GuruFocus -
- Self-Branded Products Revenue: Increased by 10% quarter-over-quarter to USD 40 million.
- Average Selling Price (ASP) Growth: Increased by 44%.
- Gross Margin: Reached 41%, the highest in the company's history.
- Operating Expenses: Reduced from RMB 180 million in 2022 to RMB 100 million by the end of 2024.
- Research and Development Expenses: USD 10.6 million, accounting for 24.9% of revenue.
- Selling and Marketing Expenses: USD 11.9 million, accounting for 27.9% of revenue.
- General and Administrative Expenses: USD 6.7 million, accounting for 15.7% of revenue.
- Cash Balance: USD 128 million, unchanged from Q2.
- Debt Retirement: USD 52 million retired since Q1 2023.
- Q4 Revenue Guidance: Expected to be in the range of USD 55 million to USD 70 million.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Zepp Health Corp (NYSE:ZEPP) achieved the highest sequential growth in Amazfit product sales for the year, marking the third consecutive quarter of sales expansion.
- The company reported a 10% quarter-over-quarter increase in self-branded sales, contributing more than 95% of total revenue.
- Zepp Health Corp (NYSE:ZEPP) achieved the highest gross margin in its history, driven by a better product mix with higher margins.
- The newly launched Amazfit T-Rex 3 received robust demand and positive reviews, showcasing successful product innovation.
- The company expanded its product ecosystem with new launches like the Amazfit Helio (WA:HEL) Ring and Amazfit UP Open Wearable Stereo earbuds, enhancing user experience.
- Zepp Health Corp (NYSE:ZEPP) faced supply constraints for the T-Rex 3 due to higher-than-expected demand, impacting Q3 top-line results.
- The company reported an operating loss in Q3, attributed to cost coverage issues and foreign exchange losses.
- Selling and marketing expenses increased by 23.9% year-over-year, accounting for 27.9% of revenue, impacting profitability.
- Research and development expenses rose by 11.7% year-over-year, accounting for 24.9% of revenue, reflecting increased investment in new technologies.
- The company experienced a foreign exchange loss due to RMB appreciation against the dollar, affecting financial results.
A: This is Leon. The T-Rex 3 experienced supply constraints in Q3 due to high demand, comparable to Garmin Fenix 8. We are working to resolve these constraints, expecting increased sales in Q4. Additionally, the launch of OWS earbuds and Helio Ring, along with the traditional high sales season, contribute to our confidence in achieving higher Q4 numbers.
Q: Where exactly is the bottleneck in terms of the supply constraints?
A: The supply constraints are more of a demand issue. The T-Rex 3 saw a spike in demand that we didn't anticipate, given its $300 MSRP. Factories are now running 24/7 to meet this demand, which will be a key driver for sales increase in Q4.
Q: You reported a ForEx loss this quarter, when historically, you've been reporting gains. What happened, and how do you expect this to play a role in the next quarter?
A: We experienced a headwind due to RMB appreciation against the dollar, which we couldn't fully hedge. Historically, we've had tailwinds, and we expect this to return in Q4. Stripping out FX impacts, our profitability has improved, and we anticipate resolving cost coverage issues soon.
Q: Your cash position is strong at $128 million. How do you plan to deploy this cash in the coming 12 to 24 months?
A: We are considering small bolt-on M&As but will focus on our share repurchase program, extending it by another two years. We aim to use cash to seize market opportunities and strengthen our competitive position.
Q: Could you provide more color on the Q3 net loss situation and how it compares to previous quarters and last year?
A: The Q3 net loss was impacted by supply constraints on the T-Rex 3, front-loaded marketing expenses, and FX headwinds. Despite these, our profitability is improving, and we expect a strong Q4 with increased revenue and reduced losses.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.