UnitedHealth Group Q3 2023 Earnings Call Transcript

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November 22, 2023

There are 7 speakers on the call.

Operator

Day, ladies and gentlemen. Thank you for standing by, and welcome to the EHang Third Quarter 2023 Earnings Conference Call. As a reminder, we are recording today's call. Now I will turn the call over to Anjie Ehang's Senior Director of Investor Relations. Ms.

Operator

Anne, please proceed.

Speaker 1

Hello, everyone. Thank you for joining us on today's conference call to discuss the company's financial results for the Q3 of 2023. The earnings release is available on the company's IR website. Please note that the conference call is being recorded An audio replay will be posted on the company's IR website. On the call today, we have Mr.

Speaker 1

Huazhu Hu, Our Founder, Chairman and Chief Executive Officer Mr. Xin Fang, Chief Operating Officer Mr. Conor Yang, Chief Financial Officer and Director of the Board. The management team will successfully give prepared remarks. Remarks delivered in Chinese will be followed by English translations.

Speaker 1

All translation is for the convenience purpose only. In case of any discrepancy, management's statement in the 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.

Speaker 1

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 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.

Speaker 1

Also, please note that all numbers presented are in RMB and are for the Q3 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.

Speaker 1

This is the English translation of Mr. Hu's remarks. Hello, everyone. Thank you all for joining our conference call today. The Q3 of 2023 marks a significant milestone in our journey as we have successfully reached 1 of the most Highly anticipated and thrilling achievements.

Speaker 1

Our self developed EHAN 216S passenger carrying M and Air Rear Vehicle System Has obtained the type certificate from the CAC on October 13 this year, making it the world's first It is not only a milestone for Ehan but also serves as a guiding light For the entire Ibero industry paving the way for its future development. As the saying goes, Being the pioneer in a new industry is no easy feat. It requires innovation from the ground up and unwavering determination from the outset. At EHang, we have always been committed to this principle, to keep in mind our humble beginnings and never give up. In early days, when there were no established method for Yireto airworthiness vacation worldwide, We embarked on a journey of continuous exploration, experiment and improvement.

Speaker 1

It was in January 2021 that the CAC officially accepted our TC application for the Yihan 216S. After that, Over more than 1,000 days and nights, we persevered with relentless effort overcoming challenges and demonstrating innovation. We also faced additional hurdles posed by the epidemic. Today, We have successfully completed the entire process of TC certification, starting from scratch, leading the way For unmanned aerial type certification, the EH216S stands out as a disruptive and innovative product, boasting a range of unique features such as its all electric nature, autonomous flying, fully backup systems and Cluster Management among others. As a result, it differs significantly from traditional piloted aircraft In terms of technical architecture, configuration, performance, functionality, operation modes and the flight environment.

Speaker 1

Recognizing this, the CAC gathers a team of nearly 100 top experts from across the nation to review and certify EHang 26F. Through close collaboration between the EHang team and the CAC review team, A rigorous and innovative approach was taken and established the world's first airworthiness certification standard for passenger carrying UAVs. Guided by the principles of Life 1, Safety 1, this standard ensures that the ENH216S certified at the level of safety equivalent to that of a piloted aircraft. These standards laid a solid foundation For the verification of Lihan 216S, contributing Chinese wisdom and solutions to the global development of the electric passenger carrying UAVs in the civil aviation and the establishment of the comprehensive airworthiness certification standards. The process of airworthiness certification is a rigorous one with no shortcuts, grounded in the principles of science, Comprehensiveness and safety and following the framework of CCAR-twenty one, we, in collaboration with the CAC, Across the 12 professional subjects and 65 major categories, we have completed over 450 compliance test items.

