Niu Technologies (NIU) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Niu Technologies Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. As a reminder, we are recording today's call. [Operator Instructions]. Now I would like to turn the call over to Ms. [ Crystal Lee ], Investor Relations Manager of Niu Technologies. Ms. [ Lee ], please go ahead.

Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss Niu Technologies' results for the third quarter 2023. 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 side 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 provision 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 those risk factors is included in the company's public filing 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 a discussion of certain non-GAAP financial measures. The press release contains a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results. On the call with me today are our CEO, Dr. Yan Li; and CFO, Ms. Fion Zhou. Now let me turn the call over to CEO, Yan.

Thank you, everyone, for joining us on the call today. In Q3 2023 our total sales volume was 265,923 units with a year-over-year decrease of 71% (sic) [ 17.1% ]. Specifically, sales volume in the China market had a year-over-year drop of 12% to 230,445 units (sic) [ 230,455 ], and the sales volume in the overseas market experienced a year-over-year of 38% decrease to 35,468 units. Total revenue in Q3 2023 was RMB 927 million, a decrease of 19% year-over-year. In the China market, during Q3, we encountered setbacks due to a sluggish consumption in top-tier cities, resulted in a slowdown in sales for our product. To address this challenge in Q3, we expanded our product portfolio with a diverse design and functionality to address wider customer needs. And with the diversified product portfolio, we plan to expand our retail coverage for greater market reach in Q4 2023 and beyond. In the overseas electric 2-wheeler market, we have experienced a year-over-year decline of 62%, influenced by a combination of challenging factors. The decline in the electric 2-wheeler market in our key market, Germany and the Netherlands, had impacted our business. Additionally, we have also faced a temporary disruption in the key European markets due to operational difficulty faced by our distribution partner, which has further affected our sales performance in this period. In response to those challenges we have encountered, we have implemented 2 strategic adjustments, expanding the product portfolio to expand our addressable market and operational adjustment to the result of temporary disruption. We introduced key electric motorcycle and off-road motorcycle product to the European and North American market to expand our addressable market beyond the electric moped. For the Southeast Asia market, we have officially introduced a battery swapping solutions with compatible swappable batteries and mopeds. Operationally, we're also working with our distribution partners and retail partners closely to revamp the retail operations in the key markets. The overseas micro-mobility market has seen a year-over-year decrease of 37% in sales. This downturn is primarily attributed to the selling order delays in Q3. Despite the decline in the selling volume, we recorded the highest number of kick-scooter activation in this quarter. The number of activation in Q3 showed a significant year-over-year increase of 80%. This increase in product activation can be largely attributed to our comprehensive product portfolio and expansion of our sales network, both online and offline in the key market channels. In addition, during Q3, we launched an innovative KQi Air electric scooter for presales, which has been well received in the market. We're continuously working on expanding our sales channel penetration, aiming to reach a broader customer base and reinforce our market presence. We expect to get back to the growth track in the coming years in time for the holiday season. Now, let me delve into the China market in detail. In this quarter, we continue to build our product portfolio with the diverse design style and functionality to address a wider customer needs. We introduced in Q2 2023 the MQiL, emerged as a successful addition of our product lineup. It is a product that inherits the design from our all-time classic M-Series along with the significant upgrade in design and performance. It has not only contributed positively to our sales volume, but also played a significant role in enhancing our brand image. In Q3, we also successfully introduced the [ Falcon ] series new style with the launch of F400T and F200, complementing the previously introduced F100 in Q2. Collectively, the entire Falcon series accounted for more than 50% of our total sales in this quarter in Q3. The Falcon series represent our attempt to create another flagship design. With this proven popularity, we plan to run more product within the newly introduced series in the coming quarters. The F400T was introduced in August this