Q2 2022 EHang Holdings Ltd Earnings Call
Okay.
Good day, ladies and gentlemen, and thank you for standing by and won't go to the E H and second quarter 2022 earnings conference call.
As a reminder, we are recording today's call.
Now I will turn the call over to Julia <unk>, managing director of the Bullshit group of Asia here I affirm miscreant. Please proceed.
Hello, everyone. Thank you all for joining us on today's conference call to discuss the company's financial results for the second quarter of 2022 of the earnings release is available on IR website as well as from Newswire services.
Please note that the conference call is being recorded and the audio replay will be posted on the company's IR website today, how management team, which includes Mr. Hu <unk>.
Chief Executive Officer, Mr. Shang Fung, Chief operating Officer, and Mr. Richard Liu Chief Financial Officer was successfully keep the prepared remarks remarks delivered in Chinese where before the by English translation. All translation is for convenience purposes only in the case of any.
Z management Sustainment in the original language will prevail a Q&A session will follow afterwards before we continue. Please note that today's discussion will contain forward looking statements made pursuant to the safe Harbor provision of the U S. Private Securities Litigation Reform Act of 1995.
Forward looking statements involve inherent risks and uncertainties as such the company's actual results may be materially different from the expectations expressed today further information regarding these and other risks and uncertainties, including in the company's public filings with SEC. The company does not assume any obligation.
To update any forward looking statements, except as required under applicable law also please note all the numbers presented are in RMB and all for the second quarter of 2022, unless stated otherwise with that let me now turn the call over to CEO , Mr. Hu <unk>.
Please go ahead Mr Hall.
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Here's some translation on the Mr whose remarks, thank you operator, and Julia Hello, everyone. Thanks for joining our earnings call today.
Q2, how actively adapted it to the macro environment at home and abroad.
The world was gradually recovering from the container the impact of the Covid pandemic.
We were able to achieve excellent results.
In such an environment, where not only spend more time and efforts to strengthen ourselves, but also continue to expand our orders pre orders deliveries and our customers, especially in China and southeast Asia.
Today's drove up our total revenue in Q2 by a significant increase of over 150% from Q1.
We continued to expand our strategic partnerships with business and finance partners such as J P group, one of the largest commercial companies in Thailand, and the agricultural bank of China.
These partnerships will be off of a strong support TUI has long term business development in the future.
Our COO and CFO will elaborate on later.
The most important thing for us at present.
<unk> S and worsening notification.
And the process has progressed into new places.
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It is based on full understanding of the comprehensive set up with this concept.
That had been summarized by the western countries with very experienced in recent century.
This set of concept has been embedded in the entire process. So we're making a aircraft from design to mass production, which has been essentially and profoundly influence on our safe production and operation of ammunition products.
Here I would like to express my sincere admiration and appreciation to the pioneering predecessors, who contributed valuable experience with tremendous efforts.
However, before the <unk> issued a special conditions.
Andy any available with new certification standards.
Think about this new type of aircraft like <unk> hundred.
Thanks.
In the early days.
These conform to our own safety standards.
Based on which we explore to restart product innovation and production.
As there was no precedent we had closely work with the SEC to further develop this new type of air with new standards together. According to the relevant with this concept and principles in a past several months.
We had established the aircraft design and production management systems.
Not only meet the requirements of the aviation industry, but also are compatible with our own management system.
With that every member of our team can walk in line with with this concept and a conforming to the scientific advancement and design methods.
So as to enable every process and controls and the regulated manner from design to production.
To Asics.
In this regard we finally reached the consensus with <unk> expertise in Q2 on our push out participants Vegas certification plan and certification basis.
Well as does the vacations and respectively.
In respect of the witness process for this unique <unk> system, we have not only refer the CCR 23 with this regulation.
Internationally recognized standards such as the ASTM.
E R TCA and al etcetera.
And to learn from the configuration management and with the experience of a commission on the aircraft to Oems.
But also made innovation exploration on new topics.
In aircraft systems include.
Including the Ami system data link and ground control system.
When it works out 13, Ms Alva compliance applicable to Johan to Asics.
Based on our previous experience, we are continuing carrying out internal testing according to their wisdom standards.
And our planning activities, but a demonstration of the compliance.
Based on the CEC and Guangdong provincial government strategic cooperation framework agreement placebo aviation development in Guangdong.
They recently emphasized style speeding up developing the aviation manufacturing industry and new business forms of general aviation.
Both <unk> and Guangdong government have clearly put pushing forward relevant UN pilot project and are strongly pushing forward the hand to Essex S. AAV type certification process as the.
They are key tasks in 2022.
It encouraged us and have further enhanced our confidence to obtain a type certificate.
Moreover in June the Zec newly established aircraft with experience center in Guangzhou, where our headquarters is located to be in charge of the airworthiness certification work for small aircraft nationally.
Currently the <unk> went out of the products in our Vito aircraft in series.
At this stage of the product the design.
This preparation and a component clarification.
We believe that these favorable conditions and policy supports in Guangdong Kelly solid Foundation for VITAS 30 design test flight and witness certification.
Next I will turn the call over to our Chief operating officer, Mr function for business highlights in Q2.
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Here's the translation I'll, let Mr <unk> remarks.
Thank you Mr. Hu Hello, everyone.
As the Covid situation in China have gradually stabilized since Q2 of this year.
Tourism market has been recovering steadily.
The post pandemic era expediate the transformation of tourism, such as scenic spots.
<unk> innovative business models to skill up emerging consumption.
In June this year.
AACE issued the Fourteens five year special plan for January Aviation development to promote the development of low altitude to slide sure Ism.
That's important related to authorities to expand aerial SAIC in more scenic spots.
And to establish a low altitude apply to tourism network.
