Q4 2021 111 Inc Earnings Call
Good day and thank you for standing by welcome to the 1118 fourth quarter and fiscal year 2021 financial results Conference call. At this time, all participants are in a listen only mode.
Speaker's presentation, there will be a question and answer session to answer questions. During the session you would need to press star.
One on your telephone.
Please be advised that today's conference is being recorded if you require any produces please press star zero and now I'd like to hand, the conference over to MS. Monica Mu IR Director of 111, Inc. Thank you. Please go ahead.
Thank you operator, Hello, everyone and thank you for joining us today on the call today from 111, a Doctor who got you co founder and executive Chairman, Mr. Jamie Lilt co founder Chairman and CEO , Mr. Luke Chen.
C F O all of our major subsidiary Mr. Harvey One C O O and the Monte Carlo if that's true relation director.
A reminder, today's conference call is being broadcast live well webcast.
In addition, a replay will be available on our website. Following the call. The company's earnings press release was distributed earlier today and together with our earnings presentation are available on the company's IR website at.
Our adult Wawa Dotcom Duck C N.
Before we get started let me remind you that.
This call may contain forward looking statements made under the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Such statements are based upon management's current expectations and current market and operating conditions.
Relate to events that involve known and unknown risks uncertainties and other factors.
Oh, the which would cause actual results to differ materially.
For more information about this risks please refer to the Companys filings with the SEC One one does not undertake any obligation to update any forward looking statement as a result of new information future events.
Otherwise, except as required under applicable law.
Please note that.
All numbers are E. R M B and all comparisons refer to year over year comparison, unless otherwise stated please.
Please also refer to our earnings press release for detailed information of our comparative financial performance.
Year over year basis.
With that I would turn the call over to our CEO Mr. Qing Lakeville.
Well good morning, and good evening everyone.
Thank you for joining our fourth quarter and the fiscal year 2021 earnings call.
The information that we'll be discussing here are also provided in the slides have been posted earlier today on the company's website.
And I would encourage you to download the presentation along with the earnings report at IR Docs 111 Dot com.
I'm pleased to report that my my one had a great fourth quarter and a great year in 2021.
We achieved our targets and those improvements across all operating metrics.
Well no one has achieved critical scale.
About 2 billion in U S dollars revenue, we've a significant module.
Well, it's a segment profit grew three acts as fast as revenue growth in Q4.
And the company's total revenue grew 13 fold in the last fall yet.
We now have a clear line of sight to profitability in the near term.
Yeah.
We'll have built an infrastructure that will enable us to serve its pharmaceutical companies doctors pharmacies and patients.
We have created the largest virtual pharmacy network with 385000 stores and growing.
We have formed partnerships with over 500 globally, a rebound and the domestic pharmaceutical companies.
Our technology platform is state of the art and he's already playing the role of principal many China's health care industry.
We feel very proud of the ecosystem, we have built to date.
It will enable us to scale our business to the next level.
China's health care industry is massive.
More than 7% of GDP and growing.
While no one has developed a business model in the <unk> space with unique advantages.
Rigor national sales network and coverage.
Fast growing partnerships, we dropped manufacturers would cost of supply chain and ecosystem powered by its state of the digital platform to capitalize on this massive market.
Please allow me to talk briefly about the state of the business at a high level I'll will then cover our recent operational performance followed by some details on how we will continue to do.
Our margin growth and the future strategies.
Then I'll CFO , Luke Chen will take hold to walk you through our financial results.
Just that's the concept of new retail, it's transforming the retail industry through integration of online and offline experiences for consumers.
One more one is leading the charge to revolutionize the health care services industry in China by leveraging digital technology and the <unk>.
Power of the Internet to connect patients with medicines in our health care services.
We'll continue to build upon our integrated online and offline platform.
These efficiency optimize business processes improve and expand access to medicine and health care services nationwide.
And provide a better experience for patients and health care providers.
Digital technology has fundamentally transform the retail industry in China.
On the business and the regulatory leaders solve the potential of leveraging the technology to reshape other industries as well.
In 2019, the Chinese government formally included industrial Internet is one of its national strategy and the law.
Launched numerous incentives.
Average digitization and integration of online and offline services.
As recently as two weeks ago during China's MPC and the Cpuc's two sessions.
Government reiterated its commitment to industrial Internet and expressed the desire to speed up its development to usher in a new digital economy.
So you just heightening the health care industry, that's been our goal since the very beginning of one one button.
Today, we are without a doubt wound up with the leading industrial internet players in the health care sector.
While China's economy continues to grow many sectors. Nevertheless face the problem of overcapacity today.
And the pharmaceutical industry is no exception.
We see this as a tremendous opportunity to leverage digital technology and the reconstruct the value chain in the health care industry.
Industries that are typically well stupid to reap the benefits of industrial internet have the falling characteristics.
Bust.
The industry is sufficiently large benefits from digitalization and integration.
China's pharmaceutical market is a three trillion RMB industry we.
We'd pharmaceutical product sales popping two bullets drilling R&D in 2019.
Is projected to reach all 0.2 trillion RMB 26.
Second.
The industry is fragmented.
With multiple upstream and the downstream players.
This rings true for the final pharmaceutical industry with almost 7600 pharmaceutical produces.
And 13000 pharmaceutical wholesale enterprises in the upstream.
And 555000 pharmacies in the downstream.
And third the industry steel generally operates under traditional models and the legacy systems and the processes that are inefficient and Cuba.
