Viomi Technology - Earnings Call - Q4 2024

Transcript

Operator (participant)

Hello, ladies and gentlemen. Thank you for standing by for Viomi Technology Co., Ltd.'s Earnings Conference Call for the second half and full year of 2024. At this time, all participants are in listen-only mode. 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.

Claire Ji (Director of Investor Relations)

Hello, everyone, and welcome to Viomi Technology Co., Ltd.'s 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 the press release earlier today and are posted online. You can download the earnings press release and sign up for the company's email 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, 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 a 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 include discussion 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 an English translation. Mr. Chen, please go ahead.

Sam Yang (Head of Capital and Strategy)

展望2025年，对公司来讲是一个全新的起点和征程，我们将从四个方面努力地去实现我们的Global Water这么一个战略愿景，不断地为全球用户提高健康的饮水需求。第一，深耕国内市场，抓住中国以旧换新的政策补贴和AI升级的技术趋势，加大产品的推广力度，提升品牌的势能。第二，拓展国际市场，包括北美和东南亚等重点区域，开发针对性的产品，提高我们在市场的一些进这个拓展。第三，不断地提高云米产品的竞争力，持续地研发产品投入，引领产品创新，为全球用户提高更智能、更健康的全新的AI净水解决方案。第四，持续地强化和战略客户的合作，充分发挥净水Gigafactory的规模优势，放大我们的规模效益，实现规模和利润的启动增长。预期在2025年将会为股东和用户带来一个比较可观的回报。谢谢。

Thank you, Mr. Chen. I will quickly translate our emarks before discussing our financial performance for the second half and the full year of 2024. 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 sharpen our focus on our core home water solutions. This strategic shift has driven our strong performance in 2024, with 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 two years.

As we move forward, Viomi is backed 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 remains 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 RO series to whole house softening and purification solutions. Our advanced features equipped with under-the-sink 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 extends filter 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 reorganization swiftly streamlined our organization, comprehensively improved our operational efficiency, and sharpened our focus on water home water solution business, leveraging our core strengths to drive sustainable growth. We established the IPMS, which unifies our product, channel, and brand strategies under a cohesive marketing framework. By prioritizing consumer experience and aligning resources with market demand, we have strengthened Viomi's brand awareness, expanded 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 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 fourth, fifth, and ninth on the brand leaderboard of the Douyin, Pinduoduo, and the 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 averaged only 20 minutes.

Claire Ji (Director of Investor Relations)

The Vortex tankless design and the DIY filter replacement can greatly save place and time for users. A one-to-three wastewater ratio and a four-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 5th, 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 US on December 16th, 2024, receiving high recognition and positive feedback from strong consumer 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 three years, reaffirming our commitment to stable and mutually beneficial collaboration. By leveraging our prospective strengths, we aim to boost our business penetration in China. Furthermore, we have strengthened our cooperation with JD.com, 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 capability, featuring a highly integrated industrial chain and highly automated production line. With 100% in-house manufacturing and fully traceable quality control systems with core components, we maximize economics of scale. To strengthen innovation, we have established two major laboratory systems focused on advanced technology research and product compliance and reliability. These laboratories meet the stringent test standards of various global markets, allowing us to rapidly adapt to evolving and diversified market demands while maintaining constant 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 four 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 laboratory with strategic partners, maximizing the advantages of 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. That concludes our founders' 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.

Sam Yang (Head of Capital and Strategy)

Thank you, Mr. Chen and Claire. Thank you to everyone for joining us today. Before diving into details, I would like to address the impact of business reorganization on our financial results. In August 2024, we completed a strategic reorganization that involves diversifying IoT at home portfolio products, excluding range hoods, gas stoves, and water heaters, which we refer to as the diversified business. As a result, the diversified business has been deconsolidated from our financials, and it is a historic financial result 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 audited financial result 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 system business. To better reflect our strategic focus, we have reclassed our revenue streams into three categories effective in the second half of 2024. Home water systems include the revenue from our smart water purification products, water heaters, water kettles, water quality meters, and other related businesses. Consumables include revenues from various water filters designed for smart water purifiers, kitchen appliances, and others. It 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 three 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 purifiers 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 the increased sales of kitchen appliances sold to Xiaomi. Gross profits 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 the strategic transition period, as well as increased inputs 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 increased share-based compensation expenses. Selling and marketing expenses were RMB 140.6 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 diversifying certain loss-making businesses and focusing on more advantaged sectors to enhance profitability. Additionally, our balance sheet remained healthy.

As of December 31, 2024, the company had a cash and cash equivalent of RMB 1,026.2 million, restricted cash 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 financials result 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 39.39% 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 the non-GAAP net income attributable to ordinary shareholders of the company was RMB 79.9 million. Thank you.

Claire Ji (Director of Investor Relations)

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. Operators, please go ahead.

Operator (participant)

Thank you. To ask a question, you will need to press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. Please stand by while we compile the Q&A queue. Our first question comes from the line of Jingjin Li from CICC. Please go ahead with your question.

Jingjing Li (Associate)

Hey, thanks for the management, and congratulations for the good performance. I'm Jingjin Li from CICC, and I have two questions about the result, and I'll ask them one by one. The first question is, after the divestment of the IoT business in 2024, we see that Viomi focuses more on home water solutions. What adjustments have been made in business operation and organizational management in the second half of 2024? What are the results so far? Yeah, that's my first question.

Xiaoping Chen (Founder, Chairman of the Board of Directors, and CEO)

Yeah, thank you, Jingjin. Let me get to your question. 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 comprehensive manufacturing, R&D, and distribution systems that are operated independently and leverage 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 at-home businesses and related assets. We decided to retain our water purification business and part of our kitchen appliances line to narrow our focus and streamline operations. In addition, we launched the Integrated Product Marketing System, or we can say it's IPMS.

