Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to ATRenew Inc. Second Quarter 2023 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 at the company. Please go ahead, sir.

Thank you. Hello, everyone, and welcome to ATRenew's Second Quarter 2023 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 will open the call to questions from analysts. The Q2 financial results were released earlier today. The earnings release and investor slides 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 note that management are joining the call from different locations. We'll try to fix it if there is any connectivity issue. Let me cover the safe harbor statements. Some of the information you'll hear during the 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 non-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 RMBand 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.

[Foreign Language] Hello, everyone, and welcome to ATRenew's Second Quarter 2023 Earnings Conference Call. [Foreign Language] During the second quarter, we made notable progress in terms of both revenue and profitability. Our total revenues reached RMB2,960 million, representing a year-over-year increase of 38.1% and surpassing the high end of our guidance. As we navigated the post-pandemic era, our 1Q recycling business rapidly rebounded and our marketplaces for a healthy recovery, demonstrating the resilience of the circular business model. In terms of profitability, the adjusted operating income increased to RMB52 million, and the adjusted operating margin further expanded to 1.8%. These improvements fully align with our aims of enhancing the secondhand industry's value chain and optimizing operational efficiencies. [Foreign Language] Our strategic direction remains consistent. On the one hand, we aim to achieve steady growth in core consumer electronics businesses. Among them, the escalating 1P recycling channels, including AHS recycled stores and official website provide a better user experience, ensure firsthand sources of supply and acquire more market share. We also continue to strengthen cooperation with e-commerce pioneers like JD.com and leading brands such as Apple to advance their trading service experience in retail scenarios. On the other hand, we seek to unleash the potential through continuous innovations. On reflecting over time, we have successfully improved user experience and store service capabilities of recycling luxury goods and continue to strengthen the brand awareness of AHS recycle. On user traffic, we have achieved some progress recently through high-frequency household goods recycling services in communities. We guide users through AHS recycle app, WeChat mini programs and encourage more customers to visit our physical stores to sell more high residual value products. [Foreign Language] Next, I will share more color from three aspects. First, key growth drivers of the core business. Second, operational efficiency…

Hello, everyone. We are pleased to report another profitable quarter. As we generated a new record on GAAP operating income on revenues that beat the top end of our guidance. One of the key drivers of our continued profitability was our use of industry-leading AI and big data algorithms to enhance our quality inspection systems, which continuously optimized our fulfillment costs. The non-GAAP fulfilled gross margin was 12.7%. It continued to recover from a low point in the fourth quarter of 2022. Now let's take a detailed look at the financials. Please note, as such, all amounts are in RMBand our comparisons on a year-over-year basis, unless otherwise stated. In the second quarter, total revenues increased by 38.1% to RMB2963.7 million, mainly driven by growth in net product revenues. Net product revenues increased by 42.2% to RMB2636.7 million while net service revenues was RMB327 million, representing an increase of 12.1%. Growth in net product revenues was primarily driven by an increase in the sales of prolonged consumer electronics, including the sales of RMB191 million refurbished devices. The increase in service revenues was primarily due to the revitalizing business of our marketplaces from the COVID-19 pandemics and an increase in the overall commission rate, which grew to 5.37% from 4.54%. Next turning to our operating expenses to provide greater clarity on the trends in our actual operating base expenses. We will also discuss our non-GAAP operating expenses, which better reflect how the management is our results of operations. The reconciliations of GAAP and non-GAAP results are available in our earnings release and in the corresponding Form 6-K furnished with the SEC. Merchandise costs increased by 40.6% to RMB2325.8 million. The increase was in line with the growth in product sales revenues. Gross margin at the group level was 21.5% in the…

[Operator Instructions] And the first question comes from Weiting Tang with Goldman Sachs.

[Foreign Language] Thank you management regarding the recent launch of [Apple’s trade-in] (ph) service, which supports to Apple's official retail channels in China. Can the management team provide an overview of the background of the service support and the outlook for growth and profit of this business stream in 2023? Thank you.

