Hello, ladies and gentlemen. Thank you for standing by for Huami Corporation’s Fourth Quarter and Full Year 2019 Earnings Conference Call. At this time, all participants are in listen-only mode. Today’s conference call is being recorded. [Operator Instructions]. 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 Huami Corporation’s fourth quarter and full year 2019 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 at www.huami.com/investor. Participating in today’s call are Mr. Huang Wang, our Chairman of the Board of Directors and Chief Executive Officer; and Mr. David Cui, 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 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 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 these and other risks and uncertainties is included in the company’s annual report on Form 20-F for the fiscal year ended December 31, [2019] 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 Huami’s earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Huami’s press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to our CEO, Mr. Huang Wang. Please go ahead.

Hello, everyone. Thank you for joining our earnings conference call today. 2019 was an outstanding year for Huami marked by accelerated growth, strengthening brand recognition, and robust financial and operational results, all while we solidified our leadership position in the global smart wearable industry along with focusing on our company mission and healthcare strategy. In the fourth quarter, we achieved healthy revenue and net income growth, driven by strong performance from our newly launched products as well as effective sales and marketing outreach. In September 2019, we held our first international launch event at IFA 2019 in Berlin, Germany, introducing two new products to the market. Recently at CES in Las Vegas, to further round out our Amazfit portfolio, we announced another new smartwatch, the Amazfit T-Rex,a device with a military-certified body that is ideal for outdoor enthusiasts. Including these newly launched products, we have now expanded our Amazfit brand to seven smart watch product lines to meet the diversified needs of our wide customer base. We also introduced, from our new TWS product line, Amazfit Power Buds; as well as an innovative product line, Zen Buds a sleep-comfort and health monitoring ear pods. As mentioned, we would not have achieved our sales results without our effective sales and marketing strategy. For example, we seized on high-profile opportunities presented in online shopping festivals, such as the Double 11 Day. And our Amazfit brand ranked number one in the smartwatch market segment with a retail price under RMB1,000, in both sales revenue and volume on JD and TMall platforms. All of this significantly raised our profile and overall consumer awareness of our brand. Our efforts to promote our products also included international expansion through a multi-channel strategy focused on both direct sales and third-party sales channels. Our international shipments continued to…

Thank you, Wang. In the fourth quarter of 2019, we continued the trend of strong growth momentum, driven by robust unit sales of both self-branded products and Mi-Band 4. We shipped 14.7 million units in the fourth quarter, representing a 59.8% growth from the same quarter last year. Our revenue and net income attributed to Huami Corporation increased by 72.4% and 64.5% year-over-year respectively, demonstrating the growing awareness and adoption of our products by users. During the fourth quarter, we also continued investing in R&D for the development of innovative products, in addition to strengthening our sales and marketing strategy to promote our Amazfit brand. Mindful of the length of this call, I'll highlight the key financial measures for the fourth quarter and full year 2019, and I encourage you to refer to our earnings press release for further details regarding our financial performance. Now, here are some of the highlights of our strong fourth quarter. All amounts are expressed in RMB, unless otherwise stated. As previously mentioned, revenues in the fourth quarter 2019 increased by 72.4% to RMB2.1 billion from RMB1.2 billion for the fourth quarter of 2018. Shipments reached 14.7 million in Q4 as compared to 9.2 million in the same quarter of 2018. Gross profit increased significantly by 62.8% to RMB503 million from RMB309 million in the fourth quarter 2018. Our gross margin was 23.8% compared with 25.2% a year ago. The decrease was primarily a result of deepened promotion during the shopping festival. Moving to expenses. Total operating expenses increased by 60.6% to RMB285 million from RMB178 million for the fourth quarter of 2018, reflecting our strategy of consistent investment in R&D with an emphasis on healthcare related product development and testing, talent acquisition, in addition to branding and marketing to enhance the company’s long-term returns.…

[Operator Instructions]. For the benefit of all participants on today’s call, if you wish to ask your question to the company’s management in Chinese, please immediately repeat your question in English. [Operator Instructions]. The first question comes from Kyna Wong of Credit Suisse. Please go ahead.

