Ladies and gentlemen, thank you for standing by, and welcome to the NaaS Second Quarter and First Half 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. I must advise you that this conference is being recorded. I would now like to turn the conference over to your first speaker today, Mr. John Wang, Company's Investor Relations Director. Thank you, and please go ahead.

Thank you, operator, and hello, everyone, and welcome to NaaS second quarter and first half 2024 earnings conference call. The Company's results were issued earlier today and are posted online. Joining me on the call today are Ms. Kathy Wang Yang, our Chief Executive Officer; and Mr. Alex Wu, our President and Chief Financial Officer. For today's agenda, Ms. Wang will provide an overview of our recent performance and highlights. Mr. Wu will discuss our operating results and go through our financial highlights. 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, please note that this call includes discussions of certain non-IFRS financial measures. Please refer to our earnings release, which contains a reconciliation of non-IFRS measures to the most comparable IFRS measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB. I will now turn the call over to our CEO, Ms. Kathy Wang Yang. Kathy, please go ahead.

Hello, everyone. I'm NaaS' CEO, Kathy Wang. It's my pleasure to share NaaS' highlights and strategic progress for the second quarter and the first half of 2024. We are pleased to announce that for the month of June 2024, we achieved our first positive average monthly profit. Our goal is to carry the profitability into the third and fourth quarters of 2024. To achieve this, we have focused on strengthening our core business and reducing costs, significantly enhancing our competitive edge. Additionally, through strategic staff optimization and improved management efficiency, we have refined our financial performance, laying the groundwork for ongoing profit growth. We are dedicated to specialized autonomous charging solutions for electric vehicle scenarios and are consistently expanding our ecosystem with automotive manufacturer partners. China is on the verge of a revolution in autonomous driving, leading to a groundbreaking year for autonomous charging solutions. Since 2017, we have been exploring comprehensive energy solutions for autonomous road transport. To keep up with these market changes, we have proactively laid the groundwork through extensive collaborations with leading automotive brands. In addition to our recent strategic partnership with JI YUE, we have formed strong alliances with major players in the automotive industry, including Geely, Hyundai, ZEEKR, Aito, Great Wall Motors, GAC Energy, and Deep Blue Automotive. These collaborations provide us with a solid foundation of technological expertise and diverse monetization opportunities, helping us gradually realize our vision of enhancing the energy efficiency of transportation. Now I will turn the call over to Alex, our President and CFO, for a closer look at our operating and financial performance. Thank you.

