Zepp Health Corporation

and other risks and uncertainties are included in the company's annual report on Form 20-F 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 GAAP's earnings release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial information. GAAP's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to our CEO, Mr. Wen Wangsheng. Please go ahead.

Hello, everyone. Welcome and thank you for joining our fourth quarter 2024 earnings call. In 2024, we expedited the transition towards a brand-empowered high-magic business model for a massive brand product. We delved deeper into technological innovation and enhanced our global marketing footprint. Despite macroeconomic headwinds and supplied bottlenecks, our overall sales in the fourth quarter of 2024 rose by more than 40% quarter over quarter, aligning with our guidance. Our gross margin for the year 2024 lurched 39% compared with .2% for year 2023. At the same time, we finished the year with 112 million cash on hand, provides ample runway for us to invest and responding to market demands. Let's delve deeper into our remarkable product accomplishments. In 2024, ZEPP held experience remarkable breakthroughs in variable technology, AI-powered health innovation and the expansion of its ecosystem. The successful launch of the T-Lex3 was a significant turning point, generating a strong surge in market demands and leading to substantial sequential growth in sales. Our T-Lex3 has been meticulously crafted with a strategic approach to directly change the industry-leading sports and outdoor watches offered by our competitors. This is military-grade, durable durability, extended battery lines, offline mapping functionality and highly accurate GPS navigation. The T-Lex3 has completely transformed the landscape of adventure-focused smartwatches, establishing new benchmarks for performance. What makes the T-Lex3 truly exceptional is its status as one of the pioneering smartwatches to fully incorporate AI technology. Powered by ZEPP OS 4.0 and OpenAI GPT-40, it further solidifies our dominant position in the AI driven variable market. Just six months following its introduction, we have seen a consistent rise in user activations accompanied by an overwhelming amount of positive feedback from both users and key opinion leaders. We are confident that the T-Lex3 you continue to maintain is strong up trajectory, driving higher sales of Amazfit products with attractive profit margins and bringing us closer to achieving our goal of near-term profitability. At CES 2025, we further diversified our fitness and lifestyle lineup with the launch of Amazfit Active2, integrating health checking, advanced biosensing, AI driven coaching, multi-set line navigation, and seamless smart interactions. Active2 has received solid reviews from mainstream media in Europe and the United States. This is ExquiteSight's design and rich functions. It is held as a $100 product that challenges industry leaders. The product is extremely popular and the momentum is rising fast. It is expected to experience explosive growth in the second quarter. Additionally, the upcoming Amazfit Bipsaic series first introduced at the European launch of Active2 will further expand our reach in the entry level segment by delivering exceptional price performance value. We have started production in scale and shipment into the main online and offline channels in EMEA and USA. This will propel further our sales growth in the second quarter. Beyond smartwatches, we continue to expand the ZAP ecosystem into AI powered health solutions. At CS2025, we introduced Amazfit Vyto, an AI powered nutrition tracking device that seamlessly integrates with our ecosystem. Unlike traditional food tracking methods, Vyto utilize AI powered image recognition to ultimately lock meals, track nutrition, and provide real time dietary insights. By analyzing eating behaviors and offering personalized recommendations, Vyto expands ZAP health AI driven approach beyond fairness into holistic lifestyle management. Additionally, we have launched a related foot lock feature in the ZAP app, which provides users with nutritional analysis and dietary recommendations based on our bare foot intake using their phone cameras. This feature is currently available for free download to users in Europe and North America. We are also exploring the use of DeepSeq to further reduce the cost of processing foot image and videos to prepare for a large scale service deployment in the future. These functionalities and products add into our sports recovery and health monitoring ecosystem, establish a unique advantage in sports recovery and health management, enhancing the overall brand value. As we advance our global strategy, we continue to elevate brand recognition and expand our influence through strategic marketing and partnerships. This quarter, we welcomed five time Olympic medalist, Gabby Thomas and Italian tennis star, Daphne Palame as our global athlete partners. Their partnerships enhance our brand visibility on the global stage, while also showcasing how Amazfit's smart variables empower top tier athletes with data-driven insights to optimize training, recovery and overall performance. Moreover, our strategic partnership is Hyrox. The rapid growing sports in Europe and North America has brought unique features to Amazfit's smartwatches. We are the only smartwatch brand that supports Hyrox competition and training, providing valuable assistance to athletes in this sport. We continue to deepen our collaboration with Hyrox and are set to launch even more powerful Hyrox related products. At the same time, we are further differentiating ourselves from competitors, staying ahead by being the first to support various emerging sports. With these partnerships, the major key account partners offline in the United States and Europe have greatly increased confidence in us. They have offered us more offline display space to replace competitors' counters. This will bring us significant new growth opportunities in the coming quarters. Let's recap our 2025 product strategy. By