Q1 2022 EHang Holdings Ltd Earnings Call

May 31, 2022

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Thank you for standing by and welcome to the Ehow, Inc. First quarter 2022 earnings conference call.

All participants are in a listen only mode there'll be a presentation followed by a question and answer session. If you wish to ask a question you will need to press. The Starkey followed by the number one on your telephone keypad.

Now I'd like to end the conference over to MS. Julia Qin. Please go ahead.

Hello, everyone. Thank you all for joining us on today's conference call to discuss the company's financial results for the fourth quarter of 2020 Q. The earnings release is available on our website as well as foreign youth why services. Please note the conference call is being Rick.

Quoted and audio play will be posted on the company's IR website today.

Management team, which includes Mr. Hu quantity Chief Executive Officer, Mr. Adam Walsh, Chief Strategy Officer, Mr. Shaffer, Chief operating officer, and Mr. Richard <unk>, Chief Financial Officer, whereas successfully giving prepared remarks.

Once delivered in Chinese will be followed by the English translation. All translation is for convenience purposes only in the case of any discrepancy management statement in the original language, where prevail a Q&A session will follow afterwards before we continue please note that today's discussion.

<unk> forward looking statements made a pursuit to the safe harbor provision or the U S. Private security Litigation Reform Act of 1995.

Forward looking statements involve inherent risks and uncertainties.

The company's actual results may be materially different from the expectations expressed today further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward looking statements except as.

As required under applicable law also please note that on the number presented in RMB and onboard the first part of 2022 unless stated otherwise with that let me now turn the call over to the CEO . Mr. <unk>. Please go ahead Mr. Hu.

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Below is the translation of our Mr. Who's your remarks.

Thank you Julia.

Everyone. Thank you for joining our earnings call today.

Since the first quarter of 2022, we have been facing nanometre 80, external impact and uncertainties, resulting from macroeconomics geopolitics and ongoing pandemic and its associated prevention and control measures.

However, the more adversity, the more important to maintain stable development.

As such we are more focusing on strengthening ourselves and have ushered in a good starting this year.

Which is mainly reflected in our witnesses certification.

Key talent recruitment and a market expansion.

First of all lifestyle into our witness certification process, which remains our first and foremost priority of the company's two element at current stage.

As the worst leading designer developer and manufacturer of a passenger grade autonomous aerial vehicles, which is dedicated to achieve a commercialization.

We are undoubtedly receiving attention and assessing expectations across the globe.

As far as the most searched changing to standards and tests from our regulators.

This is the pressure a pioneer of an innovative industry will inevitably repair.

But it's also a motivation for us to constantly challenge ourselves and make breaks loose.

After more than 10 months of in-depth communication and cooperation between our Ah witness team and a type certification team up to see this easy formally adopted and the issue the special conditions for their you hand to Essex S. AAV capsid vacation in this February .

Which laid out critical cornerstone bar air with new certification any social groundbreaking milestone in the development of the seasonality of the industry.

Distinct from the tabs certifications of other aircraft operated by pilot.

The advanced and innovative nature of <unk> has played out in our spec Talbot M. N D. Our technology and operation mode leased to newer challenges income science and a verification for data links complex system and software. However, our technical team and it was nice team of tackling <unk>.

<unk> step by step and are continuing to explore and refine them means have a complaint.

Our project dismiss Vega certification and is about to get us he sees approval.

With which we will reach consensus with E. C over expected timelines of this certification project the certification basis.

Means have become times.

Vacation signs after certification management etcetera.

The auto to accelerate the air Wozny certification.

In terms of our production on a basis of a S 9100 D. I internationally aerospace and aviation quality management system certification that we have obtained we are also falling as he sees production approval and the supervision procedures.

We send orientation to secure the types of advocate and a production certificate to further refine and improve our quality manufacturing technique production and supply chain systems.

Meanwhile, we have produced a validation use davies for manufacturing conformity inspection.

We are trying to overcome the impact of many factors such as the domestic epidemic and to work closely with the CEC to complete a certification work as soon as possible.

Next let's move on talent acquisition.

We are very pleased to have our chief operating officer, Mr. Finishing join us in February .

He is responsible for managing the company's daily operations and business development. Mr. <unk> has more than 20 years of experience Inculpate management technology productive solution sales as well as tourism projected development and operation.

Which will bring new driving forces for the company.

Recently, we also welcomed Mr. John Zeng cool, our newly appointed Vice President of our production on board.

He will lead our production team in animating Ehealth manufacturing system to more mature optimized and an industry leading levels.

