Zepp Health Corp (ZEPP) 2023 Q1 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for Zepp Health Corporation's First Quarter 2023 Earnings Conference Call. (Operator Instructions) Today's conference call is being recorded. I will now turn the call over to your host, Ms. Grace Zhang, Director of Investor Relations for the company. Please go ahead, Grace.

女士們，先生們，您好。感謝您旁聽 Zepp Health Corporation 的 2023 年第一季度收益電話會議。 （操作員說明）正在錄製今天的電話會議。我現在將電話轉給您的主持人，公司投資者關係總監 Grace Zhang 女士。請繼續，格蕾絲。

Hello, everyone, and welcome to Zepp Health Corporation's First Quarter 2023 Earnings Conference Call. The company's financial and operating results were issued in our press release, 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.com.com -- ir.zepp.com.

大家好，歡迎來到 Zepp Health Corporation 2023 年第一季度收益電話會議。公司的財務和經營業績今天早些時候在我們的新聞稿 Newswire Services 上發布，並在網上發布。您還可以訪問公司網站 ir.com.com -- ir.zepp.com 的 IR 部分，查看本次電話會議中提到的收益新聞稿和幻燈片。

Participating in today's call are Mr. Wang Huang, our Chairman of the Board of Directors and Chief Executive Officer; and Mr. Leon Cheng Deng, our CFO.

參加今天電話會議的有我們的董事會主席兼首席執行官王煌先生；和我們的首席財務官 Leon Cheng Deng 先生。

The company's management will begin with prepared remarks, and the call will conclude with a Q&A session. Mr. Mike Yeung, our Chief Operating Officer, will join us for the Q&A session.

公司管理層將從準備好的發言開始，電話會議將以問答環節結束。我們的首席運營官 Mike Yeung 先生將加入我們的問答環節。

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 20-F for the fiscal year ended December 31, 2022, and other filings as filed with the U.S. Securities and Exchange Commission.

在我們繼續之前，請注意今天的討論將包含根據 1995 年美國私人證券訴訟改革法案的安全港條款作出的前瞻性陳述。前瞻性陳述涉及固有的風險和不確定性。因此，公司的實際結果可能與今天表達的觀點存在重大差異。有關此風險和其他風險和不確定性的更多信息包含在公司截至 2022 年 12 月 31 日止財政年度的 20-F 表格年度報告以及向美國證券交易委員會提交的其他文件中。

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 the conference call includes discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial information. That press release contains reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.

公司不承擔任何更新任何前瞻性陳述的義務，除非適用法律要求。另請注意，Zepp 的收益新聞稿和電話會議包括對未經審計的 GAAP 財務信息以及未經審計的非 GAAP 財務信息的討論。該新聞稿包含未經審計的非 GAAP 措施與未經審計的最直接可比的 GAAP 措施的調節。

I will now turn the call over to our CEO, Mr. Wang Huang. Please go ahead.

我現在將把電話轉給我們的首席執行官王煌先生。請繼續。

Hello, everyone. Thank you for joining our call. In the first quarter, we recorded revenue of RMB 645.2 million with RMB 391 million from our sales branded products and RMB 254 million from the Xiaomi ODM business.

大家好。感謝您加入我們的電話。第一季度，我們錄得 6.452 億元人民幣的收入，其中 3.91 億元人民幣來自我們的銷售品牌產品，2.54 億元人民幣來自小米 ODM 業務。

Our total revenue declined as cautious consumers limited discretionary spending due to volatile, to geopolitical and macroeconomic conditions in Europe and in the U.S. As we mentioned in the earlier quarters, we anticipate that the Xiaomi ODM business will diminish further that our self-branded product lines will become the main growth driver in the future.

由於歐洲和美國的地緣政治和宏觀經濟狀況不穩定，謹慎的消費者限制了可自由支配的支出，我們的總收入下降了。正如我們在前幾個季度提到的那樣，我們預計小米 ODM 業務將進一步減少我們的自有品牌產品線將成為未來的主要增長動力。

In the quarter, we made progress globally by strengthening our go-to-market capabilities and increasing brand awareness. This along with the value of our product growth, higher shipments and market share gains with 20% increase in the Southeast Asia and East Asia region. Despite experiencing a decline in the consumer electronic device market during the first quarter of 2023, we maintain our optimism that macro headwinds will subside, and we expect to see a market recovery during the second half of the year. Furthermore, and now the cause for automation is that Canalys recently forecasted an increase in the smartwatch market in 2023. We strongly believe in Amazfit's long-term potential in the smartwatch market, presenting a significant opportunity to boost sales by enhancing our product competitiveness.

本季度，我們通過加強進入市場的能力和提高品牌知名度，在全球範圍內取得了進展。這與我們的產品價值增長、出貨量增加和市場份額增長一起，在東南亞和東亞地區增長了 20%。儘管消費電子設備市場在 2023 年第一季度出現下滑，但我們仍然樂觀地認為宏觀逆風將消退，我們預計下半年市場將復蘇。此外，現在自動化的原因是 Canalys 最近預測智能手錶市場將在 2023 年增長。我們堅信 Amazfit 在智能手錶市場的長期潛力，通過提高我們的產品競爭力提供了促進銷售的重要機會。

By leveraging our vertical integrated (inaudible) based chip and Zepp OS in all product lines, we can reduce product costs and improve product growth profit margins. Our high-end products offer similar performance to premium competitors, but at a fraction of the most of the cost and this longer battery life. This all helped us generate higher revenue and profit margins along with our integrated supply chain and efficient R&D. We will secure our position in the USD 100 to USD 200 market segment while expanding into premium segments and enhancing our sales channels and supply chain management for increased profitability.

