Earnings Call: Q1 2021

May 17, 2021

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the New Technologies First Quarter 2021 Earnings Conference Call. At this time, all participants are in a 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 Young, 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 Q1 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 1995. Forward looking statements involve risks, uncertainties, assumptions and other factors. The company's actual results may be materially different from those expressed today. Further information regarding the risk factors is included in the company's public filings with the Securities and Exchange Commission. The company does not assume any obligation to update any forward looking statements, except as required by law. Our earnings press release and this call include discussions of certain non GAAP financial measures. The press release contains a definition of non GAAP financial measures and reconciliation of GAAP to non GAAP financial results. On the call with me today Our CEO, Doctor. Yan Li and CFO, Mr. Ali Zhang. Now let me turn the call to over Yan. Thanks, Jason, and thanks everyone for joining us on the call today. So in Q1, we saw a 3 22% year over year jump in China sales. We shipped nearly 145,000 units in China propelled by aggressive expansion of our retail footprint and a multi channel marketing campaign nicknamed the year of new. Additionally, our overseas market saw shipments of 5,000 units for the Q1. The small decline of 15% in the overseas market was primarily due to the orders that could not be shipped out resulting from the ongoing global shipping bottlenecks You are all aware of. The total Q1 sales for China and the international market were up 2 73% year over year. In Q1, not even the Chinese New Year holiday could slow down our retail expansion. We added 300 new branded stores across China, Reaching 19 16 stores by March 31. During our global product launch event on April 6, We announced the opening of our 2,000 store in China. We're on track to hit our Q2 target of 300 new stores for the quarter. For the international market, even under the restraint of COVID-nineteen, we managed to add additional 7 flagship and premium stores, which now total 123 across Europe, the Americas and the Southeast Asia. This is in addition to the 1,000 plus authorized new dealers in our global markets. For those of you who didn't already know, our company name, Niu, actually means boo or ox The year of 2021 happens to be the year of ox in the Chinese lunar calendar. So we kick off the Chinese New Year by launching the Year of New, Be A Newer nationwide campaign. We enlisted help of popular musicians and social media influencers, which generated more than 200,000,000 views across multiple social media platforms during the holiday season. We also kicked off an over the air Advertising campaign during the Chinese New Year, which allowed us targeting over 110,000,000 viewers across markets in China that we have identified as key to helping us accelerate our growth. We also collaborated with one of the hottest online documentary series called Executive Food on Bilibili, which helped us targeting another 41,000,000 viewers in the key demographic segments. Our new branded Douyin and Kuaishou accounts also benefit from those activities with quarterly views reaching nearly 55,000,000 views in Q1, marking a 38% year over year increase. Now in overseas markets, our social media channels gained Nearly 1,000,000 interactions on Instagram and Facebook. We also announced our partnership with Formula E Antonio Felix da Costa as official new ambassador and the kickoff of our partnership with LINE in the key U. S. And European markets, which will help accelerate adoption of electric 2 wheelers. We have been making noise both in the China overseas market in order to Position ourselves as the go to lifestyle brand for urban mobility and helping us grow sales by more than 300% in China alone. Now writing our strong sales and marketing performance in Q1, we hit a ground running on April 6 with our global product launch, Simultaneously announcing both China and international product releases. Building upon the customer demand for our Golar series of electric mopeds, We launched the Golar F Series with F0, F2 and F4 and the Golar C Series with C0. These are 2 key product groups that will help us expanding into the wider range of urban markets and the customer segments around China. During that same event, we launched our 1st electric kick scooter for Europe and United States, the KQI series. These 5 new Which saw upgrade of our proprietary battery management system, the introduction of VTech electric motor and optimization of our FOC algorithm for the motor controller, which can improve the driving range up by up to 32% and improve acceleration by 10% to 15 Under the same motor power in most of our existing vehicles. And lastly, as we finalize commercialize the version of our urban motor We have made great strides of our mid mounted motors that can reach