Zepp Health Corporation Q4 2025 Earnings Call - Premiumization, AI coaching and product mix drive double-digit growth and record gross margin

Operator: Gentlemen, thank you for standing by for Zepp Health Corporation’s fourth quarter and full year 2025 earnings conference call. At this time, all participants are in a listen-only mode. Today’s 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.

Grace Zhang, Director of Investor Relations, Zepp Health Corporation: Hello, everyone, and welcome to Zepp Health Corporation’s fourth quarter and full year 2025 earnings conference call. The company’s financial and operating results were issued in a press release via the Newswire services earlier today and are posted online. You can also view the earnings press release and slides referred to on this call by visiting the IR section of the company’s website. Presenting today are Wang Huang, our Founder and Chief Executive Officer, and Leon Deng, our Chief Financial Officer. Joining us today, we’ll also have Mike Yan Yeung, Chief Operating Officer and General Manager of North America, and Eric Fleming, VP of Capital Markets in North America. 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 could differ materially from the views expressed today. Further information regarding this and other risks is included in the company’s annual report on Form 20-F for the fiscal year December 31, 2024, and other filings 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 by law. Please also note that Zepp’s earnings press release and the conference call include forward-looking information as well as our non-GAAP financial information. Zepp Health’s press release contains a reconciliation of the audited non-GAAP measures to the audited most directly comparable GAAP measures. I’ll turn the call to our CEO, Wang Huang. Please go ahead.

Wang Huang, Founder and Chief Executive Officer, Zepp Health Corporation: Thank you for joining us today. Before going into the details of the quarter, let me first share how we see Zepp evolving. Over the past few years, we have been transforming Zepp from a traditional wearable hardware company into what we call a hybrid training platform. Our goal is not simply to launch competitive devices, but to build a broader performance system that integrates endurance, strength, and recovery through hardware, training intelligence, software, and data capabilities. With that context in mind, 2025 was a strong year for Zepp. For the full year, Amazfit branded product revenue grew 51% year-over-year. In the fourth quarter, Amazfit branded product sales grew 45% year-over-year, while gross margin reached a record level of 40.3%. Importantly, this growth was achieved without relying on heavy discounting during the holiday season.

These results reflect the continued progress of our multi-year transformation as we evolve from a volume-driven business to a premium-focused global company. They also demonstrate strengthening pricing power across our product mix as it continues shifting toward higher value segments. Turning to our product highlights. Our growth in Q4 was broad-based across entry-level and premium segments as we continue expanding our portfolio to a wider range of users and training scenarios. At CES, we launched Amazfit Active Max, the newest member of the Active family. Active Max fills the gap between our entry-level lifestyle watches and our rugged outdoor series. It targets everyday trainers beginning their fitness journey. It features a vibrant AMOLED display, long battery life over 170 workout modes, and built-in support for offline maps and training guidance powered by Zepp Coach. We also recently introduced Active 3 Premium, designed specifically for runners.

Positioned around a $169 price tier, Active Max and Active 3 Premium reinforce the core volume segment of our portfolio, while expanding our reach into structured training. In our premium performance, T-Rex and Balance series continue to perform strongly. In February, we launched T-Rex Ultra 2, our newest flagship outdoor watch. Built with grade 5 titanium for extreme durability, Ultra 2 extends the top end of our portfolio to around the $550 price level. This price point is new in our history. Products like this reinforce the premium positioning of the Amazfit brand while expanding the ceiling of our product portfolio. On the software, we continue strengthening our ecosystem through updates to Zepp OS. Features such as BioCharge energy monitoring and Zepp Coach AI-driven training guidance are now reaching more devices and helping retention and long-term user value.

Together, variables and sensor technologies are creating a stronger ecosystem around our hardware foundation, forming what we believe is a growing defensive moat around our platform by increasing switching costs, improving user retention, and expanding lifetime value. On the brand side, we have also made deliberate investments to elevate our credibility in the global performance sports community. This month, we announced a partnership with Josh Kerr, medalist and world champion middle-distance runner. Josh joins our growing roster of elite athletes, including Grant Fisher, Tyler Andrews, and Ruth Croft. These athletes are not just brand ambassadors. They actively use Amazfit devices such as Balance 2, Helio Ring, and Helio Strap in their daily training and recovery. When world-class rely on our data and training insights to prepare for the highest level of competition, it sends a powerful signal about the accuracy, credibility, and performance capabilities of our technology.