Connecting sitting spot results theme parks and other tourist destinations.
And Youre in a national policy supporting integrated the development of aviation and tourism, we formed a strategic partnership with Tianjin and counsel Tourism investment company and affiliated Enterprise updates you show City government in China's Hunan Province.
With the plan to develop a cynic slide project agile, London, tourism area and national <unk> level scenic spots in tissue.
In Q2, we delivered five units.
<unk> for the customer's initial purchase order.
And the initiated trial flight operations Jack.
The customer plans to purchase additional 25 unit <unk> in the future.
This project creates a replicable public and private business cooperation model for low altitude glide tourism.
Which is helpful for expanding our ongoing business project in other regions.
According to statistics, China has more than 305 and level of scenic spots and over 4000 point level scenic spots.
Indicating tremendous market potential for expanding low altitude flight tourism.
Against this backdrop, we are making excellent progress in our 100 and mobility routing initiatives.
So far more than 5000 in the southern hindered operational compliance there'll be hand to Essex has been conducted in practical aerial sizing scenario.
11 operation spots in China.
After obtaining the certificate.
<unk> is expected to provide our tourism customers and end users with a unique safe technologically advanced cost effective and a pleasant low altitude flight tourism solution and experience.
In Southeast Asia, where do you and Mark Katie is also in high demand and has reached use cases.
We're actively expanding our presence through the empowerment of local partners.
In Q2, we received a pre order for 100 units Homey and 260 <unk> from an Indonesian aviation company prestige aviation, which is the largest of preorders. We have received in Asia. So far.
We've also reached a stretch your corporation with CP group, one of the largest conglomerate in Thailand.
With an intent to establish a joint venture reintroducing <unk> to Thailand.
The two parties also intend to carry out comprehensive cross sector of cooperations in Aero tourism, and our logistics and transportation <unk> mobility and spicy management in the future.
We expect the size of a business recovery in the second half of this year.
We are actively adapting to the macro environment, continuing moving forward to Asics certification, securing more product orders and expanding our regional era media business in the Europe market.
We remain confident.
Gross potentials and long term outlook gave our core values and a unique advantages.
I will now turn the call over to our CFO , Richard Liu for financial results Richard.
Richard Please go ahead. Thank you.
Thank you Sheng and Hello, everyone before I go into details. Please note that all numbers presented are in RMB.
For the second quarter of 2022 unless stated otherwise.
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 second quarter of 2022, our strategic shift towards an urban air mobility platform continued as we aim for a solution and operational service integrator model.
The ongoing efforts are yielding positive results with increasing deliveries in China and orders were preorders in Asia.
Collecting our solid business trends.
As we continue to focus on that new home to 16 type certification process. We also made further development in our 100 air mobility routes initiated with continuously increased operational priced sites as well as expansion of operating spots in China.
Additionally, we struck a strategic partnership with the agricultural bank of China, Guangzhou Brunch.
Four 1 billion RMB indicated credit facilities to support our strategy execution and business growth in the following years.
In Q2 of 2022 total revenues were $14 6 million representing.
Representing an increase of 152, 5% from $5 8 million in Q1.
This was a long we say 166, 7% increase.
Hum to <unk> AAV deliveries in Q2 to eight units.
Three units in Q1.
Demand for our <unk> products have been increasing both in China and internationally.
One typical example in China is that in Q2, we delivered five units of <unk> to <unk> <unk>.
To a local government backed tourism, operator in Hunan province for aerospace in operational services.
Customer plan to buy additional 25 units as the project progresses.
Another example is that we have obtained preorders of up to 210 units from customers in Japan, Malaysia, and Indonesia since the beginning of this year.
And we see the trend of further expansion in southeast Asia markets.
Additionally, we were able to further drive a four six percentage points expansion in gross margin.
267, 1% in Q2 from 62, 5% in Q1.
Even though our overall gross margin has already being at a high level compared to other new energy mobility product companies such as electric car companies.
This continued to show our competitive edge is the first mover in the global U M and <unk> industries.
In Q2, our adjusted operating expenses, which are operating expenses, excluding share based compensation expenses were $63 4 million compared with $46 1 million in Q1.
The increase was mainly attributed to continue.
Continuous R&D of new EV models and the <unk>.
Ongoing beyond 2016 certification process, both of which are progressing steadily and.
And professional service fees related to annual report filing and other legal matters and additional provisions for accounts receivable in light of impact from the ongoing COVID-19 epidemic and a control measures in China.
With that in Q2, our adjusted operating loss was $51 2 million compared with $41 7 million in Q1.
Our adjusted net loss was 58 million in Q2, compared with $40 9 million in Q1.
Our balance sheet remains solid with $240 7 million of cash cash equivalents restricted cash and short term investments as of the end of Q2.
With a slight increase of $3 8 million quarter over quarter.
With that we believe our business is on a good track.
That concludes our prepared remarks, let's now open the call for questions. Operator. Please go.
Ladies and gentlemen, we'll now begin the question and answer session. If you wish to ask a question. Please press star one and one on your telephone.
We have the first question.
Please standby.
The first question from Tim <unk>. Please go ahead your line is open.
Hi management, Thanks for taking my questions.
I actually have two quick questions. The first one.
We saw Johan.
Thank you good progress.
In terms of the customer acquisitions, especially in Asia over the past few quarters.
Just wondering how maybe preorders.
We've got so far.
Doug.
Sure.
We plan to start the delivery.
In addition could you also get some updates regarding our collaboration suite to cover.
And.
The size of the contribution should we expect it to be safe guys going to kick in.
And my second question is about the foundry.
The investments because.
We noticed that.
<unk>.
Hi Fi.
Our partnership with agricultural Bank of China.
That entitled US to around a fairly interesting indicators credit facilities.
Wondering how we're going to use to ask.