year as a remarkable addition to our Falcon series product lineup. This electric bicycle draws inspiration from fighter jet and seamlessly incorporated Niu's essential smart functionalities with the maximum range of 90 kilometers. The F400, as a design, has captured significant attention since its launch. Notably, it took center stage at ChinaJoy, the country's largest gaming expo, garnered millions of views across all platforms. Another product added to this series in Q3 was F200. It is released as the high-powered commuter scooters with the sports car inspired frame. It has a max range up to 70 kilometers and encrypted with new smart system. The F200 was also launched with the collaboration with a globally renowned [indiscernible]. Our sales performance during the recent Double 11 Shopping Festival underscores the popularity of those recently launched products. In the first 24 hours of promotion period alone, the preorder sales revenue surpassed sum of the entire period last year, showcasing the robust demand for our offerings. Several of our key products had secured prominent positions on the best-selling list of major platforms, including Tmall and the JD.com. Specifically, the latest iteration of our acclaimed SQi electric bicycles has gained significant traction during the Double 11 Shopping Festival, emerged as the #1 top-selling [indiscernible] electric bicycles in RMB 9,000 price range and above on Tmall and JD.com. Together, our UQi+, F200, and also SQi have claimed top spots, ranking within the top 3 best-selling product in the electric bicycle categories on Tmall. This highlights a strong customer preference across our diverse product range. We remain highly engaged in events and cross-brand collaborations to enhance our brand exposures. In September, we established a presence on the G-Fusion Games Fest 2023, where we brought our F400 to the gaming [indiscernible]. We recently forged our official partnership with JD Gaming, one of the China's top esports teams and the finalist in the League of Legends for 2023. Those engagements underscore our commitment to establish a strong brand presence and forging connections with diverse audience in the face of temporary market challenges. We're confident that those initiatives will contribute significantly to our brand exposures and long-term growth prospects. Now, turning into international electric moped market. We faced the challenge in this quarter with a year-over-year decline in the electric moped sales, accounts for 62%. Several factors converged created this downturn, including the decline of electric moped market in the key European countries like Germany and the Netherlands and the temporary operational disruption due to issuing counterbid distribution partner in Europe. But we acknowledge those challenges. We are actively engaging in addressing them and regaining the traction in this market. First, we expand our product portfolio beyond electric mopeds, widen our addressable markets. We have unveiled several key products ready for Q4 2023 and 2024 at EICMA in November. One key product that we reviewed was XQi3 electric dirt bike. It is designed with a futuristic look with a handful of choice aluminum frame colors, integrated with new signature halo light. We have reviewed the XQi3 product during the EICMA in Milan, Italy, in November and also brought it to the Electrify Expo launch event in Austin, United States. The XQi3 marked our expansion into the dirt bike categories, and the new XQi3 has attracted tremendous amount of attention within the only week since its debut. The XQi has won the 2023 gold winner of the New York Product Design Awards. We anticipate making the XQi3 model available to the North American and European market in Q1 2024. And we're confident that it will bring up the sales, and therefore, uplift the new strength recognition. Another product we launched for Europe is RQi new high-performance urban-class electric motorcycles. It is designed to deliver exhilarating city ride with features like 2 removal batteries and ABS with a top speed of 110 kilometers per hour and 0 to 50 kilometer power acceleration time just under the 2.9 seconds. The RQi has targeted riders for exciting acceleration experience. The motorcycle is equipped with the integrated traction control system, including from rear cameras and impact detection system, making it sophisticated, and it's also a safe riding option. It also comes with new core smart features. The RQi is expected to be available from Q1 2024 in Europe. During EICMA, we also brought an award-winning FQi to the international market, a futuristic design that earns a 2023 Red Dot Best Design Award. The bike features the die-cast, even body frame with zero solder joints, ensuring a seamless integration of performance and function. They offer easy handling, making ideal for city commute. Now, in addition to those electric motorcycle products, we officially launched the new swap -- battery swapping solutions compatible with the newly launched