Niu Technologies Q1 FY2023 Earnings Call

Good day and thank you for standing by. Welcome to the Niu Technologies First Quarter 2023 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today Wendy Zhao, IR Manager. Please go ahead.

Thank you, Operator. Hello, everyone. Welcome to today's conference call to discuss Niu Technologies results for the first quarter of 2023. The earnings press release, corporate presentation and financial spreadsheets have been posted on our Investor Relations website. This call is being webcast from the company's IR website 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 US 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 the 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 Yan.

Thank you, everyone, for joining us on the call today. In Q1 2023, our total sales volume was 94,407 units, representing a year-over-year decrease of 42%. Specifically, sales volume in the China market dropped by 45% year-over-year to 81,518 units, and the sales in the overseas market dropped by 12% to 12,889 units. Total revenue in Q1 was RMB417 million, a decrease of 27.5% year-over-year. Now the decrease in sales volume in the China market is primarily due to two factors. Firstly, the price increase caused by the rise in lithium battery costs last year, and secondly, the expectation of new product launches in Q2. In response to the lithium battery price hike in 2022, we increased the prices by an average of 7% across our products in the China market in Q2 2022 to maintain a healthy margin. However, this led to a decrease in sales. The impact of rising prices on sales volume continued in Q1 2023 this year compared to the pre-price adjustment in Q1 2022 on a year-over-year basis. For instance, our entry-level Gova Zero series, which targeted a more price-conscious market, experienced the biggest year-over-year drop in sales of nearly 90%. Secondly, the expectation of new product launches in Q2 also contributed to the decrease in sales volume in Q1. Our distributors delayed orders in anticipation of new product launch events that were hosted in Q2 where we released the mid-end to premium products. Despite the drop in sales volume, the retail sales number remained on par with Q1 2022 last year. Many of our retail partners chose to delay orders from traditional low Q1 to Q2 this year given the on-time rollout of our products in 2023. Now for the China market, we focused on the premium series and high-quality mid-end series as the premium high-end flagship products have enabled us to improve our margin and strengthen our brand positioning where our mid-end products have allowed us to reach a mass market and achieve volume. With this focus in mind, we have developed products that combine design, aesthetics, and technology and functionalities to bring to the market. In the previous earnings call, I introduced the revolutionary high-end Electric Bicycle, SQi, and the newest addition to the most popular U series, the UQi+, which we launched in Q3 2022 last year. Since their launch, both products have received recognition from both the industry and our customers. The SQi won the Red Dot Design Award, Best of Best 2023, which is the highest honor that the Red Dot Design Awards can bestow. The SQi has also won the IF Design Awards 2023, making it potentially the third product to win all major awards after the legendary U1 M1. The new UQi+ has also won the Prestige Red Dot Design Awards and has been met with immense popularity in the market. Sales volumes for the new UQi+ accounted for over 50% of total sales of our premium product lines. Those awards and sales performance are a testament to our unwavering pursuit of creating a premium product that resonates with consumers. We also rolled out a B2 product, which is the mid-end range form factor product, which has been very popular since its launch, accounting for nearly 30% of mid-end series sales in the first three quarters since its launch. In Q1 2023, we recently made an upgrade to the popular models, bringing a new look based on the original design and bring out the old-fashioned style from the minimalist appearance. Now, building on the momentum generated by the products we launched last year, we released four new products in May during the Annual Distributor Conference that will be launched into the market in Q2 this year. The full products we recently launched are MQiL, the G400 and G400T and RQi. I'll share some of the product highlights with you. First, we introduced the MQiL, Niu's next level flagship product that inherits the design of our all-time classic M