Zepp Health (ZEPP) 21 Aug 232023 Q2 Earnings call transcript

Hello, ladies and gentlemen. Thank you for standing by for Zepp Health Corporation's Second Quarter 2023 Earnings Conference Call. [Operator Instructions] 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

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

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

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

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

risks statements and uncertainties. inherent Forward-looking involve

from results uncertainties As expressed as are such, and fiscal filings report actual the information company's included risks U.S. XX, today. with on and the materially Securities in may December for and company's XXXX, the this other year the Commission. XX-F Further filed other annual views regarding and Form Exchange different ended be

comparable the financial and unaudited assume release directly not unaudited to reconciliation of as this applicable except well as conference contains law. that a update includes any required information does press company press financial any information call The of non-GAAP under GAAP most as GAAP that Please to obligation forward-looking the GAAP unaudited earnings release measures. statements unaudited also non-GAAP discussions measures note

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

earnings Health's to second quarter Zepp Welcome everyone. conference call. XXXX Hello,

single in a ourselves through moving a quarter, second our self-reliant heavily maintained for smart wearable shift and our revenues fact from our of the establishing provider. the as In health in care strategic and relied of away a transformation. on This customer model majority solution the successful business works momentum execution global we

market the gain traction by during While line. continue Mi heavily XX% smart-brand Band our apposite sales revenues products quarter-over-quarter self-branded to higher affected our top overall generating of decline, the XX.X% quarter and contributing rate were to

we In streams enhancing paramount. have that our space, to revenue transformative quality come recognize is this

undergone commitment around Our centering from strategy utilization transition marks product fixed growth has This offset our to to refinement, the attaining of - effectively the self-branded the attain profitability. sheer the pursuit costs. steadfast deliberate to a of sales company's

markets, our towards in strategic ventures shift gross of this our has Indian earth successful have ultimately sustained steer we particularly improve and profitability. us love approach back Notably, insurer vile converted to is the aimed profit. where been and incurring focus Chinese This in margin sources into

have We channels. strategically streamline mix product our refined our sales and

surged year-over-year pressure at margin highest quarter have level our second total seeing overall several the As compared same revenues of XXXX achievement even products. last year. This to the has we of Xiaomi gross in attained the face XX.X% and a result, period XX% to from most margin the since

development product optimized our recognition and has garnered and influence smart brand market. brand within have premium strategies, image marketing consumer the initiatives the have R&D, elevated device cost only spending posed ROI-driven These chain, but not increased significantly also efficiencies. Our supply our valuable our

competitors' than product a offer is adoption result, have price high-end regions. across segment, our we where and point features comparing various premium heightened experienced offerings. accessible growth and our the particularly evidenced a services more proposition delivering value in premium a As global products This

watches value is according X gross in terms an This margin. American for where with in market, North market NPD market top in smart true we to the increased especially our position capped the of

our coaching with Cheetah, AI-powered to series running June GPS plans. On adjust enrich users It experience of generate offerings a runners. the to light XX, positioning, optimize for our the preferences customers. Amazfit and runners our featuring dedicated can industry-leading smartwatch personalized continue we upgraded first to training design weight technologies to a to accuracy enhanced We unveiled deliver

model also rolled the feature to act last we out to generative to interactions users. in AI Leveraging an and technologies, chat for language coach facilitate Cheetah AI Amazfit

Additionally, updates. also we meet users fitness been have and through needs refresh better their to striving experience and lifestyle firmware

a users as our which we guidance. T-Rex cadence added to July training the our released On update as Amazfit such and X, summertime AI-powered sensors, newly as favorite their upgraded well added the enjoy long-awaited support with activities Coach feature wake surfing, for XX, allowing for popular kitesurfing major surfing, [waterproof] Zepp

We the have introducing featuring inch Bid large Fast, expensive enhanced our by ultra display. entry-level new product and X.XX line

cutting-edge of empowers complemented a by positioning intelligent users Bid With recognition location locking tracking with of device models possibilities, this over accurate satellite for the supports inclusion the range comprehensive system, XXX Fast and sports technology.

