Thank you for standing by for Viomi Technology Company, Limited Earnings Conference Call for the First Quarter of 2021. At this time, all participants are in a listen only mode. Today's conference call is being recorded. I will now turn the call over to your host. Ms. Cecilia Li, the IR Head of the company. Please go ahead, Cecilia.

Thanks, operator. Hello, everyone, and welcome to Viomi Technology Co., Limited earnings conference call for the first quarter of 2021. As a reminder, this conference is being recorded. The company's financial and operating results were issued in a 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 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; Mr. Xiufei Bao, our new President; and Mr. Shun Jiang the Head of our Finance Team. The company's management will begin with prepared remarks and it all 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 annual report of Form 20-F and other filings filed with the U.S. Securities and Exchange Commission. The company doesn't assume any obligation to update any forward-looking statements, except as required by law. Please also note, 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 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.

[Foreign language]

Thank you, Mr. Chen. I will briefly translate our founder's remarks before discussing our financial performance for the first quarter of 2021. Hello, everyone. Thanks for joining our first quarter of 2021 earnings conference call. Leveraging the optimization of our product portfolio, new product sales growth, and enhanced brand recognition, we delivered strong net revenues that exceeded our previous guidance, increasing 64% from the same period in 2020 when our operations were impacted by COVID-19. Our gross margin recovered to 21.1% from 18.8% a year ago, primarily attributable to the product portfolio optimization. Our continued growth over the past several years has been driven by continued optimization of our IoT products and holistic solutions, through innovation and integration of cross-boundary technologies, alongside a deep understanding of our users' needs. This April, we hosted our Strategic New Product Launch event with the theme of AI: Helpful, with the introduction of the series of AI strategic new products, including the mineral water purifier, EROx; and AI smart toilet, EyeBot, equipped with sensors that is able to monitor human health data; AI water heater, which is able to soften in the water quality; new AI air conditioners that went with EyeBot2; and a desktop with AI-assisted cooking functionalities. Our products are designed with an eye on healthcare, smartification, home security, and natural AI voice interaction. Some new products, equipped with sensors and supported by AI algorithms, are able to collect home and human health data with users' consent. In addition, we focused our resources on developing key product categories and rolled out more differentiated and industry-leading products. For example, last year, we introduced a series of premium water purifier such as 2 Pro 1,000-gallon, 1,200-gallon, and Vision 1,200-gallon series, which realize large-flux and then low ratios of waste and purified water. Our THT…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Lillian Lou with Morgan Stanley. Please go ahead.

Thanks a lot, management and Mr. Chen. I have two questions. First is on the sweeper robots. What kind of growth we are looking for this year overall, because obviously, first Q has a very strong growth and momentum, and Mr. Chen just mentioned that we have the plan to expand the region overseas, and in the second half, we'll get into the U.S. on Amazon. So, any particular guidance or explanation of how we're going to grow the business overseas will be very helpful. And the second question is on the raw material price increase impact. Because first Q, we already saw the gross margin decrease on a sequential basis versus the fourth quarter last year. So, how are we going to look at the momentum or trend in the following quarters? Thank you.

[Foreign language]

Okay. Thank you for Lillian's question. For the first question about the sweeper robot, our sweeper robot business grows fast, in particular, in the Viomi-branded sweeper robot. And we spot the rapid growth of own-branded sweeper robots will continue. On the domestic sweeper robot market is an addressable market according to our agents' data. The market size of the sweeper robot is expected to reach over RMB 10 billion by 2021 and close to RMB 20 billion by 2022. There are more players in the industry, and we observe the market shares of new brands has been increasing since 2020, and this trend is expected to continue. We also found our niche without differentiated products, including a series of automated tax collection sweeper robots and the AI laser radar sweeper robot we recently introduced. Under such a situation and the observation of the market demand of sweeper robots, we are positive for our market shares in the domestic market and in the following years. In terms of the global markets, the market size is also huge and promising, we think. For our research, we think there are a lot of potential opportunities, particularly in Europe and North America. We have sold our sweeper robots in Europe, Southeast Asia, Australia, and the sales grew for sweeper robot both for this first quarter in overseas market, exceeding our previous expectations. Next, we will expand to North America markets. We recently successfully registered our stock on Amazon, and we will start to sell sweeper robot products in the second half of this year. We also plan to sell our products on some offline channels in the North America. We have expansion in North America and the additional regions and markets. We are confident the global market sales will become an important driver of our overall business. For the second question about the gross margin and the raw material prices rising, as we discussed, compared to 2020, our overall gross margin for 2021 would demonstrate a meaningful recovery, while we also experienced some season -- seasonal fluctuations due to some promotional events such as the coming June 18 campaign in the second quarter, which we expect to have some impacts on our gross margin. Secondly, the increase of these raw material costs will also be a factor that impacts the gross margins for the whole industry. As for this, we have taken some cost-optimization measures to mitigate the impacts for raw material costs, including price law agreements with suppliers and some technical upgrade for cost-saving. Third, we noticed the latest news that the government plans to take measures to control the raw materials' price uptick. We expect this will spread the pressure for -- from this increase in raw material costs to be relieved under the government's involvement. Yeah. Thank you.

