Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to ATRenew Inc.’s First Quarter 2024 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, 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, Drew. Hello, everyone and welcome to ATRenew's first quarter 2024 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 first quarter 2024 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. 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 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 statement that management makes on this call today 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 discussion of certain non-GAAP financial measures.

Please refer to our earnings press 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. .

[Foreign Language] [Interpreted] Hello everyone and welcome to ATRenew’s first quarter 2024 earnings conference call. We are very pleased to share with you our recent developments, pivotal growth drivers and business strategies. Let's begin with some first quarter financial highlights.

On the top line, our total revenues increased by 27.1% to RMB3.65 billion, the high-end of our guidance. Net product revenues from 1P business continue to be the primary growth driver, increasing by 28.5% year-over-year to RMB3.31 billion. Later on, I will elaborate on the growth drivers of our 1P business.

Net service revenues were RMB341 million, marking year-over-year growth of 15.1% and continuing its double-digit growth. This was attributable to the growth of PJT and Paipai Marketplace, service revenues and multi-category restocking service revenues, which contribute to the company's growth and operating profits.

In terms of profit, non-GAAP operating income for the first quarter was RMB80.2 million and our non-GAAP operating margin increased by 70 basis points year-over-year to 2.2%, representing meaningful improvements.

Strategically, we remain committed to our core development principles, which focus on developing recycling scenarios and supply chain capabilities.

On forcing-use products, we continue to leverage effective user conversion scenarios to secure first-hand high quality supplies through JD.com, Apple's official trading program, and our offline AHS Recycle stores. We acquire customers and build our brand through these scenarios.

On the supply chain, we enhance operational efficiency through our next level automated quality inspection systems. With compliance refurbishment, we also improve product standardization and customer access to more ample choices of like new electronic products.

Occupying these precise recycling scenarios fortifies the competitive edge of our 1P business. Firstly, JD.com continues to bring strong momentum to the growth of our product revenues. As JD pays greater attention to the second-hand use business, our recycling and trading business penetrated further to JD's new product sales business.

In addition, in March 2024, China's State Council released an action plan to promote large scale trade-ins of consumer goods and municipal action plans followed. Brand manufacturers are also enthusiastically participating by offering trading promotions.

JD has announced the launch of a dedicated plan promoting trading for consumer electronic products, which include a RMB3 billion subsidy. The goal is to drive new product sales exceeding RMB100 billion in the next three years.

To implement this initiative, JD has partnered with AHS Recycle, its exclusive used consumer electronic supply chain partner to enhance end-to-end solutions and continuously optimize the service process and user experience related to trading.

In the first quarter of 2024, the gross recycling transaction value of trading products forced from JD.com increased by 43% year-on-year. Together with JD.com, we will continue to strengthen strategic cooperation.

For trade-ins originating from Apple's official program, we serve Apple's customers with competitive offers through Apple's official website and 47 Apple stores in Mainland China. At these flagship retail stores, Apple staff provides hassle-free trading services.

Customers pay a smaller amount of money when buying a new device, if they choose to trade-in. It's a joyful way to upgrade electronic products. Due to Apple's unique pricing mechanism and some market factors, in the fourth quarter of 2023 it had a negative impact on our gross profit margin.

However, since 2024 we have optimized our front-end bidding strategy. Our approach is rooted in Apple's predominant customer mind share, especially in major cities in China.

Looking ahead, we remain committed to optimizing our services by first, obtaining high quality products through more discipline and sourcing costs; and second, improving sales efficiency for popular models. With this, these measures can ensure stable operating profits for the Apple business. Third, we further leverage our offline stores.

We have open self-operated stores in first and second tier cities that mainly focus on reflecting and standard jointly operated stores in a broader mass market with a focus on retailing as well as [reflecting] (ph). As of the end of March, we had 711 self-operated AHS stores and 557 standard joint operated AHS stores.

Both store formats have achieved quality growth, compared to the same period in 2023. These standard stores ensure primary sources of product supply and they are crucial user touch points as we provide recycling and trading services with a premium user experience. In addition, we generate revenue and operating profit at the store level.

