So-Young International Inc. ($SY)

Ladies and gentlemen, thank you for standing by for So-Young's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] 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 proceed, Mona.

Thank you, operator, and thank you, everyone, for joining So-Young's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining me today on the call is Mr. Xing Jin, our Founder, Chairman and CEO, and Ms. Zhang Sha, VP of Finance. Before we begin, please refer to the safe harbor statements in our earnings release, which applies today's call as we will be making forward-looking statements. Please also note that we will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under GAAP in our earnings release on our Investor Relations website and filings with SEC. Please also note, all figures mentioned in this call are in renminbi unless otherwise stated. At this time, I'd like to turn the call over to Mr. Xing Jin.

[Interpreted] In 2025, China's medical aesthetic industry went through structural adjustments as upstream capacity expanded and consumers become more value driven. Return to value has become the common theme. For institutions pursuing scaled and repeatable models, this offers a critical window to build long-term edge. In Q4, we continued to improve our investment and make progress in 3 directions. First, delivering scale breakthroughs and operational improvements in our aesthetic center business; second, reinforcing medical service delivery capabilities to build a long-term trust-driven mode; and third, building our supply chain barriers to enhance brand influence and seize opportunities. We are pleased to see these choices are reflected in our financial results. The total revenue was RMB 461 million in Q4, up around 25% year-over-year, hitting a record high for quarterly revenue. Revenue from our aesthetic center business reached RMB 248 million, up over 205% year-over-year and about 10% above the high end of guidance. Our aesthetic center business has become our largest revenue contributing segment and growth engine with So-Young Clinic becoming the largest medical aesthetic chain in China by a number of centers. Now let me walk you through our progress in Q4 and our 2026 deployment, focusing on our aesthetic center business. Our aesthetic center business has recently achieved 2 milestones. The first is our center footprint. By year-end 2025, we have opened 49 live medical aesthetic centers, ranking first nationwide among all tiers by center count. The second is the treatment volume. In Q4, verified treatment visits exceeded 125,000, up 178% year-over-year. Verified aesthetic treatment performed exceeded 289,400, up 168% year-over-year. As of December end, our total active users surpassed 170,000. The growth in both our treatment volume and user base validates the market demand and ongoing recognition from consumers. As we scale, center level operational efficiency continues to improve. In Q4, 25 centers achieved profitability and 39 centers generated positive operating cash flow. In 2026, we will accelerate the expansion, opening at least 35 new centers. We will deepen density in core cities, including Beijing, Shanghai, Guangzhou and Shenzhen, while also expanding our presence in second-tier cities. As our operations mature, we are confident in further improving the center profitability, while maintaining expansion and driving the overall profitability at an early date. Second, we are enhancing our medical service delivery capability to build a long-term trust-driven mode. In Q4, we enhanced our service across 3 dimensions: physician team, compliance framework and data security. These improvements reinforced the user trust. By year-end 2025, our full-time physician team expanded to 211, up 41% from the end of Q3, ranking first nationwide among our peers by physician count. In terms of quality, all our physicians have a public hospital background and passed our regular internal certification before practicing. Over half of them hold attending physician qualifications or hires. On average, our team possesses over 6 years of clinical experience and those with a year or more and So-Young have delivered over 6,200 treatments per physician, reflecting our solid clinical capabilities. In 2026, we will launch a new physician initiative to accelerate recruitment and build talent pipeline. The program will provide industry-leading hands-on practice, systematic training and clear career path, enabling physicians to quickly achieve top-tier performance and our physician team's expertise deepens and user word-of-mouth grew, we expect per physician productivity to grow, driving continued improvement in profitability. On compliance, we established a 6-pillar compliance framework and a regular inspection mechanism. With digital software, we deliver full process traceability of medical services. On data security, So-Young is the first in the industry to obtain the TIA certification, setting a benchmark for the industry. Our ongoing investments are reflected in user behavior. Core members have a quarterly repurchase rate of 80% and their average annual spending is around 16,500. The growing user trust is the foundation of our low-cost sustainable growth. Third, we will continue to build on our supply chain, enhance value journey and seize market opportunities. As of Q4, we worked with 18 top-tier domestic suppliers and have procured nearly 1,400 devices. For injectables, we have 42 top-tier upstream partners with a cumulative procurement of over 700,000 units. In 2025, the upstream supply expanded sharply. The NMPA issued over 50 certificates for Class III medical devices, up over 60% year-over-year. For So-Young, this delivers a broader product portfolio, more durable procurement cost and enhanced user experience. Backed by the China's largest light medical aesthetic chain, we continuously enhance our supply chain layout capabilities. We have also built long-term partnerships with core suppliers and established a volume price linkage mechanism, securing the industry's best tier procurement prices. On our product layout in Q4, we launched a lighter version Miracle PLLA version 3, which lowers the customers' barrier to trail. We are also the exclusive distributor of Xihong Biopharma HA solution, now approved for marketing in China, which expands our portfolio. For BBL treatment, we improved brand influence and conversion through IP, co-branding and immersive experiences. In Q4, we partnered with [ The Little Prince IP ] and launched the Youth [ Planet ] Timeless Radiance campaign. The campaign leveraged multiple channels and formats, including celebrity treatment experience, pop-up events and in-store visits by bloggers on RedNote. Our corporate wins generated about 2 million on-site visits and total exposure on RedNote exceeded [ 40 ] million. This online and offline synergy reinforced our brand awareness and lead sales conversion for BBL, aligning brand building with revenue. Our product integration, new products launches and market activities reflect our commitment to the blockbuster strategy. In Q4, this blockbuster products delivered strong results contributing over 37% of revenue with sequential growth and remained a core engine for our aesthetic center business. Meanwhile, our brand influence have been fully validated in off-line scenarios. To date, we have successfully established a presence in high-end shopping malls nationwide including Beijing Hopson One, Guangzhou ICC Mall, Hangzhou Kerry Centre, Jinan Henglong Plaza and so on. These premium shopping malls reinforce our brand recognition and help us reach target customer groups. Finally, let me share our outlook for the future. As the industry gradually shifts back to a regional quality-driven path, value distribution is being reset. We believe that in the long run, the industry will be led by the closest consumers and capable of delivering the most trusted services. For So-Young, 2026 is a turning point. We are moving from scale first to a dual engine of scale and efficiency. Our aim is not only to open centers, but also to prove the model is profitable as we expand. Our systematic capabilities over the past 2 years give us great confidence, but our ambition is to go beyond that. As our center network, supply chain and medical service delivery create a flywheel, we will lower access barriers and let more consumers enjoy safe, transparent and inclusive services, while delivering sustainable returns to shareholders. We believe companies that create real value will earn long-term recognition from the market. Now I'll hand it over to our VP of Finance, Ms. Zhang Sha, to walk through the financial results, followed by the QA session.

