Zepp Health Corporation Reports First Quarter 2024 Unaudited Financial Results

Health Corporation Reports First Quarter 2024 Unaudited Financial Results

Calif., May 20, 2024 /PRNewswire/ -- Zepp Health Corporation ("Zepp" or the "Company") (NYSE: ZEPP)

today reported revenues of US$39.8 million; a basic and diluted net loss per share of US$0.06; and a basic and diluted net loss per ADS

of US$0.23 for the first quarter ended March 31, 2024; adjusted basic and diluted net loss per share of US$0.05; and adjusted basic

and diluted net loss per ADS of US$0.19. Each ADS represents four Class A ordinary shares.

'Wayne' Huang, Chairman and CEO of Zepp, commented, "In the first quarter of 2024, our revenue came broadly in line with

our guidance. Our gross margin performance reached a record high, and our self-branded product sales contributed over 85% of total revenues.

Notably, the MAU of our Zepp application has exceeded 10 million, marking an early success of our transformation journey."

Wayne continued: "On

the products front, we offer a diverse range of series tailored to various market needs. Each series is strategically positioned with

a thorough understanding of its competitors and targeted price ranges. We are delighted to observe that our Balance and Active product

line has gained more popularity among consumers and KOLs due to the attractive designs and innovative functionalities such as cutting-edge

AI functions, a wide range of health services and a diverse selection of watch faces and app ecosystems. This has enabled us to position

this product line to a more premium market than before and generate better gross margins. In May, we unveiled the new Amazfit Bip 5 Unity.

Through the stainless-steel appearance and bigger screen, we have brought many user-favorite software functions from our mid-to-high-end

product lines to Unity, and brought richer apps and watch faces through Zepp OS 3.0 to unity, strengthening our sub-$100 market competitiveness

and further expand our market share in emerging markets. We also launched a new product line in May, Helio Ring, which allows users who

prefer not to wear watches while sleeping to obtain 24-hour comprehensive health data monitoring. This enhances recovery for athletes

and provides readiness analysis for general users, ensuring a holistic user experience with both smartwatches and smart rings. We are

the first smartwatch brand to offer such a solution, placing us ahead of our competitors. Our software, especially the proprietary operating

system, Zepp OS, has been upgraded to version 3.5, integrating the large-model-based Zepp Flow AI system. This brings large model AI

interaction and messaging capabilities to our entire product line. The rapid application and innovation of large model AI technology

provides our smartwatch products with opportunities to surpass competitors, showcasing our company's execution and creativity capabilities.

Simultaneously, we've strategically invested in our marketing initiatives, prioritizing digital campaigns and outdoor advertising in

influential global hubs. This includes prominent placements like the Madrid airport advertising campaign and sponsorship of events such

as the recent Rotterdam Marathon. We will launch more advertisements in major global markets to amplify our market presence in coming

quarters and collaborate with major global channels like Decathlon, bringing our innovative full-range products to users during this

summer sports craze to increase our sales for the second half of the year. With exciting new product launches on the horizon, and supported

by our globalized research and management team, our confidence in our roadmap and future opportunities has never been stronger. We are

confident that our strategic investments in expanding our brand, enhancing our retail presence, and diversifying our product line will

drive growth and contribute to our long-term success."

Deng, Zepp's Chief Financial Officer, added, "The first quarter is traditionally a slower season of us, with a significant

decline of Xiaomi products sales plus a more subdued new product launch window of our self-branded products, leading to a revenue decline

of this quarter compared with last year. However, we continue to achieve a historically high gross margin of 37%, a testament to the

superior performance of our self-branded products and a well-calibrated product mix that included a higher proportion of new offerings

and reduced clearances. This accomplishment distinctly embodies our strategic intent to prioritize profitability over scale. We judiciously

maintained our GAAP and adjusted operational expenses at or below US$30 and US$28 million per quarter, consistent with since the second

quarter of last year and in line with our financial forecasts. Our commitment to stringent discretionary spending controls remains unwavering.

We persistently pursued a cost-conscious approach while continuing to invest strategically in R&D and marketing initiatives to uphold

our competitive edge."

continued, "We have also maintained vigilant oversight of our working capital throughout the first quarter. Despite a P&L

loss, we successfully sustained a positive operating cash flow for the seventh consecutive quarter. In the first quarter of 2023, we

initiated a retirement of portions of our short and long-term debt portfolio. Since the first quarter of 2023, we have successfully retired

US$46.7 million of debt. As our operating cash flow continues to strengthen,

we intend to do more in the coming quarters. With a robust cash reserve of US$132.3 million, we are exceptionally well-positioned to

seize strategic investment opportunities and capitalize on potential market expansions. As we progress through 2024, our dedication to

operational excellence and strategic foresight remains steadfast. We are resolute in our commitment to enhancing the engagement and satisfaction

of our users through continuous innovation in product features and applications. In the interim, we'll persist in our share repurchase

program, a tangible demonstration of management's unwavering confidence in the company's trajectory."