speed of 160 kilometer power. As for our product upgrade, let's start with the brand new MQI2S. The upgrade of the 2020 MQI2, which serve as our flagship product under the new China National Standard for Electric Bicycles. The new M2S is equipped with our latest smart IoT technologies, a color display with navigation that can mirror your mobile phone, the Okay Go system with And the keyless ignition which enable user to start a bike as soon as they sit on the seat. It's so small User experience touches our customers really appreciate. The M2S is expected to be priced at up to RMB8000 And we also upgrade our classic UQI series with the all new color display, a new handlebar design with more intuitive control function. And most importantly, we have given customers option to upgrade to a larger battery, which increased the driving range by 35% or 75 kilometers on a single charge on the new UQI. The after UQI series is expected to be priced at up to RMB6 1,000. For the new product, we launched 2 new Goa series, the Goa F and Goa C series. Those 2 new series Employ an all new design language for the electric bicycles in China, which will further expand our offerings for the mid end product lines, which help us to reach a wider range of Customers' taste. Inside the Golar S Series, we announced 3 new models, the F0, F2 and F4. F2 and F2 are classified as electric bicycles in China and we're introduced into the market on April 6 May 17 respectively. The The S4 is the electric motorcycle and will be introduced later this year in Q3. The entire global S Series has a masculine design which features the Eagle Eye Headlights. All of those models are lithium ion battery based. The F Zero has 2 versions, primarily differentiated by the battery and driver range of 50 60 kilometers respectively, affordably priced at RMB $28.99 and $3,299 respectively, we believe those will be well received by the market. Our beliefs were Confirmed, we launched the Golar X0 through the jd.com presales on April 6, where we sold 41,000 units and surpassed More than RMB100 1,000,000 in sales setting the jd.compre sale record for urban mobility products. The S2 has 2 versions, 50 Kilometer and 70 Kilometer range options, priced at RMB3699 and RMB4,099. The S4 has 3 versions with driving up to 100 kilometers and expected to be priced at up to RMB7000. Now under the Golar C Series, we have first announced the CZERO electric bicycle with a more feminine design style. The Go one DZERO come with multiple macron dessert flavored color choices and a wide variety of accessories including a child seat and able Mothers to ride safely to take their children to and from school every day. The Golar TZERO also has 2 versions with a drive range From 50 to 60 kilometers and expected to be priced around RMB3000. Since first announcing the CZERO in April, We have received countless solicitations both online and in our stores around the country. We expect to release the C0 for sales starting in June. Now the Golar S Series and C Series significantly expand our Golar product line portfolios. The successful presale campaign for the F Zero is a direct evidence that there is a large group of consumers Appreciate the design style and aesthetics. Together with the G Series, the 3 global lines will offer our customers a thoroughly designed Products that meet their taste and desires were being competitively priced and the fact by our best in class technologies. Now last but not least, we launched a completely new category in the new ecosystem of products with our KQI kick scooter. The urban mobility trends are changing around the world as Our electric motor and motorcycles We offer one type of mobility solution for customers in cities across Europe, the Americas and South Asia. We also recognized a rapid growth in user demand for micro mobility product that cater to shorter 1 to 5 kilometer trips. And this is primarily being fueled by electric kick scooters in both sharing and the consumer owned form factors. Now in order to meet this demand and add to our product lines, we have rapidly developed a team of seasoned engineers We're specialized in the development and the manufacturing of micro mobility products. The all new KQI3 kick scooter will be the first Several models will release in the coming months for the key overseas markets. Now equipped with the best in class 3 50 watts real hub motor and powered by our 48 volt new energy system and with a wider and safer platform decks and the handlebar architecture And wider tires, the KQI 3 will outperform many of the similar price product in the market in both performance and the riding stability. And of course like all our products, the KQI3 is app connected. The KQI3 has a pro as sports version and will be priced from US599 dollars in the United States and the five €99 in Europe. Online presale will begin in the coming weeks with deliveries directly to the customer homes later in summer in Europe and United States. Now in addition to our current 1,000 plus authorized new dealers, the introduction of the kick