hmi-ex991

Huami Corporation Reports Fourth Quarter and Full Year 2017 Unaudited Financial Results

BEIJING, March 26, 2018 /PRNewswire/ -- Huami Corporation (“Huami” or the “Company”) (NYSE:HMI), a biometric and activity data-driven company with significant expertise in smart wearable technology, today announced its unaudited financial results for the fourth quarter and full year ended December 31, 2017.

“We are pleased to report strong full year 2017 results in our first reporting quarter as an NYSE-listed company,” said Wang Huang, Chairman and CEO. “Revenues grew by 31.6% in 2017 year-over-year and were driven by strong sales of Xiaomi wearable products and the launch of new products in our own Amazfit-branded product line. We sold over 1 million Amazfit products in 2017, which accounted for approximately 20% of our total revenue.

“Our investments in research and development bore fruit in 2017, and more importantly position us well for the future,” Mr. Huang continued. “As one example, our Amazfit Health Band was among the first commercially available ECG-enabled wearable products that was approved by the Chinese FDA, and allowed us to successfully enter the healthcare vertical. We continue to look for ways to further penetrate healthcare, public transportation, smart home and office, and mobile payment as part of our extensive product and service development.

“We are competitively well positioned and are excited about our prospects in 2018 as we further develop our Chinese presence and explore international market opportunities,” Mr. Huang concluded. “Our relationship with Xiaomi as its sole partner for smart wearables is strong, and we remain committed to developing cutting edge, affordable products under both the Xiaomi and Amazfit brands including the expected launch of the Mi Band 3 in 2018. In addition, we continue to identify ways to leverage relationships with millions of active users through the increased functionality of our products which serves to strengthen our brand in all markets we serve.”

David Cui, Chief Financial Officer, said, “In addition to solid top-line results, we also reported robust growth in net income attributable to Huami Corporation for 2017, which reached RMB167.7 million, up 600.3% from 2016. Our gross margin for the year also showed healthy improvement climbing to 24.1% from 17.7% in 2016. Strong demand for the Mi Band 2 lengthened the product cycle, and benefits from supply chain efficiencies and economies of scale were the drivers for margin improvement. As we look to 2018 and expanding the products in our portfolio, we will do so with a keen eye on cost control and managing efficiencies.”

Revenues increased by 22.8% to RMB752.6 million (US$115.7 million) from RMB613.0 million in the fourth quarter of 2016, primarily due to an increase in the sales of self-branded products.

Cost of revenues increased by 19.8% to RMB585.8 million (US$90.0 million) from RMB489.1 million in the fourth quarter of 2016. The increase was largely in line with the rapid sales growth of self-branded products.

Gross profit increased by 34.7% to RMB166.8 million (US$25.6 million) from RMB123.9 million in the fourth quarter of 2016. Gross margin increased to 22.2% from 20.2% in the fourth quarter of 2016. The increase was driven by improved economies of scale as a result of the lengthened product cycle of the Mi Band 2 as well as supply chain efficiencies.

Total operating expenses increased by 13.7% to RMB92.0 million (US$14.1 million) from RMB80.9 million in the fourth quarter of 2016.

Research and development expenses increased by 31.9% to RMB45.2 million (US$7.0 million) from RMB34.3 million for the fourth quarter of 2016, primarily due to an increase in expenditures for mobile application development.

General and administrative expenses decreased by 3.6% to RMB32.5 million (US$4.9 million) from RMB33.6 million for the fourth quarter of 2016, primarily due to a decrease in foreign exchange loss.

Selling and marketing expenses increased by 10.2% to RMB14.3 million (US$2.2 million) from RMB13.0 million for the fourth quarter of 2016, primarily due to an increase in expenses to promote self-branded products through e-commerce platforms.

Operating income was RMB74.8 million (US$11.5 million), representing a 74.3% increase from RMB42.9 million for the fourth quarter of 2016.

