PR Newswire | Nov 16, 2021 05:30AM EST

11/16 04:30 CST

Zepp Health Corporation Reports Third Quarter 2021 Unaudited Financial Results BEIJING, Nov. 16, 2021

BEIJING, Nov. 16, 2021 /PRNewswire/ -- Zepp Health Corporation ("Zepp" or the "Company") (NYSE: ZEPP) today reported revenue of RMB1.6 billion (US$249.3 million); GAAP diluted net income per share of RMB0.19(US$0.03); and GAAP diluted net income per ADS of RMB0.74(US$0.11) for the third quarter ended September 30, 2021. Each ADS represents four (4) Class A ordinary shares.

"Despite global supply chain and chip shortage challenges affecting many companies, we are pleased to meet our guidance range for the third quarter of 2021," said Wang Huang, Chairman and CEO of Zepp Health. "Even without any new product launches, unit shipment volumes of Amazfit and Zepp branded products increased 89% year-over-year, demonstrating continuing global expansion of our brands. We began the fourth quarter with new technology and products, including our new OS for independent apps and the launch of the next generation 3 of our best-selling GT series watch line."

"Today, our board approved a $20 million share repurchase program." Mr. Huang added, "The Share Repurchase Program is well aligned with our commitment to maximizing value for all of our stakeholders and reflects the Company's confidence in its sustainable growth and long-term strategy, supported by the strong balance sheet and cash position."

Chief Financial Officer, Leon Deng, added "In addition to the strong growth of the Company's own branded products, third quarter topline performance reflected the different timing for the launch of Xiaomi's new Mi Band in the second quarter this year, as well as impacts of supply chain slowdowns and chip shortages. Despite these challenges, we successfully managed to continue our expense control, which reduced total operating expenses by 31.2%."

ThirdQuarter 2021 Financial Summary

For the Three Months Ended For the Nine Months Ended

GAAP in millions, except for percentages Sept. 30, Sept. 30, Sept. 30, Sept. 30, and per share/ADS amounts 2021 2020^[1] 2021 2020^[1]

Revenue RMB 1,606.1 2,235.1 4,588.5 4,460.8

Revenue US$ 249.3 329.2 712.1 657.0

Gross Margin 20.2% 20.6% 21.5% 21.5%

Net income attributable to Zepp Health 49.3 81.1 101.5 113.5Corporation RMB

Adjusted net income attributable to Zepp 65.5 120.8 168.9 165.5Health Corporation RMB^[2]

Diluted net income per share RMB 0.19 0.31 0.38 0.44

Diluted net income per ADS US$ 0.11 0.18 0.24 0.26

Adjusted diluted net income per share RMB^[3] 0.25 0.46 0.64 0.64

Adjusted diluted net income per ADS US$ 0.15 0.27 0.40 0.38

Units Shipped 9.9 15.9 27.8 32.4

^[1] The US$ numbers in 2020 are referenced with the prior 6-Kdisclosures,which translations from RMB to US$ are made at a rate of RMB6.7896to US$1.00, the effective noon buying rate for September 30, 2020 as set forthin the H.10 statistical release of the Federal Reserve Board.

^[2]Adjusted net income attributable to Zepp Health Corporation is a non-GAAPmeasure, which excludes share-based compensation expenses. See "Reconciliationof GAAP and Non-GAAP Results" at the end of this press release.

^[3] Adjusted diluted net income is the abbreviation of adjusted net incomeattributable to Zepp Health Corporation, which is a non-GAAP measure andexcludes share-based compensation expenses attributable to Zepp HealthCorporation, and is used as the numerator in computation of adjusted basic anddiluted net income per ADS attributable to Zepp Health Corporation.

Third Quarter 2021 Financial Results

Revenue

Total units shipped in the third quarter of 2021 decreased by 37.7% year-over-year to 9.9 million, compared with 15.9 million in the third quarter of 2020. This was driven by a 45.3% decrease in unit shipments of Xiaomi wearable products partially offset by a 88.9% increase in unit shippments of Amazfit and Zepp branded products.

Revenues for the third quarter of 2021 reached RMB1.61 billion (US$249.3 million), a decrease of 28.1% from the third quarter of 2020, primarily as a result of decrease in sales of Xiaomi werable products as compared with the same period in 2020, which was due to the different launch time of Mi Band 5 and 6. Meanwhile, the revenue from our self-branded products increased, primarily driven by the sales of the Company's popular premium GT series, basic Bip and Pop models and rugged T-Rex.

