ATRenew Inc.

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to the Highway Show International Company Limited second quarter 2021 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. As a reminder, this call is being recorded. I will now turn the call over to the first speaker today, Mr. Jeremy Gee, Director of Corporate Development and Investor Relations of the company. Please go ahead, sir. Thank you.

Hello, everyone, and welcome to iHuiShou ATR News second quarter 2021 earnings conference call. With us today are Mr. Kerry Chen, our founder, chairman, and CEO, and Mr. Rex Chen, our CFO. Our second quarter 2021 financial results were released earlier today and are available on our company's IR website at ir.ihuishou.com. For today's agenda, Kerry will share his thoughts on the Q2 performance followed by Rex, who will discuss the financial highlights for the second quarter of 2021. Both Kerry and Rex will join the Q&A session. Before we continue, I refer you to our safe harbor statements in the earnings price release, which applies to this conference call. Any forward-looking statement that the company makes on this call are based on the assumptions as of today, and the company does not undertake any obligations to update these statements. 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. Finally, please note, unless otherwise stated, all figures mentioned during this conference call are and all comparisons are on a year-over-year basis. With that, I will turn the call to Kerry for business and strategy updates. Please go ahead.

Hello everyone, and thank you for joining us on our first earnings call as a public company.

We are very pleased to have the opportunity to share our business updates and strategies with you as we implement our mission to give a second life to all IDO Groups.

In June, at Niu Jiao Shou, IPO is an important milestone in the 10-year development of the Group. As a technology and service-based company based on second-hand supply chain capabilities, Wanwu Xinsheng Group has four business lines under it, Ai Huishou, Taiji Tang, Taipei, AHS device, cross-border industrial chain supply two ends, open the entire industrial chain closed loop, service coverage from recovery, detection, rating, pricing, to re-sale full process. At the same time, serve B-end merchants and C-end consumers. In the past 10 years, continue to promote the 2-hand 3C cycle of scale, standardization development, promote the improvement of trading efficiency.

Our IPO on the New York Stock Exchange in June marked a major milestone in our 10-year development history. As a technology-driven, print-owned consumer electronic transactions and services platform, our four business lines, namely AHS Recycle, BJT Marketplace, PiPi Marketplace, and AHS Device, span across the entire industry value chain. These offerings, connecting all industry participants to realize the closed-loop value chain, cover both the supply and the demand side of the industry. Our platform combines C2B, B2B, and B2C capabilities to provide standardized recycling, inspection, grading, pricing, and after-sales services. In the past decade, we have dedicated our efforts to improving the scalability, standardization, and efficiency of pre-owned consumer product transactions.

In the second quarter, Wanwu Xinzhen Group's performance exceeded expectations. In the second quarter, Group's total GMV reached 7.8 billion RMB. Comparison growth was 69.6%. Profit, operating profit reached 18.7 billion RMB. Comparison growth was 56.2%. Trade volume reached 7.8 million RMB. Comparison growth was 27.9%. The rapid increase in the education scale fully demonstrates that the development space of the second-hand 3C industry is still very large. In the past 12 months, JMV of Wanwu New Life Group has reached 26 billion RMB, with a growth of 64.9%. The revenue is 64 billion RMB, with a growth of 56.2%. The sales of second-hand goods exceed 28 million units, with a growth of 33.7%.

Our second quarter results exceeded expectations. Second quarter GMB reached 7.8 billion, up 69.6% from the same period last year. Total net revenue recorded 1.87 billion RMB, which represented an year-over-year increase of 26.2%. The number of consumer products transacted on our platforms was 7.8 million, up 27.9%. These results are a testament to the enormous growth potential of the point-on-consumer electronic transaction industry and a demonstration of our supply chain capabilities and our efforts in setting the industry standards are well acknowledged. Our GM lead for the last 12 months increased by 64.9% to $26 billion. LCM revenue increased by 46.2% to $6.4 billion. And the LTI number of consumer products transacted increased by 33.7% to over 28 million.

