two pilot cities which we monitor through the north [indiscernible] cluster and North Hubei cluster, respectively, are still recording a healthy year-on-year growth rates in GMV.

The number of recycling orders from our C2B business increased notably achieving better year-over-year growth than the national average in 34 city clusters. As consumer spending faces downward pressure in this economic cycle, it was the willingness to recycle increase in some cities.

On the recycling end, we further deepened our strategic partnership with JD. In August, we facilitated JD to upgrade its trading services to support cross category trading for cellphones, computers, digital devices and home appliances. After the upgrade, users can also trade in a mix of up to six electronic products for new ones.

JD becomes the first in the industry to support both cross category and multi device ratings [ph], providing users with best-in-class experiences, while promoting recycling. In September, we fully incorporated the trading function into the main JD app in preparation for the launch of the iPhone 14 line up.

Users can enjoy the trading solution seamlessly on the product page in the shopping cart or on the checkout page without time consuming and unstable page redirection, thus improving user experience when placing orders.

Leveraging JD's leading market share of home appliance sales and other categories in China, we aim to further promote trading scenarios and provide more convenient trading options to consumers. Secondly, we will continue amplifying the brand value and service capabilities of our [indiscernible] AHS Recycle brand.

The goal of this efforts is to expand recycling services to cover more high value categories. You might ask why would recycle use non-electronic products from consumers? We believe that AHS Recycle [indiscernible] is the unique and widely recognized brand in the recycling industry.

We have spent 11 years building a reputation for quality recycling service and gaining strong consumer awareness through our nationwide offline stores. What's more, consumers may have many options to buy new products online and offline, but they don't have many good choices for recycling services when needed.

AHS Recycle has dedicated itself to being consumers go to brand for recycling electronic devices. And we aim to build our reputation further as we embrace multi category recycling going forward. This echoes our mission to give a second life to all idle goods.

You may wonder while we're capable of launching this multi-category recycling business, on one hand, we have 1,800 AHS stores, which provide a reliable and convenient recycling destinations on consumers, manage under our tiered store and fulfillment system.

Since June, we started implementing this tiered storage system by designating a number of those located in regional commercial centers as the core facilities and adding new category services to those stores. Those located in local communities remain at consumer electronics service stations.

At the core storefront, we upgrade branding and training our staff to accommodate both our core electronic recycling services and our new category initiative. Having done so, we began to offer recycling services for pre used products with high residual value such as luxury bags, washers, camera equipment, gold and vintage wine.

On the other hand, we are capable of constructing inspection and distribution abilities through collaborations with our partners. We have established our supply chain offering on smartphones and consumer electronics and now we're seeking jointly build [ph] or jointly the operative supply chains for new categories.

Take luxury goods as an example, which wanted to be with the quality inspection and selling channels with an MFP [ph], for gold and vintage wine we introduced an open platform and selectively chose partners to ensure a reliable recycling choice for users.

You may also wonder what is the differentiated experience that we could offer with multi-category recycling. Why is quick online press [indiscernible] based on structured data, user only need to simply click and check on AHS Recycle app through our product navigation.

The traditional method requires users to take pictures by themselves for quality [indiscernible] to offer quotation. The experience is relatively cumbersome, time consuming and lacks standardization.

Another difference is that face-to-face transactions at physical stores are more convenient than traditional logistics and mailing methods where users have a stronger sense of trust in services and the conversion rates of high value products is higher.

At a physical store, we reduce miscommunication of product conditions and pricing and consumers are protected from malicious bargaining, which they might also encounter during online recycling.

After a month of operation, our multi category recycling business generated an extra RMB300,000 of transaction value and over RMB20,000 of profit per month for each of the 50 core AHS stores. User satisfaction with the recycling experience and price quotation has been improving. User profiles showed similarities.

11% of our users who saw luxury goods came back to recycle their idle electronic devices in 30 days. 40% of those who sold luxury goods have already sold consumer electronics through AHS Recycle in the past 12 months.

The third strategic priority is to continue improving our value-added refurbishment capabilities and further expand profit margin along the value chain.

We continued our conversations regarding compliance and intellectual property rights protection with foreign manufacturers and participated in opinion of collection process before the peoples [indiscernible] released a guidance for compliant refurbishment in April.

Since the publication of the guidelines, the previously and regulated electronics refurbishment industry began to standardize and thrive and came into official regulation. This development allowed us to upgrade the quality of supply both from 1P and from PJT marketplace, and so aligned with our strategy to expand profit margin.

