Q3 2021 Viomi Technology Co Ltd Earnings Call

Hello.

Thank you for standing by.

T D.

Let's call it third quarter of 2021.

At this time.

Absolutely not.

Today's conference call is being recorded.

However to your house.

The IR director.

Please go ahead.

Thank you operator, Hello, everyone and welcome to bail me $10 you call them. Indeed earnings conference call for the third quarter of 'twenty 'twenty. One as a reminder, this conference is being recorded the company's financial and operating results were issued a press release earlier today and are posted online you can download the earnings.

This release and sign up for the company's email distribution list by visiting the IR section of the company's website at IR <unk> com participating todays call a mystery shopping chance the founder chairman of the board of directors and the Chief Executive Officer, Xiaomi Choi Chung attack the head of our finance Department the companies.

<unk> will begin with prepared remarks, and the Cao will conclude with a Q&A session.

He probably 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, but where they can stay American involving human waste and in certain cases as such the Kennedys extras out may be materially different from the music expressed today.

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 you as the grid and the Exchange Commission.

The company doesn't assume any obligation to update any forward looking statements, except as required by law.

Also note todays earnings press release, and as canvas into discussions of an audited GAAP financial information as well as in are they didn't non-GAAP financial measures, but on this press release contains a reconciliation of the Arab attitude to nongovernment are non-GAAP measures to the air or they can smoke directly comparable again.

I will now turn the call over to our founder and CEO, Mr. Xiaoping Chen Mr. Chen will deliver his remarks in Chinese followed.

You mean digitally by English translation Mr. Chan. Please go ahead.

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Thank you Mr. Chen I'm Gonna Craig how they translate I found his remarks before discussing the financial performance for desert quite a bit here.

Hello, everyone. Thanks for joining our third quarter 2021 earnings conference call. Our third quarter net revenues reached a 1.0 fixed feeding RMB, which was in line with our previous guidance as we disclosed in the previous quarters earnings Conference call. There was a year over year decline in revenues during the third quarter.

Mainly due to the significant decrease in sales of Xiaomi branded sweeper robots, we've maintained a stable growth in most of our other product categories here.

During the third quarter, we enhance our one stop Iot home solutions platform to realize AI, driven Iot home scenarios.

Currently we have laid out a full product line of more than 60 categories. As a result, we are the only company. If my home in a tree that provides the company one stop Iot home solutions integrating smart home attempts at my home devices and stuff that were submitted.

We also continue to optimize our product portfolio and stature of our champion technology brand marketing and a larger store better merchant channels geology. Moreover, we increased our investment in R&D and expanding our AI algorithms and hardware with search and development teams to accelerate AI product.

Innovation and technology accumulation, resulting in a 56 per thing year over year increase in R&D expenses.

Health brand awareness, we also invested in additional advertising and marketing resources in the third quarter due to the substantial increase in R&D and the marketing expenses our bottom line declined have her ruling.

Our stacking of Jasmine and investments generated positive results, including first the ongoing gross margin improvement our third quarter gross margin was 22.7 person representing both year over year and quarter over quarter increases that.

Second brand awareness continues to rise and third the more diversified imbalance south China Sea equate to handle cells in the services of our smart home for that.

Our overall business it is developing a high quality and health of direction.

Based on industry data as well as our observation observations you have the smart home apparel industry and the market. We have identified four important industry trends, so first that consumers prefer to buy home or pounds.

More elaborate and the Multifunction seemed more diversified product categories, especially those which can improve the quality of life, such as air and water Purifiers household cleaning devices and integrated it staff.

Second demand for high end products is growing rapidly.

Third bundled purchases have become popular.

Actually among the pills Nike generation.

And fourth we observe the users.

Dr to proactively to get to know and to reach the smart home products and if modification has become a benchmark for the industry in that market. If you don't buy technology progressed in the consumption upgrading to.

