Earnings Call: Q2 2021

Aug 16, 2021

Good day and thank you for standing by. Welcome to the Niu Technologies Second Quarter of 20 29 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 And please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker for today, Mr. Jason Yang. Thank you. Please go ahead, sir. Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss New Technologies' Results for the Q2 of 2021. The earnings press release, corporate presentation and financial spreadsheets have been posted on the news investor relations website. This call is being webcast from the company's IR website 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 United States Private Securities Litigation Reform Act of 19 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 With me today are our CEO, Doctor. Yan Li and CFO, Mr. Holly Zhang. Now, let me turn the call over Thanks, Jason, and thanks everyone for joining us on the call today. In the Q2, we'll continue to see a strong growth in the China market as we continued our new product rollout and the retail expansions. We also achieved decent growth in the international market despite ongoing challenges of COVID-nineteen and the global logistics. Our total sales volume reached nearly 253,000 units, an increase of 58 Sales in the China reached 246,000 units, an increase of 59% year over year, While the volume in an international market reached nearly 7,000 units, a 35% increase year over year. We are attributing our Q2 growth to the 3 key strategic executions. Our targeted retail expansions, The release of new product that appeared to a wider customer demographics and our target marketing campaigns and user centric activities. Taking where we left off in Q1, in the Q2 of this year, we added another 450 new branded stores Across China reaching total of 2,366 stores by June 30 and also setting a record for the most stores we have ever opened in a single quarter. This nearly 2,000 400 stores will serve as a strong base to drive sales growth in Q3. For the international market, Despite the challenges of COVID-nineteen, we continue to add 26 flagship and the premium stores with our total flagship and premium Number reaching 149 in addition to our 1,000 plus dealers. Now as we mentioned in our last Quarterly update, we held our global product launch in early April where we introduced a large assortment of China International Vehicles. We're happy to report that most of those products are now in the market or about to ship in the coming weeks. We are very excited about the speed that we can take products from concept to the market, giving us more agility to meet the demand We began the sales of our M2S just a few weeks ago in late July. The new M2S is upgrade of M2 is a flagship product under the new China national standard for electric bicycles. The M2S is equipped with our latest smart IoT Technologies, a color display with navigation that mirror your mobile phone and the Okay Go system with distance sensing and the keyless And also our latest battery management system, New Energy 7.0, which increased the dry range. We launched the M2S with a starting price of RMB5600 up to RMB8000. The market response Great, especially in the top tier cities where the M2S is viewed as the most high end electric bicycle product in the market. Now shifting our discussion to our huge popular GOLA series, the all new GOLA F and the GOLA C in China. The GOLO S series carry a more masculine design style and feature of new Eagle Eye headlights, which has been a hit with our new target Thanks. As we mentioned in our last earnings call, the Global S0 set the jd.com pre sales record for urban mobility product had a significant impact on our sales volume growth in Q2, accounting for 24% of our total sales volume in the quarter ending June 30. The Gohua F2 has been a very popular product. Despite being launched in late May, the F2 accounts for 6 Percent of total sales volume in Q2. And then we're also about to launch the Goh F4 electric motorcycle product in the Multiple macaron dessert flavor, color choices and a wide variety of accessories taking into account the actual needs of women's daily commute From appearance and configurations to performance, the CZERO is equipped with our Sky Eye hardware allowing the CZERO to be A 50 kilometer standard range and 70 kilometer extended range options were affordably priced at RMB3400 and the RMB3800. We also upgrade our Goa's G3 vehicle In order to better meet the riding habit of users in China's 2nd and third tier market, the all new G3 has been seeing a significant upgrade to Performance, thanks to the update we made on the hot motor, the controllers as well as the load resistant tires. The G3 now can get a Q2, but since our recent product update in July, the all new G3 sales has quickly climbed to 16 Our total volume, the G3 is priced at RMB3700 to RMB4000. We're also quite excited about our KQI3 kick scooters that we announced back in April. Just a few weeks ago, on July 13, The Q3 is our first product of more to come in the micro mobility space, trying to tackle the last mile commute. Compared to the competition of same $700 price point, the KQI3 offers a better performance, A more stable ride and more color options. The KQI3 campaign on Indiegogo was Fully funded in under 5 minutes and has raised over US1 $1,000,000 plus in sales in