Niu Technologies (NASDAQ: NIU) Q2 2022 earnings call dated Aug. 15, 2022
Corporate Participants:
Wendy Zhao — Investor Relations Manager
Yan Li — Chairman, Chief Executive Officer and Chief Operating Officer
Fion Zhou — Chief Financial Officer
Presentation:
Operator
Good day, and thank you for standing by. Welcome to the Niu Technologies Second Quarter 2022 Earnings Release Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded.
I would now like to hand the conference over to your first speaker today, Wendy Zhao. 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 second quarter of 2022. The earnings press release, corporate presentation and financial spreadsheets have been posted on our Investor Relations website. This call is being webcast from company’s IR website as well, and a replay of the call will be available soon.
Please note, today’s discussion will contain forward-looking statements made under the Safe Harbor provisions of the 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 and 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 and Chief Operating Officer
Thanks, Wendy, and thanks everyone for joining us on the call today. In Q2 2022, we delivered a mixed result in the China and international markets. Total sales volume was down by 17.4% year-over-year. The total sales volume in an international market were up by impressive 200% year-over-year, reaching nearly 29,000 units, mainly driven by the growth in the new category of kick-scooters. However, the total sales volume in the China market was down by 26.7% year-over-year for China market was severely affected by the COVID-19 resurgence.
Now in the China market, COVID infection spiked starting in early April and affected throughout the entire quarter. The lockdown paused pretty much all business operations in cities like Shanghai and severely slowed down the most in others like Beijing. Niu’s sales are highly concentrated in the higher tier cities, which were impacted by the COVID most significantly as top-tier cities account for 35% to 55% of total sales in China market. In addition, the lockdown in Shanghai also caused months of delay in new product development, as our R&D center is based in Shanghai. This has impacted our sales performance in quarter two as well as in Q3 as quite a few key Niu products that are originally scheduled in Q2 were delayed to late August.
For the international market, in Q2, sales of kick-scooters continue to grow rapidly in the overseas market, growing by 112% quarter-over-quarter. During the Amazon Prime Day promotions, Niu was ranked the number one on bestsellers in the kick-scooter categories in Canada, Germany and France and the ranked top three in Spain, U.S. and Italy market. We are excited to see that in less than year since we launched the first kick-scooter product, we have already established our reputation as top sellers in the European, U.S. market online. With the strong performance from online sales, we are also expecting sales ramping up in offline channels as it usually takes more time.
Now delayed by the COVID, we finally launched three new electric bicycle products for China in August, the revolutionary SQi, the new UQi+ and the B2. I will expand on new products in detail. The SQi is positioned as our most high-end product in the China electric bicycle product category with its innovative design and cutting-edge technology in materials. The SQi has a futuristic straddle motorcycle-like look with a clearly cut geometric body, frame and a large 17-inch wheels. It represents an unconventional design for electric bicycles, yet still meeting the China new standard. In order to meet the weight requirements, we adopted a high-performing aerospace magnesium alloy material as a body frame, the first in electric bicycle market. With this unique design, the SQi has quickly gained attention from media and users across China. According to some media, the SQi has pushed the product innovation limit in the electric bicycle market. The SQi is priced from RMB8,999 to RMB9,599 and it will be in production in November.
We launched a pre-sales campaign on August 2 and within the first 10 days after launch, nearly 9,000 pre-orders were made. Along with the launch of SQi, we also announced the collaboration with Razer, the leading global lifestyle brand for gamers. We released the limited addition of Niu product during their co-branded SQi, which is designed to embody Niu’s innovative design and Razer’s signature logo as Razer’s green bright color. The 299 limited new Razer SQi were priced at RMB9,999 and all 299 scooters pre-orders were sold out during the launch event in just 2 seconds. We see great synergy in this co-branding as they put together Niu’s unique design with Razer’s gaming. We also launched a co-brand NQiGT as we plan to sell the new cross Razer NQiGT in the overseas market.
Now, our U series is one of the two products that has won 07 international design awards in mobility category. The original U1 was released in 2017 and the U+ and US were released in 2019. Together, they accounted for nearly 25% of sales. Although remaining at the top selling series, the design functionalities needed upgrade after 5 years in the market. We launched a brand new UQi+, which inherited design sales of the classic U series, but improved significantly on many aspects, such as the light design, the smart control system and riding economics and additional functionalities for personalization. The new U+ user uses the hallow halo light, the first of its kind in the industry, making it easier recognizable riding on the street. It has two additional side taillights compared with the previous version make it safer to ride in the dark at night.
