Hello, and thank you for standing by for Energy Monster's 2021 Second Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference call, Director of Investor Relations, Hansen Shi. Please go ahead.

Thank you. Welcome to our 2021 second quarter earnings conference call. Joining me on the call today are Mars Cai, Energy Monster's Chairman and CEO; and Maria Xin, Chief Financial Officer. For today's agenda, management team will discuss business updates, operation highlights and financial performance for the second quarter of 2021. Before we continue, I refer you to our safe harbor statement in the earnings press release, which applies to this call as we will be making forward-looking statements. Also, this call includes discussion of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this call are in RMB. I would now like to turn the call over to our Chairman and CEO, Mars Cai, for the business and operation highlights.

Thank you, Hansen. Good day, everyone. Welcome to our 2021 second quarter earnings call. We are so pleased to announce the solid second quarter results, with revenue growing 52.9% year-over-year, which is above the upper end of our previous guidance range. During the second quarter, the outperformance of certain regions, such as Eastern China, and the rapid expansion of our POI coverage positively contributed to our growth, while the impact of COVID weighed down our growth for other regions. Despite facing these external factors, we are committed to remain in focus on our long-term strategies of providing best-in-class services and value proposition to our users, location partners and network partners. The scale of our mobile device charging service network also expanded quickly during the quarter, with POIs growing 55,000 to reach 771,000 and number of power banks in circulation growing by 390,000 to reach 6 million by the end of the second quarter. As a result of continued POI and power bank expansion, we were able to reinforce our leadership and grow our market share to 35.2% within the mobile device charging service industry during the first half of 2021. We continue to see multiple drivers propelling forward the fast-growing mobile device charging service industry. First, industry penetration rate of potential POIs remains low. Opportunities in terms of increasing penetration across different types of POIs for both existing higher and lower tier cities continue to be a core driver. Second, there continues to be a large number of counties that are unpenetrated for mobile device charging service. During the quarter, we newly add up 29 new countries, extending our coverage to over 1,600 counties and county-level districts as of the end of quarter out of the 2,846 total in China. This means there continues to be significant opportunities in expanding…

Thank you, Marc. Now let me walk you through the financial results in greater detail. For the second quarter of 2021, revenues were CNY 972.4 million, representing 52.9% year-over-year increase. Revenues from mobile device charging business were up 51.6% year-over-year to CNY 931.6 million and accounted for 95.8% of our total revenues for the quarter. The increase was primarily attributable to the increase in the number of POIs and available-for-use power banks. Revenues for power bank sales were up 83.2% year-over-year to CNY 31.6 million and accounted for 3.2% of our total revenues for the quarter. The increase was primarily due to the increase in number of POIs, available-for-use power banks and customers that select to purchase the power bank. Other revenue were up 111.1% year-over-year to CNY 9.2 million and accounted for 0.9% of our total revenue. The increase was primarily attributable to the increase in users and advertisement efficiency. Cost of revenues were up 44.8% year-over-year to CNY 138.7 million for the second quarter of 2021. The increase of cost of revenues was primarily due to the increase in the operational scale, resulting in increase in maintenance costs, disposal costs and logistic expenses. Gross profit were up 54.3% year-over-year to CNY 833.7 million for the second quarter of 2021. The increase was primarily due to the increase in revenues from mobile device charging business. Gross margin for the second quarter of 2021 reached 85.7%. Operating expense for the second quarter of 2021 were CNY 814.8 million, up 52.6% year-over-year. Excluding share-based compensation, non-GAAP operating expenses were CNY 805.9 million, representing a year-over-year increase of 63.1 million -- 63.1 percentage. Research and development expenses for the second quarter of 2021 were CNY 20.5 million, up 25.3% year-over-year. The increase was primarily due to the increase in personnel-related expenses. Sales…

[Operator Instructions] Your first question comes from the line of Vicky Wei from Citi.

So would management share more insight on the guidance for the third quarter of 2021?

Thanks for your questions. So like you're asking, we give you a bit more insight on the guidance. Despite the impact of Guangdong COVID, our revenue were making a strong recovery during July. On a year-to-year basis, we see in early July the revenue growth was on track for more than 20% year-on-year. So -- however, since the Jiangsu COVID broke out, so Nanjing, Zhengzhou and Yangzhou, in that -- that kind of cities, overall revenue dropped more than 70% from the normalized level. So flat outbreak to the other cities, such as Beijing, Shanghai, Chengdu, Shenzhen have all resulted in the significant drops in revenue. For example, Shanghai, Beijing dropped more than 30% in the early August compared with the early July. However, we are confident that the impact from the COVID will be short-term impact in nature and that our company's fundamental are fully intact. And the user continues to have strong demand for our services that we saw we acquired a lot of new users during the past quarter. So going forward, we will continue to be the long-term advantage to deliver value for our shareholders. So in this quarter, guidance is a bit lower than which impacted by the COVID.

Your next question comes from the line of Lucy Li of Goldman Sachs.

