Q2 2024 Zepp Health Corp Earnings Call

August 22, 2024

hello ladies and gentlemen thank you for standing by presentents health corporations second quarter two thousand and twenty four earnings conference call at this time all participants are in a liston only mode

Operator: Corporation's second quarter 2024 earnings conference call. At this time all participants are in a listen-only mode. Safe conference call is being recorded.

Operator: Health Corporation's second quarter, 2024, earning a conference call. At this time, all participants are in a listen-only mode. Faith conference call is being recorded.

Grace Zhang: I will now turn the call over to your host, Ms. Grace Zhang, Director of Investor Relations for the company. Please go ahead, Grace.

today's conference call is being recorded

Operator: I will now turn the call over to your host, Ms. Grace Zhang, Director of Investor Relations for the company.

grace se: i will now turn the call over to your host miss grace se director of investor relations for the company please go aheadgrade

Grace Zhang: Hello everyone, and welcome to Zepp Health Corporation's second quarter, 2020, for earnings conference call. The company's financial and operating results were issued in a press release rather than use while 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 session of the company's website at ir.seps.com.

Operator: Please go ahead, Grace.

Speaker Change: helnow over everyone and the welcome to deb health corporation's second quarter intwo thousand and twenty four earnings conference call

Speaker Change: the company's financial and operating results were issued in a press release rather than newwhile services earlier today and outposted online

Speaker Change: you can also view the earnings press release and slide refer to on this call by everyiting the ir session of the company's website at i de the com

Grace Zhang: Hello everyone and welcome to Zepp Health Corporation's second quarter 2024 earnings, conference call.

Grace Zhang: Participating in today's call are Ms. Wang Huang, our chairman of the board of directors and chief executive officer, and Ms. Leon Deng, our chief financial officer. The company's management will begin with prepared remarks, and the call will conclude with the Q&A session. Ms. Mike Yang, our Chief Operating Officer, will join us for the Q&A session.

Speaker Change: participating in today's call mr around wonglongong our chal of the board of directors and she iceductive officer and this leon them our chief financial officer

Speaker Change: the company's management will begin with prepared remarks and the call will conclude with the qandna session m to mike y our chief of grating officer will join us for the qna session

Grace Zhang: Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provision of the U.S. private security Speed to Gauge and Reform Act of 1995. Forward-looking statements involving current risks and our certainties. As such, the company's actual results may be materially different from the views expressed today.

Speaker Change: before we continue please note that today's discussion will complain forward-looking statements may under the safe harbbor provision of the u s private securities to gation reform actual ninety nin five forward-looking state mentsinvolving har and risks and al certainties

Speaker Change: as such the company's actual results may be materially different from of use express today

Grace Zhang: For the information regarding this and other risks and our certainties, included in the company's annual report on Form 20-F for the fiscal year and December 31, 2023, and other filings as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update and forward-looking statements, except as required under applicable law.

Speaker Change: for therthe information regarding this and other risks and ocertainitieses included in the company's andnual report on form twenty asked for the fiscal year end date decemberg very first chat dat ty three and other filings as filed with the u s securities and exchange commission

Speaker Change: the company does not assume any obligation to update any forward-looking statements except as required out of the cval law

Grace Zhang: Please also note that steps earnings press release and this conference call include discussions on our audited GAAP financial information, as well as our audited non-GAAP financial information. Depressedly, this contains a reconciliation of the audited non-GAAP measures to the most directly comparable GAAP barriers.

Speaker Change: please also note that steps on press release

Speaker Change: and discounted cot include discussions on our audited gaap financial information as well as our posit non-gaap financial information

Speaker Change: that thress release contains our reconciliation of the audited non-gaap measures to the timmost directly comparable gaap beers

Wang Huang: I will now turn the call over to our CEO, Mr. Wang Huang. Please go ahead. Hello, everyone. Welcome, and thank you for joining our call. To begin, I would like to provide an update on our strategic transformation. Our second quarter results aligned with expectations, with an increase in a may fit branded product sales and achieving a high growth margin despite a year-over-year decline in sales. Our net loss for the first half narrowed. With several new products stated for launch in the second half of the year, we firmly believe that the worst time of our transformation is behind us.

Speaker Change: i will now turn the call over to our ceideo mr w long longong please go ahead

Grace Zhang: The company's financial and operating results were issued in a press release rather than newswire services earlier today and are posted online.

Speaker Change: hello everyone

Speaker Change: welcome and thank you for joining alcall to begin i'would likeite youto provide an update on our strategic transformation

Grace Zhang: You can also view the earnings press release and slides referred to on this call by visiting the IR session of the company's website at irzepp.com.

Grace Zhang: Participating in today's call are Mr. Wang Huang, our Chairman of the Board of Directors and Chief Executive Officer, and Ms. Leon Deng, our Chief Financial Officer.

Speaker Change: our second quarter results alonged with expectations with an increase in a mait branded partner sales and achieving a high gth margin

Grace Zhang: The, company's management will begin with prepared remarks and the call will conclude with a Q&A session.

Speaker Change: despite a year -over-year decline sales our netlosss for the first half narrowed

Grace Zhang: Mr. Mike Yang, our Chief Operating Officer, will join us for the Q&A session.

Speaker Change: with several new products flighted for launch in the second half of the year we firmly believe that the first time of our transformation is behind enough

Grace Zhang: Before we continue, please note that today's discussion will contain forward-looking, statements made under the Safe Harbor Provision of the U.S.

Wang Huang: The progress we have achieved is centric on three key pillars. First, we are investing in new technologies, including AI, to meet the needs of our customers and maintain a competitive advantage against our peers. Second, we focus on product innovations and profitable growth. We plan to launch our hit partners during the upcoming EFA events. In addition, we are enhancing the global visibility of our amazing brandy partners through sponsorship of major sports events and partnerships with renowned athletes to expand our roster of international replic sensitive tips. Now, let's delve into the three pillars as we witness the transformative impact of AI applications in the industry.

Speaker Change: the pu the progress we have achieved is centerate on three key pillars

Speaker Change: first we are investing in new technologies including ai to meet the needs of our customers and maintain a competitiive ad advantage against our peers

Speaker Change: second we focus our on product in novations and peritable growth we plan she launch our hit parters during the upcoming eva event

Speaker Change: in addition

Speaker Change: we are enhancing the global visibility of our amazed brandy products

Speaker Change: through sponsorship of major spse events and partnership this renowned athletes to expand our roer of international recfecti

Grace Zhang: Private Securities litigation Reform Act of 1995. Forward-looking statements involving current risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today.

Grace Zhang: 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,

Speaker Change: now let de into the three pillars as we winness the transformative impact of ai applicions in the industry

Speaker: Health Corporation's second quarter, 2024, earning conference call.

Operator: Health Corporation's second quarter, 2024, earning a conference call. At this time, all participants are in a listen-only mode. Faith conference call is being recorded.

Wang Huang: According to the latest kind of lessons reports, AI is both enhancing existing use cases and creating new ones. The next second is boosting user loyalty. Zepp Health is leveraging AI to transform sports and health experiences. This quarter, we launched Zepp OS 4.0 in integrating overnight GPT-4 into our amazing smart watches for safer and more useful responses, enhancing their role as wellness companions. Key features of Zepp OS 4.0 include an upgraded Zepp Flow with intelligent language interactions and new health focus mini apps. Zepp OS 4 is now available for an amazing balance and an amazing active with support for other models coming later in 2024.

Grace Zhang: 2023, and other filings as filed with the U.S. Securities and Exchange Commission.

Grace Zhang: The company does not assume any obligation to update any forward-looking statements, except as required under applicable law.

Grace Zhang: Please also note that SEP's earnings press release and this conference call include discussions on unaudited gap financial information, as well as unaudited non-gap financial information. SEP's press release contains a reconciliation of the unaudited non-gap measures to the unaudited most directly comparable gap barriers.

Speaker: At this time, all participants are in a listen only mode.

Speaker Change: according to the latest cananalyst reports ai is both in housing existing use cases and grading new ones thenextsecondday woring user loyalty

Speaker: Faith conference call is being recorded.

Grace Zhang: I will now turn the call over to your host, Ms. Grace Zhang, Director of Investor Relations for the company.

Grace Zhang: I will now turn the call over to your host, Ms. Grace Zhang, Director of Investor Relations for the company. Please go ahead, Grace.

Speaker Change: that health is leveraging ai to transform forres and health periances

Grace Zhang: Please go ahead, Grace.

Speaker Change: this quarter

Speaker Change: we launched z os will point note in integrating over mayi gptfor into our amazed smart watches for savor and more useful responses

Speaker Change: enhancing their role as wellas companions

Grace Zhang: Hello everyone, and welcome to Zepp Health Corporation's second quarter, 2024, earning conference call.

Grace Zhang: Participating in today's call, Ms. Wang Huang, our chairman of the board of directors and chief executive officer, and Ms. Leon Deng, our chief financial officer. The company's management will begin with prepared remarks, and the call will conclude with the Q&A session.

Speaker Change: key features of thatolas p o no include and upgraded that flow this intelligent language interactions

Grace Zhang: The company's financial and operating results were issued in a press release rather than use while 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 session of the company's website at IR.sepp.com.

Speaker Change: and new he focus miniapps

Speaker Change: that os fu is now available for ammasive balance and amazive active with support for other models coming later in two thousand and twenty four

Grace Zhang: Ms. Mike Yang, our chief operating officer, will join us for the Q&A session.

Grace Zhang: Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provision of the U.S, private security speed to gauge and reform act of 1995. Forward-looking statements involving current risks and our certainties. As such, the company's actual results may be materially different from the views expressed today. For the information regarding this and other risks and our certainties, included in the company's annual report on form 20F for the fiscal year and December 31, 2023, and other filings as filed with the U.S. Security and Exchange Commission. The company does not assume any obligation to update and forward-looking statements except as required under applicable law.

Wang Huang: Moreover, our R&D team has made significant growth rules in AI technology using Zepp Flow Platform as a foundation. We plan to release a new form of AI hardware within the next six months, making a new chapter in our journey in smart, reliable technology. This upcoming releases not only demonstrated our technological strength, but also highlights our long-term approach to product innovation and market strategy. As we prepare for the upcoming EVA in Berlin. We are excited to introduce several innovative products, including the highly anticipated TREX 3 outdoor smartwatch and our new line of open, wearable stereo OWS earbuds.

Speaker Change: moreer

Speaker Change: our am has made significant prothroughes in ai technology using that flow platform as a foundation

Speaker Change: we plan to release a nail form of ai hardware busly the next six months

Speaker Change: making a new chapter in our journey in smart reable technology

Speaker Change: this upcoming releases not only demonstrated our techconological stg but also highlight how long-term approach to produ innovation and market strategy

Grace Zhang: I will now turn the call over to our CEO, Mr. Wang Huang.

Grace Zhang: Please also note that steps earnings press release and this conference call include discussions on our audited gap financial information, as well as our audited non-gap financial information. Depressedly, this contains a reconciliation of the audited non-gap measures to the most directly comparable gap barriers.

Speaker Change: as we prepare for the upcoming e in balain

Wang Huang: Please go ahead.

Speaker Change: we are excited to introduce thatveral innovative parts including the highly anticipated

Speaker Change: herex three outdodoorors mustart watch and our newline of open valable stereo ows yearbus

Grace Zhang: Participating in today's call, Ms. Wang Huang, our chairman of the Board of Directors and Chief Executive Officer, and Ms. Leon Deng, our chief financial officer.

Wang Huang: I will now turn the call over to our CEO, Mr. Wang Huang. Please go ahead. Hello, everyone. Welcome, and thank you for joining our call. To begin, I would like to provide an update on our strategic transformation. Our second quarter results aligned with expectations with an increase in a may fit branded product sales and achieving a high growth margin despite a year-over-year decline in sales are net loss for the first half narrowed. With several new products stated for launch in the second half of the year, we firmly believe that the worst time of our transformation is behind us.