Income before income tax increased by 58.3% to RMB79.9 million (US$12.3 million) from RMB50.5 million for the fourth quarter of 2016.

Income tax expenses was RMB12.1 million (US$1.9 million), compared with RMB6.8 million for the fourth quarter of 2016.

Net income attributable to Huami Corporation totaled RMB72.3 million (US$11.1 million), up 68.2% from RMB43.0 million for the fourth quarter of 2016.

Basic and diluted net income per share attributable to ordinary shareholders of Huami Corporation was RMB0.33 (US$0.05) and RMB0.32 (US$0.05), respectively, compared with basic and diluted net income per share of RMB0.18 and RMB0.17, respectively, for the fourth quarter of 2016.

Pro forma basic and diluted net income per share attributable to ordinary shareholders of Huami Corporation was RMB0.39 (US$0.06) and RMB0.37 (US$0.06), respectively, for the fourth quarter of 2017.

Adjusted net income attributable to Huami Corporation, which excludes share-based compensation expenses, increased by 50.8% to RMB86.5 million (US$13.3 million) from RMB57.4 million for the fourth quarter of 2016.

Revenues increased by 31.6% to RMB2,048.9 million (US$314.9 million) from RMB1,556.5 million in the full year of 2016, primarily due to an increase in the sales of both self-branded products and Xiaomi wearable products.

Cost of revenues increased by 21.4% to RMB1,554.2 million (US$238.9 million) from RMB1,280.3 million in full year of 2016. This increase was in line with the rapid growth of sales of products.

Gross profit increased by 79.1% to RMB494.7 million (US$76.0 million) from RMB276.2 million in the full year of 2016. Gross margin increased to 24.1% from 17.7% in the full year 2016. The increase in gross margin was primarily attributable to improved economies of scale as a result of the lengthened product cycle of the Mi Band 2, improved supply chain efficiencies and a change in the product mix.

Total operating expenses increased by 19.0% to RMB312.7 million (US$48.1 million) from RMB262.8 million for the full year of 2016.

Research and development expenses increased by 16.3% to RMB153.8 million (US$23.6 million) for the full year of 2017 from RMB132.3 million for the full year of 2016. The increase was primarily due to an increase in share-based compensation and personnel related costs expenses to retain the technology-related personnel as well as expenditures on application development.

General and administrative expenses increased by 11.9% to RMB114.9 million (US$17.7 million) from RMB102.6 million for the full year of 2016, primarily due to an increase in professional service fees, personnel-related costs and government fees and charges.

Selling and marketing expenses increased by 58.2% to RMB44.0 million (US$6.8 million) from RMB27.8 million for the full year of 2016, primarily due to an increase in personnel-related costs and an increase in expenses to promote self-branded products through e-commerce platforms.

Operating income was RMB182.0 million (US$28.0 million), representing a 1,259.7% increase from RMB13.4 million from the full year of 2016.

Income before income tax increased by 564.9% to RMB191.9 million (US$29.5 million) from RMB28.9 million for the full year of 2016.

Income tax expense was RMB27.6 million (US$4.2 million) compared with RMB3.1 million for the full year of 2016. The increase was attributable to an increase in taxable income.

Net income totaled RMB167.1 million (US$25.7 million), up 597.8% from RMB23.9 million for the full year of 2016.

Net income attributable to Huami Corporation was RMB167.7 millon (US$25.8 million), compared with RMB23.9 million for the full year of 2016.

Basic and diluted net income per share attributable to ordinary shareholders of Huami Corporation was RMB0.68 (US$0.10) and RMB0.65 (US$0.10), respectively, compared with basic and diluted net loss per share of RMB0.22 and RMB0.22, respectively, for the full year of 2016.

Pro forma basic and diluted net income per share attributable to ordinary shareholders of Huami Corporation was RMB0.90 (US$0.14) and RMB0.86 (US$0.13), respectively, for the full year of 2017.

Adjusted net income attributable to Huami Corporation, which excludes share-based compensation expenses, increased by 182.2% to RMB230.5 million (US$35.4 million), from RMB81.7 million for the full year of 2016.

