Participants

Claire Ji; IR Contact Officer; Viomi Technology Co Ltd

Xiaoping Chen; Founder, Chairman of the Board of Directors, Chief Executive Officer; Viomi Technology Co Ltd

Sam Yang; Head of Capital and Investment Department; Viomi Technology Co Ltd

Jinxing Li; Analyst; CICC

Brian Lantier; Analyst; Zacks Small Cap Research

Presentation

Operator

Hello, ladies and gentlemen. Thank you for standing by for Viomi Technology Company Limited's earnings conference call for the second half and full year of 2024. 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. Claire Ji, the IR Director of the company. Please go ahead, Claire.

Claire Ji

Hello everyone and welcome to Viomi Technology Company Limited earnings conference call for the second half and the full year of 2024. As a reminder, this conference is being recorded. The company's financial and operating results were issued in the press release earlier today and I post it online. You can download the earnings price release and sign up for the company's email distribution list by visiting the IR session of the company's website at ir.viomi.com. Participating in today's call areMr. Xiaoping Chen, the founder, Chairman of the Board of Directors and Chief Executive Officer; and Mr. Sam Yang, the Head of our Capital and Investment Department. The company's management will begin with prepared remarks, and the call will conclude with 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 risk 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 is included in the company's annual report on Form 20-F and other failings of failed with the US Securities and Exchange Commission. The company does not assume any obligation to obtain any forward-looking statements, except as required by law.
Please also know that Viomi means earnings press release and this conference call include discussion of an audited GAAP financial information as well as an audited non-GAAP financial measures. In addition, well means press release contains a reconciliation of the audited non-GAAP measures to an audited most directly comparable GAAP measures. I will now turn the call over to our founder and CEO Mr. Xiaoping Chen. Mr. Chen will deliver his remarks in Chinese, followed immediately by an English translation. Mr. Chen let's go ahead.

Xiaoping Chen

(spoken in Chinese)

