Marriott International Q4 2023 Earnings Call Transcript

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March 15, 2024

There are 9 speakers on the call.

Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Ehang 4th quarter and fiscal year of 2023 earnings conference call. As a reminder, we are recording today's call. Now, I will turn the conference over to An Ji, Ehang's Senior Director of Investor Relations. Ms.

Operator

An, 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 Q4 fiscal year of 2023. The earnings release is available on the company's IR website. Please note the conference call is being recorded, and the audio replay will be posted on the company's IR website. On the call today, we have Mr.

Speaker 1

Hua Zhi Hu, our Founder, Chairman and Chief Executive Officer and Mr. Cardinal Yang, Chief Financial Officer and Director of the Board. The management team will successfully gave prepared remarks. Remarks delivered in Chinese will follow by English translations. All translation is for convenience purpose only.

Speaker 1

In 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. Private Securities Litigation Reform Act of 1995.

Speaker 1

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. Also, please note that all numbers presented are in RMB and are for the Q4 fiscal year of 2023, unless stated otherwise.

Speaker 1

With that, let me now turn the call over to our CEO, Mr. Huazhi Hu. Please go ahead, Mr. Hu. This is the English translation of Mr.

Speaker 1

Hu's remarks. Hello, everyone. Thank you for joining us on this conference call. In the Q1 of 2023, we have achieved remarkable results across various In October last year, our EHAN 216S pilotless passenger covering aircraft system, an innovative product independently developed by EHang, obtained a type certificate, TC, from the CAC. This milestone marks the world's 1st TC for a passenger carrying eVTOL aircraft, signifying our qualification for commercial applications of a pilotless passenger carrying EBITDA aircraft.

Speaker 1

In December last year, our first certified EH216 rolled out our production line and obtained the world's first Evito standard airworthiness certificate, which is AC. As a result, we commenced the delivery of the certified EHIM-26s aircraft. Following the TC and AC, we are delighted to see a substantial surge in the market demand for our EH216S pilotless passenger, Kyrie Mi Vero, resulting in a significant sales volume growth in the 4th quarter with a total of 23 units of EH216 series product delivered. Nosgui, this represents the highest number of deliveries in a single quarter in the past 3 years. The revenue of the 4th quarter surpassed RMB56 1,000,000, marking a year over year growth rate of over 3x and nearly doubling quarter over quarter.

Speaker 1

Moreover, we generated positive operating cash flow in the 4th quarter as demand for our products is strong and the company's operations continue to steadily improve. Our strong growth was attributed to the proactive policies and supports from local Chinese municipal governments that are actively fostering the high quality development of the low altitude economy. Since the Central Economic World Conference chaired by President Xi in December last year, when the low altitude economy was elevated to a strategic emerging industry, Nearly 20 provinces in China have incorporated the low altitude economy into their 2024 government work reports. Furthermore, during the 2 sessions recently held in China, the central government work report included a low LTG economy for the first time. This recognition underscores the expectation that the low altitude economy will serve as a new growth engine for China and a globally competitive emerging industry and a vital sector for nurturing and advancing new high quality productive forces.

Speaker 1

According to research institution estimate, the market size for China's low altitude economy surpassed the RMB 5 1,000,000,000 in 2023 and expected to reach RMB2 1,000,000,000,000 by 2,030. This represents a substantial emerging market and the panelist passenger carrying aerial vehicles like the EHIM216 are poised to play a leading role in propelling the industry forward. Capitalizing our first mover advantage in obtaining our worsening certification and benefiting from favorable policies, we have witnessed a surge in the market demand and enthusiasm for our EH216 series product. In the Q1, we received hundreds of preorders from domestic and overseas customers in China's Guangzhou, Hefei, Wuhan and the UAE and other regions. Furthermore, we have recently formed a partnership with the government of Wuxi City in Jiangsu Province, resulting in preorders for at least 100 units of Ehantuo's success.

Speaker 1

Through these collaborations, we are actively planning to create low altitude economy demonstration applications in the area. The strong market demands from our customers give us great confidence in our future growth prospects. We have also announced the pricing of the EHIM216S, pilotless passenger carrying aircraft system in both the domestic Chinese market and overseas markets. The pricing has been set at RMB2.39 million for the Chinese market and 4 110,000 for international markets. We believe these prices are highly competitive when compared to other Ibero products worldwide.

