Niu Technologies (NIU) 18 Nov 242024 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by, and welcome to Niu Technologies Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Now I'll turn the call over to Ms. Kristal Li, Investor Relations Manager of Niu Technologies. Ms. Li, please go ahead.

Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss Niu Technologies results for the third quarter 2024. The earnings press release, corporate presentation and financial spreadsheets have 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. 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 to the risk factors is included in our 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 a discussion of certain non-GAAP financial measures, and 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. Wenjuan Zhou.

Now let me turn the call over to CEO, Yan.

Thank you, Kristal. Hello, everyone. Thank you for joining us today.

So Q3 2024 has marked a quarter that shows continuous growth. In this quarter, our total sales volume was 312,000 units with a year-over-year increase of 17.5%, specifically, sales volume in the China market had a year-over-year increase of 12.4% to 259,000 units and the sales volume in the overseas market experienced a significant year-over-year of 50% increase to 53,000 units. Total revenue in Q3 2024 was RMB 1.02 billion, increased by 10.5% year-over-year.

So this quarter's performance highlights the effectiveness of our strategic focus on expanding the product offerings, expand the sales channels and expand the market reach.

We have achieved notable growth in both China and overseas market, reflecting the increased recognition and improved sales.

So as we continue to build on these results, we remain committed to refine our strategy to meet ambitious targets that market demands.

Now in China, strong feedback on the recent launch of the MMU series has reinforced our focus on enhancing the core product offerings. Since Q2 2024, the targeted marketing and store expansion increased our market presence, positioned us well for the growth in Q3.

However, the sales in Q3 did face headwinds due to a new standard on battery electric system safety, which put in effective at the end of October and the retailers were not allowed to sell electric bicycle products that were not compliant with the new standard.

As a result, the sell-in orders from factory to the distributors in September was significantly reduced and the distributors are focused on clearing the existing channel inventories, which are typical 1 to 1.5 months. The execution of the policy also impact our product mix as high-priced product order less, which reflected a lower ASP and lower margin quarter-over-quarter. The sales percentage with ASP over RMB 6,000 dropped by 8.1 percentage points in Q3 compared to Q2.

Now in the overseas market, the micromobility segment achieved significant growth, leveraged momentum from expanding the key sales network and introduced new product tailored for the diverse networks. In the Electric 2-wheeler segment, we focused on direct distribution operations in priority markets, laying a good foundation for operations and dealer development. Early sales and marketing events already show a growth potential.

Now let me talk about China market in detail. Since this year, we're focused on rolling out key products with clear target consumer groups to drive hit growth. In the first two quarters this year, we introduced the NXT to address the premium segment, the N-play motorcycle and the UMax Electric bicycle to address the Gen Z, the younger generation and the U1E for the female riders. In Q3, we continue to unveil two electric bicycles, the NT to address the Gen Z and MT to address the female users. Together, those new product launches this year contribute to more than 50% of total units sold in 2024. To continue to address the premium users and Gen Z users in the motorcycle market, we released two more electric motorcycle lines recently, the most premium NX high-performance motorcycle and the Falcon style design FX motorcycle. The NX motorcycle is our most premium series with two models, NX Hyper and NX Ultra.

As NIU's most premium series, NX lines combine powerful performance, advanced safety and intelligent systems. The NX Hyper is new flagship electric motorcycle designed for the performance enthusiasts and tailored for track racing powered by a 10-kilowatt motor with peak output of 29 kilowatt. It reach the top speed of 135 kilometers per hour. Its inverted titanium coated front forks and adjustable nitrogen rear shocks provide exceptional stability and comfort in rugged terrain. With racing mode dynamics, a 42-degree angle and two disc brakes with four piston calibers, it ensures precise control and maximum safety. Priced at near RMB 30,000, the NX Hyper combined cutting-edge technology with race-ready agility.

Now the NX Ultra equipped with a robust 5-kilowatt motor at top speed 100 kilometer per hour and offered a range up to 130 kilometers on a single charge. This caters both daily commute and weekend getaways as entry-level top speed motorcycles. The NX Ultra is priced at RMB 18,900.

