Zepp Health Corporation Reports Third Quarter 2023 Unaudited Financial Results

AMSTERDAM, Nov. 20, 2023 /PRNewswire/ -- Zepp Health Corporation ("Zepp" or the "Company") (NYSE: ZEPP) today reported revenues of RMB0.6 billion (US$82.5 million); a basic and diluted net income per share of RMB0.01 (US$0.002); and a basic and diluted net income per ADS of RMB0.05 (US$0.01) for the third quarter ended September 30, 2023. Each ADS represents four Class A ordinary shares.

Mr. Wayne Wang Huang, Chairman and CEO of Zepp, commented, "In the third quarter, we achieved a business turnaround, returning to profitability after six loss-making quarters. Despite a year-over-year revenue decline, our high-margin self-branded products' contribution to our top line grew to approximately 80%. This accomplishment reaffirms the effectiveness of our operational strategy and early success in our business model transformation."

Mr. Huang continued, "We sustained our self-branded products' strong performance in this quarter, thanks to our expanded AI-empowered product portfolio and elevated brand influence around the globe. In September 2023, we launched Amazfit Balance (previously GT series) at IFA Berlin with seamlessly integrated health, fitness and lifestyle features, including Zepp Pay and Zepp Aura, enabling users to strike the ultimate balance between life, work and wellness. Furthermore, with the launch of Amazfit Active and Amazfit Active Edge in the fourth quarter of 2023, both tailored for modern-day city consumers, we expect to continue propelling sales growth of our self-branded product in the upcoming quarters. Looking ahead, our strategy of leveraging leading vertically integrated technology to rapidly and flexibly provide high-quality, competitive, high-margin products will continue to be effective and demonstrate results.

Mr. Leon Deng, Zepp's Chief Financial Officer, added, "In the third quarter, we achieved revenues of RMB602.1 million, in line with our guidance range. Despite a year-over-year revenue decline of 50.1%, primarily due to lower Xiaomi-branded products sales, we marked a significant milestone by returning to profitability in this quarter. Our net income for the third quarter reached RMB3.0 million, a remarkable turnaround from the RMB17.1 million net loss in the same period last year. Notably, we are making strides in our journey to transform the Company from its heavy reliance on Xiaomi-branded products to becoming a self-sustaining enterprise that focuses on our Amazfit brand."

"Our improved net income could be attributed to enhanced operating efficiency and the increasing contribution of our self-branded products sales, which led to an overall gross margin of 33.9%, the highest gross margin since the Company's inception in 2013. Simultaneously, our total operating expenses for the third quarter amounted to RMB193.2 million, a 36.4% reduction compared to the same period last year. This was achieved through our disciplined cost control measures."

"We are proud to report our fifth consecutive quarter of positive cash flow from operations. Our inventory levels remained relatively steady at RMB787.0 million as of September 30, 2023. Additionally, we successfully reduced our debt level by RMB117.3 million in the third quarter of 2023, and at the same time we remained strong cash and cash equivalent position of RMB1 billion by the end of this quarter. Looking ahead, we will continue to optimize our retail channels and product mix to maintain our margins trend, with a steadfast focus on disciplined expense management for sustained shareholder profitability."

Third Quarter 2023 Financial Summary

Third Quarter 2023 Financial Results

Revenues

Revenues for the third quarter of 2023 reached RMB0.6 billion (US$82.5 million), a decrease by 50.1% from the third quarter of 2022. Over 70% of the decrease in total revenues was due to the decrease in the sales of Xiaomi wearable products.

Total units shipped in the third quarter of 2023 decreased by 51.7% year-over-year to 2.8 million, compared with 5.8 million in the third quarter of 2022. Over 80% of the decrease in total units shipped was due to the decrease in Xiaomi wearable products.

Gross Margin

Gross margin in the third quarter of 2023 was 33.9%, compared to 19.1% in the same period of 2022. We reached a record-high gross margin, mainly due to the improved gross margin of our self-branded products (which hit an all-time high of 40.1%) and largely driven by a better product mix especially on our new products introductions, partially offset by the decrease in the gross margin of Xiaomi branded products.

