Hello, ladies and gentlemen, thank you for standing by for Viomi Technology Co., Ltd Earnings Conference Call for the First Quarter of 2020. [Operator Instructions]

I would now like to turn the call over to your host, Ms. Cecilia Li, the Senior IR Manager of the Company. Please go ahead, Cecilia.

Cecilia Li - Senior Investor Relations Manager

Thank you, operator. Hello, everyone and welcome to Viomi Technology Co., Ltd earnings conference call for the first quarter 2020. As a reminder, this conference is being recorded. The Company's financial and operating results were issued in a press release earlier today and are posted online. You can download earnings press release and sign up for the Company's e-mail distribution list by visiting the IR section of the Company's website at ir.viomi.com. Participating in today's call are Mr. Xiaoping Chen, the Founder, Chairman of the Board of Directors and Chief Executive Officer; and Mr. Shun Jiang, the Chief Financial Officer.

The Company's management will begin with prepared remarks and the call will conclude with a Q&A session. Before we continue, please note, today's discussion will contain forward-looking statements made under safe harbor provisions of the US 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 we express today.

Further information regarding these and other risks and uncertainties is included in the Company's Annual Report on Form 20-F and other filings as filed with the US Securities and Exchange Commission. The Company does not assume any obligation to update any forward-looking statements, except as required by law. Please also note Viomi's earnings press release and today's conference call also include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Viomi's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.

Now I will turn the call over to our Founder and CEO, Mr. Xiaoping Chen. Mr. Chen will deliver his remarks in Chinese followed immediately by English translation. Mr. Chen, please go ahead.

Xiaoping Chen - Founder, Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech]

Shun Jiang - Chief Financial Officer

Thank you, Xiaoping. This is Shun, Viomi's CFO. I'll quickly translate Mr. Chen's remarks before providing an operational update and discuss our financial performance for the first quarter of 2020.

Well, everyone thank you for joining our first quarter 2020 earnings conference call. Despite challenging industry conditions and ongoing macro uncertainties as a result of the COVID-19 outbreak, we successfully delivered better-than-expected results in the first quarter of 2020. Net revenues for the first quarter increased by 13.2% year-on-year to RMB766 million, demonstrating the resilience and diversified nature of our business, as well as our strong execution capabilities.

Since the beginning of the second quarter, our business and supply chain capabilities have largely returned back to normal. In addition, we have seen meaningful signs of an overall industry recovery. With these positive trends beginning to emerge, we have accelerated the execution of our growth strategy for this year under our 5G plus IoT strategic framework.

The development of 5G in China has accelerated rapidly. According to China 5G economic report 2020 released by China - released by The China Center for International Economic Exchanges, 5G users in China are expected to reach over 800 million by 2025. In March, the government proposed to speed up the establishment of 5G network infrastructure and expand application scenarios. The number of available 5G stations in China has reached over 200,000 by May, according to the data published by the Ministry of Industry and Information Technology of China.

With the trend of increasing 5G network penetration, we believe this will be one of the key potential growth drivers of industry growth in the near-term and beyond. We believe the upcoming 5G era will bring about call it revolutionary, technological enhancements in the IoT @ Home environment, product connectivity, algorithms, interactions and ecosystems, driving the evolution from product intelligence to scenario intelligence.

Viomi has been dedicated to exploring new technologies and applications in the 5G plus IoT space and expects to be at the forefront and the standard-bearer of 5G plus IoT for the home environment. Just last week, we hosted our 5G IoT Strategy and 2020 New Product Launch Event, where we outlined our vision and product strategy for the imminent 5G plus IoT era and emphasized our long-term strategic objectives.

We introduced a number of new and exciting product lines across our product portfolio, including the state-of-the-art 21Face Interactive Smart Screen TV. The product will come in four sizes, including a high end 75-inch model with 5G connectivity and 8G - 8K resolution, delivering stunning life like scenes. Equipped with industry leading specifications, users will be able to enjoy next generation content offerings with high-speed 5G connectivity, supported by 3D interactive sensors, long distance sensors and a 1080p HD camera, the product enables natural gesture and motion control, while integrating WiFi, Bluetooth, Zigbee and other protocols to deliver truly holistic IoT functionalities.

