EHang Q2 2023 Earnings Call Transcript

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August 17, 2023

Key Takeaways

  • The company has successfully completed all planned tests for the EH216S type certification with China’s Civil Aviation Administration, marking the world’s first TC program for an unmanned eVTOL and paving the way for commercial operations.
  • In Q2 the firm delivered five EH216S units, generating RMB 101 million in revenue with a gross margin of ~60%, while some customer deliveries were deferred until post-certification per client requests.
  • Liquidity was bolstered by a US$23 million strategic investment in July (following US$10 million in Q1), bringing cash, equivalents and restricted deposits to RMB 160.7 million at quarter-end and RMB 320.6 million by July 31.
  • A management reshuffle names Conor Yang as incoming CFO effective September 1, with outgoing CFO Richard Liu transitioning to a senior advisor role, and adds Wing Ki Lau as an independent director and Audit Committee chair.
  • Commercial groundwork includes a joint venture with Xiyu Tourism for low-altitude sightseeing (120-unit pipeline over five years), an MOU with Shenzhen’s Bao’an District to establish a UAM demo center, 20 trial sites across 18 cities with 9,300+ flights, and overseas test flights in Japan, Israel and Belgium.
AI Generated. May Contain Errors.
Earnings Conference Call
EHang Q2 2023
00:00 / 00:00

There are 5 speakers on the call.

Operator

Hello, everyone. Thank you for joining us on today's conference call to discuss the company's financial results for the Q2 of 2023. The earnings release is available on the company's IR website. Please note the conference call is being recorded and an audio replay will be posted on the company's IR website. On the call today, we have Mr.

Operator

Huazhi Hu, our Founder, Chairman and Chief Executive Officer Mr. Xin Fang, Chief Operating Officer and Mr. Richard Liu, Chief Financial Officer. The management team will successfully give prepared remarks. Remarks delivered in Chinese will be followed by English translations.

Operator

All translation is for the convenience purpose only. In case of any discrepancy, the management statement in an original language will prevail. A Q and 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.

Operator

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 this and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward looking statements, except as required under applicable law.

Operator

Also, please note that all numbers presented are in RMB and are for the Q2 of 2023, unless stated otherwise. With that, let me now turn the call over to our CEO, Mr. Huazhu Hu. Please go ahead, Mr. Hu.

Operator

Below is the English translation of Mr. Bruce remarks. Hello, everyone. Thank you all for joining our conference call today. Today, I'm thrilled to share an exciting news with you about our type certification of EH216S unmanned aerial vehicle system that we have successfully completed all the planned tests and the trial slides in the last phase of demonstration and verification of compliance, and also completed the definitive type certification flat test by the CAC.

Operator

This is the last milestone before pending the TAP certificate and also the result of the unwavering efforts of EHang team. Since the time when the CAC officially accepted the EHAN216 STC application in January 2021, Our unyielding efforts has spanned over 30 months. Throughout this journey, we have overcome various challenges and finally successfully completed all the substantive tasks ranging from battery, environment, material, strength, electronics, software, data link to ground control station. We have sufficiently proved That eHangtus 16S meets the safety standards and airworthiness requirements by the CAC. Through scientific approaches, multi angle demonstrations, rigorous testing and continuous optimizations.

Operator

This marks a significant achievement not only for EHang, but also indicated an unprecedented advancement in airworthiness certification for the entire eVTOL industry. Furthermore, unlike other ongoing TC projects of a piloted eVTOL aircraft. To our knowledge, ours is the world's first TC program for an unmanned aerial vehicle. I would like to express my gratitude to the CAC's officials and the review team as well as the company's Airworthiness Certification team for their unwavering efforts and persevering spirits. It is their professionalism, exceptional technological expertise and collaborations that have led us to our impressive achievement today.

Operator

Also, I would like to thank our investors and so many supporters for their patience throughout the process. I believe the remaining procedures will be finished very soon before the official authorization of the type certificate. It will pave the way for our commercial operations in the next stage. In the second quarter, taking into consideration of internal and external We managed our product deliveries in a controlled manner before the upcoming type certificate. Five units of VH160 NAS AAV products were delivered in Q2.

Operator

Total revenues were RMB10 1,000,000. Gross margin stayed around 60%. I believe we will have an excellent financial performance after the certification. During the certification period, we secured a round of US23 $1,000,000 strategic investment in July. Following the US10 $1,000,000 strategic investment from Qingdao West Coast New Area in the Q1 of this year.