Again this is very much true for the pharmaceutical industry, where traditional transaction models are largely inefficient.
Medicine and products have to go through multiple intermediaries.
Pharmaceutical companies two primary suppliers, who are multi tier distribution system before reaching the pharmacies and then finally for patients.
Further.
Lack of clarity on the general partners in the industry have added to the inefficiencies.
And finally, the challenges facing the industry can be solved through tools, such as fleet utilization integration of multiple platforms and the payment system upgrades.
It is clear that the pharmaceutical industry is in need of modernization.
And we have the tools to help reshape the industry.
Many parts of the value chain, yeah. It can be recouped stops it through digital technology and the one mile wide uniquely delivers a holistic health care platform that integrates medicine with health care services to the benefit of all parties within the broader health care ecosystem.
Pharmaceutical companies with Optus to health care providers and of course the patients.
Our digital platform offers cohesive online and offline solutions with improved efficiency compared to the traditional class.
Today, we directly source from more than 500 global and domestic pharmaceutical companies.
Our digital solutions the.
More than 385 pharmacies across the country.
Turning to our online pharmacy, and a network of pharmacies were able to deliver health care products and services to tens of millions of patients nationwide.
In China's latest 14th Bobby It development, particularly for economy, you can see that the digital economy has been elevated to a vitally important position.
China's economy will enter a period of fast expansion by 2025.
The digital economy, driven industrial transformation is now setting off a huge wave.
One of our key focuses in the past two years is to develop tools that help open online channels.
No break on multiple businesses, while enabling them to operate more efficiently and better serve their customers.
Our smart supply chain platform has enabled patients living in rural areas to receive medicine on a health care services.
Of their homes.
By expanding our reach and our service offerings with stripes will be a key player in building a new value chain and went up China's biggest industries.
Moving on to our Q4 financial performance. We're pleased to report another solid quarter with net revenue of 3.46 billion, an increase of 31% year over year, marking the 14th consecutive quarter of year over year growth since our IPO.
Yes.
Gross segment profit grew 98% year over year.
Among which Pete will be segment profit increased 133% zero.
In all previous quarters earnings call.
I mentioned that we will be laser focused on growing our margin dollars and we delivered on that with margins growing quite as fast as revenue growth.
non-GAAP loss from operations as a percentage of net revenues decreased from four 2% in the fourth quarter plenty plenty to two 2% in this quarter.
This brings us another step closer to profitability.
We're also pleased to report that our full year revenue of full time to pump one exceeded the 2 billion RMB milestone for the first time, reaching 12 4 billion RMB with a year over year increase of 61%.
The market continues to show strong demand for our diverse portfolio of service solutions.
Our service revenue for 2021 increased to 103% year over year among.
Among which <unk> service revenue grew 195%.
Our gross segment profit for 2021 reached 620 million, an increase of 70% year over year.
It is worth noting that our <unk> segment profit increased to 126% year over year.
As a leading digital player in the health care industry, we remain committed to investing in our technology.
Expenses in R&D totaled $189 3 million.
Representing an increase of 106% year over year.
This enabled the company to build the next generation technical platform.
We're very pleased to be awarded 19 patents in 2021 .
Our b to B business remains the key driver of revenue growth.
For fiscal year 2021 it will be revenue reached 11 9 billion RMB.
It presents a year over year increase of 59%.
Gross segment margins have also steadily improved.
Three 6% in Q1.
Two or three 8% in Q2.
The 4.4% in Q3.
Five 2% in Q4.
We'll leave an extremely volatile world with enormous uncertainty.
The company's primary strategic focus is to grow both margin and achieve profitability as soon as possible.
I'd like to take a few minutes to elaborate on concrete measures in this regard.
One increased product gross margin.
Gross service right.
Direct sourcing from pharmaceutical companies has been highly effective in lowering the cost of products that we sell.
Thus, we will continue to deepen our relationship with our existing 500 class partners as well as securing new partnerships.
This provides us with a wide the drug selection lower cost and support through our pharmacy partners to improve their knowledge of products. So they can better serve their customers.
Our digital platform creates tremendous value by matching downstream demand with Ams with upstream suppliers.
Downstream pharmacy customers got a very clear view of all our product offerings and they can choose the products that best meet consumers' needs.
Well, how much would be cool companies.
We're able to provide information such as the profile of customers or certain products, including the location quantity and pricing, which is valuable to our upstream partners.
How's them to make informed decisions on customer habits, rather than quality.
Another lever, we can pull to improve our margins through optimization of our product assortments from our structure.
When we first started.
New players like us.
Mary Beth.
<unk> and pricing to acquire customers.
Which contributed 12 thin margins during the initial yes.
Now that we're serving a majority of the market. We're in a position to balance our portfolio of products with high velocity, Skus, which may have a lower margin profile, but drive traffic top five where those products are often touches along with other products with higher margin profiles.
We constantly have over 5000, skus with very healthy margin profiles and our way of working diligently to ensure that these items get on the shelves of pharmacists that we serve.
With a vast network of pharmacies were very confident that we will be able to help many smaller pharmaceutical companies in commercializing their products.
Not only do we make more profit.
But also help the pharmacies to improve their gross margin.
Service revenue.
Also in the area that we expect to see continued growth and to provide margin oppressive revenue for the company.
Plenty plenty one.
Growing demand for a number of our service offerings, including growing popularity for one of our digital marketing services.
