ATRenew - Earnings Call - Q3 2025

Transcript

Operator (participant)

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the ATRenew third quarter 2025 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 call is being recorded. I would now like to turn the conference over to your first speaker today, Mr. Jeremy Ji, Head of Corporate Development. Please go ahead, sir.

Jeremy Ji (Head of Corporate Development)

Thank you. Hello, everyone, and welcome to ATRenew's third quarter 2025 earnings conference call. Speaking first today is Kerry Chen, our Founder, Chairman, and CEO, and he'll be followed by Rex Chen, our CFO. After that, we'll open the call to questions from the analysts. The third quarter 2025 financial results were released earlier today. The earnings press release and investor slides accompanying this call are now available at our 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 quarterly performance and business strategy, followed by Rex, who will address the financial highlights. Both Kerry and Rex will participate during the Q&A session. Please note our safe harbor statements.

Some of the information you'll hear during our discussions 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 update 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 I mention during this conference call are in RMB, and all comparisons are on a year-over-year basis. I'd now like to turn the call over to Kerry for business and strategy updates.

Kerry Chen (Founder, Chairman, and CEO)

[Foreign language]

Hello, everyone, and thank you for joining ATRenew's third quarter 2025 earnings conference call. We are pleased to update you on our strengthened operating results, share the progress of our three-stage development strategy, and address key topics of interest.

[Foreign language]

In the third quarter, we once again achieved new breakthroughs across multiple operational metrics. Total net revenue reached a new record high of RMB 5.15 billion, representing 27.1% year-over-year growth. Our 1P product revenue sustained strong growth momentum, rising 28.7% year-over-year to RMB 4.73 billion, while 3P platform service revenue increased 11.6% year-over-year to RMB 420 million, demonstrating continued healthy growth. Non-GAAP operating profits reached a record high of RMB 140 million, up 34.9% year-over-year, with our non-GAAP operating profit margin achieving 2.7%, demonstrating steady improvement both year-over-year and quarter-over-quarter. During each third quarter, we strategically prepared for the mid to late September launch of flagship devices from leading manufacturers while building operational capacity to support the uptake in new device shipments throughout October, providing users with better reflecting and trade-in experiences.

[Foreign language]

Looking closer to our third quarter performance, within our 1P business, we have successfully expanded our product acquisition through trade-in programs and our AHS Recycle brand. We have effectively leveraged our proprietary combined refurbishment capabilities to deliver premium curated products to consumers through retail channels, including AHS Selection and PaiPai. This strategy delivered impressive results, with combined refurbished product revenue surging 102% year-over-year in the third quarter, 1P2C revenue sustaining robust growth of over 70% year-over-year, and the 1P2C proportion expanding to 36.4%. We believe that strengthening our retail capabilities will enhance our pricing power in the recycling end and effectively strengthen end-to-end value throughout the industry's supply chain.

[Foreign language]

On the supply side, we focused on building stronger customer awareness and recognition from the AHS Recycle brand. Others, through the AHS official website, maintained a solid 30% growth, while JD.com's trade-in program continues to be a preferred choice for users looking to recycle and upgrade their devices. We also significantly expanded our offline fulfillment capabilities, building customer trust through personalized face-to-face services that offer both convenient and competitive pricing. Our AHS store network grew to 2,195 locations across both self-operated and joint-operated sites, supplemented by a workforce of 1,962 team members who either provide full-time or part-time two-door service. This comprehensive approach ensures that recycling and trade-in services are easily accessible to customers.

[Foreign language]

In top-tier cities, we are positioning AHS Recycle as China's leading recycle brand, promoting AHS Recycle servicing through our self-operated stores. We've expanded our asset life platform to include high-value categories like luxury goods, gold, and premium liquor, creating more user value while improving store unit economics. In mid to lower-tier cities, we partner with local merchants who understand their markets, helping them evolve from single-store franchisees into city partners with multiple AHS stores. We support these partners with standardized quality inspection and pricing tools, official traffic, and social media guidance to build local customer bases. This collaboration drives mutual success. Stronger store performance enables franchisees to expand locally and scale their businesses, creating a flywheel effect that benefits everyone.

[Foreign language]

Our commitment to win-win collaboration with merchants is evident in the performance of our platform business. In the third quarter, service revenue maintained strong double-digit growth with an overall take rate of 4.89%, breaking this down across three key platform segments.