Thank you, Xing and thank you, everyone, for joining us today. I'm Sha Zhang, Vice President of Finance. On behalf of our CFO, I will walk you through our fourth quarter 2025 operating and financial results. For additional details on our fourth quarter and full year performance, please refer to the earnings release we issued earlier today. Unless otherwise noted, all amounts are in RMB. 2025 marked a transformational year for So-Young. The rapid scaling of our branded aesthetic center network fundamentally reshaped our business profile, and we are pleased with where we are today. Total fourth quarter revenues reached RMB 460.7 million, up 24.8% year-over-year. This was driven by continued expansion of our branded aesthetic center business. As of year-end, our cash position stood at RMB 936.4 million, providing solid runway to fund our expansion plans while preserving financial flexibility. Let me now walk you through performance by business segment. Our branded aesthetic center business sits at the core of our growth with our platform and upstream supply chain businesses serving as complementary pillars. Together, they form an integrated value chain across the medical aesthetics industry. Revenues from aesthetic treatment services reached RMB 248.1 million, up 205.3% year-over-year. This has been our largest revenue segment since Q2 and this quarter, it crossed the 50% revenue contribution threshold for the first time. Also, this marks our third consecutive quarter of exceeding the high end of our segment guidance. This strong performance was driven by both continued network expansion and improving per center economic. As of December 31, we operated 49 So-Young clinics across 15 major cities, reflecting a net addition of 10 centers during the quarter. Now breaking down revenue by center development phase. Our 17 mature phase centers generated RMB 142.5 million in revenue or roughly RMB 8.4 million per center. Our 19 growth phase centers contributed RMB 89 million or roughly RMB 4.7 million per center. The 13 ramp-up phase centers contributed RMB 16.6 million Notably, average revenue per center nearly doubles as centers progressed from growth phase to maturity. With 19 centers currently in the growth phase, we see a clear built-in revenue growth driver as these centers continue to mature. And for their profitability, 25 centers achieved profitability during the quarter, including 16 mature phase centers, 39 centers generated positive operating cash flow. As centers move through their development cycle, profitability has consistently followed. This gives us confidence in the financial trajectory of our newer centers. Turning to other statements. Information and reservation services revenues were RMB 125.7 million, down 26.8% year-over-year, primarily due to a decrease in the number of medical service providers subscribing to information services on our platform. Sales of medical products and maintenance services revenues were RMB 69.3 million down 19.9% year-over-year, primarily due to a decrease in the order volume for medical equipment. Other services revenues were RMB 17.7 million, down 40.7% year-over-year, primarily due to a decrease in revenues from So-Young Prime. I will now walk you through our financials below revenue in more detail. Cost of revenues was RMB 255.9 million, up 67.2% year-over-year, primarily driven by the expansion of our branded aesthetic centers to break this down further. Cost of aesthetic treatment services was RMB 189 million, up 189.9% year-over-year. Cost of information and reservation services was RMB 10.1 million, down 50.6% year-over-year. Cost of medical products sold and maintenance services was RMB 41.6 million down 4% year-over-year. Cost of other services was RMB 15.3 million, down 36.7% year-over-year. Total operating expenses were RMB 327.7 million compared with RMB 815.2 million in the same period of 2024. Excluding the impact of goodwill impairment charges in both periods, total operating expenses increased moderately year-over-year, reflecting continued investment in scaling our aesthetic center business. Sales and marketing expenses were RMB 168.7 million, up 25.8% year-over-year. This was primarily driven by branding and user acquisition investments supporting branded aesthetic center growth. G&A expenses were RMB 101.9 million, up 3.5% year-over-year due to the business expansion of the branded aesthetic centers. R&D expenses were RMB 37.4 million, down 12.4% year-over-year due to improved staff efficiency. We also recorded an impairment of goodwill and long-lived assets charge of RMB 19.7 million based on our annual long-lived asset impairment assessment. Income tax benefit amounted to RMB 0.6 million compared with income tax expenses of RMB 2.1 million in the same period of 2024. Net loss attributable to So-Young was RMB 108.8 million compared with RMB 607.6 million in the same period of 2024. Non-GAAP net loss attributable to So-Young was RMB 93.4 million compared with RMB 53.2 million in the same period of 2024. Basic and diluted loss per ADS improved to RMB 1.08 compared with RMB 5.92 in the same period of 2024. As of December 31, 2025, our cash and cash equivalents, restricted cash and term deposits, term deposits and short-term investments totaled RMB 936.4 million compared with RMB 1,253.2 million as of December 31, 2024. The decrease primarily reflects our accelerated investment in branded aesthetic center expansion. Looking ahead, the fourth quarter of 2026, we expect aesthetic treatment services revenue to be between RMB 268 million and RMB 278 million, representing year-over-year growth of 171.2% to 181.3%. This guidance reflects our confidence in the sustained momentum of our branded aesthetic center business. As of today, our center network has crossed the 50 center milestone. In 2026, we will shift our focus from pure network expansion towards balancing growth with profitability improvement. We plan to add no fewer than 35 new centers in 2026, while leveraging our expanding scale to improve gross margins and drive efficiency gains across the network. This concludes my remarks. Operator, we are now ready for the Q&A session.

