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 to 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 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 IRA 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 Carry 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 Anew does not take any obligations to upgrade our assumptions on these statements.

Also this call includes discussions of certain non-gap financial measures.

Please refer to our earnings press release, which contains a reconciliation of non-gap measures to GAAP measures.

Finally, please note that unless otherwise stated, all figures mentioned during this conference call are 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.

(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 realize 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% yearuro a year to 4.85. RB full year revenue reached 16.3 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 land GAAP income from operations was $130 million in the fourth quarter and 410 million in the full year 2024, growing 61% and 62.8% year on year, respectively.

In terms of margins, land GAAP in 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 35.3 million, with China's strongest support and subsidies backed by ultra-long special Treasury bonds to large scale renewal of equipment and trading of consumer goods in 2025.

AHS recital stands at the forefront of a promising growth era.

Zoom 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 introduced our next level fulfillment services to users.

In the 4th quarter, trading 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 trading and offering 4 years ago, which has incrementally driven consumption growth.

On the direct sales to consumers, yi selection on JD.com, physical stores and online portals of AHS recycle, and new media distribution channels all have breakthroughs.

We leverage 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 the 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 1P2C 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% points year on year.

We coupled marketing strategy and prioritize 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 CNY100 million on new media marketing to increase our brand exposure across though inahou 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 trading 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.

Trading 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 2014.

More consumers recognized 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 multicultural 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.

Okay.

On our marketplaces, the service revenue of IGtown saw a steady increase in 202,024.

The positioning of IG 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.

Tai Zhang 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.

I 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 high 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 trading 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 law making businesses resulting in a downsized overseas product revenue.

However, we believed 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 AHF 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, two door service punctuality and post inspection negotiation rates are steadily optimizing.

Since the 4th quarter of 2024, driven by subsidy rollouts and the platform promotions, we have seen rapid growth in trading demand from users of JD.com. This is attributed to our joint efforts with JD.com in building a robust secondhand electronics trading service cap 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 20th, 2025, the national trading 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 CTV recycling business grew by over 70% year on year, effectively meeting the trading needs of users nationwide.

Leveraging our industry leading supply chain capabilities, we conduct combined refurbishment with authorization from leading manufacturers.

We use genuine parts for value-added processing, enhancing the availability for retail ready products for our wanting business.

12 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 trading 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 HHS 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 1st and 2nd tier cities, the rapid growth of our asset like multicultural 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 two-door service capabilities to increase service density and meet users demand for face to face transactions.

Over the next 3 years, we aim to establish a nationwide network of 5,000 stores and a 5,000 member two door service team, ensuring a robust fulfillment network to cater to diverse recycling and trading needs.

To see so.

Based on the 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 NHS recycle 2025 is a year full of opportunities.

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

(interpreted) Hello everyone.

I am pleased to announce that we achieved strong financial performance in 2,094, 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 410 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 R&B and all comparisons are on a year over year basis unless otherwise stated.

In the fourth quarter, total revenues increased by 25.2% to 4,849 million, primarily driven by ongoing growth in our net product revenues.

Net product revenues increased by 26.6% to 4,461 million, primarily due to the growth in our reflecting scale and the scales and the sales offering on consumer electronics through our online channels.

Net revenue for the full year reached 14.84 billion, representing a year on year increase of 27.3%.

Net service revenues were $389 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 $40 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 1.48 billion, representing a 13.5% year on year increase with an overall rate of 5.35%, of which our multi-category recycling business contributed $130 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.

Let's discuss our operating expenses to provide greater clarity on the trends in our actual operating.

Expenses we will mainly discuss our non-gap orbiting expenses which better reflect how views our results of our operations.

The reconciliation of GAAP and non-gap results are available in our earnings release and the corresponding form furnished with the US.

In the fourth quarter of 2024, merchandise costs increased by 24% to $3,9055 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 strength and refurbishment capabilities, contributing to higher margin D2C sales.

We also optimize the performance of Apple's official trading program, driving both revenue growth and margin expansion in the fourth quarter.

Merchandise costs for the full year increased by 26.6% to 13.09 billion, with a 1% growth margin of 11.8% compared to 11.3% in 2023.