series, but with significant upgrades in performance and smart functionalities. The M series is one of our two products that won all seven major international design awards in the mobility industry. The MQiL is the first major model we released, hoping to bring back the classic M series in the last few years. Retaining the classic style, the new MQiL features significant improvements in light design range charging features, new smart control, riding ergonomics and additional personalized features. The MQiL is equipped with Niu Energy 9.0 battery, delivering an impressive 170-kilometer max range and can charge for a 100-kilometer driving range in just over two hours. In addition, the new MQiL bike is equipped with the new Smart 5.0 with 20 smart features to make this scooter an industry-leading smart vehicle. Those include the New Smart dashboard with navigation display, incoming call notice. The New Smart Lighting System with Automatic Turning Lights, the advanced control system that is fully integrated with the Apple Ecosystem allowing users to control the scooter with just your Apple Watch or Siri. Targeting the premium electric scooter users, the MQiL is priced from RMB4,999 to RMB8,299. We have received more than 15,000 orders from our dealers within the first week of its launch. Now for the mid-end product lines, we announced the G400 and G400T; we took an innovative approach to use the same platform to build two vehicles. The G400 is the light motorcycle and G400T is an electric bicycle, both vehicles are built with the same modern design and chassis platform, combining design aesthetics and practical functionalities like large storage space. Both of them are equipped with a full set of new smart system features. The G400/G400T are set to launch in early June. We have also recently announced the market launch of our first-class electric motorcycle, RQi. The RQi has a top speed of 100 kilometers per hour and a driving range of 119 kilometers. Equipped with the 18-watt kilowatt motor, the RQi can accelerate to 50 kilometers per hour within just 2.9 seconds. The RQi also includes many smart features. The RQi is priced at RMB32,980 and went online via live streaming on May 20. The product is perfectly suitable for motorcyclists who plan to switch from petrol to electric for the fast acceleration experience while pursuing environmental friendliness. Now we are confident that with this premium product we have introduced to the market will not only increase sales but also enhance our brand image and strengthen our leadership in the high-end electric two-wheeler market in China. Our focus on developing premium products complements our efforts to build a premium brand through user engagement activities and marketing campaigns. The new Innovative Ambassador program, where selected core users and KOLs serve as cultural ambassadors for our new brand launch in 2022, has become a core part of our user-centered event planning strategy. Since its launch in Q3 last year, we have planned and hosted over 80 events in 30 cities in China. Now, along with the product launch, we have organized a series of marketing branding campaigns through our online social media, KOL collaborations, offline product launch events, and PR. For online marketing, we invited over 150 KOLs and KOC content creators with large fan bases to generate content showcasing our new products, and we expect this content to gain over 150 million views throughout the launch event. For offline events, we are planning to host four official events and utilize our Innovative Ambassador network to support another 15 events, bringing new scooters to the market. We believe that this marketing content and offline events will gain significant media exposure for the new products, further strengthening our brand image as an innovative leader in the urban mobility scenario. Now turning to the overseas market, we experienced a year-over-year decrease of 12% in sales in Q1 2023. The electric multi-category saw a significant 70% decrease, while the micromobility category enjoyed a moderate 16% increase in sales. The price adjustment made in Q2 2022 in response to the increase in lithium battery prices continued to impact electric moped sales when compared year-over-year. The international distribution partners have also been waiting for a planned performance upgrade for our high-end performance 125 CC bikes in Q2. Now for the European market, we're rolling out the improved 125 CC products in Q2 2023 to regain growth. In the Southeast Asian market, we are also developing battery swapping-enabled