Wang Huang: In recent years, we have observed a growing demand for comfort in headphone design, which has led to increased interest in open-type headphones. Market research indicates that the open headphone segment is point-toist for substantial growth, presenting a promising opportunity to see the Bluetooth headset market. This new offer, this new offering will highlight our latest advancements in hardware development. Additionally, I am pleased to announce that the smart chip jointly designed with Whale Micro-Tips, a subsidiary of Zhang Shui-Tong, which we invested in 2021, has successfully entered mass production. This state-of-the-art chip will support the Zapp OS 4.0, and will be featured in the smartwatches we launched at EVA.

Speaker Change: in recent years we have observed a growing in map for comor in patatsome design which has led you increased interest in open type patterns

Grace Zhang: The company's management will begin with prepared remarks, and the call will conclude with the Q&A session.

Grace Zhang: Ms. Mike Yang, our chief operating officer, will join us for the Q&A session.

Speaker Change: market research in theiccase that the open headpr sacment is point po for substantial growth presenting a promising opportunity seen the bruters has that market

Speaker: Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provision of the U.S, private securities to be engaged in reform act of 1995.

Speaker Change: this new offers this new offerings will highlights our ladest envancements in tw development

Speaker: Forward-looking statements involving current risks and our certainties. As such, the company's actual results may be materially different from the views expressed today. For the information regarding this and other risks and our certainties, included in the company's annual report on form 20F for the fiscal year and December 31, 2023, and other filings as filed with the U.S, securities and exchange commission.

Speaker Change: additionally i am pleased to announce that the smart ship jolly designed with whale microhiat

Speaker: The company does not assume any obligation to update and forward-looking statements except as required on their applicable law.

Speaker Change: a subsidinary of junctshhet which we invested in condtwent one has successor entero mass production

Speaker: Please also note that steps earnings press release and this conference call include discussions on our auditory gap financial information as well as our auditory-mounted gap financial information.

Speaker Change: this state of the arc ship d support of that os fofor no and willll be futured in the smart watches we launched at eva

Wang Huang: In our commitment to innovation, we are thrilled to introduce the amazing Helio Ring, our first smart ring, which complements our smartwatch lineup. Launched at CES 2024, it has received critical acclaim and will soon be available in more countries. The Helio Ring is ideal for those who prefer not to wear watches while sleeping, pairs seamlessly with a my-speed smartwatches, like the Chita Pro and Chilex Ultra, for continuous 24-7 health monitoring. It offers advanced recovery in size, and Zapp integrates data from both devices, empowering athletes to optimize their performance. With additional sizes, the Helio Ring is expanding to a broader market, driving further sales growth.

Speaker Change: in our commitment to innovation we are through to introduce the ammisbet heo ring our first smart r which which complements our smart watch line up

Speaker Change: launched at ce twent twenty four it had received critical a crane and we soon be available in more countries

Wang Huang: Now, let's delve into the three pillars as we witness the transformative impact of AI applications in the industry. According to the latest kind of lessons reports, AI is both enhancing existing use cases and creating new ones. The next second is boosting user loyalty. Zepp Health is leveraging AI to transform sports and health experiences. This quarter, we launched Zepp OS 4.0 in integrating overnight GPT-4 into our amazing smart watches for safer and more useful responses, enhancing their role as wellness companions.

Speaker Change: the heroing is idea for those who prefer natto rare watches wire leaving

Speaker Change: pairs simillessly with a mfeit smart watches like the chelepro and sheli archure for continuous twenty four seven house mitoring

Speaker Change: it offers a advanced recovery insside

Speaker Change: and that app grace d from both devices empowering athletes to optimize their performance

Speaker Change: this additional sizes the heroing is expanding to a broader market

Wang Huang: By integrating smartwatches, rings, and the upcoming OWS earbuds to launch at EVA, we have crafted a seamless user experience loop, establishing a comparing competitive advantage in a bundled sales. We anticipate these offerings we will further strengthen our market position and drive growth in the second half of the year. On the marketing front, around the time of the EFA release, we will announce a major partnership with pilots in Europe and North America. Moreover, we have expanded our roster of athletes and best ambassadors. In the second quarter, we welcomed US Olympic medalist Morgan Pierson, Italian national endurance icon, Yemen Prahan Creeper, and Chinese marathon runner Xiao Dong Wu, to our team-amacid family.

Speaker Change: driving further sales growth

Speaker Change: by integrating smart watches rings and the upcoming ooublas yearbus to launch at ifa

Wang Huang: Key features of Zepp OS 4.0 include an upgraded Zepp flow with intelligent language interactions and new health focus mini apps. Zepp OS 4 is now available for an amazing balance and an amazing active with support for other models coming later in 2024. Moreover, our R&D team has made significant growth rules in AI technology using Zepp Flow Platform as a foundation. We plan to release a new form of AI hardware within the next six months, making a new chapter in our journey in smart, reliable technology. This upcoming releases not only demonstrated our technological strength, but also highlights our long-term approach to product innovation and market strategy. As we prepare for the upcoming EVA in Berlin.

Speaker Change: we have crafted a seamless use experience loop

Speaker Change: establishing a comparing competitive advantage in a bundled sales

Speaker Change: we anticipate these offerings will further strengthen our market position and drive growth in the second half of the year

Speaker Change: on the marketing front around the time of the ea release we will announce a major

Speaker Change: partnership with hydro in europe and north america

Speaker Change: moreover we have expanded our roer of athlette embass ambassador

Speaker Change: in the second quarter we welcomed u us olympic madeadalist morgan pearson italian national indurance icon yemen peran cpper and chinese

Speaker Change: marathon runner shouttwho to our chim macsaid family

Wang Huang: These partnerships enhance our presence in the running and endurance sector and demonstrate their performance advantages of our cutting-edge smart robots. This also will be a significant step in our brand strategy, further enhancing our influence in global markets. These efforts are part of our broader strategy to increase the global visibility of our brand and partners. By aligning with prominent athletes and sports events, we continue to build a strong recognizable brand identity and create meaningful connections with consumers worldwide. Through influence in major popular countries such as China, India, and Brazil. Additionally, we achieve a breakthrough in Germany recently.

Speaker Change: these partnerships enhance our presence in the running and endurance backr and demonstrate their performance at advantages of our hting edge smart rabes

Wang Huang: We are excited to introduce several innovative products including the highly anticipated TREX 3 outdoor smartwatch and our new line of open, wearable stereo OWS earbuds. In recent years, we have observed a growing demand for comfort in headphone design, which has led to increased interest in open-type headphones. Market research indicates that the open headphone segment is point-toist for substantial growth, presenting a promising opportunity to see the Bluetooth headset market.

Speaker Change: this also will be a significant step in our brand strategy brourther inenhancing our influence in global markets

Speaker Change: these efforts are part of our broader strategy to increase the global visibility of our brand and products

Speaker Change: by aligning with prominent athletes and sports events we continue to be a strong

Speaker Change: recognizable br identity and cre meaningful connections with consumers worldwide

Wang Huang: This new offer, this new offering will highlight our latest advancements in hardware development. Additionally, I am pleased to announce that the smart chip jointly designed with whale micro-tips, a subsidiary of Zhang Shui-Tong, which we invested in 2021, has successfully entered mass production. This state-of-the-art chip will support the Zapp OS 4.0, and will be featured in the smartwatches we launched at EVA.

Speaker Change: through those brand and marketing investments we have solified our inflce in major populars countries such as china india and bazvil

Speaker Change: artionary

Speaker Change: we achieved a bracethrough in germany recently

Wang Huang: Depend our partnership with the Council in France and steadily improve our global growth margin.

Speaker Change: depend our pish this the castling in flants

Speaker Change: and steadily improve our global growth margin

Wang Huang: In conclusion, our transformation journey highlights the effectiveness of our strategic direction, with such strong focus on AI and expanding self-branded partners. These efforts combine with increased brand visibility, purchasing us for sustainable growth. As we head towards IFA in Berlin with new product releases and rising brand awareness, we anticipate continued growth momentum in the second half of the year. Thank you for your continued support and confidence in that path.

Speaker Change: in conclusion our transformation journey highlights the effectiveven ess of our strategic duction with such strong focus on ai and expanding self-branded products

Wang Huang: In our commitment to innovation, we are thrilled to introduce the amazing Helio Ring, our first smart ring, which compliments our smartwatch lineup. Launched at CES 2024, it has received critical acclaim and will soon be available in more countries. The Helio Ring is ideal for those who prefer not to wear watches while sleeping, pairs seamlessly with a my-speed smartwatches, like the Chita Pro and Chilex Ultra, for continuous 24-7 health monitoring. It offers advanced recovery in size, and Zapp integrates data from both devices, empowering athletes to optimize their performance. With additional sizes, the Helio Ring is expanding to a broader market, driving further sales growth.

Speaker Change: these efts combin increasaseed brand vability position us for sustainable growth

Speaker Change: as we had towards easa it berain with new pon releases and rising brand runis we anticipate continued to growth momentum in the second half of the year

Wang Huang: Hello, everyone.

Speaker Change: thank you for your continues apart and confidence in their house i will now to the call over to le to go over the highlights of our second quarter financial results

Leon Deng: I will now turn the call over to Leo to go over the highlights of our second quarter financial results. Thanks, Wayne. Greetings, everyone. Let me walk you through some of the key metrics of our second quarter financial results. Over the past two years, the entire consumer electronics sector has been facing significant challenges. We have observed that the pressure of discretionary spending, especially in an inflationary environment, is also creating headwinds for our operations. Additionally, major brands like Apple and Samsung offered larger-than-usual discounts during the past Prime Day in certain regions, highlighting the competitiveness of the industry landscape.

Wang Huang: Welcome and thank you for joining our call.

Wang Huang: To begin, I would like to provide, an update on our strategic transformation. Our second quarter results aligned with expectations with an increase in Amazfit branded product sales and achieving a high growth margin.

Le: thanks way and greatating everyone let me walk you through some of the key matrix of our second quarter financial results

Speaker Change: over the past two years the entire consumer electronic sector has big bing significant challenges

Speaker Change: we have observed that the pressure of discretionary spending especially in inflationary environment it also creating headwind for our operations

Speaker Change: additionally major brands like apple and samsung offered larger than jsh discounts during the past prime day in certain regions

Wang Huang: By integrating smartwatches, rings, and the upcoming OWS earbuds to launch at EVA, we have crafted a seamless user experience loop establishing a comparing competitive advantage in a bundled sales. We anticipate these offerings we will further strengthen our market position and drive growth in the second half of the year.

Speaker Change: highlighting the competitiveness of the industry landscape

Leon Deng: However, we are cautiously optimistic to see that, according to IDC research, the overall smart wearable market will return to growth in this year, with AI-enabled health insights and the Gen AI services as the growth drivers. Our focus has always been on positioning ourselves effectively in the card market. This is why we are prioritizing profitability, aiming to maximize profits from our self-rendered product sales, and continuing with the cost transformation initiatives we implemented in previous quarters. It's also worth highlighting that we entered the smart green category recently, as it represents a $2 billion-plus market that is growing at a high-double digit rate in the upcoming years.

Speaker Change: however where cautiously optimistic to see that according to idc research overall smart wearable market will return to growth in this year

Speaker Change: with ai enabled house insights until genai services as of growth drivers

Speaker Change: our focus has always been on positioning ourselves effectively in the card market

Wang Huang: On the marketing front, around the time of the EFA release, we will announce a major partnership with pilots in Europe and North America. Moreover, we have expanded our roster of athletes and best ambassadors. In the second quarter, we welcomed US Olympic medalist Morgan Pierson, Italian national endurance icon, Yemen Prahan Creeper, and Chinese marathon runner Xiao Dong Wu, to our team-amacid family. These partnerships enhance our presence in the running and endurance sector and demonstrate their performance advantages of our cutting-edge smart robots.

