Q3 2019 Earnings Call
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One one was incorporated third quarter 29, Didnt earnings conference call.
Hi, what does he says Oh, they can only those hazardous be this presentation, there will be closer to this assertion and exercise is pushing you to get dressed how I want to get telephone if that's what I said todays conference is being recorded.
The conference or would you please pick up with a day to day bankruptcy Keith. Please go ahead.
Thank you.
Hello, everyone. Thank you for joining us today.
For a one one watched third quarter 2019 earnings come from school.
The company's results were released earlier today, and our video but on the Companys IR website at a young adult.
One one long dot com don't see.
It's where there's some PR newswire services.
On the call today from 111, I'll doctored gotten you go founder and executive Chairman.
Mr Drilling you co founder Chairman and CEO .
Mr. Luke Chen Chief Financial Officer.
Mr. Harvey wine co COO Mr., Barry drew co COO.
MS money can move Investor relations and Mr. other actually you finance director.
Joining will give an overview of the company's performance in operations, followed by do who will discuss financials and guidance.
It would be if any about to answer your questions. During the acuity session that follows.
I have to remind you that discussion may contain forward looking statements made under the safe Harbor provisions of the private Securities Litigation Reform Act of 90 95.
Such statements are based upon managements current expectations and current market and operating conditions.
And relate to events that involve known and unknown risks uncertainties and other factors all of which could cause actual results to differ materially.
For more information about these risks please refer to the company's filings with the FCC.
111 does not undertake any obligation to update any forward looking statement as a result of new information.
<unk> event, so otherwise except as required under applicable law.
It is now my pleasure to introduce Mr. drilling you zooming. Please go ahead.
Thank you every night and thanks to everyone for joining us on our call today 20 910 earnings call.
The company's earnings results as well as the supplementary slide presentation was released earlier today and are available on the Companys website at Www IR Dot 111 Dot Com CN.
My comments will correspond to the slides if you have not already done so I would encourage you to download the slides.
Looking at slide five and six.
We're very pleased to announce another quota of solid financial and operational results.
Our net revenue increased standard and 23.2% year over year to 1.1 billion RMB.
Certainly exceeding the high end of our guidance for the fourth consecutive quarter.
This overall growth rate of a net revenue hit a record high since our IPO last September showing a solid acceleration in our growth trend.
Gross profit was 47 million RMB also a new high for us up 204.3% the earlier.
For our year to date performance net revenue increased 110, 112% year over year to 2.6 billion RMB, which is already 46% higher than the 2018 full year as a result.
Our overall revenue growth was mainly attributable to the robust performance of our B to B segment.
Let's dive in mall about I'll be to be settlement in slide seven and eight.
Customer stickiness increased during the quarter.
We processed 280000 orders up 45.1% from last quarter and I'll be it will be remedy or has been growing approximately 40% for the last of the three consecutive quarters.
In the third quarter alone it was up 229.5% year earlier, and the 39.9% quarter over quarter to 909 million RMB.
Also both a strong same store sales and newly added pharmacy sales contributed to beat will be revenue growth.
Customers of our existing pharmacies placed orders more frequently.
And the contributed an increase of 160 million RMB in revenue up 25% as compared with Q2.
And as shown on slide eight during the quarter added another 20000 pharmacies into our virtual pharmacy network, which drove 99 million RMB in sales or an increase of 15% quarter over quarter.
The currently serves 210000, plus pharmacies, which puts us on track to reach our goal of serving 230000 pharmacies by the end of the COVID-19.
Moving to our B to C business as shown on slide nine revenue in Q3 decreased by 11% to 194 million RMB from 218 million RMB, but gross margin growth a 125% so 30 million RMB from 14 million.
RMB in the same quarter last year.
And BDC revenues, why TD decreased by 8.8% and our wide TB gross margin increased 500 bps to 15.2% from 10.2%.
We'll have a made a significant transition from driving growth with low prices to focusing on customer value.
With stop serving some of the money, losing customers and the $60 resources, so patients refill rates and duration of treatment.
