Q3 2019 Earnings Call
Good day, ladies and gentlemen, thank you for standing by welcome to the New technologies third quarter 2019 earnings Conference call.
At this time all participants are in listen only mode. Later, we will conduct a question answer session and instructions will follow at that time.
I know, we all recording today's call. If you have any questions objections you may disconnect at this time.
No I will turn the call back to Mr. chasing Yang Investor Relations manager of New technologies that Mr. Yang. Please go ahead Sir.
Thank you operator.
Welcome to todays conference call to discover new technologies results for the third quarter 2019.
Oh is being webcast from companies our website.
Her presentation on the replay of the call will be available.
I always on voice.
Please note today's discussion will contain forward looking statements made under the safe Harbor provisions of the United States Private Security Litigation Reform Act 19 in spot.
Forward looking statements involve certain risks uncertainties.
Assumptions and other factors the comped meals and actual results may be materially differ from those parts today.
Information regarding the respective included in the company's public filings with the Securities and exchange information.
And it does not assume an obligation to update I look forward to Damon.
Step as required by law.
Oh <unk>. This call include discussion of certain non-GAAP financial matters. The press release contains a definition of makeup and as a matter.
The Corporation GAAP to non-GAAP initial reads out.
On the call with me today, our CEO Dr. young Li and Seattle, So hard to John .
Now, let me turn the call over to yet.
Thanks, Jason Thanks, everyone for joining us on the call today.
What about third of gradual market recovery in Q3 being the traditionally a peak season off the year.
<unk> volume has increased by 24% I'd revenue by 33% Q3, well also you can so gross margin to 22.2% net profit margin at some 0.1 person.
Both were beyond our expectations.
We continue to fuel our leadership urban mobility via products and acknowledge development marketing events and user based activities and retail expenses.
First we launched our goal of product line with three products G. One Gee, we achieved by late September .
The goal product line beautifully designed but it was a different design style to expand our style diversity.
Well its products effects bias towards functionality to go a problem when I'm position as the value for money products.
So prices started.
2000.
My RMB perfect entry level users under the new trying to regulation.
She was shipped in late September on the GE three and she five were shipped in the October despite the market, where I'd how does it to a low season in October we have seem quite a bit demand.
Bottom line.
Second we have long talk first power system bicycle products, new arrow easier ones you submit list, but in November this year.
The new arrow easier what is the hybrid model of electric scooter on the bicycle combining features from both sides such as high battered from past the pedal assistance for longer range scooter level do suspension with sports bike wheels for better right experience and intelligent lighting sit.
Let's see.
So you'd be their wife classify as the electric bicycle Europe .
States and this is our first product to target and you more than 4 million units electric bicycle market into Europe and the U.S.
He'd be there will be manufactured in Europe , and the we plan to ship this product first top 2020.
Third we have also lunch hour Fuji P series, let the our newly designed MTT scooter together with the upgrade and GT and the Eugene.
He hurts is the design sell off or when the M series and combined with the GT powertrain technology.
He is the do pottery electric more pet wouldn't top speed up to 70 kilometer power and the range of 110 kilometers we target to ship this product first top 2020 as well.
Lastly, we'll also attended the 2020 CES in Las Vegas was quite a field revolutionary products to be lunch at the C. S make sure you do with the ARPU.
Besides power products, we have also enhance our fleet management solution does the hardware and software Soc solution without connected vehicles the fleet management software.
Dr. <unk>.
It's a one stop solution for older shirt operators and lead management businesses, we have supported sixteens, Jerry operators across 14 countries year to date.
No you, it's a leading lifestyle brands, but mobility I continue to enhance our brand awareness to both burden marketing and targeted marketing.
Understood that the most efficient approach to enhance the brand awareness through various marketing word of mouth.
Getting customers has the continuous improvement of customer experience engagement is essential.
In July would have yoda over new point system, our app users can obtain new points of view bears activities that milestones.
Deemed 0.4, new lifestyle accessories, such as T shirt mugs key change.
The we'd have more than 86000 users participating in the per well with over 5 million points distributed.
