Q1 2022 Viomi Technology Co Ltd Earnings Call

At this time all participants are in listen only mode. Today's conference call is being recorded I will now turn the call over to your host Ms. Cecilia Li the IR director of the company. Please go ahead Cecilia.

Thank you operator, Hello, everyone and welcome to Val Nathan knowledge, you call them into earnings conference call for the first quarter of 2022.

A reminder, this conference is being recorded the company's financial and operating results were issued named perhaps the laser late today and then post the online you can download earnings press release and sign up for the countless email distribution list by visiting the IR section of the company's website.

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Are you sitting in today's call are mystery shopping channel founder Chairman of the board of Directors and Chief Executive Officer and Mr. Wei, sometimes the head of our findings on mountain the company's management will begin with prepared remarks, and the call will conclude with a Q&A session.

Before we continue please note today's.

Especially on the forward looking statement made and they're just the type of publishing somebody asked Kravitz CRT lakes fishery for mess up 1995 forward looking statements involve inherent risks and uncertainty and such but tell me that's resolved maybe materially different from the music, whereas today for the information regarding these and other ways.

And I'm certain too isn't included in the Companys founder reports on form 20-F, and other salaries as filed with the U S. Do you like is unchanged.

The company doesn't assume any obligation to update any forward looking statement, except as required by law. Please also note well Miss earnings press release and the countless call include discussions of the audited GAAP when you see inflammation as well as audited non-GAAP financial measures.

But on this press release contains a reconciliation of the audited non-GAAP measures, but they are audited most directly comparable GAAP measure.

I will now turn the call over to our founder and CEO . Mr. Xiaoping Chen Mr. Chen will deliver his remarks in Chinese follow immediately by English translation Misheard Count. Please go ahead.

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Thank you Mr. Chen I will quickly translate our final remarks before discussing our financial performance for the first quarter of 2022.

Hello, everyone. Thanks for joining our first quarter of 2022 earnings conference call and the first quarter. Our total net revenues reached 700 yourself. Many R&D in line with our previous guidance the ear LD or a decline in revenue is mainly attributable to two factors.

First I guess a year, we cut off the selling of Xiaomi paper robots, which had high prior year base will come to a ratio.

And just the beginning of this year on into the widespread of Kobe 19 recurring fee and a strict pandemic control measures marquee conception decreased in the first quarter, along with self demand industry wide.

That's one of our long term product competitiveness and brand awareness, we continue to invest in RMB and increased marketing and advertising.

As a result, our R&D related personnel and experts at the beginning of the theory grew by nearly 47% compare to Doug Danny how 2021.

Primarily due to the expansion of our AI and the argument than pattern for.

As of March 31st 2022 hour Cumulated global patent applications and a registered patent into reach.

5232, and 3142, respectively for them more to support that really is just that when you're protecting the first quarter. We launched a large number of out of beta and between the app and more than our champion technology brand and positioning our investments in R&D and marketing to spur.

Longtime girls caused a temporary loose and if required.

However, we also noted an increasing sales contributions from our premier product things to increase investments in R&D and innovation. In addition, we further improved our trading quality throughput depth quality, just Jeff named Ana.

Manufacturing cost control I.

Our gross margin for the first quarter increased to 26, 3% against with is Danny a year over year and quarter over quarter improvement and are demonstrating how to put that in and around the field.

At our sketch to me up for the long shut down in March we rolled out our earthquake I'm ready to watch all Iot home solutions, one fourth floor, which include our whole home kind of falling for major smart home capabilities, such as automatic networking active intelligent spatial awareness and are naturally in action.

And our for additional services for our yogurt, namely my home solution design or T upgrade attach membership system and value added services.

Our upgraded most of Iot home solutions has alrighty achieved solid initial resolved things Dallas what goes on product innovation survey system implement as well expanded sales channels the whole home intelligence.

So first it was worth badly I'm a protest we have any house theory actually intelligence through innovative AI application, we introduced a series of new high and AI products that we're launching down in March many of which have received favorable my kids get back here on the reveal.

Building the value of scarce AI dish.

<unk> seen our AI based control interface hometown pet.

More of our new products will be on the market for such as our all space AI Air Conditioner based pro did 2000 gallons large blocks water purifiers to put you in a laser into Ax teamster my screen and our rally Pearl Cirrus, if dabbled square refrigerator and AI 'twenty a washing machine.

Our ongoing product innovation will not be possible without our growing and the talented R&D team.

RMB achievements have also being recognized by industry and professional institutions.

