ATRenew Inc (RERE) 2024 Q4 法說會逐字稿

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to ATRenew Inc.'s fourth quarter and full year 2024 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 of the company. Please go ahead, sir.

Thank you. Hello, everyone, and welcome to ATRenew's fourth quarter and full year 2024 earnings press release -- conference call. Speaking for us today is Kerry Chen, our Founder, Chairman, and CEO. And he will be followed by Rex Chen, our CFO. After that, we open the call to questions from analysts.

The fourth quarter and full year 2024 financial results were released earlier today. The earnings press release and IR deck 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 about 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 pay attention to the safe harbor statements. Some of the information you 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 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 RMB, and all comparisons are on a year-over-year basis.

And I like to turn the call over to Kerry for business and strategy updates.

(interpreted) Hello, everyone, and welcome to ATRenew's fourth quarter and full year 2024 earnings conference call. We are excited to share our business updates, our strategic insights into the pre-owned industry, and our development roadmap for 2025.

First, I'm delighted to report that we realized total net revenues and profits ahead of targets for the fourth quarter and full year 2024. Revenues for the fourth quarter exceeded the high end of our guidance, growing 25.2% year over year to RMB4.85 billion. Full-year revenue reached RMB16.33 billion, representing a 25.9% year-over-year growth, significantly outpacing the growth rates of the pre-owned electronics industry as well as the national retail sales of consumer goods.

On profitability, our non-GAAP income from operations was RMB130 million in the fourth quarter and RMB410 million in the full year 2024, growing 61% and 62.8% year-on-year, respectively. In terms of margins, non-GAAP operating margins, as we expected, were 2.7% in the fourth quarter and 2.5% in full year 2024. The total number of transactions grew healthily to over RMB35.3 million. With China's strongest supports and subsidies backed by ultra-long special treasury bonds to large-scale renewal of equipment and trade-in of consumer goods in 2025, AHS Recycle stands at the forefront of a promising growth era.

Zooming in, product revenues for the fourth quarter grew by 26.6% year over year. We focused on growing our 1P business and further advancing our user experience. This allows us to enhance the end-to-end cycle of direct engagement with consumers at the front of recycling and retailing. On recycling from consumers, we forced an increasing volume of first-hand supplies from individual users as their demand increased. AHS stores have been the quality scenario for fulfillment.

In the meantime, we collaborated with JD.com as we master industry-leading know-how and supply chain capabilities. Together, we introduce our next level fulfillment services to users. In the fourth quarter, trade-in contributed over 50% of the total recycling value in our exclusive service for JD's recycling program, becoming a mainstream consumption solution for users. We attribute the results to our investments into trade-in offering four years ago, which has incrementally driven consumption growth.

On the direct sales to consumers, Paipai Selection on JD.com, physical stores and online portals of AHS Recycle, and new media distribution channels all had breakthroughs. We leveraged our supply chain capabilities and established an integrated inventory system, advancing our efficiency in screening and picking retail products.

We launched a pilot program of on-demand refurbishment. It allows us to display multiple product options and conduct on-demand refurbishment only when a consumer has made an order. We also polish our refurbishment processes, ensuring ample supplies of value for money quality-assured products to our consumers. To name a few results we made, the total GMV of our 1PtoC sales reached a new milestone at RMB5.5 billion in 2024. Retail revenue as a percentage of net product revenues was 29% in the fourth quarter, up by 8 percentage points year-on-year.

We coupled marketing strategy and prioritized the development of our new media department in 2024. This established a consumer mindshare that AHS Recycle is the expert in recycling numerous categories of products and offers value for money quality products. We spent RMB100 million on new media marketing to increase our brand exposure across Douyin, Kuaishou, and Xiaohongshu and promoted our location-based in-store services with content developed in-house.

This was a valuable approach to raise our brand and service awareness as trade-in subsidies were deployed. Once again, we want to emphasize that AHS Recycle is a unique brand name with a huge potential in the secondhand industry. Trade-in has a clear growth outlook as the massive consumer group is still new to this option.

In terms of category expansion, we rapidly extended our multi-category recycling and services to 673 AHS stores in 2024. More consumers recognize that AHS Recycle serves diversified needs and categories. Multi-category recycling and services grew in our existing stores and basic fulfillment capabilities. This leveled up store performance and contributed incremental operating profits to store operations.

As for the development of multi-cultural recycling services in 2024, we strengthened our pricing capabilities, reduced in-store service time, and improved price acceptance. In 2024, multi-category recycling services transaction volume increased nearly threefold year over year, contributing 8.6% of total service revenue, up from 2.3% in 2023.

