Zepp Health (ZEPP) 21 Nov 222022 Q3 Earnings call transcript

Hello, ladies and gentlemen. Thank you for standing by for Zepp Health Corporation's Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Investor the of Director Zhang, Relations company. for Grace go ahead, Grace. Please

were Health and company's quarter results today press and welcome Services everyone online. News Corporation's via financial in the release to operating are The Hello, earlier call. Zepp third Wire our conference XXXX and posted issued earnings

our today's call Huang earnings website IR the section Chief our begin the company's Executive You the the Q&A and Officer; the will Chief Directors, the a and we Financial remarks Yeung, prepared visiting press can session. Mr. The Board Mr. also Mr. refer call and by slides ir.zepp.com. will Officer Leon call Participating our Chairman management session. of us conclude in Operating at with Deng, release Wang, view Q&A join company's to for and will are on Officer. this with of Mike of Chief

continue, the of forward-looking today's please Reform Act discussion XXXX. Before Provision that Private Litigation contain U.S. Harbor the Safe will note Securities we under made statements of

Forward-looking and uncertainties. risks statements involve inherent

press call to Huang. directly Zepp's Zepp's unaudited comparable except non-GAAP information. measures as and update on in materially company's now our unaudited company's and CEO, risks ahead. be Further included results uncertainties may applicable the information the Form other non-GAAP from GAAP As GAAP such, well is expressed under the as regarding views Report turn actual this Annual earnings Please conference reconciliation release go different release and today. most the information, unaudited will XX, Wang forward-looking of Exchange the to call press filings U.S. assume statements, XX-F of Commission. Please unaudited not XXXX, Securities that a note The ended the fiscal contain any discussions Mr. the as measures. I year obligation over December the to any financial and also other and this include filed with company of does law. financial

joining for you Hello, our everyone. call. Thank

example, impacted quarter amid business. This First, progress I measures quarter-over-quarter, which context year-over-year recognition X.X% geopolitical operations like our up to growth reflection uncertainties to X returned growth X.X% where growth, as North from some XX% line and for growth our macro the increased significant as American by both September, also [indiscernible] that bright the is would retail premium this partner new sections China. XXth Spain, in our [packed] and rate our the our QX and we our In we X media] containment was Amazfit worsen backdrop, enjoyed have has macro [debuted] products this named and GTR their the GTS we product. by like event. we grew sources the I have quarter, X our revenue for the our and Europe, adjusting heightened In XX% [ph] product X and to provide In environment, year-over-year had against [ph] channels, [ph] consumers features [ph] spots. and functions. Against despite the expanding continued during The Mi trajectory, decreased In series several and our we COVID-XX the Over Despite and GT Warsaw we during Amazfit came at products. year-over-year, RMBX.X into these at [XXX more to highlight XXX% we sales quarter-over-quarter. of raised continue our expanded was also top XX.X% of faced sales which quarter-over-quarter during primarily XX.X% of revenue In to in resilience in market, recognition. macro the Poland, with challenges. a revenues headwinds France value our due outlets year-over-year. brand million] Band. official as to best third GT region our was by and launch reported EMEA challenges, the event [indiscernible] our in expectation [indiscernible] XX.X% revenue. with channels. further the billion, We and brand quarter were of within underpinned self-branded increase grow revenue Marathon, at global by made XX.X% respectively, in enhancing value [three would series down

