Zepp Health (ZEPP) Q4 2024 Earnings Call March 26, 2025 07:00 PM ET Company Participants Grace Yujia Zhang - Director of Investor RelationsWang Huang - Founder, Chairman & CEOLeon Cheng Deng - Chief Financial OfficerSiddharth Rajeev - Head of ResearchYan Yeung - Chief Operating OfficerNicolas Britten-Jones - Managing Director Conference Call Participants None - Analyst Grace Yujia Zhang And other risks and uncertainties are included in the company's annual report on Form 20 F for the fiscal year ended 12/31 ...

Financial Data and Key Metrics Changes - Overall sales in Q4 2024 rose by more than 40% quarter over quarter, aligning with guidance despite macroeconomic headwinds and supply bottlenecks [3][21] - Gross margin for 2024 reached 39%, up from 26.2% in 2023, indicating significant margin expansion [4][23] - Cash on hand at the end of 2024 was $112 million, providing ample runway for market investments [4][30] - Adjusted operating loss for Q4 2024 was $7.4 million, the narrowest in the past four quarters, demonstrating sequential improvement [27][28] - GAAP net loss for Q4 2024 was $36.9 million, including various impairments and deferred tax asset valuation allowances [28] Business Line Data and Key Metrics Changes - The successful launch of the T Rex3 smartwatch significantly boosted sales and market demand, establishing a strong position in the outdoor and sports smartwatch segment [5][21] - The Amazfit Active2 and BIP6 series are expected to drive further sales growth in the entry-level segment [7][11] - The T Rex series has outperformed competitors, achieving higher profitability and steady growth [11][12] Market Data and Key Metrics Changes - Global smartwatch sales fell by 7% in 2024, primarily due to a decline in Apple Watch shipments, which dropped by 19% [18][19] - Sales in China grew from 19% to 25% of the market, marking a significant shift in market dynamics [19] - The Indian market saw a decline from 30% to 23% due to issues with ultra-cheap devices [19] Company Strategy and Development Direction - The company is transitioning towards a brand-empowered, high-margin business model, focusing on technological innovation and global marketing [3][4] - A comprehensive smart wearable ecosystem is being built, integrating advanced AI-driven health solutions and performance tracking [14][15] - The strategy includes launching one to two new products every quarter in 2025, aiming for a different demand pattern compared to 2024 [22][61] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about growth in 2025, driven by new product launches and a focus on AI features [20][45] - The company is confident in its long-term growth trajectory, supported by a robust product pipeline and strategic partnerships [15][30] - Despite challenges in 2024, the company effectively managed costs and is positioned for sustained growth [32] Other Important Information - The company is committed to maintaining a lean operating structure while investing in R&D and marketing [25][27] - A share repurchase program will continue in 2025, reflecting confidence in the company's long-term value [15][31] Q&A Session Summary Question: Impact of new tariffs on Chinese smartwatch imports - Management indicated minimal impact due to proactive supply chain management and dual sourcing strategies [17][35] Question: Details on impairment losses and tax increases - Impairment losses were due to investments in upstream and downstream technology companies that underperformed [38][41] Question: Shift in demand towards lower-priced players - Management noted that while the market declined, segments like outdoor and sports smartwatches, particularly the T Rex series, are performing well [43][45] Question: Long-term strategy and vision for a global health ecosystem - The company is diversifying its product portfolio and exploring B2B opportunities while focusing on consumer health solutions [49][52] Question: Relationship with Xiaomi and its impact - The relationship remains strong, but the company is focusing on self-branded products to achieve profitability before expanding revenue with Xiaomi [55][59] Question: Stock liquidity and market valuation - Management acknowledged the stock's illiquidity and emphasized ongoing buyback programs and strategic growth initiatives to enhance market perception [63][65] Question: New product roadmap for 2025 - The company plans to launch multiple new products across different price segments, which is expected to drive significant growth in 2025 [70][73]