ensuring Moreover, with of a holistic it view and levels, capabilities at well-being. our XX-hours comes levels monitoring users stress pOX on bitrate

planning second several are products in half build Additionally, better their help features and we manage their health. more the how about excited users to are can new advanced

save We tuned. product for upcoming the details their will stay launches, please

enhancing Our users technologies of through across commitment offerings application cutting-edge is and into DNA. services our for our to built business products, our

to X more Amazfit products providing T-Rex, Amazfit [indiscernible] Cheetah. and T-Rex as As well through informative Amazfit as Zepp interactive, customized Amazfit users like experience our our AI-powered, Coach Falcon, now and is training

integrating to are at and games. will a products believe to We they inventory GPT users premium benefit cost also our will enhance low several these bottom into while contributing R&D our services line enjoy as We technology process also efficiency. our development

helping partnership learning has international a ability premium premium community. better [indiscernible] that XX Macias to Lastly, San the July our Latin product. our from and and Marathon XX, demonstrated [indiscernible] Cheetah sports manufacturer services smartwatch. reputation it running functionalities exceptional in where across of to This and to amplify Amazfit smartwatch introduced share Francisco a products, to our for In renowned more craft leading showcased as Amazfit the

post-pandemic present the we of CAGR forecast Looking in million the million XXX.X to XXX.X are prospects macroeconomy. shipments increase remain opportunities. company's challenging from smartwatch as IDC, X.X% global our about ahead, to despite in continues This to optimistic XXXX. According market XXXX huge to

we proposition value and products self-branded AI-powered with continue our to tailwind, grow. industry's As to expect we products the our to services provide hone

We will maintaining preventing control competitive cases, edge R&D our and product levels and optimize inventory and while to continue targeted long-term our in investment through marketing. pipeline building

return and forecast our Departed by chain ultimately, will supply our growth profitability a vertical these filling and to integrated efforts business are confident expansion we platform-based that efficient prompt margin and success. R&D,

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

and joining earnings our today. for Wang. Greetings, everyone, thank call you, you Thank

consumer categories could like results the foreign challenged our conditions to that as remains the what unprecedented competitors. The would have some returned participate exchange we factors among in and quarter In others. second from yet headwinds we persistently electronics consumer I of normal we metrics spending not review key such of discounting see our the second by quarter, the financial continue to subdued to and consider power, by of levels XXXX.

reduction in first continue continue for our retailers We where in expectation inventory with through we outpace of Europe this year, and tighten to to the quarter the consistent to half a saw particularly activations third up. in Asia expect selling, and the Pacific, channel

economic strength our perform portfolio Pacific. the brand Despite in climate for underlying to and helped offset well. continued this, demand, As Europe Americas the product and the in Asia impact tough of

Our XXX.X the range XX.X% second primarily decline quarter Xiaomi guidance attributed expected to for revenue amounted of lower RMB within sales. year-over-year, a to million

due in by deterioration largely bands smart quarter. the quarter, our products influenced limited to while introductions by Xiaomi-branded market experienced decrease declined product During mainly our during XX.X%, from self-branded new products revenue X% generated category, the a

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

ROI healthy. expansion As to and we our our are sales gross for self-branded channel a our Despite on brand brand, in products decrease revenue optimize for a oriented our the year-over-year Amazfit XX% continue gross slight product to Amazfit remained delighted to margin. make we margin our report remarkable portfolio, approach

impressive year-over-year Xiaomi played the gross during Notably, margin significant a since of This highest QX, XX%. in role overall a the decline XXXX, achieved we is products gross this level QX withstanding margin growth our has to have quarter. driving in XX% even an crucial

about performance the resilience and our faced, brand. that yield operations to This results. dedication market delivering our speaks the strength Despite challenges high of exceptional and optimizing our Amazfit we volumes outstanding products quality

be We're of half able confident gross new with should this that expand the to year, product even our the moderated second alongside as company momentum, for the positive of clearance further. margin introductions we activity, the well level of as planned

new strategic as long-term of amount company costs, a mentioned see to we're at have calls, pleased a both absolute look been total top earning products have we costs footprint terms as we let's a controlling expenses making past and as to percentage trend our XXXX, in their always growth. expansions priority the QX, for in remains operating technologies in still our fuel while Since sales. and of downward in investments Now

delivered In QX XXXX. managed XXXX, adjusted since rate and target level reduce costs to run the RMBXXX quarterly million, our operating to on successfully our QX, we lowest

R&D strategy. lowered by were efficiency expenses year-over-year quarter XX.X% driven second Our RMBXX.X based set million platform R&D our by to enhanced

remain edge. percentage costs strength, further to and R&D as commitment high long- term a our sales, still demonstrating However, building competitive at our of our relatively product a level,

RMBXX.X marketing every penny by million. expenses channels returns selling continue our reaching on prune we our As retail to to year-over-year, maximize and spend declined XX.X% we

growth a of invest were brand, in to We'll strategically sales percentage second our in marketing ROI-based quarter year. continue our strategy the ongoing as However, last to a X.X% versus of XX.X% at ensure success. and adopting

benefiting down control Second by million XX.X% expenses from RMBXX.X cost year-over-year, quarter G&A our were effective measures.

