Niu Technologies - Q1 2024

Transcript

Operator (participant)

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Niu Technologies First Quarter 2024 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 Ms. Crystal Li, Investor Relations Manager of Niu Technologies. Ms. Li, please go ahead.

Kristal Li (Investor Relations Manager)

Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss Niu Technologies' results for the first quarter, 2024. The earnings press release, corporate presentation, and financial spreadsheet has been posted on our investor relations website. This call is being webcast from company's IR site as well, and a replay of the call will be available soon. Please note, today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. 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 company's public filings with the Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statement, except as required by law.

Our earnings press release and this call include a discussion 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, Dr. Yan Li, and CFO, Ms. Fion Zhou. Now, let me turn the call over to CEO Yan.

Yan Li (CEO)

Thank you, Crystal, and hello, everyone. Thank you for joining us today. In the first quarter of 2024, our total sales volume was 129,000 units, reflecting a year-over-year increase of 37%. Notably, our sales volume in the China market saw uplift of 31% to 110,000 units, while our overseas market experienced a fast growth of 48% to 19,000 units. Total revenue of Q1 was CNY 504.7 million, marking a 21% year-over-year increase. Q1, 2024, was a pivotal quarter to realign our long-term growth trajectory. In the China market, we continued to refine our product strategy, concentrating on the premium segments. We bolstered our competitive product portfolio by enhancing our Classic series and broaden its appeal to encompass a more diverse range of vertical user groups.

A key highlight of this quarter was the successful launch of NXT model. The NXT series, characterized by its innovative design and advanced technology, was met with substantial market approval. It contributes 25% of our total sales revenue in China market this quarter, underscoring the efficacy of a strategic focus. Encouraged by the success, we're committed to persisting with this approach and excited about several upcoming product launches scheduled for Q2. The overseas market has met our expectation for regaining growth. In the micro-mobility sector, we have focused on expanding our sales channels to establish a strong foundation for product-driven growth for the rest of the year. We have increased our retail presence by partnering with leading retailers such as Best Buy and MediaMarkt, thereby expanding our physical footprint over 1,200 locations worldwide.

For our overseas e-moped and e-motorcycles, we have concentrated on exploring direct sales business models in key markets in Europe and the United States. We believe those strategic efforts are setting the stage for substantial growth in the coming quarters. Now, let's take a closer look at the China market. We have laid out our product development, conducted marketing activities, and expanded sales channels in Q1, all in alignment with our core strategy for this year. Our goal is to build an urban mobility brand focused on the premium market segment with diversified user needs. At our product launch event in February, we debuted the NX series. This series continued the design of first legendary scooter, the N1, but elevates with the futuristic elements like magnetic transparent panels, aerodynamic lines, and the enhanced version of signature halo light.

The NXT, the most premium scooter in this lineup, boasts the most advanced technology to date. The market received the NXT series exceptionally well, marking our initial venture into targeting young demographics with scooter products. To further expand our product lineup, targeting the Gen Z demographics, we have introduced the NPlay and the UMAX into the market. The NPlay was officially launched in March at a starting price of CNY 4,399, quickly becoming a competitive product among the young university students. Building on the momentum from NXT and NPlay, we are launching another product, the UMAX, completing our offering for the young consumers. The UMAX is specifically designed for young riders in Tier 1-Tier 3 cities. Attuned to lifestyle trends, it features a large form factor that enhance both visual appeals and the rider comfort, ideally for dynamic urban environment.

Performance-wise, the UMAX offers a maximum range of 160 km on a single charge, and includes a boost pump drive mode for rapid acceleration. For safety and enjoyable rides, it incorporates a TCS, ensuring a secure and adaptable experience across various urban terrains. Now, with the newest addition, our full range of products targeting the trendy, young riders, is now ready for the upcoming peak quarters. Another target group who aim to expand with our unique positioned products, is the female electric scooter riders. Earlier this year, we released our first female-focused scooter, the upgraded U1E. The U1E features new color scheme, ergonomic improvement in handles and seat positions, easy-to-use smart functionalities, and option to include baby seat, among its accessories.

