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 average driving range by 8%, a 40% increase in battery life cycle and a 6% improvement of power generation. Our growth in the second quarter has been supported by those two models. We're in the process of launching a new product line and there's a second brand name Gova [ph]. By leveraging our design capability and the cost efficiencies, we’ll position Gova as a value for money product targeting at the mid end segment. We intended to sell this product line in both China and international markets. Second, we continue to build a global new brand as a lifestyle urban mobility brand, through innovative, yet cost efficient marketing and branding activities. On June 1, we celebrated our fourth birthday in China and we launched a social media campaign called, don't call me electric scooter, to separate our brand image from traditional low quality E-bike market. We have engaged many social media influencers across [indiscernible] receiving more than 20 million views. The Chinese Valentine's Day which is celebrated in July, we started a new love story event and collected more than 2000 stories from our new users couples who fall in love because of Niu and was more than 70,000 page views. We have made a documentary film based on those love stories, and will host a movie viewing party among our highly engaged users. Starting from July, we launched a TVC ad campaign with one of the most popular Chinese internet drama called [Foreign Language]. This campaign was a combination of TV ads, social media marketing, and user interaction activity on WeChat and offline stores. We have achieved 1.2 billion views on the Internet TV, 15 million views on Weibo, and more than 50,000 users participation in the WeChat and offline activities. Now, we continue to increase our fan base on all social media from WeChat, Weibo and TikTok. Our monthly views on those social medias have reached to over 1 million. We also start a offline ad campaign called Always Niu Forward with bus ads, [indiscernible] billboard, covering 12 cities and with more than 1 billion views. Additionally, several Chinese and international celebrities were spotted riding the new scooters by the [indiscernible], which show the popularity of our products. Those news instantly spread across social and the traditional media channels. Those viral activities allowed us to capture more than 1 billion views online of our product, which is just another testimonial to our growth as a lifestyle brand. Now globally, we have also signed 22 social media influencers across 6 countries, creating new content under the theme unlock your city and has generated more than 500,000 views. To further build our customer loyalty, we enrolled our new points program in July, users can receive new points via various activities and can redeem those points for new lifestyle accessories. Within one month of the rollout, we already have 39,000 users participating in the new point program. All of those event based marketing activities have helped us to continue to improve our brand awareness as the leading lifestyle brand in urban mobility. Lastly, we continue to expand our footprint in China and globally. In Q2, we opened another 124 stores in China, reaching 1005 stores in total, which covers 182 cities in China. Internationally, we further expand our international footprint and entered six new countries, now we’re serving 34 countries through 26 international distributors. In June, we opened a flagship store at Seoul, in South Korea, and Ho Chi Minh City in Vietnam. Now our solution for sharing operation has also been growing very quickly. So far, we have supported a total of 13 operators globally in 11 countries. We provide not only scooters for their sharing fleets, but also the auto box IoT connectivities and the backend fleet software to allow them to quickly launch their sharing operation. This is a key differentiator for Niu in the sharing space as we are able to provide a full stack of solutions where our competition is just providing a dumb scooter. The sharing operations with support in the US, as mentioned last time, has been very successful and have received positive reviews from New York Times, Vogue, Wall Street Journal, The Verge and The Washington Post. The continued success of sharing operations in United States and around the world played a key role in building our global brand awareness, while simultaneously educating a whole new customer base for Niu. All you have to do now is to head over to Brooklyn, and see how popular the Niu scooter in the Revel sharing program in the US is and how we are building culture for scooters, even in America. Now lastly, let me touch upon the China market dynamics four months after the implementation of new regulation. As mentioned earlier, the overall regional market has been uncharacteristically soft since the implementation of new regulation. In some markets, we have observed a market contraction by up to 80% since April when the regulation was put in place. This was partly due to the rush purchase before the regulation came into effect and part of it because the consumers do need time to adapt to the changes, especially adapting to managing smaller form factor scooters, and longer process of getting license placed. Additionally, we see a portion of customers are choosing to postpone their purchase as a way to see how the regulatory environments shakes out. We have seen signs of recovery in July and August. But the total market sales volume is still below last year at the same time. Due to the slow sales of the entire market, many of our competitors have had to close their retail shops and we see this as an exciting time to grow our sales channels. Despite sluggish market conditions, we have been taking advantage of our competition and reduction in retail outlets and their lack of products to meet the new regulations by rapidly expanding our retail footprint as more retail spaces become available. This strategy now will position Niu for future growth in 2020. Now, I will 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. 