Zepp Health Corporation First Quarter 2026 Earnings Webcast

Hello, ladies and gentlemen. Thank you for standing by for ZEP Health Corporation's first quarter 2026 earnings conference call. 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. Grace Zong, Director of Investor Relations for the company. Please go ahead, Grace.

And welcome to Zapp Health Corporation's first quarter 2026 earnings conference call. The company's financial and operating results were issued in a press release about the newswire services earlier today and are posted online. You can also view the earnings press release and the slides referred to on this call by visiting the IR section of the company's website. Presenting today are Wang Huang, our Founder and Chief Executive Officer, and Lian Deng, our Chief Financial Officer. Joining us today, we also have Mike Yang, Chief Operating Officer and General Manager of North America, and Eric Fleming, Vice President of Capital Markets for 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. Private Security Certification 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 20F 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 update any forward-looking statements except as required under applicable law. Please also note that ZAP's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial information. ZAP'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 CEO, Mr. Wang Huang. Please go ahead.

Hello, everyone, and thank you for joining us today. We are pleased to begin 2026 with a promising start, delivering another solid quarter. In the first quarter, Amazfit branded revenue grew 33.8% year-over-year, demonstrating exceptional resilience during what is traditionally a software season for the consumer electronics industry. This strong performance was primarily driven by the successful launches of the Amazfit ActiveMax, Active3 Premium, and our flagship G-REX Ultra 2. Delivering this level of growth in a seasonally quieter quarter further Here it reinforces our conviction that the market opportunity we are capturing is structural rather than cyclical. More importantly, we do not rule this quarter simply as a revenue growth story. We see it as another area validation of the structural changes we have been building. stronger premium product mix improving pricing power expanding growth margin in a clear brand position in performance oriented training during our last earnings call I outlined how that health is evolving into a comprehensive hybrid training platform seamlessly integrating endurance strength and recovery through hardware AI driven training intelligence software and data our 2026 ambition is clear we aim to build a global leadership position in hybrid training to advance this strategy we further deepen our collaboration with high rocks one of the world's fastest growing hybrid endurance sports organizations through a new exclusive three-year global partnership this expanded partnership enhances the high rocks athlete experience across training competition and recovery leveraging a border portfolio of exclusive smart variable categories including smart watches smart rings smart cameras smart glasses and smart straps alongside connected app experience hyros specific training modes and synaptic performance data integrations this partnership represents more than a sponsorship it is a strategic step for us to participate in and help shape the emerging hybrid training category by engaging directly with IROC's global athlete community gym ecosystem coaches and race environments we can build a more authentic connection with users whose training behaviors and strength endurance recovery nutrition and performance readiness this gives us a differentiated position in the market other than endurance and general smart lifestyle while we have the opportunity to build authority around hybrid training and the more complete completed training system we believe one of the most important opportunities is the moment when a user moves from casual checking to more serious training at that point the phone ecosystem becomes less important and the training value becomes more important hyros and gym based hybrid training helped create that moment allowing Amazfit to enter through app experiences training content HiROC specific modes and lower efficient products before users make a full device switch at the recent New York HiROC events we introduced balance 3 and the balance ultra in a real hybrid training environment this launch setting was intentional these products are designed for users who balance change endurance recovery walk, stress, and daily life. Powered by hybrid charge energy intelligence in the Zapp app, they bring together biocharge, life load, and the training load into one clear view of personal capacity helping users better understand when to push then to recover and how to maintain consistency over the long term these activities are important because premiumization is not only about higher price points it is about building trust in the environments where serious users decided which brands they rely on by showing up in marathon preparation trail and expedition environments and hybrid training communities amazfit is strengthening the credibility required to support higher value products improved product mix and long-term pricing power our premium strategy is strongly supported by our hybrid training positioning we are already seeing earlier evidence that users are willing to move up the price ladder across certain product families within the T-Rex lineup, our higher-priced premium models are becoming an increasingly meaningful part of the overall sales mix. This reinforces an important