To capitalize on these trends and taking into consideration market opportunities and our corporate strategy, we have adapted and they would find it I replied that research and the development enhance our branding and improved our cell count them.

First with respect to product development, we have developed our products product strategy from three proof that piece first.

First we increased our investment in R&D as well as technology innovation and AI application enhancing our brand influence you put that optimization.

We provide us isn't the customized and found the purchasing solutions rather than solely selling into video protest, which reduces customer acquisition costs and increased sales growth.

In the past few months the propulsion has bound ourselves have inquiries and orders over totaling RMB 10000 to 200000 have you're in a rapidly and third we are currently focused on scenario innovation and it will soon complete our smart home category to provide a more comprehensive smart home experience.

Yes.

To this end this quarter, we devoted more resources AI algorithms software as well as hardware, we introduced a series of new AI products in the first half of this year, including the all directions basically air Conditioner Premier, whereas we've heard bubble Alpha Tusa I bought a ranch food and a hand.

Three gallon to a child him together Super Crs with logic, that's why people buy it. We also launched a fiber theorists Debbie hours My why didn't drive vacuum in September. Although this part out demonstrated strong sales performance in the third quarter driving continued gross margin recovery.

I'll start the more we introduced a new app to using the smart home category also.

Chassis I link to tease my lock with a I face recognition technology with.

We continually increased our efforts in R&D and Anvil Hi, Anthony This is my home projects and new product categories in the coming months.

In addition, well they'll roll out exciting new product lines and get next year, including the smart home Smart kitchen, why don't you fire and cleanliness product among others.

So it tends to enhance our brand the airborne we invite here one you have Chinese two top celebrities don't want to become a global brand new spokesperson and established our champion technology randomization in the first half this year in collaboration with focus media and change how couching media, we brought in our omni channel marketing and advertising.

Activities, including adding maturity advertisements print media television and social media to enhance our brand awareness and exposure, we also generate high quality content marketing and content platform.

That's going quite a show and they to wrap up.

Our brand search bankruptcy, all major search engines have kind and our internal data shows that till tonight diseases using from new tier one and tier two cities have increased over the past few months.

Third we increased our exposure in the south are new channels that she has been doing on quite a show we have built an exclusive team for this new sales channel to boost except they can go check more young consumers.

And our shelf from video marketing going to kill outlets Dreaming has enhanced brand awareness and contributed to an increase in sales.

The revenue contribution from this new 12, new channels has increased in the past few months as well.

So with respect to our outside China.

We continue to exit our larger store bedroom merchants Jackie to provide ever use this week wants them Iot home solutions integrity, and bulk purchases a scenario based shopping experience and installation and after sales services.

His efforts have also stressing our champion technology brand positioning in the second half we accelerated our nationwide for asking five after our portfolio expansion, including a new 450 square meter dominates that ship store often in Zhengzhou in September a new 760 square a major fight out experience.

Store operations, Yeah CBD area in October.

Becoming the largest smell may experience growing China, well, they're often more like skill for asking why they asked about all makes your own stores across the nation.

Finally, we are also developing our overseas business by upgrading channels diversifying our opposition mottos, an expanding part of the pet category.

We listen really cooperated with ring non agency in Germany, Russia and Malaysia.

Europe to transform our overseas channels from small distributors into high quality International sales agents, we plan to optimize our overseas business operation by leveraging their local resources reputation and imports dose experience.

We are also planning to explore our self operated model more regions are following the successful opening our first self operated door you have Amazon in August we are preparing to launch our own liked or all European Amazon and they will introduce sweeper robot products in the near future.

Also well they'll provide our overseas customers visit smart why can drive vacuum and sweeper robots with new function.

Going forward, we like.

Our global business in two additional countries or regions to catch the cleaning is probably that sector is tremendous growth opportunity.

We have completed the first step.

Establishing our once that biodiesel solutions platform by building comprehensive product lines across comps in Europe, and I will now turn our focus to put that might've vacation upgrades and a scenario or application innovation.