Speaker 1

The 12 professional subjects cover a wide range of areas, including flight performance, structure, design and configuration, Electrical system, propulsion unit, flight control system, ground control station, communication and data link, Airborne human computer interaction, general respect, continued airworthiness and system safety. The compliance tests involving assessing main material performance, structural strength, flame resistance, Crash weakness, gas toxicity, environmental conditions of equipment and systems, software simulation, Datalinks, ground control station, overall system functionality, electromagnetic compatibility, flight performance and flight stability characteristics, etcetera. Throughout the validation process, we meticulously scrutinized every component, equipment and the entire aircraft for any potential defects, faults or interference. This scrutiny extended to both laboratory tests and flight tests. Over 1500 compliance TestFlight, along with more than 40,000 safe flight record, EHANG-two 16 has finally met all the requirement To complete the compliance review, the TC process has been conducted with scientific rigor and authoritative oversight.

Speaker 1

The TC signifies that Yihan 216S is qualified for passenger carry in commercial operations. It also marks the beginning of the new chapter as we are poised to take the leading commercial operations in the days to come. I want to thank the entire team at Ehan as well as all the leaders and members of the CAC and the review team for their support and dedicated efforts and to all the people who support and are passionate about our development as well as the Ibero industry. However, we are fully aware that obtaining TC does not mean we have succeeded. Instead, it just makes the beginning of the new chapter for us.

Speaker 1

The TC has opened the door to rapid advancement in the M and Aviation Industry and the vast opportunities presented by the low altitude economy. It will propel China's urban air mobility industry As a pioneer in dispute, we anticipated several firsts that await us to achieve on this journey. This included milestones such as the first EHAN 216S aircraft produced crud into the TC, officially rolling off the production line and the first batch of VHAN26 as operation sites and routes, the first commercial flight and the first passenger to buy a flight ticket. We invite you to stay tuned and witness these milestones as we progress forward. Undoubtedly, Prioritizing flight safety is of paramount importance in aviation industry as it directly impacts The personal safety of every passenger.

Speaker 1

Throughout the past few years, we have conducted over 42,000 autonomous flights across 14 countries, establishing an outstanding track flight record. As we enter a new phase of our commercial operations, We will continue to uphold our commitment to safe flights for a healthy and sustainable development of this industry. Tanning AS900D International Aerospace and Aviation Quality Management System Certification, we are now actively collaborating with the CAC To finalize the processing of our production certificate, this ensures that every aircraft producing mass quantities Adheres to the Airworthiness standards and will be issued an Airworthiness certificate and efficiently delivered to our customers. Regarding operations, we are advancing toward commercial operations of EHAN26S in an orderly manner. We are undertaking comprehensive preparations such as enhancing safety operation regulations, conducting personnel training, Constructing verde ports, establishing maintenance and service systems and obtaining operation licenses and insurance.

Speaker 1

Furthermore, in August of this year, our AMN aircraft cloud system received the approval for trial operations from the CAC, which serves a significant foundation for our upcoming commercial operations. It also plays a vital role in ensuring the safety and management of large scale operations of our M and Iwaito Aircraft. At the commercial operation stage, We will take a proper pace and approach of our development with a responsible mindset by prioritizing the public safety and fostering industry development. Initially, we have set restrictions on the usage and operational conditions of Yihan 2S6S, primarily focusing on sightseeing and short distance passenger flights. Adhering to the principle of progressive risks and conducted trial operation while advancing certification.

Speaker 1

We plan to gradually lift the restrictions, Expanding operations narrows into the broader range of urban mobility applications, including airport shuttles and fully autonomous urban air taxis, etcetera. Throughout this process, Yihang remains dedicated to enhancing our product, Advancing fundamental research and development and achieving milestones such as the test flights with high energy density batteries and testified our lift and cruise EBITDAOs, such as the VT30, alongside its airworthiness certification. These efforts will be geared towards achieving significant advancement in our flight performance. To achieve safe tournaments and eco friendly and mobility is not only a long standing commitment for Yihem but also a shared goal for humankind. Facing the long journey ahead, we are aware of the significant responsibilities and the mission Our dedication remains unwavering, guided by the core principles Of the Chinese Civil Aviation Industry, a reverence for life, regulations and duties, We are revolute in our pursuit of strategic goals and recently contributing towards high quality development of the civil and aviation industry, thereby making meaningful progress in advancing this innovative sector.

