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spk13: Good day, ladies and gentlemen. Thank you for standing by and welcome to the Yihang Third Quarter 2022 Earnings Conference Call. As a reminder, we are recording today's call. Now I will turn the call over to Anne Chee, Yihang Senior Director of Investor Relations. Ms. Chee, please proceed.
spk08: Hello, everyone. Thank you for joining us on today's conference call to discuss the company's financial results. for the third quarter of 2022. The earnings release is available on the company's IR website. Please note, the conference call is being recorded, and the audio replay will be posted on the company's IR website. Today, the Yihang Management team, which include Mr. Hua Zhihu, Chief Executive Officer, and Mr. Xin Fang, Chief Operating Officer, and Mr. Richard Liu, Chief Financial Officer, will successfully give prepared remarks. Remarks delivered in Chinese will be followed by English translations. All translation is for convenience purpose only. In case of any discrepancy, the management team statement in a regional language will prevail. A Q&A session will follow afterwards. Before we continue, please note that today's discussion will contain forward-looking statements made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, forward-looking statements involving 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 filings with the SEC. the company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Also, please note that all numbers presented are in RMB and are for the third quarter of 2022, unless stated otherwise. With that, now let me turn the call over to our CEO, Mr. Huang Zhihu. Please go ahead, Mr. Huang.
spk14: Hello, everyone. Thank you for attending our business call meeting today. Since the end of 2020, E-H2O has submitted E-H216's audit application to the Chinese Civil Aviation Bureau. In the past two years, we have been actively promoting the audit process of E-H216. E-H2O certification is not only a safe certification and a necessary premise for the aviation industry to officially invest in commercial operation, but also a necessary path for E-H2O to move towards the strategic path of urban air traffic platform operators. It is a key catalyst and driving force for the growth of our company's performance. We would like to thank our investors, customers, regulators, and long-term attention and support from various partners. Every bank person feels a great sense of responsibility and will certainly not let their hopes and dreams go to waste. Despite the many challenges faced by innovators in the market review process and the continued impact of the epidemic, our technology, products, and verification teams We are working hard day and night. We are working hard day and night. We are working hard day and night. We are working hard day and night. We are working hard day and night. We are working hard day and night. We have completed the most important part of the work, sold the most difficult card, and learned a lot of uncertainties. Next, What we are doing is to complete our planned plan one by one. Not only that, we are full of confidence in the final stage of the inspection of the market. The specific work of this stage is to conduct verification and inspection by the approved CP by the inspection team and Yihang, including lab tests, ground tests, and inspection flight tests, data analysis, etc. Yihang 216 has accumulated more than 30,000 safety flights and data records over the years, can be used as a valid proof of compatibility. These self-driving test flight records in high altitudes, typhoons, deserts, and heavy rain in extreme weather conditions accelerate the process of compatibility verification. Based on this, we are currently working on some supplementary tests and trial and error tests to complete the TC test. We are full of confidence in the world's first unmanned aerial vehicle test flight. This confidence Not only from our pilot hardware innovation strength and advancedness, but also from the opening and innovation spirit of the Chinese government, the Civil Aviation Bureau, and the aviation industry, as well as their high attention, support, and guidance, let the innovation, breadth, depth, and speed of the EH216 inspection project go ahead in the new industry, go ahead in the world. In September and November of this year, the bank was very honored to receive an invitation from the International Civil Aviation Organization to attend the 41st Congress of the International Civil Aviation Organization in Montreal, Canada, for the Innovation and Achievement Exhibition and Special Discussion Conference, and to share with the world's civil aviation agencies the exploration and implementation of EH216 in the field of market aviation audit. and innovative results, especially at the International Civil Aviation Organization Conference. The Civil Aviation Bureau of China, as one of the leading countries, focused on introducing the first manned unmanned aerial vehicle system, TC, designed by China, and the standards of the test and navigation of the test and navigation of the test and navigation of the test and navigation of the test and navigation of the test and navigation of the test and navigation of the test and navigation of the test to make everyone enjoy safe, automatic, and environmentally friendly air traffic. For this reason, we have always been boldly innovative, carefully analyzed, and carefully evaluated. With our own experience, we have made our own contribution to the creation of relevant industry standards and regulations, leading to the healthy development and continuous improvement of the global e-vito new industry. At the same time, we are very happy to see China has more and more new policies and new policies to support and promote the development of urban air traffic and civilian unmanned aerial vehicles. In August this year, the Chinese Civil Aviation Bureau released the Civilian Unmanned Aerial Vehicle Development Guideline 1.0, clarifying the short, medium, and long-term development stages and goals of 2025, 2030, and 2035. It pointed out the direction for the development of new industries. At the same time, the Civil Aviation Bureau of China has also issued the second batch of 7 new Civil Aviation Air Test Areas, plus the first batch of 13 test areas. Currently, China has a total of 20 test cities, and the policy will be implemented to 10 places. In the test area of the batch, Yihang has received a lot of support from the local government and customers, actively building UNM operating test and flight bases and supporting basic facilities, and providing a large number of pre-order orders to bring air travel, air logistics, smart cities, and other multi-industry integration development, and provide groundwork for the operation and actual application of E-AV. Our industry is different from other industries. We need to create our own rules to establish this industry, and then we can produce explosive growth. But we did it. Under the background of such internal and external supervision, we have reason and confidence to gradually achieve a large-scale growth in E-AV's performance after the completion of TC certification. This is the English translation of the CEO's remarks. Hello, everyone. Thank you for joining our earnings conference call today. Since Yi Hang submitted the EH216
spk08: certification application to the CEC, which is the Civil Aviation Administration of China, at the end of 2020. We have been continuously committed to the efforts to actively promote DH-216 certification progress in the past two years. An airworthiness certification is not only a safety certification and a prerequisite for official commercial aircraft operations. but also the crucial path for Yiheng to move forward in its strategy of becoming an urban mobility platform operator, and thus the key catalyst and driving force for the company's business growth. Here, we'd like to thank our investors, customers, regulators, and partners for their long-lasting attention and support. Every member of the EHAM team value the support given to EHAM and are wholly dedicated to meet the expectations of our stakeholders. As an innovative project, the Air Washington certification process is full of tremendous challenges, along with the continued impact of the pandemic in China. Our technology, product, and certification teams have tirelessly worked days and nights. to overcome difficulties in a collaborative synergy. Additionally, they have worked under close cooperation with the CAC expert team, and we are about to greet the victory downing. At present, all of our certification plans have been officially approved by the CAC expert team. In other words, the means of compliance for all the 12 specified airworthiness review subjects have been confirmed. including aircraft performance and flight, structural strengths, design and configuration, ground control station, airborne human-computer interaction, continued airworthiness, etc. As a result, the EH-216 certification process has already completed the phases of concept design, requirements definition, and compliance planning, and entered the ongoing final phase for demonstration and verification of compliance. We have completed the most demanding and complicated work across the most difficult obstacles and overcame many challenging uncertainties. What we are doing next is to implement all the plans that we made. Besides, we are fully confident in the final phase of airworthiness certification, which is specifically about conducting verification review through laboratory tests, ground tests and inspections, flight tests, and data analysis by the CEC expert team and EHAM in accordance with the approved certification plans. EHAM 216 have accumulated more than 30,000 safe flights and data records over the years, which could be solid support to the demonstration of compliance. The proven passenger-carrying EV test flight records as well as the test flights in extreme weather environment, such as the high altitudes, typhoons, deserts, and heavy fog, will accelerate the process of verification of compliance. On this basis, we are carrying out some supplementary tests and a flight test for verification, so as to complete the test certification process. We are fully confident to complete the world's first airworthiness certification for the human-carrying unmanned aircraft system. Our confidence is not only derived from strengthening innovation of our AAV technologies, but also from the open and innovative spirit of the Chinese government, the CAC, and the aviation industry, as well as their interest, support, and guidance. All of these empower the high degree of innovation, breadth, depth, and speed of the IHAN 216 certification project, which are at the forefront of the emerging industries across the globe. In September and November this year, IHAN was honored to be invited by the ICAO, which is the International Civil Aviation Organization, to attend the 41st ICAO Assembly, Innovation Fair, and RPAS Symponia at the ICAO's headquarters in Montreal, Canada, and share the the exploration and practice on EH-216 airworthiness certification project, and innovative results with global aviation regulators. In particular, the CEC, as the first class member of ICAO, introduced China's first airworthiness certification standard for human-carrying airmanned aircraft system at the ICAO Assembly, providing a reference for countries in formulating related regulations. it is not easy to be a first mover and a pioneer. Even so, over the past eight years, Ehang has always been committed to its steadfast mission, which is to make safe, autonomous, and eco-friendly air mobility accessible to everyone. For this, we have and always will adhere to the principles of safety first, bold innovation, careful analysis, and prudent verification. contribute to the formulation of relevant industry standards and norms, with the experience and expertise we have accumulated over the years, and lead healthy and continuously improving development of the emerging eVeto industry worldwide. Meanwhile, driven by leading innovative players like Yi Hang, we are pleased to see that China has taken more and more new policies and measures to continuously support and promote the development of urban air mobility and airman civil aviation. In August, the CEC released the Airman Civil Aviation Development Roadmap 1.0, which set the short, medium, and long-term development stages and goals for 2025, 2030, and 2035. These are significant in how they clarify the direction for the new industry development. Meanwhile, the CEC also approved the seven new unmanned civil aviation experimental zones, in addition to the first batch of 13. Currently, there are a total of 20 pilot cities in China to put the policies into actions. In some of these zones, Ehang received strong support and pre-orders from the local government and customers. They are actively building UAM operational trial flight bases and supporting infrastructures to bring the integrated development of aerial sightseeing, aerial logistics, and smart city management industries, as well as provide further grounds for the operations and practical applications of Yiheng AAVs. And like other developed industries, we need to create new regulations to build up this new industry. and we made it, which expect to be followed by explosive growth. Against such a strong and promising backdrop, we have the reasons and confidence that EHAM will achieve significant growth results and meet our strategic goals after completing the taxification to provide better returns for our shareholders and partners while continuously promoting the sustainable development of the emerging UAM industry. Next, I will turn the call to our Chief Operating Officer, Mr. Xin Fang, for business results in Q3. Thank you.
