Ladies and gentlemen, thank you for standing by. Welcome to the Niu Technologies First 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 this conference is being recorded today, May 13, 2019. I would now like to hand the conference over to your speaker for today, Mr. Jason Yang. Please go ahead, sir.

Hello, everyone. Thank you for joining us on today's conference call to discuss the company's financial results for the first quarter of 2019. We released the results earlier today. 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 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 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, now, let me turn the call over to our CEO, Dr. Yan Li. Yan?

Thanks, Jason. Thanks everyone for joining us on the call today. First of all, we're very excited to report a great start in 2019 with a strong growth and positive net profit. We grew scooter unit volumes by 76% and revenue more than doubled. We also improved gross margin to over 21% and operated profitably with a net margin of 3.4%. Goss margin and net margin are 8.6 and 39.2 percentage points higher than this time last year. Niu is at the forefront of the revolution in urban mobility. And our results this quarter demonstrated our leadership position. We made [indiscernible] technology leadership and also leveraged our brand awareness into new adjacent categories. Our brand and the product strength really showed in our financial results. Growth was outstanding despite winter being our seasonally slow period. Let me first cover our most exciting development, the two all-new scooters model for the U series, the U+ and the US that was launched on April 12. Our U+ and the US models encouraged the attractive design style of our new U series. The U series still achieved the, so called, grand plan, winning all 7 major international design awards. Over the past 20 years, the U series is the only second product to achieve this grand plan in the mobility industry. And many of you already know, the first product was our own M series. We're extremely proud of our design leadership. And this grand plan demonstrates our expertise. Our unique and attractive style is an important part of the premium value proposition of our brand. So in addition to a great style, the new Niu models covers more consumer segments. The U+ is bigger and offers more driving range after 160 kilometers per charge, which is more appealing to frequent users with longer daily commute. The U.S. is smaller and lighter, that's more appealing to user that prefers agility. All U models are compliant with the new regulation on Safety Technical Specification for Electric Bicycles in China, which went into effect on April 15. The U+ and US models deliver outstanding value to the price range for the U+ as between RMB 4,400 and RMB 6,000. And for the US, that's between RMB 3,500 and RMB 4,600. Both products were well received by consumers and the first deliveries were made in late April. So Niu is unique, in that we can deliver a stylish scooter that has great range, yet is compliant with the 55-kilo weight regulation. This is due to our leading battery system technology. At the launch event, we introduced our upgraded smart battery system, which is called NIU Energy. NIU Energy encompasses the battery management system and the pack technology. Our engineering team designs industry-leading power system, by leveraging the 2.4 billion kilometers of riding data we have collected from our users. That usage data gives us an incredible insight into the performance of batteries under all sorts of conditions. So under the NIU Energy, our battery pack is able to achieve 8% longer driving distance, 40% longer battery lifecycle and 6% power improvements. Our brand is also incredibly strong in urban mobility. And we're now expanding the breadth into adjacent categories, the Niu branding technology, style and freedom. We delivered the brand promise for weekend commuting via the electric scooter category. Now, we're delivering our brand promise for the weekend pleasure via our new high performance bicycles. So at the April launch events, we launched our Niu Sports performance bike family, Niu Aero The Niu Aero family features five product lines, encompassing eight models of high performance mountain and rode bicycles. Those bikes have Aero dynamic design feel and style and smart meter connectivity for performance track. Those bicycles have superlight with the lightest weight that is 7.6 kilogram. The price range is from RMB 2,500 to RMB 62,000. We perform extensive market research before entering this category. We conducted a customer survey and learned that 30% of our customers love bicycles, and 40% expect interest in our potential bicycle offering. Furthermore, we note that the sales of premium performance bikes are growing a 10% a year in China even as a whole bike industry is shrinking. This data supported our thesis that Niu cannot effectively penetrate the performance by category. Early results are encouraging. For instance, our first sales campaign on JD.com was sold out in two minutes. So the April product launch, not only successfully rolled out to electric scooters and a family of performance bicycles, but was also fixed effect in terms of building brand awareness. We accounted over 400 million relations and had audience of more than 200,000 people watch the product launch through live streaming. To support the new product post launch, we're now ready [offline-ads] [ph] as well. So in addition to the launch event and offline-ads we continue to leverage social media to build brand awareness. Our last two social media campaign in Q1, not only in scooter and a new way forward generated over 4 million views on pickup and 1 million views and re-tweets Weibo. Let me also mentioned another interesting program we initiated in social media. So in addition to the premium riding experience, Niu is also known as a socially responsible choice for transportation. This is due to the cleanliness of the electric power as well as the reduction of traffic congestion and admissions due to a small factor. To further reinforce our image as a socially responsible brand, in March, we launched a new foreign campaign, we asked our riders to post their mileage and their new stories on social media such as Weibo and TikTok. Selected users will get to claim one pine tree planned in inner-Mongolia sponsored by Niu. So on social media, the Niu story topic has received over 500,000 views. Now, with our brand strength and product leadership, our only real barrier for growth is the distribution. Naturally, growing our distribution network is a top priority. And again, Q1, we expanded our reach around China and around the world. In China, we opened 121 stores, giving a total of 881 resell outlet by end of this quarter. Our store network is managed now by 223 city partners across 180 cities. We also expanded internationally and tried yet another new country, now selling in 28 countries through 23 international distributors. Next major country, which we're expanding into Korea and the U.S. On March 28, we attended the Seoul Motor Show and saw the potential for robust demand in that country, and we're now working hard to build our exclusive channel in Korea. Meanwhile in the U.S., we have obtained the federal government approval for selling our scooters nationwide. We're not only facts, we already received our first order for 1,000 units from the U.S. scooter share operator, for the deployment is in New York City. We ship to the U.S. in April and our customer anticipates that they will be put into services in June. Lastly, let me touch upon new regulation specifically the so called 50 technical specifications for electric bicycles in China. It went into effect on April 15. This regulation prompts the industry to operate from traditional heavier lead acid battery-based scooter to lighter and more portable lithium-ion battery scooters. It does this by putting a weight restriction of 55 kilos of the scooter. This policy will accelerate the adoption of the lithium-ion battery-based scooters in Chinese electric scooter market, while simultaneously improve the road safety of electric scooters. We believe this regulation will encourage more people to adopt electric scooters for their daily commute. So the policy is enforced at three levels. First, the manufacturers are required to obtain certification at the China quality certification center for all electric scooter model, so that electric bicycles. Second, retailers cannot sell non-complying electric scooters. And finally, consumers can only get a license plate for complying electric scooters. The entire industry, including us experienced a noticeable spike in the demand in March, before this regulation willing to effect. So clearly some of Q2 demand was put into Q1. Many consumers rushed to purchase the existing models before April 15. And after April 15, we have observed a sharp drop in retail sales for a couple of weeks, confirming our thesis above in line [indiscernible]. We expect demand shift to be a short-term, only affecting the first half of the year. We still foresee a very strong demand growth in the second half of the year. Now I'll turn the call over to Hardy to discuss our financial results. Hardy?

