Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to the ATRenew, Inc. Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be hoisting 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.

Thank you. Hello, everyone and welcome to ATRenew third quarter 2021 earnings conference call. With us today are Mr. Kerry Chen, our Founder, Chairman and CEO; and Mr. Rex Chen, our CFO. Our third quarter 2021 financial results were released earlier today are now available on our company's IR website at ir.atrenew.com. For today's agenda, Kerry will share his thoughts on our third quarter performance and some updates on our strategy for our city level service integration model. Followed by Rex, who will discuss the financial highlights for the third 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 call. Any forward-looking statements that the company makes on this call today are based on assumptions as of today and the company does not undertake any obligations to update these statements. Also, this call includes discussion of certain non-GAAP financial measures. Please refer to our earnings release which contains a reconsolidation of non-GAAP measures to GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in 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.

[Foreign Language] Hello, everyone and thank you for joining us on our third quarter 2021 earnings conference call. We are delighted to share our recent business developments for this quarter as well as our strategic reasoning. [Foreign Language] Before we start, let me share some thoughts regarding China's policies. According to the action plan for carbon dioxide peaking before 2030, released by the state counsel in late October, the central authority issued a framework to address initiatives, including the promotion business model, combining Internet and recycling. It clearly establishes synergy between the development of the circular economy and carbon reduction initiatives. [Foreign Language] We believe this backdrop is favorable to the development of ATRenew. Our business model is characterized by sustainability and stability. ATRenew is the leading player in the field of pre-owned consumer electronics transactions and services. Our business evolution derives from an industrial Internet model and is in accordance with the nation's goals for the development of the circular economy. Thus, we have strong visibility on our long-term development while steadily evolved with the industry. [Foreign Language] Now, I'd like to walk you through some of our business highlights for the quarter. [Foreign Language] We achieved notable organic growth in the third quarter with a year-over-year increase of 56.6% in total GMV and 48% in total net revenues, respectively. As a percentage of total net revenues, net service revenues increased to 15.2% from 13.4% in the same period last year. [Foreign Language] In terms of 1P business, product revenues grew further, increasing by 45% year-over-year. This was driven by the steady expansion in our AHS store network and our volume of pre-owned device tradings with strategic partners such as JD.com. We've set a target of adding 200 stores per year at the beginning of 2021 and we have…

Thanks Kerry. We're excited to report another strong quarter. Our growth momentum continued with beyond expectation, scale and revenue growth as well as sequential improvement in revenue mix and the margins. We'd like to share with you some financial highlights before we go into a more detailed look at the numbers. Please note that all amounts are in RMB and all comparisons are on a year-over-year basis, unless otherwise stated. We maintained strong financial growth with total net revenue increasing by 48%, exceeding the high end of our previous guidance range. Service revenues as a percentage of total revenue improved to 15.2% from 14.2% in the previous quarter. Total GMV grew by over 56%, while our non-GAAP operating loss further narrowed to $28.5 million. Gross margin for our 1P product sales business remained stable at 13.3% compared with previous quarter. Going forward, we will focus on consumer electronic categories, including smartphones for our 1P business, reinforce the supply side of high-quality pre-owned products and continue to improve customer services. In addition, we will expand our retail footprint rationally and improve operating efficiency of our offline stores. For platform services, the average take rate continues to improve, rising to 4.6% in the third quarter. In addition, our B2B platform enhanced it's service capabilities to small and mid-sized merchants and lowered the threshold of conducting trading services for those merchants in low-tier state markets and upgraded services to improve user experiences. Moreover, we also optimize our B2C consignment service capabilities with GMV for consignment models contributing to 20% of the total pipeline GMV. Non-GAAP for fueled gross margin remained stable at 12.8%. This number has been around 13% for six quarters. We aim to further cut down fulfillment expenses, leveraging automation, technology and advanced system. Now, let's take a look at the…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Joyce Ju with BOA. Please go ahead.

[Foreign Language] The first question is related to the 1P gross margin. We see that one 1P gross margin declined slightly year-over-year. So I would like to know, is it because of the competitive pressure or any other -- like any particular reasons? My second question was related to the strong growth momentum we -- like the company had and also the guidance. Just trying to understand what's the volume and AOV behind is like strong growth GMV momentum? And how we should understand like AOV and device -- number of devices or transaction volume which one should be the main drivers of the future growth? And how should we understand the trend?

