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spk17: Good day, ladies and gentlemen. Thank you for standing by and welcome to the E-Hang fourth quarter 2022 and fiscal year 2022 earnings conference call. As a reminder, we are recording today's call. Now I will turn over the conference to Anne Gee, E-Hang's Senior Director of Investor Relations. Ms.
spk16: Anne, please proceed. Hello, everyone.
spk19: Thank you for joining us on today's conference call to discuss the company's financial results for the fourth quarter and the fiscal year of 2022. The earnings release is available on the company's IR website. Please note that the conference call is being recorded and the audio replay will be posted on the company's IR website. On the call today, we have Mr. Hua Zhihu, our founder, chairman, and chief executive officer. Mr. Xin Fang, chief operating officer, Mr. Richard Liu, chief financial officer, and Nick Yang, an independent director of the board. The management team 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, management statement in the original 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 involve inherent risks and uncertainties. As such, the company's actual results may be maturely 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 fourth quarter and fiscal year of 2022, unless stated otherwise. With that, Let me now turn the call over to our CEO, Mr. Hua Zhihu. Please go ahead, Mr. Hu.
spk09: and the construction of ecological systems, and achieved many results. Not only did it enhance the resilience of the company's long-term development, but it also further expanded the leading advantage of Yihang in the global urban air traffic field. In the fourth quarter of last year, the Yihang 216S model comprehensive audit project successfully entered the final phase of compatibility verification. But the large-scale infection from the control to release of the epidemic in China, up to this year's Chinese Spring Festival holiday, to a certain extent delayed the progress of the relevant verification work. However, we successfully completed the manufacturing of commercial verification specialized aircraft at Yunfu Production Base, through a complete manufacturing compatibility inspection, and in Guangzhou, Hezhou and other flying bases to carry out all kinds of compatibility verification to fly. In February this year, the chief engineer of the Chinese Civil Aviation Bureau, the Provincial Aviation Investigation Department, the Flying Escort Department, the Aviation Administration Office and the Central and Southern Bureau and other bureau leaders and the experts of the test flight inspection team to inspect the aircraft base in Hezhou together. The joint efforts of all parties have effectively accelerated the final stage of TC inspection work such as EH216S verification and test flight. At the same time, we have made effective arrangements and arrangements for our next operation work, which has further strengthened our confidence in post-operation. To this day, based on the consistent compatibility verification method reached by the Civil Aviation Bureau of China, We are actively carrying out all kinds of comprehensive verification work, including the submission of the test tank, the laboratory test, the ground test and inspection, and the flight test. At present, we have completed and are about to complete the signature of the comprehensive verification project. The number has exceeded 70%. This means that the completion of the entire EHS216S test project has exceeded 90%. In the global scope, among the few EVETO market audit projects officially accepted by the Civil Aviation Bureau. The market audit work of this new business is very difficult, but I am proud of our team's endless efforts in the past few years and the innovative results obtained. At the same time, we are very grateful to the policy supervision of the Civil Aviation Bureau to the full support and attention of innovative unmanned aerial vehicles. We believe that in the near future, we can bring you good news that has been anticipated for a long time. Therefore, we believe that in 2023, the air traffic led by Yi Hang will enter a new era, and we look forward to witnessing the milestone of the era of the global UAM industry. It is worth mentioning that the leader of the EVTO industry is not only Yi Hang, It is also China's market. This is the world's largest market for urban air traffic development. According to Morgan Stanley's prediction, it accounts for 30% of the global UAM market. In recent years, from the central government to local governments, a series of support for unmanned aerial aviation, electric aerial aviation, low-air economy, urban three-dimensional traffic, aviation tourism, and other new fields of support policies have emerged. Providing us with a good policy and market environment, it has also brought about continuous growth in government and corporate customers. Later, our CEO, Mr. Fang Xin, will give you a detailed introduction. On the other hand, China's world-leading drone upstream and downstream industrial chain and professional talent. And high cost performance and high delivery efficiency supply chain advantages provide excellent protection for our product research, manufacturing and delivery. As a pioneer in the EV industry, we will continue to actively invest in the development of the Asian market, as well as many air traffic projects in Europe, and work with local customers, partners, and the government to explore the safe, intelligent, efficient, and sustainable UAM operating system. Since then, the EH216 series AAV has accumulated more than 34,000 values in unmanned flying in 12 countries such as Asia, Europe, and the United States. This is the world's first flight record for the E-Veto industry. We look forward to bringing more and more customers, partners and passengers to the safe, automatic, environmentally friendly and efficient E-AV solution and flight experience. In December last year, we were very happy to welcome Mr. Yang Ning as an independent board member to join the company board. Although he is a new board member, he is actually one of our old friends. Yang Ning is one of the early investors of E-AV. For many years, he has been paying attention to and witnessing the growth and development of the UAM industry. And he has more than 20 years of rich investment experience and the entrepreneurial experience of many listed companies. I believe Yang Ning's participation will provide more assistance to the growth of the new stage of the industry. Today we also invited Yang Ning to join our meeting. Later, the Q&A session will have the opportunity to communicate with everyone online.
spk19: This is the English translation of Mr. Hu's remarks. Hello, everyone. Thank you for joining our earnings conference call today. 2022 was a year of opportunities and challenges for Yiheng. Against the ever-changing backdrops of macroeconomic volatilities, political uncertainties, and a pandemic, we remained committed to our strategies, and continue to make meaningful progress during the year in our main priorities of airworthiness certification, business development, and ecosystem establishment. This not only strengthens our resilience for long-term development, but also reinforces our leadership in the global urban air mobility industry. In the fourth quarter of last year, the EH-216S type certification successfully entered the final phase of the demonstration and application of compliance. However, due to the massive infections after China lifted the COVID control policies until this year's Chinese Spring Festival holiday, the relevant PC progress was delayed to a certain extent. But now we have manufactured the confirming aircraft for the purpose of airworthiness verification at our Yunfu production facility. passed the aircraft manufacturing conformity inspection, and are conducting compliance tests at flight bases in Guangzhou, Hezhou, and other locations. In February this year, the CDC chief engineer and officials from the Department of Aircraft Airworthiness Certification, the Department of the Flight Standards, the Office of Air Traffic Regulation, the Central and Southern Regional Administration, as well as the experts from the TC team inspect the flight base in Hezhou. We worked together effectively, and the joint efforts of all parties not only accelerated the compliance flight test and other review process in the final stage, but also made plans and arrangements for the next steps, which boosted our confidence in post-certification operations. As of today, we have been actively carrying out work for demonstration and verification of compliance, based on the means of compliance agreed by the CAC. Our work includes submission of compliance test plans, laboratory tests, ground tests and inspections, flight tests, etc. At present, over 70% of compliance tests have been either completed or to be signed soon. It means we have substantially completed over 90% of the entire type certification process. We believe Ehang is leading among the few eVTOL type certification projects that have been officially accepted by civil aviation regulators worldwide. Although the TC process for such a new innovative aircraft is full of difficulties, I'm proud of our team's unwavering efforts and groundbreaking achievements over the past few years. At the same time, we are very grateful to China's Civil Aviation Regulator, the CAC, for their full support and high attention to this innovative AV. We believe we will bring the expected good news in the near future. Therefore, we believe Ehang will take a lead in entering a new year of air mobility in 2023 and anticipate witnessing an echo-making milestone in the global UAM industry. What is worth mentioning other than Ehang being the EVETO industry leader is the large Chinese market that we are rooted in and its huge potential for the UAM development. According to Morgan Stanley's forecast, China is expected to account for about 30% of the global UAM market. In recent years, Chinese central and local governments have introduced a series of supportive policies for emerging sectors related to airman civil aviation, electric aviation, low altitude economy, urban three-dimensional transportation, aviation tourism, and so on. These have provided us with beneficial policies, a favorable market environment, and a growing demand from government and enterprises' customers. Our CEO, Mr. Xinfang, will talk more about it later. On the other hand, China has been a leader in the global UAV industry. It has accumulated profound expertise in the aspects of the upstream and downstream industry chain and professional talents. China has the supply chain advantages of higher cost effectiveness and delivery efficiency. These lead a solid foundation for product R&D, manufacturing, and product delivery. In overseas market, we are committed to actively engaging in the Asian market and participating in multiple air mobility projects in Europe as an EVITO pioneer. We will continue collaborating with local customers, partners, and governments to jointly explore a safe, intelligent, efficient, and sustainable UAM operational system. To date, the E-Hunt 216 series of AAVs have successfully completed over 34,000 autonomous flights across 12 countries in Asia, Europe, and Americas, which is the top flight record in the global EVA industry. Looking ahead, we will remain dedicated to expanding our reach, and bring our AV solutions and flight experiences to more customers, partners, and passengers worldwide. In December last year, we are thrilled to welcome Mr. Nick Yang join our board of directors as an independent director. Although he is a new member of the board, he is also our old friend as one of the Ehan's early investors. who has been following the company's growth and the development of the UAM industry for many years. With over 20 years of capital market experience and entrepreneurial experience in multiple listed companies, I believe that Nick will bring strong support to eHance Growth in our new stage. Today, we also have Nick with us on the call, and he will be available to communicate with everyone in a Q&A session later. Next, I will turn over the call to our Chief Operating Officer, Mr. Xin Fang. Thank you.