Core Insights - Zepp Health Corporation reported a 40% quarter-over-quarter increase in sales for Q4 2024, despite a 28.3% year-over-year decline, primarily due to macroeconomic challenges and changes in product structure [1][2][7] - The company achieved a gross margin of 36.8% in Q4 2024, up from 34.7% in Q4 2023, and a full-year gross margin of 38.5%, significantly higher than 26.2% in 2023 [2][24] - The company ended 2024 with $111 million in cash, down from $140 million in 2023, but still positioned to invest in growth opportunities [3][18] Financial Performance - Q4 2024 revenues reached $59.5 million, a decrease of 28.3% year-over-year but a 40.2% increase quarter-over-quarter, driven by the successful launch of the T-Rex 3 [5][7] - Full-year revenues for 2024 totaled $182.6 million, a decline of 48.3% from 2023, largely due to an 88% drop in sales of Xiaomi wearable products [23] - The adjusted operating loss for Q4 2024 was $7.4 million, the lowest level in 2024, compared to an adjusted operating income of $3.0 million in Q4 2023 [14][16] Cost Management - Total operating expenses for Q4 2024 were $30.9 million, a 9.4% increase year-over-year, while adjusted operating expenses were $29.3 million [13][30] - Research and development expenses decreased by 0.6% year-over-year to $11.1 million in Q4 2024, reflecting a focus on resource efficiency [9][25] - Selling and marketing expenses increased by 10.6% year-over-year to $13.3 million, driven by promotional campaigns [10][28] Market Position and Strategy - The T-Rex 3 has gained traction in the outdoor and sports watch market, with user activations increasing and positive feedback from users and key opinion leaders [1][2] - The company is expanding its Amazfit brand through partnerships with athletes and collaborations, enhancing brand recognition and market presence [1][2] - The launch of the Amazfit Active 2 and Bip 6 series is expected to further increase market share and brand influence, particularly in emerging markets [1][2] Outlook - For Q1 2025, management expects net revenues to be between $40 million and $45 million, indicating a growth of 14% to 29% for Amazfit-branded products compared to Q1 2024 [32]

Core Viewpoint - Zepp Health Corporation will report its fourth quarter and full year 2024 unaudited financial results on March 26, 2025, after market close [1] Group 1: Earnings Call Details - A conference call is scheduled for 7:00 p.m. Eastern Time on March 26, 2025, with access numbers provided for US, international, and mainland China listeners [2] - Participants are advised to dial in at least 10 minutes before the scheduled start time [2] Group 2: Company Overview - Zepp Health Corporation is a global leader in smart wearables and health technology, focusing on optimizing health, fitness, and wellness journeys through its brands, including Amazfit, Zepp Clarity, and Zepp Aura [3] - The company has shipped over 200 million units and operates in more than 90 countries and regions [3] - Founded in 2013 as Huami Corp., the company rebranded to Zepp Health Corporation in February 2021 to emphasize its health focus [3]

Core Insights - Zepp Clarity launched a "Try Before You Buy" program at CES 2025 to enhance hearing aid adoption among older adults [1][2][3] - The program aims to alleviate concerns regarding the effectiveness and commitment associated with hearing aids, which currently see only 15% to 30% adoption among those with mild-to-moderate hearing loss [2][3] Product Offerings - Zepp Clarity features three advanced hearing aid models: Clarity Omni, Clarity One, and Clarity Pixie, allowing users to trial these products in their homes [3] - The Zepp Clarity Pixie is highlighted as a next-generation hearing aid with a nearly invisible design, wireless connectivity, and a lightweight titanium alloy shell [5][6] - Key features of the Pixie include IPX7 water resistance, 17-hour battery life, and customizable settings via the Zepp Clarity App [5][6] Customer Support and Accessibility - The company offers a lifetime customer support guarantee and access to certified audiologists, ensuring users receive professional guidance [4] - Zepp Clarity aims to empower individuals with hearing loss, impacting 48 million Americans and nearly 430 million people globally, by combining technology with audiology expertise [7] Regulatory and Market Position - Zepp Clarity's hearing aids are registered as FDA-Exempt Class II medical devices, designed for adults aged 18 and older [8] - The brand emphasizes the importance of hearing health as part of overall wellness, leveraging advanced technologies and AI healthcare algorithms [9]

