Good morning, ladies and gentlemen, and thank you for standing by for So-Young's Third Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I will 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 third quarter 2022 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 the 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 20F. So-Young does not undertake any obligation to update any forward-looking statements, except as required under applicable law. Joining us today on the call is Mr. Xing Jin, our Co-Founder, Chairman and CEO. At this time, I would like to turn the call over to Mr. Xing Jin. Yes, please?

Hello, everyone. Thank you for joining So-Young's third quarter 2022 Earnings Call. China's overall domestic consumer market remained under pressure in the third quarter, with repeated COVID-19 outbreaks in certain parts of the country. Despite this market uncertainty, we delivered solid financial performance during the quarter, and we have now achieved gradual sequential improvements in each of the first 3 quarters of 2022. Total revenues were RMB 320 million, representing a sequential increase of about 5% and in line with our previous guidance. Our progress were well recognized among medical service providers, and we established new cooperation agreements with more institutions, thanks to our device product offering. The number of paying medical service providers on So-Young's platform reached 6,199, up 28% from the prior year. On the user side, we continue to refine our operations to serve different cohort of medical aesthetics consumers, leverage our deep understanding of users and our edge in big data analysts. We made some progress on our user segmentation efforts, which enable us to cater to the demand of different consumer groups based on location and user characteristics. For new customers with limited budget, we used the popular tox and promotions for new treatments to encourage them to place orders. For customers at medium-price segment, we promoted well-known products to enhance their stickiness. In the third quarter, a number of user verified order on our platform grew 6% sequentially. In addition, we launched the So-Young Prime program targeting customers in the first and second-tier cities who account for the majority of medical aesthetics consumption. The So-Young Prime program is aimed at establishing clear and transparent industry standards, reducing consumers' trial and error costs, simplifying their decision-making process and providing one-stop solutions for light medical aesthetic services, enabling our customers to pursue beauty with peace of…

[Operator Instructions] Our first question today will come from Thomas Chong of Jefferies.

Let me quickly translate myself. So recently, SAMR has released the guideline on taking down our first advertising and illegal pricing in the medical aesthetics industry. Can management comment on this regulation? A –Xing Jin: Thank you. As I have just mentioned, the guidelines focus on preventing false advertising and misinformation and advertise transparent pricing and consistent pricing online and off-line. The regulatory requirements for online platforms are consistent with the self-regulatory actions So-Young has been implementing for years, indicating that all along, we have been a leader and training center in protecting the interest of our users. For our internal rules governing platform information, we have rolled out comprehensive and systematic initiatives. New information posted on the platform is effectively intercepted and information storage is reviewed and impacted both by AI and on a 7.24 basis and the professionals. Special inspections are also conducted periodically for information storage. We constantly upgrade our property anti-fraud system and have developed strong capabilities in real-time computation, real-time policy configuration and flexible verification and anti-cheating, which all play a key role in identifying and blocking false comments and identifying and preventing false transactions. As the first platform to adopt and consistently drive self-discipline actions in the industry, we like consumers to be fully informed about the products, including price, performance specifications essential and disclosed products and services information in a comprehensive authentic and accurate manner. By doing this, we guarantee consumers right to know and to choose, continue to promote industry self-discipline and keep strengthening the quality of the supply side in our ecosystem. In the long term, government regulation will be beneficial for the healthy development of the whole industry and promote the medical nature of the aesthetics business.

Our next question today will come from Leo Chiang of Deutsche Bank.

So let me translate my question. My question is that your plan for marketing spend in Q4 and 2023, what is your estimate for the total number of users and your MAU?

Given the macroeconomic uncertainty, we will remain cautious with our marketing spending and focus our attention on efficiency as we have done so far this year. Subsequently, we may make adjustments based on evolving market conditions. For the current medical aesthetic market, I'd like to emphasize that the competition is no longer purely for traffic. Professional platforms with insights into the industry and users are needed both with respect to regulation and user experience. We need to provide users with good consumption value and experience. A medical aesthetics platform doesn't maintain user by entertaining them, but rather by satisfactorily solving their needs. First, we will continue to optimize community content, effectively recommended products and service to users and provide diverse content, including doctors and products. We will stick to our long-term goal for enhancing user trust and establishing the most trusted professional community, leveraging our advantages in content and community operations. We were perfect user -- we will perfect user experience for online products, enhance consumer protection, optimize consumer consumption experience on our platform and drive user to make highly efficient buying decisions. Second, as our attention shifts from merely traffic incremental growth to operation and service of client stock, we keep improving user service experience during the whole life cycle and guarantee and their consumption experience throughout the whole process. As I just mentioned, to achieve that, first, we must create trust with our users. Trust has always been our primary goal to attract user to our platform. Second, products and information on our platform need to provide good consumer protections as well as shops users issues with online decision-making and demands. Third, for users who want to use 1 institution to satisfy their diverse demands or needs, we provide service catering to multiple scenarios, so users can directly visit institutional with information acquired on our platform or some users with higher service requirements, they can work with institutions through our So-Young Select program. And if user demand standardized process for a specific product, they can choose institutions that provide such solutions. Finally, our platform provides upsell return with its customer service cancellations and insurance for customer issues, which ensures the experience throughout the complete progress. So our mission is to make everyone more beautiful and healthier.

