Hello, ladies and gentlemen. Thank you for standing by for Zepp Health Corporation's Q1 2021 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's Q1 earnings conference call. The company's financial and operating results were issued in a press release via Newswire Services earlier today and are posted online. You can also view the earnings press release and the slides to which we will refer on this call by visiting the IR section of the company's website, ir.zepp.com/investor. 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 Yan 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 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 31st, 2020, 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 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. Huang Wang. Please go ahead.
Hello, everyone. Thank you for joining our call. Our Q1 results demonstrate both the resilience of our strategy and the popularity of our brands, while at the same time, we are challenged by supply chain and the multi-channel dynamics that were in play due to the global pandemic. The highlight of the Q1 was the performance of our self-branded products. Shipments of self-branded products more than doubled in the Q1 compared with the same period a year ago. They also contribute to 64% of our total revenue. As the product acceptance on our key product lines, such as Amazfit Pop, Bip, and the GTS series, as well as our newly launched T-Rex product line, continued to strengthen. These results were achieved amidst challenging market conditions. In the Q1, our overseas market channels continued to be adversely impact by COVID-19.
Supported by the robust performance of our self-branded products in Q1, we recorded 5.4% year-over-year growth in total revenues to RMB 1.1 billion, despite a decrease in shipments for Mi Smart Band 5 ahead of the launch of Mi Smart Band 6. As all of the pandemic-related issues continue to work their way through and out of the market, I would like to bring the focus back to our products, especially some new product launches, as well as functionality and partnerships, which we expect to push both our brand's popularity as well as revenues onward. First, executing on our mission to connect health with technology. In the Q1, we continued to build out our comprehensive health and fitness ecosystem by enriching our product portfolio. In March, we launched the Amazfit T-Rex Pro, which is the latest addition to our outdoor sports series of smartwatches.
It is built to last with 15 military-grade certifications and 100-meter waterproof for extreme temperatures and conditions and has passed three additional performance endurance tests. In addition to exciting functionalities such as the blood oxygen saturation management system, four global navigation satellite systems, and more than 100 different sports mode settings. One of my favorite features is its ability to monitor sleep quality. We believe that quality rest and sleep are essential elements of good physical and mental health. Also in March, as we continuously seek new ways to create value for our users, we started to provide WeChat Pay functionality in Amazfit GTS 2 and GTR 2 smartwatches. Rolling this out to majority of our smartwatch portfolio adds a desirable and convenient function to our products. We have also been working hard on strengthening our partnerships and expanding into new ones.
Our strategic partnership with Xiaomi remains as strong as ever. We successfully launched Mi Band 6, the sixth generation of this popular product line, in March, and achieved over 1 million units in global shipments within one month of its launch date. The Mi Band 6 has, aside from its stylish design, some incredible health-related functionalities, so that users take measurement of their physical conditions anytime, anywhere. The newly introduced functions include blood oxygen saturation monitoring to measure breathing quality and cardio health monitoring to detect irregular heartbeats. These functions are powered by our self-developed AI-based algorithms, OxygenBeats and TrueBeats 2.0, respectively. We are very encouraged by the great sales results from the Mi Band 6. At the same time, we are also working with Xiaomi one more exciting and groundbreaking new product. Together with continued strength in our self-branded products, we expect a very strong Q2.
Leon will provide more details momentarily. We also continued to expand our collaboration with leading research institutes as well as healthcare companies. We partnered with leading hospitals and institutions globally on a clinical study to examine the potential benefits of smart health monitoring equipment in improving the quality of life for outpatients with chronic heart failure and reducing their readmission rates. For example, one of our projects is collaborating with the Norwegian University of Science and Technology called NOR-ICCS. The NOR-ICCS project is a registry-based, multi-center and multi-regional randomized controlled trial for secondary prevention and rehabilitation of patients who have suffered myocardial infarction. The project will include 12,750 participants with myocardial infarction across Norway in the next four years. Our smartwatches with heartbeat monitoring and overall health management platform are being used effectively as part of these clinical studies.
A few comments on our data analytics business, which is an integral part in expanding our smart health ecosystem. Access to more than 42 million active users, combined with our AI and big data analysis capabilities, as well as our powerful AI algorithms, allows us to establish a cloud-based system that can provide insurers, care providers, and employers with aggregate healthcare-related information to make better decisions that promote wellness and expand our business boundaries further in the healthcare industry. In closing, we're looking forward to delivering robust results in the Q2, and powered by the rising demand for our products, our effort to constantly innovate and enrich our product portfolio, as well as the strength from Mi Smart Band 6.
I am confident that as we continue to execute on our strategy of connecting health with technology, we are well-positioned to capture new and exciting opportunities and deliver long-term shareholder value. I will now turn the call over to Leon to go over highlights of our Q1 financial results.