This is compatible with our upgraded intelligence system, the OkGo, which enable complete senseless control. Users can start the scooter, open the seat box and storage box with just their cell phones in the pocket. In addition, the new OkGo features now can be activated with Siri, which users can start and control the scooter with Siri voice commands. The upgraded intelligence system made the new U+ a most user convenient scooter to ride around. In terms of riding economics, we also improved the seating and decking design to make riding more comfortable. The new U+ has increased the legroom and lowered the seat height, make it comfortable for users with various heights. The new UQi scooter has a drive range up to 95 kilometers on one charge.
Now, the biggest highlight on the design of the new UQi+ are interchangeable exoskeleton frame and the magnetic panel on the side, opening up countless possibilities for personalizations. We see many of our customers choose to personalize their scooter parts to make their scooter represent their own taste. We believe by opening up the designing and the creation of the decorative parts to our users will further encourage the expression of their unique lifestyle. Now the brand new U+ is priced from RMB5,299 to RMB7,499.
The third product we released is our B2, a large electric bicycle for the mid-enterprise range market in China, priced from RMB3,999 to RMB4,999. The B2 comes with a simplistic device style, but with a large form factor. It’s about 20% to 30% larger than our G2 and F2, which were released in 2020 and 2021. The G2 and F2 as part of two series are among the most popular mid-end market product in our portfolio. Together, those two models accounted for 22% of sales in China. The addition of B2 completes the product offering, targeting the mid-end market by having a large form factor design with longer depth area and bigger storage box. Large form factor makes it comfortable to ride with, bigger legroom and also enable additonal baby seat, making it more practical scooters for daily use. It is also equipped with a basic intelligence systems such as GPS locationing [Indecipherable] and the new app access.
Now the three new models covered a wide range of market segments in China, the SQi with this unique design reinforce Niu’s spread as the innovation leader in the industry. The new U+ plus enhance news product offerings in the high-end segments and the new B2 with a large full factor that enabled practical design completes our products offerings targeting the mass segments. With the potential of those products become not only just Niu’s next flagship product, but also product that meets market strength.
Now, along with the new product launches in August, we have organized a series of marketing and branding campaigns via PR, social media, PR collaborations and the user events. We have variolus price release events and invited nearly more than 100 media partners to test ride and to cover out new product launches. And those 100 media events has published more than 200 articles. Now, we also, on the social media platform we collaborate with nearly 60 tech and lifestyle influencers and QRs with large fan basis to create content showcasing our new scooters. The QR generated content together gave more than 170 million views across all platform after lunch. Our product launches have also reached Weibo hotlist on August 2nd and August 9th, gaining a total of 570 million of views of it’s more than 400,000 discussions. We initiated Weibo topic of urban commit of urban commute with electric scooter is better than driving to introducing our new scooters and it soon become a phenomena with more than 200 million views. Those huge media exposure served as testimony on the market reactions to our newly launched product but also further improved our brand image as an innovative leader in the urban mobility market in China.
Now turning to the overseas market. As our sales volume keeps growing, we’re putting continuous effort in the marketing and to enhance our brand recognition as the global leader in the urban mobility sector. In this quarter, the new product videos has more than 7 million views on YouTube globally. We’re also actively participate in exhibitions worldwide, making global appearence, showcasing our products and the brand values. We will participate in Electrify Expo, the largest electric vehicle festival in North America in Los Angeles, and we will continue to be a main exhibitor at the Electrify Expo event throughout 2022.
Our product also made its appearance during the bike show in London, which is Europe’s business independent annual motorcycle show. Niu was among the few exhibitors that exhibited with electric motorcycle, screening diversity to the traditional gas fuel motorcycles. With thos exhibition and events, we hope to gain global recognition in the industry.
Finally, I want to give a prospect on the coming quarters. In the first half of 2022, we faced great challenges both from the rising raw material prices, especially in the lithium ion batteries and from sudden COVID resurgence and lockdowns in some of the major cities in China. This had the impact on our sales volume, credit pressure in our gross margin and also cost delaying our new product as mentoined earlier.