spk16: to promote domestic land, especially in Guangzhou, where Yihang headquarters is located. Although we are currently facing more severe epidemic prevention and control challenges, we look far and wide, and continue to grow in the field of low-altitude tourism, which is one of the AAV target markets. According to Guangxi Guigao and Hunan Jishou, since the third quarter of this year, we have continuously opened up potential business opportunities in Shandong Qingdao, Anfei Fangshan, and other places, and integrated multiple resources to actively set up urban air traffic industrial ecology in the local area. Weihang Air Traffic North Line's operation target has been expanded from last year's official launch until now. Weihang 216's number of adaptive network points in China has been expanded to 15, covering one-line cities such as Guangzhou, Shenzhen, and Shanghai, as well as other popular cities with rich tourist attractions. Based on the actual application environment of air tourism, we have completed more than 6,800 operations in various places. After verification, we have invested in commercial operations to gain experience and continue to improve. In addition, the AAV operating system developed by Yihang Autonomous Development is already on the top line and is suitable for each city and area. The current internal testing results are good and will help greatly enhance the management efficiency of AAV operation. In this year's experiment, we are very happy to welcome a global aviation industry aircraft engineering and MRO aircraft repair industry with more than 70 years of rich experience and strong cooperative partners, the Hong Kong Aircraft Corporation under the Taigu Group. We believe that with SAFANG's manufacturing and assembly,持续市行, 数字平台 multi-faceted potential cooperation in the field of waste management, maintenance, and human resources waste management, as well as the post-sales maintenance service system and network spread by the Hong Kong Group, will provide a solid foundation and guarantee for the future business operations of AAV in the future. In overseas, we have made good progress in the two key areas of Asia and Europe. Since this year, the market expansion in Japan, Malaysia, Indonesia, and Thailand in the Asia-Pacific region has worked well. With a total of 210 AAVs delivered in a year, we are the first Japanese customer to successfully complete a flight of 216 in Japan in three seasons. The aircraft has already flown through six cities in Japan, and has successfully demonstrated the application of AAVs such as aerial sightseeing, aerial travel, and self-flying logistics, and for the first time in Japan, we have used Vipo to fly from sea to sea and from point to point. In order to participate in the Japan-Basic Relationship Dispute in 2025, it has obtained a great opportunity to show off and establish a solid foundation for future expansion operations in Japan. In addition, Yihang has played an important role in many UAM projects in Europe and the United States. For example, in October, Yihang 26 successfully flew in Spain, effectively verified the concept of urban air traffic operation, and fully realized the goals of the AMU LED project. On November 11, Yihang joined the S-AMVA project of the European Aerospace Project. The project uses the European Earth's synchronized satellite navigation to strengthen the service system, providing Yihang 2L6 with accurate navigation in Europe, and thus supporting U-Space integrated airspace. The mid-term is coming to an end in 2022. We are still under the influence of the COVID-19 pandemic and China's epidemic prevention and control, which has brought a lot of resistance and challenges to the process and business development of Yihang's original project. Based on the current actual situation, the market has been growing for four seasons. We have adjusted the annual performance. The total revenue in 2022 is estimated to be about 55 million to 65 million yuan. As of late, we have been optimistic and confident about the long-term performance growth and development of the company. Based on our technology leading advantage and the last stage of the supply chain, the 216-S TC audit process, the growing UAM market demand and more than 1,200 subsidiary AAV retail orders, This is the English translation of the CEO's remarks. Thank you, Mr. Hu. Hello, everyone. In the third quarter,
spk08: We remained focused on the Yihang 216 airworthiness certification project and continued to explore domestic and overseas markets to fully prepare for post-certification commercial operations. Since October, the COVID-19 resurgence has swept across many cities across China, especially Guangzhou, where Yihang is headquartered. Although we are facing serious challenges from pandemic control measures, we will continue to drive our efforts in a low-altitude aerotourism one of our AV target markets. Following Guigang City in Guangxi Province and Jishou City in Hunan Province, since the third quarter, we have been exploring more potential opportunities in Qingdao City in Shandong Province and Huangshan City in Anhui Province. And integrating local resources to actively develop a broader and diversified UAM ecosystem. Yiheng formally launched the 100 air mobility routes initiative last year. So far, we have completed over 6,800 operational trial flights with Yiheng 216 in practical aerial sightseeing scenarios at 15 operational spots across China. to accumulate valuable experience for post-certification commercial operations. These operation spots cover first-tier cities such as Guangzhou, Shenzhen, and Shanghai, as well as other tourist destinations. In addition, Yihan's self-developed AAV operational system has been put into use across all operation spots. The current internal tests demonstrate positive results. which will significantly improve AAV operations management efficiency. In October, we established a partnership with Heco Group, a subsidiary of Swire Group. Heco Group brings over 70 years of experience in maintenance, repair, and overhaul, and has after-sales maintenance service system and network across the globe. We believe that the potential cooperation opportunities in manufacturing and assembly continued airworthiness, digital platforms, aircraft maintenance, and talent training will help further solidify the foundation for E-Hunt 216 commercial operations in the future. On the international front, we have made meaningful progress in two key regions, Asia and Europe. Since the beginning of this year, we have achieved fruitful results in developing Asia markets, including Japan, Malaysia, Indonesia, and Thailand, and have received a total of 210 pre-orders for passenger-grade AVs. In the third quarter, with the support of our Japanese customers, Ehon216 completed a demo flight tour across four cities, leaving footprint in up to six Japanese cities to date. This flight tour not only demonstrated use cases in error sightseeing over the sea, air mobility, and smart logistics, but also include the over-the-sea flight and point-to-point flight for the first time of an in vitro aircraft in Japan. It was also an excellent showcase for participation opportunities at Expo 2025 Osaka Kansai, which will further strengthen preparations for subsequent business expansion in Japan. Furthermore, EHAM played an important role in many European Union's UAM projects. For instance, the EHAM 216 trial flights in October verified and validated the UAM concept of operations, which completed the EMULAD project objectives. In November, EHAM participated the SEMBA project, initiated by the European Union Agency for the Space Program, to deploy the ECNOS which is the European Geostationary Navigation Overlay Service, on the EHAM 216 operations and to support use-based integration across Europe. 2022 is coming to an end, but we continue to see impact from the COVID-19 resurgence and the pandemic control measures in China, which brings considerable challenges to our original airworthiness certification process and the business development plan. We have adjusted our guidance based on the current situation and outlook for the fourth quarter. The company expected total revenue for 2022 to be in the range of 55 million to 65 million RMB. Nevertheless, we remain optimistic and confident about achieving the company's long-term financial growth and development momentum based on our core competencies. including the leading technological advantages, the 116STC process entering the final phase, an increasing UAM market demand with pre-orders for more than 1,200 passenger-grade AEBs in hand, and sufficient preparation for commercialization and industrial chain deployment, and also favorable regulatory support, especially in China. Based on that, and our consistent execution of the corporate strategies, Ehang is well positioned for a promising future. I will now turn the call over to our CFO, Richard Liu, for financial results. Richard, please go ahead. Thank you.
