ATRenew Inc.

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to ATRenews Incorporated's third quarter 2023 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 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, Jason. Hello, everyone, and welcome to AT Renew's third quarter 2023 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. The third quarter 2023 financial results were released earlier today. The earnings release and investor slides accompanying this call are available at our IR website, ir.atrenew.com. There will also be a transcript following this call for your early 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 Carrie and Rex will join the Q&A session. Let me cover 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 price 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 discussion of certain non-GAAP financial measures. Please refer to our earnings press release, which contains a reconciliation of non-GAAP measures to GAAP measures. Finally, please note that, unless otherwise stated, all figures mentioned during this conference call are in RMB, and all comparisons are on a year-over-year basis. I'd now like to turn the call over to Kerry for business and strategy updates.

Hello, investors and analysts. Welcome to the third quarter of the Earnings Conference.

Hello, everyone, and welcome to ATR News' third quarter 2023 Earnings Conference call.

The third quarter of the Earnings Conference call has once again surpassed the expected growth of income and profits. Although the new consumer market is strong, the company's performance and second-hand industries are still growing at a high speed. More and more people are willing to choose to change their mind, choose to buy quality second-hand goods, and treat them as a way of life. Through efficient cooperation, organization, unity, and struggle of the team, as well as the automated technology capabilities leading the industry, we are confident to continue to lead the development of the second-hand industry. This quarter, the total total income of the group is 32.6 billion yuan, which is the same as the growth 28.4%, exceeding the leading high-end achievement. The total revenue of the first three seasons was 9.1 billion RMB, which is the same as the growth of 32%. The increase is higher than what we expected at the beginning of the year. In the fourth quarter, we were able to get the support of JD and Apple, which is a strong road for the government to continue to care for resources. In 2023, the certainty of the overall revenue growth throughout the year will be clearer. This quarter, the net profit has been adjusted to 7,380,000 RMB. The net profit has been adjusted to 2.3%, which is a new high. It has further verified the ability to improve the efficiency of everything, automation, and scale-up. The net profit has been adjusted to 1.9% in the first three quarters.

During the third quarter, we once again exceeded expectations in terms of both revenue and profit. The fast growth in new product sales did not adversely impact our business. Importantly, second-hand industry continues to thrive, with more people choosing to trade in and buy high-quality pre-owned products for new lifestyles. With efficient organization, a dedicated team, and industry-leading automation technology capabilities, we are confident in offering in the new era as a leader in the second-hand industry. In the quarter, our total revenues reached 3.26 billion RMB, representing a 28.4% year-over-year increase, surpassing our guidance. Total revenues for the first three quarters amounted to 9.1 billion RMB, marking a 32% year-over-year increase and exceeding our initial expectations at the beginning of the year. During the festive fourth quarter, bolstered by JD.com's support and our inclusion in Apple's official trading program, the outlook for our overall revenue growth in 2023 is increasingly clear. During the quarter, adjusted operating income reached 73.8 million RMB, with an adjusted operating margin of 2.3%. Setting a new record and further confirming our ability to improve operational efficiency through automation technology and economies of scale. The adjusted operating margin for nine months ended September 30th with 1.9% ahead of our schedule.

Our quarterly results surpassed expectations. This was primarily attributable to the growing scale of the recycling and resale business.

which consistently drives industry expansion. Within this context, the development of our 1P business remains our core strategic focus, serving as the primary driver of our growth. At the same time, enhancing the service capabilities of our 3P platform business to encourage long-term merchant engagement serves as an important supplementary driver.

Sanjidu. Self-sufficiency business growth is 31.4% to RMB29.2 billion. On the one hand, our existing C2B recovery core business, we base our existing nearly 2,000 stores nationwide to transform and upgrade as a second recovery specialty store, to improve users' awareness of multi-specialty recovery, and strengthen the core of the second recovery national recovery brand. At the recovery stage, we provide users with attractive prices to cover the convenience and reliable recovery scenarios. We have won the favor of more users and locked in more members. More member recovery has also promoted the improvement of electricity efficiency and cost reduction. I would like to share two data highlights of EP's business. The first is that in the third quarter of this year, our users walked in directly to The revenue from the power outage recovery has increased by 6% compared to last year's statistics. This shows the impact of the second recovery brand on consumers. The second data highlight is that in October this year, the recovery of the second recovery in Beijing and Shanghai alone broke more than 100 million yuan. During the third quarter, our 1P business revenue grew by 31.4% year-over-year to 2.92 billion RMB. Within our core C2B business, we leveraged our existing network of nearly 2,000 national-wide offline stores and upgraded some into premier stores.

