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

Hello, everyone. Thank you all for joining us on today's conference call to discuss the company's financial results for the second 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 IR website. On the call today, we have Mr. Huazhi Hu, our Founder, Chairman and Chief Executive Officer; Mr. Zhao Wang, Chief Operating Officer; and Mr. Conor 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. All translation is for convenience purpose only. In case of any discrepancy, the management statement in the 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 US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve the inherent risks and uncertainties. As such, the Company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the Company's public filings with the SEC. The Company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Also, please note that all the numbers presented are in RMB and are for the second 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.

[Foreign Language] [interpreted] This is the English translation of Mr. Hu's remarks. Hello, everyone. Thank you for joining EHang's earnings call. Since the second quarter of this year, as a leading company in the eVTOL industry, EHang has achieved remarkable results in multiple aspects, including financial performance, orders and deliveries, production ramp-up, industry standards and certifications, operation sites deployment and R&D of next-generation technologies and products. This is enabling us to continue leading the global urban air mobility industry. This April, we successfully obtained a production certificate, which is the PC for our EHang 216-S. We are proud to be the world's only eVTOL designer, developer, and a manufacturer to possess three certifications for the pilotless passenger-carrying eVTOL aircraft. With these three certifications in hand, we have also benefited from China's favorable policies that brings strong support for the development of the low-altitude economy as a national strategic emerging industry. Driven by the widespread development plans across the country and a strong market demand for innovative low-altitude aircraft, our eVTOL product as a representative of the new quality productive forces promoted by the nation have garnered a large number of customers and bulk orders. Our delivery volume and the revenues both reached record highs in Q2. We delivered 49 units of EHang 216-S, a nine-fold increase year-over-year. Quarterly revenues surged to RMB102 million, also a nine-fold increase year-over-year and a 65% increase quarter-over-quarter. Moreover, we achieved quarterly adjusted net income earlier than we expected, which marks a very promising start. The Company's Q2 gross margin was as high as 62.4%, with both year-over-year and a quarter-over-quarter increase. Since Q4 last year, we have received over 1,100 units in bulk pre-orders in the Chinese market. This number is continuing to grow. After securing the PC, our Yunfu production facility has started…

Thank you, Mr. Hu, and hello, everyone. Since securing the production certificate in April, we have been authorized for mass production of our EH216-S and secure standard airworthiness certificate for each aircraft that we have delivered. Our sales and delivers continue to grow. In the second quarter, we delivered 49 units of EH216-S, generating revenue of RMB102 million, representing a year-over-year increase of over 9 times and a quarter-over-quarter increase of 65%. Let me highlight some key examples of customers and partnerships. In June, we partnered with Wencheng, Zhejiang Province and received a purchase order with an additional purchase plan for up to 300 units of EH216-S. We have already delivered a first batch of 27 units in the second quarter and conducted the debut flight at a local scenic area in Wencheng. The customer also made a prepayment for the remaining aircraft and subsequent orders will be placed as the customer expands its operations. Wencheng has become our first authorized distributor in East China to obtain provincial-level distribution qualifications and will establish a comprehensive sales network for our aircraft across Zhejiang Province. We also delivered the first batch of 10 units of EH216-S to Xishan Tourism for low-altitude tourism services in Taiyuan. In July, EH216-S completed its debut passenger-carrying flights in Taiyuan, making a milestone for development of the low-altitude economy in Shanxi Province. This delivery is part of 50 unit order from Xishan Tourism that has been fully paid, with the customer plans to purchase an additional 450 units over the next two years. These units will be deployed in landmark scenic areas in Taiyuan and create a series of low-attitude tourism demonstration products, further advancing the construction of the low-attitude economy demonstration area in Shanxi Province. Furthermore, in the second quarter, EHang also delivered EH216-S to our…

Thank you, Mr. Wang. Hello, everyone. This is Conor. Before I dive into details, please note that, all numbers presented are in RMB and are for the second quarter of 2024. Unless stated otherwise, detailed analysis are available in our early press release on our IR website. I will now highlight some key points. I am pleased to report that our continued diligent execution has led to another quarter of exceptional financial results in second quarter 2024. We exceeded our revenue guidance by over 13%, achieved adjusted net income, and have generated positive operating cash roll for three consecutive quarters. Notably, our OC application has been formally accepted by CAAC, marking a significant step closer to commercial operations and accelerated growth. Now, let's dive into details of our second quarter results. Total revenue in second quarter were RMB102 million, representing a significant increase of 919.6% year-over-year and a 65.3% increase from prior quarter. The increase were primarily driven by higher sales volume of EH216 series products. We delivered 49 units of EH216 series products in second quarter, a significant growth from five units a year earlier and 26 units in first quarter 2024. Growth margin remains consistently high at 62.4% in second quarter, up 2.2 percentage point from 60.2% in second quarter 2023, and a 0.5 percentage point increase from 61.9% in first quarter 2024. The increase were mainly due to changes in revenue mix. Our high gross margin continued to underscore our competitive edge in the eVTOL sector. In second quarter, our adjusted operating expenses, which are operating expenses excluding share-based compensation expenses, were RMB70.6 million, up 21.6% from RMB58 million in second quarter 2023, and up 29.6% from RMB54.5 million in the prior quarter. The increase was mainly due to higher sales related conversations, expansion of sales channel…