In September we also do though our new wash program.
User uptick a free wash coupon euro app and redeem at any of that 1000 stores in China. The program has the online for about six days and the we have more than 240000 coupons claim.
In September we also love to one month, new user referral promotions it was.
Existing users can receive you points by referring to a new customer.
More than 30000 users have participated in this promotion.
So those who went to unable us to engage our users more frequently online and offline and all those programs rely or directly into action with our users on the new Oh enabled by our smart meters.
The largest connected use their fleet globally with more than 960000 units, we have a match competitive advantage or any competitors in this market and that will continue to add more user into action features to increase user engagement.
Second being a lifestyle brand and with the fashionable design scooters, we are where you need position to go viral.
And the social media channels.
Besides the surprising celebrities bottom, we mentioned last quarter [laughter] pretty content, either internally well through our users to go by around the main social media platforms, such as we bought though we shot in China and Eastern Europe Facebook on you tube globally.
Our quarterly believe views across multiple accounts has increased from three millions to tenements.
For example, our love this is writing event abuse or writing put to bed also received more than 8 million views numbers.
Lastly, our 30 plus QL across Europe has also created more than 3000 pieces of content has received the more the 1 million views.
We continue to participate in matrix suspicions globally to build our brand awareness. We have attended Eva in Germany is September autonomy is frenzy October Tokyo Auto show in Japan, The October and the web submit you listed Portugal, and I come up in Milan, Italy.
November collectively we have received more than 100 media coverage, new is well positioned as the new by our ability to urban mobility in all those shows.
No supported by the new products, the hence customer engagement and brand awareness, we continue to expand our footprint by end of Q3, the number of franchise stores in China has reached 2020 covering 182 Cvs.
Our flagship and premium stores or Steve have also reduced to 20 by Q3. We're also very happy that we had our first flagship store opened in London, UK anomalous easily November acquity milestone for the future growth. Those two countries were also suddenly our dealer showrooms across the United States.
He's expecting to have more than 12 dealer showrooms from east coast to West coast by end of this year.
On the operation side, we have finished the build up our faced one off our new factory. The factory will be fully appreciate December and this will add additional 700000 units come pastie totally.
Overall capacity to 1.8 million units a year.
Lastly, let me give a brief update on the China market as mentioned last time. The overall retail market has been uncharacteristically lease up since the implementation of new regulation.
We have observed a significant market contraction you may entry in the market, where the regulations were strictly enforced.
We have also observed some bumps back in Q3, partially due to Q3 was traditionally high season, and partially due to the spew over after Q2 s demand.
We need to market quickly declined in Q4 as Q4 was traditionally a low season and the two market demand has not really bounce back yet.
The sluggishness will likely to extend to the Chinese new year in 2020, and we do expect the market will start to bounce back post Chinese new year as consumers began to get used to the new regulations and the money administrative processes, such like getting license plate our smoothed out.
Currently we have four models. The you plus you won us at the G. One complying with the new regulations for the electrical bicycle category in China, where our isn't an M series are classified as electric motorcycles.
Celebrating our product development effort expecting to launched several new product lines for the electric bicycle categories. In first half 2020 would believe those new products will put us right position when the markets start to recover next year.
Now I'll turn the call over to Hardy to discuss our financial results Hardie.
Thank you, yes, and Hello, everyone.
Fortunately its content order seekers and the comparison.
We have also absolutely no format speakers to our IR website.
Hi, David <unk> financial performance.
Demand that we're referring to the third quarter figures, unless I say, otherwise and that monetary seekers RMB unless otherwise noted.
As Jim mentioned, the time and go to market recovered quite late during the third quarter, even though at low paid.
Q3, two is water reached 149000 unit increased by 23 point about because that year over year compared with 13.8% in the second quarter.
And you mentioned of standard continues to affect the China retail sales market and the competition become more familiar with competitors lowering sales price to maintain their market share.
We are pleased to be able to deliver double digit growth with improved margin.
Our gross margin decreased 22.2% Petmeds Marty 10.1%.
