Grace Zhang - Investor Relations Manager Wang Huang - Founder, Chairman and Chief Executive Officer Mike Yeung - Chief Operating Officer David Cui - Chief Financial Officer.

Jason Sun - China Renaissance Suzie Xu - Citi.

Hello, ladies and gentlemen. Thank you for standing by for the Fourth Quarter and Full Year 2017 Earnings Conference Call for Huami Corporation. At this time, all participants are in listen-only mode. Today’s conference call is being recorded. I will now turn the call over to your host, Ms. Grace Zhang, Investor Relations Manager for the company.

Please go ahead, Grace..

[Audio Gap] quarter and full year 2017 earnings conference call of Huami Corporation. The Company’s financial and operational results were issued by Newswire Service earlier today and are posted online. You can also view the earnings press release by visiting the IR section of its Web site at ir.huami.com. Participating on today’s call will be Mr.

Wang Huang, our Founder, Chairman and Chief Executive Officer; Mr. Mike Yeung, our Chief Operating Officer; and David Cui, our Chief Financial Officer. Management will begin with prepared remarks and the call will conclude with a 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 US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties.

As such, [Audio Gap] The Company’s 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 Form 20-F and other public filings as filed with US Securities and Exchange Commission.

The Company does not assume any obligation to update any forward-looking statements except as required under applicable laws. Please also note that Huami’s earnings press release and this conference call includes discussions of unaudited GAAP financial information, as well as unaudited non-GAAP financial measures.

Huami’s press release contains [Audio Gap] of unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to our CEO, Wang Huang. Please go ahead..

Hello, everyone. Thank you for joining our first earnings conference call as a public company. We welcome our shareholders to the call. Our listing on NYSE was an important milestone for Huami. It increases the global value of our brand. We hope to leverage our products with U.S.

market to support our goals and drive returns for all shareholders in the year to come. Now to our results. We are happy to report a solid quarter that concludes a very strong 2017. We benefit greatly from the services launch of new products in our Amazfit product line. We leveraged our strong revenue growth to deliver increased profit for the year.

Gross margins for the quarter and the year both improved significantly. The strong demand for Mi Band 2 allows us to extend the product cycle and leverage economies of scale. We also benefited from improved efficiency in the pricing management and strong margin for both from our Amazfit products.

Overall, our results reflect our strong partnerships, solid execution and competitive position. Our strong relationship with Xiaomi was key to our performance in 2017. We leverage our brand awareness and strong distribution channels to promote our product at home and other countries.

To maintain our strong position, we continue to invest in R&D and deliver great products. We are focused on delivering value to our customers as a key chain. It is our reputation for stronger value that will support and entry into new underserved markets in 2018 and beyond.

As we look to the future, we see many ways for continued growth will add new customer segments, introduce more innovative products and enter new international markets. We expect key growth drivers to come from new product launches, product upgrades and global expansion. We will also explore ways to monetize our strategic pillar.

This opportunity ahead, we are confident to continue to grow revenue and profit in China and other countries. We look forward to providing update on our progress in 2018 and beyond. With that, I will now turn the call over to our COO, Mike. He will discuss key aspects of our operations..

Thank you. As Mr. Wang described, we have a solid quarter and year as unit shipped in the fourth quarter increased 8.3% year-over-year and monthly active users reached 11 million as of December 31, 2017, up from 8.5 million from the same date in 2016.

In 2017, we strategically extended the product cycle from Mi Band 2 through its second year after launch. A mix shift to higher ASP products, including our launch of additional Amazfit branded wearables, drove strong revenue growth and higher margins. Our continued R&D efforts allow us to launch several revolutionary Amazfit products in 2017.

We shipped over 1 million Amazfit-branded products in 2017, which is a tremendous accomplishment considering we shipped only 253,000 self-branded products in 2016. We are generally positioning Amazfit at a slight premium to Xiaomi brand, targeting a slightly higher demographic, and we remain keenly focused on delivering value in all products.

Through our strong research and development efforts, we continue to develop products that serve exciting new sectors. We have recently obtained the Chinese FDA Class II medical device approval for our ECG Health Band products. This approval provides us the license to manufacture and sell these products under the medical device umbrella.

We believe this approval made us the first company to be able to provide medical grade smart wearables and services of this nature to the huge and underserved China mass market. We are continuously seeking ways to broaden our product categories.

We are working on adding blood oxygen level measurement features to our wrist bands, detecting syndromes of sleep-related respiratory disorders. And in the future, we plan to add continuous blood pressure measurement features to our wrist bands and exploring adding blood glucose level measurement features to other wearables.