These stores are designed to raise user awareness of multi-category recycling and AHS Recycle as a national brand. Alongside the competitive calls we offer to users, our convenient and reliable services have attracted a larger customer base and secured a greater supply of pre-owned products, which further increases store performance while reducing costs. I'd like to share two noteworthy highlights resulting from this strategic upgrade. First, In the aspect of working revenue as a percentage of core C2B revenues, there has been a 6% year-over-year increase during the quarter, underscoring the increasing strength of our AHS brand and its impact on consumers. Second, during October, the monthly recycling values in Beijing and Shanghai both exceeded 100 million RMB. We believe that as more AHS recycle stores are equipped with multi-category recycling capabilities, the ceiling of our C2B business in higher tier cities will be further raised.

同时,在今年7月起,我们的B2C零售品牌拍单演艺选融入爱回收并升级为爱回收演艺选, 以加强对C端用户的服务能力,强化爱回收主品牌的品质和信赖性质。 通过品牌升级,我们进一步地拉通了产业链, from C2B recycling to B2C selection and retail, and to make QC sales a good way to make up for it. In terms of reconfiguration and new business, the overall contribution of three seasons is 200 million yuan, which is worth more for more electronic products. At the end of July, we signed Huawei's official maintenance authorization, to explore the ability of multiple Android brands to move up to 4-5% of the overall cost of maintenance that can be controlled, providing users with more diversified purchase options. In terms of industry standards, in the third quarter, we, as the main initiator, and the Shenzhen Electronics Industry Association, jointly drafted the Group Standard for Second-hand mobile transaction regulations. Starting in July this year, our B2C retail brand, PiPi Selection, was integrated into the AHS main brand.

which was renamed AHS Selection. This strategic initiative is intended to provide enhanced services for our retail users and bolster the quality and trustworthiness of the AHS Recycle brand. This brand upgrade further solidifies our secondhand retail value chain from C2B to B2C by complementing the closed loop with direct-to-consumer sales capabilities. In terms of compliance refurbishment, In the third quarter, the complex refurbished business contributed a total of 200 million RMB in revenue, adding greater value to more models of pre-owned electronic products. Since the end of July, we have been authorized to recondition Huawei products while exploring the refurbishment capabilities of multiple Android products. With controllable costs, we could gain a marginal gross profit of 4% to 5%. and consumers will further benefit from a greater variety of refurbished products. In terms of industry standards, in the third quarter, as the main sponsor, we jointly drafted the secondhand mobile phone transaction group standard with the Shenzhen Electronics Industry Association. At the same time, in collaboration with the association, the China Secondhand Electronics Trading Center was jointly established to promote online and offline integration and to promote healthy development of secondhand transactions.

On the other hand, regarding Apple's official recovery cooperation, our recovery business is quickly involved in Apple's Chinese retail system, serving users who are in need of recovery and replacement in Apple's official website and offline flagship stores. Starting in November this year, we have further gained the recovery qualifications of mainstream N-1 and N-2 generation products, Turning to our services embedded in Apple's official channels, our recycling business has been rapidly integrated into Apple's retail network in China.

providing recycling and trading services on Apple's official website and in its offline flagship stores. During November this year, we obtained a qualification that allows us to recycle the two most recent generations of iPhone lineups. Specifically, when a user trades in an iPhone 13 or iPhone 14 for a new iPhone 15 lineup product, Through Apple's official website and storefronts, their used devices go to AHS Recycle for further handling. This presents a significant recognition of our supply chain capabilities.

