EHang Holdings Limited
Q4 2020 Earnings Call Transcript

Published: 16 Apr 2021

[Operator:]

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the EHang’s Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objection, you may disconnect at this time. Now I will turn the call over to Julia Qian, Managing Director of The Blueshirt Group Asia. Ms. Qian, please proceed.

[Julia Qian:]

Hello, everyone. Thank you all for joining us on today's conference call to discuss the company's financial results for the fourth quarter and the full year of 2020. We released the results early today. The press release is available on the company's website as well as from our Newswire services.

[Huazhi Hu:]

Thank you Mr. Xu. Now I’m glad to translate Mr. Hu’s remarks into English. Hello everyone. Thank you for joining our earnings conference call today. In the unsual year of 2020 our management team and I appreciate the efforts and the supports of our employees, partners and investors. Today, I would like to take this opportunity to tell more about EHang. Since our founding many people have asked me about the vision of EHang. Today, I would like to elaborate our mission, vision and our strategies so that you can understand EHang better. In my mind, EHang will become an air mobility service provider of the integrated door-to-door air transportation products for individuals. EHang is a technological innovation driven air mobility service provider committed to lead the next generation of autonomous urban air mobility. Our mission is to enable safe, autonomous and eco-friendly air mobility services for everyone. In the future, we will build EHang into a Tesla in the air, allowing people to use EHang’s air taxi services as easily as using Uber today and to enjoy the convenient door-to-door air transportation. Similarly, our air logistic services will also provide the convenience for people's lives. We have been executing our strategy based upon our unwavering mission and a vision as well as our long term view of the future transportation industry and in-depth understanding of EHang’s first mover advantages. We believe that with the rapid development of autonomous driving, autonomous flying services will become the focus of the transport sector and compel a price of the market.

[Edward Xu:]

Those were Mr. Hu's remarks. Now let me elaborate on our strategy and plan. Hello. This is Edward Xu, Chief Strategy Officer of EHang. Based upon the Board decisions to consider the firm's long term strategic goal, EHang's business model will experienced a gradual transition in 2021, from a pure equipment to sales model towards the operation platform model. This decision is a result of the Board's deep thoughts and discussions that thoroughly consider the following conditions. First, to be a UAM platform operator is ultimate goal of EHang. As a world leading UAM firm, we are dedicated to providing comprehensive and effective solutions. To this end, we have not only build the most advanced AAVs such as EHang 216, but also grasp the key relevant technologies such as cluster management. So that we are able to operate the multiple remote AAV simultaneously through our centralized platform based upon predetermined and fixed routes. This whole system enables a seamless integration of AAV manufacturing and operations, laying a solid foundation for us to become a UAM platform operator. Different from some peer companies, our business does not only cover the designing and manufacturing of equipment AAVs alone, but also system-wide solutions for real operations, including route planning, standards setting 4G, 5G communications, et cetera. We are building a large ecosystems for UAM, which is compatible with existing systems for civil aviation. Therefore, we have positioned ourselves as a UAM platform operator from the very beginning of our IPO. We believe this is our ultimate choice. Second, safety is our top priority. As our delivery volumes of EHang 216 continues to increase, it adds responsibilities on the customer side to ensure operational safety. For our highly innovative products as such with no precedence, it demands a high level of safety standards for daily operations. Therefore, we believe it is critical for us to take a full and direct control of daily operations of EHang 216 AAVs to ensure 100% safety. Third, the timing for EHang 216 commercialization is opportune. We have conducted over 10,000 flights of EHang 216 AAVs in the past three to four years and have accumulated a considerable amount of real data. Based upon the latest results of the recent communications with the CAAC, we'll see significant progress in airworthiness certification for EHang 216. We are hopeful in achieving meaningful progresses in 2021 towards the final stages in certification. This will open the door for further commercialization of EHang 216, now enables an upgraded version of UAM operation. Therefore, we should make sufficient preparations for large scale operation in future. To support this important strategic initiative, and also fulfill some customer orders in 2021, we are aiming to produce approximately 250 units of EHang 216 in the year, which will be a new record for the company once achieved. Finally, attractive outlook for UAM operations. More importantly, we see a highly attractive outlook for an upgraded model of UAM operations based upon our fully autonomous aerial vehicles. Different from the conventional models of civil or general aviation, our model ensures a higher level of safety, service quality and profitability, but lower levels of operational costs. Our financial analysis shows highly attractive investment of returns with short payback periods for our equipment versus the conventional civil or general aviation. Considering the benefits of large sharing platform build upon self-owned fleet at a relatively lower cost, we expect a higher degree of equipment utilization and return profiles. Considering various factors, we have planned a 100 air mobility routes initiative by selecting 100 meaningful flight routes for trial operations within China. By accumulating more operating data and experiences, we will be more prepared to launch larger scale commercialization activities. Meanwhile, we are planning to release operating data such as flight routes, flight sorties and passenger volumes, etcetera as mentioned by Mr. Hu. I will now turn the call over to our CFO, Mr. Richard Liu to provide the financial results for the fourth quarter and full year of 2020. Richard, please go ahead. Thank you.

