Hello, ladies and gentlemen, thank you for standing by for Viomi Technology Co., Ltd Earnings Conference Call for the Second-Half and Full Year 2024. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I’d now turn the call over to your host, Ms. Claire Ji, the IR Director of the Company.

Please go ahead, Claire..

Hello everyone, and welcome to Viomi Technology Co., Ltd earnings conference call for the second-half and the full year of 2024. As a reminder, this conference is being recorded. The Company's financial and operating results were issued in a press release earlier today and are posted online.

You can download the earnings press release and sign up for the company's e-mail distribution list by visiting the IR section of the company's website at ir.viomi.com. Participating in today's call are Mr. Xiaoping Chen, the Founder, Chairman of the Board of Directors and the Chief Executive Officer; and Mr.

Sam Yang, the Head of our Capital and Investment Department. The company's management will begin with prepared remarks and the call will conclude with the Q&A session. 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 Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. 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 is included in the company's annual report on Form 20-F and other filings filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required by law.

Please also note that Viomi's earnings press release and this conference call includes discussions of unaudited GAAP financial information, as well as unaudited non-GAAP financial measures. In addition, Viomi's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.

I will now turn the call over to our Founder and CEO, Mr. Xiaoping Chen. Mr. Chen will deliver his remarks in Chinese, followed immediately by English translation. Mr. Chen, please go ahead..

First, we will strengthen our domestic market presence through trade-in policy incentives and advancements in AI technology to accelerate product innovation, meeting consumers’ growing demand for an enhanced lifestyle. Second, we will drive international market expansion, further penetrating key markets such as North America and Southeast Asia.

Through region-specific product development and enhanced brand positioning, we aim to elevate Viomi's international market visibility. Third, we will continue to fortify our water purification product portfolio, maintaining an unwavering commitment to research and development.

By leading industry innovation, we strive to provide smarter, healthier water purification solutions for customers worldwide. Fourth, we will continue to deepen collaborations with our strategic partners, maximizing the advantages of the Water Purification Gigafactory.

This will enable us to achieve synergy in growth and profitability, ultimately creating long-term value for both our customers and shareholders. Thank you. That concludes our Founder's remarks. I will now turn the call over to our Head of Capital and Investment Department, Mr. Sam Yang and discuss our financial performance. Thank you..

Thank you Mr. Chen and Claire. Thank you to everyone for joining us today. Before delving into details, I would like to address the impact of business growth organization on our financial results.

In August 2024, we completed a strategic reorganization that involved divesting IoT@Home portfolio products excluding range hoods, gas stoves, and water heaters which we refer to as Divested Business.

As a result, the divested business has been deconsolidated from our financials and its historical financial results now report as discontinued operations in our consolidated financial statements. Unless otherwise stated, all financial and non-GAAP figures discussed today are presented on continuing business basis.

With that overview established, let's review our audited financial result for the second half of 2024. We achieved net revenues of RMB1,282.4 million, an increase of 42.8% from RMB897.9 million for the same period of 2023. This growth was primarily driven by the expansion of our home water system business.

To better reflect our strategic focus, we have reclassed our revenue streams into three categories effective in the second half of 2024.

Home water system included the revenue from our smart water purification products, water heaters, water kettles, water quality meters and other related business, consumables includes revenues from various water filters designed from smart water purifiers, kitchen appliances and others, includes revenues from range hood, gas stoves and other small appliances as well as installation services for Viomi’s products.

Now let's look at the performance across the three categories. Revenues from home water systems were RMB925.7 million, an increase of 58.2% from RMB585.2 million for the same period of 2023, primarily due to the increased demand of the home water system products.

Revenues from consumables were RMB136.7 million, a decrease of 24.6% from RMB181.2 million for the same period of 2023, primarily due to the decreased sales of water purifier filters sold to Xiaomi, partially offset by an increase in demand for the Viomi-branded filters.

Revenues from kitchen appliances and others were RMB220 million, an increase of 67.2% from RMB131.5 million for the same period of 2023, primarily due to increased sales of kitchen appliances sold to Xiaomi. Gross profit was RMB289.5 million compared to RMB294.5 million for the same period of 2023.

Gross margin was 22.6%, compared to 32.8% for the same period of 2023. The decrease was primarily due to a higher revenue contribution from low gross margin products leading to a shift in the product mix during the transition period.

Total operating expenses were RMB221.5 million, an increase of 6.1% from RMB208.8 million for the same period of 2023, due to higher personnel expenses during the strategic transition period, as well as the increased inputs at the market end.

In greater details, R&D expenses were RMB67.7 million, a decrease of 9.9% from RMB75.1 million for the same period of 2023, mainly due to lower depreciation and amortization expenses and personnel expenses, partially offset by increased share-based compensation expenses.

