ATRenew Inc.

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to At Renew, Inc., fourth quarter and full year 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. Please note, this event 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 for the company. Please go ahead, sir.

Thank you. Hello, everyone. Welcome to AT&T News fourth quarter and full year 2021 earnings conference call. Speaking first today is Kerry Chen, our founder, chairman, and CEO. And he'll be followed by CFO Rex Chen, After that, we'll open the call to questions from analysts. Our fourth quarter and full year 2021 financial results were released earlier today. The earnings release investor slides accompanying this call and filings with the US SEC are available on our company's IR website at ir.atrenew.com. There will also be a transcript following this call. For today's agenda, Kerry will share his thoughts on our fourth quarter and full-year performance, as well as a review on our business strategy, followed by Rex, who will address the financial highlights. Both Kerry and Rex will join the Q&A session. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, and I refer you to our safe harbor statements in the earnings press release. Any forward-looking statements that AT Renew makes on this call are based on assumptions as of today, and AT Renew does not take any obligations to update assumptions on these statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to GAAP measures. 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 Kerry for business and strategy updates.

Hello, investors and analysts. Welcome to the fourth quarter and the full-year business call of 2021.

Hello, everyone, and thank you for joining us on our fourth quarter and full year 2021 earnings conference call. 我还要感谢我们的商家和合作伙伴共同促进环保回收和二手3C的购买消费,成为更加主流的低碳生活方式。 Before we begin, I would like to extend my gratitude to all our employees, merchant partners, and industry partners. I could not be prouder of how well our teams have worked together across the country to overcome the challenges of the COVID-19 resurgence. Our combined efforts enabled us to find creative solutions to navigate through such a challenging environment, offering consumers safe and convenient recycling, trading, and shopping services. I also want to thank our merchants and circular ecosystem partners for their continued trust and collaboration. Together, we are promoting a low-carbon lifestyle where recycling and reuse of free-owned consumer electronics has become mainstream.

In terms of the group, we can see that in 2021, the whole year's GMV and revenue increased dramatically. The whole year's GMV reached 3.25 billion RMB, which increased by 65.8%. The revenue reached 7.8 billion RMB, which increased by 60.1%. Before the IPO, We are delighted to share with you our continued growth momentum at group level. In 2021, our GMV and total revenues reached

32.5 billion RMB and 7.8 billion RMB, representing year-over-year increase of 65.8% and 60.1% respectively. These growth rates were significantly higher than those in 2020 and 2019. What contributed to this rapid growth was not only the increasing consumer demand for trade-in, but also our strong strategy execution of penetrating in lower tier cities and enhancing our competence of sourcing supply locally.

It is worth mentioning that the company's operating efficiency and profit level have significantly improved. In 2021, the total annual non-GAAP operating loss was only RMB 100 million. The non-GAAP operating loss rate is 1.3%. Compared to 2020, the non-GAAP loss rate of 3% is further reduced. Our fourth quarter's revenue exceeded expectations and achieved a quarter's non-GAAP operating profit. On profitability, we have achieved significant efficiency optimization.

In 2021, non-GAAP operating loss was 100 million RMB, and the non-GAAP operating margin narrowed to negative 1.3% from negative 3% in 2020. Notably, revenues in the fourth quarter beat guidance, and we have successfully achieved non-gap profiting profitability. We are confident in maintaining this going forward. With sufficient capital and a clear strategy, we are on the fast track of healthy and sustainable growth trajectory. Next, let's take a more detailed look at our operations in four aspects. One, how we deploy and manage the nationwide AI store network. Two, some newly updates on the city-level service integration model. Three, how we balance the scale expansion and raising take rate of marketplaces. And four, PiPi's sales performance during the Spring Festival.

First of all, let's look at our stores. Our stores across the country have continued to strengthen their supply network. As of the end of 2021, the number of stores has reached 1,308. Compared to the end of 2020, the number of stores has increased by 576. This is far exceeding our expectations of 200 new stores in the beginning of the year. We provide face-to-face supply networks in 214 cities across the country. Compared to the end of 2020, we have added 43 new cities. First, on store operations, in 2021, we added 576 new stores, growing the total number of offline stores to 1,308. This greatly exceeds our previous guidance of 200 new openings at the beginning of 2021.