spk10: Thank you, Vice President. Hello, everyone. Since the fourth quarter of 2022, E-Hang 216-S has been a major part of the company's work. We are very happy that we have now reached the final stage. For the long-term growth of our business, we see an advantage in the early stage. In China, with the release of the pandemic control policy, The tourism industry, which was previously deeply affected, has come to a rapid recovery. According to the China Tourism Research Institute's forecast, as of 2023, the number of domestic tourists will be about 45.5 billion. The same growth is about 80%. Domestic tourism income is about 40 million yuan. The same growth is about 95%. This is a good opportunity for our tourism customers to bring good development opportunities. Since last year, we have continued to deepen the Chinese market, to develop low-cost oil and low-cost economy in various places, and to build a modernized comprehensive transportation system to stimulate the influence of the Hongguan policy of smart cities. We have been in Guangxi Guigang, Hunan Jishu, Hunan Changsha, Anfei Fangshan, Shandong Qingdao, Jiangxi Gansu, Jiangxi Jiujiang, Shaanxi Xi'an, Guangxi Hezhi, Xinjiang, Guangdong, Shenzhen, and many other provinces. and local governments, tourism and aviation industries to achieve a wide and deep business cooperation and industrial recovery. Since then, in China, Yihang 216 series AAV in-house orders and ready-to-sign orders have accumulated over the North China Sea. These orders are expected to be handed over in one to three years after approval. In addition, with the approval of the new orders from all over the country, the circulation and development of new orders are clearly expanding and growing. Recently, Xinjiang Tourism Capital Company, Shenzhen Transport Co., Ltd. announced that it and we will sign a cooperation framework agreement and plan to set up a joint venture company. In the next five years, the revenue will not be less than 120 units of Yihang 216-S or the same type of passenger automatic driving aircraft. In Tianshan, Tianzhi and other major scenic areas in Xinjiang, the first tourism project will be held. For example, in March this year, Xinhang Co., Ltd. and we reached a strategic cooperation agreement to purchase Yihang 216 in three years. to build a self-sufficiency air city and low-altitude flight demonstration area in the northwest region. At the same time, we actively embrace the long-term strategic investors willing to grow with Yihang, such as the long-term strategic cooperation with us in the long-term strategic cooperation with us in the long-term strategic cooperation with us in the long-term strategic cooperation with us in the long-term strategic cooperation with us in the long-term strategic cooperation with us in the long-term strategic cooperation with us in the long-term strategic cooperation with us in the long-term strategic cooperation with us in the long-term strategic cooperation with us in the long-term strategic cooperation with us in the long-term strategic cooperation with us in and provide all-round support for our local commercial operations, sales and service, production, infrastructure construction, and so on. Zili will be a world-class urban air traffic demonstration application with four stars. In the future, we plan to adopt a commercial strategy of supply and demand in three units, which is to provide product sales and operations services to government and corporate customers with the principle of safety first, high standard, low cost, and high efficiency. Through a whole set of AAV command and control system platforms and UAM operating systems, it supports the development and landing of our air traffic, smart city management, and air media three major business blocks, to meet customers' low-altitude reasons, city traffic, air logistics, fire safety, medical rescue, smart city management, and multi-dimensional application needs in the field of air media. In the past two years, under the guidance of the China Civil Aviation Bureau's first-in-line and first-out-of-the-box guidance, we have been in the country's 16 cities and 18 portals to develop low-altitude tourism scenarios. A total of 8,200 countries have completed the 1-2.16 security operation test flight. During this process, we have trained a well-trained AAV expert cloud team, developed a digitalized UAM cloud management and service platform, and summarized the rich, feasible, and repeatable trial and error experience. Therefore, we have the confidence and ability to create an objective UAM flight service value with customers and partners in the future. This is also our long-term opportunity to lead the industry and other companies. In addition, we are also actively working to expand the cooperation of UAM's upstream and downstream industrial chain and the layout of the ecological system. For example, in October last year, we were very happy to join the Hong Kong Chicken Group under the Tai Gu Group. Here we build a post-sales maintenance service system for our customers all over the country to provide higher quality and efficient maintenance services. At the same time, we assist the continuous market after the S market verification. In the Asian and overseas markets, last year we actively developed markets such as Japan, Malaysia, Indonesia, Thailand, etc. A total of more than 200 pre-orders of YiHang216 series products have been received, and local partners have used low-air travel, diving traffic, logistics transportation, and other AAV application scenarios to carry out local test flights. In February this year, we successfully realized YiHang216's manned flight in open air overseas in Japan. This is also the first manned flight in Japan that has been controlled by the Japanese Air Force. In Europe, in the fourth quarter of last year, Yihang 216-S completed the first flight in Spain, and established the EU-AMD-LED project to fully verify the concept of UAM. We joined the S-AMVA project launched by the European Aerospace Development Organization to jointly explore the traffic management concept of unmanned aerial aircraft systems. We joined the Spanish National Security Agency to realize the first flight of Yihang 226-4, as mentioned by Fuzhou. 2023 is a very important year for Yihang. This is the English translation of Mr. Fang's remarks. Thank you, Mr. Hu, and hello everyone.