We launched a multi-tool change business during the 618 period, supporting multi-tool second-hand products to jointly discount and provide a more economic change plan for C-end users. Turning to strategic areas. First, our one-piece business. We expanded our geographic coverage and trading channels rapidly during this quarter. We continued to optimize user experience for device trading with our strategic partner, JD Group,

to cultivate consumer willingness to participate in the trading process. We aim to make our one-stop trading experience the go-to solution for new phone purchases in China. Also, to better address the issue of rising retail prices for new devices, we cooperated with JD Group during the June 18th shopping festival to launch a multi-device trading campaign that awarded discounts for the trading of multiple devices. These efforts allow us to offer consumers trading at more attractive prices and enhance our ability to source more supplies. As a result, the year-over-year increase in GEME for our one-stop trading business exceeded 170%.

to further extend to the supply end. At the end of this quarter, the number of stores in the country will increase to 862, covering 184 cities. Among them, there are 485 second-hand stores, 365 joint stores, and 12 retail stores. Our idea is to open good stores and manage them well. Store stores help us continue to occupy the consumer's mind, to receive the urgent delivery of the online recovery and one-stop change order. As an important part of our basic infrastructure, the offline store effectively ensures the supply of supply-end users. Through online and offline integration, we provide a more quality, more trustworthy user experience. The maturity of the store is strong, and it is a good source of cash flow and profit. In the second quarter, we accelerate the supply of small warehouses For the second half of the year, the company's business growth will be an important driving force.

Second, we continue to expand our service coverage, open new offline stores, and expand third-party merchant services in lower tier cities. As of June 30, 2021, the number of offline stores further increased to 862, covering 184 cities in China. Among them, 485 were self-operated AHS stores, 365 were jointly operated AHS stores, and 12 were PiPi selection stores. Our business philosophy is to open quality stores and manage them well. Stores raise our brand awareness and fulfill the online to offline trading orders, and they build a strong mode of efficient sourcing. By integrating our online platform with offline stores and services, we are able to provide an optimal, trustworthy user experience. Furthermore, the well-established stores generate solid cash flow and profit. These are great assets. In the second quarter, we accelerated the penetration of city-level operation stations. As of June 30, 2021, we have 30 city-level operation centers. Backed by our pre-owned consumer electronics supply chain capabilities, we integrate offerings at our offline PiPi selection stores and online sales channels to establish a new city-level distribution model for PiPi marketplace. We expect this to become a new driving force for our business growth in the second half of 2021.

In terms of trading platforms, we continue to promote the spread of third-party buyers and sellers. At the end of this quarter, the number of registered sellers of Tai Chi Tang has increased by more than 10,000 in the last quarter. Tai Chi Tang has further established a mode of代孕模式, which is even more spread to obtain goods suitable for 2C sales. 对于一批的货源或者三批商家的货源平台进行统一质检和运营,越过中间环节直接卖给消费者,在产业链上整合更多的环节。 In terms of our online marketplaces, we continue to go deep, expanding our reach to buyers and sellers in lower tier cities. During the quarter, we acquired over 10,000 registered sellers on TJP Marketplace.

As for PaiPai Marketplace, we sourced additional devices from deferred suppliers and performed integrated quality inspections and operations before selling directly to individual consumers, thus further consolidating the industry chain.

第三个战略重点是, PaiPai在京东以外的新渠道方面,我们持续进行战略投入。 二季度期内,新渠道相关的战略投入费用超过2000万人民币, We continue to explore Douyin, QS, live streaming, and other new channels. We accelerate the opening of QS platforms. Through live streaming, we reduce supply and demand, and provide high-quality second-hand mobile 3C products to QS merchants. Our QS store's recovery entrance has also been launched in mid-July. We will continue to strengthen our cooperation with live streaming platforms, and integrate online and offline capabilities

Third, in terms of new distribution channels of PaiPai other than JD.com, including Douyin and Kuaishou, our strategic investments into this field exceeded 20 million. We have built up our partnerships with Kuaishou, the leading live streaming platform, as we empower small merchants on Kuaishou with our certified point-on consumer electronics supply offerings. inspection, and operation capabilities. We are able to effectively establish live streaming driven sales channels. In mid-July, we launched the Recycle Portal on Kuaishou through Kuaishou. Going forward, we will enhance our collaboration with live streaming channels to provide users with premium recycling services and integrate city-level operation centers to establish a new city-level distribution model for the online marketplaces.

