Q2 2023 Smart Share Global Limited Earnings Call
Hello, and thank you for standing by for Energy Monsters, 2023 second quarter earnings Conference call.
At this time, all participants are in listen only mode.
Today's conference is being recorded.
If you have any objections you may disconnect at this time.
I would now like to turn the meeting over to your host for today's conference call.
Rector of Investor Relations.
And since she.
Thank you welcome to our 2020 through second quarter earnings Conference call. Joining me on the call today are Marc Hi, Energy Monster, Chairman and Chief Executive Officer.
Yes, Yang Chief Financial Officer.
For today's agenda Madison will discuss business updates operation highlights and financial performance for the second quarter of 2023.
Before we continue I refer you to our Safe Harbor statement in the earnings press release, which applies to this call as we will make forward looking statements.
Also this call includes discussion of certain non-GAAP financial measures.
Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures.
Finally, please note that unless otherwise stated all figures mentioned during this conference call are in.
R&D.
I would now like to turn the call over to our chairman and Chief Executive Officer, Mark times for the business and operational highlights.
Thank you and good day, everyone welcome to our 2023 second quarter earnings call.
We're pleased to announce positive results for the second quarter of 2023.
We continue to steadily hat towards normalization.
Revenues and profitability continues to recover both on a year over year basis and sequentially.
For the second quarter of 2020 suite mobile device charging service GMB increased by 37% year over year and 17%.
Hell of a quarter.
This reflects that the overall offline topic in China is making its recovery.
For mobile device charging service <unk> increased by 66, 64% year over year.
The positive trends remained with a year over year increase of 39% in may.
During the Labor day holiday in May our GLA increased by 83%.
Compared to the same period of last year.
The path towards recovery is especially notable in hot.
Areas last year.
<unk> in first tier cities increased by over 100% year over year during this quarter.
Which Shanghai and Beijing, let the recovery with 600% and Hungered, 40% increases year over year, respectively.
Transportation and office buildings.
Let the recovery in terms of <unk>.
The overall recovery in food traffic has also unleashed opportunities for P. O Y expansion as more locations have the sufficient number of users for us to expand our city.
During the second quarter, both our direct and network partner models continue to drive all P Y expansion as our service becomes more accessible to more users that's more locations.
On one hand, our direct modal continue to gain momentum as offline traffic continue to return to normalization, allowing us to be better capturing the opportunities to expand into case.
On the other hand, our network partner model allows us to more efficiently scale into more regions and diversifying our P y composition.
During the second quarter of 2023, we made an important change to our contractual arrangement with our network partners that further unlock our growth potential and the network partner model.
This update increase the competitiveness, but both energy monster and our network partners.
We believe that this update will allow us to further unlock the full growth potential of our network partner model and drives the expansion, although service to all corners of China, where our service if needed.
We also continue to improve our operational efficiency on all fronts during this quarter with profitability continuously trading up.
non-GAAP net income for the second quarter of this year was RMB 13 billion compared to RMB 17 million in the first quarter of 2023, and a loss of RMB $177 million in the same period last year.
Notably our preaching profit for the second quarter of 2023 was RMB 14 million compared to an operating loss of RMB 191 million in the same period last year.
The incremental recovery in all probability is clear and it reflects that the poor economics of our operation is rebounding.
We are pleased with the improvement in our operating efficiency in the past year as we significantly reduced fixed costs in our appraisals should and strive towards normalization of our unit economics.
We believe that's offline foot traffic continues to rebound.
Our device charging operation will continue reaching new heights and higher market share.
This is primarily due to the recovery efficiency.
Cabinets and power bank and increased coverage of operation.
We believe that the positive trend in the recovery of our profitability will continue to take shape going into the rest of this year.
This will in turn allow us to continue strengthening our balance sheet.
Which is required to capture the growth of the mobile device charging service industry as well as opportunistically expand into new initiatives that can leverage energy amongst us advantages.
<unk> and technological expertise.
We believe that the strength of our core mobile device charging service cash flow and overall balance sheet says as pillar two energy amongst us growth in the future.
The core strategies of coverage expansion and operational efficiency remain center to our business philosophy allowed.
Allowing us to achieve market, leading growth and operational leverage.
Our commitment to these two strategies has allowed energy amongst us to navigate out of the period of external challenges largely unscathed.