Core Viewpoint - Amazfit has launched the Amazfit Active 2 smartwatch, combining elegance and functionality for health-conscious consumers [1][2] Product Features - The Amazfit Active 2 features a stylish design with a stainless steel body and a 1.32-inch high-definition AMOLED display that reaches a peak brightness of 2,000 nits [3] - Two models are available: a premium version priced at $129.99 with a black genuine leather strap and sapphire glass, and a standard version at $99.99 with a silicone strap [3] - The smartwatch includes advanced health monitoring technology with the BioTracker™ 6.0 PPG biosensor and upgraded algorithms for heart rate and sleep tracking [4] - Additional sensors include a barometer for altitude measurements, an accelerometer, a gyroscope, and an ambient light sensor [5] - The device offers a robust battery life of 10 days under typical use [5] Technological Innovations - Zepp Flow™ allows voice control for watch settings and message replies for Android users [6] - Zepp Pay enables secure contactless payments in Europe for the premium version [6] Fitness and Wellness Features - The smartwatch supports over 160 sports modes, including a smart Strength Training mode and new winter sports like skiing [7] - Offline maps with turn directions are supported by 5 satellite systems, enhancing navigation capabilities [8] - Zepp Coach™ provides personalized training plans for users of all fitness levels [8] - The Wild.AI mini app offers tailored wellness insights for women related to menstrual and hormonal cycles [9] - Advanced health insights include a daily Readiness score and HRV feature for recovery data [10] Availability and Pricing - The Amazfit Active 2 is available for pre-order in the U.S. and will be globally available in February, starting at $99.99 for the standard version and $129.99 for the premium version [11] Company Background - Amazfit is a leading global smart wearable brand under Zepp Health, focusing on health and fitness, with a presence in over 90 countries [12][14]

Financial Data and Key Metrics - Self-branded products revenue grew 10% quarter-over-quarter to USD 40 million, driven by a 44% increase in ASP [27] - Q3 gross margin reached 41%, the highest in the company's history, due to a better product mix with higher gross margins [27][33] - Operating expenses were reduced from RMB 180 million in 2022 to around RMB 100 million by the end of 2024, reflecting a leaner operational approach [29] - The company reported an operating loss in Q3, largely due to supply constraints and foreign exchange losses, but expects improvement in Q4 [38][50] Business Line Performance - Amazfit product sales achieved the highest sequential growth in 2024, with self-branded sales contributing over 95% of total revenue [10][27] - The newly launched Amazfit T-Rex 3 experienced robust demand but faced supply constraints, impacting Q3 revenue [13][49] - Complementary devices like the Amazfit Helio Ring and Amazfit UP Open Wearable Stereo earbuds extended the product ecosystem and enhanced user experience [14][15] Market Performance - The global wearable technology market is projected to grow from USD 70 billion in 2024 to USD 150 billion by 2029, with a CAGR of 16.8% [30] - The outdoor and sports segment of the smart wearable market is growing faster, aligning with the company's product roadmap [28] - Early positive feedback on Amazfit UP earbuds in Europe indicates strong market potential [15] Strategic Direction and Industry Competition - The company is focusing on product innovation, expanding international visibility, and diversifying product offerings to meet evolving customer needs [22][23] - Investments in AI and new technologies, such as Zepp OS 4.0, aim to maintain a competitive edge in wearable technology [16][35] - Strategic partnerships with athletes and events like HYROX reinforce the brand's presence in competitive fitness [20][21] Management Commentary on Operating Environment and Future Outlook - Management is optimistic about maintaining sales momentum into upcoming quarters, despite global macroeconomic headwinds [11][22] - The company expects Q4 revenue to range between USD 55 million and USD 70 million, with self-branded products contributing over 90% [42] - Long-term growth is supported by a balanced product launch cadence and the success of the T-Rex 3 [60] Other Important Information - The company expanded its share buyback program, reflecting confidence in its long-term strategy [24][52] - Compliance with NYSE listing standards was regained in October 2024, reinforcing market standing [42] Q&A Session Summary Question: Expected revenue growth in Q4 and product contributions - The T-Rex 3 and Amazfit UP earbuds are expected to drive Q4 revenue growth, with supply constraints for the T-Rex 3 being resolved [45][46] - Q4 is traditionally a strong sales season, supported by events like Double 11, Black Friday, and Christmas [47] Question: Supply constraints for the T-Rex 3 - The bottleneck was due to unexpectedly high demand, with factories now operating 24/7 to meet production needs [48][49] Question: Foreign exchange loss in Q3 - A sharp RMB appreciation led to a USD 1 million FX loss, but a tailwind is expected in Q4 [50][51] Question: Cash deployment strategy - The company plans to continue its share buyback program and explore small bolt-on M&A opportunities [52] Question: Q3 net loss and future profitability - The net loss was attributed to supply constraints, front-loaded marketing expenses, and FX headwinds, but profitability is expected to improve in Q4 [54][58] Question: Sustainability of sales growth - The company anticipates sustained growth in 2025, driven by a balanced product launch cadence and the success of the T-Rex 3 [59][60]

