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spk00: Hello, ladies and gentlemen. Thank you for standing by for Viomi Technology Company Limited's earnings conference call for the first quarter of 2022. 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. Cecilia Lee, the IR Director of the company. Please go ahead, Cecilia.
spk04: Thank you. I'm right here. Hello, everyone, and welcome to Valme Technology Co., Ltd. earnings conference call for the first quarter of 2022. As a reminder, this conference is being recorded. The company's financial and operating results were issued in press release earlier today and are posted online. You can download 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.valme.com. Participating in today's call are Mr. Xiaoping Chen, the founder chairman of the board of directors and chief executive officer, Mr. Wei-Tung Tsai, the head of our finance department. The company'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 Legislation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results made it 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 Form Term F and other filings filed with the U.S. Securities and Exchange Commission. The company doesn't assume any obligation to update any forward-looking statements, except as required by law. Please also note, wellness earnings press release and this campus call include discussions of inaudited gap financial information as well as inaudited non-gap financial measures. Wellness 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. Follow immediately by English translation. Mr. Chen, please go ahead.
spk01: Hello, everyone. Thank you for attending our first quarter phone call in 2022. In the first quarter, we achieved a sales income of about 7.1 billion RMB, which is in line with our previous expectations. The sales income has also declined, mainly due to two reasons. The first is the high sales technology of Xiaomi Saoli in the same period as last year. This year, we have completely stopped Xiaomi Saoli's business, mainly focused on free brand sales. The second is that we have been under the control of the epidemic in various places since this year. In the first quarter, the market consumption dropped, and the demand for the entire industry also decreased significantly. In addition, in order to create long-term product competitiveness and brand popularity, we continued to increase the cost of research and marketing in the first quarter. At the beginning of 2022, the number of our research dollars increased by 47% in 2021, mainly due to the expansion of AI and algorithm teams. As of March 31 this year, smart products, wireless network, active intelligence, spatial perception, and natural interaction, as well as design, OTA, upgrade, and plus member system, and increase business, and other four types of services. Currently, our one-stop smart solution has achieved step-by-step results. This is due to our focus on product innovation, improvement of service system, and expansion of the strategic channel of full-size smart. First of all, at the product end, we use a larger AI-based We are going to launch more new products, including the new air-conditioner Space Pro, which has the core power function of Mars, as well as the 2,000-carburetor water-cooled Super-2, AI mechanism interactive screen, Royal Pro series refrigerator and washing machine, and other products. The continued growth of products is inseparable from the continuous accumulation of our research and talent. Our research and development has also gained the recognition of industry and authoritative institutions. Taiwan Taiwan Taiwan Taiwan Guangdong Province to set up the Guangdong Province Doctor's Office and get the selection qualification of the Guangdong Province Doctor's Office. In the future, there will be opportunities and universities and professional institutions together to cultivate top-of-the-line talents in the industry for the society, and restore the comprehensive development of the industry to promote intelligent furniture. Second, we shared with the mayor in the last performance report that we are based on a solution for all-encompassing systems for different types of families. In the past two months, our high-end set-up plans have been rapidly growing. Before that, our online stores have signed more than 200,000 to 400,000 full set orders from Beijing, Guangzhou, Changsha, Hebei, Kunming, and other places to achieve a transformation from selling products to selling solutions. In addition, we have deepened the cooperation range with Jindong Logistics to strengthen our Chinese and European services that plan logistics, warehouse and installation. In addition, our package-based solutions from product design to installation and delivery have improved the efficiency of all networks, which also allows consumers to enjoy better social service capabilities. Third, we see that the development of fully automated technology has extended from the industry to the external channels. The smart ecosystem based on family scenarios is gradually forming. Our strategic cooperation with the channels is also further upgraded. We reached a strategic cooperation alliance with Tianmao last week. Both sides will build AI smart kitchen, AI