So-Young International Inc. (SY) Q2 2026 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by for So-Young's Second Quarter 2026 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. Mona Qiao. Please proceed, Mona.

Thank you, operator, and thank you, everyone, for joining So-Young's Second Quarter 2026 Earnings Conference Call. Joining the call today are Mr. Xing Jin, our Founder, Chairman and CEO; and Ms. Shannon Shen, our CFO. Before we begin, please refer to the safe harbor statement in our earnings release, which applies to this call and we will be making forward-looking statements. We will also discuss non-GAAP financial measures. Reconciliations between GAAP and non-GAAP measures are included in today's earnings press release. Please also note, all figures mentioned in this call are in RMB, unless otherwise stated. With that, I'd like to turn the call over to Mr. Xing Jin.

[Foreign Language].

[Interpreted] Hello, everyone, and welcome to today's earnings call. In Q2 2026, we continue to expand our aesthetic treatment business, guided by our scale and efficiency backed by our ever-improving medical capabilities, a uniform delivery framework and wider AI adoption. The business enhanced its operational ability and delivered a robust performance. Its Q2 revenue reached RMB 330 million, up roughly 130% year-over-year, beating the upper end of guidance by about 5%. As a result, group revenue achieved a quarterly record, growing 33% year-over-year to about RMB 510 million (sic) [ RMB 505.2 million ]. With better operating efficiency, net loss attributable to the company narrowed by 37% year-over-year to RMB 22.7 million.

[Foreign Language].

[Interpreted] Now turning to the key business developments in Q2. The dual engine approach delivered clear results this quarter. So-Young Clinic kept a healthy pace of expansion while operating quality improved. By the end of Q2, So-Young Clinic expanded into 18 cities with 65 centers in total. The larger footprint improved accessibility. More importantly, it reinforced brand awareness and captured consumer mind share, driving continued growth in treatment volume and user base. On treatment volume, verified visit exceeded 165,000 in Q2, up 145% year-over-year. Verified aesthetic treatment performed were above 362,000, up 134% year-over-year. On the user front, active users reached over 250,000 (sic) [ 255,000 ] by the end of June. In particular, the number of Level 3 and both core members exceeded [38,000]. The quarterly rate of core members remained robust, reflecting high user regard for our quality. New customers count also grew quarter-over-quarter with over 50% of them being referrals. This lowers blended acquisition costs while building a loyal, high-quality user base, which in turn positions us to boost user LTV and retention. Meanwhile, both the volume and mix of public domain new customers rose confirming that our full channel acquisition playbook works.

[Foreign Language].

[Interpreted] Profitability also improved as we refined operating workflows and tightened resource coordination. As a result, in Q2, the number of profit centers rose to 47 with 51 generating positive operating cash flow. Gross margin of the aesthetic treatment business improved by about 3.8 percentage points year-over-year to 28.1%. This outcome validates our management approach.

[Foreign Language].

[Interpreted] Healthy growth of our aesthetic treatment business relies on a robust supply chain and enriched product lineup. In late April, Miracle Collagen, our joint product with Jinbo Biopharmaceuticals, launched to a warm reception with over 66,000 units sold to date. In June, we rolled out WeMed CoPack. It adopts self-cross-linking technology to create a gel texture without a cross-linking agent. WeMed CoPack helps build eye and face areas while promoting ongoing collagen regeneration for a natural look. Our partnership with Jinbo goes beyond a traditional buyer and vendor relationship. It is a move towards product co-creation, case development and long-term value alignment. Going forward, we plan to extend this model to more domestic and international medical device and treatment partners. This collaboration model will cover consumer insights, product definition, indication development, physician training, uniform protocols post-launch evaluation and continuous intervention, bringing advanced technology from R&D to real-world use at a faster pace.

[Foreign Language].

[Interpreted] Also introduced beauty version of Miracle PLLA. It uses a better calibrated PLLA microparticle diameter to improve injection outcomes. Beyond the collagen category, we are also expanding the product portfolio to meet diverse anti-aging demand.

