This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Thank you for standing by for Viomi Technology Company's Limited Earning Conference Call for the first quarter of 2021. 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. Cecilia Lee, the IR head of the company. Please go ahead, Cecilia.
spk02: Thanks, Operator. Hello, everyone, and welcome to Viomi Technology Call Limited Earnings Conference Call for the first quarter of 2021. As a reminder, this conference is being recorded. The company's financial and operating results were issued in a press release earlier today and posted online. You can download Ernie's press release and sign up for the company's email distribution list by visiting the IR section of the company's website at ir.balmy.com. Participating in today's call are Mr. Xiaoping Chen, the Founder Chairman of the Board of Directors, and Chief Executive Officer, Mr. Shoufei Bao, our new President. and Mr. Wei-Tang Tsai, the head of our finance team. The committee's management will begin with prepared remarks, and the call will conclude with a Q&A session. Before we continue, please note today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. private security litigation reform act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the company's annual report on Films 20F, and other filings is filed with the U.S. Securities and Exchange Commission. The company doesn't assume any obligation to update any forwarding statements except as required by law. Please also note well-missed earnings price release and discounted fiscal include discussions of inaudited gap financial information as well as inaudited non-gap financial measures. Well-missed price release contains a reconciliation of the inaudited non-gap measures to the inaudited most directly comparable gap measures. I will now turn the call over to our founder and CEO, Mr. Xiaoping Chen. Mr. Chen will deliver his remarks in Chinese. Followed immediately by English translation. Mr. Chen, please go ahead.
spk05: to 12.6 billion RMB. At the same time, due to the optimization of the product structure, the profit margin continues to recover. The profit margin increased to 21.1 compared to 18.8 last year. Our continuous growth over the years comes from our sharp movement towards the needs of users, as well as the cross-border integration and innovation of technology, and the continuous optimization of IoT product governance and all-round solution solutions. In April this year, we held a strategic product launch conference with the theme of AI Help For, and launched a series of AI products. Our products are equipped with sensors. Under the value of AI algorithm, to collect data on the health of families and people. At the same time, we focus on resources and create innovative products that are differentiated and top-of-the-line in the industry. For example, last year, we launched a series of high-end water purifiers, including Super 1000 and 1200 gallons, and Wayson 1200 gallons, to achieve a huge volume and low waste water ratio. Our water purification team has spent more than three years of research, combining hundreds of billions of family water quality data, We have been continuously studying and conducting technical support in the family water supply area, and have accumulated a large number of technical innovations and patents. As of the end of the first quarter, we have obtained more than 700 patents related to water supply. Part of the technology and patent has been awarded to the China Patent Excellence Award, which is awarded to the National Wealth Authority and the World Wealth Organization. At the same time, it has been awarded to the recognition of power institutions such as the China Wealth Association. Our new business, the small machine business, has also developed rapidly, especially in the expansion of overseas markets. It has become one of the driving forces of our growth in the first quarter. Since the fourth quarter of last year, we have started to set up the development of small machines in overseas markets, which has quickly covered We also strive to enrich and improve IoT family solution solutions, provide increased services and content, including software upgrades, maintenance and maintenance, resale benefits, and entertainment and video content, and use our offline channels to enhance service system construction. We believe that offline experience and landing capabilities are key parts of the IoT home industry. Therefore, we have been actively promoting the offline Chinese service model one floor by one floor this year. We are very happy to announce that We will continue to build our growth strategy in three aspects. Through 5G, AI, and IoT product strategies, Thank you. Thank you, Mr. Chen. I will quickly translate our founder's remarks before discussing our financial performance for the first quarter of 2021. Hello, everyone.
