Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the AiHuiShou International Co. Ltd. Second Quarter 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this call 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.

Thank you. Hello, everyone, and welcome to AiHuiShou [indiscernible] Second Quarter 2021 Earnings Conference Call. With us today are Mr. Kerry Chen, our Founder, Chairman and CEO; and Mr. Rex Chen, our CFO. Our second quarter 2021 financial results were released earlier today and are available on our company's IR website at ir.aihuishou.com. For today's agenda, Kerry will share his thoughts on the Q2 performance, followed by Rex, who will discuss the financial highlights for the second quarter of 2021. Both Kerry and Rex will join the Q&A session. Before we continue, I refer you to our safe harbor statements in the earnings press release, which applies to this conference call. Any forward-looking statements that the company makes on this call are based on the assumptions as of today, and the company does not undertake any obligations to update 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, unless otherwise stated, all figures mentioned during this conference call are renminbi and all comparisons are on a year-over-year basis. With that, I will turn the call to Kerry for business and strategy updates. Please go ahead.

[Interpreted] Hello, everyone, and thank you for joining us on our first earnings call as a public company. We are very pleased to have the opportunity to share our business update and strategy with you as we implement our mission to give a second life to all idle group. Our IPO on the New York Stock Exchange in June marks a major milestone in our 10-year development history as a technology-driven preowned consumer electronic transactions and services platform. Our 4 business lines, namely, AHS Recycle, PJT Marketplace, Paipai Marketplace and AHS Device spanned across the entire industry value chain. These offerings, connecting all industry participants to realize the closed-loop value chain, cover both the supply and the demand side of the industry. Our platform combines C2B, B2B and B2C capabilities to provide standardized inspection grading, pricing and aftersales services. In the past decade, we have dedicated our efforts through improving the scalability, standardization and efficiency of preowned consumer product transactions. Our second quarter results exceeded expectations. Second quarter GMV reached RMB 7.8 billion, up 69.6% from the same period last year. Total net revenue recorded RMB 1.87 billion, which represented a year-over-year increase of 56.2%. The number of consumer products transacted on our platform was 7.8 million, up 27.9%. These results are a testament to the enormous growth potential of deploying owned consumer electronic transaction industry and the demonstration of our supply chain capabilities and our efforts in setting industry centers as well are well acknowledged. Our GMV for the last 12 months increased by 64.9% to RMB 26 billion. LTM revenue increased by 46.2% to RMB 6.4 billion, and the LTM number of consumer products transacted increased by 33.7% to over 28 million. Turning to strategic areas. First, on our 1P business. We expanded our geographic coverage and trading…

Thanks, Kerry, and hello, everyone. Before sharing details on our second quarter financial results, please note that all amounts are in RMB and all comparisons on a year-over-year basis, unless otherwise stated. During the second quarter, our increasing scale led to strong revenue growth, narrowed non-GAAP operating loss margin and further improvements in our free cash flow. Total GMV increased by 69.6%, among which GMV for product sales increased by 72.7%. The increase was mainly driven by the rapid growth in our trading business, collaboration with JD Group, the opening of new stores, efficient operation of existing stores and the faster sales growth of 1P devices on Paipai. Keep in mind that new stores were opened midway through the second quarter and are still at an early stage. We expect improvements in efficiency in the following quarters GMV for online marketplace, including PJT, Paipai increased by 68.6%, mainly driven by strong customer demand and as the continued expansion of our platform's network effects. In the second quarter, total revenues increased by 56.2% to RMB 1,868 million. Product sales revenue increased by 53.1% to RMB 1,603 million, while our service revenue increased by 77.9% to RMB 264 million as our platform service capabilities improved. Service revenue grow faster than product sales revenue, and as the revenue mix continues to develop in a more beneficial direction. The contribution from service revenue increased to 14.2% of total revenue during the second quarter compared to 12.4% in the second quarter of 2020. Notably, GMV for consignment model accounted for 19.7% of Paipai's GMV in Q2. We believe that our gross margin will improve in the medium to long term as we increase the proportion of 1P recycled so that can be sold to individual consumers of Paipai. And more importantly, we can further increase…

[Operator Instructions] And the first question comes from Lucy Li with Goldman Sachs.

