Q2 2022 111 Inc Earnings Call
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Hello, everyone and thank you for joining <unk> conference call today.
On the call today from the company adopt a gang Yu co founder and executive Chairman, Mr. John Laing Lilt co founder Chairman and CEO , Mr. Luke Chen CFO of one on ones major subsidiary, Mr. Harvey Wang C O L and Ms Monica Mu Investor Relations director.
As a reminder, today's conference call is being broadcast live via webcast. The company's earnings press release Western ship at it earlier today and together with the earnings presentation are available on the company's IR website at IR talked one bond one dot com CN.
Before the conference call 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 and relate to events that involve known.
And unknown risks uncertainties and other factors all of which would cause actual results to differ materially for more information about these risks. Please refer to the company's filings with the S. E C.
111 does not undertake any obligation to update any forward looking statements as a result of new information future events or otherwise, except as required under applicable law.
Please note that all numbers are in RMB and all comparisons refer to year over year comparisons unless otherwise stated. Please also refer to the earnings press release for detailed information of the comparative financial performance on a year over year basis with that I will turn the call over to 111 CEO Mr. Channeling do.
Good evening and good morning, everyone.
Thank you for joining our Q2 2022 earnings call.
The information that will be discussing is also provided in the slides that have been posted earlier today.
Companys website.
I would encourage you to download the presentation along with the earnings report at IR Dot Walmart Dot com dot seat.
In today's call I'll talk about the general economic situation and how the company rose to the challenge of the impact of both <unk>.
And the.
Economic uncertainties.
Secondly, I will also provide some color on our strategy in the areas of building momentum for margin growth, improving operational efficiency and a strengthening supply chain capabilities.
Dan I'll see it holding Mr. Luke Chen will walk you through.
Well results.
Although it would have been in the Covid pandemic for three years.
22 will prove to be the most challenging yet in China.
There are uncertainties in the international economic environment, and the strict lockdown matches great significant.
Challenges for many companies.
As many of you are aware COVID-19 infections.
In the spring.
Subsequent lessons.
In China.
The Chinese government instituted lockdowns in numerous cities so that the spread.
And as a result, our.
Shanghai headquarters and several other well known for.
It's worth a shot.
Oh God, our office had to be shut down.
In the second quarter and no one was able to wait times office.
Simple message like make.
Customers and suppliers.
Helping contracts for normal business transactions became impossible.
The overall supply chain was severely disrupted.
On the transportation and other logistic.
We are regulated in pandemic hit areas.
Logistics cost rose significantly in many cities all deliveries stuck in transit.
And we also experienced a severe shortage of men.
Single supplies as our suppliers, but not able to replenish inventories.
Okay.
Okay.
This is the moment when companies are being truly tested.
Despite the severe impact with pandemic.
They rose to the challenge.
Through the team's tremendous effort our company was appointed by the Shanghai government.
Supply guarantee enterprise.
Opened a special Green channel, which enabled vehicles to deliver from <unk> fulfillment center to Shanghai on a daily basis.
We worked diligently and have leveraged our online and offline digital platform capabilities.
Eight.
Regions and are continuously provided medicine and online medical services for patients nationwide.
We haven't provided free online consultations for customers in 300 cities.
And provided over 3000 medicinal products covering more than 400 diseases during the lockdown period.
Despite economic downturn.
And a material detrimental impact on the offline retail sector.
Our Q2 revenue reached $3 4 billion RMB achieving slight growth.
In extremely difficult circumstances.
However, our gross profit grew 43% year over year.
Reaching 192 million.
Gross profit margin rate of the company increased from four 5% in Q2 2021.
So six 3% in Q2 2022.
I had mentioned that we will be laser focused on our margin growth.
But all of that.
This achievement came from optimized product assortment and a smart pricing as well as improved efficiency.
Nickel capabilities.
Our <unk> business remains the key contributor of our revenue, which reached $2 9 billion RMB.
Gross profit in our <unk> segment rose to 169 million, 65% year over year.
Gross profit margin for our B to B segment rose to five 8%.
Representing a growth rate of 53% year over year.
Gross profit margin for this segment rose to 22, 5%.
Presenting a growth rate of 11% year over year.
Mobile continue reducing procurement cost.
As well as optimizing our product assortment and structure.
I'm pleased to report.
The progress we have made on all private label initiative.
With CRM Big data and health management database.
