Energy Monster (NASDAQ:MNST) (NASDAQ: EM), a leading provider of mobile device charging services, has released its financial results for the second quarter of 2024. Despite a challenging consumption environment in China, the company has achieved its sixth consecutive quarter of non-GAAP profitability, with a net income of RMB9 million.
However, the company witnessed a 55.3% year-over-year decrease in revenues, with mobile device charging services contributing 88.7% to the total revenues. Energy Monster's network partner model continues to expand, now operating 89.2% of points of interest (POIs). The company also reported growth in lower-tier cities and sectors such as restaurants and shopping, and is optimistic about its renewable energy initiatives and international market opportunities.
Key Takeaways
- Energy Monster achieved a net income of RMB9 million in Q2 2024.
- Revenues decreased by 55.3% year-over-year, with mobile device charging services being the major revenue contributor.
- The network partner model is now responsible for 89.2% of POIs.
- The company saw growth in lower-tier cities and is optimistic about its renewable energy initiatives, which have reached a break-even point with a small profit.
- Energy Monster is focused on expanding network partner coverage and optimizing POI quality.
Company Outlook
- Energy Monster is optimistic about future growth and expansion.
- The company aims to increase network partner coverage and enhance POI quality.
- Renewable energy and international market development are key initiatives for future growth.
- Margins for renewable energy initiatives are expected to be around 8% to 10% gross and 3% to 5% net in the future.
Bearish Highlights
- The overall revenue decrease of 55.3% reflects a softer consumption environment in China.
- Revenues from the direct model decreased significantly, primarily due to a reduction in POIs.
Bullish Highlights
- Energy Monster's network partner model continues to grow, with an increase in revenues from this model.
- The company experienced growth in lower-tier cities and certain sectors like restaurants and shopping.
Misses
- Despite a net income, the company reported a loss from operations of RMB6 million.
- Operating expenses saw a decrease, but there were increases in research and development as well as general and administrative expenses.
Q&A Highlights
- The company discussed the balance between direct and network partner models, estimating an equilibrium of 5% to 10% of GMV by the end of the year.
- Energy Monster plans to continue working with key accounts to expand market penetration, especially in lower-tier cities and areas not covered by the direct model.
Energy Monster's second quarter earnings call underscored the company's resilience in the face of a softer consumption environment. While revenues have decreased, the company's strategic focus on expanding its network partner model and entering new markets, such as renewable energy, demonstrates a commitment to long-term growth. With a strong cash position of RMB3.2 billion, Energy Monster is well-positioned to continue its initiatives and maintain profitability in the upcoming quarters.
InvestingPro Insights
Energy Monster's financial health and stock performance show a complex picture, according to recent data and insights from InvestingPro. With a market capitalization of $184.48 million, the company is a relatively small but notable player in the Specialty Retail industry. Despite a challenging quarter, Energy Monster's strategic initiatives in renewable energy and international expansion could be key drivers for future growth.
InvestingPro Data reveals a P/E ratio of 20.59, indicating that the company is trading at a multiple of its earnings. Interestingly, the adjusted P/E ratio for the last twelve months as of Q1 2024 stands at a lower 16.85, suggesting a more favorable valuation when considering near-term earnings growth. This aligns with one of the InvestingPro Tips which highlights that Energy Monster is trading at a low P/E ratio relative to its earnings growth, potentially making it an attractive investment for value-oriented investors.
The company's revenue has seen a decline of 13.37% over the last twelve months as of Q1 2024, reflecting the softer consumption environment in China. However, Energy Monster's gross profit margin remains strong at 50.66%, which may be indicative of its ability to maintain profitability despite revenue headwinds.
InvestingPro Tips also suggest that Energy Monster is a prominent player within its industry and holds more cash than debt on its balance sheet, which could provide a cushion against market volatility and enable continued investment in growth initiatives.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips, with a total of 15 tips available for Energy Monster on the platform. These insights could be crucial for making informed investment decisions, particularly in assessing the company's long-term potential amidst short-term challenges.
Full transcript - Smart Share Global Ltd ADR (NASDAQ:EM) Q2 2024:
Operator: Hello. And thank you for standing by for Energy Monster’s Second Quarter 2024 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 2024 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 2024. 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.
