So-Young International, Inc. Q3 FY2024 earnings call

• Business developed robustly in Q3, with total revenue exceeding guidance. Net income and non-GAAP net income showed strong growth. • Chain of clinics expanded to 17 in 9 core cities, with new clinics generating positive operating cash flow and some already profitable. Revenue grew 67% q-o-q. • Upstream business performed satisfactorily, with partnerships and product shipments increasing. • Clinic business metrics: 14 clinics had positive monthly operating cash flow in September, customer retention at 60%, satisfaction 4.98/5, private domain users at 900,000. • Initiatives in clinics: high-end master injector team saw 104% sequential revenue increase, partnerships with platforms expanded market coverage, ultrasound program had over 7,000 online orders in the first month. • Upstream: partnered with over 970 institutions, injectable shipments up, co-developed project with Lancy Group. • POP business supported other segments, focusing on improving institution and consumer experience, with GMV growth and conversion rate improvements.

Total revenue for the third quarter reached RMB332 million, surpassing the upper end of guidance. Net income attributable to So-Young was RMB20.3 million, up 11.2% year-over-year, and non-GAAP net income was RMB22.2 million, up 133.1% year-over-year. The chain of clinics business expanded to 17 clinics from 8 last quarter, with revenue growing 67% quarter-over-quarter. The new business segment (sales of medical products and maintenance services) had revenue of RMB89.3 million, up 18.7% year-over-year. The POP business saw GMV in September grow over 60% from the previous month, and per capita in-store GTV for the third quarter increased 22.9% year-over-year.

• For the fourth quarter of 2024, management expects total revenues to be between RMB350 million and RMB370 million. • Takes into account uncertainties in clinic openings and ramping up but is confident in long-term growth through upstream-downstream integration. • Anticipates financial performance to gradually improve as clinics mature and market conditions stabilize.

• Potential risks include market competition, where the medical aesthetics industry is competitive with many small institutions. • Regulatory uncertainties that could impact operations. • Uncertainties in the pace of clinic openings and ramping up, which may affect financial results. • Risk of insufficient traffic compared to big Internet platforms, potentially impacting user and institutional retention.

Q: What new changes or trends are emerging in the medical aesthetics industry?

A: Light medical aesthetic procedures are popular but market is dominated by small institutions with no national chains. Demand is polarized, with some seeking standardized procedures and others personalized. Growth potential for nationwide chain clinic brands exists, similar to South Korea's mature market.

Q: Has there been a strategic shift for POP business following chain expansion?

A: POP remains important, serving as a mix of self-operated and third-party partners. Clinics are new traffic drivers to attract more users and institutions, focusing on improving experience for institutions and consumers with GMV growth and conversion rate improvements.

Q: What are the considerations behind So-Young's move to implement a franchise model alongside clinic expansion?

A: Goal is to be a national chain clinic brand, building trust with consumers. Franchise model helps spread central platform costs, accelerate expansion, control costs, with initial clinics validating feasibility. Ensures standardized operations with central control.

Q: How has management achieved lower expense ratio and improved profitability?

A: Focus on refined operations and cost-effectiveness, shifting marketing strategy to prioritize efficiency. Effective cost control in sales and marketing, with expense ratio at 60.5% in Q3 2024, down year-over-year.

Q: What competitive advantages does So-Young have over traditional upstream companies?

A: Ecosystem-based operational advantage, with Elasty shipments growing, quick rise in ultrasound market, promotional support for upstream products, participation in industry events to expand influence.