We were able to maintain the general increase of about I P. O Y coverage throughout the past three years and to reduce fixed expense fees.
Now, let me walk you through our key initiatives and coverage and efficiency in greater details.
First is our ever expanding <unk> coverage.
During the second quarter, we made significant strides in the growth of P. Like coverage with number of P wise covered during the quarter increasing by more than 100000.
We were able to deliver the 10% quarter over quarter increase in terms of P. Like count through the combination of growth from both the network partner and direct models.
With a mobile device charging network of over $1 1 million P. O I's our reach is more expensive and a comprehensive than ever.
During this quarter, we added $15 4 million new registered users in <unk>.
Freezing our total accumulative registered users by 17% year over year to $362 5 million users.
The largest use of that base is directly translated into record high number of unique users in the mobile device charging orders, which total to more than 117 million orders for this quarter.
The network effect of our operation continues to scale and become increasingly apparent.
For us as they are able to see all covenants throughout their day cementing energy amongst our brand as a reliable inexpensive provider of mobile device charging service.
This is such a difference allows energy master to be the first thing that comes to us its mind whenever they have on demand mobile device charging needs.
We are seeing an ever increasing number of users directly opening up a mini program to find out of service in the nearby locations.
We are also seeing the number of orders where users borrow power banks from one cabinet and returning it to another cabinet continuously training up.
This further suggests that they use is I'm more comfortable with taking the power bank with them to their next location as they will likely.
B a place to return the call back later in the day.
These all show that the network effect is greatly beneficial to our operation.
We further cement ourselves as number one choice for us is when selecting a mobile device charging service.
The network effect on the demand side continue to be benefit.
The efficiency of our cabinets and power banks, when compared to peers within the industry.
Our network partners model continues to be core driver of our P y growth.
As of the end of the second quarter.
62% of our P wise well enter the network partner model.
There is an increase from 53% as of the end of 2022 and 38% at the end of 2021.
The rapid growth of our P O I count under the network partner model continues to be driven by the increase in the number of active network of partners.
During the second quarter.
We had approximately 8009 hundred active network partners.
This is an increase of approximately a thousand and a hungry it compared to the previous quarter.
With the continuous large influx of new network partners one of our main goals. This year is to work alongside our network partners to operationally support them. So that they are able to grow alongside energy amongst us.
This quarter, we have separated our network partner based on their scale and level of experience in the mobile device charging service industry.
Based on a different scale of operation and experience and that's where our partner team is able to provide tailored solutions and training based on their current conditions.
This is gratefully beneficial to new network partners as it allows them to have a step by step action plan for each stage of their operation.
Going forward, we will continue providing a network partner with the new house and data needed to successfully run their mobile device charging services operation.
Looking forward the combination of continuously acquire new network partner alongside with unlocking the growth of existing ones. We serve as the core drivers of growth under the network partner model.
For our direct model the number of P O I's and it increased during the second quarter.
We continue to make ongoing adjustments to existing P wise, but we consider it to be underperforming.
Going into the second quarter as the offline food traffic in China continues to normalize.
With number of P O I's under the direction of motto, increasing this quarter. We are beginning to see that normalization of offline foot traffic has reached a level that can better support the comics off the direct model.
Going forward, our direct model business development personnel, where puts more emphasis on expanding into high traffic locations that meet our standards.
For National and the original case, Okay, and the business development team continues to sign new brands with higher levels of efficiency and success compared to industry peers, the solely leverage the network partner model.
During this quarter.
Direct model signed leading case in various different categories, including chain stores in the milk T K T D and hospital.
As we have a number of high traffic transportation hubs.
The signings of National and regional case continue to be an advantage for energy amongst us given our strong brand and dedicated team of direct model personnel.
Both our direct and the network partner models says as the aging of our expansion.
Sleep propelling energy amongst us operation to new Heights, and placing us in a position that can best capture the market opportunity.
We believe that the swift execution and ability to o'clock case for our direct model and efficiency inexpensive reach of our network partner model provides the flexibility required to continue increasing our market share in the industry.
The expensive reach of our.
Mobile device charging service either through our direct and that's where a partner model strengthen the benefit of network effect vantage amongst us.
This effect allows us.
Cabinet empower them to be more efficient given the users have an affinity for our brand.
