Thank you for joining So-Young's First Quarter 2024 Earnings Conference Call. Today's conference is being recorded. I will now hand over the call to your host, Ms. Mona Qiao. Please proceed.

Thank you, operator, and thank you, everyone, for joining So-Young's first quarter 2024 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 the Litigation Reform Act of 1995. Forward-looking statements are subject to risks and alternatives that may cause actual results to differ materially from our current expectations. Potential risks and alternatives include, but are not limited to, those outlined in our public filings with 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'd like to turn the call over to Mr. Xing Jin.

Hello, everyone. Thank you for joining the call today. Our business performed well in the first quarter, with total revenues reaching RMB 318.3 million, exceeding the upper end of our guidance. This also marks the first time in 5 years that we achieved non-GAAP profitability in the first quarter. Our new businesses continue to grow rapidly, with revenue from self-serve medical products and maternity services increasing 23.3% year-over-year. Our pipeline of upstream products is diversifying its offerings, while So-Young Prime maintains healthy development. We have made significant progress in expanding our chain of clinics. In the first quarter, we opened 3 clinics, all of which demonstrated unit area efficiencies well above the industry average at a notable price advantage. The cumulative clients served by our clinics increased 77% quarter-over-quarter. We've also made steady progress on vertical integration from products to institutions, driving a restructuring of the pricing system and value allocation in the industry. This will provide consumers with medical aesthetic services that are more cost-efficient and help in the sustainable development of medical aesthetic practitioners. Regarding products, institutions, and the So-Young platform, we are confident in the growth opportunities ahead as we make steady progress in these initiatives. In our POP segment, we continued to leverage our differentiated strategy to solidify our position in the premium market segment. By offering customized and high-value services, we serve high-end users while assisting institutions in boosting their profits. During the quarter, our order value increased by 11.3% year-over-year. For traffic acquisition, we redirected our budget away from low ROI online channels and focused on cultivating and maintaining a target user base within our private domains. We enhanced user engagement through various channels within and outside the So-Young platform, aiming to improve our monetization efficiency. As a result, users acquired through private domains increased by 19.7% quarter-over-quarter. Turning to So-Young Prime, we leveraged the success of the model clinic we opened in Beijing in the latter half of 2023. Building on this momentum, we accelerated our strategy to transition from partner institutions to establishing a chain of clinics. During the quarter, we opened 3 clinics, with operations firmly on track. By the end of this month, we expect to commence operations for our third batch of clinics. To facilitate this transition efficiently, we have established a comprehensive and standardized workflow system that covers everything from site selection and evaluation to clinic opening and operations. This has enabled us to expand at a pace that significantly surpasses the industry average, setting a record for new clinic rollouts. We plan to expand our chain of clinics nationwide, starting with 5 to 6 core cities. Meanwhile, So-Young Prime continues to achieve exceptionally high user satisfaction, with ratings of over 4.9 out of 5 for each institution every month and an increasing repurchase rate. Lastly, I will summarize the progress we've made in our upstream supply chain business. Sales of the Korean brand Elravie have grown significantly over the quarter, increasing by 80% year-over-year. In just one year, we established a mature distribution network covering 750 institutions through both direct and agency self-channels. The recent launch of a non-surgical anti-aging ultrasound device has diversified our product portfolio, with sales far exceeding expectations. This success reflects the strength of our brand, consumer recognition, and our ability to quickly bring new products to market and secure their positions through our expansive institutional network. We see immense growth potential in China's medical aesthetics market. However, the industry still faces public perception challenges despite two decades of development. For instance, while a HA injection costing tens of RMB can be sold for thousands, many institutions in the sector struggle to achieve profitability. Such realities highlight structural issues. So-Young aims to address these issues by establishing an industry platform. By integrating the upstream, midstream, and downstream resources of the medical aesthetic industry, we seek to fundamentally reduce costs, increase efficiency, and offer consumers better and more cost-effective medical aesthetic services. This approach is designed to drive sustainable revenue and profit growth for the platform, ultimately delivering greater long-term value to our shareholders. I will now turn the call over to our CFO, Nick, to review the financial results for this quarter before we take your questions.