point. Consumers are not choosing Amazfit salary for affordability. In March and April, our premium T-Rex models priced at $399 and $549 accounted for nearly 50% of total T-Rex family unit sales. As we continue to strengthen our product differentiation and premium brand positioning users are showing a growing willingness to engage with Amazfit at more premium price tiers by embedding hybrid training more deeply into both our hardware and software ecosystem we are enhancing the perceived the perceived value of the Amazib brand and driving a consistent shift toward higher-end product positioning. This remains one of our key strategic priorities as we move into 2026. In the first quarter, this strategy delivered tangible results this average selling price point this average selling price increasing more than 20 percent year-over-year notably even amid rising memory component causes and the border storage cheap price inflection, we were still able to achieve gross margin expansion. Respecting the effectiveness of our product mix improvement and discipline cost execution, in April, we extended this philosophy into one of the world's largest performance community, running. By adapting our hybrid training methodology to runners, we are enabling them to train more intelligently, improve endurance, and support long-term health and durability. This strategy is embodied in our newly launched Cheetah 2 lineup, including the Cheetah 2 Pro, a performance focused watch designed for marathon training and the cheetah 2 ultra engineered for the most demanding mountain and trail environments both integrated seamlessly with that coach with a full suit of running metrics metrics and personalized training plans recovery in size and the third-party training platform integrations these devices deliver structure hybrid style training guidance directly to endurance runners further strengthening our penetration in the dedicated running segment. Notably, our first quarter growth was broad based across both entry and premium tiers. At the higher end, the Chi-Rex Ultra II, crafted from grade 5 titanium elevates our price ceiling to US dollar of 550 marking the highest in Amazfit history and further reinforcing our premium branded positioning at the same time in our core value segments the Amazfit the active max and active 3 premium positions around there are 169 dollars price point are expanding our rich amount every day finished in services and entry-level runners beginning their structure training journeys most recently we also introduce BIP Maxx, the latest addition to our most popular entry-level series. Our strategic progress is also reflected in continued market share gains. In the first quarter, we achieved sequential value share expansion across EMEA, the US, and Asia Pacific, supported by strong performance across our full product matrix. According to third-party data sources, Amazfit now ranks among the top six smartwatch brands in both the United States and Europe by value share, underscoring the growing global lessons and market chains of the brand. Turning to software, we continue to strengthen our ecosystem through ZappOS. proprietary features such as that coach biocharge and our expanding shoot of hybrid training and high loss modes are being deployed across a growing range of devices driving deeper user engagement and retention. As we increasingly tailor our training intelligence for running and other endurance disciplines, our software ecosystem is becoming a key reason users choose and remain loyal to our brand further why widening the competitiveness modes around our platform across running outdoor and hybrid training we are increasingly connecting amazing products with real performance environments and and elite athlete validation in running cheetah 2 pro was supported by major marathon moments in paris london and boston including acid proof points from yemen gripper ameno petros and rory link a link letter in outdoor T-rex altitude continue to gain credibility through high attitude alpinist yoss co-push and the real expand as expedition use cases while Chris for court strengthens the aspirational outdoor positioning of the T-Rex series we also continue to build credibility around early performance moments during the high loss workshop major Amazing athlete Joanna Vieric completed a clean sweep of all four high-ross majors this season while setting a new high-ross world record. We are also supporting Josh Carr's Project 222. his attempt to break the mild world record at the London Diamond League together these moments reflect how Amazfit is showing up at the highest level of both hybrid training and endurance performance against the micro is economic backdrop our premium my decision strategy expanding pricing power vertically integrated supply chain and diversify manufacturing footprint across China and Vietnam provide us with multiple levels to mitigate these pressures. We remain confident that the alignment of our product mix, channel strategy, and cost structure will support sustainable growth and a clear path toward long-term profitability looking ahead to the second quarter we expect revenue to be in the range of 63 million to 68 million this outlook reflects continued year-over-year growth supported by demand across our product portfolio while also accounting for normal shipment timing and product launch facing during the quarter more importantly we will continue to focus on the quality of growth, product mix, pricing power, growing a gross margin structure, and user engagement, rather than only short-term revenue warming. With that, I now turn the call over to Leo to walk through the financial details. Leo, please go ahead.