Speaker Change: this is why we're prioritizing probability aiming to maximize profits from our self ren produ celles and continuing with the cost transformation initiatives were implemented inimprevious quarters

Speaker Change: it s also worth highlighting that we entered the sm ring category recently as it represents a two billion dollar plus market that is growing at a high double-digit rate in the upcoming years

Leon Deng: The meticulously will be entering into the open wearable stereo earbuds segment, which will deliver substantial growth in the Bluetooth hassle market. Now, turning to sales, echoing weigh-in statement, we believe the most challenging phase of our transformation is behind us. The three key pillars driving our progress are applying new technologies, particularly with the focus on AI, product innovations with profitable growth, and enhancing global visibility through major sports sponsorship and marketing efforts. We are particularly excited about our expanding self-branded products offerings, which position us for long-term growth as a global leader in smart wearables and healthcare solutions.

Speaker Change: ultileously wewillll be entering into the openwearles zero yearabout segment

Speaker Change: which will deliver substantial growth in the blueto hele market

Wang Huang: Despite a year-over-year decline in sales, our net loss for the first half narrowed.

Speaker Change: now turning to self accalling way in statement we believe the most challening facee of our transformation it's behind us

Wang Huang: With several new products slated for launch in the second half of the year, we firmly believe that the worst time of our transformation is behind us. The progress we have achieved is centered on three key pillars. First, we are investing in new technologies, including AI, to meet the needs of our customers and maintain a competitive advantage against our peers.

Speaker Change: thethree key pillars driving our progress are applying new technologies particularly with the focus on ai

Wang Huang: Second, we focus on product innovations and profitable growth.

Wang Huang: This also will be a significant step in our brand strategy, further enhancing our influence in global markets. These efforts are part of our broader strategy to increase the global visibility of our brand and partners. By aligning with prominent athletes and sports events, we continue to build a strong recognizable brand identity and create meaningful connections with consumers worldwide. Through influence in major popular countries such as China, India, and Brazil. Additionally, we achieve a breakthrough in Germany recently. Depend our partnership with the Council in France and steadily improve our global growth margin.

Speaker Change: product innovations with profitable growth and enhancing global visibilities through major spoort sponsorship and marketing efforts

Wang Huang: We plan to launch our hit products during the upcoming IFA event.

Wang Huang: In addition, we are enhancing the global visibility of our Amazfit branded products through sponsorship of major sports events and partnerships with renowned athletes to expand our roster of international representatives.

Wang Huang: Now, let's delve into the three pillars as we witness the transformative impact of AI applications in the industry. According to the latest Canalyst reports, AI is both enhancing existing use cases and creating new ones, significantly boosting user loyalty.

Wang Huang: Zepp Health is leveraging AI to transform sports and health experiences.

Speaker Change: we are particularly excited about our expanding self-branded product offerings which position us for long-term growth as the global leader in smart wearab and health care solutions

Wang Huang: This quarter, we launched ZeppOS 4.0, integrating OpenAI's GPT-4 into our Amazfit smartwatches for safer and more useful responses, enhancing their role as wellness companions. Key features of ZeppOS 4.0 include an upgraded Zepp flow with intelligent language interactions and new health-focused mini-apps.

Wang Huang: ZeppOS 4 is now available for Amazfit Balanced and Amazfit Active, with support for other models coming later in 2024.

Wang Huang: Moreover, our R&D team has made significant breakthroughs in AI technology using Zepp flow platform as a foundation.

Wang Huang: We plan to release a new form of AI hardware within the next six months, making a new chapter in our journey in smart wearable technology. These upcoming releases not only demonstrate our technological strengths, but also highlight our long-term approach to product innovation and market strategy.

Wang Huang: As we prepare for the upcoming EVA in Berlin, We are excited to introduce several innovative products, including the highly anticipated, T-Rex 3 outdoor smartwatch and our new line of open wearable stereo OWS earbuds. In recent years, we have observed a growing demand for comfort in headphone design, which, has led to increased interest in open-type headphones. Market research indicates that the open headphone segment is poised for substantial growth, presenting a promising opportunity within the Bluetooth headset market.

Wang Huang: These new offerings will highlight our latest advancements in hardware development. Additionally, I am pleased to announce that the smart chip jointly designed with Wale, Microteeth, a subsidiary of Jiangsu Yitou, which we invested in 2021, has successfully entered mass production.

Wang Huang: This state-of-the-art chip will support ZEPP OS 4.0 and will be featured in the smartwatches, we launched at IFA.

Wang Huang: In our commitment to innovation, we are thrilled to introduce the amazing Helio Ring, our first, smart ring, which complements our smartwatch lineup. Launched at CES 2024, it has received critical acclaim and will soon be available in more, countries. The Helio Ring is ideal for those who prefer not to wear smartwatches while sleeping, pairs, seamlessly with amazing smartwatches like the Cheeto Pro and Chelex Ultra for continuous, 24-7 health monitoring.

Wang Huang: It offers advanced recovery insights, and the ZEPP app integrates data from both devices, empowering athletes to optimize their performance.

Wang Huang: With additional sizes, the Helio Ring is expanding to a broader market, driving further sales, growth.

Wang Huang: By integrating smartwatches, rings, and the upcoming OWS Earbuds to launch at IFA, we, have crafted a seamless user experience loop, establishing a comparing competitive advantage in bundled sales.

Leon Deng: For the second quarter, our overall sales aligned with our guidance, with a 6% sequential increase in our self-branded products. More than offset the decline of Xiaomi branded product sales. This positive development is a testament to the progress we have made in our transformation efforts, and we anticipate continued sequential growth in the quarters ahead. Moving on to growth margin, which can be influenced by various factors such as product mix, product launch timing, and product life cycles, including model upgrades. Despite a year-over-year decline in sales, which for a part due to the tightening of new launches screw towards the second half of 2024 and the border marker challenges, our growth margin for the quarter reached 40.3%.

Speaker Change: for the second quarter our overallourselves aligned with our guidance with a six percent sequential increase in ourself-branded products

Speaker Change: more than offset the decline of shei branded product sll

Speaker Change: this positive development is a testament to the progress we have made in our transformation efforfortts

Speaker Change: and we anticipate continued sequential growth in the quarters ahead

Speaker Change: moving on to gross bgin which can be influenced by various factors such as product mix product launch timing and product life cycles including model upgrades

Speaker Change: despite a year-over-year decline sales which for part due to the timening of new launches screw towards the second half of two thousand and twenty-four and the border maracco challenges

Wang Huang: In conclusion, our transformation journey highlights the effectiveness of our strategic direction with such strong focus on AI and expanding self-branded partners. These efforts combine with increased brand visibility, purchasing us for sustainable growth. As we head towards IFA in Berlin with new product releases and rising brand awareness, we anticipate continued growth momentum in the second half of the year. Thank you for your continued support and confidence in that path.

Leon Deng: This marks a continuation of the margin expansion we initiated in the third quarter of 2023 and represents the highest growth margin in our company's history. You've been primarily by the increased profitability of our self-rendered products. Contributing factors include that improved product mix, a higher proportion of new products, and a reduction of clearance activities. Looking ahead, together with the new product launches in the second half of the year, we are confident that this positive trend in growth margin will persist into the second half of the year, with four-year margins expected to remain at similar levels. This outcome underscores our strategic position to prioritize profitability over scale, leveraging the revenue from our self-rendered products to sustain the company's overall performance.

Speaker Change: our growth margin for the quarter reached forty point three percent

Speaker Change: this marks a continuation of the margin expansion we initiated in the third quarter of two thousand and twenty-three and represents the highest gthross marging our company's history

Speaker Change: you're going finally by the increased profitbability of our self-ren products

Speaker Change: contributing factors include improved product mix a higher proportion of new products and a reduction of clearance activities

Wang Huang: We anticipate these offerings will further strengthen our market position and drive growth, in the second half of the year.

Wang Huang: On the marketing front, around the time of the IFA release, we will announce a major, partnership with Hydrox in Europe and North America.

Wang Huang: Moreover, we have expanded our roster of athlete ambassadors.

Wang Huang: In the second quarter, we welcomed U.S. Olympic medalist Morgan Pearson, Italian national, endurance icon Yemen Barhan Cripper, and Chinese marathon runner Xiaodong Wu to our team amazing family.

Speaker Change: looking aheadat together with the new product launches in second half of the year we are confident that this positive trend in gross margin will persist into the second half of the year with full year margins expected to remain at similar levels

Wang Huang: These partnerships enhance our presence in the running and endurance sector and demonstrate, the performance advantages of our cutting-edge smart wearables.

Wang Huang: This also will be a significant step in our brand strategy, further enhancing our influence, in global markets.

Wang Huang: Through those brand and marketing investments, we have solidified our influence in major, populous countries such as China, India, and Brazil. Additionally, we achieved a breakthrough in Germany recently, deepened our partnership, with Decathlon in France, and steadily improved our global growth margin.

Wang Huang: These efforts are part of our broader strategy to increase the global visibility of our brand, and products. By aligning with prominent athletes and sports events, we continue to build a strong, recognizable, brand identity and create meaningful connections with consumers worldwide.

Wang Huang: In conclusion, our transformation journey highlights the effectiveness of our strategic, direction, with a strong focus on AI and expanding self-branded products. These efforts, combined with increased brand visibility, position us for sustainable growth.

Wang Huang: As we head towards IFA in Berlin with new product releases and rising brand awareness, we anticipate continued growth momentum in the second half of the year.

Speaker: Debt press release contains a reconciliation of the auditory-mounted gap measures to the auditory most directly comparable gap barriers.

Leon Deng: I will now turn the call over to Leo to go over the highlights of our second quarter financial results. Thanks, Wayne. Greetings, everyone.

Speaker Change: this outcome on unders scores our strategic position to prioritize profitability overscale leveraging the revenue from ourselves brrena products to sustain the company's overperformance

Wang Huang: I will now turn the call over to our CEO, Mr. Wang Huang.

Wang Huang: Please go ahead.

Leon Deng: Let me walk you through some of the key metrics of our second quarter financial results. Over the past two years, the entire consumer electronics sector has been facing significant challenges. We have observed that the pressure of discretionary spending, especially in an inflationary environment, is also creating headwinds for our operations. Additionally, major brands like Apple and Samsung offered larger than usual discounts during the past prime day in certain regions, highlighting the competitiveness of the industry landscape.

Leon Deng: Now, let's turn to cost. We remain steadfast in our commitment to cost management, continuing with the program which we began in Q3 2020 on reducing overall operating costs. In the second quarter, we maintain a regular approach on discretionary spending while investing in research and development activities and marketing expenditures to preserve our long-term sustainable growth. As a result, operating costs for the quarter were US$25.3 million, the lowest level in the past year, and is in line with our previous guidance. Our R&D expenses for the second quarter of 2024 were US$10.4 million, reflecting a 13.8% decrease year over year.

Wang Huang: Hello, everyone.

Speaker Change: now let's turn to cost

Speaker Change: we remain stead fast in our commitment co-to-cost management

Wang Huang: Welcome, and thank you for joining our call.

Speaker Change: continuing with the program which we began in q three two thousand and twenty reducing overall operating costs

Speaker Change: in the second quarter we maintained a regulous approach on discretionary spending while investing in research and development activities and marketing expenditures to preserve our long-term sustainable growth

Speaker Change: as a result operating costs for the quarter were u s dollars twenty-five popoint three million the lowest level in the past year and is in line with our privvisious guidance

Leon Deng: However, we are cautiously optimistic to see that, according to IDC research, overall smart wearable market will return to growth in this year, with AI enabled health insights and the Gen AI services as the growth drivers. Our focus has always been on positioning ourselves effectively in the card market. This is why we are prioritizing profitability aiming to maximize profits from our self-rendered product sales, and continuing with the cost transformation initiatives we implemented in previous quarters.

