Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to ATRenew Inc. Fourth Quarter and Full Year 2021 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, this 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 for the company. Please go ahead, sir.

Thank you. Hello, everyone and Welcome to ATRenew's fourth quarter and full year 2021 earnings conference call. Speaking first today is Kerry Chen, our Founder, Chairman and CEO; and he will be followed by CFO Rex Chen. After that, we'll open the call to questions from analysts. Our fourth quarter and full year 2021 financial results were released earlier today. The earnings release, investor slides accompanying this call and filings with the U.S. SEC are available on our company's website at ir.atrenew.com. There will also be a transcript following this call. For today's agenda, Kerry will share his thoughts on our fourth quarter and full year performance as well as a review on our business strategy, followed by Rex, who will address the financial highlights. Both Kerry and Rex will join the Q&A session. Please note that 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 at ATRenew make on this call are based on assumptions as of today and ATRenew does not take any obligation to update on assumptions on these statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release which contains a reconciliation of non-GAAP measures to GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB and all comparisons are on a year-over-year basis. I'd now like to turn the call over to Kerry for business and strategy updates.

Hello, everyone and thank you for joining us on our fourth quarter and full year 2021 earnings conference call. Before we begin, I would like to extend my gratitude to all our employees, merchant partners and industry partners. I could not be prouder of how well our teams have worked together across the country to overcome the challenges of the COVID-19 resurgence. Our combined efforts enabled us to find creative solutions to navigate through such a challenging environment, offering consumers safe and convenient recycling, trading and shopping services. I also want to thank our merchants and circular ecosystem partners for their continued trust and collaboration. Together, we are promoting our low-carbon lifestyles where recycling and reuse of pre-owned consumer electronics has become mainstream. We are delighted to share with you our continued growth momentum at group level. In 2021, our GMV and total revenues reached RMB32.5 billion and RMB7.8 billion, representing year-over-year increase of 65.8% and 60.1%, respectively. These growth rates were significantly higher than those in 2020 and 2019. What contributed to this rapid growth was not only the increase in consumer demand for trading but also our strong strategy execution of penetrating in lower-tier cities and enhancing our confidence of forcing supply locally. On profitability, we have achieved significant efficiency optimization. In 2021, non-GAAP operating loss was RMB100 million and the non-GAAP operating margin narrowed to negative 1.3% from negative 3% in 2020. Notably, revenues in the fourth quarter beat guidance and we have successfully achieved non-GAAP operating profitability. We are confident in maintaining this going forward with sufficient capital and a clear strategy, we are on the fast track of healthy and sustainable growth trajectory. Next, let's take a more detailed look at our operations in four aspects: one, how we deploy and manage the nationwide edge…

Thanks, Kerry and hello, everyone. We are very pleased to report that we have achieved the profitability milestone while delivering fourth quarter revenues that exceeded our previous guidance. I will start by sharing some of our financial highlights before we go into a more detailed look at the numbers. Please note that all amounts are in RMB and our comparisons are on a year-over-year basis, unless otherwise stated. In the fourth quarter 2021, we delivered 48.2% revenue growth to achieve total revenues of over RMB2.4 billion, exceeding the high end of our previous guidance range provided in the third quarter earnings conference call. Total GMV grew by over 50.7%, driven by strong growth in both product sales GMV and online marketplace GMV. In this quarter, the commission rate of our third-party marketplaces rose to 4.8% at the group level, marking a historical high. This is a testament that our merchants, users, technology PJT and the Paipai marketplace for digitalized safe and convenient transactions. Bidding center transactions continue to show very strong growth. Gross margin at the group level was 26.1% in the fourth quarter. Gross margin for our 1P business stabilized at 13.3% sequentially as we rolled out a nationwide strategy to secure sources of supply at our best efforts. This further meets consumers' demand for easy recycling and treating while obtaining greater consumer market share. In the fourth quarter, we meaningfully optimize the cost structure through reducing fulfillment costs, both at the storefronts and at operation centers. The progress is evidenced by a strong expansion in the non-GAAP fulfilled gross margin, reaching 14.6% and representing an increase of 140 basis points over a year ago. Notably, as previously mentioned, we delivered a non-GAAP operating income of RMB9.7 million in this quarter. We expect to continuously optimize operational efficiency and…

[Operator Instructions] Our first question today comes from Lucy Li with Goldman Sachs. Please go ahead.