Now with the top performance of NX series, we have gone extra mile to ensure rider safety. The NX motorcycle is the first electric 2-wheeler in China to earn a 5-star fire safety certification from the China Merchant Vehicle Research Institute. It passed a rigorous test for electric fire protection, impact resistance and water immersion. This achievement highlights NIU's dedication to advancing e-mobility safety standard.

Now since the NX Hyper and NX Ultra represent our highest performance releases, we celebrated their debut with the innovative Track test drive event in Beijing, joined over 100 top media outlets and influencers. This event not only showcased the exceptional performance of our product, but also significant booster community engagement with content around NX Track test drive event that gathered more than 52 million views across all platforms. The Double 11 shopping festival was also a good first testament for our NX product in this market.

During the online shopping sales, we achieved top ranking across major e-commerce platforms with NX Hyper and NX Ultra standing as the best sellers in its own category.

Now during this quarter, we also introduced the FX series for the Gen Z consumers as the mass premium motorcycles for practical use. The FX series include 3 models, all featuring the same sleek design. The FX series both F-line family aesthetics with Eagle Eye headlights, adding sophistication to this high-performance lineup. The Pro version is equipped with 45 [ mPower ] batteries, 1,500 watts motor and top speed at a 55-kilometer per hour with an impressive drive range of 130 kilometers. Designed for urban commuting, the FX series combines the powerful features with the advanced safety system, extended battery life and smart integration via the OkGo! map for enhanced convenience control. The FX series is priced from RMB 5,500 and above.

Now as this product is designed for Gen Z users to connect more deeply with the e-gaming community and the younger audience, we launched this FX products along with a co-branding initiative with a popular game, PUBG Mobile with 200 million-plus users. We introduced the excited co-brand collaborations and FX product series through a range of online, offline events, including Douyin product launch, campus event, e-gaming tournaments and influencer promotions. Overall, the campaign achieved over 920 million views across social media, influencer engagement and target medias.

Now in terms of channel profitability and channel expansion, as we discussed earlier this year, our first focus is on channel health, especially store profitability with the goal to reversing the trend of store closures over the past 2 years and prepare for future expansion. To achieve this, we concentrate on improving same-store sales by significantly enhancing our online to offline operations, driving sales leads from the online platform to our physical stores to increase foot traffic.

In addition to traditional platform like JD and Tmall, we also increased our investment on Douyin, Kuaishou, Xiaohongshu [indiscernible]. Online sales leads accounts for more than 50% store sales for the first 3 quarters, marking a significant increase compared with less than 30% in the same period last year.

We have also made a substantial investment in training our stores for Douyin and Xiaohongshu operations, including creating accounts for each stores and providing live stream training to enable them to generate online leads.

As a result, we achieved over 33,000 live streaming sessions, generating RMB 115 million GMV in the first 3 quarters with 18,000 live sessions in Q3.

Now with the launch of a new product improved store profitability, we have successfully reversed the previous trend and began to expand our sales network. In Q3, despite being a traditional slow period for store openings, we were still able to add 340 new stores to expand our sales network.

Now let me turn into the overseas market.

This quarter demonstrated strong growth and strategic advancements in our overseas market. In the micromobility segment, leveraging a strong product portfolio, we are able to expand more resellers and achieve over 50% year-over-year sales volume growth.

Now for the Electric 2-wheeler market, we focused on direct sales operations in the key market and unveiled new products during our 10th anniversary at ACMA this November. Those product launches, along with business development events and branding marketing activities helped us to build a good solid foundation for strong growth.

Now in terms of micromobility, since the beginning of this year, we have focused – concentrated on retail channel expansion in the key market. In the U.S. market, we worked with Best Buy entering all 800 stores in North America.

Additionally, we've been working with Walmart, Kohl's, Macy's, Target and Home Depot. In Europe, in addition to the current retail network of MediaMarkt, we also entered one of the leading retail chains in Euro in Italy, having our kick-scooter product placed in their 300 stores.

