EHang Holdings (NASDAQ:EH) Q3 2020 Earnings Call

0:00 Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Ehang Third Quarter 2020 Earnings Conference Call. At this time, all participants are in 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, we'll turn the call over to Julia Chan, Managing Director of the Blue Shirt Group Asia. Ms. Chan, please proceed.

0:30 Hello, everyone. Thank you all for joining us on today's conference call to discuss the company's financial result for the third quarter of 2020. We released the result early today. The press release is available on the company's website as well as from Newswire Services. On the call with me today are Mr. Hu Huazhi, Chief Executive Officer, Mr. Edward Shi, Chief Strategy Officer, and Mr. Richard Liu, Chief Financial Officer. Before we continue, Please note that today's discussion will contain forward-looking statements made under the Safe Harbor provision of the U.S. Private Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties.

1:16 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 filing 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 unless otherwise stated, all the figures mentioned during the conference call are in Chinese R&B. With that, let me now turn the call over to our CEO, Mr. Hu Huazhi. Mr. Hu will speak in Chinese, then our CSO Edward will translate his comments into English. Please go ahead, Mr. Hu.

2:00 Hello, everyone. I am Huazhi Hu, founder of Yihang. As a pioneer in the global UAM industry, in the past few years, we have accumulated and delivered more than 100 Yihang 216 self-driving aircraft in the world, and completed tens of thousands of safe flights. There has never been a single accident. This is an amazing achievement for a innovative manned self-driving aircraft. A large number of actual flights have fully verified our unique full backup security system. Now, We have come from providing professional product technology to the development stage of establishing a commercial operating system. For this, we still have a lot of homework to do. Countless safe flights have set the foundation for us to enter the mass production stage. Yihang has just completed the verification and display flight of UAM in South Korea.

2:48 On the basis of the original order, the new order of South Korea has been added. The quality of the aircraft is always our first priority. The current factories are unable to meet the large production needs. In order to ensure the production of high-quality products, we have built a new production base of 40,000 square meters in Yunfu City, Guangdong, that can produce 600 units per year. More importantly, we have to establish a set of industrial standards and systems from design, production, to operation. Chen Xiaxin came to do the design and construction of basic facilities, including automated airport facilities, etc. gradually form a perfect operating system like the current Minghang Airport. This is also an important measure to ensure the safe operation of Yihang 216. Now, we have formed a whole set of AAV technology platforms with independent intellectual property rights, and we will be able to generate and accumulate in the hardware and software supply chain field. We will release more AAV models that are suitable for mid- and long-distance flights, and we will be able to generate and accumulate in the hardware and software supply chain field. We will release more AAV models that are suitable for mid- and long-distance flights, The scope of operation is gradually expanding.

3:58 In terms of new products, while Yihang 216F fire version is constantly getting one-off orders, we are accelerating its fire equipment certification. The State Council also announced that it will accelerate the industrial upgrade and practical application of fire drones. It will also become a strong driving force for our income growth in the next few years with Yihang 216 fire version and logistics version. In terms of policy regulations, we are accelerating the promotion. In China, in 2018, we achieved the pilot test of the Civil Aviation Bureau. Recently, the Civil Aviation Bureau has just announced 13 policies for civilian unmanned aircraft test areas. The State Council also announced last week the plan to include urban air traffic into the national strategy. With the government's promotion, the basic facilities are gradually completed. In addition, we will officially obtain the pilot license of the E-air 216 in 2021. Well, I'll do the translation for Mr.

4:56 Hu. Hello, everyone. I'm Huazhi Hu, founder and CEO of EHAM. As the first mover in the global UAM industry,

5:20 We have already delivered over 100 units of Ehang 216 passenger-grade autonomous aerial vehicles or AAVs cumulatively in China and in the world. We have completed near 10,000 safe flights worldwide with zero accidents. This is an amazing accomplishment for such an innovative passenger-grade AAV. Our proprietary full redundancy safety systems have been fully testified by the abundance of real flights. Now we are entering into the next stage of development from a pure OEM provider, professional products and technologies to a platform operator setting necessary rules and standards for commercial operation systems.

