Good day, ladies and gentlemen. Thank you for standing by, and welcome to Niu Technologies Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, we are recording today’s call. If you have any objections, you may disconnect at this time. Now, I will turn the call over to Mr. Jason Yang, Investor Relations Manager of Niu Technologies. Mr. Yang, please go ahead.

Hello, everyone. Thank you for joining us on today’s conference call to discuss the company’s financial results for the fourth quarter of 2018. We released the results earlier today. The press release is available on the company’s Web site as well as from newswire services. On the call with me today are Dr. Yan Li, Chief Executive Officer; and Mr. Hardy Zhang, Chief Financial Officer. Before we continue, please note that 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 inherent risks and uncertainties. As such, the company’s actual results may be materially different from the expectations expressed today. Further information regarding this and other risks and uncertainties is included in the company’s public filings with the SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Our earnings press release and this call include discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the audited most directly comparable GAAP measures and is available on our Web site. Please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese Renminbi. With that, now let me turn the call over to our CEO, Dr. Yan.

Great. Thanks, Jason, and thanks everyone for joining us on the call today. So we’re very excited to report another strong quarter with solid financial performance. We grew scooter volume by 78%, net revenue by 95% and improved gross margin to 13.5%. That is 9 percentage points better than this time last year. So despite the sluggishness in the Chinese economy with respect to consumer spending, our results actually show the demand remains robust for electric scooters. So we believe our electric scooter is one of the most convenient and the economic solution for people staying in urban to commute and this transcends economic devices. So still [ph] around the world continues to struggle with traffic congestions resulting from more and more automobile use, but electric scooter enable commuters to avoid traffic jams. Furthermore, if more people switch from four wheels to electric two wheels, it will actually reduce traffic congestion, less than aggregate energy consumption and eliminate point-of-use carbon emission which is a very positive net work effect. So it’s also one of the cheapest solutions for urban mobility. So we’re spreading the retail price toward a positive lifecycle. The daily cost for users is roughly a few Renminbi per day, so it’s even cheaper than taking a subway. Beyond China, we continue accelerating demand growth for electric scooters. In addition, there are also new regulations being put in place to accelerate the adoption of electric scooters. In China, the State Administration for Market Regulation and the National Standardization Administration of China jointly released the regulation of 50 technical specifications for electric bicycles to go into effect on April 15, 2019. So this regulation prompts the industry to upgrade the traditional heavier lead-acid battery to lighter and more portable lithium-ion battery-based electric scooters by putting a weight restriction of…

Thank you, Yan, and hello, everyone. We concluded 2018 on a strong note. Our press release contains all the figures and comparisons you need. In this quarter, we are distributing the financial and operating data in excel format. It is available for download from our IR Web site. During my talk, keep in mind that we are referring to the fourth quarter figures unless I say otherwise and that all monetary figures are R&D unless otherwise noted. Revenue growth was driven by both scooter volume and the price increases. Scooter volume growth was primarily driven by three factors; new store openings in China, more product offerings and strong orders from international markets. We opened 118 new stores in China bringing the total number of stores in China to 716 versus 440 stores at the end of 2017. The three new products launched during 2018, including the NGT, M+ and UM, contributed 36% of the total unit volume and were the key drivers of volume growth. International volume was particularly strong, more than tripling due to the orders on the new NGT and M+. International unit volume contributed 6.3% of the total compared with 3.4% a year ago. International sales will continue to play an increasingly important role in our growth strategy. I should note that scooter sales in both China and the international market are seasonal. In China, naturally summer sales in Q3 are peak season whereas winter sales in Q1 are the slowest due to weather conditions. Q1 sales in China are also impacted by the Chinese New Year holiday. International markets are impacted by winter weather, the Christmas holiday and the lead time required for shipment from China. Please keep that in mind as you observe our sequential revenue pattern over coming quarters. The increase in net revenue…

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. Your first question comes from the line of Brad Erickson from Needham & Company. Your may ask your question.