[Foreign Language].

[Interpreted] Furthermore, we continued to enhance our uniform medical delivery capabilities. First, we expand our physician team to meet growing market demand. As of June 30, 2026, the number of full-time physicians increased to around 280. On top of that, we have kept physician capabilities and treatment workflows aligned. This is made possible by our medical R&D and training center treatment guidelines, video audits and other training and quality control mechanisms we have in place. In Q2, we partnered with leading upstream manufacturers, including Allergan and Jinbo to deliver 9 specialized training workshops, effectively enhancing our physicians' expertise and clinical skills. We also completed 12 regular training sessions as part of our new physician initiative. By assessing theoretical knowledge and hands-on skills, we ensure our newly onboarded physicians are well prepared to deliver uniform and safe clinical care. Additionally, build a national command and control center, we coordinate medical workflows end-to-end to further elevate the user experience.

[Foreign Language].

[Interpreted] Finally, we are integrating AI with medical aesthetics to unlock innovative test for expansion. Under the constraints of medical safety, user privacy and data compliance, we believe AI's core value lies in empowering physicians, keeping delivery quality consistent and breaking the industry's ceiling on scale. This approach will ultimately bring premium medical care for more consumers. Right now, our focus is on the data foundation, which powers service quality, user experience and upstream R&D enablement. Leveraging our years of industry data and capabilities across med platform, user operations and clinical practices, we are now building a real-world database and clinical AI infrastructure tailored for the industry. For example, our clinics launched a user-facing virtual medical dispensing platform and dual screens that treatment SOPs in real time, both have effectively boosted user trust.

[Foreign Language].

[Interpreted]Looking ahead, the principles of transparency, uniform delivery and accessibility will continue to guide us. We remain focused on building a premium medical service framework and deepening customer trust. We believe that as we expand ongoing refinement of our operating framework will drive continued gains in operating efficiency and margins. This will unlock greater economics of scale across our clinic chain. Meanwhile, we will further diversify our supply chain, advance AI-powered digital capabilities and deliver a more competitive product portfolio. We are confident that these initiatives will drive high-quality growth for our aesthetic treatment business.

[Foreign Language].

[Interpreted] Now I will hand over to our CFO, Shannon Shen, for a deep dive into Q2 financials, after which we will move to Q&A session.

