ATRenew Q2 2023 Earnings Report

ATRenew EPS Results

• Actual EPS: $0.06
• Consensus EPS: $0.41
• Beat/Miss: Missed by -$0.35
• One Year Ago EPS: N/A

ATRenew Revenue Results

• Actual Revenue: $408.71 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

ATRenew Announcement Details

• Quarter: Q2 2023
• Date: 8/23/2023
• Time: Before Market Opens
• Conference Call Date: Wednesday, August 23, 2023
• Conference Call Time: 8:00AM ET

ATRenew (NYSE:RERE) Inc., through its subsidiaries, operates pre-owned consumer electronics transactions and services platform in the People's Republic of China. It primarily sells mobile phones, laptops, tablets, drones, digital cameras; and vintage bags, watches, liquor, gold, and various household goods through its online platforms and offline stores, as well as provides services to third-party merchants to sell the products through its platforms. The company was formerly known as AiHuiShou International Co. Ltd. and changed its name to ATRenew Inc. November 2021. The company was incorporated in 2011 and is headquartered in Shanghai, the People's Republic of China.

ATRenew Q2 2023 Earnings Call Transcript

Key Takeaways

• Q2 revenues rose 38.1% YoY to RMB 2.96 billion, with adjusted operating income of RMB 52.1 million and a record non-GAAP margin of 1.8%, beating guidance.
• The 1P recycling business grew 42.2% YoY to RMB 2.637 billion, driven by the “old-for-new” trend, expanded refurbished device sales and JD.com channel recovery.
• Non-GAAP fulfillment expenses fell to 8.8% of revenues (down 3.7 pp) thanks to AI-powered automated inspection, warehouse optimization and deeper JD Logistics integration.
• AT Renew became the second official Apple trading service provider in Mainland China, integrating with Apple’s online portal and 45 flagship stores for trade-in and device recycling.
• For Q3, the company guides revenues of RMB 3.15–3.20 billion and aims to boost private-label refurbished products to 30% of 1P product revenues while sustaining >30% YoY growth.

Presentation

[Operator]

Good morning and good evening, ladies and gentlemen. Thank you for standing by. Welcome to ATRenew Inc.'s second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after 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 at the company. Please go ahead, sir.

[Jeremy Ji, Director of Corporate Development and Investor Relations at ATRenew]

Thank you. Hello, everyone, and welcome to ATRenew's second quarter 2023 earnings conference call. Speaking first today is Kerry Chen, our Founder, Chairman, and CEO, and he'll be followed by Rex Chen, our CFO. After that, we'll open the call to questions from analysts. The Q2 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. On today's agenda, Kerry will share his thoughts about 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 note that management are joining the call from different locations. We'll try to fix it if there is any connectivity issue. Let me cover safe harbor statements.

[Jeremy Ji, Director of Corporate Development and Investor Relations at ATRenew]

Some of the information you hear during the discussion today will consist of forward-looking statements. 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 ATRenew does not take any obligations to upgrade our assumptions on these statements. 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. 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.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

Hello, everyone, and welcome to ATRenew's second quarter 2023 earnings conference call. During the second quarter, we made notable progress in terms of both revenue and profitability. Our total revenues reached RMB 2,960 million, representing a year-over-year increase of 38.1%, and surpassing the high end of our guidance. As we navigated the post-pandemic era, our 1P recycling business rapidly rebounded, 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 RMB 52 million, and the adjusted operating margin further expanded to 1.8%. These improvements fully align with our aims of enhancing the secondhand industry's value chain and optimizing operational efficiencies. Our strategic direction remains consistent. On the one hand, we aim to achieve steady growth in core consumer electronics businesses.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

Among them, the escalating 1P recycling channels, including AHS Recycle stores and the official website, provide a better user experience, ensure 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, to advance their trading service experience in retail scenarios. On the other hand, we seek to unleash the potential through continuous innovations. On recycling over time, we have successfully improved the user experience and store service capabilities of recycling luxury goods, and continued to strengthen the brand awareness of AHS Recycle. 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.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

下 面 我 们 将 对 公 司 的 主 营 业 务 增 长 的 驱 动 力 ， 主 营 业 务 的 运 营 效 率 提 升 ， 以 及 创 新 的 业 务 ， 这 三 个 方 面 进 行 进 一 步 的 解 读 。[Foreign Languange]

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

Next, I will share more color from three aspects. First, key growth drivers of the core business. Second, operational efficiency improvements. Third, updates on our innovative businesses.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