The store network covers 214 cities, an increase of 43 cities compared to the end of 2020, shouldering in-person delivery and fulfillment. Riding on geographic expansion, we also deepened penetration in lower-tier cities and increased density of stores in existing markets in order to further enhance sourcing capabilities and expand service coverage to individual consumers.

In 1308 stores, There are 595 self-serve stores that love to recycle, and they are strong enough to carry our user service, reservation, and Jingdong's old and new order delivery. What needs to be emphasized is that as our operating version, the profitability of self-serve stores is high. In the fourth quarter, the monthly sales income of self-serve stores exceeded 690,000 RMB. Among all the stores, 595 were self-operated AHS stores, where we meet our consumers' recycling demand directly as well as provide trading services.

for JD's new device sales. Notably, store economics set a new record high in the fourth quarter, as monthly average revenues per self-operated store exceeded 690,000 RMB, while achieving a net margin of 3.7%. Leveraging our strengths in such industry-leading UE, self-operated AHS stores continue to enhance our competitive mode on the supply side across different use cases and contribute to both the top-line and bottom-line growth of the 1P business.

Meanwhile, the number of 20 operated AHS stores reached 692,

including standard franchise stores with the same format of self-operated ones. Partner stores we started and accelerated to open since 2021 and were incorporated in local retailer stores. Together, these jointly operated stores have contributed to our channel penetration and brand recognition, especially in lower-tier markets.

In addition, we have 21 PiPi selection retail stores that provide a premium, guaranteed, and integrated online-offline shopping experience to customers. The second aspect I would like to address is the city level service integration model. As introduced and emphasized in the third quarter earnings call,

We reallocated resources in each city and integrated our core capabilities of three major business lines locally to establish a cohesive operating unit to penetrate deeper across local markets and to enhance local sourcing capability as well as transaction efficiency. We then review the financial performance of each city and provide incentives accordingly. 城市模型在四季度收获了监视的数据验证。

The local recovery of old machines is calculated by the local new machine sales. The first four cities, Langfang and Huzhou, have achieved 46% and 53% rate of growth in each quarter respectively. Currently, the urban model has been implemented in 22 cities, encouraging local businesses to accelerate growth. In the 22 four-point cities, 18 cities have more than a large number of increases. 12 cities, such as Shenyang, Nanchang, Hefei, and other cities, have more than 100% of B2B business increases. We will continue to firmly promote the integrated city model strategy, improve the detailed management ability of the lower market, the business service ability of the merchants, and realize business transformation.

The city-level service integration model has proven to be the right path for growth judging by our progress in the fourth quarter. Local penetration rate equivalent to the trading volume of pre-owned devices divided by the sales volume of new devices recorded significantly sequential increases of 46% in Langfang, Hebei province, and 53% in Huzhou, Zhejiang province. In the first quarter 2020, we have launched 22 pilot cities. It turns out that 18 out of them achieved faster growth compared with the baseline. B2B GMV increased by over 100% in 12 cities, including Shenyang, Nanchang, and Hefei. We remain steadfast in the city-level service integration strategy and will leverage it for refined analysis on local operations. It enables us to improve our sourcing process, promote recycling at city level, serve our customers better, and in turn generate additional service revenue. Compared with the baseline, we expect to generate an extra GMV growth of 40% in the pilot cities.

Thirdly, the overall tech rate of the platform this quarter has increased to 4.8%. We will further consider balancing the increase in the fee rate and the health development of the platform. Our B2B trading platform has always provided users with high-quality trading platforms that provide digitalized technology to small and medium-sized business owners in the energy and second-hand industry, and realize convenient inventory, storage, sales, logistics, and fund account management, create value for business owners, and collect reasonable service fees. Third, we have a comprehensive take rate of 4.8% for our marketplaces in the fourth quarter, and we will balance the rising take rate and healthy growth of the platform in the long run.

For B2B business, we are devoted to offering a high-quality transaction platform to meet and small merchants, empowering them with digital tools of efficient sourcing, inventory management, sales, logistics, and balance management. We take a small fraction of service fees out of the value we create. In 2021, our high-quality services earned endorsement from merchants, leading to a 33% year-over-year increase in registered merchant accounts. The trust and the confidence we obtain from merchants also evidence why we can successfully adjust the fee structure for certain service items.

For the growth strategy of BGB platform, we will better balance the increase in fee rate and the growth of the trading scale. Through the future several seasons, the development of the integrated city model will realize a more quality and sustainable scale growth. Our positioning of Pagetang is to build the basic service facilities of the industry, rather than too fast. Looking ahead, we will continue to balance our needs to increase the take rate and our desire to expand the scale of B2B marketplace.