One cooperated with pharmaceutical manufacturers to build private label products, which include medicines.
Health supplements medical devices et cetera.
So far we have already developed three brands.
It will come.
Yeah.
And Guangzhou targets.
Targeting specific market segments.
With all online and offline digital platform and nationwide distribution.
These proprietary products will improve gross profit and improved downstream customer stickiness significantly.
Yeah.
We were able to leverage our digital capabilities to deliver more value adding services to.
The market continues to show strong demand for our diverse service solutions.
Even during the pandemic.
Service revenue reached 22 million borrowed.
Our operational efficiency, it's trending very nicely due to the improvement in business scale efficiency and technology advancement.
The operating expense as a percentage of net revenue decrease.
7% in Q2, 2021 to eight.
<unk> eight 9% this quarter.
The sales and marketing expenses were down to three 3% from four 4%.
General and administrative expenses.
One 3% from one 7%.
And technology expenses were down to one 1% from nine 7% in the same quarter last year.
The total amount of sales and marketing general and administrative and technology expenses.
Yeah have been reduced by 24% 25.
5% and 36% respectively.
Yeah.
Although the current environment has resulted in challenges to our business, we're still committed to executing our strategy to continue to grow our revenue and gross margin.
I am pleased to report that our non-GAAP loss from operations.
As a percentage of net revenues decreased from four 9% in Q2 2021 to one 7% this quarter.
This brings us another step closer to profitability.
As of Q2 2021.
Minus virtual pharmacy network reached approximately 410000 pharmacies.
Covering about 70% of the total in China.
As we deepen our relationship upstream pharmaceutical companies.
One has also strengthened its relationship with downstream pharmacy customers.
As a result, we were able to help those pharmaceutical companies to improve their drug commercialization efforts and digital marketing efficiency.
This quarter, we have also seen that all pharmaceutical cold chain logistics capability improving rapidly.
As of July our Cold chain service is deployed in over 270 cities over 80% of which orders can be completed within 48 hours.
This capability has provided to convenience for rural users in particular.
Yeah.
We always believe innovation makes the most important driver.
And our efforts are rewarded with encouraging results.
One health as a digital franchise model that all that.
<unk>.
Effectively connects pharmaceutical companies with pharmacies and patients in order to empower multiple midsized pharmacy chains.
<unk> provides both small and medium change with more product selection.
Also important business decision, making optimization.
Bailing drug sale inflammation, and a smart chin support.
One health also helps its members to leverage to optimize assortments and better our customer relationship management.
So with digital franchising Unhealth sulfur helped more than 11000 pharmacies, So AI technology Big data analysis technology.
And the SaaS services, such as CRM Ultra OLS et cetera.
This digital service made all and B to C business model comparable.
Which already covers over 67 million consumers.
<unk> has opened up the digital marketing link for upstream pharmaceutical companies.
One health members monthly.
Average revenue per user and customer satisfaction metrics have been significantly increased over the past few quarters.
Meanwhile, the average gross profit contribution by one helps members was one six ex that or not.
Yes.
Cloud promotion.
<unk> has to be to see management platform.
Connect pharmaceutical companies with pharmacies pharmacy managers pharmacists it was personnel and the consumers by facilitating the assignment.
Specific tasks from pharmaceutical companies to pharmacies.
Ladies possibly include taking.
Taking exams product display promotion patient education et cetera, all pharmacy managers pharmacists and sales personnel.
This platform enables pharmaceutical companies to precisely target sales channels and implement customized pharmacist and sales personnel training.
At present.
Pharmaceutical companies.
7000, pharmacies and are close to 10000 pharmacists and sales personnel have joined this platform.
As a national high Tech enterprise certified by the Chinese Ministry of Science and technology.
Specialized high end, new technology enterprise selected by the Shanghai Municipal Commission economy installation, one bond has proactively responded to the call for the free creations.
E innovation invention and creativity.
And the whole news.
E.
New technology, new industry, new business format, and the new model.
On a constantly devoted.
Itself to scientific and technological.
Jason.
Since its establishment.
<unk> has pursued continuous technological innovation advancement.
In July this year.
One the 2021 to 2022 China pharmaceutical retail leader award with our innovative business model and the leading digital technology capabilities.
As the National Health Digitization drive gathers pace.
The state provides more support for the development of platform businesses. We will continue to invest in research development aiming to achieve continuous incremental improvements for office.
I would also like to brief you on one more months.