In contrast for the shop-in-shop format that opens in offline retail scenarios we have made some adjustments migrating them to PJT sellers or using doorstep collection. The adjustment of shop-in-shop format has reduced the total number of our stores, but its impact on our revenue and profit is limited.

Our multi-cash flow recycling strategy uplifts our store economics, allowing us to open more stores, especially those with higher sales per square meter and better profitability.

Since the introduction of the multi-category strategy in 2022 the transaction value of non-electronics categories has grown rapidly quarter-over-quarter as such strategy meets consumers' needs nimbly to dispose of idle goods convert them into cash at hand in the current economic cycle.

Since the beginning of this year, we have seen a significant surge in such user demand. For instance, the transaction value of our multi-category recycling business including second-hand bags and watches, gold, jewelry and fine liquor quadrupled year-over-year to RMB600 in the first quarter of 2024.

At the same time, the multi-cash flow recycling business itself is profitable, conducted under a platform business model it not only has the life structure without the risk of inventory and price decline, but also brings an additional profit RMB7,000 per month to each store.

As a remarkable incremental business, multi-cash flow result in growth on the foundation of users trust in the AiHuiShou brand and strong performance of existing stores and our capability of establishing industry standards in this pre-owned sector. It is a reflection of the accumulated capabilities of AiHuiShou over the past decade.

Looking across category orders, 18% of users who completed an order to recycle luxury products came back for other product recycling services within 30 days. We believe that the conversion rate can be further enhanced if we extend the timeframe.

In terms of user satisfaction, our gold recycling business ranks first in all categories with a top Net Promoter Score due to transparent pricing, legitimate channels and trusted brands. We look forward to expanding the multi-category reflecting within our existing store network and further promoting the opening of new stores.

We are confident that the GMV of our multi-category recycling business will continue to achieve scalable growth this year. Now, let's take a look at our supply chain capability from two aspects. Firstly, 1P business improves product standardization through compliance refurbishment.

Secondly, the overall [Technical Difficulty] fulfillment efficiency through quality inspection automation in the operation centers. During the first quarter, our robust supply chain capabilities yielded solid results. Mostly the revenue from refurbished devices sales was RMB282 million further increasing its share in our 1P business.

We have made additional improvements to our operational processes, expanded access to a wider range of product sources and identified devices that are both popular among users and have the potential for improved quality.

Adding to our retail offerings through AHS stores and AHS website, the total retail sales revenue as a percentage of 1P product revenues jumped to 24.5%. In terms of operational efficiency, our non-GAAP fulfillment expense as a percentage of revenue for the first quarter was 8.3%, a decrease of 0.8 percentage points from the same period of 2023.

This was mainly due to cost efficiency improvements at our Southern China Dongguan Automated Operations Center over the past year. Our non-GAAP selling and marketing expenses as a percentage of revenue was 6.1%, a year-over-year decrease of 1.4 percentage points.

The reduction in promotional expenses is mainly due to the growth of our trading business with Apple, which operates independently of our marketing efforts. For our platform business, we are gradually increasing the utilization of digital customer management tools.

This approach helps us to reduce expenses associated with customer relationship management and promotional expenses on the platform. In the long-term, we are committed to reinforcing the foundation of Korean owned smartphones and consumer electronics business.

Through a multi-category recycling strategy, we aim to improve user experience and increase brand awareness for AHS Recycle. We will focus on addressing users' pain points in recycling services by exploring more high frequency and essential recycling scenarios, aiming to establish ourselves as the top of mind brand in consumers' mind.

Ultimately our goal is to create one stop circular consumption solution for consumers. First, we will cover more recycling scenarios, improve the penetration rate and raise user awareness of recycling and trade-ins.

Due to low recycling rate the 400 million units of new smartphones, tablets, laptops and other consumer electronics that are shipped in China annually indicate a growing supply of idle devices with used value. As part of our ongoing efforts, we integrate our trading services into new product sales scenarios on e-commerce and brand official platforms.

