Zepp Health (ZEPP) 23 May 232023 Q1 Earnings call transcript

Hello, ladies and gentlemen, thank you for standing by for ZEPP Health Corporation's First Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. Today's conference call is being recorded.

I will now turn the call over to your host Ms. Grace Zhang, Director of Investor Relations for the company. Grace. ahead, go Please

Wire welcome Call. Health operating The a the issued and posted and XXXX online. results First Earnings in News via release Conference company's press earlier to everyone, today Corporation’s are Zepp Quarter were services Hello, financial and

view press at website can this slides on release ir.zepp.com. referred company's also You by of visiting the and to call the the earnings IR section

the Wang, and our and Participating session. Leon Chairman conclude the the Mr. in Mr. our Operating session. Q&A today's CFO. Directors Officer; call call Mike Q&A Board will prepared Chief our Chief Deng, Officer Huang Executive management begin Mr. for are Cheng of will company's join remarks will a Yeung, of The with with and us

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

risks statements uncertainties. involve inherent Forward-looking and

company Further views XX-F included this company's company's uncertainties statements, materially are Report today. in be the ended actual other the and not and to law. Form and on December XX, The expressed may as such, Annual any filings with assume U.S. except forward-looking required year Securities under Exchange update Commission. As other results risks any from the information for the obligation and different fiscal the filed regarding XXXX, does applicable

unaudited of unaudited Zepp's information, most the a measures. Zepp's that information. note unaudited of contains non-GAAP financial earnings press include release GAAP GAAP also comparable reconciliation measures discussions conference well Please non-GAAP release this as and as directly press financial unaudited to the call

ahead. Please our I’ll CEO, now to call turn Mr. Wang Huang. the go over

million of RMBXXX call. you recorded from for the first business. million, ODM RMBXXX self-branded joining million with Hello, RMBXXX.X the products we In and our everyone. Xiaomi Thank our quarter, from revenue

spending to in Our revenue declined in Europe and U.S. and discretionary volatile cautious limited conditions consumers geopolitical as due total -- macroeconomic

Xiaomi the driver the will diminish and anticipate the growth quarters, further product in earlier mentioned ODM we thus in business our future. we that main As line the self-branded will become

a globally and Furthermore, Amazfit’s a presenting forecasted in in is the strongly term cause lines. half in opportunity RISC-V of vertical East capabilities gains our We products chip reduce profit the region. the during believe go-to-market product the the XXXX [indiscernible] automation during consumer long product year. to another we XX% in margins. that, gross build for enhancing expect the can recently Asia shipments increasing and share Southeast that maintained Despite macro market increase the value market experiencing progress awareness. made a our device and In leveraging the our smartwatch Asia along based quarter significant in brand potential to market OS product by with and headwinds all of the second decline with an costs integrated our subside drove our product quarter in market, will electronic optimism increase This We XXXX. in smartwatch strengthening we by sales competitiveness, of see higher first we by Zepp recovery improve and markets, and

us efficient high the our life. of with integrated R&D. most along end at profit Our similar competitors, premium margins cost in chain performance this all products longer but a fraction the This offer to help supply and of and higher battery revenue generate

into to enhancing while increased in market $XXX segments We management supply and expanding premium sales our segments our will profitability. chain the $XXX secure position for and channels

in confident as more achieving margin to level. our towards implemented, am now the the inventory a will that overall quarter. we I achieved future current new products in thrilled enhancement improve With share remarkable XX.X% these remain optimal a have that margin We the walk

the in technology advanced grade LLM OpenAI our our traditional in AI competitors most watches Emphasizing By review market. industry. position watches. technology Moreover, the of than trailblazer as by implementation the ourselves rapid does a utilizing rather that generated powered from sports apart

version of Zepp GPT provide For such personalized example, chat been Coach as Zepp Amazfit we as chat capability, Coach function by mentioned Powered an products integrating pioneer technology in XX, the Aura. for and AI with its Zepp chat launched Zepp services recommendations. and and evolving Coach better our abundance into exercise Falcon constantly learning we updated quarter, last powered and can we have On industry user. March AI the users

recent outdoor have that have development But mid both leveraging product to high the AI include community we implemented and end by and the and not sectors. user and outdoor creating in [indiscernible] for in technology, and This of distribution, positive had in our only reputation thriving further and supported organic athletes, [indiscernible]. also we has brand quarter posted [indiscernible] the resulted builds strategies refreshed generative spread which sports growth and the word-of-mouth a outdoors in In communities marketing sports of market.

