Niu Technologies Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 12, 2024

There are 6 speakers on the call.

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Niu Technologies Second Quarter 2024 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.

Operator

As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now, I'll turn the call over to Ms. Crystal Li, Investor Relations Manager of Niu Technologies. Ms.

Operator

Li, please go ahead.

Speaker 1

Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss New Technologies results for the Q2 2024. The earnings press release, corporate presentation and financial spreadsheets has been posted on our Investor Relations website. This call is being webcast from our company's IR site as well and a replay of the call will be available soon.

Speaker 1

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.

Speaker 1

Further information regarding the risk factors is included in 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 discussion of certain non GAAP financial measures. The press release contain 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, Doctor.

Speaker 1

Yan Li and CFO, Ms. Bian Zhou. Now, let me turn the call over to CEO, Yan.

Speaker 2

Thank you, Crystal, and hello, everyone. Thank you for joining us today. The Q2 of 2024 continued the growth trend from Q1 with a total sales volume of 256,000 units, reflecting a year over year increase of 21%. The China market saw a 16% year over year increase to 107,000 units, while the overseas market experienced a significant year over year growth of 45% to 48,600 units. Total revenue reached RMB940,500,000, marking a 13.5 year over year increase.

Speaker 2

This performance underscores the effectiveness of our strategic focus on expanding product, sales channel and the market coverage. We have made substantial progress in both China and overseas market reflected in the improved performance and increased recognition from our partners. In China, we're focused on enhancing our product portfolio with new offerings around the core series. The new product introduced received positive feedback from users. In Q1, we launched product strategy to focus on target groups and in Q2, expand our product offerings to further meet the diversified needs from the core groups.

Speaker 2

In the overseas market, we have significantly expanded our sales network for micro mobility product by partnering with the key retail channels. This expansion has greatly increased our market presence expected to further drive long term growth. The electric 2 wheeler segment, we are optimizing our business operations to focus on key market. We have completed the initial phase of building a foundation of direct sales in key markets in Europe and United States for our key products. Although the strategy to invest more heavily in local operations takes time to implement in the beginning, We're confident that direct to market approach allows us to adapt more to the local market, thus can create substantial growth in the long term.

Speaker 2

Now let me dive into the China market. Our growth is driven by strategic focus on product portfolio expansion, sales channel growth and same store sales improvement. This year, we emphasized on product development on targeting both the high end premium segment to reinforce our brand premium image and specific consumer segment like Gen Z and female users. We initiated effort to expand sales channel by increasing the number of stores, increase underpenetrated CDs. Additionally, we strengthened our omni channel approach integrating online, offline strategies to boost same store sales.

Speaker 2

In Q1, we introduced the NXT, our most premium electric bicycle priced at RMB 12,99. It quickly became the leading product in segments equipped with advanced features like full function ABS, TCS, blind spot detection, a car grid dashboard and a millimeter wave radar. Ready on the success, we launched the N Play electric motorcycle and the U Max electric bicycle designed to appear to the young Gen Z riders. The MPlay inherited the classic in design and the U Max offer a larger form factor inherited the classic U series design. Additionally, we focus on female demographic by launching the operating U.

Speaker 2

M. In March, coincide with the International Women's Day, combining the classic design with user friendly and safety focused features. Those new products are well received collectively, accounting for more than 50% old units sold in Q2, underscoring our strict focus on targeting product development. In Q2, we continue the product development strategy to roll our key premium products and expand the product portfolio for Gen Z and female users. We prepared the launch of NX, our most premium electric motorcycles, which was recently released in the market in July.

Speaker 2

The Nx offers a customizable smart tire pressure monitoring system, high quality do disc brakes and adjustable suspension for smooth ride, equipped with the most up to date new smart functionalities and actually priced from RMB 6,500 to RMB2900. We believe the product will not only contribute to sales volume, but also reinforce Niu's leading position in the premium electric scooter market. Also continue to explore products targeting the Gen Z user group, we recently launched the NT Play electric bicycle that inherited the classic design of the N series and a combined advanced motorcycle grade handling electric bike. Equipped with car features such as key lead simulation, TCS traction control, cruise control and push during the rides. The NT is priced competitively at RMB4499.