spk19: Since the first quarter of last year, our top priority remained the TC project. We are pleased to report that we are now in the final sprint. In preparation for post-certification sustainable long-term growth, we are capitalizing our leading first mover advantages to explore both domestic and overseas markets. We have been extending our business and cooperation opportunities throughout the entire industry chain related to air mobility and the low-altitude economy. By building up order demand, enhancing our partnership and collaborations, we are laying a solid foundation for commercial delivery and operational services following certification. In China, the tourism industry, which has seen heavy impact from COVID, has rapidly recovered this year. as the control policies were lifted. The China Tourism Academy predicts that in this year, the number of domestic tourists will reach 4.55 billion, up 80% compared to last year. And the domestic tourism revenues will reach 4 trillion RMB, about 580 billion US dollars, an increase of 95% compared to last year. This presents excellent development opportunities for the low-altitude tourism, the first market where we plan to launch commercial operations after certification, as well as for our tourism industry customers. Since last year, we have been dedicated to developing our domestic market in China. Against the backdrop of a micro-policy promoting low-altitude tourism and economy, building a more integrated transportation system, and developing new smart cities. We have continued extensive and deep business cooperation and industry layout with local governments, tourism and aviation enterprises in many provinces and cities, such as Guigang in Guangxi, Jishou and Changsha in Hunan, Huangshan in Anhui, Qingdao in Shandong, Ganshou and Jiujiang in Jiangxi, Xi'an in Shaanxi, Hechi in Guangxi, Xinjiang, Shenzhen in Guangdong, et cetera. To date, we have received orders for over 100 units of the E-106 series AAVs in China. These orders are expected to be fulfilled within one to three years after the TC process is completed Additionally, with the approach of TC completion, there has been a significant growth in our customers' inquiries and demand for new orders from all over China. For example, most recently, Xiyu Tourism, a leading tourism company in Xinjiang and listed on Shenzhen Stock Exchange, announced its intention to sign a cooperation framework agreement with us. It plans to establish a joint venture and operates a minimum of 120 units of EH-216S or our comparable passenger-grade AAVs in five years for conducting low-altitude sightseeing tourism projects in key scenic locations in Xinjiang, such as the Heavenly Lake of Qianshan. Another example, in March this year, Xi'an Aerospace Investment Company signed a strategic partnership agreement and an inductive purchase order with us. They plan to buy 20 units of EHAM-216 aircraft within three years in order to develop a smart air city and a low altitude flight demonstration area in the Northwest China. Meanwhile, we welcome partnerships with strategic investors who are willing to cooperate with EHAM for long-term growth. For example, last December, Qingdao West Coast New Area reached a long-term strategic partnership with us over investment and business. It has not only provided US$10 million in investment, but will also facilitate the local government's applications of our entire product portfolio, which is expected to generate product demand worth over 100 million RMB, about US$15 million. within the next two years. They will also provide full support to our local business operations, sales and services, production and infrastructure constructions, among other things, with the goal of building Qingdao City into an outstanding world-class pilot zone for UAM demonstration and applications. In the future, We plan to adopt an integrated business strategy by both selling products and providing operational services for government and enterprises customers. Based on the principles of safety first, high standard, low cost, and high efficiency, we will utilize a complete set of AAV command and control system platform and UAM operation system to support our three major businesses. which are air mobility, smart city management, and air media. Therefore, we are able to meet our customers' demand for diversified applications in low-altitude tourism, urban transportation, air logistics, firefighting emergency, medical rescue, smart city management, and air media, et cetera. In the past two years, under the CAC's guidance, we have been taking a lead in carrying out trial operations while conducting type certification. To date, we have developed 18 operation spots for error sightseeing in 16 Chinese cities. More than 8,200 safe operational trial flights have been completed with EH-216 AAVs. During this process, we have cultivated a professional and well-trained AAV operation team developed a digital platform for AAV operation management and services, and accumulated rich, visible, and replicable trial operation experience. All of these give us input confidence and ability to create considerable UEM-wide service values together with our customers and partners in the future upon obtaining certification and beginning commercial operations. This is also our first mover advantages and operation benchmarks that we have built over the long term and ahead of other companies in the industry. Additionally, we have been actively working on expanding cooperation across the UEM upstream and downstream industry chains, as well as building the ecosystem. For example, we are very pleased to partner with Heco Groups a subsidiary of Swire Group in last October. This partnership plans to build an after-sales maintenance service system for e-home AAVs to provide our customers worldwide with more high-quality and efficient maintenance service while empowering our continued airworthiness following certification. In overseas markets such as Asia, Last year, we actively explored markets in Japan, Malaysia, Indonesia, and Thailand, secured more than 200 units of pre-orders for EH-216 series, and established cooperations with local partners to carry out local trial flights surrounding AV application scenarios, such as low-altitude sightseeing tours, island-hopping mobility, and logistic transportation. This February, we successfully conducted the first passenger-carrying EHAM216 demo flight in an open airspace overseas in Japan. This is also the first-ever passenger-carrying flight of an autonomous EVITO in Japan with approval. In Europe, in the fourth quarter of last year, we completed EHAM216's first flight in Spain under the EU's AMILED project to successfully verify the UAM concepts of operations. We also joined the EU SEMVA project to explore in-man aircraft system traffic management. In addition, we assisted the Spanish National Police to complete the E-126 maiden flight for their trial operations. As noted by Mr. Hu, 2023 is a crucial year for us. As the turning point of airworthiness certification approaches, Yihang and even the entire UVMA industry are about to enter into commercialization. We are prepared and confident and feel responsible to be a pioneer for commercialization in the global EVETO industry. We plan to provide earnings guidance after certification. I will now turn the call over to our CFO, Mr. Richard Liu, for financial results. Richard, please go ahead. Thank you.
spk05: Thank you, Xin. Hello, everyone. Before I go into details, please note that all numbers presented are in RMB and are for the fourth quarter and the fiscal year of 2022, unless stated otherwise. All presented changes are on a quarter-over-quarter basis, unless otherwise specified. Detailed analysis are contained in the earnings press release, which is available on our IELTS website. I will now highlight some of the key points here. Despite numerous uncertainty and challenges in 2022, we not only moved to the final phase of type certification, but also achieved significant progress in developing business and building an AAV ecosystem for post-certification growth. Meanwhile, we further enhanced our cost management, operational efficiency, and financial soundness, and we are optimistic to see a turning point for the expected expansion of our commercial operations and a new era for our company and the UAM industry. In Q4, total revenues were 15.7 million. An increase of 90.7% from 8.2 million in Q3. The EH216 series of AV deliveries in Q4 were six units, up 50% from four units in Q3. For the fiscal year 2022, total revenues were 44.3 million compared with 56.8 million in 2021. The EH216 series of AAV deliveries in 2022 were 21 units, compared with 30 units in 2021. Gross margin was 66.1% in Q4, a slight increase of 0.2 percentage points from 65.9% in Q3. Gross margin was 65.9% in 2022, representing an increase of 2.5 percentage points from 63.4% in 2021, mainly attributed to the higher average selling price of EH-216 AAVs. This represents the continued high gross margin levels compared to those of other electrically powered mobility products such as electric vehicles. as a result of our competitive strengths and first mover advantages in the global UOM and EV2 industries. In Q4, our adjusted operating expenses, which are operating expenses excluding share-based compensation expenses for 73.2 million, compared with 59.7 million in Q3. The increase was mainly driven by the non-cash item of additional proven provisions for receivables in response to the impact of COVID into customers, and more expenditure on aircraft conformity for EH216-S in its verification process for PEP certification, with reductions in travel and marketing expenses and professional service expenses, etc. On an annual basis, the adjusted operating expenses were $242.4 million in 2022, compared with $246.6 million in 2021. As a result, our adjusted operating loss in Q4 was $61.3 million, compared with $52.9 million in Q3. Adjusted net loss in Q4 was $59.4 million compared with $55.1 million in Q3. For the fiscal year, adjusted net loss was $206.2 million in 2022 compared with $192.8 million in 2021. Moreover, our cash balance remains solid as we have been proactively managing our cash position and assessing our liquidity. As of the end of Q4, we had $249.3 million of cash, cash equivalents, restricted cash, and short-term investments, compared with $208.8 million as of the end of Q3. In December, we formed a strategic partnership with Qingdao West Coast New Area, one of China's national new areas in Shandong Province. This partnership comes with a US$10 million equity investment into the company and a potential additional investment of US$10 million in the future. This serves as additional liquidity support for operations and growth. That concludes our prepared remarks. Let's now open the call for questions.
spk04: Operator, please go ahead.
spk17: Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, you can please press star 1 and 1 again. Once again, to register for question, please press star 1 and 1 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. This will take a few moments. We are now going to proceed with our first question. And the questions come from the line of Verena Cheng from Goldman Sachs. Please ask your question. Your line is opened.
spk03: Thank you for taking my question. I have two questions. First of all, it's about the TC progress.
