Good day, ladies and gentlemen. Thank you for standing by and welcome to the Niu Technologies Second Quarter 2019 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. [Operator Instructions] Now, I will turn the call over to Mr. Jason Yang, Investor Relations Manager of Niu Technologies. Mr. Yang, please go ahead.

Thank you, operator. Hello, everyone. Thank you for joining us on today's conference call to discuss the company's financial results for the second quarter 2019. We released the results earlier today. The press release is available on the company's IR website as well as from newswire services. Please note that today's discussion will contain forward-looking statements made under the Safe Harbor provision of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve certain 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 any forward-looking statements, except as required by law. Our earnings press release today and this call include discussions of certain non-GAAP financial measures. The press release contains a definition of the non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results. Please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese renminbi. On the call with me today are Dr. Yan Li, Chief Executive Officer; and Mr. Hardy Zhang, Chief Financial Officer. Now, let me turn the call over to our CEO, Dr. Yan Li. Yan?

Thanks, Jason and thanks everyone for joining us on the call today. We have been navigating a dynamic market in the second quarter that has been challenged by regulatory changes. Despite the fact that overall China market for electric scooters slowed in Q2, we managed to deliver healthy growth. Our scooter sales volume grew by 14% and revenue grew by 38%. We also improved gross margin to 23.7% and net profit margin to 9.6%. Both are significantly higher than Q2 last year and further improved from Q1 this year. We're pleased to continue operate profitably in this quarter. Niu is at the forefront of the revolution in urban mobility and our results this quarter demonstrated our leadership position. We made advances in technology leadership, and leverage our brand awareness into a new adjacent category. Our brand and product trends really showed in our financial results. First, as we discussed in last earnings call, we launched our two new product lines compliant with the new China regulation, effective April of this year, namely the U+ and the Us. Both products were delivered to the market in late April and both have received very popular feedback from our customers. The U+ and the Us volume represented more than one third of our sales volume in Q2 and widely considered a popular product in the market against our competitors. The Us retail price start at RMB3499 or approximately $500 and it's considered an affordable entry level product for new customers to experience Niu for the first time. The U+ retail price ranges from RMB4399 to RMB5999 and is positioned as a top end electric bicycle model, great for daily commuters and for long distance urban riding. Both the U+ and Us models are powered by our new energy technology, which has helped the…

Thank you, Yan and hello everyone. Our press release contains all the figures and comparisons you need. We have also uploaded the figures in Excel format to our IR website for your easy reference. As I review our financial performance, keep in mind that we are referring to the second quarter figures unless I say otherwise. And that all monetary figures are RMB, unless otherwise noted. As Yan mentioned, the second quarter is a challenging quarter due to the difficult macroeconomic environment and the implementation of the new national standard in China. We managed to deliver a high quality growth, thanks to the strong sales in international markets and the solid sales in accessories and spare parts. Our profitability further improved as a result of favorable changes in revenue mix and our continued efforts to optimize parts. Total revenues rose 38% to 531 million, below the guidance we provided earlier due to lower than expected sales in China. Despite a challenging market, our scooter sales volume still grow 14% compared with the second quarter last year. China sales was affected by the implementation of the new national standards. The subjective interpretation and the poor implementation in different cities caused the lengthy product certification and the registration process, which affected the entire China e-scooter market, including us. The new regulation also set the top speed limit at 25 kilometers per hour. Customers are not used to this and will take time to adapt to the new speed limit. The impact from the implementation of the new regulation will continue to affect our China sales in the third quarter and possibly for the rest of the year. But we have seen a positive trend in the recent months as the market begin to recover from Q2 and the retail sales gradually pick…

[Operator Instructions] We have the first question from the line of Vincent Yu. Please ask your question.

Hi. This is Roger in for Vincent. Thank you management for taking my question and congrats on a great quarter. So my first question is, can the management help us to break down the unit sales in terms of China versus international? And how should we think about the gross margin trend going forward for the second half of the year? [Technical Difficulty]

Excuse me, operator.

Yes, sir.

Our signal here is not good. Can we [Technical Difficulty]

Sure, sir. I will dial you back in. One moment, please. Ladies and gentlemen, the speaker is facing technical difficulties. We will be dialing them back and connect them to the conference. Your line will be on music hold until then. Ladies and gentlemen, we have Mr. Yan joining back the conference. Thank you. [Operator Instructions] We have a question from the line of Bin Wang. Please ask your question.

Thank you, everyone. My question came from the M series. I understand maybe in a short period of time, [indiscernible] dealership, so can I know what the revised version of M can be eligible on to sales as a scooter, which means, can you specify the timing, that’s number one. Number two is about a new brand, Gova, can you elaborate on what will be the pricing range and the potential margin because it was in the high end market? So how do you think about the lower markets profitability? Do you see this will be a long term issue for margin? The second one. And the third one actually I want to understand, if you think about, the Niu material has been declined by 5% to 7% year-over-year in the second quarter. Do you also know which is the key components, it’s the battery or other issues?

