Zepp Health Corporation Q1 FY2026 earnings call

- **Business Transformation & Strategy** • ZEP Health is transitioning from a volume-focused traditional wearable hardware company to a premium, brand-led hybrid training platform that integrates endurance, conditioning, and recovery through connected hardware, AI-powered software, training intelligence, and data capabilities. • The company prioritizes building a strong defensive ecosystem to increase user switching costs, improve retention, and expand long-term user lifetime value.

- **Product Launches & Portfolio Expansion** • Two new entry-level watches were launched recently: Amazfit Active Max (priced ~169 USD, filling the gap between entry-level lifestyle watches and rugged outdoor lines) and Active 3 Premium, targeted at new and entry-level runners to reinforce the core volume segment. • The new flagship premium outdoor watch, T-Rex Ultra II, was launched in February 2026 at ~550 USD, the highest price point in company history, extending the top end of the premium portfolio and strengthening brand positioning. • ZEPP OS software updates have expanded key features (BioCharge energy monitoring, AI-powered ZEPP Coach training guidance) to more devices, improving user engagement.

- **Brand & Community Engagement** • The company added two-time Olympic medalist and world champion Josh Kerr to its roster of elite athlete partners, who actively use ZEP Health products in daily training to validate brand technology credibility. • A strategic collaboration with Kairos (a fast-growing global hybrid endurance competition) delivers infrastructure-level brand exposure embedded directly into the athlete experience, driving organic athlete-generated content rather than relying solely on paid promotion.

- **Financial & Operational Execution** • Strong Q4 growth was achieved without heavy discounting during the holiday season, demonstrating strengthening pricing power across the portfolio. • Prudent cost management is maintained, with most Q4 2025 operating expense increases tied to one-time items (year-end bad debt and business optimization provisions, upfront marketing for new product launches and athlete sponsorships, intellectual property protection costs) rather than structural increases. • Inventory management improved, with inventory balances decreasing to 72.8 million USD in Q4 2025 from 87.7 million USD in Q3 2025 despite strategic advance purchases of key components. Cash and cash equivalents reached 113 million USD, delivering another quarter of positive operating cash flow and strengthening liquidity. • Capital structure optimization is ongoing: 58 million USD of cumulative debt has been retired since early 2023, and Q4 2025 saw refinancing of short-term debt to long-term debt to capitalize on favorable interest rates. The company reaffirmed its 2026 share repurchase program to deliver long-term shareholder value.

For full year 2025, Amazfit branded product revenue grew 51% year-over-year, driving total company full year revenue of 259 million USD (41.8% year-over-year growth from 183 million USD in 2024). In Q4 2025, total company revenue reached 85.2 million USD (43% year-over-year growth), with Amazfit branded product sales growing 45.4% year-over-year and 12.4% sequentially. The premium Adventure Series (including T-Rex and Balance product lines) contributed an increasing share of total revenue, driving favorable product mix shift away from lower-margin legacy products. Premium segment growth lifted overall gross margins, with Q4 2025 gross margin reaching a record 40.4% (up 3.6 percentage points year-over-year and 2.2 percentage points sequentially), while full year 2025 gross margin was 38.3%. Entry-level core volume segments (including the new Active Max and Active 3 Premium) also delivered broad-based growth, expanding user reach.

- Q1 2026 revenue is guided to a range of 50 million to 55 million USD, representing 30% to 43% year-over-year growth. This guidance meets the strong momentum the company has entering 2026 and reflects visibility into current order books and strong sell-through trends in key markets, even though Q1 is traditionally a slower season for consumer electronics. - Management expects gross margin expansion to continue in 2026, driven by further product mix optimization toward higher-margin premium products and ongoing supply chain efficiency improvements. - Operating expenses as a percentage of revenue are expected to decline in 2026 as one-time Q4 2025 costs normalize and further cost efficiencies are realized. - The company reaffirms commitment to its long-term goal of delivering sustained profitable growth as premium product categories scale.

- Memory chip cost inflation is a near-term headwind, though ZEP Health notes its products have far more modest memory requirements than PCs or smartphones, and rising average selling prices have more than offset increased memory costs to date. - Foreign exchange fluctuations and global macroeconomic uncertainties present ongoing operating challenges, as do tariffs on imported goods. - Supply chain disruptions remain a potential risk, though the company has mitigated this through strategic advance inventory purchases of key components and diversified production locations. - In 2025, supply constraints limited availability of the popular Helio Strap wearable during the high-demand Q3 and Q4 holiday seasons, leaving unmet market demand.

Q: How many new product launches does ZEP Health plan for 2026 compared to 2025, what is the impact of a stronger U.S. dollar, and where can further operating expense reductions be found? / A: Management expects 2026 new product launches to be roughly the same number as 2025 (around 9 total), or slightly higher. The company’s diversified production base and broad market exposure mean a stronger U.S. dollar actually delivers a tailwind rather than a headwind. For operating expenses, front-loaded marketing costs tied to new product launch windows will normalize in coming quarters, there is additional room to reduce G&A overhead, and AI adoption will improve R&D efficiency to cut unnecessary R&D spending while sustaining product investment.

Q: What is the current sales performance of the premium Adventure Series, and what are 2026 plans for the Helio Strap and Helio Ring wearables? / A: The Adventure Series (including the T-Rex product line) played an increasingly important role in 2025, driving elevated average selling prices and improving overall product mix; new T-Rex models are already lined up for 2026 and the segment will maintain its growing importance. Helio Strap was one of the most popular products in its price range in 2025, but supply constraints limited output during peak Q3/Q4 demand; the company is resolving supply chain issues to meet full demand in 2026, and next-generation versions of both Helio Strap and Helio Ring are in development and expected to launch in the second half of 2026.