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ATRenew Inc.
3/13/2023
Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to the ATRenew Incorporated fourth quarter full year 2022 earnings conference call. At this time, all participants are in a listen-only mode. We will be hosting a question and answer session after management's prepared remarks. Please note today's event is being recorded. I would now like to turn the call over to the first speaker today, Mr. Jeremy Gee, Director of Corporate Development and Investor Relations of the company. Please go ahead, sir.
Thank you. Hello, everyone, and welcome to AT&T Renew's fourth quarter and full year 2022 earnings conference call. Speaking first today is Kerry Chen, our founder, chairman, and CEO. And he'll be followed by Rex Chen, our CFO. After that, we'll open the call to questions from analysts. The financial results were released earlier today, The earnings release and investor slides accompanying this call are available at our IR website. 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 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, 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 HU Renews' fourth quarter and full year 2022 earnings conference call. COVID infections surged rapidly, especially in December, following the easing of pandemic controls.
This posed a severe challenge to us in Beijing and Shanghai, etc., which contributed a significant proportion of our business. At the same time, production shortfalls meant that the popular models of the iPhone 14 lineup were in short supply, negatively affecting our trading business. To meet these challenges, we put every effort into maintaining store operating hours and ensuring the supply of one piece of short-forged products. Thanks to our team's efforts, we met our goals for revenue and profit during the quarter.
Starting with revenues,
During the fourth quarter, our revenue reached a new record high of $2.98 billion, representing a year-over-year growth of 22.4% and arriving in the middle of our guidance range. In 2022, our total revenue reached $9.87 billion, increasing by 26.9% year-on-year. This was mainly driven by our focus on 1P business, which grew by 30.4% during 2022.
The slowdown in consumption in 2022 and the recurrence of the pandemic have made it easier for us to open stores and manage stores more firmly, and it has strengthened the continuity of the first-hand recovery source. In addition, our city integration strategy has also laid the foundation for the growth of a batch of businesses. The integration of the capacity of the three business lines has strengthened the efficiency of the local market control, and has achieved a faster trading cycle. Even in the fourth quarter of the epidemic, we are still in Hangzhou, Nanjing, Suzhou, Xi'an, and many other key cities to see a continuous improvement in the recovery rate.
Facing slower consumption growth and the resurgence of COVID in 2022, we were more prudent in opening new stores and kept strengthening product sourcing capabilities by improving store management. In addition, implementing our city-level service integration strategy laid the foundation for the healthy growth of 1P business The integration of frontline sourcing capabilities of three business lines facilitates efficient sourcing and transaction flow. Even in the fourth quarter, despite facing severe pandemic-related challenges, we grew the penetration rate of major cities in which we already operate at scale, such as Hangzhou, Nanjing, Suzhou, and Xi'an.
In terms of platform business, we emphasize that the scale growth priority is adjusted to efficiency priority and stable growth priority. Based on better supply chain service capability, the comprehensive fee rate of the platform has risen to 4.8%. Among them, after the commercial structure has been optimized, the core business fee rate has risen to 6.9%. The high annuality of the business has once again proved the value of the platform. The business in Taipei is affected by the epidemic, so the fee rate of B2C has fallen slightly. Regarding marketplaces, we have pivoted from our IPO-era strategy of scale first to efficiency first with steady growth.
Driven by enhanced supply chain capabilities, the overall take rate of our marketplaces rebounded to 4.8%. To break this down, following the optimization of PJT marketplace merchant structure, the take rate for the core services increased to 6.9%, demonstrating merchant users' trust in us and the value of the PJT marketplace. For PiPi, fulfillment was hindered by the pandemic, leading to a slight decline in B2C take rate. However, we expect this to rapidly return to a healthy level following category and operation optimizations during 2023. Since we set 1P business as the main growth engine, third-party business prioritized efficiency optimization. These platform businesses, including PaiPai and PaiJitang marketplaces, have realized non-GAAP for premium profit.
