Smart Share Global Limited

Hello, and thank you for standing by for Energy Monster's 2021 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host today for today's conference call, Director of Investor Relations, Hansen Shi.

Thank you. Welcome to our 2021 Third Quarter Earnings Conference Call. Joining me on the call today are Mars Tai, Energy Monster's Chairman and Chief Executive Officer, and Maria Xin, Chief Financial Officer. For today's agenda, management will discuss business updates, operations highlights, and financial performance for the third quarter of 2021. Before we continue, I refer you to our safe harbor statement. in the earnings trust release which applies to this call as we will make forward-looking statements. Also, this call includes discussion of certain non-GAAP financial measures. Please refer to our earnings release which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in R&D. I would now like to turn the call over to our chairman and chief executive officer, Mark Tsai, for the business and operation highlights.

Thank you, Hanson. Good day and good night, everyone. Welcome to our 2021 third quarter earnings call. We are pleased to announce the third quarter results with revenues being on the high end of our guidance. Despite so, we continue to see challenges from the continuous outbreaks of COVID-19 during the quarter. After the outbreak in Jiangsu in late July, there was a significant drop in offline activity and traffic throughout China. The outbreak in July and August had a significant impact on our operations. In the first half of July, which was before the outbreak, our GMV grew by around 30% year over year. And GMV per power bank per day was approximately 2.2 RMB. In the first half of August, however, our GNV decreased by about 9% year over year, and GNV per power bank per day was approximately 1.7 RMB. For the full month of August, Jiangsu Province GNV decreased by more than 40% year over year, Henan down around 30, and Hunan also down around 30. The impact that started in July had a countrywide impact as both affected and unaffected regions alike experience decreases in offline food traffic and spending resulting in a decline in traffic to our location partners. Both business and leisure travel were hit especially hard during the outbreak with hotel POIs. same-store GNV decreasing by more than 24% year-over-year during third quarter. Transportation hubs and tourist attraction POIs were also down on a year-over-year basis. Entertainment venue, same-store GNV also experienced a 14% decline year-over-year due to the general decline in offline traffic and travel. The overall decline in offline traffic has resulted in a short-term secular challenge for us, as well as for players in the restaurants and hospitality industries. We continue to remain confident that both the consumer market, both online and offline, will recover in due time once COVID outbreaks are better systematically controlled. Until then, Closure rate of smaller offline locations is expected to be on the rise and offline traffic will remain at a sub-normalized level. We are also seeing that the competition within the industry is on the decline as a number of our peers are reducing their aggressive expansion and revenue sharing policy recently. As the number one player in China's mobile device charging service, our advantage across the board will be more pronounced during times of decreasing competition. We believe once the short-term impact of COVID and the general offline traffic in China normalized, our operations will be able to return to normal levels. The fundamentals of our operations and our clear value proposition to both our customers and to our partners remains unchanged. During this period of volatility, and external impact, we will dedicate more time to optimizing our internal management and operational structures in preparation for the eventual recovery of COVID. To better navigate ourselves during these special times, we have implemented a number of key initiatives to lessen our exposure to the volatility in offline traffic, similar to how we carried through the initial COVID outbreak in early 2020. And it came out as the clear market leader in mobile device charging industry. Now, let me walk you through these core strategies in coverage, operations, and technology that will help us reduce our exposure to COVID outbreaks and enhance our overall competitive advantage. First is our continuous expansion of our service network. During the third quarter of 2021, we increased our network coverage by 49,000 new location partners, of which approximately 60% were for location partners in higher tier cities and 40% were for lower tier cities. The pace of our expansion reflects that there continues to be significant room for increasing mobile device charging service penetration in both higher and lower tier cities, and regions across China as well. As of the end of the third quarter, our mobile device charging service now covers over 1,700 counties and county-level cities across China, cementing us as the largest and most comprehensive mobile device charging service network within the industry. In terms of POI category, shopping centers remain one of the fastest growing POI category, while restaurant followed. With the increased coverage, we are able to continue rapidly grow our user base. As of the end of the third quarter, our accumulated registered user reached 273 million, implying nearly 18 million newly registered users when compared to the end of the second quarter of 2021. This indicates that as we scale our operations into new POIs, we are able to reach and convert new users into our user base. Our direct model continues to be at the forefront of our growth in high-altitude cities and coverage of KAs. In reactions to the impact of external factors on offline traffic, we have slowed down the hiring pace of our business development personnel since the fourth quarter. Instead, we are focusing more on their training procedures in order to better prepare them for the eventual recovery of the offline market. We are also making adjustments to their KPI matrix to better meet the condition of the market and encourage them into expanding to more reputable POIs have a lower single point closure rate. This will help us secure our assets from the higher than normal closure levels we are seeing in the restaurant POIs and to increase the efficiency of our power banks and cabinets. This brings us to our K strategy. We are committed to continue quickly bringing our service into leading brands and chain stores so that we can effectively cover more users. During times of COVID, KAs are generally less impacted by the drop in offline traffic when compared to single point smaller brand locations. Our ability to create tailored system and marketing solutions for our K partners remains unparalleled within the industry. This gives us best-in-class conversion rates of KAs within the industry and serves as a foundation to a long-term partnership with these KAs. Going forward, KA expansion will be a key strategy in mitigating the short-term impact of COVID outbreak on our operations. and will also serve as a long-term pillar of growth to our mobile device charging service. On network front, we continue to acquire new network partners around China, mostly in lower-tier cities. By doing so, we will be able to more quickly expand our network scale to cover more regions and to reinforce our network effect. We have launched a series of