NaaS Technology Q2 2024 Earnings Call Transcript

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July 24, 2024

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the NAS Second Quarter and First Half twenty twenty four Earnings Conference Call. At this time, all participants are in listen only mode. I must advise you that this conference is being recorded. I would now like to turn the conference over to your first speaker today, Mr. John Wang, company's Investor Relations Director.

Operator

Thank you, and please go ahead.

Speaker 1

Thank you, operator, and hello, everyone, and welcome to NAND's 2nd quarter and 1st half twenty twenty four earnings conference call. The company's results were issued earlier today and are posted online. Joining me on the call today are Ms. Cathy Wang Yang, our Chief Executive Officer and Mr. Alex Wu, our President and Chief Financial Officer.

Speaker 1

For today's agenda, Ms. Wang will provide an overview of our recent performance and highlights. Mr. Wu will discuss our operating results and go through our financial highlights. Before we continue, I refer you to our safe harbor statement in the earnings press release, which applies to this call as we will make forward looking statements.

Speaker 1

Also, please note that this call includes discussions of certain non IFRS financial measures. Please refer to our earnings release, which contains a reconciliation of non IFRS measures to the most comparable IFRS measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB. I will now turn the call over to our CEO, Ms. Kathy Wang Yang.

Speaker 1

Kathy, please go ahead.

Speaker 2

Hello, everyone. I'm Nat, CEO of Kaixi Wang. It's my pleasure to share Nat's highlights and strategic progress for the second quarter and the first half of twenty twenty four. We are pleased to announce that for the month of June 2024, we'll achieve our first positive non effort non profit. Our goal is to carry the profitability into the 3rd and the 4th quarters of 2024.

Speaker 2

In the past 6 months, we have concentrated on strengthening our core business and reducing costs, significantly enhancing our competitive edge. Moreover, through strategic staff optimization and improvement in management efficiency, we have refined our financial performance, setting the stage for ongoing profit growth. We are focused on specialized autonomous charging solutions for January's vehicle scenarios and consistently expanding our ecosystem with automotive manufacturer partners. China stands on the brink of a revolution in autonomous driving, which will lead to a year of autonomous charging solutions. Since as early as 2017, we have been exploring 1 stop energy solutions for automotive road transport.

Speaker 2

To keep pace with this market change. We have proactively led the groundwork with extensive collaborations with leading automotive brands. Beyond our recent strategic partnership with Jiren, we have also formed strong alliance with major automotive industry players, including Geely, Hyundai, Seike, These extensive strategic collaborations provide us with a solid foundation of technological expertise and diverse monetization opportunities. They help us gradually realize our vision of enhancing the energy efficiency of transportation. Now I will turn the call over to Alex, our President and CFO for a closer look at our operating and financial performance.

Speaker 2

Thank you.

Speaker 3

Thank you, Cathy. Hello, everyone, and thank you for joining us today. I'm excited to discuss the substantial progress we made this quarter. Let's look at the business updates first. We have been aggressively developing AI and related digital technologies to better embrace the unmanned driving and autonomous charging solution trends.

Speaker 3

Our enhanced deep learning, V2X and 3 d vision technologies are set to drive revolutionary changes in our approach to vehicle charging in driverless scenarios. With that being said, in the Q2, we made significant strides in the smart charging area, ensuring that NAS leads in the commercial adoption of these cutting edge technologies. For instance, since initial launch last year, we've upgraded our autonomous charging robots with sophisticated pathfinding, vehicle control and obstacle avoidance features. These robots can now manage complex charging operations with little to no human intervention, ensuring a safe and more streamlined charging experience. Furthermore, building on our expertise in AI and digital analytics, the NAST Energy FinTech or NEF platform is now driving the transformation of the charging station construction sector towards a smarter $1,000,000,000 market.

Speaker 3

Our NEF system uses advanced AI algorithm for comprehensive intelligence in serving charge point operators or CPOs throughout the lifecycle of charging stations. In the early stages, particularly in charging station site selection, NAV helps calculate potential investment returns by analyzing critical regional traffic flow and charging demand data. Furthermore, after charging stations start to operate, we are responsible for their online operations as well, leveraging our integrated digitalization expertise. As Kathy mentioned previously, we formed a partnership with a leading new energy company to supply them with a comprehensive slate of charging station services through our Neff platform. This collaboration not only boosted our revenue from charging power cells, but also brought us a share of the related charging transactions.