In April our AI ran two there a detection module technology wanted to ask Excellence award at the 23rd China Patent Award.

Also in the same mountain, which is you're right as the eighth Guangdong patent awards with wanted or why do people fired within intake integrity paid waterway multi technology.

Furthermore, the barmy granda, what's added to the key tree more protection leased in Guangdong Province.

Hardware R&D Iot AI and algorithm team is also expanding with an increasing number of ph D. Palin.

We're guessing lifted as Guangdong ph D workstation by the government and have obtained a selection qualification to establish a Guangdong post doctoral workstation. This year as a result going forward, we have greater opportunities to call you with top talent for our society.

So basically my home for ground and promote over or the dollar amount you missed my home in a tree and cod fishing with many birthdays and professional institutions.

So that counts as we mentioned during our last earnings call. We have improved our bundled smart home solution offerings based on our one stop Iot Homeschool channel and recently launched a comprehensive high a customized design solutions for the premium market.

The past two months.

Our premium bonds smart home solution offerings have accelerated that's still oh.

Our offline merchants recently signed me a whole home solution August ramping from 200000 to 400000, RMB with customers in Beijing, Guangzhou, China, Shaffer Bay, and climbing successfully shifting our business from selling for that to selling solutions.

In addition, with depend our cooperation with JD logistics to access a broader range of services, including Tami logistics warehousing and installation. This enables us to improve efficiency throughout our cycle from solution design and delivery to installation as well as provide hours discussed.

Mercury is a more enjoyable after sales service.

Third we have extended our strategic partnership with South China, The smart home and continue to extend from industry to external channels and smart ecosystem based on home scenario is taking shape next.

Last week, we reached a stretch of cooperation with Tmall concerning a body as large jobs my home solutions together with a promote it how homes my call it with an AI smart kitchen living room balcony industrial and bathroom. Furthermore, in April we cooperated with JD com to help with the Wyoming for 'twenty J D.

De and introduced new whole home smart codecs on its five more.

Finally, after forming our strategy partnership with China Unicom last year. We were recently listed as one of China tally comes Tom They started college of powders promoting channel integration and the brain and intelligent lifestyle to tens of millions of households in China as.

It's one of the first movers and watched them smart home solutions.

We need to put them on my patio shapes additional channels and companies to jointly develop the smart home ecology broke families.

Despite the adverse impact of the pandemic on our larger so a bedroom merging of life jazzy execution with certain decorates up delays in our dural opinion and furnishing the overall program.

Pro basketball still within our expectations, we joined hands with I'll say more chance to be a large immersive bombing center stores in shopping malls and K asos with massive bulk traffic offer local customers or companies that ask my hometown system services, It's a one stop solution.

As to our overseas business, despite the effects of international warfare, where consumers mounting and inventory and backlog upstairs and distributors with deal achieved a step panted progressed so.

So first of all we reached a collaboration with international sales agents in Vietnam and Malaysia.

And it sounds so bad where its neighbor all boats in this way and say can we continued to broaden the online presents at the hour.

Operating a dog after launching our self operated store on Italy, Amazon in March we opened a stub our previous dog in Germany, France, and Spain Amazon.

Our alpha two probes for mobile it was well received among European consumers.

And third and the first quarter, we launched our smart white and a drive vaccines in overseas market and we're continuously expand their cells Colbert to last year.

In the second half of this year, we will continue to focus on four person that had the first that were looked at in the production innovation and develop he a up to us that can increase our advertising and marketing investment to scan an hour counting technology branding positioning and third we will streamline.

For the life and optimized our product put bodies and for us what it would enhance that with south county always being sexually our larger so a bedroom or can you help us jabby to lay a solid foundation for elevating the consumer experience and developing long term brand value.

Together with victory and more disciplined cost and expense control measures, we will deploy this capital to support How's the growth in the mid to long term and remain committed to creating value for our customers and shareholders in the long run.

That concludes our fondest response, that's now I'll turn to our detailed first quarter 2022 financial reviews, as well as our second quarter outlook.

So for the first quarter net revenues were 712.1 mini RMB compared to $1255 six many R&D for the first quarter of last year net revenues were in line with our previous guidance. In addition to the overall weaker consumption environment. The decrease was mainly due to need.

Pictures, So first as a company to cut all of our selling of Xiaomi branded sweeper robot this year as long as it's high prior year Batesville contamination and the second is to continue the product portfolio adjustments for margin expansion across product categories.

In detail.