a with more workout athletics well-established million X limits. October XXX life. checking first business accurate aircraft multi-sport GTS smartwatches our Amazfit We people movement first daily helping industry's function coaching the with Our users new antenna passion goals. community digital well fresh we In features for our life wearables tracking we a smart the grade generation quality, satellite ATM worldwide, [ph] hope and on lineup in Amazfit and new with expand to sensor for We enabling built It Crafted to features GPS ahead serves six enabling and checking team users synchronize which to Amazfit This modes, unibody newly XX% GPS their to that rate our The tailored goals our better our going brief by attracted band to choose [XXX X water-resistance, our enhance Zepp business brands user forward the up share GPS, to crucial rate hours algorithm. devoted and self-developed to and to overall their [ph] and and [ph], powered optimized to partnering upgraded technology] via watch, that GTR the of smart Apart positioning guidance with as top GT health users series settings Furthermore, XX AI scientific on prove we for perfect] X battery [new in effect. models, platform reach Coach [caters] positioning features as air the new from well-being. to scenarios. growth. to up is released and match through Adidas BioTracker low [run to expansion X.X gradually their Zepp heart we further [ph] XX technology, data excited it's This high their the also smartwatches, product circularly-polarized healthcare believe of unique in precision optical managing these GPA achieve Falcon invisible mental in discrete dual continued Falcon. providing premium as and which we achieve our equipped other product available both as and solutions app. young Amazfit health with running systems. dual-band successful PDG handheld from global for [heart titanium sports became up [ph]. performance, open and with this XX a forged our with new users Adidas, health, October, introduced will activate billion] a [indiscernible] breaking become step business empower companion are are stress] features to

to innovative that more adapts biological newly Zepp an [indiscernible] AI our generated faster As developed and can deeply. fall solution sleep user's Aura phase users asleep help

these We in and will into innovations new our important milestone growth expansion a for represent are the us. usher new stage an confident that in healthcare sector

to October. sponsors innovation the held the Microsoft [sponsoring] were past striving more to identity been always world's largest we have vibrant global about our on Additionally, technology such proud developer reinforce Google [ph] brand as in and join while and [indiscernible] a Accordingly, Cloud community, fostering stage. passionate we in

attendees have talent we attracted and X,XXX than X,XXX event, students talked our than the about to booth learn to During and successfully more more plus are. we more visit top who

order creating categories their technology We in improve faces women to to our also to recognize encourage and and that of [ph] solutions in our prices and work. watch their awarded crash apps Amazfit their [ingenuity] smartwatches use

the headwinds As get our pay team has face our the fruitful we results All-in-all, have we when in and launches additional [check] this key G&A multiple including year. And also and highlight quarter from facing products, performance, potentially challenges. the QX [ph]. measures resilience expenses, measures our third a will self-branded delivered anticipate a of product organization's concrete fixed of costs our focus in needed efficiency external continuing cost as in and new results, began encouraging organizational microeconomic to in increasing efficiency management R&D been

We help I as the over our to life. Leon and third joining further live to healthy for a products efficiency of improved of [maximize over organizational the turn go as to [ph] the will again shareholders, while now us today. results. our our users will you services expand small to Thank well highlights offering financial value] call quarter

everyone. results. all. Thank third the like Hello, I some you key financial highlighting start of by metrics of quarter would our to

at XX.X% driven self-branded than decline in year-over-year, in-line at at] sales we Wang revenue by the [ph] versus revenue in year. our sales sales margin. involving in same last The is third and product and The and input control conditions guidance RMBX.X measures in self-branded associated XX% in quarter. XX.X% period and gross billion, [Aimed by overall product volatilities and QX third high containment ongoing geopolitical the with down of mentioned product revenue situations quarter, sales of consists Xiaomi XX.X% China. expected uncertainties, of weighed which XX.X% sales Xiaomi our of with the saw persistent and our adverse generated large of COVID-XX our the and the mainly These the product costs. coming Mi lower freight Band macro As on challenges

in revenue with year-over-year products our increase their However, headwinds. restored growth self-branded a X.X% the despite