Speaker 2

For the female consumer segment, in May, we released the O Series to complete our product offerings covering the premium female sector. The O Series is designed for young female riders with focus on comfort and looks. I emphasize easy long distance riding safety, simple operations and design excellence. Key design features include comfortable seating, ergonomic handles, stable riding triangle in addition to the new smart features we ensure delightful and a comfortable riding experience for urban commuters. The O Series was launched in the market on June 1 through our live stream.

Speaker 2

So our product rollout strategy positions Niu's portfolio with premium product while also focusing on diversified offering for unique user needs. Each product maintains a consistent element and new signature halo light to help strengthen our brand recognition in the market. Now for our marketing campaigns this year, we have strategically focused on penetrating target user groups with our new product launches. Specifically, we have integrated marketing efforts aimed at Gen Z and female demographics. To engage the Gen Z group, we expand our partnership with JD Gaming, a popular online gaming team in China through co branded product launches, live stream sessions and the gaming competition sponsorships.

Speaker 2

Additionally, we collaborate with Razer including launching a new X Razer XQI limited edition and participating in a game competition across 15 universities, generating over 50,000,000 BUs online. Other initiatives, including the sponsor U18 Basketball game and the running university new KOL ambassador programs. With the product focused on female user group, we launched a targeted sales and marketing initiative. For the O Series launch, we executed a comprehensive campaign on Xiaoping Chu, leveraging KOL content marketing and eTwosur event. This included widespread exposures, in-depth user experience and media coverage.

Speaker 2

Across all platforms, we have our content around the product release this year gaining 1,100,000,000 views. With those marketing effort, new products, we observed a significant increase in traction across all social media platforms. This quarter, the new brand received a total of 125,000,000 interactions, representing a 22% increase year over year. The growth interactions on social media platform indicates that both our product and marketing campaigns are gaining significant traction and effectively resonate with our audience. Now regarding the sales network expansion, we made effort to enhance our sales networks through both channel expansions and same store sales improvement.

Speaker 2

Driven by the new product introductions, we resumed the channel expansion this year, opening 400 plus new stores in first half, resulting in close to 300 store ads, primarily in Tier 3 and Tier 4 cities. While this growth is modest compared with our total store counts, it signals the start of a new momentum in our sales network expansion. We anticipate a continuous positive trend in Q3 and Q4. In addition to new store openings, our key focus this year has been on improving same store sales through our omni channel approach, driving online traffic to offline stores. We significantly increased our effort on the traditional e commerce platform with online orders accounting for 48% of total orders in the first half versus last year at 26%.

Speaker 2

In addition to traditional e commerce platform, we actively expand our online presence on Douyin, Xiaomongshu and the Kuaishou. Leveraging a strong content from our influencer network, those platforms became the fastest growing channels. For example, on Douyin, we ramp up the in store live stream sessions across 50 major cities conducting more than 500 sessions and the nearly 2,000 hours of streaming this quarter. By end of Q2, over 22,000 orders were placed on Douyin compared to a double digit from same period last year. Those efforts improved the same store sales by close to 7% year over year in Q2 laying a strong foundation for future growth.

Speaker 2

Now let me turn into the overseas market. This quarter marks the period of growth and strategic execution. In the micro mobility category, we achieved a 54 percent year over year growth in volume and launched a key strategic partnership to expand our sales network. For electric 2 wheeler segment, we're focused on building direct sales operations revive our market presence in key markets. In micro mobility, we leverage our established product portfolio to grow market presence by updating our well received products with new versions and enhanced channel penetration in key offline channels.

