Q4 2022 ATRenew Inc Earnings Call
Good morning, and good evening, ladies and gentlemen, thank you for standing by and welcome to the a T renew incorporated fourth quarter full year 2022 earnings conference call.
At this time all participants are in a listen only mode. We will be hosting the question and answer session. After management's prepared remarks. Please note. Today's event is being recorded I would now like to turn the call over to the first speaker today, Mr. Jeremy Chi director of corporate development and Investor Relations of the company. Please go ahead Sir.
Thank you Edward.
Hello, everyone and welcome to renew its fourth quarter and full year 2022 earnings conference call speaking first today is Carrie Chen our founder Chairman and CEO and he will be followed by Rex Chen our CFO.
After that we'll open the call to questions from analysts.
The financial results were released earlier today.
The earnings release, and you watch the slides accompanying this call are available at all.
Our web site.
It will also be a transcript following this call for your convenience.
Oh today's agenda can't reveal share his thoughts of our quarterly performance and business strategy, followed by Rex who will address the financial highlights both Carrie and Rex we're drawing the Q&A session.
Let me cover the Safe Harbor statement.
Some of the information you'll 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.
Forward looking statements that management makes on todays call are based on assumptions as of today and that's H renew 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.
Please note that I liked to otherwise stated all figures mentioned during this conference call are in RMB and.
And all comparisons are year over year basis.
And now I'd like to turn the call over to Kari pump business and strategy update.
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Hello, everyone and welcome to the H O in your fourth quarter and full year 2022 earnings conference call.
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Covid infections first rapidly, especially in December following the easing off and then it controls. This post a severe challenge to us in Beijing, and Shanghai et cetera, which contributed a significant proportion of our business at.
At the same time production shortfalls mentioned that they'll put their models off the iPhone 14 lineup were in short supply negatively affecting our trading business to meet these challenges we put every effort into maintaining store operating hours and ensuring the supply of one P yourself short forest products. Thanks to our team's efforts we met our goals.
Our revenue and profit during the quarter.
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Starting with revenues during the fourth quarter, our revenue reached a new record high of $2 98 billion, representing a year over year growth of 22, 4% and arriving in the middle of our guidance range and 20 points to our total revenue waste My point 87 billion, increasing by 26, 9%.
Year on year. This was mainly driven by our focus on lumpy business, which grew by 34% during 2022.
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Facing slower consumption growth and the resurgence of Covid in 'twenty to 'twenty. Two we were more prudent in opening new stores and cap the strength of new product sourcing capabilities by improving store management.
In addition, implementing or city level service integration strategy laid the foundation for the healthy growth of one piece of business.
Integration of phone clients working capabilities, all three business lines, especially if there's inflation, forcing them transaction flow.
The fourth quarter, despite facing severe pandemic related challenges, we grew with the penetration rate of major cities in which we already operate at scale, especially with Hangzhou, Nanjing Suzhou and young.
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Regarding market places, we have to deal with it from our IPO. Your restaurants, you all scale first so efficiency first with steady growth.
My in house supply chain capabilities. The overall take rate of our marketplaces rebounded to four 8% to break this down following the optimization L. P. J T marketplace margin structure.
Great for the core services increased to six 9% that Australia merchant users trusted and value off the P. J P marketplace.
Hi, Pi fulfillment was hindered by the pandemic, leading to a slight decline in b to C. Take rate. However, we expect this to rapidly return to a healthy level falling category and operational optimization and store them in 'twenty or 'twenty three.
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Third party business as far as or as high as the efficiency optimization. This platform businesses, including Pi Pi I'm, Peggy time marketplaces have realized non-GAAP operating profit.
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Turning to operating efficiency during 'twenty or 'twenty, two what do you have the all operations and we're highly disciplined with our spending and their non-GAAP measures, we improved our cost efficiency in particular, selling and marketing expenses and fulfillment expenses as percentages of total net revenue further decreased to eight 9% and 10, 9%.
