EHang Holdings Limited

Good day, ladies and gentlemen. Thank you for standing by and welcome to the EHANG fourth quarter and fiscal year of 2024 earnings conference call. Please note that the management's prepared remarks and the subsequent Q&A session will primarily be conducted in Chinese and the corresponding simultaneous or consecutive interpretation can be accessed on the English line. As a reminder, all translations are for convenient purpose only. In case of any discrepancy, the management statement in the original language will prevail. To listen to the original remarks by management, please join the Chinese line. Additionally, both the Chinese and English lines are open for questions. And today's call is being recorded. Now I will turn the call over to Angie Ehang, 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 fourth quarter and fiscal year 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. 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 Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding this and other risks and uncertainties is included in the company's public filings with 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 numbers presented are in RMB and are for the fourth 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.

Hello everyone and thank you for joining our earnings call. Q4 and full year 2024 marked another record-breaking period for Yihan. We continue to grow significantly, beating our guidance and setting new record high quarterly and annual deliveries and revenues. In Q4, we delivered 78 units of EH216 series product, generating revenues of 164 million RMB, representing an increase of 239.1% year-over-year. For the full year, we delivered 216 units, with the total revenue reaching 456 million RMB, marking a 288.5% year-over-year increase. More importantly, 2024 was a breakthrough year as we achieved positive adjusted net income and positive operating cash flow for the first year, a significant milestone in Ehon's decade-long journey. With this, Ehon also became the first eVito company in the global urban air mobility industry to achieve non-GAAP profitability, further solidifying our leadership. At China's 2025 two sessions, the low-altitude economy took center stage as strategic emerging industry a key driver of new quality productivity for the second consecutive year it was included in the government work report which explicitly calls for large-scale demonstration projects to advance new technologies new products and new applications to promote the sector's safe and healthy development additionally china's ndrc national development and reform commission established a dedicated low altitude economy development department in december 2024 Meanwhile, the local governments in over 50 cities across China have introduced their localized development plans for the sector. These government initiatives further highlight China's long-term national strategy and strong commitment to developing the low-altitude economy. If 2024 was the year of planning for low-altitude development, 2025 will be the year of its implementation. Since obtaining the three airworthiness certificates, we have been accelerating the commercial deliveries and operational deployment of the EH216S. Our customers have already established over 20 eVito operational demonstration sites and ePorts across 16 cities in China, including Hefei, Guangzhou, Shenzhen, Shanghai, Wuxi, Taiyuan, and Wenzhou. This year, our top priority is to launch operational demonstration projects in key cities to enable the public to experience the EVITO flights firsthand. To this end, we have been actively driving the operator certification process for pilotless passenger-carrying EVITO aircraft. Currently, the Civil Aviation Administration of China has completed document and on-site inspections for the first two applicants accepted. They are Yihan General Aviation, our wholly-owned subsidiary substantializing in UAM operation services, and He Yi Aviation, our joint venture in Hefei. Both are now awaiting the final approval. We look forward to the early issues of the two-operator certificate, marking the beginning of the commercial eVito operation era. Looking ahead, we expect more operators to apply for the operator certificates, paving the way for broader commercial flight service of the EH216s in the future. 