在 增 长 的 驱 动 力 方 面 ， 1P 的 自 营 收 入 同 比 增 长 42.2% 至 RMB 2.637 billion 。 首 要 的 原 因 是 在 增 长 平 缓 的 消 费 环 境 下 ， 用 户 参 与 以 旧 换 新 的 活 跃 度 依 然 较 高 ， 回 收 和 购 买 二 手 消 费 依 然 处 于 快 速 发 展 的 趋 势 。 次 要 原 因 是 我 们 的 供 应 链 增 值 业 务 ， 换新机 的 销 售 额 在 快 速 提 升 。[Foreign Language]

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

In terms of growth drivers, 1P product revenue grew rapidly by 42.2% year-over-year to reach 206... Sorry, excuse me, RMB 2,637 million in the second quarter. This increase was primarily driven by the continuing upsurge in the trend for selling old for new and buying pre-owned products, even when consumption growth flattened. Another factor was the scaling sales of our refurbished products.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

具 体 来 看 ， 首 先 从 回 收 端 看 ， 今 年 Q2 自 营 渠 道 和 JD.com 渠 道 均 取 得 了 回 收 增 速 的 回 升 。 我 们 通 过 全 国 1,944 家 门 店 ， 持 续 提 升 消 费 者 的 触 达 ， 报 价 的 接 受 度 ， 以 及 回 收 服 务 的 满 意 度 。 自 营 业 务 通 过 其 中 的 1,162 间 标 准 店 ， 标 准 店 ， 通 过 标 准 可 控 的 门 店 终 端 ， 锁 定 优 质 货 源 的 供 给 。 此 外 呢 ， JD.com 来 源 的 订 单 也 取 得 了 快 速 的 恢 复 。 一 站 换 新 业 务 在 Q2 实 现 了 116.9% 的 收 入 同 比 增 长 。 除 了 Apple 产 品 外 ， 一 些 Android 型 号 的 以 旧 换 新 也 受 到 了 JD.com 用 户 的 欢 迎 。 其 次 ， 从 销 售 端 看 ， 度 过 了 COVID-19 的 负 面 影 响 后 ， 平 台 核 心 业 务 的 商 家 交 易 的 活 跃 度 健 康 。To C 的 零 售 方 面 ， 我 们 基 于 April 2022 发 布 的 电 子 产 品 合 规 翻 新 指 引 ， 打 造 了 自 有 品 牌 换新机 的 业 务 。 本 季 度 通 过 自 营 回 收 的 商 品 ， 经 过 合 规 翻 新 后 的 To C 销 ...[Foreign Language]

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

零 售 的 收 入 达 到 一 点 七 亿 元 人 民 币 ， 较 一 季 度 环 比 提 升 百 分 之 二 十 二 。 在 实 现 快 速 增 长 的 同 时 ， 满 足 更 多 的 C 端 用 户 对 于 优 质 的 二 手 商 品 的 购 买 需 求 。[Foreign Language]

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

Specifically, on the recycling front, we saw significant year-on-year improvements in both storefronts and JD Recycling channels. We utilized our extensive network of 1,944 offline stores nationwide to further develop consumer outreach and effectively improve user satisfaction with price quotations and services. Of which the 1,462 standout stores play a key role in obtaining more supplies of quality devices. In addition, recycling orders from JD channels recovered quickly as one-stop trading business saw 116.9% year-on-year growth, revenue growth in the second quarter. In addition to Apple products, some Android models were also popular with JD customers. On the selling front, having successfully navigated the challenges posed by the pandemic, merchant users' transaction activities kept healthy.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

As for first party retail distribution, we started the compliance refurbishment business and the RERE refurb brand, following the release of relevant regulatory guidance in April 2022. Revenue from retailing RERE refurbs devices totaled RMB 170 million in the second quarter, representing a notable increase of 22% sequentially. Further fulfilling consumers' need for premium second-hand devices.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

服 务 类 收 入 同 样 在 二 季 度 恢 复 了 增 长 ， 同 比 增 长 百 分 之 十 二 点 一 至 三 点 二 七 亿 元 人 民 币 。 平 台 的 综 合 收 费 率 同 比 提 升 八 十 三 个 基 点 ， 至 百 分 之 五 点 三 七 。 在 我 们 将 资 源 向 一 批 业 务 倾 斜 的 背 景 下 ， 平 台 业 务 仍 然 实 现 了 健 康 的 发 展 。 其 中 ， 拍 即 等 的 平 台 在 二 季 度 推 进 市 场 下 ...[Foreign Language]

