Q2 2019 Earnings Call
Ladies and gentlemen, today's conference call is due to begin shortly until such time your lines will remain on music hold.
Thank you for your patience once again todays conference call is due to begin chawki until such time. Your line should remain on music hold we thank you for your patience.
At this time all participants are in a listen only mode. There will be a presentation followed by a question and answer session at which time if you wish to ask a question. Please press star one on your telephone.
I must advise this conference is being recorded today the 29th of August 2019.
I would now like to hand, the conference over to your first speaker for today Mr. Christian Arnell. Please go ahead Sir.
Thank you Hello, everyone and thank you for joining us today, So young second quarter 2019 earnings release. It distributed earlier today and is available on the IR website at IR dot so we own dot com as well as globe Globe Newswire services.
On the call today from so young we have Mr. shrinking co founder and Chief Executive Officer, and Mr. Min Yu Chief Financial Officer. They are both be available to answer your questions. During the Q and a session that follows management's prepared remarks.
Before we begin I'd like to remind you that this conference contains forward looking statements within the meaning of section 21 E of the Securities Exchange of Securities Exchange Act of 934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995.
These forward looking statements can be identified by terminology such as will expects anticipates future intends plans believes estimates targets going forward outlook and similar statements.
Such statements are based upon managements current expectations and current market and operating conditions and relate to events that involve known or unknown risks uncertainties and other factors all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results performance or achievements to differ materially from those in the forward looking statements.
Further information regarding these and other risks uncertainties or factors are included in the Companys filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward looking statement as a result of new information future events or otherwise, except as required under applicable law.
It is now my pleasure to introduce Mr. Yu. Please go ahead.
Thank you Christine.
Thank you everyone for joining us for our second quarter 2019, and he's cool.
We delivered another strong quarterly results as our business continues to gain growth momentum.
And the operational efficiency improves.
Total revenues during the quarter will on V 285 million increased 87.3% year over year and exceeding the high end of our guidance range.
Our focus right now is on expanding our user base, both in quantity and quality by penetrating deeper into the medical aesthetics service industry.
Enriching our content offerings and the improving the user experience every each mobile and they use during the quarter grew significantly increasing by 72.5% year over year to two point 47 billion. While total number of purchasing uses increased by 118.8% to 220 202 sold and.
The aggregate value of medical aesthetic treatment transactions facility to our platform increased by 81.9% year over year to RMB 893 million.
I believe these speaks strongly to the user experience, we are able to offer and the the unique value proposition our transparent pricing.
Reviews, and the service provider credentials and convenient access to comprehensive media content, social community and online reservation functions provide at the same time medical service providers are increasingly seeing how effective our unique value propositions of effective customer acquisition.
Differentiated branding and improved operating efficiencies.
The number of paying medical service providers on our platform increased by 39.4% year over year to 3157, and the number of medical service providers subscribing to information services, Oh platform increased by 96.8% to 2218.
Real striking and a careful balance between increasing monetization of our services and enhancing the user experience, which is key to growing our user base.
I'm extremely pleased with our progress so far our monetization initiatives, they're not impacting our user base or stickiness to our platform, which I believe reflects the value of a value. Our platform provides to both users and I met with service providers.
[noise] I'm fully committed that's a medical aesthetic treatments sector continues to generate substantial growth opportunities, which I'm confident we will capture and the benefit from with that let me now quickly go over our financials for the quarter.
Please be reminded that all amounts quoted here will be on B. Please also refer to our earnings release for detailed information of our comparative financial performance on a year over year basis.
For the second quarter 2019, so the revenues were RMB 285 million up 87% year over year.
Within total revenues information services revenues was RMB 212 million up one in a 6% year over year.
Reservation services revenue was RMB 73 million up 49% year over year.
Cost of revenues were RMB 50 million up 136% year over year due primarily to an increase in payroll costs associated with an increase in operational staff head count and the share based compensation expenses.
Gross profit was RMB 235 million up 80% year over year gross margin decreased to 82.5% from 86.1% during the same period last year.
Total operating expenses were RMB 225 million up 82% year over year.
Sales and marketing expenses will be one of the 6 million up 19% year over year, due primarily to an increasing payroll costs and share based compensation expenses.
General and administrative expenses were RMB 67 million up 400 gene a 14% year over year due primarily to the increasing payroll costs and share based compensation expenses.
Research and development expenses were RMB 52 million.
Won at 48% year over year. This increase was primarily primarily attributable to an increase in payroll costs associated with the expansion of our research and development teams.
We are focused on enhancing the two experiences for users and the medical service providers as well as share based compensation expenses.
