Q4 2023 So-Young International Inc Earnings Call
Participants
Vivian Xu; Investor Relations; So-Young International Inc
Xing Jin; Co-Founder, Chairman, and CEO; So-Young International Inc
Nick Zhao; CFO; So-Young International Inc
Katrina Xu; Analyst; Citigroup
Chloe Wei; Analyst; China International Capital Corporation Limited
Presentation
Operator
Ladies and gentlemen, thank you for standing by for So-Young fourth-quarter and full year 2023 earnings conference call. (Operator Instructions) As a reminder, today's conference call is being recorded. I will now like to turn the meeting over to your host for today's call, Ms. Vivian Xu. Please proceed, Ms. Xu.
Vivian Xu
Thank you, operator, and thank you, everyone, for joining So-Young's fourth-quarter and full year 2023 earnings conference call. Joining 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 US Private Securities and Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the SEC, including our annual report on Form 20-F. So-Young does not undertake any obligation to update any forward-looking statement except as required under applicable law.
At this time, I would like to turn the call over to Mr. Xing Jin.
Xing Jin
(interpreted) Hello, everyone. Thank you for joining the call today. Despite the challenging market conditions, our business remained resilient as the new ventures we are developing continue to demonstrate significant growth potential. Total revenues increased by 21, 20% -- sorry, 20.1% year-over-year to RMB390.6 million during the quarter. Our legacy business reflected in revenues from information services and others increased by 15.8%. While new businesses reflect in revenues from sales of medical products and maintenance services increased by 50.6% during the quarter.
By carefully managing costs, we regained profitability with a net income attributable to So-Young International Inc of RMB21.3 million in 2023, a significant turnaround from a net loss attributed to So-Young International Inc of RMB65.6 million last year. In many ways, last year presented a even more challenging situation than the COVID-19 pandemic did. In this context, our financial results for the year are even more impressive and a testament to our students and its adaptability in the face of evolving consumer behaviors and market practice.
Looking back at 2023, it's evident that our differentiated strategy was key to maintaining stable growth. While e-commerce platforms and short-form video platforms prioritized the pricing of products to attach budget costs low to mid-tier users, we prioritize premium service to attract high tier users seeking quality services. This segment representing only 13% of frequent users, drive 51% of market volume. We've consistently maintained a strong competitive advantage with the segment, given our premium products and services.
Throughout the year, we further strengthen this advantage by offering high tier users their personalized services they require for high quality procedures, which also drives supports the profitability of the prominent institutions we cooperate with. Moving forward, we remain committed to this strategy as we build stronger relationships with more high-caliber doctors and institutions.
So-Young Prime made significant progress throughout the year with over 200,000 clinics visit facilitated, generating over RMB100 million in revenues for payment institutions. This translates to a significant user acquisition cost savings of roughly RMB140 million to further optimize our model, we piloted operations for a chain of clinics by establishing a model clinic for like medical aesthetics procedures. On the second floor of our headquarters last summer.
The results have been impressive. This clinic having exceptional growth. We're steadily expanding margins and monthly revenue increasing 13.8 times during the second half of this year, a kegger of 71% equally as important get it breakeven after only three months of formal operations.
Building on this success, we are now actively expanding our network by turning partner institutions into a chain of clinics. Several are already under construction with the first one's already operational. We plan to open clinics in six to seven cities throughout 2024 and will explore franchise opportunities in the latter half of this year.
Our supply chain business also continues to create opportunities for us by leveraging synergies with our other business to expand and upstream and allow the medical aesthetics supply chain, distinct from the traditional upstream R&D production supply chain model used by manufacturers. We are able to add further value by leveraging our institutional network, enhancing consumer reach. This allows us to spot emerging trends and quickly bring new products to market and to rapidly make them competitive.
To date, we have seven injectable products available on the market, one R&D center and two robust production lines. We approach each relationship with care by adopting a cautious and safe approach. Developing a healthy market for our products is key to long-term sustainability and pricing power.