Efforts during the pandemic.
As a supply guarantee enterprise in Shanghai, we have proactively provided a <unk> boost.
The ongoing fight against the pandemic.
We collect purchase orders via proprietary purchasing channels.
The special personnel to process them, thus, ensuring timely delivery to patients.
Clinic, while more lines online hospital launched free online service since.
Again, and it provided free online consultations three prescription renew for chronic disease sufferers and other medical services to the public.
The company has proactively organized donations and also anti pandemic PPE with enterprises resuming work and production.
Oh, the ESG efforts carry our core values.
We will firmly fulfill our social responsibilities as we have done in the past.
We will make unremitting efforts to pursue core growth opportunities.
Further consolidate and enhance our leading position and to <unk>.
Our competitiveness in the medical service industry.
Driven by digital technology will continue to deepen the data looks like.
Emission of the health care industry and upgrade platform services, so that patients at large gain access to high quality medical services and purchasing services.
Our goal is to ultimately achieve profitability as soon as possible and to create value for our shareholders and society at large.
We wish to thank all investors, who have supported us all along.
I'll now hand, the call to Mr. Luke Chen to walk through our financial results.
<unk>.
Thank you, Jamie and good morning or evening everyone.
Moving to the financials.
My prepared remarks, we're focused on a few key business and financial highlights.
You can refer to the details of the second quarter of 2022 result.
Slide 13% to 16 section two of our presentation.
Again, all comparisons are year over year, and all numbers are in RMB unless otherwise stated.
Let's start with the second quarter results.
Second quarter has been extremely difficult.
Our business due to Covid lockdowns in Shanghai and in many other cities.
Our head office in Shanghai had to be closed and operations in our regional fulfillment centers had it been significantly disrupted for two months.
Despite all the challenges from pandemic lockdown and thanks to our team efforts.
We have managed to keep our revenue stable why continued to fast grow gross profit and margin.
Total net revenues for the quarter grew <unk>, 4% to $3 4 billion and the total gross profit for the quarter grew at 43% to $192 million and gross margin improved from four 5% to six 3%.
<unk> been to what the major contributor for the total gross.
And our margin improvement.
<unk> segment revenue grew at one 3% to $2 9 billion, while our gross margin.
But cross segment profit for the segment increased by 55%.
With cross with segment margin up from three 8% to five 8%.
This.
Well go to our optimization of selection portfolio and a competitive pricing.
We had also focus ourselves on high margin products and launched private label products with much better margin.
Our <unk> segment revenue was negatively impacted by the lockdown, which decreased 20% to $103 million with gross margin improved from 22% to.
Two 5%.
Total operating expenses for the quarter were down 16% to $272 million.
As a percentage of net revenue total operating expenses per quarter was down to eight 9% from 10, 7%, which reflected continuous improvement.
Creation efficiency.
Fulfillment expenses as a percentage of net revenue for the quarter was two 9%.
Upfront to four 8% in the same quarter of last year.
The increase was mainly attributable to additional logistic costs incurred as a result of.
Tom.
Sales and marketing expenses as a percentage of net revenue for the quarter was three 3% down from 4% in the same quarter of last year.
We continued to leverage our sales automation tools to enhance the sales effectiveness and a streamlined the operation in the quarter.
General and administrative expenses as a percentage of net revenues accounted for one 3%.
One 7% in the same quarter of last year.
Which was attributable to our continuous.
Optimization of our supporting functions.
Technology expenses accounted for one 1% of net revenue down from one 7% in the same quarter of last year we.
We completed a major tech development program last year, and I believe that at current spending reflected the appropriate amount of investment in technology.
As a result.
GAAP loss from operations narrowed to RMB, $52 8 million compared to RMB $147 9 million loss in the same quarter of last year.
As a percentage of net revenues non-GAAP loss from operations decreased to one 7% in the quarter from four 9% in the same quarter of last year.
non-GAAP net loss attributable to ordinary shareholders was RMB $68 3 million compared to RMB $118 million loss in the same quarter of last year.
As a percentage of net revenue.
non-GAAP net loss attributable to ordinary shareholders decreased to two 2% in the quarter from three.
Three 9% in the same quarter of last year.
As you can see we are improving our financial performance quarter by quarter, and we are very close to profitability.
We have full confidence that we have the right strategy and the right team to steadily expand our revenue and across segment profit.
Please refer to slide 17 to 0.8 of the appendix section for selected financial statements.