Speaker 1

Now I will hand over the This is the English translation of Mr. Fang's remarks. Thank you, Mr. Hu, and hello, everyone. The achievement of the EHAN 216 STC in October this year MiXI has transitioned from the product certification phase to the next stage of commercial operations.

Speaker 1

Aligned with our strategic positioning as an urban and mobility platform operator, the company is set to implement an integrated Business model driven by both product sales and operational services. Therefore, production, sales and operations Are the 3 key drivers to our business growth? I will now share the latest updates and plans of our company in these three areas. Regarding sales, we successfully delivered 13 units of 8 16 series products in the 3rd quarter, marking a notable year over year and quarter over quarter growth. With the Han two 16s receiving its TC, We've seen a significant increase in business collaborations and product purchase demand from customers around the globe, especially from China.

Speaker 1

For instance, Shenzhen Berlin intends to purchase 100 units of EH216F, And we have delivered the initial 5 units for operational preparations. Moreover, in accordance with our strategic partnership, The Hohfei municipal government is set to facilitate orders for at least 100 units of 826 series products. As of now, the total sales pipeline for the E 116 series in China have more than 2 45 units, which will be delivered in phases as per customers' requirements. Regarding production, Guided by the CAC Central and Southern Regional Administration, we are steadily moving towards producing Yihan 26S According to its TC at our Yunfu factory, the initial batch of VH616S produced based on its TC It's scheduled to roll out our production line for deliveries to our customers in the Q4 of 2023. In terms of operations, The growth and sustained development of the UEM Ecosystem and Emerging Industries hangs on strategic government planning and policies.

Speaker 1

We are glad to see that just before the HN216S obtains TC, China issued a Green Navigation Industry Development Outline 2023 TO 2,035, jointly by the Ministry of Industry and Information Technology, The Ministry of Science and Technology, the Ministry of Finance and the CAC to encourage Ibito operations by 2025. Moreover, recently, many local governments in China have introduced a series of supportive policies to cultivate robust and sustainable growth in the low altitude economy, establishing a stable policy foundation for our UAV operations in China. Since the Q3, we have entered strategic partnerships with Bao'an District Government of Shenzhen and the Hefei Municipal Government. These governmental collaborations involve providing support in terms of policies, Infrastructures, applications and the subsidies to EHang aimed at facilitating industrial growth and applications within this region. Serving as Shenzhen's gateway and a key transit hub in the Greater Bay Area, Bao'an District aims to become a pioneer in Zong for low altitude economy innovation and development in China and its Plans to build over 100 low altitude aircraft and verticals along with the launch of more than 50 UAV routes by 2025.

Speaker 1

Currently, in strategic partnership with Yiheng, Bao'an is actively expediting its establishment of a UEM Operation demonstration center at the Oh Bay with a plan to initiate aero tourism and local sightseeing services We see Hangzhou 6 as Hefei City serving as a central area for low altitude airspace management reform in Anhui Province And as the regional general aviation service hub is actively fostering the development of the low altitude industry cluster, The Hefei municipal government intends to provide Yihang with a total value of US100 $1,000,000 supports, including facilitating purchase orders and financing support. Additionally, Hefei is Dedicated to promote the utilization of our UAVs across various low altitude scenarios, including culture and tourism, Emergency transportation, air logistics and firefighting, etcetera. Meanwhile, we will plan to launch regular operations with Internationally, following by obtaining a TC from the CAC, We are proactively engaging in efforts to secure bilateral recognition and certification from various civil aviation authorities Through communication and collaborations with our local customers and partners, this will position us well for the next phase of delivering international orders and expanding our business abroad. Next, I will turn the call over to our CFO, Conor. Thanks.