We comprehensively enhanced AS standardized one-stop ability to serve users recycling various items, including consumer electronics, luxury goods, gold, premium liquor, shoes, and clothing. More consumers are now realizing that AHS Recycle offers more than just mobile phones and electronics recycling.

On our marketplaces, the service revenue of Paijitang saw a steady increase in 2026 -- 2024. The positioning of Paijitang as the source center of domestic secondhand smartphones and consumer electronics was further strengthened, with the number of registered merchant users on the platform exceeding 850,000. Paijitang also made innovations in local new media traffic support for sellers, shared services for buyers, and live streaming supply, which generally enhanced the vitality of the merchant ecosystem and laid a solid foundation for the business expansion in 2025, supported by national subsidy.

Paipai POP business was upgraded to the consignment model, which aggregated fragmented sources of supply and provided them with unified store operation, quality inspection, and after-sales customer service. This comprehensively reduced the cost for small and medium-sized owners who wish to expand their retail business on JD.com. The transaction value of Paipai consignment distance increased nearly 6 times year-on-year.

Reviewing 2024, certain business segments were in a transition phase as we refined our strategy. Firstly, in our Apple official trade-in business, we adjusted pricing and operational strategy without jeopardizing user experience, realizing an improved profit margin in the fourth quarter. Segment revenue was RMB1.05 billion in 2024.

Secondly, in terms of our overseas businesses, we closed certain loss-making businesses, resulting in a downsized overseas product revenue. However, we believe that smartphones remain one of the most globally tradable and valuable categories in the pre-owned market. There is substantial opportunity in the export and cross-regional circulation of pre-owned smartphones, and we will approach this with innovative approaches. We will provide further updates at appropriate time.

Looking ahead to 2025, our strategy will focus on three commitments: commitment to experience-driven growth with further investment in retail business, commitment to building the AHS Recycle brand, commitment to strengthening our fulfillment capabilities.

First, we will concentrate resources on direct engagement with consumers at the front of recycling and retailing. We have upgraded a user experience-driven mechanism and set up a group level user experience committee dedicated to analyzing and optimizing user experience. Multiple user experiment metrics, including recycling prices, the proportion of face-to-face transactions, to-door service punctuality, and post inspection negotiation rates are steadily optimizing.

Since the fourth quarter of 2024, driven by subsidy rollouts and the platform promotions, we have seen rapid growth in trade-in demand from users of JD.com. This is attributed to our joint efforts with JD.com in building a robust secondhand electronics trade-in service capability and supply chain, enabling seamless system integration and efficient operational collaboration. As a result, we have forced more firsthand supplies directly from individual users. On January 20, 2025, the national trade-in subsidy for mobile phones, tablets, and smartwatches were officially launched both online and offline, offering a 15% subsidy, capped at RMB500 for new devices priced below RMB6,000. During the Chinese New Year holiday, our C2B recycling business grew by over 70% year on year, effectively meeting the trade-in needs of users nationwide.

Leveraging our industry-leading supply chain capabilities, we conduct compliant refurbishment. With authorization from leading manufacturers, we use genuine parts for value-added processing, enhancing the availability for retail ready products for our 1P business. 1PtoC retail revenue as a percentage of total product revenues has steadily increased from 17% in the first quarter of 2023 to 29% in the fourth quarter of 2024. And our mid- to long-term goal of this proportion is 50%. Additionally, by leveraging high consignment capabilities, we expect to double our offerings and consignment sales in 2025.

Second, we remain committed to building AHS Recycle app and this brand. In the pre-owned recycling industry, AHS Recycle is a rare high-quality brand. However, a significant portion of users have yet to experience recycling for trade-in services, and the industry remains fragmented, with many third-party recycling and repair shops lacking brand recognition. This presents huge opportunities to improve both recycling penetration and brand consolidation.

Building on our 2024 brand building efforts, we will actively explore new media capabilities to position AHS Recycle as the top brand for recycling services in China. We will leverage platforms like Douyin and Xiaohongshu for marketing, complementing our existing precise e-commerce and brand partners scenarios. Through production of new media content focused on recycling services, we aim to attract more users to AHS stores to experience our services. Additionally, multi-category recycling and eco-friendly initiatives like the Revive campaign will encourage users to explore the AHS Recycle app and mini program, showcasing our service capability.

