Q4 2025 Zepp Health Corp Earnings Call
Speaker #1: Medical. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Grace Zhang, Director of Investor Relations for the company.
Speaker #1: Please go ahead, Grace.
Speaker #2: Hello everyone, and welcome to Zepp Health Corporation's fourth quarter and full-year 2025 earnings conference call. The company's financial and operating results were issued in a press release that the newswire services earlier today and are posted online.
Speaker #2: You can also view the earnings press release and slides referred to on this call by visiting the IR section of the company's website. Presenting today, our Wang Huang, our founder and chief executive officer, and Leon Deng, our chief financial officer.
Speaker #2: Joining us today, we also have Mike Yeung, chief operating officer and general manager of North America. And Eric Fleming, VP of capital markets in North America.
Speaker #2: Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor Provisions of the US Private Securities Litigation Reform Act of 1995, forward-looking statements involved inherent risks and uncertainties.
Speaker #2: As such, the company's actual results may be materially different from the views expressed today. Further information regarding this and other risks and uncertainties are included in the company's annual report on Form 20F for the fiscal year ended December 31st, 2024, and other filings as filed with the US Securities and Exchange Commission.
Speaker #2: The company does not assume any obligation to update any forward-looking statements. Except as required under applicable law. Please also note that Zepp's earnings press release and the conference call include discussions of unaudited gap financial information as well as unaudited non-gap financial information.
Speaker #2: Zepp Health's press release contains a reconciliation of the unaudited non-gap measures to the unaudited most directly comparable gap measures. I will now turn the call over to our CEO, Wen.
Speaker #2: Please go ahead.
Speaker #3: Hello, everyone, and thank you for joining us today. Before going into the details of the quarter, let me first share how we see Zepp evolving.
Speaker #3: Over the past few years, we have been transforming Zepp from a traditional wearable hardware company into what we call a hybrid training platform. Our goal is not simply to launch competitive devices.
Speaker #3: But to build a broader performance system that integrates endurance, change, and recovery through hardware training intelligence, software, and data capabilities. With that context in mind, 2025 was a strong year for Zepp.
Speaker #3: For the full year, a mixed-branded product revenue grew 51% year over year. In the fourth quarter, a mixed-branded product sales grew 45% year over year.
Speaker #3: While gross margin reached a record level of 40.3%. Importantly, this growth was achieved without relying on heavy discounting. During the holiday season, these results reflect the continued progress of our multi-year transformation.
Speaker #3: As we evolve from a volume-driven business toward a brand lead and premium-focused global company. We also demonstrate strengthening pricing power across our portfolio. As our product makes continuous shifting toward higher value segments.
Speaker #3: Turning into our product highlights, our growth in Q4 was broad-based across both entry-level and premium segments. As we continue expanding our portfolio, to serve a wider range of users and training scenarios.
Speaker #3: At CES, we launched a mixed-active mix. The newest member of the active family. Active mix fills the gap between our entry-level lifestyle watches and our rugged outdoor series.
Speaker #3: It targets everyday trainers beginning their fitness journey. It features a vibrant AMOLED display long battery life offer 170 watt-hour modes and built-in support for offline maps.
Speaker #3: And training guidance powered by Zepp Coach. We also recently introduced Active 3 Premium. Designed specifically for new and entry-level runners. Positioned around the 169 US dollar price tier, Active Max and Active 3 Premium reinforce the core volume segment of our portfolio.
Speaker #3: While expanding our rich amount users beginning structured training. In our premium portfolio, the T-Rex and Balance series continue to perform strongly. In February, we launched T-Rex Ultra 2, our newest flagship outdoor watch.
Speaker #3: Built with grade five titanium, and designed for extreme durability, Ultra 2 extends the top end of our portfolio. To around the 550 US dollar price level.
Speaker #3: The highest price point in our history. Products like Ultra 2 reinforce the premium positioning of the Amazfit brand while expanding the selling of our product portfolio.
Speaker #3: On the software side, we continue strengthening our ecosystem through updates to Zepp OS. Features such as biocharge energy monitoring, and Zepp Coach AI-driven training guidance are now reaching more devices.