smart living room, AI smart balcony, AI smart bathroom, AI smart bedroom, and AI smart environment. In April, we also collaborated with Jindong to create the product of the Jindong peak of 420. According to our strategic cooperation with Jindong last year, We have recently selected China Telecom Digital Ecosystem's leading partner through channel integration to jointly promote the full-fledged intelligent coverage of tens of millions of households. We are also promoting strategic cooperation with other channels and enterprises to play our leading role in the solution of the full-fledged intelligent solution project and contribute to the intelligent ecosystem of families. In addition, although the progress of our offline large-scale large-scale stores is affected by the pandemic, some of the local shops have slowed down in the construction and opening process, but the overall progress is still within our expectations. We co-operate with offline stores to create a large-scale, long-term, clean-up-like cloud experience store in the middle of the crowd, providing the local consumers with a perfect smart home, smart housing, and service of a full-fledged smart solution. In our overseas business, due to the impact of the international war and the decline in consumer power, part of the consumers have lost their clothes. We have made some substantial progress. We have cooperated with Malaysian and Vietnamese agents to expand sales in these areas. The online self-sufficiency model continues to expand. As for the commercial part, after the online Italian Amazon self-sufficiency store, we randomly launched German, French, and Spanish Amazon self-sufficiency stores. Our Alpha 2 Pro sautéed chicken received good reviews from European consumers at the top price. Our sautéed chicken is the first to come out of the sea in the first quarter and will expand sales this year and next year. In the second half of the year, we will focus on four aspects. Increase the innovation and creation of AI products. Enhance advertising and marketing. Enhance the brand position and popularity of the technology brand. Continue to optimize our product structure. Deepen the channel. Implement the offline strategy of large business and large e-commerce. Improve the experience of consumption and long-term development of long-term brand value. We will also carry out stricter and more rigorous discount measures and cost control. Thank you, Mr. Chen.
spk04: I will quickly translate our founder's remarks before discussing our financial performance for the first quarter of 2022. Hello, everyone. Thanks for joining our first quarter 2022 earnings conference call. In the first quarter, our total net revenues reached 712 million RMB in line with our previous guidance. The year-over-year decline in revenues is mainly attributable to two factors. First, this year we cut off the selling of Xiaomi Vapor Robots, which had a high prior year base for comparison. Second, since the beginning of this year, owing to the widespread COVID-19 recurrency and strict pandemic control measures, market consumption decreased in the first quarter, along with stock demand industry-wide. To strengthen our long-term product competitiveness and brand awareness, we continue to invest in R&D and increase marketing and advertising. As a result, our R&D-related personnel and experts at the beginning of this year grew by nearly 47% compared to the beginning of 2021. Primarily due to the expansion of our AI and algorithm pattern pool, As of March 31, 2022, our accumulated global patent applications and registered patents reached 5,232 and 3,142, respectively. Furthermore, to support the release of our new products in the first quarter, we launched a large number of elevator and print apps, promoting our trending technology branding positioning. Our investments in R&D and marketing to spur long-term growth, caused a temporary lose in the first quarter. However, we also noted an increase in sales contribution from our premium products thanks to the increased investment in R&D and innovation. In addition, we further improved our operating quality through portfolio adjustment and strict manufacturing cost control. Our growth margin for the first quarter increased to 26.3%. Again, representing a year-over-year and quarter-of-quarter improvement, and demonstrating our enhanced product and brand strength. At our strategic new product launch in early March, we rolled out our upgraded one-stop IoT home solutions, 1N44, which includes our whole home product volume for major smart home capabilities, such as automatic networking, active intelligence, spatial awareness, and natural interactions. Our four additional services for our users, namely smart home solution design, OT upgrades, a plus membership system, and value-added services. Our upgraded one-stop IoT home solutions has already achieved solid initial results, thanks to our focus on product innovation, service system improvement, as well as expanded self-channels for whole home intelligence. So first, with respect to our products, we have enhanced your active intelligence through innovative AI applications. We introduced a series of new high-end AI products that were launched in January and March, many of which