Q4 2020 Yatsen Holding Ltd Earnings Call
Ladies and gentlemen, good day and welcome to the yachts in fourth quarter and full year 'twenty 'twenty earnings Conference call.
Today's conference is being recorded at.
At this time I would like to turn the conference over to Irene Lou.
The strategic investment and capital markets. Please go ahead.
Thank you operator. Please note the discussion today will come from for local standard when it needs for the couple of future for false alarms.
Tenants, you'll qualify for the safe Harbor from liability and the slack left for the U S. Private Securities Litigation Reform Act.
Such statements are not guarantees of the future for fall and are subject to sort of risks and uncertainties.
Interest and other factor some.
Some of the threat of Yamal County for how could cause actual results to differ materially from those mentioned in today's press release and this the stock.
Agenda of the Scotch out of the risk factors section of the fact jaco sitting up in the financial result is included in certain filings of the company with the Securities and Exchange Commission income.
<unk> does not undertake any obligation to update the for the full information except as required by law.
Today's call management will also discuss certain non-GAAP financial measures for comparison purposes, all of them for a definition of non-GAAP financial measure and the reconciliation of GAAP to non-GAAP financial results for you see the earnings release issued earlier today.
Joining us today all of the call from Yaacov Senior management are Mr of quote unquote, our founder chairman and CEO and of Mr. Don't haul Yao, our CFO and director of management will begin with prepared remarks, and the call will cause fluid with the Q&A session.
As a reminder of the culprit. The flow recorded in addition, a webcast replay of this conference call will be available of Yakin Investor Relations website at IR of Salt Yahoo Global alcohol.
Now part of the call over to the searching for Paul. Please go ahead.
Okay. Thank you Irene.
Thank you everyone for participating.
Inaugural earnings conference call at the Bank.
So 'twenty. Thank you worked and recycling gear for your son.
As we made great strides across all of it this and achieved numerous milestones so one of the most.
Highlights for the year with our successful listing all of the New York The change on November 19th last year, marking the start of our new journey as a public company.
So on behalf of the outside of the employees and myself I would like to extend our sincerest gratitude and appreciation to all of your long time, and the new shareholders, who continue to support us per.
Per day for the first time as the public company. We are pleased to present, you with all of our solid operating and financial performance for the fourth quarter and the full year of the 10 to 20.
So throughout the year, we leveraged our past the Texas to further fortify our leading position in color cosmetics, which I N C N of millennial customers.
So just think of firm commitment to put the true product innovation, it's about equipment enhancing brand portfolio and the port of operating and net strengthening the highest with customers through both online and offline channel position us and unique and the competitive players.
Players from China's fast growing the beauty industry.
They have the results for the full year, we grew our total net revenues by 72, 6% year over year to RMB, five 2 billion and the IND.
Priest, our gross sales by 72, 4% from the throughput target in 2019 to RMB six 1 billion in 2020.
In the an extension of the robust the momentum we saw throughout the year fourth quarter total net revenue increased 7%.
The 1.7% year over year to RMB 2 billion and.
And it boils down climbed seven tier three 3% year over year to RMB two months of repeated.
So I'll call the results are.
So all of the ability to quickly grow out of this.
As evidenced by the accelerated.
Some of our flagship brand for the battery and the rapid growth witnessed the by all of the other brands, including a little on the in the ABS twice soon after being introduced to our political volume.
So the strength across our brand portfolio, demonstrating our ability to incubate and the scale brands and assures us that we are on the right tax as we continue to press forward.
This number although it gets paid the effects of the ifs.
Back to the lives of our disruptive D to C model, which enabled us to consistently deliver in the weighted part of and the personalized the services that deepen customer engagement.
So the growing popularity of of homegrown Chinese beauty, Brian is creating a great opportunity for us as of brand pockets of Gen Z and millennials.
Northern cohort of China's beauty industry.
So aren't you moving part of that line is steadily gaining traction among young consumers and the substantial growth in the fourth quarter. The number of beef with the customers reached another record high of 14 point for medium and this number to me at 32.
Three media for the full year. So this represents an impressive year over year gains for the 1% instead of 8% respectively.