[Foreign Language] I have 2 questions in here. The first one regarding COVID-related travel restrictions. We see that the third quarter guidance is still quite strong. But considering the COVID-related travel restrictions, I would wonder if management could further help us to understand what kind of impact that would impact -- that will create on our business. And the second question is with regard to a collaboration with JD and Kuaishou. Management has already shared with key strategies on one-stop trading with JD and that we have already opened up the recycling channel on Kuaishou stores. I wonder if you can further help us to understand, for example, helping to improve the build and improve the 3C recycling infrastructure and supply chain capabilities on Kuaishou stores.

[Interpreted] Okay. Thank you, Lucy. To answer your first question, in July, the COVID-19 Delta variant appeared in multiple regions in China. The company immediately arranged its webcast for employees passing through high-risk areas and worked from home to ensure the safety of the working environment. At the same time, anti-epidemic materials were delivered to those cities. We do not rule out the further impact of urban lockdowns or travel restrictions and its short-term or continuous impact on our 1P business. But referring to the second quarter performance last year, as long as the hard lockdown is eased, our trading business resumed very quickly. In addition, we need to say that the launch date of the iPhone 13 series is uncertain. Either it will fall in the third quarter or the fourth quarter. So there might be seasonality of revenue growth year-over-year. Also, we will recommend you to compare the results of the second half of the year with the same period of last year. So we would like also -- we would also like to mention about the successful one-stop trading services as it resulted in continued growth momentum in both GMV and revenue. Also, we will continue to innovate and to strengthen the partnership with JD.com. One thing to highlight is on the 10th of August, we launched the 3G service project as a pilot project with Jindong retail. And also, we started from the pilot city of Shanghai and undertake the last-mile of some models such as iPhone, which is provided by our off-line store employees. And also, these employees will provide users with strict -- with screen protectors, extended warranty services. And we also wanted to cover the nearby 2 to 3 meters to -- by the offline stores to cover the fulfillment of JD new…

And the next question comes from Gloria Ju with Bank of America.

[Foreign Language] I will translate by myself. My first question was regarding the outlook for the third quarter, what assumptions in terms of the iPhone new model launch and also the promotions together with the platform, having been baked in this forecast? And how should we look at the visibility of this next quarter and the fourth quarter? The second question was related to the gross margin. It seems like, you know, declined sequentially slightly, and would like to get more color on it. And also, would like to have more insights in terms of going forward trend.

[Interpreted] So to answer your question regarding the launch of new iPhone model, we do have an assumption that the date might fall in mid-September to early October. But however, we would like to make a conservative assumption that the launch date will be in late September. And this shall be minimizing the impact on our Q3 and Q4 earnings results. And we might make adjustments to our forecast regarding the actual launch date of the new model of iPhone. Regarding the collaboration with JD.com, we would also continue the collaboration regarding trading services in the third quarter and going forward. Thus, we are happy to provide more color on this later. [Foreign Language] Our CFO, Rex Chen.

