Good morning, ladies and gentlemen, and thank you for standing by for So-Young's Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, there will be a question-and-answer session. As a reminder, today's conference is being recorded. I will now like to turn the meeting over to your host for today's call, Ms. Vivian Xu. Please proceed.
Thank you, operator. Thank you for joining So-Young's Third Quarter 2022 Earnings Conference Call. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities and the 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 statement, except as required under applicable law. Joining us today on call is Mr. Xing Jin, our Co-founder, Chairman, and CEO. At this time, I would like to turn the call over to Mr. Xing Jin. Xing, please.
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Hello, everyone. Thank you for joining So-Young's Third quarter 2022 Earnings Call.
2022[Foreign language]3.2[Foreign language]6,199[Foreign language][Foreign language]28%。
China's overall domestic consumer market remained under pressure in the third quarter, with repeated COVID-19 outbreaks in certain parts of the country. Despite this market uncertainty, we delivered solid financial performance during the quarter, and we have now achieved gradual sequential improvements in each of the first three quarters of 2022. Total revenues were CNY 320 million, representing a sequential increase of about 5% and in line with our previous guidance. Our progress was well-recognized among medical service providers, and we established new cooperation agreements with more institutions, thanks to our device product offering. The number of paying medical service providers on So-Young's platform reached 6,199, up 28% from the prior year.
[Foreign language] 60%.
On the user side, we continue to refine our operations to serve different cohort of medical aesthetics consumers. Leveraging our deep understanding of users and our edge in big data analysis, we made some progress on our user segmentation efforts, which enable us to cater to the demands of different consumer groups based on location and user characteristics. For new customers with limited budget, we used popular tox and promotions for new treatments to encourage them to place orders. For customers at medium price segment, we promoted well-known products to enhance their stickiness. In the third quarter, number of user-verified order on our platform grew 6% sequentially. In addition, we launched the So-Young Prime program targeting customers in the first and second-tier cities who account for the majority of medical aesthetics consumption.
The So-Young Prime program is aimed at establishing clear and transparent industry standards, reducing consumers' trial-and-error costs, simplifying their decision-making process and providing one-stop solutions for light medical aesthetic services, enabling our customers to pursue beauty with peace of mind. For category with order value of over CNY 8 thousand launched during the quarter, such as ultrasonic remote skin remodeling essential. The monthly online GMV increased by over 60% compared with the previous month.
[Foreign language] 25% [Foreign language] 20% [Foreign language]
In terms of our operating strategy, So-Young Select had expanded to 19 major cities in China as of the end of October. As part of our long-term strategy for providing superior user experience, So-Young Select caters to our users' preference for high-quality branded medical service providers, and enables providers to offer enhanced service and build their brand value. In the third quarter, with the rollout of So-Young Select, the promotional spend of service providers on our platform increased by over 25% quarter-over-quarter, and about 20% year-over-year. We also saw gradual improvement in conversion rate for the medical service providers on our platform. Meanwhile, under So-Young Select, we have also rolled out So-Young Select Doctor, which helps users choose premier doctors, providing useful information to facilitate their decision-making and driving user conversion.
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In terms of industry regulation, the recent national regulatory policies emphasize the transparent pricing, consistent online and offline pricing, and cracking down on false advertising and misinformation that harms the interest of consumers. The regulatory requirements for online platform are consistent with the self-regulatory actions So-Young has been implementing for years, indicating that our work is towards the right direction. Regarding internal platform governance, we continue to promote self-regulation within the industry and strengthen the quality of the supply side in our ecosystem. We also took the initiative to identify and eliminate false transactions and false reviews, and established and optimized our anti-fraud system and data prevention scheme, thereby promoting the healthier development of the industry.
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Looking at the overall Chinese medical aesthetics industry, it is under pressure in the near term, while the positive perspectives intact for the long term. Therefore, for the near term, we took stringent measures to cut cost and increase efficiency and achieve profitability on quarterly basis. During the quarter, the non-GAAP net profit attributable to So-Young International Inc. reached CNY 9.9 million. We have maintained healthy financial conditions and sufficient cash reserves to ensure that the company remains strong and we are able to make constant improvements. Going forward, we will work to better serve medical aesthetics consumers by investing in our business and elevating the user experience.