6:05 To achieve this goal, we still have a lot to do. Numerous safe flights have laid a solid foundation for us to start the mass production. We have just completed public trial flights for verifying and demonstrating the UAM use cases in Korea, which help to generate new orders from the Korean market. The quality of our AEVs always remains our top priority. Since our current production facility can no longer meet the needs of the mass production, We decided to build a new production facility in Guangdong Yunfu with an area of 40,000 square meters and the planned initial annual capacity of 600 units passenger-grade AAVs. More important, we will establish a complete set of industry standards and systems from designing, production, and operations and we will devote ourselves to designing and developing the infrastructure including the automated vertiport so as to gradually establish an integrated operating system like that existing airport. This is also an important measure to ensure the safe operations of Ehang 216. Today, we have developed an integrated AV technology platform with proprietary intellectual properties leveraging our experiences and expertise in the fields of hardware, software, and supply chains.

7:34 We will release more AEV models with different payload levels to meet the demands for mid-haul and long-haul flights, thus gradually expanding the operational range of autonomous air mobility. In terms of new products, while we continue to accumulate potential orders of the Ehang 216F We are accelerating the official certification process. Meanwhile, China's State Council has also proposed to accelerate the industrial upgrade and the practical applications of firefighting unmanned aerial vehicles. The Ehang 216 AAVs, including the passenger version, The firefighting version and the logistic version are expected to be key revenue drivers in the years to come.

8:28 In respect of policies and regulations, we are trying to push forward the process. in China received an approval from the Civil Aviation Administration of China for airworthiness certification pilot and trial operation programs as early as 2018. Recently, the CAC announced 13 selected cities as the Civil Unmanned Aviation Experimental Zones. Just recently in last week, China State Council also urged to include UAM development into the national strategies. With the government's support and the relevant infrastructure upgrade, we will receive the Airworthiness Certificate for Ehang 216 in 2021 and begin to provide commercial operation services.

9:23 The commercialization of UAM will definitely be realized sooner than expected. So let's embrace the future together. Next, our Chief Strategy Officer Edward Xu will provide the operational and the business updates.

9:40 Thank you.

9:41 Well, those were Mr. Hu's remarks. Now let me cover some of our business achievements in the quarter of this year. As Mr. Hu just mentioned, we delivered a strong quarter with impressive business progress and solid financial results. The sales of our flagship passenger-grade AAV Yihang 216 reached 23 units Two were the newly launched Yihang 216F a firefighting version of Yihang 216 This version is a specially designed AAV for air firefighting solution especially for high-rise buildings In a recent secular published by the China State Council It stressed the need of innovation for emergency response to fires with application of UAV technologies.

10:33 So, we believe the launch of the Ehang 216F was the right time to meet the potential market demand. With an operational altitude of up to 600 meters, the Ehang 216F is superior to conventional extinguisher equipment for high-rise fires. Given a large payload, Ehang 216F is the world's first AAV for aerial firefighting. It can carry 150 liters of extinguishing foams and six fire projectiles in a single trip. Our cluster management techniques allow us to operate the AAV in a fleet through the remote ground control stations. So far, we see significant market demands and strong interest from China's emergency management departments and fire departments at all levels.

11:27 In September, we launched another new product, Ehang 216L, an aerial logistic version of the tool Ehang 216. This is a multi-rotor AAV with a record payload for short to medium-haul air logistics in both urban and rural areas. This model opened up more commercial opportunities for various urban and rural area logistic uses that require frequent and point-to-point deliveries, including large parcel deliveries, agricultural product transportation, offshore transportation, area emergency response and disaster relief, etc. As a world-leading AAV company, We are committed to explore new products and solutions to meet the high demand for AAVs to solve problems and to empower our smart cities in China and overseas Moving forward, we have a robust new product pipeline and will continue to develop more use cases to further accelerate the commercialization of AAV technologies and air mobility solutions Moving to our business expansion We announced in July to set up a new production line in Guangdong Yunfu to meet the increasing market demand for AEVs This will complement to our existing facilities in Guangzhou With local government support

12:59 the Yunfu factory is expected to start production in the first half of 2021 with an initial capacity of 600 units per annum especially for Yi Hang 216F The Yunfu factory will feature an R&D facility and a training center for air mobility. We are excited about this new project, which is expected to bolster our capability to meet increasing demand for AEVs in China. In this quarter, we also made several meaningful regulatory breakthroughs. In July, EHang 2016 was awarded a special flight operations certificate by the Transport Canada Civil Aviation, with which trial flights of the Ehang 216 have been permitted and are routinely conducted in Quebec Province, Canada. This was the first of this kind permit for periodic operations of passenger-grade AAVs in North America, which marked an important milestone in regulatory breakthroughs for Ehang 216 in international markets.