I just wanted to ask, given that the impact of the COVID-19 in terms of demand, weakness in certain countries right now, especially in Europe, that is also part of your important market in the overseas business. So, I just wanted to ask the confidence for your 2020 outlook in consider of the growth rate magnitude, can we see a better growth rate, more than the first quarter, of year-over-year growth rate in 2020, versus your prior expectations? This is the first question. The second question is about the business cooperation with Timex, given the previous target to launch the product in the first half, I wanted to get more update? Thanks.

Thank you, Kyna. This is David. Let me take on the first question and I would like to turn your second Timex question to our COO, Mike. So, to your first question, as I explained earlier in the remarks that we were impacted from the supply chain side and when we march into Q2, and we're still in March right now. So, we do see some impact in our European market, which is one of our overseas markets. But given that the first half of the year, because of the seasonality of our sales, we would expect that in the later part of the year when the situation improves, we should do our best to catch up for the losses we encountered in the first half of the year. At this moment, we could not promise a number that how much we can achieve, because we are still assessing the situation and the situation is still developing. But we are confident that we are working towards new product releases in the year marching towards our mission and we should not see significant losses in 2020 as compared to 2019’s financial results.

This is Mike. To answer your question about Timex, we are still on track in our product development schedule with the Timex product. In fact, we just launched the first of our cooperative product, the Timex Ironman R300 clock series just recently. And as Huang and David mentioned, China's production line is slowly coming back to normal. So, we still expect that in the first half of this year we will continue to roll out more collaborative products with Timex in the first half of this year as originally scheduled. So, in terms of the impact of the virus for our Timex products, the impact is relatively minor.

The next question comes from Arthur Lai from Citi. Please go ahead.

I have two small questions. One is, my investors have been waiting for the big data analytics business. And can management Chairman Huang or Mike give us some update about the AI intelligence project with University and Hospital. And how you see this potential business in the future? This is my first question. And my second question is, can you also quantify the shipment breakdown among the India market and also EU market or APAC market? We understand that actually the EU market still make a very small portion of your business. But appreciate if you could give us a breakdown in those regions? I’ll stop here. Thank you.

Hi, Arthur. This is Mike. Yes, so I will address your first question and I’ll let David to answer your second question. So, regarding the partnerships with the academic institutions, we are actually doing a lot. For example, we are currently working with Stanford University on a sleep research. And we view that this is a tremendous opportunity, because sleep is a very common problem and there's a lot of healthcare revenue opportunities in this area. So, we're actively engaging in, for example, the sleep research project with Stanford University. We also have been engaging with the Norwegian Institute of Science and Technology, NTNU, on improvement, for example, the pie algorithm, so that you could adjust for people with different chronic diseases, such as people with high blood pressure or people with diabetes. We are working with them to modify or enhance the pie algorithm, so that it could be more appropriate to be used by these people with chronic diseases. So, we're continuously working with research institutions, academic institutions on these types of beta analysis to improve our algorithms and enhance our products. David, you want to answer the second question?

Sure. Hi, Arthur. Thank you for your question. Regarding your second question, Europe is one of our markets, which represents approximately one-third of our overseas sales. And remember that, even though, we experienced significant growth in EU countries which includes France, Germany, Italy, Spain and UK. And we also have very strong presence in Eastern European countries, like Russia. We are also the frontrunner in domestic China. Another thing I want to mention that, we are also expanding into the U.S. market and we are ranked number six in the U.S. smartwatch market. And besides all these countries, we also extend into the rest of the countries. And in those countries, we also grow rapidly. So right now, it seems that Italy was impacted most, and France, Germany and those countries also have some identified cases. But we would assume that these countries will place a lot of efforts in containment of the diseases and we foresee that our second quarter will be impacted. But starting from the third quarter, the sales will go back to normal, and we are still confident in our sales in the global market.

[Operator Instructions]. The next question comes from Robert Cowell of 86Research. Please go ahead.

I actually have two questions. The first one is about the gross margin. I'm interested in some of the different factors impacting your gross margin in 4Q and how we should be thinking about the gross margin trajectory into next year? And then the second question is about temperature sensors. Have you ever launched a product with a body temperature sensor in it? And is that something that you would consider doing in the future?

