So-Young International Inc (SY) 2025 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by for So-Young's third-quarter 2025 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. Mona Qiao. Please proceed, Mona.

Thank you, operator, and thank you, everyone, for joining So-Young's third-quarter 2025 earnings conference call. Joining me today on the call is Mr. Xing Jin, our Founder, Chairman and CEO; and Mr. Nick Zhao, CFO.

Before we begin, please refer to the safe harbor statement in our earnings release, which applies today's call, and we will 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 SEC.

At this time, I'd like to turn the call over to Mr. Xing Jin.

(interpreted) Hello, everyone, and welcome to today's earnings call. In Q3, we continued to advance the strategic build-out of our branded aesthetic business, while in the foundation of early development and operating systems. Our long-term investments in the aesthetic center businesses are increasingly translating to a stable operating results.

Total revenue for the quarter was RMB387 million, including RMB184 million from the aesthetic center business, up 305% year-over-year and approximately 8% above the high end of our guidance.

This performance also fueled our year-over-year top line growth momentum. This quarter, net loss attributable to So-Young increased, mainly due to a sequential decrease of RMB31 million in revenue from business other than the aesthetic center business. We remain confident that these revenues will stabilize in Q4.

Since launching So-Young's clinic large medical aesthetic chain last year, we have continuously enhanced its standardization at digital management while improving central level efficiency and service quality. After one year, our brand now operates the largest number of centers nationwide among large medical aesthetic chains with a total number of 42 centers as of today, including 41 directly operating centers and one franchise center.

We remain on track to reach our year-end target 50 centers. As of September 30, cumulative service visits exceeded 600,000 among mass market chain brand in China in terms of service volume. Going forward, we will continue to expand our aesthetic center network in a disciplined manner and drive healthy sustainable growth through a higher standard system and deeper right equity.

Now let me walk you through our Q3 operational highlights. on the branded aesthetic center business builds upon the strong growth momentum. In Q3, revenue reached RMB184 million, up 26% quarter-on-quarter and 305% year-over-year, further solidifying its role as the core of our business. As of September 30, So-Young Clinic operates 39 centers across 10 cities.

Operational efficiency continued to improve with 20 centers achieving center level profitability in Q3, including all 14 mature centers. In addition, 29 centers generated positive operating cash flow during the quarter. The scale of users and service volumes are also expanding. As of September 30, total number of active users of So-Young clinic exceeded 130,000. Total number of verified treatment visit surpassed 89,800 in the quarter, up 33% quarter-over-quarter and 280% year-over-year with total number of verified aesthetic treatment performed surpassed 194,700, up 26% quarter-on-quarter and 296% year-over-year.

New customers continued to grow driven by referrals since our customer acquisition efficiency remains industry-leading levels. Our per capital sales remains at a low level and decreased quarter-on-quarter. In Q3, the proportion of new customers acquired therefore rose to 46%. We also deepened cooperation with platforms such as further improving brand exposure and user conversion through targeted advertising and content setting. New customers from public domain channels increased 38% quarter-on-quarter with continued optimization and public domain customer acquisition costs.

We have upgraded our membership system during the quarter. So tiered operations benefits, incentives and personalized services, we increased user retention and customer lifetime value. In Q3, core members defined as user and level three and above grew by over 10,000, up 40% quarter-over-quarter. These core numbers continued a high double-digit percentage of revenue and nearly 70% quarterly repurchase rate. Customer satisfaction score remain at a high level of 4.99 out of 5. Our user structure continues to evolve to higher loyalty and related purchases.

We continue to refine our products, focusing on premium products with repeat purchase rates at word-of-mouth. In Q3, we optimized our product portfolio and double down on refined operations for key offerings. By the end of September, we preannounced the launch of Miracle PLLA version 3, which delivered robust presales performance with over 1,300 orders completed within two days. Under A1 order per customer limit.

For energy-based device treatments as they exclusive distributor of BBL treatment in China, we made BBL, our highest penetration blockbuster offer in Q3, and we will continue to drive its growth in Q4. Overall, revenue contributions from blockbuster products rose to over 30%. And this core offerings continue to unlock growth momentum, we are opening greater room for synergies with supply chain.

As our business expands, we continue to prioritize health care quality and procedural compliance. In Q3, we fully upgraded our quality control network, building a 60% client framework, including our clients, lead control supervision, internal audit, medical service delivery and information security department. This reinforces across the medical service process.