[Foreign language]

First, in B2B, PJC Marketplace continues to provide an inclusive trading environment for small and medium-sized merchants. By the end of the quarter, the number of contracted merchants on the platform quickly surpassed 1.37 million. This was driven by two factors. On one hand, the number of sellers representing product supplies continued to grow rapidly, thanks to PJC Marketplace's strong infrastructure and merchant service capabilities. On the other hand, with the rapid onboarding of small-sized merchants, such as those leveraging the specialty buyer model of Douyin, we accelerated supply chain enhancement for these merchants. To ensure a positive buyer experience during this expansion, we temporarily allowed more flexible post-sale rights and made a strategic adjustment to PJC Marketplace's take rate.

We remain confident in PJC Marketplace's long-term monetization potential, not only because of its mature industry infrastructure, but also because of its flexibility to innovate, expand user reach, optimize services, and create more value over time.

[Foreign language]

Second, in B2C, PaiPai's user service and monetization capabilities achieved another year-over-year improvement. While maintaining POP open platform functionality, we further strengthened consignment services for small and mid-sized merchants. Under this model, merchants no longer need to worry about product management, store operations, traffic, or after-sales, as PaiPai provides standardized end-to-end operational solutions. In the third quarter, GMV for consignment grew 180% year-over-year, and take rate continued to trend upward in the high single-digit range, reflecting strong merchant recognition of our service value.

[Foreign language]

Third, our asset platform for multi-category recycling services sustained rapid growth, with transaction volume increasing by 95% year-over-year, and user experience continues to improve. As of September, 878 self-operated stores and 131 franchisee locations had activated multi-category capabilities, expanding geographic coverage. Newly enabled stores typically stabilize performance within 2-3 months. After allocating front-end and fulfillment costs, multi-category services deliver an average monthly contribution profit of RMB 7,000 per store, optimizing the unit economics of AHS stores. This model supports customer acquisition, repeated orders, and the disciplined rollout of additional high-quality stores.

[Foreign language]

We continue our strategic adoption of automation and AI technologies to drive excellence in operation and experience. As our business scales, automated inspection systems at both the recycling and operational centers generate significant economies of scale and help optimize our fulfillment spend ratio. Beyond the AI-powered automation inspection capabilities for recycling of second-hand luxury goods discussed last quarter, we have also deployed AI applications in customer service, inquiry handling, and training. These initiatives are enhancing the user experience and building robust capacity to handle peak demand periods such as major promotional events.

[Foreign language]

That concludes our review of third-quarter operating results. Next, we'd like to take this opportunity to continue sharing our three-stage.

[Foreign language]

The first stage is to continue strengthening the core capabilities of the second-hand consumer electronics. ATRenew has already become China's largest platform for second-hand consumer electronics transactions and services. We have integrated the entire industry chain across C2B, B2B, and B2C, creating industry-leading end-to-end capabilities and maximizing value for both users and the industry. Going forward, we will reinforce this foundation in four ways. First, by enhancing scenario capabilities and deepening trade-in collaboration in new device sales channels with partners such as JD.com and Apple, enabling low-cost, high-efficiency access to first-hand supply. Second, by strengthening fulfillment capabilities through our nationwide AHS store network and two-door service teams to ensure a superior user experience. Third, by enhancing the capabilities of retail sales through compliant refurbishment and a higher proportion of retail sales to achieve an end-to-end loop and improve supply chain value.

Fourth, by advancing technology capabilities, leveraging automation and AI technology to unlock scale efficiencies over the long term.

[Foreign language]。

The second stage is to accelerate the growth of AHS Recycle as China's leading recycling brand. By combining our in-store-based fulfillment capabilities with an asset-like platform model for multi-category recycling, we aim to increase user engagement and frequency of service usage. At the same time, LOVRE, the ecosystem extension of AHS Recycle, is expanding into extensive community scenarios across major cities. AHS Recycle brand will partner with more consumer brands to promote revive initiatives based on high-frequency scenarios, using green incentives to encourage broader participation in recycling and the circular economy across China so that everyone can benefit from the sustainable consumption model we advocate. With this, we strengthen consumer awareness of our recycling capabilities, improve our active user base of consumer electronics with high-frequency daily grain disposal activities, and promote a closed loop of grain recycling and grain consumption. We are dedicated to building differentiated competitive edges for AHS Recycle.

[Foreign language]

The third stage is to prepare for an international strategy that shares China's grain story globally. Over the past 15 years, we have built deep expertise in standardization, automation, and platform capabilities for second-hand consumer electronic products. The rapid increase in domestic recycling penetration is driving a growing flow of used smartphones to overseas markets, representing a clear trend. On the one hand, we are actively engaging in the development of export standards and international mutual recognition for China market products. For instance, we participate in the expert committee for the cross-border export standards for second-hand goods, a joint initiative of the China Quality Certification Center and the International Organization for Standardization. On the other hand, we are channeling high-quality China-sourced devices of earlier generations into the international market.