By doing so, we create -- we cater to users' demand for product renewal and realize sustained growth in the long-term. Second, these opportunities in the current consumer environment with an increasing demand for used products online and offline.

In the first quarter we achieved over 80% year-over-year 1P, 2C sales growth through Paipai and JD.com, live streaming platforms, AHS stores and official websites. Meanwhile as business owners need for ready for retail products increases, we explore more opportunities based on the existing B2B service capabilities.

For instance, the dispersed retail touch points of new phone retailers can help us expand our sales channels and increase the proportion of 2C sales from our self-operated supply. Third, leverage compliant refurbishment capabilities to enhance the grade of 1P recycled products.

We anticipate organic growth in the proportion of compliant refurbishment income within our product revenues. By building more in-house capabilities, we expand the coverage of product categories, brands, models and functions et cetera.

On the sales side, we opened the supply of those products to support both B2C sales and enrich the high quality supply to business owners on PJT Marketplace. Overall, this shall contribute to improving the gross profit margin of our 1P business.

In the long-term, we aim to gain more market share through a combination of scenarios and supply chain capabilities. In conclusion, we are confident in our strategic path for effective and long-term sustainable development. Now, I'd like to turn the call over to our CFO Rex for financial updates. .

Okay. Hello, everyone. We are pleased to report another profitable quarter under non-GAAP measures on revenues that once again reached the top end of our guidance. Now, let's take a detailed look at the financials. Please note that all amounts are in RMB and all comparisons are on a year-over-year basis unless otherwise stated.

In the first quarter, total revenues increased by 27.1% to [Technical Difficulty], primarily driven by the strong growth in net product revenues. Net product revenues increased by 28.5% to RMB3,309.8 million, while net service revenues were RMB341.3 million, representing an increase of 15.1%.

Growth in net product revenues was primarily driven by an increase in the recycling channel expansion and the sales of pre-owned consumer electronics through both online and offline channels, of which sales of 1P refurbished devices totaled RMB282.4 million, representing a year-on-year increase of 94.8%.

The increase in service revenues was primarily due to an increase in service revenues generated from PJT Marketplace and our multi-category recycling businesses. The overall transaction value of marketplaces increased consistently with service revenues and the take rate of our marketplaces was 5.41% in the first quarter of 2024.

Now, let's discuss 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 management views our results of operations.

So reconciliations of GAAP and non-GAAP results are available in our earnings release and the corresponding Form-6K furnished with the SEC. Merchandise costs increased by 30.9% to RMB2,947.8 million in line with the growth in product sales. Gross margin at the group level was 19.3% in the first quarter. Gross margin for our 1P business was 10.9%.

Fulfillment expenses increased by 15.3% to RMB309.8 million, excluding share based compensation expenses, which we will refer to as SBC from hereon. Non-GAAP fulfillment expenses increased by 16.3% to RMB303.4 million.

Under the non-GAAP measures, the increase was primarily due to an increase in personnel expenses as we conducted more recycling and transaction activities, compared with the same period of last year. Non-GAAP fulfillment expenses as a percentage of total revenues decreased to 8.3% from 9.1%.

Selling and marketing expenses increased by 7.5% to RMB321.3 million, excluding SBC expenses and amortization of intangible assets and deferred costs resulting from assets and business acquisitions. Non-GAAP selling and marketing expenses increased by 3.6% to RMB224.5 million, primarily due to an increase in expenses related to marketing activities.

Non-GAAP selling and marketing expenses as a percentage of total revenues decreased to 6.1% from 7.5%. General and administrative expenses decreased by 3.4% to RMB33.8 million, excluding SBC expenses, non-GAAP G&A expenses increased by 1.2% to RMB58.1 million, primarily due to increases in office related expenses.

Non-GAAP G&A expenses as a percentage of total revenues decreased to 1.6% from 2%. Technology and content expenses increased by 5.9% to RMB52.2 million, excluding SBC expenses and amortization of intangible assets and the deferred costs resulting from assets and business acquisitions.

