Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Niu Technologies first quarter 2020 earnings conference call. At this time, all participants are in listen only mode. Later, we will 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 will turn the call over to Mr. Jason Yang, investor relations manager of Niu Technologies. Mr. Yang, please go ahead.
Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss Niu Technologies results for the first quarter 2020. The call is being webcast from company's IR website. Investor presentation and the replay of the call will be available soon at ir.niu.com. 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 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 on 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 the CFO, Mr. Hardy Zhang. Let me turn the call over to Yan. Yan?
Thanks, Jason, and thanks everyone for joining us on the call today. We have seen a decline in sales in Q1 2020, due to the impact of COVID-19. On the performance, the sales volume has decreased by 39% in Q1 2020, and the revenue has decreased by 34% respectively. We have maintained our gross margin at 23.6%, but suffer a net loss margin at 11.3% in Q1 2020 due to the decline in sales. Only financial data were within our expectation. Now first let me give you an update on the impact of COVID-19. The impact on the business performance in Q1 was evident. As mentioned in our last earning call, in China, most cities have shut down businesses for part or entire February. We started February with all our stores closed and ended with 65% of stores open for business.
Furthermore, as people were recommended to stay home and work from home, there were little retail traffic or retail demand. Since our sales heavily depended on offline retail, the shutdown of stores and the stay-home quarantine policy have reduced our sales significantly. During those times, we purposely direct our sales effort online, both through our online shops on Tmall and the JD platform, as well as the omni-channel approach. In other words, online purchase, offline delivery mode. Particularly on the omni-channel approach, we trained all our store operators to set up online virtual stores via WeChat and provide online sales consultations to potential customers. We further provided tools for individual store sales reps to generate e-flyers with personal WeChat account QR code to be distributed in various WeChat groups for potential customer acquisition.
Our e-commerce sales increased by 1.6x in March and 3x in April over the same time last year. Online to offline orders has increased by 2.5x respectively. We started to observe recovery as business started to get back in operation, and nearly 100% of stores opened by end of March. Although the retail traffic has not recovered to the same level of last year, our efforts of omni-channel has led to very positive results. The per store sales has improved by 12% year-over-year in the month of April. Heading into June, the China retail market will most likely continue to improve as many cities like Beijing and Shanghai even suggested no masks necessary going outside. In addition, the need for personal commuting solution is very high. We're quite confident and positive about the near future growth in China.
Our overseas sales has also been impacted in Q1, as mentioned last time. The overseas sales volume increased by 6% in Q1, with very strong growth in January and February, but a sharp decline in March as the COVID-19 spread out to Europe and many other countries. Nearly all our dealer stores were temporarily closed globally and just started to open up in late April or early May as countries like Germany, France, Italy started to lift the lockdown. Despite the lockdown, similar to domestic market in China, we leverage our online capability to generate customer leads or pre-sales. We launched an online pre-sales campaign in Europe on our newer model, the NGT S sports model, priced at €3199, with more than 650 units ordered. While the actual product won't be delivered until a few months later.
We're also about to kick off an online rental program across our dealerships network in Europe in June, allowing users to rent our scooters from our dealerships on a monthly basis. Although our flagship store and premium store build-out were temporarily stalled due to the lockdown, we continue to expand our market presence, entering markets in South America, like Peru, Guatemala. In addition, as social distancing became a temporary social norm internationally, we did observe a demand on individual mobility solution, as people tended to stay away from the public transportations. This trend might increase the total addressable market in a permanent way when people try out electric scooters and start to enjoy the technology, the style, and the freedom our products offer. Hence, although the international market will recover as fast as China market, we remain very positive about our overseas business performance this year.
Despite the impact of COVID-19, we were able to quickly resume our product development and business operation, and reduce the time delay in new product introduction this year. First, we launched our MQi2 on May 7th, our flagship electric bicycle product for China market in 2020. In 2016, we introduced our M1 model, which was the first mobility product that has won all seven major international design awards globally in the past 20 years. M1 was one of our hottest models since then, but due to China's new regulation on electric bicycles in 2019, we had to stop production of the M1. After more than one year of design and development, we were able to finally introduce the MQi2, which inherited the design of our signature M1 product with a sporty design, mid-mounted suspension, all-in-one dashboard, and fully compliant with the new regulations in China.
