Viomi Technology Co., Ltd

Hello, ladies and gentlemen. Thank you for standing by for Viomi Technology Co. Limited Earnings Conference Call for the first half of 2024. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I would now like to turn the call over to your host, Ms. Claire Gee, the IR Director of the company. Please go ahead, Claire.

Hello, everyone, and welcome to Viomi's Technology Co-Limited Earnings Conference Call for the first half of 2024. As a reminder, this conference is being recorded. The company's financial and operating results were issued in the 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.veone.com. Participating in today's call are Mr. Xiaoping Chen, the founder, chairman of the board of directors, and chief executive officer, and Mr. Sam Yang, the head of our capital and strategy department. The company's management will bring with prepared remarks, and the call will conclude with a Q&A session. Before we continue, let's note that 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 annual 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 20-X. and other filings are filed with the U.S. Securities and Exchange Commission. The companies do not assume any obligation to update any forward-looking statements except as required by law. Please also note that Wellmate's earnings press release and this conference call includes discussions of unauthentic debt financial information as well as unauthentic non-debt financial measures. In addition, Wellmate's press release contains a reconciliation of the unobstructed non-GAAP measures to the unobstructed most directly comparable GAAP 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.

Hello, everyone. Thank you for attending our phone call in the first half of 2024. In the first half of 2024, We have strongly implemented the focus strategy, insisting on high-quality development, and continuing to improve the performance of the business. The business fundamentals have been turned around fundamentally. The specific performance is that we have deeply focused on the advantageous category, and the revenue scale of the core technology category continues to increase. At the same time, the growth is 13%, further optimizing the product structure, and then the overall trend continues to improve, reaching 24.8%, which is 22% compared to the last half of last year. We will continue to reduce our operating costs by 19.2%. The net profit will be 5.6 million RMB. The non-GAF net profit will be 1.6 million RMB. There will be no losses at all. At the same time, we will maintain a good cash flow. Until June 30, 2024, the cash flow will be 9.14 billion RMB. On July 19, we announced a major business reorganization. It is expected to be completed by the end of August. This reorganization reflects our commitment In the first half of 2024, the operating revenue of the business continued to exceed RMB800 million, and the corresponding operating profit exceeded RMB50 million. The resumption this time will show a small drop in size in the short term, but will further expand the company's operating capacity, helping to achieve long-term health development. A.I. for Bitwater aims to use A.I. technology to provide better family water management solutions for global users. Using our professional experience in A.I. technology, smart hardware and software development, we redefine home water management to create a unique water purifier and a new commercial model with new materials. Through A.I. technology, we achieve long-term real-time monitoring of water quality and use conditions. Thank you. Yunmi's smart water supply solution has already reached nearly 5.9 million domestic users. In terms of product innovation, in the past ten years, Yunmi has continued to lead the industry to breakthrough technology, first to create a water purifier with a large volume, provide fresh water to users, and upgrade the volume to 2,000 gallons, so that the water can be used for cooking, washing vegetables, and other use scenarios, and improve the quality of life. The water quality can be adjusted based on the technology of the power generator, From providing pure water to providing natural mineral water, we continue to explore the road to a healthy life. In March 2024, we launched the Yunmi Kunlun Mineral Water AI Mineral Water. The innovative green mineral mining technology is a form of mineral that can be used for long-term use. There is a component in the water that is basically the same as natural mineral water, so that users can drink fresh mineral water at home. You have a rich supply of water supply products, from single filter to urgent heat, extreme cold, ice and other functions, to satisfy the global drought-prone drinking water system, from kitchen drinking water scenarios to living room scenarios, and to cover the whole house with extreme cold water solution. We have applied for more than 1,600 patents to attract global top management, marketing, product development and quality control talents to join. After continuous adjustment and focus, we have achieved certain results in sales, and the brand power has been constantly increasing. We are using a decentralized product matching channel to further promote the mineral water generation and increase market share. In July this year, Minmin Water ranked third in the domestic mainstream media platform industry. According to the new product, it is also ranked first in the world brand laboratory. In the recently announced 2024 Chinese brand 500 strong list, the brand value of 0.153 billion RMB is ranked 439th. After the same group, the company's vision is redefined as Global Water, as a professional water technology company, we strive to provide fresh and healthy water to all users. We continue to focus on making good products and solving cases to increase the satisfaction of users. First,深化以战略客户的合作,持续发挥金水超级工厂的领先优势,其次,进一步提升云米金水在中国市场的渗透率。 Thank you, Mr. Chen.