spk02: Could you share when we expect to get a TC? And how should we think about the timeline for the mass production, delivery, and also for the revenues? Is it like after one to two months we get a TC or we will have the revenues and also the cash inflow? Do we have enough time to hire the people for the mass production? And the second question is about the responsibility. Could you share if the failure happens Is there a clear line of who to take the responsibility? For example, the users, if they do not operate properly, or the component makers, if it is caused by the certain component failure, or it could be really hard to prove what reasons caused the failure, and eventually we will need to take all the responsibility.
spk16: Thank you. Hello?
spk08: Yeah, this is Nick. Hi. As Mr. Hu had mentioned earlier, the TC process has completed over 90%. It's just a matter of time, and it's near the end now. If you compare with other eVeto companies' progress, I think Ehang is far ahead. Most importantly, EH216S, can anybody hear me? Hello?
spk07: Am I connected? Hello?
spk16: Yes, we can hear you. Please stay on the line. I think we've just lost the line for Nick Yang. Thank you. Hello? Yes.
spk08: Can anybody hear me? I just connected.
spk17: We can hear you, Nick.
spk08: Thank you. Okay, sorry. Sorry about that. Yes, as Mr. Hu has mentioned earlier, the TC process has completed over 90%. So it's just a matter of time that we complete the entire process, and it's near the end right now. So if you compare this to other eVeto companies' progress, I think Yihang is very far ahead. Most importantly, EH216S is the only autonomous one among all eVTOL TC projects, as you know, while other ones are all piloted. For details, Yihan has published the illustration about the entire TC process and the checklist of key milestones it has accomplished. So we want to bring clarity to the process and we'll update it very timely. So this will act as a status bar and it's very available on the IR website. So regarding to the post-TC production and delivery, I think it won't take much time or concern to generate revenue soon because the company has prepared for it all along by collecting more and more pre-orders beforehand and also getting the Yunfu production facility established and operational for almost two years and procured stocks of key components from suppliers. All these efforts can shorten our lead time to delivery. So for cost control reasons, we have over 100 workers in our manufacturing facilities. So that's enough for the near term. But so if needed, the company is very able to hire more local staff in the future. Okay?
spk15: You have to answer your question.
spk19: And the second question will be answered by our CEO, Mr. Ting Fang, and followed by English translation.
spk15: Thank you for your question.
spk10: Regarding your question, I will answer it in several parts. First of all, the general aviation accident is the result of the interaction of multiple factors. The safety of the accident must be investigated by the supervisor. This is a very complicated process. The investigation itself can only be done by the factors and factors related to the accident. In order to prevent the occurrence of the accident, it is necessary to ensure safety. In the 216-S of Yihang, it is impossible to drive the air-conditioning system. The design and structure of the air-conditioning system is safe. The air-conditioning system is easy to break down. It is not likely to cause an accident because of the single-point explosion. In terms of users, due to the automatic driving of our car, there is no need for users to drive, so there will be no safety problems caused by users' operation, time control, and food. We will also regulate the operation and maintenance, and do our best to ensure the safety of the passengers. In terms of production manufacturing, we have strictly followed the management of the supplier and production process. According to the requirements of the Civil Aviation Bureau, we have carried out the management of high-end production and supplier, and the relevant responsibilities will be as follows. Okay, thank you for your questions. Firstly, on general occasions, aviation accidents are caused by the multiple factors.
spk19: And determining the safety responsibility for aircraft accidents requires specialized investigation by relevant regulatory authorities, which is a complex process. And this investigation is required to identify various reasons and factors related to the accident before a final liability determination can be made. And in order to ensure safety and prevent accidents, we have adopted a redundancy method in the type design and the structural safety and communication of the E-106S AAV. And this ensures there is no single point of failure. And since our AAV is autonomous, the passengers on board do not need to pilot it. As a result, there is no safety hazard caused by the passenger mis-controlling of the vehicle during the flight. We will also create operation rules and provide safety instructions to the passengers to ensure their safety. And in terms of production and manufacturing, we strictly manage our suppliers and the production procedures with high-quality standards in accordance with the requirements of the DAC, and ensuring that we can trace the original sources while determining the safety responsibilities. And in terms of operations, we will also set up standards for operators and conduct personnel training, so as to ensure the operation safety throughout the process. And at last, we provide liability insurance coverage for aviation products and passengers, as well as the relevant third parties. That is the answer to your second question. Thank you.
spk17: Once again, as a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, you can please press star 1 and 1 again. Once again, it's star 1 and 1 if you have any questions or comments at this time. Thank you. We are now going to proceed with our next question. The next questions come from the line of T. Wu from Tianfeng Securities. Please ask a question.
spk11: Hi. Thank you for the management team to take my question. I have two questions as well. First is, as e-hon is more focusing on China market, and you talk about an increasing customer demand in China, could you share more color over the total revenue in your e-hon 216 pipeline orders? Can you deliver these orders without a type certificate obtained? And my second question is, our company has secured a significant number of pre-orders in Asia, I mean, excluding China. Do these pre-orders also need type certifications in respective countries? Will your progress of type certification in China help these foreign type certifications, or is it like a whole new process all over again? Thank you so much.
spk05: Thank you, Dean. And let me take your questions. First of all, as discussed earlier, we currently have an order pipeline of 100 plus units of EH216 in China. And this order pipeline has been growing with increasing inquiries, discussions from more potential partners in China, especially from the tourism sectors. the related total contract value would amount to around 200 million RMB or more. And if you back up the EAP in China, you can get the corresponding that we estimate roughly around 177 million something RMB. So, as put in the earliest release, most of these partner orders in China are conditional upon the TC and are expected to be fulfilled in one to three years after that. However, there are indeed some customers in China who are more sophisticated and understand that the TC is to be obtained strong and thus do not require that before delivery. In respect of your second question, those pre-orders in other Asian countries usually require the local DCs. So we have been working with our local partners in communicating with local aviation authorities. What we have been experiencing is that the authorities in those Asian countries are open-minded to this type of innovative aerial vehicles and is actually interested in the uses in tourism which is an important industry in their respective economies. So after we obtain the certification in China, it would provide a base for us to apply for the local certifications with the local aviation authorities. And we will not have to go from here. To give an example, in those Southeast Asian countries, like Indonesia, we could apply for the local PC through a called ETC process, namely validation of type certificate with the local aviation authorities, and it is expected to be a simplified process. Given so, it would help shorten the time and be more efficient for us to establish and further extend our market presence in those countries.
spk16: We're now going to proceed with our next question.
spk17: The questions come from the line of Cindy Huang from Morgan Stanley. Please ask your question. Your line is opened.
spk18: Hi, management team. Thank you for taking my questions. I only have one question on margin. So Yihong currently has quite good gross margin at around 60%. And how should we think about the course margin this year and over time, especially after we kick off commercial operations?
spk16: Thank you. Hi, thank you again.
spk05: I will take your question. The current 60% cost GP margin is actually a comprehensive GP margin covering our vehicle hardware and software products and services. At the core of the company, the technology advantage actually lies in our software. To some extent, EHAM can be regarded as a software-based technology company that integrates intelligent aerial vehicle products. Software products usually intel high-tech technologies. In addition, as the TC for EH216-S is expected to be obtained soon, after that, it will probably be the only in vitro company to succeed in the market, especially in China over time. So, as you can tell, we would have some more pricing power on the market. Further, our shelves are expected to scale up up to T2. we would also have more negotiation power with our suppliers to control our procurement costs. Therefore, it is expected that we will continue to maintain this 60% GDP margin level.
spk17: Due to time constraint, we will end the Q&A session here, and I would like now to turn the call back to Ms. Han for closing remarks.
spk19: Thank you, operator, and thank you all for participating in today's call. If you have further questions, please contact our team by email or participate in our following investor events through the calendar information provided on our website. We appreciate your interest and we look forward to our next earnings call. Thank you.