This is Yan Li. So let me address the first two questions. I'll have Hardy answer on the bond, the material question. So yes, I mean, for the first half of this year, even until now, the products we have actually meeting the new regulations are basically the U+, the U, the Us, essentially the product family of the U family. We are -- actually we are working hard to actually get one of the M family to meeting the new regulatory requirements. There has, to be honest, there has been a delay a bit on that product, because there has been a, what he call, the interpretation of the new regulation, which is announced in March 25, which actually tightened the new regulation a bit more in terms of the extra spacing in the battery compartment, in terms of the, what we call the backseat rest, the requirement of the backseat rest. So, that actually caused us to literally scratch the original design of the new M, and then restart it over. Now we're looking at the new M probably will come off in the first half of next year. So that was the M product. Now secondly, while having said that, we also have the M+ plus, also has M passing the light motorcycle certifications, and those by having M+ and M passing the light motorcycle certification, we were able to sell M and M+ as light motorcycles in areas where they don't have the restrictions on light motorcycles. And that has been -- generated quite a bit internal sales boost. So the second question on Gova, so the Gova, right now, the – we have the intermodal Gova, we have essentially three product lines on Gova, which is the G1, G3 and G5. G3 and G5 are…

Yes, so for the reduction of costs related to the procurement of raw materials, we achieved 5% to 7% cost down compared with the Q4 last year. This cost down is across different parts of the scooter. In average, the body parts, including frame, lights, [indiscernible], et cetera, will reduce the cost by around 4%. And for the battery pack, including the battery sale, the pack and DMS, in total, will reduce the cost by around 9%. So you average, it gives us 5% to 7% cost reduction. I hope that answers your question.

We have the next question from the line of Vincent Yu. Please ask your question.

Hi, management. This is Roger again. Sorry about that. My line was disconnected. So my question was, can the management team help us to break down the unit sales in terms of China versus international? And how should we think about the gross margin going forward for the second half of the year? Thanks.

I think in the revenue, we do have the split between China sales and international sales. The international sales accounts for 27% of the revenue, China sales accounts for 73% of the revenue. So by multiplying total revenue with this percentage, it gives you the total China sales. If you compare the second quarter China sales revenue with the same period last year, that has growth around 2%, we still have some growth in China, but there's at a lower rate. For the gross margin, Q3, sorry, Q2, we achieved 23.7%; Q1, we have 21.3%. In -- out of the -- as I mentioned out of the 8.6% margin improvement, around 4% is coming from this revenue mix. The revenue mix, we do not expect it to improve the next quarter. However, for the cost reduction, we believe it will continue to benefit us in the next quarter. We estimate the gross margin for next quarter will be likely in the range between 18% and 20%.

My second question is, do we have any visibility on how much e-scooter purchase will be made by the sharing platforms in the second half of the year?

We have some visibility. First of all the sharing operator, they are not the main contribution of our international sales. But the majority of our international sales is still sell to the end consumers. The sales to sharing operators normally account between 10% to 30% of the sales across different amounts, it depends on the sales order. For the second half, we believe it will be in the same percentage.

My last question is, can you maybe talk a little bit about some of the feedbacks you guys heard from distributors or customers on how they think about the new regulation? And also, when will we see the demand become more normalized from your standpoint?

Yeah, I think that's a good question. So, this is Yan Li. So, as we will be on the field, talking to distributors and the retailers, as well as the customers, I think is still a big time for the consumers to get adapt to the new regulations. Because the new regulation, a few things on the -- key things on new regulation. One is actually on the size of the scooter, second on the weight of the scooter as well as actually, there's what we call a more stringent check on the speed. So, all those actually is very, very different with, before with the previous case, before the regulations are in place. So what we have observed that it's what as I mentioned on the call, some people actually do the right purchase in Q1 before the regulation in place. And then, some consumers decide to postpone because a lot -- a major part of this market is the replacement market, where every year, people replace their old scooters and purchase new scooters. And we do see actually observed that some people decide to postpone their replacement by keeping their old scooter for another six months or for another year, before switching to the new regulation scooters. So, but having said that, the market has been slowly, I would say, a slowly recovery, where in the CDs where, the new regulations started to being having enforced, I think, the entire market at the month of April or May, really, some of the city actually dropped the entire retail drop by like 80%. But now being they're back to the last year level, but, month by month, the sales have been improving. I think there are some consumers. The last thing I want to add is actually a lot of retail shops, to be honest in the last few months, have been suffering because the volume has been dropped. And then the only -- you will actually look around, the major portion of scooters being sold in those markets are very cheap scooters, basically anywhere ranging from RMB1400 to RMB2000. And there is little margin to be made on those cheap scooters. And so many retail shops on our competitive brands really has shut down the shops. So that actually, we did manage to take advantage of that and actually able to acquire some the hot retail spaces, which we wouldn't be able to previous year.

[Operator Instructions] We have the next question from the line of Joyce Lynn Wang.

Hi, management team. You explained that the sales and marketing expense may be larger in the coming quarter. Could you give some guidance about how large it could be? Thank you.

I think for the sales and marketing, it is just on a comparable basis. It will be slightly larger than the second quarter. But we don't believe it will be a significant increase in the market spending. There won't be any.

[Operator Instructions] Thank you. Seeing no more questions in the queue, let me turn the call back to Mr. Li for closing remarks. Once again, seeing there are no further questions in the queue, let me turn the call back to Mr. Li for any closing remarks.

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

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