Huami Corporation Reports Third Quarter 2020 Unaudited Financial Results

BEIJING,Nov.23,2020 -- Huami Corporation (NYSE: HMI) today reported revenue of RMB2.2 billion,or US$329.2 million; GAAP diluted net income per share of RMB0.31 (US$0.05),or GAAP diluted net income per ADS of RMB1.24(US$0.18) for the third quarter ended September 30,2020.

"Third quarter unit and revenue growth of 16% and 20%,respectively,was predominantly driven by shipments of the Xiaomi Mi Band 5,continued geographic expansion,and the effect of improved economic conditions in many regions," said Wang Huang,Chairman and CEO of Huami. "We are continuing our strategy as a value leader,leveraging our proprietary technology to drive feature set/price points that are attractive to many budget ranges,and we launched a number of promising new products in the third quarter. At the same time we are continuing to explore the healthcare services business with our partners like Prudential Asia,in order to capture the opportunities in the fast-growing healthcare service industry."

"We continue to manage the business for long-term success," added chief financial officer Leon Deng. "However,we experienced some new products launch plan delays and production delays due to the pandemic,and resurgence of the virus in many key markets tempers our near-term outlook. As a result,we will be exercising control on expenses in the coming quarter by focusing on projects with higher return on investment."

Third Quarter 2020 Financial Summary

For the Three Months Ended

For the Nine Months Ended

GAAP in millions,except percentages and per share

amounts

Sept. 30,2020

Sept. 30,2019[1]

Sept. 30,2019[1]

Revenue RMB

2,235.1

1,862.5

4,460.8

3,700.8

Revenue USD

329.2

260.6

657.0

517.8

Gross Margin

20.6%

25.2%

21.5%

26.1%

Net income attributable to Huami

Corporation RMB

81.1

203.3

113.5

368.0

Adjusted net income attributable to Huami

Corporation RMB[2]

120.8

209.8

165.5

416.6

Diluted net income per share RMB

0.31

0.79

0.44

1.43

Diluted net income per ADS USD

0.18

0.44

0.26

0.80

Adjusted diluted net income per share RMB[3]

0.46

0.81

0.64

1.62

Adjusted diluted net income per ADS USD

0.27

0.45

0.38

0.91

Units Shipped

15.9

13.7

32.4

27.6

[1] The USD numbers in 2019 are referenced with the prior 6-K disclosures.

[2] Adjusted net income attributable to Huami Corporation is a non-GAAP measure,which excludes share-based compensation expenses. See "Reconciliation of GAAP and Non-GAAP Results" at the end of this press release.

[3]Adjusted diluted net income is the abbreviation of Adjusted net income attributable to ordinary shareholders of Huami Corporation,which is a non-GAAP measure and excludes share-based compensation expenses attributable to ordinary shareholders of Huami Corporation,and is used as the numerator in computation of adjusted basic and diluted net income per ADS attributable to ordinary shareholders of Huami Corporation.

Management's Discussion and Analysis

Revenue

Total units shipped in the third quarter 2020 increased 16.1% year-over-year,reaching 15.9 million,compared with 13.7 million in the third quarter of 2019. Third quarter revenues reached RMB2,235.1 million (US$329.2 million),an increase of 20% from the third quarter of 2019. The increase in the quarter was driven primarily by sales through Xiaomi,principally the new Mi Band 5. Sales of self-branded products in the third quarter were primarily driven by new products,including the new Amazfit watches and TWS earbuds. Both sequential and year-over-year quarterly revenue changes can be affected by seasonality of purchase patterns globally,as well as by timing of new product introductions.

Covid-19 Impact

The negative impact of Covid-19 receded in Q3 on retail sales and the worldwide economy generally. China's GDP rose 5% in the third quarter,some sectors of European retail were stronger,and U.S. retail sales increased 5% in September. We believe this was a contributing factor to Huami's growth in the third quarter,and we experienced a significant rebound and growth of device activations in most of the markets during the quarter,compared sequentially to the June quarter.

Productiondelays related to the pandemic in the quarter delayed the launch date of a new product and affected new product inventory availability.

Currently,it is reported that a new resurgence of COVID-19 cases is widely around the world,including the U.S.,many European countries,Russia,and Japan. Renewed restrictions are being implemented and considered. We expect this resurgence to negatively impact our customers and fourth quarter sales of our key product categories.

Longer-term,smart health technology plays a unique and important role in healthcare,as outlined in a recent white paper published by the company. Industry forecasts and research into consumer adoption and use of wearables and personal health technology still point to strong future demand. However,the company expects the near-term disruptions to daily life on a global scale will impact the fourth quarter,and are setting its expectations accordingly.