Our cooperation with a Korean brand [Ravi] is a perfect example. We positioned their hyaluronic acid serum as mid-market product. And through the careful selection of partners institutions, we distribute to grow sales significantly last year. Shipments of this product increased nearly 600% with over 120,000 medical injections sold so far.
More than 750 select partners institutions also gained from this, with 500 of our core institutions seeing revenue increase by 20% last year as a result. A single SKU can generate revenue of RMB2 million for them in one campaign. We plan to add a new Ravi product to our portfolio this year and looking at other opportunities in the [NDH] category. Our current portfolio of seven products addresses demand across various segments within the highly demanded corrigent category, including [PLA] and others.
Building a strong upstream presence along the medical aesthetics supply chain requires strategic investment in detail. Through our three years of focused efforts, we have built stronger synergies between our product development pipeline, sales team, and our platform. As we secure additional product certifications, we are confident in our ability to consistently generate incremental revenue and profit growth over the long term.
We are currently undergoing a strategic business transformation, with a strong focus on the development and growth of our new ventures with these new initiatives and making promising progress and generating rapid growth. They are still in their investment phase, we are confident that these new business will become significant contributors to revenue in the coming quarters.
The medical aesthetics sector in China still presents significant growth potential. It's all adopting the right strategy. As the industry move towards greater standardization, our comprehensive vertically integrated capabilities and competitive strengths are set to become increasingly evident.
We will continue to adjust the business to create greater synergies between our business and institutions, doctors and products. This strategy focus will allow us to build more drivers and diverse -- sorry, fueled more diverse and sustainable revenue sources and a solid profit structure, ultimately delivering long-term value to our shareholders.
I will now turn the call to our CFO, Nick, to review the financial results for the fourth quarter before taking your questions. Nick, please.
Nick Zhao
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 of our comparative financial performance on a year-over-year basis.
Total revenues during the quarter were RMB390.6 million, up 20.1% year over year and in line with our guidance. The increase was primarily due to the increase in revenues generated by So-Young Prime and the sales of cosmetic injectables.
Information services and other revenues were RMB268.1 million, up 15.8% year over year, primarily due to an increase in revenues generated by So-Young Prime. Reservation services revenues decreased 20.7% year-over-year to RMB20.6 million, primarily due to the operating strategy which gave higher subsidies to end users. Sales of medical products and the maintenance service revenues were RMB101.9 million, up 50.6% year over year, primarily due to an increase in sales of cosmetic injectables.
Cost of revenues were RMB137.6 million, up 56.0% year over year. The increase was primarily due to an increase in costs associated with So-Young Prime and the sales of cosmetic injectables. Within cost of revenues. Cost of services and others were RMB94.1 million, up 73.6% year over year, primarily due to an increase in costs associated with So-Young Prime. Cost of medical products sold and maintenance services were RMB43.6 million, up 28.1% year over year, primarily due to an increase in costs associated with sales of cosmetic injectables.
Total operating expenses were RMB257.8 million, up 21.3% year over year. Sales and marketing expenses were RMB126.2 million, up 28.3% year over year, primarily due to an increase in payroll costs and the expenses associated with the branding and the user acquisition activities. G&A expenses were RMB86.7 million, up 18.4% year over year, primarily due to an increase in payroll costs associated with the expansion of our administrative employees to support our business upgrade and new strategic businesses. R&D expenses were RMB45.0 million, up 9.6% year over year, primarily attributable to an increase in payroll costs.
Income tax benefits were RMB10.8 million, which was primarily due to the impact of additional deductions for research and development expenditures compared with income tax benefit of RMB2.4 million in the fourth quarter of 2022. Net income attributable to So-Young was RMB17.5 million compared with a net income of RMB31.3 million during the same period last year.
Non-GAAP net income attributable to So-Young was RMB35.3 million compared with RMB38.8 million non-GAAP net income attributable to So-Young in the same period of 2022. Basic and diluted earnings per ADS attributable to ordinary shareholders were RMB0.18 and RMB0.18 respectively, compared with basic and diluted earnings per ADS attributable to ordinary shareholders of RMB0.29 and RMB0.29 respectively, during the same period of 2022.
