SY 晟德科技

Operator

Ladies and gentlemen, thank you for standing by for So-Young's Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Miss. Vivian Xu. Please proceed Miss Xu.

Vivian Xu

Thank you, operator, and thank you for joining So-Young's fourth quarter and full year 2022 earnings conference call. Please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.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 the SEC, including our annual report on Form 20F. So-Young does not undertake any obligation to update any forward-looking statements, except as required under applicable law. Please also note that unless otherwise stated all figures mentioned during this conference call are in RMB. Joining us today on the call is Mr. Xing Jin, our Co-Founder, Chairman and CEO and Mr. Nick Zhao [ph] Senior Vice President of Finance. At this time, I would like to turn the call over to Mr. Xing Jin. Yes, please?

Xing Jin

[Foreign Language] Hello everyone. Thank you for joining So-Young’s fourth quarter and full year 2022 earnings call. [Foreign Language] 2022 was a remarkable year for all of us at So-Young. Despite a macroeconomic [Indiscernible] we had successfully stabilized our co-business and substantially improved our profitability. In the fourth quarter amidst the most severe challenges of the past three years as the COVID-19 began like seriously disrupted it’s operation of manning medical aesthetics institutions while the slowdown of the Chinese economy made consumers more cautious and managed to achieve quarterly revenue of RMB225 million in line with our prior guidance. In the meantime, we significantly scaled up our profit with non-GAAP net income of RMB38.8 million. We have continued to make strides since reaching breakeven in the third quarter. Thanks to our organized cost structure and improved efficiencies. As of the end of 2022 our cash balance remained at close to RMB1.6 billion which provides us with sufficient financial assurance to explore our new business growth opportunities in the year ahead. [Foreign Language] Next, I’d like to share some market trends we observed during the past year. In the future we will look in these directions as we continue to invest resources, seize opportunities presented by change and [Indiscernible] of revenue for our business [Foreign Language] First Chinese medical aesthetic user base is roughly operating as a ratio of non [Indiscernible] continue to increase. Second user demands are evolving with high batter [Ph] users showing increased the amount of premium with medical aesthetics users. Finally, along with the long-term trend of consumption upgrading China, the middle class medical aesthetics customer is expanding the growing middle class demographic in China and in particularly urban middle class females in the first and second tier cities have formed a medical aesthetics consumption habit have deviced by increased volume and [Indiscernible] of consumption. Meanwhile we have observed several important differences between the middle class consumers and traditional medical aesthetics consumers. [Foreign Language] First, these consumers generally have higher level of each patient and are more cautious with their choice of medical aesthetics services. They are more attuned to aesthetics factors including the maturity and the reliability of service, doctors and institutions qualification and product compliance. [Foreign Language] Second the remaining consumer anti-aging, steel management and shape management products with higher frequency. [Foreign Language] Third, they look for rational prices not simply purchase cheapness, but they don't want to be charged and IQ tax. [Foreign Language] Fourth, the value of service quality and delivery. [Foreign Language] Based on these changes in the market and meeting the needs of the consumer group, leveraging the resources and the capabilities we have accumulated through the years we launched So-Young Prime business at a small scale in first and second tier cities in the third quarter of 2022 [Foreign Language] So-Young Prime is our self-operated as a flight service platform for non-surgical medical aesthetics. First, based on the big data gathered our platform, which shows those most popular treatments of live medical aesthetics service for middle class consumers. We invited experts to