Smart Share Global Limited

Hello and thank you for standing by for Energy Monster's 2023 second quarter earnings conference call. At this time, all participants are in listen-only mode. 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, Hanson Shi.

Thank you. Welcome to our 2023 Second Quarter Earnings Conference Call. Joining me on the call today are Mark Tsai, Energy Monster's Chairman and Chief Executive Officer, and Maria Hsin, Chief Financial Officer. For today's agenda, management will discuss business updates, operation highlights, and financial performance for the second quarter of 2023. 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 the 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, everyone. Welcome to our 2023 Second Quarter Earnings Call. We are pleased to announce positive results for the second quarter of 2023 as we continue to steadily head towards normalization. Revenues and profitability continues to recover both on a year-over-year basis and sequentially. For the second quarter of 2023, mobile device charging service increased by 37% year-over-year and 17% quarter-over-quarter. This reflects that the overall offline traffic in China is making its recovery. In April, mobile device charging service increased by 63%. 64% year-over-year. The positive trend remained with year-over-year increase of 39% in May. During Labor Day holiday in May, our GMV increased by 83% compared to the same period of last year. The path towards recovery is especially notable in hot-hit areas last year. GMV in first-tier cities increased by over 100% year-over-year during this quarter, of which Shanghai and Beijing led the recovery with 600% and 140% increases year-over-year, respectively. Transportation hub and office buildings POIs led the recovery in terms of POI types. The overall recovery in food traffic has also unleashed opportunities for POR expansion as more locations have the sufficient number of users for us to expand our service. During the second quarter, both our direct and network partner models continue to drive our POR expansion as our service becomes more accessible to more users at more locations. On one hand, our direct model continues to gain momentum as offline traffic continue to return to normalization, allowing us to be better capturing the opportunities to expand into KAs. On the other hand, our network partner model allows us to more efficiently scale into more regions and diversify our POI composition. During the second quarter of 2023, we made an important change to our contractual arrangement with our network partners that further unlocks our growth potential under the network partner model. This update increase the competitiveness for both EnergyMonster and our network partners. We believe that this update will allow us to further unlock the full growth potential of our network partner model and drive the expansion of our service to all corners of China. where our service is needed. We also continue to improve our operating efficiency on all fronts during this quarter with profitability continuously training up. Non-GAAP net income for the second quarter of this year was RMB 30 million compared to RMB 17 million in the first quarter of 2023 and a loss of RMB 100 and 77 million in the same period last year. Notably, our operating profit for the second quarter of 2023 was RMB 14 million compared to an operating loss of RMB 191 million in the same period last year. The incremental recovery in our profitability is clear and reflects that the core economics of our operation is rebounding. We are pleased with improvement in our operating efficiency in the past year as we significantly reduced fixed costs in our operation and strive towards normalization of our unit economics. We believe that as offline food traffic continues to rebound, our mobile device charging operation will continue reaching new heights and higher market share. This is primarily due to the recovery in efficiency of our cabinets and power bank, and the increased coverage of our operation. We believe that the positive trend in the recovery of our profitability will continue to take shape going into the rest of this year. This will, in turn, allow us to continue strengthening our balance sheet, which is required to capture the growth of the mobile device charging service industry, as well as, optimistically, expand into new initiatives that can leverage EnergyMonster's advantages in operational and technological expertise. We believe that the strength of our core mobile device charging service, cash flow, and overall balance sheet serve as pillar to EnergyMonster's growth in the future. The core strategies of coverage of expansion and operational efficiency remain center to our business philosophy. allowing us to achieve market-leading growth and operational leverage. Our commitment to these two strategies has allowed EnergyMonster to navigate out of the period of external challenges largely unscathed. We were able to maintain the general increase of our POI coverage throughout the past three years and to reduce fixed expense fees. Now, let me walk you through our key initiatives in coverage and efficiency in greater details. First is our ever-expanding POI coverage. During the second quarter, we made significant strides in the growth of POI coverage, with number of POIs covered during the quarter increasing by more than 100,000. We were able to deliver the 10% quarter-over-quarter increase in terms of POI count through the combination of growth from both the network partner and direct models. With a mobile device charging network of over 1.1 million POIs, our reach is more expansive and comprehensive than ever. During this quarter, we added 15.4 million new registered users, increasing our total cumulative registered users by 17% year over year. to 362.5 million users. The larger user base is directly translating into record high number of unique users and mobile device charging orders, which total to more than 170 million orders for this quarter. The network effect of our operation continues to scale and become increasingly apparent for users They are able to see our cabinets throughout their day, cementing the EnergyMonster brand as a reliable and expansive provider of mobile device charging service. This subtle difference allows EnergyMonster to be the first thing that comes to users' mind whenever they have on-demand mobile device charging needs. We are seeing an ever-increasing number of users directly opening up our mini program to find our service in their nearby locations. We are also seeing the number of orders where users borrow power banks from one cabinet and returning it to another cabinet, continuously training up. This further suggests that the users are more comfortable with taking the power bank with them to their next location, as they will likely be a place to return the power bank later in the day. These all show that the network effect is greatly beneficial to our operation, as we further cement ourselves as number one choice for users when selecting a mobile device charging service. The network effect on the demand side continues to benefit the efficiency of our cabinets and power banks when compared to peers within the industry. Our network partners model continues to be core driver of our POI growth. As of the end of the second quarter, 62% of our POIs were under the network partner model. There is an increase from 53% as of the end of 2022 and 38% as the end of 2021. The rapid growth of our POI count under the network partner model continues to be driven by the increase in the number of active network partners. During the second quarter, we had approximately 8,900 active network partners. This is an increase of approximately 1,100 compared to the previous quarter. With the continuous large influx of new network partners, one of our main goals this year is to work alongside our network partners to operationally support them so