EHang Holdings Limited

Good day, ladies and gentlemen. Thank you for standing by and welcome to the Ehang second quarter of 2024 earnings conference call. As a reminder, we are recording today's call. Now we'll turn the call over to Anne Gee, Ehang's Senior Director of Investor Relations.

Ms. Anne, please proceed. Hello, everyone.

Thank you all for joining us on today's conference call to discuss the company's financial results for the second quarter of 2024. The earnings release is available on the company's IR website. Please note the conference call is being recorded, and the audio replay will be posted on the company's IR website. On the call today, we have Mr. Hua Zhihu, our founder, chairman, and chief executive officer, Mr. Zhao Wang, chief operating officer, and Mr. Connor Yang, Chief Financial Officer and Director of the Board. 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 case of any discrepancy, the management statement in the original language will prevail. A Q&A session will follow afterwards. Before we continue, please note that today's discussion will contain forward-looking statements made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statements, except as required to enter applicable law. Also, please note that all the numbers presented are in RMB and are for the second quarter of 2024, unless stated otherwise. With that, Let me now turn it over to our CEO, Mr. Hua Zhihu. Please go ahead, Mr. Hu. 谢谢,安妮。 大家好,非常感谢各位参加一航智能的电话会议。 今年第二季度以来,一航智能作为Evato龙头企业, 我们在财务业绩、订单交付、生产爬坡、 标准与认证、运营点部署、

as well as in the development of new generation technology products, have all achieved outstanding results, continuing to lead the development of the global urban air traffic industry. In April this year, we obtained the production license issued by the Chinese Civil Aviation Bureau, PC. To this end, we are very happy to become the only three-pronged design, development, and production manufacturer in the world's E-Vito industry, which currently has the only unmanned carrier aircraft. After the crisis, we were fortunate to welcome the policy spring wind of China's development of low-altitude economic and strategic new industries. In the development plans that are as hot as fire all over the country and the drive of the strong market demand for new low-altitude aircraft, our Evato product, as a representative of new productivity, has received a large number of customers and a large number of purchase orders. In the second quarter, our delivery volume and revenue have created a new height in history, Q2, Q2, Q2, Q2, Q2, Q2, In the fourth quarter of last year, we have accumulated more than 1,100 batch orders in China's domestic market, and are continuing to grow. After the approval of the PC, our Yunfu production base officially entered the stage of mass production climbing of EH216-S test aircraft. We will strictly follow the safety production procedures and quality assurance system of the aircraft carrier to continue to optimize the production efficiency and steadily increase our production and delivery volume according to the order rhythm of the customer. In order to meet the long-term batch order of continuous delivery, we are also planning to expand the future production capacity. Based on the four strategic cooperation agreements of the first quarter of this year, In June this year, we and GuangQi Group further signed a cooperation agreement. The plan is to set up a joint venture and combine the experience and advantages of GuangQi Group in the field of electric car smart manufacturing and automated production lines in Guangzhou to carry out the production and manufacturing of unmanned passenger aircraft. This will further strengthen our future production capacity and respond to market needs more quickly, and improve the efficiency and scale of product delivery. Of course, Whether it's for one industry or our customers, delivery is just the first step. Do good post-sales service, personnel training, site planning, and the construction of operating standards and systems are equally important. Therefore, transportation and handling, stable delivery, and guaranteed operation are the pillars of our current stage of service customers and development businesses. Because no-man's land, because of its commercial operation, is also the world's first industry exploration. Therefore, as pioneers and openers of the industry, we have no choice but to work hard and actively cooperate with regulators, customers, and industry partners to explore the sustainable industry development and growth system. We focus on the following three aspects and have achieved excellent stage results. One is talent training. We have developed a set of customized E-VITAL aircraft personnel training courses and assessment systems. to develop a qualified operating line for customers to ensure the safety of operation. Second, it is the basic construction. We are not only deeply involved in the development of China's first technical regulation group standard for eVTOL launch site, but also cooperated with local governments and customers in Guangzhou, Hefei, Shenzhen, Zhuhai, Taiyuan, Wencheng, etc. It became the example of the E-H226-S take-off and landing site and the low-altitude UAM operating core demonstration. The third is the operating license and certification. In July, the Chinese Civil Aviation Bureau officially accepted the application for the operating license of Guangdong One Air and Hefei Heyi. This is the first in the world to receive the OC certification project of unmanned aerial vehicles. It also means The world's first unmanned aerial vehicle operating standard is about to be born. As a technology innovation enterprise, we will not stop at technology innovation and the development of new products. Based on the VT30 prototype, we have carried out a new design and technical upgrade on the Fuhayi model to achieve better flight performance. We will release it in the near future. Please look forward to it. In addition, we continue to optimize the performance of EH216-S. In terms of key battery technology, we are developing the next generation in line with the 4H standard, i.e. high energy density, high charge life, high instant charge rate, and high safety eVTOL battery solution. For example, in April this year, we cooperated with the world's first super fast charge eVTOL battery developed by G1G, which is widely popular. will greatly improve the efficiency of the aircraft and better meet the high-frequency operation and control needs of UAVs. In addition, we are also in the process of testing solid-state Li-ion batteries developed in cooperation with Xindie Electronics. At the same time, we are still conducting continuous research and development of core zero components such as new technologies and new solutions, and continuous replacement upgrades. and added more high-quality suppliers such as Zhuhai and Inbol. At the same time, while we continue to improve the flight performance of aircraft, it can also help in the industrial layout and strengthen the stability of the supply chain. Our newly upgraded R&D laboratory is also about to be launched in our new headquarters to support the R&D and testing of new technologies such as batteries and engines. Today, I am also very happy to share with you We are in Guangzhou Huangpu District, Zhujiang Coast, Yihang new headquarters building and supporting facilities of Suigang Port are also under construction. We will provide a more beautiful and grand display center, a new command and control center, and a super-realistic office area with a sense of future. And we will combine the surrounding smart community and commercial entities to open tourism and transportation lines. Connecting ground, air, and water transport, it will be built into Guangzhou's new city name, YiHang Future City, and a demonstration of low-altitude economic and ecological applications in DaWan District. This year marks the 10th anniversary of YiHang's establishment. From the founders of the company to the developers and leaders of the global UAM industry, we have always focused on the development and application of unmanned aerial vehicle technology and products. continue to promote the innovation of technical concepts and standards, from the development of the world's first unmanned aerial vehicle, to the safe flight of unmanned aerial vehicles, from non-industrial standards to established industry standards, and to the world's first TC, PC, AC. Through innovation and efforts, we continue to achieve cross-examination from 0 to 1, to contribute to the development of all-human low-altitude flight technology. Now, the investment and accumulation of these years of persistence has created a positive and stable financial return for us and a long-term growth trend. We continue to invest in this original intention and the awe of the aviation industry to the next new stage of commercialization and operation that people look forward to. To create greater value for each of our industry participants and our shareholders,

