Yatsen Holding Limited

Ladies and gentlemen, good day and welcome to the Yatzen First Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Irene Liu, Head of Strategic Investments and Capital Markets. Please go ahead.

Thank you, Operator. Please note that discussion today will contain forward-looking statements. relating to the company's future performance and are intended to qualify for the safe harbor from liability, as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of the future performance and are subject to certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect Yasin's business and financial results is included in certain filings of the company with the Securities and Exchange Commission. The company does not undertake any obligation to update this forelooking information except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures, and the Reconciliation of Gap to Non-Gap Financial Results, please see the earnings release issued earlier today. Joining us today on the call from Yasin's senior management are Mr. Xinfeng Huang, our founder, chairman, and CEO, and Mr. Donghao Yang, our CFO and director. Management will begin with prepared remarks and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on Yasen's investor relations website at ir.yasenglobal.com. I will now turn the call over to Mr. Jinfeng Fang. Please go ahead, sir.

Thank you, Irene. And thank you, everyone, for participating in Yasen's first quarter 2021 earnings conference call today. Starting off the year on a solid note, Yasen achieved 42.7% year-over-year growth in total net revenues in the first quarter, supported by a healthy growth of our Perfect Diary brand and a robust performance of Little Onding, Avis Choice, and other brands in Yasen's portfolio. So during the quarter, the number of BTC customers increased 11.6% year-over-year to 9.6 million. while revenue per D2C customer also increased by 24.5% from approximately R&B 1989 to R&B 123 per customer. So we ended the quarter with gross margin of 68.6% and improvement of approximately 7 percentage points compared to 61.7% in the first quarter last year. We went into the year with a clear execution plan to optimize our brand's performance, expand our portal portfolio, and enhance our core capabilities. A key focus has been on the flagship proprietary brand, particularly to upgrade its positioning and price point from mass to higher-end mass market. In order to further extend its growth potential, So we have set out to achieve this through more disciplined pricing and discount policies, which successfully raise Profit Diaries' average selling price, average order value, and gross profit margin during the quarter. At the same time, we continue to introduce new products that excite and delight our customers, such as the new Ritmy Velvet Lip Grows line, as well as the Slim Heel Lipsticks gift sets. which were designed for the Chinese New Year holiday season and Valentine's Day. This new product, complemented by the launch of a number of Perpetari skincare products in our offline stores in early May, represents refinement and a premiumization of the Perpetari product line this year. So going forward, we have further plans to launch new products in existing and new categories, including base makeup, color contact lens, and men's skin care in staggered windows throughout the year to capture higher body share from our customers. Overall, we see further room for ASP and AOV improvement. New product rollouts and category expansions to drive operating results of Pervidari brands throughout this year. We are also making continued progress towards our multi-brand strategy as we introduce new brands. With the brand trading up, we see the need to attract and capture new entrants in color cosmetics market, especially Gen Z and Gen A, who are more price sensitive. Hence, we launched the Pin Bear brand in mid-March, designed with the distinct young girl brand with an initial focus on providing high value for money products in high volume categories for Gen Z and Gen A consumers. With the introduction of these lip gloss products, Pin Bear has achieved encouraging results during its first month of launch. Our Mastige Color Cosmetics brand, Little Ondine, also experienced robust year-over-year growth in the quarter, powered by several well-received product launches, such as the crossover with Pomade and Chinese pop star Huang Zitao, as well as the new Vinyl Records eyeshadow palette, which was introduced in late March. Given Little Ondine's unique street fashion brand positioning, its further upside is expected to be lower than that of Puppet Diary, which we aim to develop further as a super brand within the group. As Little Ondine has already become a top-selling color cosmetic brand in China's online market, for its next stage of growth, we plan to optimize the investment level in this brand with increased focus on sustainable growth going forward. One notable trend we saw was the increasing diversity and the balance of our channel mix compared to the first quarter of 2020, which boosted the sales contribution from non-traditional e-commerce channels, such as various short video and 2B platforms, as well as from our experienced stores. We have adopted an omni-channel strategy to serve our customers at every touchpoint, As of end of March 2021, we had a total of 245 experienced stores, already having achieved a significant scale covering key cities and regions. We aim to open approximately 100 stores throughout the rest of the year. In addition to our color cosmetics portfolio, we are excited about the expansion of our range of skincare brands. which saw the addition of Dr. Wu's mainland China business and Yiflong in the first quarter. Along with Galactic and AB's Choice, we now have four skincare brands with different positionings and consumer bases. As part of our efforts to ensure smooth transition and integrations of the Galactic and Dr. Wu mainland China business in the first quarter, our team was focused on putting in place the right management team and incentive structure to rejuvenate each brand's product and positioning, to accelerate e-commerce, and to optimize supply chains. The team has identified key products that resonate with the new generation of consumers and witnessed some early success for these relaunches, such as Galenic's new VC Serum and Dr. Wu's Mandelic Acne Series. Since the Yblanc transition was completed at the end of the first quarter, we remain in the early stage of integration process, which will span over the second quarter. We believe that over time, we will have significant room to apply our disruptive B2C model and core platform capabilities to our newly acquired brands as we help them to realize their full potential. With four brand acquisitions since mid-2019, our strategy investment and capital market teams has developed its core capabilities of sourcing, executing, and integrating new brands through these experiences and has continued to improve and upgrade. We have since 2020 started to see a number of high-quality brands emerge and become available globally, and we are continually seeking to identify potential attractive additions to our portfolio. We believe our success in acquiring Yves Long is a testament to our rising reputation as a serious, high-quality consolidator of global beauty assets. We plan to leverage this unique window of opportunity to add to our portfolio in a prudent and cost-effective manner. Aside from operational improvements and M&A, Continued investments in our core infrastructure and capabilities are also our central focus. We have increased R&D spending during the quarter to almost 2% of total net revenues, compared to 1.2% in the same period last year. So the build out of our Guangzhou manufacturing hub and research center in the form of a joint venture with Cosmes is on track. This construction has started in late March. As of end of the first quarter, we held a total of 75 global registered patents, including 36 invention patents. Our open lab R&D architecture, which encompass our internal R&D division, as well as collaboration with the network of outside OEM and R&D partners, such as Sensen Technology, TFR, Huazhong University of Science and Technology, and et cetera. We enhance our capabilities and abilities to develop unique active ingredients, formulations, and innovative packaging and application solutions. Finally, we would like to provide an update on our international business, where our progress in certain markets such as Southeast Asia have exceeded our expectations. So even though overseas sales represent a relatively small part of our overall sales in the first quarter of 2021, it is worth noting that we have already become one of the top selling brands in the online cosmetic categories in fast-growing consumer markets such as Vietnam, Malaysia, Singapore, and the Philippines. We are inspired by the success enjoyed by other Chinese D2C companies such as Shein and Anchor in overseas market. We have already started to learn from these leaders and may accelerate our overseas business in the future. Thank you, everyone. With that, I will now turn the call over to our CFO, Dong Haoyang, to discuss our financial performance.