So kind of cosmetics at the foundation of the offices and the abundant contributor to revenue. So having said that are we further widened all caught up variety and offerings during the fourth quarter with more emphasis on quality innovation and uniqueness of this so.
So we deepen our reach in the skin care segment with the acquisition of Atlantic and iconic premium of French of skincare brand from here Pat.
And the message Chinese skincare per M, which is the leading medical skincare brand known for its a highly effective product targeting various sensitivities in Asia the schemes.
We also entered a strategy of partnership with the sensor technologies of partnership that is inherent in our R&D capabilities for in the weighted cutters and the new materials for color cosmetics.
So putting quality control for raw materials, and the amplifying the use of technology to exhaust the current challenges in the color cosmetics industry.
So leveraging of our disruptive D to C motto out of core platform capabilities, we of what's going to award during the multi brand portfolio that drives a broader product selection and of justice the need of more customers with this mission in mind I would like to review some of our recent activities and unpack.
Income upcoming initiatives for temperature of two one and yeah.
So on the back of the at the setup of our existing brands.
We planned for introducing some more brands, who started incubation and acquisitions in the target market segments, where we see considerable room for growth.
Ideal portfolio will consist of diversified the brands with very marketing market positioning from mass market to high band as we seek to attract of widespread strength of consumers.
We are also proactively pursuing strategic investments acquisitions and the collaborations both the misquoting it domestically and the horses.
As announced earlier this month, we recently acquired the prestige skincare brand deep long from met the Midtown capital so be it the.
Brian most of the walgreen impart of range.
Our exceptional e-commerce capabilities and the demonstrated have we're caught up the innovation, we have confidence that we will further accelerate it.
With growth in the global market.
So the close before I kind of over two dozen hall Chinese beauty market has enormous potential weighted to be unleashed.
All of our customer centric the value proposition disrupted the DTC business model and a strong R&D capabilities uniquely uniquely positioning the firm to play a leading role in the country's evolving through the industry.
So looking ahead, we remain committed to finding the landscape of Chinese beauty, even as we engage in the role with the next generation of consumers for why debt with the new journey of beauty discovery. So think of the one with that I will now turn the call over child care both of them how young.
To discuss our financial performance.
Thank you, David and Hello, everyone.
We finished the fourth quarter of 2020 with the set of our solid financial results for healthy top line growth reflects the strong performance, we achieved across our brand portfolio and demonstrates the deep market appeal of a part of success of our growth strategy and our.
The ability to skillfully execute our operational plan in an effort to scale of brown and expand.
Please.
For the ability was impacted.
During the quarter as the result of increased selling and marketing expenses.
As well the general and administrative expenses well.
While our gross margin rose to 66, 3% in the quarter compared with 62 seven per cent in the same period last year.
'twenty 'twenty was the pivotal year for GAAP and the beauty of industry as a whole and our efforts in product innovation and development of paying off.
As we move deeper into 2020, one we remain committed to our strategy of further growing our product offering customer base and revenue, which we firmly believe will lay a solid foundation for profitability in the wall of.
Now moving on to our quarterly financial highlights before I get started I would like to clarify that for all financial numbers presented today are in.
And all the percentage changes refer to year over year changes unless otherwise noted.
Total net revenue for the fourth quarter of 2020 increased by 71 seven per cent kicking feeling R&D from one of them.
1 billion R&D for the fourth quarter of 2019, primarily attributable to the growth in sales volume of our beauty products driven by increases in the number of customers. During the same period gross profit for the fourth quarter of 2020 increased by 80.
One six per cent for $1 3 billion RMB from from $116 3 million RMB for the fourth quarter of 2019.
Total operating expenses for the for quarter of 2020 were $2 8 billion RMB compared to 644 8 million RMB for the fourth quarter of 2019 as a percentage of total net revenues total operating expenses increased to 140.
For five per phone from 50.
The $6 five per phone in the prior year period.
Fulfillment expenses for the fourth quarter of 2020, or $144 7 million RMB compared to $114 2 million RMB for the fourth quarter of 2019, the increase was primarily due to one an.
