Ladies and gentlemen, thank you for standing by for So-Young's First Quarter 2023 Earnings Conference Call. [Operator Instructions] 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 Ms. Xu.

Thank you, Operator, and thank you everyone for joining So-Young's first quarter 2023 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 today on the call is Mr. Xing Jin, our Co-Founder, Chairman and CEO and Mr. Nick Zhao, CFO. At this time, I would like to turn the call over to Mr. Xing Jin.

Hello everyone. Thank you for joining So-Young's first quarter 2023 earnings call. We kicked off 2023 with a strong financial performance as the effects of the pandemic recede and the gradual recovery of medical aesthetics industry gains momentum. Total revenue for the first quarter reached RMB310 million, a year-on-year increase of 3% and exceeding the high-end of our previous guidance range. Strict cost control measures and operational efficiency improvements resulted in a 15% year-on-year decrease in operating expenses, while our non-GAAP net loss attributable to So-Young International, Inc. narrowed significantly, decreasing by 94% year-on-year to RMB2.75 million. I will now walk you through the progress we have made on So-Young Prime, our strategic priority this year. As we’ve emphasized on our last earnings call, the medical aesthetics industry in China is undergoing numerous structural shifts. Users are becoming increasingly more sophisticated and discerning. For example, middle class female users, a major demographic group within the large medical aesthetic sectors. They are increasingly showing distinctive consumption habits that reflects this structural shift, such as more attention to safety, service quality and cost for specific high-frequency procedures, such as anti-aging, skin care and body sculpting. Medical institutions and SMEs on the other hand, face new challenges such as higher user acquisition cost, constant CapEx requirements to upgrade equipment and the lack of qualified doctors. This impacts their ability to expand. Prior to this structural shift taking hold, our focus was squarely on testing the numerous competitive advantage we have accumulated. This span from user acquisition, streamlined operations and integrating upstream and downstream resources to ensuring the quality and authenticity of services and doctors. This competitive advantage enabled us to build significant barrel to entry, tap into broader verticals within the industry, solve pain points and offer a unique value proposition to both…

Hello. This is Nick. The investments we made in our infrastructure capacity and service expansion during the challenging environment last year are beginning to pay off and are reflected in our financial performance this quarter. Total revenues during the quarter were RMB310.1 million, up 3.2% year-over-year, and exceeding the high-end of our previous guidance. The increase was primarily due to an increase from the sales of equipment and maintenance services and other services. The revenue is composed of three main streams: information services, reservation services and revenue from sales of equipment and maintenance services. Information services and other revenues were RMB217.8 million, up 9.2% year-over-year, primarily driven by an increase in other revenues from So-Young Prime. As our CEO, Mr. Jin, outlined earlier, the industry's recovery has been uneven. Reservation services revenues continued to feel the impact of COVID-19 on surgical transactions, decreasing 29.9% year-over-year to RMB29.7 million, but has also begun to rebound in April. Sales of equipment and maintenance services, which were from Wuhan Miracle Laser Systems, Inc., were RMB62.6 million, up 7% year-over-year. Cost of revenues were RMB113.7 million, up 6.7% year-over-year. The increase was primarily due to investments made in service providers to enhance operational efficiency and improve the quality of services. Total operating expenses were RMB229.8 million, down 15.4% year-over-year. Sales and marketing expenses were RMB112.5 million, down 11.6% year-over-year, primarily due to the increase in expenses associated with branding and user acquisition activities. G&A expenses were RMB61.5 million, down 5.9% year-over-year due to operational efficiency improvement. R&D expenses were RMB55.8 million, down 29.3% year-over-year, primarily due to a decrease in payroll costs. Income tax benefits were RMB4.3 million compared with income tax benefits of RMB2.0 million in the first quarter of 2022. Net loss attributable to So-Young International Inc. were RMB11.9 million compared with…

[Operator Instructions] The first question comes from Thomas Chong with Jefferies. Please go ahead.

Thanks management for taking my questions. How do you expect the market trend to be in second quarter and also second half? Thank you.

Consumption across the board is steadily improving with consumption of medical aesthetics products gradually recovering as well. We launched a number of initiatives to attract additional users. This includes optimizing products on our platform for popular SKUs that have ample supply, package together complementary products to improve operational efficiency and shorten the time it takes for a consumer to make a decision during sales periods. The number of users placing order and GMV during the quarter increased 23% and 27% sequentially, respectively. Orders placed on our platform in April also increased when compared to the average during the first quarter. As we discussed last quarter, medical institutions remain cautious on increasing marketing spend. During this quarter, the majority of marketing budget allocation came from top-tier medical institutions. With [indiscernible] average marketing spend and the number of medical institutions are both gradually increasing in April when compared with average last quarter. Over the long-term, we expect the behavior of users to structurally change with an increasing focus being placed on the consumer experience and the cost benefit. Both users and medical institutions will change their consumption behavior, which we will strategically be adapting to. Thanks.