Hello. This is Nick. Please be reminded that all amounts quoted here will be in RMB. Please also refer to our earnings release for detailed information on our comparative financial performances on a year-over-year basis. Total revenues during the quarter were RMB 318.3 million, up 2.6% year-over-year, exceeding the high end of our guidance. Growth was primarily driven by sales of medical products and maintenance services, which increased 23.3% year-over-year to RMB 86.5 million, driven by the sales volume increase of cosmetic products and medical equipment. Information services and other revenues were RMB 208.7 million, a slight decrease of 0.7% year-over-year. Reservation service revenues decreased 22.3% year-over-year to RMB 23.1 million, primarily due to the policy change for commission rates and subsidies. Cost of revenues was RMB 117.3 million, up 3.2% year-over-year, primarily due to increased costs associated with the sales of cosmetic products and medical equipment. Within the cost of revenues, cost of services and others were RMB 74.2 million, down 8.9% year-over-year, primarily due to a decrease in payroll costs. Cost of medical products sold and maintenance services were RMB 43.1 million, up 33.7% year-over-year, primarily due to an increase in costs associated with the sales of cosmetic products and medical equipment. Total operating expenses were RMB 237.8 million, up 3.5% year-over-year. Sales and marketing expenses were RMB 113.3 million, up 0.7% year-over-year, primarily due to an increase in payroll costs associated with the expansion of our marketing team. General and Administrative expenses were RMB 85 million, up 38.1% year-over-year, primarily due to an increase in payroll costs associated with the expansion of administrative employees to support the enhancement of our core and new strategic businesses. R&D expenses were RMB 39.6 million, down 29% year-over-year, primarily attributable to improvements in employee efficiency. Income tax benefits were RMB 2.6 million compared with income tax benefits of RMB 4.3 million in the same period of 2023. Net loss attributable to So-Young was RMB 21.2 million compared with a net loss of RMB 11.9 million during the same period last year. Net non-GAAP net income attributable to So-Young was RMB 4.1 million compared with RMB 2.8 million net non-GAAP net loss attributable to So-Young in the same period of 2023. Basic and diluted loss per ADS attributable to ordinary shareholders were RMB 0.21 and RMB 0.21, respectively, compared with basic and diluted losses per ADS attributable to ordinary shareholders of RMB 0.12 and RMB 0.12, respectively, during the same period of 2023. We have maintained a robust cash position with cash and cash equivalents, restricted cash, term deposits, and short-term investments, totaling RMB 1.3 billion as of March 31, 2024, effectively flat when compared with December 31, 2023. For the second quarter of 2024, we expect total revenues to be between RMB 380 million and RMB 400 million. The above outlook is based on the current market conditions that reflect the company's preliminary estimates of market and operating conditions and customer demand. This concludes our remarks. I will now turn the call to the operator and open the call for Q&A.

The first question we have comes from Chloe Wei of CICC.

Congratulations on the solid first quarter results. The top-line exceeded our expectations. My question is about the full-year outlook. Based on the prepared remarks, it seems our outlook has become more positive. Is there a trend that management would like to share? Considering the macro headwinds, how should we approach our full-year top-line growth?

Developments in the medical aesthetics industry in the first quarter align with our observations and expectations at the start of the year. The Chinese medical aesthetics market is gradually recovering alongside the overall consumption market. Retail sales of consumer goods in China rose by 4.7% year-over-year in the first quarter, and medical aesthetics consumption data also shows a gradual growth trend. Additionally, as the user base in medical aesthetics matures, demands are becoming more diverse. Attracting high-quality clients cannot rely solely on low prices; a broader range of products and services is necessary to meet varying user needs. In 2024, we will continue our strategies based on our existing business. We aim to create a vertically integrated platform encompassing upstream supply chains, midstream operations, and downstream distribution channels to fundamentally reduce costs and improve efficiency. This strategic direction will allow us to provide better and more cost-effective services to consumers.

The next question we have comes from an analyst of CITIC Securities.