Speaker Change: our rd expenses for the second quarter of two thousand and twenty four were u s dollars ten point four million reflecting a thirteen point eight percent decrease year over-year

Leon Deng: This represented 25.6% of our revenue compared to 13.1% during the same period in 2023. The reduction in R&D spending was a result of our ongoing efforts to optimize resource allocation, ensuring we achieve maximum return on investment and productivity. At the same time, we're committed to investing in new technologies and suitable AI functions to maintain our competitive edge against our competitors. Selling and marketing expenses for Q2 amounted to US$10.5 million, a modest increase of 3.9% year over year. This account is for 25.8% of our revenue, up from 10.9% in the previous year. The rise was primarily driven by our strategic investments in outdoor marketing and television commercials across Europe, aimed at boosting brand awareness ahead of and during the UEFA 2024 and some Olympics in Paris.

Speaker Change: this represented twenty-five point six percent of our revenue compared to thirteen forty one percent during the same period in two thousand and twenty three

Speaker Change: the reduction rind standy was a result of our ongoing efforts to optimize resource allocation

Leon Deng: It's also worth highlighting that we entered the smart green category recently as it represents a $2 billion-plus market that is growing at a high-double digit rate in the upcoming years. The meticulously will be entering into the open wearable stereo earbuds segment, which will deliver substantial growth in the Bluetooth hassle market. Now, turning to sales, echoing weigh-in statement, we believe the most challenging phase of our transformation is behind us. The three key pillars driving our progress are applying new technologies, particularly with the focus on AI, product innovations with profitable growth, and enhancing global visibility through major sports sponsorship and marketing efforts.

Speaker Change: ensuring we achieve maximum return on investment and productivity at the same time we committed to invest in new technologies and suitable ai functions to maintain our competitive ed against our competitors

Speaker Change: selling and marketing expenses for q two amounted to u s dollars ten qualifyfive million

Speaker Change: a modest increase of three point nine percent year-over-year

Speaker Change: this accounted for twenty-five point eight percent of our revenue up from ten point nine percent in the proveit year

Speaker Change: the rights was primarily driven by our strategic investments in outdoor marketing and television commercials across europe

Speaker Change: imed at bostre brand awareness ahead and during the ua two thousand and twenty four and some olympicsx in paris

Leon Deng: In parallel, we have been enhancing retail profitability and refining our channel mix by carefully optimizing our retail channels and strategically managing our self-teams. We are committed to making smart investments in marketing and branding initiatives that will fuel our long-term growth. DNA expenses were US dollars 4.4 million in Q2, marking a 36.3% decrease year over year. These expenses represented 10.9% of our revenue compared to 7.5% in the last year. This reduction reflects our successful personal optimization initiatives and strict control over discretionary costs. Looking ahead, we remain committed to prudent cost management, aiming to keep costs at or below higher levels in the upcoming quarters.

Speaker Change: in parallel we have been enhancing retail profitability and refing our pro channel mix by carefully optimizing our retail channels and strategically managing ourselves teams

Leon Deng: We are particularly excited about our expanding self-branded products offerings, which position us for long-term growth as a global leader in smart wearables and healthcare solutions. For the second quarter, our overall sales aligned with our guidance with a 6% sequential increase in our self-branded products. More than offset the decline of Xiaomi branded product sales. This positive development is a testament to the progress we have made in our transformation efforts, and we anticipate continued sequential growth in the quarters ahead.

Speaker Change: we're committed to making smart investments in marketing and branding initiatives that will fu our long-term growth

Wang Huang: To begin, I would like to provide an update on our strategic transformation. Our second quarter results aligned with expectations with an increase in a may fit branded product sales and achieving a high gross margin despite a year-over-year decline in sales are net loss for the first half narrowed.

Speaker Change: dna expenses were u s dollars four point four million in q two marking at thirty six point three percent decrease year -over-year

Speaker Change: these c expenses represented ten point nine percent of our revenue compared to seven point five with in period last year

Wang Huang: With several new products stated for launch in the second half of the year, we firmly believe that the worst time of our transformation is behind us.

Speaker Change: this reduction reflects our successful personnel optimization initiatives and strict control over discretionary costs

Leon Deng: Moving on to growth margin which can be influenced by various factors such as product mix, product launch timing, and product life cycles, including model upgrades. Despite a year-over-year decline in sales, which for a part due to the tightening of new launches screw towards the second half of 2024 and the border marker challenges, our growth margin for the quarter reached 40.3%. This marks a continuation of the margin expansion we initiated in the third quarter of 2023 and represents the highest growth margin in our company's history.

Speaker Change: looking ahead will remain committed to prudent cost management aiming to keep costs at of be lowcal levels in the upcoming quarters

Leon Deng: Despite reporting the operating loss this quarter largely attributable to cost coverage issues, when we consider the first half of 2024 as a whole, despite lower sales and since the higher growth margin and tightly controlled cost levels, we have narrowed the net income loss by 15% versus the same period last year.

Speaker Change: despite reporting the operating loss this quarter largely attributable to cost coverage issues

Speaker Change: while we consider the first half of two thousand and twenty four as a whole des sp lower sales cess to higher growth margin a entirely controlled cost levels we have narrowed to the net income lo by fifteen percent versus the same period last year

Leon Deng: Turning on to balance sheet, we continue to manage our working capital effectively. Our inventory levels at the end of Q2 were lower than Q1, marking the lowest level in the company's history. We will maintain this discipline to work in capital approach in subsequent quarters. Our cash fund stands at US dollars 129 million by the end of Q2, consistent with the first quarter's cash level, despite the quarterly losses. This strong cash position equips us with the necessary sources to see potential market opportunities and invest strategically in future growth. In Q1 2023, we have initiated the retirement of our short flash long-term debt portfolio.

Speaker Change: not turning on to balance sheet we continue to manage our working capital effectively

Leon Deng: You've been primarily by the increased profitability of our self-rendered products. Contributing factors include that improved product mix, a higher proportion of new products, and a reduction of clearance activities. Looking ahead, together with the new product launches in second half of the year, we are confident that this positive trend in growth margin will persist into the second half of the year, which four-year margins expected to remain at similar levels. This outcome underscores our strategic position to prioritize profitability over scale, leveraging the revenue from our self-rendered products to sustain the company's overall performance.

Speaker Change: our inventory levels at the end of q two were lower than q one marking the lowest level in the company's history

Speaker Change: while maintain this disciplined to working capital approach in subsequent quarters

Speaker Change: our cash fund stands at u s dollars one hundred and twenty nine million by the end of q two consistent with the first quarter's cash level despite the quarterly losses

Speaker Change: this strong cash position equips us with the necessary resources to se potential market opportunities and invest strategically future growth

Speaker Change: in two two thousand and twenty three we have initiated the retirement of our short flash long term deb portfolio

Leon Deng: Since then, and including Q2 2024, we have successfully retired US dollars 55.2 million of debt. As our operating cash flow continues to strengthen in the second half, we will continue to optimize the kept structure for the company. In line with our commitment to deliver long-term value to our shareholders, we will proceed with our share buy-back program throughout 2024. This initiative underscores our confidence in the company's future and our dedication to enhancing shareholders' value.

Speaker Change: since then an including q two two thousand and twenty-four we have successfully retired u s dollars fifty-five point two mter of thatbt

Speaker Change: as our operating cash flow continues to strengthen in second half who will continue to optimize the capital structure for the company

Speaker Change: in line with our commitment to deliver long-term value to our shareholders will proceed with our share by back program throughout two thousand and twenty four

Speaker Change: this initiatives of this courort our confidence in the company's future and our dedication to enhancing shareholders value

Leon Deng: Looking ahead, on the third quarter of 2024, we're guiding a revenue in the range of US dollars 45 million to US dollars 60 million. It represents an 18% to 59% growth on the revenue of self-renate products compared with Actio Q2 2024. We're confident in our ability to build on the momentum we have generated to drive for the growth and profitability in the quarters to come.

Speaker Change: looking ahead on the third quarter of two thousand and twenty four were guiding a revenue in the range of u s dollars forty five million to s dollars sixteen million

Leon Deng: Our R&D expenses for the second quarter of 2024 were US$10.4 million, reflecting a 13.8% decrease year over year. This represented 25.6% of our revenue compared to 13.1% during the same period in 2023. The reduction in R&D spending was a result of our ongoing efforts to optimize resource allocation, ensuring we achieve maximum return on investment and productivity. At the same time, we're committed to investing in new technologies and suitable AI functions to maintain our competitive edge against our competitors.

Speaker Change: it represents eighteen percent to fifty-nine percent growth on the revenue of self-renit products compare with actual q two two thousand and twenty-four

Speaker Change: we're confidently our ability to build our the momentum we have generated to drive forurther growth and profitability in the quarters to come

Leon Deng: Thank you once again for your time and continued support as we now open the line for any questions.

Wang Huang: Thank you for your continued support and confidence in ZAP Health.

Leon Deng: I will now turn the call over to Leon to go over the highlights of our second quarter, financial results.

Leon Deng: Thanks, Wei En.

Speaker Change: thank you once again for your time and continued support i would now open the line for any questions operators please go ahead

Leon Deng: Greetings, everyone.

Operator: Operators, please go ahead. Thank you. We will now begin the question and answer session. To ask the question, you may press star, then one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two.

Wang Huang: The progress we have achieved is center it on three key pillars. First, we are investing in new technologies including AI to meet the needs of our customers and maintain a competitive advantage against our peers.

Leon Deng: We have observed that the pressure of discretionary spending, especially in an inflationary environment, is also creating headwinds for our operations.

Leon Deng: Additionally, major brands like Apple and Samsung offered larger than usual discounts, during the past prime day in certain regions, highlighting the competitiveness of the industry landscape.

Leon Deng: However, we are cautiously optimistic to see that, according to IDC research, overall smart, wearable market will return to growth in this year, with AI-enabled health insights and the Gen AI services as the growth drivers.

Leon Deng: Our focus has always been on positioning ourselves effectively in the current market. This is why we are prioritizing profitability, aiming to maximize profits from our self-branded, product sales, and continuing with the cost transformation initiatives we implemented in previous quarters.

Speaker Change: thank you we will now begin the question and answer session

Leon Deng: It's also worth highlighting that we entered the smart ring category recently, as it represents, a $2 billion-plus market that is growing at a high double-digit rate in the upcoming years.

Leon Deng: Simultaneously, we'll be entering into the open wearable stereo earbud segment, which, will deliver substantial growth in the Bluetooth headphone market.

Leon Deng: Now turning to sales, echoing Wayne's statement, we believe the most challenging phase of our, transformation is behind us.

Leon Deng: The three key pillars driving our progress are applying new technologies, particularly, with a focus on AI, product innovations with profitable growth, and enhancing global visibility through major sponsorship and marketing efforts.

Leon Deng: We are particularly excited about our expanding self-branded product offerings, which, position us for long-term growth as a global leader in smart wearables and healthcare solutions. For the second quarter, our overall sales aligned with our guidance, with a 6% sequential, increase in our self-branded products, more than offset the decline of Xiaomi-branded product sales.

Speaker Change: to ask a question you may press star than one on or touch h s

Leon Deng: This positive development is a testament to the progress we have made in our transformation, efforts, and we anticipate continued sequential growth in the quarters ahead.

Leon Deng: Moving on to gross margin, which can be influenced by various factors such as product mix, product, launch timing, and product life cycles, including model upgrades.

Leon Deng: Selling and marketing expenses for Q2 amounted to US$10.5 million, a modest increase of 3.9% year over year. This account is for 25.8% of our revenue up from 10.9% in the previous year. The rise was primarily driven by our strategic investments in outdoor marketing and television commercials across Europe, aimed at boasting brand awareness ahead and during the UEFA 2024 and some Olympics in Paris. In parallel, we have been enhancing retail profitability and refining our channel mix by carefully optimizing our retail channels and strategically managing our self-teams.