campaigns during third quarter to help us acquire high quality partners and to help them more quickly scale their operations. These campaigns will effectively lower the initial investment for each cabinet, giving them the ability to invest in more cabinets. At the same time, for top forming network partners, The campaign offers them higher incentives so that they can more quickly scale their operation up. During the third quarter, we increased the number of network partners by over 150. Going forward, these campaigns will help us work with more high-quality network partners and unlock their ability to more quickly scale their operations and ultimately help EnergyMonster further fortify its number one position. China's mobile device charging service market. Next is our initiatives on the operations side. We continuously make strides in optimizing our day-to-day operations in order to further expand our industry-leading efficiency. Because of the impact of COVID, our BDs KPI matrix are revised to require them to more cautiously use upfront entrance fees instead We are pushing for a wider adoption of revenue sharing models. In the long run, this will help us adjust our expense structure and make us less susceptible to fluctuation in the offline traffic that impact our top line. We also launched a new power bank optimization program during the third quarter. This new program dynamically calculates the suitable amount of power bank in each cabinet. based on the local and historical trends. These power bank numbers are then given to our BD through their tool via the to-do list section. On our BD side, they are recommended to adjust the power bank numbers based on the ideal number as calculated by our system. The implementation of this program has a few benefits. One is that our users are more likely to find a cabinet that has a power bank that is readily available for use. And then at the same time, they can find a cabinet that has a slot available for returns. This will greatly improve the user experience, paving ways for increased repeat purchase and satisfaction rate. Also, this program will help us optimize power banks to where they are needed the most instead of a standard amount in each cabinet. In essence, this will help increase power bank efficiency, resulting in a higher revenue and order per power bank. Lastly, this increased efficiency will eventually transition into lower capex for each location and lower percentage of depreciation expenses. Improvements such as the power bank optimization program continue to be drivers for increasing our operational efficiency. Now, one of the key differentiators that sets EnergyMonster apart from any of our peers within the industry in terms of both growth trajectory and margin profile is our operational excellence. And at the center of the ability to efficiently scale our operation is our technology. EnergyMonster's vast IoT network is the front end of our data inside development process. Our network spans across 1,700 counties across China with more than 820,000 locations and 5.8 million power banks in circulation. Our 273 million plus cumulative users and another layer of sophistication to the equation. Our extensive IoT network collects an average of over 400 million data points each day, ranging from all the statistics, hardware status, POI status, and other data points. These data points serve as fundamental layer for our analysis and optimization. Once the data is generated, our data analysis layer automatically restructure it and analyze the data into actionable insights We first divide the data into micro level insights so that our on the ground teams can better manage their POIs and expand into new ones that generate positive economics for the company. On the macro level side, higher level trends are calculated and delivered both to the data analysis layer for automatic adjustment and to managers and partners so that they can better understand the underlying trends. These insights serve as the pillar of the underground decision-making and operational strategies both for our own teams and for our partners. Our proprietary tool serves as the platform for our data insight to be delivered to the relevant parties. To us, data insights that are granular and relevant enough for action is the key. Our goal is to supply our on-the-ground teams and managers with actionable insights for database decision-making. This way, our team and external partners can better identify the impact of their actions on their performance. During the third quarter, we launched the updated version of our proprietary tool with updated feature and interface. This update will help both our internal BDs and external partners more clearly navigate through our system features and leverage new features such as localized heat map to more efficiently expand into locations that generate long-term positive economics for the company. Overall, by leveraging technology to the everyday management of our operation, we have been able to increase efficiency across the board allowing us to quickly become number one player in the mobile device charging service industry. In the future, we continue to see significant way in which our technology and data-driven approach can help us extract opportunities in operational efficiency, strategic applications, and new initiatives. Operationally, we will continue leveraging our AI technology to enable us to expand into high-quality POIs across China by taking into consideration of both micro and macro trends. Strategically, our hardware and software end-to-end capability will allow us to create the largest IoT network both in China and in the whole world. Lastly, these data-enabled insights will give us insights to consumption trends here in China, paving the way for us to explore more business opportunity within EnergyMonster platform. Overall, The challenges set forth by ongoing regional COVID outbreaks in China have brought challenges to our operation during the third quarter and will continue to impact the fourth quarter. The outbreaks since the one in July have negatively impacted our operation in the third quarter. In the fourth quarter, the wider-scale outbreak in Fujian Province and Heilongjiang Province during September have brought similar level of challenges to our operation for the fourth quarter. For example, during China's golden week of October, average same location, we see the GNV is down approximately 25% year over year. Localized travel restrictions and testing requirements for cross-city level have contributed to the decline. The general weakening of consumption power as a result of the outbreak, is also weighing down the fourth quarter. But I would like to emphasize that such factors are short-term in nature, as these results are mostly a result of COVID outbreaks. Our ability to deliver clear value proposition to our stakeholders is the fundamental to our long-term success. And this had not changed at all. We met similar challenges during the initial outbreak of COVID last year and was able to come out as number one player in the mobile device charging service industry. We are confident that we can do it again this time by focusing on our key strategies that help us reduce our exposure to COVID outbreaks and leveraging our competitive advantage in efficiency and network effect. We will come out of this time as the clear leader in China's mobile device service industry. Thank you. I will now turn the call over to Maria Xin, our CFO, for the financial highlights.