[Foreign Language] So, thank you for your questions. Firstly, I would like to address your question regarding the gross profit of our 1P business. Supply constraints have become headwinds of the pre-owned industry. We ensured accessibility to resources of premium pre-owned devices by investing in top of coupons. As coupons increased the cost of procuring pre-owned devices, such investments are reflected in the increase in merchandise costs which directly impacts the gross profit. In addition, there were adjustments to the recycling channels. To ensure healthy growth, the company lowered the proportion of low ASP but high gross margin cooperation from other channels that's impacting the gross margin. We think that the gross margin for 1P business will remain stable with modest improvement. We tend to increase the recycling price for the betterment of users at the recycling and, along with higher sales price. In the future, the improvement of the company's overall gross margin will majorly come from the growing contribution of service revenue, while 1P business continues it's contribution. [Foreign Language] So to address your question regarding the competitive landscape, regarding competition overall, ATRenew has strong growth momentum. This is seen in GMV growth of 1P business and 3P business as well. There is a steady expanding overall take rate of marketplaces as well as narrowing non-GAAP operating loss. Our business operation has limit impact from pure players. This is backed by results from our data provider. We firmly believe that the pre-owned industry is driven by the supply chain capabilities. We believe that our all-round development of supply chain capabilities surprise this as competitive edge. Through third-party data providers, we noticed decreases in traffic of pure players in the second half of 2021 as reduced marketing investments in the third quarter. We are confident that PJT Marketplace is…

Thank you.

Our next question comes from Lucy Li at Goldman Sachs.

[Foreign Language] Congrats management for the results and thank you for sharing. I have two questions here. Firstly, I would like to learn more about the city level operation model in terms of our implementation steps and how do we measure success? What's the kind of investment we are looking at and whether this means that we're shifting our business focus to offline? And the second question is on the business update with Kuaishou.

[Foreign Language] Okay. So to clarify that, implementing our city level service integration does not mean that we are transferring our strategic emphasis purely to the offline model. As I -- actually, over the years, we have accumulated ample resources for rolling out city level service integration, including 1,000 AHS stores on the supply side, 500 B2B sales and service specialists for merchants. On processing, there are 67 city level operation stations for localized quality control and operational support. On distribution, we integrate online sales channels, including pipeline marketplace and live streaming sales channels and the offline display and cell channel through Paipai selection stores. These resources when rearranged locally, not only improve service agility for local merchants but also reduce cross-regional shipping and processing which ultimately optimize the inventory turnover. [Foreign Language] So, in terms of the implementation, there are four priorities. [Foreign Language] First, on management. City manager will be in charge of local operation and management. We are developing a new performance review and incentive mechanism to keep city managers engaged while reviewing the local business progress of each offerings in detail. [Foreign Language] Secondly, on operational metrics. Our city level operational metrics will be reviewed as a localized extension to the operational review of our three main business lines. As such, we are able to evaluate our offerings, aggregate empowerment to local play owned transaction markets and local retail stores. Our long-term goal is to explore local market penetration. [Foreign Language] Thirdly, on local collaboration, we aim to attract more qualified partners and obtain premium sources of supply locally through opening up the franchise of AHF store, city level operation station, Paipai selection stores and the supplier qualification to consignment sellers on Paipai Marketplace. [Foreign Language] On business synergy, we aim to realize all local scenarios…

Thank you.

Our next question today comes from Sam Lee at China Renaissance.

[Foreign Language] My first question is, what are the main reasons behind the increase in the sales and marketing costs in the first quarter? Do you increase the spending on new sales channels? How is new sales channel performing so far? And also in terms of the fulfillment cost, it has also increased fueling this quarter. And we noticed that you have opened more offline stores and also city level distribution centers. Should you discuss the performance of this newly opened facility so far? What's your opening target for the coming quarters?

Selling and marketing expenses mainly included personnel expenses for our B2B sales team, channel fee and the commission fees paid to JD as well as promotion and marketing fees for each different business. And yes, you're correct. The year-over-year growth of the selling and marketing expense was mainly due to the expansion of our Paipai 2C business, including the consignment business and the new channel sales. But new channel sales and the consignment business contributed a higher take rate so they can cover the higher selling expenses compared to the other Paipai businesses. And as you can see, the sequential and marketing expenses decreased compared with Q2 2021 which was due to the reasons that we began to take more over the distribution of the coupon center to reduce certain marketing promotion activities. As we leverage multiple marketing approaches, we believe non-GAAP operating profit closely reflects our views on the performance of the business which we can meet our internal target of the GAAP operating margin rate, we will invest more expenses and resources to expand our business and scale. For the question for a question related to the fulfillment expenses; the increase was primarily due to the expansion of new self-operated stores and city level operating stations. 56 newly opened self-operated stores and 11 new city level stations in the third quarter which were not fully utilized by the end of Q3. Such additional costs totaled RMB8 million. So labor costs also increased due to more stores and operating centers opened in this quarter. This is expected to decrease in the following quarters with new stores in our operating stations become mature. And there if we look at the of the UE mature stores and the operating centers, so UE is stable in the new store level. We also aim to further cut down fulfillment expenses by leveraging the automation technology and advanced systems in the coming quarters.

Thank you.

Thank you. And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to our management for closing remarks.

Thank you. Thank you again for joining the call. A replay of today's call will be available on our IR website. If you have any additional questions, please feel free to contact us or request through [indiscernible] at ir@atrenew.com. We look forward to speaking with you in our next earnings call. Have a nice day.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.