Q4 2021 Smart Share Global Ltd Earnings Call

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Today's conference call is scheduled to begin shortly please continue to standby and thank you for your patience.

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Hello, and thank you for standing by for <unk>.

2021 fourth quarter and full year earnings conference call. At this time, all participants are in listen only mode.

After managements prepared remarks, there will be a question and answer session.

Today's conference is being recorded.

You may disconnect at this time.

The meeting over to your host for today's conference call.

Investor Relations.

She.

Thank you welcome to our 2021 fourth quarter and full year earnings conference call.

Joining me today on the call are Martin High Energy, Mark <unk>, Chairman, and Chief Executive Officer, and Maria Shields, Chief Financial Officer.

For today's agenda medicine 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, unless.

Unless otherwise stated all figures mentioned during this conference call are in RMB.

I'd now like to turn the call over to our chairman and Chief Executive Officer, Mark tied with the business and operation.

Yeah.

Thank you and good day, everyone and welcome to our 2021 fourth quarter and full year earnings call.

We are pleased to announce fourth quarter results.

Guidance with revenues, reaching over $836 million for the fourth quarter of 2021 despite.

But the continuous negative impact of Covid on our patients.

During the fourth quarter, a number of original Covid outbreaks.

Just to name a few Chengdu in November which resulted in a 41% decline in revenue during the 50 50, a 15 day period after the initial case.

She is in December down 16, 9%.

In December was down also 57% and volume in November .

63%.

<unk> to bring challenges to our operation.

These COVID-19 outbreaks are generally followed by a significant drop in offline foot 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 normalized depend.

Depending on the scale of the outbreak.

The higher frequency larger scale occurrence of outbreaks are resulting in a general decline in offline user traffic across the board.

It 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 for py.

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 K eight brands in the chain restaurant hospitality and entertainment industries were significantly impact during the quarter.

Although to a lesser extent compared to smaller brands.

And 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 P Y 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 new work version of our cabinets during mid 2022, which will feature reduced costs per cabinet with improved features and similar quality.

Both the continuous implementation of the power Bank optimization program and capping a cost reduction will increase the efficiency of our asset unlocking higher levels of return for both energy Malta 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 services remain highly resilient against short term shocks.

Tibet to navigate ourselves during these special times let.

Let me walk you through our core strategies in terms of coverage and operation.

That will help us reduce our COVID-19 exposure and strengthen our long term competitive advantage.

First if the coverage of our service network.

As of the end of the fourth quarter, our total coverage of <unk> reached 845000 up.

25000 quarter over quarter, and up 181000 year over year.

Our ability to continuously and efficiently expand our <unk> coverage reflects our strength in both our direct and network partner models the.

The increased coverage says as the base of our 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 accumulated 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 P Y courage and accumulated user base will continue to be to benefit our ability to increase our market share in chinas mobile device charging service industry.

Now in terms of the competitive environment.

Throughout last year, and especially in the reason what we have seen a decline in competition and the direct model is competitive within the industry significantly scaled down their direct operation personnel.

This shift in the industry has resulted in a hot you liked to competitive environment for Pos actually.

Resulting in decrease 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 energy amongst us against market peers in the future and especially with Covid outbreaks are contained.

We are also continuing to make strong progress expanding okay coverage.

Notably during the quarter, we signed major brands, such as Pizza coffee and one 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.

Prehensile products and services to this key brand.

Namely our ability to tailor system that directly connect the membership system between energy amongst us and the Kay brand for increased synergy between the use base user base to customize both cabinets and power bank that better fit into the white spirits and.

To provide high quality maintenance services. After the cabinets are placed serves as a key differentiator for us.

Energy amongst a static proposition two case.

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 strengths indicate a segment to accelerate our penetration into all types of case throughout China.

Renting a 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 1000 network partners. This is 300 quarter over quarter and 700 year over year.

To further unlock the value of our network partners.

We are opening up more regions that 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 that's we're partnered 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 potential of more regions and further accelerate our market share expansion rates.

Now in addition to increasing our network partner Count. We are also making continued 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 one to 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 the operations up while also helping existing network partners.

Better and stronger.

<unk> 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.

Order to efficiently expand our <unk> network coverage across China.

Next is our initiatives on the operational front.

Because of the impact of Covid on our <unk>.

Top line, we have to continuously optimize our fixed costs and expenses.

That's why we continue to implement our power optimization program during the quarter.

Which will commence to our business development personnel through their system with the most suitable amount of power band.

Should be in a given cabinet based on historical usage and return metrics.

