Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to ATRenew Inc. Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after managements' prepared remarks. Please note today's event is being recorded. I'd now like to 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's second quarter 2022 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. Our second quarter 2022 financial results were released earlier today. The earnings release and investor slides accompanying this call are available on our IR website at ir.atrenew.com. There will also be a transcript following this call for your convenience. For today's agenda, Kerry will share his thoughts on 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. Let me cover the safe harbour statement. Some of the information you will hear during our discussion today will consists 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 update our 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 second quarter 2022 earnings conference call. During the second quarter, we faced unprecedented challenges to our operations in the most complex external environment since the pandemic first occurred at the beginning of 2020. First of all, let's take a look at our business segments at the city level. The core one tier business locations, including Shanghai and Beijing were adversely impacted by the pandemic, especially in Shanghai as the city entered to COVID control measures for two consecutive months. Our physical stores had suspended the operations or implement strict COVID prevention measures, which put consumers off. The control measures also resulted in interruptions in door-to-door recycling and logistics. Our merchant users also had operational difficulties brought by the pandemic and the relatively weak consumer confidence in electronic products. Our employees at the Shanghai headquarter started to work from home from March 15th to June 01. During this period, we proactively fulfilled our social responsibilities by ensuring our employees were supplied with daily necessities and were able to work effectively. We also took care of the mental health of our employees as people's daily lives in Shanghai returned to normal in June and the June 18th grand promotion kicked off. Our 1P business got on a fast track of recovery. By successfully overcoming the multiple adversities we faced during the second quarter, we have demonstrated the overall resilience of the circular economy. As a result, our total net revenues increased by 14.9% year-on-year to RMB2.15 billion in the second quarter of 2022, exceeding the high end of our revenue guidance. The quarter-over-quarter decline in revenue was mainly attributable to the impact of the pandemic. Now let's take a more detail look at our 1P recycling business. In April and May, the…

Thanks, Kerry, and hello, everyone. We are pleased to report that our second quarter revenue exceeded our previous guidance despite the macroeconomic headwinds and the dynamic operating environment caused by the COVID recurrencies. I will start by sharing some of our financial highlights before we go into a more detailed look at the numbers. Please note that on amounts are in RMB and our comparisons are on a year-over-year basis unless otherwise stated. In the second quarter of 2022, our core teams in Shanghai headquarter and Beijing navigated a challenging operating environment mainly caused by COVID resurgence. But they managed to surpass our top line guidance provided last quarter. Total net revenues increased by 14.9% year-on-year to over RMB2.1 billion. We would like to extend a heartfelt thank you to our dedicated employees who stayed strong and quickly adapted to such dynamics. In terms of total GMV, it grow by 10.3% to RMB8.6 billion, driven by the growth in both product sales, GMV and online marketplace GMV, which were 15.8% and 8.5%, respectively. Starting June, a shopping malls in Shanghai opened and logistics capacity normalized. We saw recovering GMV and sourcing rebound during the June 18 shopping festival, primarily supported by our loyal customers. In this quarter, the commission rate of our third-party marketplaces was 4.54% at the group level, remained stable compared with the same period last year, while it's reasonably increased by 39 basis points sequentially. This increase in the overall marketplace take rate was primarily due to an optimized operational strategy of charging logistics fees from merchants users based on the established trust and user stickiness. Gross margin at a group level was 22.9% in the second quarter. Gross margin for our 1P business was 10.8% in the second quarter in response to regional operation interruption, in…

[Operator instructions] Our first question will come from Bonnie Liu with China Renaissance. You may now go ahead.

Given the lower-than-expected new phone production this year, could you please talk about the potential impact of early iPhone 14 release on your 3Q earnings?

This year, Apple's iPhone 14 series is expected to be launched on September 7, which is 1 week earlier than iPhone 13 line-up debut last year. It's basically within our expectations. From experience, such an earlier launch could bring in an increase in 1P revenue of RMB30 million in the third quarter. This year, we are well prepared ahead of a peak period of trading business. On one hand, the one-stop trading order process has been upgraded and incorporated into the main interfaces of JD's mobile app. At the new product launch, users can place orders through a streamlined process as the stability of the recycling and trading order system is more stable and user-friendly. On the other hand, through SIM campaigns Interline A+ membership, which is JD's self-operated Apple product store membership, with recycling services, we lock in the recycling and trading orders of JD users. This reduces the loss of trading orders as buyers tend to separate recycling orders with new device orders when a blockbuster iPhone out of stock. Our stores are also prepared for peak season fulfillment. There are over 1,600 physical AHS stores across 241 cities in China and nearly 600 self-operated stores. The frontline teams are rather experienced at handling peak seasons after many brand promotions and shopping festivals. In general, we handle the storage system well and fulfil orders in a timely manner. On retail business, we anticipate the new product launch could have a short-term impact on the price and demand of second-hand devices in Paipai Marketplace. We work ahead for our campaigns and closely monitor our inventory. In fact, in the second quarter, we have reevaluated and liquidated the small amount of backlog of Paipai. We keep a controllable inventory turnover of our on 1P2C business. Thank you.

Our next question will come from Ronald Keung with Goldman Sachs. You may now go ahead.

I have two questions. One is, we've seen that GMV growth has slowed. So I want to know how are we seeing the overall industry, the impact from COVID and the weak mobile phone demand due to product cycle? And how should we think about the second-hand market and the impact to our company? Second is about the gross margin decline. Want to hear -- want to know whether it's due to some of the promotions, subsidies? Or is it a mix in the 1P, 3P business structure?

