Viomi Technology Co Ltd (VIOT) 2021 Q1 法說會逐字稿

Thank you for standing by for Viomi Technology Co., Ltd Earnings Conference Call for the first quarter of 2021. (Operator Instructions) Today's conference call is being recorded.

I will now turn the call over to your host, Ms. Cecilia Li, the IR Head of the company. Please go ahead, Cecilia.

Thanks, operator. Hello, everyone, and welcome to Viomi Technology Co., Ltd. earnings conference call for the first quarter 2021. As a reminder, this conference is being recorded. The company's financial and operating results were issued in a press release earlier today and posted online. You can download the earnings press release and the slide app for the company's e-mail distribution list by visiting the IR section at the company's website at ir.viomi.com.

Participating in today's call are Mr. Xiaoping Chen, the Founder, Chairman of the Board of Directors and Chief Executive Officer; and Mr. Xiufei Bao, our new President; and Mr. [Wickham Thai], Head of our Finance team.

The company's management will begin with prepared remarks, and the call will conclude with a Q&A session.

Before we continue, please note, 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 these and other risks and uncertainties is included in the company's annual report on Form 20-F and other filings as filed with the U.S. Securities and Exchange Commission. The company doesn't assume any obligation to update any forward-looking statements, except as required by law. Please also note Viomi's earnings press release in this conference call include the discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Viomi'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 Founder and CEO, Mr. Xiaoping Chen. Mr. Chen will deliver his remarks in Chinese, followed immediately by English translation. Mr. Chen, please go ahead.

(foreign language)

Thank you, Mr. Chen. I will quickly translate our founder's remarks before discussing our financial performance for the third quarter 2021.

Hello, everyone. Thanks for joining our first quarter 2021 earnings conference call. Leveraging the optimization [as per the] product portfolio, new product sales growth and enhanced brand recognition, we delivered strong net revenues that exceeded our previous guidance, increasing 64% from the same period in 2020, when our operations were impacted by COVID-19.

Our gross margin recovered to 21.1% from 18.8% a year ago, primarily attributable to the product portfolio optimization. Our continued growth over the past several years has been driven by continuous optimization of our IoT products and holistic solutions, through innovation and integration of corresponding technologies, alongside a deep understanding of our average user needs.

This April, we hosted our strategic new product launching [them] with the same AI household, with introduction of the series of AI strategic new products, including the mineral water purifier EROx, and AI smart [product] EyeBot, equipped with sensors that is able to monitor human health data. An AI water heater, which is able to soften the water quality. New AI air conditioners, (inaudible) EyeBot 2 and the gas stove with AI-assisted cooking functionalities.

Our products are designed within (inaudible) health care, smartification, home security and natural AI voice interactions. Some new products equipped with sensors and supported by AI algorithms are able to collect home and human health data with users consent. In addition, we focused our resources on developing key product categories and roll out more differentiated and industry-leading products. For example, last year, we introduced a series of premier water purifiers such as Super 1,000-gallon, 1,200-gallon and Vision 1,200-gallon series, which realized large blocks and low ratios of waste in purified water.

Our PhD team has been working on research and development for 3 years based on tens of billions in cases of water quality data to invent our mineral water purifier, EROx, which retains beneficial minerals for human health during the purification process. Equipped with 9 smart sensors, this water purifier product is also able to adjust water quality to meet high-end users needs.

We have been endeavoring in water purification area and have accumulated a significant number of (inaudible) technology, with more than 700 registered patents as of the end of the first quarter. Some of these patents have been awarded a China Excellent Patent Award, authorized by China National Intellectual Property Administration and Quality Intellectual Property Organization, as well as recognized by China Association for Quality Inspection and other authorities.

Our sweeper robots business represents rapid development as well, in particular in overseas markets, and has been one of the key drivers of our first quarter headline growth. Our sweeper robots export business, which launched in the fourth quarter of last year, has developed rapidly in mid-Europe, Southeast Asia, Korea, Australia and other regions, and has also expanded into North Europe and additional Asian countries this year.