Hi, guys. Good morning. Just a few. First, it looks like – just starting with the revenue, it came in pretty materially ahead of your guidance you provided last quarter. It sounds like some of that is related to better orders on the international front. Can you just zero in specifically what trapped ahead of expectations in the quarter just a little bit more granularly?

Sure. Brad, it’s Hardy. I think the revenue was driven higher than early expectation of guidance because of two reasons. One reason is the international sales you mentioned. The international sales were particularly strong because we received additional orders especially for the sharing business model [ph] by the end of November and also early December. This helped us with our Q4 international sales. In addition to that, the PR [ph] sales is also exceeding our expectation because we continue to see solid demand in China. I hope this answers your question.

Yes. That’s great. And then just in terms of channel inventory, just maybe give a quick update how you’re feeling at the moment? And then secondarily to that, you mentioned upcoming product launches as we go through 2019. Talk about any sort of extra inventory management that may have to occur to make room for some of those new products in various channels?

Sure. For the channel inventory, we continue to monitor inventory in two ways. The first way is our APP function. As you know, all of our scooters in China are connected. Therefore, once our consumers and users purchase the scooter, they can active their scooter in our APP. In that way we can track how many scooters were sold. Secondly, our retailers, our dealers, they also report retail volume to us on a daily basis but are not a way for us to tract the China inventory. Based on our data, the China inventory is normally between one month and one half month, a similar level we see in the past few quarters. And your second question was about the new models potential to launch in 2019.

Right.

Brad, this is Yan. So I think that way was looking at – first of all on the channel inventory, given it’s only like a month or month and a half. So typically when you start to launch new models, the inventory of one month wouldn’t be an issue for distributors or retailers. So I think that was the question you had, right?

Yes. That was great. And then maybe just one other if I could. It sounded like you mentioned the higher rebates to the distributors which obviously was a positive because it occurred from higher volume. Maybe could you clarify for us just was that – did that force gross margin a little bit below your expectations? Just wanted to clarify what you meant by that recognizing that the absolute volume came in higher just as a function of the volume upside, but then just want to understand how that translated relative to your gross margin expectations?

Sure. So let me first explain the incentive [indiscernible] incentive plan we have with our distributors. Beginning of each year our distributors receive an annual target, a [indiscernible] target which they need to achieve. Based on that annual target, they can receive a certain level of rebates. But on top of that target we give them two other targets, more stretched target and if they are able to achieve that stretched target, they can receive additional 1% to 2% of rebate. And that 1% to 2% is linked to the annual volume, not quarterly volume. So in Q4, a few of our bigger distributors, they are very close to achieving the stretched score and we see strong orders on those distributors. And after they achieved the stretched score, as I mentioned, they receive 1% to 2% additional rebate. And the impact of rebate on our financials are two ways. First, it reduced our net revenue. Because of additional rebates we gave to distributors, our net revenue was less. Secondly, it has negative impact on our net margins. So based on our own estimate, the impact on the margin is close to 1.5% because of additional rebates we gave to distributors. Without the additional rebates, we could have achieved higher gross margin in the last quarter last year. I hope this answers your question.

That’s great. Super helpful. And then maybe one more if I could. Just on VW announcement, that seems pretty noteworthy. I know it’s early. I think you said you announced it or just signed it last week. But maybe just offer a little bit of color of how you’ll be working with them? We saw the note in the press release, but just would be curious to understand a little bit more in terms of how you’ll be working with Volkswagen here going forward? Thanks.

Yes, let me first comment and then maybe Yan can add later. First of all, even though the agreement was only recently signed, we have been working with them in the past few months. And this is a Development Collaboration Agreement with indefinite collaboration period. So both parties does have a lot of intention to cooperate with each other in the longer term. However, for the specific content we cannot disclose because we definitely – we will probably have a very strict rule on the confidentiality and also publicity. Therefore, only when we have some concrete plan, when we have agreement with VW, we can release additional information to the public.

That’s great. Thanks very much.

Thank you.

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

Well, thank you everyone for dialing in the call. We’ll continue to work hard and expect to talk with everyone in the next quarter earnings.

Thank you all, again. This concludes the call. You may now disconnect.