GlobeNewswire Inc | Aug 24, 2020 05:00AM EDT

August 24, 2020

GUANGZHOU, China, Aug. 24, 2020 (GLOBE NEWSWIRE) -- Viomi TechnologyCo.,Ltd (Viomi or the Company) (NASDAQ: VIOT), a leading IoT @ Home technology company in China, today announced its unaudited financial results for the second quarter ended June 30, 2020.

Second Quarter 2020 Financial and Operating Highlights

-- Net revenues reached RMB1,684.4 million (US$238.4 million), an increase of 45.2% from the second quarter of 2019. -- Gross margin was 14.3%. -- Net income was RMB10.3 million (US$1.5 million). -- Non-GAAP net income1 was RMB41.5 million (US$5.9 million). -- Number of cumulative household users reached more than 4.2 million, compared to approximately 3.7 million as of the end of the first quarter of 2020 and approximately 2.3 million as of the end of the second quarter of 2019. -- Percentage of household users with at least two connected products reached 19.0%, compared to 18.4% as of the end of the first quarter of 2020 and 16.1% as of the end of the second quarter of 2019. -- Number of Viomi offline experience stores remained steady at approximately 1,500.

1 Non-GAAP net income is defined as net income excluding share-based compensation expenses. See Reconciliation of GAAP and Non-GAAP Results at the end of this press release.

We saw meaningful improvements in operating conditions in the second quarter as both the industry and the overall economy continued to rebound from the impact of COVID-19 earlier this year. Driven by a robust 618 sales season, combined with successful new product launches such as our Viomi-branded air conditioning systems, we are pleased to report that our second quarter growth was significantly stronger than expected, said Mr. Xiaoping Chen, Founder, Chairman of the Board of Directors and Chief Executive Officer of Viomi.

The backbone of our growth over the years has been our continued product innovation and new product launches under our IoT @ Home strategic framework. With the recent successful introductions of our Viomi-branded air conditioning systems and our 21Face Interactive Smart Screen (TV), we now have a comprehensive presence across the entire range of major scenarios in the home environment. We also achieved positive advancements in developing additional content partnerships for our flagship 21Face large-screen refrigerators, having entered into a strategic collaboration agreement with Kugou Music, a leading interactive digital music-related services provider in China and subsidiary of Tencent Music Entertainment Group. This partnership is in line with our 5G IoT strategy, and will enrich our content offerings as well as enhance the cross-scenario and cross-screen interactivity of Viomis large-screen products, added Mr. Chen. To provide innovative and exciting content for the imminent 5G + IoT era, we continue to seek strategic partnerships with entertainment and social media platforms. We believe these collaborations will help further increase our user stickiness, create additional potential monetization channels and further differentiate us from our peers.

The recent 618 online shopping festival and related promotional events were positive signs of an overall recovery trend in the industry. Looking ahead to the second half, the broader rebound in market demand, together with the ramp-up of many of our newly launched products, including air conditioning systems as well as the next-generation Viomi-branded water purifiers and various small appliances products, will provide us with the foundation to further strengthen our industry positioning, enhance our brand recognition and deliver attractive returns. Having successfully navigated these unprecedented and challenging market conditions in the first half of 2020, we will continue to execute our long-term strategies with a focus on high-quality growth, stable cash flows and prudent risk control, while positioning our Company to realize greater operational efficiencies and economies of scale, concluded Mr. Chen.

Despite the lingering impact of COVID-19 as well as ongoing macro uncertainties, we achieved year-over-year net revenues growth of 45.2%, significantly exceeding our expectations and again demonstrating the resilience of our business and our ability to identify and capture attractive growth opportunities. Our profitability remained relatively stable as compared to the first quarter, as we continued the implementation of cost and expense control initiatives during the quarter, mitigating the margin impact of promotional campaigns and sales events such as the 618 online shopping festival, Mr. Shun Jiang, Chief Financial Officer of Viomi, commented.

While future industry-wide uncertainties and challenges will be difficult to fully predict, based on our assessment of the latest trends, we are cautiously optimistic that our financial strength, operational flexibility and strategic direction will allow us to continue delivering robust growth in the second half, Mr. Jiang concluded.

Second Quarter 2020 Financial Results

Net revenues increased by 45.2% to RMB1,684.4 million (US$238.4 million) from RMB1,160.2 million for the second quarter of 2019, primarily due to the successful launch, continued rollout and significant increase in sales of certain Viomi-branded and Xiaomi-branded products, offsetting the broader industry-wide impacts of COVID-19.

