Yatsen Holding Limited

Ladies and gentlemen, good day and welcome to the Yatsen Second 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 Investment and Capital Markets. Please go ahead.

Thank you, Operator. Please know the discussion today will contain four looking standards. relating to the company's future performance and are intended to qualify for the safe harbor from liability as established by the U.S. Cabot Securities Mitigation 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 forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For definition of non-GAAP financial measures, A Reconciliation of Gap to Non-Gap Financial Results, we see the earnings issues earlier today. Joining us today on the call from Yasin Senior Management are Mr. Zifeng Huang, our founder, chairman, and CEO, and Mr. Zhonghao 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 Yasin's investor relations website at ir.yasinglobal.com. I'll now turn the call over to Mr. Junfeng Huang. Please go ahead.

Thank you, Irene, and thank you, everyone, for participating in Yasin's second quarter 2021 earnings conference call today. So our total net revenues grew 53.5% year-over-year in the second quarter, in line with our guidance. So due to steady contribution from our flagship Perfect Diary brand and better than expected performance of our newly launched and acquired brands. So the number of DTC customers increased by 13.3% year-over-year to 10.2% median. And the average net revenue per DTC customer went up by 17.6% to 117 RMB from 99 RMB during the second quarter of 2020. So this solid result came despite intensifying competition and rising customer acquisition costs. Even as China's beauty market grew at about 20% overall during the second quarter, growth in the premium segment and in skincare was notably stronger than other market segments. We believe this market development validates a set of strategy growth initiatives we launched in May to sharpen our growth model. Specifically, we are optimizing internal resources and organization structures to enhance the power of our brands to facilitate positive innovation, capitalize on new growth channels, and optimize cost structures and efficiencies. This ongoing transformation transformative process will continue into mid-September, even though we have already seen some early signs of success in the latest quarter. So with our proven ability to disrupt the traditional beauty industry using the digitalized latest DDC model, we are now building a portfolio of durable, iconic brands supported by consumers' insights and innovation. So we believe these strategic initiatives are essential tools to position us on the path of a high-quality, sustainable growth, particularly as we prepare for a busy season in the lead-up to single-stay in the fourth quarter. So during the second quarter, we launched several new products under our ,, such as Lucent Blurring Loose Powder with Smart Lock technology and the Ultralight Purifying Cleansing Oil. So all of these new products featured preparatory technology and received very encouraging user feedback. Despite deep competition from both international and domestic peers during the June 18th Shopping Festival, Perfect Diary was one of the top two best-selling domestic Chinese color cosmetic brands, selling more than 400,000 Remy lip glosses, among other heel products. The launch of our higher-priced Slim Heel Lipstick Cherry Boss was also a success during the May 20th Chinese Valentine's Day campaign with sales of more than 100,000 units. This also introduced the Perfect Diary brand to male customers who are buying for their significant others. Heading into the second half of the year, we plan to make a strong push into the base makeup category and to premiumize the Perfect Diary brand among our new and existing users. So speaking of brand building, we continue to be recognized by the industry for our achievements. So this quarter, the 2021 T-Mobile Beauty Awards, known as the Oscar of the beauty industry, named Perfect Diary the most sought-after brand of the year and Yasen the fastest-growing beauty group in 2021. World Brand Lab recognized Perfect Diary as one of China's 500 most valuable brands of 2021, in which we are the only color cosmetic brand and the youngest beauty brand on the list. Now, turning to other brands in our portfolio, we continue to optimize return on investment for Little Ondine and AB's Choice during the second quarter. The newly launched color cosmetic brand, Pink Bear, has seen fast growth since its debut in March 2001. This sensational lip brand sold over more than 500,000 lip glosses during its first June 18th campaign, gathering the award as the fastest-growing new cosmetic brand on Timor in 2021. And as we head into the second half of the year, we will continue to expand PinBear into the eye and face makeup categories. We are also excited about our progress in skincare, which has grown to represent more than 20% of our growth cells in the second quarter. our new innovative skincare products strongly resonated with our consumers. Galanix Pure Brightening Vitamin C Powder quickly sold out following its initial launch on Mainland China this April. So after a relatively short period of integration into our platform, Dr. Wu's Mainland China sales grew dramatically during the second quarter to become the number one in this category on Tmall. During the June 18th Shopping Festival, Dr. Wu's sales increased around 700% from the same period last year. Meanwhile, Yves Long was the number one premium cleanser brand on Tmall during the second quarter, and the sales of its classic cleansing cream products grew by 53% year-over-year during the June 18th Shopping Festival on Tmall. The rapid progress we have made so far clearly shows that there is great growth potential for these brands in the future. We continue to focus on improving ROI on our sales and marketing expenses across the firm. Throughout the June 18th Shopping Festival, we were able to maintain discipline on pricing and discounts, as well as allocate resources on brands and channels with higher ROI. The end result was a decline in our sales and marketing expenses to 61% of the total net revenues based on long gap measures compared to 71% last quarter and the 6.7% in the fourth quarter of 2020. So we have also set up our investment in R&D, which increased to 2.3% of total net revenues this quarter from 1.4% a year ago. Our increased investment in R&D has already borne fruit as demonstrated by the smart lock technology that we developed in-house and used in the new translucent blurring loose powder line. So besides launching this innovative product, we also recently announced the establishment of a joint research laboratory with the National Engineering Research Center for Nanomedicine, which was formed under the Guazhong University of Science Technology to further enhance our R&D capabilities in advanced skincare, particularly the nano-based and thermal delivery system for active ingredients. So looking ahead, the lower year-over-year growth rate in Q3 as reflected in our guidance is largely due to the unusual quarterly seasonality pattern caused by the COVID-19 pandemic last year. So in a typical year, the China online beauty market is characterized by higher sales in Q2 than Q3. as a result of the June 2018 promotions across all sales channels. This pattern was disrupted in 2020 due to social distancing and quarantine policies during the COVID-19 pandemic in Q2, followed by relatively stronger sales in Q3 as the market recovered, helped by the pent-up demand from the previous months. So this creates a low base in Q2 and a high base in Q3 for year-on-year comparisons this year. However, if you compare our combined sales in Q2 and Q3 this year, which represent 53.5% and 5 to 10 based on our guidance, year-over-year growth rates, respectively, the year-over-year growth is projected to be 26% to 29%. We believe this is a more accurate picture of our growth trend, taking last year's unusual seasonality into account. We expect to have a normal basis of comparison in Q4, and our year-over-year will resume its normal trajectory. We are confident that successful execution of our strategy growth initiatives, our expanding talent pool, and the ample financial results on our balance sheet position us well to continue playing a leading role in China's evolving beauty market. So thank you, everyone. I will now turn the call over to our CFO, Donghao Yang, to discuss our financial performance.