Stoke Therapeutics Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 31, 2023

There are 3 speakers on the call.

Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Ehang First Quarter 2023 Earnings Conference Call. As a reminder, we are recording today's call. Now I will turn the call over to Angie, 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 Q1 of 2023. The earnings release is available on the company's IR website. Please note 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

Hua Zhi Hu, our Founder, Chairman The 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 followed by English translations.

Speaker 1

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

Private Securities Litigation Reform Act of 1995. Forward looking statements involve inherent risks and uncertainties. As such, the company's 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 to end the applicable law. Also, please note With that, let me now turn the call over to our CEO, Mr.

Speaker 1

Huazhu Hu. Please go ahead, Mr. Hu. This is the English translation of Mr. Hu's remarks.

Speaker 1

Hello, everyone. Thank you all for joining our conference call today. Since the beginning of this year, as the pandemic has eased, we have seen encouraging signs of recovery in the tourism industry. As a result, the demand for RAVs from the clients in this sector has been growing. However, Our Yihang 260S is constantly undergoing the process of obtaining a Wazni certification and we are fulfilling customer orders with discernment.

Speaker 1

In Q1 2023, we delivered a total of 11 ENH216 Series AAVs, resulting in revenue of $22,200,000 This represents an increase of 42% compared with the previous quarter an increase of 2 83 percent year over year. Along with the considerable surge in revenue, our gross margin remains strong, Maintaining a high level of 64% in the Q1. Meanwhile, our operational performance has shown representing an improvement of 44% compared with Q4 last year. Additionally, Yihang's cash position remains healthy and a strategic investment of US10 $1,000,000 by Qingdao West Coast New Area was closed in the Q1. So far, the Yihang 216 SL worsening certification has been at the last phase of demonstration and verification of the compliance, and we have completed over 90% of the compliance test.

Speaker 1

We entered into the final sprint in late April. Even so, our dedicated Ehang team remains tirelessly committed to providing a flawless performance report as soon as possible. I would like to extend my sincere gratitude To the CAC for their unwavering support to EHang, their commitment throughout this process day and night, and their prompt approvals for the completions of each subject. Yiheng is not only an industry pioneer, But also an advocate for low altitude air mobility against the macro policy background of our comprehensive national transport network. We have seen that China has established a range of favorable policies regarding the low altitude economy since the beginning of this year.

Speaker 1

For the report of the National Low Altitude Economy Integration and Innovation Research Center, 16 provisional governments has included specific provisions related to the low altitude economy in their 2023 government work reports. These government initiatives focused on the unmanned aviation industry within the 20 designated experimental zones across China, demonstrating vigorous policy support and creating an environment conducive to further exploration of the AAV market across China. During this period, we are also relentlessly broadening our international collaborations and delivering products. We are glad to explore urban air mobility alongside our customers and partners from more countries. Next, I will hand over the call to our Chief Operating Officer, Mr.

Speaker 1

Xin Fang. Thank you. This is the English translation of Mr. Xin Zhang's remarks. Thank you, Mr.

Speaker 1

Hu, and hello, everyone. During the Q1, we continued to advance towards the final stage of airworthiness identification for the Yihang 216s. On the other hand, we further expanded new opportunities both domestically and abroad with our cutting edge AV products, including signing up new customers and conducting flight demonstrations and tests. These endeavors are instrumental to pave the way for future commercial deliveries and operations once the certification process is successfully completed. Following the lifting of epidemic restrictive policies, we were delighted to see a strong recovery in domestic tourism market.

Speaker 1

An over the example is according to the data from China's Ministry of Culture and Tourism, a year on year increase Up 31% in domestic tourism trips during the Labor Day holiday period in May, reaching a total of 274,000,000 trips, representing 119% of the pre epidemic level in the same period of 2019. This trend is very beneficial to the commercial low altitude tourism market that we are targeting As this allows for potential customers to have more capital and motivation to consider utilizing AAVs at various attractions for higher growth. Considering its huge market growth potential, Low altitude tourism has become the primary target market we plan to tap into after obtaining certification. Our business plan is also supported by the guidelines and policies introduced by multiple governments to foster the development of the low altitude tourism and economy. For example, Shenzhen included the low altitude economy A key legislative project committed to building the world's 1st urban mobility demonstration city and boosting the high quality development of the Low Altitude Economy.

