Zepp Health Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 19, 2025

There are 6 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for standing by for ZEPP Health Corporation's First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. Today's conference call is being recorded. I would now turn the call over to your host, Ms.

Operator

Grace Zhang, Director of Investor Relations for the company. Please go ahead, Grace.

Speaker 1

Hello, everyone, and welcome to Zephyrus Corporation's first quarter twenty twenty five earnings conference call. The company's financial and operating results were issued in a press release via the newswire services earlier today and are posted online. You can also view the earnings press release and slides referred to on this call by visiting the IR section of the company's website at ir.web.com. Participating in today's call are Mr. Wang Feng, our Chairman of the Board of Directors and Chief Executive Officer and Mr.

Speaker 1

Liang Quan Zhen, our Chief Financial Officer. The company's management will begin with prepared remarks and the call will conclude with a Q and A session. Mr. Mike Young, our Chief Operating Officer will join us for the Q and A session. Before we continue, please note that today's discussion will contain forward looking statements made under the Safe Harbor provisions of The U.

Speaker 1

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 fiscal year ended 12/31/2024, and other filings as filed with the U.

Speaker 1

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 the 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 non GAAP measures to the unaudited most directly comparable GAAP measures.

Speaker 1

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

Speaker 2

Hello, everyone. Welcome, and thank you for joining our first quarter twenty twenty five earnings call. We are delighted to announce that this quarter we see a 10% year over year growth of Amazfit revenue, first time after two years of our transformation period. Before delving into this quarter's results, I would like to emphasize the challenging macro terrain within the consumer electronics sector, trade frictions and trading tariff policies have not only introduced uncertainty, also prompted us undertake strategic enhancements to our operations.

Speaker 3

We

Speaker 2

proactively diversified our supply chain several years ago, foreseeing geopolitical complexities. Although The recent US tariff exemptions on specific product categories has alleviated some of the immediate pressure. Our dual sourcing model from China and Vietnam remains pivotal in ensuring operational agility. We have expanded our supply chain footprint in Vietnam and are actively exploring opportunities within NAFTA region. These initiatives aim to mitigate, change risks and optimize cost management.

Speaker 2

Our pricing strategy is tailored to each market and product line. In instances, we have the flexibility to adjust prices while in more competitive segments, price increases are challenging. Thus, we approach pricing on a case by case basis. Additionally, by offering a broader portfolio of products ranging from high end to budget friendly options, we are better equipped to offset potential tariff impacts. In summary, The U.

Speaker 2

S. Represents a significant growth market for our business, accounting for about 15% of our revenue. Currently, tariff has a minimal impact on our operations. But we remain diligent, closely monitoring the macroeconomic environment and Turning to our performance for the first quarter of twenty twenty five. Despite the first quarter traditionally being low season for consumer electronics, our overall sales aligned with our guidance.

Speaker 2

Notably, Amazfit products sales increased by more than 10% compared to the same quarter last year, underscoring the success of our strategic shift to a more self reliant, brand centered approach and sustainable growth. However, due to the seasonal nature of the first quarter, fixed operating expenses were not fully absorbed either increased sales, putting some pressure on our operating profit. However, we expect this to be imposed in the coming quarter. Now let's highlight some of our product achievements, which continue to anchor our brand momentum. During the first quarter, we successfully launched the Amazfit Active two at CES twenty twenty five, which received positive reviews from major media outlets in both Europe and United States.

Speaker 2

The new ORION active two round premium line expand our strategic of combining cutting edge technology with stylus design laser band and plastic glass screen. Catering to the growing demand in the lifestyle smartwatch market, It features 20 fourseven health and fitness monitoring, utilizing the latest advanced generation biosensor for enhanced precision in health tracking includes improved algorithm and 160 sports models, including support for new sports like skiing. This AI driven coaching and multi satellite navigation offers seamless smart interactions, admitting the overall user experience. Furthermore, we broadened our market reach with the launch of the BIIB6 in March. The BIIB6 integrates advanced health checking biosensing technology, AIM coaching and multisatellite navigation for offline app, offering consumers exceptional value at an accessible price point.