that they are able to grow alongside EnergyMonster. This quarter, we have separated our network partner based on their scale and level of experience in the mobile device charging service industry. Based on the different scale of operation and experience, our network partner team is able to provide tailored solutions and training based on their current conditions. This is greatly beneficial to newer network partners as it allows them to have a step-by-step action plan for each stage of their operation. Going forward, we will continue providing our network partner with the know-how and data needed to successfully run their mobile device charging service operation. Looking forward, The combination of continuously acquiring new network partner alongside with unlocking the growth of existing ones will serve as the core drivers of growth under the network partner model. For our direct model, the number of POIs increased during the second quarter. We continue to make ongoing adjustment to existing POIs that we considered to be underperforming going into the second quarter as the offline food traffic in China continues to normalize. With number of POIs under the direct model increasing this quarter, we are beginning to see that normalization of offline food traffic has reached a level that can better support the economics of the direct model. Going forward, our direct model business development personnel will put more emphasis on expanding into high traffic locations that meet our standards. For national and regional KAs, our KA and business development team continues to sign new brands with higher levels of efficiency and success compared to industry peers that solely leverage the network partner model. During this quarter, our direct model signed leading KAs in various different categories, including chain stores in the milk tea, KTV, and hospital. as well as a number of high-traffic transportation hubs. The signings of national and regional KAs continue to be an advantage for EnergyMonster, given our strong brand and dedicated team of direct model personnel. Both our direct and network partner models serve as the engine of our expansion, continuously propelling EnergyMonster's operation to new heights and placing us in a position that can best capture the market opportunity. We believe that the swift execution and ability to acquire KAs for our direct model and efficiency and expansive reach of our network partner model provide the flexibility required to continue increasing our market share in the industry. The expansive reach of our mobile device charging service either through our direct and network partner model strengthen the benefit of network effect for EnergyMonster. This effect allows us cabinet and power bank to be more efficient, given the users have an affinity for our brand. It also allows our service to be more easily expanded into new POI, given the larger user base and established brand reputation. Going forward, we will leverage both models to further cement network effect of our operation, which allows us to more efficiently capture the growth of mobile device charging service industry and further extend our leading market position. Next is efficiency. Efficiency is the other critical aspect of our business, and we are proud to report that we have made significant progress in this area in the past few years. In the past two quarters, our profitability has returned, but notably this quarter, we have achieved a positive operating profit, making the first positive operating profit since the third quarter of 2021, while a significant part was due to the increase in revenue efficiency of our cabinets and power banks as a result of normalization of food traffic. The initiatives we have taken during the last few years also benefit the recovery in our efficiency. We continue to take steps in reducing fixed costs so that our operation is less susceptible to change in the microenvironment. The general transition from higher fixed costs during the pandemic to the lower levels now makes our operation leaner and more flexible. During the second quarter of 2023, the number of entry fee type contracts decreased by more than 77% when compared to the same period last year, with entry fee contracts accounting for 12% of incentive fees for location partners, down from 22%. Pure revenue sharing contracts accounts for over 83% of total direct model contracts. and 68% of total incentive fees for location partners in the second quarter of this year, up from 77% and 48% respectively in the same period last year. We are also investing in the future by redesigning the new generation of cabinets to continuously improve our competitiveness. The mass production of the latest cabinets and power banks continue to help improve the economics of our operation under the direct model, as well as increasing the competitiveness of Energy Monster's network partner model. These investments in the future will continue to pay off as it increases our competitiveness on both fronts and provides the basis for our network coverage expansion. During this quarter, we also made an improvement to our logistics process. as number of cabinets and power banks shipped to our location increases. New improvements in this process reduce the general shipping cost across the board while maintaining the timelines of deliveries. With the large inflow of new network partners and a PY network more expensive than ever, we are also focusing on the strengthening of our risk control system to better manage our operation, which in turn improve the efficiency of our business. We believe that these investments in the future will enable us to maintain our competitive edge and continue driving growth and profitability in years to come. In conclusion, as we look ahead to the rest of 2023, we believe that we are well positioned for sustained growth and a progressive recovery in our profitability. The third quarter marks the beginning of our peak season. Notably, we are seeing transportation hub and hospitality POIs with the quickest year-over-year growth. The recovery in the third quarter, however, has been mixed. On one side, the general recovery in the offline traffic and our larger coverage network all equate to increased growth. On the other side, the soft-turned the expected consumption and the array of heat waves and heavy rains in certain areas of china has offset the certain amount of the growth however we remain optimistic about the future and confident in our ability to continue driving growth and profitability that's why we're going into the rest of 2023 we remain positive that we can continue delivering positive values to our Lastly, I would like to reiterate that EnergyMonster's network coverage is as expansive as ever, and our user base is the largest it has ever been. The benefit from network effect is becoming increasingly apparent. With our competitive advantage in place, we are able to leverage our advantage in our network effect to more rapidly consolidate market share. The maintaining of our direct model personnel is starting to benefit us as peers from the industry, all primarily leverage the network partner model. This leaves an opportunity for us to further acquire KAs in the industry, given our direct model's advantage. For our network partner model, our new contractual arrangement in conjunction with our cost-efficient cabinets and power banks allow our network partner to quickly scale the operation when they work with EnergyMonster. Lastly, on the efficiency side, we will continue to make improvements across every aspect of our operation, leaving no stone unturned. By doing all of this efficiently and consistently, we believe we can create competitive mode around our business that allow us to truly diversify away from peers within the industry and to efficiently expand our operation in the future. Thank you very much. I will now turn the call to Maria Xin, our CFO, for the financial highlights.