Mr. Zhang has more than 20 years of experience in aircraft manufacturing technology.

Notably he was the manufacturing technology had China's first fully composite of general purpose aircraft combined with C. R 23.

And also the deputy Chief engineer of the largest amphibious airplane confined wisdom C. E. R 25.

He had also worked for unison engine components, a wholly owned subsidiary of General Electric.

We will continue to move forward to talent recruitment and R&D, while always keeping status fast in continuous innovations.

On a market expansion front in addition to continuing our development in China. We have also received preorders for a total of 210 units of a passenger grade Avs show pilots this year in multiple Asian countries, including Japan, Malaysia, Indonesia and Thailand.

This is a testament to the strong customer demand and a global perspective for a product.

Which is further illustrated battens for introducing new healthy aves into various local markets and are co developing original and mobility business with us.

And we expect these preorders will be deliveries gradually upon obtaining the inner wisdom certificate and lay a solid foundation, Florida future growth.

I'll now turn a cone over to Chief strategy officer at Wuxi to bring more detailed performance. Thank you.

Yes.

Thank you Mr. Hu Hello, everyone.

The first quarter of the year our company continue its focus on our strategic goal of U M platform operator.

Steadily upgrading towards a sales plus operation integrated the business model.

<unk> unique AAV technology, and a smart command and control system will enable the underlying technologies for the future Air traffic management, the AAV distributed operation and management, the digital operating and establish systems as well as the ecosystem expansion.

These are also you hamzah differentiated advantages and the fundamental driving force empowering our commitment to becoming a leading U M platform operator.

Based upon our positioning of the AAV operational platform.

We have been actively cooperating with upstream and downstream industry stakeholders, such as the government regulators professional scientific research institution aviation component suppliers telecommunication service providers General aviation operators, the airport and a road infrastructure.

Operators real estate enterprises large commercial groups as well as our clients and partners in the fields of tourism transportation logistics emergency and the rescue medical and firefighting to jointly explore and.

Develop a U N ecosystem tailored for avs, such leading and promoting the development of a safe efficient and sustainable smart air mobility industry.

For instance, our recent customers and partners in other Asian countries, all have extensive resources and experiences in their local markets such as C. P equal a large multinational conglomerate in Thailand. These strong partners will stimulate the expansion and the growth or the companies overseas.

This development at both sales and operation levels.

<unk>, China Asia is one of the significant strategic market for us.

Now, let me turn the call to our CEO , Mr. Bob to address our progress on the business front.

Mr. Baum. Please go ahead. Thank you.

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Below is the translation of our Mr. <unk> remarks.

Thank you everyone Hello, everyone. It has been more than same mouse since I joined Ehealth Dewey.

During the period the company has been operating well and is mostly with a focus on this strategic goal of U M platform operator.

And the Soc plus operation integrated business model.

Since the first part of this year like most of the Chinese companies, who have been facing pressures challenges and uncertainties due to the resilience of the COVID-19 in China and restricted travel restrictions.

For example, our original schedule of offline communication and al Sadie inspection meetings with the C. C. P. C team had to be delayed.

And the tourism related business also saw adverse impact as our operational trial flights were restricted as certain tourism site.

Nevertheless, we believe this external impacts are only temporary.

We're still remain confident in our long term development and growth with our inherent core technology advantages clear strategy diversified product lines and solutions ongoing process for our industry, leading and with this certification.

And can prehensile lay out ever growing market demand and then preorders and our firm manufacturing Foundation.

As noted earlier since the first quarter of this year our market expansion in other Asian countries has achieved positive progress initially.

In general and this year, we receive a preorder pull 50 units heavy hand to Essex serious in Japan from Air X, a leading Japanese Emily additional platform company and a private helicopter charter service provider.

In March with partners, which are routine a leading malacia, an aviation company and the receiver preorder full 50 units Holly Hunt to Essex serious and 10 units of leaky 30.

And in April we received no preorder for 100 units I'll be home to Essex from our Indonesian Aviation company prestige aviation and successfully performed a flight demonstration in Jakarta to capital all of Indonesia.

And last week, we have formed a strategic partnership with CP group.

One of the largest conglomerate seen Thailand.

And both parties plan to establish a joint main train Thailand to introduce he hung a these to the Thai market with comprehensive Corporation.

While we continued to advance trial operations and order, one hindered and mobility to Rousey initiative.

With a focus down in Guangdong, Hong Kong Macau Greater Bay area, we have a work with our customers and partners like the general aviation companies and the real estate of companies to launch naive <unk> operation spots in Guangzhou, Hangzhou, Shenzhen, Chongqing Sanya through high Yangsheng and others.