Our next question today will come from Nelson Cheung of Citi.

So I will translate myself. So would like to -- wonder whether management can share the industry outlook going into the fourth quarter this year and into 2023 next year. Could management elaborate more about the performance during the Double 11 this year?

In the third quarter, we saw repeated COVID-19 outbreaks in certain parts of China. Despite this market uncertainty, we delivered a solid financial performance during the quarter, and the situation is gradually recovering in the first 3 quarters. As we are entering into the fourth quarter, the scope of pandemic may further widen because of the weather and the corresponding provisions measures may strengthen as well. While there is uncertainty ahead, however, recently, China's National Health Commission released a new set of refined pandemic provision and control policies, which are more scientific and more precise. As the overall economic environment will be getting normalized gradually, we believe our industry will be back to the growth track over time. In user front, as we discussed in prepared remarks, the global medical aesthetic market maintained steady growth in the past years, and there is significant upside of the penetration rate of the Chinese market. According to the Frost & Sullivan, the global medical aesthetic market is expected to grow at a CAGR of around 13% from 2021 to 2025. In 2020, the number of medical aesthetic treatment per 1,000 people in China were just about 21 compared with 82 and 48, respectively, in South Korea and the United States, which are more developed medical aesthetics market. There is clear growth potential for Chinese market. With general economic situation back to normal, the customer spending will be back to growth track as well in our view. On institutional front, as the impact of uncertain factors gradually ease and when they can operate normally, we believe their marketing budget allocated to So-Young platform will go up gradually. At present, we must commit to our long-term vision while making dynamic adjustment in short term and execute our exceptional strategy, improving the operation and providing high-quality user experience and forming closer relationships with industry partners. Users may pay more attention to daily necessity, like the gross [indiscernible]. Overall performance of major online platforms were relatively soft compared to last year, while overall retail market is in a slow recovery stage. This is in line with the other consumer products and services. Despite our pressure on the overall consumption market, our daily online users during Double 11 stayed flat compared with last year.

The next question today will come from Chloe Wei of CICC.

Okay, I will translate myself. This is Chloe from CICC. I think you've done a great job performing above the breakeven target. And we continue to see strong subsidies in this quarter. And I wonder, are there enough levers in the business in China rationalizing the competition? That will be the first. And secondly, we've heard some new vocabularies during the prepared remarks. Could the management team share some colors on the ongoing new businesses? And how could that mean for the user engagement and for the P&L?

First, on industrial outlook, I believe Medical Aesthetics has a broad perspective to seize the opportunity and achieve growth. The key point is to serve users well and combined with the industry more profoundly. Any peer platform must have a clear positioning for user service to clarify what kind of user demands it can serve. Through the years, we have built trust with our users when users have need for medical aesthetics, we can truly solve it and enable a better consumption experience. As we are not an entertainment platform, users don't spend plenty of time watching video or reading post, but search for a product that satisfies their needs. We always emphasize that medical aesthetics are both medical and medicine and consumption. So users' consumption must be based on safety and the demand for beauty. Price advantage of an e-commerce platform will be the primary factor for consumers' decision-making. I believe we should think about serving user from their perspective and their message at different stages of consumption. Through professional community content and deep combination with industry, we have established diversified consumption scenarios to cater to user demand. For our institutional clients, we trust we build with users make them willing to serve users better. For the new initiatives, we are exploring new consumption scenarios for users and serve them with a range of diverse solutions. For institution and us, the ultimate goal is to better serve users. Well, we actually suggest if you invest Tier 1 or Tier 2 some major cities, you can have try on what So-Young Prime products, it will be very different and will kind of excite you best.

Our next question today will come from Ingrid Zhang of UBS.

The question is more on the industry level. Based on the data, a shift in consumer demographics for medical aesthetics in terms of age, peers, income level, et cetera.

According to transactions on our platform, mega cities such as Beijing, Shanghai, Guangzhou and Shenzhen have always led the consumption, with number of users placing orders and transactions activities at high level than other cities in China. But in 2022 are the new first tier cities, including Chengdu, Hangzhou, Wuhan, Nanjing and Chongqing are also become major cities for medical aesthetics consumptions. In terms of other categories on our platform, non-surgery accounts for over 80% of total orders, NTNG is one of the most favored category and the most frequently purchased product such as wipes and hydronic acid skin whitening and skin rejuvenation account for over 50% of total orders. The proportion is slightly higher than 2021, indicating users' demands from non-surgery categories. Targeting user demand, we continue to optimize a number of SKUs for non-surgery categories to provide high-quality supply. We also launched some products based on characteristics of certain categories, such as So-Young pin card, which includes several anti-aging products in our bottom of facilitated user choice. Well, in addition, please be noted that at the end of each year, usually, we will release a white paper in which we will discuss with the new regulatory policies, industry trend and other important topics.

And ladies and gentlemen, this will conclude our question-and-answer session. At this time, I would like to turn the conference back over to Ms. Vivian Xu for any closing remarks.

Well, we are now approaching the end of the conference call. Thank you for your participation in today's conference. You may now disconnect. Have a good day. Thank you. Thank you. Bye.

Bye-bye.

And the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.