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

市 场 覆 盖 和 下 沉 ， 挖 掘 更 多 的 本 地 市 场 的 买 卖 家 渠 道 ， 并 从 平 台 的 交 易 规 则 上 优 化 交 易 的 常 次 和 时 间 ， 提 升 了 买 卖 家 交 易 的 粘 性 和 平 台 服 务 的 货 币 化 能 力 。 拍 拍 方 面 ，POP 的 平 台 在 京 东 低 价 新 制 的 牵 引 下 ， 兼 顾 规 模 与 利 润 的 平 - 平 稳 持 续 增 长 。 我 们 鼓 励 更 多 品 类 的 新 商 家 入 驻 ， 并 提 供 更 优 质 的 经 营 环 境 和 供 应 链 能 力 支 持 。 下 半 年 ， 我 们 将 继 续 升 级 B2C 的 业 务 模 式 ， 开 展 寄 卖 模 式 ...[Foreign Language]

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

寄 卖 的 业 务 ， 沉 淀 用 户 的 信 任 和 线 上 零 售 大 店 的 运 营 能 力 ， 在 降 低 商 家 供 货 参 与 门 槛 的 同 时 ， 通 过 入 仓 质 检 ， 保 障 产 品 的 质 量 和 用 户 体 验 。[Foreign Language]

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

Our platform service revenues rebounded at 12.1% year-over-year to RMB 327 million in the second quarter. The overall take 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 user stickiness and monetization capability. In terms of Paipai marketplace, its POP business foster concurrent expansion in both scale and profitability under JD's low price strategy.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

We continue to provide premium supply chain support to more small business owners, diversifying 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 buyers experience through warehousing quality inspection.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

在 运 营 效 率 的 提 升 方 面 ， 基 于 更 加 完 整 的 二 手 3C 的 产 业 链 ， 以 及 自 动 化 驱 动 运 营 效 率 的 改 善 ， 我 们 在 二 季 度 继 续 实 现 了 利 润 率 的 改 善 。 二 季 度 经 调 整 的 履 约 费 用 率 为 百 分 之 八 点 八 ， 同 比 下 降 百 分 之 三 点 七 个 百 分 点 ， 其 中 呢 ， 运 营 中 心 仓 内 的 费 用 较 上 年 同 期 节 约 了 百 分 之 十 二 ， 物 流 费 较 上 年 同 期 节 约 了 百 分 之 十 七 。 运 营 中 心 费 用 的 节 约 ， 得 益 于 我 们 华 东 、 华 南 两 大 自 动 化 运 营 中 心 的 规 模 化 的 运 营 ， 带 来 了 质 检 效 率 的 提 升 。 同 时 呢 ， 由 于 质 检 失 误 率 的 ， 失 误 率 的 进 一 步 降 低 ， 以 及 小 仓 网 络 的 优 化 调 整 ， 实 现 了 综 合 成 本 的 降 低 。 物 流 成 本 的 节 约 得 益 于 两 方 面 ， 一 方 面 ， 我 们 深 化 与 京 东 物 流 的 合 作 ， 结 合 二 手 商 品 和 交 易 的 特 性 ， 推 进 物 流 模 式 的 切 换 ， 有 效 节 约 出 库 ， 出 库 的 物 流 费 用 。 另 外 一 方 面 ， 通 过 对 供 应 链 算 法 策 略 的 投 入 ， 我 们 能 更 好 地 利 用 现 有 的 多 个 运 营 中 心 ， 优 化 供 应 链 作 业 的 单 次 ， 智 能 匹 配 最 优 的 仓 储 地 点 和 物 流 承 运 方 案 ， 以 数 据 支 持 运 营 决 策 ， 降 低 履 约 物 流 成 本 。[Foreign Language]

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

As for operational efficiency improvements, 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. Two, the optimization of the operation station network and related expenses. In addition, we credit the savings in logistics related expenses into two factors. For one, it's the deepened relationship with JD Logistics, shifting out solutions for better tailor made for pre-owned goods transactions. The other is with our supply chain algorithms to better match orders with our regional operation centers capacity, warehousing allocation, and logistics solutions. This eases our operational decision makings and overall logistics expenses.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