Research and Development Expenses

Research and development expenses in the third quarter of 2023 were RMB74.6 million, a decrease by 41.4% year-over-year. This comprised 12.4% of revenues, versus 10.6% for the same period in 2022. The decrease could be attributed to our refined research and development approaches, as we consistently evaluated resource efficiency to ensure maximum return on investment and productivity. We are committed to investing in new technologies and AI to maintain our competitive edge against our peers.

Selling and Marketing Expenses

Selling and marketing expenses in the third quarter of 2023 were RMB70.6 million, a decrease by 43.0% year-over-year. This comprised 11.7% of revenues, versus 10.3% for the same period in 2022. The amount decrease resulted primarily from our consistent push on retail profitability and channel mix improvement, which included meticulous refinement of our retail channels and strategic staffing arrangements across sales regions. Meanwhile, we also sponsored several events in Berlin Marathon and held press conference for the launch of the Amazfit Balance at IFA-Berlin in the third quarter, and these efforts notably enhanced our brand image in the smart wearable device market. We are committed to investing efficiently in marketing and branding to ensure our sustained growth.

General and Administrative Expenses

General and administrative expenses were RMB48.0 million in the third quarter of 2023, a decrease by 8.9% year-over-year. This comprised 8.0% of revenues, compared with 4.4% in the same period in 2022. The decrease in absolute value was largely attributable to our personnel optimization initiative and strict administrative expense control.

Operating Expenses

Total operating expenses for the third quarter of 2023 were RMB193.2 million, a decrease by 36.4% year-over-year. Adjusted operating expenses, which exclude share-based compensation, were RMB180.3 million. We will maintain our cost-conscious approach in the upcoming quarters, anticipating that our operating expenses will remain at current levels or decrease further. Concurrently, we remain committed to investing in R&D and marketing activities to ensure our long-term competitiveness.

Operating Income/(Loss)

Operating income for the third quarter of 2023 was RMB10.8 million, compared with operating loss of RMB73.3 million for the same period in 2022. The recovery in operating profit was largely due to the improved gross margin of our self-branded products and reduced operating expenses.

Net Income/(Loss)

Net income attributable to Zepp Health Corporation for the third quarter of 2023 was RMB3.0 million, compared with RMB17.1 million of net loss in the third quarter of 2022. The adjusted net income attributable to Zepp Health Corporation was RMB16.0 million, compared with the adjusted net loss of RMB8.8 million for the same period of 2022.

Liquidity and Capital Resources

As of September 30, 2023, the Company had cash and cash equivalents and restricted cash of RMB981.0 million (US$134.5 million), compared with RMB1,064.0 million as of June 30, 2023 and RMB1,005.7 million as of September 30, 2022. We generated positive cash flow from our operating activities for the fifth consecutive quarter. We also successfully reduced our total debt, including short-term and long-term bank borrowing balance, by RMB117.3 million in the third quarter, and we anticipate further reductions in our debt level in the upcoming quarters.

The Company continued to manage its working capital and inventory efficiently and recorded inventory levels of RMB787.0 million as of September 30, 2023, compared to RMB742.6 million as of June 30, 2023 and RMB1,375.1 million as of September 30, 2022.

Share Repurchase Program Update

The Company announced in its third quarter 2021 earnings release that the board had authorized a share repurchase program of up to US$20 million through November 2022. On November 21, 2022, the board authorized a 12-month extension of the Company's share repurchase program. On November 20, 2023, the board further authorized the Company to extend its share repurchase program for another 12 months. Pursuant to the extended share repurchase program, the Company may repurchase its shares in the form of American depositary shares and/or ordinary shares through November 2024 with an aggregate value equal to the remaining balance under the share repurchase program. As of September 30, 2023, the Company had used US$12.3 million to repurchase 4,645,732 ADSs. The Company expects to fund the repurchases under the extended share repurchase program out of its existing cash balance.

Outlook

For the fourth quarter of 2023, the Company's management currently expects net revenues to be between RMB600 million and RMB850 million, compared with RMB1.07 billion in the fourth quarter of 2022.

This outlook is based on current market conditions and reflects the Company's current and preliminary estimates of market, operating conditions and customer demand, which are all subject to change.