Gross Margin

Gross margin in the third quarter 2020 was 20.6%,compared with25.2% in the year-ago third quarter. Gross margin and gross profit are affected by product mix as different products have different margin contributions,and these can change over the life of a product. In the third quarter 2020,mix between total Xiaomi and self-branded unit shipments was the same as the prior year's quarter,but gross margin was predominantly driven by lower margins on Xiaomi products compared to the year-ago quarter.

Research & Development

Third quarter 2020 R&D expense was RMB172.9 million,increasing 38.8% year-over year,and comprised 7.7% of revenue,compared to 6.7% of revenue in the year-ago third quarter,reflecting personnel additions and expansion of R&D activities for future products and new product categories,including consumer products and analytics solutions for industry. The company believes that smart R&D investment is key,and that at this percent of sales level is adequately resourced to effectively develop and bring to market new smart devices and analytics for consumers and industry.

Sales & Marketing

Sales and Marketing expense for the third quarter 2020 was RMB115.6 million,increasing 104.2% year-over-year,and comprised 5.2% of revenue,compared to 3.0% of revenue in the year-ago quarter. Higher sales and marketing expense in 2020 was mainly driven by brand promotions for our own branded products globally.

General & Administrative

General and Administrative expense was RMB91.0 million,increasing 30.8% year-over-year,and comprised 4.1% of revenue,compared to 3.7% in the 2019 third quarter. The increase is primarily due to an increase in share-based compensation.

Operating Income and Expenses

Total Operating Expense for the third quarter 2020 was RMB379.5 million,up 51.3% from the year-ago quarter,reflecting the investments in R&D,Sales and Marketing and G&A described in the preceding sections. Total operating expense represented 17.0% of revenue in the third quarter 2020 compared to 13.5% in the year-ago quarter.The company will be exercising control on expenses in the fourth quarter,focusing on costs as a percent of sales.

Operating Income for the third quarter 2020 was RMB80.6 million,down 63.2% from RMB219.1 million in the year-ago quarter.

Liquidity and Capital Resources

At September 30,2020,the Company had cash and cash equivalents of RMB2,555.6 million (US$376.4 million),compared with RMB1,803.1 million as of December 31,2019.

Outlook

For the fourthquarter of 2020,the management of the Company currently expects:

- Net revenues to be between RMB1.95billionand RMB2.15billion,compared with RMB2.11 billion in the fourth 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.

Conference Call

The Company's management will hold a conference call at 7:30 a.m. Eastern Standard Time on Monday,November 23,2020 (8:30 p.m. Beijing Time on November 23,2020) to discuss financial results and answer questions from investors and analysts. Listeners may access the call by dialing:

US (Toll Free):

+1-888-346-8982

International:

+1-412-902-4272

Mainland China (Toll Free):

400-120-1203

Hong Kong (Toll Free):

800-905-945

Hong Kong:

+852-3018-4992

Participants should dial-in at least 10 minutes before the scheduled start time and ask to be connected to the call for "Huami Corporation."

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

A telephone replay will be available one hour after the call until November 30,2020 by dialing:

US Toll Free:

+1-877-344-7529

International:

+1-412-317-0088

Replay Passcode:

10149826

About Huami Corporation

Huami's mission is to connect health with technology. Since its inception in 2013,Huami has developed a platform of proprietary technology including AI chips,biometric sensors,and data algorithms,which drive a broadening line of smart health products for consumers,and analytics services for industry. In 2019,Huami shipped 42.3million units of smart watches and fitness bands,including its own Amazfit brand,and products developed and manufactured for Xiaomi,comprising 26% of global category shipments[4]. Huami Corporation is based in Hefei,China,with U.S. operations,Huami-USA,based in Cupertino,Calif. For more information,please visit https://www.huami.com/investor/pages/company-profile.

[4]IDC,Correcting and Replacing Shipments of Wearable Devices,3/10/20

Use of Non-GAAP Measures

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 impact on income tax.Adjusted net income attributable to ordinary shareholders of Huami Corporation is a non-GAAP measure,which excludes share-based compensation expenses attributable to ordinary shareholders of Huami Corporation,and is used as the numerator in computation of adjusted net income per share attributable to ordinary shareholders of Huami Corporation.

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

Adjusted net income and adjusted net income attributable to ordinary shareholders,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 and adjusted net income attributable to ordinary shareholders,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.