spk17: Thank you all again. This concludes the conference call today. You may now disconnect your lines. Thank you. Thank you. you Bye. Thank you. Good day, ladies and gentlemen. Thank you for standing by and welcome to the E-Hang fourth quarter 2022 and fiscal year 2022 earnings conference call. As a reminder, we are recording today's call. Now I will turn over the conference to Anne Gee, E-Hang's Senior Director of Investor Relations.
spk16: Miss Anne, please proceed. Hello, everyone.
spk19: Thank you for joining us on today's conference call to discuss the company's financial results for the fourth quarter and the fiscal year of 2022. The earnings release is available on the company's IR website. Please note that the conference call is being recorded and the audio replay will be posted on the company's IR website. On the call today, we have Mr. Hua Zhihu, our founder, chairman, and chief executive officer. Mr. Xin Fang, chief operating officer, Mr. Richard Liu, chief financial officer, and Nick Yang, an independent director of the board. The management team 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, management statement in original 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 involve inherent risks and uncertainties. As such, the company's actual results may be maturely 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 fourth quarter and fiscal year of 2022, unless stated otherwise. With that, Let me now turn the call over to our CEO, Mr. Hua Zhihu. Please go ahead, Mr. Hu.
spk09: Thank you, Annie. Hello, everyone. Thank you for attending our phone call today. Looking back at 2022, it was a year of opportunities and challenges for the industry. In the context of the changing global economy, politics, and the epidemic, we insisted on our own strategy, focusing on market certification, business development, and the construction of ecological systems, and achieved many results. Not only did it enhance the resilience of the company's long-term development, but it also further expanded the leading advantage of Yihang in the global urban air traffic field. In the fourth quarter of last year, the Yihang 216S model comprehensive audit project successfully entered the final phase of compatibility verification. But the large-scale infection of the epidemic in China from the prevention and control to the release, up to this year's Chinese Spring Festival holiday, to a certain extent delayed the progress of the relevant verification work. However, we successfully completed the manufacturing of the specialized aircraft for test flight verification at Yunfu Production Base, through a comprehensive manufacturing compatibility inspection, and in Guangzhou, Hezhou and other flying bases to carry out all kinds of compatibility verification to test flights. In February this year, the chief engineer of the Chinese Civil Aviation Bureau, the Aviation Procuratorate, the Flying Escort Department, the Air Management Office, and the authorities of the Central and Southern Bureau, and the experts of the test flight inspection team to inspect the aircraft base in Hezhou together. All parties worked together to concentrate on their work, not only effectively accelerating the TC inspection work such as EH216S verification of right and wrong, but also effectively arranging and arranging our next operation work, and further strengthening our confidence in post-operation. Until today, based on the consistent compatibility verification method reached by the Civil Aviation Bureau of China, We are actively and efficiently carrying out all kinds of comprehensive verification work, including the submission of the test tank, the laboratory test, the ground test and inspection, and the flight test. At present, we have completed and are about to complete the signature of the comprehensive verification project. The number has exceeded 70%. This means that the completion of the entire process of the EH216S test project has exceeded 90%. In the global scope, a few of them have been officially accepted by the Civil Aviation Bureau. The progress of each industry is ahead of the others. It is very difficult to take charge of this new business, but I am very proud of our team's unwavering efforts in the past few years and the innovative results obtained. At the same time, we are very grateful to the policy supervisor of the Civil Aviation Bureau of China The full support and high importance of innovative unmanned aerial vehicles We believe that in the near future Can bring you good news that has been anticipated for a long time So we believe that in 2023 Air traffic led by Yi Hang will enter the new era Looking forward to witnessing the milestone of the global UAM industry It is worth mentioning that the leader of the eVTOL industry is not only Yi Hang It is also China's market According to Morgan Stanley, the world's largest city air traffic development potential market is estimated to account for 30% of the global UAM market. In recent years, from the central government to local governments, a series of support for unmanned aerial aviation, electric aerial aviation, low-air economy, urban three-dimensional traffic, aviation tourism, and other new fields of support policies have emerged. It has provided us with a good policy and market environment, and it has also brought in government and corporate customers who are constantly growing. Later, our CEO, Mr. Fang Xin, will give you a detailed introduction. On the other hand, China is leading in the world in the upper and lower industrial chain of UAVs and the deep foundation of professional talents, as well as high cost-effectiveness and high delivery efficiency supply chain advantages, providing excellent protection for our product development, manufacturing and delivery. As a pioneer in the eVTOL industry, we will continue to actively invest in the development of the Asian market, as well as many air traffic projects in Europe, and work with local customers, partners, and the government to explore the safe, intelligent, efficient, and sustainable UAM operating system. Since then, the EH216 series AAV has accumulated more than 34,000 flights in 12 countries in Asia, Europe, and the United States. This is the world's first flight record for the E-Veto industry. We look forward to bringing more and more customers, partners and passengers to the safe, automatic, environmentally friendly and efficient E-AV solution and flight experience. In December last year, we were very happy to welcome Mr. Yang Ning as an independent board member to join the company board. Although he is a new board member, he is actually one of our old friends. Yang Ning is one of the early investors of E-AV. For many years, he has been paying attention to and witnessing the growth and development of the UAM industry. And he has more than 20 years of rich investment experience and the entrepreneurial experience of many listed companies. I believe Yang Ning's participation will provide more assistance to the growth of the new stage of the industry. Today we also invited Yang Ning to join our meeting. Later in the Q&A session, we will have the opportunity to communicate with you online.
spk19: This is the English translation of Mr. Hu's remarks. Hello, everyone. Thank you for joining our earnings conference call today. 2022 was a year of opportunities and challenges for Yiheng. Against the ever-changing backdrops of macroeconomic volatilities, political uncertainties, and a pandemic, we remained committed to our strategies, and continue to make meaningful progress during the year in our main priorities of airworthiness certification, business development, and ecosystem establishment. This not only strengthens our resilience for long-term development, but also reinforces our leadership in the global urban air mobility industry. In the fourth quarter of last year, The EH-216S type certification successfully entered the final phase of the demonstration and application of compliance. However, due to the massive infections after China lifted the COVID control policies, until this year's Chinese Spring Festival holiday, the relevant PC progress was delayed to a certain extent. But now we have manufactured the confirming aircraft for the purpose of airworthiness verification at our Yunfu production facility. passed the aircraft manufacturing conformity inspection, and are conducting compliance tests at flight bases in Guangzhou, Hezhou, and other locations. In February this year, the CDC chief engineer and officials from the Department of Aircraft Airworthiness Certification, the Department of the Flight Standards, the Office of Air Traffic Regulation, the Central and Southern Regional Administration, as well as the experts from the TC team inspect the flight base in Hezhou. We worked together effectively, and the joint efforts of all parties not only accelerated the compliance flight test and other review process in the final stage, but also made plans and arrangements for the next steps, which boosted our confidence in post-certification operations. As of today, we have been actively carrying out the work for demonstration and verification of compliance, based on the means of compliance agreed by the CAC. Our work includes submission of compliance test plans, laboratory tests, ground tests and inspections, flight tests, etc. At present, over 70% of compliance tests have been either completed or to be signed soon. It means we have substantially completed over 90% of the entire type certification process. We believe Ehang is leading among the few eVTOL type certification projects that have been officially accepted by civil aviation regulators worldwide. Although the TC process for such a new innovative aircraft is full of difficulties, I'm proud of our team's unwavering efforts and groundbreaking achievements over the past few years. At the same time, we are very grateful to China's Civil Aviation Regulator, the CAC, for their full support and high attention to this innovative AV. We believe we will bring the expected good news in the near future. Therefore, we believe Ehang will take a lead in entering a new year of air mobility in 2023 and anticipate witnessing an echo-making milestone in the global UAM industry. What is worth mentioning other than Ehang being the EVETO industry leader is the large Chinese market that we are rooted in and its huge potential for the UAM development. According to Morgan Stanley's forecast, China is expected to account for about 30% of the global UAM market. In recent years, Chinese central and local governments have introduced a series of supportive policies for emerging sectors related to unmanned civil aviation, electric aviation, low altitude economy, urban three-dimensional transportation, aviation tourism, and so on. These have provided us with beneficial policies, a favorable market environment, and a growing demand from government and enterprises' customers. Our CEO, Mr. Xinfang, will talk more about it later. On the other hand, China has been a leader in the global UAV industry. It has accumulated profound expertise in aspects of the upstream and downstream industry chain and professional talents. China has the supply chain advantages of higher cost effectiveness and delivery efficiency. These lead a solid foundation for product R&D, manufacturing, and product delivery. In overseas market, we are committed to actively engaging in the Asian market and participating in multiple air mobility projects in Europe as an EVITO pioneer. We will continue collaborating with local customers, partners, and governments to jointly explore a safe, intelligent, efficient, and sustainable UAM operational system. To date, the E-Hunt 216 series of AAVs have successfully completed over 34,000 autonomous flights across 12 countries in Asia, Europe, and Americas, which is the top flight record in the global EVADO industry. Looking ahead, we will remain dedicated to expanding our reach and bring our AV solutions and flight experiences to more customers, partners, and passengers worldwide. In December last year, we are thrilled to welcome Mr. Nick Yang join our board of directors as an independent director. Although he is a new member of the board, he is also our old friend as one of the Ehan's early investors. who has been following the company's growth and the development of the UAM industry for many years. With over 20 years of a capital markets experience and entrepreneurial experience in multiple listed companies, I believe that Nick will bring strong support to eHealth's growth in our new stage. Today, we also have Nick with us on the call, and he will be available to communicate with everyone in a Q&A session later. Next, I will turn over the call to our Chief Operating Officer, Mr. Xin Fang. Thank you.