In terms of efficiency, in 2022, we will strengthen the operation and cut every penny. The non-GAAP capitalization In 2022, we achieved an increase in cost efficiency, especially in sales and rental fees, which are controlled at 8.9% and 10.9% respectively. The optimization of sales and rental fees is mainly due to our saving on the promotion fee of the Tai Chi Tang platform, the cost of the business return, and the cost of the ground push team, as well as the more disciplined investment in new business.
Turning to operating efficiency, during 2022, we enhanced our operations and were highly disciplined with our spending. Under non-GAAP measures, we improved our cost efficiency. In particular, selling and marketing expenses and fulfillment expenses as percentages of total net revenue further decreased to 8.9% and 10.9% respectively. We achieved selling and marketing expenses optimization mainly by reducing BJT marketplaces' promotional fees and rebates for merchants. underground marketing fees, and by prudently investing in new initiatives.
successfully reduced Nangai's profit and loss rate from 13.7% in 2020 to 12.9% in 2021, and further decreased Q4 in 2022 to 10.9%. This proves that we insist on investing in the right strategy of automation technology. The profit of our business model is achievable. In the fourth quarter, Our second-generation automated operation center in Dongguan has further improved the quality control efficiency and reduced the loss caused by quality control errors by 22%. As the economic life returns to normal, we are confident that the return of transaction volume and the economic effect of automated technology on scale will be gradually released.
Fulfillment expense optimization is our long-term focus. Over the past three years, we have gradually automated quality inspection and pricing at our operation centers in South and East China, thereby enhancing the efficiency of warehousing and logistics. In addition, the upgraded management system has improved the standardization of recycling and fulfillment at our storefront. As a result, Nangat fulfillment expenses as a percentage of total net revenues decreased to 10.9% in 2022, from 13.7% in 2020 and 12.9% in 2021. Such improvements validate our commitment to strategic investments in automation and demonstrate the profitability of our business model. During the fourth quarter, our second-generation automated facility came online in Dongguan, further boosting inspection efficiency. As a result, losses caused by quality inspection failures decreased by 22% compared with the same period of 2021. As people's daily lives and the economy return to normal, we are confident in a revitalizing transaction activity, and we expect the benefits from automation to further scale.
At the end of the process, we continue to strengthen the construction of standards and price systems, and continue to increase the quantity of quality products for self-sustaining recycling products through the opening of a new business, and continue to increase the proportion of 2C retail goods, and extend the
On processing, we continue enhancing our grading and pricing system while providing confined refurbishment services at a larger scale. We would recondition a larger part of self-sourced devices, and this in turn helps to increase the proportion of like-new products that are suitable for retailing. Moreover, this value-added service will enable us to gain extra wealth margin along the value chain. During the second half of 2022, our compliant refurbishing business achieved a GME of over 220 million.
In the context of non-GAAP, we achieved nearly 34.6 million yuan in revenue in four seasons, and 6.9 million yuan in profit all year round, including cash and cash installments. Under the NANGAP measures, we achieved an operating income of $34.6 million in the fourth quarter and reported an operating income of $6.9 million for the full year.
With a strong cash position of $2.8 billion, which included cash and cash equivalents, short-term investments and funds receivable from third-party service providers, along with a clear firm long-term strategy, we are fully confident in our Nanga-appropriating profitability targets for the first quarter and full year 2023.
Next, let me once again emphasize our core strategy. We have repeatedly mentioned in past financial reports and phone calls 我们的战略是坚定不动摇的,在长期执行中卓有成效。 第一, Now let me once again emphasize our core strategies.
As we have mentioned over the past few quarters, we remain resolute in executing our productive strategies.
According to the CIC report, the recovery rate of Chinese consumer electronic products is still in the low range, about 4% to 5%. There is still a lot of room for growth. Our goal is to first break more than 15% of the recovery service penetration rate in the first-tier cities, and comprehensively improve the penetration level of the national market. In addition, it is worth mentioning that at the beginning of this year, First, our city-level service integration strategy has provided opportunities for a wider range of consumers to acknowledge and participate in recycling while simplifying how our partners and merchant users carry out trading services.
