Hello, ladies and gentlemen. Thank you for standing by for Zepp Health Corporation's Fourth Quarter and Full Year 2023 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 Corporation's fourth quarter and full year 2023 earnings conference call. The company's financial and operating results were issued in a press release via the newswire services earlier today and are posted online. You can also view the earnings press release and slides referred to on this call by visiting the IR section of the company's website at zepp.com. 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 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 US 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 are included in the company's annual report on Form 20-F for the fiscal year ended December 31, 2022, and other filings as filed with the US Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please do note that GAAP earnings press 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 reconsolidation 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. Wang. Please go ahead.

Hello, everyone. Welcome and thank you for joining our call. In 2023, amidst global microeconomy uncertainties, our ROI [ph] oriented strategy and ongoing business model transformation began to bear fruit. This strategy shift has enabled us to strengthen our commitment to becoming a global provider of cutting edge, smart, wearable healthcare solution. Before we dive into our earnings, I would like to spend some time talking about our strategy as we reflect on 2023. Over the past 2 years, we have been on a transformative journey to become less dependent on Xiaomi branded products and instead develop a self reliant company driven by its self branded product sales. This shift is starting to show promising results, as evidenced by our two consecutive non-GAAP profitable quarters. Looking at 2024, building on the actions we have taken in the past, we are excited to be making a strategic leap and harnessing the synergy between our product and sales channels. This leap forward is grounded in three core pillars. First, we are putting greater emphasis on R&D and product driven innovations where we will fully embrace AI and offer more innovative products that closely align with needs of our key markets. Second, we are continuing to ensure profitable growth, maximizing the value we derive from each and every product showed. Guided by this approach, we are choosing profitability over scale in some regions, such as India, which transitioned in 2023 from a loss making market to a profitable one. In certain other areas, we are investing aggressively to gain market share, aiming to generate long-term returns. Last but not least, we will invest in branding and marketing communications in order to enhance our brand presence by welcoming our Amazfit athletes and increasing sponsorships of big sports events. I believe you will see the…

Thank you, Wang. Greetings, everyone. And thank you again for joining our earnings call today. I would like to start by discussing some key metrics from our financial results for the fourth quarter of 2023. As we have mentioned in the past, the border consumer electronics industry has yet to recover and remains subdued across our geographies. This is partially due to a sluggish demand for high value consumer electronics products such as TV and mobile phones, coupled with challenging economic conditions in parts of the EMEA and APAC regions. However, we saw some modestly improved performance in the smartwatches for outdoor/ sports category, though the market remains highly competitive. Aimed at these challenges, we steadfastly adhered to our strategic plan. This holiday season, we took an unconventional approach by launching that extended pre-Christmas promotion in selected products. Traditionally, we focused on offering discounts centered around Black Friday and Cyber Monday. However, this year we decided to align with consumer expectations for ongoing discounts throughout the holiday season. This strategy resonated well with our consumers. We have met our own sales expectations while delivering strong gross margins for the quarter. All of this is a testament to our strong brand, our great product lineup and the value that our products can offer. However, given that the successful promotion occurred later in the fourth quarter, it is likely that it might have advanced some sales from Q1 of 2024. Since Q1 is typically our slowest quarter of the year, we're adopting a more cautious outlook for the revenue projections in the upcoming quarter. I would like to emphasize that we are laser-focused on the areas within our control. We're holding our market share steady without sacrificing gross margin. As we stand at the start of a multiyear product cycle, we're beginning…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Nicolette Jones [ph] of Brooks Investments. Please go ahead.

Hi. I have two questions. Please could management provide more details on the outlook for 2024 and the first quarter? And for my second question, I'd like to find out more about the company's regional strategy?

Nicolette, I mean, if you could repeat the second question one more time for me, please.

Oh, yes. Hi. I'd like to - more details on the regional strategy.

