Q3 2023 Zepp Health Corp Earnings Call
Speaker 1: you
Okay.
Speaker 2: Hello, ladies and gentlemen. Thank you for standing by for ZEPP Health Corporation's third quarter 2023 earnings conference call.
Hello, Ladies and gentlemen, thank you for standing by for ZIP Health Corporation's third quarter 2023 earnings Conference 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. Grace Zhang director of Investor Relations for the <unk>.
Speaker 2: I will now turn the call over to your host, Ms. Grace Zhang, Director of Investor Relations.
Company. Please go ahead Grace.
Speaker 3: Hello, everyone, and welcome to ZEPP Health Corporation's third quarter 2023 earnest 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 earnest press release and slides referred to on this call by visiting the IR section of the company's website at ir.zepp.com.
Hello, everyone and welcome to the SAP Health Corporation third quarter earnings.
Earnings Conference call, the company's financial and operating results. What you showed in your press release, rather 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 does that duck Hunt pad.
Speaker 3: Participating in today's call are Mr. Wang Huang, our Chairman of the Board of Directors and Chief Executive Officer, and Mr. Liang Chen Deng, our Chief Financial Officer. The company's management will begin with prepared remarks and the call will conclude with a Q&A session. Mr. Mike Yang, our Chief Operating Officer, will join us for the Q&A session.
Dissipating in today's call are Mr. Wang long Fong always tell now of the board of directors and Chief Executive Officer and Mr. Liang Jun.
Our Chief Financial Officer, the company's management will begin with prepared remarks, and the call will conclude with a Q&A session. Mr. Mike Yeung, our Chief operating officer will join us for the Q&A session. Before we continue. Please note that today's discussion will contain forward looking statements made.
Speaker 3: Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainty.
The safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 90, 95 forward looking statements involve inherent risks and all of a sudden fees as.
Speaker 3: As such, the company's actual results may be materially different from the views expressed today.
As such the company's actual results may be materially different from the views expressed today.
Speaker 3: Further information regarding this and other risks and uncertainties are included in the company's annual report on Form 20-F for the fiscal year ended December 31, 2022.
No other information regarding this and other risks and uncertainties are included in the company's annual report on form 20-F for the fiscal year ended December 31st 2022.
Speaker 3: and other filings as filed with the U.S. Securities and Exchange Commission.
And the other filings as filed with the U S Securities and Exchange Commission. The company does not assume any obligation to update any forward looking statement, except as required under applicable law.
Speaker 3: The company does not assume any obligation to update any forward-looking statements except as required under applicable law.
Speaker 3: Please also note that ZEPP's earnest press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial information. ZEPP's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.
Please also note that <unk> earnings press release, and this conference call include discussions of our audited GAAP financial information as well as all audited non-GAAP financial information that press release contains a reconciliation of the all audited non-GAAP measures to the audited most directly comparable.
Mary.
Speaker 3: I'll now turn the call over to our CEO , Mr. Wang Wangshuang.
I'll now turn the call over to our CEO Mr. Huang Wang song. Please go ahead.
Speaker 4: Hello, everyone. Welcome to ZEPP Health Third Quarter 2023 earnings conference call.
Hello, everyone and welcome to <unk>.
Third quarter 2023 earnings conference call.
Speaker 4: In the third quarter, we achieved a business turnaround returning to profitability after enduring six consecutive quarters of lockdown.
In the third quarter, we achieved the business turned around returning to profitability after enduring.
Cause that's good.
That's our philosophy.
Speaker 4: Despite an year-over-year decline in revenue, our high-margin self-branded product contribution to our top line now accounted for approximately 80% compared to the average of around 40% for the previous five years.
Year over year decline in revenue our high margin South branded part of contribution to our top line now accounted for approximately 80% compared to the average of the wrong, 40% for the previous Patheon.
Speaker 4: This accomplishment reaffirms the effectiveness of our operational strategy and early success of our business model transformation.
This accomplishment affirmed.
Factor Vanessa.
Our operational strategy and the success of our business model transformation.
Speaker 4: Before delving into the details, I would like to provide a recap of our business model transformation.
Before delving into the details a variety to provide a recap of our business model transformation.
Speaker 4: which has taken nearly two years to bring us to our current state.
Which has taken nearly two years to bring us to our.
Cala and positioning.
Speaker 4: This transformation has involved departing from a business model that heavily relies on a single customer for the majority of our revenues.