在 主 营 业 务 稳 健 增 长 以 外 ， 我 们 还 通 过 创 新 业 务 继 续 增 加 增 长 ， 增 长 动 力 。 今 年 的 六 月 三 十 号 ， 我 们 正 式 登 陆 了 苹 果 中 国 内 地 的 线 上 官 网 和 线 下 官 方 旗 舰 店 体 系 ， 成 为 苹 果 在 内 地 市 场 的 第 二 个 ATI， 呃 ， 就 是 以 旧 换 新 的 服 务 商 ， 为 其 抵 折 换 新 和 年 年 换 新 提 供 供 应 链 支 持 。 用 户 通 过 苹 果 的 官 网 提 交 或 者 亲 临 中 国 内 地 的 四 十 五 家 官 方 旗 舰 店 ， 要 求 以 旧 换 新 。 部 分 型 号 的 旧 机 在 苹 果 店 员 完 成 回 收 后 ， 以 预 先 商 定 的 机 制 交 给 爱 回 收 ， 由 爱 回 收 进 行 数 据 隐 私 削 除 和 二 次 质 检 。 目 前 我 们 的 系 统 功 能 已 经 上 线 ， 流 程 已 经 跑 通 ， 积 累 了 一 定 的 运 营 经 验 ， 期 待 在 iPhone 新 系 列 的 首 发 时 有 更 好 的 表 现 。[Foreign Language]

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

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 integrated into Apple China's online and offline retail system, becoming the second Apple trading service provider in the mainland China market. We provide supply chain support for iPad trade-in and iPhone upgrade program. Users can place ATI service orders via apple.com.cn or visit any of the 45 flagship stores. A selection of used devices will be transferred to AHS according to allocation mechanisms and recycling prices. Upon receipt, AHS conducts data erasure and quality inspections. We have completed system deployment and accumulated some experience through testing, and we expect more progress when the new iPhone lineup debut.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

在 多 品 类 的 回 收 方 面 ， 二 季 度 多 品 类 回 收 的 交 易 规 模 不 含 摄 影 摄 像 器 材 ， 超 过 两 亿 元 人 民 币 ， 其 中 奢 侈 品 回 收 的 交 易 额 环 比 增 长 百 分 之 六 十 ， 黄 金 回 收 的 交 易 额 环 比 增 长 近 百 分 之 一 百 ， 实 现 快 速 的 提 升 。 我 们 继 续 提 升 门 店 的 服 务 能 力 ， 在 一 、 二 线 城 市 打 造 全 新 的 爱 回 收 特 色 店 ， 提 供 有 竞 争 力 的 报 价 ， 当 场 的 奢 侈 品 质 检 ， 缩 短 用 消 费 者 的 等 待 时 间 。 针 对 大 量 现 有 的 爱 回 收 门 店 ， 我 们 通 过 系 统 支 持 ， 提 供 标 准 化 的 多 品 类 回 收 服 务 。 二 季 度 ， 我 们 有 二 百 三 十 一 家 爱 回 收 门 店 提 供 -...[Foreign Language]

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

实 现 了 多 品 类 回 收 的 这 个 业 务 支 持 。 品 牌 方 面 ， 我 们 对 爱 回 收 主 品 牌 的 心 智 建 设 追 加 投 入 ， 与 更 多 品 牌 一 起 倡 导 循 环 消 费 的 新 模 式 。 今 年 以 来 ， 爱 回 收 与 全 面 时 代 、 凯 德 、WonderLab、 盒 马 、 腾 讯 公 益 等 多 个 品 牌 落 地 了 联 名 的 合 作 活 动 。 我 们 十 分 重 视 价 值 链 共 赢 与 回 收 品 牌 心 智 的 建 设 。[Foreihn Language]

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

In terms of the new category recycling, GMV and service capability continue to scale. During the quarter, GMV, excluding photography and video equipment, rapidly exceeded RMB 200 million. Among these, luxury goods and gold recycling transaction volumes increased by 60% and nearly 100% compared with this first quarter, respectively. We also polished our store service capabilities. These include opening new AHS iconic stores in first and second tier cities with competitive pricing quotations, on-site luxury goods quality inspection, and shortened waiting 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. On branding, we made additional investments in our main brand, AHS Recycle, and advocated the new model of circular consumption with wider participation of consumer brands.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

AHS Recycle has cooperated with brands such as Purcotton, CapitaLand, WonderLab, Freshippo, and Tencent Charity, et cetera. We attach great importance to synergies with consumer brands to form the recycling mentality.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

最 后 ， 补 充 一 些 ESG 的 动 态 。 万 物 新 生 在 6 月 20 号 发 布 了 2022 年 年 度 的 ESG 报 告 ， 披 露 了 环 境 、 社 会 、 治 - 治 理 三 方 面 的 绩 效 亮 点 。 在 环 境 方 面 ， 我 们 持 续 披 露 温 室 气 体 的 排 放 强 度 ， 实 现 了 连 续 三 年 单 位 经 济 产 出 下 的 温 室 气 体 排 放 强 度 下 降 。 在 社 会 价 值 方 面 ， 我 们 加 强 质 量 管 理 体 系 ， 与 报 告 期 内 获 得 了 IL...