Thank you, Qiao, and thank you, everyone, for joining our call today. It's my great pleasure to walk you through So-Young's second quarter 2026 performance. On behalf of the management team, I will now share with you our latest operational progress across 3 key dimensions: growth, efficiency and organizational effectiveness. Please note that all financial data will be presented in RMB terms, unless otherwise noted. First, in the second quarter of 2026, our aesthetic treatment business exceeded RMB 330 million in revenue, growing approximately 130% year-over-year and marking its 10th consecutive quarter of triple-digit year-over-year revenue growth. Not only has this propelled our total revenues to an all-time high with a 33% year-over-year increase. But it has also enabled our aesthetic treatment business to achieve favorable economics of scale. Behind this clear upward growth trajectory and our rising brand momentum is our scaled capacity to deliver high-quality products and services. For digital natives, we offer wonderful product value that aligns with their consumption patterns, aesthetic preferences and online purchasing habits, thereby driving sustainable growth characterized by high frequency and high retention. While sustaining rapid top line growth, we remain unwavering in our commitment to growth quality and long-term sustainability with a laser focus on strengthening unit economics. We recently have raised our aesthetic centers capacity utilization benchmark by 50%, reflecting elevated expectations for per store revenue, labor productivity and sales per square meter. Through operational excellence, streamlining customer flow to reduce redundant waiting period, optimizing dynamic staffing, leveraging intelligent inventory management, we expect to drive meaningful margin expansion at aesthetic centers. Going forward, our expansion strategy will be more disciplined and market responsive. We will dynamically calibrate our opening cadence based on regional utilization levels, enabling us to sustain high revenue growth while striking an optimal balance between scale and profitability. We prioritize sustainable growth over pure top line expansion. In the second quarter of 2026, we delivered a 37% year-over-year improvement in profitability. Rapid expansion places extraordinary demand on organizational capabilities. Best-in-class organizational excellence is fundamental to sustaining high growth over the long term. To that end, we have made systematic investments in organizational infrastructure with a particular focus on compliance and user experience. We continue to advance end-to-end visibility across treatment workflows to enhance transparency and reinforce trust. Furthermore, we have closed the loop on user feedback. This cross-functional coordination enables us to maintain acute market sensitivity and continuously elevate service delivery quality and user satisfaction even as the business scales rapidly. The company stands at a pivotal inflection point, pursuing high growth and operational efficiency in parallel, while advancing scale and profitability in lockstep. 10 consecutive quarters of triple-digit revenue growth validate our market acumen and execution discipline. This continuous refinement of center level unit economics, together with our market responsive expansion strategy ensures that our growth remains high quality and sustainable. Complementing this, our systematic investments in organizational capabilities provide the bedrock for long-term value creation. Next, let's dive into each business segment. Revenues from aesthetic treatment services reached RMB 331.4 million, exceeding the upper end of guidance for the sixth consecutive quarter. The rollout of our loyalty program and systematic treatment protocols creates a 3 to 5 percentage points deferral between service delivery and recognized accounting revenue. Today's service generated future membership benefits -- while this tempers near-term reported revenue, it builds a deferred revenue base that underpins long-term growth. Net of this deferral impact, revenue still grew approximately 103%. Looking at aesthetic centers data as of June 30, we operated 65 So-Young clinics across 18 major cities, reflecting a net addition of 11 centers during the quarter. Among them, 47 centers were profitable and 51 centers generated positive operating cash flow during the quarter, reflecting a net addition of 6 and 3, respectively, from last quarter. We also achieved same-store sales growth of 52%, substantially improved from 14% in the prior year period. Turning to our other segments. Revenues from information and reservation services were RMB 87.9 million, down 35% year-over-year, primarily due to the decrease in the number of medical service providers subscribing to our information services. Sales of medical products and maintenance services revenues were RMB 73.9 million, down 2.8% year-over-year, primarily due to the decrease in order volume for medical equipment. Other services revenues were RMB 12 million, down 48.2% year-over-year due to a lower insurance brokerage revenue. Cost of revenues was RMB 282.4 million, up 53% year-over-year, driven primarily by the expansion of our branded aesthetic centers. Total operating expenses were RMB 266.5 million, up 10.4% year-over-year. Specifically, sales and marketing expenses were RMB 153.5 million. From aesthetic treatment service perspective, our comprehensive customer acquisition cost remains at a healthy level, accounting for less than 10% of the revenue, coupled with strong user retention. Our overall customer acquisition model maintains sustainable. G&A expenses were RMB 88.6 million, up 12.5% year-over-year, reflecting the continued expansion of our branded aesthetic centers. R&D expenses were RMB 24.4 million, down 21.7% year-over-year, driven by continued improvements in staff efficiency. Moving forward, we will continue to deepen AI integration across our operations, streamlining workflows and driving efficiency gains in R&D, clinical diagnosis and treatment and beyond. Income tax benefits were RMB 2.5 million compared with income tax expenses of RMB 1.9 million in the prior year period. Net loss attributable to So-Young was RMB 22.7 million, which narrowed by 37% compared with RMB 36 million in the prior year period. Non-GAAP net loss attributable to So-Young was RMB 21 million compared with RMB 30.5 million in the prior year period. Basic and diluted loss per ADS were both RMB 0.22 compared with RMB 0.35 in the prior year period. As of June 30, 2026, our cash and cash equivalents, restricted cash and term deposits and short-term investments totaled RMB 848.2 million. Turning to our outlook. Please allow me to remind everyone that this contains forward-looking statements, which include risks and uncertainties that are beyond our control and could cause the actual results to differ materially from our predictions. Based on our current estimates, we expect revenues from aesthetic treatment services to be between RMB 352 million and RMB 362 million, representing year-over-year growth of 91.7% to 97.2%. That concludes my prepared remarks. Operator, we are now ready for the Q&A session. Thanks.