scooter will also allow us to open new range of retail channels that were previously not ideal for our electric moped, including big box retail and electronic like Best Buy, MediaMark, micro mobility retailers and online platform like Amazon. Now I want to wrap up with a short comment about ramping up our manufacturing capacity. For those of you who have been following along for the Few quarters, you know we have planned to increase our manufacturing capacity by additional 1,000,000 units per year when we complete the Phase We expect the Phase 2 to be completed by early Q3, which will bring our total annual design Now with this, let me turn to Pardeep to talk about financials. Thank you, Yan, and hello, everyone. Our press release contains all the figures and the comparisons you need. We have also uploaded the Excel format figures to As I review our financial performance, we are referring to the Q1 figures unless I say otherwise and that all monetary figures Our Q1 sales volume reached 150,000 units, representing a 2 73% year over year growth. China sales volume increased by 3 22% as a result of retail sales network expansion and effective branding activities. International sales volume, however, declined by 15% due to COVID-nineteen, especially the recent lockdowns in Europe and a more challenging environment for international shipping. In March, the Suez Canal was blocked for a week and many ships were delayed or We were not able to deliver our products on time. The situation has improved gradually since April, and we are catching up on the delivery. With regards to product mix, N Series accounted for 9% of total sales volume, partially due to the lower international sales. I'm series accounted for 13%, U series accounted for 21%, and GOLA series accounted for 57%. Out of the 57% from GOLA series, 38% was from the mid end product GZERO model and 14% was from G2 model. In China, the COVID-nineteen rebounded in Q1, which helped to accelerate the adoption of electric bicycles because many people pay more attention to social distancing and they try to avoid public transportation. Goa Theory was a Very popular choice for many new customers considering its attractive retail price. This is a key reason for Goa series taking a larger proportion of in Q1. Total revenues increased by 135% to 547,000,000 above the guidance we provided earlier, mainly due to the higher China sales volume and the stronger sales in accessory and spare parts. The revenues from accessories, spare parts and services reached RMB102,000,000, representing a 118% year over year growth. The strong sales came from both China and the international market. Sales from China market increased by 1 111% due to strong offline sales and international market increased by 123% due to strong sales of battery packs to sharing operators. The ASP declined by 37% year over year. Let's look at the detailed reasons. For China market, the scooter ASP decreased by 27%, mainly due to the sales of low price G0 and the G2 models, as well as sales discount offered. Out of this 27% decline, around 20% was caused by the sales of these 2 models. The The remaining 7% was due to the change in other product mix. For international market, the scooter ASP decreased by 15%. The decrease was caused by depreciation of U. S. Dollar and also more significantly, the change in the way distributor place orders. In Q1, many distributors chose to place separate orders for scooter body and the battery pack so as to reduce their international shipping costs. As a result of such separate orders, battery pack sales were booked as the accessory and the spare parts revenue instead of scooter revenue. After we normalize this impact, the ASP for international sales only decreased by around 5%. In other words, out of the total 15% ASP decline for international sales, around 10% was caused by the way of separate orders and around 5% was caused by depreciation of U. S. Dollar. This way of separate ordering will likely into Q2 and Q3 considering the increasing cost for international shipping. For the ASP of accessories spare parts and services, It was RMB 6.82 per scooter, a 42% decrease compared with Q1 last year. The decline was mainly due to the very low volume base in Q1 last year, which was only around 40,000 units. Because of the very low volume base, the ASP for accessories, spare parts and services was abnormally high last year. If you compare ASP with Q2, Q3 and Q4 last year, our Q1 ASP actually increased. Our revenues from accessories, spare parts and services do not fluctuate as much as the sales volume because a portion of the sales came from existing customers. For example, the data service and some accessories. In summary, even though our ASP was down by 37%, after considering the factors mentioned above, The international scooter ASP, the accessories, spare parts and service ASP were both stable compared with early quarters. The decline of China ASP follows a similar trend as what we saw in Q3 and Q4 last year due to the launch of Goa series. In April, we launched F Zero model and the sales price for F Zero model was RMB200 higher than G Zero. We also expect the product mix in China to improve in the Q2. Both will help to stabilize our China scooter ASP. Gross margin was 23.8%, 0.2 percentage point higher than this time last year. There are 3 key drivers. First, the sales of low margin models like GZERO and G2 reduced our margin by around 4%. 