So-Young International Inc.

Good morning, ladies and gentlemen, and thank you for standing by for SoYoung's second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, there will be a question and answer session. 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 Hsu. Please proceed.

Thank you, Operator, and thank you for joining Soyang Second Quarter 2021 Earnings Conference Call. Please note that the discussion today will contain forward-looking statements made on the safe harbor of 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. Soyang does not undertake any obligation to update any forward-looking statement, except as required under applicable law. Joining us today on call are Mr. Xin Jin, our co-founder, chairman, and the CEO. and Mr. Ming Yu, our CFO. At this time, I would like to turn the call over to Mr. Xinji. Cass, please.

Thank you all for joining our earnings call for the second quarter of 2021.

We are very happy that the second quarter of 2021 has maintained a strong performance.

The revenue reached 4.52 billion RMB. more than 4.5 billion RMB, which is higher than the company's leading high-end company. Compared to the same period in 2020, it has increased by 38%. The net profit of non-American public accounting standards belonging to Xinyang International is 7,370 million RMB, which has increased by 145% compared to the same period in 2020. The moving end average monthly fire reached 10 million, which increased by 48%. The number of paid users for appointment services is 24.5 million. Compared to the same period in 2020, the growth was 44%. The number of paid medical institutions on the platform reached 4,899. Compared to the same period in 2020, the growth was 31%. In the second quarter, the number of paid users for appointment services in the current business was about 148,000. Compared to the same period last year, the growth was about 120%. We are very pleased to report another strong quarter. Ramio grew to RMB 452 million, exceeding the high end of our guidance of RMB 415 million, an increase of 38% from the same period of 2020.

Now, gap net income attributable to Soyang International Inc. reached RMB 74 million, an increase of 145% from the second quarter of 2020. Average mobile MAs were 10 million, up 48% year-over-year. Total number of users purchasing reservation services were 245,000. up 44% compared with the same period of 2020. The number of paying medical service providers on our platform was 4,899, up 31% from the second quarter of last year. During the quarter, the number of users from purchasing reservation services in dental treatments grew approximately 120% year-over-year, to about 14.8,000, and the number of professional dental institutions on our platform grew to 2,915, increasing by more than three times from the same period last year.

In the second quarter, we have acquired Wuhan Qizhi, a medical laser company that has been listed in the top three in China. We have further expanded our competitive advantage in the field of non-operative surgery, and we have expanded our competitive advantage To seek new ideas in the cooperation between the machine and the drug The flagship is mainly engaged in the development, production, sales and agent of laser light and other light electricity medical and cosmetic equipment It has more than 10 product lines of self-proclaimed and agent It is the most comprehensive enterprise in domestic light electricity manufacturers Can solve the needs of different users of multiple skin types According to its publicly disclosed fiscal report in the first half of 2021, its operating income in the first half of 2021 increased by 119%, and its shareholder net profit increased by 252%. The solid performance and new business development strategy make us continue to work hard to optimize operations, meet the needs of end-end users and cooperative partners, and quickly change the market share.

In the second quarter, we announced the acquisition of a control interest in Wuhan Miracle Laser Systems, the first medical laser company listed on the National Equities Exchange and Quotations, or NEQ Exchange in China. The acquisition will further enhance our competitive advantage in the non-surgical aesthetics segment and allow us to explore new cooperation opportunity with upstream equipment device and medical drug providers. Wuhan Miracle is mainly engaged in R&D production, sales and agent service for lasers and other photoelectric medical and aesthetics equipment. It has more than 10 product lines, including both self-owned and licensed-owned. Wuhan Miracle covers the broadest range of projects among photoelectric manufacturers. and is able to solve diversified skin needs of different users. According to its reported results, the revenue for the first half of 2021 increased by 119% year-over-year, and net profit attributable to Wuhan Miracle for the first half of 2021 increased by 252% year-over-year. Our solid results and new strategy have enabled us to consistently improve our operations to meet the increasing changing demand from our end users and business partners and expand our market share.

