Huami Corporation (HMI) Misses Q1 EPS by 11c, Revenues Beat

Huami Corporation (NYSE: HMI) reported Q1 EPS of $0.06, $0.11 worse than the analyst estimate of $0.17. Revenue for the quarter came in at $153.7 billion versus the consensus estimate of $151.76 billion.

First Quarter 2020 Financial and Operating Highlights

• Revenues reached RMB1,088.5 million (US$153.7 million), representing an increase of 36.1% from the first quarter of 2019.
• Gross margin was 22.5% for the first quarter of 2020.
• Net income attributable to Huami Corporation was RMB19.2 million (US$2.7 million).
• Basic and diluted net income per American depositary share ("ADS") attributable to ordinary shareholders of Huami Corporation was RMB0.31 (US$0.04) and RMB0.30 (US$0.04), respectively. Each ADS represents four (4) Class A ordinary shares.
• Adjusted net income attributable to Huami Corporation[1] was RMB25.5 million (US$3.6 million).
• Adjusted basic and diluted net income per ADS attributable to ordinary shareholders of Huami Corporation[2] was RMB0.41 (US$0.06) and RMB0.39 (US$0.06), respectively. Each ADS represents four (4) Class A ordinary shares.
• Total units shipped reached 7.6 million, compared with 5.6 million in the first quarter of 2019.

Impact of the COVID-19 Pandemic on Our Operations

COVID-19 had a severe and negative impact on the Chinese and the global economy in the first quarter of 2020. The quantity of our products manufactured reduced in January and February 2020 as our contracted manufacturing facilities were temporarily shut down. While these manufacturing facilities have been ramping-up since March, our supply chain, production, and sales in the first quarter of 2020 were all impacted, resulting lower than initially projected growth rates and gross margin. In the second quarter, the COVID-19 continues to impact global economy, including the demand of our products in oversea markets. We have reflected this impact within our view in the "outlook" section provided below, and we will monitor the COVID-19 impact continuously.

"Despite the unprecedented challenges created by the COVID-19 pandemic, brand recognition, new product launches and successful marketing spearheaded solid first quarter revenue growth of 36.1%," said Wang Huang, Chairman and CEO of Huami. "In addition to the aforementioned revenue drivers, we also made solid headway in international markets, with a keen focus on the market nuances of each key region and a multi-channel strategy including both direct sales and third-party sales channels.

"At this year's CES, we kicked off our brand extension initiative as we introduced new product categories, including ear buds and interactive treadmills. With these two categories in particular, we are taking another significant step in building a comprehensive health and fitness ecosystem as part of our 'Connect Health with Technology' aspirations. In terms of alliances, our continued partnership with Xiaomi remains productive with the launch of the Mi-Band 5 scheduled later in 2020. Additionally, we are very pleased to partner with the respiratory diseases team of Dr. Zhong Nanshan to jointly establish a laboratory for studies on monitoring respiratory diseases using wearable devices. With this, we expect to make contributions in the global fight against the COVID-19 pandemic, and utilize our smart wearable devices to establish a cloud-based service system for epidemic prediction and early warning in the future. With our brand's rising popularity, our strengthening sales channels and new product and line extensions in the works, we are confident the underlying demand for our products remain strong and we will look to continue delivering sustainable growth and healthy profitability once the impact from the pandemic eases."

David Cui, Chief Financial Officer, added, "We rose to the challenge and are pleased with the resilience of our first quarter revenue growth during these uncertain times. We achieved solid unit sales of both self-branded products and Mi-Band 4, shipping 7.6 million units in the first quarter, a 35.7% rise from the same period last year. Despite of the impact of the COVID-19 pandemic that many other companies are also facing, we still kept our robust revenue growth, and remained profitable in this challenging time period. This was driven by increasing brand awareness and adoption of our products by users both domestically and in the overseas market.

"During the first quarter, we continue to push investments in both R&D and sales and marketing, as product innovation and sales channel integrity are key components of our success. While we have seen some shortage impacts on our product manufacturing due to disruptions to our supply chain during the quarter, we are optimistic of stronger profitability in the long term as the pandemic, along with its impact, runs its course."

Outlook

For the second quarter of 2020, the management of the Company currently expects:

• Net revenues to be between RMB1.0 billion and RMB1.05 billion, compared with RMB1.04 billion for the second quarter of 2019.

The above outlook 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.

For earnings history and earnings-related data on Huami Corporation (HMI) click here.

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