In Q3, we completed 55 centers inspections and emergency drills. By the end of the third quarter, our physician team exceeded 150 recognized by counteractive large medical chamber-wise nationwide. All doctors have completed ownerships or training at public hospitals and post our unified training and assessment, ensuring a consistent and reliable medical service experience across every center.

Our business practices received recognition from mainstream media. In October, people stay online published a special commentary noting that So-Young is starting an example for the rational development of the industry through discplined operations, pricing and compliance management. We believe the industry landscape is shifting from marketing-driven to just driven. We will continue to uphold transparency of standardization and inclusive access to build a service system that truly boost customer guarantee.

We continued to strengthen our medical aesthetic supply chain. In Q3, shipments of USP exceeded 59,800 units, up above 63% quarter-over-quarter. Due to the combined impact of seasonal factors and industry prosperity in Q3, revenue of comp declined by RMB80 million quarter-over-quarter. GMV for verified medical aesthetic services was around RMB260 million with per capita incentive GMV rate up 6% year-over-year. We continue to optimize the content recommendation and traffic distribution mechanisms to improve conversion efficiency.

Looking ahead, we will continue pursuing our long-term goal of 1,000 centers, expanding buildout in core cities and commercial hub while further elevating standardized and digital management to reach the bar for service delivery and user experience. We believe our durable competitive advantage comes from long-term commitment and accumulated trust. We will drive the medical aesthetic industry towards maturity with more measured pace and more professional capabilities creating long-term value for shareholders.

Now I'll hand over to our CFO, Nick, who will walk through the financial results followed by the Q&A session.

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 RMB386.7 million, up 4% year-over-year primarily due to our business expansion of the branded aesthetic center.

Aesthetic treatment services revenues reached RMB183.6 million showing a 304.6% year-over-year, once again exceeding the high end of our guidance. This was primarily driven by the robust business expansion of our branded aesthetic centers. Information and reservation services revenues were RMB117.2 million, down 34.5% year-over-year, primarily due to a decrease in the number of medical service providers subscribing to information services on our platform.

Revenues from sales of medical products and maintenance services were RMB67 million, down 25% year-over-year primarily due to a decrease in the order volume of medical equipment. Revenues from other services were RMB18.9 million, down 67.6% year-over-year, primarily due to a decrease in revenues from So-Young Prime.

Cost of revenues were RMB203.8 million, up 43.4% year-over-year, primarily due to the business expansion of our branded aesthetic centers. Within cost of revenues, Cost of aesthetic treatment services were RMB140.1 million, up 333.2% year-over-year, primarily due to the business expansion of our branded esthetic centers.

Cost of information and reservation services were RMB12.9 million, down 44.7% 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 RMB35.6 million, down 18.3% year-over-year, primarily due to a decrease in costs associated with the sales of medical equipment.

Cost of other services were RMB15.2 million, down 64.6% year-over-year, primarily due to a decrease in costs associated with So-Young Prime. Total operating expenses were RMB255.6 million, up 13.6% year-over-year. Sales and marketing expenses were RMB130.7 million, up 13.8% year-over-year primarily due to the increase in expenses associated with the branding and user acquisition activities for our aesthetic centers.

G&A expenses were RMB88.6 million, up 26.7% year-over-year and 12.4% quarter-over-quarter, primarily due to the onetime accrual of approximately RMB5.8 million year-end bonuses and the business expansion of our branded aesthetic centers. R&D expenses were RMB36.3 million, down 9.6% year-over-year and up 16.5% quarter-over-quarter.

The year-over-year decrease was primarily due to improved staff efficiency, while the sequential increase was due to the onetime accrual of approximately RMB3.6 million year-end bonuses and the continued investment in miracle laser products, particularly in clinical trials.

Income tax expenses were RMB1.1 million compared with RMB2.1 million in the same period of 2024. Net loss attributable to So-Young International Inc. was RMB64.3 million compared with net income attributable to So-Young International, Inc. of RMB20.3 million during the same period last year.

Non-GAAP net loss attributable to So-Young International, Inc. was RMB61.6 million compared with non-GAAP net income attributable to So-Young International Inc. of RMB22.2 million during the same period of 2024.

