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spk02: Good day, ladies and gentlemen, and thank you for standing by. Welcome to Ehan's second quarter 2023 earnings conference call. As a reminder, we are recording today's call. I will now turn the call over to Angie, Ehan's senior director in investor relations. Ms. Ehan, you may begin.
spk01: Hello, everyone. Thank you for joining us on today's conference call to discuss the company's financial results for the second quarter of 2023. The earnings release is available on the company's IR website. Please note the conference call is being recorded, and 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, and Mr. Richard Liu, chief financial officer. The management team will successfully give prepared remarks. Remarks delivered in Chinese will follow by English translations. All translation is for the convenience purpose only. In case of any discrepancy, an announcement statement in an 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 materially different from the expectations expressed today. Further information regarding this 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 second 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.
spk07: Thank you, Anni. Hello, everyone. Thank you for attending our telephone meeting today. Today, I am very happy to share with you a good news that is exciting. Our Yihang 216-S unmanned aerial vehicle model qualification assessment final compatibility verification stage has been successfully completed according to the plan. All test and test work has been completed, and the final model qualification assessment has been completed. This is the final milestone of the final milestone of the final milestone of the final milestone of the final milestone of the final milestone of the final milestone of the final milestone of the final milestone from battery, environment, material, strength, electronic hardware, software, data network, to ground control software. Through a scientific method system, multi-angle verification, rigorous experiments, and continuous optimization, we have fully proven the safety standards and market requirements of the 216-S model in line with the requirements of the Chinese Civil Aviation Bureau. This is not only an important milestone for E-Hang, but also a milestone for the entire EVTO industry, to take a new step forward in the field of market identification. And unlike other unmanned aircraft carriers, we are the world's first unmanned aircraft carrier. I would like to thank the various leaders of the Chinese Civil Aviation Bureau and the inspection team for their unwavering efforts. I would also like to thank the insistence of the company's market team for their unwavering persistence and never giving up. It is our professional upbringing, excellent technology and joint cooperation Let us achieve today's results. At the same time, I also want to thank the investors of the bank and the patience of many supporters. I believe that the formal programmatic work of the government will be completed soon. This will pave the way for our next commercial operation. In the second quarter of the upcoming money-making, comprehensive internal and external opinions of all parties. We have a controlled management of product delivery rhythm. In the second quarter, we delivered five EH216-S autonomous pilot aircraft with a revenue of RMB10 million. The net profit is still at 60% level. I believe that our performance will be very bright after the approval. During the approval period, after the strategic investment of US$10 million in Qingdao West Coast New District in the first quarter of this year, We completed a round of $23 million strategic investment in July, which further enhanced our liquidity. Finally, I take this opportunity to happily tell you that the chairman of the board of directors of the board of directors of the board of directors of the board of directors of the board of directors of the board of directors of the board of directors of the board of directors of the board of directors of the board of directors of the board of directors of the board of directors of travel to the same city, and other well-known companies. In financial management and investor relations, the capital market and company governance have more than 30 years of rich experience. In the three years of being a board member, I have a very in-depth understanding of the company and full of confidence. I warmly welcome Kona to further join the management team. Its arrival will definitely lead the bank to a new height. Our original CFO, Richard Liu, Due to personal reasons, he took the position of CFO at the end of August. He will continue to serve as a senior consultant for the company to develop the company's strategy. Here, on behalf of the board and management, I would like to thank Richard for his great contribution to the development of the industry in the past eight years. In addition, we also invited a new independent board member, Mr. Liu Yongji, to join the board, to be the chairman of the audit committee and the member of the new committee. Mr. Liu Yongji has more than 30 years of professional experience and professional knowledge in financial management and accounting. He has served as CFO and financial manager in many listed companies and leading industries, including RoboSense, Perfect World, and Aomei Media. He also has 10 years of technical experience in Puhuayongdao. I look forward to working with Mr. Kona and Mr. Liu to lead the industry into a new stage. Next,
