EHang Holdings Ltd

NASDAQ:EH

Earnings Call Transcript 2024-Q1

[Operator]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to EHang's First Quarter 2024 Earnings Conference Call. As a reminder, we are recording today's call.Now I will turn the call over to Anne Ji, EHang's Senior Director of Investor Relations. Ms. Anne, please proceed.

[Anne Ji, executive]

Hello, everyone. Thank you for joining us on today's conference call to discuss the company's financial results for the first quarter 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 website.On the call today, we have Mr. Huazhi Hu, our Founder, Chairman, and Chief Executive Officer; Mr. Chia-Hung, Co-Chief Operating Officer; and Mr. Conor Yang, Chief Financial Officer and a Director of the Board. The management team will successfully give prepared remarks. Remarks delivered in Chinese will be followed by English translation. All translation is for convenience purpose only. In case of any discrepancy, the management statement in our original language will prevail. A Q&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. 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 accruable law. Also, please note that all numbers presented are in RMB and are for the first quarter 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.

[Huazhi Hu, executive]

[Foreign Language]

[Anne Ji, executive]

This is the English translation of Mr. Hu's remarks.Hello, everyone. Thanks for joining EHang's conference call today. I'm excited to share with you the EHang's progress in the first quarter of 2024. We had a continued steady growth in both sales and operations in the first quarter, demonstrating our first-mover advantage and exceptional execution in a vital sector of the low-altitude economy. Following obtaining the type certificate for our EHang 216-S last year, we have been pushing forward the 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 a production certificate or PC for EH216-S from the Civil Aviation Administration of China or the CAAC. This means our production process and quality management systems has been validated by the CAAC experts for our capability of sustainable mass production. As the world's first company to obtain eVTOL type certificate, production certificate, and standard Airworthiness Certificate. Our self-developed EH216-S pilotless passenger-carrying eVTOL has been thoroughly validated and recognized by the CAAC from model design to production and to the safety and airworthiness of each unit delivered. This gives us a global lead and a competitive edge in the eVTOL sector of the low-altitude economy.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 [indiscernible] for innovative application of general aviation equipment 2024 to 2030 was jointly issued by the 4 ministries in China, which are the Ministry of Industry and Information Technology, the Ministry of Science and Technology, Ministry of Finance, and the CAAC. The plan outlines our development road map focused on unmanned, electric, and intelligent aerial vehicles and set the course to realize their commercial operations in urban areas for passenger transportation, logistics, and emergency rescue with a target market size of RMB 1 trillion for the low-altitude economy in China by 2030. This fully reflects the Chinese government's great attention on the low-altitude economy as the strategic emerging industry and inject strong momentum into its sustainable development.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 demand 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 EH216 series products, a record high for a single quarter in our history, with revenues more than double that of the same period last year.On the operational side, we are working on multiple low-altitude economy demonstration projects in various cities in China. So far this year, our flat footprint has expanded to multiple domestic cities and overseas regions like the UAE, Costa Rica, and Japan. We have successfully completed the EHang 216-S debut 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 Guangzhou Automobile Company to collaborate on low-altitude economy initiatives, leveraging each other strengths in intelligent manufacturing and eVTOL mobility products. And in April, we announced a strategic partnership with the Greater Bay Technology to co-develop the world's first ultrafast-charging, extreme fast-charging battery solution for eVTOL 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 eVTOL, enabling them to meet the demands of high-frequency large-scale operations for urban air mobility scenarios.Meanwhile, we are also stepping up internal flight testing of our VT-30 lift-and-cruise model and preparing for its type certification. Based on the experience we have gained from the EHang 216-S certification, the long-range VT-30 product will also boost a comprehensive and commercially available system design and airworthiness. With EHang's leading technology and airworthiness advantages in the pilotless eVTOL industry as well as our collaborative industry layout, we are confident in driving the rapid growth of the UAM 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. Chia-Hung, 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. Let's welcome Mr. Hung to share some insights on our Q1 operational performance. Thank you.

