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spk07: Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to ATRenew Inc. Second Quarter 2022 Earnings Conference Call. At this time, all participants are in the listen-only mode. We will be hosting a question and answer session after management's prepared remarks. Please note today's event is being recorded. I would now like to turn the call over to our first speaker today, Mr. Jeremy Gee, Director of Corporate Development and Investor Relations of the company, Please go ahead, sir.
spk05: Thank you. Hello, everyone, and welcome to ATR News second quarter 2022 earnings conference call. Speaking first today is Kerry Chen, our founder, chairman, and CEO. And he will be followed by Rex Chen, our CFO. After that, we'll open the call to questions from analysts. Our second quarter 2022 financial results were released earlier today. The earnings release and investor slides accompanying this call are available at our IR website at ir.atunew.com. There will also be a transcript following this call for your convenience. For today's agenda, Kerry will share his thoughts of the quarterly performance and business strategy, followed by Rex, who will address the financial highlights. Both Kerry and Rex will join the Q&A session. Let me cover a safe harbor statement 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 management makes on this call are based on assumptions as of today, and that AT 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 as 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.
spk06: Hello, investors and analysts. Hello everyone, and thank you for joining us on our second quarter 2022 earnings conference call. 今年二季度是自从2020年初的新冠肺炎出现以来,外部环境作为复杂,公司运营层面最具挑战的一个季度。 First of all, looking at the business development of the front-end cities, the core cities of our EP recovery business have been severely affected by Q2. Many large cities such as Shanghai and Beijing, especially Shanghai, have been under social control for more than two months in a row. We are forced to close the stores in many regions or carry out strict prevention measures. It is difficult for us to carry out the recovery of the users face-to-face. We also encountered During the second quarter, we faced unprecedented challenges to our operations in the most complex external environment
spk02: since the pandemic first occurred at the beginning of 2020. First of all, let's take a look at our business segments at the city level. The core 1P resecting business locations, including Shanghai and Beijing, were adversely impacted by the pandemic, especially in Shanghai as the city undertook COVID control measures for two consecutive months. Our physical stores had to suspend the operation or implement strict COVID prevention measures, which put consumers off. The control measures also resulted in interruptions in door-to-door recycling and logistics. Our merchant users also had operational difficulties caused by the pandemic and the relatively weak consumer confidence in electronic products.
spk06: Our employees at the Shanghai headquarter started to work from home from March 15th
spk02: to June the 1st. During this period, we proactively fulfilled our social responsibilities by ensuring our employees were supplied with daily necessities and were able to work flexibly. We also took care of the mental health of our employees. As people's daily lives in Shanghai returned to normal in June and the June 18th grant promotion kicked off, our 1P business got on a fast track of recovery. By successfully overcoming the multiple adversities we faced during the second quarter, we have demonstrated the overall resilience of the circular economy. As a result, our total net revenues increased by 14.9% year-on-year to $2.15 billion in the second quarter of 2022, exceeding the high end of our revenue guidance. The quarter-over-quarter decline in revenue was mainly attributable to the impact of the pandemic.
spk06: Under the epidemic prevention policy of Shanghai and Beijing, one-third of the second-hand recovery stores in the country are in an abnormal state. The EP increase in the second quarter has also reached a low point. From the recovery point of view, since the lockdown on June 1st in Shanghai, our EP recovery business has quickly recovered to the level of last year. Taking the 10 days after the lockdown as an example, from June 1st to 10th, the GDP growth of Shanghai's C2B recovery business has exceeded 11%. Now let's take a more detailed look at our 1P recycling business. In April and May, the COVID control measures in Shanghai and Beijing resulted in a temporary suspension of one-third of our self-operated AHS stores,
spk02: dragging the growth of our 1P business to a low point. However, on recycling, our 1P business rapidly recovered to the same level as last year at the beginning of June. During the first 10 days in June, GME for pre-owned devices recycled by AHI's Recycle in Shanghai increased by 11% compared to the same period of 2021. On distribution, we continue to lean into the retailing of our self-sourced premium products on PiPi Marketplace, where the GMV for the 1P2C segment increased by 32.3% year-over-year, despite a challenging environment in the second quarter.
spk06: In terms of platform business, the second quarter, the pandemic prevention and control brought a lot of hindrances to the development of platform business, including the development of their own recovery business on the platform. Businesses sent goods to the operating center, the operating center collected goods and disposed of them, and logistics transportation faced severe challenges. In the second quarter, we maintained the satisfaction of the merchants, with targeted support for the merchants to expand their business and optimize the acquisition of logistics fees from Pagetang sellers. We adjusted the rules and optimized the storage at 4 o'clock. At the same time, we achieved a small increase in the comprehensive fee rate of the platform, reaching 4.54% and 9 points of growth at the same time, and 39 points of improvement at the same time. At the end of the second quarter, In terms of our platform business,
spk02: Multiple aspects of the business, including recycling activities of our merchant users, shipment to our operation facilities, pickup and ship out activities of goods at our operation centers, safety inspection, and logistics faced challenges brought about by the COVID resurgence. In the second quarter, we managed to achieve an increase in the overall take rate through a continued effort in keeping our merchant users happy and providing differentiated transaction support. we adjusted the rules for charging logistics fees from PJT market users and optimized our platform regulations and inventory management for Pi Pi Marketplace. As a result, the overall take rate of our marketplaces grew slightly to 4.54% in the second quarter, representing an increase of nine basis points year over year and 39 basis points sequentially. By the end of the second quarter, the number of registered merchants exceeded $330,000, representing a year-over-year growth rate of 41%. We believe our merchant users will eventually navigate the short-term challenges provided by COVID and that they have the long-term potential for scale expansion, which will in turn enable us to grow our monetization capabilities.
