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

Ladies and gentlemen, thank you for standing by for So-Young's Fourth Quarter and Full Year 2024 Earnings Conference Call. As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Ms. Mona Qiao. Please go ahead, Mona.

Thank you, operator, and thank you, everyone, for joining So-Young's Fourth Quarter 2024 Earnings Conference Call. Joining me today on the call is Mr. Xing Jin, our Co-Founder, Chairman and CEO; and Mr. Nick Zhao, CFO. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities and the Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with SEC, including our annual report on Form 20-F. So-Young does not undertake any obligation to update any forward-looking statements, except as required under applicable law. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB. At this time, I'd like to turn the call over to Mr. Xing Jin.

[Interpreted] Hello, everyone, and welcome to today's conference call. In the fourth quarter of 2024, our total loan reserve in the quarter was RMB 369.2 million. Net loss attributable to So-Young was RMB 607.6 million, while non-GAAP net loss was RMB 53.2 million. The fluctuation in our bottom line was primarily driven by a one-time goodwill impairment charge of RMB 540 million for our subsidiary, Miracle Laser as well as our continued investment in the self-operated aesthetic center network. During the quarter, we continued to undertake our vertical integration strategy, leveraging our extensive user base equity business and upstream supply chain capabilities to drive the rapid expansion of our aesthetic centers. Our So-Young clinic officially launched with a refreshed brand identity that is focused on providing high-quality, cost-effective light medical aesthetics and anti-ageing solutions. The bright refreshing to make medical aesthetics more accessible and empower Chinese consumers to individually pursue aesthetic freedom. The continued high growth of our aesthetic center network demonstrates the viability of its business model and growth potential. Moving forward, we will continue investing in the business to establish it as a new growth engine for the group. Now let me give you a closer look at our quarterly performance. In Q4, we have opened 19 So-Young clinics across 9 core cities, including Beijing, Shanghai, Guangzhou, Shenzhen, Hangzhou, Chengdu, Chongqing and Changsha, all which are fully operational. Among them, 11 aesthetic centers have already achieved positive monthly operating cash flow in December. Our customer satisfaction remains at an industry-leading 4.98 out of 5. Revenue from our aesthetic center business surged to RMB 81.3 million during the quarter, up 79% quarter-over-quarter and 702% year-over-year. We recorded over 38,000 verified paid visits. Total number of verified paid aesthetic treatments surpassed 81,500. As of the end of 2024, total number of active users exceeded 39,500, highlighting the strong appeal of our brand and our deep insight into market demand. We successfully acquired a large number of verified users through our pricing strategies for the Double 11 and Double 12 sales events and promotional activities following the debut of our aesthetic center on Meituan. This, however, led to a temporary decline in our per capita revenue, which was an anticipated result of our user acquisition strategy. Our Beijing had aesthetic center has now matured with repeat customer revenue accounting for 8% of total revenue, demonstrating the long-term appeal of our uniform high-quality services. Our Shanghai center in the Super Black Mall is in and received over 2,000 monthly visits during its fifth month of operation with per square meter sales exceeding RMB 10,000, through strong brand awareness, efficient marketing and robust operational management. We have successfully maintained customer acquisition costs below the industry average. During the quarter, our aesthetic centers officially debuted on the Meituanianpil, quickly reinforcing its brand recognition. This channel has generated strong ROI and become a reliable customer acquisition source for us. None of our aesthetic centers have been integrated into the So-Young app. Instead, customers primarily come from various channels, including the brand influence private domain traffic, other platforms and user referrals. Looking ahead, we plan to deepen our presence in core cities, replicating our proven aesthetic centers across more locations to further expand our network. Our comprehensive medical aesthetic supply chain is yielding results as well. During the quarter, we served over 1,200 medical institutions with our injectable solutions, reflecting continued growth in our customer base. Demand for injectable remained robust with over 52,000 units shipped during the quarter, up 20% sequentially. This highlights strong market recognition and demand for our products and underscores our product development, quality control and promotional capabilities. We continue to carry out the high-quality initiatives for POP, which remains the cornerstone for our traditional business and plays a pivotal role in our overall strategy. As a key profit driver, it will continue to generate stable earnings to support our new business. During the quarter, GMV for verified medical aesthetic services reached RMB 356.6 million, up 3% sequentially. Total transaction volume increased 10% year-over-year, while per capita installed GTV grew by 6% sequentially. Medical aesthetics-- medical aesthetic market, the rise of large-scale light medical aesthetic chains is inevitable. Unlike traditional institutions that rely on doctor biding and personalized treatments to command high premiums, the trends will expand rapidly by offering uniform, highly cost-effective services to achieve economics of scale. [indiscernible] is critical to the success of chains. First, a sufficient number of locations and market density are essential for building brand awareness and reducing customer acquisition costs. Second, greater scale enables the development of an in-house supply chain, lowering procurement cost and expanding profit margins. Lastly, a large network supports a strong digital operations platform, where comprehensive digitalization reduces reliance on human management and ensures a high degree of standardization and consistency across all locations. So-Young's advantage in building a light medical aesthetic chain in our strong brand recognition, a fully integrated product supply chain established over the past 4 years. Our corporate Internet DNA and AI capabilities, which far exceed those of traditional medical aesthetic institutions. What we need now is time to consistently expand and establish more high-quality aesthetic centers. We believe that China will see the emergency of a leading light medical aesthetic chain with over 1,000 locations. Even at that scale, it would account for less than 5% of the total number of medical aesthetic institutions. This is a long-term growth opportunity, and we have the patience and commitment to emerge as the market leader. Now I'll hand over to our CFO, Nick, who will walk through the financial results followed by the Q&A session.