The question is on our next stage of growth and 10 in general. So in 2021, the company -- the proposed transaction volume exceeded 30 million pieces. So how do we assess the future growth potential going forward? And the second question is regarding our own business, 1P versus 3P. We observed that the 1P business delivered fast growth in both 4Q and this year. So I wonder if we are going to put more emphasis on the 1P business compared to 3P for example. Thank you.

Okay, thanks for the questions. To address the first one, we believe there is a great credential for growth. Firstly, on the addressable market, the number of devices transacted on our platform this year reached a record high of over RMB30 million. However, this is still a small portion compared with 590 million new electronic devices sold in China annually according to CIC. In addition, other devices, including phones, tablets and laptops, et cetera, totaled RMB2.7 billion, indicating a low rate of recycling. Secondly, on our penetration rate at city level, our services have relatively little presence locally. It was low single-digits in 70% of the cities in China, as we mentioned on the last earnings call. We are poised to increase that through steadfast implementation of our city level service integration strategy. To answer your question to business priority, we plan to seek an accelerated growth of 1P business with steady profit and a healthy growth of 3P GMV with more attention to the efficiency and profitability of the marketplaces. Looking back at 2021, GMV of 1P business increased by 69.6% year-over-year, outlining the growth rates over the past years. We attribute this to the solid progresses in new store openings, a stronger trading partnership with JD and expanding 1P direct to retail business on Paipai. The stores continue generating profit, in the fourth quarter 2021, net margin of mature stores reached 4.0%, improving our confidence in serving more customers and top up our efforts in these stores. We expect to open 200 new standard AHS stores in 2022. Furthermore, we aim to add 500 partner stores, i.e., store-in-store, a new format in collaboration with local partners as a part of the city level service integration strategy. This is to facilitate trading and to expand consumer reach through the synergy with JD and mobile brands and it helps to grow our footprint in local retail scenarios. We take city level service integration model, the key to the next stage of growth for PJT and Paipai marketplace. This will be achieved through sourcing premium goods more efficiently. In the first quarter of 2022, we have launched a service integration model in 22 pilot cities to highlight the growth rate of B2B business in 12 pilot cities exceeded 100%, including Shenyang, Nanchang and Hefei provincial capital. By leveraging the city level service integration model, we dive deep into this B2B business. We digitalized the transactions and encourage online transactions. Not only do we serve dealers but also new device retailers, thus forming a closed loop from recycling from users when buying a new device through inspection at our facilities and directly to the retail end. Next question?

The next question comes from Joyce Ju with Bank of America. Please go ahead.

We have seen the take rate reached 4.8% this quarter. Could management help us elaborate a little bit in terms of how do you take rates improve and the future trends in terms of how it could further improve? Thank you.

Thank you, Joyce. Let me take your question. As you can see, service revenue increased by 78.3% year-over-year in this quarter, surpassing the growth rate of platform GMV. This was due to the increase in take rate for both PJT and Paipai marketplaces. So in the fourth quarter, the overall take rate, as you mentioned, was 4.8%, a 0.2% increase sequentially. Amongst the take rate of PJT marketplace was, in average, it was 4.5%, while the take rate of Paipai in average was 5.4% which was 0.6% and 1.2% higher than the same period last year, respectively. For PJT marketplace, we started to charge an inspection service fee and consignment service fee from sellers in Q3 which led to an increased integrate for PJT marketplace by 0.6% compared with the same period last year. In the future, we will continue to expand and diversify our value-added services, such as maintenance services and supply chain financing services to increase the corresponding take rate. The take rate of the Paipai model on Paipai marketplace remained stable compared to the same period last year. The increase of take rate on Paipai was mainly due to the increase in the take rate of its consignment business. Take rate of consignment model was 10.7%, a significant increase of 4% sequentially. GMV of consignment model accounted for 18% of Paipai platform GMV in recent quarters. The consignment model is being quickly adopted by merchants due to the complexity and fragmentation of the preowned electronic transaction industry chain. The cycle has faced numerous challenges when distributing to consumers. So the consignment model of Paipai is burden of retail and offer small merchants. In the future, we strive to reach our balance between scale expansion and leasing platform take rate. We will provide more service options and take tighter control over the operations and merchant ratings which we believe will be conducive to the long-term development of the platform business.

