Q3 2021 Smart Share Global Ltd Earnings Call
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Ladies and gentlemen, todays conference calls you to begin shortly.
We continue to standby we thank you for your patience.
Okay.
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Yeah.
Hello, and thank you for standing by for energy amongst searched for 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'd now like to turn the meeting over to your host today for this conference call director of Investor Relations.
Century.
Thank you welcome to our 2021 third quarter earnings Conference call.
On the call today are Marc Hi, Energy Monster, Chairman, and Chief Executive Officer, and Maria Shields, Chief Financial Officer for today's agenda management will discuss business updates operation highlights and financial performance for the third quarter of 2021.
We continue I refer you to our safe Harbor statement.
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.
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 during this conference call are in RMB.
I'd now like to turn the call over to our chairman and Chief Executive Officer Mark.
For the business and operation highlights.
Thank you Hassan.
Day, and good night, everyone will come to our 2021 first quarter earnings.
We are pleased to announce the third quarter results with revenues be 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 break outbreak in Jiangsu in late July there was a significant drop in.
That 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 GMB grew by around 30% year over year.
And Jimmy Propel bank per day was <unk>.
Approximately $2 two RMB.
In the first half of August however, our Xi'an Chengdu increased by about 9% year over year and <unk> power Bank per day was approximately 1.7 OMB.
For the full month of August Jiangsu Province, <unk> decreased by more than 40% year over year.
Went on down around 30, and hula and also kind of a rough tricky.
The impact that started in July.
Countrywide impact is both effective and beaches I.
Like experience decreases in offline foot traffic.
Spending resulted in a decline in traffic to our location partners.
Both business and leisure travel were hit, especially hard during the outbreak with hotel <unk>.
Same store <unk> decreasing by more than 24% year over year during third quarter.
Transportation hubs and tourist attraction.
Were also down on a year over year basis.
Entertainment venue.
Same store <unk> 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 we recover in due time with Covid outbreaks are better just medically controlled.
Until then closure rates of smaller offline locations is expected to be on the rise and offline traffic will remain at.
Normalized level.
We are also seeing that the competition within the industry is on the decline as a number of our peers are reducing the aggressive expansion and revenue sharing policy recently.
As the number one player in China's mobile device charging service 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 patients and our clear value proposition to both our customers and our partners remains unchanged.
During this period of metallurgy and external impact.
We would dedicate more time to optimizing our internal management and operational structures in preparation for the eventual recovery of Covid.
So that's a navigate ourselves during these special times, we have intended implemented.
Number of key initiatives to lessen our exposure to the volatility.
Offline traffic similar to how we carried through the initial COVID-19 outbreak in early 2020, and it came out as the <unk>.
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-19 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 49000, new location partners.
Of which approximately 60% were for Colocation partners in higher tier cities and 40% 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.
In regions across China as well.
As of the end of the third quarter on a mobile device charging service now covers over.
1700 countries 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 category shopping centers remained one of the chest.
Just growing toi category, while restaurant followed.
With the increased coverage, we are able to continue to rapidly grow our user base.
As of the end of the first quarter, our accumulated registered users reached 273 million, implying nearly 18 million newly registered users when compared to the end of second quarter of 2021.
This indicates that as we scale our operations into new <unk>, we are able to reach and convert new users into our user base.
Our direct model continues to be at forefront of our growth in higher tier cities and encourage okay ace.
Access to the impact of external factors.
Traffic, we have slowed down the hiring pace of our business development personnel thinks the fourth quarter.
That we are focusing more on their training procedures in order to better prepare them for the eventual recovery.
By market.
We are also making adjustments to their KPN matrix.
To meet the condition of the market and to encourage them into expanding to more reputable key lies.
We're seeing no worsening single point closure rate.
This will help us.
Secure our assets from the higher than normal.
The levels, we are seeing in the restaurant P lines.
And to increase the efficiency of our power banks and cabinets.
This brings us.
Two our K strategy.
We are committed to continue quickly, bringing our service into leading brands and chain stores. So that we can effectively efficiently cover more users.
