ATRenew Inc. Price & Performance (RERE)

Thank you. Hello, everyone, and welcome to Ituran News' fourth quarter and full year 2024 earnings press release. Conference call. Speaking first today is Carrie Chen, our Founder, Chairman and CEO. And he will be followed by Rex Chen, our CFO. I After that, we'll open the call to questions from analysts. The fourth quarter and full year 2024 financial results were released earlier today. The earnings press release and IR deck accompanying this call are available at our IR website ir.atrenew.com. [indiscernible] will also be a transcript following this call for your convenience. For today's agenda, Carey will share his thoughts of our quarterly performance and business strategy, followed by Rex who will address the financial highlights. Both Carrie and Rex will join the Q and A session. Please pay attention to the Safe Harbor statements. Such of the information you hear during our discussion today 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 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 Cary for business and strategy updates. Hello, everyone, and welcome to ATRenew fourth quarter and full year twenty twenty four earnings conference call. We are excited to share our business updates, our strategic insights into the point of the industry our development roadmap for 2025. First, I'm delighted to report that we realized total net revenues and profits ahead of targets for the fourth quarter and full year 2024. Revenues for the fourth quarter exceeded the high end of our guidance growing 25.2% year over year to RMB4.85 billion. Full year revenue reached RMB16.33 billion, representing a 25.9% year over year growth. Significantly outpacing the growth rates of the pre owned electronics industry as well as the national retail sales of consumer goods. On profitability, our non GAAP income from operations was growing 6162.8% year on year, respectively. In terms of margins, non GAAP operating margins as we expected were 2.7% in the fourth quarter and 2.5% in full year 2024.

The total number of transactions grew healthy to over 35,300,000 with China's stronger support and subsidies backed by ultra long special to large scale renewal of equipment and trading of consumer goods in 2025, AHS Recycle stands at the forefront of a promising growth era. Product revenues for the fourth quarter grew by 26.6% year over year. We focused on growing our one key business and further advancing our user experience. This allows us to enhance the end to end cycle of direct engagement with consumers at the front of reflecting and retaining. On recycling from consumers, we forced an increasing volume of first hand supplies from individual users as their demand increased AHS stores have been the quality scenarios for fulfillment. In the meantime, collaborated with JD.com as we master industry leading know how and supply chain capability Together, we introduce our next level fulfillment services to users. In the fourth quarter, trading contributed over 50% of the total reflecting value in over exclusive service for JDs restructuring program becoming a mainstream consumption solution for users. We attribute the results to our investments which has incrementally driven consumption growth. [indiscernible] [indiscernible] On the direct sales to consumers, PEPI selection on JD.com, physical stores and online portal of AHS Recycle and new media distribution channels all had breakthroughs.

We leveraged our supply chain capabilities and established an integrated inventory system advancing our efficiency in screening and picking retail products. We launched a pilot program of the on demand refurbishment It allows us to display multiple product options and conduct on demand refurbishment only when a consumer has made an order. We also polish our refurbishment processes ensuring ample supplies of valuable money, quality assured products to our consumers. To name a few results we made, the total GMV of our YP2C sales reached a new milestone at RMB5.5 billion in 2024. Retail revenue as a percentage of net product revenues was 29% in the fourth quarter up by eight percentage points year on year. We covered marketing strategy and prioritize the development of our new media department in 2024. This established a consumer mindshare that Recycle is the expert in recycling numerous categories of products. And offers its value for money quality products We spent RMB100 million on new media marketing to increase our brand exposure across those in Kuaishou and Xiaohongshu, and promoted our location based in store services with content developed in house. Was a valuable approach to raise our brand and service awareness as trading subsidies were deployed.

Once again, we want to emphasize that AHS Recycle is a unique brand name with a huge potential in the second hand industry. Trillion has a clear growth outlook as the massive consumer group is new to this option. In terms of category expansion, we rapidly extended our multi category recycling and services to RMB6748 stores in 2024. More consumers recognize that AHS Recycles serves diversified needs and [indiscernible] grew in our existing stores basic fulfillment capabilities. This leveled up store performance and contributed incremental operating profits to store operation. As for the development of multi cash flow recycling services in 2024, we strengthened our pricing capabilities reduced in store service time, and improved price acceptance. In 2024, category recycling services transaction volume in increased nearly threefold year over year, contributing 8.6% of total service revenue up from 2.3% in 2023. We comprehensively enhanced AHS standardized one stop ability to serve users recycling various items, including consumer electronics, luxury goods, gold, premium liquor, shoes and clothing. More consumers are now realizing that AHS Recycle offers more than just mobile phone and electronics recycling. [indiscernible] On our marketplaces, service revenue of Paijitang saw a steady increase in 2026. 2024, positioning of Huijiteng as the source center of domestic second hand smartphones and consumer electronics was further strengthened with the number of registered merchant users on the platform exceeding eight fifty thousand Aizitang also made innovations in local new media traffic support for sellers.