Looking ahead, we will continue to refine our product portfolio and further stabilize our gross margin recovery.

We will also increase our investments in AI application in our training technology branding girl bond yourself into services and improve our overall business operation Coty, creating long term value Android chance for our users and the shareholders.

That concludes our formal remarks, Oh, let's now turn to our detailed quantify initial review says, whereas our fourth quarter outlook.

Net revenues were a $1 6 billion RMB compared to $1 49 billion R&D for the third quarter of last year.

Net revenues were in line with the counties previous guidance and a decrease was mainly due to the thickness. The count has decreased in south of Xiaomi branded sweeper robot.

As part of that portfolio adjustments for margin expansion in your other categories.

Revenues from Iot home portfolio decreased by 39, 3% to 643 point by many RMB from one point Europe's expanding R&D for the third quarter of last year. The decline was primarily due to the first a decrease in sales of Xiaomi branded sweeper mailbox, instead kind of product portfolio definitely for margin.

Spansion in some categories.

Revenues from our home water solutions increased by seven 9% to 157 mini RMB from 145 points for many of our N b well the third quarter of last year. The growth was primarily driven by the counties product portfolio of Jasmine in this category, which contributed to.

Increase the sell off and the demand for new and larger floods wildfires as well as a gross margin expansion.

Revenues from consumables increased by 11, 7% to 90, not sorry, $79 6 million RMB from $71 3 million RMB for the third quarter of last year, primarily due to increased demand for the company's water purifier filter products.

Revenues from small town and others decreased by 15, 9% to $176 5 million RMB from 209.9, many R&D for the third quarter of last year, primarily due to the commies continue the product portfolio optimization to obtain a higher gross margin in this category.

Yeah.

Gross profit was 200 339.7, meaning RMB compared to $10 54 points three mini RMB for Sequoia that your gross margin increased to 22, 7% from 17 117, 1% for the third quarter of last year, primarily driven by the company.

Continued efforts to shift the business and part of that mix towards higher gross margin products.

Total operating expenses increased by 28 point trying to eight 2% to 293, many R&D year over year, primarily due to the increase in R&D expenses in the selling and marketing expenses.

In more detail.

R&D expenses increased by 56, 1% to 82.2 meeting Randy from 52.7, many R&D for the fifth quarter of last year, mainly due to the increase in R&D experts and it related to salary expenses as well as increasing document <unk> research and development of new products.

Selling and marketing expenses increased by 24% to $183 4 million RMB from 152 point to many of our M. B a year ago, primarily attributable to an increase in advertising and marketing activities to enhance the company's branding and Mark had a breakthrough.

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Yeah on the rate of Dominion stretch of expenses increased by 15, 2% to 24.7, meaning our M. P compared to 21 4 million RMB for the third quarter of last year, primarily due to an increase in the athene made an allowance for accounts and notes receivable together with increased the lease expenses.

Due to their workplace expansion.

Net loss attributable to ordinary shareholders. The company was $29 3 million RMB and non-GAAP net loss attributable to ordinary shareholders of the county was 22.2 billion RMB.

Additionally, our balance sheet remained healthy as of September 30, 2021 we had cash and cash equivalents.

Henderson and $71 7 million RMB restricted cash of $45 6 million RMB short term deposits of 57, many R&D and short term investments of $163 finding the RMB.

Now, let's turn to our Alec.

For the fourth quarter out this year. We currently expect net revenues to be between a one point to you feeling RMB and 1.3 billion RMB.

Further south of Xiaomi branded sweeper robots continue to decrease in the fourth quarter and their own branded sweeper robot business to achieve faster growth, which will become one of the main categories.

Yeah, Bob I'll go pay is based on current market conditions and reflects our current and preliminary estimate.

Operating conditions and customer demand, which are also but you had to change.