通過在所有產品線中利用我們基於垂直集成（聽不清）的芯片和 Zepp OS，我們可以降低產品成本並提高產品增長利潤率。我們的高端產品提供與高端競爭對手相似的性能，但成本只有後者的一小部分，而且電池壽命更長。這一切都幫助我們產生了更高的收入和利潤率，以及我們整合的供應鍊和高效的研發。我們將確保我們在 100 美元到 200 美元的細分市場中的地位，同時擴展到高端細分市場並加強我們的銷售渠道和供應鏈管理以提高盈利能力。

With these enhancements now implemented, I am thrilled to share that our new products have achieved a remarkable 34.6% margin in the current quarter. We remain confident that the overall margin will improve in the future as we work towards achieving a more optimal inventory level. Moreover, the rapid implementation of OpenAI's LLM technology sets us apart from our competitors in the industry by utilizing sports watches powered by Generative AI. We will position ourselves as a trailblazer in the market, emphasizing our advanced great technology rather than traditional sports watches.

隨著這些增強功能的實施，我很高興地與大家分享，我們的新產品在本季度實現了驚人的 34.6% 的利潤率。我們仍然相信，隨著我們努力實現更優化的庫存水平，未來整體利潤率將會提高。此外，OpenAI 的 LLM 技術的快速實施通過使用由生成 AI 提供支持的運動手錶，使我們在行業競爭對手中脫穎而出。我們將自己定位為市場開拓者，強調我們先進的偉大技術，而不是傳統的運動手錶。

For example, as we mentioned last quarter, we have been the industry pioneer in integrating GPT technology into our products and services such as Zepp Coach and Zepp Aura. On March 29, we launched the beta version of an AI-powered Zepp Coach Chat function for Amazfit Falcon user, powered by this constantly learning and evolving AI chat capability, Zepp Coach Chat can provide users with abundant personalized and updated exercise recommendations.

例如，正如我們上個季度提到的，我們一直是將 GPT 技術集成到我們的產品和服務中的行業先驅，例如 Zepp Coach 和 Zepp Aura。 3 月 29 日，我們面向 Amazfit 獵鷹用戶推出了 Zepp Coach Chat AI 功能內測，借助這種不斷學習和進化的 AI 聊天能力，Zepp Coach Chat 可以為用戶提供豐富的個性化和更新的運動建議。

In recent quarters, we have implemented refreshed marketing and product strategies that include creating communities for sports and out those insurances by leveraging Generative AI technology. We have not only supported the growth and development of athletes, both in (inaudible) and outdoor [initiative], but also build a thriving user community in the sports and outdoor sectors. This has resulted in the organic spread of positive word of mouth and distribution, which has further boosted our brand and reputation in the mid- to high-end market. As a result, we have also gained brand premium in the mid- to low-end market, driving higher profit margins in the future. Alongside our endeavors to equip our products with cutting-edge technologies, we have also been striving to expand our product portfolio, aiming to offer more diverse products to adjust different cohorts, [tennis], health and lifestyle needs.

最近幾個季度，我們實施了更新的營銷和產品戰略，包括創建體育社區和利用生成式 AI 技術取消這些保險。我們不僅支持運動員在（聽不清）和戶外 [倡議] 方面的成長和發展，而且還在體育和戶外領域建立了一個繁榮的用戶社區。這導致積極的口碑和分銷的有機傳播，進一步提升了我們在中高端市場的品牌和聲譽。因此，我們在中低端市場也獲得了品牌溢價，推動未來更高的利潤率。除了努力為我們的產品配備尖端技術外，我們還一直努力擴大我們的產品組合，旨在提供更多樣化的產品，以適應不同人群、[網球]、健康和生活方式的需求。

In Q1, we launched the Amazfit T-Rex Ultra, our ultimate outdoor GPS smartwatch on March 20. It received positive feedback from outdoor sports enthusiasts for its rugged design, premium material and 160-plus sports modes. We have other exciting product plans for the year ahead aiming to bring [the one] features to more users. For example, on May 1, we released a significant firmware update for the Amazfit T-Rex 2 smartwatch. It includes heart rate recovery information, terrain metrics, altitude, water temperature, slope and automatic slope analysis. These enhancements improve the user experience, making our smartwatches reliable fitness companion for indoor and outdoor activities.

在第一季度，我們於 3 月 20 日推出了我們的終極戶外 GPS 智能手錶 Amazfit T-Rex Ultra。它以其堅固的設計、優質的材料和 160 多種運動模式獲得了戶外運動愛好者的積極反饋。我們在未來一年還有其他令人興奮的產品計劃，旨在為更多用戶帶來 [the one] 功能。例如，5 月 1 日，我們發布了 Amazfit T-Rex 2 智能手錶的重大固件更新。它包括心率恢復信息、地形指標、海拔高度、水溫、坡度和自動坡度分析。這些增強功能改善了用戶體驗，使我們的智能手錶成為室內和室外活動的可靠健身伴侶。

For the past few months, in 2023, we have seen some signs of economic recovery in certain markets. That said, the fragile economic environment in many other markets remains an uncertain factor, dampening consumer confidence and potentially our sales performance in the coming quarters. Nevertheless, we remain confident in our strategy described but -- and we believe this is the right path leading to the company's sustainable growth as we aspire to become a leading global healthcare solution provider, and it will enable us to deliver incremental value to our users and shareholders.

