Q1 2020 Earnings Call

Hello, and thank you for joining our earnings conference call today our first-quarter Revenue continue. The Lobby is closed off. So these six plus 1% despite the unprecedented challenges created by the covid-19 pandemic driven by a new product launches increase brand recognition successful sales and marketing strategies as well as efficient Supply Chain management at this year's CS which took place in the first quarter. We launched the amazed with G lacks off device with the military certified body ideal for outdoor activity this broaden our portfolio. Yep.

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We also introduced new product categories, including bus or Heroes and into active high-tech Chinese significant components in building a Comprehensive Health and Fitness ecosystem as part of our connect house with technology package aspirations while we do not expect meaningful Revenue contributions in the near-term due to the time it took takes to ramp up production and penetrate new market segments.

New initiatives like this will create more opportunities for our company's future growth. We feel confidence in this growth opportunity because variable Technologies health effects, not only help people Monitor and check out physical fitness and well-being. I also potentially shape new Behavior patterns and drive you changes of money while vegetables and health Tech also nearly unlimited applications across a number of products verticals. We have only begun to scratch the surface. In the meantime. We continue to expand our footprint.

Have Lucien she continued to make Headway in international markets. We can only focus on the market New Age each key Legion and adopted a multi-channel strategy including both the left cells and the party sales channels Thursday. We are now in more than seventy countries with one and thirty-seven channel Distributors and show market share gains chance of our brand globally according to the IDC fourth quarter 2019 report. We ranked number one in market share for India, Indonesia and Spain under the Smartwatch category.

number three in Russia and Mainland China and number six in the US

in terms of Partnerships how our continued partnership is show me remains productive with the launch of the media and five schedule later in 2020.

Our close collaboration with Tomic have you'd positive results with the first joint product launch in the way just call back. We should note the sales of our masefield branded products are through independent channels, which are exposed by our sales and marketing team next. Let me further discuss our Healthcare strategy and Thursday is we made this year in health care from the Inception of our company Healthcare has been at the call of a mission in 2020. We continue to build upon the strong Foundation. We have established by developing our club.

Health Care Service is true further cooperation. This leading Healthcare is institutions.

for example, we partner with the respiratory disease teams of Doctor John Nation to jointly establish a laboratory for studies on monitoring respiratory diseases using variable devices Doctor Jones Is Dead Goebel leading epidemic of just and mission of Life Academy of engineering

He played a significant role and and the wiser in managing the covid-19 abidemi crisis.

The focus at this lab is on the early production of certain respiratory diseases.

specifically covid-19 how our smart variables

our Ai and Big Data advantages can help establish a cloud service system to provide epidemic petition off diseases requiring monitoring as such. We look forward to realize in further potential of our available devices in the Home Health Care industry.

For May 5th. We publish research article on infectious disease prediction Based on data from web page is in journals of this key dynamic in nature and Society by in Delhi.

The problem is after published article. Was that the popularity of available devices enables A New Perspective for the precaution of the infectious diseases.

In this study, we proposed a framework which is based on the heart rate and sleep data collected from Volvo devices off predict the epidemic change of covid-19 in different countries such as Spain and Italy in a different cities.

The experiment experiment resolved indicated that the prediction models can be utilized to unlock the operator of covid-19 in advance, which can be the foundation for health surveillance system with available device. In addition. We signed a cooperation agreement with the China Athletic Association in March off to become the office your partner of China's national and filled him in the Smart variable industry.

Our accumulated big data is both health care and our chat wrecker is Mark Hardware research and development team. Look forward to helping the development of professional Athletics. This collaboration also allows us to Showcase them high quality of our products and he'll our marketing efforts and we will continue to offer professional sports checking services off to all of our users in summary while we were why we experienced some impact from the dead covid-19 pandemic.

We are confident the underlying demand for our product remains strong with our brand Rising popularity am strengthening sales channels and new product Innovations and like extensions in the works really pleased that the same technology will further state that the healthcare industry wire shelving people. Enjoy Better Health Care Services month. We are excited about our unit positioning in connecting Health with technology and the show Market potential event of money.