In terms of company governance, we established the ESG Committee under the Board of Directors and released the ESG report for 2020. The report can be obtained on our IR website. This report established the GRI international standard based on the GRI international standard based on the GRI international standard based on the GRI international standard based on the GRI international standard based on the GRI international standard based on the GRI international standard based on the GRI international standard based on the We will continue to maintain a high level of attention to ESG, improve governance level, and deal with stricter monitoring policies at a lower risk level.

Notably, we have also strengthened our corporate governance by establishing an ESG committee under the Board of Directors and releasing our 2020 ESG report, which is currently available on our IR website. The report establishes an index of GRI standards based on characteristics of the pre-owned consumer electronics industry and outlines an industry-leading calculation methodology for carbon emissions in the sector. In accordance with China's 14th five-year plan for the development of the circular economy released by the National Development and Reform Commission in July, we aim to further develop our supply chain capabilities for pre-owned electronic devices to promote sustainability and standardization of the industry. Looking ahead, we will continue to improve our ESG initiatives, optimize corporate governance, and operate our business with strict risk management measures to anticipate and adapt to regulatory changes.

Looking forward to the third quarter and the future, we will continue to work on four aspects. The first aspect is to continue to improve the penetration rate of China's e-challenge service at the supply end, to improve the user recovery and e-challenge experience. We believe that the lack of supply of high-quality goods is still the main reason for limiting industry development.

As we move forward into the third quarter and beyond, we will continue to enhance our supply chain capabilities, increase the penetration rate for China's trading services, and improve the reflecting and trading experiences for consumers. We believe that supply chain constraints on quality devices continue to be the bottleneck for the industry's development. We also continue to diversify our supply chains in lower tier cities, empower merchants with our service offerings, and maintain strong growth momentum for our platform businesses.

第三個方面是進一步提升我們的運營能力, 尤其是通過自動化去降低運營成本。 我們第二代自動化流水線Metrix 2.0 已經在長洲投入試運營,為我們下半年 We will continue to improve operational capabilities and reduce fulfillment expenses through investment in automated testing and grading. We are pleased to report that Matrix 2.0, the second generation of our automated inspection system,

was put into trial operation at our Changzhou operation center. It brings automation rates to the next level. Matrix 2.0 fortifies the foundation for upgrading our automated operation center in South China later this year. For future expenses saved from improved operating efficiency, we intend to invest in long-term business development.

The fourth aspect is to accelerate the exploration of innovative business, accelerate the verification of innovative business, such as live sales, wholesale selection, online stores, and overseas scale potential, etc., and maintain a cautious and optimistic attitude. We are confident in achieving our goals at the business line level, and expanding the advantage of integrated platforms that are leading the industry. The company will continue to use supply chain capabilities as the basis, insist on technical drive, and the principle of opening up the negative energy industry chain, and build a model that combines social values and commercial values. for long-term value for shareholders and society.

Furthermore, we will accelerate the exploration of new initiatives. We remain optimistic about the growth potential of our live streaming e-commerce channels, Pi Pi selection stores, and overseas markets. Leveraging our competitive strength in integrated online and offline platforms, we are confident in achieving our potential operational goals and reinforcing our industry-leading platform. We will continue to execute on our principles as we enhance our supply chain and technology to empower the entire industry. We believe that the greater the social value a business creates, the greater the economic value the business will have. We aim to build AT Renew into a business that's social good in addition to generating long-term shareholder returns.

下面请公司的CFO Rex介绍一下财务情况,谢谢。

With that, I will hand the call over to our CFO Rex to go over the financials.