Our strategy is our collaboration with HYROX, the fastest-growing hybrid endurance competition globally. Following recent events in cities such as Phoenix and Las Vegas, athletes gather in front of the official results screen to capture and share their finish times. The results are presented by Amazfit, making Amazfit the most prominent brand integrated into that moment. When athletes share those results across social platforms, the brands naturally spread through athlete-generated content rather than paid promotion. This is not traditional sponsorship visibility. It is structure-level exposure embedded directly into the athlete experience. More broadly, HYROX plays a key role in our hybrid training strategy, which integrates endurance, strength, and recovery into one coherent performance system where wearable data, training intelligence, and real-world performance validation converge.

Looking ahead to 2026, we remain focused on strengthening our premium product lineup, expanding ecosystem through AI-driven training insights and performance technologies. Deepening our engagement with performance-focused communities. For the first quarter of 2026, we expect in the range of $50 million-$55 million. Representing an increase of 30%-40% year-over-year. This outlook reflects our confidence that the demand we are seeing is not simply seasonal. We believe we now have the right combination of products, channels, and cost structure to drive growth and a clear path towards sustained profitability. As our premium mix continues to expand and higher margin categories scale, we expect our margin profile strengthening. With that, I will now turn the call over to Leon to walk through the financial details. Leon, please go ahead.

Leon Deng, Chief Financial Officer, Zepp Health Corporation: Thank you, Wang Huang. Greetings, everyone. Thank you again for joining our fourth quarter and full year 2025 earnings call. In the last quarter of 2025, our revenue rose to $85.2 million, up 43% year-over-year, upper end of our guidance range. For full year 2025, revenue million, representing a 41.8% year-over-year growth. This $183 million in 2024, marking this trajectory. Our fourth quarter growth was driven by broad-based strength across our diversified portfolio. As Wang Huang mentioned, our 2025 Amazfit branded product sales increased by 45.4% year-over-year, percent sequentially, fueled by strong execution during the critical Black Friday and Christmas sale seasons, where our brand visibility reached new heights across major e-commerce channels. Additionally, our established premium lines, specifically the T-Rex and Balance, continue to demand, further validating our premiumization strategy price.

Looking ahead, we have just launched the Active 3 Premium, Active Max, and T-Rex Ultra 2 watches, and together with our, we expect the top line expansion continues into 2026. Turning now to gross margin. It was influenced by various factors, including product mix, and product life cycles, such as model upgrades. In Q4, we achieved 40.4%, an impressive expansion of 3.6 percentage points compared with same period of 2024 and third quarter of 2025. It is a highlight of this quarter’s financial performance and the strongest indicator of our improving brand recognition and supply chain management. This margin performance was driven by two key factors that I want to elaborate on. First, a favorable mix shift with higher contributions from the Premium Adventure series of our Amazfit branded products.

This shift away from lower-margin legacy products towards newer high-value SKUs naturally elevate our margin profile. To maintain price integrity even during higher promotional periods like Black Friday, further boosting margins. The strong gross margin driven by our product mix more than offset the headwinds we’re facing from FX fluctuations, memory chips cost increase, and tariffs and amid macroeconomic uncertainties. Gross margin in the full year 2025 was 38.3%, will remain on track with our margin strategy initiated in the second half of 2023, and we expect the trend to continue into 2026 as we further optimize our product mix and supply chain efficiency. Next, expenses. We remain committed to prudent cost management, continuing the program we began in 2020 to reduce overall operating costs while investing for growth. Total non-GAAP operating expenses for the fourth quarter million.

Expenses as a percentage of sales improved by approximately compared to Q4 2024. However, in absolute amounts, it is around $8 million year-over-year and quarter-over-quarter. I will break down the driver of this increase to help you understand the quality of our spend is directly attributed to certain fixed channel costs to drive direct top-line growth. As we ship more units and generate more revenue, selling and expenses naturally rise in tandem. Second, $5 million year-end provisions, non-cash adjustment for potential bad debt and business model optimization as part of our ongoing risk management strategy. $1 million investments in patent fees and brand protection for intellectual properties and ensure long-term business success. In total, $6 million. Finally, and most importantly, we strategically invested around $1 million in front-loaded marketing initiatives, including upfront costs for elite athlete sponsorships.