Our service module provides and close the loop solution for pharmaceutical companies integrating boxes pharmacists medical assistance patients and medical representatives onto our Internet Hospital.
The service module also provides online remote consultation.
E prescription patient.
Patient education patient support and online retail.
This enables us to provide customized omnichannel digital marketing solutions for pharmaceutical companies, both through our one pharmacy platform as well as our key strategic partners.
At present, all the 2000 Skus utilized our digital marketing solutions.
These products are promoted so numerous pharmacies I don't know their customers through our digital marketing platform.
That has been increasing demand amongst our large customer base for supply chain financing solutions.
Which is another service that we offer and has provided us with a consistent revenue stream.
We also have a short term credit lines at attractive interest rates to a select number of our pharmacy customers and of supplies inventory in all of our house.
This service helps our customers better manage their cash flow, while also improving our overall gross margin dollars, which is already in the tens of millions for 2021.
There are also a number of other service solutions that have been now that has seen an uptick in interest amongst our pharmacy partners, including our cloud prescription service, one drive expression <unk> and our one health digital franchise service.
We will continue to innovate and create more service offerings.
Value to our partners.
We expect service revenue to continue to grow to a size, which will positively impact the whole P&L.
Two <unk>.
Improve operational efficiency to increase the technology investment.
We are firm believers of using technology to drive efficiency.
In 2021.
Our technology R&D expenses reached 189 million RMB.
Up by 106% year over year.
19 patents worldwide and digital medicine Big data.
Supply chain management.
In addition to the 19 patents will also independently developed more than 30 proprietary systems, which empowers ecosystem partners in areas such as intelligent supply chain SaaS platform building.
Intelligent sourcing Doctor patient management digital marketing and it.
Price intelligence system.
We have won multiple awards, including the National High Tech Enterprise Award from the Ministry of Science and technology.
Pop 10 leaders in new pharmaceutical retail in China from <unk>.
Our whole supply chain system and platforms, the cornerstone of our business growth.
We have expanded the floor space of eight fulfillment centers across China, So 228000 square meters up by 148% year over year.
We use algorithms on our big data analysts sort of establish a fast turnover area each fulfillment center, resulting in much better utilization of warehouse space.
We maintain our industry leading inventory turnover.
Eight days and I believe that we still have space for further improvements.
Our proprietary price intelligence system Apis enables us.
We optimize our pricing dynamically in real time.
It allows us to apply.
Our company's pricing strategy to drive optimization algorithm to set the prices for massive number of skus.
Based on historical in a real time data these algorithms analyze SBU level demand and the supply of correlation seasonality competition promotional events.
The city and the regional dependency.
So the plastic models I used for optimization.
Our Hawkeye.
Digital sales team management tool.
It kicks stops a day for a sales manager by allocating customize the pox, such as sending out refill reminders to customers' management to see relevant data on a real time, so that corrective actions can be taken quickly if necessary.
Hawkeye.
Has been captured the interest of.
Some of our upstream partners, who have also started using it as part of their relationship management tool.
We'll have expended significant capital in R&D and improving our technology and while these expenses have caused our expenses to increase we believe that these investments are necessary and separates us from the traditional players in our industry.
In the long term by investing in technology Ali and using the tools. We have developed to help our business around more efficiently, we will be able to reach profitability faster and continue to grow in.
In fact, the investment in technology is already yielding results as reflected in the improvement in margins on the <unk>.
<unk> narrowing of the operational expenses.
Three innovation explore new business models.
In the <unk> segment, we launched the one health initiative to more than 10000 pharmacies, who are digital franchise model.
Coming to us in the industry with an S b to C model.
All participating pharmacies can better manage their selection procurement inventory and drug distribution through our digital SaaS services, including smart sourcing O to O honestly R. M.
This initiative has helped the 10000 member stores to provide CRM services for more than 9 million consumers.
The <unk> segment generated a revenue of 522 million RMB and a gross profit of $109 million.
Well one of the few medical Tech companies in China that have established an Internet hospital license.
To serve policy in patients in a more professional and permanently manner, we use our own proprietary system to connect with over 20000 professional doctors. So they can offer online services to patients.
Leveraging the wound clinics, they get toward technology and have chronic disease and patient management capabilities.
Well have established collaborations with a number of well known pharmaceutical companies such as Eli Lilly.
Penalty bea and innovative biologics.
And a substantially improved the accessibility of drugs such as Pauls.
The email <unk>.
The volatile.
The early momentum.
It is worth mentioning that patients in remote areas of the country well get there.
Their refill done simply through our online platform and the receive their medications at the adult staff instead of traveling to big cities, So that refills in the past.
We firmly believe in the value we could bring to the ecosystem.
From patients with up to speed as of late as we are able to offer a whole suite of out of hospital management services, which consists of online consultation E prescription patient management and drug distribution.
One can appreciate how patients with chronic conditions and benefit from our platform, especially those who live in rural areas in China.
Now, let me spend a moment to talk about ESG.
Social responsibility is always part of one one months call value system.
So far we haven't provided free online consultation services for more than half a million users during the COVID-19 pandemic.
In addition, we partnered with hospitals in underserved areas across the country.
So help people with limited access to health care services.
We also continue to donate PPE so areas that are experiencing COVID-19 outbreaks.
In addition.
We'll have a proactively advocated the environmental philosophy of brain lifestyles.
We have realized the paperless operations group arrival stocking taking stock checking and other processes in the fulfillment centers.