And the increase in the warehousing shipping and handling expenses driven by the growth in sales volume of our beauty product. During the same period in two share based compensation expenses recognized upon the current of IPO. According to the U S. GAAP.
The pro forma the total net revenue for the form of expenses decreased to seven 4% from nine 1% from the.
The prior year period.
Selling and marketing expenses for the fourth quarter of $2021 4 billion RMB from five to $446 3 million RMB for the fourth quarter of 2019 the.
Increase was primarily due to one of an.
An increase in advertising marketing and brand for medicine cough.
And increasingly for.
Coal from the development development of experience sort of way.
Share based compensation expenses recognized upon the current of IPO. According to the U S GAAP.
As a percentage of total net revenue for all of them.
Operating expenses were from the point.
<unk> three per cent compared to 49.1% in the prior year period.
General and administrative expenses for the fourth quarter of 2021 point of who you're doing R&D compared to $71 9 million RMB for the.
Fourth quarter of 2019, the increase was primarily due to one and the increase in personnel cost and two brooklynite ex.
Fences upon the occurrence of I P O. According to the U S GAAP.
As a percentage of total net revenue general and administrative expenses were 65, 6% compared to six 3% in the prior year period.
Search and development expenses for the for quarter of 2020, or 25 6 million RMB compared to 13.4 million RMB for the fourth quarter of 2019. The increase was primarily due to one an increase in personnel costs and to recognize.
Surveys of compensation expenses upon the current of I P O of according to U S. GAAP.
As a component of total net revenues research and development expenses for our one three per cent compared to one two per cent and the prior year period.
Loss from operations for the fourth quarter of $2021 5 billion RMB from Baird.
The two income from operations of $71 5 million RMB for the <unk>.
Fourth quarter of 2019, non non-GAAP loss from operations for the.
The fourth quarter of 2020, with 291 million RMB compared to non-GAAP income from operations.
The 90 million of R&D for the fourth quarter of 2019.
Net loss for the fourth quarter of 2020 was 1.5 billion RMB compared to net income of.
$46 2 million RMB for the fourth quarter of 2019, non-GAAP net loss for the fourth quarter of 2020 was 287.4 million RMB compared to non-GAAP net income.
$64 8 million RMB for the fourth quarter of 2019.
Net loss attributable to the absence ordinary shareholders per diluted EPS for the for quarter 2020 was 4.0 for RMB compared to net income attributable to get the ordinary.
Ordinary shareholders per diluted ads.
Your 0.1 of RMB for the fourth quarter of 2019.
Non-GAAP net loss attributable to get some of the ordinary shareholders for Tyler.
Yes for the fourth quarter of 2020 with zero point of seven three RMB.
Sales to non-GAAP net income attributable to you all from Fortinet shareholders per diluted EPS.
The other 0.16 times for the fourth quarter of 2019 of them.
The December 31, 2020, the company had cash and cash equivalents Andrew.
And with cash of $5 7 billion RMB compared to 676.
Million RMB as of December 31, 2019 of them.
Quarter ended December 31, 2020, net cash used in operating activities.
362 1 million RMB.
Looking at our business outlook for the fourth quarter of 2021, we expect our total net revenues to be between 137 billion of R&D and one point for two healing RMB, representing a year over year of growth rate of approximately 35 per cent for 40%.
This forecast reflects our current and preliminary view on the market and operational the condition with the subject to change.
With that I would now like to turn the call for Q&A.
Yes. Thank you.
We will now begin the question and answer session to asking the question you May Press Star then one on your Touchtone phone.
If you are using a speaker phone please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then two.
For the benefit of all participants on today's call. If you wish to ask your question to management in Chinese piece of Mail you immediately repeat your question in English at this time, we will pause momentarily to assemble the roster.
And the first question comes from Christine Cho with Goldman Sachs.
Yeah.
Yeah, David I don't know congratulations on your first earnings call.
I've two quick list of questions. One could you give us some kind of your key assumptions behind your guidance for the next quarter.
And secondly, I would love to get an update on the perfect diary skincare expansion plans.
And also with all of the acquisition sounds good I'll make a need for them and some of the skincare brand. How do you see the skincare makes the ball being in the long line. Thank you.