2025 marks a pivotal year for AI technology innovation in China globally. This year's government work report reaffirms the nation's commitment to the AI Plus initiative, emphasizing the acceleration of AI applications across various industries, including the low-altitude economy. As a pioneer in pilotless eVito technology, Yihan continues deepening our AI Plus strategy. Leveraging our core technologies, including safety redundancy, autonomous flight and fleet management, along with intelligent system platform, we're integrating AI across the whole eVito lifecycle to drive intelligent upgrades and innovative practices in commercial operations. This includes further optimizing our key technologies and capabilities, such as intelligent flight control algorithms, Autonomic Detection, Flight Route Planning, Command and Control, Human-Machine Interaction, Scenario Simulation and the UAV Cloud System. Beyond enhancing our aircraft, AI is set to expedite the construction and enhancement of the digital infrastructure for air mobility. EHON will collaborate with multiple Chinese universities, colleges and relevant government departments and the commercial conglomerates to advance the integration and innovative integration of digital technologies such as 5G, 6G, satellite communication sensor technologies, and high-precision navigation with the low-altitude aviation industry. Together, we aim to build a smart low-altitude ecosystem, interconnecting air traffic infrastructure, flight corridors, communication and navigation systems, airspace management, and operational services. This will establish a secure, efficient, and intelligent digital foundation to support commercial operations for Yihan and our customers. On the product front, we continue to advance our multi-rotor eVito series through strategic collaborations with the leading upstream companies, including INX, Greater Bay Technology, and Empower. Together, we are developing customized the next generation high-energy solid-state lithium batteries, fast-charging batteries, and electric motors. We have achieved great progress in sample design, prototyping, and testing. We conducted the industry's first eVito test of light powered by solid-state lithium batteries, delivering an impressive endurance of over 48 minutes. We are thrilled about this major technological breakthrough that it reinforces our confidence in next phase overall performance enhancements. For our upgraded lift and cruise model VT-35, its prototype is in its final assembly and testing. We plan to complete the full functionality test to fly as soon as possible and initiated the airworthiness certification process. It will be unveiled soon. For the flying car that targets the mass consumer market, we formed a cross-industry strategic partnership with China Automobile to actively design and discuss new product solutions to explore innovative approaches to future personal transportation. Over the past decade, Ehan has pioneered numerous industry firsts, and we firmly believe the next 10 years will witness the rise of the low altitude economy, disruptive development of AI technologies, and transformative development in unmanned aviation. As the saying goes, our journey of thousand miles begins with the first step. As Ehan enters its next decade in 2025, we remain steadfast in our commitment to advancing technological innovation, industry standards, operational demonstration, and ecosystem development of pilotless EVs. We aim to lead the transformation of urban air mobility while promoting the safe, healthy, and sustainable development of the industry. Next, I'll turn the call over to our COO, Mr. Wang. Thank you. Hello everyone, this is Wang Zhao. We closed 2024 with record high deliveries and revenues, exceeding our performance guidance. This success is driven by strong market demand and growing customer orders. In particular, our EH216S autonomous messenger eVito has received a 30-unit order from Shandong Province, a 30-unit order from Zhejiang Province, along with an initial 5-unit order and an indicative order from another 45 units from Sun River, with the result of 78 units deliveries in Q4 and 164 million in revenues. The total annual deliveries reached 216 units with a total revenues of 456 million RMB. To meet the continuously growing order demands, we're focusing on enhancing production efficiency, scaling production capability, and planning capacity expansion. Guided by our Manufacture-to-Order principle, we're establishing our original and networked production base layout in South China, East China, and North China. In South China, our Phase 1 Yunfu production base currently has an annual capacity of 300 units. This year, we plan to expand Phase 2 with 24,000 square meters of new production lines while upgrading automation, and efficiency. By 2025, UNFO production base is expected to reach double size and a total annual capacity of 1,000 units. It will also produce large number of aviation materials and components for our customers. In East China, with Hefei as our regional headquarters, we are further deepening strategic cooperation with Hefei government, partnering with advanced new energy vehicle manufacturer JAC Group and Hefei Guo Xian Holdings to build an advanced, generalized, and automated eVito manufacturing base. Additionally, we are collaborating with the Weihai High-Tech Zone in Shandong Province to establish a pilotless passenger eVito R&D and manufacturing base there, creating an all-round collaboration system, integrated production, sales, and operations. In North China, we have entered a partnership with the Beijing Fangshan District Government to establish a national headquarters for low-altitude emergency rescue equipment. The