Secondly, we achieved our selling and marketing expenses optimization, mainly by reducing P. J P marketplaces promotional fees and rebates for merchants underground marketing fees and by prudently investing in new initiatives.
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Fulfillment expense optimization is our long term focus for the past three years, we have gravity automated quality inspection and pricing at all our operation centers in south and eastern China, thereby enhancing the efficiency of warehousing and logistics. In addition, the upgraded management system has improved its the standardization of recycling.
Fulfillment at all of our storefronts.
As a result, non-GAAP fulfillment expenses as a percentage of total net revenues decreased to 10, 9% in 2022 from 13, 7% in 'twenty or 'twenty and 12, 9% in 2020 one.
Improvements validate our commitment to strategic investments in automation and demonstrate the profitability of our business model during the fourth quarter. Our second generation automated facility came on line somewhat but theyre both thing inspection efficiency.
As a result losses caused by quality inspection theaters decreased by 22% compared with the same period of 2021 that's People's daily lives and the economy returns to normal where call. It on revitalizing transaction activity and we expect the benefits from automation to further scale.
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Processing, we continue enhancing our grading and pricing system, while providing confined with furbished Meg services at a larger scale well recommendation of a larger part of South Fork devices and lived in turn help to increase the proportion of like new products that are suitable for retailing well over this photo added service will enable us to gain.
Extra gross margin along the value chain.
In the second half of 2022 are confined with Furbishing business achieved a xiaomi off over 220 minutes.
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And there's a leg up measures we achieved operating income of $34 6 million in the fourth quarter and reported operating income of $6 9 million for the full year with a strong cash position of $2 8 billion, which included cash and cash equivalents short term and loved ones and phones receivable from third parties, there as far wider along with our COO.
Clear firm long term strategy, we are fully confident in our non-GAAP operating profitability targets for the first quarter and full year 2023.
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Now let me once again emphasize on our core strategies as we have mentioned over the past few quarters, we remain resolute in executing all of our product strategy.
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First our city level service integration strategy has provided the opportunity for a wider range of consumers to acknowledge and participate in recycling, while simplifying how our partners and merchant users Carryout trading services. According to the CIC report the penetration rate of consumer electronics recycling in China remains low at four to five.
[noise] percent, indicating an extensive addressable market for us our target is to first achieve our 15% recycling penetration rate in top tier cities, while elevating the national average. In addition, as a highlight we have established a strategic partnership with world, leading smartphone manufacturers in terms of trade in programs and he is here.
And we expect that to effectively effectively benefit our business during the peak season of new home sales in the third quarter.
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Second we continue advancing all combined with Furbished man capabilities.
<unk>, our value chain and profit margins through a more onesie twosies retail distribution, while we improve customer service.
Full refurbished products, we provide new products shopping experience and the same quality assurance, but at a more affordable prices.
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Third we will further amplify the brand value of a transfer recycle across multiple new categories.
Operating all of our storefronts.
Our service capabilities and meeting her more diverse demand, we're adding new growth drivers for our business and improving the unit economy and margin of existing stores.
Against the backdrop of that development after a circular economy, we encourage a greener lifestyle off recycled and reused by doing so our mission to give them a second life through our Idaho goes comes to fruition.
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Finally, we will continue the study automation of our supply chain. We have completed the R&D stages and are delivering positive cost savings results. Following the initial implementation of the wife volume increases we will gradually optimize the six remaining operation centers, replacing motto inspection to realize hybrid.
Asian quality control and improve cost efficiency.
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Ongoing development of the circular economy provides us with a wide range of opportunities with stripe leave in supply chain and technology driving forces to realize efficiency advancement.
And I had our mission to give them a second life. So all idle goes remains unchanged and we stay dedicated to the recycling business. We will go further in product categories, and well further scale, well generate high quality profits and greater value for users the environment and shareholders.
So I've been saying goes to the CFO racks, which is already cycles with us how would you call it.
That I will hand, the call over to Rex our CFO to go over the financials.
