Niu Technologies

Good day, ladies and gentlemen. Thank you for standing by. Welcome to New Technologies' second quarter 2024 earnings conference call. At this time, all participants are in this anonymous mode. Later, we'll 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'll turn the call over to Ms. Crystal Lee, Investor Relations Manager of New Technologies. Ms. Lee, please go ahead.

Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss new technologies resolved for the second quarter of 2024. The earnings press release, corporate presentation, and financial spreadsheets have been posted on our investor relations website. This call is being webcast from our company's IR site as well, and the 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 Security 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 companies' public fillings 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 included discussion of certain non-GAAP financial measures. The press release contained a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results. On the call with me today are our CEO, Dr. Yan Li, and CFO, Ms. Fionn Jo. Now, let me turn the call over to CEO Yan.

Thank you, Crystal, and hello, everyone. Thank you for joining us today. The second quarter of 2024 continued the growth trend from Q1 with a total sales volume of 256,000 units, reflecting a year-over-year increase of 21%. The China market saw a 16% year-over-year increase to 207,000 units While the overseas market experienced a significant year-over-year growth of 45% to 48,600 units, total revenue reached RMB 940.5 million, marking a 13.5 year-over-year increase. This performance underscores the effectiveness of a strategic focus on expanding product, sales channel, and the market coverage. We have made substantial progress in both China and overseas market reflected in the improved performance and increased recognition from our partners. In China, we focused on enhancing our product portfolio with new offerings around the core series. The new product introduced received positive feedback from users. In Q1, we launched product strategy to focus on target groups and Q2 expanded our product offerings to further meet the diversified needs from the core groups. In the overseas market, we have significantly expanded our sales network for micro-mobility products by partnering with the key retail channels. This expansion has greatly increased our market presence, expected to further drive long-term growth. In the electric two-wheeler segment, we are optimizing our business operations to focus on key markets. We have completed the initial phase of building a foundation of direct sales in key markets in Europe and the United States for our key products. Although the strategy to invest more heavily in local operations takes time to implement in the beginning, we're confident that a direct-to-market approach allows us to adapt more to the local market, thus can bring substantial growth in the long term. Now let me delve into the China market. Our growth is driven by a strategic focus on product portfolio expansion, sales channel growth, and same-store sales improvement. This year, we emphasized on product development on targeting both the high-end premium segment to reinforce our brand premium image, and specific consumer segments like Gen Z and female users. We initiated efforts to expand sales channels by increasing the number of stores, increasing under-penetrated CDs. Additionally, we strengthened our omnichannel approach, integrating online and offline strategies to boost same-store sales. In Q1, we introduced the NXT, or Most Premium Electric Bicycle, priced at RMB $12,899. It quickly became the leading product in segments, equipped with advanced features like full-function ABS, CCS, blind spot detection, a car-grade dash 4, and a millimeter wave radar. Riding on this success, we launched the N-PLAY electric motorcycle and the UMAX electric bicycle designed to appear to the young Gen Z riders. The N-PLAY inherited the classic N design and the UMAX offered a larger form factor, inherited the classic U series design. Additionally, we focused on female demographic by launching the upgrade at U1 in March, coincided with the International Women's Day, combining the classic design with user-friendly and safety-focused features. Those new products are well-received, collectively accounting for more than 50% of all units sold in Q2, underscoring our strict focus on targeting product development. In Q2, we continued the product development strategy to roll out our key premium products and expand the product portfolio for Gen Z and female users. We prepared the launch of NX, our most premium electric motorcycles, which was recently released in the market in July. The NX offers a customizable smart tire pressure monitoring system, high-quality disc brakes, and adjustable suspension for smooth ride. Equipped with the most up-to-date new smart functionality, the NX is priced from RMB $6,500 to $20,900. We believe the product will not only contribute to the sales volume, but also reinforce NX's leading position in the premium electric scooter market. To continue to explore products targeting the Gen Z user group, we recently launched the NTPlayer electric bicycle that inherited the classic design of the N-Series, and it combined the advanced motorcycle-grade hydrolyzed electric bike. Equipped with top features such as keyless ignition, TCS traction control, cruise control at the push of 50 during the ride, The NT is priced competitively at RMB 4,499. For the female consumer segment in May, we released the O Series to complete our product offerings covering the premium female sector. The O Series is designed for young female riders with focused on comfort and looks. It emphasizes easy long distance riding safety, simple operations, and design excellence. Key design features include comfortable seating, ergonomic handles, stable riding triangle in addition to the new smart features to ensure a delightful and comfortable riding experience for urban commuters. The old series was launched in the market on June 1st through our live stream. So our product rollout strategy positions the new portfolio with premium products while also focusing on diversified offering for unique user needs. Each product maintains a consistent design element and new signature halo light to help strengthen our brand recognition in the market. Now for our marketing campaigns this year, we have strategically focused on penetrating target user groups with our new product launches. Statistically, we have integrated marketing efforts aimed at the Gen Z and female demographics. To engage the Gen Z group, we expanded our partnership with JD Gaming, a popular online gaming team in China, through co-branded product launches, live stream sessions, and the gaming competition sponsorship. Additionally, we