ATRenew Inc.

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the ATRenew Incorporated third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. We'll be hosting a question and answer session after management's prepared remarks. Please note today's event is being recorded. I will now turn the call over to the first speaker today, Mr. Jeremy Gee, Director of Corporate Development and Investor Relations of the company. Please go ahead, sir.

Thank you. Hello, everyone, and welcome to AT Renew's third 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 third quarter 2022 financial results were released earlier today. The earnings release and investment slides accompanying this call are available at our IR website, ir.atrenew.com. There will also be a transcript following this call for your convenience. For today's agenda, Kerry will share his thoughts of 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. Let me cover the safe harbor statements. 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 statement 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 unless otherwise stated, all figures mentioned during this conference call are in RMB, and all comparisons are on a year-over-year basis. I'd now like to turn the call over to Kerry for business and strategy updates.

Hello, investors and analysts. Hello, everyone, and welcome to AT Renews Third Quarter 2022 Earnings Conference Call. The third quarter, we faced a challenging macro environment. Pandemic control measures remain strict and consumer demand for new phones settled. Responding to these challenges,

Our teams proactively adjusted their operational strategies to meet consumer demand for convenient and trustworthy recycling services. As a result, revenues reached the high end of the guidance range we provided last quarter, and we achieved a non-GAAP operating profit compared to a non-GAAP operating loss in the second quarter. I'd like to take this opportunity to express my gratitude to our staff for their efforts and perseverance in the face of adversity.

In the third quarter, we achieved the estimated income of 25.4 billion RMB, which is 29.2% of the total growth. Among them, EP's product revenue rebounded significantly, reaching 33.7% of the total growth. This is due to our stable opening and closing strategy, and the increase in the sales of self-serve products and 2C sales, as well as the greater ability of large-duty supermarkets to set prices. Let's start by taking a look at our revenues.

During the third quarter, we achieved growth in line with our expectations as our revenue increased 29.2% year-over-year to 2.54 billion RMB. Revenues for our 1P business rebounded significantly, increasing by 33.7% year-over-year. This increase was driven by our steady progress in store openings and recycling operations, increased revenue contribution from self-operated 2C retail products, and stronger pricing power from big data analysis. The growth of service revenues flattened as we put tighter control over products that were unauthorized or in poor condition. We believe this helps the sustainable growth of our marketplaces. As a result, the overall commission rate of our marketplaces was 4.45% in the third quarter, remaining stable compared with the same period last year.

In terms of efficiency, we insist on optimizing to reduce the operating cost and improve the efficiency of the contract. In this quarter, the contract fee rate and the marketing fee rate of Nungap were reduced to 10.7% and 9.8% respectively, and they were reduced by 290 locations and 63 locations respectively. This continues to achieve a healthier cost structure. In the third quarter, we achieved the operating profit of RMB1080 million in Nungap. Compared to the second quarter, which was seriously affected by the epidemic,

turning to efficiency. During the quarter, we continue to increase our fulfillment efficiency by further improving our inspection process and continuing to reduce operating costs. Our non-GAAP fulfillment expenses and selling and marketing expenses as percentages of total revenue declined to 10.7% and 9.8% respectively. This represents respective decreases of 290 basis points and 63 basis points compared to the same period of last year. These improvements reflect the effectiveness of our initiatives to continuously improve our cost structure. In the third quarter, we achieved a non-GAAP operating profit of 10.8 million RMB. This was in contrast to the loss-making performance in the second quarter. In an unfavorable market environment and facing various headwinds, Our monetization capability once again demonstrates the counter-cycle nature of the circular economy.

同时我们加强了存货和现金流的管理。 三季度,随着疫情冲击的减少,我们QC回收和零售恢复较好。 库存管理加强,存货周期天数为26天,同比管比均有所优化。 截至三季度末,集团的综合现金储备达26.7亿元人民币。 We also improved our inventory and cash flow management.

During the third quarter, we improved inventory management as our business, especially our 1P2C recycle and retail business, recovered from the adverse impact of the COVID resurgence. The inventory turnover days were reduced to 26, marking a year-on-year and a quarter-over-quarter improvement. As at the end of the third quarter, our comprehensive cash reserves totaled 2.67 billion RMB. We obtained a cash inflow from operating activities of 101 million RMB during the third quarter, making a third consecutive quarter with positive operating cash flow. With abandoned cash on hand and continuous positive operating cash flow, we have sufficient resources to consolidate the main businesses and invest in the strategic development areas. 万物新生的战略是清晰且持续的。

Going forward, we keep our core strategic focuses clear and consistent. We will continue our commitment

to the four focuses as we discussed during the previous earnings conference calls. First, we will continue to promote our city-level service integration model. Second, we will continue to expand the service coverage and fulfillment capability of the multi-category recycling offering. Third, we will continue to convert more of our 1P product supplies to consumer retail through our value-added capabilities including refurbishment. Lastly, We will further increase our operating efficiency by continuing to deploy automation technologies.