On the technology side, the M2 product line inherited the new technology platform used on NGT, including the version 3.5 Smart ECU with remote keyless ignition capability, automobile-level lighting system, and the new energy powertrain management, with a driving range up to 75 kilometers. The M2 product comes with two specs, priced at RMB 4,599 and RMB 5,199, which we believe will set the technology and design standard for the China electric bicycle industry. We held our M2 launch with a new format known as or online live streaming at Taobao platform, with Token Hu, our co-founder, and me as the sales rep. This new format started to become a very fashionable trend in China, partially driven by the lockdown. Our four-hour live streaming attracted more than 3.5 million unique viewers from around China, and racking up more than 3.7 million likes.
Together with the product launch, we started a new product media campaign in China. We see more than 600 media article mentions with 30 million reads, 10 million views on Weibo, and 100 million views on Douyin and Kuaishou. We believe the M2 product will help further expand our product adoption in China market, while also allowing existing customers to upgrade to this new model. We also introduced our G0 product in our Gova series, actually just yesterday. The G0 is also beautifully designed and equipped with many practical features, such as a baby seat. It is a lithium battery-based product, and with smart features as add-ons. The G0 comes with two models, priced at RMB 2,299 and RMB 2,799.
The G0 product is the product that will be our entry-level product for the Niu family, and it will allow for a new customer segment to enter into the Niu ecosystem. Second, we continue to expand our accessory lines to further enhance our lifestyle brand image. We roll out a newly designed full coverage and half coverage helmets in April, and for that category, achieve almost a 10X sales growth year-over-year. We also launched the battery warranty services together with insurance companies, and with around 2,000 users signing up for the supplementary services plan in the first month. Besides the Niu product launch, we continue to enhance our brand awareness through viral marketing and targeted marketing. Besides our Niu product launch of NQi2, we're leveraging our Niu product launch introduction.
We had a famous Chinese figure to introduce the NQi2 in his online sales channel in Douyin, resulting in nearly 7 million views. We continue to build our own site on short video platform like Douyin and Kuaishou, with Douyin quarterly views doubling to 40 million views in Q1 2020. Internationally, despite the impact of COVID-19, we added three KOLs to our Niu Crew team of creators. The highlight was our blockbuster video of NIU with the parkour shot at Zurich, Switzerland. I will turn the call over to Hardy to discuss our financial results. Hardy.
Thank you, Yan. Hello, everyone. Our press release contains all the figures and the comparisons you need. We have also uploaded Excel-format figures to our IR website for easy reference. As I review our financial performance, keep in mind that we are referring to the first quarter figures, unless I say otherwise, and that all monetary figures are RMB, unless otherwise noted. Our Q1 sales volume reached 40,000 units, decreased by 39% year-over-year. China sales volume decreased by 44% as a result of adverse impact from COVID-19. The decrease was mainly from our offline sales through the franchise stores, because many of them were closed during the outbreak. Our online sales, however, increased significantly in the first quarter, despite it is still a small portion of our total sales. Overseas sales volume increased by 6% year-over-year.
We saw strong growth in January and February. Since March, our overseas volume started to decrease as the COVID-19 spread out to Europe and many other countries. Total revenues decreased by 34% to RMB 233 million, in line with the guidance we provided earlier. Revenue from scooters decreased by 40%. Revenues from accessories, spare parts, and services increased by 5% as a result of strong overseas sales and a larger user base in China. We are very pleased to see our customers like our accessories, spare parts, and services. Even during such difficult times, our sales in this segment continues to grow. Revenue per scooter, or ASP, increased by 8%, mainly because of strong sales from accessories, spare parts, and services, as just mentioned.
