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.
spk05: Hello, ladies and gentlemen. Thank you for standing by for Wyoming Technology Company Limited's earnings conference call for the second half and full year of 2023. 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. Claire Gee, the IR Director of the company. Please go ahead, Claire.
spk02: Thank you. Hello, everyone, and welcome to Wellme Technology Company Limited's earnings conference call for the second half and the full year of 2023. As a reminder, this conference is being recorded. The company's financial and operating results were issued in a price release earlier today and are posted online. You can download the earnings price release and sign up for the company's email distribution list by visiting the IR section of the company's website at ir.viomi.com. Participants in today's call are Mr. Xiaoping Chen, the founder, chairman of the board of directors, and the chief executive officer, and Mr. Sam Yang, the head of the capital market and strategy department. The company's management will begin with prepared remarks and will continue with the Q&A session. Before we continue, please note that today's discussion will contain forward-looking statements. made under the safe harbor provision 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. Further information regarding this and other risks and uncertainties is included in the company's annual report on Form 20F and other filings upheld with the U.S. Securities and Exchange Commission. and the company does not assume any obligation to update any forward-looking statements except as required by law. Please also note that Wellmate's earnings conference press release and this conference call includes discussions of unaudited gap financial information as well as unaudited non-gap financial measures. In addition, Wellmate's press release contains a reconciliation of the unaudited non-gap measures to annotate 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.
spk04: Hello, everyone. I am Chen Xiaoping. Thank you all for attending our full-year phone call in the second half of 2023. In 2023, we will continue to stick to the same strategy. The company's product structure has been further optimized, and the results of the supply and demand have been significantly improved. All year round, the volume of products imported and imported has increased from 32.2% in 2022 to 36.8%. At the same time, we have been able to continue to reduce the cost and increase the efficiency of the supply and demand. In the second half of the year, the annual profit rate rose by 22% in the same period as last year, and the supply and demand cost decreased by 33.4% in the same period. The loss rate has been greatly reduced to 2.7%. In the past year, the company's positive challenge has made some progress in many aspects. First, strengthen the strategic cooperation of large customers and sign a three-year strategic cooperation agreement with Xiaomi. Second, integrate the company's business and upgrade Jinshui into an independent strategic business department. In order to improve Jinshui's production and sales capacity, the whole industry chain of Jinshui is actively deployed to build two major business blocks of Jinshui and IOT at home. Third, enhance IoT at home capability construction, rich, comprehensive and intelligent solution, embrace uncertainty, and accept the challenges of the masses. Fourth, greatly enhance the impact of the corn brand. After signing the contract in 1995, the new generation of actors, Tian Xiwei, as the global brand spokesperson. Fifth, in the channel side, expand the network and channel sales, and continue to expand the overseas market. Sixth, in the past three years, the newly built corn technologist officially invested in use in November 2023, and opened the new era of corn. As the leader of the water industry, we have a leading industrial system in the industry, and we have more than 1,300 applications for patents in advanced filter technology and waste production technology in the industry. At the same time, our water industry department has established an independent, complete design, development, production, and marketing organization, attracting a number of top-of-the-line market marketing, management, product development, and quality management people to join and fully enhance the market competitiveness of water products. In the industry chain of water, We focus on building the world's leading wastewater super factory, building a solid industrial foundation and industry barrier. First, to establish a high-level industrial storage capacity. At YuMi Technology, we focus on the assembly, assembly, testing, storage, and logistics of the wastewater products to the same building, the same area, effectively reducing the cost of production logistics and increasing the efficiency of production. Second, to have the top-level industrial automated wastewater production line. In the production part of the key parts, we build a black-light factory. Combining the smart collection and analysis of the production data of the entire process, we will continue to improve the production process and the advanced production process. Third, we will further use the support of infrastructure facilities to deepen the investment in the technology industry, strengthen the self-reliance, asset and self-sufficiency of core components, and provide insurance for high-quality water products for users. In the direction of ALT Home business, we insist on the concept of AI Hub4, and pay more attention to family health monitoring and protection. At the Spring Festival Psychological Announcement on March 12, At the same time, with the need for improved living conditions in the stock market, we have further upgraded the full-fledged smart solution program, launched a space suite worth millions of dollars, providing consumers with a more distinctive taste, more personalized and more intelligent product experience. At the same time, we also widened the network and global channels, while improving the domestic channels, focusing on promoting the breakthrough of the overseas market and gradually expanding the product category supplied to the overseas market. to bring new growth to the overseas business and enhance the ability to accomplish overseas business. In addition, we have established strategic cooperation with multiple countries in the local leading channels to use their local resources to further improve our sales and service capabilities overseas, and promote the ongoing growth of overseas business in the future. Looking forward to 2024, the global market has huge potential and opportunities. We will continue to improve business from four aspects. First, we insist on providing a solution for healthy water, allowing users to make many choices in terms of water quality and texture. Second, strengthen the relationship with strategic partners to further create a global technology super factory and improve the industry chain. Third, further expand the channel and expand the overseas market, further strengthen the process of globalization of the profit-making brand. Finally, we will continue to improve the efficiency of the system, the balance of science, the growth of scale, the optimization of organization, and the growth of efficiency and financial improvement. Help the company further restore the profit-making ability, achieve sustainable and sustainable development, and bring long-term value to users and shareholders. Thank you.