I'm going to ask salary to the investment paid upcoming launch.
What kind of cash burn rate.
Could we have some clubs.
Looks like now so could you share a little bit more information about our investment plans in the upcoming quarters. Thank you.
Yeah.
Yes.
Yes.
Thanks for your questions. Please give us a second to translate your questions to the management team will provide the answers with retransmission on thank you.
Okay.
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Yeah.
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Hi, Tim This is <unk>, let me take your first question about orders.
Since the beginning of this year, we have received a total of 210 units.
Preorders for passenger grade AAV.
The Asian market.
Yes.
<unk> been done at Yahoo can you cope with the schedule.
So what can you say for pacifico.
Little.
Little sheep, Michael Joseph.
The more than 200 units of our preorders in Asia.
Expected it to be delivered in about three years subject to customer needs and our obtaining a type certificate in China or other relevant certification in a local market.
So what are you doing that.
Hi, Alicia Thanks, Paul.
Couple of Inbev, Coca Cola Cola <unk> HIFU.
That's helpful.
So.
So all of US who had been done policy like for example in polo sleazy.
In addition to the Preorders. We also have received some customer orders.
Orient discussions.
Which are able to be quickly delivered in a short time based on the customers' demands.
For example in Q2, we received the orders from the customer in diesel and also completed at the deliveries for the first batch of five units.
Which have already been put into trial operations.
Yes.
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John Lucey Tycho.
At present, we are in talks with some local governments regarding potential cooperation.
<unk> plans to set up operational centers in different regions.
To actively prepare for the commercial operations once we obtain the capsid.
We have already signed a strategic cooperation agreements with certain governments.
A pound of Raymond there'll be some purchase orders, which plants to be completed successfully.
And this year.
Expect it to make a notable contribution to our full year results.
Okay.
Hi, Tim This is Richard.
I'll take your second question.
Basically this partnership.
Is the first times that.
Agricultural bank of China, as one of the largest commercial bank.
To partner with and grants such indicated credit facilities to two.
To us.
Hey.
Innovative easy to a technology company.
This represents the traditional financial institutions.
Starting to tap into this type of new industry. So.
It is a good sign not only for <unk>, but also.
At least for for the industry.
Basically the one media RMB indicators credit facilities cover comprehensive banking products and services.
Agricultural bank of China.
To support our operations and business development over the following years.
Including Rattler credit loans.
Financial leasing.
Supply chain financing et cetera.
As a starter.
They have extended to us a 30 million RMB credit alone.
Further we have been discussing the financing financial leasing.
Option to facilitate.
This is gross after the Tcs obtained.
Thus in the in the near term money you will be.
Use the more towards supporting operations and the sales growth.
In respect of.
Investment.
In terms of our Capex Capex investment.
So as we have an existing production facility.
See how those sales would grow to plan for any future capex needs.
Regarding the cash burn.
As you know <unk> has been running a lean operation in China and this is somewhat.
<unk> unique style, if compared to others.
You probably can get.
You get a feeling from our cash flow statements.
<unk>.
If you ask for current.
To give you a rough idea.
The current average monthly cash burn rate of our operations.
So.
17 million RMB.
Roughly.
Two $2 5 million U S dollars, if annualized you would get around 200 million RMB.
Or roughly $30 million.
As expected ourselves would increase after DTC is obtained.
Operational cash flow or the cash burn situation.
You should expect it to be further improved following that.
I Hope this answer your question.
Yes.
Thank you very much farther to retrofit kiko Gerry thank you.
Thank you for your question.
Okay.
The next question.
Please standby.
We're taking that ask questions.
Thank you for your question.
The next question.
Okay.
Please standby.
We're taking the next question from Steve. Please go ahead your line is.
Okay.
Thank you. Thank you for taking my questions and I have two questions as well. The first one is could the management team elaborate a little bit more on the business model for the AAV.
The tourist attraction cooperation like for example will the tourist attraction be leasing or buying the AAV for me, who will be operating the AAV and such and the second question.
Now that we've seen that there are many competitors now in the making of AAV.
What would the management team feel is the most important innovation to stay as a industry leader for example, like battery or noise cancellation technology or propeller technology or like having a command and control center like what drove.
Like what will be the most crucial and how it is doing in that particular.
Particular area. Thank you so much.
Okay.
Oh, thanks for the questions. Please give us a second generation.
Of course.
Rudy.
<unk> loss of function.
Lastly, non U.
Yes.
Uhm GE currently all else equal gross volume will close and Daiichi Hello, Michael Hello, Alonso <unk>.
So you're going to own clinical wellness isn't in yet.
Hopefully you saw AT&T Amit.
Yes, yes, that's helpful.
So <unk> I'll, let you luck.
Hi, this is daunting.
Your questions right.
Demand in our business model.
And into the next box.
For a long time.
The traditional ways, including Cubo Carson helicopters.
Which cannot only provided tourists Richard crush.
Hey.
But also serve as a point to point transportation vehicles Wilson exports.
Which have delivered by both tourists and then explore operators.
Honeywell possible Tonight, you think that you should assume yes.
Let's jump all the key Jeff.
So I appreciate your answer.
So Angie inbound calls we've only equal Dol.
Fiber there are traditional ways has certain limitations such as the high cost.
Core infrastructures the aircraft acquisition and professional pilots.
Therefore, it is any spot operators will not have a good return on investment.
So with regard to tungsten.
Counting the Hong Kong.
Frank also decent but you should see US also get a Hong Kong Geological trial long if you believe in the I'm sorry, so to you for choosing Delta.
Hi, <unk> I mean to your thoughts on used vehicle customers yet.
When we appreciate all of you.
Don't Genco Delta.
We will see a total goal awesome. Thanks Tonya.
