Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the ATRenew Inc.’s First Quarter 2023 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 first quarter 2023 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. The financial results were released earlier today.

The earnings release and investor slides accompanying this call are available at our IR website ir.atrenew.com. There will also be a transcript following this call for your convenience in English and Chinese.

For today's agenda, Kerry will share his thoughts of the quarterly performance and the 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 statements.

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 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 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..

[Foreign Language] Hello, everyone, and welcome to ATRenew's first quarter 2023 earnings conference call. [Foreign Language] During the first quarter, the rapid recovery of offline retail and logistics led to a resurgence in consumer recycling and consumption demand.

As a result, our year-over-year revenue growth rebounded to 30.2% and we achieved total revenues of 2,872 million, exceeding the high-end of our guidance. Meanwhile, our non-GAAP operating income reached a new record of over 44 million, [representing] [ph] an adjusted operating margin of 1.5%.

Our first quarter revenue and profit, both exceeded expectations in what is purely an off-season for the second-hand industry. [Foreign Language] I like to share with you three main drivers, which contributed to our top line growth rebound. The first is the growth momentum of 1P business, which geared up again.

The recovery of Phase 2 phase recycling fulfillment at our stores, the strengthened brand awareness of the AHS Recycle brand and an increase in combined refurbishment product sales to consumers, all contributed to the growth of product revenues.

[Foreign Language] If we do mean a bit, we encountered a tailwind on the sourcing end, which was generated by the rebound of consumer activity after the reopening. Our e-commerce partners, such as JD.com have increased their consumer subsidies, while brand manufacturers, including Apple, have offered discounts and promotions on specific models.

To add more color, Apple products account for 45% of our total businesses and 60% of our 1P business. Out of the popularity and resilience that Apple products have, all core recycling business remains stable and has been relatively less prone to the headwinds of decreasing new device shipments.

[Foreign Language] While capitalizing on these recent favorable developments, we also consolidated our own operational capabilities, especially on the sourcing front.

We strengthened our competitive mode in offline resizing via 1,935 physical stores across 269 cities nationwide, enhanced the brand awareness of AHS recycle and [locking] [ph] more high quality supplies from consumers. According to a recent survey, the net promoter score of our offline store recycling services have steadily increased.

We continue to identify Q4 locations for new stores and we aim to make our directly operated stores, the benchmark for customer service in top tier cities. Meanwhile, we have further expanded fulfillment coverage by empowering more franchisees. As a result, we have seen a record increase in 1P recycling transactions in the first quarter of 2023.

The order volume increased by 13% sequentially and 42% year-on-year. Overall, 1P product revenue increased by 34.9% to 2,575 million and continues to be our core main organic growth [driver] [ph].

[Foreign Language] In terms of adding value to the supply chain, we continue to leverage our 1P sources to select products that are suitable for refurbishment through standardized combined refurbishment practices, we brought more products into alignment with consumer standards and further consolidated the service capability for our RERE Refurbed business.

In the first quarter, overall sales of refurbished devices increased to 145 million, of which to consumer sales increased to 140 million. Notably, the overall gross margin of refurbished devices were 25%. In addition, we duplicated such capabilities in our East China operation center to supplement our capacity in South China.

This upgrade was undertaken in tandem with an expansion of our refurbished product categories. We expect that this increase in total production capacity will allow us to satisfy the majority of user demand for high quality for your own products nation-wide. [Foreign Language] Turning to our platform business.

Service revenue in the first quarter was nearly 300 million, which was basically flat, compared to the same period last year. However, take rate increased from 4.15% to 5.46%. We have adopted a mixed approach to the platform businesses, based on each services monetization rate.

On the one-hand, we have increased take rates for key services like quality inspection, logistics, and warehousing. On the other hand, we have reduced both our investments into the [Fair Soft business] [ph] and merchant rebate whole business with lower monetization rates.

Our primary focus is serving high quality, high stickiness merchant users, while facilitating high quality transactions. The number of registered users of PJT marketplace, our B2B business now [exceeds 447,000] [ph] while our core business take rate has increased by 1.8% on a yearly basis.

[Foreign Language] For Paipai, the B2C business offering, we have further strengthened our platform governance. This has seen improved product quality control for products and the timeliness of services. We collaborated with well-known inspection institutions for weekly spot checks. Spot check coverage of consumer products doubled.

[Ship-out] [ph] efficiency was improved. For example, the late [ship-out] [ph] rate in the first quarter has decreased by 7% sequentially. This will ensure stable growth in both the quantity and the quality for our [POP business] [ph].