[Foreign Language] Thank you for the question. We are pleased to announce that we have become Apple's second official trade-in partner in Mainland China, providing recycling supply chain services to Apple China's official website and 45 flagship stores. Our vision is closely aligned with Apple's. We both share a focus on enhancing products and service accessibility, prioritizing user privacy and data security and recycling, delivering unparalleled user experience and reducing the cost of decision-making as well as the economic cost of operating devices. [Foreign Language] Specifically, Apple has two alternative processes for recycling in its official retail channels in China. Users can submit recycling orders via apple.cn and send in used devices. They can also visit Apple stores, flagship stores in person, where Apple staff use specialized devices to scan, verify, erase data and pay on-site. Certain models are then handed over to us as our inventories for back-end privacy eraser and standardized quality checks before the end distribution. This business is carried out in the 1P model since we don't need to advertise to acquire customers and there is no store expense on our end. The cost structure is more simple. [Foreign Language] We expect to escalate our tax and service capacity in the third quarter and the recycling volume to increase following the arrival of the new iPhone lineup in September and during its major shipments in the fourth quarter. With operations and margins stabilizing next year, we anticipate an annual recycling volume of RMB1 billion to RMB1.5 billion from this new channel based on historical market data. [Foreign Language] In addition to the trade-in support license, we've recently been authorized to bid for and distribute Apple’s phones. These two collaborations with Apple can further enhance our access to high-quality supplies and allow us to service mainstream customers in key scenarios. These are also recognitions of our supply chain capabilities, privacy protection, compliance and corporate governance. The breakthrough in collaboration with iPhone or its phone manufacturers, signify a major milestone apart from our strategic partnership with e-commerce players. [Foreign Language] Thank you for the question.

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

[Foreign Language] We have seen the company actually enhancing its refurbishment for a couple of quarters in a row in the performance of the second quarter we have seen this business has made a quite positive contribution to the company's 1P gross profit. Could the management team help provide more insight into the -- this like new business, can help us to understand its growth potential, like, for example, like what percentage of like revenue that can contribute to our 1P business. Thanks.

[Foreign Language] Since the launch in April last year, our RERE refurb labeled products have continuously improved our industry value chain. During the second quarter, we replicated the capabilities from Dongguan Operations Center in South China to Changzhou, Wuhan, Chengdu and Tianjin operation centers with value-added capacity covering major regional markets. We also recondition broader product categories, including tablets, laptops, smart watches, earphones, et cetera, meeting the demand for high-quality products from both consumers and merchants. [Foreign Language] During the second quarter, total sales of refurbished products exceeded RMB190 million, accounting for 7.2% of 1P product revenues. This percentage increased by 1.6% quarter-on-quarter and 4.5% year-over-year. We believe that more of our 1P source products can go through our own facilities for reconditioning, the common quality products while bringing greater value to the industrial chain. [Foreign Language] We obtained official maintenance authorization from Huawei at the end of July, further enhancing our cooperation with brand manufacturers. Looking forward, we will continue to strengthen value-added services with closer collaboration with phone brands and industrial associations to promote the compliance and healthy development of the industrial chain. In the long run, we believe that the proportion of private label RERE refurb in 1P product revenue can be increased to 30% and even more. [Foreign Language] Thank you.

[Operator Instructions] And the next question comes from [indiscernible]. Please go ahead. Your line is live.

[Foreign Language] Thanks management for the sharing and congratulations on a strong quarter. Could you provide more color and breakdown regarding your profit realization and profit outlook? And how will your revenue mix evolve in the future?

Okay. Thank you for the question. I will take you through this. Our non-GAAP operating margin was 1.8% in the second quarter, surpassing the 1.5% full-year target, we discussed earlier. This was due to our effective execution towards improving gross margin and operational efficiency and improved 1P gross margin was mainly attributable to RERE refurbed products whose gross margin exceeds set of regular 1P B2C products by 5% basis points. We anticipate the total sales of RERE refurbed products at RMB700 million, adding our 1P gross margin gradually in 2023. Credit improvements in operational efficiencies to smart storage management and automated testing technologies. We optimize order allocation to operation centers with the help of the data algorithms and condense the number of small city level operation stations. As a result, the service fees, logistic expenses and packaging fees were cut down as we upgrade our automated inspection system to measure our losses related to inspection decreased significantly. Service fees, logistics expenses, packaging fees and return loss decreased by RMB17.6 million compared to the same period in 2022, downsizing our non-GAAP fulfillment expenses as a percentage of total revenues by 3.7 percentage points. Overall, we expect our non-GAAP operating margin for this year to be exceed 1.5% and we aim to achieve a basement of 1 percentage point every year. On revenue mix, we have been shifting our focus in the strategic resources towards first-party businesses since the second half of 2022 to achieve more consumable operations facing complex environment. We aim at catering to diversified user needs, enhancing the recycling experiences and enriching our quality pre-owned product listing. This transition has like to downsize the revenue mix for marketplace service revenues. However, our platform business continues to exhibit healthy growth for this year. We expect that our platforms overall to exceed 5% following the strategic adjustments of our pipeline consignment businesses, we are now experiencing renewed momentum in the growth of service revenue in the second half of this year. We anticipate that 1P product sales revenue will continue to dominate our revenue structure, maintaining a year-over-year growth rate of over 30%. Thank you.

Thank you and there are no further questions at this time. I would like to hand the conference back over to management for any closing comments.

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

Thank you.