We see huge potential in the healthcare sector and we’ll continue to add more health related measurements into our new products. Going forward, we intend to incorporate more application scenarios into our products, which will drive growth in mostly active users and extend the overall user interaction lifetime.

Future products will be able to connect to more smart home appliances, and we expect to participate in growing identification and payment sectors. Up to now, we have worked with over 70 partners like Alipay in smart payments and others in areas of public transportation and smart home to greatly increase the stickiness of our products.

With this increased functionality, we envision users making Amazfit part of their everyday life to help execute a wide array of daily tasks such as accessing the subways, paying for items at a store and much more. We are also keen on the development of new geographic markets.

International expansion is an important strategy and represents a large opportunity to further grow our business and enhance our competitive position.

Our reputation for value along with the Xiaomi’s existing brand recognition and established distribution channels, uniquely positions us to penetrate underserved markets with an affordable wearable device.

The shipment volume of the international versions of our products as a percentage of our total shipment volume increased from 12.8% in the full year 2016 to 23.8% for the full year 2017. This shows our products have a competitive edge in the global market.

We have plans to increase our global presence in the near future starting with markets such as Europe, India and Southeast Asia. As Mr. Huang mentioned, our strong relationship allows us to leverage Xiaomi’s established foothold in many of these markets, which will aid our entry with affordable wearables. 2017 was a great year for Huami.

We strengthened our brand through the launch of great self-branded products and reached to new sectors that present exciting opportunities for growth. We look forward to leveraging our growing brand awareness around the world to deliver continued strong performance in 2018 and beyond. I will now hand the call over to our CFO, David..

revenues increased by 22.8% to RMB752.6 million from RMB613 million in the fourth quarter of 2016, primarily due to an increase in sales of Amazfit-branded products, which carry a higher average selling price. Gross profit increased by 34.7% to RMB166.8 million from RMB123.9 million in the fourth quarter of 2016.

Gross margin increased to 22.2% from 20.2% in the fourth quarter of 2016. The increase was driven by improved economies of scale as a result of the extended product cycle of the Mi Band 2, as well as supply chain efficiencies. Total operating expenses increased by 13.7% to RMB92 million from RMB80.9 million in the fourth quarter of 2016.

Research and development expenses increased by 31.9% to RMB45.2 million from RMB34.3 million for the fourth quarter of 2016, primarily due to an increase in expenditures for mobile application development.

General and administrative expenses decreased by 3.6% to RMB32.4 million from RMB33.6 million for the fourth quarter of 2016, primarily due to a decrease in foreign exchange loss.

Selling and marketing expenses increased by 10.2% to RMB14.3 million from RMB13 million for the fourth quarter of 2016, primarily due to an increase in expenses to promote self-branded product through e-commerce platforms. Operating income was RMB74.8 million, representing 74.3% increase from RMB42.9 million for the fourth quarter of 2016.

Our net income attributable to Huami Corporation totaled RMB72.3 million, up 58.2% from RMB43 million for the fourth quarter of 2016.

Basic and diluted net income per share attributable to ordinary shareholders of Huami Corporation was RMB0.33 and RMB0.32 respectively compared with basic and diluted net income per share of RMB0.18 and RMB0.17 respectively for the fourth quarter of 2016.

Pro forma basic and diluted net income per share attributable to ordinary shareholders of Huami Corporation was RMB0.39 and RMB0.37 respectively for the fourth quarter of 2017.

Adjusted net income attributable to Huami Corporation, which excludes share-based compensation expenses, increased by 50.8% to RMB86.5 million from RMB57.4 million for the fourth quarter of 2016. As of December 31, 2017, the Company had cash and cash equivalents of RMB366.3 million compared with RMB153.2 million as of December 31, 2016.

Now let’s turn to our full year 2017 results. To be remindful of the length of this call, I will just quickly summarize revenues, operating income and net income for the full year of 2017. I encourage you to refer to our earnings press release for further details regarding our full year financial results.

Our revenues increased by 31.6% to RMB2.05 billion from RMB1.56 billion in the full year of 2016, primarily due to strong sales of both self-branded products and Xiaomi wearable products. Operating income was RMB182 million, representing 1,259.7% increase from RMB13.4 million from the full year of 2016.

Our net income totaled RMB167.1 million, up 597.8% from RMB23.9 million for the full year of 2016. Net income attributable to Huami Corporation was RMB167.7 million compared with RMB23.9 million for the full year of 2016.

Adjusted net income attributable to Huami Corporation, which excludes share-based compensation expenses, increased by 182.2% to RMB230.5 million from RMB81.7 million for the full year of 2016. Our outlook -- now turn to our outlook for the first quarter of 2018.

