Title

Presentation

ATRenew Inc. beats earnings expectations. Reported EPS is $0.76, expectations were $0.07.

Operator: Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to ATRenew Inc.’s Fourth Quarter and Full Year 2024 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 will now turn the call over to the first speaker today, Mr. Jeremy Ji, Director of Corporate Development and Investor Relations of the company. Please go ahead, sir.

Jeremy Ji: Thank you. Hello everyone and welcome to ATRenew’s fourth quarter and full year 2024 earnings press release 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 fourth quarter and full year 2024 financial results were released earlier today. The earnings press release and IR deck 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. Please pay attention to 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 ATRenew does not take any obligations to upgrade our assumptions on these statements. Also, this call includes discussions of certain 4non-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.

Kerry Chen: [Interpreted] Hello everyone and welcome to ATRenew’s fourth quarter and full year 2024 earnings conference call. We are excited to share our business updates, our strategic insights into the pre-owned industry and our development roadmap for 2025. First, I’m delighted to report that we realized total net revenues and profit ahead of target for the fourth quarter and full year 2024. Revenues for the fourth quarter exceeded the high end of our guidance, growing 25.2% year-over-year to RMB4.85 billion. Full year revenue reached RMB16.33 billion representing a 25.9% year-over-year growth, significantly outpacing the growth rates of the pre-owned electronics industry as well as the national retail sales of consumer goods.

On profitability, our non-GAAP income from operations was RMB130 million in the fourth quarter and RMB410 million in the full year 2024. Growing 61% and 62.8% year-on-year respectively. In terms of margins, non-GAAP operating margins as we expected were 2.7% in the fourth quarter and 2.5% in full year 2024. The total number of transactions grew healthily to over 35.3 million with China’s stronger support and subsidies backed by ultra long special treasury bonds to large scale renewal of equipment and trading of consumer goods in 2025, AHS Recycle stands at the forefront of a promising growth era. Zooming in product revenues for the fourth quarter grew by 26.6% year-over-year. We focused on growing our 1P business and further advancing our user experience.

This allows us to enhance the end-to-end cycle of direct engagement with consumers at the front of recycling and retailing. On recycling from consumers we forced an increasing volume of firsthand supplies from individual users as their demand increased. AHS stores have been the quality scenario for fulfillment. In the meantime, we collaborated with JD.com as we master industry leading know how and supply chain capabilities. Together we introduced our next level fulfillment services to users. In the fourth quarter Tritium contributed over 50% of the total recycling value in our exclusive service for JD’s recycling program, becoming a mainstream consumption solution for users. We attribute the results to our investment into trade in offering four years ago which has incrementally driven consumption growth.

On the direct sales to consumers, Paipai selection on JD.com, physical stores and online portals of AHS Recycle and new media distribution channels all had breakthroughs. We leveraged our supply chain capabilities and established an integrated inventory system advancing our efficiency in screening and picking retail products. We launched a pilot program of the on-demand refurbishment. It allows us to display multiple product auctions and conduct on demand refurbishment only when a consumer has made an order. We also polish our refurbishment processes ensuring ample supplies of value for money quality assured products to our consumers. To name a few results we made, the total GNV of our one PtoC sales reached a new milestone at RMB5.5 billion in 2024.

Retail revenue as a percentage of net product revenues was 29% in the fourth quarter, up by 8 percentage points year-on-year. We coupled marketing strategy and prioritized the development of our new media department in 2024. This established a consumer mind share that AHS Recycle is the expert in recycling numerous categories of products and offers value for money quality products. We spent 100 million Yuan on new media marketing to increase our brand exposure across Douyini, Kaishou and Jiaohongshu and promoted our location based in store services with content developed in house. This was a valuable approach to raise our brand and service awareness as trading subsidies were deployed. Once again we want to emphasize that AHS Recycle is a unique brand name with a huge potential in the second-hand industry.

Trillion has a clear growth outlook as the massive consumer group is still new to this option. In terms of category expansion, we rapidly extended our multi category recycling and services to 673 AHS stores in 2024. More consumers recognize that AHS Recycle serves diversified needs and categories. Multicategory recycling services grew in our existing stores and basic fulfillment capabilities. This leveled up store performance and contributed incremental operating profit to store operations. As for the development of multicultural recycling services in 2024, we strengthened our pricing capabilities, reduced in store service time and improved price acceptance. In 2024, multicultural recycling services transaction volume increased nearly threefold year-over-year, contributing 8.6% of total service revenue, up from 2.3% in 2023.