Mars Cai: Thank you very much, Hansen. Good day, everyone. Welcome to our 2024 second quarter earnings call. I’m pleased to report that Energy Monster has demonstrated solid resilience in the second quarter, despite a softer than expected consumption environment here in China. We managed to return to GAAP profitability with net income reaching RMB9 million in the quarter. The return to GAAP profitability marks the strength and adaptability of our business model, especially given our overall transition towards the network partner model. This also marks the sixth consecutive quarters of non-GAAP profitability since the reopening from the pandemic in early 2023. This achievement reflects the effectiveness of our strategic initiatives and our ability to stay resilient even amid challenging consumption conditions. Now, in terms of the impact of the consumption power on our operation, our mobile device charging service GMV experienced a year-over-year decrease due to the softness of the consumption. Breaking down the quarter sequentially, the GMV decreased in April, increased in May, decreased in June and then increased again in July on a month-on-month basis. While the impact of holidays and hotter-than-usual weather also served as factors in oscillating the results, the primary season for the lower-than-usual demand is due to the weaker consumption power going into the summer holidays, which historically has been our peak season. This decline in consumer activity and consumer confidence going into the summer can be seen across the consumer sectors and especially in offline locations. In terms of performance across different city tiers, we continue to observe trends that highlight the diversification of our mobile device charging network. Contribution from lower-tier cities continue to drive our network expansion, as our expansion into third- and lower-tier cities continues to bear fruit. POI count in third- and lower-tier cities increased by more than 20% year-over-year as of the end of the second quarter. As our network partner model continues to allow us to effectively branch into lower-tier cities, first-tier city POIs count maintained a slight increase year-over-year, despite the reduction in our direct model. Our diverse POI categories also showcased varying levels of performances. The restaurant, shopping, beauty and transportation segments displayed resilience with quarter-over-quarter increases in terms of mobile device charging service GMV. Conversely, entertainment and hotel experience quarter-over-quarter declines. While these sectors remain important to our portfolio, the fluctuations reflect the broader economic conditions and consumer behavior patterns in the current consumer climate. Our expansion strategies have allowed us to continue to improve the network effect of our portion, which drives a self-reinforcing cycle between the growth of our POI count and user count, while the market conditions have slowed our pace of expansion. I’m proud to see that we continue to reach new operational milestones. Our POI coverage now encompasses a record high 1.7 -- 1.27 million POIs, highlighting our relentless strive to enhance service availability and user convenience across a wider geographic region. In parallel, our user base has grown alongside the growth in coverage as we landed at over 417.1 million cumulative registered users as of the end of the second quarter, an increase of 12.8 million users. Additionally, I would like to note that these operational milestones were achieved even during our strategic rebalancing between our operation models. We were able to expand the contribution of our network partner model while maintaining our core direct model portfolios. Although the shift in contribution between our business models have imposed short-term impact on our new POI expansion rate, we remain confident in our long-term prospect. We are already seeing the reduction in our direct model operations, not only lower our operational expenses, but also enhance the contribution from the higher margin network partner model. Financially, our cash and cash equivalents remain robust, providing us with the financial stability necessary to continue pursuing strategic initiatives and investing in future growth opportunities. Our new initiatives that leverages Energy Monsters’ existing capabilities will unlock new avenues for growth. During the second quarter, other revenue outside of our core business grew by over 400% year-over-year, as new business segments began to make more meaningful contributions to our financials. These assets are essential as we aim to realize our full growth potential and consistently deliver sustained value to our shareholders. Now let me walk you through our key initiatives in coverage and efficiency. First is our strategies in coverage expansion in light of the ongoing transition in our operational model. Our commitment to expanding our POI network is driven by the immense potential we see in untapped regions and categories throughout China. This expansion is not just about increasing numbers, it’s about strategic growth that aligns with our long-term vision of building a mobile device charging infrastructure network capable of fulfilling users’ needs anywhere and anytime. We continue to take a balanced approach in our expansion efforts, leveraging both our network partner model and the direct model. The network partner model offers distinct advantages in providing comprehensive coverage across all regions, seamlessly complementing our direct model strength. The direct model remains particularly effective in high-yield locations within higher-tier cities and key accounts. A significant component of our expansion strategy is the ongoing transition to the network partner model. This transition is being executed with precision, balancing the rate of transition with quality and operational efficiency. By the end of the second quarter, 89.2% of our POI were operated under the network partner model, a