Okay. On the regional strategy. Thank you. So let me take this question, I think on your first question, on the outlook for first quarter, and also on 2024, I think on the first quarter, I just mentioned that typically it is a relatively soft quarter for the consumer electronics industry. Therefore, our guidance for the first quarter was between the range of $42 million to $49 million, or RMB equivalent to RMB300 to RMB350 million for the top line. And normally our guidance stops at giving the guidance only for the revenue. But in this call, I think I want to provide some color on full year 2024, as you asked. I think looking at the full year 2024, if we start from the big picture, both IDC and Catalyst actually are projecting overall market value growth for the smartwatch sector, which is the sector which we're operating in, of single digit, high single digit growth for year 2024. Therefore, I think our revenue growth target for 2024 at this juncture, to the best of our knowledge, is actually going to be on par with or higher than the overall market growth for our self branded products on the top line, right. So I think that's the guidance on the 2024 for the full year, for the sales. And coming to gross margin. As you heard what we just mentioned, that our overall gross margin percentage as a percentage of sales actually hovered in the second half of 2023 of somewhere between 30% to 35%. And we expect this gross margin to expand in the upcoming quarters and throughout 2024. Therefore, I think it's reasonable that you could anticipate that our gross margin performance is going to be at least on par with second half of 2023, or even…

Thank you.

Our next question today will come from Sid Rajeev of Fundamental Resource Corp. Please go ahead.

Hi. Congratulations on your strong results. I have a couple of questions. On your balance sheet, you have close to $250 million in investments. Market cap is just $75 million. So it seems like the market is not recognizing the value of investments you have on your books. What's your plan with these investments on a long term basis? Any plans to divest at least a portion of it in the near term?

Yes, I think you are referring to the China A-Stock listed company, which we invested and we took a minority share in that company. I think that company, if you look at it, it is actually placed into the vertical integration of our big plan for the wearables, because that company, to be specific, actually is making the sensors and producing the chips for not only us, but also other wearable manufacturers for the smartwatch product. And then in the future, I think having this company as A-listed company in China has its benefit because it can not only supply goods to us, but also it can supply goods to many other ecosystem companies which want to play in the wearable domain. And I think this is a little bit similar to the Apple chip strategy, but the only difference is that Apple doesn't open it to the others. And we as a player and a strong player in the smartwatch domain, we would like to actually open up more to the ecosystem within China on the wearables domain, right. And I think also having this listed company in China would benefit this company and our company on the specific semiconductor push which we're going to get from the Chinese market. And it's a highly competitive market. And to some extent, I think if you look at the market value of the A-listed company, multiply our shareholding, the value is already bigger than our market cap per se, right? Which is unfortunately there's something in the equation which does not play or the value has to be fully unleashed in order to realize the full value of this company.

Got it. Thanks.

But we have no intent to sell that stake at this moment of time.

Okay. Your cash position is very strong. Someone would expect you to be paying down your debt sooner than what you've been doing. How much of debt would you pay down this year?

I think overall in 2023, as I mentioned, actually we paid down more than two, if I remember clearly, I think more than RMB200 million in debt. And at this moment in time, if you look at our balance sheet, we have hardly any short term debt and we only have some long term debt. But majority of that long term debt is actually for the purchase of the stake in the China listed company. And then we have also pledged the shares in order to make that purchase. So in essence, that doesn't play into the health of the overall cash balance I have on Zepp Health, right. And if you look at 2024, we also have similar intent as the probability I just mentioned., and I give a picture on how 2024 would be looking like. I think together with the positive operating cash inflow, we're thinking about retiring similar amount or more than what we did in 2023, in 2024 on the debt portfolio. And that will make us, if we do that by the end of 2024, that will give us no debt or close to no debt situation by year end.

Okay, perfect. Thank you so much, Leon. Thank you, Sid.

Thank you, Sid.

Thank you. As there are no further questions now, I'd like to turn the call back over to the company's IR Director, Grace Zhang, for 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 through the contact information provided on our IR website. This concludes this conference call. You may now disconnect your line. Thank you.

The conference has now concluded. Thank you for attending. And you may once again now disconnect.