Let's start by discussing the implementation of our city-level service integration strategy.

which will solidify the foundations of our business growth and further increase our penetration rate.

本季度城市一体化的战略继续作为手机3C回收基本盘的健康增长基础, 通过CQB和B2B前端回收揽货能力的整合, 能够更好地服务手机3C这个强本地属性的品类。

During the third quarter, our city-level service integration strategy continued to support the healthy growth of our core business of mobile phone and consumer electronics recycling. By integrating our front-end recycling capabilities between C2B and B2B offerings, we were able to better serve the highly localized market demand of the electronics category. 三季度的疫情管控较为复杂。

It has brought a certain challenge to the urban performance of businesses such as Shenzhen and Chengdu. However, we also saw a more optimistic growth and rebound compared to the second quarter among the 42 key cities and city groups in the country. The growth of the large-scale performance of 31 city groups achieved the same growth, and the number exceeded the second quarter level this year. In addition, there are 26 cities with the same growth and won the national market. The penetration rate of the 20-city group has exceeded the general growth of most of them. Last year, the first 4-city group, Huzhou and Langfang, still maintained a positive growth. We also see that among the recovery basic market growth brought by the integrated strategic recovery, the single growth of C2B is significant. The same growth of 34-city groups exceeded the general level. In the current economic cycle of consumer spending, some city users have a stronger recovery desire.

Complex pandemic control measures during the third quarter have affected our operations in cities that contributed a significant proportion of our business, such as Shenzhen and Chengdu. However, we also saw a delightful rebound in GMV among 42 city clusters compared to the second quarter. 31 city clusters achieved GMV growth on a year-over-year basis, a greater number than last quarter. In addition, 26 cities outpaced our national average in scale expansion on a yearly basis, while on a quarterly basis, 20 city clusters outpaced the national average recycling penetration rate. Of note, Huzhou and Langfang, the first two pilot cities, which we monitored through the North Zhejiang Cluster and North Hubei Cluster, respectively, are still reporting a healthy year-on-year growth rate in GMV. the number of recycling orders from our C2B business increased notably, achieving better year-over-year growth than the national average in 34 city clusters. As consumer spending faces downward pressure in this economic cycle, use the willingness to recycle increase in some cities.

At the beginning of the recovery, we further deepened our strategic cooperation with Jindong. In August this year, we jointly upgraded the service of e-challenge in Jindong, which is an e-challenge in cross-products. Users can purchase Jingdong's new phone, digital, computer, and even home appliances at a discounted price by recovering up to six devices. Jingdong has also become one of the first cross-border e-commerce platforms in the industry to provide users with a first-class experience while promoting its recovery and transformation. In addition, during the first launch of the iPhone 14 series in September of this year, the process of resale is completely involved in the Jindong's APP main station. The shopping cart settlement page of the goods is available for resale purchase. Users do not need to jump around when resaling. Improved the experience of resale. In the future, we will continue to rely on Jindong to lead the sales scale of various categories.

On the recycling end, we further deepened our strategic partnership with JD. In August, we facilitated JD to upgrade its trading services to support cross-category trading for cell phones, computers, digital devices, and home appliances. After the upgrade, users can also trade in a mix of up to six electronic products for new ones. JD becomes the first in the industry to support both cross-category and multi-device trade-ins, providing users with best-in-class experiences while promoting recycling. In September, we fully incorporated the trade-in function into the main JD app in preparation for the launch of the iPhone 14 lineup. Users can enjoy the trade-in solution seamlessly on the product page in the shopping cart or on the checkout page without time-consuming and unstable page redirection, thus improving user experience when placing orders. Leveraging JD's leading market share of home-applied sales and other categories in China, we aim to further promote trading scenarios and provide more convenient trading options to consumers.

The second point is to continue to expand the value and user service capabilities of the second-hand brand to expand more high-quality products.

Secondly, we will continue amplifying the brand value and service capabilities of our iHuiShou AHS Recycle brand. The goal of this effort is to expand recycling services to cover more high-value categories.

首先要回答的问题是,iHuiShou为什么要做多品类回收业务? iHuiShou在回收领域具有稀缺的品牌价值。 We are proud of our service reputation accumulated over the past 11 years and the offline stores across the country for long-term education in customer recovery. There are many brands when customers buy products, and there are many online and offline shopping channels. However, there are not many good choices for customers when they need to recover. iRecruiting has worked hard to become the first brand to recover from mobile 3C to other products.

