Viomi Technology Co., Ltd (VIOT) Earnings Call Transcript & Summary

Hello, ladies and gentlemen. Thank you for standing by for Viomi Technology Company Limited earnings Conference Call for the Second Half and Full Year of 2024. [Operator Instructions] 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.

Hello everyone, and welcome to Viomi Technology Company Limited earnings conference call for the second half and full-year of 2024. 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 today's call are Mr. Xiaoping Chen, the Founder, Chairman of the Board of Directors and Chief Executive Officer; and Mr. Sam Yang, the Head of our Capital and Investment Department. The company's management will begin with prepared remarks and the call will conclude with the Q&A session. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions 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 as filed with the U.S. Securities and Exchange Commission. 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 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.

[Foreign Language].

Thank you, Mr. Chen. I will quickly translate our formal remarks before discussing our financial performance for the second half and the full year of 2024. [Interpreted] Hello, everyone. Thank you for joining us today on our earnings conference call for the second half and the full year of 2024. On August 31, 2024, we successfully completed our business reorganization, marking a pivotal milestone for Viomi as we sharpened our focus on our core home water solutions. This strategic shift has driven our strong performance in 2024 with a full year net revenue reaching RMB 2.1 billion and income from operations totaling RMB 156.3 million, both exceeding our previous guidance. Revenues from home water solutions grew by 39% year-over-year, significantly fueling our overall business expansion. Additionally, we enhanced operational efficiency, achieving a net income of RMB 62.3 million, reversing the losses reported in the past 2 years. As we move forward, Viomi is back on a fast track to high-quality growth and is well positioned to seize new opportunities in the market. With growing public awareness of the importance of healthy drinking water and supportive policies fostering product innovations, the home water purification market presents huge opportunities, leveraging over a decade of deep expertise in the water purification industry. Viomi remain committed to continuous product innovation and aims to redefine home water purification through AI technology. With our comprehensive product portfolio ranges from point-of-use our series to whole house softening and purification solutions. Our advanced features equipped with under distinct and installation-free products such as natural mineral water infusion, instant heating and cooling and ice making empower users with real-time water quality monitoring, proactive filter replacement reminders and seamless one-click reordering through our app. Furthermore, our intelligent self-cleaning water circuit technology supported by AI diagnostics greatly extensive future lifespan and reduces usage costs, enhancing both efficiency and sustainability. By addressing a wide range of household water use scenarios and catering to diverse drinking water needs across the global market, Viomi provides a smarter, more reliable and efficient water purification experience for consumers worldwide. Our August 2024 business restructure swiftly streamlined our organization, comprehensively improved our operational efficiency and sharpened our focus on home water solution business, leveraging our core strengths to drive sustainable growth. We established the IPMI, which unifies our products, channel and brand strategies under a cohesive marketing framework. By prioritizing consumer experience and aligned resources with market demand, we have strengthened Viomi's brand awareness expanded by our market share in the water purification industry. In the domestic market, Viomi leads the healthy mineral water trend. The first half of 2024 saw the launch of the Viomi Kunlun Mineral AI Water Purifier, integrating advanced AI technology to optimize the purification process. Featuring an innovative AI-powered mineralizing filter technology, it ensures the sustained release of beneficial minerals. This produces purified water with a mineral composition closely resembling natural mineral water, providing our users with fresh, mineral-rich water at home. During the 2024 Double 11 Shopping Festival, our AI water purification ranked #4, #5, and #9 on the brand leaderboards of the Douyin, Pinduoduo, and Tmall platforms, respectively, further reinforcing our brand influence. In North America, we introduced the Vortex series of under the-sink RO water purifiers, designed for users who value convenience and efficiency. Its self-installation feature has been well-received, with over 80% of users reporting a smooth installation process averaging only 20 minutes. And the Vortex tankless design and the DIY filter replacement can greatly save space and time for users. A one-to-3 wastewater ratio and 4-year long-lasting filter lifespan enhance filtration efficiency, reduce water waste and lower maintenance costs, delivering a superior user experience. This product made a strong international debut on the Kickstarter crowdfunding platform on November 5, 2024, surpassing its funding goal on the very first day with 168 backers contributing over 1,200% of the target. Following this success, the Vortex series officially commenced sales on Amazon in the U.S. on December 16, 2024, receiving high recognition and positive feedback from strong customer demand. To further solidify our presence in the global market, Viomi participated for the first time in CES 2025 in Las Vegas in January. Our intelligent home water solutions garnered widespread recognition from industry experts and attendees, reinforcing Viomi's reputation as a smart home water solutions innovator. In addition, we made significant strides in building strategic partnerships. First, we have renewed our agreement with Xiaomi for the next 3 years, reaffirming our commitment to stable and mutual beneficial collaboration. By leveraging our prospective strength, we aim to boost our business penetration in China. Furthermore, we have strengthened our cooperation with Jingdong, reaching a joint marketing agreement for the Kunlun series products to promote healthy drinking water. In March 2025, we forged a strategic partnership with Malaysia's leading home appliance retailer. Together, we will focus on expanding sales channels and promoting Viomi's water purification products to drive deeper market penetration in Malaysia. Viomi's Water Purifier Gigafactory is fundamental to our manufacturing and technology development capabilities, featuring a highly integrated industrial chain and highly automated production lines. With 100% in-house manufacturing and a fully traceable quality control system with core components, we maximized economies of scale. To strengthen innovation, we have established 2 major laboratory systems focused on advanced technology research and product compliance and reliability. These laboratories meet the stringent testing standards of various global markets, allowing us to rapidly adapt to evolving and diversified market demands while maintaining consistent and reliable product performance. As of today, Viomi has filed nearly 1,800 global patent applications, significantly outpacing the industry average. Looking forward, powered by the dual engines of advanced manufacturing and continuous innovation, we are well-positioned to further elevate our competitive edge in the water purification industry. Viomi is embarking on a new chapter as we move into 2025, guided by our vision of Global Water and our commitment to providing fresh, healthy drinking water to users worldwide. To achieve this, we will focus on 4 key strategic initiatives. First, we will strengthen our domestic market presence through trade-in policy incentives and advancements in AI technology to accelerate product innovation, meeting consumers' growing demand for an enhanced lifestyle. Second, we will drive international market expansion, further penetrating key markets, such as North America and Southeast Asia. Through region-specific product development and enhanced brand positioning, we aim to elevate Viomi's international market visibility. Third, we will continue to fortify our water purification product portfolio, maintaining an unwavering commitment to research and development. By leading industry innovation, we strive to provide smarter, healthier water purification solutions for consumers worldwide. Fourth, we will continue to deepen our [ laboratories ] with strategic partners, maximizing the advantages of the Water Purification Gigafactory. This will enable us to achieve synergy in growth and profitability, ultimately creating long-term value for both our customers and shareholders. Thank you. hat concludes our Founder's remarks. I will now turn the call over to our Head of Capital and Investment Department, Mr. Sam Yang and discuss our financial performance. Thank you.