Selling and marketing expenses were RMB114.6 million, an increase of 9.6% from RMB104.6 million for the same period of 2023, mainly due to higher online promotion fees.

General and administrative expenses were RMB39.3 million, an increase of 34.8% from RMB29.1 million for the same period of 2023, primarily due to higher management personnel expenses, partially offset by a decrease in estimated allowance for accounts and notes receivables.

Net income attributable to ordinary shareholders of the Company was RMB57.4 million and the non-GAAP net income reached RMB63.3 million. This marks a significant turnaround for the same period of 2023, when we reported net loss of RMB29.7 million and RMB 30.9 million renminbi respectively.

This improvement was primarily driven by strategic reorganization that involved diversity in certain loss-making business and focus on more advantaged sectors to enhance profitability. Additionally, our balance sheet remains healthy.

As of December 31, 2024, the company had a cash and cash equivalent of RMB1,026.2 million, restricted cash of RMB141.3 million, short-term deposits of RMB115 million, and short-term investments of RMB72.5 million. Next, let's briefly discuss the key financials result for the full year of 2024.

Net revenues were RMB2,119 million, an increase of 29.3% from RMB1,638.7 million for 2023. Revenues from home water systems were RMB1,498.4 million, an increase of 39% from RMB1,077.9 million for 2023. Revenues from consumables were RMB277.7 million, a decrease of 14.5% from RMB324.7 million for 2023.

Revenues from kitchen appliances and others were RMB342.9 million, an increase of 45.2% from RMB236.1 million for 2023. Gross profit was RMB548.7 million compared to RMB522 million for 2023. Gross margin was 25.9%, compared to 31.9% for 2023. Total operating expenses were RMB424.9 million, an increase of 1% from RMB420.8 million for 2023.

In greater details, R&D expenses were RMB142.9 million, a decrease of 4% from RMB148.9 million for 2023. Selling and marketing expenses were RMB211.2 million, a decrease of 1.6% from RMB214.6 million for 2023. General and administrative expenses were RMB70.8 million, an increase of 23.5% from RMB57.3 million for 2023.

Net income attributable to ordinary shareholders of the Company was RMB33.4 million and a non-GAAP net income attributable to ordinary shareholders of the Company of RMB79.9 million. Thank you..

Okay, this concludes our prepared remarks. We will now open the call for Q&A. Mr. Chen, our Founder and Mr. Yang will join the session and answer questions. Operator, please go ahead..

Thank you. [Operator Instructions] Our first question comes from the line of Jingsheng Liu from CICC. Please go ahead with your question..

Hi, thanks for the management and congratulations for the good performance. I'm Liu Jingsheng from CICC, and I have two questions about the result, and I'll ask them one-by-one. So the first question is, after the divestment of the IoT business in 2024, we see that Viomi focuses more on water solution.

So what adjustments have been made in business operation, and organizational management in the second half of 2024, and what are the results so far? Yes, that's my first question..

Yes. Thank you, Jingsheng. Let me get to your question, and the strategic reorganization we undertook in 2024, was not a sudden decision. It was a progress that began in the second half of 2023. During that time, we elevated our water business to a strategic business unit. This move was crucial.

We have established a comprehensive manufacturing R&D, and distribution systems that are operated indifferently. And leverages our strength in water purification, ultimately enhancing our competitiveness in this sector. By the second half of 2024, we completed a strategic reorganization by divesting certain IoT at home business and related assets.

We decided to retain our water purification business, and part of our kitchen appliances line to narrow our focus, and streamline operations. In addition, we launched the integrated product marketing system, or we can see it's an IPMS. This system brings together our product channel and the brand strategies, and one comprehensive marketing framework.

I prioritize our customer experience and align our resources within the market demand. And we have been able to strengthen our brand awareness, and expand the market share in the water purifier industry. This strategic shift has a very strong financial performance.

Our full year net revenue reached RMB2.1 billion with the income from operation totaling RMBz55 million. Both exceed our previous guidance. Notably, revenue from home water's seasons grew by 37.5 year-over-year, significantly driving our overall business growth. Furthermore, we improved our operational efficiency.

Our overall operating expense ratio declined, by about 6%. And apart from the temporary increase for the personnel expenses related to the restructuring, we achieved a net income of RMB62 million reversing the losses that we experienced for past two years.

In conclusion, the completion of the regular organization, enables us to focus more on the needs of water purification for the users, and enhance our product strength to build the best-selling natural mineral water. In the meantime, we will accelerate the channel expansion and globalization, to advance the vision of Global Water. Thank you.

Next question..

Okay. Yes, thank you. And my second question is, could you give us the breakdown of the Home Water Solution in 2024, and how much did the volume and price increase respectively? And is there any new product plans for 2025? Yes, that's my second question? Thank you..

