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Smart Share Global Limited misses on earnings expectations. Reported EPS is $-1.26 EPS, expectations were $-0.41.

Operator Hello and thank you for standing-by for Energy Monsters 2022 Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. 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.Hansen Shi Thank you. Welcome to our 2022 fourth quarter and fiscal year earnings conference call. Joining me on the call today are Mars Cai, Energy Monsters 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 fourth quarter and fiscal year 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. 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.Mars Cai Thank you, Hansen. Good day, ladies and gentlemen, welcome to our 2022 fourth quarter and full year earnings call.I would like to start-off with an overview of 2022. Last year and during the overall pandemic since 2020 the outbreaks of COVID had a significant impact on offline traffic causing a drastic reduction in number of people moving around the public spaces.

It was a period of significant challenge for our industry and a number of other offline retail related industries as COVID resulted in implementation of measures that caused the reduced mobility of the population.With the mobility of offline food traffic being single largest factor determining the result of our operation, COVID has significantly impacted us both in terms of scale and profitability.In the fourth quarter of last year, the impact of COVID continues to affect our operations due to quarantine and lockdown measures which resulted in a decline of revenue per power bank as well. October and November several regions experienced notable COVID outbreaks including Beijing and Xi’an starting from early October, Tongxin from early November, Chengdu from mid-November and Changchun from late November resulting in week-over-week GMV declines of 44%, 34%, 61%, 27% and 34%, respectively.When compared to the week prior to the outbreak.

Countermeasures against outbreaks directly impact the amount of food traffic passing our cabinets each day, reducing the revenue efficiency of our cabinets and power banks and increasing the closure rate of location partners.Although these outbreaks have been less severe than those experienced in Shanghai and Beijing during the second quarter of last year, the frequency of these outbreaks has increased throughout the fourth quarter continuing to weigh down our operational and financial performance. Shortly after the lifting of containment regulations in December, there was a massive surge in infections causing a significant amount of population to stay home and avoid public spaces.As a result, our mobile device charging service GMV in December, decreased by 34% nationwide.

Despite these challenges, we remain committed to adapting our strategies and operations to overcome these obstacles and emerge stronger than ever before.During 2022, we remain resilient and committed to delivering values to our customers and partners. We transitioned our operations to better mitigate the impact of COVID notably by increasing the contribution of network partner model and decreasing the use of entry fee or upfront fees for new signings.Our revenues for the fourth quarter exceeded our guidance as the recovery from COVID was better than our previous expectations. In mid-December the COVID restricted policies were lifted. Despite a search in active COVID cases starting in mid-December, we have seen undeniable sign of recovery.Since the lifting of quarantine restrictions, we are excited to see that the offline economy and food traffic has started to take-off particularly starting February.

Once the number of active infections peaked off, this trend is expected to continue unlocking the full recovery of offline food traffic and releasing the growth potential of industry here in China. While we are optimistic about the long-term outlook and general recovery of the industry, we remain vigilant and prepared to adapt to any challenges that may arise in the future.As we look back to 2022, it was also a year filled with milestones. We were able to continue attaining new achievements despite the impact from COVID. Our network has expanded significantly boosting an impressive 997,000 POI locations and 6.7 million power banks in circulation.Even though COVID has weighed down our ability to more quickly expand our coverage, we were still able to add 152,000 POIs and 1 million power banks in last year.

Additionally, we are delighted to have reached 333.7 million cumulative registered users across 1,800 counties and country level regions as of the end of last year.Despite the challenges posted by pandemic, we were able to achieve these milestones through our team’s adaptability, allowing us to emerge stronger than ever coming out of these three years. We have strategically positioned ourselves for continued success operationally even during the pandemic, ensuring that our services can meet the demand of our customers across China and positioning ourselves to capture the recovery and growth in the industry.During last year and throughout the pandemic, we were able to achieve two key objectives; effectively increasing our coverage and improving the efficiency of our operations by expanding our network coverage through a combination of direct and network partner models, we have been able to extend the Energy Monster network effect, which has made it more efficient for us to acquire users, location partners and network partners.At the same time, we have focused on improving our efficiency by reducing fixed incentive fee rates for new signings, lowering hardware CapEx per cabinet and increasing the efficiency of our employees.