平台業務方面,我們的服務能力持續提升, 3P的收入同比增長7.3%至3.3億元人民幣, 綜合服務收費率達到5.4% We continue to strengthen the rich energy of Pajitang's merchants, and use Jidaxia Electronics as the cutting edge to develop and purchase goods specifically for the merchants, and implement the management functions of the warehouse, timely storage, and business analysis, to help the merchants save time and labor costs, and improve business efficiency. After many years of development, In terms of our marketplaces, we are continuously improving our service capabilities. During the quarter

3P revenue increased by 7.3% year-over-year to 330 million RMB, with an overall take rate of 5.4%. Regarding our PJT marketplace, we have improved our services for merchants and equipped them with device heroes, our portable quality inspection terminal. The proprietary features embedded significantly enhance their bulk purchasing and shipping management capabilities. The device also lifts the burden of real-time inventory management and business analysis, reducing time and labor costs while realizing faster turnover. PJT Marketplace has become an infrastructure of B2B transactions. By the end of the third quarter, PJT had amassed over 530,000 registered users, while the number of active users increased by 15.4% year-over-year during the period.

Regarding the PaiPai B2C platform, under the premise of protecting quality, we continue to provide consumers with second-hand products with a good price. Supporting the Jindong sales low-price strategy, the overall adjustment of the platform products' color and level, reasonable strengthening of the sales price system and the adaptation of the user's low-price consumption bias. This quarter, we upgraded the PaiPai B2C sales business model, The opening of Jindong Main Station has achieved the separation of supply and sales, reducing the entry, supply and business thresholds of small and medium-sized merchants in Jindong Main Station. At the same time, through platform unified self-management, better quality assurance has been achieved. This innovative model greatly reduces the threshold of retail supply and business participation of small and medium-sized merchants in the industry, and provides a rich supply and demand for the platform.

Our PiPi marketplace continues to allow us to meet broader consumer demand for cost-efficient, high-quality pre-owned products. We support JD's low-price retail strategy by enhancing our retail price system through adjustments to product grade ranges to align with users' preferences for more affordable goods. During the quarter, we upgraded PiPi's B2C consignment business model on JD's main site. This further opened up the platform to small and medium-sized merchants to join, provide supplies, and operate on JD.com. Our platform ensures quality with a unified quality system. Such an innovative model substantially reduces the entire entry barriers for small retail businesses in the industry. providing them with ample and easy access to platform resources, while ensuring product quality and buyer satisfaction.

Specifically, on the one hand, the logistics fee was reduced by 11% at the same time as last year, which is an improvement in the layout of warehouses across the country. On the other hand, we continue to play an important role in the automation of large warehouses, based on the Matrix 3.0 automation automation system. Due to the loss caused by the automation error, the return loss is also reduced by 20.5%. The second is the optimization of the sales fee. The sales fee has been adjusted to a decrease of 2.8% to 7%. This optimization is mainly due to the further improvement of e-resale brand power, so that the ratio of free resale channels that do not have to pay marketing fees increases. Second, we have flattened the organizational structure that is efficient and further improved the land push and sales

Turning to our expenses. Firstly, we continue to lower the non-GAAP fulfillment expense ratio to 8.7% by 2 percentage points year-on-year. This was primarily due to an 11% year-over-year decrease in logistics expenses, thanks to our updated National Operations Station footprint. Return losses from testing errors saw a 20.5% year-over-year reduction, thanks to the technological and efficiency advantages provided by our automated operation centers, especially the Matrix 3.0 system. Secondly, we obtained optimization in ROI for selling and marketing expenses. During the third quarter, adjusted selling and marketing expenses as a percentage of revenues were 7%, representing a year-over-year decrease of 2.8 percentage points. The strength of our brand name played a key role as we had a higher percentage of 1P recycling channels that required fewer selling expenses. We also streamlined our regional sales team and increased our sales output.

Based on the certainty of the growth and profit of mobile 3C large-scale business, we have also accelerated the development of multi-product business to test and review new media accounts. In terms of multi-product strategy, In the third quarter, the total recovery performance reached RMB3.5 billion, and the rapid growth of the business size was achieved in multiple quarters in a row. Non-3C recovery business has received widespread welcome from the user group of iRecruiting. Among them, experience is an important part. In terms of the delivery experience of luxury goods recovery, the time for the product to acquire the merchant's price has been further shortened, and the user's satisfaction with the price has been further increased. to further accelerate the recovery of funds, through the trust and service experience of face-to-face recovery through LiZhu branch stores. We believe that the long-standing commitment will open up the space for us to increase our recovery business and improve service frequency and branch store efficiency. In addition, as an adjustment of internal marketing resources and support for multi-product recovery business, we have cultivated the traffic of new media accounts, Building on our robust growth in consumer electronics categories,