下面请我们的首席运营官王昭先生介绍二季度的经营情况。谢谢。 This is the English translation of Mr. Hu's remarks. Hello, everyone. Thank you for joining Ehang's earnings call. Since the second quarter of this year, as a leading company in the video industry, Ehang has achieved remarkable results in multiple aspects, including financial performance, orders and deliveries, production ramp-up, industry standards and certifications, operation science deployment, and R&D of next-generation technologies and products. This is enabling us to continue leading the global urban air mobility industry. This April, we successfully obtained a production certificate, which is the PC for our EHAM 216S, We are proud to be the world's only EVERO designer, developer, and manufacturer to possess three certifications for the pilotless passenger-carrying EVERO aircraft. With these three certifications in hand, we have also benefited from China's variable policies that bring strong support for the development of the low-altitude economy as a national strategic emerging industry. Driven by the widespread development plans across the country and a strong market demand for innovative low-altitude aircraft, our EVETO product, as a representative of the new quality productive forces promoted by the nation, have garnered a large number of customers and bulk orders. Our delivery volume and revenues both reached record highs in Q2. We delivered 49 units of E-Hunt 216S, a nine-fold increase year-over-year. Quarterly revenues surged to 102 million RMB, also a nine-fold increase year-over-year, and a 65% increase quarter-over-quarter. Moreover, we achieved a quarterly adjusted net income earlier than we expected, which marks a very promising start. The company's Q2 growth margin was as high as 62.4%, with both year-over-year and quarter-over-quarter increase. Since Q4 last year, we have received over 1,100 units in bulk pre-orders in the Chinese market. This number is continuing to grow. After securing the PC, our info production facility has started a production ramp-up of the certified EH-216S. We will continue to improve production efficiency, strictly in accordance with aircraft production procedures and quality management systems, and steadily increase our production deliveries according to the customers' order requests. To meet the continuous delivery of long-term bulk orders, we are also planning for the future production capacity expansion. Based on the four-party strategic cooperation agreement we signed in Q1 this year with the Management Committee of the Guangzhou Airport Economic Zone, the Administrative Committee of Guangzhou Economic and Technological Development District, and GAC, which is Guangzhou Automobile Group. We further signed an MOU with GAC in June with the intent to establish a joint venture. This joint venture will leverage GAC's expertise and advantages in intelligent manufacturing and automated production lines for electric vehicles to produce pilotless passenger-carrying aircraft in Guangzhou. We look forward to this cooperation to further enhance our future production capacity, which will allow us to respond to the market demand more quickly and lift the efficiency and scale of our product deliveries. Delivery is merely the starting point, whether for Yihan or our customers. Equally important are the provision of exceptional after-sales support, personnel training, site planning, operational standards, and system development. Our current customer service and business focus are both sales and operations, while maintaining a steady stream of product deliveries and ensuring safe operations. As the global pioneer of a pilotless EBITO provider, we are taking the responsibility to explore commercial operations through collaborating closely with the regulatory authorities, customers, and partners to co-create a sustainable ecosystem that fosters the industry's growth and development. With that, we are focusing on three key areas in which we have achieved significant progress. The first one is talent cultivation. We have developed a customized EVETO aircraft personnel training program and assessment system designed to equip our customers with qualified operational team, ensuring safe operations. Secondly, infrastructure development. We not only actively participated in the formulation of China's first group standards for technical requirements of EVETO verticals, but also collaborated with local governments and customers to establish EHAM-216S vertiports and low-altitude urban mobility operation center demonstration projects in Guangzhou, Hefei, Shenzhen, Zhuhai, Taiyuan, Wencheng, and among other locations. Thirdly, operational standards and certification. In July, the CAC accepted the Air Operator Certificate, or OC, applications submitted by the Yihang General Aviation and Hefei Heyi Aviation. As the world's first OC project for the pilotless passenger-carrying individual aircraft, it is paving the way for the establishment of the world's first commercial operation standard for the pilotless passenger-carrying individuals. As an innovative technology company, we will not slow down our pace in R&D for new products and technologies, while pushing forward with sales and operations. Building on the VT30 prototype, we have conducted a comprehensive redesign and technological upgrade of our lift and cruise evito model, aiming to achieve more exceptional flight performance. We will be releasing this soon, so please stay tuned for the exciting news. We are also continuously optimizing the performance of our EHAM 216S. In the critical areas of battery technology, we are developing next-generation available battery solutions that meet the 4H standards, which means high energy density, high cycle life, high instantaneous charge-discharge rate, and high safety. For example, in April, we partnered with Greater Bay Technology, a battery provider incubated by Guangzhou Automobile Group, for the research and development of the world's first ultra-fast charging battery solutions for EVITOs. This is expected to significantly improve the EVITO operational efficiency amid the demands of large-scale, high-frequency UAM operations. Furthermore, we are also testing the solid-state lithium battery cells developed in collaboration with INX. Meanwhile, we are also continuously researching and developing new technologies and solutions for core components, such as electric motors, propellers, and materials, iterating and upgrading them to achieve sustained improvements. We have also cooperated with more high-quality suppliers such as Zhuhai Empower Electric Company, a leading EV powertrain provider into our system. This not only enhances the flight performance of our aircraft, but also helps to strengthen the stability of our supply chain and support our industrial layout. Also, our newly upgraded R&D laboratories are nearing completion at our new headquarters. designed to support the development and testing of new technologies and components, such as batteries and electric motors. I'm also delighted to share with you that our new headquarters and supporting facilities located on the banks of the Pearl River in Guangzhou Huangpu District are currently under construction. This complex will feature a state-of-art exhibition center and a brand-new community control center and a futuristic office space. Furthermore, we will integrate with the surrounding communities and commercial complexes to launch aerial sightseeing and transportation routes with our evidels, connecting ground, air, and water transportation, and creating a new urban landmark, Yihang Future City, as well as a UAM demonstration area for low-altitude economy in the Greater Bay Area. As we celebrate EHAM's 10th anniversary, we reflect on our journey from humble beginnings to becoming a global trailblazer and a leader in the UAM industry. Throughout, we have remained steadfast in our commitment to exploring pilotless passenger-carrying aircraft and its applications, driving innovations in technologies concepts, and standards. From pioneering the world's first pilotless passenger-carrying event prototype to achieving the safe and reliable flights of pilotless event. From the absence of industry standards to establishing and shaping them. And subsequently, obtaining the world's first type certificate, production certificate, and standard airworthiness certificate. we have consistently pushed the boundaries from zero to one through innovations and perseverance, contributing to shaping this urban air mobility industry. Today, our years of hard work and dedication have led to strong and stable financial performance and a long-term growth trajectory. With our passion and respect for the aviation industry, we will continue to drive over into the next exciting phase of commercial operations, creating greater value for our stakeholders, supporters, and shareholders. Next, let me turn the call over to our COO, Mr. Wang, to elaborate on our Q2 operational performance. Thank you.

Thank you, Mr. Hu, and hello, IR1. Since securing the production certificate in April, we have been authorized for mass production of our EH216S and secure standard airworthiness certificate for each aircraft that we have delivered. Our sales and deliveries continue to grow. In the second quarter, we delivered 49 units of EH216S, generating revenue of RMB 102 million, representing a year-over-year increase of over 9 times and a quarter-over-quarter increase of 65%. Let me highlight some key examples of customers and partnerships. In June, we partnered with Wencheng Zhejiang Province and received a purchase order with an additional purchase plan for up to 300 units of EH-216S. We have already delivered the first batch of 27 units in the second quarter and conducted the debut flight at a local sending area in Wencheng. The customer also made a prepayment for the remaining aircraft and subsequent orders will be placed as the customer expands its operations. Wencheng has become our first authorized distributor in East China to obtain provincial-level distribution qualifications and will establish a comprehensive sales network for our aircraft across Zhejiang Province. We also delivered the first batch of chain units of EH-216S to Xishan Tourism for low-altitude tourism services in Taiyuan. In July, EH260S completed its debut passenger-carrying flights in Taiyuan, making a milestone for development of the low-attitude economy in Shanxi Province. This delivery is part of a 50-unit order from Xishan Tourism that has been fully paid, with the customer plans to purchase an additional 450 units over the next two years. These units will be deployed in landmark scenic areas in Taiyuan and create a series of low-attitude tourism demonstration projects, further advancing the construction of the low-attitude economy demonstration area in Shanxi Province. Furthermore, in the second quarter, Yihan also delivered EH-26S to our customers in Guangdong, Hainan, Jilin, Liaoning, and Japan. In July, we signed the Sales and Operations Cooperation Agreement with KC Smart Mobility, a subsidiary of Hong Kong's largest non-franchised bus operator, Kuchong Bus Holding Limited. KC Smart Mobility plans to purchase 30 units of EH216S for development and operations in Hong Kong, Macau, and Hubei Province. further boosting market development in the Great Bay area and mainland China. Our company has received over 1,000 units pre-orders for the EH-216 series EVATOS in China market. With the production capacity expansion, we expect to maintain a growing delivery trend in the third quarter. We anticipate the revenues of the third quarter will reach RMB 123 million, as we continue to receive more new orders. The increasing orders also mean a higher demand for production capacity. While ensuring that every aircraft meets delivery standards, we are also actively working with large, intelligent manufacturing enterprises such as GAC to establish a joint venture. focused on production upgrading to automated production lines. At the same time, we are expanding our Yunfu factory to scale up our production and establishing a new manufacturing base at Yihang, East China Regional Headquarters in Hefei City, which will meet the growing delivery demands in the East China region. We are fully committed to ensuring production and delivery while advancing commercial operation preparations, providing customers with operation training, and creating application demonstration projects. In terms of operation personnel training, we provide our customers with sufficient training courses after the delivery. including theoretical learning, aircraft safety operation, daily maintenance, and emergency management, and so on, to ensure that personnel are certified and on duty to ensure operations safety. This comprehensive training program ensures that our customers are capable of operating our Evato aircraft in a proficient and compliant manner and providing safe flight services to the public At the same time, we also plan to cooperate with domestic aviation colleges and professional institutions to carry out personnel training and jointly establish systems for academy education, license management, and so on. For the industry's future large-scale, standardized, and professional operations, our joint training program with the Civil Aviation Flat University of China is now in a state of curriculum design. On the operational infrastructure front, Yihang collaborates closely by providing technical requirements and design solutions, while the infrastructure construction is managed by local governments and our customers. Operation sites in key locations have been launched including Shenzhen OH Bay, Hefei Luogang Central Park, Guangzhou Jiulong Lake, Zhuhai Tangjia Port, and Wencheng Canning Lake. Each of these sites is equipped with facilities including dedicated vertiports for EH-216S, hangars, and passenger service areas. In addition, many local governments are planning to build operation networks for future air mobility. For example, Shenzhen targets to set up a thousand of low-altitude take-off and landing platforms, and Guangzhou plans to invest RMB 10 billion into low-altitude infrastructure. This will include over a hundred regular-use verticals and hundreds of community landing Our EH-216S is ideally suited for future urban air transportation. It's compact, lightweight, can fly autonomously, easy to manage fleets, and cost-effective. In May, we were actively involved in shaping China's first group standard for EVATO waterports. This will set the stage for future industry standards. Notably, all of the posts built in accordance with the standard will be able to accommodate EH-216S. In terms of operation standards and certification, As Mr. Hu mentioned, in July, the CAAC accepted the Air Operator Certificate or OC applications by two operators. One is Yihang General Aviation, our subsidiary for UAM operations. The other is He Yi Aviation, our operation joint venture in Hefei. The CAAC has finished reviewing of He Yi Aviation's application documents and is about to conduct on-site inspection soon. The first OC for pilotless passenger-carrying EVATO is expected to receive within this year, allowing the operator to launch commercial operations with EH216S. Afterwards, we will have more customers and partners in applying OC, with our accumulated experience and establish safety standards. This will also help expanding our operation network. In July, we also formed a strategy partnership with China Southern General Aviation, a leading general aviation service provider under the China Southern Airlines Group. Together, we are planning to introduce a range of services, including EVATO tourism, cross-island flights, and cargo transportation at Zhuhai Airport, Qimlong Ocean Kingdom, and surrounding islands. Moreover, we are thrilled to see several local governments, including those in Shenzhen, Guangzhou, Hefei, and Zhuhai, are offering direct subsidies for eventual commercial routes. These subsidies range from RMB 100 to 300 per passenger per flight. providing robust support for eVeto service operators. In the international markets, we continue to expand into the Middle East market in the second quarter. In April, we reached a strategic cooperation with the Abu Dhabi Investment Office and the Multilevel Group. They will support our development in the UAE and the Middle East region. In May and June, our EH-216S completed debut flights in UAE and Saudi Arabia. Since then, our EVATO footprint has expanded to 16 countries worldwide. In the third quarter, we will continue to expand our business in overseas markets such as Africa, the Middle East, Central America and Europe. Looking ahead, we will focus on executing our business strategy on sales and operations and delivering results consistently. Our goal is to play a key role in commercializing China's low-attitude economy and global UAM industry, with safety as our top priority. I will turn the call over to our CFO, Connor Yang, on financial performance. Thanks.

