Earnings Call Transcript - YSG Q3 2021

Operator, Operator

Ladies and gentlemen, good day and welcome to the Yatsen Third Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Irene Lyu, Head of Strategic Investments and Capital Markets. Please go ahead.

Irene Lyu, Head of Strategic Investments and Capital Markets

Thank you, operator. Please note the discussion today will contain forward-looking statements relating to the company's future performance and are intended to qualify for the Safe Harbor from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect Yatsen's business and financial results is included in certain filings of the company with the Securities and Exchange Commission. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. Joining us today on the conference call from Yatsen's senior management are Mr. Jinfeng Huang; our Founder, Chairman and CEO; and Mr. Donghao Yang, our Director and CFO. Management will begin with prepared remarks and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on Yatsen's Investor Relations website at ir.yatsenglobal.com. I will now turn the call over to Mr. Jinfeng Huang. Please go ahead.

Jinfeng Huang, Founder, Chairman and CEO

Thank you, Irene, and thank you everyone for joining today's conference call. Our net revenue grew by 6% year-over-year to RMB 1.3 billion in the third quarter, in line with our guidance. We made significant progress with our skincare brands in the quarter, which increased to approximately 15% of total gross sales, compared to around 14% during the prior quarter and around 5% during the same period last year. Since the premiumization of the Perfect Diary brand and an increase in skincare sales, our gross margin increased by 2.2 percentage points year-over-year to almost 58%. We saw a significant deceleration in general consumer and color cosmetics spending in China this quarter. According to the China National Bureau of Statistics, general consumer retail spending and beauty retail spending each recorded year-over-year growth of approximately 5% in the third quarter, with even slower sales growth in Tmall’s color cosmetics category. The industry-wide slowdown extended into the Singles' Day promotion period between November 1 and November 11, 2021, during which color cosmetics sales on Tmall fell by low single digits compared to the prior year. This industry trend is historical in nature, driven by macroeconomic uncertainty and the unusual seasonality pattern caused by the COVID-19 pandemic last year. Our business is undergoing significant changes. Gross sales from our color cosmetics brands, which make up approximately 84% of total gross sales, decreased by mid-single digits year-over-year in the third quarter. These results were mainly due to our continued realignment of Little Ondine, partially offset by the steady performance of Perfect Diary and Pink Bear. Gross sales from our skincare brands, which include Abby's Choice, DR. WU, Galenic, and Eve Lom, grew by around 257% on a year-over-year basis. The majority of this quarter's sales come from color cosmetics. This factor inevitably slowed the group's overall growth. Despite these changes, we remain one of the largest publicly listed pure-play beauty companies in China by revenue size during the third quarter. Perfect Diary was once again the largest color cosmetics brand on Tmall channels in terms of sales, and Tmall ranked Pink Bear as the number one new domestic brand in color cosmetics during the November Singles' Day event. Even Lom and DR. WU sales on Tmall grew by 100% and 1,400% respectively, while Galenic's visitor in geo product was the top-selling imported facial series during the Singles' Day period. Overall gross sales from our skincare brands grew by around 477% compared to the prior year Singles' Day period, underscoring the strength of our skincare business this year. As we look to the near future, we are committed to sharpening our growth model, which is underpinned by three pillars: continued investments in our brand equities, commitment to developing world-class R&D capabilities, and focus on sustainable growth. We expect the implementation of these growth initiatives to take multiple quarters to produce results, but we believe we are on the right path to future success. We have seen positive results from our efforts to upgrade and refine the Perfect Diary brand. At the China Cosmetic Conference, known as the Davos Forum of the beauty industry, the 2021 Business Growth Awards named Perfect Diary as the most influential brand for the second consecutive year, a strong endorsement of our continued innovation. We introduced several effective new products in the third quarter, such as the Stiletto Lipstick with halo color and unique microsphere wrapping technology, and the red new lip stain with the ever stain technology. To bolster our leading position in the color cosmetic area, we also unveiled a series of new products through IP crossovers and collaborations with well-known brands in other fields such as the owner of King Eyeshadow Palette and a kit yoga gift box. Furthermore, well-known Chinese celebrities teamed up with internationally acclaimed Chinese actress Joe Chen to serve as the joint spokesperson for Perfect