This transformation has in <unk>.
Was it parking from a business model that heavily rely on.
Single customer well the majority of our revenues is that.
Speaker 4: We aim to establish ourselves as a self-reliant, global, smart, viable, and healthcare solution provider.
We and to establish ourselves as that.
That reliance.
Global Smart wearable and health care solutions provider.
Okay.
Speaker 4: throughout this transformative phase.
So all of these come from Chegg mate.
Fifth.
Speaker 4: we have recognized the importance of enhancing the quality of our revenue stream.
We have recognized the importance of enhancing the quality of our revenue streams.
Speaker 4: This transition signifies a deliberate shift from pursuing sheer growth to a steadfast commitment to achieve profitability.
This transition.
The nearby.
Liberate shipped from pursuing sheer growth to us that's fast commitment to achieve profitability.
Speaker 4: Our strategy focus is centered on improving our growth margin and ultimately guiding us towards sustained profitability and future growth.
Our strategy focus.
Correct.
Improving our gross margin and ultimately guiding us towards.
Part of it the battery and future growth.
Speaker 4: Notably, our Q3 performance indicates an early success on this journey.
Notably our Q3 performance indicate an early success.
On this journey.
Speaker 4: while Xiaomi branded products sell.
While sell me branded product sales.
Speaker 4: face persistent industry-wide headwinds. Our self-branded products sustain sequential growth momentum with 12.3% quarter-over-quarter revenue growth.
Faith, but listen industry wide headwinds.
Our self branded potash sustain sequined zero growth momentum at <unk>.
One 3% quarter over quarter revenue growth.
Speaker 4: This was driven by our expanded AI power.
This was driven by our expanding AI power.
Speaker 4: product portfolio and average brand influence worldwide, resulting in a rise in product adoption across several markets, notably in Southeast Asia.
Our product portfolio and re branding.
Randy in foreign worldwide.
Locking in a rise in product adoption across several markets.
<unk> Barry.
In South East Asia, and Central will go.
Speaker 4: our self-branded product revenue increased by 28.4% and 79% respectively.
Our self branded products revenue increased by 28.4% and 17, 9%.
The effective rate year over year.
Speaker 4: It's also worth mentioning that we turned net profit positive for the Chinese and Indian markets during the third quarter as we remain focused on high quality growth with effective region-specific sales expansion and cost reduction strategies.
It's also worth mentioning that.
We plan net profit path are there for the Chinese and Indian markets.
In the third quarter as we remain focused on high quality growth.
Effective regions specific sales expansion and cost of reducing debt to G.
Okay.
Speaker 4: Amid our business model transformation, we prioritize profitability over share revenue growth.
I made that our business model transformation.
Right all.
<unk> profitability or sheer revenue close.
Speaker 4: this strategic shift from result in a significant surge in our growth margin.
This strategy.
Is it just the cheesecake shifts from Lazard.
A significant surge in our gross margin.
Speaker 4: reaching a historic high of 33.9% in Q3.
Reaching a historic high.
That is three 9% in Q3.
Speaker 4: This achievement is filled by Andy Breakthrough.
This achievement is filled by R&D breakthroughs.
Speaker 4: such as our industry-leading GPS track technology and the continuous update ZAP OS.
Such as our industry does that industry, leading GPS check technology and continuous updates that bow out.
Speaker 4: supporting our premium product lines and elevating our ASP.
The parking our premium product lines and.
When you take our Asps.
Speaker 4: thereby enhancing our product competitiveness.
Thereby enhancing our product competitiveness.
Speaker 4: Re-expansion in growth margin is also a result of persistent efforts to improve overall operational efficiency.
The expansion in gross margin. It's also a result of persistent lower.
Improve overall operational efficiency.
Looking ahead.
Speaker 5: We remain dedicated to refining our retail channels and product mix to sustain this positive trend in high.
We remain dedicated to refining our retail channels and product mix.
Thing these pass the positive trend.
In high gross margin.
Speaker 5: fostering profitable growth for future.
Suffering profit.
Profitable growth for our future.
Speaker 5: while employing a profitability.
While employing a profitability.
Speaker 5: oriented approach to our business operations.
Oriented.
Coach to our business operations base each quarter.
Speaker 5: We also remain focused on leveraging our R&D capabilities to enrich and iterate our product and service offerings to attract a broader community of users.
We also remain focused on leveraging our R&D capabilities to enrich and iterate our product and service.
