Jason Yang – Investor Relations Manager Yan Li – Chief Executive Officer Hardy Zhang – Chief Financial Officer

Brad Erickson – Needham & Company Lu Feng – Credit Suisse

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Niu Technologies Third Quarter 2018 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will follow at that time. As a reminder, we are recording today’s call and 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 third quarter of 2018. We released the third quarter results after the U.S. market closed yesterday. The press release is available on the Company’s website 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 United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involving hearing risks and uncertainties as such the company’s actual results may be materially differ from the expectations expressed today. Further information regarding this and other risks and uncertainties is included in the company’s filings with the SEC. The company does not assume any obligation to update any forward-looking statements, except as required by applicable law. Our earnings press release and this call includes discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our website. Please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese Renminbi. With that, let me now turn the call over to our CEO, Yan Li.

Thanks, Jason, and thanks everyone for joining us on the call today. So we’re very thrilled to be hosting this call today, our first as a public-traded company. Clearly, the IPO itself was the milestone accomplishment for Niu. We raised capital for growth and we significantly raised our visibility for being traded in the U.S. on NASDAQ, solidified our position as a global lifestyle brand that is transforming urban mobility here. So we’re also thrilled to report a significant milestone, our first quarter of profitability after adjusting for share-based compensation. So we have worked very hard to create business model that can fund rapid growth sustainably in operating profit. We’re excited that this financial result this quarter indicates we are pursuing an effective strategy. We grew our e-scooter sales volume by 76%, our net revenue by 86% and the generating RMB 5 million of net income after adjusting for share-based compensation. So we reached a position of leadership through a strategy focused on three elements: First, compelling products that offers the premium experience; second, sophisticated and efficient marketing strategy then effectively communicate the value proposition to our target audience; and third, rapid expanding cost effective sales network to fulfill the demand after we created. So in the third quarter, we have made a progress in each of those three elements and let me review that now starting with the product. So our e-scooter line up is designed to serve customer needs from the low-cost entry-level to the high-end premium experience. Now most of you know in August, we have launched our new models, the entry-level UM priced between RMB 2,999 and RMB 6,599 at retail. So this UM e-scooter is designed to attract customers away from cheap commodity scooters and introduce them to what awaits in our premium category. Now with that, our product line now spends six models from UM up to the high-end NGT, which sell for RMB 19,999 retail in China. And then we’ll introduce the NGT in late June and then we expect initial deliveries in the coming months. We also launched our Niu Care services offering an attractive price point. The Niu Care is one of the first branded smart maintenance and services for electric scooters. So the Niu Care services actually use the rich dataset that we collect from each scooter to personalize the service recommendations. It optimizes the customer experience by indicating the most relevant service actions at a proper time. Now Niu Care also attracts our existing customers back to our retail stores and this increased the customer stickiness and obviously create opportunity for cross-sell accessories during their visits. Now, the second element of our strategy is our marketing program. So, in the third quarter, we increased our brand awareness through marketing promotions that leverage a combination of three things, which are one the new product launch event; second the user activity-based better marketing and third the user location based offline marketing. So for the first one, we had a great product launch event in Shanghai to building our UM and also the McLaren GT Customer Racing co-branded scooters. Around 400 partners and the media attended that event and we received the countrywide coverage of over 400 articles. For the second market strategy, the user activity-based better marketing, we launched multiple interest groups via our WeChat platform. One example is the city rider interest group covering 25 cities. We’re also promoting customer riding experience via those interesting groups. Now for the third one, the user location based offline marketing. We launched bus route adds in our top 19 cities, over 250 bus routes. We selected them based on the rider location profile we collected, which is highly effective. So those buses garnered more than 1.3 billion views, which significantly increased the brand awareness in those cities. And the last item of our strategy is our sales network, which continues to grow significantly in this quarter. We opened 71 stores in China and that gives us 642 stores in 164 cities around the country. So this is 80% growth compared with the store counts at the same time, which is Q3 2017 last year. Our store network is managed by 215 cities partners in China now up from 205 partners at the start of the quarter. And then we also grow the distribution overseas to we’re now selling in 27 overseas market around the world compared with only 17 countries at the same time last year. So those three key elements of our strategy are driving exceptional growth. As a result, we are now planning to expand production capacity. We signed a contract to acquired land use rights and are planning a new factory opening in Changzhou, China. So the Phase 1 of this new factory will have a capacity of 700,000 units annually and expected to wrap into production in 2019. Now with that, I will turn the call over to Hardy to discuss our financial results. Hardy?