Both sequential and year-over-year quarterly revenue changes can be affected by fluctuations in seasonal purchase patterns as well as by the timing of new product introductions.

Impact of COVID-19 on Our Business

The global impact of the COVID-19 pandemic continued in the third quarter 2021, primarily manifesting as parts and supply chain challenges globally. The market is experiencing shortages of electronic components and chips for different industries, affecting the supply and production cycle for the Company, as well. Zepp Health had increased inventories of some parts, but supply chain delays of certain parts for a month affected production of finished goods. The Company cannot predict the potential, if any, future negative impact on market conditions or the Company's operations.

Gross Margin

Gross margin in the third quarter of 2021 was 20.2%, compared with 20.6% in the same period of 2020. Gross margin and gross profit are affected by product mix as different products have different margin contributions. These changes can also be influenced by the stage of the product in its lifecycle, product iterations and new product introductions.

Research & Development

Research and development expense in the third quarter of 2021 was RMB108.7 million, decreasing 37.1% year-over year, and comprising 6.8% of revenue, versus 7.7% in the same period last year. This reflects effective expense control in R&D activities and compensation from government subsidy. The company optimized its integrated product development process to effectively develop new smart devices and promoted its open platform ZEPP OS to welcome more outside developers to upload their apps and programs on the smart watches.

Sales & Marketing

Sales and Marketing expense in the third quarter of 2021 was RMB90.7 million, decreasing 21.5% year-over-year, and comprising 5.6% of revenue, compared with 5.2% of revenue in the same period in 2020. The decrease was due to effective expense control on marketing expenses while balancing investments to expand sales channels and markets around the world.

General & Administrative

General and Administrative expense was RMB61.9 million in the third quarter of 2021, decreasing 32.0% year-over-year, and comprising 3.9% of revenue, compared with 4.1% in the same period in 2020. The decrease was primarily due to the vesting of share-based compensation.

Operating Expenses and Net Income

Total operating expenses for the third quarter of 2021 were RMB261.3 million, a decrease of RMB118.2 million from the same period in 2020, comprising 16.3% of revenue, compared with 17.0% in the third quarter of 2020.

Operating income for the third quarter of 2021 was RMB62.5 million, a decrease of 22.5% from RMB80.6 million for the same period in 2020.

Net income attributable to Zepp Health Corporation for the third quarter of 2021 was RMB49.3 million, compared with RMB81.1 million in the third quarter of 2020.

Liquidity and Capital Resources

As of September 30, 2021, the Company had cash and cash equivalents of RMB1,229.3 million (US$190.8 million), compared with RMB2,273.3 million as of December 31, 2020.

Share Repurchase Program

The Company's board of directors has approved a share repurchase program whereby the Company is authorized to repurchase up to US$20 million worth of its shares (including in the form of American depositary shares) over the next 12 months.

The Company's proposed repurchases may be made from time to time in the open market at prevailing market prices, in privately negotiated transactions, in block trades and/or through other legally permissible means, depending on market conditions and in accordance with applicable rules and regulations. The Company's board of directors will review the share repurchase program periodically, and may authorize adjustment of its terms and size. The Company expects to fund the repurchases out of its existing cash balance.?

Outlook

For the fourth quarter of 2021, the management of the Company currently expects:

- Net revenues to be between RMB1.75 billion and RMB2.0 billion, compared with RMB1.97 billion in the fourth quarter of 2020.

This outlook reflects continuing uncertainty pertaining to the potential affects of the COVID-19 pandemic on sales and on electronic component delays, as well as expected sales seasonality of both self-branded and Xiaomi products. It is based on the current market conditions and reflects the Company management's current and preliminary estimates of market and operating conditions and customer demand, which are all subject to change.

Conference Call

The Company's management will hold a conference call at 7:30 a.m. Eastern Standard Time on Tuesday, November 16, 2021 (8:30 p.m. Beijing Time on November 16, 2021) to discuss financial results and answer questions from investors and analysts. Listeners may access the call by dialing:

US (Toll Free): +1-888-346-8982

International: +1-412-902-4272

Mainland China (Toll Free): 400-120-1203

Hong Kong (Toll Free): 800-905-945

Hong Kong: +852-3018-4992

Participants should dial-in at least 10 minutes before the scheduled start time and ask to be connected to the call for "Zepp Health Corporation."

