Ladies and gentlemen, thank you for standing by for So-Young's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management gives their prepared remarks there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I'd 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 third quarter 2023 earnings conference call. Joining me today on the call is Mr. Xing Jin, our Co-Founder, Chairman and CEO; and Mr. Nick Zhao, CFO. 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 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. At this time, I would like to turn the call over to. [indiscernible], please.

[Foreign Language] [interpreted] Hello, everyone. Thank you for joining So-Young's third quarter 2023 earnings call. Our business remained resilient and delivered solid financial and operational results during the quarter, despite macroeconomic headwinds. Total revenues were RMB390 million, an increase of 19% year-over-year and in line with our previous guidance. Profitability also continued to improve, thanks to our careful management of costs. Net income attributable to So-Young International Inc. was RMB18.3 million compared with RMB2.3 million in the same period last year. I would like to start by sharing my thoughts on where the [indiscernible]. We strongly believe that medical aesthetics market going forward will head in two directions. The first is a gradual and strong popularization of high-tier users who were less impacted by a weak macro environment and will continue to see high-quality services. In this scenario, low to mid-tier users would increasingly gravitate towards products with the best quality to cost ratio. The second is a continuation of high-speed growth of light medical aesthetics as the market continue to expand in size. We are adapting each of our business to be able to cater to both of the two scenarios. Taking this into account, we are adjusting our community POP business with a focus towards high-end service end users. During the quarter, we strengthened cooperation with less number of well-respected doctors and institutions, further integrate internal resources and optimize the processes, all in an effort to provide the highest quality service and experience through our one-stop solution. Offering premier content and enhancing the user medical aesthetics service experience has helped well-respected doctors and institutions avoid costly price wars, while still generating reasonable premium. During the quarter, we worked with well-respected doctors to promote the face contouring category. Online GMV for the face contouring category grew by 40% year-over-year…

Okay. Hello, this is Nick. I will now go through our financial performances this quarter. 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 performances on a year-over-year basis. Total revenues during the quarter were RMB385.3 million, up 19.2% year-over-year and in line with our guidance. The increase was primarily due to an increase in revenues generated by So-Young Prime and sales of medical products. Information services and other revenues were RMB285.9 million, up 24.1% year-over-year, primarily due to an increase in revenues generated by So-Young Prime. Reservation services revenues decreased by 18.8% year-over-year to RMB24.1 million, primarily due to our operating strategy, which gives higher subsidies to end users. Revenue from sales of medical products and maintenance services were RMB75.2 million, up 19.2% year-over-year, primarily due to an increase in sales of cosmetic injectables. Cost of revenues were RMB142.6 million, up 51.7% year-over-year. The increase was primarily due to an increase in costs associated with So-Young Prime. Within cost of revenues, cost of services and others were RMB103.5 million, up 74.2% year-over-year, primarily due to an increase in costs associated with So-Young Prime. Cost of medical products sold and maintenance services were RMB39.1 million, up 13% year-over-year, primarily due to an increase in costs associated with the sales of cosmetic injectables. Total operating expenses were RMB244.7 million, up 3.4% year-over-year. Sales and marketing expenses were RMB143.8 million, up 15.3% year-over-year, primarily due to an increase in expenses associated with branding and user acquisition activities. G&A expenses were RMB50.2 million, down 16% year-over-year. The change was primarily due to the reversal of share-based compensation expenses partially offset by an increase in payroll costs associated with the expansion of administrative employees to support our…

Thank you. [Operator Instructions] And today's first question comes from Thomas Chong at Jefferies. Please go ahead. Hello, Thomas Chong, your line is open.

Hi. Good evening. Thanks management for taking my questions. Can you share about the progress So-Young Prime has made and the expectation for Q4 and 2024? And my next question is about our estimate for marketing expenses in Q4 and next year? Thank you.

[Foreign Language] [interpreted] Thank you for your questions. I will take the first one. We launched So-Young Prime just over a year ago. Since then, fulfilled orders have grown by tenfold during the quarter when compared to the same period last year. As our user base expands rapidly, which I believe demonstrate the transaction, its services are gaining among consumers. Within fulfilled orders, high-intensified focused ultrasound under the ultrasonic anti-age category, in particular, increased by 44% sequentially, generating strong word of mouth. As I mentioned during my prepared remarks, we built a model clinic for [high] (ph) -- we call it as a flagship store for high for light medical aesthetics procedures on the second floor of our office. The team operating the clinic are fully integrated with So-Young Prime and driving the development of a standardized management system for light medical aesthetics institutions and further improving the overall business model. We will continue to drive So-Young Prime's user base, improve the service experience, capture emerging opportunities in the light medical aesthetics industry and create products and service with high quality to cost ratios. We will also expand the number of categories with cooperation with institutions and [indiscernible] standardized management system to strengthen our position as an all-around partner for small and midsized light medical aesthetics institutions. We plan on integrating So-Young Prime with our supply chain business in the future. Products from the supply chain business can be directly through So-Young Prime. Micro-focused ultrasound device, the new generation of ultrasonic anti-aging equipment we launched in the first quarter has performed well in clinic applications. Going forward, So-Young Prime will gradually introduce new products, further improve margins and create synergies with our supply chain business.