A quick note our cash position as of June 32022, we had a cash cash equivalent restricted cash and short term investment of RMB $885 6 million.
This concludes our prepared remarks, thank you.
Operator, we are now ready to begin the Q&A session.
If you would like to ask a question. Please press star one on your telephone and wait for your name to be announced.
Once again its star one to ask a question. Please standby, while we compile the Q&A roster.
I will now take our first question.
Please standby.
First question comes from the line of sheep hang Seng from CIC. Please go ahead. Your line is open.
Okay. Thank you. Thank you for taking my questions and congratulations on the Companys progress.
While I have three questions actually and the first one is how did your company achieved growth for both revenue and gross profit in the second quarter.
Especially it made such terrible circumstances, such as Covid epidemic and the economy uncertainties.
And my second question is what specific challenges did accompany experience.
The economy and the Covid pandemic in the second quarter.
How will these challenges affect the company in the second half of 2022.
And then last question is about the strategy.
Could you please elaborate on the companys strict strategies going forward.
Thank you.
Thank you Lucy Peng.
Let me just.
Address your questions.
So first of all.
And our last quarter was an extremely difficult.
From majority for the three months all head office was under Lockdown.
Even after the Lockdown was announced.
Stop Gratulate returns office, starting from second week of June .
Still no one from our head office kind of travel out of Shanghai.
Conduct the badly needed business.
And also the supply chain was disrupted pretty badly.
It's quite a number of cities experiencing outbreak of Covid many of our orders got stuck in transit.
<unk> tremendous problems in our customer experience and also a lot of customer frustration.
Some of our fulfillment centers were shut down and.
Even the inventory replenishment became extremely difficult.
And in the meantime, all pharmacy customers were also under tough challenges.
We're not allowed to sell fever cough related medicines.
They are full top of medicines that.
They are not allowed to sell which account.
For us substantial amount of their business and as a result, we were not able to sell those drops to them either.
Just under the difficult conditions, our team proved bateson true color.
Given the extraordinary circumstances, we established a virtual commence center, we've got all the functional leaders darwinian everyday to make decisions to deal with all kinds of issues popped up.
And then they all have their own daily meetings.
And.
They are respected respective teams I was deeply moved by the dedication our team members demonstrated during that tough period and I'll give you. An example, as you may know once you leave your residential estates it'll be extremely difficult.
To read into it as every state is so strict on the inbound traffic.
At that time, many customers placed orders online.
And.
They need to get the riders to collect those medicine from one of our collection centers.
So.
Some of our staff used.
Used their own personal vehicles with <unk>.
Dispatch of some of the orders to customers who leave a file.
And as we understand once they leave their home.
Couldnt return home for many days.
So end of the day I think the team spirit and our execution capability that contributed to the business results. We're very pleased with the results given the extremely difficult circumstances.
Would you have a second question about the impact.
Also.
How we're going to deal with it in the second.
Third and fourth quarter.
It is quite obvious.
The pandemic created negative impact to our revenue and margin.
And therefore, the overall business.
Cost of conducting business also increased significantly.
Imagine the autos stocking transit.
Extra vehicles would have to hire.
Even though some of their warehouses were under Lockdown, we had to continue to pay our employees.
And the pandemic is not over yet.
Although we are able to work in the office now in Shanghai and many cities right now in China are going through what Shanghai run through.
As we speak right now we have thousands of orders stuck in transit right now due to the Lockdowns in many cities, including some of the major logistical hubs.
We anticipate Q3 and Q4 will remain very very challenging for our business.
The overall economic situation is not as encouraging as we would like it to be.
This will add extra challenge to our business.
But we have done in Q1, we will continue to operate we've got great vigilance.
Do the best we can.
With regards to your.
Third question Chip.
Our future strategy.
We always had a three step strategy.
Our first step is to build the infrastructure and the ecosystem.
As you all new.
It started from a BDC.
Business.
And then we had the Internet hospital with.
One clinic.
And then we also had the <unk> business.
With that we actually completed.
Close the loop online and offline.
<unk> <unk>.
<unk> two <unk> model.
With that infrastructure, what we're able to scale.
One can understand all one can appreciate in the Chinese market scale matters a lot.
Scale Nobody takes you seriously so we aggressively pursued.
The volume of the business over the last few years.
We had.
<unk> really.
Take home, 50% okay.
500 also pharmacist market and today as you can tell we already covered about 70% of the overall market.
