Viomi Technology Co., Ltd ($VIOT)

Hello, ladies and gentlemen. Thank you for standing by for Viomi Technology Co. Limited's Earnings Conference Call for the Second Half and Full Year of 2025. [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's Earnings Conference Call for the Second Half and Full Year of 2025. As a reminder, this conference is being recorded. The company's financial and operating results [Audio Gap] 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 in today's call are Mr. Xiaoping Chen, the Founder, Chairman of the Board of Directors and Chief Executive Officer; I'm 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 a Q&A session. Before we continue, please note that the company'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 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 include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. In addition, Viomi's press release contains a reconciliation of unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to our Founder, Mr. Xiaoping Chen. Mr. Chen will deliver his remarks in Chinese, followed immediately by English translation. Mr. Chen, please go ahead. Thank you, Mr. Chen.

[Foreign Language]

And I'll quickly translate our founder's remarks before discussing our financial performance. [Interpreted] Hello, everyone. Thank you for joining us today on our earnings conference call for the second half and full year of 2025. In the second half of 2025, amid the phase down of the national subsidy scheme for home appliance trading and the company's strategic investment in overseas market expansion, new product development and brand building, we delivered a total revenue of RMB 951 million and net income attributable to ordinary shareholders of the company of RMB 21.2 million. For the full year, our core business remained solid, achieving total revenue of RMB 2.4 billion, representing the year-over-year increase in 14.6%. Net income attributable to ordinary shareholders of the company stood at RMB 141.6 million with a net profit margin of 5.8%. Over the past year, our Global Water strategy has continued to achieve milestones highlighted by the establishment of a multinational professional team covering North America, Southeast Asia and Europe, empowered by a global perspective Global across R&D and market expansion. We have constantly achieved technological breakthroughs addressing users' diverse drinking water demand. By leveraging AI technology to enhance user experience, we are establishing Viomi as a world-leading water technology company. In the North American market, our Amazon channel delivered an outstanding performance in the second half, achieving triple-digit growth in sales on a sequential basis. During the Black Friday promotional season, our products ranked 19th in the water purifier category and fourth in under-sink RO tankless segment. Our premium flagship product, the Master 1 Mineral water purifier further enriched our product portfolio. In the Southeast Asia market, we continue to deepen our strategic cooperation with offline channels in Malaysia through the launch of the compact INNO mineral water dispenser tailored for the local market and featuring both mineralization and cooling functions. On the brand building front, we have engaged famous actors and singers from different countries to serve as brand ambassadors. The participant in offline launch event and visit our facilities, strengthening our brand technology and health image. In April 2026, we will unveil our new brand series at the WQA convention in Miami, showcasing our latest AI technologies and innovations at one of the most influential professional events in the global water treatment industry and presenting our redefined vision of better -- and Better Water to partners in North America and around the world. In manufacturing and R&D, we kept boosting our competitive edge. We achieved a key milestone in the global expansion of Viomi's Water Purifier Gigafactory, commencing full operations of our overseas premium production line. This production line integrates module functions such as instant heating and cooling and ice making, providing agile supply chain support to meet differentiated needs and the markets in North America, Europe and Southeast Asia. As of the end of 2025, our global patent application has surpassed 1,950, spanning 14 countries and regions. We have built highly competitive technological capabilities in areas such as AI-driven water quality algorithms, precision mineral control and intelligent self-cleaning, laying out a solid foundation for the continued expansion of our global business. In terms of shareholder returns, we declared a special dividend of [indiscernible] USD ADS in July 2025 in August of the same year. We authorized a new share repurchase program of USD 20 million by the end of 2025. We had repurchased a total of 1.03 million ADS amounting to approximately USD 2.5 million. In our recently purchased -- published earnings release, we declared another special dividend of USD 0.066 per share with an aggregated amount of RMB 31 million for shareholder returns as a gesture of gratitude for the long-standing trust and support of our shareholders. We deeply value the journey we take with our shareholders and remain committed to creating long-term value for them. In 2026, we will pursue our Global Water vision with greater determination, targeting breakthroughs in 4 key areas. First, for overseas markets, we will deepen our presence in core strategic markets such as North America and Southeast Asia. We are actively expanding into more countries and regions, leveraging the agility of our Water Purifier Gigafactory. We will continue to launch new localized production, extending our brand influence into broader markets. Second, to advance our differentiation in the domestic market, we will further strengthen the health-centric positioning of the Kunlun series with its alkaline mineral concept. Third, on the technology front, we will deepen the integration of AI across water purification scenarios making technological innovations, the core engine that enables Viomi to navigate market cycles and achieve sustained growth. Fourth, we will continue to strengthen collaborations with global strategic partners, fully leverage the scale effect of Water Purifier Gigafactory to elevate both scale and efficiency. Through this committed long-term approach, Viomi will continue to create value for global users and deliver sustainable return to our shareholders. Thank you. And that concludes our founder's remarks. I will now turn the call over to our Head of Capital and Investment Department, Mr. Sam Yang, to discuss our financial performance. Thank you.