spk10: Thank you, Vice President. Hello, everyone. Since the fourth quarter of 2022, the four projects of Yihang 216-S have been the most important in the company's work. We are very happy that we have reached the final stage. For the long-term growth of the business that has been secured, we see an advantage in the early stage. In China, with the release of the epidemic prevention policy, The tourism industry, which was previously deeply affected, has come to a rapid recovery. According to the China Tourism Research Institute, it is estimated that in 2023, the number of domestic tourists will be about 45.5 billion people. The same growth is about 80%. Domestic tourism income is about 40 million yuan. The same growth is about 95%. This is a good opportunity for our tourism customers to bring good development opportunities. Since last year, we have continued to deepen the Chinese market. to develop low-cost tourism and low-cost economy in various places, and to build a modernized comprehensive transportation system, and to implement smart cities. We will continue to work in Guangxi Guigang, Hunan Jishu, Hunan Changsha, Anfei Fangshan, Shandong Qingdao, Jiangxi Gansu, Jiangxi Jiujiang, Shaanxi Xi'an, Guangxi Hechi, Xinjiang, Guangdong, Shenzhen, and other provinces. and the local government, tourism and aviation industries to achieve a wide and deep business cooperation and industrial recovery. Since then, in China, Yihang 216 series AAV in-house orders and about to be signed orders have accumulated over the North China Sea. These orders are expected to be handed over in one to three years after approval. In addition, with the approval of the new orders from all over the country, the circulation and development of new orders is clearly expanding and growing. Recently, the Xinjiang Tourism Capital Enterprise, a listed company, announced that it and we will sign a cooperation framework agreement and plan to set up a joint venture company. In the next five years, the revenue will not be less than 120 units of Yihang 216-S or the same type of self-driving helicopter. In Tianshan, Tianzhi and other major scenic areas in Xinjiang, the first tourism project will be held. For example, in March this year, Xi'an has agreed with us to reach a strategic cooperation agreement to purchase Yihang 216 in three years. to build a self-sufficiency air city and low-altitude flight demonstration area in the northwest region. At the same time, we actively embrace the long-term strategic investors willing to grow with Yihang, such as the long-term strategic cooperation with us in the long-term strategic cooperation with us in the long-term strategic cooperation with us in the long-term strategic cooperation in the long-term strategic cooperation in the long-term strategic cooperation in the long-term strategic cooperation in the long-term strategic cooperation in the long-term strategic cooperation in the long-term strategic cooperation in the long-term strategic cooperation and provide all-round support for our local commercial operations, sales and service, production, infrastructure construction, and so on. This will lead to the development of the world-class urban air traffic demonstration application, MINGXIN 4.7. In the future, we plan to adopt a commercial strategy of sales and distribution in three units, which is to provide product sales and operations services to government and corporate customers with the principle of safety first, high standard, low cost, and high efficiency. Through a whole set of AAV command and control system platforms and UAM operating systems, it supports the development and landing of our air traffic, smart city management, and air media three major business blocks, to meet the needs of low-altitude oil, city traffic, air logistics, fire safety, medical rescue, smart city management, and air media. In the past two years, under the guidance of the Chinese Civil Aviation Bureau's first-in-line and first-out-of-the-box guidance, we have also opened 18 web sites in 16 cities in China for low-altitude tourism scenarios. In total, we have completed 8,200 countries' first-in-line and second-out-of-the-box security operations. During this process, we have trained a well-trained AAV-led operating team, developed a digitalized UAM operating management and service platform, and summarized and accumulated rich, feasible, and repeatable trial and error experience. Therefore, we have the confidence and ability to create an objective UAM flight service value with customers and partners in the future. This is also our long-term opportunity to lead the industry and other companies in the industry. In addition, we are also actively working to expand the cooperation and layout of the UAM Shanghai oil industry chain and the ecological system. For example, last October, we were very happy to join the Hong Kong Group of the Taigu Group. Here we build a post-sales maintenance service system for our customers all over the country to provide higher quality and efficient maintenance services. At the same time, we assist the continuous market after the S market verification. In the Asian and overseas markets, last year we actively developed markets such as Japan, Malaysia, Indonesia, Thailand, etc. A total of more than 200 pre-orders of Yihang 216 series products have been received, and local partners have used low-altitude tourism, diving, transportation, logistics and transportation, and other AAV applications to carry out local piloting. In February this year, we successfully realized Yihang 216's piloting flight in open air overseas in Japan. This is also the fourth piloting flight of the Japanese military's first automatic driver. In Europe, in the fourth quarter of last year, Yihang 216-S has completed the first flight in Spain, and has fully verified the concept of UAM model for the AUM-AMD-LED project. We have joined the S-AMVA project launched by the AUM Aviation Development Organization to jointly explore the traffic management concept of unmanned aerial aircraft systems. We have joined the Spanish National Police Headquarters to realize the first flight of Yihang 216-4 model, as mentioned by Fuzhou. 2023 is a very important year for Yihang. This is the English translation of Mr. Fang's remarks. Thank you, Mr. Hu, and hello, everyone.