We actively diversify our multi-category recycling business and explore marketing opportunities through new media. The recycling volume of our multi-category business amounted to 350 million RMB in the third quarter. This is a testament to the rapid growth over the past quarters. Non-consumer electronics recycling services have gained wide popularity among the AHS user community. Experience is the most important part of our flywheel. We shortened the waiting time for in-store pricing of luxury goods recycling, further enhancing user experience. User satisfaction with the quotation was improved, and payments were made even faster. Through trust and service experience advantages of in-store face-to-face fulfillment, we are able to break the glass ceiling while uplifting service frequency and UE of our stores. Furthermore, as part of our internal marketing resource allocation, and to support a multi-category recycling business. We test the water of traffic generation from new media. We have already launched local accounts for our offline stores on short video platforms, where we create cost-effective localized content that showcases user experiences while exploring our stores and utilizing doorstep recycling. By leveraging location algorithms, we attract a higher number of local users to our stores. Since the content is developed in-house, we didn't have any significant expenses.

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These results came from our steadfast strategies of occupying precise scenes, consolidating supply chain capabilities, and underlining a tech-driven business. The results also verify the second-hand industry's substantial potential for scale and enduring value. I would like to thank our united and hardworking team again for their tireless efforts. Finally, I would like to provide an update on our sustainability efforts. In September 2023, as a Chinese company from the pre-owned consumer electronics industry, we are honored to become the first signatory to join the United Nations Global Compact. We are committed to upholding the 10 universally accepted principles in the areas of human rights, labor, environment, and anti-corruption. This commitment strengthens the foundation for our company's sustainable development and aligns with our long-term mission. Now, I'd like to turn the call over to our CFO Rex for financial updates.

Okay, thank you. Hello, everyone. We are pleased to report another profitable quarter as we achieved yet another new record in the gap operating income on revenues that exceeded the top end of our guidance. Before going into our financial details, please note that all amounts and our comparisons are year-over-year basis unless otherwise stated. In the third quarter, total revenues increased by 28.4% to 3,256.8 million, mainly driven by growth in net product revenues. Net product revenues increased by 31.4% to 2,924 million, while net service revenues increased by 7.3% to 332.8 million. Grossing net product revenues was primarily driven by an increase in sales of pre-owned consumer electronics both through the company's online and offline channels. Sales of WMP refurbished devices totaled $2 billion, more than doubled compared with the same period last year. The increase in service revenues was primarily due to the recovery of PiPi and the PJT marketplaces from the COVID-19 pandemic influence during 2022, and an increase in the overall tick rate, which grew to 5.4% from 4.45%, turning 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 management views our results of operations. The reconsolidations of GAAP and non-GAAP results are available in our earnings release and the corresponding form 6K, furnished with SEC. Merchandise costs increased by 35.1% to 2,611 million. The increase was in line with the growth in product sales revenues. Gross margin at the group level was 19.8% in the third quarter. Gross margin for our 1P business was 10.7%. Fulfillment expenses increased by 3.8% to $287.7 million, excluding share-based compensation expenses, which we will refer to as SPC from PR. Then gap fulfillment expenses increased by 4.2% to $287.7 million, 2.3 million. Under the NANGAC measures, the increase was primarily due to an increase in personnel costs as the company's recycling activities developed compared with the same period of 2022. NANGAC fulfillment expenses as a percentage of total revenues decreased to 8.7% from 10.7% in the same period last year. Dealing and marketing expenses decreased by 12.1% to $299.5 million, excluding SBC expenses and amortization of intangible assets. Then gap selling and marketing expenses decreased by 8.7% to $227.9 million, primarily due to a decrease in expenses in relation to marketing activities. Then gap selling and marketing expenses as a percentage of total revenues decreased to 7% from 9.8%. in the same period last year. GNA expenses increased by 9.7% to 69.8 million. Excluding SBC expenses, NGAP GNA expenses increased by 9.3% to 15.6 million. NGAP GNA expenses as a percentage of total revenues decreased to 1.6% from 1.8% in the same period last year. Technology and content expenses decreased by 21.3% to 39.4 million. Excluding SBC expenses and amortization of internal assets, Nungap technology and content expenses decreased by 23.2% to 33.7 million. This was primarily due to the decreasing technological expenses as the confidence platforms matured. Nangap technology and content expenses as a percentage of total revenues decreased to 1% from 1.7% in the same period last year. As a result, our Nangap operating income was R&P 73.8 million in the third quarter of 2023. Nangap operating profit margin was 2.3%, marking a new record high. The Nangap operating margin was 0.4% in the same period last year. As of September 30, 2023, cash and cash equivalents, restricted cash, short-term investments, and funds receivable from third-party payment service providers totaled $2.3 billion. Our sufficient cash on hand safeguards a sustainable growth outlook. During the third quarter of 2023, we repurchased $1.6 million in the open market for a total cash consideration of $4 million. As of September 30th, 2023, we had repurchased a total of 13.8 million ADSS for approximately 48.4 million US dollars in our share purchase programs. Now turning to the business outlook. For the fourth quarter of 2023, the company currently expects its total revenues to be between 3,730 million and 3,830 million. representing a year-on-year increase of 25.1% to 28.5%. This forecast already reflects our 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 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 two. 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. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Victor Tang from Goldman Sachs. Please go ahead.