solutions for electric moped smartphone batteries and battery charging cabinets. This solution will be suitable for battery swapping operators to sell multi-chassis, but also for charging the batteries on a rental basis, lowering the upfront purchasing cost of electric mopeds in the region. We expect to roll out the solutions in the second half of 2023. Together with the solutions, we're also actively expanding stores and developing partnerships with local operators and enhancing factory assembly capacity in Southeast Asia. Despite being in the low season, our micromobility category still experienced moderate year-over-year growth in sales in Q1 2023. We have already established a solid foundation with our product portfolio, sales channel development, and marketing and branding activities. With this foundation, we expect the micromobility category to continue to drive high-quality growth in the coming quarters. In Q1 2023, we launched the KQi1 Pro as an addition to our kick-scooter product offerings. The KQi1 Pro features a patented folding mechanism added to the original KQi1 Sports kick-scooter with the newly added KQi1 Pro. We have completed the product offering that covers a wide range of products from the high-end $900 price range to the entry level of $300. The established kick-scooter product mix has generated higher volume growth since its launch. Beyond the growth in sales, our kick-scooter product has received prestigious awards such as the IF Design Award and New York Product Design Award. Our KQi2 and KQi Youth+ won the IF Design Awards 2023, and the KQi3 Pro was selected as a Gold Winner of the 2023 New York Product Design Awards as the only product in the vehicle technology category. Additionally, Niu was awarded the Riders Choice Award 2023 as the Best Scooter Company by the Micromobility World. With the market presence we have built throughout the micromobility products, our current focus is on sales and channel expansion in the target market. As of May 2023, Niu products are available in approximately 500 retail stores in the US and over 400 in Europe through retail partners such as Best Buy and MediaMart. This sales network translates to a solid foundation for ramping up our product sales in the upcoming quarters. In addition to sales channel expansion, we continue to collaborate with influencers and product marketing campaigns to further establish our presence in the market. We have worked with over 300 influencers across various platforms to showcase our kick-scooters and mopeds, and their content gathered more than 40 million views due to their broad reach and wide acceptance. Our products have also been featured and placed in multiple TV shows and movies. We are pleasantly surprised to see our product appear in movies like Murder Mystery 2 and TV shows like The Drew Barrymore Show and The Price is Right. In conclusion regarding the overseas market, we anticipate sustainable growth driven by our strategy to diversify our product offering beyond electric two-wheelers and expand into geographic regions beyond our primary European market. Despite a temporary low quarter due to seasonality, we see growth potential stemming from our diversification strategy based on our product offerings and increasing brand recognition. Now looking forward, we target to regain growth throughout 2023 in both China and international markets, gradually recovering from the negative impact of price increases and delayed product launches in 2022. We have put a focused strategy in place for product development, brand marketing, and sales channel expansions. In the China market, our strategic product positioning has generated growth opportunities for us in 2023 by focusing on the premium and mass premium segments. By combining high-end, high-quality products with user-centered activities and marketing campaigns, we aim to maintain our brand leadership in the premium urban mobility sector. With new product rollouts and brand activities in place, we expect to see a strong rebound from last year starting in Q2 2023. For the overseas market, we anticipate returning to a fast growth path through product and geographic expansions. In the electric two-wheeler sector with a product ready for release in our respective markets, we believe we will see a sales ramp-up in the new quarter. As for the micromobility sector, with comprehensive product offerings, extensive sales channel coverage, and growing brand awareness, we expect this sector to experience faster growth in both sales volume and margin performance. Now I will turn the call to our CFO, Fion.