Moving forward, we will continue to invest in our capabilities in chronicle patients lifecycle wellness management and improve the experience of service modules of patient education, and drive adherence management and online refill.
Our mission is to build and integrated online and offline platform I know those critical capabilities on not only used to serve customers directly but also extended to our pharmacists to help them to better manage their cost consumers.
Now, let's move to our strategy execution.
As we continue to deploy our C. B to C strategy, we made strong progress during the quarter.
Let me highlight some key facts as shown on slide 11.
By the end of September were now directly sourcing products from 150, domestic and international pharmaceutical companies compared to 80 a year ago.
Well have grown our virtual pharmacy network from 130000 Q3 of last year to more than 210000 this quarter.
We established a new fulfillment center last quarter to further strengthen our smart supply chain.
We're now have a modern logistic network with five fulfillment centers strategically located in southern China, Eastern China, Northern China, a central China and the west in China.
On August 20.
We signed a strategic partnership agreement with T.K. Dot CN.
The online.
Hi comp insurance group, a fortune 500 company.
Both parties will expand their businesses in the online consultation.
The prescription e-commerce and delivery service medication cost control healthcare insurance and jointly develop a PBM model to address the challenges of excess so healthcare services and overlay hi drug prices in China.
This is a key milestone for Obama one following a strategic partnership with many alive Sino Ken and message China in the Internet pharmaceutical plus insurance space.
In order to better articulate the execution allows you to be to see strategy. Let me go through some of our current products and projects.
On slide 12.
We leveraged big data and machine learning to enable pharmacies.
Under the traditional model pharmacists need to place orders by phone, which waste a lot of time in under defying the specifications and prices of drugs for hundreds of Africa use.
All the most difficult as pharmacies are on the time pressure to place a high quantitative orders to reach a preferential amounts in order to reduce costs.
The becomes even more labor intensive when the pharmacists manually input the purchase into their ERP system for inventory management.
Our smart sourcing system provides the integrated solution to address those pinpoints.
Our system generates a purchase list to automatically match specific drops when pharmacies upload a purchase order.
And one drop mall accepts the small orders even orders for just the one single products and our smart supply chain can provide just in time service to pharmacists.
After aggregating all the market data our system offers a smart recommendations through machine learning.
Without system pharmacies, only need 15 minutes to complete their purchase process versus several hours in the past and can also better manage the inventories.
Secondly, pharmacies have the flexibility to adjust their purchase amount to reduce inventory and enjoyed better prices.
But to also pen insights on the market through one drop most platform, which can improve their sales revenue and profitability.
In the right out of the slide we compare those pharmacies with smart sourcing system versus those without.
Average purchase amount went up 233%.
Average purchase breadth of and top 178%.
And average order frequency when top 107%.
The result is a win win for our pharmacy clients and one moment.
To slide 13.
On the supply side will help pharmaceutical manufacturers expanded their marketing coverage by leveraging our field sales force phone sales and App, we're able to effectively reach all provinces and regions across the country.
For example, there was a pharmaceutical manufacturer that asked us to promote renovates new drugs within one month with so the drop to approximately 5000 pharmacies across 269 cities and advertise it to over 50000 end users.
To better manage our phase force by leveraging data collected from multiple touch points would have developed a pool, which is called Hawkeye.
Moving to slide 14, Hawkeye captures every behavior when pharmacy customers access in one on one website.
And also real time monitors the supply chain update.
For example, if they replenishment of one Thats clear you finished Hawkeye it will immediately generate a task for salesforce to reach any customers for research, our who such this sq before.
This tool enables our sales team to identify the purchase intention of pharmacies mall intuitively and make more effective recommendations as a result, our field sales coverage efficiency improved by three acts.
And we're not forgetting seaside users as shown on slide 15.
As previously mentioned in the past we were more focused on making drops available at very low prices and the left our customers alone.
This year, we started the transformation of this business.
Our state of the non CRM tool is provided to our seaside users.
Let's take diabetic patients as an example.
When this amid an online diagnosis and the place an order online Dr will keep in touch with them to provide poster diagnosis management services, including additional information on symptoms medication consultation outreach for feedback on a regular basis and a real time drug and nutrition recommendations.