Hong Kong, among others, as a key global trade hub for used electronics, facilitates this flow, allowing us to successfully address the demand abroad. Recently, the monthly export of China-sourced devices has exceeded 10,000 units. Looking forward, as domestic recycling penetration rates increase and standards become further clarified, we believe there will be more exports. We also look forward to replicating our efficient platform capabilities abroad to create an international version of the PJT marketplace, connecting global sources of pre-owned consumer electronics with global merchants. Simultaneously, we will, at the appropriate time, integrate with the international layouts of our strategic partners to provide solutions and jointly explore the broader retail opportunities in the global markets.

[Foreign language]

Looking forward to 2026, we remain confident in the healthy development of the second-hand industry and the strong growth trajectory of our company.

[Foreign language]

We are also proud to share an international recognition. This year, ATRenew is the finalist for the prestigious Earthshot Prize, a global environmental award funded by His Royal Highness Prince William. The prize recognizes outstanding contributions across five categories aimed at repairing our planet. ATRenew was highly commended by the committee in the Build a Waste-Free World category for its practices in advancing the circular economy through pre-owned product transactions and services. Moving forward, we remain committed to our founding mission of to give a second life to idle goods, and we'll continue to contribute to the circular economy in China and globally.

[Foreign language]

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

Rex Chen (CFO)

[Foreign language]

Hello everyone. We are pleased to report outstanding financial performance in the third quarter of 2025. We continue to capture opportunities from targeted trade-in scenarios, enhanced fulfillment and supply chain capabilities, and an elevated AHS Recycle brand presence.

[Foreign language]

Total revenue in the third quarter was at the high end of our guidance, increasing by 27.1% to RMB 5,150 million. Adjusted operating income grew by 34.9% to over RMB 140 million.

[Foreign language]

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

[Foreign language]

In the third quarter, total revenue growth was primarily driven by continued net product revenue growth. Net product revenues increased by 28.7% to RMB 4,730 million, largely attributable to the growth in online sales of pre-owned consumer electronics.

[Foreign language]

Net service revenues were RMB 420 million in the third quarter, representing an increase of 11.6%. The increase was largely driven by Pajidian Marketplace and multi-category recycling business. The overall take rate of our marketplace was 4.89% for the third quarter of 2025. During the quarter, our multi-category recycling businesses contributed nearly RMB 53 million of revenue, accounting for 12.5% of service revenue.

[Foreign language]

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 reflects how management views our operating results. The reconciliations of GAAP and non-GAAP results are available in our earnings release and the corresponding Form 6-K furnished with the U.S. SEC.

[Foreign language]

Merchandise cost increased by 26.3% to RMB 4,090 million, in line with the growth in product sales. Gross profit margins for our 1P business were 13.4% compared with 11.7% 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 chain, and an increasingly diversified retail channel mix. This allowed us to increase the proportion of higher margin retail sales, with 1P QC revenue accounting for 36.4% of product revenue in the third quarter of 2025, up from 26.4% in the same period last year. Meanwhile, our international business operation efficiency has improved, with continued improvement in both scale and gross margins.

[Foreign language]

Fulfillment expenses increased by 25.9% to RMB 440 million. Non-GAAP fulfillment expenses increased by 25.6% to RMB 430 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 third quarter of 2025. Non-GAAP fulfillment expenses as a percentage of total revenues decreased to 8.4% from 8.5%.

[Foreign language]

Selling and marketing expenses increased by 15.4% to RMB 360 million. Non-GAAP selling and marketing expenses increased by 40.6% to RMB 360 million. The increase was primarily driven by higher advertising and promotional campaign-related spending, as well as an increase in commission expenses associated with channel service fees. As a result, non-GAAP selling and marketing expenses as a percentage of total revenues increased to 7.0% from 6.3%.

[Foreign language]

General and administrative expenses increased by 6.9% to RMB 74.1 million. Non-GAAP G&A expenses also increased by 17.7% to RMB 65.2 million, primarily due to an increase in tax and surcharges, as well as an increase in consultant fees. Non-GAAP G&A expenses as a percentage of total revenues decreased to 1.3% from 1.4%.

[Foreign language]

Technology and content expenses increased by 19.5% to RMB 63.8 million. Non-GAAP technology and content expenses increased by 23.2% to RMB 61.1 million as well. The increase was primarily driven by elevated personnel expenses. Non-GAAP technology and content expenses as a percentage of total revenue remained stable at 1.2%.

