Viomi Technology Co., Ltd

Ladies and gentlemen, thank you for standing by for Viomi Technology Company LTD's earnings conference call for the third 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 Director of the company. Please go ahead, Cecilia.

Thank you, Aubrey. Hello everyone and welcome to Valmet Technology Call Limited earnings conference call for the third 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 are posted online. You can download the earnings press release and sign up for the company's email distribution list by visiting the IR section of the company's website at ir.valmet.com. Participating in today's call are Mr. Xiaoping Chen, the Founder Chairman of the Board of Directors and the Chief Executive Officer, and Mr. Weiqiang Cai, the Head of our Finance Department. The Cabinet Management will begin with prepared remarks and the CAO 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 Securities 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. All the information regarding these and other risks and uncertainties is included in the company's annual reports on Film 20F and other filings as filed with the U.S. Secret and Exchange Commission. The company doesn't assume any obligation to update any forward-looking statements, except as required by law. Please also note today's earnings press release and this conference call include discussions of inaudited gap financial information as well as inaudited non-gap financial measures. Valmy's press 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 an English translation. Mr. Chen, please go ahead.

other businesses to maintain a relatively stable growth. We are further optimizing in the direction of a full-fledged smart solution. The layout is full of AI and IoT smart family scenarios. Currently, we have set up more than 60 large-scale all-class categories. It is the only smart family industry to provide a full set of smart home appliances, smart homes, and software services. A full-fledged solution of smart solutions. In the third quarter, we will continue to carry out product structure adjustments, positioning the marketing and business channels of a technology brand and a big business. For this, we have increased our investment in product development, especially expanding the AI algorithm and hardware development team, and have accumulated talent and development reserves for our future product AI intelligent innovation and technology. The cost of development is 56% higher than the large-scale growth. In order to enhance the brand's popularity, we invested a large amount of advertising and marketing costs in the third quarter. Due to the large growth of research and marketing costs, there was a short-term loss in the third quarter. But we also saw a special adjustment and resource investment that brought step-by-step results. The main performance is in three aspects. The first is that the level of毛利率 continues to improve. The third quarter's毛利率 from毛利率22.7 to the same ratio and return ratio has shown a double increase. The second is that the brand's popularity continues to rise. Since the second half of this year, the brand's popularity and the active search of these users has been in a relatively good state. The third is that the channel structure needs to be diversified and balanced, and it carries the experience and service capabilities that we all need. Our overall business quality is developing rapidly in the direction of higher quality and healthier. Then look at the smart home industry and the consumer market. Combined with the data of the industry, we believe that the industry is experiencing four major trends. The other is the consumer's demand for home appliances is getting more and more detailed, especially the purification and cleaning of electrical appliances and the production of quality improvement products. The second is that the demand for high-end markets is constantly increasing. The third is that the purchase of customized products has become the trend of the market, especially in the long-term supply chain. Since 2021, users have been actively looking for smart home appliances. This is also a very important direction for consumer technology and consumer upgrade. Smartness has become the main trend for consumer upgrade. It is expected that in the next two to three years, smart home appliances and smart homes will become the mainstream market choice. Combining consumer demand, market opportunity, and company strategy, we have a brand positioning around the technology trend. In terms of product development, brand and channel improvement, we have adjusted and optimized. First, on the product side, we focus on the product strategy in three aspects. First, to expand the application of technology innovation and AI, through the improvement of product power, to improve the development of the brand. Second, from selling products in the past to selling solutions now, to provide customers with personalized and customized purchase solutions. The third is to focus on scenario-oriented innovation, improve the furniture category, and provide users with a more complete intelligent furniture experience. For this reason, in the third quarter, we have invested more research and financial resources into AI software, algorithms, and intelligent modules. We have seen a good market growth after the release of new products. For example, the AI air conditioner launched in the first half of the year, the high-end Sawtooth EDG 282 Plus, the high-end series of high-end detergents with a large capacity of 800 and 1,000 plus 1,200 gallons of Super series of high-end detergents, and the new Cyber series of washing machine products launched in September, performed very well in the sales of the third quarter. and help the company to improve the level of Maldives. We also carried out product delivery in the smart home version, and launched iLink 2T with AI face recognition. We are accelerating the development of high-end new products in the smart home category, and the new category will gradually appear in the next few months. Next year, we will also launch high-end AI smart new products in the category of smart kitchens, water purifiers, cleaners, and so on. Secondly, in terms of brand, We can see that the search engine and the search volume of e-commerce platforms have been greatly improved. Especially in this year's Double 11, we have a search volume of several times that of natural search, and there are more and more people buying from the mid- and high-end users. Our big data on the back shows that the number of users in the post-90s and the number of users in the new 1st and 2nd line cities Thank you very much. Fourth, We will continue to promote the channel strategy of large businesses and large stores in the line-up, open-source wholesale sales, experience-oriented shopping, and installation and sales of political service issues. The first-generation full-fledged intelligent new experience carries the brand positioning of the technology brand. For this reason, we will accelerate the expansion of the 4S and 5S flagship chain in the second half of the year. CS and 5S flagship stores will open continuously. In September, a 460 square meter Yunmi flagship store will open in Zhengzhou. In October, a 760 square meter super large 5S store will open in Shenyang core shopping district. Next, we will open our CS and 5S large experiential flagship stores in more cities. Then, these experiential stores will carry out the promotion, service and experience of the brand. Fifth, continue to develop overseas channels. Our overseas business is expanding from channel optimization, diversification of business models, and expansion of product range in three aspects. In the second half of the year, our channels will shift from the previously scattered distribution model to a more superior international agent. We have already reached a cooperation with large-scale famous agents in countries such as Germany, Russia, Malaysia, and Northern Europe, relying on their local channel advantages, reputation, and cross-border sales experience to improve our products' business quality overseas. At the same time, we are also trying more self-sufficiency models in the region. In August, we will set up a European Amazon branch in North America. Soon, we will launch products such as vacuum cleaners. In terms of product types, we will launch washing machine products and vacuum cleaner products with new functions overseas. In addition, we are also setting up new countries and regions to catch clean products for global growth opportunities. We have so far completed a very important step in the solution of the all-in-one solution, improving our product line and product layout. We are currently the only provider of all-in-one solution in the entire industry. We will continue to adjust the product structure of some products in the next stage. Stabilize the recovery of horsepower, increase the AI application of the product, consolidate the brand positioning of the tech brand, improve the sales and service of the package, optimize the operating quality of our channel, and bring long-term value and return to users and shareholders. Thank you.