Niu - Earnings Call - Q1 2020

Transcript

Speaker 0

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the NIO Technologies First Quarter twenty twenty Earnings Conference Call. At this time, all participants are in listen only mode. Later, we will 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 objections, you may disconnect at this time. Now I will turn the call over to Mr. Jason Yang, Investor Relations Manager of NIO Technologies. Mr. Yang, please go ahead.

Speaker 1

Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss NIO Technologies results for the first quarter twenty twenty. The call is being webcast from company's IR website. Investor presentation and a replay of the call will be available soon at ir.niu.com.

Please note today's discussion will contain forward looking statements made under the Safe Harbor provisions of The United States Private Securities Litigation Reform Act of 1995. Forward looking statements involve risks, uncertainties, assumptions and other factors. The company's actual results may be materially different from those expressed today. Further information regarding the risk factors is included in the company's public filings with the Securities and Exchange Commission. The company does not assume any obligation to update any forward looking statements except as required by law.

Our earnings press release and this call include discussions of certain non GAAP financial measures. The press release contains a definition of non GAAP financial measures and a reconciliation of GAAP to non GAAP financial results. On the call with me today are our CEO, Doctor. Yan Li and the CFO, Mr. Hardy Zhang.

Now let me turn the call over to Yan. Yan?

Speaker 2

Alright. Thanks, Jason, and thanks, everyone, for joining us on the call today. Now we have seen a decline in sales in q one twenty twenty due to the impact of COVID nineteen. On the performance, the sales volume has decreased by 39% in q one twenty twenty, and the revenue has decreased by 34%, respectively. We have maintained our gross margin at 23.6%, but suffered a net loss margin at 11.3% in q one twenty twenty due to the decline in sales.

Only financial data were within our expectation. So now first, let me give you an update on the impact of COVID nineteen. The impact on the business performance in q one was evident. So as mentioned in our last earning call, in China, most cities have shut down businesses for part or entire February. We started February with all our stores closed and ended with 65% of store opened for business.

Furthermore, as people were recommended to stay home and work from home, there were little retail traffic or retail demand. Since our sales heavily depended on offline retails, the shutdown of stores and the stay home quarantine policy have reduced our sales significantly. During those times, we purposely direct our sales effort online both through our online shops on Tmall and the j JD platform, as well as the omnichannel approach. In other words, online purchase, offline delivery mode. Particularly on omnichannel approach, we train all our store operators to set up online virtual stores via WeChat and provide online sales consultations to potential customers.

We further provide a tools for individual store sales reps to generate e flyers with personal WeChat account QR code to be distributed in various WeChat groups for potential customer acquisition. Now our ecommerce sales increased by 1.6 x in March and three x in April over the same time last year. And online to offline orders has increased by 2.5 x, respectively. Now we started to observe recovery as business started to get back in operation, and nearly 100% of our stores opened by March. Although the retail traffic has not recovered to the same level of last year, our efforts of omnichannel has led to a very positive results.

The per store sales has improved by 12% year over year in the month of April. Now heading into June, the China retail market will most likely continue to improve as many cities like Beijing and Shanghai even suggested no masks necessary going outside. In addition, the need for personal commuting solution is very high. So we're quite confident and positive about the the near future growth in China. Now our overseas sales has also been impacted in q one as mentioned last time.

The overseas sales volume increased by 6% in q one with a very strong growth in January and February, but a sharp decline in March as the COVID nineteen spread out to Europe and many other countries. Nearly all our dealer stores were temporarily closed globally and just started to open up in late April or early May as countries like Germany, France, Italy started to lift the lockdown. Despite the lockdown similar to domestic market in China, we leverage our online capability to generate customer leads or presales. We launched the online presales campaign in Europe on our newer model, the NGTS sports model, priced at $31.99 euros with more than 650 units orders. While the actual product won't be delivered until a few months later.

We're also about to kick off a online rental program across our dealerships network in Europe in June, allowing users to rent our scooters from our dealerships on monthly basis. Although our flagship store and premium store build out were temporarily stalled due to the lockdown, we continue to expand our market presence, entering in South America like Peru, Guatemala. In addition, as social distancing became a temporary social norm internationally, we did observe a demand on individual mobility solution as people tended to stay away from the public transportations. This trend might increase the total addressable market in a permanent way when people try out electric scooters and started to enjoy the technology, the style, and the freedom our products offer. Hence, although international market won't recover as fast as China market, we remain very positive about our overseas business performance this year.