在過去的幾個月裡，也就是 2023 年，我們已經看到某些市場出現了一些經濟復甦的跡象。儘管如此，許多其他市場脆弱的經濟環境仍然是一個不確定因素，削弱了消費者信心，並可能削弱我們未來幾個季度的銷售業績。儘管如此，我們仍然對我們所描述的戰略充滿信心，但是——我們相信這是導致公司可持續發展的正確途徑，因為我們渴望成為全球領先的醫療保健解決方案提供商，這將使我們能夠為我們的用戶提供增量價值和股東。

Thank you again for joining us today. I will now turn the call over to Leo to go over the highlights of our third quarter financial results.

再次感謝您今天加入我們。我現在將把電話轉給 Leo 來回顧我們第三季度財務業績的亮點。

Thank you, Huang. Greetings, everyone. Let me walk you through some key metrics of our first quarter 2023 financial results.

謝謝你，黃。大家好。讓我向您介紹我們 2023 年第一季度財務業績的一些關鍵指標。

In the first quarter, we recorded revenue of RMB 645.2 million within our guidance range and down 14.8% year-over-year. The decrease was mainly due to the global macroeconomic uncertainties that dampen discretionary consumption in the first quarter. According to Canalys, the value of the global wearable markets, including basic band, basic watch and smartwatch decreased by 8% in the first quarter. And more specifically, the basic band subcategory lost more than 30%.

第一季度，我們錄得收入 6.452 億元人民幣，在我們的指導範圍內，同比下降 14.8%。下降主要是由於全球宏觀經濟的不確定性抑制了第一季度的可自由支配消費。根據 Canalys 的數據，第一季度全球可穿戴市場的價值下降了 8%，包括基礎手環、基礎手錶和智能手錶。更具體地說，基本頻段子類別損失超過 30%。

Also, as I mentioned a few times before, Q1 is typically the lowest seasonal quarter of our financial year. Before diving into our financial performance, I would like to provide a brief overview of the macro environment. In the first quarter, we experienced a shift in China's COVID Zero policy, the reopening disrupted our new product launch schedule due to the factory closures. As a result, we had to postpone the release of some of our new product lines to subsequent quarters, which has a negative impact on our Q1 sales. At the same time, consumer spending was rather tepid, especially as the pendulum has swung away from goods and towards travel and services as the consumer enjoys some of the activities that they were deprived of during the pandemic.

此外，正如我之前多次提到的，第一季度通常是我們財政年度中季節性最低的季度。在深入探討我們的財務業績之前，我想簡要概述一下宏觀環境。在第一季度，我們經歷了中國 COVID 零政策的轉變，由於工廠關閉，重新開放打亂了我們的新產品發布計劃。因此，我們不得不將一些新產品線的發布推遲到後續季度，這對我們第一季度的銷售額產生了負面影響。與此同時，消費者支出相當不溫不火，尤其是鍾擺已經從商品轉向旅遊和服務，因為消費者享受了一些他們在大流行期間被剝奪的活動。

The consumer electronics space, in particular, continues to experience softness to this matter, which together with the geopolitical risks in Europe, pressure on our top line in North America and Europe. Despite the challenging start of the consumer electronics market during the first quarter of 2023, we remain optimistic about the smart wearable market recovery in the second half of the year. Despite these headwinds mentioned above, as Huang just mentioned, in some of our global markets, our self-branded products achieved in current year-over-year sales growth during the quarter. Thanks to our enhanced brand value and product features, we remain confident in our ability to drive our self-branded products to grow further in the coming quarters.

特別是消費電子領域，在這件事上繼續表現疲軟，再加上歐洲的地緣政治風險，對我們在北美和歐洲的收入構成壓力。儘管2023年第一季度消費電子市場開局充滿挑戰，但我們對下半年智能穿戴市場的複蘇保持樂觀。儘管上面提到了這些不利因素，正如黃剛提到的，在我們的一些全球市場，我們的自有品牌產品在本季度實現了當前的同比銷售增長。由於我們提升了品牌價值和產品功能，我們對在未來幾個季度推動自主品牌產品進一步增長的能力充滿信心。

Moving on to our gross margin, which can be influenced by various factors such as product mix, product launch timing and product life cycles, including model upgrades. As we took a ROI-oriented approach to optimizing our product and sales channel portfolio, the gross margin for our self-branded products remained relatively healthy. Meanwhile, gross margin for Xiaomi products declined significantly in the quarter as a result of its multiyear pricing strategy. Above factors combined drove our overall gross margin to 15.9% in the first quarter, down lowered by 4.2% year-over-year and 4.8% versus previous quarter. We believe with the launch of our new higher-margin products and continued pooling of our low-ROI products and channels, the gross margin of our self-branded products will expand further for the remainder of the year.

繼續我們的毛利率，這可能會受到各種因素的影響，例如產品組合、產品發佈時間和產品生命週期，包括模型升級。由於我們採用以投資回報率為導向的方法來優化我們的產品和銷售渠道組合，我們自主品牌產品的毛利率保持相對健康。與此同時，由於多年的定價策略，小米產品的毛利率在本季度大幅下降。上述因素共同推動我們第一季度的整體毛利率達到 15.9%，同比下降 4.2%，與上一季度相比下降 4.8%。我們相信，隨著我們新的高利潤產品的推出以及我們低投資回報率產品和渠道的持續整合，我們自有品牌產品的毛利率將在今年餘下時間進一步擴大。

Now let's look at our costs, as we have always mentioned in our past earnings calls, costs remain a main forecast for the company, both in terms of their absolute amount and as a percentage of sales. Since Q3 2020, we have been pleased to see a trend toward a decrease in total operating expenses, while still making strategic investments in new products, technologies and footprint expansions to fuel our long-term growth. In Q1, we made good progress in cutting our expenses run rate further by successfully reducing our quarterly operating expenses to RMB 253.8 million, reflecting a year-over-year decrease of 17.5% and a quarter-over-quarter decrease of 13.3%.