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

A telephone replay will be available one hour after the call until November 23, 2021 by dialing:

US Toll Free: +1-877-344-7529

International: +1-412-317-0088

Replay Passcode: 10161759

About Zepp Health Corporation (NYSE: ZEPP)

Zepp Health changed its name from Huami Corp. (HMI) on February 25, 2021 to emphasize its health focus with a name that resonates across languages and cultures globally. The company's mission continues to be connecting health with technology. Since its inception in 2013, Zepp Health has developed a platform of proprietary technology including AI chips, biometric sensors, and data algorithms, which drive a broadening line of smart health devices for consumers, and data analytics services for population health. Zepp Health is one of the largest global developers of smart wearable health and consumer fitness devices, shipping 46 million units in 2020. Zepp Health Corp. is based in Hefei, China, with U.S. operations, Zepp Health USA, based in Cupertino, California.

Use of Non-GAAP Measures

We use adjusted net income, a non-GAAP financial measure, in evaluating our operating results and for financial and operational decision-making purposes. Adjusted net income represents net income excluding share-based compensation expenses, and such adjustment has no impact on income tax. Adjusted net income attributable to Zepp Health Corporation is a non-GAAP measure, which excludes share-based compensation expenses attributable to Zepp Health Corporation, and is used as the numerator in computation of adjusted net income per share and per ADS attributable to Zepp Health Corporation.

We believe that adjusted net income and adjusted net income attributable to Zepp Health Corporation help identify underlying trends in our business that could otherwise be distorted by the effect of certain expenses that we include in net income and net income attributable to Zepp Health Corporation. We believe that adjusted net income and adjusted net income attributable to Zepp Health Corporation provides useful information about our operating results, enhances the overall understanding of our past performance and future prospects and allows for greater visibility with respect to key metrics used by our management in its financial and operational decision-making.

Adjusted net income and adjusted net income attributable to Zepp Health Corporation, should not be considered in isolation or construed as an alternative to net income, basic and diluted net income per share and per ADS attributable to Zepp Health Corporation. or any other measure of performance or as an indicator of our operating performance. Investors are encouraged to review the historical non-GAAP financial measures to the most directly comparable GAAP measures. Adjusted net income and adjusted net income attributable to ordinary shareholders, 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 our data. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure.

Exchange Rate

The Company's business is primarily conducted in China and the significant majority of revenues generated are denominated in RMB. This announcement contains currency conversions of RMB amounts into US$ solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to US$ are made at a rate of RMB6.4434 to US$1.00, the effective noon buying rate for September 30, 2021 as set forth in the H.10 statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on September 30, 2021, 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. Statements that are not historical facts, including statements about the Company's 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 cooperation with Xiaomi, the recognition of the Company's self-branded products; the Company's growth strategies; trends and competition in global wearable technology market; changes in the Company's revenues and certain cost or expense accounting policies; governmental policies relating to the Company's industry and general economic conditions in China and the global. Further information regarding these and other risks is included in the Company's filings with the United States Securities and Exchange Commission. 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:Zepp Health CorporationGrace Yujia ZhangEmail: ir@zepp.com

The Piacente Group, Inc.Yang SongTel: +86-10-6508-0677Email: zepp@tpg-ir.com

In the United States:Zepp Health CorporationBrad SamsonTel: 1+714-955-3951Email: brad.samson@zepp-usa.com

Zepp Health Corporation

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands of Renminbi ("RMB") and U.S. dollars ("US$")

except for number of shares and per share data, or otherwise noted)

As of December 31, As of September 30,

2020 2021

RMB RMB US$

Assets

Current assets:

Cash and cash equivalents 2,273,349 1,229,273 190,780

Restricted cash 2,401 298 46

Term deposit 5,000 5,000 776

Accounts receivable 298,038 415,626 64,504

Amounts due from related parties, current 860,213 761,725 118,218

Inventories, net 1,217,537 1,271,432 197,323

Short-term investments 18,430 19,358 3,004

Prepaid expenses and other current assets 152,898 204,425 31,726

Total current assets 4,827,866 3,907,137 606,377

Property, plant and equipment, net 124,619 142,810 22,164

Intangible asset, net 145,213 138,570 21,506

Goodwill 62,515 61,733 9,581

Long-term investments 443,986 1,536,659 238,486

Deferred tax assets 120,190 170,650 26,484

Other non-current assets 28,165 20,101 3,120

Non-current operating lease right-of-use assets 151,165 118,479 18,388

Total assets 5,903,719 6,096,139 946,106

Zepp Health Corporation

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands of Renminbi ("RMB") and U.S. dollars ("US$")

except for number of shares and per share data, or otherwise noted)

As of December 31, As of September 30,

2020 2021

RMB RMB US$

Liabilities

Current liabilities:

Accounts payable 1,951,335 1,330,946 206,560

Advance from customers 42,502 45,039 6,990

Amount due to related parties, current 11,185 62,481 9,697

Accrued expenses and other current liabilities 252,275 189,993 29,486

Income tax payables 27,706 38,703 6,007

Short-term bank borrowings 504,671 458,000 71,080

Total current liabilities 2,789,674 2,125,162 329,820

Deferred tax liabilities 22,374 25,568 3,968

Long-term borrowing 60,000 726,865 112,808

Other non-current liabilities 185,168 229,670 35,644

Non-current operating lease liabilities 116,245 82,699 12,835

Total liabilities 3,173,461 3,189,964 495,075

Zepp Health Corporation

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands of Renminbi ("RMB") and U.S. dollars ("US$")

except for number of shares and per share data, or otherwise noted)

As of December 31, As of September 30,

2020 2021

RMB RMB US$

Equity

Ordinary shares 157 159 25

Additional paid-in capital 1,552,109 1,629,644 252,917

Accumulated retained earnings 1,133,368 1,234,855 191,646

Accumulated other comprehensive income 44,624 37,768 5,861

Total Zepp Health Corporation shareholders' equity 2,730,258 2,902,426 450,449

Noncontrolling interests - 3,749 582

Total equity 2,730,258 2,906,175 451,031

Total liabilities and equity 5,903,719 6,096,139 946,106

Zepp Health Corporation

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands of Renminbi ("RMB") and U.S. dollars ("US$")

except for number of shares and per share data, or otherwise noted)

For the Three Months Ended September 30,

2020 2021

RMB RMB US$

Revenues 2,235,093 1,606,057 249,256

Cost of revenues (1,775,017) (1,282,308) (199,011)

Gross profit 460,076 323,749 50,245

Operating expenses:

Selling and marketing (115,617) (90,703) (14,077)

General and administrative (90,987) (61,908) (9,608)

Research and development (172,891) (108,663) (16,864)

Total operating expenses 379,495 261,274 40,549

Operating income 80,581 62,475 9,696

Other income and expenses:

Interest income 10,330 3,573 555

Interest expense (7,539) (13,490) (2,094)

Other income, net 1,785 1,742 270

Gain from fair value change of long-term investment 3,304 - -

Income before income tax and income from equity method 88,461 54,300 8,427investment

Income tax expenses (8,437) (6,229) (967)

Income before loss from equity method investments 80,024 48,071 7,460

Net income from equity method investments 2,472 996 155

Net income 82,496 49,067 7,615

Less: Net income/(loss) attributable to noncontrolling interest 1,422 (278) (43)

Net income attributable to Zepp Health Corporation 81,074 49,345 7,658

Net income per share attributable to Zepp Health Corporation

Basic income per ordinary share 0.33 0.20 0.03

Diluted income per ordinary share 0.31 0.19 0.03

Net income per ADS (4 ordinary shares equal to 1 ADS)

ADS - basic 1.30 0.78 0.12

ADS - diluted 1.24 0.74 0.11

Weighted average number of shares used in computing net income per share 248,748,630 252,495,778 252,495,778

Ordinary share - basic

Ordinary share - diluted 260,829,357 266,301,240 266,301,240

Zepp Health Corporation

Reconciliation of GAAP and Non-GAAP Results

(Amounts in thousands of Renminbi ("RMB") and U.S. dollars ("US$")

except for number of shares and per share data, or otherwise noted)