Thank you, Ms. Chen and Claire. Thank you to everyone for joining us today. Let's take a look at our unaudited financial results for the second half of 2025. We recorded net revenue of RMB 950.6 million, a decrease of 25.9% from RMB 1,282.4 million for the same period of 2024, primarily due to the decrease in the home water systems. Now let's look at the performance across 3 categories. Revenues from home water system were RMB 628.2 million, a decrease of 32.1% of RMB 925.7 million for the same period of 2024, primarily due to the decline [Audio Gap] in service for water purifiers. Revenues from consumables were RMB 112.2 million, a decrease of 17.9% from RMB 133.7 million for the same period of 2024, primarily due to the decreased sales of water purifier filters to Xiaomi. Revenues from kitchen appliances and others were RMB 210.2 million, a decrease of 4.5% from RMB 220 million for the same period of 2024, primarily due to the reduction in orders from Xiaomi as well as contraction of Viomi brand product in this category. Gross profit were RMB 223.8 million compared to RMB 289.5 million for the same period of 2024. Gross margin was 23.5% compared to 22.6% for the same period of 2024. The slight increase in gross margin was mainly due to the elimination of the impact of one-off costs incurred during the divestment of certain IoT at home business and our assets. Total operating expenses were RMB 248 million, an increase of 12% from RMB 221.5 million for the same period of 2024 due to increased selling and marketing expenses and partially offset by decrease in G&A expenses. In greater detail, R&D expenses were RMB 76.3 million, an increase of 12.7% from RMB 67.7 million for the same period of 2024, mainly attributable to an increase of investment in new product development. Selling and marketing expenses were RMB 148.6 million, an increase of 29.8% from RMB 114.6 million for the same period of 2024, mainly due to an increase in brand promotion investment as well as higher personnel costs resulting from channel expansion. G&A expenses were RMB 23.1 million, a decrease of 41.2% from RMB 39.3 million for the same period of 2024, primarily due to a decrease of employee compensation costs [Audio Gap] was RMB 21.2 million and the non-GAAP net income was RMB 28.2 million. Additionally, our balance sheet remained healthy. As of December 1 -- December 31, 2025, the company had cash and cash equivalents of RMB 806.6 million, restricted cash of RMB 164.4 million, short-term deposit of RMB 258 million and short-term investment of RMB 82.6 million. Next, let's briefly discuss key financial results and audit for the full year 2025. Net revenues were RMB 2,428.2 million, an increase of 14.6% from RMB 2,119 million for 2024. Revenues from home water systems were [Audio Gap] RMB 1,686.6 million, an increase of 12.6% from RMB 1,498.4 million for 2024. Revenues from consumables were RMB 235.4 million, a decrease of 14.2% from RMB 277.7 million for 2024. Revenues from kitchen, appliances and others were RMB 506.2 million, an increase of 47.6% from RMB 342.9 million for 2024. Gross profit was RMB 615 million compared to RMB 548.7 million for 2024. Gross margin was 25.3% compared to 25.9% for 2024. Total operating expenses were RMB 529.4 million, an increase of 24.6% from RMB 424.9 million for 2024. In greater detail, R&D expenses were RMB 165.6 million, an increase of 15.9% from RMB 142.9 million for 2024. Selling and marketing expenses were RMB 277.7 million, an increase of 31.5% from RMB 211.2 million for 2024. G&A expenses were RMB 86.1 million, an increase of 21.6% from RMB 70.8 million for 2024. Net income attributable to ordinary shareholders of the company was RMB 141.6 million and non-GAAP net income attributable to ordinary shareholders of the company was RMB 155.7 million. Thank you.

