Ladies and gentlemen, thank you for standing by. And welcome to the Niu Technologies Fourth Quarter 2019 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded. I would now like to hand the conference over to your first speaker today Mr. Jason Yang, Investor Relations Manager. Thank you. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss Niu Technologies results for the Fourth Quarter and Full Year 2019. The call is being webcast from company's IR website. An investor presentation and a replay of the call will be available soon at ir.niu.com. Please note today's discussion will contain forward-looking statements made under the safe harbor provisions of the United States 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 the risk factors is included in the company's public filings with the Securities and the 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 discussions of certain non-GAAP financial measures. 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 the CFO, Mr. Hardy Zhang. Now, let me turn the call over to Yan.

All right. Thanks, Jason and thanks everyone for joining us on the call today. So, on the performance, our sales volume has increased by 14% in Q4 2019 and by 24% for the full year of 2019. Our revenue has also increased by 25% in Q4, and by 41% full year 2019. We have also enhanced our gross margins achieving a historically high gross margin at 26.1% and net profit margin at 11.3% in Q4 2019. All financial data were beyond our expectation. Now, we continue to build our leadership in urban mobility via product and technology development event and user-based activity [Technical Difficulty]. We launched our U-GT in late December. U-GT is an upgraded high end version of users targeting, primarily Europe and the U.S. market. U-GT inherited a simplistic design style and lightweight body of our award-winning U-series, while increased wheel size and performance with the retail price started at €1,699 in Europe. Second, we have launched our first straddle electric motorcycle product R and our first three wheel electric motorcycle T at a CES in January. Both are revolutionary products to redefine urban mobility. R is our power performance product. It has the top speed of 160-kilometer per hour, and the maximum drive range of 130 kilometers. It comes with a maximum 30 kilowatt mid-mounted motor and a 7-kilowatt hour portable two batteries. Our primarily targets in Europe and the U.S. market as well as high-end motorcycle market in China. As a high-end straddle motorcycle and listed our new brand in urban mobility. Our video of R on Douyin has received more than 25 million views as one of the top viewed videos on our Douyin platform. So this is just another testimonial on the popularity of this product. We expect R will be in the market…

Thank you, Yan, and hello, everyone. Before I discuss the Q4 financials, I would like to first share with you our cash and liquidity status, because I think some of you may have concerns. The short answer is, we do not foresee cash and liquidity program in the short-term based on our current estimate. By the end of last year, we had cash term deposit and short-term investment of RMB765 million in total. In early February, when the Chinese government first announced the restrictive measures to combat the virus, we did a stress testing and run different scenarios to assess the impact. Subsequently we took proactive actions to manage our cash spending and working capital. In the meantime, we have been monitoring cash sales on daily basis. We are glad to see cash sales coming in consistently during the past few weeks. In terms of that, we have short-term bank borrowings of RMB217 million as of December 31st last year. Out of the total borrowings, only RMB20 million is credit loan. The rest are cash prior to loans. We pledged our U.S. dollar cash to banks and borrow RMB loan to achieve a reasonable cash balance in different currencies. Considering our cash balance and debt structure, we do not foresee short-term liquidity problem. Of course to ensure we always have a plan B, we keep active communications with our relationship banks. They are very supportive and stand aside with us to provide support when needed. I hope, I've over addressed your concerns and let's turn back to discuss our Q4 financials. Our press release contains all the figures and comparisons you need. We have also uploaded excel format figures to our IR website for you as a reference. As I review our financial performance, keep in mind that we are…

[Operator Instructions] Your first question comes from the line of Winnie Dong of Piper Sandler. Please ask your question.

Hi, good morning. Thank you so much for taking my question and for Alex Potter. I'm wondering so you have your guidance down for March, down 25% account [ph] 45%. Can you elaborate on what kind of scenarios you're baking into that wide range? What will get us to the higher end? And what will get us to the lower end? And then, just any sort of on-the-ground development that you're carrying in March as we stand now? Obviously, a lot of impact has spread to Europe and to the west anything that you're seeing in China. That'd be -- if you can share that that would be great? Thank you.