The key innovation of our <unk> is that they are designed the Florida medical use cases with features of a high safety.
Nancy and the low cost operations.
<unk> in our aircraft structure.
Redundancy City design.
<unk> management.
In terms of the era of tourism.
<unk> realized stable flat in low altitude based on our <unk> structure.
And it can be centrally managed monitored and managed.
Yes.
And what's more is.
The high cost are hearing professional pilots.
So all of its household cleaners.
Switching goldmine, yes, so we don't presume sheet, yes, how are you seeing <unk> also.
Yes.
Also for the Genco operation.
<unk>.
The cynics box as our customers can purchase or lease our AAV.
We're only providing infrastructures or quantify the operators.
Can take charge offs line monitoring and operational spots.
Copel <unk> E <unk> also.
And will that meaningful.
Yes, thats useful hurdle some of them also maybe couple of putting Sheila on table.
<unk> <unk>, you talked about equal Youll ask savana.
Yes.
Yes.
<unk> provides both the AAV cells and the U M operational services to our customers.
Our partnership with <unk> customer as an example.
In Q2, our customer not only place the purchase order for the <unk>.
But I also plan to work with us to.
Develop a cynic glide project.
One note.
Our national <unk> level with the next body.
Through both parties' complementary resources and joined operation.
Playing in that Thiago Wendy Waldman.
Scott.
And so we'll and Joseph Wolf.
Hello, Tien tsin auditing them diesel I'd, just say, yes or no.
Yes.
Are you willing to answer Amit <unk> Hydrogel total lodge humble that Cindy.
All of our people and sandbox only CFO .
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So yes.
In a moment are willing to also hung tissue cells. So hopefully that's useful.
Yes.
<unk> also hired <unk>.
Regarding your second question.
The industry really our timeless technologies are leading competence.
The industry.
Other competitors are still at this stage of our mono controllers.
In terms of autonomous technologies will have invested all our efforts from day one.
<unk> like control algorithms.
This led to systems.
Battery system and also the amount of control systems.
Altogether integrated our unmanned aircraft system.
With continuous iteration and evolution of these technologies.
We are able to stay ahead in the industry.
That's the answer to your question. Thank you.
Thank you.
Thank you so much.
Thank you for your question.
Going now to take our next question.
Please standby and the next question from Birmingham Jeong. Please go ahead.
Just a question a longer window Kinshasa, Joseph <unk>, Joseph Tung Heng agenda, Jay Shah.
<unk> shall fonterra chunky chunky, Josh how does your Chengdu Suzhou Shanghai meal, GBS now attention of Harsha critical math, guys shellshock central shall pay creation EG.
The AGA window Pasha Guarrera unchanged, St. Joseph Watson Quinoa fashion of all women that Damian.
And gender conscious 18 months and as you well know.
Don't take a HEICO Chengdu she comes off all Neil Neil Sherman in greater phone <unk> Yang.
Okay. That's helpful.
Let me translate quickly here I have two questions first on their technology any differences in the entry barrier across the logistic.
<unk> and also the passenger AAV and can these different products sure Sam production lines and watched a roughly units level to breakeven. My second question is on safety could.
Could we take over the flight if any emergency happens and if hackers paralyze the system what can we do to leather AAV safely landed thank you.
Okay.
Okay.
Okay.
Hi, everyone.
Richard Thanks for your question.
<unk> tried to answer the questions so basically our.
200, <unk>, the largest and model.
Two assisting F. The firefighting model.
Essentially we think.
We recorded.
200 <unk> series.
Products.
Basically our approach has been to first focus on developing a fundamental model for passenger carrying us we choose.
The corresponding model is assisting us.
It requires large payroll and the highest safety levels.
And then further.
<unk>.
200, <unk> <unk> and <unk>.
On top of the fundamental model based on different specialty needs.
The core module such as flight control propulsion et cetera are the same actually.
The relevant functional parts are tailor made to suit for different needs.
With that I guess, you probably can tell now.
The entry barrier was you'd be on the core technology partners.
Char shared.
And require a large amount of time and manpower to be developed.
So as to the production line.
Catalyst will be shared.
Okay.
In respect of breakeven.
We can.
Look at them as a whole.
To give you a rough idea.
It is estimated.
That.
<unk> of roughly <unk> to.
To give you a rough range.
Around 250 to 300 units.
<unk> two <unk> series so products.
To carry the company to breakeven.
On an adjusted basis.
Given the current level of staff expenses and <unk> prices.
And regarding your.
Second question.
So basically our AAV flies by itself along the pre determined flight routes in all.
Most situations.
In case of emergency the AAV, usually can deal with the situation by yourself.
Having said that if necessary.
The ground operational staff, who are monitoring the slides can take over the control through the ground command and control systems.
In respect of your.
Hudson question.
The connection between the AAV and the comment on control system is through where does private networks and upgraded from the public networks and there are high level cyber security protection measures.
So in case.
The ground command control system will be hacked AAV can still fly by yourself to complete.
Predetermined flight or find the nearest safe area to land.
Hope I answered your question. Thank you.
Thank you Richard Mcphail content.
Thank you for your question.
No further questions I will now hand the conference.
Over.
For closing remarks.
Please go ahead.
Thank you operator, and thank you are participating on today's call <unk> apart.
Injury.
Alright, great.
Next quarter our progress.
Okay.
This concludes the conference for today, Thank you for participating and I hope.
Mac.
[music].
[music].
Good day, ladies and gentlemen, and thank you for standing by and won't go to the E H and second quarter 2022 earnings conference call.
As a reminder, we are recording today's call.
Now I will turn the call over to Julia <unk>.
And director of the Blue shirt group of Asia here I'm firm Mr. Graham. Please proceed.
