Q3 2022 EHang Holdings Ltd Earnings Call
Speaker 1: You.
The conference will begin shortly. To raise your hand during Q&A, you can dial star 11. Good day, ladies and gentlemen. Thank you for standing by and welcome to the EHAN, Third Quarter 2022 Earnings Conference Call. As a reminder, we are recording today's call. Now I would like to turn the call over to Anne Jie, EHAN Senior Director of Investor Relations. Miss Jie, please proceed. Hello everyone. Thank you for joining us on today's conference call to discuss the company's financial results for the third quarter of 2022. The earnings release is available on the company's IR website. Please note the conference call is being recorded and the audio replay will be posted on the company's IR website. Today, the EHAN Management Team, which include Mr. Hua Zhihua, Chief Executive Officer, and Mr. Xin Fang, Chief Operating Officer, and Mr. Richard Liu, Chief Financial Officer, will successfully give prepared remarks. The remarks delivered in Chinese will be followed by English translations. All translation is for convenience purposes only. In case of any discrepancy, the management team statement in a regional 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 provisions of the U.S. Private Securities Litigation Reform Act of 1995.
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 is included in the company's public filings with the ICC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law.
Also, please note that all numbers presented are in RMB and are for the third quarter of 2022 unless stated otherwise.
With that, now let me turn the call over to our CEO , Mr. Huan-Chi Hu. Please go ahead, Mr. Hu.
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This is the English translation of the CEO's remarks. Hello everyone, thank you for joining our earnings conference call today.
since Yihang submitted the EH216 certification application to the CEC, which is the Civil Aviation Administration of China at the end of 2020.
We have been continuously committed to the efforts to actively promote the H2S6 certification progress in the past two years.
In their warning certification, it's not only a safety certification and a prerequisite for official commercial aircraft operations.
but also the crucial path for Yihan to move forward in his strategy of becoming an urban and mobility platform operator. And thus, the key catalyst and driving force for the company's business growth.
Here, we'd like to thank our investors, customers, regulators, and partners for their long-lasting attention and support.
Every member of the eHEM team values the support given to eHEM.
and are wholly dedicated to meeting the expectations of our stakeholders.
As an innovative project, the airways certification process is full of tremendous challenges along with the continued impact of the pandemic in China.
Our technology, product, and certification teams have tirelessly worked days and nights.
to overcome difficulties in a collaborative synergy.
Additionally, they have worked under close cooperation with the CEC expert team, and we are about to greet the Victory Darling.
At present, all of our certification plans have been officially approved by the CAC expert team.
In other words, the means of compliance for all the 12 specified airworthiness review subjects have been confirmed.
including aircraft performance and flight, structural strengths, design and configuration, ground control station, airborne human-computer interaction, continued airworthiness, etc.
As a result, the EH-126 certification process has already completed the phases of concept design, requirements definition, and compliance planning, and entered the ongoing final phase for demonstration and verification of compliance.
We have completed the most demanding and complicated work across the most difficult obstacles and overcame many challenging uncertainties.
What we are doing next is to implement all the plans that we made.
Besides, we are fully confident in the final phase of airworces certification, which is specifically about conducting verification review through laboratory tests, ground tests and inspections, flight tests, and data analysis by the CAC expert team and EHEM, in accordance with the approved certification plans.
EHAN-216 have accumulated more than 30,000 safelets and data records over the years, which could be solid supports to the demonstration of compliance.
The proof in passenger-carrying AV test flight records, as well as the test flights in extreme weather environment, such as the high altitudes, typhoons, deserts, and heavy fog, will accelerate the process of a verification of compliance.
On this basis, we are carrying out some supplementary tests and flight tests for verification.
so as to complete the TEP certification process.
We are fully confident to complete the world's first airworthiness certification for the human-carrying unmanned aircraft system.
Our confidence is not only derived from the strengths and innovations of our AAV technologies,
but also from the open and innovative spirit of the Chinese government, the CEC, and the aviation industry, as well as their interest, support, and guidance.
All of these empower the high degree of innovation, breadth, depth, and speed of the EHAN26 certification project.
which are at the forefront of the emerging industries across the globe.