After preliminary inspections on the preowned mobile phones we received, we leverage technology to identify suitable devices for refurbishment. Then in compliance with [technical difficulty] official or certified third-party parts and components to repair the phones, including polishing and replacing screens and replacing batteries.

We keep customers informed and provide warranties to boost consumer confidence. The production capacity is currently undergoing a rapid development. Since the second quarter, we have doubled the number of devices and refurbished in compliance with regulations on margin compared with to be distribution.

The additional operating margin contribution from value-added refurbishment services is 4%. This is in line with our expectations. Going forward, we will continue to strengthen the coverage of the entire value chain. The operating margin could be further improved as we increase the efficiency in selecting suitable devices.

In 2023, we anticipate a larger service coverage of more SKUs of smartphones, and including laptops and tablets into our service scope. We also plan to expand refurbishment capacity from southern China to eastern China.

Our long-term goal is to provide stabilized high-quality products directly to consumers, while fulfilling merchants demand by providing them with diversified sources of supply and services. We will continue to develop the RERE refurbed [indiscernible] brand and increase our profit space.

For the fourth and final strategic focus, we will continue to invest in technology to improve our automation capabilities and consequently our overall operating efficiency.

Since the beginning of this year, we devoted to the installation trial operation and adjustment of our second automated operation center in China, which was officially put in use in Dongguan. It has realized improvements in many aspects, including sorting efficiency, inspection, accuracy and inspection efficiency.

Thanks to an innovative and digitalized management process and the use of AGV unmanned transport vehicles. The transportation [ph] efficiency of our Dongguan automated operation center is 15% higher than that off Chengdu.

We have implemented the next generation matrix 3.0 Automatic Quality Inspection System to further upgraded precision of device locating capabilities and robotic assistance capabilities. The accuracy and efficiency of our quality inspection process are further improved by 10% and 50%, respectively compared to the previous generation.

The loss due to product return is expected to be reduced by 15% approximately. Based on these improvements to our automated quality inspection capabilities, the 8-hour production capacity of the Dongguan automated operation center exceeded 10,000 units.

This having had the scale effect of our quality inspection operations and has reduced the cost of performance for order, which is necessary to consolidate our operational capabilities at the group level. Lastly, I want to provide an update on ESG.

We received a low ESG risk rating from Morningstar Sustainalytics in September this year, a testament to our ESG risk management capabilities in the online and direct marketing retail sector.

This rating confirms our contributions to environmental protection, carbon emission disclosure, sustainable product and service development, data privacy and security, tax compliance and other aspects of responsible corporate governance. It also stands as a testament to our sustainable development capabilities.

We believe that a company with strong ESG practices can contribute greater value to society and is less at risk from changes in policy and regulations. Our responsible governance grants ask more flexibility as we navigate our growing business through an uncertain microenvironment.

As China set carbon neutrality growth on the way to its carbon peak and the circular economy begins its development in earnest, we are confident that we will create best-in-class recycling experiences for consumers and create long-term value for society and for shareholders.

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

Hello, everyone. We are delighted to report that our third quarter revenue was at the high-end of our guidance. Even though COVID-related challenges remained in the operating environment. In the face of these headwinds, we leveraged our city-level service integration strategy and maintained our prudent spending.

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 all comparisons are on a year-over-year basis, unless otherwise stated.

Total net revenues increased by 29.2% year-on-year to over RMB2.34 billion, mainly driven by the rebounding 1P product sales revenue growth. Total GMV grew by 14.5% to RMB9.5 billion, driven by the growth in both product sales GMV and online marketplace GMV. Please note that we will retire the reporting of GMV starting from the fourth quarter of 2022.

GMV has been a parameter to access our periodical business expansion as we inclined to [indiscernible] skill expansion.

However, as we become more obsessed with providing our users with safe, convenient and fair recycling experience and quality assured products, we incrementally prioritized the solid growth of our 1P business where generally becomes less refractive of the bigger picture.

We're also keen to maintain a healthy cash flow from operating activities and a positive operating margin. As a part of our tactics, we removed some [indiscernible] related merchant users from our marketplaces, and titled our resources towards self-sourced products, including 1P, 2C products [indiscernible] refurbished with compliance.