spk02: Thanks for joining our first quarter of 2021 earnings council call. Leveraging the optimization of our product portfolio, new product sales growth, and enhanced brand recognition. We delivered strong net revenues that exceeded our previous guidance, increasing 64% from the same period in 2020 when our operations were impacted by COVID-19. Our growth margin recovered to 21.1% from 18.8% a year ago, primarily attributable to the product portfolio optimization. Our continued growth over the past several years has been driven by continuous optimization of our IoT products and holistic solutions through innovation and integration of cross-boundary technologies, alongside a deep understanding of our users' needs. This April, we hosted our strategic new product launch event with the theme of AI helpful, with introduction of a series of AI strategic new products, including the Mineral Water Purifier ELX, An AI smart toilet, iBot, equipped with sensors that is able to monitor human health data. An AI water heater, which is able to soften the water quality. New AI air conditioners, the Ranchwood iBot 2, and a gas stove with AI-assisted cooking functionalities. Our products are designed within healthcare, smartification, home security, and natural AI voice interaction. Some new products equipped with sensors and supported by AI algorithms are able to collect home and human health data with users' consent. In addition, we focused our resources on developing key product categories and rolled out more differentiated and industry-leading products. For example, last year, we introduced a series of premium water purifiers such as Super 1000 Gallon, 1200 Gallon, and Vision 1200 Gallon series. which realize large blocks and low ratios of waste and purified water. Our PhD team has been working on research and development for three years based on tens of billions in cases of water quality data to invent our mineral water purifier, ERX, which retains beneficial minerals for human health during the purification process. Equipped with nine smart sensors, this waterproof fire product is also able to adjust water quality to meet high-end users' needs. We have been endeavoring in the waterproofification area and have accumulated a significant number of inept technologies, with more than 700 registered patents as of the end of the first quarter. Some of these patents have been awarded a China Excellence Patent Award authorized by China National Intellectual Property Administration and World Intellectual Property Organization, as well as recognized by China Association for Quality Inspection and other authorities. Our swivel robo business represents rapid development as well, in particular in overseas markets, and has been one of the key drivers of our first quarter supply growth. Our Scraper Robo export business, which launched in the fourth quarter of last year, has developed rapidly in mid-Europe, Southeast Asia, Korea, Australia, and other regions, and has also expanded into North Europe and additional Asian countries this year. We are expanding to North American markets. We recently registered our store on Amazon and plan to sell on Amazon in the second half of this year. and will cooperate with some KA offline stores as well. In the competitive swivel robot market, we found our initial with our differentiated products. We introduced a series of automatic dust collection swivel robots last year, and recently launched an AI laser radar swivel robot, Alpha 2Path. Compared to the majority of high-end swivel robots in the market, this product, equipped with four laser sensors and supported by AI algorithms, for obstacle detection and avoidance, is able to identify various low obstacles, cover a wider range of end-use and distances, as well as map use and support OTA upgrades. We will continue to roll out more differentiated suitable products and enhance our market shares in both domestic and global markets. In addition to focusing on technology upgrades and product innovation, we also make efforts to enhance our IoT holistic home solutions and provide related value-added services and content, including software updates, product maintenance services, repurchase discounts, and internet entertainment content, as well as strengthen our service system based on our offline channels. We think the offline experience and the landing capabilities are the keys to IoT home industry. We have been vigorously promoting the offline comprehensive service model of one city, one store. We select high-quality stores in each region as our service allies and provide users with one-stop services, including sales, experience, after-sale, and installation services. With the rapid consumption upgrade and evolving user needs, users are keen on brands that are fashionable and of good quality. In order to promote our 3-5-1-1 long-term strategy and further develop us as the trending brand in our home area, we are pleased to warmly welcome Mr. Bob Bao as the company's president. Prior to joining us, Bob served as the general manager of Baymate. and has extensive experience in the consumer industry with more than 20 years. We believe Bob will bring new energy and insights to our branding development. Looking ahead, we will execute on our growth strategy from three perspectives. First, we will construct our IoT holistic home solutions through our 5G plus AI