spk01: 交给我们的手行云官方鑫先生。谢谢大家。 Below is the English translation of Mr. Hu's remarks. Hello, everyone. Thank you all for joining our conference call today. Today, I'm thrilled to share an exciting news with you about our type certification of E-Hunter 16S airman airwheel vehicle system that we have successfully completed all the planned tasks and trial flights in the last phase of demonstration and verification of compliance, and also completed the definitive type certification flat test by the CAC. This is the last milestone before obtaining the type certificate, and also the result of the unwavering efforts of EHON team. Since the time when the CAC officially accepted the EHON 216 STC application in January 2021, our yielding efforts has spanned over 30 months. Throughout this journey, we have overcome various challenges and finally successfully completed all the substantive tasks, ranging from battery, environment, material, strength, electronics, software, data link to ground control station. We have sufficiently proved that EHang 216S meets the safety standards and airworthiness requirements by the CEC through scientific approaches, multi-angle demonstrations, rigorous testing, and continuous optimizations. This marks a significant achievement not only for EHang, but also indicated an unprecedented advancement in airworthiness certification for the entire eVitro industry. Furthermore, unlike other ongoing TC projects of a piloted Evato aircraft, to our knowledge, ours is the world's first TC program for an unmanned airway vehicle. I would like to express my gratitude to the CAC's officials and the review team, as well as the company's airworthiness certification team, for their unwavering efforts and persevering spirits. It is their professionalism exceptional technological expertise and collaborations that have led us to our impressive achievement today. Also, I would like to thank our investors and so many supporters for their patience throughout the process. I believe the remaining procedures will be finished very soon, before the official authorization of the type certificate. It will pave the way for our commercial operations in the next stage. In the second quarter, taking into consideration of internal and external devices, we managed our product deliveries in a controlled manner before the upcoming type certificate. Five units of E-Hand 216S AAV products were delivered in Q2. Total revenues were 10 million RMB. Gross margins stayed around 60%. I believe we will have an excellent financial performance after the certification. During the certification period, we secured around over US$23 million strategic investment in July, following the US$10 million strategic investment from Qingdao West Coast New Area in the first quarter of this year. This has further enhanced our liquidity. Finally, I am glad to take this opportunity to announce that Connor Yang, a director of our company's board and chairman of the audit committee, will take over the position of CFO of the company, effective on September 1st. He served as the CFO at several listed companies, including Aeromedia, Dang Dang, Tong Niu, etc. And he also served as a director at several well-known companies, such as iQiyi, Tongcheng Travel, etc. Connor has more than 30 years of extensive experience in financial management, investor relations, capital markets, and corporate governance. During the three years he served as a director of our board, he has profound understanding and confidence in the company. We warmly welcome Connor to join our management team. I believe he will definitely take Ehang into a new level. Richard Liu has tendered his resignation from the CFO position due to his personal reasons. which will be effective at the end of August. But he will serve as a senior advisor to the company, contributing his expertise to our continued success. On behalf of the board of directors and management team, I would like to thank Richard for his tremendous contributions to eHealth development during his eight-year tenure with us. In addition, we have also welcomed Mr. Winky Lau as a new independent director to the board, and also as the chairman of the audit committee and a member of the composition committee. Mr. Lau has over 30 years of experience and expertise in financial management and accounting, and has served as the CFO and finance executives of various listed companies and industry-leading companies, including RoboSense, Perfect World, Olivia and the Mother, etc. He also has 10 years of auditing experience at PwC. I look forward to working together with Connor and Mr. Lau to take Yi Hang into a new stage. Next, I will hand over the call to our Chief Operating Officer, Mr. Xin Fang. Thank you.