[Zhao Wang, executive]

Thank you, Mr. Hu. Hello, everyone. I'm honored to join EHang as Co-Chief Operating Officer at its pivotal moment when our EH216-S pilotless eVTOL has achieved the 3 certificates. These certificates make a critical milestone in our commercialization journey. I'm committed to driving the company's strategic deployment, market expansion, product sales and commercial operations with full force. I work closely with the team to seize the massive opportunities presented by the trading RMB low-altitude economy and ensure that EHang enhance 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 136 year-over-year increase and a 13 quarter-over-quarter growth of the delivery volume. Notably, as part of conditional purchase order we had received from UAE customer for 100 units of EH216 series products. The first batch of 5 units, including EH216-S, L, and F had already delivered in Q1.In March, we partnered with the Wuxi local government for UAM, securing a conditional purchase order for 100 units of EH216-S. 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 had been also delivered to Hubei and Jiangxi 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-altitude economy has been taking off in China, further fueling the growth of our product demand after obtaining Airworthiness Certifications, government, enterprises, and overseas customers are all eager to introduce our advanced pilotless eVTOLs to their local markets and are planning to develop comprehensive low-altitude economy ecosystem, including infrastructure, funding, patents, and operations. In order to present the air taxi application scenario as soon as possible, we have been working on site planning and construction work for dozens of eVTOL 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 standards, and plan to launch low-altitude routes for urban air transportation. As we are setting up these demonstration projects, we are also developing a rigorous operational system and rules, infrastructure standard, maintenance system, personnel training and clarifications to ensure safe operations and set industry benchmarks.We are also expanding our international market [indiscernible] we showcased the diversity of our products and application use cases by displaying our EH216-S, L, and F. And our long-range lift-and-cruise eVTOL VT-30, which was its overseas debut. With the support of our local partners, the EH216-S successfully obtained the approval from the UAE General Civil Aviation Authority and completed its first passenger carrying flight demonstration in the Middle East region. Meanwhile, we have also formed a strategic partnership with Abu Dhabi Investment Office and a renowned fintech group multilevel group to facilitate our next phase of in-depth development in UAE. In March, with the support of our partners, AirX and Tsukuba Aviation, Japan's first UAM center was established in Tsukuba City, serving as an operational base for EH216-S.As EHang's Co-Chief Operating Officer, I'm committed to driving our commercial operations full steam ahead. Now, I will turn the call over to our CFO, Conor. Thank you.

[Chia-Hung Yang, executive]

Thank you, Mr. Hung. Hello, everyone. This is Conor. Before I dive into details, please note that all numbers presented are in RMB unless stated otherwise. Detailed analyses 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 standard financial results for Q1 2024. We exceeded our quarterly revenue guidance of RMB 58 million by over 6% and achieved positive operating cash flow for the second 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. Total revenue in Q1 were RMB 61.7 million, 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 eVTOL in Q1, over doubling 11 units in Q1 last year and compared with 23 units in last quarter.Gross margin remained consistently high at 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. Still, our high gross margin demonstrates our competitive edge as the frontrunner in the eVTOL sector.Our adjusted operating expenses, which is our operating expenses, excluding share-based compensation expenses, were RMB 54.5 million, up 8.7% from RMB 50.1 million in Q1 last year and down 15.1% from RMB 64.2 million 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 RMB 12.6 million, a 63.4% improvement from RMB 34.3 million in Q1 last year and a 49.5% improvement from RMB 24.9 million in last quarter. Adjusted net loss was RMB 10.1 million, a 69.9% improvement from RMB 33.6 million in Q1 last year and a 54.4% improvement from RMB 22.1 million in last quarter.Thanks to our prudent cash management and improved credit controls, we achieved positive cash flow from operations for the second consecutive quarter, further enhancing our balance sheet. At the end of Q1, our cash and cash equivalents, short-term deposits, and short-term investment balances were RMB 323.8 million. To date, we have received over USD 55 million of gross proceeds from recent equity funding through at the market offering. Furthermore, we have unused on committed credit facilities of RMB 131 million with expiration in April 2025. This further strengthened our liquidity position.Now that our EH216-S has obtained all 3 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 foster ongoing expansion while capitalizing on our core capabilities to propel growth within the UAM sector. With that, we expect total revenue for the second quarter of 2024 to be around RMB 90 million, representing an increase of over 800% year-over-year.That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

[Operator]

[Operator Instructions] Our first question comes from [ Ting Fang ] with Goldman Sachs.

[Unknown Analyst]

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?

[Chia-Hung Yang, executive]

Yes. To fulfill the rapid business growth, we plan to expand the current production capacity in our Yunfu factory to the maximum capacity. And we plan for headquarters also in Guangzhou with multiple functions, including offers of services, take-off and landing infrastructure, research labs for batteries, power systems, command and control system all in one place. With that, our plan for CapEx is around USD 10 million for this year for the expansion.