Cities.

To date more than 4000 in a hangar at operational trial flights has been carried out in practical fly to the environment and application scenarios. Moreover, our commercial flight routes are in a process of a continuous development test of flight data accumulation and Murphy.

Patients in order to ensure adequate a verification of our flight safety and a consistent quality with sufficient flight record not only that we are accelerating the layout of the digital low altitude ecosystem.

From our inherent software platform advantages, we are planning on low altitude flight services and additional airspace management to create various ERO operations narrow sportsbar cities, such as the Aero side seeing a road transportation of media etcetera.

In addition, we are actively developing and building our online booking platform system, namely our operating system. The core system marquee texture ended database construction of online bookings together with flash scheduling aircraft of dispatching cost management and other functions.

Have already began to take shape.

The initial flash scheduling and operating system has been developed and he's running tests.

And it is expected to put into daily operations in the third quarter of this year overall, all AAV related operations are being prepared in advance to ensure that the company can quickly started commercial operational services after obtaining relevant regulatory certifications.

Wish to join efforts Xiaomi hang it all parties CNET urban air mobility industry, including the government regulators customers and partners.

We expect to achieve our mission in the near future to make everyone enjoy a safe economists and eco friendly and mobility experience.

I will now turn the call over two hours said, Paul Richard ill full financial results.

Peter Please go ahead. Thank you.

Thank you Sheng and Hello, everyone before I go into details. Please note that all numbers presented are a RMB and up for the first quarter of 2022 unless stated otherwise.

All percentage changes on a quarter over quarter basis, unless otherwise specified detailed analysis are contained in our earnings press release, which is available on our IR website I will now highlight some of the key points here.

In the first quarter of 2022, we continue to execute our strategies towards in urban air mobility platform operator.

Additionally, we maintain a focus on the E edge to 16 type certification process with the D. A C and further developing the 100 air mobility routes initiative with increasing operational try flights in selected locations in China.

With this concerted efforts, we remain confident in the positive on the long term prospects of our business growth.

As a result in Q1 of 2022 total revenues were $5 8 million compared with $8 7 million in Q4 of 2021, the urge to 16 series of AAV deliveries in Q1 were three units compared with four units in Q4, However, it's worth noting that recently.

We have seen increasing interest from customers in China and overseas.

For example, we have secured Avi preorders of up to 210 units in Japan, Malaysia, and Indonesia since the beginning of the year, which demonstrate a strong demand and great potential for our products internationally.

These pre orders are expected to be delivered in the coming years.

Our overall gross margin has continued to maintain at a high level as compared to those of other companies with new NH in mobility products such as electric cars.

Gross margin was 62, 5% in Q1 up two four percentage points from 61%.

In Q4 last year, mainly due to changes in revenue mix in Q1, our adjusted operating expenses, which are operating expenses, excluding share based compensation expenses decreased by 49, 1% quarter over quarter to $46 1 million from $90 4 million in Q4.

Last year.

There were lesser provisions for accounts receivable related to the impacts of COVID-19 pandemic.

Additionally, expenditure on the materials were lower than Q4 last year and they usually very falling even progress for different projects between periods.

With that in Q1, our Jesse operating loss was $41 7 million and adjusted net loss was $40 9 million each representing an improvement of roughly 50% from $83 8 million and $82 two media in Q4 last year respectively.

With regard to our balance sheet as off the end of Q1, we had $236 9 million of cash cash equivalents restricted cash and short term investments.

We'll continue our efforts to effectively manage our operating expenditures.

That concludes our prepared remarks, let's now open the call for questions.

Operator, Please go ahead.

Thank you if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced.

You wish to cancel your request please press star two.

Speakerphone, please pick up the handset to ask your questions at this time, we'll pause momentarily to assemble our roster.

Our first question comes from Tim <unk> from Morgan Stanley . Please go ahead.

Okay.

Hum.

Thanks for taking my questions.

A few quick question you said first of all.

Well I think that makes the call you said during the presentation briefly touch on.

Tiered collaboration ways.

Announced last week. So just wondering could you please share more about the details of business opportunities.

We have a core and.

Motto wake in quite a contribution we should expect in the upcoming quarters.

Second question is about the production disruption.

I think a lot of supply chain basically solving a problem that can cook in lockstep.

Happy account in Calgary.

Any hiccups in terms of its production.

Part sourcing.

<unk> type certificate and then.

Oh, the operation related stuff.

Do we see any radical.

And turns out.

The fifth certification ceiling.

That's my question.

My last question is about.