spk06: In terms of cost, the Group has quickly met the challenges in the second quarter and controlled the costs of various operations. On the one hand, For some core ability construction, such as our self-sustaining multi-screen recovery, and the automation of the back-end point-of-signature, we are still firmly investing. But on the other hand, we will continue to reduce the total operating cost and improve the operating efficiency. Due to the serious impact of the epidemic, there was a small financial loss in the second quarter, but compared to the same period last year, it has improved. From last year's negative 2.7% to this year's negative 2.0%. From last year's negative 3.2% to this year's negative 0.6%. At the same time, we have enhanced capital management. At the end of the second quarter, our comprehensive cash reserve reached 25.9 billion yuan. After using 3,150 million US dollars in stock repurchase, the cash reserve still increased by RMB1.7 billion by the end of 2021. Among them, RMB2.8 billion was invested in the second quarter of the business activity cash flow, and the business cash flow was positive for two consecutive quarters. The improvement of profitability and business cash flow allows us to have the ability to maintain sustainable development in a changing market environment and consolidate our competitive advantage.
spk02: Turning to our expenses, we reacted swiftly to the quarter's challenges and managed our operating expenses prudently. However, I would like to clarify that we continue our investments in core capabilities, including 1P multi-category recycling and automated inspection technology. In the second quarter, we had some losses due to the pandemic. However, our non-GAAP operating margin has narrowed to negative 2% from negative 2.7% in the same period last year, and our net margin has narrowed to negative 0.6% from negative 3.2% in the same period last year. We also improved our capital management. As of the end of the second quarter, our total cash reserve was 2.59 billion RMB, an increase of 170 million compared to the end of 2021, even when we spent $31.5 million to buy back our shares in the first half of 2022. Of note, cash inflow from operating activities was approximately $280 million, representing a second consecutive quarter with positive operating cash flow. The improvement in monetization capabilities and operating cash flow will safeguard our sustainable development while solidifying our competitive advantages in an evolving market condition.
spk06: Although the external environment of the second quarter has many challenges, but from a big trend point of view, the market scale of the second-hand 3C is still expanding. The policy of the circular economy is expected to stabilize. The consumer's second-hand recovery and purchase needs are still improving. From the previous press conference, we can all see that Mr. Wang's strategic path is clear and continuous, with strong strategic stability. In the second half of the year,
spk02: Although the macro challenges continue, as the scale of the pre-owned consumer electronics market continues to expand against the backdrop of a stable circular economy policy outlook, consumer demand for recycling services and consumer electronic product purchases will continue to increase. As you can tell from our previous earnings conference calls, AT Renew keeps a clear and consistent strategic roadmap. We believe it's quite stable. In the second half of this year, we are committed to investing in the following pivotal areas. First, we will continue implementing our city-level service integration strategy, solidifying our business foundations and increase the penetration rate.
spk06: In the second quarter, we further upgraded the organization structure of the city, dividing the national market into four areas in the east, south, central, and north. The original part of the four-point city and the lower city around the city formed 43 key cities and city groups, and implemented the regional management system. From the employees of C2B and B2B two business lines, select the city group managers who perform well and achieve the comprehensive This quarter, we further upgraded our front-end organizational structure, dividing the domestic market into four, northern, southern, eastern, and central markets.
spk02: Furthermore, we connected some of the pilot cities with the surrounding lower-tier cities, strategically forming 43 city clusters. We also launched our regional manager system, promoting outstanding employees from both C2B and B2B business lines, thus realizing a leap forward in talent management capacity. We bound the title and reward of regional managers with the business performance, GMV revenue, and growth rate of each cluster. We also improved our talent selection process, as well as our training and re-enumeration system.
spk06: After the second quarter of data recovery, 33 GMVs from our 43 key cities and cities won the national grand prize. The penetration rate of 23 cities exceeded that of the grand prize. This data has further strengthened our confidence in the city integration and core strategy.
spk02: Looking back at the consolidated GMV for C2V and B2V offerings in the second quarter of 2022, 33 out of the 43 city clusters grew faster on a year-on-year basis compared with the national average, and 23 city clusters successfully outpaced the national average expansion speed of the recycling penetration rate compared with the first quarter of 2022. These results strengthen our confidence in advancing and executing our city-level service integration strategy. 第二点,升级爱回收的品牌加快建设多品类回收的能力。 Second, we will upgrade the AHS Recycle brand and accelerate our pace of category expansion in terms of recycling. 爱回收是一个优质的在回收领域稀缺的品牌,具有很强的服务延展性。
spk06: Many users often ask our second-hand repair shop if we are able to repair home furniture, home appliances, and other products. In the second quarter and the recent period, we have selected more than 30 main stores in Shanghai, Beijing, and other places. Most stores are located in the shopping malls in the city center. After a simple repair shop and power training, in addition to the original mobile phone 3C repair business, there are also second-hand furniture, photography equipment, gold and other high-quality products, providing the best recycling experience for users. For example, consumers can make an appointment online or directly to the store. The clerk will take a picture of the product in detail, and the back stage will take a close-up of the price based on the photo. The product will be sent to the back-end inspection center on the same floor to identify the real product. If it is a real product, it will be fined immediately, and the price will be negotiated with the user. If it is a fake product, the original product will be returned. In early June, after the resumption of the store in Shanghai, the second-hand jewelry business quickly spread to more than 20 stores in Shanghai. The growth of the jewelry recycling business began to increase. The recovery rate from June to August maintained a monthly growth of 50% per month. In addition, in the first half of the year, we had six stores in Beijing and Tianjin four points. Through the recovery business of stacking photography and photography equipment, we joined together with excellent partners in the industry.