In Q1, for every scooter we sold, we also sold RMB 1,168 accessories, spare parts, and services, an increase of 74% compared with the same time last year. Excluding the revenue from accessories, spare parts, and services, the scooter ASP itself decreased by 1%, mainly because of change in product mix. In Q1, our N and M series accounted for around 60% of total volume, compared with 70% in Q1 last year. This change was mainly caused by the implementation of new national standards since April last year. However, quarter-over-quarter basis, the proportion of N and M series increased from 40% in Q4 last year to 50% in Q1 this year, mainly because of higher proportion of overseas sales and online sales. Gross margin was 23.6%, 2.3 percentage points better than this time last year.
The margin expansion was mainly helped by the increased proportion of sales in higher margin product lines, namely the overseas scooter and accessories, spare parts, and services. In Q1, the overseas scooter sales accounted for 29% of total scooter revenue, compared with 19% same time last year. The accessories, spare parts, and services accounted for 20%, compared with 13% last year. Such favorable change in product mix helped our margin expansion by around 5% in total. In Q1, our gross margin was negatively affected by the low utilization of our manufacturing facility. We estimate the impact on gross margin was close to 3%. In the following quarters, higher production volume and cost savings on raw materials and component will contribute to our continued margin expansion.
Unfavorable change in product mix, especially lower sales of scooter and spare parts from overseas market in the second quarter, will negatively affect our gross margin. Our total operating expense, excluding share-based compensation, were RMB 83.5 million, increased by 29% year-over-year. The increase was mainly caused by higher sales and marketing expense, as well as R&D expense. Sales and marketing expense increased by RMB 13 million, out of which, RMB 8 million was attributed to branding activities, including new product launch during the CES in January, and the placement of advertisement in a Chinese TV series called "An Jia". Another RMB 2.5 million was due to higher D&A expense of our retail stores as a result of larger retail sales network. The remaining RMB 2.5 million are mainly related to branding and marketing activities to encourage individual riding for daily commutes during the outbreak.
For the R&D expense, the increase was mainly caused by higher staff costs, as we hired more designers and engineers to expand our R&D capabilities. With regards to government grants, we received a one-off grant of RMB 7 million in the first quarter, mainly related to our foreign capital investment in Changzhou. Our GAAP net loss was RMB 26.4 million, and adjusted net loss was RMB 18.6 million. The loss was mainly due to the lower sales volume and higher sales and marketing expense, as mentioned above. With our sales volume recovering in the second quarter, we expect to return to profitability in Q2. Turning to our balance sheet and cash flow. We ended the quarter with RMB 725 million in cash, term deposits, and short-term investments. Our operating cash flow was negative RMB 24.5 million, mainly because we supported our distributors and dealers to manage their working capital.
Our CapEx was RMB 22 million, mainly for settling the payables of the new factory and retail stores carried forward from last year. With strong cash position, we repaid RMB 28 million bank loan in January and another RMB 48 million in April. We are in the process of refinancing another bank loan maturing in June so as to benefit from the current low interest rate environment. We also plan to acquire another piece of land during the second quarter and start to prepare for continued capacity expansion. Let's turn to guidance. We expect second quarter revenue to be in the range of RMB 585 million-RMB 655 million, an increase of 10%-23% year-over-year. Our China revenues expect to grow at a much higher growth rate year-over-year as a result of general demand recovery and our new product launch.
Overseas revenue, however, will decrease as the COVID-19 continues to affect local retail and distributions during the second quarter. Some overseas distributors and dealers began to resume their operations since May. We are closely monitoring trend of recovery and will provide more updates once available. With that, let's now open the call for any question that you may have for us. Operator, please go ahead.
Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Your first question comes from the line of Vincent Yu from Needham & Company. Please ask your question.
Thanks, management, for taking my question. My two questions are about margin. The first question is about the offline sales channel. In terms of macro environments, do we have to or are we going to make some concessions to sales channels to support our offline business partners? My second question is about the raw materials parts and inventories. Will we have concern over future costs or the pricing of these parts due to potential low inventory level or similar reason after the lockdowns and slowly reopening of the economy? Thank you.