spk11: Thank you, Xin. Hello, everyone. Before I go into details, please note that all numbers presented are in RMB and are for the third quarter of 2022 unless stated otherwise. All presented changes are on a quarter-over-quarter basis, unless otherwise specified. Detailed analysis are contained in our earnings press release, which is available on our IA website. I will now highlight some of the key points here. Our third quarter performance reflects impacts from the COVID resurgence in China. However, we continue to enhance our cost management to improve operational efficiency despite these near-term challenges. We maintain our focus on the development of areas that can deliver long-term growth as we continue to execute our strategy towards becoming an integrated urban air mobility operator. Turning to our operating results in Q3 2022, total revenues were 8.2 million compared with 14.6 million in Q2. This was due to the unfavorable market impact, mainly from the pandemic resurgence and related control measures in China. EH216 AAV deliveries in Q3 were four units, compared with eight units in Q2. That said, demands for AAVs remain strong, notably with pre-orders from the Southeast Asian market this year. As we are focusing on completing the final phase in the type certification process of EH216X, we are also stepping up our efforts in preparing for its commercial operations by expanding our market presence and our partnership network at home and abroad, coupled with other strategic initiatives. Growth margin was 65.9% in Q3, a slight decrease of 1.2 percentage points from 67.1% in Q2. But it remains at a high level compared to those of other new energy mobility products, such as electric cars. This attests to Ehang's competitive strengths and first-mover advantages in the global UAM and Elito industries. In Q3, our adjusted operating expenses, which are operating expenses excluding share-based compensation expenses, were 59.7 million, representing an improvement of 5.9% from 63.4 million in Q2. The decrease was mainly attributed to decreased professional expenses as well as fluctuated R&D expenses related to different processes in product development and the ongoing certification process. With that in Q3, our adjusted operating loss was 52.9 million compared with 51.2 million in Q2. Our adjusted net loss was $55.1 million in Q3 compared with $50.8 million in Q2. As for our balance sheet, we continue to maintain relatively healthy cash, cash equivalents, restricted cash, and short-term investment balances of $208.8 million as of the end of Q3, which was attributed to our continuous management of operating expenditures and cash flow. Additionally, we will be moving to a new headquarter office in Guangzhou to embrace the new phase of growth that the company is expecting to see following completion of the type certification. Nevertheless, we have been sticking to a prudent cost control strategy and taking effective measures to optimize new office rental expenses. It is expected to give us a cost down estimated by around 20% compared with those of our current office. Given the latest pandemic resurgence in China, we expect such headwinds would probably remain a challenge in the near term. But we believe that for the longer term, we will be able to capture the great growth potential of the UAM industry with our leading technologies and comprehensive strategies. We remain committed to providing a safe, autonomous, and sustainable aerial mobility experience while creating values for shareholders and stakeholders. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.
spk13: Thank you, Mr. President. Thank you, Mr. President. We will end the question and answer session. To ask the questions on the phone, please press star 1-1-1, and we'll be ready to answer them. One more question. The first question comes from Cindy . Thank you for my question.
spk04: I have two questions. My first question is regarding the progress of type certification. As we enter into more in-depth review phase, can we extend that in-home still can receive type certificates by the end of this year? And my second question is that in light of recent COVID lockdown, have we encountered any hiccups in terms of production, component sourcing, type certificate, obtainment, and delivery schedule? And do we see any limit delay in the timetable of receiving TC? And how should we think about the revenue cadence into 2023? Thank you.
spk18: Do we have the management on the line? Unmute your local line please. Ladies and gentlemen, please stand by for issues. Thank you. Hello?
spk17: Hi.
spk18: Hello?
spk17: Annie? Can you hear me? It's very clear in the first 40 minutes.
spk16: Now, suddenly, the sound is not clear.
spk05: Mr. Zhang, I can hear your voice. I think it's the operator.
spk04: Their line has some problems. So, it's okay. You can answer the question directly.
spk15: Hello, I am Fang Xin.
spk18: Can I answer the first question now? Yes, thank you. Okay, thank you.
spk16: Then I will start answering. Regarding the first question, about the development of the four-stories, I will answer it now. First of all, thank you for your question. Just as President Fu mentioned about the four-stories, it has become a deep factor. The system review of the first-stories 2.6 has now entered a final stage. To be more specific, the Chinese Civil Aviation Bureau has approved all the approval plans and completed the relevant certification and verification work. Based on the actual data accumulated over the years, the Civil Aviation Bureau has provided very good support. In addition, the regularity of the Civil Aviation Bureau and the Civil Aviation Bureau team's rigorous principles are very helpful in accelerating the final stage of a competition. It is recommended that the start-up of the first line 26 is the first in the world. So there are a lot of unknown problems in it. We are facing them together to verify its final start-up process. The approval of the first line 26 is also one of the key work projects of the Civil Aviation Bureau this year. The target of the project is to get the start-up of the first line in December this year. The Chinese Civil Aviation Bureau has also organized a number of members to work together with us. Because of the epidemic in Guangzhou in December, there was a very serious lockdown period. This has caused a delay in our concentration work. Our original plan was to go to Guangxi and Hezhou on December 15th We will conduct a comprehensive test in the last stage. After the review, the next week, we will start again with the release of the Guangdong epidemic. There may be a certain review of this market, but the review will not be too long. With the release of the epidemic, we may have a clear connection with the market around January. Thank you for the answer. May we have the Man Experience translation, please?
spk13: perhaps management for the translation line, would you like to rejoin again if you can hear us? Everyone, please stand by. We are trying to address the issue. Okay, we can hear you now. Please carry on, please.
spk08: ...by the English translations. As our CEO, Mr. Hu, mentioned earlier, the EHA-216 type certification has been entered into the final phase, specifically to complete the compliance demonstration and verification work according to the certification plan approved by the CEC expert team. The practical data that EHAM has accumulated over the past years provides a solid support. And together with the support of the CAC and the expert team, it will help to accelerate the final phase of the process.
spk06: As we are the world's first, we are facing a lot of uncertainties.
spk08: But the 30.16 taxification is one of the key projects of CAC for this year. which was originally scheduled to complete by around December this year. Particularly, the CAC called for the members of the TC expert team to get together at Yihang site in Guangxi to work closely with us. However, the recent epidemic resurgence in Guangzhou made it difficult for all the members across the country to come together.
spk07: Thus, the timetable might be delayed, but it will not be too long, because most recently, as the COVID restriction measures have begun to ease by steps in China, the related impact is expected to gradually decrease. So our expectation may be around January next year. This is all about the translation of the first question.
spk13: Thank you. Would you like to move to the next question from the investor, please?
