NIU Technologies

NASDAQ:NIU

Earnings Call Transcript 2024-Q1

[Operator]

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Niu Technologies First Quarter 2024 Earnings Conference Call. [Operator Instructions] 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. Kristal Li, Investor Relations Manager of Niu Technologies. Ms. Li, please go ahead.

[Kristal Li, executive]

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 spreadsheets 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 will 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 statements, 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 the 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, executive]

Thank you, Kristal, 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 an 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 RMB 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 continue 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 a 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 a upper mobility brand focused on the premium market segment with diversified user needs. At our product launch event in February, we [ debut ] the NXT series. This series [ continues ] the design of our first legendary scooter, the [ N1 ], [ but ] elevated with the futuristic elements like magnetic transparent panels, [ aerodynamic ] lines and an enhanced version of signature halo light.The NXT, the most premium scooter in this line up [ posed ] 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 [ N-Play ] and [ U-Max ] into the market. The [ N-Play ] was officially launched in March at a starting price of RMB 4,399, quickly becoming a competitive product among the young university students.Building on the momentum from NXT [ N-Play ], we are launching another product, the [ U-Max ] completing our offering for the young consumers. The [ U-Max ] is specifically designed for young riders in Tier 1 to 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 [ U-Max ] offer maximum range of 160 kilometers on a single charge and includes the boost [ on ] drive mode for rapid acceleration. For safety and [ enjoyable ] rides, it incorporates a TCS, ensuring a secure and adaptive experience across various urban terrains.Now with the newest [ addition ], our full range of product targeting the trendy, young riders is now ready for the upcoming peak quarters.Another target group we aim to expand with our unique position of products is a female electric scooter riders. Earlier this year, we released our first female focused scooter, the upgraded U1E. The U1E features new color scheme, economic improvement in handles and seat positions, easy-to-use smart functionalities and option to include baby seats among 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 1 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 segment. The MS Scooter showcase the classic and [indiscernible] aesthetics with color schemes in base white and [ mint green ], creating 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 preference of female riders, such as the traction control system to ensure a smooth riding experience dual-tube [ frame ] system for enhanced stability and both front and rear disc brakes offering advanced level of safety.We also expect to introduce another product specific tailored for female users in the coming days, the O-Series. The O-Series combine aesthetic design and unique economics to address the special needs of female scooter riders. We plan to release the O-Series on July 1 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 on 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 and focus, we have been actively engaging continuous marketing and branding campaigns to reinforce our brand identity. Recently, we roll out a dynamic marketing campaign and broadcast a mix o videos across iconic landmarks in 6 major cities, significantly enhanced our brand's high-end positioning and robust capabilities. The campaign prominently features NXT, our cutting-edge flagship product, establishing as an ideal vehicle for established urban commuters.The NXT is designed to resonate with new generations of trendsetters. The video showcased in key urban centers like Beijing, Shanghai and Guangzhou has captured the public attention, a mass a total of nearly 200 million views.Now, our branding effort are also centered around the newly introduced product line targeting a specific user demographics. At the beginning of the year, we announced our collaboration with JD Gaming, a top-performing eSports team. As their official electric vehicle partner, we collaborate [ games ] from brand activities to product launch, aiming to make 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 an initiative to collaborate with top gaming peripherals brand, Razer. Last year, we released a co-branded new [ cross ] Razer SQi Limited Edition, and this year we're taking the partnership one step forward to collaborate as Razer's brand ambassador. In May, we joined Razer to host gaming events in universities by presenting a Razer new co-brand of scooters. So far, the event has covered numerous universities with 2,000 events 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-plus universities to host the event.Now to engage a 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 live stream campaign, live by a prominent influencer, gathered a significant traction and position us as the top brand in the mobility category during the campaign period.Now throughout the launch of the flagship product, we continue our online campaign effort. We collaborate with over 70 [ KOLs ] in the industry and created approximately 200 pieces of high-quality content, which generate 80 million views across various platforms.Now let me turn into the overseas market. 