spk02: Thank you, Mr. Chen. I will quickly translate our founder's remarks before discussing our financial performance for the second half and the full year of 2023. Hello, everyone. Thank you for joining us today on our earnings conference call for the second half and the full year of 2023. In 2023, we continue to advance our focus strategy, optimizing our product mix, and improving our operating performance through strong strategic execution. Driven by the restructuring of our product mix, the revenue contribution of home water solutions and consumable products increased to 36.8% in 2023 from 32.2% in 2022. Through cost optimization and operating efficiency improvement, our gross margin increased by 2.2 percentage points. while operating expenses decreased by 33.4% in the second half of 2023, compared to the prior year period, leading to a significantly reduced net loss margin of 2.7%. Over the past year, we have demonstrated resilience in overcoming challenges and achieved significant progress in various areas. First, we depend strategic collaboration with major clients, including the renewal of a three-year strategic cooperation agreement with Xiaomi. Second, we organized our business structure and elevated our water purification department to an independent strategic business unit, comprehensively enhancing our R&D, production, and sales capabilities across the entire water purification industrial chain. Through this strategic move, we now boost two major business segments, AI Water and AIoT at Home, enabling synergistically development. Third, we strengthen our capabilities across AIoT Home and enrich our whole-house enticing solutions to address uncertainties and challenges from industry giants. Fourth, we boosted Wyoming's brand influence with the appointment of Ms. Shi Weitian, a well-known actress in China, as our global brand spokesperson. Fifth, on the distribution side, we expanded both our online sales network and offline channel footprint, while actively pursuing overseas markets. Finally, well-made IoT technology park, meticulously constructed over three years, was officially inaugurated in November 2023. ushering in a new era of Wyoming. As a leading company in the water purification sector, we possess the industry's most extensive manufacturing and R&D facilities and have cumulatively applied for over 1,300 patents in this field. By leveraging our expertise in advanced filtration technology and the material production methods, Meanwhile, we have independently established a comprehensive organizational framework and assembled an outstanding team of top talents across management, marketing, product development, and quality control, encompassing product design, R&D, manufacturing, and marketing, further improving the market competitiveness of our water purification products. We have also established solid industrial advantages and competitive barriers by building a water purification industrial chain anchored by our world-leading water purification super factory. First, we have centralized water purification product component production, leveraging our cutting-edge AIoT technology park and seamlessly integrated both upstream and downstream functions. We perform machine assembling testing, warehousing, and logistics in a single building in the park, effectively reducing logistic costs and improving production efficiency. Second, we have constructed the industry's leading automated and intelligent production lines for water purification products, featuring a fully automated dock factory for manufacturing certain key components. Comprehensive, intelligent, collection and analyze of production data further empowers us to constantly improve the production process. Going forward, we will continue to capitalize on our infrastructure supported by our IoT technology park, deepen our investment in the water purification industry chain, and strengthen our in-house capabilities across research, production, and inception of core components. to provide users with high quality water purification products. Regarding to our AIoT home business, we have adhered to the concept of AI helpful and concentrated on monitoring and safeguarding family health. During our recent spring product launch event on March 12th, we unveiled Alpha-X, a cardiorespiratory detection radar equipped with millimeter-wave radar technology. This technology enables continuous, comprehensive, contactless monitors of family members' health. Alpha-X provides users with intelligent functions such as one-click report generation and active alerts, empowering them to improve health tracking and safety. Meanwhile, as the demand for improved living increases, throughout the housing market. We have further upgraded our one-stop IoT home solution with the launch of our Million Dollar Space series, which provides consumers with a stylish, customized, and more intelligent product experience. Meanwhile, we have expanded our distribution network and global channels. growing domestic channels while propelling breakthroughs in overseas markets. We have gradually expanded the range of product offers to overseas markets, which has spurred new growth in our overseas business and strengthened its resilience to high wind risk. Furthermore, Wyoming has established strategic partnerships with leading local channels in various countries, utilizing their local resources to further enhancing our overseas sales and service capabilities and promote sustainable growth of our overseas business in the future. Looking forward, we see immense potential and opportunities in the global market, and therefore, we will continue to refine our operations across four areas. First, we remain committed to providing our users with healthy water solutions. allowing them to enjoy an array of water quality and flavor options. Second, we will reinforce collaborations with our strategic business partners, continue to build out our world-leading water purification super factory, and strengthen the industrial chain. Third, to further accelerate the globalization of Wyoming brand, we will continuously develop sell channels, and expand overseas markets. Finally, we will continue to improve quality and efficiency, striking a precise balance between scale expansion, organizational optimization, and operational efficiency enhancements. Harnessing these strengths, we will further restore profitability, driven healthy and sustainable development, and create long-term values for users and shareholders. Thank you. That concludes our funder's remarks, and I will now turn the call over to our Head of Capital Market and Strategy, Mr. Sam Yang, to discuss our financial performance.