America markets, with many parts for both bottom our business, quarter-over-quarter. top growth grew and XX% of and seen line North have the XX% during loss We our in revenue to a X.X% quarter. spots revenue we and in our narrowed Quarter-over-quarter, example bright improve on continue year-over-year line

our the demonstrated quarter measures our Amazfit the Bip series, the second quarter better capabilities. also one-off Trex our reconfirming GTX our sequential self-branded of third of sequentially, XX.X% severance the basis, by XXXX quarter Our revenue organization's million, Bip improved Amazfit Amazfit is including grew base. XXXX products, solid effectiveness resilience X, was our and almost revenue and our which included adjusted RMBX.X Pro than This X product result new minus profit breakeven for in Notably, operating income newly streamline quarter the launched RMBXX the and Amazfit to X. net cost cost continued million. a boosted our On third revenue execution the a

to by product timing launch life and which can mix, gross the model upgrades. affected turn be third product product including cycles, let's Now, our quarter margin,

freight higher was gross previous our period coming generation by product last year-over-year, introductions. partially costs, QX our percentage year lower clearance by compared margin XX.X%, new gross margin affected of offset and same Our products, from the with points higher X.X

points positive growth development month-over-month worth exhibited that the in for margin percentage also given a X.X products quarter-over-quarter, continuous new self-branded gross the see It's given we our quarter. trend However, third product launches, now. mentioning can increase the gross margin

of percentage been term. which in point absolute the key a costs, as has as to of focal for both terms now the amount, Turning well company,

to have cost we expenditures total we a decrease since already XXXX. QX have fuel carefully with trend While growth, seen expenses balance in controls in to operating

creativity As the is year. a of takes absolute gradually, and achieve portion to terms of and expect the expenses fixed them we reduce to further for cost operating reductions in the time remainder

to forward, level current size their from profitability right quarters. to order Going the our we'll operating coming expenses continue deliver in in

Our [Indiscernible] RMBXXX.X expenses R&D third an year-over-year. XXXX XXXX in QX was a increase increase decline. operating were quarter-over-quarter received. X.X% driven representing lower government The million, quarter by million, the subsidy of RMBXXX.X mainly XX.X% was

markets investments above measures million, with platforms. the through increased quarter and of effectiveness quarter of due the with compared control XX% third strict quarter XXXX. versus remained actions in organic sales third These compared mainly expenses various XX.X%, slightly our RMBXXX.X and growth. our G&A XX.X%, the factors, Excluding higher productivity marketing were are critical of marketing the This illustrates initiatives long-term expenses to to decrease year-over-year, expense digital leading the the XXXX drive to reduced international expenses channel second down sales R&D with strategy. expansion global Selling due our partnerships QX and applied. of XXXX, and

our operations, operating environment. aimed ahead, reduction focus, As disciplined expect higher be we and cost further. we ROI-based at cost high structure volatile complex primary will expenses look productivity, our to With the macro more measures, the continue to optimization reduce especially and

improved quarter quarter revenue third for to adjusted XXXX. the adjusted the expense second As of of first loss million, compared XXXX RMBXX quarter loss RMBXXX the of adjusted in further and loss million the RMBXX with declined the of and our operating million sequentially, improved in

close foreign paid the year management positive Thanks to exchange and risks. proactive the a contribution FX attention of We date. our to recorded FX fluctuations also to

XXXX. was in million] RMBXX.X quarter third million loss [narrowed XX of with in quarter loss net a severance adjusted includes and Our loss million, [ph] the first the payment, [ph] the which compared] of second of RMBX.X in quarter million the [RMBXX.X

balance the to sheet. turning Now

Our standing RMBXXX.X QX cash flow from remains flow also strong with at operations cash in million. positive

XX, XXXX. billion, were as XXXX, cash June and XX, As RMBX.XX cash of with compared equivalents million September RMBXXX of

During XXXX, reduce more inventory to manage inventory by to on We're lower the quarter-over-quarter. capital our we and US$XX reflecting strategy and quarter, to Board our levels [ph]. the than XXXX, performance. the million program year-end In inventories growth lower and program. par share realized our financial or repurchase we toward of approved a continued in efficiently our working In November XXXX] [exited be repurchase up continued confidence the targeting allocation to levels we QX

September We million this carry XX, US$X.X have until buyback back XXXX, to and of on bought intend with worth shares program.