Good question. Let me just direct, to answer your question. To better reflect our strategic focus, we made some changes on how we categorize our revenue starting in the second half of 2024. First is our home water systems, which include our smart water purification products, water heaters, water kettles, and water quality meters and similar items.

This category makes up about 71% of our total revenue. And next we have the consumables. This is actually we bundle cells in water purification, and also we sell them separately. And this part attributed to 30% of the total revenue. And the last, there is teaching appliances on the orders.

This includes the revenue from range hood, gas stores and small appliances, as well as installation services for the Viomi products. It brings about 16% of total revenue. On a positive note, we kick-off our Kunlun series water purifiers in the first half of 2024, with its middle to end to high actually positioning.

We have a very strong emphasis on the healthy drink of water that is the mineral water. And we have seen a noticeable increase in our DSP. Looking ahead to 2024 - 2025, we are excited by the deepening our growth strategy in the domestic market.

We keep refining the middle to high end product line, and focus on healthy and continue to enhance the Kunlun series. During the Double 11, our AI water purifier ranked fourth, fifth and ninth on the brand boards of the Douyin, Pinduoduo, and Tmall platforms respectively. Further reinforcing our brand influence.

On the international side, we plan to enhance our product lineup, and focus on customized development tailored, actually to the North America's customer, and also cover the Southeast market. This includes adding new features like ice making, and instant cooling among others. At the same time, we expand to other key international markets.

We're also localizing and promoting our existing product series, to better meet customer needs for the local. Thank you..

Thanks for the management..

We'll now move on to our next question. Our next question comes from the line of Brian Lantier from Zacks Small Cap Research. Please go ahead. Your line is open..

Please. Good evening. Thank you. If I could ask a couple of questions on the expansion strategy. I guess first, how comfortable are you with the strategy in the U.S. And then second, regarding the expansion in Southeast Asia, have you named the partner, the home appliance partner in Malaysia. And I guess second, will there be additional.

Will that be the strategy targeting additional Southeast Asian countries going forward? Thank you..

Yes, thank you. Actually, because our new vision is the Global Water. So the Global Water's is our new strategy. We choose to enter the U.S. market, and also we have entered the Southeast market. At the first step, actually we successfully launched the products.

Actually Vortex 8 on the Kickstarter that is a great success, and we achieved 10 times our expectation. And following that success, we introduced two products to Amazon and, which has reached high recognition from the customers. And it's a continual performance is good.

And talking about the other areas about the Southeast, we have established a strategic partnership with the biggest, the biggest retailer in Malaysia. And this will bring us an ongoing good performance we believe. And with that - strategic cooperation, and we are going to launch more and more new products, to that new market..

Okay. Great. And have you identified any long-term gross margin goals, for the different revenue categories? For example hot water systems, versus kitchen appliances and consumables? I'm assuming in the long run consumables, will have the widest margin as the Gigafactory gains efficiency.

But I'm not sure if you target, or released, or identified any of those gross margin goals in the long run?.

Yes, gross margin is crucial actually, as you may note that we have obtained the average gross margin for the industry, the water purifier and we believe this gross margin will become better this year, because of the product mix - metrics actually we are going to launch.

And as I explained earlier that, we are going to launch more and more Kunlun series, which has good gross margin for the customer, and also for the market. Also we have the consumables and you know, this market is, that the gross margin for this category is, it's very decent. So we are going to keep and talk about the others.

I think, we are going to meet the average of the industry. Thank you..

Great. Thank you..

And that concludes the question-and-answer session. I would like to turn the conference back over to management, for any additional or closing comments..

Okay. And Mr. Chen would like to give a conclusion. Mr. Chen, please go ahead..

Okay. I'll briefly translate our Founder's remark conclusion. And thanks to everyone attending our conference call. Right after we complete our restructuring, and fully focus on the home water business.

We are using AI to upgrading our brand positioning, and we will invest more in the brand recognition and promotion, to increase our brand recognition globally. And about our Water Purifier Gigafactory, we have the most integrated industry lines, and the most automated production lines among the industry.

And we will continue to maximize the advantages, of our Water Purifier Gigafactory. And also we will keep fast speed on our overseas extension in the major markets, like United States and Southeast Asia.

And in conclusion, home water business is very decent business and it's sustainable is, to meeting the healthy drinking demand of mankind in a sustainable way. So we think the business everlasting for like a [indiscernible] and that's all. Thank you..

And thank you once again for joining us today. If you have any further questions, please feel free to contact us through the contact information on our website, or our investor relationship consultant, The Piacente Group..

This concludes today's conference call. Thank you for participating. You may now disconnect..