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So-Young International Inc. (SY -1.61%)
Q4Â 2019 Earnings Call
Mar 23, 2020, 7:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by and welcome to the year and welcome to the So-Young Fourth quarter and Full Year 2019 Earnings Conference Call. [Operator Instructions].
I would now like to hand the conference over to your first speaker for today, Ms. Vivian Xu. Thank you. Please go ahead.
Vivian Xu -- Investor Relations
Thank you, operator. Hello everyone and thank you for joining us today. So-Young's fourth quarter 2019 earnings release was distributed earlier today and is available on our IR website at ir.so-young.com. On the call today from So-Young, we have Mr. Xin Jin, Co-Founder and Chief Executive Officer; and Mr. Min Yu, Chief Financial Officer. They will both be available to answer your questions during the Q&A session that follows management prepared remarks. 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.
It is now my pleasure to introduce Mr. Xing Jin, who will read through his prepared remarks in Chinese first, in their entirety, before they are translated to English. After which, Mr. Min Yu will go over the financials. Mr. Xing Jin, please go ahead.
Xing Jin -- Co-Founder, Director and Chief Executive Officer
[Foreign Speech]
Thank you everyone for joining us for our fourth quarter 2019 earnings call. We delivered solid results during the quarter and closed out the year in a strong position. Revenue exceeded the high end of our previous guidance range, increasing 96% year-over-year to RMB358 million. This income jumped 71% year-over-year to RMB70 million, where non-GAAP net income surged 87% to RMB86 million.
[Foreign Speech]
The industry continues to present opportunities for growth, that play to our advantage. We are benefiting from these opportunities, by demonstrating how our innovative and differentiated platform offers a unique value proposition to consumers, professionals and service providers. We are excited about the many growth opportunities ahead.
[Foreign Speech]
We have been, the largest and most vibrant community of users and medical aesthetic professionals. Over the past year, we accelerated the deployment of resources with a focus on optimizing the overall user experience. Our community of users grew significantly during the quarter. As a result, with average mobile use, increasing to 3.7 million compared with 1.7 million during the same period of 2018, an increase of 113%.
[Foreign Speech]
Our goal this year is to create a more diverse, engaging and high quality content portfolio, that will dominate the mindshare [Phonetic] of users. This will increase user stickiness to our platform and then offer them to seamlessly and efficiently move to the entire decision making process. Min will be able to elaborate further on this.
[Foreign Speech]
Earlier this month, we introduced a few format for beauty diaries. Our innovative content will generate organic traffic to our platform, from new circular actively, seeking out information.
[Foreign Speech]
In order to enrich our overall content offerings and strengthened trust in both the users posting content and the content itself, we made a few strategic changes. First, we are using effective institute, and users will have methods, such as post procedural follow-up to encourage users to produce more high quality content.
[Foreign Speech]
Second, we optimized the diary theme [Phonetic] to enable users to generate diaries more efficiently. By simply adding three related photos or one short video, users can easily and conveniently begin sharing their medical esthetics treatments and recovery progress.
[Foreign Speech]
Third, we are designing AI, alongside our manual review process, to quickly screen and ensure the authenticity of everything uploaded. We are also increasing the vividity of premium original content and high quality PCs, by upgrading back-end technologies and improving tagging and classification. As of February 29, we have accumulated over 3.5 million pieces of beauty dairies.
[Foreign Speech]
Our in-house editorial team compiles insightful opinions of specific new medical procedures, and change taking place across the industry, through social media networks. During the quarter, the average monthly views of our content on third party social media platform exceeded 1 billion. This is more than three times the number of views, when compared with the same period in 2018. This dedicated team also works with KOLs and industry professionals to help them develop and improve their content quality and create greater synergies across our community.
[Foreign Speech]
Other than the content generated by users' KOLs and in-house editors, will also help the doctors and medical professionals in the industry, to generate their own content, which will help facilitate the decision-making process for users in 2019, [Technical Issues], 10,000 doctors to debate their professional hearings with particular screening, by broadcasting the actual diagnosis and treatment planning process with users.