spk09: Thank you, President Fu. Hello, everyone. In the second quarter, we continued to work hard to promote Bank No. 216-S No. 7, while also actively developing new business opportunities for cooperation in China and abroad. This is the basis for the future post-operational operation of e-sports. As of March this year, we are leading the tourism industry in China. After the signing of the Framework Agreement, the second quarter, our cooperation continued to grow and advance. The above-mentioned joint-stock companies Bixiang District delivered 15 5-car E-car 216-S automatic driving vehicle. The regional tourism is planned to use our AAV in the national 5A tourism scenic areas of Tianshan and Tianchi, as well as other scenic areas in the northwest of China, to open a low-altitude tourism tourism project. The number of AAVs that will be launched in the next five years will not be less than 120. In addition, Shenzhen is a bridgehead for China's low-altitude economy's innovative development. to build the first low-altitude economic development failure city in the country. In this context, in July this year, we signed a strategic cooperation memorandum with Shenzhen Airlines' local security area government, which is in Shenzhen, to build the first city air traffic operation demonstration center in Fanle Bay, a physical landmark in the security area, and to develop the Vito commercialization line. After the launch of Yihang 216S, The launch of the Aerospace Tourism Tourism Experience Service as a large-scale enterprise, a branch of Lodz Shenzhen Security, will be a key step in our number one operation plan. We are also happy to see that in June this year, the State Council officially issued the first special executive law on the management of unmanned aerial vehicles in our country, the Unmanned Aerial Vehicle Flight Management Regulation. This will help promote the healthy development of the unmanned aerial vehicle industry, expand the market opportunity of the low-emission economy, This will also establish a good foundation for our 216-S, which was launched after the launch of the 216-S. With the approval of the model of the 216-S, we also achieved a lot of results in the air traffic northbound plan. As of the end of July this year, in the past two years, we have co-operated with our partners in China. 18 cities have developed 20 trial routes, and the application scenarios for the experience of low-altitude travel A total of about 9,300 jobs have been completed, and 216-S security operations have gained a lot of experience. After the launch of 216-S, we will continue to deliver domestic order orders. There are currently more than 100 orders. At the international market, we continue to actively participate in UAM industry activities in Asia and Europe. to develop potential customer service and cooperation partners, and not only to develop AAV test and demonstration flights. In April this year, we joined Japan's advanced air traffic policy cooperation committee. In June, we successfully completed the Japanese-owned UAV Iwato's diving flight in Japan. Recently, the IAEA's AAV successfully completed the test flight in Israel and Belgium, leading our Iwato aircraft to reach 14 countries around the world. We believe that with the steady increase in our operating scale and value, there will be more and more managers, customers and passengers who are familiar with and will recognize the unique AAV technology and products of the industry, which will allow more people to feel the safe, automatic, environmentally friendly, efficient air traffic experience, promote industry innovation and change, and create more value for society. Next, please introduce the financial situation of our chief financial officer, Richard. Thank you.
spk01: Below is the English translation of Mr. Fang's remarks. Thank you, Mr. Hu, and hello, everyone. During the second quarter, as we continue to make progress in the final stages of E-Hunt 216S type certification, we have also been actively exploring the new business opportunities and cooperation on both domestic and international fronts, so as to establish a solid groundwork for the upcoming poster certification operations. After the initial signing of a Corporation Framework Agreement with Xiyu Tourism, Shenzhen listed leading tourism enterprises in China in March of this year. Our collaboration moved forward in the second quarter. We have established a joint venture with Xiyu Tourism and delivered the first batch of 5 units of EH216S AAVs to this joint venture. The customers plan to develop low-altitude tourism and sightseeing projects with Yihang AAVs in the Heavenly Lake of Tianshan, a National 5A-class tourist attraction, and other scenic areas in northwestern China, and plans to operate a minimum of 120 units of AAVs within the next five years. Moreover, Shenzhen, positioned as a pivotal gateway for propelling China's innovative low-altitude economy, has committed to shaping itself into a national low-altitude economy development demonstration city. Against this backdrop, in July, we inked a memorandum of understanding for a strategic partnership with the government of Bawang District, which is Shenzhen's aviation hub. This collaboration is dedicated to jointly establishing the first UAM operation demonstration center, named the Wings of the Bay Area. at the Old Bay, one of the Bao'an's cultural and tourism landmarks. We plan to develop the first eVeto commercial route, initiate the operation of EH-216S after obtaining its certificate, and launch aerial tourism sightseeing experience services. As a company in the Greater Bay Area, our cooperation with Shenzhen Bao'an will serve as a crucial step in our post-certification operational plans. We are pleased to see that in June of this year, the State Council of China officially issued interim measures for flight management of airman airway vehicles, the first special administrative regulation of this kind in China. This will quickly prepare the robust growth of the UAV industry while expanding the market opportunities of the low-altitude economy market. It will also lay a good foundation for the commercial operations of our EH-216s after obtaining the certificate. As the EH-216 type certification project is approaching the final line, our 100 air mobility routes initiative trial operations also have achieved fruitful results. Along with our customers and partners, we have also developed a total of 20 trial operation sites across 18 cities in China within the two years by the end of July this year. More than 9,300 safety-secured operational trial flights for low-altitude tourism and aerospace seeing have been conducted by E-116S at these sites, which will pave the way for our commercial operations after the certification. Following obtaining the certificate of EHANTO 16S, we will deliver the existing domestic other pipelines in a proper order, which have accumulated to more than 100 units. In the global market, we maintain a proactive engagement within the UMA industry in Asia and Europe, cultivating potential customers and partners while conducting AAV tests and demonstration flights. In April of this year, EHAM was inducted as a member of Japan's public and private committee for advanced air mobility. In June, we have successfully completed the test flight of EHAM 216S in Okinawa, making Japan's first island hopping flight by the M&E VTOL. Recently, our EHAM 216 series AAVs successfully completed the test flight in Israel and Belgium, extending our eVetoFlight footprint to as many as 14 countries around the world. We are confident that as our operation scale and flight numbers steadily grow, an increasing number of regulators, customers, and passengers will know more about and appreciate EHAM's unique AEV technologies and products, enabling more people to enjoy a safe, autonomous, eco-friendly, and efficient air mobility experience. It will drive industrial innovations and changes and create more value for the society. Next, I will turn it over to our CFO, Richard. Thanks.