For the China market, we remain cautious with the outlook as we put the 2022 first half behind us and announced thre new products, SQi, UQi+, and the B2 in August. We have received very positive response from much of media. Those new product will help to fuel the growth in late Q3 and Q4 2022. Having said that, we remain cautious with the sales rebound in Q3 due to unclear COVID impact and temporary slowdown in retail sales introduced by the lithium ion battery price hike. The COVID resurgence in various has created temporary impact on our sales with the most recent one in Hainan, which accounted 4% of sales last year. The sharp rise of lithium ion battery prices has cost the lithium ion based cooter to price up across the industry. In Q2, we have increased our price — product price by average 7%. Now, the price increase on the lithium ion batteries across the industry has also created a temporary lithium ion scooter demand declines in some of the Tier 2 and Tier 3 cities, where the lead-acid based scooters remain to be a cheaper and more viable alternative.
We have observed a temporary trend up user purchasing preferences switching from lithium ion to lead-acid scooters in some cities like Changan, Nanjing and Foshan. However, we expect to return in demand as the price for lithium in battery stabilizes to the normal level and new regulations being more strictly enforced.
Now for the international market we continue to be very optimistic with the sales growth, especially in the new category expansion in kick-scooters they e-bikes. For kick-scooters besides the current K3 and K2 series, we’re introducing several new series in the second half of this year to complete the kick-scooter product offerings. We also have e-bike models ready for rollout in the coming quarters in the U.S. and European markets. On the channel expansions, we’re actively expanding our offline sales network. By end of quarter three, we plan to grow our point-of-sales to nearly 2,000 stores in the U.S, and Europe, supporting robust growth in the sales and preparing for the holiday seasons. We expect to see sales further ramp-up in the global market as we expand our product portfolio and establish our sales network.
Now I will turn the call over to Fion, our CFO, to go through our financial results.
Fion Zhou — Chief Financial Officer
Thank you, Yan, and hello, everyone. Before going through the financials, we are pleased to present our inaugural ESG report on the IR website today, highlighting our ESG achievements made over the past several years. While it details the company’s performance in several key areas, including low carbon operation, green manufacturing technology innovation, cooperate governance, care for employees and cooperation with partners and peers, valuing this report as the symbol of entering to the new chapter of ESG development for in our view. We have been acknowledging our responsibilities as a member of the community, and we’ll continue to make concrete contributions to society in a number of ways going forward, while dedicating to economic growth, we also hope to enhance our communication with the stakeholders to make a constructive inputs on environmental protection and low carbon economy promotion.
Back to the financial results. Please note that our press release contains all the figures and comparisons you need and we have also uploaded excel format figures to our IR website for your easy reference. As I review our financial performance, we are referring to the second quarter figures unless otherwise specified, and that all monetary figures are RMB unless otherwise noted. In the second quarter, we delivered a mixed results, total sales volume fell by 17.4% to 20,009 units on a year-over-year basis, out of which 180,000 was from China market, representing a 26.7% decrease yield per year, we were more exposed to and adversely affected by lockdown in top-tier cities. Our last year’s — our retail network is a lot more concentrated among them where strict control measures move. International market contributed to robust growth growth by kick-scooter sales ramped up. Total sales volume reached nearly 29,000 units, increased by more than three-fold year-over-year, among which kick-scooter sales volume doubled to 21,000 quarter over quarter, a record high in it’s launch in the first quarter last year.
Meanwhile, e-motorcycles and e-moped sales volume reached by nearly 10% to mode than 7.7000 units. In the second quarter, our total revenue were RMB828 million, down by 12.4% year-over-year. While brand new scooter in ASP increased more than 10% from RMB3,222 to RMB3,557 year-over-year. To break down revenues by region, e-scooters revenue generated from China market was RMB597 million, a year-over-year decrease of 21.2%, representing 8.3% of total scooters revenue. ASP in China market reached at RMB3,309, 7.5% higher in your over-year and 7.7% higher quarter-over-quarter, mainly due to increase in retail prices and a better product mix. Talking now about product mix, and 9 new series and global premium series together accounted for 76.7% of total domestic sales volume this quarter. While Gova entry series only accounted for 23.3%, the lowest level quarterly since 2021.
