So-Young International Inc. (SY) Earnings Call Transcript & Summary

Hello. This is Nick. The investments we made in our infrastructure structure capacity and service expansion during the challenging environment last year are beginning to pay off and are reflected in our financial performance this quarter. Total revenues during the quarter were RMB 310.1 million, up 3.2% year-over-year, and exceeding the high end of our previous guidance. The increase was primarily due to an increase from the sales of equipment and maintenance services and other services. The revenue is composed of 3 main streams: information services, reservation services and revenue from sales of equipment and maintenance services. Information services and other revenues were RMB 217.8 million, up 9.2% year-over-year, primarily driven by an increase in other revenues from So-Young Prime. As our CEO, Mr. Jin, outlined earlier, the industry's recovery has been uneven. Reservation services revenues continued to feel the impact of COVID-19 on surgical transactions, decreasing 29.9% year-over-year to RMB 29.7 million, but has also begun to rebound in April. Sales of equipment and maintenance services, which were from Wuhan Miracle Laser Systems, Inc, were RMB 62.6 million, up 7% year-over-year. Cost of revenues were RMB 113.7 million, up 6.7% year-over-year. The increase was primarily due to investments made in service providers to enhance operational efficiency and improve the quality of services. Total operating expenses were RMB 229.8 million, down 15.4% year-over-year. Sales and marketing expenses were RMB 112.5 million, down 11.6% year-over-year, primarily due to the increase in expenses associated with branding and user acquisition activities. G&A expenses were RMB 61.5 million, down 5.9% year-over-year due to operational efficiency improvement. R&D expenses were RMB 55.8 million, down 29.3% year-over-year, primarily due to a decrease in payroll costs. Income tax benefits were RMB 4.3 million compared with income tax benefits of RMB 2.0 million in the first quarter of 2022. Net loss attributable to So-Young International Inc. were RMB 11.9 million compared with a net loss of RMB 66.8 million during the same period last year. With revenue growing once again, our non-GAAP net loss attributable to So-Young International, Inc. narrowed significantly to RMB 2.8 million, a decrease of 94.3% year-over-year. This compares with RMB 48.3 million in the same period of 2022. Basic and diluted loss per ADS attributable to ordinary shareholders were RMB 0.12 and RMB 0.12, respectively, compared with the basic and diluted losses per ADS attributable to ordinary shareholders of RMB 0.62 and RMB 0.62, respectively, during the same period of 2022. We have ample cash on hand with the total cash and cash equivalents, restricted cash and term deposits, and short-term investments of RMB 1.5 billion as of March 31, 2023 compared with RMB 1.6 billion as of December 31, 2022. Looking ahead, we will continue to carefully monitor and control of expenditures and improve our operational efficiency as we navigate this period of recovery, and leverage our ample cash position to strategically invest in our future. For the second quarter of 2023, we expect total revenues to be between RMB 380 million and RMB 400 million. The above outlook is based on the company's preliminary estimates of market and operating conditions and the customer demand. Please be reminded that all amounts quoted here are in RMB. Please also refer to our earnings release for detailed information of our comparative financial performance on a year-over-year basis. This concludes our key remarks. I will now turn the call to the operator and open the call for Q&A. Thanks.

[Operator Instructions] The first question comes from Thomas Chong with Jefferies.

[Foreign Language] How do you expect the market trend to be in second quarter and also second half? .

[Foreign Language]

[Interpreted] Consumption across the board is steadily improving, with consumption of medical aesthetic products gradually recovering as well. We launched a number of initiatives to attract additional users. This includes optimizing products on our platform for popular SKUs that have ample supply, package together complementary products to improve operational efficiency and shorten the time it takes for a consumer to make a decision during sales periods. The number of users placing orders and GMV during the quarter increased 23% and 27% sequentially, respectively. Orders placed on our platform in April also increased when compared to the average during the first quarter.

[Foreign Language]

[Interpreted] As we discussed last quarter, medical institutions remain cautious on increasing marketing spend. During this quarter, the majority of marketing budget allocation came from top-tier medical institutions. With medical recovering, average marketing spend and the number of medical institutions are both gradually increasing April when compared with average last quarter. Over the long term, we expect the behavior of users to structurally change with an increasing focus being placed on the consumer experience and the cost benefit. Both users and medical institutions will change their consumption behavior, which we'll strategically be adapting to.