Thank you for the questions. Before the second quarter, the year-on-year growth momentum of our GMV and total revenue stayed strong at a level of over 40% for a long period of time. During the second quarter, we faced temporary pressures from the pandemic mobile phone consumption slowdown. As we mentioned during the last quarter's earnings call, the COVID control measures disrupted orders and corporation of 200 self-operated AHS stores in big cities, including Shanghai, Beijing, Tianjin, [indiscernible] and Shenzhen as well as the logistics services and order fulfillment. Take Shanghai as an example. The store performance in April and May was largely impacted by COVID. Beginning in early June, the operation started to back to normal in Shanghai. And we believe that the impact of the pandemic is transitory. In the long term, when compared with the other consumer industries that face greater challenges from macro environmental challenges, we believe the second-hand electronic transaction service industry is a huge yet underserved market. Since the beginning of this year, the domestic market for new electronic devices has faced pressure. This has been especially true in those cities that experienced declining sales as a result of COVID resurgence and control measures. However, in the long run, we remain optimistic about the outlook for recycling and purchasing on consumer electronics. Here are a couple of reasons. First, Apple is the main brand in our service coverage,; accounting for over 40% of our GMV. Apple maintains a top-tier market position. Its market share in China's high-end smartphone market continues to increase, as has been widely publicized. So iPhone 14 line-up is due to be launched in September, so we have a positive attitude towards our recycling and trading business. In addition, our conversation regarding recycling and innovative partnerships with Apple continues. Second, as Android brands face greater growth pressures this year, we continue to strengthen our collaboration with JD.com and other major Android brands. Launching effective marketing campaigns based on our trading solutions, thereby providing consumers with more convenient, safe and value-for-money trading services and improving new device sales for brand partners. In the face of macro uncertainties, our total GMV increased by 28% year-on-year to RMB18 billion in the first half of 2022 from RMB14 million in the same period of 2021. The total number of transactions was CNY 16.2 million, increased by 14.4% year-on-year. This indicates that the circular economy business is relatively stable compared with the downward new phone shipments in the second quarter. In the first half of 2022, GMV product sales totaled RMB4.4 billion, representing an increase of 32.4% year-over-year, which was softer than the overall GMV growth. Through some optimizations such as improved efficiency of self-operated stores and more direct retailing of premium sales force products through Paipai, our 1P business will be able to achieve a stronger growth momentum.

So I will take the second question. So overall, gross margin at a group level for the second quarter was 22.9%, a decline of 2.37 percentage points on a year-over-year basis. This was primarily due to a decrease in 1P business gross margin, which was caused by, first, an increased number of promotion campaigns on e-commerce platforms; and the second adverse impact from COVID recurrence. In detail, the gross margin for our 1P business this quarter was 10.8%. The decline in gross margin was due to the following increases: firstly, due to the pandemic recurrence in the second quarter we did not have sufficient self-source supplies to meet consumer demand. As a result, we increased the proportion of goods sourced from industry partners in preparation for the e-commerce stocking festivals in June. Sourcing from third parties lowered our gross margin. However, this was already a temporary tactic, and we increased the proportion of our self-sourced supplies as operators return to normal operations after June. In addition, the gross margin for the second quarter was low, also due to the marketing and sales campaigns, including our 6-18 shopping festivals which we would distribute corresponding coupons. We expect that the impact of the pandemic will gradually peel away and that we will see growth in device refurbishments and our 1P2C business. The gross margin for our MP business in the second half of 2022 is forecast to be between 13.5% to 14%. The overall take rate of our 3P business in the second quarter increased to 4.54% from 4.15% in the first quarter. So we anticipate a steady increase of both the platform area adding more value-added services on top of the current portfolios, such as value-added compliant repair services and the supply chain financing. Thank you.

Our next question will come from Joyce Ju with Bank of America. You may now go ahead.

I will translate the question. We have seen so ATP actually launched the luxury product recycle services recently. I just want to understand like what the progress of like expansion into other categories or like non-electronic categories, the business -- what's the business rationale behind and how we should look at those kind of category expansion impact on our company's revenue and profits?

In the second quarter, leveraging the tiered AHS store system, we selected the number of pilot stores in Beijing and Shanghai subcenter areas. In addition to our existing consumer electronics recycling, we test into preowned luxury banks, watches, photography and video equipment and gold recycling services. Customers can gather price codes through AHS mobile app, official website and WuhaMini program. The recycling process for these preowned categories is similar to that of consumer electronics. Consumers get preliminary pricing shortly afterwards answering a couple of questions regarding the model and conditions of their products. They can then make a reservation of work into one of our offline stores. So our stuff can check product conditions and confirm the recycling price. Then the product will be sent to the local infection center within an hour through instant delivery. After all, quality inspection efforts confirm the authenticity of the product, the recycling process is complete and customers receive their payment if the product is authentic. The whole process is simple and user-friendly as we provide face-to-face interaction at our physical stores. Based on that, we can further extend our multi-category recycling offerings to users of JD.com. Whereas traditionally, there are many pain point for luxury goods recycling, the consignment merchants tend to cut prices as the market lacks transparency. Consumers have trust issues when recycling by mail. The door-to-door recycling model has higher labor costs. AHS new innovative offers the 2-store recycling plus 2-station inspection model. It allows consumers to get a price estimate online, go to a nearby physical store for condition check and get authenticity verification at the local inspection station. We provide a more user-friendly customer experience. Over 85% of the consumers who accepted our recycling price were willing to try this model. We believe that there are 2 factors…

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

Thank you. Thank you all again for joining us. A replay of today's call will be available on our website shortly, followed by a transcript when ready. If you have any additional questions, please feel free to follow 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.