I will quickly translate our founder's remarks before discussing our financial performance for the first half of 2024. Hello, everyone. Thank you for joining us today on our earnings conference call for the first half of 2024. In the first half of 2024, we implemented our focus strategy, prioritizing high-quality development, consistently enhancing our operating performance, and return to a net profit position, specifically By concentrating on our advantageous categories, our core home water solution product revenue grew by near 13% year-over-year, while we further optimized our product structure. As a result, our overall growth margin continues to improve to 24.8% for the first half of 2024, from 22% for the prior year period. Three cost control measures lead to a year-over-year decline in operating expenses by 19.2%, contributing to a turnaround in net profit with a net income of 5.6 million RMB and a non-debt net income of 16.1 million RMB. Additionally, we maintain a strong cash position with free cash assets totaling 914.3 million RMB. On July 19, 2024, we announced a major business reorganization, which is expected to be completed as planned by the end of August. This reorganization demonstrates our commitment to implementing our focus strategy and swiftly improving our operating results by diversifying certain and performing IoT-related business Wyoming will now primarily focus on leveraging its core strength in the water purification sector to elevate our overall operational trajectory. According to our preliminary estimates, the revenues of the continuous business were more than 800 million RMB, with an estimated income from operations more than 30 million RMB in the first half of 2024. In the short term, This strategic reorganization may lead to a slight reduction in our business scale, but it will further enhance companies' profitability, driving healthy and sustainable long-term growth. Following the major business reorganization, Wellme will embrace a new mission, AI for Better Water. We are dedicated to utilizing AI technology to provide better drinking water solutions for households worldwide. Liberating our extensive expertise in AI technology application, intelligent hardware, and software development, WellMe has strived to redefine home water solutions and developed a unique equipment plus consumables business model. We use AI technology to holistically enhance the user's experience, providing remote, real-time monitoring of water quality and usage, as well as timely filter replacement reminders. one-click reordering, and the DIY replacement options leading to a higher filter replacement. Our intelligent waterway self-cleaning technology significantly extends filter lifespan and reduces the cost of water purification, making smart water purifiers a reliable, hassle-free, and affordable essential for a healthy lifestyle. As of the end of the first half of 2024, Wyoming AI home water solution were used by nearly 5.9 million household users. In terms of the production innovation of the industry-leading technology, Wyoming has consistently driven technological breakthroughs over the past decade. We developed a template large-flag water purifier that provides fresh drinking water 24-7. By upgrading the water flux up to 22,000 gallons, we expanded water purifier usage scenarios from drinking to cooking, washing vegetables, and more. In addition, we implemented ERO technology to offer sustainable water quality ranging from pure water to natural mineral water, setting new trends in healthy living. At the Wyoming Spring Water Purifier New Product Launch Event in March 2024, we unveiled the Wyoming Quinlan Mineral AI Water Purifier. Its innovative mineralized filter technology enables the sustained release of beneficial minerals, making the composition of these minerals in the water almost identical to that of natural mineral water. allowing our users to enjoy fresh mineral water at home. Well.me offers a wide range of products covering various home scenarios, from single-function filtration to integrated functions featuring instant heating, cooling, and ice-making capacities. Then in kitchen, living room, and the whole house applications, our products comprehensively address the increasing global demand for cleaner, fresher, and healthier drinking water. In terms of product manufacturing and technology development, Welmy operates a world-leading water purifier gigafactory, boasting an annual production capacity of 5 million water purifiers and 30 million filters. Its highly integrated industrial chain layout, highly automated production lines, high-standard clean production workshops, and fully traceable quality control systems facilitate continuous water purification, achieving an optimal scale efficiency, and meeting diverse global market demands. We have established one of the industry's most comprehensive R&D systems, mastering advanced filtration technology and the materials manufacturing process. As a result, we have amassed over 1,600 water purification patterns and attract numerous global talents in management, marketing, product development, and quality control. Through continuous product adjustments and effective implementation of our focus strategies, we have achieved significant success in sales while still enhancing our brand strength by strategically aligning our sales channels with differentiated products. We have successfully expanded our market share and further promoted our mineral water purifiers. In July, the Wyoming AI water purifier ranked third in the water purifier sector, while our new spring product series claimed the top position in the under-think water purifier category on China's leading new media platform. Wyoming ranks 439th place in 2024 China's top 500 brand list, released by the World Brand Lab, with a brand value of 15.336 billion RMB. Following our major business reorganization, global water will become the company's vision. As a specialized professional water purification technology company, We aim to deliver fresh and healthy water worldwide, and we will deepen our focus on providing high-quality products and solutions to enhance our user satisfaction. First, we will strengthen our collaboration with strategic partners to fully leverage our water-based purifier data factories' competitive needs and advantages. Second, we will increase our water purification products' domestic market penetration. continuing to lead the healthy mineral water trend and promoting access for household users. Third, we will actively expand in key oversea markets to promote well-made global strategies, allow families abroad to enjoy fresh and healthy water through our products. In the meantime, we will maintain a sufficient capital reserve and ensure stable business growth, providing long-term returns for our users and shareholders. Thank you. That concludes our funder remarks. I will now turn the call over to our head of the Capital Strategy Department, Mr. Sam Yang, to discuss our financial performance. Thank you.