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

ISO 九 零 零 一 质 量 管 理 体 系 认 证, 并 为 10,000 名 商 家 提 供 了 专 项 培 训, 加 强 了 循 环 经 济 上 下 游 的 合 作. 在 管 治 方 面, 公 司 的 董 事 会 结 构 进 一 步 多 元 化, 加 强 了 内 控 和 风 险 管 理, 为 长 期 稳 健 运 营 创 造 了 更 好 的 基 础.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

Finally, some updates on our ESG efforts. On June 20th, we released our 2022 ESG report. Particularly noteworthy is our commitment to disclosing 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 9001 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, we have made advances in internal controls and risk management to realize robust operations in the long run.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

下 面 请 公 司 的 CFO, Rex， 介 绍 一 下 财 务 情 况 。

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

Now, I'd like to turn the call over to our CFO, Rex, for financial updates.

[Rex Chen, CFO at ATRenew]

Hello, everyone. We are pleased to report another profitable quarter as we generated a new record non-GAAP operating 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. The non-GAAP for food gross margin was 12.7%. It continued to recover from a low point in the first quarter of 2022. Let's take a detailed look at the financials. Please note that such all amounts are in RMB, and all comparisons are on a year-over-year basis, unless otherwise stated. In the second quarter, total revenues increased by 38.1% to RMB 2,963.7 million, mainly driven by growth in net product revenues.

[Rex Chen, CFO at ATRenew]

Net product revenues increased by 42.2% to RMB 2,636.7 million, while net service revenues was RMB 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. Increase in service revenues was primarily due to the revitalizing business of our marketplaces from the COVID-19 pandemics, and an increase in the overall commission rate, which grew to 5.37% from 4.54%. Next, turning to 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 the management views our results of our operations.

[Rex Chen, CFO at ATRenew]

The reconciliations of GAAP and non-GAAP results are available in our earnings release and the corresponding Form 6-K furnished with the SEC. Merchandise costs increased by 40.6% to $2,325.8 million. The increase was in line with the growth in product sales revenues. Gross margin at the group level was 21.5% in the second quarter. Gross margin for our, our 1P 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 SBC from here on. Non-GAAP fulfillment expenses decreased by 2.2% to $261.8 million.

[Rex Chen, CFO at ATRenew]

Under the Non-GAAP measures, the decrease was primarily due to the decrease in logistics expenses and operation center-related expenses as we kept optimizing our store and operation station networks, but was partially offset by an increase in personnel costs as our recycling activities developed compared with the same period of 2022. Non-GAAP 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. Non-GAAP selling and marketing expenses increased by 28% to $253.6 million. The increase was primarily due to, first, an increase in advertising expenses and the promotional campaign-related expenses.

[Rex Chen, CFO at ATRenew]

Second, an increase in commission expenses in relation to channel service fees. Third, an increase in office and the traveling-related expenses. Non-GAAP selling and the marketing expenses as a percentage of total revenues decreased to 8.6% from 9.2% in the same period last year. G&A expenses increased by 27.2% to RMB 57.5 million, excluding SBC expenses. Non-GAAP G&A expenses increased by 37.5% to RMB 39.6 million, primarily due to, first, an increase in expected credit loss relating to credit risk. Second, an increase in professional service and consulting fees. The increase was partially offset by a decrease in personnel costs. Non-GAAP G&A expenses as a percentage of total revenues was 1.3%, the same as that a year ago.

[Rex Chen, CFO at ATRenew]

Technology and content expenses decreased by 24.6% to RMB 45 million, excluding SBC expenses and amortization of intangible assets. Non-GAAP technology and content expenses decreased by 26.8% to RMB 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. Non-GAAP 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, our Non-GAAP operating income was RMB 52 million in the second quarter of 2023. Non-GAAP operating profit margin was 1.8%, marking a new record high. Non-GAAP operating margin was -2% in the same period last year.