collaborated with Razer, including launching a new X-Razer XQI Limited Edition and participating in a game competition across 50 universities, generating over 50 million views online. Other initiatives, including a sponsored U18 basketball team game and the running university's new KOL Ambassador programs. With the product focused on female user groups, we launched a targeted sales and marketing initiative. For the O-Series launch, We executed a comprehensive campaign on the Xiaohong tool, leveraging KOL content marketing and influencer events. This included widespread exposures, in-depth user experience, and media coverage. Across all platforms, we have our content around the product released this year, gaining 1.1 billion views. With those marketing efforts and new products, we observed a significant increase in interaction across all social media platforms. This quarter, the new brand received a total of 125 million interactions, representing a 22% increase year-over-year. The growth in interactions on social media platforms indicates that both our product and marketing campaigns are gaining significant traction and effectively resonate with our audience. Now, regarding the sales network expansion, we made an effort to enhance our sales networks through both channel expansions and same-store sales improvements. Driven by the new product introductions, we resume the channel expansion this year, opening 400-plus new stores in the first half, resulting in close to 300 store ads, primarily in Tier 3 and Tier 4 CDs. While this growth is modest compared with our total store counts, it signals the start of a renewed momentum in our sales network expansion. We anticipate a continuous positive trend in Q3 and Q4. In addition to new store openings, our key focus this year has been on improving safe store sales through our omni-channel approach, driving online traffic to offline stores. We significantly increased the effort on the traditional e-commerce platform with online orders accounting for 48% of total orders in the first half, versus last year at 26%. In addition to traditional e-commerce platform, we actively expand our online presence on Douyin, Xiaohongshu, and Kuaixiong. Leveraging a strong content from our influencer network, those platforms became the fastest growing channels. For example, Andouyin will ramp up the in-store live stream sessions across 15 major cities, conducting more than 500 sessions and nearly 2,000 hours of streaming this quarter. By end of Q2, over 22,000 orders were placed on Andouyin compared to a double digit from same period last year. Those efforts improved the same store sales close to 7% year-over-year in Q2, laying a strong foundation for future growth. Now let me turn you to the overseas market. This quarter marks the period of growth and strategic execution. In the micro-mobility category, we achieved a 54% year-over-year growth in volume and launched a key strategic partnership to expand our sales network. For electric two-wheeler segment, we focused on building direct sales operations to revive our market presence in key markets. In micromobility, we leverage our established product portfolio to grow market presence by updating our well-received products with new versions and enhanced channel penetrations in key offline channels. In Q2, we introduced the KQi300 series as a significant update to the popular KQi3 series, offering versatile and powerful options for urban commuting. including the KQi 300p and 300x. Both features advance due to hydraulic suspension system for smooth ride or rough surfaces. Both models include a smart connectivity to the new app, enhancing the overall ride experience with customizable settings and safety features. The KQi 300 sold over 10,000 units in the first few months during its launch, and it quickly attracted attention from influencers, media, and industry. In the first half of 2024, we also expand our micro-mobility offline retail channels in key countries in the US, Germany, and Australia, achieving notable growth in the key market. In the US in July, we announced our strategic partnership entering all 800 plus Best Buy stores. This milestone allows us to reach a wide market across the United States. Udallness Momentum is also collaborating with Walmart, Kohl's, Target, and Home Depot to diversify our product offerings across various channels. Similar expansion efforts were carried out in Europe and Australia. In Germany, our products are now over 400 MediaMarkt Satone stores. And with successful pilot programs, Australia saw considerable progress with JB HiFi stores increasing to 230, and hundreds of book guides and Harvard Norman stores are also displaying our products. Now moving forward, our focus for the rest of the year is to leverage our well-rounded product portfolio and establish a sales network to drive growth in both sales volume and profitability. In response to change the import tariffs to the United States, we have an initial effort to relocate part of our manufacturing outside China. Now shifting to the electric two-wheeler segment, the business decreased by 69% year-on-year in first half 2024, driven by both external and internal factors. Externally, key markets in Europe, like Germany, France, and Dutch region saw a significant drop in the total market volume after withdrawal of government subsidies for clean energy product, leading over a 50% decrease in total market size. Internally, we transitioned to a direct sales model in core market. While this shift will drive substantial long-term growth, it requires time to be fully implemented and realized. By Q2, we have added 100 plus dealers on board in those key countries, and those build a good foundation for future growth when the market starts to turn around. Now, looking ahead, we're optimistic about the coming quarters for both China and overseas operations. In China, we'll continue our strategy of optimizing product portfolio with premium products and Gen Z mass premium products to be announced in this market in July and August. including same-source sales with omni-channel approach and building our market effort around the specific consumer segments. Those adjustments have shown very positive results in Q1 and Q2, and we're confident that this will bring faster growth in Q3 and Q4. Overseas markets expect sustained growth in micro-mobility segments supported by the comprehensive product portfolio and solid-channel presence in the key markets like Germany, US, and Australia. We have observed a strong 32% year-to-year growth in the product activation in July, and those growths are sustainable throughout the year. In the electric tool world market, while we're updating our product offerings, our focus remains on expanding the dealer network throughout the rest of the year to regain the dealer network footprint. Now with that, let me turn the call to Fionn.