Diary, further strengthening our brand recognition. Now, let's look at other brands. Little Ondine continues to gain traction among young consumers, specifically powered by new product launches such as our IP crossover and the opening of our first offline physical stores in Shanghai TSF Mall in September. Building on our momentum from last quarter, we also continued to invest in our Pink Bear brand. In the third quarter, we developed a new lip gloss using ThinTouch technology as well as a new eyeshadow collection, which resonated strongly with Pink Bear's diverse young community. Pink Bear also engaged Chinese singer and actress Han Xue as its spokeswoman, reinforcing Pink Bear's positioning as the brand of choice for young girls. Now turning to our skincare category. We completed several integration initiatives for Galénic and Eve Lom during the first half of the year and began to ramp up both brand marketing and branding activities in the third quarter. In early September, we appointed Chinese Supermodel He Sui and famous Chinese actor Yang Yang as Galénic and Eve Lom's brand ambassadors respectively, accompanied by high-profile publicity and media events. Given that prestige brand building takes patience and effort, we expect to continue investing in branding and marketing for these two brands while steadily adding new core SKUs in the product categories over time. On the R&D front, we increased R&D expenses to 2.7% of total net revenues in the third quarter compared with 1.1% in the prior period. We also established an innovative skincare laboratory with Ruijin Hospital's dermatological department as well as an R&D collaboration platform with Sun Yat-sen University during the quarter. Ruijin Hospital, part of the Shanghai Jiaotong University School of Medicine, is a Grade III level general hospital with an enormous 100-year history. Its dermatology group department is a nationally renowned clinic specializing in the diagnosis and treatment of refractory skin disease. Our three-year joint R&D program with Sun Yat-sen University will focus on efficacy, new ingredients, and formulas to address specific skin issues. Our collaborations with these two esteemed research institutions will significantly bolster our open lab R&D capabilities. Additionally, during the third quarter, we completed our investments in Huizhi Weimei, an innovative company focusing on R&D of micro-ecological skincare products. Founded in 2018, Huizhi Weimei owns Yanteen, a micro-ecological skincare brand endorsed by dermatologists. By leveraging our online and offline resources as well as open lab R&D capabilities, we will further promote the development of Yanteen. The quarter also included an investment in biotechnology, a cutting-edge company focusing on developing industry-leading pharmaceutical products with a product pipeline covering medical accessories, innovative duty jobs, cell therapy, and small molecule immuno-oncology. With this investment, we intend to stand at the forefront of developing cutting-edge biomedical technology for future potential applications in the field of beauty. Lastly, the final key of our evolutionary strategy is our framework for sustainable growth, which encompasses both sales growth and cost optimization elements. In the near term, we plan to focus on increasing sales contribution from our Masstige and Premium skincare brands, such as DR. WU, Galénic, and Eve Lom, which provide excellent gross margins and higher quality growth. Meanwhile, we will seek opportunities to increase sales contribution from non-traditional channels, where we see room for sustainable growth and incremental sales penetration. In terms of cost optimization, we aim to continue to improve our performance-based marketing ROI and shift more resources to branding investments. While we may sacrifice certain low-quality growth in the short term, we believe this optimization strategy will enable us to build brand equities across our portfolio and sustainably reduce sales and marketing spend over time. We also plan to optimize our fulfillment and G&A expenses in the near future to align with our new growth strategy. We expect that these initiatives will enable us to achieve sustainable growth with a near path to profitability in the medium to long run. In closing, before I hand it over to Donghao, I would like to reflect on the journey that has brought us here. Yatsen celebrated its fifth birthday in September. While I'm proud of our team's achievements since Yatsen's founding, I remain as determined as on day one to ensure Yatsen's continued success in the next stage of its development. Our focus on sustainable growth will entail some short-term adjustments and may take time to produce results, but we are confident that this is the right moment in Yatsen's development for this essential shift. As we navigate this period of unprecedented challenges, we are optimistic about Yatsen's future. To further demonstrate our confidence in the company's prospects, our Board of Directors has authorized a US$100 million share repurchase program to be completed over the next 24 months. Thank you everyone. With that, I will now turn the call over to our CFO, Donghao Yang, to discuss our financial performance.