The launch of this product will be an important milestone in the realization of cross scenario and cross screen interactions and completes our vision for the fully integrated and screen field IoT @ Home lifestyle experience. In addition to introducing the smart TV as an interactive interface for IoT [Technical Issues] IoT @ Home, we also introduced our home private cloud service, home SaaS concept, offering rich media streaming content, cloud storage and improved AI interaction services, bringing users an enjoyable seamless experience, while protecting their privacy and data safety.

The development of our home cloud service together with other content and service offerings will allow us to provide users more intelligent IoT solutions based on the integration of software services and IoT products, with the support of Big Data and 5G infrastructure further expanding and enhancing the IoT @ Home experience and providing us with additional value creation opportunities.

In addition, we announced several exciting next-generation products at the event, including new lines of water purifiers, with revolutionary water purification technologies such as the ROX 1600 gallon water pure - purifier product, with unique next generation, large flux reverse osmosis capabilities. Other additions to our product portfolio including new series of our flagship 21Face large-screen refrigerators, washing machines, various smart kitchen products and smart devices among others. Also announced were new scenario based content offerings and partnerships to enhance user stickiness.

The continued introduction of new and innovative products and partnerships is a testament to our commitment to research and development, which will further strengthen our IoT product portfolio and differentiate our brand and products among peers. We have also been expanding our premium coKiing brand, which was first introduced in late 2019, with a series of AI centric air conditioning products, through increasing additional product categories across home scenarios. With the expansion of our premium coKiing brand, we will be offering a complete advanced and AI centric product portfolio to the high-end market, further strengthening our brand image, while diversifying our sales channels and consumer target markets - consumer market targets to drive premium - to drive premiumization and deliver additional growth prospects.

In terms of our overall marketing strategy, in addition to major product launch events and traditional advertising campaigns, we are diversifying our advertising and promotional channels in accordance with the latest consumer preferences and market trends. We continue our efforts to showcase our products through co-operation - through co-operation with numerous KOLs on some - on some platforms like self-media, Little Red Book, Douyin, TikTok, together with live streaming on e-commerce platforms such as Taobao and JD. We invite these KOLs to test and showcase our products, as well as interact with their fans and consumers on these platforms. Such marketing strategies help us attract a wide audience of young consumers and increase their interest in the purchase of our products.

In summary, looking ahead in 2020 and beyond, we will adhere to dynamic and prudent business practices, while maintaining stable expansion under our 5G plus IoT strategic framework. We are fully committed to and confident in achieving our ‘3511' long-term objectives, our road map to becoming a large-scale, high-tech leader in the IoT @ Home space.

That concludes our Founder's comments. I will now provide a quick operational update and discuss our financial performance for the first quarter of 2020. Despite the adverse industry conditions in the first quarter, we achieved solid financial operating performance. Net revenues recorded a double-digit increase beating our previous guidance, thanks to our diversified business, product and channel mix, as well as our ever increasing brand awareness across sales channels and among end consumers.

We also continued to sustain a healthy level of profitability, having implemented a number of stringent cost control measures to offset the adverse industry-wide impact of COVID-19, while maintaining our commitment to research and development. The Company's balance sheet remained strong with approximately RMB1.2 billion of cash and cash equivalents, short-term deposits and investments as of the end of the first quarter. The number of Viomi offline experience stores was approximately 1,500 as of March 31st and has held relatively steady in the subsequent months.

Our number of household users reached more than 3.7 million and the percentage of household users with at least two of our connected products reached 18.4%. While uncertainties remain, we believe our financial strength and operational flexibility will position us well to capture the opportunities ahead, as the industry and broader economy continue to recover.

