AHS Recycle exceeds revenue guidance by 32.2%, driven by strong product sales and strategic partnerships, projecting continued growth momentum in H2 2025.

OPERATOR - (00:01:44)

Good morning and good evening ladies and gentlemen. Thank you for standing by and welcome to the ATRenew Inc. Second quarter 2025 earnings conference call. At this time, all participants are in a listen only mode. We will be hosting 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 G, Director of Corporate Development and Investor Relations of the company. Please go ahead, sir.

Jeremy G - Director of Corporate Development and Investor Relations - (00:02:19)

Thank you. Hello everyone and welcome to ATRenew's second quarter 2025 earnings conference call. Speaking for today is Carol Chen, our Founder, Chairman and CEO and he'll be followed by Rex Chen, our CFO. After that, Rex will open the call to questions from the analyst. The second quarter 2025 financial results were released early today. The earnings press release and investor slides accompanying this call are now available at our IR website ir.ATRenew.com There will also be a transcript following this call for your early convenience for today's agenda, Carol will share his thoughts on our cultural performance and business updates followed by Rex who will address the financial highlights. Both Carol and Rex will participate during the Q and A session. Please note that our safe harbor statement. Some of the information you'll 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 AG Renew 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. I'd now like to turn the call over to Carol for business and strategy updates.

UNKNOWN - (00:04:31)

Ladies and gentlemen, please do remain online while we reconnect the line. Let's see. I can hear you now. I can hear the words from the Shanghai office. Ladies and gentlemen, please hold a moment while we rejoin the line for jc. We have been rejoined by the main line. Please go ahead. Okay, sorry for the disconnect and then go back. Let's continue.

Carol Chen - Founder, Chairman, and CEO - (00:08:21)

Hello everyone and thank you for joining ATRenew's second quarter 2025 earnings conference call. We are pleased to update you on our above expectation revenue growth and operational dynamics this quarter. Address your questions on the progress and share our business plans and capability building initiatives for the second half of this year.

UNKNOWN - (00:08:47)

Congo Sushi Limpao Hang EP so Zhongfu Zhongshu Zhao Dao Sign I. Told.

Carol Chen - Founder, Chairman, and CEO - (00:09:38)

You first. Riding the stable and rapidly growing trajectory of the secondhand industry, we achieved revenue exceeding the high end of our guidance through continuous innovation and industry leadership. In the second quarter our total revenue reached 4.99 billion RMB representing year over year growth of 32.2%. Within this 1P product, revenue grew by 34% year over year to 4.56 billion RMB while 3T service revenue increased by 15.4% year over year to 430 million RMB. With revenue growth rates significantly exceeding the guidance we set last quarter. non-GAAP operating Profit margin was 2.4% meeting our full year target alongside brand investment, accelerated store expansion and enhanced capability building initiatives. These solid results stem from our enhanced front end development of recycling scenarios and continuously strengthened in store and doorstep fulfillment capabilities through the best in class user experience. AHS Recycle is building stronger brand recognition as China's top recycling brand.

UNKNOWN - (00:11:08)

Impact Guanbangi.

Carol Chen - Founder, Chairman, and CEO - (00:11:25)

Taking a closer look within our 1P business, our C2B recycling business maintained robust double digit growth in the second quarter benefiting from national subsidies and June 18th e commerce promotional campaigns alongside expanded partnerships with high quality consumer electronics brands to jointly develop recycling and trading supply chain capabilities. Notably, we observed a distinctive year over year growth performance in JD's trading scenarios. The recycling achievement is closely tied to our front end fulfillment capabilities. We remain committed to our accelerated store expansion strategy. By the end of the second quarter we operated 2,092 AHS stores nationwide including 987 self operated stores in Tier 1 and Tier 2 cities and 1,105 jointly operating stores in lower tier cities, enabling users to access nearby in store services in a convenient manner. Additionally, Our self operated door-to-door service team expanded to 1,160 personnel at the end of the second quarter. Benefiting from our intelligent order dispatch and fulfillment capabilities. We have broadened our coverage area and strengthened our capacity to manage volume surges during major promotional periods while enhancing fulfillment timeliness. Consequently, our channel expansion and fulfillment capability cloud upgrades collectively create superior recycling and trading experiences for users. Notably, our in store and two door teams collectively handled nearly 90% of orders in the first and second tier cities and about 80% in the third and fourth tier cities. We continuously increased the proportion of orders with face to face services, order confirmation and payment by expanding our self operated fulfillment network, therefore enhancing user experience in lower tier cities, temporary constraints in store density and two door staffing limited our face to face fulfillment order ratio to below 50% leaving significant room for store expansion to door capability building. In terms of our supply chain capabilities, we continue leveraging mature end to end capabilities while expanding compliant refurbishment capacity. In the second quarter, refurbished products contributed 13.5% of 1B revenue. Notably, our on demand refurbishment model added laptops and smartwatches to its scope, generating over 100 million RMB GMV in the quarter. Compliance refurbishment operations expand retail ready products for our channels such as PYPI selection, AHS official website, AHS store and Douyin platforms. Consequently, 1P 2C retail revenue surged 63.7% year over year in the second quarter, accounting for 34.4% of product revenue. This continuous improvement reflects our value creation for more retail users. Our 3P service revenue also sustained growth in the second quarter, increasing by 15.4% year over year with an overall take rate of 5.3%. Let's zoom in on the three core business segments.