IoT-enabled smart home products. Revenues from IoT-enabled smart home products increased by 46.7% to RMB1,329.1 million (US$188.2 million) from RMB906.0 million for the second quarter of 2019, primarily due to the successful launch and continued rollout of certain new products.

-- Smart water purification systems. Revenues from smart water purification systems decreased by 22.6% to RMB266.8 million (US$37.8 million) from RMB344.8 million for the second quarter of 2019. The decline was primarily due to decreases in average selling prices, which offset the continued year-over-year growth in sales volumes. -- Smart kitchen and other smart products. Revenues from smart kitchen and other smart products increased by 89.3% to 1,062.3 million (US$150.4 million) from RMB561.2 million for the second quarter of 2019. The growth was primarily driven by the successful launch and continued rollout of certain products, in particular Viomi-branded air conditioning systems and Xiaomi-branded sweeper robots.

Consumable products. Revenues from consumable products increased by 24.6% to RMB86.5 million (US$12.2 million) from RMB69.4 million for the second quarter of 2019, primarily due to increased demand for the Companys water purifier filter products.

Value-added businesses. Revenues from value-added businesses increased by 45.5% to RMB268.8 million (US$38.0 million) from RMB184.8 million for the second quarter of 2019, primarily due to new product introductions, together with increased demand for the Companys small appliances products.

Cost of revenues increased by 69.4% to RMB1,443.4 million (US$204.3 million) from RMB851.9 million for the second quarter of 2019.

Gross profit was RMB241.0 million (US$34.1 million), compared to RMB308.3 million for the second quarter of 2019. Gross margin was 14.3%, compared to 26.6% for the second quarter of 2019. The decline in gross margin was primarily due to the shifts in the Companys business and product mix, including the pilot launch of the Companys Viomi-branded air conditioning systems, together with decreases in average selling prices of certain product categories, such as water purifiers, during major promotional events in the quarter.

Total operating expenses increased by 13.3% to RMB239.4 million (US$33.9 million) from RMB211.3 million for the second quarter of 2019, primarily due to the growth of the Companys business and an increase in share-based compensation expenses of RMB20.9 million (US$3.0 million), which was partially offset by continued implementation of expense control initiatives during the quarter.

Research and development expenses were RMB60.7 million (US$8.6 million), compared to RMB59.6 million for the second quarter of 2019. The increase was primarily due to an increase in share-based compensation expenses of RMB17.5 million (US$2.5 million) to attract and retain research and development personnel, which was partially offset by continued implementation of expense control initiatives during the quarter.

Selling and marketing expenses increased by 25.2% to RMB162.1 million (US$22.9 million) from RMB129.5 million for the second quarter of 2019, primarily due to an increase in logistics and promotional expenses as a result of the growth of the Companys business, which was partially offset by continued implementation of expense control initiatives during the quarter.

General and administrative expenses decreased by 25.0% to RMB16.7 million (US$2.4 million) from RMB22.2 million for the second quarter of 2019, primarily due to continued implementation of expense control initiatives during the quarter, which offset an increase in share-based compensation expenses of RMB4.6 million (US$0.7 million) to attract and retain senior management personnel.

Income from operations was RMB8.7 million (US$1.2 million), compared to RMB98.9 million for the second quarter of 2019. Non-GAAP operating income2, excluding the impact of share-based compensation expenses, was RMB40.0 million (US$5.7 million), compared to RMB109.2 million for the second quarter of 2019.

Income before income tax expenses was RMB16.4 million (US$2.3 million), compared to RMB103.3 million for the second quarter of 2019.

Income tax expenses were RMB6.1 million (US$0.9 million), compared to RMB14.4 million for the second quarter of 2019.

Net income was RMB10.3 million (US$1.5 million), compared to RMB88.9 million for the second quarter of 2019.

Non-GAAP net income was RMB41.5 million (US$5.9 million), compared to RMB99.3 million for the second quarter of 2019.

2 Non-GAAP operating income is defined as income from operation excluding share-based compensation expenses. See Reconciliation of GAAP and Non-GAAP Results at the end of this press release.

Balance Sheet

As of June 30, 2020, the Company had cash and cash equivalents of RMB634.2 million (US$89.8 million), restricted cash of RMB45.4 million (US$6.4 million), short-term deposits of RMB72.6 million (US$10.3 million) and short-term investments of RMB294.3 million (US$41.7 million).

