Ladies and gentlemen, thank you for standing by. Welcome to the So-Young Fourth Quarter and Full Year of 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Ms. Vivian Xu. Thank you. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today. So-Young's fourth quarter 2019 earnings release was distributed earlier today and is available on the IR website at ir.soyoung.com. On the call today from So-Young, we have Mr. Xing Jin, Co-founder and Chief Executive Officer, and Mr. Min Yu, Chief Financial Officer. They will both be available to answer your questions during the Q&A session that follows management's prepared remarks. Please know that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities 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 not limited to, those outlined in our public filings with the SEC, including our annual report on Form 20-F. So-Young does not undertake any obligation to update any forward-looking statement except as required under applicable law. It is now my pleasure to introduce Mr. Xing Jin, who will race through his prepared remarks in Chinese first in their entirety before they are translated to English, after which Mr. Min Yu will go over the financials. Mr. Xing Jin, please go ahead.

[Foreign Language] [Interpreted]Thank you, everyone, for joining us for our fourth quarter 2019 earnings call. We delivered solid results during the quarter and closed out the year in a strong position. Revenue exceeded the high end of our previous guidance range, increasing 96% year-over-year to RMB 358 million. Net income jumped 71% year-over-year to RMB 70 million, while non-GAAP net income surged 87% to RMB 86 million. [Foreign Language] The industry continues to present opportunities for growth that translates to our advantage. We are benefiting from these opportunities by demonstrating how our innovative and differentiated platform offers a unique value proposition to consumers, professionals, and service providers. We are excited about the many growth opportunities ahead. [Foreign Language] We have been building the largest and most vibrant community of users and medical aesthetic professionals. Over the past year, we accelerated the deployment of resources with a focus on optimizing the overall user experience. Our community of users grew significantly during the quarter. As a result, with average mobile MAUs increasing to 3.7 million compared with 1.7 million during the same period of 2018, an increase of 120%. [Foreign Language] Our goal this year is to create a more diverse, engaging, and high-quality content portfolio that will dominate the mindshare of users. This will increase user stickiness to our platform and allow for them to seamlessly and efficiently move through the entire decision-making process. Let me elaborate a little further on this. [Foreign Language] Earlier this month, we introduced a few formats for Beauty Diaries, our innovative content that generates organic traffic to our platform from users proactively seeking out information. [Foreign Language] In order to enrich our overall content offerings and strengthen trust in both the users posting content and the content itself, we made a few strategic changes. First,…

Thanks. Okay. Thanks, Chris. So, please be reminded that all amounts quoted here will be in RMB terms. Please also refer to our earnings release for detailed information of our comparative financial performance on a year-over-year basis. For the fourth quarter 2019, total revenues were RMB 358.2 million, up 96% year-over-year. As indicated earlier, this exceeded the high end of our previous guidance. Within total revenues, Information Services revenue was RMB 264.5 million, up 108% year-over-year, driven primarily by an increase in average revenue per medical service provider as they increasingly allocate a larger proportion of their marketing budgets to our platform. This in turn completes the value chain, which allows us to offer a more diversified and optimized portfolio of products. Reservation Services revenue was RMB 93.7 million, up 67% year-over-year, driven by an increase in the number of purchasing users. Cost of revenues were RMB 58.5 million, up 85% year-over-year, due primarily to content-related expenses. Total operating expenses were RMB 222.9 million, up 90% year-over-year. Sales and marketing expenses were RMB 132.2 million, up 107% year-over-year, due primarily to an increase in expenses associated with marketing campaigns and user acquisition initiatives. General and administration expenses were RMB 36 million, up 30% year-over-year due primarily to an increase in personnel-related expenses. Research and development expenses were RMB 54.7 million, up 111% year-over-year. This increase was primarily attributable to costs associated with increased hiring to support product development, which is in line with our strategy of strengthening technology and big data analysis capabilities. Income tax expenses were RMB 29 million compared with income tax expense of RMB 0.8 million during the same period last year. The change was primarily due to an increase in taxable income during the fourth quarter of 2019. Net income was RMB 69.9 million, up 71%…

Thank you. [Operator Instructions]. Our first question comes from the line of Thomas Chong of Jefferies. Please go ahead.

