Viomi Technology Co., Ltd Q4 FY2023 earnings call

Management Statement and Operational Highlights

• Deepened strategic collaboration with major clients, including renewing a three-year strategic cooperation agreement with Xiaomi.
• Reorganized business structure, elevating water purification department to an independent SBU to enhance R&D, production, and sales capabilities across the water purification industrial chain.
• Strengthened AIoT@Home capabilities and enriched whole-house intelligent solutions.
• Appointed a well-known actress as global brand spokesperson to boost brand influence.
• Expanded online sales network and offline channels, and pursued overseas markets.
• Inaugurated Viomi's IoT Technology Park in November 2023.
• Shifted product mix towards higher gross margin products like water purifiers and filters, leading to improved gross margin.
• Streamlined organizational structure and improved operational efficiency, reducing operating expenses by 33.4% in the second half of 2023.

Segment Performance

• IoT @ Home portfolio: In the second half of 2023, revenues were RMB529.1 million, a 28% decrease from RMB735.2 million in the second half of 2022. This was due to streamlining product offerings by reducing selling SKUs of smart white goods.
• Home water solutions: Revenues were RMB370.4 million in the second half of 2023, a 20.5% decrease from RMB399.1 million in the second half of 2022, primarily due to lower volume sold to Xiaomi Corporation.
• Consumables: Revenues were RMB178.5 million in the second half of 2023, a 4.2% decrease from RMB186.4 million in the second half of 2022, mainly due to lower volume of water purified filters sold to Xiaomi Corporation, partially offset by increased sales of Viomi brand filters.
• Small appliances and others: Revenues were RMB164 million in the second half of 2023, a 4.5% decrease from RMB275.6 million in the second half of 2022, due to ongoing product portfolio adjustments.
• Gross profit: RMB282.7 million in the second half of 2023 compared to RMB345.6 million in the second half of 2022, with gross margin at 23.8% vs. 1.6% previously. This was driven by shifting to higher gross margin products, partially offset by price decreases of clearance products.
• Full year 2023: Net revenues were RMB2,493.4 million, net loss attributable to ordinary shareholders was RMB84.7 million.

Guidance

• Continue to capitalize on IoT Technology Park infrastructure, deepen investment in water purification产业链, and strengthen in-house capabilities in research, production, and core components.
• Refine operations in areas such as optimizing revenue structure, increasing contribution of core products, and improving gross margin.
• Deepen collaboration with Xiaomi to support revenue recovery.
• Expect faster growth in overseas channels, new social media channels, and offline channels to diversify revenue sources.

Risks

• Forward-looking statements involve inherent risks and uncertainties, and actual results may differ materially from views expressed. Further information regarding risks and uncertainties is in the company's annual report on Form 20-F and other SEC filings.

Question and Answer

Q: With the recent strategic move of relocating the smart water purification system facility to the Viomi Internet Things Technology Park, can you provide insights into the new product development pipeline?

A: Recently released Viomi AI mineral water purified Quanxian with advanced technology, containing six beneficial mineral elements, aiming to lead the trend in healthy drinking water. Moving forward, will enrich product mix for different scenarios, leverage super factory for efficient production, and use data analytics for continuous improvement.

Q: Can you shed some light on Viomi's strategic initiatives for its existing product segments?

A: Other than water purification, smart kitchen and bathroom appliances saw increased revenue contribution, e.g., the MAT 3 Pro gas electric hybrid AI water heater released in March 2023. Globally cumulative household users reached 8.4 million, with at least two connected products in 23% of households by end of 2023.

Q: What is the operating strategy in 2024? Focus on products or channels?

A: 2024 strategy focuses on core products for high-quality development, with efforts on product differentiation and channel diversity. On products, focus on water purification, water heaters, kettles. On channels, improve ROI of online channels, develop new online/offline channels, deepen overseas cooperation with local partners.

Q: What is the expense plan for 2024 and which areas to invest in?

A: Strict cost control with focus on key areas. Invest in water purification products, online new social media channels to enhance brand recognition. Develop offline channels with major home appliance centers and e-commerce platforms. Strengthen cooperation with overseas distributors to boost brand exposure in overseas markets.