Thank you, Kathy. Hello, everyone, and thank you for joining us today. I'm excited to discuss the substantial progress we made this quarter. Let's look at the business update first. We have been aggressively developing AI and related digital technologies to better embrace the unmanned driving and autonomous charging solution trends. Our enhanced deep learning, V2X, and 3D vision technologies are set to drive revolutionary changes in our approach to vehicle charging in driverless scenarios. With that being said, in the second quarter, we made significant strides in the smart charging area, ensuring that NaaS leads in the commercial adoption of these cutting-edge technologies. For instance, since initial launch last year, we upgraded our autonomous charging robots with sophisticated path-finding, vehicle control, and obstacle avoidance features. These robots can now manage complex charging operations with little to no human intervention, ensuring a safe and more streamlined charging experience. Furthermore, building on our expertise in AI and digital analytics, the NAAS Energy Fintech, or NEF platform, is now driving the transformation of the charging station construction sector towards a smarter billion-dollar market. Our NEF system uses advanced AI algorithms for comprehensive intelligence in serving charge point operators throughout the life cycle of charging stations. In the early stages, particularly in charging station site selection, NEF helps calculate potential investment returns by analyzing critical regional traffic flow and charging demand data. Furthermore, after charging stations start to operate, we are responsible for their online operations as well, leveraging our integrated digitalization expertise. As Kathy mentioned previously, we formed a partnership with a leading new energy company to supply them with a comprehensive slate of charging station services through our NEF platform. This collaboration not only boosted our revenue from charging power sales but also brought us a share of the related charging transactions. Additionally, it has enhanced NaaS' brand visibility through our joint site operations. During the second quarter, we successfully launched nearly 50 chargers with this partnership and are on track to bring nearly 1,000 additional chargers online by the third quarter. Encouraged by this success, we are exploring the replication of this model in other regions with a similar initiative already underway in Changsha. As we keep advancing our AI and digital analytics capabilities in autonomous charging solutions and NEF, our extensive network of automotive manufacturer partners is vital in this progress. This ensures our capacity to deliver AI-powered services on a wider scale. We now cover a majority of China's mainstream automotive manufacturers with high-quality AI-powered charging services through the various collaborations Kathy outlined. As of June 30, 2024, we have launched services for 56 top brands supporting 165 new energy vehicle models. We added 66 new models in the second quarter alone, achieving a record high for a single quarter in terms of new model launches. Our extensive and growing network of automotive manufacturing partners continues to expand our ecosystem and broaden our market reach. Now let's move on to our financials for the second quarter of 2024. We significantly boosted operational and management efficiency this quarter, which substantially improved our financial performance. Notably, our net loss margin reached its lowest historical level this quarter. We are also excited to announce another milestone. In June 2024, our monthly non-IFRS net profit turned positive for the first time, thanks to our disciplined approach to expanding revenue and reducing costs. I'll walk you through some of the key drivers behind this quarter's success. Our revenue increased by 89% year-over-year to RMB91.7 million this quarter, propelled by robust growth across all three of our business segments. Specifically, our core charging services continued to flourish, contributing RMB44.8 million to this quarter's revenue, up 73% compared to the same period last year. This substantial growth not only underscores the resilience and viability of our profitable business model, but also highlights our outstanding execution in enhancing our charging services. In addition to strengthening our core business, we made significant strides in diversifying our revenue streams this quarter, thanks to our agile strategy and effective positioning in emerging markets. Revenues from energy solutions and new initiatives each soared by over 100%. Specifically, revenue from energy solutions increased by 105% year-over-year to RMB44 million, and revenue from new initiatives increased by 139% year-over-year to RMB2.9 million. Alongside our impressive revenue growth, our gross profit grew 59% year-over-year to RMB30.5 million in the second quarter of 2024. This growth was primarily fueled by the robust performance of our high-margin charging services. Notably, the gross margin for our charging services reached its highest level over the past four quarters, highlighting the significant economies of scale we are realizing as our business continues to expand. Furthermore, we drove improvements in our operational performance this quarter, leveraging our expanding market presence and enhanced network capabilities. The proportion of orders with positive NCR surged to 70% in the second quarter of 2024. Cost structure optimization and operational efficiency are a critical part of our strategy to sustainably expand our business scale. In the second quarter of 2024, we reduced our operating expenses to record lows relative to our revenue, strengthening our financial foundation as we continue to grow. In summary, this quarter's performance stands as a testament to the effectiveness of our long-term development strategy and our excellent operational and financial management. The substantial reduction in our net loss margins and the non-IFRS net profit in June are clear indicators of our ability to not only enhance profitability but also sustainably manage our growth. As we move forward, we will remain dedicated to financial discipline, innovation, and progress to deliver enduring value to all our stakeholders. Thank you for your continued trust and support. This concludes our prepared remarks for today. Operator, we are now ready to take questions. Thank you.

We will now begin the question-and-answer session. The first question comes from Ting Song with Goldman Sachs. Please go ahead.

Hi. Thank you for taking my question. I have two. The first is how are you able to meaningfully elevate your margin level and how do you expect a quarterly net profit breakeven going ahead? And my second question is, as NaaS continues to enjoy the fast revenue growth and scale up, can you share more color on your revenue drivers in the next two years? Thank you.

