EHang Holdings Limited

Good day ladies and gentlemen. Thank you for standby and welcome to the EHang first quarter 2023 earnings conference call. As a reminder, we are recording today's call. Now I will turn the call over to Angie, EHang's Senior Director of Investor Relations. Miss Anne, please proceed.

Hello everyone.

Thank you for joining us on today's conference call to discuss the company's financial results for the first quarter of 2023. The earnings release is available on the company's IR website. Please note the conference call is being recorded, and an audio replay will be posted on the company's IR website. On the call today, we have Mr. Hua Chi-Hu, our founder, chairman, and the chief executive officer, Mr. Xin Fang, chief operating officer, and Mr. Richard Liu, Chief Financial Officer. The management team will successfully give prepared remarks. Remarks delivered in Chinese will followed by English translations. All translation is for convenience purpose only. In the case of any discrepancy, the management 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 involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public findings 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 first quarter of 2023, unless stated otherwise. With that, let me now turn the call over to our CEO, Mr. Hua Zhihu. Please go ahead, Mr. Hu. Thank you, Annie.

Hello, everyone. Thank you for attending our telephone meeting today. Over the past year, with the easing of the pandemic, the tourism industry has been clearly recovering. Clients of the tourism industry are constantly growing in demand for our self-driving aircraft. However, the industry is currently at the stage of trial and error and is making selective payments to clients. In the first quarter of 2023, a total of 11 payments were made, and the revenue reached 22.2 million yuan, which increased by 42% and increased by 283%. While the income increased significantly, our net profit was still strong, and the first quarter of this year remained at a high level of 64%. At the same time, the business situation of the company was significantly improved. The management losses and net losses after adjustment In the first quarter of this year, we also received a strategic investment of US$10 million in the new district of Xinhai, Qingdao. As of now, the market market audit of Yihang 216S has come to an end and is in the stage of a comprehensive test. Its comprehensive test has also completed more than 90%. At the end of April, It has entered the sprint stage. Even so, the entire industry is still working hard day and night. With the fastest speed, I will present you with a perfect result. Here, I still want to thank the Chinese Civil Aviation Bureau for supporting the industry. During this process, I accompanied the industry day and night. At the time of completion of each project, I gave the approval at the first time. The industry is the pioneer of the industry. is also a driver of the low-altitude flight industry. Under the red light background of the national comprehensive three-dimensional transportation network, we have seen a lot of good policies related to low-altitude economy in China this year. According to the report of the National Low-Altitude Economic Integration and Innovation Research Center, in 2023, there will be 16 provincial and administrative units in the country to write government work reports on low-altitude economy. The low-altitude economy will include 20 test areas in China, Thank you.

This is the English translation of Mr. Hu's remarks. Hello, everyone. Thank you all for joining our conference call today. Since the beginning of this year, as the pandemic has eased, we have seen encouraging signs of recovery in the tourism industry. As a result, the demand for RAVs from the clients in this sector has been growing. However, our EHAM-216S is currently undergoing the process of obtaining Airworthiness certification and we are fulfilling customer orders with discernment. In Q1 2023, we delivered a total of 11,816 series AAVs, resulting in a revenue of $22.2 million. This represents an increase of 42% compared with the previous quarter and an increase of 283% year-over-year. Along with the considerable surge in revenue, our gross margin remains strong. maintaining a high level of 64% in the first quarter. Meanwhile, our operational performance has shown significant improvement. Both adjusted operating loss and adjusted net loss have significantly narrowed, representing an improvement of 44% compared with Q4 last year. Additionally, e-health cash position remains healthy, and a strategic investment of 10 million US dollars by Qingdao West Coast New Area was closed in the first quarter. So far, the EH-216S Air Washington certification has been at the last phase of demonstration and verification of compliance, and we have completed over 90% of the compliance test. We entered into the final sprint in late April. Even so, Our dedicated EHAM team remains tirelessly committed to providing a flawless performance report as soon as possible. I would like to extend my sincere gratitude to the CAC for their unwavering support to EHAM, their commitment throughout this process day and night, and their prompt approvals for the completions of each subject. Yi Hang is not only an industry pioneer, but also an advocate for low altitude air mobility. Against the macro policy background of a comprehensive national transport network, we have seen that China has established a range of favorable policies regarding the low altitude economy since the beginning of this year. Per the report of the National Low Altitude Economy Integration and Innovation Research Center, 16 provincial governments have included specific provisions related to the low altitude economy in their 2023 government work reports. These government initiatives focused on the airman aviation industry within the 20 designated experimental zones across China, demonstrating vigorous policy support and creating an environment conducive to further exploration of the AAV market across China. During this period, we are also relentlessly broadening our international collaborations and delivering products. We are glad to explore urban air mobility alongside our customers and partners from more countries. Next, I will hand over the call to our Chief Operating Officer, Mr. Xin Fang. Thank you.