have received favorable market feedback and reviews, including the royal series of AI dishwashers and our AI sperm-based control interface, Home Pet Lab. More of our new products will be on the market soon, such as our all-space AI air conditioner Space Pro, the 2,000-gallon large flux water purifier Super 2, an AI laser interactive smart screen, and our Royal Pro series of double-screen refrigerators and AI twin tube washing machines. Our ongoing product innovation will not be possible without our growing and talented R&D team. Our R&D achievements have also been recognized by industry and professional institutions. In April, our AI RAN2's Zero Detection Model Technology won the Excellence Award at the 23rd China Patent Awards. Also in the same month, we took the series at the 8th Guangdong Patent Awards which won it our Water Purifiers with an Integrated Waterway Model Technology. Furthermore, Development grant was added to the key trademark protection list in Guangdong province. Our hardware R&D, IoT, AI, and algorithm team is also expanding with an increasing number of PhD talent. We were just listed as Guangdong PhD workstation by the government and have obtained a selection qualification to establish a Guangdong post-doctoral workstation this year. As a result, going forward, we will have greater opportunities to cultivate top talent for our society, incubate smart home programs, and promote overall development of the smart home industry in cooperation with universities and professional institutions. Second, as we mentioned during our last earnings call, we have improved our bundled smart home solution offerings based on our one-stop IoT home solution and recently launched a comprehensive, highly customized design solutions for the premium market. Over the past two months, those of our premium bonded smart home solution offerings have accelerated back to life. Our offline merchants recently signed new home solution audits ranging from 200,000 to 400,000 RMB with customers in Beijing, Guangzhou, Changsha, Hebei, and Kunming, successfully shifting our business from selling products to selling solutions. In addition, we depend our cooperation with JD Logistics to access a broader range of services, including planning, logistics, warehousing, and installation. This enables us to improve efficiency throughout our cycle, from solution design and delivery to installation, as well as provide our customers with a more enjoyable after-sales service experience. Third, we have expanded our strategy partnership with self-channels that smart home development continues to extend from industry to external channels and smart ecosystem based on home scenarios is taking shape. Last week, we reached a strategic cooperation with Tmall concerning a portfolio of one-stop smart home solutions. Together, we will promote a whole home smart ecology with an AI smart kitchen, living room, balcony, restroom, and bathroom. Furthermore, in April, we cooperated with JD.com to host the WellMe for 20 JD Day and introduced new whole home smart products on its platform. Finally, after forming a strategy partnership with China Unicom last year, we were recently listed as one of China Telecom's top digital ecology partners, promoting channel integration and bringing an intelligent lifestyle to tens of millions of households in China. As one of the first movers in one-stop smart home solutions, we will continue to promote partnerships with additional channels and companies to jointly develop the smart home ecology for families. Despite a diverse impact of the pandemic on our larger store-bought merchant offline strategy execution with certain degrees of delays in our store opening and furnishing, the overall progress was still within our expectations. We joined hands with offline merchants to build large, immersive, warm, external stores in shopping malls and K-8 stores with massive bulk traffic to offer local customers a complete set of smart home appliances and services with a one-stop solution. As to our overseas business, despite the effects of international warfare, weaker consumer spending, and inventory backlog of certain distributors, we still achieved substantive progress. First, we reached a collaboration with international sales agents in Vietnam and Malaysia to expand the sales of our slave robots in these regions. Second, we continued to broaden the online presence of our self-operated stores. After launching our self-operated store on Italy Amazon in March, we opened self-operated stores in Germany, France, and Spain Amazon. where our Alpha 2 Pro sweeper robot was well received among European consumers. And third, in the first quarter, we launched our smart white and dry vacuums in overseas markets, and we continuously expanded sales over the next year. In the second half of this year, we will continue to focus on four perspectives. So first, we will strengthen the product innovation and develop key AI apps to use. Second, we will increase our advertising and marketing investment to strengthen our trending technology branding positioning. And third, we will streamline our product lines and optimize our product portfolio. And fourth, we will enhance our sales channels and execute our larger store, better