Thank you, William. Greetings, everyone. Thank you again for joining our first quarter 2026 earnings call. Let me start with revenue. In the first quarter of 2026, our revenue was U.S. dollars 51.5 million, up 33.8 percent year over year, in line with our guidance range as we mentioned before this growth was driven primarily by our new product launches such as active max active 3 premium and t-rex ultra 2 even as the first quarter is traditionally a low season for consumer electronics business turning to gross margin our performance continued to reflect a combination of factors, including product mix, launch timing, and normal product lifecycle dynamics, such as model upgrades. In the first quarter, gross margin was 37.7 percent, an expansion of 0.4 percent compared with Q1 2025, and moderated from the record high 40.4 percent achieved in Q4 2025. There are two important points worth highlighting. First, the first quarter is traditionally the period whereby we refresh our entry-level product portfolio, which naturally carries a lower gross margin and therefore weight on the sequential comparison. Second, during the quarter, we absorbed some higher memory component costs, as well as the impact of unfavorable foreign currency exchange fluctuation. Despite these headwinds, we still delivered year-over-year gross margin expansion where gross profit increased 35.3% to US$19.4 million. This demonstrates the resilience of our operating model and the continued improvement in our brand positioning. Before turning to expenses, let me briefly address the Marco backdrop. On memory, we expect higher memory costs to create near-term pressure on gross margins, driven by the industry-wide transition from DDR4 to DDR5 and high bandwidth memory. As AI and data center demand continue to tighten supply, we began preparing for this environment in early 2025 by securing supply through diversified sourcing channels to support manufacturing continuity and we are also using our engineer expertise to optimize memory requirements across current and future products without compromising performance or customer experience well this is a real headwind we have multiple levers to help mitigate the impact including continued increases in average selling prices and a potential refund of previously paid iepa related tariffs which could provide some in offsets we believe we're managing this challenge from a position of preparation and discipline while staying focused on driving sustainable revenue growth and improved profitability. Now turning to expenses, we remain committed to prudent cost management program which will begin in 2020. Total adjusted operating expenses for the first quarter were U.S. dollars $35.7 million compared with U.S. dollars $31.5 million million in Q125 and 30 and US dollars 37.1 million in Q4 25 out of the year over year increase of the US dollar 4.2 million there's the translation difference of approximately US dollar 1.8 million operating expenses in the first quarter of 2026 due to euro and RMB appreciation to the dollars then Then U.S. dollar 1.4 million is directly attributable to certain e-commerce platform charges, which was a kind of fixed ratios sales channel charges to drive revenue growth. Remaining U.S. dollar 0.6 million was primarily due to front-loaded investments in marketing and branding activities, such as CES and Hirox. Excluding U.S. dollars $6.2 million of one-off provisions, fourth quarter 2025 operating expenses were approximately U.S. dollars $30.9 million. The sequential increase of U.S. dollar 4.8 million was primarily driven by a U.S. dollar 1.8 million foreign exchange impact, as mentioned above, and a U.S. dollar 1.4 million increase in R&D investment to support new products launches in upcoming quarters, and a U.S. dollar 0.5 million of front-loaded marketing and branding investments and lastly 0.2 million in severance costs related to targeted initiatives to enhance organizational efficiency going forward we'll maintain a cost conscious approach while continuing to invest in r d marketing and branding activities that support our long-term competitiveness. Let me break down the year-over-year and sequential comparison by line item. Adjusted R&D expenses were US$11.9 million compared with US$11.5 million in the first quarter of 2025 and US$10.2 million in the fourth quarter of 2025. Out of the sequential increase of U.S. dollar 1.7 million, 0.3 million was attributed to foreign currency translation differences. The remaining 1.4 million increase was due to investment in new products that will be launched in the coming quarters. we continue to invest in a series of cutting-edge products and new technologies including AI to maintain our competitive edge while consistently evaluating resource efficiently to optimize our return on investment and productivity adjusted selling and marketing