Third, we remain committed to enhancing our fulfillment capabilities. Our continuous marketing efforts for the AHS Recycle brand are expected to drive more online traffic to our physical stores, which drives our store openings. In first and second tier cities, the rapid growth of our asset like multi-cultural recycling business has optimized the profitability model of our stores, supporting the opening of new stores. In lower tier cities, we support partners in building local traffic through new media IPs.

With greater local traffic, the official capabilities of our franchisee will be enhanced. Thus, further converting to an expanded franchisee network. In areas where in-store visits are less convenient, we are strengthening our to-door service capabilities to increase service density and meet users demand for face-to-face transactions.

Over the next three years, we aim to establish a nationwide network of 5,000 stores and a 5,000 member to-door service team, ensuring a robust fulfillment network to cater to diverse recycling and trade-in needs.

Based on the three strategic focuses, we are confident in capturing an increase in growth opportunities on the supply side, driven by national subsidies. By expanding our fulfillment capabilities, we will secure more firsthand sources of supply, utilize our supply chain capabilities to drive more retail.

We believe, for the first -- for the pre-owned industry, and AHS Recycle 2025 is a year full of opportunities.

Now, I'd like to turn the call over to CFO, Rex, for financial updates.

(interpreted) Hello, everyone. I am pleased to announce that we achieved strong financial performance in 2024, driving revenue and profitability growth as we developed our core recycling businesses and cultivated our innovative businesses.

Total net revenues for the year increased by 25.9% to RMB16.3 billion. Adjusted operating income grew significantly, rising 62.8% to RMB410 million, and we are proud to have achieved our first GAAP operating income for the year as well. These results demonstrate our success in building out our economies of scale and delivering on our missions of sustainable development.

Before taking a detailed look at the financials of the fourth quarter of 2024, please note that all amounts are in RMB, and all comparisons are on a year-over-year basis unless otherwise stated.

In the fourth quarter, total revenues increased by 25.2% to RMB4,849 million, primarily driven by ongoing growth in our net product revenues. Net product revenues increased by 26.6% to RMB4,461 million, primarily due to the growth in our recycling scale and the scales -- and the sales offering on consumer electronics through our online channels. Net product revenue for the full year reached RMB14.84 billion, representing a year-on-year increase of 27.3%.

Net service revenues were RMB389 million in the fourth quarter, representing an increase of 10.7%. The increase was primarily due to an increase in the service revenue generated from PJT Marketplace and multi-category recycling businesses. The growth in service revenues went along with the upward trend in our marketplace's overall gross transaction value, delivering an overall marketplace rate of 5.36% in the fourth quarter of 2024. During the quarter, our monthly category the second business contributed over RMB40 million to service revenues, representing over 10% of service revenues, a significant increase from 5.5% in the same period of 2023.

Net service revenue for the full year reached RMB1.48 billion, representing a 13.5% year-on-year increase with an overall take rate of 5.35%, of which our multi-category recycling business contributed RMB130 million, representing a threefold increase year-on-year. This accounted for 8.6% of total service revenues in 2024 compared to 2.3% in 2023.

Now, let's discuss our operating expenses. To provide greater clarity on the trends in our actual operating-based expenses, we will mainly discuss our non-GAAP operating expenses, which better reflect how management views our results of our operations. The reconciliation of GAAP and non-GAAP results are available in our earnings release and the corresponding Form 6-K furnished with the US SEC.

In the fourth quarter of 2024, merchandise costs increased by 24% to RMB3,905 million, in line with the growth in product sales. Gross profit margin for our 1P business was 12.5%, showing a trend of stabilization and recovery compared with 10.6% in the same period last year. The improvement of gross profit margin in 1P business was mainly driven by our end-to-end supply chain strengths and refurbishment capabilities, contributing to higher margin D2C sales.

We also optimized the performance of Apple's official trade-in program, driving both revenue growth and margin expansion in the fourth quarter. Merchandise costs for the full year increased by 26.6% to RMB13.09 billion, with a 1P growth margin of 11.8% compared to 11.3% in 2023.

In the fourth quarter of 2024, fulfillment expenses increased by 31.8% to RMB397 million. Non-GAAP fulfillment expenses increased by 32.7% to RMB392 million. Under the non-GAAP measures, the increase was primarily due to an increase in personnel costs and logistics expenses as we conducted more recycling and transaction activities compared with the same period of 2023 and an increase in operation-related expenses as we expanded our recycling fulfillment network and operation center capacity in the fourth quarter of 2024.