UNKNOWN - (00:17:31)

The B2B first, our B2B marketplace Taijitang.

Carol Chen - Founder, Chairman, and CEO - (00:18:19)

Strengthened industry openness by providing open supply chain services to merchants and Douyin users. Specifically warehousing inspection. GMV surged year on year, increasing the warehousing inspection penetration rate for B2B platform operations from 62% in the first quarter of 2024 to 73% in the second quarter of 2025. Meanwhile, we also capture new user traffic and growth opportunities through the innovative Specialty Buyer model, with cumulative registered users exceeding 1.16 million in the second quarter achieved robust double digit growth in overall performance. Jim Second, our B2C marketplace in developing PYPI's 3P business, as we previously shared, we have implemented a consignment model designed to provide enhanced operational convenience for small and medium sized secondhand merchants. Under this model, the PYPI team handles product and store management, traffic operations and after sales services on behalf of merchant users. This consignment approach ensures consistent front end product listing, standardized service quality, managed product quality and reliable after sales support, resulting in comprehensive improvements to both sales performance and user experience daily in stock inventory volumes of IPI consignment service have now increased by 100% compared to the first quarter of this year. Piper's confinement GNV in the second quarter surged 128% year over year, driving a modest recovery in the platform's take rate and delivering cost effective secondhand product transactions to a broader user base.

UNKNOWN - (00:21:05)

IBA either Tomi Zanza, Sovir Babandi, Omanji should.

Carol Chen - Founder, Chairman, and CEO - (00:21:59)

Third take category Recycling GMV and related service revenue both increased by nearly 110% year on year this quarter with a take rate of 3.4%. Service coverage expanded alongside our accelerated store opening Strategy. As of June 30, 692 self operated stores and 112 jointly operated stores launched multi-category recycling services, tailoring offerings to local user consumption habits based on store locations and commercial districts. Building on our upgraded luxury recycling services at AHS self operated stores, we leverage AI technology to enhance automated identification capabilities to improve the recycling and pricing experiences for users, thus defining a best in class user experience. Our platform based multi category recycling service boosts local store efficiency without additional capex enabling further expansion of our high quality offline store network. The aforementioned reflects our effective operational practices. As for our long term strategy, we would like to take this earnings call as an opportunity to update our investors analysts on H3 strategic goals which we last spoke on during our Offline Investor Day in early July.

UNKNOWN - (00:23:49)

You Jindong Pingo Dong Chany.

Carol Chen - Founder, Chairman, and CEO - (00:24:30)

The First Goal against the backdrop of national subsidies and policies stimulating domestic consumption, we leverage the value of our unique trading programs and comprehensive supply chain capabilities to partner with strategic allies such as JD.com and Apple, delivering the best in class trading user experience. By integrating our comprehensive supply chain capabilities across B2C, B2B and compliant refurbishment operations, ATRenew continues to strengthen our position at China's largest and most robust leader in the transaction and service of three owned consumer electronics. According to third party data from cic, China's recycling penetration rate for pre owned consumer electronics remains in single digit versus over 30% in developed economies indicating substantial growth potential. The second goal in response to the changing consumer landscape, we leverage AHS Recycle's distinctive brand value and utilize our nationwide network of over 2000 AHS stores to continuously expand our platform based recycling businesses across additional high value product categories. This strategy creates new growth opportunities for us in the secondhand recycling market and we are committed to establishing AHS Recycle as China's top recycling brand.

UNKNOWN - (00:26:31)

Jasa Daughter.