Innovative technologies in medical aesthetics are driving an increasing awareness of aesthetics treatments.

and service among consumers. Notably, the popularity of non-surgical procedures to maintain healthy appearance or promote anti-aging benefits is constantly growing. In the second quarter, the revenue contribution of our non-surgical business increased to 46% of our total revenue, up from 40% in the second quarter last year. The reservation orders from non-surgical procedures increased by 40% year-over-year. And the reservation orders from non-surgical procedures accounted for 70% of total orders.

在运营策略上,首先结合社区内容以及我们的新媒体资源优势,打造推出新品和爆款产品。 二季度,平台向用户介绍推荐优质口碑的核心产品,如弗托纳斯D,光子嫩夫,Hi-T等核心品类。 Moving over to our operational strategy. Firstly, leveraging our community content and advantages in new media resources will continue to develop and launch fresh and highly successful products. In the second quarter,

We have been stepping up efforts to recommend core products with good word of mouth to users on our platform, including Photona 4D, Photo Rejuvenation, Hearty, and Accenture, which result in an year-to-year increase of over 100% for online orders. Online orders for Photona 4D even increased by 500% year-to-year.

On the non-surgical product side,

We continued to optimize the online transaction experience, increasing the number of SKUs on our platform, and provided more transparent and attractive prices. We also launched an online consumer protection project, such as in advance compensation and medical building insurance. At the end of June, over 140,000 non-surgical SKUs were available on our platform. increase of 41% compared with the same period last year. Secondly, we continue to strengthen the standardization of non-surgical procedures and enhance our management and control of products and equipment to optimize user experience. The strategic investment in Wuhan Miracle will not only expand our service network for institutional clients, but clinics, but also improve our fulfillment service and ensure that we are able to offer authentic products to customers. With acquisition, our service in the non-surgical categories will become more diversified, creating a competitive mode in the long term. Lastly, to ensure our users are guaranteed only authentic products and don't have to worry about safety issues on authentic treatment and services, we will continue to deepen our cooperation with our network of medical device manufacturers in order to consistently screen drugs, medical device, and service providers.

We continue to develop more popular categories, such as dental services, by working with institutional clients

We connected users with institutions and offered them premier dental services by bringing a standardized system to enhance the service quality of these institutions.

In the past few months, the Chinese supervision department has issued opinions on anti-contradiction, data security, and e-commerce advertising, and has presented a series of policy and guidance opinions that involve multiple industries. As the leader of the industry We also take this opportunity to reflect on ourselves Deep into the heart and reflection First of all, Xinyang has been established since the beginning of its creation Strict medical institutions have been established To review the entry system and process As well as the review mechanism of content and products Secondly, in the process of providing Internet medical information services To actively listen to the guidance of the market management departments of all levels On the regulatory front, over the past few months

regulatory authorities and have expressed their views and opinions on various matters such as antitrust, data security, and medical statistics advertising, and issued a series of policies and guidance for multiple industries. We have taken this opportunity to reflect on our practice and our role as an industry leader and engage in self-reflection and introspection. First of all, since our inception, we have established a stringent review and approval process for all doctors and institutions, as well as conducted rigorous review mechanism for content and service offering our platform. In addition, following the guidance issued by regularity bodies at various levels We have an established internal review process and continue to improve the online information we provided of medical aesthetics services. At the same time, we have also been actively engaged in the self-discipline of China's medical aesthetics industry by promoting platform governance and assisting our institution partners with compliance audits and promoting a standardized and orderly orderly development of the metastatic industry.

As mentioned above, we believe that the Chinese medical industry is on the path of steady growth. As the leaders of the industry, we have the responsibility to build a better medical industry by promoting the regulations of the industry and provide real value services to users. Looking forward to the future, we will make full use of our

To summarize, we believe the Chinese medical aesthetics industry is well on the track of steady growth. As a leader in the industry, we have the responsibility to make industry better by promoting industry standards and providing authentic and truly valuable services for our users. Looking forward, we will leverage our competitive advantages in content, technology, and our large user base, and continue to focus our efforts on user acquisition and expand our online presence into other segments of the industry. By making use of medical aesthetics as an entry point, Soyang will be viewed as the most trusted medical aesthetics and medical care platform in China.