Let's now turn to detailed financial review of our first quarter results, as well as the outlook for the second quarter. As Xiaoping discussed, net revenues were RMB765.5 million compared to RMB676.2 million for the first quarter of 2019, primarily due to the successful rollout and increased sales of certain Xiaomi-branded and Viomi-branded products, offsetting the broader industry-wide impacts of COVID-19.

Revenues from IoT-enabled smart home products increased by 8.0% to RMB542.7 million - to RMB542.7 million from RMB502.5 million for the first quarter of 2019, primarily due to the continued successful rollout of the Company's smart kitchen and other smart products. Within this category, revenues from our water - smart water purification systems decreased by 10% to RMB108 million from RMB120 million for the first quarter of 2019. The decline was mainly - was primarily due to decreases in average selling prices, despite double-digit year-on-year sales volume growth in the quarter.

Revenues from smart kitchen and other smart products increased by 13.6% to RMB434.7 million from RMB382.5 million for the first quarter of 2019. The growth was primarily driven by the continued successful rollout of certain new products, in particular the Xiaomi-branded sweeper robot, which offset the broader industry-wide impacts of COVID-19. Revenues from consumable products increased by 35% to RMB65 million from RMB48.1 million for the first quarter of 2019, primarily due to increased demand for the Company's water purifier filter products. Revenues from value-added businesses increased by 25.6% from [Phonetic] RMB157.8 million from RMB125.6 million for the first quarter of 2019, primarily due to new product introductions together with increased demand for the Company's small appliances products.

Cost of revenues increased by 27.7% to RMB621.5 million from RMB486.8 million for the first quarter of 2019. Gross profit was RMB144 million compared to RMB189.4 million for the first quarter of 2019. Gross margin was 18.8%. The decline in gross margin as compared to the first quarter of 2019 was primarily due to the shifts in the Company's product and business mix, together with decreases in average selling prices of certain product categories, including our smart water purification systems.

Total operating expenses decreased by 12.4% to RMB134.2 million from RMB153.1 million for the first quarter of 2019, primarily due to our stringent expense control measures implemented during the quarter to offset the adverse industry-wide impacts of COVID-19, while continuing to invest in research and development. R&D expenses increased by 62% to RMB59.3 million, primarily due to increases in employee-related expenses, expenses associated with new product development and expenses related to the application of new patents.

Selling and marketing expenses decreased by 35.1% to RMB65.5 million, primarily due to a decrease in logistics expenses, as well as stringent expense control measures in relation to marketing and promotional activities and other selling and marketing related expenses implemented during the quarter to offset the adverse industry-wide impacts of COVID-19.

G&A expenses decreased by 39.5% to RMB9.5 million compared to RMB15.6 million for the first quarter of 2019, primarily due to the Company's stringent expense control measures. Net income was RMB17.8 million and non-GAAP net income which excludes the impact of share-based compensation expenses was RMB31.4 million.

Now let's turn to our outlook. As discussed previously, while we have seen meaningful improvements as compared to the first quarter and the overall industry trend is encouraging, we believe our industry as well as the broader economy in China and globally are still facing significant challenges, uncertainties that will be difficult to quantify.

In light of these factors for the second quarter of 2020, the Company currently expects net revenues to be between RMB1.25 billion and RMB1.28 billion, representing a year-over-year growth of approximately 7.7% to 10.3%. In terms of profitability as a result of continued aggressive promotional campaigns particularly with the upcoming 618 online shopping festival, together with ongoing destocking initiatives for previous generation products in preparation for the launch of several new product lines, we do expect gross margins to declines slightly in the second quarter as compared to the first quarter of 2020.

Nevertheless, as a result of our stringent cost control measures, together with our dynamic and prudent business practices and execution capabilities, we do expect to continue to remain profitable in the second quarter, with a positive trend heading into the second half as such cost control measures take full effect and new high margin products contribute to a greater share of our overall sales revenues. The above outlook is based on 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.