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 expansion and the sales channel lineup. On the product portfolio front, with the introduction of 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 a KQi300 Series, which is the enhanced upgrade of the popular KQi3 Series designed for all urban terrain use.The series feature a dual-tube hydraulic suspension for better handling on uneven surfaces, promising up to 60 kilometer range per charge. Starting at $699, the KQi300 Series was met with great popularities upon its pre-order period. The KQi300 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-plus Best Buy stores and now advancing our efforts to enter additional retailer like Lowe's, Home Depot, Walmart, Target and Costco.In Europe, our product displays in over 400 MediaMarkt stores in Germany, over 100 [Audio Gap] [ stores ] in France and over 100 [ MediaMarkt ] -- [ core ] English stores in Spain. We're working closely with our retail partners on marketing campaigns to boost sales, which proved effectively during the first quarter.During our pilot promotion with our German retailers, we witnessed our 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 special effort, we aim to double our retail footprint, selling micromobility product by end of 2024.Now the electric 2-wheeler sector in Q1 is marked by a significant transition in both our product portfolio and operating models across core business market in the U.S. and Europe. Last quarter, we introduced the [ NGT100 ] RQi and XQi models, all of which has garnered considerable attention and a [ strategically ] [ filled ] the gap in the market, offering a comprehensive coverage from 50 CC to 125 CC electric 2-wheelers.The XQi recently received the prestige Red Dot Award in April this year, joining a few other new legendary products that have received this honor. Although this product encounter a temporary logistic delays, we will anticipate, they will be fully distributed in a targeted market by second quarter 2024, aligning perfectly with the peak sales season.And during this quarter, we have made a significant adjustment to our business operations in overseas. In several key markets alongside our existing distributors were established local entities and operations team to manage 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 change 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 market, but also drive substantial long-term growth.Aligned with our updated product offerings and expansion of sales network, our branding effort in Q1 has been actively pursued internationally. We focused on both enhancing our demographics [Technical Difficulty] with our sales network, including the distributors and dealers by sharing our plans for the upcoming quarters.To build a fortified brand presence in Q1, we actively participate in major industry events, such as [ AIMExpo ] in Las Vegas, [ Motor Riders ] in [ Gdansk ], Germany and [indiscernible][ de tour ], France. Those events significantly amplify our brand visibility.Furthermore, we hosted a series of [ Niu ] Connect events aiming at local media, distributor, retailers to showcase and introduce our 2024 product lineup. In Q1, we successfully carried 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 [ CleanRight ] [ and more ], have published very positive reviews of our product. We plan to continue the Niu Connect series throughout the year in various locations, demonstrating our commitment to build a long-term relationship with our partners in the core [ AG ].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 a great popularity of [ NXT ] Series launch in Q1, where we're in 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 have broadened 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 supply our products. And with additional new stores, the key focus for 2024 remains 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 3 brands in this category, indicating a successful online to offline conversion model that we plan to scale up further. In Q2, we have [ series ] [ of ] product launch [ event ] [ plan ] to utilize the online live streaming sales network, which will be our channel focus for the coming quarters. As we enter the peak sales season 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 the China market for the rest of the year. However, also [ up ] there 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 establish those networks. The introduction of KQi300 Series promised a 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 efforts in entering additional retailers in this key market.Now in the overseas motorcycle market, with adjustment in product offerings, operation strategy, we are confident to regain growth by Q2. The recent introduction of this new product gathered a considerable attention to strategically fill 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 a local entity, the operation team to manage direct to dealer distribution will allow us to invest more [ heavily ] in local branding and marketing efforts. We're now working with over 100 dealers in our direct sales network, and we plan to continue to grow the numbers throughout the year.So in summary, our strategic 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 objectives in the upcoming quarters.Now I will turn over the call to our CFO, Fion Zhou, to talk about financials.