Speaker #3: And helping increase engagement, retention, and long-term user value. Together, our Zepp app, wearables, and sensor technologies are creating a stronger ecosystem around our hardware foundation.
Speaker #3: From what we believe, it's a growing defensive mode around our platform. By increasing switching costs, improving user retention, and expanding lifetime value. Under brand side, we have also made deliberate investments to elevate our credibility in the global performance sports community.
Speaker #3: This month, we announced a partnership with Josh Kerr, a two-time Olympic medalist and world champion middle-distance runner. Josh joins our growing roster of elite athletes.
Speaker #3: Including grand fisher, David Henry, and Lewis Croft. These athletes are not just brand ambassadors. They actively use Amazfit devices such as Balance 2, Helioring, and Heliostrap in their daily training and recovery.
Speaker #3: When world-class athletes rely on our data and training insights, to prepare for the highest level of competition, it sends a powerful signal about the accuracy, credibility, and performance capabilities of our technology.
Speaker #3: Another important component of our strategy is our collaboration with Kyrox. One of the fastest growing hybrid endurance competition globally. At Kyrox Races around the world, including recent events in cities such as Venice, and Las Vegas, athletes gather in front of their official results screen to capture and share their finish times.
Speaker #3: Directly beneath the race results appears percentage by Amazfit. Making Amazfit the most prominent brand integrated into that moment. When athletes share those results across social platforms, the brand naturally spreads through athlete-generated content rather than paid promotion.
Speaker #3: This is not traditional sponsorship visibility. It is infrastructure-level exposure embedded directly into the athlete experience. More broadly, Kyrox plays a key role in our hybrid training strategy.
Speaker #3: Which integrates endurance, strength, and recovery into one coherent performance system. Where wearable data training intelligence and real-world performance validation converge. Looking ahead to 2026, we remain focused on strengthening our premium product lineup.
Speaker #3: Expanding our ecosystem through AI-driven training insights and performance technologies. And deepening our engagement with performance-focused communities. For the first quarter of 2026, we expect revenue in the range of 50 million to 55 million US dollars.
Speaker #3: Representing an increase of 30% to 43% year over year. This outlook reflects our confidence that the demand we are seeing, it's not simply seasonal.
Speaker #3: But structural. We believe we now have the right combination of products, channels, and cost structure to drive sustainable growth. And a clear path towards sustained profitability.
Speaker #3: As our premium mix continues to expand and higher margin categories scale, we expect our margin profile to continue strengthening. With that, I will now turn the call over to Leo.
Speaker #3: To walk through the financial details. Leo, please go ahead.
Speaker #2: Thank you, Wayne. Greetings, everyone. Thank you again for joining our fourth quarter and full year 2025 earnings call. In the last quarter of 2025, our revenue rose to 85.2 million, up 43% year over year, meeting the upper end of our guidance range.
Speaker #2: For full year 2025, revenue reached 259 million, representing a 41.8% year over year growth compared with US dollars 183 million in 2024. Marking a return to gross trajectory.
Speaker #2: Our fourth quarter growth was driven by board-based strength across our diversified portfolio. As Wayne mentioned, our 2025 Q4 Amazfit branded product sales increased by 45.4% year over year, and 12.4% sequentially, fueled by strong execution during the critical Black Friday and Christmas sale seasons.
Speaker #2: Where our brand visibility reached new heights, across major e-commerce channels. Additionally, our established premium lines specifically the T-Rex and Balance series continue to see sustained demand.
Speaker #2: Further validating our premiumization strategy and boosting our average selling price. Look ahead, we have just started selling off our active three premium/active max and T-Rex Ultra 2 watches.
Speaker #2: And together with our upcoming new product launches, we expect the top-line expansion continues into 2026. Turning now to gross margin, it was influenced by various factors including product mix, product launch timing, and product lifecycles, such as model upgrades.
Speaker #2: In Q4, we achieved a record gross margin of 40.4%, an impressive expansion of 3.6 and 2.2 percentage points, compared with same period of 2024 and third quarter of 2025.