We hope to achieve sustainable and high-quality growth in the coming quarters as we unfold the city-level service integration strategy. Our positioning for PJT Marketplace is to build a basic service for the industry rather than to harvest the fruit aggressively. We are ready to fulfill third-party retailers' growing demands to trade in better, to attract more merchants and their supply to the online marketplace as we continue to increase customer engagement and improve the service experience.

Fourth, let me quickly cover PiPi's development.

We achieved stable growth in B2C platform GMV and reached new high in service take rate thanks to an improved brand recognition, tighter control over self-operated supply chain, and improvement in after-sales services. In the fourth quarter, take rate for mobile category under Pi Pi Consignment Model exceeded 10% for the first time ever. We also collaborated with JD Group's marketing campaign related to the naming rights of CCTV New Year Scala and provided full-scale services. During the holiday, GMV for Paipei Marketplace grew by 71% year-over-year. Furthermore, we achieved year-over-year sales growth of over 300% on both OEN and Kuaishou.

Regarding the improvement of profit and loss in this quarter, in terms of operation, through detailed management, the non-GAAP in the fourth quarter deducted 14.6% from the interest after the contract fee. The operating profit of non-GAAP is nearly 9.7 million RMB. Our non-GAAP contract fee and management fee rates have been significantly optimized. In terms of profitability, we further refined our management and achieved a non-GAAP fulfilled gross margin of 14.6%, with non-GAAP operating profit reaching 9.7 million RMB in the fourth quarter.

We also saw meaningful improvements in fulfillment and G&A efficiency, as the non-GAAP fulfillment expenses and non-GAAP G&A expenses declined remarkably as a percentage of total revenues. We believe such efficiency can be further improved as a result of our persistent execution of city-level service integration strategy and wider implementation of automated inspection systems.

The circular economy, the Internet plus recycling industry, the national encouragement, the policy stability is a long-term industry of healthy development. In 2022, we will insist on the positioning of important ecological partners in Jindong to provide users with better services, insist on the foundation of supply chain capabilities, strengthen the construction of automated technology, and continue to reduce the cost-effectiveness. We insist on the core strategy of the integrated urban model, Operating an internet plus recycle business.

AT Renew is evolving with the circular economy advocated by Chinese government. In 2022, we aim to serve our customers well, while upholding our position as an important partner in JD's ecosystem. We root indeed in supply chain capabilities, continue upgrading automation technologies, and optimize cost structure and margins. With no doubt, CDNO service integration strategy stays core to our business, and drives organic growth across local markets in China. We are confident in our sustained growth without compromising profitability. With that, I will hand the call over to our CFO, Rex, to go over the financials.