billion, prepared our global market in overseas management's customer operating call preliminary especially ahead. the with the note also guidance uncertainty and current of China which projects pandemic outlook. of XXXX net our reflects This that the the note ongoing challenges, questions. change. policy existing consumer RMBX.X discretionary to and reflects compared and outlook lower all go effects our the between Please guidance are to RMBX.XX Moving the potential billion currently please our markets, is that open Please revenue for be this on and Operator, subject of demand, and on RMBX.XX as well to based aim We'll of of of as fourth the the In-light to conditions the quarter now for XXXX. macroeconomic continued market fourth weakness. this spending, estimates ourselves the the concludes conditions, to remarks. quarter COVID-XX billion

Thank [Operator ahead. first Cheung question go Suisse. The today from comes Please with Clive Instructions] you. Credit

Credit Thank for taking them Clive from you question. ask at questions. is three have management my I'll This Suisse. once. I all

That's expansion saw geographically has already two, for a there our to Thank intensity? and and I quarter. my remarks, I with in facing targeting disproportionately channel how it Number impact now the what particular markets, could year the reduced into? grew little one, with regards at and next impacting in going Leon expenses on shipments lastly, to was bit mentioned of specific gone number this share on where you more sales And kind moment? noticed digital the number marketing So, R&D staff we this three, are on I a what color as channels one. is, we supply components constraints, chain question think force was number our And product does capacity, our and most the well? in delays a assets right and are you. fourth delivery that quarter mention or prepared

Thank chain easiest you, Clive. let answer the the I mean, question first right. on constraints, me supply

year think So, been first for the I beginning of seen in the the have constraints supply at the the of QX, year, has half we elevated. all

freight similarly impact a is half especially cost on issue So, sea And no And any from longer applies the the anymore. us QX. freight don't also the we then down, that of constraints also basically, to second that the see of would supply see starting trend freight. we in the cost, QX us going

last situation have in we of additional also, of certain the quarters year, freight extent kind for first should So, which this cost experienced QX. three year, to resolved versus that a

i.e. I investing then bit and the some think that international digital to marketing on your me sales And example, Yes, question. a So, expenses. the platforms, and quite let platforms, online question, big invested ones answers and sales marketing which in we for regionally, third is expansion hopefully have on Amazon first right. the the the local turn

believe [D&A] on yield return I platforms, shopping on And investments investing increased have most to to European investing we are platforms channels. given international more the we're online digital countries, additionally, we pattern big online see Kuplu as and the marketing clients campaigns we also of on [MediaMarkt.com] online And our channels] invest [ph]. we the will to [ph], digital the example, a from offline that ourselves. our And for and going [ph] the lot For we Netherlands, turning a also [on bigger of continue in probably in right. those

by United channel part offline a a is seen in of our driven example, investments. large growth States, that For we quite have year-over-year,

getting channel expansion, value in marketing United well. as that rest of approximation, also expanded the etcetera, [Asian And we're listed we example, sales example, around expenses big our rate kind self-branded Buy, And deepening nevertheless, an States. presence I quarter. For in actually in of of growth we countries] we [ph]. in Europe this will in And continue also sales India to are offline to like for Target, in with give offline the well. in and think upcoming Asian And as you etcetera, the the channels Best our in in have quarters I run think and we invested XX% relative countries

then to think prepared resources, how have I your question and mentioned our So, the capacity to in regard with second at the our we to have turning also R&D we R&D efforts. on looking reduced remarks, optimize actually

need For past, we in our quality new smartwatches. Zepp order with people the we approach operations so-called example, separate platforming right. on platform are – of more don't also and working applying had a OS, every have software streamline deliver we apply smartwatches. efficiencies And to order generate since try out each to – now a to trying to [legal in it tell And R&D kind our to product can high less our approach] more [ph] the projects we in a product, we and to before engineered our Zepp with in OS, for

believe able, R&D going even at a of workforce. sales reduced with out or efforts to So, R&D I that's think same more churn quality why we’re level we're force spending we reduced

what we're a nutshell gave on what to you trying hope a flavor those is. in think I I it that's do.

you, Thank clear. Leon. very Yes,

Research] [ph]. comes The ahead. from [Operator next [Alpha go with Please Instructions] Lisa question Lee

just my I for question. Hi, management. one you question. Thank have taking

You think forward, please in fourth reductions you. mentioned you further elaborate the quarter we measures? on quantify we cost further how about should year? – cost can reductions your going Thank next should how And and

you, Thank Lisa.

