Niu Technologies (NIU) Q1 2022 Earnings Call Transcript

Niu Technologies  (NASDAQ: NIU) Q1 2022 earnings call dated May. 23, 2022

Corporate Participants:

Wendy Zhao — Investor Relations Manager

Yan Li — Chairman, Chief Executive Officer & Chief Operating Officer

Fion Zhou — Chief Financial Officer

Presentation:

Operator

Good day, and thank you for standing by. Welcome to Niu Technologies’ First Quarter 2022 Earnings Release Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions]

And now I would like to hand the conference over to Ms. Wendy Zhao from Niu Technologies’ IR team. Thank you. Please go ahead.

Wendy Zhao — Investor Relations Manager

Thank you, operator. Hello, everyone.

Welcome to today’s conference call to discuss Niu Technologies’ results for the first quarter 2022. The earnings press release, corporate presentation and financial spreadsheets have been posted on Niu’s 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 U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks, uncertainties, assumptions and other factors. The company’s actual results may be materially different from those expressed today. Further information regarding the risk factors is included in the company’s public filings with the Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required by law.

Our earnings press release and this call include discussions of certain non-GAAP financial measures. The press release contains a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results.

On the call with me today are our CEO, Dr. Yan Li; and CFO, Ms. Fion Zhou.

Now let me turn the call over to Yan.

Yan Li — Chairman, Chief Executive Officer & Chief Operating Officer

All right. Thank you, everyone, for joining us on the call today.

In Q1 2022, we witnessed the growth in both the China and the overseas markets. Total sales volume was up 9.4% year-over-year. The China market has a volatile quarter, mainly caused by the COVID outbreak and the city lockdown that last over a month in Shanghai and the surrounding Yangtze Delta region. We had a strong opening in China with sales volume growth of 91.6% year-over-year in January and February. However, in March, our China sales performance was adversely affected by the COVID outbreak due to the retail lockdowns as well as the manufacturing and the logistics disruptions for nearly 2 weeks. And we experienced a 24.1% decline year-over-year in March. Despite the decline in March, we still had a moderate positive growth of 3.0% year-over-year in China market in Q1 due to the strong performance in the first 2 months.

Now turning to the international market. We are seeing a solid growth in the overseas market despite the manufacturing disruptions. Total sales volume outside China reached 147,000, marked 193.7% year-over-year growth in Q1. The solid growth was a result of our expansion of new product categories sold in Europe and North America. We newly launched kick-scooters who were tested to be a success in the 2 markets I mentioned above. In this quarter, we sold nearly 5,000 electric mopeds and almost 10,000 kick-scooters. The strong sales performance in the new kick-scooter product category confirmed our effort in developing a diversified product tailored to different markets is paid off. We have built the infrastructure to support the design, development and marketing of the broader product offerings. Augmented by our wide market reach in the geographic locations around the world, we aim to provide urban mobility solutions to the global market.

Now going into details on the expansion of our product portfolios in Q1 2022. We focus mainly on the growing of the Gova product lines to complete the Gova product offerings in China. In Q1, we introduced the Gova G6, the light motorcycle Gova C3 specifically for female users and the Gova B0 entry-level electric bicycle targeted to the mass market. In Q2, we’re shifting the focus on product portfolio expansions of our product performance improvements and to redefine classics, bring back the improved versions of some of our top selling models of MS and U+ series. Being the leader of the smart 2-wheelers, we continue to improve smart functionalities across our product portfolio. So allow me to go into detail one by one. First, we saw a sharp growth in the light electric motorcycle market as our Gova G3 being well received by the market once released last year.

To capture this growth, we released Gova G6 at the end of March. The G6 is designed with upgraded battery capacity, and it has a range of over 100 kilometers on a single charge, priced at RMB 3,999 to RMB 4,399 as the mid-end offerings.

Another trend we didn’t want to miss is the growing market of the female electric moped electric bicycle users. We are well aware of the demand and the purchasing power behind this previously neglected market segment of the female scooter users. We launched the Gova C0 earlier last year as the entry-level product specifically for female users. Now this year, we launched a Gova C3 in March at the mid-end model priced at RMB 4,000 plus. It comes to multiple passive colors, and it is designed with the special CC headline that really makes the design stand out. On the performance side, the Gova C3 also has a drive range of maximum 100 kilometers.

The biggest highlight of the Gova C3 is the improvement of user experience. It is equipped with smart lock and dynamic mode to assist riding uphill, making the riding experience easy and enjoyable. The stylish design and user-centric writing experience created a unique selling proposition in the market. Besides the 2 new and mid-end Gova products, we also released a B Series, which is another addition to the Gova product line that continues Gova’s original design with creative color combos for the entry riders. We introduced B0 product at entry level price from RMB 2,499, and with more mid-end Gova B Series model to come later this year.