現在讓我們看看我們的成本，正如我們在過去的財報電話會議中一直提到的那樣，成本仍然是公司的主要預測，無論是在絕對金額還是在銷售額中所佔的百分比。自 2020 年第三季度以來，我們很高興看到總運營費用呈下降趨勢，同時仍在對新產品、技術和足跡擴張進行戰略投資，以推動我們的長期增長。第一季度，我們在進一步降低費用運行率方面取得了良好進展，成功將季度運營費用降至人民幣 2.538 億元，同比下降 17.5%，環比下降 13.3%。

Non-GAAP operating expenses decreased to RMB 229.8 million, which is the lowest level in the past 2 years. As a percentage of revenue, our first quarter adjusted operating expenses rate decreased by 3.3 percentage points year-over-year. Going forward, we'll continue to manage our expenses in a disciplined manner and enhance our operating efficiencies targeting to cut our expenses run rate to approximately non-GAAP RMB 200 million or lower in the coming quarters, which represents a significant decrease of around 33% of more than -- or more from the average of RMB 300 million per quarter in 2022 as we aim for our turnaround in profitability in the coming quarters.

非美國通用會計準則營業費用下降至人民幣 2.298 億元，為過去 2 年的最低水平。作為佔收入的百分比，我們第一季度調整後的運營費用率同比下降 3.3 個百分點。展望未來，我們將繼續以紀律嚴明的方式管理我們的費用並提高我們的運營效率，目標是在未來幾個季度將我們的費用運行率降低至約非美國通用會計準則人民幣 2 億元或更低，這意味著大幅減少約 33 2022 年每季度平均 3 億元人民幣以上的百分比，因為我們的目標是在未來幾個季度扭虧為盈。

Spending RMB in Q1 '23 was RMB 117.9 million, decreasing by 19.5% year-over-year. Benefiting from our enhanced R&D efficiency, it is also worth mentioning that R&D expenses now account for nearly half of our total operating expenses, as we remain committed to investing in our future by investing in new technologies to enhance offerings for our users.

23 年第一季度的人民幣支出為 1.179 億元人民幣，同比下降 19.5%。受益於我們提高的研發效率，還值得一提的是，研發費用現在占我們總運營費用的近一半，因為我們仍然致力於通過投資新技術來為我們的用戶提供更好的服務，從而投資於我們的未來。

Selling and marketing expenses were RMB 86 million declined by 16.6% year-over-year as we carefully review our sales channel strategy while still investing on opportunities with higher ROIs to fuel growth.

銷售和營銷費用為人民幣 8600 萬元，同比下降 16.6%，因為我們仔細審查了我們的銷售渠道戰略，同時仍在投資於投資回報率更高的機會以推動增長。

Q1 G&A expenses were RMB 49.9 million, lowered by 14.2% versus RMB 58.2 million in Q1 2022 and down by 6.5% compared with RMB 53.4 million in Q4 2022 due to organization delayering and strong cost control measures. We believe that our progress in cost optimization is a strong testament to our execution capability and will benefit our long-term growth. Thanks to decreased operating expenses, our adjusted operating loss narrowed by 10.9% year-over-year. However, our reduced cost did not fully offset the impact of a smaller revenue scale and lower gross margin for Xiaomi products during the quarter.

由於組織延遲和強有力的成本控制措施，第一季度 G&A 費用為人民幣 4990 萬元，較 2022 年第一季度的人民幣 5820 萬元下降 14.2%，較 2022 年第四季度的人民幣 5340 萬元下降 6.5%。我們相信，我們在成本優化方面取得的進展是對我們執行能力的有力證明，並將有利於我們的長期增長。由於運營費用減少，我們調整後的運營虧損同比收窄 10.9%。然而，我們降低的成本並沒有完全抵消本季度小米產品收入規模下降和毛利率下降的影響。

Our adjusted net loss in the first quarter was RMB 112.7 million versus a loss of RMB 75.7 million in the first quarter of 2022. While our Q1 2022 loss include RMB 66.3 million investment income generated by our [Sifi] investment, we will continue to enhance our cost culture policies by implementing more comprehensive measures, specifically targeting areas such as travel expenses, personnel-related costs and other expenditures incurred by the company. Simultaneously, we're dedicated to refining our product pricing strategy to optimize both our gross margin and sales revenue ultimately leading to an improvement in our bottom line performance. Despite the bottom line loss, our cash flow remains strong, thanks to our working capital management efficiency. We have sustained positive operating cash flow for 3 consecutive quarters since Q3 2022.

