Q1 2023 So-Young International Inc Earnings Call

After management gives their prepared remarks, there will be a question and

As a reminder, today's conference call is being recorded.

I will now like to turn the meeting over to your host for today's call, Ms. Vivian Zhu. Please proceed, Ms. Zhu.

Thank you, operator, and thank you, everyone, for joining So Yung First Quarter 2023 earnings conference call. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the US private securities agency.

and the Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results that differ materially from our current expectations.

Potential risks and uncertainties include, but are not limited to those online or public filings with the FEC, including our annual report on Form 20F. So Yung does not undertake any obligation to update any forward-looking statement.

accept as required and applicable law. Join me today on call is Mr. Xin Jin, our co-founder, Chairman and CEO , and Mr. Nick Zhao, CFO . At this time, I would like to turn the call over to Mr. Xin Jin.

Thank you for your attention.

Hello everyone. Thank you for joining Sol Young's first quarter 2023 earnings call.

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We kicked off 2023 with a strong financial performance as the effects of the pandemic recede and the gradual recovery of medical effect industry gains momentum. Total revenue for the first quarter reached subtractive discussingslide

310 million, a year-on-year increase of 3% and exceeding the high end of our previous guidance range.

Straight cost control mirrors and operational efficiency improvements resulted in a 15% year-on-year decrease in operating expenses while our non-GAAP net loss attributable to full-time international emeritus narrowed significantly.

decreasing by 94% year-on-year to 2.75 million.

Thank you for your attention.

I will now walk you through the progress we have made on So Yum Prime, our strategic priority this year.

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As we have emphasized on our last earnings call, the medical ethics industry in China is undergoing numerous structural shifts. Users are becoming increasingly more sophisticated and discerning. For example, middle class female users are becoming increasingly more sophisticated and

a major demographic group within the large medical et cetera sectors.

They are increasingly showing distinctive consumption habits that reflect these structural shifts, such as more attention to safety, service quality, and cost for specific high-frequency procedures, such as anti-aging, skin care, and body sculpting.

Medical institutions and SMEs, on the other hand, face new challenges such as higher user acquisition costs, constant CAPEX requirements to upgrade equipment, and a lack of qualified doctors. This impacts their ability to expand.

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Prior to this structural shift taking code, our focus was squarely on strengthening the numerous competitive advantages we have accumulated. This span from user acquisition, streamlined operations, and integrating upstream and downstream resources.

to ensuring the quality and authenticity of services and doctors. This competitive advantage enabled us to build significant barriers to entry, tap into broader verticals within the industry, solve pain points, and offer unique value propositions.

to both consumers and medical institutions.

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We launched So Yum Prime late last year, a proprietary one-stop, non-surgical medical aesthetics solution. So Yum Prime covers every process from user acquisition to pricing and delivery in order to guarantee service quality and enhance the user experience.

Our staff have their own service counters within our partner medical institutions.

So Yum! Prime was launched to widespread praise from consumers and has already generated the purchase rate significantly higher than any of the previous products launched on our platform. Several institutions have been incredibly interested in signing on.

By the end of the first quarter, we have partnered with over 130 institutions in more than 25 cities. During the first quarter, fulfilled orders through So Yum Prime increased by 88% sequentially. Going forward, our near-term goal is to further expand So Yum Prime service work.

This will solidify its position and strengthen its brand by focusing on popular SKUs such as medical grade laser and injection treatments and body sculpting. This will also expand our market share for these categories and generate more buzz within the industry. This will also expand our market share for these categories and build more buzz within the industry. This will solidify its position and strengthen its brand by focusing on popular SKUs such as medical grade laser and injection treatments and body sculpting.

With so much potential, we are confident that So Yung Prime will be a key growth driver for us this year as it expanded into more cities.

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With the effects of the pandemic receding and the Chinese New Year holiday period not behind us, the medical ethics industry have been undergoing a gradual yet uneven recovery. First and second tier cities are recovering at a faster pace than tier three and low. The Chinese New Year is a year that has been undergoing a gradual and rapid recovery. The Chinese New Year is a year that has been undergoing a rapid recovery.

Non-surgical procedures are also recovering at faster pace than surgical procedures. Medical institutions as a result remain cautious on increasing marketing spend during the first quarter.

but they have gradually been increasing their activity as we get deeper into the second quarter. Long surgical orders placed in April were 14% higher than the monthly average last quarter. For surgical procedures, the increase was 25%.

With transactions on a platform accelerating, marketing spend by medical institutions is also significantly picking up in April .