little over 3 weeks with the support of more than 1800 backers. As of today, the pre sales volume for KQI3 has exceeded 2,000 units plus and the delivery will start in Q3. Additionally, the wholesale orders for the end of year retail holiday sales Now shifting gears a bit, the April global product launch helped us to kick off a new cycle of domestic and international communications. The launch event alone garnered more than 1,000 publications across In the Q2 of Douyin and Kuaishou channels has attracted more than 54,000,000 views, an increase of over 400% year over year. We believe capitalizing on those channels not only broadens our exposures, but more importantly is being paid off in Now I also want to share some very exciting news. We are very proud to announce that Niu Scooter and are responsible for powering 10,000,000,000 kilometers of traveling globally. In just a few short weeks, we'll cross the 10 This will be the first 10,000,000,000 kilometer ever recorded in the 2 wheeler industry history. The 10,000,000,000 kilometer milestone doesn't simply Each day more people choose Niu to make their daily commute, but it also shows more and more customers are pushing the boundaries and how and why they ride Niu. The milestone shows the aspiration of our new fans join us to redefine urban mobility and make life It represents the strength and vitality of our brand and when people think of urban mobility, they will first think of new. Now to celebrate the 10,000,000,000 kilometer milestone with our new fans, we launched a variety of brand campaigns partnering with China influencers and tapping to targeted TV ads to promote the new lifestyle. This will all coupled with the release of our all new addition NQI 10,000,000,000 kilometer scooter paying homage to the original M1 that launched the brand in 2015. These activities are perfectly timed to amplify our brand messaging during the peak sales seasons of 2021 in China. Finally, I want to take a moment with some forward looking statements for Q3. We plan to keep our retail expansion momentum adding another 300 plus stores in Q3 despite the hot sales season. We have also ramped up our production capacity and recently brought up the Phase 2 of our factory online, increasing our annual The increased capacity coming just in time for our back to school promotions running from August to September this year. Now with the launch of new products, expansion of our sales channel, coupled with the assortment of peak season promotion, We are very excited about the weeks ahead in the China market. Now for the international market, we are very excited with our success However, in the near term, our international market continued to be hindered by the COVID-nineteen situation in the European market and the shortage and Now, I'll turn the call over to Hardy to discuss our financial results. Hardy? Thank you, Yan, and hello, everyone. Our press release contains all the figures and comparisons you need. We have also uploaded the Excel format figures to our IR website for easy As I review our financial performance, we are referring to the 2nd quarter figures unless I'd say otherwise and that all monetary figures are RMB unless Our Q2 sales volume reached 253,000 units, representing a The 2 new models, F0 and F2, started delivery in the 2nd quarter. They contributed to 30% of Both affected our sales and delivery to the international markets. With regards to product U series accounted for 19% and GOLA series accounted for 56%. Out of the 56% from GOLO series, 30% was from the low priced models G0 and F0. Remaining 26% from other global models with relatively higher retail price. The overall product mix improved this quarter compared with Q1. Specifically, the percentage of sales volume from the low price models G0, F0 reduced 38% in Q1 to 30% in Q2. The improved product mix also led to a higher ASP this quarter compared with Q1. Total revenues increased by 47 percent to RMB 945,000,000 within the guidance we provided earlier, the quality of revenues improved this quarter with better product mix. Besides the improved e scooter product We also generated $130,000,000 revenues from accessories, spare parts and services, representing 98% and year over year growth and accounting for 14% of our total revenues. The strong sales mainly came in from battery pack sales to Our ASP in Q2 declined by 7% year over year, but improved by 2% quarter over quarter. Let's look at the details. For China market, the scooter ASP decreased by 9% year over year, mainly due to the sales of low priced model G0 and F0, which account for 30% of total sales volume compared with the 14% in Q2 last year. However, when compared with Q1, the ASP Market, the scooter ASP decreased by 25%. There are three key reasons. First, depreciation of U. S. Dollar against RMB affected ASP by around 8%. 2nd, the change in the way distributors place orders. Many distributors chose to place separate orders for scooter body and the battery pack to save international shipping As a result, battery pack sales were booked and the spare parts revenue instead of scooter revenue. This practice 3rd, change in product mix affect our international ASP by around 3%. In summary, out of the 25 increased by 6% due to change in product mix. The ASP of accessories spare parts and services was 5 12 per scooter, a 25% increase compared with Q2 last year. Out of the 25% increase, 9% was due to the change in the way of placing orders we just talked about. The remaining 16% was due to strong sales of battery Thanks to sharing operators. Gross margin was 22.7%, 0.3 percentage points lower than this last year mainly due to three reasons. First, the higher percentage of sales from low margin models G0F0 reduced our margin by around 1.3%. 