Zepp Health (ZEPP) Q1 2026 earnings call transcript

Hello, everyone, and welcome to Zepp Health Corporation's first quarter 2026 earnings conference call. The company's financial and operating results were issued in a press release about the newswire services earlier today and are posted online. You can also view the earnings press release and the slides referred to on this call by visiting the IR section of the company's website. Presenting today are Wang Huang, our founder and chief executive officer, and Leon Dunn, our chief financial officer. Joining us today, we also have Mike Yang, chief operating officer and general manager of North America, and Eric Fleming, Vice President of Capital Markets for North America.

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 Security Certification Reform Act of 1995. Forward-looking statements involving 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 20F for the fiscal year ended December 31, 2025, 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 statement, except as required under applicable law.

Please also note that ZAP's earnings press release and this conference call include discussions of unaudited GAAP financial information, as well as unaudited non-GAAP financial information. that press release contains a reconciliation of an unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to our CEO, Mr. Wang Huang. Please go ahead.

Hello, everyone, and thank you for joining us today. We are pleased to begin 2026 with a promising start, delivering another solid quarter. In the first quarter, Amazfit branded revenue grew 33.8% year over year, demonstrating exceptional resilience during what is traditionally a software season for the consumer electronics industry this strong performance was primarily driven by the successful launches of the Amazfit ActiveMax Active3 Premium and our flagship G-REX Ultra 2 delivering this level of goals in a seasonally quieter quarter further reinforces our conviction that the market opportunity we are capturing is structural rather than cyclical more importantly we do not real this quarter simply as a revenue growth story we see they see it as another area validation of the structural changes we have been building stronger premium product mix improving pricing power expanding growth margin in a clearer brand position in performance oriented training During our last earnings call, I outlined how Zepp Health is evolving into a comprehensive hybrid training platform.

Simulously, integrating endurance, strength, and recovery through hardware, AI-driven training intelligence, software, and data. Our 2026 ambition is clear. We aim to build a global leadership position in hybrid training. To advance this strategy, we further deepen our collaboration with HyRox, one of the world's that is growing hybrid endurance sports organizations through a new exclusive three-year global partnership this expanded partnership enhances the high-ross athlete experience across training competition and recovery leveraging a broader portfolio of exclusive smart variable categories including smart watches smart rings smart cameras smart glasses and smart straps alongside connected app experience high-rock specific training modes and synaptic performance data integrations this partnership represents more than a sponsorship it is a strategic step for us to participate in and help shape the emerging hybrid training category by engaging directly this IROC's global athlete community gym ecosystem coaches and race environments we can build a more authentic connection with users whose training behaviors span strength endurance recovery nutrition and performance readiness this gives us as a differentiated position in the market other than endurance and general smart lifestyle while we have the opportunity to build authority around hybrid training and the more complete completed training system We believe one of the most important opportunities is the moment when a user moves from casual checking to more serious training.

At that point, the phone ecosystem becomes less important. the training value becomes more important. Hyros and gym-based hybrid training help create that moment, allowing Amazfit to enter through app experiences, training content, Hyros-specific modes, and lower-fishing products before users make a full device switch. At the recent New York Hyros event, we introduced Balance 3 and Balance Ultra in a real hybrid training environment. This launch setting was intentional. These products are designed for users who balance strength, endurance, recovery, work, stress, and daily life. Powered by hybrid charge energy intelligence in the Zapp app, they bring together biocharge, life load, and the training load into one clear view of personal capacity, helping users better understand when to push, when to recover, and how to maintain consistency over the long term.

These activities are important because premiumization is not only about higher price points. It is about building trust in the environments where serious users decide which brands they rely on. By showing up in marathon preparation, trail and expedition environments, and hybrid training communities, Amazfit is strengthening the collectability required to support higher value products, improved product mix, and long-term pricing power. premiumization strategy is strongly supports by our hybrid training positioning we are already seeing earlier evidence that users are willing to move up the price ladder across certain product families within the T-Rex line up. Our higher priced premium models are becoming an increasingly meaningful part of the overall sales mix. This reinforces an important point. Consumers are not choosing amazing story for affordability in March and April our premium T-Rex models priced at $399 US dollar and $549 accounted for nearly 50% of total T-Rex family unit sales As we continue to strengthen our product differentiation and premium brand positioning, users are showing a growing willingness to engage with Amazfit at more premium price tiers.