Speaker 3

Additionally, it has enhanced NASS brand visibility through our joint site operations. During the Q2, we successfully launched nearly 50 charges with this partnership and are on track to bring nearly 1,000 additional charges online by the Q3. Encouraged by this success, we are exploring the replication of this model in other regions with a similar initiative already underway in Changsha. As we keep advancing our AI and digital analytics in autonomous charging solutions and NAF, our extensive network of automotive manufacturer partners is vital in this progress. This ensures our capacity to deliver AI powered services on a wider scale.

Speaker 3

We now cover majority of China's mainstream automotive manufacturers with high quality AI powered charging services through the various collaborations Cassie outlined. As of June 30, 2024, we have launched services for 56 top brands supporting 165 new energy vehicle models. We added 66 new models in the 2nd quarter alone, achieving a record high for a single quarter in terms of new model launches. Our extensive and growing network of automotive manufacturing partners continue to reach our ecosystem and broaden our market reach. Now let's move on to our financials for the Q2 of 2024.

Speaker 3

We significantly boosted operational and management efficiency this quarter, which substantially improved our financial performance. Notably, our net loss margin reached its lowest historical level this quarter. We are also excited to announce another milestone. In June 2024, our monthly non IFRS net profit turned positive for the first time. Thanks to our disciplined approach to expanding revenue and reducing costs.

Speaker 3

I'll walk you through some of the key drivers behind this quarter's success. Our revenue increased by 89% year over year to RMB91.7 million this quarter propelled by robust growth across all three of our business segments. Specifically, our core charging services continued to flourish, contributing RMB44.8 million to this quarter's revenue, up 73% compared to the same period last year. This substantial growth not only underscores the resilience and viability of our profitable business model, but also highlights our outstanding execution in enhancing our charging services. In addition to strengthening our core business, we made significant strides in diversifying our revenue streams this quarter, thanks to our agile strategy and effective positioning in emerging markets.

Speaker 3

Revenues from energy solutions and new initiatives each soared by over 100%. Specifically, revenue from Energy Solutions increased by 105% year over year to RMB44 1,000,000 and revenue from new initiatives increased by 139% year over year to RMB2.9 million. Alongside our impressive revenue growth, our gross profit grew 59% year over year to RMB30.5 million in the Q2 of 2024. This growth was primarily fueled by the robust performance of our high margin charging services. Notably, the gross margin for our charging services reached its highest level over the past 4 quarters, highlighting the significant economics of scale we are realizing as our business continues to expand.

Speaker 3

Furthermore, we drove improvement in our operational performance this quarter, leveraging our expanding market presence and enhanced network capabilities. The proportion of orders with positive NCR surged to 70% in the Q2 of 2024. Cost structure optimizations and operational efficiency are a critical part of our strategy to sustainably expand our business scale. In the Q2 of 2024, we reduced our operating expenses to record lows relative to our revenue, strengthening our financial foundation as we continue to grow. In summary, this quarter's performance stands as a testament to the effectiveness of our long term development strategy and our excellent operational and financial management.

Speaker 3

The substantial reduction in our net loss margins and the non IFRS net profit in June are clear indicators of our ability to not only enhance profitability, but also sustainably manage our growth. As we move forward, we will remain dedicated to financial discipline, innovation and progress to deliver enduring value to all our stakeholders. Thank you for your continued trust and support. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Speaker 3

Thank

Operator

you. We will now begin the question and answer session. The first question comes from Ting Song with Goldman Sachs. Please go ahead.

Speaker 4

Hi. Thank you for taking my question. So today I have 2. The first is, how are you able to meaningfully elevate your margin level and how do you expect quarterly net profit breakeven going ahead? And my second question is, as NAS continues to enjoy the fast revenue growth and scale up, can you share more color on your revenue drivers in the next 2 years?

Speaker 4

Thank you.