This system brings together our product, channel, and brand strategies in one comprehensive marketing framework by prioritizing our customer experience and aligning our resources with the market demand. We have been able to strengthen our brand awareness and expand the market share in the water purifying 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 exceeding our previous guidance. Notably, revenue from home water systems grew by 37.5% year-over-year significantly, driving our overall business growth. Furthermore, we improved our operational efficiency. Our overall operating expense ratio declined by about 6%. 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 two years.

In conclusion, the completion of the reorganization enables us to focus more on the needs of water purification for the users and enhance 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.

Jingjing Li (Associate)

Okay, yeah, thank you. My second question is, could you give us the breakdown of the home water solution in 2024? How much did the volume and price increase, respectively? Is there any new product plans for 2025? Yeah, that's my second question. Thank you.

Xiaoping Chen (Founder, Chairman of the Board of Directors, and CEO)

Good question. Let me just directly answer your question. To better reflect our strategic focus, we made some changes on how we categorize 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. Next, we have the consumables. This is actually we bound ourselves in the water purification, and also we sell separately. This part attributed to 30% of the total revenue. Last, there is kitchen appliances and orders. This includes the revenue from range hoods, gas stoves, and small appliances, as well as installation services for the Viomi products. It brings about 60% of our total revenue.

On a positive note, we kick off our Kunlun series water purifiers in the first half of 2024. With this middle 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 2024, 2025, we are excited by the deepening of 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 the Kunlun series. During the Double 11, our AI water purifier ranked fourth, fifth, and ninth on the brand boards of the Douyin, Pinduoduo, and Tmall platforms, respectively, further reinforcing our brand influence. On the international side, we plan to enhance our product lineup and focus on customized development tailored actually to the North America's customers and also cover the Southeast markets.

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're also localizing and promoting our existing product series to better meet the customer needs for the local. Thank you.

Jingjing Li (Associate)

Thank you.

Okay, thanks for the management.

Operator (participant)

We'll now move on to our next question. Our next question comes from the line of Brian Lantier from Zacks Small Cap Research. Please go ahead. Your line is open.

Brian Lantier (Senior Research Analyst)

Good evening. Thank you. 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.? Regarding the expansion into Southeast Asia, have you named the home appliance partner in Malaysia? I guess second, will that be the strategy targeting additional Southeast Asian countries going forward? Thank you.

Xiaoping Chen (Founder, Chairman of the Board of Directors, and CEO)

Yeah, thank you. Actually, because our new vision is the Global Water. The Global Water is our new strategy. We choose to enter the US market, and also we have entered the Southeast market. At the first step, actually, we successfully launched the product, actually, Vortex 8 on Kickstarter. That is a great success, and we achieved 10 times our expectation. Following that success, we introduced two products to Amazon, which has reached high recognition from the customers. It is a continued performance. It is good. Talking about the other areas about the Southeast, we have established a strategic partnership with the biggest retailer in Malaysia. This will bring us ongoing good performance, we believe. With that strategic cooperation, we are going to launch more and more new products to that new market.

Okay, great. 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. I'm not sure if you've targeted or released or identified any of those gross margin goals in the long run.

Yeah, gross margin is crucial, actually. As you may note, we have obtained the average gross margin for the industry, the water purifier. We believe this gross margin will become better this year because of the product metrics, actually, we are going to launch. As I explained earlier, 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. In this market, the gross margin for this category is very decent. We are going to keep. Talking about the others, I think we are going to meet the average of the industry. Thank you.

Brian Lantier (Senior Research Analyst)

Great. Great. Thank you.

Operator (participant)

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

Claire Ji (Director of Investor Relations)

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

Xiaoping Chen (Founder, Chairman of the Board of Directors, and CEO)

非常感谢大家来参加我们这次的业绩会议。那么通过2024年底我们公司业务重组之后，进水的业务是在持续发生变化的。所以我们会做几个事情。第一个就是会持续地去通过AI去打造更高品质的饮水的这个品牌的定位。这是第一个。第二个，我们会推出这些富含矿物质水的这种昆仑新，这种更接近天然矿泉水。这是一个第二个目标。第三个就是我们不断地打造品牌。在2025年，我们会在这方面投比较多的一些资源来去打造品牌的这种强势的能力，提高品牌的知名度。第四个方面就是我们会不断地去构建我们的进水的超级工厂，让它持续深耕，让它成为全世界最领先的进水超级工厂。第五个方面，我们会不断地拓展美国、东南亚以及相关的进水的这种主要的这种全球化的一些主要国家。我们希望在未来的若干年里面，我们在全球化的这个业务会持续地在持续地成长。这个会为公司业绩和股东带来长期的这种增长的可能性。那么用计划总结一下，就是进水它是一个入口的老百姓每天喝的东西。所以它是一个可以穿越经济周期，可以做100年的这么一个商业，这么一个生意。所以这算是一门好生意。好。

Sam Yang (Head of Capital and Strategy)

Okay, I will briefly translate our founder's remarks, conclusion. Thank you to everyone attending our conference call. Right after we complete our restructuring and fully focus on the home water business, we are using AI to upgrade our brand positioning. We will invest more in brand recognition and promotion to increase our brand recognition globally. Regarding our Water Purifier Gigafactory, we have the most integrated industry lines and the most automated production lines in the industry. We will continue to maximize the advantages of our Water Purifier Gigafactory. We will keep fast speed on our overseas expansion in major markets like the United States and Southeast Asia. In conclusion, home water business is a very decent business, and it is sustainable. It is to meet the healthy drinking demand of mankind in a sustainable way.

We think it's a business everlasting for like a hundred. That's all. Thank you. 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 Piacente Group.

Jingjing Li (Associate)

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.