Thank you, Mr. Chen and Claire. Thank you to everyone for joining us today. Before delving into details, I would like to address the impact of business growth organization on our financial results. In August 2024, we completed a strategic reorganization that involves divesting IoT@Home portfolio products, excluding range hoods, gas stoves and water heaters, each we refer to as the Divested Business. As a result, the Divested Business has been deconsolidated from our financials and its historical financial results now reported as discontinued operations in our consolidated financial statements. Unless otherwise stated, all financial and non-GAAP figures discussed today are presented on a continuing business basis. With that overview established, let's review our unaudited financial results for the second half of 2024. We achieved net revenues of RMB 1,282.4 million, an increase of 42.8% from RMB 897.9 million for the second period of 2023. This growth was primarily driven by the expansion of our home water systems business. To better reflect our strategic focus, we have reclassed our revenue streams into 3 categories, effective in the second half of 2024. Home water systems included the revenue from our smart water purification products, water heaters, water kettles, water quality meters and other related business. Consumables' includes revenues from various water filters designed from smart water purifiers. Kitchen appliances and others, includes revenues from range hoods, gas stoves and other small appliances as well as installation services for Viomi's products. Now let's look at the performance across the 3 categories. Revenues from home water systems were RMB 925.7 million, an increase of 58.2% from RMB 585.2 million for the same period of 2023, primarily due to the increased demand of home water system products. Revenues from consumables were RMB 136.7 million, a decrease of 24.6% from RMB 181.2 million for the same period of 2023, primarily due to the decreased sales of water purifier filters sold to Xiaomi, partially offset by an increase in demand for Viomi brand filters. Revenues from kitchen appliances and others were RMB 220 million, an increase of 67.2% from RMB 131.5 million for the same period of 2023, primarily due to increased sales kitchen appliances sold to Xiaomi. Gross profit were RMB 289.5 million compared to RMB 294.5 million for the same period of 2023. Gross margin was 22.6% compared to 32.8% for the same period of 2023. The decrease was primarily due to a higher revenue contribution from low gross margin products, leading to a shift in the product mix during the transition period. Total operating expenses were RMB 221.5 million, an increase of 6.1% from RMB 208.8 million for the same period of 2023 due to higher personnel expenses during strategic transition period as well as increased input at the market. In greater details, R&D expenses were RMB 67.7 million, a decrease of 9.9% from RMB 75.1 million for the same period of 2023, mainly due to lower depreciation and amortization expenses and personnel expenses partially offset by decreased share-based compensation expenses. Selling and marketing expenses were RMB 114.6 million, an increase of 9.6% from RMB 104.6 million for the same period of 2023, mainly due to higher online promotion fees. General and administrative expenses were RMB 39.3 million, an increase of 34.8% from RMB 29.1 million for the same period of 2023, primarily due to higher management personnel expenses, partially offset by a decrease in estimated allowance for accounts and notes receivables. Net income attributable to ordinary shareholders of the company was RMB 57.4 million and the non-GAAP net income reached RMB 63.3 million. This marks a significant turnaround for the same period of 2023 when we reported net loss of RMB 29.7 million and RMB 30.9 million, respectively. This improvement was primarily driven by strategic reorganization that involved divesting certain loss-making business and focus on more advantaged sectors to enhance profitability. Additionally, our balance sheet remains healthy. As of December 31, 2024, the company had cash and cash equivalents of RMB 1,026.2 million, restricted cash of RMB 141.3 million, short-term deposit of RMB 115 million and short-term investment of RMB 72.5 million. Next, let's briefly discuss the key financial results for the full year of 2024. Net revenues were RMB 2,119 million, an increase of 29.3% from RMB 1,638.7 million for 2023. Revenues from home water systems were RMB 1,498.4 million, an increase of 39% from RMB 1,077.9 million for 2023. Revenues from consumables were RMB 277.7 million, a decrease of 14.5% from RMB 324.7 million for 2023. Revenues from kitchen appliances and others were RMB 342.9 million, an increase of 45.2% from RMB 236.1 million for 2023. Gross profit was RMB 548.7 million compared to RMB 522 million for 2023. Gross margin was 25.9% compared to 31.9% for 2023. Total operating expenses were RMB 424.9 million, an increase of 1% from RMB 420.8 million for 2023. In greater details, R&D expenses were RMB 142.9 million, a decrease of 4% from RMB 148.9 million for 2023. Selling and marketing expenses were RMB 211.2 million, a decrease of 1.6% from RMB 214.6 million for 2023. General and administrative expenses were RMB 17.8 million, an increase of 23.5% from RMB 57.3 million for 2023. Net income attributable to ordinary shareholders of the company was RMB 33.4 million and non-GAAP net income attributable to ordinary shareholders of the company was RMB 79.9 million. Thank you.

