So-Young International Inc. (NASDAQ:SY) Q4 2023 Earnings Call Transcript
So-Young International Inc. (NASDAQ:SY) Q4 2023 Earnings Call Transcript March 20, 2024
So-Young International Inc. beats earnings expectations. Reported EPS is $0.35, expectations were $0.02. SY isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for standing by for So-Young's 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 U.S. 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 statements, except as required under applicable law. At this time, I would like to turn the call over to Mr. Xing Jin.
Xing Jin: 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 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 business reflect in revenues from sales of medical products and maintenance services increased by 50.6% during the quarter. By carefully managing cost, we regained profitability with net income attributable to So-Young International Inc. of RMB31.3 million in 2023, a significant turnaround from net loss attributable to So-Young International Inc.
of RMB65.6 million last year. In many ways, last year presented even more challenged situation than the COVID-19 pandemic did. In this context, our financial results for the year are even more impressive and attachment to our students and adaptability in the face of evolving consumer behaviors and market practice. Looking back at 2023, it's evidence 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 cautious low-to-mid tier users, we prioritized the premium service to attract high-tier users seeking quality services. This segment represented only 13% of frequent users, drives 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 strengthened this advantage by offering high-tier users, the personalized services they required for high-quality procedures which also drives support the probability of the partner institutions we corporate with. Moving forward, we remain committed to the strategy as we build stronger relationships with more high collaborative [ph] doctors and institutions. So-Young Prime made significant progress throughout the year with over 200,000 clinics visit facilitate, generating over RMB100 million in revenues for partner institutions. This translates to significant user acquisition cost savings of roughly RMB140 million [ph]. To further optimize our model, we piloted operations for a chain of clinics by establishing a model mix for light medical aesthetics procedures on the second floor of our headquarters last summer.
The results have been impressive. These clinics have been exceptional growth with steadily expanding margins and monthly revenue increasing 13.8x during the second half of this year, a CAGR of 71%. Equally as important, it hit breakeven of only 3 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 ones already operational. We plan to open clinics in 6 to 7 cities throughout 2024 and will explore franchise opportunities in the later half of this year. Our supply chain business also continues to create opportunities for us by leveraging synergies with our other business to expand upstream around the medical aesthetic 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 and enhancing consumer reach. This allow us to support emerging trends and quickly bring new products to market and rapidly make them competitive. To date, we have 7 injectable products available on the market, 1 R&D center and 2 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 Korea band, Elravie, is a perfect example. We positioned their hyaluronic acid program that's a mid-market product and through the careful selection of partner institutions, we distributed to gross sales significantly last year.
Shipments of this product increased nearly 600% with over 120,000 medical injections sold so far. More than 750 select partner 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 planned to add a new Elravie product to our portfolio this year and looking at other opportunities in the anti-aging category. Our current portfolio of 7 products addresses demand across various segments within the highly demanded collagen categories, including [indiscernible] and others. Building a strong upstream presence along the medical aesthetics supply chain requires strategic investment and lead time. Through 3 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. While these new initiatives are making promising progress and generating rapid growth, they are still in their investment phase. We are confident that this new business will become significant contributors to revenue in the coming quarters. The medical aesthetic sector in China still presents significant growth potential is all adopting the right strategy. As the industry moved towards greater standardization, our compressive vertically integrated capabilities and the 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, build 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 over to our CFO, Nick, to review the financial results for the fourth quarter before taking your questions. Nick, please?
Hui 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 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 the 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 branding and 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 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 benefits 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 billion, 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 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 for 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 equivalent, 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 RMB111.3 million increase in terms deposits with maturities longer than 1 year. I'd like to reiterate that our new 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 revenue 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 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.
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