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

Hello, and welcome to the Deutsche Bank Depositary Receipts Virtual Investor Conference, dbVIC. I'm Zafar Aziz from the Deutsche Bank team. I'm pleased to announce that our next presentation will be from Viomi Technology Company Limited. Before I introduce our speaker, a few points to note. Please submit your questions in the questions box. All of today's presentations were recorded and can be accessed by the Deutsche Bank website, adr.db.com. At this point, I'm very pleased to welcome the Viomi Technology Limited, which trades on NASDAQ under VIOT.

Thank you for having us. Hello, everyone. Welcome to Viomi's Technology Business Update section. I'm Sam Yang, Head of Capital and Investment Department. I will begin by sharing our recent strategic development and updated financial highlights, followed by a Q&A section. Before we proceed, please note, this discussion will include forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties, and actual results may differ materially from the views expressed today. Now let's take a look of overview of Viomi. The completion of our strategic reorganization in August last year marked a pivotal milestone for the company, enabling us to sharpen our focus on core home water solutions. This strategic shift has driven strong performance in 2024, with full year net revenues reaching RMB 2.1 billion, a 29.3% increase year-over-year and a net income of RMB 62.3 million, reversing the losses reported over the past 2 years. Diluted EPS from continuing business was RMB 0.7, an increase of 25% from last year. We also maintain a robust cash position of RMB 1.2 billion. Additionally, as of today, we have filed nearly 1,800 global patent applications, including over 600 inventions, significantly outpacing the industry average. Viomi is well positioned to leverage AI technology to provide better drinking water solutions for households worldwide. There are four reasons why we believe Viomi is a great investment. First, we are leveraging innovative AI technology to power our solutions. This allows us to offer holistic intelligent water purification solutions that meet a wide variety of customer needs. Second, we have been focused on home water business for over 10 years. That experience has helped us lead the industry innovation backed by a large portfolio of patents. Third, we are expanding our presence through omnichannel distribution and international market. That is in line with the global market expected to grow at a CAGR of around 6% -- actually 7% through 2033. And finally, our strong financial position is a key asset, solid performance, substantial cash reserves that support our global expansion plans and long-term growth. Our AI-powered smart solutions, including the under-sink, whole home and installation-free products. And here is our product matrix designed to meet every needs. Starting from the left, we have under-sink RO series, which not only delivers clean freshwater but also provides higher healthy mineralized water. We offer whole health water filtration systems, including central purifiers, softeners, water dispensers and point-of-entry purifiers, covering all household water needs. And on the right, we have all installation-free products, which can easily be placed anywhere, whether in the living room, bedroom or even outdoors providing maximum flexibility. Our business model is unique and is also highly scalable, creating a powerful snowball effect. The scale of water purifier equipment brings ongoing household users. While AI technology enhance the user experience, this not only drives recurring revenue, but also delivers high margins from the consumable sales. Founded in 2014, after the invention, the first intelligent water purifier in 2015, we have been constantly redefining and leading in water purification technology. We successfully adapt ERO filtration technology, widely used in industry filtration to customer products, allowing us to adjust the beneficial elements in water to enhance health. Our latest product, the Kunlun AI Purifier series features innovative mineralization filter technology that enables the sustained release of beneficial minerals. This makes the mineral composition of water nearly identical to natural mineral water. So users can enjoy fresh, mineral-rich water right at home. Through these next-generation innovations, we are leading the trend towards healthier drinking habits. Now let me highlight some of the major breakthroughs in technologies and product innovations. For example, our tankless large-flux water purifier provide fresh drinking water 24 hours, 7-days with a flow rate up to 2,000 gallons, which is 5.7 liters a minute. This extends to use scenarios from drinking to cooking, washing vegetables and more. In addition, we have introduced DIY filter replacement to reduce maintenance costs by applying ERO technology and mineralization filters we can offer a range of water solutions from pure water to natural mineral water, driving a new wave of healthy living and awareness. We leveraged AI technology to make better water. Here is how we do it. First, our product, our equipment with the AI sensors that can detect various water data. These sensors monitor parameters like temperature, water pressure, entry point to water quality and flow rate. Based on this data, our devices can intelligently adjust the functionality to optimize performance. All of our products are connected to the cloud system, allowing them to proactive decisions. For example, our intelligent waterway self-cleaning technology system significantly actually extends filter lifespan and reduces overall cost of water purification. We also have a proprietary platform that enables remote real-time monitoring of water quality and usage. This system provides timely filter, replacement remainders, support one-click reordering and offers DIY replacement options. These innovations make our smart water purification products reliable, hassle-free and affordable, truly an essential part of daily life. Our global leading integrated water purifier gigafactory is designed to produce up to 5 million units of water purifiers annually, along with annual capacity of 13 million filters. The total investment in this state-of-art facility is about RMB 1 billion. We have established a comprehensive omnichannel distribution network to support our global market access. Domestically, we sell the Viomi branded products through all major online platforms like Jingdong, Tmall, PD and others. We also maintain a national-wide network of service centers to ensure excellent after-sale support. On the global front, our strategic partners, including Xiaomi, Jingdong and Shanghai, we collaborate with our network of dealers across the country. And our products are available through dealers on the Viomi offline stores. In November 2024, we expanded our global presence into the U.S. market through our successful crowdfunding. Our Vortex series of the under-sink RO water purifiers officially launched on Amazon, where we received a high recognition and positive feedback with a strong customer demand. In January, we made our debut at CES in Las Vegas, showcasing our intelligent home water solutions and reaffirming our position as a leader in smart water innovation. The global home water purification market is entering actually a high growth phase, categorized by varied levels of market penetration across major countries and regions. So far, the U.S. market is the largest with a size of USD 6.8 billion, while China presents a significant potential due to its comparatively lower market penetration. And now it's just 20% almost. We see growing public concern around drinking water quality along with the increasing awareness of health and environmental protection. Additionally, customer demands are becoming more diverse, seeking better taste, higher quality and more innovative solutions. These factors are driving the acceleration of market penetration worldwide. Going forward, we will focus on four key strategic initiatives. First, we will continue to fortify our water purification product portfolio and deepen our presence in the domestic market. We aim to build recurring revenue streams through aftersales services and future subscription models. Second, we will keep upgrading our automation and smart manufacturing infrastructure at our water purifier gigafactory to improve cost efficiency and scalability. Third, we plan to invest further in AI technology to accelerate product innovation, helping us to meet the increasing customer demand for elevated lifestyle. And finally, we will drive international expansion efforts, especially in key markets such as North America and Southeast Asia by tailoring products to regional preference and enhancing our brand positioning. We aim to boost Viomi's global visibility and market share. Now let's take a look at our financial performance. We delivered strong results with full year net revenues reaching RMB 2.1 billion and income from operations totaling RMB 156.3 million, both exceeding our previous guidance. We achieved net revenues of RMB 1,282.4 million, an increase of 42.8% from RMB 897.9 million for the same period of 2023. This growth was primarily driven by the expansion of water -- home water system business. To better align with our strategic focus, we have reclassified our revenue streams starting from the second half of 2024 into 3 categories. Home water systems, which included revenues from smart water purification products, water heaters, water [indiscernible], water quality meters and other business. Consumables, which include revenues from water filters designed for the smart water purifiers, kitchen appliances and others, which included revenues from range hoods, gas stoves and other appliances and an installation services from Viomi products. In the second half of 2024, we aimed net revenue of RMB 1,282.4 million, an increase 42.8% from RMB 897.9 million for the same period of 2023, again, primarily driven by expanding home water system business. Additionally, we enhanced operational efficiency with the net income from continued business rising 24% to RMB 144.7 million. Most importantly, we achieved a net revenue of RMB 62.3 million, reversing the losses reported over for the past 2 years. Thank you for your attention. We now welcome your questions and looking forward to discussions in the Q&A section.