Outlook

For the third quarter of 2020, the Company currently expects:

-- Net revenues to be between RMB1.40 billion and RMB1.45 billion, representing a year-over-year growth of approximately 30.8% to 35.5%.

The above outlook is based on the current market conditions and reflects the Companys current and preliminary estimates of market and operating conditions and customer demand, which are all subject to change.

Conference Call

The Companys management will host a conference call at 8:00 a.m. Eastern Time on Monday, August 24, 2020 (8:00 p.m. Beijing Time on August 24, 2020) to discuss financial results and answer questions from investors and analysts. Listeners may access the call by dialing:

US (Toll Free): +1-888-346-8982International: +1-412-902-4272Mainland China (Toll Free): 400-120-1203Hong Kong (Toll Free): 800-905-945Hong Kong: +852-3018-4992Conference ID: 10147261

A telephone replay will be available one hour after the call until August 31, 2020 by dialing:

US (Toll Free): +1-877-344-7529International: +1-412-317-0088Replay Passcode: 10147261

Additionally, a live and archived webcast of the conference call will be available at http://ir.viomi.com.

About Viomi Technology

Viomis mission is to redefine the future home via the concept of IoT @ Home.

Viomi has developed a unique IoT @ Home platform consisting an ecosystem of innovative IoT-enabled smart home products, together with a suite of complementary consumable products and value-added businesses. This platform provides an attractive entry point into the consumer home, enabling consumers to intelligently interact with a broad portfolio of IoT products in an intuitive and human-like manner to make daily life more convenient, efficient and enjoyable, while allowing Viomi to grow its household user base and capture various additional scenario-driven consumption events in the home environment.

For more information, please visit: http://ir.viomi.com.

Use of Non-GAAP Measures

The Company uses non-GAAP operating income, non-GAAP net income, non-GAAP net income attributable to the Company, non-GAAP net income attributable to ordinary shareholders, non-GAAP basic and diluted net income per ordinary shares and non-GAAP basic and diluted net income per ADS, which are non-GAAP financial measures, in evaluating its operating results and for financial and operational decision-making purposes. Non-GAAP operating income is income from operations excluding share-based compensation expenses. Non-GAAP net income is net income excluding share-based compensation expenses. Non-GAAP net income attributable to the Company is net income attributable to the Company excluding share-based compensation expenses. Non-GAAP net income attributable to ordinary shareholders is net income attributable to ordinary shareholders excluding share-based compensation expenses. The non-GAAP adjustments do not have any tax impact as share-based compensation expenses are non-deductible for income tax purpose.

The Company believes that non-GAAP financial measures help identify underlying trends in its business by excluding the impact of share-based compensation expenses, which are non-cash charges, and these measures provide useful information about the Companys operating results, enhance the overall understanding of the Companys past performance and future prospects and allow for greater visibility with respect to key metrics used by the Companys management in its financial and operational decision-making.

Non-GAAP financial measures should not be considered in isolation or construed as alternative to income from operations, net income, or any other measure of performance or as an indicator of the Companys operating performance. Investors are encouraged to review the historical non-GAAP financial measures to the most directly comparable GAAP measures. Non-GAAP financial measures presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to the Companys data. We encourage investors and others to review its financial information in its entirety and not rely on a single financial measure.

Exchange Rate

The Companys business is primarily conducted in China and the significant majority of revenues generated are denominated in Renminbi (RMB). This announcement contains currency conversions of RMB amounts into U.S. dollars (US$) solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to US$ are made at a rate of RMB7.0651 to US$1.00, the effective noon buying rate for June 30, 2020 as set forth in the H.10 statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on for June30, 2020, or at any other rate.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as will, expects, anticipates, future, intends, plans, believes, estimates, confident and similar statements. Among other things, the business outlook and quotations from management in this announcement, as well as Viomis strategic and operational plans, contain forward-looking statements. Viomi may also make written or oral forward-looking statements in its periodic reports to the United States Securities and Exchange Commission (the SEC), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about the Companys beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: the Companys growth strategies; the cooperation with Xiaomi, the recognition of the Companys brand; trends and competition in global IoT-enabled smart home market; development and commercialization of new products, services and technologies; governmental policies relating to the Companys industry and general economic conditions in China and around the globe, and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in the Companys filings with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and the Company undertakes no obligation to update any forward-looking statement, except as required under applicable law.