spk01: Thank you, Ms. Chen and Claire. Thank you to everyone for making time to join us for the earnings conference call today. I will go over our unaudited financial results for the second half and the full year of 2023. Net revenues were one billion, 189 million renminbi compared to one billion, 596.4 million renminbi for the second half of 2022. The decrease was mainly due to a decrease in revenues from IoT at home portfolio as well as small appliances and others. Revenues from IoT at home portfolio decreased by 28% to 529.1 million renminbi from 735.2 million renminbi for the second half of 2022. The decrease was primarily due to the streamline of product offerings, which was achieved by reducing selling SKUs of smart white goods. such as smart refrigerators, smart air conditioners, and smart washing machines. Revenues from home water solutions decreased by 20.5% to 370.4 million renminbi from 399.1 million renminbi for the second half of 2022. was due to the lower volume of water purified sold to Xiaomi Corporation. Revenues from consumables decreased by 4.2% to 178.5 million renminbi from 186.4 million renminbi for the second half of 2022. The decrease was primarily due to the lower volume of water purified filters so to Xiaomi Corporation, partially offset by the increase of sales of Xiaomi brand water purifier filters. Revenues from small appliances on orders decreased by 40.5% to 164 million renminbi from 275.6 million renminbi for the second half of 2022. primarily due to the ongoing product portfolio adjustment within this category. Cost profit was 282.7 million renminbi compared to 345.6 million renminbi for the second half of 2022. Cost margin was 23.8% compared to 21.6% for the second half of 2022. The increase was primarily driven by the company's effort to shift the product mix toward higher gross margin products, such as water purifier and filters, and partially offset by a decrease in the selling price of certain clearance products as a result of the product portfolio adjustment. Due to operating expenses decreased by 33.4%, to 344.3 million renminbi from 517.1 million renminbi for the second half of 2022. Primarily attributable to the streamline of the organizational structure and overall improved operational efficiency. In greater detail, R&D expense decreased by 19.7% to 113% 0.4 million renminbi from 141.2 million renminbi for the second half of 2022, meaning due to a decrease in R&D expert and related salaries and expenses. Selling and the marketing expense is decreased by 36% to 1%. 188.2 million renminbi from 294.1 million renminbi for the second half of 2022, mainly due to a decrease of online platform services, logistics expenses, and sales-related personnel costs. GNAA expenses decreased by 47.8% to 42.2% 7 million renminbi from 81.8 million renminbi for the second half of 2022. Primarily due to the fact that a significant amount of additional expected credit loss allowance was made against a third party, third customer actually, in the second half of 2022. Net loss attributable to ordinary shareholders of the company was 28.7 million renminbi and the non-GAAP net attributable to ordinary shareholders of the company was 30.9 million RMB. Despite the decrease in revenue scales, our net loss attributable to ordinary shareholders of the company narrowed by 84%, demonstrating an improvement in our operational efficiency. Additionally, our balance sheet remained healthy. As of December 31st, 2023, the company had a cash and cash equivalent of 491.7 million renminbi, restricted cash of 144.6 million renminbi, short-term deposit of 365.8 million renminbi, and a short-term investment of 38.4 million renminbi. Let's briefly discuss key financial results for the full year of 2023. Revenues were $2,493.4 million RMB compared to $3,232.7 million RMB for 2022. Revenues from IoT at Home portfolio decreased by $24.6 to $1,220,000. 0.9 million renminbi from 1,619.9 million renminbi for 2022. Revenues from home water solutions decreased by 11.3% to 604 million renminbi from 681.1 million renminbi for 2022. Revenues from consumables decreased by 12.3% to $314.4 million renminbi from $358.4 million renminbi for 2022. Revenues from small appliances and others decreased by 38.2% to $344.1 million renminbi from 73.3 million renminbi for 2022. Gross profit was 569.5 million renminbi compared to 737.1 million renminbi for 2022. Gross margin was 20.8% equals the same as 2022. Total operation Expenses decreased by 31.9% to 706.2 million renminbi from 1 billion and 36.5 million renminbi for 2022. In greater detail, R&D expenses decreased by 25.7 percent to 222.9 million renminbi from 300 million renminbi for 2022. Selling and marketing expenses decreased by 34.7 to 401.8 million renminbi from 614.9 million renminbi for 2022. GNRA expense decreased by 33 percent to 81 from 121.7 million renminbi for 2022. Net loss attributable to ordinary shareholders of the company was 84.7 million renminbi, and non-GAAP net loss attributable to ordinary shareholders of the company was 84.6 million renminbi.
