P Rospectus S Ummary
PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our ADSs discussed under “Risk Factors,” before deciding whether to invest in our ADSs. This prospectus contains information from an industry report, dated December 19, 2017, commissioned by us and prepared by Frost & Sullivan, an independent research firm, to provide information regarding our industry and our market position in China and globally. We refer to this report as the “Frost & Sullivan Report.”Our Mission
We are transforming the way individuals connect with the Internet and with each other through smart wearable technology and data-driven innovations. Our mission is to make the world more connected.
Our Global Market Leadership
We are a biometric and activity data-driven company with significant expertise in smart wearable technology. We shipped 11.6 million units of smart wearable devices in the first nine months of 2017, more than any other company in the world, according to the Frost & Sullivan Report. As of September 30, 2017, we had shipped a total of 45.3 million devices since our inception in 2013, quickly establishing our global market position and recognition.
We believe we have one of the largest biometric and activity databases in the global smart wearables industry. Our mobile apps, Mi Fit and Amazfit, work hand in hand with our smart wearable devices and provide users with a comprehensive view and analysis of their biometric and activity data. As of September 30, 2017, our mobile apps had 49.6 million registered users, from whom we collect over 10 dimensions of measurement that include heart rate, ECG, weight, body fat compositions, GPS running track, steps, sleeping duration, etc. With a wide range of biometric and activity data from a large number of users, we are well-positioned to develop new application scenarios for smart wearable technology and drive innovation.
We have been the sole partner of Xiaomi Corporation, or Xiaomi, a 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, or Xiaomi Wearable Products. Our strategic cooperation agreement with Xiaomi grants us the most-preferred-partner status globally to develop future Xiaomi Wearable Products and provides us with significant business demand, allowing us to quickly commercially launch our products and ramp up our business. This large and visible demand, combined with our technological expertise, in turn enhances our control over our supply chain and drives our efficiency. Meanwhile, our strong research and development capabilities and innovative products enrich Xiaomi’s suite of offerings and enhance user loyalty, resulting in a mutually beneficial relationship between Xiaomi and us. As of September 30, 2017, we had sold 40.0 million Mi Band series of smart band products since its launch in July 2014. In addition to Xiaomi Wearable Products, we also leverage Xiaomi’s established distribution network to promote smart bands and watches under our own brand, Amazfit. Our cooperation with Xiaomi has been a major driver for our growth. Xiaomi is the sole customer and distribution channel for all of our Xiaomi Wearable Products, and sales of Xiaomi Wearable Products contributed 97.1%, 92.1% and 82.4% of our total revenues for 2015 and 2016 and the nine months ended September 30, 2017, respectively. See “Risk Factors—Risks Related to Our Business and Industry—Xiaomi is our most important customer and distribution channel. Any deterioration of our relationship with Xiaomi or reduction of sales of Xiaomi Wearable Products could have a material adverse effect on our operating results.” for more discussion on our dependence on Xiaomi.
We have achieved significant growth since our inception. Our revenues increased by 73.6% from RMB896.5 million in the year ended December 31, 2015 to RMB1,556.5 million (US$233.9 million) in the year ended December 31, 2016, and increased by 37.4% from RMB943.5 million for the nine months ended September 30, 2016 to RMB1,296.2 million (US$194.8 million) for the same period of 2017. We recorded a net loss of RMB37.9 million in the year ended December 31, 2015, which improved to a net income of RMB23.9 million (US$3.6 million) in December 31, 2016. For the nine months ended September 30, 2017, we had a net income of RMB95.1 million (US$14.3 million), compared to a net loss of RMB19.0 million for the nine months ended September 30, 2016. Our adjusted net income, which excludes share-based compensation expenses, increased from RMB18.1 million in the year ended December 31, 2015 to RMB81.7 million (US$12.3 million) in the year ended December 31, 2016, and increased from RMB24.3 million for the nine months ended September 30, 2016 to RMB143.7 million (US$21.6 million) for the same period of 2017. See “—Summary Consolidated Financial and Operating Data—Non-GAAP Measures” for a reconciliation of adjusted net income to net income.
Market Opportunity and Powerful Trends
The global smart wearables market has been growing rapidly and the momentum is expected to continue in the near future. According to the Frost & Sullivan Report, between 2014 and 2016, the global smart wearables market size increased from US$1.7 billion in 2014 to US$16.0 billion in 2016, and shipment volume increased from 29.3 million devices in 2014 to 102.9 million devices in 2016. By 2021, the global smart wearables market size is expected to reach US$46.2 billion, representing a five-year compound annual growth rate, or CAGR, of 23.6% from 2016 to 2021, with shipment volume of 281.9 million devices, representing a CAGR of 22.3% for the same period, according to the Frost & Sullivan Report. In 2015, China surpassed the U.S. to become the largest smart wearables market in terms of shipment volume and is expected to continue to experience the highest growth rate among major markets, according to the same source.