[Rex Chen, CFO at ATRenew]

As of June 30th, 2023, cash and cash equivalents, restricted cash, short-term investments, and funds receivable from third-party payment service providers totaled $2.5 billion. Our sufficient cash on hand safeguards our sustainable growth outlook. During the second quarter of 2023, we repurchased a 2.3 million ADSs in the open market for a total cash consideration of $6.4 million. As of June 30th, 2023, we had repurchased a total of 12.3 million ADSs for approximately $44.4 million in our share repurchase program. Now turning to outlook. For the third quarter of 2023, the company currently expects its total revenues to be between RMB 3,150 million and RMB 3,250 million.

[Rex Chen, CFO at ATRenew]

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 for today. Operator, we are now ready to take questions.

[Operator]

Yes, thank you. At this time, we will begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are 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 on the call. At this time, we will pause momentarily to assemble the roster. The first question comes from Weiting Tang with Goldman Sachs.

[Rex Chen, CFO at ATRenew]

Hey, hi, management. Thank you, management. Regarding the recent launch of 爱回收 service, which supports Apple's official retail channels in China, can the management team provide an overview of the background of the service support and the outlook for growth and profit of this business stream in 2023? Thank you.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

We thank you for the question. 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 flagship stores. Our vision, 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 upgrading devices.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

具 体 看 业 务 流 程 呢 ， 用 户 可 以 通 过 苹 果 中 国 的 官 方 网 站 线 上 提 交 订 单 ， 通 过 邮 寄 的 方 式 回 收 ， 或 者 直 接 带 着 旧 机 到 苹 果 线 下 的 官 方 旗 舰 店 ， 由 Apple Store 店 员 使 用 专 用 的 设 备 进 行 扫 码 ， 快 速 核 验 ， 回 收 ， 回 收 打 款 ， 删 除 设 备 信 息 ， 再 将 部 分 的 型 号 统 一 交 给 爱 回 收 进 行 后 端 的 隐 私 清 除 、 保 护 和 二 次 的 质 检 ， 成 为 我 们 的 库 存 ， 之 后 完 成 销 售 。 这 项 业 务 将 以 EP 的 模 式 开 展 ， 因 为 我 们 不 需 要 投 放 广 告 获 客 ， 也 没 有 独 立 的 门 店 端 的 费 用 ， 所 以 说 这 项 回 收 的 成 本 结 构 更 加 简 单 。

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

Specifically, Apple has two alternative processes for recycling in, in its official retail channels in China. Users can submit recycling orders via apple.com.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 on site. Certain models are then handed over to us as our inventories for background-- for back-end privacy erasure and standardized quality checks before the end distribution. This business is carried out under 1P 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.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

我 们 预 计 在 三 季 度 仍 然 需 要 一 定 的 技 术 打 磨 和 服 务 能 力 的 提 升 。 九 月 的 iPhone 的 新 机 型 发 布 之 后 ， 叠 加 四 季 度 的 新 机 规 模 化 的 出 货 ， 回 收 量 将 进 一 步 的 增 长 。 我 们 预 估 在 明 后 年 ， 模 式 的 ， 模 式 和 利 润 率 会 更 加 稳 定 。 参 考 行 业 的 历 史 情 况 ， 每 年 我 们 通 过 苹 果 新 渠 道 的 回 收 业 务 规 模 可 达 到 十 至 十 五 亿 元 人 民 币 。

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

We expect to escalate our tech 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. With operations and margins stabilizing next year, we anticipate an annual recycling volume of RMB 1 billion-RMB 1.5 billion from this new channel, based on historical market data.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

除 了 以 旧 换 新 的 业 务 外 ， 我 们 近 期 还 获 得 了 苹 果 的 资 源 机 竞 拍 与 销 售 资 质 。 两 项 -- 这 两 项 苹 果 的 合 作 进 展 都 将 增 加 万 物 新 生 对 优 质 货 源 的 获 取 能 力 ， 在 核 心 场 景 服 务 主 流 的 用 户 ， 也 代 表 了 国 际 一 线 品 牌 对 于 万 物 新 生 的 供 应 链 能 力 、 隐 私 安 全 保 护 、 公 ， 公 司 的 合 规 治 理 能 力 的 认 可 ， 是 万 物 新 生 在 品 牌 厂 商 合 作 方 面 的 重 要 里 程 碑 ， 也 是 在 电 商 战 略 合 作 之 外 的 重 要 资 源 加 持 。

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

In addition to the trading support license, we've recently been authorized to bid for and distribute Apple's As-ls 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 iPhone with phone manufacturers signifies a major milestone apart from our strategic partnership with e-commerce players.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

好 ， 谢 谢 。

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

Thank you for the question.

