Ladies and gentlemen, thank you for standing by and welcome to So-Young First Quarter 2020 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] I would 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 first quarter 2020 earnings release was distributed earlier today and is available on our 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 U.S. 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 are 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 statements 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. Okay, please go ahead.

Thank you, everyone, for joining us for our first quarter 2020 earnings call. Before I begin, I want to convey our deepest sympathies to everyone who's loved ones have sadly been affected by this tragic pandemic. We also want to express our sincere gratitude and appreciation to all those helping in the fight against COVID-19, including our employees who have been working hard and doing their very best to limit spread of the disease, while courageously ensuring business continuity. Despite the significant impact COVID-19 has had on our business, we delivered solid results during the quarter. We have taken opportunity to implement strategic changes to ensure we are well positioned for growth when all normal operating condition resume in the second half of 2020. Total revenues were RMB183 million exceeding the high end of the company's previous guidance. The macroeconomic environment as a result of the pandemic during the quarter has been challenging as anticipated, but this has also given us opportunity to accelerate deployment of resources to enhance the user experience. We made efforts on expanding our vibrant community of users and medical aesthetic professionals. We grew our communities significantly during the quarter with average mobile MAUs increasing to 4.2 million compared with 1.9 million during the same period of 2019, an increase of 117%. Our core focus during the quarter was two-fold. First, we expanded our community and second, we further streamlined the delivery of high quality content while driving better engagement. We believe that our [indiscernible] to areas will be critical to demonstrating how innovative and differentiated platform offers unique value proposition to consumers, professionals and service providers. First on the expansion of our communities, during the quarter we further enhanced the structure of our content and developed new ways to cater to our vibrant community of…

Okay, thanks Chris. 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 first quarter of 2020, total revenues were RMB182.6 million, down 11% year-over-year, but exceeding the high end of our previous guidance. The decline was primarily due to the outbreak of COVID-19 which curtailed medical service providers spending and required end users to shelter in place which delayed the demand in the first quarter of 2020. Within total revenues, Information Services revenue was RMB 126 million, down 12% year-over-year. Reservation Services revenue was RMB 56.5 million, down 11% year-over-year. Cost of revenues were RMB 43.1million, up 18% year-over-year, driven primarily by an increase in personnel related costs. Total operating expenses were RMB 185.9 million, up 41% year-over-year. Sales and marketing expenses were RMB 109.1 million, up 45% year-over-year, primarily due to an increase in expenses associated with marketing campaigns and user acquisition initiatives. General and administration expenses were RMB 34 million, up 37% year-over-year primarily due to an increase in personnel-related costs. Research and development expenses were RMB 42.8 million, up 37% year-over-year. The increase was primarily a result of costs associated with increased hiring to support product development which is in line with the company's strategy and strengthening its technology and big data analysis capabilities. Income tax benefit was RMB 4.3 million compared with income tax expense of RMB 7 million during the same period last year. The change was primarily due to decreasing taxable income during first quarter of 2019. Net loss was RMB 35.9 million, compared with net income of RMB 45.9 million in the first quarter of 2019. Non-GAAP net loss was RMB 21.6 million compared with RMB 51.9 million…

Certainly. [Operator Instructions] The first question comes from the line of Brian Gong from Citigroup. Please go ahead.

So I will translate myself. So first question, I have two questions, first question is regarding how is the recovery trends in the second quarter for Information Services and Online Reservations respectively and how about the reopening of hospitals and as budget for the hospitals? And my second question is about latest situation of our new sales leads subscription model, what kind of hospitals are package customers and what is the key difference compared to our existing advertising model? Thanks.

Okay, for the first question that is for the recovery of the whole sector, we do see from our internal results to see that actually from the early March most of the 20% to 40% of the offline institutions have factored normal business and through the end of March we think that 70% to 80% have begun their normal operations business. And due to the government regulations are still prohibited with people to get more crowded, so actually the physical people who could meet for their institutions have dropped a lot compared to this same period of last year. So we think that it may be till the June we could come back to the normal operations per our expectations. And to your second question on the CPL we think that actually for the advertising business for those offline institutions they rely on much on the cash flows. So, previously we asked them to pay us in advance and then as those institutions to use this prepaid point for those advertising investments, but those CPCs advertisers, well, we think that were divided into two main groups. One is focused on the online e-commerce and one is on the content distributors, but most ways like small-to-medium institutions they lack of the account hedge out both. So we think that we provide them with subscription services to help them to decrease the difficulty of the operation and we think that among those 60 to 70 small-to-mid institutions, they will have more advantage to get our service.