Non-GAAP technology and content expenses increased by 7.6% to RMB45.5 million. The increase was primarily due to an increase in personnel expenses in connection with the ongoing upgrade of the company's operation center and systems. Non-GAAP technology and content expenses as a percentage of total revenues decreased to 1.2% from 1.5%.

As a result, our non-GAAP operating income was RMB80.2 million in the first quarter of 2024, representing a significant increase of 80.6% year-on-year. Non-GAAP operating profit margin was 2.2%, compared to 1.5% in the first quarter of 2023.

As of March 31, 2024, cash and cash equivalents, restricted cash, short-term investments and funds receivable from third-party payment service providers totaled RMB2.6 billion. Our strong cash position safeguards a sustainable growth outlook. Now turning to the business outlook for second quarter of 2024.

We anticipate total revenues to be between RMB3,670 million and RMB3,770 million, representing an increase of 23.8% to 27.2% year-over-year. Please note that this forecast only reflects our current and preliminary views on the market and operational conditions, which are subject to change. This concludes our prepared remarks.

Operator, we are now ready to take questions. .

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Joyce Ju with Bank of America. Please go ahead. .

[Foreign Language] My first question is, we have seen this year the national and local governments have issued action plans to promote large scale replacement and trading of consumer products, which could potentially benefit growth of the AiHuiShou.

Could management help us understand the potential impact on sales and revenue, especially some quantitative colors? Secondly, we note there are multiple growth drivers contributing to the company's 2024 revenue guidance.

Could management walk us through the key drivers of the guidance? What's the growth assumptions behind each of the driver and such as AiHuiShou phone channel, JD.com and Apple, respectively. What it also what will be the growth outlook for the service revenue in 2024? Many thanks. .

First and foremost, our growth is fueled by our consumer trusted AHS stores, which are strategically located in malls within client commercial areas. We continue our growth with dozens of new self-operated store openings in 2024, while improving the services and output of our stores.

Second, we are boosting our recycling penetration rate, which is currently in the low-single-digits through precise recycling scenarios integrated into new product sales on JD.com, supported by trading subsidies from the platform and brand.

Third, by collaborating with a series of premium high frequency consumer brands, we bring more benefits to our users. We are upgrading the AHS Mini Program, which offers richer and more day-to-day scenarios for users to visit our stores and try our secondhand consumer electronics and multi-category recycling services.

These scenarios consistently provide us with high quality product sources. In our collaboration with Apple's official trading program, we balanced the pricing mechanism and target models at the recycling end. In the full-year 2024, we anticipate the product revenue coming from Apple trading program to increase by approximately RMB1 billion.

For our open platform business, we have enhanced the full service offerings for over 600,000 merchants, including professional business owners, electronic product franchisees and Mom-and-Pop Stores owners on PJT Marketplace.

These enhancements include empowering our users with retail business solutions and ample sources of retail supply, which consolidates our 1P high quality secondhand products. By generating additional value for both merchants and the industry, we are driving healthy growth in service revenues. Thank you. .

The next question comes from Xiaoxin Chen with CICC. Please go ahead. .

[Foreign Language] Let me translate myself. Congratulations for achieving solid growth for the Q1 results.

I have three questions, the first question is what is the company's long-term profit goals and what's the path to achieve that? The second question is we saw some pressure on the overall gross profit margin and 1P gross profit margin? So how do you view the trend of the GP margin in the future? The third question is, what's your comment on the cash position? That's all my questions.

Thank you. .

So, [Indiscernible], I will take your questions. To answer your first question about gross profit and operating profit, first of all, we prioritized the variation of the non-GAAP operating profit margin, which has been improving over the past quarters.

We are currently in the educational stage of consumer recycling [Technical Difficulty] at the recycling end are included in our merchandise costs, which affect the gross profit of our product revenues. But we will comprehensively balance our sales and marketing expenses in order to improve our operating profits.