[Foreign Speech]
Lastly, I'd like to formally introduce live video diagnoses and one of the key service features offered through our app. We are the first in the industry to offer such a service, where doctors and consultants are invited to bring the consultation process online, in order to help users get more direct and targeted advice for decision-making. We have seen an upward trend in demand for this service, since the start of the COVID-19 outbreak. In February alone, we received 40,000 requests from users for live video diagnoses, with a coverage number of sessions increasing by 134% from January.
[Foreign Speech]
This feature, as well as other AI analysis tools, [Indecipherable] from our 3D try and test scheduling selection to screen texture testing and eye shape. eyebrow design provides solutions for our growing community of users, who are looking for effective services and tools to facilitate their decision making. It increases users exposure to having relatable and relevant information that enrich the overall user experience.
[Foreign Speech]
Our ultimate aim is to calculate the most relevant and trustworthy content in our communities. So that the user will always have easy access to the full life circle of the beauty journey. We firmly believe that careful users [Phonetic] of the community will be integral to scaling up our business and further establishing our competitive advantage over the long term.
[Foreign Speech]
In closing, I would like to thank all our employees for their dedication and hard work during this difficult time caused by the COVID-19 outbreak. We are also mindful of added pressure placed on public medical service providers during these times. We are confident that our innovative platform will play part in offering an efficient alternative for delivery of applicable services, while we continue to generate long-term sustainable growth for our shareholders.
[Foreign Speech]
I will now turn the call over to Min, who will go through the financials for the quarter.
Min Yu -- Chief Financial Officer and Director
Thanks Chris. So please be reminded that all amounts quoted here will be in RMB term. Please also refer to our earnings release for detailed information of our comparative financial performance on a year-over-year basis. For the fourth quarter 2019, total revenues were RMB358.2 million, up 96% year-over-year. As indicated earlier, this exceeded the high end of our previous guidance.
Within total revenues, information services revenue was RMB264.5 million, up 108% year-over-year, driven primarily by an increase in average revenue per medical service provider, as they increasingly allocate a larger proportion of their marketing budgets to our platform. This in turn completes the value chain, which allows us to offer a more diversified and optimized portfolio of products.
Reservation Services revenue was RMB93.7 million, up 67% year-over-year, driven by an increase in the number of purchasing users. Costs of revenues were RMB58.5 million up 85% year-over-year due primarily to content related expenses.
Total operating expenses were RMB222.9 million, up 90%. Sales and marketing expenses were RMB132.2 million, up 107% year-over-year, due primarily to an increase in expenses associated with marketing campaigns and the user acquisition initiatives.
General and administration expenses were RMBS36 million, up 30% year-over-year, due primarily to an increase in personnel related expenses. Research and development expenses were RMB54.7 million, up 111% year-over-year. This increase was primarily attributable to costs associated with increased hiring, to support product development, which is in line with our strategy of strengthening technology and big data analysis capabilities.
Income tax expenses were RMB29 million compared with income tax expense of RMB0.8 million during the same period last year. The change was primarily due to increased in taxable income during the fourth quarter of 2019. Net income was RMB69.9 million, up 71% year-over-year compared with RMB40.8 million during the same period last year. Non-GAAP net income was RMB86.4 million, up 87% year-over-year compared to RMB46.3 million during the same period last year.
Basic and diluted earnings per ADS attributable to ordinary shareholders, were RMB0.68 and RMB0.65 respectively, compared with RMB0.17 and the RMB0.15 respectively during the fourth quarter 2018. In the interest of time, I will not go through the full year financials in similar detail. For the full year 2019, total revenues were RMB1.15 billion, up 87% year-over-year. Within total revenues, information services revenue was RMB833.4 million, up 101% year-over-year. Reservation services revenue was RMB318.2 million, up 57% year-over-year. Cost of revenues were RMB198.6 million, up 117% year-over-year, due primarily to an increase in personnel-related costs.