Now with the comprehensive model of Gova B and P-series, we believe we had a solid product range, covers in the — and China electric bicycle and the electric motorcycle market, priced from RMB 2,499 to RMB 7,299. The newly released of 2 main Gova product, G6, G3 and entry-level Gova B0 were received by the market, accounting for almost 18% of sales since the first month of the rollout. This again demonstrates our ability to create attractive and comprehensive product in the mid-end market segment. I’ll come into Q2, we’re releasing some of the upgrade version of the new electric bicycle products such as MS and U+ with a 20% performance improvement. Also, we’re bringing back our Niu’s classic electric motorcycles of M1 and M+ refined with new features such as longer drive range and upgraded smart functions. We’re excited about the growth driven by the performance improvement product in the Niu products series in the coming quarters.

Now for the international market, with continued effort in product development in the newly entered micro-mobility categories. The KQi3 Max is our most powerful and the fastest kick-scooters with the maximum speed of 32-kilometer per hour and its longer driver range that can go up to 65 kilometers. We plan to release this strong uphill model in Q2 this year, also the BQi C3 Pro e-bike is designed with stylish and practical lightweight frame together with paddle assistance throttle control to make it easy and comfortable as a city commute bike. Both products were exhibited during the CES in Q1 in Las Vegas, and as well received by the audiences.

And lastly, we continue to improve the smart functionalities across our product portfolios. The newly launched models for both the Gova and new series are equipped with our new smart functions such as upgraded app with GPS, the antitheft remote tracking, scooter diagnostic features and also the Bluetooth and NFC lock system as well as the smart seat storage lock. Those intelligent features aim to make the riding experience smart and easy for our users. Those new product offerings and functional upgrade not only helped to drive sales growth, but also helped us to improve the gross margin.

We all know that the sharp rise in the raw material prices, especially the 40% plus price hike in the lithium-ion battery cost, has put a tremendous pressure on our gross margin given the lithium-ion battery accounts for 35% to 40% of our bumped cost. This was the main cost for our gross margin drop in Q1, and an impact would be even bigger in Q2 since some of the raw material price increases are fully recognized in Q2. Now by launching new products and integrating new features to improve the performance of our existing products, will increase the perceived value of our users, and are able to sell the product at a premium price in order to close the gap in gross margin caused by the rising materials.

Now as we grow our product portfolios, we also expand our sales network in Q1 2022. We opened about 140 new branded stores in China, totaling to 3,248 stores across China. In the international market, we also broadened our sales channels with new partnerships. Previously, with the electric motorcycles, we mainly have our overseas branded and premium stores and independent motorcycle dealers selling electric motorcycles. Now with the freshly launched category of kick-scooters, and to-be-launched e-bikes, we opened up to work with electronics and general retail stores as well as online like Amazon, and also Shopify website. We plan to keep growing the network as we grow product offerings and penetrate into a broader market.

Our brand image is always a real field behind the long-term growth as we expand into new product category internationally. We continue to build our brand image as a global leader of urban mobility. In Q1, we actively participated in exhibitions worldwide, showcasing our product lines this year for the global market. We participated in the Consumer Electronics Show in Las Vegas, the Vive La Moto Show in Madrid, Spain, and E-TECH show in Bologna, Italy. In some of exhibitions and conferences, Niu was the only 2-wheeler vehicle brand invited, and our new products revealed gained exposures and the recognition in the industry.

Now as a promoter of the sustainable living for all, we are also dedicated to provide our customers with more environmental friendly smart urban vehicles to make a positive impact on the environment. We’re spreading the idea of sustainable living through out — not just our products, but also our daily operations. Last year, we celebrated our 10 billion-kilometer drive distance event, calculating carbon emission reduction of 2.5 billion kilograms if those distances were traveled with petrol. During this quarter, we launched a program called ReNIU, a global sustainable initiative designed to renew our planet as part of our Earth Day campaign. We organized the global Earth Day cleanup that was designed to bring life into our urban environment that has galvanized new users’ interactions across 4 continents. We have Niu Clubs rally to clean up trash in public areas on the beach of Bali, the Strait of Otranto, and even around the ancient remains of Guatemala.

In China, we also have users to share their stories to live greener with Niu. The user-generated content gained over 66 million views and almost 150,000 interactions and comments and likes across all social media platforms. Sustainability has been a core value to us since day 1, and I’m proud to see our brand making a positive impact on journey of sustainability with our users. Now in China, as we expand to cover more broader range of consumers, both demographically and geographically, we continue to spread value behind our brand with a variety of campaigns. We carried on our successful campaign slogan, feel proud of yourself.