Launched at the beginning of March, just in time for the International Women's Day campaign, this model accounted for 12% of total sales volume for the entire quarter, despite being on the market for only one month. Riding on the momentum for the U1E, we are continuing expanding our female-focused scooters. The latest addition to our classic M Series product line is the MS scooter, tailored to meet the unique needs of female consumers in the premium market segments. The MS scooter showcase the classic and the minimalist aesthetics, with color schemes in beige, white, and mint green, creating an elegant and clean style that distinguishes itself from other scooters in the market.

This scooter is also engineered specifically to cater the distinct needs and preferences of female riders, such as the traction control system to ensure a smooth riding experience, a dual-tube frame system for enhanced stability, and both front and rear disc brakes, offering an advanced level of safety. We also expect to introduce another product, specifically tailored for female users in the coming days, the O Series. The O Series combine aesthetic design and unique ergonomics to address the special needs of female scooter riders. We plan to release the O Series on July 1st, through a live stream with top influencers, and I look forward to sharing more details after the launch. Now, with the introduction of MS and O Series, we will soon complete our product line, targeting the premium female user segment of the market.

As I mentioned in my previous earnings call, building our product portfolio to target various premium segments, is a core component of our business strategy this year. I'm pleased to share that we have already received some initial positive feedback with this strategy in place. Now, with our product strategy in focus, we have been actively engaged in continuous marketing and branding campaigns to reinforce our brand identity. Recently, we launched a dynamic marketing campaign and broadcast a mix of videos across iconic landmarks in six major cities, significantly enhance our brand high-end positioning and robust capabilities. The campaign prominently features NXT, our cutting-edge flagship product, establishing it as an ideal vehicle for stylish urban commuters. The NXT is designed to resonate with the new generation of trendsetters.

The video showcasing key urban centers like Beijing, Shanghai, and Guangzhou has captured the public's attention, amassed a total of nearly 200 million views. Now, our branding effort are also centered around the newly introduced product lines, targeting specific user demographics. At the beginning of the year, we announced our collaboration with JD Gaming, a top-performing e-sports team. As their official electric vehicle partner, we collaborate ranges from brand activities to product launch, aiming to making a significant impact on the Generation Z demographic, which align with our product focus. To further bring up our product presence among the young users, we have initiative to collaborate with top gaming peripherals brand, Razer. Last year, we released a co-branded Niu x Razer SQi Limited Edition, and this year we're taking the partnership one step forward to collaborate as Razer's brand ambassador.

In May, Niu joined Razer to host gaming events in various universities by presenting Razer Niu co-branded scooters. So far, the event has covered numerous universities, with 2,000 event attendees. In addition, during the period, we have generated widespread content on social media for more than 2 million views. We plan to carry out a series of student events throughout 2024, with 100+ universities to host the event. Now, to engage the female demographic effectively, we have launched a series of online campaigns, specifically tailored to introduce scooter design for female users. In Q1, with our upgraded U1E scooters, through a live stream campaign led by a prominent influencer, garnered a significant traction and position us as the top brand in the mobility category during the campaign period. Now, throughout the launch of this flagship product, we continue our online campaign effort.

We collaborate with over 70 KOLs in the industry, and create approximately 200 pieces of high-quality content, which generate 80 million views across various platforms. Now, let me turn into the overseas markets. This quarter, we have witnessed a year-over-year growth of 48%, driven by the micro-mobility sector, with year-over-year growth of 63%. The growth in the micro-mobility sector is combined results of product offering expansions and the sales channel lineup. On the product portfolio front, with the introduction of the KQi Air, a full carbon fiber, lightweight performance kick scooter in last year, September, we now have a comprehensive product lineup. To further complete our product offerings, in Q1, we launched the KQi 300 series, which is the enhanced upgrade of the popular KQi3 series, designed for all urban terrain use.