14:13 Furthermore, in August, we were selected to join Ambula, an international project supported by the International Civil Aviation Organization, IQ, which is developing a flying ambulance for emergency medical uses. As the first company in the world to launch and commercialize passenger-grade AAVs, we will contribute the necessary hardware such as rotors and motors to the Ambula project. We are excited to join the IQ-supported AMBULAR project where we can work with industry leaders to fulfill the mission of saving critical minutes in emergencies by leveraging our unique technologies and practical experiences Most recently, we continue to obtain a series of significant favorable policies and regulatory breakthroughs paving the way for our air mobility operations in China and globally For example, in October the Civil Aviation Administration of China or CAAC approved 13 cities including Beijing, Shanghai, Hezhou, etc.

15:22 to be the unmanned civil aviation experimental zones to accelerate the growth of the UAM industry for various use cases We are an important force behind this initiative and supported several cities to obtain the approvals In late November The General Office of the State Council of the PRC issued a circular which urges to bring UAM development into China's national strategies and formulate relevant policies, standards, and legislations. The potential applications of firefighting UAVs were also emphasized by the State Council. It reflects China's government's Great emphasis and strategic support for the new UAM industry and should lay a solid regulatory foundation for the industry We think this will pave the way for China to become the world's largest UAM industry market and for us to strengthen our leadership and growth momentum Notably, our progress in overseas market is equally important In Asia We obtained a special certificate of airworthiness, or SAC, for the Yi Hang 216 from Korea Ministry of Land, Infrastructure, and Transportation in November, a first SAC ever issued to a passenger-grade AAV in Korea. Furthermore, we have successfully conducted maiden flights in

16:56 the center of Seoul, Daegu, and Jeju Island for different use cases. including emergency medical service and aerial sightseeing. This is a significant milestone marked our starting point to explore the UAM market in Korea. Moving forward, we will further expand the UAM pilot city network and achieve regulatory breakthroughs in more countries and global organizations, paving the way for global expansion after the virus is contained. To conclude, We continue to deliver solid performance in this quarter. We are optimistic about our long-term outlook of the UAM industry and we believe our first mover advantage will enable us to drive robust growth in the near future.

17:51 Now I will turn it over to our CFO, Mr. Richard Liu, to provide the financial details for this quarter. Richard, please go ahead, thank you.

18:05 Thank you, Edward, and hello to everyone on the call. Before I go into details about our financial results, please note that all numbers presented are in RMB, and presented changes refer to year-over-year comparisons, unless otherwise specified. Detailed analysis is contained in an earnings press release, which is available on our IR website. I'm going to highlight some of the key points here. We achieved the highest quarterly revenue and gross profit in the company's history this quarter. Total revenues were 71 million, up 104.3% year-over-year, with growth across the main revenue streams. Our core business of air mobility solutions represented 49% of the total revenues.

18:52 South of the Yihang 216, the company's flagship passenger grid AAV reached 23 units, including two units of the firefighting version, the Yihang 216F, compared with 18 units in Q3 last year. Gross profit was 42 median, up 120.3%. Gross margin reached as high as 59.2%, up 4.3 percentage points from 54.9% in Q3 last year. This was mainly driven by the optimization of cost structure of certain products, and changes in revenue mix. This reflects our competitive value resulting from our leadership and the first mover advantage in the industry.

19:39 Adjusted operating expenses, excluding share-based compensation, increased by 41.2% to 37.9 million. As a percentage of total revenues, it was 53.4% as compared to 77.3% in Q3 2019. The increases were mainly due to higher R&D expenses related to the continuously strengthened product development efforts and additional G&A expenses related to public company operations and approved provisions in light of COVID-19 involvement. As revenues continue to ramp up, there is operating leverage that supports a path towards operating profitability.