Donghao Yang, CFO

Thank you, David, and hello everyone. Before I get started, I would like to clarify that all financial numbers presented today are in renminbi amounts and all percentage changes refer to year-over-year changes unless otherwise noted. Total net revenues for the third quarter of 2021 grew by 6% to RMB1.34 billion from RMB1.27 billion in the prior year period. The growth was primarily attributable to increased sales from our newly launched and acquired brands. Gross profit for the third quarter of 2021 increased by 9.6% to approximately RMB911.8 million from RMB831.6 million in the prior year period. Gross margin improved by 2.2 percentage points to 67.9% in the third quarter of 2021, compared with 65.7% in the prior year period mainly due to increased sales from higher margin brands and products. We have also seen an increase in sales from our skincare brands this quarter enabling us to achieve higher average order value and better margin. Total operating expenses for the third quarter of 2021 decreased by 13.2% to RMB1.28 billion from RMB1.48 billion in the prior year period. As a percentage of total net revenues, total operating expenses decreased to 95.4% from 116.6% in the prior year period. Fulfillment expenses for the third quarter of 2021 were RMB100.2 million, compared with RMB91.5 million in the prior year period. As a percentage of net revenues, fulfillment expenses increased to 7.5% from 7.2% in the prior year period, primarily due to an increase in customer service expenses and share-based compensation expenses compared to the third quarter of 2020, partly offset by a slight decrease in fulfillment logistics expenses. Selling and marketing expenses for the third quarter of 2021 were RMB911.3 million compared with RMB864.3 million in the prior year period. As a percentage of total net revenues, selling and marketing expenses were 67.9% compared with 67.5% in the prior year period. However, on a non-GAAP basis, which excludes expenses related to share-based compensation and amortization of intangible assets, selling and marketing expenses were 64.9% of total net revenue compared to 67.5% in the prior year period. This was a result of our focus on improving our selling and marketing expenses ROI. General and administrative expenses for the first quarter of 2021 were RMB233.9 million compared with RMB515.9 million in the prior year period. As a percentage of total net revenue, general and administrative expenses for the third quarter of 2021 decreased to 17.4% from 40.7% in the prior year period. The decrease in percentage was primarily due to lower SBC expenses compared to the same period last year, partly offset by an increase in salaries. Research and development expenses for the third quarter of 2021 were RMB35.8 million compared with RMB14.4 million in the prior year period. As a percentage of total net revenue, research and development expenses for the third quarter of 2021 increased to 2.7% from 1.1% in the prior year period. The increase was primarily due to higher personnel costs and share-based compensation expenses reflecting our commitment to enhancing our R&D capabilities. Loss from operations for the third quarter of 2021 decreased by 42.7% to RMB369.3 million from RMB644.6 million in the prior year period. Operating loss margin was 27.5% compared with 50.9% in the prior year period. Non-GAAP loss from operations for the third quarter of 2021 increased by 11.9% to RMB221.7 million from RMB198.1 million in the prior year period. Non-GAAP operating loss margin was 16.5% compared with 15.6% in the prior year period. Net loss for the third quarter of 2021 decreased 43.8% to RMB361.8 million from RMB643.8 million in the prior year period. Net loss margin was 26.9% compared with 50.8% in the prior year period. Non-GAAP net loss for the third quarter of 2021 increased by 9.6% to RMB216.3 million from RMB197.4 million. Non-GAAP net loss margin was 16.1% compared with 15.6% in the prior year period. Net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the first quarter of 2021 decreased to RMB0.57 from RMB6 in the prior year period. Non-GAAP net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the third quarter of 2021 decreased to RMB0.34 from RMB1.2 in the prior year period. Looking at our business outlook, for the fourth quarter of 2021, we expect our total net revenues to be between RMB1.57 billion and RMB1.67 billion, representing a year-over-year decline of approximately 15% to 20%, primarily. As David mentioned earlier in the call, we expect the high comparison base and our future emphasis on higher quality growth to factor into this projected performance. This forecast reflects our current and preliminary view on the market and operational conditions, which is subject to change. The Company's Board of Directors has approved a share repurchase program whereby the Company is authorized to repurchase up to US$100 million worth of its ordinary shares over the next 24 months. The Company's proposed repurchases may be made from time to time through open market transactions at prevailing market prices, in privately negotiated transactions, in block trades and/or through other legally permissible means, depending on the market conditions and in accordance with applicable rules and regulations. The Company's board of directors will review the share repurchase program periodically and may authorize adjustment of its terms and size. The Company expects to fund the repurchases with its existing cash balance. As of September 30, 2021, the Company had cash and cash equivalents and restricted cash of RMB3.63 billion, compared with RMB5.73 billion as of December 31, 2020.