Okay. This concludes our prepared remarks. We will now open the call for Q&A. Mr. Chen, our Founder and Mr. Yang will join the session and answer questions. Operator, please go ahead.

[Operator Instructions] Our first question comes from the line of Jingsheng Liu from CICC.

Congratulations for the good performance. I'm Jingsheng Liu from CICC. And I have 2 questions about the results and I'll ask them one by one. So the first question is, after the divestment of the IoT business in 2024, we see that Viomi focuses more on home water solutions. So what adjustments have been made in business operation and organizational management in the second half of 2024? And what are the results so far? Yes, that's my first question.

Yes. Thank you, Jingsheng. Let me get to your question. And the strategic reorganization we undertook in 2024 was not a sudden decision. It was a progress that began in the second half of 2023. During that time, we elevated our water business to a strategic business unit. This move was crucial. We have established a comprehensive manufacturing, R&D and distribution systems that are operated independently and leveraged our strength in water purification, ultimately enhancing our competitiveness in this sector. By the second half of 2024, we completed a strategic reorganization by divesting certain IoT@Home Business and related assets. We decided to retain our water purification business and part of our kitchen appliances line to narrow our focus and streamlined operations. In addition, we launched the integrated product marketing system or we can see its IPMS. This system brings together our product channel and brand strategies and one comprehensive marketing framework by prioritized our customer experience and aligned our resources with the market demand. And we have been able to strengthen our brand awareness and expand the market share in the water purifier industry. This strategic shift has a very strong financial performance. Our full year net revenue reached RMB 2.1 billion, with the income from operations totaling RMB 155 million, both exceeded our previous guidance. Notably, revenue from home water systems grew by 37.5% year-over-year, significantly driving our overseas overall business growth. Furthermore, we improved our operational efficiency. Our overall operating expense ratio declined by about 6%. And apart from the temporary increase for the personnel expenses related to the restructuring, we achieved a net income of RMB 62 million, reversing the losses that we experienced for the past 2 years. In conclusion, the completion of the regular organization enables us to focus more on the needs of water purification for the users and enhanced our product strength to build the best-selling natural mineral water. In the meantime, we will accelerate the channel expansion and globalization to advance the vision of Global Water. Thank you. Next question?