2nd, the lower proportion of revenue from high margin international sales fueled our margin by around 3%. 3rd, the cost savings on components, raw materials and lower other costs, for example, manufacturing and labor costs from unfavorable change in product mix was offset by various cost savings. This is the key reason for a stable margin in Q1. In the past few months, we have seen the commodity price continue to rise, which affected our raw material procurement costs by 5% to 10%. To mitigate the impact on gross margin, we increased retail sales price by RMB100 to RMB300, or 1.5% to 7.5% for selected models in China in May. We may have another price increase for additional models together with performance upgrade in the coming months. We believe the price increase is affordable and reasonable for our customers. This price adjustment will help us to stabilize ASP and also to mitigate the negative impact on our gross margin. Our total operating expenses, excluding share based compensation, were RMB118 1,000,000, increased by 35,000,000 of 42% year over year. The increase was mainly caused by the higher sales and marketing expense of 20,000,000 for branding activities during Chinese New Year. Dollars 4,000,000 for retail sales network expansion, dollars 8,000,000 for higher staff costs and around $6,000,000 for foreign exchange loss. Our sales and the marketing expenses were particularly high this quarter, mainly due to the branding expenditures associated with Chinese New Year event mentioned earlier. As a percentage of revenues, Our operating expenses, excluding share based compensation, was 22%, lower than the 36% in Q1 last year, but higher than other In the coming quarters, we expect the opening expense as a percentage of revenue will fall back to the regular level similar to early quarters. Our government grant was 400,000 in Q1, decreased by 7,000,000 compared with last year due to the delayed payment from governments. In May, we received a grant of RMB41 1,000,000 and a part of that will be booked into the P and L in the Q2. Our income tax expense was $9,000,000 much higher than the same period last year, mainly because some entities within the group become profitable and have used up the accumulated loss. This quarter, even though our consolidated profit before tax was only around $4,000,000 we booked 9,000,000 tax Expenses for a few reasons. First, some expenses are not tax deductible. For example, share based compensation. You need to add that back before calculating income tax expense. Secondly, the profit and loss were not evenly distributed among different entities or companies within the group because we need to pay tax based on each company instead of as a group. For example, in Q1, The company for China sales was very profitable, but the company for international sales make a big loss. We have intra group transfer pricing arrangements to redistribute profit, but that will take time to adjust. If you take a longer term view, the profit will be more evenly distributed and the impact will be mitigated. So the tax rate applied is average tax rate calculated based on full year forecast instead of one specific quarter. For this year, We expect the average tax rate will be around 15% on full year basis. Our GAAP net loss was RMB 5,400,000, but after adjustment of share based compensation, we made a profit of $6,700,000 improved by more than $25,000,000 compared with Q1 last year. We made a GAAP loss this quarter mainly due to the higher brand expenses. We believe the brand expenditures More investment in nature was well spending, it increased our brand awareness and will support our continued growth. Turning to our balance sheet and cash flow. We ended the quarter with RMB1 1,000,000,000 cash term deposit and short term investment. Our operating cash flow was negative RMB16 1,000,000, mainly due to prepayment for raw materials in order to secure supply for production. Our Q1 CapEx was around $64,000,000 mainly related to capacity expansion of $13,000,000 new store building of $48,000,000 and R and D spending of $3,000,000 Now, let's turn to guidance. We expect 2nd quarter revenues to be in the range of $900,000,000 to $10,301,000,000 an increase of 40% to 60% year over year. With that, let's now open the call for any questions that you may have for us. Operator, please go ahead. Certainly, sir. Ladies and gentlemen, we will now begin the question and answer We have the first question, this is coming from the line of Alex Potter from Piper Sandler. Please go ahead. Hi, guys. Thanks very much. So I guess the first question I have is just on gross margin in the coming quarters. There's Really a lot of moving parts right