The share based compensation expenses recognized in our cost of revenue revenues and the above expense items. During the second quarter of 2019, RMB 73 million in total.
The expenses related to the new options granted to employees in the vested immediately upon the completion of IPO in May 2019 were RMB 19 million.
This amount was fully recognized in the second quarter of 2019.
Income from operations was RMB 10 billion compared with RMB 8 million during the same period last year.
non-GAAP income from operations was RMB 83 million compared with RMB 12 million for the second quarter of 2018.
Income tax expenses were RMB 11 million compared with RMB 1 billion. During the same period last year. The increase was primarily due to an increase in taxable income during the second quarter 2019.
Net income was RMB 29 million compared with RMB 9 million during the same period last year.
non-GAAP net income was RMB 102 million compared to RMB 13 million during the same period last year.
Basic and diluted endings Ats attributable to ordinary shareholders were RMB zero point 22.
And R&D viewpoint in 21.
Respectively, compared with loss of RMB eight point 38 in the second quarter of 2018 for both.
Next moving onto the balance sheet.
As of June 32019, we had total cash and cash equivalents.
Restricted cash and short term investments of RMB 2.68 billion compared with RMB, One point 21 billion as of December 31st 2018.
The increase was primarily due to the net proceeds from the company.
IPO in May 2019.
Now onto guidance for the third quarter of 2019, we expect total revenue to be between RMB.
280 million.
Two of the 300 million or Usforty 0.82, U.S. 43.7 million.
Which represents an increase of 66.7% to 78.6% year over year.
This forecast reflects the company's current and preliminary views on the market and operational conditions.
Which are subject to change.
Okay. This concludes our prepared remarks, I will now turn the call to the operator and open the call for <unk>, operator, we are ready to take questions.
Thank you Sir.
Ladies and gentlemen, we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad and wait for your name to be announced if you wish to cancel your request. Please press the pound well the hash key.
We have the first question from the line of Austin Melded. Please ask your question.
Hi, congrats on the quarter and thanks for taking my questions.
My first one is on.
Sales and marketing Wonder if you could.
Tell us what the marketing and user acquisition.
Total spend was in Q2, and if you're able.
I'd be interested in knowing more specifically what youre split was between what you spend on brand and traffic acquisition in the quarter.
One second as we translate for Seo. Please.
Okay.
Okay got it.
Okay. So we have 43 million on beating spent on sales and marketing costs in the second quarter of 2019, we didn't that 16.
Melena was on payroll the remaining 27 million is on.
Custom acquisition.
So the winning the 27 million major was on branding a and <unk> around the one cities on like are we investing app stores.
And the remaining was on branding.
Oh, Okay great.
And also I wanted to ask about mobile I may use the mobile I know you growth was was really nicely again this quarter and I'm. Just wondering if you could talk through what you think has driven me.
Acceleration to over 70% in the first half of this year from what was 40% through all of 2018 is there anything in particular that stats.
Resonating with your audience.
Yes.
For customer acquisition as you see we Didnt have spent a lot of the sales marketing closer for customer acquisition.
The major.
Change is we actually had a new version of our App.
Pushed to to the public in May April 2019, which is the beginning of the second quarter.
So since then we our product has been very successful in terms of attracting and retaining our customers.
Our users. So I think that's a major contributor for the increase of our EMEA use and the quality of our uses our product to change and the improvements in the content offerings to users.
Got it and my last question is on.
Purchasing users, which also grew.
Quite rapidly this quarter.
From from my point of view it looks like it was there was a pretty nice bump in.
Newly acquired users and I'm wondering if there's anything.
To talk about and you're sort of.
Marketing expense per per new customer maybe.
Why that's.
And so efficient for you if theres anything to call out there.
Hey, Austin Im sorry, we we had some audio difficulties there could you repeat your question quickly.
Sure. My question was on purchasing users, which grew quite nicely wondering if you could talk through.
Anything that's been helping helping your your marketing efficiency for acquiring.
New customers.
Yes, yes, I I think the growing a intended.
Switching to use these out actually accompanied with our growth in EMEA you.
We do see some.
We English efficiencies improvements in terms of converting EMEA you active users into our prisons in user and.
It's I think it's because of our.
Operating and our community content actually assisted or uses to convert and to help them too.
A system to complete their decision making process.
And the other thing is I think in June we have our.
Like end use June campaign in in thinking stuff from June six it's also actually help the users to.
Convert and purchasing services from our platform.
Great. Thank you very much and congrats again on the quarter.
We we have the next question from the line of Natalie Wu. Please ask your question.
