Xing Jin - Co-Founder, Chairman and CEO Min Yu - CFO Vivian XU - Investor Relations

Good morning ladies and gentlemen and thank you for standing by for So-Young's First Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. After the management’s prepared remarks, there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Ms. Vivian Xu. Please proceed.

Thank you, operator, and thank you for joining So-Young's first quarter 2021 earnings conference call. Please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities and Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause the 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 statement, except as required under applicable law. Joining us today on the call are Mr. Xing Jin, our Co-Founder, Chairman and the CEO; and Mr. Min Yu, our CFO. At this time, I would like to turn the call over to Mr. Xing Jin. Yes, please.

[Foreign Language] Thank you all for joining our earnings call for the first quarter 2021. We are very pleased to kick start a year with solid results for the first quarter of this year, with revenue of RMB360 million, almost RMB30 million above the top of our guidance and up 97% from the first quarter of 2020. Average mobile MAUs were 8.39 million, up 101% year-over-year. As the number of paying medical service providers on our platform was 4,702, up 43% from the first quarter of 2020. The industry continues its recovered unit cost. We have seen an increasing level of interest for our end users, as well as an increase in interactive activities across our platform. During the quarter we continue to execute on our strategy to increase conversion and retention rates, while further expanding our network of high quality medical service providers. On the user front, we always make it our top priority to ensure the reliability and professionalism of our community in order to increase user trust and user engagement. We reinforced and depreciated our unique value proposition by working to improve user engagement and retention, by providing better user experience and by reinforcing quality content that drives efficient decision making. In terms of our immediate team strategy, first we are reinforcing the authenticity of our community in terms of medical nature. Besides verifying the qualification of the institutions and doctors, we have also made improvements to our verification procedures for user reviews of treatments solid on our platform, removing fake review. Second, we continue to improve user experience and expressing our digital capabilities. Through a deepening cooperation with existing institutional partners and forming relationships with new ones, we are able to offer a wide range of authentic and high quality products to end users. Our robust…

Thanks guys. Please be reminded that all amounts quoted here will be in RMB. 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 2021 total revenues were RMB360 million, up 97% year-over-year from RMB182.6 million and significantly above our guidance as mentioned. The increase was primarily due to an increase in the number of paying medical service providers. The number of paying medical service providers on So-Young’s platform were 4,702, an increase of 42.7% from 3,295 in the first quarter of 2020. Within total revenues, information service revenue was RMB277.8 million, up 120.5% year-over-year from RMB126 million. The increase was mainly due to an increase in average revenue per paying medical service provider. Reservation services revenue were RMB81.8 million, an increase of 44.7% from RMB56.5 million in the first quarter of 2020. The increase was primarily due to an increase of 123.3% in the number of purchasing users. Cost of revenues were RMB52.4 million, up 21.5% year-over-year from RMB43.1 million. Cost of revenues included share based compensation expenses of RMB4.3 million compared to RMB2.2 million in the first quarter of 2020. Total operating expenses were RMB367.3 million, up 97.6% from RMB186 million in the first quarter of 2020. Sales and marketing expenses were RMB242.4 million, up 122.1% from RMB109.1 million a year ago, primarily due to an increase in the expenses associated with marketing and user acquisition activities, especially branding expenses. Sales and marketing expenses included share-based compensation expenses of RMB2.3 million, compared with RMB0.7 million in the corresponding period of 2020. G&A expenses were RMB55.2 million, up 62.5% from RMB34.0 million a year ago, primarily due to an increase in payroll costs associated with the expansion in the number of administrative employees. G&A expenses include…

Thank you. [Operator Instructions]. First question comes from the line of Thomas Chong of Jefferies. Your line is open. Please go ahead.

[Foreign Language] Thanks management for taking my questions. Management talks about how we are going to operate our pool, our users in 2021 and how we are going to better monetize our users as well as detract. If possible, can management share about MAU target, as well as marketing strategies?

Okay, I will be answering these questions. Our user growth strategy in 2021 won’t change compared to the 2020. We will still be focused on expanding our user base and increase our penetration in terms of our targeted user base. For the last part of your question is you said, what’s your MAU, what’s our MAU target and the guidance. I think although we never provided that guidance in the previous quarters, but we still see positive increase in terms of our MAU. For the first quarter of average MAU, it’s around like 8.4 million and going forward we expect our MAU at the end of the year still seeing around 40% growth, that's our target. For, what's our strategy and how we’re going to spend our sales and marketing budget? As you can see in the first quarter result, we did have bigger or larger than normal, our previous quarters spending in sales and marketing. Excluding those payrolls, we have around 192 million on the spend on the customer acquisition. We think that we have around 102, have been focused on branding, which we associated with the TV shows as mentioned earlier in the previous quotes and we also for – in terms of promoting our slim festival in March, we did spend a large campaign offline with Focus Media. So that’s the extra spending compared to the first quarter of last year, same period of last year and even more the fourth quarter of 2020. In terms of 2020, the fourth quarter of 2020 we spent around like half of that for branding expenditure, so – but if that means we can’t or we will spend more than usual or our budget is much more than previous years for sales and marketing or customer acquisition, the answer is…

Thank you. Our next question comes from the line of Leo Chiang of Deutsche Bank. Your line is open. Please go ahead.