Thank you, Director Fu. Hello, everyone. On the one hand, we will continue to work hard to complete the final stage of the four lines of the 216-S. On the other hand, we continue to expand new opportunities in and out of the sea with the help of the excellent AAV products, including signing new customers, conducting flight demonstrations and testing, and interacting with the industry after the recession. After the epidemic anti-aircraft policy was lifted, we were very happy to see that the domestic tourism industry had a strong recovery trend. A very prominent example is that according to data from the Chinese Culture and Tourism Department During the five-day holiday period, domestic tourism travel has increased by 71% to 27.4 billion In the same period of 2019 before the epidemic, 119% This trend is very conducive to the low-cost tourism commercial market that we value So that potential customers have more funds and motivation to consider the growth of the planet at different points Because of its great market growth potential, low-cost tourism has become an application scene for us to plan and cut roads after starting. The policy and policy of developing low-cost tourism and low-cost economy, which are closely involved in many places, is also a key force in our business plan. For example, Shenzhen for the first time this year has written a low-cost economy into a government work report, and promoted the regulation of Shenzhen's low-cost economy industry as a key legislative project to promote the development of low-cost economy high quality. and strive to create the world's first urban air traffic, QAM demonstration. We have been working tirelessly to discover more areas in China, so that we can work closely with local government departments and top-down cooperation partners to explore the opportunity to develop urban air traffic and low-air oil. In the first quarter, in China, Guangxi, Anfei, Jiangsu, Guangdong, and Japan, we completed the sales and exchange of Yihan216. Among them, in Guangxi's Shiji Land Park, the famous Kast land trade tourist destination, Fengshan, Sanmenhai, Shijiajing, bought us six Yihang 216-S aircraft, and completed all the delivery in the first stage. The client opened a low-altitude tour in the local area, reached Guangxi's first low-altitude flight base, and opened a new way of leisure tourism in the beautiful scenery of Fengshan from the sky. In addition, we and Xinjiang Liyou Longtao Company, a listed company in Xinjiang, Xiyu Liyou, officially signed, In March of this year, we also reached a strategic cooperation with Xi'an Airlines in the field of urban air traffic and smart cities. Under this cooperation, we received a total of 20 pre-purchased orders of 216-S. Customers are expected to complete the pre-purchase before 2025. In general, domestic delivery and potential pre-purchase orders have shown a positive attitude with the resumption of the tourism industry. We will also continue to lend a hand to commercial delivery and operations after the start-up. At the same time, We are still continuing our domestic trial steps. Since then, we have developed 19 of Yihan 216-S trial network points with customers across 17 cities in China. There are about 8,800 safe and easy-to-use sites around the application scene of air-to-air travel. In other countries, Asia is our most concerned market. Last year, after we opened up many new customer cooperation partners in East Asia and Southeast Asia, In February of this year, we were extremely excited to realize that Yihang 216-S, the first self-driving aircraft in Japan, flew with Vito. It is also the first self-driving aircraft to be deployed overseas, showing our leading advantage in the safety and reliability of self-driving aircraft products, as well as the recognition of the overseas public. In April of this year, Yihang joined the Japanese Economic Industry Commission to set up a comprehensive air traffic policy cooperation committee, The membership fee is intended to coordinate with the global government departments and enterprises to deal with the applications of drones in Japan, including the large-scale relationship live broadcast fee in 2025. Yihang is the only autonomous driver-only company in China with 56 membership fees. I believe that through our leading AAV technology and the first pilot experience in six cities and cities in Japan, it will play a leading role in demonstrating and leading the development and transformation of local advanced air traffic. At the same time, we are also in Europe, the Middle East, South America and other overseas markets to carry out active exploration and business cooperation. By the end of May, the aircraft carrier of the Y-2A6 series fighter aircraft has reached 12 countries in Asia, Europe and the United States. The safety of the aircraft has been more than 37,000 times. This is the world's leading aircraft carrier in the micro industry. We are willing to explore the safe, intelligent, and new UAM industry with our partners abroad in more countries to become more passengers and bring unique, environmentally friendly, and efficient flight feelings. Again, I would like to announce that we will participate in the Paris Air Show in June this year. On this world-wide largest international aviation and aerospace exhibition, we will present our advanced Yifang 216-S automatic driving aircraft and participate in a series of city air traffic theme activities. share our value and experience, and welcome global investors to visit and interact with us. In the future, we will insist on coordinating with Shen Ying, making a breakthrough for Qizhenhao's commercial concept, and becoming a pioneer in the industry. With our unique AAV leading technology and pioneering advantages, we have gained an objective customer base and 400 billion experience. Therefore, we are fully aware of the discovery and creation value of the UAM market, which is growing day by day. Next, please welcome our chief financial officer, Richard, to introduce the financial situation. Thank you.

This is the English translation of Mr. Xinfeng's remarks. Thank you, Mr. Hu, and hello, everyone. During the first quarter, we continued to advance towards the final stage of airworthinessification for the Yihang 216S. On the other hand, we further expanded new opportunities, both domestically and abroad, with our cutting-edge AEV product, including signing up new customers and conducting flight demonstrations and tests. These endeavors are instrumental to pave the way for future commercial deliveries and operations once the certification process is successfully completed. Following the lifting of epidemic restrictive policies, we were delighted to see a strong recovery in domestic tourism market. A noteworthy example is, according to the data from China's Ministry of Culture and Tourism, A year-on-year increase of 71% in domestic tourism trips during the Labor Day holiday period in May, reaching a total of 274 million trips, representing 119% of the pre-epidemic level in the same period of 2019. This trend is very beneficial to the commercial low-altitude tourism market that we are targeting. and this allows for potential customers to have more capital and motivation to consider utilizing AAVs at various attractions for higher growth. Considering its huge market growth potential, low-altitude tourism has become the primary target market we plan to tap into after obtaining certification. Our business plan is also supported by the guidelines and policies introduced by multiple governments to foster the development of the low-altitude tourism and economy. For example, Shenzhen included the low-altitude economy in its government work report in the first time this year and made the Shenzhen Special Economic Zone Low-Altitude Industry Promotion Regulations a key legislative project. committed to building the world's first urban mobility demonstration city and boosting the high quality development of the low altitude economy. We have been actively seeking cooperation opportunities with local domestic government departments or upstream and downstream partners for exploring prospects in the development of urban mobility and low altitude tourism. In the first quarter, we delivered Ehang 216S AAVs to Guangxi, Anhui, Jishou, Guangdong in China, and Japan overseas. Among these deliveries, Fengshan Sanmenhai 4A Scenic Area, renowned Karst landscape tourist attraction located in Guangxi, purchased a total of six Ehang 216S units from us, all of which were delivered within the first quarter. The customer plans to launch low-altitude tours locally, creating the first low-altitude fat camp in Guangxi. This initiative aims to offer a unique and innovative way for tourists to enjoy the breathtaking beauty of Fengshan from the sky, providing an exceptional experience of leisure and sightseeing. In addition, we have officially signed a cooperation framework agreement with Xiyu Tourism Development Company, a leading Xinjiang tourism company listed on the Shenzhen Stock Exchange. This cooperation compromised our plans for us to establish a joint venture in developing low-altitude sightseeing businesses in Xinjiang's major scenic spots, like the Tianshan Heavenly Lake. The cooperation is expected to operate at least 120 units of EH-216S or comparable passenger-carrying AAVs within the next five years. We've seen an increasing number of cultural tourism customers who intend to actively integrate high technology with traditional services to bring vitality into the industry's development. Additionally, this March, we're entering into a strategic partnership with Xi'an Aerospace Investment Science and Technology Development Holdings Group for urban air mobility and smart city development. Under this partnership, we have received an indicative order for 20 units of Ehang 216S that is anticipated to be finalized by 2025. To summarize, the tourism revival is propelling a positive change in the domestic deliveries and potential orders. By seizing this momentum, we will continue to drive up commercial deliveries and operations after certification. Meanwhile, our travel operations in China are still ongoing. To date, we have developed 19 EH-216S travel operation spots in collaboration with our customers across 17 cities nationwide. Primarily for low altitude tourism scenarios, our EH-216S have successfully completed around 8,800 safe travel flights. Internationally, Asia stands as our principal regional focus. Following our expansion and partnerships established across East and Southeast Asia last year, this February, our EHAM 216 SAV completed its first passenger-carrying autonomous flight demonstration within Japan, which has also marked its first passenger-carrying flight in an open airspace outside China. The demonstration reflects the safety and the reliability of RIAVs and the recognition from international regulatory authorities. As of April, EHAM became a member of the Public-Private Committee for Advanced Air Mobility, established by the Japan's Ministry of Economy, Trade and Industry and the Ministry of Land, Infrastructure, Transport and Tourism. aims to engage in a collaborative effort with global government and corporate entities to advance the usage of aircraft within Japan, including at Expo 2025 Osaka Kansai Japan. Ehang, as the only autonomous vehicle company among the 56 committee members, is poised to leverage its pioneering AV technology and trial flight experience in six Japanese cities, to catalyze the growth and the revolution of advanced air mobility in the country. Simultaneously, we are actively seeking out and fostering partnerships in overseas markets like Europe, the Middle East, and South America. As of the end of May, the EHM-216 series AAV had conducted over 37,000 safe child flights across 12 countries in Asia, Europe, and Americas, which is among the highest flight records in the global eVeto industry. We are willing to work with customers and partners from more countries to explore safe, intelligent, and innovative UMA industry so as to bring unique, environmentally friendly, and efficient flight experience to more passengers. I'd like to note that EHAM will participate in the upcoming Paris Air Show this June. At this world-renowned aviation and aerospace exhibition, we will showcase our advanced EHAM 216S AAV and partake in a series of urban air mobility-themed events to share our value and experience. We warmly invited global investors to join us for discussion during this event. Moving forward, we remain committed to the principle of conducting trial operations while going through the airworthiness certification process, thereby paving the way for a crucial pivot towards post-certification commercialization. As an industry first mover, we have harnessed our unique AEV leading technology and a first mover advantage to build a robust customer base and a substantial trial operation experience. remain optimistic about discovering as well as creating values in the growing UN market. Next, our Chief Financial Officer, Richard, will shed light on our financial status. Thank you.