Hi, Thanks management for taking my question. This is Jim Carrey, representing now only so we have one question only companies guidance can management share more color on the guidance and its breakdown and we would like to understand what easy on topline topline trend going forward in the long run. Thank you.
Breakdown.
Okay.
Yes, yes, I am sorry could you repeat the question again, we are having difficulty hearing.
Sure on can be management share more color on the guidance breakdown and also we would like to understand what do you see topline trend going forward in the long run.
So one second as we translate please.
Alright so.
If fully revenue breakdown I can only offer you the breakdown for the second quarter I think the second quarter.
280.
285 million on the winning that 70.
79.
From.
70 to 72 is from commission.
The rainy is from information service as you can see our information service it has been growing.
Faster than the commission based revenue.
And to your second question on the topline trends going forward.
I think currently our company's key KPI and of course our main.
Driver is on the penetration for medical aesthetic service industry in terms of the.
User base.
And.
We need to.
In the in this short on media wrong, we will balance between monetization and the customer experience.
And even long run I think we will step to monetizing on the accumulated the uses and it will contribute to our top line and in the in the in the longer run.
Okay.
Thank you.
[noise].
We have the next question from the line of when same to you.
Please ask your question.
Hi, guys congrats to quota and thanks for taking my question. My first question is on advertising revenue. So we are seeing a tightening revenue Oh, sorry information service revenue per service provider grow from around 77000 to 96000. So what do we think about the potential like well what what's a hallmark of what we see about lease revenue grow on going forward and my second question is on the reservation revenue ARPU, how should we think about ARPU going forward and my third question is about the competition on what we see the impact of like the ample may Twond 618 promotion to us and what do we see our competition strategy in future are now with the you find some other eagle when you through why we take merger information service revenues now holders will make a service provider. The inflammation. So revenue will measure to golar elements hundred attentive to go I would say create thought I got some of them do not sure.
Roman trigger so you take take take a reservation critical information services integrating enrollment with prices down to Machu, Argentina and high RDR, though when you should tell you trigger.
Reservation revenue the ARPU category adults you enroll in our home estimate should change it too hard to tick up with the whereas in that and how do you somewhat manager ticketing Defoliant number 800 Clarke today nickel you will buy the promotion source to buy when they are going to school KANGREAL. How does it go to the higher than normal kind of Doom and see automating certain doom and gloom, Angela contigo inventory issues the Magellan oxygen.
One second as we could you discuss.
Hello.
Oh, Thanks for the question and that's what affects a question, what's the long bonds or that my focus is to.
The average revenue from information services from the individual or service provider.
I think historically Oh, we do see the trend of growing from average consumption from a individual service providers on the top.
If they stay with us longer there were spending more I think going forward is this trend will steal a b b the general.
Trends in the long run.
And Oh second crushing it seems like at my ARPU from Commission based revenue is not very strong.
The reason I think first of all we from a consumer.
Perspective, if they want to book Ace ER surgery based services, they usually need to pay like 20% down payment as the reservation fee and if that.
Surgery or the high ARPU services as a if you pay the reservation fees, it's actually very expensive for online transaction and its nationally for users will book services and so relatively lower ARPU.
So this is all SK use.
And I think in the second quarter, we do have some oh revenue contributed.
From our company advancing June and so usually we have provides the red envelope and its being deducted from our topline as from gross revenue to the net revenue. So it will be have some impact on the commission per.
Purchasing user.
But in the long run I think for the consumer in terms of the if they want to consume more medical messaging services and we do see the medical aesthetic services, especially for those injections or lower services become cheaper and easy access for users.
So and it will also have certain impact on the average ARPU, we can generate from a commission based revenue.
For third question about competition with made fun and I think I really I will give the question to Mr. Jean Mycio.
No or put ours have only what you don't know legal entity.
She is on long haul large homes in the engine cars are putting some may find she's a house on boats you bought a pattern of homes.
You bought a top dollar so you can get to the hardwood at home.
Well costs on Camel power was down by two potential down the tremendous budgets at ETP Cinderella gates on the what changes you maybe valeo hi, so the only risk.
'cause results also show among cannot comment on the southern half sharpening email Honolulu that human gradual for so many years of unemployed or not.
Somebody and tableau houses on visitors Empire, southern or not so that sounds encouraging markers of attitude holds agenda Jim zones.
So I don't know Julien good usage on our women's essentially like hot almost every store she started to hit out at once those issues on some political Avanafil Nagel sure one mission and as I've got any thoughts on how it goes out of harmful going door to door, yet largish and they want to shop with us use ourselves with our lives out.