Speaker 2

This product further strengthens our presence in the entry level segment, aligning with our strategy to cater to a wide range of consumer needs and increase market penetration. Over the past four months, the successful launches of these smartwatches have secured top positions in the growth Amazon Smart Banking. With a rating of 4.3 and with extremely positive scores of 4.6 in The USA, They have consistently secured spots within the top 50 and frequently ranks among the top 10. On Amazon's smartwatch category in the markets of major countries. They also earned raise reviews within the Redis community.

Speaker 2

The initial sales momentum of Active2 and BIP6 are much stronger than the previous versions. They have gained wide recognition from mainstream offline channels, helped the Amazfit brand keep gaining market share in most competitive smartwatch markets, such as Spain and Italy. To name a few, in Italy, according to GSK, our market share of no SIM smartwatch units, sales stood at 23.3% in March 2025. Bank it as number two in the core wearable smartwatch market, right after 42% of Apple. In Italy and Spain, Five plus of us are among the CFK25 headless in March 25.

Speaker 2

Just this past weekend, our global brand gained major international visibility when amazfit athlete, Jasni Palini, won the Rome Open, becoming the first Italian woman in forty years to claim the title. Her breakthrough moment generated strong global media attention and spotlighted our Amazfit Active tool Watch, which evolved during the show's ceremony and the media interviews, along with branded apparel prominently featuring the amazing logo throughout the tournament. We will leverage this momentum to further accelerate growth in our already strong Italian market and expand our influence across the broader sports category. As we continue to grow our global footprint, Moments like these help build long term brand equity and emotional connection with our expanding user base. Robust of these budget friendly and profound impact on our brand influence and market share not only paves the robust groundwork for the upcoming launches of our mid to high end products in the following quarter, but also bolster the confidence of our channel partners.

Speaker 2

It has significantly broadened our user base and expanded the sales funnel, creating a more promising market landscape for our brand. To summarize, our new product sales in Q1 demonstrated exceptional momentum, reaching the highest level in our product history. The performance not only surpasses preview records, but also outpaces our historic best selling models, including the BIIB05 and the first generation active series. With the production and the delivery challenges on the verge of being fully resolved, we expect higher sales in the upcoming quarter from our new product launches. Turning to our technology innovations.

Speaker 2

Amazfit two and Amazfit six occurred with the latest ZappOS 4.5 powered by OpenAI. Key features include advanced full voice control, enabling users to adjust settings and check progress hands free. The messaging experience has also been improved, allowing users to reply using a full keyboard or speech to text input, with the system optimizing responses through suggestions or translations powered by large language models. Additionally, we have introduced the camera powered food lock features in the ZAP app, which allows users to take photos of their meals directly in the app. The system automatically uploads nutrition's data for seamless meal tracking.

Speaker 2

This feature is currently available in Europe, The U. S. And Japan. We remain committed to leveraging open source technologies such as LAMA. Recently, we enhanced the responsiveness of zero voice commands on our smartwatches, achieving a 17 fold improvement in speed.

Speaker 2

Additionally, by adopting a hybrid AI solution combined with OpenAI and Google Gemini, we reduced the cost of foot recognition in our apps footlock to just 10% of the original. This enable us to expand the service across a wider region in Europe and double the daily usage allowance for users. This ad drive and the strategic technological integration have accelerated the scalability of our health and fitness services, driving both innovation and cost efficiency. As part of our strategic effort to gain greater brand recognition and expand our influence, we have been actively involved with growth community. This year, we participate in high growth events in Chicago, Taipei and Shanghai, engaging with a global audience of fitness insurances.

Speaker 2

Our partnership with Hylos, where Amazfit serves as the official wearable and timekeeping partner, continues to strengthen our position in the competitive fitness sector. This collaboration allows us to support athletes with advanced wearable technology, which enhances their training and performance. Looking ahead, we plan to expand our presence at High Rocks events, further integrating our past into the fitness community through a comprehensive series of brand campaigns and community building initiatives centered around Hyros. The activation rate of our Chirux three device has sustained robust growth both year over year and month over month, even eight months post launch. The product has successfully captured acclaim of sports enthusiasts across an expanding number of regions.

