Smart Share Global Limited

Hello, and thank you for standing by for Energy Monster's 2021 fourth quarter and four-year earnings conference call. At this time, all participants are in 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 for today's conference call, Director of Investor Relations, Constance Shee.

Thank you. Welcome to our 2021 fourth quarter and full year earnings conference call. Joining me today on the call are Mars Tai, Energy Monster's Chairman and Chief Executive Officer, and Maria Jin, Chief Financial Officer. For today's agenda, management will discuss business updates, operation highlights, and financial performance for the fourth quarter and full year 2021. Before we continue, I refer you to our safe harbor statement in the earnings press 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 RMB. 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, everyone. Welcome to our 2021 fourth quarter and full year earnings call. We are pleased to announce fourth quarter results above our guidance with revenues reaching over $836 million for the fourth quarter of 2021. despite the continuous negative impact of COVID on our operations. During the fourth quarter, a number of regional COVID outbreaks, just to name a few, Chengdu in November, which resulted in a 41% decline in revenue during the 15-day period after the initial case. Xi'an in December, down 69%. Ningbo in December, was down also 57% and Dalian in November down 63%. Continue to bring challenges to our operation. These COVID outbreaks are generally followed by a significant drop in offline food traffic as people are more likely to stay at home and due to containment measures implemented by the government. Although these regions do recover once the outbreak is contained, it generally takes anywhere between one to two months to fully normalize, depending on the scale of the outbreak. The higher frequency and larger scale occurrence of outbreaks are resulting in a general decline in offline user traffic across the board in impacted regions, but most notably in the entertainment, hospitality, and transportation categories. which declined year-over-year by 24%, 25%, and 27% respectively in terms of the average revenue per POI. During the fourth quarter of 2021, same-store revenue decreased by approximately 30% year-over-year as a result of these outbreaks. Based on industry information, even KA brands in the chain restaurant, hospitality, and entertainment industries were significantly impacted during the quarter, although to a lesser extent compared to smaller brands. As we continue to face the increasing headwinds from larger and higher frequency regional COVID outbreaks, we are actively implementing measures to lessen our exposure to such external events and strengthening our long-term competitive advantage. To do so, we have to focus on reducing our fixed costs and expenses to better mitigate against fluctuations in revenue resulting from COVID outbreaks. Also, as we continue to scale our POI network, we will continue to implement measures to increase the efficiency of our assets, notably in the form of our power bank optimization program. We also have plans to roll out newer version of our cabinets during mid 2022, which will feature reduced costs per cabinet with improved features and similar build quality. Both the continuous implementation of the power bank optimization program and cabinet cost reduction will increase the efficiency of our asset, unlocking higher levels of return for both energy monster and for our network partners. While we continue to be impacted by COVID in the short term, we remain confident in long-term development of the business. We believe the service we provide is fundamental to the way of life here in China and that the long-term demand for our service remain highly resilient against short-term shocks. To better navigate ourselves during these special times, let me walk you through our core strategies in terms of coverage and operation that will help us reduce our COVID exposure and strengthen our long-term competitive advantage. First is the coverage of our service network. As of the end of the fourth quarter, our total coverage of POIs reached 845,000 up 25,000 quarter-over-quarter, and up 181,000 year-over-year. Our ability to continuously and efficiently expand our PY coverage reflects our strength in both our direct and network partner models. The increased coverage serves as the base of new user acquisition as we continue to move into new locations and provide our service to first-time users. As of the end of the fourth quarter in 2021, cumulative registered users reached 287 million, up 13.8 million quarter over quarter, and up 67.5 million year over year. Going forward, the network effect between our PY coverage and a cumulative user base will continue to benefit our ability to increase our market share in China's mobile device charging service industry. Now, in terms of the competitive environment, throughout last year, and especially in the recent months, we are seeing a decline in competition under the direct model as competitors within the industry significantly scaled down their direct operation personnel. This shift in the industry has resulted in a lighter competitive environment. for POS actually, resulting in decreases in incentive fees as a percentage of revenue for new signings. We believe by maintaining our direct operation at its current scale, this will serve as a crucial differentiator for EnergyMonster against market peers in the future, and especially once COVID outbreaks are contained. We are also continuing to make strong progress expanding our KA coverage. Notably, during the quarter, we signed major brands such as Peet's Coffee and Wan Da Cinema. For the full year of 2021, we signed leading brands such as KFC China and Universal Beijing Resort. The continuous signing of both international and domestic brands speaks volumes about our ability to deliver the comprehensive products and services to this KA brand. Namely, our ability to tailor system that directly connect the membership system between EnergyMonster and the KA brand for increased synergy between the user base to customize both cabinets and power bank that better fit into the PY experience and to provide high quality maintenance services after the cabinets are placed serve as a key differentiator in EnergyMonster's value proposition to KAs. With the largest and most well-trained team of BD personnel in the market, we believe our direct operations team will be able to leverage our existing strength in the KA segment to accelerate our penetration into all types of KAs throughout China, cementing our market leadership in the industry. On the other hand, Our network partner model continues to expand quickly as we implement new channels for partner acquisition, such as telemarketing and online acquisition. We were able to accelerate the pace of our network partner acquisition during last year through these new channels. As of the end of the fourth quarter, we have approximately 1,000 