Operator, Operator

Thank you. We will now start the question-and-answer session. The first question comes from Dustin Wei with Morgan Stanley. Please go ahead.

Dustin Wei, Analyst

Thanks for taking my questions. First question regarding guidance for the fourth quarter. So this 15% to 20% year-on-year decline, is there any one-off adjustment in terms of, for example, the store closure for Perfect Diary brands, or further sort of reduction of SKU regarding Little Ondine or Abby's Choice? Question number two, regarding the outlook for next year. So based on the current assessment for the macro industry dynamics, I remember last call, we kind of talked about like 20% to 30% year-on-year growth without considering the acquisition, could be sort of the range to look at for next year. But what's the refreshed view for next year? The third question regarding competition. So it seems like the global brands, especially, the prestige color cosmetics are coming back in terms of the ranking and the growth rate. So what's management's view on that? Thanks a lot.

Donghao Yang, CFO

Thanks, Dustin, for your questions. Well, in our guidance, of course, there will be some one-off expenses regarding the closure of some of our non-performing stores, but that's not going to be a major factor in our guidance. Our guidance, as we stated in our statement, reflects our current view on our business performance for the next quarter. So I don't think there are any particularly large one-off items included in the guidance. Your second question about next year's projections. Well, actually, we do not provide guidance for the full year next year. The only guidance we give is for the following quarter. But, again, as we said earlier in the call, the market environment is changing rapidly, including the competition. As we mentioned in question number three, competition from overseas brands is intensifying, and there have been dramatic changes in the retail sales channels that we have to deal with. So I don't think we're in a position to provide any specific guidance for the full year next year. Competition, well, I think the competition from those overseas brands is intensifying, especially during the 11.11 shopping festival. What we've seen is that many of the prestige foreign color cosmetics brands have offered deep discounts for their products. Part of the reasons is probably that a lot of them are global companies and their sales are declining anywhere else outside of China. So China is probably the only place where they can generate some meaningful sales. For example, there is one brand, I'm not naming it here, but that brand used to be in the masstige segment. However, during the 11.11 shopping festival, they offered deep discounts, kind of like buy one, get one free type of deals to generate more significant sales through big discounts.

Jinfeng Huang, Founder, Chairman and CEO

Sure. Thank you. The first thing is about the competition. During the Singles' Day, we saw very aggressive promotion and discount tactics adopted by global brands. These global brands have booked a lot of loss with the top tier house, like Austin Li and Avera, who dominated the remaining traffic and GMV at Tmall. The combination of both factors significantly impacted our sales during Singles' Day. If you look at the top 10 beauty brands in Tmall's Singles' Day promotion, there were no color cosmetic brands in the top 20 brands. Last year Perfect Diary was ranked 11th. I think that's a very important factor reflecting the very deep promotion on skincare brands and the traffic mainly gained by Austin Li and Avera. Looking forward, we don't see a sustainable positive trend year-over-year from the global brands because it will significantly hurt their premium brand image. After Q4, over the past week or two, we see global brand sales returning to normal. Currently, for our brands, we are trying to gain more shares following the Singles' Day promotion. Regarding next year's growth guidance, we are not able to provide an exact number here. What I want to emphasize is that the whole company is pursuing a transition strategy, which means we are improving our sales in skincare brands. Skincare brands are taking almost 14% of revenue in Q3, and that number will likely increase to almost 20% in Q4. Looking ahead, we believe the percentage of skincare sales will continue to increase next year. The high growth rate of skincare brands will also support the company's growth toward normalization. However, I think it may take a few quarters to achieve that, so investors need to be patient about what we are doing because we believe it's the right path to follow.

Dustin Wei, Analyst

Okay. Thanks a lot for sharing. Indeed, that's quite a challenging environment. Best of luck. Thank you very much.