These efforts have allowed us to optimize our resources and streamline our operations, positioning us for long-term success.While the pandemic has undoubtedly been a significant challenge on our business, we remain confident in our ability to adapt and overcome any challenges. As we look ahead, we will continue to prioritize expanding our coverage and improve efficiency to drive growth and achieve our strategy.Now let me go through our core strategies during the fourth quarter in terms of expanding our coverage and increasing our efficiency. First is our coverage expansion strategy, where our users continue to be one of the focal points of strategy. Our cumulative registered user base grew from 286.9 million at the end of 2021 to 333.7 million by end of last year.

Over the course of the year, we expanded our coverage by more than 100 new counties and country level districts, bringing our total coverage to 1,800 out of the 2,800 total here in China.Our mobile device charging service has become a necessity to users in China, fundamentally changing the way of life. To further improve the user experience, we continue to enhance our customer service during the course of 2022.We currently offer 24/7 support and a new feature on our mini program that allows customers to quickly receive automated feedback or support on common issues. Last year, the customer satisfaction rate reached about 90%. Our industry-leading customer service is one of the many ways we provide our customers with the ultimate experience, which help us further establish our brand reputation to more efficiently acquire new users and engage more of our existing users.In addition to providing the industry-leading experience, we also continue to expand the scale and reach of our service so that we can have the foundation to reach more customers.

We have seen healthy growth, both in terms of our POI and power banks during this year, with POI and power bank both grew by 18%. We have worked to increase coverage in all regions during the highs and lows of the pandemic and as offline food traffic continued its recovery trend. Our POI network will continue to grow in additional locations, making our service available to a wider range of users.As our market-leading brand continues to develop and our service continue to expand, the network effect between our user base and POI will become increasingly apparent. Energy Monster’s increase in POI coverage was primarily driven by our network partner model last year. POIs operated under the network partner model reached a historical high of 52.5% as of the end of fourth quarter compared to 47.4% last quarter and 38% during the same period in 2021.This growth is fueled by the increase in our network partner count and the growing synergy between our two models.

We continue to acquire network partners at record speed with a number of active network partners growing by more than sevenfold during the fourth quarter of 2022 when compared to the same period in the previous year.To further expand our network coverage, we launched the network partner program for our BD under the direct model in April of last year, which has proven to be widely popular among our direct model BD. This program gives them an alternative avenue to effectively increase Energy Monster’s coverage network, utilizing their extensive relationships with location partners and potential network partners.With the influx of new network partners, our collaboration after acquiring a new network partner becomes all more important. We have dedicated teams of operational specialists that closely monitor the performance of each network partner and provide post-engagement to some location and operational tools as well.Our focus on providing support for our network partners is the main differentiator for Energy Monster, helping them achieve industry-leading returns and allowing us to increase our market share in China’s mobile device charging service industry.

While our network partner model continues to drive our coverage expansion, our direct model also maintains its commitment to effective expansion.The impact of COVID has been challenging for our direct model, resulting in an increase in the closure rate location partners within the region of impact. This is due to the fact that higher tier cities, where our direct model tends to reside in, is usually impacted more frequently than small cities. As a result, the number of POIs under the direct model decreased to 47.5% as of the end of the fourth quarter.However, our direct model will focus more on higher-traffic locations, or KAs, and higher-tier cities in the future. We believe the ability for our direct model BD to utilize either the direct network partner model synergizes the two models and paves the way for Energy Monster to continue effectively and efficiently increasing its network coverage.

Our two models have provided us with the flexibility we need to navigate through the challenging conditions and expand the coverage of our service.Our network effect continued to benefit from economies of scale, allowing us to more effectively attract users, location partners and network partners. We have also been innovating new synergies between the two models to promote collaboration and extract higher levels of operating efficiency. As we look ahead, we will continue to leverage the strength of both models to drive growth and innovation in the industry.Next is our initiatives in improving overall efficiency. Despite of the impact of COVID, we were able to maintain strong financial health in 2022 with our positive operating cash flow and a robust balance sheet.