Okay. I'll respond to the question regarding the marketing expense. We have placed an emphasis on improving advertising efficiency this year. Conversion rate for user placing an order online improved in the third quarter, mainly due to our community content, strong brand image and new user acquisition methods such as private domain operations. Looking ahead to Q4 and 2024, we will continue to leverage our community content, strong brand and other competitive advantages to further improve the user experience to increase user conversion rates. Lastly, we will also continue deploying a highly efficient marketing strategy, expand the user acquisition channels, improve marketing ROI and carefully manage marketing costs to maintain our margin and improve the profitability of the company.

Thank you. And our next question comes from Nelson Cheung with Citi. Please go ahead.

[Foreign Language] So I’ll translate myself in English. Thanks management for taking my question. So how would management expect the medical aesthetics markets to develop in fourth quarter, especially during the Double 11 period, and also into the next year, 2024? Thank you.

[Foreign Language] [interpreted] Thank you for asking me. And first, as I mentioned in prepared remarks, I believe the medical aesthetics market going forward will head in 2 directions. The first is gradual and stock popularization of high-tier users who are less impacted by the weak macro environment, and will continue to seek high-quality services. In the scenario, low to mid users will increasingly gravitate towards products with the best quality to cost ratio. The second is a continuation of high-speed growth of light medical aesthetics and the medical and the market continues to expand in size. We are adapting each of our business to be able to cater to both of these scenarios. Based on the outlook potential, we will focus on our three business segments to create consolidated professional medical aesthetics platform for all consumers. First, we are adjusting our community e-commerce business with a focus towards high-end services and users seeking high-quality online medical aesthetics services. Second, So-Young Prime is being adjusted to serve user growth, look for the best quality to cost ratio products as we continue to explore standardized management system for light medical aesthetics. Third, our supply chain business is being positioned to incrementally capture a larger share of the light medical aesthetics market as they continue to expand rapidly and to create synergies with other business segments. In addition, according to consumption data published by the National Bureau of Statistics, total retail sales of consumer groups during the first 10 months increased by 69% year-over-year and 76% year-over-year in October, indicating that the economy is gradually gaining recovery momentum. In summary, we remain confident with the growth perspective in medical aesthetics market for 2024 and further into the future. Even though our business is occasionally impacted by volatile market, its remained resilient. We will continue investing in acquiring high-quality users and institutions to create value for the industry and are confident in our long-term growth perspective. Thank you.

Thank you. And our next question today comes from Chloe Wei at CICC. Please go ahead. Hello, Chloe. Your line is open. Chloe Wei? I'm sorry, we're not able to hear your audio at this time so we'll move to the next question, which is from [indiscernible] with CITIC.

[Foreign Language] Let me translate my questions. As profitability has improved for two consecutive quarters, how do you expect margins to trend next quarter and going forward? Thank you.

Thank you for your question. With a soft consumer sentiment, we will focus on driving revenue growth with a gradual diversification of revenue streams. Our supply chain business and So-Young Prime is showing a solid performance each quarter and reflects this focus. The improvement in our profitability for the past two consecutive quarters reflect the improvements we have made in operating efficiency. We will continue to execute this strategy and remain confident that we will be able to maintain profitability next quarter. 2023 is a critical year for our business transformation. We have made steady progress in laying a solid foundation for future growth and creating long-term sustainable value for our shareholders. Looking forward to 2024, we will continue to grow revenue, improve operating efficiency and carefully manage costs. We will be well positioned to increase our competitiveness and maintain healthy cash flows as we leverage opportunities to generate returns for our shareholders. Thank you.

Thank you.

Thank you. And our next question comes from Chloe Wei with CICC. Please go ahead.

[Foreign Language] So I will translate myself. Mr. Xing Jin, what do you think of the future competitive landscape? And given the thoughts, how do we position ourselves in the long run? Thank you.

[Foreign Language] [interpreted] Thank you for your question. We have been exploring new business models across different verticals within the industry that are outside the traditional Internet business models. We are trying to find new ways to think about industry development and exploring value creation. First, looking midway upstream, we are seeing that a major short video platform tapped into medical aesthetics in the third quarter. We believe these platforms as well as the major e-commerce platforms are mainly applying a low-priced purchase model, which fits their operation models. Based on our expectation of industry popularization in the future, we are adopting a different operating strategy with our POP business to focus on the demand of high-end users by providing them a better consumption experience, which will also improve our margins. Downstream adds to the institutional end of the spectrum, users are increasingly seeking products with a high quality to cost ratio, which our operations will be able to cater to add this space growth. We believe the chain stores of light medical aesthetics will have a huge market growth space in the future. Domestic competitors in the vertical are few and far between with only two brands owning over 20 chain stores with limited standardized products and low margins. There are successful models already deployed outside China, which provides a premium consumption experience for low- to mid-tier users. We are working on deploying a standardized management system for light medical aesthetics institutions through So-Young Prime with high-quality to cost product ratios for our users. This positions us as an all-around partner for a large number of small and midsized light medical aesthetics institutions. Upstream competition is getting fierce in the injections category, but in numerous key market, potential remains intact for medical lasers, particularly in the ultrasonic anti-aging category. Based on our observations, we customized and launched the ultrasonic anti-aging product called as the Micro-focused ultrasound device during the first quarter. For injections, we see enormous growth potential in the regenerative market, driven by new materials and have expanded our offering in the category. In summary, in addition to developing the Internet business model, we're also exploring growth potential along the industry supply chain with a focus on the long term. We are confident that our superior positioning in the market and our product advantage [indiscernible] going forward, driven by our integration and innovation along the industry value chain. Thank you. Thank you for asking.

Thank you. And ladies and gentlemen, we are approaching the end of today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.