Q2 2023 ATRenew Inc Earnings Call
Speaker 1: Good morning and good evening ladies and gentlemen. Thank you for standing by and welcome to AT Renew, Inc. 2nd Quarter 2023 earnings conference call.
Speaker 1: At this time, all participants are in a listen-only mode.
Speaker 1: We will be hosting a question and answer session after management's prepared remarks.
Speaker 1: Please note, today's event is being recorded.
Speaker 1: I will now turn the call over to the first speaker today, Mr. Jeremy Gee, Director of Corporate Development and Investor Relations at the company. Please go ahead, sir.
Speaker 2: Thank you. Hello everyone and welcome to AT&T Renew second 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 Q2 financial results were released earlier today. The earnings release and US slides accompanying this call are available at our 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. Please know that management are joining the call from different locations.
Speaker 2: We will try to fix it if there is any connectivity issue. Let me cover safe harbor statements. Some of the information you will hear during the discussion today will consist of forward looking statements and I refer you to our safe harbor statements in the earliest press committees.
Speaker 2: Any forward-looking statements that management makes on this call are based on assumptions as of today, and that AT Renew does not take any obligations to upgrade our assumptions on these statements.
Speaker 2: Also, this call includes discussions 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, as otherwise stated, all figures mentioned during this conference call are in RMB.
Speaker 2: 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.
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Speaker 4: Hello everyone and welcome to AT Renu's second quarter 2023 earnings conference call.
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Speaker 4: In the early stages of the pandemic, during the second quarter, we made notable progress in terms of both revenue and profitability. Our total revenues raised 2960 million RMB, representing a year-over-year increase of 38.1%.
Speaker 4: and surpassing the high end of our guidance.
Speaker 4: As we navigated the post pandemic era, our one-tiered cycling business rapidly rebounded.
Speaker 4: And our marketplaces saw a healthy recovery, demonstrating the resilience of the circular business model. In terms of profitability, the adjusted operating income increased to 52 million RMB and the adjusted operating margins for their expanded to 1.8%.
Speaker 4: These improvements fully align with our aims of enhancing the second hand industry's value chain and optimizing operational efficiencies. For example, our delivers token branches are directly set to our target region, hungry for the Amazon.
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Speaker 4: Our strategic direction remains consistent. On the one hand, we aim to achieve steady growth in core consumer electronics businesses.
Speaker 4: Among them, the escalating 1P Reset on the channel, including AHS Recycle Stores and the official website, provide a better user experience in sure first-hand sources of supply and acquire more market share. We also continue to strengthen cooperation with e-commerce pioneers like JD.com and leading brands such as Apple.
Speaker 4: to advance their trading service experience in retail scenarios.
Speaker 4: On the other hand, we seek to unleash the potential through continuous innovations. On recycling over time, we have successfully improved user experience and store service capabilities of recycling luxury goods and continue to strengthen the brand awareness of AHS Recycle.
Speaker 4: On user traffic, we have achieved some progress recently through high frequency household goods recycling services in communities. We guide users to AHS Recycle app, WeChat mini programs, and encourage more customers to visit our physical stores to sell more high residual value products.
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Speaker 4: Next, I will share more color from three aspects. First, key growth drivers of the core business. Second, operational efficiency improvements. And third, updates on our innovative businesses.
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Speaker 4: In terms of growth drivers, 1P product revenue grew rapidly by 42.2% year-over-year to reach 2,637 million RMB in the second quarter. This increase was primarily driven by the continuing upsurge in the trend for selling old for new and buying new products.
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Speaker 3: If you have any questions, please feel free to contact us. We'll be happy to answer any questions you may have. Thank you very much for your attention. Thank you for your attention. Thank you for your attention. Go my future.
Speaker 4: Specifically on the recycling front, we saw significant year-on-year improvements in both straw front and JD recycling channels.
Speaker 4: We utilize our extensive network of 1,944 offline stores nationwide to further develop consumer outrage and effectively improve user satisfaction with price quotations and services.
Speaker 4: of which the 1,462 stand-up stores play a key role in obtaining more supplies of quality devices.
Speaker 4: In addition, recycling orders from JD channels recovered quickly as one-stop trading business saw 116.9% year-on-year revenue growth in the second quarter. In addition to Apple products, some Android models were also popular with JD customers.
Speaker 4: On the selling front, having successfully navigated the challenges posed by the pandemic, merchant users' transaction activities kept healthy. As for first-party retail distribution, we started the compliance refurbishment business and the RE RE refurbished brand following the release of relevant regulatory guidance in April 2022.
