Fireside Chat

Jul 21, 2020

Hello, ladies and gentlemen. Thank you for standing by for Walme Corporation's July 2020 fireside chat 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 Mr. Brad Sampson, Vice President of Investor Relations for the company. Please go ahead, Brad. Thank you, Kate. Hello, everyone. And welcome to Wami's 1st Fireside chat. We hope you find it informative. Participating in today's call are Mr. Wang Huang, our Chairman of the Board of Directors and Executive Officer Mr. David Queue, our Chief Financial Officer and Mr. Mike Young, our Chief Operating Officer. Management will begin with prepared remarks and the call will conclude with a Q And 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 is included in the company's annual report on Form 20 F for the year ended December 31, 2019, and other filings 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. I will now turn the call over to our CEO, Mr. Wang Huang. Please go ahead. Thank you, Brad. Brett joins us at the beginning of June to help us be more responsive to investors in the U. S. I want to use this event outside of our normal earning results flow to talk about our story in the framework of how we think about the industry and where we are going as a company. Our company mission is connecting health with technology. I think everyone agrees that more personalized data can help improve individual lives. And give the health care system better information to drive diagnosis and treatment improvements systemically as well as individually, there are several key challenges or hurdles to those objectives: courtesy of data collected, drawing relative or accurate conclusions from the data inertia of the healthcare system participants to accept the information gleaned from the data. Adoption of monitoring technology by consumers. Consumer long term adherence to the health improvement recommendations payment or reimbursement that supports the collection and analysis of health information. And delivering related services. 1 is mission is to address many of these challenges with its growing products and services portfolio to achieve our vision objectives of improving health through the application of technology. Starting with the data quality, questions remain in many clinicians' minds about the quality of the data provided by personal health monitoring devices. Such as smartwatches, finished bands and other wearable devices. For example, the class action lawsuit against another industry player over the accuracy of its hardware data has made this all the more challenging to convince consumers and clinicians of the accuracy and vulnerability of validity of hard data. Huami likes several other industry leaders is working to advance the quality of data collected from personal health devices. That is important because I think many US investors have some misperceptions about the global marketplace. It's not uncommon for example, to get a question, why doesn't Apple just been by default? That's the misperception because Apple's phone market share, while 50% in the U. S. Is only 20% globally. Which has been pretty consistent for the last 4 years. Of course you need to be part of the Apple ecosystem to use an Apple Watch. Apple Watch Cox is also a challenge in many parts of the world. For both individual consumers and for insurance partners. Just in the last 2 weeks, you may have seen the announcement of the 2nd generation of Taiwanese Wongshan AI chips that features significant improvements in power savings data collection and analysis accuracy for them to detect atrial fibrillation 7 times faster than Huang Zhang 1 and 26 times faster than competing algorithms. A study done with the packing university, 1st hospital last year demonstrated our valuable technology had atrial fibrillation accuracy of 93.27 percent with PPG. We were the first to launch medical grade ECG smart valuable products commercially in the industry PPG Technology was 24 hours 7 days to collect data continuously. We developed our own PBG bio checking optical sensor, launching the next generation Vista Huangshan AI chips. The new BioCheck 2 server supports 5 biological data engines, heart rate, briefing, and oxygen sleep, exercise and heart health, making it the most versatile and precise biosensor is ever developed by Kwami. This new algorithm all represent significant improvements in data collection and analysis. All of our products from the top of the line on down, utilize the same advanced algorithm technologies which increases the accuracy of the data collected. The distinguish us from several of our competitors' approaches. IPhone's go through each of these episodes from the announcements. In that, I would encourage you to look at the release which plan on June 17. But I will highlight that several of This leverages our heart rate and cardiovascular disease detection technology from PIEHealth and through our minority investment in Alliance Corp. Both of these are developers of market leading heart health insights. A Lifecore has FDA approved fibrillation technology, the new Huang Zhang AI chips and all its new intelligence, intelligence driven by large data sets and AI are great examples of how YME is among the leaders improving the quality of data collected. Advanced validity and the accuracy of its analysis for action by consumers and clinicians, proving that it's the purpose of doing clinical research and studies. And like other leaders in this space, YME is very active improving the validity and clinical actionability of the data we can provide. Just a month ago, PiHealth published new clinical proof of the value of its unique heart health algorithm, personal activity intelligence from 15th year launched 2 studies of 56,000 people in Dallas. The pie magic provides actionable intelligence to consumers and clinicians which can result in improved parts, health and longevity. Continuing to operate under its own identity, PyHealth is working to establish relationships with insurers and clinicians to leverage these intelligence to improve member health. We have the member of 100 joint study relationships and clinical trials with universities, fellow vendors and groups, utilizing our wearable technologies and devices. Some of these partnerships include the Huami AI Research Institute with professional with professional language from the University of California. The SmartVoice, Venible Joint Lab, Research's team led by a fellow and leading less laboratory experts from the Chinese Academy of Engineering The chat and field join lab with the Chinese athletic