[Foreign language] 2020 [Foreign language] 2019 [Foreign language] 2021 [Foreign language] 2020 [Foreign language] 13% [Foreign language] 2022 [Foreign language] 2021 [Foreign language] 14% [Foreign language] 2021 [Foreign language] 2025 [Foreign language] 13%。 [Foreign language] 2020 [Foreign language] 82 [Foreign language] 48 [Foreign language] 。
Looking at the global medical aesthetics market, we are pleased to see that it continues to have strong growth potential. According to the Frost & Sullivan, bouncing back from the year-over-year decrease in 2020 due to the outbreak of the pandemic, and the global medical aesthetics market grow by 13% year-over-year in 2021, and is expected to grow by 14% year-over-year in 2022, with CAGR of approximately 13% from 2021-2025. In 2020, the number of the medical aesthetics treatments per 1,000 people in China was about 21, compared with 82 and 48 respectively in South Korea and the United States, which are more developed medical aesthetics markets. The penetration rate of the medical aesthetics in China still has plenty of room to grow.
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2022 is the ninth anniversary of So-Young and marks a new beginning for us. We are confident that we will overcome the uncertainties of the current market environment and will leverage the vast industry experience we have accumulated to place the user at the center of our business and build the most trusted medical aesthetic service platform. I will read the prepared remarks on behalf of Mr. Xing Jin, then open the Q&A. Now I will go through the financials for the third quarter. Please be reminded that all amounts quoted here will be in RMB. Please also refer to our earnings release for detailed information of our corporate financial performance on the year-over-year basis.
For the third quarter 2022, total revenues were CNY 323.3 million, compared to the CNY 431.5 million in the corresponding period of 2021. In line with our previous guidance, the decrease was primarily due to a decrease in average revenue per paying medical service provider, which was impacted by the resurgence of COVID-19 and remained under pressure from China's overall domestic consumer market. Within total revenues, information services and other revenues were CNY 235.7 million, down 26.7% year-over-year. Reservation services revenue were CNY 29.7 million, down 51.8% year-over-year.
Sales of equipment and maintenance service revenue, which were from Wuhan Miracle Laser Systems Inc., were CNY 57.8 million, compared with CNY 48.1 million in the same period of 2021. Cost of revenues were CNY 94 million, up almost 5% year-over-year. The increase were primarily due to the consolidation of Wuhan Miracle. To weather the storm, we adopt a serious cost-saving schemes such as reducing marketing activities, optimizing cost structure, et cetera, in order to maintain operating efficiencies. Total operating expense were CNY 336.6 million, down 26.6% year-over-year. Sales and marketing expense were CNY 124.8 million, down almost 35% year-over-year, primarily due to a decrease in expense associated with branding and user acquisition activities.
Research and development expense were RMB 52 million, down 32% year- over- year, primarily due to a decrease in payroll cost. General and administrative expenses was, were, uh, 59.8 million , up 9.4% year- over- year, primarily due to an increase in payroll cost and professional service fee. Income tax benefit was 16.5 million, compared with income tax expense of 4.3 million in the third quarter of 2021 . The increase in income tax benefit was primarily due to the refund of income tax of 12.6 million in the third quarter of this year based on the final 2021 tax refund final result. A tax return final result. Sorry. Next income attrib-- uh, net income attribute, uh, attributable to So-Young International Inc.
CNY 2.3 million, compared to CNY 6.8 million in the third quarter of 2021. Non-GAAP net income attributable to So-Young International Inc., which includes the impact of share-based compensation expenses, was CNY 9.9 million, compared with CNY 28.9 million in the same period of last year. Basic and diluted earnings per ADS attributable to ordinary shareholders were CNY 0.02 and CNY 0.02 respectively, compared with CNY 0.06 and CNY 0.06 respectively during the third quarter of 2021. With regards to some items on our key balance sheet, we held adequate liquidity in the quarter as of September 30, 2022.
We had total cash and cash equivalents, restricted cash and term deposits and short-term investment of CNY 1.6 billion, compared with CNY 1.8 billion as of December 31, 2021. Net current assets was CNY 1.3 billion as of September 30, 2022, compared with CNY 1.3 billion as of December 31, 2021. Net assets was CNY 2.6 billion as of September 30, 2022, compared with CNY 2.1 billion as of December 31, 2021. For the fourth quarter of 2022, we expect total revenue to be between CNY 310 million and CNY 330 million. The above outlook is based on the current market conditions that reflects the company's preliminary estimates of the market and operating conditions and the customer demand.
Today, the board of directors of the company authorized a share repurchase program under which the company is authorized to repurchase up an aggregate value of $15 million of its shares, including in forms of the ADS, during the 12-month period beginning from November 18th, 2022. This concludes our key remarks. I will now turn the call to the operator and open the call for Q.A. Operator, we are ready to take questions.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star and then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. Please limit yourself to one question. You may re-queue for additional questions. Our first question today will come from Thomas Chong of Jefferies. Please go ahead.
