Ladies and gentlemen, thank you for standing by for So-Young's Second Quarter 2025 Earnings Conference Call. As a reminder, today's conference call is being recorded. I would now like to turn the conference 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 2025 Earnings Conference Call. Joining me today on the call is Mr. Xing Jin, our Co-Founder, Chairman and CEO; and Mr. Nick Zhao, CFO. Before we begin, please refer to the Safe Harbor statements in our earnings release, which applies to today's call as we'll be making forward-looking statements. Please also note that we will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under GAAP in our earnings release on our Investor Relations website and filings with the SEC. At this time, I'd like to turn the call over to Mr. Xing Jin.

Hello, everyone, and welcome to today's earnings call. In the second quarter, our branded aesthetic center business continued to exhibit strong momentum, with growth in both size and quality. Our business model and strategic direction have gained significant market recognition. In Q2, we achieved total revenue of RMB 379 million, with revenue from our aesthetic center business reaching RMB 144 million, exceeding the upper end of our guidance and marking it as our largest revenue segment for the first time. This represents a pivotal moment in our multi-year strategic transition, leading us into a new phase with distinct growth drivers and a more developed business model. Currently, our So-Young Clinic live medical aesthetic chain has expanded to 33 centers. Due to rapid network expansion and ongoing investments, we reported a net loss attributable to So-Young of RMB 36 million and a non-GAAP net loss of RMB 30.5 million in Q2. Looking ahead, as we enhance our service workflows, improve customer experience, and strengthen our brand reputation, we anticipate better operational efficiency per center and increased customer loyalty. We are confident about achieving sustainable, high-quality long-term growth. Now, let me share some key operational highlights for Q2. Revenue from aesthetic treatment services continued to grow robustly during the quarter, rising by 46% from the previous quarter and 426% year-over-year to RMB 144 million. The performance of our centers also improved steadily. By the end of June, we operated 29 aesthetic centers, with 20 of them open for more than three months. In June, 19 centers achieved positive operating cash flow, and 13 were profitable on a monthly basis. Alongside our continued expansion, our total service capacity is scaling quickly, with active users exceeding 100,000 by June. The total for verified treatment visits surpassed 67,400 in Q2, up 24% from the previous quarter and 381% year-over-year. The number of verified aesthetic treatments performed exceeded 154,500, reflecting a 25% quarter-over-quarter increase and a 458% year-over-year increase. Our repeat purchase rate for the aesthetic center business was greater than 60%, with high customer satisfaction at 4.99 out of 5. Although we continued expanding our network in Q2, we maintained our leadership in customer acquisition efficiency. Our average customer acquisition cost is still around RMB 100, with over 70% of new customers acquired through low-cost private domain traffic and existing customer referrals. Thanks to improved operational efficiency, our gross profit margin for aesthetic treatment services expanded by approximately five percentage points sequentially. These results validate the growing brand influence and operational effectiveness of So-Young Clinic. We are committed to standardized service delivery, focusing on healthcare quality, procedural compliance, and user experience. We have established a thorough physician selection and training system, ensuring that all 130 of our full-time doctors have either completed internships or standardized training at public hospitals, with nearly 90% being specialist dermatologists. We are also advancing management through digitalization and AI-driven solutions, achieving standardized processes from booking and check-in to testing, consultation, and treatment. This digitized approach ensures every user enjoys a clear, transparent, and traceable medical experience. For new treatments, we introduced several acclaimed offerings in Q2, including Medical PLLA, Mermaid Skin Booster, and BBL Hero, which diversified our medical aesthetics portfolio, increased ARPU, and reinforced our competitive edge. In branding, we collaborated with international IP partners for our Medical PLLA series, organizing pop-up events in Beijing and Shenzhen during the quarter. These IP co-branding and immersive experiences attracted significant participation from young customers, with nearly 10,000 users sharing their experiences, greatly enhancing brand visibility and offline engagement. Furthermore, we partnered with self-media influencer teams to strengthen our branding narrative through emotionally impactful storytelling. This initiative resonated strongly with our core female demographic, effectively reinforcing So-Young Clinic's professional reputation and brand positioning among beauty-conscious women. In the upcoming third quarter, we plan to open about 10 aesthetic centers, expanding into both first-tier and core second-tier cities. For the full year, we anticipate reaching a total of 50 aesthetic centers, further enhancing the availability of So-Young Clinic's medical aesthetics services across the country. We will continue to strengthen standardized operations and product innovation capabilities to solidify our market leadership in China's medical aesthetic sector. Regarding our upstream business, we are developing a comprehensive medical aesthetic supply chain to drive nationwide distribution of both our self-developed and exclusively distributed products. By the end of Q2, over 1,600 institutions benefitted from our supply chain solutions for injectables, with shipments of Elasty reaching approximately 39,100 units in Q2, a more than 40% sequential increase. As our upstream products gain more certifications and scale, we expect to enhance our competitive advantage and improve cost efficiency, solidifying our position for industry chain synergy. Our POP business remained stable during the quarter, with GMV for verified medical aesthetic services reaching around RMB 300 million, and per capita in-center GTV growing by 6% year-over-year. We continue to offer digital operational support to partner institutions, ensuring healthy and orderly development of our platform. For the second half of 2025, we will further increase the density of our aesthetic center network in first-tier cities, targeting prime commercial areas and high-potential locations. We are also expanding our reach into second-tier cities to enhance market coverage and center density. We will focus on localized brand building to increase the visibility of So-Young Clinic in each city. Our commitment remains in optimizing user experience and operational efficiency in our centers, strengthening our competitive edge and establishing a solid foundation for long-term value for our shareholders. We view our progress as a launchpad for continued innovation to create greater user value and explore broader growth opportunities. Now I will pass the call to Nick, our CFO, who will review our financial results and then we will open the floor for questions.