Okay. Thanks, Joyce. I will take this -- these questions. So if you look at the 1P gross margin rate, you can -- you will find that the gross margin of the 1P business decreased compared to prior quarters and also decreased compared to the same quarter of last year. If you look at the overall gross margin, you can see the company's overall gross profit margin in Q2 remained stable at 25%, which was consistent compared to reserves prior quarter and the same period in the last year. The contribution from service revenue in this quarter increased to 14.2% this quarter. This can bring higher margin and offset the impact of the decreasing 1P business margin of Q2. So we believe the overall gross margin will keep increasing gradually going forward. As we leverage multiple marketing campaign approach, we prefer to reduce non-GAAP operating profit margin. Non-GAAP operating loss was RMB 51 million in this quarter, and the operating margin was negative 2.7%, compared with negative 3.1% in Q2 2020. We anticipate a positive non-GAAP operating margin in Q4 this year. Once we can meet our internal target of non-GAAP operating margin rate in certain quarter, we will invest additional resources to expand our scale as large as possible. So in this Q2, also, due to the June 18 festival, we collaborated with JD, and we directly increased the recycling price to attract more consumers to do the trading business, instead of using other sales campaigns, resulted in a mild decrease in our 1P gross profit margin by 2%. Total additional amount spent in this area was RMB 36 million. If we did not increase the recycling prices such as -- our consumers start investing the same amount, RMB 36 million, in selling and marketing activities, 1P gross margin of Q2 2021 would be 15.2%, similar to that of Q2 2020, which was 15%. Of course, selling expense would increase accordingly. So basically, we believe that non-GAAP operating margin is -- has already met our internal target. So we spent additional money into the coupons to directly increase the recycling price, which should -- decreasing gross margin of 1P business in Q2 [indiscernible] overall increasing gradually.

[Operator Instructions] And the next question comes from Ella Ji with Renaissance.

[Foreign Language] So I have 2 questions. The first one is could management provide an update on the value-added services, such as [indiscernible] in your marketplace. I just wanted to know the progress there. The second question is, can management give us the details of your take rate in your marketplace, specifically for both PJT and Paipai? What is the take rate for this quarter? And how is the year-over-year comparison for both of them?

Okay. So for your first question, since late May, we have launched value-added maintenance services. The service fee totaled RMB 1.4 million and increased the overall commission rate of PJT Marketplace by about 0.1% per month. So in the future, we will continue to expand and diversify the value-added maintenance services and increase corresponding take rate. So we expect additional take rate from the maintenance service can be around 0.2% by the end of this year. And also, starting from August, we started to charge a logistic service fee, inspection service fee and consignment fee to sell on Paipai Marketplace based on their size and if the goods will be shifting to our operation center. So we expect the overall take rate from these 3 value-added services, including logistic service, inspection service and the consignment service can be around 0.6% in September 2021. So that means, by the end of this year, we can charge additional 0.8% take rate from the PJT Marketplace. And in Q2, the average take rate of price to market base is still 4.5%, consistent with Q1 2021. So the Paipai Marketplace can -- so take rate will be increased in the next 2 quarters in Q3 into Q4. So by Q4, the take rate can be around 5.3% of Paipai Marketplace. So for the -- the growth rate of Paipai Marketplace increased to 4.7% by -- in Q2 from 4.2% of Q1. So take rate of consignment model of Paipai Marketplace was 5.8% in Q2, while we barely charged any commission fee in Q2 2020. The 3P consignment model is expected to generate higher commission fees, and we expect to charge 8% to 10% take rate in the future. So by the end of this -- by the end of this year, we expect we can -- the consignment model take rate can be around 6.5%. And so the consignment model is being quickly adopted by the merchants. The reasons include the complexity and fragmentation of the preowned electronics transaction industry chain. Therefore, the recyclers face challenges when distributing the products to consumers, but the consumption model of Paipai eases the burden of retailing from small merchants. At the same time, the take rate of the Paipai model for electronic devices also increased by 7.5% starting from this quarter. But the take rate of the Paipai model will be stable within this year. So for the overall, Paipai Marketplace take rate increase were from the consignment model. So we expect the overall Paipai increase from current 4.7% of Q2 to around 5.2% by -- in Q4 this year.

And this concludes our question-and-answer session. I would like to turn the call to Jeremy Ji for any closing comments.

Thank you. Thank you again for joining. A replay of today's conference call will be available on our website shortly. If you have any additional questions, please feel free to e-mail us at ir@aiHuiShou.com. Have a good day. Thank you.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. . [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]