We are expanding to North American market. We recently registered our store on Amazon and plan to sell on Amazon in the second half of this year, and will cooperate with some KA off-line stores as well. In the competitive sweeper robots market, we found with niche with our differentiated products. We introduced a series of automatic dust collection sweeper robots last year, and recently launched in AI laser radar sweeper robots, Alpha 2 Plus.

Compared to the majority of high-end sweeper robots in the market, this product is equipped with 4 laser sensors and supported by AI algorithms for obstacle detection and avoidance, is able to identify very low obstacles, cover a wider range of end use and distances, as well as map routes and support OTA upgrade. We will continue to roll out more differentiated sweeper robot products, and enhance our market shares in both domestic and global markets.

In addition to focusing on technology upgrade and product innovation, we also make efforts to enhance our IoT holistic home solutions and provide relative value-added services and content, including software updates, product maintenance services, repurchased comps and Internet entertainment content as well as strengthening our services to (inaudible) our off-line channels. We think the off-line experience and the [planning] capabilities are the keys to IoT home industry. We have been vigorously promoting the off-line comprehensive service model of one city, one store. We select high-quality stores in each region as our service outlet and provide users with one-stop services, including sales experience, after-sale and installation services.

With direct construction upgrade and evolving user needs, users are keen on brands that are fashionable in (inaudible) quality. In order to promote our 3511 long-term strategy and further develop apps as the [training brand] in healthy home area, we are pleased to warmly welcome Mr. Bob Bao as the company's President. Prior to joining us, Bob served as the General Manager of Beingmate, and has extensive experience in the consumer industry with more than 20 years. We believe Bob will bring new energy and insight to our branding development.

Looking ahead, we will execute on our growth strategy from 3 perspectives: first, we will construct our IoT holistic home solutions through our 5G-type AI-type IoT product strategy; second, we will develop ability plans in improving brand influence and position us as the trending brand in the IoT home solutions area; and third, we will expand off-line stores to integrate scenario-based experience in the services. We believe with the multiple upgrades to our product marketing channels as well as increasing popularization in our home smartification, we will deliver sustained and healthy growth, maintain our uniqueness in IoT home solutions area and bring long-term shareholder value.

So that concludes our founder's remarks. Let's now turn to the detailed financial review of the first quarter of 2021, as well as outlook for the second quarter.

The net revenues were RMB 1.26 billion, representing an increase of 64% year-over-year, primarily due to the continued successful rollout and significant increase in sales of new products. Overseas market expansion as well as (inaudible) of the first quarter of last year due to the COVID-19. Revenues from IoT @ Home portfolio increased by 111.5% to RMB 919.2 million from RMB 434.7 million for the first quarter of last year. The growth was primarily driven by sustained sales increases for certain new product series, in particular, the Viomi branded sweeper robots and the smart kitchen products.

Revenues from our home water solutions decreased by 4% to RMB 103.8 million. The decline was primarily due to the decrease in average selling prices of Xiaomi-branded water purifier products, and this was partially offset by the successful introduction and increased the sale revenues of Viomi-branded water purifier products, which narrowed the year-over-year decline for home water solutions compared to previous quarters.

Our revenue from consumables were RMB 64.8 million compared to RMB 65 million for the first quarter of last year. Revenue from small [accounts] and others increased by 6.4% to RMB 167.8 million from RMB 157.8 million for the first quarter of last year. Gross profit increased by 84.1% to RMB 265 million, and gross margin was 21.1% compared to 18.8% for the first quarter of last year. This is primarily driven by our efforts to shift the business and the product mix towards higher gross margin products, including the rollout of new Viomi-branded water purifier and sweeper robots, alongside the optimization of margin across product lines and cost control measures.

Total operating expenses increased by 63.8% to RMB 219.8 million, primarily due to the growth of our business. R&D expenses increased by 10.7% to RMB 65.6 million from RMB 59.3 million for the first quarter of last year, mainly due to the increase of R&D experts and related salaries and expenses.

Selling and marketing expenses increased by 110.8% to RMB 138 million from RMB 65.5 million a year ago, primarily attributable to the low base effect of the first quarter of last year due to the COVID-19 when the company entered to very limited marketing and advertising activities. G&A expenses increased by 71.3% to RMB 16.2 million compared to RMB 9.5 million for the first quarter of last year, primarily due to the increase of personnel and related salaries and expenses. Net income attributable to ordinary shareholders of the company increased by 173.2% to RMB 49.1 million, and non-GAAP net income attributable to ordinary shareholders of the company increased by 106.8% to RMB 65.3 million.