This concludes our prepared remarks, well now open the call for the Q&A session. The head of our Finance Department, Mr. Wei County type well joined the station and asked the question.

Operator, Please go ahead.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on you touched on them.

Youre using a speakerphone please pick up your handset before pressing.

So withdraw from the questions do please press Star then two.

For the benefit of all participants on today's call. If you wish to ask your question to the company's management and Chinese at least immediately repeat your question in English.

At this time, we will pause momentarily to assemble our roster.

The first question today comes from Lillian Lou with Morgan Stanley. Please go ahead.

Okay.

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Sure.

No what I'm, saying is that what they do not lend to you I have two questions first one is until quarter.

Resolve and a nearly 30% declining revenue, what's the rationale behind the big increase in the R&D and the marketing expense, a what and the how do we think about fourth quarter or the balance between revenue versus.

Margin control and the second question is on overseas sweeper robot business I'll look how much it could be.

In the fourth quarter and are worse, and any bottleneck and we've been seeing from our overseas transportation and also related to cost. Thank you.

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So I'm excited though the cars, where they don't come into the Houston still leave it routinely.

Well I I will quickly translate to comments from Mr. Chen.

As we observed from the market just as the second half of last year to this year, we see the users Dodge of proactively to get to know and to approach. This is my home production.

So we think that the time to capture the Mercury opportunities and we also see this modification is a very is a challenge for the industry and the market. So we wanted to invest in more R&D and selling and marketing expenses.

So for the top flight side, we proactively decreased Cellcept Xiaomi sweeper robot. This you know that the gross margin.

Such business is relatively lower than the others. So we declared the south of Xiaomi sort of barbell, both to have a more healthy gross margins and our margin recovery.

And our interim Sabic masses are the year over year increase R&D expenses is around like 56% and we also can stomach twists in the selling and marketing expenses.

Zinc in the near future or in the.

R&D expenses were back to a relatively normal level now and away, we'll still like naphtha and selling and marketing, but in a stable and a softer extend to enhance our brand awareness and so what all we do is to capture the opportunity.

In the future and to enhance our Iot Smart home solutions.

Oh, that's the feedback from our founder.

Yeah.

Uh huh.

I'll introduce the overseas sales progress.

Hey, Dan just mentioned for.

For the past few months, we saw the oboe overseas market, demonstrating a relatively softer growth compared to the robust growth in the first quarter. This is due to several factors.

First due to the strong consumer demand during the post COVID-19, the distributor's purchase a large volume of Clinton and this product, resulting in high stocking level since the second quarter.

Secondly, this shortage of containers and labor resources and the overseas ports that impacts.

Impacts on the uploading of products and caused some order delays.

We expect such a situation will continue in the second half of this year, while we were taking some measures to mitigate the impact and drive the growth increase.

015 from our acknowledged Oh for overseas market the price of these containers.

Wrong continue to go up to a larger extent.

And on the other side, we entered cooperation with more wear now international sales agents, which will help us to increase sales by leveraging the low KOL resources and reputation.

Thirdly, as the overseas consuming that's towards cleanliness product more diversified.

The increase in new categories, and ask you used to cater the additional demand and drive the overall overall overseas sales.

We will continue to expand additional countries and regions, where we expect to have potential market growth.

Thank you.

Thank you Liliana.

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The next question comes from really what let's see I D. C. Please go ahead.

[laughter].

Thank you for their management's presentation.

He and I have a crusher from for the promotional strategy and we have had.

Our brand spokesperson.

And how it works also telling you introduced recently about the south there in this year February 11th Festival and what's your outlook for next year's consumption and the south trend.

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Eldorado stone, which ought to be we hope it does that cause you to go for you don't hold attrition, it's a much bigger issue to the shared with you. They should finish out would you go to kind of be I'm sure you know bondholder see goldman's, where equals a digital record at home.

What would you do you fit in there.