Thank you, Yen. Hello, everyone. Please note that our press release contains all the figures and comparisons you need. And we have also uploaded Excel format figures to our IELTS site for your easier reference. As I review our financial results, I'm referring to the second quarter figures, unless I say otherwise. And all mandatory figures are in R&B, if not specified. At the end, as mentioned, our total sales volume for the second quarter was 256,000 units. up 21% compared to December of last year. 208,000 units were sold in China, while the remaining 48,000 units were sold overseas. Nearly 60% of our sales volume in China was contributed by the new products launched this year. And the total revenue for the second quarter amounted to $940 million, up $112 million, or 13.5% compared to the same period of last year. China revenue was $8 and $2 million, accounting for 85% of the total revenues. And of this, the school revenue was $727 million, up 14% year over year. And this increase was mainly due to the higher sales volume partially offset by a decrease in the revenue for scooters. China's scooter ASP was RMB 3503, down 2% year-over-year and 2% quarter-over-quarter. The year-over-year decline in ASP was mainly due to a change in product mix within the premium series. This quarter, the sales volume of our high-end lead-acid motorcycles grew favorably in the premium market. accounting for one-third of the sales in our premium series. And these models are typically offered a competitive price, which explains the slightly decline in ASP and margins as well. The overseas revenue were $138 million, accounting for 15% of the total revenue. The scooter's revenue, including e-motorcycles, e-mopeds, kick scooters, and e-bikes amounted to $130 million compared to $150 million in the same period of last year. And this growth was mainly due to the increased sales of kick scooters and partially offset by the decline in the sales of electronic motorcycles and mopeds. The micro mobility revenue was around $119 million, up 32% year-over-year, and the overseas scooter ASP decreased from RMB3430 to RMB2682 year-over-year, as the increased proportion in the sales volume of kick scooters. However, compared to Q1 2024, the ASP increased 4% quarter-over-quarter. The revenue from accessories, spare parts, and services amounted to $83 million, a 10% increase compared to the same period of last year due to the increase of sales, spare parts in China market. And the gross margin for the second quarter was 17%, 6.1 PPT lower than the same period of last year, and 1.9 PPT lower than the previous quarter. This decline was mainly due to the lower margins of China's scooters and the increased proportion of the overseas keep scooters with a lower margin. In China, as we mentioned previously, our high-end lead acid motorcycles offered a lower margin compared to our classic premium lithium ion ones. And meanwhile, we contributed to allocate part of the margins to our domestic distribution partners, to reward their loyalty to the company. And talking about operating expenses, the second quarter OPEX was $192 million, representing a 3.5% decrease compared to the same period of last year. And the total OPEX ratio decreased from 24% to 20%. Selling and marketing expenses were $120 million, up 11 million year-over-year, primarily due to the new products promotion in online shopping festivals like June 18, May 20, and other advertisements in China. Selling and marketing expenses as percentage of revenue went down from 13.2% to 12.8%. R&D expenses amounted to 32 million, down 9 million year-over-year, and mainly due to a decrease of $9 million in share based compensation and staff cost. R&D expenses as percentage of revenue went down from 5% to 3.4%. G&A expenses for $39 million down $9 million year-over-year mainly due to the decrease in an allowance for doubtful accounts. G&A expenses as percentage of revenue went down from 5.8% to 4.2%. In the second quarter, we had a net loss of $25 million with a net loss margin of 2.6% under the GAAP accounting, compared to a net loss of $2 million for the same period of last year. The adjusted net loss was $20 million, with an adjusted net loss margin of 2.1%. And turning to our balance sheet and cash flow, we ended a quarter with $1.3 billion in cash, restricted cash, term deposits, and short-term investments. Last quarter, this amount was $1.2 billion, and last year end was $1.1 billion. Cash inflow amounted to $174 million, and we expected the operating cash flow to remain healthy going forward. The capex for this quarter was the outflow $20 million. And reflecting an increase of $5 million compared to the same period of last year, 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 third quarter revenue to be in the range of $1,298 million to $1,483 million, an increase of 40% to 60% year over year. And please be aware that this outlook is based on the information available as of the date, and it reflects the company's current and preliminary expectations. which is subjected to change due to the uncertainties relating to various factors. And with that, we're now open for the call for any questions that you may have for us. Operator, please go ahead.

