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spk01: Good day, ladies and gentlemen. Thank you for standing by and welcome to the Ehang Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now, I will turn the call over to Julia Chan, Managing Director of the Blue Shirt Group Asia. Ms. Chan, please proceed.
spk02: Hello, everyone. Thank you all for joining us on today's conference call to discuss company's financial result for the third quarter of 2021. We released the result early today. The press release is available on the company's website as well as from Newswire Services. On the call with me today are Mr. Hu Huazi, Chief Executive Officer, Mr. Edward Hsu, Chief Strategy Officer, and Mr. Richard Liu, Chief Financial Officer. Before we continue, please note that today's discussion will contain forward-looking statements made on the safe harbor provision of the U.S. Private Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filing with SEC. The company does not assume any obligation to update any forward-looking statement except as required under Capable Law. Also, please note that unless otherwise stated, all the figures mentioned during this call are in RMB. With that, let me now turn the call over to our CEO, Mr. Hu Huazi. Mr. Hu is speaking in Chinese. Our CSO Edward Shi will translate his remarks to English. Please go ahead, Mr. Hu. 大家好,我是胡华志,一航的创始人,董事长兼CEO。 今天很高兴和大家分享一航智能2021年三季度的经营情况。 大家都知道,我们正在向中国民航局申请无人驾驶航空器的试航证。
spk03: Considering the acquisition of the pilot certificate is a key part of ensuring the sales and operation of our aircraft. Recently, the company's focus is still on promoting product market. At this stage, our core goal is not to promote a large number of sales. Specifically, the Civil Aviation Bureau has basically completed the specification of unmanned aerial aircraft system market validation standards. At the same time, we will continue to carry out the audit work of the Bank 216 model. According to our designated audit plan, the audit project is completed, and we have reached a consensus with the authorities to continue to carry out trial operation in a way that combines audit and operation. At the same time, we will continue to promote the large number of layout and high-quality flight operation points and routes of our designed 100-line operation plan. At this stage of operation preparation, we think it is more important that we can polish our products more carefully, carry out more pressure tests on all system software, and review all kinds of simulation errors, and increase the test strength of multi-fly control integration control, so that each flight is smooth and reliable. For the future of flight and large-scale operations, Early exploration of how to make air traffic a common way of travel for every ordinary person. While we are more strictly polishing the product, we are also increasing the construction force of the entire operating system. Strictly design in terms of product management, operating services, and other systems, including a digital operating platform and software and other many aspects. For example, multi-engine co-pilot flight, create a line of clouds, improve network security, improve the online booking of air taxi apps, etc. I believe that in the near future, we will let everyone see and use the online booking platform app for each of us. In terms of long-range products, our VT30 already has flight capability, including all the flight control systems, battery systems, This is the main reason why we can continue to maintain strong core competitiveness in the future. For VT30, our work is based on the 216 stable system, so that VT30 also has a perfect and commercialized system design and deployment. In recent months, we have been continuously doing trial and error work to greatly improve the stability and security of each of the key components of VT30. While preparing to test and launch VT30's public flight, we want it to become a mature and qualified product. What we are doing now is an innovative experiment. There is no precedent to follow. We need everyone's patience. I see that many investors and friends have been supporting us silently. Thank you, Mr. Hu. Hello, everyone. I'm Edward Xu, Chief Strategy Officer of eHang.