So this concludes our prepared remarks and we will now open the call for Q&A. Operator, please go ahead.

Question & Answers

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Hanli Fan with Morgan Stanley. Please go ahead.

Hanli Fan - Morgan Stanley - Analyst

Hi, Xiaoping, Shun Jiang [Phonetic] and Cecilia. Thanks - thanks for taking my question and for the call. I have three questions for this. The first one is, you mentioned just now that you've seen some kind of like positive signs in terms of the industry recovery. In terms of Viomi and from management point of view, how would you see the business recovery for the Company itself in recently for example April and also early May, that's my first question.

And the second question is that, how was your online performance in the first quarter, particularly during the COVID-19 because we saw other competitors they are pretty aggressive in terms of online marketing and sales and how would you perform in the first quarter and compare with your competitors or other new initiatives you would like to use. That's my second question for the online sales.

And the third one is that for the water purification system, in the first quarter you just mentioned that ASP decline and also the volume double-digit growth. Actually, I want to see - so what's the actual impact from the COVID-19 because of weak demand, so you may kind of reduce your ASP. But looking forward, given that we are - we experienced the market recovery, so with less impact from COVID-19, so how do you see the ASP pressure in terms of water purifier in the following quarters or in year 2021? That's my third question. So I finished all three. Thank you.

Shun Jiang - Chief Financial Officer

Okay. Thank you, Hanli, why don't I address them one by one. So in terms of our sales recovery, we have indeed seen meaningful sales recovery in April and May as compared to February and March and this will probably cover your second question also, online channel sales resumed year-on-year growth in recent months and encouragingly offline sales are also close to similar levels as to what they were in the respective period of last year.

So in terms of product categories in the past couple of months, larger appliances such as refrigerators and kitchen products have seen the most feasible pickup in demand recovery, as retail channels and logistics and installation services had resumed normal activity. So we do see positive - a lot of positive momentum heading into the 618 shopping festival and have guided around 10% year-on-year revenue growth for the second quarter of a strong base from last year.

So in terms of your second question on the sales channels, so the first - in the first quarter approximately just over 50% of our sales came from the Xiaomi channel and around and the remaining came from the Viomi channels. Although, Viomi channels approximately 70% or just over 70% came from online and the remainder came from offline. Now in January, offline was doing quite well before the onset of COVID-19 and as you would know offline suffered a lot in the subsequent months.

If you're looking at the second quarter that, that ratio will trend more towards say 80% online to 20% offline, particularly given the increased contribution of the 6 - upcoming 618 shopping festival to our sales, while the offline channels are still in the middle of their recovery phase. So in offline - in online I think we're seeing very positive trends and even double-digit year-on-year growth heading into or in May and heading into June.

In terms of the water purifier margins, so as we guided - as we guided last year, sorry as we guided last quarter, the gross margins for water purifiers declined quite materially in the first quarter, while ASPs and margins, we believe ASPs and margins for this product will likely remain under a degree of pressure in the second quarter due to continued promotional activities - continued promotional and destocking activities especially for all the SKUs.

While we do expect a recovery in the second half or in terms of ASPs and margins, these will largely be driven by a ramp up in sales volume and contribution from new higher margin, higher ASP products such as those that we announced last week in our Product Launch Event. Second is the continued realization of various cost-control measures including along the supply chain measures coming into effect. And thirdly, as you alluded to, we do expect a degree of price competition to ease and industry and economic impacts of COVID-19 continue to moderate and destocking initiatives are completed. So I think in terms of the water purifier trends, the second quarter will still be under great pressure, but is likely to be a trough if you're looking at it from a whole year perspective.

Hanli Fan - Morgan Stanley - Analyst

Yeah. Thanks, Shun. Just one - one quick clarification in terms of numbers, you mentioned 80% and 20% online-offline split in the second quarter 2020, that's only for Viomi channel or your sales revenue?

Shun Jiang - Chief Financial Officer

That's for the Viomi channel.

