Zepp Health Corporation American depositary shares, each representing sixteen Class A ordinary shares 2026 Q2 Earnings Call

Please go ahead, Grace. Hello, everyone, and welcome to Zepp Health Corporation's second quarter 2026 earnings conference call.

The company's financial and operating results were issued in a press release via the news wire 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 also have Mike Yeung, Chief Operating Officer and General Manager of North America, and Eric Fleming, Vice President of Capital Markets of North America. Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties.

As such, the company's actual results may be materially different from the views expressed today. Further information regarding this and other risks and uncertainties are included in the company's annual report on Form 20-F for the fiscal year ended December 31, 2025, and the other filings as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to forward-looking statements, except as required under applicable law. Please also note that Zepp's earnings press release and this conference call include discussions of our audited GAAP financial information as well as our audited non-GAAP financial information. Zepp's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to our CEO, Mr. Wang Huang.

Please go ahead. Hello, everyone, and thank you for joining Zepp Health's second quarter 2026 earnings call.

In the second quarter, revenue reached $63.5 million, representing year-over-year growth of 6.9%. Gross margin was 37.4%, improving by 120 basis points from the same period last year. This was measured rather than explosive growth. However, the quality and direction of their improvements are important. Before all of our new products have fully completed their production ramp and channel expansion, we have already returned to year-over-year revenue growth while improving gross margin. This improvement was achieved despite higher memory and other components' costs. During the first half of this year, and particularly during the second quarter, we launched or expanded products across our major families, with each family serving a distinct strategic role.

I would therefore like to use this opportunity to explain how our major product families are developing and, more importantly, how they are collectively changing the quality and the longer-term growth potential of our business. The first clear development is that our product mix is moving towards higher value products. Within the T-Rex family, we have established a mature and stable higher-end product structure. T-Rex Break Pro and the T-Rex Orca Two have U.S. suggested retail prices of approximately $399 and $549, respectively. These higher-end models have continued to account for approximately 50% of recent global T-Rex family activations. The important point is that this higher-end mix has been sustained at approximately half of the family, demonstrating durable consumer acceptance of both our higher-end products and the broader T-Rex price ladders. The Active family demonstrates our ability to create and expand a new price tier.

Using a strict definition that includes only Active 3 Premium and Active Max, both positioned at a U.S. suggested retail price of $169. This tier increased from approximately 22% of global Active family activations in the first quarter to approximately 40% in the second quarter. It reached approximately 49% in July and approximately 57% through August 25. There were no $169 USD Active products in the comparable period last year. This, therefore, represents genuine adoption of a new higher price tier rather than a reclassification of existing products. The overall scale of Active is equally important. Following the recovery in Bip supply, total global monthly activations of the Active family remained broadly comparable with those of Bip in both July and August to date. This comparison is particularly meaningful because Bip itself has returned to a strong scale and continue to experience strong consumer demand.

It demonstrates that Active, a family centered largely in the $100 to $200 USD price range, can now sustain approximately the same global activation scale as Bip family. Our family anchors in the sub-$100 U.S. dollar segment, even after the supply constraint on Bip was removed. Together with the growing contribution of our $169 Active products, this provides strong evidence that our overall volume mix is moving towards higher value product bands. The Balance family provides more than another example of premiumization. It is also important evidence that our strategic focus on hybrid training is beginning to translate into product adoption and growth. Balance 3 was designed around the core needs of hybrid training users, athletes who combine strength, endurance, and recovery within a single training system.

Together with Balance Ultra and Helio Strap Pro, this supports our goal of building a differentiation position in hybrid training rather than competing only as another general-purpose wearable brand. Our sustained engagement with the HYROX and hybrid training communities has given us a deeper understanding of these athletes and their training needs. Balance also entered this product cycle with the benefit of several generations of accumulated product credibility and user trust. Another increasingly important source of the competitiveness is the product design language and the aesthetic capability we have established across our higher-end portfolio this year. The most direct way to understand this progress is to experience the products themselves, to see, touch, and wear them, and to appreciate not only their performance, but also their materials, form, and finish. Achieving both objectives at the same time requires significant engineering investment.

The broader use of the metal, more refined materials, and more sophisticated industrial design can affect antenna performance, wireless connectivity, positioning signals, and sensor sensitivity if they are not carefully engineered. Our ability to improve materials, craftsmanship, and design while maintaining a higher level of GPS connectivity, sensor, and sports performance is therefore not simple, an aesthetic achievement. We believe it is an important and increasingly differentiated technology capability. This capability is particularly visible in the new Balance generation. Balance 2 has a U.S. suggested retail price of $299.99. Balance 3 starts at $369.99. Balance 3 Titanium is priced at $499.99, and Balance Ultra at $599.99. Despite this meaningful step up in price, adoption of the new generation has developed quickly.

Balance 3 and the Balance Ultra together increased from approximately 3% of global Balance family activations in the second quarter to approximately 26% in July and approximately 30% through August 25. This was not simply a mix shift caused by the replacement of the earlier generation products. In July, total global Balance family activations increased by more than one-third compared with the monthly average in the second quarter. While activations of the earlier generation Balance products remain relatively stable. Balance 3 and Balance Ultra were announced in early June, with production and channel deployment ramping through July and August. Initial supply of certain titanium models began only in August. The earlier momentum we have observed validates our product direction and hybrid training strategy. However, the new generation has not yet reached the scale or made the financial contribution that we believe it ultimately can.

Taken together, these three families demonstrate different but complementary capabilities. T-Rex shows that we can sustain in a mature, higher-end structure. Active shows that we can establish a new price tier and scale the overall family. Balance shows that our strategic investment in hybrid training, product design, and engineering can support sustainably higher prices, incremental demand, and a differentiated market position. Bip provides the other side of our product strategy. A strong entry-level foundation combined with improving pricing discipline. Bip is our entry-level product family, anchored by Bip 6 in the sub-$100 U.S. dollar segment at a U.S. suggested retail price $79.99. Bip 6 was launched 17 months ago. Although its availability was constrained during the second quarter, demand remained very strong after supply recovered. This reinforced our confidence in the product's competitiveness and its ability to sustain a meaningful longer life cycle.

The longevity of Bip 6 is also supported by our vertically integrated technology stack. Our in-house processor platform was designed with meaningful computational headroom for continued optimization, while Zepp OS continues to become more capable and intelligent. Together, these capabilities allowed us to continue improving Bip 6 through software after launch without relying solely on a new hardware cycle. This strengthens the product's long-term value proposition and supports our confidence in a longer product life cycle. At the same time, Bip Max, which began contributing during the second quarter, has recently represented approximately one-third of global Bip family activations. This creates a more complete internal price ladder, while Bip 6 continues to provide a strong volume foundation.