Thanks, Vincent. Let me answer your questions first. For your first question about the concessional rebates to our sales channel, in the first quarter, we did give additional rebates to distributors and dealers, despite some of them did not meet the targets we set for them early this year. From the second quarter, we began to see the China sales volume recovered. Therefore, we do not see the need to give additional rebate during the second quarter. That for us is not a big concern. We already subsidized some of them already in Q1. The Q1 margin reflected that. For your second question regarding the procurement cost of raw materials component, we do see continued decline of procurement cost of raw material and component. We began to see the decline since March.
For the rest of this year, we believe the continued decline of this cost will be positive to our gross margin. As I mentioned, we will see some unfavorable change in our product mix, especially because the COVID-19 affect our overseas sales. If you're purely focusing on the raw material and other components, we do see there's a continued cost decline during this year. That's my answer to your questions.
Okay. Thank you very much.
Your next question comes from the line of Alex Potter from Piper Sandler. Please ask your question.
Great. Thank you. Maybe a follow-up question there. I don't know if it's possible. You mentioned some of these offsetting impacts on gross margin. First, you have better factory utilization, higher volume, and lower raw materials costs. Those are all positive for gross margin, but then you have a lower mix with presumably European and U.S. sales, probably a very low percentage of overall revenue. Is there any way to guess whether you think next quarter gross margin will be comparable to this quarter? Those two factors will offset each other or maybe slightly negative or slightly positive? Any way to guess?
Yeah, sure. I think for the first quarter and the favorable change in overseas revenue and also from accessories spare parts, they contribute to around 5%. For very simple calculation, you can assume this 5% may not be there for next quarter. They will minus 5%. We also mentioned, because of the low utilization in the first quarter, we have a margin down around 3% from this. This will be something positive. On that basis, you can assume at least the 2% will be gone for the second quarter. However, still there's an uncertainty around our overseas sales in the second quarter. We are closely monitoring how much order is coming in, and that may have some impact on the margins. For ourselves, we are still targeting to achieve a gross margin above 20%. This is answer for your first question.
Okay. Yes, that's perfect. Very helpful. Thank you. Comment also on different OpEx line items. What is your expectation regarding spending levels? Presumably in some of those line items in Q1, you were spending less than you otherwise would have planned to spend due to COVID-19. Where do you expect higher levels of spending versus flat levels of spending into Q2 and the remainder of the year?
Sure. In the OpEx, we have three key lines. The first in the sales marketing. Sales marketing, the expense was relatively high in the first quarter because we already committed to some of the branding activities before the COVID-19 happened. For example, we attended the CES show in the U.S. in January. We also committed to advertisement of a Chinese TV show. Altogether, they account for around RMB 8 million. That's why you see quite a high sales marketing expenses. This is kind of one-off expense in the first quarter. The spending in R&D is quite normal as we continue to invest in our design and also continue to hire engineers and designers. The only thing we cut is in the G&A expenses. As you can see, in absolute terms, excluding share-based compensation, our G&A actually decreased by around 6%, in absolute terms.
We saved on travel, we saved on professional service fees, et cetera. In the second quarter, we do expect our sales and marketing as a percentage of revenue should fall back to the normal level as what we see last year. Last year, our sales marketing was normally around 15%, anywhere between 14%-16%, it depends on the quarters. From Q2 this year, we think we will go back to the similar level as what you would see before. Q1 is a kind of exception because some of this one-off activity, also because of the lower revenue we have in the Q1. I hope this answers your question.
Yes. Very helpful again. Last question on online versus offline. I was wondering, how does it work from a business model standpoint, if you have an online order that you ship into a certain region, is a dealer or distributor always involved? You mentioned this omni-channel versus maybe a pure online sale. Are there situations in which the dealer or distributor maybe feels, I don't know, that they push back against you selling direct? Do you always include a dealer or distributor in those sales? Thanks.