[Operator]

Thank you. The next question comes from Joyce Ju with Bank of America.

[Joyce Ju, Analyst at Bank of America]

嗯 ， 呃 ， 管 理 层 老 师 好 ， 那 个 非 常 感 谢 接 受 我 的 提 问 。 呃 ， 我 的 提 问 是 有 关 于 我 们 的 这 个 供 应 链 能 力 的 。 啊 ， 我 们 看 到 在 公 司 在 连 续 的 几 个 的 -- 几 个 季 度 当 中 呢 ， 都 在 就 是 注 重 供 应 链 能 力 ， 那 本 季 度 的 业 绩 当 中 呢 ， 维 修 翻 新 对 公 司 的 这 个 一 批 的 毛 利 啊 ， 也 有 很 明 显 的 正 向 的 贡 献 。 啊 ， 能 不 能 请 管 理 层 展 开 给 我 们 讲 一 讲 我 ， 我 们 的 这 个 开 展 的 这 个 合 规 翻 新 业 务 ， 啊 ， 我 们 目 前 看 的 话 ， 翻 新 业 务 在 自 主 业 务 当 中 的 发 展 空 间 啊 有 多 大 ？ 啊 ， 然 后 我 大 概 翻 译 一 下 我 的 问 题 。Um...[Foreign Language]

[Joyce Ju, Analyst at Bank of America]

We have seen the company actually enhancing its refurbishment for a couple quarters in a row. In the performance of the second quarter, we have seen this business has made a quite positive contribution to the company's 1P gross profit. Could the management team help provide more insights into this like new 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? Thanks.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

好 ， 谢 谢 提 问 。 呃 ， 我 们 自 有 的 品 牌 换 新 机 业 务 自 去 年 上 线 以 来 呢 ， 帮 助 我 们 持 续 拓 展 了 产 业 链 的 价 值 深 度 。 今 年 二 季 度 -...

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

我 们 把 华 南 东 莞 的 运 营 中 心 积 累 的 成 熟 的 翻 新 标 准 和 翻 新 能 力 复 制 到 了 常 州 、 武 汉 、 成 都 、 天 津 四 个 运 营 中 心 。 供 应 链 的 增 值 能 力 覆 盖 了 全 国 主 要 的 市 场 。 我 们 还 增 加 了 更 多 品 类 的 和 ， 呃 ， 成 色 和 性 能 提 升 服 务 ， 包 括 了 平 板 、 笔 记 本 电 脑 、 智 能 手 机 、 耳 机 等 产 品 ， 满 足 了 C 端 用 户 和 平 台 商 家 对 高 质 量 二 手 电 子 产 品 的 需 求 。

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

Since the launch in April last year, our RERE Refurb 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 recondition broader product categories, including tablets, laptops, smartwatches, earphones, et cetera, meeting the demand for high quality products from both consumers and merchants.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

二 季 度 ， 换 新 机 的 销 售 总 收 入 超 过 了 一 点 九 亿 元 人 民 币 ， 在 一 批 产 品 收 ， 销 售 收 入 的 比 例 达 到 了 百 分 之 七 点 二 ， 环 比 提 升 了 一 点 六 ， 一 点 六 个 百 分 点 ， 同 比 提 升 了 百 分 之 四 点 五 个 百 分 点 。 我 们 相 信 ， 随 着 更 多 的 自 营 回 收 产 品 通 过 运 营 中 心 合 规 翻 新 后 ， 再 进 行 销 售 ， 既 能 提 升 产 品 的 品 质 ， 增 加 优 质 货 源 的 比 例 ， 也 能 促 进 产 业 链 的 闭 环 。

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

During the second quarter, total sales of refurbished products exceeded RMB 190 million, accounting for 7.2% of 1P product revenues. This percentage increased by 1.6% quarter-over-quarter and 4.5% year-over-year. We believe that more of our 1P source products can go through our own facilities for reconditioning. Becoming quality products while bringing greater value to the industrial chain.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