Basic and diluted losses per ADS attributable to ordinary shareholders were RMB0.64 and RMB0.64, respectively, compared with basic and diluted earnings per ADS attributable to ordinary shareholders of RMB0.2 and RMB0.2, respectively, during the same period of 2024.

As of September 30, 2025, our cash and cash equivalents, restricted cash and term deposits term deposits and short-term investments were RMB942.8 million, primarily due to an increase of investment in branded aesthetic centers.

Looking ahead to the fourth quarter of 2025, we expect treatment services revenues to be between RMB216 million and RMB226 million, representing 165.8% to 178.1% increase from the same period in 2024. This outlook reflects our confidence in the strong growth momentum of our branded Aesthetics Center business. As we near the 50 center milestone, we have also seen continued improvement in center level profitability and operating cash flow, demonstrating our models scalability and operational efficiency.

Going forward, we will pursue disciplined expansion while maintaining our focus on operational excellence and cost optimization to drive sustainable and quality growth. These efforts will reinforce the financial resilience of our aesthetic center business and create enduring value for our shareholders.

This concludes our key remarks. I will now turn over the call to the operator and open the call for QA. Thank you.

(Operator Instructions) Hai Jingpang, Citic Securities.

(interpreted) So okay, let me briefly translate myself. This is Hai Jingpang from CITIC Securities. So first of all, congratulations on the continued rapid expansion of the chain clinics. So could you share more about the open class for next year, including your original strategy and expected pace for the new clinic openings by quarter?

By the end of 2025, we will reach 50 centers. Our goal is to lay a solid foundation, focusing on improving customer acquisition efficiency and growing user base. As the business skills, we will enter a new stage of development, relying more on digitalization and AI capabilities to replicate service processes.

This will drive breakthroughs in the bottlenecks, the industry open cases providing support for a broader build-out in the following up stage. The number of new centers to be opened next year will remain consistent with previous plans and will not be less than 35. We will keep the overall pace of center opening balance, progressing on a quarterly basis to ensure every new center quickly enter still the operation phase following its establishment.

Our focus will remain on fourth-tier cities since they have strong demand and high repurchase rate potential, which will help us quickly build up regional density and amplify right equity. At the same time, we will also systematically establish a presence in second-tier cities with a mature consumer base to validate our experience for long-term expansion.

Stacy Chen, Haitong International.

(interpreted) I will translate myself. First of all, congratulation to the management for achieving such rapid growth even during the off season quarters. I noted that you have released the core member they had this quarter. So could you explain more about the membership system for the aesthetic center business and how we come back to the membership operations?

Thank you.

(interpreted) The membership system is core to aesthetic centers operations each time, a user company visit, a recon is created, which helps us build a clear tiered membership system from Level 1 to 8 and identify high-value users with more committed and ongoing engagement. Level 3 and above are defined as core members. They have hired center visit frequency and greater flexibility to select additional services with annual lending 2.5 times higher than the average, making them the good driver for aesthetic center.

During Q3, contributed a high double-digit percentage of our aesthetic center business revenue with a repurchase rate of nearly 70%. We provide tiered and service touch points based on individual user consumption patterns, which ensures they continuously perceive brand value and received positive reinforcement for the bolstering repaid trust rates.

In Q3, our membership operations made solid progress. Users with verified business increased by nearly 40,000, 36% quarter-on-quarter, including over 10,000 new core members up 40% quarter-over-quarter. Additionally, we've also enhanced repaid customer value operations, specifically repeat customer revenue reached RMB120 million in Q3, up 32% quarter-over-quarter, accounting for 65% of aesthetic treatment service revenues, verified treatment leases from repeat customers searched over 4 times year-over-year to 50,000, while ARPU also increased. These metrics all exceeded our targets. Going forward, we will continue -- we will focus on conversion of highway active users and extending the life circle of high-value users.

James Wang, GS Securities.

(interpreted) And my question for me is how is the Miracle PLLA 3.0 are starting since its end of September launch and what is new compared to the previous version and what's the plan for promoting it?

(interpreted) PLLA version 3 was an important upgrade on the supply chain. In China's medical aesthetic market, PLLA to almost released as an injectable for shipping. Before launching, we conducted research in South Korea and from that domestically enacted adopt a more standardized and safer skin bolster technique after multiple rounds of testing, we launched Sutiem in terms of products, it's ultra MicroSphere with five key features, including ultra smooth, ultra solid, ultra fine, ultra-pure, and ultra active cross safety, results, and longevity. These features make each product the best fit for single use. Moreover, with its overall performance upgraded, Miracle PLA version 3 is also more competitively priced, offering consumers a high-quality, yet value-for-money experience.