leveraging Active2 and Bit6 series, we are expanding our market share on a bigger scale, increasing the entry-level user base and strengthening our brand influence in the value of for money segment, especially the emerging markets. At the same time, in the mid to high-end segment, our T-Lex series has successfully outperformed fresh products from competitors, achieving higher profitability and steady growth. This has also allowed us to convert more entry-level users into professional users and mid to high-end smartwatch users. Furthermore, by supporting rapidly emerging sports like Hyrox, enhancing the analysis of foot intake in relation to exercise and offering ecosystem products and services such as Vidal and HydroRing, we provide a differentiated value to compete with the industry leaders. This changes our brand positioning and creates a unique market positioning. Now, moving to the OS part of our business. We are continuing to develop ZEP OS and simultaneously impiling the advanced technologies of OpenAI Pro.5 within ZEP OS. Additionally, we are exploring the use of DeepSeq to significantly reduce costs on a larger scale. The main watch chips that we have successfully designed in the past few years have already served as the main chips in the T-Lex 3, Active 2, and Bit6 models. The usage of these chips has reached a milestone of 1 million units. Through the close integration of ZEP OS with these chips, our watches has achieved better graphic performance and computing speed, as well as lower power consumption. This has enabled our watches to gain a more unique competitive edge compared to competing products, achieve a faster time to market, and a guaranteed supply chain. Looking ahead, we remain confident in ZEP Health long-term growth trajectory. As we evolve beyond smart watches, we are building a comprehensive smart wearable ecosystem that seamlessly integrates advanced AI-driven health solutions, performance checking, and holistic wellness management. This robust product portfolio continued technological advancements and strategic brand partnerships. We are well-positioned to expand our global customer base and drive sustained self-branded sales growth. To underscore our confidence in ZEP Health long-term outlook, we will continue our share repurchase program in 2025, reflecting our dedication to delivering value for our shareholders. I will now turn the call over to Leon to go over the highlights of our fourth quarter financial results.

Thank you, Wei-Yan, and greetings, everyone. Thank you again for joining our fourth quarter 2024 earnings call. I would like to start by addressing recent U.S. tariff announcements on inbound goods to be sold in the U.S., which we do not expect to materially impact our U.S. consumer pricing or gross margin due to our proactive supply chain management. This is thanks to the terrific job our team has done to diversify our manufacturing and sourcing over the past years. According to CounterPoint, global sales of smart watches have fallen for the first time by 7% in 2024 on device shipment, in a large part due to a sharp decline in the popularity of the market leader, Apple. Shipments of Apple watches fell by 19% with North America as the biggest driver of the decline, where the absence of Apple Watch Ultra 3 and minimal feature update in the Series 10 lineup led consumers to hold back purchases. Despite the overall decline, sales in China grew from 19% of the market to 25%. This was the first time it recorded more smart watch sales than India or North America, according to CounterPoint. Another large contributor to the global sales drop was India, which fell from 30% of the market to 23%. This was partly because of a bubble in ultra cheap devices from India manufacturers, which was now bust due to a lot of complaints about the quality of the devices. However, CounterPoint expects a recovery in the global market with single digit percentage growth in 2025, and it predicts the uptake in sales will be driven by the increasing adoption of AI features and a greater emphasis of providing a wider range of health data, which plays to the core of our strategy. Now I will shift to our Q4 and full year 2024 commentary. In Q4, the successful launch of the T-Roc 3 reinforced our leadership in performance driven smart watches. During the quarter, we maintained our strategic focus on building a sports oriented brand identity, positioning ourselves as a premium yet accessible global brand. And we're set to capitalize this in 2025. Our overall sales coming within the guidance range demonstrating a 40% plus quarter over quarter growth. This strong performance was primarily driven by the successful launch of the T-Roc 3. Compared with the fourth quarter of 2023, our revenue declined year over year due to three key factors. Firstly, a continued decline in Xiaomi product sales. Secondly, the supply constraints of T-Roc 3 series. And thirdly, by consumer related macroeconomic issues resulting in a softer global consumer market. However, as we look ahead to the first quarter of 2025, we expect our Amazfit branded sales to continue in their strong momentum, propelling higher sales growth year over year. Looking at the full year 2024, our revenue declined compared to 2023, primarily due to declining Xiaomi product sales, as well as a limited new product launches for Amazfit branded products. With only the T-Roc 3 debuting in the fourth quarter of the year. However, 2025 will be a different story. We're opposed to launch one to two new products every quarter, introducing a different seasonality pattern impacting demand. This shift has been evident from Q4 2024 into Q1 2025. Now moving on to gross margin, which can be influenced by various factors such as product mix, product launch timing and product life cycles, including model upgrades. Our Q4 2024 gross margin stood at 37%, continuing the margin expense in Shenzhen, which we initiated in the second half of 2023. However, this was slightly lower than Q3 2024 due to somewhat promotional pricing, which is customary for the holiday season. The gross margin for our