According to the CIC report, the penetration rate of consumer electronics recycling in China remains low at 4% to 5%, indicating an extensive addressable market for us. Our target is to first achieve an over 15% recycling penetration rate in top tier cities, while elevating the national average. In addition, as a highlight, we have established strategic partnerships with world-leading smartphone manufacturers in terms of trading programs this year. And we expect this to effectively benefit our business during the peak season of new phone sales in the third quarter. 第二点,持续加强合规翻新的整备能力, 更多的比例通过派开B2C业务直接零售, 实现更完整的价值链,实现更多的增值利润空间, 也更好的服务消费者, 让购买二手合规翻新整备产品的体验与购买新品一样, Second, we continue advancing our compliant refurbishment capabilities, maximizing our value chain and profit margins through more 1P2C retail distribution while we improve customer service. For refurbished products, we provide new product shopping experience and the same quality assurance but at more affordable prices. 第三点,多品类回收。
further expand the brand value of AiHuiShou by upgrading the image and service capability of the store, to meet the needs of users for more products, to increase the new development points for the group's business, and to improve the efficiency and operating profits of existing stores. Under the big background of circular economy development, encourage more users to participate in the recycling and green living methods, so that the life cycle of valuable products can be continued, and to carry out the business mission that makes idle and useless things useless.
Third, we will further amplify the brand value of AHS Recycle across multiple new categories. By upgrading our storefronts, elevating our service capabilities, and meeting a more diverse demand, we are adding new growth drivers for our business and improving the unit economics and margin of existing stores. Against the backdrop of the development of the circular economy, we encourage a greener lifestyle of recycle and reuse, By doing so, our mission to give a second life to all idle groups comes to fruition.
Fourth, gradually realize the replacement of automation. We believe that the development of automation has passed the development stage and entered the stage of project implementation and cost-effectiveness release. We will gradually upgrade the automation for the remaining six operating centers based on the increase in platform organization scale, realize high-level self-check and select machine replacement for artificial operation, and further reduce operating costs.
Finally, we will continue the steady automation of our supply chain. We have completed the R&D stages and are delivering positive cost savings results following the initial implementation. As device volume increases, we will gradually optimize the six remaining operation centers, replacing manual inspection to realize high precision quality control and improve cost efficiency.
The ongoing development of the circular economy provides us with a wide range of opportunities
We strongly believe in supply chain and technology as driving forces to realize efficiency advancement. Looking ahead, our mission to give a second life to all Idaho goods remains unchanged, and we stay dedicated to the recycling business. We will go further in product categories and will further scale. We will generate high-quality process and greater value for users, the environment, and shareholders.
Next, let's have the CFO of the company, Rex, introduce the financial situation of the company.
With that, I will hand the call over to Rex, our CFO, to go over the financials.