[Operator]

The next question will come from Cindy Huang with Morgan Stanley.

[Cindy Huang, analyst]

Congratulations on results. So I have 2 question. So first, I want to ask about the certification timeline. As we have obtained on TC, AC, and PC, when do we expect to receive the OC to kick off operations?And my second question is related to the order backlog. Can management update the current order backlog based on binding purchase agreement? And how should we expect the delivery cabins throughout the year? Will there be any constraints or uncertainty on capacity or supply side?

[Huazhi Hu, executive]

[Foreign Language]

[Anne Ji, executive]

Yes. Thank you for your question. This is the translation of the answers to your first question. EHang as the manufacturer has obtained the TC, AC, and PC, while the OC, which is the operating certificate, is to be obtained by the air operator by submitting an application to the CAAC and to receive the relevant qualifications. And currently, EHang is in cooperation with the CAAC to formulate the operating standards of the EHang 216-S. After the CAAC issues relevant regulatory documents, the air operators can formally submit their OC application based on the rules.

[Huazhi Hu, executive]

[Foreign Language]

[Anne Ji, executive]

For your second question, the customers with the intention for the bulk purchases will sign framework agreements and the preorders 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 customers' business development needs and the market expansion progress following the [indiscernible] approach. The 26 units delivered in the first quarter are all part of the initial batch orders from these customers. And the conversion volume of these orders will gradually increase in subsequent quarters.

[Huazhi Hu, executive]

[Foreign Language]

[Anne Ji, executive]

We will provide a quarterly revenue forecast. Revenues for the second quarter is expected to be approximately RMB 90 million. 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 a sufficient order book and the production capacity is expanding in connection with the auto quantities. In terms of the production capacity, we have already obtained the production certificate for the EHang 216-S, qualifying us for mass production. Regarding the supply chain, we have a relatively mature and sufficient reserves. At present, we do not see any significant bottlenecks or uncertainties in our production capacity and the supply chain.

[Operator]

The next question comes from [ Yu Chan ] with Haitong Securities.

[Unknown Analyst]

Congratulations on the good performance in the first quarter this year. And I have 2 questions. The first one is regarding the operation. I would like to ask a question about the operational routes. 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?

[Huazhi Hu, executive]

[Foreign Language]

[Anne Ji, executive]

For your first question regarding the operational route. Currently, we have multiple UAM operation sites, entered construction in Guangzhou, Huangpu District, Shenzhen [indiscernible] and Luohu District, Hubei [indiscernible] District, Wuxi, Liangxi District and Tsukuba in Japan. And these sites are being prepared for the establishment of commercial operation routes. We are currently engaging in facility construction, test flight, personal training, and the certification applications.

[Huazhi Hu, executive]

[Foreign Language]

[Anne Ji, executive]

For your second question. We have received an intention and purchase order from the Wuxi government for 100 units of EHang 216-S at March and delivered 10 of this in the first quarter. In the second quarter, we have added orders from Shanxi, Hunan, Wenzhou and Zhuhai as well as the purchase intentions 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.

[Operator]

The next question we have is from [ Rong Jao ] with [ TF ].

[Unknown Analyst]

First, congratulations on the company's outstanding performance. So I have 2 questions. The first one is that I know 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 EH216 overseas working its certification? How is -- and also how is the local regulatory acceptance?And the second question is the add on. Could you please summarize the customer types for Q1 deliveries? Are they mainly government customers? And also, what is the proportion of overseas deliveries?

[Chia-Hung Yang, executive]

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 CAAC has signed a bilateral agreement with many countries, aviation authorities around the world. Based on the type certificate already issued by the CAAC, we're also coordinate mutual communication between the CAAC and aviation authorities in Southeast Asia, Latin America, and Middle East, such as Brazil, Thailand, Indonesia, and the UAE.So the BTC is an administrative process that is simpler than obtaining the type certificate for 0 to 1. But before BTC is open, we can still deliver our products to overseas companies for their local users for testing, for training and certification. For example, we have delivered 5 EH216 series products to the customers to the UAE in the first quarter, and we will accelerate the BTC certification process to further expand into international markets. Mr. Huazhi?

[Huazhi Hu, executive]

[Foreign Language]

[Anne Ji, executive]

To your second question, we are seeing an increase in negotiation, demand and orders from domestic and international customers. And following the Chinese government release of the guidelines for the developing low-altitude economy, we delivered 26 units of EHang 216 series in the first quarter. 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 the urban passenger transport, the low-altitude tourism, logistics, and emergency firefighting, and other industry applications.