In September and November this year, Yihan was honored to be invited by the I-TALE, which is the International Civil Aviation Organization.
to attend the 41st ICAO Assembly, Innovation Fair, and R-PASS Samponia at the ICAO's headquarters in Montreal, Canada.
and shared the exploration and practice on EHAN 216 air worth classification project.
and innovative results with global aviation regulators.
In particular, the CEC, as the first-class member of ICAO, introduced China's first air witness certification standard for human-carrying unmanned aircraft systems at the ICAO assembly, providing a reference for countries in formulating related regulations.
It is not easy to be a first mover and a pioneer.
Even so, over the past eight years, Inhaeng has always been committed to its steadfast mission, which is to make safe, autonomous, and eco-friendly air mobility accessible to everyone. For this, we have and always will adhere to the principles of safety first, bolding innovation, careful analysis, and prudent verification.
contribute to the formulation of relevant industry standards and norms.
with the experience and the expertise we have accumulated over the years.
and lead healthy and continuously improving development of the emerging in vitro industry worldwide.
Meanwhile, driven by leading innovative pilots like Yi Hang, we are pleased to see that China has taken more and more new policies and measures to continuously support and promote the development of urban air mobility and air-manned civil aviation.
In August , the CEC released the AMEND Civil Aviation Development Roadmap 1.0, which set the short, medium, and long-term development stages and goals for 2025, 2030, and 2035.
These are significant in how they clarified the direction for the new industry development. Meanwhile, the CEC also approved seven new unmanned civil aviation experimental zones, in addition to the first batch of 13.
Currently, there are a total of 20 pilot cities in China to put the policies into action.
In some of these zones, it has received strong support and pre-orders from the local government and customers.
They are actively building UEM operational trial flight bases and supporting infrastructures.
to bring the integrated development of aerial sightseeing, aerologistics, and smart city management industries.
as well as provide further grounds for the operations and practical applications of EHEL AAVs.
Unlike other developing industries, we need to create new regulations to build up this new industry. And we made it.
which expect to be followed by explosive growth.
Against such a strong and promising backdrop, we have the reasons and confidence that Yi Han will achieve significant growth results and meet our strategic goals after completing the tapestry vacation.
to provide better returns for our shareholders and partners.
while continuously promoting the sustainable development of the emerging UEM industry.
Next, I will turn the call to our Chief Operating Officer, Mr. Xin Fang, for business results in Q3. Thank you.
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This is the English translation of the COO's remarks.
Thank you, Mr. Hu. Hello, everyone. In the third quarter, we remained focused on the Yihan 2016 Air Force certification project and continued to explore domestic and overseas markets to fully prepare for post-desertification commercial operations.
Since October , the COVID-19 resurgence has swept across many cities across China, especially Guangzhou, where Yihang is headquartered. Although we are facing serious challenges from pandemic control measures, we will continue to drive our efforts in a low-altitude aerial tourism, one of our AV target markets.
following Guigang City in Guangxi Province and Zishu City in Hunan Province.
Since the third quarter, we have been exploring more potential opportunities in Qingdao City in Shandong Province and Huangshan City in Anhui Province.
and integrating local resources to actively develop a broader and diversified UAM ecosystem.
Yiheng formally launched the 100 Air Mobility Routes Initiative last year. So far, we have completed over 6,800 operational travel flights with Yiheng 216 in practical aerial sightseeing scenarios at 15 operation spots across China.
to accumulate valuable experience for post certification commercial operations.
These operation spots cover first-year cities such as Guangzhou, Shenzhen, and Shanghai, as well as other tourist destinations.
In addition, it has self-developed AAV operational system has been put into use across all operation spots.
The current internal tests demonstrate positive results.
which will significantly improve AAV operations management efficiency.
In October , we established a partnership with HECO Group, a subsidiary of Swire Group.
HECO Group brings over 70 years of experience in maintenance, repair and overhaul.
and as after sales maintenance service system and network across the globe.
We believe that the potential cooperation opportunities in manufacturing and assembly, continued airworthiness, digital platforms, aircraft maintenance, and talent training will help further solidify the foundation for EHAN 216 commercial operations in the future.
On the international front, we have made meaningful progress in two key regions, Asia and Europe .