Speaker 2

This remarkable achievement not only underscores the market appeal of our offering, but also paves the way of a strong and promising launch of our upcoming lineup of flagship sports products. We continue to advance our sports and lifestyle strategy by building brand awareness through event sponsorships and partnerships with top athletes. We are thrilled to welcome five time Olympic medalist Gavin Thomas and Italian tennis star, Jasmi Polini, as our global athlete partners. These partnerships enhance our brand visibility on the world stage while showcasing how Amazfit smart wearables empower top tier athletes with data driven insights and to optimize their training, recovery and overall performance through new product introductions, innovations in our software and continuous investment on brand awareness and recognition. We have set clear strategic objectives to drive our next phase of growth.

Speaker 2

This includes strengthening our presence in entry level markets, deepening collaboration and investment with our offline channel partners, expanding brand exposure and community engagement, and ultimately guiding users towards upgrading our mid and high end product offerings from Angular Bib active series towards the Balance and Chirac series. Looking ahead to the second quarter of twenty twenty five, we are optimistic about achieving our first year over year growth of overall sales since 2021, which will be a significant turning point of our company. The anticipated growth is driven by product innovation, partnership and an expanding global presence. At the same time, we remain vigilant of the macroeconomic challenges and uncertainties. Our strategy to navigate these capacities includes further optimize our supply chain, strengthening broader brand positioning, and enhanced product differentiation.

Speaker 2

These efforts will ensure ZAP Health remain disciplined and competitive in the evolving smart wearable market. And I believe 2025 will be a fruitful year of that. I will now turn the call over to Leon to go over the highlights of our first quarter financial results.

Speaker 4

Thank you, Wei Yan. Good evening, everyone. Thank you again for joining our first quarter twenty twenty five earnings call. Let me start by highlighting some key metrics from our financial results for the first quarter of twenty twenty five. I would like to share some of our supply chain strategy first.

Speaker 4

We operate in a dynamic global environment influenced by macroeconomic factors and changing tariffs. However, we're well positioned due to past actions. Echo to what Weihan just mentioned, we shifted most U. S. Bond productions from China to Vietnam in past years, limiting our exposure to China tariffs.

Speaker 4

Our remaining China tariffs exposure is limited to a few accessories like packing boxes and chargers, which are a very small part of our business. These moves give us production flexibility and optionality as new tariff structures take shape. Currently, we're seizing the opportunity of the temporary Vietnam tariff hot by ramping up production, scenario planning with manufacturers for origin flexibility, collaborating with partners and retailers to show to consumers and accessing pricing and promotion strategies to keep products more appealing while optimizing gross profit. We believe these strategic arrangements will enhance our operational resilience with a strong balance sheet, a nimble operational posture and an experienced team that is executing with a discipline, we're setting ourselves up for fruitful performance in 2025. Now let's turn to the financials.

Speaker 4

In Q1, our sales come in line with the guidance range we provided. Notably, we achieved 10.2% year over year growth in our Mace Fit branded products, which reflects the strong market reception of our newly launched models Active2 and BIP6. This marks the first year over year growth on Amazfit branded products we have achieved since the start of our transformation journey. We considered it a significant milestone as we are confident this positive momentum will persist through the second quarter and expand well beyond as we have more new products lined up for the remainder of the year. Turning to gross margin.

Speaker 4

It was influenced by various factors including product mix, product launch timing and product life cycle such as model upgrades. In Q1 twenty twenty five, we achieved a gross margin of 37.3%, which is higher than both Q4 twenty twenty four and Q1 twenty twenty four, largely driven by new product launches. During the quarter, gross margin was negatively impacted by the additional 20% U. S. Tariff on China made products, which reduced our gross margin by approximately one percentage point.