This program.

Continues to benefit us by helping improve asset utilization, which in.

In turn.

It reduces depreciation and improves our experience by making it easier for users to file cabinets with the slot available for returns.

In addition to improvements towards asset utilization, we are also proactively exploring ways to optimize our cabinets.

Energy Monster has a history of a high quality office product.

In the second half of 2022, we plan to roll out newer version of cabinets with similar quality, but different internal layouts compared to our current cabinets. These new ones. We have enhanced the features while heading a significantly lower capex.

The reduced Capex will result in lower depreciation and higher asset efficiency.

This new cabinet, we also significantly enhanced our ability to acquire more high quality network partners.

It will reduce.

The payback period for our partners.

Look their growth potential.

With these new cabinets, we will continue to lead the market in terms of hardware design and capabilities.

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 high a layer of automation in the.

Verification stage.

The new process simplify the procedure for the finding of new location for the BD person by.

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 <unk> 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 helped lower long term employee expenses as a percentage of revenue.

Fixed entering feed continues to be a significant expense in time of Covid outbreaks.

It is fixed in nature.

During the fourth quarter and as a result of the impact of Covid revenue generated by <unk> with only fixed entry fees were not enough to cover the entry fee.

This fixed entry fee continue to weigh down our financials during the times when revenues are at.

Normalized level.

To combat. This we continue to implement a series of measures to help us reduce these fixed expenses for.

For example, we have set higher threshold for new signings for the use of fixed entrance fee <unk>.

Now fixed entrance fee contracts only considered for lunch traffic.

And case.

We have also introduced an upfront and a variable methods provide the incentive fee that essentially transitioned 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 <unk> and existing <unk> with fixed fees to transition in variable ones.

Once we are able to increase the efficiency of our asset.

Improved cabinet cost efficiency improve our employee efficiency and transition more fixed fees into variable ones, we will be better positioned to combat the challenges.

But COVID-19 outbreaks.

In conclusion, we continue to face challenges in 2022.

This COVID-19 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 headwinds during the first quarter of this year.

For example, <unk>.

Next in Xian, Tianjin too high in January Chengdu Suzhou.

In February .

Resulted in a decline ranging between 22% to 68% in the week. Following initial case when compared to a normalized level.

While we are highly confident that the foot traffic where normalized overtime.

We continue to plan and prepare the company for all possible Covid scenarios.

Our core initiatives in lowering our fixed costs and expenses.

Main at the centerpiece of our ability to.

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 cost 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 wild competitor scaled down increasing of our network partners quality and quantity across more regions and focusing on the penetration will be vital differentiate us going forward.

That will help energy monster increased its overall market share within China's mobile device charging service industry.

Thank you very much.

Now I will turn the call over to Maria Shields, our CFO for the financial highlights.

Thank you Omar.

Now, let me walk you through the fourth quarter and the full year 2021 financial result weaker beadhouse.

For the first quarter of 2021 revenues were $836 2 million, representing a nine 7%.

Decreased revenues from mobile device charging business, what my person to 800 and top one 1 million and accounted for 97, 1% of our total revenues for the quarter. The decrease was primarily attributable to the impact of COVID-19 during the fourth quarter of 2021.

Revenue from power Bank, South was down 25, 7% year over year to $18 9 million and accounted for two 3% of our total revenues for the quarter.

The decrease was primarily attributable to the impact of COVID-19 during the first quarter of 2021.

Other revenues were down 34.7% year over year to five 2 million and the content for the Aeroplan, 6% of our total revenues. The decrease was primarily attributable to the decrease in user traffic.

Without the impact of COVID-19 during the first quarter of 221.

Cost of revenues were up 39, 7% year on year to 154 1 million for the fourth quarter of 2021, the increase of cost of revenue was.

Primarily due to the increased operational scale without an increase in cost and depreciation.

Gross profit was down 16, 4% year over year to $682 1 million for the fourth quarter of 2021.

<unk> expenses for the fourth quarter of 2021 was $741 5 million.

Five 2% year over year.

Excluding share based compensation non-GAAP operating expenses were $744 4 million, representing a year over year increase of five 5%.

Research and development expenses for the fourth quarter of 2021, or $23 6 million, a 15 quantify percent year over year. The increase was primarily due to the increase in personnel related expenses.

Sales and marketing expenses for the fourth quarter of 2021 700, all four points of remaining a four 2% year over year. The increase was primarily due to the increase in personnel related expenses and incentive fees paid to the network partners.