Non-GAAP fulfillment expenses as a percentage of total revenues increased to 8.1% from 7.6%. Non-GAAP fulfillment expenses for the full year increased by 23.7% to RMB1.36 billion, while the non-GAAP fulfillment expenses as a percentage of total revenues decreased to 8.3% from 8.5%.

In the fourth quarter of 2024, selling and marketing expenses increased by 18.7% to RMB376 million. Non-GAAP selling and marketing expenses increased by 30% to RMB321 million, primarily due to an increase in advertising expenses and promotional campaign-related expenses and an increase in commission expenses in relation to channel service fees.

Non-GAAP selling and marketing expenses as a percentage of total revenues increased slightly to 6.6% from 6.4%. Non-GAAP selling and marketing expenses for the full year increased by 14.8% to RMB1.09 billion, while non-GAAP selling and marketing expenses as a percentage of total revenues decreased to 6.6% from 7.3%.

In the fourth quarter of 2024, general and administrative expenses increased by 46.5% to 91 million. Non-GAAP G&A expenses increased by 71.1% to RMB77 million, primarily due to an increase in personnel costs. Non-GAAP G&A expenses as a percentage of total revenues increased to 1.6% from 1.2%. Non-GAAP G&A expenses increased by 28.2% to RMB250 million, while non-GAAP G&A expenses as a percentage of total revenues remained flat year over year at 1.5%.

In the fourth quarter of 2024, technology and content expenses decreased by 10.7% to RMB57 million. Non-GAAP technology and content expenses decreased by 9.2% to RMB53 million. The decrease was primarily due to a decrease in personnel costs. Non-GAAP technology and content expenses as a percentage of total revenues decreased to 1.1% from 1.5%. Non-GAAP technology and content expenses for the full year increased by 10.7% to RMB190 million, while non-GAAP technology and content expenses as a percentage of total revenues decreased to 1.2% from 1.3%.

As a result, our non-GAAP operating income was RMB131 million in the fourth quarter of 2024, representing an increase of 61% year over year. Non-GAAP operating profit margin was 2.7% compared to 2.1% in the fourth quarter of 2023. Our non-GAAP operating profit for the full year reached RMB410 million, increasing meaningfully by 62.8%. Non-GAAP operating profit margin in 2024 was 2.5% compared to 1.9% in 2023.

In terms of shareholder returns, we continue to push forward with repurchases, and our current repurchase program allows us to repurchase up to USD50 million of our ADSs through June 27, 2025. In the fourth quarter of 2024, we used USD5.8 million to repurchase approximately 2.1 million ADSs. As of December 31, 2024, we have returned USD25.9 million to our shareholders for a total of 10.3 million ADSs.

As of December 31, 2024, cash and cash equivalent, restricted cash, short-term investments, and funds receivable from third-party payment service providers totaled RMB2.9 billion. The company's financial reserves are sufficient to support reinvestment in business development and shareholder returns.

Now turning to business outlook. For the first quarter of 2025, we anticipate total revenues to be between RMB4,550 million and RMB4,650 million, representing a year-over-year increase of 24.6% to 27.4%. Notably, the first quarter of 2024 marked a high base of product revenue for Apple trade-in business.

In the first quarter of this year, the company adjusted its operational strategy and estimated that the scale of this business would decrease, but the operating profit margin could turn positive. In addition, we downsize some overseas businesses with negative margins. These two factors have been taken into account in the outlook for the first quarter of 2025. Please note that this forecast only reflects our current and preliminary views on the market and operational conditions, which are subject to change.

This concludes our prepared remarks. Operator, we are now ready to take questions.

(Operator Instructions) Joyce Ju of Bank of America.

(spoken in Chinese) Could you kindly share your plans to capture the growth opportunities in 2025 on the back of nationwide consumer electronics trade-in subsidies? May you help us quantify the add-ons from this year's subsidy? What's the outlook for growth of the top line for this year?

(interpreted) Thank you for the question. We believe China's pre-owned electronics market has significant untapped potential. Looking upstream, new smartphone shipments in China rebounded in 2024 by nearly 6% year over year to 290 million units. This was driven by a steady increase in replacement demand and support its consumption policies. Meanwhile, according to IDC research, China's pre-owned smartphone recycling transaction industry has sustained a double-digit growth.

The national trade-in subsidies are inevitably a growth engine for our recycling business. By leveraging our unique industry position and front-end capabilities, we will strive to seize opportunities and increase our penetration rates in core scenarios. As China deploys nationwide national subsidies to mobile smartphones, tablets, and smart watches in 2025, we witnessed a significant increase in C2B recycling volume in January and February, thanks to our front-end fulfillment pricing and system capabilities.