2nd, higher spare pass sales to international market improved our margins by around 1 3rd, the higher raw material cost from commodity price increase reduced our margin by 0.7%. The raw material cost increase continued into Q3, but the good news is since August, But from Q4, we expect the cost decline will benefit our margin. Our total operating expense, excluding share based compensation were RMB125 1,000,000, increased by RMB43 1,000,000 or 53 percent year over year. The increase was mainly caused by higher sales and marketing expense of $11,000,000 for branding and advertisement, higher depreciation expense of $9,000,000 for new store openings and $15,000,000 for staff costs. As a percentage of revenues, Our operating expense, excluding share based compensation, was 13.2%, 0.5% higher than Q2 last year, mainly due to higher depreciation from new store openings. In the month of May, we received a total 41,000,000 government Out of which, dollars 21,000,000 was booked into income statement in the Q2. The remaining will be booked in the following quarters. Our net income was RMB 92,000,000, a 62% increase year over year. The adjusted net We are pleased to deliver a profitable quarter with improved net margin. Turning to our balance sheet and cash flow. We ended the quarter with RMB1.2 billion in cash, term deposits and short term investments. Our operating cash flow was positive mainly related to capacity expansion of 21,000,000 and new store openings of 52,000,000. Now let's turn to guidance. We expect 3rd quarter revenues to be in the range of RMB 1,250,000,000 to you may have for us. Operator, please go ahead. Thank you. First question is from the line of Vincent Yu of Milan and Please go ahead. Your line is open. Thank you, management, for taking my question. I have three questions. The first question is with offline retail store expanding at a fast pace, the scooter sales volume in China is Some were soft in Q2. Any reason behind this discrepancy that management can shed some light on? My second question is in terms of international shipping. Management already shared the impact from international shipping on ASP in 2nd quarter sales results. Is there any other impact on our second Sales results, the management want to share. And will we continue to see such impact in second half? My third question is about the guidance. So there's about RMB200 1,000,000 difference between our guidance top And the bottom, so the band for Q3 is not small. So what is factoring this difference? Is that something to do with the beta So again, Vincent, thanks for the questions. So I think let me make sure I get the first question clear. It's saying With the faster expansion from Q2 versus Q1, you're seeing that the volume increase is In comparable expansion? So I didn't fully get what your first question Yes. So it's like softer than I think We expect it because the offline retail store is expanding at roughly like faster pace. So Are we seeing like the stores need to be mature in a rather longer time or Like, do we should we see like these stores mature in the Q3 or like anything that we can share On that front? Yes. I think you hit the right point. I think typically when they open the store, because you look at It really depends on even though we're saying versus with Q1 Q2 versus Q1, we added about 4 50 stores, But it actually depends on which month of the store are open. So usually with the new store opening, it would take roughly about a quarter or so to have those stores Get to sort of a right operating pace. So I think that's where you actually As we mentioned that the Q2 stores, the end of Q2 stores, they are actually a very strong basis for our Q3 growth, because as those stores are opening in Q2, they start to getting a bit of traction, get into mature And sort of the fully operation, that's where the Q3 results will come in. And on the second international shipment, I mean, I think to be honest, yes, we do observe a right now, We see an obstacle in 2 things. 1 is actually shortage of the international shipping containers. And second is actually even When you're able to book the containers, the per container cost used to be $6,000 and now it's actually rise up as At $18,000 So it's actually 3x of what we observed in the past. And on per container basis, We used to be able to get roughly about 40 scooters per container. So that's actually you talked about it's almost about $150 into my shipping Now instead of $150 that become a $4.50 per unit shipping I think this is actually the issue we have observed for the past two quarters. And those are the issues because some of our international orders, we have a backlog of almost 4,000 units were not able to ship in Q2 because of lack of container and because of there's a high shipping cost where our distributors Our importers in Europe and United States sort of are hedging or betting, waiting for the shipping cost to decline a bit before to ship more. So this is