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spk00: Hello, and thank you for standing by for Energy Monster's first quarter 2024 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. Please go ahead.
spk03: Thank you. Welcome to our 2024 first quarter earnings conference call. Joining me on the call today are Mars Tai, Energy Monster's chairman and chief executive officer, and Maria Shin, chief financial officer. For today's agenda, management will discuss business updates, operation highlights, and financial performance for the first quarter of 2024. 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 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.
spk04: Thank you very much, Hanson. Good day, everyone. Welcome to our 2024 first quarter earnings call. During the first quarter of 2024, our performance remained stable, with GME showing a slight year-over-year increase. This is a testament to our continued resilience and adaptability in navigating the post-pandemic economic environment. The 2024 Chinese New Year holiday period was particularly robust, with daily GNV increasing by 23% year-over-year compared to the same period last year. This significant growth during the holiday season highlights the strong recovery in consumer activity and the effectiveness of our strategic initiatives. However, we experienced a slight decline in March which we attribute to seasonal fluctuations and decline in consumption confidence. In terms of performance by city tier, first tier and second tier cities experienced a slight decline in GMV, reflecting the general softness in consumption. However, growth was observed in lower tier cities, where we are increasing our presence in and seeing increased adoption of our service. Specifically, third-tier cities and lower-tier cities saw a 4% year-over-year increase. This growth in lower-tier cities demonstrates the effectiveness of our localized strategies and the impact potential in these markets. When looking into POIs by type, transportation, healthcare, public locations, and education segments showed the farthest growth with year-over-year increase of 42%, 30%, 27%, and 23% respectively. This diversification in usage scenarios is encouraging as it indicates a broadening of our user base and an expansion into high demand sectors. Conversely, entertainment, hotels, and shopping segments saw slight declines. Despite a stable performance in this quarter due to a softer consumption environment, we continue to achieve new operational milestones. We have successfully expanded our POI coverage to a record high scale and reached a remarkable milestone for over 400 million cumulative registered users. Our POI network saw a net increase of 11,000 POIs this quarter. bringing our total POI count to over 1.2 million. This expansion is important as it enhances our service availability and user convenience. Additionally, we have strategically rebalanced our operational model towards the network partner model while maintaining our core direct model portfolios. To do this, we continue to review the performance of each and every one of direct model POIs based on the current user traffic. As a result of this evaluation, we've transitioned a portion of these POIs to our network partners, optimizing our portfolio for maximum effectiveness. This transition is anticipated to deliver substantial economic benefits for our company in the long term. Notably, this quarter marks the fifth consecutive quarter of non-GAAP probability since the pandemic. Our cash and cash equivalents remain healthy, providing us with the financial stability to continue our strategic initiatives, as well as investing in opportunities to drive future growth. Overall, we remain steadfast in our commitment to delivering sustainable value to all our stakeholders and are optimistic about the future prospects of the mobile device charging sectors in China. Now, let me walk you through our key initiatives in coverage expansion and efficiency improvements in greater details. Our commitment to expanding our POI network is driven by the immersed potential we see in untapped regions and POI categories. This quarter, we made progress to the expansion of our POI network, adding a net of 11,000 new POIs. In terms of our approach with the models, growth was achieved through a balanced way, leveraging our network partner model primarily, but as well our direct model for KAs. New POIs were primarily added in entertainment, shopping, office buildings, and hotels. Healthcare and bank POIs saw substantial growth, with quarter-over-quarter increase of around 6%. We also expanded into 38 new county-level areas this quarter, now covering nearly 2,100 county-level cities. Our user base increased by 12.8 million, reaching over 404.3 million cumulative users. This substantial user growth is a testament to the effectiveness of our expansion strategies and the increasing demand for our service. The ongoing expansion of our POI network is part of our broader strategy to enhance our service availability across diverse regions, ensuring that we meet the needs of a growing user base. Our transition to network partner model is being executed with precision, carefully balancing the rate of transition with quality. We are consistently reducing underperforming POIs and optimizing the operational efficiency of our developed model. Despite the challenging environment, we have maintained POI expansion momentum through the acquisition of new key accounts and by replacing, instead, emphasize on the network partner model for core expansion. This strategy ensures that we leverage the strength of both models to drive our coverage expansion and profitability. With the continued development of a network partner model and adjustment in direct operations, network