self branded products remains strong, driven primarily by the higher margin T-Roc 3. Looking ahead, we expect the positive trend to continue in 2025, supported by the launch of Active 2 and BIP6 and many other new products in the pipeline. From a margin perspective, 2024 was a year of gross margin expansion. Gross margin percentage in 2024 was .5% compared to .2% in full year 2023, helped by better product mix and higher brand awareness. In 2025, this trend is expect to continue with the introduction of higher margin products further supporting our profitability. Now, let's turn our attention to costs. We remained steadfast in our commitment to cost management, continuing with the program that we began in Q3 2020 on reducing overall operating costs. In Q4, total adjusted operating expenses were $29.3 million compared to $25.9 million a year ago. The increase was primarily due to spend on promotional campaigns during the holiday seasons to build brand recognition and drive revenue growth. Adjusted operating cost was US$110 million in the full year 2024 compared to US$112 million in 2023, and US$171 million in 2022. We will maintain our cost conscious approach in the coming quarters. Concurrently, we remain committed to invest in R&D and marketing activities to maintain our long-term competitive edge. R&D expenses in the first quarter of 2024 were $10.1 million, nearly flat compared to last year, as we consistently evaluated resources efficiency to ensure maximum return on investments and productivity. We're committed to investing in new technologies and AI to secure our long-term technology leadership. Selling and marketing expenses in the fourth quarter of 2024 were $13.2 million compared to $11.8 million a year ago. The increase was primarily due to spend on promotional campaigns during the high season to build brand recognition and drive sales growth. At the same time, we consistently push on retail profitability and channel mix improvement, which included meticulous refinement of our retail channels and strategic staffing arrangements across sales regions. We're committed to investing efficiently in marketing and branding to ensure our sustainable growth. G&A expenses were $6.1 million in the fourth quarter of 2024 compared to US$4 million in fourth quarter of 2023. The increase was largely attributable to provisions for bad debt and foreign exchange rate fluctuations. We remain committed to strict cost control over discretionary spending, ensuring expenses are aligned with striving sustainable growth. In 2025, we aim to keep operating costs at or below 2024 levels, maintaining a lean and efficient structure while strategically investing in high impact areas. Our adjusted operating loss for Q4 2024 stood at $7.4 million. The loss was mainly driven by lower sales volume, resulting in insufficient coverage of operating expenses. It was the narrowest in the past four quarters, demonstrating sequential improvement and path to profitability in near term. This reflects our ongoing efforts to enhance efficiency and then align expenditures with revenue growth. Gap net loss for the fourth quarter of 2024 was $36.9 million, which included operating loss of 9 million, certain investment related impairments of 13 million and deferred tax asset valuation allowance of 14 million. Allow me to further elaborate on this. To optimize the operation of the company's core business, the company implemented a one-time impairment at the end of this year for certain projects it had invested in past years. By the end of this year, the company has comprehensively divested from these investments and completed liquidation procedures while possible. Going forward, there will be limited impairment concerns from these investment projects. This impairment measure is designed to streamline the business operations, allowing the company to focus on its main and core business and drive more efficient development. In addition, there's another 14 million technical accounting treatment on deferred tax asset booked in past years. Both are non-recurring and non-cash in nature. Let's now shift our focus to the balance sheet. As Wayan has mentioned, we continue to optimize our working capital, achieving an inventory level of US dollars 57 million in Q4, which was the lowest since 2018. Inventory management remains as a top priority and will continue to keep inventory levels tight to improve cashflow efficiency. By February, 2025, we have successfully refinanced the majority of our short-term debts, maturing in 2025 into long-term debt instruments with a lower coupon rate. Following this adjustment, long-term debt accounts for around 75% of the company's overall debt structure. And since Q1 2023, 56 million of the total debt has been retired and the capital structure will be further optimized as operating cashflow strengthened. As of December 31st, 2024, our cash balance stood at US dollars 111 million compared to US dollars 140 million in Q4 2023. The decline is mainly due to lower operating profit offset by a better working capital management. Compared to Q3 2024, the shortfall was mainly due to operating activities. We remain committed to our share buyback program in 2025, reinforcing our confidence in the company's long-term value and our commitment to delivering returns to shareholders. Looking ahead, for Q1 2025, we expect revenue in the range of US dollars 40 to 45 million. This would mark a year over year growth of 14% to 29% in the self-branded product sales, highlighting the momentum of our brand expansion strategy. To conclude, despite challenges in 2024, we navigated the year effectively by focusing on disciplined cost management while expanding our self-branded product expansion. As we enter 2025, we're well positioned for sustained growth with a robust product pipeline, margin expansion strategy and disciplined cost management. We remain confident that these strategic initiatives will drive long-term value for the investors, employees and customers. Thank you all for your time today. I will now open the call for questions. Operator, please go ahead.