So my question was related to the first one. Can management share with us more details on the impact of COVID-19 during the second quarter and a possible impact going forward into third quarter? And how do you think of like more frequent, I wouldn't say lockdowns, but local restrictions going forward?

Thank you, Mars speaking. To be honest, actually, even by end of May, I'm expecting that in this call I'm so proud to announce a first RMB 1 billion revenue quarter. But in June, actually, you can see that the COVID outbreak in Guangdong, which we just see in the field. So during the second quarter, the outbreak of COVID in Southern China, mostly Guangdong, was significant. At its peak, impacted region experienced a 70% to 80% of week-over-week decline. Overall, the impact of the outbreak in Southern China resulted in approximately RMB 20 million to RMB 30 million in revenue drop. So for the third quarter of 2021, the COVID outbreak, in combination with weather-induced problems, will negatively impact what has traditionally has been the peak quarter of the year, as I mentioned. We follow -- following the initial outbreak in Jiangsu, minor breaks across all places like Shanghai, even Shenzhen, are disrupting our recovery process towards normalized activity levels. Despite facing these external factors, we are committed to remaining focused on our long-term strategies of providing the best-in-class services and value proposition to our customers, location partners, users and network partners. That's why we were able to increase our market share in the first half of 2021. So I'm also pleased that even with the impact of COVID, we still hit the expectation of the top line of last quarter. So thank you.

[Operator Instructions] Your next question comes from the line of Charlie Chen of China Renaissance.

I got one question regarding competitive landscape. So can you give us more color on the current competitive situation? Are we seeing an increase in revenue-sharing percentage or a fixed entry fee amount? And how has another major competitor's exit, which we heard from the news, which is [ Matron ] from the direct model impacted the market?

Thank you for the question. Sure, we see that our peers shifted away from the direct model and moved towards the network partner model. Actually, it is a positive move for the market in the long run and will be healthy for the total industry. This will reduce the amount of aggressive business expansion with high revenue-sharing policies that some players are actually doing. And because there continues to be a large amount of potential within the industry and that we have industry-leading operational efficiency, we have increased the number of business development personnel in the quarter by over 400 people to better capture the market opportunity. Similarly, we have also rapidly increased our signings of KAs during the quarter by leveraging our large, on-the-ground team and also our ability to provide comprehensive service to the case. Lastly, for our network partners, we launched a campaign in the first quarter of 2021 to attract high-quality network partners with proven track record with us to more quickly increase their coverage in the lower-tier cities. So as a conclusion, on one side, we continue to do our best in terms of growth and efficiency for our direct sales model. On the other side, we keep doing better in terms of policy, also facilitate our network partners to become stronger players in the market to gain market share in lower tier cities. So I would say that in long run -- in midterm, the market will turn to be a more sustainable development because some of the players are shifting their business models which will lead to a less competitive environment for the industry. Thank you.

In terms of the revenue-sharing percentage, so the levels increased a bit on a quarter-on-quarter basis due to the large impact of COVID on the second quarter. So in the second quarter, the COVID impact around RMB 20 million to RMB 30 million in both the top line and the bottom line. So for the network partners, as Mars just mentioned, so the campaign -- the new campaign continues to help us to attract new network partners. During the past quarter, we acquired around 30 new network partners and delivered about 15,000 cabinets to our new network partners. Revenue sharing under this new campaign with network partners has a higher revenue-sharing percentage and have contributed to the increase in sales and marketing expenses. At the same time, we also increased our investment in the new initiatives, so are passed on the consumer products, and the launch of the Energy Monster's new online channels for the power bank have also contributed to the increase in the sales and marketing expenses both.

Your next question comes from the line of Lucy Li of Goldman Sachs.

I have a follow-up question. So we've seen a lot of regulations coming out recently on various industries, including, for example, Internet companies, but also logistics or transportation companies, including some of the pricing guidelines and the thesis on the mutual prosperity [Foreign Language]. So do we -- from our perspective, do we see regulator -- any potential of regulators trying to limit our pricing level? And if so, how would that impact our business or our revenue-sharing scheme with the -- with our -- either the POIs or the network partners?

Thank you very much for the question. We have been keeping very close eyes on the regulation part, actually since the very beginning of creating the company. So at this time, we are not under direct regulation by a specific government entity outside of the standard ones. So we are actively tracking all updates in regulation and we're fully compliant with the regulations and requirements implemented by the government. And so far, we don't see any potential that our operation will be influenced by certain potential regulation. So -- but still, every day actually, we are having this monitoring. And also, we have quite a good relationship with the government in the district level because we are one of their important start-up. So we are confident to have good management over this.

[Operator Instructions] We are now approaching the end of the conference call. I will now turn the call over to Energy Monster CFO, Maria Xin, for closing remarks.

Once again, thank you for joining us today. Please don't hesitate to contact us if you have any further questions. Thank you for your support, and we look forward to speaking with you in the coming months. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.