You might ask, why would recycle use non-electronic products from consumers? We believe that AHS Recycle at Huishou is a unique and widely recognized brand in the recycling industry. We have spent 11 years building a reputation for quality recycling service and gaining strong consumer awareness through our nationwide offline stores. What's more, Consumers may have many options to buy new products online and offline, but they don't have many good choices for recycling services when needed. AHS Recycle has dedicated itself to being consumers' go-to brand for recycling electronic devices, and we aim to build our reputation further as we embrace multi-category recycling going forward. This echoes our mission to give a second life to all idle goods.

The second question to be answered is, Why can e-resale do multi-layer recycling? We think there are two reasons. The first important reason is that e-resale national stores are divided and managed, and the exchange is differentiated. 1,800 e-resale stores will provide users with worth-of-thought recycling and exchange scenarios. Since June, Another reason is that You may wonder why we're capable of launching this multi-category recycling business.

On one hand, we have 1,800 AHS stores, which provide a reliable and convenient recycling destination from consumers, managed under a tiered store and fulfillment system. Since June, we started implementing this tiered store system by designating a number of those located in regional commercial centers as the core facilities and adding new category services to those stores. Those located in local communities remain as consumer electronic service stations. At the core storefront, we upgrade branding and train our staff to accommodate both our core electronic recycling services and our new category initiatives. Having done so, we began to offer recycling services for pre-use products with high residual value, such as luxury bags, washes, camera equipment, gold, and vintage wine. On the other hand, we are capable of constructing inspection and distribution abilities through collaborations with our partners. We have established our supply chain of pre-owned smartphones and consumer electronics, and now we are seeking jointly built or jointly operated supply chains for new categories. Take luxury goods as an example. We jointly build the quality inspection and selling channels within MST. For gold and vintage wine, we introduced an open platform and selectively chose partners to ensure a reliable recycling choice for users.

The third key question is, What is our multi-platform recovery service providing users with the X1 experience? There are two main X1 experience. The first X1 experience is based on the online rapid price of structural data. Users only need to simply click on the second recovery app to get the mainstream model of the rapid price. Evaluation is whether it needs to be recovered. And the traditional way requires users to take pictures themselves. The experience of the price of this point on the back is more complicated, and it takes several hours to standardize. Another difference is that we provide door-to-door transactions. Compared to the traditional logistics mail method, it is more convenient and the user has a stronger sense of trust in the service. The transfer rate of high-end products is higher and there is less controversy, especially avoiding the problem of hand-to-hand logistics mail.

You may also wonder what is the differentiated experience that we could offer with multi-category recycling. One is quick online price codes based on structured data. Users only need to simply click and check on AHS Recycle app through our product navigation. The traditional method requires users to take pictures by themselves for quality inspectors to offer quotations. The experience is relatively cumbersome, time-consuming, and lacks standardization. Another difference is that face-to-face transactions at physical stores are more convenient than traditional logistics and mailing methods, where users have a stronger sense of trust in services and the conversion rate of high-value products is higher. At a physical store, we reduce miscommunication of product conditions and pricing, and consumers are protected from malicious bargaining, which they might often encounter during online recycling.

After a few months of exploration and trial, we have obtained some data verification. Regarding the performance improvement of the door stores, we are currently testing the door stores of about 50 major stores in Shanghai and Beijing. The performance improvement of the average single store is obvious. The average number of door stores increases by an additional 300,000 per month, which is an additional profit of more than 20,000 yuan. The user's satisfaction with our service experience and online pricing is also gradually increasing. There is also a good overlap rate between mobile phone users and mobile phone users. After the user completes the mobile phone recovery, the recovery rate of mobile phone 31 is 11% within 30 days. And the recovery rate of mobile phone recovery users in the past year is 40% within the recovery rate of mobile phone 31.

After months of tri-operation, our multi-category recycling business generated an extra 300,000 RMB of transaction value and over 20,000 RMB of profit per month for each of the 50 core AHS stores. Users' satisfaction with the recycling experience and price quotation has been improving. User profiles show similarities. 11% of our users who sold luxury goods came back to recycle their idle electronic devices in 30 days. 40% of those who sold luxury goods have already sold consumer electronics to AHS Recycle in the past 12 months. The third strategic priority is to continue improving our value-added refurbishment capabilities and further expand profit margin along the value chain.

This is also the basis for us to achieve our own batch of member increases, and increase the level of the third party member of Taiji Tang, and increase the profit of the industrial chain. Through the initial selection of second-hand mobile phones that enter the operating center, we select the machines suitable for repair and refurbishment, and use brand official or third-party certified parts to perform regular screen polishing, screen replacement, battery replacement, and other maintenance services to ensure and maintain quality. When selling, we clearly tell consumers and provide additional protection services.