Thank you, Yan, and hello, everyone. Our press release contains all the figures and comparisons you need. As I review our financial performance [indiscernible], we're referring to the first quarter figures unless I say otherwise, and that all monetary figures are RMB unless otherwise noted. As Yan mentioned, 2019 is off to a great start. We again delivered a strong growth and we operated profitably. Revenue more than doubled, gross margin increased significantly to 21%, and net margin was positive at 3.4%. Revenue rose 106% to RMB 355 million, driven by increased scooter unit volume and higher revenue for scooter. Volume grew by 76% driven primarily by two factors: first, our expanded sales network in both China and internationally; and second, incremental demand for certain N and M models in France of the new national standard deadline which were April 15. We accommodated actual demand for this model, because we do no longer delighted and registered as the electric bicycles part of the deadline. This was the main reason for the surge in revenue, which was significantly above the guidance we provided earlier. Revenue for scooter was RMB 5,369, up 17% year-over-year. Net gross was driven both by scooter pricing and sales of accessories, spare parts and services. The average scooter sales price grew 14%, this was due mainly to the higher retail price for the U series as well as favorably change in product mix. Specifically, we started delivering NGT models in China, where NGT retail price of RMB 20,000 is more than double other models. Sales of NGT contributed 2.3% of the total unit volume. In addition, sales of the M+, which is upgraded version of the M1 generated around 30% of total unit volume. The higher average sales price of scooters was also helped by a higher proportion of sales from our premium version of each model, specifically, within the M and N series. We have multiple versions of scooters within each model series. These are the Pro, Sport, Citi and Lite. Pro and the Sport versions have higher retail sales prices, when the Citi and the Lite. For instance, the Pro is nearly 35% higher than the Sport, which in turn at 15% higher than the Citi. We also have strong sales of accessories, spare parts and services. On average, for each scooter sold, we also sold RMB 670 of accessories, spare parts and services. Net ancillary revenue for scooter is up 47% from RMB 457 last year. The increase was mainly driven by the spare part sales from international markets. Gross margin was 21.3%, 8.6 percentage points better than this time last year, and 7.8 points better sequentially. Over the longer term, we expect our gross margin to be in the range of 20% to 25%. So we are very happy to be moving into that target of long-term model. Margin expansion was helped by sales of accessories, spare parts and services reached a high margin. A higher proportion of international scooter sales also impacted a gross margin positively. Ancillary revenue and the international sales were 12.5% and 18.8% of revenue, respectively. All together, these two factors continued into 2 to 3 percentage points of the high growth gross margin. I want to caution you that, we do not expect this gross margin lift to be sustained as we move through the year. These two factors are usually seasonally high in Q1 then normalized during the rest of the year. Cost of goods also declined as trended as we secured a cost savings of 3% to 5% for [rear wheels] [ph], raw materials and components. We were able to negotiate lower procurement costs at our largest scale leads to better battery power. We believe this cost reduction are sustainable and will continue to benefit our gross margin for the foreseeable future. Operating expenses increased in line with the growth of our business. Excluding share-based compensation, G&A increased by 153% representing 5.4% of revenue versus 4.4% last year. The increase in G&A expense was due to audit and the legal fees for annual audits and producing the 20-F filing. Obviously, these are the new costs now, since we are publically traded. R&D expense grew, as we invested in new product development and design. Sales and marketing expense grew in line with our expanded sales network in both China and international market. Despite higher expenses, we are still seeing meaningful operating leverage. As a percentage of revenue, operating expense, excluding share-based compensation was 17.5% below the 19.2% we saw last year. Our GAAP net income was RMB 12 million, this net margin of 3.4%. We are pleased to operate profitably even as we invest heavily in growth, which demonstrates the strength of our business model. Turning to our balance sheet. We ended the quarter with RMB 694 million in cash and the equivalent. Operating cash flow was positive $16 million. Capital expenditure was RMB 29 million, primarily driven by building out the new manufacturing facility in Changzhou and by the new stores opened in China. Now let's turn to guidance. We expect second quarter revenue to be in the range of RMB 580 million to RMB 660 million. This represents year-over-year growth of 51% to 72%. We expect to operate profitably. The revenue range is relatively wide due to the regulatory demand we discussed earlier. Although the new regulation shifted some demand between quarters, the underlying trend in our industry is still quite a strong, as you can tell by the growth that we still expect. In fact, to get a better picture of underlying demand results to [cost evaluation] [ph], we are comparing the first half of 2019 to the first half of 2018. Combined revenue for first quarter one and quarter two is expected to be in the range of $935 million to $1 billion, representing a year-over-year growth of 68% to 82%. Please keep in mind that this forecast reflects our current expectation and could change. With that, let's now open the call for any questions that you may have for us. Operator, please go ahead.