Hanli Fan - Morgan Stanley - Analyst

Okay, okay, okay. Got it. Yeah. I have no questions. Thank you.

Shun Jiang - Chief Financial Officer

Thank you.

Operator

Our next question will come from Xudong Chen with CICC. Please go ahead.

Xudong Chen - CICC - Analyst

[Foreign Speech] Hi, management. Thank you for taking my questions. I have two questions. First, as we saw you just launched a 5G Smart Screen or smart TV last week and also upgraded a lot of amazing products. What can we expect those new products for this year and especially for Jingdong shopping festival on June 18th. And my second question is about the COVID-19, seems the global demand has been sharply declined in Q2, but China market is recovering from COVID-19. Home appliances company like Gree just saw their sales warming up. Did you see the recovery from your side and in your perspective, did you see some demand delayed for one quarter or did you see demand vanished, because people have less money due to the COVID-19 impact and try to buy cheaper things? What will be the trend and what will be the Company's strategy to deal with these situations? Thanks.

Shun Jiang - Chief Financial Officer

Yeah, thanks. Maybe I'll take your second question first. So, as we mentioned - as we mentioned, we have seen very meaningful recoveries across the Board in terms of products going into April and May across our product categories. So I think the overall improvements have been very visible. Obviously, the recovery is still relatively nascent and it remains to be seen how sustainable it is. But I think going into the 618 Shopping Festival, there is a degree of optimism, particularly in terms of the volume sales. Now I think in the first quarter and early in the second quarter, there was still a degree of inventory amongst various channels and as that continues to be cleared, we do see kind of additional upside potential going into the second half.

So as also mentioned if you look at the - if you look at the second quarter, while ASPs continue to be a little bit under pressure, volume increases had seen quite meaningful uptrends and recoveries. So I think that's something that will underpin a rebound in the second half as the broader economy continues to recover. I think in terms of the overall consumer sentiment and wallet, that is a little bit too early to comment on, but I think what is interesting for our business is that we have minimal or close to negligible overseas exposure, so we don't have much exposure to the international export market and we are nearly 100% exposed to the recovery on the China demand side.

So on your first question with regards to new products, we have launched a whole series of new products over the past several months, including wide variety of new product lines across our product portfolio, such as refrigerators, washing machines, air-conditioning, so new SKUs along these product categories and we do expect to generate good revenue growth from these products. I think air conditioning is a completely new category for us this year and we have seen very positive response as we have begun selling this product over the past several - over the past several months. You may have seen in the recent May 1 Shopping Festival that some of our air conditioning products were among the top 10 in the air conditioning product category among various - among various online channels.

So I think that category is definitely off to a good start and should contribute relatively meaningfully for the full year. I think in terms of exact sales forecast, it's still a bit early, but in terms, but I think air conditioning as well as some of the other new SKUs that were introduced in our product launch event should contribute meaningfully as we get into the second half.

Another new product category that was launched late last year was the Xiaomi sweeper robot, I think that has also been very well accepted by the - well received by the market, having generated over RMB100 million revenues - of revenues per quarter since its launch in the third quarter of last year. So in terms of television products, I think this is more, at least in the early stage as a standard-bearer or as a center point, I mean in terms of increasing our brand image and kind of anchoring our brand positioning as a fully fledged IoT experience provider. I think in terms of the sales volume let's wait and see, was only launched last week, but I think if you look at the overall revenue contribution to the entire business, it shouldn't be too meaningful at least for this year.

Xudong Chen - CICC - Analyst

Okay, very clear. Thanks.

Operator

Our next question will come from Robert Cowell with 86Research. Please go ahead.

Robert Cowell - 86Research - Analyst

Hi, management. Thanks for taking my question. My question is also about the recent launch event, a couple of somewhat related point. The first is basically this launch was then online I think one of your first major launch event that was conducted through this live broadcast format. When we look at this launch event as a brand building and promotional opportunity, how does the live event compared to our previous launch event? And then the second question is about the Smart Screen that was launched, you laid out a vision for how it works as kind of a center point for the smart home? I'm wondering how you think about pricing for this and whether or not there is some consideration of basically trying to be aggressive on the pricing to get that, that position in the smart home.