20:24 Along this line, we have again achieved the quarterly adjusted operating profitability this quarter following Q4 last year. Adjusted operating profit was $4.5 million compared with adjusted operating loss of $7.4 million in Q3 2019. Adjusted operating margin was 6.4% compared to negative 21.2% in Q3 last year. We further achieved $5.3 million adjusted net income with a net margin of 7.4% compared with adjusted net loss of $7 million in the same period last year. Looking at our balance sheet and cash flow, we ended the quarter with roughly $243 million in cash, cash equivalent and short-term investments.

21:12 Overall, the financial results in Q3 were solid with record high positive revenues and gross profit. and we will achieve the second quarterly adjusted operating profit and net income despite the continuous impact from the COVID-19 pandemic. Now let's turn to the outlook. Due to continuous uncertainty surrounding the impact and duration of the COVID-19 pandemic in China and international markets, we are adjusting our outlook for 2020 to at least 50% growth in annual revenues. Having said that, we have become more optimistic and confident in our long-term growth outlook, given the increase in practical uses and demands for AAVs, and a stronger government emphasis on supporting the industry growth in the global UN markets, especially in China.

22:03 With that, we conclude our prepared remarks for today. Let's now open the call for questions. Operator, please go ahead. Thank you. Ladies and gentlemen, we'll now begin the question and answer session. For your questions, please press star and the number one and wait for your name to be announced. To cancel the request, please press the pound or hash key. Once again, please press star and the number one to ask a question. First question comes from the line of Tim Fiao of Morgan Stanley. Please go ahead.

22:42 Hi, Mr. Hu, Edward, Richard. Thanks for taking my questions. Basically, I have three quick questions. The first one, could you share a little bit about the progress in all the government parties you have won? In terms of percentage, what kind of older contribution is now coming from the government? and do we need to wait till the Airworthiness Certificate? I think we can get that next year before the mass production for the government. My second question is about our current revenue or business model because we noticed that the third quarter revenue significantly outgrow the volume growth for the EHON AAV.

23:32 So just wondering if there's any change to our business model or CoinMix or the business mix. And my last question is about the outlook. I know it might be a bit early but could you please comment a little bit on the 2021 outlook for next year and probably specify what would be the key drivers for the growth here. Thank you. Thank you, Tim. This is Edward. I'll take your first question. So regarding the progress of the government project, right, so basically we secured a partnership with the two city governments in Spain.

24:18 One is Sevilla, the other is Liria. And so far the two projects have done so far so good. We have started the test flights and are pushing forward the regulatory process for Yihang 216 in Spain for further certification. And also another project is in China. It's a smart city management project in Hezhou. We are providing the command control center for the government. And so far, the project is going well.

24:55 Thank you.

25:07 Let me tell you the three. Good question. Answered by Mr. Hu.

25:12 This is a commercial room. We have now added a new commercial room. In fact, we used to focus on sales and flying. But since the third quarter, we have been doing a lot of flying work in the past two years. And this is like back then, and even 100 years ago, Boeing and Maidao formed an air traffic system. We are now forming an air traffic system that not only provides drivers with driver's license, but also provides an air traffic system that every ordinary person can use. Therefore, we need to take the initiative Let me just translate what Mr. Hu said. In the third quarter, actually we are experiencing a change in our business model or we are having

26:28 Newmark, because previously we have been working as an OEM provider. We are selling our equipment, but we realized that we are going to be operating our system and equipment. So that means given a lot of this flight data accumulated so far, we are able to provide the real operation by ourselves to our customers. This is just like 100 years ago when Boeing and Airbus are providing the whole new air transportation to the society.

27:13 However, it's different that we are not providing this to the pilots. We are providing the service to every normal person without any flying So that means we are going to lead, take the lead to launch the operation model.

27:35 Thank you. Let me add a few more words. In the past few years, we have been very, very clear about our feelings. Our aircraft is already carrying a large number of people, and we already have a large number of aircraft and our clients. So at this stage, we should create better rules and standards so that we can have a standardized model. So this is what we are doing together with the Chinese Civil Affairs Bureau. These things are for the future, so that every ordinary person can feel these things. It's like a standardized process for a flight. This is very important. The most important reason for these things is to ensure

28:26 Okay, given our performance in the past few quarters, and we are realizing that the standards and operation framework is very, very important. And so we need to formulate the process and the standards for operation and actually our customers have received our AEVs and they are trying to launch the operation but as a platform operator we need to set the standard for them and so we are also working closely with CAEC in setting the right standards and so we believe that safety always remains our top priority and so we need to get the standards right and so as to provide the safe service to the normal person.