Furthermore, since we have built up capacity for compliance refurbishments, we provide consumers with highly satisfying shopping and after sales service experiences. As a result, retail distribution as a percentage of core 1P business increased by [91 bps] [ph] year-over-year to 22.2%.

[Foreign Language] The second growth contributor is the escalating new category recycling business. As of March 31, we leveraged over 100 core AHS stores to successfully fulfill new temporary recycling orders without extra investments. These stores are mainly located in Shanghai, Beijing, [Guangzhou, and Shenzhen] [ph].

And we continue to improve our product mix calling luxury goods, procedures, liquor, etcetera when meeting consumers demand for cash back. As our fulfillment network extends, we expect to further leverage the high quality and accurate traffic from JD.com thus amplifying our online to offline capabilities.

We also amplify AHS Recycled brand influence with safe, fairly priced, and hassle-free offering. As a result, multiple new categories made delightful progress. For example, monthly GMV for non-electronics new categories reflecting had surpassed RMB70 million.

[Foreign Language] The first driver is continued improvement in operational efficiencies, mainly attributable to automated quality inspection technology upgrades. Non-GAAP fulfillment expenses as a percentage of total net revenues decreased by 3.7 percentage points year-on-year to 9.1% in the first quarter. We are proud of our operation centers.

They deliver best-in-class operational efficiency and empower hundreds of thousands of merchants with standardized operational and transactional capabilities. The automated operation centers in South China and East China are equipped with our industry leading systems.

Its automated inspection lines incorporate AI and big data algorithms for [inspection training] [ph], which achieved precise detection and labeling of scratches and dents, as well as identifying these enrollments and card replacements. All of these are structured into product grading and pricing results.

Our unmanned production lines avoid a majority of errors associated with manual operation, helping us reduce personnel training costs and losses related to manual inspection and dissembling. Technology has improved our efficiency in processing non-standard products and ultimately reduce its transaction disputes and losses from returns.

Going forward, we believe that the application and continued development automation technology; AI and big data will further optimize our cost structure. [Foreign Language] Beyond this improvement, we have also made steady progress in reducing our selling and marketing costs.

During the quarter, our non-GAAP selling and marketing expenses as a percentage of total net revenues decreased by 1.9 percentage points to 7.5%. Our CFO Rex will provide more color on this. [Foreign Language] We have had a good start to 2023.

In large part thanks to our stable foundations of electronics, resizing, and re-commercialization businesses, middle office operations and back-end cost controls. The continued development of the circular economy has also served as a tailwind for our business.

During the second quarter, we anticipate [June 18’s] [ph] promotion once again stimulating consumers demand for recycling and trading services.

In particular, we are working diligently in preparation for a project kick-off in the second half, providing unique trading solutions through in-depth collaboration with the leading international brand and this will potentially become a key growth driver in the second half.

[Foreign Language] As the circular economy evolves, we continue to amplify our industry influence by educating consumers and lodging industry standards.

During Earth Day on April 22, we launched the cosmic reflecting alliance initiative, partnering with several leading consumer brands to promote green recycling and the circular use of consumer products.

The initiative strengthens our brand's asset and expands our product offerings by advocating for the recycling of our daily necessities, bags, watches, among others that still retain some value.

On World Intellectual Property Day on April 26, we joined forces with the Xinjiang Electronics Industry Association to explore industry development and to celebrate the anniversary of the combined refurbishment deadline publication. As a corporate representative, we participated in the formulation and implementation of multiple standards.

Furthermore, we regard the protection of both intellectual property and the user rights as our responsibility. We are committed to working towards the standardized development of [compliant refurbishment] [ph] in the electronics industry. At the same time, we thrive to enable the utilization of a wider range of pre-owned electronics.

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

first, decreasing operation center related expenses as we optimized our store and operation station networks; and the second, our decreasing logistic expenses as Kerry presented earlier. Our quality inspection process has integrated industry leading AI and big data algorithms minimizing inspection errors and losses from returns.

Our non-GAAP fulfillment expenses as a percentage of revenues was 9.1%, compared with 12.8% in same period last year. Selling and marketing expenses decreased by 2.9% to 299 million, excluding SBC expenses, and amortization of intangible assets and further costs resulted from acquisitions.

Our non-GAAP selling and marketing expenses were [216.7 million] [ph], which grew at a slower pace at 4.9% year-over-year. The increase was primarily due to the increase in marketing expenses and office related expenses, mainly composed of travel expenses in relation to business development as the COVID pandemic faded.