Hello, everyone. We are pleased to report that our first quarter revenue was in line with our guidance, even though COVID-related challenges continued to impact the operating environment. In the face of these headwinds, we leveraged our strong supply chain capabilities to maintain a stable product source supply and further solidified the healthy growth of our 1P businesses. 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 in RMB and our comparisons are year-over-year basis, unless otherwise stated. Total net revenues increased by 22.4% year-over-year to 2,981.2 million, mainly driven by growth in net product revenues. In terms of profitability, We had another profit-making quarter with a GAAP operating income of $34.6 million. This was primarily attributable to improved cost efficiencies in logistics and manpower that resulted from scale effects powered by automation in special upgrade. This was also attributable to improved cost efficiencies in optimized promotional and advertising strategies for our marketplaces. Facing the challenges brought by the pandemic, we made some short-term operational adjustments that resulted in a temporary decrease in our fulfillment costs this quarter. We leveraged the resources of supply of industry partners to ensure ample quality product listings. Although the gross margin of the batch was seen, we didn't have to invest heavily into inspection and grading. This was considered as a trade-off. During 2022, Our core strategies and tactical flexibility safeguarded us from market volatilities, and we are pleased to report an in-depth operating breakeven milestone, as well as $881 million positive cash flow from operating activities in 2022. In the future, we expect the adverse impacts of COVID-19 variants to fade away and our sourcing as well as fulfillment functions to recover. We will continue to improve our cost efficiency, leverage our automated inspection facilities to further realize scale effects, and accurately capture recycling and shopping scenarios. We expect to further improve our gap operating margins in the coming years. Now let's take a detailed look at the financials. In the fourth quarter, total revenues increased by 22.4% to $2,981.2 million. Net product revenues increased by 29.5% to 2,687.9 million, while net service revenues decreased by 18.5% to 293.3 million. Growth in net product revenues was primarily driven by an increase in sales of pre-owned consumer electronics through our offline channels in mainland China and overseas markets and the Pi Pi marketplace. The decrease in service revenues was primarily due to the lessened consignment business of Pi Pi Marketplace. As we shifted our strategy focus to prioritize 1P2C sales, while we further ramped up our compliant refurbishing business, we prioritized scale growth with stable profit and eliminated some businesses with low take rates of PJT Marketplace. The overall commission rate for our marketplaces rebounded to 4.8% during the first quarter. Next, turning to our operating expenses, to provide greater clarity on the change in our actual operating-based expenses, we will also discuss our NGAP operating expenses, which better reflect how the management views our results of operations. The recommendations of GAAP and NGAP results are available in our earnings release. and corresponding form 6K furnished with SEC. Merchandise costs increased by 31.7% to 2,370.5 million. This was in line with the growth in product sales revenues. Growth margin at the group level was 20.5% in the fourth quarter. Growth margin for our 1P business was 11.8%. Fulfillment expenses decreased by 5.2% to 274.9 million. excluding share-based compensation expenses, which we will refer to as SPC from here on. Nangap fulfillment expenses decreased by 7.3% to $259.3 million. Under the Nangap measures, the decrease was primarily due to a decline in operation center-related expenses, as we optimized our strategy for city-level operation stations and pipeline selection stores, as well as a decrease in logistics expenses. Nangai fulfillment expenses as a percentage of total revenues decreased to 8.7% from 11.5% in the same period last year. Selling and marketing expenses increased by 61.1% to 594 million, excluding SBC expenses and amortization and impairment loss of intangible assets. Nangai selling and marketing expenses decreased by 18.3% to 222.1 million, Under non-GAAP measures, the decrease was primarily due to decreased marketing expenses in relation to our more prudent spending strategy for our marketplaces. Non-GAAP selling and marketing expenses as a percentage of total revenues decreased to 7.5% from 11.2% in the same period last year. GAAP expenses increased by 47.6% to $76.6 million, excluding SPC expenses. Nangap G&A expenses increased by 66.3% to $54.7 million, primarily due to an increase in professional service fees. Nangap G&A expenses as a percentage of total revenues slightly increased to 1.8% from 1.4% compared with the same period last year. Technology and content expenses decreased by 12.1% to 54.7%. $4.5 million, excluding SPC expenses and amortization and impairment loss of intangible assets. Non-GAAP GNN expenses decreased by 26.6% to $38.7 million, primarily due to a decrease in personnel costs in relation to our adjustments to spending in research and development. Non-GAAP GNN expenses as a percentage of total revenues decreased to 1.3% from 2.2% compared to the same period last year. As a result, our NGAP operating income was $34.6 million in the fourth quarter of 2022. NGAP operating margin was 1.2% compared with 0.4% in the same period last year. As of December 31, 2022, cash and cash equivalents, short-term investments, and funds receivable from third-party payment service providers totaled $2.8 billion. Our sufficient cash on hand safeguards a sustainable growth outlook. Considering negative impacts on market demands resulting from the outbreak of COVID-19 pandemic and the changes in market conditions, the company performed quantitative impairment tests on the goodwill and intangible assets and recognized impairment losses of $1,819.9 million and $206.9 million on goodwill and intangible assets, respectively, for the period ended December 31, 2022. As a recap, on December 9, 2022, we announced an extension of our existing 100 million U.S. dollar share repurchase program for another 12-month period starting from December 28, 2022, based on management's strong confidence in the confidence-solid fundamentals and growth momentum. During the first quarter of 2022, we repurchased 383,304 ADSS in the open market for a total cash consideration of $7.9 million. At the end of 2022, we repurchased a total of 8.5 million ADSS for approximately $33.9 million under our share repurchase program. Now, turning to Outlook. For the first quarter of 2023, The company currently expects its total revenues to be between RMB2770 million and RMB2870 million due to the seasonality of our business. During 2023, we expect the negative impact from COVID-19 variants to fade out and anticipated a four-year operating income under the gap measures. This forecast already reflects our current and the 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 touchtone 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. 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. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Ronald Keung from Goldman Sachs. Please go ahead.