partner POIs reached 79.7% by the end of this quarter, compared to a 59% the same time last year and 73% as of the end of 2023. The direct model's suite execution and high quality service to location partners are particularly effective for high yield locations in higher tier cities and KAs. Meanwhile, the network partner model offers distinct advantages in providing comprehensive coverage across all regions seamlessly complementing our direct model strength. We had over 11,000 active network partners, adding more than 600 since the end of last year, and 3,800 year over year. This growth in network partners is pivotal in enhancing our market penetration and service reach. The acquisition of new partners is not, however, just the first step in our network partner model. Our dedicated network partner team is committed to unlocking the full potential of each partner upon onboarding. Providing hands-on and timely guidance, our network partner support team ensures that partners receive the necessary assistance for their everyday operations. We continue to polish and improve the support we provide to our network partners this quarter through more dedicated support to each and one of our partners. We have set up a more direct channel for communication between our network partners and us so that the day-to-day questions or inquiries can be addressed more quickly. We plan to continue to drive and service capabilities of our network partner team going forward in order to develop a stronger competitive advantage under the network partner model. We also launched an award system for network partners, offering VIP services to enhance their experience and loyalty, motivating their development. This system includes regular training, performance incentives, and inclusive support services, which have been well received by our partners We continue to optimize low efficiency and underperforming POIs under our direct model, ensuring that our network remains robust and efficient. Our direct sales team focused on a high tier city and major KAs to enhance our brand influence. This quarter, our KA team expanded and secured partnerships with leading chains across various sectors, such as grocery stores, tourism groups, and shopping sectors. These high profile partnerships are instrumental in boosting our brand visibility and driving user engagement. For 2024, we will continue to put more emphasis on the network partner model as the core driver for growth and direct model focusing on high tier cities and major KAs. In terms of operational efficiency, we continued to optimize contract structures under our direct model. In the first quarter, we transitioned 56,000 POIs for our direct model to our network partner model. This transition from the direct model to network partner model in certain regions has incurred one-time costs, but it is a strategic move that would benefit the financial health for the company in the long run. For new direct model set signings during the quarter, pure entrance fee contracts are almost no longer used in new signings as we further optimize the structure of new direct POIs. Our network partner take rate for the first quarter was up by about 1% compared to the same period last year and the fourth quarter of last year. This increase in take rate reflects our improved negotiation capabilities and the value we're bringing to our partners. The efficiency of our network partner remains stellar, with network partner count growing by 49%, but the size of T growing only at a slight fraction of the growth. We are also developing a new series of power banks to improve battery detection, accuracy, and overall user experience. These new power banks will feature advanced technologies to ensure a seamless user experience. Additionally, a new generation of cabinet machines is under development, incorporating modular design enhancement aimed at streamlining maintenance and operations. These cabinets will feature enhanced waterproofing capabilities rendering them more resilient for outdoor and extreme weather conditions. These advancements underscore our unwavering commitment to innovation and cost effectiveness. We continue to maintain a strong balance sheet, providing us with the flexibility to navigate challenging environments and explore new opportunities that will drive further growth. We were confident that our initiatives will unlock our growth and value potential in the foreseeable future. In conclusion, since the reopening in early 2023, we have achieved five consecutive quarters of non-GAAP possibility. We continue to optimize our direct model and scale on the back of our network partner model. The contribution of network partner is rising as more high-quality network partners join EnergyMonster. This sustained growth, both in terms of our GME and network scale, is a testament to our robust business model and strategic vision. We need to continue to sharpen our competitive edge for the network partner model, even though it already delivers healthy unit economics. But we need to do more for our network partner in order to continue acquiring new ones and support existing ones to scale up. We are introducing the award system for network partners, providing better support and experience for our partners. We are also enhancing our hardware with new generations of power banks and cabinet machines under development with reduced cost so that the network partners can onboard with less initial investment. These initiatives are designed to ensure that we remain the forefront of innovation and continue to provide exceptional service to our partners and users. In the first quarter, we continue to explore new initiatives in the renewable sector that can leverage our competitive advantages in distribution channel and