Zepp Health Corporation (NYSE:ZEPP) Q3 2022 Earnings Call Transcript

Leon Deng: Yes. So, you have seen our gross margin is actually picking up although it hasn’t come back to the 2021 level yet. I think there’s of rationale here. Number one is, we try to €“ we understand that inventory level is a big problem for us because we exit the year with high ambitions, but in Q1, we got hit by the Russian and Ukraine war, by the lower consumer spending issues in most of our international markets. So, therefore, actually, we have put a lot of resources and effort in cleaning up all the old generation products if you want to put it in that way. So, what you see here in the mix of our Q2 and Q3 across margin, it actually carries a big chunk of the lower gross margin coming out of clearing our previous generation products, but I think we’re looking at the end of this exercise so that our self-branded products gross margin should improve or increase from their current level going forward as we head into the high season in Q4.

And that’s number one. Number two, you also noticed that our mix has skewed from in the past. It was Xiaomi products play in the majority weight of our sales revenue mix and our self-branded, I think Xiaomi used to account for 70% and I think in 2021 was 60% of our overall revenue, but then this year, as we head into Q1, Q2, Q3, I think year to date, we’re at more self-branded product stands for around 55-ish of the overall mix, and Xiaomi is actually becoming the minority part of our product mix. Right. So, I think we intended to actually continue this trend going forward and then the self-branded products going into Q4 and next year. As you notice that in Q3, our self-branded products start big growth trajectory again. And I think we expect that trend to continue for the upcoming quarters as well.

And in the meantime, we will try to see if we can get more revenue from the Xiaomi side, and then by playing that mix and then playing it more towards self-branded products accounts for the majority of the revenue mix of the company together in improving the margins of the self-branded products, I think you’re going to look at the gross €“ overall gross margin for the company is going to gradually improve from its current level as we reported in Q3. So, I hope that will give you some color on what it is going to be in the upcoming quarters?

Unidentified Analyst: Yes. That’s great color. Thank you, Leon.

Operator: As there are no further questions, now I’d like to turn the call back over to the company for closing remarks.

Grace Zhang: 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 website. This concludes this conference call. You may now disconnect your lines. Thank you.