On the such cat the referral rate of a diabetics improved to 65% from 39%.
Now to slide 16.
Lets discuss some recent health care reform updates.
There are three important points that I want to bring to our attention in this quarter.
China adopt revise the drug administration law, which allows the drug sales online.
Social medical insurance coverage extended to online healthcare service.
Four plus seven centralized urban pharmaceutical procurement program in September 2019, the full plus seven program looks further expanded to cover another 25 provinces lowering generic drug prices up to 96%.
Those policies present, great growth opportunities for China's pharmaceutical retail industry, both online and offline, where we are competitively positioned.
Now that will have walked through what happened this quarter.
I would like to move to where we are headed next in slide 17.
In three years, we're aiming to sub 400000 thousand plus pharmacies clinics and hospitals.
In three years, we'll be prepared to provide online consultation diagnosis drop prescription and a chronic disease management services for over 100 million patients directly and indirectly.
In three years, we plan to directly.
A thousand plus mainstream pharmaceutical companies and the system to reach more patients across the country.
With that I will hand, the call to look to walk through our financial results in this quarter look.
Thank you streaming.
Moving to the financials.
You can see the details for the third quarter in section three of our presentation on slide 19 to 21.
I would like to highlight a few key business and financial matrix.
And our focus on a year over year comparisons.
Our numbers I am be unless otherwise stated.
Let's start with our topline performance.
In Q3, our total net revenue grew 123.2% to 1.1.
Earlier.
Which was mainly contributed by our fee to be segment gross.
Product revenues from our fee to be segment were up 229.5%.
To navigate over 9.5 million this quarter from 276 million in the same quarter last year.
In the first nine months as our total net revenue grew 112% to 2.6 billion, which has already exceeded our 2018 full year revenue of 1.8 billion by 45.8%.
In the first nine months is proud to revenue for our fee to be segment.
Up 240.7% to 2 billion from 593 million in the same period last year.
During Q3 product revenue for our PTC segment decreased by 11% to 194 million from 280 million in the same quarter last year.
Turning to slide 20.
Gross margin being our B to C segment for the quarter was 15.6%.
Up from 6.2% in the same quarter last year.
Gross margin B to B segment was 1.1% compared with negative 0.5% in the same quarter last year.
The improvement in both our B to B and B to C segments.
Was primarily due to an improving cost structure and a pricing strategy.
Overall gross profit for the quarter increased by 204.3% to 47.3 million and gross margin was 4.3% compared with 3.1% in the same quarter last year.
Please turn to slide 21.
For detailed breakdown of operating expenses.
Total operating expenses fourth quarter were up 13.7% to 165.4 million.
As a percentage of net revenue total operating expenses for the quarter or 14.9% down from 29.1% in the same quarter last year.
In the first nine months as total operating expenses were up 28.3% to 448 million.
As a percentage of net revenue total operating expenses was 17.2% down from 28.4% in the same period last year.
Fulfillment expenses for the quarter increased by 52.8% to 31.6 million primary asset we thought of the rapid growth in would be to be business.
Fulfillment expenses as a percentage of net revenue was 2.8% down from two 4.2% in the same quarter last year.
Selling and marketing expenses for the quarter increased by 12.7% to 87.1 million, mainly due to an increase in a number of sales staff and expenses associated with the expansion of our b to B business.
Sales and marketing expenses as a percentage of net revenue was 7.8%.
And from 15.5% in a same quarter last year.
DNA expenses for the quarter increased by 20.9% to 32 million, mainly due to an increase in professional service fees.
DNA expenses as a percentage of net revenue was 2.9% down from 5.3% in the same quarter last year.
Technology expenses for the quarter decreased by 27.2% to 14.7 million.
Primary due to an improvement in our system developments efficiency and implementation of automation tours.
Technology expenses accounted for 1.3% of net revenue down from 4.1% in the same quarter last year.
We will continue to make infrastructure investments to support rapid revenue growth and expect to further improve operational efficiency and effectiveness.
Net loss attributable to ordinary shareholders was 123.3 million compared with 125 point.
