So-Young(SY) - 2022 Q4 - Annual Report

Revenue and Financial Performance - Consolidated affiliated entities contributed 100.0%, 93.0%, and 79.9% of total revenues for the years ended December 31, 2020, 2021, and 2022, respectively [18]. - Total revenue for the year ended December 31 was RMB 1,257,874, with third-party revenues from services and sales amounting to RMB 992,705 [39]. - The net loss attributable to So-Young International Inc. for the year was RMB 65,554, reflecting a significant decrease compared to previous periods [39]. - Total revenue for the year ended December 31, 2020, was RMB 1,294,988 thousand, with third-party revenues from services and sales contributing RMB 1,294,888 thousand [40]. - Total revenues decreased by 25.7% to RMB1,257.9 million (US$182.4 million) in 2022, following a 30.7% increase from RMB1,295.0 million in 2020 to RMB1,692.5 million in 2021 [56]. - Gross profit decreased by 36.6% to RMB864.6 million (US$125.4 million) in 2022, down from RMB1,364.6 million in 2021, with gross margin declining from 80.6% in 2021 to 68.7% in 2022 [56]. Regulatory and Compliance Risks - The PCAOB was unable to inspect registered public accounting firms in mainland China and Hong Kong, impacting the company's compliance under the Holding Foreign Companies Accountable Act [23]. - The company faces risks related to regulatory approvals, anti-monopoly actions, and cybersecurity oversight in mainland China, which could adversely affect operations and ADS value [21]. - Uncertainties in the legal system of mainland China could limit the enforceability of contractual arrangements with consolidated affiliated entities [20]. - The PRC Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by foreign-invested enterprises to their immediate holding companies outside of China [29]. - The company may be subject to consumer claims and regulatory investigations, which could adversely affect its brand and financial condition [57]. - The evolving regulatory environment in China poses challenges for obtaining necessary approvals and licenses, which could adversely affect operations [124]. Operational Challenges - The company faces challenges in managing future growth and increasing service utilization among existing and new users [54]. - The online medical aesthetic service industry is rapidly evolving, making it difficult to evaluate future prospects and requiring continuous adaptation to competition [53]. - The company is vulnerable to health epidemics and natural disasters, which could disrupt operations and adversely affect results [85]. - The company acknowledges that negative perceptions of the medical aesthetic industry could impact consumer confidence and demand for its services [79]. - The company has not obtained certain licenses required for specific business operations, which may affect future revenue streams [35]. Financial Position and Cash Flow - The company reported total operating expenses of RMB 967,387 for the year, indicating a substantial operational cost structure [39]. - The total costs incurred by the company were RMB 393,292, highlighting the financial burden of operational activities [39]. - The company had cash and cash equivalents of RMB 694,420 thousand, which indicates a strong liquidity position [42]. - The company reported a net cash used in operating activities of RMB (112,873) thousand for the year ended December 31, 2022 [46]. - The company reported a significant amount of inventories, net at RMB 91,812 thousand, indicating stock levels [44]. Market and Competitive Landscape - The online medical aesthetic service market in China is experiencing significant growth, but competition is intensifying, which may lead to downward pressure on average fee rates for services [118]. - The company faces significant competition from both established players and new entrants in the online medical aesthetic service industry, which may hinder growth and market share [115]. - The company recognizes risks associated with the acquisition of Wuhan Miracle, including integration challenges and potential failure to achieve anticipated benefits [71]. Data Security and Privacy - The Data Security Law took effect in September 2021, establishing security review procedures for data-related activities that may affect national security [91]. - The Personal Information Protection Law, effective November 1, 2021, integrates rules for personal information rights and privacy protection, requiring ongoing updates to privacy policies [95]. - The company is subject to increased scrutiny regarding data security and privacy compliance, which could raise operational costs and risks [90]. - The company collects personal data, including contact information and browsing history, to enhance its big data analytical capabilities for targeted services [137]. Shareholder and Management Considerations - Retaining key management and employees is crucial for the company's success, as their loss could materially affect operations [150]. - The company has granted options for 770,152 ordinary shares under the 2018 Share Plan as of February 28, 2023, with a maximum aggregate number of shares set at 7,700,000 plus an annual increase of 2% [167]. - Under the 2021 Share Incentive Plan, 880,345 awards have been granted and outstanding as of February 28, 2023, with a maximum initial issuance of 1,734,760 shares [169]. Legal and Taxation Issues - The PRC tax authorities may scrutinize contractual arrangements, leading to additional tax liabilities that could adversely affect financial conditions [192]. - The newly enacted PRC Foreign Investment Law introduces uncertainties regarding the interpretation of contractual arrangements, which may affect corporate governance and operations [198]. - The company may lose access to material assets held by consolidated affiliated entities if they undergo bankruptcy or liquidation, impacting business operations [195].