Hello, ladies and gentlemen. Thank you for standing by for Zepp Health Corporation's Second Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. Today's conference is being recorded. I'd now like to 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 2022 earnings conference call. The company's financial and operating results were issued in our press release via the News Wire Services earlier today and are posted online. You can also view the earnings press release and slides we refer to on this call by visiting the IR section of the company's website at ir.zepp.com. Participating in today's call are Mr. Huang Wang, our Chairman of the Board of Directors, and Chief Executive Officer; and Mr. Leon Cheng Deng, our Chief Financial Officer. The company's management will begin with prepared remarks and the call will conclude with a Q&A session. Mr. Mike Yeung, our Chief Operating Officer will join us for the Q&A session. Before we continue, please note that today's discussion will contain forward-looking statements under the Safe Harbor Provision 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 for the fiscal year ended December 31, 2021, 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 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 contain 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. Wang Huang. Please go ahead.

Hello, everyone. Thank you for joining our call. For the second quarter of 2022, we forged ahead countering the challenges brought about by the ongoing pandemic and a weakening consumer settlement underscored by regional conflicts and microeconomic factors across a number of our markets globally. Our second quarter revenue was in line with our guidance at RMB1.1 billion, down 39.6% year-over-year compared with RMB1.84 billion in the second quarter of 2021. On a positive note, we presented an improvement of 46.4% quarter-over-quarter from RMB757 million of revenue in the first quarter of 2022. This year-over-year decline in revenue was primarily attributable to the later timing of our Mi-band launch this year. The new generation Mi-band contributed to just 1 month of sales in the second quarter of 2022 versus the full quarter sales in the second quarter of 2021. That said, we were pleased to see our top line improved from the first quarter. This occurred despite the subdued retail spending on discretionary items owing to the rising cost of living, worldwide geopolitical events, lockdowns and other pandemic control measures in China impacting our business. We expect further sequential improvement in sales going forward, particularly given the positive sales impact from the launch of several innovative, self-branded smartwatches, including Amazfit Trex 2. Amazfit Bip 3 and Amazfit Bip 3 Pro towards the end of the second quarter. Furthermore, in the third quarter, we will launch new products in our most popular line, the Amazfit GT series. Before we further elaborate on our new products and regional achievements. I'd like to share some updates on our business operations. Earlier this year, we optimized our organization structure to improve our operational effectiveness and enhance our customer facing capability. We also found an IMCC, Information and Management construction committee to oversee the development…

Thank you, Wang. Hello, everyone. I would like to start by highlighting some of the key metrics driving Zepp's development for this quarter. Before providing further details on our financial performance, the global impact of the COVID-19 pandemic, which continued in the second quarter of 2022, especially the fresh lockdowns in China that affected the retail store sales and bought challenges to our supply chain globally. Shortages of electronic components and chips for different industries persisted and accordingly affected the company's supply and production cycle. Separately, escalating geopolitical strike along -- among countries, notably the conflict between Russia and Ukraine is creating turbulence, dampening consumer confidence and causing inflation leading to a slowdown in consumer discretionary spending. These adverse conditions weighed on our revenues generated and our overall gross margin. Together, these factors have affected our Q2 results and continue to impact our ongoing second half 2022 performance. Despite these ongoing headwinds, our Q2 revenue was RMB1.1 billion and in line with guidance, which consists of 42.9% self-branded product sales and 57.1% Xiaomi product sales versus 32.7% of self-branded product sales and 67.3% of Xiaomi products sales in the same period last year. However, our sales were affected by the timing of the new product launches compared with the same period last year. Mi-band 6 2021 launch generated sales throughout the second quarter of last year, whereas this year's launch of the Mi-band 7 only bought sales revenues in June. Likewise, as the launches of the new Amazfit Trex 2, the Amazfit Bip 3 and Bip 3 Pro take place towards the end of the second quarter, hence, their boost to self-branded product revenue will only be visible in the second half of the year. On a sequential basis, second quarter 2022 revenue was better than first quarter 2022 and…

Yes, please go ahead. [Indiscernible] is the first speaker. Now let's move to Lee [indiscernible] of PF Securities for the first question.