Hello. This is Nick. Please note that all amounts are quoted 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 RMB 378.7 million, down 7% year-over-year, primarily due to a decrease in the number of medical service providers subscribing to information services on our platform. Aesthetic treatment service revenues reached RMB 144.4 million, soaring 426.1% year-over-year, exceeding the high end of our guidance, primarily due to the business expansion of our branded aesthetic centers. Information and reservation services revenues were RMB 135.2 million, down 35.6% year-over-year, primarily due to a decrease in the number of medical service providers subscribing to information services on our platform. Sales of medical products and maintenance services were RMB 76 million, down 28.1% year-over-year, primarily due to a decrease in the order volume of medical products. Other services revenues were RMB 23.2 million, down 64% year-over-year, primarily due to a decrease in So-Young Prime. Cost of revenues were RMB 184.6 million, up 19% year-over-year, primarily due to a business expansion of our branded aesthetic centers. Within cost of revenues, cost of aesthetic treatment services were RMB 109.4 million, up 405.5% year-over-year, primarily due to the business expansion of our branded aesthetic centers. Cost of information and reservation services were RMB 16.7 million, down 47.4% year-over-year, which was in line with the decrease in revenue generated from information and reservation services. Cost of medical products sold and maintenance services were RMB 39.5 million, down 25.8% year-over-year, primarily due to a decrease in costs associated with the sales of medical products. Cost of other services were RMB 19 million, down 60.8% year-over-year, primarily due to a decrease in costs associated with So-Young Prime. Total operating expenses were RMB 241.3 million, down 1.8% year-over-year. Sales and marketing expenses were RMB 131.3 million, down 0.7% year-over-year, primarily due to the decrease of payroll costs. G&A expenses were RMB 78.8 million, up 11.3% year-over-year, primarily due to an increase in payroll costs associated with the expansion of administrative employees to support our business upgrade and new strategic businesses. R&D expenses were RMB 31.2 million, down 26.6% year-over-year, primarily attributable to improvements in staff efficiency. Income tax expenses were RMB 1.9 million compared with the income tax benefit of RMB 2.6 million in the same period of 2024. Net loss attributable to So-Young International Inc. was RMB 36 million compared with net income attributable to So-Young International Inc. of RMB 18.9 million during the same period last year. Non-GAAP net loss attributable to So-Young International Inc. was RMB 30.5 million compared with non-GAAP net income attributable to So-Young International Inc. of RMB 22.2 million during the same period of 2024. Basic and diluted losses per ADS attributable to ordinary shareholders were RMB 0.35 and RMB 0.35, respectively, compared with basic and diluted earnings per ADS attributable to ordinary shareholders of RMB 0.18 and RMB 0.18, respectively, during the same period of 2024. We have maintained a robust cash position with cash and cash equivalents, restricted cash and term deposits, and short-term investments totaling RMB 998.6 million as of June 30, 2025. Moving to our outlook. For the third quarter of 2025, we expect aesthetic treatment service revenues to be between RMB 150 million and RMB 170 million, representing a 230.5% to 274.6% increase from the same period in 2024. This outlook reflects the ongoing ramping up of our branded aesthetic center network as we progress towards our year-end target of 50 centers. With ample cash reserves and a demonstrated track record of execution, we are now entering into the next phase of growth with increased confidence for the future. As we scale and strengthen the influence of our aesthetic center network, we will continue to refine its standardized model to further enhance operational consistency and efficiency while establishing a robust base for recurring revenues. These efforts will reinforce our cost advantages, solidify our industry leadership and create durable long-term value for our shareholders. This concludes our prepared remarks. I will now turn over the call to the operator and open the call for Q&A.

