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Q1 2023 Earnings Conference Call
spk00: Ladies and gentlemen, thank you for standing by for Sue Young's first quarter and 2023 earnings conference call. At this time, all participants are in a listen-only mode. After management gives their 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 Xu. Please proceed, Ms. Xu.
spk04: Thank you, operator, and thank you, everyone, for joining Sue Young's first quarter 2023 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 online in our public filings with the SEC, including our annual report on Form 20F. Sue Young does not undertake any obligation to update any forward-looking statement, except as required under applicable law. Joining me today on call is Mr. Xin Jin, our co-founder, chairman, and CEO, and Mr. Nick Zhao, CFO. At this time, I would like to turn the call over to Mr. Xin Jin.
spk04: everyone. Thank you for joining Sue Young's first quarter 2023 earnings call.
spk02: As the pandemic has subsided and the US and the US agencies have gradually regained normal business, Sue Young has had a good start in 2023. The total revenue of the first quarter reached 3.1 billion yuan, which is 3% increase, exceeding the high-end of the previous company guidance. At the same time, the strict cost control measures and overall efficiency improvement have made our business costs drop by 15%. The loss has been greatly reduced. Under the non-US Accounting Regulation, the loss of the listed company, Jin Kui Shun, dropped 94% from the same period last year, to 275,000
spk04: yuan. We kicked off 2023 with a strong financial performance as the effects of the pandemic recede and the gradual recovery of medical aesthetics industry gains momentum. Total revenue for the first quarter reached 310 million yuan, a -on-year increase of 3% and exceeding the high-end of our previous guidance range. Strict cost control measures and operational efficiency improvements resulted in a 15% -on-year decrease in operating expenses, while our non-GAAP net loss attributable to Soyang International Inc. narrowed significantly, decreasing by 94% -on-year to 2.75 million. I will now walk you through the progress we have made on Soyang Prime, our strategic priority this year.
spk02: As we stressed at the phone call last quarter, the Chinese medical aesthetics industry is undergoing structural changes. On the one hand, the user group is constantly upgrading. As the main consumer group of the entire Chinese medical aesthetics industry, Chinese women have very obvious consumer characteristics. First, they are concerned about the safety of the project. Second, consumer projects are mainly focused on anti-fall, skin management, physical management, etc. and higher consumer frequency. Third, they are concerned about the cost of the project. Fourth, they are concerned about the quality of service. On the other hand, the offline medical institutions, especially the small and medium-sized ones, are currently facing a high cost of customer service. The need for upgraded equipment is high, and the expansion is slow, and the problem is with qualified doctors.
spk04: As we have emphasized on our last earnings call, the medical aesthetics industry in China is undergoing numerous structural shifts. Users are becoming increasingly more sophisticated and discerning. For example, middle-class female users are a major demographic group within the large medical aesthetic sectors. They are increasingly showing distinctive consumption habits that reflects these structural shifts, such as more attention to safety, service quality, and call for specific high-frequency procedures, such as anti-aging, skin care, and body stocking. Medical institutions and SMEs, on the other hand, face new challenges, such as higher user acquisition costs, constant capex requirements to upgrade equipment, and a lack of qualified doctors. This impacts their ability to expand. Prior to this structural shift taking code, our focus was very on strengthening the numerous competitive advantage we have accumulated. This span from user acquisition to income, streamlined operations and integrating upstream and downstream resources to ensuring the quality and authenticity of services and doctors. This competitive advantage enabled us to build significant barrel to entry, tap into broader verticals within the industry, solve pain points and offer a unique value proposition to both consumers and medical institutions.
