Zepp Health Corporation (ZEPP) Earnings Call Transcript & Summary

Hello, ladies and gentlemen. Thank you for standing by for Zepp Health Corporation's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Ms. Grace Zhang, Director of Investor Relations for the company. Please go ahead, Grace.

Hello, everyone, and welcome to Zepp Health Corporation's Second Quarter 2026 Earnings Conference Call. The company's financial and operating results were issued in a press release for the newswire services earlier today and are posted online. You can also view the earnings press release and slides refer to on this call by visiting the IR section of the company's website. Presenting today are Huang Wang, our Founder and Chief Executive Officer; and Leon Deng, our Chief Financial Officer. Joining us today will also have Mike Yeung, Chief Operating Officer and General Manager of North America; and Eric Fleming, Vice President of Capital Markets of North America. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. 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 are included in the company's annual report on Form 20-F for the fiscal year ended December 31, 2025, and other filings as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to forward-looking statements, except as required under applicable law. Please also note Zepp's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial information. Zepp'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 CEO, Mr. Huang Wang. Please go ahead.

Hello, everyone, and thank you for joining Zepp Health's Second Quarter 2026 Earnings Call. In the second quarter, revenue reached USD 63.5 million, representing year-over-year growth of 6.9%. Gross margin was 37.4%, improving by 120 basis points from the same period last year. This was measured rather than explosive growth. However, the quality and direction of their improvements are important. Before all of our new products have fully completed their production ramp and channel expansion. We have already returned to year-over-year revenue growth, while improving gross margin. This improvement was achieved despite higher memory and other components clauses. During the first half of this year and partially -- particularly during the second quarter, we launched or expanded products across our major families with each family serving a distinct strategic role. I would therefore like to use this opportunity to explain how our major product families are developing and more importantly, how they are collectively changing the quality and the longer-term growth potential of our business. The first clear development is that our product mix is moving towards higher value products. Within the T-Rex family, we have established a mature and stable higher-end product structure. T-Rex 3 Pro and T-Rex Ultra 2 have U.S. stagestic retail prices of approximately USD 399 and USD 549, respectively. These higher-end models have continued to account for approximately 50% of recent global T-Rex family activations. The important point is that this higher-end mix has been sustained at approximately half of the family, demonstrating durable consumer acceptance of both our higher and products and a broader T-Rex price matters. The active family demonstrates our ability to create and expand a new price here. Using a strict definition that includes only Active 3 Premium and Active Max, both positioned at a U.S. suggested retail price of USD 169. This tier increased from approximately 22% of global active family acquisitions in the first quarter to approximately 40% in the second quarter. It reached approximately 49% in July and approximately 57% through over '25. There were no U.S. -- USD 169 active products in the comparable period last year. This, therefore, represents genuine adoption of a new higher price tier rather than a reclassification of existing products. The overall scale of Active is very important, following the recovery in deep supply total global monthly acquisitions of the active family remain broadly comparable with those of Bip in both July and August to date. This comparison is particularly meaningful because Bip itself has returned to a strong scale and continue to experience strong consumer demand. It demonstrates that active family centered largely in the USD 100 to USD 200 price range can now sustain approximately the same global activation scale as Bip family. Our family and court in the sub USD 100 segment, even after the surprise constrained on Bip was removed. Together with the growing contribution of our $169 active products, this provides strong evidence that our overall volume mix is moving towards higher value product brands. The Balance family provides more than another example of premiumization, it is also important evidence that our strategic focus on Hybrid Training is beginning to translate into product adoption and growth. Balance 3 was designed around the core needs of Hybrid Training users athletes who combines strange endurance and recovery within a single training system. Together with Balance Ultra and Helio Strap Pro, this supports our goal of building a differentiation position in Hybrid Training rather than competing only as another general products variable brand. Our sustained engagement with the HYROX and Hybrid Training communities has given us a deeper understanding of these athletes and their training needs. Balance also entered this product cycle with the benefit of several generations of accumulated product credibility and user trust. Another increasing important source of the competitiveness is the product design language and aesthetic capability, we have established across our higher-end portfolio this year. The most direct way to understand this progress is to experience the products themselves to see, touch and wear them and to appreciate that only their performance, but also their materials form unfinished. Achieving both objectives at the same time requires significant engineering investments. The broader use of the metal more refined materials and more sophisticated industry design can affect Atena performance was connected value, positioning signals and sensor sensibility, if they are not carefully engineered, our ability to impose materials craftmanship and design, while maintaining a higher level of GPS connectivity, sensor and export performance is, therefore, not simple and as septic achievement. We believe it is an important and increasingly differentiated technology capability. This capability is particularly visible in the new Balance generation. Balance 2 has U.S. states retail price of USD 29.99. Balance 3 starts at USD 369.99. Balance 3 titanium is priced at USD 499.99 and Ultra at USD 599.99. Despite this meaningful step-up in price, adoption of the new generation has developed quickly. Balance 3 and the Balance Ultra together increased from approximately 3% of global Balance family activations in the second quarter to approximately 26% in July and approximately 30% through August '25. This was not simply a mix shift caused by the replacement of the earlier generation products. In July, total global Balance family activations increased by more than 1/3 compared with the monthly average in the second quarter. While activations of the early generation Balance products remain relatively stable. Balance 3 and Balance Ultra were announced in early June with production and channel deployment ramping through July and August. Initial supply of certain titanium models began only in August. The