Hello, everyone. Thank you all for joining us on today's conference call to discuss the Companys financial results for the second quarter of 2022 of the earnings release is available on IR website as well as from Newswire services.
Please note the conference call is being recorded and the audio replay will be posted on the company's IR website today, how management team, which include Mr. <unk> <unk>, Chief Executive Officer, Mr. Shang Fung, Chief operating Officer and Mr. Richard Liu Chief Financial Officer was successfully.
Keith in the prepared remarks remarks delivered in Chinese where before the by English translation. All translation is for convenience purpose. The only in the peso any discrepancy management. The statement in the original language will prevail a Q&A session will follow afterwards before we continue please note that.
Today's discussion will contain forward looking statements made pursuant to the safe Harbor provision of the U S. Private Securities Litigation Reform Act of 1995 forward looking statements involve inherent risks and uncertainties as such the company's actual results may be materially different from the expectation expressed.
Today further information regarding these and other risks and uncertainties, including the Companys public filings with SEC. The company does not assume any obligation to update any forward looking statements except as required under applicable law also please note all the number represent RMB.
And all for the second quarter of 2022, unless stated otherwise with that let me now turn the call over to CEO , Mr. Hu <unk>.
Please go ahead Mr <unk>.
Hey, guys you Shan Julia that alcohol guidance, Yes go ahead, Jim Dan Sanjay Johansson on that yet.
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Jimmy <unk> <unk> seen when they buy the whole last one Jim.
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Here's some translation on the Mr. <unk> remarks.
Thank you operator, and Julia Hello, everyone. Thanks for joining our earnings call today.
Q2, how actively adapted to the macro environment at home and abroad.
The world of with gradually recovering from the continued impact of the Covid pandemic.
We were able to achieve excellent results.
In such environment, where not only spend more time and efforts to strengthen ourselves, but also continued to expand our auditors preorders deliveries Santa customers, especially in China and Southeast Asia.
Today's drove up our total revenue in Q2 by a significant increase of over 150% from Q1.
We continue to expand our strategic partnerships with business and finance partners such as the SAP group one of the largest commercial companies in Thailand, and the agricultural bank of China.
These partnerships will be strong polak TUI has long term business development in the future.
Our COO and CFO will elaborate on later.
The most important thing for us at present.
<unk> S and worsening certification.
And the process has progressed into new places since this year.
It is based on full understanding of the comprehensive set up with this concept that had been summarized by the western countries with hearings.
And century.
This set of concepts has been embedded in the entire process. So we're making an aircraft from design to mass production, which has been essential in a profound influence on the safe production and operation of ammunition products.
Here I would like to express my sincere admiration and appreciation to the <unk>.
Nearing predecessors, who contributed valuable experience with tremendous efforts.
However, before the CEC issued special conditions.
Eddie available with Nancy vacation standards applicable to this new type of aircraft like <unk> hundred assays.
In the early days.
These conform to our own safety standards.
Just on which we explore to start product innovation and production.
As there was no precedent.
Having closely work with the SEC to further develop this new tab with new standards together.
Into the relevant with this concept and principles.
Several months.
Today's stablish to aircraft of design and production management systems with.
Which not only meet the requirements all the aviation industry, but also are compatible with our own management system.
With that every member of our team can walk in line with with this concept and a conforming to the scientific advancement and design methods.
So as to enable every process and controls and the regulated manner from design to production I'll be home to Asics.
In this regard we finally reach consensus with the CEC expert team in Q2 on our push Anticipant of Vegas certification plan and certification basis.
As well as does the vacations and respectively.
In respect of the Ah witness process for this unique and then out of the system. We have not only referred the CCR 23, with this regulation and a internationally recognized standards such as the ASTM SAE our TCA.
And al etcetera.
And learned from the configuration management and with this experience all the conventional aircraft Oems.
But also many innovation exploration on new topics in aircraft systems, Inc.
Including the Ams system data link and ground control system.
We worked out 13, Ms Alva compliance applicable to you hand to Essex.
Based on our previous experience, we are continuing carrying out internal and past according to the western standards.
And the planning activities, but a demonstration of the compliance.
Based on the CEC Antigua no provincial government strategic cooperation framework agreement placebo aviation development in Guangdong.
They recently emphasized on speeding up developing the manufacturing industry and new business forms of general aviation.
Both the CEC in Guangzhou government have clearly pud pushing forward relevant UN pilot project and are strongly pushing forward the hand to Essex S. AAV type certification process as they are key tasks in 2022.
It encouraged us and further enhance our confidence to obtain a type certificate.
Moreover, in June and CEC newly established in aircraft witnessed branch center in Guangzhou.
Headquarters is located to be in charge of the certification work for small aircraft nationally.
Currently the <unk> 31 of the products in our Vito aircraft in series.
At this stage of the product and design.
This preparation and a component their vacation.
We believe that these favorable conditions and policy support in Guangdong Kelly, a solid foundation for VT 30 design test flight and witness certification.
Next I will turn the call over to our Chief operating officer, Mr function for business highlights in Q2.
<unk>.
Sure, Jeff Little Joey Hall Julien.
<unk> do you also look on that can you give any north Hollywood.
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So I'll talk to you about that high.
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Danielle.
Here's the translation of Mr. <unk> remarks.
Thank you Mr. Hu Hello, everyone.
As the Covid situation in China gradually stabilize the since Q2 of this year.
Tourism market has been recovering steadily.
The post pandemic era expediate the transformation of tourism, such as any spot.
By bringing innovative business models to skill up emerging consumption.
In June this year the C. AAC issue the Fourteens five year Special plan for January Aviation development to promote the development of low altitude slide sure rhythm.
<unk> 14 related to authorities to expand Ariel IC in more scenic spots.
And to establish a low altitude apply to tourism network.