Olympic medalist Josh Kerr, as well as some investment branding activities that fueled the adoption of new product launches. As you can see, except for the first element, majority of the cost increase are not structural cost increases. We expect lower operating costs relative to revenue in 2026 as these one-off costs normalize, and we realize further cost efficiencies. By line item, adjusted research and development expenses were $10.2 million, remained relatively stable quarter-over-quarter and year-over-year. We continue to invest in a series of cutting-edge products as well as new technologies, including AI, to maintain our competitive edge against our peers. At the same time, we focus on refined research and development approaches as we consistently evaluated resource efficiency, maximize return on investment and productivity.

Adjusted selling and marketing were $15.6 million, reflecting the front-loaded branding investment I just mentioned. We’re seeing return for these marketing dollars as evidenced by our market share gains in U.S. and Europe. At the same time, we consistently pushed retail profitability and channel mix improvement. Adjusted G&A expenses were $11.1 million compared with $6.1 and $6.5 million in the same period of 2024 and third quarter of 2025. The increase is mainly driven by the year-end provisions I mentioned above. G&A expenses remained flat through the year. We continue to streamline overhead, maintaining disciplined cost control while improved operating efficiency. Total adjusted operating expenses were $123 million in 2025, $110 million for the full year 2024.

The increase is due to the reasons I explained above. Adjusted operating expenses, excluding these, would be $110 million. We take a cautious approach and remain committed to investing in marketing activities to ensure our long-term competitiveness. Net loss attributed to Zepp Health was $6.4 million compared to adjusted net loss of $22.5 million in the quarter of 2024. The net loss in Q4 was mainly a result of a $2 million deferred tax asset provision and a $6 million provision. Full-year adjusted net loss attributed to the company was $31.5 million, compared with the adjusted net loss of $56.7 million for 2024.

The net loss for 2025 from deferred tax asset provision, one-time specially identified provisions and operating loss from the first half of the year 2025. In terms of our inventory and working capital, we continue to manage our inventory rigorously. Despite strategic risk purchases of key components for the future, our inventory increased to $72.8 million compared with US dollars million as of Q3 2025, reflecting our ongoing management. As of December 31, 2025, cash equivalents stood at $113 million compared to US dollars as of Q3 2025 and $111 million as of December 2024. We delivered another quarter of positive operating cash flow, further strengthening our liquidity position. This consistent cash generation capability provides runway for us to invest and seize potential market opportunities.

In terms of capital structure, our overall long-term and short-term debt levels remained relatively consistent following the restructuring we completed in Q1 2025. However, you may note increase in our reported debt levels in Q4 as a result of refinancing short-term debt into long-term debt, capitalizing on favorable rates to minimize interest. While we are focused on reducing our overall debt level over the longer term, temporary fluctuations in debt levels quarter to quarter due to timing of refinancing and repayments. Beginning of 2023, we have cumulatively retired $8 million of debt and will continue to optimize the capital structure going forward. Given our confidence in the company’s strong fundamentals and sustainable growth, we are reaffirming our commitment to our share repurchase program in 2020. As effective use of capital that aligns with our focus on delivering value to shareholders.

Before we talk about guidance, I would like to walk you through macroeconomic and industry-specific factors we are currently facing, including the chip risk. While we are not immune to memory cost inflation, it’s important to note that our products have modest memory requirements compared to other categories like PC and phones. Consumers don’t choose our products based on memory configurations. They choose us for the experiences and accuracy we deliver. Our entire BOM cost is managed holistically while memory costs rise somewhat. Our vertically integrated supply chain provides us with multiple ways to optimize our overall cost structure. We’re continuously focused on driving efficiencies throughout the supply chain by leveraging our scale and integration. Additionally, we are building inventory levels of certain key components, including risk buys, to ensure we can meet long-term demand. Our strong relationships with suppliers allow us to align with anticipated product demand.

While supply chain challenges are inevitable, our ability to navigate them. Lastly, and most importantly, as demonstrated, we have seen a steady increase in the average selling price of our products. We firmly believe that compared to our competitors, our pricing still has ample room to grow. In fact, price increases have more than offset the rise in memory costs and helped us in macro. Finally, our outlook for the first quarter of 2026. We are entering the year with strong momentum. Despite the first quarter traditionally being a slower season for the consumer electronics industry, we expect revenue to be in the range of $50 million-$55 million, representing year-over-year growth of approximately 30%-43%. This guidance reflects our current visibility into our order book and strong sell-through trends in our key markets.