For the full year 2023. Total revenue were RMB1.5 billion, up 19.1% year over year. Within total revenues. Information services and other revenues were RMB1.1 million, up 22.2% year over year. Reservation services revenues were RMB101.3 million, down 21.3% year over year. Sales of medical products and maintenance services revenues were RMB333.5 million, up 28.7% year over year.
Cost of revenues were RMB544.3 million, up 38.4% year over year, primarily due to an increase in costs associated with So-Young Prime and the sales of cosmetic injectables. Total operating expenses were RMB1.0 billion, up 4.9% year over year.
Net income attributable to So-Young International Inc were RMB21.3 million compared with a net loss of RMB65.6 million in the fiscal year 2022. Non-GAAP net income attributable to So-Young International Inc was RMB57.6 million compared to a net loss of RMB22.2 million in the fiscal year 2022. Basic and diluted earnings per ADS attributable to ordinary shareholders were RMB0.21 and RMB0.21 respectively, compared with basic and diluted losses per ADS attributable to ordinary shareholders of RMB0.61 and RMB0.61, respectively in fiscal year 2022.
We have ample cash on hand with a total cash and cash equivalents, restricted cash and term deposits, term deposits and short-term investments of RMB1.3 billion as of December 31, 2023, compared with RMB1.6 billion as of December 31, 2022. The decrease was primarily due to share repurchases of RMB125.6 million in 2023 and a RMB111.3 million increase in term deposits with maturities longer than one year.
I'd like to reiterate that our new gains businesses are currently in a critical phase of development as we support them in their early stages of growth. They are critical pieces to the foundation we are building for future growth and recognize that we are just at the start of this journey. We however, are extremely confident that they will increasingly contribute to revenues growth in the quarters ahead.
With this in mind. For the first quarter of 2024, we expect total revenues to be between RMB290 million and RMB310 million. The above outlook is based on the current market conditions that reflects in the company's preliminary estimates of market and operating conditions and the customer demand. This concludes our key remarks. I will now turn the call to the operator and open the call for QA. Operator, we are ready to take questions. Thank you.
Question and Answer Session
Operator
(Operator Instructions) Katrina Xu, Citigroup.
Katrina Xu
(spoken in Chinese) I'll translate myself. Thanks management, for taking my question. My question is about the overall outlook of the medical aesthetic market in 2024 and also the market landscape of the medical aesthetic market into the first quarter of 2024. Thank you.
Xing Jin
(interpreted) According to data from China National Bureau of Statistics, retail sales of consumer goods are gradually recovering, increasing of 6.7% year over year in January and February 2024. Consumption data from our medical aesthetics platform is also reflecting this trend, with a gradually improving macroeconomic environment and our differentiated strategy taking hold. We remain optimistic about the growth prospect of the medical aesthetics industry in 2024 and over the long-term.
The Chinese medical aesthetics industry is maturing. Structural changes in consumer behavior are driving tremendous shift in demand. As consumers mature, the market is trading away from low frequency and high perception value towards high frequency, high quality, and diversification. As a result, implements platform and medical institutions are shifting their focus upstream and towards acquiring diverse traffic. Competing on pricing will no longer be an option to attract the premium users. The old model will lower the value proposition of products and services and a lead to a smaller shelf of wider market.
In 2024, these market shifts will continue. As a result, we will focus on refining our three business and further consolidate the positioning of our platform in the market. We will do this by upgrading our community pub business and adding high end customized services catering to top tier uses by adopting a depreciated operating strategy from our peers. So-Young Prime will focus on offering the best quality to cost ratio for mid-tier users, and our upstream business will support both of these platforms and user growth, capturing opportunities in the light medical aesthetics market and expanding margins. Thank you.
Operator
[Bai Han], CITIC Securities.