now. There's new products that are coming in at different price points. There's raw material Inflation, there's this battery shipment issue, which all kinds of different things, some are positives, Some are negative. Last quarter, I think you had said that you expected gross margin for this year to be roughly similar to what it was last year. Do you still feel that way? Or do you Are you reassessing after viewing some of these new changes? Thanks Alex for the question. For us, we still want to maintain a similar margin as what we delivered last year. That's why in May, we Our retail sales price by 1.5% to 7.5%, and we may make another price adjustment in later months and based on how the raw material inflation goes, also based on the pace of new product launch. For the second quarter, Of course, our margin will be a little bit challenging because we began to see the price increase since April, but we increased the retail sales It's only from early May. So there's 1 month lodging for the price increase. For the Q2, currently, we estimate Our gross margin will be anywhere between 20% to 22%. But in Q3, Q4, we still want to target around 22% 22% to 23%. And the thing within our hand is price increase and also we So this is the answer to your first question, Alex. Okay, great. That's super helpful. So then maybe a little bit more on the cost pressure, the inflation. I know obviously inflation It's a topic that a lot of people are thinking about right now. What specifically is it within your supply chain? Is it primarily batteries? Or is it Basically across the board price inflation of all kinds of components and raw materials? It's across the board. It's because our components also involve steel, plastics, and also battery cells. Most of the raw material, we see The price increases is very much synced with overall commodity price increase. So I think basically in the last few months or So we're actually seeing this price increase starting in later March and since actually hit us March April. And we started seeing that some of the raw material price actually hit the peak in early May. So we actually increased our product price To reflect the latest update in terms of the bond price. So going forward, I mean hopefully we'll see The raw material price will stabilize that actually potentially could start to decrease. Okay, great. I'm interested also on this topic of splitting apart battery shipments versus the scooter shipments. Is this a tariff issue? How exactly do international importers save money by taking delivery of the battery pack separately from the scooter body? Yes. The reason is, this is because of the shortage of containers, The international shipping companies become more strict on the cargo can be shipped. For the battery pack, because we have lithium battery Within that, it was treated as dangerous cargo. Therefore, the shipping companies charge much higher tariff For anything which has lithium battery within it, if we separate the order between the battery is much lower than the dangerous cargo. So, the difference is more on whether it's dangerous cargo or it's regular cargo. That's the key reason besides the different tariffs. The different tariff is mainly in the U. S. In the U. S, there's different tariffs on battery pack and body part. But Because of the shortage of the containers, shipping company becomes very, very strict on what kind of things are within the container. Therefore, they check all the things. Therefore, many distributors try to put them separately to enjoy lower tariff for the regular customers. So that's the background. Interesting. Okay, very good. Thanks. I appreciate it. I'll pass it on. We have the next question. This is coming from the line of Vincent Yu from Needham and Company. Please go ahead. Thank you, management, for taking my question. I have three questions. First one is, So we had a very good strong delivery number for Q1 and the store opening pace All seems to be on track. My question is, how should we think about the previously guidance to sell more than 1,000,000 units for 2020? Is there a higher annual number that we are comfortable that we would be able to hit after the strong quarter? My second question is in ride sharing platform for our international business. So we have seen continued investments made by Ride sharing platforms into the e scooter riding share markets and can management talk a little bit more about what should we think about Challenges and the opportunities that such trends brings for Niu. And my last question is that for the New vehicle new energy vehicle industry have been seeing a chip shortage. We know we are We have less demand for some trips, but we also have I know we have quite some trips associated for our app. What kind of effects we have on all our products in terms of margin or production schedule, if There's Annie. Thank you. So let me give the first cut of the answer for the 3 questions and then I'll begin to First of all, the store opening definitely we are on track to achieve our target. We have opened 300 in Q1. We