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

[Operator Instructions] First question today is from Jin Yu Zhang from CICC.

Thank you very much for hosting this earnings call and giving me opportunity to raise questions. I have 3 questions covering brand development, overseas strategy and profitability growth. So first and foremost, could you share the overall performance of the company's self-owned brand, Viomi in 2025? And additionally, what are the key investment priorities and initiatives for Viomi's brand building this year?

[Foreign Language]

[Interpreted] Okay. And to answer your question, in 2025, our brand revenue was primarily from domestic online channels. And we have ranked the 10th place among the annual brands listed on Jingdong, and we also ranked 19th place in sales on Amazon U.S.A., which is a great progress. And moving forward, we will adapt a differentiated strategy in North America by launching distinct brands and positioning on online and offline channels. In particularly, in April, we will participate in the World of Coffee Fair in San Diego, and we will debut our new brand series at WQA Convention in Miami. And this marks the first step into North American offline market and showcasing the partners across the U.S. and the world, our redefined vision of better water. Thank you.

It's very clear. So here, moving to my second question on overseas expansion. So Viomi has successfully entered the U.S. and the Malaysia market. So what are the differences in your market strategies between these 2 regions? And what key challenges have you encountered? And how do you plan to mitigate them? And also, could you outline the overseas expansion goals for 2026?

[Foreign Language]

[Interpreted] And to answer your question, we have built local teams for both United States and Malaysia. And especially in the United States, we launched the Viomi branded under-sink water purifiers on Amazon, which is the online channel. And next, we will bring new brands and products tailored for the U.S. offline market in the second quarter. And this will cover not only the under-sink products but also the whole house filtration systems. And in Malaysia, our focus is offline with countertop units as the main product format, adding features like ice and cold water that match the local drinking habits. And next we will extend more offline partnerships and diversify our product lineup. But for the overseas markets in total, in the future, there are still plenty of uncertainties overseas and the geopolitical tensions continue to create headwinds. Still, we see strong opportunities. globally, and we believe we are well positioned. That's why the global expansion will remain a key part of our long-term strategy. And for 2026, we expect triple-digit growth in the overseas revenue.

Yes, very clear. So my last question comes to the company's profitability. Well, we see the company's profitability improved notably in 2025 after focusing on the water business. So for 2026 and moving forward, like next 2 to 3 years, what are the core pathways for further enhanced profitability and sustain this positive momentum.

[Foreign Language]

[Interpreted] To translate the answers, there are 3 main tasks. The first is expand overseas markets and accelerate the growth in our Viomi branded business. Currently, our margin is still on a low level, mainly because our Viomi branded products still makes up a relatively small part of the business. So by pushing into the international markets and growing the shares of our own branded sales, we can improve the profitability. And the second path is about the consumables revenue. The consumable revenues from our own branded products will be a long-term driver of the margin improvement. As more people are using Viomi water purifiers globally, the consumable revenues will start to kick in about 1 to 2 years after the equipment sales, and we start to see the trend. And then third, we will broaden our product lineup, which is adding more countertop options like ice makers, multifunctional countertop water dispensers and higher-margin whole home filtration systems. These new categories will help us reach more customers and build a stronger, more complex product portfolio and for the global expansion.

We'll now take the next question. This is from [ Xi Jing Xing ] from CMS.