As of December 31, 2017, the Company had cash and cash equivalents of RMB366.3 million (US$56.3 million), compared with RMB153.2 million as of December 31, 2016.

The above outlook is based on the current market conditions and reflects the Company’s current and preliminary estimates of market and operating conditions and customer demand, which are all subject to change.

Management will hold a conference call at 8:00 a.m. Eastern Time on Monday, March 26, 2018 (8:00 p.m. Beijing Time on March 26, 2018) to discuss financial results and answer questions from investors and analysts. Listeners may access the call by dialing:

A telephone replay will be available two hours after the call until April 2, 2018 by dialing:

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

Huami is a biometric and activity data-driven company with significant expertise in smart wearable technology. Since its inception in 2013, Huami has quickly established its global market leadership and recognition by shipping millions of units of smart wearable devices. In the first nine months of 2017, Huami shipped 11.6 million units of smart wearable devices, more than any other company in the world. Huami has one of the largest biometric and activity databases in the global smart wearables industry. Huami’s mobile apps work hand in hand with its smart wearable devices and provide users with a comprehensive view and analysis of their biometric and activity data. In addition to designing, manufacturing and selling smart bands and watches under its own Amazfit brand, Huami is the sole partner of Xiaomi, a leading mobile internet company and global consumer electronics brand, to design and manufacture Xiaomi-branded smart bands, watches (excluding children watches and quartz watches), scales and associated accessories.

Our initial public offering and its accompanying restructuring of share capital were completed in Feburary 2018. We therefore separately present here the basic and diluted net income per share on a pro forma basis to reflect the changes in our share capital that occurred subsequent to the balance sheet date, specifically including (i) the automatic conversion of all of our preferred shares outstanding as of December 31, 2017 into class B ordinary shares on a one-for-one basis, (ii) the issuance of 12,064,825 class B ordinary shares to preferred shareholders immediately prior to our initial public offering, and (iii) the sale of 41,600,000 class A ordinary shares in the form of ADSs by us in our initial public offering.

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 impacts on income tax.

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

Adjusted net income, should not be considered in isolation or construed as an alternative to net income, basic and diluted net income per share attributable to ordinary shareholders of Huami 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, 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.

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 SEC. 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.

HUAMI 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,
	2016		2017		2017
			Unaudited		Unaudited
	RMB		RMB		US$
Assets
Current assets:
Cash and cash equivalents		153,152		366,336		56,305
Restricted cash		—		3,185		489
Accounts receivable (net of allowance of nil and nil as of December 31, 2016 and 2017, respectively)		19,707		32,867		5,052
Amounts due from related parties, current (net of allowance of nil and nil as of December 31, 2016 and 2017, respectively)		476,698		578,454		88,907
Inventories		192,372		249,735		38,384
Short-term investments		9,236		13,721		2,109
Prepaid expenses and other current assets		8,678		51,062		7,847
Total current assets		859,843		1,295,360		199,093
Property, plant and equipment, net		10,801		28,755		4,420
Intangible asset, net		1,223		5,339		821
Goodwill		—		5,930		911
Long-term investments		78,057		74,875		11,508
Deferred tax assets		22,972		41,895		6,439
Other non-current assets		—		3,000		461
Total assets		972,896		1,455,154		223,653

	As of December 31,
	2016		2017		2017
			Unaudited		Unaudited
	RMB		RMB		US$
Liabilities
Current liabilities:
Accounts payable		524,072		707,782		108,784
Advance from customers		5,885		10,683		1,642
Amount due to related parties, current		23,500		8,143		1,252
Accrued expenses and other current liabilities		47,623		93,798		14,416
Income tax payables		20,628		21,600		3,320
Notes payable		2,662		5,243		806
Bank borrowings		10,000		30,000		4,611
Total current liabilities		634,370		877,249		134,831
Deferred tax liabilities		—		916		141
Amount due to a related party , non-current		—		3,076		473
Other non-current liabilities		—		4,940		759
Total liabilities		634,370		886,181		136,204