Speaker 3

Thank you, Amber. To your first question regarding the margin improvement, We reached a milestone of single month non IFRS net profit breakeven in June and a positive operational cash flow in Q2 2024. We have made a lot of efforts to optimize our business operations in order to achieve these milestones. Our revenue is one of the major contributor to our net profit margin improvement in Q2 2024. With the fast EV penetration in China, we have enjoyed the increase of both EV drivers and EV charge point operators on our platform.

Speaker 3

Our Q2 2024 revenue maintained its gross momentum and increased 89% year over year with both business lines growing at a healthy rate. If you look at the gross profit, as we adopt a platform business model, the profit margin improved as we scale up. The gross profit margin in Q2 2024 increased 8 percentage points quarter over quarter to 33%, while the absolute amount of gross profit increased 59% to RMB30.5 million in 2nd quarter. The major contributor is our charging service business, while our Energy Solution business has a relatively stable gross profit margin. As we grow in size, we believe we still have upside of our gross profit margin in its improvement.

Speaker 3

If you look at the expense, we have made significant progress as well. Our total non IFRS operating expense as a percentage of revenue decreased to 90%, which is the first time it is below 100% since we get listed. It is not only due to our operating leverage that we received from our revenue scale up, but it's also to our tightened expense control. Especially, we cut our sales and marketing expense by more than half year over year, while maintaining our revenue growth at a very fast pace. The improvement of our financial numbers, I think, is largely the result of our optimized operations.

Speaker 3

To give you some evidence from operation level, our profitable order is now 70% of our total number of orders. In comparison, for Q2 2023, that same percentage is only 41%. Our gross take rate or GTR has also reached all time high level due to the increased acquisition of so called long tail CPOs. And our net take rate has been maintained at a very healthy level throughout Q2 2024. We're also seeing an increasing number of drivers to subscribe our VIP services and increasing number of OEMs to work with us.

Speaker 3

So to answer your first question in terms of margin, after we allocate our resources and energy in the right direction, we have been seeing very positive indicators in the past quarter from financial metrics and from the business performance. This is certainly very encouraging milestone for us and we will continue to work on our business operation and on efficiency. So to your second question regarding growth, which is another very good question. Let's look at the numbers first. In general, our revenue in Q2 2024 maintained a strong growth momentum and we've seen 89% year over year revenue growth.

Speaker 3

If we look at different segments, both major segments of our revenue enjoyed a very healthy growth. Our charging services are seeing a 73% increase year over year due to our increasing coverage on both the supply side and demand side of the charging network. We have processed 50,000,000 transactions in the passing quarter and 70% of those transactions are profitable. On the Energy Solution business, as we keep improving our AI capabilities inside selection, EPC and state operations, we gain more trust from the CPOs that we work with, where we can constantly get more projects and hardware orders from them, which results in a 105% growth year over year on Energy Solutions. I would like to emphasize the role of AI capabilities in driving our business growth.

Speaker 3

As we build AI models from millions of the transactions that we processed, we are able to empower our ChargePoint operator partners to enjoy better operational outcomes. For example, we are able to recommend potential locations with better business opportunities to the operator for their deployment for new charging stations. With that capability, the CPOs will choose us as a one stop solution provider and we can potentially monetize our AI capabilities through hardware sales and software subscription fees. For example, we are collaborating with 1 of the largest CPOs in Central China and we'll help them deploy 1,000 chargers in the Q3. To sum up, with the fast penetration of EV in China, we're enjoying the fast growth of EV charging demand.

Speaker 3

Meanwhile, we are maintaining our leadership in the market with our AI capabilities. We have started to monetize those AI capabilities and we'll continue to explore more business opportunities as we grow. Thank you.

Operator

The next question comes from James Zhou with UBS. Please go ahead.

Speaker 3

Thanks for taking my question. I have one question. As we read through the improving financial numbers, can you share with us more details on the operating metrics such as the gross take rate and net through grade? Thanks. Great.