That scale and obviously, we're in a much better position.
You did the deal with the upstream suppliers all downstream pharmacy customers.
And of course, our stage three of the strategies to pursue profitability.
As we have demonstrated the last few quarters every single quarter, we're making substantial progress.
We reaffirmed the labor.
If we look at the bigger picture level.
We wanted to use digital technology to transform this healthcare industry and.
We are a firm believer that technology will be the key driver.
Also technology will be the area that can give us the edge.
No.
We will be pursuing both topline and bottom line growth and we believe that technology will get the best tool to give us that edge.
And this is at least a trillion dollar market.
There is a lot we can do.
Of course, we want to establish.
Our leadership position in servicing the pharmacies fast.
And then also other goals.
Hi.
Thank you for the question and I Hope I answered your questions.
Yes, sure, it's very clear and helpful and thanks for the Sherry.
<unk>.
Thank you.
We'll now take our next question.
Please standby.
Next question is from the line of Fergus Boston from Teva. Please go ahead.
Yes, I'm, a individuals' Astro Fergus Macpherson congratulations on.
Performance last quarter I have also three questions. If you don't mind.
The first is have you made any progress on the supply side upgrade.
The second is.
Have you made any progress on technological innovation or development.
Lastly, what is the status of the company's cash reserves.
I can answer the first two question I didn't hear the last one cafe reserve okay.
Last one yes.
We have made.
A lot of progress in this.
Hi, Chad as one technology.
I just heard the true question separately.
Alright in terms of supply chain.
Our supply chain.
Uh huh.
We've made progress in both our systems.
Our.
Infrastructure for example, we launched our cloud DTP program.
I'll try and a half years ago, we didn't have a coach in coverage.
To you from the beginning of this year.
Launched coach and coverage.
Allow us to.
Deliver a lot of new innovative drugs to customers in remote areas right now are cogent coverage.
Fulfill to 270 some cities.
It provides tremendous convenience 12 patients.
So that's one second.
<unk>.
<unk> innovative ideas.
Franchising Copayment Center program we.
Through our experience, we know that it's so difficult it takes long time to build.
Got.
It takes.
I've heard.
Searching for the site.
Yes.
FDA approval.
You'll be able to hurdle.
Process, essentially usually a province undertakes a more than a year or two.
So we have a new innovative idea too.
Partners using our partner focus.
Core price high franchising.
Corporate center.
So.
This idea of beginning of this year by now where the find 11 corporate centers.
Already in your operations.
This fulfillment fulfillment centers can be treated.
Our forward deployed often center.
They are closer to customers so that they can shorten the delivery time.
We also have a lower fulfillment costs, so really a tremendous help to us as well.
What kind of have a much much larger coverage.
Lastly, some points about that.
Inside our corporate center.
<unk> tried to reduce our operational costs. One idea is to separate the bulk sales from unit sales.
So it's a lot harder.
Barclays, we create and buy one SKU directly shipped to our B.
<unk> customers.
By separating the bulk from the units, we lowered our fulfillment cost, especially the picking and packaging costs.
Almost 100%.
So these are the improvements are.
Smart supply chain.
Regarding.
Due to our technology as Youll know that we continue to invest.
Our technology development.
Judy mentioned that we are recognized by Chinese Ministry of Science and technology.
Uh huh.
Specialized high end new technology enterprise.
Also we received the award.
Yes.
China pharmaceutical retail leader award.
These awards are for.
Especially based on our digital technology capabilities.
Well also.
We build this patient lifetime management platform, which connect patients with doctors.
And medical assistance.
Usage of these platforms patient.
Again tremendous convenience, while accessing vouchers medication and disease education.
Let's take.
Diabetes patient.
Patient management as an example.
Duration of treatment.
Yes.
Measure or.
Adherence.
Ah patient.
Medical adherence.
Yes.
That index has been approved by more than 30%.
And also we.
Provide a lot of tours.
For our marketplace lenders helped them improve product availability.
The fulfillment.
Im wholesale customer services.
Hi.
Marketplace.
CPO has dropped from a per ton down now to four 5% so help us to improve our customer experience tremendous.
So through as a few examples that God I.
I Hope I got.
<unk> demonstrated that.
Our investment our smart supply chain technology.
Yes, hi.
Hi, Ben.
Achieving.
What I've seen.
Fruits.
Okay.
Yes on the company's cash reserve.