Thank you, Ms. Chen and Claire. Thank you to everyone for joining us today. I will go over our unordered financial results for the first half of 2004. Net revenues were $1 billion. and 40.2 million renminbi, compared to 1,304.4 million renminbi for the same period of 2023. The decrease was mainly due to strategic shifts in focus toward home water solutions, resulting in decrease in revenues from the IoT at-home portfolio, as well as small appliances and others. Revenues from the IoT at-home portfolio decreased by 30.3% to 482 million RMB from 691.7 million RMB for the same period of 2003. The decrease was primarily due to the company's strategic decision to phase out certain unperforming SKUs in SMART refrigerators, and air conditioners, aiming for more sustainable and healthy goals. Revenues from home water solutions increased by 12.9% to 323.5 million renminbi from 286.6 million renminbi for the same period of 2023. The increase was primarily driven by our intensified focus on water purification products. Revenues from consumables remain stable at 135.8 million renminbi from 135.9 million renminbi for the same period of 2023. Revenues from small appliances and others decreased by 48 percent to 98.9 million RMB from 190.2 million RMB for the same period of 2003, primarily due to the company's ongoing effort to streamline SKUs within these categories. The gross profit was 258.1 million RMB compared to 286.2 million RMB. 8 million renminbi for the same period of 2023. Wealth margin was 24.8% compared to 22% for the same period of 2023. The increase was primarily driven by the company's effort on expanding revenue contribution of higher gross margin core product categories. Total operating expenses decreased by 19.2% to 292.3 million renminbi, from 361.8 million renminbi for the same period of 2023. Suggested operating expenses excluding share-based compensation were renminbi 281.8 million, representing year-over-year degrees of 21% 21.8 percent. The decrease was driven by the company's strategic evaluation of resource efficiency and a focus on more advantageous areas to achieve the best operating result. In greater detail, R&D expenses slightly decreased by 1.2 percent to 109.2 million renminbi from 109.5 million renminbi for the same period of 2023, mainly due to a decrease in stock costs partially offset by higher share-based compensation expenses resulting from extension of share incentive plans expiration term to 20 years. Selling and marketing expenses decreased by 33.1% to 142.9 million RMB from 213.5 million RMB for the same period of 2023, mainly due to a decrease in logistics expenses, online platform service fees, and advertising and marketing fees. A result of the company's rigorous cost control measures, optimization of sales channels, and the refinement of the product mix. P&A expenses increased by 6.2 percent to 41.2 million renminbi compared to 38.8 million renminbi for the same period of 2003, primarily due to an increase in professional fees Depository addition and administrative expense is related to operation of the technology part, partially offset by a decrease in the estimated allowance for accounts and notes receivables. Net income attributable to ordinary shareholders of the company was 6 million renminbi, and the non-GAAP net income attributable to ordinary shareholders of the company was 16.5 million renminbi. We achieved this great result as we strategically shift efforts towards home water solution products and implementing strict cost control measures. Additionally, our balance sheet remains healthy. As of June 30, 1994, the company had a cash and cash equivalent of $701.6 million renminbi restricts the cash of 206.9 million renminbi, short-term deposit of 142.6 million renminbi, and a short-term investment of 60.1 million renminbi. Now, let's turn to our outlook. For the full year of 2024, with current experts, revenues of the continuous business to be between 1.7 billion RMB and 1.9 billion RMB. Income from operations of the continuing business to be between 110 million RMB and 130 million RMB. The above outlook is based on our current market conditions and reflects the company's current and the preliminary estimate of the market and operating conditions and the customer demand, all of which are subject to change. Thank you.