Guangdong also shoe box you Josh you touch on what your long lived Omega three megaphone jumped Chi Gung Ho David held regional was it you said, it's usually like also there to determine where we go.

The freedom portfolio to make a like a parent well between them.

I will translate Mr. Chen.

So we invited to we invite you don't really have our spokes person now because we think that's in line with our brand positioning.

And in technology.

Generally it's very popular among young people, especially personality's generation. So he can't of course, our brand as well as to how best to increase the brand awareness and except out of we invited them. When we have the spokes person. We also are investing a lot of the advertisements Vincent Chao.

And if things on media and we also do a lot of advertisements on some social media in a way I'll go to the content marketing so like a relative book and you can see that our brand awareness.

These social media and platforms and we also see the brand awareness increased in offline channels.

And Oh, we can also see the searching in the search and frankly picked up Abbott brand inquiries doing some search engines, such as Baidu and from different ball Mills you have the double 11 shopping festival, we can't see yourself contributions of our New me too high end products increased a lot.

Especially the bound ourselves.

Tests like refrigerators, and if our kitchen products.

Oh, so overall, we think.

It's very good direction for watching my dental as our spokesperson and we also see that it backs up that Kim can see from that from our that's performing so.

So we hope all if these market down the selling activities. Kim do you continue to help to drive our brand awareness.

That's it thank you.

Yeah.

Yeah, we were sure golf.

The growth outlook for Colombia accounted to re estimate we estimate to deliver stable stable girl code next year due to several factors.

As we see the sales contribution of new product Hudson crews in the past few months.

And we have new series of products or the pipeline restarted new products to drive long term and healthier business school and enhance our brand influence.

Second.

We just thought the spun off large store portfolio as well as diversify or like South tunnel to help increase the overall sales as well.

Third.

We have less or more.

Advertising and marketing resources in the second half of this year and absorbed in the Sop increase brand awareness and despite the improved brand recognition will help to drive so schools.

We see some uncertainty so market and macro economy in particular, the impact from real estate industry, which May result in a decrease of decorating the home for the next year.

Thank you that's all for me.

The next question comes from Vincent Yu with Needham and company. Please go ahead.

Hey, good morning.

And she had a.

And then just so that you wouldn't want.

Once you.

Do you want to use the glad you should of course sounds a good a well matched donor blood supply VJ. Good Davos also up on a budget.

So nutshell, one warning signs.

So there's no need to mention that it doesn't mean that.

You can see in my book.

Put in pumping doesn't want that also all sorts of issues both on a whole.

Oh My God, you can ensure the turbochef, so if I'm in home and shelf shelf.

I mean from England, I'm going home.

One of them is not going to just two.

At home in the social use your question Bob.

And what kind of when the one has shown some good future Oh gosh I wish a woman the KOL shoes at all.

The other thing backwards logic, good Davos also with a P D a.

What kind of law of Yamal and she's going to them a hosted the jamali doing of course I need you to go and it's a good showing at the time you pulled it off well mycological it just formulary.

New York is anything from it.

People will manage social showed that when the shelter at home ends.

Sure.

Yes, Mark.

So maybe I'll do the time you know what.

Colorado Hershey.

Stephen I don't know, Tom just woman, who coastal highway two weeks showing the litho tool.

When doing even a hole.

That's equivalent to what you see season, so to me that's going to be more no.

As usual with Huawei.

Tucker S P a.

So on the cheeses.

What's neat thing.

I imagine one thanks for taking my question.

I have two questions.

The first question is about the bundles.

So as we mentioned multiple times in our prepared remarks.

Can management share how much a percent as well.

What percentage are the downloads a sale is in our third quarter.

Revenue or order a.

Like a defensive.

The 10, 6%.

These are all the type of orders and the.

And for the bundle the service.

And we are seeing some weakness in the macro.

USA market.

When we think about the the trend of these bundled bundled a sale going forward.

And my second question is about our gross margin and our skills associated sales strategy as well.