Now despite the impact of COVID nineteen, we were able to quickly resume our product development and business operation and reduce the time delay in new product introduction this year. First, we launched our MQI two on May 7, our flagship electric bicycle product for China market in 2020. In 02/2016, we introduced our M one model, which was the first mobility product that has won all seven major international design awards globally in the past twenty years. M one was one of our hottest models since then, But due to China's new regulation on electric bicycles in 2019, we had to stop production of the M one. After more than one year of design and development, we were able to finally introduce the MQI two, which inherited the design of our signature m one product with a sporty design, mid mounted suspension, all in one dashboard, and fully compliant with the new regulation in China.

On the technology side, the m two product line inherited the new technology platform used on MGT included the version 35 for ECU with remote KLIFF ignition capability, automobile level lighting system, and the new energy powertrain management with the driving range up to 75 kilometers. The m two product comes with two specs priced at $45.99 RMB and $51.99 RMB, which we believe will set the technology and design standard for the China electric bicycle industry. So we held our m two launch with a new format known as or online live streaming at Taobao platform with Token Hu, our cofounder, and me as the sales rep. This new format started to become a very fashionable trend in China, partially driven by the lockdown. Our full hour live streaming attracted more than 3,500,000 unique viewers from around China and they're racking up more than 3,700,000 likes.

Together with the product launch, we started new product media campaign in China, received more than 600 media article mentions with 30,000,000 reads, 10,000,000 views on Weibo, and a 100,000,000 views on Douyin and Kuaishou. So we believe the m two product will help further expand our product adoption in China market while also allowing existing customers to upgrade to this new model. We also introduced our g zero product in our Goa series just actually, just yesterday. The g zero is also beautifully designed and equipped with many practical features such as a baby seat. It is a lithium battery based product, but as with smart features as add ons.

The g zero comes with two models priced at $22.99 RMB and $27.99 RMB. The g zero product is the product that will be our entry level product for the new family, and will it will allow for new user a new customer segment to enter into the new ecosystem. Now second, we continue to expand our accessory lines to further enhance our lifestyle brand image. We roll out a newly designed full coverage and half coverage helmets in April, and for that category achieved almost a 10 x sales growth year over year. We also launched the battery warranty services together with insurance companies and with around two 2,000 year users sign signing up for the supplementary services plan in the first month.

Now besides the new product launch, we continue to enhance our brand awareness through a viral marketing and targeted marketing. Now besides our new new product launch, MQI two, We leveraging our new product launch introduction, we had a famous Chinese triple figure, Luoyun Hao, to introduce the MQI two in his online sales channel in Douyin, resulting in nearly 7,000,000 views. We continue to build our own site on short video platform like Douyin and Kuaishou, with Douyin quarterly views doubling to 40,000,000 views in q one twenty twenty. Now internationally, despite the impact of COVID nineteen virus, we added three QRs to our new crew team of creators. The highlight was our blockbuster video of with the packed tour shot at Zurich, Switzerland.

Now I will turn the call over to Hardy to discuss our financial results. Hardy?

Speaker 1

Thank you, Yan, and hello, everyone. Our price release contains all the figures and the comparisons you need. We have also uploaded Excel format figures to our IR website for easy reference. As I review our financial performance, keep in mind that we are referring to the first quarter figures unless otherwise, noted. Our Q1 sales volume reached 40,000 units, decreased by 39% year over year.

China sales volume decreased by 44% as a result of adverse impact from COVID-nineteen. The decrease was mainly from our offline sales through the franchise stores because many of them were closed during the outbreak. Our online sales, however, increased significantly in the first quarter despite it is still a small portion of our total sales. Overseas sales volume increased by 6% year over year. We saw strong growth in January and February, but since March, our overseas volume started to decrease as the COVID-nineteen spread out to Europe and many other countries.

Total revenues decreased by 34% to $33,000,000 in line with the guidance we provided earlier. Revenue from scooters decreased by 40%, but revenues from accessories, spare parts and services increased by 5% as a result of strong overseas sales and a larger user base in China. We are very pleased to see our customers like our accessories, spare parts and services. Even during such difficult times, our sales in this segment continues to grow. Revenue per scooter, or ASP, increased by 8% mainly because of strong sales from accessories, spare parts and services, as just mentioned.