At the same time, we'll have substantially reduced the use of monthly greater bulk consumables in the transportation and packaging process.
In the future, we will continue to endeavor to fulfill our social responsibilities as we have always done in the past actively participating but campaign of the building of healthy churn.
Yeah.
Looking back at the previous earnings calls.
Our strategy has been very consistent.
Its a three step strategy.
Quest.
The infrastructure and ecosystem.
Second Bill.
Scale.
And third grow margin and profit.
We believe this is the right strategic steps to take.
Although we began the business with thin margins during the first three years we.
We use our resources to aggressively acquire customers and build a solid customer base.
Once we have achieved a broad customer base.
Well to deliver triple digit revenue growth for <unk>.
Yes, while building scale.
Now we have into stage three.
We are well on our path to reach profitability in the foreseeable future.
We're getting more and more excited by the prospect of our business.
Achieving profitability is not all and go with only the beginning.
Our record so far proved our ability to execute our strategies.
There are many new initiatives internally and we look forward to keeping you updated.
How we unlock the true value of this business.
Looking into the future.
I believe the government will continue to support the health care industry.
The national strategy of strengthening the digital China infrastructure and the policies of the 14th five year plan and the goals for 2035 provided us with excellent regulatory tailwind.
We're excited that we can play an important role of speeding up the digital transformation of the health care industry.
In 2022 will.
We will go double down our efforts in executing our strategy of improving gross margins and operational efficiency.
By consolidating our strength in supply chain and technology will help our <unk>.
Upstream and downstream partners press ahead with digital transformation, hence benefiting consumers.
Our goal is ultimately achieve profitability as soon as possible and to create value for all shareholders and society at large.
We wish to thank all the investors who have supported us all along.
Then I will hand, the call to our CFO , Mr. Luke Chen to walk through our financial results.
Yes.
Thank you Julie and good morning.
Everyone.
I want to begin by thanking all of our colleagues for their resilience and hard work over fiscal 2021.
We have navigated a challenging environment for making necessary changes to improve our.
Accretion and cost efficiency.
Maintaining our competitive edge.
We remained resolute in our focus to achieve quarterly breakeven.
GAAP operating income level in 2022 as soon as possible.
Moving to the financials.
My prepared remarks, we're focused on a few key business and our financial highlights.
You can refer to the details of the fourth quarter and fiscal year 2021 results from slide 18 to 21 section three of our presentation.
Again, all comparisons are year over year, and all numbers are in RMB unless otherwise stated.
Let's start with the first quarter results.
Total net revenues for the quarter grew 31% to $3 5 billion, which is within our guidance range.
We are pleased to report that our graph segment profit for the quarter grew at 98%.
Which is three times as fast as the revenue growth.
Strong top line growth for the quarter was mainly attributable to our <unk> segment revenue growth at 35% to $3 3 billion.
The graph segment profit for <unk> segment has increased by 133% with cross segment margin upfront, 3% to five 2%.
Which reflected our ability to rapidly expand our business scale by steadily improve our margin.
Our <unk> segment revenue decreased 23% to $129 million with cross segment margin improved from 17, 5% to 24, 8%.
Yeah.
Total operating expenses for the quarter were up 27, 9% to 357 million as.
As a percentage of net revenue total operating expenses for the quarter was down to eight 9% from nine 4% as we continue to enhance our operating leverage and optimize our operational efficiency.
Fulfillment expenses as a percentage of net revenue for the quarter was 3% upfront <unk>, 6% in the same quarter last year.
Sales and marketing expenses as a percentage of net revenue for the quarter was three 6% is down from four 5% in the same quarter of last year.
Excluding the share based compensation expenses.
General and administration.
<unk> as a percentage of net revenue.
[noise] accounted for 1% down from one 2% in the same quarter of last year.
Technology expenses.
Four 0.9% of net revenue down from one 2% in the same quarter of last year.
As a result.
GAAP loss from operations narrowed to $77 million compared to $112 million in the same quarter of last year.
As a percentage of net revenue and GAAP loss from operations decreased to two 2% in the quarter from four 2% in the same quarter of last year.
And then GAAP net loss attributable to ordinary shareholders was $83 5 million compared to $98 2 million in the same quarter of last year.
And as a potential net revenue non-GAAP net loss attributable to ordinary shareholders decreased to two 4% in the quarter from three 7% in the second quarter of last year.
As for fiscal full year 2021, I will.
I'd like to run through a few highlights.
Again, you can refer to the details in the deck in earnings release.
<unk> full year 2020.
Okay.
Net revenues were.
$12 4 billion RMB up 52% from $8 2 billion RMB.
Our <unk> segment revenue grew 58, 5% to.
11.9 billion RMB from seven 5 billion due to the strong growth due.
Due to the front of exceeding.
Customers and new customers and network for 2021 .
Our <unk> segment revenue decreased 24% to RMB $522 million.
Our <unk> gross margin was $3.
Four 3% up from 3%.
<unk> segment was.
Was 29% up from 21%.
Overall, our gross.
Profit grew by 70% or $2 $621 million and a combined across segment margin was 5%.
Four 5% a year ago.
For full year 2021, total operating expenses were up 51% to RMB, one 3 billion and as a percentage of net revenue total operating expenses was 10, 2% same as last year.
For human expenses accounted for two 9% of net revenues.
This year as compared to two 8% last year.
We continue to expand the capacity of our fulfillment centers to support future business growth.