We aim to further deploy our compliance refurbishment capabilities and high turnover capabilities of PJT Marketplace. This is to drive more efficient and profitable circulation of pre-owned consumer electronic products. Through AHS stores and official websites, we are meeting the growing consumer demand for high quality pre-owned products nationwide.

On our recycling service capabilities, we expand our user range by offering a broader area of product service capabilities, in addition to more stores and larger to-door service teams. We deliver upward recycling results and take rates for product categories while further establishing our product catalog and pricing capability. As a result, we aim at an accelerated growth of the top line in 2025.

On tactics, we plan to speed up store openings and expanding our to-door service team by net adding 800 stores and 1,000 to-door staff in 2025. This advances our national face-to-face fulfillment network that will provide instant recycling and cashback services. We convert more customers with such a unique user experience.

We will also boost brand investment by amplifying AHS presence on new media platforms like Douyin and Xiaohongshu, reinforcing AHS Recycle's position at the top-of-mind brand name for recycling services and attracting more users to our offline and online touch points.

Given the bright growth outlook for the pre-owned market, we should value rational investment into brand awareness and fulfillment capabilities in preparation for long-term development. In the mid- to long-term, our industry leadership and economies of scale will gradually deliver sustained profitability. Thank you for the question.

[Jiao Wan], CICC.

(spoken in Chinese) We know you have made great progress in reducing costs through automated quality inspection and operations in recent years. Do you pay attention to recent AI models like DeepSeek and have a plan to optimize your business with AI?

(interpreted) ATRenew is a scenario-driven industry internet company. It achieves scale effects and enhances the standardization of operations through its own recycling and platform businesses, accumulating enormous know-how. We have AI applications in some business scenarios. For example, in our automated quality inspection centers in Dongguan and Changzhou, we have extensively deployed AI image recognition and to automatically determine the appearance and inspect main boards and components, improving inspection accuracy, reducing costs of quality inspection, and reducing manual inspection errors.

At present, some of our business procedures need human operation, and there is considerable room for efficiency improvement through AI. Since the fourth quarter of last year, we have actively embraced the cutting-edge trend and achieved some initial industry application innovations through the deployment of some open-source large number models, for example, the efficiency improvement of the compliance check of our store operations, digital operation trainings at operation centers, coding for back office related requirements, internal knowledge database, et cetera.

This year, we will further deploy AI applications in more departments and business scenarios, focusing on the development of AI plus circularity -- circular economy innovative applications in the fields of intelligent customer service, intelligent quality inspection, and intelligent pricing to achieve cost reduction and efficiency improvements in more recycling scenarios and business processes and bring more value to customers.

In addition, we expect AI will be more widely deployed on mobiles and PC terminals, leading to the renewal of AI hardware. Given we have focused on personal and household electronic products, we believe this presents a significant long-term business opportunity for us.

Michael Kim, Zack Small-Cap Research.

Just one follow-up question for me, can you just flush out your updated thinking on capital management priorities, particularly as it relates to reinvesting for growth versus returning capital to shareholders via buybacks?

(interpreted) I will address this question. As mentioned earlier, we remain optimistic about the growth of the secondhand recycling industry over the next three to five years. Therefore, we have set real acceleration as our internal target for 2025. Consequently, we will make some OpEx reinvestments in line with the business scale to enhance the service capabilities on the front end for users and to build the user perception of AHS Recycle brand name. The emerging businesses that we have focused on developing over the past one to two years, such as multi-category recycling, combined refurbishment, and Apple's official trade-in program, have already demonstrated healthy growth and profitability, and that basically requires no additional investment.

Our business model is generally asset-light but operational intensive. We will adopt a balanced approach when expanding our store network and fulfillment capabilities in 2025. The adjustment and upgrade of our South China operation center is complete, so there will not be too much additional CapEx in 2025. We aim to maintain a healthy non-GAAP operating profit margin to support business in reinvestment and shareholder return.

We are confident in our business outlook and will further execute on our current repurchase plan. We will also balance the use of cash and invest more when industry opportunities grow. The ultimate goal is to increase long-term shareholder returns. The repurchase program is valid until the end of June 2025. We will continue to actively engage with our Board of Directors during the interim for extension.

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

Thank you. Thank you again for joining us. 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 email us at ir@atrenew.com. Have a good day.

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

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.