Jinfeng Huang, Founder, Chairman and CEO

Thank you so much.

Operator, Operator

The next question comes from Stephen Yang with Goldman Sachs. Please go ahead.

Stephen Yang, Analyst

Thanks for the sharing of that, management. So I have two questions. One is on buyback. Would you mind sharing more color regarding the rationale behind the buybacks and the timing? Also, what does the management think about, on a forward-looking basis, the cash usage? Whether it's going to be used more on buybacks or more M&As, etc.? The second question is regarding the efficacy regulation. Does management foresee any impact from the new asset efficiency regulation on product launches or any change in your competitive dynamics? Thank you.

Irene Lyu, Head of Strategic Investments and Capital Markets

Yes. For the first question regarding buybacks, our current market cap is undervalued. Given what we're seeing with our transition, which may take several quarters to show results, we're very confident in the company's long-term prospects. We think it's a great time to start a buyback program with the existing cash balance, considering that we still have ample cash reserves. Regarding timing, as mentioned earlier, the Board has authorized a buyback of up to US$100 million for the next two years, and we will see how the market conditions develop. For the second question on regulation, I think David can take that part.

Jinfeng Huang, Founder, Chairman and CEO

Yes, sure. Overall, we have been discussing with the regulators and the related government departments and leaders in the past few months. Looking at the regulation trend, more regulations are expected to come out in the coming quarters. The key reason behind this is that the government is trying to regulate the industry and guide the development for future product launches and brand development. Regarding the new efficacy regulation you mentioned, we are closely collaborating with government officials and our OEMs and ODMs to meet the new regulatory developments. In order to lead in this area, we are taking new initiatives to strengthen our product efficacy testing. As I mentioned earlier, we are committing more resources to R&D. One of our initiatives will be to strengthen clinical testing for our products before their market launch. Our collaboration with the Ruijin Hospital will greatly support us in establishing our R&D capabilities and product efficacy profiling in the dermatological skincare area. We believe that by focusing on stringent efficacy testing, we can set ourselves apart in the industry.

Stephen Yang, Analyst

Yes. Thanks, management. If I may have a follow-up question regarding the ROI on selling expenses, we see a significant year-over-year improvement. What is your perspective on the overall color cosmetics industry-wide ROI trend going forward? Is it trending upwards or downwards? Thank you.

Jinfeng Huang, Founder, Chairman and CEO

The ROI for skincare is overall higher than for color cosmetics. If we look at the non-GAAP sales and marketing expenses in Q3, we can see a decline there. One key reason is that we are continuously optimizing the ROI for our existing brands. Moving forward, with our ongoing investment in the skincare brands and optimization of sales channels for our brand portfolios, we anticipate improvements in that area as well.

Operator, Operator

The next question comes from Luzi Li with Bank of America. Please go ahead.

Luzi Li, Analyst

Hi, management. Thank you for taking my questions. My first question is, do we have a breakdown for Q3 or for Q4 today about the channel? You mentioned that we might invest more in unconventional channels. I would like to get a sense of the latest breakdown. My second question is, you just mentioned that it may take several quarters to see some transition results. How do we define transition results? Are we looking at sales returning to positive growth or some measurable level of sales growth? Or are we focused on achieving breakeven on the bottom line? What is our priority and timetable? Is it next year or even longer term? My third question is also about the SG&A ratio, specifically the selling and marketing expense. What is the fixed cost component? Thank you.

Jinfeng Huang, Founder, Chairman and CEO

The first question about the sales channel breakdown: currently, I believe Tmall is around 40% of total sales, and we see the percentage declining. In contrast, our percentage in live streaming, especially on Douyin, is increasing. Looking forward, we think this trend will continue. However, in the past three months, we implemented initiatives to optimize our sales on Douyin. Douyin is becoming a very important factor for brand growth. We see the first stage of Douyin sales mainly coming from discounts. For skincare brands, this has provided substantial benefits. If you look at Perfect Diary's ranking in Douyin, it is growing quickly, currently ranking around number three or four in color cosmetics—the growth rate is higher than that of other brands. We are committed to continuing our investment in that channel, and we expect Douyin's contribution will continue to increase. Regarding your second question about brand focus, we have shared that we are modifying our strategy to dedicate more resources to skincare development. In the past Singles' Day, our skincare growth was robust, with nearly 500% growth compared to last year. We believe skincare brands will contribute a larger percentage to our overall revenue. Our concentration is on premium brands like Galénic, Eve Lom, and DR. WU. The three brands are on trend. We expect further growth in DR. WU, with plans to launch two or three hero products in the next year. For Galénic, we anticipate an increase in sales once we resolve supply chain challenges. We're also planning to boost our product line with additional SKUs. As for Eve Lom, the cleanser remains strong, with no competitors in the premium cleanser category. We will continue to expand product categories for Eve Lom as well. Regarding the SG&A ratio, we can discuss fixed costs in greater detail if needed.