spk02: Yeah, this concludes our prepared remarks, and we will now open the call for Q&A. Mr. Chen, our founder, and Mr. Sam Yang, our head of capital markets and strategy, will join this session and answer questions. Operators, please go ahead.
spk05: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. And for everyone on today's conference call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. We will pause for just a moment while we assemble our roster. And today's first question comes from Hunter Diamond at Diamond Equity Research. Please go ahead.
spk00: Hi, everyone. Firstly, congratulations on the results. My question is, with the recent strategic move of relocating the smart water purification system facility to the Viomi Internet of Things Technology Park, can you provide insights into the new product development pipeline? More specifically, what innovative product launches can stakeholders anticipate in the water purification segment over the next two quarters, and how do these align with Viomi's broader innovation and growth strategy?
spk02: Okay, thank you, Hunter. I will briefly translate the questions to Chinese. About this question, Mr. Sam will answer the question in representative of the management.
spk01: Recently, we proudly released our new product, Wyoming AI Mineral Water Purified Quinlan. With an advanced technical method and strictly selected high-quality mineral resources, we successfully realized the slow precipitation of minerals from purification filters in a long-lasting and steady state, which makes the filtered water contain six kinds of beneficiary mineral elements, and also the same as the natural mineral water, especially the strong helium content in our filtered water can reach the level of twice of the national standard for national mineral water. With the consumption of upgrading the population of the concept of healthy drinking water, people's demand for drinking water gradually changed from clean water to healthy water. By launch of Quinlan, we aim to lead the trend and break through the development of the water industry, targeting at the new generation of consumers pursuing a healthy lifestyle. Moving forward, we will follow the route of producing mineral water, enrich the related product mix, and provide customers with healthy water solutions for different scenarios. We have built the Viomi water purification super factory to achieve a highly-integrated industrial chain, featuring a fully automated duct factory for manufacturing key components, which will improve our production efficiency and enhance the cost and other values. The comprehensive intelligent connection and analysis of production data empowers us to constantly improve our production progress and achieve the technological breakthroughs. These things combined together support us to continually provide better solutions for our use of major demand and establish solid industrial advantages and competitive barriers. Thank you.
spk00: Please go ahead. Great. Thank you. And then the next question, just moving beyond the water purification segment, can you shed some light on Biomi's strategic initiatives for its existing product segments? So what key developments or strategic pivots are you planning to drive growth, enhance Internet of Things integration, and maintain the competitive advantage across your existing portfolio?
spk02: Hunter's question is, in addition to the water supply sector, can the company introduce some strategies in the existing IoT product sector? And in order to promote growth and strengthen IoT integration, Thank you, Hunter and Claire. I will answer this question.
spk01: As more and more players gather in this field of whole housing intelligence with different solutions to present and then interpret the concept, each player has to face glowing challenges as well as opportunities in this industry. We Army has built up unique one-stop AIT at-home solutions combined hardware, software, solutions design, and services. and the number of cumulative household uses has reached 8.4 million globally. We adhere to the concept of AI helpful, continually upgrading our solutions from the dimensions of health, intelligence, and security. In this circumstance, we keep optimizing our product portfolio and focusing our product differentiation. In the second half of 2023, we launched a series of outstanding new products, like the UpGrid Viomi AI Air Conditioner Super 3, which can intelligently adjust the ambient temperature according to the different stage of sleep, improving the comfort level and the sleep quality. In addition, we unveiled Alpha-X, a card detection reader equipped with the mini-meter wave reader technology, which realized the continuously comprehensive contact contactless monitoring of family members, health, APA-X provider uses with intelligence functions such as one-click report generation, and active alerts. Empower them to improve healthy track and safety. We also launched the new intelligence door lock, Master 3 Max, which is equipped with the prime van recognition technology, providing users from a higher level of security guarding. Meanwhile, as the demand for improved living increased throughout the housing market, we have further upgraded our one-stop AIT at home solution with the launch of a multi-million dollar space series. which provided the customer with the stylish and the customized and more intelligent product experience. Thank you.