The series featured a dual tube hydraulic suspension for better handling on uneven surfaces, promising up to 60 km range per charge. Starting at $699, the KQi 300 series was met with great popularity upon its pre-order period. The KQi 300 will be officially made available in Q2 this year, and we believe it will lift the sales volume in the coming months. Now, with our comprehensive product lineup, we've made a significant progress in entering retail channels since the second half of last year, laying out a solid foundation for the growth. In the United States market, we're well positioned in 800+ Best Buy stores, and are advancing our effort to enter additional retailers like Lowe's, Home Depot, Walmart, Target, and Costco.

In Europe, our product is displayed in over 400 MediaMarkt stores in Germany, over 100 Boulanger stores in France, and over 100 MediaMarkt and the El Corte Inglés stores in Spain. We're working closely with our retail partners on marketing campaigns to boost sales, which proven effectively during the first quarter. During a pilot promotion with our German resellers, we witnessed a year-over-year growth of over 300% in scooter activation numbers in Germany. To further expand our retail partnership, we are actively moving forward with the new retail dealers such as Decathlon in France, MediaWorld in Italy, and others. Through our retail network expansion effort, we aim to double our retail footprint, selling micro-mobility products by end of 2024.

Now, the electric two-wheeler sector in Q1 is marked by a significant transition in both our product portfolio and operating models across core business markets in the U.S., EU, and Europe. Last quarter, we introduced the MQi GT, RQi, and XQi models, all of which has garnered a considerable attention, and a strategic fill the gap in the market, offering a comprehensive coverage from 50 cc to 125 cc electric two-wheelers. The XQi recently received the prestigious Red Dot Award in April this year, joining a few other new legendary products that have received this honor. All those products encountered a temporary logistics delay; we anticipate they will be fully distributed in the targeted markets by second quarter 2024, aligning perfectly with the peak sales season. During this quarter, we have made significant adjustments to our business operations overseas.

In several key markets, alongside our existing distributors, we're establishing local entities and operations team to manage the direct distribution to dealers. We believe those direct distribution to dealer model allow us to invest more heavily in local branding and marketing efforts, establish a strong customer relationship, and increase our adaptability to local market fluctuations. While those operations changes require time to fully implement, and direct to dealer model has extended the sales and revenue recognition period, we're confident this strategy not only deepen our roots in those local markets, but also drive substantial long-term growth. Aligned with our updated product offerings and expansion of sales network, our branding efforts in Q1 has been actively pursued internationally. We focused on both enhancing our brand presence relationship with our sales network, including the distributors and dealers, by sharing our plan for the upcoming quarters.

To build and solidify our brand presence, in Q1, we actively participate in major industry events such as AIM Expo in Las Vegas, Motorräder in Dortmund, Germany, and the Salon du 2 Roues in Lyon, France. Those events significantly amplify our brand visibility. Furthermore, we hosted a series of new connect events aiming at local media, distributor, retailers, to showcase and introduce our 2024 product lineup. In Q1, we successfully carry out those events in France and Italy, bringing together over 50 partners to provide commercial and technical information on our new products and test drive our new products. Notably, the local media partners, including Cleanrider and more, have published very positive reviews of our product. We plan to continue the new Connect series throughout the year in various locations, demonstrating our commitment to build long-term relationships with our partners in the core regions.

Now, as we conclude in Q1, we anticipate a continued growth in Q2. For China market, the growth is driven primarily by introduction of new products and channel improvements. We have already witnessed the great popularity of NX series launch in Q1, while waiting time to finish release of premium product line, the MS and O series, in the coming weeks. Furthermore, our comprehensive approach to expand channels through both the physical stores and online platforms, ensures that we are broaden our market footprint while meeting the diverse needs of our customer base. We actively expand our sales channels to improve offline coverage in all-tier cities to support our products. With additional new stores, the key focus for 2024 remains in the improvement of same store sales by leveraging a combination of online to offline traffic.