expenses or US dollars 16.4 million compared with 13.8 million in the first quarter of 2025 and 15.6 million in the fourth quarter of 2025 of the year over year increase approximately 0.8 million was attributed to foreign exchange translation differences and another 1.4 million was directly attributable to fixed channel costs that scale with our revenue growth and the remaining 0.4 million was allocated to promotions and branding initiatives that filled the adoption of our new products compared to q4 2025 selling and marketing expenses increased by 0.9 million out of which 0.4 million was attributable to the appreciation of foreign currencies against the dollar and the remaining half a million was due to front-loaded investments in marketing and branding activities such as ces and hyrox at the same time we continue to push retail profitability and channel mix improvement, including meticulous refinement of our retail channels and disciplined staffing arrangements across our sales regions. Adjusted G&A expenses were U.S. $7.4 million compared with $6.2 million in Q1 2025 and $11.3 million in Q4 2025. The year-over-year increase reflected approximately $0.3 million of foreign exchange translation differences and $0.2 million in brand and intellectual property protection related fees. Excluding the U.S. dollar 6.2 million of non-recurring provisions in the fourth quarter, G&A expenses were 5.2 million in Q4 2025. The sequential increase of U.S. dollar 2.1 million was mainly attributable to 1.1 million of negative foreign exchange impact as well as 0.2 million and severance cost as part of the targeted initiatives to enhance organizational efficiency. We continue to streamline our GNA and drive operation efficiency. With higher revenue and improved year-over-year gross margin, partially offset by higher operating costs and unfavorable foreign exchange translation differences, Our operating loss narrowed to $6.3 million compared with $17.2 million in the first quarter of 2025. adjusted net loss was 17.9 million or 34.8 percent of sales compared to 18.1 million or 41.0 percent of the sales in the first quarter of 2025 turning to the balance sheet and working capital we continue to manage our inventory rigorously ending the quarter with inventory of 62.8 million, down from 72.8 million as of Q4 2025. We ended the quarter with 103.2 million in cash and cash equivalents, nearly flat compared with 103.8 million a year ago, and lower than $112.9 million at the end of 2025, with a sequential decline driven primarily by our net operating losses and partially offset by improved working capital management. Turning to our capital structure, total debt, including both short-term and long-term debt, remained broadly stable both sequentially and year-over-year. We continue to actively manage our debt maturity profile and financing costs. As debt approaches maturity, we evaluate prevailing market interest rates and available credit capacity to refinance or extend the duration of our borrowings were appropriate. The change in the mix between short-term and long-term debt in the first quarter of 2026 was primarily driven by accounting classification as certain borrowing originally maturing in late 2026 or 2027 were reclassified from long-term debt to short-term debt due to their remaining maturity profile importantly while the classification between short-term and long-term debt may fluctuate from quarter to quarter our long-term focus remains on maintaining discipline control over total debt levels and optimizing our debt duration and interest expenses over time since the beginning of 2023 the company has cumulatively retired 46.7 million of debt and will continue to optimize the capital structure for the company we also remain committed to our share repurchase program as of may as of march 31st 2026 we had repurchased 17 million out of the 20 million authorized program we view this program as an effective use of capital that aligns with our focus in delivering sustainable long-term value to shareholders finally our outlook for the second quarter of 2026 we expect revenue to be in the range of us dollar 63 million to us dollar 68 million representing year-over-year growth of approximately six percent to 14 percent This outlook reflects continued year-over-year growth supported by demand across our product portfolio while also accounting for normal shipment timing and product launch phasing during the quarter. More importantly, we will continue to focus on the quality of the growth rather than only short-term revenue volume. With a healthy margin profile, disciplined cost control, and continued operational improvement. We're well positioned to deliver sustainable growth and create long-term value for our shareholders. Thank you all for your time today. I will now open the calls for questions. Operators, please go ahead.