Revenue from Iot at home from quality takeaways to by 68% to 360 point too many R&D, but I'm now handing $19 two many R&D for the first quarter of last year. The Big high was primarily due to the complex cut out of box Valium Xiaomi branded sweeper robots, and a continued pro depth and quality of Jasmine for margin.

I'm showing no other categories both of which also contributed to the overall gross margin improvement for al Good home portfolio category.

Revenues from her mother solutions decreased slightly by two 6% to 101 million RMB from 103 point and many of our M. B for the first quarter of last year. The decline was primarily due to the continued product portfolio jackman involving a decrease in small lots, while you can fire which was.

Partially mitigated by the increased contribution of large blocks of lovely fire.

As a result of the probably the quality jobs for them to call me once again achieved year over year of gross margin improvement in this category.

Revenue from consumables increased by pinpoint airports and two seven to one 8 million RMB from 64 point, Amy RMB for the fourth quarter of last year, primarily due to.

The increase the demand for the wider crude price to protect.

The only sound small but has just now there increased about $6 seven per se on to 117 9.1, any RMB 167.8, many R&D for the first quarter of last year.

Gross profit was 187 mini RMB compared to 265, many R&D for the first quarter of last year.

Margin increased to 26, 3% up from 21.1% for the first quarter last year.

It's primarily driven by the Companys continued efforts to shift our business and product mix toward higher gross margin products.

Total operating expenses increased by 15.9% to 254.8, many R&D from $219 eight many R&D for the first quarter of last year, primarily due to the increase in R&D expenses and selling marketing expenses.

In more detail.

<unk> expenses increased by 25% to 17 nine point want any R&D from $65 6 million RMB for the first quarter of last year, mainly due to the increase in R&D headcount and related salaries and expenses.

Selling and marketing expenses increased by 15% to $158 eight many R&D from 138 million R&D for the first quarter of last year.

Due to the increase in advertising and marketing expenses to promote the Companys brand awareness.

G&A expenses increased by four 7% to 17, many RMB compared to 16 point to many R&D for the first quarter of last year, primarily due to the increasing related personnel salaries and expenses.

Nothing new etch built go to ordinary shareholders counting it was 50 mini RMB compared to net income attributable to ordinary shareholders of the company of 49 1 million RMB for the first quarter of last year non-GAAP net loss attributable to ordinary shareholders of <unk> was 41, four selling mini RMB compared to now.

Net income attributable to ordinary shareholders of the county up $65 3 million of R&D for the first quarter of last year.

Additionally, our balance sheet remains healthy as of March 31st wanted 22, the company had cash and cash equivalents of 868 full meeting or N. B restricted cash of 64 point too. Many R&D short term deposits of Tammany RMB and short term investments of four.

At 1.8 million RMB.

Now, let's turn to our outlook.

For the second quarter up 21 to you with current takes that the net revenues to be between 815 million RMB and 1.05, feeling or M D.

We estimate that the year I'll be your change in rabbit and this will be mainly due to the high Confederation days I've found the xiaomi branded sweeper Boa business for the second quarter of last year, which the company has completely cut off this year as well as the impact of all the real market demand in the second quarter of this year.

The above outlook is based on the current market conditions.

Comes to current and preliminary estimate of tomorrow.

Kenya, and operating conditions as well as the customer demands all local wage are subject to change.

This concludes our prepared remarks wasn't now I'll turn the call for the Q&A session. The head of our finance team Mr. Wei Chang's high will join this session and asked the question operator. Please go ahead.

Thank you we will now begin the question and answer session chassis question. You May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two for.

For the benefit of all participants on today's call. If you wish to ask you.

Question to the company's management and Chinese please immediately repeat your question in English.

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

Yeah.

Our first question comes from Hildy Ling from Morgan Stanley . Please go ahead.

Oh, thank you.

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Di woman Nico Gigi from Shaw.

Well, it's easy for us to go coasters in conjunction with the from Shaw to shop on you know if you want a therefore when he got to them upon dyno Nobel Rucell woman.

Trudeau Sholto Eagle Greywater, showing a woman you got your shop on it you know we go off.

They go social pursuit atone call not just since I shouldn't I should go should be in that country, but you do its own court not to your women surgeon, though you Toyota mobile Yano normal wage and looked at it you don't want to totally at all thank you very much management for giving me this opportunity to ask one on some too simple a mono question small question. The first one is about the sales trend in the.

Our recent sales trends in April and bike and and Howard about and also the trends and in terms of byproduct perspective holiday trending and also about the trends in terms of the pricing and the volume and the second question is about the Oh strategy and expectation for second half of the year and our strategy.