29:32 Okay.

29:33 Okay. And the third question?

29:36 Richard. This is Richard Liu. Team, I will take your third question. I understand your third question was regarding any for the next year. As referring to our latest press release, quoting the latest circular issued by the State Council, we are currently assessing the situation, but definitely this circular will stimulate the future demand and which will lead to more orders in the future. Thank you.

30:20 Okay, got it. Very clear. Thank you very much, management team.

30:23 Thank you. Thank you. Next question is from the line of Vincent Yu of Needham and Company. Please go ahead.

30:37 Thank you, management, for taking my question. I have three questions. The first one is about the government's support and the regulation. So with regard to the circular release by the State Council of PRC, have we seen any progress made in the regulatory front in terms of like state subsidy or incentive for manufacturers? My second question is about the margin trends post-COVID with the new firefighting products line as we have already started selling these products. And my third question is actually about the guidance. Actually, in the beginning of the year, we said the guidance is at least 200%. So obviously, due to the COVID, we see in these earnings, we said that we are going to lower it to 50%. It's still a pretty high number, but a big difference compared with the number we previously set. So I'm wondering, So, wondering for, like, is that just order got delayed?

31:47 We were going to have it, like, receive it in the next year? Because, like, in terms of international delivery or any other reason? 谢谢,我很快翻一下吧。 就是我有三个问题。 第一个问题是关于这个政府监管和支持方面。 那我们也说这个政府也比较重视这一块。 I would like to ask, in the future, do we think that the government is supporting or giving some changes or benefits to some of the infrastructure of our manufacturers? The second question is about the changes in our labor interests. Because our fire products are starting to be sold, what changes will there be in the future in terms of profits?

32:39 The third question is about our revenue in 2020. Previously, we said that it was at least 200% growth, and now it seems that we have gone down because of the new crown. But the main thing I want to know is that because of the new crown, for example, the reason for the opening of the port, What is your first question? It is very clear that we see more and more positive attitudes and messages sent by the government, including

33:34 You know, the CAC and the State Council, you know, for example, CAC recently selected 13 cities to be the experimental city for unmanned aviation zones in China. And specifically, Yihang, we had a connection with at least three of them. And this would give us a good opportunity to test the flight, our Yihang 26, and also these can expedite our process of certification. And more importantly, just in last week, we had the State Council's circular, which stressed three points.

34:19 One is that it specifically mentioned that UAM development is going to be a national strategy in China. Understand that the government feel the urge because we The Korea and Japan Both countries have elevated this UAM development into their national strategy. And so China, the government, it is very good to hear that government realize this problem and also see the potential for this industry. So after including UAM into the national strategy, this will be a very important critical factor for the development of the whole industry.

35:04 and understand that we are the industry leader, and so we should be the key beneficiary of this policy change. And secondly, they specifically mentioned that it urged the acceleration of the legislation for the UAV in China, given the fast development of the industry. And so we understand that an improved legislative framework will do more good for the industry. specifically mentioned that for the firefighting and emergency service in China, we need to adopt the technology of the UAV. And just in the right time, we launched the firefighting version of Yihang 216, which can just meet the demand for such a product. And so three of the points of the State Council's succor are very positive messages for Yi Han. Thank you.

36:07 This is Richard Liu. I'm going to take your second question. So in respect of our gross margin, we have seen our gross margin maintain at a stable high level of around 50% plus. since we started commercial delivery in the first half of last year. If you look at other electrical transportation technology products such as electrical cars, our gross margin is much higher. So in respect of our new model, firefighting model, the gross margin is expected to be in line with that of the other existing models. And overall, it is expected our gross margin will be maintained at a similar level, 50% plus going forward.

37:02 And your third question, so basically, we just did the 2020 annual revenue guidance, mainly because the extended impacts of the COVID-19 pandemic caused delays in our business development. mainly including FIRST, as our CEO, Mr. Hu, mentioned. Comprehensive infrastructure is needed for operation service, and some of our customers have been developing the infrastructure, including the vertipot. The original plan was to complete the infrastructure in Q4, but due to the extended impact of COVID, The development of the infrastructure has been delayed, resulting in postponed customer pickup of our products into next year.

