Aesthetic Medical International Holdings Group Limited (NASDAQ:AIH) Q3 2022 Earnings Call Transcript

Aesthetic Medical International Holdings Group Limited (NASDAQ:AIH) Q3 2022 Earnings Call Transcript November 29, 2022

Operator: Good morning, ladies and gentlemen. Thank you for standing by, and welcome to Aesthetic Medical International Third Quarter 2022 Earnings Conference Call. As a reminder, today’s conference call is being recorded. On the call today from Aesthetic Medical International are Dr. Pengwu Zhou, Chairman and Chief Executive Officer; Mr. Toby Wu, Chief Financial Officer; and Mr. Derrick Shi, Investor Relations Associate Director. Dr. Zhou will review the business operations and the company highlights, followed by Mr. Toby Wu, who will introduce the company’s financial performance. They will all be available to answer your questions during the Q&A session that follows. Before we get started, I’d like to remind you that some of the information discussed will include forward-looking statements regarding future events and our future financial performance.

These include statements about our future expectations, financial projections and our plans and prospects. Actual results may differ materially from those set forth in such statements. For discussion of these risks and uncertainties, you should review the company’s filings with the SEC, which includes today’s press release. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of today, and we undertake no obligation to update them, except as required by applicable law. Our discussion today will include non-IFRS financial measures, including EBITDA, adjusted loss and adjusted EBITDA. You should not consider EBITDA, adjusted EBITDA or adjusted loss as a substitute for or superior to net income prepared in accordance with IFRS.

Furthermore, because of non-IFRS, measures are not prepared in accordance with IFRS, they are susceptible to varying calculations and may not be comparable to other similarly titled measures presented by other companies. You are encouraged to review the company’s financial information in its entirety and not rely on a single financial measure. At this time, I would like to turn the call over to Dr. Pengwu Zhou, Chairman and CEO of Aesthetic Medical International. His opening remarks will be delivered in English by Investor Relations Associate Director, Mr. Derrick Shi. Dr. Zhou, please go ahead.

Pengwu Zhou: Thank you, everyone, for joining the call today. The third quarter of 2022 was still clouded by the uncertainties arising from the resurgence of COVID-19 pandemic. To migrate the impact on people’s daily living and business operations, the country has adjusted its strategy of prevention and control measures from a board coverage of a region to a more precise implementation of specific areas with shortened lockdown period. Yet Shenzhen was placed under lockdown, and three of the group’s treatment centers were forced to close temporary in September, which affected our customer traffic. As a result, revenue of this quarter slightly decreased by 0.3% year-over-year. During the period, the company has strived to enhance its operating efficiency by adjusting marketing strategies and streamlining business operations.

In terms of marketing, we have started collaborating with key opinion leaders and head into live streaming e-commerce. This was successful and effective in expanding target audience to younger generation who had strong demand in self-care and aesthetic-related consumption. This is reflected by a 27.8% year-on-year decrease in selling expenses during the third quarter. In terms of operations, we have further strengthened our training program, which was launched in the second quarter. Besides offering them with the latest standardized operating procedure, we have further equipped them with the latest aesthetic medical market trends and product offerings, ensuring the best-in-class services are provided to our customers. We have also engaged with mystery shoppers in this quarter to better evaluate the service quality, of which they will discretely visit each treatment centers and provide assessment on user experience for management’s review.

As at the date, 25 mystery shoppers’ assessments and feedback have been received. During the time being, we have also begun the renovation of the first floor of one of our flagship hospitals, Shenzhen Pengai Aesthetic Medical Hospital, which is expected to be completed by the end of this year. We believe that these measures will provide customers with a better service experience, laying a strong foundation to support our business, scalability and sustainable growth in the long run. The company is committed to becoming a professional and reliable non-surgical aesthetic medical service provider. We remain prudent to conduct regular assessment on treatment centers and divest non-performing centers. During this quarter, we divested the Shenzhen Pengai Aesthetic Medical Hospital and non-Shenzhen Pengai Aesthetic Medical Hospital, and expects to receive cash inflows of RMB 4.6 million and RMB 3.0 million from Shenzhen Pengai and non-Shenzhen Pengai, respectively.

We believe we see aforementioned strategies, we can further enhance our core competencies, improve brand equity and eventually drive profitability. Thank you again for all your support and attention. And I would like now to turn the call to our CFO, Toby Wu to introduce the financials and operations for the third quarter of 2022. Toby, please go ahead.

Toby Wu: Okay. Thank you, Dr. Zhou, and thank you Derrick. Hi, everyone. I will summarize some of our key unaudited financial results and operation results for the third quarter ended September 30, 2022. In the third quarter of 2022, total revenue decreased 0.3% year-on-year to RMB 167 million, primarily attributable to the divestment of underperforming assets in the 2021 and the first 3 quarters of 2022 and the temporary closure of several treatment centers due to the pandemic preventative requirements in the third quarter of 2022. Gross profit was RMB 86.6 million, representing an increase of 22.5% year-on-year. Gross profit margin was increase of 9.6 percentage points from 41.8% to 51.8%. The increase was attributable to the implementation of stringent cost control of the aesthetic medical consumables, as well as the value-added service provided by the Group’s professional doctors to enhance the service quality of non-surgical aesthetic medical business.

