Zepp Health Corporation Reports Second Quarter 2024 Unaudited Financial Results

Health Corporation Reports Second Quarter 2024 Unaudited Financial Results

Calif., August 21, 2024 /PRNewswire/ -- Zepp Health Corporation ("Zepp" or the "Company") (NYSE: ZEPP)

today reported revenues of US$40.6 million; a basic and diluted net loss per share of US$0.04; and a basic and diluted net loss per ADS

of US$0.17 for the second quarter ended June 30, 2024; adjusted basic and diluted net loss per share of US$0.04; and adjusted basic

and diluted net loss per ADS of US$0.15. Each ADS represents four Class A ordinary shares.

Starting from the second quarter of 2024, the

Company changed its reporting currency from Renminbi ("RMB") to U.S.dollar ("US$"), to reduce the impact of increased

volatility of the RMB to US$ exchange rate on the Company's reported operating results. Since self-branded products sales of the

Company is more heavily exposed to U.S. dollar or quasi-U.S. dollar denominated markets, changing the reporting currency to US$ will more

accurately reflect the Company's performance and underlying nature of its operations. Prior period numbers have been recast into

the new reporting currency accordingly.

Mr. Wang Wayne' Huang, Chairman

and CEO of Zepp, commented, "Our second quarter performance aligned with our guidance, highlighted by a sequential increase in self-branded

product sales and the achievement of a historically high gross margin. Despite a year-over-year decline in revenue, we are confident that

the most challenging phase of our transformation has now been successfully navigated."

added, "We recently launched Zepp OS 4, a major leap in wearable tech by integrating OpenAI's GPT-4, making Amazfit smartwatches

more effective wellness companions. As we gear up for IFA in Berlin, we're excited to unveil the T-Rex 3 outdoor smartwatch with our custom-designed

chips and new Open Wearable Stereo (OWS) earbuds. This integration of smartwatches, rings, and OWS headphones has created a seamless user

experience loop, giving us a competitive edge and positioning us for growth. Additionally, our R&D team has made significant AI breakthroughs,

and we plan to release new AI hardware within six months, marking a new chapter in wearable technology. These efforts are part of our

broader strategy to increase global visibility of our brand and products. By aligning with prominent athletes and sports events, we continue

to build a strong, recognizable brand identity and create meaningful connections with consumers worldwide. Through these brand and market

investments, we have solidified our presence in major populous countries such as China, India, and Brazil. Additionally, we achieved

a breakthrough in Germany, deepened our partnership with Decathlon in France, and steadily improved our global gross margin. We believe

our growth momentum will continue into the second half of the year."

Deng, Zepp's Chief Financial Officer, added, "In the second quarter, our self-branded product sales increased by 6% sequentially,

while gross margin reached 40%, continuing the quarter-over-quarter expansion that began in the third quarter of 2023. This marks

the highest gross margin in the Company's history. This improvement was largely driven by the higher gross margin of self-branded

products, thanks to a greater proportion of new products and a more selective approach to inventory clearance. We expect this positive

gross margin trend to persist into the second half of the year. It is important to reiterate our strategy of prioritizing profitability

and leveraging self-branded revenue to sustain the overall performance of the Company. Our net loss for the first half of 2024 narrowed

year-over-year despite a decrease in sales. With the new product launches planned for the second half of 2024, we are confident in a recovery

of profitability growth momentum. In addition, our cash balance remained steady at approximately USD129 million, with inventory levels

reaching their lowest point since the first quarter of 2023. We will continue executing our share repurchase program to demonstrate our

confidence in Zepp's corporate strategy."

Second Quarter of 2024 Financial Summary

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.

2 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.

3 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)

Quarter 2024 Financial Results

for the second quarter of 2024 reached US$40.6 million, a decrease by 56.0% from the second 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 self-branded products, as the launch

of new self-branded products is more heavily weighted towards the second half of 2024. However, compared with the first quarter of 2024,

revenue increased by 1.7%, primarily driven by the increase of self-branded products sales, which more than offset the decline in the

sales of Xiaomi wearable products.

Total units shipped in the second quarter of 2024

decreased by 65.8% year-over-year to 1.3 million, compared with 3.8 million in the second quarter of 2023.

margin in the second quarter of 2024 was 40.3%, compared to 22.0% 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 second quarter of 2024 were US$10.8 million, a decrease by 15.3% year-over-year. This accounted

for 26.6% of revenues, compared to 13.8% for the same period in 2023. The decrease in research and development expenses 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 second quarter of 2024 were US$10.6 million, a slight increase by 3.3% year-over-year. This accounted

for 26.0% of revenues, compared to 11.0% for the same period in 2023.

increase was primarily as a result of the investment in marketing campaigns during the summer sports season to boost our brand

awareness. At the same time, we consistently pushed on retail profitability and channel mix improvement, which included meticulous refinement

of our retail channels and strategic staffing arrangements across sales regions. We are committed to investing efficiently in marketing

and branding to ensure our sustained growth.

General and Administrative Expenses

and administrative expenses were US$4.9 million in the second quarter of 2024, a decrease by 37.2% year-over-year. This accounted

for 11.9% of revenues, compared with 8.3% 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 second quarter of 2024 were US$26.2 million, a decrease by 14.6% year-over-year. Adjusted operating

expenses, which exclude share-based compensation, were US$25.3 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 second quarter of 2024 was US$9.9 million, compared to US$10.4 million for the second quarter of 2023. Adjusted operating

loss for the second quarter of 2024 was US$9.0 million, compared to US$8.8 million for the second quarter of 2023. Operating loss was

narrowed largely due to the improved gross margin of our self-branded products and reduced operating expenses.

loss attributable to Zepp Health Corporation for the second quarter of 2024 was US$10.8 million, compared to US$10.0 million in

the second quarter of 2023. Adjusted net loss attributable to Zepp Health Corporation, which excludes share-based compensation expenses

attributable to Zepp Health Corporation, was US$9.9 million, compared to US$8.5 million in the second quarter of 2023. Net loss and adjusted

net loss attributable to Zepp Health Corporation for the first half of 2024 was US$25.6 million and US$22.4 million, both of which represent

an improvement as compared to US$30.0 million and US$24.9 million in the first half of 2023, respectively.

Liquidity and Capital Resources

of June 30, 2024, the Company had cash and cash equivalents and restricted cash of US$128.7 million, which was in similar

level compared with the first quarter of 2024, despite a loss position. This cash position provides run way for the company to invest

and seize potential market opportunities.

Company continued to manage its working capital and inventory efficiently and recorded inventory levels of US$71.9 million as of

June 30, 2024. This reached another lowest level since June 30, 2019, marking a decrease by 1.3% and 29.8% compared with March 31,

2024 and June 30, 2023, respectively. We will continue to manage working capital tightly. Also, we anticipate further reductions

in our debt level in the upcoming quarters.

As of June 30, 2024, the Company had a total

of 236.5 million common shares outstanding, representing the equivalent of 59.1 million ADSs assuming the conversion of all common shares

Share Repurchase Program Update

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