We achieved this by reducing the amount of fixed expenses and upfront fees across our operations, which natively weigh down our profitability during the pandemic. We also continue to find ways to improve the efficiency of our operation.Energy Monster has significantly reduced the fixed costs through the execution of our team, which actively pushed for variable incentive fees over fixed ones and due to the less competitive environment in the industry, which also contributed to the decrease of the use of fixed incentives. In addition to reducing fixed costs, we have also improved our business development efficiency. At the end of 2022, each BDs cover more than 160 POIs, representing a year-over-year increase of 35%.The introduction of our new network partner program under the direct model also increased the efficiency of both — of each of our BD as they are now able to participate in acquiring of network partners.

This allows us to flexibly leverage both the direct and network partner model to effectively increase our market share.As of the end of last year, a significant number of our BD have participated in this program under the direct model. This new model has proven to be innovative and effective in improving the efficiency of our BD team, enabling them to cover more POIs and expand our market presence. In the future, we will continue to launch new innovative campaigns and programs to increase synergy between the two models.Energy Monster has also introduced new hardware and software products to improve the overall efficiency of our operation. Our latest generation of cabinets feature redesigned bodies with a futuristic touch that visually differentiates our cabinets from those of our peers.The internals have been completely redesigned for easier assembly with upgraded functionality and capability and a significant reduction in CapEx per cabinet.

Compared to the last generation, the newer ones featured a 40%-plus reduction in CapEx. During the fourth quarter, we continued to roll out the new generation of products to market and starting the design of our next-generation cabinets.The reduction in cost of our current generation of cabinet is significant and will increase the asset efficiency for both Energy Monster and our network partners. It will also help attract new network partners and expand the scale of existing ones, effectively increasing the rate of return on their investment. The ramp-up of production and the deployment of the latest generation of cabinet will increase Energy Monster’s competitiveness and enhanced experience of millions of users and rely on our hardware for their everyday charging needs.In addition to the latest hardware products, Energy Monster has also introduced new software systems to better support our rapidly growing network partners.

This system provides from — with the data they need to successfully manage and grow their business. Our software system include advanced matrix, such as local heat maps and competitive landscape analysis, which enable our network partners to scale their operations to new heights.We have also improved on our existing risk management and network partner management system to better manage our operations and improve overall efficiency. The introduction of these software systems has been crucial in supporting the growth of our network partners, allowing them to effectively manage their POIs and teams and ultimately increasing the rate of return on investment.With our focus on providing operation consultation and tools for our network partners, we’re confident that these software systems will help them achieve industry-leading returns and further expand our market share in China’s mobile device charging service industry.Overall, the introduction of new hardware and software products has been a key strategy in improving the efficiency of our operations and better serving our partners.

COVID’s impact in the last few years has demanded Energy Monster to improve its industry-leading levels of efficiency to even higher level, even with the general easing of the quarantine and lockdown measures insight and the gradual recurrency to full normalization in progress, we believe efficiency was and always will be a part of our core competence.Overall, Energy Monster has made significant improvements in reducing fixed costs, improving BD efficiency and introducing new hardware and software products. These efforts have allowed us to better serve our customers and expand our market presence, positioning us for continued growth.Our pursuit of operational excellence will set us apart from our peers within the industry and unlock higher levels of return for our stakeholders and investors.

In the year of 2022, it has presented our operation with challenges due to the impact of COVID outbreaks. Despite this, we remained resilient and committed to our customers and partners, delivering high-quality services throughout the pandemic.Our team’s adaptability and dedication allow us to emerge stronger than ever coming out of these three years of pandemic. Due to the number of active COVID infection cases in the second half of December and going into January, the recovery has really taken off since February. The lifting of restrictions in China in mid-December marked a turning point for our industry, setting the stage for a strong recovery and growth in 2023.In the first three months of 2023, our service GMV increased by 3%, 14% and 34%, respectively, with revenue per power bank also increasing sequentially.