Thank you, Xin. Hello, everyone. Before I go into details, please note that all numbers presented are RMB and are for the first quarter of 2023 unless stated otherwise. All percentage changes are on a quarter-over-quarter basis unless otherwise specified. Detailed analysis are contained in an earnings press release, which is available on our IR website. I will now highlight some of the key points here. Following the listing of China's zero COVID policies, we have observed a robust resurgence in the tourism industry in China, attributable to the significant lessen demands for travel. Together with favorable policies, These have been driving up demands and inquiries for AAVs recently. These phenomena are in alignment with our current strategic business development focus on aerial tourism. As such, we are confident in our future growth prospects and capabilities in growing our post-certification AAV order pipeline going forward. In Q1, total revenues were 22.2 million, up 41.6% from 15.7 million in Q4, primarily driven by the increase in the sales volume of EH216 series AAV products. The deliveries of EH216 series AAVs in Q1 were 11 units, an 83% increase from six units in Q4. Growth margin was 63.9% in Q1, a slight decrease of 2.2 percentage points from 66.1% in Q4. Despite this minor fluctuation, our gross margin maintains at a high level compared to those of other electrically powered mobility products such as electric vehicles. This is a result that attests to our competitive strengths and first mover advantages in the global UOM and EVTO industries. In Q1, our adjusted operating expenses, which are operating expenses excluding share-based compensation expenses, were $50.1 million, compared with $73.2 million in Q4. The decrease was mainly attributed to the non-cash item of additional proof of provisions for receivables in response to the COVID impact on customers in Q4 last year. while there were increased expenditures for aircraft conformity and compliance tests in the final phase of the EH-216S type certification this quarter. As a result, our adjusted operating loss in Q1 was 34.3 million, a significant improvement of 44.1% from 61.3 million in Q4. Adjusted net loss was 33.6 million, a 43.5% improvement from 59.4 million in Q4. Moving on to our balance sheet, we maintain a prudent approach in managing our cash position and assessing our liquidity. As of the end of Q1, we had 217.6 million of cash, cash equivalents, restricted cash, restricted short-term deposits, and short-term investments. This includes a 10 million US dollar strategic investment made by the Qingdao West Coast New Area in Q1, which provides additional liquidity support to bolster our operations and growth. That concludes our prepared remarks. Let's now open the call questions.

Operator, please go ahead.

Thank you. If you wish 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, please press star 1 and 1 again. Once again, if you would like to ask a question, please press star 1 and 1 on your keypad. We will now take our first question. Please stand by. This is from the line of Farina Jeng from Goldman Sachs. Please go ahead.

Thank you. Thank you management team for the presentation. Two questions from me. First is about the TC progress. We have completed over 90% of the progress. So wondering if there is any timeline for the rest of 10%. And are there any hurdles going forward? My second question is about the following quarter outlook. So we delivered a strong sales volume and also the revenues in first quarter. So just wondering if we see the strong momentum to continue in the following quarters. Thank you.

Thank you.

First of all, we have to say that in the last stage of TC, we have completed more than 90% of the experiments. This is a very difficult thing. In this process, we and the domestic and local multi-stakeholder, rich in experience and knowledge, professional experimental units and experimental sites are closely cooperating. Please encourage the farmers to take part in the three-part trial meeting with the TC Procuratorate of China. We worked hard to complete a large number of experimental tests, ground and flight tests, including 3D system tests, environmental tests, material tests, structural strength tests, software tests, mobile communication and network tests, ground control tests, and so on. In other words, from hardware and software levels, we have verified the safety and reliability of the Yihang 26GS aircraft. The following 10% of the tests, we are also working hard to advance to the next stage, which is the final stage. I believe it will be completed soon. At present, we see that there is no major problem, because we have already sold the most difficult card. The final stage of the test work is mainly a matter of time. After the test is completed, we will give the test results to the Civil Aviation Bureau for review, waiting for the final approval from the Civil Aviation Bureau to TC.