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With the recovery clearly underway, we began to increase promotional campaigns across our platforms in March. Our focus was on SKUs that are in high demand, namely skincare and body sculpting. By optimizing the design of the so-called So Young app, we were able to increase the

We now display recommendations for popular SKUs and popular doctors, as well as offer discounts on surgical procedures. This incentivizes users to return to the platform, increases engagement, and drives field orders and the DMV grows.

With the summer holiday season rapidly approaching, we will expand the number of medical institutions we partner with to increase the supply of key SKUs and strengthen user engagement and stickiness.

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After 10 years of rapid development, the skill and growth potential of the Chinese medical aesthetics industry remains enormous. The industry is standardizing as it grows, shifting from product driven to technology driven. Our focus throughout 2023 will be on high quality growth.

empowering SME medical institutions, and providing better products to consumers through services such as So Yung Prime. I am confident that this will strengthen our core competitiveness and improve our financial performance.

Thank you for your attention.

I will now turn the call over to our CFO Nick to review the financial results for the first quarter before taking your questions.

Hello, this is Nick. The investments we made in our infrastructure capacity and service expansion during the challenging environment last year are beginning to pay off and are reflected in our financial performance this quarter. Total revenues during the quarter were RMB 310.1 million, up 3.2% year over year.

and exceeding the high end of our previous guidance.

The increase was primarily due to an increase from the sales of equipment and maintenance services and other services.

The revenue is composed of three main streams, information services, reservation services, and revenue from sales of equipment and maintenance services.

Information services and other revenues were RMB $217.8 million, up 9.2% year-over-year.

primarily driven by an increase in other revenues from Soyoung Prime.

As our CEO Mr. Jin outlined earlier, the industry's recovery has been uneven.

Reservation services revenues continue to feel the impact of COVID-19 on search call transactions, decreasing 29.9% year-over-year to RMB 29.7 million, but has also begun to rebound in April .

Sales of equipment and maintenance services, which were from Wuhan Miracle Laser System Inc. were RMB 62.6 million, up 7% year over year.

Cost of revenues for RMB, 113.7 million, up 6.7% over year. The increase was primarily due to investments made in service providers to enhance operational efficiency and improve the quality of services.

Total operating expenses were RMB 229.8 million, down 15.4% year-over-year.

Sales and marketing expenses were RMB $112.5 million, down 11.6% year-over-year, primarily due to the increase in expenses associated with branding and user acquisition activities.

G&A expenses were RMB 61.5 million, down 5.9% year-over-year due to operational efficiency improvement.

R&D expenses were R&D $55.8 million, down 29.3% year-over-year, primarily due to a decrease in payroll costs.

Income tax benefits, or RMB 4.3 million, compared with income tax benefits of RMB 2.0 million in the first quarter of 2022.

Net loss attributable to Sohyang International Inc. were RMB 11.9 million compared with a net loss of RMB 66.8 million during the same period last year.

With revenue growing once again, our non-GAAP net loss attributable to Sohyang International Inc. narrowed significantly to RMB 2.8 million, a decrease of 94.3% year-over-year.

This compares with RMB 48.3 million in the same period of 2022.

Basic and diluted loss per ADS attributable to ordinary shareholders were RMB 0.12 and RMB 0.12 respectively compared with basic and diluted losses per ADS attributable to ordinary shareholders. For more information, visit www.fema.gov

of RMB 0.62 and 0.62 respectively during the same period of 2022. We have ample cash on hand with total cash and cash equivalents, restricted cash and term deposits and short-term investments of RMB 1.5 billion.

as of March 31, 2023, compared with RMB 1.6 billion as of December 31, 2022.

Looking ahead, we will continue to carefully monitor and control our expenditures and improve our operational efficiency as we navigate this period of recovery.

and leverage our ample cash position to strategically invest in the future.

For the second quarter of 2023, we expect total revenues to be between RMB 380 million and RMB 400 million.

The above outlook is based on the company's preliminary estimates of market and operating conditions and the customer demands.

Please be reminded that all amounts quoted here are in RMB. Please also refer to our earnings release for detailed information of our comparative financial performances on a year-over-year basis.

This concludes our key remarks. I will now turn the call to the operator and open the call for Q&A. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad.

If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.

The first question comes from Thomas Chong with Jeffries. Please go ahead.

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Consumption across the board is steadily improving with consumption of medical ethics products gradually recovering as well. We launched a number of initiatives to attract additional users. This includes optimizing products on our platform.

for popular SKUs that have ample supply, package together complementary products to improve operational efficiency and shorten the time it takes for a consumer to make a decision during sales payrolls. The number of users placed on orders in GMV during the quarter increased.