9 million in the same quarter last year.
And then GAAP net loss attributable to ordinary shareholders was 109.7 million down from 111.1 billion in the same quarter last year.
And then GAAP net loss.
Accounted for 9.9% of net revenue down from 20, 322.3% in same period last year.
Narrowing down to single digit a percentage of net revenue for the first time.
As of September 30.
2019, we had cash and cash equivalents.
Restricted cash.
And shorten investment of 784.6 million compared with RMB 1.1 billion as of December 31st 2018.
For the fourth quarter of 29, King we expect total net revenues to be between RMB 1.18 billion.
And I am be one point.
2.4 to 1.4 billion.
Representing year over year growth of approximately 112% to 123%.
This forecast is based on current market conditions and the reflects our current and preliminary estimate of market and operating conditions and customer demand.
Which are all subject to change.
Our August 15, 2019, the company announced a share repurchase program.
Whereby the company an authorized to repurchase is on coffee ordinary shares in the form of ABS with an aggregate value of up to US dollars 10 million within the next 12 months.
As of September 30, 2019, the company had used an aggregate of USS 2.6 million.
And we purchased 600.
And the 6000.
953.
Yes.
This concludes our prepared remarks thank.
Thank you.
Operator, we're now ready to begin acuity sessions. Thanks, Thank you Sir.
Yes, ladies and gentlemen, I will now begin the question answer session. If you wish to ask a question, Keith Taiwan telephone and weakening yen.
Okay request.
Please proceed.
Yes. Good question. Please press star one.
Telephone.
The first question comes from that I know, yet th capital is telling.
Good evening management, Thanks for taking my questions.
Two questions. The first one piece about pharmacists number and then the pill rapidly in this quarter.
So can you share panic and a key drivers hand.
And how many do you expect to have as end of Stacy and next year.
I have another question regarding basket I.
Hi notation that.
In this holiday.
So just wondering yacov duration of profitability.
Okay. Thank you.
And with regards to your first question.
We have a sales force on the ground. So I'll terminology internally is call. It a business development the actually sales team right. So what they do AIDS everyday.
They.
Got a region so they'll go out and look for those potential customers ending.
1% company sorry.
The estimated once they agreed to sign up.
Well, we'll exchange permits and so long so I don't know our team has been doing a great work to actually continue to sign up new pharmacies and objectively side by the end of this year, we should reach and a number of 230000 that is roughly about 50% over the total market.
And that is going to be our strategic priority for 29 team and the we're pretty confident we can actually executing that strategy and it will be happy about it and a in obviously.
Moving forward there will be more focused on.
Really better service the existing customers.
Because 50% is this is on very substantial number and I wish would be very happy about it and we're going to execute on the strategy.
With regards to.
Net loss narrowing so single digit for the first time, we're very pleased about it and as you can tell.
For the last few quarters every single quarter Tom.
Green topline, but a while also achieving savings on the bottom line every single quarter and our expectation is to continue to deliver not on a we're pretty confident and in of course, we aim to achieve.
Stability.
In the middle of a 2021.
Thank you very helpful. Thank you. Thank you.
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Thank you. My next question is from the night, Jerry Yang of JP Morgan.
Go ahead.
Oh, Hello, DC Sherri congratulations on another John quarterly Sal.
Yeah, I have three questions. The first well what about the industry trend as we know the China retail pharmacy margin is still quite fragmented and there has been a lot of reform policies to a seasonally the consolidation.
So how do you positioned wawa Inti consolidations.
A long time.
Let me know many of our clients.
Individual pharmacy or marching pharmacy.
We'll see a lot of headwind on that these consolidations flattened.
And what will be your expectations, let them or a new solution offering.
My second question, what about my specific about our reseller Oh, we have seen very encouraging reduction in the operating expense ratios.
At the key drivers before that.
And finally, it's actually a albumin caused a impressed us is quite impressive only 2.0 only 2.8% in this quarter.
So could you share more color behind me. Okay. That's all my question. Thank you.
Thank you if theres a lot of questions I think all.
Taken the first question, maybe we'll get.