plus IoT product strategy. Second, we will develop related trends in improving brand influence in a position as the trending brand in IoT home solutions area. And third, we will expand offline stores to integrate scenario-based experience and services. We believe with the multiple upgrades of our products, marketing channels, as well as increasing popularization of home modifications, We will deliver sustained and healthy growth, maintain our uniqueness in the IoT home solutions area, and bring long-term shareholder value. So that concludes our funder's remarks. Let's now turn to the detailed financial review of the first quarter of 2021, as well as outlook for the second quarter. The net revenues were 1.26 billion RMB, representing an increase of 64% year-over-year, primarily due to the continued successful rollout and significant increase in sales of new products, overseas market expansion, as well as the low base effect of the first quarter of last year due to COVID-19. Revenues from IoT at-home portfolio increased by 111.5% to 919.2 million RMB, from 434.7 million RMB for the first quarter of last year. The growth was primarily driven by sustained self-increases for 13 new product series, in particular, the Valmi Branded Sweeper Robots and the Smart Kitchen products. Revenues from our home water solutions decreased by 4% to 103.8 million RMB. The decline was primarily due to the decrease in average selling prices of Xiaomi branded water purifier products. And this was partially offset by the successful introduction and the increase of sales of new sales of Xiaomi branded water purifier products, which narrowed the year-over-year decline for home water solutions compared to previous quarters. Revenues from consumers were 64.8 million RMB compared to 65 million RMB for the first quarter of last year. Revenues from small towns and others increased by 6.4% to 167.8 million RMB from 157.8 million RMB for the first quarter of last year. Growth profit increased by 84.1% to 265 million RMB and growth margin was 21.1% compared to 18.8% for the first quarter of last year. This is primarily driven by our efforts to shift the business and the product mix toward higher growth margin products, including the rollout of new Vomi-branded waterproof buyers and swivel robots, alongside the optimization of margin across product lines and cost control measures. Total operating expenses increased by 63.8% to 219.8 million RMB, primarily due to the growth of our business. R&D expenses increased by 10.7% to 65.6 million RMB from 59.3 million RMB for the first quarter of last year, mainly due to the increase of R&D experts and related salaries and expenses. Selling and marketing expenses increased by 110.8% to 138 million RMB from 65.5 million RMB a year ago. primarily attributable to the low base effect of the first quarter of last year due to the COVID-19, when the company entered very limited marketing and advertising activities. G and A expenses increased by 71.3% to 16.2 million RMB, compared to 9.5 million RMB for the first quarter of last year, primarily due to the increase of personnel and related salaries and expenses. Net income attributable to ordinary shareholders of the company increased by 173.2% to 49.1 million RMB, and non-GAAP net income attributable to ordinary shareholders of the company increased by 106.8% to 65.3 million RMB. Additionally, our balance sheet remained healthy. As of March 31, 2021, We had cash and cash equivalents of 906.3 million RMB. Restricted cash of 45.2 million RMB. Short-term deposits of 97.7 million RMB and short investments of 596.9 million RMB. Now let's turn to our outlook. So for the second quarter of 2021, we currently expect the net revenues to be between 1.72 billion RMB and 1.85 billion RMB, representing a year-over-year growth of around 2.1% to 9.8%. The above outlook is based on the current market conditions and reflects the company's current and preliminary estimates of market and operating conditions and customer demand, which are all subject to change. Well, this concludes our prepared remarks. We will now open the call for the Q&A session. The head of our finance team, Mr. Weiqiang Cai, will join the session and answer the questions. Operator, please go ahead.
spk01: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. For the benefit of all participants on today's call, if you wish to ask your question to the company's management in Chinese, please immediately repeat your question in English. At this time, we will pause momentarily to assemble our roster. The first question comes from Lillian Liu with Morgan Stanley. Please go ahead.
spk03: Thanks a lot, Mr. Chen. I have two questions. First is on the sweeper robots. What kind of growth we are looking for this year overall? Because obviously in first year has a very strong growth and momentum. And Mr. Chen just mentioned that we have the plan to expand the region overseas. And in second half, we'll get into the US on Amazon. So any particular growth guidance or explanation of how we're going to grow the business overseas will be very helpful. And second question is on the raw material price increase impact. Because first Q, we already saw the gross margin decrease on a sequential basis versus fourth quarter last year. So how are we going to look at the momentum or trend in the following quarters? Thank you. Thanks.