Speaker 2

In Q2, we introduced the KQI 300 series as a significant update to the popular KQI 3 series, offering a versatile and powerful options for urban commuting, including the KPI 300 PS Vendor X. Both features advanced dual tube hydraulic suspension system for smooth drive or rough surfaces. Both models include a smart connectivity to the new app, enhancing the overall ride experience with customizable settings and safety features. The KQI 300 sold over 10,000 units in the 1st few months during its launch, and it quickly attracts the tensions from influencers, media and the industry. In the first half twenty twenty four, we also expanded our micro mobility offline retail channels in key countries in the U.

Speaker 2

S, Germany and Australia, achieving notable growth in the key markets. In the U. S, in July, we announced our strategic partnership entering all 800 plus Best Buy stores. This milestone allows us to reach a wide market across the United States. Beyond this momentum, we're also collaborating with Walmart, Kohl's, Target and the Home Depot to diversify our product offerings across various channels.

Speaker 2

Similar expansion effort were carried out in Europe and Australia. In Germany, our product are now over 400 media markets at home stores. And with successful pilot programs, Australia saw a considerable progress with JD Hi Fi stores increasing to 230 and 100 of Gookaes and Harvard Women stores also displaying our products. Now moving forward, our focus on for the rest of the year is to leverage our well rounded product portfolio and establish a sales network to drive growth in both sales volume and profitability. In response to change the import tariff to the United States, we had an initial effort to relocating part of the manufacturing outside China.

Speaker 2

Now shifting to the electric two wheeler segment, the business decreased by 69% year over year in first half twenty twenty four, driven by both external and internal factors. Externally, key markets in Europe, like Germany, France and Dutch region, saw a significant drop in the total market volume after withdrawal of government subsidies for Clean Energy product, leading over a 50% decrease in total market size. Internally, we transitioned to a direct sales model in core market, while those ships will drive substantial long term growth, require time to be fully implemented and realized. By Q2, we have added 100 plus leaders onboarding those key countries, and those build a good foundation for future growth when the market starts to turn around. Now looking ahead, we're optimistic about the coming quarters for both China overseas operations.

Speaker 2

In China, we'll continue our strategy of optimizing product portfolio with premium products and Gen Z mass premium products we announced in this market in July August, improving same store sales with omni channel approach and building our market effort around the specific consumer segments. Those adjustments have shown very positive results in Q1 and Q2, and we're confident that it's very faster to grow in Q3 and Q4. Overseas market, we expect sustained growth in micro mobility segments supported by the comprehensive product portfolio and a solid channel presence in the key market like Germany, U. S, and Australia. We have delivered strong 32% year over year growth in the product activation in July, and those growth are sustainable throughout the year.

Speaker 2

In the electric two wheeler market, while we're updating our product offerings, our focus remains on expanding the dealer network throughout the rest of the year to regain the dealer network footprint. Now with that, let me turn the call to Xia.

Speaker 3

Thank you, Yan. Hello, everyone. 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 site for your easier reference. As I review our financial results, I'm referring to the Q2 figures unless I say otherwise and all monetary figures are in RMB if not specified. Just mentioned, our total sales volume for the Q2 was 256,000 units, up 21% compared to the same period of last year.

Speaker 3

208,000 units were sold in China, while the remaining 48,000 units were sold overseas. Nearly 60% of our sales volume in China was contributed by the new products launched this year. And the total revenue for the Q2 amounted to 9, 40,000,000 dollars up $112,000,000 or 13.5 percent compared to the same period of last year. China revenue was $8,200,000 accounting for 85% of the total revenues. And of this, the scooter revenue was $727,000,000 up 14% year over year and this increase was mainly due to the higher sales volume and partially offset by a decrease in the revenue per scooters.

Speaker 3

China scooters ASP was RMB3503, down 2% year over year and 2% quarter over quarter. The year over year decline in ASP was mainly due to a change in product mix within the premium series. This quarter, the sales volume of our high end land asset motorcycles were favorably in the premium market, accounting for 1 third of the sales in our premium series. And these models are typically offered a competitive price, which explains the slightly decline in ASP and margins as well. The overseas revenue were 138,000,000 including the motorcycle, Seemopass, kick scooters and e bikes amounted to 130,000,000 compared to $115,000,000 in the same period of last year.