Speaker #2: It is a highlight of this quarter's financial performance. And the strongest indicator of our improving brand recognition and supply chain management. This margin performance was driven by two key factors, that I want to elaborate on.
Speaker #2: First, we realized a highly favorable mix shift with higher contributions from the premium adventure series of our Amazfit branded products. This shift away from lower margin legacy products towards newer high-value SKUs naturally elevates our margin profile.
Speaker #2: Second, we were able to maintain price integrity even during higher promotional periods like Black Friday, further boosting margins. The strong gross margin driven by our product mix more than offset the headwinds we're facing from FX fluctuations, memory chips cost increase, and tariffs.
Speaker #2: Aimed macroeconomic uncertainties. Gross margin in the full year 2025 was 38.3%. We remain on track with our margin expansion strategy initiated in the second half of 2023.
Speaker #2: And we expect the trend to continue into 2026 as we further optimize our product mix and supply chain efficiency. Next, expenses. We remain committed to prudent cost management, continuing a program we began in 2020 to reduce overall operating costs while investing for growth.
Speaker #2: Total non-GAAP operating expenses for the fourth quarter were $37.1 million. Expenses as a percentage of sales improved by approximately 6% compared to Q4 2024.
Speaker #2: However, in absolute amount, it is up by around $8 million year over year, and quarter over quarter. I will break down the specific driver of this increase to help you understand the quality of our spend.
Speaker #2: Approximately around $1 million is directly attributed to certain fixed channel costs investments, to drive direct top-line growth. As we ship more units and generate more revenue, certain variable selling and logistic expenses naturally rise in tandem.
Speaker #2: Second, we recorded around $5 million year-end provisions non-cash adjustment for potential bad debt and business model optimization as part of our ongoing risk management strategy.
Speaker #2: And another US dollar 1 million investments in patent fees and brand protection to safeguard our intellectual properties and ensure long-term business success. In total, $6 million.
Speaker #2: Finally, and most importantly, with strategically invested around $1 million in front-loaded marketing initiatives, including upfront costs for elite athlete sponsorships, such as partnerships with Olympic medalist Josh Kerr as well as some investments on marketing and branding activities, that fueled the adoption of new products launches.
Speaker #2: As you can see, except for the first element, majority of the cost increase are not structural cost increases. We expect lower operating costs relative to revenue in 2026 as these one-off cost nominees and we realize further cost efficiencies.
Speaker #2: By line item, adjusted research and development expenses were US dollars $10.2 million, remained relatively stable quarter over quarter, and year over year. We continue to invest in a series of cutting-edge products as well as new technologies.
Speaker #2: Including AI. To maintain our competitive edge against our peers. At the same time, we focus on refined research and development approaches as we consistently evaluated resources efficiency to optimize return on investment and productivity.
Speaker #2: Adjusted selling and marketing expenses were $15.6 million, reflecting the front-loaded branding investment I just mentioned. We're seeing a strong return on investment for this marketing dollars as evidenced by our market share gains in US and in Europe.
Speaker #2: At the same time, we consistently pushed retail profitability and channel mix improvement. Adjusted G&A expenses were $11.3 million, compared with US dollars $6.1 and US dollars $6.5 million in the same period of 2024, and third quarter of 2025.
Speaker #2: The increase is mainly driven by the year-end provisions I mentioned above. Excluding those, G&A expenses remained flat through the year. We continue to streamline overhead maintaining disciplined cost control while improved operating efficiency.
Speaker #2: Total adjusted operating expenses were US dollars $123 million, in 2025, compared with US dollars $110 million, for the full year 2024. The increase is directly attributable to the reasons I explained above.
Speaker #2: Adjusted operating expenses for 2025, excluding these, would be US dollars $110 million. We will maintain our cost-conscious approach and remain committed to investing in R&D and marketing activities to ensure our long-term competitiveness.
Speaker #2: In Q4, adjusted net loss attributed to Depp Health was US dollars $6.4 million, compared to adjusted net loss of US dollars $22.5 million, in the fourth quarter of 2024.