Thank you, Mr. Kwong. I want to ask two questions about growth this year. The first is the industry. How do you look at the growth space of the mobile industry? Now that the pandemic has basically ended, will we see an increase in growth this year? The second is to ask about the situation of other categories. Can you share with us the development of our multi-category recovery? Thank you, management. And I want to ask about two questions about growth. One is for the overall industry. How are we seeing the long-term industry and growth opportunity, particularly after the COVID impact? For this year, should we expect an acceleration in growth? And second is about your category expansion. Could you share a bit more on how this is progressing in your expanding of categories? Thank you.
Thank you. Our judgment on the industry is that it is still a multi-level industry. The acquisition of goods is very important. There are many users who are still not familiar with recycling or have not experienced a good price recovery service. Therefore, our growth strategy is to increase the coverage of effective scenarios to grab more recovery and new opportunities.
Thank you for the question. In our view, the supply driven industry remains unchanged and sourcing is of vital importance. Many users are unfamiliar with recycling services or may not have had satisfying recycling experiences with good pricing yet. Our growth strategy for recycling and trade-in is to cover more efficient conversion scenarios.
around our base site, AiHuiShou's store, we maintain a rhythm of opening and closing, and upgrade the current store's user experience to add more recycling products. These will increase the user's awareness of recycling services, generate more recycling supplies, and improve the efficiency of AiHuiShou store operation and the back-end control center. On the other hand, we have added a high-quality and strong recycling scene, a continuous and leading e-commerce platform, head-on mobile phone, On one hand, we have continued developing our AHS offline stores, which are the foundation of our business. We open new stores and cities at suitable pace.
while enhancing user experience at existing stores. We have also been expanding the category coverage of our recycling business. As a result, we have grown user awareness of our recycling services and generated more repurchases. Our strategy has improved efficiency in both storefront and back-end quality inspection centers. On the other hand, we have developed new recycling scenarios that have provided significant contributions to our business growth. We continue to enhance our collaborations with industry-leading e-commerce players and top consumer electronics brands. Through these collaborations, we provide recycling and trading services in scenarios where user traffic is highly concentrated on new product purchases. We believe there is still great potential for us to further penetrate China's market.
Regarding the trend of growth, with the adjustment of the epidemic prevention policy, the recovery of the economy, Before and after the Spring Festival in 2023, we saw the return of the exchange rate at the recovery stage. More and more users are willing to walk out of their homes, come to the store that they love to recover, and recover items that are idle at home but still of certain value. Therefore, we also continued the activities of Spring Festival to meet the recovery needs of users during the holiday. During the Spring Festival, the recovery units have significantly increased. In terms of purchase, we believe that users' pursuit of low-priced and high-quality products is in line with the rules of retailing. We see that users are more cautious when it comes to economic recovery and down payment stages. The second-hand products with supply chain quality protection are an important option. We are also focusing on improving our own industrial chain capabilities and values, and accurately selecting the right members to return to the company. In general, we are full of confidence in the first quarter and the growth of the business and the achievement of profits throughout the year.