我們第一季度調整後的淨虧損為人民幣 1.127 億元，而 2022 年第一季度為虧損人民幣 7570 萬元。雖然我們 2022 年第一季度的虧損包括我們 [Sifi] 投資產生的人民幣 6630 萬元投資收益，但我們將繼續加強我們的成本文化政策，實施更全面的措施，特別針對公司發生的差旅費、人事相關費用和其他支出等領域。同時，我們致力於完善我們的產品定價策略，以優化我們的毛利率和銷售收入，最終提高我們的底線業績。儘管虧損，但由於我們的營運資本管理效率，我們的現金流仍然強勁。自 2022 年第三季度以來，我們連續三個季度保持正經營現金流。

Now turning to the balance sheet. Cash and cash equivalent, restricted cash and the term deposits as of March 31, 2023, were RMB 1 billion, an improvement from RMB 973 million as of December 31, 2022. As we continue to execute our precise inventory management strategy, we further reduced our inventory balance to RMB 800 million by the end of the quarter from RMB 1 billion at the end of the year 2022. And it is the lowest level in the past 6 quarters. In November 2021, the Board approved the allocation of up to USD 20 million towards a share repurchase program. In Q1 2023, we continued our repurchase program as we remain confident in our business prospects in the longer term. We have bought back USD 11.1 million worth of shares by the end of March 31, 2023, and we intend to carry out with this buyback program.

現在轉向資產負債表。截至 2023 年 3 月 31 日，現金及現金等價物、受限制現金和定期存款為人民幣 10 億元，較截至 2022 年 12 月 31 日的人民幣 9.73 億元有所改善。隨著我們繼續執行精準庫存管理策略，我們進一步減少我們的庫存餘額從 2022 年底的 10 億元人民幣增加到本季度末的 8 億元人民幣。這是過去 6 個季度以來的最低水平。 2021 年 11 月，董事會批准撥款至多 2000 萬美元用於股票回購計劃。 2023 年第一季度，我們繼續執行回購計劃，因為我們對長期業務前景充滿信心。到 2023 年 3 月 31 日為止，我們已經回購了價值 1110 萬美元的股票，我們打算執行此回購計劃。

Now let's discuss our outlook. In light of the ongoing geopolitical and macroeconomic challenges, our guidance for the second quarter of 2023 currently projects net revenue to be between RMB 650 million and RMB 850 million compared to RMB 1.1 billion for the second quarter of 2022. We expect roughly 65% to 75% of the revenue will be contributed by our self-branded products in the second quarter. Please note that this outlook reflects continued uncertainty around lower discretionary consumer spending, especially in our international markets and global macroeconomic weakness. That said, we have seen some positive signs and much of the year lies ahead of us. Furthermore, as we mentioned last quarter, the year may be somewhat back-end loaded as we gradually release our new products.

現在讓我們討論一下我們的前景。鑑於持續的地緣政治和宏觀經濟挑戰，我們目前預計 2023 年第二季度的淨收入將在 6.5 億元人民幣至 8.5 億元人民幣之間，而 2022 年第二季度為 11 億元人民幣。我們預計大約 65% 至 8.5 億元人民幣。 75%的收入將在第二季度由我們的自有品牌產品貢獻。請注意，這一前景反映了圍繞可支配消費者支出減少的持續不確定性，尤其是在我們的國際市場和全球宏觀經濟疲軟的情況下。也就是說，我們已經看到了一些積極的跡象，而今年的大部分時間都在我們面前。此外，正如我們上個季度提到的，隨著我們逐步發布新產品，這一年可能會有一些後端負載。

And with that, I would open it up for questions. Operator, please go ahead.

有了這個，我會打開它來提問。接線員，請繼續。

(Operator Instructions) The first question comes from [Nicola Jones] with [Brooks Investments].

（操作員說明）第一個問題來自 [Nicola Jones] 和 [Brooks Investments]。

So I have 3 questions. Firstly, can you please provide some color on the revenue trend of self-branded products in the second quarter and beyond? And then secondly, I'd like to ask if you can discuss factors that impacted your margins in the first quarter and margin outlook in the remainder of the year. And lastly, I'd like to understand a bit more about the revenue breakdown by region.

所以我有3個問題。首先，請您介紹一下二季度及以後自主品牌產品的收入趨勢？其次，我想問你是否可以討論影響第一季度利潤率和今年剩餘時間利潤率前景的因素。最後，我想更多地了解一下按地區劃分的收入細分。

Yes, it's a lot of questions. So let me start with the first question. I think it's on the self-branded product margin. Sorry, I think it's around self-branded product revenue outlook for Q2 and the quarters ahead of us, correct?

是的，有很多問題。那麼讓我從第一個問題開始。我認為這是在自有品牌產品的利潤率上。抱歉，我認為這是關於第二季度和我們未來幾個季度的自有品牌產品收入前景，對嗎？

Yes.