Speaker 2

Thank you, Mr. Bong. Hello, everyone. This is Connor. Before I go into details, Please note that all numbers presented are in RMB and are for the Q3 of 2023.

Speaker 2

Unless stated otherwise, Detailed analysis are contained in our earnings press release, which is available on our IR website. I will now highlight upon some of the key points here. In 3rd quarter, total revenue was 28,600,000, An increase of 248 percent from 8,200,000 in the same period last year and 186% increase Compared to RMB10 1,000,000 in the 2nd quarter, the increase were primarily attributed to the increase in our sales volume of EH216 We delivered building units of EH216, up 225% year over year And 160% quarter over quarter. We've been seeing growing demand for our products upon obtaining the TC And expect our revenue further increase and cash flow generation continue to strengthen in the next few quarters. Gross margin continued to stand at a high level of 64.6% in 3rd quarter, An increase of 4.4 percentage point from 60.2% in the 2nd quarter, primarily driven by higher average selling price of our EH216.

Speaker 2

Furthermore, our distinctive advantage in the UAN industry allow us to enjoy Higher margin over other type of electric transportation vehicles. In 3rd quarter, our adjusted operating expenses, Which are operating expenses excluding share based compensation expenses were 54,000,000 down 9.5% from 59,700,000 in the same period last year and down 7% from 58,100,000 in Q2. This decrease was primarily due to reduction in professional service fees and healthier situation in account receivable compared to last year, demonstrating effective cost control and improved operational efficiency. As a result, our adjusted operating loss in 3rd quarter was 34,200,000, An improvement from a loss of $52,900,000 in the same period last year and a loss of 51,300,000 in the 2nd quarter. Adjusted net loss was 31,300,000, a significant reduction of 43.1 percent year over year and a reduction of 39.5% quarter over quarter.

Speaker 2

Turning to our balance sheet. Our stringent approach to cash and liquidity management is reflected in our cash position. As of the end of Q3, we have $295,600,000 of cash, cash equivalents, Short term investment and restricted short term deposits. In July, we successfully concluded a private placement, Securing US23 million dollars from long term strategic investors, the funding will bolster our liquidity and provide support For technology advancement, business development and post certification commercial operations, We are confident in our cash position will be sufficient to meet cash needs for us to reach cash flow Positive status in the near future. Starting from this quarter, we will provide revenue guidance for the next quarter in our earning results.

Speaker 2

We are optimistic about our post TC commercial operations. We anticipate achieving revenue of about 56 1,000,000 for 4th quarter, representing an increase of 2 57% year over year and an increase of 96% quarter over quarter. For the fiscal year of 2023, we expect total revenues to be about 118,000,000, up 166% from last year. Looking forward, as we sell and deliver more products per customers' request and steadily expand our commercial operations in the future. Our cash flow will improve And we are confident that the company can generate positive cash flow in later part of 2024.

Speaker 2

That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

Operator

Thank you. We are now going to proceed with our first question. The first question comes from the line of Tim Searle from Morgan Stanley. Please ask your question. Your line is open.

Speaker 3

Thank you for taking my question and congratulations on receiving the type certificate from CAAC. I'm Tim's colleague and will ask the question on behalf of him as he

Speaker 1

lost his voice due to

Speaker 3

a bad code. Just a quick question about order backlog. Can we get a sense of the composition of current order backlog In terms of geographic mix and model mix, when the Ehang revenue since the company has

Speaker 2

Thank you for the question. Currently, our self pipeline reached more than 450 units of our main EBITDA aircraft from China and the other part of Asia. This includes More than 2.45 units from domestic customers and 2.10 units of preorders from Asian Over the market, there are also other countries from other countries that will be delivered after attending validation PC in these respective countries. And over 90% of our sales pipeline in the domestic and Asian markets For EH216 HS and less than 10% orders from EH216 Logistic version and also EH216, a firefighter version. This sales pipeline will be delivered in stages Per our customers' request, for instance, our semi spa customers, they typically start with an initial purchase of 3 to 10 units For training and trial operations and local sites, subsequently, as operation expands and demand increase, They will find more products.