spk02: AHS Recycle is a high-quality brand that is scarce in the recycling industry. The brand is quite capable of expanding its service scope. Many users often ask whether they can recycle luxury goods or home appliances, etc. at our AHS stores. In the second and the third quarter, we selected over 30 stores in Shanghai and Beijing as pilot stores. most of which are located in the sub-centers of the cities. We upgrade the store's branding and train the store staff. Then these stores offer even premium recycling services and open up for high-value products such as luxury goods, photographic equipment, and gold. Taking luxury goods as an example, Consumers can now make appointments online for an in-store consultation where our staff will take pictures of the product conditions for merchant bidding at the back end. If the consumer is satisfied with the final bid price, which will be our recycling price, the product will be sent to a quality inspection center through intra-city instant delivery for authenticity and quality evaluation. Once the product is verified authentic, the consumer will get a great amount of cash back instantly. If it's counterfeit, we will return it to the consumer. When shopping malls in Shanghai reopened in June, the number of luxury goods pilot cities' stores jumped to over 20, and the recycling orders increased rapidly. From June to August, the total monthly recycling value of luxury goods in Shanghai continued to grow at 50% sequentially. In addition, six of our pilot stores in Beijing and Tianjin collaborated with industry-leading partners to launch a photographic equipment recycling business, increasing the monthly transaction value by 300,000 RMB per store.
spk06: After careful trial and error, we are more confident in iWeasel's multi-task recycling business. On the one hand, many users, especially in the period of economic growth, slowdown, and reduced household consumption, There is a need for more recovery and transformation. On the other hand, the brand of love recovery is not limited to our only mobile phone. Therefore, it has a natural range of products. Our stores all over the country are also a good service base and delivery scene. Through more product recovery business, not only can we open up business space, but also strengthen the purchase and circulation of users, and improve the brand value of love recovery. Now we are even confident in category expansion after testing the water. On one hand, we see the underserved need for categories other than electronics during a period of flattening economy growth
spk02: and when consumers become potent buyers. On the other hand, AHS Recycle, the brand name, is a valuable asset while not limiting the product category to mobile phones, and our nationwide AHS stores are premium consumer touchpoints. Through recycling more categories, we broaden our business horizon and improve both user retention and repurchases, further elevating the brand value of AHS Recycle. we understand that there are many retail channels while good brands are scarce. Relying on our solid capabilities, we are confident in building AHS Recycle into the most popular brand.
spk06: Third, as compliant refurbishment capacity ramps up,
spk02: We expect further widening of the profit margin of the value chain.
spk06: With the accumulation of maintenance capacity and the increase in the ability to grasp the EP members suitable for maintenance, we expect to have a larger repair capacity in the next half of the year, such as refurbishment capacity, and lock up the profit space on a more complete industrial chain. We estimate that the three-week contract refurbishment business can be realized. In April, the People's Procuratorate of Shenzhen published a criminal compliance guidance for intellectual property rights in the electronics refurbishment industry.
spk02: Under the compliant refurbishment guidelines, we provide more high-quality products to consumers through our value-added refurbishment services, further improving our margins. During the first half of 2022, we have performed value-added refurbishment services on around 70,000 devices. As we expand our capabilities and one-piece sources of supply that are suitable for refurbishment, We expect to have a more exciting ramp-up in capacity starting in the second half of this year. We expect 75,000 orders, which will generate a GMV of 130 million RMB in the third quarter, each increasing by over 80% compared with the second quarter. We expect a 15% growth margin, the same as we anticipated during the previous earnings call. Overall, the operating margin of the refurbishment business is expected to be around 4% to 5%.
spk06: Fourth, we will continuously deploy automation to prepare our operational capacity for post-pandemic recycling volume and consumption recovery. Because of the negative impact of the epidemic, the automation upgrade work of our Dongguan operating center has been delayed. But at the end of June, the Dongguan operating center has completed the construction of the delivery line. At the end of July, the automated delivery line and the warehouse have been completed. The automated efficiency of the relevant processes has increased by 50% compared to the time of upgrade. We expect to launch the Matrix 2.0 system in September and fully realize Dongguan operating center's automated upgrade.
spk02: Due to the COVID resurgence, the automation upgrade of our Dongguan operation center got delayed. By the end of June, our Dongguan operation center completed the construction of its conveyor system, which was later connected to the storage system in late July, realizing a 50% efficiency improvement. As an update, we now expect to land the Matrix 2.0 system by the end of the third quarter. thus completing our second automated operation center in China.