spk08: First, let me translate our CEO's remarks into English. Hello, everyone. I'm Hu Huazhi, the founder, chairman, and CEO of Yihang. Thank you all for joining our earnings call today. I would like to start by sharing with you our business progress for the third quarter of 2021. As is known to many of you, that we are applying for airworthiness certification for unmanned aircraft with the Civil Aviation Administration of China, or CAC. Considering that obtaining the airworthiness certification is critical to the sales and operational services for our AAVs, Ehang's recent focus remained on accelerating the progress for obtaining airworthiness certification for the Ehang 216 instead of achieving large number of sales. To give more details on where we are with airworthiness certification, CAAC has basically completed the formulation of airworthiness certification standards for unmanned aircraft systems. Meanwhile, we are continuing to work on the EHON 216 type certification and completing the certification program according to our established certification plan. Yihan and the CAEC have reached a consensus on the guiding principle that operational trial flights can gradually be carried out while advancing the certification progress. Moreover, we continue to implement our 100 air mobility routes initiative with seven operational spots established. During this trial operations stage, we can use this opportunity to optimize our products, conduct more stress tests on all hardware and software systems, review upon all kinds of simulated failures and increase tests of the fusion controls for multiple flight control systems to make each and every flight smooth and safe. We will not tolerate any possibility of errors for any flights or operations and must maintain absolute safety. We are conducting test flights and trial operations based upon actual scenarios in cities such as Guangzhou, Hezhou, Shenzhen, Zhaoqing, and Shanya, etc. This way, we are exploring the construction of air mobility systems that will also make air mobility a common transportation method for everyone. At the same time, we are also creating an entire operational system. strictly designing product management, operation services, and other systems that include a digital operational platform, hardware, and software such as cluster management for multi-AEV formulation flights, e-hunt cloud, cybersecurity, and air taxi booking APPs, etc. I believe that in the near future, this autonomous air taxi booking platform APP will be commercially available for everyone to use. As for long-range products, our VT30 is already capable of flying. The key systems in all our products, including those for flight control, batteries, speed control, motors, are developed, designed, and produced independently by ourselves, which form our core competitiveness for future. Our goal for the VT30 is to achieve well-developed and commercially available system and deployment based upon stability of the EHON216. In recent months, we have been working on test flights to significantly improve the stability and the safety of every key component in the VT30 to prepare for a flight demo in due course while ensuring it is a mature and qualified product. We are now actively engaged in pioneering business without any precedent to follow. So patience is needed for success. I see that many investors have been supporting us and even some singers from overseas have written songs for us. We greatly appreciate the support and we know that only achieving commercial operation can we call it a true victory. We will keep moving forward towards this goal to meet everyone's expectations for Yihang and realize all our company's potential value. Above were Mr. Hu's remarks. Following his remarks, I will elaborate on our operation results in the third quarter and our plan for future. We continue to make further progress in our Yihang 216 operations and airworthiness certification efforts. As guided in our previous conference course, we continue to make efforts in executing our 100 air mobility routes initiative in third quarter of 2021, with specific focus in the Guangdong, Hong Kong, Macao, Greater Bay Area. During this quarter, our footprint further expanded to Shenzhen, a major city in the Greater Bay Area. With the cooperation with our local partners, Our Ehang 216 AAVs are able to fly regularly in Shenzhen and Yan Tian. More importantly, this is the world's first example of operating both AAVs and helicopters in an integrated aerospace, a great breakthrough in the history of aviation. Notably, We have been establishing a sample regular air mobility operation model for aerial sightseeing at the vertiport of our partner, Heli Eastern, in the oceanfront of Maruan Hill area in Shenzhen since middle of November. With a daily frequency of six operational trial flights currently, we look to expand the flight frequencies to meet increasing market demand. We estimate a full-scale operation in this spot will serve over 30,000 passengers per year. Furthermore, we have launched more operational spots in Guangzhou, Hezhou, Zhaojin, Shanya, etc., in collaboration with our partners, providing aerial tour and short-distance travel experiences to passengers. With execution of our 100 air mobility route initiative, we have launched seven operation spots. In compliance with the relevant regulations, we conducted about 2,800 operational trial flights at these spots. The abundant operational experience accumulated and the safety records built from these operational trial flights provides us with essential information for future commercial operations officially. On the certification of our EHON 216 AAV, we have attached paramount emphasis on this project and have been promoting our cooperation with CAEC. After multi rounds of discussion with CAEC expert team, our certification work has entered into the final stages of verification. So far, the work progress appears to be satisfying, so we remain hopeful to obtain CAEC's approval on EHON 216 type certification in the next few months. This year, Yi Hang 26 has received the attention of government officials from all over the world, which include the President Macron from France, Premier Li of China, and the King of Spain, all who have visited Yi Hang's exhibition booth to express their recognition of our products and technologies. Our sales focus remain on the sale of our Yihang 216F AAVs, the firefighting version. In promotion of our products, we have participated in several fire drills held by local governments in Guangzhou, Hezhou, Qingdao, Yunfu, and the Qingyuan, which have won wide recognition from the authorities. We will strengthen our promotion activities and sales channels further. Looking forward, we will attempt to accelerate the type of certification work for EHON 216 according to our established certification plan. We will also continue to implement our 100 air mobility routes initiative by adding more operation spots and frequencies to gradually build our UAM network in the Guangdong, Hong Kong, Macau, Greater Bay Area. I will now turn the call over to our CFO, Mr. Richard Liu, for financial results. Richard, please go ahead. Thank you.