Thank you, Mr. Wang. Hello, everyone. This is Connor. Before I dive into details, please note that all numbers presented are in RMB and are for the second quarter of 2024, unless stated otherwise. Detail analysis are available in our early press release on our IR website. I will now highlight some key points. I am pleased to report that our continued diligent execution has led to another quarter of exceptional financial results in second quarter 2024. We exceeded our revenue guidance by over 13%, achieved adjusted net income, and have generated positive operating cash flow. for three consecutive quarters. Notably, our OC application has been formally accepted by CAAC, marking a significant step closer to commercial operations and accelerated growth. Now, let's dive into details of our second quarter results. Total revenue in second quarter were 102 million, representing a significant increase of 919.6% year-over-year and a 65.3% increase from prior quarter. The increase were primarily driven by higher sales volume of EH216 series products. We delivered 49 units of EH216 series products in second quarter, a significant growth from five units a year earlier and 26 units in first quarter 2024. Growth margin remains consistently high at 62.4% in second quarter, up 2.2 percentage point from 60.2% in second quarter 2023 and a 0.5 percentage point increase from 61.9% in first quarter 2024. The increase were mainly due to changes in revenue mix. Our high gross margin continued to underscore our competitive edge in the eVTOL sector. In second quarter, our adjusted operating expenses, which are operating expenses excluding share-based compensation expenses, was $70.6 million. up 21.6% from $58 million in second quarter 2023, and up 29.6% from $54.5 million in the prior quarter. The increase was mainly due to higher sales-related conversations, expansion of sales channel, and increased expenditures on different models of eVTOL aircrafts. Second quarter adjusted operating loss was 4.7 million, a notable 90.9% improvement from 51.3 million in second quarter 2023, and a 62.9% improvement from 12.6 million in first quarter 2024. This quarter, we are proud to have achieved adjusted net income earlier than anticipated. Adjusted net income in second quarter was 1.2 million, compared to adjusted net loss of $51.8 million in second quarter 2023 and adjusted net loss of $10.1 million in first quarter 2024. Thanks to our prudent cash management and improved credit controls, we have achieved positive cash flow from operations for the third consecutive quarter, adding strength to our balance sheet. At the end of second quarter, Our cash, cash equivalents, short-term deposit, the restricted short-term deposit, and short-term investment balances were $988.2 million. Additionally, we have raised more than U.S. $76 million from the at-market offering as of today, with a strengthened liquidity position and our confidence in future growing operating cash flow. we will not continue selling ADS under the ad market offering in 2024. The proceeds already raised will fill the next phase of our development and growth strategy, aforementioned by Mr. Hu, including R&D for next-generation EVITO technologies and products, team and product expansions, new headquarters in Guangzhou, upcoming commercial operations, and other business purposes. With EH216-S having secured three certificates and our OC applications accepted by CAAC, we are well positioned to commence commercial operations setting the stage for new phase of growth. We expect total revenue for the third quarter of 2024 to be around $123 million, representing an increase of 329.8% year-over-year and 20.6% quarter-over-quarter. Having achieved positive operating cash flow for the third consecutive quarter and adjusted net income in the second quarter, we are confident that this upward trend will continue and ultimately lead to full-year positive cash flow in 2024 and foreseeable adjusted net income in 2025. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

Thank you, dear participants. As a reminder, if you wish to ask a question over the phone, please press star 11 on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star 11 again. Please, then Bob will compile the current narrow studies. We'll take a few moments. And now we're going to take the first question. And it comes from the line of Laura Lee from Deutsche Bank. Your line is open. Please ask your question.

Hey. Thank you for taking my question, and congratulations on the strong quarter. So my first question is thinking about the timeline of commercial operation to oversee markets, when would you expect to start that? Is that 2025 realistic? Hello, I'll answer this question.

We have been actively promoting the overseas market, but the premise of overseas commercial operations is to obtain local supervision, permission and certification. Currently, China's Civil Aviation Bureau is working with countries such as the United Arab Emirates, Brazil, Indonesia, Thailand, etc. to promote the 10-航 certification and the 216 VTC. The time depends on the progress of the project by the regulators of the countries, so in this process, the industry will actively cooperate and follow the requirements of the local authorities. Here's the English translation.

We've been actively extending our presence in the international market, but studying commercial operations in overseas countries depends on getting the local regulatory approvals and certifications. Right now, EHAM is working with CAC in advancing bilateral awareness agreements for the validation of tax certificates, or BTC, of the EHAM 216S. with other countries' aviation authorities, such as UAE, Brazil, Indonesia, and Thailand, etc. The timeline depends on the local regulators' schedule and the progress. And throughout the process, IHAM will actively cooperate and provide the required documents to push forward the process. And besides, we have already made a few deliveries in overseas markets. like the Middle East and Indonesia, and conducted a demo flight there. And this helped us not only to expand the market, to educate the public, but also to enhance the communication with local authorities for their recognition of our aircraft and our aircraft safety features, paving the way for the VTC certification. Thank you.

Okay, thank you so much. Appreciate it, Carla. And my second question is, I think we get really impressive gross margin of over 60%. I'm just trying to understand what percentage of our supply chain actually we share or overlap with the EV or the drone business?

Okay, most of our procurement are from China domestic. with some electric components or chips imported from overseas. And battery design is different than the EV cars. So we design our own battery as well as we design our own electric motors that we outsource to suppliers in China. And so in general, there are certain portions overlapping with the EV cars, but mostly are different. of the aircraft.

So for most part, we produce and we assembly in our own factory, in beautiful factory so far.

Thank you. Okay. Yeah, thank you for the color.

Yeah, congratulations again for the direct delivery. Thank you.

Thank you.

Thank you. Now we're going to take our next question. And the next question comes from Lan of from Goldman Sachs. Your line is open. Please ask the question.

Hi. Thank you for taking my question. So I will ask it together. My first question is about the progress of EHAO obtaining the TC of VT30. As we see that the VT30 and EH216 are in different sizes and features. So what are the key challenges of VT30 when you develop compared to the EH216? And my second question is on the R&D spending. So what's your expectation of R&D spending in the next three years? And what would be your key focus on the R&D investment? Will you spend more on the new model or the enhancement of the existing model? Thank you.

Thank you. 我来回答第一个问题。 目前研发团队正在做在原来VT30的原型机的基础上

to complete the new design and technical upgrade of the EH-216, and optimize the performance of each aircraft. It will be released soon. After the release, it will be announced to the market as soon as possible. EH-216 is now a three-in-one aircraft, so the focus of sales and operation at this stage is around EH-216S. This aircraft is small, agile, and does not need a large enterprise. This is the English translation.

Leveraging the BD30 prototype, our R&D team is currently redesigning and upgrading our lift and cruise model for enhancing the flight performance. And we will keep you updated on this. And we will also submit the TC application for our lift and cruise model once it's released. And since the E-Hunt 216F now has three required certificates, so our main focus is on its sales and operations. And the EHAM 216S is perfect for the air transportation within the city because it is compact and it does not need large takeover landing areas. While the VT30 series lithium cruise model is meant to complement our current product portfolio and use cases. And it is designed specifically for intercity air transportation. It's not a replacement for the E-Hunt 216S. That is suitable for the air taxi users within the urban area. Thank you.

OK. This is Connor. I'll answer the second question regarding R&D. On the second quarter, R&D Expenses, it's about adjusted total RPEX about . So going forward, we're expecting that the R&D expenses will be around 45% to 50% of our total RPEX. And we are committed to our R&D development. And for example, if you compare the number of first quarter R&D expenses, actually, we have increased about 42% with R&D expenses for first quarter. And our future R&D efforts will focus on optimizing the EH216 performance improvement and developing the long-haul eVTOLs and other aircraft for both passenger carry as well as . And that will include expenses on the R&D materials and our R&D team expansion, test flight, and airworthiness certification expenses. I would say that we believe our gross rate of revenue year over year will be a lot higher than overall RPEC. So even though we continue to increase our R&D expenses, the R&D expenses, the percentage of the revenue will continue to drop in the coming years.

Thank you.

Thank you.

Now we're going to take our next question. And the next question comes from the line of Cindy Huang from Morgan Stanley. Your line is open. Please ask your question.

Thanks for taking my question, and congratulations on remarkable QQ results. My first question is regarding your order backlog. I see EHON has made significant progress in securing new orders. Could you give us a quick update on how many purchase orders we have on hand and when they will be delivered? And also, could we have a rough idea on geographic mix in terms of the order backlog? So that's my first question.

and split delivery in stages. There are still new customers and orders coming in. It is expected that the overall delivery trend will continue to grow. So in the next stage, our focus is to build new factories and accelerate delivery speed, which can increase the order reserves even more. This year, in the city of Xianfeng, we created an operating sample, and applied for a driver's license, and put the EH216S operating system down at the operating point. In the future, the experience of operating points can be applied to more places in China, and at the same time, increase order growth.

Currently, our orders and pre-orders have over 1,100 units in the Chinese market. We plan to deliver this by batches over the next one to three years, per our customers' requests and their business development and the pace of their placing orders. We are getting more and more new customers and orders, so we expect the deliveries to keep growing. In the next phase, our focus will be on expanding production facilities, accelerating the deliveries of our existing order pipeline and the new orders. And for this year, we will also help our customers to apply OC, setting up demonstration projects in pioneer cities to exemplify EVADO operations. And in the future, we aim to replicate these operational sites and share our experience in more locations across the country.

To add on your question about distribution on the geographic mix, the orders, if you recall, that fourth quarter last year and as well as the first quarter this year, our orders revenue contribute around 20% to 25% of our total revenue. But since the PRC government is promoting no altitude, we're seeing a very rapid growth for the Arctic climate. So we're expecting that in terms of geographic mix, that will be 90% for China for this year and next. And the percentage of the overseas revenue will decrease from last year. even though the international demand is still quite strong. Thank you.