substantial increase from 79.7% at the end of the first quarter and 62% at the end of the same time last year. The pace at which we have rebalanced our operations between the direct model and network partner model has exceeded our initial expectations and will continue to take place going into the second half of 2024. We also now have over 12,000 network partners, an increase of more than 1,000 since the end of the first quarter and an increase of around 3,700 year-over-year. This growth in network partners allows Energy Monster to develop a robust and dynamic distribution capability that drives our market participation and service reach. The increase in network partner count has allowed us to broaden the reach of our corporation as we expanded into more than 50 new county-level areas this quarter for a total coverage of more than 2,100 county-level cities. The improved reach of our service has also translated into access to new users as we are able to attract 12.8 million new registered users during the second quarter of 2024. Our network partner support team continue to play a crucial role providing hand-on guidance and direct support for everyday needs. Our network partner team continue to improve the standardization of our hardware, software and operational support for our partners. This is crucial as the number of network partners continue to grow. We have to provide more comprehensive support for all case scenarios for network partners with all levels of experience. These initiatives are designed to ensure that our partners not only feel supported but also empowered to achieve their full potential as we want every single one of them to be successful. The positive reception of the comprehensive support system to our partners is a strong validation of our approach, and we will continue to refine and enhance these support mechanisms to further strengthen our network partner model. By being able to support our network partner to more quickly launch a profitable operation, we are enhancing Energy Monster’s own competitive advantages. In addition to expanding our network, we continue to optimize low efficiency and underperforming POIs under the direct model. This process involves a rigorous review of each POI’s performance based on current user traffic and other key metrics. By transitioning underperforming POIs to our network partner model, we can optimize our portfolio for maximum effectiveness and long-term profitability. During the second quarter, our network -- our direct model sales team continue to secure and extend partnerships with leading KA chains and in hospitality, convenience stores and restaurant industries. These high-profile partnerships are instrumental in boosting our brand visibility and driving our engagement, particularly in high-tier cities where brand influence is critical. For the remainder of 2024 in terms of our pensionary strategies, we will continue to emphasize network partner model as the core driver for growth here in China, while the direct model will focus on high-tier cities and major key accounts. Additionally, this quarter, we have proactively begun exploring opportunities beyond China as a way now to diversify our operation. We are seeing more and more countries outside of China having the demand for our service and have the suitable infrastructure in place for mobile device charging service to take off. We believe our on-the-ground experience and hardware and software capabilities in China will extend into the international market. In the future, it will serve as one of our new drivers of growth and in the long run serve as a way to diversify our operation geographically. In terms of operational efficiency, we have made significant strides in optimizing our contract structures under the direct model. During the second quarter, we continue to transition thousands of POIs from direct model to network partner model. This transition, while incurring some one-time cost, is a strategic move that will enhance the financial health for our company in the long run. By optimizing the structure of our own direct model POIs, we are ensuring that the direct model portfolio is aligned with our broader goals of efficiency and profitability. Also, notably, the reduction in direct model contribution is also directly translating into a smaller workforce of direct model BD personnel, driving the reduction of our operational expenses. On the other side of the equation, the efficiency of our network partner operations remains stellar, with the network partner count growing by 41% year-over-year, while the size of our team has grown only at a fraction of that rate. The operational leverage highlights the scalability of our network partner model and our ability to drive growth without preparation increase in operational overheads. In addition to optimizing our existing operations, we are also committed to innovation. We continue to dedicate ourselves to the development of new series of cabinets and power banks, with improved durability and end-user experience. This sustained and meticulous attention to every detail has led improvement to our hardware before and will continue to do so going into the future. This progress is crucial as our cabinets are placed across China in all types of locations and in all types of environmental conditions. Improved durability will help reduce the maintenance requirement for both the company and all of our partners, increasing the efficiency across all segments. We are confident that our initiatives in operational efficiency and innovation will unlock our growth and value potential in the foreseeable future. In conclusion, the sustained profitability is a clear indicator of the robustness of our business model and the effectiveness of our strategic vision. The ongoing optimization of our direct model coupled with expansion of network partner model positions Energy Monster for continued growth and success. Although the second quarter and current trajectory of the third quarter