Thank you, Wang. As I did last quarter, I want to focus on highlighting what I think a handful of most important metrics. Starting with sales. Generally, from a seasonality perspective, Q1 has always been a soft quarter for us. However, we had an exceptional quarter in revenue this year from our own Amazfit and Zepp-branded products, which increased 84% in revenue year-over-year. Unit growth of self-branded products was even higher at 104%, emphasizing the impact and popularity of our higher-end products, such as the GT series. You cannot dismiss Zepp Health as just a maker of inexpensive watches and bands. We are a real global player, competing successfully at a wider range of price points. Given the continuing impact of COVID, I think the overall revenue growth of 5% in Q1 is very solid and reached the top end of our guidance range.
In a few areas, such as the U.S., COVID seems to be abating. In many of our key markets, including many European countries, India, and South American countries, COVID spread and restrictions continued to have an impact on our business in the Q1. Also affecting the quarter in China, subsidies and exemptions from social insurance contributions ended, impacting our costs. As is often the case, timing of new product introductions in this quarter for Xiaomi impacted the quarter. Xiaomi product revenue was down 40% year-over-year in the Q1, largely driven by the anticipation of the introduction of the Mi Band 6 in the Q2. The reviews have been positive, expectations for shipping Mi Band 6 factors into our strong guidance for Q2. Q1 demonstrated continued strength of our high-end products.
The premium GT series that sells in the $180-$200 range comprised 48% of our smartwatch and band unit shipments in the quarter. The sales of Amazfit Pop basic smartwatch also continued to be strong in Q1, as was T-Rex, including the new T-Rex Pro that launched during the quarter. We expect the trend of strong growth for our Amazfit and Zepp-branded products to continue as we expand globally. Now moving to Gross Margin. Gross Margin can be affected by product mix, product launch timing, and product life cycles, including model upgrades. Q1 2021 Gross Margin stayed at the same 22.5% rate as it was in the year-ago pre-COVID-19 quarter.
As we noted in today's press release, gross margin for our own Amazfit and Zepp-branded products varied over the last 5 quarters between one and a half times to more than double the margin on products built for Xiaomi. That trend continued in the Q1. That highlights our focus on growing our company-branded products and our global expansion to enhance our overall profitability. Operating expenses have been a key focus of mine since joining the company in the third quarter last year. While we have to balance cost controls with fueling growth, we have decreased total operating expenses for two quarters in absolute amounts sequentially since last year's third quarter. Q1 2021 total operating expenses was up year-over-year, reflecting our investment in new product development and global market expansion.
Given the timing of investments often ahead of the sales result, we'll continue to manage some expenses on a percentage of sales basis over a longer window of the year. We don't want to stop critically timed investments that paid off in future quarters. With that in mind, Q1 R&D expenses increased year-over-year, reflecting investments in products that will debut in the busier second half of the year. Sales and marketing expenses were up year-over-year, reflecting investment in global growth for our Amazfit and Zepp-branded products. R&D, sales and marketing, and G&A costs were all down sequentially, either from the third quarter 2020 high point or from the fourth quarter. We reported a net loss for the Q1 based on the effects I have described above. With our guidance for Q2, we expect a return to GAAP profitability.
The company's cash position continued to be strong, finishing the Q1 with a cash and cash equivalent of RMB 1.1 billion, compared to RMB 2.3 billion at December 31st, 2020. The sequential decline was primarily driven by RMB 8.6 billion used to complete the minority stake acquisition in Jiangsu Yitong High-Tech Co., Ltd. in China. We also invested in some extra chip inventory as a partial hedge on chip availability for the rest of this year, as well as some higher inventory for our company-branded products, as we were short on some products several quarters last year. Looking forward to guidance. There remains much uncertainty globally about the pandemic, which we have factored into our guidance, along with some sequential seasonal improvements and contribution from Xiaomi Mi Band 6. For the Q2 of 2021, management currently expects net revenues to be between RMB 1.7 billion and RMB 1.8 billion.
That range projects a growth rate of 50%-58% year-over-year from the 2020 Q2's RMB 1.14 billion. That outlook is based on the current market conditions and reflects the company's management's current and preliminary estimates of market and operating conditions and customer demand, which are subject to change. This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.
The first question comes from Clive Cheung at Credit Suisse.
Thank you, management, for taking my question. I think my question largely based on the OpEx structure, which, obviously Leon already explained, but I just want to get a bit more color. Obviously, in terms of structure, it made up 27% of total revenue. This is, I think, a historical high for the company. In terms of this kind of level of intensity, for example, in R&D, is this a one-off? What should we expect for the rest of the year in terms of OpEx planning? Could you share a little bit on that? Thank you.
Clive, let me take this question. If you look at the absolute amount of OpEx, starting from Q3 2020, I think we were hovering around $380 million to Q4 around $310 million, to Q1 at $308 million, if those are numbers which I remember, if those are correct. From absolute amount perspective, the OpEx number kept on trending down over three quarters' time. OpEx, there's a fixed and a variable portion of it. What we are seeing in Q1 is largely a seasonality issue if you may. The revenue, if you look at last year, Q3, Q4, it was around RMB 2 billion range. In Q1 this year, it's actually around RMB 1.1 billion. Yes, from OpEx as a % of sales perspective, Q1 looks really high.