Let me invite Ming to give us an overview of our result for the quarter before the operator will open the QA. Thanks, Cass.

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 performance on year-over-year basis. For the second quarter 2021, total revenues were RMB 451.8 million, up 37.7% year-over-year from RMB 328.2 million, and exceeded the high end of our prior guidance of RMB 450 million. The increase was primarily due to an increase in average revenue to paying medical service provider. The number of paying medical service providers on the platform was 4,899, an increase of 31.2% from 3,735 in the second quarter of 2020. The total number of medical service providers subscribing to information services on Soyang's platform was 2,236 during the quarter, an increase of 8.8% from 2056 in the second quarter of 2020. Within total revenues, information services revenue will RMB 360 million, up 53.8% year-over-year from RMB 234.5 million. Reservation services revenues will RMB 91.9 million, a decrease of 2.8% from RMB 93.7 million in the second quarter of 2020. Cost of revenues were RMB 58.8 million, up 15.9% year-over-year from RMB 50.7 million in the second quarter of 2020. Cost of revenues included share-based compensation expenses of RMB 3.8 million compared with RMB 6 million in the second quarter of 2020. Total operating expenses were RMB 335.4 million, up 16.7% from RMB 287.4 million in the second quarter of 2020. Sales and marketing expenses were RMB 206.7 million, up 11.6% from RMB 185.2 million a year ago, primarily due to an increase in payroll costs associated with the expansion of marketing employees. Sales and marketing expenses included share-based compensation expenses of RMB 1.6 million compared with RMB 1.6 million in the corresponding period of 2020. General and administrative expenses were RMB 56.5 million, up 13.3% from RMB 49.8 million a year ago. primarily due to increasing payroll costs associated with the expansion of administrative employees. General and administrative expenses included share-based compensation expenses of RMB 7.2 million compared with RMB 14.2 million in the corresponding period of 2020. Research and development expenses were RMB 72.1 million up 37.9 percent from RMB 52.3 million a year ago. The increase was primarily attributable to an increase in payroll costs associated with the expansion of research and development employees. Research and development employee expenses from the second quarter of 2021 included share-based compensation expenses of RMB 3.6 million compared with RMB 6.2 million in the corresponding period of 2020. Income tax expenses were RMB 11.1 million compared with RMB 2.8 million in the second quarter of 2020. Net income attributable to Soyang International Inc. was RMB 57.6 million compared with net income attributable to Soyang International Inc. of RMB 2.1 million in the second quarter of 2020. Non-GAAP net income attributable to Soyang International Inc. was RMB 73.7 million compared with RMB 30.1 million in non-GAAP net income attributable to Soyang International Inc. in the same period of 2020. Basic and diluted income per ADS attributable to our shareholders were RMB 0.54 and RMB 0.53, respectively. Compared with RMB 0.02 and 0.02, respectively, during the same quarter, during the second quarter of 2020. Now for our balance sheet. As of June 30, 2021, we had a total cash and cash equivalents restricted cash and term deposits, term deposits and short-term investments of RMB 2.26 billion compared with RMB 2.68 billion as of December 31, 2020. For the third quarter of 2021, Soyoung expects total revenues to be between RMB 430 million to RMB 450 million, representing a 66.6% to 69.7% increase from the same period in 2020. The above outlook is based on the current market conditions and reflects the company's preliminary estimates of the market and operating conditions and customer demand. This concludes our prepared remarks. I will now turn the call to the operator and open the call for Q&A. Operator, we are ready to take questions.

Thank you. We will now begin the question and answer session. If you wish 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 or hash key. If you ask question in Chinese, please repeat it in English immediately and one person is allowed to ask one question at a time. If you want to ask more than one question, please join the queue again. Your first question comes from Thomas Chong of Jefferies. Please ask your question.

Now I will translate myself. What are the company's views regarding the recent changes on the advertising guidelines regulating the beauty medical sector, which were issued by the state administration for market regulation, and how it will affect the company business moving forward? Thank you.