And then third also related to this vision of the smart home, how do we think about interoperability with other platforms for smart home devices? Are we trying to make our devices accessible across different platforms or are we looking at more of a closed ecosystem concept? Thank you.

Shun Jiang - Chief Financial Officer

All right, Robert, thanks for your questions. Maybe I'll pass these on to Chen Xiaoping who can give a detailed response and I'll follow it up with some translation.

Operator

Our next question will come from Vincent Yu with Needham & Company.

Shun Jiang - Chief Financial Officer

I'm sorry - sorry, we're going to answer these questions in Chinese first and then some translation.

Xiaoping Chen - Founder, Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech]

Cecilia Li - Senior Investor Relations Manager

Wait for a second please.

Shun Jiang - Chief Financial Officer

Maybe I'll just translate the first two responses. Mr. Chen will respond to the third question. So in terms of the online product launch event, it was actually very successful, able to reach over 2 million views since - since last week. So very high viewership, which is a signal of very high interest in the direction of not only Viomi, but also in terms of Viomi's positioning in the upcoming kind of 5G and IoT era, which has been a very hot topic in the industry.

I think the news reports and feedback that we received has been very plentiful and overall quite positive. And as really kind of increase to the interest in Viomi and Viomi's direction among industry watchers, not only in the sense of smart appliances, but also in terms of the broader 5G and IoT industry. So I think some key points with regards to the event, the - the Interactive Smart Screen TV that we launched, I think this - as mentioned be very central to our IoT @ Home experience, it essentially completes the IoT @ Home scenario in terms of our product coverage being a focal point of the living room, so screen in your living room being able to engaging cross operability and cross split, cross screen experience across scenarios and environments in your home.

Secondly is the home SaaS cloud services that we announced. So this concept - it really kind of brings the fact that we're not only offering products, but really pushing this holistic IoT concept, right? So, Viomi's - Viomi's 5G plus IoT strategy places a marker for Viomi's future strategic direction and positioning as not just a - as not just a products provider, but in terms of a holistic kind of IoT experience play.

The second question on 5G, so, 5G, we do expect this to have quite a revolutionary impact on the kind of home appliances industry or the IoT @ Home industry, quite similar to what's currently underway in the mobile phone industry. So I think the several kind of easy to understand concepts of 5G or so it is that it will directly upgrade our routers and current WiFi connectivity, resulting in faster connections, being able to connect more products at the same time and offering automatic connections, right.

So, very easy to use and seamless connections for the end consumer. So, the overall 5G plus IoT ecosystem we envisage to be more flexible, being able to offer more high quality content and I think in the end will offer a better experience and better value proposition for consumers. And what is this value proposition, I think we want consumers to really get into this next generation idea of the high-tech hope. So what will it be like, so I think over the next period, it will be important to educate consumers on our vision for what the future home should be and - and how we can help them achieve this Q2 essentially upgrade their home living experience. So Mr. Chen will now provide the answer for the third question on interoperability.

Xiaoping Chen - Founder, Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech]

Shun Jiang - Chief Financial Officer

Okay. So, we'll answer the question in two parts. So in terms of interoperability, I think we're adopting quite an open approach. We believe that the 5G generation will in general be quite an open platform and will be very interoperable similar to cross operation among current foreign carriers. So while there may be a single account, more products will be able to connect across this account. And this is mainly due to the increased connectivity as always the ease of connectivity, such as our kind of one-touch connection that is able to achieve across our products as well as the - well across 5G routers.

So I think in terms of what we really think that the value lies in the 5G - in the 5G era, so as we know 3G enabled - enabled browsing, 4G enabled videos, the 5G IoT generation we believe will enable greater control, particularly with regards to say streaming an interactive screen-based content and also allow for more content and content consumption scenarios across the home and across a variety of connected screens in the home environment. So this scenario based consumption will also be a key feature in the 5G era. So I think in summary, 5G just makes everything more seamless to use for consumers and will create additional opportunities that at the moment may not have the best experience or currently not available yet.