Tiered services for buyers and live streaming supply, which generally enhanced the vitality of the merchant ecosystem and laid a solid foundation for the business expansion in 2025, supported by national subsidy. IPay Pop business was upgraded to the consignment model which aggregated fragmented sources of supply and provided them with unified store operations quality inspection and after sales customer service. This comprehensively reduced the cost for small and medium sized business owners who wish to expand their retail business on JD.com The transaction value of Hapai consignment business increased nearly six times year on year. Reviewing 2024, certain Firstly, in our Apple official trading business, we adjusted pricing and operational strategy without jeopardizing user experience. Realizing an improved profit margin in the fourth quarter. Segment revenue was RMB1.05 billion in 2024. Secondly, in terms of our overseas businesses, we closed certain lock making businesses resulting in a downsize overseas product revenue. However, we believe that smartphones remain one of the most globally tradable and valuable categories in the pre owned market. There is substantial opportunity in the export and cross regional circulation of pre owned smartphones and we will approach this with innovative approaches. We will provide further updates at appropriate time.

Looking ahead to 2025, our strategy will focus on three commitments, Commitment to experience driven growth with further investment in retail business commitment to building the AHS recycle brand, commitment to strengthening our fulfillment capabilities, First, will concentrate resources on direct engagement with consumers at the front of recycling and retailing. We have upgraded a user experience driven mechanism and set up a group level user experience committee dedicated to experience. Multiple user experience metrics including recycling prices the proportion of face to face transactions, two door service functionality and post inspection negotiation rates, are steadily optimizing. Since the fourth quarter of twenty twenty four, driven by subsidy rollouts and the platform promotions, we have seen rapid growth in trading demand from users of JD.com. This is attributed to our joint efforts with JD. In building a robust secondhand electronics trading service capability and supply chain, enabling seamless system integration and efficient operational collaboration. As a result, we have forced more first hand supplies directly from individual users. On 01/20/2025, the national trade in subsidy for mobile phones tablets and smartwatches were officially launched both online and offline. Offering a 15% subsidy capped at RMB500 for new devices priced below RMB600.

During the Chinese New Year holiday, our C2B Resetcan business grew by over 70% year on year. Effective effectively meeting the training needs of users nationwide. Leveraging our industry leading supply chain capabilities, we conduct compliant refurbishment with authorization from leading manufacturers we use genuine parts for value added processing in Han the availability for retail ready products for our 1P business. 1P2C retail revenue as a percentage of total product revenues steadily increased from 17% in the first quarter of twenty twenty three twenty nine percent in the fourth quarter of twenty twenty four. And our mid to long term goal of this proportion is 50%. Additionally, leveraging Pipedrive's consignment capabilities, we expect to double our offerings and consignment sales in 2025. [indiscernible] Second, we remain committed to building AHUs recycle app and this brand. In the pre owned recycling industry, AHS Recycle is a rare high quality brand However, significant portion of users have yet to experience reflecting for trading services, and the industry remains fragmented with many third party recycling and repair shops lacking brand recognition. This presents huge opportunities to improve both recycling penetration and brand consolidation. Building on our 2024 brand building efforts, we will actively explore new media capabilities to position AHS Recycle as the top brand for recycling services in China.

We will leverage platforms like Douyin and Xiaongshu for marketing complementing our existing precise e commerce and brand partners scenarios. Through production of new media content focused on recycling services, we aim to attract more users to AHS stores to experience our services. Additionally, multi category recycling and eco friendly initiatives like the REVIVE campaign will encourage users to explore the AHS Recycle app and mini program showcasing our service capability. Third, we remain committed to enhancing our fulfillment capabilities. Our continuous marketing efforts for the Ahrefs recycle brand are expected to drive more online traffic to our physical stores. Which drive our store openings. In first and second tier cities, the rapid growth of our asset light multi category recycling business has optimized the profitability model of our stores. Supporting the opening of new stores. In lower tier cities, we support partners in building local traffic through new media IPs. With greater local traffic the operational capabilities of our franchisee will be enhanced. Thus, further converting to an expanded franchisee network. In areas where in store visits are less convenient we are strengthening our two door service capabilities to increase service density and meet users' demand for phase to phase transactions.