We would love to.

Can you investing in R&D sales and marketing functions to deliver sub stainable close and healthy profitability once the impact from the pandemic is thank you again for joining today. I will now turn the page over to our CFO David tree.

Thank you.

We are pleased with the resilience of our first quarter Revenue growth during this and certain times. We achieve the solid unit sells them self branded products and the me band for shipping 7.6 million units in the first quarter, but 35.7% rise from the same period last year in spite of the impact of the covid-19 demek that many other companies also facing off. We we still cat are real faster Revenue growth of 36.1% and we remain profitable in this challenging time.

This was driven by increasing brand awareness and Adoption of our products by users. Mystically and in the overseas Market.

During the first quarter we continue to push investment in both are indeed and the sales and marketing as product Innovation and sales channel would integrate Integrity or key components of our success.

Well, we have seen some manufacturing shortage.

Due to disruptions to our supply chain during the quarter as we discussed during last quarter's earnings call We Are Young Mystic of stronger profitability in the longer term after the Potomac along with is impact lens is course mindful of the lands of this call. I will highlight the key financial measures or the quarter and I encourage you to refer to our earnings press release for further details regarding our financial performance. Now here are some of the highlights of our strong first-quarter all expressed in R&B unless otherwise stated as previous previously. Yep.

revenues

in the first quarter of 2020 increased by 36.1% to 1.1 billion R B from

point eight billion R&B for the first quarter of 2019 goes profit increased by 12.5% 254.6 million RMB from 417.5 million RMB in the first quarter 2019. Our gross margin was 22.5% compared with 27.2% a year ago. The gross margin decrease was attributable to the change of a product mix and edit sales promotion in previous product versions, especially for me banned for in and he's in anticipation of the launch of a newer generation product.

Morgan to expenses

total operating expenses increased by 60.2% to 224.1 million RMB from 139.9 million R&B for the first quarter of 2019 reflecting our strategy of consistent investment in R&D with an average sized all healthcare-related the product development and testing Talent acquisition in addition to branding and marketing to enhance our company's long-term returns.

Research and development expenses increased 63.5% to 118.3 million R&B soul from 72.4 million R&B for the first quarter last year.

We are striving for building up a top-tier on the team for our future grows. The increase was primarily due to an increase in the number of warranty stuff that arise in investment in health care related features algorithms cancer research a new product development actually carry out our mission. We aim to launch a series of a new page in the upcoming quarters of this year.

General and administrative expenses increased 12.3% to 50.9 million from 45.3 million R&B for the first quarter last year. This was primarily due to an increase in Personnel related expenses off and professional fees related to improving management operations are set at upstairs by a decrease in share-based compensation expense and foreign exchange rate fluctuation are selling or marketing expenses increased the to 54.8 million RMB from 22.2 million for the first quarter last year primarily due to an increase in Personnel related expenses.

and are you

In advertising and promotional expenses for New Market exploration and a series of new product releases. We offer a more sales stuff with heavy experience in overseas Market expansion.

Starting 2019 and continue to carry out our plan during this year in January 2020.

We reload for new products spanning three vehicles that go beyond smart pants and watches including a mess with home studio or smart Jim hob a mess with Aaron affordable Next Generation treadmill a mess with power box 2 Wireless wage Fitness earphones with clip to go design and amazingly then pass sleep. Comfort and Health Management are phones.

Income before income tax was 20.3 Million MB with 85.6 million MB for the first quarter of a 2019 month 19, attributable to ordinary shareholders of the company decreased to 19.2 million MB.

Next for non-gaap measures adjusted net income attributable to funding Corporation decrease the 225.5 million MB from nine to five million R&B for q1 2019.

Relating to cash and cash equivalents as of March 31st 2020 the company had cash and cash equivalents of a 2.5 billion R&B compared with 1.8 billion on be as of December 31st 2019.