Behind it and compare it with our strategy and an expectation set at the beginning of the year, how has that changed given the macro volatility and have we adopt any with a plan of strategy change in this regard because of the macro changes. Thank you very much just yet.

Okay. Thank you for this question.

For the first question entering into April and May we saw the consumption environment. This week due to the impacts from the Korean put that Nick and desktop sales performance was also impacted.

Well assault ship the sales contribution of our premium products with higher gross margins are you queasy.

Second the Mahalo, you Tomorrow, New products released last year and this year, we saw thousands space Ambilateral series of air conditioners increased due to seasonal demand.

The popular sanction still in Coca die compute.

Such as for space cooling UV sterilization and fresh air system.

Besides smart devices, such as smart law.

Also we see good market feedback and sales performance.

We saw the sales of some large appliances, such as refrigerators washing machines are relatively weak due to the lack of how we service.

Services self installation and well just.

Salt life's chromatin control measures.

Going forward this year, we expect the overall.

At which price to maintain stable compared to the last year.

A full shut in frustration for device categories.

And should we expect the overall sales volume is.

Increase went into Inc.

Into the second half.

Well again this is still dependent on the consumer demands and the predominant exploration in the next months.

Well regarding b.

Regarding your second question of.

A patient on the second second half.

Okay.

With the increasing.

Increasing corrington regions and continue with macro environment since April we expect the consumption trend one demonstrate material rebound.

Should we leave compared to the first half of this year.

We saw the government has taken some measures to stimulate consumption.

And we are also taking some measures to cut down the expenses and cost of our products.

Thank you.

Oh, she took on his own when we actually don't want to you. All thank you very much I'm Ashwin I don't have further questions. Thanks.

Our next question comes from Rudy we from the ICC. Please go ahead.

Oh, Yeah. Yeah. This is through the way from Jackie and thank you very much for the management presentation actually I have two questions here and then maybe I can ask them one by one the first as a is that one of your strategy is to increase the.

Gross profit margin by optimizing the product structure. So many low end products have been out of production.

So I wonder whether these process is almost completed at this stage and to which extent do you think that the gross profit and margin can be improved in the future Oh no what do they actually all that go into how would you go you go with ego Joshi with them and they're kind of don't get gene you should hold or you'll watch it doesn't go like you some money.

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Molly the junk, Louisiana, I would wash out because you want the giggling.

Okay.

Okay parents really discussion the product portfolio optimization is still ongoing for us.

We need to balance the Oba house, and just south of South squirrel, close a new premium products.

Wrong is introduced alternative products for low end market.

Currently we are we are just in the pull the lives for multiple categories, including Air Conditioner. We saturate is finished with the robo.

With respect to the gross margin.

I can see the margin has been improving in the past year.

In 'twenty to 'twenty two we are.

Confident to maintain our overall margin level of over 20% and they see some oil saturation due to inventory cleanup for some countries during the promotional pieces.

With the product portfolio optimization, we expect of course module still to improve on a year over year basis.

Yeah.

Yeah.

Ah Okay. Thank you and my second question is about our water purifier product. So we have been doing water purifiers business for a long time, but the market has been declining actually English, yes, and that actually your water purifier business.

It's also a zinc backman.

We noticed that it seems more brands are introducing water purifier products. Recently also we noted the increase of your consumable consumables businesses related to water purifiers. So I wonder whether you have the same feeling that more brands are doing this business and what do you think.

Of the future of the one or two or by market.

Now what the Thiago interesting ways to deal with me, even though you'll jacobs or things like that do you think you know with anxious as you can like English at home, although she can shop at US you should.

I don't know how my guys at all has that had gotten puzzle that we gave I think you know turnkey alcohol are kind of all of them. It will take off it seems like you found one.

Okay. Yeah, we'll just have to point out that not without a woman. She was sure I had at least two dozen or so going to the peak I like to just take a shot.

Quite the contrary go I'm thinking because I think you should count that you go upside down and Apache.

Okay as we can see in the recent two years the growth of the overall demands of water purifiers as not as far as some of the cleaning category.

But it is still a potential market with increasing penetration rate.

And we also observed from our frontline research as well as from the in the industry data the consumer mix change over time in the industry develops so I'll say bill Chen.

Firstly, we have seen the market contribution of large plots water purifiers with over pay.

100 gallon.

Increasing the market is gradually phasing up some small fresh water purifiers and more companies starting increasingly introductions of large cross border appeal process as well.

