Zepp Health Corporation

Hello, ladies and gentlemen. Thank you for standing by for ZEP Health Corporation's first quarter 2024 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 Chong, Director of Investor Relations for the company. Please go ahead, Grace.

Hello, everyone. And welcome to ZEPP Health Corporation's first quarter 2024 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 at ir.zep.com. Participating in today's call are Mr. Wanwang Huang, our Chairman of the Board of Directors and Chief Executive Officer, and Mr. Liang Zhen, our Chief Financial Officer. The company's management will begin with the 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, 2023, 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 gap financial information as well as unaudited non-gap financial information. ZEPP's press release 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. Welcome, and thank you for joining our call. Before delving into this quarter's performance, I'd like to recap our transformation journey and stage for the year ahead. As we are shifting focus to self-branded products and diversifying our offerings today, our self-branded product sales contributed over 85% of total revenue. Our gross margin has nearly doubled over the past two years, with recent quarter showing 37% compared to 16% Q1 2023. Notably, the MAU of our ZEPP application is over 10 million, making an early success in our transformation journey. Within our self-branded smartwatch category, we offer a diverse range of series tailored to various market needs. These include the Lifestyle Series in featuring product lines such as Balance and Active. The Adventure Series encompassing product lines like T-Rex. The Performance Series encompassing products such as Cheetah and Falcon. And lastly, The essential series housing popular product lines like BIP and BAND. Each of these series is strategically positioned with clear competitors and price range in mind. This strategic alignment enables us to compete effectively as a key player in the smart variables market. offering our customers a comprehensive suite of solutions tailored to their diverse needs. As we are heading into 2024 and 2025, to continue on our transformation journey towards a self-reliant company driven mainly by its self-branded product sales, we are adopting our product strategy at the same time. Today, I would like to draw your attention to a few of key elements being, to begin with, our fresh balance model within the lifestyle series has solidified a strong market share in the price range of 200 to $249. smart watches in Europe and U.S. markets, marking a $50 increase from the original GT Series $199 price point. Although our price has increased, we noticed that many customers have switched from brands such as Samsung and Apple for the unique features of balance. We are also delighted to observe that the balanced model has not only gained popularity among consumers, but has also received high praise from key opinion leaders on social media platforms demonstrating our cutting edge product capabilities. Our customers are particularly impressed by the long battery life and the sleek, attractive industry design of our watches. We were the pioneer in the smartwatch industry to incorporate large language model AI technology for handling interactions and responding to user messages. This is positioning us well ahead of our competitors. Our product differentiation and artificial intelligence has led consumers to recognize our product value at a high price band, which has built strong product momentum in the market. This gives us an opportunity to realize and exponential growth in our revenue in the upcoming peak seasons through our marketing activities. In the first quarter, we saw a considerable escalation in our brand visibility and outreach. Our dynamic digital marketing campaigns, including out of home advertisements, in Magic Apple and sponsoring the recent Rotterdam Madison has significantly expanded our audience reach, bolstering our market presence and driving our future sales. Next, our active broker line within the lifestyle series has shown significant growth potential as well. It is an upgrade and continuation of our best-selling $99 mini product line, enhanced by Zapover and Zapfinish TEL services, along with the ZapWatch faces and apps ecosystem. This innovation has delivered significant value to our users, enabling us to position the product line to achieve a $129 selling price and generate better gross margins. More recently, on May 2nd, we unveiled the new Amazfit BIP5 unit within the Essential series. Through the stainless steel appearance and bigger screen, we have brought many user-favorite software functions from our mid to high-end active and balanced pipelines to Unity, and brought richer apps and watch faces through ZappOS 3.0 to Unity, strengthening our sub-$100 market competitiveness, and further expand our market share in markets such as India, Spain, and South America. Our proprietary operating system, ZapOS, has been upgraded to version 3.5, integrating the large language model-based Zapflow AI system. this brings large language model ai interaction and messaging capabilities to our entire other line a unique functionality not available in other brands smart watches this has established our branch image as an innovator in the consumer electronics market together with the continuously over the air upgrade of the software used in our smartwatches. It greatly improves the competitiveness of our smartwatches. As I have mentioned in previous quarters, the rapid application and innovation of large language model AI technology provides us our smartwatches with opportunities to surpass competitors, showcasing our company's execution and creativity, and preparing for new opportunities in the smart variable market. During April, the phishing and running features on the Amazfit Falcon, TH Octo, and Cheetah Pro received significant enhancements. enabling users to enjoy the prime season for fishing and running. At the same time, we updated our operating system to AI-powered ZAP OS 3.5 across different hardware platforms. All these updates are part of our commitment to providing personalized and advanced health support. empowering users to manage their well-being effectively. We will soon apply this AI capability to our sports and outdoor smartwatches within the performance and adventure series, bringing innovative experience to athletes and outdoor enthusiasts and significantly boosting the competitiveness and differentiation of our spores and outdoor products. Before this summer's spores season arrives, we will launch advertisements in major global markets to amplify our market presence. We will also collaborate with major global channels like Dick Carson, bringing our innovative full range products to users during this summer sports crazy to increase our sales for second half the year. We have many exciting new products in the pipeline for the upcoming month. So stay tuned. Now turning to our exciting new innovative by the line, the Helio Ring. Our smart rings presents a significant expansion of our user experience, allowing users who prefer not to wear watches while sleeping to obtain 24-hour comprehensive health data monitoring. This enhances recovery for athletes and provides readiness analysis for general users, ensuring a holistic user experience with both smartwatches and smart rings. This marks the beginning of a new era in the market, with us being the first smartwatch brand to offer such a solution, placing us ahead of competitors. Last but not the least, after several years of organizational transformation and streamlining our operations, our company has become more global with about 90% of revenue generated from outside China. Our co-executives include myself, now, oversee operations from offices based in Europe and North America, enabling swift decision-making in response to market dynamics and to be more attuned to consumer and market demands. The diversity within our team and the globalization of our R&D and marketing efforts has empowered us to develop, sell, and market our products with greater speed and precision. We believe this consumer-centered approach will set us aside in longer run. Through the above-mentioned building blocks, we realize enhanced returns on our product sales, translating into elevated gross margins for the company. While we keep our overall operating costs in check, this financial fortification facilitates increased sales and profitability for our self-branded products. And this will bring sustained profitability through self-branded products in the future. However, the ongoing transaction of the business is indeed longer and sometimes harder than our initial expectation, and patience is needed. However, we remain optimistic about our strategic direction on both our sales and marketing strategy and upcoming products. Our emphasis on cutting edge products and operational excellence combined with expanding our global reach and offering innovative and diverse products and services to our vibrant user community prepares us for longer term sustainable growth. We are confident this strategy will accept that as a leading, healthy, growth, self-reliant, global, smart, valuable, and healthcare solution provider in time. I will now turn the call over to Liam to go over the highlights of our first quarter financial results.