Thank you, Yan, and hello, everyone. Of approximately these contents all the figures and the comparison you need. I’m not going to repeat all the numbers instead we are going to focus on the drivers and the factors influencing the results. Keep in mind that we are referring to the third quarter figures unless as the otherwise and that all figures RMB unless otherwise noted. Revenue growth was driven by scooter volume, of course, as well as price increases. Q3 scooter volume growth was primarily driven by new store openings in China and the launch of the new models. We typically, we opened 71 new stores in China and they started the delivery of two new models M+ and UM, which contributed a significant proportion of Q3 volume. I should have mentioned that our scooter sales in China are somewhat seasonal, financially summer sales in Q3 are big season, we have winter our sales in Q1, are the slowest. Q1 is also impacted by the Chinese New Year holiday. Please keep that in mind, as you observe our sequential revenue pattern over the coming quarters. The increase in net revenue per scooter was mainly driven by our pricing actions. This January we increased the price for many models across the N, M and U series. In August we raised the prices of certain models in the UM. And on October 26, we raised the prices of certain products within that top line. The price increases were introduced together with performance upgrades of the scooters, so that we maintain our competitive value proposition. We expect that our premium positioning, will enable more pricing actions in the future as we wrap the production line with more value added product and the services. We believe the price increase in August and October will help drive fuller margin expansion in the near future. Gross margin improved 3.6% percentage points over the same period in last year, mainly due to the price increases, I just mentioned. In addition gross margin was helped by a higher proportion of overseas sales, which normally have higher price and the higher gross margin. Compared to last year, the proportion of overseas e-scooter sales nearly doubled to 5.1% of total scooter revenue. In Q3, to promote the two new models M+ and UM, we set lower price initially and gave additional sales volume rebates to city partners, which affected our gross margin in the quarter. On October 26, we increased the prices of certain products under the new model M+, which will help drive further margin expansion in the near future. Operating expenses increased in line with the growth of our business. We added employees, enhanced the R&D capabilities and revved up advertising in connection with the new product launch. However, as you can anticipate, we are also seeing meaningful operating leverage as a percentage of net revenue, operating expenses excluding share based compensation was 11.9%, materially below the 13.7% we saw in the third quarter last year. Our GAAP net loss was $2 million, which include around $7 million of share-based compensation. Adjusting out the share-based compensation, we had positive adjusted net income of $5 million. Our balance sheet ended the quarter in solid shape. As of September 30, we had cash, term deposits and a short-term investment of RMB484 million. We generated a positive operating cash flow of RMB96 million and incurred capital expenditure of RMB23 million. Keep in mind that our October IPO raised around $54 million U.S. dollars. So, our balance sheet is now even stronger than it was at quarter-end. I also want to you to explain something, if you notice in our earning release, we did not discuss earnings per share or earnings for the year. The share count as of September 30 is somewhat meaning in light of our October IPO. That event covered to preferred shares into ordinary and adding significantly to the shares outstanding. Of course, we will offer per share metrics going forward. Now turning to fourth quarter guidance, we expect net revenue to be in the range of RMB370 million to RMB390 million, representing growth of 69% to 78%, while you'll make the sequential comparison, this came in line with my early comments about the seasonality. Third quarters sales was always our strongest of the year, we have Q1 will always be the softest. Also keep in mind that, this forecast reflects our expectation and is subject to change. With that, let’s now open the call for any questions that you may have. Operator, please go ahead.

Thank you. Yes, ladies and gentleman, we'll now begin the question-and-answer session. [Operator Instructions] Our first question is from the line of Brad Erickson of Needham & Company. Please ask your question.

Hi. Thanks for taking my questions. I just had a few. First can you just help us sort of net out all the puts and takes with respect to product mix in the quarter. So revenues obviously grew a bit faster than units, but you introduced an entry level model and then raised the prices a bit during the latter part of the quarter. Can you just give us a bit more color on what drove the higher ASP year-over-year and was geographic mix also a driver there?

Yes. I think for the driver of the higher ASP for this quarter, is really caused by a few factors. The first factor is the product mix. Definitely in the third quarter we began to deliver models M+, and a models M+ has a higher ASP than other products, and this is first driver. Secondly our overseas sales account of 5.1% of this quarter's revenue compared with 2.7% of last year, overseas we had seen much higher than the domestic sales ASP that is also another factor causing the increase of the part of ASP. And lastly, the most important one is actually the retail price increase, and we increased the price in January this year across different products and series. And in August, again we raised the price for U-series that’s the average we increase around 60% year-over-year. It helped a lot of our Q3 net price that's my answer.

That's great. And then second, just now that you've increased prices on the M+, maybe just talk about what you've seen demand wise since making that move and your confidence level there?

Brad, are you talking about the pricing, the confidence on the price increase.

Yes. So you said –I think you said you’ve increased price at the end of October I am just curious to see sort of any, any early views of demand that you've seen associated with that?

So that was a associated with the M+, we increased price on M+, two models M+, by RMB200 and RMB300, and after price increases we actually, we observed no impact on the demand that actually demand is still very strong. So this is actually an indication that we continue the customers, the consumers continue view us as a premium brand and to be honest, right, the M+, we look at the base price is about, the ones that 46 99 increased by RMB300 to 49 99, which actually makes zero difference to the consumer buying behaviors.