spk06: Okay, thank you for the next question. For the first question about the throughput robot, our throughput robot business grows fast, in particular in the environment-branded throughput robot, and we expect the rapid growth of all-branded throughput robots will continue. The domestic throughput robot market is an adjustable market, according to Aowei Yun's data. The market size of the cerebral robot is expected to reach over 10 billion IMB by 2021 and close to 20 billion IMB by 2022. There are more players in the industry, and we observe the market shares of new brands has been increasing since 2020, and this trend is expected to continue. We also found our niche with our differentiated products. including a series of automated dust collection SREPA robots and the AI laser radar SREPA robot we recently introduced. Under such a situation and the observation of the market feedback of our SREPA robots, we are positive for our market shares in domestic market and in the following years. In terms of the global markets, The market size is also huge and promising, we think. Per our research, we think there are a lot of potential opportunities, particularly in Europe and North America. We have sold our sweeper robots in Europe, Southeast Asia, Australia, and the sales growth of sweeper robots for this first quarter in overseas market is setting our previous expectation. Next, we will expand to North America markets. We recently successfully registered our stock on Amazon and we'll start to sell reputable products in the second half of this year. We also plan to sell our products on some offline channels in North America. With our expansion in North America and the additional regions and markets, we are confident that global market sales will become an important driver for our overall business. For the second question about the gross margin and the raw material prices rising, as we discussed, compared to 2020, our overall gross margin for 2021 would demonstrate a meaningful recovery. While we also experienced some seasonal fluctuations due to some promotional events, such as the coming June 18th campaign in the second quarter, which we expect to have some impacts on our gross margin. Secondly, the increase of this raw material cost would also be a factor that impacts the gross margin for the whole industry. As for this, we have taken some cost optimization measures to mitigate the impacts for raw material costs, including price law agreements with suppliers and some technical upgrades for cost savings. Third, we noticed the latest news that the government plans to take measures to control the raw materials price update. We expect this We expect the pressure from this increase in raw material costs to be relieved under the government's involvement. Yeah, thank you.
spk05: Thank you very much. Lily, I would like to add a little bit about this project. Because the current market situation of this project is relatively optimistic, so we have an independent BU inside. Okay.
spk02: So Mr. Chen had some comments. Yeah, I'll just quickly translate. So that's for the first question about development of our cyber robot business. So we have established an independent department for our cyber robot category, and we have been attracting the talent from our works of life from the outside. So the second for the development of our cyber robot business, within two to three years. So we will regard it as one of the key categories of our strategy. So we are very confident that this category will be one of the drivers for both our top line growth as well as to drive our profitability. Yeah, so that's the comments from Mr. Chen, I hope it's helpful.
spk05: Thank you, President Chen. Thank you.
spk02: Yeah, so we already have some internal plans regarding our silver robot category in terms of product and the establishment of team development in both domestic and global markets. And our aim is to develop the top brands in silver robot category.
spk00: Yeah, that's it.
spk01: The next question is from Wei He and Rudy Wei with CICC. Please go ahead.
spk04: Hello. Thank you very much for the presentation. And actually, I have two questions here. The first is about domestic market development. Since we know that actually the profit margin of the businesses with Xiaomi is quite low, and how the company plans to further promote the self-owned brand and the products in the domestic market, especially, I suppose, should be the water purifiers and the robotic vacuum cleaners. And the second question is about overseas. Like, are we going to, like, promote... More categories to overseas or currently we just limit the category to like the water purifiers and the body vacuum cleaners. Yeah, that's my question. In addition, in other countries, in addition to our water purifiers and vacuum cleaners, are there any plans to promote more types of products? Thank you.
spk05: In the domestic market, we are committed to promoting the brand of all-in-one, all-in-one intelligence. We currently have more than 60 types in this direction, covering home, China China China Recently, in the past six months to a year, in the minds of Chinese consumers, smart products, including the concept of full-fledged smart, have been widely recognized in the market. In this respect, we will focus on power generation. In addition, the water purifier and the washing machine are the two core products with better growth. Therefore, we have developed and invested in these products, I think there will be a big movement in the market. So I think it will contribute to the company's performance. It's still helpful. The second point is about the overseas market. The overseas market is mainly made by Saudi Arabia. The growth of this part is very fast. The overseas market will not increase more products this year. Okay, I will quickly translate. Okay.
spk02: So for the first question about how to develop our own branded business in the market. So we still put focus on developing our IoT at home holistic product portfolio. So we have expanded to like around over 60 product categories and across almost the whole home scenarios. And we also have some key categories in the SKUs that we aim to develop most this year to drive our branding influence. And the position as the trending brand in IoT at home holistic solutions area. So as far as we know that in the past half to one year, the concept of IoT at home quantification has increased in domestic market. So we are confident that we can have a better development in the domestic market with our advantages and the differentiation. So for the key categories, we think the water purifier and sliver robot business are still the key categories for us this year. And we will develop and invest in more R&D and marketing resources in the two categories. And we believe these two categories will be also the drivers for our top line. For your second question about the overseas market expansion, so this year we will still focus on the development of our sweeper robot business in the export market. So far we don't plan to expand the categories, but we will expand the global markets as well as the channels. and to increase our branding influence in overseas market in the своего robot category.