spk02: Xinyao launched Xinyao Youxiang last year. This is a one-time contract with the institution led by Xinyao, a light, beautiful, self-sufficient solution. Xinyao has gone deep into every step from customer to customer and delivery. To ensure the quality of the contract, Xinyao has an exclusive nurse who enters the cooperation institution, has an independent drug store and ensures the experience of the end user. Xinyao Youxiang has gained the trust of many consumers after launching it. Its reputation and supply is much better than the products on our previous platform. The institution has also shown a very positive attitude. Up to Q1, we have been in more than 25 cities and have been in cooperation with more than 130 institutions. The number of orders and orders for delivery has increased by 88% compared to Q4 in 2022. In the short term, our goal is to expand the number of cooperation institutions, focus on some SKU rewards such as laser, lighting and plastic body. We strive to improve the market share of these products and create a stronger export advantage. We expect Xinyao Youxiang to serve in more cities in 2023 and to expand our service and become an important driving force
spk04: for our growth. We launched Soyang Prime late last year, a proprietary one-stop non-surgical medical esthetic solution. Soyang Prime covers every process from user acquisition to pricing and delivery. In order to guarantee service quality and enhance the user experience, our staff have their own service counters within our partner medical institutions. Soyang Prime was launched to widespread praise from consumers and has already generated purchase rates significantly higher than any of the previous products launched on our platform. Medical institutions have been incredibly interested in signing on. By the end of the first quarter, we have partnered with over 130 institutions in more than 25 cities. During the first quarter, fulfilled orders through Soyang Prime increased by 88% sequentially. Going forward, our near term goal is to further expand Soyang Prime service network. This will solidify its position and strengthen its brand by focusing on popular SKUs such as medical-grade laser and injection treatments and body sculpting. This will also expand our market share for these categories and generate more buzz within the industry. With so much potential, we are confident that Soyang Prime will be a key growth driver for us this year as it expanded into more cities.
spk02: Next, let's talk about the POP business. Looking at the medical market as a whole, especially after the pandemic, medical institutions are in the recovery stage. But the recovery is not even. The recovery speed of the first and second-tier cities is faster than that of the third and fourth-tier cities. The recovery speed of medical institutions is faster than that of the first and fourth-tier cities. The institutions are still relatively cautious in their investment in the marketing cost. In the second quarter, we noticed that the business activity was increasing. On the new-care platform, non-surgical projects have increased the average order volume by 14% in April. In the case of surgical projects, the average order volume increased by 25% in April. The growth of the institutions in Xinjiang in April is also significantly better than the average in
spk04: the first quarter. I will now move on to our POP business. With the effects of the pandemic receding and the Chinese New Year holiday period not behind us, the medical aesthetics industry has been undergoing a gradual, yet uneven recovery. First and second-tier cities are recovering at a faster pace than tier 3 and below. Non-surgical procedures are also recovering at a faster pace than surgical procedures. Medical institutions as a result remained cautious on increasing marketing spend during the first quarter. But they have gradually been increasing their activity as we get deeper into the second quarter. Non-surgical orders placed in April were 14% higher than the monthly average last quarter. For surgical procedures, the increase was 25%. With transactions on a platform accelerating, marketing spend by medical institutions is also significantly picking up in April. With the recovery clearly underway, we began to increase promotional campaigns across our platforms in March. Our focus was on SKUs that are in high demand. By optimizing the design of the so-called SoYoung app, we now display recommendations for popular SKUs and popular doctors, as well as offer discounts on surgical procedures. This incentivizes users to return to the platform, increases engagement, and drives fulfilled orders and GMV growth. With the summer holiday season generally coming, we will expand the number of medical institutions we partner with to increase the supply of key SKUs and strengthen user engagement and stickiness.
spk02: In 2023, we will pursue high-quality growth, and strive to provide good products to consumers through services similar to SoYoung. At the same time, we will continue to improve our financial performance.
spk04: After 10 years of rapid development, the skill and growth potential of the Chinese medical aesthetics industry remains enormous. The industry is standardizing at its growth, shifting from product-driven to technology-driven. Our focus throughout 2023 will be on high-quality growth, empowering SME medical institutions, and providing better products to consumers through services such as SoYoung Prime. I am confident that this will strengthen our core competitiveness and improve our financial performance.
spk02: Next, I would like to invite CFO Nick to introduce the financial situation for the first quarter. After that, we will start Q&A.