This is the English translation of Mr. Fang's answer to your first question. First, I'd like to highlight that we are currently in the final phase for obtaining our TC, which over 90% of the compliance tests successfully completed. And this has been a considerable undertaking. Throughout this process, we worked closely with multiple professional test sites and facilities in China that have extensive aviation experience and credentials. We conducted hundreds of specific review meetings with the TCTM and diligently performed numerous laboratory tasks, ground tasks, and flight tasks, step by step, according to our plans. And this test ranged from battery, environmental, materials, and structural strengths to software, communication, and data link, and ground control station. And this enabled us to verify the safety and airworthiness of our EHAM 216S aircraft from both the hardware and software perspectives. And for the remaining roughly 10% tests, we are in the final sprint and expect to finish them as soon as possible in the near term. At this stage, we do not see any major obstacles, as we have already overcome the most difficulties. And our test work in this final phase is essentially a matter of time now. After we completed the test, we have submitted and will continue to submit the test reports to the CAC for their review and approval and issuing the certificate. Here I want to express my gratitude for everyone's attention, interest, and patience during this process.

And please stay tuned for our updates.

The rapid growth in sales and input in the first quarter is mainly due to the rapid recovery of the domestic tourism market after the pandemic. In addition, the customers of tourism industries are actively attracting customers' core demands and the policy promotion of low-end tourism in various places, and they are actively influencing the innovative technology products of the automatic driver. As a new growth point that stimulates the activity of the traditional literature industry, we are actively working on it. such as Xinjiang's Xiyu, Guangxi's Fengshan, etc. Therefore, we can see that the popularity of domestic tourism will continue to decline in the next few seasons. Then the order of tourism customers will continue to increase. In terms of the pace of interaction, we will mainly use TCA certification as the premise. In respect of your second question,

The notable increase in our Q1 sales and revenues is primarily attributed to the rapid recovery of the domestic tourism market post-pandemic. And additionally, driven by both the core needs for attracting visitors to the scenic sports, as well as the favorable policies for encouraging the low-altitude aerial tourism all over China, our tourism customers have shown keen interest in utilizing our innovative AABs in their tourism business. And they are actively tapping into this market because they believe our AABs can drive up their growth and revive the traditional tourism industry. The customers in the first quarter like Xinjiang Xiyu Tourism and Guangxi Fengshan are good examples. And as such, we foresee that the domestic tourism will maintain the trend throughout the following quarters. And consequently, it is expected to have a growing order pipeline from the tourism customers. And in terms of the delivery pace, based on the opinion of TC, we expect a gradual increase in deliveries after TC. And the few units delivered before TC are mainly for the customers' internal testing, training, and trial flights, et cetera. and post the TC will gradually fulfill the current dramatic order pipeline of more than 100 units for the requirements of our customers and put them into operation.

Thank you.

Thank you. We'll now move to the next question. Please stand by. And this is from the line of D. Wu from Tiang Feng Securities. Please go ahead.

Hi. Thank you, management team, for taking my questions. I have two questions as well. My first question is, as there are many evolutable use cases with great potentials in the emerging urban air mobility industry, why do you choose the aerial tours as the initial target market to tap into? Could you please elaborate on your thinking behind that? And my second question is, what's your cooperating or cooperation mode with your tourist customers?

Thank you so much.

Hi, this is Richard. I will take the question. Basically, we have found that the aerotourism or aerosycine is a use case which is very suitable as an initial target market for AH216SAV. First of all, it has immediate company needs that are sufficiently sizable but not well served by traditional solutions such as helicopters. According to an estimate published, some of you have known, by the China Air Transport Association, the potential market size would amount to 58.5 billion RMB, roughly 8.5 billion US dollars. Secondly, air sightseeing is the type of experiential services and novelty and experience are attractions. Does the end customer or passengers are not very price sensitive? This will help with the economic viability of the services and provide more room for pricing. Thirdly, compared to traditional helicopters, our EH-216S AAVs are inherently safer, have lower level of noise and more pilot costs and much lower acquisition and maintenance costs, and are more eco-friendly and economical due to being electrically powered. Further, it is easier and more efficient to operate the frequent multiple flight routes given the autonomous modes of the EH216S-AE and the cluster management by our command and control system. With all these advantages, our EH216S AAVs have been recognized by tourism operators as a new solution, not just to meet the existing needs, but to meet more needs for ARSIC uses. Policy-wise, the State Council and the CAAC in China have been promoting the integrated development of general aviation and tourism. aiming to establish aerial tourism networks in scenic spots, resorts, theme parks, and other tourist destinations. And recently, as everybody can see, the tourism industry in China has been quickly recovering from the COVID impact after release of the restrictions. Further, given the similar point-to-point passenger transportation feature, that the aerial tourism or aerial sightseeing use case also has. It is essentially a typical urban air mobility use case that is located in scenic areas. Thus, it can provide a very good foundation for us to accumulate operational experience for our strategic goal to offer urban mobility service such as air commuting in cities in the near future. So these are some of our main thoughts behind this strategic approach. And we believe AERA tourism presents an excellent opportunity for our EH216S AAVs as an initial market that has already been sited by itself. In respect of your second question, the cooperation mode or models with our tourism operator customers or partners, we have been exploring different models. So far, they can be summarized in two basic scenarios. First of all, we can sell our EH216S AAVs to the tourism operators, and they can operate the AAVs themselves to offer aerial sightseeing services to their tourist passengers. We will provide necessary support to them, such as training, initial setup, technical support, etc. In this case, we are essentially an AAV product provider and the related revenues would be mainly generated from product sales. Secondly, we can carry our hedge to 16 SAVs to cooperate with the tourism operators. They can open up their scenic areas to us and we will offer our AAVs to offer area sightseeing services to the tourist passengers. In this case, we are essentially an AAV operational service provider and the related revenues would be mainly generated from operational services. In reality, there would be more different cooperation models based on the special needs and conditions of different parties. So this is basically my answer to your question. Thank you.

Thank you so much. Thank you. Seeing no more questions in the queue, let me turn the call back to Ms. Anne for closing remarks.

Thank you, operator. Thank you all for participating in today's call. If you have any further questions, please contact our IR team by email or participate in our following investor events through the calendar information provided on our website. And we appreciate your interest and look forward to our next learning call. Thank you.

Thank you all again. This concludes the call. You may now disconnect. Thank you.

Thank you. Thank you. Thank you. Thank you. Thank you.

