Thank you for standing by. Welcome to the Energy Monster’s Second Quarter 2022 Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mars Cai, Chairman and CEO. Please go ahead.

Thank you. Welcome to our 2022 second quarter earnings conference call. Joining me on the call today are Mars Cai, Energy Monster’s Chairman and Chief Executive Officer; and Maria Xin, Chief Financial Officer. For today's agenda, management will discuss business updates, operation highlights, and financial performance for the second quarter of 2022. 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. 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 Chief Executive Officer, Mars Cai for the business and operation highlights.

Thank you, Hansen. Good day, everyone. Welcome to our 2022 second quarter earnings call. The second quarter of 2022 continued to be a challenging quarter for Energy Monster, due to a number of larger scale, COVID outbreaks notably in Shanghai, Beijing, Shenzhen and Chongqing. However, the impact of these outbreaks along with the lockdown measures implemented were better-than-expected as we were able to achieve revenues above our guidance. During the second quarter, we continue to expand our services to more locations across China. Total number of POIs has increased to 895,000 locations, an increase of 4% quarter-on-quarter and a 15% year-over-year. The total number of countries and country level regions with Energy Monster service has now reached 1,800 for the first time as we continue to strive to increase our coverage to reach more users that meet our service. The increased accessibility of our service has allowed us to attract 11.6 million newly registered users during the second quarter. That has put us at a new milestone as cumulatively registered users reached over 300 million for the first time. Even though COVID outbreaks continue to weigh us down financially, we continue to place ourselves for long-term success operationally through increased service coverage both in terms of POI count and regions covered and in terms of user coverage. Now it's for the impact of COVID on our operations during the second quarter. Let me share a bit more details on the impact. Whenever a region has active discovery of new COVID cases, a few things happen. A stricter COVID casting procedure is implemented at the regional level. This generally means that regional population has to take the recent COVID test results before entering commercial or public locations. With larger outbreaks, a number of commercial locations where our cabinets are typically placed…

Thank you, Mars. Now let me walk you through the financial results in greater detail. For the second quarter of 2022 revenues were RMB690.5 million, representing 29% year-over-year decrease. Revenues for our mobile device charging business were down 27.8% to RMB672.6 million and accounted for 97.4% of our total revenue for the quarter. The decrease was primarily attributable to the impact of COVID-19 during the second quarter of 2022, which resulted in a significant decline in general offline foot traffic in China, due to COVID-19 restrictions. Revenues from power bank sales were down 57.7% year-over-year to RMB13.3 million and accounted for 1.9% of our total revenues for the quarter. The decrease was primarily attributable to the impact of COVID-19 during the second quarter of 2022, which resulted in a significant decline in general offline foot traffic in China, due to COVID-19 restrictions. Other revenues were down 15.8% year-over-year to RMB4.5 million and accounting for 0.7% of our total revenues. The decrease was primarily attributable to the decrease in user traffic as a result of the impact of COVID-19 during the second quarter of 2022. Cost of revenues were up 17.4% year-over-year to RMB162.9 million for the second quarter of 2022. The increase of cost of revenues was primarily due to the recognition of impairments for inventory and equipment and the increase in maintenance cost, which was partially offset by the decrease in cost of product sold. Gross profit was down 36.7% year-over-year to RMB527.7 million for the second quarter of 2022. The decrease was primarily due to the decrease in revenues from mobile device tracking business. Operating expenses for second quarter of 2022 were RMB718.7 million, down 11.8% year-over-year. Excluding share based compensation, non-GAAP operating expenses was RMB711.5 million, representing a year-over-year decrease of 11.7%. Research and development expenses for…

Thank you. [Operator Instructions] The first question comes from [Lin] (ph) from GS. Please go ahead.

Thank you, management for taking my question. Can management give a bit more insight for the reason behind the increase in cost of revenues? And it will also be great if you can give a bit more color on the third quarters revenue guidance? And possibly any guidance on the bottom line? Thanks.

