Zepp Health Corporation

Ladies and gentlemen, thank you for standing by for ZEPP Healthcare Corporation's second quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. Today's conference is being recorded. I'd now like to turn the call over to your host, Mrs. Grace Young, Director of Investor Relations for the company. Please go ahead, Grace.

Hello, everyone, and welcome to Zapp Health Corporation's second quarter 2022 earnings conference call. The company's financial and operating results were issued in a press release via the Newswire services earlier today and are posted online. You can also view the earnings press release and slides referred to on this call by visiting the IR section of the company's website at ir.zapp.com. Participating in today's call are Mr. Huang Wang, our Chairman of the Board of Directors and Chief Executive Officer, and Mr. Leon Chen Deng, our Chief Financial Officer. The company's management will begin with prepared remarks, and the call will conclude with a Q&A session. Mr. Mike Yang, our Chief Operating Officer, will join us for 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 for the fiscal year ended December 31, 2021, and other filings as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that ZEPP's earnings press release and this conference call include discussion of unaudited gap financial information as well as unaudited non-gap financial information. ZEPP's press release contains a reconciliation of the unaudited non-gap measures to the unaudited most directly comparable gap measures. I'll now turn the call over to our CEO, Mr. Huang Wang. Please go ahead.

Hello, everyone. Thank you for joining our call. For the second quarter of 2022, we forged ahead, countering the challenges brought about by the ongoing pandemic and the weakened consumer sentiment. Underscored by regional conflicts and microeconomic factors across a number of our markets globally, Our second quarter revenue was in line with our guidance at RMB 1.1 billion, down 39.6% year-over-year, compared with RMB 1.84 billion in the second quarter of 2021. But on a positive note, it presented an improvement of 46.4% quarter-over-quarter from the IMB $757 million of revenue in the first quarter of 2022. This year-over-year decline in revenue was primarily attributable to the later timing of our Mi Bank launch this year. the new generation MiBank contributed to just one month of sales in the second quarter of 2022 versus the full quarter's sales in the second quarter of 2021. That said, we were pleased to see our top line improve from the first quarter. This occurred despite the subdued retail spending on discretionary items owing to the rising cost of living, worldwide geopolitical events, lockdowns, and other pandemic control measures in China impacting our business. We expect further sequential improvement in sales going forward, particularly given the positive sales impact from the launch of several innovative, self-branded smartwatches. including Amazfit T-Rex 2, Amazfit Bip 3, and Amazfit Bip 3 Pro, towards the end of the second quarter. Furthermore, in the third quarter, we will launch new products in our most popular line, the Amazfit GT series. Before we further elaborate on our new products and regional achievements, I would like to share some updates on our business operation. Earlier this year, we optimized our organization structure to improve our operational effectiveness and enhance our customer-facing capability. We also formed an IMCC, Information and Management Construction Committee, to oversee the development of a new generation information management system. which better serves the post-COVID era working style, including working from home and collaborating across time zones. This also strengthens our advantages in AI, chip technology, our cloud service in Europe and North America, built through R&D collaboration, and our mass manufacturing and production capabilities in China. This approach of systematic optimization makes our organization more flexible, effective, and better suited for the comprehensive operational needs of our business units. We continue strengthening and elaborating our brand identity on the global stage, accomplishing significant progress in multiple markets. For example, in North America, we enjoyed impressive success during the recent July Amazon Prime Day event, with sales growing over 100% compared with the same event in 2021. Our outdoor smartwatch product line is gaining increasing consumer recognition. For example, Amazfit T-Rex 2 our latest, largest outdoor GPS smartwatch designed with outdoor adventurers and sports enthusiasts in mind. It's equipped with comprehensive outdoor exploration features, including high precision positioning, ultra-low temperature operating capability, military-grade toughness, and optimized route navigation. At well-known outdoor events taking place globally, such as Escape from Abculture, Triathlon, Spartan Race, participants speak highly and share their enthusiasm of our products. At the same time, Our Amazfit BIP product line continues to be popular in Southeast Asia, Latin America, and Southern Europe, owing to its best value, best price product philosophy, despite a microeconomic downturn occurring in many of those markets. Recently, we launched our ZAPClarity product in North American markets. This is invisible in the canal hearing aid for people who have mild to moderate hearing impairment. Our mission is to and normalize the use of hearing aids, empowering those with