Carol Chen - Founder, Chairman, and CEO - (00:26:49)

Moving up to the third goal, capitalizing on the surging momentum of green consumption, we will leverage our unique business model advantage combined with our distinctive zero track offline presence spanning both shopping malls and communities. This positioning enables us to create a closed loop ecosystem that seamlessly integrates commercial monetization and user acquisition across both low frequency high value and high frequency low value transactions, reinforcing our commitment to becoming a pioneer of sustainable consumption.

UNKNOWN - (00:27:24)

Yo Yeho Song Dos Realize something.

Carol Chen - Founder, Chairman, and CEO - (00:28:16)

I'd like to point out that all business models take money from their accounts while ahs recycle as money to our users accounts. Our business model is unique and disruptive. On August 1st we launched the AHS Recycle Green Wallet enabling users to purchase a growing range of products at surprise discounts in recognition of their eco friendly actions. Through co branded partnerships with consumer brands, we promote eco friendly recycling and green consumption, engage an increasing number of users and set a new trend of genuine life new lifestyle. This represents our long term vision and embodies our mission to give a second life to all idle goods.

UNKNOWN - (00:29:12)

JinyanJim Soy Bud.

Carol Chen - Founder, Chairman, and CEO - (00:29:36)

These three strategic goals represent our roadmap for fulfilling long term commitments and form the fundamental strategy driving accelerated business growth. Earlier this year we identified emerging opportunities from national trading subsidies from consumer electronics alongside the expanding secondhand market. Accordingly, our initial guidance estimated that this year's revenue growth will not only sustain its momentum but accelerate further, slightly surpassing last year's growth. As we enter the third quarter, we have strong confidence in meeting our full year operational objectives. Based on strong confidence in our performance, we are pleased to announce a three year shareholder return program committing to return no less than 60% of our annual non-GAAP net profit to shareholders via dividend share repurchases or a combination of both from 2025 through 2027. One more thing Our ESG Progress In June this year we released our fifth annual ESG report, marking a significant milestone with our first carbon reduction commitment. Using 2024 as our baseline year, we have set ambitious targets to reduce scope 1 and scope 2 greenhouse gas emission intensity by 35% and scope 3 emission intensity by 50% by 2030. You are more than welcome to explore more about our ESG highlights and improvements from the full report, which is available on our Investor Relations website. Now I'd like to turn the call over to CFO Rex for for financial updates. Hello everyone. We are pleased to report strong financial performance in the second quarter of 2025 as national trading subsidies for consumer electronics fueled by market growth, we witnessed a surge in the demand for used device recycling and trade in enabling us to capture accelerated opportunities through high precision trading services, upgraded fulfillment capabilities and the stronger AHS recycle Brand. Total revenue in the second quarter once again surpassed the high end of our guidance, increasing by 32.2% to over 4000 and adjusted operating income was over 120 million RMB compared to adjusted operating income of 94.1 million RMB in the same period of 2024. Before taking a detailed look at the financials, please Note that that all amounts are in RMB and all comparisons are on a year over year basis unless otherwise stated. In the second quarter, the growth of total revenues was primarily driven by continued growth in both our net profit product revenue and net service revenues. Net product revenues increased by 34% to $4,560 million largely attributable to the growth in online sales of pre owned Consumer Electron. Net service revenues were 430 million in the second quarter representing an increase of 15.4%. The increase was largely driven by the growth in service revenue from our 3Pmulticast where we set operations. The overall take rate of Our marketplace was 5.3% for the second quarter of 2025, up slightly year over year and quarter over quarter. During the quarter our multi category recycling business contributed over 63 million of revenues accounting for 14.7% of service revenues and representing a healthy upward TRE. 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 operating results. The reconciliations of GAAP and non-GAAP results are available in our earnings release and the corresponding form 6K furnished with the US SEC.

UNKNOWN - (00:36:42)

The champagne so the champion.

Rex Chen - Chief Financial Officer - (00:37:11)