Hello, everyone. We're pleased to.
Reported fourth quarter revenue was in line with our guidance.
Even though COVID-19 related to try to just continue the tree paas operating environment in.
In the face of these headwinds we leveraged our strong supply chain capabilities to maintain a stable protest source of supply and a full of certified so healthy gross off all when she finishes.
I'll start by sharing some of our financial highlights before we go into a more detailed look at split numbers. Please note that all amounts are in RMB and all comparisons are year over year basis, unless otherwise stated total revenue increased by 22, 4% year over year to Tucson by $181 2 million.
Mainly driven by grossing that's brought us revenues in terms of profitability.
And as a profit making quarter with non-GAAP operating income of $34 6 million. This was primarily attributable to improved cost efficiencies in logistics in the main path, resulting from scale effects part of bio automation expression upgrade because it was also attributable to improved cost efficiencies and the optimum.
Promotional and advertising to try to just fall of marketplaces.
Facing the challenges brought by the pandemic, we made it some short term operational adjustments et cetera is obviously a temporary decrease fulfillment.
Fulfillment costs this quarter, we leveraged our sources of supply you can touch upon us to ensure ample quality product listings, although the gross margin will surpass you'll see we didn't have to invest heavily into especially integrating this was considered there is a trade off there.
Turning to our cost trends just in the tactical flexibility <unk> got it.
For our market.
And we are pleased to report a non-GAAP operating breakeven milestone as it were.
881 million positive cash flow from operating activities in 2022.
In the future we express a diverse impacts of COVID-19 merits to fade away and our sourcing as well as fulfillment functions to recover we will continue to improve our cost efficiency.
Our automated inspection facilities to further realize scale effects and accurately captured a cycling the shopping scenarios, we expect to further improve our non-GAAP operating margin you know come yes.
Now, let's take a detailed look at our financials.
In the fourth quarter total revenues increased by 22, 4% due to some 981.2 million net.
Net product revenues increased approximately nine 5% to two songs $687 9 million, while net service revenues decreased by 18, 5% to $293 3 million gross in net product revenues was primarily driven by increased sales of consumer.
Consumer electronics through all of our channels in mainland, China and oversea market.
Marketplace.
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The decrease in service revenues was primarily due to the less into consignment opinion primetime marketplace.
As we shifted our strategy a forecast to prioritize <unk> T cells, while we further ramp up of our combined refurbishing goodness, we prioritized skill gross was stable profit.
And elimination.
Some businesses with low take rates O P. J T marketplace. So overall commission rates for our market crisis rebound to the two four points to eight 2% during the fourth quarter.
Next turning to our team.
<unk> expenses to provide greater clarity on the trends you know actual operating basis expenses. We will also discuss our non-GAAP operating expenses, which better reflects how the management of yourself, but it's also a fault cushings salute concession soft scrapping them captured resource available you know earnings release and corresponding form 6K furnished.
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Merchandise costs increased by two one points Simpsons to two songs 375 million. This was in line with the gross product sales revenues gross margin at a group level was 25% in the fourth quarter gross margin for our wuxi opinions towards that end.
8%.
Fulfillment expenses decreased by five 2% to $274 9 million, excluding share based compensation expenses, which we will refer to as SPC from Jiang.
GAAP fulfillment expenses decreased by seven plus 3% to $259 3 million.
And the GAAP measures that decrease was primarily due to a decline you all pushing center related expenses as we optimized our strategy for city level approaching stations and the Piper selection stores as well as a decrease the logistics expenses.
And then kind of fulfillment expenses as a percentage of total revenues decreased eight 7% from 11, 5% in the same period last year.
Selling and marketing expenses increased by 61 upon the 1% to two $594 million, excluding SBC expenses and amortization and impairment of intangible assets.
GAAP selling and marketing expenses decreased by 18, 3% to $222 1 million and this isn't a GAAP measure.
<unk> was primarily due to decreased marketing expenses.