Speaker 3

And this growth was mainly due to the increased sales of kickbooters and partially offset by the decline in the sales of electronic motorcycles and mopeds. The micro mobility revenue was around $119,000,000 up 32% year over year and the overseas scooter ASP decreased from RMB 3, 430 to 2,682 year over year as the increased proportion in the sales volume of kick scooters. However, compared to the Q1 2024, ASP increased 4% quarter over quarter. The revenue from accessories, spare parts and services amounted to $83,000,000 a 10% increase compared to the same period of last year due to the increase of sales spare parts in China market. And the gross margin for the Q2 was 17%, 6.1 ppt lower than the same period of last year and 1.9 ppt lower than the previous quarter.

Speaker 3

This decline was mainly due to the lower margins of China scooters and the increased proportion of the overseas key scooters with their lower margin. In China, as we mentioned previously, our high end lead acid motorcycles offered a lower margin compared to our classic premium lithium ion ones. And meanwhile, we contributed to allocate part of the margins to our domestic distribution partners to reward their loyalty to the company. And talking about operating expenses, the 2nd quarter OpEx was RMB 192,000,000 representing a 3.5% decrease compared to the same period of last year and the total OpEx ratio decreased from 24% to 20%. Selling and marketing expenses were $120,000,000 up $11,000,000 year over year, primarily due to the new products promotion in online shopping festival like June 18, May 20 and other advertisements in China.

Speaker 3

Selling and marketing expenses as a percentage of revenue went down from 13.2% to 12.8%. R and D expenses amounted to $32,000,000 down $9,000,000 year over year and mainly due to a decrease of $9,000,000 in share based compensation and staff cost. R and D expenses as a percentage revenue went down from 5% to 3.4%. G and A expenses were 39,000,000 dollars down $9,000,000 year over year mainly due to the decrease in allowance for doubtful accounts. G and A expenses as a percentage of revenue went down from 5.8% to 4.2%.

Speaker 3

In the Q2, we had a net loss of $25,000,000 with a net loss margin of 2.6% under the GAAP accounting, compared to a net loss of $2,000,000 for the same period of last year. The adjusted net loss was $20,000,000 with an adjusted net loss margin of 2.1%. And turning to our balance sheet and cash flow, we ended the quarter with $1,300,000,000 in cash, restricted cash, term deposits and short term investments. Last quarter, this amount was $1,200,000,000 and last year end was $1,100,000,000 Our operating cash inflow amounted to $174,000,000 and we expected the operating cash flow to remain healthy going forward. The CapEx for this quarter was the outflow of $20,000,000 dollars and reflecting an increase of $5,000,000 compared to the same period of last year.

Speaker 3

This can be attributed primarily to increase in the opening of new stores in China. And now, let's turn to the guidance. We expected the 3rd quarter revenue to be in the range of $1298,000,000 to $1483,000,000 an increase of 40% to 60% year over year. And please be aware that this outlook is based on the information available as of the date and reflects the company's current and preliminary expectations, which is subjected to change due to the uncertainties relating to various factors. And with that, we're now open for the call for any questions that you may have for us.

Speaker 3

Operator, please go ahead.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from Kai Kang from Citix. Please go ahead.

Speaker 4

Okay. Thank you for the opportunity. And thank you, Mr. President Li and thank you, President Bill. And I'm Kai Kang from Citix Securities and also from CSA.

Speaker 4

And I have two questions. And the first question, as we have mentioned that we will have a strong growth on the tax Q3 of 24. So what kind of GPM do we think we can achieve in the Q3 as our volume will be much better with scale effect? And what's the maybe both in terms of long term or the mid term GPM do we think we can achieve or can we get? And that's the first question.

Speaker 2

So let me repeat your question. So basically, you're asking about the 3rd quarter strong growth and you're asking about the GTM or

Speaker 4

Yes.