Leon Deng: Despite a year-over-year decline in sales, which fall apart due to the timing of new, launches skewed towards the second half of 2024 and the border Markov challenges, our gross margin for the quarter reached 40.3%. This marks a continuation of the margin expansion we initiated in the third quarter of 2023, and represents the highest gross margin in our company's history. Driven primarily by the increased profitability of our self-rented products, contributing, factors include improved product mix, a higher proportion of new products, and a reduction of clearance activities.

Leon Deng: Looking ahead, together with the new product launches in the second half of the year, we, are confident that this positive trend in gross margin will persist into the second half of the year, with four-year margins expected to remain at similar levels. This outcome underscores our strategic position to prioritize profitability over scale, leveraging, the revenue from our self-rented products to sustain the company's overall performance.

Speaker Change: if you are using a speaker phone please pick up your handsset before pressing the keys

Speaker Change: if at any time your question has been addressed and you would like to withdraw your question please pressstar then to

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

Leon Deng: Now let's turn to costs. We remain steadfast in our commitment to cost management, continuing with the program which, we began in Q3 2020 on reducing overall operating costs. In the second quarter, we maintained a rigorous approach on discretionary spending while investing, in research and development activities and marketing expenditures to preserve our long-term sustainable growth. As a result, operating costs for the quarter were US dollars $25.3 million, the lowest, level in the past year, and is in line with our previous guidance. Our R&D expenses for the second quarter of 2024 were US dollars $10.4 million, reflecting, a 13.8% decrease year-over-year.

Leon Deng: This represented 25.6% of our revenue, compared to 13.1% during the same period in 2023.

Speaker Change: at this time will pause momentarily to assemble our roster

Wang Huang: We plan to launch our hit partners during the upcoming ESA event.

Sid Rajeev: The first question today comes from Sid Rajeev with Fundamental Research Corp.

Leon Deng: The reduction in R&D spending was a result of our ongoing efforts to optimize resource, allocation, ensuring we achieve maximum return on investment and productivity.

Freddie: thefirst question today comes from f regjie with fundamental research court please go ahead

Leon Deng: At the same time, we're committed to invest in new technologies and suitable AI functions, to maintain our competitive edge against our competitors.

Sid Rajeev: Please go ahead. Hi. So, first of all, great to see the spike in sequential sales growth of self-renate units. But I guess the real surprise was the continued improvement in growth margins. What's really driving this? Is it higher product prices, cost optimization, or something else? I know you gave some reasons, but I'm trying to find out what exactly or what's the main reason for this increase.

Leon Deng: Selling and marketing expenses for Q2 amounted to US dollars $10.5 million, a modest increase, of 3.9% year-over-year.

Leon Deng: This accounted for 25.8% of our revenue, up from 10.9% in the previous year. The rise was primarily driven by our strategic investments in outdoor marketing and television, commercials across Europe, aimed at boostering brand awareness ahead and during the UEFA, 2024 and Summer Olympics in Paris.

Reggie: hiso first of our great to see the spike in sequential sales growth of cell banner units but i guess the real surprise was the continued improvement in gross margins

Wang Huang: In addition, we are enhancing the global visibility of our amazing brandy partners through sponsorship of major sports events and partnership with renowned athletes to expand our roster of international events.

Leon Deng: We are committed to making smart investments in marketing and branding initiatives that will fuel our long-term growth. DNA expenses were US dollars 4.4 million in Q2, marking a 36.3% decrease year over year. These expenses represented 10.9% of our revenue compared to 7.5% in the last year. This reduction reflects our successful personal optimization initiatives and strict control over discretionary costs. Looking ahead, we remain committed to prudent cost management aiming to keep costs at or below higher levels in the upcoming quarters.

Speaker Change: wellwhat's really driving this is a higher product prices cost optimization or something else i know you give some reasons so trying to find out what exactly or what's the main reason for this increase and the second thing is with new product launches

Sid Rajeev: And the second thing is, with new product launches, can you bring it up to the 45 to 50 percent range?

Wang Huang: Now, let's delve into the three pillars as we witness the transformative impact of AI applications in the industry. According to the latest kind of reports, AI is both enhancing existing use cases and creating new ones.

Speaker Change: can you bring it up to the forty five fifty percent lange

Wang Huang: Yeah, Sid. Thank you very much. I think let me start with the easy ones. I think where we have, as you heard from Wales script, we have a lot of exciting new product launches lined up for the upcoming month, especially in IFA. You heard about the OWS ear buds, you heard about the new T-Rex watches, and you also heard about the ring. And we also have some exciting innovations on the way. So, yes, and all of these products will carry a very healthy growth margin to the magnitude of over 45 or 50 percent, depends on the product line we're talking about.

Speaker Change: yeah it thank you very much i think 's let me start with a you do once i think where we have

Wang Huang: The next secondly, boosting user loyalty.

W: as you hheardt from w and script

Wang Huang: Zepp Health is leveraging AI to transform sports and health experiences.

Speaker Change: we have a lot of exciting new product launches

W: lined up

Speaker Change: for the upcoming months especially ifa you heard about the o w

Wang Huang: This quarter, we launched ZeppOS 4.0 in integrating overnight GPT 4 into our amazing smart watches for safer and more useful responses, enhancing their role as wellness companions. Key features of ZeppOS 4.0 include an upgraded Zepp Pro with intelligent language interactions and new health focus mini apps.

Speaker Change: your bos you heard about the new qx

Speaker Change: watchers

Wang Huang: ZeppOS 4 is now available for amazing balance and amazing active with support for other models coming later in 2024.

Speaker Change: and you also heard about the rig and we also to have some exciting innovations on the way

Speaker Change: right

Speaker Change: so yes and all of these products will carry a very healthy gross margin

Speaker Change: to the magnitude of over forty-five or fifty percent depends on the product line we're talking about

Wang Huang: So these are the new product launches, which is due for the second half of this year. And that's also coming back to your first question. That's also one of the reasons that, which drives the growth margin of the company, continuously improved quarter on quarter for the past four quarters.

Speaker Change: so these are the new product llaunchest which is

Wang Huang: Moreover, our IT team has made significant breakthroughs in AI technology using Zepp Flow Platform as a foundation.

Leon Deng: Turning on to balance sheet, we continue to manage our working capital effectively. Our inventory levels at the end of Q2 were lower than Q1, marking the lowest level in the company's history, will maintain this discipline to work in capital approach in subsequent quarters. Our cash fund stands at US dollars 129 million by the end of Q2 consistent with the first quarter's cash level, despite the quarterly losses. This strong cash position equips us with the necessary sources to see potential market opportunities and invest strategically in future growth.

Speaker Change: due for the second half of this year

Wang Huang: We plan to release a new form of AI hardware between the next six months, making a new chapter in our journey in smart, reliable technology.

Speaker Change: and that's also coming back to your first question

Speaker Change: that's also one of the reasons that which drives the gross margin of the company continuously improved quarter on quarter for the past four quarters

Wang Huang: Rajeev. I think to a big part, this is coming from optimizing the product mix, but also it's like I said, I mean more new products which has been launched recently, less products which is clearance; that definitely helps our overall growth margin performance. On the other hand, we're also doing retail channel mix. For example, we cut the bleaders on those channels which doesn't make money. And by doing so through optimizing the retail channel mix as well as our product mixes together with the new product launches which is lined up in the second half of the year, we're confident that we can continue on the growth margin improvement trend for the upcoming quarters.

Wang Huang: This upcoming releases not only demonstrated our technological strength but also highlights our long-term approach to broader innovation and market strategy.

Speaker Change: i think to a big part this is coming from optimizing the product mix

Speaker Change: but also it is like asset i mean more new products which has been launched recently less products which is clearance that definitely helps our overall gross margin performance

Leon Deng: In parallel, we have been enhancing retail profitability and refining our channel mix, by carefully optimizing our retail channels and strategically managing our sales teams.

Leon Deng: We're committed to making smart investments in marketing and branding initiatives that, will fuel our long-term growth.

Leon Deng: D&A expenses were U.S. dollars $4.4 million in Q2, marking a 36.3% decrease year over, year. These expenses represented 10.9% of our revenue, compared to 7.5% in the same period last year. This reduction reflects our successful personnel optimization initiatives and strict control, over discretionary costs.

Leon Deng: In Q1 2023, we have initiated the retirement of our short flash long-term debt portfolio. Since then, and including Q2 2024, we have successfully retired US dollars 55.2 million of debt. As our operating cash flow continues to strengthen in second half, we will continue to optimize the kept structure for the company. In line with our commitment to deliver long-term value to our shareholders, we will proceed with our share-by-back program throughout 2024. This initiative underscores our confidence in the company's future and our dedication to enhancing shareholder's value.

Leon Deng: Looking ahead, we remain committed to prudent cost management, aiming to keep costs at or, below current levels in the upcoming quarters.

Speaker Change: on the other hand we're also doing retail channel mix for example we cut the bleeders on those channels which doesn't make money

Speaker Change: right

Speaker Change: and by doing so through optimizing the retail channel mix as well as

Speaker Change: our product mixes together with the new product launches which is lined up in the second half of the year we're confident that we can continue on the gross margin improvement trendds for the upcoming quarters

Sid Rajeev: Okay, so my next question is: you have a lot of new products planned. So to make it easier for us to track, are you able to give us a number as in how many new products or upgraded products planned this year? Was it last year? I think we have at least three, if not four products which are scheduled to be launched in the second half of the year. And last year, it's in period. I think we have two products if I remember clearly. Okay. And then the first half of this year, you had two versus Lane.

Speaker Change: okay so my next question is you have a lot of new products planned so to make it easier for us to track are you able to give us a number as in how many new products or updade products planned this year was last year

Speaker Change: i think we have a leafast

Speaker Change: three is not four products

Speaker Change: which are scheduled to be launched in the second half of the year and last year it's period i think we have two products if i remember clearly

Speaker Change: okay and then the first half of this year you had two once like was a day the first half of this year we only had

Sid Rajeev: No, the first half of this year we only had one. Yeah, you can count one and a half because we launched the big five unity, which is a different variable of the big five. Yes, yes. Okay.

Speaker Change: one yeah you can count one one and half because we launched the bit five unity which is a different variables of the bits five

Operator: Operators, please go ahead. Thank you. We will now begin the question and answer session. To ask the question, you may press star than one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star than two. At this time, we'll pause momentarily to assemble our roster.

Wang Huang: And then I know you don't provide segment eleven year by region, but did you notice any material change in sales in any region particularly? No, I think I think we have told you before that the United States still remains as a region whereby we see a lot of potential growth from. And also, we have seen some breakthroughs in Europe, like what the way I mentioned in Germany and France. We have worked with the key accounts such as Deaconal in those countries. And in Asia Pacific, specifically in China, we have seen very good growth from China, and we have put a lot of marketing efforts to promote that as well.

Speaker Change: okay and then i know you don't provide segmental revenue by region but did you notice any material change in sales in any region particularly

Speaker Change: quar though i think i think we have co you before that

Speaker Change: united states still remains as a region whereby we see a lot of potential growth from

Speaker Change: and also we have seen some breaksthroughs in europe like what way mentioned in germany in france and we have worked with the key accounts such as cano in those countries

Siddharth Rajeev: The first question today comes from Sid Rajeev with Fundamental Research Corp. Please go ahead. Hi. So, first of all, great to see the spike in sequential sales growth of self-renate units. But I guess the real surprise was the continued improvement in growth margins. What's really driving this? Is it higher product prices, cost optimization or something else? I know you gave some reasons, but I'm trying to find out what exactly or what's the main reason for this increase. And the second thing is with new product launches, can you bring it up to the 45 to 50 percent range? Yeah, Sid, thank you very much.

Speaker Change: and in asia pacific specifically in china we have seen very good growth from from from china and we have putting a lot of marketing efforts to promote that as well

Sid Rajeev: Thank you, Leon.

Sid Rajeev: And just one one question.

Leon Deng: Finally, do you provide an update on the status with NYC given the noncompliance notice you received a few months back? Oh, yeah. So we have ultimately until October 31st to rectify this issue. And we, as we have communicated before, are committed to resolve this through either organically the share price to push about $1 or, if needed, a reverse split. So we're confident that before that date, we will regain the compliance.