Good day, ladies and gentlemen. Thank you for standby and welcome to the Ehang first quarter 2023 earnings conference call. As a reminder, we are recording today's call. Now I will turn the call over to Angie, Ehang's senior director of investor relations. Miss Anne, please proceed.

Hello, everyone.

Thank you for joining us on today's conference call to discuss the company's financial results for the first quarter of 2023. The earnings release is available on the company's IR website. Please note the conference call is being recorded, and an audio replay will be posted on the company's IR website. On the call today, we have Mr. Hua Chi-Hu, our founder, chairman, and the chief executive officer, Mr. Xin Fang, chief operating officer, and Mr. Richard Liu, Chief Financial Officer. The management team will successfully give prepared remarks. Remarks delivered in Chinese will followed by English translations. All translation is for convenience purpose only. In the case of any discrepancy, the management 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 involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public findings 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 first quarter of 2023, unless stated otherwise. With that, let me now turn the call over to our CEO, Mr. Huang Zhihu. Please go ahead, Mr. Hu. Thank you, Annie.

Hello, everyone. Thank you for attending our telephone meeting today. Over the past year, with the easing of the pandemic, the tourism industry has been clearly recovering. Clients of the tourism industry are constantly growing in demand for our autonomous pilot aircraft. However, Yihang is currently at the stage of auditing the market and making selective payments to customers. In the first quarter of 2023, a total of 11 payments were made, and the revenue reached 22.2 million RMB. The net profit increased by 42% and the net profit increased by 283%. While the income increased significantly, our profit margin remained strong. This year, the first quarter remained at a high level of 64%. At the same time, the company's business situation was significantly improved. The management losses and net losses after adjustment In the first quarter of this year, we also received a strategic investment of US$10 million in the Qingdao West Coast New Area. So far, the market analysis of Yihang 216S has come to an end and is in the stage of a comprehensive test. Its comprehensive test has also completed more than 90%. At the end of April, China is the pioneer of the industry. is also a driver of the low-altitude flight industry. Under the red light background of the national comprehensive three-dimensional transportation network, we have seen a lot of good policies related to low-altitude economy in China since this year. According to the report of the National Low-Altitude Economic Integration Innovation Research Center, in 2023, there will be 16 provincial and administrative units in the country to write government work reports on low-altitude economy. The low-altitude economy will include 20 test areas in China, Thank you.

This is the English translation of Mr. Hu's remarks. Hello, everyone. Thank you all for joining our conference call today. Since the beginning of this year, as the pandemic has eased, we have seen encouraging signs of recovery in the tourism industry. As a result, the demand for RAVs from the clients in this sector has been growing. However, our EHAM 216S is currently undergoing the process of obtaining Airworthness certification and we are fulfilling customer orders with discernment. In Q1 2023, we delivered a total of 11 816 Series AEVs, resulting in a revenue of $22.2 million. This represents an increase of 42% compared with the previous quarter and an increase of 283% year-over-year. Along with the considerable surge in revenue, our gross margin remains strong. maintaining a high level of 64% in the first quarter. Meanwhile, our operational performance has shown significant improvement. Both adjusted operating loss and adjusted net loss have significantly narrowed, representing an improvement of 44% compared with Q4 last year. Additionally, e-health cash position remains healthy, and a strategic investment of 10 million US dollars by Qingdao West Coast New Area was closed in the first quarter. So far, the EH-216S airworthiness certification has been at the last phase of demonstration and verification of compliance, and we have completed over 90% of the compliance test. We entered into the final sprint in late April. Even so, Our dedicated EHAM team remains tirelessly committed to providing a flawless performance report as soon as possible. I would like to extend my sincere gratitude to the CAC for their unwavering support to EHAM, their commitment throughout this process day and night, and their prompt approvals for the completions of each subject. Yi Hang is not only an industry pioneer, but also an advocate for low-altitude air mobility. Against the macro policy background of a comprehensive national transport network, we have seen that China has established a range of favorable policies regarding the low-altitude economy since the beginning of this year. Per the report of the National Low-Altitude Economy Integration and Innovation Research Center, 16 provincial governments have included specific provisions related to the low-altitude economy in their 2023 government work reports. These government initiatives focused on the airman aviation industry within the 20 designated experimental zones across China, demonstrating vigorous policy support and creating an environment conducive to further exploration of the AAV market across China. During this period, we are also relentlessly broadening our international collaborations and delivering products. We are glad to explore urban air mobility alongside our customers and partners from more countries. Next, I will hand over the call to our Chief Operating Officer, Mr. Xin Fang. Thank you.

