Viomi Technology Co., Ltd
Q4 2020 Earnings Call Transcript

Published: 25 Mar 2021

[Operator:]

Hello, ladies and gentlemen, thank you for standing by for Viomi Technology Co. Ltd's Fourth Quarter and Full Year 2020 Earnings Conference Call. 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. Cecilia Li, Senior IR Manager of the company. Please go ahead, Cecilia.

[Cecilia Li:]

Thank you, operator. Hello, everyone, and welcome to Viomi Technology Co. Ltd earnings conference call for the fourth quarter and full-year 2020. As a reminder, this conference is being recorded. The company's net financial and operating results were issued in the press release earlier today and are posted online. You can download the earnings press release and sign up for our e-mail distribution list by visiting the IR section at our website at ir.viomi.com.

[Xiaoping Chen:]

[]:]

[Cecilia Li:]

Okay. Thank you, Mr. Chen. I will quickly translate up on his remarks before discussing our financial performance for the fourth quarter 2020. Hello, everyone. Thanks for joining our fourth quarter and full-year 2020 earnings conference call. We delivered robust full-year growth of 25.3%, despite macroeconomic uncertainties and the challenging environment for the whole industry. In line with what we communicated on that earnings call, we executed on our quality growth strategy in the fourth quarter, optimized our business and product mix and further improved our business operations realizing a meaningful recovery in gross margin. Gross margin for the fourth quarter increased to 23.5% from 17.1% for the third quarter of that year and 19.9% for the fourth quarter of 2019. We will continue to execute on this growth strategy and invest more resources in branding and R&D for our IoT products, as well as our services team. In recent years, we have seen the momentum in the IoT industry continue to develop with intensity. We see the home scenario to be a key application area with holistic IoT solutions based on health services and hardware to be a flourishing channel in this industry.

[Question-and:]

[Operator:]

Thank you. We will now begin the question-and-answer session. The first question today comes from Lillian Lou with Morgan Stanley. Please go ahead.

[Lillian Lou:]

Thanks a lot. I have two questions. First of all, what's the company's 2021 strategy for the own brands and Xiaomi brands? In particular, is there guidance by categories? And the second question is on channel. What's the strategy on the offline/online channel shifts in 2021, especially when we saw some more expansion of online channel in last year because of COVID-19?

[A – Unidentified Company Representative:]

Okay. For the first question for Viomi-branded business, we can elaborate for multiple perspectives. Firstly, we will shift the Viomi brand business and product mix toward diversification with introduction of more high-end products with more advanced technologies, as well as phase out some specific SKUs with lower margins across product lines such as some SKUs of low-end washing machines and refrigerators without screens. With regard to the key categories, we will focus more on business with higher-margin and good growth momentum, such as own-branded water purifiers and sweeper robots. For Viomi-branded water purifiers, we will introduce a series of large flux water purifiers in the second-half of 2020 and we saw robust sales of some of new products such as Quanxian and new instant heating water purifiers after introduced. We've also seen the water purifiers industry developed to large flux and the industry data also show the sales contribution of large flux, as well as the instant heating water purifiers are increasing. We expect Viomi-branded water purifiers business to deliver good -- greater revenue contribution in both of home water solutions and of our overall revenues in 2021. We will also invest more in our Viomi-branded sweeper robots in particular in overseas market which we expect to be a solid goal. As we have expanded our sweeper robot team and is following additional global markets and channels for Viomi-branded sweeper robots, we think the revenue contribution from this category will increase as well. In terms of technology application, as we discussed earlier, we will focus more on AI and smartification, which reflect the key parts of IoT products. In our upcoming new product launch event in the early April, we will introduce more products with AI application. For Xiaomi-branded business, we will continue the stable and solid cooperation with Xiaomi. We are also glad to seek more cooperation with Xiaomi in the future. Okay. About the channel, we don't expect a major channel shift for Xiaomi-branded business in short-term compared to 2020. While with our overseas expansion, the sales contribution which as a percentage of total revenues will increase in 2021. In terms of revenue breakdown for 2020, the revenues from Viomi-branded business and Xiaomi-branded business contributed nearly half and half of full-year of 2020. With this -- within Viomi-branded business, approximately over 50% are from online and the rest are from offline and then from exports, which mainly consists of Viomi-branded sweeper robots. Within the online channels of full-year of 2020, Xiaomi Youpin was the largest contributor followed by Jingdong and Tmall and Suning. We saw online contribution increase during the second quarter of 2020 while with the recovery of offline channels in the second-half we didn't see a major channel shift caused by the COVID-19 for full-year of 2020.