In Q1, we conducted over 6,000 live stream sessions on platforms such as Douyin, Tmall, JD.com, and Xiaohongshu. Notably, the newly entered Douyin live stream platform has positioned us as top three brand in this category, indicating a successful online to offline conversion model that we plan to scale up further. In Q2, we have a series of product launch event planned to utilize the online live stream sales network, which will be our channel focus for the coming quarters. As we enter the peak sales seasons in, with campaigns such as 618 Online Shopping Festival, we aim to drive further same-store growth. With the product portfolio enhancement sales expansion, we believe we are well-positioned in China market for the rest of the year.

However, we also observed a macro sluggish market trend in Q2, and we will remain cautious about potential growth in our China market in Q2. For the overseas market, we maintain a positive outlook. In the micro-mobility segment, we anticipate 2x growth throughout the year, supported by our comprehensive product portfolio and established sales network. The introduction of KQi 300 series promise to lift sales volume in the coming months. Our significant progress in entering retailer channels has laid out a solid foundation for growth in 2024. We're advancing our effort in entering additional retailers in this key market. Now, in the overseas motorcycle market, with the adjustment in product offerings, operation strategy, we're confident to regain growth by Q2. The recent introduction of this new product garnered a considerable attention that strategically filled the market gaps.

We anticipate the distribution of the new product in the target market by Q2, aligned with the peak sales season. Additionally, the establishment of local entities, the operation team, to manage direct-to-dealer distribution, will allow us to invest more heavily in local branding and marketing effort. We're now working with over 100 dealers in our direct sales network, and we plan to continue to grow those numbers throughout the year. So in summary, our strategy focus on product innovation, targeted market campaign, and robust channel expansion, both domestically and international, position us well for the continued growth. We're confident in our ability to improve sales and achieve our business objective in the upcoming quarters. Now, I will turn over the call to our CFO, Fion Zhou, to talk about financials.

Fion Zhou (CFO)

Thank you, Yan, and hello, everyone. Please note that our press release contains all the figures and comparisons you need, and we have also uploaded the Excel format figures to our IR website for your easy reference. As I review our financial results, I'm referring to the first quarter figures, unless I say otherwise, and all monetary figures are in RMB, if not specified. As Yan just mentioned, our total sales volume for the first quarter was 129,000 units, up 37% compared to the same period of last year. One hundred and ten thousand units were sold in China, while the remaining 19,000 were sold overseas. Over 50% of our sales volume in China was contributed by the new product launched this quarter.

The total revenue for the first quarter amounted to CNY 505 million, an increase of CNY 87 million, or 21% compared to the same period of last year. In China, revenues were CNY 445 million, accounting for 88% of the total revenue. Of this, the scooter revenue was CNY 393 million, a year-over-year increase of 28.8%. And this increase was mainly due to the increase in the sales volume and partially offset by a decrease in revenues per scooter. The China scooter ASP was RMB 3,568, a year-over-year decrease of 4.7%, while a quarter-over-quarter increase of 11% compared to last quarter. And the year-over-year decline in ASP was mainly due to a change in product mix within the premium series.

Last Q1, our revolutionary high-end electronic bicycle, the S Series, debuted in the market with a retail price range of CNY 8,999-9,999, and contributed 6% of the sales. While this quarter, we introduced our flagship product, NXT, with a wider retail price range from CNY 6,299-7,999 and CNY 12,499. All above contributed 26% of this quarter's sales. Overseas revenue was CNY 60 million, accounting for 12% of the total revenue. The scooter revenue, including e-motorcycles, e-mopeds, kick scooters and e-bikes, amounted to CNY 49 million, compared to CNY 53 million in the same period of last year. The decrease was mainly due to the decline in the sales of electronic motorcycles and mopeds, and partially offset by the increased sales of kick scooter. The micromobility revenue was around CNY 43 million, up 10% year-over-year.