We continued our conversations regarding compliance and intellectual property rights protection with phone manufacturers and participated in opinion collection process before the People's Procuratorate of Shenzhen released a guidance for compliant refurbishment in April. Since the publication of the guidelines, the previously unregulated electronics refurbishment industry began to standardize and thrive and came under official regulation. This development allowed us to upgrade the quality of supply, both from 1P and from PJT Marketplace, and so aligned with our strategy to expand profit margins. After preliminary inspections on the print-on mobile phones we receive, we leverage technology to identify suitable devices for refurbishment. Then, in compliance with regulations, use official or certified third-party parts and components to repair the phones, including polishing and replacing screens and replacing batteries. We keep customers informed and provide warranties to boost consumer confidence.

目前,我们的供应链增值业务正处于产能的爬坡阶段。 三季度的合规翻新台数相较二季度实现了一倍的环比增长。 利润率方面,经过了供应链增值的机器相对于之前的2B销售, 额外贡献的利润率在4%左右符合我们的预期。

The production capacity is currently undergoing rapid development. Since the second quarter, we have doubled the number of devices that refurbished in compliance with regulations. On margin compared with 2B distribution, the additional operating margin contribution from value-added refurbishment services is 4%. This is in line with our expectations.

In the future, we will continue to enhance the completeness of the industry chain of AUSO mobile phones. At the same time, it improves the automated selection efficiency of products that have been imported into the warehouse. It is more efficient to select and organize those products that are suitable for maintenance and gain profit space. In 2023, we will expand more mobile SKU and laptop, tablet, computer and other products on the cover of the supply chain. Going forward, we will continue to strengthen the coverage of the entire value chain

The operating margin could be further improved as we increase the efficiency in selecting suitable devices. In 2023, we anticipate a larger service coverage of more SKUs of smartphones, including laptops and tablets, into our service scope. We also plan to expand refurbishment capacity from southern China to eastern China. Our long-term goal is to provide stabilized, high-quality products directly to consumers. while fulfilling merchants' demands by providing them with diversified sources of supply and services. We will continue to develop the RERU-referred Huanxinji brand and increase our profit space.

The fourth point of the strategy is to continue to invest in automated improvement, consolidate and improve the efficiency of operation. After the implementation, trial operation and supply improvement in recent years, The second automated operation center in Wangong was officially launched in Dongguan. In terms of logistics efficiency, quality control, and efficiency control, it has made breakthroughs. Through innovative digital management methods, and by increasing the transmission of decommissioning devices, such as AGV, unmanned transport vehicles, the transmission efficiency of Dongguan's automated operation center has increased by 15% compared to that of Changzhou's automated operation center. In terms of automated self-checking, we have invested in the new automated self-checking system, Matrix 3.0, which has achieved a resumption of precision positioning and robot support capabilities. In terms of the accuracy and efficiency of self-checking, the products of the previous generation have been increased by 10% and 50%. In terms of return on loss, we expect to reduce the overall loss by more than 15%. Based on the above automation and self-sufficiency improvements, the 8-hour production capacity of Dongguan Autonomous Operating Center can exceed the level of about 10,000 units. This group improves the self-sufficiency scale effect, reduces the average fee of each unit, and provides a good base of operating capabilities.

For the full and final strategic focus, we will continue to invest in technology to improve our automation capabilities and consequently our overall operating efficiency. Since the beginning of this year, we devoted to the installation trial operation and adjustment of our second automated operation center in China, which was officially put in use in Dongguan. It has realized improvements in many aspects, including sorting efficiency, inspection accuracy, and inspection efficiency. Thanks to an innovative and digitalized management process and the use of AGV and manned transport vehicles, the transmission efficiency of our Dongguan Automated Operations Center is 15% higher than that of Changzhou. We have implemented the next generation Matrix 3.0 automatic quality inspection system to further upgrade the precision of device locating capabilities and robot assistance capabilities. The accuracy and efficiency of our quality inspection process were further improved by 10% and 50% respectively compared to the previous generation. The loss due to product return is expected to be reduced by 15% approximately. Based on these improvements to our automated quality inspection capabilities, the eight-hour production capacity of the Dongguan Automated Operations Center exceeded 10,000 units. This has enhanced the scale effect of our quality inspection operations and has reduced the cost of performance for order, which is necessary to consolidate our operational capabilities at the group level.

最后,我们补充一个动态,万物先生在今年的9月份获得了诚心旗下评级机构的ESG的低风险的评级。 We are recognized as one of the leading ESG companies in online sales in the global market. This ranking is not only for our active certification in environmental protection and carbon emissions reduction, but also for our active certification in sustainable products and services, network security and user data security protection projects, taxation and regulation, and company governance. We are also recognized as a sustainable company.