I think Lucas.
Okay.
And yes, yes.
The other questions right. So yes with regards to the industry trend with regards to consolidation Ah, Yes, I agree we view.
I will be consolidation and that is fully anticipated, but ER and I'll take a while in the retail space. If you look at times.
China is a retail they CBS or kind of a convenient stores.
Space is actually growing those mom and pop up shops, especially you go down to tier 345 cities right, but I'll anticipation is actually in the pharmacy space or they will be more consolidation and some of the smaller guys well funded hotter and hotter to survive.
And but they're not going to all disappear and maybe 10% 20% of will disappear.
And ER, we love it because.
This presents great opportunities for us to help.
Some of the smaller chains and the you know a lot of of those are among the top a shop standalone stores on a because of our.
Services because of our capabilities I think theyre going to stay and.
Consolidation is knock them to.
Happen as fast as people have projected.
Because of there has been no lack of effort in that space. If you look over the last.
Five six years and all those big guys have been aggressively acquiring out there and if you look at todays market. The biggest changed today is still pretty much on known only got 5000, some stores and only takes about slightly over 1% of the share so fragmentation will still be.
The the norm in the space.
And you know obviously.
That's great news for US we are actively working on a concept of future pharmacy.
And internally.
And obviously we have developed.
Certain ideas and at this moment.
We're not ready to share what the stole a future slow it's gonna look like but I can like penndot direction.
We're going to have the best assortment, that's the relevant assortment for the pharmacies and we're going to use our technology to provide you know things like chronic patients.
Management, we're going to have I in iOS devices to constantly monitor the vital signs and.
With our enabling.
Business model Weve Allah.
Virtual pharmacy network or there is no reason why we cannot be without a virtual pharmacy chain, which will be known until all Chinese like CBS , all Walgreens in the United States.
So I'll.
Awesome. So the next part of the question about the financials.
Let me just take the question of how we improve our supply chain.
Where a technology company, so improve our efficiency through.
Business intelligence data on the Cisco So we'll have the older more than 30 some systems.
Probably a close to half of them are.
Hi can management for example, we are below the system, a procurement management system Afirma management system.
Warehouse management system Transportation management system inventory optimization system on all kinds of system.
So through.
This system.
This is an hour Jim I am optimization model with an average.
So through their systems, the way optimize our network to optimize our total supply chain I know what do you are confident that we provide the one of the whole sufficient supply chain, though pharmaceutical.
Retail distribution space.
Yes.
Okay side.
Just share with you this quarter, our net revenue growth under 23% why our total opex only growth 13.7%.
And our yearly year to date basis, our revenue grew 112%.
And our total operating expenses.
Grow 28.3% so as a result.
Do you see that the operating Princess as percentage of that revenue is it's going down on quarterly basis is going down from 29.1% to 14.9%.
Significantly so I'm looking forward, we expect a week will continue to deliver a quarterly revenue growth on a yearly a year over year basis at triple digit.
While.
The Opex increase the wrong like 20.
I send something so we will expect the.
Oh opex off at the present or net revenue will continue.
Short answer as a result at the loss wellbeing of as a potential net revenue will be also narrowed down and their streaming just share with with you that that we.
Aim to be profitable in the middle of 2021.
Sure I hope we answer your precious.
Yes, that's very helpful.
Just like.
Just a lot that could you share more specifically about the fulfillment costs.
I I know like a previously we are already quite impressive no comparable yes, Oh, we still see continual improvement and field oncology.
So if there any new updates you may share Lisa.
Oh, certainly a this all I mentioned that all driven by.
Application of our system. So we continue to optimize for example, our warehouse operations efficiency improved by almost.
On a 50% year over year I know, we keep doing that.
Oh.
Yeah based Howard just apply our systems are no more.
Hi, intelligence and we know revenue continued to grow with the scale. We certainly expect we can you know there's still more room for us to improve on the cost to fulfill yeah. We gained a lot of efficiencies through a scale economy or the way I also have them much better targeting power with the.
Third party logistics with a you know we feel a lot of direct sourcing relationships all these or how power efficiency.