During times of Covid cases are generally less impacted by the drop in traffic.
When compared to single point smaller brand locations.
Our ability to create tailored system and marketing solutions for all K partners remains unparalleled within the industry.
This gives us best in class compensation on our conversion rates all case within the industry.
Services.
Perfect.
Bashan.
Our long term partnership with this case.
Going forward, Okay expansion will be a key strategy.
Mitigating the short term impact of Covid outbreak.
Our operations.
And it will also serve as a long term pillar of growth to our mobile device charging service.
On the 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 expanded our network scale to cover more regions and to reinforce our network effect.
We have launched a series of campaigns during the third quarter to help us acquire high quality partners and to help them more quickly scaled operations.
This campaign will effectively lower the initial investment for each cabinet, giving them the ability to invest in more cabinets.
At the same time for top performing network partners.
The campaign offers them higher incentives.
They can more quickly scale the operation.
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 the ability to more quickly scale their operations and ultimately help and amongst us further fortify its number one position in China's <unk>.
Mobile device charging for the market.
Next is our initiatives on the accretion 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 BD keep you on matrix.
The revised two required them to more cautiously use upfront entrance fees. Instead, we are pushing for wider adoption of revenue sharing models.
In the long run this will help us adjust our expense structure and make us less susceptible to fluctuations 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 that each covenant based on the local and historical trained these.
These numbers have been given to our BD feels there.
Tour vials to do this section.
Our BD BD side, they are planned at two <unk>.
The power numbers based on the ideal number is calculated to file system.
The implementation of this program has a few benefits.
One is that our users are more likely to find that happened that have a call back that is readily available for us and that I think time. They can find the cabinets that have 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 back to where they are needed. The most instead of a standard amount, which cabinet each cabinet.
In essence, this will help increase our bank efficiency, resulting in a higher revenue and order upholding lots.
This increased efficiency.
<unk> transitioned into lower Capex for each location at a 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 and it's amongst 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 accretion is on technology.
Energy monstrous vast Iot network, it's the front end of all the data inside the development process.
Network expense across 1700 countries across China with more than 820000 locations and $5 8 million power <unk> and circulation.
273 million plus accumulated.
Just use this 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 states, particularly the pit picks.
<unk> status.
Data and other data points.
Data points Seth.
Fundamental layer for our analysis and optimization.
Once the data is generated or data analysis layered automatically restructure it and analyzed the data into actionable insights with first device data into micro level with insights. So that's our on the ground teams can better manage their P O i's 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 and analytics layer for automatic adjustment and to managers and partners. So that they can understand the underlying trends.
Inside surf as the pillar of the underground decision, making and operational strategic strategies, both for our own team 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.
It's the key.
Our goal is to supply our underground teams and managers with actionable insights for data base decision, making.
This way our team and external partners can better identify the impact of your actions on their performance.
During the third quarter, we launched.
Data version of our proprietary tool with updated feature and interface.
This update will help both our internal 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 for the company.
Overall by leveraging technology to the everyday management of our accretion we have be able to increase efficiency across the board, allowing us to quickly become number one player in the mobile device charging so this industry Inc.
In the future, we continue to see significant way in which our technology and data driven approach can help us extract.
Cheese in operational efficiency strategy strategic applications and new initiatives.
Operationally, we will continue leveraging our AI technology to enable us to expand into high quality P. O I's across China are taking into consideration of both micro and macro trends strategically our hardware and software end to end capability.
To create the largest Iot network, hoping China and in the whole world.
Lastly, these data enabled in fact will give us insight to consumption trends here in China paving the way for us to explore more business opportunity within energy amongst a platform.
Overall, the challenges set forth.
Our ongoing regional Covid outbreaks in China has brought challenges to our operations during the third quarter and will continue to impact the fourth quarter.
The outbreaks things the one in July.
Negatively impacting our operation in the first quarter.
The fourth quarter, the widest scale outbreak in Fujian Province, and Heilongjiang provinces. During September have brought a similar level of challenges to our operations for the fourth quarter.
For example, during China's Golden week of October.