No, that's the turn to our Outlook.

In the second quarter as the covid-19 operate continues to impact global economy. We expect our overseas sales demand will be affected with all things considered for second-quarter twenty-twenty management currently expects net revenues to be between 1 billion to 1.05 billion R&B. The above all looks is based on the current market conditions and reflect the company's management team and the preliminary estimates of market and operating conditions in customer demand, which are all subject to change so much concludes our prepared remarks. We will now open the call to questions off with her, please. Go ahead.

Thank you.

If you would like to ask a question, please press star than one on your touchtone phone. If you're using your handset, or if you're using the speaker phone, we ask you to please pick up your handset before pressing the key to enjoy your question, please press * then two for the benefit of all participants on today's call. If you wish to ask you a question to the company's Management in Chinese, please could you repeat your question in English? Please hold while we pull for questions.

And today's first question comes from China wrong with Credit Suisse, please go ahead.

The evening. Good morning. Okay. Thanks for taking my questions. I have two questions so far under twenty twenty. I think right now we we we we understood that the covid-19 impacting the office is markings, of course and with some Supply issue in the first part as well what the olive so far that I mean the twenty-twenty what company actually try to control and to achieve even under this I am certain T driven by covid-19 in the overseas Market. I think this is the first thing that is with regard to the outlaw. The second is I uh, could you share with us? How many of any Target on the shipment on a smart man and also Smart Watch especially Smartwatch this year if you see like any adjustment for your original expectation

Thank you for your question was regarding your first question. We provided guidance for the second quarter, which is near term and we can we can we can better estimate than the longer-term in particular in the second half of this year the impact of the covid-19. We cannot estimate for a certain accuracy. So it really depends on how the the situation but we we couldn't we couldn't estimate.

We but we do see some positive sign that in Europe in China. Our primary. Mom has are the the situation is getting better. We would hope that our sales of our products will walk she came up in the second half and we do expect that. We will release a number of of new products and during the week here in and in anticipation of the market recovery for for for the rest of the year.

so

Regarding your second question the shipment estimates for for our smart washer products. And again is really relates to the first question. I couldn't really couldn't really estimate and really depends on the the covid-19 situation.

I mean I asked if you see any signs that the customers I was like consumers is actually increasing Awareness on the healthcare such that they will try to buy something like this my orders my pen to measure the health situations. Um, yeah, I think I think for all these like covid-19, I think there would be a positive support. Not only just because the the the the containment is like getting better. But all I the the

Yes, I'm more under control center. But do you see like this awareness in healthcare from human beings or well-being the Renaissance beings will be offered to write for your your your port and stones.

Absolutely. Absolutely. We do see from the covid-19. Dynamic. We do see increased awareness globally and not off the commander of our products in future, but also the general awareness to increase the possibility that. So we could introduce future future Services also and as our CEO mentioned in the premium quotations that Kwame do engage number of ugh discussion research and and off and work with pop here science scientist in China and also Global Partners to two-step.

To to take take on this opportunities, uh, because because our mission is to connect the house with connects your house which technology so this do the covid-19 pack pandemic to do introduce an opportunity for us. So

Yeah, go true.

Thank you. I I come back and then with other question later then thank you.

And our next question today comes from Arthur with the city, please go ahead.

Hi management. Can you hear me clearly?

Yes, hi.

All right. Thank you. So I had a question. I would like to ask the one by one. The first one is we noticed that the company actually had a strong quarter one Revenue despite the the the virus outbreak. Can you share with the facts underlying a Chrysler I case you mention one thing is you do some promotion and what else to do in order to maintain a home. That's my first question. Thank you.

Okay, so to primary drivers for our Revenue Bros despite of covid-19. It were 1 a.m. So we continue to enjoy a higher demand event product me bad products. So so the shipments of Midland for continued to draw a year to year and this is number one number two is we do see significant the demand increase of our smart bulb. Let me speed Smart Watch. So we see an increase in that so the combination of these factors to offset by the reduced by by the impact of the the the crisis.