will to current investing expect fuel stance in and we levels discipline upcoming to maintain and on persist great with with while business the ahead, lower quarters, costs levels prudent at Looking our responsibly, growth. or towards our cost

margin Despite returning to a gross million in costs, XXXX. has managed issue RMBXX.X and QX, delighted in to I'm non-GAAP that loss we're to QX. about coverage enhanced profitability optimistic our cost narrowed share With net our QX, carefully in facing

cash ample opportunities. of priority deposits and June capitalize RMBXXX inventory Efficient and totaled level Now cash the for invest turning us. a nearly balance working remains as capital quarters. management runway us in providing for at sheet, reduced RMBXX to to potential XX, XXXX, the to QX, our and term million lowest equivalents several we marketing on restricted cash In billion

Despite we to a utilized coming to reduce managing carefully and order flow persist consecutive debt quarter. to in P&L in positive will so in our operations. QX, continue levels, We'll in operating sustained modest do fourth our for this the levels cash optimize loss We inventory quarters.

to the underscoring authorized and had out our we end repurchase the program to million million commitment November Board allocation of shareholders. long-term US$XX.X To By program. program. XXXX, towards our the recap share future, of and we our US$XX the worth buyback to turning buyback in QX up XX, in XXXX, delivering in Now shares reflecting intended to repurchased confidence in carry our value with our company's this June

Please from Regarding net our our sales revenue RMBXXX we overall profitability. macroeconomics that anticipate ongoing, consumer outlook global outlook weakness. of in around quarter-over-quarter us positioning QX, We to range margin for to markets, especially product growth key note return to continue million. self-branded achieve RMBXXX million the that in will to trend spending, gross revenue and this discretionary higher and lower reflects our expect uncertainties

carefully product as despite our faced product and - significant the second forecast our on efficient made upcoming implementing of self-branded with our well strides and as quarter, improving we're continued challenges, our management and gross continued product sales, costs expanding efforts. our levels In operating conclusion, margin, focus margin, cost inventory in launches. In proud new the during managing we enhancing we

that we in investors customers, shareholder creates doubt and a the my value value. continue We challenging deliver long-term. stronger over no that that on company period will substantial the to to track confident we're emerge this from remain for mind right There's as

may With the ahead. have. any now open for please go that, call Thank you. you I questions will Operator,

[Operator Instructions] Nicolette comes ahead. question [Brooks] go first Please The with you. Thank Jones from Investments.

my And management thank you taking Hi. I had questions. for three questions.

and QX? give, the expected then, could do the of in secondly, margin on see and in QX? Firstly, profitability could new And second And QX details half products what more then some you more finally, the the you. Thank on provide year? some the QX you trend details in you as

Thank you.

with the and I the think in gross and project profitability bit. new the will margin questions into go launches a I would start on I questions easy I would,

quite a we So, Wang look script well, that five value products where mentioned for in in example, product have launches, the our new as segment the watch, I launched, new if big which time take, mainstream line. you his is mean, a we actually product at few July/August

then, days GT famous going going going coming in for and of that in Mini the I also series launch we to actually products, think, well. are And new half will flagship GT launch year. which Berlin to a as are products, latest new And our we the then, our range to versions bear the our have in which launch famous with of the the we Sports new we're second are few names and me

So of way, frame, we new the as September, our many half which script is right? mentioned product second do on in we the October in have launches, the year, especially in

to Related that would the think QX for and margin to that, brings me naturally QX. I trend

mentioned see the you that can jump margin Amazfit QX. brand continuing this we self-branded in and clear as in think in numbers also our see I QX into QX and products, see, we QX, and we increasing our a

gross I is our margin range around our we of self-branded this calls, would way, to previous think and QX. So XX% rule-of-thumb in further given that the have in products. I our which new alluded I the in product number - QX improve we launches, products see for And in under for have a self-branded think the number

that's And profitability to have, then coming first your questions question. I you believe the

improve can a reporting margin, making to have a be you actually it on, still the have as that margin upcoming number years May. narrower mentioned, in the the level It's gross see we just small we one, are further quarters on go in loss of year. number expect the this se. per number the which past is clearly in We on to we into are -- this highest progress QX a XX%. not three that so to we more gross returned percentage, we XXth loss But I But

how alike same our to the the we're hand, quarter managed what demonstrated AI from the sacrifice past to million very other or or AI spending the we rate our And $XXX ChatGPT models do level, day-to-day company. from the in from we to be operating two, the one, prudent also push development which we R&D less approach our the a as a cost. of platforming did even growth process per we cut also the quarter. million are lower to going quarters. manage actually in the more using costs on work Number - benefiting we before future and also we run with on of in have on to more And not the Number actually a should $XXX