technology, both hardware and software. We hope the new initiatives can grow into our engine of growth in the near future. Our power bank recycling campaign, which received positive responses from users, continued to make traction. This campaign is a part of a broader commitment to environmental sustainability and social responsibility, reinforcing our position as a leader in the market. the ongoing soft consumption power going into the first quarter of this year. Signs of recovery are still in progress. Average daily GNV during the 2024 Chinese New Year holiday was more than 20% year-over-year compared to in the last year. We are confident that in long-term recovery of the consumption power in China, which is why we continue to focus on the strengthening of our operational scale and efficiency. In the first quarter of 2024, we will further strengthen KA acquisition under our direct operations, expand network partner coverage and operational support, and optimize quality of POI to enhance our margins. In conclusion, we are optimistic about the future of mobile device charging service in China. and remain steadfast in our commitment to delivering sustainable value to all stakeholders. Our focus remains on delivering long-term value for our shareholders as exemplified by our previously announced share repurchase program and special dividend. Energy Monster is poised for sustained and healthier growth as the transition between direct and network partner models will help refine the quality of our direct model portfolio. While the network partner model continues to fuel growth, our robust cash reserves and cash flow provide a solid foundation for driving continued growth and value creation for stakeholders. As we remain active in exploring new initiatives to prepare EnergyMonster to even Thank you very much. I will now turn the call to Maria, our Chief Financial Officer, for the financial highlights.
spk01: Thank you, Mark. Now, let me walk you through the first quarter 2024 financial results in greater detail. For the first quarter of 2024, revenues were 397.2 million, representing a 51.7% year-over-year decrease. Mobile device charging revenues, which consists of revenues generated from both direct and network partner models, were $378.1 million and accounted for 95.2% of our total revenues for the quarter. Revenues generated from direct model, which comprised of mobile device charging service fee of $152.1 million and power bank sales of $3.1 million, or $165.2 million for the quarter, down 45.1% year-over-year. The decrease was primarily due to the decrease in number of POIs operated under direct model. Revenues generated from network partners model, which comprise of mobile device charging solution C of 59 million and the cells of Kubernetes and power banks of 163.8 million were 222.9 million for the first quarter of 2024, down 58% year-on-year. The decrease was primarily due to the change in the contractual arrangement with network partners. Under the new contractual arrangement, mobile device charging revenues generated under the network partner model are net of incentive fees paid to network partners. The decrease was partially offset by the increase in the sales of cabinets and power banks to network partners. Other revenues, which accounted for 4.8% of our total revenues, were $19.1 million for the first quarter of 2024, up 95.4% year-on-year. The increase was primarily attributable to new business initiatives and the increase in users and advertisement efficiency. Cost of revenues were up 31.7% year-to-year to $167.7 million for the first quarter of 2024. The increase was primarily due to the increase in sales of cabinets and power banks under the new contractual arrangement with network partners, partially offset by the decrease in depreciation costs. Gross profit was down 37% year-to-year to $229.5 million for the first quarter of 2024. Operating expenses for the first quarter of 2024 were $252.2 million, down 64.5% year-to-year, excluding share-based compensation. Non-GAAP operating expenses were $248 million, million, representing a year-over-year decrease of 64.8%. Research and development expenses for the first quarter of 2024 were 19.7 million, down 8.3% year-over-year. The decrease was primarily due to the decrease in personnel-related expenses. Sales and marketing expenses for the first quarter of 2024 were 204.5 million, down 69.3% year-on-year. The decrease was primarily due to the decrease in incentive fees paid to network partners as a result of the change in contractual arrangements with network partners. The decrease in incentive fees paid to location partners and the reduction in personnel-related expenses under the direct model. General and administrative expenses remained relatively stable at 26.6 million in the first quarter of 2024. Loss from operations was 22.8 million, and operating margin for the first quarter of 2024 was negative 5.7 percent, compared to negative 1.9 percent in the same period last year. Net loss was $0.3 million in the first quarter of 2024 compared to a net income of $10.8 million in the same period last year. Net margin for the first quarter of 2024 was negative 0.1% compared to a net margin of 1.3% in the same period last year. Non-GAAP net income, which excludes share-based compensation expense, was $3.8 million in the first quarter of 2024, compared to a non-GAAP net income of $17.1 million in the same period last year. As of March 31, 2024, the company had cash and cash equivalents restricted cash, and short-term investment of $3.3 billion. Cash flow used in operations for the first quarter of 2024 was $47.1 million. Capital expenditure for the first quarter of 2024 was $2 million. Thank you for listening. We are now ready for your questions. Operator?