We just closed.
Joanne to 2022.
We had cash and cash equivalents restricted cash and short term investment about RMB 886 million.
You can also tell from our cash flow statement.
Cash net cash outflow in the first half year. This year is significantly lower than the first half of the year last year.
And we believe this trend will continue as we further lower our operating loss and are getting closer to profitable.
We believe our current cash rates there are sufficient to support our daily operation.
I hope we answered your questions.
Yes, that's very thorough.
Thank you.
Thank you.
We will now take our next question.
Please standby.
Next question is from the line of <unk> <unk> from Citi. Please go ahead.
Okay.
Hi, Thank you management.
Good morning.
This is the only from CB. Thank you for taking my questions I have two question the first day.
We saw a strong improvement in gross.
Gross margin second quarter.
The reasons behind it and what level gross margin back in mid to long term.
The second one is.
Could you give us more color.
Margin product program. Thank you.
Thank you Zoe I think I'll take.
Your first part of the question.
Dan.
Maybe my team can actually.
<unk> with the SEC.
All up question with little more detail.
Yes, we've made a strategy to focus on.
Margin delivery and.
A few quarters, we worked extremely hard on.
Our product structure optimization, which is the main driver for better margin.
Of course, another driver to reduce our procurement costs.
We invested pretty heavily into our supply team and the negotiated pretty hard with upstream suppliers.
With our technological capability, we're getting better and better on our <unk> system.
If you.
Familiar with that that stands both pricing intelligence system.
So what we do is we use algorithms, we keep testing price elasticity and we arrive at an optimized pricing for certain cohort of Skus. So this is really instrumental.
In helping us improving our margin and also on project.
Mitch that.
Selections has very competitive pricing.
And also our product mix included the so called gold label products, So which means that in our high margin products, which maybe Harvey can kind of elaborate on that.
The revenue for this category of products is not very high but the margin contribution it's Eric.
Or are people.
And last point I would like to make is it's not.
Finally, I'll private label has been launched it's early stage, but we're excited by the potential for this line of business. So far we have created three brands.
They had.
One Joe.
Tom will come on in the hung up.
The reason why we have those brands.
Differently is we want to target different market segments.
So, although we took including and I believe this is very sustainable.
The second part of your question.
We should anticipate that our margin growth, we will continue to.
Grow faster than revenue in the foreseeable future.
Thank you Adam.
My first question.
Second question.
Hi module product, Okay Julien.
This is actually.
With our fast paced digital marketing costs.
No.
Platform.
One house like cloud promotion platform.
Chromo mass new product or special products.
Pharmaceutical companies.
And the margin is normally about 20% and average about <unk>.
Thank you Paul.
Yes.
And these products not only.
Hi module caught up.
Also.
Even more important also.
High margin products policies.
So.
This is <unk>.
Has been your transformation.
One on one sales team.
Promo.
<unk> products and we are pleased with.
So.
Most or all of the transformation.
We can see I'll call it out by quarter.
High margin product sales increasing Robyn.
Thank you Kelly.
Thank you management.
Look forward to your future.
Thanks again.
Thank you.
We will now take our next question.
Please standby.
This is from the line of Lauren <unk> from HSBC. Please go ahead.
Hi, Thanks management for taking my questions and congrats on your results.
Two questions.
Michelle.
The first one is on your <unk> program can you share with US how does this program in Peru.
Users in general.
What's your future plans for that program do you have targets.
Like how many pharmacies.
Sure.
My second question is.
Can you talk a bit more about your future plans for the cloud.
<unk> program, what are the feedbacks from the pharma companies and pharmacies.
So far what's their satisfaction level with the new service.
Thanks.
Yes. Thank you.
Two question.
With new initiatives.
Paula House.
Yes.
Yes.
Industry with Cobian cusimano.
Our virtual franchise model in April .
Hence all those small medium sized pharma Sanchez.
<unk> provides superior products and services to their customers.
So.
Our next step for lung health.
Pardon me.
Brian .
Tomorrow, we will have a one house.
The stomach.
Zach.
Landmass from Hangzhou, China.
Our next.
This program.
That's total setup causal connection.
All of our marketing.
Let me start.
Amendments.
Marketing about.
Exclusive of chaos.
It was all about.
Our private label.
Okay.
It is designed for one house.
For which.
Basically all of them.
Hi, Martin.
We expect.
Marginal.
This program is going to increase.
Yes.