是的。

Okay. Now I think as we just guided, we were looking at roughly RMB 650 million and RMB 850 million for Q2 as our revenue range. And then we -- out of that number, there's going to be around 65% to 75% of the revenue, which is going to be contributed by our self-branded products. So if you take the mid number over there, in essence, we're looking at the second quarter revenue, which is going to be around, let's take a number of 7.5 -- sorry, RMB 750 million, and out of that, 70% would be our self-branded products. If that number is correct, I think that is actually going to be indicating that our self-branded products revenue is going to start to grow versus the same period of last year. And looking ahead, we have mentioned a few times that we're actually transforming more into self-branded driven revenue kind of company rather than in the past, majority of our revenue is actually consists of the ODM Xiaomi product. And you will see this trend starting to take a shape more in -- I think we have already started to -- you have already seen this trend. But I think after a few quarters, especially Q2, Q3, Q4 this year, you'll start to see a solid trend of majority of our sales revenue is going to be generated by self-branded products. Well, we still have a small portion of the Xiaomi and ODM products revenue and in return, that sales mix change is going to help us to deliver a higher gross margin. So I think that naturally goes into your second quarter, which is on the margin outlook. I think one of the things I would like to call out in the first quarter this year is that we have already seen -- I think we have already seen consecutively a few quarters in the past that our self-branded product gross margin is starting to recover, and we see this trend progressing into Q1 this year. And we have already mentioned in our prepared remarks, that in Q1, our new product sales gross margin is around 35%, which is a lot higher than what we have sold in the past. But our overall gross margin for the self-branded products in quarter 1 was still flat year-over-year, largely because we still have some of the old inventories from the previous generation products, which we carried over from previous years, which we try to sell off, right? And I think we're coming -- and that's why you also see our inventory balance decreased dramatically in the past 6 quarters, and we are now at RMB 800 million worth of inventory, which is if you put it into perspective, that's just equivalent to the sales outlook of a quarter out sales plus, right? And I think coupled with the clearance of the old inventory, which come more or less to an end right now, plus the newly launched product of self-branded products, which is going to take its shape in quarter 2 and ultimately into the high season of Q3 and Q4, we see the gross margin of our self-branded products as well as the overall gross margin is going to shoot up or continue to improve in Q2 and ultimately in Q3 and Q4. I think that should answer your second question.

好的。現在我認為正如我們剛剛指導的那樣，我們將第二季度的收入範圍設定為大約 6.5 億元人民幣和 8.5 億元人民幣。然後我們——在這個數字中，將有大約 65% 到 75% 的收入，這將由我們的自有品牌產品貢獻。所以如果你把中間數字放在那邊，本質上，我們正在看第二季度的收入，這將是大約，讓我們拿 7.5 的數字——抱歉，7.5 億元人民幣，其中，70 % 將是我們的自有品牌產品。如果這個數字是正確的，我認為這實際上表明我們的自有品牌產品收入將開始與去年同期相比增長。展望未來，我們已經多次提到，我們實際上正在更多地轉變為自有品牌驅動收入的公司，而不是過去，我們的大部分收入實際上是由 ODM 小米產品組成的。你會看到這種趨勢開始形成——我想我們已經開始了——你已經看到了這種趨勢。但我認為幾個季度後，尤其是今年第二季度、第三季度、第四季度，你會開始看到我們大部分銷售收入將由自主品牌產品產生的穩固趨勢。好吧，我們仍然有一小部分小米和 ODM 產品收入，作為回報，銷售組合的變化將幫助我們實現更高的毛利率。所以我認為這自然會進入您的第二季度，即利潤率前景。我認為我想在今年第一季度提出的一件事是我們已經看到 - 我認為我們已經連續幾個季度看到我們的自有品牌產品毛利率開始下降恢復，我們看到這一趨勢進入今年第一季度。我們已經在準備好的評論中提到，在第一季度，我們的新產品銷售毛利率約為 35%，這比我們過去銷售的毛利率高很多。但我們第一季度自主品牌產品的整體毛利率仍然同比持平，主要是因為我們仍然有一些上一代產品的舊庫存，我們從前幾年結轉，我們嘗試賣掉，對吧？我認為我們即將到來——這就是為什麼你也看到我們的庫存餘額在過去 6 個季度急劇下降，我們現在的庫存價值為 8 億元人民幣，如果你把它放在正確的角度來看，這就相當於對一個季度的銷售前景進行銷售加分，對嗎？而且我認為再加上現在或多或少即將結束的舊庫存清理，加上新推出的自有品牌產品，將在第二季度初具規模，最終進入旺季從第三季度和第四季度來看，我們看到我們的自有品牌產品的毛利率以及整體毛利率將在第二季度飆升或繼續改善，最終在第三季度和第四季度。我認為這應該回答你的第二個問題。

And your third question, if I remember clearly, it's about the revenue breakdown by region. I think we have mentioned several times that our biggest sales region for our self-branded products is in Europe. And that actually stands for around 60% of the overall self-branded revenue for us. And in many of the big European countries, for example, Spain and Italy, we hold a very dominant market share position in those countries. So -- and we will continue to expand in Europe, especially in the east part of Europe as well as in the countries like traditionally a very strong brand awareness for our premium competitors, for example, Apple and the Samsung brand. You're more looking at countries like Germany and U.K., et cetera, et cetera, right? And apart from Europe, I think we also see United States as one of the countries and regions, which can give us quite a growth opportunity because we have been operating in U.S. -- in the North America market for roughly close to 2 years -- less than 2 years, and we have already developed our market share from 0 towards 11%. That's actually ranked ourselves among the top 5 players in the U.S. So I think U.S. will continue to push up after Europe. And the third biggest sales region for us is the Asian countries. You're looking at Japan, Korea and Malaysia, Singapore and India. These, we actually group them as one of the Asia Pacific countries. And then they also play as an important part of our self-branded revenue. And last but not the least, is China. And I think we also want to play smartly in China by selling selectively our premium products in China and try to look at the profitability rather than the scale because the competition in China is quite fierce, especially in the smartwatch domain. But I think in certain premium price segment, we have a unique position to compete over there. So that all together, hopefully, would give you a view on where we're going to push for this year's revenue for self-branded products.

