NIU Technologies

NASDAQ:NIU

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Niu Technologies Second Quarter 2024 Earnings Conference Call. [Operator Instructions]. 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. Kristal Li, Investor Relations Manager of New 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 second quarter 2024. The earnings press release, corporate presentation and financial strategies has been posted on our Investor Relations website. This call is being webcast from our 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 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, 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. 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 94.5 million, marking a 13.5% year-on-year increase. This performance underscores the effectiveness of our strategic focus on expanding product, field channel and 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 to receive positive feedback from users. In Q1, we launched product strategy to focus on target groups and Q2 expand 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 product 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 [ wheelers ] 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 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 direct-to-market approach allows us to adapt more to local market, thus can great substantial growth in the long term.

Now let me dive into the China market. Our growth is driven by strategic focus on product portfolio expansion, sales channel growth and same-store sales improvement. This year, we emphasized on product divestment on targeting both the high-end premium segment to reinforce our brand premium image and specific consumer segment like [ Gen and Pima ] users.

We initiated effort to expand sales channel by increasing the number of stores in underpenetrated cities. Additionally, we strengthened our omnichannel approach, integrating online offline strategy to boost same-store sales.

In Q1, we introduced the NXT, our most premier electric bicycle price at [ RMB 12,499 ]. It quickly became the leading product in [indiscernible] segments equipped with advanced features like full function ABS [indiscernible], blind spot detection of car grid [ dashboard ] and millimeter [indiscernible].

Ready on this success, we launched the in-play electric motorcycle and [ UMAX ] electric bicycle designed to appear to the young [ Gen ] [indiscernible]. The [indiscernible] design and the UMAX offer a larger form factor inherited the classic new series design.

Additionally, we focus on female demographic by launching [indiscernible] 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 collected accounting for more than 50% of units sold in Q2, underscoring our strategic focus on targeting product development.

In Q2, we continued the product investment strategy to roll out our key premium products and expand the product portfolio for Gen Z and female users. We prepared the launch of [ X ] our most premium electric motorcycles, which was recently released in the market in July.

The [ X ] offers a customized [indiscernible], smart tire price [indiscernible], high-quality to disc brakes and adjustable suspension for smooth ride. Equipped with the most up-to-date smart functionalities [indiscernible] priced from RMB 6,500 to 29,000. We believe the product will not only contribute to sales [indiscernible] but also reinforce news leading position in the premium electric scooter market.

[indiscernible] to continue to explore product targeting the Gen Z user group, we recently launched the [indiscernible] anti-plate electric [ bio ] inherited classic design of the [indiscernible] series and the combined advanced motorcycle [indiscernible]. Equip or features such as [indiscernible] traction control, cruise control and [indiscernible] the rise the Ts priced competitively at RMB 4,499.

For the female consumer segment in May, we released the old series to complete our product offerings covering the premium female sector. The old series is designed for young female riders with focused on comfort and looks. [indiscernible] and emphasize the long distance writing, safety, simple operations and design excellence. Key design features include comfortable seating, economic handles, stable ride [indiscernible] in addition to the new smart features we ensure delightful and comfortable writing experience for urban commuters. The [ O-Series ] we launched the market on June 1 throughout Livestream.

So our product law strategy positions new portfolio with premium product while also focusing on diversified offering for unique user needs. Each product maintains the consistency element and new signature [indiscernible] 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. Specifically, we have integrated marketing efforts aimed at Gen Z and female demographics. To engage the Gen Z group , we expand our partnership with [ JD Gaming ], a power online gaming team in China through co-branded product launches live stream sessions and the gaming competition sponsorship. Additionally, we collaborate with [indiscernible] include launching a new reader [indiscernible] and participating in a game completion [indiscernible] universities generating over 50 million BUs online.

Other initiatives, including the sponsor at [indiscernible] game and [indiscernible] University [indiscernible] and [indiscernible] programs. With the product focused on female user group, we launched targeted sales and marketing initiatives. For the [ old Series ] launch, we executed a comprehensive campaign on [indiscernible] leveraging KOL content marketing and [indiscernible] event. This includes widespread exposures, in depth experience and media coverage. Across all platforms, we have our content on around the product release this year, gaining 1.1 billion views.

With those [ marketing advertising ] Niu products to observe the significant increase interaction across our social media platforms. This quarter, the new brand received a total of 125 million interactions representing a 22% increase year-over-year. The growth interactions on social media platform indicates that both our product and marketing campaigns have finished significant traction and effectively resonate with our audience.