network partners. This is up 300 quarter over quarter and 700 year over year. To further unlock the value of our network partner, we are opening up more regions that were once exclusive to our direct model, to our network partner model. We have already tested the combination of these two models in various regions across China, with strong results indicating faster market share expansion. The usage of both direct and network partner models in a given region allow us to leverage these resources and connections of our network partner to better penetrate into regions. This year, by implementing both models in more regions, we'll be able to leverage the flexibility of our two models to unlock the potentials of more regions and further accelerate our market share expansion rate. Now, in addition to increasing our network partner count, we are also making continuous strides towards the training and support for these network partners once they join us. We're introducing new ways of providing actionable intelligence at a higher frequency to our partners to help them better manage their operations. Our support team works with network partner on a one-on-one basis and provide 24-hour support for all their needs. This is especially beneficial for new network partners, allowing them to more quickly scale their operations up, while also helping existing network partners become better and stronger. Overall, in combination with existing network partner marketing campaigns, we will continue to scale our network partners' reach, both in terms of our partners' quality and quantity in order to efficiently expand our P1 network coverage across China. Next is our initiatives on the operational front. Because of impact of the COVID on our top line, we have to continuously optimize our fixed costs and expenses. That's why we continue to implement our power bank optimization program during the quarter. which recommends to our business development personnel through their system with the most suitable amount of the power banks that should be in a given cabinet based on a historical usage and return matrix. This program continues to benefit us by helping improve asset utilization, which in turn reduces depreciation. and improves our experience by making it easier for users to find cabinets with a slot available for returns. In addition to improvements towards asset utilization, we are also proactively exploring ways to optimize our cabinets. EnergyMonster has a history of a high quality offer in product. In the second half of 2022, we plan to roll out newer versions of cabinets with similar quality but different internal layouts. Compared to our current cabinets, these new ones will have enhanced features while having a significantly lower capex. The reduced capex will result in lower depreciation and higher asset efficiency. These new cabinets will also significantly enhance our ability to acquire more high-quality network partners as it reduces the payback period for our partners and unlock their growth potential. With these new cabinets, we will continue to lead the market in terms of hardware design and capabilities, while at the same time increasing asset efficiency on a dollar basis, both for our direct operation and for our network partners. We are also actively introducing new updates to our front and back end systems. We continue to examine every aspect of our business development workflow in a systematic way to increase the levels of automation in our work processes. During the quarter, we made improvements to our system that uses a higher layer of automation in the POI verification stage. The new process simplifies the procedure for the signing of new location for the BD person by using more systematic way of checking the background information of the location. Improvements like these all gradually add up to our ability to increase our employee efficiency. Average POI managed per BD increased by approximately 30% year-over-year during the fourth quarter. In the future, we will continue to update our systems in order to drive continuous efficiency improvements for our employees and help lower long-term employee expenses as percentage of revenue. Fixed entry fee continues to be a significant expense in time of COVID outbreaks, as It is fixed in nature. During the fourth quarter, and as a result of the impact of COVID, revenue generated by POIs with only fixed entry fees were not enough to cover the entry fees. These fixed entry fees continue to weigh down our financials during the times when revenues are at sub-normalized level. To combat this, We continue to implement a series of measures to help us reduce these fixed expenses. For example, we have set higher threshold for new signings for the use of fixed entry fee. Now fixed entry fee contracts are only considered for large traffic POIs and KAs. We have also introduced an upfront and a variable method of providing incentive fees that essentially transition fixed entry fees into variable ones. Going forward this year, we will continue to tighten our control over the use of the fixed fees while at the same time promoting new POIs and existing POIs with fixed fees to transition in variable ones. Once we are able to increase the efficiency of our asset, improve cabinet cost efficiency, improve our employee efficiency, and transition more fixed fees into variable ones, we will be better positioned to combat the challenges set forth by COVID outbreaks. In conclusion, we continue to face challenges in 2022. These COVID outbreaks have a significant impact on food traffic during the period of impact, while this impact is short-term in nature. The increased frequency and significance of these outbreaks continue to generate headwind during the first quarter of this year. For example, outbreaks in Xi'an, Tianjin, Zhuhai in January, Chengdu, Suzhou, Wuhan in February resulted in a decline ranging between 20 2% to 68% in the week following the initial case when compared to the normalized level. While we are highly confident that the food traffic will normalize over time, we continue to plan and prepare the company for all possible COVID scenarios. Our core initiatives in lowering our fixed costs and expenses remain at the centerpiece of our ability to better mitigate the impact of COVID on our profitability. Going forward this year, measures such as implementing the power bank optimization program, lowering of cabinet costs, increasing of our employee efficiency, and the transitioning of fixed expenses into variable ones will help us better navigate ourselves during these times. Other measures such as maintaining our direct model operation and its current scale while competitors scale down, increasing of our network partners' quality and quantity across more regions, and focusing on the KA penetration will be vital differentiators going forward that will help EnergyMonster increase its overall market share within China's mobile device charging service industry. Thank you very much. I'll now turn the call over to Maria Xin, our CFO, for the financial highlights.