So-Young International Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 28, 2024

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by for Sohyoung's First Quarter 2024 Earnings Conference Call. At this time, all participants are in listen only mode. After management give their prepared remarks, there will be an opportunity for question and answers. As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host for today's call, Ms.

Operator

Mona Chiao. Please go ahead, ma'am.

Speaker 1

Thank you, operator, and thank you, everyone, for joining Sogoung's Q1 2024 Earnings Conference Call. Joining me today on the call is Mr. Xin Jin, our Co Founder, Chairman and CEO and Mr. Nick Zhao, CFO. Please note that the discussion today will contain forward looking statements made under the Safe Harbor provisions of the U.

Speaker 1

S. Private Securities and the Litigation Reform Act of 1995. Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with SEC, including our Annual Report on Form 20 F. Sohyang does not undertake any obligation to update any forward looking statements except as required under applicable law.

Speaker 1

At this time, I would like to turn the call over to Mr. Xin Jin. Hello, everyone. Thank you for joining the call today. Our business performed well in the Q4 with total revenues reaching RMB318.3 million, exceeding the upper end of our guidance.

Speaker 1

At the same time, this marks the first time in 5 years that we achieved non GAAP profitability in the 4th quarter. Our new businesses continue to grow rapidly with revenue from services medical products and maternity services increased 23.3% year over year. Our pipeline of upstream products continues to further diversify its offerings, while Sohuang Fuem maintained healthy development. We have made significant progress in the expansion of our chain of clinics. In the Q1, we opened and began operations at 3 clinics, all of which boost unit area efficiencies well above industry average at a notable price advantage.

Speaker 1

In the Q1, the cumulative clients serviced by our clinics increased 77% quarter over quarter. We've also made steady headway of vertical integration from products to institutions, driving and value allocation in the industry. This will provide consumers with medical aesthetic services that are more cost efficient and help with sustainable development of medical aesthetic practitioners. In terms of products, institutions and Sohyang platform, As we made steady progress in these initiatives, we are confident in the growth opportunities for us going forward. In our Pop segment, we continued to advantage our differentiated strategy to solidify our advantage within the premium segments of the market.

Speaker 1

By offering customized and high value services, we are not only able to serve high end users, but also assist institutions in boosting their profits. During the quarter, our order value increased by 11.3% year over year. In terms of traffic acquisition, we reallocated our budget away from low ROI online channels and instead focused on cultivating and returning a target user base within our private domains. We leveraged various channels within and outside of the Soyan platform and improved user engagement, aiming to enhance our monetization efficiency. As a result, in the Q4, users required through private domains increased by 19.7% quarter over quarter.

Speaker 1

Turning to Sohuang Shrine, we capitalized on the success of the model clinic we opened at our headquarters in Beijing in the later half of twenty twenty three. Building upon this momentum, we accelerated our strategy transition from partner institutions towards establishing a chain of clinics. During the quarter, we opened 3 clinics with operations firmly on track. By the end of this month, we expect to open at commence operations for our 3rd batch of clinics. To efficiently drive this transition, we have established a comprehensive and standardized workflow system, covering everything from site selection and evaluation to clinic opening and operations.

Speaker 1

This has enabled us to expand at a pace that significantly surpasses the industry average and set an industry record for the rollout of new clinics. We plan to expand our chain of clinics nationwide, starting with 5 to 6 core cities. At the same time, Sohyang Prime continues to garner exceptionally high with user satisfaction of over 4.9 out of 5 for each institution every month at an ever increasing repurchase rate. Lastly, I will provide a quick recap of the process we have made in our upstream supply chain business. Sales of the Korea brand Rovi continued to grow strongly over the quarter, increasing 80% year over year.

Speaker 1

In just 1 year, we have established a mature distribution network that covers 750 institutions through both direct and agency sales channels. Our recent launch of Tru Lift in non surgical anti aging ultrasound device has further diversified our product portfolio with sales far exceeding expectations. The success of this product is a testament to the strength of our brand, Word-of-mouth recognition among consumers and the domestic's whole variable to quickly bring new products to market and rapidly secure their market position through our expansive institutional network. We recognize the immense potential for growth in China's medical aesthetics market. However, the industry still contends with a less than favorable public perception despite its development over the past 2 decades.

Speaker 1

While a injection that caused tons of RMB can be sold for solvent, many institutions within this sector struggle to turn a profit. Realities such as this point to structural issues. Sohyang will address these issues by establishing an industry platform. By integrating the upstream, midstream and downstream resources of the medical aesthetic industry, we aim to fundamentally reduce cost and increase efficiency and provide consumers with better and more cost effective medical aesthetic services. This approach is designed to drive sustainable revenue and profit growth for the platform, while ultimately delivering greater long term value to our shareholders.