Thank you. That's pretty comprehensive. And my second question is regarding gross margin. So how should we think about the gross margin over time, especially after we take off commercial operations?

Right. A gross margin, right now, we are the only company company that can provide product for commercialization. Therefore, we have the pricing power, even though as we scale up, we will have like a leverage in terms of our procurement. But on the other side, we'll continue to improve certain features of our 216. So net-net, after we get the TC, we'll still maintain the 6% plus gross margin. In terms of the overall net margin, we have achieved adjusted income in the second quarter. And as we have seen that very, very strong revenue growth.

So we're expecting with the revenue growth rapidly, the net income margin will continue to improve in the next many years to come. Thank you.

Thank you. Thank you. Now we're going to take our next question. And the question comes from the line of Cindy Huang from, my apologies, from Yu Cheng from Haitong Securities. Your line is open. Please ask your question.

Thank you. Okay. Congratulations for the company's business program, and thank you for taking my question. I have two questions. The first one is, could the management team provide some insight into the company's plans for EH-216 operations, including the planning site, commercial routes, and pricing schedules for each flight, once starting commercial operations? My second question is, we noticed that the company is actively promoting the establishment of UAM operation sites and personnel training across various places. What is your current operation cooperation model with local governments or customers? I'm going to answer the first question.

Regarding your question, in addition to YiHang Airways and HeYi Airlines, YiHang Intelligence in Guangzhou, Shenzhen, Taiyuan, Wuxi, and other joint partners are also jointly fundraising to actively promote the approval of the OC. After the operation of the main body OC in various places, the new headquarters of YiHang will be in Guangzhou, Hefei, Luogang Central Park, and Shenzhen, Wuxi, Taiyuan, Wencheng, etc. to start operation work. will focus on the application scene of aerial sightseeing, and accumulate operating experience during the process, and continuously improve the operating manual, and refer to the following newly established operating main body to reduce risk and difficulty. Regarding pricing, the main application scene we currently use is aerial sightseeing, and the previous common flight tools are helicopters, so we can use the price of the helicopter to compare. Our pricing will be very competitive, is half the price of a helicopter, even lower, because the purchase price of EH216S is much lower than that of a helicopter, and there is no cost for the pilot to hire it. The price of the electrified structure is also lower than that of a helicopter, so it will be more effective in the near future. In addition, the subsidies from the local governments to launch Iveto operating lines are very strong, such as Shenzhen and Hefei.

For your first question, besides the Han General Aviation and Hefei Heye Aviation, our partners in Guangzhou, Shenzhen, Taiyuan, and Wuxi, among other cities, are also actively preparing their OC applications. Once the local operators have obtained the TC, they will first start operations at our new headquarters in Guangzhou and Hefei Luogang Central Park and more sites in Shenzhen, Wuxi, Taiyuan, Wencheng, and starting from the area sightseeing use cases. And throughout the process, we will accumulate operational experience and continuously refining our operational manual, which will serve as a reference for new operators to mitigate their operational risks and uncertainty. And for the question on the pricing, everything I'm seeing is constantly our targeted use cases. Compared to the helicopters, our price can be half of them or even lower. It's very competitive because the E-Hunt 216S acquisition cost and maintenance cost is much lower than the helicopter. And we don't have pilot cost. Moreover, the local governments are offering subsidized for EVETO round operations. For example, in Shenzhen and Hefei, they plan to offer subsidized for EVETO operators for RSI seeing and air transportation within and between cities. And the subsidized range from 100 to 300 RMB per person each flight. Thank you.

For the second question, Yihang has established a full-fledged subsidiary company, Yihang Transparency, as a operating platform company to serve the customer service, and set up an operating demonstration sample. Based on the Yihang Transparency platform, we established a joint operating company with the government, or a cooperative partner. For example, in Hefei, the joint operating company was established with Shenzhen Bolling Group. Our way of cooperation is to provide customer service, professional operation guidance, technical regulations, And for your second question,

The Yihang General Aviation is our wholly owned subsidiary. It serves as an operation platform company to provide operational services to our customers. They have demo projects and models. We have established a joint venture with the local government for partners through the Yihang General Aviation to provide a little operation services such as He Yi, aviation in Hefei, and the Pengcheng Wing established with our customer boarding group in Shenzhen. So our cooperation model works like this. Yihang provides the necessary support, including the after-sales services, operational guidance, technical specs, and personnel training. While the government and customers, they are responsible for planning and building the infrastructure. The joint projects are warm and operational team and the system to obtain the OC for commercial operations. By working together, we can ensure the safe operations and create a commercial model that can be scaled up and replicated and sustained. Thank you.

Thank you for your answers.

Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes to the line of Gareth Zhao from TF Securities. Your line is open. Please ask your question.

Okay, so congratulations on companies outstanding performance this quarter. I have two questions. The first one is that, so do you expect to maintain the growth trend? Looking forward, how do you view the company's revenue growth trajectory?

Thank you for your question. This is Connor.

We have pre-ordered over 1,000 units in China, and our production has been steadily ramping up since the end of 2020. So we expect to maintain revenue growth in the third quarter. So our guidance for the third quarter is 123 million. That's more than 300% increase over the year, and more than 20% growth We are confident that our revenue will achieve triple-digit growth year-over-year and becoming important. And we estimate for the REO-19 market in China, there are over 10,000 units in demand in 2016.

And when it's applied to transportation purpose in various cities in China, that demand will be even larger.

together with the international demand. So we believe that we should achieve a very high growth rate for the next three to five years. Thank you.

Okay, thank you. That's very clear. So my second question lies in overseas market. So we have noticed that you have expanding Middle East market recently. So what's your competition like? advantage in the market like the Middle East? Or do these countries tend to favor Iveto models that can fly longer distances?

I want to answer. Yihang is the first Iveto company to fly in the Middle East. In 2017, Dubai carried out the first flight of the local drone pilot Iveto. In terms of market audit, it has advantages compared to the same industry. The Air Force is recommending a framework agreement with China's Air Force to make some test flights for the Air Force this year. In May, the Air Force approved the Air Force's 216-S unmanned aerial aircraft, which is of great significance. The VTC will then establish a good foundation. Now, the Abjabi test area is planning to design an aircraft carrier and an aircraft carrier building for low-altitude aircraft and improve the low-altitude infrastructure. We are confident that in the Middle East region, with the help of our local customers and partners in Alenqiu and Shakhtar, Yi航 can take the lead in the local business development. As I said, it is never a problem to use VATO to travel. The key is to meet the needs and applications of customers and passengers. In addition, with the addition of new aircraft, we have received continuous interest in Yi航216S in the Middle East region. and urban air traffic needs. Thank you.

Ehang is the first eVeto company to conduct test flights in the Middle East, which our first pilotless eVeto flight in Dubai was back in 2016. Sorry, 2017. In terms of the airworthiness certification, we also have an advantage over our peers. The UAE's General Civil Aviation Authority, or GCAA, is moving forward a framework agreement with CAC for mutual recognition of airworthiness certification. We will be conducting some test flights for the GCAA within this year. And in May, we conducted the first passenger-carrying flight in Abu Dhabi, making the first of its kind in the UAE with GCA's approval. It's a very significant milestone that lays the foundation for our future BTC. And Abu Dhabi is planning UAM infrastructure now, including the vertiports and the EVADO terminal. We are very confident with the support of our local customers and partners in the UAE and Saudi Arabia. We can be the first to commercialize eVeto operations in the region. And we believe that the flight range is not a key issue for eVetos. What really matters is to meet the needs of the passengers and to feed the specific use cases. We've been seeing growing interest and demand for 816s in the Middle East market, particularly for the urban air transportation. And we will introduce a new type of aircraft to serve for more diverse findings. Thank you.

Excuse me, Gareth. Any further questions? Thank you. Now we're going to take our next question.

And the question comes from the line of Rongyan Zhou from CTEK Security. Your line is open. Please ask your question.

OK, thank you.

So first, congratulations on the company's strong performance and business progress disclosure. Here, I have two questions. So for the first, so I mean with the cap state expansion plans underway in Guangzhou, Hefei and other locations. So could management provide more insight into its cap state expansion plans and what can we expect in terms of the capital expenditure over the next two years? So that's my first question, thank you.

Yes, thank you. In our current Yunfu facilities, we plan to do more automation. As you know, we have signed a strategic agreement partnership with GAC, and they have lots of experience in automation and supply chain management. So in Guangdong province, we will improve the automation in Yunfu factory, the current one, as well as we... plan to build new facilities in Guangzhou together with GAC. And on the other side, Hefei will build the assembly plant. That's our plan. So overall, in the next year, we should add some additional 1,000 annual productions for next year. In terms of CapEx, we're innovating our new headquarters. We're building lots of facilities. We're building our R&D labs. are also building a test supply centers and together with all these factory expansion. So we are expecting, now expect the CapEx for 2024 will be about US dollar 15 million and CapEx for 2025 will be around 20 million US dollars. Thank you.

Okay, thank you for your answers and My second question is, could Mediman provide more information on recent ATM financing and as companies finance plans for the future?

Okay, thank you. Since April, we have raised US dollars, 76.2 million US dollars to our ATM program without disturbing the market. Our average price actually for all these 76 million, the average price is 16.5 US dollars per share. And right now with the rapid revenue growth and consistent positive cash flow from operations, we decide not to continue selling ADS under the ATM program for this year. And we're always looking for the best financing strategy and also to optimize our capital structure to help the company to build the strategy and also to drive our business growth. Okay, thank you.

Okay, thank you very much for your answer and congratulations again for the company. So, thank you.

Thank you. Thank you.

Thank you all. Given the time is limited, let me turn the call back to Ms. Anne for closing remarks.

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

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day. you Thank you. Thank you. Thank you. Thank you. Good day, ladies and gentlemen. Thank you for standing by and welcome to the Ehang second quarter of 2024 earnings conference call. As a reminder, we are recording today's call. Now we'll turn the call over to Ann Gee, Ehang's Senior Director of Investor Relations. Ms.