Yes, thanks, very much but that's a lot a explanation.
Thank you Gerry thanks.
Thank you once again for those who wish to ask your question. Please specify what are your telephone keypad.
The other question comes on I don't see thing sang CAC <unk>.
Hi, This is Japan problems accuracy and that management for sharing the App, It's all Mccartney I hear how two questions.
And the first one as well with regard to the favorable policy, making to all lifestyle prescreen prescription drugs recently, well preparations have the company made already and my second question as.
Would you please introduce more about the company's cooperation with pharmaceutical companies and what matter who is realized by are costly cooperation that.
Okay I suggest the I'll pick up the first part and going you can take up the second half of the question. Yeah. Thank you for the question about the regulatory change and obviously.
In the past you know, it's always a policy to allow our drug sales online and now the People's Assembly in China passed it as a law to.
To allow drug sales online you know that's great news anniversary with regards to getting prepared and ready for it and I think we're we're probably more ready then the most first of all our internal hospital is the second by at least it's the second ever during the first batch you know the permit to that.
To administer the health recognized and we haven't fully compliant Ah practices, there and <unk> costs were higher by more than 2000 in house and ER affiliated doctors there Oh, we are able to service consumers directly.
And also can handle all the prescriptions from hospitals.
With all of you know logistic network, we cover the country without any blind spots you know, we can probably cover.
A majority of the country like 80% of the GDP within 24 hours, even though you leave a pretty far away, we're still able to reach you in let's say, a 48 and 70 to 72 hours and that is going to be a huge clos and obviously, where the one who build to most.
Over the direct sourcing relationships with the upstream pharmaceutical companies and I would come by of the some of the drugs at a competitive price and we are better than I would say anybody out there in the space.
When it comes to the assortment and availability.
And in addition to that but also you know can enable the pharmacies.
So.
When the customer walk seen to the pharmacy, if they don't have a prescription there can always.
Access our cloud doctors by scanning a QR code and through the.
Diagnosis, our online doctors can issue a digital prescription.
To a they pharmacy on the spot so at that moment in time that pharmacy would be transformed into a virtual clinics.
And.
The latest developments from our space is that you know we started working with.
Some of the system integrators, a that are working with some of the not provinces to provide the prescriptions sharing platform.
For instance, we are working with the biggest system integrator lot caught she count in China.
Who has been doing this system integration.
For quite a few provinces and where they preferred.
Supplier in terms of drug delivery.
Once the prescription they've slowed outside of the hospital. So in a nutshell I think we are very ready.
For the deployment of the policy I know, we're looking forward to it.
Okay. Let me answer the second question I'll, how weve partnering with a functional companies you know we mentioned that we now have.
Our strategic partnership with 150, a pharmaceutical companies international domestic and will provide all kinds of services through that got I'm, just making a view for example, we do a geographic and a channel coverage for the including or you know the.
[noise] geographic region to third fourth fifth the tier cities.
We help them to do a new product launch.
And we help them to do online a branding and marketing.
Well I Expo every time we.
Hi, with tens of thousands drugstores private hospitals clinics to participate.
I will provide a tighter integration for them we are the.
Hi into India, waiter or more than 17 or from to accompany this ah.
To supply to war or other ecommerce companies.
On the way, you're helping with that data service, we've got more helping them talk stand to gain.
Customer insights customer behavior, and Oh profile, we're helping to can to monitor and to maintain prices.
We're helping them with a customer education, so all kinds of services for Whitewater's. These farms to companies and the we are accelerating the partnership with a the top tier honestly companies.
Okay, Okay that it's very clear.
Okay.
Thank you. My next question is something I know seeing how of the H. capital. Please go ahead.
Okay, I have here or David Chang of Citibank. Please go ahead.
Hello.
Hello, Hello, David.
Oh Hello Feltl.
And then we said Oh this is Dan Shaw from since you don't just how well too simple questions. Michael first one is about your.
Jimmy Choo due to see business, so tell us all of it.
And ladies strategy on your.
Now this is driving that.
Due to see business consulting one is just because I just saw no.