General and administrative expenses were 31 quantify many in the first quarter of 2021.

33% year over year, the increase was primarily due to the increase in professional service expenses and personnel related expenses.

Loss from operations was $69 4 million and operating margin for the fourth quarter of 2021 was negative eight 3% compared to 11% in the same period last year.

Net loss was 68 5 million in the fourth quarter of 2021 like margins for the fourth quarter of 2021 was negative eight 2%.

non-GAAP net loss, which excludes share based compensation expenses was $61 3 million in the first quarter of 2021 compared to a non-GAAP net income of $8 84 7 million in the same period last year.

Cash flow generated from operations for the first quarter of 2021 was $100 million.

Capital expenditures for the fourth quarter of this year, well have about 100 and a 16.5.

Now moving to the full year 2021 results.

In 2021 revenues was 3.6 billion, representing a 27, 6% year over year increase the increase was primarily due to the increase in revenue from mobile devices.

While charging business.

Revenues from mobile device charging business up 27, 4% to $3 5 billion and accounted for 96, 4% of our total revenues in 2021. The increase was primarily due to the recovery from COVID-19 during the first half of.

2021, and the increase in number of appeal eyes and available for use power banks.

Revenue from power bank cell or up 32, 6% year over year too.

Oh, $2 9 million and accounted for 219% of our total revenues in 2021.

The increase was primarily due to the recovery from COVID-19 during the first half of 2021.

Increase in the number of appeal is available for use par banks and the customers that purchased the par banks.

Other revenues were up 32, 2% year over year to 26.7, many and a coffee before they were up one 7% of our total revenues.

The increase was primarily due to the recovery from COVID-19 during the first half of 2021 and the increase in users and advertisement efficiency.

Cost of revenue was up 29, 3% year over year to 557, two meeting for the year of 2021.

The increase of cost of revenues was primarily due to the increased operational scale, resulting in increase in depreciation and maintenance cost.

Gross profit was up 27, 3% year over year to three bidding in 2021.

Operating expenses for the ear of 2021 3.1 billion, representing a 39, 6% year on year increase.

Research and development expenses in 2021 was $93 9 million up 32, 3% year over year. The increase was primarily due to the increase in personnel related expenses.

Selling and marketing expenses in 2020, 113 billion or 39, 1% year on year. The increase was primarily due to the increase in incentive fees paid to the location part of the nurse and the network partners from the increase in the mobile device charging business revenues and <unk>.

In personnel related expenses.

General and administrative expenses in 2021 119 million.

Nine 5% year over year, the increase was primarily due to the increase in personnel related expenses and professional service expenses.

Loss from operations, or 101, 9 million and operating margin for.

2021 was a negative 3% compared to four 7% in 2020 'twenty.

Net loss was $124 six meaning in 2021 nice model for the year was negative $3 five.

non-GAAP net loss, which excludes share based compensation expenses was.

$93 9 million in the 2021 compared to a non-GAAP net income of 112, plus two 6 million in 2021 into 2020.

Cash flow generated from operations in 2021 was 210 million cap.

Capital expenditure.

416, many in 2021 as of the December .

122021, the company had cash and cash equivalents.

Cash and short term investment of.

Two 8 billion.

Energy Master currently expect to generate.

750, many two 780 million of revenues for the first quarter of 2020 Tao.

Please note that this forecast reflects the energy amongst our current and preliminary view on the industry and its operations, which is subject to change.

Thank you for listening we are now ready for your questions operator.

Quick question.

This call will start in a moment.

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Yes.

Ask questions. We will take one question at a time from each caller.

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While we compile the Q&A roster.

Our first question comes from Vicky Wei with Citigroup. Your line is open.

Good evening management, Thanks for taking my question.

Management share some color on the latest condition landscape during the tough macro conviction does management windows.

Other players or consolidation in the industry.

Colorful about industry outlook would be great. Thank you.

Thanks for the question.

As I mentioned the competitive landscape has really started to ease down starting in the second half of 2021.

We are seeing a number of our peers scale down their direct model and aggressively cutting down their business development personnel similar.

Similar to what happened in early 2020 when the.

Covid first broke out.

It was also during that time when image Malta was able to quickly increase its market share.

This current shift in competitive atmosphere has resulted in less competition across the board for new locations.

We are seeing a continuous decrease in incentive fee rates for new signings.

When did your monster, we continue to maintain a strong cash flow and the cash reserve and we strive to deliver long term results to our stakeholders.

That's what we will continue to maintain our direct model and its current at this current stage.