Speaker 4

Excluding the tariff impact, gross margin would have reached 38.4%. Looking ahead, we expect the gross margin expansion to continue into the rest of 2025. Now let's turn our attention to costs. We remain steadfast in our commitment to cost management, continuing with the program that we began in twenty twenty Q3 are reducing overall operating costs. Operating expenses for the first quarter totaled US31.5 million dollars compared to US29.3 million dollars in Q4 twenty twenty four and US27.8 million dollars in Q1 twenty twenty four.

Speaker 4

The US2.2 million dollars quarter on quarter increase mainly reflects higher R and D expenses as we continue to invest in new product development along with increased selling and marketing expenses to support our Q1 launches. Compared to Q1 twenty twenty four last year, operating expenses increased by US4 million dollars year over year. This increase includes approximately US3 million dollars in higher selling expenses, driven by US1.7 million dollars spent on digital marketing campaigns and new product launch events and US1.4 million dollars invested in strengthening our sales channels. Additionally, we faced around $1,000,000 in foreign exchange headwinds during the quarter. We'll maintain our cost conscious approach in the upcoming quarters to keep the overall operating cost at the level between 25,000,000 to $27,000,000 per quarter.

Speaker 4

Concurrently, we remain committed in investing in R and D and marketing activities to ensure our long term competitiveness. R and D expenses in the first quarter of twenty twenty five were $11,500,000 a decrease by 3.4% year over year. The decrease was a result of our refined research and development approaches. As Weiying previously mentioned, we're committed in investing in new technologies and AI like open source technologies to secure our long term technology leadership. Selling and marketing expenses in the first quarter of twenty twenty five were $13,800,000 and increased by 31% year over year.

Speaker 4

This increase was primarily driven by the US1.7 million dollars spent on digital marketing campaigns and new product launch events and then US1.4 million dollars invested in strengthening our sales channels. We also engaged with rising sports stars like Gabby Thomas and Jasmine Ponlini to improve our brand awareness. At the same time, we consistently pushed our retail profitability and channel mix improvement. We're committed investing efficiently in marketing and branding expenses to ensure our sustainable growth. G and A expenses were $6,200,000 in the first quarter of twenty twenty five compared with $5,400,000 in the first quarter of twenty twenty four.

Speaker 4

The increase was largely attributed to foreign exchange headwinds. Adjusted operating loss for the first quarter of twenty twenty five was $17,200,000 compared to adjusted operating loss of US13.1 million dollars for the same period of 2024. The first quarter is typically the season with the lowest sales, which resulted in inability to fully cover the operating costs. As of March 31, our cash balance stood at US104 million dollars compared to US110 million dollars in Q4 twenty twenty four. Despite a net loss in the quarter, our cash balance only declined by roughly US6 million dollars thanks to our enhanced working capital management and improved cash conversion cycle, offsetting the cash burn.

Speaker 4

We also made solid progress in our capital structure. During the quarter, we successfully refinanced a significant portion of our short term debt into long term instruments with a more favorable interest rate and a two year duration. This move significantly reduced our near term liquidity pressure and improves our overall balance sheet flexibility. During Q1 twenty twenty three, we have initiated the retirement of our short long term debt portfolio. As of Q1 twenty twenty five, the company has retired a total of US67.8 million dollars of debt cumulatively, with another 11.5% repaid in Q1 twenty twenty five.

Speaker 4

Asset capital structure will be further optimized as our operating cash flow strengthened. We're pleased to reconfirm our commitment to the share repurchase program for 2025. We believe our current valuation continues to represent an attractive opportunity and reflects our confidence in the company's long term fundamentals. Turning to our outlook. For the second quarter, we expect revenue to be in the range of US50 million to US55 million showing significant year over year revenue growth of 23% to 35, along with the efforts we have made over the past years to cut operating expenses, diversify our supply chain and reduced costs.