Operator

This has further enhanced our liquidity. Finally, I'm glad to take this opportunity to announce that Conor Yang, A director of our company's Board and the Chairman of the Audit Committee will take over the position of CFO of the company, effective on September 1. He served as the CFO at several listed companies, including our media, Dandang, Tuniu, etcetera. And he also served as a director at several well known companies such as iQIYI, Dongcheng Travel, etcetera. Conor has more than 30 years of extensive experience in financial management, investor relations, capital markets and corporate governance.

Operator

During the 3 years he served as a director Of our Board, he has profound understanding and confidence in the company. We warmly welcome Connor to join our management team. I believe he will definitely take YiHang into a new level. Richard Liu has tendered his resignation from the CFO position due to his personal reasons, which will be effective at the end of August. But he will serve as a senior advisor to the company, contributing his expertise to our continued success.

Operator

On behalf of the Board of Directors and management team, I would like to thank Richard for his tremendous contributions to Yihan's development during his 8 year tenure with us. In addition, we have also welcomed Mr. Wing Ki Lau as a new independent director to the Board and also as the Chairman of the Audit Committee and a member of the Compensation Committee. Mr. Lau has over 30 years of experience and expertise in financial management and accounting and has served as the CFO and finance executives of various listed companies and industry leading companies, including Robosense, Perfect World, AGB and Mother, etcetera.

Operator

He also has 10 years of auditing experience at PwC. I look forward to working together with Conor and Mr. Lau to take Yihang into a new stage. Next, I will hand over the call to our Chief Operating Officer, Mr. Xin Fang.

Operator

Thank you. Below is the English translation of Mr. Fang's remarks. Thank you, Mr. Hu, and hello, everyone.

Operator

During the Q2, as we continue to make progress in the final stages of EHANG 216F type certification, we have also been actively exploring the new business opportunities and cooperation on both domestic and international fronts so as to establish a solid groundwork for the upcoming poster certification operations. After the initial signing of a corporation framework agreement with Huu Tourism, Ashanjun listed leading tourism enterprise in China in March of this year. Our collaboration move forward in the Q2. We have established a joint venture with Xiwi Tourism and delivered the 1st batch of 5 minutes of the Hunt to 16 FAVs to this joint venture. The customers plan to develop low altitude tourism and sightseeing projects with Yihang AAVs in the Heavenly Lake of Tian Shan, a National 5A Class and other scenic areas in Northwestern China and plans to operate a minimum of 120 units of with AAVs within the next 5 years.

Operator

Moreover, Shenzhen, positioned as a pivotal gateway for propelling China's Low Altitude Economy has committed to shaping itself into a national low altitude economy development demonstration city. Against this backdrop, in July, we inked a memorandum of understanding for a strategic partnership with the government of Baoyuan District, which is Shenzhen's Aviation Hub. This collaboration is dedicated to jointly establishing the first UEM operation demonstration center named the wings of the Bay Area at the Old Bay, one of the buoyant's cultural and tourism landmarks. We plan to develop the first Ibero commercial route, initiate the operation of EH216S after obtaining its certificate and the launch area tourism sightseeing experience services. As a company in the Greater Bay Area, Our cooperation with Shenzhen Baoan will serve as a crucial step in our post certification operational plans.

Operator

We are pleased to see that in June of this year, the State Council of China officially issued interim measures for flying management of airman aerial vehicles, the first special administrative regulation of this kind in China. This will greatly prepare the robust growth of the UAV industry while expanding the market opportunities of the low altitude economy market. It will also lay a good foundation for the commercial operations of our EHAN216s after obtaining the certificate. As the Yihan Tu-sixteen type certification project is approaching the final line, our 100 air mobility routes initiative Trial operations also have achieved a fruitful results. Along with our customers and partners, we have also developed a total of 20 trial operation sites across 18 cities in China within the 2 years by the end of July this year.

Operator

More than 9,300 safety secured operational trial flights for low altitude tourism and our sightseeing have been conducted by EH216S at these sites, which will pave the way for our commercial operations after the certification. Following obtaining the certificate of the Hantou 16S, we will deliver the existing domestic order pipelines in a proper order, which have accumulated to more than 100 units. In the global market, we maintain a proactive engagement within the UMA industry in Asia and Europe, cultivating potential customers and partners while conducting AAV test and demonstration flights. In April of this year, Ehan was inducted as a member of Japan's public and private committee for advanced air mobility. In June, we have successfully completed the test flights of EHAN216S in Okinawa, making Japan's 1st island hopping flight by the M and A beta.