The first question today comes from Nelson Cheung with Citibank.

So let me translate my question into English. We are particularly interested in the expansion plan of your franchise model. Can you provide any details on what the plan would look like this year and next year? Additionally, what's the current progress and strategy for our franchise model?

We have a clear phased approach for expanding our network. We aim to grow the number of centers to 50 by the end of this year, with a significant portion already opened and over 10 more planned for the second half. In key cities like Beijing, we expect to reach 10 centers by the end of 2025. We will finalize next year's expansion plan in the fourth quarter of this year; however, we initially expect new openings to match or exceed 2025 levels. As our organizational capabilities continue to improve, our network will gradually expand to more cities. In the long term, with full confidence in our aesthetic center business, we target achieving 1,000 centers within 8 to 10 years. Franchising is not our immediate focus, mainly because our self-operated centers have relatively manageable capital expenditures with shorter payback periods, and our substantial cash reserves can already support rapid expansion. Nonetheless, as part of our long-term strategy, the franchise model will play an important role in future expansion. Therefore, we plan to pilot 2 to 3 franchise centers in the fourth quarter of this year and will assess the pace of future franchise expansion based on the operational performance of these pilot centers.

The next question comes from Xi Jinping with Citic.

I'm Xi Jinping from Citic Securities. I have a question about the Chinese aesthetics market. How does management view the growth potential of the Chinese medical aesthetics market? Additionally, in this highly competitive environment, how will you adapt to the challenges posed by new entrants? That's my question.

We are optimistic about the potential of China's medical aesthetic market compared to mature markets like South Korea, where the penetration rate has exceeded 20%. Currently, China's penetration is below 5%, which indicates significant growth opportunities. The light medical aesthetic sector in China operates under a fundamentally different model than traditional plastic surgery, growing at a quicker pace and capturing customer interest more effectively. Research indicates that China's light medical aesthetic market could reach approximately RMB 340 billion by 2030. Our analysis predicts that the penetration rate of light medical aesthetic chains in China will rise to 30%, and as a leading player, So-Young aims to secure around 25% market share, translating into nearly RMB 26 billion in opportunities. We believe that for a light medical aesthetic chain to succeed, three core capabilities are crucial: sustainable low-cost customer acquisition, a diversified upstream supply chain network, and the ability to operate a large-scale physical network effectively. Other competitors have inherent limitations in these areas. This underscores our commitment to developing our business and reinforcing our strengths in these three capabilities, which will enhance our long-term competitiveness in the industry.

The next question comes from Daisy Chen with Haitong International.

Let me translate my questions into English. In So-Young's business model, customer acquisition cost is one of our significant advantages. What is the outlook for the customer acquisition cost and marketing expenses in the future? And regarding the cost structure, can management share your views on the future trend of the consumables and the share of your cost structure?

So-Young ranks as a leader in customer acquisition efficiency. Our average customer acquisition cost is just a few hundred RMB, with over 70% of new customers coming from low-cost private domain traffic and referrals from existing customers. Private domain customers serve as a foundation for our community operations in new cities. Our referral performance is particularly strong, with a conversion rate much higher than our competitors, thanks to our incentive model that avoids aggressive sales tactics or prepaid membership cards. This creates a low-pressure environment for referrals, which lowers the barriers for new customers. In the long term, we believe that sustainable low-cost acquisition relies on our growing brand influence. As we strengthen our network in key cities like Beijing and Shenzhen, where our penetration rates are steadily improving, we will implement localized marketing initiatives targeting high-frequency areas such as subways and cinemas to increase brand visibility and customer awareness, thereby enhancing marketing efficiency. While we improve customer acquisition efficiency, we are also optimizing our cost structure by increasing the share of self-controlled offerings in our aesthetic centers. For light-based treatments, we use medical lasers that we have developed and hold exclusive distribution rights for the American BBL treatment, with new devices like picosecond lasers and radiofrequency microneedling on the way. A few years ago, we entered the upstream injectable segment and have since collaborated with manufacturers to launch new products, including skin boosters and PLLA, which are expected to receive approval in Q4 this year. Both products have exclusive distribution rights in China, giving us strong brand positioning and pricing power. Additionally, we anticipate that our two proprietary animal-derived collagen products will gain approval in 2026 or 2027, further enhancing our product pipeline. As we expand the use of our self-controlled products across our network, the percentage of consumable costs will decline. With 50 centers set for this year and a long-term goal of 1,000 centers, expanding our network will significantly strengthen our procurement bargaining power and drive down consumable costs even further.