spk19: Since the first quarter of last year, our top priority remained the TC project. We are pleased to report that we are now in the final sprint. In preparation for post-certification sustainable long-term growth, we are capitalizing our leading first mover advantages to explore both domestic and overseas markets. We have been expanding our business and cooperation opportunities throughout the entire industry chain related to air mobility and a low-altitude economy. By building up order demand, enhancing our partnership and cooperation, we are laying a solid foundation for commercial delivery and operational services following certification. In China, the tourism industry, which has seen heavy impact from COVID, has rapidly recovered this year as the control policies were lifted. The China Tourism Academy predicts that in this year, the number of domestic tourists will reach 4.55 billion, up 80% compared to last year. And the domestic tourism revenues will reach 4 trillion RMB, about 580 billion US dollars, an increase of 95% compared to last year. This presents excellent development opportunities for the low-altitude tourism, the first market where we plan to launch commercial operations after certification, as well as for our tourism industry customers. Since last year, we have been dedicated to developing our domestic market in China. Against the backdrop of micro-policies promoting low-altitude tourism and economy, building a more integrated transportation system, and developing new smart cities. We have continued extensive and deep business cooperation and industry layout with local governments, tourism and aviation enterprises in many provinces and cities, such as Guigang in Guangxi, Jishou and Changsha in Hunan, Huangshan in Anhui, Qingdao in Shandong, Ganzhou and Jiujiang in Jiangxi, Xi'an in Shaanxi, Hezhi in Guangxi, Xinjiang, Shenzhen in Guangdong, etc. To date, we have received orders for over 100 units of the E-106 series AAVs in China. These orders are expected to be fulfilled within one to three years after the TC process is completed. Additionally, With the approach of TC completion, there has been a significant growth in our customers' inquiries and demand for new orders from all over China. For example, most recently, Xiyu Tourism, a leading tourism company in Xinjiang and listed on Shenzhen Stock Exchange, announced its intention to sign a cooperation framework agreement with us. It plans to establish a joint venture and operates a minimum of 120 units of EH-216S or our comparable passenger-grade AAVs in five years for conducting low-altitude sightseeing tourism projects in key scenic locations in Xinjiang, such as the Heavenly Lake of Qianshan. Another example, in March this year, Xi'an Aerospace Investment Company signed a strategic partnership agreement and an inductive purchase order with us. They plan to buy 20 units of EHAM-216 aircraft within three years in order to develop a smart air city and a low altitude flight demonstration area in the Northwest China. Meanwhile, we welcome partnerships with strategic investors who are willing to cooperate with EHAM for long-term growth. For example, last December, Qingdao West Coast New Area reached a long-term strategic partnership with us over investment and business. It has not only provided US$10 million in investment, but will also facilitate the local government's applications of our entire product portfolio, which is expected to generate product demand worth over 100 million RMB, about US$15 million. within the next two years. They will also provide full support to our local business operations, sales and services, production and infrastructure constructions, among other things, with the goal of building Qingdao City into an outstanding world-class pilot zone for UAM demonstration and applications. In the future, We plan to adopt an integrated business strategy by both selling products and providing operational services for government and enterprises customers. Based on the principles of safety first, high standard, low cost, and high efficiency, we will utilize a complete set of AAV command and control system platform and UAM operation system to support our three major businesses. which are air mobility, smart city management, and airway media. Therefore, we are able to meet our customers' demand for diversified applications in low altitude tourism, urban transportation, airway logistics, firefighting emergency, medical rescue, smart city management, and airway media, et cetera. In the past two years, under the CAC's guidance, we have been taking a lead in carrying out trial operations while conducting type certification. To date, we have developed 18 operation spots for error sightseeing in 16 Chinese cities. More than 8,200 safe operational trial flights have been completed with EH-216 AAVs. During this process, we have cultivated a professional and well-trained AAV operation team developed a digital platform for AAV operation management and services, and accumulated rich, feasible, and replicable trial operation experience. All of these gave us input confidence and ability to create considerable UEM-wide service values together with our customers and partners in the future upon obtaining certification at the beginning of commercial operations. This is also our first mover advantages and operation benchmarks that we have built over the long term and ahead of other companies in the industry. Additionally, we have been actively working on expanding cooperation across the UEM upstream and downstream industry chains, as well as building the ecosystem. For example, we are very pleased to partner with Heco Group, a subsidiary of Swire Group in last October. This partnership plans to build an after-sales maintenance service system for e-health NAVs to provide our customers worldwide with more high-quality and efficient maintenance service while empowering our continued airworthiness following certification. In overseas markets such as Asia, Last year, we actively explored markets in Japan, Malaysia, Indonesia, and Thailand, secured more than 200 units of pre-orders for EH-216 series, and established cooperations with local partners to carry out local trial flights surrounding AV application scenarios, such as low-altitude sightseeing tours, island-hopping mobility, and logistic transportation. This February, we successfully conducted the first passenger-carrying EHAM216 demo flight in an open airspace overseas in Japan. This is also the first-ever passenger-carrying flight of an autonomous EVITO in Japan with approval. In Europe, in the fourth quarter of last year, we completed EHAM216's first flight in Spain under the EU's AMILED project to successfully verify the UAM concepts of operations. We also joined the EU SEMVA project to explore in-man aircraft system traffic management. In addition, we assisted the Spanish National Police to complete the E-126 maiden flight for their trial operations. As noted by Mr. Hu, 2023 is a crucial year for us. As the turning point of airworthiness certification approaches, Yihang and even the entire UVMA industry are about to enter into commercialization. We are prepared and confident and feel responsible to be a pioneer for commercialization in the global EVETO industry. We plan to provide earnings guidance after certification. I will now turn the call over to our CFO, Mr. Richard Liu, for financial results. Richard, please go ahead. Thank you.
spk05: Thank you, Xin. Hello, everyone. Before I go into details, please note that all numbers presented are in RMB and are for the fourth quarter and the fiscal year of 2022, unless stated otherwise. All presented 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 IELTS website. I want to highlight some of the key points here. Despite numerous uncertainty and challenges in 2022, we not only moved to the final phase of type certification, but also achieved significant progress in developing business and building an AAV ecosystem for post-certification growth. Meanwhile, we further enhanced our cost management, operational efficiency, and financial soundness, and we are optimistic to see a turning point for the expected expansion of our commercial operations and a new era for our company and the UAM industry. In Q4, total revenues were $15.7 million. an increase of 90.7% from 8.2 million in Q3. The EH216 series of AAV deliveries in Q4 were six units, up 50% from four units in Q3. For the fiscal year 2022, total revenues were 44.3 million compared with 56.8 million in 2021. The EH216 series of AAV deliveries in 2022 were 21 units, compared with 30 units in 2021. Gross margin was 66.1% in Q4, a slight increase of 0.2 percentage points from 65.9% in Q3. Gross margin was 65.9% in 2022, representing an increase of 2.5 percentage points from 63.4% in 2021, mainly attributed to the higher average selling price of EHT16 AAVs. This represents the continued high gross margin levels compared to those of other electrically powered mobility products, such as electric vehicles. as a result of our competitive strengths and first mover advantages in the global UOM and EV2 industries. In Q4, our adjusted operating expenses, which are operating expenses excluding share-based compensation expenses, were 73.2 million, compared with 59.7 million in Q3. The increase was mainly driven by the non-cash item of additional proven provisions for receivables in response to the impact of COVID into customers, and more expenditure on aircraft conformity for EH216-S in its verification process for PEP certification, with reductions in travel and marketing expenses and professional service expenses, et cetera. On annual basis, the adjusted operating expenses were $242.4 million in 2022, compared with $246.6 million in 2021. As a result, our adjusted operating loss in Q4 was $61.3 million, compared with $52.9 million in Q3. Adjusted net loss in Q4 was $59.4 million compared with $55.1 million in Q3. For the fiscal year, adjusted net loss was $206.2 million in 2022 compared with $192.8 million in 2021. Moreover, our cash balance remains solid as we have been proactively managing our cash position and assessing our liquidity. As of the end of Q4, we had $249.3 million of cash, cash equivalents, restricted cash, and short-term investments, compared with $208.8 million as of the end of Q3. In December, we formed a strategic partnership with Qingdao West Coast New Area, one of China's national new areas in Shandong Province. This partnership comes with a $10 million equity investment into the company and a potential additional investment of $10 million in the future. This serves as additional liquidity support for operations and growth. That concludes our prepared remarks. Let's now open the call for questions.
spk04: Operator, please go ahead.
spk17: Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, you can please press star 1 and 1 again. Once again, to register for question, please press star 1 and 1 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. This will take a few moments. We are now going to proceed with our first question. And the questions come from the line of Verena Cheng from Goldman Sachs. Let's ask you a question. Your line is opened.
spk03: Thank you for taking my question. I have two questions. First of all, it's about the TC progress.