Connecting sitting spot results theme parks and other tourist destinations.
And Youre in a national policy supporting integrated the development of aviation and tourism, we formed a strategic partnership with contingent counsel tourism investment company and affiliated Enterprise updates you show City government in China's Hunan Province.
With the plan to develop a cynic slide project agile, London, tourism area and National <unk> level of Phenix spot in T cell.
In Q2, we delivered five units of <unk> for the customer's initial purchase order.
And the initiated trial flight operations in Iraq.
The customer plans to purchase additional 25 unit <unk> in the future.
This project creates a replicable public and private business cooperation model for low altitude glide tourism.
Which is helpful for expanding our ongoing business project in other regions.
According to statistics, China has more than 305 day level scenic spots and over 4000 point level scenic spots.
Indicating tremendous market potential for expanding low altitude flight tourism.
Against this backdrop, we are making excellent progress in our one hindrance and mobility to routing initiatives.
So far more than 5000, and then the southern hindered operational <unk> six has been conducted in practical <unk> scenario and 11 operations box in China.
After obtaining the certificate.
<unk> six is expected to provide our tourism customers and end users with a unique safe technologically advanced cost effective and a pleasant low altitude flight tourism solution and experience.
In Southeast Asia, where do you and Marc Haiti is also in high demand and has reached use cases.
We're actively expanding our presence through the empowerment of local partners.
In Q2, we received a pre order for 100 units or <unk>.
From an Indonesian aviation company prestige aviation, which is the largest to preorder we have received in Asia. So far.
We've also reached a stretch your cooperation with CP group, one of the largest conglomerate in Thailand.
Intend to establish a joint venture for introducing <unk> to Thailand.
The two parties also intend to carry out comprehensive cross sector cooperations in Aero tourism, and our logistics and transportation <unk> mobility, and Smart city management in the future.
We expect to signs of a business recovery in the second half of this year as we are actively adapting to the macro environment, continuing moving forward to Asics certification, securing more product orders and expanding our regional air media business in the Europe market.
We remain confident in our.
Gross potentials and long term outlook gave all our core values and a unique advantages.
I will now turn the call over to our CFO , Richard Liu for financial results Richard.
Richard Please go ahead. Thank you.
Thank you Sheng and Hello, everyone before I go into details. Please note that all numbers presented are in RMB.
For the second quarter of 2022 unless stated otherwise.
4% it 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.
Some of the key points here.
In the second quarter of 2022, our strategic shift towards urban Air mobility platform continued as we aim for a solution and operational service integrator model.
The ongoing efforts are yielding positive results with increasing deliveries in China and orders pre orders in Asia.
<unk>, our solid business trends.
As we continue to focus on but you have to 16 type certification process. We also made further development in our 100 air mobility routes initiated with continuously increased operational power price as well as expansion of our questions spots in China.
Additionally, we struck a strategic partnership with the agricultural bank of China <unk> brunch.
<unk> four 1 billion RMB indicated credit facilities to support our strategy execution and the business growth in the following years.
In Q2 of 2022 total revenues were $14 6 million.
Representing an increase of 152, 5% from $5 8 million in Q1.
This was along with a 166, 7% increase.
<unk> to <unk> AAV deliveries in Q2 to eight units from three units in Q1.
Demand for our <unk> products have been increasing both in China and internationally.
One typical example in China is that in Q2 with deliver five units of Johan <unk> AAV to a local government backed tourism operator in Hunan Province for Aerospace <unk> operational services.
The customer plans to buy additional 25 units as the project progresses.
Another example is that we have obtained preorders of up to 210 units from customers in Japan, Malaysia, and Indonesia since the beginning of this year.
And we see the trend that further expansion in southeast Asia markets.
Additionally, we were able to further drive a four six percentage points expansion in gross margin.
267, 1% in Q2 from 62, 5% in Q1.
Even though our overall gross margin has already being at a high level compared to other new energy mobility product companies such as electric car companies.
This continued to show our competitive edge as the first mover in the global U S and <unk> industries.
In Q2, our adjusted operating expenses, which are operating expenses, excluding share based compensation expenses was $63 4 million compared with $46 1 million in Q1.
The increase was mainly attributed to <unk>.
Continuous R&D of new EV models, and the ongoing hung to 16 certification process, both of which are progressing steadily.
And professional service fees related to annual report filing and other legal matters and additional provisions for accounts receivable in light of impact from the ongoing COVID-19 epidemic and a control measures in China.
With that in Q2, our adjusted operating loss was $51 2 million compared with $41 7 million in Q1.
Our adjusted net loss was $50 8 million in Q2, compared with $40 9 million in Q1.
Our balance sheet remains solid with $240 7 million of cash cash equivalents restricted cash and short term investments as of the end of Q2.
Even with a slight increase of $3 8 million quarter over quarter.
With that we believe our business is on a good track.
That concludes our prepared remarks, let's now open the call for questions. Operator. Please go ahead.
Ladies and gentlemen, we'll now begin the question and answer session. If you wish to ask a question. Please press star one and one on your telephone.
We have the first question.
Please standby.
The first question from <unk>. Please go ahead your line is open.
Hi management, Thanks for taking my questions.
I actually have two quick questions. The first one does.
We saw Johan.
Having the bear case on good progress in <unk>.
<unk> of the customary acquisitions, especially in Asia over the past few quarters.
Just wondering how maybe preorders.
With thoughts so far.
When do we plan to start the delivery.
In addition could you also get some updates regarding the <unk> collaboration suite to cover that.
And what are the size of the contribution should we expect it to we think that's going to kick in.
My second question is about.
The investments because.
We noticed that.
That's correct.
The shippers to agricultural bank of China.
That entitled US to around a fairly is the indicators credit facilities.
Just wondering how we are going to use that.