[Operator Instructions] Our first question comes from [indiscernible] with Citi Securities.

[Foreign Language] Let me briefly translate myself. I'm [indiscernible] from Citic Securities. So firstly, congratulations on the accelerating growth in Q4. And we are glad to see that there is improving gross margins in the aesthetic centers business and service business. So I have a question regarding the gross margin prospects. So could you share more about the gross margin plan and sources of further margin expansion?

[Interpreted] Thank you for your question. We believe that 3 core factors shape margin performance. The pace of center openings, consumable costs and seasonal promotions. Based on these factors, we have a plan to enhance gross margin. First, we will continue optimizing the pace of center openings and the ramp-up efficiency of new centers. Upfront investments into new centers can create short-term margin pressure and license approval timing in our industry is often unpredictable. Going forward, we aim to adopt a more even cadence throughout the year combined with our integrated operating system. This accelerates each center's path to efficient operations and shorten the ramp-up cycle. For 2026, new openings will represent a smaller share of total centers compared to last year. This will reduce margin dilution of concentrated new center investments. Meanwhile, the proportion and profit contribution from mature centers will rise, driving the overall gross margin levels. Second, we will optimize consumable costs. Currently, we have built deep collaborations with upstream partners, including Xihong Biopharma, China Medical System, Sihuan Pharmaceutical and Solta Medical. This guarantees reliable supply and ongoing cost optimization. Looking ahead, we will strengthen bargaining power with our partners and convert more high-quality upstream manufacturers into long-term partners. At the same time, we will continue advancing our blockbuster strategy. In the fourth quarter, our 4 major products accounted for over 37% of revenue as our core offerings grew. The procurement cost prices will become more pronounced. Third, we will refine our seasonal promotions. Seasonal campaigns remains a critical channel for user base expansion, customer conversion and building long-term user assets. Going forward, we will optimize our product mix and integrate campaigns more deeply with the membership system, targeting repeat purchases among core members. We aim to transform short-term traffic into customers' LTV. This will drive gross margin.