Thank you, Director Fu. Hello, everyone. On the one hand, we will continue to work hard to complete the final stage of the four-row water control in the first line 216-2. On the other hand, we continue to expand new opportunities in and out of the sea with the help of the excellent AAV products, including signing new customers, conducting flight demonstrations and testing, and working together for the commercial delivery and operation after the suspension. After the implementation of the anti-aircraft policy, we are very happy to see that the tourism industry in China has a strong recovery trend. A very prominent example is that according to data from the Chinese Culture and Tourism Department During the five-day holiday period, domestic tourism and travel have increased by 71% to 27.4 billion In the same period of 2019 before the epidemic, 119% This trend is very conducive to the low-cost tourism and tourism commercial market that we value So that potential customers have more funds and motivation to consider the growth of the planet at different points Because of the growing potential of the largest market, low-cost tourism has become an application scene for us to plan ahead of time after starting. The policy and policy of developing low-cost tourism and low-cost economy, which are closely involved in many places, is also a key force in our business plan. For example, this year in Shenzhen, the first low-cost economy was written into the government work report, and the Shenzhen Economic Specialty Low-Cost Economy Industry Improvement Regulation as a key legislative project to promote the development of low-cost economy high quality. and to create the world's first urban air traffic, QAM. We have been working tirelessly to discover more areas in China, so that we can work closely with local government departments and top-down cooperation partners to explore the opportunity to develop urban air traffic and low-air oil. In the first quarter, we completed sales and delivery of Yihang 216-S in China, Guangxi, Anhui, Jiangsu, Guangdong, and Japan. which is located in Guangxi's Shijidi Park, a famous tourist destination of Kast. Fengshan, the capital city of Shanmen Sea, has purchased six Yihang 216-S aircraft from us, and delivered them all at level 1. Customers can travel in low-altitude in the local area, reach Guangxi's first low-altitude flight base, and open up a new way to relax in the beautiful scenery of Fengshan from the air. In addition, we and Xinjiang Tourism Corporation, a listed company in Xinjiang, Xiyu Tourism, have officially signed We see that more and more civil engineering customers are actively combining high-tech with traditional civil engineering to introduce new vitality for industry development. In March of this year, we also reached a strategic cooperation with Xi'an Airlines in the area of air traffic and self-delivered cities. Under this cooperation, we received 20 E-Hang 216-S pre-purchased orders. Customers are expected to complete the purchase by 2025. In general, domestic delivery and modern delivery orders have a positive attitude with the resumption of the tourism industry. We will also continue to use this trend as a starting point for commercial delivery and operation. At the same time, We are still continuing our domestic trial steps. Since then, we have developed 19 of Yihan 216-S trial network points with customers across 17 cities in China. There are about 8,800 safe and easy-to-use sites around the application scene for air-conditioning. In overseas, Asia is our most concerned other market. Last year, after we opened up many new customer cooperation partners in East Asia and Southeast Asia, In February of this year, we were extremely excited to realize that Yihang 216-S, which is the first automatic driver in Japan, is in charge of manned flight. It is also the manned manned flight that is open to the public overseas, showing our leading advantage in the safety and cost-efficiency of automatic flight aircraft products, as well as the recognition of overseas public authorities. In April of this year, Yihang joined the Japanese Economic Industry Commission to create the advanced air traffic policy cooperation committee, The membership fee refers to the application of the joint global government department and enterprises to transport aircraft in Japan, including a large-scale relationship service fee in 2025. Yihang is the only autonomous driver-only company in China with 56 membership fees. I believe that through our leading AAV technology and the first pilot experience in six cities and cities in Japan, it will play a leading role in demonstrating and leading the development and transformation of local advanced air traffic. At the same time, we are also in Europe, the Middle East, South America and other overseas markets to carry out active exploration and business cooperation. By the end of May, the aircraft carrier of the Y-2A6 series aircraft carrier has reached 12 countries in Asia, Europe and the United States. The safety of the aircraft has been more than 37,000 times. This is the world's leading aircraft carrier in the micro-industry industry. We are willing to explore the safe, intelligent, and new UOM industry with customers from more countries, so that more passengers can enjoy unique, environmentally friendly, and efficient flight feelings. I would like to announce that we will participate in the Paris Air Show in June this year. On this world-wide largest international aviation and aerospace exhibition, we will present our advanced Yifang 216-S automatic passenger aircraft, and participate in a series of city air traffic theme activities. share our value and experience, and welcome global investors to visit and interact with us. In the future, we will insist on coordinating with Shen Ying, making a breakthrough for the commercialization of Qizhou, and being the pioneer of the industry. With our unique AAV leading technology and pioneering advantages, we have gained an objective customer base and 400 billion experience. Therefore, we are fully aware of the development and growth of the UAM market in Japan. Next, I would like to invite our chief financial officer, Richard, to introduce the financial situation. Thank you.

This is the English translation of Mr. Xinfeng's remarks. Thank you, Mr. Hu, and hello, everyone. During the first quarter, we continued to advance towards the final stage of airworthiness certification for the Yihang 216S. On the other hand, we further expanded new opportunities, both domestically and abroad, with our cutting-edge AEV product, including signing up new customers and conducting flight demonstrations and tests. These endeavors are instrumental to pave the way for future commercial deliveries and operations once the certification process is successfully completed. Following the lifting of epidemic restrictive policies, we were delighted to see a strong recovery in domestic tourism market. A noteworthy example is, according to the data from China's Ministry of Culture and Tourism, A year-on-year increase of 71% in domestic tourism trips during the Labor Day holiday period in May, reaching a total of 274 million trips, representing 119% of the pre-epidemic level in the same period of 2019. This trend is very beneficial to the commercial low-altitude tourism market that we are targeting. and this allows for potential customers to have more capital and motivation to consider utilizing AAVs at various attractions for higher growth. Considering its huge market growth potential, low-altitude tourism has become the primary target market we plan to tap into after obtaining certification. our business plan is also supported by the guidelines and policies introduced by multiple governments to foster the development of the low-altitude tourism and economy. For example, Shenzhen included the low-altitude economy in its government work report in the first time this year and made the Shenzhen Special Economic Zone Low-Altitude Industry Promotion Regulations a key legislative project. committed to building the world's first urban mobility demonstration city and boosting the high quality development of the low altitude economy. We have been actively seeking cooperation opportunities with local domestic government departments or upstream and downstream partners for exploring prospects in the development of urban mobility and low altitude tourism. In the first quarter, we delivered Ehang 216S AAVs to Guangxi, Anhui, Jishou, Guangdong in China, and Japan overseas. Among these deliveries, Fengshan Sanmenhai 4A Scenic Area, renowned Karst landscape tourist attraction located in Guangxi, purchased a total of six Ehang 216S units from us, all of which were delivered within the first quarter. The customer plans to launch low-altitude tours locally, creating the first low-altitude fat camp in Guangxi. This initiative aims to offer a unique and innovative way for tourists to enjoy the breathtaking beauty of Fengshan from the sky, providing an exceptional experience of leisure and sightseeing. In addition, we have officially signed a cooperation framework agreement with Xiyu Tourism Development Company, a leading Xinjiang tourism company listed on the Shenzhen Stock Exchange. This cooperation compromised our plans for us to establish a joint venture in developing low-altitude sightseeing businesses in Xinjiang's major scenic spots, like the Tianshan Heavenly Lake. The cooperation is expected to operate at least 120 units of EHAM-216S or comparable passenger-carrying AVs within the next five years. We've seen an increasing number of cultural tourism customers who intend to actively integrate high technology with traditional services to bring vitality into the industry's development. Additionally, this March, we're entering into a strategic partnership with Xi'an Aerospace Investment Science and Technology Development Holdings Group for urban air mobility and smart city development. Under this partnership, we have received an indicative order for 20 units of EHAM 216S that is anticipated to be finalized by 2025. To summarize, the tourism revival is propelling a positive change in the domestic deliveries and potential orders. By seizing this momentum, we will continue to drive up commercial deliveries and operations after certification. Meanwhile, our travel operations in China are still ongoing. To date, we have developed 19 EH-216S travel operation spots in collaboration with our customers across 17 cities nationwide. Primarily for low altitude tourism scenarios, our EH-216S have successfully completed around 8,800 safe travel flights. Internationally, Asia stands as our principal regional focus. Following our expansion and partnerships established across East and Southeast Asia last year, this February, our EHAM 216 SAV completed its first passenger-carrying autonomous flight demonstration within Japan, which has also marked its first passenger-carrying flight in an open airspace outside China. The demonstration reflects the safety and the reliability of RIAVs and the recognition from international regulatory authorities. As of April, EHAM became a member of the Public-Private Committee for Advanced Air Mobility, established by the Japan's Ministry of Economy, Trade and Industry and the Ministry of Land, Infrastructure, Transport and Tourism. This committee aims to engage in a collaborative effort with global government and corporate entities to advance the usage of aircraft within Japan, including at Expo 2025 Osaka Kansai Japan. Ehang, as the only autonomous vehicle company among the 56 committee members, is poised to leverage its pioneering AV technology and trial flight experience in six Japanese cities, to catalyze the growth and the revolution of advanced air mobility in the country. Simultaneously, we are actively seeking out and fostering partnerships in overseas markets like Europe, the Middle East, and South America. As of the end of May, the EHM-216 series AAV had conducted over 37,000 safe trial flights across 12 countries in Asia, Europe, and Americas, which is among the highest flight records in the global eVeto industry. We are willing to work with customers and partners from more countries to explore safe, intelligent, and innovative UM industry so as to bring unique, environmentally friendly, and efficient flight experience to more passengers. I'd like to note that EHAM will participate in the upcoming Paris Air Show this June. At this world-renowned aviation and aerospace exhibition, we will showcase our advanced EHAM 216S NAV and partake in a series of urban air mobility-themed events to share our value and experience. We warmly invited global investors to join us for discussion during this event. Moving forward, we remain committed to the principle of conducting trial operations while going through the airworthiness certification process, thereby paving the way for a crucial pivot towards post-certification commercialization. As an industry first mover, we have harnessed our unique AEV leading technology and a first mover advantage to build a robust customer base and a substantial trial operation experience. remain optimistic about discovering as well as creating values in a growing UAM market. Next, our Chief Financial Officer, Richard, will shed light on our financial status. Thank you.