We are like have healthy.

Margin was up while at the same time, we are.

Like giving up some.

Items, which have less gross margin so considering that we might encounter more pressure from the raw material side are we going to adopt the same strategy going forward or what we.

Think about like the ore.

Margin trends for us in the future. Thank.

Thank you.

One without Eagle Winter, just wondering you took a peloton digital or social or coach anecdotes from social mobile and then saying to you Josh is the Chancellor Michelle Qi regulatory and court you to shop in the marriage hunting pension the but on that from a tissue.

She was a woman pulse you want us to my Chung literally that you bought a more typical amount you do them they shouldn't they shouldn't and show them attempting tabun actually you've done two quarters, where you shall apologize functionalizing shall tilda.

She shot up he answered them and getting them in.

Windows are between wholesale sort of evolutionary change on them and then their social she probably go treat all are kind of chunky meridian shows what are you planning Toyota returns out in Palmyra to the P. D has been made on the golf on Covid.

Hopefully it was I wish you all well then channel.

Are you done Shitala, Arthur Wang Uganda, two eagle According to the actual one digital day when regional shall be it in between we don't they don't have generally let me tell you pay too long overdue.

What would you.

She said she maybe until you arent I want somebody to Thiago. So he apologize a BD issue Gutierrez assumption I'm always treated them.

In the past and the T M and then she answered them and then she she ought to try and do my phone line that can really get potentials. Richard leaves you with Omega couldn't walk.

You can find him do you have a major pharma behind the shifting boundaries on tenure and didn't see the licensure are English what can be seen when it's really couldnt be we're going to walk through what you would do if I'm gonna Chief Executive leadership with Hello, Glenn Junior and she buyer then jargon commuter Shanxi message all she lunches out.

We didn't even really easily and you'll keep going to Asia, if I'm, an English Oh, jeez, undershot, Anna Sui, which literally couldn't Josh I'm going to have a court order book will change.

I'm, a woman lavage them or not what I'm gonna find touche poodle greenwald on attempting to treat two of them come into social power. She father, who I'm sure you call them the kings in the country.

She she was what to me you got somebody who says you know I suppose you'll make up somebody that we can lock them because each one almost one can I kind of hard to do it. It's just you don't want Michelle Qi Shapiro, you'll lead as she she traveled illegal illegal hungered it'll be in Nevada.

Neither were they got you over there.

I'll just quickly it sounds like first so as we are developing I watched them home solutions. So we are challenging or say transforming the traditional mode of selling individual products are too.

To sell their solutions are still fund for the online channels.

With ourselves.

Do you go through the individual park Sterling, but for the up by China at least we can see that over 50% out of South Africa.

The bond those cells, which are like over three products and I know not long ago and I Wonder if you have a customer just purchased.

Ah the boundaries are the the part that's like over 250000 RMB.

Oh, so in terms out there really out the impact on our industry. We can see the overall home decorating their Christmas listen how they handle we think that's also caused some impact on job a real home health industry, but as we rollout more me too high end products as well as promote more bundled sales with things.

Can't mitigate impacts and king improved Oh, the purchase amount per customer.

Thank you.

You know regarding the price of raw materials are still over or price of raw materials has already a relatively high corn and not going up for a much higher Chen.

We don't describe the raw material of course was close enough to kind of impact on our operating results.

And we will continue to take cost control measures to medicine.

In terms of E S P.

Actually we have a master developer pricing studies for the next year, we're spot the overall Chen who will go up in a member to stand.

Despite an increase of the sales contribution of our new products with higher Asps and higher margins.

Thank you.

Thank you.

This concludes our question and answer session now I'd like to turn the call back over to the company for any closing remarks.

Well. Thank you once again for joining US today. If you have other questions. Please feel free to contact us through the contact information on our website or the person they drove our investor relations consultant. Thank you all have a good night.

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

Okay.

Okay.

Yeah.