earlier momentum we have observed validates our product direction and Hybrid Training strategy. However, the new generation has not yet merged the scale or made the financial contribution that we believe is ultimate can. Taken together, these 3 families demonstrate different but complementary capabilities. T-Rex shows that we can sustain in a mature high-end structure, Active so that we can establish a new price tier and scale the overall family. Balance shows that our strategic investment in Hybrid Training, product design and engineering can support sustained -- sorry, higher prices, incremental demand and a differentiated market position. Zepp provides the other side of our product strategy, a strong entry-level foundation combined with improving pricing discipline. Zepp is our entry-level product family anchored by Bip 6 and in the USD 100 segment at a U.S. suggested retail price USD 79.99. Bip 6 was launched 17 months ago, although its availability was contained during the second quarter. Demand remained very strong after supply recovered. This reinforced our confidence in the product competitiveness and its ability to sustain a meaningful longer life cycle. The longevity of Bip 6 is also supported by our vertically integrated technology stack. Our enhanced processor platform was designed with meaningful computational headroom. For continued optimization, while Zepp OS continues to become more capable and intelligence. Together, these capabilities allowed us to continue improving Bip 6 through software after launch without relying story on a new hardware cycle. This strains the product's long-term value proposition and supports our confidence in a longer product life cycle. At the same time, Bip Max, which began contributing during the second quarter has recently represented approximately 1/3 of global Bip family activations. This creates a more complete internal price ladder while Bip 6 continues to provide a strong volume foundation. The recovery in supply, the sustained exchange of Bip 6 is continued software evolution and growing contribution from Big Max give us confidence to move from rebuilding scale towards stronger pricing, discipline and healthier unit economics. Higher memory and component causes have created pressure on the profitability of entry-level products. However, the pricing decision we are announcing today is supported by enduring consumer demand and continued competitiveness of the Bip family. Therefore, today, we are announcing that we will increase prices across the entire Bip family beginning in January 2027. Our objective is to preserve Bip comparing consumer value per position while supporting healthier and more sustainable unit economics over a longer product life cycle. We also see growing strategic relevance in screen-free ratables. Google's recent launch of Fitbit Air further validate the screen-free valuable category that amaze entered last year with Helio Strap. Helio Strap provide screen-free subscription-free furnace, sleep and recovery tracking within the border amazed and Zepp app ecosystem. Demand exceeded our available supply during the second quarter. We expect supply to recover partially during the third quarter and to be fully restored during the fourth quarter. Availability improves we expect Helio Strap to make a more meaningful contribution while continuing to strength our broader training and recovery ecosystem. Building on Helio Strap, Helio Strap Pro serves a more specific life role. It is designed specially for HYROX and high-intensity Hybrid Training with additional capabilities continuing to be developed through sore updates. At this stage, its role is to serve as a professional and technological speed had allowing us to develop advanced training and recovery capabilities with highly demanding athletes and then expand mature capabilities across the broader amendment ecosystem. We are also building professional capability in running through Cheetah. Unlike Balance, Cheetah does not yet benefit from the same multi-generational product foundation, its professional liability, must, therefore, be arms progressively through product development, asset adoption and real-world performance over the past every month, we have begun to see increasedly visible evidence of this progress. After joining Amazfit as an athlete partner, Josh Kerr broke the world record for the 1 mile. Amazfit athlete Ben Demand won this year's UTMB Mont-Blanc. Yemane Tsegay finished second in the London Marathon under 2 hours and later wore Cheetah 2 Pro when he set the half marathon world record. Yemane is not a constructed Amazfit athlete, making is poised to use our product during a more record performance, a strong validation of our credibility among elite runners. We recognize that the credit belongs to the athletes while they are a choice to complete with amassed reflects growing trust in our products at the highest level of spots. These positive product indicators to not be integrated to mean that every family is already contributing all at full scale. T-Rex commentary represents a story of sustained higher end mix rather than rapid unit growth active has delivered clear growth in both scale and the product mix. While the higher priced Balance generation has only begun to establish initial momentum. Bip and the Helio Strap were constrained by supply during the second quarter, and Cheetah and Helio Strap Pro remain at the early stage of professional lability and market development lines. As a result, the strategic progress across our portfolio has not yet translated into its full revenue potential. The product direction is increasingly clear, but the financial contribution is developing at a different pace across the portfolio. At the same time, higher memory and component costs affected profitability across multiple product families with a greater relative impact on entry-level products. These cost pressures particularly offset the benefit of our improving product mix. The fact that gross margin still improved by 120 basis points year-over-year despite these headwinds provides further evidence that the underlying mix improvement is real. Looking ahead to the third quarter, based on our current outlook. We expect revenue to be between USD 68 million and USD 73 million. This would represent a year-over-year decline of approximately 4% to 10%. The comparison base is important. Revenue in the fourth quarter of last year grew by 78.5% year-over-year to USD 75.8 million against that high base activation chance we observed in July and August indicated continued improvement in both product mix and consumer demand. The normal production ramp and the channel deployment cycle means that these improvements will not all be reflected in reported revenue immediately and our guidance in copper at that timing. We will remain this brand in how we manage pricing product positioning and growth quality. Our priorities are to expand the contribution of higher-value products improved the unit economics of our entry-level portfolio restore supply for products where demand remains strong and build deeper and more durable brand credibility through professional products, tenets and sports communities. We believe these changes are establishing a higher quality, more resilient and more sustainable foundation for Zepp Health future growth. With that I will now turn the call over to our Chief Financial Officer, Leon Deng, to discuss our financial results and outlook in greater detail. Leon, please go ahead.

