NaaS Technology Inc.

Ladies and gentlemen, thank you for standing by and welcome to the NARS Third Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. I must advise you that this conference is being recorded. I would now like to turn the conference over to your first speaker today, Ms. Cynthia Tan, Senior IR Director. Thank you. Please go ahead.

Thank you, Operator. Hello, everyone, and welcome to NARS Third Quarter 2023 Earnings Conference Call. The company's results were issued earlier today and are posted online. Joining me on the call today are Ms. Kathy Wong-Yang, our Chief Executive Officer, and Mr. Alex, our President and Chief Financial Officer. For today's agenda, Ms. Wong will provide an overview of our recent performance and highlights, and Mr. Wu will discuss our operating and financial results. Before we continue, I refer you to our safe harbor statement in the earnings past release. which applies to this quote on four looking statements. Also, please note that this quote includes discussion of certain non-IFRS financial measures. Please refer to our R&D series, which contains a reconciliation of non-IFRS measures to the most incredible IFRS measures. Finally, please note that unless otherwise stated, all the questions contain the contents of the R&D terms. I'll now turn the call over to our CEO, Ms. Cathy Wang Yang. Cathy, please go ahead. Hello, everyone. I'm now CEO Cathy Wang Yang. It's my pleasure to share our third quarter 2023 earnings results with all of you to discuss and discuss our recent development. In the third quarter of 2023, our total revenues increased by 536% year-over-year to reach 171 million RMB. Our non-effort net margin, attributable to ordinary shareholders, narrowed by 256 percentage points compared with the same quarter last year. The total charging volume transected through our network during the quarter increased by 36% year-over-year, reaching 1,383 GWh. This accounted for 21.8% of all charging volume collected through public chargers in China during the same period. Since the beginning of 2023, NAS has undergone a fundamental shift in its revenue structure In the second quarter of 2023, the proportion of offline and innovation service revenue exceeded 50% for the first time, reaching 53.4%. In the third quarter, revenue from EPC, energy storage, and other solutions accounted for 81% of the total revenues. We will form our full year 2023 revenue guidance to be between 500 million to 600 million RMB. And we expect our full year 2024 revenue to be between 2 billion to 3 billion RMB, a growth of four to five times. NAS is transforming from a new energy service company into a new energy asset operator. In the third quarter, NASA sent a 204 million RMB energy storage order. In addition, we won the bid for energy green and low carbon supply chain construction project, creating the global PV storage, charging, swapping, benchmarking project for the highway trucks. NASA's international business is farging ahead, contributing 32.7%. of our total energies in the third quarter. In October, NAS become one of the first batch of strategic enterprises of the Hong Kong SAR office for attracting strategic enterprises. On September 22, Sustainable Feeds assigned NAS the highest ESG Entity Score in China ranking second in Asia and fifth worldwide. On October 23, NASA joined United Nations Global Compact Organization. We embrace open source technology, open data access, and an open ecosystem. This commitment to openness paves the way for our global initiative towards carbon neutrality. We look forward to join hands with our partners to advance our vision of improving the world with green energy. Now I will turn our call to Alex, our president and CFO, for a closer look at our operating and financial performance. Thank you.

