Aesthetic Medical International Holdings Group Limited (AIH) CEO Pengwu Zhou on Q2 2022 Results - Earnings Call Transcript

Aesthetic Medical International Holdings Group Limited (NASDAQ:AIH) Q2 2022 Earnings Conference Call August 17, 2022 8:00 AM ET

Company Participants

Pengwu Zhou - Chairman & Chief Executive Officer

Derrick Chi - Investor Relations Associate Director

Toby Wu - Chief Financial Officer

Conference Call Participants

Operator

Good morning, ladies and gentlemen. Thank you for standing by and welcome to Aesthetic Medical International First Half of 2022 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. 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 Chi, Investor Relations Associate Director.

Dr. Zhou will review the business operations and the company’s highlights, followed by Mr. Derrick Chi, who will introduce the company’s financial performance. Mr. Chi and CFO, Mr. Wu will all be available to answer your questions during the Q&A session that follows.

Before we get started, I would 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 a discussion of these risks and uncertainties, you should review the company’s filings with the SEC, which include 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, and adjusted loss as a substitute for or superior to net income prepared in accordance with IFRS.

Furthermore, because 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’re 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 Derrick Chi. Dr. Zhou, please go ahead.

Pengwu Zhou

[Foreign Language] Thank you, operator, and hello, everyone. We are pleased to announce that the company has achieved positive business progress despite the fluctuating COVID-19 pandemic. Since late March, two of our treatment centers in Shanghai were temporarily suspended operations for more than two months. Upon the business resumption, we saw 138.8% and 99.6% recovery in the number of customers and cash sales in June, respectively, compared to March before the lockdown was in place. This was attributable to the optimization of our marketing strategies, which online market channel and private domain reach were used to promote our brands and treatment packages. Overall, we recorded a steady business growth with revenue increased by 26% [ph] year-on-year and a narrowing net loss despite the business disruption in the Eastern region.

[Foreign Language] In terms of operations, we are dedicated to strengthening our management system and enhancing our services to become the surprise of our customers. During the period, we have been working with an experienced consulting team in order to establish our own customer relationship management system, which will be equipped with more comprehensive and precise functions in the near future. The first pilot run will be launched at Shenzhen PengAi Medical Aesthetic Hospital. Upon the successful trial run, we intend to implement the system across all treatment centers.

We have also implemented new internal operational protocols by establishing new standard operating procedures to ensure customers receive better and consistent services across these treatment centers. Staff training program will also be offered to frontline employees, includes, but not limited to reception, customer services, system medical practitioners, and et cetera. We believe these measures would not only enhance the customer experience, but more importantly, help us to improve our customer retention rate, laying a solid foundation for the company to replicate the model and drive future growth and expansion.

[Foreign Language] On July 14, 2022, we closed our first private placement with Lafang China, which was previously announced on May 31, 2022, after receiving aggregate gross proceeds of RMB100 million. On July 20, 2022, we entered into another Subscription Agreement with Hainan Oriental Jiechuang Investment Partnership, where Jiechuang agreed to subscribe 36,402,570 newly issued ordinary shares for the total consideration in USD that is equivalent of RMB170 million. Both transactions are indicators of our business value and recognition by the market. We believe these would improve our financial position in the near future. If the second round of private placement can be completed by the fourth quarter of 2022, we are positive that our stockholders' equity will meet a continued listing requirement on Nasdaq, which the company was informed being non-compliance on June 6, 2022.

We believe the aforementioned strategies our company can further enhance our operating efficiency, provide customers with better service and quality products, while delivering sustainable growth.

Thank you again for all your support and attention. Now I would like to turn the call to our Associate Investor Relations Director, Derrick Chi to introduce the financials and operations for the first half of 2022.

Derrick Chi

Hello, everyone. This is Derrick. Thank you, Dr. Zhou. And I will summarize some of the key unaudited financial results and operation results for the first half ended June 30, 2022. In the first half of 2022, total revenue increased 10.6% year-on-year to RMB338.6 million, primarily driven by the sales of the newly introduced fillers and equipment, such as bio-stimulating filler Ellansé, high-end hyaluronic acid filler Juvéderm Voluma and body contouring equipment CoolSculpting 2.0.

Excluding the impact of the operations treatment centers which were divested or ceased operations in 2021, revenue from the non-surgical aesthetic medical services in retained services -- in retained treatment centers increased by 86.9% year-on-year.

Gross profit was RMB188.7 million, representing an increase of 48.0% year-on-year. Gross profit margin was 55.7% compared with 41.6% in the first half of 2021.

Selling expense were RMB 111.7 million, representing 33.0% of the company's total revenue in the first half of 2022. Selling expenses as a revenue decreased by 34.4 percent points year-on-year.

The reduction in the selling expenses and its contribution was mainly as a result of the company's strategic shift from -- of market focus to a lower cost customer referral program to elevate the rising customer acquisition cost under the impact of COVID-19 pandemic and to maintain a relatively high return on investment.

General and administrative expenses were RMB 65.6 million, representing a decrease of 24.5% primarily due to the significant decrease in ESOP-related expenses, as well as the divestment of underperforming assets in 2021.

As a result of the foregoing, the Company narrowed the loss to RMB 3.7 million for the first half of 2022 compared with the loss of RMB 473.0 million in the first half of 2021. Basic and diluted loss per share were both loss of RMB 0.7 in the first half of 2022 compared with the basic and diluted loss per share of RMB 5.97 in the first half of 2021.

EBITDA was RMB 44.8 million compared with a loss of RMB 415 million in the first half of 2021. Adjusted EBITDA was RMB 58.0 million compared with a loss of RMB 93.1 million in the first half of 2021. Adjusted profit was RMB 9.5 million compared with a loss of RMB 151.1 million in the first half of 2021.