[Xiaoping Chen:]

Okay. I will quickly translate our -- Mr. Chen's additional comments. So he said three points of our strategy for the channel expansion. So first heading into 2021, we saw a meaningful recovery of the offline channels across China market. And we will expand our offline stores and -- as well as to improve the overall offline operating system, including the user experience and the IoT design. And we will increase the offline outlets for 2021. And the second is that we will maintain very good operating system and capabilities for online channels with Youpin, Jingdong, Suning, et cetera. And lastly, we have been expanding our channels and marketing tools with new digital media, such as Douyin and Kuaishou. And we think such new media will be development training for the marketing and the development of our channel expansion as well for 2021. That's the answer from our Mr. Chen. So hope that's helpful.

[Operator:]

The next question comes from Xudong Chen with CICC. Please go ahead.

[Xudong Chen:]

Thank you for taking my question. The first one is, I observed that your gross profit margin has recovered in this quarter. What is the biggest reason for this gross profit margin recovery? And will this trend continue in 2021? That's my first question. And I will have a follow-up.

[Xiaoping Chen:]

We are confident on the recovery on margin side, as we have been executing the quality growth strategy on the following perspectives. We will continue to shift the Viomi-branded business and product mix towards diversification. We've introduced some more high-end products with higher-margin and higher ASPs. And the revenue contribution of these new products will increase. And we will continue to phase out some specific SKUs of lower margin, across product lines, such as some SKUs of lower-end washing machines and refrigerators without screens as mentioned just now. Due to the above actions, we've been taking we expect the gross margin to recover in 2021.

[Xudong Chen:]

Thanks. And my second question is, since you have a good relationship with Xiaomi and you have your own IoT platform business and Xiaomi also has their -- like like that. So, how can you balance your product and the Xiaomi platform and your platform? That's my second question.

[Xiaoping Chen:]

[Cecilia Li:]

Okay. I will quickly translate Mr. Chen back. So we can elaborate just the answer from three perspectives. So first is regarding the IoT platform of Xiaomi and our products, which connects to the . So firstly, we can show some stage from the senior management of Xiaomi recently that they clearly emphasized on their IoT platform. And we also have seen a growing shipment of in the market. Actually, most of -- many of our IoT products can be and are -- have been connected with . And we also saw those products that we sold on our Youpin platform very welcome. Secondly is about the sweeper robot business. So actually as you know that we have cooperating with Xiaomi on the sweeper robot business since 2019 and this helped us to develop our own Viomi-branded sweeper robot to expand domestic and as well as the global market. And thirdly, we are also seeking more and more cooperation with Xiaomi. And we think, we will have many opportunities to expand the product category cooperation with them in the future. So that's the answer for the question.

[Xudong Chen:]

Yes. Thank you. That’s help a lot.

[Operator:]

The next question is from Vincent Yu with Needham & Company. Please go ahead.

[Vincent Yu:]

Thank you, management for taking my questions. I have two questions. The first question is, can management talk about the view on the overall home appliance market in 2021? Are we seeing competitive pressure from industry leaders which may cause price war? And how was the first two months of 2021 going so far in terms of the consumer demand? My second question is about how much the international market contributed in fourth quarter and how big of an opportunity we see that this can grow into 2021? Thank you.

[Xiaoping Chen:]

[Cecilia Li:]

Okay. I will translate. So in the year of 2020, we saw the pressures of the whole industry due to the COVID-19 with regard to their growth -- the top line growth as well as earnings. But heading into 2021, we saw the recovery of the whole industry. Specifically, we saw that consumers paid more attention to smart products especially some IoT products and we can see the domestic market of the sweeper robot has increased very quickly since the start of this year. And you can see that during the AWE that we recently hosted and a lot of people and consumers put a lot focus on the IoT experience and the smart products. And we think the IoT products as well as the whole IoT home industry has gained more recognition compared to previously. And regarding to the competition, well, we think that many of the traditional home appliances or any -- as well as many companies they shift their focus towards develop their smart products. So we think this is a trend. But with regards to holistic IoT solutions as well as the IoT experience or services, we think we remain the leading position in this perspective. And so we will increase our resources in our branding and R&D in the IoT holistic solutions and to improve the comprehensive IoT experience. That's the answer for the first question.

[Xiaoping Chen:]

[Cecilia Li:]

Okay. I will translate. So, in terms of talking about our global market expansion, as you know that we have expanded our export market since the fourth quarter of last year. And heading into the first quarter of this year, we have been rapidly expanding our global market, especially for our Viomi-branded sweeper robot business, and we also see some very robust growth like multiple-fold in this category in global market. And as the trend continue, we think we will gain a very solid growth from the global market. And we are also seeking more channels as well. Okay. I hope this is helpful.

[Vincent Yu:]

Yes. Thank you. Appreciate it.

[Operator:]

As there are no further questions, now I'd like to turn the call back over to the company for closing remarks.

[Cecilia Li:]

Thank you once again for joining us today. If you have other questions, please contact us through the contact information on our website or The Piacente Group, our Investor Relations consultant. Thank you all. Have a good day and night.

[Operator:]

This conference has now concluded. You may disconnect your lines. Thank you.