We comprehensively enhanced AHS standardized one stop ability to serve users recycling various items including consumer electronics, luxury goods, gold, premium liquor, shoes and clothing. More consumers are now realizing that AHS Recycle offers more than just mobile phone and electronics recycling. On our marketplaces the service revenue of Taiji Town saw a steady increase in 2024. The positioning of Taiji Town as the source center of domestic second-hand smartphones and consumer electronics was further strengthened with the number of registered merchant users on the platform exceeding 850,000. Taiji Tang also made innovations in local new media traffic support for sellers, tiered services for buyers and live streaming supply which generally enhanced the vitality of the merchant ecosystem and laid a solid foundation for the business expansion in 2025 supported by national subsidy.

Taipei pop business was upgraded to the consignment model which aggregated fragmented sources of supply and provided them with unified store operations, quality inspection and after sales customer service. This comprehensively reduced the cost for small and medium sized business owners who wish to expand their retail business on JD.com. The transaction value of Taipei consignment business increased nearly six times year-on-year. Reviewing 2024, certain business segments were in a transition phase as we refined our strategy. Firstly, in our Apple official trading business we adjusted pricing and operational strategy without jeopardizing user experience. Realizing an improved profit margin in the fourth quarter. Segment revenue was RMB1.05 billion in 2024.

Secondly, in terms of our overseas businesses, we closed certain lockmaking businesses resulting in a downsized overseas product revenue. However, we believed that smartphones remain one of the most globally tradable and valuable categories in the pre-owned market. There is substantial opportunity in the export and cross regional circulation of pre-owned smartphones and we will approach this with innovative approaches. We will provide further updates at appropriate time. Looking ahead to 2025, our strategy will focus on three commitment. Commitment to experience driven growth with further investment in retail business. Commitment to building the AHS Recycle brand. Commitment to strengthening our fulfillment capabilities. First, we will concentrate resources on direct engagement with consumers at the front of recessing and retailing.

We have upgraded a user experience driven mechanism and set up a group level user experience committee dedicated to analyzing and optimizing user experience. Multiple user experience metrics including recycling prices, the proportion of face-to-face transactions, two door service punctuality and post inspection negotiation rates are steadily optimizing. Since the fourth quarter of 2024, driven by subsidy rollouts and the platform promotions, we have seen rapid growth in trading demand from users of JD.com this is attributed to our joint efforts with JD.com in building robust second-hand electronics trading service capability and supply chain, enabling seamless system integration and efficient operational collaboration. As a result, we have sourced more first-hand supplies directly from individual users.

On January 20, 2025, the national trading subsidy for mobile phones, tablets and smartwatches were officially launched both online and offline, offering a 15% subsidy capped at RMB500 for new devices priced below RMB6,000. During the Chinese New Year holiday, our C2C recycling business grew by over 70% year-on-year, effectively meeting the trading needs of users nationwide. Leveraging our industry leading supply chain capabilities, we conduct compliant refurbishment with authorization from leading manufacturers, we use genuine parts for value added processing, enhancing the availability for retail ready products for our 1P business. 1PtoC retail revenue as a percentage of total product revenues has steadily increased from 17% in the first quarter of 2023 to 29% in the fourth quarter of 2024 and our mid to long term goal of this proportion is 50%.

Additionally, by leveraging Paipai’s consignment capabilities, we expect to double our offerings and consignment sales in 2025. We remain committed to building AHS Recycle app and this brand. In the pre-owned recycling industry AHS Recycle is a rare high-quality brand. However, a significant portion of users have yet to experience recycling for trading services and the industry remains fragmented with many third-party recycling and repair shops lacking brand recognition. This presents huge opportunities to improve both recycling penetration and brand consolidation. Building on our 2024 brand building efforts, we will actively explore new media capabilities to position AHS Recycle as the top brand for recycling services in China. We will leverage platforms like Douyin and Xiaohongshu for marketing, complementing our existing precise E-commerce and brand partners scenarios.

Through production of new media content focused on recycling services, we aim to attract more users to AHS stores to experience our services. Additionally, multi category recycling and ecofriendly initiatives like the Revive campaign will encourage users to explore the AHS Recycle app and mini program showcasing our service capabilities. Third, we remain committed to enhancing our fulfillment capabilities. Our continuous marketing efforts for the AHS Recycle brand are expected to drive more online traffic to our physical stores which drive our store openings. In first and second tier cities, the rapid growth of our asset light multicultural recycling business has optimized the profitability model of our stores supporting the opening of new stores.

