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spk04: Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to ATRI News Incorporated first quarter 2022 earnings conference call. At this time, all participants are in listening mode. We'll be hosting a question and answer session after management's prepared remarks. Please note that this event is being recorded. I'd like to 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.
spk03: Thank you. Hello, everyone. Welcome to ATU News first quarter 2022 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. Our first quarter 2022 financial results were released earlier today. The earnings release and investor slides accompanying this call are available on our IR website at ir.atmnew.com. There will also be a transcript following this call for your convenience. For today's agenda, Kerry will share his thoughts on our quarterly performance and business strategy, followed by Rex, who will address the financial highlights. Both Kerry and Rex will join the Q&A session. Please know that since Shanghai is under lockdown, management joined today's conference call via different lines in Shanghai. Kindly excuse us if there is any connectivity issue during the call. Some of the information you will 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 that AG Renew does not take any obligations to upgrade our assumptions on these statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings 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 do not like to turn the call over to Kerry for business and strategy updates.
spk05: Okay. Hello everyone and thank you for joining us on our first quarter earnings conference call. The national epidemic is frequent. Under the challenging environment, our business has still gained rapid growth. In the first quarter, GMV reached 9.3 billion RMB, with a growth of 51.6%. Income reached 2.2 billion RMB, with a growth of 45.7%. It exceeded previous expectations. Starting in mid-March, Shanghai, Shenzhen and other places were seriously affected by the epidemic. Even with the impact of the Spring Festival and the impact of the epidemic for about half a month, we still obtained the operating profit of Nungap in the first quarter. After the fourth quarter, we obtained profit again, and our cash flow transfer of business activities reached 1.2 billion RMB.
spk06: In the first quarter, we realized rapid growth during a very challenging period of time during the highly transmissible Omicron variant. GMV for the first quarter increased by 51.6% year-over-year to 9.38 billion RMB, and the total revenue increased by 45.7% year-over-year to 2.21 billion RMB, both exceeding our guidance. Starting in mid-March, we faced headwinds of the pandemic. this difficult backdrop and off-season of the Spring Festival. We are delighted to announce that we have extended our past quarter's strong performance into this quarter to achieve non-GAAP operating profit. In addition, we recorded a positive cash flow from operating activities of 120 million RMB.
spk05: I would like to take this opportunity to answer two questions at this special conference. The first question is, As we navigate the pandemic challenges, I would like to address two issues in today's earnings call. First, how do we respond to the transitory difficulties caused by the pandemic?
spk06: Second, what is the outlook for consumer demand in the longer term, and how can we seize opportunities in the post-pandemic circular economy?
spk05: First of all, regarding the issue of pandemic response, our familiar friends all know that our business has the following characteristics. The first characteristic is that our online business ratio is not low. TaijiTang and PiPi are all online trading platforms, which are less affected by the COVID-19 lockdown. Although love recovery is a major feature of stores, there are also a lot of businesses that come from online. For example, 58% of the recovery orders come from Jindong app, love recovery app, and small programs. and 14.5% of the total GMV of the joint group of SMEs. The second feature is that SMEs all over the country are distributed. Through the distribution of self-servicing and joint-servicing, SMEs in Erhu Province are distributed in 214 cities across the country. Therefore, the blockade of some cities will not cause a comprehensive operation interruption. The third feature is that our operation centers are distributed and support each other. In addition to the six large operating centers across the country, we have deployed 116 small and medium-sized operating centers across the country since the end of the first quarter, close to the source and close to provide commercial services. Large and medium-sized operating centers support each other, distribute goods and receive goods, and efficiently distribute around-the-counter orders. To a certain extent, it has reduced the impact of city lockdown and logistics on our operating system.
spk06: On the first issue regarding the pandemic and our reactions, there are three characteristics of our business, which I trust many of our audience today are familiar with. First, our online business constitutes a large proportion of our overall business. Specifically, BJT and Pipeline Marketplaces are both online training platforms and therefore experience a limited impact from offline lockdowns. AHS Recycle, though characterized by offline source, also received a large proportion of its orders online. Taking the first quarter as an example, 58% of recycling orders were placed online through JD-SAT, AHS RecycleSAT, and many programs. GME for the orders fulfilled through our offline stores contributed 14.5% of total GME in the first quarter. Second, our offline stores are located throughout China. As a result of our self-operated plus jointly operated strategy, AHS stores have expanded throughout the country, with locations in 214 cities nationwide. Therefore, temporary regional lockdowns will not cause operational interruptions on the group level. Third, all operation facilities are decentralized and function collaboratively. In addition to our six regional operation centers, we have rolled out 116 city-level operation stations throughout the country by the end of March 2022. This enhances the agility of our business and allows us to secure sources of supply and improves our ability to provide supply to merchants at convenient locations. Our major operating centers and city-level operation stations function collaboratively to sort supply, deliver products, and allocate inspection orders with a high degree of efficiency. And this helped us mitigate the impact of lockdowns and logistics interruption on our operations.