Yes. For the guidance, yes, we gave a wide range with 45% to 25% decrease compared with last year. And the basis for giving that is we first took a conservative estimate based on the orders we more or less already have on our book. That's including both the orders from overseas distributors and also the estimated orders from domestic distributors. And because as you may know there is seasonality in the sales of e-scooters in China and Q1 is the slowest season and normally the sales begin to pick up from March. Therefore, we expect the second half of March will be quite key two weeks for us to sell additional scooters. Therefore we are betting on additional 20% from the second half of March mainly because a few things. First, if the government lifted some of the restrictive measures for store openings then this additional shop can open in the next two weeks. As Yan already mentioned, up to now we have only 85% shops opened. But if the additional 15% shops can open then we can generate additional revenue from our retail shops. This is the first reason. Second reason as we have seen some of our distributors who have their shops opened, they are increasing their retail sales. Therefore we expect they will continue to order from us. However as I said, there's a lot of uncertainties during -- due to the current outbreak. Therefore we have taken a conservative approach and also give a wider range due to the risk involved. Yan Li begin to comment on that.

Yes I think Hardy pretty much covered it. It's really -- we're actually watching the situation on a daily basis at this point. We look at the retail sales in March basically the first two weeks like you guys look at the second week versus the first week the retail sales actually increased by almost 10% to 15%. So it's really about third week and the fourth week, how that picked up and how we fulfill the orders. At this point our factories has pretty much back online, so we have no issues of fulfilling orders. It's really -- the market need to be picked up both from the China side, as well as we're looking at the Europe and the U.S. as well.

I hope that answers your question.

Yes, that's very helpful. Thank you very much.

Your next question comes from the line of Vincent Yu of Needham & Company.

Hi management, I have a few questions. First question is trying to understand what's our view in international market in first half 2020 especially when the European are -- like the outbreak continue to go on? The second question is on what's our view in gross margin in the short-term to large term? And especially how big headwind we should expect especially when overseas market is being impacted? Third question is what's our view on our 2020 OpEx and CapEx plan given the industry headwind? Thanks a lot.

Okay. Let me -- so this is Yan. I'll cover the international market. I'll have Hardy cover the gross margin the CapEx, OpEx as well. So I mean to be frankly, I think we're actually watching the international market on a daily basis right now. So if you look at last year the -- I think the European sales represent roughly about 70% or -- 76% to 70% of sales internationally plus the U.S. market probably represent about 80% of our sales. So those -- we have orders from European distributors and we have orders from U.S. distributors as well some of the sharing operators in Europe and the United States. And so, those are orders actually in our backlog at this point, we're actually trying to fulfill. And they will actually serve as a basis for the first half in 2020. Then having said that right, it's really depends on how -- obviously our sales operation has been impacted retail set operation has been impacted. For example Italy where initially we have about -- we plan actually to build up about 10 to 20 flagship stores in Italy. And right now we only have a few. And then the entire country's practically got shut down. So that retail sales practically are down for the first few weeks. So we're actually watching the situation on a daily basis at this point. Let me ask Hardy on the gross margin point?

Yes. And for the gross margin, for the full year 2019, our gross margin was around 23%. And for the Q1 this year, we do expect some of the decrease of gross margin, mainly because our factory cannot work under full capacity. However, for the full year 2020, we still have the plan to at least keep the same gross margin as what we already achieved in 2019. These couple of initiatives we have already started since the end of last year. One of the things is, we are trying to renegotiate some of the component costs with different suppliers. And we made progress with many of them. Therefore, we do see continuous cost down opportunities. Secondly, as you know. Commercial operation in our new manufacturing facility in Changzhou and that facility was designed by ourself. Therefore, we do expect higher efficiency from this new facility. And very largely, as we continue to improve our revenue mix including both the accessories spare parts and also some of the international sales, we do expect some potential upside from the revenue mix. Overall speaking, we target to achieve at least the same gross margin as what we have in 2019. So this is gross margin. And to answer your last question on the OpEx and the CapEx. For the OpEx, as a percentage of revenue in 2019, it was around 15% of our revenue. Given, we expect to continue to grow in 2020, we think we could probably at least maintain this 15% and maybe we can even achieve further synergies or leverage from operating expenses. In terms of CapEx, during 2020, there's two areas where we want to spend money. One is to continue to expand our retail sales network. Because of this coronavirus outbreak, we are reevaluating how many shops we need to open. But in any way, I think, maybe RMB 50 million to RMB 100 million will be more than enough for us to open all the retail shops which we need. The second area we want to spend money is we reserved a piece of land next to our current facility. And we do have a plan to acquire at least the land use right of that facility. And, therefore, we can ready to construct new factory whenever needed in China, because of new national standard implementation last year. Chinese government gave a three-year transition period for the consumers to replace their e-motorbicycles. Therefore, we do expect some of the increase in demand during 2021 and also 2022. Therefore, we do believe we need to get ready for some of the capacities. Therefore, these are the two areas that maybe spend money, but they are more or less in our control and we can base on how the things develop to decide how much and also how fast we spend the money. I hope this answered the question. Yan, anything to add?