Claire Ji

Thank you, Mr. Chen. I'll quickly translate our form remarks before discussing our financial performance for the second half and the full year of 2024.
Hello, everyone. Thank you for joining us today on our earnest conference call for the second half and the full year of 2024. On August 31, 2024, we successfully completed our business reorganization, marking a pivotal milestone for Wyoming as we sharpen our focus on our cool home water solutions. This strategic shift has driven our strong performance in 2024, with a full-year net revenue reaching RMB2.1 billion and income from operations totaling RMB156.3 million, both existing our previous guidance. Revenues from home water solutions grew by 39% year over year, significantly fueling our overall business expansion. Additionally, we enhanced operational efficiency, achieving a net income of RMB62.3 million, reversing the losses reported in the past two years. As we move forward, Viomi is back on a fast track to high quality growth and is well positioned to seize new opportunities in the market.
With growing public awareness of the importance of healthy drinking water and a supportive policies fostering product innovations, the home water purification market presents huge opportunities, leveraging over a decade of deep expertise in the water purification industry. Viomi remains committed to continuous product innovation and aims to redefine home water purification through AI technology.
With our comprehensive product portfolio ranges from point of use, our series to whole house softening and purification solutions. Our advanced features, equipped with under the sink and installation free products such as natural mineral water infusion, instant heating and cooling, and ice making empower users with real-time water quality monitoring, proactive filter replacement reminders, and seamless one-click reordering through our app.
Furthermore, our intelligent self-claiming water circuit technology supported by AI diagnostics, greatly expansive future lifespan, and reduces usage costs, enhancing both efficiency and sustainability.
By addressing a wide range of household water use scenarios and catering to diverse drinking water needs across the global market, Viomi provides a smarter, more reliable and efficient water purification experience for consumers worldwide.
Our August 2024 business restructure, swiftly streamline our organization, comprehensively improve our operational efficiency, and sharpen our focus on water home water solution business, leveraging our core strengths to drive sustainable growth. We established the IPMI, which unifies our products, channel, and brand strategies, and a comprehensive marketing framework. But prioritizing consumer experience and aligning resources with market demand, we have strengthened the well means brand awareness expanded by our market share in the water purification industry.
In the domestic market, Viomi leads the healthy mineral water trend. The first half of 2024 saw the launch of Wey Quantum mineral AI water purifier, integrating advanced AI technology to optimize the purification process, featuring an innovative AI-powered mineralized filter technology. It ensures the sustained release of beneficial minerals. This produces purified water with a mineral composition closely resembling natural mineral water, providing our users with fresh mineral-rich water at home.
During the 2024 Double 11 Shopping Festival, our AI water purification ranked fourth, fifth, and the ninth on the brand leader board of the Douyin, Pinduoduo, and the [Tianao] platforms respectively, further reinforcing our brand influence.
In North America, we introduced the Vortex series of under the sync RO water purifiers designed for users who value convenience and efficiency. [Itself] installation feature has been well received, with over 80% of users reporting a smooth installation process average only 20 minutes. And the Vortex tankless design and the DIY filter replacements can greatly save place and time for users. A one-to-three wastewater ratio and a four year long-lasting filter lifespan, enhance filtration efficiency, reduce water waste, and lower maintenance costs delivering a superior user experience. This product made a strong international debut on the Kickstarter crowdfunding platform on November 5, 2024, surpassing its founding goal on the very first day with 168 backers, contributing over 1,200% of the target. Following this success.
The Vortex series officially commenced sales on Amazon in the US on December 16, 2024, receiving high recognition and the positive feedback from strong consumer demand with. To further solidify our presence in the global market, Viomi participated for the first time in CES 2025 in Las Vegas in January. Our intelligent home water solutions garnered widespread recognition from industry experts and attendees, reinforcing Viomi's reputation as a smart home water solutions innovator.
In addition, we made significant stride in building strategic partnerships. First, we have renewed our agreement with Xiaomi for the next three years. We are following our commitment to stable a mutual beneficial collaboration. By leveraging our prospective strengths, we aim to boost our business penetration in China.
Furthermore, we have strengthened our cooperation with Jingdong, reaching a joint marketing agreement for the quantum series products to promote healthy drinking water. In March 2025, we forged a strategic partnership with Malaysia's leading home appliance retailer. Together, we will focus on expanding sales channels and promoting Viomi water purification products to drive deeper market penetration in Malaysia.
Viomi's water purifier Gigafactory is fundamental to our manufacturing and technology development capabilities. Featuring a highly integrated industrial chain and highly automated production line with 100% in-house manufacturing and the food traceable quality control systems with core components. We maximize economics of scale. To strengthen innovation, we have established two major laboratory systems focused on advanced technology research and product compliance and reliability. These [laboratories] made the stringent test standards of various global markets, allowing us to rapidly adapt to evolving and diversify market demands while maintaining constant and reliable product performance.
As of today, Viomi has failed nearly 1,800 global patent applications, significantly outpacing the industry average. Looking forward, powered by the dual engines of advanced manufacturing and the continuous innovation, we are well positioned to further elevate our competitive edge in the water purification industry.
Viomi is embarking on a new chapter as we move into 2025, guided by our vision of global water and our commitment to providing fresh, healthy drinking water to users worldwide. To achieve this, we will focus on four key strategic initiatives.
First, we will strengthen our domestic market presence through trading policy incentives and advancements in AI technology to accelerate product innovation, meeting consumers growing demand for an enhanced lifestyle.
Second, we will drive international market expansion, further penetrating key markets such as North America and Southeast Asia. Through regions specific product development and enhanced brand positioning, we aim to elevate Viomi's international market visibility.
Third, we will continue to fortify our water purification product portfolio, maintaining an unwavering commitment to research and development. By leading industry innovation, we strive to provide smarter, healthier water purification solutions for consumers worldwide.
Fourth, we will continue to deepen our laboratory with strategic partners maximize the advantages of water purification gigafactory. This will enable us to achieve synergy in growth and profitability, ultimately creating long-term value for both our customers and shareholders.
Thank you. That concludes our founder's remarks. I will now turn the call over to our Head of Capital and Investment Department, Mr. Sam Yang, and discuss our financial performance.