Speaker #2: The net loss in Q4 was mainly a result of running operating results, more than offset by $2 million deferred tax asset provision, and a $6,001,000 provisions.
Speaker #2: Full year adjusted net loss attributed to the company was US dollars $31.5 million, compared with the adjusted net loss of US dollars $56.7 million, for 2024.
Speaker #2: The net loss for 2025 were mainly from deferred tax asset provision, one-time specially identified provisions, and operating loss from the first half of the year 2025.
Speaker #2: In terms of our balance sheet and working capital, we continue to manage our inventory rigorously. Despite strategic risk purchases of key components for the future, our inventory balances decreased to US dollars $72.8 million, compared with US dollars $87.7 million, as of Q3 2025.
Speaker #2: Reflecting our ongoing improvements in inventory management. As of December 31, 2025, our cash and cash equivalent stood at $113 million, compared to US dollars $103 million, as of Q3 2025, and $111 million, as of December 2024.
Speaker #2: We delivered another quarter of positive operating cash flow further strengthening our liquidity position. This consistent cash generation capability provides ample runway for us to invest and cease potential market opportunities.
Speaker #2: In terms of capital structure, our overall long-term and short-term debt levels remained relatively consistent, following the restructuring we completed in Q1 2025. However, you may notice a sequential increase in our reported debt levels in Q4, as a result of refinancing short-term debt into long-term debt, capitalizing on favorable rates to minimize interest payments.
Speaker #2: While we are focused on reducing our overall debt level, over the longer term, there may be temporary fluctuations in debt levels quarter to quarter due to timing of refinancing and repayment activities.
Speaker #2: Since the beginning of 2023, we have accumulatively retired US dollars $58 million of debt and will continue to optimize the capital structure going forward.
Speaker #2: Given our confidence in the company's strong fundamentals, and sustainable growth trajectory, we are reaffirming our commitment to our share repurchase program in 2026. We view the program as an effective use of capital that aligns with our focus on delivering sustainable long-term value to shareholders.
Speaker #2: Before we talk about guidance, I would like to walk you through some of the key macroeconomic and industrial-specific factors we are currently facing including the recent memory chip movement.
Speaker #2: While we are not immune to memory cost inflation, it is important to note that our products have modest memory requirements, compared to other categories like PC and phones.
Speaker #2: Consumers don't choose our products based on memory configurations, they choose us for the experiences and accuracy we deliver. Furthermore, we manage our entire BOM cost holistically, while memory costs have risen somewhat, our vertically integrated supply chain provides us with multiple levers to optimize our overall cost structure.
Speaker #2: We are continuously focused on driving efficiency, throughout the supply chain, by leveraging our scale and integration. Additionally, we have intentionally increased inventory levels of certain key components, including risk buys, to ensure we can meet long-term demand.
Speaker #2: Our strong relationships with suppliers allow us to align with anticipated product demand, and while supply chain challenges are inevitable, we're confident in our ability to navigate them.
Speaker #2: Lastly, and most importantly, as demonstrated in past quarters, we have seen a steady increase in the average selling price of our products. We firmly believe that, compared to our competitors, our pricing still has ample room to grow.
Speaker #2: In fact, price increases have more than offset the rise in memory costs and helped us in navigating through macroeconomic uncertainties. Finally, our outlook for the first quarter of 2026.
Speaker #2: We are entering the year with strong momentum, despite the first quarter traditionally being a slower season for the consumer electronics industry, we expect revenue to be in the range of $50 million to $55 million, representing year-over-year growth of approximately 30% to 43%.
Speaker #2: This guidance reflects our current visibility into our audit book, and strong sell-through trends in our key markets. With strong financial fundamentals, a clear path to continue margin expansion and solid operational discipline, we're well-positioned to deliver profitable growth and create long-term shareholder value.
Speaker #2: Thank you all for your time today. I will now open the call for questions. Operator, please go ahead.
Speaker #1: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone.
Speaker #1: If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. For the benefit of all participants on today's call, if you wish to ask your questions to the company's management in Chinese, please immediately repeat your question in English.