spk16: Hello. In terms of business development, the main application scene of our automatic driving vehicle products is the tourism industry. The tourism industry has been affected by the epidemic this year. It is the most serious industry. Under strict epidemic prevention, we are still in Guangxi Guigang, Hunan Jishou, Shandong Qingdao and Anhui Fangshan. We have opened up a large number of potential business opportunities and obtained a lot of trust and cooperation from local governments and customers. In addition, the overall impact of the epidemic on our production and supply chain is not too big. The overall input forecast for next year still depends on the time of TCA launch. In addition to the gradual decline of the domestic epidemic, the economic recovery and tourism industry can grow a lot compared to a business. In this area, we have expanded customers in various places. Under constant circumstances, we can continuously Okay, this is the English translation of the answers above.
spk08: Regarding your second question, the epidemic has had a significant impact on our business development and the original project plans since the beginning of this year, just like other Chinese companies. In terms of the business development, the tourism industry is our initial main target market for our AV product applications. while it is one of the industries severely affected by the epidemic. However, we have been exploring more potential opportunities in Huigang city in Guangxi province, Jishou city in Hunan province, Qingdao city in Shandong province, and Anhui city in Anhui province, et cetera. And despite the strict pandemic control measures, and we received adequate trust, support, and cooperation from local government and customers. In addition, the epidemic has no significant impact on our production and supply chain. And our last year's revenue expectations were depending on the timing of obtaining the TAP certificate and the recovery of the economy and the tourism industry after the epidemic situation gradually subsides in China. And ideally, the potential customers in the markets above will be able to place orders while we could gradually deliver the product so that we are likely to achieve significant revenue growth next year and return to the high growth trajectory. And for more details, please wait for our guidance next year.
spk12: And this is all about the translation of the answer.
spk13: Thank you very much for the questions. Allow me to proceed with the next questions. One moment, please. Our next question comes from from Goldman Sachs. Please proceed.
spk03: That is, can we see that the breakdown of the 1-2-1-6 bomb is similar to that of the electric car? The second question is to ask about the pre-order and order delivery. And in the application field, in the air-to-air flight, in addition to the tourism industry we just mentioned, are there any Okay, I will translate for myself. Yeah, thanks management to take my question and congratulations on the result. I have two questions. The first one is about the Yihang 216 bomb. Could you please share us this aircraft, the bomb caused breakdown, especially the battery, the model, the battery management part. and who are the support. Can we take the view that this EHAR model, a bomb cost breakdown, is similar as the EV? And second one is how many the pre-order and the decrease we have so far? And in terms of scenarios, apart from the set thing, what types of the passenger transportation scenarios are we penetrating into? Thanks.
spk11: Thank you for the questions. This is Richard. Let me take your first question and then I will let RCO Hsing take your second question. So basically, the cost structure of the EH216 AAV can be divided into three major portions. First, the power and propulsion system. And second, the fuselage and the structure. Third, the electronic components and others. And from a new energy mobility product perspective, the major composition of the propulsion system of an EH216AEV can be regarded similar to that of an EV. Basically, it mainly includes electric motors. motor drivers and batteries together with the battery management system or BMS. In respect of percentage, each portion, as mentioned just now, consists roughly one third of the total cost more or less. In respect of suppliers, most of our qualified suppliers with long-term relationships are those located in South China, more specifically in the Pearl River Delta area, which is known as a world leading manufacturing hub and where our headquarter is. So this gives us an easy access to a large number of high quality suppliers. and the competitive edge in respect to supply chain in terms of costs and efficiency as compared to our peer companies in other countries. So I will let Xin take your second question. Fangzhong. The other one here.
spk16: Hello, I am Fang Xin. In addition to the 200 pre-ordered orders that have been added to the Asian market this year, we currently have a large number of existing order customers in China. We have companies in Guangxi, Guigang, Qingtang, and Tianyingjian in Hunan. We deployed the AAV of YiHang in the local area to carry out a low-cost business expansion in the field of tourism. At present, QinTang Company has ordered a series of transport vehicles with 60 YiHang 216s. It is expected that it will gradually order, deliver, and transport after receiving the promotion certificate. In addition, we have already delivered 5 YiHang 216s to TianYinJian Company in Hunan-HaiDai, and will carry out a transport test. In this scenic area, we have developed a low-altitude tour project. As the project progresses, there will be a tour version of 216 on 25 stages. Apart from the low-altitude tour version, we are currently working with the fire department, emergency department, and hospital emergency helpers. These customers also have a lot of connections. Recently, In this quarter, Qingdao will continue to deliver 2.16 firefighters. There are a total of 6 to 10 orders. Therefore, after we take the market, we first accumulate more resources in the low-income area. This area is undoubtedly the most important for our contribution. This is the translation of Mr. Fang's answer.
spk08: So far this year, in addition to the over 200 units of Yihang AAV pre-orders in the Asian markets, we have potential orders from many domestic customers in pipeline, such as Qingtan District in Guigang City, Guangxi Province, and Tianxingjian in Jishou City, Hunan Province. They are very interested in deploying Yihang AAVs in the local areas to develop the low-altitude tourism industry. And the potential orders in Qingtao include 60 units of Yihang 216 series AAVs, which are expected to be placed and delivered gradually after obtaining the test certificate. In addition, five units of Yihang 216 have been delivered to Tianxingjian to developing an aerial sightseeing project. And this customer intends to purchase additional 25 units as the project evolves. And apart from the low altitude tourism market, we are also in contact with the customers who have needs for firefighting and emergency transportation, such as the Qingdao Fire Department and some hospitals, which has a potential order of about 6 units of EHAM 216 firefighting model. Given that our initial primary target market is the low altitude tourism, which we invest more resources, the revenues from this market will be the most significant in the near future, followed by the firefighting and emergency aerial transport use cases.
spk06: This is all of the translation.
spk13: Thank you for the answers. One moment for the next question. The next question comes from the line of Di Wu from Tianfeng Securities. Please proceed.
spk10: Thank you, management team, for taking my question. My first question is, recently we see that U.S. has issued a series of export bans on high-end chips. I'm just wondering, will there be any potential impact on Yihan's supply chain? And my second question is, we noticed that China's domestic epidemic prevention policy is experiencing some softening, especially in Guangzhou. If these policies continue to ease in the future, What will be our new outlook on the future? For example, like PC approval and market demand and etc.
spk18: Thank you so much. This is Richard. Let me take your questions.
spk11: First of all, we are not using those US band chips in our products. Thus, as you can imagine, there will be no potential impact. on our supply chain. But we will be mindful of this when we further implement our R&D and supply chain strategies. Additionally, we adopt a strict mechanism to review and ensure quality and stability of our supply chain. and we always seek to fully engage with our qualified suppliers to establish long-standing and strong partnerships. In respect to your second question, yes, we have been experiencing the optimization or even the easing of COVID prevention and control measures recently. As you mentioned Guangzhou, where we are headquartered, has initiated doing so since just two days ago. And it seems more cities are gradually following the suit. So this is a very good sign to the market. Given the COVID prevention measures can be further loosened up, travel can be back to normal. So when these challenges are eased or is further eliminated, it is expected to have positive impacts on the business For example, in respect of type certification, the inspectors will be able to travel without difficulties to our locations to convene and check onsite, thus facilitating the process. In respect of markets, you will help the tourism industry, which we initially targeted back to normal. thus facilitating the relevant tourism operator customers to complete orders. So coupled with TC soon to be obtained, it is expected our business would rebound next year. And we believe our efforts will allow us to capture this market growth opportunities going forward. Thank you.
spk13: Thank you for the questions. Seeing no more questions in the queue, let me turn the call back to Ms. Ji for closing remarks.
spk08: Thank you, operator, and thank you all for participating on our today's call. If you have further questions, please contact our IR team by email or participate in our following events through the calendar information provided on our IR website. We appreciate your interest and look forward to our next earnings call. Thank you.
spk13: Thank you all again. This concludes the call. You may now disconnect.