Speaker 1

Moreover, this pricing strategy aligns with the market demands and contributes to the development of the low altitude economy. In preparation for the next stage of mass production, our efforts to obtain the production certificate, which is PC, is almost completed. Currently, the CAC review team has conducted all the onset inspections, and all the required quality system documents have been submitted to the CAC for the final process. The PC is expected to be obtained in the near future, offering a robust assurance and support for the production quality of the newly produced EHAN 216 under the supervision system of the CAC. During the Q1, we developed several low altitude economy demonstration sites, and our Ehan216 26 has completed the 1st commercial flight demonstrations at the UEM Operations Center in Shenzhen Obey, Jiolong Lake Park in Guangzhou, Huangpu District and the Luogang Central Park in Hefei.

Speaker 1

The Hefei municipal government has reached a strategic cooperation agreement with EHang in the low altitude economy, planning to extend support to EHang in various forms with a target amount of $100,000,000 while the Guangzhou municipal government announced 10 major supportive policies to stimulate the low altitude economy. Currently, we are actively conducting a series of crucial preparations for commercial operations, including operator training and the development of our operation systems. By leveraging our distinctive and pioneering expertise in piloting C Video operations, Ehang continues to strengthen collaborations with the CAC to establish the world's 1st regulatory system standards for Yibito commercial operations by the Q2 of this year. These efforts will set reliable regulations and benchmarks for the safety operations in the in vitro industry. In 2024, we will coordinate with multiple governments to complete the construction of infrastructure such as the Ibero Verde ports and shape the benchmark cities that exemplify the potential of the low altitude economy and launch commercial operation ceremonies in key use cases such as the aerotourism and urban air taxis.

Speaker 1

This will allow the scenes from science fiction movies to officially step into the partners, striving to expand opportunities within the low altitude economy sector. In January, we entered into a strategic partnership with Gotion, a leading global provider of the new energy solutions, to jointly research and develop battery cells, battery packs, energy storage system and charge infrastructure. It's especially designed for pilotless aerial vehicles. In February this year, we partnered with Guangzhou Automobile Group, GAC in short, which will capitalize on GAC's extensive experience and a well established industrial chain in intelligent manufacturing to accelerate the smart production, application and market expansion of our panel based airway vehicles. Regarding product development, we will continue to enhance our Ahan to A6S performance to unlock its full potential for various applications.

Speaker 1

To this end, last year, we strategically invested in Inc. Solid state lithium battery company based in Shenzhen to strengthen the supply chain for solid state lithium batteries in EBITDOs. Lithium metal solid batteries offer significant advantage over the liquid batteries in terms of the safety, energy density, thermal stability, cruising range, charging and discharging performance, etcetera. As a result, we believe that the flat range and many other performance of our EHAN 2S6S product will be greatly enhanced in the future. Furthermore, this year, we will devote more R and D efforts toward testing and certification of our VT30, another family's passenger carrying leased and cruise evader model.

Speaker 1

This is a long range aircraft designed for intercity transportation. We will conduct rigorous testing on all the system of the VT30 and full transition flights in the near term. Based on the test result, we will thoroughly analyze and actively iterate improvements to ensure that all the performance indicators meet design requirements. Myself has experienced a flight with VV30 in person and it feels amazing. Meanwhile, we also are doing preparations for the TC application for BD30.

Speaker 1

And just a few days ago, we commenced another tour of passenger cabin flights across several cities in Japan. I'd like to extend my thanks to our COO, Mr. Xin Fang, who is currently at our Japan events and thus unable to attend this earnings call. Next, I will turn the call over to our CFO, Conor. Thank you.

Speaker 2

Thank you, Mr. Hu. Hello, everyone. This is Connor. Before I go into details, please note that all numbers presented are in RMB and are for the Q4 fiscal year of 2023, unless stated otherwise.

Speaker 2

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. Having obtained the TC and AC for our proprietary EH216 S, our total revenues reached $56,600,000 in Q4, a significant increase of 260.9 percent from RMB15,700,000 in the same period last year and a remarkable increase of 97.8 percent from $28,600,000 in Q3. The increase was primarily attributed to the increase in our sales volume of EH216 series products. We delivered 23 units of EH216, up 283% year over year and 77% quarter over quarter.

Speaker 2

For the fiscal year 2023, total revenue were $117,400,000 a significant increase of 165% from $44,300,000 in 2022. The EH216 series of AAV deliveries in 2023 were 52 units, up 148% from 21 units in 2022. Gross margin remained stable at a high level of 64.7 percent in Q4, flat from 64.6% in Q3. Gross margin was 64.1% in 2023, despite a slight decrease of 1.8 percentage point from 65.9 percent in 2022, primarily due to changes in revenue mix. This represents the continued high gross margin level as a result of our competitive strength and 1st mover advantage in the global UAM and EBITDA industries.

