Zepp Health Corporation

Hello, ladies and gentlemen. Thank you for standing by for ZEPP Health Corporation's third 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 ZEPP Health Corporation's third 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 earnest press release and slides referred to on this call by visiting the IR section of the company's website at ir.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 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 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 20F 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 ZEPP's earnings press release and this conference call include discussions of unaudited GAAP financial information, as well as unaudited non-GAAP financial information. ZAP's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I'll now turn the call over to our CEO, Mr. Wang Wang-Shuang. Please go ahead.

Hello, everyone. Welcome to ZAP Health Third Quarter 2023 Admin Conference Call. In the third quarter, we achieved a business turnaround returning to profitability after enduring six consecutive quarters of losses. Despite an year-over-year decline in revenue, our high-margin self-branded product contribution to our top line now accounted for approximately 80% compared to the average of around 40% for the previous five years. This accomplishment reaffirms the effectiveness of our operational strategy and the early success of our business model transformation. Before delving into the details, I would like to provide a recap of our business model transformation, which has taken nearly two years to bring us to our current position. transformation has involved departing from a business model that heavily rely on a single customer for the majority of our revenues is that we aim to establish ourselves as a self-reliant global smart variable and healthcare solutions provider. Throughout this transformative phase, we have recognized the importance of enhancing the quality of our revenue streams. This transition signifies a deliberate shift from pursuing sheer growth to a steadfast commitment to achieve profitability. Our strategic focus is centered on improving our growth margin and ultimately guiding us towards sustained profitability and future growth. Notably, our Q3 performance indicates an early success on this journey. While Xiaomi branded products face persistent industry-wide headwinds, our self-branded products sustain sequential growth momentum is 12.3% quarter-over-quarter revenue growth. This was driven by our expanded AI power product portfolio and average brand influence worldwide, resulting in a rise in product adoption across several markets, notably In Southeast Asia and central region, our self-branded product revenue increased by 28.4% and 79% respectively year over year. It's also worth mentioning that we turned net profit positive for the Chinese and Indian markets during the third quarter as we remain focused on high-quality growth with effective region-specific sales expansion and cost-reducing strategies. Amid our business model transformation, we prioritize profitability over sheer revenue growth. This strategy is a strategic shift from results in a significant surge in our gross margin, reaching a historic high of 33.9% in Q3. This achievement is fueled by R&D breakthroughs, such as our industry-leading GPS check technology and the continuous update of ZipOS, supporting our premium product lines and elevating our ASP, thereby enhancing our product competitiveness. The expansion in growth margin is also a result of persistent efforts to improve overall operational efficiency. Looking ahead, We remain dedicated to refining our retail channels and product mix to sustain this positive trend in high growth margin, fostering profitable growth for future. While employing a profitability-oriented approach to our business operations this quarter. We also remain focused on leveraging our R&D capabilities to enrich and iterate our product and service offerings to attract a broader community of users. In September, we launched the Amacy Balance previously known as the Amazfit GT Series, a powerful smartwatch that enables users to track the ultimate balance between life, work, and wellness with seamlessly integrated advanced features for health, fitness, and lifestyle. Specifically, Amazfit Balanced features integration with Zap Coach a chat AI power fitness coaching service, ZEP Aura for AI power to rest and wellness services, and ZEP Pay for convenient NFC contactless payments. Notably, it's Amazfit's inaugural smartwatch to house a certified medical device blood pressure monitoring app in China. Moving forward, We are expanding the back pressure measurement software from the balanced product line to include a variety of watches, such as Amazfit Active, Cheetah, and T-Rex. This integration augments the overall value of our smart watches in comparison to other Chinese competitors who only utilize barometric measurements on specific models for blood pressure. We believe our approach is more convenient and applicable across our entire watch series. In October, we also unveiled the Amazfit Active and Amazfit Active Edge, both tailored for modern day city consumers. featuring an elegant appearance and powerful functionality with our AI power zap coach. Amazfit Active is an ideal companion for people trying to live a healthy and active lifestyle. Meanwhile, the tough yet stylish Amazfit Active Edge infuses our lifestyle series with new vitality, allowing users to express their identity and personality through its unique design. We still have many amazing new products on the way for the upcoming months, so stay tuned. We are currently hosting a message city campaign to champion a balanced and active lifestyle, which we consider the core value of Amazfit Watches. Successful sections have taken place in Dostoyevsk, Germany, and Madrid, Spain, with more city campaigns lined up. We invite users to join these sections, share feedback on our products, and collectively build a community that are the for the users of Amazfit smartwatches. We would be delighted to have you participate in these sections as well. At that, innovative minds are the driven force needed to advance the integration of technology especially on the ZEPP OS. To that end, we recently sponsored CalHex, the world's largest collegiate tech zone. For the second consecutive year, this event's wealth of tech talent presents an opportunity for us to discover bright new minds and ideas, thereby empowering us to fulfill our mission. We will continue to involve DevOps and increasingly rolling out our new updates to users to grow the user base. Alongside our ongoing product catalog expansion, we consistently enhance our product experience by rolling our software updates. the threat adoption, and the evolution of ZipOS. We are offering more regular updates to our users than before. For example, we released three major updates for Amazfit 2.2 in the third quarter. First, our official system upgrade to ZipOS 2.2 One, brought users a fresh interface and new interactive experiences. Then we also delivered a targeted sport mode upgrade and upgraded algorithm, enabling users to check their physical status in real time. The same is true for our Amazfit Falcon users and much more. These efforts to enhance our product value drove increased vibrance and engagement across our user community during the quarter. Notably, German marathon champion, Patrick Pfeiffer, has teamed up with us for his four-match season to showcase the performance and features of Amazfit Cheetah Pro, whether elevating our brand influence and enlarging our user base. Furthermore, we continued to leverage AI to drive our success, applying AI technology to both our products and services, as well as our daily operations. Evidenced by our latest product launches, we are integrating our AI powered features, such as Zap Coach and Zapora into more of our products and services to help users train and manage their health effectively. Additionally, we continue to adopt GPT technology to facilitate our software development and enhance our IT efficiency, which has yield encouraging results. we will continue to enhance our AI capabilities to prepare our development to the next level. Looking ahead, we remain committed to providing our flourishing global user community with our enriched product lines empowered by our evolving AI ecosystem as the macro environment remains challenging. We are striving to maintain and increase our profitability while also actively exploring opportunities to drive our top-line growth to enhance our product value and attract a broader range of users. As we help more people manage their lives and well-being with our intelligent healthcare solution tools, we remain confident of achieving healthy, sustainable growth. Thank you again for joining us today. I will now turn the call over to Leon to go over the highlights of our third quarter financial results.