Let me quickly translate myself. Recently, SAMR has released a guideline on cracking down on false advertising and illegal pricing in the medical aesthetics industry. Can management comment on this regulation? Thank you.
Thank you. As I have just mentioned, the guidelines focus on preventing false advertising and misinformation and emphasize transparent pricing and consistent pricing online and offline. The regulatory requirements for online platforms are consistent with the self-regulatory actions. So-Young has been implementing for years, indicating that all along we have been a leader and a trendsetter in protecting the interest of our users. For our internal rules governing platform information, we have rolled out comprehensive and systematic initiatives. New information posted on the platform is effectively intercepted, and information storage is reviewed and inspected both by AI and on a 7.24 basis, and professionals. Special inspections are also conducted periodically for information storage.
We constantly upgrade our proprietary anti-fraud system and have developed strong capabilities in real-time computation, real-time policy configuration, and flexible verification and anti-cheating, which all play a key role in identifying and blocking false claims and identifying and cracking down on false transactions. As the first platform to adopt and consistently drive self-discipline actions in the industry, we let consumers to be fully informed about the products, including price, performance, specifications, et cetera. Disclose products and services information in a comprehensive, authentic and accurate manner. By doing this, we guarantee consumers' rights to know and to choose, continue to promote industry self-discipline, and to keep strengthening the quality of the supply side in our ecosystem. In the long term, government regulation will be beneficial from the healthy development of the whole industry and promote the medical nature of the aesthetics business.
Thank you.
Our next question today will come from Leo Zhang of Deutsche Bank. Please go ahead.
Let me translate my question. My question is, like, your plan for marketing spendings in Q4 and 2023, and what is your estimate for the total number of users and your MAU? Thank you.
Given the Macroeconomic uncertainty, we will remain cautious with our marketing spendings and focus our attention on efficiency. As we have done so far this year, sequentially, we may make adjustments based on evolving market conditions. For the current medical aesthetics market, I'd like to emphasize that the competition is no longer purely for traffic. Professional platforms with insights into the industry and users are needed, both with respect to regulation and user experience. We need to provide user with good consumption value and experience. A medical aesthetics platform doesn't retain user by entertaining them, but rather by satisfactorily solving their needs. First, we will continue to optimize community content, effectively recommended products and service to users, and provide diverse content, including doctors and products.
We will stick to our long-term goal for enhancing user trust and establishing the most trusted professional community, leveraging our advantages in content and community operations. We will perfect user experience for online products, enhance consumer protection, optimize consumer consumption experience on our platform, and drive user to make highly efficient buying decisions.
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Second, as our attention shifts from merely traffic incremental growth to operation and service of the stock, we keep improving user service experience during the whole life cycle and guarantee their consumption experience throughout the whole process. As I just mentioned, to achieve that, first we must create trust with our users. Trust has always been our primary goal to attract users to our platform. Second, products and information on our platform need to provide good consumer protections as well as solves users' issues with online decision making and demands. Third, for users who want to use one institution to satisfy their diverse demands or needs, we provide service catering to multiple scenarios. Users can directly visit an institution with information acquired on our platform. Some users with higher service requirements, they can work with institutions through our So-Young Select program.
If user demands standardized process for a specific product, they can choose institutions that provide such solutions. Finally, our platform provide upsell return visits, customer service, consultations and insurance for post-payment issues, which ensure the experience throughout the complete process.
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The So-Young mission is to make everyone more beautiful and healthier.
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Thank you.
Our next question today will come from Nelson Cheung of Citi. Please go ahead.
[Foreign language] So I'll translate myself. First, thank management for taking my question. I would like to wonder whether management can share the industry outlook going into the fourth quarter this year and into 2023 next year.
Could management elaborate more about the performance during the Double 11 this year? Thank you.
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In the third quarter, we saw repeated COVID-19 outbreaks in certain parts of China. Despite this market uncertainty, we delivered a solid financial performance during the quarter and the situation is gradually recovering in the first three quarters. As we are entering into the fourth quarter, the scope of pandemic may further widen because of the weather and the corresponding precautions measures may strengthen as well. While there is uncertainty ahead, however recently, China's National Health Commission released a new set of refined pandemic prevention and control policies, which are more scientific and more precise. As the overall economic environment will be getting normalized gradually, we believe our industry will be back to the growth track over time.
[Foreign language] 13%. [Foreign language] 2020 [Foreign language] 21 [Foreign language] 82 [Foreign language] 48 [Foreign language]
On user front. As we discussed in prepared remarks, the global medical aesthetics market maintained a steady growth in the past years, and there is significant upside of the penetration rate of the Chinese market. According to Frost & Sullivan, the global medical aesthetics market is expected to grow at a CAGR of around 13% from 2021-2025. In 2020, the number of medical aesthetic treatments per 1,000 people in China was just about 21, compared with 82 and 48 respectively in South Korea and the United States, which are more developed medical aesthetics market. There is clear growth potential for Chinese market, with general economic situation back to normal. The customer spending will be back to growth track as well, in our view.
