Viomi Technology Co., Ltd (NASDAQ:VIOT) Q4 2023 Earnings Call Transcript
Viomi Technology Co., Ltd (NASDAQ:VIOT) Q4 2023 Earnings Call Transcript March 25, 2024
Viomi Technology Co., Ltd isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, ladies and gentlemen, thank you for standing by for Viomi Technology Company Limited's Earnings Conference Call for the Second Half and Full Year of 2023. 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. Claire Ji, the IR Director of the company. Please go ahead, Claire.
Claire Ji: Thank you. Hello everyone, and welcome to Viomi Technology Company Limited earnings conference call for the second half and the full year of 2023. 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 the earnings press release and sign up for the company's e-mail distribution list by visiting the IR section of the company's website at ir.viomi.com. Participating in today's call are Mr. Xiaoping Chen, the Founder, Chairman of the Board of Directors and the Chief Executive Officer; and Mr. Jinling Zhang (ph), the Head of Capital Markets and Strategy Department. The company's management will begin with prepared remarks and will continue with the 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 U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual 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 annual report on Form 20-F and other filings filed with the U.S. Securities and Exchange Commission. And the company does not assume any obligation to update any forward-looking statements except as required by law. Please also note that Viomi's earnings conference or press release and this conference call includes discussions 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. Xiaoping Chen. Mr. Chen will deliver his remarks in Chinese, followed immediately by English translation. Mr. Chen, please go ahead.
Xiaoping Chen: [Foreign Language] [Interpreted] Thank you, Mr. Chen. I will quickly translate our Founder's remarks before discussing our financial performance for the second half and full year of 2023. Hello, everyone. Thank you for joining us today on our earnings conference call for the second half and the full year of 2023. In 2023, we continue to advance our focused strategy, optimizing our product mix, and improving our operating performance through strong strategic execution, driven by the restructuring of our product mix, the revenue contribution of home water solutions and the consumable products increased to 36.8% in 2023 from 32.2% in 2022. Through cost optimization and operating efficiency improvement, our gross margin increased by 2.2 percentage points, while operating expenses decreased by 33.4% in the second half of 2023 compared to the prior year period, leading to a significantly reduced net loss margin of 2.7%.
Over the past year, we have demonstrated resilience in overcoming challenges and achieved significant progress in various areas. First, we deepened strategic collaboration with major clients including the renewal of a three-year strategic cooperation agreement with Xiaomi. Second, we reorganized our business structure and elevated our water purification department to an independent strategic business unit, comprehensively enhancing our R&D, production and sales capabilities across the entire water purification industrial chain. Through this strategic move, we now post two major business segments: AI Water and AIoT@Home, enabling synergistically development. Third, we strengthened our capabilities across AIoT@Home and enrich our whole-house intelligent solutions to address uncertainties and challenges from industry giants.
Fourth, we boosted Viomi's brand influence with the appointment of Ms. Xiwei Tian, a well-known actress in China, as our global brand spokesperson. Fifth, on the distribution side, we expanded both our online sales network and offline channel footprint we're actively pursuing overseas market. Finally, Viomi's IoT Technology Park meticulously constructed over three years was officially inaugurated in November 2023, ushering in a new era of Viomi. As a leading company in the water purification sector, we possess the industry's most extensive manufacturing and R&D facilities and have cumulatively applied for over 1,300 patents in this field by leveraging our expertise in advanced filtration technology and the material production methods. Meanwhile, we have independently established a comprehensive organizational framework and assembled an outstanding team of top talent across management, marketing, product development and quality control, encompassing product design, R&D, manufacturing and marketing further improving the market competitiveness of our water purification products.
We have also established solid industrial advantages and competitive barriers by building a water purification industry chain anchored by our world leading water purification super factory. First, we have centralized water purification product component production, leveraging our cutting-edge AIoT (ph) Technology Park and seamlessly integrated both upstream and downstream functions. We performed machine assembling, testing, warehousing and logistics in a single building in the park, effectively reducing logistics costs and improving production efficiency. Second, we have constructed the industry's leading automated and intelligent production lines for water purification products, featuring a fully automated dock factory for manufacturing certain key components.
Comprehensive intelligent collection and analyze of production data further empowers us to constantly improve the production process. Going forward, we will continue to capitalize on our infrastructure supported by our IoT Technology Park, deepen our investment in the water purification industry chain and strengthen our in-house capabilities across research, production and inception of core components to provide users with high quality water purification products. Regarding to our AIoT@Home business. We have adhered to the concept of AI helpful and concentrated on monitoring and safeguarding family health. During our recent spring product launch event on March 12, we unveiled Alpha X, a cardio respiratory detection radar equipped with millimeter wave radar technology.
This technology enables continuous comprehensive, constantly monitors of family member’s health. Alpha X provides users with intelligent functions such as one-click report generation and active alerts, empowering them to improve health tracking and safety. Meanwhile, as demand for improved leading increases throughout the housing market, we have further upgraded our IoT’s -- one-stop IoT @ Home solution with the launch of our minimum dollar space series, which provides consumers with establish, customized and more intelligent product experience. Meanwhile, we have expanded our distribution network and global channels, growing domestic channels while propelling breakthroughs in overseas markets. We have gradually expanded the range of product offers to our overseas markets, which has spurred new growth in our overseas business and strengthen its resilience to high-wind (ph) risk.
