So-Young International Inc. (SY) Q2 2025 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by for So-Young's Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I will 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 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 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 Q2, our branded aesthetic center business maintained its robust momentum, achieving growth in both scale and quality. Our business model and the strategic direction we are headed have received strong market recognition. In Q2, we generated total revenue of RMB 379 million. Revenue from aesthetic center business reached RMB 144 million, surpassing the upper end of our guidance and making it our largest revenue contributing segment for the first time. This marks a critical inflection point in our multiyear strategic transition, ushering in a new phase with clear growth drivers and a more mature business model. As of today, our So-Young Clinic live medical aesthetic chain has grown to 33 centers. Due to rapid network expansion and ongoing investments, we recorded a net loss attributable to So-Young of RMB 36 million and a non-GAAP net loss of RMB 30.5 million in the second quarter. Going forward, as we further refine our service workflows, enhance customer experience and strengthen our brand influence and reputation, we expect improved operational efficiency per center and enhanced customer loyalty. We remain confident in delivering sustainable high-quality long-term growth. Now let me walk you through our Q2 operational highlights. Aesthetic treatment services revenue maintained strong growth momentum during the quarter, increasing 46% quarter-over-quarter and 426% year-over-year to RMB 144 million. Center performance also continued to improve. By the end of June, we operated 29 aesthetic centers. Among these, 20 have been open for more than 3 months. 19 turned operating cash flow positive in June and 13 were profitable on a monthly basis. Alongside the continued network expansion, our overall service capacity is rapidly growing with total number of active users exceeding 100,000 by June. Total number of verified treatment visits surpassed 67,400 in Q2, up 24% quarter-on-quarter and 381% year-over-year. And the total number of verified aesthetic treatment performed reached over 154,500, up 25% quarter-on-quarter and 458% year-over-year. The overall repeat purchase rate for our aesthetic center business exceeded 60%, while customer satisfaction score remained high at 4.99 out of 5. While we continue to expand our network in Q2, we maintained leadership in customer acquisition efficiency. Currently, our average customer acquisition cost remain in RMB 100 range with over 70% of new customers coming from low-cost private domain traffic and referrals from existing customers. Benefiting from improved operating efficiency, the gross profit margin of our aesthetic treatment services expanded by around 5 percentage points sequentially. These achievements validates So-Young Clinics growing brand influence and operational efficiency. We remain committed to standardized service delivery, consistently focusing on health care quality, procedural compliance and user experience. We have implemented a rigorous physician selection and training system with all of our over 130 full-time doctors having either completed internships or standardized training at public hospitals and nearly 90% of them being specialist dermatologists. Additionally, we are advancing end-to-end management through digitalization and AI-driven solutions, achieving full process standardization from self-service booking and check-in to testing, consultation and treatment. This digitized approach provides every user with a clear, transparent and traceable medical experience. On new treatment, we launched a number of highly acclaimed offerings in Q2, including Medical PLLA, Mermaid Skin Booster and BBL Hero, which expanded our medical aesthetics portfolio, increased ARPU and reinforced our unique competitive edge. Turning to branding. We teamed up with international IP [indiscernible] around our Medical PLLA series to stage So-Young theater pop-up events in Beijing and Shenzhen CBDs during the quarter. Through IP co-branding and immersive experiences, this campaign attracted massive young customers' participation with nearly 10,000 users sharing their experiences on that note, significantly boosting brand visibility and offline engagement. Meanwhile, we partnered with self-media influencer [indiscernible] and her team to reinforce our [indiscernible] philosophy with emotionally resonant storytelling. The campaign resonated strongly with our core female user base, effectively reinforcing So-Young Clinic's professional reputation and brand positioning among smart beauty-conscious women. In the upcoming third quarter, we plan to open around 10 aesthetic centers, expanding not only in first-tier cities, but also into core second-tier cities. Looking ahead to the full year, we expect the total number of our aesthetic centers to reach 50. This will further expand the accessibility of So-Young Clinic's live medical aesthetics services nationwide. We will also continue to strengthen standardized operations and product innovation capabilities, further cementing our market-leading positions in China's medical aesthetic industry. Regarding upstream business, we continue to build out our comprehensive medical aesthetic supply chain, driving nationwide penetration of both self-developed and exclusively distributed products. By the end of Q2, the number of institutions we served with supply chain solutions for injectables exceeded 1,600 with shipments of Elasty reaching around 39,100 units in Q2, up over 40% sequentially. As our upstream products acquire additional certifications and scale, we expect to further enhance our advantage and improve cost efficiency while solidifying our moat for industry chain synergy. Our POP business remained stable during the quarter. GMV for verified medical aesthetic services reached roughly RMB 300 million, with per capita in center GTV growing by 6% year-over-year. We continue to provide digital operation support for partner institutions, maintaining healthy and orderly development for our platform. Looking to the second half of 2025, we will continue to increase the density of our aesthetic center network in first-tier cities, targeting both prime commercial [indiscernible] and high potential areas. We are increasing our presence in second-tier cities to broaden market coverage and center density growth, we will drive localized brand building to increase the customer reach of So-Young Clinic in each city. We remain committed to optimizing user experience and center operational efficiency, strengthening our core competitive edge and laying a solid business foundation to deliver long-term value to our shareholders. We see the progress we made as a springboard and we will keep innovating to create greater user value and unlock broader growth opportunities. Now I 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 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, 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. Operator, we are ready to take questions.