The promotion of 1P recycling affects our cost instead of expenses and its common characteristics of the second-hand recycling industry. Looking specifically at the first quarter, gross profit margin was 19.3%, an increase of 0.6% from the [fourth] (ph) quarter.

[Technical Difficulty] gross profit margin was 10.9%, an increase of 0.3% from the fourth quarter.

Excluding the negative impact of sales of overseas inventories, the gross profit margin of our core recycling business has increased steadily with a quarter-over-quarter increase of 1.6% in the medium to long-term, plus to improving our non-GAAP operating profit margin mainly comes from three aspects.

First, compliance and refurbishment, we improved product standardization through our supply chain to gain more profits. So, gross profit margin of compliant refurbished products has remained stable above 20% for several consecutive quarters. Second, increased proportion of retail sales revenue as we have established end-to-end coverage.

For online channels JD.com supports reasonable product standards, adjustments on Paipai and we [Technical Difficulty] more products with a broader price range to meet buyer's demand.

For offline channels, retail sales through our stores rapidly increased by 21%, compared with the previous quarter, as more consumers from medium to low tier cities are happy to visit our stores, not only for recycling, but also for buying used products.

Third, the scale effect further advances the efficiency of our operating expenses through the amplification of transaction volume and comprehensively brings an increase in non-GAAP operating profit margins. In the first quarter of 2024, there was another loss in the income from operations below the operating income.

Looking at the full-year of 2024, we expect a limited impact on our net income. Regarding this particular other loss, in Q4 2023, we subscribed to shares of Ecosystem Enterprises Hong Kong IPO share, impacted by market conditions. Its stock price experienced a downward pressure in Q1, resulting in a loss in our other losses.

To answer your second question, in terms of net cash, at the end of March, we prepared RMB295 million, of inventory in advance to meet users' purchasing needs during the second quarter. We sold the majority of them and received payment in the second quarter. As a result, it appears to be a timing difference.

In addition, regarding Apple trading businesses, we have 45 payable days as mentioned in the last quarter. And thanks to our efficient second-hand consumer electronics turnover capabilities, this business has a limited impact on our cash flow.

If we extend the tight horizon, our operating cash flow will be consistent with the steady growth of our non-GAAP operating profit. Thank you. .

The next question comes from Michael Kim with Zacks Small Cap Research. Please go ahead. .

Great. Good morning or good evening everyone. Thanks for taking my questions.

First, just in terms of capital management, be curious if you could provide some perspective on CapEx needs going forward, particularly as it relates to -- plan to continue to upgrade your operation centers and open new offices? And then second, just kind of stepping back, what's the plan to increase shareholder return particularly as it relates to share repurchases? Thanks.

.

We invest in our operation capabilities instead of investing heavily into assets. So, our business is in a light asset model. Regarding our CapEx, we expect RMB100,000 per new store opening. For stores with more category recycling offerings, the CapEx per store will be a little bit higher.

For joint operated stores, the CapEx are handled by our local partners. On the processing end, as part of our long-term development strategy, we continue to enhance the automated inspection and grading capabilities of our regional operation centers.

The existing operation centers in Dongguan and Changzhou have incurred approximately RMB30 million each in CapEx for automation upgrades. Currently, these two operating centers support 40% of the quality inspection demand for second-hand consumer electronics nationwide.

During daily operations, [Indiscernible] maintained flexibility in capacity utilization without operating at full capacity. Regarding corporate finance activities, in March, we announced a 12-month buyback plan to purchase up to $20 million of our ADSs for in consultation with our Board of Directors.

In the long-run, we will also consider distributing dividends at the end of this year, depending on our profitability. We'll closely monitor efficient capital deployment into our operations and remain committed to developing our scenarios for our supply chain capabilities.

We remain open to innovative investments that support our core business development and adhere to profit driven strategies as such deliver sustainable value to our shareholders and users. Thank you. .

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 a transcript when ready. If you have any additional questions, please feel free to email us at ir.atrenew.com. Have a good day. .

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