Hello, ladies and gentlemen. Thank you for standing by for Viomi Technology Co. Limited Earnings Conference Call for the Fourth Quarter and Full Year 2019. At this time, all participants are in listen-only mode. Today's conference call is being recorded. [Operator Instructions] I will now turn the call over to your host, Ms. Cecilia Li of The Piacente Group, the company's Investor Relations Partner. Please go ahead, Cecilia.

Thank you, Andrew. Hello, everyone and welcome to Viomi Technology Co. Limited earnings conference call for the fourth quarter and full year 2019. As a reminder, this conference is being recorded. The company's financial and operating results were issued in press release earlier today and are posted online. You can download earnings press release and sign up for the company's e-mail distribution list by visiting the IR section at 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. Shun Jiang, the Chief Financial Officer. The company's management will begin with prepared remarks, and the call will conclude with a Q&A session. Before we continue, please note 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 these and other risks and uncertainties is included in the company's registration statement on Form F-1 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 discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. 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 Viomi's Founder and CEO, Mr. Xiaoping Chen. Mr. Chen will deliver his remarks in Chinese, followed immediately by English translation. Mr. Chen, please go ahead.

Thank you, Xiaoping. This is Shun Jiang, CFO. I will quickly translate Mr. Chen's remarks before providing an operational update and discuss our financial performance for the fourth quarter of 2019 and our outlook. Hello, everyone. Thank you for joining our fourth quarter and full year 2019 earnings conference call. 2019 was another extraordinary year for Viomi. Our business has gone from strength to strength, with robust growth across all product segments, successful innovation, new product development, increasing brand recognition, larger market share and deeper channel penetration. Business momentum continued to be strong with fourth quarter and full year 2019 revenues increases by 82.2% and 81.5% year-over-year, respectively exceeding the high end of previous guidance. Non-GAAP net income in the fourth quarter and full year 2019 increased by 54.6% and 85.2% year-over-year respectively. We recorded our best ever Double 11 sales performance in 2019 with our online channels more than doubling respective GMB in the fourth quarter on a year-over-year basis. Performance was strong across our core online channels including Yopine, JD, Tmall and Suning as well as our own e-commerce platform, Yunmi Shangcheng. Our Xiaomi branded products business also performed extremely well with water purifiers seen strong volume growth and new products such as sweeper robots, range hoods and stoves and blenders, all contributing meaningfully to the year-over-year growth. The Viomi IoT @ home, Yunmi, brand has come a long way since inception only a few short years ago. From our recent successes we have well and truly established ourselves as a credible name and a leader in the IoT industry in China and are continue to reap the benefits about increased brand visibility scale and channel penetration. We are also making efforts towards streamlining and optimizing SKUs within each of our existing product categories while further deepening and…

I will now provide an operational update and discuss our financial performance for the fourth quarter and full year 2019 together with our outlook. In the interest of time, we're not going to into too much detail on the historical, operational updates and statistics, which you can see from our earnings release and they continue, which continue to strengthen in the fourth quarter. So let me move on to provide a review of our fourth quarter results as well as outlook. So in the fourth quarter our business momentum continued to be strong and we again delivered robust top-line growth exceeding the high end of our previous guidance. In addition, we continue to achieve healthy levels of bottom line growth with very strong cash flow and balance sheet positions. As Xiaoping discussed, net revenues increased by 82.2% to RMB1.7 billion from RMB955.7 million for the fourth quarter of 2018, primarily due to continued successful rollout and significant increase in sales for both our Viomi branded and Xiaomi branded products. Revenues from IoT enabled smartphone products increased by 75.1% to RMB1.349 billion from RMB770.6 million for the fourth quarter of 2018. Within this category, revenues from smart water purification systems increased by 35.1% to RMB385.9 million to RMB285.7 million for the fourth quarter of 2018. This growth is primarily driven by the introduction and rollout of a new series of larger capacity water purifier products together with an overall increase in sales volumes. Revenues from smart kitchen products increased by 64.5% to RMB432.8 million from RMB263.1 million for the fourth quarter of 2018. The growth is primarily driven by increases in sales volumes of the company Viomi branded refrigerator products together with the rollout of new Xiaomi branded products such as range hoods and gas stoves. Revenues from other smart products…

[Operator Instructions] The first question comes from Lillian Lou of Morgan Stanley. Please go ahead.