Peterson business no both of which means it's not really strong so what's the path forward at B to C business going forward. Thank you.
Okay. So.
Lets come through and then come back to the teams will be to see strategy. So I mean, my speech I have provided some updates you know for instance, we made progress like with.
Purchasing all sourcing direct relationship with Henry 50, pharmaceutical companies and the now we have a 210000 pharmacies are doing business with US all we certainly don't go servicing them I know, we sign up another insurance partnership which is very major you know obviously.
Our directionally is to use technology to enable the key stakeholders in our value chain.
Dr. Donald you just mentioned about the number of things we do for the pharmaceutical companies and ER for instance, I mean other space life insurance.
Companies right you know we work with them. Many in many areas you know for instance is online consultation the E prescription.
The delivery service they metric the medication cost control. The you know even selling insurance and that would join develop TBM models.
And.
The drug prices are pretty high when able to help them to make a transparent et cetera.
And another point I Wanna mention it's not.
Well actually be able to team you know well have a dedicated team Oh, we call that team they enable him and team.
All they need to do ace to figure out better ways to better equipped.
Our.
Ecosystem partners, especially the pharmacies as I mentioned that we are.
Developing a blueprint for the future pharmacy and that's the team that is dedicated in thinking about how we can migrate our capabilities in servicing our consumers to our pharmacy customers.
And your next question with regards to the BDC business.
And you know our view of it first of all.
The beauty is very important everybody saw that.
Didn't grow as well as they are the it'll be business, but it's a I've come to central part of our business I know, we attach great importance to us.
I don't matter of fact that we're very pleased with that.
Business transformation and I mentioned, you know in the past we used to focus on providing low cost too.
Drive growth and now we I'm much more focused.
On customer value and all the vision it's not.
We have to build.
The capability in the patients lifetime wellness management.
And the for instance wave today, we built out mode, you slide patient education like a the I'd drug adherence management, the hassle free online refill margins. Those service modules are going to be extremely important because every chronic patients. We acquire you know we.
Probably on average more than 20 years to service them that is why that business is very important to us and now that will have a fixed the cost structure.
Same to reignite growth for this business next year.
Thank you.
Thank you.
Helpful.
Thank you Frank next question it sounds that I know how long do those Cabot Park Hill capital. Please go ahead.
Hi, guys. Thank you for taking my question, a and congratulations on a quarter.
Impressive performance.
So two questions.
Thank you I'd certainly for going into the BDC visits, but I'd like to us, but b to B side, I mean, how how long.
In the past pizza growth on that side of your business. The main thing what are sort of some the core driver is down the line.
How can you increased revenues on the on the business side.
The first question.
Good question is is there any plan to continue building more warehouses in China, what so whats your target number there.
Thank you very much.
Thank you I think probably Harvey you can answer the first question I'm Duncan Huh.
[laughter] [noise].
Okay regarding the girls physicists and decide.
And our fee to be convenient very stronger okay.
And then why we have already set up five beef will miss that has in each region, who has the ability to meet customer.
Instead of a talking about you know how long we can grow we believe that they didn't just a stop.
Through Internet pharmacies and panic.
Enjoying a much broader Kaufman collection.
And that much more competitive price than our offline.
And Meanwhile, we have a novel all a b to b growth margin.
Recall that.
And the probability of busy working for learning.
More and more direct sourcing from.
Domestic and international pharmaceutical company.
Thank you.
The second question forgot.
All right. So you ask about are we going to be a more warehouses.
Certainly oh, well, okay, we have I've, oh, well below the old tradition models to optimize our network.
So basically right now or do you have a nationwide coverage.
Hi, dollar that density of orders increased one way to make sure that where you football customer experience as well that means that we'll have a probably foster a a rifle.
I'm a rival rate I know, where you can reach coffers quicker and have more selections and have a better service to every single customer in a in the nation. So certainly but all those decisions will be based on a full optimization of our total network. So we'll have we're running the data where.
As we start to grow we're at more warehouses by Dave.
Warehouse it we'll call them implement centers.
We now have book.
Well call it a hubs and that we probably have build more forward deployed warehouses fulfillment centers.