Total revenues rose, 33% to 654 million in line with the guidance we provided earlier.
Revenue growth was mainly driven by volume growth of 23.5% as a result also recovering Tyler market and to continue this strong performance.
No market.
I want to highlight that our revenue growth mid quarter like high quality.
What comes receivables reduced from 120 million in the second quarter 262 million in the third quarter.
The customer if we had one.
In other words, the prepayments from our distributors was 44 million.
Second we maintained the hype about Marty as 22.2%, which is 9.8% higher than Q3 last year.
We managed to grow our topline require public of it.
All of this translated to our strong cash flow and increased the cash.
By the end of the Q3, we had cash deposit and short term investments of 919 million aggregate compared with the 667 million in the second quarter.
About 252 million to our cash balance.
Paul demonstrated to high quality of our revenue growth.
Revenue for this quarter was 4380.
7.4% year over year.
The growth was driven by both higher average price per quarter, and a strong fields such as their costs benefited.
The average.
Grew 1.5% driven by three key factors.
First and the more important to higher proportion of who the field from international market.
It was part how much higher than China.
In the third quarter, our international sales accounted for 7.6% hope to total scooter revenue.
Paired with the 5.1% in the same period of last year.
Secondly.
April this year, maybe increased China retail price by 1% to 5% for collective models.
Third.
Favorable change of product mix in China markets and this partially offset the two positive factors mentioned that's all.
The proportion obviously with water from them.
It was around 35% third quarter.
Compared with the 65% in the same period last year.
Then.
In general has higher fuel supply and therefore, the lower proportion of steel from two theory negatively affected our average sales price per quarter.
I would feel that three spare parts and services continues to be better stronger this quarter.
Average who each quarter. So we also saw RFP 524, hopeless equity partner for that.
Increased significantly from RMB, 278% looks a lot.
The increase was mainly driven by strong sensory and fair conclude in both China and International mine.
And also by the R&D service revenue from the development collaboration agreement, we signed a rate to be public real early this year.
Oh.
Turning was 22.2%.
5.8 percentage points better than this time last year, and 1.5% lower sequentially, mainly due to seasonality.
Over the longer term, we expect our gross margin to be the range of 20% to 25%. So we are happy to be moving close to our long term goal.
Marty pension was helped by three key factors.
First the favorable revenue mix.
Considerably revenue from fields of for centuries.
Services was 12% of total revenue compared with pick one 8% last year.
International Scooters field with 7.6% of Koodo scooter revenue compared with 5.1% last year.
Both ancillary revenue and international schools are still higher gross margin enhancing how our marketing pension.
Hi, However, lots of caution you that I would say would have a seasonality as Bob mentioned revenue mix will fluctuate from quarter to quarter.
Second the margin expansion helped by the price increase.
As mentioned earlier, we increased retail it was quite April this year.
Adjusted wholesale price to our distributors accordingly, such quite concrete contributed to the improved gross margin.
Third our continued efforts to optimize cost how commanding pension.
Cost of revenue on comparable basis for the decline.
We secured a cost saving on raw materials and benefited from the economies of scale yellow production.
We were able to negotiate lower procurement price because of our largest.
That knowledge of the supply chain.
We believe such cost reductions are sustainable and the continued to benefit our gross margin for the coming quarter.
In summary of the total 9.8% Marty mentioned in his third quarter.
Estimate roughly two percentage points came from revenue.
Another 2% came from price increase.
The remaining six percentage points came from cost reduction.
Operating expenses comparable basis increased in line with the growth of our business.
Our total operating expense excluding share based compensation was 86 million increased by 46% year over year.
Operating center as percentage of Red Robin were 13.1%.
1.2 percentage points higher than the same period last year.
The increase was mainly due to our marketing and promotion activity in the third quarter and also higher depreciation and amortization.
As result of expanding to retail sales network.
As you may recall that our second quarter earnings release.
The view that we intentionally postponed some or policy was in the marketing expenditures from the second quarter to the third quarter due to the implementation of international standards.