Speaker 4: Revenue from retaining RERE refurbished devices totaled 170 million RMB in the second quarter, representing a notable increase of 22% sequentially, further fulfilling consumers' need for premium second-hand devices.
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Our platform service revenues rebounded at 12.1% year-over-year to 327 million RMB in the second quarter. The overall tick rate jumped 83 basis points to 5.37%.
The platform business has achieved healthy growth even as our strategic focus shifted towards first party businesses.
PjT Marketplace advanced its market penetration efforts during the second quarter. This involved exploring more local buyers and seller channels and optimizing online transaction scheduling. As a result, we enhanced users' thickness and monetization capability.
In terms of pipeline marketplace, it's pop business foster concurrent extension in both scale and profitability and their JD slow price strategy. We continue to provide premium supply chain support to more small business owners that were defying businesses and product categories.
In the second half of 2023, we will upgrade the B2C business model and carry out a new business based on the trust of users and the operation capacity of large stores.
While lowering the participation threshold for merchants to supply goods, we will ensure product quality and buyer's experience through warehousing quality inspection.
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For any other questions, please refer to the Q&A box for more information. Thank you very much for your attention. Please do not hesitate to ask any questions and do not hesitate to ask them at the same time. Please do not hesitate to ask any questions and do not hesitate to ask any of your questions. Thank you for your attention. and I hope to see you in the next session.
If you have any questions or comments, please feel free to contact us. We will be happy to answer any questions you may have. Thank you.
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As for operational efficiency improvement, we widened our operating margin on a more comprehensive supply chain and more advanced automated operational efficiency.
During the second quarter, non-GAAP fulfillment expenses as a percentage of total revenues was 8.8%, down 3.7 percentage points compared with the same period of 2022. To break it down, operation center related expenses and logistics expenses decreased by 12% and 17% year on year respectively.
The costs saved in operation centers were attributable to one, scale effects and reduced inspection errors following the use of our automated facilities in South China and Eastern China and two, the optimization of the operation station network and related expenses.
In addition, we credit the savings in logistics related expenses in two factors. For one, it's the deepened relationship with JD logistics, shipping out solutions were better tailor-made for pre-owned goods transactions. The other is, with average supply chain algorithms to better match others with all original operation centers capacity, warehousing allocation and logistics solutions.
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One more thing, in addition to the organic growth of our core businesses, we are cultivating external growth engines through innovations.
On June 30th, we officially interpret it into Apple China's online and offline retail system becoming the second Apple trading service provider in the mainline China market. We provide supply chain support for Apple trading and iPhone upgrade program. Users can place API service orders via Apple Doc CN or visit any of our...
and mechanisms and recycling prices. Upon receiving, AHS conducts data erasure and closing inspections. We have completed system deployment and accumulated some experience through testing, and we accept more progress when the new iPhone lineup debut.
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In terms of the new category recycling, GNV and service capability continue to scale. During the quarter, GNV excluding photography and video equipment rapidly exceeded 200 million RMB. Among these, luxury goods and gold recycling transaction volumes increased by 60% and nearly 100% compared with the first quarter.
with competitive pricing quotations, on-site luxury goods, quality inspection, and shortened waking period for customers.
For a larger number of existing AHS stores, we provide standardized multi-category recycling services supported by IT systems. In the second quarter, 231 AHS stores fulfilled multi-category recycling orders. In branding, we made additional investments in our main brand AHS Recycling.
AHS Recycle has cooperated with brands such as Cotton Times, Captain Land, Winter Lab, Fresh Hippo, and Tencent Charity Etc. We will attach great importance to synergies with consumer brands to form the recycling mentality.
Thank you. Thank you for listening to ESG's presentation. We hope you will enjoy the presentation. Please like, share and subscribe to the channel. See you soon.
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Finally, some updates on our ESG efforts. On June 20th, we released our 2022 ESG report. Particularly, it is our commitment to this closing greenhouse gas emissions for three consecutive years.
During the three-year period, we continuously downsized greenhouse gas emission intensity.
On the social front, we have enhanced our quality control system, obtaining ISO 9101 certification during the reporting period. We provided training to 10,000 merchants.
strengthening value co-creation along the industry chain. In terms of governance, the board structure of the company has been further diversified, and we have made a long list in internal controls and risk management to realize robust operations in the long run.
In the case of the previous question, let's introduce some transient emotions.
Now I'd like to turn the call over to our CSO REC for financial updates.
Hello everyone, we are pleased to report another profitable quarter as we generated a new recording and gap of rich income on revenues that beats the top end of our guidance. One of the key drivers of our continued profitability was our use of industry-leading AI and big data algorithms to enhance our quality inspection systems.
which continuously optimized our fulfillment costs. So then, gap for food cross margin was 12.7%. It continued to recover from a low point in the first quarter of 2022.