In terms of profitability, we had another profit-making quarter with non-GAAP operating income of RMB10.8 million. This was primarily attributable to improved cost efficiencies in logistics and the main parts that have resulted from [indiscernible] effects.

In the future, we will continue to improve cost efficiency, especially in fulfillment and marketing by leveraging automated inspection facilities to further realize scale effects, and accurately capture recycling and shopping scenarios.

In the third quarter of 2022, we have a [indiscernible] from operating activities of RMB101.3 million, [indiscernible] securing us for the consecutive quarter with positive operating cash flow. Now let's take a detailed look at the financials. In the third quarter, total revenues increased by 29.2% to RMB2,536 million.

Net product revenues increased by 33.7% to RMB2,225.7 million, while net service revenues increased by 4.4% to RMB310.3 million. Growth in net product revenues was primarily driven by an increase in sourcing volume, and the corresponding sales of preowned consumer electronics through Paipai Marketplace, PJT marketplace and our offline channels.

So increasing 1P, 2C distribution of compliance to refurbished devices also contributed to this growth in product revenues. Growth in service revenues was primarily driven by increases in transaction volumes and improvements to the monetization capabilities of PJT Marketplace. So, overall, commission rate of our marketplaces were 4.45%.

We further optimized operational strategy by cutting down the base to merchant users as we became more comfortable to change commission fees based on the established trust and user stickiness. Next, turning to our operating expenses to provide greater clarity on the trends in our actual operating based expenses.

We will also discuss our non-GAAP operating expenses, which better reflect how the management view our results of operations. The reconciliations of GAAP and non-GAAP results are available in our earnings release and the corresponding Form 6-K furnished with the SEC. Merchandise costs increased by 33.8% to RMB1,932.2 million.

This was in line with the growth of the 1P product sales revenues. Gross margin at Group level was 23.8% in the third quarter. Gross margin for our 1P business was 13.2%. Fulfillment expenses increased by 1.4% to RMB277.1 million.

Excluding share-based compensation expenses, which we will refer to as SBC from PR, non-GAAP fulfillment expenses increased by 1.7% to RMB271 million.

And the non-GAAP measures, the increases were primarily due to, first, an increase in personnel cost operation center and self-operated store-related expenses, which were in line with the increasing sales of prolonged consumer electronics and the addition of 103 self-operated AH stores compared with the second quarter 2021; and the second, an increase in personnel cost in connection with the company's growing business.

And second, an increase in technology expenses in relation to upgrade of technology server which was partially offset by a decrease in operating center related expenses as the company optimized its strategy for its city-level operation stations.

The non-GAAP fulfillment expenses as a percentage of total revenue reduced to 10.7% from 13.6% of the same period last year. Selling and marketing expenses increased by 14% to RMB340.8 million. Excluding SBC expenses and the amortization of intangible assets, non-GAAP selling and marketing expenses increased by 21.4% to RMB249.7 million.

Under the non-GAAP measures, the increases were primarily due to first increase in personnel cost in connection with the company's growing business. And second, an increase in marketing expenses related with business development.

The non-GAAP selling and marketing expenses as a percentage of total revenues decreased to 9.8% from 10.5% in the same period last year. G&A expenses increased by 51.4% to RMB63.6 million.

Excluding SBC expenses, non-GAAP G&A expenses increased by 76.7% to RMB46.3 million, primarily due to first an increase in personnel costs in connection with the company's growing business; and second, an increase in professional service fees.

The non-GAAP G&A expenses as a percentage of total revenues slightly increased to 1.8% from 1.3% compared with the same period last year. Technology and content expenses decreased by 23.2% to RMB50.1 million. Excluding SBC expenses and amortization of intangible assets, non-GAAP technology and content expenses decreased by 26% to RMB43.9 million.

Under non-GAAP measures, the decrease was primarily due to the change in personnel cost in relation with the company’s adjustment to its spending in research and development. So non-GAAP technology and content expenses as a percentage of total revenues was 1.7% compared with 2% in the same period last year.

As a result, our non-GAAP operating income was RMB10.8 million in the third quarter of 2022. Non-GAAP operating margin was 0.4% compared with negative 1.5% in the same period last year. And once again, we had a cash inflow from operating activities during this quarter which totaled RMB101.3 million.

As of September 30, 2022, cash and cash equivalents, short-term investments and funds receivable from third-party payment service providers totaled RMB2.67 billion. So sufficient cash on hand safeguards a sustainable growth outlook.