Speaker 1

We have been actively seeking cooperation opportunities with local domestic government departments We're upstream and downstream partners for exploring prospects in the development of urban mobility and low altitude tourism. In the Q1, we delivered the Yihan 2 16 FAVs to Guangxi, Anhui, Zhishou, Guangdong in China and the Japan Overseas. Among these deliveries, Fongshan Sanmenhai 4A Scenic Area, Renowned cars to landscape tourist attraction located in Guangxi purchased a total of 6 EHAN216S units from us, all of which were delivered within the Q1. The customer plans to launch low altitude tours locally, creating the 1st low altitude of bad camp in Guangxi. This initiative aims to offer a unique and an innovative way for tourists to enjoy the breathtaking beauty of Fengshan from the sky, providing an exceptional experience of leisure and Saixi.

Speaker 1

In addition, we have officially signed a cooperation framework agreement with Xiwu Tourism Development Company, a leading Xinjiang tourism company listed on the Shenzhen Stock Exchange. This cooperation compromised our plans for us to establish a joint venture in developing low altitude sightseeing businesses In Xinjiang's major scenic spots like the Tian Shan Heavenly Lake, the corporation is expected to operate At least 120 units of EHAN216s were comparable passenger carrying AAVs within the next 5 years. We've seen an increasing number of our cultural tourism customers who intend to actively integrate high technology with traditional services to bring vitality into the industry's development. Additionally, this March, we enter into a strategic partnership with Xi'an Aerospace Investment Science and Technology Development Holdings Group for Urban Air Mobility and Smart City Development. In this partnership, we have received an indicated order for 20 units of EHAN 2S6S that is anticipated to be finalized by 2025.

Speaker 1

To summarize, the tourism revival is propelling a positive trend In the domestic deliveries and potential orders, by seizing this momentum, we will continue to drive our commercial deliveries and Operations after certification. Meanwhile, our trial operations in China are still ongoing. To date, we have developed 19 Nihan 216S travel operation spots in collaboration with our customers across 17 cities nationwide. Primarily for low altitude tourism scenarios, our ENHAN21516S Have successfully completed around 8,800 safe trial sites. Internationally, Asia stands as our principal regional focus.

Speaker 1

Following our expansion and partnerships established across East and Southeast Asia last year, This February, our EHANG 216 SAEV completed its 1st passenger carrying autonomous flight demonstration within Japan, which also marks the 1st passenger carrying flight in an open air space outside China. The demonstration reflects the safety and the reliability of our AAVs and the recognition from international regulatory authorities. As of April, Ehang became a member of the Public Private Committee for Advanced Air Mobility established by the Japan's Ministry of Economy, Trade and Industry and the Ministry of Land, Infrastructure, Transport and Tourism. This committee aims to engage in a collaborative effort with global government and corporate entities Yihang, as the only autonomous vehicle company among the 56 committee members, is poised to leverage its Pioneering Navy Technology and the trial flight experience in 6 Japanese cities to capitalize the growth and the revolution of advanced air mobility in the country. Simultaneously, we're actively seeking out and fostering partnerships In overseas markets like Europe, the Middle East and South America, as of the end of May, The Hang 216 Series AAV had conducted over 37,000 safe trial flights across 12 countries in Asia, Europe and Americas, which is among the highest of live records in the global eVidoo industry.

Speaker 1

We are willing to work with customers and partners from more countries to explore safe, intelligent and innovative UMA industry so as to bring unique environmentally friendly and efficient flight experience to more passengers. I'd like to note that Ehang will participate in the upcoming Paris Air Show District. At its world renowned aviation and aerospace We will showcase our advanced EHANG216 FAV and partake in a series of urban air mobility themed events to share our value and experience. We warmly invited the global investors to join us for discussion during this event. Moving forward, we remain committed to the principle of conducting trial operations while going through the airworthiness certification process, thereby paving the way for a crucial pivot towards post silication commercialization.