Speaker 4

We anticipate a boost in profitability during the second quarter. Additionally, we remain focused on driving operational efficiencies and expanding our supply chain beyond China to reduce costs and mitigate external risks. At current tariff rates, we estimate the tariff impact in 2025 full year would be approximately US2 million to US3 million dollars However, this impact is expected to be fully offset by global operating efficiency gains. To provide some color on our expectations for the balance of 2025, we have many exciting products lined up for the remainder of the year, which will continue to drive our revenue growth for the rest of the year, witnessed by our strong sales performance guided for Q2 twenty twenty five. We expect our full year 2025 operating expenses to be at or below its level versus 2024.

Speaker 4

We expect to offset tariff cost headwinds with operating efficiency gains, continued supply chain diversifications outside China. The initiatives we undertook in 2024 to reduce operating expenses and improve gross margins are bearing fruit. We are focused on launching a significant number of new products in 2025 and 2026 to restore growth and profitability to our business. Thank you all for your time today. I will now open the call for questions.

Speaker 4

Operator, please go ahead.

Operator

Thank you. We will now begin the question and answer session. The first question today comes from Sid Rajeev from Fundamental Research Corp. Please go ahead.

Speaker 3

Hi, thank you. I was wondering if we could get more color on the impact of tariff as U. S. Exports are produced in Vietnam. Is it fair to say your products are currently subject to a 10% tariff?

Speaker 3

And also given the ninety day pause, what happens if the tariff has increased to 46% in July? How are you planning that impact?

Speaker 4

Yes, it's very good question. So as I just mentioned, we are expecting the full year tariff impact would be around 2,000,000 to $3,000,000 in total. However, this impact is to be offset fully by our global operating efficiency gains. So if you look at it, there are twofold. Number one is, even at the environment whereby China U.

Speaker 4

S. Tariff is sky high, I think at the height of it, it was more than 145%. Our category as a smartwatch is exempt from such a tariff impact. So certain electronics products are exempt from the tariff impact between China and U. S.

Speaker 4

Even at the height of the tariff situation between China and U. S. And our second scenario is to use Vietnam as the backup of the dual sourcing to provide goods for our U. S. Business.

Speaker 4

So if you take a step back, we're actually supplying U. S. With Vietnam and the rest of the world from China. As so number one, we are expecting after the ninety days pause, the situation between U. S.

Speaker 4

And Vietnam will be coming back to a normal level, maybe at 10%, right? Number two, even if it doesn't come back, I think given the recent choose between China and U. S. And our product category is exempt from the tariff impact, I think our tariff situation for The U. S.

Speaker 4

Business for the rest of the year would be in a controllable manner. However, we're also going to use the upcoming ninety days or so to front load some of the inventories into our U. S. Warehouse to prepare for the Q4 sales. So that we can actually lock down this number, which I just mentioned to you on tariff.

Speaker 4

So overall, I don't think it's going to be a big impact for us if you look at what is going on for today. But yes, the uncertainty remains and we're also looking at over mid to long term to do a triple sourcing, for example, in the NAFTA region, which has been mentioned by William. But that's a little bit over a mid to long term.

Speaker 3

Got it. So the 2,000,000 to $3,000,000 your estimate, that is based on a 10% tariff, not the four to 6%?

Speaker 4

That is based on roughly a 10% tariff, yes.

Speaker 3

Okay. Thank you. And what are you seeing in the market these days? Are you and your competitors planning or raising prices, passing cost to consumers? What are your thoughts on that?

Speaker 4

Now we're not going to rule out all the possibilities, but I think we're not going to be the first mover in this. If we look at and I will definitely monitor the situation of, for example, Apple or Garmin and all the competitors of us. And if they make a move on pricing, for example, we probably would consider that. But again, since the impact would be relatively limited for us, I don't think we're going to make big adjustments on our pricing strategies. But as I said, we are going to evaluate our pricing strategies on a region by region and country by country basis.

Speaker 4

And we're going to make the adjustment where needed.

Speaker 3

Okay. And in terms of OpEx, your goal to get to 25,000,000 to $27,000,000 a quarter, when can you realistically achieve this? And what areas would you cut to get to that number?