we mid gained result, premium in to also As future. in low a profit the higher driving market, have end the brand margins

product expand aiming on to to design, more diverse offer with have product T-Rex [project] sports received technologies, also modes. plus materials products Amazfit to our lifestyle [indiscernible] needs. sports Alongside we fairness, (ph) cutting outdoor been different QX, It and feedback portfolio In premium ultimate we outdoor equip our XX. XXX and edge [endeavors] our health positive smartwatch adjust the our March Ultra, (ph) cohorts, striving from its for launched to GPS

bring planned the users. product for exciting the other features have to year one more to aiming ahead, We

recovery These enhancement making includes X example, our reliable smartwatches and For May Amazfit firmware for released automatic heart the and improves slope indoor update companion smartwatch. X a temperature, fitness significant It altitude, analysis. activities. on slope we T-Rex water rate [indiscernible], user experience outdoor information, the for

right recovery performance in will the enable months coming markets our in we have some environment the That the us in sales our sustainable And few is economic past solution strategy quarters. become as to company's the shareholders. an to it remain economic and strengthening deliver Nevertheless, For a healthcare other described certain in path aspire factor, we global confidence markets. in consumer value and the seen confident users potentially said, incremental to growth leading uncertain provider we leading signs fragile to many our believe of and this remains XXXX, we above.

for Thank I us joining over turn financial highlights you will of quarter results. first now go again the today. to over the Leon call our to

Thank you, Wang. Greetings, everyone.

quarter, consumption dampen metrics the in and due RMBXXX.X macroeconomic global was you first to me guidance revenue some results. down mainly key XXXX The quarter of our quarter. Let walk first million recorded decrease the within In the first range through our year-over-year. financial XX.X% we discretionary uncertainties that of

the band lowest the [indiscernible], basic QX is quarter basic subcategory X% seasonal of to in more of wearable typically than quarter. including as our I financial more global basic by smartwatch year. value Also, According decreased market And first times band, the watch specifically, XX%. lost mentioned the and a before, the few

diving we financial to like COVID-Zero disrupted macro a The Before factory the to experienced first shift our environment. overview closures. due the would in the our performance, into China's brief launch quarter, product I In provide a scheduled of Policy. new reopening

the services the that time, a product release of had pandemic. of negative we consumer they subsequent of which At same spending the travel was of Especially to has as a the consumer away enjoys QX the sales. the rather postpone lines As impact during activities new from as our has result, on goods were our quarters, to deprived swung tippet. pendulum some and and toward some

quarter. the line headwinds the brand sales our in Despite Thanks in we product and The particular, some top in electronics drive these products we of year. in grow Wang consumer our geopolitical in the mentioned the confident our the encouraging experience space, to of pressure our the quarters. second consumer on as markets during the of which XXXX, electronics mentioned, achieved continues Europe, markets our to during to about matter, and the wearable this Despite of our enhanced America first growth to in remain softness in ability features, optimistic year-over-year self-branded risks self-branded coming to Europe. with smart further above, start value market remain half together challenging global products just the recovery quarter North

such margin, timing be launch various upgrades. cycles, on model including which to product factors mix, product life our gross product Moving can as and by influenced

further the for combined its off by XX.X% Xiaomi and the year. gross margin of launch the we As optimizing new product quarter. will continue first sales [channels] portfolio, significantly our lowered channel gross our and our X.X% overall declined to multi-year for higher products margin and margin ROI for factors We expand the the believe self-branded quarter, to Meanwhile, gross our previous of the margin oriented gross of approach versus down products result self-branded ROI low products X.X% strategy. year-over-year quarter took of Above our margin -- drove healthy. remainder in with our products relatively a in remained products the (ph), pulling as pricing and

look reflecting quarterly further we footprint operating a reducing good run a expenses, trend decrease year-over-year a our XXXX, let's while absolute to in to a In product, still their of operating total Since costs, past and at long and progress in the a strategic costs RMBXXX.X mentioned we expansions forecast Now cutting term in investments fuel in have been to percentage of our remain rate our technologies of and terms a made quarter-over-quarter main of million, QX, making new expenses XX.X%. always calls, both have successfully sales. company, amount we decrease earnings our in growth. see toward as XX.X% for our expenses pleased decrease by as QX