spk06: In the second half of the year, we will work hard to speed up the recovery of performance, especially the increase in self-sufficiency recovery and self-sufficiency sales. Our self-sufficiency business, our self-sufficiency business will continue to be profitable, even under the influence of the epidemic and the economic downturn, it still maintains a good growth. In the future uncertain environment, focusing on the development of self-sufficiency business will be our strategic focus. Overall, we learned to stay nimble and positive from the transit rate challenges. We keep being operationally vigilant and keep advancing our core capabilities. We aim at more robust and risk-resistant unit economy
spk02: in the long run, along with the developing circular economy. We are committed to getting ourselves well-prepared. Looking at the second half of the year, we will strive to accelerate the recovery of our business, in particular the growth rates of self-operated recycling and direct retail. Our 1P business maintains profitability and healthy growth in face of the unfavorable pandemic and downward consumption trend. Amid uncertainties in the future quarters, We will focus on the solid development of our 1P self-operated business. The iPhone 14 lineup will be launched at an earlier date in September. We will prepare ourselves well for a recovering business from frontline recycling and trading to quality inspection and processing, as well as back-off operation. 最后我想说的是,今年夏天全球各地从北美到欧洲再到亚洲都炎热异常,
spk06: Shanghai has exceeded the red high temperature warning of 40 degrees Celsius many times. The country's multiple lands have broken the highest temperature in history. The drought is serious all over the world, and the rivers and lakes are dry. The environmental problem of global warming has become more and more serious, and it is breaking the media. In June this year, Mr. Wang Wenxin published a 2021 ESG report. For the first time, through the evaluation method of life cycle and the analysis of carbon dioxide, Because of the cycle of use, the average supply of carbon-reducing plates for each second-hand mobile phone is 30.4 kg. The total supply of carbon-reducing plates of the company in 2021 is 460,000 tons, equivalent to the carbon-reducing effect of 2.3 million mu of urban forest per year. 2.3 million mu of forest, 460,000 tons of carbon-reducing plates, such a number is more exciting than hundreds of billions of GMV, nearly hundreds of billions of income. The last but not least, this summer has been a scorcher across the globe, especially in North America, Europe, and Asia.
spk02: Shanghai has repeatedly declared red alerts on extreme heat of over 40 degrees Celsius, and many parts of China have also seen record high temperatures. Global warming and drought are increasingly severe and pressing. In June this year, AT Renew published its 2021 Environmental, Social, and Governance Report. In this annual ESG report, AT Renew adopted a lifecycle analysis of pre-owned mobile phones and leveraged a circular footprint formula for the first time to disclose its contribution of 464,000 metric tons of greenhouse gas emission reductions through the reuse of pre-owned mobile phones in 2021. This is equivalent to the annual carbon sink of 2.3 million mu of city forests. On average, recycling and reusing a smartphone contributes 30.4 kilograms of GHG emission reduction. Our environmental performance is even more exciting compared with the economic value we created. Even if the business fluctuates and our stocks are undervalued in the short term, we will remain steadfast. Because we know that we are doing the right thing and doing something that contributes to the environment, our value accumulates over time. With that, I will hand the call over to Rex, our CFO, to go over the financials.
spk03: Thanks, Carrie, and hello, everyone. We are pleased to report that our second quarter revenue exceeded our previous guidance despite the macroeconomic headwinds and the dynamic operating environment caused by the COVID recurrences. 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 RMB and our comparisons are on a year-over-year basis unless otherwise stated. In the second quarter of 2022, our core teams in Shanghai headquarter and Beijing navigated a challenging operating environment mainly caused by COVID resurgence, but they managed to surpass our top-line guidance provided last quarter. So the net revenues increased by 14.9% year-on-year to over RMB 2.1 billion, we would like to extend a heartfelt thank you to our dedicated employees who stayed strong and quickly adapted to such dynamics. In terms of total GMV, it grew by 10.3% to RMB 8.6 billion, driven by the growth in both product sales GMV and online marketplace GMV, which were 15.8% and 8.5% respectively. Starting in June, as shopping malls in Shanghai opened and the logistics capacity normalized, we saw a recovery in GMV and a sourcing rebound during the June 18th shopping festival, primarily supported by our loyal customers. In this quarter, the commission rate of our third-party marketplaces was 4.54% at the group level, remained stable compared with the same period last year, while it reasonably increased by 39 base points sequentially. This increase in the overall marketplace take rate was primarily due to an optimized operational strategy of charging logistics fees from merchants' users based on the established trust and the user's thickness. Gross margin at the group level was 22.9% in the second quarter. Gross margin for our 1P business was 10.8%. In the second quarter, in response to regional operation interruption, in particular in Shanghai, the national hub for our profitable 1P business We implemented strict cost-control measures. These helped us narrow our losses under both gap and non-gap measures compared with the same period last year. I will elaborate on this later. Now let's take a detailed look at the financials. In the second quarter, total revenues increased by 14.9% to RMB 2,145.7 billion. Net product revenues increased by 15.6% to