Thanks. Thanks, Carrie. And hello, everyone. Before sharing details on our second quarter financial results, please note that all amounts are in RMB and all comparisons are on a year-over-year basis, unless otherwise noted. During the second quarter, our increasing scale led to a strong revenue growth, narrowed the gap operating loss margin, and further improvements in our free cash flow Total GMV increased by 69.6%, among which GMV for product sales increased by 72.7%. The increase was mainly driven by the rapid growth in our trading business collaboration with JD Group, the opening of new stores, the efficient operation of existing stores, and the fast sales growth of 1P devices on PiPi. Keep in mind that new stores were opened midway through the second quarter and are still at an early stage. We expect improvements. Inefficiency in the following quarters, GMV for online marketplace, including PyCheta and PyPy, increased by 68.6%, mainly driven by strong customer demand and the continued expansion of our platform's network effects. In the second quarter, total revenues increased by 56.2% to $1,868 million. Product sales revenue increased by 53.1% to $603 million, while our service revenue increased by 77.9% to $264 million. As our platform service capabilities improved, service revenue grew faster than product sales revenue, and the revenue mix continues to develop in a more beneficial direction. The contribution from service revenue increased to 14.2% of total revenue during the second quarter. compared to 12.4% in the second quarter of 2020. Notably, GMV for consumption model accounted for 19.7% of Pai Pai's GMV in Q2. We believe that our gross margin will improve in the medium to long term as we increase the proportion of WMP recycled products that can be sold to individual consumers via Pai Pai. And more importantly, we can further increase the commission rate over time with great adoption of PiPi Consumption Model and the more value-added services provided to merchants of PiPi, PiJeta, and PiPi. Next, turning to our operating expenses, to provide greater clarity on the trends in our actual operating-based expenses, we'd like to share the trends of our non-GAAP expenses, which better reflects the views of management, and the non-GAAP measure, which excludes share-based compensation expenses and amortization of intangible assets, resulting from business acquisitions. Total operating expenses increased by 55.7% to $1,923 million. Merchandise costs increased by 56.9% to $1,395 million. We didn't have any non-GAAP adjustments to merchandise costs. Fulfillment expenses increased by 84.4% to $276 million. In addition to the immediate recognition of share-based compensation expense resulting from options granted to employees with an IPO performance, which we refer to SPC, the increase was mainly due to, first, the growth of personnel-related expenses as an increased number of front-line operating center personnel with a growth of cooperatives. And second, the increase in logistic expenses and operation center related expenses, which were in line with the increase in sales of pre-owned consumer electronics. And the gap of fulfillment expenses, excluding SBC, increased by 56% to $233 million. Due to the revenue mix of one people, that sales revenue and the 3P service revenue, One metric to evaluate the profitability of our platform is an in-depth fulfilled gross margin, which remained stable at 12.8% compared with the first quarter of 2021. Selling and marketing expenses increased by 60.3% to $316 million. In addition to SBC, the increase was mainly due to an increase in promotion expenses, advertising expenses, and sales commissions. pay-to-JD group in connection with traffic acquisition and the sourcing of pre-owned devices. In addition to up-front payments to merchants as a way to promote the consumer model of Popeye Marketplace, we invested in sales promotions during the June 18th shopping festival as well as new distribution channels, including Douyin and Kuaizhou. Then gap selling and the marketing expenses excluding SPC and the amortization of intangible assets resulting from business acquisitions increased by 78.8% to $214 million. G&A expenses increased by 593.2% to $310 million. The increase was mainly due to the immediate recognition of SBC. Nangap G&A expenses, excluding SBC, decreased by 37% to $28 million. The decrease in Nangap G&A expenses reflected an improved cost efficiency in middle and back offices. Technology and the content expenses increased by 144.5% to 82 million. In addition to the SPC, the increase was mainly due to an increase in personnel related expenses in connection with the expansion of the R&D team to improve our technological capabilities. Nangap technology and the content expenses, excluding SBC and amortization of intangible assets, increased by 65.1% to 53 million. As a result, our Nangap operating loss increased by 39.3% to 51 million in the second quarter of 2021. Nangap operating margin narrowed to negative 2.7% compared with negative 3.1% in the same period last year. As of June 30th, cash, cash equivalents, restricted cash, and short-term investments added up to a total of $2.8 billion. We believe that the sufficient liquidity on hand will be able to fuel our business development and strategic partnerships, which generate lasting shareholder value. Now, turning to Outlook. First, we expect the growth momentum for the fiscal year 2021 to remain unchanged. Second, for the third quarter of 2021, The company currently expects its total revenues to be between RMB 1.87 billion and RMB 1.93 billion. This forecast fully reflects the company's current and preliminary views on the market and operational conditions. However, there might be mild uncertainties. For example, the occurrence of the COVID-19 Delta variant in multiple regions in China, which might adversely impact our offline stocks and business. 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 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 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 Lucy Lee with Goldman Sachs.