In terms of growth trajectory, we observed several changes prior to and after the spring festival as pandemic restrictions were lifted and the economy began to revitalize. First of all, more consumers were willing to go out and visit our stores and shopping malls to sell their idle goods with residual value. We continued our uninterrupted services during the holiday and to meet rebounding demand. During the seven-day holiday, recycling volume had a significant year-over-year increase. Second, We believe high-quality products at low prices is a natural and reasonable pursuit of consumers. Consumer spending is still cautiously recovering. Pre-owned products with quality assurance backed by strong supply chain capability are essential options. We are also improving our operating capabilities and maximizing our value chain. Our goal is to precisely select four schools that are suitable for combined refurbishment and enhanced self-operated sourcing into consumer sales. thus bringing consumers quality assured value for money options. In a nutshell, we are confident that the first quarter and full year growth trajectory will be delightful and we will expect a profit, a profitable quarters in the coming year.
our borders can also be larger. More and more users are willing to recycle valuable things in their homes, not only second-hand mobile phones, 3C, but also sachets, wristbands, wine, gold jewelry, and so on. We have successfully solved the service quality of the second-hand mobile phone 3C industry, standardization, pricing, and other problems. At the same time, we have also
Let me now turn to our multi-category recycling business. Twelve years ago, we started recycling pre-owned mobile phones and saw the huge potential in the circular economy as our business grew. We believe that our business scope can be expanded. A growing number of users are willing to sell their valuable goods for cash, and this is beyond consumer electronics. A growing demand is coming from luxury bags, watches, pretentious liquor, gold, and jewelry. We have successfully solved problems regarding service quality, inspection standardization, and pricing that has plagued the pre-owned electronics industry. We also have the ambition to tackle the problems of these categories, such as poor user experience, inconsistent quality standards, and highly fragmented recycling channels.
For this reason, we have developed a multi-brand recovery strategy and upgraded our main brand's slogan, Love Recovery, to give you more recovery, to give the brand more love and warmth, and to provide standard service and pricing systems for more non-standard products. Based on the layout of more than 1,000 love recovery stores in our country, we have further selected high-end cities' high-quality stores, and have continuously increased the recovery business of high-value products. In order to achieve future success we have strategically developed our multi-category recycling business and upgraded our slogan to
Recycle More for You, which endows the brand with more love and care. It also demonstrates our goal of realizing more standardized service and pricing system for non-standard recycling. During the fourth quarter, we selected the top performing stores in higher tier cities from over 1,000 AHS stores across the country to pilot the above-mentioned high ASP categories, followed by clothing, footwear, and gift cards, among others. From January to February this year, the new category business has not only achieved breakeven, but also surpassed 50 million RMB in monthly GMV with strong growth momentum.
In the first half of this year, we plan to complete the upgrade of the brand image with the ability to recover multiple products in 150 main stores. At the same time, we will conduct a comprehensive construction of basic capabilities, enrich the structural data of the products, optimize the price strategy, and improve the By the end of June, we plan to allocate the new category recycling offerings across 150 Tier 1 stores and upgrade the brand image of these stores. We will also further enhance the overall fundamental capabilities.
These enhancements include diversifying the product database, optimizing pricing strategies, increasing the conversion rate at every stage of the recycling process, and enhancing the distribution channels. Putting user experience first will be our long-lasting principle, and we will continue to improve our service capabilities in offline stores, making them our fundamental capabilities in the high-value, nonstandard products recycling business. Thank you for the question.
Thank you.
The next question comes from Joyce Ju from Bank of America. Please go ahead.
Hello, Mr. Peng. Thank you very much for your question. Congratulations on your good performance in this quarter. I want to ask because we see that this quarter, including the profit of the non-GAAP this year, is quite bright. It has turned into a positive number. So I hope you want to know more I will translate my question. Actually, we have seen this quarter and even for the few years that the company actually achieved a non-gap possibility, which is pretty remarkable compared to last year's loss. So I just want to understand how management is looking at in the future what's the key source of our profits and how should we look at our profitability sustainability? Thanks.