Thank you. We noticed that documents issued by regularity or authorities since the beginning of this year

have mainly been focused on supervising the practice of medical institutions in the medical aesthetic sector. We believe that such supervision is conducive to the long-term and healthy development of the entire industry.

Xinyang Zhou is the first online medical information service platform. Since its creation, it has already established strict institutions, doctors, audits, and procedures.

As an internet medical statistics information service platform, since our inception, we have established a review and approval process for all the doctors and institutions we partner with, as well as content and product review mechanisms We are committed to build strong governance across our platform and strive to curb any non-compliant activities. In terms of having medical information featured on our platform, in order to cooperate with Soyang, medical institutions are required to submit their state-issued business license, medical institution practice license, and other documents issued by governance authorities. As well as pass our internal review and verification, we also require doctors to provide their qualification certificates and verify practice license before information can be published on our platform. In terms of publishing content on products and services, we have built a rigorous information display system equipped with risk control and anti-fraud systems. Information displayed by institutions must first meet our strict requirements, and we have two additional review procedures. one automated and the other by manual inspections. We have also a professional compliance team that closely monitors state policies and standards in real time, which we then compile to optimize our platform's verification system and standardization process. We also have a strict set of violation information risk control model library. Because of professional internal risk control management and platform governance, We think that this should be the operational strength that differentiates us from our peers.

Last May, we launched China's medical industry self-reliance action in the industry. While promoting platform self-reliance, we will fully stand at the legal authority of the consumer, through the appropriate path and method of feedback,

Last May, we initiated a self-discipline campaign for China's medical aesthetics industry to promote platform governance. Regarding the draft guidelines on regularity advertising the medical aesthetics sector issued by the SAMR, we will provide our feedback through appropriate channels on the premise of protecting the legal rights and interests of consumers. Through positive and constructive feedback, we aim to create a voice for medical aesthetics professionals and at the same time provide a better service to our customers and promote regulated and orderly environments for the development of the industry.

At the same time, we also believe that the strict and detailed implementation of supervision requires offline medical institutions to strengthen their own service capabilities and medical standards. And when putting in customers, it is not always possible to pursue traffic, or even to deceive consumers in a false and exaggerated way. For the institutions, the choice of putting in channels will be more cautious. At the same time, the direct instruction also clarifies the rules and review responsibilities of the network platform operators. Meanwhile, we also believe that with strict regulation and further execution of specific rules, offline medical institutions are required to enhance their services capability and medical level.

not blindly pursue traffic growth in marketing and user acquisition, and even cheated consumers with fake or special aids. Institutions will be more cautious selecting marketing channels. Also, the enforcement guidance also clarifies that online platform operators' duties to perform contract and do the verification, and governance online platform compliance will be enhanced. In this regard, as the first mover in the industry to start and continuously establish self-discipline, we believe that Soyang will be benefited by the regulation in the long run. In the long term, we believe that the regulations will prove to be highly conductive to the healthy development of the industry. For Soyang, we are committed to adhere to all regulations and will continue to further improve our internal review mechanism to full compliance and regular self-governance. To lead by example, we will remain proactive in intercepting medical aesthetics promotional information that doesn't comply to the rules. In order to offer authentic information and online services and promote better care in the medical aesthetics industry.

Okay, thank you.

That's all.

Our next question comes from Nelson Chung of Citi. Please ask your question.

Thank you, manager, for accepting my question. Congratulations on your very strong performance in the second quarter. My question is about the development of the company's future business. I just want to understand how much the pandemic has affected the company's business. How do we see the growth of the business in the second half of the year? And the last question is about the US credit card. I just want to ask about the US credit card. Is there any progress in this quarter or in the future? So let me translate myself into English. Thanks, management, for taking my question. So my question is regarding to the business prospects. Can management share your views related to the impact of COVID on your business? And can you share more details about the growth trend in going into the second half of this year? And my second question is related to your progress on the Soyang Pass, the SY Pass. Yeah, thank you.