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Brad Erickson. Please ask your question.

Thanks. I just had a few. First, you mentioned the fall off in demand you saw for a couple of weeks, I believe you said, due to the regulatory deadline. Is a takeaway to be made there, that you've seen things sort of stabilized? Maybe just a bit of color about how run rates have been trending now over the past month, as you've gotten past that sort of pull forward and fall in demand? Thanks.

Yeah, I think that's a good question, so given we're only four weeks is - four weeks since the - just implement the regulation. So first couple of weeks there was really a sharp drop into the retail sales, basically what we call the sale ops. So we start seeing that the sale of the retails sales start to recover. But, obviously, the recoveries, I don't think it hasn't recovered back to - entire industry hasn't really recovered back to the normal sales level yet. But it could be my - this is only four weeks after they implement the new regulation.

Yeah, got it. Okay. And then, just within gross margin, Hardy, I think you mentioned you got benefits from the ancillary channels as well as international revenues. But if we looked at it based on a product mix, how much benefit did you get from the pull forward in demand? Any color there would be great.

I think from the gross margin point of view, we don't think there is any benefit on the gross margin from the pull over demand. I think the higher gross margin is mainly because we have much higher ancillary revenues, especially the spare parts we sold in the international market. Those spare parts normally have around 40% to 50% gross margin. So that part really helped us with that. I think second what helped us is the price increase on the U series we did in August last year. So, U series has a significant growth in the first quarter. Therefore, we do see the contribution from that on our gross margin. I think very lastly, I think the most significant contribution to the gross margin is from the COGS. We did manage to gather lot of cost reduction on different type of raw materials and components. And that has translated into part of the improvement in the first quarter gross margin. And in the quarters ahead, we believe there is still room for us to improve.

Perfect. Thanks. And then, maybe one last one if I could, I guess, one of the important levers that would seem like for demand here going forward is how tightly the new national standard will be policed in some of the smaller outer-line cities. What are you seeing there thus far from a regulatory standpoint and maybe just a bit of color in terms of what's baked into your guidance around your expectations for how shrewdly the new national standard will be policed? Thanks.