Okay, this concludes our prepared remarks. We will now open the call for Q&A. Mr. Chen, our founder, and Mr. Yang will join this session and answer questions. Operator, please go ahead.

We will now begin the question and answer session. To ask a question, you may press star, thumb one on your telephone keypad. If you're 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 and then two. For the benefit of all participants on today's call, if you wish to ask a question to management in Chinese, please immediately repeat your question in English. Our first question comes from Zhizhen Li. Please go ahead.

Hello. Hey, thanks for the management and leadership from CSCC. and I have three questions about the results, and I'll ask them one by one. Okay, so the first one is, for the home water solution business, can you introduce what is the result of both the volume and the AFP, and how do the Xiaomi brand and BioMate brand products perform productively? Thank you. That's my first question.

Okay, thank you. Let me just get to your question. As for the home water solution business, we had a 13 percent increase in revenue for the first half of 1994, compared to the same period of last year. And due to further focus on home water solution business, as well as deepening our strategic cooperation with Xiaomi on this category. Through continuous product adjustment and the effective implementation of our focus strategy, we have achieved significant success in sales-wide strategy, enhancing our brand strength. But strategically, allowing our sales channel with differentiated products, we have successfully expanded our market share and further promoted our mineral water purifiers. In July, the Wyoming AI water purifier ranked third in the water purifier sector, while our new spring product series claimed the top position in the unsinked water purifier category on China's leading new media platforms. Additionally, Wyoming ranked 439th in the two 2024 China's top 500 brands released by the World Brand Lab with a brand value of 15 billion RMB. We will maintain close cooperation with our strategic partners while expanding differentiated channels and the products to jointly increase the penetration rate of the water purified market and make AI water purified as essential for the better life. Thank you. Please go on.

Okay, thank you. My second question is what is your purpose of financing IoT business and what are the remaining categories now? And can you explain why do you choose this? And can you also introduce some financial results of the remaining categories? Thank you.

It's a very good question. The business with diversifying certain underperforming IoT business so that we can quickly restore our operations and get the company back to a benign status. A certain IoT business has shown a trend of construction in scale during the past few years, which to a certain extent has dragged down our overall operating efficiency. Therefore, we have started to streamline and focus on more productivity in 2023 and invested our resources in more advantages product categories. As we mentioned in the beginning, at the ER for the first half of 2004, based on our preliminary estimate, the estimate of revenue of continuing business was no less than $500 million revenue. With the estimated income from operation more than 50 million renminbi for the first half of 2022. Also, we estimate the top line of the continuing business will reach between 1.7 billion renminbi to 1.9 billion renminbi for the full year of 2024, with the income from the operation between 110 million renminbi to 130 million renminbi. Next, we plan to sort out the overall revenue structure with the new home water solution business, consumables, and other appliances and services. Although it's not finalized yet, the new home water solution business will include unsinked water purifies, pipeline water dispensers, free installation products like top water, dependers, smart kettles, as well as centralized water purification and softening systems, and water heaters covering home scenarios including kitchen, living room, bathroom, and whole house water system. Thank you. Please go on.

Okay, thank you. And my last question is, what does the management expect to see improved after this divestment? And what will be the focusing points in the future? Thank you. That's my last question.