Speaker 2

So this purchase timeline typically span 1 to 3 years. So we can see a significant increase in delivery volume in the 4th quarter upon obtaining the TC. Moving forward, we will provide revenue guidance for the next quarter in our quarterly financial reports. Thank you.

Operator

Thank you. We are now going to proceed with our next question. And the questions come from the line of Ting Song from Goldman Sachs.

Speaker 3

Just a quick one. What's Yihao's progress on getting TC certification in overseas market like Middle East or some other countries? Thank you.

Speaker 4

Okay. The tax certificate we have obtained is by the CAC. As we all know, in the past few years, the CAC has I reached a lot of bilateral recognition agreement with other aviation authorities in other countries.

Speaker 1

We're promoting the communication

Speaker 4

between the CAC and with other civil aviation authorities. For example, recently, the Brazil

Speaker 1

So first, we will prioritize

Speaker 4

to work on the regions that we have orders in the local market. We believe we will make efforts to promote the VTC procedure, which means the Verification of the type certificates in the local countries, and we will provide support to that work. Before we obtain the VTC, we can deliver some product to the local market and do some trainings for the local clients. We will extend our market expansions at a proper pace to the international market. We believe that soon we will see our global exposures.

Speaker 4

So the VTC is administrative So it's not as complicated as the type certificate. Yes, that's my answer. Thank you.

Operator

Thank you. We are now going to proceed with our 3rd question. The questions come from the line of Rong Zhao from TF. Please ask your question. Your line is open.

Speaker 5

Okay. Thank you for taking my questions. So I have 2 questions from my side. And the first one is about the EH216. So I would like to ask whether the company sees the need to upgrade the products so as to increase the range of mileage judging from the current feedback from the demand side?

Speaker 5

And if so, what is the timeline and the cost outlook? And second question is about Airworthiness certification Yes. 2/16, logistic operation, what is the expected time to get TC? Thank you.

Speaker 4

Thanks for your question. The 116S is designed for the short distance So according to our test, our product is capable to do the air taxi services In order to achieve the longer flight time, We will continue to optimize our power system and battery system. Yes. As you know that there are many Companies in China have invested in the solid state lithium batteries, for example, And recently, we have also invested in a domestic solid state lithium battery company. So we are making efforts to achieve the goal that to tackle the flight performance in the future.

Speaker 4

Our goal is to achieve a longer flight range, but meanwhile, we will ensure the safety. During we are doing the classification with the HAN216, The BD30 development pace is much slower, but now we are after the Captification of EHAN 26, we are also developing and working on the long range model, which is the VD30, a leased and cruise model The Yihan 216L has obtained the operation Our operation certificate for the cargo transportation previously. So after there is Certification standards for this kind of aircraft, we will supply for type certification for the EHAN216L. Before we obtain the tax certificate of the Yihan 2S XL, we can still expand our business based on the trial operation permits that we have obtained. As the EHAN 216L and S share the same flight platform, so we can leverage the Experience from the type certification for the passenger model, so we can expect to take shorter time on the EHAN 216L type certification than that of the passenger one.

Speaker 1

Thank you.

Speaker 5

Thank you.

Operator

Thank you. We are now going to proceed with our next question. And the questions come from the line of Laura Lee from Deutsche Bank. Please ask your question. Your line is open.

Speaker 6

Hey, thank you for taking the questions and congratulations on receiving 1st TEP certificates. My first question is, we already talked about the backlog orders, but just clarification on this. Would you expect to be able to collect deposits? And also when will you expect the 1st customer paying flight to occur? And my second question is how should we think about the cash burn trajectory and your future financing plans?