We believe smart wearable technology and biometric application scenarios, including those for sports and fitness, are redefining the way individuals connect with devices, the Internet and each other. The seamless manner in which smart wearable technology enables interaction with and data collection from users makes the aggregation and analytics of a broader and more diversified set of biometric and activity data possible, driving innovation. Rapidly-expanding application scenarios, powered by continually-refined algorithms and AI technology, are in turn driving the creation of next-generation products. Furthermore, the exponential growth in data collected by smart wearable technology companies is driving new business models and monetization opportunities.
We believe the following are the key trends driving the demand for smart wearable technology:
Competitive Strengths
We believe the following competitive strengths contribute to our success and differentiate us from our competitors:
Our Strategies
We plan to pursue the following strategies to achieve our mission:
Our Challenges
Our ability to achieve our mission and execute our strategies is subject to risks and uncertainties, including those relating to our ability to:
Recent Developments
The following sets forth our selected unaudited financial data for the two months ended November 30, 2017 and certain operating data for the fourth quarter of 2017.
Our selected unaudited financial data for the two months ended November 30, 2017 and certain operating data for the fourth quarter of 2017 may not be indicative of our financial results for future interim periods or for the full year ended December 31, 2017. Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus for information regarding trends and other factors that may affect our results of operations.
The table below sets forth a reconciliation of our adjusted net income to net income for the period indicated. See “—Summary Consolidated Financial and Operating Data—Non-GAAP Measures” for further explanation.
Corporate History and Structure
We commenced operations in December 2013 through Anhui Huami Information Technology Co., Ltd., or Anhui Huami, to develop, manufacture and sell smart wearable devices. In July 2014, we incorporated Huami (Beijing) Information Technology Co., Ltd., or Beijing Huami, to expand our operation.
In December 2014, we incorporated Huami Corporation in Cayman Islands as our offshore holding company to facilitate financing and offshore listing. Shortly following its incorporation, Huami Corporation established a wholly-owned Hong Kong subsidiary, Huami HK Limited. From December 2014 to April 2015, our Cayman holding company Huami Corporation issued ordinary shares and preferred shares to the holding vehicles of the then shareholders of Anhui Huami, in proportion to these shareholders’ then respective equity interest percentages in Anhui Huami.
In February 2015, Huami HK Limited established a wholly-owned subsidiary in China, Beijing Shunyuan Kaihua Technology Co., Ltd., which we refer to as Shunyuan Kaihua or our WFOE in this prospectus. Our WFOE later entered into a series of contractual arrangements with Anhui Huami, Beijing Huami, which two entities we collectively refer to as our VIEs in this prospectus, and their respective shareholders. These contractual arrangements enable us to (i) exercise effective control over our VIEs, (ii) receive substantially all of the economic benefits of our VIEs, and (iii) have an exclusive option to purchase all or part of the equity interests in and assets of them when and to the extent permitted by PRC law. For more details, please see “Corporate History and Structure—Contractual Arrangements with the VIEs and Their Respective Shareholders.”
As a result of our direct ownership in our WFOE and the VIE contractual arrangements, we are regarded as the primary beneficiary of our VIEs, and we treat them and their subsidiaries as our consolidated affiliated entities under U.S. GAAP. We have consolidated the financial results of our VIEs and their respective subsidiaries in our consolidated financial statements in accordance with U.S. GAAP.
Currently, our officers, directors and principal shareholders collectively hold 89.1% of the total voting power in our Company. They will continue to have a substantial control of us and hold % of total voting power immediately after this offering.
The chart below summarizes our corporate structure and identifies our subsidiaries, our VIEs and their subsidiaries, as of the date of this prospectus:
Notes:
Implication of Being an Emerging Growth Company
As a company with less than US$1.07 billion in revenue for our last fiscal year, we qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements compared to those that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. However, we have elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
We will remain an emerging growth company until the earliest of (a) the last day of the fiscal year during which we have total annual gross revenues of at least US$1.07 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (c) the date on which we have, during the preceding three-year period, issued more than US$1.07 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our ADSs that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.
Corporate Information
Our principal executive offices are located at Building H8, No. 2800, Chuangxin Road, Hefei, 230088, People’s Republic of China. Our telephone number at this address is +86 551-65837200. Our registered office in the Cayman Islands is located at offices of Maples Corporate Services Limited at PO Box 309 Ugland House, Grand Cayman, KY1-1104, Cayman Islands.
Investors should submit any inquiries to the address and telephone number of our principal executive offices. Our main website is www.huami.com. The information contained on our website is not a part of this prospectus. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 801 2nd Avenue, Suite 403, New York, New York 10017.
Conventions that Apply to this Prospectus
Unless otherwise indicated or the context otherwise requires, references in this prospectus to:
All shipment volume and devices sold data include sales of smart bands, watches and scales, net of any return, and exclude sales of accessories. Unless the context indicates otherwise, all information in this prospectus assumes no exercise by the underwriters of their over-allotment option.