Regarding the promotion, we made upgrade based on the market landscape and user pinpoints to capture user mind share, we adopted American more suitable for skin busters and introduced the concept of ultra microspheres to take the lead in the segment.

We also released two-versions Miracle PLLA version 3 and Version 3 Pro to address different users' needs and budgets, thereby lowering the decision threshold for users. The first batch of 5,000 units was fully sold out within a short time. The massive -- arrival is expected in late November. We will continue to drive market penetration rate for Miracle PLLA version 3, converting users more efficiently and increasing ARPU and user loyalty.

Market feedback shows that Miracle PLLA version 3 is receiving a high attention. We implemented an online purchase limit of one per purchase per user. From these purchase, we can say that about 56% of users paid the Pro version priced at RMB4,999, reflecting the trust replacing our brand and product. In the next year or two, the PLLA that we have been working on expected to receive approval for launch, which should reduce procurement by several times.

Over Miracle PLLA version 3 is not just a product upgrade, it's an important part of supply chain construction as well cluster strategy. We will adopt the same approach for future categories. We will continue to deepen the vertical integration of our supply chain, further enhanced safety and continuously convert upstream manufacturers into long-term customers. Simultaneously, we will leverage our variable marketing products, doctors and channels to differentiated areas and solid our brand moat.

Nelson Cheung, Citi.

(interpreted) I will translate my question and congratulations on a solid quarter. With the expanding expense account, how do we ensure the safety and compliance of the entire chain system? And how is the internal quality control mechanism work?

(interpreted) Safety is our top priority. We have built a six-pillar compliance framework covering compliance, risk control, supervision, internal audit, medical service delivery, and information security departments, and we will continue to make this framework more refined and systematic.

We adhere to high standards and resources. On the treatment side, we only offer three mature medical aesthetic treatments with clear mechanisms and solid user feedback to avoid potential risks. On the personnel side, we implement rigorous doctor's qualification assessments with an acceptance rate of around 10%. All doctors are also required to complete pre-employment training and regular emergency drills to ensure the highest professional service and emergency response capabilities.

In medical service delivery, we implement tiered diagnosis that matches treatments with doctors based on their qualification levels. We conduct regular online and offline sessions as part of our control, ensuring reliable medical service across all centers.

If there is any user feedback or dispute, we handle it at headquarters with a crisis response team composed of key departments, including user experience, PR, GR, and legal. Currently, our average response time is under two hours, with issue resolution completed within two days. The compliance rate is below 1%.

Going forward, we will continue to uphold the highest standards of safety and compliance, with digital and AI tools, we aim to maintain high-quality control efficiency and ensure consistent medical service quality and user safety across all centers as the business continues to grow rapidly. Thank you.

Jenny Zhu, CICC.

(interpreted) Let me repeat it in English. So how does the management view the potential for improving the profitability of the aesthetic center business in the future? Thank you.

(interpreted) We believe it is paramount to demonstrate our user base spending, the improvements of operating profit -- as it scales. As the operating model gradually matures, we are confident profitability will improve.

On the cost side, we continue to optimize the structure of our customer acquisition channels, including referrals from existing customers and both public and private domain traffic, continuously consolidating our advantage in customer acquisition costs.

In addition, there is significant room to lower the consumable cost. For instance, we recently upgraded Miracle PLLA from Version 2 to Version 3. As the new product gains volume, it will strengthen our bargaining power with upstream partners and further optimize our cost framework. In the future, with the gradual realization of digitalization, AI, and economies of scale, the fixed cost in data operations will be fully diluted.

On the revenue side, as users increasingly prioritize resource and professionalism, they are willing to spend on premium treatments. Coupled with (technical difficulty) -- high-quality medical aesthetic products, leveraging our robust strategy, business volume has gradually concentrated on a number of SKUs with the value share of blockbuster products increasing. The top nine products contributed over 30% of revenue in Q3.

This lays a solid foundation to further improve our margins through proprietary customized products. Once the number of aesthetic centers and verified treatment visits reach the center level, we will focus on enhancing LTV of core members, further driving profit margin. Therefore, we believe there is great potential for the profitability of the aesthetic center business to increase from its current base.

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

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.