Thank you, Director Chen, and congratulations on your strong performance today. I have two main questions. The first one is about As mentioned earlier, the impact of the pandemic. We can see that the guidance for the third quarter is relatively strong. But the pandemic is now... Many provinces in China have restrictions related to travel. We hope to be able to analyze the impact of the pandemic on our business. For example, in cities that are very affected, And then the second question is that I hope that the management can share more with us about the cooperation between Jindong and Queshou. We have just talked about the transfer of funds on Jindong and Queshou. We have also increased the investment on sales and the recovery channel on Queshou has also started. I have two questions in here. The first one is regarding COVID-related travel restrictions. we see that the third quarter guidance is still quite strong. But considering the COVID-related travel restrictions, I would wonder if the management could further help us to understand what kind of impact that would create on our business. And the second question is with regard to a collaboration with Shady and Kuaishou. Management has already shared with us key strategies on one-stop trading with Shady, and that we have already opened up the recycling channel on Kuaishou stores. I wonder if you can further help us to understand, for example, helping to build and improve the 3C recycling infrastructure and supply chain capabilities on Kuaishou stores. Thank you.

Okay. 非常感谢Lucy的问题。 关于第一个问题, 疫情对我们业务的影响, 我解答一下。 7月份, In China, after the Delta variant of the epidemic appeared, our group first arranged for the high-risk areas of the employees to perform nucleic acid detection and home office to ensure the safety of the employees, and the epidemic prevention materials have been implemented in the respective cities. We do not rule out the impact of the epidemic on city lockdowns or restrictions in the country, especially on the short-term or continuous impact of EP business. uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, And the iPhone's new release has a very big impact on our performance. So considering such a seasonal impact, we suggest that we can consider this factor and combine it with Q3 and Q4 to look at our next year's business. This is an explanation of the problem of the outbreak and Apple's new release.

Okay. Thank you, Lucy, to answer your first question. In July, the COVID-19 Delta variant appeared in multiple regions in China. The company immediately arranged a swab test for employees passing through high-risk areas and worked from home to ensure the safety of the working environment. At the same time, anti-academic materials were delivered to those cities. We do not rule out the further impact of urban lockdowns or travel restrictions and its short-term or continuous impact on our 1P business. But referring to the second quarter performance last year, as long as the hard lockdown is eased, our trading business resumes very quickly. In addition, we need to say that the launch date of the iPhone 13 series is uncertain. Either it will fall in the third quarter or the fourth quarter. So there might be seasonality of revenue growth year over year. Also, we would recommend you to compare the results of the second half of the year with the same period of last year.

Okay. to continuously innovate and continue to promote the upgrade of strategic cooperation. On August 10th, we have a very important strategic project with Jindong that has just been launched, which is Jindong's 3DS retail service project. This is an important project of Jindong's mobile communications department. We help Jindong deliver new machines in some cities In the process of delivery, we provide the user with stickers, data transfer, and other kinds of maintenance services, as well as the recovery and resale of all new products. Currently, we are testing in Shanghai, which has a relatively high density, and covering 2 to 3 kilometers of delivery through our door and power supply. The transfer rate and cost model of this business, we are still in the model stage. This business should be very potential. We hope to be able to rely on Jindong's new machine sales platform. We hope to improve the recovery transfer rate better. This is also the continuous promotion and evolution of us and Jindong's rescue change project.