Selling and marketing expenses as a percentage of net revenues reduced to four 1%. This year from four 9% last year.
Excluding the share based compensation expenses general and administrative expenses as a percentage of net revenue accounted for one 1% this year as compared to one 3% last year.
Technology expenses accounted for one 5% of net revenue this year as compared to one 1% last year Rep.
Representing an increase of 106%.
Mainly due to increased investment in technology solutions and infrastructure.
As a percentage of net revenues than GAAP loss from operations decreased to two 4% this year.
From four 8% last year.
And then GAAP net loss attributable to ordinary shareholders as a percentage of net revenue decreased to four 2% in the quarter from four 6% in the same quarter of last year.
The increase in amount was mainly caused by the accretion of four probably redemption of redeemable noncontrolling interest in the future.
Please refer to slide 22 to 27.
Of the appendix section for selected financial statements.
A quick note our cash position as of December 31, 2021, we had cash and cash equivalents.
Cash and short term investments.
RMB $943 million.
This concludes our prepared remarks.
Thank you.
Operator, we are now ready to begin the Q&A session.
Thank you.
We will now begin the question and answer session. If you wish to ask a question. Please press star one on your telephone and lights for your name to be announced if you wish to withdraw your request. Please press the pound or How's ski. Please standby, while we compile the question and answer roster. So once again the star one quick question.
<unk>.
Our first question comes from the line and so EPS from Citi. Please ask your question.
Thank you management for taking my question.
<unk> from Citi I have three questions. The first is could you share the drivers of gross margin increase in <unk> 'twenty, one and what kind of GM level would you expect in 2020 two.
And the second question is are we are very glad to hear Lamar Wildwood achieved quarterly non-GAAP operating profit upfront, even this year and what's your growth outlook in 2022.
The first one is that sex named five Chinese companies under the holding foreign companies accountable Act work.
Kind of action in order to take NK cells goodness Grace.
Thank you.
You take all of this is Javier take the Switzerland.
Regarding gross margin.
In 2022.
Our year over year growth margin growth.
<unk> has reached 126%.
And especially in Q4.
Margin growth rate is 100 that is 3% Y O y.
Which is three eight times our revenue growth rate.
In our previous quarters earnings call. We did mention that we will be very concentrated in green our marketing dollars.
And we deliver on that.
With <unk> margin growing three eight acts as fast as our revenue grows.
So first of all.
Direct sourcing from pharmaceutical companies.
Has been highly effective.
In lowering the cost of the product.
We have currently direct starting from 515 international and domestic pharmaceutical companies.
This provides us with a much wider selection.
A lower cost to enable our downstream pharmacies to better serve that customer.
Secondly, how.
Our digital platform create.
Tremendous value by matching downstream demand with upstream the time.
For our pharmaceutical partners.
We're able to provide information gathering from our 385000 pharmacies.
Uh huh.
Likely profile of customer.
Certain.
Drug including location.
<unk> rising.
Which is invaluable to our.
Screen pharmaceutical company.
To help them make decisions based on customer habits and needs.
Certainly.
And very important driver on our margin improvement is through.
Optimization of our product assortment and structure.
With our current volume which has exceeded.
10 billion RMB.
We are in a position to balance our portfolio of products.
With high velocity Skus.
Those traffic driver.
Which may have low margin profile.
Together with all the products with higher margin program.
We currently have over 5000, skus with very healthy margin profile.
And not only do we make more profit from these skus, but also.
They will help our pharmacy customers to improve their gross margin.
And last but not less.
Technology and tools also contribute on luxury and improve efficiency.
Our margin management.
For example, our pricing intelligence system.
Sure.
Mark sampling system.
Replenishment system et cetera.
And moving forward, we definitely can see our margin growth rate in the next quarter should be much faster.
Oscar Mandala revenue constraint.
And our <unk> business should be getting more and more healthy. Thanks.
Yes.
Oh, sorry.
For your questions I'll, probably take your second and third question with.
With the growth outlook.
Our view is very positive for our business and our what will definitely grow faster than the market growth, but one thing I want to assure you is that our margin is going to grow even faster.
And with the all regards to you know the third question about the I guess, the recent very volatile stock price movements of ABR.
You know I think it's very encouraging.
Starting from yesterday.
There is a quite some policy development.
Even the Chinese Vice Premier League Huh.
Expressed during his.
Finance Committee meeting.
The government will continue to support the Chinese companies to continue to at least overseas and are quite a number of other encouraging messages.
But that's those are the things that are beyond our control what I want to relay here is that as a company.
We will focus to grow our business and we are going to focus to execute our strategy and we're going to focus on growing our enterprise value I mean.
The meantime, based on the last couple of days development, we're hopeful that test.
The Chinese and the American regulatory bodies can find some middle ground to work together around the PC L B issue.
Thank you.
Yeah.
Thanks, a lot and then look forward to this year.
<unk>.
Thank you.
Thank you. Our next question comes from the line of C. Pulse some fancy ICC. Please ask your question.
Hi, This is it should come from thank you, Steve and thank you for taking my questions and congratulations on the Companys progress.
And while I have two questions actually my first question is about the financials.
Well, we see that the company's gross margin continue to increase over the past four quarters.
Can you please share some more insights on the lift on gross margin.
And the other question is about business development.
In 2021, the company formed partnerships with over 500 global and domestic pharmaceutical companies. We also note that the company is.
Pori, New specialized Internet hospital model with a number of pharmaceutical names.