For investor and media inquiries, please contact:

In China:

Viomi Technology Co., LtdCecilia LiE-mail: ir@viomi.com.cn

The Piacente Group, Inc.Emilie WuTel: +86-21-6039-8363 E-mail: viomi@tpg-ir.com

In the United States:

The Piacente Group, Inc. Brandi PiacenteTel: +1-212-481-2050E-mail: viomi@tpg-ir.com

VIOMI TECHNOLOGY CO., LTDUNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS(All amounts in thousands, except shares, ADS, per share and per ADS data)

As of December As of June 30, 31, 2019 2020 2020 RMB RMB US$ Assets Current assets Cash and cash equivalents 972,438 634,163 89,760Restricted cash 30,567 45,430 6,430Short-term deposits 60,000 72,636 10,281Short-term investments 316,201 294,269 41,651Accounts and notes receivable from thirdparties (net of allowance of RMB2,006 and 316,189 405,889 57,450RMB4,216 as of December 31, 2019 and June 30,2020, respectively)Accounts receivable from a related party (netof allowance of nil and RMB73 as of December 707,947 725,017 102,61931, 2019 and June 30, 2020, respectively)Other receivables from related parties (netof allowance of nil and RMB12 as of December 23,944 124,398 17,60731, 2019 and June 30, 2020, respectively)Inventories 418,015 412,217 58,347Prepaid expenses and other current assets 62,314 82,106 11,621 Total current assets 2,907,615 2,796,125 395,766 Non-current assets Prepaid expenses and other non-current assets 11,170 33,111 4,687Property, plant and equipment, net 67,293 63,112 8,933Deferred tax assets 12,276 15,587 2,206Intangible assets, net 4,357 5,668 802Right-of-use assets, net 19,762 21,989 3,112Long-term deposits - 60,000 8,492 Total non-current assets 114,858 199,467 28,232 Total assets 3,022,473 2,995,592 423,998 Liabilities and shareholders? equity Current liabilities Accounts and notes payable 1,043,159 1,113,989 157,675Advances from customers 103,150 75,056 10,623Amount due to related parties 25,106 27,487 3,891Accrued expenses and other liabilities 325,042 286,313 40,525Short-term borrowing 95,868 - -Income tax payables 33,522 21,332 3,019Lease liabilities due within one year 6,993 8,476 1,200Total current liabilities 1,632,840 1,532,653 216,933 Non-current liabilities Accrued expenses and other liabilities 1,795 3,872 548Lease liabilities 13,391 14,393 2,037Total non-current liabilities 15,186 18,265 2,585 Total liabilities 1,648,026 1,550,918 219,518

VIOMI TECHNOLOGY CO., LTDUNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)(All amounts in thousands, except shares, ADS, per share and per ADS data)

As of December As of June 30, 31, 2019 2020 2020 RMB RMB US$ Shareholders? equity Class A Ordinary Shares (US$0.00001 parvalue; 4,800,000,000 shares authorized;98,444,732 and 98,927,945 shares issued 6 6 1 and outstanding as of December 31, 2019and June 30, 2020, respectively)Class B Ordinary Shares (US$0.00001 parvalue; 150,000,000 shares authorized;110,850,000 and 110,310,000 shares 6 6 1 issued and outstanding as of December31, 2019 and June 30, 2020,respectively)Treasury stock - (14,325 ) (2,028 )Additional paid-in capital 1,192,332 1,241,120 175,669 Retained earnings 195,596 220,583 31,221 Accumulated other comprehensive loss (19,145 ) (8,670 ) (1,227 ) Total equity attributable to 1,368,795 1,438,720 203,637 shareholders of the Company Non-controlling interests 5,652 5,954 843 Total shareholders? equity 1,374,447 1,444,674 204,480 Total liabilities and shareholders? 3,022,473 2,995,592 423,998 equity

Note: On January 1, 2020, the Company adopted ASC326, Financial Instruments-Credit Losses using modified-retrospective transition approach. Following the adoption of this guidance, a cumulative-effect adjustment to retained earnings, amounting to RMB2.4 million, was recognized as of January 1, 2020.