Now let's take a detailed look at the financials, pre-snaughts, such as all amounts are in IMP and all comparisons are year-over-year basis and less otherwise stated.
In the second quarter, total revenues increased by 38.1% to 2963.7 million, mainly driven by growth in net product revenues. Net product revenues increased by 42.2% to 2636.7 million, while net service revenues was 327 million.
representing an increase of 12.1%.
Growth in net product revenues was primarily driven by an increase in the sales of pre-owned consumer electronics, including the sales of RMB-191 million refurbished devices. So increasing service revenues was primarily due to the revitalizing business of our marketplaces from the COVID-19 pandemic.
and an increase in the overall commission rate which grow to 5.37% from 4.54%. Next, we'll continue to our operating expenses to provide greater clarity on the trends in our actual operating-based expenses. We will also discuss our NEGAM operating expenses which better affect
how the management views our results of our operations. The reconsiderations of GAP and NN-GAP results are available in our earnings series and the corresponding form 6K finished with SEC.
merchandise costs increased by 40.6% to $2,325.8 million. So increase was in line with the gross in product sales revenues. Growth margin at the group level was 21.5% in the second quarter. Gross margin for our one-team business was 11.8%.
Fulfillment expenses decreased by 2.3% to 268.8 million.
Excluding share-based compensation expenses, which we will refer to as SPC from here, NANGAAP fulfillment expenses decreased by 2.2% to $261.8 million. Under the NANGAAP measures, the decrease was primarily due to the decrease in logistic expenses and operations center related expenses.
The gap fulfillment expenses as a percentage of total revenues decreased to 8.8% from 12.5% in the same period last year. Selling and marketing expenses increased by 14.3% to $335.3 million, excluding SBC expenses and amortization of intangible assets.
The gap selling and the marketing expenses increased by 28% to $250,000,000,000. So increase was primarily due to first an increase in advertising expenses and the promotional campaign related expenses. And an increase in commission expenses in relation to channel service fees.
and increasing office and traveling related expenses. Then gap setting and the marketing expenses as a percentage of total revenues.
GNA expenses increased by 27.2% to 57.5 million. Excluding SBCC expenses, ManGAP GNA expenses increased by 37.5% to 39.6 million primarily due to first an increase in expected credit loss by 18%.
to credit risk. Second, an increase in professional service and consulting fees. The increase was partially offset by a decrease in personnel costs. The gap between expenses is a percentage of total revenues was 1.3%, the same as that a year ago.
Technology and content expenses decreased by 24.6% to $425 million. Excluding SBCC expenses and amortization of intangible assets, NANGAAP technology and content expenses decreased by 26.8% to $38.8 million. This was partially due to the decrease in technological personnel costs.
and technology expenses in relation to platforms as the company's platform matured.
NANGAAP technology and content expenses as a percentage of total revenues decreased to 1.3% from 2.5% in the same period last year. As a result, old NANGAAP operating income was 52 million in the second quarter of 2023. NANGAAP operating profit margin was 1.8%.
marking a new record high. So the gap operating margin was negative 2% in the same period last year.
As of June 30, 2023, cash and cash occurrence, restricted cash, short-term investments and funds receivable from third-party payment service providers totaled $2.5 billion. More sufficient cash on hand safeguards are sustainable growth outlook.
During the second quarter of 2023, we repurchased 2.3 million ADCS in the open market for a total cash consideration of 6.4 million US dollars. Because of June 30, 2023, we had repurchased a total of 12.3 million ADCS.
for approximately $44.4 million in our shared purchase program. Now turning to outlook, for the third quarter of 2023, the company currently expects its total revenues to be between R&D $3,150 million and R&D $3,250 million.
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.
Yes, thank you. At this time we will begin the question and answer session.
To ask a question, you may press star then 1 on your touch tone phone.
If you are using a speakerphone, please pick up your handset before pressing the keys.
To withdraw your question, please press star then 2.
When asking the question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone on the call.
At this time we will pause momentarily to assemble the roster.
And the first question comes from Weiting Time with Goldman Sachs.
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and the Chinese trading partner. We are pleased to announce that we have become Apple's second official trading partner in Mainland China.
providing recycling supply chain services to Apple China's official website and 45 slapsheet stores.
Our vision is closely aligned with Apple's.
We both share a focus on enhancing product and service accessibility, prioritizing user privacy and data security in recycling, delivering unparalleled user experience, and reducing the cost of decision-making as well as the economic cost of operating devices.