Total operating expenses were RMB807.8 million, up 70% year-over-year. Net income was RMB176.7 million, up 221% year-over-year compared with RMB55.1 million in fiscal year 2018. Non-GAAP net income was RMB280.9 million, up 247% year-over-year compared to RMB80.9 million in fiscal year 2018. Basic and diluted earnings per ADS attributable to ordinary shareholders were RMB1.64 and the RMB1.54 respectively compared with basic and diluted loss per ADS attributable to ordinary shareholders of RMB1.54 in fiscal year 2018.
Now, moving onto the balance sheet; as of December 31, 2019, we had total cash and cash equivalents, restricted cash and term deposits and the short-term investments of RMB2.8 billion compared with RMB1.2 billion as of December 31st, 2018. The increase was primarily due to net proceeds from our IPO in May 2019.
Now, on to guidance. It has been a challenging start for 2020, as we closely monitor the evolving impacts of the COVID-19 we have prioritized the health and the safety of our employees, and have in place elaborate contingency preparedness plans to ensure business continuity. Though the fundamentals and the long-term drivers of overall business remains strong, we are cognizant that there are many unknowns relating to the duration, severity and overall macroeconomic impact of the outbreak.
With that in mind, for the first quarter of 2020, we expect total revenues to be between RMB160 million to RMB180 million. We currently have very limited visibility surrounding the epidemic's long-term impacts on our business, and the markets in which we operate. Therefore, this forecast reflects the company's current and preliminary views on market and operating conditions, which are subject to change.
This concludes our prepared remarks. I will now turn the call to the operator and open the call for Q&A. Operator, we are ready to take questions.
Questions and Answers:
Operator
[Operator Instructions]. Our first question comes from the line of Thomas Chong of Jefferies. Please go ahead.
Thomas Chong -- Jefferies -- Analyst
[Foreign Speech]
Thanks, management, for taking my questions. And wish everybody is healthy and safe. My question is about the Q1 guidance and 2020 outlook. Given the fact that coronavirus is now under control in China, can management share about the Q1 on a month-on-month basis how the business trend has been progressing and how we should think about the business momentum in Q2 and the second half of this year? Thank you.
Min Yu -- Chief Financial Officer and Director
Okay. Thanks, Thomas. I will address your question. So, first of all, for the first quarter 2020, as I said in the remarks, it has been very challenging. The key reason is because of the COVID-19 outbreak. All the offline, all the service providers, they are not able to operate, so they needed to shut down the business for the full February, start from the Chinese New Year which is 20 -- I think it starts from 24th of January until the end of February. And in March, we do see the service providers start to come back to the business. They need to apply for opening to the local government. And if they get permitted, then they will start to accept customers and start to carry out services. That's basically the market condition impacted by the COVID-19. And from my platform and So-Young's platform, of course, the traffic has been down during Chinese New Year as usual. And we start to see the active users come back to the platform in the second week of February. And in the second week of February, the active users start to reach the level prior to the Chinese New Year. And in March, right now, we do see users go to the offline service providers for taking treatment and services. And that's the trend currently resuming, the normal -- start to come back and we do see the business activities coming back as well.
And we have -- as a community-based platform, the service providers even during February, they still invest on our platform to acquire customers and they're trying to maintain the exposure in front of the dedicated medical aesthetics customers on So-Young's platform. So, what's the trend going forward? As I said, it's very -- although in Mainland China, you can see the COVID-19 has been contained pretty well and there is no new cases being carried out in the past almost a week time and we do see the business activities, offline business activities coming back gradually not only from like restaurants and shopping malls and also aesthetic services. So, if the trend going on well, we expect probably in the mid and late May, the business activity level could possibly reach to the level of fourth quarter 2019. So, it means our traffic and our service providers' activity on the community will go back to the normal level and for the traffic point of view, as I said, active users are coming back and we probably will have seen the active users for March will be quite similar to what is before the Chinese New Year, which is January level and we are also seeing users coming back pretty fast and they're coming back to the community using our services start from March -- start from February. So, that's current point of view. But if you go to financials, as I said, as a company policy and the board decides to only have a formal guidance for the next quarter's revenue, which is RMB160 million to RMB180 million. For the full year, very obvious, the business has been impacted by the COVID-19 outbreak. It will have impact to our top line.