Our new modules can you please share, let's say mortality operational update on <unk>.

Well we.

Plan to get a certificate or just you bought it.

So it does have a luxury questions. Thank you.

Yeah.

Yes.

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I mean, what I say.

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Thank you for the question. This is <unk> I will take your questions.

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That's all.

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Yes, thats useful.

Sure.

Last week, we are very pleased to announced a strategic partnership with timelines of Citigroup.

And we plan to establish a joint venture launched our partnership.

And it's it reflects both part of both companies high reclamation of each other.

And the willingness or deep operation.

And this will lay a good foundation for a b cells and urban air mobility business in Thailand in the future.

And we look forward to initially initiating our collaboration.

So the.

The larger non contingent highball.

Okay fine.

Okay.

Hello, John .

G E.

Bye bye.

Oh, yeah, well take one more.

So John my intention yes.

Yep Yep.

As we know the Citigroup is not only one of the largest conglomerates in Thailand.

But it also has a investment in 21 countries and economies.

The group is compromised H business life and fortify our.

This is cooked.

Covering various factors Java, agriculture industry in food retail and distribution.

And telecommunications.

E Commerce and digital.

The development.

The main tailwind and industrial products.

And pharmaceuticals, etc.

Thanks, a lot.

You want that.

Oh July .

Yes.

Thank you Neil.

You know deal audio email right.

Yeah. Thanks.

Yeah.

We see a lot of potential use cases for our aes in the CP group business fields.

Such as their tourism logistics health care and disaster relief Agriculture Enzo.

Well see how it goes a little bit.

So.

We like that sort of comes on top of each and I still don't have a banshee Schussel Sudan, Michelle Jin Guan.

Yeah, well Kate Hall, She's also suggest that in Taipei, Taiwan.

That's all.

All.

Thanks, Sean.

Gentlemen, could you Egypt high voltage couldn't go to high risk.

Both of us and to leverage our own expertise and resources.

Long term comprehensive a collaboration on the AED product set of marketing.

That's where I come to life.

While the men and the infrastructure deployment and talent cultivation and fill up our.

Our future U M operations, and introduce the safe autonomous and sustainable mobility technology solutions to.

So the Thailand and more markets.

It sounds like they came with Eagle Twenty's, Okay sure sure.

That is my answer to your first question. Thank you.

Yes.

Yeah.

So are you thinking.

Awesome.

Good morning.

So just hype.

Yeah.

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Well I, usually kind of a ballpark chikungunya and got it switches shampoo.

Hello Pablo.

And then going to the Yodlee held that purple tricky.

And let up the ratio obeys epidemic.

Second question as mentioned before.

Since the first quarter of this year like most are Chinese companies.

Been faithful pressures challenges and uncertainties due to the resurgence of the COVID-19, pandemic in China and district or travel restrictions.

Yes.

Alright, sometimes long yet you shouldn't nickeline yeah Neal.

Sure you know enrollment accordions on top of one type or Nicole I'm going to cheat.

And you want me to Jan you do now so what are you seeing in shop.

I now turn the phone call intervals.

Sure.

Yes, hi.

Any other question.

Irrespective of production, we didn't see any significant impact so far from the epidemic on our supply chain.

Because our suppliers mostly are in.

In the Guangdong area in South China.

And due to the changes in the global landscape with short term price increase of some raw materials.

So we did some preparation with on the inventory of the key components and materials beforehand.

She says something from you so much and also do you think those.

Hey, Paul.

Yeah sure John Hogan for any questions.

No woman from that cohort.

So the audience with a union shop.

Jamie that's all synergy Shanghai, London choosing commvault.

In respect of the types of vacation or the process was affected and there had been slowed down.

Our our brand communication and onsite inspection meetings with the C. C T C team.

Cannot be normally conducted.

Having said that we have been trying our best to minimize the impact of many factors, including the reason the domestic epidemic and it works more closely with the CDC to complete the certification work as soon as possible.

That's helpful. That's helpful.

Yes.

Oh, yes.

So Paul and.

And Sean just any old household.

Thank you Michelle.

From the perspective of our service delivery and operation.

Our tourism related business was also impacted.

Our operational child flights were restricted as some tourists.

My opinion is also falling.

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If I move on.

The house in Shanghai, and the jingle in Cheyenne Kelvin's Danya complements.

They realize that how's your father in Tianjin phosphorus, finishing.

With regard to the remedy loss this year.

As we are facing many challenges and uncertainties.

We are closely watching the development of the market conditions and also the certification progress.

We are adjusting our strategies to be adaptable accordingly.

But we remain confident in our long term outlook going forward.