In lower tier cities we support partners in building local traffic through new media IPs. With greater local traffic, the operational capabilities of our franchisees will be enhanced, thus further converting to an extended franchisee network. In areas where in store visits are less convenient, we are strengthening our two door service capabilities to increase service density and meet users demand for face-to-face transactions. Over the next three years we aim to establish a nationwide network of 5,000 stores and a 5,000 member two door service team, ensuring a robust fulfillment network to cater to diverse recycling and trading needs. Based on the three strategic focuses, we are confident in capturing an increase in growth opportunities on the supply side driven by national subsidies.

By expanding our fulfillment capabilities, we will secure more firsthand sources of supply, utilize our supply chain capabilities to drive more retail. We believe for the pre-owned industry and AHS Recycle, 2025 is a year full of opportunity. Now I’d like to turn the call over to CFO Rex for financial updates.

Rex Chen: [Interpreted] Hello everyone. I am pleased to announce that we achieved strong financial performance in 2024, driving revenue and profitability growth as we developed our core recycling businesses and cultivated our innovative businesses. Total net revenues for the year increased by 25.9% to RMB16.3 billion. Adjusted operating income grew significantly, rising 62.8% to RMB410 million, and we are proud to have achieved our first GAAP operating income for the year as well. These results demonstrate our success in building out our economies of scale and delivering on our missions of driving sustainable development. Before taking a detailed look at the financials of the fourth quarter of 2024, please note that all amounts are in RMB and all comparisons are on a year-over-year basis unless otherwise stated.

In the fourth quarter total revenues increased by 25.2% to RMB4,849 million, primarily driven by ongoing growth in our net product revenues. Net product revenues increased by 26.6% to RMB4,461 million, primarily due to the growth in our refactoring scale and the sales offering on consumer electronics through our online channels. Net product revenue for the full year reached RMB14.84 billion, representing a year-on-year increase of 27.3%. Net service revenues were RMB389 million in the fourth quarter representing an increase of 10.7%. The increase was primarily due to an increase in the service revenue generated from PJT marketplace and multi category recycling businesses. The growth in service revenues went along with the upward trend in our marketplace’s overall gross transaction value, delivering an overall marketplace take rate of 5.36% in the fourth quarter of 2024.

During the quarter, our multi category recycling business contributed over $40 million to service revenues, representing over 10% of service revenues, a significant increase from 5.5% in the same period of 2023. Net service revenue for the full year reached RMB1.48 billion, representing a 13.5% year-on-year increase which with an overall take rate of 5.35% of which our multi category recycling business contributed RMB130 million, representing a threefold increase year-on-year. This accounted for 8.6% of total service revenues in 2024 compared to 2.3% in 2023. Now let’s discuss our operating expenses. To provide greater clarity on the trends in our actual operating based expenses, we will mainly discuss our non-GAAP operating expenses which better reflect how management views our results of our operations.

The reconciliations of GAAP and non-GAAP results are available in our earnings release and the corresponding Form 6-K furnished with the US. SEC. In the fourth quarter of 2024, merchandise costs increased by 24% to RMB3,905 million in-line with the growth in product sales. Gross profit margin for our 1P business was 12.5%, showing a trend of stabilization and recovery compared with 10.6% in the same period last year. The improvement of gross profit margin in 1P business was mainly driven by our end-to-end supply chain strength and refurbishment capabilities contributing to higher margin D2C sales. We also optimized the performance of Apple’s official trading program driving both revenue growth and margin expansion in the fourth quarter. Merchandise cost for the full year increased by 26.6% to RMB13.09 billion with a 1P gross margin of 11.8% compared to 11.3% in 2023.

In the fourth quarter of 2024, fulfillment expenses increased by 31.8% to RMB397 million. Non-GAAP fulfillment expenses increased by 32.7% to RMB392 million. Under the non-GAAP measures the increase was primarily due to an increase in personnel costs and logistics expenses as we conducted more recycling and transaction activities compared with the same period of 2023 and an increase in operation related expenses as we expanded our recycling fulfillment network and operation center capacity in the fourth quarter of 2024. Non-GAAP fulfillment expenses as a percentage of total revenues increased to 8.1% from 7.6%. Non-GAAP fulfillment expenses for the full year increased by 23.7% to RMB1.36 billion, while the non-GAAP fulfillment expenses as a percentage of total revenues decreased to 8.3% from 8.5%.