[Operator Instructions] The first question today comes from [ Xi Jinping ] with Citic. My apologies. The first question comes from Nelson Cheung with Citibank.

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

[Interpreted] 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 large portion already opened and more than 10 planned to open in the second half. In key cities such as Beijing, we expect to reach 10 centers by year-end 2025. Next year's expansion plan will be finalized in Q4 this year, though initially, we anticipate new openings will match or exceed 2025 levels. As our organizational capabilities continue to strengthen, our network will gradually expand to a wider range of cities. Long term, with full confidence in our aesthetic center business, we target to achieve 1,000 centers within 8 to 10 years. Franchising is not our immediate focus. This is primarily because our self-operated centers have relatively manageable CapEx with shorter payback periods and our ample cash reserves can already support rapid expansion. That said, as part of our long-term strategy, the franchise model will play an important role in future expansion. Thus, we plan to pilot 2 to 3 franchise centers in Q4 this year, and we will determine the pace of future franchise expansion based on the operational performance of these pilot centers.

The next question comes from [ Xi Jinping ] with Citic.

[Interpreted] So let me briefly translate for myself. I'm [ Xi Jinping ] from Citic Securities. I have one question about the Chinese aesthetics market. So how does the management's view of the growth potential of the Chinese medical aesthetics market? And in this highly competitive market, how will you adapt to the challenge of the new player entering? Yes, that's my question.

[Interpreted] We remain optimistic about the prospects of China's medical aesthetic market compared with mature overseas markets such as South Korea, where the penetration rate of medical aesthetic has exceeded 20%. China's current penetration remains below 5%, indicating substantial growth potential. The light medical aesthetic sector in China represents a fundamentally distinct model versus traditional plastic surgery as it grows at a faster pace and can capture customer mind share more easily. According to industry data, China's light medical aesthetic market will reach around RMB 340 billion by 2030. Our analysis forecasts that the penetration rate of light medical aesthetic chains in China will reach 30% in the future, and So-Young as an industry leader, is poised to achieve roughly 25% market share, translating to nearly RMB 26 billion market opportunity. We believe that to truly succeed as a light medical aesthetic chain brand, 3 core capabilities are essential. First, sustainable low-cost customer acquisition; second, diversified upstream supply chain network; and third, organizational competence in operating a large- scale physical network. Other market players face inherent limitations in these areas. That's precisely why we will continue to focus on our business and hone our fundamental strength around these 3 capabilities, further reinforcing our long-term competitive edge in the industry.

The next question comes from Daisy Chen with Haitong International.

[Interpreted] 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?

[Interpreted] So-Young ranks among the industry leaders in customer acquisition efficiency. Currently, our average customer acquisition cost is only 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 are the launch pads we use in new cities and serve as base for user community operations. Our performance in referrals from existing customers is particularly strong with a conversion rate significantly higher than peers. This is driven by our [ incentive ] approach of no -- aggressive sales or prepaid membership card requirements. This allows existing customers to refer without pressure and lower barriers for new customers. Long term, we believe sustainable low-cost acquisition hinges on accumulated brand influence. As our network densifies in key cities such as Beijing and Shenzhen, where penetration rates are consistently increasing, we will launch localized marketing initiatives, focusing on high-frequency touch points such as subways and cinemas to enhance brand visibility, boost customer awareness and improve marketing efficiency. While improving customer acquisition efficiency, we are also optimizing cost structure by increasing the proportion of self- controlled offerings used in our aesthetic centers. For light-based treatments, we offer medical lasers self-developed [indiscernible] and hold exclusive distribution rights for the premium American BBL treatment with new devices such as picosecond lasers and radiofrequency microneedling in the pipeline. Additionally, after entering the upstream injectable segment a few years ago, we have been collaborating with upstream manufacturers to launch new products, including blockbuster products such as skin boosters and PLLA. The skin boosters are expected to receive approval in Q4 this year. Both products carry exclusive China distribution rights, granting us brand positioning wise and pricing power. Furthermore, we expect our 2 proprietary animal-derived collagen products to gain approval in 2026 or 2027, further enriching our pipelines and self-controlled products are used more broadly across our network, the proportion of consumable costs will further decline with 50 centers targeted this year and 1,000 center long-term goal, the scaling of our network will significantly enhance our bargaining power in procurement and drive further reductions in consumable costs.