Well Christine sorry, I didn't quite get your first question. So you want to provide some color behind the of the Q1 guidance of what.
Yes, yes.
So I'm sorry, what do you mean by color I mean, the guidance is the guidance of 30.
35.
I'm, sorry, I got a bunch of them.
Yeah, there's some market conditions that you're looking at what kind of growth here of the peanuts for the category as a whole of some you know the ethics rates you mentioned, the 652 of them, but what are some of the things well, let me phrase. It. This way what are some of the key factors are that.
That could be a very important to looking into first quarter.
Oh well.
Again, I think where we are we still continue to execute our.
And the strategies in terms of the.
One you know our existing brands you know put the Gary live audio and a B C U E.
Continuing to grow those brands and two you know we have.
The acquired you know of.
The number of new brands and you know and you know we're currently focusing on the integration of those new brands into our existing.
Business and operations.
And.
But the but you know in Q1 and of the contribution.
You know in terms of the revenue from the newly acquired the brand is still very limited but going into.
Q2, and Q3 Q for the later part of the fear.
We expect.
The increase in contributions.
You know from those new breath.
Yeah.
Okay.
And I think the number.
We thought the there's the often.
Welcome to answer.
Operator.
David the thing.
Okay.
So for the year, but of course, it already skincare convention I think because right now we are rolling out the the skincare products in all of our offline of course that also we have the bang for the.
The line coming in the if you go from here.
So for the depot, so we see out of home.
Consistent company line expanding of the skincare, especially we leveraged the.
To put the batteries like for an equity so.
So we believe the long term wise than the the skincare for you of contribute a fortunate for couple of items.
The gross debt.
And just the build on the Uh huh.
For the Q1 like the guidance, especially and they'll say well you could.
Look at the quality of the 16 for that kind of most of the new product launches you should be more in Q1.
And so there would be more new partner kind of you.
For the new brands coming out.
Long after the Covid.
Yes.
Yeah.
Thank you.
Thank you and the next question comes from Dustin Wei with Morgan Stanley.
Yeah.
Thanks management for the question of Dougherty. So I think I think the first question is still related to the guidance of the 35% to 40% year on year I kind of think of that you know first quarter 'twenty EBIT for the online business was you know of slide eight or what's the what you know of meaningfully impacted by Covid. So there sort of a little low basis.
Fact, there and yet we have this guidance so not sure. We can talk about the breakdown by brand or some of dynamic for out of my offline like for example, with being like 35 to 40 percentage of sales growth for the for come pull company now what's the growth that we should look for for the perfect day area for example, or what's the growth for al.
Hi, I'm, just trying to try to get a sense about bat of management is a little bit too conservative this is a reasonable guidance.
And then if we are kind of looking for slightly slower growth.
Is that some of the strategic change here that management zinc for the existing brands company will need to focus more on the profit up with Audi.
Or or sort of lower of loss ratio and then focus more on the newer brands.
So that's sort of related to I guess the.
First quarter guidance and some of the potential strategy change.
I guess the second question is that when we think about the more premium brand like chronic what you're from.
Are they the brands that going to be generating the profitable growth for.
Or are they a company will use the similar sort of methodology to really drive the very strong sales growth in debt, but the spring yet in the short term will be lossmaking.
So question is related to our I guess, the balance sheet and the cash so I think for 'twenty 'twenty. One if we assume company, we still have some loss and the working capital needed for expanding the business and the potential M&A, so what what kind of the cash consumption for cash.
<unk> brand that you wish you look for for for the end of the 2021 thank you very much.
Well. Thank you for the for the question, let me try to take a shot.
And your question.
First of all of the last year actually Q1 was not a low base it's hopefully.
The business maybe in some of the other businesses.
No.
It's all of the impact of the COVID-19 of the earlier, but for US you know of Q1 last year, we saw.
No one with plenty of per cent of the every day. So it was the very strong quarter in our mindset.
The impact from COVID-19 started to hit Us ex.
We found the Q2 and even until maybe and some part of the China today.