Thank you, Cassie. Hello, everyone, and thank you for joining our call today. As Kathleen mentioned, we delivered an excellent performance across our key operating and financial metrics in the third quarter. Our top line growth was exceptional, and we remain the industry leader in China's growing charging services market. Simultaneously, we're expanding from a singular mobility connectivity business to a model that also monetizes our digital analytic capabilities. We're doing this by achieving a rapid expansion of our charging station operation and energy storage businesses, which will allow us to reach our goal of becoming a leading, integrative new energy asset operation and management service provider in China and abroad. In line with our business expansion, we introduced a new revenue reporting structure in the third quarter. Income from mobility connectivity and self-operated charging stations has been consolidated under charging services revenue. Income from our integrated charging infrastructure, PV, and energy storage now falls under energy solutions revenue, while income from our third revenue stream, electricity procurement services, and other services has been renamed new initiatives revenue. To assist with comparison, we have adjusted historical periods accordingly. We think these three revenue categories better describe our extended new energy asset ecosystem and more clearly reflect the direction of our business. For more information, please feel free to refer to our earnings release issued earlier today. We can see our business transition taking shape in our stellar third quarter growth. and we're pleased to be able to show a more visible profitability trajectory. Our total revenues reached an all-time high in the third quarter of RMB $170.9 million. The bulk of this rapid growth came from our energy solutions revenue, which increased by six times quarter over quarter, accounting for 81% of our total revenue in the third quarter. The substantial growth is mainly attributable to the ongoing delivery of energy solution projects to provide renewable energy generation, energy management, and storage solutions. On a year-over-year basis, our financial efficiency has significantly improved in the third quarter. Gross margin increased to 27% from 6% year-over-year, and gross profit increased by 28-fold year-over-year as we started to reap benefits from our expanded know-how and capabilities in delivering and executing energy solution projects. Total operating expenses decreased to RMB 285.3 million in the third quarter from RMB 359.1 million in the last quarter. we are beginning to recognize advantages from the economies of scale, enabling us to gain significant operating leverage. During the third quarter, we substantially improved our operating spend as a percentage of revenue. Our sales and marketing expense ratio dropped sharply to 94% from 252% in the third quarter of 2022. and 177% in the second quarter of 2023. As a percentage of revenues, administrative expenses ratio declined substantially year-over-year to 63% from 95% in the second quarter of 2022. Research and development ratio also declined to 10% of our total revenues, compared with 28% in the same period last year. Our net loss attributable to ordinary shareholders was RMB 366.9 million for the third quarter of 2023, compared with a loss of RMB 109.1 million for the same period of 2022. While our non-IFRS net loss was RMB 175.7 million for the third quarter, compared with RMB 96.5 million for the same period of 2022. Net margin improved from negative 406% to negative 214%, whereas non-RFIS net margin improved from negative 359% to negative 103%. As we diligently manage our operating costs and work to narrow our losses, we're looking toward our long-term prospects. Our exponential growth has come from our initiatives, both locally and internationally, as we gain traction across our expanding business. Our network continues to experience high growth in China and total charging volume increased by 66% year-over-year in the third quarter. reaching 1,383 gigawatt hours. The total number of orders rose by 58% year-over-year to nearly 59.2 million. Furthermore, in terms of our assets under operation, we continue to carefully select high-quality charging stations to add to our portfolio. We are also making excellent headway with our energy storage initiatives, propelling the growth and the preparation of PV storage charging station development. By the end of the third quarter, we had already launched 43 integrated charging stations with energy storage covering cities including Hangzhou, Guangzhou, Chongqing, Wuhan, and Changsha. On the other hand, our timely execution of the leading Anji PV storage charging swapping project entailing the installation of 458 DCFC chargers, a 4,200 kilowatt distributed PV system, 36 energy storage and charging cabinets, and two leading domestic heavy truck battery swapping stations. This will showcase our integrity solution coupled with the timely execution that continues to win us new business. On the international front, Our recent acquisition of SinoPower to broaden our reach in Hong Kong is already bearing fruits. Total international revenue for the third quarter accounted for more than 32% of our total revenues, compared with 22% in Q2, demonstrating our rapid progress and the strength of our acquisition strategy. As our business gases steam, we are attracting strong support that boosters our momentum. We can see this in our alliances with OSS, ZSY, and China Construction Bank. For example, CCB will provide us with integrated financial services support, encompassing overseas M&A, liquidity loans, project loans, inclusive loans, and financing for global renewable energy asset investment in charging stations, energy storage, PV, among others. This will empower us to extend our global presence in the new energy sector, thereby fostering green, low-carbon, and sustainable development in the energy industry. This recognition from our strategic partners is helping us advance the new energy sector and its underlying infrastructure as we work to expand our presence in the new energy globally. I'm also pleased to provide an update on our recent financial activities. In July and September 2023, we issued US$30 million and US$40 million convertible notes to LMR partners. As of today, US$33 million has been converted into ADS, highlighting our upward momentum. The remaining principal amount of the notes totaling US$37 million. We appreciate the trust of ALMR partners, which further fuels our commitment to continued growth and success. Looking ahead, we are on track to deliver our previously announced full-year revenue guidance of between RMB 500 million and RMB 600 million, which is a five to six times increase from 2022. With our added visibility and new growth, We would also like to introduce our guidance for 2024. We currently expect full-year 2024 revenues to be between RMB 2 billion and RMB 3 billion. In summary, we're making considerable progress in establishing NAS as a leading global provider of new energy asset operations and management services. We are broadening our one-stop charging services, advancing integrated energy systems, and leveraging our strategic acquisitions to increase our global footprint. On top of our robust top line growth, driven by both charging service and energy solutions, we also continue to drive a more favorable revenue mix with more high margin business. Our operating margins are also improving rapidly, benefiting from economies of scale and optimized operating costs. Our margin expansion is a testament to our commitment to both financial efficiency and that we are achieving sustainable growth in the right way. As we continue to grow our business both in China and abroad, we remain dedicated to provide sustainable new energy solutions while exploring new opportunities for growth that drive the industry forward. This concludes our prepared remarks for today. Operator, we're now ready to take questions. Thank you.