spk00: The question and answer session of this conference call will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Vicky Wei with Citi. Please go ahead.
spk02: Good evening, management. Thanks for taking my question. I just want to get a bit more colour on the outlook for the next quarter and rest of the year in terms of GMV growth and profitability. First quarter's environment was a bit weak. But are we seeing a general recovery in April or May? Thank you.
spk01: Thanks for the question. Our operation is closely tied to the overall offline market because our operations rely on food traffic. The trend of food traffic is a bit different from before. Weekend is good, but the weekday is still weaker than before. The problem is closely related to general consumption of the market. Given that, there still are fluctuations in both consumption and the traffic. We do not provide a guidance at this point. As for April and May, consumption is still a bit weak, but we will still continue to execute our strategies in network expansion and rebalancing our models to compensate the challenges in the consumption environment. Thank you.
spk02: Thank you.
spk00: Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. We now have a follow-up question from Vicky Wei with Citi. Please go ahead.
spk02: Thanks for taking my questions again. I have another two follow-up questions. Would you please elaborate a bit more on how the transition to the network partner model will benefit the company? Maybe share a bit more on the profitability of the two models. And my second question is on new initiatives that you just mentioned. Would you please share a bit on this and when will it start making a more meaningful financial impact? Thank you.
spk04: Sure. Thank you for the question. I have to say the two models are both important to us because of their respective advantages. Network partner model is better in terms of the economics to the company as well as increasing our coverage of all. The direct model, on the other hand, excels at helping us acquire KAs. which generally have significant presence and positive brand impact. That is the reason why we need to have them both to work in conjunction to one another with network partner serving as the engine of growth in terms of POI count and the direct model serving as the billboard for our brand in KAs and higher TSETs. As for now, the direct model, to be frank, is still a bit under the water in terms of profitability. That's why we need to continue optimizing our portfolio to reduce the underperforming ones. However, this is a work in progress as we don't want to do it too quickly if it is at the cost of our core direct model portfolio. The economics of our network partner model is stronger due to network partner purchasing the cabinets and the power banks upfront. And then we take a portion of the GME generated by these machines. The network partner model generates positive economics for us at this moment, regardless of the market environment. This is why the transition between the two will benefit our financials in long run. As for your second question, we always keep a low key on the new initiatives. We are actively exploring opportunities in the renewable energy sector. For us, our network of partners and technology has always been a strength. That's why we are actively exploring opportunities that can leverage the two advantages to help us develop a second driver for our growth in the future. Again, it is still relatively at an early stage, but it has the potential of making a more significant contribution to our financials in the second half of this year. Thank you.
spk02: Thank you.
spk00: We're now approaching the end of the conference call. I will now turn the call over to EnergyMonster's CFO, Maria Sen, for closing remarks.
spk01: Once again, thank you for joining us today. Please don't hesitate to contact us if you have any further questions. Thank you for your continuous support, and we look forward to speaking with you in the coming months.
spk00: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.
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