[Richard Liu:]

Thank you, Edward, and Hello, everyone. Before I go into details, please note that all numbers presented are in RMB and are for the fourth quarter of 2020, unless stated otherwise. All percentage changes on a year-over-year basis unless otherwise specified. Detail analysis is contained in our earnings press release, which is available on our IR website. I'm going to highlight some of the key points here. In Q4, 2020. total revenues were RMB54.6 million, on par was total revenue of RMB54.7 million in the same period of 2019. Due to the resurgence of COVID-19 pandemic in the quarter, the total units of EHang 216 sold were 22 units, versus 26 units in the same period in 2019, causing the revenue from air mobility solutions to decrease 10% year over year. However, our revenues from aerial media solution increase steadily offsetting the decrease in air mobility and driving up our total revenues. In full year of 2020, our total revenues increased 47.8% year-over-year reaching RMB180 million. We're pleased to maintain a robust annual revenue growth despite the pandemic impact globally. Adjusted gross profit in Q4 excluding share-based compensation expenses amounted to RMB34.8 million. This led to adjusted gross margin of 63.8%, which was 3.1 percentage points higher than that of last year, and the highest quarterly adjusted gross margin in the company's history. Adjusted gross profit for full year 2020 was RMB108.6 million, up 51.7% from RMB71.6 million in 2019. Adjusted gross margin for the full year 2020 was 60.3%, up 1.5 percentage points from 58.8% in 2019. And also the highest annual adjusted gross margin. This reflected the competitive strengths of the company. An increase was mainly due to a favorable revenue mix with a greater proportion of revenues from sales of higher margin models of EHang 216 AAVs. Adjusted operating expenses excluding share-based compensation expenses increased by 50.5% to RMB47.2 million and as a percentage of total revenues was 86.5% as compared to 57.3% In Q4 2019. The main increase expenditures in R&D of new models, including both passenger grade and non passenger grade AAV models and related operating systems with enhanced functionalities. As a result, our adjusted operating loss in Q4 was RMB10.6 million compared to adjusted operating profit of RMB3.8 million in Q4, 2019. Adjusted operating loss as a percentage of total revenues was negative 19.5% compared to adjusted operating margin of 6.9% in Q4 2019. With adjusted operating loss in Q4, our adjusted net loss was RMB12.3 million compared with adjusted net income of RMB2.9 million in Q4, 2019. For the full year of 2020, our adjusted net loss was RMB37.2 million compared with adjusted net loss of RMB31.9 million in 2019. Now let's turn to the balance sheet and cash flow. We ended the quarter with RMB189.4 million of cash, cash equivalents, restricted cash and short-term investments. The accounts receivable balance of RMB179.4 million have been reduced to RMB103.1 million, with subsequent collection of RMB76.3 million as of March 31, 2021, representing 42.5% of the balance have been collected. Together with the private investment of US$40 million in late January, it is expected that a company has adequate funding to support the operations in the next 12 to 24 months at least. Now let's turn to the business outlook. Our business is experiencing a gradual transition into a more operation driven model. Given our ultimate strategic goal is to build a UAM platform operator company, we view now is the right time to salary this process for better commercialization. Specifically, we are planning to launch a 100 air mobility route initiative in China from 2021 in our work. We believe the time is opportune as we are getting into the final stages of airworthiness certification of our EHang 216 AAVs. As results, we expect annual revenues in 2021 to range between RMB130 million and RMB180 million. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

[Operator:]

Thank you, ladies and gentlemen. We will now begin the question and answer session. Our first question comes from Tim Hsiao from Morgan Stanley. Please go ahead.

[Tim Hsiao:]

Hi, Mr. Hu and as well as Richard, thanks for taking my question. I have two quick questions. I'm sure, it’s like the management team have already touched on this topic for several times. And according to Company's announcement that appears that we do see some progress in terms of the regulatory breakthrough, and with further collaboration with CAAC certification team. But, again, how should that translate into more details about timing of official instead of special airworthiness certificates. When we can get that? And with that, how should we think about the potential older ways upon the obtainment of the certificates? My second question is about competitive landscape. Because we saw several players are making or plan to make inroads into this market. Will that change the industry dynamics meaningfully and raise EHang's dominance and our current collaboration with the government at the moment? Thanks.