As a recap, we announced a US$100 million share repurchase program on December 28, 2021 out of management's strong confidence in the company's solid fundamentals and growth momentum. During the third quarter of 2022, we have repurchased 7.5 [ph] million ADSs in the open market for a total cash consideration of US$1. million. Now turning to outlook.

For the fourth quarter of 2022, the company currently expects its total revenues to be between RMB2,930 million and RMB3,030 million. The highly transmissible Omicron variant might impose adverse impacts on the operation of our stores and facilities as well as the transaction activities of merchants in 2022.

Thus, this forecast already reflects the company's current and preliminary views of the market and operational conditions, which are subject to change. This concludes our prepared remarks for today. Operator, we are now ready to take questions..

[Operator Instructions] Our first question comes from [indiscernible] from Goldman Sachs. Please go ahead..

Let me translate for myself. Congratulations for another solid top line growth.

And my question is about the future growth driver and under the COVID impact together with the consumption down trading pressures, how should we look at the future growth drivers and also regarding the [indiscernible] revenue values, we see that there was some motivation in the growth phase.

But in the future how much will be contributed from 1P revenues and how much will be contributed from the 3P part? And also, regarding the multi category recycle and how much contribution are we expecting from the categories outside the phone? Thank you..

Okay. Thank you for the questions. Let me answer first question first. Overall, after being negatively affected by pandemic control measures in core 1P recycling business locations, such as Shanghai and Beijing in the second quarter, our recycling business recovered to a normal growth track during the third quarter.

Notably, our 1P business grew beyond our expectations, demonstrating the countercyclical nature of the circular economy were a part of. The recovery of 1P business growth rate is due to two factors. First, we essentially within standard operating hours at our offline stores as pandemic control measures are lifted.

This grants us a more abundant supply of products. Second, in 2022, we started shifting our strategic focus from a consignment model to a 1P, 2C direct retailing model.

This was an effort initiated following the launch of the first compliance guidance for intellectual property rights in the electronics refurbishment industry, as published by the People's Procuratorate [indiscernible] in April this year. Before the launch of this guidance, we did not have a sufficient supply of high-quality preowned products.

As such, our strategy was to prioritize marketplaces and help our merchant partners to sell their products. Since the launch of the guidance, we further leveraged our supply chain capabilities and started to refurbish preowned electronics and sell these products directly to retail customers.

This brings additional profit margin over the value chain and also provides more supply of high-quality better priced preowned electronics to consumers. During the third quarter, we utilized our refurbishment supply chain to distribute RERE refurbed branded products to retail customers.

Our success was demonstrated by over RMB90 million in sales and the ASC [ph] increase to RMB2,600. In terms of platform business, we adjusted our business strategy and focus on high-quality and profitable growth. On PJT marketplace, we took the initiative to remove merchants with substandard supply and service quality.

In addition, we provided more protection for intellectual property and consumer rights.

On pipeline, we took the initiative to scale down third-party consignment business and pursue better quality control measures which leaves at a higher proportion of 1P sales for its products and refurbished and sold to retail customers with quality assurance and maintenance services.

This will give us strong pricing power over the consumer electronics value chain.

In addition to this strategic development, we also optimized our operating efficiency compared with running our company purely as a platform, which leaves at prioritizing monthly business is more beneficial to the company's long-term development facing challenges from the pandemic resurgence and [indiscernible] consumption.

Our trustworthy recycling services and quality assured preowned products are becoming increasingly popular among consumers. Our business -- our 1P business is demonstrating greater growth prospects and we believe the growth of 1P business is worth investing in for the long-term. Let's now turn to discuss our future growth.

On one hand, this growth will come from the stable development of our core business of consumer electronics devices recycling and sales. And on the other hand, it will come from the new revenue stream of our multi-category recycling business. This effort is an extension of our service capabilities.

In an attempt to cater to consumer demand for multi-category recycling, we applied a tiered store operating system to 1,800 stores, readily introducing multi-category recycling services in these locations. During the third quarter, we piloted this service across 50 stores located in Shanghai and Beijing.

On average, we generated an additional monthly GMV of RMB300,000, and a profit of RMB20,000 for each store. During the fourth quarter, we will continue to ship their idle goods out.

[Indiscernible] during the fourth quarter, we will continue to refine our structured SKU database, enhance user experience, and including price inquiries and improve the conversion rates, we expect to have further breakthroughs in terms of CD coverage, extending our consumer ratio across over 160 core AHS stores across China, and we aim to share more detailed color about our multi-category recycling business in the fourth quarter.