Therefore, the 1.2% this higher see within the maximum this quarter was mainly driven by the timing of the spend.
Well look as the first three quarters, Denver I want to attract incentive excluding share based compensation was 8.5% of total revenue.
Reviews by 1.7% compared with the 10.2%.
The last year.
We continue to see the leverage openings that.
In the third quarter rehab 12.6 million covenants Grand theft Auto Rich 5 million is a wonderful reward and remain as relates to our new factory expansion Chantal.
Our GAAP net income was 66.4 million with net income margin of 10.1%. We're 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 was 990 million has currently.
The short term method investments.
252 million higher than last quarter.
Operating cash flow was positive 276 million.
Capital expenditure was 39 million when they see mainly for building the new factory in Toronto, and expanding our retail seems network.
Now, let's turn to guidance.
We expect fourth quarter revenue to be in the range of 450 million to 515, moving this represents year over year gross 5% to 20%.
We recognize the challenging market environments, and we are working hard to accelerate the growth next year into each product portfolio, you, both China and international markets.
Please keep in mind that this forecast reflects our current expectation.
Could change.
With that let's now open the call any questions that you may have was.
Operator, Please go ahead.
Thank you Sir.
Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad and wait fear names relaunch if you wish to cancel your request. Please press the pound well the hash key.
Once again, that's star one on your telephone keypad on Wakefield aim to be lunch.
First question from the line of sight, Alex Walter.
Please ask your question.
Hi, guys. Thanks for taking my question very nice quarter I wanted to ask first about about the competitive environment given the new regulations, you mentioned a lot of the lower end competitors are cutting price in order to try to maintain market share you are in.
Creasing price are you did in April and it seems like your market share is increasing so it sounds like the pressure on the low end competitors must be rising pretty substantially if you could comment on your ability to continue consolidating market that'd be helpful. Thanks.
[noise]. Thanks outside I think that's a great questions. So what do we have observed.
Basically in the when the new regulation was in place into time to market.
They do to actually due to the sluggish helped as retail market.
We do see traditional players really slashing prices.
Hi, too.
Maintain the border.
We have seen fierce competition.
Im products.
Which used to sold at a 2000 RMB is now being sold out almost 1500, R&D or pulp and RMB.
Most of those products are still asset based.
At this point Theres still a one version of the asset base electric scooter that meet the the new regulation requirement.
50 to 60.
Sorry, It was 48 volt and 12, Mpower, let asset light asset battery based the scooters very nice very much looks like a bicycle type.
And most of the pricing competition is that that particular product line, where people competing really.
1500, RMB less than 50 hung RMB. So you look at that point that particular, Mark product and then markets second than that Prada is addressing two that's actually very different with our product lines.
Most of our run about with the exception the pergola.
Before it was a lot you even lower cheapest while new as there's a 3500 RMB and the goal was a 3000 R&D.
So we're actually address addressing soda leased the mid to high end of the entire market where that market.
To our extend really there hasn't really been understood all a price competition, there and there were a soda enjoying a more or less a a unique leadership there.
Okay very good.
Hopefully you mentioned, obviously that the gross margin holding up.
The nicely.
You mentioned that the raw material pricing.
Obviously, you're getting from procurement benefits because their scale rises.
The typically related.
Who battery procurement or is it across the board what raw materials in particular, you've got it.
Yes.
This is hardly having crossed the Florida, we do see the cost to decline and normally we see the body parts of the scrutinize decline anywhere between 3% to 5% depend on different components and the 14 tab.
As we sell through the battery pack with we see close to 10% decline. This is compared to the cost debate last year and even to set a quarter that we see slightly decline compared with the second the quota and sofa based on the current trend of its market over the supplying the market we do believe.
There's potential for us to further negotiate for this cost so that we can benefit the further the future.
Hope is on such a good question.
Okay.
That's great and that last question, obviously, you're generating cash.
What are your plan for deploying that cash that you're raising I mean that primarily into more sales and marketing.
New product development breaking into overseas markets what are your priorities.
Because obviously it.