Thanks, Joyce. I will take this question. During the second half of 2022, we adjusted our revenue mix and the profit strategy by prioritizing the high-quality, controllable 1P business. We also pivoted from consignment business to 1P2C retailing by leveraging our compliant refurbishing capabilities. This is expected to generate skilled 1P2C sales and gross profit in the long run. In addition, we optimized our sales and marketing spending in the marketplaces and improved fulfillment of spending efficiency as we further advanced our automated inspection capabilities. As a result, we successfully realized our profit targets in 2022. In our last earning call, we explained the details of the compliant refurbishment policy and the logic of the overall refurbishment business. By polishing device screens and replacing batteries and screens with certified third-party parts and components, we improve the functionality of pre-owned products. We also inform customers how we have refurbished devices, offer seven-day free return, and win your quality warranties. During the fourth quarter, we elevated the overall capabilities of our South China Operations Center's team. and production capabilities increased as planned. As a result, total sales of compliant refurbished phones surpassed 220 million in the second half of 2022. Meanwhile, we've further improved supply for our self-operated business by simplifying the screen process and more precisely locating devices suitable for compliant refurbishment. So ASP for 1P2C products increased to 2,700 RMB. By enhancing our operating efficiency and product quality, we further expanded our operating margin. Looking ahead to this year, we're going to implement these same improvements at our East China and North China operation centers. We expect to complete our supply chain upgrades for tablets as we test our new categories for our recycling business. Our goal is to provide retail users with more cost-efficient, high-quality products. In the full year of 2023, we expect our compliance refurbishment business to generate revenues of RMB 600 million with an additional margin of 5%. We encourage you to focus more on our NGAP operating margin. In the first quarter, we realized RMB 34.6 million in NGAP operating profit and achieved NGAP operating profit for the full year. This is mainly due to our long-term investment and large-scale implementation of automated quality inspection, stocking, and pricing technology. As a result, fulfillment efficiency has improved significantly. We also adjusted our strategy for our operation stations, reducing costs that had arisen from fragmented dispatching and logistics. As a result, our net gap fulfillment expenses as a percentage of revenue decreased from 13.7% in 2020 to 12.9% in 2021 and further dropped to 10.9% in 2022. We also remained prudent in our marketing efforts. By refining our operations, we strive to achieve greater organic growth for each of our business lines. Thank you.
Many thanks.
Our next question comes from Fei Lin from China Renaissance. Please go ahead.
Thank you for accepting my question. We have seen On sales and marketing, non-GAAP as percentage of revenue, we noticed that non-GAAP sales and marketing expense as percentage of revenue was lower to 7.5%. in the fourth quarter. So just wondering, can management elaborate more on the measures taken to improve efficiency behind? Thanks.
Thank you. In the last year, we have been prudent with our selling and marketing expenses and the related personnel costs. Apart from the marketing budget used to develop consumer mindshare of AHS Recycle, our assessment for each business line prioritized our For PGT Marketplace, we optimized its frontline marketing team. For Pi Pi Marketplace, we prioritized profitability and were more focused on its brand image and reputation. We also reduced subsidies provided on JD.com and our investments in user traffic of new channels. In the fourth quarter, excluding SBC expenses and amortization of and payment loss of internal assets, the gap selling and marketing expenses were $222 million. that accounted for 7.5% of total revenue, down by 3.9 percentage points from 11.2% in the same period of 2021. We believe that the gap measures the further better future of our expenses.
Thank you.
Again, if you have a question, please press star, then 1. As there are no further questions at this time, I'd like to hand the conference back to our management for closing remarks.
Thank you. Thank you all again for joining us. A replay of today's call will be available on our IR website shortly, followed by a transcript when ready. If you have any additional questions, please feel free to email us at ir-renew.com. Have a good day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.