Thanks, Carrie, and hello, everyone. We are very pleased to report that we have achieved the profitability milestone while delivering close quarter revenues that exceeded our previous highlights before we go into a more detailed look at the numbers. Please note that all amounts are in RMB and all comparisons are on our year-over-year basis unless otherwise stated. In the fourth quarter of 2021, we delivered 48.2% revenue growth to achieve total revenues of over $2.4 billion. Exceeding the high end of our previous guidance range provided in the third quarter earnings conference call, total GMV grew by over 58.7%, driven by strong growth in both product sales, GMV, and online marketplace, GMV. In this quarter, the commission rate of our third-party marketplaces rose to 4.8% at the group level, marking a historical high. This is a testament that our merchants, users, acknowledge PJT and PiPi marketplace for digitalized, safe, and convenient transactions. Biddings and transactions continue to show very strong growth. Gross margin at the group level was 26.1% in the fourth quarter. Gross margin for our 1P bidders stabilized at 13.3% sequentially as we rolled out a nationwide strategy to secure sources of supply at our best efforts. This further meets consumers' demand for easy recycling and trading while obtaining greater consumer mindshare. In the fourth quarter, we meaningfully optimized the cost structure through reducing fulfillment costs, both at the storefronts and at operation centers. The progress is evidenced by a strong expansion in the Nangak-fulfilled gross margin, reaching 14.6% and representing an increase of 140 basis points over a year ago. Notably, as previously mentioned, we delivered a non-GAAP operating income of $9.7 million in this quarter. We expect to continuously optimize operational efficiency and improve our non-GAAP operating margin. We aim at achieving operating profits throughout 2022 under non-GAAP measures. Now let's take a detailed look at the financials. So overall, increasing GMV was driven by a strong growth in both product sales GMV and online marketplace GMV, which increased by 52.9% and 50% respectively. Product sales GMV growth was mainly driven by improved efficiency in sourcing through the growing density and penetration rate of AHS stores in China. Another driver is the single-state campaign of e-commerce and the live streaming platforms, which we have shared currently in the third quarter conference call. GMV for online marketplaces, including PJT and PiPi, increased by 50%, mainly driven by, first, stronger merchants' demand and higher transaction frequency. And second is the growth of B2C consumption model, as 1P business contributes to profit and 3P business is still loss-making at this stage. We strive to achieve more balanced growth rates of 1 PGMV and 3 PGMV from now on, setting profitability's higher priority during business expansion. In the fourth quarter, total revenues increased by 48.2% to $2,435.8 million, Net product revenues increased by 43.9% to $2,076 million, while net sales revenues increased by 78.3% to $359.9 million. Growth in net product sales revenues was driven by continued increases in the density of our AHS stocks and our reinforced trading collaboration with JD.com. Grossing service revenues were driven by growing transactions volumes and an increase in the monetization capabilities of our marketplaces, reflecting a growing demand for our digital solutions and the technology empowerment by merchant users. We believe the expansion of commission rates should be organic as we seek a balance between the growing take rate and the grossing scale as we prioritize the betterment of our ecosystem participants in the long run. Through more added services, including repair program, we aim to serve our customers well with ample service options instead of imposing comparing fees. Next, turning to our operating expenses, to provide greater clarity on the trends in our actual operating-based expenses, we will discuss our NGAP operating expenses, which better reflects the views of management. The reconsolations of GAP and NGAP results are available in our six filings with SEC. Operating costs and expenses increased by 50.1% to $2,573.2 million. Then gap operating expenses which exclude share-based composition expenses and amortization of intangible assets resulting from business acquisitions increased by 48.9% to $2,437.7 million. Merchandise costs increased by 45.6% to $1,800.5 million. This is in line with the growth of the 1P product sales revenues. Fulfillment expenses increased by 52.8% to 290.1 million, excluding 10.3 million in share-based compensation expenses, which we will refer to as SPC from here. Then gap fulfillment expenses increased by 47.3% to 279.8 million. The increase was primarily due to the growing costs related to fulfillment, personnel, logistics, and operating center's costs as the company's business continues to scale. Notably, we have relocated our Shenzhen operating center to Dongguan, a city nearby at a lower cost. Meanwhile, advancing automation capabilities there. We target to complete the full-scale automation of Dongguan Corporate Center in the first half of 2022, further reducing inspection costs per device by 20% in South China. At the same time, for products with low selling prices and relaxed delivery requirements, we brought in an economical logistic provider to optimize fulfillment costs. Selling and marketing expenses increased by 74% to $368.8 million. The increase was primarily due to an increase in costs related to business development, sales promotion, and increasing personnel to match the growing scale of our business. Excluding SBC expenses and amortization of internal assets from business acquisitions, Nungap selling and marketing expenses increased by 100.2% to $271.7 million. Under the gap measures, selling and marketing expenses as a percentage of total revenues was 11.2% in the fourth quarter, slightly increased by 0.7 percentage points sequentially. To provide more color on selling expenses, the investments in advertisements, promotions, and campaigns reached 92 million. Coupons on PiPi was 63 million, representing an increase of 23 million compared with the fourth quarter 2020. Commission expenses were $56 million, an increase in line with the growth in scale and the new live streaming sales model. For context, PiPi Consumption Model was launched in 2021, and thus related sales promotion expenses were new to this category. We expect those coupons on PiPi to decelerate as WinP2C and the consignment sales getting on track. Overall, sales and marketing expenses as of total revenue remained relatively stable throughout 2021. GMA expenses increased by 41% to $51.9 million. Excluding SPC expenses, NGAP GMA expenses decreased by 10.6% to $32.9 million. Similar to the third quarter, the decrease in GMA expenses showed an improved cost efficiency in our middle and back offices. Technology and content expenses increased by 55.8% to 62 million. The increase was primarily due to increases in personnel costs related to the expansion of our research and development activities, excluding SBC expenses and the amortization of intangible assets. Resulting from business acquisitions, Nungap technology and content expenses increased by 38% to $52.7 million. As a result, our Nungap operating income was $9.7 million in the fourth quarter of 2021. Nungap operating margin was 0.4% compared with negative 1.5% in the previous quarter 2021. As of December 31, 2021, cash and cash equivalents, restricted cash, short-term investments, funds receivable from third-party payment service providers and JD on the balance sheet totaled $2.6 billion. Of note, Funds receivable from third-party payment service providers and funds in JD account recorded as amount due from related parties totaled $583.1 million. This is all cash topped up in companies' JD Pay account, WeChat Pay account, and Alipay accounts to support efficient recycling and transaction services. As I recap, we announced the $100 million share repurchase program on 28 December 2021. Out of the management's strong confidence in the company's solid fundamentals and gross momentum, Now turning to Outlook, for the first quarter of 2022, the company currently expects its total revenues to be between 2,150 million and 2,200 million. We expect to achieve stable and healthy growth in 2022. The recurrence of COVID-19 variants might impose an adverse impact on our store operations, warehouses, and merchants' transactions in 2022. This forecast already reflects the company's current and preliminary views on the market and the operation conditions, which are subject to change. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchstone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. 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 our roster. Our first question today comes from Lucy Lu with Goldman Sachs. Please go ahead.

