Zepp Health Corporation

Hello, ladies and gentlemen. Thank you for standing by for ZEPP Health Corporation's fourth quarter and full year 2022 earnings conference call. 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. Grace Zhang, Director of Investor Relations for the company. Please go ahead, Grace.

Hello, everyone, and welcome to Zapp Health Corporation's fourth quarter and full year 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 the slides referred on this call by visiting the IR section of the company's website at ir.com.com. Participating in today's call Mr. Wang Huang, our Chairman of the Board of Directors and Chief Executive Officer, and Mr. Leon Chen Zheng, 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 provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. 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 required under applicable law. Please also note that SEP's earnings press release And this conference call includes discussions of unaudited gap financial information, as well as unaudited non-gap financial information. That specialist 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. Wang Huang. Please go ahead.

Hello, everyone. Thank you for joining our call. In 2022, we faced substantial micro-challenges such as the ongoing COVID-19 pandemic, the Ukraine-Russia war, global infection, and weakening consumer confidence. These factors affected our operations, while in Q4, consumer discretionary spending decreased due to macroeconomic uncertainties, particularly in Europe and the U.S., against this backdrop. Our first quarter revenue came in at RMB 1.1 billion, down 35.5% year-over-year, primarily due to decreased sales of knee-bend products. Our company foresaw the decline of the basic bank market quarters ago and shifted our focus to self-branded watches. I'm pleased to share with you that our self-branded products accounted for 77.4% of our sales during the fourth quarter, compared to 57.7% in the same period last year. We now offer various product lines for our self-branded products, including outdoor, sports and fitness, business, and basic watch lines. I still remember leading the company through its IPO five years ago. Our self-branded products only accounted at roughly 20% for the company's revenue. Over the past five years, we have successfully transformed our business from one which revenue was largely contributed by a single consumer, a single customer, to becoming a top global player in the smart variables and healthcare services industry. Despite macro challenges, our self-branded product showed strong performance during Q4. with a 28.5% quarter-over-quarter revenue increase and continued cross-margin expansion. The success is due to improved sales of our high-margin products and enhanced brand value together with our optimized solidly-performing sales channels, demonstrating our improved market position. We believe that the smart wearable market has significant growth potential. We are confident in the growth trajectory of our Amazfit and Zapp products, and we are committed to further expanding our self-branded product line. As we move forward, we will continue to focus on product innovation and optimizing our cost structure to drive profitability and reinforce our business resilience. We believe the smart variable market has not achieved its full potential yet. For example, as we integrate GPT technology into our ZAP OS, we are able to offer a highly advanced and personalized experience for our users. This allows us to stand out in an increasingly competitive smart wearables industry by providing personalized sleep insights, coaching, goal tracking, nutrition advice, and health monitoring features. All this seamlessly integrates within our wearable devices. Our dedication to improving the user experience and enhancing overall well-being sets us apart from our competitors and positions us as a leader in the industry. By continuing to leverage the power of GPT technology and other cutting edge offerings, we are strategically expanding our reach and building long-term value. Our company has a long history of investing in cutting-edge technology to enhance our products and services. Several years ago, we invested in Lix5 architecture chip technology, and now we are able to use our own in-house designed low-power, high-performance Lix5 chip for smartwatches. This investment has allowed us to improve our smartwatches' performance and battery life. We are proud to leverage this technology in conjunction with our AI technology, similar to GPT, to offer tailor-made user experience. With the power of our list of five chips and AI technology, we can significantly enhance users' health and fitness performance. We also utilize this technology to optimize user service, feedback analysis, marketing data analysis, AI coding, and testing, allowing us to increase operational efficiency and improve service quality. In addition to enabling users to design their own AI-empowered watch faces, we have also developed mini apps that are automatically designed by AI, similar to GTP technology. This allows us to offer users a highly personalized experience and sets us apart from our competitors in the smart variable industry. Soon, we will integrate these technology advancements into our Zepp Sports Coach function to elevate the user experience to new heights. Now, let's move to our global operations and products. Our new self-branded product has an impressive market performance. resulting in increased brand recognition among consumers worldwide in Q4. Amazfit won NPD's Consumer Electronics Industry Performance Award in the Fairness Tracker category for top e-commerce U.S. market share gain, validating our product competitiveness in the premium markets. We also expanded our presence on the global stage by opening our workshop office in February. We successfully launched the Amazfit Falcon globally, which received recognition from the global high-end sports professional community. And our newly launched Amazfit GTS4 and GTR4 have been well received by consumers worldwide. In Q4, we remain concentrated on optimizing our cost structure as we strive for profitability and further enhance business resilience in 2023. We will continue with this cost-cutting initiative while balancing cost controls with existing expenditures to fuel growth, and we anticipate that these actions will meaningfully benefit our business operations in the long run. We are extremely confident in our ability to seize market opportunities, enhance our product value, and continue to deliver additional shareholder value while providing users with more refined and comprehensive healthcare products and services. We believe that by optimizing our cost structure and balancing cost controls with investment in growth, we can continue to enhance our product value and improve margins. Rather than focus solely on quantity, we prioritize quality clothes and aim to win the competition in advanced markets like Europe and North America. Even in the face of global micro economy uncertainty, we remain committed to providing cutting edge technology and products that stay at the forefront of wellness solutions. Thank you again for joining us today. I will now turn the call over to Leon to go over the highlights of our fourth quarter financial results.