spk05: Since the middle of March, the epidemic in Shanghai has had an impact on our business and has further intensified in Q2. We estimate that the impact of the Q2 epidemic on overall income is about 20 to 25 percent. However, due to the above business characteristics, the epidemic's impact on our business is only partial and not comprehensive.
spk06: The regional lockdown in Shanghai since mid-March has dragged our business growth and its adverse impact expanded into the second quarter. In the near term, when quantifying the impact, we anticipate such headwind to drag on 20% to 25% of our overall revenue in the second quarter. However, taking a holistic view, the pandemic will not fundamentally impair our business thanks to the resilience of our business model, as I mentioned earlier.
spk05: In the face of the epidemic, we have also adopted a series of response measures. First, Shanghai's full-fledged home office through online office software to improve the efficiency of home offices. Second, focusing on core business, we evaluate and adjust some non-core business, reducing unnecessary expenses. Third, at the same time, we carry out corporate responsibilities. The public interest investment is about 1 million RMB, providing daily necessities and protective materials for employees and community residents, Furthermore, we responded quickly to the COVID resurgence.
spk06: Our measures included introducing a work-from-home policy for employees in Shanghai and leveraged remote working tools to ensure productivity. We also budgeted for operating expenses through optimizing non-core business, We donated approximately 1 million RMB into supporting our employees and local communities by providing daily necessities and anti-COVID supply. Leveraging the pre-owned consumer electronics supply chain, we provided dedicated mobile devices for PCR testing registration to Yangfu District in Shanghai.
spk05: Compared to the short-term impact of the pandemic, we are more concerned about the long-term development of the second-hand industry as the economic cycle fluctuates. Instead of being threatened by the short-term volatility caused by the pandemic,
spk06: We take a long-term view of looking into the post-pandemic world as far as the evolving circular economy amid the economic cycles. The general belief is that the pandemic will eventually be brought under control. However, consumer spending is likely to grow at a slower pace for a certain period of time. This will lead to significant negative consequences for many industries. Based on the precedents Japan and Europe, the second-hand economy demonstrated resilience in the face of consumption slowdowns and possesses the potential to flourish amid economic headwinds. We perceive opportunities from two angles. First, consumers' demand for cashback tend to increase under financial pressure, and they are more likely to recycle idle devices with high residual value. consumers tend to opt for more optimistic, excuse me, tend to opt for more economic solutions of purchasing high-quality point-owned devices.
spk05: In order to seize the opportunity to develop after the pandemic, we will continue to grow in our existing strategy and insist on it. First, continue to deepen the strategy of urban urbanization to increase the recovery penetration rate of the city. Mobile phone recovery is a local service with strong regional properties. At present, the recovery penetration rate of each city is still relatively low. We believe that using the city as a unit to pull through business and combine resources, using the overall penetration rate of the city as a measurement standard, and using the overall loss of the city as a test basis for the team can effectively pull back the growth of recovery business. From the data, among the 22 cities that are in the first stage of the city integration strategy, the growth of 16 cities has won the national grandstand, of which more than 30% of the majority of the super grandstands have grown.
spk06: As such, we remain committed to four key business strategies to seize growth opportunities in the post-pandemic world. First, we will further implement our city-level service integration strategy and expand in more cities to gain broader market coverage. Mobile phone recycling is a local service and needs to be close to consumers. Currently, the penetration rate is still at a very low level and has large growth potential. We believe that our refined strategy through synergizing service offerings locally and the performance review system across each city will benefit the growth of recycling penetration rate and business scale. Statistically, among all the 22 cities that implemented the city-level service integration strategy in the first quarter, 16 of them exceeded the average growth rate, while the majority of these 16 cities exceeded by 30%. The city-level service integration model also noticeably improved new customer acquisition. By the end of the first quarter of 2022, registered merchants on PJT Marketplace surpassed 300,000 representing an increase of 39% year-over-year.
spk05: The second point is to upgrade the door structure to meet the needs of more users. The online door is a model model of online and offline integration. It is also one of the core capabilities accumulated by Wanwu New Life Group for many years. As of the end of the first quarter, we have a total of 1,446 door stores in 214 cities across the country, including 598 door stores in Zhiyin. Jiameng Cooperative Store 825 plus Yanxuan Ningshuo Store 23. In addition to mobile products, in order to meet the needs of consumers for more products, we are upgrading each store. For Beijing and Shanghai, the first floor is a large number of standard stores, focusing on mobile 3C business, and is positioned as a mobile digital service station around the community. The second floor is a main store of 10 to 20 stores, In the center of the city, in the business circle, in addition to mobile phone 3C business, it will also provide more innovative services, such as luxury goods recovery, video equipment recovery, and so on. Through the separate door-to-door system of love recovery, we use our door-to-door service capabilities. Under the premise of no additional investment, it satisfies the needs of more users. Not only can it optimize the operating efficiency of the store, but also opens up the space for the expansion and extension of the brand of love recovery.