[Foreign language]

As a result, our non-GAAP operating income was over RMB 140 million in the third quarter of 2025, compared to non-GAAP operating income of RMB 100 million in the third quarter of 2024. Non-GAAP operating profit margin was 2.7% for this quarter, compared to 2.6% in the third quarter of 2024, representing an increase of 16 basis points.

[Foreign language]

During the third quarter of 2025, we repurchased a total of approximately 0.5 million ADSs for approximately $2.1 million. We will continue to evaluate our overall profitability and update the shareholder return programs at the appropriate time.

[Foreign language]

As of September 30, 2025, cash and cash equivalents, restricted cash, short-term investments, and funds receivable from third-party payment service providers totaled RMB 2.54 billion. Our financial reserves are sufficient to support reinvestment in business development and shareholder returns.

[Foreign language]

Now, turning to the business outlook, for the fourth quarter of 2025, we anticipate total revenues to be between RMB 6,080 million and RMB 6,180 million, representing a year-over-year increase of 25.4%-27.4%. For the full year 2025, we estimate total revenues to be between RMB 20.87 billion and RMB 20.97 billion, representing a year-over-year increase of 27.8%-28.5%. Please note that this forecast only reflects our current and preliminary views on the market and operational conditions, which are subject to change.

[Foreign language]

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

Operator (participant)

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. When asking a question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone on the call. At this time, we'll pause momentarily to assemble our roster. The first question will come from Wang Zhao with CICC. Please go ahead.

Wang Zhao (Analyst)

[Foreign language]. Thanks for taking my questions. My first question is, we know that, recently there have been some changes to the national subsidy policies. Could you please share the impact on your business? The second one is, could you please give us more color about outlook for Q4 and next year? Thank you.

Kerry Chen (Founder, Chairman, and CEO)

[Foreign language]

Thank you for your question. The first question is about national subsidy. That's a very good question. Let me address it by analyzing the growth drivers of our 1P business in the context of the national subsidy. The national trade-in subsidy directly promotes the sales of new devices. However, these subsidies are only applicable to new devices priced under RMB 6,000. Therefore, a significant portion of consumers purchasing premium models do not utilize these subsidies. Given that our 1P business primarily focuses on premium brands, the proportion of trade-in orders utilizing national trade subsidies was actually quite limited this year. Nevertheless, the national subsidies have effectively stimulated upgrades within the pre-owned consumer electronics industry. Benefiting from our mature trade-in supply chain this year, we collaborated with JD.com to create the best-in-class trade-in user experience.

We also worked with brands like Apple, Huawei, and Xiaomi, facilitating device upgrades for more users through trade-in offsets. This approach, combined with specific subsidies offered by e-commerce platforms and manufacturers in trade-in scenarios, helps users upgrade their devices at a lower cost.

[Foreign language]

We estimate that AHS Recycle achieved a trade-in penetration rate exceeding 10% on JD.com this year. The penetration rate is consistently increasing, driving precise conversions within JD's core consumer electronics business. Furthermore, we see significant potential for further growth in this penetration rate, as the retail prices of new devices from brand manufacturers continue to trend upwards. Trade-in programs are gaining favor among users as a more cost-effective upgrade path. Simultaneously, these programs help manufacturers protect the retail pricing of their new devices, creating a win-win situation. The scenario of new device retail presents an important source for us. We will continue to collaborate closely with our e-commerce and manufacturing partners to optimize the trade-in pricing algorithm, operational processes, supply chain, and user experience, increasing the penetration rate of trade-in services over the long run.

[Foreign language]

Regarding the second question, we expect total revenue growth in the fourth quarter to be between 25.4% and 27.4%. The major electronics brands we serve have launched more attractive products this year and achieved considerable sales, stimulating stronger consumer demand for device upgrades.

Jeremy Ji (Head of Corporate Development)

[Foreign language]

Based on our fourth quarter outlook, we focus total revenue for the full year 2025 to be between RMB 20.87 billion and RMB 20.97 billion, representing a year-over-year increase of 27.8% to 28.5%. This suggests a possibility for us to grow faster than our internal budget at the beginning of this year.

Kerry Chen (Founder, Chairman, and CEO)

[Foreign language]

We anticipate accelerated revenue growth this year compared to last year, primarily driven by three factors. First, the national trade-in initiative has promoted e-commerce platforms and brand manufacturers to actively build or enhance their trade-in service capabilities. Our integrated trade-in supply chain can efficiently provide users with the best-in-class upgrade experience. Second, we are rapidly expanding our fulfillment network, having established a more granular presence in nearly 300 cities across China to ensure a superior user experience. Third, we are actively building the AI Trust Recycle brand, recognizing that brand influence delivers long-term value.