Thank you. We will now begin the question and answer session. To ask a question, please press star 11 on your telephone and wait for a name to be announced. If you'd like to cancel requests, please press star 11 again. One moment for the first question. Our first question comes from Kai Kang from Citix. Please go ahead.

Okay. Thank you for the opportunity, and thank you, Mr. President Lee, and thank you, President Pham. And I'm Kai Kang from the Citix Security and also from CSA. And I have two questions. And the first question, as we have mentioned, that we will have a strong growth on the third quarter of 2024. So what GPM do we think we can achieve in the third quarter as our volume will be much better with scale effect? And maybe for some of the long-term or mid-term GPM, do we think we can achieve or can get? And that's the first question.

Sorry, let me repeat the question.

So basically, you're asking about the third quarter strong growth, and you're asking about the GTM?

Yes.

What do you mean by GTM? The go-to-market plan?

The growth profit market.

Oh, OK.

So regarding to the growth, so you're asking about the reason why the growth margin dropped, right? This is Vian.

Yes, and the trend of the growth profit margin in the next few quarters.

Okay, all right. So regarding for the gross margin, actually this quarter and last quarter, the reason is mainly in count on the domestic gross margin drop. As I just explained, starting from this year, we plan to launch the high-end lead asset motorcycles in our premium series. Normally in domestic markets, we set a bar that the MSRP above $4,500 is our premium series. And below that is our mass premium series. And this year, our high-end lead-acid motorcycles, the cheapest model of our high-end lead acid one is around 4,800 RMB. So this means, and we also launched the other lead acid high-end motorcycles, set the price around 6,000 to 8,000 MSRP, which is also lead in the the leader in the premium market in our premium series and also in the China market. But those lead acid one growth margin is around 5 to 7 ppt growth margin less than our premium models. Normally our premium lithium-ion one got the growth margin around 22% to 28% growth margin. And the lead acid one is around 5 to 7 ppk lower than our traditional premium lithium ion one. This main factor drives our growth margin in China market and also in blended in total. to around 3%. And the rest of 3%, as I just explained last quarter, that this year, since we launched the different new products fitting to different consumers, like Yan just mentioned, the Generation Z, the female ones, the lead acid products, which are new to the market. So we offered several points of the channel profit to our distributors to thank for their loyalty to our brand during last year and the year before last when we were facing the difficulties in the domestic market. and also to boost their confidence and help us to build in the more healthier sales channel in the domestic market. And that's why we are able to open the new stores in the first half of this year, more than 400 new stores in China market. And those are the two major points which drag down our growth margin in China market. And in the main well, Our overseas markets, the kick schoolers revenue contributes around 14% of our total revenues compared to only 10% last year. And those increased proportion of the overseas kick schoolers also drag down our blended gross margin in total. And those are the main reason why the gross margin dropped compared to last year. But for the following quarter and when we see the overall this year's guidance, we won't expect our year end or the average annual growth margin go back to around 22% to 23% as we previously did in 2021 or 2022. But we expected the world's margin this year would be lower than the year before last and last year. But still, we'll remain at the higher level when we compare to our competitors in the China scooters market. Hope this will answer your question.