Now to further benefit from the already established sales network, we have expanded our product portfolio. We launched a KQi 100 series this quarter, featuring KQi 100S and 100P. This series brings quality performance at an entry-level price starting at $299 and making an affordable yet powerful choice for urban mobility. Features included two hydraulic suspensions with 29-kilometer drive range and top speed up to 25 kilometers per hour.

Now on the kick-scooter side, the recent increase in the U.S. tariff on kick-scooters from 0% to 25% starting in June has temporarily [Indiscernible] our margins, leading a negative gross margin for products shipped to the United States in the Q3 and part of Q4. To address this, we have initiated a process to start production of U.S. versions in Southeast Asia to address the tariff situation.

However, due to the complexity of supply chain adjustment, we expect to see the first manufacturing product out of Southeast Asia to be shipped in early 2025.

Now for Electric 2-wheelers, in the first 3 quarters, we focused on establishing direct distribution operations in key markets. By Q3 this year, we completed the first phase of operation setup in Europe, including the dealer network development financing for dealers, logistics, after sales support as well as the team setup.

Now we have operations covering Italy, Germany, France. Recently, we recruited over 100 dedicated dealers into our European sales network and plan to double this number by the first half 2025.

Now with the operations set up in place, we introduced a key electric motorcycle product at ACMA this year. In the motorcycle segment, we launched the NX Series, the international version of our NX Premium products with price range from EUR 3,000 and beyond.

We also unveiled the SQi Series, the international version of our F-Series starting with SQi 500. It features a 5,000 watt motor capable of speed up to 95 kilometers per hour and a drive range of 91 kilometers. The advanced safety features such as CBS brakes and high pressure monitoring enhanced rider confidence. Starting at around EUR 3,000, the SQi Series offer a combination of eco-friendly high-tech design and robust performance.

Additionally, we upgraded our XQi 3 and offered a motorcycle equivalent OTA update that boosted the power to 10.6 kilowatts, improved acceleration and reached a top speed of 80 kilometers per hour. Priced at $4,000, the XQi 3 made a high-performance [Indiscernible] more accessible.

Now the new product release has generated extended media and influencer coverage at ACMA. The leading industry outlets such as Electric, Motor News, Moto, Gazeta Motor cover our ACMA launches days after events and online channels were featured by KOLs with millions of followers and the content about our new products driven a significant online engagement since its release.

During ACMA, we also hosted our largest new connect event, inviting around 200 partners, dealers and distributors to join us in unveiling our new products. At this event, we also launched a dealer expansion project for 2025, targeting doubling the dealers by first half of 2025.

Now we are towards the closing of the year 2024, we have strategies planned for the last quarter of this year to build a solid foundation for 2025. We plan to run on growth momentum in the product development and sales expansion to drive the growth. In the China market, we're well positioned with product portfolio that spans a wide range of market demand from daily commuters, electric bicycles to high-performance motorcycles with price ranging from RMB 3,000 up to RMB 30,000.

Our product catering a diverse customer base, including young people with Generation Z, the female users, the daily commuters and motorcycle enthusiasts. We plan to build on our existing portfolio with upgraded products and new designs that comply with China's new standards.

Now along with the improvement of our product portfolio, we have also strengthened our brand image as a premium brand.

With the introduction of NX series, we have elevated the product performance to a new level. The premium NXT electric bicycle series equipped with cutting-edge smart technologies such as millimeter radar for collision detection, navigation projection system represented the most advanced smart electric bicycles in this class. And on the sales channel expansion front, we plan to accelerate store expansion in Q4 and Q1 2025, targeting over 1,000 stores to establish a solid foundation for growth in 2025.

Additionally, our expansion effort will focus on Tier 3 cities and plus where we have historically been underrepresented due to lack of the right product.

Now in the overseas market, the new strategy for 2025 focused on driving robust growth across both micromobility and the Electric 2-wheeler market.