Since the beginning of this year, we have achieved fruitful results in developing Asia markets, including Japan, Malaysia, Indonesia, and Thailand.
and have received a total of 210 pre-orders for passenger-grade AAVs.
In the third quarter, with the support of our Japanese customers, E-126 completed a demo flight tour across four cities.
leaving footprint in up to six Japanese cities to date.
This flight tour not only demonstrates the use cases in airward sightseeing over the sea, air mobility, and smart logistics.
but also include the over-the-sea flight and point-to-point flight for the first time of an Iveto aircraft in Japan.
It was also an excellent showcase for participation opportunities at Expo 2025 Osaka Kansai, which will further strengthen preparations for subsequent business expansion in Japan.
Furthermore, it has played an important role in many European Union's UN projects.
For instance, the EHUM 216 trial flights in October verified and validated the UAM concept of operations, which completed the Emulad project objectives.
In November , EHAN participated the CEMMA project, initiated by the European Union Agency for the Space Programme, to deploy the ECNOs, which is the European Geostationary Navigation Overlay Service, on the EHAN 26 operations.
and to support use-based integration across Europe .
2022 is coming to an end, but we continue to see impact from the COVID-19 resurgence and pandemic control measures in China, which brings considerable challenges to our original airworks notification process and business development plan.
We have adjusted our guidance based on the current situation and the outlook for the fourth quarter.
The company expects the total revenue for 2022 to be in the range of $55 million to $65 million RMB.
Nevertheless, remain optimistic and confident about achieving the company's long-term financial growth and development momentum based on our core competencies.
including the leading technological advantages, the 106 STC process entering the final phase.
and increasing UAM market demand with pre-orders for more than 1,200 passenger-grade AABs in hand.
and sufficient preparation for commercialization and industrial chain deployment.
and also thorough-bow regulatory support, especially in China.
Based on that and our consistent execution of the corporate strategies, Ehang is well positioned for a promising future.
I will now turn the call over to our CFO Richard Liu for financial results.
Rachel, please go ahead. Thank you.
Thank you Xin. Hello everyone. Before I go into details, please note that all numbers presented are in RMB and are for the third quarter of 2022 unless stated otherwise.
All percentage changes are on a quote-over-quote basis unless otherwise specified.
Detailed analysis are contained in an earnings press release, which is available on our IELTS website.
I will now highlight some of the key points here.
Our third quarter performance reflects impacts from the COVID resurgence in China. However, we continue to enhance our cost management to improve operational efficiency despite the near-term challenges.
We maintain our focus on the development of areas that can deliver long-term growth as we continue to execute our strategy towards becoming an integrated urban air mobility operator.
Turning to our operating results in Q3 2022, total revenue for 8.2 million compared with 14.6 million in Q2.
This was due to the unfavorable market impact, mainly from the pandemic resurgence and related control measures in China.
The H216AAV delivers in Q3 with four units.
compared with A units in Q2.
That said, demands for AAVs remain strong, notably with pre-orders from the Southeast Asian market this year.
as we are focusing on completing the final phase in the type certification process of EH216-S.
We are also stepping up our efforts in preparing for its commercial operations.
by expanding our market presence and our partnership network at home and abroad, coupled with other strategic initiatives.
Growth margin was 65.9% in Q3, a slight decrease of 1.2% 8 points from 67.1% in Q2.
but it remains at a high level compared to those of other new energy mobility products, such as electric cars.
This attests to e-hounds competitive strengths and first mover advantages in the global UAM and EV2 industries.
In Q3, our adjusted operating expenses, which are operating expenses excluding share-based compensation expenses, were 59.7 million.
representing an improvement of 5.9% from 63.4 million into two.
The decrease was mainly attributed to decreased professional expenses as well as fluctuated R&D expenses related to different processes in product development and the ongoing certification process.
With that in Q3, our adjusted operating loss was 52.9 million compared with 51.2 million in Q2.
Our adjusting net loss was 55.1 min in Q3 compared with 50.8 min in Q2.
As for our balance sheet, we continue to maintain relatively healthy cash, cash equivalents, restricted cash and short-term investment balances of 208.8 million at the end of Q3.
which was attributed to our continuous management of operating expenditures and cash flow.