Thank you. [Operator Instructions] And now we're going to take the first question. And it comes from Laura Lee from Deutsche Bank. Your line is open. Please ask your question.

Hey, thank you for taking my question and congratulations on the strong quarter. So my first question is, thinking about the timeline of commercial operation to oversee markets. When would you expect to start that? Is that like 2025 realistic?

[Foreign Language] [interpreted] Here's the English translation. We've been actively extending our presence in the international market. But studying commercial operations in overseas countries depends on getting the local regulatory approvals and the certification. Right now, EHang is working with CAAC in advancing bilateral worthiness agreements for the validation of tax certificate or VTC of the EHang 216-S with other countries' aviation authorities such as UAE, Brazil, Indonesia, and Thailand, et cetera. The timeline depends on the local regulator's schedule and the progress. And throughout the process, EHang will actively cooperate and provide the required documents to push forward the process. And besides, we have already made a few deliveries to overseas markets, like the Middle East and Indonesia, and conducted a demo flight there. And this helped us not only to expand the market to educate the public, but also to enhance the communication with local authorities for their recognition of our aircraft and our aircraft safety features, having a way for the VTC certification. Thank you.

Okay, thank you so much. I appreciate the color. And my second question is, I think we get really impressive gross margin of over 60%. Just trying to understand what percentage of our supply chain actually we share or overlap with the EV or the joint business.

Okay, most of our procurement are from China, domestic, with some electric components or chips imported from overseas. And battery design is different than the EV car. So we design our own battery, as well as we design our own electric motor and we outsource to suppliers in China. And so in general there are certain portions overlapping with the EV cars, but mostly are different. The [Technical Difficulty] of the aircraft. So for most part that we produce and we assembly in our own factory in [indiscernible] factory so far. Thank you.

Okay. Yes, thank you for the color. Yes, congratulations again for the direct delivery. Thank you.

Thank you.

Thank you. Now we're going to take our next question. And the next question comes from Lan of Ting Song from Goldman Sachs. Your line is open. Please ask the question.

Hi. Thank you for taking my question. So I will ask it together. My first question is about the progress of EHang obtaining the TC of VT-30. As we see that the VT-30 and EH216 is in different sizes and features. So what are the key challenges of VT-30 where you developed compared to the EH216? And my second question is on the R&D spending. So what's your expectation of R&D spending in the next three years and what would be your key focus on the R&D investment? Will you spend more on the new model or the enhancement of the existing model? Thank you.

[Foreign Language] [interpreted] This is the English translation. Leveraging the VT-30 prototype, our R&D team is currently redesigning and upgrading our lift-and-cruise eVTOL model for enhancing the back performance. And we will keep you updated on this and we will also submit the TC application for our lift-and-cruise model once it's released. And since the EH216-S now has three required certificates. So our main focus is on its sales and operations. And the EH216-S is perfect for the air transportation within the city, because it is compact and it does not need large take-off and landing areas. While the VT-30 series lift-and-cruise model is meant to complement our current product portfolio and use cases, and it is designed specifically for intercity air transportation. It's not a replacement for the EHang 216-S. That is suitable for the air taxi uses within the urban area. Thank you.

Okay. This is Conor. I'll answer the second question regarding R&D. On the second quarter, R&D expenses is about adjusted [Technical Difficulty]. So going forward, we expect that the R&D expenses will be around 45% to 50% of our total OpEx. And we are committed to our R&D development. And for example if you compare the number of first quarter R&D expenses, actually we have increased about 42% of R&D expenses for first quarter. And our future R&D efforts will focus on optimizing the EH216 performance improvement and developing the long haul eVTOLs and other aircraft for both passenger carry as well as [indiscernible]. And that will include expenses on the R&D materials and our R&D team expansion, test flight, and airworthiness certification expenses. I would say that we believe our gross rate of revenue will be -- year-over-year, will be a lot higher than overall OpEx. So even though we continue to increase our R&D expenses, the R&D expenses as a percentage of the revenue will continue to drop in the coming years. Thank you.