Your next question comes from [ Jian Wang ] with GF Securities.

This is [ Jian Wang ] from [ Guangfa ] Securities. Congratulations to the company on this outstanding performance. My question is about the development of So-Young Clinic in second-tier cities. And I would like to know whether the current operating performance of these centers has met management's expectations. Could management also share some operational updates on the several representative centers?

Sorry to interrupt ladies and gentlemen, the line for the management has been disconnected. Please stay connected while we reconnect the line for the management. Thank you for patiently holding, ladies and gentlemen. The line for the management has been reconnected. Yes, please go ahead.

[Interpreted] From an industry perspective, while China's medical aesthetic market in second-tier cities have reached relative maturity, they lag behind first-tier cities in medical service delivery capabilities and operational standards. We ensure that our centers in second-tier cities deliver the same level of medical service quality as is in first tier cities. Based on our operational track record, centers in second-tier cities are also growing well, both the traffic and per customer treatment are rising, and the revenue per center is close to first tier levels. As of December, mature centers in second tier cities such as Wuhan Tiandi Center and Changsha Center generated an average sales per square meter of RMB 7,000 per month. Among the opening in second-tier cities, Ningbo Raffles center and Suzhou Suyue Plaza stood out. These centers have maintained robust revenue growth with industry-leading CAGR. For example, Suzhou Suyue Plaza broke RMB 1 million in monthly revenue with 3 months since opening, proving that our model works in second-tier cities. In terms of profitability, mature centers in second-tier cities enjoyed slightly higher margins due to lower staff payroll and rental expenses compared to the first tier cities. We believe that the fundamental advantage of a chain model lies in reduced transaction costs and enhanced brand trust through scale and accessibility. At present, most players in second tier cities are single center operators without meaningful density. Based on how we involved in first tier cities and So-Young's live trust grows, customers will tend to purchase multiple treatments per visit. Looking ahead, we believe the process improvement, resource synergy and traffic management will drive continued gains in our second-tier centers and economics of scale will take effect across our network. We are confident that this will lead to stronger profitability and market competitiveness in second-tier cities.

[Foreign Language] And let me translate my question. This is [ Maggie Huang ] from CICC. Congratulations for our excellent performance. And we would like to know whether the competitive advantages in customer acquisition costs has been maintained amid its continued scaled expansion. And could management also share the customer acquisition strategy for 2026?

[Interpreted] Our edge in customer acquisition cost has been preserved and further strengthened. During the quarter, we opened a significant number of new centers and seized the opportunities brought by major shopping campaigns, including Double 11 and Double 12, bringing a new quarterly record for new customers. For the full year, our average CAC remained below 10% of revenue, a highly competitive benchmark in this industry. We sustained this advantage primarily through our customer referral model. Through our membership system and differentiated benefits, we will incentivize existing high-value users to refer new customers. This will not only lower CAC, but also improve the quality and retention rate of new users. Second, we will continue to optimize the mix of our public and private domain customer acquisition channels and enhance their LTV through refined operations. Meanwhile, we will continue to roll out co-branding initiatives with the world's top IP. Recently, we launched co-branding programs with 2 renowned IP, The Little Prince and Disney. Through brand storytelling, we reached a broader customer base and resonated with users emotionally, further amplifying our brand equity. As our footprint expands and user base grows, we anticipate further reductions in tax.

Your next question comes from the line of [ Daisy Chen ] with [ Haitong International ].

[Foreign Language] I'll translate myself. My question is about the user growth and the membership operations, especially for core members. Could management share the specific measures you will take to improve the LTV of core members going forward?

[Interpreted] For our core members, Level 3 and higher members continue to show solid growth momentum. Our user service show that core members still have significant room for growth in their annual medical aesthetic budgets, laying a foundation for us to boost user LTV. This quarter, revenue contribution from core members and their quarterly return rate both exceeded 80% with new core members surpassing 14,000. Consumer performances are shifting towards efficiency and clinical capabilities. Against this background, we will focus on, first, expanding our product portfolio. We will introduce more comprehensive product offerings, including standardized science-backed treatments and mid- to high-end services. We expect this to elevate user value. Second, we will further optimize our membership system by offering differentiated benefits and service touch points so as to realize tiered user segmentation and provide corresponding services. This will strengthen co-members' perception of our brand value, building a positive feedback loop, which will drive their loyalty. These measures will lead to improved center profitability and provide strong momentum for our long-term growth.

Thank you. This concludes our question-and-answer session, and this concludes our conference for today. Thank you for attending today's presentation. You may now disconnect.