With strong financial fundamentals, a clear path to continued margin expansion and solid operational discipline, we’re well-positioned to deliver profitable growth and create long-term shareholder value. Thank you all for your time today. I will now open the call for questions. Operator, please go ahead.

Operator: Thank you. Welcome to the session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. For the benefit of all participants on today’s call, if you wish to ask your questions to the company, please repeat your question in English. At this time, we will pause momentarily. Your first question comes from the Fundamental Research. Please go ahead.

Sid, Analyst, Fundamental Research: Hi. Congratulations on the strong revenue growth and the new product launches. Also nice to see you’re anticipating robust revenue growth in Q1. How many new products are you planning to launch this year, compared to last year? Just a rough idea is fine.

Leon Deng, Chief Financial Officer, Zepp Health Corporation: I said I think it’s around similar products, maybe slightly more. If I’m not mistaken, last year we have launched around nine products or so, and this year probably is at the same quantity of that, slightly more.

Sid, Analyst, Fundamental Research: Okay. How are you preparing for the recent spike in the U.S. dollar?

Leon Deng, Chief Financial Officer, Zepp Health Corporation: We are not that much affected by the fluctuations in the dollar, right? I think a lot of our production is diversified in Asia in different places. If you look at our markets, we are very strong in Western Europe markets as well as the U.S. markets. To some extent, the dollar is actually giving us some tailwind instead of the headwind.

Sid, Analyst, Fundamental Research: Okay, thank you. Just one more question, if I may. Regarding operating expenses, you did a good job in slicing or even cutting costs in some areas. Which specific areas do you think there’s the reductions?

Leon Deng, Chief Financial Officer, Zepp Health Corporation: I think if you look at the selling and marketing expenses, in some places we actually front-loaded some of the expenses into the high seasons for the upcoming new product launches, for example. That should normalize over the quarters because it’s very much driven by the product launch wins we have applied. Another one is the G&A cost, because you have seen that G&A cost keep on going down for us. Then I think there’s also room to improve. The last one is R&D. On one hand, we need to invest on R&D, the new product launches I just mentioned. You asked about the numbers, right? On the other hand, a lot of places whereby we could adopt AI to actually increase efficiency on R&D.

Sid, Analyst, Fundamental Research: Thank you so much, Leon.

Leon Deng, Chief Financial Officer, Zepp Health Corporation: Okay. Thank you, Sid.

Operator: Once again, if you’re on your telephone. The next question comes from Peter Branson with Brooks Investments.

Peter Branson, Analyst, Brooks Investments: Hello. Congratulations on the 2025 performance. I have two questions. If you could provide more color on the sales performance. If you can share more about what’s the plan for the Amazfit strap and ring for this year.

Leon Deng, Chief Financial Officer, Zepp Health Corporation: Sorry, I didn’t get the first question clearly. If you can repeat the first one.

Peter Branson, Analyst, Brooks Investments: Yes. If you can provide more color on the sales performance. The second question would be, what’s the plan for the Amazfit strap and ring?

Leon Deng, Chief Financial Officer, Zepp Health Corporation: Okay. Thank you. On the first one, on the Adventure series, you see that we have many new products in 2025 throughout the year. We have launched T-Rex 3 Pro, and we have also launched the T-Rex Ultra 2 February, right? We have some of the new products also in the T-Rex family lined up in 2026. The series actually also helped us to elevate our overall ASP for the company. Adventure series is playing more and more important role in the overall mix we have. It will continue to be like that in 2026. With regard to your second question on Helio Strap and the rings.

Helio Strap has made a great performance and a debut in 2025. The most popular, if not the most popular, products in our portfolio. I think on the other hand, we didn’t manufacture enough of the Helio Strap to cater for the Q3 and Q4 high seasons. Actually resolving the supply chain on that in 2026, you should see more of the manufacturing of those devices, and you should see the to be satisfied on the Helio Strap. On the other hand, we’re also working on the next generation of those as we stay tuned for the second half of this year.

Operator: Thank you. There’s no other questions. Now I’d like to turn the call back over to the company’s IR Director, Grace Zhang, for closing remarks.