Thomas Chong -- Jefferies -- Analyst
Okay, thank you.
Operator
Our next question is from the line of Brian Gong of Citigroup. Please ask your question.
Brian Gong -- Citigroup -- Analyst
[Foreign Speech]
So, for coronavirus impact, does management see any small clinics go bankruptcy because of the suspension of the operation during the quarantine period? And if so, what's the percentage of our total clients? And my second question is about the monetization efforts this year. What kind of improvement of monetization we should expect for this year and how about the latest progress? Thanks.
Xing Jin -- Co-Founder, Director and Chief Executive Officer
[Foreign Speech]
So, about your first question about the institutions closing down during the outbreak. And so, first, certainly, there are some institutions facing the situation to be closed down, for the business to be transferred during the outbreak. But it's not necessarily related to the outbreak. Because you can see, in the past few years, the domestic market, the industry has entered a period where the competition is very intensive. So, we would say the industry is with high visibility. There are a lot of institutions to open and to close all the time. So, this is a common situation in the industry.
And lately, there's no major impact on markets because, in the past few years, the [Indecipherable] situation is such -- is the demand bigger -- if supply is over the demand. Actually, the institutions fighting for the [Indecipherable]. So, many institutions didn't even have enough clients to support themselves. So, with the institutions closed during the outbreak, our attitude is those that are not operating so well. So, there will not be major impact on our platform.
[Foreign Speech]
And for your second question about monetization, in the past few [Indecipherable] didn't upgrade our monetization strategies. And our strength is to take the success of clients as our core idea. We are stretching our monetization funnel to serve more medical aesthetics institutions and consumers. I would say the e-commerce model is a model focusing a lot on operations. And so, this will set higher requirements of medical aesthetic institutions, but still currently a lot of institutions in the country lack those e-commerce operation capabilities. That's why we are designing life member service products, especially for them. So, these institutions will be able to have favorable ROI with less investment in human resources and from the view of consumers.
According to the data on our platform, the consumers who visit the service institutions directly after viewing information on our platform are more than the consumers who made a reservation first and then visit the institution. So, to capture these consumer demands in advance and manage them with proper institutions and facilitate final transactions is also part of our monetization upgrade. So, our monetization upgrade relies on the upgrade of the older product format on our platform. We've said that is a very big project and is now under development and the progress is quite good. Finally, I'd like to mention a little on the lead revenues. In the fourth quarter, we had no lead-related revenues generated. That's it. Thanks.
Brian Gong -- Citigroup -- Analyst
Thanks.
[Foreign Speech]
So, just a follow-up question, for this year, what kind of revenue contribution we expect for the sales leads to generate? Thanks.
Min Yu -- Chief Financial Officer and Director
Yeah, let me answer your question. We will start to see some of the leads generate revenue, start from second quarter of this year, but it won't be taking majority of our -- or being a very large portion of our revenue by that time. And we're hopeful it will grow in the second half of this year. But if you say, what's the absolute amount or what is that number, we can't give you the number at the moment.
Brian Gong -- Citigroup -- Analyst
Okay, got it. Thank you.
Operator
Thank you. The next question is from the line of Jing Qiang of CICC. Please go ahead.
Jing Qiang -- CICC -- Analyst
[Foreign Speech]
Thanks, management, for taking my questions. This is Jing Qiang representing Natalie. We have a question on the Live Video Diagnosis feature. Can management elaborate more on the features? Specifically, like how many physicians are on this feature currently? What's the successful connected through rate? And what's the feature monetization plan for this feature? In terms of sales and marketing, how much budget are we planning on to spend on the feature? Thank you.
Xing Jin -- Co-Founder, Director and Chief Executive Officer
[Foreign Speech]
So, the Live Video Diagnosis is actually a service we started to test from early last year. Of course, we didn't expect there will be an outbreak. But still, we believe at the same time, live video will be mainstream, will be a major trend in the future, especially with commercialization of 5G. Actually, live video suits our industry and our services quite well. For some of our services, like skin, like teeth corrections, actually there are many advantages about the videos. In the past, we can see our users view the information on platform and still will be able to visit many institutions to do a face to face consultation before they make the final decision. So, with this service, they will be able to consult with several doctors or consultants and sometimes same time, which will save the time and expenses for them. So, since we first launched the service in April last year, until February this year, the requests grew by 100 times. Of course, we started from a small number, but still, it shows that the service has a strong growth momentum. And for the number of doctors and consultants on the platform, we have more than 1,000 [Indecipherable].
