Yatsen Holding Limited

Ladies and gentlemen, good day and welcome to the Jackson Third 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 the discussion today will contain four 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 Exchange Commission. The company does not undertake any obligations 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 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 conference call from Yasin Senior Management are Mr. Jinfeng Huang, our founder, chairman, and CEO, and Mr. Donghao Yang, our director and CFO. 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 will now turn the call over to Mr. Jinfeng Huang. Please go ahead.

Thank you, Irene, and thank you, everyone, for joining today's conference call. So our net revenue grew by 6% year-over-year to 1.3 billion RMB in the third quarter, in line with our guidance. We made significant progress with our skincare brands in the quarter, which increased to approximately 15% of total growth cells, compared to around 14% during the prior quarter and around 5% during the same period last year. Since the premiumization of the Perfect Diary brand and an increase in skincare sales, our growth margin increased by 2.2 percentage points year-over-year to almost 58%. So we saw a significant deceleration in general consumer and color cosmetic spending in China this quarter. According to the China National Bureau of Statistics, general consumer retail spending and beauty retail spending each recorded year-over-year growth of approximately 5% in the third quarter, with even lower sales growth in Timor's color cosmetics categories. The industry-wide slowdown extended into the single-state promotion period between November 1st and November 11th, 2021, during which color cosmetic sales on T-More fell by a low single digit compared to the prior year. So this industry trend is cyclical in nature, driven by macroeconomics uncertainties and the unusual seasonality pattern caused by the COVID-19 pandemic last year. Our business is likewise undergoing significant changes. Growth sales from our color cosmetic brands, which make up approximately 84% of total growth sales, decreased by mid single-digit year-over-year in the third quarter. These results were mainly due to our continued realignment of little-on-thing, partially offset by the steady performance of ProfitDiary and PinBear. Growth sales from our skincare brands, which include AB's Choice, Dr. Wu, Galanick, and Yiflong grew by around 257% on a year-over-year basis. Since the majority of this quarter's sales come from color cosmetics, these factors inevitably slow the group's overall growth. Despite these changes, we remain one of the largest publicly listed pure play beauty companies in China by revenue size during the third quarter. Perfect Diary was once again the largest color cosmetic brand on Timor channels in terms of sales, and Timor ranked Pinbear as number one new domestic color cosmetic brand during November's single-state event. Yvlon and Dr. Wu sales on Timor grew by 100% and 1,400% respectively, while Galenix VC Serum Heal product was the top-selling imported facial serum during the single-state period. Overall, growth sales from our skincare brand grew by around 477% compared to the prior year's single-state period, underscoring the strength of our skincare business this year. As we look to the near future, we are committed to sharpen our growth model, which is underpinned by three pillars. Continued investments in our brand equities, commitment to developing world-class R&D capabilities and focus on sustainable growth. We expect the implementation of these growth initiatives to take multiple quarters to produce results, but we believe we are on the right path to future success. We have already seen positive results from our efforts to upgrade and refine the perfidiary brand. At the China Cosmetic Conference, known as the Devil's Forum of the Beauty Industry, The 2021 Bruce Rose Awards named ProfitDiary as the most influential brand for the second consecutive year, a strong endorsement of our continued innovation. We introduced several effective new products in the third quarter, such as the Silver Wind Slim Heel Lipstick with hair color and unique microsphere wrapping technology, and the Ritmy Lip Stain with the EverStain technology. sponsoring our leading position in the color cosmetic area. We also unveiled a series of new products through IT crossovers and a collaboration with well-known brands in other fields, such as Honor of Kings Eyeshadow Palette and Keep Yoga Gift Boss. Furthermore, well-known Chinese celebrities Liu Haoran joined with international acclaimed Chinese actress Zhou Xin to serve as the joint spokesperson for Perfect Diary further strengthening our brand recognition. Now let's look at other brands. Little Ondine is continually gaining traction among young customers, specifically powered by a new product launch, such as our Disney-Villains crossover and the opening of our first offline physical stores in Shanghai TSY High Mall in September. So