EHang Q1 2024 Earnings Call Transcript

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May 20, 2024

There are 8 speakers on the call.

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Ehang's Q1 2024 Earnings Conference Call. As a reminder, we are recording today's call. Now I will turn the call over to Angie Ehang, Senior Director of Investor Relations.

Operator

Ms. 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 2024. 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

Huazhu Hu, our Founder, Chairman and Chief Executive Officer Mr. Zhao Wang, Co Chief Operating Officer and Mr. Connor 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 translations is for convenience purpose only. 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.

Speaker 1

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 equitable law.

Speaker 1

Also, please note that all numbers are presented are in RMB and are for the Q1 of 2024 unless stated otherwise. With that, let me now turn the call over to our CEO, Mr. Huazhi Hu. Please go ahead, Mr. Hu.

Speaker 1

This is the English translation of Mr. Hu's remarks. Hello, everyone. Thanks for joining Yihan's conference call today. I'm excited to share with you the EHang's progress in the Q1 of 2024.

Speaker 1

We had a continued steady growth in both sales and operations in the Q1, demonstrating our 1st mover advantage and exceptional execution in a vital sector of the low altitude economy. Following obtaining the type certificate for our EHAN 216S last year, we have been pushing forward a production certification, driving sales growth, preparing for commercial operations and continuously optimizing our products. After half year continued efforts since last October, we have secured the production Administration of China or the CAC. This means our production process and quality management systems has been validated by the CAC experts for our 1st company to obtain Evito type certificate, production certificate and standard airworthiness certificate, our self developed EH216F pedal less passenger carrying value has been thoroughly validated and recognized by the CAC from model design to production and to the safety and airworthiness of each unit delivered. This gives us a global lead and competitive edge in the Ibero sector of the low altitude economy.

Speaker 1

The Chinese government has continued rolling out supportive policies on the low altitude economy and the domestic market is now poised for an unprecedented boom. In March this year, an implementation plan for innovative application of general aviation equipment 2024 to 2,030 was jointly issued by the 4 ministries in China, which are the Ministry of Industry and Information Technology, Ministry of Science and Technology, Ministry of Finance and the CAC. The plan outlines our development roadmap focused on the end and electric and intelligent area vehicles and sets the goals to realize their commercial operations in urban areas for passenger transportation, logistics and emergency rescue. With a target market size of 1,000,000,000,000 of RMB for the low altitude economy in China by 2,030. This fully reflects the Chinese government's great attention on the low altitude economy as a strategic emerging industry and injects a strong momentum into its sustainable development.

Speaker 1

In response to the central government initiative, nearly 30 provincial and municipal governments have rolled out their own low altitude economy development plans in China, accelerating the industry's growth. These plans cover multiple dimensions, including urban planning, infrastructure development, supply chain, production, procurement, application scenarios and commercial operations to empower the innovative companies in the low altitude economy industry like EHang. We have been seeing a steady growth in order demands from government, scenic spots and overseas customers. And our deliveries are also proceeding in a steady and orderly manner. In Q1, we have delivered 26 units of the -two sixteen series products, a record high for a single quarter in our history, with revenues more than double that of the same period last year.

Speaker 1

On the operational side, we are working on multiple low RTG economy demonstration projects in various cities in China. So far this year, our flight footprint has expanded to multiple domestic cities and overseas regions like the UAE, Costa Rica and Japan. We have successfully completed the Han 216S W demo flights in Latin America and the Middle East. At this stage, we are also actively expanding our upstream and downstream cooperation in the industrial chain and continuously optimizing our product performance. In February this year, we formed a strategic partnership with Guangdou Automobile Company to collaborate on low altitude economy initiatives, leveraging each other's strengths in intelligent manufacturing and a vehicle mobility products.

Speaker 1

And in April, we announced a strategic partnership with Liquidibe Technology to co develop the world's 1st ultrafast charging, extreme fast charging battery solution for Ibito aircraft, which is expected to be charged from 30% to 80% in a short 5 to 10 minutes with over 2,000 charging cycles. This will significantly boost the performance of our pilotless evaders, enabling them to meet the demands of a high frequency, large scale operations for urban and mobility scenarios. Meanwhile, we are also stepping up internal flight testing of our VT30 lift and cruise model and preparing for its type certification. Based on the experience we have gained from the EHAN 216S certification, the long range VD30 product will also boost a comprehensive and commercially available system design and airworthiness. With EHang's leading technology and airworthiness advantages in the pilotless vehicle industry as well as our collaborative industry layout.