Speaker 1

As an industry first mover, We have harnessed our unique AAV leading technology and a first mover advantage to build a robust customer base and a substantial trial operation experience. We remain optimistic about the discovery as well as creating values in a growing UEM market. Next, our Chief Financial Officer, Richard, will shed light on our financial status. Thank you. Thank

Speaker 2

you, Xin. Hello, everyone. Before I go into details, please note that all numbers presented are in RMB And are for the Q1 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 2

I will now highlight some of the key points here. Following the listing of China's 0 COVID policies, we have observed a robust resurgence in the tourism industry in China, Attributable to the significant latent demands for travel, together with favorable policies, these have been driving up demands and inquiries for our AAVs recently. These phenomena are in alignment with our current strategic business development focus on aerial tourism. As such, we are confident in our future growth prospects and capabilities in growing our post certification AAV order pipeline Going forward, in Q1, total revenues were $22,200,000 up 41.6 percent from $15,700,000 in Q4, primarily driven by the increase in the sales volume of theEH216 series AAV products. The deliveries of the -two sixteen series AAVs in Q1 were 11 units, an 83% increase from 6 units in Q4.

Speaker 2

Gross margin was 63.9% in Q1, a slight decrease of 2.2 percentage points from 66.1 percent in Q4. Despite this minor fluctuation, our gross margin maintains at a high level compared to those of other electrically powered mobility products such as electric vehicles. This is a result that attached to our competitors' strengths and the 1st mover advantages in the global UEM and the Evito industries. In Q1, our adjusted operating expenses, which our operating expenses excluding share based compensation expenses were $50,100,000 compared with 70 $3,200,000 in Q4. The decrease was mainly attributed to the non cash item of additional proof of provisions for receivables in response to the COVID impact on customers in Q4 last year.

Speaker 2

While there were increased expenditures for aircraft conformity and compliance tests in the final phase of the EH216S type certification this quarter. As a result, our adjusted operating loss in Q1 was 34,300,000 A significant improvement of 44.1 percent from $61,300,000 in Q4. Adjusted net loss was 33.6 $1,000,000 a 43.5 percent improvement from $59,400,000 in Q4. Moving on to our balance sheet, we maintain a prudent approach in managing our cash position and assessing our liquidity. As of the end of Q1, we had $217,600,000 of cash, cash equivalents, restricted cash, Restricted short term deposits and short term investments.

Speaker 2

This includes a US10 $1,000,000 strategic investment made by the Qingdao West That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

Operator

Thank We will now take our first question. Please standby. This is from the line of Farina Jeng from Goldman Sachs. Please go ahead.

Speaker 1

Thank you. Thank you, management team for the presentation. Two questions from me. First is about the TC progress. We have completed over 90% of the progress.

Speaker 1

So wondering if there is any time line for the rest of 10%? And are there any hurdles going forward? My second question is about the following quarter outlook. So we delivered a strong sales volume and also the revenues in Q1. So just wondering if we see the strong momentum to continue in the following quarters.

Speaker 1

Thank you. This is the English translation on Mr. Fan's answer to your first question. First, I'd like to highlight that we are currently in a final phase for attending our TC, with over 90% of the compliance test successfully completed. And this has been a considerable undertaking.

Speaker 1

Throughout this process, we work closely with multiple professional test sites and facilities in China They have extensive aviation experience and credentials. We conducted hundreds of specific review meetings And diligently performed numerous laboratory tests, ground tests and flight tests That by step according to our plans. And this task range from battery, environmental, Materials and structural strengths to software, communication and data link and ground control station. And this enabled us to verify the safety and airworthiness of our EH216S aircraft from both the hardware and software perspective. And for the remaining roughly 10% passed, we are in the final sprint and We expect to finish them as soon as possible in the near term.

Speaker 1

At this stage, we do not see any major obstacles As we have already overcome the most difficulties and our test work in this final phase is essentially a matter of time now. After we complete the test that we have submitted and will continue to submit the test reports to the CAC for their review and approval and issuing the certificate. Here, I want to express my gratitude for everyone's attention, In respect of your second question, the notable increase in our Q1 sales and revenues It's primarily attributed to the rapid recovery of the domestic tourism market post the pandemic. And additionally, driven by both the core needs for attracting visitors to the Scenic Sports As well as the favorable policies for encouraging the low altitude aero tourism all over China, Our tourism customers have shown keen interest in utilizing our innovative AAVs in their tourism business, And they are actively tapping into this market because they believe our AAVs can drive up their growth and Revise the traditional tourism industry. The customers in the Q1 like Xinjiang TV Tourism And as such, we foresee that the domestic tourism will maintain the throughout the following quarters.