spk07: Thank you. Hello. Thank you. music music Thank you. Bye.
spk13: Good day, ladies and gentlemen. Thank you for standing by and welcome to the Yihang Third Quarter 2022 Earnings Conference Call. As a reminder, we are recording today's call. Now I will turn the call over to Anne Chee, Yihang Senior Director of Investor Relations. Ms. Chee, please proceed.
spk08: Hello, everyone. Thank you for joining us on today's conference call to discuss the company's financial results. for the third quarter of 2022. The earnings release is available on the company's IR website. Please note, the conference call is being recorded, and the audio replay will be posted on the company's IR website. Today, the Yihang Management team, which include Mr. Hua Zhihu, Chief Executive Officer, and Mr. Xin Fang, Chief Operating Officer, and Mr. Richard Liu, Chief Financial Officer, will successfully give prepared remarks. Remarks delivered in Chinese will be followed by English translations. All translation is for convenience purpose only. In case of any discrepancy, the management team statement in a regional language will prevail. A Q&A session will follow afterwards. Before we continue, please note that today's discussion will contain forward-looking statement. made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, forward-looking statements involving 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 filings with the SEC. the company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Also, please note that all numbers presented are in RMB and are for the third quarter of 2022, unless stated otherwise. With that, now let me turn the call over to our CEO, Mr. Huan Zhihu. Please go ahead, Mr. Hu.
spk14: Hello, everyone. Thank you for attending our phone call meeting today. Since the end of 2020, E-H2O has submitted E-H216's audit application to the Civil Aviation Bureau of China. In the past two years, we have been actively promoting the audit process of E-H216. E-H2O certification is not only a safe certification and a necessary premise for the aviation industry to officially invest in commercial operation, but also a necessary path for E-H2O to move towards the strategic path of urban air traffic platform operators. It is the key catalyst and driving force for the growth of our company's performance. We would like to thank our investors, customers, regulators, and long-term attention and support from partners from all walks of life. Every bank person feels a great sense of responsibility, and they will certainly not let their hopes and dreams down. Despite the many challenges faced by innovative entrepreneurs during the market audit, and the continued impact of the pandemic, our technology, products, and verification teams We are working hard day and night. We are working hard day and night. We are working hard day and night. We are working hard day and night. We are working hard day and night. We are working hard day and night. We are working hard day and night. We have completed the most important part of the work, sold the most difficult card, and learned a lot of uncertainties. Next, What we are doing is to complete our planned plan one by one. Not only that, we are full of confidence in the final stage of the market audit. The specific work of this stage is to conduct verification audits by the approved CP by the inspection team and Yihang, including laboratory tests, ground tests, and inspection flight tests, data analysis, and so on. Yihang 216 has conducted more than 30,000 safety flights in the past few years, and data records can be used as valid evidence of compatibility. These self-driving and manned flight records that have been tested in high altitude, typhoons, deserts, and heavy rain, and extreme weather conditions, speed up the process of compatibility verification. Based on this, we are currently working on some supplementary tests and trial and error tests to complete the TC assessment. We are full of confidence in the world's first unmanned aerial aircraft test aircraft. This confidence is not only derived from our pilot hardware innovation strength and advancedness, but also from the opening and innovation spirit of the Chinese government, the Civil Aviation Bureau, and the aviation industry, as well as their high attention, support, and guidance, so that the innovation, breadth, depth, and speed of the EH216 inspection project are at the forefront of the new industry, at the forefront of the world. In September and November this year, The industry is very honored to be invited by the International Civil Aviation Organization to attend the 41st Congress of the International Civil Aviation Organization in Montreal, Canada, the Exhibition of Innovative Results, and the Special Discussion Conference, and to share with the international civil aviation agencies the exploration and implementation of EH216 and innovative results. Especially at the International Civil Aviation Organization Conference, the Chinese Civil Aviation Bureau, as the first type of consulate, focused on introducing the test and inspection standards of the first manned unmanned aerial vehicle system, TC, designed by China, and provided reference to the relevant rules of design for each country. It is not easy to drink a head of egg soup, and it is more difficult to be a developer. Despite this, since the first day of creation, we have never wavered in the past eight years. The mission of an industry to ensure that everyone enjoys safe, automatic, and environmentally friendly air traffic. For this reason, we have always been boldly innovative in terms of safety, carefully analyzing, and cautiously seeking justice. With our own experience, we make our own contributions to the creation of relevant industry standards and regulations, leading to the healthy development and continuous improvement of the global e-vito new industry. At the same time, we are very happy to see China has more and more new policies and new policies that continue to support and promote the development of urban air traffic and civilian unmanned aerial aviation. In August this year, the Chinese Civil Aviation Bureau released the Civilian Unmanned Aerial Aviation Development Roadmap 1.0, which clarifies the short-term and long-term development stages and goals of 2025, 2030, and 2035. The development of the new industry is pointed out the direction. At the same time, the Civil Aviation Bureau of China has also released the second batch of the newly added 7 civilian unmanned aerial test areas, plus the first batch of 13 test areas. Currently, China has a total of 20 test cities, and the policy has been implemented to 10 places. In the test area of the batch of goods, Yihang has received a lot of support from the local government and customers, actively building UNM operating test and flight bases and supporting basic facilities, and providing a large number of pre-order orders to bring air travel, air logistics, smart cities, and other multi-industry integration development, and provide groundwork for the operation and actual application of a line of AAV. Our industry is different from other industries. We need to create our own rules and establish this industry, so that we can produce explosive growth. But we did it. Under the background of such internal and external supervision, we have reason and confidence to gradually achieve a large-scale growth in the performance of a line of AAV after the completion of TC certification. This is the English translation of the CEO's remarks. Hello, everyone. Thank you for joining our earnings conference call today. Since Yihang submitted the EH216
spk08: certification application to the CEC, which is the Civil Aviation Administration of China, at the end of 2020. We have been continuously committed to the efforts to actively promote the HAN216 certification progress in the past two years. An airworthiness certification is not only a safety certification and a prerequisite for official commercial aircraft operations. but also the crucial path for Yiheng to move forward in this strategy of becoming an urban mobility platform operator, and thus the key catalyst and driving force for the company's business growth. Here, we'd like to thank our investors, customers, regulators, and partners for their long-lasting attention and support. Every member of the EHAM team value the support given to EHAM and are wholly dedicated to meet the expectations of our stakeholders. As an innovative project, the Air Washington certification process is full of tremendous challenges, along with the continued impact of the pandemic in China. Our technology, product, and certification teams have tirelessly worked days and nights. to overcome difficulties in a collaborative synergy. Additionally, they have worked under close cooperation with the CAC expert team, and we are about to greet the victory downing. At present, all of our certification plans have been officially approved by the CAC expert team. In other words, the means of compliance for all the 12 specified airworthiness review subjects have been confirmed. including aircraft performance and flight, structural strengths, design and configuration, ground control station, airborne human-computer interaction, continued airworthiness, etc. As a result, the EH-216 certification process has already completed the phases of concept design, requirements definition, and compliance planning, and entered the ongoing final phase for demonstration and verification of compliance. We have completed the most demanding and complicated work across the most difficult obstacles and overcame many challenging uncertainties. What we are doing next is to implement all the plans that we made. Besides, we are fully confident in the final phase of Airworthiness certification, which is specifically about conducting verification review through laboratory tests, ground tests and inspections, flight tests, and data analysis by the CAC expert team and EHAM in accordance with the approved certification plans. EHAM 216 have accumulated more than 30,000 safe flights and data records over the years, which could be solid support to the demonstration of compliance. The proven passenger-carrying EV test flight records as well as the test flights in extreme weather environment, such as the high altitudes, typhoons, deserts, and heavy fog, will accelerate the process of verification of compliance. On this basis, we are carrying out some supplementary tests and a flight test for verification, so as to complete the test certification process. We are fully confident to complete the world's first airworthiness certification for the human-carrying unmanned aircraft system. Our confidence is not only derived from strength and innovation of our AAV technologies, but also from the open and innovative spirit of the Chinese government, the CAC, and the aviation industry, as well as their interest, support, and guidance. All of these empower the high degree of innovation, breadth, deeps, and the speed of the IHAN 2016 certification project, which are at the forefront of the emerging industries across the globe. In September and November this year, IHAN was honored to be invited by the ICAO, which is the International Civil Aviation Organization, to attend the 41st ICAO Assembly, Innovation Fair, and RPAS Symponia at the ICAO's headquarter in Montreal, Canada, and share the the exploration and practice on EH-216 airworthiness certification project, and innovative results with global aviation