hearing limitations to take control of their own audio health. As some of you may have seen that this August, the U.S. FDA finalized a rule change that would create a class of over-the-counter hearing aids available for purchase without prescription or fitting from an audiologist. Many have failed the news as a great relief from millions of hard-of-hearing Americans who often find these expensive medical devices out of reach. The U.S. FDA's final rule allows Americans with mild to moderate hearing impairments to easily purchase hearing aids from community pharmacies or online retailers. potentially making hearing aids a new digital blockbuster. We also introduced a new AI-based sleep aid music subscription service. Our app utilizes real-time biometric data, in particular, heart rate, collected from our wearable devices to automatically compose high-quality customized reasons to help our users fall asleep faster and holistically improve their sleep quality. This is the first time that our products have pivoted from being data tracking devices to being healthcare solution providers. We have already launched this service in North American region. Before I conclude, I must briefly mention our DevOps ecosystem, an important strategic asset central to our open health management platform. It has a completely different design philosophy from Apple Watch iOS and Android Wear. prioritize longer battery life, from 10 to 30 days, depending on the device, so that users can continuously monitor their health condition. Giving that OS focus on designing for continuous health monitoring, this OS will evolve into new forms in the future. such as supporting the invisible in the canal hearing aid devices. We continue to encourage users worldwide to join our ZAP OS ecosystem. Breathing it would support and inspire them to manage their health and fitness and enjoy a fuller life. In addition, our inclusive and innovative ZAP OS ecosystem has attracted worldwide developers from around the globe to design apps and watch faces on our platform. In fact, surprising to me, some developers have even developed interactive game watch faces based on the API which we have not yet officially opened to help nurture this driving developer community further. We are hosting the first ever DevOps Global Online Hackathon from June 1st to August 31st, 2022. In summary, our second quarter revenue improved from the first quarter, which highlights our execution capabilities, product strengths, and this client business management approach even though the microenvironment remains challenging with ongoing geographic conflicts and COVID lockdowns. In the face of all those challenges, we continue to strive to improve our IMD, marketing capabilities and business operating effectiveness. With our recent product launches, I am optimistic that we can deliver even stronger results in the second half. Despite the significant headwinds, I remain as proud as ever of our team as we accomplished some major milestones. This includes launching our first medical grade product in a new product category, our invisible in canal hearing aid. as well as introducing our first AI-empowered health management subscription service, our AI music sleep aid service. These innovations have not only expanded our product category, but also helped us transform our business model from a pure device sales company to a healthcare management subscription provider. We view this accomplishment as a strategic upgrade into a new blue ocean market. As mentioned earlier, our organizational restructuring strengthens the sharing of our hardware platform's resources across different business units. The use of the ZAP OS operating system, and AI technology. This restructuring not only reduced redundant R&D investment and human resource costs, but also improved our overall operational effectiveness and the competitiveness of our tech. This laid the foundation for us to quickly launch our new invisible in the canal hearing aid product line and the AI subscription service. In the meantime, both this new structure and the layering help our senior management team stand closer to our users and facilitate a faster and better decision-making process. We now have a better view of the market, as well as the capability to fulfill its needs by using our leading technology. Using our current integrated information system enables our MD teams in the EU, the US, and China to launch more health-related products in distinct categories and distributes our product worldwide through diverse global channels. So assisting our over 40 million online MAU to benefit from more opportunities to enjoy our subscription services. As our amazingly branded smart variables is growing rapidly worldwide, we keep acquiring new users who pay significant attention to their health. We are forming a user community with increasing user thickness. Our use of continuous investment in applying AI technology to monitoring and solving health problems are building more rules, combining smartwatch technology and health data. We have gained unit advantages in hearing aids and sleep aid music subscription services, as well as reduced user acquisition costs. from smart bands to smart watches. We are now expanding into more healthcare product categories and online services. This highlights the beginning of a new stage for ZAP Health and ignited the process of forming the flywheel effect. With that, I will now turn the call over to Leo to go over the highlights of our second quarter financial results.