Thank you for your sharing. I have two questions. The first is that the company's annual sales growth in 2021 is more than 30 million. We want to hear from you about the next market space. And the second is about our own business itself. EP business seems to have a relatively strong growth throughout the year and CQ. The question is on... Our next stage of growth and 10 in general. So in 2021, the company, the total transaction volume exceeded 30 million pieces. So how do we assess the future growth potential going forward? And the second question is regarding our own business, 1P versus 3P. We observe that 1P business is, deliver the fast growth in both 4Q and this year. So I wonder if we are going to put more emphasis on the 1P business compared to 3P, for example. Thank you.

Okay, thank you. Thank you very much. First of all, to answer the question of company growth space, we see that the growth space of the second-hand 3C industry is still huge. In terms of total volume, In 2021, the number of trading platforms on the whole platform surpassed 30 million. But this figure is far lower than China's annual new product sales. According to the CIC report, it is 5.9 billion, including mobile phones, tablets, laptops, and other 3C products. In addition, the number of 3C products that have not been effectively recycled at home due to new sales in recent years has reached 2.7 billion. Therefore, no matter if we compare the sales of new machines or the stock market, we still have a lot of room for growth. In terms of the penetration rate of the city, the penetration rate of services in major cities across the country is still very low. In the last quarter's phone conference, we mentioned that in 70% of the cities, our penetration rate is less than 5%, and there is a lot of room for improvement. The main goal is to implement the urban strategy to effectively improve the penetration rate in various places. The second question is about the strategic focus on self-sufficiency and platform business. In 2022, we will stick to the premise of protecting the profit of self-sufficiency business and strive to accelerate the growth of self-sufficiency business to achieve quality platform business growth and increase the efficiency and profitability of platform business. Okay, thanks for the questions. To address the first one, we believe there is a great potential for growth.

Firstly, on the addressable market, the number of devices transacted on our platform this year reached a record high of over 30 million. However, this is still a small portion compared with 590 million new electronic devices sold in China annually, according to CIC. In addition, idle devices, including phones, tablets, and laptops, et cetera, totaled 2.7 billion, indicating a low rate of recycling. Secondly, on our penetration rate at city level, our services have relatively little presence locally. It was low single digit in 70% of the cities in China, as we mentioned on the last earnings call. We are poised to increase that through steadfast implementation of our city level service integration strategy. Also, your question to business priority. We plan to seek an accelerated growth of 1P business with steady profit. and a healthy growth of 3P GMV with more attention to the efficiency and profitability of the marketplaces. Looking back at 2021, GMV of 1P business increased by 69.6% year-over-year, outrunning the growth rates over the past years. We attribute this to the solid progresses in new store openings, a stronger trading partnership with JD, and an expanding 1P direct-to-see retail business on PiPi.

I will continue to answer the above question. Our stores continue to show their profitability. In the fourth quarter, our mature store profit rate reached 4.0%, which enhanced our confidence in accelerating the opening of stores and serving more users, and increased the investment in profitable stores. In 2022, we will plan to add 200 standard stores that love to recycle. In addition, under the integrated city strategy, we plan to link local partners and add an additional 500 cooperative stores. Through the new liquidation of e-commerce, we will provide better recovery and recovery services for users in new sales scenarios. And on a broader store coverage basis, we will link mobile phone brands and Jindong to accelerate the penetration of offline sales scenarios.