Sure.
Sure.
Yes.
And that is.
Call promotion program.
Softbank.
<unk> pharmaceutical companies.
With.
Pharmacists in those policies.
Yeah.
Eventually with me.
Hey, Sean.
<unk>.
We just launched.
Only a few months.
We have about <unk> of our final thoughts.
Jonathan.
The pharmacy Roger sorry.
Patrick.
And we also have a number of pharmaceutical companies.
Participating in this program.
Yes.
We are expecting.
Cloud promotion program.
Uh huh.
Digital marketing cost and also a platform to connect call pharmaceutical company.
<unk>.
Thank you.
Thanks, Joe.
Thank you.
Thank you. Thank you for your answers.
We'll now take our next question.
Please standby.
Yeah.
Next question is from the line of Steve <unk>. Please go ahead.
Thank you for picking my craft chain.
Two craft chain.
The first one what is the reason behind the contracting non-GAAP loss from operation of percentage of net revenue how as sustainable.
One is what do you have a supply guarantee in Pi.
Does that apply to Momo was medical.
Thank you.
Thank you Steve Let me answer your first question.
Yes.
Our non-GAAP operating loss for the quarter is one 7% of net revenue.
Which has significantly improved if you compared to four 9% loss in the same quarter last year.
If presumed in you will see that the improvement.
It's contributed by first of all the gross margin improvement.
Which is six 3% this quarter versus four 5%.
In the second quarter of last year.
Yeah.
And also the total operating.
Okay.
<unk> contributed the rest.
Just now.
Dreaming and hobby is talking about.
Our plan.
The revenue and the margin expansion.
If you look at our Opex you will see that in Q2, we have made great efforts to optimize our organization structure.
Streamline our operating process.
Full utilization of all of them.
Automated digital tools to improve.
Operation effectiveness and efficiency.
And as a result.
<unk> expenses.
Such as selling marketing expenses decreased by 24%.
G&A expense is down by 25% and we also take a conservative approach on R&D spending.
And.
So we believe.
We will be able to keep the spending level in the rest of the year, while continue to grow top line and our gross profit.
So overall, we are we are.
Optimistic positive.
That's what we will continue the trend.
<unk> narrowed the loss.
Two profitable.
Jamie you want to answer that.
I'll touch upon the supply guarantee and surprise and Steve. Thank you for that question.
Yes.
Not a concept.
That everybody is familiar with and as you can imagine during the lockdown all the logistics was suspended.
With the exception of government approved companies, which can.
Can deliver essential goods such as food.
Two residential compounds to keep the citizens said.
And of those companies are classified as supply guarantee companies.
Given special permits.
Onto the road.
Initially they were only companies, which can deliver food and water, which is the most essential for survival.
And our <unk> team proves its value.
The approach to relevant authorities repeatedly.
You can imagine how chaotic it can be.
When the city just got locked down initially in the system was literally in shock.
And they eventually make sense to the authority.
In addition to food and water.
Many chronic patients or need.
Drugs.
To survive.
No.
They granted.
Us.
<unk>.
But unfortunately, our fulfillment center is <unk>, which is the neighboring province.
And it will have to go through a similar process in crimson or at least was governed by different decision makers.
To put the long story short we got it sold it and eventually made it work.
And.
Both.
Governments.
Give us the green light and <unk>.
Our vehicles were able to transport medicine, just Shanghai on a daily basis.
Deliver badly needed drugs to our consumers.
As far as we knew we were the only online company in Shanghai, we were able to deliver this service to <unk>.
Tumors.
And what we did exactly what we set up a whole collection centers across Shanghai.
Two in policy and Trillium put on that.
The drugs will be delivered from our fulfillment center to those collection centers.
Our people will have to work pretty hard to solve all the drops out based on different suburbs and so on.
And then the customers can get their riders to collect those orders and as I've said before.
Some customers were simply not able to get those writers because they lift a little further away.
Some of our staff will have to use their own vehicle and leave their residential compound.
To deliver those drugs to consumers.
We're very proud of the fact that time.
Sure.
Customers can receive such services received so many letters from customers and calling that really lock saving services.
Thank you Steve I hope that answers your question.
Yes. Thank you for answering my question this information not very useful.
Thank you.
Thank you and that was the final question to 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 interest in visiting Guam, one in Shanghai, China. Please let the company know thank.
Thank you for joining us.
Today's call. This concludes the call.
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