I'm going to ask salary to the investment cleanup Kobe launch.
What kind of cash burn rate.
Could we have some clubs just.
Because it looks like now so could you share a little bit more information about our investment plans in the upcoming quarters. Thank you.
Yes.
Yeah.
Thanks for your questions. Please give us a second to translate the questions to the management team.
We will provide the answers with transformational.
Thank you.
Okay.
Okay.
Okay.
Jim when you're hot water.
Well, let's say that the Eagle.
Kim Donovan.
Jamie light well under Yahoo.
Paula by use of the <unk> LNG.
Eaton Vance.
Hi team. This is <unk>, let me take your first question about others.
Since the beginning of this year, we have received a total of 210 units.
Preorders for passenger grade AAV.
Asian market.
Yes, Amit.
<unk> can you talk with the schedule.
Well, thank you for your call.
A.
Little sheep LIFO adjustment.
The more than 200 units of our preorders in Asia.
We expected it to be delivered in about three years subject to customer needs and our obtaining a type certificate in China or other relevant certification in the local market.
So what are you doing that.
Hi, Alicia Thanks, Paul.
Couple of inbound calls.
Couple of the eligible type one.
<unk> tightened its helpful.
So all of US who had been done policy like for example polo sleep issues.
In addition to the Preorders. We also have received some customer orders.
Can orient discussions.
Which are able to be quickly delivered in the short time based on the customers get Mt.
For example in Q2, we received the orders from the customer in <unk> and also completed the deliveries for the first batch of five units.
Which have already been put into trial operations.
Yes, Im with Janssen that we're most active in terms of what's happening with older tonnage.
Yes.
Ingalls <unk> Liza holdup volume importantly.
Total champion.
She is on lithium.
I'll, let Tonya you had decent EG youll scheduled itself.
Sure.
John Lucey Tycho.
Okay.
At present, we are in talks with some local governments regarding potential cooperation.
<unk> plans to set up operational centers in different regions in order to actively prepare for the commercial operations. Once we obtain the tab cel.
We have already signed a strategic cooperation agreements with certain governments.
Upon this of Raymond.
<unk> be some purchase orders, which plants to be completed.
Secondly, within this year.
Expect it to make a notable contribution to our full year results.
Okay.
Okay.
Hi, Tim This is Richard.
I will take your second question.
Basically this partnership.
It is the first time that.
Agricultural Bank of China is one of the largest commercial bank.
To partner with and granted such indicated credit facilities to to us.
Hey.
Innovative EV to a technology company.
This represent traditional financial institutions.
Starting to tap into this type of new industry. So.
It is a good sign not only for <unk>, but also.
At least for for the industry.
Basically the one media RMB indicators credit facilities cover comprehensive banking products and services.
Agricultural bank of China.
To support our operations and business development.
Over the following years.
Including Rattler credit loans.
Financial leasing.
<unk> financing et cetera, so as a starter.
Please send it to US a 30 million RMB credit alone.
Further we have been discussing the financing financial leasing option to facilitate.
Gross after the Tcs obtained.
Thus in the in the near term money you will be.
The more towards supporting operations and the sales growth.
In respect of.
Investment.
In terms of our Capex Capex investment.
So S.
First we have an existing production facility.
We will see how those sales would grow to plan for any future capex needs.
Regarding the cash burn.
As you know.
<unk> has been running a lean operation in China and this is somewhat.
Unique style.
Two others.
You probably can get.
I've got a feeling from our cash flow statements.
Yeah.
You asked for current.
To give you a <unk>.
<unk> idea.
The current average monthly cash burn rate of our operations.
So.
17 million to RMB or roughly a $2 5 million U S dollars, if annualized you would get around 200 million RMB.
Or roughly 30 media in U S dollars.
As it is expected ourselves would increase after DTC has obtained the.
The operational cash flow or the cash burn situation.
We expect it to be further improved following that.
Hope this.
To your question.
Yes.
Thank you very much farther to retreat for detail Sherri. Thank you.
Thank you for your question.
Okay.
Next question.
Please standby.
We're taking that ask questions.
Thank you for your question.
Okay.
The next question.
Yes.
Please standby.
We're taking the next question from Stifel. Please go ahead your line is open.
Thank you. Thank you for taking my questions and I have two questions as well the first one is could the.
Management teams elaborate a little bit more on the business model for the AAV for the tourist attraction cooperation like for example will the tourist attraction be leasing or buying the AAV from Johan who will be operating the AAV.
Such.
Second question.
Now that we've seen that there are many competitors now in the making of AAV.
The management team.
<unk> is the most important innovation to stay as a industry leader for example, like battery or noise cancellation technology, our propeller technology or like having a command and control center, which will.
What will be the most crucial in house.
In that particular area. Thank you so much.
Okay.
Yes.
Yeah.
Thanks for the questions. Please give us a second for translation.
Of course.
The.
<unk>.
That's great.
Yes.
You can equally all else equal gross selling them with Daiichi Hello, Michael Hello, Alonso <unk>.
Which includes only youll cooks, you're going to own clinical wellness isn't in yet.
Hopefully you saw 18 CME.
Yes, that's helpful.
So <unk> I'll, let you.
Hi, This is something I will take your questions.
Great demand and a business model for <unk>.
<unk> is the next box.
For a long time.
The traditional ways, including the cable cars and helicopters.
Which cannot only provider tourists Richard crush.
Hey.
But also serve as a point to point transportation vehicles with exports.
Which are favored by both the tourist and then explore operators.
Honeywell.
Yes, so let's talk all the key sunbelt.
Ultimately awesome, but certainly I appreciate your answer.
We are already in full golf.
Fiber non traditional way has certain limitations.
Has the high cost and the expenses.
Infrastructures the aircraft acquisition.
And the professional pilots.