Additionally, we will be moving to a new headquarter office in Guangzhou to embrace the new phase of growth that the company is expecting to see following completion of the type certification.
Nevertheless, we have been sticking to a proven cost control strategy and taking effective measures to optimize new office rental expenses.
It is expected to give us a cost down estimated by around 20% compared with those of our current office.
Given the latest pandemic resurgence in China, we expect such headwinds would probably remain a challenge in the near term.
But we believe that for the longer term we will be able to capture the great growth potential of the UAM industry.
with the leading technologies and comprehensive strategies.
We remain committed to providing a safe, autonomous, and sustainable aerial mobility experience while creating values for shareholders and stakeholders.
That concludes our prepared remarks. Let's now open the call for questions.
Operator, please go ahead.
We will begin the question and answer session. To ask questions on the phone, please press star 1 1 and we will proceed in the next video.
One moment.
The first questions come to the line of Cindy Huang on from e-commerce.
Thank you for my question. I have two questions. My first question is regarding the progress of type certification. We enter into more in-depth review phase. Can we expand that in-home still can receive type certificates by the end of this year?
And my second question is that in light of recent COVID lockdown, have we encountered any hiccups in terms of production, component sourcing, type certificate, obtainments, and delivery schedules? And do we see any risks? And then I delay the timetable of receiving TC.
and how should we think about the revenue cadence into 2023. Thank you.
Do we have the management on the line? The local line please.
Ladies and gentlemen, please stand by.
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Thank you for the answer. May we have the managed produce translation, please?
Perhaps, Spanishmen, for the translation line, would you like to rejoin again if you can hear us? Everyone please stand by, we are trying to address the issue.
Okay, okay, okay, okay.
OK, we can hear you now. Please carry on, please.
and try the English translations.
As our CEO Mr. Hu mentioned earlier, the EHEIM 216 type certification has been entered into the final phase, specifically to complete the compliance demonstration and verification work according to the certification plan approved by the CEC expert team.
The practical data that IHEM has accumulated over the past years provides a solid support.
And together with the support of the CEC and the expert team, it will help to accelerate the final phase of the process.
As we are the world's first, we are facing a lot of uncertainties.
But the 2021 SIDS certification is one of the key projects of CAC for this year, which was originally scheduled to complete by round out December this year.
Particularly, the CEC called for the members of the TC expert team to get together at the Yihan site in Guangxi to work closely with us.
However, the recent epidemic resurgence in Guangzhou made it difficult for all the members across the country to come together.
that the timetable might be delayed, but it will not be too long because most recently, as the COVID restriction measures have begun to ease by steps in China, the related impact is expected to gradually decrease.
So our expectation may be around January next year.
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Thank you. Would you like to move to the next question from the investor, please?
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We hope you will enjoy this video. If you have any questions, please leave them in the comments. We hope you will enjoy this video. Please like and subscribe. Thank you for watching. Thank you for watching.
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Okay, this is the English translation of the answers above. Regarding your second question, the epidemic has had a significant impact on our business development and the original project depends since the beginning of this year, just like other Chinese companies.
In terms of the business development, the tourism industry is our initial main target market for our AAV product applications.
while it is one of the industries seriously affected by the epidemic.
However, we have been exploring more potential opportunities in Weigang City in Guangxi Province, Zixiao City in Kunan Province, Qingdao City in Shandong Province, and Anhui City in Hengdang City in Anhui Province, etc.
and despite the strict pandemic control measures.
and we received adequate trust, support, and cooperation from local governments and customers.
In addition, the epidemic has no significant impact on our production and supply chain.
Our next year's revenue expectations will depend on the timing of obtaining the type certificate and the recovery of the economy and tourism industry after the epidemic situation gradually subsides in China.
Ideally, the potential customers in the market above will be able to place orders while we could gradually deliver the product so that we are likely to achieve significant revenue growth next year and return to the high growth trajectory. For more details, please wait for our guidance next year.
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Thank you very much for the questions. Allow me to proceed with the next question.
One moment please.
Our next question comes from Yiho Wu from Goldman Sachs. Please proceed.
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to the the bump cost breakdown, especially the battery, the model, the battery management part and who are the suppliers.