Thank you. To your first question regarding the margin improvement, we reached a milestone of single-month non-IFRS net profit breakeven in June and a positive operational cash flow in the second quarter of 2024. We have made a lot of efforts to optimize our business operations in order to achieve these milestones. Our revenue is one of the major contributors to our net profit margin improvement in the second quarter of 2024. With the fast EV penetration in China, we have enjoyed the increase of both EV drivers and the EV charge point operators on our platform. Our second quarter 2024 revenue maintained its growth momentum and increased 89% year-over-year, with both business lines growing at a healthy rate. If you look at the gross profit, as we adopt a platform business model, the profit margin improved as we scale up. The gross profit margin in the second quarter of 2024 increased 8 percentage points quarter-over-quarter to 33%, while the absolute amount of gross profit increased 59% to RMB30.5 million in the second quarter. The major contributor is our charging service business, while our energy solutions business has a relatively stable gross profit margin. As we grow in size, we believe we still have upside in our gross profit margin improvement. If you look at the expense, we have made significant progress as well. Our total non-IFRS operating expense as a percentage of revenue decreased to 90%, which is the first time it is below 100% since we got listed. It is not only due to our operating leverage that we receive from our revenue scale-up but also due to our tightened expense control. Especially, we cut our sales and marketing expenses by more than half year-over-year while maintaining our revenue growth at a very fast pace. The improvement of our financial numbers, I think, is largely the result of our optimized operations. To give you some evidence from an operational level, our profitable orders are now 70% of our total number of orders. In comparison, for the second quarter of 2023, that same percentage was only 41%. Our gross take rate (GTR) has also reached an all-time high level due to the increased acquisition of so-called long-tail CPOs. And our net take rate has been maintained at a very healthy level throughout the second quarter of 2024. We are also seeing an increasing number of drivers subscribing to our VIP services and a growing number of OEMs working with us. So to answer your first question regarding margin, after we allocate our resources and energy in the right direction, we have been seeing very positive indicators in the past quarter from financial metrics and from the business performance. This is certainly a very encouraging milestone for us, and we will continue to work on our business operations and efficiency. So to your second question regarding growth, which is another very good question, let's look at the numbers first, right? In general, our revenue in the second quarter of 2024 maintained a strong growth momentum, and we've seen an 89% year-over-year revenue growth. If we look at different segments, both major segments of our revenue enjoyed a very healthy growth. Our charging services are seeing a 73% increase year-over-year due to our increasing coverage on both the supply side and demand side of the charging network. We have processed 50 million transactions in the past quarter, and 70% of those transactions are profitable. On the energy solutions business, as we keep improving our AI capabilities in site selection, EPC, and state operations, we gain more trust from the CPOs that we work with, where we can constantly get more projects and hardware orders from them, which results in a 105% growth year-over-year in energy solutions. I would like to emphasize the role of AI capabilities in driving our business growth. As we build AI models from millions of the transactions that we processed, we are able to empower our charge point operator partners to enjoy better operational outcomes. For example, we are able to recommend potential locations with better business opportunities to the operator for the deployment of new charging stations. With that capability, the CPOs will choose us as a one-stop solution provider, and we can potentially monetize our AI capabilities through hardware sales and software subscription fees. For example, we are collaborating with one of the largest CPOs in Central China and will help them deploy 1,000 chargers in the third quarter. To sum up, with the fast penetration of EV in China, we are enjoying the fast growth of EV charging demand. Meanwhile, we are maintaining our leadership in the market with our AI capabilities. We have started to monetize those AI capabilities, and we'll continue to explore more business opportunities as we grow. Thank you.

The next question comes from James Zou with UBS. Please go ahead.

Thanks for taking my question. I have one question. As we were through the improving financial numbers, can you share with us more details on the operating metrics, such as the gross take rate and net take rate? Thanks.