Therefore, it is any spot operators will not have a good return on investment.
Hey, <unk>.
Counting the Hongkong and Shanghai will show decent but she is also get all Hong Kong Geological triangle.
Charles Thank you for choosing Delta.
Hi, <unk> I mean to your thoughts on your vehicle coastal J D.
When we appreciate how are you.
You don't Genco and Delta.
Total goal of someday.
Hi.
The key innovation of our <unk>.
Is that they are designed the Florida medical use cases with features of a high safety efficiency and low cost operations.
Reflected in our aircraft this structure and a full redundancy city design and our fleet management.
In terms of the tourism. So you have to Essex I realized stable flat low altitude based on our module cost structure.
Can be centrally managed monitored and.
Managed it.
What's more.
The high cost are hearing professional pilots.
<unk>.
Also on the coupons.
Yes.
We don't frequency.
Sure Tom.
<unk> also.
Yes, yes.
Also for the Genco operation.
All done.
The cynics box as our customers.
Purchase or lease our avs or only providing infrastructures or quantify the operators, who can take charge off offline monitoring at all.
<unk> asphalt.
Yes.
<unk> is also meaningful.
Yes.
Yes, thats useful although some of them also lady couple of putting sheet on table.
Do you have an <unk> or downward as you thought about equal you will ask savana.
Deanna.
<unk> provides both the AAV cells and the U M operational services to our customers taking.
Taking our partnership with <unk> customer as an example in Q2, our customer not only place the purchase order for the U S.
<unk>.
But also to work with us to develop a cynic light project at our Windows.
It's a national <unk> level with the next bottleneck.
We were both parties' complementary resources and joined operation.
Playing in that Thiago Wendy.
We hung in.
And so we'll and Joseph Wolf.
Hello, Tien Tsin, obviously, and then diesel I don't believe so.
On top of it.
Sorry willing to answer Amit <unk> Hydrogel total lodge humble that Cindy.
Baltimore, Cleveland Sandbox only Seahawks.
Chico Deltas go home yet.
So yes.
Another woman that William talked about Hong Kong tissue cells. So hopefully that's useful to <unk>.
Women Association also hunger that Vicente with.
Regarding your second question.
Industry leader.
<unk> technologies are leading competence.
Industry well.
While other competitors are still at this stage of our mono controllers.
In terms of autonomous technologies will have invested all our efforts from day one.
Including my control algorithms.
That led to systems.
Battery systems and also the amount of control systems.
Altogether integrated our unmanned aircraft system.
With continuous iteration and evolution of this technology, we are able to stay ahead in the industry.
That's the answer to your question. Thank you.
Yeah.
Thank you so much.
Thank you for your question.
Going now to take our next question.
Please standby and the next question from Birmingham Jeong. Please go ahead.
Just a question are longer when do you think Joshua Joseph <unk>, Joseph with Alicante <unk> Shaw.
Julio shall Fonterra chunky chunky, Josh how does your channel guide tissue mankind, Shanghai <unk> no attention ohashi critical math, guys Shellshock Chantal shall pay pleasing EEP.
The AGA window Pasha Guarneri unchanged, St. Joseph Watson, Quinoa fashion, they'll fall woman Damian.
And gender conscious 18 model as you well know.
Heiko Chengdu seeking rafal, Neil Neil Sherman in greater function.
Hey, John .
Let me translate quickly here I have two questions first on their technology any differences in the entry barrier across the logistic.
And also the passenger AAV.
These different products share the same production lines and what's the roughly units level to breakeven. My second question is on Cte <unk>.
We take over the flight if any emergency happens and APAC gross paralyze the system, what can we do to leather AAV safely landed thank you.
Yeah.
Okay.
Yes.
Hi.
Brian .
Richard Thanks for the question.
Let me try to answer the questions so basically our.
2016.
The largest and model.
2016.
The fire fighting model.
Are you essentially within the we call it.
2016 series.
Alex.
Basically our approach has been to first focus on developing a fundamental model for passenger carrying us which is the.
Quick funding model is 216 S.
It requires large payroll.
And the highest safety levels.
And then further develop.
200, <unk> <unk> and <unk>.
On top of the fundamental model based on different specialty needs.
The core modules such as <unk>.
Flight control propulsion et cetera are the same actually.
The relevant functional parts.
Tailor made to suit for different needs.
With that I guess, you probably can tell now.
The <unk> was to be on the core technology partners.
Which are shared and require a large amount of time and manpower to be developed.
So as to the production line.
It can also be shared.
In respect of breakeven.
We can.
Look at them as a whole.
To give you a rough idea.
This estimated.
That.
And <unk> of roughly.
To give you a rough range.
Around 250 to 300 units.
2016 serious so products.
<unk> carry the company to breakeven.
On an adjusted basis.
Given the current level of staff expenses and <unk> prices.
And regarding your.
Second question.
So basically our AAV flies by itself.
The pre determined flight routes.
Most situations.
In case of emergency.
Usually.
And deal with the situation by yourself.
Having said that if necessary.
The ground our Christmas staff, who are monitoring the slides can take over the control through the ground command and control systems.
In respect of your.
Hudson question.
The connection between the AAV and the comment on control system is through where does private network and separated from the public networks and there were a high level of cyber security protection measures.
So in case.
The ground command control system will be hacked.
We can still fly by yourself to complete the pre determining flight or find the nearest the states area to land.
Hope I answered your question. Thank you.
Thank you Richard Stuber retail conference.
Thank you for your question.
No further questions I will now hand the conference.
Over.
For closing remarks please.
Please go ahead.
Thank you operator, and thank you are participating on today's call <unk> apart.
Yes.
Alright.
Next culture our progress.
Okay.
This concludes the conference for today, Thank you for participating disconnect.