Speaker 1

We are confident in driving the rapid growth of the UEM sector and maintaining our leading position in a promising low altitude economy. As we are entering a critical stage for commercialization, we are excited to welcome Mr. Zhao Wang, our new Co Chief Operating Officer to join our management team. With over 20 years of rich experience and expertise in business operations for technology plus cultural tourism, He will play a vital role in driving our commercial operations forward. Today, he has joined the call with us.

Speaker 1

Let's welcome Mr. Wang to share some insights on our Q1 operational performance. Thank you.

Speaker 2

Thank you, Mr. Hu. Hello, everyone. I'm honored to join Yihang as Co Chief Operating Officer at this pivotal moment when our EH216S pilot with Evito has achieved 3 certificates. These certificates make a critical milestone in our commercialization journey.

Speaker 2

I'm committed to driving the company's strategic deployment, market expansion, product sales and commercial operations with Fufos. I work closely with the team to seize the massive opportunities presented by the trading RMB low attitude economy and ensure that EHA maintains its leading edge in the industry, maximizing the business value for our company. On the sales front, we delivered 26 units of EH216 series products in Q1, representing a 136 year over year increase and 13 quarter over quarter growth of the delivery volume. Notably, as part of the additional purchase order, we had received from UAE customer for 100 units of ES-two sixteen series products. The first batch of 5 units, including ES-two sixteen as L and F had already delivered in Q1.

Speaker 2

In March, we partnered with the Wuxi Local Government for UAN securing a conditional purchase order for 100 units of EH216S. As part of it, the initial 10 units has been delivered in Q1 and the debut commercial flight demonstration ceremony is scheduled in May. Additionally, in Q1, our products have been also delivered to Hubei and the Shanxi province in China and Brazil in South America. Looking ahead, with the increasing production capacity, we expect our product delivery volume in Q2 to far surpass that in Q1. Recently, the low attitude economy has been taking off in China, further fueling the growth of our product demand after obtaining airworthiness certifications.

Speaker 2

Governments, enterprises and overseas customers are all eager to introduce our advanced pilot based Evitos to their local markets and are planning to develop comprehensive low attitude economy ecosystem, including infrastructure, funding, talents and operations. In order to present the air taxi applications scenario as soon as possible, we have been working on the site planning and construction work for dozens of EBITDA, takeoff and landing verticals in various places. Currently, our order book is robust and our factory is gradually increasing production capacity to meet customer demand and support future sustainable growth. We are also actively exploring new customers and markets and pushing forward purchase orders and operational collaborations with domestic and international customers. On the commercial operations, we are working closely with local governments in cities like Hefei, Guangzhou, Shenzhen and Wuxi to co create low altitude economy demonstration projects, planning deploy UAM operation demonstration centers and plan to launch low altitude routes for urban air transportation.

Speaker 2

As we are setting up these demonstration projects, we are also developing a rigorous operational system and rules, infrastructure standards, maintenance system, personnel training and clarifications to ensure safe operations and set industry benchmarks. We are also expanding our international market. At a DriftX event in Adobe, we showcased the diversity of our products and application use cases by displaying our EH216s, L and F and our long range leased and cruise eVeto VT30, which was its overseas debut. With the support of our local partners, the EH260S successfully obtained approval from the UAE General Civil Aviation Authority and completed its 1st passenger carrying flight demonstration in the Middle East region. Meanwhile, we have also formed a strategic partnership with Abbabi Investment Office and renowned FinTech Group, Multi Level Group to facilitate our next phase of in-depth development in UAE.

Speaker 2

In March, with the support of our partners, Air X and Tsukuba Aviation, Japan's 1st UEM center was established in Tsukuba City, serving as an operational base for EH216S. As EHA's Co Chief Operating Officer, I'm committed to driving our commercial operations full steam ahead. Then I'll turn the call over to our CFO, Conor. Thank you.

Speaker 3

Thank you, Mr. Wang. Hello, everyone. This is Connor. Before I dive into details, please note that all numbers presented are in RMB, unless stated otherwise.

Speaker 3

Detailed analysis are available in our earnings press release on our IR website. I will now highlight some key points. I'm pleased with the company's continued diligent execution as it led to us delivering stellar financial results for Q1 2024. We exceeded our quarterly revenue guidance of $58,000,000 by over 6% and achieved positive operating cash flow for the 2nd consecutive quarter. Most importantly, we secured the production certificate from CAAC, clearing the path for mass production of our EH216 S and setting the stage for accelerated growth.

