Viomi Technology Co., Ltd Q3 FY2022 earnings call

• Product innovation: Hosted 'AI: Helpful 2.0' autumn online software launch event, launched new smart home appliances like Alpha AI range hood, Master Pro water purifier, etc. - Brand promotion: Jointly launched video interview program with Langchao Studio and Gongmao Home Appliances. - R&D capabilities: Held first annual Scientific and Technological Meeting, established post-doctoral workstation in Foshan, applied for over 5,500 global patents. - Channel expansion: Opened additional Viomi flagship stores, steady sales of bundled home solutions. - Overseas business: Showcased new products at IFA 2022 in Berlin, expect to enrich overseas offerings. - Operation optimization: Streamline SKUs, refine operational structure, implement cost control measures.

In the third quarter of 2022, Viomi's net revenues were RMB685.5 million, down from RMB1,056.5 million in the same period of 2021. The IoT @ Home portfolio had revenue of RMB376.0 million, a 41.6% decline from RMB643.5 million in Q3 2021. Home water solutions revenue was RMB119.9 million, a 23.6% decrease from RMB157.0 million. Consumables revenue was RMB70.2 million, an 11.8% drop from RMB79.6 million. Small appliances and others revenue was RMB119.7 million, a 32.2% decline from RMB176.5 million. Gross profit was RMB135.9 million, with a gross margin of 19.8% compared to 22.7% in Q3 2021.

• Q4 sales expected to decline year-over-year. - Gross margin estimated to maintain above 20% for the whole year. - Continue to optimize operation structure and SKUs, refine operational structure and implement disciplined cost control measures.

• Macro headwinds and pandemic resurgence impacting revenue. - Product portfolio adjustment leading to temporary decline in gross margin. - Overseas market affected by international geopolitics and euro exchange rate.

Q: Can you please give us more insight or color on the SKU adjustment in the third quarter for robotic sweepers and what the recent trend of robotic sweepers in China and overseas market, and are you expecting demand to remain weak in fourth quarter and 2023?

A: For the SKU adjustment, it's part of ongoing product strategy and brand positioning. Robotic sweeper market has weak demand. Q4 sales expected to decline year-over-year. Gross margin estimated to maintain above 20% for the year.

Q: What is the overseas revenue and its growth rate? How about the overseas revenues proportion in sales and what is the outlook for overseas demand?

A: Overseas sales affected by geopolitics and exchange rate. Start to sell more categories, will enrich overseas offerings and expect export sales breakthrough. Proportion of overseas revenue to be shared in future.

Q: About the strategy of premium new products and solutions and considering the relatively weak demand in the Chinese market and overseas market but Viomi build some pressure for its strategy regarding premium products. How does Viomi think about the demand of China in the future and will Viomi consider and making adjustments in the – strategy?

A: Domestic and overseas market demand is sluggish. Will make more medium-level products with price advantages, enrich overseas product portfolios, and go deeper in European market.

Q: What is the proportion of the revenue from Xiaomi in the third financial quarter? Whether the carbon cooperation is based on water purifiers what is - whether there are other categories that will cooperate with Xiaomi and what is the arrangement of the cooperation in the future?

A: Proportion of revenue from Xiaomi in Q3 is around 40%. Cooperate with Xiaomi in water purifiers, smart kitchen products, etc. Will maintain stable cooperation and explore additional categories for future cooperation.