headquarters features 72,000 square-meter a training center of over 100,000 square meters and a training and exercise base of hundreds of acres. Leveraging EHAU's current flight platform and autonomous flying technologies, we plan to vigorously develop R&D production and operations in the fire emergency rescue sector, providing support for the life safety with autonomous flying vehicles. This year's two sessions promoted large-scale application demonstration actions and the safe and healthy development of the low-altitude economy, which are deeply in line with EHOT's development strategy. We fully endorse this principle. Safety is the top priority of the sector, from the in vitro design to the flight and operational system. e-hon has implemented comprehensive safeguards for commercial operations e-hon has integrated the full redundancy philosophy from the id sector into the design of our pilotless passenger invitos and has passed vigorous airworthiness testing and certification the three major electrical systems within the aircraft all have sufficient redundancy with backups eliminating single point failures As the low-altitude economy approaches a critical phase of mass adoption, the industry requires a suite of scientific, comprehensive, rigorous, and safety-oriented operational framework for eVITOS. During the operator certification review process, EHON worked closely with government agencies, regulators, academic institutions, and industry associations to advance the establishment and improvement of relevant standards and regulations. To strengthen safety operations, we have internally optimized our organizational structure to establish a comprehensive safety operational system and team. From product sales, customer service, personal training, aviation material sales, maintenance and repair, and software system to landing pass design, route planning, and integrated operational services, we are building a full cycle value chain. encompassing hardware services and operations to provide customers with one-stop solutions. Looking ahead, our revenue streams will become more diversified. This year, EHON remains committed to the Safety First principle while focusing on low altitude tourism as the key entry point and urban air mobility as a large scale goal to expand our UAM operational network in pioneer cities to demonstrate the low altitude economy and then systematically scaling operations from point to point connections to a fully integrated network. For example, Our second UAM hub at Luogang Park in Hefei, the EVITO operation center at Longhua Airport in Shanghai's Shihui Riverside, and the first automated vertiport at the UAM center in Luohu, Shenzhen. These flagship projects serve as typical models. Over the next three years, we will work with partners such as China Construction Group, China Communications Construction Company, and other infrastructure construction units, local governments, and major commercial partners to jointly develop more than 100 urban air mobility terminals and more than 100 low-altitude cultural tourism terminals, in national 5A level scenic areas across China. We aim to build a city-level, low-altitude economy flight service system and carry out integrated business cooperation that combines culture and tourism, transportation, emergency response, and logistics. In 2025, based on Ehan's current mature flight platform and autonomous flying technologies, we will not only vigorously develop passenger business, but also develop non-passenger business. The fire emergency rescue sector has already been established in the capital Beijing. Besides, Ehan is committed to developing low-energy, long-endurance logistics UAV products, which will greatly promote the development of low-cost, high-efficiency, Aerial logistics transportation. We aim to realize applications in interprovincial, interprovincial, and cross-border logistics scenarios. Currently, we have started exploration and layout in Beijing, Guangdong, Guangxi, and Hainan. Overseas, we are expanding our presence in Asia, Europe, and South America to continuously advance our market development, flight scenarios, and regulatory approvals. In Q4 last year, we conducted three consecutive days of EH216S passenger carrying flights in central Bangkok, Thailand, and plan to launch commercial trial operations this year within the sandbox areas designated by the Thai Civil Aviation Authority. In Japan, we completed a new four-city flight tour, expanding our flight footprint across 16 cities and showcasing multiple use cases, including aerial sightseeing, inter-island transportation, aerial logistics, and emergency services. In February this year, EH216S completed Europe's first autonomous EVITO flight in an urban environment in Benidorm, Spain, setting a precedent for future urban air mobility deployment in Europe. Most recently, we conducted our first flight in Mexico, further expanding our global footprint to the 19 countries. To date, our cumulative flight record has surpassed 64,000 flights. As we move into 