Average same location, we see the GMB 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.
Short term.
In nature.
These results are mostly a result of Covid outbreaks.
Our ability to deliver clear value proposition to our stakeholders is fundamental to our long term success.
And this has not changed at all.
We met similar challenges during the initial outbreak of Covid last year.
And it was able to come out as number one player in the mobile device charging so that 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-19 outbreaks and leveraging our competitive advantage in efficiency and network effect.
We will come out of this time.
The clear leader in Chinas mobile device service industry.
Thank you I will now turn the call over to Maria Shields, our CFO for the financial highlights.
Thank you Mark now, let me walk you through the financial results in greater detail.
For the third quarter of 2021 revenues were $930 million, representing they're applying 3% year over year increase revenue from mobile device charging business was $895 4 million and accounted for 96, 3% of our total revenue for the quarter.
Flat year over year change is due to the impact of COVID-19 during the third quarter of 2021.
Revenues from our bank south of 14% year on year to $27 4 million and accounted for two 9% of our total revenue for the quarter.
The increase was primarily attributable to the increase of Apple for your pop out and the numbers of customers and the push has to pop back.
Other revenues are up 47, 5% year over year to seven point too many and accounted for <unk>, 8% of our total revenues.
The increase was primarily attributable to the English yoga, although it hasn't been easy.
Fisher Z and the new business initiative.
Cost of revenue off of our ops 20 points.
On a year over year to 100, and the $39 8 million for the third quarter of 2021.
Increase of cost of revenue was primarily due to the increase in the operational scale, resulting in increased depreciation and kindness kas.
Goldcorp it was down to one 3% year over year.
Sure.
Two 791 too many.
For the third quarter of 2021, the decrease was primarily due to the increase in cost.
Revenue.
Operating expenses for the third quarter of 2021, $872 5 million up 26, 7% year over year.
Clothing share based compensation non-GAAP operating expenses were $866 1 million, representing a year over year increase of 27, 4%.
Research and development expenses for the third quarter of 2021 or $29 1 million up 63, 2%.
The increase was primarily due to the increase in personnel related expenses.
Sales and marketing expenses for the third quarter of 2021, well $814 million up 23, 8% a year. The increase was primarily due to the increase in incentive fee paid to the location partner and that's what patronised from the increase in Peel out of college.
And the increase in personnel related expenses.
General and administrative expenses was 32 million in the third quarter of 2021 68, 2% year over year. The increase was primarily due to the increase in personnel related expenses.
Loss from operations for the third quarter of 2021 was $82 3 million compared to income from operations of $120 1 million in the same period last year.
The loss from operations was primarily attributable to the impact of reading all COVID-19 outbreak in China.
Net loss for the third quarter was 121 was $79 4 million compared to a net income.
086 million in the same period last year.
Non-GAAP net loss, which excludes share based compensation expenses was 73 million in the third quarter of 2021 compared to a non-GAAP net income of $120 2 million in the same period last year.
As of September <unk>.
2021, the company had a cash and cash equivalents restricted cash and start having investment of $2 9 billion.
Cash flow generated from operations.
Third quarter was 100 times, one was negative $93 7 million.
Capital expenditure for the third quarter of this year, well 100 813 million.
And it's a mouthful.
We expect to generate 800 to 800 and a certain level of revenue for the fourth quarter of 2021 place now that the forecast reflect energy Master plan and the preliminary bill on the industries and its operations, which is subject to change.
COVID-19 outbreak how proud off some challenges financially.
Our efforts at optimizing our operations and controlling costs.
The impact.
Really, allowing our house cash reserve to continue strengthening our competitive advantage and expand our coverage of high quality location partners.
As COVID-19 outbreaks are fully content in China, our capacity advantage will position us to capture a long time ago in China's mobile device charging services industry.
Thank you for listening we are now ready for your questions operator.
Yes.
Thank you.
A question and answer session of this conference call will start in a moment.
We felt on 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 rejoin to jump.
This request to join the question queue again after your first question has it been address.
As a reminder to ask a question you will need to press star one year telephone from the yard.