spk07: Thank you, Edward, and hello, everyone. Before I go into details, please note that all numbers presented are in RMB and are for the third quarter of 2021, unless stated otherwise. All percentage changes are on a quarter-over-quarter basis, unless otherwise specified. Detail analysis are contained in an earnings press release, which is available on our IR website. I want to highlight some of the key points here. We have been strategically transitioning from a product-cell-centric model into an operation platform-oriented model since early this year. This shift is a gradual process and important for the long-term growth of the company. Total revenues were $13 million in Q3, an increase of 6.6% quarter-over-quarter. The Ehang 216 series of AAV deliveries in Q3 were 8 units, including 2 units of Ehang 216F, the firefighting model, an increase of 5 units from Q2. Growth margin in Q3 was 61.8%, though it was 6.2% lower than Q2 due to the changes in revenue mix with the higher margin command control system delivered in Q2. Our growth margin continued to be maintained at a relatively high level, which reflects the unique inherent competitive value in our business. Adjusted operating expenses, which are operating expenses excluding share-based compensation expenses, increased by $1.9 million to $61.8 million in Q3 from $59.9 million in Q2. The increase in Q3 was mainly due to the continuously increasing R&D expenditures in developing and upgrading AAV models, including the long-range VT30 and other products in pipeline, and the expansion of the R&D team to enhance the R&D capabilities of the company. As a result, our adjusted operating loss in Q3 was $48.9 million, a slight decrease as compared to $49.4 million in Q2. Adjusted net loss in Q3 was $47.8 million as compared to $49.1 million in Q2. In respect of the balance sheet and cash flow, We ended Q3 with $357 million of cash, cash equivalents and short-term investments, compared with $189.4 million as of December 31, 2020. We will continue to run a healthy operation and manage the cash burns in the development process. Now let's turn to the business outlook. We have adjusted the annual revenue forecast for 2021 to be between $50 million and $60 million, mainly due to the following reasons. First, the company has been strategically transitioning from a product sales-centric model into a more operation platform-oriented model. The ramp-up of operational revenues is subject to the ongoing certification processes of the EH-216AV. And secondly, the potential orders of EH-216F are expected to take longer sales cycle due to the procurement procedures of relevant government entities which are typical customers for the product. Further, on November 29th, we announced the appointment of P2C, succeeding EY as our independent registered public accounting firm, in connection with the audit of our consolidated financial statements for the fiscal year of 2021. The change was made after a careful and thorough evaluation process and has been approved by the company's audit committee and the board of directors. PwC has abundant experience and knowledge in clean mobility technology sectors, such as electric vehicles, mobility as a service, and in particular the global eVTOL and urban air mobility industries. We believe that PwC's appointment is helpful to our next phase of growth under our long-term UAM platform operator strategy. Now is also good timing for the change. that there will be adequate time for smooth transition for 2021 annual audit. As always, we are committed to maintaining the highest standards of corporate governance and timely disclosures in compliance with the applicable rules and regulations of the SEC and NASDAQ. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.
spk01: Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Your first question comes from the line of Tim Chao from Morgan Stanley. Please ask your question.
spk06: Hi, thanks for taking my questions. I have two questions. The first one is about the competitive landscape. How do we see the recent changes of the competitive landscape following other peers or eVoto companies going public via spec? And in the meanwhile, in China, we saw some new players trying to tap into these markets such as XPEN. So could you briefly comment on your view on the potential competition? And the second question is about the strategic partnership. I think we made some announcements regarding our partnership with Greenland and Shenzhen Eastern General Aviation. So looking forward in the next six, nine months, if there's any potential partnership that we can make more substantial progress and could help us to accelerate our commercial rollout. Thank you.
spk08: Okay. Thank you, Tim. This is Edward. I take your question. So first of all, about these emerging players on the market, both domestically and overseas, we think that this is not a surprise. This is within our expectation. It definitely shows that more and more companies and institutions see the UAM market as a very attractive industry to enter. And especially we notice that a lot of these auto manufacturers are making these flying cars, which is similar to this AAV model. But we see that many of these so-called new products are still in early prototype stage. And we are proud that we are still leading the curve, and we are definitely the leader. And so there is nothing to worry about the competition, but we definitely will acknowledge the potential competitors. And we believe that the market is big enough to accommodate the existence of more companies. And if you look at the auto industry, there are so many different new energy car makers. But still, it is very attractive. And so far for this urban air mobility market, it is very big, and it is at a very early stage. And of course, we see the emerging players on this market. And actually we work on this trend and there is nothing to be seriously worried about. And we will focus on our strategy. First is to implement, to accelerate our Air Workplace certification. We believe that this is a very, it's quite a long journey. And for us, we have already made efforts in the past few years And we believe that this is also a big challenge for the newcomers. And second, we will implement our 100 UM air mobility route initiative. So far, we have achieved very good progress. So that comes to your second question, right? So I'm happy that you noticed that we have already achieved strategic partnership. with several players, one in Shenzhen, which is Heli Eastern, which is a conventional helicopter operating company. But this helicopter company, definitely they noticed that the future is for autonomous