[Wenjuan Zhou, executive]

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 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 on [ SIC ] 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 over the last year and 110,000 units were sold in China, while the remaining 19,000 was sold overseas. And over 50% of our sales volume in China was contributed by the new product launched this quarter.And the total revenue for the first quarter amounted to RMB 505 million, an increase of RMB 87 million or 21% compared to the same period of last year. In China, revenues were RMB 445 million, accounting for 88% of the total revenue. Of this, the scooter revenue was RMB 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 X series, debuted in the market with a retail price range of RMB 8,999 to RMB 9,999 and contributed 6% of the sales. While this quarter, we introduced our flagship product NXT with a wider retail price range from RMB 6,299 to RMB 7,999 and RMB 12,499. All above contributed 26% of this quarter's sales.And overseas revenue was RMB 60 million, accounting for 12% of the total revenue. The scooter revenue, including e-moped cycles, e-moped kick-scooter and e-bikes amounted to RMB 49 million compared to RMB 53 million in the same period of last year. The decrease was mainly due to the decline in the sales of electronic motorcycles and e-moped and partially offset by the increased sales of kick-scooter.The micro mobility revenue was around RMB 43 million, up 10% year-over-year. The overseas quarter ASP decreased from RMB 4,138 to RMB 2,577. The year-over-year [ as the ] sales of the kick-scooter with the lower ASP increased, like our entry-level K1 and KU 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 RMB 63 million, a 7% increase compared to the same period of last year due to the increase of spare parts sales in China market. And the gross margin for the first quarter was 18.9%, 2.8 ppt lower than the same period of last year and 0.1 ppt 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 gross margin to our distribution channels, which further reduced the company's overall gross margin.And talking about operating expenses, the first quarter OpEx was RMB 165 million, representing a 4.6% increase compared to the same period of last year. Selling and marketing expenses were RMB 105 million, up RMB 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 RMB 29 million, down RMB 6 million year-over-year, mainly due to a RMB 5 million decrease of share-based compensation in staff cost. G&A expenses were RMB 31 million, down RMB 20 million year-over-year, mainly due to a decrease in the bad debt provision of RMB 20 million.In the first quarter, we had a net loss of RMB 55 million with a [ net ] loss margin of 10.9% under the GAAP accounting compared to a net loss of RMB 60 million for the same period of last year. And the adjusted net loss was RMB 49 million.And turning to our balance sheet and cash flow. We ended the quarter with RMB 1,192 million versus RMB 860 million last year in cash, restricted cash, [ term ] deposits and short-term investments. Our operating cash inflow amounted to RMB 34 million, and we expect the operating cash flow to remain healthy afterwards as the payment terms to our suppliers exceed our invoice and payment terms.CapEx for the first quarter amounted to RMB 21 million, reflecting an increase of RMB 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 RMB 912 million to RMB 955 million, an increase of 10% to 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 subject 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]

[Operator Instructions] Our first question comes from the line of Yating Chen from CICC.

[Yating Chen, analyst]

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?

[Wenjuan Zhou, executive]

This is Fion. Regarding to the gross margin compared to the last quarter, actually, note that there is a major difference if we see the quarter-over-quarter differences that we changed the -- our sales policy that we share in more gross margin with our distributors to regain the Chinese market and also reinforce their belief in the -- in Niu's product. While in the meantime, we also changed 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, all the operating margin before the tax. This is the common practice with our competitors. And also, we think it's a good time to reinforce our sales channel with our 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. And with the gross margin, our 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 kick-scooter sales overseas contribution is more than last year.

[Yating Chen, analyst]

And my first question is about the period expenses, because the selling expenses in Q1 is still high. So will we see the downward trend of the selling expenses ratio in quarter 2 and 3 and 4? So will you give us a guidance about the selling expense ratio?

[Wenjuan Zhou, executive]

Okay. Regarding to the selling and marketing expenses, actually, when we separate by segment, the S&M expenses in [Audio Gap] the domestic market as a percentage of revenue has been reduced by this quarter by around 2% to 3% -- 2 to 3 ppt as a percentage of revenue. While in the meantime, they are international -- the selling and marketing expenses in the international market is still at the high level. Just -- as I just explained that we keep going to invest in their brand recognition, the channel building in the domestic -- in the overseas market. And that's why those kind of expenses as a percentage of revenue or as per -- scooters expenses it's kind of like fixed expenses.It cannot be -- it cannot change to the various parts. Since the sales volume in the international market is still at a relatively lower level. And we expect those kind of expenses to be changed as the various expenses. Once our sales volume could be reached to above 300,000 to around 500,000 and then those kind of expenses could be much lower per scooters. And this is the main reason why the selling and market expenses still at this higher level. We hope -- we expected this year's selling and marketing expenses as a percentage of revenue will become lower quarter-over-quarter. And up to now, we see that it's still on the track. So next quarter when we release our financial figures, the overall selling and marketing expenses as a percentage of revenue will be reduced compared to this quarter.

[Yating Chen, analyst]

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

[Yan Li, executive]

Yes, I think that's right. So we're looking to expand a 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, less than 100, about 20 or 30 stores. That's because many stores are actually in construction and haven't really finished construction. So we are looking at 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 in Q4, we'll continue to expand stores.

[Yating Chen, analyst]

Understand. And my last question is about our sales volume target in 2024. Because in the 2023 -- [ on ] core, we gave the guidance about the sales volume in 2024, which means we were a target to sell more than 1 million units good in 2024. So will we keep the target as at present or lower that or improve?

[Yan Li, executive]

So I think at this point we'll still keep the target. And so basically, we're still looking for 1 million plus units, including China and also including the China and overseas altogether.

[Yating Chen, analyst]

Okay. So do you see -- so will we see that the growth more from China market or from the overseas market because...

[Yan Li, executive]

Right, right. I think in terms of 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 roughly about 100,000 units, right? So into our gross percentage, I would expect you 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.

[Operator]

[Operator Instructions] 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, executive]

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]

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.