Merchandise costs increased by 32.3% to $3,960 million in line with the growth in product sales. Gross profit margin for our 1P business was 13.2% compared with 12.1% in the same period last year. The gross margin improvement in our 1P business was primarily driven by high efficiency C2B recycling scenarios, compliant refurbishment capabilities incorporated in our supply chains and an increasingly diversified retail channel mix. This allows us to increase the proportion of higher margin retail sales with 1P 2C revenue accounting for 34.4% of product revenue in the second quarter of 2025, up from 28.2% in the same period last year. Additionally, the high base impact from Apple's traffic trading program in 2024 has eased with a significantly improved gross margin in this segment through better pricing Strateg fulfillment expenses increased by 26% to 410 million. Non GAAP fulfillment expenses increased by 27.3% to 410 million under the non-GAAP measures. The increase was mainly driven by higher personnel and logistics expenses reflecting a greater volume of recycling and transaction activities compared to the same period in 2024. Additionally, operation related costs rose as we expanded our store network and enhanced operation center capacity in the second quarter of 2005. Nangat fulfillment expenses as a percentage of total revenues decreased to 8.2% from 8.5. Selling and marketing expenses increased by 14.9% to 410 million. Non GAAP selling and marketing expenses increased by 36.7% to 390 million. The increase was primarily driven by higher advertising and promotional campaign related spending as well as an uptick in commission expenses associated with channel service fees. As a result, land gap Selling and marketing expenses as a percentage of total revenues increased to 7.8% from 7.5%. General and administrative expenses increased by 6.9% to 77.5 million. Land GAAP G and A expenses also increased by 33.6% to 75.1 million, primarily due to an increase in personnel costs. Non GAAP GNA expenses as a percentage of total revenues remained stable at 1.5%. Technology and content expenses increased by 25.5 to 62.5 million. NGAAP technology and content expenses increased by 33.2% to 58.2 million as well. The increase was primarily driven by elevated personnel expenses. NGAAP technology and content expenses as a percentage of total revenues remained stable at 1.2%. As a result, our Non GAAP operating income was over 120 million in the second quarter of 2025 compared to Non GAAP operating income of 94.1 million in the second quarter of 2020. Non GAAP operating profit margin was 2.4% for this quarter compared to 2.5% in the second quarter of 2024, representing a modest decline of 6 basis points. The margin stabilized at 2.4% compared to the previous. During the second quarter of 2025, we repurchased a total of approximately 1.6 million ADSes for approximately US$4 million. As of June 30, 2025, we had repurchased a total of approximately 12.3 million ADSes for approximately US$31.1 million and the previous US$50 million share repurchase for we On June 30, we announced that the Board of Directors authorized a new share repurchase program under which the Company may repurchase up to US$50 million of its shares over a 12 months starting from June 30, 2025. The share repurchase program will be implemented in conjunction with the three year shareholder return plan previously shared by as of June 30, 2025, cash and cash equivalents, restricted cash short term investments and funds receivable from third party payment service providers totaled 2.35 billion RMB. Our financial reserves are sufficient to support reinvestment in business development and shareholder returns. Now turning to the business outlook for the third quarter of 2025, we anticipate total revenues to be between 5 to million RMB and 5150 million RMB, representing a year over year increase of 24.7% to 27.1%. Please note that this forecast only reflects our current and preliminary views on market and operational conditions which are subject to change. This concludes our prepared remarks. Operator, we are now ready to take questions.

OPERATOR - (00:45:14)

In the question and answer session. To ask a question, you may press Star then one on your telephone keypad. If you are using a speakerphone, Please. Pick up your phone. Probably due to technical issues, we are not able to hear the operator line. Hi operator, we're not able to hear you clearly. Apologies, this is the operator. Can you hear me?

UNKNOWN - (00:47:11)

Yes, please. Please proceed. Then repeat your question in English for the convenience of everyone on the call. Once again, if you would like to ask a question, you may press star then one.

Joyce - Equity Analyst - (00:48:23)

Yeah, hello, this is Joyce from Bank of America.

UNKNOWN - (00:48:27)

Could you hear me? Yes, yes. Oh.

Joyce - Equity Analyst - (00:48:34)

Anything. Given such strong growth momentum in the first half, what are the company's growth expectations for the second half of the year? What are your measures to tackle the high base in the third quarter due to the home appliances national subsidy that was implemented in August last year? Additionally, well, the company actually having an updated version of the three year revenue and profit target. Thank you very much.

UNKNOWN - (00:49:39)

Okay.

Rex Chen - Chief Financial Officer - (00:50:24)

From a longer term perspective, we believe the circular economy model centered on trade ins and secondhand consumption holds enduring potential. With its share of new product consumption gradually rising. This stems from younger consumers heightened appreciation for quality to price ratios and increasing acceptance of grain secondhand consumption. Viewing industry development through an evolutionary view, this will be a long term process requiring progressive grant and service recognition. Building normalizing trade ins as the default purchasing method for new products. Like other sectors, it necessitates user education, landscape cultivation.

UNKNOWN - (00:51:11)

Yeah.