association and the brain computer intelligent drone labs with the University of Science And Technology of China. And Norwegian University of Science And Technology, including several of these universities, medical schools. This all help give our data the credibility to provide information and analytics to partners in the healthcare industry, including insurers care providers and other service providers. Today, there is a small portion of our revenue But we believe as we continue to prove the value of the actionable intelligence that can be realized from our data. That part of our business will grow as a percentage of our total revenue. Let me note that pulling out the value of the data and algorithms, our hours as well as others in the industry, I think we'll drive payments and reimbursement when providers and insurers breathe in the simplicity of the data. And what can be done with it. The money will flow to those solutions. Let me switch gears to talking about consumer adoption and long term engagement. Our view is that consumers are always looking for new features, getting something leading edge, and perceiving a good value, whether there's a lot of bang for the buck. Of having something that's perceived as a luxury item. 1E has multiple strategies for consumer engagements in both our own Amazfit brand and through our partnership as developer and manufacturer of Xiaomi's Mi Band products. We may be the industry leading driver of credit for the dollar. Our Amazfit G Lex that is just hitting the market in the U. S. Is a great example designed for actual durability, TLAX features 12 military spec certifications, both GBS and Growers. 5, as much as much as severe water resistance. And 20 day battery life and it implies that US139.99 dollars. The latest version of Xiaomi's top selling minivan, which we design and manufacture The 5 is just about to hit the market in Asia and Europe at an expected price of about 45 U. S. Dollars. Our most advanced product as to date that is coming this fall. OmensurateX has been accumulated accumulating the one's orders on indiegogo today to date capturing nearly US2 $1,000,000 in orders. The X features 92 degree dramatically curved display. With buttonless operation, we have detailed videos and photos on indiegogo if you want to see what's coming. With our properly technology and manufacturing scale OneE is driving the industry's value proposition and doing so profitably. Using IDC's final numbers for 2019 global shipments of smart watches and finished tractors. The 42,300,000 units of Amazfit Sao Me and PAMEX products we shipped last year accounted for 26% of the global markets that generates 800 $35,000,000 in U. S. Dollar revenue in 2019 and US1.29 dollars in fully diluted GAAP earnings per ADS. I also want to emphasize One is that battery life is a killer act for many customers. People have enough things to charge. Every night, Vidal also have to charge their smartwatch too. Plus if it's in the charger, how are you going to monitor your sleep or happy value with silent alarms, the new Huang san 2 chip cut power consumption by 50% which will further extend battery life on the next generation products that will utilize the chips. If you have done we announced several product line extensions, including a May Speed home studio of March June High administrative air run, affordable next generation techno and 2 new hearables, amazfit, PowerBot, and Lambda. This was our first time launching new devices at CES. And Mike will come on in a little while to provide some further color on our U. S. Growth. I hope this has given you some insight into Huani and how we are approaching the market. I am focused on building this company to lead in R and D that creates high value health information for consumers and clinicians to use. While investing responsibly. We will continue to focus on driving the hardware value equation profitably and proud of what we have achieved in the company's short history And really excited about the prospects for the future based on what we have achieved especially in the last 12 months. Next up, our CFO David Trae, Have a few comments to add. David? Thank you, Wang. I only have a few comments to add. 1st, I want to update guidance. On our May 13 earnings announcement, I noted that we were pleased with the resiliency of our first quarter revenue growth. That resiliency continued in the 2nd quarter although we continue to feel the effects of the pandemic. Our guidance for the second quarter 2020 revenue on the May 13 call was for RMB 1,000,000,000 to RMB 1,050,000,000. Or roughly $142,000,000 to $149,000,000. Today, I'm raising our guidance to RMB 1,100,000,000 to RMB 1,140,000,000 in U. S. Dollars. That is a approximately 156,000,000 to 161,000,000. I will provide all the details on the quarterly call in August, which we currently expect on or about 18th. Huami has grown tremendously and I'm proud of the numbers that we have posted. Our IPO materials, began with 2015 financials, showing RMB896,000,000 revenue and we grew to RMB 5,800,000,000 last year. A CAGR of 59.6 percent. In 2015, we reported a fully diluted loss of RMB1.22 per share or US $7.0 per ADS. We became sustainably profitable in 2017 And last year, we reported RMB2.24 per share or US1.29 dollars ADS. Cash flow from operations last year grew to RMB 428,000,000, or US61 million dollars. I know there is heightened scrutiny of Chinese companies' accounting practices. We take accounting practices and financial controls seriously. If you look at look up my bio, I went to college in Canada and worked in the US both as an auditor for Ernst And Young in California and in key accounting rules in several public companies. Before coming to Huami in 2017, I was the CFO of 2 other Chinese companies, one traded out of Hong Kong exchange, the other later listed on NASDAQ in the U. S. I hold CPA's activities in the US and Canada. In addition, I want to note that Huang and the board are mindful of governance with the example of having recently created a new board committee to oversee our privacy policies and practices. The artificial intelligence and big data ethics committee. Let me start there and give Mike a chance to provide a few operations highlights. I'll be happy to answer questions when we get to the Q And A at the end. Mike? Thanks, David. Hello, everyone. I want to respect everybody's time. So, with your 3, But, I do want to touch on a few operational highlights, especially here in the US. As the CEO of the company, I'm based in Martino. Starting globally, as the company has expanded into new