Could you please share some more colors on this.
In particular, what value would be cooperation bring to the company or <unk>.
You.
Looking at it.
This is Harley and thank you for the question Oh again talk about margin, especially all of if you can remind me.
Yes, we are seeing a very.
Good trend in our margin improvement.
And then last one.
The margin.
<unk> growth rate is 133%.
<unk>.
And then the entire year of 2021.
<unk> hundred 76%.
So.
A couple of initiated.
We have executed in last year to improve our margin.
And including from supply chain side, the direct sourcing directly causing strong pharmaceutical company.
Commentary, we have a 515 international domestic pharmaceutical companies.
We direct source from.
And also.
Our.
Product assortment.
Change.
A lot in last year.
The previous year when we.
Was still focusing on acquiring more customers.
Our backbone.
Majority of our sales coming from.
Very high velocity Skus.
S K U.
Who brought has traffic.
Ooh broad those pharmacies.
Onto our platform.
And now with our current volume.
Oh.
2 billion U S.
We have changed our assortment.
Assortment strategy, we are bringing more and more.
It skews with higher margin profile.
Currently we have over 5000 skus.
Uh huh.
Very healthy margin profile.
And those Skus, we can call it.
Our high.
High margin Skus.
Paul.
You are also high margin skus for our pharmacy customers.
And also we have a you can see from our P&L, we have a very.
A good increase in our services revenue, which also bring us.
Additional profit.
And for the services side definitely we.
We provide quite a number of services.
And not only into pharmaceutical company, but also.
From last year, we provide services to our downstream customers.
Pardon me.
And also the.
Our.
One health digital friends highest of it this is a big project, which also bring us.
Business revenue.
So all together with all these initiatives that we are seeing a very good margin improvement trend and we believe in the coming next quarter.
2022 we will continue the momentum of our margin improvement.
Get our business more and more healthy thank you Susan.
Let me take the second question.
We are so pleased to see that AR will have earned the obscure companies Trust.
Or demonstrate our values.
Pharma companies truss our compliance.
Truss our transparent corporate governance.
Diesel platform and all of our supply chain capabilities.
Rich.
This is the reason that why form the over 500 in fact, our 510 strategic partnerships or through our sourcing partnerships with the folks who are companies last year.
And let me specifically mention about specialized Oh of course, you can add.
Hospital.
This is the idea.
It is our innovation.
Initiated about two years ago.
We started with Eli Lilly diabetes.
Diabetes.
We are.
Collaboratively we form they are supposed to specialize the internet hospital for diabetes patients.
We build a patient management platform.
This platform.
Doctors.
Pharmacist.
Nutritionist.
A doctor assistance.
Together, we serve patients.
In fact more than 60% of patients suffer from.
The.
Third tier two or six tier cities.
I.
This idea of demonstrating tremendous values first of all we can cover patients from the remote areas.
They have access to.
The innovative drugs.
They have access to specialized.
Alright.
Expertise.
And Oh, we have very high customer loyalty and stickiness.
Same time, where I've seen that are there.
<unk>.
Extended for four months to five five months, which you really are providing value to the pharmaceutical companies.
Start started from there.
Yes.
With Eli Lilly.
Yes.
Formed.
Specialized hospitals for.
Psoriasis dialing for breast cancer.
We.
Through the word of mouth throw out capabilities we.
Started working with Novartis.
Either Bayer Sanofi Celgene and with many other disease types I, just really are only two years of efforts that we have which are tremendous.
Tremendous success.
Now what have you all are working with several others.
For more and more.
Diseases.
Certainty.
The value both for our partners and for Us.
Okay. That's the end of my answer.
Okay, that's very clear and helpful and congratulations again on the accompany program. Thank you.
Thank you. Our next question comes from Kenneth Lau from cornerstone investment. Please ask your question.
Thank you. This is tenants now from cornerstone and congratulations for your progress last year.
Three questions. The first one is.
How have you executed your business strategy over the past few years I can ask one by one so I can take your answers right now thinking.
Sure. So thank you Kenneth.
I think in my script I briefly talked about our strategy.
You know I'd forgotten that there was a threat also through.
All the earnings earnings calls, we had over the last three years.
Its a three step strategy is pretty simple you know first of all we wanted to grow to build the infrastructure and the ecosystem.
And then <unk>.
After we accomplish that.
We will focus on go to scale.
With scale.
We will be able to get onto <unk>.
Stage, three which is to grow the margin and profit.
And you know we have.
Absolutely executed and delivered on the strategies and the financial results.
Having already and you know today I'm very pleased to report that we have a pretty clear line of sight.
Profitability in the near future.
You can move onto the next question.
Oh. Thank you. Thank you.
It.
Could you elaborate more on your current cash reserves.
Yeah.
Ken This is the question about our cash position.
Yes, the current cash reserves.
Okay sure.
Yes, we just close to <unk> as of December and the 2021, we had cash and cash equivalents.
Cash and short term investments amounted to RMB $943 million. If you look at our cash flow statement actually in Q4, we already achieved overall cash positive.
Now as we are close to breakeven. So we believe that our cash reserve is sufficient to.
To support our business expansion.
If we're looking.
Closely.
Working capital we have managed we manage very closely our inventory base around like 2008, 2009 days and accounts payable 42 to 45 days. This also gives us.
Cash.
Generated so we are quite.
Comfortable that the cash reserve.