The overseas scooter ASP decreased from CNY 4,138 to CNY 2,577. The year-over-year, as the sales of the kick scooter with the lower ASP increased, like our entry-level K1 and KQi2 series. However, compared to the fourth quarter 2023, the ASP increased 18% quarter-over-quarter. The revenue from accessories, spare parts, and services amounted to CNY 63 million, a 7% increase compared to the same period of last year, due to the increase of spare parts sales in China market. The gross margin for the first quarter was 18.9%, 2.8 percentage points lower than the same period of last year, and 0.1 percentage points lower than the previous quarters. This decline was mainly due to an increase in the proportion of kick scooter sales overseas, along with the lower margin for e-scooters in China.

In China, we changed our product mix to focus more on the widened price range of the premium market, as I mentioned earlier, and additionally, we allocated part of the growth margin to our distribution channels, which further reduced the company's overall growth margin. In talking about operating expenses, the first quarter OpEx was CNY 165 million, representing a 4.6% increase compared to the same period of last year. Selling and marketing expenses were CNY 105 million, up CNY 33 million year-over-year, primarily due to our overseas business expansion, which resulted in a higher after-sales services and rental expenses, as well as the higher advertising and promotion expenses in international markets. Research and development expenses amounted to CNY 29 million, down CNY 6 million year-over-year, mainly due to a CNY 5 million decrease of share-based compensation in staff costs.

G&A expenses were CNY 31 million, down CNY 20 million year-over-year, mainly due to a decrease in the bad debt provision of CNY 20 million. In the first quarter, we had a net loss of CNY 55 million, with a net loss margin of 10.9% under the GAAP accounting, compared to a net loss of CNY 60 million for the same period of last year, and the adjusted net loss was CNY 49 million. In turning to our balance sheet and cash flow, we ended the quarter with CNY 1,192 million, versus CNY 860 million last year, in cash, restricted cash, term deposits, and short-term investments. Our operating cash inflow amounted to CNY 34 million, and we expect the operating cash flow to remain healthy afterwards, as the payment terms to our suppliers exceed our invoicing payment terms.

CapEx for the first quarter amounted to CNY 21 million, reflecting an increase of CNY 5 million compared to the same period of last year, and this can be attributed primarily to an increase in the opening of new stores in China. And now, let's turn to the guidance. We expected the second quarter revenue to be in the range of CNY 912 million-CNY 955 million, an increase of 10%-20% year-over-year. And please be aware that this outlook is based on the information available as of the date, and reflects the company's current and preliminary expectations, which is subjected to change due to uncertainties related to various factors. And with that, we'll now open the call for any questions that you may have for us. Operator, please go ahead.

Operator (participant)

Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Please stand by while we compile the Q&A queue. Once again, that's star one and one on your telephone, if you'd like to ask a question. To withdraw your question, please press star one and one again. Please stand by while we compile the Q&A queue. We'll now take our first question. Please stand by. Our first question comes from the line of Yating Chen from CICC. Please go ahead, your line is open. The line of Yating Chen is now open. Please go ahead with your question.... Once again, the line of Yating Chen is open. Please go ahead with your question.

Yating Chen (RS Automotive and Mobility Equipment)

Oh, sorry, I, I muted. So, my first question is about the gross margin. We have seen that the structure of the products improved quarter-on-quarter because the proportion of premium products improved quarter-on-quarter. But the gross margin didn't improve a lot quarter-on-quarter. Could you please explain the reason?

Fion Zhou (CFO)

This is Fion. Regarding to the gross margin compared to the last quarter, actually, you know, there is a major difference if we see the quarter-over-quarter differences, that we changed our sales policy, that we sharing more gross margin with our distributors to regain the Chinese market and also reinforce their belief in the new product. While in the meantime, we also, you know, change the partnership or the way that we used to cooperate with our distributors, that we are responsible for all the marketing and the promotion expenses related with the retail from the retail side.

This year, since we are sharing more gross margin with our distributors, we are going to reduce the marketing expenses and subsidies to the retail channel, to maintain a healthy, contributing margin or the operating margin, before the tax. This is the common practice with our competitors. And also, you know, we think it's a good time to reinforce our sales channel with our, you know, improved all the new products in the appropriate distribution channel. So this is the main differences if we see the gross margin quarter-over-quarter change.