So we would also like to mention about the successful one-stop trading services as it resulted in continued growth momentum in both GMV and revenue. Also, we will continue to innovate and to strengthen the partnership with JD.com. One thing to highlight is on the 10th of August, we launched a 3D service project as a pilot project with Jingdong Retail. And also, we started from the pilot city of Shanghai and undertake the last mile delivery of some models such as iPhone, which is provided by our offline store employees. And also, these employees will provide users with screen protectors, extended warranty services. And we also wanted to cover the nearby two to three kilometers by the offline store staff. to cover the fulfillment of JD New Phone Sales, and we would like to expect successful collaboration from this.

Okay, the third question is about the business cooperation of Quaishou. Quaishou invested in us in the pre-IPO round in May 2021. We are one of the few investments of Quaishou this year. There are mainly three aspects of cooperation with Quaishou. Quaishou's small network recovery entrance, operating center, to provide quality control and reach customers. And the third one, QS will provide the support of traffic resources to help us develop sales business. These are the three main business cooperation aspects. QS's cooperation can widen our sales channel in 2C outside of Jindong. Because until June, we have just reached a cooperation agreement with QS. Business cooperation is still in the exploration stage. The impact of Q2 revenue and JMV is not great. In July, the recovery entrance of our collaboration with QS has been released. We will speed up the delivery and improvement. More importantly, the live platform represented by QS and Douyin is part of the integrated model of our new sales model. In this video, we will explain the integrated model of HIFI new sales. The integrated platform is the strategic strategy of Wanwu Xinsheng Group. In the past few months, we have continued to deepen the capabilities of the integrated platform. The capabilities of the city as a unit, the capabilities of the operating center, the capabilities of the Jindong channel, the capabilities of the new channel of Douyin's live broadcast, and the capabilities of HIFI Yanxuan's offline store are all integrated together. continue to explore the integrated city model of HIFI. Let's explain the logic of this model. First of all, we will set up some city-level operating centers. Through these operating centers, we will provide local quality control and service. For each city, for the business owners with local member capacity, we will develop them as joint business owners or joint business owners. We will authorize HIFI brands to joint business owners. and then open the store and operate on the same standard. After Jiameng is acquired by the local city as a second-hand mobile phone supplier, it will be sent to our local operating center for inspection. Products that are not in line with the standard of western retail will be quickly distributed through the platform of Kaiqi Tang. For products that are in line with the standard of western retail, they will be stored and displayed in the online store of Jiameng. On the one hand, they can be sold directly in the online store, On the other hand, more importantly, these members will also be synchronized to our online channels, such as Jindong's PaiPai channel, Douyin's channel, and Kuaishou's channel, etc., for online sales. This model is the same as our group's integrated platform strategy. We have various capabilities that are more efficient in a more detailed city-level dimension, such as Jindong's channel, Douyin's Kuaishou channel, and PaiQiTang's sales capabilities. the ability of the operating center to design, its ability to select stores, these abilities are all integrated to form a integrated overall ability. In this way, it not only brings a huge space for business growth, but also realizes the construction of new channels for retail sales outside of the Jindong channel. In the model of opening a new retail integrated city, the cost of the group's single-segment investment is about RMB 20 million. Currently, we rely on 30 cities We will continue to be optimistic and explore this model. We hope that next time, Okay, to answer a question regarding Kuaishou, Kuaishou invested in our pre-IPO round in May 2020. We are one of the few investments Kuaishou made this year. The cooperation with Kuaishou mainly includes three assets,