million, in expense is years. RMBXXX.X which operating decreased past GAAP level the two Non to lowest the

by of expenses As quarter percentage operating decreased adjusted points our first revenue, X.X a year-over-year. percentage rate

enhance non-GAAP in in manage continue our turnaround XX% to the significant from coming around RMBXXX Targeting coming million a expenses a quarters, represents in as in forward, decrease manner efficiencies. of RMBXXX Going quarter XXXX, the and aim our run operating we million a of rates in the we'll which approximately average quarters. to disciplined per cut more for profitability to or expenses or our lower

year-over-year million, worth of we nearly R&D as in technologies our year-over-year. our that investing in were investing operating committed mentioning opportunities new enhance declined by higher growth. R&D our to we R&D remain Selling our is decreasing strategy, carefully by was sales million, to expenses users. future XX.X% Spending as from enhanced account offerings XX.X% it marketing QX still in ROIs half also while and total for review efficiency, expense investing expenses with XXXX RMBXXX.X our by fuel channel RMBXX now to Benefitting our for

long QX XX.X% strong control cost million lowered measures. XXXX, versus in X.X% were XXXX and due in million, compared delayering million down We with by RMBXX.X and by QX G&A RMBXX.X RMBXX.X organization expenses QX, to our our growth. testament to operating term benefit progress our believe execution that is by expenses, in decreased and strong a narrowed capability adjusted optimization loss XX.X% cost Thanks to year-over-year. our will operating

the fully scale However, our smaller impact cost and the Xiaomi gross during did reduced lower revenue offset products margin quarter. for not a of

adjusted first first million Our loss net in XXXX. quarter of versus a RMBXX.X RMBXXX.X loss quarter million of in the the was

our investment capital as million by we QX (ph) thanks Simultaneously, the our to product bottom performance. other and income will to and to our such (ph) line improvement loss our comprehensive line an enhance to efficiency. include related loss, expenditures incurred specifically sales working cash [SIFY] leading our by ultimately investments, personnel bottom control more [RMBX.X] by company. dedicated generated strong, implementing a continue areas refining margin While optimize our travel policies pricing expenses, costs our gross XXXX to we're in our measures, targeting Despite cost flow strategy revenue, management remains both

positive have three cash operating XXXX. flow since QX quarters We for consecutive sustained

restricted an and to Now as balance cash equivalent, of RMBX March XX, million XXXX. were December billion, turning as from deposits XX, sheet, and RMBXXX the term XXXX cash of cash improvement

our our RMBXXX continue QX confident our the our RMBX In end to the the Board precise management a by of end the remain million billion lowest reduced year inventory level in business we we approved allocation the in to past we the towards XXXX, $XX As further in of is the program at execute continued up quarter six million XXXX. strategy, we And as from repurchase to share balance In inventory repurchase quarters. prospects of longer XXXX, term. November program. the the it

March intend carry back program. and of end XXXX with We buyback of on have the shares bought $XX.X we million to this by XX,

quarter our of discuss ongoing geopolitical guidance projects RMBXXX the outlook. net between light billion RMBXXX to second for our of let's of million million, challenges, macroeconomic currently and Now compared be to for the and the In quarter XXXX. XXXX second RMBX.X revenue

especially we year mentioned said, self-branded end weakness. the our Furthermore, markets XX% positive this spending, discretionary around in may lower Please global products us. the as we signs our and macroeconomic back to release contributed note international ahead be outlook roughly and some we will somewhat continued of the products. expect consumer XX% That revenue of We of the have by reflects in second that lies uncertainty new much be gradually loaded quarter, as seen year last quarter. our

I that, please go questions. Operator, open up with for And would it ahead.

you. Instructions] First with session. Thank question-and-answer Jones Please [Brooks] question [Operator from the now (ph) begin ahead. We'll Investments. comes go Nicolette

you for taking my questions. Thank

So I have three questions.

region? in please some a can ask by And the bit in Thank factors revenue the impacted the about your discuss Firstly, remainder trend And of products I'd if revenue understand then you like lastly, second you you. the I'd the margin margins can beyond? secondly, quarter like and in breakdown that provide to on more year? the and of first outlook color quarter self-branded to

lot a it's of Yes, questions.

start let first question. the me with So

product I on and for think think the product around QX outlook Correct? sorry, margin ahead self-branded us. revenue it's it's self-branded the of I -- quarters

Yes. Thank you.