Ni hao. Due to the impact of the epidemic in July and August, we see that the operation of first and second-tier urban institutions such as Shanghai, Chengdu, Nanjing, Zhengzhou, etc. is affected. As the impact weakens, we also see that the operation of these urban institutions is gradually recovering to a normal level.

In July and August, China faced the double impact of COVID-19 resurfacing in a few cities and damages from flooding disasters. Operations of medical institutions were adversely affected in the first-tier and second-tier cities, such as Shanghai, Chengdu, Nanjing, and Zhengzhou. As the situation got under control, medical institutions were able to resume operations and return to their regular growth trend.

Looking to the business growth in the second half of this year, firstly, policies in particular regulations for medical aesthetics advertising required institutions to conduct self-inspection

first in the near term and pull unqualified products and treatments from their offerings. Meanwhile, the enforcement guidelines also set clear requirements for online platform operators to fulfill the duties imposed by laws. As a result, institutions will be more cautious about marketing in the near term. 下半年受益于非手项目热度不断攀升, In the second half of this year, taking advantage of the rising popularity of non-surgical treatments, we will continue to implement our established strategy to grow the non-surgical categories, further penetrate and expand market share while maintaining our strength in the surgical category.

As of the end of August, Soyang Pass has extended its network to 36 cities from 11 to 1.

and the number of institutions increased from 95 to over 160. The number of verified orders on Soyang Pass also increased by 40% in Q2 compared to Q1. That's all. Thank you.

Your next question comes from Leo Chang of Deutsche Bank. Please ask your question.

Good evening, Manager Chen. Thank you for accepting my question. My question is about industry competition. Can you update the latest industry competition pattern? Let me translate myself. So thanks, management, for taking my question. My question is regarding to competition landscape. Can management share the latest competition landscape you have observed recently? Thank you.

Hello, the current market, we think, is no longer a pure traffic competition, but a need for platforms to really solve the pain of users in real-time consumer experience. Whether from the perspective of supervision or from the perspective of user experience, professional platforms need to have a deep understanding of the industry.

At current level of market competition, we believe it is no longer purely about competing for user traffic, but whether a platform can really address the pain point for users and improve user experience. From the perspective of both regulation and better user experience, platform must be professional at all times and have in-depth knowledge of the industry.

As the popularity of non-surgical category increase in demand, we will continue to strengthen the operation of non-surgical category and implement our established strategy to expand market share.

on top of growing our entire medical aesthetics user base.

More than 1,000 medical institutions have joined forces to build a high-quality platform for medical user consumer chain. We believe that every time the card and the little red book Pinduoduo quick hand micro-blog formation strategy cooperation dig deep medical consumer hot spots to build high-quality selection pool to expand the scope of negative medical institutions

Meanwhile, we are continuously strengthening our cooperation with other platforms to empower the entire medical aesthetics industry. For instance, we partnered with JD.com to establish a JD Healthy Medical Aesthetics channel so that consumers can experience and have easy access to professional and premier medical aesthetics services. Besides that, we also worked with AutoNavy to connect with other 1,000 institutions and established a consumer service for medical aesthetics users on the AMAP platform. Soyang Pass has also achieved more strategic cooperations with Little Red Book, Pinduoduo Kuaishou, and Weibo, and we hope to explore popular treatments in medical aesthetics. build a premier shortlist of select products, and expand our service scope to continue empowering more institutions.

That's all.

Thank you.

Your next question comes from the line of Vincent Yu from Needham & Company. Please ask your question.

Thank you, Manager Chen. I have two questions. The first one is about the impact of supervision on our company's advertising. I would like to continue to clarify that we believe that the change in supervision in the medical industry whether it's advertising, or maybe for some of the more traditional industries in the past, what changes have occurred? The second question is about our recent acquisition. I would like to ask the management team, what is our strategy behind the acquisition? In other words, what is the future strategy I have two questions. One is to follow up on the impact on the regulation. So my question is more focused on how the regulation impact the traditional industry structure and the traditional practices in this industry and how we should view this as a potential opportunity. And the second question is on the region's opposition. How should we think about the strategy behind this opposition? What kind of cooperation we will have? between this manufacturing company and the other institution clients, and also what kind of motivation model we are hoping to see for the future. Yes, thank you.