This is a question that is the Kunlun product in line meeting expectation since your launch? Well, this is a good question. Actually, last year, we launched Kunlun product in China and it was hit in the Douyin. Actually, we do it in China. This is a very famous sales channel and recently is very popular in China. And we meet our expectation. And this year, we launched the upgraded Kunlun 4, and it's going to happen in -- actually in coming days. Today is May 15, and it will be launched tomorrow, actually. So we believe it will be a big success. Thank you. And let's go to the next question. Have your customer behavior changed since post COVID? Okay. Let's just get to the question. In China, even worldwide, I think the COVID is -- in the period of the COVID, it's a very -- the habit of the customer has already changed actually. People are more concerned about health. Before, people don't realize that the health is that important. And now we realized that the customer more and more concerned about the health. So there are demand for -- vast demand of the water solutions. And now in China, we see that, that is the trend of the habit of the people that they request more and more mineral waters. So that we launched the Kunlun series in China. And we are going to launch this kind of the series worldwide, but it will be -- happen just in the second half of this year Thanks. And let's go to the next question. Can you speak to your sales channels in North America and how the ongoing tariff negotiation between the U.S. and China affect your business? Well, let's just see -- we launched the sales in Amazon, which actually, it's the December of last year. And before we launch to Amazon, we did it in Kickstarter and we got a quick success. It's 10x our expectation. And once we go to the Amazon and we expect that the tariff will happen, that we prepared some shipments actually in December of last year, and we shipped our products actually to the U.S. So the quick question to answer this is, if we talk about the sales of Amazon, for the time being, we don't have any effect -- impact for the time being. But if we talk about the long run, we -- it's manageable, actually. So we have means and we have several approach to minimize the tariffs to keep the profit in a reasonable level. And let's go to the next question. Have you see fairly stable demand in China markets thus far in 2025? Yes. If we talk about the China, we have a stable growth, the CAGR for this year, we -- I think it's a single-digit growth. So for the water purification industry, we remain a strong growth for China. And that's -- we can see that the revenue can keep the same speed, at least just like last year. And we believe that with the demand of the people that in China, they demand more and more fresh water, the mineral water and also the demand for a variety of the water solutions in China. So once the penetration rate enhance that in China, we have more sales, we believe, and this is a great potential in China. Can you provide more details around the factors driving your increase in revenue and income? Do you expect similar growth in 2025? Well, this is a good question. The success of 2024 is coming from, number one is the focused strategy. Before we have a lot of products for the whole industry, and we have a lot of things. And now we focus on water solution. That means we are totally changed, not unlike before. And this keeps the team just focused on the what we can do and what we can do for the future. So people are more focused and the strategy is very strict and it's very clean. And we just deliver what we can do. This is number one. And then number two is we take the chance that, just like I mentioned before, the market is growing, and we just do more than we expected. That comes from the team's effort and also we are establishing the capability of the team. Right now, the company is doing more about the IPMS. That is a system that is controlling the marketing strategy and in line with the whole supply chain and R&D and a lot of things. So that is -- the synergy can just come up naturally. And number three is we are going to the international. That is very important for the future growth, especially if we are talking about it this year. Last year, we launched the sales in Amazon. And also, we started the business in Southeast, and -- it's a good starting. And this year, we are confident that the growth is continue. So it will be, we have a growing revenue and also we have a better gross margin, and we have higher absolute amount of the net profit actually. So it's good. And also you can see that the fundamental of the company is good. We have sufficient cash, and we have -- we are making money. And this company is still growing. And given the whole situation worldwide is that good. I guess we have all the questions here. So 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 GPG. Thank you.