Lastly, I want to provide an update on ESG. We received a low ESG risk rating from Morningstar Sustainalytics in September this year, a testament to our ESG risk management capabilities in the online and direct marketing retail sector. This rating confirms our contributions to environmental protection, carbon emission disclosure, sustainable product and service development, data privacy and security, tax compliance, and other aspects of responsible corporate governance. It also stands as a testament to our sustainable development capabilities. 我们认为ESG表现强的公司对于社会的价值更大 对于政策的风险场口相对较小 我们将继续从资深稳健的业务基本盘出发 从容应对外部环境的不确定性 在中国走向双碳目标的路径上 在循环经济的发展历程中 We believe that a company with strong ESG practices can contribute greater value to society and is less at risk from changes in policy and regulations. Our responsible governance grants us more flexibility as we navigate our growing business through an uncertain microenvironment. As China sets carbon neutrality goals on the way to its carbon peak and the circular economy begins its development in earnest, we are confident that we will create best-in-class recycling experiences for consumers and create long-term value for society and for shareholders.

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

Hello, everyone. We are delighted to report that our third quarter revenue was at the high end of our guidance, even though COVID-related challenges remained in the operating environment. In the face of these headwinds, we leveraged our city-level service integration strategy and maintained our prudent spending. 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. Total net revenues increased by 29.2% year-on-year to over $2.54 billion, mainly driven by the rebounding one-piece product sales revenue growth. Total GMV grew by 14.5% to $9.5 billion, driven by the growth in both product sales GMV and online marketplace GMV. that we will retire the reporting of GMV starting from the fourth quarter of 2022. GMV has been a parameter to access our periodical business expansion as we inclined to lecture-scale expansion. However, as we become more obsessed with providing our users with safe, convenient, and fair recycling experience and quality-assured products, we incrementally prioritize the solid growth of our 1P business where GMV becomes less reflective of the bigger picture. We're also keen to maintain a healthy cash flow from operating activities and a positive operating margin. As a part of our tactics, we removed some poorly related merchant users from our marketplaces and entitled our sources towards self-sourced products, including when P2C products that were refurbished with compliance. In terms of profitability, we had another profit-making quarter with a gap operating income of $10.8 million. This was primarily attributable to improved cost efficiencies in logistics and manpower that resulted from scale effects. In the future, we'll continue to improve cost efficiency, especially in fulfillment and marketing. by leveraging automated inspection facilities to further realize scale effects and accurately capture recycling and shopping scenarios. In the third quarter of 2022, we had capital inflow from operating activities of RMB $101.3 million, securing a third consecutive quarter with positive operating cash flow. Now let's take a detailed look at the financials. In third quarter, total revenues increased by 29.2% to $2,536 million. Net product revenues increased by 33.7% to $2,225.7 million, while net service revenues increased by 4.4% to $310.3 million. Growth in net product revenues was primarily driven by an increase in sourcing volumes and the corresponding sales of prone to consumer electronics through Pipeline Marketplace, PJT Marketplace, and our offline channels. So increasing WMP2C distribution of compliant refurbished devices also contributed to this growth in product revenues. Growth in service revenues was primarily driven by increases in transaction volumes and improvements to the monetization capabilities of PJT Marketplace. So overall commission rate of our marketplaces were 4.45%. We further optimized operational strategy by cutting down the base to merchant users as we became more comfortable to change commission fees based on the established trust and user stickiness. Next, we turn to our operating expenses to provide greater clarity on the trends in our actual operating-based expenses. We will also discuss our non-GAAP operating expenses, which better reflect how the management view our results of operations. The recalculations of GAAP and non-GAAP results are available in our earnings release and the corresponding form 6K furnished with SEC. Merchandise costs increased by 33.8% to $1,932.2 million. This was in line with the growth of the 1P product sales revenues. Growth margin at the group level was 23.8% in the third quarter. Growth margin for our 1P businesses was 13.2%. Fulfillment expenses increased by 1.4% to $277.1 million, excluding share-based compensation expenses, which we will refer to as SPC from here. NGAP fulfillment expenses increased by 1.7% to $271 million. Under the NGAP measures, the increases were primarily due to, first, an increase in personnel costs in connection with the company's growing business. And second, an increase in technology expenses in relation to sub-grade of technology server, which was partially offset by a decrease in operating center related expenses as the company optimized its strategy for its city-level operation stations. So the gap of fulfillment expenses as a percentage of total revenue reduced to 10.7% from 13.6% of the same period last year. Selling and marketing expenses increased by 14% to $348.8 million, excluding SBC expenses and amortization of intangible assets. And then gap selling and marketing expenses increased by 21.4% to $249.7 million. Under the NGAP measures, the increases were primarily due to, first, an increase in personnel cost in connection with the company's growing business, and second, an increase in marketing expenses related with business development. The NGAP selling and marketing expenses as a percentage of total revenues decreased to 9.8% from 10.5% in the same period last year. G&A expenses increased by 51.4% to 63.6 million, excluding SPC expenses. Non-GAAP G&A expenses increased by 76.7% to 46.3 million, primarily due to, first, an increase in personnel costs in connection with the company's growing business, and second, an increase in professional service fees. The NGAP GA expenses as a percentage of total revenues slightly increased to 1.8% from 1.3% compared with the same period last year. Technology and content expenses decreased by 23.2% to $50.1 million, excluding SBC expenses and amortization of internal assets. NGAP technology and content expenses decreased by 26% to $43.9 million, and the NGAC measures. The decrease was primarily due to the change in personnel cost in relation with the company's adjustment to spending in research and development. NGAC technology and content expenses as a percentage of total revenues was 1.7% compared with 3% in the same period last year. As a result, our NGAC operating income was $10.8 million. In the third quarter of 2022, The gap operating margin was 0.4% compared with negative 1.5% in the same period last year. And once again, we had a cash inflow from operating activities during this quarter, which totaled $101.3 million. As of September 30, 2022, cash and cash equivalent short-term investments and funds receivable from third-party payment service providers totaled $2.7 million. At $67 billion, there's sufficient cash on hand. Safeguards are sustainable growth outlook. As a recap, we announced our $100 million US dollar share repurchase program on December 28, 2021, out of management's strong confidence in the confidence-solid fundamentals and growth momentum. During the third quarter of 2022, we have repurchased 3.5 million AGSs in the open market for total cash consideration of 1.5 million US dollars. Now turning to Outlook, for the fourth quarter of 2022, the company currently expects its total revenues to be between RMB 2,000, 930 million, and RMB 3,000, 30 million. The highly transmissible Omicron variant might impose adverse impacts on the operation of our stores and facilities, as well as the transaction activities of merchants in 2022. Such 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.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Lin Li from Goldman Sachs. Please go ahead.