In Q1, for every scooter we sold, we also sold RMB $11.68 accessories, spare parts and services, an increase of 74% compared with the same time last year. Excluding the revenue from accessories, spare parts and services, the scooter ASP itself decreased by 1% mainly because of change in product mix. In Q1, our N and M series accounted for around 50% of total volume compared with 17% in Q1 last year. This change was mainly caused by the implementation of new national standards since April. However, quarter over quarter basis, the proportion of N and M series increased from 40% in Q4 last year to 50% in Q1 this year, mainly because of higher proportion of overseas sales and online sales.

Gross margin was 23.6%, 2.3 percentage points better than this time last year. The margin expansion was mainly helped by the increased proportion of sales in higher margin product lines, namely the overseas scooter and accessories, spare parts and services. In Q1, the overseas scooter sales accounted for 29% of total scooter revenue compared with 19% same time last year. The accessories, spare parts and services accounted for 20% compared with 13% last year. Such favorable change in product mix helped our margin expansion by around 5% in total.

In Q1, our gross margin was negatively affected by the low utilization of our manufacturing facility. We estimate the impact on gross margin was close to 3%. In the following quarters, higher production volume and cost savings on raw materials and components will contribute to our continued margin expansion. However, unfavorable change in product mix, especially lower sales of scooter and spare parts from overseas market in the second quarter, will negatively affect our gross margin. Our total operating expense, excluding share based compensation, were million, increased by 29 year over year.

The increase was mainly caused by higher sales and marketing expense as well as R and D expense. Sales and marketing expense increased by $13,000,000 out of which $8,000,000 was attributed to branding activities, including new product launch during the CES in January and the placement of advertisement in a Chinese TV series called An Jiang. Another 2,500,000.0 was due to higher D and A expense of our retail stores as a result of larger retail sales network. The remaining 2,500,000.0 are mainly related to branding and marketing activities to encourage individual riding for daily commutes during the outbreak. For the R and D expense, the increase was mainly caused by higher staff costs as we hired more designers and engineers to expand our R and D capabilities.

With regards to government grants, we received a one off grant of RMB 7,000,000 in the first quarter mainly related to our foreign capital investment in Changzhou. Our GAAP net loss was 26,400,000.0 and adjusted net loss was $18,600,000 The loss was mainly due to the lower sales volume and higher sales and marketing spend as mentioned above. With our sales volume recovering in the second quarter, we expect to return to profitability in Q2. Turning to our balance sheet and cash flow. We ended the quarter with $725,000,000 in cash, term deposits and short term investments.

Our operating cash flow was negative $4,500,000 mainly because we supported our distributors and dealers to manage their working capital. Our CapEx was $22,000,000 mainly for settling the payables of new factory and retail stores carried forward from last year. With strong cash position, we repaid £28,000,000 bank loan in January and another £48,000,000 in April. We are in the process of refinancing another bank loan maturing in June so as to benefit from the current low interest rate environment. We also plan to acquire another piece of land during the second quarter and start to prepare for continued capacity expansion.

Now let's turn to guidance. We expect second quarter revenue to be in the range of $585,000,000 to $655,000,000 an increase of 10% to 23 year over year. Our China revenues expect to grow at a much higher growth rate year over year as a result of general demand recovery and our new product launch. Overseas revenue, however, will decrease as COVID-nineteen continues to affect local retail and distributions during the second quarter. Some overseas distributors and dealers began to resume their operations since May.

We are closely monitoring China recovery, and we'll provide more updates once available. With that, let's now open the call for any question that you may have for us. Operator, please go ahead.

Speaker 0

Ladies and gentlemen, we will now begin the question and answer session. If you wish to cancel your request, please press the pound or hash key. Your first question comes from the line of Vincent Yu from Needham and Company. Please ask your question.

Speaker 3

Thanks, management, for taking my question. My two questions are about margin. The first question is about the offline So sales in terms of macro environment, do we have to or are we going to give some make some concessions to sales channels to support our offline business partners? My second question is about the the raw materials parts and inventories. We have do we well, we have concern over future costs or the pricing of the parts due to potential low inventory level or, you know, similar reason after the lockdown and slowly opening reopening of economy?

Thank you.

Speaker 1

Yeah. Thanks, Vincent. Let me answer your questions first. Your So first question about the concession rebates to our sales channel, in the first quarter, we did give additional rebates to distributors and dealers despite some of them miss not miss the target we set for them early this year. But from since the second quarter, we began to see the China sales order recovered.