By embedding hybrid training more deeply into both our hardware and software ecosystem, we are enhancing the perceived value of the Amazib brand and driving a consistent shift toward higher end product positioning this remains one of our key strategic priorities as we move into 2026 in the first quarter this strategy delivered tangible results this average selling price point this average selling price increasing more than 20 percent year over year not to break even amid rising memory component causes and the border storage chip price inflection we were still able to achieve gross margin expansion reflecting the effectiveness of our product mix improvement and discipline cost execution in April we extended this philosophy into one of the world's largest performance community running by adapting our hybrid training methodology to runners we are enabling them to change more intelligently improve endurance and support long-term health and durability this strategy is embodied in our newly launched cheetah 2 lineup including the cheetah 2 pro a performance focused watch designed for medicine training and the cheetah 2 ultra engineered for the most demanding mountain and trail environments.

Both integrated seamlessly with Zapp Coach with a full suit of running metrics and personalized training plans. Recovery in size and third-party training platform integrations, these devices deliver structural hybrid style training guidance directly to endurance runners, further strengthening our penetration in the dedicated running segment.

Notably, our first quarter growth was broad based across both entry and premium tiers. At the high end, the Chirax Ultra II, crafted from grade 5 titanium, elevates our price ceiling to US dollar of 550, marking the highest in Amazfit's history and further reinforcing premium branded positioning at the same time in our core value segments the amazing the active max and active three premium positions around the 169 dollars price point are expanding our reach among everyday fitness in services and entry level runners beginning their structure training journeys most recently we also introduced big max the latest addition to our most popular entry level series Our strategic progress is also reflected in continued market share gains. In the first quarter, we achieved sequential value share expansion across EMEA, the US, Asia Pacific supported by strong performance across our full product matrix according to third-party data sources amazing now ranks among the top six smartwatch brands in both the United States and Europe by value share underscoring the growing global lesson and market chains of the brand turning to software we continue to strengthen our ecosystem through that OS proprietary features such as that coach bio charge and our expanding shoot of hybrid training and high-loss modes are being deployed across a growing range of devices driving deeper user engagement and retention as we increasingly tailor our training intelligence for running and other endurance disciplines our software ecosystem is becoming a key reason users choose and remain loyal to our brand further why widening the competitiveness modes around our platform across running outdoor and hybrid training we are increasingly connecting Amazfit products with real performance environments and elite athlete validation in running she that to pro was supported by major marathon moments in Paris London and Boston including acid proof points from Yemen gripper, Amenopetros, and Rory Linkletter.

In outdoor, T-Rex altitude continues to gain credibility through high altitude, Alpinist, Yost-Kobosh, and the real expedition use cases, while Chris Bocot strengthens the aspirational outdoor positioning of the T-Rex series. We also continue to build credibility around ELE performance moments. During the high-ross workshop major, a major athlete, Joanna Vieric, completed a clean sweep of all four high-ross majors this season, while setting a new high-ross world record. We are also supporting DrosColors Project 222. his attempt to break the mile-world record at the London Diamond League together these moments reflect how Amazfit is showing up at the highest level of the of both hybrid training and endurance performance against the micro is economic backdrop our premium my decision strategy expanding pricing power vertically integrated supply chain and diversify manufacturing footprint across China and Vietnam provide us with multiple levels to mitigate these pressures.

We remain confident that the alignment of our product mix channel strategy and cost structure will support sustainable growth and a clear path toward long-term profitability.