Thank you. Now we're going to take our next question. And the next question comes from the line of Cindy Wang from Morgan Stanley. Your line is open. Please ask your question.

Thanks for taking my question and congratulations on remarkable 2Q results. My first question is regarding your order backlog. I see EHang has made significant progress in securing new orders. Could you give us a quick update on how many purchase orders we have on hand and when they will be delivered? And also, could we have a rough idea on geographic mix in terms of the older backlogs? So that's my first question.

[Foreign Language] [interpreted] Currently, our orders [Technical Difficulty] has over 1,100 units in the China market. We plan to deliver this batch over the next one to two years, per our customers' request and their business development and the pace of their placing orders. We are getting more and more new customers and orders, so we expect deliveries to keep growing. In the next phase, our focus will be on expanding production facilities, accelerating the deliveries of our existing order pipeline and new orders. And for this year, we will also help our customers to apply OC, setting up demonstration projects in pioneer cities to exemplify eVTOL operation. And in the future we aim to replicate this operational site and share our experience in more locations [indiscernible].

To add on your question about distribution on the geographic mix, the orders, if you recall that the fourth quarter last year and as well as the first quarter this year, are obviously over older revenue contributes around 20% to 25% percent of our total revenue. But since the [indiscernible] government has promoting no [Technical Difficulty] we're seeing a very rapid growth [Technical Difficulty]. So we're expecting that in terms of geographic mix that will be 90% from China for this year and next. And the percentage of the overseas revenue will decrease from last year, even though the international demand is still quite strong. Thank you.

Thank you. That's pretty comprehensive. And my second question is regarding gross margin. So how should we think about the gross margin over time, especially after we take up commercial operations?

Right, the gross margin, right now, we are the only company that can provide a product for commercialization. Therefore we have the pricing power even though as we scale up we will have a like a leverage in terms of procurement. On the other side, we continue to improve certain features of our 216. So net-net, after we get the TC we will still maintain a [indiscernible] plus growth margin [indiscernible]. In terms of the overall NIM margin, we have achieved adjusted [indiscernible] second quarter and as we have seen that very, very strong revenue growth. So we are expecting -- with the revenue growth rapidly [Technical Difficulty] net income margin will continue to improve in the next many years to come. Thank you.

Thank you.

Thank you. Now we're going to take our next question. And the question comes from the line of Cindy Huang from -- my apologies. From Yu Chen from Haitong Securities. Your line is open, please ask your question.

Congratulations for the company business program. And thank you for taking my question. I have two questions. The first one is, could the management provide some insight into the company's plans for EH216’s operations including the planning site commercial and pricing strategies for each flight from starting a commercial operation. My second question is, we noticed that the company is actively promoting the establishment of UAM operations sites and personnel training across various places. What is your current operation cooperation model with local governments or customers? [Foreign Language]

[Foreign Language] [interpreted] For your first question, besides the EHang General Aviation and Hefei Heyi Aviation, partners in Guangzhou, Shenzhen, Taiyuan, and Wuxi, among other cities, are also actively preparing their OC applications. Once the local operators have obtained the TC, they will first start operations at our new headquarters in Guangzhou and Hefei, Luogang Central Park and more sites in Shenzhen, Wuxi, Taiyuan, Wenchang, and starting from the area of sightseeing use cases. And throughout the process, we will accumulate operational experience and continuously refining our operational manual, which will serve as a reference for new operators to mitigate their operational risk and uncertainty. And for the question on the pricing, ever since seeing is constantly our targeted use cases. Compared to the helicopters, our price can be half of them or even lower. It's very competitive because the EHang 216-S acquisition cost and maintenance cost is much lower than a helicopter and we don't have pilot costs. Moreover the local governments are offering subsidies for eVTOL route operations. For example, in Shenzhen and Hefei, they plan to offer subsidies for eVTOL operators for air sightseeing and air transportation within and between cities. And the subsidies range from RMB100 to RMB300 per person for each flight. Thank you. And for your second question, the EHang General Aviation is our wholly owned subsidiary. It serves as an operation platform company to provide operational services to our customers, setting up demo projects and models. We have established a joint venture with the local government or partners through the EHang General Aviation to provide eVTOL operation services such as Heyi Aviation in Hefei and the Pengcheng Wing established with our customer boarding group in Shenzhen. So our cooperation model works like this. EHang provides the necessary support, including the after-sales services, operational guidance, technical specs, and the personnel training. While the government and customers, they are responsible for planning and building the infrastructure. The joint [Technical Difficulty] and operational team and system to obtain the OC for commercial operations. By working together, we can ensure the safe operations and create a commercial model that can be scaled up and replicated and sustained. Thank you.