The stores continue generating profits. In the fourth quarter of 2021, net margin of mature stores reached 4.0%, improving our confidence in serving more customers and top-up our efforts in these stores. We expect to open 200 new standard AHS stores in 2022. Furthermore, we aim to add 500 partner stores, i.e., store-in-store, a new format in collaboration with local partners as a part of the city-level service integration strategy. This is to facilitate trade-in and to expand consumer reach through the synergy with JD and mobile brands, and it helps to grow our footprint in local retail scenarios.

We have more than 100 B2B businesses in 12 cities in the first quarter, including Shenyang, Nanchang, Hefei and other provincial and regional cities. The 1D model strategy helps us to further realize the bottom line and supply chain, improve the online exchange rate of offline transactions, and increase the activity of platform transactions. At the same time, our service is not only for second-hand merchants, but will also provide more services to new retailers in various places. Realize the scene recovery from the user's purchase of new machines, through platform analysis, and reach the extreme mode of retail.

We take city-level service integration model the key to the next stage of growth for PJT and PiPi marketplace. This will be achieved through sourcing premium goods more efficiently. In the first quarter of 2022, we have launched a service integration model in 22 pilot cities to highlight the growth rate of B2B business in 12 pilot cities exceeded 100%, including Shenyang, Nanchang, and Hefei, three provincial capitals. By leveraging the city-level service integration model, we dive deep into B2B business. We digitalize the transactions and encourage online transactions. Not only do we serve dealers, but also new device retailers. Thus, forming a closed loop from recycling from users when buying a new device through inspection at our facilities and directly to the retail end.

好的,我们下一个问题,next question.

The next question comes from Joyce Du with Bank of America. Please go ahead. 观众朋友晚上好,我是Joyce,非常感谢给我们这里机会提问。

We have seen the take rate reach the full point 8% this quarter. Could management help us elaborate a little bit in terms of how do you take rate improve and the future trend in terms of how it could further improve? Thank you.

Thank you, Joyce. Let me take your question. As you can see, service revenue increased by 78.3% year-over-year in this quarter, surpassing the gross rate of platform GMV. This was due to the increasing take rate for both PJT and Pi Pi marketplaces. So in the first quarter, the overall take rate, as you mentioned, was 4.8%, a 0.2% increase sequentially. Among them, the take rate of PJT marketplace was, in average, was 4.5%, while the take rate of PiPi, in average, was 5.4%, which was 0.6% and 1.2%, higher than the same period last year, respectively. For PJT marketplace, we started to charge an inspection service fee and consignment service fee from sellers in Q3, which led to an increase in take rate for PJT marketplace by 0.6% compared with the same period last year. In the future, we will continue to expand and diversify our value-added services, such as maintenance services and supply chain financing services to increase the corresponding take rate. The take rate of the pop model on PiPi marketplace remained stable compared to the same period last year. The increase of take rate on PiPi was mainly due to the increase in the take rate of goods consigned to business. Take rate of consignment model was 10.7%, a significant increase of 4% sequentially. GMV of consignment model accounted for 18% of platform GMV in recent quarters. The consignment model is being quickly adopted by merchants due to the complexity and fragmentation of the pre-owned electronic transaction industry chain. Recyclers face numerous challenges when distributing to consumers. So the consignment model of Pipeline eases the burden of retail and offers small merchants. In the future, we strive to reach a balance between scale expansion and raising platform take rate. We will provide more service options and take tighter control over the operations and the merchants' ratings, which we believe will be conducive to the long-term development of the platform business.

Got it.

Many thanks. The next question comes from LRG with China Renaissance. Please go ahead.

Thank you, Director. Thank you for accepting my question. I also congratulate you on your very good performance. My question is mainly about the confidentiality of the company. First of all, we see that the company has achieved a good confidentiality this quarter. I still want to hear what the main driving factor is, and what we can consider for the sustainability of this profitability in 2022 and the longer term. The second is that we see that the sales cost of this company has indeed increased a certain amount this quarter. So I would also like to ask Kuan Li-cheng to make some changes to the sales cost So thank you for taking my questions and congratulations on strong quarter. My question is regarding your margin out performance. We wanted to see if management can provide more courage regarding the main driver behind your margin out performance and how's the outlook for 2022 and onwards. And then within the expenses, we do see that sales and marketing has gone up. In the quarter, could you also provide more color regarding the sales and marketing expenses, their investment level also in 2022 and onward? Thank you.