Selling expenses was RMB 61.5 million, representing 36.8% of the company’s total revenue in the third quarter of 2022. Selling expenses as of revenue decreased by 14 percentage points year-on-year. The reduction in the selling expenses and its contribution was mainly as a result of the company’s strategic shift of marketing focus on lower-cost online marketing channels, such as the private domain customer reach and social media live streaming, to alleviate the rising customer acquisition costs under the impact of COVID-19 pandemic. General and admin expenses were RMB 45.5 million, representing a decrease of 12.6%, primarily due to the divestment of underperforming assets in the 2021 and the first three quarters of 2022. As a result of the foregoing, the company recorded a loss of RMB 52.4 million for the third quarter of 2022 compared with a loss of RMB 30.3 million in the third quarter of 2021.

Basic and diluted loss per share was both loss of RMB 0.6 in the third quarter of 2022, compared with the basic and diluted loss per share of RMB 0.22 in the third quarter of 2021. EBITDA for the third quarter of 2022 was a loss of RMB 38.1 million compared with a loss of RMB 43.1 million in the third quarter of 2021. Adjusted EBITDA for the third quarter of 2022 was RMB 10.6 million, rebounded from a loss of RMB 30 million in the third quarter of 2021. Adjusted loss after tax for the third quarter of 2022 narrowed to RMB 3.7 million, compared with a loss of RMB 17.2 million in the third quarter of 2021. In terms of our operating performance, as a result of a temporary business and suspension of several treatment centers in the third quarter of 2022, the company recorded a decrease of 13.5% year-on-year in the total active customers.

The company recorded an increase in the number of treatment cases of 4.7% year-on-year. And the number of treatment cases in the retained treatment centers increased by 37% year-on-year. The increase was primarily driven by the increasing demand of non-surgical aesthetic medical treatments around the young generation as well as the effectiveness of company’s newly introduced package promotion. Total number of non-surgical aesthetic medical treatments as a percentage of a total number of aesthetic treatments increased by 5.8 percentage points. Average spending per customer increased by 15.2% from RMB 2,529 in third quarter of 2021 to RMB 2,915 in the third quarter of 2022, primarily driven by the sales of high-end bio-stimulating fillers. As of September 30, 2022, cash and cash equivalent was RMB 20.4 million.

Looking ahead, we will continue to implement a aforementioned strategy. We will dedicate to provide better and quality service to our customers and delivering sustainable long-term growth. This concludes our prepared remarks. Thank you for joining us on today’s call. We will now open the call to the questions. Operator, please go ahead.

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Q&A Session

Operator: Our first question comes from from Capital.

Unidentified Analyst: I’m Jesper’s colleague. I just wanted to thank you management for their sharing. I actually have two questions. My first question is about customers. So we noticed that the number of customers have decreased. What were the reasons for the decrease? And is there any strategy to acquire new customers and to retain existing customers?

Derrick Shi: Hi , this is Derrick. And thank you for your question. Yes, we have seen that the number of customers have been decreasing in comparison with the third quarter in 2021. The main reason of the decreasing is that we have invested in some agencies in 2021, and also in the first 3 quarters in 2022. And the other reason is that we tend to allocate more resources in our treatment center in Greater Bay Area. So we have allocated more cash in training the employees instead of spending in advertising. And the strategies that we are trying to retain our customers is that we will introduce SOP training to our employees, and then inculcate core values to them. And the last is to do the renovation for one of our flagship hospital so that we could provide better customer experience to retain those customers. Thank you.

Operator: No further questions. Let me turn the call over to Mr. Derrick Shi, for closing remarks.

Derrick Shi: Thank you, operator. On behalf of our entire management team, I would like to thank everyone again for joining us today. If you have any questions, please contact us through e-mail at ir@pengai.com.cn or reach our IR Counsel, DLK Advisory at ir@dlkadvisory.com. We appreciate your interest in supporting Aesthetic Medical International and look forward to speaking with you again next time. And I have one more advertisement for our company that we provide one-stop aesthetic medical treatment with genuine equipment and consumables. So welcome all the investors and analysts to visit our hospital all over China, and hope you have a great experience here. And thank you operator, please go ahead.

Operator: We do have a follow-up question from .

Unidentified Analyst: Perfect. I actually have one more follow-up question. So we all noticed that the COVID situation remains uncertain, and there’s lockdowns and that could potentially affect the company’s business. So I just want to know, is there any measures in place to alleviate the risk?

Derrick Shi: Okay. Thank you, . Yes, we noticed that the activity of government is to limit the spread of COVID-19. So firstly, we will actively coordinate with government pandemic prevention measures. For example, we will set a front desk to guide the customers to scan the site code, and measure their body temperature to prevent the customer affected by COVID, and then we will take advantage of our online marketing while our face-to-face consultation is impacted. For example, we will use a video call between our doctors and customers. And lastly, we will be providing prudent expansion during this period. So we won’t have many loss-making agencies in comparison to the previous time.

Unidentified Analyst: Am I still with you guys?

Derrick Shi: Yes, we can hear you.

Unidentified Analyst: Yes. Actually, one last question, please. And we saw the Chinese government actually has introduced quite a lot of policies on how aesthetic medical industry should operate and advertise. So what’s the company’s view on these regulations? And how will they affect our business operations?

Derrick Shi: Thank you, Jesper. Yes, the good thing is that we know the bottom line of the government, how they will regulate our industry. And we know the execute. And we will have the target to conduct our business in a healthy and long-term way. And as you know, the AIH was founded by Dr. Zhou. And so we have being at the forefront of industry in terms of compliance. So we are confident that we will be impacted much — will have much smaller impact than our competitors. And that’s it.