regulators. In particular, the CEC, as the first class member of ICAO, introduced China's first airworthiness certification standard for human-carrying unmanned aircraft system at the ICAO Assembly, providing a reference for countries in formulating related regulations. It is not easy to be a first mover and a pioneer. Even so, over the past eight years, Eham has always been committed to its steadfast mission, which is to make safe, autonomous, and eco-friendly air mobility accessible to everyone. For this, we have and always will adhere to the principles of safety first, bold innovation, careful analysis, and prudent verification. contribute to the formulation of relevant industry standards and norms, with the experience and expertise we have accumulated over the years, and lead healthy and continuously improving development of the emerging eVeto industry worldwide. Meanwhile, driven by leading innovative players like Yi Hang, we are pleased to see that China has taken more and more new policies and measures to continuously support and promote the development of urban air mobility and airman civil aviation. In August, the CEC released the Airman Civil Aviation Development Roadmap 1.0, which set the short, medium, and long-term development stages and goals for 2025, 2030, and 2035. These are significant in how they clarify the direction for the new industry development. Meanwhile, the CEC also approved seven new unmanned civil aviation experimental zones, in addition to the first batch of 13. Currently, there are a total of 20 pilot cities in China to put the policies into actions. In some of these zones, it has received strong support and pre-orders from the local government and customers. They are actively building UAM operational trial flight bases and supporting infrastructures to bring the integrated development of aerial sightseeing, aerial logistics, and smart city management industries, as well as provide further grounds for the operations and practical applications of Yiheng AAVs. And like other developed industries, we need to create new regulations to build up this new industry. and we made it, which expect to be followed by explosive growth. Against such a strong and promising backdrop, we have the reasons and confidence that EHAM will achieve significant growth results and meet our strategic goals after completing the classification to provide better returns for our shareholders and partners while continuously promoting the sustainable development of the emerging UMA industry. Next, I will turn the call to our Chief Operating Officer, Mr. Xin Fang, for business results in Q3. Thank you.
spk16: and spread to many parts of the country, especially Liguangzhou, where Yihang headquarters is located. Although we are facing a more severe epidemic control challenge at the moment, we will keep our eyes open and continue to grow in the field of low-control tourism, which is one of the AAV target markets. According to Guangxi Guigao and Hunan Jishou, we have been in Shandong Qingdao, Anfei Fangshan, and other places for the past three seasons to develop potential business opportunities, integrate multiple resources, and actively set up urban and air-conditioned commercial and industrial ecotourism. Weihang Air Traffic North Line's operation target has been expanded from last year's official launch until now. Weihang 216 has accumulated a total of 15 custom network points in China, covering one-line cities such as Guangzhou, Shenzhen, and Shanghai, as well as other popular cities with rich tourist attractions. Based on the actual application environment of air tourism, we have accumulated more than 6,800 operations in various places. After verification, we will invest in commercial operations to gain experience and take the lead. In addition, the AAV operating system developed by Yihang Autonomous Development is already on the top line and is suitable for each city and region. The current internal testing results are good, which will help greatly improve the management efficiency of AAV operation. In this year's experiment, we are very happy to welcome a global aviation industry aircraft engineering and MRO aircraft repair industry with more than 70 years of rich experience and strong cooperative partners, the Hong Kong Air Group under the Taihu Group. We believe that thanks to SAFANG's manufacturing and assembly,持續試航,數字平台, multi-faceted potential cooperation in the field of transportation and maintenance and human resources transportation, as well as the post-sales maintenance service system and network of the Hong Kong Air Group all over the world, will provide a solid foundation and guarantee for the future business operation of AAV. In overseas, we have made good progress in the two key areas of Asia and Europe. Since this year, the market expansion in Japan, Malaysia, Indonesia, Thailand and other countries in Asia has been effective. A total of 210 AAVs have been delivered. In the last three seasons, we have included Japanese customers. We have successfully completed a flight of 216 in four cities in Japan. We have successfully shown the use of AAVs such as aerial sightseeing, aerial travel, and self-propelled logistics. For the first time, we have used Vapor's maritime flight and point-to-point long-range flight in Japan. In order to participate in the Japan-Global Relationship Dispute in 2025, it also gained a great opportunity to show off and establish a solid foundation for future expansion operations in Japan. In addition, Yihang played an important role in many UAM projects in Europe and the United States. For example, in October, Yihang 216 successfully flew in Spain, effectively verified the concept of urban air traffic operation, and fully realized the goals of the AMU LED project. In November, Yihang joined the S-AMVA project of the European Aerospace Project. The project uses the European Earth's synchronized satellite navigation to strengthen the service system, providing Yihang 216 with accurate navigation in Europe, thus supporting the integration of U-Space. The mid-term is coming to an end in 2022. We continue to be affected by the COVID-19 pandemic and China's epidemic prevention and control, and the process and business development of the company's original project will bring a lot of resistance and challenges. Based on the current actual situation, we have adjusted the annual performance of the epidemic. The total revenue in 2022 is estimated to be about 55 million to 65 million yuan. As of late, we have been optimistic and confident about the long-term performance growth and development of the company. Based on our technology leading advantage and the 216-S-TC audit process that has been introduced in the final phase, the growing market demand of UAM and more than 1,200 ZAIAV retail orders, This is the English translation of the CEO's remarks. Thank you, Mr. Hu. Hello, everyone. In the third quarter,
spk08: We remained focused on the Yiheng 216 airworthiness certification project and continued to explore domestic and overseas markets to fully prepare for post-certification commercial operations. Since October, the COVID-19 resurgence has swept across many cities across China, especially Guangzhou, where Yiheng is headquartered. Although we are facing serious challenges from pandemic control measures, we will continue to drive our efforts in a low altitude aerotourism on our AV target markets. Following Guigang City in Guangxi Province and Jishou City in Hunan Province, since the third quarter, we have been exploring more potential opportunities in Qingdao City in Shandong Province and Huangshan City in Anhui Province. And integrating local resources to actively develop a broader and diversified UAM ecosystem. Yiheng formally launched the 100 air mobility routes initiative last year. So far, we have completed over 6,800 operational trial flights with Yiheng 216 in practical aerial sightseeing scenarios at 15 operation spots across China. to accumulate valuable experience for post-certification commercial operations. These operation spots cover first-tier cities such as Guangzhou, Shenzhen, and Shanghai, as well as other tourist destinations. In addition, Yihan's self-developed AAV operational system has been put into use across all operation spots. The current internal tests demonstrate positive results. which will significantly improve AAV operations management efficiency. In October, we established a partnership with Heco Group, a subsidiary of Swire Group. Heco Group brings over 70 years of experience in maintenance, repair, and overhaul, and has after-sales maintenance service system and network across the globe. We believe that the potential cooperation opportunities in manufacturing and assembly continued airworthiness, digital platforms, aircraft maintenance, and talent training will help further solidify the foundation for E-Hunt 216 commercial operations in the future. On the international front, we have made meaningful progress in two key regions, Asia and Europe. Since the beginning of this year, we have achieved fruitful results in developing Asian markets, including Japan, Malaysia, Indonesia, and Thailand, and have received a total of 210 pre-orders for passenger-grade AVs. In the third quarter, with the support of our Japanese customers, E-Hunt 216 completed a demo flight tour across four cities, leaving footprints in up to six Japanese cities to date. This flight tour not only demonstrated use cases in aerial sightseeing over the sea, air mobility, and smart logistics, but also include the over-the-sea flight and point-to-point flight for the first time of an in vitro aircraft in Japan. It was also an excellent showcase for participation opportunities at Expo 2025 Osaka Kansai, which will further strengthen preparations for subsequent business expansion in Japan. Furthermore, EHAM played an important role in many European Union's UAM projects. For instance, the EHAM 216 trial flights in October verified and validated the UAM concept of operations, which completed the EMULAD project objectives. In November, EHAM participated the SEMBA project, initiated by the European Union Agency for the Space Program, to deploy the ECNOS which is the European Geostationary Navigation Overlay Service, on the EHAM 216 operations, and to support use-based integration across Europe. 2022 is coming to an end, but we continue to see impact from the COVID-19 resurgence and pandemic control measures in China, which brings considerable challenges to our original airworthiness certification process and business development plan. We have adjusted our guidance based on the current situation and outlook for the fourth quarter. The company expected total revenue for 2022 to be in the range of 55 million to 65 million RMB. Nevertheless, we remain optimistic and confident about achieving the company's long-term financial growth and development momentum based on our core competencies. including the leading technological advantages, the 116 STC process entering the final phase, and increasing UAM market demand with pre-orders for more than 1,200 passenger-grade AEBs in hand, and sufficient preparation for commercialization and industrial chain deployment, and also favorable regulatory support, especially in China. Based on that, and our consistent execution of the corporate strategies, Ehang is well positioned for a promising future. I will now turn the call over to our CFO, Richard Liu, for financial results. Richard, please go ahead. Thank you.