Offerings to attract a broader community of users.
In September.
Speaker 5: We launched the Amazfit Balance, previously known as the Amazfit GT Series.
We launched the amazing ballast previously known as the Amazing Gt's theory.
Speaker 5: A powerful smartwatch that enables users to track the ultimate balance between life, work, and wellness will seamlessly integrate.
Powerful Maher watch that enables users to strike.
Automate balanced between life work and boundaries you seamlessly integrated.
Speaker 4: advanced features for health, fitness, and lifestyle.
Last feature or health fitness and lifestyle.
Speaker 5: Specifically, AmazFeed Balanced features integration with ZapCoach, a chat AI power fitness coaching service.
So, but typically amazed feedburner future integration with that coach.
Chad AI powered fitness coaching service.
Speaker 5: ZEPP ORA for AI Powered REST and Validate Services, and ZEPP PAY for Convenient NFC Continuous Payment.
That overall for AI powered arrest and wellness services.
Zap painful convenient NFC contactless payments.
Notably.
Speaker 5: It's Amazfit's inaugural smartwatch to house a certified medical device blood pressure monitoring app in China.
It's a nice this is al gula smartwatch to house.
A certified medical device breath pressure monitoring app in China.
Moving fall.
Speaker 5: We are extending the blood pressure measurement software from the balance product line to include a variety of watches, such as Amazfit Active, Cheetah, and T-Rex.
We are expanding the power pressure measurement software from the balanced product line to include a variety of watches such as amazing active Cheetah and T. Rex.
Speaker 5: This integration augments the overall value of our smartwatch.
At least.
Integration.
<unk> the overall value of our smartwatch at.
Speaker 4: in comparison to other Chinese competitors who only utilize barometric measurements on specific models for blood pressure.
In companion in comparison to other Chinese competitors, who only utilized.
Magic measurement, but modest for prep.
Pressure.
Speaker 5: We believe our approach is more convenient and adaptable across our entire watch series.
We believe our approach is more convenient and applicable across our entire watch serious.
In October.
We also unveiled.
Speaker 5: The Amazfit Active and Amazfit Active Edge both tailored for modern day city consumers.
The most.
Active and amazingly active etch both tailored for modern day the consumer.
Speaker 5: featuring an elegant appearance and powerful functionality with our AI-powered ZAP coach.
Featuring an elegant appearance and powerful functionality with our AI powered that coach.
Speaker 5: Amazfit Active is an ideal companion for people trying to live a healthy and active lifestyle. Meanwhile
I may fit active if an idea companion for people trying to it they are healthy and active lifestyle.
Meanwhile.
The top yeah.
Speaker 5: Stylish's amazing active edge infuses our lifestyle series with new vitality, allowing users to express their identity and personality through its unique design.
Barrish.
Active edge infusing, our lifestyle theaters, just new vitality, allowing users to express their and I think he and personality through its unique design.
Speaker 5: We still have many amazing new products on the way for the upcoming months, so stay tuned.
We still have many amazing new products underway for that.
Coming months, so stay tuned.
We currently.
Speaker 5: hosting amazing city campaigns to champion a balanced and active lifestyle.
Whole thing amazed they really can pay to champion a baroness and active lifestyle.
Speaker 5: which we consider the core value of a mainstream watching. Successful sections have taken place in Sociedad, Germany, and Madrid, Spain, with more city campaigns lined up.
Which we consider the core value of amaze people watch it.
That's both vaccines.
Pay right.
Embrace in to start off.
And Matt.
That's correct.
There's more CD campaigns lineup.
Speaker 5: We invite users to join these sections, share feedback on our product, and collectively build a community that will cater for the users of Amazfit smartwatches.
We invite users to join these sections share feedback on our potash and collectively.
<unk> that.
Well, Kate well K tests.
Users amazed me smartwatch it.
Speaker 5: We would be delighted to have you participate in these sections as well.
We would be delighted to have you participate in these sections that's about.
At that.
Speaker 5: Innovative minds are the driving force needed to advance the integration of technology, especially on the webOS.
In the latest mines are the children pause neither the vans English integration of technology, especially on the F O S.
Speaker 5: To that end, we recently sponsored CalHex, the world's largest collegiate taxon. For the second.
Does that and we.
Recently sponsored <unk> the.
War largest college age Texel.
The second consecutive year.
Speaker 5: This event's wealth of tech talent presents an opportunity for us to discover bright new minds and ideas.