In the fourth quarter of 2024, fulfillment expenses increased by 31.8% to 397 million.

Land GAAP fulfillment expenses increased by 32.7% to 392 million.

Under the non-gap 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.

Men get fulfillment expenses as a percentage of total revenues increased to 8.1% from 7.6%.

No GAAP fulfillment expenses for the full year increased by 23.7% to $1.36 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 $3176 million.

Landgap selling and marketing expenses increased by 30% to 321 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 eees.

GAAP selling and marketing expenses as a percentage of total revenues increased slightly to 6.6% from 6.4%.

Land GAAP selling and marketing expenses for the four year increased by 14.8% to 1.09 billion, while non-gap 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 146.5% to 91 million.

Land GAAP GNA expenses increased by 71.1% to 77 million, primarily due to an increase in personnel costs.

Laga expenses as a percentage of total revenues increased to 1.6% from 1.2%.

Land GAAP GNA expenses increased by 28.2% to $250 million while GAAP GNA expenses as a percentage of total revenues remained flat year over year at 1.5%.

Film about way about me.

In the fourth quarter of 2024, technology and content expenses decreased by 10.7% to 57 million.

Ngap technology and content expenses decreased by 9.2% to 53 million.

The decrease was primarily due to a decrease in personnel costs.

Ngap technology and content expenses as a percentage of total revenues decreased to 1.1% from 1.5%.

Ngap technology and content expenses for the full year increased by 10.7% to 190 million, while non-gap technology and content ex expenses as a percentage of total revenues decrease to 1.2% from 1.3%.

As a result, our land GAAP operating income was 131 million in the fourth quarter of 2024, representing an increase of 61% year over year.

Land GAAP operating profit margin was 2.7% compared to 2.1% in the fourth quarter of 2023.

Our GAAP operating profit for the full year reached $410 million increasing meaningfully by 62.8%.

No 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 $150 million US dollars of our ADS through June 27, 2025.

In the fourth quarter of 2024, we used $5.8 million US dollars to repurchase approximately 2.1 million ADSs.

As of December 31, 2024, we have returned $25.9 million US dollars to our shareholders for a total of 10.3 million ADSs.

As of December 31st, 2024, cash and cash equivalent, restricted cash, short-term investments, and funds receivable from third party payment service providers totaled.

2.9 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 trading 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.

Thank you.

(Operator Instructions) Joyce Ju of Bank of America.

Hi, management, thank you for taking my question.

Could you kindly share your plans to capture the growth opportunities in 2025 on the back of nationwide consumer electronics trading subsidies?

Could you help us quantify the add-ons from this year's subsidy?

What's the outlook for growth of the top line like, for this year?

Thank you.

Oh.

(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 20 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 natural trading 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 two-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.

Hong hong hong on tactics we plan to speed up store openings and expanding our two door service team by net adding 800 stores and 1,0002 dollarsor stuff 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 HS presence on new media platforms like Douyin and Xiaohongshu, reinforcing AHS recycled position at the top of my 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.

Oh. Thank you for the question.

[Ja Wan] of CICC.

Please go ahead.

So, hi, good evening.

Thank you for taking my questions.

We know you have made great progress in reducing cost through automatic quality inspection and operations in recent years.

Do you pay attention to recent AI models like Desig and have a plan to optimize your business with AI?

Thank you.

(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 Chengzhou, 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 4th 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, etc.

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 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.

I'll see you.

Thank you.

Michael Kim, Zack Small-Cap Research.

Great, good morning, good evening, everyone.

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 via buybacks.

Thanks.

(interpreted) I will address this question.

As mentioned earlier, we remain optimistic about the growth of the secondhand recycling industry over the next 3 to 5 years.

Therefore, we have set real acceleration as our internal target for 2025.

Consequently, we will make some OPEC 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 1 to 2 years, such as multi category recycling, combined refurbishment, and Apple's official trading program, have already demonstrated healthy growth and profitability, and that basically requires no additional investment.

Our business model is generally asset li 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-gap 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.

Got it.

Thanks for taking my question.

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.

He reply with this call will be available on our IR website shortly followed by a transcript ready.

If you have any additional questions, please feel free to email us at IR@renewal.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.