Thank you, Wayne. Greetings, let me walk you through our financial performance for the second quarter. Starting with top line, our revenue coming at $63.5 million, in line with the guidance we provided. Total revenue grew approximately 7% year-over-year primarily driven by the new product launches we introduced during the first half of the year, including, among others, Active 3 Premium, Active Max and Bip Max. As Wayne mentioned, our revenue this quarter was impacted by the timing of product launches and product availability, namely the Balance 3 Series and the Helio Strap. . While underlying consumer demand remained healthy, the timing of product availability affected the quarterly revenue contribution from certain new products resulting in a temporary impact on near-term revenue growth. Turning to gross margin. our performance continued to reflect a combination of factors, including product mix, launch timing and normal product life cycle dynamics such as model upgrades. In Q2, our gross margin was 37.4% compared with 36.2% in the same period last year and broadly in line with the first quarter of 2026. The year-over-year improvement continues to reflect the structural strengthening of the Amazfit brand driven by a stronger contribution from new products with premium pricing and healthy margins as well as continued ASP expansion supported by growing brand recognition and consumer adoption. At the same time, we continue to navigate certain cost headwinds including higher memory component prices and foreign exchange fluctuations, particularly the appreciation of RMB. These factors partially offset the benefits from our improved product mix and margin expansion. Looking to the second half, we are managing the headwind of higher memory costs that are putting downward pressure on our gross margin. As you know, the semiconductor industry is in the middle of a transition from DDR4 to DDR5 and high-bandwidth memory driven by AI and data center demand. That is tightening supply for the memory chips we use and increasing costs across consumer electronics industry. Our global operations team has been focused since 2025 on securing sufficient supply to support our manufacturing demands. This means pursuing supplies through multiple channels, we are also leveraging our engineering expertise to optimize memory requirements across different and future designs, all without compromising product performance on customer experience. With regard to the effect of higher memory prices, we have a variety of levers to mitigate the impact. Our focus is on managing the headwind safely without losing sight of the large opportunities to drive top line growth alongside increased profitability. On the topic of tariffs, we have solid result of prior duties paid. The benefit could be another meaningful offset to the higher memory costs. So while memory headwinds are real, we are managing them from a position of preparation and expertise. We remain in the long-term margin opportunities of our business as our product portfolio continues to shift towards premium products and our brand positioning strengthens, we expect to continue improving the quality of our gross margin over time. Turning to operating expenses. We remain committed to the prudent cost management discipline we initiated in 2020 and invest on opportunities where we see fit. Total adjusted operating expenses for the second quarter were USD 34.8 million compared with USD 26.4 million in the second quarter of 2025 and USD 35.7 million in the first quarter of 2026. The year-over-year increase of USD 8.4 million was primarily attributable to 2 factors. Approximately USD 2.7 million was related to foreign currency impacts while the remaining USD 5.7 million was mainly driven by higher selling and marketing investments. On a sequential basis, operating expenses decreased slightly. Looking ahead, we will cautiously manage the overall expense level, especially when the pace of the new product launches in the second half moderates. Adjusted R&D expenses are USD 10.8 million compared with USD 10.3 million and USD 11.9 million in the second quarter of 2025 and first quarter of 2026, respectively. Excluding approximately $0.7 million of foreign currency headwinds, R&D expenses were slightly lower year-over-year. We continue to invest selectively in cutting-edge products and emerging technologies, including AI, to further strengthen our competitive position. At the same time, we maintained a disciplined approach to R&D resource allocation, continuously improving efficiency and optimizing returns on our investments. Adjusted selling and marketing expenses were $18.2 million compared with $12 million and $16.4 million in the second quarter of 2025 and first quarter of 2026, respectively. The $6.2 