Hello. The strict regulation of the監管 has to a certain extent affected some irregularities in the industry. In the long run, we think it is beneficial to the health development of the entire industry. As the supervision is strengthened, the inspection, injection system, and process of various institutions and doctors will be clearer and clearer. At the same time, strengthening the use of drugs and equipment, the production and circulation of products in the market, and the use of authentic and genuine manufacturers and institutions is also more effective protection.

First, we believe that the regulation action against the non-compliant practice and strict regulatory requirements will benefit the healthy development of the whole industry in the long run. With tightening of regulations, local regulation will further clarify and detail the approval system and process for institutions and doctors. Meanwhile, the usage specifications for drugs and equipment will be strengthened, forming more effective protection for manufacturers and institutions producing, distributing, and using genuine and authentic products. 除了在准入会上,我们看到行业随着监管力度加大,一定程度上

Beyond entry compliance, we assume that the stricter regulations

will to some extent drive institutions to raise the level from their marketing customer acquisition to internal operation, such to improve service quality. Besides educating consumers to distinguish and select services, institutions need to retain clients with good service and skills. An institution won't survive for long by focusing only on customer acquisition and ignoring management and service quality.

The strengthening of market supervision for the overall medical market, especially the standardization and online improvement of the light medical market, we think will have a very obvious promotion.

Tightened market regulation has significant driving effect on standardization and going online for the entire medical aesthetics market.

particularly the non-surgical medical aesthetics market.

Yes, I will try to answer your questions about our acquisition of Miracle Laser. As mentioned earlier in the case remarks in the previous part, Miracle Laser is one of the biggest manufacturer for laser medical machineries in China. And we think the synergies going forward between the platform at Soyang and the further cooperation with the manufacturers, with branded manufacturers like Wuhan Miracle, will have a new complete service experience for users on the platform and at the same time we can make sure the services taken by the customers will have a very consistent experience. It also will have certain cost saving effect like we will provide our platform customers directly to the clinic or hospitals who have Wuhan Miracles medicine instruments or equipment directly and we will share the revenues between that. And it will be a showcase attempt for us for the further cooperations with upstream manufacturers in medical aesthetic service industry. Going forward, we will see further cooperations with other branded manufacturers to provide consistent and, of course, consistent screening drugs and medical devices and service providers to our customers. At the same time, Wuhan Miracle itself is a very well-run business. They have been listed in the the NED exchange in China for almost six years, being highly compliant in terms of financial control and internal control. And they have been experiencing, of course, the industry as a whole has been hit by the COVID-19 in 2020, but they have been recovered quite well in the first half of this year. And we are very positive is going forward growth in after be acquired by us and our cooperation will adding more elements for the business in the going forward okay that's it thanks thank you our next question comes from the line of Chi Chi yeah

From CICC, please ask your question.

感谢管理层接受我的提问。 首先是非常恭喜强劲的业绩。 我们看到二季度这个销售的花费的绝对值比一季度是要少的, 然后MAU的增长趋势也不错, 想请教一下公司下半年的投放趋势。 Thanks, management, for taking my question, and congrats on your strong performance. We noticed that the absolute value of sales marketing expenses have declined sequentially. Can you please comment on any marketing and promotion trends in the second half of this year? Thank you. Hello.

In the second half of this year, we will be more targeted in our brand placement. We will continue to occupy the user's mind and play a platform advantage.

We are planning to execute more target brand placement to strengthen brand awareness among our users. At the same time, we will leverage the advantage of our platform and conduct performance-based marketing on third-party platforms. with premium content to establish our brand as professional medical aesthetics platform.

For the full year, we forecast that sales marketing

as a percentage of our revenues will remain largely stable at no more than 50%. Interesting. Well, that's all. Thank you.

Thank you. If there are no further questions, this concludes today's conference call. Thank you for participating. You may now all disconnect.