Hello. Thank you for answering my question. Also, congratulations to the company for achieving a very strong income growth in this quarter. I would like to ask, in the case of the epidemic and the downfall of consumption, how do we see the future growth of your income? Also, we have seen some progress in 3P business. I would like to ask, how do we see the future growth of your income and your business? Also, I would like to ask, how do you see the growth of your income and your business? Let me translate for myself. Congratulations for another solid top-line growth. And my question is about the future growth driver. And under the COVID impact, together with the consumption-bound trading pressures, how should we look at the future growth drivers? And also, regarding the CP revenues, we see that there is some moderation in the growth rate in the future. how much will be contributed from 1T revenues, and how much will be contributed from the 3T part. And also, regarding the multi-category recycle, how much contribution are we expecting from the categories outside the phone? Thank you. Okay. Thank you, Tiwan.

Let me answer the first part of the question first. In general, compared to the lockdown of the second quarter, the recovery of businesses such as Shanghai and Beijing is mainly affected by the negative impact. Our group business recovery is still relatively fast, especially the growth of the first batch of businesses exceeded expectations. It also reflects the characteristics of the special period cycle economy.

Okay, thank you for the questions. Let me answer our first question first. Overall, after being negatively affected by pandemic control measures in core 1P recycling business locations, such as Shanghai and Beijing in the second quarter, our recycling business recovered to a normal growth track during the third quarter. Notably, our 1P business grew beyond our expectations, demonstrating the counter-cyclical nature of the circular economy we are a part of.

The rapid recovery of our EP business, on the one hand, is due to the easing of the impact of the epidemic, and the normal operation of the door-to-door recycling system is more secure, allowing us to have more sources of supply of members. On the other hand, starting from this year, our strategy is to transform the sales business of the platform on the platform, and replace it with more EP high-quality members. The starting point is the re-establishment of this electronic product in Shenzhen City People's Procuratorate in April of this year. Before the introduction of this guide, our quality of goods is insufficient. So our strategy is to prioritize the vendors of the development platform and sell more goods provided by the vendors in the industry. After the introduction of this guide, ASSO's 3G products can be sold in batches and then sold in 2C. This not only allows us to further develop the advantages of the supply chain, but also allows the group to bring an increase in profit space on the entire industrial chain, and also provides consumers with more and more advantageous products based on price competitiveness. So in the third quarter, The recovery of 1P business growth rate is due to two factors. First, we essentially resume standard operating hours at our offline source as pandemic control measures are lifted. This grants us a more abundant supply of products.

Second, in 2022, we started shifting our strategic focus from a consignment model to a 1P2C direct retailing model. This was an effort initiated following the launch of the first compliance guidance for intellectual property rights in the electronics refurbishment industry, as published by the People's Procuratorate of Shenzhen in April this year. Before the launch of this guidance, we did not have a sufficient supply of high-quality pre-owned products As such, our strategy was to prioritize marketplaces and help our merchant partners to sell their products. Since the launch of the guidance, we further leveraged our supply chain capabilities and started to refurbish pre-owned electronics and sell these products directly to retail customers. This brings additional profit margin over the value chain and also provides more supply of high-quality, better-priced pre-owned electronics to consumers. During the third quarter, we utilized our refurbishment supply chain to distribute RERU-referbed branded products to retail customers. Our success was demonstrated by over 19 million RMB in sales and the AFC increase to 2,600 RMB.