In the fourth quarter of 2024, selling and marketing expenses increased by 18.7% to RMB376 million. Non-GAAP selling and marketing expenses increased by 30% to RMB321 million primarily due to an increase in advertising expenses and promotional campaign related expenses and an increase in commission expenses in relation to channel service fees. Non-GAAP selling and marketing expenses as a percentage of total revenues increased slightly to 6.6% from 6.4%. Non-GAAP selling and marketing expenses for the full year increased by 14.8% to RMB1.09 billion, while non-GAAP selling and marketing expenses as a percentage of total revenues decreased to 6.6% from 7.3%. In the fourth quarter of 2024, general and administrative expenses increased by 46.5% to RMB91 million.

Non-GAAP G&A expenses increased by 71.1% to RMB77 million, primarily due to an increase in personnel costs. Non-GAAP G&A expenses as a percentage of total revenues increased to 1.6% from 1.2%. Non-GAAP G&A expenses increased by 28.2% to RMB250 million, while non-GAAP G&A expenses as a percentage of total revenues remained flat year-over-year at 1.5%. In the fourth quarter of 2024, technology and content expenses decreased by 10.7% to RMB57 million. Non-GAAP technology and content expenses decreased by 9.2% to RMB53 million. The decrease was primarily due to a decrease in personnel costs. Non-GAAP technology and content expenses as a percentage of total revenues decreased to 1.1% from 1.5%. Non-GAAP technology and content expenses for the full year increased by 10.7% to RMB190 million, while non-GAAP technology and content expenses as a percentage of total revenues decreased to 1.2% from 1.3%.

As a result, our net GAAP operating income was RMB131 million in the fourth quarter of 2024, representing an increase of 61% year-over-year. Non-GAAP operating profit margin was 2.7% compared to 2.1% in the fourth quarter of 2023. Our non-GAAP operating profit for the full year reached RMB410 million, increasing meaningfully by 62.8%. Non-GAAP operating profit margin in 2024 was 2.5% compared to 1.9% in 2023. In terms of shareholder returns, we continue to push forward with repurchases and our current repurchase program allows us to repurchase up to $50 million of our ADSs through June 27, 2025. In the fourth quarter of 2024, we used $5.8 million to repurchase approximately 2.1 million ADSs. As of December 31, 2024, we have returned $25.9 million to our shareholders for a total of 10.3 million ADSs. As of December 31, 2024, cash and cash equivalents, restricted cash, short term investments and funds receivable from third party payment service providers totalled 2.9 billion.

The company’s financial reserves are sufficient to support reinvestment in business development and shareholder return. Now turning to the business outlook for the first quarter of 2025. We anticipate total revenues to be between RMB4,550 million and RMB4,650 million, representing a year-over-year increase of 24.6% to 27.4%. Notably, the first quarter of 2024 marked a high base of product revenue for Apple trading business. In the first quarter of this year, the company adjusted its operational strategy and estimated that the scale of this business would decrease, but the operating profit margin could turn positive. In addition, we downsized some overseas businesses with negative margins. These two factors have been taken into account in the outlook for the first quarter of 2025.

Please note that this forecast only reflects our current and preliminary views on the market and operational conditions, which are subject to change. This concludes our prepared remarks. Operator we are now ready to take questions.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] 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 will pause momentarily to assemble the roster. The first question that we have is from Joyce Ju of Bank of America. Please go ahead.

Joyce Ju: Hi management, thank you for taking my question. Could you kindly share your plans to capture the growth opportunities in 2025 on the back of nationwide consumer electronics trading subsidies? May you help us quantify the add-ons from this year’s subsidy? What’s the outlook for of your top line? Like you know, for this year? Thank you.

Kerry Chen: [Interpreted] Thank you for the question. We believe China’s pre owned electronics market had significant untapped potential. Looking upstream, new smartphone shipments in China rebounded in 2024 by nearly 6% year-over-year to 290 million units. This was driven by a steady increase in replacement demand and support its consumption policies. Meanwhile, according to IDC research, China’s preowned smartphone recycling transaction industry has sustained a double-digit growth. The natural trading subsidies are inevitably a growth engine for our recycling business. By leveraging our unique industry position and front-end capabilities, we will strive to seize opportunities and increase our penetration rates in core scenarios.

As China deploys national subsidies to mobile smartphones, tablets and smartwatches in 2025, we witnessed a significant increase in CtoB recycling volume in January and February thanks to our front end fulfillment pricing and system capabilities. We aim to further deploy our compliance refurbishment capabilities and high turnover capabilities of PJT marketplace. This is to drive more efficient and profitable circulation of pre-owned consumer electronic products. Through AHS stores and official website, we are meeting the growing consumer demand for high quality pre owned products nationwide. On our recycling service capabilities, we expand our user range by offering a broader area of product service capabilities in addition to more stores and larger two door service teams.