spk06: Second, we have implemented a tiered store system to satisfy differentiated demand for recycling. The offline store network of Ai Huishou is a good demonstration of online-merge offline and one of our core competencies. As of the end of March, we had 1,446 offline stores across 240 cities in China. Among these offline stores, 598 are self-operated stores, 825 are franchise stores, and 23 are retail selection stores. In order to adapt to rising consumer awareness of environmental protection and demands for cashback from categories other than cell phones, we are upgrading our tiered store system. Take stores in Beijing and Shanghai as an example. Firstly, we operate a large number of regular stores that efficiently recycle phones from neighboring communities. Then we add on or selectively transform from regular stores to a dozen iconic stores located in newly developed central business districts, offering multi-category recycling services such as pre-owned luxury goods and camera equipment. By implementing a tiered store system and expanding service offerings, we meet customers' evolving demand for recycling, improve store economic returns without too much extra budgeting, create further growth opportunities, and in return, elevate the brand equity of AHS Recycle.
spk05: The third point is to seize the opportunity to re-innovate and increase the value of the industrial chain. In April this year, the first electronic product re-innovation guide led by the Procuratorate was issued by the Shenzhen Procuratorate. The guide stipulates that enterprises can re-innovate using official accessories or third-party accessories. The big event of this industry has filled the gap of industrial rules, which has the following positive meanings for the development of the industry and enterprises. First, Wuxi Zeng will fully develop a large-scale harmonized transformation business. There is more space for industrial chain growth. Second, the members recovered from individual consumers will have more proportion to sell to consumers in the form of selected brands after harmonized transformation, to achieve the full industrial chain of the end-to-end.
spk06: Third, we will add more value to the industry chain as compliance guidelines for the electronics refurbishment market are further upgraded. In April 2022, the first guidelines for refurbishing pre-owned electronic devices in China was announced by the People's Procuratorate of Shenzhen. This marks a leap forward for the industry by establishing compliance guidelines that lead to healthier growth as industry participants are able to adopt either officially launched or certified third-party parts and components during wheelchair. Furthermore, we plan to roll out compliance refurbishment and repair services at scale, further expanding our margin along the value chain. We expect a larger proportion of directives to our schools to undergo compliance refurbishment. before retailing directly to consumers using the white label. We can further complete the closed loop from the supply side to the demand side. The guidelines are expected to lead us to a more prosperous future of the pre-owned electronics transaction and services industry while participants' inclusion.
spk05: Currently, the screen replacement services for the iPhone 12 series have been launched in Tai Chi Tang in April. The operating center in Dongguan is in the process of repair. The repair cost is about 150 yuan per meter. In April alone, more than 4,000 machines have been served. In addition to the official replacement service, we will also provide other services, such as changing batteries, molding the appearance, and improving the color. It is expected that in the first half of this year, it is expected to achieve a reasonable repair end service for 60,000 to 70,000 mobile phones.
spk06: As of now, we launched a screen replacement service for the iPhone 12 lineup in PJT Marketplace and carried out the maintenance service in Dongguan Compression Center since mid-April. The two-week trial program processed 4,000 phones, each bringing in a gross profit of roughly 150 RMB. Besides screen replacement, we also provided other services, including battery replacement, exterior restoration, and phone reconditioning. We anticipate conducting a complaint with condition of 42, sorry, excuse me. We anticipate conducting a complaint with condition of 60 to 70,000 smartphones in the first half of 2022.
spk05: Fourth point, speed up the implementation of real-time verification through automation. Our long-term investment in automation detection technology has been gradually effective. From function-oriented automatic detection to the visual detection of computer vision with slightly slanted appearance, X-ray perspective detection, and the detection of screen quality and precision, we, the leading industry, have realized the full process of automatic self-detection, and the efficiency has been effectively verified. Based on the experience of Changzhou automated operation, Dongguan Operating Center is hurrying up the upgrade and the comprehensive automated operation system will be launched in June this year. Finally, we will accelerate the automation process to improve efficiency and manage costs. We are delighted that our investment in the automated inspection system have been proven worthy.
spk06: We are a pioneer in realizing an automated streamline process from scratch and dense detection, AI exterior scanning, X-ray components inspection to screen verification. Building on our automated operation experience in Changzhou, our Dongzi Guan operation center is accelerating the initiation and testing of various automation modules. The comprehensive automation operating system will be put into use this June with an estimated automation processing improvement of 60% compared with Changzhou. We are a true believer in supply chain capability as the key. We also firmly believe efficiency wins, which is driven by technology and scale effects.