Additionally, our balance sheet remained healthy. As of March 31, 2021, we had cash and cash equivalents of RMB 906.3 million. Our restricted cash of RMB 45.2 million, short-term deposits of RMB 97.7 million and short-term investments of RMB 596.9 million.

Now let's turn to our outlook. So for the second quarter of 2021, we currently expect net revenues to be between RMB 1.72 billion and RMB 1.85 billion, representing a year-over-year growth of around 2.1% to 9.8%. The above outlook is based on the current market conditions, and reflects the company's current and preliminary estimated market operating conditions and customer demand, which are also beginning to change.

Well, this concludes our prepared remarks. We will now open the call for the Q&A session. The Head of our finance team, Mr. [Wickham Thai], will join the session and answer the questions. Operator, please go ahead.

(Operator Instructions) At this time, we will pause momentarily to assemble our roster. The first question comes from Lillian Lou with Morgan Stanley.

Thanks a lot, management, and Mr. Chen. I have 2 questions. First is on the sweeper robots. What kind of growth we are looking for this year overall? Because obviously, in first Q, it has a very strong growth momentum. And Mr. Chen just mentioned that we have the plan to expand the region overseas. And in second half, we will get into the U.S. on Amazon. So any particular guidance or explanation of how we're going to grow the business overseas will be very helpful. And second question is on the raw material price increase impact. Because in first Q, we already saw the gross margin decrease on a sequential basis versus fourth quarter last year. So how are we going to look at the momentum or trends in the following quarters?

(foreign language)

Okay. Thank you for the question. For the first question about the sweeper robots, our sweeper robots business grew fast, in particular, in the Viomi-branded sweeper robots, and we expect the rapid growth of own branded sweeper robots will continue. The domestic sweeper robots market is an addressable market. According to our [EU] data, the market size of the sweeper robots is expected to reach over RMB 10 billion by 2021, and close to RMB 20 billion by 2022.

There are more players in the industry, and we observed the market shares of new brands has been increasing since 2020, and this trend is expected to continue. We also found our niche with our differentiated products, including a series of automated dust collection sweeper robots, and the AI laser radar sweeper robot we recently introduced. Under such a situation and the observation of the market rebounds of our sweeper robots, we are positive for our market shares in domestic market and in the following years.

In terms of the global market, the market size is also huge and promising, we think. Per our research, we think there are a lot of potential opportunities, particularly in the Europe and North America. We have sold our sweeper robots in Europe, Southeast Asia, Australia and the sales growth of sweeper robots for this first quarter in overseas market is exceeding our previous expectation. Next, we will expand to North America market. We recently successfully registered our store on Amazon, and we'll start to sell sweeper robots products in the second half of this year. We also plan to sell our products on some off-line channels in the North America. With our expansion in North America and the additional regions and markets, we are confident that global market sales will become an important driver of our overall business.

For the second question about the gross margin and the raw material prices rising. As we discussed, compared to 2020, our overall gross margin for 2021 would demonstrate a meaningful recovery. While we also experience some seasonal fluctuations due to some promotional events, such as the coming June 18 campaign in the second quarter, which we expect to have some impact on our gross margin. Secondly, the increase of this raw material cost would also be a factor that impacts the gross margin for the whole industry.

As for this, we have taken some cost optimization measures to mitigate the impact for raw material costs, including price law agreements with suppliers, and some technical upgrade for cost savings. Third, We noticed the latest news that the government plans to take measures to control the raw materials price update. We expect the pressure for -- from this increase in raw material costs to be relieved under the government's involvement. Yes, thank you.

(foreign language)

So Mr. Chen has some comments, yes, I will just quickly translate. So that's for the first question about development of our sweeper robot business. So we have established an independent department for our sweeper robots category, and we have been attracting the talent from (inaudible) outside. So the [second fold], the development of our sweeper robot business within 2 to 3 years, so we are regarding as one of the key categories of our strategy, so we are very confident that this category will be one of the drivers for both the over top line growth, as well as to gain our profitability. Yes. So that commentary comments from Mr. Xiaoping Chen.