markets outside of China and Asia, it takes some time to get established and start to develop some real market presence, especially if you're being careful about the spend rate. The U. S. Market is a great example of that for Hami. Over the last couple of years, we have been working on building the USB and developing channel partners. As a result, 2020 seems to be a year of reaching critical mass and accelerating our business in the U. S. Market. In addition to expanding distribution channels, the greater number of new exciting products is helping accelerate U. S. Business. The strong value proposition of all our products is a factor in any market we enter. Because of our proprietary technology, such as our AI chips, biosensors, and data algorithms, our pace of innovation and our manufacturing scale. Polycom may fit smartwatch products offer very strong values at their price points. For example, our popular BIP series started $60 and the new BIP S is fully featured with color GPS, 100 sensor, swimproof and 40 day battery life at $70. Competitive U. S. Products at this price point are black and white without GPS or even heart rate. The new T Rex that Wang noted is another great example delivering an outstanding feature set at the $140 price point. As we compare our products to others, you'll see that Hawaii strives to be a value driver in the space in the U. S. And elsewhere around the world. These new products are just coming into U. S. Distribution. Amazfit products are now available online through Best Buy, Amazon, several other specialty online retailers and through our own Amexip website, which you can find at usdot umazfit.com. I'm excited to announce that we are also expecting to be available in Walmart stores in the U. S. Come September. We're happy to have become recognized around the top 5 smartwatches in the U. S. Market share in the first quarter. This year, we repurchased some of our new products on indiegogo to gauge consumer interest and give us some feel for potential demand. The indigo campaign for Amazfit X and Allergan titanium alloy, curved screen and buttonless smartwatch. As the Amazfit Zendbus fleet assisting earbuds are wrapping up. The Amazfit access generated almost US2 $1,000,000 in preorders, which we find very encouraging. Zedbank has generated nearly $1,000,000 so far. Distribution continues to grow in European And Asian markets, but I'm going to save those highlights for the quarterly call next month. On the business services side, Wang already noted our subsidiary, Pie Health, Unique Health, Heart Health algorithm, driven program for insurers and other population managers. These kinds of business services with analytics that derive action information of biometric data is an important part of our future business plans. Whether acquired internally developed or developed with research partners, as Frank described, the company is building a portfolio of proprietary algorithms around which we plan to build business services for the healthcare industry. We will keep you appraised of these developments in the future. Thank you for your attention. We're ready for to open up the call to questions. We will now begin for the benefit of all participants on today's call. Please immediately repeat your question in English. Our first question comes from Donald Hooker of KeyBanc. Great. Great. Good morning. Good morning. Thank you for taking my question. A quick question for you guys. Can you maybe elaborate a bit on how the COVID-nineteen outbreak has impacted kind of sales for you guys, maybe sales cycles, decision making by various counterparties that you deal with? Hi. This is David Tree. I will take a crack on your question. So the pandemic actually did have impact on our sales and also on our supply chains at earlier of this year. And now with the supply chain and the manufacturing of our products has resumed fully because they're based in China. And also we see positive signs of a recovering of our sales channel, both domestically in China and in overseas market, including the Southeast Asia market and the European market. And our strategy to on this is to continue our long term strategies, execution of our long term strategies, and continue to make the investment in our R and D effort and our sales and marketing effort because we see the pandemic is the impact that will be very short term. And we have a very strong operational cash flow and and we see future growth. We see a future growth rather than only the short term impact. Okay. Thank you. And maybe just as a follow-up, I appreciate the color there. Maybe just as a follow-up, are there any opportunities perhaps for, new products or services. Can you elaborate a bit on your R and D comment? Well, just our like our Chairman's introduction of a few new products and we do have some other new products on the pipeline that we will release later in the year and earlier next year. So the details of the products, we will save that to our release, to our release date. But we do have a lot of focus on our R and D and the development of new products. Okay. Thank you very much. That's fair. Thank you. And we have a question from Kevin Conner, a private investor. Please go ahead. Mr. Connor, your line is open. Oh, yes, thank you for taking my call. I have a question, about when will Chinese citizens be able to purchase, stock in Jmani? Sorry, I didn't catch your question. Are you are you saying that when the Chinese citizens can purchase U. S. Stocks, including our Huami stock, that's what's your question? Yes, correct. Thank you. All right. So I don't know how to answer it. That's question, I guess, as far as I know, many of the, where we see Chinese citizens did get a chance to open overseas broker accounts and where they could trade global stocks, including those stocks treated in the U. S. And of course, some of them are treating stocks in Hong Kong. And another thing I want to point it out that maybe over 90% of our at least the Huami stock where institutional investors quite high percentage of them are U. S.-based investors and some of them are based in Asia and small numbers are based in UK. So basically, our investor portfolios are global. So global institutional investors. Of course, some of the individuals also treated our stock, but they only constitute a small portion for our shareholders. As there are no further questions now, I'd like to conclude the call. Thank you once again for joining us today. Please feel free to contact Wami's Investor Relations department. This concludes this conference call. You may now disconnect.