Ann, please proceed. Hello, everyone.

Thank you all for joining us on today's conference call to discuss the company's financial results for the second quarter of 2024. The earnings release is available on the company's IR website. Please note the conference call is being recorded and the audio replay will be posted on the company's IR website. On the call today, we have Mr. Hua Zhihu, our founder, chairman, and the chief executive officer. Mr. Zhao Wang, chief operating officer. and Mr. Connor Yang, Chief Financial Officer and Director of the Board. 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 case of any discrepancy, the management statement in the original language will prevail. A Q&A session will follow afterwards. Before we continue, please note that today's discussion will contain forward-looking statements made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the ICC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Also, please note that all the numbers presented are in RMB and are for the second quarter of 2024, unless stated otherwise. With that, Let me now turn it over to our CEO, Mr. Hua Zhihu. Please go ahead, Mr. Hu. 谢谢,安妮。 大家好,非常感谢各位参加一航智能的电话会议。 今年第二季度以来,一航智能作为Evato龙头企业, 我们在财务业绩、订单交付、生产爬坡、 标准与认证、运营点部署、

as well as in the development of new generation technology products, have achieved outstanding results, continuing to lead the development of the global urban air traffic industry. In April this year, we obtained the production license issued by the Chinese Civil Aviation Bureau, PC. To this end, we are very happy to become the only three-pronged design, development, and production manufacturers in the world's E-VITAL industry, which currently has the only unmanned carrier aircraft. After the three wars, we were fortunate to welcome the policy spring wind of China's development of low-altitude economic and strategic new industries. In the development plans that are as hot as fire all over the country and the strong demand for new low-altitude aircraft, our Evato products, as representatives of new productivity, have received a large number of customers and large orders of purchase orders. In the second quarter, our delivery and revenue have reached a new high in history. Q2, Q2, Q2, Q2, Q2, Q2, Q2, compared to the rise of the military. Since the fourth quarter of last year, we have accumulated more than 1,100 batch orders in China's domestic market, and they are constantly growing. After the approval of the PC, our cloud production base has officially entered the stage of mass production climbing of EH216-S test aircraft. We will strictly follow the safety production procedures and quality assurance system of the aircraft, continue to optimize production efficiency, and steadily increase our production and delivery volume according to the order rhythm of customers. In order to meet the long-term delivery of batch orders, we are also planning to expand the future production capacity. As a result of the four-party strategic cooperation agreement of the Guangzhou空港委, Guangzhou Development District Commission, and Guangqi Group in the first quarter of this year, we will further sign the cooperation ideal book with Guangqi Group in June this year. We plan to set up a joint venture and combine the experience and advantages of Guangxi Group's experience and automation production line in electric car manufacturing and automation production lines in Guangzhou to carry out the production and manufacturing of unmanned passenger aircraft. This will further enhance our future production capacity and respond to market needs more quickly, and improve the efficiency and scale of product delivery. Of course, whether it is for the industry or our customers, delivery is just the first step. The construction of post-sales services, personnel training, site planning, operating standards and systems is also important. Therefore, transportation and handling, stable delivery, and guaranteed operation are the pillars of our current stage of service customers and development businesses. Because unmanned driving and commercial operation are also the first industries in the world to explore. Therefore, as pioneers and openers in the industry, We focus on the following three aspects and have achieved excellent stage results. One is talent training. We have developed a customized set of E-VITAL aircraft personnel training courses and assessment systems. We have developed a customized set of E-VITAL aircraft personnel training courses to ensure the safety of operation. Second, it is the basic construction. We are not only deeply involved in the development of China's first technical standard group standard for eVTOL take-off and landing, but also cooperated with local governments and customers in Guangzhou, Hefei, Shenzhen, Zhuhai, Taiyuan, Wencheng, and other places, and made the EH226-S take-off and landing site and low-altitude UAM operation core demonstration samples. The third is the permit and certification of operation. In July, the Chinese Civil Aviation Bureau officially accepted the application for the application of Guangdong Yihang Airways and Hefei Heyi's application for the certification of operation. This is the first OC screening project in the world to receive the OC certification of unmanned aerial vehicles. It also means that the world's first unmanned aerial vehicle operation standard is about to be born. At the same time, as a technology innovation company, We will not stop at technology innovation and the development of new products. On the basis of the VT30 prototype, we have made a new design and technical upgrade to the Fuhayi model to achieve better flight performance. We will release it in the near future. Please wait and see. In addition, we are also continuously optimizing the performance of EH216-S. In terms of key battery technology, we are developing the next generation of Fuhayi 4H standard, It has a high energy density, high charge life, high instant charge ratio, and high safety eVTOL battery solution. For example, in April this year, we cooperated with the world's first super fast charge eVTOL battery developed by G1G, which will greatly improve the efficiency of the aircraft, and better meet the operating and supply needs of UAM large-scale high frequency. In addition, We are also in the testing process of the solid-state Li-ion electronic new sample developed in cooperation with the new battery. At the same time, we are still conducting continuous research and development of core components such as motors, propellers, and materials for new technology and new solutions, and we are continuing to upgrade and import more high-quality suppliers such as Zhuhai and Ingol. At the same time, while we continue to improve the flight performance of aircraft, we can also help with industrial layout, to strengthen the stability of the supply chain. Our newly upgraded R&D laboratory is also about to be launched in our new headquarters, to support the R&D and testing of new technologies such as batteries and motors. Today, I am also very happy to share with you that the new headquarters building and supporting facilities of Yihang New Headquarters on the shore of Zhujian, Huangpu District, Guangzhou, are also under construction. We will provide a more beautiful and grand exhibition center, a new command and control center, and a super-realistic office area with a sense of future. And we will combine the surrounding smart community and commercial entities to open tourism and transportation lines, connect ground, air, and water transport, and will be built into Guangzhou's new city name, Yihang Future City, and demonstrate low-temperature economic and ecological applications in the big city. This year, It is the 10th anniversary of the establishment of E-Hang. From the founding company to the developers and leaders of the global UAM industry, we have always focused on the development and application of unmanned aerial vehicle technology and products, and continue to promote the innovation of technology, ideas, and standards. From the development of the world's first unmanned aerial vehicle prototype, to the safe flight of unmanned aerial vehicle, from the development of unmanned aerial vehicle to the standards of the design industry, and have received the first TC, PC, AC in the world. We continue to achieve cross-examination from 0 to 1 through innovation and hard work, contributing to the development of all-human low-altitude flight technology. Now, the investment and accumulation of these years of persistence has created a positive and stable financial return and long-term growth trend for us. This is the English translation of Mr. Hu's remarks.