Vincent, just actually -- just one thing, I'll mention on your first question is actually besides Europe -- it's one thing we're trying -- what we have done. And, actually, we believe it actually will help the international market this year as we diversify our revenue streams, not just from -- it used to be Europe and the United States represent 80% market, but literally starting at the second half last year as we actually expanded to more countries, for example, we successfully entered Japan, we're well in Korea. We're actually starting to develop more businesses in Southeast Asia. And just recently, we actually signed quite a few distributor agreement in South America. So, obviously, some of the sales actually, whether it will show up in Q2 or second half of Q2, it depends. It also depends on how situation in those countries actually turned out to. But I think as -- if I look at -- in the long run, not for the -- for the entire year it actually opened up more markets for us, which actually help us to basically to reduce the risk.

Got it. Thank you very much on the nice answer guys.

[Operator Instructions] Your next question comes from the line of Bin Wang of Crédit Suisse. Please ask your question.

Thank you. I actually have three questions. Number one is about volume growth in the past three months. If you see you guide, 25% to 45% revenue decline -- alone decline and because ASP increased by 5% last year. So the volume on guidance is netted to be 20% to 40% decline. So in that case, can you provide -- but I must say, was the number in January was number in February and was likely in the March. Can I assume that March will keep much higher growth compared to the February? So we see a sequential improving change. That's number one about volume growth. And number two is about new products. We're actually expecting you'll relaunch M-Series called NQi because it's not country's motorcycle, it didn't reach into the e-scooter category. So, when the new design and pass we are back to the e-scooter category that actually were a key driver for the volume growth this year. That's the second question? And third one is about the cost reduction. We actually observed the battery price has been declined around 28% year-over-year in the first quarter this year and if you see sequential order increase decline by around 20% Q-on-Q. So, this actually is the only battery. Can I assume a similar pricing decline for the e-scooter battery as well? So, if in the case Canada doing 20% of cost reduction in the battery price? Thank you.

Let me address your first question about the volume for the first three months. Normally, we -- look we combine January and February together because different years the Chinese New Year are on different months. So, if you combine January and February our volume was down around 60% compared with last year. But in March, at least, in the first two weeks, we have seen volume down only 20% to 30%. So, we do see an improvement in the first two weeks of March and we continue to see improvement during the past few days. So this is answer for your first question on the volume. For the second for the new product I will leave to Yan to comment.

So, on the product part, so we do have a plan to not just have one series also have two products that compliant with the Chinese new regulations on electric bicycles. Those products were scheduled to be launched in April, but now actually due to the coronavirus outbreak, we had to push it -- it basically created a delay roughly about a month or so. So, we're actually trying to -- the entire team trying to work very hard to actually try to accelerate that schedule such that we can actually see the product either by end of April or early May. The delay is mainly needless to say entirely -- basically entire country got shut down for a month or a month or more. So, it's actually very difficult to accelerate the product development. So, we're trying hard on that one. So, -- and also we do have high hope on those two products, especially, the one first on the one you mentioned the new M-Series that will be actually a full covered electric bicycle products. It have -- will have the inherited the design style of our M-Series at the same time complying with the China new regulations. I think people will be expecting that product since last year. And finally, we should be able to give what people want in Q2 this year.

And just to add to Yan's point on the second -- your second question about the new M, we have successfully got the certification for that product. So, I think that's one of the key milestones that we already achieved. And to answer your third question about cost reduction, I think during 2019 we have seen the whole battery including battery cell, also battery pack, the cost has reduced around 9% during 2019. And for 2020, it's on the current estimate we see at least a 5% to 10% reduction. And this is before the coronavirus outbreak. But this outbreak may give us additional leverage to continue to negotiate the price down. So, that's our current expectation probably 5% to 10% cost reduction for the battery sales.

Thank you.

[Operator Instructions] There are no further questions at this time. I would now like to hand the conference back to today's presenter. Please continue.

Well, thank you operator and thank you all for participating in 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.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.