[Foreign Language] Thanks, management, for taking my questions and wish everybody is healthy and safe. My question is about the Q1 guidance and 2020 outlook. Given the fact that coronavirus is now under control in China, can management share about the Q1 on a month-on-month basis, how the business trend has been progressing and how we should think about the business momentum in Q2 and the second half of this year? Thank you.

Okay. Thanks, Thomas. I will address your question. So, first of all, for the first quarter of 2020, as I said in the remarks, it has been very challenging. The key reason is because of the COVID-19 outbreak. All the offline, all the service providers, they are not able to operate, so they need to shut down the business for the full February, start from the Chinese New Year, which is 20 – I think it start from 24th of January until the end of February. And in March, we do see the service providers start to come back to the business. They need to apply for opening to the local government. And if they get permitted, then they will start to accept customers and start to carry out services. That's basically the market condition impacted by the COVID-19. And from my platform and So-Young's platform, of course, the traffic has been down during Chinese New Year as usual. And we start to see the active users come back to the platform in the second week of February. And in the second week of February, the active users started to reach the level prior to the Chinese New Year. And in March, right now, we do see users go to the offline service providers for taking treatments and services, and that's the trend currently resuming, the normal – start to come back and we do see the business activities coming back as well. And we have – as a community-based platform, the service providers even during February, they still invest on our platform to acquire customers and they're trying to maintain the exposure in front of the dedicated medical aesthetics customers on So-Young's platform. So, what's the trend going forward? As I said, it's very – although in Mainland China,…

Okay, thank you.

Our next question is from the line of Brian Gong of Citigroup. Please ask your question.

[Foreign Language] So, for coronavirus impact, does management see any small clinics go bankrupt because of the suspension of their operation during the quarantine period? And if so, what's the percentage of our total clients? And my second question is about the monetization efforts this year. What kind of improvement of monetization we should expect for this year and how about the latest progress? Thanks.

[Foreign Language] So, about your first question about the institutions closing down during the outbreak. And so, first, certainly, there are some institutions facing the situation to be closed down, for the business to be transferred during the outbreak. But it's not necessarily related to the outbreak. Because you can see, in the past few years, the domestic market, the industry has entered a period where the competition is very intensive. So, we would say the industry is with high visibility. There are a lot of institutions to open and to close all the time, and so this is a common situation in the industry. And lately, there's no major impact on markets, because in the past few years, the seller situation is such that the demand bigger, but supply is over the demand. Actually, the institutions fighting for the price fuel it. So, many institutions didn't even have enough clients to support themselves. So, with the institutions closed during the outbreak, actually our attitude is those that are not operating so well. So, there will not be major impact on our platform. [Foreign Language] And for your second question about monetization, in the past few [indiscernible] keeping upgrade our monetization strategies. And our strength is to take the success of clients as our core ideas. We are stretching our monetization funnel to serve more medical aesthetics institutions and consumers. I would say the e-commerce model is a model focusing a lot on operations. And so, this will set higher requirements of medical aesthetic institutions, but still currently a lot of institutions in the country lack those ecommerce operations capabilities. That's why we are designing life member service products, especially for them. So, these institutions will be able to have favorable ROI with less investments in human resources and from the view of consumers. According to the data on our platform, the consumers who visit the service institutions directly after viewing information on our platform are more than the consumers who made a reservation first and then visit the institution. So, to capture these consumer demands in advance and manage them with proper institutions and facilitate final transactions is also part of our monetization upgrade. So, our monetization upgrade relies on the upgrade of the older [ph] product format on our platform. We've said that is a very big project and is now under development and the progress is quite good. Finally, I'd like to mention a little on the lead revenues. In the fourth quarter, we had no lead-related revenues generated. That's it. Thanks.

