Viomi Technology Co., Ltd
Q4 2022 Earnings Call Transcript

Published: 27 Mar 2023

[Operator:]

Hello, ladies and gentlemen, thank you for standing by for Viomi Technology Co., Ltd.'s Earnings Conference Call for the Fourth Quarter and Full-Year 2022. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I would now like to turn the call over to your host Miss Claire Ji, the IR Director of the company. Please go ahead, Claire.

[Claire Ji:]

Hello, everyone. And thank you, Rocco. And welcome to Viomi Technology Co., Ltd. earnings conference call for the fourth quarter and full-year 2022. 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 earnings press release and sign up for company's email distribution list by visiting the IR section of the company's website at ir.viomi.com. Participating in today's call is Mr. Xiaoping Chen, the Founder, Chairman of the Board of Directors and Chief Executive Officer. The company's management will begin with prepared remarks and the call will conclude with a Q&A session. Before we continue, please know 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, the company's actual result 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 as filed with the US Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required by law. Please also know that Viomi's earning press release and this conference call include discussion 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. Chen Xiaoping. Mr. Chen will deliver his remarks in Chinese, followed immediately by an English translation. Mr. Chen, please go ahead.

[Xiaoping Chen:]

Thank you, Mr. Chen. And I will quickly translate our founder's remarks before discussing our financial performance for the fourth quarter and full year of 2022. Hello, everyone. Thank you for joining us today for our fourth quarter and full-year 2022 earnings conference call. Due to the adverse impact of the pandemic and the macro headwinds, we experienced a year-over-year decline in revenue in the fourth quarter, and our business scale was greatly affected by external factors and strategic adjustments throughout 2022. Nevertheless, our gross margin in the fourth quarter increased by 3.2% quarter-over-quarter in the fourth quarter of 2022, benefiting from our product portfolio optimization efforts. Our full-year gross margin in 2022 also kept stable as compared with 2021 despite fluctuations throughout the year. In the fourth quarter, facing uncertainties of the external environment, we focused on accelerating the recovery of our business scale and optimizing our operations. First, to holistically strengthen our product portfolio, we leveraged our competitive advantages and continued to enhance our core product categories with upgraded functionalities of Viomi's longest-standing category, our AI water purification product led industry with their advanced technology. We grew sales of this product by 6% year-over-year and 133% quarter-over-quarter in the fourth quarter despite the year's challenges, reflecting our success in strengthening our product competitiveness. Going forward, we will redouble our efforts to optimize distribution channels, deepen our existing technological advantages, and further drive our products' market penetration. In addition, to improve our operating efficiency, we implemented more disciplined cost control measures. As a result, both selling and marketing, research and development expenses decreased year-over-year in the fourth quarter. In particular, selling and marketing expenses as a proportion of revenue narrowed compared with that in the second quarter of 2022 on a similar revenue scale. We will continue to optimize costs, streamline organizational structure and improve operational efficiency. While refining our operations, we also remain committed to bring more useful and user friendly whole house smart solution to customers and continuously improving intelligent experience of our products. In October, we hosted our virtual 2022 Fall Software Launching Event, 'AI

[Operator:]

[Operator Instructions]. And today's first question comes from Marcus Liang with Morgan Stanley.

[Marcus Liang:]

I have three small questions. Firstly, can I ask how sales trending year-to-date for January and February 2023? And my second question, with robot vacuum appears moderating their prices, so making the prices lower, how does Viomi see the market growth going forward and the market share also going forward? Second question and the last question is, how do you see your overseas expansion and what are you focused on? And how is this split between China and overseas revenue in 2023?

[Claire Ji:]

Can I recall your first question – first and second one?

[Marcus Liang:]

The first question is, how is the company trending year-to-date in January and February 2023? And the second question would be, as your robot vacuum competitors are lowering prices, how do you see market growth going forward and your market share?