Also looking into the second quarter of 2023, as of today, our month-to-date GMV increased by over 60% year-over-year. The recovery trend is clear cut and consistent. Given these trends, we are very excited about the opportunity and outlook for this industry this year.Over the past three years, we have done a number of key initiatives during the pandemic that will allow us to enter the recovery of the industry more competitive than ever. By continuing to expand our high quality and KA POIS through our direct model, proactively expanding our operations under the network partner model, reducing costs and increasing efficiency and maintaining a strong financial health. We have positioned ourselves to capture the recovery and the growth of the industry once the effect of the pandemic fully subsides.Looking forward, we are very excited about the opportunity and remain committed to delivering sustainable and long-term value to our stakeholders.

We believe the strategies that we are able to implement during the pandemic will lay the ground for our growth in the future, allowing to further expand our market-leading position in China’s mobile device charging service industry. Thank you very much.I will now turn the call over to Maria, our Chief Financial Officer, for the financial highlights.Maria Xin Thank you, Mars.Now let me walk you through the fourth quarter and the full year 2022 financial results in greater details. For the fourth quarter of 2022, revenues were RMB 595.6 million, representing a 28.8% year-over-year decrease.Revenues from mobile device charging business was down 29.5% to RMB 572.7 million and accounting for 96.2% of our total revenues for the quarter. Revenues from power bank sales were down 20.1% year-on-year to RMB 4.1 million and accounted for 2.5% of our total revenue for the quarter.The decrease was primarily attributable to the impact of COVID-19 during the fourth quarter of 2022, which resulted in a significant decline in general offline food traffic in China due to COVID-19 restrictions and infections in certain regions of China.Other revenue were up 49.4% year-on-year to RMB 7.8 million and accounted for 1.3% of our total revenues.

The increase was primarily attributable to the increase in advertisement efficiency and new business initiatives. Cost of revenues were down 8.5% year-on-year to RMB 141 million for the quarter of 2022. The decrease was primarily due to the decrease in maintenance costs, accessory costs and the cost of the power banks sold, which was partially offset by the increase in depreciation cost.Gross profit was down 33.3% year-on-year to RMB 454.7 million for the fourth quarter of 2022. Operating expenses for the fourth quarter of 2022 was RMB 688.6 million, down 8.4% year-on-year. Excluding share-based compensation, non-GAAP operating expenses were RMB 381.3 million, representing a year-on-year decrease of 8.5%.Research and development expenses for the fourth quarter of 2022 were RMB 15.6 million, down 34.1% year-on-year.

The decrease was primarily due to the decrease in personnel-related expenses.Sales and marketing expenses for the fourth quarter of 2022 was RMB 635.2 million, down 9.8% year-on-year. The decrease was primarily due to the decrease in entry fee and incentive fees paid to location partners and personnel-related expenses, which was partially upsized by the increase in incentive fees paid to the network partners.General and administrative expenses were RMB 27.1 million in the fourth quarter of 2022, down 13.9% year-on-year. The decrease was primarily due to the decrease in personnel-related expenses. Net loss from operations — or sorry, loss from operations was RMB 233.9 million and net loss was RMB 334.5 million in the fourth quarter of 2022.Non-GAAP net loss, which excludes share-based compensation expenses, was RMB 327.2 million in the fourth quarter of 2022.

As of December 31, 2022, the company had cash and cash equivalents, restricted cash and short-term investments of RMB 3.1 billion.Cash flow generated from operations for the fourth quarter of 2022 was RMB 142.5 million. Capital expenditure for the fourth quarter of this year were RMB 134.4 million. Now moving to the full year 2022 results. In 2022, revenues were RMB 8.2 billion, representing a 20.8% year-over-year decrease. The decrease was primarily due to the decrease in revenues from mobile device charging business as a result of the impact of COVID-19 during the fiscal year 2022. Revenues from mobile device charging business was down 20.3% to RMB 2.8 billion and accounted for 97% of total revenues in 2022.Revenues from power bank sales were down 42.2% year-on-year to RMB 59.5 million and accounted for 2.1% of our total revenues in 2022.