It also allows our service our service to be more easily expanded into new P. Why given the larger user base and established brand reputation.
Going forward, we will leverage both models to further cement network effect of our operation, which allows us to more efficiently capture the growth of mobile device charging service industry and further extend our leading market position.
Next is efficiency.
Viciously as the other critical aspect of our business and we are proud to report that we have made a significant progress in this area in the past few years.
In the past two quarters, our profitability has returned but notably this quarter, we have achieved a positive preaching.
Perfect.
Making the first positive operating profit since the third quarter of 2021, while a significant part of it was due to the increase in revenue efficiency of our cabinets and power banks as a result of normalization of foot traffic.
The initiatives, we have taken during the last few years also benefit the recovery and our efficiency.
We continue to take steps in reducing fixed costs. So that's all accretion is less susceptible to change in the micro and macro environment.
But general transition from higher fixed cost during the pandemic to the lower levels now makes our preparation leaner and more flexible.
During the second quarter of 2023, the number of entry fee type contracts decreased by more than 77% when compared to the same period last time I see it with entry fee contracts accounting for 12% of incentive fees for location partners down from 22%.
Pure revenue sharing contracts accounts for over 83% of total direct model contracts.
68% of the total incentive fees for local location partners in the second quarter of this year.
Up from 77% and 48% respectively in the same period last year.
We are also investing in the future by redesigning the new generation of cabinets to continuously improve our competitiveness. The mass production of latest cabinets and power banks continue to help improve the economy of our operation under the direct model as well as increase.
The competitiveness of energy amongst us network partner model.
<unk> investment in the future.
<unk> will continue to pay off as it increases our competitiveness on both fronts and provides the basis for network network coverage expansion.
During this quarter, we also made improvements to our logistics process as number of cabinets and power banks shifting to our location increases.
New improvements in this process reduce the general shipping cost across the board, while maintaining the time lines of deliveries.
With a large inflow of new network partners and a P Y network more expensive than ever. We are also focusing on the strengthening of our risk control system to better manage all operation, which in turn improved the efficiency of our business.
We believe that these investments in the future will enable us to maintain our competitive edge and continue driving growth and profitability are yet to come.
In conclusion as we look ahead to the rest of 2023, we believe that we are well positioned for sustained growth and a progressive recovery in our profitability.
The first quarter marks the beginning of our peak season, notably we are seeing transportation hub and hospitality P. O wise with the quickest to year over year growth and recovery in the third quarter. However has been mixed.
On one side the general recovery in the offline traffic and our larger coverage network all equate equates to increased growth.
On the other side, the softer than expected consumption and array of heat waves and heavy rains in certain areas of China has offset the certain amount of the growth.
However, we remain optimistic about the future and confident in our ability to continue driving growth and profitability.
That's why we go into the rest of 2020 suite.
We remain positive that we can continue delivering positive values to our stakeholders.
Lastly, I would like to.
Iterate that energy amongst its network coverage is as expensive as ever.
And our user base is the largest it has ever been there.
The benefits from network effect is becoming increasingly apparent.
With our competitive advantage in place we are able to leverage our advantage you know network effect to more rapidly consolidate market share.
That maintaining about direct model personnel is starting to benefit us as peers from the industry, all primarily leverage the network partner model.
This leaves an opportunity for us to further acquire a case in the industry given our direct models advantage.
Well our network partner model.
Our new contractual arrangement in conjunction with our cost efficient cabinets and power banks, although our network partner to quickly scale the operation when they work with energy Monster.
Lastly on the efficiency side, we will continue to make improvements across every aspect of our operation.
Leaving no stone unturned.
By doing all of this efficiently and consistently we believe we can create a competitive moat around our business that allow us to truly diversifying away from kids within the country and to efficiently expand our operation in the future.
Thank you very much I'll now turn the call to Maria Shields, our CFO for the financial highlights.
[laughter]. Thank you Mark.
First I'd like to explore the tinder is our revenue recognition.
Coming from this quarter, we have updated our contextual adventure with a nice walk popular and there's and that's what happened in modal shifting the principal no Oh wives mobile do you watch having stomach.
Well I'm off to and that's why part of us.
And there's a new arrangement mobile device, having revenue generated and there's a lot of our patent model is now that's nice Ah and Nash.
This is also the ownership right.