Okay. The business we diverse are certain unperforming IoT business. All fundamental has turned around. Earnings will improve significantly. and get the company back to benign status. As we mentioned before, based on our preliminary estimate, the estimated revenue of the continuing business were more than 800 million, with the estimated income from operation more than 50 million RMB for the first half of 2024. The full year guidance of the continuing business is between 1.7 billion to 1.9 billion renminbi in top line. And 110 million to 130 million renminbi of the income from operations. As we can see, the income of our business will shrink. Our overall scale in short term. but will produce significant improvement on the operation result. Through this reorganization, we can concentrate our resources to focus fully on the company's most powerful water purification field and further improve the brand influence of Xiaomi AI Water in the following three aspects. First, We will strengthen our collaboration with strategic partners to fully leverage our water purified people factories competitive advantage. Second, we will increase our water purification products domestic market penetration, continuing to lead healthy mineral water trains, and promoting access for household users. We will actively expand in key overseas markets, such as the North America and the Southeast Asia markets, to promote Viamis' global strategy, enable families abroad to enjoy fresh and healthy water through our products. Thank you.

Okay, the next question comes from Hunter Diamond with Diamond Equity Research. Please go ahead.

Hi, congratulations on the results. Some of my questions were already answered, but I have a few more. My first question was, what are the expected impacts of extended filter lifespan technology on customer retention and recurring revenue, considering the reduced need for frequent filter replacements?

Well, through the application of AI technology, we hope to enhance the customer experience. Excuse me, can you hear me? Okay. Yes. Increase the acceptance of water purifiers and reduce the cost of water purification. The increasing in-store base will bring in recurring revenue from consumables. According to our observation, the market size and penetration rate of China household water purifier market maintain a low level for a long time. Lots of customers switch to other ways to get purified water and do not change the filter, mainly because of the frequent change in filters causing a lot of problems and extra cost. This is due to a low degree of product intelligence so that customers cannot have a clear expectation of the lifespan of the filters and cannot replace the filters by themselves. We can change it. Let's just take 1,200 gallon Kunlun AI water purifier, for example. It's one of our best-selling products. It comes from two filters. One is a composite filter with two-year lifespan. Selling price is around 300 RMB. And the other is a RO filter with average lifespan of five to six years. Selling price is around 900 RMB. For our family, with daily usage of the water of 10 liters water. Assuming they are using the water purifier for eight years, the annual cost for the filters is less than 230 remedy. This is a very attractive and has obviously an advantage comparing to bottled water. You can do one click, to make the water through the APP change the filter by DIY with three seconds. It's pretty simple and easy. We believe it will bring more and more people to purchase and continue to use water purifiers, increasing the installation rate and guarantee an acceptable customer consumption. In short, at Viami, we added AI for better water using AI technology to make better water and durable, reliable products, promoting the customer's increase in healthy awareness and allow more customers to use AI purifies to improve the quality of the living. Further, improve the penetration rate of the household market. In the meanwhile, bring high-quality and sustainable-scale growth for the company. Thank you. Please go on.

Great. Thank you. And my next question was, can you provide more details on Biomi's omni-channel marketing and service supporting the expansion into international markets, particularly the U.S., where competition is very strong?

All right. Thank you. That's a very good question. Regarding the China expansion, with our existing omni-China marketing and service compatibility combined with our accumulated strength in water purification, manufacturing, R&D, and product strength will help us to explore the North American market. At present, We have both domestic marketing and office sales service systems covering both online and offline channels, including the sales channels of mainstream e-commerce platforms, as well as live streaming sales on new media platforms. We are also actively expanding the overseas market besides the original European and Southeast Asia market, we are taking steps to expand the North American market. We see that the household water purifying North America has great potential and also is a great challenge. We have the industry leading gigafactory as our strong quality assurance. Using AI technology to develop water purifiers, our overseas users can also download the APB for device management. Real-time monitoring the water quality and usage. DIY replacement of the filters reducing the maintenance cost. Meanwhile, we have enriched reserves of technology to customize the product development demand around the world, all of which has built up solid support for Viami to expand in the global market. Thank you, Hunter.

Great. Thank you for the detailed answers. That's all I have for questions. Thank you.

And that concludes our question and answer session. I would like to turn the conference back over to management for any closing comments.

Okay. Thank you once again for joining us today. If you have further questions, please feel free to contact us through the contact information on our website or our investor relationship consultant, the PS&T Group. Thank you. Goodbye.

Thank you. Thank you.

Bye bye.