Your question, please frances ratified or husky.
And our first question comes from the line of Vicki Lee from Citi. Your line is open.
Good evening management. Thanks for taking my question. So I have a small question can management share with us more details on the impact of the COVID-19 on the fourth quarter in terms of Dnb bank and other ideas that have been made yet.
Yeah.
Got more speaking thanks for the question.
Sure. It is important to point out that the occasional outbreak of Covid in China has been impacting our operations, both before and <unk> in the fourth quarter.
Whenever there.
Is the outbreak.
<unk> drop in foot traffic, both in the region of outbreak and out of the region as well for.
For example, as I just shared in my Sherri.
Sheri during August after the outbreak in Jiangsu <unk> decreased 40%, 30% and 30%.
<unk>.
Jumped too.
And who are not.
So the impact of these outbreaks are significant as it was.
In the large drop in foot traffic to our location partners.
And a general decline in offline spending.
These outbreaks.
Also followed by a very strict public health control measures in the form of travel restrictions or testing requirements.
Which further weighs down the recovery.
Our business.
While this impact has historically been short term in nature.
The continuous outbreaks in terms of frequency remains a challenge.
In the fourth quarter.
The wider scale I'll break in Fujian and hit on Joe.
During September have brought similar levels of challenges to our operations for the fourth quarter.
During China's Golden week of October the holiday every everage.
Same location GMB were down about 25% year over year I think it's important to note that these outbreaks have negatively impacted not only us but also all the industries.
That rely on the offline traffic.
Like restaurant.
Hospitality and entertainment industries.
We are very confident that in the long run these impacts.
On the rental operations.
We expect.
What level of license.
Okay.
Thank you.
Of the six.
We continue to maintain a healthy growth.
Yes.
Oh.
Okay.
We see it will continue to grow.
Because of.
Outbreaks, the GM kapow them.
Good day.
15%.
Okay.
The decline is primarily due to the lower usage rate.
Out of a decreased foot traffic to our location partners during the.
Outbreak of Covid.
Overall, we believe that the offline foot traffic eventually normalize in the long run.
It's very very soon.
And our <unk> Bank will also normalize to historical levels.
Thanks.
Yeah.
Our next question comes from the line of Sofia <unk> from Goldman Sachs. Your line is open.
Hey.
Can you try and for taking my question.
I was wondering if management can give a bit more color on the competitive landscape and the revenue sharing trends during the quarter.
What is the outlook of the company's margin going forward and.
For next quarter in 'twenty two.
Okay. Thank you for your questions just general level of competition and has been decreasing as the COVID-19 outbreak.
That's me how industry, leading levels of scale and efficiency, we believe our competitive advantage will be more apparent in the periods of less competition.
We will leverage our healthy cash reserve to continue strengthening our competitive advantage through optimized our incentive fee structure, expanding our coverage of high quality locations happiness and acquiring strong performing that's what patent as sort of our campaign.
Unfortunately, we do that to offer additional guidance on the market for the upcoming peer, but we are confident that once these outbreaks in China, our content and the new one stop.
Our crane operations and finance they'll be able to return to the normalized level until then I thought I to up optimizing our operations and controlling costs. They will have a limit the temporary impacts that.
Once again, if you wish to ask a question. Please press star one on your phone.
Question comes from the line of Charlie Chen from China Renaissance. Your line is open.
Okay. Thanks, a lot.
Thanks for taking my questions I have.
Got it.
The number of capitalized.
Sure a bit more on the program that has resulted in a decline in power bed counts for the quarter.
So how does the company anticipates.
So right off the power bank accounts in light of the COVID-19 impact. Thank you very much.
Oh sure.
Thanks for the question.
We launched the new Paul band optimization program during the third quarter.
This program dynamically calculates the suitable number of power banks in which Kevin in each cabinet based on the location.
And also on the historical train once the system calculates the ideal number of pullbacks.
I'll put it to our BD through their proprietary tool via the to do list of session.
BD augmented to digest the power banks based on the ideal number.
As calculated by our system.
This system helps us give us a better experience and optimize the use rates usage rates of each call bank.