Thank you Thiago.

Sure.

That is my answer to your second question. Thank you.

Let's see.

Sure.

So nothing great.

If the country.

For yourself.

No question at current stage, our analyst and certification work is focusing on the <unk> product.

The redesigning or many things are on track data Yonder, Portugal, Amo King capital.

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That's helpful. Thank you.

I assume that you yourself Jason.

H and social.

So the product <unk>.

Paying the principle of safety first and then there is no need to rush in.

So designing R&D and testing for this product.

We have been establishing this error with the system.

It was started with a lot of our aircraft are component has to first to ensure the overall safety of the aircraft.

And then carried out a larger number on the slide.

Uh huh.

Can you hear me.

Alright that is my answer to your question. Thank you.

Excuse me.

Okay.

The next question comes from <unk> from <unk> Securities. Please go ahead.

Oh hi, Thank you. Thank you for taking my questions I have two questions as well. My first question is regarding to employees in the research and product development departments.

We have around I'm guessing.

50%, increasing personal and mostly in the R&D side is it possible give us a rough distribution between 189 R&D personnel increases like for example.

Percentages working on EV and its new motto and so on and so forth.

So all of them and the given the big increasing R&D employees what area. So those newly recruited employees, mostly working on.

And for my second question is.

About the strategic partnership between Johan Citigroup, and we see that your honest actively forming key partnership with companies from each countries of South East Asia or are we going to see similar strict us.

Strategies and breadth of the global region, and most importantly, where we see similar strategic partnerships in China as well. Thank you so much.

Okay.

Thank you for your questions.

Richard Liu.

Let me take your first question.

And a catalog company will turn your second.

Second question regarding the market strategy.

I understand the number of employees you you're talking about.

Our 20-F.

2021.

The size of our R&D team has been steadily increasing.

We continue to enhance our.

R&D capabilities, which is our core.

Our competitive advantage, so basically the distribution.

If our R&D team follows our R&D strategy, which is to establish an integrated technology platform that is across different technology called functional areas.

Laser foundation.

<unk> for developing different products. So overall, our R&D team is roughly a four.

40% in hardware development and 30%.

Software development with the rest in other major areas, such as certification and testing et cetera.

The core team of our R&D team.

It has been a star.

If the company since early days.

Have a cumulated abandonment leading experience.

And insights in AAV and <unk> technologies.

The big increase in 2021, you mentioned.

Evenly distributed with an emphasis on the certification and testing areas as the.

The year 2021 was an important year.

<unk> certification process. So I hope this answered your question. Thank you.

Thank you Hello Hello.

This is Ed Wirth, our chief strategy Officer here, So I'd like to answer your second question, you're right. So regarding our global Oh.

Our strategy of forming partnerships so basically.

We as we mentioned already are right.

We've positioned ourselves.

U N platform, operator, and we understand that the U N.

The industry as a whole ecosystem. So we are trying our.

Our efforts to build.

Based a whole ecosystem.

Which means that the east coast seats, and that's the only the regulators, but also different partners.

Partners are you.

Of which we are we are cooperating with our real estate the operators.

Amusement park operators and a conventional aviation.

Operators et cetera. So as you can see are these time, we just a form a very good partnership with CP group are in Thailand, which is a is a very honorable.

With high reputation Linda and strong Ah okay.

Cities are in Thailand chose the minority we are also seeking.

The different partnerships are with the different countries in market.

But as you know that Oh focus is in China, first so which means that in China. We actually we we had viewed extensive partnership was a quite a number of our you know our reputable companies.

Which includes the.

Greenland.

Hong Kong and.

Shenzhen Expressway.

You know Guangzhou our infrastructure our.

<unk> group et cetera. So are we we have a quite a number of.

Saudis are partners in China and in overseas market.

As we mentioned earlier.

The markets are with focus.

Asia, including Japan, Korea, and Southeast Asia countries, such as Thailand, Malaysia, and Indonesia et cetera. So we actually see very good interest from those markets and Furthermore, we are also working with them.

Some European and U S market.

Our partners are so which means that you can see we had a very good relationship with these partners. So.

Hopefully you are going to see a.

More partnerships in the future. Thank you.

Thank you. Thank you so much.

Yeah.

There are no further questions at this time I will now hand, the call back to Ms. Nguyen for closing remarks.

Thank you operator this is Richard.

Thank you all for participating on today's call and for all your support we.

We appreciate your interest and look forward to reporting to you again next quarter on our progress. Thank you.

Yeah.

That does conclude our conference for today. Thank you for participating you may now disconnect.

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