Secondly, smart application has been one of the real hot require demands of consumers.

Food water purifiers with multiple functions on more knit it by the market, namely eastern he drink.

Mineralization and UV sterilization et cetera.

The desktop two as far as you mentioned is also a challenge in the industry.

We have developed and introduce desktop purifiers.

The second half of this year and the next.

We introduced additional sku's with multiple functions.

Thank you.

Yeah.

Yeah.

Oh, Okay. Thank you very much that's awesome.

The next question comes from.

Lee one G from <unk> Securities. Please go ahead.

Yeah.

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And then Shawn Colo the whole she told you sound like you have to drill them since you've got because you're launching how chunky.

She'd be happy about it you go to China, you pass it through as it should that not not not yet found yet.

I'll go and T shirts, and keenly Chi that's out there yet.

Sometime ago. So those are the I'm again, the social Jim Clark of what else you can contact me I'm, a chance you'll lose without extra amount of time doing Oh, what George and I don't think you guys yet.

Yeah.

[noise], Okay for the first for the first question.

The overall positioning position to help our sweep of robo scope in the domestic and overseas market, there's a mid to high <unk>.

That's currently a super robust not a necessity compared to large plans and the market penetration rate is still note.

Probably research and market data the consumers, who buy should pool, both are less sensitive on price and they are highly dependent on obstacle avoidance of multiple functions and smart education.

In terms of function. So we focus on automatic gosh collapsing and self cleaning.

Which are also the chance for current market.

In addition, we develop a gift from different malicious for consumers with diverse niche.

Such a sweep of wobble, if you reach the realization and that's T. You designed for families with Paas.

More importantly.

How should we offer one stop smart home solution with bundle sales.

<unk> plans and devices.

With the Robo is able to connect it with whole home smart products for interactions with more control and inspection.

As the only one movable tons.

Sweeper robot can scan the home and create a home up for our future developments such as the security detection system.

For the second question regarding the offline sales.

Also ourselves as well as the new store opening.

Pounded by the recurring predominate.

Corona currently controlled in some regions and just it was a delay in some cities.

To mitigate the.

The cross sells from offline channels due to the Covid items, we ship more marketing and sales resources towards online channels.

Particularly some social platforms such as <unk>.

In addition to small and cleaning products, we have started to sell wide clearance on tow in salt life's journey and have seen good sales performance.

We also depend on cooperation with platforms, including C more and <unk> to join the promo whole home smart device portfolio.

Our largest door motion optimized strategy is on the chalk foodie covellite impounded their store opening.

Furnishing to some degree we are.

We are also seeking cooperation opportunities sourced by virtue of party off my channels.

We recently reached that told you.

On the ship with China Telecom and with Truecar home, which is cool job charged to integrate offline resources and promo are small.

Smart product portfolio.

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Seems you know pretty flat.

It will depend on their part how should we actually up at all I saw that you're going to suddenly be accounted in Michigan.

These are difficult and I don't want mostly sei Jin courtroom told collusion me I'm pretty sure I'm really actually shouldn't when did the children from a ball triga Chill Balm also the senior new cool small do you do that you don't cause you got shot so essentially if I'm an old minimally she saw couldn't pull the chickens robot number because it you shouldn't you shouldn't.

Sure.

Not only do we don't have we she thought you'll see that's actually because I thought that shouldn't don't you will proceed as he or.

She also wants you to send out I'm curious you know what to do so we need to.

I didn't see that kind of work.

Particularly what you currently have real quick what do you go from having a partner.

Oh, Okay. I'll tell played out responders comment also as Mckenzie is doing at this moment, it's a little hard to focus the pandemic affiliations.

The rest of this year.

Can see well, we don't know how long how long depending on installations in the same content control measures.

Lactate, and we think as do take some time for the consumers to to recover the consumption coffee news. So Meanwhile, we will take a very prudent way to improve our operations as well as to Matan are very healthy gross margin level as well as the healthy.

Cash enabled by their confidence in the mid to long term the China economy will recover all down but in the meantime, we will just don't invest in R&D and such expenses to my town very stable development. Thank you.

And certainly not what I meant with departments you, let's just say thank you very much I have no other questions. Thank you.

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

Well. Thank you once again for joining US today. If you have further questions. Please on the S. Three with the Carnival imagine call have a website or at the passenger group probably investor relations consultant. Thank you all have a good night.

This concludes this conference call you May now disconnect. Your line. Thank you.

Okay.

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Yeah.

Yeah.

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No.