The Company currently expects net revenues to be between RMB530 million to RMB550 million, which would represent an increase of about 60.1% to 66.1% from RMB331.1 million for the first quarter of 2017.

The above outlook is based on the current market expectation and reflects the Company's current and preliminary estimates of a market and operating conditions and customer demand, which are all subject to change. This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead..

We will now begin the question-and-answer session [Operator Instructions]. And the first question comes from [Harvey Thompson] with Credit Suisse..

First question is on your guidance for the first quarter, and you're looking for over 60% growth year-on-year at the low end. Can you help us better understand what's embedded into this forecast.

Maybe any growth expectations or new product launches between the Mi Band and Amazfit brand will be appreciated? And my second question is just on your Class 2 medical qualification in China.

Can you give us some color on any immediate opportunities for any new channels this qualification opens up to Huami that might have been previously closed? Thank you..

So I will pick up your first question regarding the outlook. And then Mike will pick up the other question. So in terms of the outlook for the first quarter of 2018, we look at our total shipment, which includes both Xiaomi's shipments, Xiaomi and their product shipment and also our own product shipments.

So based on that shipment we estimated we still have a few days to go, but we estimated that the range depends on the demand and the shipments in the last week. So that's how we estimated the outlook. And then in terms of the shipment number, there is no significant trend in terms of Xiaomi's product shipment and our own product shipment.

The trend will remain the same with respect to the fourth quarter results.

Mike, please?.

Regarding getting the China FDA certification, basically that means the data that we collected from our certified, medical grade certified health band can be used by doctors for diagnosis purposes, so as a result that opens up a service opportunity.

And in fact we have already launched in our app a 24x7 telephone service, where the user can call and upload their ECG data to our partner network of doctors over the phone to do preliminary counseling or advice. So that’s one.

Secondly is that obviously getting the medical grade would open up more enterprise or institutional opportunities for us such insurance, hospitals, these kinds of channels open up more in addition to targeting this consumer. So we expect the certification will bring a lot more opportunities for our ECG Health Band..

[Operator Instructions] The next question comes from Jason Sun with China Renaissance..

Can I get a sense why fourth quarter gross margin declined a little bit compared with last year quarter in 2017, given there is no new product launch and with the increasing economic scale impact? Thank you..

To answer your question, we do experienced seasonality in terms of both volume as well as margin, so that’s critically in the Q4, we have large shipment. And we experienced holiday season and our sales went up and our margin tends to be a little bit lower.

The volume goes up which could potentially give our distributors discount, so that’s why the margin is slightly lower..

Thank you. And our next question comes from [Lisa Zhou] with [indiscernible] Research..

My question is your plan for Amazfit products. Will there be a new wrist band or a new watch or product of a total new category? And if you are going to launch a new product, what is the launch and what about your price range and possible features? Thank you..

So we don’t typically review our product roadmap in earnings call, but rest assured that we will have new products and features coming very soon. But the exact features and other details we prefer not to disclose at the earnings call..

Thank you. And next question comes from the Suzie Xu with Citi..

I'd like to have a question regarding the shipment guidance for the coming two years into ’18 and '19 and a follow the international portion of the shipment. Is there any revision compared to the previous portion that you provided like based on the current performance in the first three months of this year? Thank you..

First of all, as Mike just mentioned that in 2018 we will have new product launches and it depends on the timing, it depends on the marketing strategy, pricing strategy based on the consumer demand. That could affect our sales of Mi Band 2 for instance as well as new products.

But having said that, there is certain ranges that we landed but having said that, we will still stand behind in terms of shipment, stand behind our original analyst consensus of that number..

Thank you. And the next question is a follow up from [Harvey Thompson] with Credit Suisse..

Just two quick follow up questions. I think in Mike's prepared remarks, he talked about strength in the overseas market growing from about 13% of shipments in '16 to about 24% in '17.

Can you talk about just a little bit more color, what market specific countries are seeing strength year to last year? Can we expect that to continue in 2018? Just want some more color on your growth in the overseas markets. And then two, I believe you also launched the Amazfit health band with ECG sensor also last year.

Can you give us some color on just how that ECG band is doing so far? Thank you..

In terms of the specific overseas market, we will first target India, Indonesia, Russia, Middle East and also European markets, that one. And then the second one in terms of the ECG, if you like, we just get approval from Chinese FDA on both the product and the manufacturing permission.

So we were working on opportunities on how we could expand business on the healthcare side..

Thank you [Operator Instructions]. All right. This does conclude the question-and-answer session. I would like to turn the call back over to the Company for any closing comments..

Thank you once again for joining us today. If you have further questions, please feel free to contact Huami’s Investor Relations through the contact information provided on our Web site on The Piacente Group investor relations. Thank you..