[Operator Instructions] The first question today comes from Jinpeng He with Citic.

[Foreign Language]. [Interpreted] Firstly, congratulations on the company's continued strong performance and impressive growth in the second quarter. So I have a question regarding the collaboration with Jinbo. So the collaboration is generating great momentum with innovation -- innovative partnership model. So what have both parties liked and what are the benefits?

[Foreign Language].

[Interpreted] We are pleased to have reached a reliable mutually beneficial partnership with Jinbo as medical aesthetic demand moves towards natural restoration, tissue regeneration and long-lasting outcomes. The recombinant human rights collagen will have a long lifespan. A developing upstream relationship with Jinbo, therefore, benefits our long-term growth.

[Foreign Language].

[Interpreted] More importantly, we are using real-world data to drive product and supply chain decisions. We analyze connections between user age, skin condition, treatment details, post-treatment reaction, feedback and repurchasing behavior. From there, we can pinpoint which products, which population area and treatment combination. This helped us optimize doctor training, procurement decision and inventory planning, which greatly reduces buying guesswork and excess inventory. It also lets upstream manufacturers move out of a closed R&D environment and integrate their products based on actual clinical insights. This enhances our operational efficiency and leverage in joint research, product innovation and partnership.

[Foreign Language].

[Interpreted] Going forward, we will extend this data feedback, co-creation model to more quality partners at home and abroad. In the past, many viewed downstream clinics only as distribution channels. Today, we are transforming our extensive clinic network into the industry's innovation infrastructure. By leveraging real-world consumer demand, hands-on experience and treatment outcomes to deliver R&D, we aim to accelerate technology innovation and product integration, ultimately delivering value to more consumers.

The next question comes from Jian Wang with GF Securities.

[Foreign Language]. Congratulations on the outstanding performance. Management mentioned a few AI initiatives. Could you elaborate more on how AI is being applied in the business? Where do you see the biggest value and future direction?

[Foreign Language].

[Interpreted] Medical aesthetics is a highly medical field with a low tolerance for error. It relies heavily on individual expertise. The core value of AI lies in transforming experience-driven hard-to-reproduce procedures into uniform visible and traceable offerings. This approach also helps distribute premium medical resources to lower-tier cities, which helps address imbalances in medical delivery.

[Foreign Language].

[Interpreted] In practice, our current focus is applying AI to product authentication, back-office quality control and data foundations and governance. QR code authentication verifies medicine and device traceability immediately, mitigating counterfeit-related concerns and building trust. End-to-end transparency builds the users' confidence in care and overall experience. We also use AI to break down top physicians experience into database. We then embedded it into our SOPs, case libraries and post-treatment feedback modules. That accelerates physicians development, aligns quality across centers and identifies irregularities in real time, lifting overall quality and customer experience.

[Foreign Language].

[Interpreted] In Q4 this year, we will roll out our first generation of fully intelligent centers, initiating widespread AI deployment across our network. We aim to replicate our high-quality medical delivery and operating capabilities via AI. Given our industry leadership and early mover advantage in digital infrastructure, we are confident that driven by AI, we can lead the industry into a new phase of high-quality growth.

The next question comes from Nelson Cheung with Citibank.

[Foreign Language]. We observed that the aesthetic center gross margin has improved this quarter. Would you walk through what are the key drivers for the improvement? And what are your future plans for gross margin expansion in the future?

Thanks Nelson. This is Shannon. [Foreign Language].

[Interpreted] Our gross margin increased by 3.8 percentage points year-over-year and 1 percentage point quarter-over-quarter, an excellent result that demonstrates a clear trend of sustained improvement, particularly considering our pace of opening 11 new centers in Q2. The gross margin improvement mainly reflects our dual engine of scale and efficiency approach to center operation and management.

[Foreign Language].