RMB 1,000. $854.1 million, while net service revenues increased by 10.3% to RMB 291.6 million. Growth in net product revenues was primarily driven by an increase in the sourcing volume and the corresponding sales of pre-owned consumer electronics through PiPi marketplace and the company's overseas channels. Growth in service revenues was primarily driven by the increase in transaction volume and the monetization capability of Paijita marketplace. Besides the adverse impacts from COVID control measures in Shanghai and Shenzhen, I also want to bring to your attention that we have procured parts and components in the second quarter of 2022 as we started rolling out our compliant refurbishment business. This innovative business led to higher days sales of inventory and we expect this business to optimize our profit profile in the future. Next, turning to our operating expenses, to provide greater clarity on the trends in our actual operating basic expenses, we will also discuss our NGAP operating expenses, which better reflect how the management views our results of operations. So the considerations of NGAP and NGAP results are available in our earning releases and the corresponding form 6K, finished with SEC. Operating costs and expenses decreased by 2.2% to RMB 2,327.4 million. Then gap operating expenses which exclude share-based compensation expenses and amortization of intangible assets resulting from business acquisitions increased by 14.5% to RMB 2,201.5 million. Merchandise costs increased by 18.5% to RMB 1,600. $53.8 million. This was in line with the growth of the WMP product sales revenues. Fulfillment expenses decreased by 0.1% to RMB $275.2 million, excluding share-based compensation expenses, which we will refer to as SBC from PR. And then gap fulfillment expenses increased by 14.9% to RMB $267.7 million. Under NGAP measures, the increases were primarily due to, first, the increases in operation center and self-operated store-related expenses, which were in line with the increase in sales of pre-owned consumer electronics and the addition of 103 self-operated AHS stores, compared with the second quarter, 2021. And second, an increase in personnel cost in connection with the company's growing business. The NGAP fulfillment expenses is a percentage of total revenue remained flat at 12.5% compared with the same period last year. Selling and marketing expenses decreased by 7.2% to RMB 293.4 million, excluding SBC expenses and amortization of intangible assets. Nangap selling and marketing expenses decreased by 7.3% to RMB 198.1 million. Under the Nangap measures, The decreases were primarily due to the decrease in sales promotion and coupon expenses as a cost control approach during the resurgence of the COVID-19 variants. Among the cost reductions, we saved R&P $33 million on pipeline promotion expenses, which were mainly due to our shifting the strategy focus from the consignment model to 1P2C direct retailing. The non-gap selling and marketing expenses as a percentage of total revenues decreased to 9.2%, from 11.4% in the second quarter of 2021. G&A expenses decreased by 85.4% to RMB 45.2 million. Excluding SPC expenses, Nungap G&A expenses increased by 2.1% to RMB 28.8 million, primarily due to an increase in office-related expenses, which was in line with the company's growing business. So Nungap G&A expenses as a percentage of total revenues remained flat at 1.3% compared with 1.5% in the same period last year. Technology and content expenses decreased by 27.1% to RMB 59.7 million. Excluding SBC expenses and amortization of intangible assets, Nangap technology and content expenses increased by 0.6% to RMB 53 million under Nangap measures. The increase was primarily due to the increases in operation center and automated inspection system upgrade related expenses in connection with the company's growing business. So Nungap technology and content expenses as a percentage of total revenues remained flat at 2.5% compared with 2.8% in same period last year. As a result, our Nungap operating loss was probably 42.3 million in the second quarter of 2022, The gap operating margin was negative 2% compared with negative 2.7% in the same period last year. And once again, we had a cash inflow from operating activities during this quarter, which totaled $280 million. As of June 30, 2022, cash and cash equivalents, short-term investments, and funds receivable from third-party payment service providers totaled R&D $2.6 billion. the sufficient cash on hand paves the way for sustainable growth in the future. As a 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 growth momentum, during the second quarter of 2022, we have repurchased nearly 2.9 million ADSS in the open market for a total cash consideration of $9 million. Now turning to Outlook, for the third quarter of 2022, the company currently expects its total revenues to be between 2,500 million and 2,550 million. The highly transmissible Omicron variants might impose adverse impacts on the operation of our stores and facilities, as well as the transaction activities of merchants in 2022. Thus, this forecast already reflects the company's current and the preliminary views of the market and the operational conditions which are subject to change. This concludes our prepared remarks for today. Operator, we are now ready to take questions.
spk07: We will now begin the question and answer session. To ask a question, you may press star and the one on your telephone keypad. If you're using a speakerphone, please pick up your hands before pressing the keys. To withdraw your question, please press star and then two. When asking the question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone in the call. We will now pause momentarily to assemble our roster. Our first question will come from Bonnie Liu with China Renaissance. You may now go ahead.
spk01: Thank you, management. Given the lower than expected new phone production this year, could you please talk about the potential impact of early iPhone 14 release on your 3Q earnings? Thanks.