are going to open at least another 3 In the Q2, with the mall opening, definitely we do see the volume continue to grow. And Definitely, in Q1, we gave in March, we gave a guidance of 900,000 unit volume to 1,100,000 units. We We do see potential upside for the volume growth, but I think we will wait until the end of Q2 before we make an adjustment for our Full year forecast. So, this is more on your first question. For the second question about the ride sharing business, we are mainly supporting ride Business in the international market and we do see the demand continue to go very, very strong because during COVID, we do see people pay more attention to social distancing And Mandy, there is also fast adoption of electric two wheelers in the overseas market. Some of our sharing operator Already started to deploy our vehicles in many cities across the world. And that is very positive for our business growth in both the second quarter and also in quarters ahead. And that is we believe that's not only a short term momentum that maybe changed people's behavior in the longer term, that could have a full upside in the even Longer term. For the third question about the chip shortage, first of all, we do see the threat for chip shortage. However, compared with the EV Manufacturers, the chips we use in our scooters are less complicated compared with the EV Manufacturers, therefore, we are able to secure majority of the things we want to get. Currently, we need to give a 3 to 6 months rolling forecast to our Suppliers, sometimes we also need to make a small prepayment to secure the supply. Therefore, we do see the challenges, but so far we have some action we can take to mitigate The impact. So I believe the other comments are yet. I think the only thing to add is basically when we Initially announced about 1,000,000 plus units. I think that's only talking about scooters and motes. So it hasn't We'll cover our new products like the kick scooters. Obviously, the kick scooters will be we already announced it will be on presales in the next month or so and then will be shipped basically in early Q3. So that actually start to adding volumes in addition to the 1,000,000 units of the moped scooters. Got it. Thank you very much. Thank you. We have the next question. This is coming from the line of Jing Chang from CICC. Please go ahead. So hi, thanks for Yan, Hardie and Jason for your interpretation of first quarter results. So I have two questions. The first is about the expense. So the selling expense in Q1 increased a lot, we can see. Hardie has just explained that we adopt more price discount and also other marketing activities. So I want So that is it caused by the more serious competition or just due to our subjective real or how to see the trends in the future? And also my question is the second question that we can see the number of stores increased by 300 in the Q1, so maintaining rapid growth, what is the regional distribution of new stores? Can we see an obvious trend of most of Stores opening in lower tier cities and with also our new product, SMC series targeting More on mass medium market. So what is the proper price range we can expect in the future? Yes, two questions. Thank you. Thanks, Tim, for the question. Let me answer the first one about the expenses. The sales and marketing expenses, very high It was mainly due to the branding activities we made during the Chinese New Year. This year, Lunar Chinese New Year is the year of Because of that, we spent quite some money for the branding purpose. We also engaged a very popular singer who take a video and help us to Right, the news brand. So, it's mainly for the branding purpose instead of for pure marketing purpose. Because Chinese New Year is kind of a one off event during Therefore, we do not expect the sales and marketing expense to be continue to be very high percentage of revenue. We do believe the percentage will fall Back to the normal level that's what we see in other quarters. So this is answer to your first question. For the second question on the So I think just quickly to comment on the stores, it shows towards more towards the lower tier cities, Basically Tier 2, Tier 3 and some of the Tier 4 cities are supposed to be initially Tier 1 cities. I think this is partially driven the faster expansion is really driven by our suitable products for lower tier cities. Basically the 3 series, the G Series and Goma Actually, Golar F Series coming April and I think and hopefully also the Golar C Series coming in June July. So we actually see actually starting seeing the starting the Q4, we start seeing that phenomenon We're with the suitable products and we have actually have a strong brand recognition and brand name in the lower tier cities. But in the past, we just don't have a suitable product for those cities to open more stores. We actually expect the store opening speed is basically we hopefully to maintain a constant speed of at least 300 stores dish per quarter. Yes, yes, got it. So What is maybe proper press range of average selling price