Looking ahead to the second quarter, we expect revenue to be in the range of $63 million to $68 million this outlook reflects continued year-over-year growth supported by demand across our product portfolio while also accounting for normal shipment timing and product launch facing during the quarter more importantly we will continue to focus on the quality of growth product mix pricing power growing a gross margin structure and user engagement rather than only short-term revenue warring this that i'm now to the call over to leo to walk through the financial details leo please go ahead thank you weyan greetings everyone thank you again for joining our first quarter 2026 earnings call.

Let me start with revenue. In the first quarter of 2026, our revenue was US dollars 51.5 million, up 33.8 percent year over year, in line with our guidance range. As William mentioned before, this growth was driven primarily by our new product launches, such as active max active 3 premium and T-rex ultra 2 even as the first quarter is traditionally a low season for consumer electronics business turning to gross margin our performance continued to reflect a combination of factors including product mix launch timing and normal product lifecycle dynamics, such as model upgrades. In the first quarter, gross margin was 37.7%, an expansion of 0.4% compared with Q1 2025, and moderated from the record high 40.4% achieved in Q4 2025.

There are two important points worth highlighting. First, the first quarter is traditionally the period whereby we refresh our entry-level product portfolio, which naturally carries a lower gross margin and therefore weight on the sequential comparison.

Second, during the quarter we absorb some higher memory component costs, as well as the impact of unfavorable foreign currency exchange fluctuation.

Despite these headwinds we still delivered year gross margin expansion where gross profit increased 35 to US dollar 19 million This demonstrates the resilience of our operating model and the continued improvement in our brand positioning. Before turning to expenses, let me briefly address the Marco backdrop. On memory, we expect higher memory costs to create near-term pressure on gross margins driven by the industry-wide transition from DDR4 to DDR5 and high bandwidth memory. As AI and data center demand continue to tighten supply, we began preparing for this environment in early 2025 by securing supply through diversified sourcing channels to support manufacturing continuity and we are also using our engineering expertise to optimize memory requirements across current and future products without compromising performance or customer experience well this is a real headwind we have multiple levers to help mitigate the impact including continued increases in average selling prices and a potential refund of previously paid IEPA related tariffs which could provide some in offsets we believe we're managing this challenge from a position of preparation and discipline or staying focused on driving sustainable revenue growth and improved profitability.

Now turning to expenses, we remain committed to prudent cost management program which will begin in 2020. Total adjusted operating expenses for the first quarter were US dollars 35.7 million compared with US dollars 31.5 million in Q125 and US dollar 37.1 million in Q425. Out of the year-over-year increase of the US dollar 4.2 million, there's a translation difference of approximately US dollar 1.8 million on operating expenses in the first quarter of 2026 due to euro and r&b appreciation to the dollars then u. s dollar 1.4 million is directly attributable to certain e-commerce platform charges which was a kind of fixed ratios sales channel charges to drive revenue growth Remaining US dollar 0.6 million was primarily due to front-loaded investments in marketing and branding activities such as CES and Hyrox.

Excluding US dollar 6.2 million of one-off provisions, fourth quarter 2025 operating expenses were approximately US dollar 30.9 million. The The sequential increase of US$4.8 million was primarily driven by a US$1.8 million foreign exchange impact as mentioned above and a US$1.4 million increase in R&D investment to support new products launches in upcoming quarters. And a US$0.5 million of front-loaded marketing and branding investments.

Lastly, 0.2 million in severance costs related to targeted initiatives to enhance organizational efficiency. Going forward, we'll maintain a cost-conscious approach while continuing to invest in R&D marketing and branding activities that support our long-term competitiveness. Let me break down the year-over-year and sequential comparison by line item. Adjusted R&D expenses were US$11.9 million compared with US$11.5 million in the first quarter of 2025 and US$10.2 million in the fourth quarter of 2025. of the sequential increase of US dollar 1.7 million, 0.3 million was attributed to foreign currency translation differences. The remaining 1.4 million increase was due to investment in new products that will be launched in the coming quarters. We continue to invest in a series of cutting-edge products and new technologies including AI to maintain our competitive edge while consistently evaluating resource efficiently to optimize our return on investment and productivity adjusted selling and marketing expenses were US dollars 16.4 million compared with 13.8 million in the first quarter of 2025 and 15.6 million in the fourth quarter of 2025.

