Hello, ladies and gentlemen. Thank you for standing by for Zepp Health Corporation's Third 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 Third Quarter 2023 Earnings Conference Call. The company's financial and operating results were issued in a press release via the newswire 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. Wang Huang, 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 made under the safe harbor provisions of the US 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 US 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 GAAP 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 reconsolidation 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. Welcome to Zepp Health's third quarter 2023 earnings conference call. In the third quarter, we achieved a business turnaround, returning to profitability after enduring six consecutive quarters of losses. Despite a year of decline in revenue, our high margin self-branded product contribution to our top line now accounted for approximately 80% compared to the average of around 40% for the previous five years. This accomplishment reaffirms the effectiveness of our operational strategy and the early success of our business model transformation. Before delving into the details, I would like to provide a recap of our business model transformation, which has taken nearly two years to bring us to our current position. This transformation has involved departing from a business model that heavily rely on a single customer for the majority of our revenues, is that we aim to establish ourselves as a self-reliant, global smart wearables and healthcare solutions provider. Throughout this transformative phase, we have recognized the importance of enhancing the quality of our revenue streams. This transition signifies a deliberate shift from pursuing sheer growth to a steadfast commitment to achieve profitability. Our strategic focus is centered on improving our gross margin and ultimately guiding us towards sustained profitability and future growth. Notably, our Q3 performance indicates an early success on this journey. While Xiaomi branded product sales faced persistent industry-wide headwinds, our self-branded products sustained sequential growth momentum is 12.3% quarter-over-quarter revenue growth. This was driven by our expanded AI powered product portfolio and [accelerated] (ph) branded influence worldwide, resulting in a rise in product adoption across several markets. Notably, in Southeast Asia and [Central Europe] (ph), our self-branded product revenue increased by 28.4% and 79% respectively, year-over-year. It's also worth mentioning that we turned net profit positive for the Chinese and Indian markets during…

Thank you, Wang. Greetings, everyone, and thank you for joining our earnings call today. I would like to start discussing some of the key metrics from our financial results for the third quarter of 2023. As noted before, we believe that we have been in a post-pandemic downswing in the cycle for our categories that may not yet to be at its end. Our performance varies on a regional basis. Revenue in the Americas continued to be strong or partially offset by the softer performance in EMEA and APAC, reflecting the particularly difficult macroeconomic environment affecting both regions, which impacted our retailers selling growth. Throughout the year, we saw the reduction in channel inventories levels which put us in a healthy channel inventory position across our channels and geographies as we enter the holiday season. As I lived through multiple times in my 20 years in tech, we fully expect that consumer behavior will normalize in time, and our focus on innovation, execution and exciting product road map will result in us returning to revenue growth in time. In Q3 2023, we recorded revenue of RMB0.6 billion, in line with our guidance range, down by 50% year-over-year. This decline was mainly driven by lower Xiaomi-branded product sales. During the quarter, our revenue generated from Xiaomi-branded products decreased by 77% where our self-branded products experienced a 26% decrease, partially due to the timing of the new product introductions as we will launch Amazfit Active and Amazfit Active Edge products in Q4 this year and also in part due to our strategic approach to improve both channel and product mix. However, we have lost a 7.6% quarter-on-quarter growth for our self-branded products which attribute to our enhanced brand value and new product features. Despite the revenue decline, as Wang mentioned, we achieved…

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] Our first question comes from [Nicolette Jones of Brooks Investment] (ph). Please go ahead.

Hello. Thank you for taking my questions. I actually have two questions. Firstly, is margin level sustainable? And secondly, in terms of profitability, can you sustain profitability in the fourth quarter?

Yeah. Thank you, Nicolette. Let me take these two questions. I think as we mentioned before, the gross margin portfolio of our company has actually improved quite a bit throughout the year. You saw that our gross margin actually jumped in Q2 versus Q1 and also versus last year to a high of 32%. And thereafter, in Q3, our gross margin further improved to 34% roughly, right? And this is actually due to a mix of product mix improvement and retail channel mix improvement in our gross margin management. And as we head into Q4, which is traditionally the high season for our product categories and then also, as I mentioned, we launched quite some new products starting from second half of this year. And these new products also carry a much higher gross margin than what the old products used to carry before. So therefore, I think given the high season in Q4, given the product mix improvement we are doing and given the relative, moderate clearance activities, which we're going to do. But obviously, we're going to do some in Black Friday and the Christmas season to catch the sales, we still expect that Q4 gross margin will continue at the Q3 level and maybe a little bit even further expand further in Q4. So I think that should give you a feeling for the gross margin portfolio for Q4, how that looks like. With regard to the profitability in Q4, we normally don't guide on that. But I think as you hear, I mentioned that given the high season of Q4 and the improved gross margin performance of the company, and we also intended to streamline our cost at its current level or even lower, we believe that these all gives us a good chance in delivering our Q4 operating income, which would allow us to continue the performance improvement trend throughout the year.

Thank you.

[Operator Instructions] As there are no further questions now, I'd like to turn the call back over to the company's IR Director, Grace Zhang 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 IR website. This concludes this conference call. You may now disconnect your lines. Thank you.