we can expect in the future? Maybe RMB 3,000 RMB500 to RMB4000 this week? Yes, you mean the blended ASPs for the coming quarters. I think it will be similar to what we achieved in Q3 last year. It's around 3,500 and we have a potential upside up to 4,000 depending on a few things. First, about the price increase, how much we get that and whether we continue to increase Retail sales price. Secondly, it depends on the recovery of international sales. The more quicker the international market begins to recovery, The more quicker we can solve the shipping problems, then of course, we are going to have more. Certainly, it also depends on the sharing business Because part one of the key contributions for our high ASP coming from the battery pack sales to sharing operators, If the adoption rate of sharing vehicles in overseas market become higher and higher, then the sharing operator will continue to purchase battery pack. I think this is the 3 key drivers for the potential from RMB 3,500 to moving towards RMB 4,000 in the future quarters. Okay, got it. Thank you. We have our next question. This is coming from Bin Wong from Credit Suisse. Please go ahead. Thank you. My first one is about sales momentum in April and 1st 2 weeks of May because you actually give some color about At Sears in April. So that's why I just want you to even share about the sales momentum in the past 1.5 months. That's number 1. And number 2 is about the margin. I actually gave guidance for the Q2. I just want to confirm it's about 20% to 23% in the second quarter And the second half will be 22% to 23%. Assuming this is the gross margin guidance, what will be the net margin likely In the Q1, we got a similar or even higher gross margin by 0 in the bottom line. So what should we expect in the That margin should be around 5%, 6%. Thank you. Sure. I think for the first question about Sales momentum, I think our sales continue to be very strong in April. I think our sales growth was more than 60% close to 7% growth in April. And that was due with the backlog of catalog F0 models that we were not able to deliver in into the Q2. That's why when we gave the revenue guidance, we gave 40% to 60%. It's relatively wide Mainly because there's too many uncertainty about the delivery shortage, etcetera, etcetera. So, in general, we do see continued strong In terms of gross margin, I think you are right. In the Q2, we are looking to achieve anywhere between 20% to 2%. And in the remaining two quarters, we target anywhere between 20% to 23%. So, on an annual basis, it's likely We end up somewhere around 22%. That's how we see the gross margin potential. Of course, there are So many moving parts. As I mentioned earlier, there is commodity price increase. There is so much, but we say it makes Also, there are so many things coming from our international market. The international market has a significant impact on our gross margin. But our target is to maintain that and we have price increase tools in our hands. We have managed that. There's also quite a few other things like launching new KQI, EBITDA to help with that. So, let's answer for your second Hadi, actually you all talk about the gross margin, right, because in the Q1 you have a pretty decent gross margin, but you actually have a 0 in the bottom line. So My question is about the bottom line, so maybe okay. Yes. I think in terms of bottom line, after gross margin, what we will Next is the operating expense as a percent of revenue. So, you need to deduct operating expense. The operating expense as a percent of revenue In Q2, Q3, Q4 will be similar to what we achieved last year. So, Q1 is kind of a special case because we spent a lot In the sales and marketing, if you look at R and D, the G and A, they are very reasonable amount. The G and A is slightly higher in Q1 because we have around RMB5 1,000,000 coming from foreign exchange loss. But throughout the remaining of the year, they won't see that much. Only the sales marketing was a little bit higher in Q1 because of this Chinese New Year event. In the remaining quarter, last year, the average our operating expense percent of revenue was around 15%. So 14% to 14% is something we can think about. So after you deduct that 14%, 15%, only 22%, you got like 7% before tax, 7% to 8% before tax. I think Bing basically the Q1 is the odd quarter Because traditionally Q1 has always been a low sales quarter. If you look at the sales as a seasonality, But this year in Q1, we did spend quite a bit in marketing because to kick off the Chinese New Year, really try to Make sure this year start with a high note. That's why we kicked up the year of ARK to be newer things and Coupled with the lower sales season in Q1, by lower I mean with respect to the 4 quarters Within the entire year. That's why in Q1 you see a huge market expense. But if we Spread over the entire year, the average marketing expense actually will be falling in line with what happened last year. Great. Thank you. Thank you. We have our next question. This is coming from Alice Ma. Please go