Okay, and the second question, I need more like a new car that so we know that you highlight you. Do you already own business? Can you update any new PCS and also the feature in the future?

You mean the new product features, right?

Yeah, yeah. Yeah, then the new watch features and also the the icy features you I think the like last quarter bath bombs owned mention that you also have a second generation. I see table and anything you want to upgrade to the investor.

As of today this year, we've already launched a couple of new products, which we which has been released. So so and then and the upcoming we have more products, but we can't really disclose much off of the details in in terms of the technical aspect specifications, but we do see some new products with the health health related features and off and of course, it's been these Fitness and and an ECG features. Those are the old features, but we do have a new a new features to add on.

Got you mentioned.

Of course, we mentioned earlier that we do we do have to release we do have country this be done five even five months in the year.

We know that the coronavirus they they will impact the you know, the the key codes blocks off oxygen significant. So do you think in our you know the upcoming product? Can we detect the, you know, share your thoughts about the oxygen, you know through your product?

That's the one one of our near-term products.

Okay. Thank you.

Thanks. Her next question today comes from Robert cow was eighty-six research, please go ahead.

Hey management. Thanks for taking my question. I'd like to ask about the the gross margin. So what are the factors kind of impacting the gross margin in one cube with both on a year-on-year and quarter-on-quarter basis. Um and then as we get into twenty-twenty, what do you expect in terms of trend on the gross? Margin? Thank you. So the

So the gross margin was primarily impacted by by the me Bay be banned discount provided it to our channels in the quarter and and for the gross margin of a mystery products.

Wasn't change much from this quarter from quarter-to-quarter. The primary reason was the the me back for because of banking situation. And and then we we show me both Zambian us. We wanted to give higher discount to the to change the channel to the channel given that we will soon this depend pipe in the long run. We would assume that I bought a new product will achieve better economy skills and in the later part of the year and also took the higher a retail price and and depends on this pricing strategy. We we would we would think for the show me off.

Products will continue to provide a reasonable margin on that and then for our new products, we we took we still strive to keep or even increase a little bit of our or margin.

Thank you very much.

And our next question today comes from Sudan 10 sec. Please go ahead and management. Thank you for taking my questions and the David Moss just says you see some recovery in China market and there are still some uncertainties outside China. Can you give us more color for this and especially in India and other like Western Europe since there are some lockdown in India and some stock closing in those regions, and I will have a follow-up. Thanks.

right

For first of all, I want to emphasize that for a mystery products. We primarily primarily rely on our own dependent sales channel to to achieve the sales and overseas is our primary market so you can see higher percentage of our products were shipped overseas and therefore markets like Europe and did impact our first-quarter and second-quarter, but we do see positive signs that countries like Spain Italy are opened up and and off and we we we we do see a we do see that in quarters restarting Porter Street. We we should see some yep.

coming back so that's the one of our primary market right and then the second Market will be our domestic market for Thomas Murphy Thursday we invested heavily in in in domestic Market channels right now so hopefully it off sometime we should we should see some sales report for our products and in terms of the Indian Market Place. Country is impacted greatly but in the sales in India wasn't wasn't represents represents a significant percentage of Revenue so so we will have to see how India goes

Okay. Thanks. And my second question is you just said you will Release Me by and five in this year. And did you see if this time did you see the Dilemma of those new products Pipeline and R&D delay due to the covid-19 impact. Thanks.

No, we don't actually our R&D actually right after Chinese New Year our our R&D staff or Supply chains. We're all back. So we are now or change and Global Hardware Center or R&D research our service center in Beijing. We are fully operational. So the so the R&D wasn't impacted. So Monday, we will lease our products on time.

Thank you as there are no further questions now. I'd like to turn the call back over to the company for closing remarks.

Thank you. Once again for joining us today. If you have further questions, please feel free to contact me investor relations department through the contact information provided on our website or the app. Lets her relations consultant. This concludes the conference call. You may now disconnect your line. Thank you.