spk00: Thank you. Thank you, Sarah.
spk01: The next question comes from Roger Doolin with Needham & Co. Please go ahead.
spk07: Hi, thank you for taking my question. I have two questions here. First one is a follow-up on the raw material price increase. Can management give us a sense of just how much the raw material increased in the last several quarters? And do we have any plan to increase our retail prices like others have done in the industry? And the second question is around the pricing strategy for sweeper robots internationally. Is the pricing strategy different internationally versus domestic? And will that continue to be a margin driver for the year? Thank you. I'll translate it myself. I have two questions. The first question is about the cost. I'd like to ask the management team about the cost. How much has it increased in the recent few quarters? Did we raise some prices in the short term? Like what some of our competitors have been doing recently. The second question is about early adopters. 我们国际市场和国内市场定价 策略上有没有什么区别 然后如果有区别的话 这方面的区别能有多大 谢谢 第一个就是关于成本端 因为在去年的Q1和去年Q4的时候 其实成本端都在比较明显的这么一个上升 那么传导到这个Q1的时候 其实成本是有些上升 特别的Q2也是有变化 也是比较大幅的增长的
spk05: We mainly take a few actions. The first is to properly increase the middle price of some of our products. This part can be properly considered. Of course, considering the competitiveness, it will not be greatly increased. It is appropriate to consider the price increase to reduce some of this cost increase. This is also used by various brands in the industry. In this way, this will not shrink our product price competitiveness. This is the first one. The second aspect is that we We are also working hard to improve our sales structure. We will mainly recommend products with better hair loss, such as medium and high-end products. This is a major measure, including the washing machine, refrigerator, and kitchen appliances that we launched this year. These products have better hair loss. The products with better hair loss have better hair loss. Through this structural change, the cost of transportation will increase. This is the second measure. The third measure is that we will increase the proportion of our packaging. If we have such a product combination, we will make a set of sales. Then the set of sales will definitely be able to digest the cost of this kind of single product. Because when we sell the whole set, in fact, our consumers' price sensitivity and consumers' contact will be better changed. This is a few measures at the cost end. Then the second question is about this robot, such a project of this robot. Then we are in the whole category, we are all using medium and high-end products, such as our Qicheng and Si Mu Qigong, this kind of Alpha Plus, this kind of product, it is biased, our sales price is more than 2,000 to 3,000 yuan, this kind of position of medium and high-end, compared to the 1,000 or 2,000 on the market, this kind of biased high. We hope that the brand can give people the feeling that Okay, I will quickly translate.
spk02: So for the first question about impacts from the increase of the raw material cost and the impacts for our price since TRG. So we have seen the increase of the raw material cost increase since the first quarter of last year, and we have taken three measures to mitigate the impacts. So first, we have taken three measures to mitigate the impacts. As some other companies in the industry, we increase the ASPs of some of our products to some reasonable extent. So second, we also optimize the sales and the product structures. So we promote and sell more products with higher margins. For example, in the smart kitchen product, we sell more made-to-high-end refrigerators with higher growth margins. Third, we have been increasing the percentage, the revenue contributions from the bundle sales to mitigate the impact of the raw material cost price, I believe, for single product. So this answers the first question. So for your second question about the present strategy for our civil robot in domestic and global market, So we position our swivel robot as made to high-end products in both the domestic and the global market. So for the domestic market, so most of our swivel robots, the ASPs are around 2,000 to 3,000 RMBs. So that's about the average ASPs of some swivel robot brands in China. So we have some differentiated functionalities. such as a series of swivel robot that we introduced last year, which aims to the automatic debt collection. And this year, we introduced the laser radar swivel robot, which is also a differentiation for our swivel robot category. So for the global market, we also aim to position as the mid to high-end products for this category. So the average selling price is is above some of the global brands. So that's the comments from Mr. Chen. I hope that's helpful.
spk07: Thank you so much.
spk01: As a reminder, if you have a question, please press star then 1 to be joined into the queue. as there are no further questions. Now I'd like to turn the call back over to Cecilia Lee for closing remarks.
spk02: Thank you once again for joining us today. If you have further questions, please contact us through the contact information on our website or the PS&T Group, our investor relations partner. Thank you all. Have a good one.
spk05: Thank you.
spk01: This concludes this conference call. you may now disconnect your line thank you
Disclaimer