Speaker 2

In Q4, our adjusted operating expenses, which are operating expenses excluding share based compensation expenses, were RMB 64,200,000 down 12.4% from $73,200,000 in the same period last year and up 18.8% from $54,000,000 in Q3. The quarter over quarter increase was primarily driven by the expansion of sales channel and intensified marketing efforts in enhancing brand awareness. On an annual basis, the adjusted operating expenses were $226,300,000 in 2023, down 6.6% from $242,400,000 dollars in 2022. As a result, our adjusted operating loss in Q4 was $24,900,000 a 59.4 percent improvement from $61,300,000 in the same period last year and a 27.3 percent improvement from RMB34.2 million in Q3. For the fiscal year, adjusted operating loss was 144,800,000, dollars a 30.1 percent improvement from $207,100,000 in 2022.

Speaker 2

Adjusted net loss in Q4 was $22,100,000 a 62.8 percent improvement from 59 point $4,000,000 in the same period last year and a 29.4% improvement from $31,300,000 in Q3. For the fiscal year, adjusted net loss was 138.8 $1,000,000 in 2023, a 32.7 percent improvement from $206,200,000 in 2022. Thanks to our stringent approach to cash and liquidity management, I would like to highlight that we achieved positive cash flow from operations in Q4, further strengthening our balance sheet. As of the end of Q4, we had $334,100,000 of cash, cash equivalents, short term deposits, short term investment and restricted short term deposit balances. We are also actively in discussion with several commercial banks regarding the expansion of credit facilities.

Speaker 2

Although our current cash position and expected cash flow from operations will be sufficient to fulfill our cash needs for us to reach profitability in the near future. Looking ahead with our step D progress towards obtaining TC For mass production and deliveries, we anticipated achieving revenue of about 58,000,000 dollars in Q1 this year, representing an increase of 161% year over year. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

Speaker 3

You.

Operator

First question comes from the line of Gareth Zhao from TF. Please go ahead.

Speaker 4

Hi, management. Thank you for taking my question. So my first question is really about the like order size. So with large scale deliveries becoming possible after opting the TC, have you seen an increase in customer interest that has actually converted into more orders compared to before? Thank you.

Speaker 3

Yes. Thank you for your question. As the low LTV economy industry grows rapidly, we have seen increasing demand for our EX-two sixteen S from both government related and Phoenix spot operators. In the Q1, AEA received an international intentional purchase order of 100 units from the Wuxi municipal government with the delivery at stage with a more similar purchase order to come. But with the supportive policies and growing demand, our EXQ1 safe is supposed to demonstrate our 1st mobile advantage in the global market this year, contribute to year to year stable growth.

Speaker 3

So other than the one we other than like We also seen that similar demand for Shanxi, Henao, Wuhan, Zhuhai, Hainan and many, many other

Speaker 4

competition landscape. So could you elaborate on target

Speaker 5

customers and how

Speaker 4

candidates? Also, could you provide further insights to the competitive landscape? Thank you.

Speaker 3

Yes. October last year, that we have obtained the 1st TC and end of last year, we have obtained the 1st AC. So this is give up the this is the 3rd kind of its time. In this industry, we have many other EBITDA companies and peers in China and overseas are still undergoing the prototype testing and also the application for the TC. So in the next year and half to 2 years, basically, we will be the only company that can commercialize for EBITDA.

Speaker 3

And compare our product to other EBITDA products, we have several advantage. Firstly, that we have a very compact usage, so measuring around 6 meters in length and very lightweight design. So that means we have the lower demand on the urban infrastructure. So make it our product highly adaptive and also very easy to deploy within the cities. And secondly, that our 2 16 is a 2 seater that's without pilot.

Speaker 3

So this can definitely with the predetermined route that will eliminate the need for pilot train, hiring cost and potential safety issues related to human errors in piloting. And also that by utilizing our autonomous technology and demand command and control system, a fleet management can be achieved. So that will enable to operate in a mass scale in the future. And also our price is very, very competitive. With the domestic selling price of RMB 2,390,000 and also international selling price of US410000 dollars in comparison.

Speaker 3

As far as we know that our other global peers will be selling at between US3 million dollars to US10 million dollars So from customers' point of view, we think that only our customer can be profitable for that will enable our business to sustain in a longer term. So with all those advantage that we think we are very, very competitive. These are for UTTs for intra cities like short range. For the long distance, we also have a product line of the VP study that Mr. Wu has mentioned earlier that we plan to send for TC application sometime this year.