Speaker 3

Total revenue in Q1 were $61,700,000 representing a substantial increase of 178% year over year and 9.1% increase from the prior quarter. These gains were primarily driven by higher sales volume of the EH216 series products. We delivered 26 units of EH216 series EBITDA in Q1, over doubling 11 units in Q1 last year and compared with 23 units in last quarter. Gross margin remained consistently high as 61.9% in Q1, compared with 63.9% last year and 64.7% in last quarter. The slight declines were mainly due to changes in revenue mix and increased cost per unit of the Airworthiness certified EH216 products.

Speaker 3

Still, our high gross margin demonstrates our competitive edge as a front runner in the EBITDA sectors. Our adjusted operating expenses, which are operating expenses, excluding share based compensation expenses, were $54,500,000 up 8.7 percent from $50,100,000 in Q1 last year and down 15.1% from 64,200,000 dollars in last quarter. The year over year increase was mainly due to increased sales related compensation and the quarter over quarter decrease was primarily because of the lower expected credit loss expenses due to improvement in credit controls in Q1 2024. Adjusted operating loss was $12,600,000 a 63.4 percent improvement from $34,300,000 in Q1 last year and a 49.5 percent improvement from $24,900,000 in last quarter. Adjusted net loss was 10,100,000 dollars a 69.9 percent improvement from $33,600,000 in Q1 last year and a 54.4 percent improvement from $22,100,000 in last quarter.

Speaker 3

Thanks to our prudent cash management and improved credit controls, we achieved positive cash flow from operations for the 2nd consecutive quarter, further enhancing our balance sheet. At the end of Q1, our cash and cash equivalents, short term deposit and short term investment balances were 323,800,000. To date, we have received over US55 million of gross proceeds from recent equity funding through an FD market offering. Furthermore, we have unused uncommitted credit facilities of RMB 131 1,000,000 with expiration in April 2025. This further strengthened our liquidity position.

Speaker 3

Now that our EH216 S has obtained all three certificates ready for mass production and sales, driven by favorable government policies and market enthusiasm, we are getting on a fast track to revenue growth and continuing improvement of our financial situation. We believe our diligent preparation for commercial operations equips us for maintaining this upward trajectory and will further bolster ongoing expansion while capitalizing on our core capabilities to propel growth within the UAN sector. With that, we expect total revenues for the Q2 of 2024 to be around RMB 90,000,000, representing an increase of over 800% year over year. That concludes our prepared remarks. Let's now open the call for questions.

Speaker 3

Operator, please go ahead.

Operator

Thank Our first question comes from Ting Fang with Goldman Sachs. Your line is now open.

Speaker 4

Yes. Thank you for taking my questions. So I want to check what's our CapEx plan for this year and in the long term. So given that we have received a PC certificate from government this year, so do we have any plan to further expand our capacity to drive up the to drive up our shipment for the long term? Thank you.

Speaker 3

Yes. Thank you. To fulfill the rapid business growth, we plan to expand the current production capacity in our Yunpu factory to the maximum capacity. And we plan for new headquarters also in Guangdong with multiple functions including office of the services, takeoff and landing infrastructure, research labs for batteries, power system, command and control systems, all in one place. With that, our plan for CapEx is around US10 $1,000,000 for this year for the expansion.

Speaker 3

Thank

Operator

you. One moment for our next question. The next question will come from Cindy Wang with Morgan Stanley. Your line is now open.

Speaker 4

Hi. Thank you for taking my questions and congratulations on splendid results. So I have 2 questions. But first, I want to ask about the certification timeline. As we have obtained TC, AC and PC, when do we expect to receive the OC to kick off operations?

Speaker 4

And my second question as well, I get to the order backlog. Can management update the current order backlog based on binding purchase agreement? And how should we expect the delivery cadence throughout the year? Will there be any constraints or uncertainty on capacity or supply side? Thank you.

Speaker 5

Thank you for your question. This is the translation of the answers to your first question. Yihang as the manufacturer has obtained the TC, AC and TC, while the OC, which is the operating certificate is to be obtained by the air operator by submitting an application to the CAC and to receive the relevant qualifications. And currently, Yihan is in cooperation with the CAC to formulate the operating standards of the Yihan 260 test. After the CAC issues relevant regulatory documents, the air operators can formally submit their OC application based on the rules.

Speaker 5

For your second question, the customers with intention for the bulk purchases will sign framework agreements and pre orders with us. And the quantities will reach up to hundreds of units. And this will be converted into funding formal orders in batches based on the customer's business development needs and the market expansion progress following the planned and the pace approach. The 26 units delivered in the 1st quarter are all part of the initial batch orders from these customers. And the commercial volume of these orders will gradually increase in subsequent quarters.