Speaker 1

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

Speaker 2

Hello, this is Nick. Please be reminded that all amounts quoted here will be in RMB. Please also refer to our earnings release for detailed information of our comparative financial performances on a year over year basis. Total revenues during the quarter were RMB318.3 million, up 2.6% year over year, exceeding the high end of our guidance. Growth was primarily driven by sales of medical products and maintenance services, which increased 23.3% year over year to RMB86.5 million, driven by the sales volumes increase of cosmetic products and medical equipment.

Speaker 2

Information services and other revenues were RMB208.7 million, a slight decrease of 0.7% year over year. Reservation service revenues decreased 22.3% year over year to RMB23.1 million, primarily due to the policy change for commission rates and subsidies. Cost of revenues were RMB117.3 million, up 3.2% year over year, primarily due to increased costs associated with the sales of cosmetic products and medical equipment. Within cost of revenues, cost of services and others were RMB74.2 million, down 8.9% year over year, primarily due to a decrease in payroll costs. Cost of medical products sold and maintenance services were RMB43.1 million, up 33.7% year over year, primarily due to an increase in costs associated with the sales of cosmetic products and medical equipment.

Speaker 2

Total operating expenses were RMB237.8 million, up 3.5 percent year over year. Sales and marketing expenses were RMB113.3 million, up 0.7% year over year, primarily due to an increase in payroll costs associated with the expansion of our marketing team. G and A expenses were RMB85 1,000,000, up 38.1 percent year over year, primarily due to an increase in payroll costs associated with the expansion of the administrative employees to support the enhancement of our core and new strategic businesses. R and D expenses were RMB39.6 1,000,000, down 29% year over year, primarily attributable to improvements in employee efficiency. Income tax benefits were RMB2.6 million compared with income tax benefits of RMB4.3 4,300,000 in the same period of 2023.

Speaker 2

Net loss attributable to Sohyang was RMB21.2 million compared with a net loss of RMB11.9 million during the same period last year. Net non GAAP net income attributable to Sohyoung was RMB4.1 million compared with RMB2.8 RMB2.8 million net non GAAP net loss attributable to Sohyang in the same period of 2023. Basic and diluted loss per ADS attributable to ordinary shareholders were RMB0.21 and RMB0.21, compared with basic and diluted losses per ADS attributable to ordinary shareholders of RMB0.12 and RMB0.12, respectively, during the same period of 2023. We have maintained a robust cash position with cash and cash equivalents, restricted cash and term deposits, term deposits and short term investments totaling RMB1.3 billion as of March 31, 2024, effectively flat when compared with December 31, 2023. For the Q2 of 2024, we expect total revenues to be between RMB380 1,000,000 and RMB400 1,000,000.

Speaker 2

The above outlook is based on the current market conditions that reflects the company's preliminary estimates of market and operating conditions and the customer demand. This concludes our key remarks. I will now turn the call to the operator and open the call for Q and A. Operator, we are ready to take questions.

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. The first question we have comes from Chloe Wei of CICC. Please go ahead.

Speaker 3

So let me translate myself. Thanks management for taking my question. Congrats on the solid first quarter results. The top line well ahead of our expectation. So my question is about the full year outlook.

Speaker 3

From what we got from the prepared remarks, I believe our time have turned more positive. So is there some trend and maybe management want to share with us? And given the headwinds from the macro, how should we think about our full year top line growth? Thank you.

Speaker 1

Development of medical aesthetics industry in the Q1 is in line with our observation and expectation at the beginning of the year. First, the Chinese medical aesthetics market is gradually recovering with the overall consumption market. As retail sales of consumer goods in China increased by 4.7% year over year in the Q4, medical aesthetics consumption data has also reflected a gradual growth trade. 2nd, as the medical aesthetics user group tends to mature, user demands are more diversified. It's difficult to attract high quality clients simply with low prices.

Speaker 1

More enriched products and services are required to cater to differentiated user demand. In 2024, we will maintain our strategies based on our existing business. We will establish a platform that vertically integrates upstream supply chains, midstream operations and downstream distribution channels to fundamentally optimize costs and enhance efficiency. This strategy approach will enable us to deliver superior and more cost effective services to consumers.

Operator

The next question we have comes from He Jian Peng of CITIC Securities. Please go ahead.

Speaker 4

So, okay, thanks for this opportunity. Just two questions. First is, how to consider the decline of the traditional metrics such as MAU And what's the business difference advantages in this intensified traffic competition yet? Thank you.