Okay, okay. Thank you. Hi, management. Congratulations for the first -- or second quarter, very good results. And I have two questions. Firstly, it's about your Mi-band 7. We noticed it has launched at the end of June. So could you share some color about the shipment in last 2 months and how can we expect the Mi-band 7 shipment in this year? Thank you.

Yes. So we -- as we mentioned previously, Mi-band 7 was only launched in June, and I think we’ve a very good result in the first weeks when we launched the Mi-band 7. From a company perspective, the sales of June doesn't fully reflect the potential of Mi-band 7 sales because we're still constrained to some extent by the chip shortages, which is more a supply issue rather than a demand issue, right? Therefore, we expect that Mi-band 7 sales in Q3 and Q4 is going to be stronger than Mi-band 6 sales at a similar period versus last year. However, I need to caution here because we’ve noticed also a downtrend on the overall band global market size from Q2 -- the Q2 number we haven't received yet, but we’ve received from different sources from IDC and other market intelligence companies, they are all pointing to a 30% to 40% decline of global band sales in the first quarter of this year. So I think that also continues into the second quarter of this year and probably it's going to persist into the second half of this year. So I think that's a little bit of the color for Mi-band 7.

Okay, okay. Thank you. And I have another question about new market. We think the VR, AR market is very likely to boost in the near-term. So I wonder how you think about this market and will Zepp launch any VR, AR [ph] products in the future?

No. I think it's quite -- it's too early to talk about our future road map. But I think VR, AR is definitely a market whereby if you follow the news and the media a little bit, most of the companies see the watch or the band on the wrist as a proto to play into the VR and AR market. So from that perspective, the wearable product categories has a better lead into this market from a hardware perspective compared with many others, right? So -- and we are actually one of the biggest wearable companies in the world. So for sure, VR and AR is definitely on our road map. But with regard to the exact product timing, sorry, I couldn't say too much in today's call.

Okay, okay. I understand. Thank you.

[Operator Instructions] Our next question will be from Lisa Lee of Alpha [ph] Research. Please go ahead.

Thank you. Thank you management for taking my question. I have three questions. The first one is for your self-branded products. Can you please discuss your recent progress and strategy in the international market? And the second one, the new businesses that you discussed, such as the medical grade hearing aid and this sleep aid service seems pretty exciting. Can you please share with us more about the market potential for these new products and services as well as how we plan to monetize. And lastly, I would be grateful if you can provide some guidance for the second half of the year in terms of both the top line and margin trends. Thank you.

Thank you very much. I think I will try to take your question one by one, right? I will start with the self-branded products and how we are going to drive it internationally, right? I think it's -- as we mentioned in the script early on, we have launched a few new products, which are the blockbusters of our existing self-branded product lines. For example, the more value segment, the Bip 3 and Bip 3 Pro products together with the outdoor segment, which is a Trex 2 outdoor wrapped watch, which is actually a competitor of Garmin watch as well as in September, we are going to launch our GT4, which is actually a yearly renewal of our flagship line of the smart watch. So those three are more tailored towards international markets. And we have very good because of the apps which we have built on Zepp OS, these are also the software and the mini programs are also tailored with the individual consumer needs in different markets, and it addresses different consumers, right? So with this, we think the new product introductions, we are actually well-positioned to capture the rebound of the consumer demand because as you see, and you all know that first half of the year, most of the time is not a big sales season. But heading into Q3 and Q4, where you prepare for the Black Friday as well as the Christmas shopping season, these are the time whereby you can more make a success based on your new product introduction, right? So I would say, number one is definitely the new product introductions on our smartwatches and band. And number two, also heading into your second question on the new businesses. I think Wang just mentioned, there are two milestone achievements, which we…

It's very helpful. Thank you, Leon.

Operator, is there any other questions on the line?

No. At this time, there are no further questions. We are going to return to the company side for closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact Zepp's Investor Relations department through the contact information provided on our website. Thank you. You may now disconnect your lines. Thank you.

Thank you for attending today's presentation. The conference has now concluded. You may disconnect.