We hold our hat is sufficient to support our business expansion.
Thank you. Thank you.
That's very good news and the last question as well.
The impact while China's recent policy you have on the medical Digitization and where the opportunities will discrete to the industry generally.
Your company specifically in 2022, thank you.
Yeah, I think I'll take this question.
Yeah.
And they're off.
A ton of new policies over the last few years.
To name a few.
Spoke about the industrial Internet.
You know like in the two sessions, which just ended.
It is and reiterated the.
Government is committed.
Committed to industrial Internet and also they emphasized building the digital economy and develop the digital economy.
And Oh, another one they decided the healthy China, Tennessee 30 in particular you mentioned.
To create.
Incredible excess.
<unk> of health care services for rural communities.
Those policies, plus many others, which I won't have enough time to elaborate on.
During this call it provided excellent.
Excellent tailwind for our company.
Regardless.
The industrial Internet and the digital economy, better access them health care services for rural communities.
It's kind of a design for one or more months business model.
Because.
Many parts of the value chain can be reconstructed.
By leveraging our digital technology.
Because all of our digital platform uniquely delivers a holistic.
Platform that integrates medicine with the health care services and it benefits all parties within the overall ecosystem from let's say the pharmaceutical companies.
Doctors are the.
Health care providers.
Most of the patients right so.
Our platform offers a cohesive online and offline solution.
Which improves efficiency compared to traditional players and.
Today, we have.
Such a vast us.
Network of pharmacies on a network and we have more than 500.
Direct sourcing relationships and of course, the indirect relationships.
In the thousands and then obviously.
We can actually.
Breached the tool.
To really work on our supply demand platform and between our online pharmacy and the network of pharmacies were able to deliver a product.
And our services.
Some tens of millions of.
Patients of consumers nationwide.
Thank you.
Thank you and best wishes going through kind of in 'twenty two.
Thank you.
Alright. Thank you. Our next question comes from Victor Yang. Please ask your question.
Good evening and good morning.
<unk> congratulations to you our Florida, great strides forward I have three questions.
Respecting the fallen three Xbox Hearst found narrowing down the road.
Second it's about the furniture Hammerson network and the third question is somehow a puncture.
My first question.
That's now gone non-GAAP net loss.
Not really.
What are the main factors and how do you plan to fund this trend.
Hi, there so let me answer these questions.
Yes, we are very pleased to see that we are.
We'll step of closer to breakeven.
non-GAAP loss from operations for quarter four.
Narrowed to two 2%.
Which attributed to our continuous margin improvement.
As you can see our margin improved from three 9%.
Quarter, four last year to four 9% quarter four this year, we believe there's still room to improve.
And we also take taking actions to improve our operation and cost efficiency.
So when you compare all of the expenses.
So allows you to do so here you see the leverage as well as some cost savings.
As Julie and Harvey just explained.
We will continue to grow our business.
Healthy weight, which is profitable growth.
And we believe the trend will continue and we aim to have.
Chief quarterly breakeven at operating level Asap in 2022.
Okay. Thank you for the answer.
My question My second question is.
About virtual pharmacy network.
111.
It's covering.
Over 70% of the numbers of pharmacies in China.
In addition to the current procurement services.
Does the company plan to exploit this launch in that work.
Yes so.
And I think.
That's a great question Victor you know first of all it is critical to have a solid base of customers.
That is why we were.
During the first few yet.
Bring as many pharmacies as possible onto our platform.
With this broad customer base.
In addition to the products, we sell to them.
There are numerous ways to extract value.
We design our business model to me.
Those pharmacies successful alright. So so currently we have a.
The suite of service.
Service offerings to them.
Which all designed to create more value so they can better stuff their consumers.
For instance, we have the cloud prescription service.
We have the one drug express ultra or service and that will also have the the health digital.
Jai centers.
So the one health digital franchise service, which I mentioned in our last.
Earnings call.
He is doing very well.
And another example is that.
Before we knew what our supply chain finance is already creating tens of millions of income for us.
Whilst helping those pharmacists to solve their cash cash flow challenges.
You know I won't be able to limit to list all of those things we were doing but I can assure you that.
There'll be many more.
Similar type of innovations in the future. Thank.
Thank you.
Thank you for the answer.
Promising to make profit from this network.
Here It goes to my third question.
I noticed that the company.
Thanks Frank.
At the leading edge in the industry.
How do you propose to protect this barrier and <unk>.
Sure.
Patrick Ash to a further step.
Okay, Let me take that question.
Our supply chain has always been our core competence.
And as you can see that we invested heavily in it.
Just from our initial report to us.
We are.
Vested.
So almost doubled.
Sure.
Fulfillment center capacity and throughput.
Last year alone.
And we also are in the process of improving our fulfillment center efficiencies through.
Process improvement resemble fast moving dogs.
Shipment of goods.
The more you put into water or you're in the process.
Advancing our surpass your management systems. For example, we use optimization models and algorithms based on real time data we optimize.
Our selection.
It is our inventories or storage space.
Optimizing our price.
Fulfillment center operations, including all the picking packing sorting essentially all the processes.
Yeah.
We are we believe that we are.
Enhancing our capabilities.
You mentioned that are three steps one Phil.
What are your fresh water infrastructure, we are investing more on the infrastructure and we're also investing a lot.
She believes is based on the infrastructure.
Okay. Thank you. Thank you for the answer on Q.
Thank you. Our next question comes from Mark because she please ask your question.