Speaker 2

What do you mean by GTM, the go to market plan?

Speaker 4

The gross profit market.

Speaker 2

Okay.

Speaker 3

So regarding to the gross so you're asking about the reason why the gross margin dropped, right? This is beyond.

Speaker 4

Yes. And the trend of the gross profit margin in the next few quarters.

Speaker 3

Okay. All right. So regarding for the gross margin, actually, this quarter and last quarter, the reason is mainly in count on the domestic gross margin drop. As I just explained, starting from this year, we plan to launch the high end lead acid motorcycles in our premium series. Normally, in domestic markets, we set a bar that the MSRP above 4,500 is our premium series.

Speaker 3

And below that is our mass premium series. And this year, our high end lead acid motorcycles, the cheapest model of our high end lead acid one is around RMB4800. So this means and we also launched the other lead acid high end motorcycles set the price around 6000 to 8000 MSRP, which is also led in the leader in the premium market in our premium series and also in China market. But those lactic acid 1 gross margin is around 5 to 7 PPG gross margin less than our premium models. Normally, our premium lithium ion one got the gross margin around 22% to 28% gross margin.

Speaker 3

And the lead acid wise is around 5 to 7 PPKLOR than our traditional premium lithium ion 1. This main factor drives our gross margin in China market and also in blended in total to around 3%. And the rest 3%, as I just explained last quarter, that this year, since we launched the different new products, fitting to different consumers, Like Yan just mentioned, the Generation Z, the female ones, the lead acid products, which are new to the market. So we offered several points of the channel profit to our distributors to thank for their loyalty to our brand during last year and the year before last when we're facing the difficulties in the domestic market. And also to boost their confidence and help us to build in the more healthier sales channel in the domestic market.

Speaker 3

And that's why we are able to open the new stores in the first half of this year, more than 400 new stores in China market. And those are the 2 major points which drag down our gross margin in China market. And in the meanwhile, our overseas markets, the kick scooters revenue contributes around 14% of our total revenues compared to only 10% last year. And those increased proportion of the overseas kick scooters also dragged down our blended gross margin in total. And those are the main reason why the gross margin dropped compared to last year.

Speaker 3

But for the following quarters and when we see the overall this year's guidance, we won't expect our year end or the average annual gross margin go back to around 22% to 23% as we previously did in 2021 or 2022. But we expected the gross margin this year would be lower than the year before last year. But still, we'll remain at the higher level when we compare to our competitors in the China scooters market. This is the hope this will answer your question.

Speaker 4

Thanks a lot. I see the trend on this margin. And also you also mentioned about new shops and new dealer networks that we are expanding in China. So do we now have a higher target on the dealer network volume or shop volume in China at the end of this year or what's the target on the dealer network?

Speaker 2

I think the goal is actually to add another roughly another 1,000 stores this year in addition to the existing ones we have. I think the first half, I mean, we opened up 400 plus stores, but also I think we shut down about 100 something. So basically that resulted in net adds of close to 300 stores. So I think the rest that we're looking at is basically what we need to do for Q3 and Q4.

Speaker 4

Thank you. It's very clear and thank you.

Operator

Thank you for the questions. Our next question comes from the line of James Zhou from UBS. Please go ahead.

Speaker 4

Dear management, thanks for taking my questions. I have one question. So the we all know that the new national standard is about to roll out in a few months. So there is any comments on the potential policy and maybe impact on the high end incubator markets we are in?

Speaker 2

Well, I think we're still very closely monitored and actually looking to study this new national standard. I think it has basically, it has the standard has some key things around battery safeties, which actually may actually, I think will be actually positive news for us. And also, have the standard also have some requirement on sort of the design form factors. So our design team is actually really looking into the standard and actually in the process basically are developing products that are meeting new standards. So in terms of the impact, I guess, we had to just watch and see.

Speaker 4

Okay. Thank you.