spk05: Finally, to sum up, during the 2020 pandemic, we made a decisive decision to successfully respond
spk06: To conclude my part, we responded swiftly and effectively to the COVID-19 outbreak in 2020. Even though Omicron infections surged today, we have more faith in navigating through the near-term challenges and are steadfast in our clear strategic roadmaps.
spk05: More importantly, we believe that the second-hand economy is a policy stable track with long-term value. In the long term, our development strategy is clear. Through a simple integrated strategy to improve market volatility and maintain a good growth of business fundamentals, extend business space through door-to-door split structure and high-value multi-prime recovery business, increase the profit in the industrial chain through a large-scale regulatory reversal business, by accelerating the application of automation technology to further enhance the efficiency of transportation. As long as we are steadfast in our direction and perform well, we will definitely seize the opportunity of the second-hand industry's historical development in the special period.
spk06: And more importantly, we firmly believe that circular economy in China is away from policy interruptions. And this business, when goes into a synchronizing trajectory, is a sustainable business. In the mid to long term, we are committed to the clear core strategies, namely increase market penetration rate and maintain healthy growth through city-level service integration, extend business scope through tiered store management and high-value recycling across categories, capture more value through compliant refurbishment at scale, and further improve operational efficiency by accelerating the application of automation technology. As long as we implement these strategies effectively,
spk05: we surely will be able to adopt the next wave of growth.
spk06: With that, I will hand the call over to our CFO Rex to go over the financials.
spk00: Thanks, Carrie, and hello, everyone. We are very pleased to report that our first quarter revenue exceeded our previous guidance despite the macroeconomic headwinds. I will start by sharing some of our financial highlights before we go into a more detailed look at the numbers. Please note that all amounts are in IMV and our comparisons are on a year-over-year basis and less otherwise stated. In the first quarter of 2022, despite the fact that it was an out-peak season, we delivered 45.7% revenue growth to achieve total revenues of over $2.2 billion, exceeding the high end of our previous guidance range provided in the fourth quarter earnings conference call. Total GMV grew by 51.6% to 9.4 billion, driven by strong growth in both product sales GMV and online marketplace GMV, which were 57.1% and 50% respectively. In this quarter, the commission rate of our third-party marketplaces was 4.1% at the group level, relatively stable compared to the result of the first quarter 2021. Gross margin at the growth level was 25.7% in the first quarter. Gross margin for our 1P business was 14.1%. In the first quarter, we meaningfully optimized the cost structure compared with the same period last year. This is seen in the gap fulfillment expenses, selling and marketing expenses, general and administrative expenses, as well as technology and content expenses. As such, we are delighted to report an operating margin of 0.2% in the NGAC measures. Now let's take a detailed look at the financials. In the first quarter, total revenues increased by 45.7% to 2,206.5 million. Net product revenues increased by 45.7% to 1,908.9 million, while net service revenues increased by 46% to 297.6 million. Growth in net product revenues were driven by continued increases in the density of our AHS stores, our reinforced trading collaboration with JD.com, and a greater consumer mindshare that benefited the growth of direct-to-consumer sales through PiPi marketplace. Grossing service revenues was primarily driven by growing transaction volumes and an increase in value-added services from our marketplaces, especially through inspection and delivery fees on PJT marketplace in the first quarter of 2022. Next, turning to our operating expenses to provide greater clarity on the trends in our actual operating-based expenses. We will also discuss our NGAP operating expenses which better reflect all the management views, all results of operations. The reconciliations of GAAP and non-GAAP results are available in our earnings release and the corresponding form 6K, furnished with the SEC. Operating costs and expenses increased by 44.7% to 2,352.5 million. Non-GAAP operating expenses, which exclude share-based compensation expenses and the amortization of intangible assets, resulting from business acquisitions increased by 43% to $2,213.9 million. Merchandise costs increased by 49.7% to $1,640 million. This is in line with the growth of our 1P product sales revenues. Fulfillment expenses increased by 32.8% to $296.2 million, excluding share-based compensation expenses which we will refer to as SBC from here on, MnGAP fulfillment expenses increased by 26.2% to $281.5 million. In the MnGAP measures, the increases were primarily due to, first, the increases in logistic expenses and operation center and self-operated store-related expenses, which were in line with the increasing sales of pre-owned consumer electronics and the addition of 155 self-operated AHS stores compared with the first quarter of 2021. And second, an increase in personnel cost in connection with the company's growing business. So the gap of fulfillment expenses as a percentage of total revenues was 12.8%, consistent with that of 2021, and it decreased 1.9% from that of the first quarter of 2021. Selling and marketing expenses increased by 38.3% to $307.8 million, excluding SBC expenses and amortization of intangible assets. Nangap selling and marketing expenses increased by 41.2% to $206.6 million. Under Nangap measures, the increase was primarily due to, first, an increase in sales promotion