create an upgraded treatment plan with standardized operating procedures for treatments and service. So-Young is responsible for pricing and sales. Second, with institutions are meet our standards and training and assesses their operating teams and doctors before allowing them into the So-Young Prime service network. These institutions are responsible for providing exclusive, exclusive [Indiscernible] and a standardized service to So-Young Prime customers. We have stationed the staff in these institutions welcome So-Young Prime customer and ensure a high quality service experience throughout the treatment. Finally, we procure and certify the light medical aesthetics equipment and the consumables used in treatments, injections and other consumables stored in the genie medicine cabinet placed in each institution and medical substance take out as a check each item in front of the customer. [Foreign Language] Enabled by innovation in the light medical asset service model, quality control of service delivery and our scale advantage in operations, user acquisition and the supply chain, So-Young Prime providers, provides user with premium, Junior and low price line medical aesthetics service. [Foreign Language] Upon review at small scale against -- last year So-Young Prime has quickly won recognition among users. So-Young Prime user satisfaction, average order value and repeated the repeated purchase rate were all significantly higher than our existing pump business. As of the date users visit to institution have continued to grow every month. Even at the end of 2022 one national wide COVID-19 infections as well as during the Chinese New Year. [Foreign Language] Next I would like to outline our business plan and objectives for 2023. [Foreign Language] First, we will continue to strengthen and develop our existence community - business leveraging our established advantage in community operations, user operations and adapter resources. We always aim to enhance user trust, increase user engagement and build a trustworthy professional platform. After nine years development, our comp [Ph] business has accumulated and raised the Beauty Diary content, transparent trade information, innovative user products and tools and a tremendous volume of industry information. It has also boosted the in-efficiency of the medical aesthetic industry at scale, accumulated high sticky user base numbering the 10s of millions and enable numerous institutions to achieve significant growth. And it sounds return through operations with So-Young. These will become cornerstones for our development and transformation in scale. [Foreign Language] Second we continue to focus on expanding, so we on Prime market penetration, building our experience in last year. Through optimizing the products on the supply side and growing our network of cooperating institutions. We will improve our capability to deliver standardized services, attract more customers and drive repeat purchases. So-Young Prime is our key deployment in the industrial Internet. It will comprehensively integrate production factors in the industry reconstructed relationships of the players in supply chain, increasing efficiency, lower costs and admittedly benefit consumers. It covers a broader and deeper range than pure internet business and it will solve the industry issue at a deeper level and construct higher barriers to entry. [Foreign Language] Looking to 2023 external conditions are moving in a positive directions for the industry and our business, and the institutions are gradually returning to normal operation. In the long run, they are still large room for growth in Chinese medical aesthetics consumption, particularly for light medical aesthetics. Our new business direction will help us diversify our revenue streams and build a healthier business model. Operationally, we will continue our highly efficient and marketing strategy strictly control our expense, refine our operation and seek profitable growth. With persistence in the near term and confidence in the long term we will continue to put the user first and remain committed to becoming the most trusted medical aesthetics platform. [Foreign Language] Now let me invite our Senior Vice VP of Finance Nick to review the financial results for the fourth quarter before taking your questions.