Over the next three years, we aim to establish a nationwide network of of 5,000 stores and a 5,000 member two door service team, ensuring a robust fulfillment network to cater to diverse recycling and trading needs. Based on the three strategic focuses, we are confident in capturing an increase in growth opportunities on the supply side driven by national subsidies. By expanding our fulfillment capabilities, we will secure more first hand sources of supply utilize our supply chain capabilities to drive more retail. We believe for the first for the pre owned industry and AHS recycle, 2025 is a year full of opportunities. Now, I'd like to turn the call over to CFO, Rex, for financial updates. Hello, everyone. I am pleased to announce that we achieved strong financial performance in 2024, driving revenue and profitability growth as we developed our core recycling businesses and cultivated our innovative businesses. Total net revenues for the year increased by 25.9% to RMB16.3 billion, Adjusted operating income grew significantly right 10,000,000 and we are proud to have achieved our first GAAP operating income for the year as well. These results demonstrate our success in building out our economies of scale and delivering on our mission of driving sustainable development.

Before taking a detailed look at the financials of the fourth quarter of twenty twenty four, Please note that all amounts are in RMB and all compares In the fourth quarter, total revenues increased by 25.2% to RMB4849 million, primarily driven by ongoing growth in our net product revenues. Net product revenues increased by 26.6% to RMB4461 million primarily due to the growth in our recycling scale and sales offering on consumer electronics, through our online channels. Net product revenue for the full year reached RMB14.84 billion, representing a year on year increase of 27.3%. Net service revenues were RMB389 million in the fourth quarter, representing an increase of 10.7%. The increase was primarily due to an increase in the service revenue generated from PJT Marketplace and multi category resecting businesses. The growth in service revenues went along with the upward trend in our marketplace overall growth transaction value, delivering an overall marketplace take rate of 5.36% in the fourth quarter of twenty twenty four. During the quarter, our multicast revenue second business contributed over RMB40 million to service revenues representing over 10% of service revenues. A significant increase from 5.5% in the same period of 2023. Net service revenue for the full year reached RMB 1,480,000,000.00, representing a 13.5% year on year increase with an overall take rate of 5.35%.

Of which our multi category recycling business contributed RMB130 million representing a threefold increase year on year. This accounted for 8.6% of total service revenues in 2024, compared to 2.3% in 2023. Now let's discuss our operating expenses. To provide greater clarity on the trends in our actual operating based expenses, We will mainly discuss our non GAAP operating expenses, which better reflect how much views our results of our operations. The reconciliations of GAAP and non GAAP results are available in our earnings release and the corresponding Form six ks furnished with the U. S. SEC.

In the fourth quarter of twenty twenty four, merchandise costs increased by 24% to RMB 3,009 and $55,000,000. Line with the growth in product sales. Gross profit margin for our 1P business was 12.5%. Showing a trend of stabilization and recovery. Compared with 10.6% in the same period last year. The improvement of gross profit margin in 1P business was mainly driven by our end to end supply chain stress and refurbishment capabilities. Contributing to higher margin D2C sales. We also optimized the performance of Apple's official trading program driving both revenue growth and margin expansion in the fourth quarter. Merchandise costs for the full year increased by 26.6% to RMB13.09 billion with a 1P gross margin of 11.8% compared to 11.3% in 2023. [indiscernible] In the fourth quarter of twenty twenty four, fulfillment expenses increased by 31.8% to RMB397 million Non GAAP fulfillment expenses increased by 32.7% to RMB392 million Under the non GAAP measures, the increase was primarily due to an increase in personnel costs and logistics expenses as we conducted more recycling and transaction activities compared with the same period of 2023 and an increase in operation related expenses as we expanded our recycling fulfillment network and operation center capacity in the fourth quarter of twenty twenty four.