aviation. And especially from the cost perspective, they noticed that our AEV can definitely save a cost for them because this is a 40 autonomous and it is driven by electric power and the show we we took this opportunity to introduce our AV service and and the launch a lot of trial flights in Shenzhen and we believe that the Shenzhen is very important in the Greater Bay Area in Guangdong and so this is this is very important and with this partnership, we are able to gradually add more frequency and add more operational sites in Shenzhen. And second, our partnership with Greenland. Greenland Hong Kong is a listed company. It's a property company listed in Hong Kong. And this Greenland developed quite a large real estate project in Zhaoqing, and so we we were able to introduce our AAV trial flights in their project which received a very good recognition from both the developer and also their customers because they use our AAV service as attraction for their customers either to visit their project or even buy their apartments in that area. So this is a very good application. So going forward, we are going to ramp up with more operation projects, especially the one which is worth noting is in Zhuhai. So we are working with a partner in Zhuhai. And recently we did a test flight in the Opera House in Zhuhai. Very, very beautiful scenery and very good application because this Opera House is located on an island. And so this service can be both air tour and also the transportation. Moreover, we are further expanding our services in Hezhou and even overseas. Just now you noticed that we also launched a flight in Indonesia. So Indonesia is a country of many, many islands. which is ideal for the application of AAVs. And moreover, we had this partnership with the Spanish National Police, etc., and further expand our network in Europe. So we believe that with the progress with our airworthiness certification going on, we should be able to expand our trial flight or even more regular commercial flights in those areas in the future. So now the period is very important for us because we are able to accumulate abundant data, safety records, and also the experiences and also building our team to further commercialize our operation in the future. Okay, so please stay tuned for more news in the future. Thank you.
spk06: Got it. Thanks for the detail sharing, Edward. Thank you very much.
spk01: Your next question comes from Di Wu from Tanfeng Securities. Please ask your question.
spk04: Hello, Richard and Edward. Thanks for taking my questions. And I have two questions as well. First, I read in Q3 earnings that you have established seven operation spots. and conducted about 2,800 operational trial flights at these operational spots under relevant compliance framework. Could you shed more light on this particular compliance framework? And the second question is, could you elaborate on the sample model of the regular air mobility operation in Shenzhen? What's our plan regarding expand operation spots for next year and for achieving the 100 air mobility route plan? Thank you.
spk07: Thank you. This is Richard. I will take the first question. So basically there are two main aspects forming the compliance framework for this operation of tri-flights in China. First, on the product and operation front, as we mentioned in this release, we and the CAC have reached a consensus on a guiding principle. that operational tri-flights can gradually be carried out while advancing the certification process. And it is understood that more operational experience and the records are instrumental in facilitating and accelerating the certification process. Secondly, in respect of the use of airspace in China, approvals from various in-charge departments of China Air Force which is responsible for regulating the airspace in China have been obtained for all of the operational tri-flights.
spk08: Okay, this is Edward. So I'm answering your second question regarding the air mobility operation in Shenzhen and the plan to expand the sports next year, right? So first of all, we believe that our operation model in Shenzhen is very representative because this is definitely a cooperation between us, which is AAV or UAM company with conventional helicopter company. And so this helicopter company is very professional because they have trained and they have, you know, they obtained these certain standards and certification from CAC. So, which means that they can definitely help to improve the overall operating standards by, you know, adopting some of the existing CAC standards. So, and this is also the first operation of integrated aerospace of both AVs and helicopters, which is the first in the history of aviation. So this is of very great significance. And so the cooperation so far is very smooth and successful, and so we had about six flights per day on a frequency, and gradually we are going to launch more, right? And so this can help to gain, we can gain more experiences from this operation and we should be able to replicate such a model to more operations sports in future. So in future, we look to further intensify our operation frequencies, especially in the Hong Kong, Macao, Guangdong, Greater Bay area, because this is a very highly important area in China and also in the world, and with very strong market potential for AAVs. And gradually, we should launch the more longer distance service after the the launch of our VT30 in the future, which will help to complete a more network for our AAV services. And so far, as we mentioned in our guidance, we are about to launch our service in Zhuhai, which is at the other side of the Pearl River Delta or this Greater Bay Area. which is another important city in this area. So in the future, we look to see a very big triangle in Guangzhou, Shenzhen, and in Zhuhai. And moreover, we are going to expand our operations sites in Zhongshan, et cetera. So in the future, you can see more and more AEVs can be flying in this area. And so that we definitely, we are going to build the world's first UN field in the world, in China. So I hope you are going to see more of our progress in the future. Thank you.
spk05: I see. Thank you. Thank you Richard and Edward. Thanks for the detailed elaboration.
spk01: Seeing no more questions in the queue, let me turn the call back to Mr. Liu for closing remarks.
spk07: Okay. Thank you, operator, and thank you all for participating on today's call and for all your support. We appreciate your interest and look forward to reporting to you again next quarter on further progress.
spk01: Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.
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