Furthermore, Viomi has established strategic partnerships with leading local channels in various countries, utilizing their local resources to further enhancing our overseas sales and service capabilities and promote sustainable growth of our overseas business in the future. Looking forward, we see immense potential and opportunities in the global market. And therefore, we will continue to refine our operations across four areas. First, we remain committed to providing our users with healthy water solutions, allowing them to enjoy an area of water quality and flavor options. Second, we will reinforce collaborations with our strategic business partners, continue to build out our leading water purification supermarket -- super factory and strengthen the industrial chain.
Third, to further accelerate the globalization of Viomi brand, we will continuously develop sales channels and expand overseas markets. Finally, we will continue to improve quality and efficiency striking a precise balance between scale expansion, organizational optimization and operational efficiency enhancements. Harnessing the strengths, we will further restore profitability driven healthy and sustainable development and create long-term value for users and shareholders. Thank you. That concludes our Founder's remarks, and I will now turn the call over to our Head of Capital Markets and Strategy, Mr. [indiscernible], to discuss our financial performance.
Unidentified Company Representative: Thank you, Mr. Chen and Claire. Thank you to everyone for making time to join us for the earnings conference call today. I will go over our unaudited financial results for the second half and full year of 2023. Net revenues were RMB1,189 million compared to RMB1,596.4 million for the second half of 2022. The decrease was mainly due to a decrease in revenues from IoT @ Home portfolio as well as small appliances and orders. Revenues from IoT @ Home portfolio decreased by 28% to RMB529.1 million from RMB735.2 million for the second half of 2022. The decrease was primarily due to the streamlining of product offerings, which was achieved by reducing selling SKUs of smart white goods, such as our smart rapid readers, smart air conditioners and smart washing machines.
Revenues from home water solutions decreased by 20.5% to RMB370.4 million from RMB399.1 million for the second half of 2022. The decrease was due to the lower volume of water purified sold to Xiaomi Corporation. Revenues from consumables decreased by 4.2% to RMB178.5 million from RMB186.4 million for the second half of 2022. The decrease was primarily due to the lower volume of water purified filters sold to Xiaomi Corporation, partially offset by the increase of sales Viomi brand water purified filters. Revenues from small appliances and others decreased by 4.5% to RMB164 million from RMB275.6 million for the second half of 2022, primarily due to the ongoing product portfolio adjustments within this category. Gross profit was RMB282.7 million compared to RMB345.6 million for the second half of 2022.
Gross margin was 23.8% compared to 1.6% for the second half of 2022. The increase was primarily driven by the company's efforts to shift the product mix towards higher gross margin products such as water purifier and filters and partially offset by a decrease in the selling price of certain clearance products as a result of the product portfolio adjustment. The operating expenses decreased by 33.4% to RMB344.3 million from RMB517.1 million for the second half of 2022, primarily attributable to the streamlining of the organizational structure and overall improved operational efficiency. In greater detail, R&D expense decreased by 19.7% to RMB113.4 million from RMB141.2 million for the second half of 2022, due to a decrease in R&D experts and related salaries and expenses.
Selling and marketing expenses decreased by 36% to RMB188.2 million from RMB294.1 million for the second half of 2022, mainly due to a decrease online platform services and logistics expenses and sales-related personnel costs. G&A expenses decreased by 47.8% to RMB42.7 million from RMB81.8 million for the second half of 2022, primarily due to the fact that a significant amount of additional expected credit loss allowance was made against the third-party -- third customer, actually, in the second half of 2022. Net loss attributable to ordinary shareholders of the company was RMB28.7 million and non-GAAP net attributable to ordinary shareholders of the company was RMB30.9 million. Despite the decrease in revenue scales, our net loss attributable to ordinary shareholders of the company narrowed by 84%, demonstrating an improvement in our operational efficiency.
Additionally, our balance sheet remains healthy. As of December 31, 2023, the company had cash and cash equivalent of RMB491.7 million, restricted cash of RMB144.6 million, short-term deposits of RMB365.8 million and short-term investment of RMB30.4 million. Next let's briefly discuss key financial results for the full year of 2023. Net revenues were RMB2,493.4 million compared to RMB3,232.7 million for 2022. Revenues from IoT @ Home portfolio decreased by RMB24.6 billion to RMB 1,220.9 million from RMB1,619.9 million for 2022. Revenues from home water solutions decreased by 11.3% to RMB604 million from RMB681.1 million for 2022. Revenues from consumables decreased by 12.3% to RMB314.4 million from RMB358.4 million for 2022. Revenues from small appliances and others decreased by 38.2% to RMB354.1 million from RMB573.3 million for 2022.
Gross profit was RMB569.5 million compared to RMB737.1 million for 2022. Gross margin was 20.8% equals the same as 2022. Total operation expenses decreased by 31.9% to RMB706.2 million from RMB1,036.5 million for 2022. In greater detail, R&D expenses decreased by 25.7% to RMB222.9 million from RMB300 million for 2022. Selling and marketing expenses decreased by 34.7% to RMB401.8 million from RMB614.9 million for 2022. G&A expense decreased by 33% to RMB81.5 million from RMB121.7 million for 2022. Net loss attributable to ordinary shareholders of the company was RMB84.7 million and non-GAAP net loss attributable to ordinary shareholders of the company was RMB84.6 million.
Claire Ji: Yeah. This concludes our prepared remarks, and we will now open the call for Q&A. Mr. Chen, our Founder; and Mr. Sam (ph), our Head of Capital Markets and Strategy will join this session and answer questions. Operator, please go ahead.
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