Speaker 5

We will provide a quarterly revenue forecast. Revenues for the Q2 is expected to be approximately RMB 90,000,000. The company's assessment of the performance guidance is based on the quarterly business progress, the conversion of the intentional orders and new orders. Currently, the company has sufficient order book and the production capacity is extending in clinic with the auto quantities. In terms of the production capacity, we have already obtained the production certificates for the EHAN 260F qualifying us for a mass production.

Speaker 5

Regarding the supply chain, we have a relatively mature and sufficient reserve. At present, we do not see any significant bottlenecks or uncertainties in our production capacity and the supply chain.

Speaker 4

That's very clear. Thank you.

Operator

One moment for the next question. The next question comes from Yu Chen with Haitong Securities. Your line is open.

Speaker 4

Okay. Thank you for taking my questions. Congratulations on the good performance in the How many operational routes we are planning right now? And the second question is, could management team shed more light on new orders the company received in recent months? Thank you.

Speaker 5

So your first question regarding the operational route, route, currently, we have multiple UEM operations that enter the construction in Guangzhou's Huangpu District, Shenzhen, Bao'an and Mohu District, Hefei Baohi District, Wuxiriangxi District and Tsukuba in Japan. And these sites are being prepared for the establishment of commercial operation routes. We are constantly engaged in facility construction, test flights, personal training and certification application. Thank you. For your second question, we have received an intention and purchase order from the Wuxi government for 100 units of EHAN216 at this March and delivered 10 of these in the Q1.

Speaker 5

In the second quarter, we have added orders from Shanxi, Hunan, Wenzhou and Zhuhai as well as the purchasing tensions from Xinjiang, Hainan, Guangdong along with several overseas intentions. The deliveries will proceed steadily and orderly with a gradual increase. Updates on order executions will be released continuously. Please stay tuned. Thank you.

Operator

One moment for our next question. The next question we have is from Rong Zhao with TF. Your line is now open.

Speaker 6

Hi, thank you for taking my question. First, congratulations on the company's outstanding performance. So I have two questions. The first one is that the company has received preorders from overseas customers like including those from Southeast Asia and Middle East. So could you please update us on the progress of Yesh Q16 overseas airworthiness notification?

Speaker 6

How is and also how is the local regulatory acceptance? And the second question is that could you please summarize the customer types for Q1 deliveries? Are they mainly government customers? And also what is the proportion of overseas deliveries? Thank you.

Speaker 3

Thank you for your question. I will answer the first question and I will let the CEO answer the second question. We are actively pushing forward with the validation of the type certificate for our EH216 S in overseas countries, which will enable us to meet the demand from international orders and lay the groundwork for further expansion into local markets. We know that CAC has signed a bilateral agreement with many countries' aviation authorities around the world. Based on the type certificate already issued by the CAC, we are also coordinating a mutual communication between the CAC and Aviation Authorities in Southeast Asia, Latin America and Middle East such as Brazil, Thailand, Indonesia and the UAE.

Speaker 3

So the BTC is an administrative process that is simpler than obtaining the type certificate from 0 to 1. But before VTC is obtained, we can still deliver our products to overseas customers for their local uses for testing, training and certification. For example, we have delivered 5EH-two sixteen series products to the customers to the UAE in the Q1. We will accelerate the VTC certification process to further expand into international

Speaker 5

Your second question, we are seeing an increase in negotiation, demand and orders from domestic and international customers. And following the Chinese government's release of the pipeline for the developing low altitude economy, we delivered 26 units of 16 series in the Q1 and a significant portion of these deliveries are the government purchases and approximately 23% going to the overseas customers. And the target application scenarios include urban passenger transport, the low altitude tourism, logistics and emergency firefighting and other industry applications. Thank you.

Operator

One moment for the next question. The next question comes from June Cai with

Speaker 4

Thank you, Hu zong, Wang zong, Yang zong, for taking my questions. And congratulations on the good results and on obtaining PC this quarter. And I have two questions. The first one is we are also concerned about the bottlenecks during production. So are there any bottlenecks in the supply chain?

Speaker 4

And what is the domestic production rate of

Speaker 5

For your first question, based on the developed UAV and electric vehicle supply chain system in China, we have established long term partnerships with suppliers on our supply chain. We maintain close cooperation with multiple suppliers to ensure stable supply and high quality for our individual components. At the same time, we are also actively seeking high quality suppliers to diversify our supply chain and reduce risks from dependency on any single supplier. Currently, we do not see any bottlenecks in the supply chain. And most of the components for the Yihang 2 16 series has been localized.

Speaker 5

Our key components including the control systems, motors and batteries are all produced domestically. We received stable deliveries from our suppliers and maintain stable cooperation with them. Thank you.