Can we move to the next question? Can we move to the next question, presenters? The next question comes from the line of Vincent Yu from Needham & Company. Please go ahead.

Thanks, management for taking my question and congrats on the good quarter. My first question is on the surgical and non-surgical services. So, can management provide some comments on how these two services are trending in the first quarter? My second question is on the online consultation, so I'm wondering what kind of institutions can we have for higher interest in these products, are these the private hospitals or the public hospitals? Thank you.

Hi Vince, this is Min. I will try to tackle your first question and for the Live Video Diagnosis question, I will leave to Mr. Xing Jin. So for your first question, non-surgical and surgical, that’s actually for the biggest, - the EBIT first quarter actually have a lot of stories because in the first month January is a normal month. So there is no difference between what is the distribution between surgical and non-surgical compared to the normal months in the previous year. But second month February, I think starts from end of January when 24th to be exact. So start from that time, all the supply for services of medical aesthetic services has been stopped, so until end of February. So through the full month, basically, we don't have a lot of orders and we don't have a lot of reservations even users paid for reservation but the case for future. They can't get services, but start from second half of February, we do see some of the service providers they resume back to business and we start to see users go back to clinics or hospitals to get the services done. And for March, I think they start from those non-surgical services first. And we will gradually when it is based on the government restriction, when the service providers, they just started to resume back to the business in March, they are not able to take out of the operational surgical services but injections and laser services or those life services can be taken and - but under certain restrictions like you can only have so how many people in your clinic based on the size or area of your clinic. So from that basis, we do see March compared to a normal month, you will have more non-surgical orders being verified compared to surgical orders. So that's basically the reality in the first quarter. So hopefully I answered your first question, and I will leave the second half of your question to Mr. Xing. Mr. Xing?

Well, first we do see the private institutions and also the clinics, the doctors and also the professionals were very actively and proactively to do the Live Video Diagnosis. But we think that most of the patients, especially our end users still want to have the chance to have a top consultation service with our non-private clinics - doctors on non-private clinics, but we do see that the limitation of those doctors to have such service and is still there is the public institutions or hospitals. So, we think that we will invite more doctors who have time and this doctor can range from very young or less experienced to expert in those private institutions or hospitals.

Thank you. Can we move to the next question? The next question comes from the line of Thomas Chong from Jefferies. Please go ahead.

Thanks management for taking my question. This is Melody representing Thomas Chong and we have questions on the content strategies in the future. And since this is - our content is one of our core target, so we will do more, we would like to know more about the strategies in the future and we would like to know about organic traffic generation ability of our high quality content.

First, we divided our content into UGC and PGC. UGC primarily, so with our user generated content, we think that it will give a series of incentive and also promotion plans to have more users to generate high quality and also to increase the quantity of the UGC. And for the PGC, we can get the core value for the PGC that we think that our PGC content providers, especially for those doctors who can give us their professional information. And we think at on this side we are going to give incentive and also as well as training for especially those young doctors on our platform and we will have them to set up the doctors IP to give them more exposure on our platform. And also the relations between the content and also the traffic, we think that the content is a very good way to raise the users engagement for the traffic because usually those e-Commerce platforms doesn't have such engagement and also relations with the users and some communities have only users, a lack of the decision making allowance to their final users like [indiscernible]. So we do think that, we are going to have those content outside the country - outside of the e-Commerce platform to have more users to have engagement with us.

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

My first question is regarding utilizing [indiscernible]. So I would like to understand more about like specific operation metrics, in regard to this feature, which has the right next to rate, what the churn and also to give supply [indiscernible] and also, I would like to understand the competitive landscape with regard to this feature? The second question is regarding the demand going forward, this is that speaking with regard to huge event [technical difficulty]? The third question is a hospital question in regards to why the like take rates for the reservation that's [indiscernible] this quarter? Thank you.