In terms of operating performance, despite the decrease in the number of treatment centers and mandatory suspension of operations of several treatment centers due to the pandemic preventative measures in the first half of 2022. Following the strategic restructuring in 2021, the company will record -- the company still recorded an increase of 1.7% year-on-year in the total active customers.

It is worth noting that the number of repeat customers increased by 11.4%, showcase the effectiveness of the company's cross-selling strategies and reengage in active customers. The increase in the total active customers demonstrated the success of the company's restructuring plan, through which, is able to retain quality assets as well as its highly loyal and active customers.

For the number of treatments, despite a decrease in the number of treatment centers and mandatory suspension of operations of several treatment centers due to the pandemic preventative requirements in the first half of 2022, the company recorded an increase in the number of treatments of 30.2% year-on-year and the number of treatments in routine treatment centers increased by 68.1% year-on-year. The increase was primarily driven by the increasing demand for non-surgical aesthetic medical treatments among the young generation as well as the effectiveness of the company's cross-selling strategies, and discounted package promotion.

Total number of non-surgical aesthetic medical treatment as a percentage of the total number of aesthetic treatment increased by 7.0% points – percentage points. Average spending per customer increased by 8.8% from RMB 2,803 in the first half of 2021 to RMB 348 in the first half of 2022.

As of June 30, 2022, cash and cash equivalents were RMB 26.2 million, looking ahead, we continue to execute our strategies throughout the year. This is not only to provide better and quality services to our customers, but provide sustainable growth to our shareholders. This concludes our prepared remarks.

Thank you for joining us on today's call. We will now open the call to questions. Operator, please go ahead.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Thank you. We will take our first question – please standby. And your first question comes from the line of Amos Adebayo [ph] from DLK Advisory. Please ask your question.

Unidentified Analyst

Hello. Hello, can you hear me?

Pengwu Zhou

Hi. Yeah, we can hear you.

Unidentified Analyst

Okay. Thank you for the presentation, very informative. But I would like to know if the company plans to further divest 3 treatment centers this year. I want to know what are the details of this disposal are the treatment centers are being disposed? Are they all loss-making?

Pengwu Zhou

Yeah. As you can see that we have a strategy. Our business will focus on Shanghai and the Greater Bay based area. That's why three of these hospitals are not in those areas. This is the first one. Second reason is, yes, you are right those hospital is loss-making. That's why we are – just want to dispose with them. But luckily, we still sell at a good price we will have above RMB 4 million real cash coming in for these three disposal.

Unidentified Analyst

Okay. I see. A follow-up question.

Pengwu Zhou

Yeah.

Unidentified Analyst

May I know whether the company will continue to do more disposal going forward?

Pengwu Zhou

I don't think so because we – now we have retained both hospital on hand. Those are – most of them are making profits, so it's profitable. This is the first one. Second one, also those possible hospitals in our strategy will be on the Shanghai or even on the Greater Bay Area that’s right, fulfill our strategy. So we will make those hospitals become much better and better in the future.

Unidentified Analyst

Thank you. Just another follow-up question. We are disposing the treatment centers, but will we eventually add any new clinics? Any satellite clinics in the pipeline? If so, how many? And where will they – where will AIH situate these satellite clinics.

Pengwu Zhou

Thank you for your question. We have one satellite clinic now within the group, which is located in Fenghua District, Zhejiang and its name is Shenzhen aesthetic medical clinics. And we don't have plan to establish further satellite clinics within a certain time within, for example, one year. But we do plan to establish more standardized satellite clinics in the future, starting from 2024 to 2030. And the total number of satellite clinics, we expect to establish is around 80. I hope I clear your question. Thank you.

Operator

Thank you. [Operator Instructions] We will take our next question. And the question comes from the line of Emily Lee [ph] from IGWT Capital. Please ask your question.

Q – Unidentified Analyst

Hi. Congratulations to the company that our loss has been narrowed. And I have one question that I would like to ask. Our company has entered into a share subscription agreement with Hainan Oriental. May I expect -- do you expect any synergies or benefits for the company, please? Thank you.

Pengwu Zhou

Thank you, Emily, for your question. The share subscription agreement with Hainan Orientals, Jiechuang Investment brings the SOP and operating management experience to us. For example, the SOP can help us to standardize our medical and operating procedures, and they also have the training program for different – like different people, for example, the frontdesk and selling employees or other operating managers. So -- and the -- on the other hand, they also have the ability to produce the upstream products like the post invasive treatment marks, and we have taken [indiscernible] agency to take a trial to see the effect of this mask. And we invited 40 customers to the trial, and they gave us some positive and -- both positive and negative feedback. So we will keep improving the skin care products with Hainan and Jiechuang. So, these two aspects are the synergies between two parties. Thank you.

Unidentified Analyst

Okay. So we are going to have the mask helping them to distribute. Talking about the SOP, could you tell us more about how much do we invest into the system?

Toby Wu

The SOP is an idea that we would like to form a standard behaviors for all employees. We will review every medical behaviors and operating behaviors and then find the best solution for both behaviors and then we store in our database.

Based on the SOP information or database, we will train our employees with the standardized view, and yes, that's -- we started to operate the SOP program since September 2021. So we are still exploring and optimizing the SOP system.

Unidentified Analyst

Okay, all right. Thank you.

Toby Wu

Yes. Thank you. We hope with the help of SOP, we would enter a positive cycle to optimize our profit. Thank you.

Operator

Thank you. There seems to be no further questions. I would now like to hand the call over to Mr. Derrick Chi for closing remarks.

Thank you everyone again for attending Aesthetic Medical International first half of 2022 earnings conference call. This concludes our call today. And we thank you all for listening in. Goodbye.

Derrick Chi

Thank you. Bye-bye