你的第三個問題，如果我記得清楚的話，是關於按地區劃分的收入細分。我想我們已經多次提到我們最大的自主品牌產品銷售區域在歐洲。這實際上占我們自有品牌總收入的 60% 左右。在許多歐洲大國，例如西班牙和意大利，我們在這些國家擁有非常主導的市場份額。所以 - 我們將繼續在歐洲擴張，特別是在歐洲東部以及傳統上對我們的高端競爭對手（例如蘋果和三星品牌）具有非常強大的品牌知名度的國家。您更多地關注德國和英國等國家，對吧？除了歐洲，我認為我們也將美國視為國家和地區之一，這可以為我們提供相當大的增長機會，因為我們已經在美國——在北美市場運營了大約近 2 年——不到 2 年，我們的市場份額已經從 0 發展到 11%。這實際上使我們躋身美國前 5 名。所以我認為美國將繼歐洲之後繼續上升。我們的第三大銷售區域是亞洲國家。你看的是日本、韓國和馬來西亞、新加坡和印度。這些，我們實際上將它們歸為亞太國家之一。然後它們也是我們自有品牌收入的重要組成部分。最後但並非最不重要的是中國。而且我認為我們也想通過在中國有選擇地銷售我們的優質產品來巧妙地在中國發揮作用，並嘗試著眼於盈利能力而不是規模，因為中國的競爭非常激烈，尤其是在智能手錶領域。但我認為在某些高端價格領域，我們擁有獨特的競爭優勢。因此，希望所有這些都能讓您了解我們將在何處推動今年自有品牌產品的收入。

(Operator Instructions) The next question comes from Lisa Lee with Alpha Research.

（操作員說明）下一個問題來自 Alpha Research 的 Lisa Lee。

I have 2 questions. The first one is on the very strong margin that you just mentioned for your new products. You said it was around 35% in the first quarter. I'm just wondering what are the drivers behind this performance? And are there any further upsides to this number? And the second question is on the run rate of your operating expenses. You I think talked about a target of RMB 200 million on the adjusted basis in the coming quarters. But I noticed in the first quarter, your total operating expenses have reached around RMB 225 million, I think, on the adjusted basis. So are you being a little bit conservative on this target? And what is your run rate currently?

我有兩個問題。第一個是您剛剛提到的新產品的非常高的利潤率。你說第一季度大約是 35%。我只是想知道這種表現背後的驅動因素是什麼？這個數字還有其他好處嗎？第二個問題是關於您的運營費用的運行率。我想你談到了未來幾個季度在調整後的基礎上達到 2 億元人民幣的目標。但我注意到，在第一季度，您的總運營費用在調整後的基礎上達到了 2.25 億元人民幣左右。那麼你對這個目標有點保守嗎？您目前的運行率是多少？

Yes. So let me try to answer the easy ones. Let's start with the run rate of the expenses, then I'll get back to the margins because that's probably is going to be a little bit longer story here. Yes, you are right, Lisa. So if you look at our 2022 and 2021 quarterly expenses run rate were around RMB 300 million per quarter, so which is adding up the R&D, G&A plus the sales and marketing expenses altogether, right? So this is actually one of the key KPIs, the management plays a lot of focus into our day-to-day operation, okay? So we have done a few things. We actually look at our -- that's #1. It's definitely the personnel, right? So we look at our workforce, and we try to streamline our workforce and then we try to get it in line with our revenue scale. So that's definitely the one which we did in the past quarters. I think that's more or less coming to the end.

是的。因此，讓我嘗試回答簡單的問題。讓我們從費用的運行率開始，然後我會回到利潤率，因為這裡的故事可能會更長一些。是的，你是對的，麗莎。因此，如果你看看我們 2022 年和 2021 年的季度費用運行率約為每季度 3 億元人民幣，那麼這是將研發、一般和行政費用加上銷售和營銷費用加起來，對嗎？所以這實際上是關鍵的 KPI 之一，管理層在我們的日常運營中非常關注，好嗎？所以我們做了一些事情。我們實際上是在看我們的——那是第一名。肯定是人事吧？因此，我們著眼於我們的員工隊伍，我們試圖精簡我們的員工隊伍，然後我們試圖讓它與我們的收入規模保持一致。所以這絕對是我們在過去幾個季度所做的。我認為這或多或少即將結束。

And the second one is what we did is to look at our expenses based on a so-called ROI return on investment approach. And we always look at the discretionary expenses in a way that whenever we could save, we ask people to be a little bit more cautious in, for example, traveling, for example, spending on our marketing campaign by looking twice or three times whether or not it makes sense and what's the return on that, right? And the last thing which we did is on R&D part. We are more applying a so-called platforming approach whereby we look at our vertically integrated chips, OS and everything together and try to lower the overall cost of delivery on our products, right? So that all translates into a lower R&D expenses and lower sales and marketing expenses and the lower G&A expenses, right?

第二個是我們所做的是根據所謂的 ROI 投資回報率方法來查看我們的費用。我們總是以一種方式看待可自由支配的開支，只要我們可以節省，我們就會要求人們在旅行方面更加謹慎，例如，在我們的營銷活動上花費兩三倍，看看是否或這沒有道理，那有什麼回報，對嗎？我們做的最後一件事是研發部分。我們更多地採用所謂的平台化方法，我們將垂直集成的芯片、操作系統和所有東西放在一起，並試圖降低我們產品的總體交付成本，對嗎？所以這一切都轉化為更低的研發費用、更低的銷售和營銷費用以及更低的 G&A 費用，對吧？

And you are right, we have -- I think last quarter, we have guided that our target for this year probably is going to be achieving a run rate of RMB 250 million per quarter. And then we have already achieved that number. And we have overdelivered in assets this quarter around RMB 229 million for the quarter and where, as we mentioned in our prepared remarks, we're looking at operating expenses run rate of RMB 200 million for the year. And yes, I still think by applying a more target approach like what I just described, we still have room to push for a little bit lower than that number. But at this moment, we are more looking at a run rate of RMB 200 million per quarter for that, right?