Thanks. [Foreign Language] So, just a follow-up question, for this year, what kind of revenue contribution we expect for the sales leads to generate? Thanks.

Yeah, let me answer your question. We will start to see some of the leads generate revenue, start from second quarter of this year, but it won't be taking majority of our – or being a very large portion of our revenue by that time. And we're hopeful it will grow in the second half of this year. But if you say, what's the absolute amount or what is that number, we can't give you the number at the moment.

Okay, got it. Thank you.

Thank you. The next question is from the line of Jing Qiang of CICC. Please go ahead.

[Foreign Language] Thanks, management, for taking my questions. This is Jing Qiang representing Natalie. We have a question on the Live Video Diagnosis feature. Can management elaborate more on the features? Specifically, like how many physicians are on this feature currently? What's the successful connected through rate? And what's the feature monetization plan for this feature? In terms of sales and marketing, how much budget are we planning on to spend on the feature? Thank you.

[Foreign Language] So, the Live Video Diagnosis is actually a service we started to test from early last year. Of course, we didn't expect there will be an outbreak. But still, we believe at the same time, live video will be mainstream, will be a major trend in the future, especially with commercialization of 5G. Actually, live video suits our industry and our services quite well. For some of our services, like skin, like teeth corrections, actually there are many advantages about the videos. In the past, we can see our users view the information on platform and still will be able to visit many institutions to do a face to face consultation before they make the final decision. So, with this service, they will be able to consult with several doctors or consultants and sometimes same time, which will save the time and expenses for them. So, since we first launched the service in April last year, until February this year, the requests grew by 100 times. Of course, we started from a small number, but still, it shows that the service has a strong growth momentum. And for the number of doctors and consultants on the platform, we have more than 1,000 [indiscernible]. [Foreign Language] And this service is a core innovative service for this year. And present, we mainly focus on the user, the rapid growth of users and also the matching situation between the users and the doctors. For the [indiscernible] video, there are several layers for this. But, overall, it's about 80%. And present, we don't focus much on monetization. We are pretty much [indiscernible] scaling up and the growth of the business itself. And for promotion budgets, it's within our marketing targets this year. And we – and present, [indiscernible] user growth. That's it. Thank you.

Thank you.

Thank you. [Operator Instructions]. The next question is from the line of Vincent Yu of Needham and Company. Please go ahead.

So, my question is a follow-up on online consultation. So, we're basically providing a platform for user and the institutions to engage directly. So, like how are we going to ensure So-Young as a platform will now be scaled when transaction is about to happen? And also, for content quality, like [indiscernible] is easier to control the content quality, while live streaming is harder. So, how can we ensure our content [indiscernible] continue to have very high reliability? [Foreign Language]

[Foreign Language] So, this service, we can compare – when comparing with the Beauty Diary, Beauty Diary, we mainly focus on the demand of – to make comments. And for live video, it's mainly focusing on pain points of our users. Yes, they must visit the doctor before they make the decision because the treatment is risky. And you're certainly waiting to visit the doctor first before you make the decision. So, these services are compared to the [indiscernible] different stages. In the future, we will charge the live video services. We will set different price levels for doctors and with different experience. The lowest will be [indiscernible] and we will charge every five minutes. And this is to let the doctors know their time spent on our platform will be returned and we will also conduct content control. For all the videos, the sizes will be stored on our platform and we will allow the users to grade on the doctors after the consultation. And so, if the doctors give [indiscernible] information or they're encouraging too much for consumption, they will have a low ranking and their ranking on our platform will keep going down.

Sorry. I'm not sure that's your – so, first part of your question, is that – with this function being…

[Foreign Language]

[Foreign Language] So, we will observe the user behavior on our platform. That will be quite interesting. And some of our users prefer the private institutions and others prefer public hospitals. Actually, most of our service users are private because, for many public hospitals, they don't have an operating department and they don't have the budget for e-commerce operations. And so, now you can see for the live video service, we mostly serve the public hospital doctors. So, this will be a supplement to our private institution users. With the live video service bringing the new users, they will also use the carrying function and they will join the e-commerce promotions on our platform. And this will be a contribution to the private institutions. And for the doctors and consultants, they are all medical professionals. So, they are quite different from the general live broadcasting calls because they have a license and they have a job. So, it is actually much easier to control the content than [indiscernible]. That's it.