These events Ralph of pack parallel presents an opportunity for us to discover bright new mines and ideas.
Speaker 5: thereby empowering us to fulfill our mission. We will continue to evolve.
Thereby empowering us to fulfill our mission we.
We will continue to involve.
Speaker 5: that OS and increasingly rolling out our new updates to users to grow the user base.
That little <expletive>, and increasingly rolling out new updates to view with us to grow the user base.
Speaker 5: Alongside our ongoing product catalog expansion, we consistently enhance our product experience by rolling our software updates.
Alongside our ongoing product catalog expansion, we consistently enhance our product experience.
Growing our software update.
Speaker 5: the introduction and the evolution of ZLS.
This trial adoption and the evolution of that the last.
Speaker 5: we are offering more regular updates to our users than before. For example,
We are offering more regular updates to our users that would be full for example.
Speaker 5: We released three major updates for Amazfit GX2 in the third quarter.
We released three.
Major updates for <unk> two in the third quarter.
Speaker 5: First, our official system upgrade to WS2.1 brought users a fresh interface and new interactive experiences.
First our official system upgrades to that the last two plus one broad use us a frost in interface and new in the active experiences.
Speaker 5: We also delivered a targeted spot mode upgrade and upgraded algorithm.
<unk>.
We also delivered.
I'll get that spot.
Upgrade and upgraded athletes them.
Speaker 5: enabling users to check their physical status in real time. The same is true for our Amazfit Falcon users and much more.
Yeah.
Enabling users to check they are physical status in real time.
That is true for our Macy's Falcon users and much more.
Speaker 5: These efforts to enhance our product value drove increased vibrancy and engagement across our user community during the quarter.
These excellence to enhance our product value drove increased.
Libraries.
Engagement across our user community during the quarter.
No debris.
Speaker 5: German marathon champion Hedrick Pfeiffer has teamed up with us for his four-marathon season to showcase the performance and features of Amazfit Cheetah Pro.
German Mashlam champion hedging safer has T map, it's Paul.
Paul Paul.
Paul Masson season to showcase the performance and features of our Macy's should have pro.
Speaker 4: further elevating our brand influence and enlarging our user base.
Further elevating our brand influence and hygiene <unk> user base.
Other mall.
Speaker 5: We continued to leverage AI to drive our success, applying AI technology to both our products and services, as well as our daily operations.
We continued to leverage AI to drive balance the class are priding AI technology to both our products and services our daily operation.
Speaker 4: evidenced by our latest product launches.
I've been asked by our latest <unk> lunches.
Speaker 5: We are integrating our AI-powered features, such as ZapCoach and ZapMirror, into more of our products and services to help users train and manage their health effectively.
We are integrating our AI powered features such as that coach ends up here into more of our products and services to how we do those change and manage it.
Yeah, how effectively.
Additionally.
Speaker 5: We continue to adopt GPT technology to facilitate our software development and enhance our R&D efficiency.
We continue to adopt <unk> technology to facilitate there our software development and enhanced our and if he says.
Speaker 5: which has yielded encouraging results.
Which has yield encouraging results.
Speaker 5: We will continue to enhance our AI capabilities to prepare our development to the next level.
We will continue to enhance our AI capabilities to book per our development to the next level.
Okay.
Speaker 5: Looking ahead, we remain committed to providing our flourishing global user community with our enriched product lines empowered by our evolving
Looking ahead.
We remain committed to providing our board is seeking global user community missed our analyst product lines empowered by our.
While the AI ecosystem.
Speaker 5: as the macro environment remains challenging.
As the macro environment remains challenging.
Speaker 5: we are striving to maintain and increase our profitability.
We are striving to maintain and increase our profitability.
Speaker 5: while also actively exploring opportunities to drive our top-line growth to enhance our product value and attract a broader range of users.
While also actively exploring opportunities to drive our top line growth to enhance our product value and attract a broader range of users.
Speaker 5: as we help more people manage their lives and well-being with our intelligent healthcare solution tools.
As we help more people manage their lives and well being missed our intelligent healthcare solution choose.
Speaker 5: we remain confident of achieving healthy, sustainable growth.
We remain confident of achieving healthy sustainable growth.
Speaker 5: Thank you again for joining us today. I will now turn the call over to Leon to go over the highlights of our third quarter financial results.
Thank you again for joining us today I will now turn the call over to Leo to go over the highlights of our third quarter financial results.