Hello, everyone.
Kurt.
No that's fair.
On the AR reserve.
So Hum Mike My only one question is about the monetization.
Seeing the casino gross hotel service revenue.
Service revenue via importance tell us that they can come for the firm going forward Ken.
And do you plan to create more revenue generating products.
Could you show your claim with us thanks.
Okay.
This is a very good question.
Can you give us maybe in <unk>, we have seen.
Growing demand for a number of our service offerings.
And for example, our service more deal provides close loop solution pharmaceutical company.
By integrating doctors pharmacists medical assistance.
Patients and medical Representatives.
One SKU our Internet hospital.
And also this is more due also provides online.
Remote consultation.
Especially.
It's kind of a COVID-19.
Equation.
And also provide E prescription services.
And patient education from pharmaceutical companies.
Patient support and online lethal.
This enables us to provide.
Customized omnichannel digital marketing solutions for pharmaceutical companies.
Both through our one pharmacy platform.
Yes, well as and through our key strategic partner.
Currently.
We have over 2000 skus.
Utilizing our digital marketing solution.
And these products are promoted to our pharmacy customers.
Across the country.
Also promoted two.
Yeah consumer customer.
Through our digital marketing platform.
And they are also a number of other service solutions.
Asking.
Use among our pharmacy customers.
Including in the cloud prescription service.
Oh, one drug.
Express <unk> survey.
And one house.
French high silica.
The digital franchise.
We will continue to.
Create and innovate.
More service offering that adds value for our <unk>.
Extreme customer for our downstream partners.
And we expect our services revenue to continue to.
Hello.
It will positively impact all of them.
No.
Thank you.
Thanks for sharing.
Thank you next question comes from Lee. Please ask your question.
Hi, good evening and money to really thank.
Thank you for taking my questions.
First of all let me say I'm very grateful to hear such promising progress, especially undercurrent don't mistake and international situation.
Two questions the first one.
I noticed that over the past year. The company has doubled is technology investment and.
And as patients.
Pizza Hut also increased by over a dozen.
What area does business cities patent folks and what I'm Chi barriers Ivy challenge, we built here.
Thank you.
Let me take that question.
You can see all the company's mission is to.
Digitally connecting patients with medicine and the pharmacy.
And the medical services. So we believe that our technologies are the core of our business.
The key driver turnover health industries technology.
Certainly wherever you can protect technology cloud services.
Data analytics. So we have made a tremendous investment lots of your loan yields.
We more than doubled our technology spending.
Give a lot of systems more than 30 systems Web version 19 patents.
And are these patents.
Surrounding for example, digital patient management platforms supplied.
You know, we're close smart supply chain.
Within that we have lots of systems managing inventory Medicine selection magazine.
The warehouse processes. We also have our systems intelligence system to manage all our sales reps sales teams.
Web system to manage the third party logistics will be a lot of technology. We believe that these technology allow us to use the massive data too.
Well how about.
Clear understanding of our customer profile and behavior.
We have also a clear on Sunday.
Competition and.
The market trend and using all those intelligence.
Can make some decisions.
Okay. Thank you I think.
Very important go Hot Hot technology and my second question is.
It's called a 19 continues especially the latest outbreak throughout China, how does it affect the company.
Do you plan to deal with it thank you.
Yeah.
60, especially regarding.
2019.
We know that E U.
This month.
We are seeing thanks.
Thanks Lee.
You have a loss in Shanghai.
Heavily affected by them.
I think overall, we can see a demand for our.
Downstream customers are still there.
Uh huh.
And we can expect.
The.
Although there are some restrictions.
Reading the logistics side, but we.
We can see a very strong demand.
<unk>.
And the specialty and good news for us is not.
The COVID-19.
Ill ask to educate our.
Pharmacy customer as well as a loss consumer customers.
To go to online poll.
All drugs.
For medical consultation.
And also help.
Uh huh.
The pharmaceutical company.
For them to educate them that they can utilize our online digital marketing tools to promote a new product.
And especially to those lower tier city.
So I think.
The COVID-19.
<unk> brought us a lot of trouble, but I think.
It is also a creator.
Creates a big opportunity for us.
And Oh do we expect.
Firstly, we hope you know.
And Oh my God.
I believe.
Yeah.
Uh huh.
And for our upstream and downstream partners.
And we will Oh, we have already managed to find a solution.
You too.
To promote.
The product to promote the sales.
Through the online tools through our online services.
So we believe that.
It will help us shorten.
Peer to educate shortened the period of online expansion.
Overall, it should be protocols, but we do take the advantage of all these online tools for example for our.
Digital French hi.
We provide.
I am Oh, two old tool to our digital.
Digital franchise pharmacy fill those pharmacies.
And they can utilize this tool.
Cool.
Which customer you know under currency.
Asia.
And to serve their customer compared to those are traditional pharmacies.
We are offering.
We are enabling them and help them to get more business.
I think that is advantaged.
We have seen.
Thank you.
Okay, Great appreciate that and I think the company is really doing a valuable contribution to the success Iot.
That's all thank you.
[noise].
Right. Thank you.
There are no further questions at this time I will now turn the call back to Monica Mu.
Our director for closing remarks.
Thank you operator.
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 interest in visiting us in Shanghai, China. Please let us know thank you for joining us today.
This concludes the call.
Thank you that does conclude our conference for today. Thank you for participating you may all disconnect.
[music].
Okay.
Yeah.
Okay.
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