[Edward Xu:]

Well, thank you, Tim. This is Edward, let me take your questions. So first question regarding the CAAC certificate progress. So it was very great the progress we've made two days ago, with a special meeting with delegates from CAAC. These are very high level senior members from all over the country and representing different sub bureaus for the CAAC. And during the meeting -- it is actually the kickoff meeting. And the CAAC officials, they highly recognized our progress. And so the message here is quite optimistic. However, I cannot tell you the exact timing of when we can get the certification. But based upon our communication so far, we are quite confident about this issue. And about the potential orders you mentioned, I think, yes, definitely this will break last hurdle, the last bottlenecks from the regulation perspective, which will lay a very good foundation for our future commercialization of our products. And so that is definitely a very good message. And your second question regarding the competitive dynamics, right? So we understand that nowadays, we see quite a number of companies who are making their own products, and including some other companies as well. However, we are quite confident about our technology, which created this entry barrier from the technological perspective. Because we -- as we mentioned earlier, we are not only a company who focus on designing and manufacturing the vehicle itself. We are creating a whole system. We're building a platform. That is very key difference which set us from all the other peers. And we believe that this will definitely give us a first mover advantage that we are building a platform and setting the standards. And right now, working with the CAAC delegates, another major task is to set the standards for the certification. And so, we are working very closely with CAAC's officials in setting the new standards. And we are very proud of that. And so -- that is also very different perspective. And it's make us very unique in this industry. And so, we are quite confident about our technology, about our system, and our whole idea of future UAM. I hope this answers your question. And if you have any further questions, please let me know. Thank you.

[Tim Hsiao:]

Yes. Very clear. Thank you very much, Edward.

[Operator:]

Thank you. Our next question comes from Vincent Yu from Needham & Company. Please go ahead.

[Vincent Yu:]

Thank you, management for taking my question. I have two question and one follow-up question. My two question is on the order and the clients. The first question is on order book. Can management go into more details on our existing order book. And the split between orders that we have received, basically the buying deposits versus the ones that are just pure intentional contracts? And my second question on the client is that we previously, we have been working with some tourism sites according to what I remember. So are we expanding our client base like 216F ? Are we expanding two governments? And what our client base looks like? And my third question is follow-up on the timing of the airworthiness certificates. We totally understand, it's hard to predict the exact timing. But is there a very rough kind of prediction, like, say, mid-year or by the year end or next year? What kind of like a more -- like a rough timing that we can predict? Thank you.

[Huazhi Hu:]

Hi, Vincent. Thank you for your questions. This is Hu. I would talk your first question. Talking about our order backlog is -- it's on a random basis. So right now, at this moment, there are roughly around 100 units. And in terms of international versus domestic, actually a majority of this are from within China, as you can imagine, given the still ongoing global pandemic impact and about 40% we'd say, deposit or prepayment.

[Edward Xu:]

Alright. Vincent, this is Edward here. I'm answering your second question about the EHang 216F, right? So this is specially designed AAV for firefighting purpose. However, we're still in the process of obtaining the last certification from the government. And there are two items which we need to do by conducting some experiments to prove the capability and also obtaining final certification from the government. And the client-base, we'll graduate -- will generally be the government, the firefighting department and the emergency department from different provincial government. And so far we've received very positive feedback from the government. However, we still need to go through the certification. And so that we are able to enter the national purchase catalog, so that the government can place order for that. And regarding your last question about the timing of the CAAC Certificate. We believe that -- as I mentioned, we cannot predict the exact timing. But based upon the message from the government officials, it is quite optimistic, we should say. And also the whole process should be a gradual process, which means that, towards the final certification, there could be some several milestones during the whole process, which we expect to achieve and to get recognized. And so I think during which we should be able to share the news with the market in the next six to 12 months about the progress. And so, that is what we can say now. Thank you.

[Vincent Yu:]

Thank you.

[Operator:]

Right. Thank you. We are approaching the end of the conference. If you have further questions, please contact us by email or phone after the conference call. Let me turn the call back to Mr. Liu for closing remarks.

[Richard Liu:]

Thank you, operator. And thank you all for participating on today's call and for all your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.

[Operator:]

Right. Thank you. This concludes today's conference call. Thank you for participating. All disconnect.