I have two questions. First is about Covid-19 impact. Any run rate, update in terms of how things improve from February, January and now March, how it progress? And the impact by channel by product categories. And the second question is about the gross -- the margin trend in fourth quarter. What exactly caused the decline from promotion from product mix? Can you give a bit more details? Thank you.

Thank you, Lillian. Let me address your questions. So in terms of the Covid-19 impact, as we discussed, you would have seen a lot of the industry data. The home appliances industry has been quite materially affected by the current situation with offline channels been particularly hard hit. So especially in February, many products in the offline channel we're seeing say 70%, 80% even 90% declines in offline channels with smaller declines, but that's still challenging conditions in offline channels -- in online channels. I think that the trend has definitely been improving heading into March, especially in the last week or so. We've actually seen a good uptick particularly in the online channels both from an industry perspective, as well as from our own perspective. So I think in summary in terms of the channel performance in early January performance is actually quite strong as you would have seen in a fourth quarter results; momentum was very strong and then the effects of both the early Chinese New Year, as well as obviously the Covid-19 situation towards the latter half of the January resulted in quite steep declines for around a month or so. As we mentioned on the call, in terms of the supply chain that's started gradually ramping up towards the second half of February and it is essentially close to full capacity now. Similarly with logistics quite a lot of challenges in February but is essentially that are nearly back to normal now. On the demand side, as mentioned in terms of sales channels, offline is still continuing to be challenged as compared to last year with shift in consumer purchasing behaviors, as well as with the obvious restrictions on movement of the past couple of months. But similarly as the stores begin to open and…

The next question comes from Xudong Chen of CICC. Please go ahead.

Thank you for taking my question. I have two questions. The first one is the impact of coronavirus. Did you see the slow down for IOT penetration since this year the coronavirus suppressed the demand for the new technology innovations and every company they just pay attention to their cash flows and to their business not instead of the new technology innovation. That's the first one. And second one is as you mentioned the water purifier ASP and the gross margin may have some pressure in Q1, 2020 and could you give me some outlook for the water purifier for Q2 to Q4 and what's the strategy for the company for this year and for 2021? Thank you.

Okay. Thank, Xudong. Let me take care of your questions as well. So in terms of IoT penetration, so as you saw in our fourth quarter results, we had very strong momentum heading into 2020 right both in terms of financial as well as operating statistics. The concentration is obviously resulted in a slowdown or declining retail sales of a various consumer goods including home appliances, but we do see an up trend towards penetration for IoT products to continue to increase going forward, perhaps even more rapidly as consumers place greater emphasis on their home environment, right with significant demand for content rich online offerings. We do feel that these trends will present significant opportunities for us to define Viomi as a leading brand in the IoT @ home space as we continue to roll out IoT installed base and we reach our own product and content offerings to consumers and particularly going into this next generation of more 5G and Wi-Fi 6 connectivity. We see a lot of opportunity and not just for us but the overall kind of IoT industry as a whole right. So short term slowdown but the overall trend we see as still being very attractive for IoT. On your second question with regards to the water purifier and outlook for this year. So I think I'll say this you as can appreciate there's a lot of uncertainty in the industry now and economic outlook both domestically in China in light of recent events. So there is currently very low visibility in terms of full year financial projections. Assuming continued stabilization and recovery in the current coming months, we do expect to achieve or re-achieve healthy levels of top-line growth for the full year above industry levels. As you continue to monitor and gather…

The next question comes from Robert Cowell of 86Research. Please go ahead.