Speaker Change: thank you leon and just one question finally did you provide an update on the status with nc given the noncompplainance notice you'llreceived a few months back

Speaker Change: yeah so we have ultimately the until october thirty first to rectifvye this this issue and we as we have communicated before we are committed to resolve this

Leon Deng: I think let me start with the easy ones. I think where we have, as you heard from Wales script, we have a lot of exciting new product launches lined up for the upcoming month, especially in IFA. You heard about the OWS ear buds, you heard about the new T-Rex watches, and you also heard about the ring. And we also have some exciting innovations on the way. So, yes, and all of these products will carry a very healthy growth margin to the magnitude of over 45 or 50 percent, depends on the product line we're talking about.

Wang Huang: As we prepare for the upcoming event in Berlin. We are excited to introduce several innovative products, including the highly anticipated TREX 3 outdoor smartwatch and our new line of open, available stereo OWS earbuds. In recent years, we have observed a growing demand for comfort in headphone design, which has led to increased interest in open-type headphones.

Speaker Change: through either organically the the share vice to push above one dollars or or if needed a riverse split

Wang Huang: Market research indicates that the open headphone segment is point-to-point for substantial growth, presenting a promising opportunity to see the Bluetooth headset market.

Speaker Change: the we're confident that before that date will be regain the compliance

Sid Rajeev: Rajeev. Thank you, Leon. Thank you, good.

Lio: appreci thank you lio

Wang Huang: This new offers these new offerings will highlight our latest advancements in hardware development.

Nicolette Jones: The next question comes from Nicolette Jones with Brooks Investment. Please go ahead. Hi, Management. Thank you for taking my questions. I just have two questions.

Speaker Change: he's said

nicollette jones: and act question comes from nicollette jones with brooks investment please go ahead

Wang Huang: Additionally, I am pleased to announce that the smart chip jointly designed with whale micro-tips, a subsidiary of Zhang Xiu Yitong, which we invested in 2021, has successfully entered mass production.

nicollette jones: hi management thank you for taking my questions i could have few questions

Nicolette Jones: I'd also like to dig in a little bit more about the new product map and some of your thinking behind your product decisions. And then, in addition, I'd like to find out more information on the net income trend.

nicollette jones: i'd also like to just beg in a little bit more about the new product map and some of your thinking behind your product decision and then in a d and i'd like to find out more information on the net income trend

Leon Deng: So these are the new product launches, which is due for the second half of this year. And that's also coming back to your first question. That's also one of the reasons that, which drives the growth margin of the company, continuously improved quarter on quarter for the past four quarters. Rajeev. I think to a big part, this is coming from optimizing the product mix, but also it's like I said, I mean more new products which has been launched recently, less products which is clearance that definitely helps our overall growth margin performance.

Wang Huang: This state of the art chips the support of Zapp OS 4.0, and will be featured in the smartwatches we launched at EVA.

Wang Huang: In our commitment to innovation, we are thrilled to introduce the amazing Helio ring, our first smart ring, which compliments our smartwatch lineup. Launched at CES 2024, it has received critical acclaim and will soon be available in more countries.

Leon Deng: Oh, okay. Now, maybe I take the easy ones, Nicolas. Obviously, the net income trend you have noticed that it has been on uptrend quarter on quarter; it's improving. If you look at the first half of this year, the net income, obviously, it's much better than the same period of last year. I think it was an improvement of 15% to that magnitude. And we are actually looking or targeting at improvement also for a second half of this year. So hopefully throughout the year, we can come back to profitability. That's always the target, which we have been striving for.

Wang Huang: The Helio ring is ideal for those who prefer not to wear watches while sleeping. Pairs, seamlessly, with a my-speed smartwatches, like the Chita Pro and Chilex Ultra, for continuous 24-7 health monitoring.

Leon Deng: Despite reporting the operating loss this quarter, largely attributable to cost coverage, issues, when we consider the first half of 2024 as a whole, despite lower sales and sense to higher gross margin and tightly controlled cost levels, we have narrowed the net income loss by 15% versus the same period last year.

Speaker Change: okay now maybe i think the easy ones nicholas obviously the net income trend you have noted that

Leon Deng: Now turning onto balance sheet, we continue to manage our working capital effectively. Our inventory levels at the end of Q2 were lower than Q1, marking the lowest level in, the company's history. We will maintain this disciplined working capital approach in subsequent quarters.

Leon Deng: Our cash balance stands at U.S. dollars $129 million by the end of Q2, consistent with, the first quarter's cash level, despite the quarterly losses. This strong cash position equips us with the necessary resources to seize potential market, opportunities and invest strategically in future growth.

Leon Deng: In Q1, 2023, we have initiated the retirement of our short-slash-long-term debt portfolio. Since then, and including Q2, 2024, we have successfully retired U.S. dollars $55.2 million, of debt.

Leon Deng: As our operating cash flow continues to strengthen in Q2, we will continue to optimize the capital, structure for the company.

Leon Deng: In line with our commitment to deliver long-term value to our shareholders, we will proceed, with our share-by-back program throughout 2024. This initiative underscores our confidence in the company's future and our dedication, to enhancing shareholders' value.

Leon Deng: Looking ahead, on the third quarter of 2024, we're guiding revenue in the range of U.S, dollars $45 million to U.S. dollars $60 million. It represents an 18% to 59% growth on the revenue of self-funded products compared with, actual Q2 2024. We're confident in our ability to build on the momentum we have generated to drive further, growth and profitability in the quarters to come.

Wang Huang: It offers advanced recovery in size, and Zapp integrates data from both devices, empowering athletes to optimize their performance.

Leon Deng: Thank you once again for your time and continued support.

Speaker Change: it has been otrend

Speaker Change: court quarter is improving if you look at the first half of this year the netincome obviously it this much better than the same period of last year i think it was a improvement of fifteen percent to that magnitude and we are actually looking or targeting at improvement also for a second half of this year the hopefully throughout the year we can come back

Leon Deng: On the other hand, we're also doing retail channel mix. For example, we cut the bleaders on those channels which doesn't make money. And by doing so through optimizing the retail channel mix as well as our product mixes together with the new product launches which is lined up in the second half of the year, we're confident that we can continue on the growth margin improvement trend for the upcoming quarters. Okay, so my next question is, you have a lot of new products planned.

Speaker Change: to profitability that's always the target which we have been striving for

Leon Deng: I will now open the line for any questions.

Wang Huang: And coming back to your first question on the new products and the thinking behind it, I think you have heard us saying that in the upcoming EFA, which is in September, we're going to launch a new watch, our most popular outdoor smartwatch, T-Rex. It's up for an update. I mean, it's actually a lot of new functionalities that will be added to that watch. And we are also going to launch a new OWS earbuds. OWS is a very popular concept. It's basically talking about open and headset, which you can wear without feeling it. It's very different from the AirPods, which is made by Apple.

Speaker Change: and m coming back to your to your first question on the new products and the thinking behind it

Operator: Operators, please go ahead.

Operator: Thank you.

Speaker Change: i think you have heard us saying that in the upcoming ifa which is in september we're going to launch a new watch

Wang Huang: With additional sizes, the Helio ring is expanding to a broader market, driving further sales growth.

Leon Deng: So to make it easier for us to track, are you able to give us a number as in how many new products or upgraded products planned this year? Was it last year? I think we have at least three, if not four products which are scheduled to be launched in the second half of the year. And last year, it's in period. I think we have two products if I remember clearly. Okay. And then the first half of this year you had two versus Lane.

Speaker Change: our most popular outdoor smart watch txs is' up for a nupdate and s actually a lot of new proxalities will be added to that watch

Operator: We will now begin the question and answer session.

Operator: To ask a question, you may press star then one on your touchtone phone.

Speaker Change: and we are also going to launch

Speaker Change: a new awws year but oh ws it's a very popular concept it's basically talking about open and asset which you can wear without feeling itright it's very different from the airports

Wang Huang: We anticipate these offerings will further strengthen our market position and drive growth in the second half of the year.

Wang Huang: On the marketing front, around the time of the EFA release, we will announce a major partnership with pilots in Europe and North America.

Wang Huang: So we think, and according to the market research, the OWS earbuds are going to be a fast growing segment in the Bluetooth headset market in the upcoming years. So we are quite excited to have that product add to our lineup.

Speaker Change: which which is made by apple so we think and according to the market research the o ws airps is going to be a fast growing segment in the bluetoo has set market in the upcoming years

Wang Huang: Moreover, we have expanded our roster of athletes and fast ambassadors.

Wang Huang: In the second quarter, we welcomed US Olympic, Madalys, Morgan, Pearson, Italian National Indurance Icon, Yemen, Prahan, Creeper, and Chinese marathon runner Xiao Dong Wu to our team-amacid family. These partnerships enhance our presence in the running and endurance sector and demonstrate their performance advantages of our cutting-edge smart robots.

Leon Deng: No, the first half of this year we only had one. Yeah, you can count one and a half because we launched the big five unity which is a different variable of the big five. Yes, yes. Okay. And then I know you don't provide segment eleven year by region, but did you notice any material change in sales in any region particularly? No, I think I think we have told you before that United States still remains as a region whereby we see a lot of potential growth from.

Operator: If you are using a speakerphone, please pick up your handset before pressing the keys.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then two.

Wang Huang: This also will be a significant step in our brand strategy, further enhancing our influence in global markets.

Speaker Change: so we are quite excited to have that product add to our lineup

Wang Huang: And you also heard that we have the Helio Rain. And we're going to put Helio Rain into more geographies and also into more sizes, especially the smaller sizes, which are more tailored for the mass market and mass consumers. So I think we are going to be one of the only players, if not the only players, who have the smartphone, couples with the rain, couples with the OWS headphones, and maybe some other phone factors, because we have always been saying that we're trying to offer a full suite of wearable devices, smart wearable devices, so that our users can have a one-stop shop on better controlling and understand their health conditions.

Speaker Change: and you have heard that we have the helio rain

Wang Huang: These efforts are part of our broader strategy to increase the global visibility of our brand and partners. By aligning with prominent athletes and sports events, we continue to build a strong, recognizable brand identity and create meaningful connections with consumers worldwide.

Speaker Change: and we're going to put hallioary into more geographies and also into more exises especially the smaller sies which are more tailored for the mass market and mass consumers

Speaker Change: so i think we are going to be well lost the only player is not the only players who has the smartle

Leon Deng: And also, we have seen some breakthroughs in Europe, like what the way I mentioned in Germany in France, we have worked with the key accounts such as Deaconal in those countries. And in Asia Pacific, specifically in China, we have seen very good growth from China and we have put a lot of marketing efforts to promote that as well. Thank you, Leon.

Speaker Change: couples with the rain

Speaker Change: couples with the ods hele

Speaker Change: and maybe some otherful factors because we have always been saying that we're trying to offer a full ssuite of

N/A: And just one one question.

Wang Huang: Through those brands and marketing investments, we have solidified our influence in major popular countries such as China, India, and Brazil.

Speaker Change: awareable devices notart wearable devices so that our users can have a we dog shop better controlling and understand their health conditions

Wang Huang: Rajeev. I think this is always the concept of what we try to bring this company to. We want to be a smart, wearable player, not only restricted to smart watch per se, and we want to offer a complete suite of healthcare services to the users. So that's the whole theme behind what we did, the new products which we're going to launch. I'm not sure if I answered your question correctly, or... Yeah, no, that's really informative. That's, to me, there's much more color. Okay.

Wang Huang: Additionally, we achieved a breakthrough in Germany recently.

Speaker Change: so i think it's this is

Speaker Change: always

Speaker Change: the concept what we try to bring this company do so we want to be

Wang Huang: Depend our partnership with the Council in France and steadily improve our global growth margin.