I think that's a great question. Let me address that. In terms of our online models, that's why we separate direct sales and omni-channel. In terms of if it's a direct sales on our Tmall or JD platform, and then, we sell direct to the consumer, and that order fulfillment will be basically shipping will be handled by, for example, SF Express or by Deppon. Basically, the shipping company actually would deliver to your door, and no dealer or our franchise store involved during that process. They will need to provide after-sales services as that's actually a mandate for all our dealerships and the franchise stores. With the omni-channel, it's slightly different. With the omni-channel, essentially what they do is actually our online platform is actually served as a, you can think about serve as a customer leads generation for the dealers.
Any consumer goes to online, picks omni-channel, and then he actually can pick which store he is willing to pick up scooter at. Our online channel actually charge the store for a small percentage of fee as a service fee. Part of that fee, actually, we need to give back to Tmall and JD.com because they are actually charged that platform fee. In addition, we charge a very small service fee as we provide a lead generation. On that note, the dealers or the franchise stores have nothing against that sales because essentially we're actually when they compare their user acquisition cost versus what we generate a leads, they're actually very happy to participate in this omni-channel approach.
Interesting. Okay. Thank you very much. I appreciate it.
Once again, ladies and gentlemen, if you wish to ask a question, please press star one on your telephones and wait for a name to be announced. Your next question comes from the line of Bin Wang from Credit Suisse. Please ask your question. Bin Wang, your line is open. You can now ask your question.
Sure. Thank you. Actually, I got two questions. Number 1 is, what's the growth in the first two months this year, and what's the number in March, and what's the number in April, and the first two weeks in May? I mean, the volume growth year-over-year. I want to see the growth recovery trend. Can you provide this whole number? That's number 1 question. Number 2 is about the Gova. It seems that Gova, as mentioned, Gova G0 is a new product and provide a price. I actually searched on the website. I don't see any source to see this number. I did actually find the Gova official website. Basically, I cannot find from internet the Gova price. What's the strategy for the Gova? Is it really a big thing for you? It seems this has been launched three products, you also launched number 4, right?
It's four product already similar to the NIU brand. I know this year, the lower market, such as your competitor, Yadea, share price has been reached a new high. Naturally, they will ship dramatic volume, a few million in the first quarter. Can you elaborate a little bit about GOVA brand? Is that going to be a bigger business than NIU brand? Thank you.
Yeah. We need to split or separate the China market and overseas market in order for us to see the true picture. For the Chinese market, if you look at our own sales, our January and February sales was down almost 70%. In March, our volume was only down by around 30%. Our volume in April was up more than 50%, and we see accelerating growth rate in May. That's how we see the China growth. This is our growth, our sales. In the meantime, we are also tracking our retail sales. They mean the sales from our retail stores to consumers. They actually follow a very similar trend. That's why you see how we recover from this outbreak. That's the China market.
You look at overseas market, our January and February volume grow up around 60%. Since March, our volume down around 20%, and in April around 30%. May and June, based on orders we saw, probably down 50%-60%, based on order we already locked in. However, we do see some additional order coming in during last week, and we also see some of our overseas distributor began to push us to accelerate some of the shipment to them. Therefore, we do believe the overseas market may also reopen and also go back to a growth rate probably in the third quarter. That's how we see the growth in different months in this year. Let's answer your first question, and for the second question on Gova, I will let Yan comment on that.
I think on the Gova question, so it's the Gova product. If you actually go to the niu.com website, you actually can see the G1 is already listed. The G0 has not been listed, but it's actually listed on the JD.com as we start as a pre-sales. With the pre-sale campaign, it's something that the customers, at this point, can go on the JD.com, start shipping, basically put down RMB 100 deposit, and then the actual product delivery will be close to end of May or early June. It's actually well in line with the JD.com's 618 campaign. The Gova is actually, we treat as a Gova series as opposed to a separate brand. It's a lithium battery-based, and the baseline version does not have the connectivity, but it's expandable to include the connectivity boxes such that people still can actually get connected to our app.
We treat that Gova as equivalent saying N-Series and U-Series both series, and the Gova itself as just one series. We do think they actually have a big addressable market, especially with the China new regulation coming in starting last year. In top-tier cities where the new regulations are being strictly enforced, there is a demand for a more practical, still beautifully designed, but a more practical product models as entry models. We do observe there is a quite a bit, what do you call, market segment anywhere between the RMB 2,500-RMB 3,500 range. That's where the segment that currently, I think it's sort of the high end of Yadea, Aima, and the traditional players, and that's what we think our product lines can extend it to.
