Zepp Health Corporation (ZEPP) Q1 2026 Earnings Report, Transcript and Summary

Hello, ladies and gentlemen. Thank you for standing by for Zepp Health Corporation's First Quarter 2026 Earnings Conference Call. [Operator Instructions] 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 First Quarter 2026 Earnings Conference Call. The company's financial and operating results were issued in our press release at 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 Huang Wang, our Founder and Chief Executive Officer; and Leon Deng, our Chief Financial Officer. Joining us today, we also have Mike Yeung, Chief Operating Officer and General Manager of North America; and [ Eric Flemming ] 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 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, 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 statements, except as required under applicable law. Please also note that Zepp's earnings press release and this conference call includes discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial information. The press release contains a reconciliation of our 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 softer season for the consumer electronics industry. This strong performance was primarily driven by the successful launches of the Amazfit Active Max Active 3 Premium and our flagship T-Rex Ultra 2. Delivering this level of growth 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 view this quarter simply as a revenue growth story. We see it as another earlier validation of the structural changes we have been building, stronger premium product mix, improving pricing power, expanding gross margin and a clear brand position in performance-oriented training. During our last earnings call, I outlined how Zepp Health is evolving into a comprehensive hybrid training platform, seamlessly 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 deepened our collaboration with HYROX, one of the world's fastest-growing hybrid endurance sports organization through a new exclusive 3-year global partnership. This expanded partnership enhances the HYROX athlete experience across training, competition and recovery, leveraging a broader portfolio of exclusive smart, wearable categories, including smart watches, smart rings, smart cameras, smart glasses and smart straps. Alongside connected app experience, HYROX-specific training modes and selective 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 with HYROX global athlete community, gym ecosystem, coaches and race environment, we can build a more authentic connection with users whose training behaviors spans strength, endurance, recovery, nutrition and performance readiness. This gives us 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 more complete -- completed training system. We believe one of the most important opportunities at the moment when a user moves from casual checking to more serious training. At that point, the phone ecosystem becomes less important and the training value becomes more important. HYROX and gym-based hybrid training helped create that moment allowing Amazfit to enter through app experiences, training content, HYROX-specific modes and lower friction products before users make a full device switch. At a recent New York HYROX event, we introduced Balance 3 and Balance Ultra in the 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 Zepp app. They bring together BioCharge live 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 environment where serious users decide which brands they rely on by showing up in marathon preparation trail and expedition environment and hybrid training communities. Amazfit is strengthening the credibility required to support higher-value products, improved product mix and long-term pricing power. Our premium racing strategy is strongly supported by our hybrid training positioning. We are already seeing early evidence that users are willing to move up the price ladder across certain product families. Within the T-Rex lineup, our higher-priced premium models are becoming an increasingly meaningful part of the overall sales mix. This reinforces an important points. Consumers are not choosing Amazfit solely for affordability. In March and April, our premium T-Rex models priced at USD 399 and priced $549 a 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 Amazfit 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, with average selling price point, this average selling price increasing more than 20% year-over-year. Notably, even amidst rising memory component costs and broader storage chip price inflection, we were still able to achieve gross margin expansion reflecting the effectiveness of our product mix improvement and disciplined cost execution. In April, we expanded 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 train more intelligently, improve endurance and support long-term health and durability. This strategy is embodied in our newly launched Cheetah 2 app including the Cheetah 2 Pro, a performance-focused watch design for marathon training and the Cheetah 2 Ultra engineered for the most demanding mountain and trail environment, both integrate seamlessly with Zepp Coach with a full suite of running metrics and personalized training paths, recovery insights and third-party training platform integrations. These devices deliver structure, hybrid style training guidance directly to endurance runner 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 T-Rex Ultra 2 crafted from Grade 5 Titanium elevates our price ceiling to USD 550, marking the highest in Amazfit history and further reinforcing our premium branded positioning. At the same time, in our core value segments, the Amazfit Active Max and Active 3 Premium positioned around $169 price point, expanding our reach among everyday fitness influencers and entry-level runners beginning their structured training journeys. Most recently, we also introduced FitMax, 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 U.S. and Asia Pacific supported by strong performance across our full product matrix. According to third-party data sources, Amazfit now ranks among the top 6 smartwatch brands in both the United States and Europe by value share, underscoring the growing global resonance and market change of the brand. Turning to software. We continue to strengthen our ecosystem through Zepp OS proprietary features such as Zepp Coach, BioCharge and our expanding suite of hybrid training and HYROX 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 widening the competitive moat around our platform. Across running, outdoor and public training, we are increasingly connecting Amazfit products with real performance environment and elite athlete validation. In running, Cheetah 2 Pro was supported by major marathon moments in Paris, London and Boston, including active proof points from Yeman Crippa, Mao Puhua and Rory Linkletter. In outdoor, T-Rex Ultra 2 continue to gain credibility through high-altitude ascents and real expedition, use cases while [indiscernible] strengthens the aspirational outdoor positioning of the T-Rex series. We also continue to build credibility around elite performance moments. During the HYROX Warsaw Major, Amazfit athlete, Joanna Wietrzyk, completed a clean sweep of all 4 HYROX majors this season. while setting a new HYROX world record. We are also supporting Josh Kerr's Project 2:22, his attempt to break the mile world record at the London Diamond League. Together, these moments reflects how Amazfit is showing up at the highest level of the -- of both hybrid training and endurance performance. Against the macroeconomic backdrop, our premiumization strategy, expanding pricing power, vertically integrated supply chain and diversified manufacturing footprint across China and Vietnam provided us with multiple levers 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 towards 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 phasing during the quarter. More importantly, we will continue to focus on the quality of growth, product mix, pricing power, growing gross margin structure and user engagement rather than only short-term revenue volume. With that, I will now turn the call over to Leon to walk through the financial details. Leon, please go ahead.