Well, for your first question, we think that in fact for the members of the Live Video Diagnosis, especially for the users request, we think that we do see a big hit in the February and March this month, because it was a lot of consumers and doctors at the time who were not able to go out. So, it happens to have a right product online and we do see the agenda from our both the consumer side and the service provider side. And after those, people especially back to their normalize life, we do see slightly job of those requests by the way, we think that if it – it has a long [indiscernible] a very good momentum on the business growth. And we think that - we do that - we do think that because this is the need from both of the users needs and the supply side, we think that is, do need time for us to incentive our users especially give some education for the users who want to try on these services. So, we think that we will play a good role to lead then to except such services. And for the comparison to other platform, we do think that since the need up raised from the users, we do see other platforms provide some similar users - provide some similar service to attract the users interest, but if you do have the chance to take a try, we think that for example most of their requests from users in other platforms can now be have facility - can now be able to facilitated well, because people there, especially those doctors just a user, a chance to advertising themselves. But for us we actually give a lot of like the guidance and also…

So for your third question about why, it seems like the Reservation commission is more than 10%, I think that's a really good question. It's not a normal case scenario because - it's because of the first quarter we had a very low base for reservation revenue, compared to not only with the first quarter of 2019, but compared to our fourth quarter of 2019. There are three major difference, which contributes to my commission rate. First of all, actually in my commission rates, in my reservation revenue, there is a part of the revenue is contributed by the annual fee of the service providers. It's very low - it's very low, it's like each service provider pays us around RMB 500 per month. So it's like around RMB 1,500 per quarter for around, we have a 3,500 paying service provider as you see in our report. So every quarter, we will have the annual fee being recognized as revenue for Reservation of around RMB 5 million. Then you will ask why it's reservation revenue, because it is based on the U.S. GAAP, because they only pay when the service providers pay us annual fee, then they can open for user to reserve their services on the platform, so it is directly connected to our Reservation Services. So in the U.S. GAAP accounting standard, they categorize that part of the revenue as Reservation Service revenue. So, that's one part. And the other part is our premium customer services. As you know [indiscernible]. So they still contributes a very low amount of revenue in the - if you back in a normal quarter, but if you put in this first quarter, very low basis of Reservation revenue commission from the online services. The premium membership service usually have relatively higher commission rate compared to the normal online reservation services and the third reason is another one is because usually in March, we will have a market campaign for users to after Chinese New Year to come to my platform and we have market campaign to encourage them spending or reserve services on our platform and we will provide certain reimbursement to users and we will directly deduct our reservation revenue. But in this March, we didn't, because of COVID-19. So, it saved us a bit of money for the reimbursement to users. So all of these major three factors adding together, it seems like my commission rate is higher than 10%. But, part of that, I think it's because it was fixed reservation revenue every month from the annual fee. So, even in February, we don't have a lot of reservation, we don't have a lot of verified GMV or verified services or then we still have reservation revenue coming for the month. Hopefully I answered your questions. So the main reason is because of the low base of the normal online reservation revenues in the normal quarters.

Thank you very much.

Thank you. We have our next question from the line of Leo Chiang from Deutsche Bank. Please go ahead.

So, I'll translate my questions. My first question is regarding to the structural change of the industry after coronavirus. Can management share some observation from both customers side and service provider side? My second question is regarding to the recovery path, so given, it is likely to reason to no more capacity in June, so, why should we expect for our second half revenue it is more likely U-shaped or V-shaped recovery in the second half? Thank you.

All right. Thanks, Leo. So I will try to answer your question. First question, are there any structural change for the medical aesthetics service industry. From - coming to our observation, I think we do see service providers they resume back to the business gradually opening up their capacity and relatively spending lower than the normal periods on normal quarters on customer acquisition. We do see they are coming back, but as just now Mr. Xing said, the trend, it seems like the Nikes logo, rather than a V-shape or U-shape. You have a very sharp drop in the beginning and you are gradually coming back as a major consumption service in the society and the users will gradually come back to the service providers based on the capacity, opening up by the service providers and how much money spending on customer acquisition. So the trend is like that. And from a structure, we are not seeing from - like other industry or like restaurants or the beauty services industry, you do see the smaller players or service providers they approaching bankruptcy and they are closing the business. From my - our platform, we are not seeing that trend happening, just the service providers in the beginning, spend less on customer acquisition and gradually opening up, investing when the capacity opening up and the users will go back to the service providers. And as I said earlier, the change will be a likely - Nike logo shape, rather than a V-shape or U-shape. So that's one and what's your second question, sorry? Oh the recovery trend - Sorry, Leo as well…

Yes, yes. So the first one is the structural change and the second one is recovering trend, so you answered them, yes.

Yes, oh I think, yes, basically I answered all your questions. Thanks.

Thank you. I would now like to hand the conference back to our presenters for any closing remarks. Thank you. I would now like to hand the conference back to our presenters for any closing remarks, over to you.

Okay, thank you for everybody and that's all. Thank you.

Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for participating. You may all disconnect now. Thank you.