Rex Chen - Chief Financial Officer - (00:51:36)

At the current stage and during the next two years, we are focusing on two core strategy priorities. First, we are maximizing our recycling and fulfillment capabilities including in store and two door capabilities allowing safe, convenient and competitively priced recycling and services more accessible. Second, we are positioning AHS Recycle as China's leading recycling brand while building strong brand equity. Ensuring AHS Recycle can effectively serve users secondhand recycling and purchasing needs for the next decades and even next generation. In September this year, new device launches from leading brands will generate significant upgrade opportunities. We Expect to capitalize on this cycle to serve Chinese consumers. Reflecting and trading demands we are confident in realizing our revenue growth targets for the second half of this year. Regarding profitability expectations, we maintain our strategy of enhanced investment in brand and capability building supporting healthy profit outlook. We anticipate scale effects to gradually drive improvements in operating profit margin starting next year to create longer term value. Okay, thank you. Operator, please open the line to the second question.

OPERATOR - (00:53:45)

Michael Kim of SAC Small Cap Research, please go ahead.

Michael Kim - Equity Analyst - (00:53:50)

Great. Good morning and good evening everyone. Just one question for me. Just from a supply standpoint. Any notable trends in trade in activity via JD.com or your offline stores in terms of volumes or the underlying mix of products and then related to that, any updated thoughts on how the subsidies have obviously impacted volumes more recently and sort of what stage do you think we might be in as it relates to subsidy driven growth?

UNKNOWN - (00:54:28)

Thanks.

Rex Chen - Chief Financial Officer - (00:54:32)

Okay, thank you for your question. So do the T shirt.

UNKNOWN - (00:54:59)

Mandate?

Rex Chen - Chief Financial Officer - (00:55:18)

Our Results of the second quarter demonstrate that smartphones remain the strongest C2B recycling category benefiting from rising user acceptance of trade ins. The Trade in program co launched by JD.com and AHS Recycle sustained robust growth enhanced in store and door-to-door fulfillment capabilities enabled 80% offline fulfillment adoption across Tier 1 to Tier 4 cities, elevating user experience. Regarding national subsidies, we closely monitor policy developments. Recent government directives signal a strong commitment to stimulating consumption through substantial subsidy allocations. During implementation, we optimized fulfillment to capture subsidy driven replacement demand delivering impressive double digit growth in C2B recycling results. The recycling results were particularly strong in JD's trading scenarios. Mostly our Apple to Apple trading model offers brand funded incentives for devices that were not eligible for the national subsidy. Other brand partners we collaborate with have implemented similar promotional strategies. Brand owners and E commerce platforms have a stronger motivation to invest in trading subsidies Moving forward, trading and secondhand consumption will gain further traction as mainstream behaviors. We will expand recycling and trading scenarios, strengthen store and door to door fulfillment, amplify ahs, recycles brand influence and deliver superior value and user experiences.

UNKNOWN - (00:58:43)

Okay, thank you.

OPERATOR - (00:58:46)

Operator. Please take the next question please.

UNKNOWN - (00:59:30)

Good evening management. Congratulations for the strong results. I have two questions. The first one is could you please share the adjustments you made to Apple's official business and overseas business and what impact did they have on your financial performance? The second question is could you share some progress regarding new cooperation channels with brand manufacturers in the recycling sector? Thank you.

Rex Chen - Chief Financial Officer - (01:00:30)

Our Apple trading business which operates through Apple China's official website and directs flagship stores, has maintained profitability Since March of last year, we have successfully absorbed the impact from the high revenue base established in the first quarter of 2024 which we previously discussed. We anticipate this business segment will contribute solid product revenue for the full year while generating positive operating profits for.

UNKNOWN - (01:01:03)

The YO Pimp.

Rex Chen - Chief Financial Officer - (01:01:29)

Beyond Apple, we partner with high quality domestic brands capturing significant recycling and trading shares on platforms like Huawei Mall, Xiaomi Mall. We have established a wide area of mature C2B recycling scenarios including AHS stores, JD.com, apple official website and flagship stores and Alipay. This year we tapped in to honor DJI and JTE's official retail scenarios and build new partnerships. We embedded second hand supply chain into new scenarios. High quality recycling supplied sources remain a corporate strategic priorities. We will actively identify better supply scenarios and leverage efficient supply chain capabilities to enhance service experiences and price transparency for users. In addition, regarding the international business, we are making active operation explorations so we look forward to provide more color on our progresses next quarter. Okay Xinjie, thank you.

OPERATOR - (01:03:16)

Thank you. Thank you all again for joining us. The replay of today's call will be available on our IR website shortly, followed by a transcript when writing. If you have any additional questions, please feel free to email us@irdrenew.com have a nice day.