Speaker 6: Thank you, Wang. Greetings, everyone. And thank you for joining our earnings call today. I would like to start by discussing some of the key metrics from our financial results for the third quarter of 2023.
Thank you <unk>, everyone and thank you for joining our earnings call today, I would like to start by discussing some of the key metrics from our financial results for the third quarter of 2023.
Speaker 6: As noted before, we believe that we have been in a post-pandemic downswing in the cycle for our categories that may not yet to be at its end.
As noted before we believe that we are happy in a post pandemic downswing in the cycle for our categories that may not yet to be added to that.
Speaker 6: Our performance varies on a regional basis. Revenue in America continues to be strong or partially offset by the software performance in EMEA and APAC.
Our performance says varies on a regional basis revenue in the Americas continued to be strong, while partially offset by the softer performance in EMEA and APAC.
Speaker 6: reflecting the particularly difficult macroeconomic environment affecting both regions.
Reflecting the particularly difficult macroeconomic environment affecting both region.
Speaker 6: which impacted our retailers' selling growth.
Which impacted our retailers sell.
Selling growth.
Speaker 6: Throughout the year, we saw the reduction in channel inventories levels, which put us in a healthy channel inventory position across our channels and geographies as we enter the holiday season.
Throughout the year, we saw the reduction in channel inventory levels, which put us in a healthy channel inventory position across our channels and geographies as we enter the holiday season.
Speaker 6: As I lived through multiple times in my 20 years in tech, we fully expect that consumer behavior will normalize in time, and our focus on innovation, execution, and the exciting product roadmap will result in us returning to revenue growth in time.
As I lived through multiple times in my 20 years intact, we fully expect that consumer behavior will normalize in time and our focus on innovation execution and exciting product roadmap will result in us returning to revenue growth in time.
Speaker 6: In Q3 2023, we recorded revenue of RMB 0.6 billion in line with our guidance range, down by 50% year over year. This decline was mainly driven by lower Xiaomi branded product sales. During the quarter, our revenue generated from Xiaomi branded products decreased by 77%, while our self-branded products experienced a 26% decrease.
In Q3, 2023, where we recorded revenue of RMB <unk> 6 billion in line with our guidance range down by 50% year over year.
This decline was mainly driven by lower Xiaomi branded product sales.
During the quarter, our revenues generated from Xiaomi branded products decreased by 77%, where our self branded products experienced a 26% decrease.
Speaker 6: Partially due to the timing of the new product introductions, as we will launch a MESFET active and a MESFET active edge product in Q4 this year. And also in part due to our strategic approach to prune both channel and product.
Partially due to the timing of the new product introductions as well, we'll launch our makes that active base with active.
<unk> <unk> products in Q4 this year.
And also in part due to our strategic approach to prune, both channel and product mix.
Speaker 6: However, we have lost a 7.6% quarter-on-quarter growth for our self-rendered products, which attribute to our enhanced brand value and new product features.
However, we have lost a seven 6% quarter on quarter growth for ourself rented products, which attribute to our in house brand value and new product features.
Speaker 6: Despite the revenue decline, as Wong mentioned, we achieved a return to profitability and realized a third quarter 2023 net income of RMB 3 million compared with a net loss of RMB 17 million for the third quarter last year.
Despite the revenue decline as Walt mentioned, we achieved a return to profitability and realized a third quarter 2023, net income of RMB 3 million compared with a net loss of RMB 17 million for the third quarter last year.
Speaker 6: and a net loss of RMB70 million for the second quarter of 2023.
Net loss of RMB 17 million for the second quarter of 2023.
Speaker 6: Moving on to our gross margin, which can be influenced by various factors such as product mix, product launch timing, and product life cycles, including model upgrades.
Moving onto our gross margin, which can be influenced by various factors such as product mix product launch timing and product life cycles, including Mato upgrades.
Speaker 6: Our gross margin for third quarter stands at a record high of 33.9 percent, almost doubled compared with the same period last year.
Our gross margin for third quarter at a record high of 33, 9% almost doubled compared with the same period last year.
Speaker 6: This achievement is largely attributed to the strategic transformation driving us to focus more on made fit branded products, especially the higher ASP series and the reduced clearance activities. Although the cross market
This achievement is largely attributed to the strategic transformation driving us to focus more on may 5th branded products, especially the higher asp's theories.
And the reduced clearance activities.
Although the gross margin on Xiaomi branded products.