Leon Deng: Finally, do you provide an update on the status with NYC given the noncompliance notice you received few months back? Oh, yeah. So we have ultimately the until October 31st to rectify this issue. And we, as we have communicated before, we are committed to resolve this through either organically the share price to push about $1 or if needed a reverse split. So we're confident that before that date will be regain the compliance. Rajeev.

Wang Huang: In conclusion, our transformation journey highlights the effectiveness of our strategic direction, with such strong focus on AI and expanding self-branded partners.

Speaker Change: sm wearable a player not only restricted to smart watch per se and then where what we want to offer a complete suite of health care services to the users

Speaker Change: so that's the whole thing behind what the new products which we are going to launch

Speaker Change: not sure any by answer your question correctly or yet no that's really informative that to le is much more color

Nicolette Jones: Thank you.

Grace Zhang: As there are no further questions, I'd like to turn the call back over to the company's IR director, Grace Zhang, for any closing remarks. Thank you once again for joining us today. If you have further questions, please feel free to contact the Health Master Relations Department through the contact information provided on our IR website. Thank you.

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

Speaker Change: i

Operator: The first question today comes from Sid Rajiv with Fundamental Research Corp.

Sid Rajiv: Please go ahead.

Speaker Change: thank you

Sid Rajiv: Hi.

N/A: Thank you, Leon. Thank you, good.

Speaker Change: there are no further questions i'd like to turn the call back over to the company's i our director great sean for any closing remarks

Sid Rajiv: So, first of all, great to see the spike in sequential sales growth of self-branded units.

Leon Deng: No, the first half of this year, we only had one.

Sid Rajiv: But I guess the real surprise was the continued improvement in gross margins.

Sid Rajiv: What's really driving this?

Sid Rajiv: Is it higher product prices, cost optimization, or something else?

Sid Rajiv: I know you gave some reasons, but I'm trying to find out what exactly or what's the main, reason for this increase.

Sid Rajiv: And the second thing is with new product launches, can you bring it up to the 45 to 50 percent, range?

Sid Rajiv: Yeah.

Nicolas Britten: The next question comes from Nicolette Jones with Brooks Investment. Please go ahead. Hi, management. Thank you for taking my questions. I just have two questions.

Leon Deng: Yeah, Sid, thank you very much.

Leon Deng: You can count one and a half because we launched the big five unity which is a different variable, of the big five.

Leon Deng: I think let me start with the easy ones.

Leon Deng: Yeah.

Leon Deng: I think we have, as you heard from Weiyan's script, we have a lot of exciting new product, launches lined up for the upcoming month, especially in IFA. You heard about the OWS earbuds.

Sid Rajiv: Okay.

Speaker Change: yeah

Leon Deng: You heard about the new T-Rex watches.

Sid Rajiv: And then I know you don't provide segmented revenue by region, but did you notice any, material change in sales in any region particularly last quarter?

Speaker Change: thank you once again for joining us today if you have tother questions please feel free to contact thatb health vester relations department through the contact information provided on our ir website thank you

Leon Deng: And you also heard about the ring.

Leon Deng: No, I think we have told you before that United States still remains as a region whereby we, see a lot of potential growth from.

Leon Deng: And we also have some exciting innovations on the way, right?

Leon Deng: And also, we have seen some breakthroughs in Europe like what William mentioned in Germany, in France.

Leon Deng: So yes, and all of these products will carry a very healthy gross margin to the magnitude, of over 45 or 50 percent, depends on the product line we're talking about.

Leon Deng: We have worked with the key accounts such as Decanal in those countries.

Leon Deng: So these are the new product launches, which is due for the second half of this year.

Leon Deng: And in Asia Pacific, specifically in China, we have seen a very good growth from China, and we have put in a lot of marketing efforts to promote that as well.

Leon Deng: And that's also, coming back to your first question, that's also one of the reasons which, drives the gross margin of the company continuously improved quarter on quarter for the past four quarters. I think, to a big part, this is coming from optimizing the product mix, but also it's, like I said, I mean, more new products which has been launched recently, less products which is on clearance, that definitely helps our overall gross margin performance.

Leon Deng: Thank you, Leon.

Leon Deng: On the other hand, we're also doing retail channel mix.

Sid Rajiv: One question finally, did you provide an update on the status with NYC given the noncompliance, notice you received a few months back?

Leon Deng: For example, we cut the bleeders on those channels which doesn't make money, right?

Leon Deng: Oh, yeah.

Leon Deng: And by doing so through optimizing the retail channel mix as well as our product mixes together, with the new product launches which is lined up in the second half of the year, we're confident that we can continue on the gross margin improvement trend for the upcoming quarters.

Leon Deng: So we have ultimately until October 31st to rectify this issue. And as we have communicated before, we are committed to resolve this through either organically, the share price to push above $1 or if needed, a reverse split.

Leon Deng: Okay.

Leon Deng: So we are confident that before that date, we will regain the compliance.

Grace Zhang: Thank you.

Sid Rajiv: So, my next question is you have a lot of new products planned.

Operator: The next question comes from Nicolette Jones with Brooks Investments, please go ahead.

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

Wang Huang: These efforts combine with increased brand visibility, position as for sustainable growth.

Leon Deng: I'd also like to dig in a little bit more about the new product map and some of your thinking behind your product decisions. And then in addition, I'd like to find out more information on the net income trend. Oh, okay. Now, maybe I take the easy ones, Nicolas. Obviously, the net income trend you have noticed that it has been on uptrend quarter on quarter, it's improving. If you look at the first half of this year, the net income, obviously, it's much better than the same period of last year.

Sid Rajiv: So, to make it easier for us to track, are you able to give us a number as in how many, new products or upgraded products planned this year versus last year?

Nicolette Jones: Hi management, thank you for taking my questions.

Sid Rajiv: I think we have at least three if not four products which are scheduled to be launched, in the second half of the year.

Nicolette Jones: I just have two questions.

Leon Deng: And last year, same period, I think we have two products, if I remember clearly.

Nicolette Jones: I'd also like to, just dig in a little bit more about the new product map and some of your thinking behind your product decisions.

Operator: The conference was now concluded. Thank you for attending today's presentation.

Leon Deng: Okay.

Nicolette Jones: And then in addition, I'd like to find out more information on the net income trend.

Sid Rajiv: And then the first half of this year, you had two versus one?

Nicolette Jones: Okay, maybe I take the easy one, obviously, the net income trend, you have noticed that it has been on an uptrend, quarter on quarter, it's improving.

Leon Deng: If you look at the first half of this year, the net income, obviously, is much better than the same period of last year. I think it was an improvement of 15% to that magnitude.

Grace Zhang: Thank you once again for joining us today.

Leon Deng: And we are actually looking or targeting at improvement also for, a second half of this year.

Grace Zhang: If you have further questions, please feel free to contact Zepp Health's Investor Relations, Department through the contact information provided on our IR website.

Leon Deng: So hopefully, throughout the year, we can come back to profitability.

Grace Zhang: Thank you.

Operator: You may now disconnect.

Leon Deng: That's always the target, which we have been striving for.

Operator: The conference is now concluded.

Leon Deng: And coming back to your first question, on the new products and the thinking behind it, I think you have heard us saying that in the upcoming IFA, which is in September, we're going to launch a new watch.

Operator: Thank you for attending today's presentation.

Leon Deng: Our most popular outdoor smartwatch T-Rex is up for an update. I mean, it's actually a lot of new functionalities will be added to that watch.

Leon Deng: And we are also going to launch a new OWS earbuds.

Leon Deng: OWS is a very popular concept.

Leon Deng: It's basically, talking about an open-end headset, which you can wear without feeling it, right?

Leon Deng: It's very different from the AirPods, which is made by Apple.

Leon Deng: So we think, and according to the market research, the OWS earbuds is going to be a fast-growing segment in the Bluetooth headset market in the upcoming years.

Leon Deng: So we are quite excited to have that product add to our lineup.

Leon Deng: And you also heard that we have the Helio Ring, and we're going to put Helio Ring into more, geographies and also into more sizes, especially the smaller sizes, which are more tailored for the mass market and mass consumers, right?

Leon Deng: So I think we are going to be one of the only players, if not the only players, who has the smartphone, couples with the Ring, couples with the OWS headphones, and maybe some other form factors, because we have always been saying that we're trying to offer a full suite of wearable devices, smart wearable devices, so that our users can have a one-stop shop on better controlling and understand their health condition.

Leon Deng: So I think this is always the concept what we try to bring this company to.

Leon Deng: So we want to be a smart, wearable player, not only restricted to smart watch per se, and we want to offer a complete suite of healthcare services to the users.

Leon Deng: So that's the whole theme behind the new products which we are going to launch.

Leon Deng: I'm not sure if I answered your question correctly.

Nicolette Jones: Yeah, no, that's really informative, actually.

Nicolette Jones: It gives much more color.

Nicolette Jones: Okay.

Leon Deng: I think it was an improvement of 15% to that magnitude. And we are actually looking or targeting at improvement also for a second half of this year. So hopefully throughout the year, we can come back to profitability. That's always the target, which we have been striving for.

Leon Deng: And coming back to your first question on the new products and the thinking behind it, I think you have heard us saying that in the upcoming EFA, which is in September, we're going to launch a new watch, our most popular outdoor smartwatch T-Rex. It's up for an update. I mean, it's actually a lot of new functionalities will be added to that watch. And we are also going to launch a new OWS earbuds.

Wang Huang: As we head towards IFA in Berlin with new partner releases and rising brand awareness, we anticipate continuing to close momentum in the second half of the year.

Wang Huang: Thank you for your continued support and confidence in that panel.

Leon Deng: I will now turn the call over to Leo to go over the highlights of our second quarter financial results.

Leon Deng: Thanks, Wayne.

Leon Deng: Greetings, everyone.

Leon Deng: OWS is a very popular concept. It's basically talking about open and headset, which you can wear without feeling it. It's very different from the AirPods, which is made by Apple. So we think, and according to the market research, the OWS earbuds is going to be a fast growing segment in the Bluetooth headset market in the upcoming years. So we are quite excited to have that product add to our lineup. And you also heard that we have the Helio rain.

Leon Deng: Let me walk you through some of the key metrics of our second quarter financial results.

Leon Deng: Over the past two years, the entire consumer electronics sector has been facing significant challenges. We have observed that the pressure of discretionary spending, especially in an inflationary environment, is also creating headwinds for our operations. Additionally, major brands like Apple and Samsung offered larger than usual discounts during the past prime day in certain regions, highlighting the competitiveness of the industry landscape.

Leon Deng: Our focus has always been on positioning ourselves effectively in the card market. This is why we are prioritizing profitability, aiming to maximize profits from our self-rendered product sales, and continuing with the cost transformation initiatives we implemented in previous quarters.

Leon Deng: And we're going to put Helio rain into more geographies and also into more sizes, especially the smaller sizes, which are more tailored for the mass market and mass consumers. So I think we are going to be one of the only players, if not the only players, who have the smartphone, couples with the rain, couples with the OWS headphones, and maybe some other phone factors, because we have always been saying that we're trying to offer a full suite of a wearable devices, smart wearable devices, so that our users can have a one-stop shop on better controlling and understand their health conditions.

Leon Deng: The meticulously will be entering into the open wearable stereo earbuds segment, which will deliver substantial growth in the Bluetooth hassle market.

Leon Deng: Now, turning to sales, echoing weigh-in statement, we believe the most challenging phase of our transformation is behind us.

Leon Deng: The three key pillars driving our progress are applying new technologies, particularly with the focus on AI, product innovations with profitable growth, and enhancing global visibility through major sports sponsorship and marketing efforts.

Leon Deng: Rajeev. I think this is always the concept of what we try to bring this company to. We want to be smart, wearable player, not only restricted to smart watch per se, and we want to offer a complete suite of healthcare services to the users. So that's the whole theme behind what we did, the new products which we're going to launch. I'm not sure if I answered your question correctly, or... Yeah, no, that's really informative, that's to me, there's much more color. Okay. Thank you.