spk08: Thank you, Xin. Hello, everyone. Before I go into details, please note that all numbers presented are in RMB and are for the second quarter of 2023 unless stated otherwise. All percentage 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 IR website. I will now highlight some of the key points here. In Q2, the total revenues were 10 million compared with 22.2 million in Q1, primarily from the delivery of five units of EH216-S to the joint venture with a Shenzhen-listed leading tourism operator in China, Xiyu Tourism. In light that the TC process of EH216-S is approaching the end, some deliveries have been extended to be post-TC per customer's requests. Gross margin stayed at a high level, 60.2% in Q2. a slight decrease of 3.7 percentage points from 63.9% in Q1. Despite this minor fluctuation, our gross margin continues to be notably higher than the players of other types of electric transportation vehicles, such as those electric car companies. This is largely attributed to our unique advantages in the global UAM and EVTO industries. In Q2, our adjusted operating expenses, which are operating expenses excluding share-based compensation expenses, were $58.1 million compared with $50.1 million in Q1. The change was mainly because of increased expenditures related to the conforming aircraft and the compliant tests and the final demonstration and verification phase of the EH216-S type certification process. increased marketing activities to enhance our brand awareness, additional provisions for some long-aging accounts receivable, etc. As a result, our adjusted operating loss in Q2 was $51.3 million compared with $34.3 million in Q1. Adjusted net loss was $51.8 million compared with $33.6 million in Q1. Furthermore, we have kept optimizing our balance sheet with a prudent approach to cash and liquidity management. As of the end of Q2, we had $160.7 million of cash, cash equivalents, and restricted short-term deposits. In July, we have further strengthened our liquidity with a $23 million equity investment via a private placement from some long-term strategic investors. The funding will help enhance our liquidity and provide vital support for our execution of the post-certification commercial plans in our next phase of growth. This brings our cash reserve to $320.6 million as of the end of July. At last, as Huazi mentioned earlier, today is my last time joining the earnings conference call as the company's CFO. I would like to sincerely thank the board, Huazi, and the investment communities for all your trust and support in the past eight years. It has been my great honor to be part of the force to drive Yihang from an innovative technology startup into an industry-leading listed company in the past eight years. I believe Corner is an ideal successor at CFO to take Yihang to a new stage. I will continue to serve as a senior advisor to the company and wish the company a continued greater success. Thank you. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.
spk04: Thank you.
spk02: Thank you. As a reminder, to ask a question, you'll need to press star 11 on your telephone. To withdraw your question, please press star 11 again. Please wait for your name to be announced. Please stand by while we compile the Q&A roster. One moment, please. Again, to ask your question, that's star 11. Our first question comes from Verinda Jing with Goldman Sachs. Your line is now open. Verinda, your line is open. You can ask your question.
spk03: Hi, sorry, can you hear me now?
spk02: Yes, we can. Thank you.
spk03: OK, thank you, thank you. My first question is about the timeline for the TC because we have finished all of the testing. So just wondering how long it would take for the production cycle. And after we gain the TC, how soon that we can expect the full production of our factory? Thank you.
spk08: Hi, Verena, this is Richard. Thank you for your question. So basically, our team have been continuing working with the CAC team very closely to finish the remaining procedures, which are expected to be completed soon. And the TC will be issued accordingly. Once the TC is issued, this TC is expected to be the first of its kind in the eVeto industry. And in terms of timing, we will make an announcement at that time. So please stay tuned. In respect of production post-TC, as you know that we have a production facility in Wing Fu City. We say initial annual capacity of 600 units of EH216 series products. So basically, after we obtain the TC, those capacities will be utilized to support the post-TC deliveries in the future.