Therefore, we do not see that we need to keep additional rebates during the second quarter. So that's for us, it's not a big concern. We already subsidized some of them already in Q1. So the Q1 margin reflected that. For your prior second question regarding the procurement cost of raw materials component, And we do see continued decline of procurement cost of raw and component.

And we began to see the decline since March. So for the rest of this year, we believe the continued decline of the cost will be positive to our gross margin. However, as I mentioned, we will see some unfavorable change in our product mix, especially because the COVID nineteen affect our overseas sales. But if you purely focusing on the raw material com and other components, we do see there's a continued cost of decline during this year. So that's my answer to your questions.

Speaker 3

Okay. Thanks. Thank you very much.

Speaker 0

Your next question comes from the line of Alex Potter from Piper Sandler. Please ask your question.

Speaker 4

Great. Thank you. Maybe a follow-up question there. I don't know if it's possible. You mentioned some of these offsetting impacts on gross margin.

First, you have better factory utilization, higher volumes and lower raw materials costs. So those are all positive for gross margin. But then you have a lower mix with presumably European and U. S. Sales, probably a very low percentage of overall revenue.

Is there any way to guess, whether you think next quarter gross margin will be comparable to this quarter? Those two factors will offset each other or maybe slightly negative or slightly positive? Any way to guess?

Speaker 1

Yes. Sure. I think for the first quarter and the favorable change in overseas revenue and also from accessories spare parts, they contribute to around 5%. So for very simple calculation, you can assume that 5% may not be there for next quarter. So they will minus 5%.

But we also mentioned because of the low utilization in the first quarter, we have a marking down around 3% from from this. So this will be something positive. So on that basis, you cannot assume at least the 2% will be gone for for the for the second quarter. However, and still there's uncertainty around our overseas sales in the second quarter. We are closely monitoring how much orders coming in, and that may may have some impact on the margins.

For ourselves, we are still targeting to achieve a gross margin above 20%. So this is answer for your first question.

Speaker 4

Okay. Yes. That's perfect. Very helpful. Thank you.

Maybe then comment also, on different OpEx line items. What is your expectation regarding spending levels? Presumably, in some of those line items in q one, you were spending less than you otherwise would have planned to spend due to COVID nineteen. Where do you expect higher levels of spending versus flat levels of spending into q two and the remainder of the year?

Speaker 1

Sure. In the OpEx, we have three key lines. The first and the sales and marketing. Sales and marketing, the expense was relatively high in the first quarter because we already committed to some of the branding activities before the COVID nineteen happened. For example, we attended the CES show in The US in January.

We also committed to our advertisement of a TV Chinese TV show. Also currently account for around 8,000,000 RMB. And that's why we see quite a high sales marketing expenses. This is kind of a one off expense in the first quarter. And the spending r and d is quite normal as we continue to invest in our design and also continue to hire engineers and designers.

The only thing we cut is in the G and A expenses. As you can see, in absolute terms, excluding share based compensation, our G and A actually decreased by around 6%, yeah, in absolute terms. So we saved our travel, we saved our professional service fees, etcetera, etcetera. In the second quarter, we do expect our sales sales and marketing as a percentage of revenue should fall back to the normal level as what we see last year. Last year, our marketing was normally around 15%, so anywhere between 14%, 16%.

It's between it depends on the quarters. But from q two this year, we think we will go back to the the similar level as what you would see before. Q one is a kind of exception because some of these one off activities, also because of the lower revenue we have in the q one. So I hope this answers your question.

Speaker 4

Yes. Very, very helpful again. Last question on online versus offline. I was wondering how does it work from a business model standpoint? If you have an online order that you ship into a certain region, is a dealer or distributor always involved?

You mentioned this omnichannel versus maybe a pure online sale. Are there situations in which the dealer or distributor maybe feels, I don't know, that they push back against you selling direct? Or do you always include a dealer or distributor in those sales? Thanks.

Speaker 2

Thing I I think that's a great question. Let me address that. So in terms of our online models, that's why we separate direct sales and omnichannel. In term of if it's a direct sales on our Tmall or, you know, JD platform, and then, you know, we sell direct to the consumer, and that order fulfillment will be you basically, shipping will be handled by, you know, for example, SF Express or by, you know, Basically, the shipping company actually would deliver deliver actually deliver it to your door, and no dealer or, you know, our franchise store involved in that process. However, they will need to provide after sales services as that's actually a mandate for all our dealerships and and the franchise stores.