Thank you very much for taking my question. I'm asking this question on behalf on behalf of our analyst, Ronald Kuhn. Can management share some color on the single-state grant promotion performance? And what does management take on the outlook for 2024? Can management also provide an update on isolation's inclusion in Apple's official channel in mainland China? And will the recent revival of Huawei's cell phone impact your recycling performance? Thank you, manager.

Thank you, Victor. During the Double 11, We can see that users are very enthusiastic about the recovery and change. During Double 11's opening, the recovery rate of our C2B has reached a significant growth of 60%. Shanghai and Beijing, in October, achieved a turnover of more than 100 million yuan per month. During our B2C business, The total channel turnover of that day broke 1.6 billion RMB, which increased by 24%. Our recovery and B2C sales performance is the recognition of the large number of users of the love recovery brand. It also proves the firmness and great growth potential of the circular economy's business model and the industry. Entering the end of November, we set out for the fourth quarter of 2023. 37.3 billion RMB to 38.3 billion RMB of total income, corresponding to the growth interval of 25.1% to 28.5% of the same currency. As for the fiscal year of 2024, we maintain a positive expectation for the circular economy development. Our group strategy, especially Apple's official all-channel recovery and recovery strategy, Thank you, Victor, for your question.

Throughout this year's W11, we observed a surge in user enthusiasm for recycling and trading. During the pre-sale period of the grant promotion, the total value of C2B recycling orders increased significantly by 60% year-on-year. Both Shanghai and Beijing also reached the 100 million RMB milestone in single-month transaction values in October. And our B2C sales on November 11th across all channels totaled 160 million RMB, representing an increase of 24% year-on-year. Our recycling business performance speaks volumes about user loyalty towards the IHS Recycle brand, and the scoring resilience and immense growth potential of our business model within the circular economy. As we approach the end of November, our guidance for total revenue in the fourth quarter of 2023 ranges from 3,730 million RMB to 3,830 million RMB, reflecting 25.1% to 28.5% year-over-year growth. Looking ahead to fiscal year 2024, We remain confident in the promising evolution trends of the circular economy and our business strategies. We are confident in executing our strategy to realize higher profitability from our compliant refurbished business. Our involvement in Apple's official recycling and trading programs, expansion of our multi-category recycling, and efficiency enhancement from automation technology.

苹果是我们奥手手机3C的 is one of the most important brands in the business market. In terms of our main revenue, it remains at about 60%. We believe that Apple is still a brand that is deeply loved by users. Its exports in the domestic market in China are still stable. Apple's product maintenance and retention rate are still leading. It has a space to further improve and revive the penetration rate of service. Our business process of serving Apple's domestic official website and official flagship stores has been completed. We have experienced the first stage of business at the end of the third quarter, and accumulated a sales revenue of RMB 30 million within a relatively limited period of the first stage of the first stage of the first stage of the first stage of the first stage of the first stage of the first stage of the first stage of the first stage of the first stage Apple remains a key brand for our pre-owned consumer electronics recycling business, accounting for a 60% share of 1P recycling business revenues.