Hello. This is Nick. Please be reminded that all amounts quoted here will be in RMB. Please also refer to our earnings release for detailed information of our comparative financial performances on a year-over-year basis. Total revenues during the quarter were RMB 369.2 million, down 5.5% year-over-year, primarily due to the decrease in revenue generated by So-Young Prime. Information reservation services and other revenues were RMB 201.5 million, down 27.7% year-over-year, primarily due to a decrease in revenue generated by So-Young Prime. Aesthetic treatment services revenues reached RMB 81.3 million, a remarkable 701.6% year-over-year increase, primarily due to the expansion of our aesthetic center business. Sales of medical products and maintenance services were RMB 86.2 million, down 15.2% year-over-year, primarily due to a decrease in order volume for medical equipment. Cost of revenues was RMB 153.1 million, up 11.2% year-over-year, primarily due to the expansion of our aesthetic center business. Within cost of revenues, cost of information, reservation services and others were RMB 44.5 million, down 48.2% year-over-year, primarily due to a decrease in costs associated with So-Young Prime. Cost of aesthetic treatment services were RMB 65.2 million, up 702.3% year-over-year, primarily due to the expansion of our aesthetic center business. Cost of medical products sold and maintenance services were RMB 43.3 million, down 0.5% year-over-year, primarily due to a decrease in costs associated with the sales of cosmetic injectables. Total operating expenses were RMB 815.2 million, up 216.2% year-over-year. Sales and marketing expenses were RMB 134 million, up 6.2% year-over-year, primarily due to a increase in payroll costs. G&A expenses were RMB 98.4 million, up 13.6% year-over-year, primarily due to an increase in professional service fees and allowance for credit losses. R&D expenses were RMB 42.8 million, down 5% year-over-year, primarily attributable to improvements in staff efficiency. Impairment of goodwill was RMB 540 million, primarily due to an impairment assessment related to our subsidiary, Americo Laser. Income tax expenses were RMB 2.1 million compared with income tax benefits of RMB 10.8 million in the same period of 2023. Net loss attributable to So-Young International Inc. was RMB 607.6 million compared with a net income of RMB 17.5 million during the same period last year. Non-GAAP net loss attributable to So-Young International Inc. was RMB 53.2 million compared with non-GAAP net income of RMB 35.7 million during the same period of 2023. Basic and diluted loss per ADS attributable to ordinary shareholders were RMB 5.92 and RMB 5.92, respectively, compared with basic and diluted earnings per ADS attributable to ordinary shareholders of RMB 0.18 and RMB 0.18, respectively, during the same period of 2023. For the full year 2024, total revenues were RMB 1.47 billion, down 2.1% year-over-year. Within total revenues, information reservation services and other revenues were RMB 929.5 million, down 19.3% year-over-year. Aesthetic treatment services revenues were RMB 169.3 million, up 1,206.1% year-over-year. Sales of medical products and maintenance services were RMB 368 million, up 10.3% year-over-year. Cost of revenues were RMB 567.6 million, up 4.3% year-over-year, primarily due to the expansion of our aesthetic center business. Total operating expenses were RMB 1.52 billion, up 50.1% year-over-year. Net loss attributable to So-Young International Inc. was RMB 589.5 million compared with a net income of RMB 21.3 million in 2023. Non-GAAP net loss attributable to So-Young International Inc. was RMB 4.7 million compared with non-GAAP net income of RMB 58 million in the fiscal year 2023. Basic and diluted losses per ADS attributable to ordinary shareholders were RMB 5.72 and RMB 5.72, respectively, compared with basic and diluted earnings per ADS attributable to ordinary shareholders of RMB 0.21 and RMB 0.21, respectively, in fiscal year 2023. We have maintained a robust cash position and with cash and cash equivalents, restricted cash and term deposits, term deposits and short-term investments totaling RMB 1.25 billion as of December 31, 2024. Moving to our outlook. For the first quarter of 2025, we expect total revenues to be between RMB 280 million and RMB 300 million. Several of our business initiatives, including both our aesthetic center business and the sales of medical equipment and maintenance services have already yielded impressive results, reinforcing our leading position in the industry. We remain confident that our long-term strategy, focusing on the vertical integration of the entire aesthetic medical industry and leveraging our core strengths will enable us to capitalize on our new growth opportunities, diversify our revenue streams and drive sustainable growth. Ultimately, this transformation will help us to fulfill our vision of making aesthetic and medical treatment services accessible to a much wider consumer base. With the continuous expansion of our aesthetic center businesses and market conditions stabilizing, we anticipate a steady improvement in our financial performance. This concludes our key remarks. I will now turn over the call to the operator and open the call for Q&A. Operator, we are ready to take questions.