[Foreign language]

So, Mr. Chen has comments on Xiu's comments. Yeah, I will just quickly translate. So, the -- for this first question about development, yeah, they obviously evolved our business. So, we have established an independent department who obviously evolve our category and we have been attracting talents from all walks of life from the outside. So, the second fold of development there was we've evolved our business within two to three years. So, we've already had one of the key categories of our strategy. So, we are very confident that this category will be one of the drivers to grow both the top-line growth, as well as to gain our profitability. Yeah, so that's the commentary -- comments from Mr. Chen. Hope that it's helpful.

[Foreign language]

[Foreign language]

[Foreign language]

Yes. So, we already have some internal accounts regarding our sweeper robot category in terms of product and data management of team development in both the domestic and global market. And our aim is to develop the top brands in sweeper robot category. Yes, that's it.

That's the next question is from [Waye He and Rudy Waye] with CICC. Please go ahead.

Hello. Thank you very much for the management's presentation. And actually, I have two questions here. The first is about domestic market development. Since we know the, actually, the profit margin of the businesses with Xiaomi is quite low. And how the company plans to further promote the self-owned brand and the products in the domestic markets, especially, I suppose, should be the water purifiers and the robotic vacuum cleaners? And the second question is about overseas. Like are we going to like promote more categories to overseas? Or currently, we just limit the categories to like the water purifiers and the robotic vacuum cleaners? Yes, that's my questions.

[Foreign language]

[Foreign language]

Okay. I will quickly translate. So for the first question about how to develop our own branded business in the Latin market, so we still could focus on developing our IoT at Home holistic product portfolio. So we have expanded to like around over 60 product categories across the home scenarios. And we also have some key categories and the SKUs that we aim to develop mostly this year to drive our branding influence and the position as the trending brand in IoT at Home holistic solutions area. So, as far as we know that in the past half to one year, the concept of IoT at Home modification has increased in domestic market. So we are confident that we can have a better development in the domestic market with our advantages and the differentiation. So for the key categories, we think the water purifier and sweeper robots business, those two are the key categories for us this year, and we'll build, develop and invest in more R&D and marketing resources in the two categories, and we believe those two categories will be also the drivers for our top line. For your second question about the overseas market expansion. So this year, that we will still focus on the development of our sweeper robot business in the export market. So, so far, we don't plan to expand the categories, but we will expand the global markets, as well as the channels, and to increase our branding inflows in overseas market in the sweeper robots category. Thank you.

The next question comes from Roger Duan with Needham and Co. Please go ahead.

Hi. Thank you for taking my question. I have two questions here. First one is a follow-up on the raw material price increase. Can the management give us a sense of just how much the raw material increase in the last several quarters? And do we have any plan to increase our retail prices like others have done in the industry? And the second question is around the pricing strategy for sweeper robots internationally. Is the pricing strategy different internationally versus domestic? And will that continue to be a margin driver for the year? Thank you. [Foreign language]

[Foreign Language]

OK. I will quickly translate. So for the first question about the impact of the increase of the raw material costs and the impact for our pricing strategy. So we have seen like that increase of the raw material has increased since the first quarter of last year, and we have taken like three measures to mitigate the impact. So first, as some other companies in the whole industry that we increased the ASPs of some of our products to some and reasonable extent. So second, we also optimized the sales and the product structures. So we promote and sell more products with higher margins. For example, in the smart kitchen product, we sell more the mid- to high-end refrigerators with higher gross margin. Third, we have been increasing the percentage, the revenue contribution from the bundle sales to mitigate the impact of the raw material cost price [Indiscernible] for single product. So, this answers the first question. So for your second question about the pricing strategy for our sweeper robots in domestic and global market. So, we position our sweeper robots at mid- to high-end products in both of the domestic and global market. So, for the domestic market, most of our sweeper robots, the ASPs are around RMB 2,000 to RMB 3,000, so that's above the average ASPs of some sweeper robots brands in China. So we have some differentiated functionalities, such as the [indiscernible] sweeper robot that we introduced last year, which aims to the auto dust -- automatic dust collection. And this year, we introduced a laser radar sweeper robot, which is also a differentiation for our sweeper robot category. So for the global market, we also aim to position, you know, the mid- to high-end products for this category. So the average selling price is above some of the global brands. So that's the comments of Mr. Chen. I hope that's helpful.

[Operator instructions] As there are no further questions, now I'd like to turn the call back over to Cecilia Li for closing remarks.

So, thank you once again for joining us today. If you have further questions, please contact us through the contact information on our website or The Piacente Group, our investor relations partner. Thank you all. Have a good one.

[Foreign language]

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