Financial Performance - Zepp Health Corporation reported revenues of US$42.5 million for Q3 2024, a decrease of 48.9% compared to Q3 2023, primarily due to reduced sales of Xiaomi wearable products and self-branded products constrained by production capacity and macroeconomic factors [5][6] - The gross margin for Q3 2024 was 40.6%, an increase from 33.9% in Q3 2023, marking the highest gross margin in the company's history, supported by a favorable product mix and strong performance of self-branded products [7] - The company experienced an operating loss of US$12.5 million in Q3 2024, compared to an operating income of US$1.4 million in Q3 2023, largely due to lower sales volume [13][14] Product and Market Developments - Amazfit branded sales saw a 10% quarter-over-quarter increase, attributed to the successful launch of the T-Rex 3 smartwatch, which received positive market feedback [2] - The introduction of Amazfit UP OWS earbuds expanded the product ecosystem, enhancing user experience during outdoor activities [2] - Zepp Health was named the official wearable partner and timekeeper of HYROX, a fitness racing event with over 300,000 participants per season across the EU and US [3] Research and Development - Research and development expenses for Q3 2024 were US$10.9 million, accounting for 25.6% of revenues, reflecting a 4.8% year-over-year increase as the company invests in new technologies, including AI [8] Marketing and Operational Strategies - Selling and marketing expenses increased by 21.9% year-over-year to US$11.9 million, representing 28.0% of revenues, driven by various marketing campaigns and partnerships with athletes [9][10] - General and administrative expenses rose by 5.4% year-over-year to US$7.0 million, largely due to foreign exchange rate fluctuations [11] Liquidity and Capital Resources - As of September 30, 2024, the company had cash and cash equivalents of US$127.7 million, maintaining a similar level compared to the previous quarter, which provides a runway for future investments [17] - The company recorded inventory of US$76.6 million, reflecting a 6.5% increase from the previous quarter but a 29.0% decrease compared to the same period in 2023 [18] Future Outlook - For Q4 2024, management expects net revenues to be between US$55 million and US$70 million, indicating a growth of 29% to 65% for self-branded products compared to Q3 2024 [22]

Market Overview - The global luxury smart jewelry market is projected to reach USD 429.97 million by 2030, with a compound annual growth rate (CAGR) of 18.7% from 2024 to 2030 [1][8]. Market Drivers - Increasing demand for multifunctional and aesthetically appealing jewelry, along with the growing adoption of wearable technology, is driving market growth [2]. - The integration of Internet of Things (IoT) technology and a rising focus on wellness and health are expected to further propel market growth [2]. Consumer Trends - There is a growing focus on fitness and personal health, leading to increased popularity of smart rings that track essential health metrics [3]. - The prevalence of chronic diseases necessitates continuous health monitoring, with an estimated 129 million individuals in the U.S. having at least one major chronic disease [3]. Market Segmentation - The fitness tracking segment dominated the market in 2023, driven by health and fitness awareness and rising internet and smartphone penetration [6]. - Smart rings were the leading product in 2023, offering advantages such as tracking blood oxygen levels, sleep patterns, heart rates, and temperature [6]. - The adult segment led the market in 2023, particularly among younger tech-savvy adults and the working-class population [6]. - Online distribution channels dominated the market in 2023 due to the convenience and wide product selection offered by e-commerce platforms [6]. Regional Insights - North America held the largest share of the global market, supported by a significant presence of major market players and a high demand for health-promoting devices [6]. Competitive Landscape - Key players in the luxury smart jewelry market include Oura Health Oy, RINGLY, Samsung, Motiv, Inc., Boat, and Zepp Health Corporation, which are implementing strategic initiatives to expand their distribution networks and enhance product functionality [5][10].

Core Viewpoint - Zepp Health Corporation will report its third quarter 2024 unaudited financial results on November 18, 2024, after market close [1]. Group 1: Earnings Call Details - A conference call is scheduled for 8:30 p.m. Eastern Time on November 18, 2024, for discussing the financial results [2]. - Participants can access the call through various toll-free numbers, including +1-888-346-8982 for the US and 400-120-1203 for Mainland China [2]. Group 2: Company Overview - Zepp Health is a global leader in smart wearables and health technology, with brands such as Amazfit, Zepp Clarity, and Zepp Aura [3]. - The company operates in over 90 countries and utilizes its proprietary Zepp Digital Health Management Platform to provide actionable health insights [3].