[Foreign Speech]
And this service is a core innovative service for this year. And present, we mainly focus on the user, the rapid growth of users and also the matching situation between the users and the doctors. For the [Indecipherable] video, there are several layers for this. But, overall, it's about 80%. And present, we don't focus much on monetization. We are pretty much [Indecipherable] scaling up and the growth of the business itself and for promotion budgets, it's within our marketing targets this year. And we -- and present, [Indecipherable] user growth. That's it. Thank you.
Jing Qiang -- CICC -- Analyst
Thank you.
Operator
[Operator Instructions]. The next question is from the line of Vincent Yu of Needham and Company. Please go ahead.
Vincent Yu -- Needham and Company -- Analyst
So, my question is a follow-up on online consultation. So, we're basically providing a platform for user and the institutions to engage directly. So, like how are we going to ensure So-Young as a platform will now be scaled when transaction is about to happen? And also, for content quality, like [Indecipherable] is easier to control the content quality, while live streaming is harder. So, how can we ensure our content [Indecipherable] continue to have very high reliability?
[Foreign Speech]
Xing Jin -- Co-Founder, Director and Chief Executive Officer
[Foreign Speech]
So, this service, we can compare -- when comparing with the Beauty Diary, Beauty Diary, we mainly focus on the demand of -- to make comments. And for live video, it's mainly focusing on pain points of our users. Yes, they must visit the doctor before they make the decision because the treatment is risky. And you're certainly waiting to visit the doctor first before you make the decision. So, these services are compared to the [Indecipherable] different stages.
In the future, we will charge the live video services. We will set different price levels for doctors and with different experience. The lowest will be [Indecipherable] and we will charge every five minutes. And this is to let the doctors know their time spent on our platform will be returned and we will also conduct content control. For all the videos, the sizes will be stored on our platform and we will allow the users to grade on the doctors after the consultation. And so, if the doctors give [Indecipherable] information or they're encouraging too much for consumption, they will have a low ranking and their ranking on our platform will keep going down.
Min Yu -- Chief Financial Officer and Director
Sorry. I'm not sure that's your -- so, first part of your question, is that -- with this function being...
Vincent Yu -- Needham and Company -- Analyst
[Foreign Speech]
Xing Jin -- Co-Founder, Director and Chief Executive Officer
[Foreign Speech]
So, we will observe the user behavior on our platform. That will be quite interesting. And some of our users prefer the private institutions and others prefer public hospitals. Actually, most of our service users are private because, for many public hospitals, they don't have an operating department and they don't have the budget for e-commerce operations. And so, now you can see for the live video service, we mostly serve the public hospital doctors. So, this will be a supplement to our private institution users. With the live video service bringing the new users, they will also use the carrying function and they will join the e-commerce promotions on our platform. And this will be a contribution to the private institutions. And for the doctors and consultants, they are all medical professionals. So, they are quite different from the general live broadcasting calls because they have a license and they have a job. So, it is actually much easier to control the content than [Indecipherable]. That's it.
Vincent Yu -- Needham and Company -- Analyst
[Foreign Speech]
Thanks a lot.
Operator
Thank you. Next question is from the line of Robert Cowell of 86Research.Pga.
Robert Cowell -- 86Research -- Analyst
Hi, management. Thanks for taking my question. The question is about the Information Services business. In the fourth quarter, we saw a pretty good pickup in the spend per institution or spend per organization on Information Services. I'm wondering if there's anything specific y'all can call out that's driving that increasing spend in the fourth quarter?