[Foreign Language]

I'll quickly translate the question first. [Interpreted] Can you analyze the impact of the national subsidy reduction on the domestic market, especially when we see in the second half of 2025, the negative impact has caused the revenue decline. And can you forecast the future impact and offer us some guidance? And also, we recently noticed the [indiscernible] business development. Can you offer some heads up about the top line contribution about the cooperation with China Gas, this kind of business development?

[Foreign Language]

Okay. I'll quickly translate the answer. [Interpreted] As you can see, the impact of the national subsidy on water purifier is obvious in 2025. And due to the high base last year, the domestic market will face challenges in the first half of 2026. For products like water purifier, however, where penetration is still relatively low. So the customer demand is still growing. We expect the 2026 to return to the category's normal growth rate -- growth pace and remain relatively resilient even as consumer spending softens. As we see more and more people are choosing to use water purifiers, and we believe that trend is unreversible. And starting in 2026, water purifiers are no longer covered by national subsidies. You might see some brands still offering 15% of online commerce platforms where others don't. We didn't offer that percentage of, and we have faced in our product competitiveness. And to answer your questions about the cooperations with the gas companies, we recently reached the cooperation with the China Gas and Yan'an Energy companies like the -- companies like this. And the way we see is we are exploring new partnership models with these companies. And their showrooms and service centers across the country, reaching over 50 million household users. And both our products rely on -- highly rely on the installation service support and the production scenario fit perfectly with under-sink water purifiers and the product categories complement each other. This gives us an efficient way to enter lower-tier markets. And 2026 will be a pilot year for the partnership. This is expected to be a great opportunity for both parties, and we expect it will bring incremental growth. Thank you.

[Foreign Language]

[Foreign Language]

Okay. I'll quickly translate the answers to you. [Interpreted] This is a similar question to one of the previous questions. And the first one is we will extend our overseas market sales, especially in the United States and Malaysia, and we will use more diversified products to enter more channels. For example, for the United States, we will have explored offline channels for first time with new brand and new products with higher margins. And the second strategy is to increase the consumable revenues. As you can see, the consumable revenues has a very promising guarantee of the improvement of profitability. And we have -- our own branded water purifier sales has increased during the past few years, and we see the trend of consumable revenues to kick in after 1 to 2 years after the equipment sales. So this will be a long-term driving factor for the margin expansion. And thirdly is to improve our own brand revenue contribution by both overseas expansion and the product portfolio expansion. And lastly is we will have more diversified product lines. As of today, we still -- most of our revenues comes from the under-sink water purifier product format. And our profit margin is within the industry level. However, we are -- we will extend more diversified products with higher profit margins and ASPs like the whole house water filtration systems and countertop products equipped with diversified functions like cooling, ice making and so on.

We'll now take the next question. And this is from Brian Lantier from Zacks Small-Cap Research.

Most of my questions have already been covered. I just wanted to say I'm encouraged by the move to offline distribution in the U.S. And then just sort of big picture, looking out the impact of the subsidies was significant, obviously, in your 6-month results. But I think if you look year-over-year, you have a 14% top line growth rate. If I'm looking out over the next 3 to 5 years, is that sort of what you view as the normalized growth rate for the business, 10% to 15% top line?

[Foreign Language]

[Foreign Language]

[Interpreted] I will translate. Answers to your question. According to our estimation, we see the industry's normal growth rate would be at a high single-digit level if without the impact of the national subsidy and so on. And while the Viomi brand growth rate will be higher than the industry, mainly because driven by the enhancement of our brand strength and the expansion of our international market growth. However, another major part of our business revenue is our major clients -- key clients business such as Xiaomi. This will be aligned with the key accounts, their business performance. And in the current environment, the growth is precious. So overall, we anticipate that the company has the potential to enter into a nominal growth rate of low double-digit growth in 2027. Thank you.

Thank you. 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. Thank you once again for joining us today. If you have further questions, please feel free to contact us through the contact information on our website or our Investor Relationship consultant, PSMT Financial Communications. Thank you.

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