spk06: Thank you for the question. This year, the iPhone 14 series is expected to be released on September 7th. Compared to last year, the iPhone 13 series is about a week ahead. Basically, it meets our expectations. From experience, The first week of Apple's pre-launch for our CDB recovery business will increase the income of more than 30 million yuan within a period of time. This year, we have fully prepared for the resumption business. On the one hand, we have upgraded the process of resuming orders and entered the main process of Jindong's APP. This year, users do not need to jump around when they first place orders. The stability of recovery transactions will be better, and the experience will be better. On the other hand, Through the form of exclusive activities, the recovery and recovery combination of the A family membership rights of users of Jindong Apple branch stores has been pre-locked in advance. The recovery and recovery needs of Jindong iron pole users have been avoided due to the shortage of purchases, which has caused users to buy new iPhone products separately, and the situation of the recovery order has occurred. We have covered 1,600 stores in 241 cities across the country, especially nearly 600 branch stores, and have also prepared for the peak of delivery. The first-tier team, through the past few years of 618 and Double 11, has been able to cope with the peak period. Basically, there will be no burst, and the delivery will not be timely. In the pat-and-play test, we estimate that the listing of new products may have a short-term impact on the price of second-hand retail. We will plan the activities well. At the same time, our self-serve selection business will be well stored and monitored. This year, Apple's iPhone 14 series is expected to be launched on September 7th, which is one week earlier than iPhone 13 lineup debut last year. It's basically within our expectations. From experience,
spk02: Such an earlier launch could bring in an increase in 1P revenue of 30 million RMB in the third quarter. This year, we are well prepared ahead of a peak period of trading business. On one hand, the one-stop trading order process has been upgraded and incorporated into the main interfaces of JD's mobile app. At the new product launch, users can place orders through a streamlined process as the stability of the recycling and trading order system is more stable and user-friendly. On the other hand, through themed campaigns, Interwine A-plus membership, which is JD's self-operated Apple product store membership, with recycling services, we lock in the recycling and trading orders of JD users. This reduces the loss of trading orders as buyers tend to separate recycling orders with new device orders when our blockbuster iPhone runs out of stock. Our stores are also prepared for peak season fulfillment. There are over 1,600 physical AHS stores across 241 cities in China and nearly 600 self-operated stores. The frontline teams are rather experienced at handling peak seasons after many grand promotions and shopping festivals. In general, we handle the storage system well and fulfill the orders in a timely manner. On retail business, We anticipate the new product launch could have a short-term impact on the price and demand of second-hand devices in Pi Pi marketplace. We will plan ahead for our campaigns and closely monitor our inventory. In fact, in the second quarter, we have re-evaluated and liquidated the small amount of backlog of Pi Pi. We keep a controllable inventory turnover of our 1P2C business. Thank you.
spk07: Our next question will come from Ronald Kuehn with Goldman Sachs. You may now go ahead.
spk04: Thank you, Mr. Kuehn, Jeremy, and Rex. I want to ask two questions. First, we saw the company's GMB in this quarter sold much slower than the previous quarter. I want to ask how you see the trend of the entire industry, the impact of the epidemic, Thank you, management. I have two questions. One is we've seen that GMV growth has slowed. want to know how are we seeing the overall industry the impact from covid and the the weak mobile phone demand due to product cycle and how should we think about the second hand 3c market and the impact to our company second is about the gross margin declines only here one or whether it's due to some of the promotions subsidies or Is it a mix in the 1P3P business structure? Thank you.
spk06: 感谢,非常感谢提问啊。 二季度之前呢, 公司长期保持了40%以上的 GMV 和收入的同比增长。 但是二季度确实遇到了压力。 既有短期的疫情的原因, 也有通讯的行业的消费下行的原因。 首先呢,我们看疫情对我们的影响。 As we communicated during the Q1 call, the pandemic has affected more than 200 stores in Shanghai, Beijing, Xi'an, Tianjin, and Shenzhen, as well as the third-party stores' orders, logistics, and travel. In Shanghai, the pandemic continued in April and May, and began to resume operations in early June. Thank you for the questions. Before the second quarter, the year-on-year growth momentum of our GMB and total revenue stayed strong at the level of over 40% for a long period of time.
spk02: During the second quarter, we faced temporary pressures from the pandemic and mobile phone consumption slowdown. As we mentioned during the last quarter's earnings call, the COVID control measures disrupted our business operation of 200 self-operated AHS stores in big cities, including Shanghai, Beijing, Tianjin, Xi'an, and Shenzhen, as well as the logistics services and order fulfillment. Take Shanghai as an example, the store performance in April and May was largely impacted by COVID. Beginning in early June, the operation started to back to normal in Shanghai. And we believe that the impact of the pandemic is transitory in the long term when compared with the other consumer industries that face greater challenges from macro environmental challenges. We believe the secondhand electronics transaction service industry is a huge yet underserved market.
spk06: Since this year, domestic new machines have been facing a lot of pressure, especially in some big cities. At the same time, it has added the impact of the lockdown and slow consumption of new machines. The amount of new machines is indeed not optimistic. Although the environment is not good, but in the long term, we are still optimistic about the recovery and purchase of electronic products. The reasons are as follows. On the one hand, Apple is our main brand. Apple brands still maintain a strong market position. The market share in the high-end market is still increasing. Apple's products have contributed more than 40% of the market share of our platform's trading scale of GMV. In September this year, the release of the iPhone 14 series was also noticed. We have also prepared for the exchange. At the same time, we continue to dialogue with Apple. are actively promoting recovery and cooperation with other innovative businesses in mainland China and overseas. On the other hand, we will continue to strengthen the cooperation between Jindong and Android brand manufacturers for the first half of the year. As an effective promotion activity measure, we will provide consumers with more convenient, safe, and economically resilient services to help manufacturers increase the transformation of new products and sales.
spk02: Since the beginning of this year, the domestic market for new electronic devices has faced pressure. This has been especially true in those cities that experience declining sales as a result of COVID resurgence and control measures. However, in the long run, we remain optimistic about the outlook for recycling and purchasing pre-owned consumer electronics. Here are a couple of reasons. First, Apple is the main brand in our service coverage. accounting for over 40% of our GMV. Apple maintains a top-tier market position. Its market share in China's high-end smartphone market continues to increase. As has been widely publicized, the iPhone 14 lineup is due to be launched in September, so we have a positive attitude towards our reflecting and trading business. In addition, our conversation regarding reflecting and innovative partnerships with Apple continues. Second, As Android brands face greater growth pressures this year, we continue to strengthen our collaboration with JD.com and other major Android brands, launching effective marketing campaigns based on our trading solutions, thereby providing consumers with more convenient, safe, and value-for-money trading services and improving new device sales for brand partners.