37:56 And second, we released the firefighting model at the end of July. After that, we have attracted strong interest from emergency management departments and firefighting equipment customers. Actually, there is increasing number of potential orders in discussion. However, because this is a type of special requirement, it requires special equipment certification before official sales can be effective. We have been trying to accelerate the certification process after the release in July in order to make up the time lost due to the virus outbreak.

38:43 and aim to get it before the year end. As the COVID outbreak research, now it is expected the certification will be completed around next Q2. So the self-plan of this firefighting model in 2020 has to be postponed to next year. And third, at the beginning of the year, It was planned for the European markets to generate important business leads and revenues. For this goal, we not only form a local operating team, but also obtain the flight permits such as the one in Norway and establish partnership with two Spanish cities.

39:33 But the severe pandemic situation in Europe hindered our business execution. Although in Q3, we had tried our best to speed up the execution to make up for the time lost, the rebounded, as all of you know, the rebounded pandemic in Europe hindered us again. So to sum up, based on the latest evaluation, we adjust the guidance for a proven purpose. Having said that, it is expected to be a temporary situation. As our CEO pointed out, based on our new development, especially the latest breakthroughs of the Chinese government's policies and strategies, we are more confident in the company's sustained long-term fast-growth prospects.

40:29 Hope this answers your question. Thank you.

40:33 Yes, very much. Thank you very much. Thank you. Next question is from the line of Arvind Moni of Wellington Management. Please go ahead.

40:47 Hi, good evening. Hi, Edward. Hi, Mr. Hu and Richard. Thanks for doing the call. So maybe going back to a few questions before and just to try and understand your business model better, you know, can you kind of give us a sense of how you move from being an OEM to being kind of following a Command Control Center model and how that is impacting your kind of receivables. So if I do look at your outstanding receivables at the end of the quarter, you know, it's quite a substantial increase from the corresponding period. So I just want to understand how your business model is evolving. What are your credit terms? I think the last time we spoke, you know, you kind of managed the Command Control Center for maybe like six months.

41:40 Let me translate this to Mr. Hu and he will take the question.

42:39 Okay, I will translate the first.

43:08 We are not saying that we are going to change our business model. We are just adding new business to our existing platform. For example, previously we were an OEM provider. We didn't manage to operate the AAVs by ourselves. But we understand that now we are going to operate the AAVs or platforms by ourselves. It seems that we are changing from a pure airline manufacturing company into an airline operating company. So the two business models are integrated.

43:50 In the past few years, I think the biggest value of our bank has been to verify the needs of personal flights, especially during the pandemic. And second, we realized that the value of Yihang is that we are providing the individual or customized transportation mobility services to each individuals. For example, during the COVID-19,

44:31 In many countries, the public transportation has been suspended due to the outbreak of the virus. But the individual mobility transportation becomes important. So e-housing is providing the mobility service to individuals by these AEVs. So this definitely shows the value of our company, of our product. So far we have built five command and control centers in China, and meanwhile, We are building a new one in Europe, in Azerbaijan specifically.

45:33 So given these command control centers, we are able to manage the operation of all our AAVs very well, very smoothly.

45:44 这些调度中心在欧洲、美国、阿塞拜加还有中国,这些调度中心不仅仅还有日本还有韩国。 These command centers are not only for our 216. These command centers can also help them to build smart cities. These, for example, include the inspection of high-speed work, as well as the environmental inspection. These related work can be done. So we can build command centers while doing this kind of business. At the same time, we can also help 216 in the future, including 216.

46:29 So all these command control centers actually help to improve the management of all our AAVs, not only to Yihang 216, but to the other AAVs. to be applied in different use cases such as the highway inspection, the environmental protection, et cetera, and to help to realize the smart city management function. So we are going to build more command control centers Not only in China, but maybe in Japan, in Korea, in future So all these command control centers are formed a good integrated network So that we are able to manage the operation of our AUV as well At the same time, we are also completing such system construction in China That is, we are still working hard to build some basic facilities For example, the take-off and landing platforms of aircraft

47:30 These take-off and landing platforms will gradually increase their number of points. In this way, there are many take-off and landing platforms in a similar city. We can connect each of these take-off and landing platforms to become an airline. In this way, for the user, as long as he chooses his destination on the plane, and then directly click take-off, the whole operation will be completed.