	December 31,
	2016			2017		2017
				Unaudited		Unaudited
	RMB			RMB		US$
Mezzanine equity
Series A convertible redeemable participating preferred shares		23,008			26,770		4,114
Series B-1 convertible redeemable participating preferred shares		23,779			26,906		4,135
Series B-2 convertible redeemable participating preferred shares		261,560			295,942		45,485
Total mezzanine equity		308,347			349,618		53,734
(Deficit)/Equity
Ordinary shares		56			56		9
Additional paid-in capital		50,822			72,427		11,132
Accumulated (deficit) retained earnings		(36,490	)		131,192		20,164
Accumulated other comprehensive income		15,791			13,291		2,043
Total Huami Corporation shareholders’ equity		30,179			216,966		33,348
Non-controlling interests		—			2,389		367
Total equity		30,179			219,355		33,715
Total liabilities, mezzanine equity and equity		972,896			1,455,154		223,653

HUAMI 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 December 31,									For the year ended December 31,
	2016			2017			2017			2016			2017			2017
				Unaudited			Unaudited						Unaudited			Unaudited
	RMB			RMB			US$			RMB			RMB			US$
Revenues		612,965			752,648			115,680			1,556,476			2,048,896			314,910
Cost of revenues		489,112			585,825			90,040			1,280,324			1,554,194			238,875
Gross profit		123,853			166,823			25,640			276,152			494,702			76,035
Operating expenses:
Selling and marketing		13,020			14,346			2,205			27,821			44,026			6,767
General and administrative		33,601			32,406			4,981			102,644			114,880			17,657
Research and development		34,296			45,237			6,953			132,304			153,827			23,643
Total operating expenses		80,917			91,989			14,139			262,769			312,733			48,067
Operating income		42,936			74,834			11,501			13,383			181,969			27,968
Other income and expenses:
Realized gain from investments		—			38			6			—			2,373			365
Interest income		108			1,540			237			754			3,003			462
Other income		7,439			3,489			536			14,726			4,555			699
Income before income tax		50,483			79,901			12,280			28,863			191,900			29,494
Income tax expense		6,819			12,149			1,867			3,088			27,611			4,244
Income before loss from equity method investments		43,664			67,752			10,413			25,775			164,289			25,250
(Loss)/income from equity method investments		(673	)		4,228			650			(1,829	)		2,806			431
Net Income		42,991			71,980			11,063			23,946			167,095			25,681
Less: Net loss attributable to non-controlling interest		—			(324	)		(50	)		—			(587	)		(90	)
Net income attributable to Huami Corporation		42,991			72,304			11,113			23,946			167,682			25,771
Less: Accretion of Series A Preferred Shares		842			976			150			3,209			3,762			578
Less: Accretion of Series B-1 Preferred Shares		712			803			123			2,738			3,127			481
Less: Accretion of Series B-2 Preferred Shares		7,831			8,831			1,357			30,121			34,382			5,284
Less: Undistributed earnings allocated to participating preferred shares and nonvested restricted shares		23,354			37,832			5,815			—			80,291			12,341
Net income/(loss) attributable to ordinary shareholders of Huami Corporation		10,252			23,862			3,668			(12,122	)		46,120			7,087
Net income/(loss) per share attributable to ordinary shareholders of Huami Corporation
Basic income/(loss) per ordinary share		0.18			0.33			0.05			(0.22	)		0.68			0.10
Diluted income/(loss) per ordinary share		0.17			0.32			0.05			(0.22	)		0.65			0.10

Weighted average number of shares used in computing net (loss)/ income per share
Ordinary share - basic		56,640,889			71,920,852			71,920,852			55,612,626			67,777,592			67,777,592
Ordinary share – diluted		64,750,677			80,507,984			80,507,984			55,612,626			76,291,901			76,291,901

HUAMI 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)

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