我 们 在 今 年 七 月 ， 七 月 底 还 签 署 了 华 为 的 官 方 维 修 的 授 权 ， 继 续 加 强 与 品 牌 厂 商 的 合 作 。 未 来 在 供 应 链 增 值 方 面 ， 我 们 还 会 继 续 加 强 与 手 机 厂 商 与 电 子 行 业 协 会 的 合 作 ， 促 进 二 手 产 业 链 的 合 规 和 健 康 发 展 。 长 期 来 看 ， 我 们 相 信 我 们 自 主 品 牌 换 新 机 ， 在 一 批 的 产 品 收 入 的 比 例 可 以 提 升 到 百 分 之 三 十 以 上 。

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

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 value added services with closer collaboration with phone brands and industry associations, to promote the compliance and healthy development of the industrial chain. In the long run, we believe that the proportion of private label RURU Refurb in 1P product revenue can be increased to 30% and even more.

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

好 ， 谢 谢 。

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

Thank you.

[Zhang Cheng Chung, Analyst at BITG]

è°¢ è°¢.

[Operator]

Thank you. Once again, please press Star then one, if you would like to ask a question. The next question comes from Zhang Cheng Chung with BTIG. Please go ahead, your line is live.

[Zhang Cheng Chung, Analyst at BITG]

喂 ， 请 问 可 以 听 到 我 说 话 吗 ？

[Kerry Chen, Founder, Chairman, and CEO at ATRenew]

Yes, we can hear you.

[Zhang Cheng Chung, Analyst at BITG]

好 的 ， 恭 喜 公 司 取 得 这 么 好 的 业 绩 ， 谢 谢 管 理 层 的 分 享 ， 可 不 可 以 针 对 公 司 的 这 个 利 润 目 标 的 达 成 ， 给 我 们 提 供 更 多 的 color 和 拆 分 呢 ？ 以 及 想 问 一 下 关 于 未 来 的 这 个 revenue mix 会 怎 样 去 变 化 ？ 我 来 翻 译 一 下 ，[Foreign Language] Thanks management for the sharing and congratulations on the strong quarter. Could you provide more color and breakdowns regarding your profit realization and profit outlook? How will your revenue mix evolve in the future?

[Rex Chen, CFO at ATRenew]

Okay, thank you for your question. I will take, take this. Our non-GAAP operating margin was 1.8% in the second quarter, surpassing the 1.5 full year target. We, we, we discussed earlier. This was due to our effective execution towards improving 1P gross margin and operational efficiency.

[Rex Chen, CFO at ATRenew]

Improved 1P gross margin was mainly attributable to RURU Refurb products, whose gross margin exceeds that of regular 1P2C products by 5 percentage points. We anticipate the total sales of RURU Refurb products at RMB 700 million, edging up 1P gross margin gradually in 2023. We credit improvements in operational efficiency to smart storage management and automated testing 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 were cut down. As we upgrade our automation inspection system to Matrix 3.0, our losses related to inspection mistakes decreased significantly. Service fees, logistics expenses, packaging fees, and return loss decreased by RMB 17.6 million compared to the same period in 2022, downsizing our net GAAP fulfillment expenses as a percentage of total revenues by 3.7 percentage points.

[Rex Chen, CFO at ATRenew]

Overall, we expect our non-GAAP operating margin for this year to be exceed 1.5%, and we aim to achieve a betterment of 1% point every year. On revenue mix, we have been shifting our focus and the strategic resources towards first party businesses since the second half of 2022 to achieve more controllable operations facing complex environments. We aim at catering to diversified user needs, enhancing the recycling experiences, and enriching our quality-owned product listing. This transition has led to a downsized revenue mix for marketplaces service revenues. Our platform business continues to exhibit healthy growth for this year. We expect that our platforms overall take rate will exceed 5%. Following the strategic adjustments for Paipai consignment businesses, we are now experiencing renewed momentum in the course of service revenue.

[Rex Chen, CFO at ATRenew]

In the second half of this year, we anticipate that the 1P product sales revenue will continue to dominate our revenue structure, maintaining a year-over-year growth rate of over 30%. Thank you.

[Operator]

Thank you. There are no further questions at this time. I would like to hand the conference back over to management for any closing comments.

[Rex Chen, CFO at ATRenew]

Thank you all. Thank you all again for joining us. A replay of today's call will be available on our, our 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.

Participants

Executives

• Jeremy Ji, Director of Corporate Development and Investor Relations
• Kerry Chen, Founder, Chairman, and CEO
• Rex Chen, CFO

Analysts

• Joyce Ju, Analyst at Bank of America
• Zhang Cheng Chung, Analyst at BITG