[Foreign language]

For 2026, we are actively preparing our internal annual budget. We expect to maintain a relatively rapid year-over-year growth rate, driven by increased penetration of trade-in programs, enhanced brand power, and fulfillment capabilities of AHS Recycle, and improvements in our overall supply chain efficiency.

[Foreign language]

Thank you for the question.

Wang Zhao (Analyst)

Thank you.

Operator (participant)

The next question will come from Rafael Wei with DBS. Please go ahead.

Kenry, Rex, good evening, management, and congratulations for the astonishing third-quarter results. I have two questions. The first one is that what is the store opening pace for the fourth quarter and for the next year for ATRenew? Thank you.

Kerry Chen (Founder, Chairman, and CEO)

[Foreign language]

Thank you. I'll take the first question. For the full year 2025, we maintained our target of accelerating store openings. As shown in our store structure and capabilities, the number of self-operated AHS Recycle stores in Tier 1 and Tier 2 cities has grown steadily. For self-operated stores, we prioritize quality development, focusing on delivering a superior user experience through enhanced fulfillment capabilities. Nearly 88% of these self-operated stores are now equipped with multi-category services. Regarding joint operative standard stores, we actively collaborate with local market partners to build capabilities together. Based on empowering them with our capabilities and traffic support, we work with city partners to serve local users and rapidly advance our store opening goals. In some franchise store scenarios, we are prudently exploring service capabilities for high-value categories, with gold recycling already taking initial shape.

Moving forward, the pace of new store openings will be dynamically balanced with the expansion of our two-door service teams to ensure the efficiency of both our physical locations and personnel.

[Foreign language] My second question is, what are the plans and targets for multi-category business in the future? Thank you.

[Foreign language]

In terms of multi-category business, it has maintained a rapid development trajectory this year, benefiting from our quick improvements in several metrics, including service coverage, baseline pricing capabilities for various categories, and user experience. Our multi-category recycling business operates on an asset-light platform model, which is less susceptible to policy changes and emphasizes compliant operations. It focuses on core user experience metrics, such as transaction efficiency and pricing within the C2B model. In the third quarter, against the backdrop of rapidly rising gold prices, we prioritized user transaction experience by reducing our take rate. This approach provided users with tangible value and benefits while also ensuring the rapid growth of our transaction volume. Looking ahead, leveraging the strength of our AHS Recycle brand and our store network, we will prioritize developing high-value categories that are convenient for users to bring to our store for transactions.

We aim to integrate user demographic profiles, including age and gender, to solidify the consumer mindset of AiHuiShou's go-to destination positioning.

[Foreign language]

Thank you.

[Foreign language]

Operator (participant)

The next question will come from Michael Kim with Zacks Small-Cap Research. Please go ahead. Mr. Kim, your line is open.

Michael Kim (Senior Analyst)

Hi, can you hear me?

Yes, we can hear you.

Yes. Okay. Curious to get your perspective on the uptake of enhanced services across your marketplace businesses and how maybe a more favorable mix might impact take rates. And then just related to that, how has the mix trended more recently as it relates to multi-category transactions? Thanks.

Kerry Chen (Founder, Chairman, and CEO)

[Foreign language]

The take rate for PJC marketplace remains stable at over 6%. The slight variation in the platform take rate in the third quarter was primarily due to phased adjustments in our merchant service policy, where we allowed buyers more flexible return and exchange options. Simultaneously, PJC actively introduced innovative transaction models, such as the specialty buyer model, and expanded platform supply chain connectivity to Douyin. This provides more influencers and small business owners with access to industry supply sources, simplifies second-hand transactions, and offers consumers better products and greater value.

[Foreign language]

Within the PaiPai marketplace, the consignment model has shown initial success, driving its take rate into the high single-digit range to 9%. There remains room for optimization in both the sales categories and take rate structure for consignment. This standardized model effectively addresses operational challenges for small merchants by offering a simpler store setup experience, higher transaction efficiency, and better pricing and sales channels. As the consignment business scales, both the revenue structure and take rate of the PaiPai marketplace have the potential for further optimization.

[Foreign language]

Regarding our multi-category services, a significant portion of current transaction volume comes from gold recycling, which is more standardized and operates with a low single-digit take rate. The service take rate for the second-hand luxury category continues to exceed 10%. For future category expansion, we will prioritize high-value categories that offer greater service value and potential for higher take rates.

Michael Kim (Senior Analyst)

Got it. Thanks for taking my question.

Operator (participant)

There are no further questions at this time. I'd like to turn the conference back over to management for closing remarks.

Jeremy Ji (Head of Corporate Development)

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

Operator (participant)

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