Speaker 6: experienced a decline. The gross margin on our self-branded products, which now contributes to more than 90% of our total gross profit, more than compensated for this weakness, resulting in improvements in the third quarter gross margin compared with the second quarter.
Experienced a decline the gross margin on our self branded products, which now contributes to more than 90% of our total gross profit.
More than compensate that support this weakness resulted in improvements in the third quarter gross margin compared with the second quarter.
Speaker 6: We are confident that with this positive momentum, alongside new product introductions planned for the upcoming month as well as a moderated level of the clearance activity, we should be able to sustain the further expansion of our company's gross margin.
We're confident that with this positive momentum alongside new product introductions planned for the upcoming months.
As well as a moderated level of the clearance activity.
You should be able to sustain the further expansion of our company's gross margin.
Speaker 6: Turning now to costs, as we have discussed, cost has been a key focal point for our company, both in terms of their absolute amount and as a percentage of sales.
Turning now to costs as we have discussed cost has been a key focal point for our company both in terms of their absolute amount and as a percentage of sales.
Speaker 6: Hence, we continue to control expenses in a disciplined manner during the quarter.
Hence we continue to control expenses in a disciplined manner during the quarter.
Speaker 6: Since Q3 2020, we have been pleased to see a downtrend in total operating expenses while still making strategic investments in new products, technologies, and footprint expansion to fuel our long-term growth.
Since Q3, 2020 will have been pleased to see a downtrend in total operating expenses.
While it is still making strategic investments in new products technologies and footprint expansion to fuel our long term growth.
Speaker 6: In Q3, our non-GAAP operating expenses stood at RMB 180 million, the lowest level since Q3, 2019, and better than the guidance we previously provided.
In Q3, our non-GAAP operating expenses stood at RMB $118 million, the lowest level since Q3, 2019 and better than the guidance we provide.
Previously provided.
Speaker 6: Our R&D expenses in the third quarter of 2023, or R&D $75 million, decreased by 41% year-over-year. This comprised 12.4% of revenues versus 10.6% for the same period in 2022.
Our R&D expenses in the third quarter of 'twenty, three or RMB 75 million decreased by 41% year over year.
This comprised 12, 4% of revenues versus 10, 6% for the same period in 2022.
Speaker 6: The decrease is largely attributed to our refined research and development approaches as we consistently evaluated resources efficiently to ensure maximized return on investment and productivity.
The decrease is largely attributed to our refined to research and development approaches as we consistently evaluate it we saw it christianly to ensure maximized return on investment and productivity.
Speaker 6: We're committed to investing in new technologies and AI to maintain our competitive edge against our peers.
We're committed to investing in new technologies, and AI to maintain our competitive edge against our peers.
Speaker 6: Our selling and marketing expenses for the third quarter of 2023 will RMB $70.6 million, a 43% decrease year-over-year, only primarily to our retail channel mix improvement.
Our selling and marketing expenses for the third quarter of 2023, RMB 74 6 million.
43% decrease year over year, only print primarily to our retail channel mix in crop improvements.
Speaker 6: At the same time, we continue to invest strategically in our brand and execute ROI-driven marketing strategies.
At the same time, we continue to invest strategically in our brands and execute a lighter but marketing strategy.
Speaker 6: Our G&A expenses for the third quarter of 2023 were RMB 48 million, down by 8.9% year-over-year, compared with RMB 52 million in Q3 2022. Benefiting from our effective cost control.
Our G&A expenses for the third quarter of 2023 were RMB 46, or $48 million down by eight 9% year over year compared with RMB $52 million in Q3 2022.
Benefiting from our effective cost control measures.
Looking forward.
Speaker 6: We are steadfastly committed to our prudent stance in the coming quarters and expect to maintain operating expenses at around these current levels or even lower.
We are steadfastly committed to our prudent stance in the coming quarters and expect to maintain operating expenses at around these current levels or even lower.
Speaker 6: Simultaneously, we'll continue to invest in research and R&D activities and marketing initiatives to foster long-term growth and competitiveness while diligently monitoring discretionary spending.
Simultaneously, we will continue to invest in research and R&D.
Activities and marketing initiatives to foster long term growth.
Patents of mess, we're diligently monitoring discretionary spending.
Speaker 6: Our operating result pivoted to a profit of RMB 11 million compared to the operating loss of RMB 73 million in the same period last year and the operating loss of RMB 72 million in Q2 2023.