part of the obstacle we're facing right now. So I think the company is looking for, 1, working with distributors and to see whether There is a possible way for us and together work with them to subsidize some of the shipping cost increases. And second, whether this will be Reflecting to more the retail prices of our international product. Yes. And for your third Question on the guidance, why we still have quite a wider band for the guidance. There's few factors when we consider giving this guidance. So The biggest one who brings some kind of uncertainty is upside. I wouldn't say upside is whether the replacement demand will kick in already in September. For example, in Beijing, the Beijing local government already announced since October, November, the regulatory We will start going to on the street to check people scooter whether they are in compliance or not, whether they have replaced to the right plate for Too early to replace their bicycles. If that kick in quickly, then we are able to miss the higher end of our guidance. This is one of the biggest elements in the while we're giving the guidance. On top of that, of course, there's also quite a few other factors. 1 The COVID-nineteen is that we see some rebound in China. Some of the streets were closed because of the COVID. Looks like in the next 1 to 2 weeks, some of the streets, some of the places may have relaxed their policy, a lot of people to come to the shops again. But again, there's some uncertainty about Also, there is also uncertainty with the international shipping, whether we can sufficient capacity to ship all the backlog orders within the Q3. So there's a few reasons behind why we are giving a quite wide range. This is the answer to your third question, Vincent. Got it. Very clear. Thank you very much. Thank you. Our next question is from the line of Bin Wang of Credit Suisse. Please go ahead. Your line is open. Thank you. I also got 31. The first one is about Can we about the July performance in the first half of August, what's the roughly sales growth in terms of volume? That's Number 1. Number 2 is about CZERO margin. I know this one is much more expensive compared to GZERO and G5. And what's the roughly gross margin we can anticipate for CZERO because this may be going to a new segment and very important driver for the future? And the last one is about the sector. Investors seems to be worried about the sector demand. Alone, you have a very decent growth, but the sector seems to be Flat in the Q2. So what's the reason about flattish sector production? And what's your forecast for the second half So I will comment first and then I will let To add further comments, for your first question, I believe you're asking about how we see the sales volume momentum in August. So far in the 1st 15 days, The ticks is already started and also the flooding in China, they are gone. So we see more and more people coming Back to Australia began to buy new scooters. So in August, we do see very, very strong growth, not only from our orders, Your second question is about our gross margin for the C0. The margin is around 15 Very similar to what we saw in GZERO and FZERO. But with the ramping up of the production, when we get more and more Orders of the raw materials, we may see potential, the margin may go up to 20%. But in the short term, it's still around 15% similar Other products. Comments on the third question about the sector growth. What we saw is in In April, based on the information from IIT, the industry grew by around 29%. In May, the industry grew by Almost flat. So combined April and May, the industry grew by around 18%. We are still waiting for June Numbers are coming out by the authority, but we do believe the industry continues to have a double digit growth in the Q2. As you can see, We are growing our China sales volume by close to 60%. For the second half this year, we do believe the market will continue to grow, but it depends on which location Which geography we are, I think some of the Tier 1, Tier 2 cities, especially where the new regulation, the new standards was We do believe the growth will continue very strong. For example, we talk about the Beijing. Beijing will begin to check the scooter Whether they are in compliance or not, in this case, we do believe many customers will begin to replace their scooters. This also applies to other Cities where the new regulation is strictly enforced. But in the lower tier cities, where the new regulation was not Because of the very high base last year, the growth rate may not be As fast as what we saw last year. For new technologies, around 70% to 80% of our sales volume coming from the top 30 cities. They are mainly Tier 1, So we think we are in a very good market geography in terms of geography. Therefore, we do believe our sales volume will continue to grow I think Hardy covers pretty well on this. Okay. Quantify the April very good, very good means In the number? Thank you. What was the question? You mean April numbers? No. August, you Just mentioned, August is very good, right? So can you provide some quantifying the very good in August? Yes. In August, we are looking to double our sales order. In August, we have doubled our sales order compared with August last year. Part of the reason Because some of the orders were not able to ship out in July because of the flooding, also