So-Young International Inc. Q2 FY2025 earnings call

• Aesthetic center business showed robust growth in Q2, with revenue reaching RMB 144 million, surpassing guidance and becoming the largest revenue segment. • The So-Young Clinic live medical aesthetic chain has grown to 33 centers. • Aesthetic treatment services revenue saw a 46% quarter-over-quarter and 426% year-over-year increase. • By the end of June, 29 aesthetic centers were operating, with 20 open over 3 months, 19 turning operating cash flow positive in June, and 13 profitable monthly. • Active users exceeded 100,000 by June, verified treatment visits in Q2 were over 67,400 (up 24% quarter-over-quarter and 381% year-over-year), and verified aesthetic treatments performed were over 154,500 (up 25% quarter-over-quarter and 458% year-over-year). • Repeat purchase rate for aesthetic center business exceeded 60%, and customer satisfaction score was 4.99 out of 5. • Average customer acquisition cost was in the RMB 100 range, with over 70% of new customers from private domain traffic and referrals. • Gross profit margin of aesthetic treatment services expanded by around 5 percentage points sequentially. • Implemented rigorous physician selection and training system; advanced digitalization and AI-driven solutions for end-to-end management. • Launched new treatments like Medical PLLA, Mermaid Skin Booster, and BBL Hero. • Teamed up with international IP for theater pop-up events and partnered with self-media influencers to enhance branding.

Total revenue for Q2 was RMB 379 million. Revenue from the aesthetic center business reached RMB 144 million, which surpassed the upper end of the guidance and became the largest revenue contributing segment. Other segments included information and reservation services with revenue of RMB 135.2 million (down 35.6% year-over-year), sales of medical products and maintenance services at RMB 76 million (down 28.1% year-over-year), and other services revenues at RMB 23.2 million (down 64% year-over-year). Aesthetic treatment services revenue increased 46% quarter-over-quarter and 426% year-over-year to RMB 144 million.

• For Q3 2025, aesthetic treatment services revenue is expected to be between RMB 150 million and RMB 170 million, representing a 230.5% to 274.6% increase from the same period in 2024. • Aim to reach 50 aesthetic centers by the end of 2025. • Plan to open around 10 aesthetic centers in Q3 2025.

Q: Can you provide details on the expansion plan of aesthetic centers this year and next year, and the progress on the franchise model?

A: We aim to grow the number of centers to 50 by the end of this year, with over 10 planned to open in the second half. In key cities like Beijing, we expect to reach 10 centers by year-end 2025. Next year's expansion plan will be finalized in Q4 this year, initially anticipating new openings will match or exceed 2025 levels. We plan to pilot 2 to 3 franchise centers in Q4 this year, and will determine the pace of future franchise expansion based on the operational performance of these pilot centers.

Q: What is the management's view of the growth potential of the Chinese medical aesthetics market and how to adapt to the challenge of new players entering?

A: We remain optimistic about the prospects of China's medical aesthetic market. Compared with mature overseas markets like 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 grows at a faster pace and can capture customer mind share more easily. We believe to succeed as a light medical aesthetic chain brand, 3 core capabilities are essential: sustainable low-cost customer acquisition, diversified upstream supply chain network, and organizational competence in operating a large-scale physical network. We will continue to focus on our business and hone our fundamental strength around these 3 capabilities to reinforce our long-term competitive edge.

Q: What is the outlook for customer acquisition cost and marketing expenses in the future, and what are the views on the future trend of consumables in the cost structure?

A: So-Young ranks among the industry leaders in customer acquisition efficiency, with an average customer acquisition cost in the RMB 100 range and over 70% of new customers coming from low-cost private domain traffic and referrals from existing customers. Long term, sustainable low-cost acquisition hinges on accumulated brand influence. We will launch localized marketing initiatives in key cities to enhance brand visibility. In terms of cost structure, we are optimizing by increasing the proportion of self-controlled offerings used in our aesthetic centers. For light-based treatments, we offer self-developed medical lasers and hold exclusive distribution rights for premium treatments. With the scaling of our network, the proportion of consumable costs will further decline as our bargaining power in procurement increases.

Q: Do we expect any bottlenecks when recruiting doctors in the future as the network expands, and do we rely heavily on center managers?

A: 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, forming a solid talent pipeline. We have a rigorous physician selection and training system, with all over 130 full-time doctors having completed internships or standardized training at public hospitals and nearly 90% being specialist dermatologists. We have a tiered diagnosis and treatment system and are building regional training centers to support their professional growth. In terms of center managers, our organizational structure reduces reliance on them. We operate on an online appointment booking and on-site service verification model, with center managers mainly handling on-site management. We access them based on operational metrics, and management of marketing, product management, pricing, and recruitment of doctors and nurses are handled by our dedicated center operations platform, with a digital dashboard enabling real-time monitoring from headquarters to further reduce management costs.

Q: What differentiates So-Young's product strategy and planning from others in the future?

A: Our product strategy focuses on anti-aging treatments, with all treatments developed around this core theme to ensure consistency across our portfolio. We don't rely on loss-making products to attract customers but emphasize overall cost effectiveness, with core treatments contributing most to revenue. We adopt a curated bestseller model, similar to Sam's Club, selecting only the very best options to drive strong repeat business and positive word-of-mouth referrals. We will continue to optimize our product portfolio, monitor market demand and competitive trends, and introduce new products in a timely manner to maintain our leading position.

Q: Can management provide updates on future development plans for the POP business?

A: Our POP business has relatively high gross margins and net margins. 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 promote synergies between the POP and aesthetic center business. Our aesthetic centers drive high-quality traffic, and we plan to establish a more refined merchant classification and rating mechanism on our platform to make targeted recommendations for high-quality POP merchants, improving traffic monetization efficiency and creating new incremental growth for the POP business.