merchant outlier strategy to lay a solid foundation for elevating consumer experience and developing long-term brand value. Together with stricter and more disciplined cost and expense control measures, We will deploy these tactics to support healthy growth in the major long term and remain committed to creating value for our customers and shareholders in the long run. That concludes our funder's remarks. Let's now turn to our detailed first quarter 2022 financial reviews as well as our second quarter outlook. So for the first quarter, Net revenues were $712.1 million RMB compared to $1,255.6 million RMB for the first quarter of last year. Net revenues were in line with our previous guidance. In addition to the overall recurred consumption environment, the decrease was mainly due to two factors. The first is the complete cutoff of our selling of Xiaomi Brand New Silver Robot this year, as well as its high prior year base for comparison. and the second is the continued product portfolio adjustments for margin extension across product categories. In detail, revenue from IoT at home portfolio decreased by 60.8% to 360.2 million RMB from 919.2 million RMB for the first quarter of last year. The decline was primarily due to the complicated of selling Xiaomi's brand new robots and the continued product portfolio adjustments for margin expansion in other categories, both of which also contributed to the overall growth margin improvement for allocated home portfolio category. Revenues from home market solutions decreased slightly by 2.6% to 101 million RMB from 103.8 million RMB for the first quarter of last year. The decline was primarily due to the continued product portfolio adjustment involving a decrease in small-flux water purifiers, which was partially mitigated by the increased sales contribution of large-flux water purifiers. As a result of the product quality judgment, the company once again achieved year-over-year gross margin improvement in this category. Revenues from consumer booths increased by 10.8% to 71.8 million RMB from 64.8 million RMB for the first quarter of last year. primarily due to the increased demand for the water purifier filter products. Revenue from small businesses and others increased by 6.7% to 179.1 million RMB from 157.8 million RMB for the first quarter of last year. Gross profit was 187 million RMB compared to 265 million RMB for the first quarter of last year. Growth margin increased to 26.3% from 21.1% for the first quarter last year. Primarily driven by the company's continued efforts to shift their business and product mix toward higher growth margin products. Total operating expenses increased by 15.9% to 254.8 million RMB from 219.8 million RMB for the first quarter last year. primarily due to the increase in R&D expenses and the selling and marketing expenses. In more detail, R&D expenses increased by 20.5% to 79.1 million RMB from 65.6 million RMB for the first quarter of last year, mainly due to the increase in R&D headcount and the relative salaries and expenses. Selling and marketing expenses increased by 15%, to 158.8 million RMB from 138 million RMB for the first quarter of last year, mainly due to the increase in advertising and marketing expenses to promote the company's brand awareness. G and A expenses increased by 4.7% to 17 million RMB compared to 16.2 million RMB for the first quarter of last year, primarily due to the increase in related personnel salaries expenses. Net lose attributable to ordinary shareholders company was 50 million RMB compared to net income attributable to ordinary shareholders of the company of 49.1 million RMB for the first quarter of last year. Non-GAAP net lose attributable to ordinary shareholders of the company was 41.7 million RMB compared to non-GAAP net income attributable to ordinary shareholders of the company of 65.3 million RMB for the first quarter of last year. Additionally, our balance sheet remain healthy. As of March 31, 2022, the company had cash and cash equivalents of $868.4 million RMB, restricted cash of $64.2 million RMB, short-term deposits of $10 million RMB, and short-term investments of $411.8 million RMB. Now let's turn to our outlook. For the second quarter of 2022, we currently expect the net revenues to be between 815 million RMB and 1.05 billion RMB. We estimate that the year-over-year change in revenues will be mainly due to the high comparison base from the Xiaomi Branded Silver bubble business for the second quarter of last year, which the company has completely cut off this year, as well as the impact of the overall market demand in the second quarter of this year. The above outlook is based on the current market conditions, and it reflects the current and preliminary ethnic of marketing and operating conditions, as well as the customer demands, all of which are subject to change. 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 questions. Operator, please go ahead.
spk00: Thank you. 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're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. 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'll pause momentarily to assemble our roster. Our first question comes from Hilde Ling from Morgan Stanley. Please go ahead.