Thank you, Xin. Hello, everyone. Before I go into details, please note that all numbers presented are RMB and are for the first quarter of 2023 unless stated otherwise. All percentage changes are on a quota over quota basis unless otherwise specified. Detailed analysis are contained in an earnings press release, which is available on our IR website. I will now highlight some of the key points here. Following the listing of China's zero COVID policies, we have observed a robust resurgence in the tourism industry in China, attributable to the significant lessen demands for travel. Together with favorable policies, These have been driving up demands and inquiries for AAVs recently. These phenomena are in alignment with our current strategic business development focus on aerial tourism. As such, we are confident in our future growth prospects and capabilities in growing our post-certification AAV order pipeline going forward. In Q1, total revenues were 22.2 million, up 41.6% from 15.7 million in Q4, primarily driven by the increase in the sales volume of EH216 series AAV products. The deliveries of EH216 series AAVs in Q1 were 11 units, an 83% increase from six units in Q4. Growth margin was 63.9% in Q1, a slight decrease of 2.2 percentage points from 66.1% in Q4. Despite this minor fluctuation, our gross margin maintains at a high level, compared to those of other electrically powered mobility products, such as electric vehicles. This is a result that attests to our competitive strengths and first mover advantages in the global UOM and EVTO industries. In Q1, our adjusted operating expenses, which are operating expenses excluding share-based compensation expenses, were $50.1 million, compared with $73.2 million in Q4. The decrease was mainly attributed to the non-cash item of additional proof of provisions for receivables in response to the COVID impact on customers in Q4 last year. while there were increased expenditures for aircraft conformity and compliance tests in the final phase of the EH-216S type certification this quarter. As a result, our adjusted operating loss in Q1 was 34.3 million, a significant improvement of 44.1% from 61.3 million in Q4. Adjusted net loss was 33.6 million, a 43.5% improvement from 59.4 million in Q4. Moving on to our balance sheet, we maintain a prudent approach in managing our cash position and assessing our liquidity. As of the end of Q1, we had 217.6 million of cash, cash equivalents, restricted cash, restricted short-term deposits, and short-term investments. This includes a 10 million US dollars strategic investment made by the Qingdao West Coast New Area in Q1, which provides additional liquidity support to bolster our operations and growth. That concludes our prepared remarks. Let's now open the call questions.

Operator, please go ahead.

Thank you. If you wish 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, please press star 1 and 1 again. Once again, if you would like to ask a question, please press star 1 and 1 on your keypad. We will now take our first question. Please stand by. This is from the line of Farina Jeng from Goldman Sachs. Please go ahead.

Thank you. Thank you, management team, for the presentation. Two questions from me. First is about the TC progress. We have completed over 90% of the progress, so wondering if there is any timeline for the rest of 10%, and are there any hurdles going forward? My second question is about the following quarter outlook. So we delivered a strong sales volume and also the revenues in first quarter. So just wondering if we see the strong momentum to continue in the following quarters. Thank you.

Thank you.

First of all, I have to say that in the last stage of TC, we have completed more than 90% of the experiment. This is a very difficult thing. In this process, we have closely cooperated with the domestic and local companies with a wide range of experience and knowledge in the field of professional test units and test sites. Nomi Gubi has held hundreds of three-part consultation meetings with the TC Procuratorate of China. We worked hard to complete a large number of laboratory experiments, ground and flight experiments, including 3D system experiments, environmental experiments, material experiments, structural strength experiments, software experiments, mobile communication and network experiments, ground control station experiments, and so on. Therefore, from hardware and software levels, we have verified the safety and reliability of the Yihang 26GS aircraft. The following 10% of the tests, we are also working hard to advance forward. This is the final stage. I believe it will be completed soon. At present, we see that there are no major obstacles, because we have already sold the most difficult card. The final stage of the test is mainly a matter of time. After the test is completed, we will give the test results to the Civil Aviation Bureau for review, waiting for the final approval from the Civil Aviation Bureau to TC.