show signs of weaker than expected consumption, we remain confident in the long-term recovery of the consumer spending here in China. As we enter the second half of the year, we will continue to focus on strengthening our operational scale and efficiency with a particular emphasis on expanding network partner coverage and support, key account acquisition and our direct operations, and optimizing POI quality to enhance our margin. We need to continue sharpening our competitive edge with the network partner model, which already delivers healthy unit economics, but has the potential to achieve even greater efficiencies and returns. To that end, we will continue to improve the standardization of our product and service for our network partners and provide enhanced support and experience to ensure their continued success. We will continue developing new hardware, including next-generation power banks and cabinets designed to be more durable while at the same time featuring reduced costs. These initiatives are designed to ensure that we remain at the forefront of innovation and further strengthen our competitive advantages under the network partner model. In summary, we are optimistic about the future of the market in China and beyond. Energy Monster is well positioned for sustained development as the transition between direct and network partner models will help refine the quality of our direct model portfolio while the network partner model continues to feel growth. Once the transition is complete, our business model and financials will be even healthier. Our robust cash reserves and cash flow provide a solid foundation for driving continued growth and value creation for shareholders. We are also pleased to see that the seed of new initiatives in renewable energy is starting to take form while the expansion towards international market will be a new catalyst in the future. We believe all of these strategies and positioning will allow us to deliver improved value to Energy Monster’s shareholders in the future. Thank you very much. I will now turn the call to Maria, our Chief Financial Officer, for the financial details.
Maria Xin: Thank you, Mars. Now let me walk you through the second quarter 2024 financial results in greater detail. For the second quarter of 2024, revenues were RMB462.9 million, representing a 55.3% year-over-year decrease. Mobile device charging revenues, which consists of revenues generated from both direct and network partner models, were RMB410.6 million and accounted for 88.7% of our total revenues for the quarter. Revenues generated from direct model, which comprise a mobile device charging service fee of RMB115.9 million and power bank sales of RMB2.2 million, were RMB118.1 million for the second quarter of 2024, down 60.7% year-over-year. The decrease was primarily due to the decrease in number of POIs operated under the direct model. Revenues generated from network partner model, which comprise a mobile device charging solution fee, which increased 14.3% year-over-year to RMB61.5 million and power bank, cabinet and other related sales, which decreased 65.6% year-over-year to RMB131 million, decreased by 59.7% to RMB292.5 million for the second quarter of 2024. The decrease was primarily due to the certain one-time adjustment in mobile device charging revenues for the second quarter of 2023 as a result of the change in the contractual arrangement with network partners. Other revenues which account for 11.3% of our total revenues, reached RMB52.3 million for the second quarter of 2024 are 453.7% year-on-year. The increase was primarily attributable to the new business initiatives. Cost of revenues was down 67.2% year-on-year to RMB219.6 million for the second quarter of 2024. The decrease was primarily due to the one-time adjustment in mobile device charging cost of revenue for the second quarter of 2023 as a result of the change in contractual arrangement with network partners and the decrease in depreciation as a result of the decrease in number of POIs operated under the direct model. Gross profit was down 33.7% year-on-year to RMB243.3 million for the second quarter of 2024. Operating expenses for the second quarter of 2024 were RMB249.3 million down 29.5% year-on-year excluding share-based compensation. Non-GAAP operating expenses were RMB243.3 million representing a year-over-year decrease of 30.1%. Research and development expenses for second quarter of 2024 were RMB20.8 million up 11.6% year-over-year. The decrease was primarily due to the increase in personnel related expenses. Sales and marketing expenses for second quarter of 2024 were RMB180.9 million down 38.7% year-over-year. The decrease was primarily due to the decrease in incentive fees paid to location partners under the direct model and the personnel related expenses. General and administrative expenses for the second quarter of 2024 were RMB39.5 million up 26.8% year-over-year. The increase was primarily due to the increase in reserve for doubtful accounts in relation to the increasing contribution of the network partner model. Loss from operations was RMB6 million and operating margin for the second quarter of 2024 was negative 1.3%. Net income was RMB9.2 million in the second quarter of 2024, compared to a net income of RMB24.5 million in the same period last year. Net margin for the second quarter of 2024 was 2%, compared to a net margin of 2.4% in the same period last year. Non-GAAP net income, which excludes share-based accommodation expenses was RMB15.2 million in the second quarter of 2024, compared to a non-GAAP net income of RMB30.1 million in the same period last year. As of June 30, 2024, the company had a cash and cash equivalents, restricted cash and short-term investment of RMB3.2 billion. Cash flow from use in operations for the second quarter of 2024 was RMB6.7 million. Capital expenditures for the second quarter of 2024 were RMB1.4 million. Thank you for listening. We are now ready for your questions. Operator?