spk04: I will now turn the call over to our CFO Nick to review the financial results for the first quarter before taking your questions.
spk01: Hello, this is Nick. The investments we made in our infrastructure capacity and service expansion during the challenging environment last year are beginning to pay off and are reflected in our financial performance this quarter. Total revenues during the quarter were RMB 310.1 million, up .2% -over-year, and exceeding the high end of our previous guidance. The increase was primarily due to an increase from the sales of equipment and maintenance services and other services. The revenue is composed of three main streams, information services, reservation services, and revenue from sales of equipment and maintenance services. Information services and other revenues were RMB 217.8 million, up .2% -over-year, primarily driven by an increase in other revenues from SoYoung Prime. As our CEO, Mr. Jin, outlined earlier, the industry's recovery has been uneven. Reservation services revenues continue to feel the impact of COVID-19 on surgical transactions, decreasing .9% -over-year to RMB 29.7 million, but has also begun to rebound in April. Sales of equipment and maintenance services, which were from Wuhan Miracle Laser System Inc, were RMB 62.6 million, up 7% -over-year. Cost of revenues were RMB 113.7 million, up .7% -over-year. The increase was primarily due to investments made in service providers to enhance operational efficiency and improve the quality of services. Total operating expenses were RMB 229.8 million, down .4% -over-year. Sales and marketing expenses were RMB 112.5 million, down .6% -over-year, primarily due to the increase in expenses associated with branding and user acquisition activities. G&A expenses were RMB 61.5 million, down .9% -over-year, due to operational efficiency improvement. R&D expenses were RMB 55.8 million, down .3% -over-year, primarily due to a decrease in payroll costs. Income tax benefits were RMB 4.3 million, compared with income tax benefits of RMB 2.0 million in the first quarter of 2022. Net loss, attributable to Soyang International Inc, was RMB 11.9 million, compared with a net loss of RMB 66.8 million during the same period last year. With revenue growing once again, our non-gap net loss, attributable to Soyang International Inc, narrowed significantly to RMB 2.8 million, a decrease of .3% -over-year. This compares with RMB 48.3 million in the same period of 2022. Basic and diluted loss per ADS, attributable to ordinary shareholders, were RMB 0.12 and RMB 0.12 respectively, compared with the basic and diluted losses per ADS, attributable to ordinary shareholders of RMB 0.62 and 0.62 respectively during the same period of 2022. We have ample cash on hand, with a total cash and cash equivalents, restricted cash and term deposits, and short-term investments of RMB 1.5 billion as of March 31, 2023, compared with RMB 1.6 billion as of December 31, 2022. Looking ahead, we will continue to carefully monitor and control our expenditures and improve our operational efficiency as we navigate this period of recovery. And leverage our ample cash position to strategically invest in our future. For the second quarter of 2023, we expect total revenues to be between RMB 380 million and RMB 400 million. The above outlook is based on the company's preliminary estimates of market and operating conditions and the customer demands. Please be reminded that all amounts quoted here are in RMB. Please also refer to our earnings release for detailed information of our comparative financial performances on a -over-year basis. This concludes our key remarks. I will now turn the call to the operator and open the call for QA.
spk00: Thanks. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Thomas Chong with Jeffreys. Please go ahead.
spk05: My question is about how we will handle the second quarter and the second half of the year. Please explain to me. Thanks for taking my question. How do you expect the market to be in the second quarter and not the second half? Thank you.
spk02: Hello, thank you for your question. We can see that the entire consumer environment is still in a stable and closed stage. The US consumer market is also warming up and is in a state of recovery. From the user's perspective, through the joint organization, we will optimize platform-based products and focus on the hot-end product-oriented specialty to increase the supply of the product. Second, based on the user's needs, we will assemble the product and use the New Year's special event to improve the efficiency of the organization and shorten the decision-making of the user's order. Based on these two effective measures, we can see that the number of users has increased by 23% compared to Q4 in 2022. The number of users in January has increased by 27%. In the second quarter, the number of users in April has increased by 23% compared to Q1 in 2021. This is also an increase.