In this quarter, we collaborated with the China top comedy group on the nationwide TV show and again, over 2.9 billion viewership. Also, from March to April, we implemented a QR marketing on Douyin platform with 15 technology and lifestyle influencers with larger fan base to create a high-quality content showing case our scooters. A short video done on Douyin had a total of 100 million views, and 4 million interaction, likes and comments. We further organized various user activities across China as a participation, for example, participation in Guangzhou Comic Con with user modified by new bikes, gaining about 1.7 million views on social media, also various new friends events such as one in Chengdu hosting and new concert with world-recognized singers.

Now to conclude Q1 2022, despite the headwinds caused by the COVID-19 and raw material price increase, we were resilient in our business operation. Both the China, overseas market have positive responses to our expanded product categories and upgrade models, and we plan to keep or broaden our product portfolio, and already have a few products in line with production and market entries for the coming quarters. Our branding and marketing operations, we actively promote our brand as a global leader in urban mobility industry, brand awareness and recognition from market we operate in create a long-term view for our company’s growth.

Now looking forward to Q2 ’22. It is no doubt a very challenging period for us, given uncertainty caused by the resurgence of COVID-19 in China. As of May 2022, quite some major cities have been in full or partial lockdowns, which adversely affect the consumer spending in all categories with no exception to the demand of 2-wheeler vehicles during the lockdown period. We are particularly impacted as our sales are highly concentrated in the top-tier cities where the COVID restraints are more rigid. In addition, we continue to experience supply chain disruptions that some of the key suppliers are in Shanghai, and vicinity. The slowdown in manufacturing and logistics has affected our market performance globally.

While the market demand in China faces uncertainties in Q2, our diversified growth strategy put in place since last year has shine some light. The newly launched category of kick-scooters has been ground in Europe and North American market. Our kick-scooter ranked as Amazon’s best sellers of electric scooter category for 2 weeks in narrow in May. The to-be-launched electric bike products will further strengthen our position at the urban mobility brand. The rising sales in our international market will help us to weather through the temporary downturns in the China market.

Now we’re also confident in our rebound in the sales in the China post the COVID-19 situation as the same trend observed in 2020. Now in the cities that have been hit by COVID, even though the sales are being hit temporarily. Now traveling with personal scooters appear to be recommended in some times even as the only form of transportation in cities, for many riding a scooter is safer and easier transportation method, and is even a recommended method by local community officials. So expect to see a need for electric scooter and bicycle rising with the COVID easing in the coming quarters. So although Q2 will be a challenging quarter for us. Now with our new product offerings in pipeline for both the China market and the international market, we’re still optimistic for the entire year of 2022.

Now I’ll turn the call over to Fion, our CFO, to go through the financial results.

Fion Zhou — Chief Financial Officer

Thank you, Yan, and hello, everyone.

Our press release contains all the figures and comparisons you need, and we have also uploaded excel format figures to our IR website for your easy reference. As I review our financial performance, we are referring to the first quarter figures, unless otherwise specified, and that all monetary figures are RMB unless otherwise noted. In the first quarter 2022, we are gratified to see the strong demand of kick-scooter series since its debut last year in Europe and in US has been maintaining its momentum, and the product mix in China market continue to move towards what we planned and expected. Among the total 149,000 sales in Chinese domestic market, 31.4% are coming from the N, M, U series, and 38.4% from Gova premium, and only 30.2% from the Gova Entry. As Yan just mentioned, kick-scooter sales volume in the overseas market reached nearly 10,000. And e-moped and e-motorcycles, 5,000.

Talking about revenue. Total revenue increased by 5.1% to RMB 575.5 million, compared to the same period last year. Specifically, revenue from scooters increased by 70.5%, while revenue from accessories, spare parts and services dropped by 48.9% in earlier half. The contribution of scooter revenue rose from 91.3% to — sorry, from 81.3% to 90.9% year-over-year. And in China market, we managed to achieve a slight growth despite headwinds from COVID resurgence. And e-scooter revenue from China market increased by 12.6% to RMB 457.7 million accounting for 87.5% of total scooter revenue, and the growth was mostly driven by the improvement in ASP as a result of a more optimized product mix, as I mentioned.

Our newly released Gova premium models targeting at mid-end market, has received a positive response and feedback. Solid growth from Gova premium was also reflected in the ASP. The scooter ASP from China market was RMB 3,072, 9.4% increase from the first quarter 2021. Scooter revenue from overseas markets increased by 68.9% to RMB 65.7 million, fueled by strong kick-scooter sales since its official launch in quarter 3 2021. The overseas scooter revenue as a percentage of total scooter revenue increased by 3.8 ppt to 12.5% year-over-year, indicating that our international sales keep growing steadily as we continue to expand product offers tailored to different community and traveling demand in those markets.