As the sales is going to trend up in the upcoming quarters, we believe that this percentage, OpEx as a percentage of sales, is going to go down big time in the upcoming quarters. If you look at the absolute amount, I think the OpEx amount is going to hover around the same level of Q1 or even lower than Q1. I hope that answers your question.
Yeah, that does. I think I want to follow up particularly on R&D. Obviously, we know we're investing a lot in the healthcare technology. Do we have a budget for the full year in 2021?
Yes, I think as a % of sales perspective, R&D, there's a seasonality, as I just mentioned. Overall, I think you can look at the R&D as a % of sales very much similar to what we spent in year 2020. Obviously, we just mentioned we don't want to stop any time-critical investments, which we believe that in the future, we can reap more benefits on that.
Okay. Thank you very much. I'll go back to the queue. Thanks.
The next question is from Andre Yan at Citi.
Thank you for taking my question. Given you have RMB 1.7 billion to RMB 1.8 billion revenue guidance, could you share with us some of the breakdown between Mi Band as well as your self-brand products, or any guidance on the unit growth guide?
Andre, yes. I can give you a feeling for what it is, right? If you look at our self-branded products, I think as management, we're quite happy to see the trend continues. Actually, it started in Q3 last year, and in Q4, we had a good run-up of our self-branded products. I think it's around close to RMB 1 billion revenue in Q4. In Q1, I think that trend also continues, right? If you remember our seasonality on a full year sales weight perspective, Xiaomi has been to 70% of our revenue, and the self-branded has always been the 30%. I think starting from Q4, we see that trend structurally changing of more self-branded products taking the weight higher in that mix. Right? I think Q1 is probably a little bit to the extreme.
Self-branded products actually stands roughly 70% of the total overall mix for us in Q1. Obviously, as I mentioned, the Xiaomi partnership has been close and very close for us, because Mi Band 6, as we launched, I think by the end of Q1, has received very good ratings and also the sales has been very good. I think we achieved 1 million unit sales just a few days after we launched the product, right? To answer your question, if you look at Q2, obviously the Mi Band 6 sales is going to fuel some of that growth which we projected. Also our self-branded products will also take the same shape, and it's going to be a strong growth for our self-branded products in Q2 as well. I hope that gives you some feeling on why we guided such a number for Q2.
Understood. Thank you. Could you share a bit on the rough breakdown or on the shipment unit growth so that we can have a better feeling on the gross margin implication? Thank you.
Q1 this year, if you look at Xiaomi and self-branded, it's 70% self-branded and 30% Xiaomi. I think for Q4, probably you're going to be looking at 50%-60% Xiaomi, and the rest will be self-branded.
That also applies to the Q2 revenue?
If you look at Q2 revenue, I'm saying Xiaomi will be stands for 50%-60% of what we guided for Q2, and the rest will be self-branded.
Understood. Very clear. Thank you very much.
Again, if you have a question, please press Star then One. The next question comes from Michelle Zhang at China Renaissance.
Thank you, management, for taking my question. I'd like to understand about the GM guidance for both your Xiaomi and self-branded products going forward, like whether we should expect it to be stable or that there's still a trend for them to go up a bit?
Michelle, we never guide GM for our guidance going forward. I can give you a feeling, right? As I mentioned before, the self-branded products gross margin for the past five quarters has been always been 1.5X to 2x the Xiaomi product margin, right? You know the Xiaomi product margin, we have disclosed before, is in the 15%-17% range. I think it's around that range, right? Going forward, I think you can see this impact in the past quarters already gradually changing, right? Our gross margin has been going down from Q3 to Q4, and then now in Q1, it start to trend up. I think we're expecting this trend to continue in the Q2 as well as into the second half of this year.
Okay, thank you. My second question is about your revenue breakdown, in terms of your geography and also your online/offline distribution channel.
I beg your pardon?
Yeah. My second question is about your sales breakdown in terms of your geography and also the proportion of your online and offline distribution, also the trend going forward.
Okay. Thank you. Xiaomi, in our book, it's actually a business to business for us, right? I think putting Xiaomi aside, if you look at the self-branded products, here I'm only talking about the self-branded products, right? Europe is actually our biggest market. Then I think followed by China, U.S., and the rest of the world. As you know, that there's certain restrictions and lockdowns in Europe, and that continues in Q1. We were hampered a little bit by the sales or the offline channel sales in Europe. That also applies to many parts of the world where we operate. To answer your second part of the question, at this moment, majority of the self-branded products are selling through the online channel.
We expect that as the COVID is abating in, for example, United States, and also we see a good trend in Europe because the lockdown has been relaxed to a certain extent. We believe that the offline channel sales will also play a bigger role in the second half of this year.
Okay. Thank you so much.
The next question comes from RCO Ench. Okay. At this time, there are no further questions.
Okay.
I'd like to turn the call back over to the company for our closing remarks.
Thank you once again for joining us today. If you have further questions, please feel free to contact Zepp Health investor relations department. This concludes this conference call. Thank you.
Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.