and coupon expenses in connection with business development. where we increased the investment into promoting PiPi by $45 million year-over-year. For context, we started off 1P2C business through PiPi in the first quarter of 2021 and enlarged our investments in the following quarters. And secondly, the growth of non-GAAP selling and marketing expenses was also due to an increase in personnel cost in connection with the company's growing business. The non-GAAP selling and marketing expenses is a percentage of total revenue was 9.4%, slightly lower than 9.7% in the first quarter of 2021. In light of our traditionally optic ceiling in the first quarter, we saved such expenditures in coupons on PiPi, sales promotions, and commissions to JD.com. General and administrative expenses increased by 53.1% to 45 million, excluding SBC expenses. non-GAAP GMA expenses decreased by 3.4% to 28.4 million. Similar to the fourth quarter of 2021, the decrease in non-GAAP GMA expenses showed an improved cost efficiency in our middle and back offices. Technology and content expenses increased by 14.4% to 63.5 million. Excluding SBC expenses and amortization of intangible assets, non-GAAP technology and content expenses increased by 6.5% to 57.4 million. And in the gap measures, the increase was primarily due to the increasing operation center and the automated inspection system upgrade related expenses in connection with the company's growing business and R&D expenses related to innovation projects. As a result, our gap operating income was 3.9 million in the first quarter of 2022, MnGAP operating margin was 0.2% compared with negative 2.2% in the same period last year. As of March 31, 2022, cash and cash equivalents, short-term investments, and funds receivable from third-party payment service providers totaled $2.4 billion. With stable and sufficient cash on hand, we are confident in sustainable business operations. As I recap, We announced our $100 million share repurchase program on December 28, 2021. Out of the management's strong confidence in the company's solid fundamentals and growing momentum, as of March 31, we have repurchased over 4.7 million ADS in the open market for a total cash consideration of $22 million. Now turning to Outlook, for the second quarter of 2022, The company currently expects its total revenues to be between $2,000 million to $2,050 million. The highly transmissible Omicron might impose adverse impacts on the operations of our stores and facilities, as well as the transaction activities of merchants in 2022. Thus, this forecast only reflects the company's 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.
spk04: Thank you. We'll now begin the question and answer session. When asking the questions, please state your question in Chinese first, then repeat your question in English for the convenience of everyone in the call. The first question comes from Lin Li of Goldman Sachs. Please go ahead.
spk08: Thank you, Mr. Kerry, Rex, and Jeremy. I would like to ask the management to share about March and April and the recent impact of the epidemic on the company's business conditions, especially the operation of the supply chain, whether the orders can be renewed, and some changes in the consumer demand level. Can you help us relatively disassemble some of the key assumptions behind the second quarter guidance? Thank you, management, for taking my question and congratulations on the solid 1Q result. Can management share with us the COVID impact on supply chain and consumer demand across business lines, especially in Shanghai, where the headquarter is located? And what are the key assumptions behind our second quarter guidance? So looking forward, what are our expectations on the second half of 2022? Thank you.
spk05: OK, let me answer this question. In the first quarter, the impact of the epidemic on business is mainly reflected in the recurrence of the epidemic, which has caused interference in the offline recovery of a few provincial and regional cities. For example, Xi'an, During the quarter, the impacts of the pandemic were limited to several provincial capital cities, including Xi'an, Tianjin, Changchun, and tier 1 cities such as Shanghai and Shenzhen.
spk06: with a stronger impact on offline recycling business. We consider this quarter's result as only a cross-sectional view of the pandemic's overall influence on our business.
spk05: From the recovery business of CDB, the regional blockade brought a short-term challenge to our business in March. To respond to the epidemic prevention policy, our headquarters employees began to work from home, and the stores in Shanghai were temporarily closed. Although more than 1,400 stores in Aihusou are scattered throughout the country, the maximum production of about 600 local stores is still mainly distributed in the first and second-tier cities that are economically developed, including 102 stores in Shanghai, 89 stores in Beijing, and 56 stores in Shenzhen. Currently, Shenzhen has returned to normal life, but Beijing and Shanghai's control measures are still in progress.
spk06: From the perspective of our C2B recycling business, starting in mid-March, regional lockdowns posed short-term challenges for our business in Shanghai. To comply with the zero COVID policy, our Shanghai-based employees started to work from home and all offline stores in Shanghai were temporarily closed. Although our 1,400 AHS stores are located throughout the country. The most productive ones are in the 600 self-operated stores, mainly located in the first and second tier cities, where users have stronger recycling awareness and the unit price is high, but they are negatively affected by the lockdown. We have 102 stores in Shanghai, 89 in Beijing, and 56 in Shenzhen, respectively. At present, Shenzhen has returned to normal, but the control measures in Beijing and Shanghai are still continuing. That is to say, in the second quarter, we estimate that the operation of one-third of self-operative stores has been affected to varying degrees.