47:54 In this way, all ordinary people can really use this plane. and specifically in China, we are completing our infrastructure, including the landing pads and the vertiports, etc. So with more We are going to build a more complete network and so that the individual customers or passengers can use our service more conveniently.

48:29 So in the future, you will see that our command and control center will have more people. At the same time, it can not only drive the operation of 216, but also generate some information related to the smart city. So in the future, we are going to see more and more of our command and control centers being built in different cities.

49:07 So this will not only improve the operation of our Yihang 216 passenger AAV, but also can help to improve the smart city management for the local government, and which may generate more revenues for us.

49:22 So in our Yihang 216, we haven't made any improvements, including our transport, logistics, and smart cities. and our air media can expand the business based on the holding center.

49:44 So actually if you look at our business model and with the revenue mix, so there is nothing to be reduced from our previous structure. We didn't cut any of our existing services, but we are going to add this self-operation and so on. Okay, that's all Mr. Hu's answer.

50:13 If I don't mind a follow-up just on this one. So can you sort of in an ideal situation, let's say for example when you're working with the Herzog government, let's say you build the infrastructure, you manage the command and control center for six months, when does receivables start flowing in? Is it after handing over What is the usual sort of business terms? That's one. And the other one is more kind of a question on smart city. There are other companies in China. I recently spoke to a company called Rock Control. And they are doing basically video-based IoT, AI sort of integration with smart cities.

51:02 where, for example, traffic management is managed by stationary cameras, for example. But they're also talking about a control center based on kind of fixed camera placements across various key parts of the city. So how do kind of local governments think about, you know, these multiple solutions? Do they go for a mobile solution like yours? Are you talking to companies like this to kind of come up with a better and more integrated solution If you can kind of give us an insight on how this is playing out with the government, that would be great to know.

51:38 Okay, thank you. Let me translate the question first. The first thing he said is that, for example, in Hezhou, we will transfer it to the government after six months. Then what about our income? This may be Richard's answer. First of all, Hezhou is now the main traffic center. We will first collect its construction fees.

52:02 At the same time, we are now working with various departments of the government to make the last connection of this application scene. In this case, we will have two income in the future. The first one is that we will Okay, Mr. Hu, answer your first question.

52:51 specifically our project in Hezhou for building this command control center will get a one-off fee or revenue from the government for building this command control center and the second we're going to charge the service fees for operating this command control center for the government and so basically there are two portions of the revenues first is a fixed amount of revenues for In addition, we have another model in which some governments will buy more aircraft. Of course, not only 216, but also some aircraft for other industries.

53:35 These aircraft will make more points in each city. Additionally, the government may consider purchasing more AAVs from us, not only the Yihang 216 passenger AAV, but some industrial application AAVs.

54:18 For example, the 3D mapping will be one of the functions the government will need. And so meanwhile, we are also going to provide the training services for the government, which may generate additional revenues. Let me translate your second question. The second question is that the smart city management we talked about is a dynamic management using drones. There are some smart city management companies in the market now. They use fixed cameras and monitors to provide this service to cities. How does the government consider the smart city management of drones like us and other smart city management companies that are existing?

55:03 There is a big difference. First of all, let's take an example. Like Shaoguan and Hezhou.

55:16 We are doing forest fire protection for them. If you use a fixed camera, the angle of their observation and the area they see are all very different. So we will let these planes scan these related places automatically every day in the fire prevention area. At the same time, the small planes will scan and destroy them when they find the fire. So first we see there are big differences between our UAV smart city management model and the other static

56:11 for example, one of the application scenario is that for our command control center in Shao Guan and He Zhou a major function is for forest firefighting prevention and so normally you cannot rely on static camera to detect the forest fires and so our UAVs, our AAVs can fly for the patrol and inspection and detection of fires. And once the fire has been detected, we are going to send our firefighting version to put out the fires. So this is something that's not possible by the normal smart city management systems.

57:02 So this is our unique application. OK. Okay.

57:10 Thank you very much, Edward. Thank you, Mr. Hu and Richard. Thank you. Thank you. And seeing no more questions in the queue, we're going to call back to Mr. Liu for closing remarks. Mr. Liu, back to you.

57:40 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 program. Thank you all again, and this concludes the call. You may now disconnect.