Hello, everyone. Thank you for joining Ehang's earnings call. Since the second quarter of this year, as a leading company in the EVITO industry, Ehang has achieved remarkable results in multiple aspects, including financial performance, orders and deliveries, production ramp-up, industry standards and certifications, operation sites deployment, and R&D of next-generation technologies and products. This is enabling us to continue leading the global urban air mobility industry. This April, we successfully obtained the production certificate, which is the PC for our Ehang 216S. We are proud to be the world's only EVETO designer, developer, and manufacturer to possess three certifications for the pilotless passenger-carrying EVETO aircraft. With these three certifications in hand, We have also benefited from China's variable policies that bring strong support for the development of the low-altitude economy as a national strategic emerging industry. Driven by the widespread development plans across the country and a strong market demand for innovative low-altitude aircraft, our EVADO product as a representative of the new quality productive forces promoted by the nation have garnered a large number of customers and bulk orders. Our delivery volume and revenues both reached record highs in Q2. We delivered 49 units of E-Hunt 216S, a nine-fold increase year-over-year. Quarterly revenues surged to 102 million RMB, also a nine-fold increase year-over-year, and a 65% increase quarter-over-quarter. we achieved a quarterly adjusted net income earlier than we expected, which marks a very promising start. The company's Q2 growth margin was as high as 62.4%, with both year-over-year and quarter-over-quarter increase. Since Q4 last year, we have received over 1,100 units in bulk pre-orders in the Chinese market. This number is continuing to grow. After securing the PC, our info production facility has started a production ramp-up of the certified EH-216S. We will continue to improve production efficiency, strictly in accordance with aircraft production procedures and quality management systems, and steadily increase our production and deliveries according to the customer's order request. To meet the continuous delivery of long-term bulk orders, we are also planning for the future production capacity expansion. Based on the four-party strategic cooperation agreement we signed in Q1 this year with the Management Committee of the Guangzhou Airport Economic Zone, the Administrative Committee of Guangzhou Economic and Technological Development District, and GAC, which is Guangzhou Automobile Group. We further signed an MOU with GAC in June with the intent to establish a joint venture. This joint venture will leverage GAC's expertise and advantages in intelligent manufacturing and automated production lines for electric vehicles to produce pilotless passenger-carrying aircraft in Guangzhou. We look forward to this cooperation to further enhance our future production capacity which will allow us to respond to the market demand more quickly and lift the efficiency and scale of our product deliveries. Delivery is merely the starting point, whether for EHAM or our customers. Equally important are the provision of exceptional after-sales support, personnel training, site planning, operational standards, and system development. Our current customer service and business focus are both sales and operations, while maintaining a steady stream of product deliveries and ensuring safe operations. As the global pioneer of a pilotless EBITDA provider, we are taking the responsibility to explore commercial operations through collaborating closely with the regulatory authorities, customers, and partners to co-create a sustainable ecosystem that foster the industry's growth and development. With that, we are focusing on three key areas in which we have achieved significant progress. The first one is talent cultivation. We have developed a customized video aircraft personnel training program and assessment system designed to equip our customers with qualified operational team, ensuring safe operations. Secondly, infrastructure development. We not only actively participated in the formulation of China's first group standards for technical requirements of eVeto vertiports, but also collaborated with local governments and customers to establish eHand216S vertiports and low-altitude urban and mobility operations center demonstration projects in Guangzhou, Hefei, Shenzhen, Zhuhai, Taiyuan, Wencheng, and among other locations. Thirdly, operational standards and certification. In July, the CAC accepted the Air Operator Certificate, or OC, applications submitted by the Yihang General Aviation and Hefei Heyi Aviation. As the world's first OC project for the pilotless passenger-carrying event aircraft, it is paving the way for the establishment of the world's first commercial operation standard for the pilotless passenger-carrying vehicles. As an innovative technology company, we will not slow down our pace in R&D for new products and technologies while pushing forward with sales and operations. Building on the VT30 prototype, we have conducted a comprehensive redesign and technological upgrade of our lift and cruise vehicle model. aiming to achieve more exceptional flight performance. We will be releasing this soon, so please stay tuned for the exciting news. We are also continuously optimizing the performance of our EHAM 216S. In the critical areas of battery technology, we are developing next-generation available battery solutions that meet the 4H standards, which means high energy density, high cycle life, high instantaneous charge-discharge rate, and high safety. For example, in April, we partnered with Greater Bay Technology, a battery provider incubated by Guangzhou Automobile Group, for the research and development of the world's first ultra-fast charging battery solutions for EVITOs. This is expected to significantly improve the EVITO operational efficiency and meet the demands of the large-scale, high-frequency UAM operations. Furthermore, we are also testing the solid-state lithium battery cells developed in collaboration with INX. Meanwhile, we are also continuously researching and developing new technologies and solutions for core components, such as electric motors, propellers, and materials. iterating and upgrading them to achieve sustained improvements. We have also cooperated with more high-quality suppliers, such as Zhuhai Empower Electric Company, a leading EV powertrain provider into our system. This not only enhances the flight performance of our aircraft, but also helps to strengthen the stability of our supply chain and support our industrial layout. Also, our newly upgraded R&D laboratories are nearing completion at our new headquarters, designed to support the development and testing of new technologies and components, such as batteries and electric motors. I'm also delighted to share with you that our new headquarters and supporting facilities located on the banks of the Pearl River in Guangzhou Huangpu District are currently under construction. This complex will feature a state-of-art exhibition center and a brand-new community control center and a futuristic office space. Furthermore, we will integrate with the surrounding communities and commercial complexes to launch aerial sightseeing and transportation routes with our evitals, connecting ground, air, and water transportation, and creating a new urban landmark, Yihang Future City. as well as a UAM demonstration area for low-altitude economy in the Greater Bay Area. As we celebrate Yihang's 10th anniversary, we reflect on our journey from humble beginnings to becoming a global trailblazer and a leader in the UAM industry. Throughout, we have remained steadfast in our commitment to exploring pilotless passenger-carrying aircraft and any applications driving innovations in technologies, concepts, and standards. From pioneering the world's first pilotless passenger-carrying evito prototype to achieving the safe and reliable flights of pilotless evitos. From the absence of industry standards to establishing and shaping them. And subsequently, obtaining the world's first type certificate, production certificate, and standard airworthiness certificate. we have consistently pushed the boundaries from zero to one through innovations and perseverance, contributing to shaping this urban air mobility industry. Today, our years of hard work and dedication have led to strong and stable financial performance and a long-term growth trajectory. With our passion and respect for the aviation industry, we will continue to drive over into the next exciting phase of commercial operations, creating greater value for our stakeholders, supporters, and shareholders. Next, let me turn the call over to our COO, Mr. Wang, to elaborate on our Q2 operational performance. Thank you.

Thank you, Mr. Hu, and hello, IR1. Since securing the production certificate in April, we have been authorized for mass production of our EH216S and secure standard airworthiness certificate for each aircraft that we have delivered. Our sales and deliveries continue to grow. In the second quarter, we delivered 49 units of EH216S, generating revenue of RMB 102 million, representing a year-over-year increase of over 9 times and a quarter-over-quarter increase of 65%. Let me highlight some key examples of customers and partnerships. In June, we partnered with Wencheng Zhejiang Province and received a purchase order with an additional purchase plan for up to 300 units of EH-216S. We have already delivered the first batch of 27 units in the second quarter and conducted the debut flight at a local sending area in Wencheng. The customer also made a prepayment for the remaining aircraft and subsequent orders will be placed as the customer expands its operations. Wencheng has become our first authorized distributor in East China to obtain provincial-level distribution qualifications and will establish a comprehensive sales network for our aircraft across Zhejiang Province. We also delivered the first batch of chain units of EH-216F to Xishan Tourism for low-altitude tourism services in Taiyuan. In July, EH266S completed its debut passenger-carrying flights in Taiyuan, making a milestone for development of the low-attitude economy in Shanxi Province. This delivery is part of a 50-unit order from Xishan Tourism that has been fully paid, with the customer plans to purchase an additional 450 units over the next two years. These units will be deployed in landmark scenic areas in Taiyuan and create a series of Low-Etiquette Tourism demonstration projects, further advancing the construction of the Low-Etiquette Economy demonstration area in Shanxi Province. Furthermore, in the second quarter, Yihan also delivered EH-26S to our customers in Guangdong, Hainan, Jilin, Liaoning, and Japan. In July, we signed the Sales and Operations Cooperation Agreement with KC Smart Mobility, a subsidiary of Hong Kong's largest non-franchised bus operator, Kuchong Bus Holding Limited. KC Smart Mobility plans to purchase 30 units of EH-216S for development and operations in Hong Kong, Macau, and Hubei Province. further boosting market development in Great Bay Area and mainland China. Our company has received over 1,000 units pre-orders for the EH-216 series EVATOS in China market. With the production capacity expansion, we expect to maintain a growing delivery trend in the third quarter. We anticipate the revenues of the third quarter will reach RMB 123 million, as we continue to receive more new orders. The increasing orders also mean a higher demand for production capacity. While ensuring that every aircraft meets delivery standards, we are also actively working with large, intelligent manufacturing enterprises such as GAC to establish a joint venture. focused on production upgrading to automated production lines. At the same time, we are expanding our Yunfu factory to scale up our production and establishing a new manufacturing base at Yihang, East China Regional Headquarters in Hefei City, which will meet the growing delivery demands in the East China region. We are fully committed to ensuring production and delivery, while advancing commercial operation preparations, providing customers with operation training, and creating application demonstration projects. In terms of operation personnel training, we provide our customers with sufficient training courses after the delivery. including theoretical learning, aircraft safety operation, daily maintenance, and emergency management, and so on, to ensure that personnel are certified and on duty to ensure operation safety. This comprehensive training program ensures that our customers are capable of operating our EVATO aircraft in a proficient and compliant manner and providing safe flight services to the public At the same time, we also plan to cooperate with domestic aviation colleges and professional institutions to carry out personnel training and jointly establish systems for academy education, license management, and so on. For the industry's future large-scale, standardized, and professional operations, our joint training program with the Civil Aviation Flat University of China is now in a state of curriculum design. On the operational infrastructure front, Yihan collaborates closely by providing technical requirements and design solutions, while the infrastructure construction is managed by local governments and our customers. Operation sites in key locations have been launched, including Shenzhen OH Bay, Hefei Luogang Central Park, Guangzhou Jiulong Lake, Zhuhai Tangjia Port, and Wencheng Landing Lake. Each of these sites is equipped with facilities including dedicated vertiports for EH-216S, hangars, and passenger service areas. In addition, many local governments are planning to build operation networks for future air mobility. For example, Shenzhen targets to set up a thousand of low-altitude take-off and landing platforms, and Guangzhou plans to invest RMB 10 billion into low-altitude infrastructure. This will include over a hundred regular-use verticals and hundreds of community landing pads. Our EH-216S is ideally suited for future urban air transportation. It is compact, lightweight, can fly autonomously, easy to manage fleets, and cost-effective. In May, we were actively involved in shaping China's first group standard for EVATO waterports. This will set the stage for future industry standards. not only already post-built, in accordance with the standard, will be able to accommodate EH-216S. In terms of operation standards and certification, As Mr. Hu mentioned, in July, the CAAC accepted the Air Operator Certificate or OC applications by two operators. One is Yihang General Aviation, our subsidiary for UAM operations. The other is He Yi Aviation, our operation joint venture in Hefei. The CAAC has finished reviewing of He Yi Aviation's application documents and is about to conduct on-site inspection soon. The first OC for pilotless passenger-carrying evato is expected to receive within this year, allowing the operator to launch commercial operations with EH216S. Afterwards, we will have more customers and partners in applying OC, with our accumulated experience and established safety standards. This will also help expanding our operation network. In July, we also formed a strategy partnership with China Southern General Aviation, a leading general aviation service provider under the China Southern Airlines Group. Together, we are planning to introduce a range of services, including EVATO tourism, cross-island flights, and cargo transportation at Zhuhai Airport. Qimlong Ocean Kingdom, and surrounding islands. Moreover, we are thrilled to see several local governments, including those in Shenzhen, Guangzhou, Hefei, and Zhuhai, are offering direct subsidies for eVeto commercial routes. These subsidies range from RMB 100 to 300 per passenger per flight, providing robust support for eVeto service operators. In the international market, We continue to expand into the Middle East market in the second quarter. In April, we reached a strategy cooperation with the Abu Dhabi Investment Office and the Multilevel Group. They will support our development in the UAE and the Middle East region. In May and June, our EH-216S completed debut flights in UAE and Saudi Arabia. Since then, our EVATO footprint has expanded to 16 countries worldwide. In the third quarter, we will continue to expand our business in overseas markets such as Africa, the Middle East, Central America, and Europe. Looking ahead, we will focus on executing our business strategy on sales and operations and delivering results consistently. Our goal is to play a key role in commercializing China's low-attitude economy and the global UAM industry, with safety as our top priority. Next, I will turn the call over to our CFO, Connor Yang, on financial performance. Thanks.