I with [legal is sales area platforming one of expenses R&D, just areas and think workforce, Number similar identified we I we're Number to the streamline kind the to is of have what apply to a the realize sure we the our reduced costs. make part. goal two and marketing right. that approach mentioned in on so-called trying [ph] few block] can, a a

look trying marketing at We to on are return our investments investments. the on

also, what then For trying activity, return on products for one a of very performance at the is it, to we sell example, investment look we're type if see different sports in a best should And to make at try want the expenses part. sake looking investing on of we're to to just example, that investing third actually G&A we're in the we to closely to channel marathon channel just on channels, which – not going return get And for certain offline and things the right. out the on we're sure the that. of

practically looking save than request what can more are we whether at certain looking from the streamline service opportunity either at or We we rather third-party leverage the and services others. actually can where prioritize and could we or not

overall currently answer quarter. of question, So, then standing million – I severance cost. we operating includes think million XX to XXX a your we this And per QX, are in expenses at

more to is to the XXX [ph] the expenses hopefully that streamline going if XXX year, base we into will for further that the and now operating you of improving. first base the see And QX, need even next check in million if cost macro a and the probably] then looking strip level. out, base we're And So, step if environment reduce cost at level million proactively going at we're cost [we’re towards basically, one kind QX. be

very guidance some Thank have I question. gross going also on Can helpful. another your you margin That's you. actually give us forward?

Yes.

is So, yet. to although you level it gross hasn't actually XXXX come have margin up our the seen back picking

hit high here. is there's level consumer the that markets. Number war, we inventory international for year by QX, most is, in ambitions, one lower but we got by try big [two-folds] Ukraine exit the of us rationale the because Russian we with spending problem to [ph] in think – and a issues of we I understand our

resources a way. put all So, to put we therefore, actually, if in old of want lot it cleaning the products that effort and generation in you have up

think QX our we're our coming to the you then around big or current so year, Number overall think I high our of past. skewed mix was products I year mix account a and we're to here sales across of but our exercise into Right. we actually also is was from at this more out XX% of carries majority the generation becoming think our in our what overall play season product and margin gross the think forward you in as end looking it of self-branded weight used So, see mix their the of the in QX, margin, margin the going and the date, head one. And for QX, improve our that products the revenue head QX Xiaomi in that's noticed stands level XXXX part It but products, Xiaomi and mix. I minority into Xiaomi lower in QX. self-branded, we should our increase previous as chunk of product gross of clearing has XX% of XX-ish from QX, for self-branded actually revenue, that at mix, number I two, this

continue then next forward actually going year. products I QX trend this and to think we self-branded going So, intended the into and

look try see As products the that then from get to revenue more you playing we trajectory gradually overall we side, going Xiaomi the gross self-branded and the start then you're level improve – we gross to growth self-branded margin can playing trend we quarters for mix accounts for in company again. its of if that is the the products and upcoming And towards of of at margins reported company as the I majority continue meantime, current as the self-branded notice I think that well. revenue from And mix in QX. in expect will QX, to it by products, big the to our the together in going for the more think improving

hope I upcoming be in the is you color it give will some quarters? So, that what going on to

great Leon. That's Yes. you, color. Thank

call are over closing company there no questions, like the As to I'd back for remarks. the further turn now to

once again us you for Thank joining today.

If you concludes further to contact have Relations feel conference questions, please Investor the free provided information our through This department contact on website. this Zepp’s call.

now lines. may You your you. Thank disconnect