你是對的，我們有——我認為上個季度，我們已經指導我們今年的目標可能是實現每季度 2.5 億元人民幣的運行率。然後我們已經達到了這個數字。本季度我們超額交付了約 2.29 億元人民幣的資產，正如我們在準備好的評論中提到的那樣，我們預計全年的運營費用運行率為 2 億元人民幣。是的，我仍然認為通過像我剛才描述的那樣應用更具針對性的方法，我們仍有空間推動比這個數字低一點。但目前，我們更看重的是每季度 2 億元人民幣的運行率，對吧？

And going back to your first question on the margin and then the margin development for our products for this year, I think there are a few drivers. Number 1 is that we are actually looking at -- as you know, we have 3 different product lines, which are targeting different type of consumers, right? Number 1 is our so called sports and outdoor range, which is supported by our watch like a T-Rex and Falcon series. These are the so-called the Apple Ultra and Garmin watch competitors, which we want to use these type of -- and we offer this watch at a relatively lower price with similar functionalities versus our competitors. And these watches actually have gained great tractions in the marketplace right now. And we want to actually deepen on building on those reputations, we generated through these watch and also the functionalities we have achieved out of this watch, and we want to actually use this type of reputation to sell our -- and increase our ASPs of our overall product portfolio at large, right?

回到你關於利潤率的第一個問題，然後是我們今年產品的利潤率發展，我認為有幾個驅動因素。第一，我們實際上正在研究——如您所知，我們有 3 種不同的產品線，它們針對不同類型的消費者，對嗎？ 1 號是我們所謂的運動和戶外系列，它由我們的手錶支持，如 T-Rex 和 Falcon 系列。這些是所謂的 Apple Ultra 和 Garmin 手錶競爭對手，我們希望使用這些類型的 - 我們以相對較低的價格提供這款手錶，但與我們的競爭對手相比具有相似的功能。這些手錶現在實際上已經在市場上獲得了巨大的吸引力。我們希望真正深化建立在這些聲譽的基礎上，我們通過這些手錶以及我們從這款手錶中獲得的功能，我們希望真正利用這種類型的聲譽來銷售我們的 - 並增加我們的 ASP整體產品組合，對吧？

And number 2 is actually what I mentioned just now on applying a vertical integrated supply chain as well as the chips, the OS and the R&D effort altogether, so called platform in approaching our R&D, right? In the past, if we have 10 platforms that in essence, you need to spend the money 10x. But if you can actually single everything into 1 platform, then you are going to reduce your cost dramatically and at the same time, deliver a user experience and functionalities much better than a scattered software and hardware landscape in the past. So I think with that second lever of vertically integration, we should be able to gain market share in those price segments between $100 and $200 range, which is also the part which our competitors like Huawei, like Xiaomi and other brands, there's a fierce competition over there, but I think through vertical integration and a pure player, we should have a better competitive edge over there. So number 1 is to increase the ASP on our premium watches. Number 2 is to use our vertical integrated system platforms and everything to increase our competitiveness on the lower-tier price points so that we can actually gain market share at the bottom from the Xiaomi, Huawei and Samsung guys and at the top from Apple and Garmin guys. Then altogether, that should be the path on how we're going to increase our gross margin for our products in the future. I hope that gives you a view.

而第二點實際上就是我剛才提到的應用垂直集成供應鏈以及芯片、操作系統和研發工作，所謂的平台來接近我們的研發，對吧？過去，如果我們有 10 個平台，那本質上，你需要花 10 倍的錢。但是，如果您實際上可以將所有內容都集中到一個平台中，那麼您將大大降低成本，同時提供比過去分散的軟件和硬件環境更好的用戶體驗和功能。所以我認為通過垂直整合的第二個槓桿，我們應該能夠在 100 美元到 200 美元的價格區間獲得市場份額，這也是我們的競爭對手如華為、小米和其他品牌競爭激烈的部分在那裡，但我認為通過垂直整合和純粹的玩家，我們應該在那裡有更好的競爭優勢。因此，第一是提高我們優質手錶的平均售價。第二是利用我們的垂直集成系統平台和一切來提高我們在低端價位上的競爭力，這樣我們就可以真正地從小米、華為和三星的底部獲得市場份額，從蘋果和 Garmin 的頂部獲得市場份額伙計們。總而言之，這應該是我們未來如何提高產品毛利率的途徑。我希望這能給你一個看法。

Yes. It did.

是的。它做了。

As there are no further questions now, I'd like to turn the call back over to Grace Zhang for any closing remarks.

由於現在沒有其他問題，我想將電話轉回給 Grace Zhang 以聽取任何結束語。

Thank you, once again, for joining us today. If you have further questions, please feel free to contact Zepp's Investor Relations department through the contact information provided on our website. This concludes this conference call. You may now disconnect your lines. Thank you.

再次感謝您今天加入我們。如果您還有其他問題，請隨時通過我們網站上提供的聯繫信息聯繫 Zepp 的投資者關係部門。本次電話會議到此結束。您現在可以斷開線路。謝謝。

Again, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

同樣，會議現已結束。感謝您參加今天的演講。您現在可以斷開連接。