Thank you, Mr. Wang. Hello, everyone. This is Connor. Before I dive into details, Please note that all numbers presented are in RMB and are for the second quarter of 2024. Unless stated otherwise, detailed analysis are available in our early press release on our IR website. I will now highlight some key points. I am pleased to report that our continued diligent execution has led to another quarter of exceptional financial results in second quarter 2024. We exceeded our revenue guidance by over 13%, achieved adjusted net income, and have generated positive operating cash flow for three consecutive quarters. Notably, our OC applications has been formally accepted by CAAC. marking a significant step closer to commercial operations and accelerated growth. Now, let's dive into details of our second quarter results. Total revenue in second quarter were $102 million, representing a significant increase of 919.6% year-over-year and a 65.3% increase from prior quarter. The increase were primarily driven by higher sales volume of EH216 series products. We delivered 49 units of EH216 series products in second quarter, a significant growth from five units a year earlier and 26 units in first quarter 2024. Growth margin remains consistently high at 62.4% in second quarter, up 2.2 percentage point from 60.2% in second quarter 2023 and a 0.5 percentage point increase from 61.9% in first quarter 2024. The increase were mainly due to changes in revenue mix. Our high growth margin continued to underscore our competitive edge in the eVTOL sector. In second quarter, our adjusted operating expenses which are operating expenses excluding share-based compensation expenses, was $70.6 million, up 21.6% from $58 million in second quarter 2023, and up 29.6% from $54.5 million in the prior quarter. The increase was mainly due to higher sales-related compensations, expansion of sales channel, and increased expenditures on different models of eVTOL aircraft. Second quarter adjusted operating loss was $4.7 million, a notable 90.9% improvement from $51.3 million in second quarter 2023, and a 62.9% improvement from $12.6 million in first quarter 2024. This quarter, we are proud to have achieved Adjusted net income earlier than anticipated. Adjusted net income in second quarter was $1.2 million compared to adjusted net loss of $51.8 million in second quarter 2023 and adjusted net loss of $10.1 million in first quarter 2024. Thanks to our prudent cash management and improved credit controls, we have achieved positive cash flow from operations for the third consecutive quarter, adding strength to our balance sheet. At the end of second quarter, our cash, cash equivalents, short-term deposit, the restricted short-term deposit, and short-term investment balances were $988.2 million. Additionally, we have raised more than US$76 million from the at-market offering as of today. With the strengthened liquidity position and our confidence in future growing operating cash flow, we will not continue selling ADS under the at-market offering in 2024. The proceeds already raised will fill the next phase of our development and growth strategy, aforementioned by Mr. Hu. including R&D for next generation EVITO technologies and products, team and product expansions, new headquarters in Guangzhou, upcoming commercial operations, and other business purposes. With the EH216-S having secured three certificates and our OC applications accepted by CAC, we are well positioned to commence commercial operations setting the stage for a new phase of growth. We expect total revenue for the third quarter of 2024 to be around $123 million, representing an increase of 329.8% year-over-year and 20.6% quarter-over-quarter. Having achieved positive operating cash flow for the third consecutive quarter and a adjusted net income in second quarter. We are confident that this upward trend will continue and ultimately lead to full-year positive cash flow in 2024 and foreseeable adjusted net income in 2025. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

Thank you, dear participants. As a reminder, if you wish to ask a question over the phone, please press star 1 1 on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star 1 1 again. Please then bow. We'll compile the Q&A roster. This will take a few moments. And now we're going to take the first question. And it comes from the line of Laura Lee from Deutsche Bank. Your line is open. Please ask your question.

Hey, thank you for taking my question and congratulations on the strong quarter. So my first question is thinking about the timeline of commercial operation to oversee markets. When would you expect to start that? Is that like 2025 realistic?

Hello, let me answer this question. The overseas market is what we have been actively promoting. But the premise of overseas commercial operations is to obtain local supervision, permits and certifications. Currently, China's Civil Aviation Bureau is working with countries such as India, Thailand, and other countries in the region to promote commercial certifications, as well as 216's VTC. The time depends on the progress of the project by the regulators of the countries. So during this process, the industry will actively cooperate and provide the necessary materials according to the requirements of the local authorities and make full progress. Here's the English translation. We've been actively extending our presence in the international market.

but studying commercial operations in overseas countries depends on getting the local regulatory approvals and certifications. Right now, Yiheng is working with CAC in advancing bilateral airworthiness agreements for the validation of tax certificates, or VTC, of the Yiheng 216S with other countries' aviation authorities, such as UAE, Brazil, Indonesia, and Thailand. etc. The timeline depends on the local regulators schedule and the progress. And throughout the process, EHAM will actively cooperate and provide the required documents to push forward the process. And besides, we have already made a few deliveries in overseas markets, like the Middle East and Indonesia, and conducted a demo flight there. And this helped us not only to expand the market to educate the public, but also to enhance the communication with local authorities for their recognition of our aircraft and our aircraft safety features, paving the way for the VTC certification. Thank you.

Okay, thank you so much. Appreciate it, Carla. And my second question is, I think we get really impressive gross margin of over 60%. I'm just trying to understand what percentage of our supply chain actually we share or overlap with the EV or the drone business?

Okay, most of our procurement are from China domestic. with some electric components or chips imported from overseas. And battery design is different than the EV cars. So we design our own battery as well as we design our own electric motors. And we outsource to suppliers in China. And so in general, there are certain portions overlapping with the EV cars, but mostly are different.

Fuselage of the aircraft. So for most part that we produce and we assembly in our own factory. Factory so far. Thank you. Okay.

Yeah. Thank you. Yeah. Thank you for the color.

Yeah, congratulations again for the direct delivery.

Thank you.

Thank you.

Thank you. Now we're going to take our next question. And the next question comes from Lan of from Goldman Sachs. Your line is open. Please ask the question.

Hi. Thank you for taking my question. So I will ask it together. My first question is about the progress of EHARN obtaining the TC of VT30. As we see that the VT30 and EH216 are in different sizes and features. So what are the key challenges of VT30 when you develop compared to the EH216? And my second question is on the R&D spending. So what's your expectation of R&D spending in the next three years? And what would be your key focus on the R&D investment? Will you spend more on the new model or the enhancement of the existing model? Thank you.

Thank you. 我来回答第一个问题。 目前研发团队正在做在原来VT30的原型机的基础上

to carry out a new design and technical upgrade in line with the new model to optimize various flight performance. It will be released soon. After the release, we will report to the market as soon as possible. Our EH216S aircraft is now in the third stage. So the focus of sales and operation at this stage is around EH216S. This aircraft is small, flexible, and does not need a large aircraft. This is the English translation.

Leveraging the BD30 prototype, our R&D team is currently redesigning and upgrading our lift and cruise vehicle model for enhancing the bike performance. And we will keep you updated on this. And we will also submit the TC application for our lift and cruise model once it's released. And since the E-Town 216F now has three required certificates, so our main focus is on its sales and operations. And the EHAM 216S is perfect for the air transportation within the city because it is compact and does not need large take-over landing areas. While the VT30 series lithium cruise model is meant to complement our current product portfolio and use cases, And it is designed specifically for intercity air transportation. It's not a replacement for the E-Hunt 216S. That is suitable for the air taxi users within the urban area. Thank you.

OK. This is Connor. I'll answer the second question regarding R&D. On the second quarter, R&D Expenses, it's about adjusted total RPEX about . So going forward, we're expecting that the R&D expenses will be around 45% to 50% of our total RPEX. And we are committed to our R&D development. And for example, if you compare the number of first quarter R&D expenses, actually, we have increased about 42% with R&D expenses for first quarter. And our future R&D efforts will focus on optimizing the EH216 performance improvement and developing the long-haul eVTOLs and other aircrafts for both passenger carry as well as . And that will include expenses on the R&D materials and our R&D team expansion, test flight, and airworthiness certification expenses. I would say that we believe our gross rate of revenue year over year will be a lot higher than overall RPEC. So even though we continue to increase our R&D expenses, the R&D expenses, the percentage of the revenue will continue to drop in the coming years.

Thank you.

Thank you.

Now we're going to take our next question. And the next question comes from the line of Cindy Huang from Morgan Stanley. Your line is open. Please ask your question.

Thanks for taking my question, and congratulations on remarkable results. My first question is regarding your order backlog. I see EHON has made significant progress in securing new orders. Could you give us a quick update on how many purchase orders we have on hand and when they will be delivered? And also, could we have a rough idea on geographic mix in terms of the order backlog? So that's my first question.

Thank you. Currently, we have more than 1,100 domestic orders. In the next one to three years, based on customer needs, business development and order pace, and split delivery in stages. There are still new customers and orders coming in, and the overall delivery trend is expected to continue to grow. So in the next stage, our focus is to build new factories and accelerate delivery speed, which can increase order reserves even more. This year, in the city of Xianfeng, we built an operating sample, and applied for the application certificate, and put the EH216S operating system on the real ground at the operating point. In the future, the experience of operating points can be applied to more places in China, and at the same time, promote order growth.

Currently, our orders and pre-orders have over 1,100 units in China market. We plan to deliver this by batches over the next one to three years, per our customers' requests and their business development and the pace of their placing orders. We are getting more and more new customers and orders, so we expect the deliveries to keep growing. In the next phase, our focus will be on expanding production facilities, accelerating the deliveries of our existing order pipeline and the new orders. And for this year, we will also help our customers to apply OC, setting up demonstration projects in pioneer cities to exemplify EVADO operations. And in the future, we aim to replicate these operational sites and share our experience in more locations across the country.

To add on your question about distribution on the geographic mix, the orders, if you recall, that fourth quarter last year and as well as the first quarter this year, our overseas revenue contributed around 20% to 25% of our total revenue. But since the PRC government is promoting no elderly, we're seeing a very rapid growth for the client. So we're expecting that in terms of geographic mix, that will be 90% from China for this year and next. And the percentage of the overseas revenue will decrease from last year. even though the international demand is still quite strong. Thank you.

Thank you. That's pretty comprehensive. And my second question is regarding gross margin. So how should we think about the gross margin over time, especially after we take off commercial operations?