VIOMI TECHNOLOGY CO., LTDUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(All amounts in thousands, except shares, ADS, per share and per ADS data)

Three Months Ended June 30, June 30, June 30, 2019 2020 2020 RMB RMB US$ Net revenues: A related party 487,736 813,012 115,074 Third parties 672,417 871,352 123,332 Total net revenues 1,160,153 1,684,364 238,406 Cost of revenues (including RMB5,025and RMB217,482 with related parties (851,876 ) (1,443,402 ) (204,301 )for the three months ended June 30,2019 and 2020, respectively) Gross profit 308,277 240,962 34,105 Operating expenses^(1) Research and development expenses(including nil and RMB541 with arelated party for the three months (59,573 ) (60,670 ) (8,587 )ended June 30, 2019 and 2020,respectively)Selling and marketing expenses(including RMB22,434 and RMB21,338,with related parties for the three (129,498 ) (162,107 ) (22,945 )months ended June 30, 2019 and 2020,respectively)General and administrative expenses (22,219 ) (16,665 ) (2,359 ) Total operating expenses (211,290 ) (239,442 ) (33,891 )Other income 1,877 7,220 1,022 Income from operations 98,864 8,740 1,236 Interest income and investment income 4,002 7,097 1,005 Other non-operating income 435 594 84 Income before income tax expenses 103,301 16,431 2,325 Income tax expenses (14,364 ) (6,114 ) (865 ) Net income 88,937 10,317 1,460 Less: Net income attributable to the 556 460 65 non-controlling interest shareholders Net income attributable to ordinary 88,381 9,857 1,395 shareholders of the Company

VIOMI TECHNOLOGY CO., LTDUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)(All amounts in thousands, except shares, ADS, per share and per ADS data)

Three Months Ended June 30, June 30, June 30, 2019 2020 2020 RMB RMB US$ Net income attributable to the 88,381 9,857 1,395 Company Other comprehensive (loss)/income, net of taxForeign currency translation 14,415 (839 ) (119 )adjustment Total comprehensive income 102,796 9,018 1,276 attributable to the Company Net income per ADS* -Basic 1.28 0.14 0.02 -Diluted 1.23 0.14 0.02 Weighted average number of ADSused in calculating net income per ADS-Basic 69,266,667 69,648,247 69,648,247 -Diluted 72,060,847 71,654,656 71,654,656 Net income per share attributableto ordinary shareholders of the Company-Basic 0.43 0.05 0.01 -Diluted 0.41 0.05 0.01 Weighted average number ofordinary shares used in calculating net income per share-Basic 207,800,000 208,944,742 208,944,742 -Diluted 216,182,540 214,963,969 214,963,969 *Each ADS represents 3 ordinary shares. (1) Share-based compensationwas allocated in operating expenses as follows: Three Months Ended June 30, June 30, June 30, 2019 2020 2020 RMB RMB US$ General and administrative 1,764 6,410 907 expensesResearch and development expenses 5,431 22,945 3,248 Selling and marketing expenses 3,136 1,863 264

VIOMI TECHNOLOGY CO., LTDReconciliations of GAAP And Non-GAAP Results(All amounts in thousands, except shares, ADS, per share and per ADS data)

Three Months Ended June 30, June 30, June 30, 2019 2020 2020 RMB RMB US$ Income from operations 98,864 8,740 1,236Share-based compensation expenses 10,331 31,218 4,419 Non-GAAP operating income 109,195 39,958 5,655 Net income 88,937 10,317 1,460Share-based compensation expenses 10,331 31,218 4,419 Non-GAAP net income 99,268 41,535 5,879 Net income attributable to the Company 88,381 9,857 1,395Share-based compensation expenses 10,331 31,218 4,419 Non-GAAP net income attributable to the 98,712 41,075 5,814Company Net income attributable to ordinary 88,381 9,857 1,395shareholdersShare-based compensation expenses 10,331 31,218 4,419 Non-GAAP net income attributable to 98,712 41,075 5,814ordinary shareholders Non-GAAP net income per ADS -Basic 1.43 0.59 0.08-Diluted 1.37 0.57 0.08 Weighted average number of ADS used in calculating Non-GAAP net income per ADS-Basic 69,266,667 69,648,247 69,648,247-Diluted 72,060,847 71,654,656 71,654,656 Non-GAAP net income per ordinary share -Basic 0.48 0.20 0.03-Diluted 0.46 0.19 0.03 Weighted average number of ordinaryshares used in calculating Non-GAAP net income per share-Basic 207,800,000 208,944,742 208,944,742-Diluted 216,182,540 214,963,969 214,963,969

Note: The non-GAAP adjustments do not have any tax impact as share-based compensation expenses are non-deductible for income tax purpose.