So that you have it on body that somehow either articulatory reached out of poverty and Dunkin' allies ounces sounder relies on the Dunbar artsy AD hoc on them yet we are passing on water suggest you drawdown legit or you need to have entire passages your double hydrogen higher now your fourq alone. So I saw that you think Johnson's you M-, Jimmy and sell it off our affiliate Joe could you give us some elements, which are different sizes. Though is you are going to help us jump on call fundamentals.
Joe surveillance as we find themselves how warm and do some further down the list.
So I'd say the performance dessert determinedly among panel on genuine value of what's on the hormones since you delay the fate on Dod and you've got some GR zero of enzyme kills adds another don't hide some gen. Joshua zones are low you got Tyson.
So if you had known.
Yes, I mentioned settlements on whats inside the guidance that you gave you until then yes, we'll never have a blessing the wonderful euphemisms that feeling that a lump sums up volume. If I'm initiative is yet not you want to give US also some growth in the gold card holders hook alone primarily results on year, you don't have the summer. So yes, absolutely we sold shuttling pilot lot deeper than it does on the do you have any material are down so essentially it was how much is just on the you made you go see it puts on janssens officials are you may be voting on the new Elia and those advisories to hear it's on bulk of them dabbled on its own identifying and CRC will hit on generally willing to also.
Alright.
Relatively weaker position in terms of competition compared to the lunch traffic platforms like May 20, MPG, but they also.
In the relatively weaker position commit washington's various community content and the product.
We she is more informative for users to help them for decision making.
So we give you some we have some data analysis on our competitors.
During the same June campaign.
They.
The order.
Size per order.
Transaction value is relatively much smaller than.
What we have it be approved for that we.
More.
Convincing or dedicated platform a brand for.
Customers too to understand the medical aesthetic services and make the right choice for some of the higher ARPU SK use.
So in the in the I think.
In the wrong, we will be still focusing on customer acquisition.
We have being spent.
Like most of more most of our company resources in terms of teams or on the resources in terms of improving our product.
Chain to improve engagement between users and we have seen some of the good results from the traffic point of view and I think we are also tending to have.
Faster.
User.
Increase in the next.
A few quarters and going forward, we will be still focusing customer acquisition and the gap between the traffic with a large traffic platform and us will be smaller.
Oh, Thank you management can they come up with one more question.
Sure go ahead.
Yeah, so on that what might that last question around.
The phenomenal electing to that like what we see sometimes users can read our diaries and we watch our ICA online the doctor on cannot terminate and then the property will go to the offline service provider and the address reserve and the pay up on offline. So in Chinese like what we call the feed and so how it anyway in the future. We can try to do we set these kind of like issue.
Thanks.
Okay.
Uh huh.
So <unk> Manchester confirmed with the question with you because either your voice was a little be picked up pretty quickly. So you are asking for use the use is luc ethylene formation and without reserving through us and and go directly offline if thats your question.
Yes, yes, so basically the way if they just try to utilize our information and they just spoke offline anyway. We can manage in a service provider on Q to provide service through that way and we.
Paying us the commission.
Fees.
Yeah, I think the commissioning.
He and I always like Cps based on the transaction facilitated the on the on.
Platform.
And.
We still be very.
We that's very important in revenue for us for sure, but we think as a more efficient platform.
We would like to have.
I think from the service providers point of view as well that they would like to get in contact with our user on the platform even earlier stage rather than just as of late that decision, making stages for making reservation.
And I think for other vertical platforms, Weve very similar business model with us but in different sectors.
Not a lot of the platform actually offering reservations on sales on timing Cps, but if they are efficient enough they will be more likely tending to other information services type like we are currently seeing.
So it's been very natural for our information service grow faster than our commission based services.
Because for us the.
Our user.
Every individual user on that platform.
Is the important.
Resources for our revenue.
Two generates revenues to us so we do have some policies to train two.
Conveys uses to visit through us and that we also have some regulation policies or rules to regulate those service providers who shoot.
Pay me under the contract.
Paint on the pending commission on the relevant to contract with us.
But going forward I was still see information services revenue will still go through fostered and Commission based services Commission based revenue.
Got it thanks a lot.
We have the next question from the line of.
Robert.
Oh well.
Please ask your question.
Hi management. Thank you for taking my question.
And congratulations on the really strong user growth Mike My questions actually relates to that so first what is your sense of the total Mou across all platforms in this vertical.
That's the first one and then the second one is would you consider increasing the sales and marketing in order to drive even faster user growth.
Thank you.
Thanks, Rob a slightly offensive question, how would the other platforms like.
Vertical competitors, what's that an EU.
To be Frank.