Right. A gross margin, right now, we are the only company that can provide product for commercialization. Therefore, we have the pricing power, even though as we scale up, we will have like a leverage in terms of our procurement. But on the other side, we'll continue to improve certain features of our 216. So net-net, after we get the TC, we'll still maintain about 6% plus gross margin. not because In terms of the overall net margin, we have achieved adjusted income on second quarter and as we We have seen that the very very strong revenue growth. So we are expecting with the revenue growth rapidly Net income margin will continue to improve many years to come

Thank you.

Thank you. Thank you. Now we're going to take our next question. And the question comes from the line of Cindy Huang from, my apologies, from Yu Cheng from Haitong Securities. Your line is open. Please ask your question.

Thank you. okay congratulations for the company's great business program and thank you for taking my question i have two questions uh the first one is could the management team provide some insight into the company's plans for the h2 16th operation including the planning site commercial rules and pricing schedules for each flight once starting a commercial operations My second question is we noticed that the company is actively promoting the establishment of UAM operation sites and personnel training across various places. What is your current operation cooperation model with local governments or customers? First of all, the EH216 S-PoS will be integrated into the operating line and pricing. The second question is, QoS is also continuously promoting the UAM operation network point construction and personnel training in various places. What is the current local operation cooperation model like? Thank you very much, Guan Licheng.

I will answer the first question first. Regarding your question, In addition to Yihang Airways and He Yi Airways, Yihang Intelligence's partners in Guangzhou, Shenzhen, Taiyuan, Wuxi and Hubei are also working together to actively promote the approval of the OC. After the operation of the main body OC in various places, we will start operation work in Guangzhou, Yihang's new headquarters, Hefei Luogang Central Park, and Shenzhen, Wuxi, Taiyuan, Wencheng, etc. will focus on the application scene of aerial sightseeing. In the process, we will accumulate operating experience and continue to improve the operating manual, and use the new operating main body for reference to reduce risk and difficulty. Regarding pricing, the main application scene we currently use is aerial sightseeing, and the flying tool we used to use is the helicopter. So we can use the price of the helicopter to compare. Our pricing will be very competitive. is even lower than the price of half of the helicopter, because the purchase price of EH216S is much lower than that of the helicopter, and there is no cost for the pilot to hire it. The price of the electrified structure is also lower than that of the helicopter, so the economic effect will be better. In addition, the subsidies issued by local governments for the Iwato operating line are very strong, such as Shenzhen and Hefei.

For your first question, besides the Han General Aviation and Hefei Heye Aviation, our partners in Guangzhou, Shenzhen, Taiyuan, and Wuxi, among other cities, are also actively preparing their OCF applications. Once the local operators have obtained the TC, they will first start operations at our new headquarters in Guangzhou and Hefei Luogang Central Park, and more sites in Shenzhen, Wuxi, Taiyuan, Wencheng, and starting from the area sightseeing use cases. And throughout the process, we will accumulate operational experience and continuously refine our operational manual, which will serve as a reference for new operators to mitigate their operational risks and uncertainties. And for the question on the pricing, everything I'm seeing is currently our targeted use cases. Compared to the helicopters, our price can be half of them or even lower. It's very competitive because the E-Hunt 216S acquisition cost and maintenance cost is much lower than the helicopter. And we don't have pilot cost. Moreover, the local governments are offering subsidized for EVETO round operations. For example, in Shenzhen and Hefei, they plan to offer subsidized for EVETO operators for RSI seeing and air transportation within and between cities. And the subsidized range from 100 to 300 RMB per person each flight. Thank you.

For the second question, We set up a full-fledged subsidiary company, Yihang Transparency, as a operating platform company to serve our customers, and set up an operating demonstration model. Based on the Yihang Transparency platform, we established a joint operating company with the government, or a joint partner. For example, in Hefei, we established a joint operating company with He Yi Intelligence and Shenzhen Bolling Group. Our cooperation method is to provide customer service, professional operation guidance, technical regulations, And for your second question,

The Yihang General Aviation is our wholly owned subsidiary. It serves as an operation platform company to provide operational services to our customers. They have demo projects and models. We have established a joint venture with the local government for partners through the Yihang General Aviation to provide a little operation services such as He Yi, aviation in Hefei, and the Pengcheng Wing established with our customer boarding group in Shenzhen. So our cooperation model works like this. EHAM provides the necessary support, including the after-sales services, operational guidance, technical specs, and personnel training. While the government and customers, they are responsible for planning and building the infrastructure. The joint project reform and operational team and the system to obtain the OC for commercial operations. By working together, we can ensure the safe operations and create a commercial model that can be scaled up and replicated and sustained. Thank you.

Thank you for your answers.

Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes to the line of Gareth Zhao from TF Securities. Your line is open. Please ask your question.

Okay, so congratulations on company's outstanding performance this quarter. I have two questions. The first one is that, so do you expect to maintain the growth trend? Looking forward, how do you view the company's revenue growth trajectory?

Thank you for your question. This is Connor.

We have pre-ordered over 1,000 units in China, and our production has been steadily ramping up. We expect to maintain revenue growth in the third quarter. Our guidance for the third quarter is 123 million. That's more than 300% increase every year, and more than 20% growth over the quarter. We are confident that our revenue will achieve triple digit growth year over year, and that will be important. And we estimate, for the REO19 market in China, there are over 10,000 units in demand in October 2016.

what is applied to transportation purpose in various cities in China, that demand will be even larger and together with the international demand.

So we believe that we should achieve a very high growth rate for the next three to five years. Thank you.

Okay, thank you. That's very clear. So my second question lies in the overseas market. So we have noticed that You have been in the Middle East market recently. So what's your competition like advantage in the market like Middle East? Do these countries tend to favor EVTO models that can fly longer distance?

Yes, I want to answer. Yihang is the first EVTO company to fly in the Middle East. In 2017, we held the first EVTO flight in Dubai. There are advantages in terms of market audit in the same industry as in the same industry. The International Civil Aviation Bureau is recommending a framework agreement with China's Civil Aviation Bureau to do some test flights for the International Civil Aviation Bureau this year. In May, the International Civil Aviation Bureau approved the 216-S unmanned aerial aircraft's manned hand-to-hand flight, which is of great significance. The VTC will be established and the base will be measured. Now, Abjabi's experimental area is planning to design an aircraft carrier and an aircraft carrier building to improve the ground-based infrastructure. We are confident that in the Middle East region, with the help of our local clients and partners in Alenqiu and Shatt, we will be able to achieve commercialization and landing in the local area first. As I said, it has never been a problem to use VATO for navigation. The key is to match the client's and passenger's needs and application scenarios. In addition, there is a new type of aircraft as a supplement. In the Middle East, we have received continuous interest in Yihang 216S and the need for urban air traffic. Thank you.

Yihang is the first EVO company to conduct test flights. Here is the translation of the answers to your question. Yihang is the first EVO company to conduct test flights in the Middle East. which our first piloted civil flight in Dubai was back in 2016, sorry, 2017. In terms of the airworthiness certification, we also have an advantage over our peers. The UAE's General Civil Aviation Authority, or GCAA, is moving forward a framework agreement with DAC for mutual recognition of airworthiness certification. we will be conducting some test flights for the GCAA within this year. And in May, we conducted the first passenger-carried flight in Abu Dhabi, making the first of its kind in the UAE with GCAA's approval. It's a very significant milestone that lays the foundation for our future VTC. And Abu Dhabi is planning UAM infrastructure now, including the vertiports and the EVADO terminals. We are very confident with the support of our local customers and partners in the UAE and Saudi Arabia. We can be the first to commercialize eVeto operations in the region. And we believe that the flight range is not a key issue for eVeto. What really matters is to meet the needs of the passengers and to feed the specific use cases. We've been seeing growing interest and demand for EH-216s in the Middle East market, particularly for the urban air transportation. And we will introduce a new type of aircraft to serve for more diverse findings. Thank you.

Excuse me, Gareth. Any further questions? Thank you. Now we're going to take our next question.

And the question comes from the line of Rongyan Zhou from CTEK Security. Your line is open. Please ask your question.

Okay, thank you.

So first, congratulations on the company's strong performance and business progress this quarter. Here I have two questions. So for the first, so I mean with the cap state expansion plans underway in Guangzhou, Hefei and other locations. So could management provide more insight into its cap state expansion plans and what can we expect in terms of the capital expenditure over the next two years? So that's my first question, thank you.

Yes, thank you. In our current Yunfu facilities, we plan to do more automation. As you know, we have signed a strategic agreement partnership with GAC, and they have lots of experience in automation and supply chain management. So in Guangdong province, we will improve the automation in Yunfu factory, the current one, as well as we... plan to build new facilities in Guangzhou together with GAC. And on the other side, Hefei will build the assembly plant. That's our plan. So overall, in the next year, we should add some additional 1,000 annual productions for next year. In terms of CapEx, we're innovating our new headquarters. We're building lots of facilities. We're building our R&D labs. are also building test flight centers, and together with all these factory expansion. So we are expecting, now expect, the CapEx for 2024 will be about US dollar 15 million, and CapEx for 2025 will be around 20 million US dollars. Thank you.

Okay, thank you for your answers, and My second question is, could Mediman provide more information on recent ATM financing and as companies finance plans for the future?

Okay, thank you. Since April, we have raised US dollars, 76.2 million US dollars to our ATM program without disturbing the market. Our average price actually for all these 76 million, the average price is 16.5 US dollars per share. And right now with the rapid revenue growth and consistent positive cash flow from operations, we decide not to continue selling ADS under the ATM program for this year. And we're always looking for the best financing strategy and also to optimize our capital structure to help the company to build the strategy and also to drive our business growth. Okay, thank you.

Okay, thank you very much for your answer and congratulations again for the company. So, thank you. Thank you.

Thank you.

Thank you all. Given the time is limited, let me turn the call back to Ms. Anne for closing remarks.

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

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.