Non GAAP fulfillment expenses as a percentage of total revenues increased to 8.1% from 7.6% Non GAAP fulfillment expenses for the full year increased by 23.7% to 1 point RMB1.36 billion, while the non GAAP fulfillment expenses as a percentage of total revenues decreased to 8.3% from 8.5%. The fourth quarter of twenty twenty four, selling and marketing expenses increased by 18.7% to RMB377 million, Non GAAP selling and marketing expenses increased by 30% to RMB321 million primarily due to an increase in advertising expenses and promotional campaign related expenses. And an increase in commission expenses in relation to channel service fees. Non GAAP selling and marketing expenses as a percentage of total revenues increased slightly to 6.6% from 6.4%. Non GAAP selling and marketing expenses for the full year increased by 14.8% to RMB1.09 billion while non GAAP selling and marketing expenses as a percentage of total revenues decreased to 6.6% from 7.3% In the fourth quarter of twenty twenty four, general and administrative expenses increased by 0.5% to RMB91 million, Non GAAP G and A expenses increased by 71.1% to RMB70 7,000,000 primarily due to an increase in personnel costs. Non GAAP G and A expenses as a percentage of total revenues increased to 1.6% from 1.2%.

Non GAAP G and A expenses increased by 28.2% to RMB250 million while non GAAP G and A expenses as a percentage of total revenues remained flat year over year at 1.5%. In the fourth quarter of twenty twenty four, technology and content expenses decreased by 10.7% to RMB57 million Non GAAP technology and content expenses decreased by 9.2% to RMB57 RMB53 million. The decrease was primarily due to a decrease in personnel costs. Non GAAP technology and content expenses as a percentage of total revenues decreased to 1.1% from 1.5%. Non GAAP technology and content expenses for the full year increased by 10.7% to RMB190 million while non GAAP technology and content expenses as a percentage of total revenues decreased to 1.2% from 1.3%. As a result, our non GAAP operating income was $131,000,000 in the fourth quarter of twenty twenty four, representing an increase of 61% year over year.

Non GAAP operating profit margin was 2.7%, compared to 2.1% in the fourth quarter of twenty twenty three. Our non GAAP operating profit for the full year reached RMB410 RMB410 million, increasing meaningfully to by RMB62 2.8%. Non GAAP operating profit margin in 2024 was 2.5%, compared to 1.9% in 2023. In terms of shareholder returns, we continue to push forward with repurchases and our current repurchase program allows us to repurchase up to US50 million dollars of our ADSs through 06/27/2025. In the fourth quarter of twenty twenty four, we used $5,000,000 to repurchase approximately 2,100,000 ADSs. [indiscernible] of December 31, 2024, we have returned US25.9 million dollars to our shareholders for a total of 10,300,000 ADSs. As of 12/31/2024, cash and equivalents, restricted cash, short term investments and funds receivable from third party payment service providers totaled RMB2.9 billion, The company's financial reserves are sufficient to support reinvestment in business development and shareholder returns. Now turning to business outlook. For the first quarter of twenty twenty five, we anticipate total revenues to be between RMB4550 million and RMB41650 million representing a year over year increase of 24.6% to 27.4% Notably, the first quarter of twenty twenty four marked a high base of product revenue for Apple trading business.

In the first quarter of this year, the company adjusted its operational strategy and estimated that the scale of this business will decrease but the operating profit margin could turn positive. In addition, we downsized some overseas businesses with negative margins. These two factors been taken into account in the outlook for the first quarter of twenty twenty five. 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.

Thank you. We will now begin the question and answer session. The first question that we have is from Joyce Dew of Bank of America.

Hi, management. Thank you for taking my question. Could you kindly share your plans to capture the growth opportunities in 2025 on the back of nationwide consumer electronics trading subsidies? Could may you help us quantify the add ons from this year subsidy? What's the outlook for growth for of your top line like for this year? Thank you. Thank you for the question. We believe China's pre owned electronics market has significant untapped potential Looking upstream, new smartphone shipments in China rebounded in 2024. 2024 by nearly 6% year over year to two ninety million units was driven by a steady increase in replacement demand and supported consumption Meanwhile, according to IDC research, China's pre owned smartphone recycling and transaction industry has sustained a double digit growth. National trading subsidies are inevitably a growth engine for our recycling business. By leveraging our unique industry position and front end capabilities, we will strive to seize opportunities and increase our penetration rates in course in scenarios. As China deploys nationwide national subsidies to mobile smartphones, tablets and smartwatches in 2025, we witnessed a significant increase in C2B recycling volume in January and February, thanks to our front end fulfillment pricing and system capabilities.