However, non-GAAP selling and marketing expenses as a percentage of total revenues decreased to 7.5% from 9.4% in the same period last year. General and administrative expenses were 76.4 million, compared to 45 million in the same period last year, excluding SBC expenses and GAAP G&A expenses of 57.4 million, compared with 28.4 million.

The increase in non-GAAP G&A expenses was primarily due to an increase in professional services and consulting fees. Non-GAAP G&A expenses as a percentage of total revenues were 2%, compared with 1.3% in the same period last year.

Technology and content expenses decreased by 25.4 million, excluding SBC expenses and amortization of intangible assets and a deferred cost resulting from acquisitions and non-GAAP technology and content expenses decreased by 26.3% to 42.3 million.

The decrease was primarily due to the changes in technological personnel costs related to platforms as our platform matured. Non-GAAP technology and content expenses as a percentage of total revenues decreased to 1.5% from 2.6%, compared with the same period last year. As a result, our non-GAAP operating income was 44. 4 million.

In the first quarter of 2023, non-GAAP operating margin was 1.5%, compared with 0.2% in the same period the last year. As of March, 31, 2023, cash and cash equivalents, short-term investments and funds receivable from third party payment service providers totaled 2.5 billion. Our sufficient cash on hand safeguards a sustainable growth outlook.

[As a reflect] [ph], on December 09, 2022, we announced an extension of our existing US$100 million share repurchase program for another 12 months [scheduled] [ph] starting from December 28, 2022 based on management's strong confidence in our solid fundamentals and growth momentum.

During the first quarter of 2023, we repurchased over 1.4 million ADSs in the over market for total cash consideration of US$4.1 million. As of March 31, 2023, we had repurchased a total of 10 million ADSs for approximately US$38 million under our share repurchase program. Now, turning to outlook.

For the second quarter of 2023, we currently expect the total revenues to be between RMB2,850 million and RMB2,950 million due to the [severity] [ph] of our business.

As China's economy continues to normalize and the impact of COVID-19 fades, we expect that our sourcing and fulfillment functions will recover in tandem, we will continue to improve our cost efficiency, leverage our automated inspection facilities to further realize [skill effects] [ph] and accurately capture the cycling and shopping scenarios.

We expect to further improve our non-GAAP operating margins in the coming years. This forecast already reflects our current and preliminary views on 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..

Thank you. [Operator Instructions] Our first question today will come from Joyce Ju of Bank of America. Please go ahead..

[Foreign Language] I’ll translate myself. My first question is that, during the first quarter we have seen very promising growth in the business accelerating from the previous quarter.

So can you share a little bit more about the outlook for this year in terms of the economy in China, as well as consumption of the electronics products? And my second question is on the progress of the multi-category recycling services.

Do you see any categories that are showing potential for scaling, up our contribution for revenue and profitability in the future? Thank you..

[Foreign Language] Okay. Thank you for the question. I will take the first question. Since the reopening in the Chinese New Year, we have seen a rapid recovery offline, including in-person consumption at shopping malls, restaurants, and other local services.

In-line with these trends, our AHS stores have experienced a significant surge in business volume, while the number of 1P store products has grown by 42% year-on-year.

While durable goods consumption recovery is still on its way, we expect to see sustained trading service demand driven by the major promotions held by our e-commerce funders during the second quarter, by offering the option to upgrade devices in a cost-effective and eco-friendly way, our trading service provides value to consumers who purchase new devices.

It also serves to raise consumer awareness of circular consumption. In addition to higher [forcing] [ph] volumes, we are refining our automation capabilities and into working compliant refurbishment services to expand our inventory of high-quality pre-owned electronics. This improvement will provide consumers with a wider area of premium choices.

We believe that consumers will always strive for better life and better products. Therefore, the demand for recycling and reusing pre-owned electronics is always there, and we are committed to working with some brands for the betterment of trading experience and supply chain capabilities.

In the second quarter, we expect to achieve year-over-year revenue growth of [32.8% to 37.5%] [ph], while maintaining our annual target for non-GAAP operating profit. [Foreign Language] I will answer the second question regarding the new headwinds.

We kicked off the recycling category expansion in the second quarter of 2022, starting with high value bags and watches. Currently, the category has already established scale, in terms of trading volume. Gold is another category that has achieved this level of development.

The development of these two categories is highly correlated with user trust in AHS recycle accumulated over the years. As of the end of March, all 100 AHS stores have fulfilled such recycling orders. Among them, the top 30 stores have an additional average monthly GMV of RMB500,000.