spk11: Thank you, Xin. Hello, everyone. Before I go into details, please note that all numbers presented are in RMB and are for the third quarter of 2022 unless stated otherwise. All presented changes are on a quarter-over-quarter basis unless otherwise specified. Detailed analysis are contained in our earnings press release, which is available on our IR website. I will now highlight some of the key points here. Our third quarter performance reflects impacts from the COVID resurgence in China. However, we continue to enhance our cost management to improve operational efficiency despite these near-term challenges. We maintain our focus on the development of areas that can deliver long-term growth as we continue to execute our strategy towards becoming an integrated urban air mobility operator. Turning to our operating results in Q3 2022, total revenues were 8.2 million compared with 14.6 million in Q2. This was due to the unfavorable market impact, mainly from the pandemic resurgence and related control measures in China. EH216 AAV delivers in Q3 with four units, compared with eight units in Q2. That said, demands for AAVs remain strong, notably with pre-orders from the Southeast Asian market this year. As we are focusing on completing the final phase in the type certification process of EH216X, we are also stepping up our efforts in preparing for its commercial operations by expanding our market presence and our partnership network at home and abroad, coupled with other strategic initiatives. Growth margin was 65.9% in Q3, a slight decrease of 1.2 percentage points from 67.1% in Q2. But it remains at a high level compared to those of other new energy mobility products, such as electric cars. This attests to Ehang's competitive strengths and first-mover advantages in the global UAM and Elito industries. In Q3, our adjusted operating expenses, which are operating expenses excluding share-based compensation expenses, were 59.7 million, representing an improvement of 5.9% from 63.4 million in Q2. The decrease was mainly attributed to decreased professional expenses as well as fluctuated R&D expenses related to different processes in product development and the ongoing certification process. With that in Q3, our adjusted operating loss was 52.9 million compared with 51.2 million in Q2. Our adjusted net loss was $55.1 million in Q3 compared with $50.8 million in Q2. As for our balance sheet, we continue to maintain relatively healthy cash, cash equivalents, restricted cash, and short-term investment balances of $208.8 million as of the end of Q3, which was attributed to our continuous management of operating expenditures and cash flow. Additionally, we will be moving to a new headquarter office in Guangzhou to embrace the new phase of growth that the company is expecting to see following completion of the pipe certification. Nevertheless, we have been sticking to a proven cost control strategy and taking effective measures to optimize new office rental expenses. It is expected to give us a cost down estimated by around 20% compared with those of our current office. Given the latest pandemic resurgence in China, we expect such headwinds would probably remain a challenge in the near term. But we believe that for the longer term, we will be able to capture the great growth potential of the UAM industry with our leading technologies and comprehensive strategies. We remain committed to providing a safe, autonomous, and sustainable aerial mobility experience while creating values for shareholders and stakeholders. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.
spk13: Thank you, Mr. President. Thank you, Mr. President. We will end the question and answer session. To ask the questions on the phone, please press star 1-1-1 and ring 3-0-1-1. One moment for the question. The first question comes from Cindy . Thank you for
spk04: I have two questions. My first question is regarding the progress of type certification. As we enter into more in-depth review phase, can we expect that e-homes still can receive type certificates by the end of this year? And my second question is that in light of recent COVID lockdown, have we encountered any hiccups in terms of production, component sourcing, type certificate, obtainment, and delivery schedule? And do we see any limit delay in the timetable of receiving TC? And how should we think about the revenue cadence in 2023? Thank you.
spk13: Do we have the management on mute your local line please?
spk18: Ladies and gentlemen, please stand by. Thank you. Hello?
spk17: Hi.
spk18: Hello.
spk17: Hello. Can you hear me?
spk16: It's been very clear for more than 40 minutes. Now suddenly the sound is not clear. Mr. Fang, I can hear your voice.
spk05: I think it's the operator's line has some problems. So it's okay.
spk04: You can answer the question directly.
spk15: Hello, I am Fang Xin. Can I answer the first question now?
spk18: Okay, thank you. Okay, thank you.
spk16: Then I'll start answering. Regarding the first question, about the development of the market, I'll answer it now. First of all, thank you for your question. Just like Mr. Fu mentioned about the market, it has already become a deep output. The 2-6-7-7 audit has entered a final stage. To be specific, the Chinese Civil Aviation Bureau has approved all the audit plans and completed the corresponding certification and verification work. Based on the actual data accumulated over the past few years, it has provided very good support. In addition, the regularity of the Civil Aviation Bureau and the Civil Aviation Bureau team's rigorous principles have been reviewed by everyone. These are very helpful in accelerating the final stage of a competition. It is recommended that the four-car race of the 1-2-6 is the first in the world. So there are a lot of unknown problems in it. We are facing them together to verify its final start-up process. The 1-2-6 is also one of the key work projects of the Civil Aviation Bureau this year. uh um Our original plan was to go to Guangxi and Hezhou on December 15th to conduct a comprehensive verification of the last comprehensive detection stage. After the revision, the next week may be a release based on the epidemic in Guangzhou. We will start over. There may be a certain revision of this market. But the revision will not be too long. With the release of this epidemic, we Thank you for the answer. May we have the main experience translation, please?
spk13: perhaps management for the translation line, would you like to rejoin again if you can hear us? Everyone, please stand by. We are trying to address the issue. Okay, we can hear you now. Please carry on, please.
spk08: ...by the English translations. As our CEO, Mr. Hu, mentioned earlier, the HM216 type certification has entered into the final phase, specifically to complete the compliance demonstration and verification work according to the certification plan approved by the CEC expert team. The practical data that EHAM has accumulated over the past years provides a solid support. And together with the support of the CAC and the expert team, it will help to accelerate the final phase of the process.
spk06: As we are the world's first, we are facing a lot of uncertainties.
spk08: But the 30.216 type certification is one of the key projects of CAC for this year. which was originally scheduled to complete by around December this year. Particularly, the CAC called for the members of the TC expert team to get together at Yihang site in Guangxi to work closely with us. However, the recent epidemic resurgence in Guangzhou made it difficult for all the members across the country to come together.
spk07: Thus, the timetable might be delayed, but it will not be too long, because most recently, as the COVID restriction measures have begun to ease by steps in China, the related impact is expected to gradually decrease. So our expectation may be around January next year. This is all about the translation of the first questions.
spk13: Thank you. Would you like to move to the next questions from the investor, please? Hello.