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 unless I say otherwise, and all monetary figures are in RMB, unless specified. During the first quarter, our company achieved a total sales volume of 94,000 units. Of this figure, 81,000 units were sold in the Chinese market, while the remaining 13,000 units were sold overseas. The sales performance in China was mainly driven by the premium Niu series and mid-end Gova series, which accounted for a significant percentage of the sales volume. These two series represented 94% of the total sales volume for the quarter, which is a notable increase compared to the 70% share in the same period of last year. In terms of overseas sales, we continue to experience stable year-over-year growth in micromobility sales. Total revenue for the first quarter amounted to RMB417 million, reflecting a 28% decrease compared to the same period last year. Scooter sales contributed RMB358 million to the total revenues. Analyzing the scooter revenue by region, we observed that revenue from the Chinese market amounted to RMB305 million, representing a 33% increase. This decline was primarily driven by the decrease in sales volume and entry-level series, as discussed earlier. However, with the change in product mix, particularly with the introduction of the high ASP SQi model, our China scooter market had an increase in ASP from RMB3,072 to RMB3,743, marking a 22% year-over-year growth and maintaining a stable level quarter-over-quarter. The overseas scooter revenue, including motorcycles, mopeds, kick-scooters, and e-bikes amounted to RMB53 million compared to RMB66 million in the same period last year. This decline is primarily due to the lower sales volume of e-mopeds and e-motorcycles. However, there was a significant growth in micromobility revenue, which witnessed a remarkable year-over-year increase of nearly 90%. In particular, kick-scooter revenue surged by 62%. It is worth noting that the kick-scooter ASP also experienced a significant rise of 46%, apart from the consistent increase in sales volume. These impressive results were largely driven by the high-end KQi3 series, which accounted for two-thirds of the total kick-scooter sales. Due to the higher proportion of kick-scooter revenue, which has an ASP around one-fourth to one-third of e-motorcycles and e-mopeds, the blended ASP for overseas scooters decreased by 8% to RMB4,138. The revenue from accessories, spare parts, and services amounted to RMB59 million, marking a 13% increase compared to the fourth quarter of last year, and this growth can be primarily attributed to the expanding popularity of our Niu application service subscription. The fourth quarter gross margin increased by 2.6 PPT year-over-year, reaching 21.7%, and this improvement was driven by various factors, including a 0.9 PPT increase in kick-scooters gross margin, a 0.8 PPT improvement in product mix and price increases in the domestic market, and a 0.9 PPT boost from non-scooter sales with a higher gross margin. Our first quarter OpEx amounted to RMB157 million, representing a 10.3% increase compared to the same period last year. Among the total expenses, selling and marketing expenses reached RMB72 million, slightly rising by RMB2 million year-over-year, primarily due to an increase in depreciation and amortization expenses. Research and development expenses amounted to RMB35 million, reflecting a reduction of RMB7 million as we have successfully lowered the cost and improved efficiency in this area. G&A expenses were RMB50 million, 19 million higher, and we have made a provision for credit loss of RMB21 million. However, if we exclude this provision, G&A expenses decreased by 6% compared to the previous year. With the expansion of our overseas business, the sale of accounts receivables, which served as the basis for calculating the bad debt provision, had also grown accordingly, and we have observed that European consumer sentiment remains cautious, leading our distributors to request extended payment terms due to weak retail sales. Despite the increase in credit loss provisions for overdue payments in a prudent manner, we maintain an optimistic outlook on receivable collections in the future as our partners are in sound financial positions and have continued making payments during this period. The OpEx as a percentage of revenue increased primarily due to the lower revenue base. In the first quarter, our net loss was RMB60 million with a net margin of negative 14.5% under GAAP measurement compared to the net loss of RMB29 million with a net margin of negative 5.1% in the same period last year. Turning to our balance sheet and cash flow, we ended the quarter with RMB860 million in cash, restricted cash, term deposits, and short-term investments. Our operating cash flow amounted to RMB66 million, primarily driven by a seasonal settlement of RMB95 million in payments to upstream suppliers. However, we successfully decreased our operating cash outflow by RMB101 million compared to the first quarter of the previous year, thanks to negotiated improvements in credit terms with our suppliers. Our CapEx for the first quarter amounted to RMB16 million, reflecting a decrease of RMB44 million compared to the same period last year, and this reduction can be attributed primarily to a decrease in the opening of new stores in China. Since the second half of last year, our strategy in the Chinese market has shifted from rapid store expansion to improving same-store sales performance. Now let's turn to the guidance. As we enter the peak season and launch our new products, we aim to get back to the growth track and expect in the second quarter revenue to be in the range of RMB828 million to RMB952 million, representing a year-over-year flat to 15% increase. Please be aware that this outlook is based on the information available to the date and reflects the company's current and preliminary expectations, which are subject to change due to uncertainties relating to various factors. And with that, let's now open the call for any questions that you may have for us. Operator, please go ahead.