Because as you know in the last two months and some parts of the country. It's definitely in the in the <unk>.
Northern part of the country you know of.
The 19 came back and some of the cities you know.
The offline stores, where we're closed again and some of all sorts of.
Or or or impact of too.
We're not trying to be conservative and providing the guidance, but again as we mentioned earlier.
In Q1, you know some of the new products for existing brand like perfect Guy a little of Andi.
You know, we will not be launched until Q2.
And the contribution to our revenue from the newly acquired.
Brian you know, we will not we will not present themselves.
Not for themselves and are the Nashville.
You know starting from Q2 of them Accordingly.
The trying to integrate an Atlantic AR and AR and the other Chinese brands into our operations and we haven't even closed.
Actually close we find the a S T a.
He of long that's why we had to close the deal, but it will take us another couple of weeks.
To actually close.
The deal and the consolidation of the launch.
The numbers in part of financials.
Well it started only in of from the beginning of Q2 so.
We believe for the growth rate of all of our business will start.
Sorry to come back or pick up.
You know starting from Q2 compared to Q1, that's alright, alright, so of Q1 growth rate year over year is representative of.
You know the.
The growth rate for the full year.
So your second question.
Okay, and then yeah and I think for your second question I think it's really able to you know the.
The strategy for new running the system grant so actually while we are determining the brand strategy. The company will actually look at the brands.
The agent cycle instead of whether the plan if the new waves of flow. So for example for our first friend perfect. Gary If we identify a good growth opportunities in the new category when you're offering we will not hesitate to implement a growth strategy by investing in calculating back in sales and marketing.
To further review of the brand equity and we of course customer awareness. So basically when we look head of our brand portfolio and the long term.
We are going to launch more brands through a combination of all self incubation and also M&A, but either for M&A, it's not only a pure aggregating all revenue together to increase the overall level of sale, but rather we're very skilled at flow in the plant that we acquire basically.
One of the top line with the market share so basically in the long term.
Still very right now where I feel bad focusing of our top line growth regardless of whether it's new it's the sort of rather at the sort of came out of the grass the age and also for help here.
Yes. The third question is actually regarding our cash burn.
This year.
Alright, that's the only talk about our operating cash.
Flow because you can never plan ahead of time, you know your next acquisition activity.
So this year as we explained to.
You know our investors.
So it's gonna be another lossmaking, you have because of our.
Our current focus is off.
The top line growth so it's gonna be a mother of negative operating cash.
Cash flow year for us, but hopefully.
Next year.
We're gonna be able to breakeven and our bottom.
Bottom line and so.
You know our.
Our cash flow situation.
Yes.
Got it thank you very much.
Thank you and once again. Please press Star then one if you would like to ask a question.
And the next question comes from the Who's Li with Bank of America Securities.
The other HEICO.
Thank you for taking my question.
So all of my first question is that since we did the first quarter of guidance so for them.
How long is the Oh yeah.
<unk> accelerates and close in the from Q2 222 of it should the.
End of the year right so how.
How should we look at the C suite.
This is kind of accelerates from the second quarter. So what is that people's trying not behind us.
Sure.
Oh, what Sachin flagship bank type of dairy or native.
In the developed the South do you have the brands I think of all day and out of choice or the key quotes for the key contribution from the close and should come from the newly acquired of brands.
This is my first the question on that.
Second question is actually the could you give us more color on the newly acquired brands, particularly the Islam, So how big of it.
And as for now so.
What is illustrative of to grow the newly acquired it but I've heard that most of us are.
I'm quite of bank of skincare so.
We.
Trying to.
Gotcha.
House Sunday of skincare brands from the existing customer base or are we.
Actually our target of tieback to extend the customer base of Q2.
For the new customers, because clearly they have a different brand positioning the Avalon and Glen Nickle more premiums. So some of what is our strategy. Thank you.
[noise].
Alright. Thank you for a question for your first question.
Do not provide full year guidance.
For our top line growth, but I said earlier as I said earlier, even outside of from Q2, you know we may see some you.
Pick up on our.
The growth rate because you know as of the point earlier, you know first of all the current loss share was a it was a very strong quarter and.