We deliver upward recycling results and take rates for product categories while further establishing our product catalog and pricing capability. As a result, we aim at an accelerated growth of the top line in 2025. On tactics, we plan to speed up store openings and expanding our Qiuzhou service team by net adding 800 stores and 1000 two door staff in 2025. This advances our national face to face fulfillment network that will provide instant recycling and cash back services. We convert more customers with such a unique user experience. We will also boost brand investment by amplifying AHS presence on new media platforms like Douyin and Xiaohongshu, reinforcing AHS Recycle’s position as the top-of-mind brand name for recycling services and attracting more users to our offline and online touchpoints.

Given the bright growth outlook for the pre-owned market, we should value rational investment into brand awareness and fulfillment capabilities in preparation for long-term development. In the mid to long term, our industry leadership and economies of scale will gradually deliver sustained profitability. Thank you for the question.

Operator: The next question we have is from Jiao Wan of CICC. Please go ahead.

Wan Jiao: Hi, good evening. Thank you for taking my questions. We know you have made great progress in reducing costs through automatic quality inspection and operations in recent years. Do you pay attention to recent AI models like Deep Seek and have a plan to optimize your business with AI? Thank you.

Kerry Chen: [Interpreted] ATRenew is a scenario driven industry Internet company. It achieves scale effects and enhances the standardization of operations through its own recycling and platform businesses accumulating enormous know how. We have AI applications in some business scenarios. For example, in our automated quality inspection centers in Donghua and Hangzhou, we have extensively deployed AI image recognition to automatically determine the appearance and inspect main boards and components, improving inspection accuracy, reducing costs of quality inspection and reducing manual inspection errors. At present, some of our business procedures need human operation and there is considerable room for efficiency improvement through AI.

Since the fourth quarter of last year, we have actively embraced a cutting-edge trend and achieved some initial industry application innovations through the deployment of some open source large language models, for example the efficiency improvement of the compliance check of our store operations, digital operation trainings at operation centers, coding for back office related requirements, internal knowledge, database, et cetera. This year we will further deploy AI applications in more departments and business scenarios focusing on the development of AI plus circular economy innovative applications in the fields of intelligent customer service, intelligent quality inspection and intelligent pricing to achieve cost reduction and efficiency improvement in more recycling scenarios and business processes and bring more value to customers.

In addition, we expect AI will be more widely deployed on mobiles and PC terminals leading to the renewal of AI hardware. Given we have focused on personal and household electronic products, we believe this presents a significant long term business opportunity for us. Thank you.

Wan Jiao: Thank you.

Operator: The next question we have is from Michael Kim of Zacks Small-Cap Research. Please go ahead.

Michael Kim: Great. Good morning or good evening, everyone. Just one follow-up question for me. Can you just flush out your updated thinking on capital management priorities, particularly as it relates to reinvesting for growth versus returning capital to shareholders via buybacks? Thanks.

Kerry Chen: [Interpreted]. I will address this question. As mentioned earlier, we remain optimistic about the growth of the second-hand recycling industry over the next three to five years. Therefore, we have set real acceleration as our internal target for 2025. Consequently, we will make some OPEC 3 investments in-line with the business scale to enhance the service capabilities on the front end for users and to build the user perception of AHS Recycle’s brand name. The emerging businesses that we have focused on developing over the past one to two years such as Multi category recycling, compliant refurbishment and Apple’s official trading program have already demonstrated healthy growth and profitability and thus basically requiring no additional investment.

Our business model is generally asset light but operational intensive. We will adopt a balanced approach when expanding our store network and fulfillment capabilities in 2025. The adjustment and upgrade of our South China Operations center is complete so there will not be too much additional CapEx in 2025. We aim to maintain a healthy non-GAAP operating profit margin to support businesses reinvestment and shareholder return. We are confident in our business outlook and will further execute on our current repurchase plan. We will also balance the use of cash and invest more when industry opportunities grow. The ultimate goal is to increase long term shareholder returns. The repurchase program is valid until the end of June 2025. We will continue to actively engage with our Board of Directors during the interim for extension.

Michael Kim: Got it. Thanks for taking my question.

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

Jeremy Ji: 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@atrenew.com. Have a good day.

Operator: This conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.