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

Ladies and gentlemen, thank you for standing by for So-Young's Second Quarter 2026 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 Second Quarter 2026 Earnings Conference Call. Joining the call today are Mr. Xing Jin, our Founder, Chairman and CEO; and Ms. Shannon Shen, our CFO. Before we begin, please refer to the safe harbor statement in our earnings release, which applies to this call and we will be making forward-looking statements. We will also discuss non-GAAP financial measures. Reconciliations between GAAP and non-GAAP measures are included in today's earnings press release. Please also note, all figures mentioned in this call are in RMB, unless otherwise stated. With that, I'd like to turn the call over to Mr. Xing Jin.

[Foreign Language]

[Interpreted] Hello, everyone, and welcome to today's earnings call. In Q2 2026, we continue to expand our aesthetic treatment business, guided by our scale and efficiency backed by our ever-improving medical capabilities, a uniform delivery framework and wider AI adoption. The business enhanced its operational ability and delivered a robust performance. Its Q2 revenue reached RMB 330 million, up roughly 130% year-over-year, beating the upper end of guidance by about 5%. As a result, group revenue achieved a quarterly record, growing 33% year-over-year to about RMB 510 million. With better operating efficiency, net loss attributable to the company narrowed by 37% year-over-year to RMB 22.7 million.

[Foreign Language]

[Interpreted] Now turning to the key business developments in Q2. The approach delivered clear results this quarter. So-Young Clinic kept a healthy pace of expansion while operating quality improved. By the end of Q2, So-Young Clinic expanded into 18 cities with 65 centers in total. The larger footprint improved accessibility. More importantly, it reinforced brand awareness and captured consumer mind share, driving continued growth in treatment volume and user base. On treatment volume, verified visit exceeded 165,000 in Q2, up 145% year-over-year. Verified aesthetic treatment performed were above 362,000, up 134% year-over-year. On the user front, active users reached over 350,000 by the end of June. In particular, the number of Level 3 on both core members exceeded 38,000. The quarterly rate of core members remained robust, reflecting high user regard for our quality. New customers count also grew quarter-over-quarter with over 50% of them being referrals. This lowers blended acquisition costs while building a loyal, high-quality user base, which in turn positions us to user LTV and retention. Meanwhile, both the volume and mix of public domain new customers rose confirming that our full channel acquisition playbook works.

[Foreign Language]

[Interpreted] Third center profitability also improved as we refined operating workflows and tightened resource coordination. And we thought in Q2, the number of profitable centers rose to 47 with 51 generating positive operating cash flow. Gross margin of the expected treatment business improved by about 3.8 percentage points year-over-year to 28.1%. These outcomes validate our management approach.

[Foreign Language]

[Interpreted] Our acetic treatment business relies on a robust supply chain and enriched product lineup -- in late April, Miracle Collagen, our joint product with Jimu biopharmaceutical launched to a warm reception with over 66,000 units sold to date. In June, we rolled out lead call, it adopts self cross baking technology to create a geo texture without a cross-linking agent. Webcor helps sale and mid-phase areas while promoting ongoing collagen regeneration for a natural look. Our partnership with Simogo beyond a traditional buyer and vendor relationships. It is a move towards product co-creation, test development and long-term value alignment. Going forward, we plan to expand this model to more domestic and international medical device segment partners. This collaboration model will cover consumer insights, product definition, indication development, physician training, uniform protocols post launch evaluation and continuous integration, bringing advanced technology from R&D to real world use at a faster pace.

[Foreign Language]

[Interpreted] Also introduced built version of Maricopa. It uses a better collaborated PLLA microparticle dynameter to improve injection outcomes. Beyond the collagen category, we are also expanding the product portfolio to meet diverse agent demand.

[Foreign Language]

[Interpreted] Furthermore, we continued to enhance our uniformental delivery capabilities. First, we expand our solution team to meet growing market demand. As of June 30, 2026, the number of full-time physicians increased to around 280. On top of that, we have kept physician capabilities and treatment workflows aligned. This is made possible by our medical RMD and training center treatment guidelines, radio audits and other training and cornerstone we have in place. In Q2, we partnered with leading upstream manufacturers, including Allergan and to deliver 9 specialized training workshops effectively enhancing our physicians' expertise and clinical skills. We also completed 12 regular training sessions as part of our new physician initiative. By assessing the radical knowledge and hands-on skills, we ensure our newly onboarded physicians are well prepared to deliver Unifirm and safe clinical care. Additionally, the National Command and Control Center will coordinate medical workflows end-to-end to further elevate the user experience.