For micromobility, we plan to continue to expand our retail presence, supported by enhanced product lineup. Production in the Southeast Asia will also help to mitigate tariff challenges and accelerate growth in the U.S. market.

Now in the Electric 2-wheeler segment, we'll leverage the new product launches like the MX and SQi Series to cater to urban commuters with a strong focus on direct sales in the core market. Driven by those new products and the momentum in ACMA, we plan to significantly expand our dealer network in those key markets, laying a solid foundation for the growth in next year.

Now with that, let me turn the call to 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 to the third quarter figures unless I say otherwise, and all monetary figures are in RMB if not specified.

As Yan just mentioned, our total sales volume for the third quarter was 312,000 units, up 17.5% compared to the same period of last year. 259,000 units were sold in China, while the remaining 53,000 units were sold overseas. Over 60% of our sales volume in China came from the new products launched this year. And the total revenues for the third quarter amounted to RMB 1.02 billion, up 10.5% compared to the same period of last year. And China revenue were RMB 880 million, accounting for 86% of the total revenue. Of this, the scooter revenue was RMB 797 million, up 12% year-over-year due to an increased sales volume of e-scooters. China scooter ASP was RMB 3,078 remained flat year-over-year and quarter-over-quarter down 12%. The high-end lead-acid models that command similar ASPs to lithium-ion models accounted for nearly half of the sales volume in China this quarter. A quarter-over-quarter decline was primarily driven by a narrowing of the retail price range from RMB 4,000 to RMB 6,000, down from the previous RMB 4,000 to RMB 8,000. Despite this adjustment, our product price remains significantly higher than the industrial average level. The overseas revenue were RMB 144 million, accounting for 14% of the total revenue. The scooter revenue, including e-motorcycles, e-moped, kick scooters and e-bikes amounted to RMB 130 million compared to RMB 122 million in the same period of last year. This growth was mainly due to increased sales of the kick scooters, partially offset by the decline of the revenue per scooters -- of this, the micromobility revenue were around RMB 114 million, up 6% year-over-year. The overseas scooter ASP decreased from RMB 3,430 to RMB 2,444 year-over-year, primarily due to a shift in product mix and old model discounts that impact the kick scooters ASP. In the third quarter, our entry-level kick scooter with the lower price and lower margin, as Yan just mentioned, the K1100 accounted for over 30% of the sales, replacing the higher price and higher-margin K2 and K3 models, which dominated in the prior quarters.

Additionally, the rollout of the new models K100 and K300 led to discount sales of the old models K2 and K3, especially online sales this quarter. And the revenue from accessories, spare parts and services amounted to RMB 96 million, a 2% increase compared to the same period of last year due to the increase of the spare parts sales in China. Gross margin for the third quarter was 13.8%, 7.6 ppt lower than the same period of last year and 3.2 ppt lower than the previous quarter. The decline in gross margin were driven by the following factors. In our international market, fast-growing sales of K100 model and promotional sales of the old models lowered the overseas margins compared to last quarter and the same period of last year.

Additionally, starting from June, a 25% of the U.S. tariff on nearly half of our kick-scooter sales further reduced our overseas margins. And these 2 reasons both made the quarter-over-quarter gross margin decrease.

While in China, we continue to allocate part of our margins to our domestic distribution partners to reward their loyalty, which drove further year-over-year decline. Talking about the operating expenses, the third quarter OpEx was RMB 201 million, representing a 31% decrease compared to the same period of last year, and the total OpEx ratio decreased from 31% to 20%. Selling and marketing expenses were RMB 128 million, up 5% year-over-year, primarily due to the increased promotions in kick-scooter new models. Selling and marketing expenses as a percentage of revenue went down from 13.2% to 12.5%. R&D expenses amounted to $30 million, down $9 million year-over-year, mainly due to a decrease in staff costs and share-based compensation and sample expenses. The R&D expenses as a percentage of revenue went down from 4.2% to 3%. G&A expenses were $43 million, down $84 million year-over-year, mainly due to a decrease in the allowance for doubtful accounts that we made credit loss provision for our European distributor in last quarter three. G&A expenses as a percentage of revenue went down from 13.7% to 4.2%. In the third quarter, we had a net loss of $41 million with a net loss margin of 4% under GAAP accounting compared to a net loss of $79 million for the same period of last year.