Now regarding the sales network expansion, we made an effort to enhance our sales network through both channel expansions and same-store sales improvement. Driven by the new product introductions, we resumed the channel expansion this year, opening 40-plus new stores in the first half, resulting in close to 300 store adds, primarily in Tier 3 and Tier 4 cities.

While this growth is modest compared with our total store count, it signals the start of renewed momentum in our sales network expansion. We anticipate a continued positive trend in Q3 and Q4.

In addition to new store openings, our key focus this year has been on improving same-store sales through our omnichannel approach, driving online traffic to offline stores. We significantly increased our effort on the traditional e-commerce platform with online orders accounting for 48% of total orders in first half versus last year at 26%.

In addition to traditional e-commerce platform, we actively expand our online presence on [indiscernible], leveraging a strong content from [indiscernible] income network, those part became the fastest-growing channels. For example, on [ Douyin ], we 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 [ Douyin ] compared to a double digit from same period last year. Those efforts improved same-store sales by close to 7% year-over-year in Q2 laid a strong foundation for future growth.

Now let me turn to the overseas market. This quarter marks a period of growth in strategic execution. 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. [indiscernible] segment, we focused on building direct sales operations to revive our market presence in key markets.

In micro mobility, we leverage our established product portfolio to grow market presence by updating [indiscernible] products with new versions and enhance channel nutrition in key offline channels. In Q2, we introduced the KPI 300 series as a significant update to the past [indiscernible] series offering on [indiscernible] and powerful options for urban community, including the KPI 300 P3X. Both features events due to hydraulic suspension system for smooth trial [indiscernible] services. Both models include smart connectivity to the new app, enhancing the overall riding experience with customizable settings and safety features.

The TQi 300 sold over 10,000 units in the first few months during this launch and quickly attract tensions from influencers media industry. In the first half of 2024, we also expand our micro mobility offline retail channels. In key countries in the U.S., Germany and Australia, achieving notable growth in the key markets.

In the U.S. in July, we announced our strategic partnership [indiscernible] 800-plus Best Buy stores. This milestone allows us to reach a wide market across the United States. [indiscernible] momentum also collaborating with Walmart [indiscernible], Target and Home Depot diversify product offerings across various channels. Similar expansion effort were carried out in Europe and Australia.

In Germany, our product are now over 400 media [indiscernible] stores and with successful pilot programs, Austria saw a considerable progress with JV [indiscernible] increasing to 230 and hundreds of [indiscernible] stores also displaying our products.

Now moving forward, I'll focus on for the rest of the year 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 input tariffs to the United States, we have initiated efforts to relocate in part of manufacturing outside China.

Now shifting to the electric water segment, the business decreased by 69% year-over-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 withdraw of government subsidies for [indiscernible] product, leaving over a 50% decrease in total market size.

Internally, we transitioned to a direct sales model in core markets, while the ships will drive substantial long-term growth required [indiscernible] to be fully implemented and relied. By Q2, we have added 100-plus theaters down 4 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 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-store sales with omnichannel approach and building our market efforts around the specific consumer segments. Those adjustments have shown very positive results in Q1 and Q2, and we are confident that this [ faster ] growth in Q3 and Q4.

Overseas market, we expect sustained growth in micro mobility segment supported by the comprehensive product portfolio and a solid channel presence in the key markets like Germany, [ U.S.], Australia. We have observed a strong 32% year-on-year growth in the product activation in July, and those growth are sustainable throughout the year. In the electric [indiscernible] market, while we are updating our product offerings, our focus remains on expanding the dealer network throughout the rest of the year to retain the dealer network footprint. Now with that, let me turn the call to Fion.

[Wenjuan Zhou, executive]

Thank you, Yan. Hello, everyone. Please note that our press release contains all the figures and comparisons you need, and we have also uploaded [indiscernible] figures to our IR site for easy reference.

As I review our financial results, I'm referring to the second 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 second quarter was 256,000 units, up 21% compared to the same period of last year. 208,000 units were sold in China, while the remaining 48,000 units was 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 RMB 40 million, up RMB 112 million or 13.5% compared to the same period of last year.

China revenue was $82 million, accounting for 85% of the total revenues. And of this, this quarter revenue was RMB 727 million, up 14% year-over-year. This increase was mainly due to the higher sales volume and partially offset by a decrease in the revenue [indiscernible] quarter.