Quarter of 2024 Financial Summary

1 The US$ numbers in 2023 are referenced

with the prior 6-K disclosures, where translations from RMB to US$ are made at a rate of RMB6.8676 to US$1.00, the effective noon buying

rate on March 31, 2023 as set forth in the H.10 statistical release of the Federal Reserve Board.

Adjusted net income/(loss) attributable to Zepp Health Corporation is a non-GAAP measure, which excludes share-based compensation

expenses. The tax effect from the adjustment of the Share-based compensation expenses is nil. See "Reconciliation of GAAP and Non-GAAP

Results" at the end of this press release.

Adjusted diluted net income/(loss) is the abbreviation of adjusted net income/(loss) attributable to Zepp Health Corporation,

which is a non-GAAP measure and excludes share-based compensation expenses attributable to Zepp Health Corporation, and is used as the

numerator in computation of adjusted basic and diluted net loss per ADS attributable to Zepp Health Corporation.

4 Adjusted EBIT is a non-GAAP financial

measure, which is defined as net loss, excluding (i) share-based compensation expenses, (ii) income tax (benefit)/ expense, (iii) interest

income, (iv) interest expense.

First Quarter 2024 Financial Results

for the first quarter of 2024 reached US$39.8 million, a decrease by 55.5% from the first quarter of 2023. The decrease was primarily

due to the decrease in the sales of Xiaomi wearable products, as well as the decrease in sales of our self-branded products as we did

not launch any new self-branded products in the first quarter of 2024.

Total units shipped in the first quarter of 2024

decreased by 65.7% year-over-year to 1.2 million, compared with 3.5 million in the first quarter of 2023.

margin in the first quarter of 2024 was 36.8%, compared to 15.9% in the same period of 2023. We reached another record-high quarterly

gross margin since the third quarter of 2023, supported by the strong performance of our self-branded products and a more favourable

product mix, with a higher proportion of new products and a reduction in clearance sales, which typically have lower margins.

Research and Development Expenses

and development expenses in the first quarter of 2024 were US$13.3 million, a decrease by 18.4% year-over-year. This accounted

for 33.5% of revenues, compared to 18.3% for the same period in 2023. The decrease was as a result of 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, including AI, to maintain our competitive edge against our peers.

Selling and Marketing Expenses

and marketing expenses in the first quarter of 2024 were US$10.7 million, a decrease by 10.1% year-over-year. This accounted for

26.9% of revenues, compared to 13.3% for the same period in 2023.

decrease was primarily as a result of 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. Simultaneously, we've strategically

invested in our marketing initiatives, prioritizing digital campaigns and outdoor advertising in influential global hubs. We are committed

to investing efficiently in marketing and branding to ensure our sustained growth.

General and Administrative Expenses

and administrative expenses were US$6.4 million in the first quarter of 2024, a decrease by 7.9% year-over-year. This accounted

for 16.0% of revenues, compared with 7.7% in the same period in 2023. The decrease in absolute value was largely attributable to our

personnel optimization initiative and strict administrative expense control.

operating expenses for the first quarter of 2024 were US$30.4 million, a decrease by 13.5% year-over-year. Adjusted operating

expenses, which exclude share-based compensation, were US$28.2 million. In the first quarter of 2024, we incurred one-off expenses of

approximately US$0.5 million. We will maintain our cost-conscious approach in the upcoming quarters. We expect our operating expenses

to either 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.

loss for the first quarter of 2024 was US$15.8 million, a decrease by 24.6% year-over-year. The reduced loss was largely due to

the improved gross margin of our self-branded products and reduced operating expenses.

loss attributable to Zepp Health Corporation for the first quarter of 2024 was US$14.6 million, a decrease by 22.8% year-over-year.

The adjusted net loss attributable to Zepp Health Corporation, which excludes share-based compensation expenses attributable to Zepp

Health Corporation, was US$12.4 million, a decrease by 20.4% year-over-year.

Liquidity and Capital Resources

of March 31, 2024, the Company had cash and cash equivalents and restricted cash of US$132.3 million, We have generated positive