spk03: Thank you. Thank you, Dr. Guan, for giving me the opportunity to ask a question. I'm Hilde Morgan Stanley. I would like to ask about the recent economic situation. I would like to ask about the trend of sales in April and May. What kind of trend is it? If we talk about the product category, China China China China China China China China thank you very much management for giving me this opportunity to ask some two simple minor questions small question the first one is about the sales trend in the recent sales trends in april and may and and how about and also the trends in terms of byproduct perspective, how are they trending? And also about the trends in terms of the pricing and on the volume. The second question is about our strategy and expectation for second half of the year and our strategy behind it. And compared with our strategy and expectations set at the beginning of the year, how's that change given the macro volatility? And have we adopt any, what's our plan of strategy change in this regard? because of the macro changes. Thank you very much.
spk02: Thank you for fielding this question. For the first question, entering into April and May, we saw the consumption environment is weak due to the impacts from recurring pandemic, and thus our sales performance is also impacted. While we observe the sales contribution of our premium products with higher gross margins are increasing. Second, among our new products released in last year and this year, we saw sales of space and millennial series of air conditioners increase due to seasonal demands, as well as their popular functions during COVID-19 period, such as all space cooling, UV sterilization and fresh air system. Besides, certain smart devices such as smart locks also receive good market feedbacks and sales performance. We saw the sales of some large appliances such as refrigerators, washing machines are relatively weak due to the lack of heavy service. services of installation and logistics as a result of the rise quality control measures. Going forward this year we expect the overall average price to maintain stable compared to the last year with certain frustration for the rise in categories. As we expect the overall sales volume is increased when entering into the second half Well, again, this is still depending on the consumer demands and the pandemic situation in the next months. Regarding the second question of our expectation of the second half, with the increasing quarantine regions and continued wet macro environments since April, We expect the consumption trend won't demonstrate material rebound, but should relieve compared to the first half of this year, as we saw the government has taken some measures to stimulate consumption. And we are also taking some measures to cut down the expenses and cost of our products. Thank you.
spk03: Thank you very much, management. I don't have further questions. Thanks.
spk00: Our next question comes from Rudy Wei from CICC. Please go ahead.
spk05: Yeah, this is Rudy Wei from CICC, and thank you very much for the management presentation. Actually, I have two questions here, and maybe I can ask them one by one. The first is that one of your strategy is to increase the gross profit margin by optimizing the product structure. So many low-end products have been out of production. So I wonder whether this process is almost completed at this stage, and to which extent do you think that the gross profit margin can be improved in the future? 我这边是有两个问题,然后我一个一个问。 The first is because one of our strategic focuses is to optimize the product structure to increase the profit margin. Including the first quarter, we still saw an obvious increase in the profit margin. The company also reduced a lot of low-end products to carry out this kind of high-endization. Looking at the current time, do you think the company has almost completed the process of low-end products? How much profit margin room is there in the future? This is my first question.
spk02: Okay, thanks for this question. The product portfolio optimization is still ongoing for us, as we need to balance the overall sales and the sales growth of new premium products, as well as introduce the alternative products for low-end markets. Currently, we are adjusting the product lines for multiple categories, including air conditioner, refrigerators, and sweeper robot. With respect to the gross margin, as you can see, the margin has been improving in the past year. In 2022, we are confident to maintain an overall margin level of over 20% and may with seasonal saturation due to inventory cleanup for some categories during the promotional seasons. With the product portfolio optimization, we expect the gross margins still to improve on a year-over-year basis. Thank you.
spk05: OK, thank you. And my second question is about our water purifiers product. Since we have been doing water purifiers business for a long time, but market has been declining actually in recent years, and actually your water purifier business also seems stagnant. But we noticed that it seems more brands are introducing water purifier products recently. Also, we noticed the increase of your consumables businesses related to water purifiers. So I wonder whether you have the same feeling that more brands are doing this business And what do you think of the recent future of the water purifying market? As we can see in the recent two years, the growth of the overall demands of water purifiers is not as far as some other cleaning categories.