Thank you. We'll now go ahead with our first question. Our first question comes from the line of Yating Chen from CICC. Please go ahead. Your line is open.

Hello. My first question is regarding the number of our channels that has decreased in Q1 and how should we understand this trend? And how should we look forward in the whole year about the number of our channels?

So let me address this question. I think basically if you look at the channels, it has decreased by about, I think, roughly about 150 or 160 stores in Q1. I think this is actually reflective of the status in 2022. Towards the end of 2021, we added about 1,600 stores in 2021, and many of the stores actually targeted lower tier cities where the entry-level priced products are being sold. In 2022, with the lithium battery price going up significantly, you can see our entry-level product percentage actually drop significantly from representing 38% of the sales volume down to almost a single-digit percent. So in some of the cities or some of the places, those stores have become unsustainable. We took an active approach and optimized our store count, which is what happened. Now going forward, typically in Q2 and Q3, it’s the peak season. We don't expect we will actually increase the number of stores. Looking this year, we’ll probably go back on a store expansion trend probably Q4 when it's actually coming close to the low season.

Thank you very much. My second question is about the price war in the two-wheeler industry. How do you view the price war, and will you participate in it?

Yes. We do observe there's a price war with the big players competing mainly in the low-end market, specifically below the RMB2,500 sector. The reality is we don't actually have products in that range. So we are less affected by the price war. Our focus remains on the premium market, specifically products priced above RMB3,500 to RMB5,000 and the premium market for products priced above RMB5,000. In those price ranges, there is less likelihood of a price war.

Okay. All right. Thank you very much.

Thank you. We'll now move on to our next question. Our next question comes from the line of Jing Chang from CICC. Please go ahead. Your line is open.

So this is my first question. Seeing that our revenue guidance in the second quarter was very positive, we achieved year-on-year positive growth, and at the same time in May, we also released several new products. What is the feedback from our dealers and the market after the product listing? And how do we expect the domestic sales volume to recover in the second and third quarter? Additionally, are there any new products to be launched in the second half of this year, and what are their main market segment targets?

I will respond in English for the general audiences. With the new products, I think the MQiL is already out. The G400/G400T, we haven't announced the price or taken orders yet. However, with our first product, MQiL, we actually got a huge response from dealers, consumers, and the market, even from social media. In the first week, dealers committed almost more than 15,000 units, and we expect about 30,000 to 40,000 units ordered on a monthly basis. The issue we have right now is actually ramping up the production. The good market response is due to the legacy of the M Series introduced in 2016, a legendary product with notable demand. Now for Q2 and Q3, we have a few products in the pipeline, potentially one or two entry-level upgrades, focusing on the premium and mid-end segments. We are optimistic and confident about our new product offerings, which reflects our forecast for Q2 earnings. However, we are taking a more cautious view on the overall market size.

Thank you, Mr. Yan. My second question is about the offline distribution network expansion of our kick-scooters. The sales volume of kick-scooters in the first quarter is not very high. From our perspective, what is the overall market demand for kick-scooters in the overseas market? Additionally, what is the acceptance of our products and new products by the market and dealers? What is our annual sales target, and how do we look forward to quarterly performance in the future?

With the kick-scooters, as of today, we have over 400 offline channels in the United States and the same number in Europe, mainly Best Buy and Walmart. In Q1, historically has been a low quarter for kick-scooter sales. That’s why you see the year-over-year increase. The business model contributes to this as our kick-scooter inventories are already in Europe. The low season means distributors ordered just enough to match sales. We expect Q2 and Q3 to pick up significantly. Overall, we expect this business to grow about 2x to 3x, depending on our performance in Q2 and Q3 as well as overall market response. Although market growth is typically double-digit, we take a cautious view. Nevertheless, even achieving 3x would still mean we are a small player in the market with tremendous growth potential.

Okay. Thank you very much for your detailed answers. This is all my questions. Thank you.

Thank you.

Thank you. We'll now move on to our next question. Our next question comes from the line of Scarlett Ge from Credit Suisse. Please go ahead. Your line is open.

Hi. Thank you management for the introduction and congrats on winning great orders for the new launched product. So I have two questions. The first question is, could you share the order flow of other product models? And would you keep your full year 2023 target in both the sales volume and the sales revenue? If I add up the first quarter revenue and guided second quarter revenue, it accounts for around 30% of the whole year revenue target. Are there any actions you would like to take to realize the target, or would you like to change it?

Firstly, in response to your revenue percentage question, this year we're looking at a rebounding case. Q1 this year compared to last year represents a drop because last year Q1 was a pre-price increase. We expect Q2 to restore growth momentum significantly, with Q3 and Q4 seeing considerable growth over the last year. New product rollouts beginning mid-May means they can only impact about half of Q2. Historically, the kick-scooter sales in Q1 typically results in low seasonality. To summarize, significant growth is expected in the second half, reflecting both external market rebound and internal product rollout schedules.

Thank you very much. My other question is can you share the order flows in hand for the other product models? And for the newly launched products, when will you start to deliver?

Currently, we see roughly about 50% of orders from newly launched models and 50% from existing models. We do not have a forward-looking perspective for June as two new products, the G400/G400T, are coming out early June and we will see how that reflects in order flows.

Thank you. There are no further questions at this time, so I'll hand the call back to CEO, Dr. Yan Li for closing remarks.

Thank you, operator, and thank you all for participating in 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.

This concludes today's conference call. Thank you for participating. You may now disconnect.