Hello, ladies and gentlemen, thank you for standing by for ZEPP Health Corporation's First Quarter 2023 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 Zhang, Director of Investor Relations for the company. Please go ahead, Grace.

Hello, everyone, and welcome to Zepp Health Corporation’s First Quarter 2023 Earnings Conference Call. The company's financial and operating results were issued in a press release via the News Wire services earlier today and are posted online. You can also view the earnings press release and slides referred 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 CFO. 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 made 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 are included in the company's Annual Report on Form 20-F for the fiscal year ended December 31, 2022, 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 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 contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I’ll now turn the call over to our CEO, Mr. Wang Huang. Please go ahead.

Hello, everyone. Thank you for joining our call. In the first quarter, we recorded revenue of RMB645.2 million, with RMB391 million from our self-branded products and RMB254 million from the Xiaomi ODM business. Our total revenue declined as cautious -- consumers limited discretionary spending due to volatile geopolitical and macroeconomic conditions in Europe and in U.S. As we mentioned in the earlier quarters, we anticipate that the Xiaomi ODM business will diminish further and thus our self-branded product line will become the main growth driver in the future. In the quarter we made progress globally by strengthening our go-to-market capabilities and increasing brand awareness. This along with the value of our products drove higher shipments and market share gains with 20% increase in the Southeast Asia and East Asia region. Despite experiencing a decline in the consumer electronic device market, during the first quarter of 2023 we maintained our optimism that macro headwinds will subside and we expect to see a market recovery during the second half of the year. Furthermore, another cause for automation is that, [indiscernible] recently forecasted an increase in the smartwatch market in 2023. We strongly believe in Amazfit’s long term potential in the smartwatch markets, presenting a significant opportunity to build sales by enhancing our product competitiveness, by leveraging our vertical integrated RISC-V based chip and Zepp OS in all product lines. We can reduce product costs and improve product gross profit margins. Our high end products offer similar performance to premium competitors, but at a fraction of the most of the cost in this longer battery life. This all help us generate higher revenue and profit margins along with our integrated supply chain and efficient R&D. We will secure our position in the $100 to $200 market segments while expanding into premium segments and…

Thank you, Wang. Greetings, everyone. Let me walk you through some key metrics of our first quarter 2023 financial results. In the first quarter, we recorded revenue of RMB645.2 million within our guidance range and down 14.8% year-over-year. The decrease was mainly due to the global macroeconomic uncertainties that dampen discretionary consumption in the first quarter. According to [indiscernible], the value of the global wearable market including basic band, basic watch and smartwatch decreased by 8% in the first quarter. And more specifically, the basic band subcategory lost more than 30%. Also, as I mentioned a few times before, Q1 is typically the lowest seasonal quarter of our financial year. Before diving into our financial performance, I would like to provide a brief overview of the macro environment. In the first quarter, we experienced a shift in China's COVID-Zero Policy. The reopening disrupted our new product launch scheduled due to the factory closures. As a result, we had to postpone the release of some of our new product lines to subsequent quarters, which has a negative impact on our Q1 sales. At the same time, consumer spending was rather tippet. Especially as the pendulum has swung away from goods and toward travel and services as the consumer enjoys some of the activities that they were deprived of during the pandemic. The consumer electronics space, in particular, continues to experience softness to this matter, which together with the geopolitical risks in Europe, pressure on our top line in North America and Europe. Despite the challenging start of the consumer electronics market during the first quarter of 2023, we remain optimistic about the smart wearable markets recovery in the second half of the year. Despite these headwinds mentioned above, as Wang just mentioned, in some of our global markets our self-branded products…

Thank you. We'll now begin the question-and-answer session. [Operator Instructions] First question comes from Nicolette Jones with [Brooks] (ph) Investments. Please go ahead.

Thank you for taking my questions. So I have three questions. Firstly, can you please provide some color on the revenue trend of self-branded products in the second quarter and beyond? And then secondly, I'd like to ask if you can discuss factors that impacted your margins in the first quarter and margin outlook in the remainder of the year? And lastly, I'd like to understand a bit more about the revenue breakdown by region? Thank you.

Yes, it's a lot of questions. So let me start with the first question. I think it's on the self-branded product margin -- sorry, I think it's around self-branded product revenue outlook for Q2 and the quarters ahead of us. Correct?

Yes. Thank you.

Okay. Now I think as we just guided, we were looking at roughly RMB650 million and RMB850 million for Q2 as our revenue range. And then we -- out of that number, there's going to be around 65% to 75% of the revenue, which is going to be contributed by our self-branded products. So if you take the mid number over there, in essence, we're looking at the second quarter revenue, which is going to be around, let's take a number, 7.5 -- sorry, RMB750 million. And out of that, 70% would be our self-branded products. If that number is correct, I think that is actually going to be indicating that our self-branded products revenue is going to start to grow versus the same period of last year. And looking ahead, we have mentioned a few times that we're actually transforming more into self-branded driven revenue kind of company rather than in the past, majority of our revenue is actually consists of the ODM Xiaomi product. And you will see this trend starting to take a shape more in -- I think we have already started to -- you have already seen this trend. But I think after a few quarters, especially Q2, Q3, Q4 this year, you'll start to see a solid trend of majority of our sales revenue is going to be generated by self-branded products. Well, we still have a small portion of the Xiaomi and ODM products revenue. And in return, that sales mix change is going to help us to deliver a higher gross margin. So I think that naturally goes into your second [quarter] (ph), which is on the margin outlook. I think one of the things I would like to call out in the first quarter this year is that, we have already…

Thank you. That's very helpful. Thank you.

[Operator Instructions] The next question comes from [Lisa Li] (ph) with Alpha Research. Please go ahead.

Thank you for taking my question. I have two questions. The first one is on the very strong margin that you just mentioned for your new products. You said it was around 35% in the first quarter. I'm just wondering what are the drivers behind this performance? And are there any further upside to this number? And secondly -- the second question is on the run rate of your operating expenses, you -- I think it talks about a target of RMB200 million on the adjusted basis in the coming quarters. But I noticed in the first quarter, your total operating expenses have reached around RMB225 million I think on the adjusted basis. So are you being a little bit conservative on this target? And what is your run rate currently? Thank you.

Yes. So let me try to answer the easy ones. Let's start with the run rate of the expenses, then I'll get back to the margins. Because that's probably is going to be a little bit longer story here. Yes, you are right, Lisa. So if you look at our 2022 and the 2021 quarterly expenses run rate, we were around RMB300 million per quarter. So, which is adding up the R&D, G&A plus the sales and marketing expenses altogether, right? So this is actually one of the key KPIs the management play a lot of focus into our day to day operation. So we have done a few things. We actually look at our [search] (ph), that’s number one, it’s definitely the personnel, right? So we look at our workforce and we try to streamline our workforce and then we try to get it in line with our revenue scale. So that's definitely the one which we did in the past quarters. I think that's more or less coming to an end. And the second one is what we did is to look at our expenses based on so called ROI return on investment approach. And we always look at the discretionary expenses in a way that whenever we could save, we ask people to be a little bit more cautious in, for example, traveling, for example spending on marketing campaign by looking twice or three times whether or not it makes sense and what's the return on that? And the last thing which we did is on R&D part. We are more applying a so called platforming coach, whereby we look at our vertically integrated chips, OS and everything together and try to lower the overall cost of delivery on our products, right? So that all translates into…

Yes, it did. Thank you.

As there are no further questions now, I'd like to turn the call back over to Grace Zhang for any 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 content information provided on our website. This concludes this conference call. You may now disconnect your lines. Thank you.

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