Now with the omnichannel, it's slightly different. With omnichannel, essentially, what they do is actually we are our online platform is actually served as a you can think about serve as a as a lead as a as a customer lead generation for the for the dealers. So any consumer goes to online, pick the omnichannel, and then he actually can pick which store he is willing to pick up scooter at. And then we actually our online channel actually charge the store for more percentage of fee as a service fee. You know, part of that fee, actually, we we need to get back to, you know, Tmall and jd.com because they are actually charging that sort of platform fee.

And in addition, we charge a very small service fee as we provide the leads generation. So on that note, they you know, the dealers or or the franchise stores have, you know, have nothing against that sales because, essentially, we're actually because when they compare their user acquisition cost versus what we generate leads, they're actually very happy to participate in this omnichannel approach.

Speaker 4

Interesting. Okay. Thank you very much. I appreciate it.

Speaker 0

Your next question comes from the line of Bin Wang from Credit Suisse. Please ask your question. Binhwan, your line is open. You can now ask your question.

Speaker 5

Sure, sure. Thank you. Actually, got two questions. Number one is what's the growth in the first two months this year? And what's the number in March?

And what's number in April? And the first two weeks in May? I mean the volume growth year over year. I want to see the growth recovery trend. Can you provide this full number?

That's number one question. Number two is about the Gova. Is this batch Gova is mentioned Gova g zero is a new product and provide a price. I actually searched on the website. I don't see any source to see this number.

And I did actually find the go back official website. Basically, I don't cannot find from Internet to see go back twice. So what's the stretch strategy for the go back? Is it really a big thing for you? It's just this has been launched three products.

You also launched number four. Right? It's four products already similar to the online brand. I know this year, the door market such as a competitor, Yabi, share price has been reached a new high. Naturally, will match the volume a few minutes in the first quarter.

So can you elaborate a bit about GOLBA brand? Is that going to be a bigger business than an IG brand? Thank you.

Speaker 1

Yes. Let me answer your first question about the volume trends that we need to split or separate the China market and overseas market in order for us to see the true picture. For the Chinese market, if you look at our own sales, our January and February sales was down almost 70%, 70%. In March, our volume was only down by around 30, to three zero, 30%. Our volume in April was up more than 50%, and we see accelerating growth rate in May.

That's how we see the China growth. And so this is our growth our sales. In the meantime, we are also tracking our retail sales mean, the sales from our retail stores to consumers. They actually follow very similar trends. That's why you see how we recover from from this outbreak.

That's the China market. If you look at overseas market, our January and February volume growth up around 60%, six-zero percent. But since March, our volume is down around 20% and in April around 30%, May and June based on orders we saw probably down 50% to 60% based on order we already locked in. However, we do see some additional order coming in during last week, and we also see some of our overseas distributor began to push us to accelerate some of the shipment to them. Therefore, we do believe the overseas market may also reopen and also go back to kind of a growth rate probably in the third quarter.

So that's the how we see the growth in in different months in this year. So let's answer your first question. And for the second question on Gova, I will let Yan to comment on that.

Speaker 2

Yeah. So I think on the Gova question, so it's the Gova product. If you actually go to the new.com website, you actually can see the g one is already listed. The g zero has not been listed, but it's actually listed on the jd.com as we start as a presales. So with the presale campaign, it's something that the customers, at this point, can go on the jd.com, start shipping, basically put down a 100 doll a 100 RMB deposit.

And then the actual product delivery will be closed May or early June. So it's actually well in line with the with the with the jd.com's, you know, 06/18 campaign. So the Gova is actually we treat as a Gova series as as opposed to a separate brand. It's a lithium battery based, and the, you know, the the baseline version does not have the connectivity, but it's actually it's expandable to include the connectivity boxes such that people still can actually get connected to our app. So we, you know, we treat that GOVA as, you know, as part of as, you know, as equivalent saying n and u both series and the GOVA itself as just one series.