Our operating rates out pivoted to a profit of RMB 11 million compared to operating loss of RMB 73 million in the same period last year.
Operating loss of RMB 72 million in Q2 2023.
Speaker 6: as a result of the expansion of our self-branded products cross-margin and streamlined operating expenses. As we entered the traditionally
As a result of the expansion of our self branded products gross margin and streamlined operating expenses.
As we enter the traditionally.
Hi holiday season.
Speaker 6: we expect to realize operating profit in Q4.
We expect to realize operating profit in Q4.
Speaker 6: Now, turning to the balance sheet, cash and cash equivalents and restricted cash as of September 30, 2023 totaled approximately RMB 1 billion.
Now turning to the balance sheet cash and cash equivalents and restricted cash as of September 32023 totaled approximately RMB 1 billion provide.
Speaker 6: provide us with sufficient runway to seize potential marketing opportunities and invest in our business growth.
Provide us with sufficient runway to six potential marketing opportunities and invest in our business growth.
Speaker 6: We have also focused on managing our working capital efficiently.
We have also focused on managing our working capital efficiently.
Speaker 6: We kept inventory levels steady at RMB 787 million consistent with Q2 2023 and remains at a multi-year low level.
We kept inventory levels steady at RMB 787 million consistent with Q2, 2023 and remains at a multiyear low level.
Speaker 6: will continue to manage inventory levels tightly as we weather the macroeconomy.
We'll continue to manage inventory levels tightly as we'd rather the macro economy in.
Speaker 6: In Q3, coupled with operating profits and efficient working capital management, we achieved positive operating cash flow.
In Q3, coupled with operating profits and efficient working capital management, we achieved positive operating cash flow.
Speaker 6: This is our fifth consecutive quarter of positive operating cash flow and we expect to continue with this positive operating cash flow trajectory into coming quarters.
This is our fifth consecutive quarter of positive operating cash flow and we expect to continue with this positive operating cash flow trajectory into coming quarters.
Speaker 6: Since Q2 2023, we started to retire part of our short-slash-long-term debt portfolio and retired 35 million of debt.
This Q2 'twenty to 'twenty three we started to retire part of ours short plus long term debt portfolio and the retired $35 million of debt.
Speaker 6: In Q3, we continue to reduce our debt levels by another RMB117 million.
In Q3, we continued to reduce our debt levels right in another RMB $117 million.
Speaker 6: As our operating cash flow continues to strengthen, we intend to do more in the coming quarter.
Our operating cash flow continues to strengthen we intend to do more in the coming quarters.
Speaker 6: Furthermore, by the end of September 30, we had repurchased shares worth US$12.3 million.
Furthermore, by the end of September 30, we have repurchased shares worth U S dollars $12 3 million.
Speaker 6: We remain committed to continuing our buyback program in the fourth quarter, underscoring our confidence in the company's future and our commitment to delivering long-term value to our shareholders.
We remain committed to continuing our buyback program in the fourth quarter.
The scoring our confidence in the company's future and our commitment to delivering long term value to our shareholders.
Speaker 6: Looking to the future, our revenue guidance for Q4 is projected to be in the range of RMB 600 to RMB 850 million.
Looking into the future our revenue guidance for Q4 is projected to be in the range of RMB 600.
It'd be $850 million.
Speaker 6: We anticipate that the trend of quarter-over-quarter growth in self-branded product sales will continue.
We tend to we anticipate that that trend of quarter over quarter growth in self branded products.
What kind of tenure.
Speaker 6: contributing to improving overall performance.
Contributing to improving overall performance.
Speaker 6: Our focus on profitability as well as strengthening our self-branded products' performance remains unwavering.
Our focus on profitability as well as strengthening our self branded products performance.
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Speaker 6: In conclusion, the third quarter presented us with both challenges and opportunities.
In conclusion, the third quarter presented us with both challenges and opportunities.
Speaker 6: While external factors played a significant role, our strategic approach to prioritizing profitability over scale, our focus on self-branded products, and our disciplined cost management
External factors play a significant role our strategic approach to prioritizing profitability over scale, our focus our self branded products and our disciplined cost management.
Speaker 6: approach have all been instrumental to our encouraging performance and business turnaround in the third quarter.
Those have all been instrumental to our encouraging performance in business turned around in the third quarter.
Speaker 6: We're confident that these strategies will continue to deliver value to our investors and shareholders over the long term.
We're confident that these stress strategies will continue to deliver value to our investors and shareholders over the long term.