Okay.

just by of XX% that going million revenue, QX for I as our looking think is our there's we contributed of going around products. at as out guided, Now were And be roughly self-branded the range. number, and we then to million -- which RMBXXX to RMBXXX revenue be to XX% we

be X.X at that, essence, to is our products. you self-branded sorry, out which revenue number So that of If a mid if year. that revenue, XX% And over going be self-branded the second is we're take last I products same grow of million. versus start to around, RMBXXX think period going is correct, that indicating there, to quarter let's actually number take our would going in number, looking to be is the -- the

by start quarters, revenue product. change Xiaomi especially revenue revenue. QX, to trend few a actually of we more self-branded trend think a -- driven started revenue you'll see that of a QX few think ahead, And of more this return, have we're the we take mentioned and But going rather of seen I generated a trend. actually to majority majority our after the shape than QX, be this is we have a ODM this starting see our that to company already sales of I consists year, is And into solid you still deliver past, ODM transforming help a in margin. the -- is us kind you have portion will to looking times have self-branded going in Well, products. higher of gross to Xiaomi in small products And sales to mix already

(ph), So naturally into is outlook. I on margin which your that second [quarter] think goes the

is mentioned a quarters, our think And around largely self-branded year-over-year, have previous to because first over which the past of if for starting million is, now trend QX of worth right? we're carried -- sales products equivalent one year our consecutively things already call And think a in margin what the seen which which self-branded quarter the sell and balance try into you in higher is that, still old in gross few we products, into coming overall years, some right? that think it inventories quarters the sales outlook gross from to you this is from to new gross a in in why and I that have just like at are we XX%, the quarter the was the this see -- perspective, I our would have that's we previous we seen flat already we I past. I for we prepared sales inventory, this QX, one us, that's we margin and our our to still margin off, inventory also product past of But have dramatically quarter put six of RMBXXX decreased out the the see out remarks, already have which we in year. sold than is we product progressing in recover, lot generation

coupled QX the which We as and products the margin to high self-branded shoot plus inventory, the our season of up ultimately well is product ultimately shape its take margin QX. two the in clearance end of the think of and see more newly the QX launched now, into to or and quarter overall going And in I which to and right gross products, going continue or less come to of gross with in as QX improve old QX. is self-branded

question. your I second think answer that should

remember revenue And your region. the by it's breakdown if about third question, I clearly,

mentioned sales big of dominant our and is have very in we the position biggest we for actually the our for example, And many around market countries. times products stands in for think in for those Europe. of several Spain I overall hold countries, revenue self-branded European self-branded And us. that that region share XX% Italy, a

So we in as Europe, for as our traditionally very well Apple competitors, and for of the the Samsung east expand awareness Europe, a -- countries especially to in example, brand will part the and continue in premium like brand. strong

more cetera, You're and like et et right? looking countries cetera, at U.K., Germany

actually the States countries we been And see apart operating one opportunity a of North have think U.S. growth the and in from can regions give because Europe, we United I quite us also which -- as America in U.S. five market our we and than developed players ranked towards years among top close ourselves for zero already roughly from share That's two the in -- have to market the years, less two XX%.

U.S. third to And ASEAN Europe. region the countries. the is us after up think I push continue biggest for sales So will

group Asia an actually important our as we and then Malaysia, they them of at the looking and revenue. part countries. And of These, play self-branded Pacific You're Japan, Korea also Singapore India. one

China also look China. not play by the China smartly to is try in but we want scale because to think quite we in the rather the And in selling have a fierce, smartwatch premium than our there. competition especially certain unique compete think the at is And profitability products in But I in position selectively least, China and over to last I price premium the domain. segment,

would together, revenue self-branded going that view on So where to for you all products. this hopefully, push year's a give we're for

very you. Thank That's you. Thank helpful.

