Zepp Health Corporation

Hello, ladies and gentlemen. Thank you for standing by for ZEPP Health Corporation's fourth quarter and full year 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 Shum, 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 2023 earnings conference call. The company's financial and operating results were issued in a press release via the newsletter 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 .com. Participating in today's call are Mr. Wang Wenhuang, our Chairman of the Board of Directors and Chief Executive Officer, and Mr. Leon Teng, 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 Young, 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 Security Litigation Reform Act of 1995. Forward-looking statements involving hurry risks and uncertainties. As such, the company's actual results may be materially different from the new success 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 do note that debt earnings press release and this conference call include discussions of unaudited debt financial information as well as unaudited non-debt financial information. That press release contains a reconciliation of the unaudited non-debt measures to the unaudited most directly comparable debt measures. I will now turn the call over to our CEO, Ren. Please go ahead.

Hello, everyone. Welcome, and thank you for joining our call. In 2023, amidst global microeconomy uncertainties, our ROI-oriented strategy and ongoing business model transformation began to bear fruit. This strategy shift has enabled us to strengthen our commitment to becoming a global provider of cutting edge smart variable healthcare solution. Before we dive into our earnings, I would like to spend some time talking about our strategy as we reflect on 2023. Over the past two years, we have been on a transformative journey to become less dependent on Xiaomi branded products and instead develop a self-reliant company driven by its self-branded product sales. This shift is starting to show promising results as evidenced by our two consecutive non-GAAP profit quotas. Looking at 2024, building on the actions we have taken in the past, we are excited to be making a strategic leap and harmonizing the synergy between our product and sales channels. This leap forward is grounded in three core pillars. First, we are putting greater emphasis on R&D and product-driven innovations, where we will fully embrace AI and offer more innovative products that closely align with needs of our key markets. Second, we are continuing to ensure profitable growth. maximizing the value we derive from each and every product sold. Guided by this approach, we are choosing profitability over scale in some regions, such as India, which transitioned in 2023 from a loss-making market to a profitable one. In certain other areas, we are investing aggressively to gain market share, aiming to generate long-term returns. Last but not least, we will invest in branding and marketing communications in order to enhance our brand presence by welcoming our amazing athletes and increasing sponsorship of big sports events. I believe you will see the Amazfit brand more visible across the world in the coming quarters. With these three pillars, I am confident we can propel our frame view and generate a higher return from our employees and shareholders in the long run. In the fourth quarter, of 2023, our focus on strategic transformation towards a more self-reliant revenue stream has gained traction. Aimed at reducing dependency on a single customer, lowering revenue concentration, and shifting our emphasis increasingly on self-branded products, these efforts to become self-reliant have made significant progress. As a result, despite a year-over-year decline in our revenue during the fourth quarter, our self-branded products maintained a sequential growth momentum with a quarter-over-quarter growth of 14.8%, and contributed to 91% of our top line, up from 77% in the previous year. Notably, our gross margin reached a record high in the fourth quarter, a testament to our effective prioritization of profitability over scale. This significant achievement was largely driven by our higher-margin, self-branded products. The launch of the Amazfit Active and Amazfit Active Edge series in 2004, as well as the Amazfit Balance Special Edition, enhanced our product portfolio and significantly elevated our market presence. At the same time, we will continue to improve our retail channels and enhance our product mix to sustain the higher growth margin trend. leveraging self-branded revenue to bolster the company's overall performance and steering us towards sustained profitability. To further solidify our market-leading position in smart variables, we continue diversifying our product lineup to meet evolving market demands. In October, we launched two new lifestyle smartwatches, the Amazfit Active and the Amazfit Active Edge in Europe and APEC. These smartwatches paired for today's urbanize. Branding elegance with powerful functionality incorporates the AI-powered ZAP coach, and effortlessly integrate into our users' hectic lives. At ZAP, innovation is at the core of everything we do. To reflect this vision, I would like to highlight some of our success in smart variable technology at CES 2024. The CS launch of the Amazfit Helio Ring, our first smart ring, underlines our dedication to providing pioneering accessible healthcare solutions. The Amazfit Helio Ring is designed to offer unparalleled recovery support to athletes. These developments in our commitment to empowering individuals to take control of their health and well-being through our smart variables. Building on the momentum of our product expansion, we remain dedicated to leveraging ZappOS We recently introduced ZapOS 3.5 with Zapflow at MWC Barcelona 2024 in February, a substantial update powered by large language model AI, marking a significant leap in wearable intelligence devices and bringing unprecedented levels of interaction that flow offers seamless natural language liquidation to provide users with exactly what they want from setting an alarm deactivating the always-on display feature to providing feedback on last night's sleep quality and analyzing the readiness score from the previous day's activities and offering recommendations for improvement in the following days. All can be done by interacting with the watch using human natural language and without the need to memorize any predefined commands. Additionally, we provide our users with consistent software updates. For example, the Amazfit Balance now features new training templates, new ski map functions, and enables smart NFC car payment in Europe, enhancing both the sporting experience and general daily convenience. Our bulk pressure measurement software has been expanded to a broader range of products, including the Amazfit Falcon, Active Cheetah Pro, Amazfit T-Rex Octra, Amazfit T-Rex 2, and GTR 4, aiming to deliver personalized and advance wellness support to a greater number of users. Our product's seamless integration of hardware and software not only assists users to improving their well-being, but also elevates their lifestyle. I'm happy to share a comparing example that comes from one of our Japanese users who found himself lost in a snowstorm during a hiking trip in Mont Blanc. Fortunately, our Chilex2 guided him safely back. He shared his experience on Yarmouth Japan's leading outdoor app, and even sent us a thank you email. Stories like these fill us with pride as we see our products contribute to the enthusiasm and certification of our users. 2023 leaves behind a tapestry woven with both challenges and triumphs. As we are transforming into a self-reliant company and shifting our strategy from pursuing pure revenue growth to profitability, we have seen a decline in revenue despite that. our Amazfit branded products contributed to 74% of our total revenue, compared to 59% in 2022. Furthermore, our efforts translated into a commendable 36% reduction in NUMGAP's net loss, marking a pivotal shift for as we achieved profitability in both Q3 and Q4, leveraging our cross margin and cost management strategies. Another operational milestone in Q4 2023 was the successfully completed mass production of our amazing BEEP watch line at our Vietnam factory. This achievement not only underscores the execution of our multi-sourcing global supply chain strategy, but also paves the way for further global expansion. Additionally, we have witnessed a surge in product visibility particularly on social media platforms and through key opinion leaders endorsements, including a growing market presence and heightened consumer engagement. Looking to the future, we see a healthy and sustainable growth trajectory for ZAP. our relentless drive for innovation and strategic expansion of our product offerings positions us to effectively adjust the evolving demands of our global user community. Despite headwinds posed by macroeconomic challenges, our focus remains steadfast on bolstering profitability and seeking dynamic opportunities to propel our resilience growth and secure greater bottom line scalability. This approach not only strengthens our competitive edge, but also ensures our long-term success in the ever-evolving smart variable industry. I will now turn the call over to Leon to go over the highlights of our fourth quarter financial results.