Great. Thanks, James, for the question. The main reason that we were able to achieve margin improvement and non-IFRS net profit breakeven in June was because of our continuous effort in enhancing the operating metrics of the business. So if you look at GTR, for example, our GTR has reached an all-time high. The reasons are twofold. First, our algorithm continued to bring traffic to our CPOs on the platform, which helps CPOs enjoy better operational outcomes and therefore allows us to get a better commission rate. And number two, we see more long-tail CPOs joining our platform where we're able to have better bargaining power. So that's for GTR. For the NTR, net take rate, we continue to drive the NTR to a higher level, where we are improving our sales and marketing efficiency with our advanced algorithm to acquire and retain users. For example, our net addition of VIP members increased close to 30% quarter-over-quarter in the second quarter of 2024. As a result, our profitable orders increased to 70% of all orders. In conclusion, we will continue to improve our operating metrics through the iterations of our algorithm and AI capabilities, and we strive to create a more sustainable and profitable business model. Thank you.

The next question is from Ethan Zhang with Nomura. Please go ahead.

Thanks, Management. So recently, RoboTaxi has become very popular in China. So my question is, how do you see your position in the new autonomous driving area? Thank you.

Thanks, Ethan. That's a very good question. We have been looking at this trend for a while. RoboTaxi, as most of the models that we've seen, are actually electric vehicles, or EVs. So these vehicles need to have some sort of charging infrastructure to operate. Given our extensive partnership with OEMs, we have closer access to the smart EV operating system, and we will put ourselves in a very good position to best utilize that operating system. Particularly, our AI algorithm could potentially help RoboTaxi optimize its charging operation with our large charging network. And we could help RoboTaxi owners find the optimal locations to establish their EV charging infrastructure. More importantly, our autonomous charging robot, which we initially reviewed last year and has been improving ever since, has all the core technologies to facilitate the autonomous charging actions, such as deep learning, V2X, 3D vision, and other intelligent technologies. When we initially deployed the autonomous charging robots, we always had the RoboTaxi in mind, and we always had autonomous driving in mind. We think in the future where there are no drivers, there won't be any need for human-involved charging. So the charging robot is specifically designed for that purpose. As autonomous driving continues to unfold, we believe we are in the front seat to empower the charging infrastructure and software to adapt to the new era. Thank you.

Thank you.

The next question is from Zoe Feng with Tianfeng Securities. Please go ahead.

Thank you for taking my question. I know that you have been partnering up with a lot of EV makers. Could you share more updates on the latest development and how could such benefits help us? Thank you.

Thank you, Zoe. In Q2, we have further improved our partnership with our OEM partners. Specifically, in Q2, we partnered with JI YUE to embed our platform into EVs and provide charging services to JI YUE drivers, to better enhance our capabilities and create a wholesome charging ecosystem. By the end of Q2, we have established a partnership with most of the major OEMs and built our services in more than 150 EV models. Our continued collaborations with EV OEMs help us in a number of ways. First, we obviously make revenue from those collaborations and partnerships. NaaS can get a one-time system setup revenue and ongoing subscription fees when users charge using our platform within the OEM. And second, and probably more importantly, we are creating more brand awareness and technology collaboration through these partnerships. And that, in turn, helps us to acquire new customers and build our technological leadership in the whole ecosystem. Meanwhile, we collaborated with the China Automotive Technology and Research Center to release the China Electric Vehicle Charging and Battery Swap Industry Development Report. This collaboration with government-sponsored research institutes and various stakeholders in the charging industry could help us to maintain a leadership role in making technological advancement and setting industry standards. Moreover, we are highly engaged in the initiatives from the government to make a carbon-neutral society. For example, we partnered with Harbin's first carbon-inclusive service platform, which could benefit millions of EV drivers. Our charging infrastructure, monitoring and service platform for Zhejiang has also recently been deployed, which could help the local government and power grid to better serve its millions of EV drivers. So the conclusion is in this fast-growing EV charging industry, we want to build a stronger partnership with all stakeholders in the industry and leverage these partnerships to create a better user experience for the EV drivers. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to the company for closing remarks.

Thank you once again for joining us today. If you have any further questions, please feel free to contact us. Thank you.

This concludes this conference call. You may disconnect your lines. Thank you.