Speaker 1

And consequently, it is expected to have a growing order pipeline from the tourism customers. And in terms of the delivery pace, based on the opinion of TC, we expect a gradual increase in deliveries after TC. And the few units delivered before TC are mainly for the customers' internal testing, training and the talk lights, etcetera. And post TC, we will gradually fulfill the current domestic order pipeline

Operator

Thank you. We'll now move to the next question. Please stand by. And this is from the line of Di Wu from Tianfeng Securities. Please go ahead.

Speaker 2

Hi. Thank you management team for taking my questions. I have two questions as well. My first question is, There are many evolto use cases with great potentials in the emerging urban and mobility industry. Why do you choose The aerial tourist, the initial target market they're tapped into, could you please elaborate on your thinking behind that?

Speaker 2

And my second question is, what's your cooperating Hi, this is Richard. I will take your questions. Basically, we have Found that the area tourism or areas I've seen is a use case, which is very suitable as Initial target market for AH-two sixteen as AAV. First of all, it has immediate company needs that are sufficiently sizable, but not well served by traditional solutions such as helicopters. According to an estimate, probably some of you have known by the China Air Transport Association, The potential market size would amount to RMB58.5 billion, roughly 8.5 Secondly, areas I've seen is the type of experiential services And novelty and experience are attractions.

Speaker 2

Thus, the end customer or passengers are not very price sensitive. This will help with the economic viability of the services and provide more room for pricing. Thirdly, compared to traditional helicopters, our just sitting as a leads Are inherently safer, have lower level of noise and more pilot costs and much lower acquisition and maintenance costs And are more eco friendly and economical due to being electrically powered. Further, it is easier and more efficient to offer The frequent multiple fly routes given the autonomous modes of the 16S AAE and the cluster management by our command and control system. With all these advantages, Our testing as AAVs have been recognized by tourism operators As a new solution, not just to meet the existing needs, but to meet more needs for Eros Icing uses.

Speaker 2

Policy wise, the State Council and the CAAC in China Have been promoting the integrated development of general aviation and tourism aiming to establish aerial tourism networks In scenic spots, resorts, theme parks and other tourist destinations. And recently, As everybody can see, the tourism industry in China has been quickly recovering from the COVID impact After release of the restrictions, further given the similar point to point passenger transportation feature That the aerial tourism or aerial sightseeing use case also has it is essentially a Typical urban air mobility use case that is located in scenic areas. But it can provide a very good foundation for us So, Q and A operational experience for strategic goal to offer urban mobility service such as Air commuting in cities in the near future. So these are some of our main thoughts behind this strategic approach. And we believe, er, retrosine presents an excellent opportunity for our -two sixteen SAEVs The question, the operation mode or models with our poison operator customers or partners.

Speaker 2

We have been exploring different models. So far, they can be summarized in 2 basic scenarios. First of all, we should sell our H2-six 16s AAVs to the Toricem operators And they can operate the AAVs themselves to offer aerial sightseeing services to their choice passengers. We will provide necessary support to them such as training, initial setup, technical support, etcetera. In this case, we are essentially an AAV product provider and the related revenues would be mainly generated from product sales.

Speaker 2

Secondly, we can carry our H215 as a lease to cooperate with the tourism operators. They can open up their scenic areas to us and we will offer our AAVs to offer areas like seeing services To the tourist passengers, in this case, we are essentially an AAV operational service provider and the related revenues would be mainly generated from operational services. In reality, there would be more different corporation models Based on the special needs and conditions of different parties. So this is based on my answer to your questions. Thank you.

Speaker 2

Thank you so much.

Operator

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

Speaker 1

Thank you, operator. Thank you all for participating on today's call. If you have any further questions, please contact our IR team by e mail. We're participating 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.

Speaker 1

Thank you.

Operator

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

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Earnings Conference Call
Stoke Therapeutics Q1 2023
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