[Operator Instructions] Today's first question comes from Nelson Cheung with Citibank.

[Interpreted] So let me translate the question into English. My question is related to the business and what are the latest developments in merchant support and empowerment on your platform during the industry consolidation period.

[Interpreted] As industry consolidation accelerates, market concentration is inevitable. Large institutions are gaining greater market share due to their economics of scale, brand influence and standardized service models. For many specialized medical aesthetic institutions on our platform, a differentiator is key to highlighting their unique technical expertise, specialized services and product offering. With these differentiators, they can increase their pricing power and secure a solid foothold in a fiercely competitive market. We continue to optimize our platform business by empowering medical aesthetic institutions across multiple dimensions, deepen partnerships, reinforcing platform capabilities and improving the user experience. These efforts help institutions navigate market cycles, capitalize on opportunities and achieve sustainable business growth. For institutions, we continue to strengthen partnerships with top-tier and specialized medical aesthetic institutions, fostering closer collaboration through tailor-made solutions that empower them to ensure that they maintain their leadership in a competitive market through a segmentation strategy that targets different cities, institutions and service offerings. We optimized our supply structure to better match market demand and supply, improving the overall efficiency of our platform. In terms of operations, we [indiscernible] to refine management practices, leveraging user behavior data to optimize subsidy plan. Additionally, we continue to enhance the user journey on our app, shortening decision-making times and improving merchant reach. Furthermore, through the doctor good product initiative, we provide personalized recommendations for medical aesthetic products and services, further enhancing user satisfaction while increasing transaction value. On the user side, we are continuously strengthening our private domain operations, expanding our user base through private domain marketing and influencer-driven referrals. These efforts enhance our user engagement, unlock customers' LTV and help medical aesthetic institutions reach a broader audience and drive more growth. Driven by these initiatives, we have achieved notable results in this period. Meanwhile, in terms of annual framework agreements, we are making strong progress in both volume and progress, further validating the effectiveness of our strategy. Looking ahead, we will continue to enhance our platform ecosystem, strengthen collaboration with institutions and improve the user experience, fostering the long-term sustainable development of the industry.