spk03: Thank you, Richard. I have also another follow-up question here. For the second half outlook, apart from the TC parts, could you also share about the end market demand? For example, for the tourism market recovery, are we still seeing the recovery ongoing for the second half? Thank you. OK.
spk08: So basically, On the demand side, our existing water pipeline has accumulated to more than 100 units in China. This pipeline is expected to continue to increase. To give you some examples, In our previous press release, we announced our cooperation with Xiyu Tourism, and this cooperation will further lead to a potential order demand for about 120 units in the future five years. Additionally, our strategic partnership with the Bao'an District of Shenzhen City is not only a very important step for our post-TC commercial operations, but also expected to help generate potential order demands gradually. As far as the tourism market is concerned, the continuing recovery and increasing demands in the tourism market for sure are a very key driver for our ongoing revenue growth. Additionally, our innovative products are more in line with the customer needs in scenarios such as aerial sightseeing and the flight experiencing sector. compared to the traditional helicopters. Further, we are about to obtain the TC, which means commercial operation will be soon. And since the beginning of this year, more and more cities in China have been issuing preferential policies to promote the development of what is called low altitude economy and unmanned aerial vehicle applications, which mainly include UM and EV tools. So this has also created a very favorable policy environment to accelerate the development of this new industry. To further give you an example, the Shenzhen city. is a civil unmanned aviation pilot zone approved by the CAC. And Shenzhen city has been planning to issue policies such as regulation to promote low altitude economy industries this year. This is expected to become China's first regulation to support the development of the low altitude economy sectors. And Shenzhen's measures to support high quality development of a low altitude economy are expected to provide strong support to the development of the industry. Basically, both initiatives are expected to bolster our operations and revenue growth once we commence our projects in Shenzhen. Further, as a company based in the Great Bay area, we have abundant experience and the resources in the area, which will make our collaboration with the local cities more practical and viable.
spk03: Thank you, Richard.
spk02: It's very clear. Thank you. Thank you. One moment for our next question, please. Our next question will come from the line of Di Wu from Dian Feng Securities. Your line is now open.
spk06: Hi. Can you hear my voice?
spk02: Yes, we can hear you. Thank you.
spk06: Thank you. Yeah, I have two questions. The first one is, we noticed recently China has published an enforcement stating that certain unmanned aircraft will face an export prohibition. Will there be any implication for our aircraft or hinder the TC process? And the second question is, can the management team shed more light on potential application scenario that could be implemented in the near future? Thank you so much.
spk08: Hi, this is Richard again. I will take a question. Thank you. So basically for your first question, I would like to say, first of all, Yihang as an internationally listed company, we have always been strictly following the actual related laws and regulations in China and other countries where we do business. and adhering to the principle of legality and compliance in respect of AgPro activities. The recent new UAV-related AgPro control policy in China basically has no significant impact on our business nor our TC process because we have already been complying with the relevant AgPro licensing requirements for AgPro products. It has been going smoothly. In addition, the spokesperson of the Ministry of Commerce has stated that export control does not mean export prohibition. So as long as the UAV products exported are for legitimate civilian uses and the company follows the relevant procedures, it is understood that exporting activities can be conducted normally. And we are dedicated to leveraging our innovative technologies and products to serve the people around the world. The company has been taking strict and approved measures in compliance management and customer restrictions in order to make sure our products are only used for legal civil uses. And in respect to your second question, as you know, after our EH216-S gets its TC, our first priority will be focusing on the so-called low altitude tourism market. We will continue to team up with tourism operators and partners as many as possible in China for operations in scenarios like aerial sightseeing, flight experiencing, et cetera. Location-wise, initial ones such as the Jishou Aizhai Scenic Area, Hechi Fengshan Scenic Area, the Lake of Heaven of Tianshan Scenic Area, and Shenzhen OH Bay Area, which were announced previously. Furthermore, we will continue to leverage our EH216 series product platform to explore other use cases such as aerial logistics, emergency response, medical deliveries, aerial firefighting, et cetera.
spk04: Thank you. Thank you. Thank you, Richard.
spk02: Thank you. Thank you. Seeing no more questions in the queue at this time, let me turn the call back to Ms. Ann for closing remarks.
spk01: Thank you, operator, and thank you all for participating on today's call. If you have further questions, please contact our ARR forum by email or participate in our following investor events through the calendar information provided on our ARR website. And we appreciate your interest and look forward to our next earnings call. Thank you.
spk02: Thank you all again. This concludes today's conference call. You may now disconnect. Everyone have a wonderful day.
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