China scooter [ CSP ] was RMB 3,503 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 1/3 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 RMB 138 million, accounting for 15% of the total revenue. This quarter's revenue including the motorcycles [indiscernible] and bikes amounted to CNY 130 million compared to RMB 115 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 RMB 119 million, up 32% year-over-year and the overseas quarter ASP decrease from RMB 3,430 to RMB 2,682 year-over-year as the increased proportion in the sales volume of kick scooters. However, compared to the first quarter of 2024, the ASP increased 4% quarter-over-quarter.

The revenue from accessories, spare parts and services amounted to RMB 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 points 1 [indiscernible] lower than the same period of last year and 1.9 ppt lower than the previous quarter. This decline is mainly due to the lower margins of China scooters and an increased proportion of the overseas kick scooters with a lower margin.

In China, as we mentioned previously, our high-end let acid motorcycles offered a lower margin compares to our plastic premium lithium ions. 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 RMB 192 million, representing a 3.5% decrease compared to the same period of last year. The total OpEx ratio decreased from 24% to 20%.

Selling and marketing expenses were RMB 120 million, up RMB 11 million year-over-year, primarily due to the new product promotions online shopping festival like June 18, May 20 and other advertisement in China. Selling and marketing expenses as a percentage of revenue was down from 13.2% to 12.8%.

R&D expenses amounted to RMB 32 million, down RMB 9 million year-over-year and mainly due to a decrease of RMB 9 million in share-based compensation and staff costs. R&D expenses as a percentage of revenue went down from 5% to 3.4%.

G&A expenses were RMB 39 million, down RMB 9 million year-over-year, mainly due to the decrease in the [ allowance ] for doubtful accounts. G&A expenses as a percentage of revenue went down from 5.8% to 4.2%.

In the second quarter, we had a net loss of RMB 25 million with a net loss margin of 2.6% under the GAAP accounting compared to a net loss of RMB 2 million for the same period of last year. The adjusted net loss was RMB 20 million with a adjusted net loss margin of 2.1%.

And turning to our balance sheet and cash flow. We ended the quarter with RMB 1.3 billion in cash, restricted cash, term deposits and short-term investments. Last quarter, this amount was RMB 1.2 billion, and last year-end was RMB 1.1 billion. Our operating cash inflow amounted to RMB million and we expect the operating cash flow to remain healthy going forward.

The CapEx for this quarter was the outflow of RMB 20 million. and reflecting an increase of RMB 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 RMB 1,298 million to RMB 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 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'll now open for the call for any questions that you may have for us. Operator, please go ahead.

[Operator]

[Operator Instructions] Your first question comes from [ Kai Kang ] from [indiscernible].

[Unknown Analyst]

I come from the [ Citic Securities ] and also from CLSA, and I have 2 questions. And the first question as we have mentioned that we will have a strong growth in the third quarter of the '24. So what do we think we can achieve in the third quarter as our volume will be much better with [indiscernible] scale effect? And what's the -- maybe both in terms of long term or the midterm [indiscernible] to within we can achieve or kind of get? And that's the first question.

[Yan Li, executive]

Sorry, let me repeat your question. So basically, you are asking about the third quarter strong growth and -- you're asking about the [indiscernible] or I think --

[Unknown Analyst]

Yes.

[Yan Li, executive]

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

[Unknown Analyst]

On the gross profit margin.

[Yan Li, executive]

Okay.

[Wenjuan Zhou, executive]

So regarding to the growth -- so you're asking about the reason why the [ gross ] margin dropped, right? This is Fion.

[Unknown Analyst]

Yes. And the trend of the gross profit margin in the next few quarters?

[Wenjuan Zhou, executive]

Okay. All right. So regarding to the gross margin, actually, this quarter and last quarter, the reason the reason -- it's mainly [indiscernible] on the domestic gross margin drop. As I just explained, starting from this year, we plan to launch high-end that [indiscernible] motorcycle in our premium series. Normally in domestic market, we set a bar. The MSRP above [ 4,500 ] is our premium series. And below that is our [ mass ] premium series. And this year, our high-end last [indiscernible] motorcycles, the cheapest model of our high-end [indiscernible] is around RMB 4,800.

So this means -- and we also launched the other lead assets, high-end motorcycles set the price around 6,000 to -6,000 to 8,000 MSRP, which is also led in -- the leader in the premium markets in our premium series and also in China market. But those [indiscernible] lag assets on gross margin is around 5 to 7 ppt gross margin less than our premium models. Normally, our premium at least in my own one got the gross margin around 22% to 28% gross margin. And the [indiscernible] one is around 5 to 7 ppt lower than our traditional premium lithium ion.