In Q1 this year, you know our business, especially offline business. So got hit by the COVID-19 situation in some parts of the country and too.
You know our newly acquired brands haven't started.
Moving to our.
Top line.
Starting from Q2, you know we're going to see some of that and then three you know you can look at our existing brands. You know, we do have plans to launch new.
You know product of.
Probably the category for example for Barry you know.
We're gonna be launching you know for example of mail of product.
In the in Q2 Q3 this year.
So those will be the driver for the for our top line growth for the.
The remaining three quarters of the year.
Your second question.
Yeah, you're absolutely right you know the.
The neocon.
The acquired.
Banks are mostly of skin care brands like Atlantic It law and other tiny right.
And you know the.
Two of peace of mind at least the heap law and Atlantic our actually our position as a prestige.
Brian and it would be very difficult for us to sell them to our existing.
The customer base of <unk>.
The guy who because they're just totally different market segments.
But again I think you know we have built our core capabilities in terms of our supply chain.
R&D capabilities and data driven product.
Capability and also the marketing.
Social media.
So.
By leveraging the crop operating capabilities.
Believe that we will be successful in launching of Relaunching the newly.
And the way of car brands.
Yes.
Okay. Thank you.
And the next question comes from Kevin Chiang with 86 research.
Thank you for taking my questions one of them Young zone Irene congratulations on the very strong earning results I have two quick questions. The first one is that things why she have already built a brand portfolio with different categories and price positioning so how.
Do we make best use of our very large user base. The cross sell I guess when you know we have for that very large unlike all of our base and the member of shape.
What is our brand the operational strategy. The second question is about the newly acquired the brands Clinique and the Eve alone. So what is our strategy on the post acquisition integration how to deal with their existing team and the overseas distributor network. Thank.
Thank you.
Yes.
So thank you for the question the Green pass the first one how are the well be expanding to the market for us and I guess the so.
So we believe we can leverage.
All of the 15 liked the parcel of fees and it was all of them.
When I say Chicago abilities, so going back to the of the things fell apart.
I believe.
So for the new brands, we acquired so the.
Both of you should be coming from two parts one highest about like the we can leverage the existing like deal the.
Capacity or customer base to to either test of a product or two of them to test the brand positioning or two of.
Launch and the design new products. So that's a benefit to the go gurt and also another thing that we work with that is actually a two a salary the growth of the brand for your quiet in the.
Hum.
The index.
Yeah.
So going back to your.
Okay.
Okay.
Okay.
Do you mind repeating your second question.
Sure no problem for them. So it seems we have acquired a clinique and eat blow them. These two overseas brands. So what is the our strategy on the post acquisition integration for.
Example of how to deal with their existing team R&D resources as the west the overseas distributors.
Well I think that's the very important question of the policy acquisition cost of integration plays a very important part of.
When we extend the brand portfolios so right now the debt.
A few steps we're taking one of the most important thing it's actually of we are well north of 100 for semi out the more like a joint venture we stayed consistent shareholder which can help us to most of the transfer of the they're for the operation. So our for our partners who are helping us to.
Two of remain and they keep the existing the distribution network and they're helping us on the <unk>.
In the front of innovation and even keeping the the key employees and the threat of equity on the et cetera for this joint venture is great important sure to make sure that the acquisition is like.
Is it just like the joint effort of both parties like the strength, but that's the very important thing.
And the other thing is the right now we are internally we have for you know organization cover for the T V.
So we are we have the new talents coming from consulting for them.
The professional services team and that the average with the execution.
All of them.
The integration of policy of the.
Provision for the leap with the ethanol, helping also the internal teams like the Permian.
We are getting better in the bedroom in execution of both the acquisition.
I think of somebody.
Yeah.
Okay.
Yes.
Thank you.
And as of this does conclude the question and that's the session I would like to turn the conference back over to management for any closing comments.
Uh huh.
Thank you operator.
So thank you once again unfortunately not for today, if you have any further questions. Please feel free to.
Yeah for them directly or TPG Investor relations.
Contact information for IR in both China, and the U S can be found on today's press release of a great day. Thank you.
Thank you for the conference is now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.