million year-over-year increase was primarily driven by investments supporting new product launches and brand building, including $2.9 million in launch campaigns as well as $1.6 million in e-commerce platform fees, which increased in line with the revenue growth. The remaining increase reflected strategic brand-building initiatives including $0.7 million in escalate sponsorships, $0.5 million related to our Hydro partnership and another $0.5 million in physical retail and event activations. These events are designed to further enhance brand awareness, strengthen consumer engagement and support our long-term growth. Adjusted G&A expenses were $5.8 million compared with $4.1 million and $7.4 million in the second quarter of 2025 and first quarter of 2026, respectively. The majority of the year-over-year increase were attributed to foreign currency impacts. In addition, we continue to make targeted investments to protect our intellectual property rights and support certain legal and regulatory matters. During the quarter, we also achieved a favorable income -- outcome with respect to the lifting of the Section 337 related exclusion order in the U.S. Beyond this strategic investments, we continue to streamline our overhead structure and maintain disciplined cost control while improving operating efficiency. Turning to profitability. We remain focused on gradually improving operating leverage as we scale the Amazfit brand business while maintaining sufficient investment behind product innovations, software development and brand awareness. With higher revenue and improved year-over-year gross margin, partially offset by higher operating costs and unfavorable foreign exchange translation differences, our adjusted operating loss was $11.1 million compared with $4.9 million in the second quarter of 2025. Net loss was $31 million in the first half of 2026 compared with $27.5 million a year ago, including approximately $4.5 million in foreign exchange headwinds, primarily due to the appreciation of the RMB against the U.S. dollar. Moving on to working capital. We continue to manage inventory carefully during the quarter. We recorded inventory of $62.4 million for Q2 2026, which was flat compared with Q1 2026 and decreased by $17.5 million compared with the same period last year. Inventory remained on the tight control reflecting our continued focus on improving inventory efficiency and aligning production and procurement more closely with actual market. Turning to cash. We ended the quarter with a solid liquidity position. As of Q2 2026, cash and cash equivalents were $106.3 million increased by $11 million and $3 million each compared with Q2 2025 and Q1 2026. The cash balance increase was primarily driven by enhanced working capital efficiency, which more than offset the net loss recorded during the period. The cash position provides ample run way for the company to invest and seize potential market opportunities in the future. We continue to actively manage our debt profile and overall financing structure. Long-term and short-term debt levels increased by $6.2 million as of Q2 compared with Q1 2026. The increase was entirely attributable to a rise in long-term debt with a corresponding decrease in short-term debt. We remain committed to prudently managing our debt profile. Our primary objective is to maintain overall debt levels barely stable, we're actively extending the maturity profile by replacing short-term borrowings with long-term debt. During the quarter, we successfully converted $13.3 million of short-term debt into long-term obligations, and we expect to continue this trajectory in the coming quarters supported by sufficient financial headroom and liquidity capacity. Since the beginning of 2023, the company has cumulatively retired $40.2 million of debt and we'll continue to optimize the capital structure going forward. We'll continue to take a disciplined approach to capital allocation, maintaining a healthy balance sheet and strong liquidity. Our first half performance demonstrates our ability to grow the Amazfit business while sustaining gross margins meaningfully above historical levels. Looking ahead, we remain focused on strengthening our product portfolio, expanding our global brand presence, developing the Zepp ecosystem and hybrid training experiences and maintaining disciplined cost and working capital management. We also remain committed in our share repurchase program. As of Q2 2026, we had repurchased 17.6 million under the 20 million authorization. Overall, we remain focused on sustainable, high-quality growth supported by a healthier product mix, disciplined cost management and continued operational improvements. With that, I will hand the call back to operator for Q&A. Operator, please go ahead.