[Claire Ji:]

In the past few months of 2022, we have observed a certain degree of recovery of our offline channel, which is attributable to by the overall offline consumption rebound. However, in the past month, due to the repeated impact of epidemic and a number of our offline dealers, stock has decreased, along with the inventory backup of offline distributors lead to decreasing in the volume of shipment of our offline sales. But on the other hand, we have more than 100 stores newly opened during 2022 and most of which are located in the prep [ph] decoration marketplace with over 200 square meters door area. We are steadily proceeding our channels expanding strategy by larger store, better merchants. Based on overall situation up to now, the offline scale has steadily increased month over month and the offline sales are expected to achieve a growth rate of over 30% compared to 2022. And to your second question about the robotic vacuum cleaners, the scale of the overseas sales decreased a lot and there are the negative impacts we all know, like the historically high price of natural gas, geopolitics and overall subdued consumption atmosphere in European market in 2022. And, well, in the domestic market, our [indiscernible] robot mainly sold online where the leading brands in this sector account for a large market share, and this sector is already under fierce competition. For our one-stop whole house intelligent solution, we will keep this product line and provide several models to meet customers' diversified needs. In the meantime, we will further optimize distribution channels, deepen our existing technology advantages in sects like water purifiers and so on. And I believe your last question is about overseas expectations. And, yes, I mentioned earlier, due to the impact – yeah, we mentioned. So, our overall revenue proportion from oversea market decreased over 50% in 2022. But while in the second half of last year, we participated in the IFA 2022 in Berlin in September for the first time, which is the world's most significant technology marketplace for the consumer and electronics industries. We showcased a number of new products to the European customers and franchises and received many positive feedback. And next to that, we accomplished the certification and assembling of air conditioners, washing machines, refrigerators in European countries, and water purifiers, smart door locks in Southeast Asia countries. And we believe with the enriched product categories and expanded regions, hopefully, our overseas sales would achieve a recovery and mitigate the decreasing sale of smart cleaning products. And in the past few months of 2022, the overseas sales of air conditioners and other home appliance products reached more than RMB 60 million. And we are aiming for the overseas sales to be doubled in 2022 compared with 2021.

[Operator:]

And our next question today comes from [indiscernible] with CICC.

[Unidentified Participant:]

I have three questions. The first one is how was the overseas market performing in 2022? And was it better or worse than the Chinese market? And what is the outlook for the overseas environment this year?

[Claire Ji:]

Your first question, we just discussed a little bit about the oversea market perform in 2022 of things strickened by the historically high price of natural gas and the geopolitics and the expectations in the consumption market in European countries remains subdued and as we used to focus on European markets with comparably simple product lines. So the overseas sales in 2022 has been heavily strickened and decreased over 50%. And as we mentioned earlier, we have enriched our product categories and extended regions like Southeast Asia countries, and hopefully our overseas sales would achieve a recovery. And also, about your question, I believe you asked about the domestic market growth, right? And the domestic business in this quarter decreased about 30% on a year-over-year basis. And both online and offline channels have been strickened hard by the negative effect of rolling COVID policies. However, we see some optimizations in revenue proportion by products, with a larger percentage of revenue contribute by water purifiers. Our overall gross margin improved more than 3% quarter-over-quarter. Looking forward, we will focus on our core product categories with technological advantages, especially water purifiers and we will double our efforts to optimize distribution channels, both online and offline. In regards of the channels, due to the repeated impact of the epidemic and a number of our offline dealer store has decreased. Along with inventory backup of offline distributors lead to a decrease in the volume of shipment of our offline sales in the past year. But on the other hand, we have opened more than 100 stores newly in 2022 and most of which are located in the prep [ph] decoration marketplace with over 200 square meters store area. We are steadily proceeding our channel extending strategy. And based on the overall situation, our offline scale has steadily increased month over month and offline sales are expected to achieve a growth rate of overall 30% compared to 2022.

[Operator:]

Thank you And ladies and gentlemen, this concludes today's question-and-answer session. I'd like to turn the conference back over to management for any additional or closing comments.

[Claire Ji:]

Okay. Thank you once again for joining us today. If you have further questions, please feel free to contact us through the contact information on our website or The Piacente Group, the company's investor relations consultant. Thank you.

[Operator:]

Thank you, everybody. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.