Yatsen Holding Limited

Good day and welcome to the Yat-Sen fourth quarter and full year 2024 earnings conference call. Today's conference call is being recorded. At this time, I would like to turn the conference over to Irene Liu, Vice President, Head of Strategic Investment 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 Mitigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond the company 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 Yasmin's business financial results is included in certain filing of the company with the Securities and Exchange Commission. The company does not undertake any obligation to update this for-loose information except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. Please see the earnings release issued earlier today for a definition of non-GAAP financial measures and a reconciliation of GAAP's non-GAAP financial results. Joining us today on the call from Yasen's senior management team are Mr. Jinfeng 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'll now put the call over to Mr. Jinfeng Huang. Please go ahead, sir.

Thank you, Irene. And thank you, everyone, for participating in Yasen's fourth quarter and full year 2024 earnings conference call today. I will start with a macro overview and our key financial performance, followed by insights into our key strategy initiatives and updates on our brands and products. China's beauty industry remained subdued over 2024, with beauty sales underperforming the overall retail market. According to the adjusted data published by the National Bureau of Statistics of China, total retail sales of consumer goods grew by 3.8% and 3.5% year-over-year in the fourth quarter and the full year respectively. In contrast, total beauty retail sales declined 1.5% year-over-year for the quarter and 1.1% for the full year. Despite these challenges, our total net revenues in the fourth quarter grew by 7.1% year-over-year, in line with our guidance. The combined revenues from our three clinical and premium skincare brands, including Galanique, Dr. Wu, and Yves Long, achieved year-over-year growth of 3%. Color Cosmetics' revenues were up 16.4% for the quarter, primarily driven by the recovery of ProfitDiary. Looking at our profitability in the fourth quarter, our gross margin increased to 77.8% from 73.7% in the prior year period, driven by a higher contribution from higher gross margin products. Our net loss margin improved to 33%. representing a significant decrease from 46.1% for the prior year period. On a non-GAAP basis, we achieved a net income margin of 9.3% compared to a non-GAAP net loss margin of 8.7% in the prior year period. For the full year 2024, total net revenues declined by only 0.6%, year over year, indicating stability. Color cosmetics revenues saw a modest decline of 0.3% year over year. Meanwhile, skincare revenues grew by 0.7%, largely driven by a 5.4% year over year increase from our three clinical and premium skincare brands. Revenues from our skincare brands accounted for 41.1% of our 2024 full-year total net revenues, reaching a record high. Reflecting our revenue growth, our profitability also improved for the full year, with growth margin increasing from 73.6% to 77.1%. We also achieved our lowest full-year net loss and the non-GAAP net loss since 2020. Net loss margin decreased to 20.9% from 22%, while non-GAAP net loss margin improved to 3.8%, down from 8.7% in 2023. Although there is still work ahead, these positive outcomes demonstrated that our strategic transformation is on the right path. Our key initiatives under this plan were designed to bolster our brand portfolio, and strengthen each brand to holistically drive sustainable growth. Over the past three years, we have successfully balanced our revenue mix to support the growth of our skincare brands, fine-tuned the product and the channel mix for our color cosmetic brands, and invested in R&D to develop a promising pipeline of new products. In addition, we have implemented effective cost-cutting measures and enhanced operating efficiencies. Now I would like to delve a little deeper into our key initiatives. First, we are balancing our revenue mix to support the growth of skincare brands. In the skincare segment, Galanique continues to deliver solid performance throughout the year, driven by its strong brand equity, effective products, and soft scientific communication. The brand maintained the leading market position of its iconic No. 1 VC Serum while launching the No. 2 VA Serum. Additionally, we boosted sales of the Excellence Snow Algae Series and the Michael Mask Series. These initiatives received broad industry and consumer acclaim, as evidenced by Glennick winning the Beauty of the Year awards from Vogue and Elle for its remarkable contributions to skincare innovation. Second, we are refining the product and the channel mix for our color cosmetic brands. Perfect Diary made significant progress in its strategic transformation in 2024, primarily driven by its refreshed product lineup. The BioLip Essence Lipstick and its second generation version were top performers, achieving leading positions in the double 11 festival sales rankings across multiple platforms. The product's innovative design and formulation received international recognitions, including the Muse Design Award and the French Design Award. We are very encouraged by Lipstick's success, and we leverage the consumer insights and professional expertise gained during its development to create more exceptional products. In terms of the channel mix, Perfect Diary achieved revenue growth on the Douyin channel while increasing its revenue contribution from offline distribution channels. Scientific innovation remains a key driver in the growth of both our skincare and color cosmetics brands. Our R&D expenses represented 3.2% of total net revenues for the full year 2024, underscoring our commitment to innovation and product development. Notable highlights from 2024 include our third appearance at the IFSCC conference, known as the Nobel Prize for Cosmetics, where we unveiled an exclusive patent for active microecological ingredients in collaboration with Sun Yat-sen University. In addition, Perfect Diaries pioneering anti-aging research and its applications were featured in world-leading scientific journals, including Nature Medicine and Science Bulletin. Dr. Wu's team also worked alongside leading experts to present its research at the National Acne Academic Conference, showcasing five patents, four specialized ingredients, and 11 clinical collaborations. We are confident that these new ingredients and research initiatives will drive deeper product innovation, contributing to our brand's sustainable growth. Finally, we remained committed to improve profitability. As mentioned earlier, we have made significant progress in this area. The continuous improvement in growth margin reflects our expertise in product development and the strength of our brand equity. We optimized marketing expenditures and streamlined general and administrative expenses. Additionally, our expansion into offline distribution channels, which typically require fewer traffic expenses, contributed to improved profitability. Moving forward, we will continue to enhance operational efficiencies and strategically allocate resources to position the company for long-term growth. In summary, 2024 was a year of progress marked by tangible results of our strategic transformation plan. As we move into 2025, we will stay focused on implementing targeted strategies to further enhance our brands and drive sustainable growth. With that, I will now turn the call over to our CFO, Donghao Yang, to discuss our financial performance. Thank you, everyone.