[Foreign Language] Good evening. Thanks for taking my questions. So my question is that what is the provision of marketing expense and the trend for institutional which you are spending on So-Young’s platform and you’re [inaudible]? Okay, thank you.

[Foreign Language] Okay, so first according to Frost & Sullivan report, the take-off online customer acquisition spending by the medical aesthetics service industry in China was about 20% in the past five years. The percentage of total customer acquisition spending on online medical aesthetics platform has continued to increase from less than 2% in 2015 to 13% in ’19. The market share of the online platform is continuously expanding and secondly, in terms of the number of institution at our platform, we have formed a partnership with more institutions. In the first quarter we could see that a number of pain medical service providers on our platform was up more than 40% than the number of more than 4,700. Thanks to our target user base and our strong brand recognition among users. And lastly, we think that we use improvement in institutions operation capabilities. We see that their spending behavior is also growing mature as they turn to customer acquisition channels with better ROI performance. In order to reduce overall customer acquisition cost, those institutions are also testing new ways to improving their – new ways to put their allocation off marketing, also improving their own capabilities. We believe that as long as our performance is better than the PS in the market, our contribution to the – our contribution of value in the industry is increasing, institution we are meeting their proprietaries for So-Young when they are allocating their spending. Thank you.

Thank you.

Thank you. Our next question is from [inaudible] of CICC.

[Foreign Language] Thanks management for taking my questions. I noticed that we have recently signed a cooperation contract with Bloomage Biotechnology. So could you provide more detailed directions for future cooperation with upstream manufacturers or the suppliers? Thank you.

[Foreign Language] Going forward, we will continue to strengthen cooperation with medical product manufacturers to have better control over our user experience. So let me elaborate why then we choose to cooperate, we choose to enter an inclusive comprehensive strategic cooperation agreement with Bloomage Biotechnology skin booster products. If you see the, according to the agreement we were in partner with Bloomage and helped the latter on two strategic initiatives. One is hyaluronic acid program and one is creating the future medical aesthetics alliance. We think that we will become the strategic partner to help each and medical aesthetics service provides. And also, we think that in several ways we will provide comprehensive support like in – like including product R&D and new product training. In addition, we have also developed a packaging solution for its hyaluronic acid program. So as the largest medical aesthetics platform in China, So-Young will maintain our leadership in the industry and enable efficient connection between consumers and the business.

Thank you. Next question is from the line of Vincent Yu of Needham & Company. Please go ahead.

[Foreign Language] Hi management! Thanks for taking my question. I have two questions. The first question is the medical, is about the trends on the two categories of the medical aesthetics market. The medical aesthetics market has been [inaudible] beginning of the year with significant growth. Management also mentioned strong demand on the consumer side. Can you share more details about the trends for surgical and non-surgical treatments respectively? And how do we gain a competitive edge in the light, in surgical headway. And for the surgical treatments, have we returned to normal stage compared to the 2020? And then my second question is about the So-Young Pass. Can management gives us more color on So-Young Pass, how much revenue contribution can we expect to see and how much – how many cities we are planning to enter this year. Thank you.

[Foreign Language] First, the medical aesthetics market as a whole is under healthy recovery. We see that the users’ willingness to purchase and the interest keep increasing. So if you see the number that’s due in the first quarter, MAU on our platform reached 8.2 million and maintained a very good rate of the gross. So, in addition to the content consumption, our user average time spent in the introduction with the institutions and doctors, both increased significantly year-over-year and your question is on the surgical booking, we could see that the surgical booking gradually recovering and the number of reservation has return to the level before the pandemic. Yet the total GMV is still a bit behind that. Non-surgical bookings kept a strong momentum. We can that during the slim festival in the March daily average GMV for injections treatment increased by 62% compare with the double 11 last year and so we still see that like the injection, skin care and anti-aging women are most popular treatments to users our platform. We could see that the competition among nonsurgical sector is intensified this year for both upstream - to upstream manufacturers to the downstream institutions. In contrast the consumer side count fully understand and evaluate service, those services like the effect and the risk is behind that, aiming to sort of pinpoint of consumers. This year we will continue to leverage the age of our platform in content and community, construction and also enhance consumer protection and optimize user experience on all platforms. [Foreign Language] We, first of all to improve the online users experience for products units and enhance user trust on our platform, so we do it in three ways: One is of course increase in the total SKU supply. And we also – secondly, we…

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now all disconnect.