Overseas e-scooters revenue grew by 1.5 times to RMB146 million, out of which RMB78 million was from e-motorcycle in US and RMB68 million were flat kick-scooters. ASP of international market decreased by 37.7% year-over-year to to RMB5,147, but rose by 14% quarter over quarter. It is a combination of kick-scooters and e-moped. If we look at them separately, both categories could see year-over-year and quarter-over-quarter ASP increase. For e-mopeds and e-motorcycle, ASP rose by nearly 24% year-over-year to over RMB10,000 due to a higher proportion of premium of models. For kick-scooters, the better product mix and increase of retail price both contributing to a much higher ASP.
Revenue for accessories, spare parts and services were RMB85 million, down 34.6% year-over-year from 13.7% to 10.2% of total revenues. This decresae was due to the same reasons we stated in the first quarter rising prices of battery and high freight costs have detered have our international distributors from purchasing spare battery packs, and we perceive it may not recover in the near term.
Gross margin of this quarter with 20.3%, 2.4 PPT lower year-over-year basis, but 1.2 PPT, higher than the first quarter here. Quarter over quarter retail price increase contributed to this 1.2 PPT margin increase, again the aggravating cost of inflation this year. While on a year-over-year basis, the 2.4 PPT decrease, 1.4 PPT was due to the cost pressure including raw material cost inflation and hike in freight, 0.7 PPT was contributed to a higher proportion of kick-scooter sales, which have relatively lower margins and the remaining 0.3 PPT was from the decline of non scooter sales contribution to total sales.
Our total operating expenses for the second quarter was a RMB173 million, 26.4% higher than the same period last year. Operating expenses as a percentage of revenue was 20.9% compared with 14.5% year-over-year. Going into details about expenses, total selling and marketing expenses was RMB93 million, RMB24 million higher year-over-year mainly due to the increase on depreciation of new stores opening from last year. Research and marketing and development expenses were RMB45 million, RMB14 million higher than last year and the majority of the increase was due to RMB10 million higher staff cost, including share-based compensation, RMB3 million higher design and testing expense. As we are expanding our product portfolio, we will continue to invest in talent, professionals and other R&D resources to support our technology development.
G&A expenses were RMB36 million, RMB1.2 million lower than last year, a RMB11 million foreign exchange gain offset by staff cost and provision resulting in decline in G&A. Total operating expenses excluding share-based compensation or non-GAAP expenses were RMB157 million, increased by 25.3% year-over-year and representing 18.9% of revenue. Q2 net income was RMB14.4 million compared with RMB91.8 million in the second quarter of 2021. The net income margin was 1.7% compared with 9.7% in the same period of 2021, and minus 5.1% in the fourth quarter this year.
Turning to our balance sheet and cash flow. We ended the quarter with RMB861 million in cash, term deposit and short-term investments and RMB189 restrictive cash. Our operating cash flow was negative RMB33 million, RMB73 million, mainly due to a RMB126 million increase in inventories of kick-scooters. Same as way the consumer electronics from Chinese manufacturers are sold overseas for kick-scooter we established overseas warehouses, stock up locally to ensure a fast turnover when orders came in. Capital expenditures for the second quarter was RMB50 million compared to RMB83 million in the same period last year.
Now let’s turn to guidance. Since uncertainty remains over the pace of economic recovery, we expect a third quarter revenue to be in the range of RMB1.17 billion to RMB1.35 billion, a increase 5% to an increase of 10% year-over-year. For the full year volume guidance, we prudently adjusted the estimates to 1 billion to 1.2 million units. Please be aware that this outlook is based on information available as of the date and reflect the company’s current and preliminary expectation, which is subjected to changes due to uncertainties relating to a various factors such as the pace of COVID-19 pandemic recovery among others.
With that, we will now open the call for any questions that you may have for us. Operator, please go ahead.
Questions and Answers:
Operator
Thank you. [Operator Instructions] There are no questions at this time, please continue. [Operator Instructions] Dear speakers, there are no further questions, and I would like to hand over back to yourself for the closing remarks. Please go ahead.
Yan Li — Chairman, Chief Executive Officer and Chief Operating Officer
Thank you, operator, and thank you all for participating in today’s call and the for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Thank you.
Operator
[Operator Closing Remarks]