building on our momentum from last quarter, we also continued to invest in our Pin Bear brand. In the third quarter, we developed a new lip gloss using pin touch technology, as well as a new eyeshadow collection, which resonated strongly with PinBear's diverse young community. PinBear also engaged a Chinese singer and actress Chen Xiao as its spokeswoman, reinforcing PinBear's positioning as the brand of choice for young girls. Now turning to our skincare category. We completed several integration initiatives for Glanik and Yiflong during the first half of the year, and began to ramp up both brand marketing and branding activities in the third quarter. In early September, we appointed Chinese supermodel He Sui and famous Chinese actor Yang Yang as Glanik and Yiflong's brand ambassadors, respectively, accompanied by high-profile publicity and media events. So given that prestige brand building takes patience and effort, we expect to continue investing in branding and marketing for these two brands, while steadily adding new hero SKUs and product categories over time. On the R&D front, we increased R&D expenses to 2.7% of total net revenues in the third quarter, compared with 1.1% in the prior period. We also established an innovative skin care laboratory with Regine Hospitals, the dermatological department, as well as the R&D collaboration platform with Sun Yat-sen University during the quarter. Regine Hospital, part of Shanghai Jiaotong University's School of Medicine, is a Grade 3 level general hospital with an enormous 100-year history. The Dermatology Department has a nationally renowned national grade clinic specializing in the diagnosis and treatment of refractory skin disease. Our three-year joint R&D program with Sun Yat-sen University will focus on efficacy's new ingredients and the formulas to adjust to specific skin issues. Our collaborations with these two preeminent academic research institutions we've significantly bolstered our open lab R&D capabilities. So additionally, during the third quarter, we completed our investment in Hangzhou Meitai Shenwu, an innovative company focusing on R&D of microecological skincare products. So founded in 2018, Hangzhou Meitai Shenwu owns Yantin, a microecological skincare brand endorsed by dermatologists. By leveraging our online and offline resources, as well as open lab-guaranteed capabilities, we will further promote the development of the EN team. The quarter also included an investment in MinMed Biotechnology, a cutting-edge company focusing on the development of industry-leading pharmaceutical products. With the product pipeline covering medical assistances, innovative beauty drugs, cell therapy, and small molecular immunology, immunology, immunology. With this investment, we intended to stand at the forefront of developing cutting edge biomedical technology for future potential applications in the field of beauty. So lastly, the final piece of our evolutionary strategy is our framework for sustainable growth, which encompass both sales growth and cost optimization elements. In the near term, we plan to focus on increasing sales contribution for our mass-teach and premium skincare brands, such as Dr. Wu, Galenic, and Yves Long, which provide excellent growth margins and higher quality growth. Meanwhile, we will seek opportunities to increase sales contribution from non-traditional channels where we see room for sustainable growth and incremental sales penetration. In terms of cost optimization, we aim to continue to improve our performance-based marketing ROI and shift more resources to branding investments. While we may sacrifice certain low-quality growth in the short term, we believe this optimization strategy will enable us to build brand equities across our portfolio and sustainably reduce sales and marketing expense over time. We also plan to optimize our fulfillment and GNN expenses in the near future to realign with our new growth strategy. We expect that these initiatives will enable us to achieve sustainable growth with a near path to profitability in the medium to long run. So in closing, before I hand it over to Dong Hao, I would like to reflect on the journey that has brought us here. Yafen celebrated its fifth birthday in September, So while I'm proud of our team's achievements since Yasen's founding, I remain as determined as on day one to ensure Yasen's continuous success in the next stage of its development. Our focus on sustainable growth will entail some short-term adjustments and may take time to produce results. But we are confident that this is the right moment in Yasen's development for this essential shift. As we navigated this period of unprecedentedly challenges. We are optimistic about Yasheng's future. To further demonstrate our confidence in the company's prospects, our board of directors have authorized a $100 million share with purchase program to be completed over the next 24 months. So thank you, everyone. With that, I will now turn the call over to our CFO, Donghao Yang, to discuss our financial performance.