Thanks a lot. I see the trend on this margin. And also, you also mentioned about new shops and new dealer networks that we are expanding in China. So do we now have a higher target on the dealer network volume or shop volume in China at the end of this year? Or what's the target on the dealer network?

I think the goal is actually to add another, roughly another thousand stores this year, you know, in addition to the existing ones we have. I think the first half, I mean, we opened up, you know, 400 plus stores, but also I think we shut down about 100 something. So basically that results in a net of close to 300 stores. I think the rest that we're looking at is, you know, basically what we need to do for Q3 and Q4.

Thank you. It's very clear, and thank you.

Thank you for the questions. Our next question comes from James Zhou from UBS. Please go ahead.

Dear management, thanks for taking my questions. I have one question. So we all know that the new national standard is about to roll out in a few months. there is any comments on the potential policy and maybe its impact on the high-end integrated markets we are in?

Well, I think we're still very closely monitored and actually looking to study this new national standard. I think it has, basically, the standard has some key things around battery safety, which actually may actually I think will be actually positive news for us and also you know have the standard also have some requirement on sort of you know the design form factors so our design team is actually really looking into the standard and actually in the process basically are developing product that meeting new standards so you know in terms of the impact you know I guess what we had to

Just watch and see. Okay, thank you.

Thank you for the questions. Once again, to ask questions, please press star one one. One moment for the next questions. Our next question comes from from CICC. Please go ahead.

Bichan, your line is open. You may unmute locally.

Oh, hello. Good evening. I'm Yatin from CSCC. And my first question is, what is your expected gross margin of kick scooters in the mid to long term? Because we can see that the gross margin of kick scooters may be lower than scooters in domestic markets. So how can we improve the gross margin of kick scooters? And what is your expectation of it?

Well, this is Bian. I'll answer this question. Actually, our kick source gross margin remained almost stable for the past three quarters when our sales volume ramped up to around 40,000 units per quarter. And in the meanwhile, the other reason why the gross margin remains stable is that we set up a stable a partnership with our overseas sales partners. Like Yan just mentioned, in the US, the Best Buy, Walmart, and also in the EU, the major electronic markets like the MediaMarkt, those big partners. But our kick scooter business is still at the very beginning stage. Even this year, we don't expect a huge increase compared to last year or we made a market somebody in those countries. We still expect that once when our sales volume reach around 0.5 million sales volume in total in the overseas market, we are able to see the the scale of economy benefits from the production cost, and also the bargaining power in the shipping and logistic cost. But below those sales volumes, since we sell it across the US and the EU, there is no strong benefit from the cost reduction way for us. And in the meantime, we didn't expect the kick scooter as the profit stream to our company. We still see the kick scooter as the strategic footprint for our micro mobility and our mobility business in the developed countries. to reinforce our brand and to help us build up the brand image compared with our motorcycles. And that's why we didn't put a harsh pressure on the kick scooter's profitability. Hope this will answer your question.

Thank you. It's very clear. And my second question is about expense ratio, because we have seen a downward trend in operating expense ratio in quarter two. So will it continue to decline in the second half of the year, quarter to quarter?

Yes, for sure. Once when our revenue increased and we get back to the right track in the growth of our business, those expenses as percentage of revenue will drop dramatically. Since last year, we already done the cost reduction and improved our operating efficiency at the second half of last year. Normally, you know, the expenses as kind of the fixed cost or fixed expenses are at the lowest level to our production and our business scale. And this year, the only thing will be changed. The only expenses will be changed aligned with our revenue is the selling and marketing expenses. for the R&D and G&A since the revenue increase, those expenses as percentage of revenue were dropped. And this year we expect even the annual OPEX as percentage of revenue will drop dramatically compared to last year. We'll be back to the same level as the year before last, which is around annually around 16 to 20% is our normal level for the annual OPEX as percentage of revenue.

Sam, thank you very much. That's all my questions, and we are looking forward to the earnings in next quarters. Thank you very much.

Thank you for the questions. Once again, to ask questions, please press star 11. Thank you. Seeing no more questions and the question queue, let me turn the call back to Mr. Lee for closing remarks.

All right. 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.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect your lines. you Thank you. Thank you. Thank you. Bye. you Thank you. you

Good day, ladies and gentlemen. Thank you for standing by.

Welcome to New Technologies' second quarter 2024 earnings conference call. At this time, all participants are in.