Obviously, anywhere lower than RMB 2,000, that market consumer segment, which is actually where Yadea, Aima, Xinri, all those guys reside in, that market, actually, I don't think that particular market is the market in the near future that we can enter. We still focus on the mid to high-end lithium battery-based electric scooters.
Okay. I just feel like a few people actually know that Gova and understand Gova. This is very famous, everybody do that. Do you have any plan to boost the Gova brand to make more people understand the brand, maybe more offline shops for Gova specifically, not just combined with Niu?
No. Since we actually view it as one of the N-Series, it actually will be sold through the NIU shops as opposed to be independent Gova shops. We're exploring different formats such that potentially set up what we call a store-in-store format in even the bigger multi-brand shops that's a particular dedicated Gova, what we call dedicated Gova counters or regions. It still be branded as NIU, as NIU Gova series.
Oh, I see. Last question. Actually, I found the dealer shops actually has been declined. It's the first time for the shop decline. What's that? What's the future plan for the end of this year? How many number of shops will it be? Thank you. Last question. Thank you.
Right. I think, yes. Let me see. There's a handful of shops were closed in Q1 this year. I think mainly because, every year we actually do that. We do that by this is what we call the optimization. For example, actually, I think our shop in Lhasa just closed. I need to confirm that because I was asking the regions. Basically, every year, we close down a number of shops, and we also open new shops. What happens this year in Q1 is, basically, every year we do that, but this year in Q1, and especially even last year, April, is we're actually going on a normal business in terms of closing down the shops that are actually low-performing shops.
In all previous years, in addition, especially in Q1, where the market sort of a slow market, we actually open quite a few new shops. The net gain of shops, the net shop numbers, you always see an increase. This year, what happened is actually we shut down the shops, but for our new shops, we found locations, but they were not able to finish remodeling and renovations, such that we were not able to open them in time. That creates a delay in terms of new shop openings, a delay almost we see about a quarter or four months. The shutdown shops didn't have that much delay. That's why you actually see a decline in shops.
I think our target this year is still to, in terms of net adds, is still to be around 300 shops over on the base of 1,000 shops from last year. To the end of year, we look at adds both from the absolute number of shops as well as what we call the sales square meter space. We actually believe the sales square meter space is more important because we manage quite a few cities right now. For example, in Shanghai, we have about 80 plus shops. In Beijing, we have about 60 plus shops. Actually, it's difficult to actually add more shops, but it's actually essential to increase the basic thing, the space, right? Increase the size of the shop in those cities. That's why you see in Shanghai, we start opening bigger shops and bigger shops as more products coming online.
Used to be we only have N and NIU, now you see we have N. Well, in Shanghai and Beijing, we have our M2, we have our U+, U, US, as well as the Gova series. Even for cities with strict regulations, we actually have six to seven product lines that meet the China bicycle regulations. That actually requires the shop space to be a bit bigger. Our focus is actually adding are twofold at this point. One is actually adding the number of shops. Second, for the existing shops to actually increase the area or increase the space to make it bigger.
Just to add to that. The lease agreement for certain shops may expire in Q1. Some of the dealers may also take the opportunity to temporarily close down the shops so as to avoid paying the rental. That's another reason contributes to the temporary drop of our store numbers. We already see the store number turn back to the normal level by the end of April. It's just like one-quarter thing.
Okay. Thank you. We understand. Thank you.
Once again, if you wish to ask a question, please press star one on your telephone and wait for a name to be announced. Once again, ladies and gentlemen, if you wish to ask a question, please press star one on your telephone and wait for a name to be announced. Thank you. Seeing no more questions in the queue, let me turn the call back to Mr. Li for closing remarks.
All right. Thank you, operator, and thank you all for participating to this call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Thank you.
Thank you all again. This concludes the call. You may now disconnect.