To reach customers sooner, we better services.
Thank you.
Great. Thank you.
Thank you next question is from the light at the end Hallow Th capital. Please go ahead.
Yes.
Hi, good quarter management, so I'd like to Eclipse and then you 70, or so what about the white house and Oh, Okay.
So HM two separate geographic location.
Yeah, what's the portion.
All right in the top.
No one knew what the portion of that or no.
And I know you I didn't know if I'm <unk> then yeah warehouse.
Where though the newly added the feature articles.
So that's the location.
Oh, the second one is a I will increase the older density.
I wouldn't I know you know I'm, an age I, you know where dane.
Yeah, no relation and yeah, you know compared with today, what kind of the I'm glad that will be thank you.
Oh, that's a very interesting question, so basically oh, we decide locations by a nickel authorization model, we decide what to work to locate.
The warehouse, Utah decision for multiple considerations L. base on the the logistics availability the total inbound and outbound costs and also based on labor availability of that region.
Certainly our based on these or other third party logistics, we are partnering with a holiday con or a cover from that region. So we are.
We have a full authorization model for medical design. So that's oh, hopefully that where I feel patients every time, we add a new warehouse new fulfillment center based on the density of orders based on our customer.
You might do you mind or satisfaction Linda.
Total protocols.
So that's the first question.
And with regards to the second question. It's a great question by the way inventory management, I think they need our bread and butter well have to do well and otherwise we're going to lose our ability to have lunch right.
So today, we run inventory days on hand in the Twentys and we believe that is.
Very appropriate to the scale of the business today and as we continue to progress and Ah I mean, obviously, we can optimize based on density in certain geographies I object of age to drive of the inventory days on hand to sub 20 days.
Okay, that's very helpful. Thanks.
Thank you have had a question of Goldman Sachs. Your line of Oh, I'm, sorry about that Park Hill capital. Please go ahead.
Hi, Thank you for taking my question again, one more question back to the B to C business, how Ah ha plants, when new customers on that side.
Thank you.
[noise] be Barry I want to have a shot at Oh, Hey, yes that all brands that are you ecommerce customer.
We are hiring cooking customers, who have high thankfully myself.
I hope that diagnoses management services.
Based on the corporate Wailea folks on the thesis.
That have the following year for me.
Hey.
First line.
Ronnie.
The second line it hi, self pay ratio the third line it correctly.
Uh huh.
Hi, I believe our DC and the mail how.
They patients who attend high yielding online matter I have actually yeah.
Hi, Hi.
The concrete here when we bought some physical companies on the hospital package.
Great. Thank you.
Thank you no question if at this time, but once again [laughter] must ask questions. Please that's my one I guess telephone yes, I've a question coming from that I Jeanne Wong of yes.
Go ahead.
Hello, Hello, My space. So there's a change Jay on behalf operational young from you'd be at Oh, God Oh, One question, Tony your collaboration where they achieve c. So could you. Please visit by the difference between Europe collaboration way that T C.
Between <unk> and is there how collaboration with other pharma company, So where do think weekend and the value too.
To the collaboration and to do things that we will then they'll have more and more oh did kind of could embracing the future. Thank you.
That's a good question certainly you haven't seen all press conference a few days ago I know we.
The older I, it's very few taking partnership.
There are several from white that we help them to cover a deep.
My broader coverage and deeper penetration up their product.
On the we help them with a new product launch, we help them Oh online marketing and ER come from education I would also help in terms of Ah gaining more customer inside.
So basically it's very strategic partnership we are paving the way.
For a very very aggressive growth.
For them our channel in the very near future.
Okay. Thank you very much that's very helpful.
Thank you.
Mm Hmm.
No question I suppose it's tied to know nice to have it converts that two of the good news I understand.
Thank you operator in closing on behalf of the entire 111 management team, we'd like to thank you for your interest and participation in today's call.
If you require any further information or have any interestingly visiting us in China. Please let us know.
Thank you for joining us today. This concludes the cool.
Thank you ladies and gentlemen, this concludes today's conference call. Thank you for participating.
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