[Foreign Language]

[Interpreted] Finally, we are integrating AI with macro aesthetics to innovative test for expansion. Under the constraints of medical safety, user privacy and data compliance, we believe AI's core value lies in empowering physicians keeping delivery quality consistent and breaking the industry's feeling on scale. This approach will ultimately bring premium medical care to more consumers. Right now, our focus is on the data foundation, which powers service quality, user experience and upstream R&D enablement. Leveraging our years of industry data and capabilities to across the med platform, user operations and clinical practices, we are now building a real-world database and clinical AI infrastructure tailored for the industry. For example, our clinics launched a user-facing virtual medical dispensing platform and door screen tecisplay treatment SOPs in real time, both have effectively boosted user trust.

[Foreign Language]

[Interpreted] Looking ahead, the principles of transparency uniform delivery and accessibility will continue to guide us. We remain focused on building a premium medical service framework and deepening customer trust. We believe that as we expand ongoing refinement of our operating framework will drive continued gains in operating efficiency and margins. This will unlock greater economics of scale across our current exchange. Meanwhile, we know further diversify our supply chain once AI-powered digital capabilities and deliver a more competitive product portfolio. We are confident that these initiatives will drive high-quality growth for our aesthetic treatment business.

[Foreign Language]

[Interpreted] Now, I'll hand it over to [indiscernible] slide into Q2 financials, after which, we will move to Q&A session.

Thank you, and thank you, everyone, for joining our call today. It's my great pleasure to walk you through So-Young's second quarter 2026 performance on behalf of the management team. I will now share with you our latest operational progress across 3 key dimensions: growth, efficiency and organizational effectiveness. Please note that all financial data will be presented in RMB terms unless otherwise noted. First, in the second quarter of 2026, our aesthetic treatment business exceeded RMB 330 million in revenue, growing approximately 130% year-over-year and marking a consecutive quarter of triple-digit year-over-year revenue growth. Not only has this profiled our total revenues to an all-time high with a 33% year-over-year increase, but it has also enabled our aesthetic treatment business to achieve visible economics of scale. Behind this clear upward growth trajectory and our rising brand momentum is our scaled capacity to deliver high-quality products and services. For digital natives, we offer one-off can product value that aligns with their consumption patterns, aesthetic preferences and online producing habits, thereby driving sustainable growth characterized by high frequency and high retention. While sustaining rapid top line growth, we remain unwavering in our commitment to growth quality and long-term sustainability with a laser focus on strengthening unit economics. We recently have raised our aesthetic center capacity utilization benchmark by 50%, reflecting elevated expectations for footfall revenue, labor productivity and sales per square meter. Through operational excellence, streamlining customer flow to reduce redundant rating period, optimizing dynamic staffing, leveraging intelligent inventory management, we expect to drive meaningful margin expansion at Astec centers. Going forward, our expansion strategy will be more disciplined and market responsive. We will dynamically calibrate our opening cadence based on regional utilization levels enabling us to sustain high revenue growth while striking an optimal balance between scale and profitability. We prioritize sustainable growth over pure top line expansion. In the second quarter of 2026, we delivered a 37% year-over-year improvement in profitability. Rapid expansion places extraordinary demand on organizational capabilities. Best-in-class organizational excellence is fundamental to sustaining high growth over the long term. To that end, we have made systematic investments in organizational infrastructure with a particular focus on compliance and user experience. We continue to advance end-to-end visibility across treatment workflows to enhance transparency and reinforce trust. Furthermore, we have closed the loop on user feedback. This cross-functional coordination enabled us to maintain acute market sensitivity and continuously elevate service delivery quality and user satisfaction even as the business scales rapidly. The company stands at a pivotal infection point, pursuing high growth and operational efficiency in parallel while the long-term scale and profitability in lockstep. 10 consecutive quarters of triple-digit revenue growth validate our market acumen and execution discipline. This continuous refinement of center level unit economics together with our market responsive expansion strategy ensures that our growth remains high quality and sustainable. Complementing this, our systematic investments and organizational capabilities provide the backlog for long-term value creation. Next, let's start into each business segment. Revenues from aesthetic treatment services reached RMB 331.4 million, exceeding the upper end of guidance for the fifth consecutive quarter. The root of our loyalty program and systematic treatment protocol creates a 3 to 5 percentage points deferral between service delivery and recognized accounting revenue. Today's service generated future membership benefits. While this 10% near-term reported revenue, it builds a deferred revenue base that underpins long-term growth. Net of this deferral impact revenue still grew approximately 130%. Looking at aesthetic center data as of June 30, we operated 65 So-Young clinics across 18 major cities, reflecting a net addition of 11 centers in the quarter. Among them, 47 centers were profitable and 51 centers generated positive operating cash flow during the quarter, reflecting a net addition of 6 and 3, respectively, from last quarter. We also achieved same-store sales growth of 52%, substantially improved from 14% in the prior year period. Turning to our other segments. Revenues from information and reservation services were RMB 87.9 million, down 35% year-over-year, primarily due to the decrease in the number of medical service providers subscribing to our information services. Sales of medical products and maintenance services revenues were RMB 73.9 million, down 2.8% year-over-year, primarily due to the decrease in order volume for medical equipment. Other services revenues were RMB 12 million, down 48.2% year-over-year due to a lower insurance brokerage revenue. Cost of revenues was RMB 282.4 million, up 53% year-over-year, driven primarily by the expansion of our branded aesthetic centers. Total operating expenses were RMB 266.5 million, up 10.4% year-over-year. Specifically, Sales and Marketing expenses were RMB 153.5 million. From aesthetic treatment service perspective, our comprehensive customer acquisition cost remains at a healthy level, accounting for less than 10% of the revenue, coupled with strong user retention. Our overall customer acquisition model maintains sustainable. G&A expenses were RMB 88.6 million, up 12.5% year-over-year, reflecting the continued expansion of our branded aesthetic centers. R&D expenses were RMB 24.4 million, down 21.7% year-over-year, driven by continued improvements in staff efficiency. Moving forward, we will continue to deepen AI integration across our operations, straight-lining workflows and driving efficiency gains in R&D, clinical diagnosis and treatment and beyond. Income tax benefits were RMB 2.5 million compared with income tax expenses of RMB 1.9 million in the prior year period. Net loss attributable to So-Young was RMB 22.7 million, which narrowed by 37% compared with RMB 36 million in the prior year period. Non-GAAP net loss attributable to So-Young was RMB 21 million compared with RMB 30.5 million in the prior year period. Basic and diluted loss per ADS were both 0.22 compared with 0.35 in the prior year period. As of June 30, 2026, our cash and cash equivalents, restricted cash and term deposits and short-term investments totaled RMB 848.2 million. Turning to our outlook. Please allow me to remind everyone that this contains forward-looking statements, which include risks and uncertainties that are beyond our control and could cause the actual results to differ materially from our predictions. Based on our current estimates, we expect revenues from aesthetic treatment services to be between RMB 352 million and RMB 362 million, representing year-over-year growth of 91.7% to 97.2%. That concludes my prepared remarks. Operator, we are now ready for the Q&A section. Thanks.