Speaker 6

Thank

Speaker 2

you. Thank you for the question. For your first question, As mentioned before that we are after securing the TC, we have seen a surge in interest and increase from Many domestic and global customers, for our pre order and order of intent, we charge a small nonrefundable deposit, Then for down payment and then for the remaining 60% to 70% before delivered. So for your second question on the cash burn situation and capital needs, our current average monthly Cash burn rate of our operation is less than RMB10 1,000,000 or roughly less than About US1.4 million dollars At the end of the Q3, we have US295.6 million dollars of cash, Cash equivalent, short term investment and restricted short term deposits. Therefore, we believe that our current cash and cash equivalents Our anticipated cash flow from operations will be sufficient to meet our anticipated working capital requirement.

Speaker 2

Looking forward, as we sell and deliver more products per customer's request and steadily And our commercial operations in the future, our cash flow will improve, and we are confident that our company can generate

Speaker 6

Thank you so much.

Operator

Thank you. We are now going to proceed with our next question. And the questions come from the line of Hu Chen from Haitong Securities. Please ask your question. Your line is open.

Speaker 2

Yes. I kind of briefly repeat your question that your first question is the how about the order for the next 2 years? And then the validation of a type certificate in overseas, how long will it take? And thirdly, regarding the ASP price of $2.16 As we See that our guidance for the Q4 basically, the 2/16 volume has increased a lot. And for the next 3 years actually, I will say that the 1st year of 2,000 next year of 2024, the majority of the order will come from Domestic sightseeing places or scenic spots in China, we estimate that in China, there are over 6000 Scenic Spark that can apply our products in their location to enhance their revenue.

Speaker 2

Even we use like 10% penetration rate, each site use 5 units, there will be like over 3,200 and 6 Demand from domestic Scenic Spot in the next several years. So 2024, we'll see a Strong demand coming out from Celinex Park in China. And the Application for overseas validation of TC will be a lot shorter than the TC we have obtained from CAAC. We are expecting that roughly about should not be maybe 12 months more or less for the local for the For the government to get approval for validation PC. So even though we have seen a strong demand globally right now, But we are expecting, given year of getting validation TC from different countries globally, We're expecting that global demand will come in a great way in 2025.

Speaker 2

So in 2025, the growth driver will be the domestic senior spa demand as well as the International orders in 2025. And then come to the date part of 2025, for Transportation purpose demand of our 216 will start to contribute a 1,000,000 board A portion of our business is after 1 to 2 years build out for the infrastructure and In total cooperation with local government in China, so in 2026, there will be 3 ways of revenue contribution orders. So first one is, again, domestic selling spot and secondly, global order and thirdly, For transportation purpose of 216. So all these will be will contribute a lot of our revenue in the next 3 years. And other than that, our logistics version of 216 as well as the firefighter Version of 216 will also provide a strong growth driver for our revenue going forward.

Speaker 2

And regarding to the ASP of 216, yes, we saw that there is slight increase on ASP 3rd quarter versus Q2. And especially after we obtain PC, we will have a stronger Position in our pricing, right. So RMB 216 sorry, RMB 2.1 RMB6 1,000,000 per selling price, that's a listed selling price. And we sometimes give certain discount to our customers. After we obtain TC, we think the pricing will be stronger.

Speaker 2

So We should expect slightly increase on the ASP. And especially, if those orders coming from overseas, we can even sell a lot higher price. Yes. So gradually looking forward that there is also upside on the LNG price for 210. Thank you.

Operator

Thank you. Seeing no more questions in the queue, let me turn back the call to Ms. Han for closing remarks.

Speaker 4

Thank you, operator, and thank you all for participating on today's call. If you

Speaker 1

have any further questions, please contact our IR

Speaker 4

We appreciate your interest and look forward to our next earnings call. Thank you.

Operator

Thank you all again. This concludes the call. You may now disconnect your lines. Thank

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UnitedHealth Group Q3 2023
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