Thanks. I will take your question. The reason for the increase in cost of revenues was primarily due to a few things. First is the impact of COVID POIs, this has resulted a lot of closures of business where our cabinets are placed. And because of the disclosures, in some cases, our equipment become -- cannot be returned to us. This has resulted recognition of impairments for inventory and equipment during the quarter. There was also some actual maintenance cost this quarter, because we wanted to optimize some of our -- some of the orders’ equipment to give our users a better experience and maximize the lifetime value for those equipments. It was [indiscernible] as a percentage of revenue also increased because we’ll now have more POIs, but because of the COVID, the revenue per cabinet and power bank is down significantly during the second quarter. Overall, the primary reason for the increase in cost of revenues at percentage of revenue is still impact of COVID revenue. As for the guidance, we continue to see outbreaks during the quarter, although to a lesser degree, when compared to the second quarter. We were actually seeing the strong results in August as new large scale outbreaks were less frequently. Our GMV was able to grow year-on-year in August. Revenue operating such as one in Chengdu during the late August and other outbreaks in early September will rate down our recovery for the third quarter. Given that, we can't actually assess the development of these outbreaks, we will now offer any guidance on our probability. Thank you.

Thank you, Maria.

Next question comes from Charlie Chen from China Renaissance. Please go ahead.

Thank you, management for taking my questions. Could management give us more color on the current competitive landscape in this industry? Is competition escalating or you also mentioned that the company is acquiring new network partners at record speed? So I just want to understand how the company balances the two models strategically? Thank you.

Sure. Thanks for the question. As for competition, we are seeing a general decline in competition for POIs and especially for larger size POIs and KAs. Most of our peers in the market have significantly downsized their direct model scale and thus we are seeing a lot less competition for new signings across the board. Also because a number of our peers irrationally prioritize growth without much conservation of quality of growth. Energy Monster’s per POI quality is market leading. So when COVID came around, while we also experienced the challenges our peers faces even higher level of the pressure, due to the differences in POI quality. As a result, incentive fee rates for new signings during the second quarter continues to trend down due to the lower of -- lower level of competition. While it may take a bit of time for this decreasing competition to translate into financial metrics given that newer signings are only a portion of the total contracts. We are optimistic on the current trend. For the second question, on the balance of the two models, I think the balance between the two largely depends on maximizing values for our shareholders and stakeholders. We don't have any exact percentage target for GMV contribution between the two models, because both models are important to the company. Our network partner model is growing more quickly than our direct model during this quarter, because of the new program we introduced, which allows for our direct model BD people to also contribute to the acquisition of the new network partners. And because the network partner allows us to better mitigate risks coming from the COVID impact. We believe the network partner model will continue to be core driver of growth in the near future. But I think in long run, both models will be equally important to the company. Direct models advantage in terms of higher execution speed and ability to sign large KAs and network partners, advantage in coverage of long tail POIs and regions and risk mitigation shows that each model has its own set of advantages. So that's why we continue to innovate new ways for the models to work together and ultimately help Energy Monster increase its market share. Thank you for the question.

Thank you, Mars. Thank you very much.

Next question comes from Vicky Wei from Citi. Please go ahead.

Thanks management for taking my questions. I just want to get your perspective on the COVID given that these upgrades are happening on and off for some time now? How will the company cope with the pandemic if it continues to next year? Thank you.

Hi, thanks for the question. Yes, COVID outbreaks are very unpredictable and there's no way for us to know for sure when and where it will happen and the size of the outbreak. While the challenge is there, we are seeing a slight improvements in terms of the size of the outbreak, when compared to the second quarter. On a longer horizon perspective, we believe COVID impact will eventually diminish as containment measures become even more precise and the danger of the virus diminishes as well. That's why we continue to expand the scope of our service coverage and strengthen Energy Monster’s network effect. Because we remain very optimistic about the eventual, but permanent containment of COVID. But for the near future, we are prepared to coexist with COVID. We continue to find ways to reduce our exposure from COVID, namely in ways such as reducing upfront or fixed incentive fees, expanding our network partner count, increasing the efficiency of our business development personnel, optimizing our front and back end process and enhancing both software and hardware technologies. These are just some of the things that we focus on in order to increase our efficiency during COVID. I think when we are able to fully implement these initiatives, we can then really mitigate most COVID-related risks and really be able to coexist with COVID. But again, I think COVID will not be a long-term challenge, but the company is taking all measures necessary in order to reduce the short-term impact. Thank you.

Thank you.

There are no further questions at this time. I’ll now hand it back to 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 continued support and we look forward to speaking with you in the coming quarter. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.