(spoken in Chinese) I'd like to ask what are your thoughts on the recent suspension of medical aesthetics live broadcasting? And where do you think the regulation trending are going forward? Thank you.
Xing Jin
(interpreted) The medical aesthetics market continues to be regulated scrimpily. For any new marketing models that are deployed, regulators will require an observation period where they can stop any behaviors that breaks the medical and law. We believe medical aesthetics marketing will continue to be restricted to a few channels approved by regulators such as search engines and e-commerce. This regulatory trend actually benefits us indirectly, as a value proposition of our existing legal marketing channels become more pronounced.
We maintain our belief that a healthy market is a foundation for long-term growth and value creation for our company. We will focus our attention on the supply side of the market going forward, by integrating the core production advantage we have accumulated in terms of institutions, doctors, and users. This will also allow us to set standards for service quality and the delivery, ensuring users receive a premium experience. These comprehensive capabilities will enable us to build a strong competitive barrier. Unlike pure Internet business model, we are in a position to solve issues at deeper level, creating a differentiated model from our competitors. Thank you.
Operator
Chloe Wei, CICC.
Chloe Wei
(spoken in Chinese) Okay, let me translate myself. So my question is concerning So-Young Prime. Could management maybe share some more about the P&L contribution revenue and margins and what we have in 2023 and what we should expect in 2024?
Also could management share some color on the playbook in different cities in China, since we are looking at more chain clinics in operation by the end of 2024. How should we expect the pace and investments Thank you.
Xing Jin
(interpreted) In So-Young Prime completed this strategic transformation into an asset-light, highly efficient platform, and operational model, which help us to make - take the lead in the surgery and light medical aesthetics sector. The model clinic we opened last August is a logical next step of our previous cooperation with institutions and their products.
We gathered an experienced colleague operating team to promote development of a standardized measurement system for light medical aesthetics institution that takes advantage of our supply chain innovative capabilities. Our model clinic is key to breakeven after only three months for formal operations, which reflects our strong reputation among medical aesthetics users and has strengthened our confidence to begin exploring franchising opportunities.
In 2024, we plan of opening more than 10 clinics in six cities national wide. Each location has been selected based on data from our cooperation with institution, strict operational requirements, profitability, and the deep market research. That's all, thank you.
Operator
[Joe Tan], Jefferies.
(spoken in Chinese) Let me translate myself. This is Joy from Jefferies on behalf of Thomas Chong. My question is, can management share with us the outlook for the upstream supply chain business? Thank you.
Xing Jin
(interpreted) Thank you for your question. We plan to launch a new small business in 2024 and also add a new NDH product sourced through our supply chain business. In addition, from 2025 in the light and non-data corrigent category, we will launch various products, including PWLA, which will establish a strong presence for us in this vertical.
With three years of operational experience, the synergies between our product developments pipeline, sales team, and platform are now rapidly strengthening. We expected to add more products and continuously generate incremental revenue and profit growth from the supply chain business. Thank you.
Operator
[Yves Lee], Haitong Securities.
(spoken in Chinese) Let me translate myself. Thank you, and good evening management. Here I have a question about the profit margin, and I would like to know what's the reason for the year-over-year decrease in gross margin and what will your margin trend going forward? Thank you.
Nick Zhao
(spoken in Chinese) Okay, I will translate myself. The decrease in gross margin was mainly due to the changes in revenue mix. In Q4 2023, our sales of information and reservation services maintained high margins compared to those for sales of medical products and maintenance, which was lower. While revenue from new business such as So-Young Prime, have already demonstrated their potential. It is still in the early stages of development with a lower gross margin.
As we strategically expand our presence along the medical aesthetics value chain, each of those new businesses are expected to increasingly contribute to our bottom line. As the synergies created by our presence, both upstream and downstream strengthen, the profitability of our business overall is expected to improve in the mid to long term. Thank you.
Operator
We are now approaching the end of the conference call. Thank you for your participation in today's conference. You may now disconnect. Have a good day.
Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.