Two our more prudent spending as church, a four hour marked crisis, non-GAAP selling and marketing expenses as a percentage of total revenues decreased to seven 5% from 11, 2% you can assume share with last year.
G&A expenses increased by 47, 6% to <unk>.
$76 6 million, excluding SBC expenses non-GAAP G&A expenses increased by 66% to 54 7 million, primarily due to an increase in professional service fees non-GAAP G&A expenses as a percentage of total revenues slightly increased to one 8%.
When PA, 4% competitive with just some share of the last year.
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On the 1% to $254 5 million, excluding SBC expenses, and amortization and impairment loss of intangible assets and cappuccino expenses decreased by 26, 6% to $38 7 million, primarily due to a decrease in personnel costs in that issue.
Two spending in research and development.
GAAP G&A expenses as a percentage of total revenues decreased two one pumps street per cent from two 2% compared with same period last year.
As a result, I wouldn't get operating income was.
So the $4 six minutes in the fourth quarter of two non-GAAP operating margin was one 2% competitor was 0.4% same period last year.
At December 31st two cash and cash equivalents short term investments and funds receivable from sort of pocket payments service provide us totaled two 8 billion our sufficient cash on hand of six cuts are sustainable growth archrock.
Considering the negative impact on market demand, resulting from the upper <unk>.
COVID-19 pandemic and the changes in market conditions, So company performed quantitative.
Tests on the goodwill and intangible assets recognized.
Recognized impairment losses of when some of the $819 9 million and $206 9 million on goodwill and intangible assets respectively.
I'm sure. It ended December 31st coming from Youtube.
As a recap on December 9th Honeypot to we announced an extension of our existing $100 million share repurchase program for another 12 months starting from December 22.
<unk> based on measurements strong confidence in the company's solid fundamentals and our growth momentum.
In the fourth quarter of content on Youtube will purchased 383304 <unk> in the open market for a total cash consideration of $30 9 million just Doris.
At the end of 2022 will purchase a total of $8 5 million.
<unk> for approximately three.
<unk> 9 million U S Doris under our share repurchase program.
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For the first quarter was 27th Street. So company currently expects its total revenues to be between RMB, two songs 717 million and RMB two sounds at 870 million due to the seasonality of our business. During Titanic Street, we expect some negative impact from COVID-19 bearings to fit out and.
Anticipated for.
Full year operating income under the net GAAP measures. This forecast reflects our current and the preliminary views on the market and not pushing of conditions, which are subject to change. This concludes our prepared remarks for today.
We are now ready to take questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
When asking a question. Please state your question in Chinese first then repeat your question in English for the convenience of everyone in the call.
At this time, we'll pause momentarily to assemble our roster.
Our first question comes from Ronald Keung from Goldman Sachs. Please go ahead.
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Oh. Thank you. Thank you management and when I asked about two questions about growth one is for the overall industry. How are we seeing the long term industry growth opportunity, particularly after the COVID-19 impact.
This year should we expect an acceleration in growth.
And second is about your category expansion could you yeah.
More on how this is progressing.
And youre expanding categories. Thank you.
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Well. Thank you for the question Yeah, our reorder supply from an industry remains unchanged and sourcing is widely important as many users are unfamiliar with recycling services or may not have had satisfying where suckling experiences with good pricing yet.
Growth strategy for recycling and trading is still color more efficient conversion scenarios.
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On one hand, we have continued developing our HRS offline stores, which are the foundation of our business.
We opened new stores in cities at suitable pace, while enhancing user experience at existing stores. We have also been expanding the category coverage of our recycling business. That's always out we have grown user awareness of our recycling services and generated more repurchases.
Our strategy has improved efficiency in both our store front and backend of quality inspection centers on the other hand, we have developed new recycling scenarios that have provided significant contributions to our business growth.
Treehouse, all collaboration with industry, leading e-commerce players and top consumer electronics brands. So these collaborations we provide recycling and trading services. It's an hour elsewhere user traffic is highly concentrated on new product purchases with me. If there is still great potential for us to further penetrate China's market.