opening the recycling entrance on Kuaishou, providing quality inspection for the third-party merchants leveraging our operation centers and the supply to CLLs. And Kuaishou provides traffic sources to us. The cooperation with Kuaishou can broaden our B2C sales channels outside JD.com. Since we only reached cooperation with Kuaishou in June, the cooperation is still in the stage of speeding up exploration and improving business process. In mid-June, we launched the Recycle Channel on Kuaishou through Kuaishou. And from a city-level model perspective, we are still accelerating business exploration. We have made additional investments this quarter with more than $20 million in new sales channels this quarter. And in addition to the city model, we would like to clarify that we stick to the strategy of building the integrated platform. Over the past few months, we have continued to deepen the capabilities of our integrated platform by integrating the capabilities of operation center, JD channel, new channels such as Douyin and Kuaishou, and PiPi selection stores on a city-level basis, and continue to explore and validate PiPi New Retail's integrated city model. To form PiPi's integrated city model, we set up a city-level operation station to provide quality inspection and certification services locally. For small merchants with local sourcing of supply, we develop them as franchisees and authorize them to use the brand of PiPi selection so that they can open source and operate in a standard manner. Franchisees obtain second-hand mobile phone supplies in the city and send them to the local operation station for quality inspection. For goods that are not qualified to retail, rapid distribution will be carried out through PJT marketplace. And this model is in line with AT Rainier's integrated platform strategy. In a more detailed city-level dimension, various capabilities, such as JD channel, China and PJT Marketplace, operation center quality inspection, and PiPi selection stores should be integrated into a more efficient way to form and integrate overall all capability locally. And regarding the city-level model projects and their PiPi new retail, the upfront investment by us in a single quarter exceeded 20 million RMB. Relying on city-level operation stations in 30 cities, we have opened 12 pipeline selection stores that provided online and offline sales. In the second quarter, GME for new channels reached 170 million, with the sequential quarter-over-quarter growth of more than 100%. While good results and validation, we will continue to explore and solidify this model with cautious optimism and hope to have more data to share with you in the next quarterly earnings results briefing.

Okay. Thank you.

Thank you. And the next question comes from with Bank of America.

Hello. Thank you very much, Terry Rex and Jeremy. This system is very good. And then on my side, there was a small supplement to the strategic problem just now. We just mentioned in the previous Outlook that it is possible that the new sales of iPhones will affect our This is the performance of a future stage. I hope that we will consider the overall impact of this for us in the next half of the year. I want to understand it because we still gave a look at the next quarter. I want to see this and say that for our current look at this, we probably have a kind of prediction. It is a guess what time point may have this new release. And then there may be some in this, because when we were in 618, we did some joint activities with Jindong, which was very good. I don't know if we are looking at it now. Are there any more clear ones? Maybe in the second half of the year, you will do some large-scale activities with the platform or whether it is fast or Jindong, and then bring us some new and better growth. I will translate by myself. My first question was regarding The outlook for this quarter, what assumptions in terms of the iPhone new model launch and also the promotions together with the platform having been baked in this forecast and how should we look at, you know, the visibility of this next quarter and the fourth quarter. The second question was related to the growth margin. It seems like, you know, declined sequentially slightly and would like to get more colors on it and also would like to have more, you know, insights in terms of going forward trend. Thanks a lot.

Okay, thank you. Regarding the release of Apple's new machine every year, its time is uncertain. Sometimes it will be in mid-November, sometimes in early October. When we did the prediction this time, we did a relatively stable and conservative strategy. It was at the end of September. We expected it to be released in the last week. In this way, the impact of Q3 and Q4's performance will be relatively small. Then, of course, we will, according to the actual release situation, there may be some slight changes and adjustments. This is about the release time of the new machine. Our prediction model is relatively conservative. The second is that we To answer your question regarding the launch of new iPhone model,

We do have an assumption that the date might fall in mid-September to early October. However, we would like to make a conservative assumption that the launch date will be in late September. And this shall be minimizing the impact on our Q3 and Q4 earnings results. And we might make adjustments to our assumptions regarding the actual launch date of the new model of iPhone. Regarding the collaboration with JD.com, We would also continue the collaboration regarding trading services in the third quarter and going forward. Thus, we are happy to provide more color on this later.