Exchange Rate

The Company's business is primarily conducted in China and the significant majority of revenues generated are denominated in Renminbi ("RMB"). This announcement contains currency conversions of RMB amounts into U.S. dollars ("US$") solely for the convenience of the reader. Unless otherwise noted,all translations from RMB to US$ are made at a rate of RMB6.7896 to US$1.00,the effective noon buying rate for September 30,2020 as set forth in the H.10 statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have been,or could be,converted,realized or settled into US$ at that rate on September30,or at any other rate.

Safe Harbor Statement

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 United States Securities and Exchange Commission. 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.

For investor and media inquiries,please contact:

In China:

Huami Corporation

Grace Yujia Zhang

E-mail: ir@huami.com

The Piacente Group,Inc.

Yang Song

Tel: +86-10-6508-0677

E-mail: huami@tpg-ir.com

In the United States:

Huami Corporation

Brad Samson

Tel: 1+714-955-3951

E-mail: brad.samson@huami-usa.com

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,

As of September 30,

2019

2020

RMB

RMB

US$

Assets

Current assets:

Cash and cash equivalents

1,803,117

2,555,561

376,393

Restricted cash

874

2,404

354

Term deposit

-

200,000

29,457

Accounts receivable

188,940

157,983

23,268

Amounts due from related parties,current

1,421,170

1,312,677

193,336

Inventories

893,806

1,100,458

162,080

Short-term investments

17,187

18,118

2,668

Prepaid expenses and other current assets

67,358

101,982

15,020

Total current assets

4,392,452

5,449,183

802,576

Property,plant and equipment,net

64,350

106,771

15,726

Intangible asset,net

85,753

158,334

23,320

Goodwill

5,930

70,980

10,454

Long-term investments

406,099

336,759

49,599

Deferred tax assets

102,649

128,794

18,969

Other non-current assets

8,828

15,405

2,269

Non-current operating lease right-of-use assets

108,682

168,266

24,783

Total assets

5,174,743

6,434,492

947,696

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,

2019

2020

RMB

RMB

US$

Liabilities

Current liabilities:

Accounts payable

1,999,951

2,215,864

326,361

Advance from customers

44,793

41,865

6,166

Amount due to related parties,current

14,769

7,565

1,114

Accrued expenses and other current liabilities

352,249

291,108

42,875

Income tax payables

67,854

34,052

5,015

Notes payable

2,184

-

-

Bank borrowings

-

814,207

119,920

Total current liabilities

2,481,800

3,404,661

501,451

Deferred tax liabilities

5,399

21,646

3,188

Long-term borrowing

-

60,000

8,837

Other non-current liabilities

113,596

172,254

25,370

Non-current operating lease liabilities

76,360

125,020

18,413

Total liabilities

2,677,155

3,783,581

557,259

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,

2019

2020

RMB

RMB

US$

Equity

Ordinary shares

155

156

23

Additional paid-in capital

1,478,902

1,533,475

225,856

Accumulated retained earnings

910,612

1,024,161

150,843

Accumulated other comprehensive income

111,081

95,274

14,032

Total Huami Corporation shareholders' equity

2,500,750

2,653,066

390,754

Non-controlling interests

(3,162)

(2,155)

(317)

Total equity

2,497,588

2,650,911

390,437

Total liabilities and equity

5,696

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 September 30,

2019

2020

RMB

RMB

US$

Revenues

1,862,531

2,235,093

329,194

Cost of revenues

1,670

1,775,017

261,432

Gross profit

469,861

460,076

67,762

Operating expenses:

Selling and marketing

56,631

115,617

17,029

General and administrative

69,578

90,987

13,401

Research and development

124,538

172,891

25,464

Total operating expenses

250,747

379,495

55,894

Operating income

219,114

80,581

11,868

Other income and expenses:

Interest income

10,911

10,330

1,521

Other expenses,net

(1,971)

(5,754)

(847)

Gain from fair value change of long-term investment

-

3,304

487

Income before income tax

228,054

88,461

13,029

Income tax expenses

(27,518)

(8,437)

(1,243)

Income before loss from equity method investments

200,536

80,024

11,786

Net incomefrom equity method investments

2,878

2,472

364

Net income

203,414

82,496

12,150

Less: Net income attributable to non-controlling interest

77

1,422

209

Net income attributable to Huami Corporation

203,337

81,074

11,941

Net income attributable to ordinary shareholders ofHuami

Corporation

203,941

Net income per share attributable to ordinary

shareholders of Huami Corporation

Basic income per ordinary share

0.83

0.33

0.05

Diluted income per ordinary share

0.79

0.31

0.05

Net incomeper ADS (4 ordinary shares equal to 1 ADS)