(foreign language)

(foreign language)

Yes. So we already have some internal counts regarding our sweeper robots category in terms of product and the establishment of our team development in both the domestic and global markets. And our aim is to develop the top brand in sweeper robots category. Yes. That's it.

The next question is from Wei He and Rudy Wei with CICC.

Hello. Thank you very much for the management presentation. And actually, I have 2 questions here. The first is about the domestic market development. Since we know the -- actually the profit margin of the businesses with Xiaomi is quite low. And how the company plans to further promote the self-owned brand and the products in the domestic market, especially, I suppose, should be the weather purifiers and robotic vacuum cleaners? And the second question is about the overseas like are we going to promote more categories overseas or currently, we just limit the category to like the water purifiers and robotic vacuum cleaners. Yes, that's my question. (foreign language)

(foreign language)

Okay. I will quickly translate. So for the first question about how to develop our own branded business in the Latin market, so we still could focus on developing our IoT @ Home holistic product portfolio. So we have expanded to like around over [16] product category across the whole holistic areas. And we also have some key categories and the SKUs that we aim to develop mostly this year to drive our branding influence, and position as the trending brand in IoT @ Home holistic solutions area.

So rightly, we know that in the past 0.5 year to 1 year, the concept of IoT @ Home modification has increased in domestic market. So we are confident that we can have a better development in the domestic market with our advantages and the differentiation. So for the key categories, we think the water purifier and sweeper robots business, those 2 are the key categories for us this year, and we'll build, develop and investing more R&D and marketing resources in the 2 categories, and we believe those 2 categories will be also the drivers for our top line.

For your second question about the overseas market expansion. So this year, that we will still focus on the development of our sweeper robot business in the export market. So, so far, we don't plan to expand the categories, but we will expand the global markets as well as the channels and to increase our branding inflows in overseas market in the sweeper robots category. Thank you.

The next question comes from Roger Duan with Needham & Co.

I have 2 questions here. First one is a follow-up on the raw material increase -- price increase. Can the management give us a sense of just how much the raw material increase in the last several quarters? And do we have any plan to increase our retail prices like others have done in the industry? And the second question is around the pricing strategy for sweeper robot internationally, is the pricing strategy different internationally versus domestic? And will that continue to be a margin driver for the year? Thank you.

(foreign language)

(foreign language)

Okay. I will quickly translate. So for the first question about the impact from the increase of the raw material costs and the impact for our pricing strategy. So we have seen like -- an increase of the raw material cost increase since the first quarter of last year, and we have taken like 3 measures to mitigate the impact: so first, as some other companies in the whole industry they will be increased the ASPs of some of our products to some and reasonable extent. So second, we also optimized the sales and the product structures, so we promote and sell more products with higher margins. For example, in the smart kitchen product, we sell more the mid- to high-end refrigerators with higher gross margin. Third, we have been increasing the percentage, the revenue contribution from the bundle sales to mitigate the impact of the raw material cost price I believe to -- for single product. So this answers the first question.

So for your second question about the pricing strategy for our sweeper robots in domestic and global market. So we position our sweeper robots at mid- to high-end products in both at the domestic and global market. So for the domestic market, most of our sweeper robots, the ASPs are around RMB 2,000 to RMB 3,000, so that's about the average ASP of some sweeper robots brands in China. So we have some differentiated functionalities, such as the (inaudible) with the robot that we introduced last year, which aims to the auto dust -- automatic dust collection. And this year, we introduced a laser radar sweeper robot, which is also differentiation for our sweeper robots category.

So for the global market, we also aim to positioning the mid- to high-end products for this category. So the average selling price is above some of the global brands. So that's the comments from Mr. Chen, I hope that's helpful.

(Operator Instructions) As there are no further questions, now I'd like to turn the call back over to Cecilia Li for closing remarks.

Thank you once again for joining us today. If you have further questions, please contact us through the contact information on our website, or to (inaudible), our Investor Relations partner. Thank you all. Have a good one.

(foreign language)

Thank you.

This concludes this conference call. You may now disconnect your lines. Thank you.