Yes. Just adding to that, when we increased the retail price we also added the additional features to the products. We upgraded some of the functions of the models. Historically, also one way increase retail price. We also provide additional features all have longer driving distance. So that's what the customers take pricing increase as a positive side as it has limited impact on our sales.

Got It. And then just broadly, can you just give us a sense of channel inventory levels, how and if they changed at all through the quarter given what sounded like was some strong shipping of these new model?

Yes. I think that the channel inventory levels still remain rapidly robust. And to the extent that we're not – we are actually our city partners pay us in events. So they actually also carefully manage their channel inventories. It’s not like they have – they basically give the credit lines. To that point, they actually want to keep the inventory within the one month timing to make sure that does not disrupt their sales, but at the same time not holding too much in the inventory.

And then one last one if I could squeeze it on, just relative to the guidance, can you remind us of just anything you might be lapping from last year in new product introductions et cetera, would be great? Thanks.

Sorry, can you clarify what’s your question is?

Sure. Just relative to your – to the guidance for the fourth quarter, just wondering if you could provide any color on things about the last year quarter that you might be lapping anniversarying here new product introductions would be the most likely one, if any detail you can give would be great.

No, I think on the – so typically in the fourth quarter, I mean even in the fourth quarter last year we didn’t launch any new products? So same with this year for fourth quarter, we’re not planning to launch new products. And so the year-over-year growth in term of the guidance table it’s based on – all based on existing products.

Perfect. Thanks.

Thank you. Our next question is from Lu Feng of Credit Suisse. Please ask your question.

Hello. I just have a quick question regarding the GP margin. And first, can you give us some guidance on your GP margin in the fourth quarter and also what would the trend be in 2019? Because in the third quarter, I saw that your GP margin seems to be lower than the previous two quarters in 2018 and does that mean that this is sort of the level that’s your GP margin will be sustainable or are they going to be even higher in the 2019?

Yes. I think very good question. Our Q3 gross margin is 12.4% and if you compare that with the first half gross margin 14.3%, you see a 2% drop and that’s because of two reasons. The first is the mix in the sales. In the first half our revenue coming from overseas market, the [indiscernible] (0:20:43) overseas market sales. In the first half of this year our overseas revenue contributes to around 13% of total revenue. And in the third quarter the overseas sales contributes to around 5% of the total revenue. So there’s 8% different. And overseas sales has much higher gross margin around 20% higher than the domestic sales. So if you would have 8% with 20% higher gross margin that gives you about 1.5% to 1.6% different. So this percentage change, we believe is seasonal. So each year you see our Q3 in terms of overseas sales is below season. Last year the overseas sales contributes 2.7%, this year contributed 5.1% due quarter-on-quarter as an improvement. On the Q4, we believe the overseas sales will come to a normal level contributes to around 8% to 10% of total revenue, so in other words in Q4 you’re not going to see this kind of factor influence our gross margin. So this is the first effect of overseas sales impact. Secondly, what is effect our Q3 margin is promotion, we gave new products including M+ and UM. We gave additional – we gave lower retail price and also additional sales rebates to our distributors based on their preorders and also early products. So, they influenced our gross margin between 1% and 1.5%. But as I mentioned, we increased the retail price for M+ on October 26. So from October – from November to December, we will see improvements in our margins. So, these two factors are actually the key drivers for the lower gross margin in our Q3. And for that, we believe most of the impact will be mitigated or even eliminated in Q4. So, Q4 we expect the margin will go back to the year-to-date, a similar level to the year-to-date of 13.4%. next year, we still believe the margin will continue to expand. First of all, I think we launched a new product, NGT and that’s when we will be start delivery in the coming months. NGT has a much higher price point, also good gross margin. So when we start deliver NGT, that new model next year, we will see the margin expansion from that new product, it’s first thing. secondly, our overseas revenue this year contributes to around 8% to 9% of total revenue. for the overseas revenue, we believe it will continue to grow next year. That we will also cover on the gross margin next year. Thirdly, well, it’s a very important revenue line in our income statements as a revenue from accessories and spare parts and services. That’s why we have launched some new products. For example, we began to sell batteries to our customers. We also launched a new service called Niu Care. Those new products and services will help us to further increase the proportion of the revenues from other revenue stream. That part of the revenue stream has higher – much higher margin of about 60%. So it’s the third driver. and the last driver maybe we’re also thinking about increase of the retail by some time next year together with some of the performance up with – that also have with margin expansion. And very lastly, as we mentioned during the road show and also communication earlier, we do see the cost of battery has been continued to decline. We do [indiscernible]. We believe that’s when we’ll continue next year. We also have that with other margins. So overall speaking, we believe in terms of margin next year, we’ll see further margin expansion compared with the same year level. Hope that answers your question.

Thank you very much. Thank you.

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. Now, I’d like to hand the conference back to our presenters. Please go ahead.

All right. Thank you operator and thank you all for participating in today’s call and for your support. We really appreciate your interest and look forward to reporting to you again next quarter on our progress.

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