Got it. Thank you.

The next question comes from Ella Ji with China Renaissance. Please go ahead.

Thank you for taking my questions and congratulations on a strong quarter. My question is regarding your margin outperformance. We wanted to, if management can provide more color regarding the main driver behind your margin outperformance? And how is the outlook for 2022 and onwards. And then within the expenses, we do see that sales and marketing has gone up in the quarter. Could you also provide more color regarding the sales and marketing expenses, the investment level also in 2022 and onwards? Thank you.

Okay. For the first question regarding profitability, yes, we are confident to continue enhancing our operational efficiency and reach full year non-GAAP profitability target in 2022 and going forward. Our path to profitability can be divided into three aspects. First, as the gross margin improves due to the stable 1P pricing strategy and the increasing proportion of the service revenue which can contribute the higher gross margin. Secondly, the fulfillment efficiency improved significantly due to more orders at store level in Q4 and better processing usage of our fixed facility. So our middle and back offices took tighter control of headcount and benefited from the economy of scale. As you can see in the decrease of the non-GAAP G&A expenses and this percentage as of total revenues. So for second question regarding selling expenses, non-GAAP selling and marketing expenses accounted for 11.2% of total revenue, increasing by 7.7% sequentially. Selling and marketing expenses mainly included personnel cost expenses for our B2B sales team. Channel fees and commission fees paid to JD as well as promotion and marketing fees for each different business lines. For this quarter, the year-over-year growth was mainly due to the expansion of our Paipai consignment businesses, new channel sales and the 1P direct 2C sales. We invested RMB63 million in coupons and RMB33 million in advertisements for brandings and the promotion of new channels, including live streaming, the JD Paipai flagship stores and the Paipai off-line stores. Furthermore, variable costs increased in line with our business expansion. The sequential increase compared with Q3 was due to the distribution of some coupons and marketing promotion activities for Paipai 2C sales related to the Singles Day shopping festival, above 12 and the Paipai anniversary campaigns. As we leverage multiple marketing approaches, we believe non-GAAP operating profit closely reflects our views on the performance of the business. Non-GAAP operating profit was RMB9.7 million in this quarter and the margin was 0.4%. We anticipate a positive non-GAAP operating margin in content to and expected to continue expanding. Next?

The next question comes from [indiscernible]. Please go ahead.

As the pandemic situation in many areas has been quite serious recently. I would like to ask you a question about the impact on the company. What's the impact of your performance in last year? Your offline store has increased significantly, while the pandemic affect off-line business was measured that the company take to deal with it? Thank you.

The COVID [ph] recurrence in 2021 had challenged our operations multiple times but the overall adverse impacts were limited and controllable. This was primarily due to the scattered storefronts and operation facilities, AHS stores spread across 214 cities. Temporary closure of stores in some cities has limited impact on the overall performance. There were seven regional operation centers and 95 city level operation stations nationwide. When there's a regional shutdown, the nearby facilities are able to step up. For example, our operation stations in the neighboring cities handle the orders for Shenzhen and Dongguan during their recent incidents. Although our business showed resilience, we can't predict the material negative impact on our business caused by the recurrences of COVID-19 variants. We will continue to prioritize safety, keep ourselves prepared and our workplaces clean and stay flexible. Thank you.

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

Thank you. 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 e-mail us at ir@atrenew.com. Have a good day.

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