Speaker 3

Thank you.

Operator

We will now take the next question from the line of Rongan Su from Citiks. Please go ahead.

Speaker 3

So as we mentioned before,

Speaker 6

Okay. Thank you for your question. First of all, I would like to translate questions into Chinese for our CEO.

Speaker 3

As the Chengdu Committee meeting. And after this meeting that the top authority of China has indicated that the low ethical economy as one of the strategic industries that the government is going to focus on for this year. That there are currently all through the central economy easing. So currently, there are more than 20 provinces, the provincial government that has formally listed the low altitude economy as their focus for this year. Through the focus of the central and local government that a prominent passenger grade aircraft will be applied to not only for Phoenix Park tourism, but also for urban transportation as integrated as part of the city's transportation system.

Speaker 3

So also in the future, that's not very long, that air taxi scenario will come true. We estimate that the total market size of the low average economy in 2023, that has reached RMB500 1,000,000,000 and is expected to grow to RMB2.3 trillion by 2,030. I would plan to operate that air taxi make it a real scenario sometime this year. So by air taxing as a transportation vehicle that the people can use and transform from their regular transportation from 1 dimension to 3 dimension. And this will greatly enhance the total market size of digital.

Speaker 3

Thank you.

Speaker 5

Thank you. Thank you very much for the answer from our CEO, Mr. Hu. And so I have another question about our expense. So in fact, as a company grows, the company's sales and operations cost will be managed more precisely.

Speaker 5

So, will you mind sharing more details regarding the expense in the future, just for our comments? Thank you.

Speaker 3

Yes. Regarding to the our operating expenses, which compose of sales and marketing and G and A and also research and development. As we ramp up our revenue, so you can see that Q1 of 2003, for example, we have reached revenue of RMB56 1,000,000 with a year on year growth rate of 2 60%. So when the revenue growth at such a fee, our adjusted operating expenses at Q4 last year was 113% of total revenue, That's compared to 1 year ago, adjusted operating expenses was 4.66% of revenue. So you can see the rapid drop of OpEx that's due to rapid increase in our revenue.

Speaker 3

So we believe that our growth on the revenue will continue to grow at a very high growth rate in the next several years. So we hope that we can manage that our adjusted operating expenses in 3 year time drop from currently 113% of revenue dropped to about 40% of total revenue in 3 year time. Thank you. Okay. Thank

Speaker 5

you very much for your answer and thank you for all of your company that you help as the low equity economy in China's development in the future. So that's my all question. And thank you all of you and have a nice weekend. Thank

Speaker 3

you. Thank you.

Operator

Thank you. We will now take the next question coming from the line of Ting Song from Goldman Sachs. Please go ahead.

Speaker 7

Thank you for taking my questions. So Ehang has announced the launch of UAM Operation Demonstration Center with Shenzhen Government in December. So my question is, do we expect to see any revenues from UAN operations this year besides our the sales revenues from shipment of uh-216F?

Speaker 6

Thank you.

Speaker 3

Yes. As Mr. Hu mentioned earlier, the company is trying to kick off the commercial operations this year But it may not be significant this year. In the current initial stage, our majority of our revenue was still coming from the sales of our EX-two sixteen series for the time being. And looking forward, as we expand flight services to more areas, recurring revenue such as operational revenues will grow correctly.

Speaker 3

So we can capture receiving we have the kept receiving orders, domestically and overseas. And we also receive a lot of requests from our customers not to form a joint venture for the future operation. So we expect that next year and going forward, the revenue coming out from operation will gradually increase the percentage of our total revenue. Thank you.

Speaker 7

Thank you. So my another question is about overseas revenues. So I see the company has a partnership with a partner with overseas companies in Dubai and also some government in European countries. So do we expect any progress in overseas market this year or next year? Thank you.

Speaker 3

Yes. After we obtain TC, we also received a very strong demand from overseas market. Yes, as we have announced that we have formed a strategic relationship and also we ship orders from UAE customers, window shifting that they intend to purchase 100 units. And actually we start to deliver the 1st batch in Q1 of this year. As of for example, as of Q4 last year, we also sold our product 216 to many places like Colombia, Saudi Arabia and Qatar.

Speaker 3

So for and we also performed our drone night shows in Japan and in Spain. So in Q1 last year, the revenue markets was 26% of our total revenues. And in this year, we also expect there will be fairly good amount of revenue will be coming out from overseas markets. Thank you.

Operator

Thank you. We will now take the next question from the line of Yu Chen from Haitong Securities. Please go ahead.