Speaker #1: At this time, we will pause momentarily to assemble our roster. Your first question comes from Ben Rajiv with Fundamental Research Corp. Please.
Speaker #2: Hi. Congratulations on the strong revenue growth and the new product launches. Also nice to see your anticipating robust revenue growth in Q1. How many new products are you planning to launch this year, compared to last year?
Speaker #2: Just a rough idea is fine.
Speaker #3: I see it. I think it's around similar products, maybe slightly more. So if I'm not mistaken, last year we have launched around nine products or so, and this year probably is at the same quantum of that, or maybe slightly more.
Speaker #2: Okay. And how are you preparing for the recent spike in the US dollar?
Speaker #3: We are not that much exposed to the currency fluctuations on the dollars, right? I think a lot of our production is diversified in Asia, in different places.
Speaker #3: And if you look at our markets, we are very strong in Western Europe markets as well as the US markets. So yeah, to some extent, the dollar strengthened up is actually giving us some tailwind instead of the headwind.
Speaker #2: Okay. Thank you. Just one more question, if I may. Regarding operating expenses, you did a good job in stabilizing or even cutting costs in some areas.
Speaker #2: Which specific areas do you think there's room for further reductions?
Speaker #3: I think if you look at the selling and the marketing expenses, we just mentioned in some places, we actually front-loaded some of the expenses into the high seasons because we want to prepare for the upcoming new product launches; for example, and that should normalize over the quarters, because it's very much driven by the product launch windows and the cadence we have applied.
Speaker #3: Another one is the G&A cost, because you have seen that G&A costs keep on going down for us, and then I think there's also room to improve over there.
Speaker #3: And the last one is R&D. But I think on one hand, we need to invest on R&D to sustain the new product launches I just mentioned.
Speaker #3: You asked about the numbers, right? On the other hand, we see a lot of places whereby we could adopt AI to actually improve our efficiency on R&D.
Speaker #2: Thank you so much, Leon.
Speaker #4: Okay. Thank you, Sid.
Speaker #1: And me, once again, if you were once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Peter Brenton with Brooks Investments.
Speaker #1: Please go ahead.
Speaker #5: Hello. Congratulations on the 2025 performance. I have two questions. If you could provide more color on the sales performance of the adventure series and second, if you can share more about what's the plan for the Amazfit strap and ring for this year.
Speaker #3: Sorry, I didn't get the first question clearly. If you can repeat the first one.
Speaker #5: Right. Yes. If you can provide more color on the sales performance of the adventure series, and the second question would be what's the plan for the Amazfit strap and ring.
Speaker #3: Okay. So thank you. On the first one, on the adventure series, you see that we have launched many new products in 2025 throughout the year.
Speaker #3: So we have launched the T-Rex 3 Pro, and we have also launched the T-Rex Ultra 2 in February, right? And then we have some of the new products also in the T-Rex family lined up in 2026.
Speaker #3: And obviously, the adventure series actually also helped us to elevate our overall product mix and also helped us to improve our ASP for the company.
Speaker #3: So adventure series is playing more and more important role in the overall mix we have. So and it will continue to be like that in 2026.
Speaker #3: And with regard to your second question, on HelioStripe and the rings, HelioStripe has made a great performance and a debat in 2025, and it has been the most popular, if not the most popular, products among that price range.
Speaker #3: In our portfolio, but I think on the other hand, we didn't manufacture enough of the HelioStripe to cater for the Q3 and Q4 high seasons.
Speaker #3: And we are actually resolving the supply chain on that. And in 2026, you should see more of the manufacturing of those devices and they should see the market demand to be satisfied on the HelioStripe.
Speaker #3: On the other hand, we're also working on the next generation of those, as we speak, so stay tuned for the second half of this year.
Speaker #4: Okay. Thanks, Leon.
Speaker #1: Thank you. Has there been no further questions? Now I'd like to turn the call back over to the company's IR director, Grace Zhang, for closing remarks.
Speaker #6: Thank you, once again, for joining us. We hope you have a great day. You may now disconnect. Thank you.