And our next question today comes from Yang Li with Haitong Securities.

[Foreign Language] Let me translate myself. We are glad to say that So-Young has opened 19 aesthetic centers as of Q4. So how does the company adapt its strategies and operations for centers at different stages of development?

[Interpreted] We implement differentiated operational strategy for aesthetic centers at various phase of development to ensure they can reach their optimal performance while continuously strengthening brand influence and enhancing. For aesthetic centers in the ramp-up phase, which lasts about 3 months from the main goal is to build brand awareness and ensure that target customers within 5-kilometer radius recognize So-Youngs aesthetic centers. We follow SOPs while building the team, providing comprehensive training and strict assessment of doctors, nurses and consultants to ensure service quality at every stage. With 12 years of industry experience, So-Young has built a private domain community of 1 million users facilitate engagement with initial customers and significantly lowering market costs. At this point, we focus on delivering an outstanding experience to initial customers, minimizing waiting times, improving customer reviews and quickly building an extraordinary high-quality aesthetic center image through major portal platform like Meituan P. These efforts helped strengthen our online reputation and established a solid foundation for long-term customer acquisition and retention. As aesthetic centers entered the growth phase, which was from the fourth month to the 12 months after opening, the focus shifts from brand building to optimizing operational efficiency with an emphasis on service quality and customer retention. We strengthened repeat customer engagement and referral programs to maximize customer lifetime value while gradually balancing operational efficiency to improve financial performance. To this point, most aesthetic centers have established a stable business foundation and are able to generate several consecutive months of positive cash flow. Athletic centers reached the maturity phase 12 months after the opening, the focus moves to long-term customer life cycle management and service optimization to ensure sustained business growth. At this phase, we implement customer segmentation based on account frequency, spending levels, past service records and other data. We then developed tailored service to the needs of different customer groups. By adopting this segmented operational plan, we can enhance customer loyalty and effectively increase customer lifetime value. Through these real structured strategies, we can ensure that our branded aesthetic centers and different phase grew progressively, achieve their operational goals and continuously strengthen our brand influence and competitiveness in the market. Through these well-structured strategies, we can ensure that our branded aesthetic centers and different phase grow progressively, achieve their operational goals and continuously strengthen our brand influence and competitiveness in the market.

[Foreign Language] Let me translate myself. Are aesthetic centers business in [indiscernible] growth?

[Interpreted] In my view, So-Young's aesthetic center network has the capability for sustained growth. From a market-wide perspective, there are currently over 20,000 medical aesthetic institutions in China, but the penetration rate of chain clinics remains extremely low, with no single brand exceeding 100 locations, representing just a 1% market share. This leaves ample room for expansion. The development of South Korea's medical aesthetic industry serve as a valuable reference as the sector is highly developed with [indiscernible] collectively holding a market share exceeding 10%. South Korea's case demonstrates that as customer awareness and acceptance of medical aesthetics grow, the chain model can leverage Bright influence economics of scale and a professional service system to capture a larger market share. So-Young's chain model presents a highly competitive and differentiated edge in the domestic market. Currently, most traditional institutions follow a restaurant model where operations rely heavily on a few key doctors, similar to how restaurants rely on seasons chests. If these doctors leave, the institution suffers a decline in sales volume, loss of customer trust and damage to its market reputation, making it highly vulnerable to risks. In contrast, So-Youngs aesthetic centers adopt a fast food model, where the core strength lies in the establishment and expansion of a uniform service system. Every aspect of operations from customer reception, medical procedure protocols to product selection standards is thoughtfully designed and standardized. This uniform approach offers multiple advantage. First, it ensures that regardless of which So-Young aesthetic center and customer visits, they received a consistent, high-quality and reliable medical aesthetic experience, significantly enhancing customer satisfaction and brand loyalty. Second, it reduces dependency on an individual doctors' proficiencies, prohibiting institutions from being overly affected by staff turnover, thereby improving operational stability and reducing risk. Lastly, this highly standardized model creates a solid foundation for rapid scaling and replication, ensuring long-term growth. Thus, we are confident we can maintain a leading position in this highly competitive market going forward.