And we do think that actually have a big addressable market, especially with the with the China new regulation coming in starting last year in cities in top tier cities where the new regulations are being strictly enforced, there is a demand for a more practical still beautifully designed, but a more practical product models as entry models. Because we do observe there is a quite a bit what we call market segment anywhere between the 2,500 RMB to 3,500 RMB range. That's where the segment that currently, I think it's a it's sort of the high end of, yeah, the AIMA and the traditional players, and that's what we think our product lines can extend it to. But, obviously, anywhere lower than 2,000 RMB, that that market consumer segment, which is actually where, yeah, the IMR, all those guys reside in, that that market actually, I don't think in the near future is a market that we have where I don't think that that particular market is the market in the near future that we can enter. So we focus still focus on the mid to high end lithium battery based electric scooters.

Speaker 5

Okay. I just feel like a few people actually under lowered Govah and understand Govah, and this is very famous. Everybody, they like. So how do you have any plan to push the GoBra brand to make more people understand the brand? Maybe more offline shops for GoBra specifically, not just combined with NIO.

Speaker 2

No. We we we since we actually view as one of the new series, it actually will be sold through the new shops as opposed to the independent GOBA shops. And we're exploring different formats such that potentially set up what we call a store in store format in, you know, even a bigger, you know, multi brand shops that's a particular a dedicated Gova what do call it? A dedicated Gova counters or regions, but it still be branded as as NIU as new GOVA series.

Speaker 5

Oh, I see. Last question. Actually, I found the data shop actually has been declined. So it's the first time for the shop decline. So what's that?

So what's the future plan for the end of this year? How many number of shops will it be? Thank you. Last question. Right.

Speaker 2

So I think yes. So there there is a you know, we we do have a there is a shop which let me see. There's a handful of shops were closed in q one this year. I think it mainly because I mean, every year, we actually do that. We do that by this is what we call the optimization.

For example, actually, you know, I think our shop in Lhasa just closed. I need to confirm that because I was asking the regions. But, basically, every year, we we close down few you know, we close down number of shops, and we also open new shops. What happens this year in q one is basically every year we do that. But this hap this year in q one, especially even last in April, is, you know, we're actually going on a normal business in terms of closing down the shop that actually low performing shops.

In all previous years, in addition, especially in q one, you know, where the the the market sort of a a slow market, we actually opened quite a bit new shops. So the net gain of shop the net shop numbers, you always see an increase. This year, what happened is actually we shut down the shops. But for our new shops, we set we set up locations, but they were not able to finish remodeling and renovations such that we were not able to open them in time. And so that creates a delay in term of new shop openings.

A delay almost we see about a quarter or four months. But the shutdown shop didn't have that much delay, so that's why you actually see a decline in shops. I think our target this year is due to internal net adds. It's still gonna be around 300 shops over you know, on the base of a thousand shops from last year. But to the to the end of years, we look at at both from the the absolute number of shops as well as what do you call the the the sales square meter space.

And we actually believe the sales square meter space is more important because the money in quite a few cities right now, for example, in Shanghai, we we we have about 80 plus shops. In Beijing, we have about 60 plus shops. So, actually, it's difficult to actually add more shops, but it's actually essential to increase the the basically, the space. Right? Increase the size of the shop in those cities.

That's why you see in Shanghai, we start opening bigger shops and bigger shops as more products coming online. Used to be we only have n and m and u, but now you see we have n well well, in Shanghai, Beijing, we have our m two. We have our u plus u, US, as well as the Gova series. So even for a reg you know, for a cities with strictly regulations, we actually have five you know, six to seven product lines that meet the China bicycle regulations. So that actually require the shop space to be a bit bigger.

So our focus is actually adding are two twofold at this point. One is actually adding the number of shops. Second, for the existing shops to actually increase the area or increase the space to make it bigger.

Speaker 1

So just to add to to that, you know, the the the lease agreement for certain shops may ex ex express in q one. So some of the dealers may also take the the opportunity to temporarily close down the shop so as to avoid paying the rental. So that's another reason contributes to the temporary drop of our store numbers. But we already see the store number come back to the normal level in by the April. So it's just like one quarter thing.

Speaker 5

Okay. Thank you. Fully understand. Thank you.

Speaker 0

You. Seeing no more questions in the queue, let me turn the call back to Mr. Li for closing remarks.

Speaker 2

All right. Thank you, operator, and thank you all for participating in today's call and for your support. We So appreciate your interest and look forward to reporting to you again next quarter on our progress.

Speaker 4

Thank you.

Speaker 0

Thank you all again. This concludes the call. You may now disconnect.