[Operator Instructions] The first question today comes from Jinpeng He with Citic.

[Foreign Language] Firstly, congratulations of the companies continued strong performance and impressive growth in the second quarter. So I have a question regarding the collaboration with. So the collaboration is generating great momentum with an innovation in the later partnership model. So what have both parties liked? And what are the benefits?

[Foreign Language]

[Interpreted] We are pleased to have reached a reliable, mutually beneficial partnership with Zenbo as medical aesthetics amount moved towards natural restoration, tissue regeneration and long-lasting outcomes. The component humanized collagen will have a long lifespan. Relationship with Zenbo, therefore, benefit our long-term growth.

[Foreign Language]

[Interpreted] More importantly, we are using real-world data to drive product and supply chain decisions. We analyze connections between user age, skin condition, treatment details, post-treatment reaction, face pack and repurchasing behavior. From there, we can pinned which products, which population area and treatment combination. This helps us optimize doctor training program decision and inventory planning, which greatly reduces buying with guess work and excess inventory. It also led upstream manufacturers move out of a closed R&D environment and integrate their products based on actual clinical insights. This enhances our operational efficiency and build leverage in joint research, product integration and partnerships.

[Foreign Language]

[Interpreted] Going forward, we will expand this data feedback, corporation model to more quality partners and home and abroad. In the past, many viewed downstream clinics only as distribution channels. Today, we are transforming our extensive clinic network into the industry's innovation infrastructure. By leveraging real-world consumer demand, hands on experience and treatment outcomes to deliver R&D. We aim to accelerate technology, innovation and product integration, ultimately delivering value to more consumers.

The next question comes from James Wang with GF Securities.

[Foreign Language] AI intiatives, could you elaborate on how AI applies in the business? Where do you see your biggest value and future derivatives?

[Foreign Language]