[Interpreted] For the center operation, we continue to enhance per center revenue per square meter, revenue per bed and labor productivity. We raised our initial bed capacity utilization benchmark by 50%. In other words, if the original plan assumed each bed could accommodate 10 treatments per day, we have now increased that target to 15. We are restructuring our service workflows around this new benchmark to reduce customer wait times. This not only improves the user experience, but also fully unlocks the operating leverage of our centers, thereby boosting both gross margin and operating profit. With a maturing operating framework, mature centers take a growing share of our footprint. Ramp-up periods of our new centers are getting shorter and making positive contributions to gross margin. In Q2, 47 centers achieved center level profitability and 51 generated positive operating cash flow.

[Foreign Language].

[Interpreted] For the supply chain, our expansive network give us more buying power as our network expands procurement cost advantage from larger volumes are being unlocked at a faster pace. With that leverage, we deepened collaborations with upstream partners to gain price competitive deal. Exclusive OEM agreements and tiered procurement contracts also gave us priority partner rights in the high demand categories. Meanwhile, the momentum of our blockbuster products proves our capability in building blockbusters while further increasing our appeal to upstream manufacturers. We will keep pushing existing blockbusters. And over the next 2 years, we have a robust pipeline of new products to help us improve gross margin.

[Foreign Language].

[Interpreted] Meanwhile, backed by a central operations platform and AI, we can allocate resources and manage equipment, warehousing and customer operations more precisely, driving better per-center economics.

[Foreign Language].

[Interpreted] In short, with continued optimization of upstream costs and percent operating efficiency, we are confident about ongoing gross margin improvement. We will keep leveraging our economics of scale, deepen upstream collaboration and broaden AI adoption to drive high-quality growth.

The next question comes from Daisy Chen with Haitong.

Congratulations on the decent results with high-quality growth this quarter. My question is about our profitability. What are the core levers for the loss reduction this year? And how do you plan to move towards the group level profitability?

[Foreign Language].

[Interpreted] Thank you, Daisy. To sum up, our core lever for loss reduction this year, in one word, it is focus. We are focused on the main track of our clinic business and on profitable operations.

[Foreign Language].

[Interpreted] First, from an operating portfolio perspective, our POP and injectable sales business continue to generate profits and operating cash flow. Our clinic business is in a high growth phase and remains in a strategic investment stage. This represents a well-balanced business mix. On the one hand, we remain solid profit levels for our existing profitable business. On the other hand, we keep improving the operational efficiency of our clinic business to drive its overall profitability. Meanwhile, we scale back investment in other loss-making business through store closures, disposals and reduced capital allocation so that group resources can be increasingly focused on these 2 priorities.

[Foreign Language].

[Interpreted] The breakeven point for our clinic is relatively clear. On our current cost base, fixed cost can be anchored based on the number and pace of new store openings. Contribution margin depends on scale growth, the rate of gross margin improvement and consumer acquisition efficiency. Our clinic business has maintained a high growth rate of over 30% for the past 10 quarters. Gross margins have been rising and customer acquisition efficiency keeps improving. We expect to see substantial continued improvement in clinic gross margins in Q3 and Q4 of this year. With operating leverage in fixed costs being diluted by scale effects plus the upcoming peak business season in autumn and winter, overall profitability for the clinic segment is very near and achievable target.

[Foreign Language].

[Interpreted] Second, on cost optimization, back-office resources will also follow the same focus principle mentioned above. We will concentrate on key business and critical tasks through standardized operations, digital management and AI enablement, we will boost capabilities and efficiency to continuously drive cost reduction and operational improvement.

[Foreign Language].

[Interpreted] Footprint expands, brand awareness and consumer mind share have taken root. Referrals now account for over 50% of new customers. On top of that organic traffic, we will prioritize ROI and the core metrics to refine brand marketing investment.

[Foreign Language].

[Interpreted] Taken together with continued revenue growth, operating efficiency gains and a leaner expense profile, we are confident in group level profitability going forward. Thank you.

This concludes our question-and-answer session and today's conference call. Thank you for joining us today. You may now disconnect.