iPhone sales in mainland China continue to be robust, reflecting Apple's sustained popularity among consumers. The number of Apple products in circulation is huge, and the value retention rate is still industry-leading. There is room to further increase the penetration rate of trading services. Our services for Apple's official website and flagship stores in mainland China began in the third quarter, generating 30 million RMB in sales, despite limited new phone shipments and trading orders during the period. In the fourth quarter, we secured qualifications that allow us to recycle the two most recent generations of iPhones, which means we can have iPhone 13 lineups and 14 lineups for the new iPhone 15 lineups. This allows us to significantly scale up the amount of recycling mainstream products.

Thank you.

Thank you for the question.

The next question comes from Jiajing Chen from CICC. Please go ahead.

Thanks management for taking my question. Could management talk about the use of cash and how you are handling the shares repurchased? Thank you.

OK, thank you for the question. As of September 30, 2023, our total cash and cash recurrence restricted cash, short-term investments, and funds receivable from third-party payment service providers summed to 2.3 billion RMB. To support our long-term strategic and business development, So first, for the main business of pre-owned consumer electronics, we will continue to strengthen the control of the use of cash, improve the operating cash flow, and increase the positive cash inflow from core mature business. Second, we will deploy cash in a disciplined manner into areas with long-term potential, especially multi-category business based on existing AHS recycle stores. We believe that the enhanced operational cash flow and prudent capital expenditure will be conducive to the further strengthening of the company's competitive advantages and long-term value to shareholders. We have been continuously repurchasing our shares since late 2021 through the share repurchase programs we adopted. Repurchased stocks are booked as charity stocks, which are devoid of rights to dividends or voting. By the end of the third quarter of 2023, a total of 48.4 million U.S. dollars had been spent through the share repurchase program since December 2021. We plan to continue to conduct stock repurchase in the foreseeable future. Thank you for your question.

There is another question from Joy Ju of Bank of America, but due to technological issues, I will read out her question on behalf of her. 谢谢,恭喜公司三季度业绩在超预期。 我的第一个问题是关于利润率的。 管理层可否对毛利率和3GAP经营利润率提供更多的解析? Congrats on another strong quarter. My first question is about margins. Can management share more color on gross profit margin and your non-GAAP OT margin? What's the outlook for your margins? My second question is on refurbishment. Can management comment on the progress and expectations of the compliant refurbishment business? Thank you.

OK. Thank you for the question. So in the third quarter of 2023, so gross profit margin was 19.8%, which was a year-over-year decline due to our strategic shift in revenue mix. Over the past five quarters, we have focused on bolstering our WMP businesses, and as such, the 3P service revenues, which involves several costs, contributed 10.2% to our total revenues, downsizing by 2% year-over-year. So taking a detailed view of the gross profit of the WMP business, The third quarter gross profit margin stood at 10.7%. This aligned with our expectations that WMT gross profit margin would counteract this quarter. There are two reasons behind this. First, during the new phone sales season in September, we proactively adjusted our sales price of refurbished devices in preparation for seasonal margin fluctuation. We also adjusted to finished product selling prices. Such adjustment aims to meet the demand of merchants by reducing their procurement costs and ensuring their profitability. Second, to supplement our supply, we procured second-hand devices from industry partners, resulting in a relatively lower gross margin for that supply. However, as our automation technology further improves our fulfillment efficiencies, along with optimized selling and marketing cost efficiency, Our fulfillment expenses ratio and the selling and the marketing expense ratio against the total revenues dropped to 8.7% and 7%, delivering an NGAP OP margin of 2.3%. Although WMT gross margin decreased, we were able to provide consumers with a more competitive recycling price and a job for experiences. In the third quarter, all compliance, refurbishment business generated 2 billion RMB in revenue. reflecting notable user acceptance of pre-owned electronic devices, especially pre-owned Apple devices. Research suggests that an iPhone's lifespan can reach up to eight years, with 50% of globally activated iPhones being pre-owned devices. While the domestic compliant refurbishment market is still in its early stages, our refurbishment business shows promising growth potential. We anticipate an improvement in overall adjusted operating margins attributable to the growth of referral business and Apple businesses. Thank you for the question.

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

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

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