Speaker 4

Thank you. And I have a second question. In order to achieve the quarterly and annual breakeven points, so how many -two sixteen units need to be delivered? Thank you.

Speaker 3

Thank you. Based on our current cost structure and the trend of business expansion, we estimate that we can achieve annual breakeven points on a non GAAP basis, which is excluding the share based compensation expenses by delivering around 200 to 250 units of EH216 products per year. So from a quarterly perspective, for example, in the Q1, we have delivered 26 units and our non GAAP net loss has narrowed to just RMB10 1,000,000. So with our current order book and production capacity expansion, we are confident that we can achieve non GAAP breakeven in the near future quarterly. Thank you.

Operator

One moment for our next question. And the next question comes from Zeeshan Zhong with Huatai. Your line is now open.

Speaker 7

Hello, management team. Thank you for taking my question. We noticed that company saw the CH-two sixteen S through live streaming on Taobao platform in the Q1. Did you see any new demand generated from this Taobao event? Will the company sell directly to the end users in the future?

Speaker 7

My second question is, could management team share more about the company's thoughts on Evotro battery solutions? When can faster charging battery developer with GBT.

Speaker 5

For your first question, that is a very good question. As people are paying attention to whether our aircraft can be sold to the CN users. Our Taobao Livestream sale event for the EHAN216 was primarily aimed at introducing and educating the public about this new type of autonomous passenger vehicle aircraft and at the same time demonstrating that they can be purchased and used by the end consumers. However, to provide well rounded low altitude flight operations services and to enrich usage scenarios, our current customers are still primarily governments and enterprises. End users can purchase tickets and rides via the Air Taxi app.

Speaker 5

In the future, end consumers will be able to purchase the aircraft individually. Not only can the aircraft fulfill their daily travel needs, it can also be integrated into the air taxi operation system when are not in the individual use. Based on our autonomous driving system, these aircraft can become the Robo Air Taxi and generate operational revenues. For your second question, we have been actively exploring various ebito battery solutions to further improve the performance and efficiency of our product. We strive to achieve the best balance between the safety, cost and efficiency.

Speaker 5

We will focus on the battery energy density, power density, thermal management and the circle life and continuously optimize and enhance the performance of our e vapor products in terms of range, payload and charging time. To achieve this, we have been working with the battery based in the industry for years continuously researching for new battery technologies suitable for eVidos. Both our solid lithium batteries developed by the Inks and our rapid charging and discharging batteries developed by the radio based technology has been entered testing phase. These new batteries with larger capacity, faster charging speed and enhanced the safety will significantly improve our operational efficiency. Thank you.

Operator

The next question comes from Tien Tsai with Zanta. Your line is now open.

Speaker 4

Hello, management team. Thank you for taking my question. And I also have two questions. The first one is what are the main uses of the ATM offering? And what are the plans for human capital investment as the company grows in size?

Speaker 4

And my second question is about the pipeline of the new type of Evito aircraft. Can you share more about the latest progress of VT30? Thanks.

Speaker 3

Thank you. Yes, I'll answer the first question. Yes, thank you for your question. On the ATM offering that we have raised over US50 $1,000,000 through the ATM so far. And we can secure more funds to support the company's growth to enhance our financial flexibility and strengthen our balance sheet and to better stop the market changes and challenges.

Speaker 3

These fund raise will provide us with more resources to invest in expansion in the sales team and the commercial operations, R and D and our production capacity. Currently, we have around 380 employees, which is not too much increase from last year. But with the new fund rates, we will speed up our team expansion to support our business. But the growth rate of the operating expenses will be definitely below our top line growth rate. Thank you.

Speaker 3

Mr. Wang?

Speaker 5

Your second question, the EHAN216S is our first product to receive the airworthiness certification and the commercial operations will be carried out focusing on the EH216 at this stage. Meanwhile, to better address the diverse needs of urban air transportation scenarios globally and maintain our leading position, we will continue to develop new products and technologies. The VD30 is a product that we are constantly developing with features including Piloting, electric propulsion, lift and cruise type and long endurance. Following the successful airworthiness experience of the EHAN216S, the relevant research and development of the VT30 and the preparations for airworthiness applications are progressing steadily. We conducted the 1st overseas showcase of the BD-thirty in UAE in April and we will announce more progress in due course.

Speaker 5

Thank you.

Operator

Thank you. This will conclude the Q and A session due to the time limits. And I would now like to turn the call back to Ms. Anne for closing remarks.

Speaker 5

Thank you, operator, and thank you all for participating on today's call. If you have any further questions, please contact our IR team by e mail or participating our following investor events through the calendar information provided on our IR website. 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

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