Conference Call

The Company's management team will hold a conference call at 7:30 a.m. Eastern Time on Monday, November 20, 2023 (8:30 p.m. Beijing Time on November 20, 2023) to discuss financial results and answer questions from investors and analysts. Listeners may access the call by dialling:

Participants should dial in at least 10 minutes before the scheduled start time and ask to be connected to the call for "Zepp Health Corporation".

Additionally, a live and archived webcast of the conference call will be available at https://ir.zepp.com/investor. 

A telephone replay will be available one hour after the call until November 27, 2023 by dialing:

About Zepp Health Corporation

Zepp Health Corporation (NYSE: ZEPP) is a global smart wearable and health technology leader, empowering users to live their healthiest lives by optimizing their health, fitness, and wellness journeys through its leading consumer brands, Amazfit, Zepp Clarity and Zepp Aura. Powered by its proprietary Zepp Digital Management Platform, which includes the Zepp OS, AI chips, biometric sensors and data algorithms, Zepp delivers cloud-based 24/7 actionable insights and guidance to help users attain their wellness goals. To date, Zepp has shipped over 200 million units, and its products are available in more than 90 countries and regions. Founded in 2013 as Huami Corp., the Company changed its name to Zepp Health Corporation in February 2021 to emphasize its health focus with a name that resonates across languages and cultures globally. Zepp has team members and offices across North America, Europe, Middle East, Africa and Asia Pacific regions.

Use of Non-GAAP Measures

We use adjusted net income/(loss), a non-GAAP financial measure, in evaluating our operating results and for financial and operational decision-making purposes. Adjusted operating expenses represent operating expenses excluding share-based compensation expenses. Adjusted operating income/(loss) represents operating income/(loss) excluding share-based compensation expenses. Adjusted net income/(loss) represents net income/(loss) excluding share-based compensation expenses, and such adjustment has no impact on income tax. Adjusted net income/(loss) attributable to Zepp Health Corporation is a non-GAAP measure, which excludes share-based compensation expenses attributable to Zepp Health Corporation, and is used as the numerator in computation of adjusted net income/(loss) per share and per ADS attributable to Zepp Health Corporation.

We believe that adjusted net income/(loss) and adjusted net income/(loss) attributable to Zepp Health Corporation help identify underlying trends in our business that could otherwise be distorted by the effect of certain expenses that we include in net income/(loss) and net income/(loss) attributable to Zepp Health Corporation. We believe that adjusted net income/(loss) and adjusted net income/(loss) attributable to Zepp Health Corporation provides useful information about our operating results, enhances the overall understanding of our past performance and future prospects and allows for greater visibility with respect to key metrics used by our management in its financial and operational decision-making.

Adjusted net income/(loss) and adjusted net income/(loss) attributable to Zepp Health Corporation, should not be considered in isolation or construed as an alternative to net income/(loss), basic and diluted net income/(loss) per share and per ADS attributable to Zepp Health Corporation or any other measure of performance or as an indicator of our operating performance. Investors are encouraged to review the historical non-GAAP financial measures to the most directly comparable GAAP measures. Adjusted net income/(loss) and adjusted net income/(loss) attributable to ordinary shareholders, presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to our data. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure.

Exchange Rate

The Company's business is primarily conducted in China. This announcement contains currency conversions of RMB amounts into US$ solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to US$ are made at a rate of RMB 7.2960 to US$1.00, the effective noon buying rate on September 29, 2023 as set forth in the H.10 statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on September 29, 2023, or at any other rate.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: the cooperation with Xiaomi, the recognition of the Company's self-branded products; the Company's growth strategies; trends and competition in global wearable technology market; changes in the Company's revenues and certain cost or expense accounting policies; governmental policies relating to the Company's industry and general economic conditions in China and the global. Further information regarding these and other risks is included in the Company's filings with the United States Securities and Exchange Commission. All information provided in this press release and in the attachments is as of the date of this press release, and the Company undertakes no obligation to update any forward-looking statement, except as required under applicable law.

For investor and media inquiries, please contact:

In China:
Zepp Health Corporation
Grace Yujia Zhang
Email: ir@zepp.com 

Piacente Financial Communications
Tel: +86-10-6508-0677
Email: zepp@tpg-ir.com