spk05: From the B2B platform business perspective, the increase in epidemic control in various regions hinders the effectiveness of B2B's commercial delivery and in-store and in-store logistics delivery, as well as the distribution and dispersion of our operating centers and small cities. For our B2B platform business,
spk06: Strict pandemic control policies disrupted our interactions with merchants. Although our operating centers and city-level operation stations are geographically dispersed and can support one another during lockdowns, which reduced some pressure on fulfillment, we still faced significant difficulties in terms of operations and expanding local merchant coverage. In addition, soft consumer demand for new phones also affected the volume of supply of pre-owned devices sourced by merchants. especially for the number of cell phone orders shipped out during the first quarter.
spk05: From B2C's retail business point of view, the decline in consumer demand and temporary logistics hindrances have also caused some pressure. But we are optimistic about the demand of consumers for high-performance products in the consumer down-to-earth environment, as well as the large-scale harmonization of the supply chain through the long-term supply chain to increase our demand for high-performance products
spk06: For the B2C retail business, although we faced headwinds including the decline in consumer spending and recent logistics interruptions, we are optimistic about consumers' need for good value products, a particular virtual in shopper's eyes during a recession. We also feel confident that in the mid to long term, Compliant refurbishment at scale can increase the proportion of goods recycled from our service offerings that are suitable for direct-to-see retail. This helps to include more dots to the industrial chain and realize the optimization of product quality as well as profit from value-added services.
spk05: We have also seen hopeful signs of a recovery. According to the Shanghai officials, starting June 1,
spk06: Pandemic controls will be downgraded to a regular level, and a gradual recovery of work and life is expected. Although we are still facing challenges in the near term, we are very confident in our business model, the resilience and flexibility of our supply chain, and additional margin improvement from compliant refurbishment.
spk05: Thank you.
spk04: Thank you. The next question comes from Joyce Ju of Bank of America. Please go ahead.
spk02: Hello, everyone. Thank you very much for giving me this opportunity to ask a question. My question is about the city model we mentioned before. I would like to ask how the city model is doing in the first quarter of this year. And then we also saw that the overall pressure of the epidemic and consumer market is already possible. More investors and the industry are more concerned, so I want to understand that the management is facing this kind of situation now. If the external situation, our response strategy is in the second or third quarter, even in the second half of the year. I will translate by myself. I would like to ask how the progress in the first quarter of our city level service integration as it was the strategic focus of the company mentioned for this year. But we are facing a new macro situation, which is seeing challenging economy and also the risk of pandemic new waves. So we would like to know, like, if the management are going to, like, you know, have any change or, like, you know, adjustment in terms of those service integration strategies or the launch of, like, new soft runs. nationwide. Thanks a lot.
spk05: Okay. Thank you. Thank you for the question. We will be more prudent in taking action. Considering that the challenges of the lockdown have not been resolved, there may be continued impact. This year, we will pay more attention to controlling costs, increasing efficiency, and optimizing the cash flow. What needs to be reborn is that we will insist on the goal of increasing profits throughout the year. We will be even more meticulous when assessing market conditions.
spk06: Considering lockdown restrictions are still in place in some parts of China, the impacts created by the pandemic are ongoing. Therefore, we will increase our focus on cost management, efficiency improvement, and healthy cash flow this year. And our goal to achieve a positive non-GAAP operating income for this year remains unchanged.
spk05: In terms of the expansion rhythm, our year-round goal of expanding our door stores is to open 200 to 300 door stores every year, but we will adopt a more efficient door store expansion strategy. In terms of store network expansion, we are targeting the same number, opening 200 to 300 new stores for this year, with a more disciplined approach while prioritizing the opening of jointly operated stores.
spk06: This enables us to extend our branded recycling network nationwide, sharing profits while handling risks together with local partners.
spk05: At the same time, at the third-party three-party and retail end, we continue to use the strategy of urban integration to get customers down to the bottom, and increase the recovery rate and service market penetration through the same-layer business. In the first quarter of this year, in addition to the 16 cities we mentioned, the growth has won the national market. Fuzhou, Hefei, Kunming, Shijiazhuang, and other cities with more than 10 million levels. C2B plus B2B business has not only achieved rapid growth in history, but also achieved higher double-digit growth. Shijiazhuang has achieved 120% and 200% of the same growth on the scale of C2B and B2B transactions respectively. This is what we have achieved
spk06: On the third-party merchants and retail end, we continue to acquire new local customers through city-level service integration, enhancing the penetration rate of the second-hand market through the rollout of intra-city business. Among the 16 cities where growth exceeded the nationwide average, We achieved high double-digit year-over-year growth of our C2B plus B2B business in Huzhou, Hefei, Kunming, and Shijiazhuang. Growth momentum was especially strong in Shijiazhuang, where we achieved about 120 year-over-year growth in GMV for C2B business and almost 200% year-over-year growth in GMV for B2B business. These are our benchmarks for implementing the city-level service integration model in terms of sourcing supply and penetrating local markets.