Emanate and the par banks and there's and that's what pattern. Our model has been transformed from a two well pad.
They tend to tend to increase the competitiveness of our that's what pattern I'm also pleased to report to the earnings release for the detail on that change.
Now let me walk you through the second quarter 2000, Twenty's race and that's what we thought would go into a deep house.
For the second quarter of 2023.
Avenue, one bedroom, representing a 50% increase.
Mobile device revenue, which is revenue generating from both go up and then that's why I put in my model or one bottle and the content for 99, 1% of our total revenue for the quarter.
Revenues generated from the block model Leach comprised from a mobile device tavis.
<unk> up 200, and a 93.9 mono and the pop out south of 6.80, well, it's very hard data points I don't know what does that kind of quarter of 2023.
Outside of the one point I'll pass on it you know yeah.
The decrease was primarily due to the decreased number of appeal I operate all through the direct model.
Revenue generated from that part of the modal niche comprised of mobile device toggle solutions up 53 point a money.
And the south of carbonate and power back up 671 point, a little well.
700, and honey pipeline six month for the second quarter of 2023.
190.
One 1% you know yeah.
The increase was primarily due to the addition of revenues generated from south and culminate and pop out.
As a result of the change in contract so a regimen.
That's where our partners which include a one time, that's a nation of.
500, plastics, meaning it's out of culminate and are back to and that's where our partner.
Other revenues were up 101, 718% you know year, two nice quiet for milling and accomplish what they're up one 9% of our total revenues.
The increase was primarily attributable to the increased user traffic from the general Halloween like power and offline food traffic in China during the second quarter of 2023, and the increase in advertisement efficiency.
Cost of revenue well off.
The three Henry and 10 quantify percentage you know year, two things hanging out.
Eight points by many for the second quarter of 2023, the increase was primarily due to the increase in valves or terminate and pop as well in a sense till she honestly drive off 10 days and the pop outs and other network partner model, which includes a one time inclination.
445.8.
Eight meaning cause a permanent and parse out himself to Napa partner They increase was partially.
Upside by the decrease depletion depreciation cost.
Gross profit at 1000, Sucky quantify percentage, you know year or two or 367 points for many for the second quarter of 2023.
Operating expenses for the second quarter of two seven times, it's really once we have it on the 15th Green plastic, meaning down 15.8%, Yeah, Oh yeah.
Excluding share based compensation non-GAAP operating expenses was 340 811, meaning they play than a year or a decrease of 51, 1%.
Research and development expenses for the second quarter of 2000 Twenty's rate was 18 7 million down 21, 5% you know year. The decrease was primarily due to the decrease in personnel related expenses.
Selling and marketing expenses for the second quarter of 2000, and Chinese rain was 10, two Henry and ninety-five fine tuning down 55, 6% year on year.
The decrease was primarily due to the decrease in incentive fees paid to the night what popular as a result of the change in contacts L O regimen.
Our partners and our D C class of incentive incentive fees paid to the location part of it.
General and administrative expenses was 30 111, meaning in the second quarter of 2023 up nine points, where they put on you know a year. The increase was primarily due to the general.
Decrease in efficiency of our operation.
Income from operations was 13 quiet since meaning and the operating margin for the second quarter of 2023. It was one 3% compared to a negative 27, plus 7% in the same period last year.
Net income was plentiful all quantify many in the second quarter of 2023 compared to a net loss of 184 point for many in the same period last year.
Nice Martin for the second quarter of 2023 watts to one 4% compared to a net margin of negative 26, 7% in the same period last year.
Note that net income, which excludes share based compensation expenses.
13 point, what many in the second quarter of 2023 compared to a non-GAAP net loss of one hungry and 77 plants by many in the same period last year.
I thought July 32023, the company had a cash and cash equivalents restricted cash and short term investments of 3.2 billing.
Capital expenditure for the second quarter of 2023 or 211, maybe.
Thank you for the lessening we are now ready for your questions operator.
The question and answer session of this conference call will start in a moment.
In order to be fair to all callers, who wish to ask questions. We will take one question at a time from each caller.
If you have more than one question. Please request to join the question queue again. After your first question has been addressed thank you.
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If you're on a speakerphone please pick up your handset to ask your question.
Our first question today is from Vicky Wei of Citi. Please go ahead.