Nick Zhao

Hello, this is Nick. I will now take some time to go through the financials for the fourth quarter and full year 2022. Please be reminded that all amounts quoted here will be RMB. Please also refer to our earnings release for detailed information about comparative financial performances on a year-over-year basis. For the fourth quarter of 2022, total revenue were RMB325.1 million compared to RMB449.5 million in the corresponding period of 2021 in line with our previous guidance. The decrease was primarily due to a decrease in the average revenue per paying medical service provider. The decrease was primarily due to one, COVID-19 control matters and the surge of COVID-19 cases, especially in major areas in China, limited people with to offline service providers and two, pressure on the overall Chinese consumer market. Within the total revenue -- within the total revenue, information services and other revenues were RMB233.9 million down 32.1% year-over-year. Reservation services revenue were RMB26.0 million, down 37.2% year-over-year. Sales of equipment and maintenance service revenue, which were from Wuhan Miracle Laser System Inc. were RMB65.3 million compared with RMB63.8 million in the same period of 2021. Cost of revenues were RMB88.2 million, down 30.6% year-over-year. The decrease were primarily due to our cost optimization matter and the efficiency improvement in programs. Total operating expense were RMB212.6 million, down 42.8% year-over-year. Sales and marketing expense were RMB98.4 million, down 35.6% year-over-year, primarily due to a decrease in expense associated with branding and user acquisition activities. G&A expenses were RMB73.2 million down 14.8% year-over-year. The change was primarily due to a decrease in share based compensation expenses, partially offset by an increase in payroll costs and professional service fees. R&D expense were RMB41.1 million down 39.2% year-over-year, primarily due to a decrease in payroll costs. Income tax benefit were RMB204 million compared with income tax expenses were RMB10.1 million in the fourth quarter of 2021. Net income attributable to So-Young international were RMB31.3 million compared with a net loss attributable to So-Young International in of RMB27.7 million in the fourth quarter of 2021. Non-GAAP net income attributable to So-Young International Inc, which excludes the impact of share based compensation expenses and impairment of goodwill and intangible assets attributable to So-Young International Inc. were RMB38.8 million compared with RMB62.9 million in the same period of 2021. Basic and diluted earnings per ADS attributable to ordinary shareholders were RMB0.29 and RMB0.29 respectively, compared with basic and diluted losses per ADS attributable to ordinary shareholders were RMB0.26 and RMB0.26 respectively during the fourth quarter of 2021. For the full year 2022, total revenues were RMB1.26 billion down 25.7% year-over-year. Within total revenues, information services and other revenues were RMB888.5 million, down 31.9% year-over-year. Reservation services revenue were RMB128.7 million, down 53.4% year-over-year. Sales and equipment and maintenance service revenue, were RMB240.7 million. Cost of revenues were RMB393.3 million, up 19.9% year-over-year, due primarily to the consolidation of Wuhan Miracle. Total operating expense were RMB967.4 million, down 30.8% year-over-year. Net loss attributable to So-Young International Inc. were RMB65.6 million, compared with net loss of RMB8.4 million in the fiscal year 2021. Non-GAAP net income attributable to So-Young International Inc., were RMB22.2 million compared to a net loss of RMB139.5 million in fiscal year 2021. Basic and diluted losses per ADS attributable to ordinary shareholders were RMB0.61 and RMB 0.61 respectively, compared with basic and diluted losses per ADS attributable to ordinary shareholders of RMB0.08 and RMB0.08, respectively, in fiscal year 2021. With regards to some items on our key balance sheet, we held adequate liquidity in this quarter. As of December 31, 2022 we had total cash and cash equivalents, restricted cash and term deposits, term deposits and short-term investments of RMB1.6 billion compared with RMB1.8 billion as of December 31, 2021. For the first quarter of 2023, we expect total revenue to between RMB290 million and RMB310 million. The above outlook is based on the current market conditions that reflects the company's preliminary estimates of the 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&A.

Operator

[Operator Instructions] Today's first question comes from Thomas Chong at Jefferies. Please go ahead.

Thomas Chong

[Foreign Language] Thanks management for taking my questions. Can you share with us about your marketing strategies and the expected user base in 2023? Thank you.

Xing Jin

[Foreign Language] Thank you. As the market gradually recovers we will ramp up our marketing strategy compared to 2022. Yet we will still emphasize efficiency and the accuracy and then make adjustments based on market conditions. [Foreign Language] In addition to our existing marketing strategy we will also focus on private dominant operations in our efforts to increase user engagement and repurchase rates. In 2022, we attempted a private domain operations for So-Young Prime and the developed active conversion paths with private, private dummy clients contributing over 90% off So-Young Prime orders. [Foreign Language] We will continue to optimize community content and our innovative user tools to generate more organic user [Indiscernible]. But as we mentioned before competitions in the medical aesthetics industry is no longer merely for traffic. Professional platforms need a profound understanding of users and industry to provide a good service experience and immediate customer demands.

Thomas Chong

Thank you.

Operator

Thank you. And our next question today comes from Nelson Cheung at Citi. Please go ahead.

Nelson Cheung

[Foreign Language] Thanks management for taking my questions. My question is regarding management view regarding the recovery stage three of medical aesthetics industry in 2023. And the growth driver for So-Young this year. Thank you.

Xing Jin

[Foreign Language] We still hold a cautiously optimistic outlook for 2023 mainly depending on the Recover pace of the overall consumption environments and the medical aesthetics market. At the same time, we do see the marketing spend from institutions lagging behind the recovery on the user side. [Foreign Language] First on the user side, we see regional differences in the recovery of the medical aesthetics market. Due to the impact of the epidemic in the past few years, and especially consideration of the surge in COVID-19 infections at the end of last year, a large number of treatments orders were back logged. Therefore in the Tier one, Tier two cities, user orders have rebounced rapidly since the beginning of this year, and have already recovered to the level of the same period last year of 2021. In third and fourth Tier cities so user orders have recovered to the 2022 level but not yet to the 2021 level. [Foreign Language] On the institution side we see that they're still cautious when budgeting their market spent, mainly because of two factors. First, because here the orders in first and the second tier cities rebounced rapidly post induction, institutions do not need to spend a lot on marketing at this stage. Secondly, the overall turbulence of the past few years has made institution more cautious about spending but overall, we do see institutions spending gradually recovering.