[Foreign Language] Thanks a lot.

Thank you. Next question is from the line of Robert Cowell of 86Research.Pga.

Hi, management. Thanks for taking my question. The question is about the Information Services business. In the fourth quarter, we saw a pretty good pickup in the spend per institution or spend per organization on Information Services. I'm wondering if there's anything specific y'all can call out that's driving that increasing spend in the fourth quarter?

I think I will address your question, Robert. So, Information Service is mainly driven by the traffic on the platform. So, I think the key driver for the Information Service growth, especially the – the ARPU for individual service providers on our platform is mainly because in the fourth quarter our traffic has been increased quite substantially quite fast. And the other reason is fourth quarter, we have Double 11, Double 12 and those e-commerce shopping festivals in China actually brings extra. Service providers usually allocate more budget prior and within that festival period. So, it helped our service provider ARPU growth in the fourth quarter.

All right, thank you.

Thank you. Last question is from the line of Austin Moldow of Canaccord. Please go ahead.

Hi, thanks for taking my questions. And congratulations on the revenue growth acceleration. I have a few questions about sales and marketing. The total sales and marketing expense in the quarter experienced deleverage year-over-year. So, can you talk about what marketing decisions you made in the quarter that drove that? And if you can, can you also give the marketing and user acquisition figures for the quarter as well?

Right. Sure. Within the sales and marketing, we have a part of the payroll for our business development team. So, in the fourth quarter of 2019, we have a total of RMB 130 million in sales and marketing. Within that, RMB 104 million is actually spent on customer acquisition. And the remaining are the payroll. And for the full-year 2019, we have RMB 461 million in terms of sales and marketing. And then, within that, RMB 347 million is actually used for customer acquisition.

Okay. Are you able to give the split between traffic acquisition and brand marketing?

Yes. For brand marketing, in the fourth quarter, we actually invested on focus media on branding as our major investment activity. I think within the fourth quarter, 60% is for branding and around 40% is for traffic acquisition.

Got it. And have you adjusted sales and marketing in Q1 given the COVID-19 outbreak? And how are you adapting the rest of 2020's sales and marketing spending? Are you pulling it back? Or are you getting more aggressive related to the comments you gave about some users and service providers starting to return to the platform?

Yes, it's very good question. And for the first part of your question, for the COVID-19 period, did we actually pull back a bit on the sales and marketing activity? Yes, the answer is yes. Because usually we will start to invest after Chinese New Year. But now, because Chinese New Year finished basically in the beginning of February, but the whole February has been closed down for business for the service providers, we did cut a bit – or saved a bit in sales and marketing and saved for the future investment. But still, as an Internet platform, we did the brandings advertisement during this period of time. We invested in like TV series, commercials, and we promoted our Live Video Diagnosis as our key message or key topic, a key theme for the sales and marketing activity in the first quarter. And for your second part of your question, what's the sales and marketing plan or the budget for the whole 2020, as you can see, for 2019, compared to 2018, so in 2018, 49.5% of the revenue has been invested in sales and marketing. And in 2019, we have 40%. But we still see our traffic being grown very rapidly, more than 100% year-over-year in fourth quarter of 2019 and for the full financial year 2019, which means our effectiveness and the efficiency of sales and marketing has been improved in 2019. I have to say that's the best case scenario for the operation for our sales and marketing team. And going forward, as we always said to the investors, the key strategy of So-Young is to acquire customers and improve the penetration rates within medical aesthetics population. So, we will still invest heavily in sales and marketing and branding. And we are not going to save much going forward for 2020 in sales and marketing. Customer acquisition is our key KPI. So, hopefully, it answered your question.

Thank you. Ladies and gentlemen, that concludes your conference for today. And thank you for participating. You may now disconnect.

Thank you.