Turning to our balance sheet and cash flow. We ended the quarter with $1.3 billion in cash, restricted cash, term deposits and short-term investments. Last quarter, this amount was the same and the last year-end was $1.1 billion. CapEx for the third quarter was outflow of $41 million, reflecting an increase of $14 million compared to the same period of last year. This can be attributed primarily to an increase of the new stores in China.

Now let's turn to guidance.

We expect the fourth quarter revenue to be in the range of $622 million to $718 million, an increase of 30% to 50% year-over-year. Please be aware that this outlook is based on the information available as of the date and reflects the company's current and preliminary expectation, which is subject to change due to the uncertainties relating to various factors. With that, we're now open for the call for any questions that you may have for us. Operator, please go ahead.

[Operator Instructions] We will now take our first question from the line of Yating Chen from CICC.

We have seen the domestic average scooter sales price per unit dropped quarter-over-quarter. But considering the release of the new national standard, how do you expect the trend of domestic average selling price?

I think in general, we expect from the average sales, the ASP per unit with the new standard coming out basically later this year, but effective will be next year.

I think the ASP will go up because some of the new standards require us to use new materials.

My second question is that how do you see the trend of gross margin?

Basically Q3, our gross margin is hitting sort of the lowest point this year because there were double hit once actually with the international kick scooter, especially to the U.S. market, is actually a negative margin. But the fact we still have to continue operation because we're already in the retailers, it's difficult not to ship the product to the retailers.

So that was a hit, and the second on the China side.

As I just mentioned, partially because the percentage of products sold with ASC RMB 6,000 beyond that percentage shrink a bit because with this new battery safety standard. We're looking at the gross margin should start to recover in Q4 this year and will continue to rise next year, partially due to 3 things. One, I think some of the cost reduction or cost saving initiatives, especially on the BOM cost, some of those are not completely reflected. We start some of the initiatives basically in early Q3, but for them to truly reflected in the financials, they usually take at least 3 to 4 months. That's on the cost savings.

Second, with the product mix, we expect that the high-priced product percentage will come back up in Q4 and Q1, especially in 2025. That will allow us to actually recover a bit gross margin on the China side.

On the international side, the gross margin for kick-scooter for Q4 is still going to be relatively low because the shipment from the Southeast Asia manufacturing wouldn't happen until basically January next year.

So on Q4, we still suffer a little bit negative gross margin on the kick scooter side. But coming to Q1 in 2025, with the manufacturing start happening in Southeast Asia, we expect the gross margin to come back to the sort of the normal range. With those, I think the international gross margin will recover in Q1 next year. The China gross margin, you will start to see the recovery start seeing the recovery in Q4 this year.

I understand. My last question is about kick scooters. Could you please share the sales volume of kick scooters overseas in the first 3 quarters? And do you have an outlook for its sales volume next year at present?

For the kick scooters, so far we have something around 120,000 to 130,000, slightly above 120,000 units for the first 3 quarters.

We expect to finish the year probably somewhere around 160,000 to 170,000 units. We could go more, but actually, we decided to reduce the volume, especially for the U.S. market, just to have enough for the U.S. market for the Black Friday and to satisfy the retailers' needs, but not aggressively not aggressively shipping product to the United States because of the tariff situation.

Now I think for next year, we look at on the kick scooter, at least if you look at this year, kick scooter market growth from last year, we probably had a roughly volume growth like 60%. We're looking at next year, probably somewhere around 50% to 60% growth, so we'll maintain the growth rate for next year.

[Operator Instructions] Seeing no more questions in the queue, let me turn the call back to Mr. Li 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.

Thank you for your participation in today's conference. This does conclude the program.

You may now disconnect.