spk04: Consumption across the board is steadily improving with consumption of medical aesthetics products gradually recovering as well. We launched a number of initiatives to attract additional users. This includes optimizing products on our platform for popular SKUs that have ample supply and package together complementary products to improve operational efficiency and shorten the time it takes for a consumer to make a decision during sales perils. The number of users placing orders in GMV during the quarter increased by 23% and 27% sequentially, respectively. Others placed on our platform in April also increased when compared to the average during the first quarter.
spk02: In April, the number of users in Q1 in 2023 has increased by 23% compared to Q1 in 2020. In the long term, the structure and behavior of Chinese consumers are changing. The consumers pay more and more attention to product experience and cost performance. We believe that users and institutions will change as the market evolves. This is also consistent with the strategic development of our company. This is consistent with
spk04: the strategic development of our company. We expect the behavior of users to structurally change with an increasing focus being placed on the consumer experience and cost benefit. Both users and the medical institutions will change their consumption behavior, which we are strategically adapting to.
spk00: Thank you. Are you ready for the next question? Thank you. The next question comes from Nelson Chung with Citibank. Please go ahead.
spk03: Hello, Mr. Director. Thank you for answering my question. Congratulations. The record has very strong results. My question is about our business. Mr. Director, can you share with us in the business? I would like to know more about the business and the expectations of this year's business. I wonder if we have any goals for this year's business in the next two or three years. Let me translate myself. Can you share with us the progress of Soyang Prime in Q1 and the outlook for the full year? Thank you. Thank you.
spk02: Hello. As the main business of this year's Fali, we are still starting from the user experience while expanding the scale, standardizing the service process, strengthening the user offline travel, and ensuring high-quality service experience. From the product end, we have combined medical experts to develop and upgrade the service plan and unify the number of standards to ensure that users enjoy the best quality and low-cost service. For example, in the anti-fake products, we have developed the unique innovative suite developed by the experts and improved the way of thinking. We have been influenced by the expansion of beauty and the youthful face of the face. Secondly, we have used the ability of the supply chain and the advantage of the community and media resources to choose a variety of products to continue to strengthen the trust of users and provide users with better, faster options.
spk04: Soyang Prime is the focus this year. While expanding the scale, we are at the same time working on enhancing the user experience, standardizing service processes, and strengthening the delivery of service offline. This will ensure a high-end consumer experience. On the product end, we partnered with doctors and experts to develop and upgrade the services and bundle them together to offer an -to-use and cost-effective one-stop solution. For example, we jointly developed innovative anti-aging products that are exclusive to our platform. This includes a unique procedure using the Peninsula Ultrasonic Anti-Aging Cannon, which is specifically sought out by users. On leveraging our strong supply chain capabilities, we diversified our product offerings to strengthen user trust and choice.
spk02: Since the first quarter, We've expanded our business in more than 25 cities and covered more than 130 sites. During this time, we've improved the business model of WeChat. We've improved the cost-effective and delivery efficiency of our services. We've also brought more users with more convenience and high-quality service experiences. In the first quarter, the number of orders for our customers has increased by 88% compared to the number of orders for Q4 in 2022. The number of orders for our customers has increased. This year, we will continue to expand our business and work with more institutions to expand our service. We believe that the development of the e-commerce market will continue to be a high-quality service experience and we will continue to upgrade the e-commerce industry. We will use our advantages in the e-commerce industry to help the development of the e-commerce industry.
spk04: We've always trained institutions to ensure they meet our high standards. We have trained medical teams and streamlined processes. As of the end of March, Soyang Prime has expanded to over 130 institutions in more than 25 cities. Its light asset model improved user acquisition cost and operating efficiency. An improved solid user experience makes it a unique value proposition. For a few orders through Soyang Prime, increased by 88% compared with last quarter, a trend that has continued into April. This year, we will continue to expand its reach and service scope. Soyang Prime was developed with recent consumption trends in the light medical aesthetics market in mind. We are committed to maintaining a high end user experience by helping the industry grow overall, leveraging our supply chain expertise.