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On institution front, as the impact of uncertain factors gradually ease and when they can operate normally, we believe their marketing budget allocated to So-Young platform will go up gradually.
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At present, we must commit to our long-term vision while making dynamic adjustment in short term and execute our established strategy, improving the operation and providing high-quality user experience and forming closer relationships with industry partners.
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For Double 11, user may pay more attention to daily necessity, like the grocery goods. Overall performance of major online platforms were relatively soft compared to last year. While overall retail market is in a slow recovery stage, this is in line with the other consumer products and services. Despite of pressure on the overall consumption market, our daily online user during Double 11 stayed flat compared with last year.
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Thank you.
Our next question today will come from Chloe Wei of CICC. Please go ahead.
[Foreign language] 。Okay, I will translate myself.
Thank you, management, for taking my question. This is Chloe Wei from CICC. I think you've done a great job performing above the break-even target, and we continue to see strong subsidies in this quarter. I wonder, are there enough levers in the business in kind of rationalizing the competition? That would be the first. Secondly, we've heard some new vocabularies during the prepared remarks. Could the management team share some colors on the ongoing new businesses, and how could that mean for the user engagement and for the P&L? Thank you.
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First, on industry outlook, I believe medical aesthetics have broad perspectives. To seize the opportunity and achieve growth, the key point is to serve users well and combine with industry more profoundly.
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Any peer platform must have a clear positioning for user service to clarify what kind of user demands it can serve. Through the years, we have built trust with our users. When users have need for medical aesthetics, we can truly solve it and enable a better consumption experience.
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As we are not an entertainment platform, users don't spend plenty of time watching video or reading post, but search for products that satisfies their needs. We always emphasize that medical aesthetics are both medical and medicine and consumption, so users consumption must be based on safety and the demands for beauty. A price advantage of an e-commerce platform won't be the primary factor for consumers decision making. I believe we should think about serving user from their perspective and their methods as at different stages of consumption. Through professional community content and deep combination with industry, we have established diversified consumption scenarios to cater to user demands.
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For our institution clients, we trust we build with users, make them willing to serve users better.
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For the new initiatives, we have exploring new consumption scenarios for users and serve them with a range of diverse solutions. For institution and us, the ultimate goal is to better serve users.
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Well, we actually suggest if you in the some, you know, Tier 1 or Tier 2, some major cities, you can have a try on what So-Young Prime products. It will be gonna very different and will kind of to excited you best.
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Thank you.
Our next question today will come from Ingrid Zhang of UBS. Please go ahead.
[Foreign language] demographics [Foreign language] 。The question is more on industry level based on the data and shift in consumer demographics for medical aesthetics in terms of age, city tiers, income level, etc. Thanks a lot.
[Foreign language] 2022 [Foreign language] 。
According to transactions on our platform, mega cities such as Beijing, Shanghai, Guangzhou and Shenzhen have always led the consumption, with number of users placing orders and transactions activities at high level than other cities in China. In 2022, other new first-tier cities including Chengdu, Hangzhou, Wuhan, Nanjing and Chongqing are also become major cities for medical aesthetics consumptions.
[Foreign language] 80%， [Foreign language] 50% [Foreign language] 2021 [Foreign language] 。
In terms of order categories on our platform, non-surgery accounts for over 80% of total orders. Anti-aging is one of the most favored category and the most frequently purchased product, such as wrinkles and hyaluronic acid, skin whitening and rejuvenation account for over 50% of total orders. The proportion is slightly higher than 2021, indicating users demands from non-surgery categories.
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Targeting user demands, we continue to optimize number of SKUs for non-surgery categories to provide high-quality supply. We also launched some products based on characteristics of certain category, such as So-Young Skin Card, which include several anti-aging products in our bundle to facilitate user choice.
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Well, in addition, please be noted that at the end of each year, usually we will release a white paper in which we will discuss with the new regulatory policies, industry trend, and other important topics.
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OK。
Ladies and gentlemen.
Yeah。
This will.
Yeah。
This will conclude our question and answer session. At this time, I would like to turn the conference back over to Miss Vivian Xu for any closing remarks.
Well, we are now approaching the end of the conference call. Thank you for your participation in today's conference. You may now disconnect. Have a good day. Thank you. Thank you. Bye.
Bye-bye.
The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.