This main factors drive our gross margin in China market and also in blended -- in total to around 3%. And the rest as I just explained last quarter that this year, since we launched the different new products [ facing to ] different consumers. Like Yan just mentioned the generation Z, the female one, the [indiscernible] 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 brands during last year and the year before that when we're 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, and that's why we are able to open the new stores in the [ fourth ] half of this year, more than 400 in China [indiscernible]. And those are the 2 major points, which dragged down our gross margin in China market.

And in the meanwhile, our overseas markets, the kick scooters revenue contributes around 14% of our total revenues compared to only 10% in last year. And those increased proportion of the overseas kick scooters also dragged 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 quarters and when we see this overall this year's guidance. We won't expect our year-end or the average annual gross margin go back to around 22% to 23% as we previously did in 2021 or 2022. But we expected the gross margin this year will be lower than the year before last and last year but still will remain at the higher level when we compare to our competitors in the China scooters market. This is -- I hope that will answer your question.

[Unknown Analyst]

I see the trend on this margin. And also, you also mentioned about the new shops and new dealer networks that we are expanding in China. And 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?

[Yan Li, executive]

I think the goal is actually -- I need to add another -- roughly another 1,000 stores this year, in addition to the existing ones we have. I think the first half I mean, we opened up 400-plus stores, but also, I think we shut down about 100 something. So basically, that resulted in net asset, close to 300 stores. I think the rest of we're looking at basically [indiscernible] for Q3 and Q4.

[Operator]

Our next question comes from the line of [ James Joe ] from UBS.

[Unknown Analyst]

I have one question. So the we all know that the new national standard is about to roll out in a few months. So there is any comment on the potential policy and maybe its impact on the high-end [indiscernible] markets we are in?

[Yan Li, executive]

Well, I think we're still very closely monitor and actually looking study this new national standard. I think it has basically, it has the standard has some key things around better safeties, which actually may -- actually, I think will be actually positive news for us. And also have -- the standard also has some requirement on sort of the design form factors. So our design team is actually really looking into the standard and actually in the past, basically, our developing products, meeting new centers. So in terms of the impact, I guess, we had to just watch and see.

[Operator]

Our next question comes from the line of Yating Chen from CICC.

[Yating Chen, analyst]

Hello. Yating from CICC. And my first question is, what is your expected gross margin of kick scooters in the mid-to long [indiscernible] because we can see that the gross margin of kick scooters scrutiny be lower than scooters in domestic market. So how can we improve the gross margin of kick scooters? And what is your expectation of it?

[Wenjuan Zhou, executive]

Well, this is Fion. I'll answer this question. Actually, our kick scooters gross margin remains almost stable for the past 3 quarters. When our sales volume ramped up to around 40,000 units per quarter, and in the meanwhile, there is a reason why the gross margin remains stable is that we set up a stable partnership with our overseas sales partners. Like Yan just mentioned, in U.S., the best [ biomass ] and also in the [indiscernible], the major electronic markets like they are medium-market those [indiscernible].

But this is -- about 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 when our sales volume reached around RMB 0.5 million sales volume in total in the overseas market, we are able to see the scale of economy benefits from the production cost and also the buying power in the shipping and logistic cost.

But below those sales volumes since we sell it across the U.S. and the EU, there is no strong benefit from the [indiscernible] reduction [indiscernible] us. And in the meantime, we didn't expect the kick scooter as they are profit as a profit stream to our company. With 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 out the brand image compared with our motorcycles. And that's why we didn't put us pressure on the kick scooter's profitability. Hope this will answer your questions.

[Yating Chen, analyst]

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 2. So will it continued to decline in the second half of the year quarter-to-quarter?

[Wenjuan Zhou, executive]

Yes, for sure. Once we're not revenue increased, and we get back to the right track in the growth of our business. Those expenses as a 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 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 -- will be changed -- the only expenses will be changed aligned with our revenue, the selling and marketing expenses. For the R&D and G&A, since the revenue increase, those expenses as percentage of revenue we dropped. And this year, we expect even the annual OpEx as a percentage of revenue will drop dramatically compared to last year will 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 a percentage of revenue.

[Yating Chen, analyst]

Thank you very much. That's all my questions. And we are looking forward to the earnings in next year -- quarters. Thank you very much.

[Operator]

[Operator Instructions]. Seeing no more questions in the question queue. Let me turn the call back to Mr. Li for closing remarks.

[Yan Li, executive]

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.

[Operator]

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