Regarding the problem of increasing the number of businesses on the platform, we have made adjustments to the platform's business strategy, focusing more on the growth of quality and profits on the platform. In the third quarter, we took the initiative to promote quality and service experience for some unrivaled customers, and improve the platform's protection of intellectual property rights and user rights. We also took the initiative to reduce the size of the sales business and pursue better product quality control. We believe that more and more EP members will be provided with quality and service experience We believe that in the double challenge of repeated epidemic and consumer downfall, In terms of platform business, we adjusted our business strategy and focused on high quality and profitable growth. On PJT Marketplace, we took the initiative to remove merchants with substandard supply and service quality.

In addition, we provided more protection for intellectual property and consumer rights. On PiPi, we took the initiative to scale down third-party consignment business and pursued better quality control measures. We believe that a higher proportion of 1P Self-Source products can be refurbished and sold to retail customers with quality assurance and maintenance services. This will give us strong pricing power over the consumer electronics value chain. In addition to this strategic development, we also optimized our operating efficiency. Compared with running our company purely as a platform, we believe that prioritizing 1C business is more beneficial to the company's long-term development. Facing challenges from the pandemic resurgence and slow consumption, our trustworthy recycling services and quality-assured pre-owned products are becoming increasingly popular among consumers. Our business Our 1P business is demonstrating greater growth prospects, and we believe the growth of 1P business is worth investing in for the long term.

The expansion of the technical capabilities and the satisfaction of the need to diversify the recovery of consumers, we have distributed and operated 1,800 current stores according to the recovery. Gradually add multi-store recovery. In the third quarter, we have implemented multi-store recovery in 50 main stores in Shanghai and Beijing. The average single-store performance has increased by an additional 30 yuan. The additional profit of each store is more than 20,000 yuan. This is also a very good data verification. We expect that Q4 and Q1 will expand such a coverage in the first and second-tier cities across the country. This coverage will reach about 150 stores. And in 2023, we hope to make more contributions to the growth of the overall performance of the group. Regarding the recycling business in多品, the specific number in 2023

Let's now turn to discuss our future growth. On one hand, this growth will come from the stable development of our core business of consumer electronics devices recycling and sales. And on the other hand, it will come from the new revenue stream of our multi-category recycling business. This effort is an extension of our service capabilities. In an attempt to cater to consumer demand for multi-category recycling, we applied a tiered store operating system to 1,800 stores, readily introducing multi-category recycling services in these locations. During the third quarter, we piloted this service across 50 stores located in Shanghai and Beijing. On average, we generated an additional monthly GME of 300,000 RMB and a profit of 20,000 RMB. for each store. During the fourth quarter, we will continue to refine our structured FKU database, enhance user experience, including price inquiries, and improve the conversion rate. We expect to have further breakthroughs in terms of city coverage, extending our consumer ratio across over 150 core AHS stores across China, and we aim to share more detail, Carla, about our multi-category recycling business in the fourth quarter.

Okay. Thank you.

Thank you for the question.

As a reminder, if you have a question, please press star, then 1. And when asking a question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone in the call. Our next question comes from Joyce Chu from Bank of America. Please go ahead.

Hi, thank you for taking my question. My first question is, I would like to ask you to comment on the recent sales of Double 11 and the recent impact of the Chinese epidemic and the low consumption environment on our business. Then the second question is that I would like to ask if you can explain more about the future of this profit path and the future of this profit margin. Now I will translate myself. The first question is, could you please comment on the recent consumption momentum during the Double 11 shopping festival and including impacts from the COVID disruptions in China recently? And second question is about, could you give us more color on the path to profitability and the medium to long-term margin expectations?

Okay, thank you for the question. I will answer the first part of the question first. Our CFO Rex will answer the second part of the question. Regarding the performance of Double 11, this year's Double 11, the market has entered the era of long-term sales. The form of the whole sale activity is relatively simple. During the preparation of Double 11 this year, we formed a link with JD. It has expanded the sales range of new products supported by E-Challenge, and it has surpassed the 3C range of mobile phones for the first time. In cooperation with Jindong, we have launched cross-brand E-Challenge, which supports users to use mobile phones in the form of 3C to recover and reduce the burden of purchase of users. As you can see, the overall performance growth of Jindong's electronic products and home appliances is still very stable. It is still the mid-range base of Jindong. Thank you for the questions.