spk02: but it is still a potential market with increasing penetration rate. And we also observed from our frontline research as well as from the industry data, the consumer needs change over time and the industry develops throughout a few trends. Firstly, we have seen the market contribution of large flux water purifiers with over 800 gallons are increasing. The market is gradually phasing up some small flash water purifiers and more companies starting increasing their introductions of large flash water purifiers as well. Secondly, smartification has been one of the required demands of consumers. Third, water purifiers with multiple functions are more needed by the market, namely instant mineralization, and UV sterilization, et cetera. The desktop purifiers you mentioned is also a trend in the industry. We have developed and introduced desktop purifiers. And in the second half of this year and the next, we will introduce additional SKUs with multiple functions. Thank you.
spk05: OK, thank you very much. That's all from me.
spk00: The next question comes from Lee Wan Zee from Gugin Securities. Please go ahead.
spk07: Hello, Mr. A. Thank you for the opportunity to ask a question. I have two questions to ask. The first question is, what is the plan of the company's cleaning appliances, including the washing machine and washing machine, this year? What is the plan of the company's cleaning appliances, including the washing machine and washing machine? OK, for the first question,
spk02: The overall positioning of our sweeper robots both in the domestic and overseas market is a mid to high end. As currently sweeper robot is not a necessity compared to the large plants and the market, penetration rate is still low. Per our research and market data, the consumers who buy sweeper robots are less sensitive on price and they are highly demanding on obstacle avoidance and multiple functions and smartification. In terms of functions, we focus on automatic dust collecting and self-cleaning, which are also the trend for current market. In addition, we develop different versions for consumers with diverse nets. such as Swipper Robo with UV sterilization and SKU designed for families with PATH. More importantly, as we offer one-stop smart home solution with bundled cells of smart plants and devices, our Swipper Robo is able to connect it with whole home smart products for interactions, remote control, and inspection. As the only one movable plants, the sweeper wobble can scan the home and create home maps for our future development such as the security detection system. For the second question regarding the offline sales, our offline sales as well as the new store opening are indeed impacted by the recurring pandemic and current controlled in some regions and the logistics was delayed in some cities. To mitigate the decline in sales from offline channels due to the COVID-19, we shift more marketing and sales resources towards online channels, particularly some social platforms such as Douyin. In addition to small and cleaning products, we have started to sell wide plans on Douyin through live streaming and have seen good sales performance. We also depend on cooperation with platforms including Tmall and Jindong to join and promote whole home smart device portfolio. Our largest store better immersion offline strategy is on the track through the COVID-19-impaired store opening and furnishing to some degree. We are also seeking cooperation opportunities with diverse third-party offline channels. We recently reached strategic partnership with China Telecom. and with KUKA Home, which is KUKA's home, to integrate offline resources and promote our smart product portfolio.
spk01: I would like to add a few points here. Currently, China's economic and epidemic control, we think, will last for a while. The consumer's need and the recovery of confidence, we think, will last for a while. It also requires a relatively longer time. So in this process, we will take a relatively cautious and steady strategy in terms of management and investment, so as to ensure the continuous improvement of our company's cash flow and net profit. Okay, I will translate our founder's comments.
spk04: So as we can see, at this moment, it's a little hard to focus the pandemic situation in the rest of this year. As you can see, we don't know how long the pandemic situation and some content control measures will last. And we think it will take some time for the consumers to recover their consumption confidence. So meanwhile, we will take very prudent way to improve our operations as well as to maintain a very healthy gross margin level as well as the healthy cash level. But we are confident in the mid to long term, the China economy will recover. But in the meantime, we will just invest in R&D and such expenses to maintain a very stable development. Thank you.
spk06: Thank you very much. I have no other questions. Thank you.
spk00: As there are no further questions now, I'd like to turn the call back over to the company for closing remarks.
spk04: 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 PA Center Group, our Investor Relations Consultant. Thank you all. Have a good night.
spk00: This concludes this conference call You may now disconnect your line Thank you
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