Okay. Okay. Thanks, Joyce. I will take these questions. So if you look at the 1p cross-margin rate, you can find

The gross margin of the 1P business decreased compared to prior quarters and also decreased compared to the same quarter of last year. If you look at the overall gross margin, you can see the confidence overall gross profit margin in Q2 remained stable at 25%, which was consistent compared with prior quarter in the same share in the last year. The contribution from service revenue in this quarter increased to 14.2% this quarter. This can bring higher margin and offset the impact of the decreasing OMC business margin of Q2. So we believe the overall gross margin will keep increasing gradually going forward. As we leverage multiple marketing campaign approach, we prefer to review the non-GAAP operating profit margin. Non-GAAP operating loss was 51 million in this quarter and its operating margin was negative 2.7% compared with negative 3.1% in Q2 2020. We anticipate a positive non-GAAP operating margin in Q4 this year. Once we can reach our internal target of non-GAAP operating margin rate in certain quarter, we will invest all this additional resources to expand our scale as large as possible. So in this Q2, also due to the June 18th festival, we collaborated with JD and we directly increased the recycling price to attractive. more consumers to do the trading business instead of using other sales campaigns, resulting in a mild decrease in our 1p gross profit margin by 2%. Totally additional amount of spending in this area was RMB 36 million. If we did not increase the recycling prices to attract consumers by investing the same amount, 36 million RMB, in selling and marketing activities, when people's margin of Q2 2021 would be 15.2%, similar to that of Q2 2020, which was 15%. Of course, selling expense would increase accordingly. So basically, we believe the gap operating margin has already met our internal target, so we spend additional money into the coupons to directly increase the recycling price, which should decrease the gross margin of one business in Q2.

But we believe the overall gross margin will keep increasing gradually. Okay, 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 Ella G. with Renaissance.

Thank you. Tick rate. So I have two questions. The first one is could management provide an update on the value-added services such as the fixtures, et cetera, in your marketplace? I just wanted to know the progress there. The second question is, can management give us the details of your take rate in your marketplace, specifically for both Taiji Town and Pai Pai? What is the take rate for this quarter, and how is the year-over-year comparison for both of them? Thank you very much.

Okay. Thank you, Ella. So, for our first question, since late May, we have launched the value-added maintenance services. The service fee totaled 1.4 million RMB and increased the overall commission rate of Pai Chi Tang marketplace by about 0.1% per month. So in the future, we will continue to expand and diversify the value-added maintenance services and increase the corresponding take-away rate. So we expect the additional take-away rate from the maintenance service can be around 0.2%. by the end of this year. And also, starting from August, we start to charge a logistic service fee, inspection service fee, and consignment service fee to sell us on Python marketplace based on their size, and if the goods will be shipped into our operation center. So we expect, so overall, take away from these three services, including logistic service, inspection service, and the consignment service, can be around 0.6% in September 2021. So that means by the end of this year, we can charge additional 0.8% take rate from the Pai Chi Tang marketplace. And in Q2, the average take rate of Pai Chi Tang marketplace is still 4.5%, consistent with Q1 2021. so the Python marketplace can, so TIG rate will be increased in the next two quarters, in Q3 and Q4. So by Q4, the TIG rate can be around 5.3% of Python marketplace. So for the growth rate of PyPy marketplace increased to 4.7% in Q2 from 4.2% of Q1. The tick rate of the consignment model of Pi Pi Marketplace was 5.8% in Q2, while we barely charged any commission fee in QQ 2020. The 3P consignment model is expected to generate higher commission fees, and we expect to charge 8% to 10% tick rate in the future. So by the end of this year, we expect we can, the consignment model tick rate can be around 6.5%. So the consignment model is being quickly adopted by the merchants. The reasons include the complexity and fragmentation of the pre-owned electronics transaction industry chain. Therefore, the recyclers face challenges when distributing the products to consumers. But the consignment model of PiPi eases the burden of retailing from small merchants. At the same time, the takeaways of the PiPi pop model for electronic devices also increased by 0.5% starting from this quarter. But the tick rate of the model will be stable within this year. So for the overall, the Pi Pi marketplace tick rate increase were from the consumption model. So we did We expect the overall Pi Pi takeover can increase from current 4.7% of Q2 to around 5.2% in Q4 this year. Thank you very much.

Thanks, Adam.

Thank you. And this concludes our question and answer session. I would like to turn the call to Jeremy Gee for any closing comments.

Thank you. Thank you again for joining. A replay of today's conference call will be available on our website shortly. If you have any additional questions, please feel free to email us at ir.aihuishou.com. Have a good day.

Thank you.

Thank you.

Thank you. The conference has now concluded. Thank you for attending today's presentation.