For the Three Months Ended September 30, 2021

2020 2021

RMB RMB US$

Net income attributable to Zepp Health Corporation 81,074 49,345 7,658

Share-based compensation expenses 39,723 16,131 2,503

Adjusted net income attributable to Zepp Health Corporation^ [2] 120,797 65,476 10,161

Adjusted net income per share attributable to Zepp Health Corporation

Adjusted basic income per ordinary share 0.49 0.26 0.04

Adjusted diluted income per ordinary share 0.46 0.25 0.04

Adjusted net income per ADS (4 ordinary shares equalto 1 ADS)

ADS - basic 1.94 1.04 0.16

ADS - diluted 1.85 0.98 0.15

Weighted average number of shares used in computing adjusted net income per share

Ordinary share - basic 248,748,630 252,495,778 252,495,778

Ordinary share - diluted 260,829,357 266,301,240 266,301,240

Share-based compensation expenses included are follows:

Selling and marketing 556 291 45

General and administrative 21,033 9,036 1,402

Research and development 18,134 6,804 1,056

Total 39,723 16,131 2,503

Zepp Health Corporation

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands of Renminbi ("RMB") and U.S. dollars ("US$")

except for number of shares and per share data, or otherwise noted)

For the Nine Months Ended September 30,

2020 2021

RMB RMB US$

Revenues 4,460,828 4,588,461 712,118

Cost of revenues (3,502,809) (3,603,471) (559,250)

Gross profit 958,019 984,990 152,868

Operating expenses:

Selling and marketing (241,802) (286,176) (44,414)

General and administrative (197,293) (193,641) (30,053)

Research and development (408,434) (421,297) (65,384)

Total operating expenses 847,529 901,114 139,851

Operating income 110,490 83,876 13,017

Other income and expenses:

Investment income - 13,507 2,096

Interest income 31,668 13,826 2,146

Interest expense (16,312) (30,480) (4,730)

Other income, net 2,540 4,027 625

Gain from fair value change of long-term investment 4,597 - -

Income before income tax and income from equity method 132,983 84,756 13,154investment

Income tax expenses (12,956) (10,238) (1,589)

Income before loss from equity method investments 120,027 74,518 11,565

Net income/(loss) from equity method investments (5,471) 26,289 4,080

Net income 114,556 100,807 15,645

Less: Net income/(loss) attributable to noncontrolling 1,007 (681) (106)interest

Net income attributable to Zepp Health Corporation 113,549 101,488 15,751

Net income per share attributable to Zepp Health Corporation

Basic income per ordinary share 0.46 0.40 0.06

Diluted income per ordinary share 0.44 0.38 0.06

Net income per ADS (4 ordinary shares equal to 1 ADS)

ADS - basic 1.83 1.61 0.25

ADS - diluted 1.75 1.54 0.24

Weighted average number of shares used in computing netincome per share 248,080,549 251,707,456 251,707,456

Ordinary share - basic

Ordinary share - diluted 259,723,569 264,369,709 264,369,709

Zepp Health Corporation

Reconciliation of GAAP and Non-GAAP Results

(Amounts in thousands of Renminbi ("RMB") and U.S. dollars ("US$")

except for number of shares and per share data, or otherwise noted)

For the Nine Months Ended September 30,

2020 2021

RMB RMB US$

Net income attributable to Zepp Health Corporation 113,549 101,488 15,751

Share-based compensation expenses 51,936 67,431 10,465

Adjusted net income attributable to Zepp Health Corporation^ [2] 165,485 168,919 26,216

Adjusted net income per share attributable to Zepp Health Corporation

Adjusted basic income per ordinary share 0.67 0.67 0.10

Adjusted diluted income per ordinary share 0.64 0.64 0.10

Adjusted net income per ADS (4 ordinary shares equalto 1 ADS)

ADS - basic 2.67 2.68 0.42

ADS - diluted 2.55 2.56 0.40

Weighted average number of shares used in computing adjusted net income per share

Ordinary share - basic 248,080,549 251,707,456 251,707,456

Ordinary share - diluted 259,723,569 264,369,709 264,369,709

Share-based compensation expenses included are follows:

Cost of revenues (54) - -

Selling and marketing 1,820 7,311 1,135

General and administrative 28,963 23,257 3,609

Research and development 21,207 36,863 5,721

Total 51,936 67,431 10,465

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SOURCE Zepp Health Corp.