ahead. Hi, management team. Thanks for taking my question. I have two questions here. The first one is, could you please Remind us of the OTA function, like how many times did you have you done OTA for the previous intellectual Scooter, and I saw that you have improved some of the intellectual properties of Just characteristics of your new products in the new products launched in April and could you Like how do you view that the consumers are viewing such intellectual characteristics? And my second question is about the batteries you use for different segmentation of your products like for the of your products like for the lower tier products, do you still use like the NCM or LFP battery or what kind of battery will you use in the future? Could you please give us some guidance? Thank you. So I think, great questions. First of all, on the OTA, typically we do OTA after every quarter or so, every 2 or 3 months or so. I think really just the OTA to upgrade the ECU, the software in the ECU as well as So now as I mentioned in the call, some additional smart functionality like a Color display with the navigation mirror of your phone that actually require not just the OTA software upgrade, it actually So, that's why we actually build the hardware upgrade into the new model as well as the existing models. And along with the upgrade, we managed also to increase the product price that allows us to actually to increase ASP to offset So the downward pressure on the price due to the product mix. And so far, I mean based on the Some of the upgrade products like the M2S hasn't really come to the market yet, it will be in the market in May. The UQI upgrade will also be in the market in May. So we haven't really seen the actual user Feedback from those upgrades yet. But based on the user comments from our product launch as well as the user comments From our social media, basically users are actually asking for those upgrades, even we have users with existing MQI2 product asking Whether their current product can be upgraded by paying, they're willing to pay more than RMB 1,000 just to get upgrade on the color display and all the smart functionalities. So I think we expect those upgrades to be welcomed by the users. Now the second one, the battery solutions, I think you're absolutely right. So basically for the higher end products, Like the N Series and M Series, we tend to use more the NCM batteries, the ZTM iron battery and the ACM Due to the higher battery densities such that we actually can put more battery capacities in the scooter to give the scooter a longer But we also recognize the cost of NCA and ACM is a bit higher than our SP batteries. So for majority of Golar Series, the Golar F, the Golar G and the potential of the Golar C Series, We use the RFP batteries. We actually will help to reduce the cost such that we can price at A relatively lower price to our users while maintaining similar margin as our higher end priced products. Now what actually what sacrifice of the compromise we took is with the LSP batteries, We are not able to put a lot of battery capacity into those batteries because the weight constraint of 55 kilos of the entire scooter. So what the user will compromise is actually on the drive range. So on those ones, we try to compensate that with basic Upgraded the V Technology Motors and also they improve the tires such that for example the load resistant tires We'll give a slightly bump up on the dry range. But I think that's practically how we line up the battery solution In order to basically to offer a wide range of pricing product to our users at the same time maintain a healthy margin. Okay, thank you. A little catch up on the previous question. So you will For sure not using the SL lead battery in the future, right? And also, since I also heard some comments From the end users that normally the scooters from NIO are having a more accurate like the battery management system Comparing with the other products in the market, you could have a better accurate Like how much the SoC of the battery, so when you use the LFP battery, can you Also reach such accuracy in the future? Yes, I think that's a great technical question. So when we first adopt using the OST batteries, We actually realized that the result using a better SoC solution, then The reading of the battery capacity is not as accurate as the NTM batteries. So we started exploring with the LST batteries last year actually, yes, Last year. So we quickly actually improved the SoC within the LSP battery pack As well as basically the battery management system as well as the SOCs in the controllers. So that actually To improve the battery reading capacity accuracies. So our accuracy is 20% higher than what used to be in the market And that actually will get us almost on par with the NCM and NCA batteries. Okay. Very clear. Thank you. Seeing no further questions, I would like to hand the conference back to our host, Mr. Goosen. 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 Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect now.