Good evening management. Thanks for taking my question I have one small question. So how much is that with the new revenue recognition level with a network model on revenue going forward.
We also see no.
New cabinets five lines of revenue would you. Please share some color about the margin profile for this part of the business. Thank you.
Texel brother question.
Change in contractual arrangements has changed the way we recognize revenue and there is a natural part of the model now our revenue is recognized on that basis before we'd recognize that on a gross basis.
This change is a contractual arrangement will result in a decline in all our revenue side given that the night Myles is significantly smaller than the gross amount.
However, this is partially offset by the addition of the culminate in part by himself revenue line.
As for the gross margin of the coming eight and the par bank South and there then that's what part of the model the pricing of this hard work depends on the market competition, we do not intend to a Saturday it's carnival at March pardon me.
Cormac, who are part of a mono is still the expansion of our coverage in that work and the generation of recurring.
You are charging solution revenues from that where our partner in the long run. Thank you for your question.
Our next question will come from Charlie Chen of China Renaissance. Please go ahead.
Thanks management for taking my questions.
I have two question can management share a bit on the unit economics between the two models currently that's what I was going for.
Also we're seeing the increase.
Direct model locations for the first time in a while so it's just going to be an ongoing trend in the future. Thank you.
Thanks, a lot for the question.
The unit economics of the two models was pretty different during the pandemic time in the past few years, largely because our direct model has a bit more fixed expenses.
For example, our employees salary and from incentive fees.
Oh network partner model has always been pretty stable doing even during the pandemic.
But since the recovery starting from the first quarter of this year. The two models unit economics are starting to converge.
Natural partner model financial efficiency is increasing and our direct model is quickly rebounding there.
This is because one the general increase in foot traffic that is driving the recovery of efficiency about cabinets and power banks to better cover fixed costs.
The other being the reduction in the fixed incentive fees.
We plan to continue optimizing our direct model going forward in the rest of this year and believe that the economics between the two should eventually reach a similar level.
And yes, our direct models py increased this quarter because of the recovery in food traffic.
This means that more location indirect models have the food traffic to support our service.
While we don't have exact targets for the new P lives and either model because our approach to pure expansion has always taken into consideration of efficiency.
Believe that continues to be room for increase in P. O I's.
Under the direct model.
Most of its focus will be on large sized or higher traffic locations such as national original case. Thank you.
Our next question will come from Whiten Tang of Goldman Sachs. Please go ahead.
Hi, How're you Marianne Martin Maria Thanks for taking my question you just mentioned earlier that the third quarter results is a big mix due to the soft consumer spending.
Can you please elaborate a little bit more on how this translates into an impact on the operations like are we seeing lower asp's or usage rates. Thank you. That's my question.
Hi, Thanks for the question.
Sure, let me elaborate a bit on this the software.
Consumer spending can be seen across consumer industries. This year.
But especially starting at around July .
For example, we are seeing the difference between weekday and weekend boot traffic to be a bit wider than the epidemic level.
This oh.
Pre pandemic level.
This means that more users are moving around doing the weekend, but less during the weekday than before in terms of consumption amount. We are seeing a less than expected recovery in offline spending across a number of industries.
Now because our operation is based.
Performs performed at these locations, we rely on their ability to attract users as well but.
But I want to emphasize that this is nothing compared to the impacts during the pandemic.
It does marginally affects the youth usage rates of our power banks, but this does not have any effect on the E. S. P of our service.
I think it's also important to note that we are very optimistic on the recovery of overall foot traffic and consumption in China.
The sequential recovery is there to you.
For us we will continue focusing on doing the right thing, which is to efficiently expand the coverage all of a service through the direct network partner models.
Once we are able to cover more P life that currently generate positive economics for the company, we will benefit even more from dislocations once consumption power further it recovers.
So overall softer consumer spending that's impact us to some extent, but we are not we are very confident that we can more than.
Makeup for it through through the increase in the coverage.
Hope that answers your question. Thank you.
Yeah.
Okay.
We are now approaching the end of the conference call.
I will now turn the call over to energy Monsters, CFO Maria Chen for closing remarks.
Once again, thank you for joining US today, please don't hesitate to contact us if you have any further questions.
Thank you for your support and we look forward to speaking with you in the coming months. Thank you.
Thank you for your participation in today's conference. This concludes the presentation.
You may now disconnect good day.
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