Operator, Operator

The next question comes from an unidentified analyst with CICC. Please go ahead.

Unidentified Analyst, Analyst

Thanks for taking my questions. My first question regarding profitability: it seems that the promotion of Perfect Diary increased during Singles' Day. I wonder if there is any pressure on the company's fourth quarter gross margin and operating margin? The second question regarding the industry outlook: how does management see the color cosmetics market in the next three years and the future of domestic color cosmetics brands? Thank you.

Donghao Yang, CFO

Go ahead, Jinfeng.

Jinfeng Huang, Founder, Chairman and CEO

For Q4, if you look at the percentage of sales through live streaming, the percentage of Perfect Diary is low for total revenue. The AOV of Perfect Diary has actually increased during the past Singles’ Day, so we do not expect challenges to our gross margin. Regarding your second question about the outlook for the color cosmetics market, if you look at the past Singles' Day promotion, as I mentioned, we saw no color cosmetic brands in the top 20. We remain confident about the growth of color cosmetics, mainly driven by two factors: increased penetration and premiumization. However, we do believe the recent aggressive discounts from global brands will not be sustainable over the coming quarters, and we anticipate consolidation in the color cosmetics market.

Operator, Operator

The next question comes from Helen Xu with CITIC Securities. Please go ahead.

Unidentified Analyst, Analyst

Good evening. I have three questions. First, if we broaden our view outside Yatsen's brands to all DTC internet new brands, what are the reasons for DTC brands experiencing weak growth, or even shrink? Second, how can we improve customer loyalty towards our brands, especially makeup? Third, how long can our cash support our business considering the operating cash flow and potential M&A? Thank you.

Jinfeng Huang, Founder, Chairman and CEO

The first question regarding DTC makeup brands: the key reason for the overall trend is not just limited to DTC makeup brands; the entire makeup market has slowed down in Q3 and the Singles' Day promotion. One part of the slowdown was due to the seasonality caused by COVID-19. Q3 and Q4 last year were high bases when consumers increased spending after COVID. That explains our conservative guidance for Q4 as well. Moving forward, in terms of customer loyalty, there are several actions we can undertake. First, on the R&D front, in recent quarters we launched a Pearl loose powder supported by Smartlock Technology, developed with Guangzhou Yiyan. With the product's performance driven by technology, we believe we will see strong growth. Second, we are expanding into bases and foundations beyond our previous focus on lip and eye categories, which is essential for customer loyalty. We will invest in new initiatives and track their effectiveness. Regarding cash, I will hand over to Irene.

Irene Lyu, Head of Strategic Investments and Capital Markets

Regarding your third question on cash and potential M&A: currently, we have RMB3.6 billion in cash at the end of Q3, which we believe is sufficient to meet our operating needs for the near future, including our medium-term buyback goal, as we aim to improve profitability and eventually break even. We do not foresee the company needing external cash for long-term operations. Concerning M&A, we are continuously assessing opportunities and recently acquired a very small skincare brand focusing on microbiome products endorsed by dermatologists. Given the uncertainties in the China economy and beauty industry, we currently focus on small- to medium-sized transactions that show high potential, rather than larger deals. We feel our cash levels sufficiently support new M&A opportunities moving forward.

Unidentified Analyst, Analyst

Okay. Thank you.

Irene Lyu, Head of Strategic Investments and Capital Markets

Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Yatsen directly or TPG Investor Relations. Our contact information for IR in both China and the US can be found on today's press release. Thank you again and have a great day.

Jinfeng Huang, Founder, Chairman and CEO

Thank you.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.