The next question comes from Nelson Cheung with Citibank.

[Foreign Language] So let me translate myself. Can management share with us the progress of So-Young Prime in Q1 and the outlook for the full year?

[Foreign Language]

[Interpreted] So-Young Prime is the focus this year. We're expanding scale. We are, at the same time, working on enhancing the user experience, standardizing service processes and strengthening the delivery of service offline. This will ensure a high-end consumer experience on the product and we partnered with doctors and experts to develop and upgrade the services and bundle them together to offer an easy-to-use and cost-effective one-stop solution. For example, we jointly developed innovative anti-aging products that are exclusive to our platform. This includes a unique procedure using the Peninsula ultrasonic anti-aging canon, which is specifically sought out by users. Leveraging our strong supply chain capabilities, we diversified our product offerings to strengthen user trust and choice.

[Foreign Language]

[Interpreted] We thoroughly screen institutions to ensure they meet our high standards. We have trained medical teams and streamlined processes. As of the end of March, So-Young Prime has expanded to over 130 institutions in more than 25 cities. Its light-asset model, improved user acquisition cost, and operating efficiency, and an improved solid user experience makes it a unique value proposition. Fulfillment orders through So-Young Prime increased by 88% compared with last quarter, a trend that has continued into April. This year, we will continue to expand its retail and service scope. So-Young Prime was developed with recent consumption trends in the live medical aesthetics market in mind. We are committed to maintaining a high-end user experience by helping the industry grow overall, leveraging our supply chain expertise.

The next question comes from Chloe Wei with CICC.

[Foreign Language] I have 2. So the first one is about can management maybe give us some color on the marketing strategy and maybe guide us through how will the marketing spend look like in the rest of the year? And my second question is for Nick. So the numbers of advertisers have decreased on a quarterly basis. So how do you expect the trend in Q2 and the second half of the year?

[Foreign Language]

[Interpreted] As we mentioned, part of our focus is really on hitting efficiency this year. Repurchase rates for online orders this quarter was 7 percentage points higher than 2 years ago. With a recovery underway, we'll be increasing marketing spend to educate users. We will support and advise medical institutions with their marketing spend. We will focus on platform operations this year to increase user engagement. We will also expand cooperation with other platforms to explore new user acquisition opportunities and content.

Okay. With regards to the paying medical institutions, we believe that the reduction of paying medical institutions is the result of a cumulative impact of several factors. First of all, I think the Q1 -- the first impact is the seasonality impact. Q1 is traditionally slower in the marketing expenditures in our industry. Secondly, the challenging market situation in Q4 2022 resulted in significant shrink in the marketing budget from medical institutions. And thirdly, the infections after the open up of quarantine policy also caused a temporary and yet sharp reduction in users visit to institutions, which lead to institutions further reduction in marketing activities in Q1. With the gradual market recovery, we have seen the rebound of the institution marketing activities. And we would expect a turning point in Q2 with regard to the number of paying medical institutions on our platform. Thank you.

The next question comes from Jessie Xu with Credit Suisse.

[Foreign Language] We are very glad to see the significant narrowing of net loss in the quarter on top of revenue growth. So first, can you help us to better understand the factors and reasons behind the net loss in 1Q? And also, how should we look at the bottom line trend in the second quarter and also the second half of the year?

Thanks, Jessie. This is Nick. In the first quarter, our non-GAAP loss attributable to So-Young International Inc. narrowed significantly compared with the same period last year, with a year-on-year decrease of 94% to RMB 2.75 million as we described earlier. The first quarter is typically slow for the medical aesthetics market as it coincides with the Chinese New Year, and we -- and was impacted also by the rapid spread of COVID-19 after the opening up of quarantine policy. As a result, revenue in the first quarter were impacted as well. As the impact of the pandemic recedes, we are deploying more people and marketing resources as the market recovers. So during the second quarter and throughout 2023, we will focus on enhancing user experience and improve institutional operational efficiency to kick-start revenue growth. We will also strictly control costs and expenses, while improving the operational efficiency going forward. Thank you.

This concludes our question-and-answer session and the So-Young International, Inc. First Quarter 2023 Earnings Conference Call. Thank you for attending this presentation. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]