Thank you for your answers.

Thank you. Now we're going to take our next question. Just give us a moment. The next question comes from [Gareth Zhao] (ph) from [TF Securities] (ph). Your line is open, please ask your question.

So, congratulations on company's outstanding performance this quarter. I have two questions. The first one is add-on, so do you expect to maintain the quality growth trend? Looking forward, how do you view the company's revenue growth trajectory?

Thank you for your question. This is Conor. In terms of pre-orders over 1,000 units in China. And our production has been steadily ramping up [indiscernible]. So we expect to maintain the revenue growth in the third quarter. So our guidance for the third quarter is RMB123 million. That's more than 300% [indiscernible] and 20% growth for the quarter. [indiscernible]market in China, there were 10,000 units in demand in 2016. And when it applies to transportation purpose in various cities in China that demand will be even larger together with the international demand. So we believe that we should achieve a very high growth rate for the next three to five years. Thank you.

Okay. Thank you. That's very clear. So my second question lies in overseas market. So we have noticed that we have expanding Middle East market recently. So what's your competition, like advantage in market like Middle East? Do these countries tend to favor a little model second fly longer distance?

[Foreign Language] [interpreted] Here is the translation of the answers to your question. EHang is the first eVTOL company to conduct test flights in the Middle East, which our first pilotless eVTOL flight in Dubai was back in 2016, sorry, 2017. In terms of the airworthiness certification, we also have an advantage over our peers. The UAE's General Civil Aviation Authority, or GCAA, is moving toward a framework agreement with CAAC for mutual recognition of airworthiness certification. We will be conducting some test flights for the GCAA within this year. And in May, we conducted the first passenger carrying flight in Abu Dhabi, making the first of its kind in the UAE with GCAA's approval. It's a very significant milestone that lays the foundation for our future VTC. And Abu Dhabi are planning UAE infrastructure now, including the [indiscernible] and the eVTOL terminals. We are very confident with the support of our local customers and partners in UAE and Saudi Arabia. We can be the first to commercialize eVTOL operations in the region. And we believe that the flight range is not a key issue for eVTOL’s. What really matters is to meet the needs of the passengers and the feed the specific use cases. We've been seeing growing interest and demand for EHang 216-s in the Middle East market, particularly for the urban air transportation. And we will be introducing a new type of aircraft to serve for more diverse [indiscernible]. Thank you.

Excuse me, Gareth, any further questions?

Thank you. Now we're going to take our next question. And the question comes from the line of [indiscernible] from [indiscernible] Security. Your line is open. Please ask your question.

Okay, thank you. So first, congratulations on the company's strong performance and business progress this quarter. Here I have two questions. So for the first, so I mean with the capital expansion plans underway in Guangzhou, Hefei and other locations, so could management provide more insight into its capital expansion plans and what can we expect in terms of the capital expenditure over the next two years? So it's my first question. Thank you.

Yes, thank you. In our current Yunfu facilities, we plan to do more automation. As you know, we have signed a strategic agreement partnership with GAC, and they have lots of experience in automation, in supply chain management. So in Guangdong Province, we will improve the automation in Yunfu factory, the current one, as well as we plan to build new facilities in Guangzhou together with GAC. And on the other side, Hefei will build assembly plant. That's our plan. So overall in the next year, we should add some additional 1,000 annual production for next year. In terms of CapEx, we're building our -- we're innovating our new headquarters. We're building a lot of facilities. We're building our R&D labs. Also building a test supply center and together with all these factory expansion. So we are expecting -- now expect the CapEx for 2024 will be about $15 million and CapEx for 2025 will be around $20 million. Thank you.

Okay thank you for your answers and my second question is, could management provide more information on recent ATM financing and as companies financial plans for the future?

Okay, thank you. Since April we have raised $76.2 million through our ATM program without disturbing the market. Our average price actually for all this $76 million, the average price is $16.5 per share. Right now with the rapid revenue growth and consistent positive cash flow from operation, we decide not to continue selling ADS under the ATM program for this year. And we're always looking for the best financing strategy and also the optimize our capital structure to help the company to build the strategy and also to drive our business growth. Thank you.

Okay. Thank you very much for your answer and congratulations again for the company. So thank you.

Thank you. Operator.

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

Thank you, Operator. Thank you all for participating in our today's call. If you have any further questions, please contact our IR team by email or participate in the following investor events through the Canada information provided on our IR website. We appreciate your interest and look forward to our next earnings call. Thank you.

That concludes our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.