spk16: In terms of business development, the main application scene of our automatic driving vehicle products is the tourism industry. The tourism industry has been affected by the epidemic this year. It is the most serious industry. Under strict epidemic prevention, we are still in Guangxi Guigang, Hunan Jishou, Shandong Qingdao, and Anhui Fangshan, etc. We have opened up a lot of potential business opportunities and obtained a lot of trust and cooperation from the local government and customers. In addition, the overall impact of the epidemic on our production and supply chain is not too big. The overall input forecast for next year still depends on the time when the TCA starts. In addition to the gradual decline of the domestic epidemic, the economic recovery and tourism industry can grow a lot compared to a business. In this area, we have expanded customers in various places. Under constant circumstances, we can continuously Okay, this is the English translation of the answers above.
spk08: Regarding your second question, the epidemic has had a significant impact on our business development and the original project plans since the beginning of this year, just like other Chinese companies. In terms of the business development, the tourism industry is our initial main target market for our AV product applications. while it is one of the industries severely affected by the epidemic. However, we have been exploring more potential opportunities in Huigang city in Guangxi province, Jishou city in Hunan province, Qingdao city in Shandong province, and Anhui city in Anhui province, et cetera. And despite the strict pandemic control measures, and we received adequate trust, support, and cooperation from local government and customers. In addition, the epidemic has no significant impact on our production and supply chain. And our last year's revenue expectations were depending on the timing of obtaining the TAP certificate and the recovery of the economy and the tourism industry after the epidemic situation gradually subsides in China. And ideally, the potential customers in the markets above will be able to place orders while we could gradually deliver the product so that we are likely to achieve significant revenue growth next year and return to the high growth trajectory. And for more details, please wait for our guidance next year.
spk12: And this is all about the translation of the answer.
spk13: Thank you very much for the questions. Allow me to proceed with the next questions. One moment, please. Our next question comes from from Goldman Sachs. Please proceed.
spk03: That is, can we see the breakdown of the BOM of No. 1 and No. 216 as the same level as the electric car? The second question I would like to ask is about pre-order and order delivery. And in the application field, in the air-to-air flight, in addition to the tourism industry we just mentioned, are there any Okay, I will translate for myself. Yeah, thanks management to take my question and congratulations on the result. I have two questions. The first one is about the Yihang 26 bomb. Could you please share as this aircraft, the bomb caused breakdown? especially the battery, the model, the battery management part, and who are the supporters. Can we take the view that this e-harm model bomb cost breakdown is similar as the EV? And second one is how many pre-order and the decrease we have so far? And in terms of scenarios, apart from the set thing, what types of passenger transportation scenarios are we penetrating into? Thanks.
spk11: Thank you for the questions. This is Richard. Let me take your first question, and then I will let RCO Xin take your second question. So basically, the core structure of the EH216AAV can be divided into three major portions. First, the power and the propulsion system. And second, the fuselage and the structure. Third, the electronic components and others. And from a new energy mobility product perspective, The major composition of the propulsion system of an EH-Q16AEV can be regarded similar to that of an EV. Basically, it mainly includes electric motors, motor drivers, and batteries together with the battery management system or BMS. uh in respect of percentage each portion as mentioned just now consists roughly one-third of the total cost more or less in respect of suppliers most of our qualified suppliers with long-term relationships are those located in south china more specifically in the Pearl River Delta area, which is known as a world leading manufacturing hub and where our headquarter is. So this gives us an easy access to a large number of high quality suppliers and a competitive edge in respect to supply chain in terms of costs and efficiency as compared to our peer companies in other countries. So I will let Xing take the second question. Mr. Fang, please answer the second question.
spk16: Okay, I will answer the second question. Okay, I will answer the second question. Okay, I will answer the second question. Okay, I will answer the second question. Okay, I will answer the second question. Currently, we have a large number of existing order customers in China. We have a large number of existing order customers in China. We have a large number of existing order customers in China. We have a large number of existing order customers in China. We have a large number of existing order customers in China. We have a large number of existing order customers in China. In addition, we have already handed over five 1.2.6 aircraft carriers to the Tianyingjian company in Hunan, Aizhai, and conducted a test. In the Aizhai scenic area, we developed a low-altitude tourism project. As the project gradually progresses, there will be a continuous delivery of 25 2.1.6 tourism boards. Apart from the low-altitude tourism boards, We are currently in contact with firefighters, emergency departments, and hospital emergency helpers. These customers also have a lot of connections. Recently, in this area, we may continue to deliver the 216 firefighters in Qingdao. There are a total of six to ten orders. Therefore, after we get the orders, we first First, we need to accumulate more resources in the low-income areas. This area is undoubtedly the most important for our contribution. Next, we will increase the number of firefighters, logistics, emergency services, and medical care units. Their income will be significantly increased. Thank you. I have answered this question.
spk06: This is the translation of Mr. Fang's answer.
spk08: So far this year, in addition to the over 200 units of Yihang AAV pre-orders in the Asian markets, we have potential orders from many domestic customers in pipeline, such as Qingtan District in Guigang City, Guangxi Province, and Tianxingjian They are very interested in deploying Yihang AAVs in the local areas to develop the low-altitude tourism industry. And the potential orders in Qingdao include 60 units of Yihang 216 series AAVs, which are expected to be placed and delivered gradually after obtaining a test certificate. Five units of EH216 have been delivered to Tianxingjian to developing an aerial sightseeing project. And this customer intends to purchase additional 25 units as the project evolves. And apart from the low altitude tourism market, we are also in contact with the customers who have needs for firefighting and emergency transportation. such as the Qingdao Fire Department and some hospitals, which has a potential order of about six units of EH-216 firefighting model. Given that our initial primary target market is the low altitude tourism, which we invest more resources, the revenues from this market will be the most significant in the near future, and followed by the firefighting and emergency aerial transport use cases.
spk06: This is all of the translation.
spk13: Thank you for the answers. One moment for the next question. The next question comes from the line of Di Wu from Tianfeng Securities. Please proceed.
spk10: Thank you, management team, for taking my question. My first question is, recently we see that U.S. has issued a series of export bans on high-end chips. I'm just wondering, will there be any potential impact on Yihan's supply chain? And my second question is, we noticed that China's domestic epidemic prevention policy is experiencing some softening, especially in Guangzhou. If these policies continue to ease in the future, What will be our new outlook on the future, for example, like PC approval and market demand and et cetera?
spk18: Thank you so much. This is Richard.
spk11: Let me take your questions. First of all, we are not using those U.S. band chips in our products. As you can imagine, there will be no potential impact. on our supply chain. But we will be mindful of this when we further implement our R&D and supply chain strategies. Additionally, we adopt a strict mechanism to review and ensure quality and stability of our supply chain. and we always seek to fully engage with our qualified suppliers to establish long-standing and strong partnerships. In respect to your second question, yes, we have been experiencing the optimization or even the easing of COVID prevention and control measures recently. As you mentioned Guangzhou, where we are headquartered, has initiated doing so since just two days ago. And it seems more cities are gradually following the suit. So this is a very good sign to the market. Given the COVID prevention measures can be further loosened up, travel can be back to normal. So when these challenges are eased or is further eliminated, it is expected to have positive impacts on the business For example, in respect of type certification, the inspectors will be able to travel without difficulties to our locations to convene and check onsite, thus facilitating the process. In respect of markets, you will help the tourism industry, which we initially target back to normal. thus facilitating the relevant tourism operator customers to complete orders. So coupled with TC soon to be obtained, it is expected our business would rebound next year. And we believe our efforts will allow us to capture this market growth opportunities going forward. Thank you.
spk13: Thank you for the questions. Seeing no more questions in the queue, let me turn the call back to Ms. Ji for closing remarks.
spk08: Thank you, operator, and thank you all for participating on our today's call. If you have further questions, please contact our IR team by email or participate in our following investor events through the calendar information provided on our IR website. We appreciate your interest and look forward to our next earnings call. Thank you.
spk13: Thank you all again. This concludes the call. You may now disconnect.
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