Operator: Thank you. [Operator Instructions] Your first question comes from Vicky Wei from Citi. Please go ahead.
Vicky Wei: Hi, management. Thanks for taking my question. Would you please share a bit more color about the progress of the second half this year, both in terms of the power bank business and other initiatives? It seems like other revenue is growing quickly, but from a financial perspective, how should we think of margin outlook this year? Thank you.
Mars Cai: Thanks, Vicky. Yes. I will take the first part of the question. I think the market in the second quarter was pretty challenging. Like I mentioned earlier, results are oscillating with no definitive trend of a rebound as of the end of the second quarter. This again, I think, is due to a number of factors that include the consumer confidence and somewhat extreme weather conditions and their impact has wrinkled down to the overall consumer sector. There isn’t too much visibility, actually, for the second half of 2024 in terms of our core business. The current numbers in July doesn’t show much signs of a rebound in the peak third quarter season. But at the time -- same time, our other initiative is trending up pretty quickly and there is definitely potential of it being a driver of growth in the longer term. Now again, at the end of the day, I think we need to focus back into things that are in our own hand, specifically our focus on strengthening our operational scale and efficiency, especially in expanding network partner coverage and providing more comprehensive support, key account acquisition under the direct model, and optimizing POI quality to enhance our margins. At the same time, diversifying ourselves with initiatives in renewable energy and plans for the international market will serve as drivers for tomorrow. So overall, I’m confident that these strategies collectively position Energy Monster for long-term success. Yeah, I will now let Maria take the second part of the question.
Maria Xin: Hi, Vicky. Our revenue mainly from our initiatives in renewable energy has been growing quickly in this quarter. It’s a sector with a large market opportunity, as well as clear business model. As of July, this new initiative is already at a break-even point with a small amount of profit. The margin going forward will really depend on the scale, but the industry standard for this model is around 8% to 10% gross margin and 3% to 5% net margin. It will take a bit of time to reach that margin level, but we are definitely excited about that.
Vicky Wei: Thank you.
Maria Xin: Thank you.
Operator: Thank you. [Operator Instructions] Your next question comes from Charlie Chen from China Renaissance. Please go ahead.
Charlie Chen: Hi, Mars. Hi, Maria. Thanks for taking my question. It seems like we are executing the transition pretty quickly, so I just want you to understand what would be the equilibrium for the direct and the partner model in the near future? And also just a quick side question. How exactly do you work with KAs in the future if most of your regions are under the network partner model? Thank you.
Mars Cai: Thanks, Charlie. Great questions. The vast majority of our POIs and GMV will be from the network partner model. That trend is undeniable. I think the balance will be around 5% to 10% of GMV by the end of this year, if I have to give a rough estimate. But this number really depends on a number of facts, things like the efficiency of our direct model portfolio and the team all contribute to the end result. What is clear is currently that the economics of the network partner model is still superior to that of the direct one and thus we will continue forward with the rebalancing going into the second half of this year. As for your question on KAs, that’s something we definitely through -- thought through before we start this transition. The KAs team currently closely works with the network partner team to continue expanding our penetration of key accounts. For certain new KAs, our KAs team first secures the collaboration with a major brand and then our network partner team finds a suitable network partner with extensive experience and proven track record of maintenance capability to jointly work with the KA. This allows us to continue expanding our KA footprint, either in lower-tier cities or other regions where our direct model doesn’t appear that. In terms of our service and the maintenance commitment to the KAs, the marketing campaigns between their brand and ours, and the tailored cabinets and power banks, nothing has changed. All of the bells and the whistles that comes with working with Energy Monster will remain the same for our current and future KAs partners. Given that, we remain very confident in our value proposition to our partners and ability to continue onboarding leading KAs in our mobile device network. Thank you very much. Hope that answers your question.
Charlie Chen: Great. Thank you.
Operator: Thank you. We are now approaching the end of the conference call. I will now 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.
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