Okay. And my second question is, could you give us the breakdown of the home water solution in 2024? And how much did the volume and price increase, respectively? And is there any new product plan for 2025? Yes, that's my second question.

Good question. Let me just direct to answer your question. To better reflect our strategic focus, we made some changes on how we categorized our revenue starting in the second half of 2024. First is, our home water systems, which include our smart water purification products, water heaters, water kettles and water quality meters and similar items. This category makes up about 71% of our total revenue. And next, we have the consumables. This is actually we bundled sales in the water purification and also we sell out separately. And this part attributed to 30% of the total revenue. And last, there is heating appliances and others. This includes the revenue from range food, gas stores and small appliances as well as installation services for the Viomi products. It brands about 60% of our total revenue. On a positive note, we kicked off our Kunlun series water purifiers in the first half of 2024. With the middle to end to high actually positioning, we have a very strong emphasis on the healthy drinking water that is the mineral water. And we have seen a noticeable increase in our ASP. Looking ahead to 2025, we are excited by the deepening our growth strategy. In the domestic market, we keep refining the middle to high-end product line and focus on healthy and continue to enhance equipment series. During the Double 11, our AI water purifier ranked #4, #5 and #9 on the brand of the Douyin, Pinduoduo and Tmall platforms, respectively, further reinforcing our brand influence. On the international side, we plan to enhance our product line-up and focus on customized development tailored actually to the North America customer and also cover the Southeast market. This includes adding new features like ice making and instant cooling among others. At the same time, we expand to other key international markets. We are also localizing and promoting our existing product series to better meet the customer needs for the local.

Our next question comes from the line of Brian Lantier from Zacks Small Cap Research.

If I could ask a couple of questions on the expansion strategy. I guess, first, how comfortable are you with the strategy in the U.S.? And then, second, regarding the expansion in Southeast Asia, have you named the partner, the home appliance partner in Malaysia? And I guess, second, will there be additional -- will that be the strategy targeting additional Southeast Asian countries going forward?

Yes. Actually, because our new region is the global water, so the global water is our new strategy. We choose to enter the U.S. market and also we have entered the Southeast market. The first step, actually, we successfully launched the product actually last half 8 on the kick starter. That is a good success and we achieved 10x our expectation. And following that success, we introduced 2 products to Amazon and which has reached a high recognition from the customers and it's a continued performance. It's good. And talking about the other areas about the Southeast, we have established a strategic partnership with the biggest retailer in Malaysia. And this will bring us an ongoing good performance, we believe. And with that strategic cooperation and we are going to launch more and more new products to that new market.

Okay, great. And have you identified any long-term gross margin goals for the different revenue categories, for example, hot water systems versus kitchen appliances and consumables? I'm assuming in the long run, consumables will have the widest margin as the Gigafactory gains efficiency. But I'm not sure if you'd targeted or released or identified any of those gross margin goals in the long run.

Yes. Gross margin is crucial actually. As you may note that we have obtained the average gross margin for the industry, the water purifier. And we believe this gross margin will become better this year because of the product mix metrics actually we are going to launch. And as I explained earlier that we are going to launch more and more Kunlun series, which has good gross margin for the customer and also for the market. Also, we have the consumables. And this market is -- the gross margin for this category is -- it's very decent. So we are going to keep and talk about the others. I think we are going to meet the average of the industry.

And that concludes the question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments.

Okay. And Mr. Chen would like to give a conclusion. Mr. Chen, please go ahead.

[Foreign Language]

Okay. I'll briefly translate our Founder's remarks conclusion. [Interpreted] Thanks to everyone attending our conference call right after we completed our restructuring and fully focused on the home water business, we are using AI to upgrading our brand positioning. And we will invest more in the brand recognition and promotion to increase our brand recognition globally. And about our Water Purifier Gigafactory, we have the most integrated industry lines and the most automated production lines among the industry. And we will continue to maximize the advantages of our Water Purifier Gigafactory. And also, we will keep fast speed on our overseas expansion in the major markets like the United States and Southeast Asia. And in conclusion, home water business is a very decent business. And it's sustainable to meeting the healthy drinking demand of maintain in a sustainable way. So we think it's the business everlasting for like [indiscernible] That's all. Thank you. And thank you once again for joining us today. If you have any further questions, please feel free to contact us through the contact information on our website or our Investor Relationship consultant, the PSMT Group.

This concludes today's conference call. Thank you for participating. You may now disconnect.