The next question comes from Jenny Xu with CIBC.

Let me repeat in English. In traditional aesthetic centers, we believe that both doctors and center managers play crucial roles. As our network of aesthetic centers expands, do we anticipate any challenges in recruiting doctors in the future? And do we heavily depend on center managers?

Regarding doctors, there are about 40,000 in China's medical aesthetics sector, and we continue to see them transitioning from public hospitals into this field. This creates a strong foundation for our talent pipeline, especially in live medical aesthetic services where the technical requirements for doctors are easier to standardize. Newly recruited doctors can gain significant practical experience quickly and are trained efficiently. We are also dedicated to building a high-quality team. Over 130 full-time doctors have completed internships or standardized training at public hospitals, and nearly 90% specialize in dermatology. We have developed a tiered diagnosis and treatment system that aligns treatments with doctors based on their skill levels. Additionally, we are establishing regional training centers to support their professional development, along with benefits such as weekends off, social insurance, and housing fund coverage, ensuring clear career paths. So-Young remains an appealing choice for doctors. As for center managers, our organizational structure reduces the reliance on them. We operate with an online appointment booking and on-site service verification model, where center managers primarily focus on on-site management. Their performance is evaluated based on operational metrics like safety, customer experience, and consultation efficiency. Responsibilities related to marketing, product management, pricing, and recruiting doctors and nurses are managed by our specialized center operations platform, which significantly enhances the efficiency at each center. We have also created a digital dashboard that allows headquarters to monitor center operations in real time. Moving forward, we will continue to improve our digital management capabilities to further lower management costs.

The next question comes from Yiteng Li with Haitong.

Let me first congratulate you on achieving high-quality growth in the Aesthetic Center business. I would like to ask what factors will set So-Young's product strategy and planning apart from others in the future?

Our product strategy centers on anti-aging treatments, ensuring that all offerings align with this core theme for consistency. Unlike some companies that attract customers with low-priced single products and then upsell more profitable items, we focus on overall cost-effectiveness. Each treatment is designed to provide a healthy gross margin without relying on loss-making products to gain customers. We are dedicated to advancing our blockbuster strategy, aiming for a small number of core treatments to drive the majority of our revenue, focusing on the treatment level rather than individual products. Our approach resembles Sam's Club's curated bestseller model, selecting only the best options to foster repeat business and positive referrals. Moving forward, we will optimize our product portfolio and dynamically adjust our blockbuster offerings. We will keep a close eye on market demand changes, competitive trends, and new product dynamics to ensure we introduce products that meet customer needs promptly and maintain our market leadership.

The next question comes from James Young with Dawson Securities.

This is James Young from Dawson Securities. I'd like to ask about your POP business, in addition to your aesthetic center operations. Can management share any updates on future development plans for the POP business?

Our POP business has consistently been a segment with relatively high gross margins and net margins. While revenue has varied this quarter, it continues to be a vital component of the group's profitability. We will implement strict cost controls to maintain its healthy margins. As we expand our aesthetic center network, we will actively promote synergies between the POP and aesthetic center businesses. Our aesthetic centers attract a significant volume of high-quality traffic, including new customers gained through referral programs and public domain traffic. While these customers receive standardized light medical aesthetic services at our brand clinics, they also create demand for non-standardized surgical and minimally invasive procedures. We plan to develop a more refined merchant classification and rating mechanism on our platform. By analyzing user behavior and preferences, we will be able to provide targeted recommendations for high-quality POP merchants. This approach will enhance traffic monetization efficiency and generate new incremental growth for the POP business.

This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Portions of this transcript were spoken by an interpreter present on the live call.