2025, we will continue to execute our global market strategy of deepening domestic business while expanding globally. We will remain focused on both sales and operations, further diversifying our revenue streams. Amidst China's trillion-level low-altitude economy and the Blue Ocean market, along with the great potentials for aerial sightseeing across nearly 15,000 Class A and above tourist attractions and nearly 700 cities for urban air mobility, we remain optimistic about the strong demand for our in vitro products and operational services. Confident in our long-term growth prospects, we expect total revenue for 2025 to reach 900 million RMB, representing an approximately 97% increase year-over-year. Now, I'll turn the call over to our CFO, Connor, for the financial performance. Thank you. Hello, everyone. This is Connor. Before I go into details, please know that all numbers presented are in RMB, unless otherwise stated. Detailed analysis are contained in our earnings press release, which is available on our IR site. I will now highlight some of the key points here. I am pleased to report that we closed 2024 on a strong note, surpassing expectations for both Q4 and the full year. In Q4, we achieved record revenues of $164.3 million, representing an impressive 190% year-over-year growth. For 2024, our total revenues reached an all-time high of $456.2 million, up a substantial 289% year-over-year. This outstanding performance was primarily driven by strong eVito market demand, along with our well-coordinated and impactful strategic initiatives in key areas including OC certification, production scaling, and commercial readiness. On deliveries, we set a new quarterly record with 78 units of the EH216S delivered in Q4, marking a 239% year-over-year increase and a 24% sequential growth. For 2024, total deliveries of the EH216 series reached 216 units, up 315% from 52 units in 2023. Our gross margin for Q4 was 60.7%, slightly down from 64.7% in the same period of 2023 and on par with Q3. For full year 2024, the annual gross margin was 61.4%, a slight decrease from 64.1% in 2023. The decreases in gross margin were primarily due to changes in the revenue mix and higher unit costs for the EH216S. Despite these modest declines, our gross margin remained high at 60%, highlighting our competitive edge and pricing power in the EVITO sector. Turning to the operating expenses, in Q4, adjusted operating expenses, which is defined as operating expenses excluding share-based compensation, were 78.2 million, up 22% year-over-year from 64.2 million, but down 10% from Q3. The sequential decline reflects cost control and efficiency optimization, while the year-over-year increase was mainly due to the expansion of sales channels higher employee compensation and investments in new EVITO models. In addition, we continue to actively invest in the development and iteration of new EVITO models and technologies since we obtained the three Airworthiness Certificates. For 2024, adjusted operating expenses were $290.1 million up 28.2% from $226.3 million in 2023. Strong top-line growth and cost efficiency contributed to a solid improvement in non-GAAP profitability. Adjusted operating income for Q4 was $27.9 million, a significant improvement from the adjusted operating loss of $24.9 million in Q4 2023 and up 208.2% from Q3. In Q4, we realized the third consecutive quarter of adjusted net income for $36.4 million, a sharp improvement from the adjusted net loss of $22.1 million in Q4 2023, and up 132.3% from Q3. For 2024, we achieved the first-ever annual adjusted net income of $43.1 million, a significant improvement from the adjusted net loss of $139 million in 2023, marking our entry into a new phase of sustainable and accelerating profitability. Alongside strong revenue growth and improving profitability, we also maintain a solid liquidity position. As of the end of Q4, our total cash and cash equivalents restricted short-term deposits and short-term investments was $1,155,000,000. This strong cash balance provides us with strategic flexibility to support growth initiatives, invest in innovation, and enhance market competitiveness. Notably, we recorded our fifth consecutive quarter of positive operating cash flow and the first ever annual positive operating cash flow. amounting to approximately 160 million in 2024, demonstrating our ability to generate a sustainable cash flow while scaling operations. Looking ahead to 2025, we are in the final stretch of obtaining operator certificates. We believe that the achievement of this key milestone along with our active progress in eVito commercialization readiness, operational deployments, production scale-up, technological innovation, and a global market expansion will further solidify our industry leadership, a strong foundation for accelerated growth, and drive us into a new growth cycle. Based on our current progress and market demand, we're expecting a total revenue in 2025 of approximately 900 million RMB, representing a year-over-year increase of 97%. Thank you.