Operator

Recently, our EH216 Series AAVs successfully completed the test flights in Israel and Belgium, extending our eVATO5 footprint to as many as 14 countries around the world. We are confident that as our operation scale and the flight numbers steadily grow, An increasing number of our regulators, customers and passengers will know more about and appreciate Yihan's unique AV technologies and products, enabling more people to enjoy a safe, autonomous, eco friendly and efficient air mobility experience. It will drive industrial innovations and changes and create more value for the society. Next, I will turn the call over to our CFO, Richard. Thanks.

Speaker 1

Thank you, Xin. Hello, everyone. Before I go into details, please note that all numbers presented are in RMB and are for the Q2 of 2023, unless stated otherwise. All percentage changes are 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.

Speaker 1

I will now highlight some of the key points here. In Q2, the total revenues were $10,000,000 compared with $22,200,000 in Q1, primarily from the delivery of 5 units Of EH216 S to the joint venture with a Shenzhen listed leading tourism operator in China, Xiyu Tourism. In light that the TC process of EH216 S is approaching the end. Some deliveries have been extended to be post TC See, per customer's requests. Gross margin stayed at a high level, 60.2% in Q2, a slight decrease of 3.7 percentage points from 63.9% in Q1.

Speaker 1

Despite this minor fluctuation, Our gross margin continued to be notably higher than the players of other types of electric transportation vehicles, such as those electric car companies. This is largely attributed to our unique advantages in the global UAM and the eVTOL industries. In Q2, our adjusted operating expenses, which are operating expenses excluding share based compensation expenses were $58,100,000 compared with $50,100,000 in Q1. The change was mainly because of Increased expenditures related to the conforming aircraft and the compliant tests and the final demonstration and verification phase of the EH216 Digest type certification process increased marketing activities to enhance our brand awareness additional provisions for some long aging accounts receivable, etcetera. As a result, our adjusted operating loss in Q2 was $51,300,000 compared with $34,300,000 in Q1.

Speaker 1

Adjusted net loss was $51,800,000 compared with $33,600,000 in Q1. Furthermore, we have kept optimizing our balance sheet with a prudent approach to cash and liquidity management. As of the end of Q2, we had $160,700,000 of cash, cash equivalents and restricted short term deposits. In July, we have further strengthened our liquidity with a US23 $1,000,000 equity investment via a private placement from some long term strategic investors. The funding will help enhance our liquidity and provide vital support for our execution of the post certification commercial plans in our next phase of growth.

Speaker 1

This brings our cash reserve to $320,600,000 as of the end of July. And last, as Huazhi mentioned earlier, today is my last time joining the earnings conference call as the company's CFO. I would like to sincerely thank the Board, Huazhi and the investment communities for all your trust and supports in the past 8 years. It has been my great honor to be part of the force to drive EHang from an innovative technology startup into an industry leading listed company in the past 8 years. I believe Kona is a new successor as CFO to take EHang to a new stage.

Speaker 1

I will continue to serve as a senior advisor to the company and wish the company a continued greater success. Thank you. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

Speaker 2

Thank you. Thank you. Our first question comes from Virendra Jang with Goldman Sachs. Your line is now open. Brenda, your line is open.

Speaker 2

You can ask your question.

Speaker 3

Hi, sorry, can you hear me now?

Speaker 2

Yes, we can. Thank you.

Speaker 3

Okay. Thank you. My first question is about the time line for the TC because we have finished all of the testing. So just wondering how long it will take for the production cycle? And after we began the TC, how soon that we can

Speaker 1

Hi, Brenna. This is Richard. Thank you for your question. So basically, our team have been continuing working with the CAC effort team Very closely to finish the remaining procedures, which are expected to be completed soon, And the TC will be issued accordingly. Once the TC is issued, this TC is expected to be the first of its kind in the eVito industry.

Speaker 1

And in terms of timing, We will make an announcement at that time. So please stay tuned. In respect of production post TC, As you know that we have a production facility in Yunfu City. We see initial In new capacity of 600 units of -two sixteen series products. So basically, after we obtain the TC, those capacities will be utilized to support the post TC deliveries in the future.

Speaker 3

Thank you, Richard. I have also another follow-up question here. For the second half outlook, Apart from the TC part, could you also share about the end market demand? For example, for the tourism Market recovery, are we still seeing the recovery ongoing for the second half? Thank you.