I am not in a position to comment on that because we there is some other third party service providers can provide some of the guidance too.
The other platforms of our competitors and they use but I would be focused on our own strategy and I'll.
Any growth we do have some as I mentioned to the markets early and you can see from historical numbers. We do have some seasonalities in terms of the sales marketing spending.
We usually spend more in second quarter of the year and the risk spends relatively less in the first quarter and fourth quarter.
But this quarter the second quarter. It seems we are not spending a lot of the sales marketing because we do feel hour in the second quarter of 2019, our efficiencies in terms of acquiring customers being proved.
Compared to the to the past year.
The reason why I think you explained earlier is because our major improvements in terms of the.
Up.
Product and content, we offering to the general public and I will use it.
And in this quarter has.
Let's see the analogy going alone we will prepare for the high seasons in the fourth quarter of the yet and that we will invest more in Timmins. It was marketing and they're trying to generate more uses and let them get onto our platform and convert them into actual purchasing uses in the next few quarters.
Maybe if I could ask a follow up then.
Do you have a target for in the longer term how big you think your platform can be in terms of total media.
One second as we transition quickly.
[laughter], Oh, sorry, Rob a company only officially provide a forecast on the next few quarters or topline range.
For other.
Numbers operating matrix forecast.
We are not able to provide as of moments, but as.
You probably can't monitoring some lagerquist models.
They will provide a reference point for you in terms of our traffic growth and the user base.
As I said early our major goal for loan.
Is to train to get more users and again more penetration into the general medical aesthetics service consumer consumer base.
Okay got it thank you very much.
We have the next question from the line of Brian .
Gong Please ask your question.
Oh, Thanks management for taking my question this burn going from Citi.
Congratulations for the Fantastic results I just have one question I know the company is focusing on I mean, you gross right now, but just wondering if you can share with us your cells about.
What could be the other potential monetization opportunities you your view I mean, except for our carbon to Robert New resources.
Thanks.
[noise].
One second as we transact quickly.
[noise].
Yes. Thanks for the question I think first of all a big question, we need to divide that into two parts visit in terms of medical aesthetics services itself. We are currently operating generating most of our revenues from.
We are working on a lot of the.
Our working on testing a lot of money type strategies at the moment.
That will be the goal for that is to improve the matching efficiencies between our users and our service providers on the platform I see we are doing very very healthy user behavior analysis and labeling the different users characteristics of features and the matching and developing and matching the relevant products.
Which can be better how service providers to get connect with the targeted users on that platform and of course, we will.
At the right time, we will use.
We are we're monetizing on that kind of product for for example, currently we have a video broadcast for DDR diagnoses honor between consultants and our users on the platform.
Although we are currently not monetizing on that.
And also the primary messages et cetera. All these tools, we provide to users to provide to you two service providers.
On a platform to get to that Reeves users really in in a certain stage.
When the time is appropriate or we our user base has been increased improved the true up.
To the right size, then we will have more opportunities to test.
Monetization from there.
This is one perspective the other perspective is of course, we will extend to other consumption healthcare field. For example, then told this year, we have a dedicated team.
Working on the dental services.
Although we are not aggressively monetizing on service this year, but going forward as we think it will also can contribute.
Revenues and profit is through our platform coal.
Alan in dental we also now testing so.
Like skiing.
Scheme of them Margie.
Hello, Checkup et cetera for those consumption healthcare Phoenix too.
Get onto our platform.
And we are also accumulating content and community content and products for users in these fields.
Yes fantastic. Thanks, Thanks, a lot.
Once again, ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be announced.
We have the next question from the line of Smears Murphy magnet. Please ask your question.
Hey, Glenn is anyhow. They go with a win sounds I'm missing that duty endogenous bushel you'd see a higher margin new ecoson meandering similar to what you're me and they don't call. So I will translate my question. So could you. Please give me more color on the revenue guidance of the this year and also the margin and any color or any color on the nasty years revenue guidance is that we'd be better. Thank you.
Yeah. Thanks for the question.
As a company we are a company policy, we only provide the guidance for this next quarters top line, we they range.
And for other financial related a matrix, we do not provide official guidance.
Thanks.
[noise].
Once again, if you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be announced.
Hi. This is there are no further questions at this time I'd like to hand, the call back to a Christian arnell for any closing remarks. Thank you.
Thank you everyone for joining our call Tonight. If you have any further questions or comments. So please don't hesitate to reach out to anyone. This concludes the call have a good night.
[noise].
Thank you, Sir ladies and gentlemen that does conclude our conference for today. Thank you for participating you may all disconnect.
[noise].