[Operator Instructions] And today's first question comes from Sid Rajeev with Fundamental Research Corp.

I have 2 questions, if I may. First one, on the supply bottlenecks affecting Bip and Helio Strap, when do you expect these issues to be fully resolved? And how confident are you that supply will be sufficient to meet Q4 demand.

On your question, I think we have explained earlier for Bip we are almost -- we have almost removed all the restrictions of my bottlenecks by now. But on Helio Strap, we are gradually working on fully restore the supply bottleneck. So in Q3, you will still see the impact of the supply constraint a little bit, but that has already been reflected in the guidance, which we have provided and in Q4, we're expecting the Helio Strap to be in full supply.

Okay. And second question, certainly, expense increased significantly in Q2, where do you see the biggest opportunities to reduce OpEx? And should we expect selling expenses to remain at similar levels in Q3?

No, obviously not. I think if you look at my explanation towards selling expenses, you will see majority of the increase, around $2.9 million are linked to the new product launches, which we have launched in Q2. Obviously, Q2 is -- it was a busy quarter that we launched a lot of new products, if you can recall, right? I think to name a few, we probably have around 6 or 7 new product launches in Q2 in this quarter compared with 1 or 2 in the previous year. And you know each product are attached to certain amount on marketing efforts, activation, budgets, et cetera, et cetera, and you simply multiplied by 7 or 6 that will be a sizable number. But as I mentioned, we are almost done with new product launches for the year by now. So maybe there's only 1 or 2 in the second half of this year, but those are minor product launches compared with the ones we had in the first half of the year. So you will see the selling expenses moderates when the activity kind of moderates.

In total, how many products are launched this year to be exact?

I think if I'm correct, so far, we probably launched 9 to 10 products and there's still 1 to 2 in the pipeline. So there's going to be -- yes, it's a lot of new products.

So 10 to 12 products this year, last year, I remember it's 9. So is that a fair assumption?