Okay, thanks, Alan. For the first question regarding profitability, yes, we are confident to continue enhancing our operational efficiency and reach four-year net gap profitability target in 2022 and going forward. Our path to profitability can be divided into three aspects. First, the gross margin improves due to the stable OMC pricing strategy and increasing proportion of the service revenue, which can contribute to higher gross margin. Secondly, the fulfillment efficiency improves significantly more orders at store level in Q4 and better processing usage of our fixed facility. Third, our middle and back offices took tighter control of headcounts and benefited from the economy of scale. As you can see in the decrease, the gap G&A expenses and its percentages of total revenues. So for a second question regarding selling expenses, the gap selling and marketing expenses account for 11.2% of total revenue, increasing by 0.7% sequentially. Selling and marketing expenses mainly included personnel call expenses for our B2B sales team, channel fees and commission fees paid to JD, as well as promotion and marketing fees for each different business lines. For this quarter, the year-over-year growth was mainly due to the expansion of our PiPi consignment businesses, new channel sales, and 1P direct-to-see sales. We invested $63 million in coupons and certificates. for brandings and the promotion of new channels, including live streamings, the JD PiPi flagship stores, and the PiPi offline stores. Furthermore, variable costs increased in line with our business expansion. The sequential increase compared with Q3 was due to the distribution of some coupons and the marketing promotion activities for PiPi2C sales related to the single-state shopping festival, 0012, and PiPi anniversary campaigns. As we leverage multiple marketing approaches, we believe non-GAAP operating profit closely reflects our views on the performance of the business. Non-GAAP operating profit was $9.7 million in this quarter, and the margin was 0.4%. We anticipate a positive non-GAAP operating margin in 2022 and expect it to continue expanding. Thanks, Ella.

The next question comes from Jin Yu with GJTA. Please go ahead.

Hello, everyone. Can you hear me? Okay, thank you. Okay, thank you for the opportunity. I have a question about the pandemic. The pandemic is quite serious in many regions. I want to ask about the impact on the company. First of all, what impact did the pandemic have on the company's performance in 2021? Including the number of stores that opened last year, the growth was relatively fast. Will the pandemic affect the offline business? What measures will the company take to deal with this? As the pandemic situation in many areas has been quite serious recently. I would like to ask you a question about the impact on the company. What's the impact of your performance in last year? Your offline store has increased significantly while the pandemic affected offline business. What measures does the company take to deal with it? Thank you.

Thank you very much. China's epidemic has been repeated many times in 2021. We are indeed facing some challenges, but the impact of the epidemic on corporate operations is relatively limited and controllable. The main reason is that our business dispersal is very high. Second recovery stores are distributed in 214 cities across the country. Our operating system has seven regional operating centers and 95 city-level operating centers. Even if some cities are closed or closed due to the epidemic, a small operating center in Foshan can quickly take over and reduce the volume. For example, the recent epidemic in Shenzhen and Dongguan, our Dongguan operating center was affected by the stage. But the surrounding small operating centers have played a good role in supporting and dividing orders. Okay, thank you. Thank you for your question.

The COVID recurrence in 2021 had challenged our operations multiple times, but the overall adverse impacts were limited and controllable. This was primarily due to the scattered storefronts and operation facilities. AHS stores spread across 214 cities. Temporary closure of stores in some cities has limited impact on the overall performance. There were seven regional operation centers and 95 city-level operation stations nationwide. When there's a regional shutdown, the nearby facilities are able to step up. For example, our operation stations in the neighboring cities handled the orders for Shenzhen and Dongguan during their recent incidents. Although our business showed resilience, we can't predict the material negative impacts on our business caused by the recurrences of COVID-19 variants. We will continue to prioritize safety Keep ourselves prepared and our workplace is clean and stay flexible.

Thank you.

As there are no further questions at this time, I'd like to hand the conference back to our management for closing remarks.

Thank you. A replay of today's call will be available on our IR website shortly, followed by a transcript when ready. If you have any additional questions, please feel free to email us at ir.hcrenew.com. Have a good day.