And our next question today comes from Jim Tang at CIC Securities.

[Foreign Language] Okay. So let me just briefly translate for myself. So I am from CITIC Securities. So I have one question about the company's upstream business. So as we can see, we have acquired like the laser in China, and we have multiple partnerships with the upstream companies. So what is our strategy for our upstream business in general? That's my question.

[Interpreted] Recently, we successfully completed the full integration of our subsidiary, Miracle Laser, a leading provider of medical aesthetic laser devices in China with strong technical expertise and market advantage. This move is part of So-Young's upstream business and long-term planning. To optimize resource integration and enhance business synergies, Miracle laser has now been incorporated into So-Young's upstream business unit with a focus on integrating key talent and reinforcing team collaboration. In the medical aesthetic laser segment, medical laser will serve as the core foundation, driving product upgrades and innovation to meet market demand and enhance our technology and product portfolio. As the upstream business continues to expand, our product resources will further empower aesthetic centers, driving sustainable growth for the company. Based on this, our upstream business will focus on several key strategies in the future. First, we will enhance the R&D of high-end and best-selling products by conducting in-depth market research, analyzing customer behavior and staying ahead of industry trends. We will invest heavily in R&D to build a series of innovative, high-quality medical aesthetic products tailored to market needs. This will enable us to meet growing need for premium and personalized aesthetic solutions. Additionally, we will ensure a seamless integration between the Miracle Laser and the So-Young teams, leveraging the unique both sides to establish a high efficient and collaborative working model. This will enhance the overall expertise and action-oriented capabilities, creating a solid talent foundation to support the growth of upstream business. Following the team integration with the combined resources and enhanced capabilities, we will focus on providing So-Young's aesthetic center with a highly quality and more stable product supply. From expanding product variety and ensure delivery to strengthen quality assurance, we aim to empower our aesthetic center network and enhance its service quality and competitiveness. These efforts will drive So-Young's continued growth in the upstream sector. Thank you.

And our next question today comes from Harry Zhao with Deutsche Bank.

[Foreign Language] Let me translate by myself. Management just gave the guidance of 2025 revenue guidance. And could the management share more insight into the company's financial outlook in the future?

Thank you, Harry, for your question. Looking ahead, we are committed to driving sustainable and high-quality growth through the execution of our vertical integration strategy, we have successfully established a full value chain covering both upstream supply chain capabilities to downstream aesthetic treatment services, which creates synergies across our business units. This diversified and balanced model lays a strong foundation for long-term financial stability and operational resilience. For our financial -- from a financial perspective, while near-term profitability may be impacted by the pace and scale of our new aesthetic center expansion, this business is critical to transitioning towards sustainable high-quality growth. We recognize that different business units are at different stages of development. Some high-growth initiatives such as our aesthetic center business have just begun to scale and improve operational efficiencies after the success of pilot projects. With healthy cash flow and a disciplined capital allocation approach, we will continue to invest in strategic initiatives that reinforce our market leadership while maintaining a prudent approach to cost management. Our focus remains on balancing growth with profitability, enhancing financial resilience and ultimately driving long-term value for our shareholders. Thank you.

Thank you. And ladies and gentlemen, this concludes today's question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]