We believe that the direct models ability to quickly is Q2, the expansion of about <unk> network and advantage in acquiring K brands will be a key differentiator both group.

During and post Covid.

On the other sides of the equation is our network partner.

We continue quickly.

While new high quality partners as well as providing additional support for their operations.

New cabinets in mid 2022 were generally will greatly enhance our ability to acquire new network partners as it reduces their payback period.

Overall, we believe our core strategies and measures taken we are collectively define our competitive advantage.

In terms of consolidations, we continue to increase our market share in 2021, and we'll continue to do so this year.

We see that a number of players are scaling down and especially their direct operation. This is an opportunity for us to further expand our market share, especially given our strength in both the direct and that's what partner model.

Our belief once COVID-19 outbreak slows we would be the best positioned to gain additional market share. Thank you very much.

Our next question comes from Charlie Chen with China Renaissance. Your line is open.

Thank you management for taking my questions I have a question about the COVID-19 situation. So how does.

The management view of the current Covid concentration in China, and going forward and you are kind of trying to choose what's the impact going forward.

And if the outbreak continues for like mid or long duration. So how would that how would a company. That's just your strategy or tactic.

Battle against this situation and also can you share with us some of your developments.

Outside of Europe .

Energy rent and business like more new business initiatives and other things can you share with us some color on that thank you.

Sure. Thank you for the question.

I should say, we're ready we're totally prepare ourselves for all scenarios with with Covid from short term to long run.

While we don't expect this to last for the longer term for sure.

We still have to prepared.

Namely we have to continue to expand our location networks. So that our service can reach more customers throughout China to do so we will leverage both our direct and network partner model to quickly expand our presence in both existing and new regions.

We will also open up more regions to both.

The direct and network partners.

In order to further extract the potential of the REIT, but each region and improve our market share.

We are also implementing a number of new measures that have helped us reduce our fixed expenses.

Things such as the improvements of our asset utilization through both the power back optimization programs as well as the capital cost reduction.

And the transition away from the fixed incentive fees were all improve our accretion, especially during periods of external impact.

This adjustment will help us mitigate COVID-19 related impact in the long run.

As for the new business segment, we continue to actively explore opportunities in a number of different sectors. We will disclose more additional information once our new segment reaches more meaningful scale. Thank you.

Yes.

Our next question comes from Lucy.

Your line is open.

Thank you my son Maria.

Related to the previous question on oncology situation.

Can management also share with us what.

The current outlook for 2022 in terms of.

Revenue profitability and operating metrics.

Yeah.

And then maybe more color on the near term and are now in effect.

What I saw.

Thank you, yeah, I wish I could honestly, but I have to.

And that it is important to note.

The Covid outbreak is the most significant factor negatively impacting our operations in terms of revenue profit and oppression matrix.

Say for revenue the decreased foot traffic to offline locations as a result of the outbreak results in people more likely to stay at home and temporary Covid protocol.

<unk> commenced by the government.

And when the topline is.

Impacted the fixed cost will take a larger portion for sure that will affect the bottom line. That's why we strive to push the efficiency everywhere.

And for the operation operating matrix Covid impacts do there.

The offline sector results in higher closure rate of smaller location partners.

At this time.

I have to say, what we going to focus is to get ready. So I think we are ready we are unable to provide guidance on revenue.

Profitability operating matrix for the full year.

Two because it is impossible to predict the frequency and size of the Covid outbreaks and.

Given time period.

We have to prepare ourselves at all times for all Covid scenarios. That's why we continue to focus on strengthening energy amongst coal advantage. So that we can better navigate ourselves during the COVID-19 outbreaks and increase our market expansion rate.

And then I'll move to Maria for the guidance Paul.

Thanks Mark.

To show you more recent trend about our first quarter. They increase the frequency and size of impact of this outbreak continued to generate Halloween during the first quarter of 2028 pounds for it.

Tempo outbreaks in C. I can't get too high in January total pseudo Hunt in February resulted the decline ranging between 20% to 70% in the week. Following the initial case when compared to the normalized level, but most of the recent outbreak in the past week is Shanghai is.

Also result in a significant drop in our revenue will be in the region.

This is kind of all sectors continued to impact Oh.

Efficiency, resulting in around 10% decline in revenue.

Perfect.

We remain confident in the long term development proposed LNG marker and the mobile device.

Industry. Thank you for your question.

Yes.

We are now approaching the end of the conference call I will now turn the call over to Glenn.

CFO Maria <unk> for closing remarks.

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 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 concludes the presentation you may now disconnect good day.

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