Sam Yang

Thank you. Thank you, Mr. Chen and Claire. Thank you to everyone for joining us today. Before delving into details, I would like to address the impact of business organization on our financial results. In August 2024, we completed a strategic reorganization that involves diversity IOT at home portfolio products. Excluding range hoods, gas stoves, and water heaters, which we refer to as the diversity business.
As a result, The diversity business has been deconsolidated from our financials. And it's a historic financial result now report as discontinue operations in our consolidated financial statements. Unless otherwise state, all financial and non-GAAP figures discussed today are presented on a continuing business basis.
With that overview established, let's review our audited financial result for the second half of 2004. We achieved net revenues of RMB1.2824 billion, an increase of 42.8% from RMB897.9 million for the second period of 2023. This growth was primarily driven by the expansion of our home water system business. To better reflect our strategic focus, we have reclassed our revenue streams through -- into three categories effective. in the second half of 2024, home water season included the revenue from our smart water purification products. Water heaters, or kettles, water quality meters, and other related business consumables includes revenues from various water filters designed from smart water purifiers.
Teaching appliances and others includes revenues from range food, gas stocks, and other small appliances, as well as installation services for filming products.
l look at the performance across the three categories. Revenues from home water systems were RMB925.7 million, an increase of 58.2% from RMB585.2 million for the same period of 2023. Primarily due to the increased demand of home water season products. Revenues from consumables were RMB136.7 million, a decrease of 24.6% from RMB1.1812 billion for the same period of 2023. 1,181,200,000 primarily due to the decreased sales of water purifier files sold to Xiaomi. Partially offset by an increase in demand for the brand filters. Revenues from kitchen appliances and others were RMB220 million, an increase of 67.2% from RMB131.5 million for the same period of 2023, primarily due to an increased sales catering appliances sold to Xiaomi.
Gross profits were RMB289.5 million compared to RMB294.5 million for the same period of 2023. Gross margin was 22.6% compared to 32.8% for the same period of 2023. The decrease was primarily due to a higher revenue contribution from low-gross margin products, leading to a shift in the product mix during the transition period. Total operating expenses were RMB221.5 million, an increase of 6.1% from RMB208.8 million for the same period of 2023 due to higher personnel expenses during strategic transition period as well as increased inputs at the market.
In greater details, R&D expenses were RMB67.7 million, a decrease of 9.9% from RMB75.1 million for the same period of 2023, mainly due to a lower depreciation and amortization expenses and personal expenses, partially offset by increased the share-based compensation expenses.
Selling and marketing expenses were RMB140 million, up RMB14.6 million, an increase of 9.6% from RMB104.6 million for the same period of 2023 mainly due to higher online promotion fees.
General and administrative expenses were RMB39.3 million, an increase of 34.8% from RMB29.1 million for the same period of 2023, primarily due to higher management personnel expenses. Partially offset by a decrease in estimated allowance for accounts and notes receivables.
Net income attributable to ordinary shareholders of the company was RMB57.4 million. And then the non-GAAP net income reached RMB63.3 million. This marks a significant turnaround for the same period of 2023.
When we report a net loss of RMB29.7 million and RMB30.9 million respectively. This improvement was primarily driven by strategic reorganization that involve divesting certain laws, making business, and focus or more advantaged sectors to enhance profitability.
Additionally, our balance sheet remains healthy. As of December 31, 2024, The company had a cash and a cash equivalent of RMB1.262 billion. Restricted cash RMB141.3 million, short-term deposit of RMB115 million and short term investment of RMB72.5 million.
Next, let's brief discuss the key financial result for the full year of 2024. Net revenues were RMB2.119 billion, an increase of 29.3% from RMB1.6387 billion for 2023.
Revenues from water home water systems were RMB1.4984 billion, an increase of 39% of RMB1.779 billion for 2023. Revenues from consumables were RMB277.7 million, a decrease of 14.5% from RMB324.7 million for 2023. Revenues from kitchen appliances and others were RMB342.9 million, an increase of 45.2% from RMB236.1 million for 2023.
Gross profit was RMB548.7 million compared to RMB522 million for 2023 costs margin was 25.9% compared to 31.9% for 2023. Total operating expenses were RMB424.9 million, an increase of 1% from RMB420.8 million for 2023.
In greater details, R&D expenses were RMB142.9 million, a decrease of 4% from RMB148.9 million for 2023. Selling and marketing expenses were RMB211.2 million, a decrease of 1.6% from RMB214.6 million for 2023. General and administrative expenses were RMB17.8 million, an increase of 23.5% from RMB57.3 million for 2023.
Net income attributable to ordinary shareholders of the company was RMB33.4 million. And a non-GAAP net income attributable to ordinary shareholders of the company was RMB79.9 million. Thank you.