F600 e-moped. The swapping technology enables rider to swap batteries quickly reducing downtime and increase the convenience. During EICMA, we have presented a new swap cabinet, a technical solution provider, collaborating with partners in Europe, Southeast Asia, and South America to deploy the battery swapping cabinets aiming to enter their respective local markets. The recent EICMA event presented us an opportunity not only to unveil our latest product, but also engage in meaningful conversations with our key distribution and retail partners. We're actively working with our distribution partner to quickly resolve temporary operational disruptions and get back on the growth trajectory. Now, talking about the overseas micro-mobility market. The micro-mobility market reported a 37% year-over-year decrease in sales in Q3. As mentioned earlier, the primary contributing factor is due to selling order delay in Q3 while the sell-out or activation volume has increased by 80% year-over-year, driven by a diverse product portfolio and expanding sales network. During this quarter, we took a significant step in expanding our product portfolio by unveiling one of our standout kick-scooter product, the KQi Air and Air X series at an IFA event in Berlin, Germany. One of the standout features of KQi Air is the construction with the main body predominantly crafted from lightweight carbon fiber, resulting in an incredible low weight of 11.7 kilos. The weight reduction does not compromise performance. The KQi Air is delivering impressive capabilities, including top speed of 32 kilometers per hour and a max range of 50 kilometers. It also incorporates 2 action brake caliper and ensures a short-breaking distance for added safety. Moreover, the KQi Air embraces smart connectivity enabling functions like NFC and Bluetooth, unlocking customizable charging capacity settings, speed adjustment, and also the regenerative braking strength. Notably, the KQi Air was awarded the Best of IFA 2023 by GadgetMatch, a highly regarded tech channel. The KQi Air has an MSRP of $1,400 for the standard version and $1799 for the KQi Air X true carbon fiber version. We launched the presale campaign in September, and we expect to deliver the KQi Air to our customer in December this year in time for the holiday season. The launch of our KQi Air marks our consistent effort in product innovation, and we have more kick-scooter products in the rollout pipeline for the next quarter to further complete our product offerings. Meanwhile, we're also leveraging the traction that we gather from our kick-scooter product to expand our sales network coverage. Currently, we have our new products sold in over 1,500 offline stores in the United States and Europe, in major retailers like Best Buy and MediaMarkt. Together with the product portfolio enhancement, the sales network expansion has laid a solid foundation for ramping up sales in the next few months throughout the holiday season. Now, as we look forward, we remain a cautious outlook for Q4 this year as some of the operational adjustments in both the China and also the overseas electric moped market will take time to be fully implemented to drive the midterm growth. We're nonetheless confident to regain growth in 2024 after a temporary adjustment period this year. In the China market, the Fourth Quarter traditionally experienced a low market demand. We're using this time to continue to enhance our product portfolio and build momentum for store expansions. In terms of our product portfolio, the Falcon series is the testimony of a successful product portfolio expansion. We're also focused on expanding our retail stores this quarter. With those, we believe we are well-positioned to get back on a high-growth track in 2024. Now, for the international electric 2-wheeler market, the additional new products, the off-road and also the motorcycle product and also the swapping solutions that well position us for growth in the key European, United States, and the Southeast Asia market next year. We're also actively implementing the operational adjustments to better deliver those products to our key markets through the key channels. But we expect those adjustments will take time, and hence, we remain cautious outlook for the Q4 2023. Last, but not least, for our international micro-mobility market, we're pleased to report a sustain and robust growth trajectory. This growth is fueled by 2 key pillars, the completion of our product portfolio and expansion of sales network. Our product lineup has not only boosted sales volume but also significantly elevated the presence of new brands within this market segment. The recent addition of the KQi Air represents just one of the many exciting products yet to come. The expanding product portfolio has driven the development of our sales channels with remarkable growth observed in our expanded retail network. We're confident in our ability for assisting high growth in Q4 and beyond. Now, I will turn the call over to our CFO, Fion.