Aim to further deploy our combined refurbishment capabilities and high turnover capabilities of PGT marketplace. This is to drive more efficient and profitable circulation of [indiscernible] Through AHS stores and official website, we are meeting the growing consumer demand for high quality pre owned products nationwide On our recycling service capabilities, we expand our user range by offering a broader area of product service capabilities addition to more stores and larger two door service teams. We deliver upward recycling results and take rates for product categories. While further establishing our product catalog and pricing capability. As a result, we aim at an accelerated growth of the top line in 2025. On tactics, we plan to speed up store openings and expanding our two door service team. By net adding 800 stores and 1,002 door staff in 2025. This advances our national face to face fulfillment network that will provide instant recycling and cashback services. We convert more customers with such a unique user experience We will also boost brand investment by amplifying AHS presence on new media platforms like Douyin and JiaHongshu, reinforcing AHS Recycles position as the top of mind brand name. For recycling services and attracting more users to our offline online touch points.

Given the bright growth outlook for the premium market, we should value rational investment into brand awareness and fulfillment capabilities in preparation for long term development. In the mid to long term, industry leadership and economies of scale will gradually deliver sustained profitability. Thank you for the question.

The next question we have is from Zhao Wang of CICC. Please go ahead.

Hi, good evening. Thank you for taking my questions. We know you have made great progress in reducing cost through automatic quality inspection and operations in this years? And do you pay attention to recent AI models like DeepSeq and have a plan to optimize your business with AI?

Thank you. ATRenew is a scenario driven industry Internet company It achieved scale effects and enhanced the standardization of operations through its own recycling and platform businesses. Accumulating enormous know how We have AI applications in some business scenarios.

For example, in our automated quality inspection centers in Donggua and Changzhou, we have extensively deployed AI image recognition and to automatically determine the appearance and inspect mainboards and components. Improving inspection accuracy, reducing costs of quality inspection and reducing manual inspection errors. At present, some of our business procedures need human operation and there is considerable room for efficiency improvement through AI. Since the fourth quarter of last year, we have actively embraced cutting edge trend and achieved some initial industry application innovations through the deployment of some open source large summary models. For example, the efficiency improvement of the compliance check of our store operations digital operation trainings at operation centers, coding for back office related requirements, internal knowledge database, etcetera. This year, we will further deploy AI applications in more departments and business scenarios, focusing on the development of AI plus circular economy innovative applications in the fields of intelligent customer service, intelligent quality inspection and intelligent pricing to achieve cost reduction and efficiency improvement in more recycling scenarios and business [indiscernible] processes and bring more value to customers. In addition, we expect AI will be more widely deployed on mobiles and PC terminals. Leading to the renewal of AI hardware Given we have focused on personal and household electronic products, we believe this presents a significant long term business opportunity for us.

The next question we have is from Great. Good morning, Eric. Good evening, everyone. Just one follow-up question for me. Can you just flush out your updated thinking on capital management priorities, particularly as it relates to reinvesting for growth versus returning cap via buybacks? Thanks.

I will address this question. As mentioned earlier, we remain optimistic optimistic about the growth of the secondhand recycling industry over the next three to five years Therefore, we have set reacceleration as our internal target for 2025. Consequently, we will make some OHAX reinvestments in line with business scale to enhance the service capabilities on the front end for users and to view the user perception of AHS Recycles brand name.

Emerging businesses that we have focused on developing over the past one to two years such as multi category recycling, compliant refurbishment and Apple's official trading program have already demonstrated healthy growth and profitability and thus basically require no additional investment. Our business model is generally asset light, but operational intensive. Will adopt a balanced approach when expanding our store network and fulfillment capabilities in 2025. The adjustment and upgrade of our South China operation center is complete. So there will not be too much additional CapEx in 2025. We aim to maintain a healthy non GAAP operating profit margin to support business reinvestment and shareholder return.

We are confident in our business outlook and will further execute on our current repurchase plan. We will also balance the use of cash and invest more when industry opportunities grow. The ultimate goal is to increase long term shareholder returns. The repurchase program is valid until the June 2025. We will continue to actively engage with our Board of Directors during the interim for extension.

Got it. Thanks for taking my 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. I'll replay with today's call will be available on our IR website shortly.

Followed by a transcript. Already. If you have any additional questions, please feel free to email us at iriritrenew dot com. Have a good day.

This conference is now concluded.