Among the total RMB 65.7 million overseas scooter revenue, RMB 21 million came from kick-scooters, and the other RMB 44.7 million were from moped and motorcycles. Overseas scooter AMP as a whole fell from RMB 7,786 to RMB 4,476. Since the kick-scooter, which retail price is much lower than e-moped and e-motorcycles is included in the number. And the ASP of e-mopeds and motorcycles in fact, increased from — increased by 18.5% year-over-year because of our high-end models like NGT EV and NGT accounts for a higher proportion of the total sales volume. With all the above being said, branded scooter ASP increased by 7.5% to RMB 3,198 including China e-scooters, overseas e-scooters, and e-motorcycles, and kick-scooters altogether.

Accessories, spare parts and service revenue were RMB 52.1 million, a decrease of 48.9% from last year quarter 1, representing a 9.1% of total revenues compared to 18.7% of total revenues last year. The decrease was mainly due to the overseas battery pack sales reduction. Highest rate costs and euro depreciation against the US dollars has discouraged many distributors from stocking up in advance.

We did not meet the previous guidance for this quarter, mainly due to the COVID impact on domestic market, which led to not only manufacturing and logistics disruptions, supply chain shortages, but also the severe retail difficulties and transportation limitations in many big cities. These headwinds may continue to cast the impact on our performance in the second quarter.

The gross margin for the first quarter declined by 4.7 ppt from the same period last year to 19.1%, largely due to the fewer sales from non-scooter parts and services, which has higher margins and the consistently soaring cost of lithium-ion batteries and the other core raw material price hikes, for example, aluminum, cooper and rubbers.

To pass on the cost pressure, we actually raised the retail prices for all of our lithium-ion battery models in China market on April 1. And for some models in overseas market on May 1. We believe that the retail price increases will sustain us through upstream cost inflation.

And now let’s turn to expenses. Total operation expenses were RMB 143 million, an increase of 9.6% from the same period 2021. And operating expenses as a percentage of revenue was 24.8% compared to 23.8% in the first quarter of 2021. And this increase was mainly due to the rising R&D expenses, which jumped to RMB 41.8 million, 63.4% up year-over-year, but 7% lower quarter-over-quarter. And the majority increase year-over-year are design and testing expenses and staff cost. Being able to stay competitive in the market and to achieve sustaining growth significantly relying on our ability to keep launching popular products, which meet the demands of our customers. Thus, the R&D has always been our priority ever since.

And the marketing and selling expenses were RMB 70 million decreased by 4.7% compared to quarter 1 2021, mainly because of the decrease in advertising and promotion expenses. However, we did put much focus on ramping up kick-scooters abroad sales channels. Other than online channels like Amazon, Best Buy and Walmart, which we have already entered into, we’ve expanded to some of the largest offline big-box tailors — retailers like Costco, Decathlon, Auchan and SNAP. We believe these efforts will pay off in the kick-scooter sales going forward.

And G&A expenses remained flat 0.3 ppt lower as a percentage of revenue as we continue to control costs and improve our operational efficiency. The non-GAAP operating expenses as a percentage of revenue was 22.6% compared to 21.7% of last year, quarter 1. Out of the 22.6% annual non-GAAP operating expenses, 11.5% was from the selling and marketing expenses, 1.4 ppt lower than last year. 6.4% was from the R&D expenses, 2.5 ppt higher than last year. And 4.7% was from G&A expenses, 0.2 ppt lower than last year. This quarter, we recorded a net loss of RMB 29.6 million compared to the net loss of RMB 5.4 million in the first quarter of 2021, and the net margin was negative 5.1% compared to the negative 1.0% last year. Non-GAAP loss was RMB 16.3 million compared to the last year’s net profit of RMB 6.7 million.

Turning to our balance sheet and cash flow. We ended the quarter with RMB 890 million in cash, term deposits and short-term investments and RMB 223 restricted cash. Our operating cash flow was RMB 168 million, mainly due to the reduction in payable of RMB 174 million as a result of seasonality. And in addition, our purchase of raw materials battery pack have increased since the second half of 2021 as we tended to lock in the price and avoid the adverse impact from the further price hikes. Also, due to the seasonality, quarter 1 is the quarter in which we usually generated the lowest sales throughout the year. Considering these 2 factors, it’s typical that operating cash flow is negative for the first quarter each year.

Talking about quarter 2 guidance. Given the high uncertainty of China domestic market, as we mentioned, especially the continuing negative impact of the recent outbreak of — on our offline retail. And we expect the revenue to be between RMB 803 million to RMB 945 million, representing a 15% decrease to no change year-over-year.

With that, let’s now open the call for any questions that you may have for us. Operator, please go ahead.

Questions and Answers:

Operator

[Operator Instructions] We have no question at this time. I will turn the call back to the management team for closing remarks.

Yan Li — Chairman, Chief Executive Officer & Chief Operating Officer

All right. Thank you, operator, and thank you all for participating on today’s call and for your support. We appreciate your interest and looking forward to reporting to you again next quarter on our progress.

Operator

[Operator Closing Remarks]