spk00: next question comes from Chloe Wei with CICC. Please go ahead.
spk07: First, it's about our marketing strategy. The overall marketing of the first quarter has not grown much. It's still relatively safe. But we can see that the second quarter is still quite good. I'd like to ask the management team what kind of outlook they have for the next two to four quarter marketing strategy. What kind of outlook will the corresponding costs and the amount of money will be? My second question is for Nick. It's about advertising. We can see that the number of customers has dropped in the last few quarters. I'm curious about how we will predict the second quarter's future. Let me translate
spk08: myself. Thanks to management for taking my question. I have two. The first one is about can management maybe give us some color on the marketing strategy and maybe guide us through how will the marketing spend look like in the rest of the year? My second question is for Nick. The numbers of advertisers have decreased on a quarterly basis. How do you expect the trend in Q2 and the second half of the year? Thank you.
spk02: We will educate users and join the media and media agencies to invest in marketing resources and provide good media options for users to meet their needs. In the channel marketing strategy, we will focus on new operations this year to improve the user's commitment and expand cooperation with other platform channels to find new marketing methods and content.
spk04: As we mentioned, that's part of our focus is really on getting efficiency this year. Repurchase rates for online orders this quarter was seven percentage points higher than two years ago. With recovery and the way we'll be increasing marketing spend to educate users, we will support and advise medical institutions with their marketing spend. We will focus on platform operations this year to increase user engagement. We will also expand cooperation with other platforms to explore new user acquisition opportunities and content.
spk01: With regard to the paying medical institutions, we believe that the reduction of paying medical institutions is the result of cumulative impact of several factors. First of all, I think the Q1... The first impact is the sustainability impact. Q1 is traditionally slower. It's the marketing expenditures in our industry. Secondly, the challenging market situations in Q4 2022 resulted in significant shrink in the marketing budget from medical institutions. And thirdly, the infections after the open-up of quarantine policy also caused a temporary and yet sharp reduction in users' visits to institutions, which led to institutions' further reduction in marketing activities in Q1. With the gradual market recovery, we have seen the rebounds of institutions' marketing activities. And we would expect a turning point in Q2 with regard to the number of paying medical institutions on our platform. Thank you.
spk00: Okay, ready for the next question? Okay, the next question comes from Jessie Xu with Credit Suisse. Please go ahead.
spk06: Thank you for the opportunity to ask this question. Good evening, Mr. Jin, Mr. Zhao, Vivian, and Trish. I'm a New Yorker, Jessie Xu. I'm very happy to see that Q1 has been a major turning point in the growth of our revenue. First, I'd like to ask what are the reasons for the loss in Q1 and Q2? And what are our expectations for Q2 and the second half of the year? We are very glad to see the significant narrowing of net loss in the quarter on top of revenue growth. So first, can you help us to better understand the factors and reasons behind the net loss in Q1? And also, how should we look at the bottom line trend in the second quarter and also the second half of the year? Thank you.
spk01: Thanks, Jessie. This is Nick. In the first quarter, our non-gap net loss attributable to Soyang International Inc. narrowed significantly compared with the same period last year with a -on-year decrease of 94% to RMB 2.75 million as we described earlier. The first quarter is typically slow for the medical aesthetic market as it coincides with the Chinese New Year and was impacted also by the rapid spread of COVID-19 after the open-up of quarantine policy. As a result, revenue in the first quarter was impacted as well. As the impact of the pandemic recedes, we are deploying more people and marketing resources as the market recovers. So during the second quarter and throughout 2023, we will focus on enhancing user experience and improve institutional operational efficiency to kick-start revenue growth. We will also strictly control costs and expenses while improving the operational efficiency going forward. Thank you.
spk00: This concludes our question and answer session and the Soyang International Inc. first quarter 2023 earnings conference call. Thank you for attending today's presentation. You may now disconnect.