With the gross margin year-over-year change, just as I just explained, on top of the sales policy change in China, the main reason is that the proportion of KQi scooter sales overseas contribution is more than last year.

Yating Chen (RS Automotive and Mobility Equipment)

Thank you. My first question is about the OpEx. Because the selling expenses in Q1 is still high, so, will we see the downward trend of the selling expenses ratio in quarter two and three and four? So will you give us a guidance about the selling expense ratio?

Fion Zhou (CFO)

Okay. Regarding to the selling and marketing expenses, actually, when we separate by segments, the S&M expenses in the domestic market as percentage of revenue has been reduced by this quarter by around 2%-3%, two to three PPT as percentage of revenue. While in the meantime, the international selling and marketing expenses in the international market is still at a high level. Just as I just explained, that we keep going to invest in the brand recognition, the channel building in the overseas market. And that's why, you know, those kind of expenses, it's to as percentage of revenue or as per scooters expenses, it's kind of like a fixed expenses.

It cannot be, you know, it cannot change to the various parts since the sales volume in the international market is still at a relatively lower level. And we expected those kind of expenses to be changed as the various expenses once, you know, our sales volume could be reached to above, you know, 300,000 to around 500,000, and then those kind of expenses could be, you know, could be much lower per scooters. And this is the main reason why the selling and marketing expense is still at this higher level. We hope we expected this year's selling and marketing expenses as percentage of revenue will become lower quarter-over-quarter. And up to now, we see it's still on the track.

So next quarter, when we release our financial figures, the overall selling and marketing expenses as percentage of revenue will be reduced compared to this quarter.

Yating Chen (RS Automotive and Mobility Equipment)

Understand. Thank you very much. And my third question is about the retail stores. In 2023, we have seen a decrease of retail stores in China. So, we have seen that our sales volume start to grow again. So, do you have plans in 2024 about the retail stores in China? Will we increase the volume of retail stores in China this year?

Yan Li (CEO)

Yeah, I think that's right. So we're looking to expand number of stores. So if you look at Q1 this year, so we actually in Q1 this year, we have the numbers, the store counts actually have increased. At you know, less than 100, like, you know, about 20 or 30 number stores. That's because many stores are actually in construction and haven't really finished the construction. So, we're looking at, you know, basically adding a few hundred stores in Q2, and in Q3 and Q4, it depends. I think Q3 is usually a peak season, where the store adds will be actually less, but the Q4 will continue to expand the stores.

Yating Chen (RS Automotive and Mobility Equipment)

Understood. Thank you very much. My last question is about our sales volume target in 2024. Because in the 2023 annual call, we gave the guidance about the sales volume in 2024, which means we had a target to sell more than 1 million units in 2024. So, will we keep the target as presented, or lower down or improve it?

Yan Li (CEO)

No, I think at this point, we still keep the target. And so basically we're still looking for 1 million-plus units, you know, including China and also including China and the overseas altogether.

Yating Chen (RS Automotive and Mobility Equipment)

Okay. So, will we see that the growth more from China market or from the overseas market? Because-

Yan Li (CEO)

I think in terms of our growth, in terms of our growth percentage, I think that will actually come more from the overseas market, because overseas markets start with a lower base. Last year, the overseas market is, you know, roughly about 100,000 units, right? So in terms of our growth percentage, I expect we actually will see more from the overseas market. But in terms of the volume, absolute volume number growth, you will see more from the China side.

Yating Chen (RS Automotive and Mobility Equipment)

Okay. Thank you. Understand. Thank you for your time. That's all my questions.

Operator (participant)

Thank you. Once again, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Please stand by while we wait for further questions. There are no further questions at this time, so I'll hand the call back to CEO, Dr. Yan Li, for closing remarks.

Yan Li (CEO)

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

Operator (participant)

This concludes today's conference call.