Are you ready for the next question? Thank you. The next question comes from Nelson Cheung with Citibank. Please go ahead.

So let me translate myself. Can management share with us the progress of So-Young Prime in Q1 and the outlook for the full year? Thank you.

So-Young Prime is the focus this year. We are expanding scale. We are, at the same time, working on enhancing the user experience, standardizing service processes and strengthening the delivery of service offline. This will ensure a high-end consumer experience. On the product and we partnered with doctors and experts to develop and upgrade the services and bundle them together to offer an easy-to-use and cost-effective one-stop solution. For example, we jointly developed innovative anti-aging products that are exclusive to our platform. This includes a unique procedure using the Peninsula ultrasonic anti-aging canon, which is specifically sought out by users. Leveraging our strong supply chain capabilities, we diversified our product offerings to strengthen user trust and choice. We only screen institutions to ensure they meet our high standards. We have trained medical teams and streamlined processes. As of the end of March, So-Young Prime has expanded to over 130 institutions in more than 25 cities. Its light-asset model improved user acquisition cost and operating efficiency, and an improved solid user experience makes it a unique value proposition. Fulfill orders through So-Young Prime increased by 88% compared with last quarter, a trend that has continued into April. This year, we will continue to expand its retail and service scope. So-Young Prime was developed with recent consumption trends in the large medical aesthetics market in mind. We are committed to maintaining a high-end user experience by helping the industry grow overall, leveraging our supply chain expertise. Thanks.

The next question comes from Chloe Wei with CICC. Please go ahead.

So let me translate myself. Thanks management for taking my question. I have two. So the first one is about can management maybe give us some color on the marketing strategy and maybe guide us through how will the marketing spend look like in the rest of the year? And my second question is for need. So the numbers of advertisers have decreased on a quarterly basis. So how do you expect the trend in Q2 and the second half of the year? Thank you.

As we mentioned, part of our focus is really on hitting efficiency this year. Repurchase rates for online orders this quarter was 7 percentage points higher than 2 years ago. With a recovery underway, we'll be increasing marketing spend to educate users. We will support and advise medical institutions with their marketing spend. We will focus on platform operations this year to increase user engagement. We will also expand cooperation with other platforms to explore new user acquisition opportunities and content.

Okay. With regards to the paying medical institutions, we believe that the reduction of paying medical institutions is the result of a cumulative impact of several factors. First of all, I think the Q1 -- the first impact is the seasonality impact. Q1 is traditionally slower in the marketing expenditures in our industry. Secondly, the challenging market situation in Q4 2022 resulted in significant shrink in the marketing budget from medical institutions. And thirdly, the infections after the open-up of quarantine policy also caused a temporary and yet sharp reduction in users visit to institutions, which lead to institutions further reduction in marketing activities in Q1. With the gradual market recovery, we’ve seen the rebound of the institution marketing activities. And we would expect a turning point to Q2 with regard to the number of paying medical institutions on our platform. Thank you.

Are you ready for the next question? Okay. The next question comes from Jessie Xu with Credit Suisse. Please go ahead.

We are very glad to see the significant narrowing of net loss in the quarter on top of revenue growth. So first, can you help us to better understand the factors and reasons behind the net loss in 1Q? And also, how should we look at the bottom line trend in the second quarter and also the second half of the year? Thank you.

Thanks, Jessie. This is Nick. In the first quarter, our non-GAAP net loss attributable to So-Young International Inc. narrowed significantly compared with the same period last year with a year-on-year decrease of 94% to RMB2.75 million as we described earlier. The first quarter is typically slow for the medical aesthetics market as it coincide with the Chinese New Year, and we -- and was impacted also by the rapid spread of COVID-19 after the [indiscernible] quarantine policy. As a result, revenue in the first quarter were impacted as well. As the impact of the pandemic recedes, we are deploying more people and marketing resources as the market recovers. So during the second quarter and throughout 2023, we will focus on enhancing user experience and improve institution of operational efficiency to kick start revenue growth. We will also strictly control costs and expenses, while improving the operational efficiency going forward. Thank you.

This concludes our question-and-answer session and the So-Young International, Incorporated first quarter 2023 earnings conference call. Thank you for attending today's presentation. You may now disconnect.