So-Young International Inc.

Good morning, ladies and gentlemen, and thank you for standing by for SoYoung's second quarter 2022 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 would 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's second quarter 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 risk and uncertainties that may cause actual results to differ materially from our current expectations. Potential risk and uncertainties include, but are not limited to those outlined in our public findings with SE, including our annual report on 420F. Soyang does not undertake any obligation to update any forward-looking statement, except as required under applicable law. Joining us today on call is Mr. Ming Yu, our CFO. At this time, I would like to turn the call over to Mr. Ming. Thank you.

Thank you all for joining our second quarter 2022 Amiens Conference call. Since the beginning of 2022, we have faced many challenges from the external environment, including the macro environment and particularly the resurgence of COVID-19 in multiple cities across China, which had an active impact on business activities and the consumer sentiment. According to data from the National Bureau of Statistics of China, Total sales of consumer goods in the first half of 2022 decreased by 0.7% year-on-year, while the situation further weakening in the second quarter when total sales of consumer goods decreased by 4.6% year-over-year. In Q2, the resurgence of COVID-19 affected the top four medical aesthetic consuming cities by GMV with Beijing, Shanghai, Guangzhou, and Shenzhen. Total GMV for the Four cities from our platform in the second quarter of 2022 decreased by 71% year over year. We were actively adopting and adjusting the operation strategy of second and third tier cities, driving the revenue contribution of emerging cities to make up for the decline. As a result, in the second quarter, total revenue reached RMB 309 million, an increase of 3% from Q1. At the same time, we further increased the number of SKUs on our platform to optimize the online transaction experience with more transparent pricing and attractive incentives for end users, particularly as a way to make up for the decline in surgical GMV due to travel restrictions and safety risk considerations under the pandemic. GMV of non-surgical treatments in the second quarter of 2022 increased 5% quarter over quarter. GMV of non-surgical treatments in June increased 33% compared with May and increased 40% compared with April. Meanwhile, we were prudent with our expenses management and narrowed our losses in the quarter by improving operating efficiency. In the second quarter of 2022, sales and marketing expenses decreased by 41% year-over-year, among which branding and user acquisition expenses as percentage of total revenue decreased to 20% from 33% a year ago. Operating loss narrowed by 46% quarter-over-quarter, and we had an operating profit in June. In terms of operating strategy, recently we launched the SoYang Select, in cities including Beijing, Shanghai, Chongqing, Hangzhou, Shenzhen, and Wuhan. We strictly selected 8% of the local high-quality and high-standard service providers drawn from six categories by applying more than 30 rating criteria, including product, price, and service. For service providers, strict selection criteria enable them to strengthen their core competitiveness and support growth recovery in the post-pandemic period. For users, strict selection criteria address their preference so they can benefit from the reliable consumer protection provided by us. This helps users improve their decision-making efficiency. Wuhan Miracle, which we acquired in the third quarter of 2021, also performed well in the second quarter of this year. According to its disclosure of reported results, the revenues were RMB 120 million in the first half of 2022, up 8% year-over-year despite the challenging industry environment. Wuhan Miracle is very focused on continuously improving the quality, functionality, and marketability of its self-developed proprietary products. In the first half of the year, the sales of the self-developed products accounted for more than 65% of total equipment sales. We believe this business will continue to achieve stable growth in the future. Now, let me give you an overview of our results for the quarter. Please be reminded that all amounts quoted here will be undeterred. While our business, especially in our top markets, was negatively impacted by COVID-19, the good news is that we saw a gradual recovery and a steady increase in revenues quarter over quarter. For the second quarter of 2022, total revenues were $309.1 million, a 31.6% decrease from the same period in 2021 and a 3% increase from the previous quarter. Information services and other revenues were $220 million, around 40% decrease from the same period in 2021 and a 10% increase from the previous quarter. The sales of equipment and the maintenance services revenues of Wuhan Miracle remained stable on a quarter-over-quarter basis. We also adjusted our operational expense management dynamically in response to weakening macroeconomic environment. Total operating expenses were $246.6 million. A 26.5% decrease from the same period in 2021 and a 9.2% decrease from the previous quarter. Sales and marketing expenses were $121.7 million. a 41.1% decrease from the same period in 2021, and a 4.3% decrease from the previous quarter, primarily due to a decrease in branding and user acquisition expenses. General and administrative expenses were $61.8 million, an increase of 9.4% year-over-year, and a 5% decrease quarter-over-quarter, The increase was primarily due to the consolidation of Wuhan Miracle and the increase in professional services fee. Research and development expenses were $63.1 million, a 12.5% decrease from the same period in 2021 and a 20.1% decrease from the previous quarter. The decrease was primarily attributable to a decrease in payroll costs associated with a decrease in headcounts. In the second quarter, Soyang's profitability improved quarter over quarter as we further optimized operations and improved cost control. The net loss attributable to Soyang International Inc. narrowed by more than 51% quarter over quarter. Non-GAAP net loss attributable to Soyang International Inc., which includes the impact of the share-based compensation expenses, was $22.7 million. narrowed by more than 53% quarter over quarter. Now for our balance sheet. As of June 30, 2022, cash and cash equivalents, restricted cash and term deposits, and short-term investments were 1.6 billion RMB, compared with 1.75 billion as of December 31, 2021. For the third quarter of 2022, Soyang expects total revenues to be between $310 million and $330 million. The above outlook is based on the current market conditions and reflects the company's preliminary estimates of market and operating conditions and the customer demand. Our key operating principles and financial objectives that include focus on quality growth, improve operating efficiency and optimize cost of structure and maintain net cash position. During the quarter, we have made progress in executing these objectives. We saw losses narrowed quarter over quarter. We currently have nearly $1.6 billion in cash position, which gives us financial flexibility to grow the business. Looking ahead, we expect that the situation will remain very fluid and the impact of the COVID-19 will affect consumer behavior and medical service provider operations in many ways. But we remain optimistic about the long-term outlook of China's economy and long-term growth prospects of so young. We are uniquely positioned to swiftly adjust in a highly uncertain market environment and create value for our shareholders. This concludes our prepared remarks. I will now turn the call to the operator and open a call for Q&A. Operator, we are ready to take questions.