Speaker 4

I think realistically, you will see a big reduction in Q2 already. I think in Q2, we're quite confident that we're heading back to a normalized manner. Why you see such a high amount or relatively high amount in Q1 is because of some of the product launch events, which took place in Q1 in a big manner, which is not going to happen on a recurring manner, if you want. And also we're impacted by 1,000,000 of currency FX headwind, which we are also hedging. That hedge contract in Q2 is actually turning into a profit.

Speaker 4

So I think overall, I think you will see a first good sign of the cost going down in Q2 already.

Speaker 3

Okay. Just one final question, Leon, if I may. Last year, you had one product release. And then this year, from now to end of the year, how many new products or upgrades are you planning?

Speaker 4

I couldn't tell you an exact number, but I think I have alluded to it in the previous call as well. This year, we're aiming to refresh all our major product lines in the different quarters ahead of us. If you look at Q1, we have already launched Active and Balance. And if you look at May, we're actually preparing for some new product launches in China. And we have many exciting products and that many is definitely more than two in the upcoming quarters to come.

Speaker 3

Thank you so much, Lia.

Speaker 4

Thank you, Sid.

Operator

The next question comes from Nicolette Jones from Brooks Investments. Please go ahead.

Speaker 5

For taking my questions. Sid has actually asked most of them, but I just wanted to sort of get in more detail into the full year 2025 performance. If you could just give us some sort of further sort of color on how you see the full year panning out?

Speaker 4

Yes. Yes, normally we don't guide for a full year number, but this time I can definitely say a few things about it. So I think we have explained to and as Sid just asked, we have many exciting new products lined up for the remainder of the year, which from a sales perspective will continue to drive our revenue growth for the remainder of the year. And as you can see, our Q2 guidance for the sales growth is already up by 23% to 35% if not more than that, right? So that's from a sales perspective.

Speaker 4

And I think as we're heading into the second half of this year and traditionally for consumer electronics business, also the second half of the year is the high seasons as we're heading into Black Friday, Christmas, Double eleven, whatever you name it. So we think the revenue growth trend would definitely go up for the remainder of the year. And you also noticed that our gross margin expansion journey has been growing and we will continue that journey as well. So I'm expecting the gross margin will be hover around the current level and higher as we head into the remainder of the year. And the last thing of the puzzle is definitely the costs.

Speaker 4

As I explained just now, I think Q1 is a little bit of outlier in the whole cost story which we have communicated before. But as a full year perspective, we're expecting the full year cost for G and A plus R and D plus marketing expenses to be in line or lower than the 2024 full year cost, okay? And with that, I think we are going to try to offset the tariff cost headwinds with operating efficiency gains. So hopefully that will not have any negative impact on our gross margin. And we are quite confident that 2025 would be, as we mentioned, a fruitful year for us if we execute as we planned.

Speaker 5

Many thanks.

Speaker 2

Okay.

Operator

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

Speaker 1

Thank you once again for joining us today. If you have further questions, please feel free to contact Zephyrus's Investor Relations department through the contact information provided on our IR website. Thank you.

Speaker 3

Thank you.

Operator

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

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Key Takeaways

  • Despite a challenging macro environment, Zephyrus delivered 10% year-over-year growth in Amazfit revenues in Q1, marking its first YoY sales increase since beginning its brand transformation.
  • Management emphasized its dual-sourcing supply chain in China and Vietnam—with plans to explore NAFTA sourcing—helping minimize U.S. tariff exposure, currently estimated at a $2–3M impact in 2025.
  • New product launches—including the Amazfit Active 2 and BIP6—have garnered strong reviews and market share gains, ranking in Amazon’s top-10 smartwatch listings and securing a 23.3% share in Italy’s core wearable market.
  • Technological advancements in ZappOS 4.5 (powered by OpenAI) now support full voice control, enhanced messaging, and AI-driven nutrition tracking, boosting responsiveness by 17× and lowering feature costs by 90%.
  • Looking ahead to Q2, Zephyrus expects 23–35% year-over-year revenue growth, continued gross-margin expansion, and a return to normalized operating expenses—targeting full-year costs at or below 2024 levels.
A.I. generated. May contain errors.
Earnings Conference Call
Zepp Health Q1 2025
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