Claire Ji

Okay. This concludes our prepared remarks. We will now open the call for Q&A. Mr. Chen, our founder; and Mr. Yang will join the session and answer questions. Operator, please go ahead.

Question and Answer Session

Operator

(Operator Instructions) Jinxin Lee, CICC.

Jinxing Li

Hey, thanks for the management and congratulations for the good performance. I'm Li Jinxing from CICC, and I have two questions about the results, and I'll ask them one by one.
So the first question is after the divestment of the IOT business in 2024, we see that focuses more on water solution. So what adjustments have been made in business operation and organizational management in the second half of 2024, and what are the results so far? Yeah, that's my first question.

Sam Yang

Yeah, thank you, Jinxin. Let me get to your question and The strategic reorganization we undertook in 2024 was not a sudden decision. It was a progress that began in the second half of 2023. During that time, we elevated our water business to a strategic business unit. This move was crucial.
We have established a comprehensive manufacturing R&D and distribution systems that are operated in differently. And leverage our strength in water purification, automatically enhancing our competitiveness in this sector.
By the second half of 2024, we completed a strategic reorganization by divesting certain IOT at home business and related assets. We decided to retain our water purification business and a part of our kitchen appliances line to narrow our focus and streamline operations.
In addition, we launched the integrity product marketing system. All we can say it's the IPMS. This system brings together our product channel and the brand strategies and the one comprehensive marketing framework.
I prioritize our customer experience and aligning our resources within the market demand and we have been able to strengthen our brand awareness and expand the market share. In the water purifier industry, this strategic shift has a very strong financial performance.
Our full-year net revenue reached the RMB2.1 billion with the income from operation totaling RMB155 million both exceed our previous guidance. Normally, revenue from home waters seasons grew by 37.5% year over year, significantly driving our overseas overall business goal.
Furthermore, we improved our operational efficiency. Our overall operating expenses ratio declined by about 6%. And apart from the temporary increase for the personal expenses related to the restructuring, we achieved a net income of RMB62 million, reversing the losses that we experienced for the past two years.
In conclusion, the completion of the regular organization enables us to focus more on the needs of water purification for the users and enhance our product strength to build the best-selling natural mineral water. In the meantime, we will accelerate the channel expansion and globalization to advance the vision of global water. Thank you. Next question.

Jinxing Li

Okay, thank -- yeah, thank you. And my second question is, could you give us the breakdown of the home water solution in 2024? And how much did the volume and price increase respectively? And is there any new product plans for 2025? Yeah, that's my second question. Thank you.