spk02: Could you share when we expect to get a TC and how should we think about the timeline for the mass production delivery and also for the revenues? Is it like after one to two months we get a TC or we will have the revenues and also the cash inflow? Do we have enough time to hire the people for the mass production? And the second question is about the responsibility. Could you share if the failure happens, is there a clear line of who to take the responsibility? For example, the users, if they do not operate properly, or the component makers, if it is caused by the certain component failure, or it could be really hard to prove what reasons caused the failure, and eventually we will need to take all the responsibility. Thank you.
spk08: Hello. Yeah, this is Nick. Hi. As Mr. Hu had mentioned earlier, the TC process has completed over 90%. It's just a matter of time, and it's near the end now. If you compare with other eVeto companies' progress, I think Ehang is far ahead. Most importantly, EH216S, can anybody hear me?
spk07: Hello?
spk12: Yes, I can hear.
spk07: Yes? Am I connected? Hello?
spk17: Yes, we can hear you.
spk15: Okay, okay.
spk17: Please stay on the line. I think we've just lost the line for Nick Yang. Thank you.
spk08: Hello? Yes. Can anybody hear me? I just connected.
spk17: We can hear you, Nick.
spk08: Thank you. Sorry about that. Yes, as Mr. Hu has mentioned earlier, the TC process has completed over 90%. So it's just a matter of time that we complete the entire process, and it's near the end right now. So if you compare this to other eVTOL companies' progress, I think Ehang is very far ahead. Most importantly, EH216S is the only autonomous one among all eVTOL TC projects, as you know, while other ones are all piloted. For details, Ehang has published an illustration about the entire TC process and the checklist of key milestones it has accomplished. So we want to bring clarity to the process, and we'll update it very timely. So this will act as a status bar and it's very available on the IR website. So regarding to the post-PC production and delivery, I think it won't take much time or concern to generate revenue soon because the company has prepared for it all along by collecting more and more pre-orders beforehand. So getting, and also getting the uniform production facility to establish an operational for almost two years and the procured stocks of key components from suppliers All these efforts can shorten our lead time to delivery. So, for cost control reasons, we have over 100 workers in our manufacturing facilities. So, that's enough for the near term. But so, if needed, the company is very able to hire more local staff in the future. Okay.
spk19: And the second question will be answered by our CEO, Mr. Xin Fang, and followed by English translation.
spk15: Thank you for your question.
spk10: Regarding your question, I will answer it in several parts. First of all, the general air-to-air relationship seems to have the same effect on multiple factors. This is a very complicated process. The investigation itself can only be done with various factors and factors related to the incident to make the final judgment. In order to prevent the spread of the accident, it is necessary to be safe. In the 216-S of Yihang, the structure of the model design of the unmanned aerial vehicle is safe. In terms of communication, it is easy to be damaged. It is unlikely that the accident will be caused by a single accident. In terms of users, due to the automatic driving of our aircraft, there is no need for users to drive, so there will be no safety problems caused by users' operation, time control, and food. We will also regulate the operation and maintenance, and do our best to ensure the safety of the passengers. In terms of production manufacturing, we strictly follow the management of suppliers and production processes. According to the requirements of the Civil Aviation Bureau, the management of high-end suppliers and suppliers will be carried out, and the relevant responsibilities will be strictly followed. Okay, thank you for your questions. Firstly, on general occasions, aviation accidents are caused by the multiple factors.
spk19: And determining the safety responsibility for aircraft accidents requires a specialized investigation by relevant regulatory authorities, which is a complex process. And this investigation is required to identify various reasons and factors related to the accident before a final liability determination can be made. And in order to ensure safety and prevent accidents, we have adopted a redundancy method in the type design and the structural safety and communication of the E-106S AAV. And this ensures there is no single point of failure. And since our AAV is autonomous, the passengers on board do not need to pilot it. As a result, there is no safety hazard caused by the passenger miscontrolling of the vehicle during the flight. We will also create operation rules and provide safety instructions to the passengers to ensure their safety. And in terms of production and manufacturing, we strictly manage our suppliers and the production procedures with the high-quality standards in accordance with the requirements of the DAC, and ensuring that we can trace the original sources while determining the safety responsibilities. And in terms of operations, we will also set our standard for operators and conduct personnel training, so as to ensure the operation safety throughout the process. And at last, we provide liability insurance coverage for aviation products and passengers, as well as the relevant third parties. That is the answer to your second question. Thank you.
spk17: Once again, as a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, you can please press star 1 and 1 again. Once again, it's star 1 and 1 if you have any questions or comments at this time. Thank you. We are now going to proceed with our next question. The next questions come from the line of T. Wu from Tianfeng Securities. Please ask a question.
spk11: Hi. Thank you for the management team to take my question. I have two questions as well. First is, as e-hon is more focusing on China market, and you talk about an increasing customer demand in China, could you share more color over the total revenue in your e-hon 216 pipeline orders? Can you deliver these orders without a type certificate obtained? And my second question is, our company has secured a significant number of pre-orders in Asia, I mean, excluding China. Do these pre-orders also need type certifications in respective countries? Will your progress of type certification in China help these foreign type certifications, or is it like a whole new process all over again? Thank you so much.
spk05: Thank you, Dean. This is Richard. Let me take your questions. First of all, as discussed earlier, we currently have an order pipeline of 100 plus units of EH216 in China. And this order pipeline has been growing with increasing inquiries, discussions from more potential customers in China, especially from the tourism sectors. The related total contract value would amount to around 200 million RMB or more. And if you back up the EAP in China, you can get the corresponding driving estimate roughly around 177 million something RMB So, as put in the earliest release, most of these partner orders in China are conditional upon the TC and are expected to be fulfilled in one to three years after that. However, there are indeed some customers in China who are more sophisticated and understand that the TC is to be obtained strong and thus do not require that before the release. In respect of your second question, those pre-orders in other Asian countries usually require the local DCs. So we have been working with our local partners in communicating with the local aviation of Earth. What we have been experiencing is that the authorities in those Asian countries are open-minded to this type of innovative aerial vehicles and it's actually interested in the uses in tourism which an important industry in their respective economies So after we obtain the certification in China, we will provide a base for us to apply for the local certifications with the local aviation authorities. And we will not have to go from here. To give an example, in those Southeast Asian countries, like Indonesia, we could apply for the local PC through a called VTC process, namely validation of type certificate with the local aviation authorities. And it is expected to be a simplified process. Given so, it would help shorten the time and be more efficient for us to establish and further extend our market presence in those countries.
spk17: We are now going to proceed with our next question. The questions come from the line of Cindy Huang from Morgan Stanley. Please ask your question. Your line is opened.
spk18: Hi, management team. Thank you for taking my questions. I only have one question on margin. So Yihong currently has quite good gross margin at around 60%. And how should we think about the gross margin this year and over time, especially after we kick off commercial operations? Thank you.
spk05: Hi, thank you again. I will take your question. The current 60% cost GP margin is actually a comprehensive GP margin covering our vehicle hardware and software products and services. At the core of the company, the technology advantage actually lies in our software. So to some extent, EHAM can be regarded as a software-based technology company that integrates intelligent aerial vehicle products. And software products usually intel high-tech technologies. In addition, the TC for EH216-S is expected to be obtained soon. After that, it will probably be the only illegal company to succeed in the market, especially in China over time. So, as you can tell, we would have some more pricing power on the market. Further, our shelves are expected to scale up up to T3. It is also anticipated we would also have more negotiation power with our suppliers to control our procurement costs. Therefore, it is expected that we will continue to maintain this 60% GDP margin level.
spk17: Due to time constraint, we will end the Q&A session here, and I would like now to turn the call back to Ms. Han for closing remarks.
spk19: Thank you, operator, and thank you all for participating in 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 website. We appreciate your interest and we look forward to our next earnings call. Thank you.
spk17: Thank you all again. This concludes the conference call today. You may now disconnect your lines. Thank you.
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