Speaker 2: Thank you all for your attention and I will now open the call for any questions you may have. Operator, please go ahead. Thank you. We'll now begin the question and answer session. For the benefit of all participants on
Thank you all for your attention and I will now open the call for any questions. You may have operator. Please go ahead.
Thank you.
We'll now begin the question and answer session for the benefit of all participants on today's call. If you wish to ask your questions to the company's management in Chinese. Please immediately repeat your question in English to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing.
The keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Nicholas Jones of Brooks investment. Please go ahead.
Yeah.
Speaker 7: Hello, thank you for taking my question. I actually have two questions. Firstly, is margin level sustainable?
Hello, and thank you for taking my question I actually have two questions.
Leslie.
It's not like a switch.
Painful.
Speaker 7: And secondly, in terms of profitability, can you sustain profitability in the fourth quarter?
Secondly in terms of profitability can you sustain profitability in the fourth quarter.
Speaker 6: Thank you, Nicolas. Let me take this to a question.
Yeah, I mean, let me take those two questions I think as we mentioned before that the.
Speaker 6: I think, as we mentioned before, the gross margin portfolio of our company is actually improved.
The gross margin portfolio of our company and it's actually improved quite a bit throughout the year you saw that our gross margin actually jumped in Q2 versus Q1 and also versus last year.
Speaker 6: quite a bit throughout the year. You saw that our gross margin actually jumped in Q2 versus Q1 and also versus last year to a high of 22%, and thereafter, in Q3, our gross margin further improved to 34%, roughly.
High of 32% and thereafter in Q3, our gross margin further improved to 34% roughly right and this is actually due to a mix of product mix improvements and retail channel mix improvement in our gross margin managed.
Speaker 6: And this is actually due to a mix of product mix improvement and retail channel mix improvement in our gross margin management. And as we head into Q4, which is traditionally the high season for our product categories.
Much.
As we head into Q4, which is traditionally the high season for.
Our product categories, and then also as I mentioned, we launched quite some new products.
Speaker 6: And then also, as I mentioned, we launched quite some new products starting from second half of this year and these new products also carry a much higher gross margin than what the old products used to carry before.
Adding from a second half of this year and these new products also carry a much higher gross margin than what the old products used to carried before.
Speaker 6: So therefore, I think given the high season in Q4, given the product mix improvement we're doing and given the relative moderate clearance activities which we're going to do, but obviously we're going to do some in Black Friday and the Christmas season to catch the cells.
Therefore, I think given the high season in Q4, given the product mix improvement, where Dewey and give us the relative moderate clearance activities, which we're going to do but obviously, we're going to do something in black Friday and Christmas season to catch the cells.
Speaker 6: We still expect that Q4 gross margin will continue at the Q3 level and maybe a little bit even further, expand further in Q4.
We still expect that Q4 gross margin will continue at the Q3 level and maybe a little bit even further expand further in in Q4.
So I think that's.
Speaker 6: should give you a feeling for the cross-margin portfolio for Q4, how that looks like.
Should give you a feeling for the gross margin portfolio for Q4, how that looks like.
With regard to the profitability in Q4, we normally don't guide on that but I think.
Speaker 6: the profitability in Q4. We normally don't guide on that, but I think as you hear I mentioned that given the high season of Q4 and the improved gross margin performance of the company, and we also intended to streamline our costs.
As you here I'd mention that given the high season of Q4 and the improved gross margin performance of the company and we also intended to streamline our cost at its current level or even lower.
Speaker 6: at its current level or even lower. We believe that this all gives us a good chance in delivering a Q4 operating income, which would allow us to continue the performance improvement trend throughout the year.
We believe that these all gives us a good chance in delivery our Q4 operating income.
Which would allow us to continue the ER performance improvement trend throughout the year.
Thanks, Steve.
Again, if you'd like to ask a question. Please press Star then one.
Speaker 2: As there are no further questions now, I'd like to turn the call back over to the company
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 3: Thank you once again for joining us today. If you have further questions, please feel free to contact the Investor Relations Department through the contact information provided on our IR website. This concludes this conference call. You may now disconnect your line. Thank you.
Thank you once again. Unfortunately today, if you have further questions. Please feel free to come pets Cats Investor Relations Department through the contact information provided on our IR website. This concludes this conference call. You may now disconnect. Your line. Thank you.
[music].
Speaker 8: Thank you.