Speaker 7

Okay. Thank you, management. I have two questions. And the first one is following the previous one. We would like to know the detailed progress regarding the overseas AC, updation, because if we need to enter the overseas market, we think that the first step is to obtain the overseas AC first.

Speaker 7

And the second one is about our production capacity. We would like to know the capacity regarding EH216 this year and in the following 3 years as well as the new vertical of VP30? That's 2 questions. Thank you.

Speaker 3

Yes. Regarding to overseas TC, we have as I mentioned earlier, we have seen strong demand from overseas markets, especially in the Middle East, South Africa and ASEAN countries. And so for those places that we will rely on our local partner to obtain the local TC. So, have they already obtained the TC from CAC? So when we apply the overseas TCs that we can do a streamlined process, we call validation of TCs, validation of type certificate with the overseas aviation authorities.

Speaker 3

And this is expected to be a simplified procedure. Consequently, this approach enable us to expedite market entry and expansion in these countries. And in terms of the order and the production, we're currently receiving a substantial number of orders and preorders, which will be fulfilled according to our customers' specific requirements. And typically, that the government and customer commitment to preorders or customer or intentional orders, for example, up to 100 units and with an initial purchase of 5 to 10 units for trial operations at local sites. As their operations expand and demand increase, then they will acquire additional products.

Speaker 3

So the favorable policies surrounding the low energy economy has provided us an attractive environment for growth. So consequently, we anticipate a substantial increase in delivery volume throughout 2024. 1st quarter, we have gave our guidance at $58,000,000 slightly increase from quarter over quarter because the Q1 is a Chinese New Year. Typically, there's a long vacation during the quarter. But so far, look forward that we have seen very strong demand orders for this year.

Speaker 3

Currently, our production in Yunfu facility has an annual capacity of 600 units of EBITDA. And we are exploring opportunities to establish other facilities to further support our production capacities as market expand as market demand grows. Thank you.

Speaker 7

Thank you for answering. Have a nice weekend. Thank

Operator

We will now take the next question from the line of Laura Lee from Deutsche Bank U. S. Please go ahead.

Speaker 8

Hey, thank you for taking my question and congratulations on the robust quarter. So my first question is about the BT30, your new product. You mentioned you're already preparing for the testing and the certification now. So are there any specs you can talk about now? And do you expect like the client base will be similar to the Uh-two sixteen or the new product will kind of bring us more applications narrow?

Speaker 8

Thank you.

Speaker 6

Okay. I will translate your question to our CEO, who will take your question. Yes. Actually, we are doing the R and D work for the VD30 during our certification in the past few years. And we have done some internal testing slides.

Speaker 6

And for the traffic volume, as we know, the air taxi within the urban area is the most the traffic demand. Yes, that's why we're doing the certification for EH216, this type of model. And now we have completed all the configuration design and internal testing for the VT30. And in this year, we'll put more efforts into the testing for the VT-thirty and we'll release more videos about the flight. Actually the BT-two thirty will do a lot of practical flight And later, we'll go release our CEO's flight video with the VT30 and we'll go submit the TC application for VT30 within this

Speaker 3

year.

Speaker 6

So the typical way, the EHIM216 and VT30 almost covers all the application scenario above for the urban air mobility. That's why these two models are our main products. Yes. We have accumulated a lot of almost the most flight data for EH216 and soon we will release more updates and progress for the BT30. Thank you.

Speaker 8

Okay. Thank you so much for the color. And my second question is about, as you mentioned, you recently reached a corporation agreement with the GAC Group. Could you give more details about this? Like how does it work?

Speaker 8

Will you like share the R and D or manufacture collectively? Or like what kind of support do you provide to each other?

Speaker 6

And there was a strong favorable policy and claimed in China about the low altitude economy. So under this background, a lot of governments are working with us. So it's our pleasure to work with some state owned enterprises such as DSE Group. Yes. The first thing maybe that pop up into people's mind about our collaboration is mainly about the production.

Speaker 6

And actually, on the other hand, we will also help the GAC Group to develop their flying taxis product. Now we have selected a production site within Guangzhou under our cooperation with GAC Group. And we are going to establish autonomous production line with GAC. So through our collaboration, we will continue to improve the product quality of our e vapor product and to ensure that the safety of our e vapor side. Okay.

Speaker 6

Thank you.

Speaker 8

Okay. Thank you so much. Thank you so much.

Operator

Thank you. Even the time is limited, let me turn the call back to Ms. Anne for closing remarks.

Speaker 6

Okay. Thank you, operator. Thank you all for participating on today's call. If you have any further questions, please contact our firm by e mail or 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 6

Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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