Zepp Health Corporation

Excuse me, this is a conference operator. Thank you for your patience. The call will begin in a few minutes. Thank you. Please continue to hold. Thank you. Thank you. Thank you. Hello, ladies and gentlemen. Thank you for standing by for ZEPP Health Corporation's first quarter 2023 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 ZEP House Corporation's first quarter 2023 earnings conference call. The company's financial and operating results were issued in a press release of 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.z.com. Participating in today's call are Mr. Wang Huang, our Chairman of the Board of Directors and Chief Executive Officer, and Mr. Liang Chen Zheng, our CFO. 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 are included in the company's annual report on Form 20-S for the fiscal year ended December 31, 2022, 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 ZEPPS earnings press release and the conference call include discussions of unaudited gap financial information as well as unaudited non-gap financial information. ZEPPS press release contains reconciliation of the unaudited non-gap measures to the unaudited most directly comparable gap measures. I will now turn the call over to our CEO, Mr. Wang Huang. Please go ahead.

Hello, everyone. Thank you for joining our call. In the first quarter, you recorded revenue of RMB $645.2 million with RMB $391 million from our self-branded products and RMB $254 million from the Xiaomi ODM business. Our total revenue declined as causes consumers limited discretionary spending due to volatile geopolitical and macroeconomic conditions in Europe and the US. As we mentioned in the earlier quarters, We anticipate that the Xiaomi ODM business will diminish further and that our self-branded product line will become the main growth driver in the future. In the quarter, we made progress globally by strengthening our go-to-market capabilities and increasing brand awareness. along with the value of our product. Growth, higher shipment, and market share gained this 20% increase in the Southeast Asia and East Asia region. Despite experiencing a decline in the consumer electronic device market during the first quarter of 2023, we maintain our optimism that macro headwinds will subside, and we expect to see a market recovery during the second half of the year. Furthermore, another cause for optimism is that cannabis recently forecasted an increase in the smartwatch market in 2023. We strongly believe in Amazfit's long-term potential in the smartwatch market, presenting a significant opportunity to boost sales by enhancing our product competitiveness. By leveraging our vertical integrated mix-size-based chip and ZEPP OS in all product lines, we can reduce product costs and improve product growth profit margins. Our high-end products offer similar performance to premium competitors, but at a fraction of the most of the cost and with longer battery life. This all helps us generate higher revenue and profit margins along with our integrated supply chain and efficient R&D. We will secure our position in the 100 to 200-year dollar market segment while expanding into premium segments and enhancing our sales channels and supply chain management for increased profitability. With these enhancements now implemented, I am thrilled to share that our new products have achieved a remarkable 34.6% margin in the current quarter. We remain confident that the overall margin will improve in the future as we work towards achieving a more optimal inventory level. the rapid implementation of OpenAI's LLM technology sets us apart from our competitors in the industry. By utilizing sports watches powered by generated AI, we will position ourselves as a trailblazer in the market. emphasizing our advanced grade technology rather than traditional sports watches. For example, as we mentioned last quarter, we have been the industry pioneer in integrating GPT technology into our products and services, such as ZEP Coach and ZEP Aura. On March 29, we launched the beta version of an AI powered Zap Coach chat function for a mainstream Falcon user. Powered by its constantly learning and evolving AI chat capability, Zap Coach chat can provide users with abandoned, personalized, and updated exercise recommendations. In recent quarters, we have implemented refreshed marketing and product strategies that include creating communities for sports and outdoor resources by leveraging generated AI technology, we have not only supported the growth and development of athletes, both in series and outdoor in series, but also built a thriving user community in the sports and outdoor sectors. This has resulted in the organic spread of positive word of mouth and distribution, which has further boosted our brand and reputation in the mid- to high-end market. As a result, we have also gained brand premium in the mid- to low-end market, driving higher profit margins in the future. Alongside our endeavors to equip our products with cutting-edge technologies, we have also been striving to expand our product portfolio, aiming to offer more diverse products to address different cohorts' fairness, health, and lifestyle needs. In Q1, we launched the Amazfit T-Rex Ultra, our ultimate outdoor GPS smartwatch on March 20. It received positive feedback from outdoor sports insurers for its project design. premium materials, and 160-plus sports modes. We have other exciting product plans for the year ahead, aiming to bring advanced features to more users. For example, on May 4, we released a significant firmware update for the Amazfit TX2 smartwatch. It includes hot-ray recovery information, terrain, metrics, attitudes, water temperature, slope, and automatic slope analysis. These enhancements improve the user experience making our smartwatches reliable fitness companion for indoor and outdoor activities. For the past few months in 2023, we have seen some signs of economic recovery in certain markets. That said, The fragile economic environment in many other markets remains an uncertain factor, dampening consumer confidence and potentially our sales performance in the coming quarter. Nevertheless, we remain confident in our strategy described above. And we believe this is the right path leading to the company's sustainable growth as we aspire to become a leading global healthcare solution provider. And it will enable us to deliver incremental value to our users and shareholders. Thank you again for joining us today. I will now turn the call over to Leo to go over the highlights of our first quarter financial results.