Speaker 1

Okay. So basically, on the demand side, Our existing order pipeline has accumulated to more than 100 units in China. And this pipeline is expected to continue to increase. To give you some examples, in our previous press release, we announced Our cooperation with Xiyu Tourism and this cooperation will further lead to a potential Order demand for about 120 units in the future 5 years. Additionally, our strategic partnership With the Bao'an District of Shenzhen City is not only A very important step for our post TC commercial operations, but also expected to help generally potential order demands gradually.

Speaker 1

As far as the tourism market is concerned. It is the continuing recovery and increasing demands In the tourism market, for sure, are a very key driver for our ongoing revenue growth. Additionally, our innovative products are more in line with the customer needs in scenarios such as aerial sightseeing and the flight experiencing, etcetera, compared to the traditional helicopters. Further, we are about to obtain the TC, which means commercial operation will be soon. And since the beginning of this year, More and more cities in China have been issuing preferential policies to promote the development of what is called low altitude economy and unmanned aerial vehicle applications, which mainly include UEM and eVTOLs.

Speaker 1

So this has also created a very favorable policy environment to salary the development of this new industry. To further give you an example, the Shenzhen City. Sundan City is a civil unmanned aviation pilot zone approved by the CAC. And Sun Tan City has been planning to issue policies such as regulation to promote low altitude economy industries this year. This is expected to become China's first regulation to support The development of the low altitude economy sectors and Shenzhen's measures to support High quality development of low altitude economy are expected to provide strong support to the development of the industry.

Speaker 1

Basically, both initiatives are expected to bolster our operations and revenue growth once we commence our projects in Shenzhen. Further, as a company based in the Greater Bay Area, We have abundant experience and resources in the area, which will make our collaboration with the local cities more practical and viable.

Speaker 3

Thank you, Richard. It's very clear. Thank you.

Speaker 2

Thank you. One moment for our next question please. Next question will come from the line of Diwoo from Daeun Zhang Securities. Your line is now open.

Speaker 4

Hi. Can you hear my voice?

Operator

Yes, we

Speaker 2

can hear you. Thank you.

Speaker 4

Thank you. Yes, I have two questions. The first one is, we noticed recently China has published And enforcement stating that certain unmanned aircraft will face an export prohibition. Will there be any implication for our aircraft or hindered TC process? And the second question is, can the management team shed more light on potential application scenario that could be implemented in the near future?

Speaker 4

Thank you so much.

Speaker 1

Hi, Di. This is Richard again. I will take the question.

Speaker 4

Thank you.

Speaker 1

So basically for your first question, I would like to Say, 1st of all, Ehang as an internationally listed company, we have always been strictly following the actual related laws and regulations in China and other countries where we do business And adhering to the principle of legality and the compliance in respect of actual activities. The recent new UAV related actual control policy in China basically has no significant impact on our business nor our TC process, because we have already been complying with the relevant export licensing requirements for export products. It has been going smoothly. In addition, the spokesperson of the Ministry of Commerce has stated that Export control does not mean export prohibition. So as long as the UAV products exported are for Legitimate, civilian uses and the company follow the relevant procedures, It is understood that exporting activities can be conducted normally.

Speaker 1

And we are dedicated to leveraging our Innovative technologies and products to serve the people around the world. The company had been taking Strict and approved measures in compliance management and customer restrictions in order to make sure our products are only used for legal civil uses. And In respect to your second question, as you know, after our -two sixteen S gets its TC, Our first part already will be focusing on the so called the low altitude tourism market. We will continue to team up with tourism operators and partners as many as possible in China for operations in scenarios like aerial sightseeing, flight experiencing, etcetera. Location wise, initial wise such as the Jisou, Aizhai, Scenic Area, He Shi, the Fongshan Scenic Area, the Lake of Heaven of Tianshan Scenic area and Shenzhen Oh Bay area, which we announced previously.

Speaker 1

Furthermore, we will continue to leverage our EH216 series product platform to explore other use cases such as aerial logistics, emergency response, Medical deliveries, aerial fighting, etcetera. Yes. Thank you.

Speaker 4

Thank you. Thank you, Richard.

Speaker 2

Thank you. Thank you. Seeing no more Questions are in the queue at this time. Let me turn the call back to Ms. Anne for closing remarks.

Operator

Thank you, operator, and thank you all for participating on today's call. If you have further questions, please contact our IR form via email or participate in our following investor events through the calendar information provided on our website. And we appreciate your interest and look forward to our next earnings call. Thank you.

Speaker 2

Thank you all again. This concludes today's conference call. You may now disconnect. Everyone have a wonderful day.

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