I'll take the first one, and CFO Rex will take the second. This year, the single-state grant promotion showed moderate growth. Promotions have now become regular and straightforward. When preparing for this grant promotion, we collaborated with JD's Home Appliances Business Unit to provide our trading services across more product categories. Users purchasing new home appliances on JD could trade in their used consumer electronics to reduce the economic burden. JD has been reporting steady growth in its core revenue stream from electronics and home appliances. Leveraging JD's traffic in electronics and home appliances, we further diversified our trading scenarios. This can increase the penetration rate of our core mobile phone and consumer electronics recycling business.

In the open-door phase of Double 11 in 2022, that is, within 28 hours from 8 pm on October 31st, the number of users of Jindong Rescuer has increased by more than 310%. We have deepened our cooperation with Jindong. Among the Rescuer business in the 3C cross-products that have been added this year, the total amount of payment alone accounts for about 20% of Double 11's entire Rescuer business. This time, Double 11 has added a new service capability for customers to change their mind about the new needs of the consumer, helping the brand to dig up the consumer's need to buy new products, and form a mutual exchange and win-win. In addition, the whole channel of order-making business has also achieved this twist. Prioritizing profit control, operating on the superboard, through the supplementation of our self-serve members and the integration of new members,

During the first 28 hours when the single-stake grant promotion kicked off at 8 p.m. on October 31st, the number of JD customers who traded in their used devices for the new increased by 310% year-on-year. Home appliance cross-category trading orders accounted for 20% of all the paid trading orders during the grant promotion. This year, we further advanced our service capabilities to satisfy consumers' demand for economic shopping options, thus mutually benefiting consumers and JD's new product sales. In addition, excluding frontline personnel costs and platform expenses, PiPi's selection realized an overall operating margin of 2% as we prioritized profit and supplemented 1P refurbished products.

In terms of brand service, the main brand we serve is Apple. Apple remains in the leading position in the market. In the third quarter, when other smart phone brand new products are out of stock, Apple remains out of stock. In our large-scale business, 70% are mobile phones, of which the Apple brand accounts for about 45% overall. Although the iPhone 14 series has been under the pressure of supply chain tension in recent times, But consumers still have a strong need for Pro and Pro Max and other high-end models. We believe that as Apple gradually recovers its production capacity, the need for reshaping is also expected to rebound. We are also confident that through better service, smoother scenarios, and the reshaping needs of users, In terms of brands we support, Apple has maintained its industry-leading market share. When other smartphone brands were under downward pressure,

Apple retained its growth in new device shipments in the third quarter. Mobile phones account for 70% of our total transaction value, whereas Apple's products account for 45% of our overall transaction value. Although the supply chain of the iPhone 14 lineup was under pressure recently, consumer demand for Pro and Pro Max models remained strong. We believe that as Apple gradually resumes its production capacity, trading demand can rebound, and we are confident that we will fulfill that demand with a better and more seamless service process. For Android models, in the context of declining consumption, consumers need a stronger incentive to shop for new products. We believe that our cost-efficient trading solutions could be that incentive that manufacturers also find encouraging.

Okay, thank you, Joyce. I will take your second question related to the profitability. There are two main drivers for our mid-term to long-term profitability. First is the improvement in WEMC gross margin, in particular due to the contribution from our new business initiative, compliant refurbishment. Our WEMC business was less impacted by pandemic control measures during the quarter as our operation of offline stores gradually resumed. We were able to meet consumers' recycling demand and with stable pricing. In addition, the strategic shift from the consignment model we mentioned in the last quarter has allowed us to transfer high-quality 1P product sales. This will allow us to continue to improve the quality and reputation of the pre-owned products that we commercialize. Meanwhile, we are on track in developing compliant refurbishing capabilities By replacing components in poor condition with certified third-party batteries and screens, we recondition these 1P products and better satisfy retail buyers' needs. As our really refurbed business skills, we improve our product mix, thus further widening our gross margin. Secondly, our operating efficiency has continued to improve during the third quarter. We realized an NGAP operating profit of 10.8 million RMB This was attributable to our optimization of fulfillment expenses and the selling expenses. So the gap of fulfillment expenses as a percentage of total net revenues decreased by 2.9% points year on year to 10.7%. This was mainly due to the refinements made to the management structure in our offline stores and the implementation of our new system for operation stations. As we gradually roll out the above-mentioned refurbishment business and further achieve cost-efficiency improvements, we anticipate our top line to be between 2.93 billion to 3.03 billion RMB in the fourth quarter. We would also anticipate a non-GAAP operating income in the fourth quarter and realizing a profitable year on a non-GAAP basis as we forecasted. Looking ahead, we expect our total revenues and profitabilities to further escalate in the coming quarters. Thank you.

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

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 directly email us at ir.atrenew.com. Have a good day.

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