Thank you. If you would like to ask a question, please press star than 1 on your telephone keypad. If you would like to withdraw your question, please press star than 2. Once again, that's star than 1 if you have a question. And today's first question comes from Sid Rajiv with Fundamental Research Corp. Please go ahead.

Thank you. Congratulations on the strong Q1 revenue growth. In the last earnings call, Leon, you guided to potentially nine product launches this year, the same as last year, with four announced so far. Should we expect about five more this year? Am I in the correct ballpark?

Yes, I think in the end we probably would have more than Nye, but there are many new product launches that are still on the way.

Okay. Where do you see opportunities to reduce costs? Because it seems like it's difficult to cut R&D or marketing or branding expenses at this point.

No, that's not entirely right. So you see that the R&D expenses year over year actually increased a bit. It is because of the new product launches, which we have to prepare for it. And I think towards the end of Q2, you will see that R&D expenses more going down because I think by the end of the first half, we'll probably go through majority of the new part of launches, which we have scheduled for the year. Although there's going to be a bit left for the second half of the year, but I think you have witnessed that there's a lot of new product which has been launched already, including the ActiveMax, ActivePremium, T-Rex Ultra 2, and now with the Balance and Cheetah. and and I think first half of the year is actually from a product launch or perspective a launch heavy first half therefore R&D expenses is actually a little bit higher than before but it should trim towards the norm starting from the second half of the year and going forward on the other hand we are also investing a bit or with front-loaded some of the marketing expenses into q1 and q2 for example we are hosting the balance 3 product release in high rocks new york which is a high profile event right and that's all tied into the event timing uh so to say um and i guess um we because of that we we we spent uh some of the marketing expenses and branding related expenses more towards and skewed towards um the first half of the year and that should also average down in the second half of the year so um and not to mention gna expenses i think you will see a step down uh already in q2 and going towards q3 and q4 so i guess um we still stand behind the run rate of around 30 million a quarter uh or even lower than that which which you kind of witnessed for uh for for the rest of the of the last year as we

as we go that's good to hear just one more question if i may is that for other industry players racing product prices to offset some of these higher memory costs um yes to some extent because we noticed that our competitors are also raising price, and not to mention Garmin, right?

But we compare with a lot of our competitors, our pricing at this point of time is still relatively low. So I think we have more room to raise the price compared with our competitors. But nevertheless, I think we are focusing on the product itself, right? So raising the price is definitely not the final goal. In the end, we want to actually present to the user the best product with the best user experience and best features at the best price which they can get out of the market. So I think that is the goal that we want to strive for. Perfect. Thank you so much. Thank you, Sid.

Thank you. And our next question today comes from Frank Dugan at Brooks Investments. Please go ahead.

Hi, Leon. Congratulations on the first quarter performance. My first question would be around the Q2 revenue guidance, and if you can talk more about that and how do you view the profitability outlook for the four years?

Yeah, Frank, thank you. We don't give the guidance on the full year, but hopefully I can give you some color to it later on. But with regard to Q2, we just mentioned it is actually between 63 to 68 million, which is roughly a growth of 6% to 14%. But however, you see this number is actually accounting for the normal shipment timing and product launch facing during the quarter. So if we, let's say, if we have certain products which we initially wanted to produce and sell in Q2, and for some reasons we couldn't manufacture those in time and meet the time window for the cells, it might slip into Q3. And I think we have one or two examples of that, which happens in Q2, which kind of impact our revenue forecast for Q2. However, actually, our long-term strategy and our target for the year remains still on the profitable growth path because we see, given Q1 and Q2, we see a continued year-over-year growth. and also this year-over-year growth is supported by the demand across our product portfolio on a board base. We believe that heading into the second half of the year, we should be able to continue, number one, the growth path, and number two, if, and for the 2026 full year, for sure, we're looking at a profitable growth over 2025. I hope that gives you some color for the future.

Yeah, thanks, Leon. And yeah, one more question around the new three-year global HIROX partnership.

How do you plan to leverage that to drive long-term monetization the hierarchs as you know is actually a part of or it actually is it's one of the bigger trend on hybrid training right we kind of explained just now that we would like to establish our authority in hybrid training through working very closely with high rocks right it actually comes into two folds number one is as the participants of high rocks increase i mean they increased by a lot over the past years and i we believe that is going to continue to increase in the future and looking at the New York High Rocks is actually the participants is as many as the participants of New York Marathon right so I think number one is we would definitely want to deepen our relationship with High Rocks and try to make the feature working better with High Rocks for example on helping the Hirox athletes to track their timing and then to deliver a better timing every time they race. And hopefully that would also make us and then establish the authority of our brand in Hirox. And also, as Wayan just mentioned, by doing that, we would like to become users' choice when they look beyond their current watch. Because for a normal user, consumer, there's a moment of time that they start considering a serious spot, be it running, be it hybrid training, be it whatever it is. We want to actually, by establishing the authority in Hierarchs, to become users' choice once they become serious on a specific sport in their journey of when they grow up, right? That's actually what we want to do through Hierarchs.

Thanks, Leon.

Thank you. As there are no further questions, I'd like to turn the call back over to the company's IR director, Grace Zong, for closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact Zappos Investor Relations Department. Thank you.

Thank you. This concludes this conference call. You may now disconnect your line. Thank you and have a pleasant day.