Speaker 1

In terms of online traffic, all industries are experiencing intensified competition for traffic. For Sohuang app, we continue to boost engagement and attract more organic user traffic through operation of community content and self media resources. In addition, through extensive private domain operations, we strive to connect Sohyang app with private domains, expanding its traffic pool as we increase private domain retention rate and user engagements. This part of data is not reflected in our MAU, But judging from recent transition data such as GMV and online orders, it reflects it has remained basically stable. It is meant to the effectiveness of this strategy.

Speaker 1

It can also help lower traffic costs and enhance profits. Thirdly, in terms of cooperation with 3rd party traffic sources, we emphasize our traffic accuracy and placement ROI, reduce budget for channels with low ROI to further reduce placement costs and increase margins survival

Speaker 2

platform.

Speaker 1

Compared to our peers, we have 2 core efficiencies advantage. First, we have high quality users and a high average order value. 2nd, we benefit from our own offline medical aesthetic institutions, including Sohuang, Qing Clinics and shared hospitals, which provide us with greater room for innovation. For surgical customers, we organize offline consultations and invite multiple renowned doctors to participate. Centralized consultations help users save time and transportation costs and face to face communication also improves users' decision making efficiency.

Speaker 1

For high end injection customers, we screen high quality doctors on the platform and complete service deliveries within our own or cooperative institutions. With this approach, we have stronger control over the contract for fulfillment and delivery process, while simultaneously commanding price power and conducting refined user operations in a closed loop manner, thus avoiding the risk of

Operator

user attrition. Thank you. The next question we have comes from Yi Bing of Haitong. Please go ahead.

Speaker 5

Okay. Thanks for management. I'll translate myself. My question is about the Soryong Prime. I want to ask is the current progress of the opening new clinics on the Sohyang Prime in line with your expectation?

Speaker 5

And what's your midterm to long term plans for a proprietary chain clinics? Thank you.

Speaker 1

We plan to open 15 clinics in 2024 at the beginning of the year. By the end of the Q4, we opened 3 clinics. Since then, we added 2 more before today's earnings. Now we are opening 6 clinics in all, generally in line with our expectation. During the process, we have established a comprehensive and centralized workflow system covering everything from site selection and evaluation to client opening and operations.

Speaker 1

This has enabled us to expand at a pace that significantly surpasses industry average and set our industry record for the rule out of new clinics. Emphasizing on authentic products, cost performance and transparency, our aim is to position standardized light medical aesthetical services as the 4th choice of everyday cosmetic conception. We expect to reach the scale of 100 to 150 clinics in the next

Speaker 4

3 years.

Speaker 1

While expanding our chain of clinics, we continue to build our operation team, combining our advantage in product supply, development and innovation. We are driving to build out of a standardized management system for life medical aesthetics institutions as well as an end to end online process management capabilities to improve operating and management efficiency for institutions. In the future, we will continue to improve efficiency per staff and efficiency per unit area for our chain of clinics, increase penetration of our proprietary supply chain products, improve margin of our chain clinics while providing users with more cost effective services. User satisfaction is fundamental to chain operation. With that in mind, we emphasize more on user satisfaction.

Speaker 1

From January to April, user satisfaction in our chain of clinics reached 98% and in line with our expectations. Thank you.

Operator

The next question we have comes from Joey Tan of Jefferies. Please go ahead.

Speaker 3

Thank you for the management for taking my question. And I have two questions. The first question is, could management share on new progress for upstream supply chain business? And the second question is with the cash reserve of progressing asset, RMB 1,300,000,000 with such a complaint and usage? Thank you.

Speaker 1

On product side, sales are already maintained strong momentum with sales increasing 80% year over year and revenue increased 56.5% year over year in the 4th quarter. In addition, we spent just 1 year to establish a mature distribution network covering 7 15 institutions, they were both direct and agencies of channels. In the future, we will continue to integrate our upstream supply chain, help companies to increase profit and return to users with products of sound cost performance, reaching win win situation. 2nd, we continue to expand our product pipeline. The launch of facelift product, Tru Lift, further diversifies our photoelectric category with sales far exceeding expectations.

Speaker 1

This is brand, watermark recognition among consumers as domesticates how we are able to quickly bring new products to market and rapidly secure their market position through our extensive institutional network. We expect to add more products and continuously generate incremental revenue and profit growth from the supply chain business.

Speaker 2

I will translate. We will use the cash for two purposes. First of all, we will continue expanding along upstream and downstream of the industry, including upstream product pipeline and downstream chain of clinics to lay solid ground for our integrated industry platform. And secondly, we will share repurchase plan or potential dividend to return values to our shareholders. Thank you.

Operator

Thank you, sir. Ladies and gentlemen, we have reached the end of our question and answer session and our conference.

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Earnings Conference Call
So-Young International Q1 2024
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