Thank you for the question..

[Operator Instructions] Our next question comes from Joyce Ju from Bank of America. Please go ahead..

Hi. Thank you for taking my question. Now I will translate myself.

The first question is, could you please comment the recent consumption momentum during Double 11 Shopping Festival and including impact from the COVID disruptions in China recently? And second question is about could you give us more color on the path to profitability and medium to long-term margin expectations?.

Thank you for the questions. I'll take the first one and CFO Rex will take the second. This year the [indiscernible] promotion showed moderate growth. Promotions have now became regular and straightforward.

When preparing for this grand promotion, we collaborated with JD's home appliances business unit to provide our trade-in services across more product categories. Users first using new home appliances on JD could trade-in [indiscernible] consumer electronics to reduce the economic burden.

JD has been reporting steady growth in its core revenue stream from electronics and home appliances. Leveraging JD's traffic in electronics and home appliances, we further diversified our trade-in scenarios. This can increase the penetration rate of our [indiscernible] mobile phone and consumer electronics recycling business.

During the first 28 hours when the Singles Day Grand Promotion kicked off at 8 pm on October 31, the number of JD customers who traded in their used devices for the new increased by 310% year-on-year. Home appliance cross category trade-in orders accounted for 20% of all the paid trade-in orders during the Grand Promotion.

This year, we further advanced our service capabilities to satisfy consumer demand for economic shopping options. That’s mutually benefiting consumers and JD's new product sales.

In addition, excluding frontline personnel costs and platform expenses, [indiscernible] realized an overall operating margin of 2% as we prioritized profit and supplemented 1P refurbished product. In terms of brands we support, Apple has maintained its industry-leading market share.

When other smartphone brands were entered downward pressure, Apple retained its growth in new device shipments in the third quarter. Mobile phone -- mobile phones account for 70% of our total transaction value, whereas Apple's products account for 45% of our overall transaction value.

Although the supply chain of the iPhone 14 line up was under pressure recently, consumer demand for Pro and Promax models remained strong. We believe that as Apple gradually resumed its production capacity, trade-in demand can rebound and we are confident that we will fulfill that demand with a better and more seamless service process.

For Android for [indiscernible], in the context of declining consumption, consumers need a stronger incentive to shop for new products. We believe that our cost-efficient trade-in solutions could be that incentive that manufacturers also find encouraging..

Okay, [indiscernible]. Over to your second question related to the profitability. There are two main drivers for our mid-term to long-term profitability. First is the improvement in 1P gross margin, in particular, due to the contribution from our new business initiative compliant to refurbishment.

Our 1P business was less impacted by pandemic control measures during the quarter as our operation of offline stores gradually resumed, we were able to meet consumers recycling demand and with stable pricing.

In addition to a strategic shift from the consignment model we mentioned in the last quarter, has allowed us to transfer -- provide high-quality 1P product sales. This will allow us to continue to improve the quality and the reputation of the preowned products that we commercialize.

Meanwhile, we are on track in developing compliant to refurbishing capabilities by replacing components in poor condition with certified third-party batteries and screens.

We recondition these 1P products and better satisfy retail buyers needs as our lead [ph] refurbed business skills will improve our product mix, thus further widening our gross margin. Secondly, our operating efficiency has continued to improve during the third quarter. We realized our non-GAAP operating profit of RMB10.8 million.

This was attributable to our optimization of fulfillment expenses and the selling expenses. So non-GAAP fulfillment expenses as a percentage of total net revenues decreased by 2.9 percentage points year-on-year to 10.7%.

This was mainly due to the refinements made to the management's structure in our offline stores and the implementation of a new system for operating [indiscernible].

As we [indiscernible] above the mentioned refurbishment [indiscernible] and further achieve cost efficiency improvements, we anticipate our top line to be between RMB2.93 billion to RMB3.73 billion in the fourth quarter.

We would also anticipate our non-GAAP operating income in the fourth quarter and realizing a profitable year on a non-GAAP basis as we forecasted. Looking ahead, we expect our total revenues and profitability to further escalate in the coming quarters. Thank you..

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

Thank you. Thank you all again for joining us. A replay of today's call will be available on our Web site shortly, followed by a transcript when ready. If you have any additional questions, please feel free to directly email us at ir@atrenew.com. Have a good day..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..