Just two questions. First, how should we view the decrease in traditional metrics like MAU? And what competitive advantages do we have in the current traffic landscape?

In terms of online traffic, all industries are facing increased competition. For the So-Young app, we continue to enhance user engagement and attract more organic traffic through community content and our self-media resources. Additionally, we have been implementing extensive private domain operations, aiming to connect the So-Young app with private domains to expand our traffic pool while increasing retention rates and user engagement in those domains. This data does not appear in our Monthly Active Users count, but recent metrics such as Gross Merchandise Value and online orders have remained stable, which speaks to the effectiveness of our strategy. This approach also helps to reduce traffic costs and improve profits. Compared to our competitors, we have two key advantages: we have high-quality users and a high average order value, as well as access to our own offline medical aesthetic institutions, including So-Young chain clinics and affiliated hospitals, which give us more room for innovation. For surgical clients, we facilitate offline consultations with several prominent doctors, making the process more efficient by saving users time and transportation costs while also enhancing decision-making through face-to-face interactions. For high-end injection clients, we ensure that only high-quality doctors are on our platform and that we manage service deliveries within our own or partner institutions. This method allows us to maintain better control over fulfillment and delivery while holding pricing power and conducting refined operations, thereby minimizing the risk of losing users.

The next question we have comes from Yibing of Haitong.

My question is about So-Young Prime. I would like to know if the current progress of opening new clinics for So-Young Prime meets your expectations. Additionally, what are your mid-term to long-term plans for proprietary chain clinics?

We planned to open 15 clinics in 2024 at the beginning of the year. By the end of the first quarter, we opened 3 clinics. Since then, we added 2 more before today's earnings. Now, we are opening a total of 6 clinics, which aligns with our expectations. During this process, we established a comprehensive and standardized workforce system, covering everything from site selection and evaluation to clinic opening and operations. This has allowed us to expand at a pace that significantly exceeds the industry average and set a record for the rollout of new clinics. We focus on authentic products, cost performance, and transparency, aiming to make standardized light medical aesthetic services the top choice for everyday cosmetic use. We expect to reach 100 to 150 clinics in the next 3 years. While expanding our chain, we continue to build our operations team, leveraging our strengths in product supply, development, and innovation. We are advancing the establishment of a standardized management system for light medical aesthetics institutions and end-to-end online process management capabilities to enhance efficiency for these institutions. In the future, we will keep improving staff efficiency and efficiency per unit area for our clinics, increase the usage of our proprietary supply chain products, and enhance the margins of our clinics while providing users with more cost-effective services. User satisfaction is crucial for our chain operations, and we have placed an emphasis on it. From January to April, user satisfaction in our clinics reached 98%, aligning with our expectations.

The next question we have comes from Joey Chan of Jefferies.

I have two questions. The first is about the progress in your upstream supply chain business. The second is regarding your cash reserves of RMB 1.3 billion; how do you plan to use that?

On the product side, we maintained strong momentum, with sales increasing by 80% year-over-year and revenue rising by 56.5% year-over-year in the first quarter. We established a mature distribution network covering 715 institutions within just one year through both direct and agency channels. Moving forward, we will continue to integrate our upstream supply chain to help companies improve profits and offer users products with excellent cost performance, achieving a win-win scenario. Additionally, we are expanding our product pipeline. The launch of our face-lift product has further diversified our photonic category, with sales significantly surpassing expectations. This reflects the strength of our brand and consumer word-of-mouth recognition, showcasing our ability to quickly introduce new products to the market and secure their positions through our extensive institutional network. We anticipate adding more products and continuously generating incremental revenue and profit growth from the supply chain business.

This is Nick. I will translate. We will use the cash for two purposes. First, we will continue expanding both upstream and downstream in the industry, including the upstream product pipeline and downstream chain clinics to establish a strong foundation for our integrated industry platform. Secondly, we will share our repurchase plan or potential dividends to return value to our shareholders. Thank you.

Thank you, sir. Ladies and gentlemen, we have reached the end of our question-and-answer session and our conference. Thank you for joining us today. You may now disconnect your lines.