because of hurricane in Shanghai. But Even after that, we do see very, very strong orders coming in August. Okay, great. Thank you so much. Great. Thank you. Our next question is from the line of Winnie Dong of Piper Sandler. Please go ahead. Your line is open. Hi. Thank you, Navans, for taking my question. I was wondering if you can comment On the gross margin trajectory, Hardie provides some puts and takes in the quarter. Do you see a way to Push this metric back to the mid-20s. That's my first question. And then my second question is on the international markets. I think in the previous times during earnings call, you guys have mentioned Southeast Asia as a Key market, can you please provide an update there? Is that still the case? What kind of momentum are you guys driving right now? Thanks. Yes. I think let me first comment on the gross margin. I think in Q4, let's say, in Q4, we do believe We have a high chance to get our margin back to mid-20s. But in Q3, we will continue to see some of the Caught the pressure. First of all, our business has a seasonality. If you look at the Q3 margin, each year Q3 margin is always the lowest Compared with Q2, if you look at the year 2019, 2020 numbers, the Q3 gross margin is around 2% below Q2 margin. So if we take late year Q2 as 22.7%, then we minus 2%, then it's 20.7 20.7 percent. And also because some of the procurement costs for raw materials is still very high in May, June and also July. So we will still take have some burdens in the Q3 to absorb all the inventories. The good news is that since August, Some of the raw material costs began to decline, especially the battery costs. Some of the battery costs that we buy, Costs are already down by more than 10% compared with the peak time. Therefore, that's why I think in Q3, we see some continued pressure mainly because of the inventory we bought earlier. But in Q4, If this trend continues, we do believe we have a good chance to get back to mid-20s in terms of gross margin. For the international market also on the South Asian market, I Yan, to comment on? Yes, I think so as we talked in the previous calls, basically, I think if you look at the 1st couple of quarters This year, I think the main focus is still on the European and the United States markets and those probably still represent a Huge majority sales of our international market. On the Southeast Asia market, we'll continue to explore different options into Southeast Asia market. We start to open about 4 or 5 stores in Jakarta this year and Those are actually and also we start to roll out 2 products, it's our M1, also our G3 product for the Southeast Asia market this year. So, so far, I mean, the sales has been relatively soft because the 2 products right now still even the Chip's G3 products do price at somewhere around $1600 which is slightly more than what we hoped for in order to under that market. So I think there's 2 things we're looking at. 1 is the continued decline of the lithium batteries, especially the RFP batteries cost That help us to really to drive the retail price down of the G3 product to somewhere around $1300 to $1400 I think that's where we're going to see a tipping point among that market. So I think we're looking at probably not in the Q4 this year, will be sometime Mid next year, we're actually able to see such a cost decline and able to pick up the sort of the sales in that market. Great. Thank you so much. Thank you. Next question is from the line of Jing Chang of CICC. Please go ahead. Your line is open. Thank you for taking my So I have maybe 3 questions. The first, I think that we can still see the Year on year decline on the U series and I'm series sales and the GOLA series has been on the market for More than 1 year, so previously, we may focus that in the future, the high end market space or penetration rate With price of above RMB35,000 maybe can get to 15% to of the high end market space? This is my first question. And second is that recently, I think that with the launch of any new products by our peer brands and also the expansion of our own stores To review more competition, mainly reflected on the single store sales, can we still See some growth on the single store sales level. And also last year, since Q1 last year, We began to open more stores quickly at a higher speed. So how are the operating profitability of the new stores compared with the all stars. My last question is for our new kick scooters product, also has been sold in the European end market in DRIVE. So what is our future positioning of this new product business? Can we expect the sales to maybe reach 1,000,000 in maybe 2 to 3 here and to become a major driver of ourselves. Yes. Okay. I'll try to cover the question 14 and then I'll have Hardy to comment on the per store sales part And I'll comment on that one. So first one, I think my understanding is the question is about the focus on the high end market. I think if you look at the first half of the year, yes, if you look at most of our Product rollout for the first half of the year, the first two queues are around the GOLA series, basically the F Series, the C Series, The upgraded G3s, that doesn't mean that the company just changed the focus, say, hey, we started doing mid end product, not Neglecting the high end products. It's really just how the product rollout product the new