spk05: The pandemic is an unavoidable problem. In April, the pandemic caused the country's multi-area prevention and control policies to be disrupted. We have a short-term slowdown in the growth of the four-point cities that are integrated into the city. But the GMV and single-duty products of these cities are more resilient than the domestic market.
spk06: The pandemic remains a challenge for us. In April, the recurrence led to stricter controls in many regions across China. We faced interruptions in both connecting with merchants and providing platform services on the retail front. Growth temporarily slowed down in those pilot cities. But we saw GMV and other volumes in those cities demonstrated higher resilience compared with the national average.
spk05: In terms of sales costs, we will further control the expenditure, do long-term brand construction, especially the consumer's new construction of recycling brands, provide consumers with high-quality products and timely experience, instead of investing too much in short-term cancellation.
spk06: We pay more attention to our own operating efficiency. For sales and marketing expenses, we will further optimize our costs. Instead of spending on short-term promotions, we will pivot to the longer term by further investing in building the brand equity of AHS Recycle and with acquiring greater consumer mindshare by providing timely and quality services to our customers. In addition, we did well in controlling our back-office fees, in particular general and administration expenses. We have kept these at a low level for four consecutive quarters by implementing a compact but organized structure for our mid- and back-offices.
spk05: Reducing the economy and slowing down consumption is a national trend. All industries are facing challenges. In the long run, what we see is a huge transaction and service market that has not yet been satisfied. We have already talked about it before. We will mainly use the core strategy to adhere to the strategy of urban integration to further improve the market volatility of the recovery market. Through the multi-storey strategy to promote the differentiation of existing store service capabilities, continue to invest in automation, Micro-high winds and consumption slowdown are challenging issues to almost every industry.
spk06: In the long run, what we see is a huge and underserved second-hand electronics transaction and service market. As we mentioned earlier, We believe in our core strategies of expanding the city-level service integration model to increase the penetration rate, using a tiered store strategy to offer differentiated services, continuing to improve cost efficiency by investing in automated quality inspection technology, and seizing the chance to profit from the open policy window in the electronics refurbishment market.
spk05: Okay, thank you.
spk06: Thank you.
spk05: Thank you.
spk04: Again, if you have a question, please press star, then 1. The next question comes from Jin Yu of Gautier Yuan International. Please go ahead.
spk01: Hello, everyone. I'm Jin from Gautier Yuan International. In the previous sharing, the management mentioned the new recycling policy of the industry. Are there any specific plans to share with us?
spk00: Okay, thank you, Jane. So I will take this question. In April, CINCEN issued the first guidelines for electronic product refurbishment, which for the first time clarified the boundary of engaging in compliant refurbishments, including the source of goods must be legal. The purpose of repair is to restore the function and appearance. Official accelerators or third-party accelerators with quality assurance can be used, such as batteries and screens of third-party brands. Personal data must be strictly cleared when recycling products should be clearly marked as pre-owned or refurbished to avoid confusion. Quality warranty should be included. Traditionally, the repair and refurbishment industry had many holdbacks. The refurbishment was mishandled by merchants as there were no relevant regulations. Merchants were worried about potential risks and operated on a small scale. Meanwhile, mobile phone brand manufacturers control the supply of repairing components. Since they do not recognize the use of third-party components, the supply of high-quality goods suitable for to-see sales in the market is insufficient. As a leading platform, it has always carried out operations cautiously to avoid selling risky products. And since it had little participation in refurbishment, It has always lacked a segment of the industry chain profit. We believe the guidelines for refurbishment can benefit the industry and the company. More merchants can conduct repair and refurbishment with confidence, which will help expand the benefit scale of recycling and sales. We also aim to seize such an opportunity and here is our plan. We are here to combine the repair and refurbishment on a large scale and increase the profits reasonably. Previously, our self-recycling products and third-party supplies were not repaired or refurbished. Hence, we only earned gross profits and service fees from testing and reselling. Our value chain lacked maintenance and value-added analytics. Recently, we conducted a pilot project which verified that by changing the screen and the battery, the gross profits per unit can be increased by 15%, excluding the cost of the component on average A phone with a B2B selling price of 1,600 RMB after compliant refurbishment can be sold on the B2C platform at around 2,100 RMB. After deducting the component cost, the gross profit per unit increased by 300 RMB, about 15%. After deducting the labor cost and the platform fees, the net profit margin per unit is about 6%. By further carrying out compliant refurbishment in operation centers, we are confident to obtain high gross profit and service fees brought by such added value to the industry. With standardized refurbishment, we aim to increase the proportion of our recycled products that are suitable for 2C retail. Doing so can help us to achieve a closed-loop circular economy model and maximize the value of reused products. In the past, As product source form users had various defects and cracks, or 20% of them were suitable for direct-to-seed retail, if not the password then. We believe that in the future, combined with refurbishments at scale, we can further increase the proportion of sourcing products that are suitable for direct-to-seed retail, so as to improve the gross profit of product sales. We have just began to engage in refurbishment and there's a lot of room for growth. We shall gradually explore, such as selecting some types of products to sell overseas after compliance to the establishment. Thank you.