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In terms of growth trajectory, we observed several changes prior to and after the spring festival as pandemic restrictions were lifted and the economy began to revitalize <unk>.
First off all of our customers, who are willing to go out and visit our stores in shopping malls to fill their Idaho work with residual value we can.
Oh I interrupted services during the holiday and to meet the rebounding demand during the seven day holiday recycling volume had a significant year over year increase.
Second we believe high quality products at low prices is a natural and reasonable pursuit of consumers.
Consumer spending is still cautiously recovering.
All products with quality assurance backed by strong supply chain capability are essential auctions. We are also improving our operating capabilities and maximizing all of our value chain.
Oh, it's still precisely if the lack for schools that are suitable for combined refurbishment and in house self operated forcing them to consume ourselves that's bringing consumers quality are short value for money options.
In a nutshell, we are confident that the first quarter and full year growth trajectory will be delightful and we will expect a profit a profitable quarters in the coming years.
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Let me now turn to our multi category recycling business.
Five years ago, we started with something probably on mobile phones and saw the huge credential in the circular economy as our business groups. We believe that our business scope can be extended a broad number of users are willing to sell their available from cash and this is beyond consumer electronics brand.
Demand is coming from luxury bags watches producers liquor gold jewelry, we have successfully solved problems regarding service quality infectious standardization and pricing that has plagued the bring your own electronics industry. We also have the ambition to tackle the problem of these categories such as sports.
These are experienced inconsistent quality senders and high highly fragmented recycling channels.
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In order to achieve future success, we have strategically developed our multi category recycling business and upgraded our skulk slogan to recycle more for you, which means out of brand with more love and care and also demonstrates our goal of realizing more thundered Ais service and pricing system for life and recycling.
During the fourth quarter, we selected the top performing towards the higher tier cities from over a thousand AA tries to work upon.
Across the country, it's a pilot to evolve mentioned high ASC categories, followed by clothing.
Footwear and gift cards of mothers from January to February this year, the new category of business has not only achieved breakeven, but also surpassed 50 million RMB in most of the G. M V with strong growth momentum.
Do you know somebody as well, but do you have that ebay will suggest to lead them and didn't want to talk to Nick what he saw a neat pin pacings yamal LNG kosher, Jason Keyes will neither images.
For some reason that you'd go parcel would you you'll watch us let's call. It to you. Some good strong colleague Georgetown hold on my judge for yourself the judge.
So jen soup yogurt, indeed, a into Suzhou T. So when did that fall on me.
I was with them and getting them meet some ways coach out to the Paypal somebody who's the chief.
Peacefully.
By the end of June we plan to allocate the new kind of worried about new offerings across 150 tier one stores and upgrade our brand image of these stores. We will also further enhance the overall fundamental capabilities. These are health plans include diversifying their product database optimizing pricing that these inquiries.
The conversion rates at every stage of the recycling process and warehousing their distribution channels, putting user experience first will be our long lasting principle and we will continue to improve our service capabilities in offline stores, making them our fundamental capabilities into high value notwithstanding the products the recycling business.
Okay. So as you think.
For the question.
Oh yeah.
Yeah.
The next question comes from Joyce Ju from Bank of America. Please go ahead.
Uh huh.
I don't know how you think you can do for them.
That's what it is.
What kind of Windows 10.
Okay.
In the U S.
Yeah Joe.
Congratulations nice to kind of help me out.
Okay.
Hum.
Hum.
And Kevin when you need them.
I will translate my question.
Actually we have seen this quarter and you guys got it.
Yeah.
Actually achieved non-GAAP profitability, which is pretty remarkable compared to last year, it's not so good.
Once you understand like you know how management looking at them in the future on what he saw.
It's all about that and how should we look at our profitability sustainable.
Yes.
Thanks Choice I would take this question so.
During the second half often trying to.