Nelson Cheung

Thank you.

Operator

Thank you. And our next question today comes from Chloe Wei at CICC. Please go ahead.

Chloe Wei

[Foreign Language] Thank you. So my first question is about could you please revisit some of the things that you're thinking about as far as the business volume in the short to medium term, do say in the next three to five years? And also, can you give us just an update around maybe how you're thinking about the competitive landscape? Thank you.

Xing Jin

[Foreign Language] As a new growth driver, So-Young Prime trajectory will mainly depend on the development of the non-surgical market, which will continue to expand in line with the growth of the -- with a middle class female population. [Foreign Language] We will expand the network on the supply side, corporate with more institutions, enrich the product portfolio boost the number of service outlets ensure high quality service delivery and improve the user penetration rate and repurchase rate. [Foreign Language] Non-surgical medical aesthetics users used to consume a daily cosmetic, cosmetic and skincare products, which is an area of expertise for the numerous small and medium institutions. But small and medium institutions are usually weak equipment. SQ design, service delivery and brand awareness. So-Young Prime forms and now work ensuring service delivery of high standard by empowering these institutions. In addition to benefiting small and medium institutions, these initiatives could serve large medical aesthetics, aesthetical user group and increase convenience for consumption for them. That makes us distinctive from our competitors. [Foreign Language] Therefore, only by connecting the supply chain and linked the upstream, midstream and downstream can we expand the medical aesthetics industry addressable market and provide a user with a better service experience building a safe and secure environment for customers and driving the overall growth of industry. [Foreign Language] For the second question with the environmental uncertainties indices and their consumption demands recovery there is plenty of space in the medical aesthetics market and industry outlook is clear [Foreign Language] We believe the medical aesthetic industry is driven by the supply side. And that is where we will put more emphasizing the future. We will also integrate the core production advantages we have accumulated in terms of institutions, doctors and users, set standards for service quality and service delivery, and provide user with a premium experience. These comprehensive capabilities will enable us to build a strong competitive barrier compared with a pure internet model. We will be able to solve issues at a deeper level and create more differentiation from our competitors. [Foreign Language] In the past few years, we have provided user with our transparent and trusted information platform. So our community e-commerce business, boasting that efficiency of the medical aesthetic industry at scale. In the future, we will continue to optimize our community content, innovative new user tools leverage the scale advantage of the internet and provide a second complement of resources for offline service delivery. Of course, we may also cooperate with other traffic platforms. [Foreign Language] We believe our integration capabilities across industrial chain and our investment in the service delivery experience will benefit users and drive the sustainable betterment of the whole industry.

Chloe Wei

Thank you

Operator

Thank you. And our next question today comes from Hugo with [Indiscernible] Securities. Please go ahead.

Unidentified Analyst

[Foreign Language] Thank you for the opportunity. My question is will the end changes in mathematic consumption demands on the user end after the COVID-19. Thank you.

Xing Jin

[Foreign Language] Thank you for asking. In the question first, as we mentioned in our prepared remarks user demands are evolving middle class medical aesthetics consumer have different demands from the traditional consumption group. As they focus more on quality, safety, Jeanne [Ph] products and rational prices, demand for certain high order values SQ have increased. For example SQs in those photo electric and injection categories with average order value over 5000 RMB, are highly popular among users. [Foreign Language] Secondly, as the market recovers we believe the surgical market, which was for skewed in the past few years we experienced a wave of consumption as the economy recovers and it travels. [Foreign Language] Also with a rebound in outbound travel users will rush to the bad, the bad overseas market for medical aesthetics consumptions. Thank you. That’s all.

Operator

Ladies and gentlemen, this concludes our question-and-answer session. I’d like to turn the conference back over to management for any closing remarks.

Vivian Xu

We are not approaching the end of the conference call. Thank you for your participation in today’s conference. You may now disconnect it. Have a good day. Thank you. Bye.