Recently, the monthly GMV of multicategory recycling has exceeded RMB70 million, excluding camera equipment to recycling, which is already on scale.

[Foreign Language] In terms of operations, we have been leveraging our own storefront fulfillment capabilities, while collaborating with merchant partners on quality inspection and distribution [indiscernible]. It's clear that the transaction of used [indiscernible], including bags and watches has considerable potential for monetization.

The wide margin phase has laid the foundations for mutually beneficial collaboration with our partners. We will strive to achieve further breakthrough in scale and profitability by continuing to enhance our comprehensive capabilities in areas, including service processes, user experience and structured data.

[Foreign Language] Our multi-category recycling business is built on the foundation of user [trust-in] [ph] and their AHS recycled brand. We expect more users to become familiar with recycling and repeatedly return to our stores.

Multi cash flow resulting is an expansion of the capabilities we have built in our consumer electronics sector, and it represents more of our path for creating long-term value. [Foreign Language] Thank you for the question..

Our next question today will come from [indiscernible] from Goldman Sachs. Please go ahead..

[Foreign Language] Thank you management. I will translate for myself. What kind of strategic targets we have for our repair businesses? And what impact should we expect from – to our net profit from expanding our repair businesses? Thank you..

[Foreign Language] Thank you for the question. In the first quarter, compliant refurbished devices retailing increased for a fourth consecutive quarter and the corresponding ASP stabilized at RMB2,600.

We anticipate that the gross margin of the refurbished device retail business will remain stable, while its scale and its contribution to our 1P business will gradually increase. We believe that this will allow us to further close the value chain of the industry, obtain more profit based on the existing 1P sources and strengthen competitive edges.

By 2023, we aim to expand the coverage of our refurbishment operations to more regions, replicating the capabilities we have already established in East China and South China operation centers.

In terms of product categories, we are going beyond mobile phones, while establishing refurbishment capabilities for tablets, smart watches, and laptops, et cetera. At the same time, we will steadily improve our operations and enhance our brand-focused category.

During the first quarter, the scale of our refurbished production remained at around 70,000 units, as we accumulate our refurbishment and supply chain capabilities for more product categories. We expect to add value to at least 160,000 units in the first half of 2023. [Foreign Language] Thank you..

Our next question today will come from [Xiaoxin Chen] [ph] of CICC. Please go ahead..

[Foreign Language] Thank you management. I will translate myself.

What are the reasons for an improved adjusted OP margin? And do you have any plan to increase sales and marketing sales for new category recycling business and what's the outlook for the adjusted OP margin for the whole year?.

Okay. Thank you for your question. I will take that question. So, under the debt measures, we reported our new [indiscernible] operating profit this quarter. Net debt operating margin increased to 1.5% from 0.2% in the same quarter last year.

This was mainly due to the optimization of cost efficiency of fulfillment expenses both by improved automation capabilities and selling expenses and will further impairment cost to control measures. In the first quarter, [Technical Difficulty] operating expenses were 261 million, accounting for 9.1% of total revenue.

So, net debt-to-fulfillment expenses decreased by 20.6% year-on-year, the most evident reason is the [still effect] [ph] of our automated facilities mentioned by Kerry. The two operating centers [indiscernible] handled over 40% of the total orders processed nationwide in the first quarter.

Therefore, automation has a significant impact on the reduction of overall fulfillment costs. At the same time, automation technology also brings about improvements in the accuracy of quality inspection and reduces return of goods and associated losses.

In addition, we have optimized the deployment and operational efficiency of [city level] [ph] operations stations, we started to take full control over operating stations in the third quarter of 2022 and optimize the network, therefore, saving packaging and logistics fees due to distributed shipments. Selling and marketing expenses were 270 million.

Non-GAAP selling and marketing expenses as a percentage of total revenues was 7.5%, [down 1.9%] [ph] year-on-year.

This was primarily due to a decrease of 33.7 million in marketing expenses for marketplace since we stripped [indiscernible], downside the consignment business, and we are developing multi-category recycling, [sales corresponding] [ph] fee increase of RMB10 million in this quarter.

We will maintain appropriate investment in new categories and [branded] [ph]. Looking into full-year of 2023, we expect to continue improvements in cost efficiencies. At the same time, we will further amplify the positive impact of automation as we plan to automate operation center every year.

And for sales and marketing, we keep our proven spending pattern from our [indiscernible] and selectively investing in new strategic initiatives. So, we will – we expect our operating margin to be increased at a healthy pace. Thank you for your question..

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

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

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