Sure, I will take your first question. And then Mike, would you please take on the second question on the product? And your first question regarding gross margin fluctuations and I can tell you that for Xiaomi’s products, the margin wasn't fluctuated that much. And our Amazfit product margin actually improved from prior years given that we launched multiple new products in the year. The reason for the blended margin fluctuation is because Xiaomi’s Mi-Band 4 sales was very strong. The revenue mixed has changed a little and that Xiaomi's products margin is lower as compared to Amazfit products. So therefore, the blended margin decreased slightly as compared to 2018. So, going forward, we would expect the margin will be relatively stable. That's our objective for this year.

Okay. And about the second question the answer is that, no, not yet. We did not have a product with temperature sensor yet. But we are working on such a product right now. So that's the answer to your second question.

The next question comes from [Edward Chen of Hitomi International]. Please go ahead.

So, I have two questions. The first one is that, given the quite a high base, as you mentioned, very strong sales from the Xiaomi product, what the management think about the growth driver for this year, especially in the first quarter, given the demand situation right now overseas? And my second question is on just the future focus of our company. So, we see we launched a number of new products including the smart trials and products like that. So, I just want to know what are the focus or the plans are for the company going forward?

Thank you, Edward, for your question. Let me take on the first question for the growth driver and I will turn to Mike to answer your question regarding the new products. The growth driver going forward will still be two legs. So, we still have a very strong relationship with Xiaomi. We will continue to working with Xiaomi to launch new Xiaomi bands. As our CEO, Huang Wang mentioned earlier that we will launch Mi-Band 5 in 2020. So, we would still expect that the band sales will continue to be strong. And the second key driver will be from our Amazfit products, we geared up our efforts in sales, marketing and also brand building exercise. So, we would expect that we will grow faster in Amazfit products as compared to Xiaomi's products. So, two primary drivers that will continue to guarantee our success in this year. Mike?

Okay, thank you, David. So, in terms of our product focus, first of all, we’ve always been focusing our products on health and fitness. So, that's all the products that we do will have features for health and fitness. Now, in addition to geographic expansion, broadening our product portfolio is also one of our growth strategy. As we identify proven good business opportunities in certain areas. For example, in the U.S., Peloton has shown that there is a market for indoor sports equipment. And in this case we feel that this is an area that we can also produce a product for and expand into that area. But in the near-term, our bread and butter product focus will still be smart watches, smart band. And those smart watch and smart band still continue to drive the majority of our revenue. But as we identify new opportunities, again, which has health and fitness functionalities, we will deliver new products in these areas. Such as, for example in CES, we launched the earbud. The earbud market is proven to be growing very fast, as evidenced by Apple EarPod. And similarly, as I mentioned, Peloton has proven that there's a market for indoor sports equipment. And that's why we are rolling out products in these new categories to try to capture new market share and broaden our product portfolio. But again, all the products roll out and developed will focus on fitness and health.

The next question comes from Michelle Zhang of China Renaissance. Please go ahead.

So, my first question is for Amazfit product, could you please discuss about the current offline channel distribution plan and what kind of penetration we are targeting to reach among all the Amazfit product shipment this year?

Sure. So, our new plan for the year will be launching more Amazfit brand products. We may also introduce new branding products. All of them will be self-branded products. Our strategy will be continuing to expand into overseas market, not necessarily just the European market, we will also consider the U.S. market, as well as the Southeast Asia market and India market. And we expect a significant growth in terms of total new products and total shipments in 2020. The total number of shipments under our own brands as compared to Xiaomi's Mi-Band products will be less significant because the Mi-Band will be mass sales with much lower average selling price and our products will be priced much higher. So, that will drive our revenue growth and drive our revenue mix. So, this is our strategy, Michelle.

So, another question is, can management provide some guidance on the features, upgrade trend this year for Amazfit products? Thank you.

So, as I mentioned, that we will launch multiple products and then the multiple products will target different layers of consumers. And the features will be mixed but will have a healthcare focus. And that will be in line with our long-term strategy.

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

Thank you once again for joining us today. If you have further questions, please feel free to contact Huami’s Investor Relations department through the contact information provided on our website or The Piacente Group, the company’s investor relations consultant. This concludes this conference call. You may now disconnect your line. Thank you.