This is the English translation of Mr. Fang's answer to your first question. First, I'd like to highlight that we are currently in the final phase for obtaining our TC, which over 90% of the compliance tests successfully completed. And this has been a considerable undertaking. Throughout this process, we worked closely with multiple professional test sites and facilities in China that have extensive aviation experience and credentials. We conducted hundreds of specific review meetings with the TCTM and diligently performed numerous laboratory tasks, ground tasks, and flight tasks, step by step, according to our plans. And this test ranged from battery, environmental, materials, and structural strengths to software, communication, and data link, and ground control station. And this enabled us to verify the safety and airworthiness of our EHAM 216S aircraft from both the hardware and software perspectives. And for the remaining roughly 10% tests, we are in the final sprint and expect to finish them as soon as possible in the near term. At this stage, we do not see any major obstacles, as we have already overcome the most difficulties. And our test work in this final phase is essentially a matter of time now. After we completed the test, we have submitted and will continue to submit the test reports to the CAC for their review and approval and issuing the certificate. Here I want to express my gratitude for everyone's attention, interest, and patience during this process.

And please stay tuned for our updates.

The rapid growth in sales and input in the first quarter is mainly due to the rapid growth of the domestic tourism market after the pandemic.

In addition, the customer base in tourism industry is actively attracting customers' core demand and policy promotion of low-end tourism in various places. It is a new growth point for the innovation technology industry that has influenced the automation of autonomous driving vehicles and is a new growth point for the innovation of the innovation technology industry that has influenced the innovation of the innovation technology industry as a new growth point for the innovation of the innovation technology industry as a new growth point for the innovation technology industry as a new growth point for the innovation technology industry as a new growth point for the innovation technology industry as a new growth point for the innovation technology industry as a new growth point for the innovation technology industry as a new growth point for the innovation technology industry as a new growth point for the innovation technology industry as a new growth point for the innovation technology industry as a new growth point for the innovation technology industry as a new growth point for the innovation technology industry as a new growth point for the innovation technology industry as a For example, in the first quarter, customers in Xinyang, Xinyi, Guangxi, and Fengshan will come. Therefore, we can see that the popularity of domestic tourism will continue to decline in the next few quarters. Then the order of tourism customers will continue to increase. In terms of the pace of interaction, we will mainly use TCA certification as the premise. In respect of your second question,

The notable increase in our Q1 sales and revenues is primarily attributed to the rapid recovery of the domestic tourism market post-pandemic. And additionally, driven by both the core needs for attracting visitors to the scenic sports, as well as the favorable policies for encouraging the low-altitude aerial tourism all over China, our tourism customers have shown keen interest in utilizing our innovative AABs in their tourism business. And they are actively tapping into this market because they believe our AABs can drive up their growth and revive the traditional tourism industry. The customers in the first quarter like Xinjiang Xiyu Tourism and Guangxi Fengshan are good examples. And as such, we foresee that the domestic tourism will maintain the trend throughout the following quarters. And consequently, it is expected to have a growing order pipeline from the tourism customers. And in terms of the delivery pace, based on obtaining the TC, we expect a gradual increase in deliveries after TC. And the few units delivered before TC are mainly for the customers' internal testing, training, and trial flights, et cetera. and post the TC will gradually fulfill the current domestic order pipeline of more than 100 units for the requirements of our customers and put them into operation.

Thank you.

Thank you. We'll now move to the next question. Please stand by. And this is from the line of D. Wu from Tiang Feng Securities. Please go ahead.

Hi. Thank you, management team, for taking my questions. I have two questions as well. My first question is, as there are many evolutable use cases with great potentials in the emerging urban air mobility industry, why do you choose the aerial tours as the initial target market to tap into? Could you please elaborate on your thinking behind that? And my second question is, what's your cooperating or cooperation mode with your tourist customers?

Thank you so much.

Hi, this is Richard. I will take the question. Basically, we have found that the aerotourism or aerosycine is a use case which is very suitable as an initial target market for AH216SAV. First of all, it has immediate company needs that are sufficiently sizable but not well served by traditional solutions such as helicopters. According to an estimate published, some of you have known, by the China Air Transport Association, the potential market size would amount to 58.5 billion RMB, roughly 8.5 billion US dollars. Secondly, air sightseeing is the type of experiential services and novelty and experience are attractions. Does the end customer or passengers are not very price sensitive? This will help with the economic viability of the services and provide more room for pricing. Thirdly, compared to traditional helicopters, our EH216S AAVs are inherently safer, have lower level of noise and more pilot costs and much lower acquisition and maintenance costs, and are more eco-friendly and economical due to being electrically powered. Further, it is easier and more efficient to operate the frequent multiple flight routes given the autonomous modes of the EH216S-AE and the cluster management by our command and control system. With all these advantages, our EH216S AAVs have been recognized by proteasome operators as a new solution, not just to meet the existing needs, but to meet more needs for ARSIC uses. Policy-wise, the State Council and the CAAC in China have been promoting the integrated development of general aviation and tourism aiming to establish aerial tourism networks in scenic spots, resorts, theme parks, and other tourist destinations. And recently, as everybody can see, the tourism industry in China has been quickly recovering from the COVID impact after release of the restrictions. Further, given the similar point-to-point passenger transportation feature, that the aerial tourism or aerial sightseeing use case also has. It is essentially a typical urban air mobility use case that is located in scenic areas. It can provide a very good foundation for us to accumulate operational experience for our strategic goal to offer urban air mobility service such as air commuting in cities in the near future. So these are some of our main thoughts behind this strategic approach. And we believe AERA tourism presents an excellent opportunity for our EH216S AAVs as an initial market that has already been sizable itself. In respect of your second question, the cooperation mode or models with our Toys M operator customers or partners, we have been exploring different models. So far, they can be summarized in two basic scenarios. First of all, we can sell our EH216S AAVs to the tourism operators, and they can operate the AAVs themselves to offer aerial sightseeing services to their tourist passengers. We will provide necessary support to them, such as training, initial setup, technical support, etc. In this case, we are essentially an AAV product provider and the related revenues would be mainly generated from product sales. Secondly, we can carry our hedge to 16 SAVs to cooperate with the tourism operators. They can open up their scenic areas to us and we will offer our AAVs to offer aerial sightseeing services to the tourist passengers. In this case, we are essentially an AAV operational service provider and the related revenues would be mainly generated from operational services. In reality, there will be more different cooperation models based on the special needs and conditions of different parties. So this is basically my answer to your question. Thank you.

Thank you so much. Thank you. Seeing no more questions in the queue, let me turn the call back to Ms. Anne for closing remarks.

Thank you all for participating in today's call. If you have any 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 look forward to our next learning call. Thank you.

Thank you all again. This concludes the call. You may now disconnect.