reliant CEO, company, mentioned, profitability on our much our So to we on sales, whereby of single very a this we Wang just of with on towards very and journey confident QX, are that sales justify what that big majority company our higher self-branded able a a type that our the we I should script a that the we will big on heading right? in product gross margin to be customer - also company based from cost, we're overall point, which a our lower in transformation breakeven alluded run rate prepared think

happening that and too want seasonality And I gun - QX. But the we be high confident is are next from see relatively to I here which don't of going to profitability quarter. happen QX, we is QX, we think then much. in that jump to And should given starting able return the

you. Thank

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

for three also my taking management have you, Hi. questions. Thank questions. I

specific Can for of you think overseas? in the more are What The share Xiaomi Health. what's the do is and first And August? your and is Thank the directions on about Xiaomi's seeing on situation potential one overseas year? of you. your partnerships forward? last the market. considering? products going you're with is what you And remainder for the And relationship in Zepp forecast July trend Any one about color new second one you

Okay. Thank you, Lisa.

So, questions. very good

with it start on third also me the let Xiaomi So your question relationship.

the has think of Xiaomi, think I very so term still company. have we the where stands but Xiaomi changed, this for lot so But at companies, the - ecosystem called with relationship over I Xiaomi. we a from good called, started time,

shareholders company. one, and remains for is have product two, of our one the changing with various as we number Xiaomi, that Number categories, biggest us. Xiaomi cooperation wearables the on of the So still not

noticed type embarked company changing from big a a the we situation. also reliance single a you, However, that from of on one journey, on transformation have customer

in own fixed our sales whereby, we put self-branded Let's or come we start a to good from on self-branded can dependent it a different its a way with, that OEM enough hope situation which more ODM type to right? - whereby to of a supplier cover our company product for cost to is is a situation products a

the think to self-reliance, quarters then Xiaomi six Amazfit reason reported of what also big was journey losses. I reliance then called a company just actually quarters, are our a so we going CEO transformation And on the have customer from we that go mentioned. of six through past And as part single to

the to continue relationship of cooperating gross So Xiaomi threshold bringing and the type we on product we return which projects. with is by do the very investment are actually risk clear strong, are to categories Xiaomi set Xiaomi, you So on on more with will it analysis right? a that profitability will be - strong, of and very where the assure our but on margin, we'll more

other partnerships shareholders, question end, with our is with them on partnership. or those our responsibility have projects, on work than responsible any we not due Xiaomi have the And company a right? also on your because have second mutual think - then whether we'll I regard Xiaomi. the to So, on that which in the benefit I to new towards And plans

BXB if the or if would not too comment have there's were always going a hear such the performance. then will on us materializing, first to relationship that our mean, from I which company your on making, is I IR overseas is the in in website. back come And there's to this. I market definitely much from plans I we think but you - question,

meantime, - portion revenues I aside the has Chinese dependence products, different we're it sales, characteristics a always think than a becoming been of the having self-branded our in sales China, on been a right? put small the which company's company, of is the Xiaomi in has overall making the or on

actually markets self-branded think I second of biggest - previous coming times calls, overseas of And coming this The Asia the has. company is markets To Pacific our international so-called majority part is many is the or out I've the from mentioned in sales the products that then, countries. Europe. coming of biggest out part

we And the we're third for is that our What also that of looking portion we of all in small these then of these whereby actually in in a and scale the mix out towards except and India remarks China, regions, United in profitability. that one States, QX coming markets at tapered growing coming out is from with prepared China. mentioned noticed we

for for first health the we so a is profitability So want overall profitability. positioned to manage that company

we're make to actually not or going step, growth profitable at we And can next to as - whether going - look the sequence. in that we're then to that

our are as very us positioned market actually see we - growth more for So market that address made unique well manufacturing that and presents production positioning demand in we a itself that - lucrative have capabilities and and we at big if have compete And because the can Garmin, a the we markets, you we China value of segment. to in overseas with which market look in U.S. the this brands Fitbit. China, like Samsung potential

our our year with NPD, we're market - to to a premium Garmin I United the meantime, to in share the or States. them according on then come in X% remember share I from which competing actually a company, the segment share third-party market according research And market and bit, correctly. has is XX% in up think if And think we XX%, high-end

gives markets performance and the a nutshell, that's I in I think is. feeling hope So you that a our for it international what in

you, Leon. very Yes. helpful. Thank That's

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

again Thank us joining you once today. for

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

concludes this call. the conference Again,

you. now may disconnect your Thank You line.