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So, specifically, Apple has two alternative processes for recycling in its official retail channels in China.
Users can submit recycling orders via Apple.cn and send in used devices. They can also visit Apple stores, flagship stores in person, where Apple staff use specialized devices to scan, verify, erase data and pay outside.
Certain models are then handed over to us as over inventories for back end privacy erasure and standardized quality checks before the end distribution.
This business is carried out under one P model. Since we don't need to advertise to acquire customers, and there is no store expense on our end, the cost structure is more simple.
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We expect to escalate our tax and service capacity in the third quarter and the recycling volume to increase following the arrival of the new iPhone lineup in September and during its major shipment in the fourth quarter. Its operations and margins stabilizing next year.
We anticipate an annual recycling volume of 1 to 1.5 billion RMB from this new channel based on historical market data.
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In addition to the trading support license, we've recently been authorized to bid for and distribute Apple's Apple phones. These two collaborations with Apple can further enhance our access to high-quality supplies and allow us to service mainstream customers in key scenarios.
These are also recognitions of our supply chain capabilities, privacy protection, compliance, and corporate governance. The breakthrough in collaboration with phone manufacturers signifies a major milestone apart from our strategic partnership with e-commerce players.
Thank you for the question. Thank you. And the next question concentrates to you with Bank of America. …
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We have seen the company actually enhancing its refreshments for a couple of quarters in a row. In the performance of the second quarter, we have seen this business has made a lot of progress.
a quite positive contribution to the company's 1P growth profit. Could the management team help provide more insights into the business and help us to understand its growth potential, like for example like you know what percentage of like you know revenue it can contribute to our 1P business.
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Since the launch in April last year, our RE REFERB labeled products have continuously improved our industry value chain. During the second quarter, we replicated the...
capabilities from Dongguan Operation Center in South China to Changzhou, Wuhan, Chengdu and Tianjin Operation Centers with value-added capacity covering major regional markets. We also reconditioned broader product categories including tablets, laptops, smartwatches, earphones, etc.
meeting the demand for high quality products from both consumers and merchants.
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During the second quarter, total sales of refurbished products exceeded 190 million RMB accounting for 7.2%
We believe that more of our 1P source products can go through our own facilities for reconditioning. Becoming quality products will bring greater value to the industrial chain.
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In the future, for all import pockets of operations, we will still continue to improve and largest in verde neighborhood of Rom oggi, the suits at that time and green parking tracking. Let's see,? defining plane customers developing new brand moving models in Ephraim's city from 30% to 130%.
We obtained official maintenance authorization from Huawei at the end of July , further enhancing our cooperation with brand manufacturers. Looking forward, we will continue to strengthen better-added services with closer collaboration with phone brands and industry associations to promote the compliance and healthy development of the industrial chain.
more. Thank you.
Thank you. And once again, please press star then 1 if you would like to ask a question.
And the next question comes from Zhang Zhengchang with BITG.
Please go ahead, your line is live.
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to evolve in the future? Okay, thank you for your question. I will take this. Oldman gap-op margin was 1.8% in the second quarter, surpassing the 1.5 for your target we discussed earlier.
This was due to our effective execution towards improving 1P gross margin and operational efficiency. And improving 1P gross margin was mainly attributable to re-referred products whose gross margin exceeds that of regular 1P2C products by 5% base points. We anticipate the total sales of re-referred products at...
technologies. We optimize all the allocation to operation centers with the help of the data algorithms and condensed the number of small city level operation stations. As a result, the service fees, logistic expenses, and packaging fees are cut down as we upgrade our automated in-space system to measure...
loss decreased by 17.6 million IMB compared to the same period in 2022, downsizing our net gap fulfillment expenses as a percentage of total revenues by 3.7 percentage points. Overall, we expect our net gap opportunity margin.
for this year could be 1.5%. And it would seem to actually work better meant of 1% points every year.
On LearningMix, we have been shifting our focus and strict check resources to first-party businesses.
since the second half of 2022 to achieve more controllable operations facing complex environments.
We aim at Katherine to diversify the user needs, enhancing the recycling experiences and enriching our quality per own product listing.
This transition has led to a downsized learning mix for marketplaces and service line mix. However, our platform business continues to exhibit healthy growth for this year. We expect that our platform's over-articulate will exceed 5%.
following the stretch checks and adjustments for PyPy consignment bonuses.
We are now experiencing renewed momentum in the growth of sales revenue. In the second half of this year, we anticipate that the one-to-one product sales revenue will continue to dominate our revenue structure, maintaining our year-over-year growth rate of over 30%. Thank you.