Speaker 3

Thanks, James, for the question. The main reason that we are able to achieve margin improvement and the non IFRS net profit breakeven in June was because of our continuous efforts in facing operating metrics of the business. So if you look at GTR, for example, our GTR has reached all time high. The reasons are twofold. First, our algorithm continue to bring traffic to our CPOs on the platform, which helps CPOs enjoy better operational outcome and therefore allow us to get a better commission rate.

Speaker 3

And number 2, we see more long tail CPOs joining our platform where we were able to have a better bargain in power. So that's for GTR. For the NTR net take rate, we continue to drive NTR to higher level where we are improving our sales and marketing efficiency with our advanced algorithm to acquire and retain users. For example, our net addition of VIP members increased close to 30% quarter over quarter in the Q2 of 2024. As a result, our profitable orders increased to 70% of all number of orders.

Speaker 3

So in conclusion, we will continue to improve our operating metrics through the iterations of our algorithm and AI capabilities and we strive to make a more sustainable and profitable business model. Thank you.

Operator

The next question is from Ethan Chang with Nomura. Please go ahead.

Speaker 3

Thanks management. So recently, robots actually has become very popular in China. So my question is, how do you see your position in the new autonomous driving era? Thank you. Thanks, Ethan.

Speaker 3

That's a very good question. We have been looking at this trend for a while. Robo taxi as most of the models that we've seen, they are actually electric vehicles or EVs. So these vehicles need to be need some sort of charging infrastructure to operate. Given our extensive partnership with OEMs, we have closer access to the smart EV operating system and we'll put ourselves into a very good position to best utilize that operating system.

Speaker 3

Particularly our AI algorithm could actually help robotaxi to optimize its charging operation with our larger charging network. And we could help robotaxi owners to find the optimal locations to establish their EV charging infrastructure. More importantly, our autonomous charging robot, which we initially reviewed last year and has been improving ever since, has all the core technologies to facilitate the autonomous charging actions such as deep learning, V2X, 3 division and other intelligent technologies. When we initially deployed the autonomous charging robot, we always have the robotaxi in mind. We always had the autonomous driving in mind.

Speaker 3

We think in the future where there is no drivers, there wouldn't be any need for human involved charging. So the charging robot is specifically designed for that purpose. As the autonomous driving continues to unfold, we believe we're at the front seat to empower the charging infrastructure and software to adapt to the new era. Thank you. Thank

Operator

The next question is from Zoe Feng with Tianfeng Securities. Please go ahead.

Speaker 2

Thank you for taking my question. I know that you have been caught up with a lot of easy labor. Could you share more updates on the latest development and how could such benefit benefit us? Thank you.

Speaker 3

Thank you, Zoe. In Q2, we've further improved our partnership with our OEM partners. Specifically, in Q2, we partnered with Jia to embed our platform into the EV and provide charging services to gear drivers to better enhance our capabilities and create a wholesome charging ecosystem. By the end of Q2, we have established a partnership with most of the major OEMs and built our services in more than 150 EV models. Our continued collaborations with EV OEMs help us in a number of ways.

Speaker 3

1st, we obviously make revenue from those collaborations and partnerships. NAS can get a one time system set up revenue and ongoing subscription fees when users charge using our platform within the OEM. And second and probably more importantly is we're creating more brand awareness and technology collaboration through these partnerships and that in turn help us to acquire new customers and build our technological leadership in the whole ecosystem. Meanwhile, we collaborated with China Automotive Technology and Research Center to release the China Electric Vehicle Charging and Battery Swap Industry Development Report. This collaboration with government sponsored research institutes and various stakeholders in the charging industry could help us to maintain a leadership role in making technological advancement and setting industry standards.

Speaker 3

Moreover, we are highly engaged in the initiatives from the government to make a carbon neutral society. For example, we partnered with Harbin's 1st carbon inclusive service platform, which could benefit millions of EV drivers. Our charging infrastructure monitor and service platform for Zhejiang have also recently been deployed, which could help local government and the power grid to better services millions of EV drivers. So the conclusion is in this fast growing EV charging industry, we want to build stronger partnership with all stakeholders in the industry and leverage these partnerships to create a better user experience for the EV drivers. Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to the company for closing remarks.

Speaker 1

Thank you once again for joining us today. If you have any further questions, please feel free to contact us. Thank you.

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