ADS – basic

3.31

1.30

0.19

ADS – diluted

3.15

1.24

0.18

Weighted average number of shares used in computingnet

incomeper share

Ordinary share – basic

245,934,981

248,748,630

248,630

Ordinary share – diluted

258,343,485

260,829,357

260,357

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,

2019

2020

RMB

RMB

US$

Net income attributable to Huami Corporation

203,941

Share-based compensation expenses

6,491

39,723

5,851

Adjusted net income attributable to Huami

Corporation

209,828

120,797

17,792

For the Three Months Ended September 30,

2019

2020

RMB

RMB

US$

Net income attributable to ordinary shareholders

ofHuami Corporation

203,941

Share-based compensation expenses attributable to

ordinary shareholders of Huami Corporation

6,851

Adjusted net income attributable to ordinary

shareholders of Huami Corporation[2]

209,792

Adjusted net income per share attributable to

ordinary shareholders of Huami Corporation

Adjusted basic income per ordinary share

0.85

0.49

0.07

Adjusted diluted income per ordinary share

0.81

0.46

0.07

Adjusted net incomeper ADS (4 ordinary sharesequal

to 1 ADS)

ADS – basic

3.41

1.94

0.29

ADS – diluted

3.25

1.85

0.27

Weighted average number of shares used in

computing net income per share

Ordinary share – basic

245,357

Share-based compensation expenses included

are follows:

Cost of revenues

8

-

-

Selling and marketing

647

556

82

General and administrative

4,130

21,033

3,098

Research and development

1,706

18,134

2,671

Total

6,491

39,723

5,851

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 Nine Months Ended September 30,

2019

2020

RMB

RMB

US$

Revenues

3,700,842

4,460,828

657,009

Cost of revenues

2,736,224

3,502,809

515,908

Gross profit

964,618

958,019

141,101

Operating expenses:

Selling and marketing

119,219

241,802

35,614

General and administrative

165,900

197,293

29,058

Research and development

290,669

408,434

60,156

Total operating expenses

575,788

847,529

124,828

Operating income

388,830

110,490

16,273

Other income and expenses:

Interest income

23,204

31,668

4,664

Other income (expenses),net

2,842

(13,772)

(2,028)

Gain from fair value change of long-term investment

-

4,597

677

Income before income tax

414,876

132,983

19,586

Income tax expenses

(50,552)

(12,956)

(1,908)

Income before loss from equity method investments

364,324

120,027

17,678

Net income (loss) from equity method investments

2,647

(5,471)

(806)

Net income

366,971

114,556

16,872

Less: Net income (loss) attributable to non-controlling interest

(1,014)

1,007

148

Net income attributable to Huami Corporation

367,985

113,549

16,724

Less: Undistributed earnings allocated to participatingnonvested restricted shares

2,102

-

-

Net income attributable to ordinary shareholders ofHuami Corporation

365,883

113,724

Net income per share attributable to ordinary

shareholders of Huami Corporation

Basic income per ordinary share

1.51

0.46

0.07

Diluted income per ordinary share

1.43

0.44

0.06

Net incomeper ADS (4 ordinary shares equal to 1 ADS)

ADS – basic

6.03

1.83

0.27

ADS – diluted

5.73

1.75

0.26

Weighted average number of shares used in computingnet incomeper share

Ordinary share – basic

242,542,392

248,080,549

248,549

Ordinary share – diluted

255,322,189

259,723,569

259,569

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,

2019

2020

RMB

RMB

US$

Net income attributable to Huami Corporation

367,724

Share-based compensation expenses

48,579

51,936

7,649

Adjusted net income attributable to Huami

Corporation

416,564

165,485

24,373

For the Nine Months Ended September 30,

2019

2020

RMB

RMB

US$

Net income attributable to ordinary shareholders

ofHuami Corporation

365,724

Share-based compensation expenses attributable

to ordinary shareholders of Huami Corporation

48,301

51,649

Adjusted net income attributable to ordinary

shareholders of Huami Corporation[2]

414,184

165,373

Adjusted net income per share attributable to

ordinary shareholders of Huami Corporation

Adjusted basic income per ordinary share

1.71

0.67

0.10

Adjusted diluted income per ordinary share

1.62

0.64

0.09

Adjusted net incomeper ADS (4 ordinary sharesequal

to 1 ADS)

ADS – basic

6.83

2.67

0.39

ADS – diluted

6.49

2.55

0.38

Weighted average number of shares used in

computing net income per share

Ordinary share – basic

242,569

Share-based compensation expenses included

are follows:

Cost of revenues

47

(54)

(8)

Selling and marketing

2,557

1,820

268

General and administrative

36,539

28,963

4,266

Research and development

9,436

21,207

3,123

Total

48,579

51,936

7,649

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