The next question comes from [ Jenny Xu ] with CIBC.

[Interpreted] Let me repeat in English. So in traditional aesthetic centers, we believe both doctors and center managers play very important roles. And as in our aesthetic centers with the network expanding, do we expect any bottlenecks when recruiting doctors in the future? And do we rely heavily on center managers?

[Interpreted] Regarding doctors, there are about 40,000 doctors in China's medical aesthetics sector, and we continue to see doctors moving from public hospitals into this sector. This forms a solid base for our talent pipeline with focus on live medical aesthetic services where technical requirements for doctors are easier to standardize. Nearly -- newly recruited doctors can accumulate extensive practical experience in a short time and are quickly brought up to speed. Meanwhile, we are committed to building a high-quality team. All of over 130 full-time doctors have either completed internships or standardized training at public hospitals and nearly 90% of them are specialized in dermatology. We have established a tiered diagnosis and treatment system that matches treatment to doctors based on their level. We are also building regional training centers to provide structural support for their professional growth, coupled with benefits such as 2-day weekends, social insurance and housing fund coverage and transparent career path, So-Young remains a highly attractive choice for doctors. Turning to center managers. Our organizational structure naturally reduces reliance on center managers. We operate on an online appointment booking and on-site service verification model. Center managers mainly handle on-site management. We access them primarily on operational metrics such as safety, customer experience and consultation efficiency. Management of marketing, product management, pricing and recruitment of doctors and nurses are handled by our dedicated center operations platform. This greatly improves day-to-day efficiency at each center. We have also built a digital dashboard that enables headquarters to monitor center operations in real time. Going forward, we will continue to enhance the maturity of digital management to further reduce management costs.

The next question comes from Yiteng Li with Haitong.

[Interpreted] Let me translate myself, and congratulations first for achieving high-quality growth in the Aesthetic Center business. And I would like to ask what factors will differentiate So-Young's product strategy and planning from others in the future?

[Interpreted] Our product strategy focus on anti-aging treatments with all treatments developed around this core theme to ensure consistency across our entire portfolio. Unlike some institutions that use low-priced single products to attractive customers and then upsell to more profitable ones, we emphasize overall cost effectiveness. We make sure each treatment delivers a healthy gross margin and don't rely on loss-making products to attract customers. We continue to advance our blockbuster strategy. The goal is to have a small number of core treatment contribute most to revenue with a focus on the treatment level rather than individual products. Our approach is similar to Sam's Club, curated bestseller model, where only the very best options are selected to drive strong repeat business and positive word-of-mouth referrals. Going forward, we will continue to optimize our product portfolio and dynamically adjust the blockbuster products. We will closely monitor change in market demand and competitive trades as well as new product RFP and launch dynamics. This approach will allow us to introduce new products that address customer demand in a timely manner and have strong market potential to maintain our leading position.

The next question comes from James [ Young ] with Dawson Securities.

This is James [ Young from Dawson ] Securities. And my question is, in addition to your aesthetic center business, we are also very interested in our POP business. Can management provide any updates on future development plans for the POP business?

[Interpreted] Our POP business has always been a segment with relatively high gross margins and net margin. While revenue has fluctuated this quarter, it remains a key pillar of the group's profitability. We will maintain strict cost controls to preserve its healthy margins. As our aesthetic center network continues to expand, we will actively promote synergies between the POP and aesthetic center business. Our aesthetic centers drive a large volume of high-quality traffic, including new customers acquired through referral programs and public domain traffic. While these customers receive standardized light medical aesthetic services at our brand clinics, they also generate demand for nonstandardized surgical and minimally invasive procedures. We plan to establish a more refined merchant classification and rating mechanism on our platform. By leveraging user behavior and preferences, we will be able to make targeted recommendations for high-quality POP merchants. This will improve traffic monetization efficiency and create 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 that are marked [Interpreted] were spoken by an interpreter present on the live call.]