Sam Yang

A good question. Let me just to answer your question. To better reflect our strategic focus, we made some changes on how we categorize our revenues starting in the second half of 2024.
First is our home water systems, which included our smart water purification products. Water heaters, water kettles, and the water collecting meters and similar items. This category makes up about 71% of our total revenue. And next we have the consumables. This is actually we bundle sales in the water purification and also, we sell it separately. And this part attributed to 30% of the total revenue.
And the last we -- there's teaching appliances on the orders. This includes the revenue from range hood, gas stoves, and the small appliances. As well as installation services for the Viomi products. It brings about 60% of our total revenue.
On a positive note, we kick off our Quinlan series water purifiers in the first half of 2024. With this middle to end -- to high actually, positioning, we have a very strong emphasis on the healthy drinking water, that is the mineral water and we have seen a noticeable increase in our DSP.
Looking ahead to 2024, 2025, we are excited for -- by the dipping our goal strategy. In the domestic market, we keep refined, middle to high and product line and focus on healthy and continue to enhance the equipment series.
During the Double 11, our AI water purifier ranked the fourth, fifth, and the ninth on the brand boards of the Douyin, Pinduoduo, and [Tianao] platforms respectively, further reinforcing our brand influence.
On the international side, we plan to enhance our product lineup and focus on customized development tailor actually to the North America's customer and also cover the Southeast markets.
This includes adding new features like ice making and instant cooling among others. At the same time, we expand to other key international markets. We're also localizing and promoting our existing product series to better meet the customer needs for the local. Thank you.

Jinxing Li

Okay, thanks for the management.

Operator

Brian Lantier, Zacks Small Cap Research.

Brian Lantier

Good evening. Thank you. If I could ask a couple of questions on the expansion strategy. I guess first, how comfortable are you with the strategy in the US? And then second, regarding the expansion of Southeast Asia? Have you named the partner, the home appliance partner in Malaysia? And I guess second, will there be additional, will that be the strategy targeting additional Southeast Asian countries? Going forward, thank you.

Sam Yang

Yeah, thank you. Actually, because of our new vision is the global water. So the global waters is our new strategy. We choose to enter the US market and also, we have entered the Southeast Asian market. The first step actually we successfully launched the products actually Laptop 8 on the kickstarter, that is a great success.
And we achieved 10 times our expectation. And following that as success, we introduced the two products to Amazon. And which has reached the high recognition from the customers and it's continued performance. It's good.
And talking about the other areas about the Southeast, we have established a strategic partnership with, the biggest, retailer in Malaysia. And this will bring us an ongoing good performance, we believe. And with that strategic cooperation and we are going to launch more and more new products to that new market.

Brian Lantier

Okay, great. And have you identified any long-term gross margin goals for the different revenue categories? For example, hot water systems, versus kitchen appliances and consumables? I'm assuming in the long run consumables will have the widest margin. As the gigafactory gains efficiency, but I'm not sure if you targeted or released or identified any of those gross margin goals in the long run?

Sam Yang

Yeah, gross margin is crucial actually, as you may note that, we have obtain the average margin for the industry, the water purifier.
And we believe this course margin will become better this year because of the product matrix actually we are going to launch. And as I explained earlier that we are going to launch more and more Quinlan series which has a good cost margin for the customer and also for the market.
Also, we have the consumables and this market is the gross margin for this category is -- it's very decent. So, we're going to keep And talk about the others, I think we are going to meet the average of the industry. Thank you.

Brian Lantier

Great. Great, thank you.

Operator

And that concludes the question and answer session. I would like to turn the conference back over to management for any additional or closing comments.

Claire Ji

Okay, and Mr. Chen would like to give a conclusion. Mr. Chen, please go ahead.

Xiaoping Chen

(spoken in Chinese)

Claire Ji

Okay, I'll briefly translate our founder's remark conclusion. And thanks to everyone attending our conference call right after we complete our restructuring and fully focused on the home water business.
We are using AI to upgrading our brand positioning. And we will invest more in the brand recognition promotion to increase our brand recognition globally and about our water purifier gigafactory. We have the most integrated industry lines and the most automated production lines among the industry. And we will continue to maximize the advantages of our water purifier gigafactory.
And also, we will keep fast speed on our overseas extension, in the major markets like the US, United States, and Southeast Asia. And in conclusion, home water business is very decent business and it's sustainable. It's for to meeting the healthy drinking demand of [main can] in a sustainable way. So we think it's the business everlasting for like [tender] and that's all.
Thank you. And thank you once again for joining us today. If you have any further questions, please feel free to contact us through the contact information on our website or our investor relationship consultant, the PSNT Group.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.