Zepp Health Corporation

And gentlemen, thank you for standing by for ZEPP Health Corporation's second 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 Zapp Health Corporation's second quarter 2023 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. Participating in today's call are Mr. Wang Huang, our Chairman of the Board of Directors and Chief Executive Officer, and Mr. Liu Chengdeng, 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 looping 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-F for the fiscal year ended December 31st, 2022, and other filings as filed with 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 discussions of unaudited ZAP financial information as well as unaudited non-ZAP financial information. ZAP's press release contains a reconciliation of the unaudited non-ZAP measures to the unaudited most directly comparable ZAP measures. I'll now turn the call over to our CEO, Mr. Wang Huang. Please go ahead.

Hello, everyone. Welcome to ZAP Health second quarter 2023 earnings conference call. In the second quarter, we maintained our momentum through the successful execution of our strategic transformation. This shift involves moving away from a business model heavily relying on a single customer for the majority of our revenues. And instead, establishing ourselves as a self-reliant global smart variable and healthcare solution provider. While Mi Band sales were heavily affected by the overall smart band market decline, our self-branded products continue to gain traction during the quarter, generating 12.7% higher revenues quarter over quarter and contributing to approximately 70% of our top line. In this transformative phase, we have come to recognize that enhancing our revenue streams quality is paramount. Our strategy has undergone refinement. Centering around the utilization of our self-branded product sales to effectively offset the company's fixed costs. This transition marks a deliberate pivot from the pursuit of sheer growth to the steadfast commitment to attaining profitability. Notably, this shift in approach has been particularly successful in the Chinese and Indian markets, where we have converted erstwhile loss-incurring ventures into sources of profit. This strategic focus is aimed to improve our growth margin ultimately steer us back towards sustained profitability. We have refined our product mix and strategically streamlined our sales channels. As a result, our overall gross margin has surged to 22% compared to 17.9% at the same period last year. This achievement marks the highest level we have attained since the second quarter of 2021. Even in the face of software total revenues year-over-year and margin pressure stemming from Xiaomi products, Our ROI-driven strategies spanning the supply chain and the product development and marketing has significantly furthered our brand image within the premium smart wearable device market. These initiatives have not only elevated our Brands influenced and garnered increased consumer recognition, but have also optimized our cost efficiencies. As a result, our products and services have experienced heightened adoption across various global regions. This growth is particularly evidence in the high-end product segment, where we offer a comparing value proposition, delivering premium features at a more accessible price point than our competitors' premium offerings. This is especially true in the North American market, where we kept our market position in terms of market value in the top five for smartwatches, according to NPD with an increased gross margin. We continue to enrich our offerings to adjust the preferences of our customers. On June 21, we unveiled Amazfit Cheetah, our first smartwatch series dedicated to runners. Featuring a lightweight design for runners, it can optimize users' running experience with industry-leading GPS technologies to deliver enhanced positioning accuracy and upgraded AI-powered coaching to generate personalized training plans. Leveraging last language model and generative AI technologies, we also rolled out an AI chat feature in Amazfit Cheetah to facilitate true coach to athlete interactions for users. Additionally, We have also been striving to refresh users' experience and better meet their fitness and lifestyle needs through firmware updates. On July 10, we released a major update for our popular Amazfit QLX2, which added support for cadence sensors. upgraded water sports modes, such as surfing, kite surfing, and the newly added wake surfing, as well as the long awaited Zap Coach feature, allowing users to enjoy their favorite summertime activities with our AI powered training guidance. we have enhanced our entry-level product line by introducing the new BIP5, featuring an expensive 1.91-inch ultra-large display. With the inclusion of a cutting-edge full satellite positioning system, this device empowers users with accurate location tracking. Unlocking a comprehensive range of possibilities, the BIP5 supports over 120 sports modes complemented by intelligent recognition technology. Moreover, it comes with monitoring capabilities on 24-hour bit rate, and stress levels, ensuring a holistic view of our users' well-being. Additionally, we are planning to build several new products in the second half and are excited about how their advanced features can help more users better manage their health. We will save the details for their upcoming product launches. Please stay tuned. Our commitment to enhancing our offerings for users through application of cutting edge technologies across our products, services, and business is built into our DNA. As our AI cloud, Zap Coach is providing more interactive, informative, and customized training experience to our users through products like Amazfit Falcon, Amazfit T-Rex Ultra, and now Amazfit T-Rex 2, as well as Amazfit Cheetah. We are also integrating GPT technology into our software development process. to enhance our R&D efficiency. We believe this will eventually benefit users as they will enjoy premium products and services at a low cost, while also contributing to our bottom line gains. Lastly, I'm thrilled to share that we teamed up with renowned ultra-medicine and fitness icon, and appointed him head ambassador for Amazfit Cheetah Pro. He led team Amazfit at the San Francisco MadSong from July 21 to 23, where he demonstrated the exceptional functionalities of our premium running smartwatch. This partnership has introduced Amazfit to more running insurances and showcased our ability to craft leading products, helping amplify our reputation as a premium smartwatch manufacturer across the international sports community. Looking ahead, we remain optimistic about our company's prospects as the market continues to present huge posts from 157.3 million in 2023 to 206.2 million in 2027. with a CAGR of 6.8% despite the challenging microeconomy. As we hone our value proposition with AI-powered products and services to ride the industry's tailwind, we expect our self-branded products to continue to grow We will continue to optimize our inventory levels and prevent control causes while maintaining our competitive edge and building long-term product pipeline through targeted investment in R&D and marketing. Supported by our vertical integrated supply chain and efficient platform-based R&D. We are confident that these efforts will propel margin expansion and a prompt return to profitability, ultimately fueling our growth and business success. Thank you again for joining us today. I will now turn the call over to Liam to go over the highlights of our second quarter financial results.