Thank you, Yan, and 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 website for your easy reference. As I review our financial results, I'm referring the third quarter figures unless I say, otherwise, and all monetary figures are in RMB if not specified. As Yan just mentioned, during the third quarter, we sold a total of 266,000 units, and 230,000 was sold in China, while the rest was sold overseas. And the total revenue for the third quarter amounted to RMB 927 million, a decrease of RMB 226 million compared to the same period of last year. And China market revenue was RMB 785 million, accounting for 85% of the total revenue. Of this, the China scooter revenues were RMB 711 million, a year-over-year decrease of 17%. And this decrease was mainly due to the lower sales volume of our premium service and partially offset by the higher sales volume and revenue from our mass premium series. And the China scooter ASP was RMB 3,085, a year-over-year decrease of 5.5%. And this decline in ASP was mainly due to the product mix change, which I just mentioned. And the overseas market revenue were RMB 142 million, accounted for 15% of the total revenue. And the overseas scooter revenue, including the e-motorcycles, mopeds, kick-scooters, and e-bikes amounted to RMB 122 million compared to RMB 195 million in the same period of last year. And this decrease was mainly due to the decline in the sales of e-motorcycle and moped. The micro-mobility revenue were around RMB 109 million, up 20% quarter-over-quarter, and the overseas scooter ASP increased from RMB 3,386 to RMB 3,430 year-over-year and mainly due to our premium model K3 Max sales volume increase from 3,200 units to 7,100 units year-over-year. And the revenue from accessories, spare parts, and overseas amounted to RMB 94 million, a 5% decrease compared to the same period of last year. And this decline was mainly driven by the lower sales of battery packs overseas, as we mentioned in the previous quarters. And the gross margin decreased by 0.7 ppt year-over-year to 21.4%, and of this 0.6 ppt of this decline was driven by the lower sales volume from the overseas e-motorcycle and e-moped and the remaining 0.1 ppt due to the change to the product mix domestically. And our third quarter OpEx amounted to RMB 289 million, an increase of RMB 25 million compared to the same period of last year. And this increase was mainly due to an RMB 88 million increase in provisions for credit losses in this quarter. Excluding the impact of the credit losses in each period, the OpEx decreased 25% year-over-year. As percentage of revenue also decreased by 1.4 ppt from 22.3% last year to 21% this year. Further details, I will explain in a moment. Selling and marketing expenses were RMB 123 million. As percentage of revenue was 13.2%, it is a year-over-year decrease of RMB 48 million and 1.6 ppt lower than last year, primarily due to a reduction in advertising and promotional activities. R&D expenses amounted to RMB 39 million, representing a RMB 11 million decrease year-over-year, primarily due to a decrease in share-based compensation and staff costs and also the design and system development professional fees. G&A expenses were RMB 127 million, representing a RMB 83 million increase year-over-year, and this is due to the increase in provision for credit losses of RMB 88 million. Excluding these credit losses, the G&A expenses decreased by 13% compared to the same period of last year. Since our international operation has expanded, we have seen a corresponding increase in the extent of our account receivables, which forms the basis of computing the bad debt provisions. As we mentioned in the previous quarters, the European consumer sentiment remains cautious, leading our distributors to ask for extended payment terms due to the weak retail sales. In the meantime, one of our key motorcycle and moped distributors in the European market announced on September 6 this year that it's going to -- into a core supervised constructing process due to the intense economic pressures. Consequently, this quarter, we took a provision of RMB 54 million, representing a full amount of receivable owned by this distributor. And despite the prudent raising provisions for credit losses on the overdue payments, we retain a positive outlook on the future receivable collections given our other partners' robust financial standing and their continuous ongoing payments. To conclude, excluding the prudent provision for credit losses, our cost controls have driven an overall decrease in expenses and made us more efficient, linear and flexible to navigate today's volatile and weak macro economy and emerge stronger when conditions eventually improve. In the third quarter, our net loss was nearly RMB 80 million under the GAAP measurement compared to a net profit of RMB 3 million for the same period of last year. And turning to our balance sheet and cash flow, we ended our quarter with nearly RMB 1.4 billion in cash, restricted cash, term deposits, and short-term investments. The operating cash flow was RMB 229 million compared to RMB 415 million in the same period of last year and RMB 217 million last quarter. And our CapEx for the third quarter amounted to RMB 26 million and has remained stable for the past 4 -- 5 quarters. And now let's turn to guidance. We expect the fourth quarter revenue to be in the range of RMB 490 million to RMB 612 million, representing a year-over-year decrease from 20% to flat. And please be aware that this outlook is based on information available as of the date and reflects the company's current and preliminary expectations, which is subject to change due to the uncertainty relating to various factors. And with that, we'll now open the call for any questions that you may have for us, operator. Please go ahead.

[Operator Instructions] There are no questions at this time. I would like to hand the call back to management for closing remarks.

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.

That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.