Hi, management. Thanks for taking my question. I have actually had a couple here. The first one is about your product launch schedule this year. I remember last year, the Appliance World Expo event in 1Q was a pretty major launch event for you guys. So I'm wondering with that event canceled this year, what is that -- what impact does that have on the product launch schedule? And then I'll have a follow-up as well.

Okay. Thanks Robert. So that one, I would say on schedule has not be materially affected by the current situation. Obviously, we have had to adapt in terms of tailoring out launch event so as you mentioned the AWE Expo in Shanghai as well as the Guangzhou Trade Expo has both been cancelled or postponed this year. But we will -- but we still plan to conduct our own product launch event at a suitable time and have respected ceremonies over the course of the year perhaps through online and/or offline measures to launch our products.

Okay. Thank you. The next one is about the, I guess, framework agreement with Shunde in Guangdong Province. I'm wondering, previously, we had a mostly outsourced production model. I'm wondering if this is signaling a shift toward more in-house production. And then also, what type of CapEx requirement should we be looking at for this facility in 2020 and then out years as well?

Yes. Thanks. So the Shunde IoT Technology Park is very much part of our long-term view as to being able to supply us, secure our supply chain resources, right. So while we have been very successful to date running an asset light business model which is allowed us to scale up very quickly. I think as we get to a certain scale, being able to have meaningful control over the supply chain. I mean in terms of sourcing as well as quality control as well cost control is going to be very important to us, right. And apart from manufacturing or production, that headquarter is expected to be multi functional. So as we mentioned it's going to be a two phase build up with the first phase mainly expected to comprise our headquarters, product experience center and R&D center, smart manufacturing center as well centralized sales and services functions, right. So very much acting as a centralized point to continue to grow our operations. But in the long-term view is that at least in some critical components or some core -- in terms of core products we would like to have good degree of control over the supply chain for such products. Now in terms of CapEx, I think over the next say three years, we should expect say RMB300 million to RMB500 million of CapEx mainly in relation to the first phase and most of this will be PP&E, so quite a long depreciation schedule.

The next question comes from Vincent Yu of Needham & Company. Please go ahead.

Hi, management. Congrats on good quarters. So I have two questions. One question is about the vacuum cleaner, I do see we have launched a few vacuum cleaners, called as -- it's branded Xiaomi or as called as Viomi. So what do you see -- expect to see this category in 2020? And my second question is on the promotion side. Are we going to see major promotions in the second quarter or later this year just to catch the like the rebounding demand? Thank you.

Okay. Thanks Vincent. So in terms of your first question on vacuum cleaners both in terms of the sweeper robot as well as the portable vacuum. So we have two categories here. One is the Xiaomi branded, robotic sweeper robot. So as you may have seen it this product has been very appealing to consumers in China. We see very large growth potential in this business and are actually the performance of this particular product have exceeded our expectations and contributed meaningfully to our revenue contribution in the fourth quarter of 2019 as well as going into 2020. So this has been a very successful product launch by us or the Xiaomi and we look forward to further cooperation on this side. On the Viomi side of the business, obviously, the portable vacuum that we recently launched as well as our own branded robotic vacuum cleaners, we do see a lot of upside in terms of market upside potential in terms of household penetration for this product, right. We see a water -- we see really for the market really just getting started and we really see this as a very important part of our kind of IoT product portfolio both in terms of being able to connect to other devices as well as being able to engage with the consumers across the entire household as important part of our IoT @ Home infrastructure. So I think to answer the vacuum, how it fits into our overall strategy, where we do see it as an integral part of our IoT @ Home platform even as much so as say some of our larger appliances going forward. On your second question about strategies or and promotional activities for the rest of 2020. So I think we will continue to benefit in…

As there are no further questions now, I would like to turn the call back over to the company for closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact Viomi's Investor Relations department through the contact information provided on our website or The Piacente Group, the Company's Investor Relations consultant. Thank you all. Have a good day.

This concludes the conference call. You may now disconnect your lines. Thank you.