spk04: Thank you. The next question is from Bonnie Lu of China Renaissance. Please go ahead.
spk07: Good evening, I'm Bonnie from Huaxing Capital. First of all, thank you for accepting my question. My question is about the exchange period of users. Recently, we have seen some third-party reports showing that the sales of new machines are declining, so the overall exchange period of users has also become longer. So we want to ask this question to our company. Thank you very much. Thank you, management, for taking my question. The thought of going to a longer term, and if so, how are you planning to reduce the impact? Thank you.
spk05: Okay. Thank you for the question. Let me answer it. In the first quarter, especially since March, we see that OEMs are facing greater downward pressure on new phone shipment.
spk06: and the replacement cycle is also extending from about a year to more than 20 months now. But we do have several advantages against downside risks.
spk05: First, there is still a lot of space in the second-hand market. Currently, there is a lot of room for improvement as the market penetration rate is relatively low. In addition, at the stage of economic slowdown, users' demand for recovery variables has increased. We think there is a chance of improvement in the conversion rate.
spk06: The total addressable market of the second-hand consumer electronics is huge, and now we only have obtained some of it. Thus, we are posed to further expand our penetration rate. Besides, we believe that consumers' demand for instant cashback increases as economic growth becomes fetish, and there are opportunities for converting more recycling orders.
spk05: Second, our main service brand is still growing. The main model of our recovery is Apple's mobile phone. In 2021, Apple's model accounted for 45% of our total recovery transaction volume. Compared to other brands, Apple has maintained a higher number of new products. Therefore, our recovery platform is relatively stable. This year, the main source of new products is the domestic brand. In this situation, we also joined forces with Jindong to provide the brand manufacturers with a better way to sell their products.
spk06: Secondly, the key brand we serve is still growing. The main model we recycle is Apple, which accounted for 45% of the total C2B plus B2B recycling transaction volume in 2021. Compared with other brands, Apple has maintained a higher growth rate of new device shipments, so our recycling fundamental is relatively stable. This year, the pressure on new phone shipments is mainly from domestic brands. In this case, we work closely with JD.com to provide grants with trading solutions as a better promotion measure.
spk05: Thirdly, we try to organize multi-product recovery in order to meet the need for recovery transformation other than mobile phones. For example, the recovery of luxury goods, video equipment, and other high-quality products. We believe that the recovery of multi-products is important to the ability of the brand to trust, deal with the scene, and identify and identify. The long-term collection of second-hand recycling brands is appealing. We believe that multi-brand recycling is the extension of second-hand recycling brands and services. Second-hand recycling stores across the country are a good foundation for contract delivery and delivery. By using our existing stores, we can do multi-brand recycling and not add too much investment. We can achieve the ability to identify and identify self-improvement through self-improvement or cooperation. Thirdly, we are also trying to deploy multi-category recycling beyond mobile phones, such as luxury goods, camera equipment, and other high-value products.
spk06: to meet customers' varied demand for recycling. We believe that to carry out multi-category recycling, the most important things are brand trust, deliver scenarios, and quality inspection capabilities. AHS Recycle has a long-term accumulation of brand recognition, and we believe that multi-category is an extension of our recycling brand and services. Our national stores have set a good basis for fulfillment, and we do not have to budget for extra investment to handle the non-3C categories. In terms of quality inspection, we aim to achieve it through self-build or collaboration with specialty retailers. As such, we trust online quotation plus offline fulfillment make the best combination of recycling services. Although new phone shipment flattened, we remain prudently optimistic about our business outlook.
spk04: Thank you. As there are no further questions at this time, I'd like to hand the conference back over to our management team for closing remarks.
spk03: Thank you. Thank you all again for joining us. A replay of today's call will be available on our IR website shortly. If you have any additional questions, please feel free to email us at ir.atmnew.com. Thank you.
spk04: This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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