Our revenue mix and the profit contributor by prioritizing high quality controllable when she business. We also poverty from consignment opinions to when Peter C. Retailing by leveraging our combined compliant refurbishing capabilities. This is expect expected to generate a skilled when Peter <unk>.
And the gross profit in the long run. In addition, we optimized our sales and marketing spending it seems the market places and the improved fulfillment spending efficiency.
Further advanced our automated inspection capabilities as a result, we successfully realized our profit targets.
10 two.
In our last earning call.
We experienced detailed solves a complaint refurbishment to parse things a lot more.
I'll kick off the old ball refurbishment to finish by punishing goodbye screens, and they're replacing batteries and the screen. So we certified so the party parts and components, we prove improve the functionality of the products. We also informed customers. How we have refurbished devices offer seven day free return and when you acquired two oriented.
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During the fourth quarter, we elevated the overall capabilities.
Our salt, China, pushing census team and production capabilities to increase their spend.
As a result total sales of comprising refurbished phones surpassed 220, maybe cigna half oftentimes two Meanwhile, we supposedly improved supply for our CFO approach. It finished.
By simplifying the screen process and more precisely locating device suitable for compiling to refurbishment. So as people want you to see products increased to 2700 RMB.
By enhancing our operating efficiency and product quality, we further expanded our operating margin.
Looking ahead to this year, we're going to implement these improvements and how we used to China and north China pushes centers, we expect to complete our supply chain upgrades.
For tablets as we test our new categories for our recycling goodness, all goes to providing retail users with a more cost efficient high quality products for you a punter street, we spread our combined with Furbishing finished to generate revenues of RMB 600 immediate with an additional margin of 5%.
We encourage you to focus more.
Our GAAP operating margin in the fourth quarter will realize time be sort of at $4 6 million in non-GAAP operating profit and achieved non-GAAP operating profit for the full year. This is mainly due to our long term U S Mi and the large scale implementation of automated CT inspection stocking and the pricing technology as a result of fulfillment efficiency.
Have you improved significantly.
So to just hit our strategy for all pushing stations reducing costs.
Rising from FERC commenced at dispatching and in logistics.
I wouldn't have got fulfillment expenses as a percentage of revenue decreased from 13, 7% in 2022 troponin, 9% heat pump you win and have further dropped to 10, 9% in 'twenty 'twenty. Two we also remain prudent in our marketing efforts by refining our pushing as we strive to achieve greater.
Organic growth for each of our business lives.
Thank you.
Many thanks.
Yeah.
Our next question comes from failing from China Renaissance. Please go ahead.
He has already told you showed it to you at all.
Youll Kanthal.
Marketing to EPS non-GAAP .
As a percentage of revenue shows that Dol Uh huh.
Oh, it's down 1%.
Based on seeing Gwennie tongue.
Yes. These are just to jump in on that yet no.
Uh huh.
Thanks management for taking my question, we noticed that non-GAAP sales and marketing expense as a percentage of revenue was lower to seven 5% in the fourth quarter. So just wondering can management elaborate more on the measures taken to improve efficiency behind.
Thanks.
Thank you.
Last year, we have been prudent with our selling and marketing expenses and the related personnel costs apart from the marketing budget to use it to develop consumer mind share of Petrus recycle our assessment of for each business line prioritized how are four P. J T marketplace, we optimized its frontline marketing team.
Part of our marketplace, we prioritize the profitability and there were more focused on its Brendan image and reputation will also reduce the subsidies provided on JD com and our investments in user traffic of new channels.
Fourth quarter, excluding SBC expenses, and amortization off and impairment loss of intangible assets.
Selling and marketing expenses were 222 million.
Congress for seven 5% of total revenue down by three 9% percentage points from 11, 2% in the same chair it off kind of a new win with believes in a gas measures the threat of a better picture of our expenses.
Yeah.
Yeah.
Yes.
Again, if you have a question. Please press Star then one.
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.
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 you're ready.
If you have any additional questions. Please feel free to email us at IR outreach and renewed our call have a good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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Yes.
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