Thank you, Wang. 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 USD 51.5 million, up 33.8% year-over-year, in line with our guidance range. As Wang 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 life cycle dynamics such as model upgrades. In the first quarter, gross margin was 37.7%, and an expansion of 0.4% compared with Q1 2025, and moderated from the record high 40.4% achieved in Q4 2025. There are 2 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, weighed on the sequential comparison. Second, during the quarter, we absorbed some higher memory component costs as well as the impact of unfavorable foreign currency exchange fluctuation. Despite these headwinds, we still delivered year-over-year gross margin expansion where gross profit increased 35.3% to USD 19.4 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 macro 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 continued 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. While 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 i.e. PA-related tariffs, which could provide some offsets. We believe we are managing this challenge from a position of preparation and discipline while staying focused on driving sustainable revenue growth and improved profitability. Now turning to expenses. We remain committed to prudent cost management program, which we began in 2020. Total adjusted operating expenses for the first quarter were USD 35.7 million compared with USD 31.5 million in Q1 '25, and USD 37.1 million in Q4 '25. Out of the year-over-year increase of the USD 4.2 million, there is a translation difference of approximately USD 1.8 million on operating expenses in the first quarter of 2026, due to euro and RMB appreciation to the dollars. Then USD 1.4 million is directly attributable to certain e-commerce platform charges, which was a kind of fixed ratio sales channel charges to drive revenue growth. Remaining USD 0.6 million was primarily due to front-loaded investments in marketing and branding activities such as CES and HYROX. Excluding USD 6.2 million of one-off provisions, fourth quarter 2025 operating expenses were approximately USD 30.9 million. The sequential increase of USD 4.8 million was primarily driven by USD 1.8 million foreign exchange impact, as mentioned above and USD 1.4 million increase in R&D investment to support new product launches in upcoming quarters and USD 0.5 million of front-loaded marketing and branding investments and lastly, $0.2 million in severance costs related to targeted initiatives to enhance organizational efficiency. Going forward, we will 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 USD 11.9 million compared with USD 11.5 million in the first quarter of 2025 and USD 10.2 million in the fourth quarter of 2025. Out of the sequential increase of USD 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 resources efficiently to optimize our return on investment and productivity. Adjusted selling and marketing expenses were USD 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, 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 fueled 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 $0.5 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 meticulous refinement of our retail channels and disciplined staffing arrangements across our sales regions. Adjusted G&A expenses were USD 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 USD 6.2 million of nonrecurring provisions in the fourth quarter, G&A expenses were $5.2 million in Q4 2025. The sequential increase of USD 2.1 million was mainly attributable to $1.1 million of negative foreign exchange impact as well as $0.2 million severance costs as part of the targeted initiatives to enhance organizational efficiency. We continue to streamline our G&A and drive operational 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% of sales compared to $18.1 million or 41% 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 a sequential decline driven primarily by our net working -- 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 where 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 matured 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 disciplined 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 we'll continue to optimize the capital structure for the company. We also remain committed to our share repurchase program. As of May -- as of March 31, 2026, we have 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 USD 63 million to USD 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-term revenue volume. With a healthy margin profile, disciplined cost control and continued operational improvement, we are 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 call for questions. Operator, please go ahead.