spk00: Great. Thank you for taking my questions. And again, congratulations on the results.
spk05: Thank you. And our next question comes from Li Jingxin with CICC. Please go ahead.
spk03: Hello. Thank you, Claire. Congratulations for the results. I'm from CLCC, and I have three questions, and I'll ask them one by one. My first question is, I wonder how did the quarterly revenue perform in Q3 and in Q4, and have we seen any improvement of IoT business except for the water purifier, which categories are so well in 2023? That's my first question. Thank you.
spk02: Thank you. I will answer this question.
spk01: In general, the performance of Q3 and Q4 both achieved optimization in gross margin, reaching 23.8%, with 2.2% higher than the second half of 2022, and 1.8% higher than the first half of 2023. On product side, other than the water purification product, we saw an increased revenue contribution rate among our smart kitchen and bathroom appliances, especially the water heaters, as we released several new products among this segment, and we received positive feedback from the market. At our spring launch event in March 2023, we released the most 3PRO gas electric hybrid AI water heater, which brings users new bathing experience with rapid heating, constant water temperature, and a senseless solid. In terms of the number of users, the number of globally cumulative householder users increasing steadily, and the percentage of householder users with at least two connected products reached 23% by the end of 2023. Thank you.
spk03: Okay, thank you. And my second question is, what is our operating strategy in 2024, and will it focus on products or focus on channel operation? and what is the whole business outlook for 2024? Thank you.
spk01: Okay, let me just answer this directly. Our strategy for 2024 will be still focusing on our core products and aiming for high-quality development. We will devote our effort on product differentiation and China's diversity. On the product side, we will further focus on our product category with differentiation. With respect to water purification products, we introduced the new AI Mineral Water Purifying Quinlan at our spring launch event in March 2024, redefining water purification with our advanced technology. We put more effort on water heaters, and kettles, alongside the concept of whole house water systems. In talking about the channel size, we will focus on improving the return on investment for online channels and actively develop new channels, both online and offline, with house horse racing mechanics to establish Wing Wing's business. We will further utilize professional business operating team on the major online channels to improve the ROI and enhance the company's operational efficiency. Let's talk about the overseas side. In addition to enriching the product category we offer, we have deepened strategic cooperation with leading local channels in various countries, utilizing the resources to further enhance our overseas sales and service capacities, and also promote our sustainable goals of our overseas business in the future. In conclusion, we aim to refine our operations in follow aspects. First, we will continue to optimize our revenue structure, increasing the revenue contribution of our core products and further optimize cost margin. Second, we will further deepen collaboration with Xiaomi, supporting the recovery of our revenue skills. Third, We expect to see faster growth in overseas channels, no social media channels and offline channels, which will further diversify our revenue sources. Okay, thank you. Please.
spk03: Okay. And my last question is I wonder what is the expense plan for 2024? And which areas should we input more resources and money on? And that's all for my question. Thank you.
spk01: OK, thank you. Let me just answer you directly. We will stick to strict cost control method and severely monitor the return of investment, ensuring the further optimization of our operational performance in 2024. we will allocate the resources in target key channels. First, we will put weight on investment in water purification products in online new social media channels such as Douyin and Kuaishou to reinforce the brand recognition among users and increase the market penetration of our products. Second, at the offline channel end, We will jointly develop the sales channels and promote the AI transformation of home appliances in cooperation with the major shopping centers for home appliances, as well as the JD Offline stores and other e-commerce platforms. With respect to water purification products, we are also exploring channels relatively independent from each category in order to provide customer better product demonstration and long-term service support. Last but not least, about the overseas market, we are strengthening our cooperation and support to local distributors, upgrading the intelligence level and increasing the brand exposure of product offered in the overseas market. Thank you.
spk05: Thank you. This concludes our question and answer session. I would like to turn the conference back over to management for any additional or closing comments.
spk02: Okay. Thank you once again for joining us today. If you have any further questions, please feel free to contact us through the contact information on our website or our investor relations consultant, the PS&T Group. And thank you all for the conference.
spk01: Thank you.
spk05: Thank you. This concludes today's conference call. You may now disconnect your lines and have a wonderful day.
spk04: Thank you, everyone.
Disclaimer