Of the year-over-year increase, approximately 0.8 million was attributed to foreign exchange translation differences, and another 1.4 million was directly attributable to fixed channel costs that scale with our revenue growth and the remaining 0.4 million was allocated to promotions and branding initiatives that filled the adoption of our new products compared to q4 2025 selling and marketing expenses increased by 0.9 million out of which 0.4 million was attributable to the appreciation of foreign currencies against the dollar and the remaining half a million was due to front-loaded investments in marketing and branding activities such as ces and hyrox at the same time we continue to push retail profitability and channel mix improvement including a meticulous refinement of our retail channels and disciplined starting arrangements across our sales regions.

Adjusted GNA expenses were US$7.4 million compared with 6.2 million in Q1 2025 and 11.3 million in Q4 2025. The year-over-year increase reflected approximately 0.3 million of foreign exchange translation differences and 0.2 million in brand and intellectual property protection related fees. Excluding the U. S. dollar 6.2 million of non-recurring provisions in the fourth quarter, GNA expenses were 5.2 million in Q4 2025.

The sequential increase of U. S. dollar 2.1 million was mainly attributable to 1.1 million of negative foreign exchange impact as well as 0.2 million severance cost as part of the targeted initiatives to enhance organizational efficiency. We continue to streamline our GNA and drive operation efficiency. With higher revenue and improved year-over-year gross margin, partially offset by higher operating costs and unfavorable foreign exchange translation differences, our operating loss narrowed to 6.3 million compared with 17.2 million in the first quarter of 2025.

Adjusted net loss was 17.9 million or 34.8 percent of sales compared to 18.1 million of 41.0% of the sales in the first quarter of 2025.

Turning to the balance sheet and working capital, we continue to manage our inventory rigorously, ending the quarter with inventory of 62.8 million, down from 72.8 million as of Q4 2025. We ended the quarter with $103.2 million in cash and cash equivalents, nearly flat compared with $103.8 million a year ago, and lower than $112.9 million at the end of 2025, with The sequential decline driven primarily by our net operating losses and partially offset by improved working capital management.

Turning to our capital structure, total debt, including both short-term and long-term debt, remained broadly stable both sequentially and year-over-year. We continue to actively manage our debt maturity profile and financing costs. As debt approaches maturity, we evaluate prevailing market interest rates and available credit capacity to refinance or extend the duration of our borrowings while appropriate. The change in the mix between short-term and long-term debt in the first quarter of 2026 was primarily driven by accounting classification as certain borrowing originally maturing in late 2026 or 2027 were reclassified from long-term debt to short-term debt due to their remaining maturity profile. Importantly, while the classification between short-term and long-term debt may fluctuate from quarter to quarter, our long-term focus remains on maintaining discipline control over total debt levels and optimizing our debt duration and interest expenses over time since the beginning of 2023 the company has cumulatively retired 46.7 million of debt and will continue to optimize the capital structure for the company we also remain committed to our share repurchase program as of made as of march 31st 2026 we had repurchased 17 million out of the 20 million authorized program we view this program as an effective use of capital that aligns with our focus in delivering sustainable long-term value to shareholders finally our outlook for the second quarter of 2026 we expect revenue to be in the range of US$63 million to US$68 million, representing year-over-year growth of approximately 6% to 14%.

This outlook reflects continued year-over-year growth supported by demand across our product portfolio while also accounting for normal shipment timing and product launch phasing during the quarter More importantly we will continue to focus on the quality of the growth rather than only short revenue volume with a healthy margin profile disciplined cost control and continued operational improvement we well positioned to deliver sustainable growth and create long-term value for our shareholders.

Thank you all for your time today. I will now open the calls for questions. Operators, please go ahead.