Min Yu -- Chief Financial Officer and Director
I think I will address your question, Robert. So, Information Service is mainly driven by the traffic on the platform. So, I think the key driver for the Information Service growth, especially the -- the ARPU for individual service providers on our platform is mainly because in the fourth quarter our traffic has been increased quite substantially quite fast. And the other reason is fourth quarter, we have Double 11, Double 12 and those e-commerce shopping festivals in China actually brings extra. Service providers usually allocate more budget prior and within that festival period. So, it helped our service provider ARPU growth in the fourth quarter.
Robert Cowell -- 86Research -- Analyst
All right, thank you.
Operator
Thank you. Last question is from the line of Austin Moldow of Canaccord. Please go ahead.
Austin Moldow -- Canaccord Genuity -- Analyst
Hi, thanks for taking my questions. And congratulations on the revenue growth acceleration. I have a few questions about sales and marketing. The total sales and marketing expense in the quarter experienced deleverage year-over-year. So, can you talk about what marketing decisions you made in the quarter that drove that? And if you can, can you also give the marketing and user acquisition figures for the quarter as well?
Min Yu -- Chief Financial Officer and Director
Right. Sure. Within the sales and marketing, we have a part of the payroll for our business development team. So, in the fourth quarter of 2019, we have a total of RMB130 million in sales and marketing. Within that, RMB104 million is actually spent on customer acquisition. And the remaining are the payroll. And for the full-year 2019, we have RMB461 million in terms of sales and marketing. And then, within that, RMB347 million is actually used for customer acquisition.
Austin Moldow -- Canaccord Genuity -- Analyst
Okay. Are you able to give the split between traffic acquisition and brand marketing?
Min Yu -- Chief Financial Officer and Director
Yes. For brand marketing, in the fourth quarter, we actually invested on focus media on branding as our major investment activity. I think within the fourth quarter, 60% is for branding and around 40% is for traffic acquisition.
Austin Moldow -- Canaccord Genuity -- Analyst
Got it. And have you adjusted sales and marketing in Q1 given the COVID-19 outbreak? And how are you adapting the rest of 2020's sales and marketing spending? Are you pulling it back? Or are you getting more aggressive related to the comments you gave about some users and service providers starting to return to the platform?
Min Yu -- Chief Financial Officer and Director
Yes, it's very good question. And for the first part of your question, for the COVID-19 period, did we actually pull back a bit on the sales and marketing activity? Yes, the answer is yes. Because usually we will start to invest after Chinese New Year. But now, because Chinese New Year finished basically in the beginning of February, but the whole February has been closed down for business for the service providers, we did cut a bit -- or saved a bit in sales and marketing and saved for the future investment. But still, as an Internet platform, we did the brandings advertisement during this period of time. We invested in like TV series, commercials, and we promoted our Live Video Diagnosis as our key message or key topic, a key theme for the sales and marketing activity in the first quarter. And for your second part of your question, what's the sales and marketing plan or the budget for the whole 2020, as you can see, for 2019, compared to 2018, so in 2018, 49.5% of the revenue has been invested in sales and marketing and in 2019, we have 40%.
But we still see our traffic being grown very rapidly, more than 100% year-over-year in fourth quarter of 2019 and for the full financial year 2019, which means our effectiveness and the efficiency of sales and marketing has been improved in 2019. I have to say that's the best case scenario for the operation for our sales and marketing team and going forward, as we always said to the investors, the key strategy of So-Young is to acquire customers and improve the penetration rates within medical aesthetics population. So, we will still invest heavily in sales and marketing and branding and we are not going to save much going forward for 2020 in sales and marketing. Customer acquisition is our key KPI. So hopefully, it answered your question.
Operator
[Operator Closing Remarks].
Duration: 68 minutes
Call participants:
Vivian Xu -- Investor Relations
Xing Jin -- Co-Founder, Director and Chief Executive Officer
Min Yu -- Chief Financial Officer and Director
Thomas Chong -- Jefferies -- Analyst
Brian Gong -- Citigroup -- Analyst
Jing Qiang -- CICC -- Analyst
Vincent Yu -- Needham and Company -- Analyst
Robert Cowell -- 86Research -- Analyst
Austin Moldow -- Canaccord Genuity -- Analyst