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 up. The slower sales in China was partially offset by strong sales from international markets, especially the newly entered markets such as the US and the South Korea. We shipped out 1500 units to the US market and 2000 units to the South Korea market during the second quarter. We have expanded our international sales network to cover 34 countries, compared with 23 countries the same period last year. We made a further entry into Southeast Asia markets. We opened a dedicated store in Vienna and we are in the process of setting up our own company in Indonesia, so as to further expand our business in the promising Southeast Asia market. We are very pleased to see that our products are welcomed in this newly entered market. Our international sales, has both 2b and 2c business, both have enjoyed a very healthy growth in the quarter. The 2b business, i.e., the scooters and accessories sold to sharing operators of fleet management companies is becoming sizable and contributed significantly to our revenue growth in the second quarter. Revenue per scooter was RMB5339, up 21% year-over-year. Net growth was driven by both higher proportion of international sales and a strong sales of our accessories, spare parts and services. The average scooter sales price grew 11%, driven by two key factors. First and the more important, the higher proportion of scooter sales from international markets where our sales price are much higher than the China sales price. In the second quarter, our international scooter sales accounted for 27% of the total scooter revenue compared with 10.2% in the second quarter last year. Secondly, in April this year, we increased the China retail sales price by 1% to 5% for selective models. So the retail sales price increase and high proportion of international sales, bolstered our average scooter sales price increase in this quarter. The other positive development in the quarter is the stronger sales of our accessories, spare parts and services. On average, for each scooter sold, we also saw RMB796 of accessories, spare parts and services, increased significantly from the RMB296 per scooter last year. The increase was mainly driven by accessories and spare part sales from international markets, especially those to the sharing operator who has to purchase additional accessories and spare parts together with the scooter. Gross margin was 23.7%, 8.6 percentage points better than this time last year and 2.4 percentage points better sequentially. Over the longer term, we expect our gross margin to be in the range of 20% to 25%. So we're happy to be moving close to our long term goal. Margin expansion was helped by favorable revenue mix. Ancillary revenue from sales of our accessories, spare parts and the services was 14.9% of the total revenue compared with 6.7% last year. International scooter sales was 27% of total scooter revenue compared with 10.2% last year. Both the ancillary revenue and the international scooter sales have a higher margin and hence helped our margin expansion. Also, of the total 8.6% margin improvement in the second quarter, we estimate roughly 4% came from the favorable revenue mix. I want to caution you that we do not expect this favorable revenue mix will sustain for the coming quarters when the China e-scooter sales begin to recover from the slow season in the second quarter. The margin expansion is also helped by our continued efforts to optimize costs. The cost of revenue on comparable basis further declined. We secured a cost saving on raw materials of 5% to 7% versus last year and 2% to 3% versus last quarter. We were able to negotiate lower procurement costs because of our larger scale and in depth knowledge of the supply chain. We believe this cost reduction as sustainable, and will continue to benefit our gross margin for the coming quarters Operating expense, on a comparable basis, increased in line with the growth of our business. Our total operating expense, excluding share based compensation, was 18 million, decreased by 14% year-over-year and was 15% of revenue below the 24% we saw last year. G&A expenses, excluding share based compensation, decreased by 47%, representing 3.3% of revenue versus 8.6% last year. In April 2018, there was a fire incident, which caused us damage loss of RMB22 million. After excluding this amount, our G&A expenses increased by 60%, mainly due to higher staff costs and related office and travel expenses. R&D expense, excluding share based compensation, grew by 79%, as we continue to emerge in new product development and design. Sales and marketing expense, excluding share based compensation, decreased by 9%, mainly because of the timing of marketing expenditure. In 2018, we had higher marketing expenditure in the second quarter because of our product launch event at the Paris in June 2018. This year, considering the impact from the new national standards in the second quarter, we limited our marketing spending and deferred sales and marketing activities to the third quarter. Our GAAP net income was 51 million with net margin of 9.6%. 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 667 million in cash and equivalents. Operating cash flow was positive 23 million. Cash expenditure was 64 million, mainly for building the new manufacturing facility in Changzhou and for expanding our retail sales network. Now, let’s turn to guidance. We expect third quarter revenue to be in the range of 600 million to 700 million. This represents year-over-year growth of 22% to 42%. We expect to continue to operate profitably in the third quarter. Please keep in mind that this forecast reflects our current expectations and could change. With that, let’s now open the call for any questions that you may have for us. Operator, please go ahead.

[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 not ready for production probably until later this year, Q4 this year. And the G1, we're planning to roll that out in early September and the price range on G1 is anywhere between RMB2999, basically just a little bit below RMB3000 to RMB3999. So basically in the price range of RMB3000 to RMB4000. The reason we launched this as a second brand and actually launched this product series, first of all, G1 is new regulation compliant. Second, we look at our product offerings, the chip is our product, it's actually Us, which actually had RMB3500. So we’re a little bit short in terms of the product in below RMB3000 and in a range between RMB3000 and RMB3500. Those are basically, what we call, the price tag area that we did not cover using a Niu product. But in order to get up, the Gova to get to that price range, while maintaining a healthy margin, we had to deliberately separate some of the functionalities between Gova and the Niu. For example, Niu is viewed as a smart electric scooter, it’s connected, where the Gova, we do have to strip down the connectivity parts. So this is what acquisition saying, the Gova is a product, which can be used to serve the mainline segments. But having said that, we do offer accessories, what they call a sky eye option, which allow users to add a little box on Gova to enable that connectivity. So that's the option that users can buy as accessory. So I think those answered the question on Gova and then I'll hand over to Hardy to talk about the final part.

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.