[Operator Instructions] Today's first question comes from Sid Rajeev with Fundamental Research Corp.

Congratulations on the strong Q1 revenue growth. In the last earnings call, Leon, you guided to potentially 9 product launches this year, the same as last year with 4 announced so far, should we expect about 5 more this year? Am I in the correct ballpark?

Yes. I think in the end, we probably would have more than 9, but yes, there are many new product launches are still underway.

Okay. Where do you see opportunities to reduce cost? Because it seems like it's difficult to cut R&D or marketing or branding expenses at this point?

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 Q2, you will see that R&D expenses more going down because I think by the end of the first half, we'll probably go through a majority of the new product 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 products which has been launched already, including the Active MAX, Active Premium, T-Rex Ultra 2 and now with the Balance and Cheetah, 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 trend towards the norm starting from the second half of the year and going forward. On the other hand, we are also investing a bit with 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, we -- 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 G&A expenses, I think you will see a step down already in Q2 and going towards Q3 and Q4. So I guess we still stand behind the run rate of around $30 million a quarter or even lower than that, which you kind of witnessed for the rest of the last year as we go.

That's good to hear. Just 1 more question, if I may. Is there other industry players raising 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? But we -- compared with a lot of our competitors, our pricing at this point of time is still relatively low. So I think we have more room to raise the price compared with our competitors. But nevertheless, I think the -- we are focusing on the product itself, right? So raising the price is definitely not the final goal. In the end, we want to actually present to the user the best product with the best 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.

Our next question today comes from [ Frank Dugan ] at Brooks Investments.

Congratulations on the first quarter performance. My first question would be around the Q2 revenue guidance. And if you can talk more about that and how do you view the profitability outlook for the full year?

Yes. Frank, 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, you -- we just mentioned, it is actually between $63 million 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 phasing 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 sales, it might slip into Q3. And I think we have 1 or 2 examples of that, which happens in Q2, which kind of impact our revenue forecast for Q2. But however, we -- actually, our long-term strategy and our target for the year remains still 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 broad 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 are looking at a profitable growth over 2025. I hope that gives you some color for the future.

Yes. And yes, 1 more question around the new 3-year global HYROX partnership. How do you plan to leverage that to drive long-term monetization?

The HYROX, as you know, is actually part of our -- it's actually -- it's one of the bigger trend 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 HYROX, right? It actually comes into 2 folds. Number 1 is, as the participants of HYROX increase, I mean, they increased by a lot over the past years. And we believe that is going to continue to increase in the future. And looking at the New York HYROX is actually -- the participants is as many as the participants of New York Marathon, right? So I think number 1 is we would definitely want to deepen our relationship with HYROX and try to make the feature working better with HYROX, for example, helping the HYROX athlete to track their timing and then to deliver a better timing every time they race. And that's -- and hopefully, that would also make us and establish the authority of our brand in HYROX. And also, as Wang just mentioned, we -- by doing that, we would like to become users' choice when they look beyond their current watch because for a normal user, consumer, there is a moment of time that they start considering serious sports, be it running, be it hybrid training, be it whatever it is. We want to actually, by establishing the authority in HYROX to become users' choice once they become a serious on specific sports in their journey of when they grow up, right? That's actually what we want to do through HYROX.

As there are no further questions, 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's Investor Relations department. Thank you.

Thank you. This concludes this conference call. You may now disconnect your lines. Thank you, and have a pleasant day.