product rollout has been timeframe. So the M2S basically we view as our basically the Most high end product in terms of electric bicycle product, that product just rolled out in mid July And actually start to receiving quite a bit orders from the top tier cities. So it's the upgrade of our M2 product last year. And then in Q4 this year, we actually also going to have a couple of really high end motorcycle product rolled out for the China market As well as for the international market. So it just happened to in the first half of the year, we actually have more mid end products that being So the front loaded in the first half of the year. So starting second half of the year and also 2022, early 2022, You're going to expect we'll actually have more high end product for the electric As well as the electric motorcycle markets. So this is really just a product raw timing issue. On the 4th one, I think absolutely yes. So if you look at our initial kick scooter, basically I think the question is about kick scooter and the Future expectation on kick scooters. I think it depends on what you look at the market rate for. So it's anywhere the kick scooter the In the kids ones or not the kids ones. So I do think that it's possible for us in the next few years to get to The 1,000,000 units for the kick scooters. If you look at our first KQI3, that's a kick scooter that we did a launch It's basically a crowdfunding website and we quickly able to get more than 2,000 units orders. And keep in mind that those the people who order those kick scooters, they didn't even see the product, the real product. They only saw the picture of it. And also the orders won't be delivered to them until literally until starting August or September. So where they actually Putting money in July August, right? So that waited for a couple of months for the product to come in. With those things, we're still managed to actually to get more than 2,000 orders. So it actually demonstrate our Strong capability in the product design as well as the kick scooter is gaining attraction from our global users. And obviously, having a single product line for that kick scooter wouldn't get us to 1,000,000 units. So I think in our product pipeline, we actually have about 2 or 3 more product lines or product tiers in that kick scooter anywhere between From a cheaper product to a more expensive product to provide a wider range of That will allow us to get to the 1,000,000 units. I think that's sort of near future target that we're setting ourselves up. Now I'll have Hardy to talk about a little bit on the same store sales and the stores. Yes. For the same store sales, Definitely, I think once the company opens the store very fast, we do see the same store sales seems declining. But we believe the Store growth is a leading indicator. So you really need to think about this kind of investments the company put today. In the future, you're going to see is help the company to I can give you a few examples, few numbers. For example, if you look at Q2 twenty nineteen, In Q2 2019, we opened normally around 130 stores. And in Q2 this year, we opened around 4 50 stores. But if you cover the same store sales, They are the same. So we didn't really see the faster growth of our stores may make our same store sales less competitive compared with what we delivered before. So this is one number you can use as a reference. Secondly, as I mentioned, building new stores, they always have time for the store to mature. Therefore, it's kind of leading indicator for us to about what the sales volume we are going to have in 6 months' time, in 12 months' time. Therefore, we need to prepare for that to open more and more stores. In year 2018, back in 2018, because we are very busy with listing in the U. S, we opened only around 300 stores in 2018. Because of the store opening of stores in 2018, kind of did not support our first faster growth in 2019. So that's another example you can think about. Short term fast opening stores will in some way make our same store sales look Not very good, but we do believe that is a very important investment we need to do if we are looking for long term growth for our company. So this is one way if you look at the numbers. Secondly, the store is also very important resources. The location is very important for when we sell to end customers. We also take this opportunity in China to grab some of the very best locations, therefore, caposition ourselves even as a very good Growth perspective in the future. Today, some of other competitors, they also released their 2nd quarter results, if you compare our results with their results, you do see the difference. I think because we are willing to invest in the retail network That's because we have more confidence to grow our sales volume in the next few quarters. So this is the comments to you, partially on the same store sales. Thank you. And and for your name to be announced. Okay. As there are no further questions, I'd now like to hand the conference back to the presenters. Please continue. All right. Thank you, operator, and thank you all for participating in today's call for your support. We appreciate your interest I look forward to reporting to you again next quarter on our progress. Thank you. Thank And this concludes today's conference call. Thank you for participating. You may now all disconnect.