spk06: From the overall year of last year, JMV reached RMB 1.8 billion last year, and it rose by 28% compared to 1.4 billion last year. The total unit volume is 16.2 million units, and it rose by 14.4% compared to last year. As you can see, although our increase has slowed down in the second quarter, compared to the general decline of mobile communication manufacturers, the circular economy industry as a whole still presents a relatively tough characteristic. In addition, there is one thing to pay attention to. Under the environment of epidemic impact and economic downturn, our EP's self-sufficiency business has a stronger risk-resistant ability. In the first half of the year, our EP's GMV was 4.4 billion RMB, with a net growth of 32.4%, exceeding the growth of the large-scale market. Our EP's self-sufficiency business is also the direction of focus in the second half of the year. In the face of micro uncertainties, our total GMV increased by 28% year-on-year to 18 billion RMB in the first half of 2022, from 14 billion RMB in the same period of 2021.
spk02: the total number of transactions was 16.2 million, increased by 14.4% year-on-year. This indicates that the circular economy business is relatively stable compared with the downward new phone shipments in the second quarter. In the first half of 2022, GMV's full product sales totaled 4.4 billion RMB, representing an increase of 32.4% year-over-year. which was faster than the overall GMV growth. Through some optimizations, such as improved efficiency of self-operated stores and more direct retailing of premium self-sourced products through PiPi, our 1T business will be able to achieve a stronger growth momentum.
spk03: Thank you. So I will take the second question. So overall gross margin at the group level for second quarter was 22.9%. a decline of 2.37 percentage points on a year-over-year basis. This was primarily due to a decrease in WMP business gross margin, which was caused by, first, an increased number of promotional campaigns on e-commerce platforms, and second, adverse impact from COVID recurrence. In detail, the gross margin for our WMP business this quarter was 10.8%. The decline in gross margin was due to the following reasons. Firstly, due to the pandemic recurrence in the second quarter, we did not have sufficient self-sourced supplies to meet consumer demand. As a result, we increased the proportion of goods sourced from industry partners in preparation for the e-commerce shopping festivals in June. Sourcing from third parties lowered our gross margin. However, this was only a temporary tactic, and we increased the proportion of our self-sourced supplies as our offline stores return to normal operations after June. In addition, the gross margin for the second quarter was low, also due to the marketing and sales campaigns, including our 618 shopping festivals, which we would distribute corresponding coupons. We expect that the impact of the pandemic will gradually fade away and that we will see a growth in device refurbishments and our 1P2C business. The gross margin for our 1P business in the second half of 2022 is forecast to be between 13.5% to 14%. The overall take rate of our 3P business in the second quarter increased to 4.54% from 4.15% in the first quarter. We anticipate steady increase of both the platform take rate by adding more value-added services on top of the current portfolios, such as value-added compliance repair services and the supply chain financing. Thank you.
spk04: Thank you, Juanito.
spk07: Again, if you have a question, please press Start at 1. Our next question will come from Joyce Du with Bank of America. You may now go ahead.
spk00: Hello, Mr. Guan. This is Joyce. We saw the price of the luxury goods on the online app. After the price, the luxury goods will be kept in the store. So you just mentioned some of the related logic. But can you ask Mr. Guan to share more about it? That is to say, what are some of the new strategic plans and progress in the multi-prime recovery strategy? And what is the logic behind the multi-prime recovery strategy? I will translate the question. We have seen iHuiShou APP actually launched a luxury product recycle services recently. I just want to understand what the progress of like you know uh extension into other categories or like you know not electronic categories um the business what's the business rationale behind and how we should look at the those kind of category expansion um impact on our company's revenue and profit thank you
spk06: In addition to the original mobile phone 3C business, 4.0 adds the recycling of set items, sachets and watches, the recycling of photography and camera equipment, and the recycling of gold and other business. Consumers can see the recycling entrance of set items and photography and camera equipment on our app. The service process is similar to the electronic product recycling of mobile phone 3C. Consumers can quickly get the price by answering a few questions online, make an appointment at the store, simply check the power supply, confirm the appearance and color, and give the final price. Then, through the delivery service, the product is sent to the inspection center of the city for an hour. The inspector in the inspection center at the back end will finally confirm the real end and complete the recovery and pay the user. If there is a problem with the product, it will be returned back.
spk02: In the second quarter, leveraging the tiered AHS store system, we selected the number of pilot stores in Beijing and Shanghai's sub-center areas. In addition to our existing consumer electronics recycling, we tapped into pre-owned luxury bags, watches, photography, and video equipment, and gold recycling services. Customers can get a price code through AHS mobile app, official website, and WeChat Mini program. The recycling process for these pre-owned categories is similar to that of consumer electronics. Consumers get preliminary pricing shortly afterwards, answering a couple of questions regarding the model and conditions of their products. They can then make a reservation or work into one of our offline stores so our staff can check product conditions and confirm the recycling price. Then the product will be sent to the local inspection center within an hour through instant delivery. After all, quality inspection experts confirm the authenticity of the product. The recycling process is complete and customers receive their payment if the product is authentic. The whole process is simple and user-friendly as we provide face-to-face interaction at our physical stores. Based on that, we can further extend our multi-category recycling offerings to users of JD.com.