Yes, I think in the end we probably would have more than nine, but there are many new product launches still on the way.

no that's not entirely right so you see that the R&D expenses year over year actually increased a bit it is because of the new product launches which we have to prepare for it and I think towards the end of the Q2 you will see that R&D expenses more going down because I think by the the end of the first half will probably go through majority of the new report launches which we have scheduled for the year although there's going to be a bit left for the second half of the year but I think you have witnessed that there's a lot of new product which has been launched already including the active max active premium T-rex ultra 2 and now with the balance and cheetah and and I think this first half of the year is actually from a product launch perspective a launch heavy first half.

Therefore, R&D expenses is actually a little bit higher than before. But it should trim towards the norm starting from the second half of the year and going forward. On the other hand, we are also investing a bit or we front loaded some of the marketing expenses into Q1 and Q2. For example, we are hosting the Balance 3 product release in Hyrox, New York, which is a high-profile event, right? And that's all tied into the event timing, so to say.

And I guess because of that, we spent some of the marketing expenses and branding related expenses more towards and skewed towards the first half of the year and that should also average down in the second half of the year so and not to mention gna expenses i think you will see a step down already in q2 and going towards q3 and q4 so i guess um we still stand behind the run rate of around 30 million a quarter or even lower than that which which you kind of witnessed for uh for for the rest of the of the last year as we as we go that's good to hear just one more question if i may is there for other industry players racing product prices to offset some of these higher memory costs yes to some extent because we noticed that our competitors are also raising price and not to mention garmin right um but we we compare with a lot of our competitors our pricing at this point of time is still relatively low um so so i think we have more room to raise the price compare with our competitors uh but nevertheless i think the uh the uh we were we we we are focusing on the product itself right so raising the price is definitely not the final goal uh in the end we want to actually present to the user uh the the the best product with the best the user experience and best features at the best price which they can get out of the market.

So I think that is the goal that we want to strive for.

Thank you, Sid.

Yeah, frankly, thank you. We don't give the guidance on the full year, but hopefully I can give you some color to it later on. But with regard to Q2, we just mentioned it is actually between 63 to 68 million, which is roughly a growth of 6% to 14%. But however, you see this number is actually accounting for the normal shipment timing and product launch facing during the quarter. So if we, let's say, if we have certain products which we initially wanted to produce and sell in Q2, and for some reasons we couldn't manufacture those in time and meet the time window for the cells, it might slip into Q3. And I think we have one or two examples of that, which happens in Q2, which kind of impact our revenue forecast for Q2.

However, actually, our long-term strategy and our target for the year remains still on the profitable growth path because we see, given Q1 and Q2, we see a continued year-over-year growth. And also, this year-over-year growth is supported by the demand across our product portfolio on a board base. We believe that heading into the second half of the year, we should be able to continue, number one, the growth path. And number two, if, and for the 2026 full year, for sure, we're looking at a profitable growth over 2025.

I hope that gives you some color for the future.

The Hyrox, as you know, is actually part of, or it actually is one of the bigger trends on hybrid training. right we kind of explained just now that we would like to establish our authority in hybrid training through working very closely with high rocks right it actually comes into two folds number one is as the participants of high rocks increase I mean they increased by a lot over the past years and I would believe that is going to continue to increase in the future and looking at the New York high rocks is actually the participants is as many as the participants participants of New York Marathon right so I think number one is we would definitely want to deepen our relationship with hyrox and try to make the feature working better with hyrox for example on helping the hyrox athletes to track their timing and then to to deliver a better timing every time they race and and and and that's the the and hopefully that would also make us and then establish the authority of our brand in hyrax and and and and and and also as way and just mentioned we by doing that we would like to become users choice one they look beyond their their their current watch because for a normal user consumer there's a moment of time that they start considering a serious spots be it running be it hybrid training be it whatever it is we want to actually by establishing the authority in hierarchs to become users choice once they become a series on a specific sports uh in uh their their journey um uh of um uh when they grow up, right?

That's actually what we want to do through Hirox.

Thank you.

Thank you once again for joining us today. If you have further questions, please feel free to contact ZEPA's Investor Relations Department. Thank you.