[Operator]

The next question comes from [indiscernible].

[Unknown Analyst]

Congratulations on the good results and on obtaining PC this quarter. And I have 2 questions. The first one is, we are also concerned about the bottlenecks during production. So are there any bottlenecks in the supply chain? And what is the domestic production rate of EH216-S?[Foreign Language]

[Huazhi Hu, executive]

[Foreign Language]

[Anne Ji, executive]

For your first question, based on the developed UAV and the electric vehicle supply chain system in China, we have established a long-term partnership with suppliers on our supply chain. We maintain close cooperation with multiple suppliers to ensure stable supply and high quality for our eVTOL 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 EHang 216 series has been localized. 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.

[Unknown Analyst]

And I have a second question. In order to achieve the quarterly and annual breakeven point, so how many EH216 units need to be delivered?[Foreign Language]

[Chia-Hung Yang, executive]

Thank you. Based on our current cost structure and the trend of business expansion, we estimate that we can achieve annual breakeven point on a non-GAAP basis, which is excluding the share-based compensation expenses by delivering around 200 to 250 units of EH216 product per year. So from a quarterly perspective, for example, in the first quarter, we have delivered 26 units, and our non-GAAP net loss has narrowed to just RMB 10 million. 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.

[Operator]

And the next question comes from [indiscernible]

[Unknown Analyst]

We noticed that the company saw the EH216-S through live streaming on [indiscernible] in the first quarter. Did you see any new demand generated from this top event where the company sell directly to end users in the future?My second question is, could the management team share more about the company's thoughts on eVTOL battery solutions? When can faster charging battery development with [ GBT ]?

[Huazhi Hu, executive]

[Foreign Language]

[Anne Ji, executive]

For your first question, that is a very good question. We are paying attention to whether our aircraft can be sold to the end users. Our [indiscernible] livestream sale event for the EHang 216 was primarily aimed at introducing and educating the public about this new type of autonomous passenger eVTOL aircraft. And at the same time, demonstrating that they can be purchased and used by the end does. However, to provide well-rounded low-altitude flight operation services and to enrich usage scenarios. Our current customers are still primarily government and enterprises. End users can purchase tickets and ride via the Air Taxi App. 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.

[Huazhi Hu, executive]

[Foreign Language]

[Anne Ji, executive]

For your second question, we have been actively exploring variously eVTOL battery solutions to further improve the performance and efficiency of our products. We strive to achieve the best balance between the safety cost and efficiency. We will focus on the battery energy density, power density, thermal management and circle life and continuously optimize and enhance the performance of our eVTOL products in terms of range, payload and charging time. To achieve this, we have [Technical Difficulty] in the industry for the year, continuously researching for new battery technologies suitable for eVTOLs. Both our solid EVM batteries developed by the Inx and our rapid charging and discharging batteries developed by the Greater Bay Technology has been entered testing phase. These new batteries with larger capacity, faster charging speed and enhance the safety will significantly improve our operational efficiency.

[Operator]

The next question comes from [indiscernible].

[Unknown Analyst]

And I also have 2 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?And my second question is about the pipeline of the new type of eVTOL aircraft. Can you share more about the progress of VT-30?

[Chia-Hung Yang, executive]

Thank you. I will take the first question. Sorry. Go ahead.Yes, I'll answer the first question. Yes, thank you for your question. On the ATM offering that we have raised over USD 50 million through the ATM so far, and we can secure more fund to support the company's growth to enhance our financial flexibility and strengthen our balance sheet and to better set the market changes and challenges. This fund raised will provide us with more resources to invest in expansion in the sales team and the commercial operations, R&D and our production capacity. Currently, we have around 380 employees, which is not too much an increase from last year. But with the new fund raise, 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.Mr. Huazhi?

[Huazhi Hu, executive]

[Foreign Language]

[Anne Ji, executive]

For your second question, the EHang 216-S is our first product to receive the Airworthiness Certification and the commercial operations will be carried out, focusing on the EHang 216-S 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 VT-30 is a product that we are currently developing with features including unmanned piloting, electric propulsion, lift-and-cruise type, and long endurance. Following the successful airworthiness experience of the EHang 216-S, the relevant research and development of the VT-30 and the preparations for airworthiness applications are progressing steadily. We conducted the first overseas showcase of the VT-30 in UAE in April. And we will announce more progress in due course.

[Operator]

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

[Anne Ji, executive]

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 disconnect.