I think first of all, we have a view that actually from the fact also that this new national standard will be very - actually strictly enforced. But, having said that, it basically - it trickles down, I mean, it takes time to actually get to what is called a tier 4, tier 5, tier 6 cities. If you look at top tier cities, like tier 1, tier 2 basically, Beijing, Shanghai, Guangzhou, Shenzhen, and also the provincial capitals, almost from day-one, April 15, right, on day-one that's already in place. Now, I mean, just to - as I mentioned in the call, it's basically enforced on the manufacturer level, basically from our level, and in scooters we shipped out has been what is called a 3C, basically get a 3C certificate from the China CQC Center. They are people checking the - local enforcement are checking on the retailers on way to weekly basis, to make sure the retailers doesn't sell anything that is non-compliant. And lastly - and just want to make it then for like City of Beijing, right. What you see is actually, there are policemen on the street, are chasing people who don't have a license plate for their scooters. And then, if you don't have a license plate with scooters, at this point, it's only RMB 20 fine. But I think there is also announcement within a few months or so that that fine will actually get to about RMB 1,000. So we do see the - it is as we expected that this regulation is being strictly enforced.

And to add a little more color on that, there are also some administrative burdens on some of the cities. On the country level, we have this new national standard, which all the manufacturer needs to get this CQC certificate. However, some of the cities also have their own requirement to put their product into their product catalogue. Only after the manufacture registers their scooters in their safety catalogue they can be sold in the retail network. So these administrative hurdles, add additional burden to some of the distributors. But we believe this is temporary. And once we get everything registered, then the retail will recover.

Got it. Thanks.

We have the next question from the line of Bin Wang. Please ask your question.

Thank you. I actually have three, I want to ask. First one, I noticed in the April this year. It seems like you're recently applied some of your products by around 2% to 5%, because new recreation to guidance, because of the pricing hike. Do you see any margin improvements or how much margin, because I just mentioned 2% to 5% price increase maybe some cost increase. So what will be the margin increase, because of this? That's number one. And number two is that, recently that China, U.S. have some dispute. And do you anything have your own penetration to the U.S. market. And also, which one is impact your first batch order, you just mentioned in the call to the U.S. client in New York City. That's my second question. And then last one, actually want to ask about the margin, because the margin is really surprised. They are moving on one-off factors, for example, NGT sales. For example, so for potential issues only moving everything well, won't be like normalizing margin in the first quarter. Especially, can you quantify on the no material pricing decline, because there is actually no material, it didn't break down and say, how much motor, how much battery, and how much steel, how much tire, can you give me more detail? Thank you.

Yeah, I think let me answer your first question about the price increase in April. Indeed, in April, we increase the retail sales price for certain models, and N, M and U series. For the price increase for N and M series, it's no need to cover our cost. There is no impact on the gross margin. We just want to maintain our gross margin. That's why we increased the price for in N and M models. For the U series, we increased the price. But that will help us with the margin going forward. I think another reason we increased the sales price for the [U1] [ph] models, because we launched the two new models, U+ and US. So we need to make sure different types of products are in the different category of price range. So that's on your first question. Second, I'll ask Yan to answer.

So, Bin, just also let me add a little bit on the first question on the - the price increases sometimes because, for example, on the U series, with the new regulation, what's required is actually we had to include peddles, chains on the scooter, so there is also a fairly cost increase. So obviously our price increases, as you know, it just had a higher percentage than cost increase, so it'll help the margin a bit. Now, on the second, on the U.S. dispute, so because our product category is already at a 25% tariff, so the current dispute makes no difference, unless the current dispute result that they reduce the tariff from 25% to 10%, it will help us. But right now, we're actually doing, conducting business in the U.S., assuming which - that 25% tariff. And also, let me pass to Hardy to talk about the gross margin part.

Yeah, yeah, for the gross margin, we have 21% in the first quarter. I think I can breakdown is 21% improvement to three different segments. The first segment is with so called one-off. This one-off is not linked to NGT. We see that we deliver lot of NGT in the first quarter, as this NGT is the preorder from last year. And last year we gave lot of promotion events to the consumers. Therefore, the NGT margin was not as good as the normal models, because of this actual promotion. But there is one one-off event, that's the change of product mix, especially in the N and M series. As I mentioned earlier, in each model, we have different specs, we have pro, sports, city and light. In first quarter, our sales in the top models, premium models, pro and sports, has taken larger proportion. Normally, these top-two models accounts for 40% of the total series. However, in the first quarter, these two models contributes to around 60%. And this impact contributes to around 1%. This is, I call it one-off, I don't think this will repeat in the next quarter. This one off - the 1% is one-off. Second category having seen more seasonal impact, it's mainly from the international sales and also the accessory sales. International sales account for around 19% and the accessory sales comes for around 13%. This is much higher than the normal average we have for the whole year. And these two parts contributes to around 2% to 3%. For the full year, we don't think this 2% to 3% will be fully translated into the full-year margin. The very last point is the contribution from cost reductions. That gave us around 3% to 5%. That part is going to be sustainable. So if we make the normalized adjustment with these, if we take all these one-off items, also we normalize for seasonal impact, our gross margin for the first quarter will be around 18%.

Thank you. Great.

[Operator Instructions] As there are no questions, I'd like to hand the call back to you, speakers.

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. Operator?

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