Can we take the view that this EHAR model, a bump cost breakdown, is similar as the EV? And second one is how many the pre-order and the decrease we have so far. And in terms of scenarios, apart from the set saying what types of the passenger transportation scenarios are we penetrating into? Thanks.
Thank you for the questions. This is Richard.
Let me take your first question and then I will let our CEO Xin take your second question.
So basically the cost structure of the EH216 AAV can be divided into three major portions.
First, the power and propulsion system. Second, the fuselage and the structure.
Third, the electronic components and others.
and from a new energy mobility product perspective.
The major composition
of the propulsion system of an EH216AAV can be regarded similar to that of an EV.
Basically, it mainly includes electric motors.
motor drivers and batteries together with the battery management system or BMS.
In respect of percentage, each portion, as mentioned just now, consists roughly one third of the total cost more or less.
In respect of suppliers, most of our qualified suppliers with long-term relationships are those located in South China, more specifically in the Pearl River Delta area, which is known as a world-leading manufacturing hub and where our headquarters is.
So this gives us an easy access to a large number of high quality suppliers.
and the competitive edge in respect to supply chain in terms of cost and efficiency as compared to our tier companies in other countries.
So I will let...
Xing, take your second question.
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This is the translation of Mr. Fang's answer.
So far this year, in addition to the over 200 units of EHANG AAV pre-orders in the Asian markets, we have potential orders from many domestic customers in pipeline.
such as Jintang District in Guigang City, Guangxi Province, and Tianjinjian in Jiguo City, Hunan Province.
They are very interested in deploying Yihan AVs in the local areas to develop the low-altitude tourism industry.
The potential orders in Jintao include 60 units of BHUM-216 series AAVs, which are expected to be placed and delivered gradually after obtaining a type certificate.
In addition, five units of E116 have been delivered to Tianxingjian to develop an aerial sightseeing project.
This customer intends to purchase additional 25 units as the project evolves. Apart from the low altitude tourism market, we are also in contact with the customers who have needs for firefighting and emergency transportation, such as the Qingdao Fire Department and some hospitals.
which has a potential order about six units of EHN216 for our fighting model.
Given that our initial primary target market is the low altitude tourism, which we invest more resources,
The revenues from this market will be the most significant in the near future, followed by the firefighting and emergency air road transport use cases.
This is all of the translation.
Thank you for the answers.
One moment for the next question.
The next question comes from the line of Di Wu from Tianfeng Securities.
Thank you management team for taking my question. My first question is recently we see that the US has issued a series of export bans on high-end chips. Just wondering will there be any potential impact on the supply chain? My second question is we noticed that China's domestic epidemic prevention policy is experiencing some softening.
First of all,
We are not using those US-band chips in our products. As you can imagine, there will be no potential impact on our supply chain.
But we will be mindful of this when we further implement our R&D and supply chain strategies.
Additionally, we adopt a strict mechanism to review and ensure quality and stability of our supply chain.
and we always seek to fully engage with our qualified suppliers.
to establish long-standing and end-spun partnerships.
In respect to your second question, yes we have been experiencing the optimization or even the easing of COVID prevention and control measures recently.
As I mentioned Guangzhou, where we are headquartered, has initiated doing so since just two days ago.
it seems more cities are gradually following the suit. So this is a very good sign to the market. Given the COVID prevention measures can be further loosened up, travel can be back to normal. So when these challenges are eased or further eliminated, it is expected to have positive impacts on the business.
For example, in respect of type certification, the inspectors will be able to travel without difficulties to allocations to convene and check onsite, thus facilitating the process.
In respect of markets, you will help the tourism industry, which we initially targeted back to normal, thus facilitating the relevant tourism operator customers to complete orders.
Coupled with TC soon to be obtained, it is expected our business will rebound next year. We believe our efforts will allow us to capture these market growth opportunities going forward. Thank you.
Thank you. Thank you for the call.
Thank you for the questions.
Seeing no more questions in the queue, let me turn the call back to Ms. Chi for closing remarks.
Thank you operator and thank you all for participating on our today's call. If you have further questions please contact our IR team by email or participate our following master events through the calendar information provided on our IR website.
We appreciate your interest and look forward to our next running call. Thank you.
Thank you all again. This concludes the call. You may now disconnect.