Having a having a positive cash position and positive operating cash organized physician to be and I'm, just wondering how you're going to send it. Thank you.
I think thats a great question. So we're looking and actually any sort of cash were generally eventually it had to translate a trend form to translates profit.
So we'll look in the profit are coming really through three parts. One is actually continue to really accelerated growth from this revenue from sales volume perspective that means some part of cash will be invested in building out the retail expansions you look at.
This year were actually have significantly accelerate effort in the first half. This year two good up stores will also start to build up retail stores globally and that.
Each of store require.
Minimum anywhere between.
In China, it will be somewhere around 100, or sorry, 10000 us dollars versus global is above that 20000 euros ish of capex investment per store, but having that retail footprint is actually essential flat to build up the brand and also support.
The sales growth. So I think that's been part of Cashcall investing.
Seeing second yes, we do have put his passing to beauty up the capacity to support growth. This year you see we actually beauty up the new factory. This year to add another 700000 units of a new capacity and really to support a future gross and third part of its actually I think there.
There will be that so the first too many talk with a cap hacks parts it.
I think the last part is actually it's a cash or you can think portion of profit will be reinvested into the R&D such that we can continue to come up with new product lines as well the the marketing and branding expenses.
I'll turn the party the additional had.
Okay.
Okay very good thanks, a lot vocal cord.
Okay.
We have the next question from the lineup Ping Wang Please ask your question.
Hi, Hi.
I should have few questions number one the competition because we're going to neutral honored this mess Kathy.
Well, one producer has announced a 1.5 billion front.
Touching actually what's on the high end, so actually provide enough.
Okay, well run to six opinion, so quite a piece around four thoughts on the maybe so if they can do you actually had a high competitor.
So I just wanted to see could your view about is high and.
I'll touch on pace for only Yaki competitors.
One question and then mattress about due to expansion actually because in this quarter.
Q1, five deals established compare to a few hundred in the past several caught us. So I just want to know the reason why not.
Especially speed is going down because it's just to be the key driver for future growth and you just mentioned some in the cashless churn was able to support a theme expansion a lifestyle.
And what's the guidance for you and that's the second question about a good expansion instead of one it's about Dupont us. It's just mention the C. S class undue products.
Thank you also mentioned.
The new vice versa.
Perfect.
I was just wanted to check where does it.
Yes same put us.
Do you.
See I always sort of different took two different products.
That's a pretty much my question. Thank you.
Right.
Okay.
I think it's been great questions. So let me try to address one by one hopes that commit spending I think first of all on the.
But.
I think the market there. So there's nothing we can prevent other players to enter the market and the try to sell.
We'll try to attack or address our.
Mark is there but.
But you look at the IPO and the other competitors in this market I think.
Obviously, we have seen those competitors actually announce or actually commercialized high end.
Products and I don't think actually by simply beauty up a 1.5 million.
Hi, and the come Pastie will allow them to actually obtain that market share I think it's combination of branding having the right product and also having the right retail to actually to address that high end market.
I mean, so far we're still very confident I don't have exact beta, but you know you look I need some I don't city by city basis. It will move some of the Cds.
Basically you, let Luca price range anywhere between 4000 4000 RMBS up.
On the key cities, where almost holding more than 50% of market share.
So as really demonstration that.
The factor we are the heightening the dominant force in the throughout the mid to high end market.
So.
With the competition coming obviously, we're going to continue to also to ramp up obligations as well with new products.
Being out so let me address on the new product partner talk Murray two expansion.
So would you look at ups or how are we viewed up this distance and build up his team in 2015, 16, 17 that three years each year, but only announced one new product line 2018, we did about three and so far this year, we already announced.
Sure.
I myself right for almost five to six or seven right. So it.
I had a you plus U.S., that's too and we had the goal, but Q1 Q3 to five.
So those are commercialized and also the bicycle now that will also have the product ready to be commercialize next year, which with the new arrow you'd be as well as atg and the new Gigi right. So we really really up our games in term of getting new product development now for the C. S.