spk06: The traditional mode of the second-hand equipment industry has a lot of pain points. The current door-to-door sales mode often uses information that is not transparent for pricing. By mail recycling, it lacks user trust, and the recycling conversion rate is very low. In the door-to-door recycling mode, the human resources cost of the contractor will be very high. For these pain points in the traditional mode, WanWu Xinsheng has created a door-to-door warehouse mode. Online pricing, door-to-door power supply, taking pictures, and customizing. whereas traditionally there are many pain points for luxury goods recycling. The consignment merchants tend to cut prices as the market lacks transparency. Consumers have trust issues when recycling by mail.
spk02: The door-to-door recycling model has higher labor costs. AgRenew innovatively offers the two-store recycling plus two-station inspection model. It allows consumers to get a price estimate online, go to a nearby physical store for condition check, and get authenticity verification at a local inspection station. We provide a more user-friendly customer experience. Over 85% of the consumers who accepted our recycling price were willing to try this model.
spk06: There are two main categories of this business of second-hand recycling. One is the second-hand recycling brand that has been accumulated for 11 years. Our brand has received widespread recognition from consumers. Users will first think of the second-hand recycling brand when they are in need. For example, in June, the second-hand recycling of photography camera equipment and the second-hand recycling and delivery of second-hand collectibles by second-hand recycling official website 57% and 41% of them are completed by 3G recovery users. This proves that the recovery brand has formed a strong consumer mindset and can move forward in the cross-sector. The other barrier is the network of more than 1,600 recovery stores across the country. It has formed a wide range of consumer focus points and a good service and contract basis. It is also an important infrastructure for building trust in consumers. From a financial perspective, Organic recycling is a new business. Its market size may be slightly smaller than that of mobile recycling, but its industry is more opaque, and the profit of the industrial chain is higher than that of mobile, and the existing service experience is relatively poor, and it is expected to collapse. Multi-purpose recycling mainly brings about an increase in the purchase rate of second-hand recycling stores and second-hand recycling users, and an increase in up value. Through the verification of four data points of more than 30 stores, organic recycling and 3G recycling users can make two-way transitions. Another point.
spk02: We believe that there are two factors that contribute to the core competency and the competitive mode of our multi-category recycling business. The first is the brand of AHS Recycle, which has been cultivating customers over the past 11 years so that it is now widely recognized brand among Chinese consumers. AHS Recycle becomes consumers' go-to destination. When analyzing our June trial operation data, we noticed that 57% of the users who recycled their camera equipment and 41% of those who placed luxury product recycling orders online have historical consumer electronics recycling orders, proving the strong consumer mindshare and our ability to cross-sell. The second sector is our nationwide network of over 1,600 offline AHS stores. This network is a valuable infrastructure for us to reach, serve, and build trust with consumers. From a financial point of view, luxury goods recycling is an emerging business, and its market size may be slightly smaller than that of mobile phone recycling, but the value chain is even opaque, yet more profitable than mobile phones, while the existing solutions are relatively poor. Multi-category recycling mainly brings about an increase in repurchases and an increase in average revenue per user. We have an idea that we could convert mobile phone recycling orders from luxury product users and vice versa. This idea has been verified through our pilot program at more than 30 AHS stores. 41% of those who recycle luxury products have previously sold their consumer electronics to us. These consumers have stronger perceptions towards AHS Recycle and are more willing to trust us for higher value bags and watches recycling. In terms of repurchases, 11% of first-time luxury recycling service users sold their idle consumer electronics devices to us within 30 days. 基于更高的复购率,我们对于爱回收品牌的投放效率也有望提升。 传统上由于手机3C品类的低频的特性,
spk06: and the local attributes of our stores, we rarely do large-scale advertising. Today, based on the wider store coverage, luxury goods and other products bring more deals, we may re-evaluate the transaction ROI brought by advertising. Under the premise of profit coverage cost, increase and enlarge the effect. In general, we think that the development of multi-brand recovery is important to take into account the trust of consumers in love recovery brands. After repurchase rate increases,
spk02: The efficiency of advertising is also expected to improve. Traditionally, we rarely advertise AHS Recycle as a consumer electronics recycling brand as the electronic product is a low-frequency category and a relatively local two-store business. Today, based on the wider store coverage and more transactions brought by luxury goods and other categories, we can re-evaluate the ROI of advertising. we can try to amplify our brand awareness as long as our profit covers marketing expenses. In general, we believe the key to developing our multi-category recycling business is to leverage the trust we have built with consumers and AHS recycle service capabilities as well as the nationwide store network. There are many choices when consumers shop online and offline, but quite few trustworthy multi-category recycling service providers. We are excited about the innovative course our business is taking, and we look forward to enhancing our brand's reputation as the most trusted and recognized one in the industry. Thank you.
spk06: Thank you.
spk07: As there are no further questions at this time, I'd like to hand the conference back over to our management for closing remarks.
spk05: Thank you. Thank you all again for joining us. A replay of today's call will be available on our website shortly, followed by a transcript when ready. If you have any additional questions, please feel free to email us at ir.renew.com. Have a good day.
spk07: This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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