Leon Deng: We are particularly excited about our expanding self-branded products offerings, which position us for long-term growth as a global leader in smart wearables and healthcare solutions.

Leon Deng: For the second quarter, our overall sales aligned with our guidance with a 6% sequential increase in our self-branded products. More than offset the decline of Xiaomi branded product sales. This positive development is a testament to the progress we have made in our transformation efforts, and we anticipate continued sequential growth in the quarters ahead.

Leon Deng: Moving on to growth margin, which can be influenced by various factors such as product mix, product launch timing, and product life cycles, including model upgrades. Despite a year-over-year decline in sales, which for a part due to the tightening of new launches screwed towards the second half of 2024, and that border marker challenges, our growth margin for the quarter reached 40.3%. This marks a continuation of the margin expansion we initiated in the third quarter of 2023, and represents the highest growth margin in our company's history.

Grace Zhang: As there are no further questions, I'd like to turn the call back over to the company's IR director, Grace Zhang, for any closing remarks. Thank you once again for joining us today. If you have further questions, please feel free to contact that Health Master Relations Department through the contact information provided on our IR website. Thank you.

Operator: The conference was now concluded. Thank you for attending today's presentation.

Operator: You may now disconnect.

Leon Deng: Looking ahead, together with the new product launches in second half of the year, we are confident that this positive trend in growth margin will persist into the second half of the year, which four-year margins expected to remain at similar levels.

Leon Deng: This outcome underscores our strategic position to prioritize profitability over scale, leveraging the revenue from our self-rendered products to sustain the company's overall performance.

Leon Deng: Now, let's turn to cost.

Leon Deng: We remain steadfast in our commitment to cost management, continuing with the program which we began in Q3 2020 on reducing overall operating costs.

Leon Deng: In the second quarter, we maintained a regular approach on discretionary spending while investing in research and development activities and marketing expenditures to preserve our long-term sustainable growth.

Leon Deng: As a result, operating costs for the quarter were US$25.3 million, the lowest level in the past year, and is in line with our previous guidance.

Leon Deng: Our R&D expenses for the second quarter of 2024 were US$10.4 million, reflecting a 13.8% decrease year over year.

Leon Deng: This represented 25.6% of our revenue compared to 13.1% during the same period in 2023.

Leon Deng: The reduction in R&D spending was a result of our ongoing efforts to optimize resource allocation, ensuring we achieve maximum return on investment and productivity.

Leon Deng: At the same time, we're committed to investing in new technologies and suitable AI functions to maintain our competitive edge against our competitors.

Leon Deng: Selling and marketing expenses for Q2 amounted to US$10.5 million, a modest increase of 3.9% year over year.

Leon Deng: This account is for 25.8% of our revenue, up from 10.9% in the previous year.

Leon Deng: The rights was primarily driven by our strategic investments in outdoor marketing and television commercials across Europe, aimed at boasting brand awareness ahead and during the UEFA 2024 and some Olympics in Paris.

Leon Deng: In parallel, we have been enhancing retail profitability and refining our channel mix by carefully optimizing our retail channels and strategically managing our self-teams.

Leon Deng: We are committed to making smart investments in marketing and branding initiatives that will fuel our long-term growth.

Leon Deng: DNA expenses were US dollars 4.4 million in Q2, marking a 36.3% decrease year over year.

Leon Deng: This expenses represented 10.9% of our revenue compared to 7.5% in the same period last year. This reduction reflects our successful personnel optimization initiatives and strict control over discretionary costs.

Leon Deng: Looking ahead, we remain committed to prudent cost management aiming to keep costs at a below-car levels in the upcoming quarters.

Leon Deng: Despite reporting the operating loss this quarter, largely attributable to cost coverage issues, when we consider the first half of 2024 as a whole, despite lower sales and since the higher growth margin and tightly controlled cost levels, we have narrowed the net income loss by 15% versus the same period last year.

Leon Deng: Our cash fund stands at US dollars 129 million by the end of Q2, consistent with the first quarter's cash level, despite the quarterly losses. This strong cash position equips us with the necessary sources to see potential market opportunities and invest strategically in future growth.

Leon Deng: In Q1, 2023, we have initiated the retirement of our short flash long-term debt portfolio. Since then, and including Q2, 2024, we have successfully retired US dollars 55.2 million of debt.

Leon Deng: As our operating cash flow continues to strengthen in second half, we will continue to optimize the kept structure for the company.

Leon Deng: In line with our commitment to deliver long-term value to our shareholders, we will proceed with our share-by-back program throughout 2024. This initiative underscores our confidence in the company's future and our dedication to enhancing shareholder's value.

Leon Deng: Looking ahead, on the third quarter of 2024, we're guiding a revenue in the range of US dollars 45 million to US dollars 60 million.

Leon Deng: It represents 18% to 59% growth on the revenue of self-renate products compared with Actio Q2 2024.

Leon Deng: We're confident in our ability to build on the momentum we have generated to drive for the growth and profitability in the quarters to come.

Speaker: Thank you once again for your time and continued support as we now open the line for any questions.

Speaker: Operators, please go ahead.

Speaker: Thank you.

Speaker: We will now begin the question and answer session.

Speaker: To ask the question, you may press star than one on your touchtone phone.

Speaker: If you are using a speaker phone, please pick up your handsets before pressing the keys.

Speaker: If at any time your question has been addressed and you would like to withdraw your question, please press star than two.

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

Siddharth Rajeev: The first question today comes from Sid Rajiv with Fundamental Research Corp.

Siddharth Rajeev: Please go ahead.

Siddharth Rajeev: Hi.

Siddharth Rajeev: So, first of all, I'd like to see the spiking sequence of sales growth of self-branded units.

Siddharth Rajeev: But I guess the real surprise was the continued improvement in growth margins.

Siddharth Rajeev: What's really driving this?

Siddharth Rajeev: Is it higher product prices, cost optimization, or something else?

Siddharth Rajeev: I know you gave some reasons, but I'm trying to find out what exactly or what's the main reason for this increase.

Siddharth Rajeev: And the second thing is, with new product launches, can you bring it up to the 45% to 50% range?

Leon Deng: Yeah, Sid, thank you very much.

Leon Deng: I think let me start with the easy ones.

Leon Deng: I think where we have, as you heard from Wales script, we have a lot of exciting new product launches lined up for the upcoming months, especially in IFA. You heard about the OWS ear buds, you heard about the new key racks, watches, and you also heard about the ring.

Leon Deng: And we also have some exciting innovations on the way.

Leon Deng: So, yes, and all of these products will carry a very healthy growth margin to the magnitude of over 45% or 50%, depends on the product line we're talking about.

Leon Deng: So these are the new product launches, which is due for the second half of this year.

Leon Deng: And that's also coming back to your first question.

Leon Deng: That's also one of the reasons that, which drives the growth margin of the company, continuously improved quarter on quarter for the past four quarters. I think to a big part, this is coming from optimizing the product mix but also it's like I said, I mean more new products which has been launched recently, less products which is clearance that definitely helps our overall growth margin performance.

Leon Deng: On the other hand, we're also doing retail channel mix.

Leon Deng: For example, we cut the bleaders on those channels which doesn't make money.

Leon Deng: And by doing so through optimizing the retail channel mix as well as our product mixes together with the new product launches which is lined up in the second half of the year, we're confident that we can continue on the growth margin improvement trend for the upcoming quarters.

Siddharth Rajeev: Okay, so my next question is you have a lot of new products planned.

Siddharth Rajeev: So to make it easier for us to track, are you able to give us a number as in how many new products or upgraded products planned this year versus last year?

Siddharth Rajeev: I think we have at least three is not four products which are scheduled to be launched in the second half of the year.

Siddharth Rajeev: And last year it's the same period, I think we have two products if I remember clearly.

Siddharth Rajeev: Okay, and then the first half of this year you had two versus length?

Siddharth Rajeev: No, the first half of this year we only had one.

Siddharth Rajeev: Yeah, you can count one and a half because we launched the big five unity which is a different variable of the big five.

Siddharth Rajeev: Yes, yes.

Siddharth Rajeev: Okay, and then I know you don't provide segment eleven year by region, but did you notice any materials change in sales in any region particularly last quarter?

Siddharth Rajeev: No, I think we have told you before that United States still remains as a region whereby we see a lot of potential growth from.

Siddharth Rajeev: And also we have seen some breakthroughs in Europe, like what William mentioned in Germany in France.

Siddharth Rajeev: And we have worked with the key accounts such as Deaconal in those countries.

Siddharth Rajeev: And in Asia, Pacific specifically in China, we have seen very good growth from China.

Siddharth Rajeev: And we have put in a lot of marketing efforts to promote that as well.

Siddharth Rajeev: Thank you, Leon, and just one question.

Siddharth Rajeev: Finally, do you provide an update on the status with NYC given the noncompliance notice you received a few months back?

Siddharth Rajeev: Oh, yeah.

Siddharth Rajeev: So we have ultimately the until October 31st to rectify this issue.

Siddharth Rajeev: And we have communicated before we are committed to resolve this through either organically the share files to push about $1 or if needed a reverse split.

Siddharth Rajeev: So we're confident that before that date will be regain the compliance.

Siddharth Rajeev: Rajeev.

Siddharth Rajeev: Thank you, Leon.

Siddharth Rajeev: Thank you, good.

Nicolette Jones: The next question comes from Nicolette Jones with Brooks Investment.

Nicolette Jones: Please go ahead.

Nicolette Jones: Hi, management.

Nicolette Jones: Thank you for taking my questions.

Nicolette Jones: I just have two questions.

Nicolette Jones: I'd also like to dig in a little bit more about the new product map and some of your thinking behind your product decisions.

Nicolette Jones: And then in addition, I'd like to find out more information on the net income trend.

Nicolette Jones: Oh, okay.

Leon Deng: Now maybe I take the easy ones, Nicholas.

Leon Deng: Obviously, the net income trend you have noticed that it has been on uptrend quarter on quarter. It's improving.

Leon Deng: If you look at the first half of this year, the net income, obviously, it's much better than the same period of last year. I think it was a improvement of 15% to that magnitude.

Leon Deng: And we are actually looking or targeting at improvement also for a second half of this year.

Leon Deng: So hopefully throughout the year, we can come back to profitability.

Leon Deng: That's always the target which we have been striving for.

Leon Deng: It's up for an update.

Leon Deng: I mean, it's actually a lot of new functionalities will be added to that watch.

Leon Deng: And we are also going to launch a new OWS earbuds.

Leon Deng: OWS is a very popular concept.

Leon Deng: It's basically talking about an open-and headset, which you can wear without feeling it.

Leon Deng: It's very different from the AirPods, which is made by Apple.

Leon Deng: So we think, and according to the market research, the OWS earbuds is going to be a fast-growing segment in the Bluetooth headset market in the upcoming years.

Leon Deng: So we are quite excited to have that product up to our lineup.

Leon Deng: And you also heard that we have the Helio rain.

Leon Deng: And we're going to put Helio rain into more geographies and also into more sizes, especially the smaller sizes, which are more tailored for the mass market and mass players.

Leon Deng: If not the only players who have the smartphone, couples with the rain, couples with the OWS headphones, and maybe some other phone factors, because we have always been saying that we're trying to offer a full suite of a wearable devices, smart wearable devices, so that our users can have a one-stop shop on better controlling and understand their health conditions.

Leon Deng: I think this is always the concept of what we try to bring this company to.

Leon Deng: We want to be a smart, wearable player, not only restricted to smart watch per se, and we want to offer a complete suite of healthcare services to the users.

Leon Deng: So that's the whole theme behind the new products which we're going to launch.

Leon Deng: I'm not sure if I answered your question correctly.

Leon Deng: No, that's really informative.

Leon Deng: That's too many.

Leon Deng: It's much more color.

Leon Deng: Thank you.

Speaker: The conference was now concluded.

Speaker: Thank you for attending today's presentation.

Speaker: You may now disconnect.

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