The decrease was primarily due to the impact of COVID-19 in 2022, which resulted in significant decline in general offline food traffic in China due to COVID-19 restrictions and infections in certain regions of China.Other revenues were down 8.1% year-on-year to RMB 24.6 million and accounted for 0.9% of our total revenues. The decrease was primarily due to the decrease in user traffic as a result of impact of COVID-19 in 2022.Cost of revenue remained stable at RMB 556.9 million in 2022. Gross profit was down 24.7% year-on-year to RMB 1.3 billion in 2022. Operating expenses for the year of 2022 were RMB 2.9 billion, representing a 7% year-on-year decrease. Research and development expenses in 2022 were RMB 90.7 million, down 3.4% year-on-year.

The decrease was primarily due to the decrease in system and personnel-related expenses.Sales and marketing expenses in 2022 were RMB 2.7 billion, down 8.1% year-on-year. The decrease was primarily due to the decrease in entry fees and incentive fees paid to location partners and personnel-related expenses, which was upsized by the increase in incentive fees paid to network partners.General and administrative expenses in 2022 were RMB 112.4 million, down 5.5% year-on-year. Loss from operations was RMB 621.2 million and net loss was RMB 711.2 million in 2022. Capital expenditure was RMB 442.9 million in 2022. Energy Monster gradually expects to generate around RMB 815 million of revenues for the first quarter of 2023. And please note that this forecast is Energy Monster’s grand and preliminary on the industry and its operations, which is subject to change.Thank you for your listening.

We are now ready for your questions. Operator?

Question-and-Answer Session Operator [Operator Instructions]

Our first question comes from Vicky Wei from Citi. Please go ahead.Vicky Wei Thanks management for taking my question. Given the current positive trend, can the management share if the company has a real revenue guidance? And will the company be able to gain profitability in 2023? And if so, what is the target margin? Thank you.Maria Xin Thank you for the question. 2023 has definitely started for a positive fleet for us. We are seeing clear year-on-year growth starting in February, and the growth rate is increasing each month. Well, we do not have better transparency. We do have a better transparency on revenue compared to during the pandemic.

We currently will now provide a round guidance for the whole year.However, based on the current trend, we expect a strong rebound in terms of our revenues and GMV this year. So as of your question on profitability, we have started to reach the breakeven point in March, given that so far, GMV year-on-year growth rate in April have been even higher than March.We currently believe if no other external impacts, we are on track to regain profitability for the full year 2023. Again, this is based on the current trend of the company, which may be subject to change. Thank you.Vicky Wei Thank you.Operator [Operator Instructions] The next question comes from Charlie Chen from China Renaissance. Please go ahead.Charlie Chen Thanks management. Thanks a lot for taking my question.

I have two questions here. First, can management share a bit more on the difference between the current market and that of before COVID? Has there been any significant changes in terms of user habits or maybe POI competition? My second question is regarding the two models. Since the recovery process is already relatively clear, how would the company balance between the two models in the future? Thanks.Mars Cai Thanks, Charlie. Excellent questions. For the first question, our user behavior in terms of ASP has stayed relatively the same. The usage rate of our power bank continues to increase, but have yet to recover to the pre-COVID levels. There is an interesting differences in user behavior, and it’s that it is that users tend to go out a bit less during the weekday, but more frequently during the weekend.

We believe as people adjust to the complete opening up of the offline economy, this gap between will gradually normalize to pre-COVID levels.As for POI composition compared to pre-COVID, restaurants and shopping malls both increased as a percentage of total POIs, while entertainment and hotel POIs decreased. As for balancing between the two models, our approach is exactly designed for that. Our direct model will be more focused on higher tier cities and large KAs, while our network partner model will complement our direct model to capture the rest of the market, this approach has worked quite well during COVID time. And we continue to leverage this approach because we are the only player within the industry with a full-scale direct model team and also work with the highest quality partners for network partner model.We do believe that the scale and efficiencies of our two models lead the industry and will be a driver in increasing our market share in China’s mobile device charging service industry.

Thank you.Operator We are now approaching the end of the conference call. I will turn the call over to Energy Monster’s CFO, Maria Xin, for closing remarks.Maria Xin 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 months. Thank you.Operator Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.