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

Thank you I questions. for taking question. two my have

that you very new one is margin strong for your first The mentioned on just products. the

RMBXXX You said behind secondly what the And question this there drivers And is quarter, to -- of run the you I in I'm have your first talks first I second the this think expenses, But adjusted basis it was coming in further noticed RMBXXX performance? a number? XX% quarters. expenses are the around quarter. wondering are just in adjusted operating any target the on -- upside million reached on rate around it think million your of about operating the on total I basis. the the

conservative you a your this run are And bit little being So target? rate you. is currently? on Thank what

Yes.

try the easy me let to ones. answer So

run to get going that's Because the of a be the probably with are is start back then right, longer margins. expenses, Lisa. Let's to rate Yes, story here. the I'll little bit you

million look XXXX our So quarterly rate, were around RMBXXX expenses at run the per you if we and quarter. XXXX

expenses a the into lot day and management play R&D, actually is the is one which operation. of So our this marketing of the day to focus adding KPIs altogether, up the key right? G&A So, sales plus

we that’s with our to So our things. we number (ph), line and our one, the in at try definitely scale. streamline and it’s revenue workforce right? We [search] get done workforce So look try have personnel, at it we our we to then actually look a few

one which the past definitely we in that's did the So quarters.

or more to less coming I think an end. that's

part. on save, expenses return is look second ask a thing marketing example, it makes one could that? did people we or we the we which And by looking twice not at ROI way a what's last example based expenses in the we is traveling, on to R&D campaign discretionary at spending for on cautious And investment the that for is on so did our be And return to always look times sense or approach. little bit called three more what in, the and whether whenever we on

are at lower sales platforming coach, expenses so We translates cost delivery of R&D integrated we look expenses, and lower and try vertically lower OS that overall products, more into our marketing applying chips, on to our everything all lower right? G&A and a whereby expenses. the and together called So a

target just the at And quarter, run a have we're you're operating for we we more yes, still run that, achieved around little is than right, probably mentioned of have year lower in And And per that target million for as rate that million have quarter per achieving have think push a be by RMBXXX rate the looking our for what to have already number. and And we're this -- million think in remarks, last I – we applying looking then of moment, quarter. for number at quarter, I our of still like going million we to run for RMBXXX a prepared expenses described, we guided bit rate RMBXXX we that approach right? RMBXXX But year. over delivered RMBXXX at this essence I more this room quarter.

question achieved the margin I at have for a of by targeting range, so one type three as these so which different T-Rex want is in deepen watch are use on now. on price development watches a offer our our Apple large. called competitors. we these think also and to this functionalities And the want the and right? with these versus product and to we are watch -- type generated actually a outdoor increase our great actually -- consumers, marketplace And and our of at traction drivers. of watch ASPs at watch use through different Ultra product similar going our the like and [Qualcomm] a Number which called to few we the we and our first have these one series, Number competitors, lower looking of which there we is, year, have supported spots actually and these we Garmin portfolio these lines, And reputations to we actually those know, to margin want our watch is are type functionalities relatively then right reputation and for sell your we that, back out -- of on gained are this building products you overall

number as effort integrated And two mentioned a actually well on chain the I what now supply just the is chips, as applying vertical R&D OS and altogether. the

And called past, to XX our single we money you So approaching But then platforming platforms, R&D, you are dramatically. going and deliver you in hardware In essence into a landscape a and software user than at same the platform, one XX cost if functionalities past. have right? reduce the much to time, in spend the scattered the actually experience everything then better need times. your if

is competitors the like market think I those Xiaomi, and integration there. a to have we through able fierce but gain other $XXX should which there, share edge range. competitive over second we think a also between segments with over vertical and and of I a Huawei, should lever brands, a in pure that price part Which be better there's player, integration, competition vertically So $XXX like our

the lower Number bottom share and tier price watches. system and the we ASP Apple platforms increase on the vertical our actually to so is So integrated gain and from use increase at from our Xiaomi, that top on Huawei our points, the Garmin is to guys. number the market everything at can competitiveness and guys Samsung premium one two to

our future. hope view. altogether, the that should a for we're margin to our gives how Now the that you in on be path I gross increase products going

Yes, you. it did. Thank

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

today. you joining Thank us once for again

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

may you. your You Thank disconnect now lines.

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