23% and 27% sequentially, respectively. Others placed on the platform in April also increased by 1% when compared to the average during the first quarter.

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We hope you will enjoy this video. Please subscribe to our channel and share the video. See you soon.

We hope to see you again soon.

As we discussed in the last quarter, medical institutions remain cautious on increasing marketing spend. During this quarter, the majority of marketing budget allocations came from top tier medical institutions, with the module covering average marketing spend and the number of medical institutions. All other indicators currently apply to is all doctors necessary sites to help to slowing Batesius People optimization.

are both gradually increasing in April when compared with average last quarter.

Over the long term, we expect the behavior of users to structurally change with an increasing focus being placed on the consumer experience and cost benefit. Both users and medical institutions will change their consumption behavior, which we are strategically adapting to.

Shasha. Thanks.

Okay, are you ready for the next question?

Thank you. The next question comes from Nelson Chung with Citibank. Please go ahead.

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So let me translate myself. Okay, management share with us the progress of Solian Prime in Q1 and outlook for the full year. Thank you.

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and the development of the new technology. So Yung Prime is focused this year. We are expanding the scale. We are at the same time working on enhancing the user experience, standardizing service processes, and strengthening the data.

effective one-stop solution. For example, we jointly developed innovative anti-aging products that are exclusive to our platform. This includes a unique procedure using the Peninsula ultrasonic anti-aging cannon.

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We download green institutions to ensure they meet our high standards. We have trained medical teams and streamlined processes. As of the end of March, So Yum Prime has expanded to over 130 institutions in more than 25 cities.

It's light asset model improved user acquisition cost and operating efficiency. And an improved solid user experience makes it a unique value proposition. For few others through So Yang PROM increased by 88%.

compared with last quarter, a trend that has continued into April . This year, we will continue to expand its reach in the service scope. So, So, Yeah Prime was developed with recent consumption trends in the large medical aesthetics market in mind.

We are committed to maintaining a high-end user experience by helping the industry grow overall, leveraging our supply chain expertise.

a high-end user experience helping the industry grow overall leveraging our supply chain expertise. Thanks.

The next question comes from Chloe Wei with CICC.

The next question comes from Chloe Wei with CICC. Please go ahead.

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And my second question is for Nick. So the numbers of advertisers have decreased on a quarterly basis. So how do you expect the trend in 2.2 and the second half of the year? Thank you.

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As we mentioned, that's part of our focus is really on getting efficiency this year. The purchase rate for online orders this quarter was seven percentage points higher than two years ago. With recovery anyway, we'll be increasing marketing spend to educate users.

activities and content.

Okay, but in regards to the paying medical institutions, we believe that the reduction of paying medical institutions is the result of a cumulative impact of several factors.

First of all, I think the Q1, the first impact is the sustainability impact. Q1 is traditionally slower in the marketing expenditures in our industry.

Secondly, the challenging market situations in Q4 2022 results in significant shrink in the marketing budget for medical institutions.

And third day, the infections after the open up of quarantine policy also caused the temporary and yet sharp reduction in users' visits to institutions, which lead to institutions further reduction in marketing activities in Q1.

With the gradual market recovery, we have seen the rebound of these distribution marketing activities. And we would expect a turning point in Q2 with regard to the...

Number of P in medical institutions are our platform.

Thank you.

Okay, ready for the next question?

Okay, ready for the next question.

Okay, the next question comes from Jesse Shoe with Credit Suisse. Please go ahead.

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and the Tuchu Samo-ruhuo-jang-long. We are very glad to see the significant narrowing of net loss in the quarter on top of revenue growth. So first, can you help us to better understand the factors and reasons behind the net loss in one queue? And also how should we look at the bottom line trend in the second quarter and also the second half of the year? Thank you.

Thanks Jesse. This is Nick. In the first quarter, our NANGAAP loss attributable to So Yung International Inc. narrowed significantly compared with the same period last year with a year-on-year decrease of 94%.

to RMB 2.75 million as we described earlier. The first quarter is typically slow for the medical aesthetic market as it coincides with the Chinese New Year and we and was impacted also by the rapid spread of COVID-19 after the op-up of quarantine policy.

As a result, revenue in the first quarter were impacted as well. As the impact of the pandemic receives, we are deploying more people and marketing resources as the market recovered.

So, during the second quarter and throughout 2023, we will focus on enhancing user experience and improve institutional operational efficiency to kickstart revenue growth. We will also strictly control costs and expenses while improving the operational efficiency going forward. Thank you. Thank you.

This concludes our question and answer session and the so young international incorporated first quarter, 2023 earnings conference call. Thank you for attending today's presentation. You may now disconnect.