For our users. The end result is that they can more easily find power banks, that's readily available for use and find more partnered cabinets that have slots for power back returns.
These benefits will help us improve the user experience and in the long run drive higher repeat purchase and satisfaction rate.
On the operational side. This program will help increase power banks efficiency by more clearly matching localized supply chain supply and demand.
Increased efficiency will eventually transition into lower capex for each location.
And lower percentage of depreciation expenses.
As for your question on the expansion rate with.
We continue to maintain a healthy rate of coverage expansion during the third quarter.
Our network now spans over.
<unk> <unk> thousand <unk>.
<unk> Costa Rica 1700 location.
Countries or cities are countries or cities across China the growth in coverage becomes from all types.
Both under the direct and the network partner models, we continue to see opportunities to expand our coverage and especially for key accounts. We also launched a series of campaigns tailored to attract more high quality network partners are providing more attractive economics and lower capex.
Their growth capabilities.
But given the COVID-19 outbreak impact our highest tier cities, we have started slow in down our BD recruitment.
Under the direct model instead, we are focusing on providing additional training so that they can more effectively efficiently expand our coverage and service in the existing locations.
Thank you.
Thank you.
And our next question comes from the line of Sophie Li from Goldman Sachs. Your line is open.
Thanks for.
Taking my question again.
<unk>.
Can you share with us that the passion that accompany planting Piedmont to combat the COVID-19 outbreak in the C check events that these outbreaks, maybe a longer term challenge going forward.
Yeah totally thank you.
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 foot traffic as a result of COVID-19.
Namely we have four key initiatives that we have launched during the third quarter first is the launch of the new network partner campaign tailored to attracting new high quality network partners.
Campaigns as I shared we're effectively.
Lower the initial investment for each cabinet, giving our network partner.
The ability to invest in more covenants.
Same time the campaign gives high performing network, the additional incentives, which translates into faster scaling up of the operation.
So far the effects of these campaigns are positive as we were able to increase our network product count by more than 150 during the quarter, which.
Which is nearly one fourth of the total number of our network partners.
And continues unlock their network partners gross potential we believe these network partner.
Campaigns will continue gaining traction and help us.
<unk> Oh network through light asset model.
Number two the second is our control on expenses and finances.
Given the current conditions of the market.
Periodical.
Outbreaks, we have implemented higher tighter budget control measures, we continue to optimize our BD and the back and employee comp in order to make sure that our efficiency level continued to improve.
Have also slowed down the overall hiring pace instead, we are focusing on better training and that better technology beauty.
In preparation for the eventual recovery of the market.
Thirdly, because of the impact of Covid, our BD KPN matrix, our revised to require them to do things more cautiously.
The decreasing use of fixed a prompt upfront entry fee and increasing use of variable incentive fees is crucial for lowering the rate ratio of skills and marketing expenses as a percent.
<unk> of revenue going forward, the transaction of fixed sales and marketing expenses to variable ones will benefit our financials during the period of external impact.
Fourth and lastly, we have also launched our new power Bank optimization program as I shared so that we can continue to reducing the effective capex amongst voice location and the best reducing our long term depreciation as a percentage of the revenue.
Combined these actions will help us both financially and operationally cope with the challenges of Covid outbreaks and develop into additional layer of competitive advantage similar to how we overcome the challenge during the initial outbreak of Covid last year, we are very confident.
But we will came out of these outbreaks as a stronger and better energy amongst the competition. Thank you very much.
And I think Tim.
Once again, if you wish to ask a question. Please press star one on your phone and make further need to be announce again star one to ask a question.
Yes.
Yes.
No no further questions at this time and we are now approaching the end of the conference call.
I'll now turn the call over to energy amongst our CFO Mike <unk>.
<unk> for closing remarks.
Once again, thank you for doing all day, please don't hesitate to contact us if you have any further questions. Thank.
Thank you for your continued support and we look forward to speaking with you in the coming months. Thank you.
Yeah.
Thank you for your participation in today's conference. This includes the presentation. You may now disconnect have a good day.
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