Robert Cowell - 86Research - Analyst

Okay.

Shun Jiang - Chief Financial Officer

Thank you.

Operator

Our next question will come from Vincent Yu with Needham & Company. Please go ahead.

Vincent Yu - Needham & Company - Analyst

[Foreign Speech] My first - hello, management, thank you management for taking my question. My first question is about the smart TV and the living room scenario. So, considering that we - being - our other SKUs such as refrigerators also have, like the display. So we have been able to accumulate some data and are we going to do some like advertisements campaign, talking the user behavior, individual room scenario. My second question is considering the competition landscape, are we going to - will be asking about our strategy to taking up share and also like how to handle the pricing pressure from peers. My third question is, our - the large item delivery returned to normal in counts like April or May kind of timing after the breakout of pandemic. Thanks.

Shun Jiang - Chief Financial Officer

[Speech Overlap] Mr. Chen will answer the first couple of questions, yeah.

Xiaoping Chen - Founder, Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech]

Shun Jiang - Chief Financial Officer

Okay. Thank you, I'll address those questions one by one. First question is with regards to the data that our products are able to capture from household users and what we're able to do with it. So I think there are several different factors, I think the most obvious is in terms of advertising, some of the pilot programs that we've enabled particularly on our 21Face refrigerators have been quite successful. I think if we are able to roll this out on a larger scale and as we continue to increase our installed base, this will essentially be similar to focus media screening in the home, right. But not just that, we are able to collect a variety of data to position each household or each area quite uniquely.

We can offer very targeted advertising capabilities across individual households or areas or regions rather than say blanket - blanket advertising campaigns. And I think more importantly, we're able to then collect the data upon the data that we utilize. So being able to see where the advertising campaigns are being engaged upon, what their conversion ratio is and really being able to increase or significantly increase the advertising quality or value going forward. So we see a lot of potential opportunities in this area as we continue to rollout a concept of this screen field IoT @ Home experience.

So, second question on the kind of the TV industry and competitive dynamics. So our positioning is definitely not going to go over pure price competition, we don't think that this is the correct strategy for us. As mentioned, this particular product, as you would have seen in our product launch event last year is very much an integral part of our IoT @ Home portfolio and overall experience. So it's not just an individual product, it very much fits into the holistic experience that that we want to provide. So, it's a quite a unique positioning. We want to give the consumer this premium high tech experience, but then again on a mid, what is the price. So what we're trying to do is provide this 5G next generation product at traditional prices, right.

Thirdly, in terms of logistics. So I think in general, nearly all operational - operations have returned to close to normal within the industry. I think the most noticeable trend has been the pickup in demand in sales of larger appliances such as refrigerators, air-conditioning, kitchen products in recent weeks or even month or two which we're very depressed in the first quarter. So these products with very high kind of installation or logistics requirements are seeing very significant rebound. So I think definitely for TV, which is just less installation intensive products, it's definitely not a problem.

So I think in general what we're seeing now is the industry effectively at least the domestic China industry heading close to normal in terms of supply, as well as demand and we're cautiously optimistic heading into the 618 Shopping Festival, as well as the second half of this year.

Vincent Yu - Needham & Company - Analyst

Thank you, management. [Foreign Speech]

Operator

As there are no further questions now, I would like to turn the call back over to management for closing remarks. Please go ahead.

Cecilia Li - Senior Investor Relations Manager

Thank you once again for joining us today. If you have further questions, please feel free to contact us out through the contact information on our IR website or The Piacente Group, the Company's IR consultant. Thank you, have a good one.

Shun Jiang - Chief Financial Officer

Thank you.

Operator

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VIOMI TECHNOLOGY CO LTD

Q1 2020

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