The two dilution above the coupled revolutionary product to be announced us yet are very different within with a with a new and serious.
But we will have a new M series.
Announced first half next year, but the product that was going to showing the CBS I actually different so and actually next year, where we're not just talked about three product I think you Luka will have water we have.
Kevin how I guess the number of product with developed in 2019, I think we're going to try to.
You'll all.
Basically I don't have the exact number in count.
But we can try to draw as many products.
As Pos was slow in 2020 with the basic with the ramp up R&D team.
And the lost money on the retail expansions.
Yes, we have slowed our retail expansion in Q3.
You look at our historically looked at 2018.
In 2017, Q3 has always been a very low season to open retail stores because the Q3 has been traditionally a very hot season for selling scooters. So it was actually it's very difficult to.
Who took more the stores so typically what the hockey's into open source. Our Q1 of the Q4. So we're actually try to accelerate our store opening in Q4 as well as the Q1 2020.
Thank you actually have a couple of questions about outlook and guidance.
Publicly yet whats the operating loss volume number I wish we should banking if you possible came back to about a oversee and China.
Especially in the China.
Are you brand and.
Right.
This is the.
No asking for the outlook for next.
Got it.
Not clear for sure.
Your next year.
Okay.
Wes rescue.
I think Republic, providing updates.
Going into it.
Yeah.
Okay. Thank you.
We have the next question from the line of.
And.
Hello.
Please ask your question.
Yeah, Good evening management.
Couple of a detailed question why.
Yeah.
The bike so.
Gee 14 nice.
Solvent and so could you please give us.
The breakdown.
For the and.
And also how much did you sell for Uh huh.
That is number one number two.
Thank you.
With that.
233856.
Compared with Q.
Thousands that tend to fluctuate so I wonder what type of recent.
That's number two.
Number three Q4, what's the plan for the store openings.
Thank you.
That's right.
Sure. So it's hard to let me first on until your first two questions.
For the mix between our product line had dimensions and end the top end to two series they account to around 35 of the total see with water.
And then the third quarter and Nicola accounted to around 5% of the total volume meaningful 60% came from our utilities. So this is the mix of the production in the second third quarter in terms of SPD normally we encourage you to look at the lower year over year.
Operation instead of quarter to quarter comparison, mainly because of the seasonality. If you look as to the U.S.T. from Las Vegas, either similar trend normally the third quarter has the lowest average ASP throughout the year and the reason behind it because the third quarter is the peak.
Voted on sales.
The slow it's a ceiling for overseas sales normally the fewest price of overstates products is more than double over the China.
Hi, so because of this mix of product you see there is the change in the ASP. So this is this is first the reason part of the seasonality second to it links to the first a question because of the change of the product mix in last year, our top models and they accounted for.
For around 65% of the total sewage water during that quarter. A late this year that percentage has refused to around 35% that those has an impact our average sales price. So thats. The two key contributors for the for the lower AMC compared with second quarter.
Last question on the retail.
Thanks for the fourth quarter.
Entrance comment.
So obviously, the Q4 hasn't really and yet so we still have.
The number of stores actually in construction and.
So I don't I wouldn't be able to give an exact number on by Endo Q4, what number store, we're going to have an open and I think there will be a combination of.
Theres some stores, we'll get through open December Osama store will get open actually.
January next year.
So.
Basically we're always looking at the Q4 this year and the Q1 next year.
Our sort out the the season when you open stores.
So obviously some sort of shift.
In Q4, some store maybe gosh it through Q1.
Yeah.
Okay. Thank you.
Yes.
Once again, ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be an arms.
[noise].
Once again, ladies and gentlemen, if you wish the asked a question. Please press star one on your telephone keypad and wait feeling to be announced.
At this time there no further questions I'd like to hand, the call back to your speakers for any closing remarks.
Okay.
Hi, Thank you operator, and thank you for participating in today's call for your support we appreciate your interest I look forward to reporting to you again next quarter our progress.
[noise].
Thank you Sir.
Ladies and gentlemen that does conclude our conference for today. Thank you for participating at you may all disconnect.