Operator

Thank you for the questions. One moment for the next questions. Our next question comes from the line of Yatin Chen from CICC. Please go ahead.

Speaker 5

Hello. Good evening. I'm Yatin from CSCC. And my first question is, what is your expected gross margin of kick scooters in the mid to long term? Because we can see that the gross margin of key scooters may be lower than scooters in domestic market.

Speaker 5

So how can we improve the gross margin of kick scooters? And what is your expectation of it?

Speaker 3

Well, this is Bian. I'll answer this question. Actually, our Kixoo's gross margin remain almost stable for the past 3 quarters when our sales volume ramped up to around 40,000 units per quarter. And in the meanwhile, the other reason why the gross margin remains stable is that we set up a stable partnership with our overseas sales partners, like Yan just mentioned in U. S, the Best Buy, Walmart.

Speaker 3

And also in the EU, the major electronic markets like the Media Mart, those are big partners. But this is about our kick scooters business is still at the very beginning stage. Even this year, we don't expect a huge increase compared to last year or we made a market somebody in those countries. We still expect that once when our sales volume reach around 500,000 sales volume in total in the overseas market, we are able to see the scale of economy benefits from their production cost and also the volume power in the shipping and logistic cost. But below those sales volumes, since we sell it across the U.

Speaker 3

S. And the EU, there is no strong benefit from the cost reduction way for us. And in the meantime, we didn't expect the Kip Scooter as the profit as a profit stream to our company. We still see the KickScooter as the strategic footprint for our micro mobility and our mobility business in the developed countries to reinforce our brand and to help us build up the brand image compared with our motorcycles. And that's why we didn't put a harsh pressure on the kick scooters profitability.

Speaker 3

Hope this will answer your question.

Speaker 5

Thank you. It's very clear. And my second question is about expense ratio, because we have seen a downward trend in operating expense ratio in Q2. So will it continue to decline in the second half of the year quarter to quarter?

Speaker 3

Yes, for sure. Once when our revenue increased and we get back to the right track in the growth of our business, those expenses as percentage of revenue will drop dramatically. Since last year, we already done the cost reduction and improved our operating efficiency at the second half of last year. Normally, the expenses as kind of the fixed cost or fixed expenses are at the lowest level to our production and our business scale. And this year, the only thing will be changed.

Speaker 3

The only expenses will be changed aligned with our revenue is the selling and marketing expenses. For the R and D and G and A, since the revenue increase, those expenses of as a percentage of revenue will drop. And this year, we expect even the annual OpEx as percentage of revenue will drop dramatically compared to last year. We'll be back to the same level as the year before last, which is around annually around 16% to 20% is our normal level for the annual OpEx as a percentage of revenue.

Speaker 5

Thank you very much. That's all my questions and we are looking forward to the earnings in next quarters. Thank you very much.

Operator

Thank you for the questions. Thank you. Seeing no more questions in the question queue, let me turn the call back to Mr. Li for closing remarks.

Speaker 2

Great. Thank you, operator, and thank you all for participating on today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Thank you.

Operator

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect your lines.

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Key Takeaways

  • Q2 sales volume rose 21% year-over-year to 256,000 units, powered by a 16% increase in China and a 45% surge in overseas micro-mobility sales.
  • Total revenue hit RMB 940.5 million (+13.5% YoY) while blended ASP dipped on product-mix shifts, contributing to a 17% gross margin (down 6.1 ppts YoY).
  • Niu rolled out multiple premium and demographic-targeted models in China—Gen Z, female and high-end scooters—which made up over half of Q2 unit sales.
  • Channel expansion added 400 new stores in H1 (net +300), and an omni-channel push lifted online orders to 48% of total, driving same-store sales up 7% YoY.
  • Overseas micro-mobility grew 54% with strong KQI 300 series uptake and retail partnerships (Best Buy, Walmart, MediaMarkt), while electric two-wheeler sales dropped 69% during direct-sales transition.
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Earnings Conference Call
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