Q3 2022 111 Inc Earnings Call

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[music].

Hello, everyone and thank you for joining one one one's conference call today.

On the call from the company adopted <unk>.

Co founder and executive Chairman.

Mr. John Laing layer co founder Chairman and CEO , Mr. Luke Chen CFO of 111 major subsea.

Sorry, Mr. Henry Wang CFO , 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 was distributed earlier today together with the earnings presentation are available on the website at edge don't media Slash Java don't come forward Slash M. M. C forward Slash P forward Slash K P. N S. W. E P M.

Before the conference call get started let me remind you all 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 the 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 the year over year basis.

With that I will turn the call over to 111 CEO , Mr. Jon Lange lab.

Okay.

Good morning, and good evening, Thank you for joining our Q3.

Two earnings call.

What would be <unk>.

Discussing here is also provided in the slides posted earlier today on the company's website.

I encourage you to download the presentation along with the earnings report.

Dot one dot one dot com dot CN.

In today's call I will add some color to some of the latest regulatory development in the healthcare industry and.

The latest development in Kobe policies.

How the company rose to the challenges and opportunities.

I'll also cover our strategy called building growth momentum improving operational efficiency and a strengthening supply chain capabilities that Mr. Luke Chen will walk you through our financial results.

Zero restriction policies being China continue to create tremendous challenges to our business in Q3.

Mostly that you're experiencing with the rising numbers being sensitive people and consequently, the number of cities that had to lock down increased significantly.

The supply chain in general was severely disrupted and the transportation and other logistics, what tightly regulated in epidemic hit areas.

Our biggest challenge was to deliver the goods to our customers and the replenished stock in time.

I am proud to report that our team truly stood out in dealing with those unprecedented challenges.

They literally have to move mountains to fulfill that need a medicine for our customers and patients.

Our online and offline digital platform proved to be highly effective in dealing with the pandemic.

We spared no efforts in meeting patients' demands in epidemic Cds for medical consultation that drugs.

We'll have provided free online consultations for customers in over 370 series and it provided over 3000 medicinal products covering more than 400 diseases in the last few months.

Since the beginning of the COVID-19 pandemic, our online hospital, one clinic has been offering free online medical consultation services.

We also provided government approved a dedicated delivery fleet for medical products for some provinces hit by the pandemic.

Even with the approval the fleet had to overcome cross provincial logistics challenges due to different control policies to deliver drugs to patients sustain a mobile field hospitals quarantine hotels and other facilities.

The last few weeks so the number of infected people in quite a few provinces is rising sharply and the lockdown followed.

A few about human centered on the locked down right now, which is very disruptive to our business.

We believe that COVID-19 will continue to create challenges to us in the near future, but I have very strong faith in our team and believe we will be able to serve customers without utmost that said as we have done in the last few quarters.

Okay.

Please allow me to take a moment to briefly the latest regulatory developments.

As you know China just finished its 20th National Congress of the Communist Party in October .

One of the very important themes is its focus on construction of a healthy China.

Which includes enhancing management of major chronic diseases, and boosting preliminary disease control capabilities and improving treatment in our health management.

Opening remarks from the 20th National Party Congress provided us a brought direction on where China's health care industry and maybe heading over the next few years.

The following initiatives will create great regulatory tailwind for the industry.

One encouraging innovation.

The government is supportive of domestic innovation with the intention to bring in new and better therapies for China in the world.

The initiative will provide a better environment to allow China to act as a global innovation hub in the space of innovation drugs.

This will mean that there will be more opportunities for them to launch and commercialize new drugs with its integrated digital platform.

So strengthening infrastructure for preventative chronic infectious diseases.

The importance of early diagnosis early treatment and early rehabilitation was stress from the remarks.

And the government pledged an increase in funding fault routine health screening chronic disease management infectious disease control in a mental disease treatment.

We anticipate the digital technologies can play a key role in the areas of disease prevention chronic disease management and in the containment of infectious diseases.

Three <unk>.

Revitalizing TCM traditional Chinese medicine.

In recent years, the government has set TCM as a strategic priority and has issued <unk> policies, including relatively less price cost compared to other types of drugs in the government run the BP, where many drugs had to drop prices sharply not to mention encouraging.

With modernization and are practicing at the TCM.

Significant assets have also been made to promote the standardization of Rx TCM granular.

Which should improve safety and efficacy as a market penetration increases.

The policies already having any effect in the market as we have seen a gradual pickup in our sales of PCM.

Full focusing more on the youth and elderly care.

With the birth rates falling for the sixth year in a row in 2021, the government implemented policies to boost the birth rates such as the third child policy tax deductions longer maternity leave enhanced the medical insurance housing subsidies and additional financial support for the third child.

<unk>.

I'm happy to report that some of our private label products are specifically targeting in infants and children.

As we broaden our portfolio, we should have a range of products for use in elderly.

In addition, the state Council announced 20 prevention and control measures to further optimize the COVID-19 response.

On the wage China will roll out and implement precise reasonable and efficient.

Control measures.

Public needs.

Although it's early days there.

There have been various implementation approaches in different provinces and cities and even obvious deviation from the announced controlled measures taking place.

We see this as a very positive move.

In fact yesterday, we saw media coking senior officials.

That will be decreasing toxicity of the only chrome there and the increasing vaccination rates and they accumulate inexperience of outbreak control and prevention.

China's pandemic containment phase this new stage and mission.

This potential indicates an adjustment of the current COVID-19 measures.

One of the major capital cities, Guangzhou was saying yesterday that the FCC has adjusted the designation of risk levels and the pandemic containment measures.

Varying extent in OLED 11 districts.

We very much welcome the new developments in the fight against COVID-19, and I look forward to the time when the pandemic is behind China, where our business can operate as usual.

Despite the economic downturn and material impact on the offline retail sector in general in the third quarter, we managed moderate growth in revenue and a solid growth in gross margin.

All of that revenue.

The third quarter increased by zero, 1% year over year to $3 3 billion RMB, while our gross segment profit increased by 22% year over year.

Our efforts to improve our margin profile will continue to deliver positive results during the quarter.

Overall gross segment margin as a percentage of net revenues improved two 6% from 5% in the same quarter of last year.

Given the circumstances. This heartburn margin growth is quite an accomplishment.

This achievement came from optimized product assortment, and a smart pricing as well as improved efficiency and technical capabilities.

Our <unk> business remains the key contributor of our revenue growth, which reached 325 billion RMB gross profit about it would be sentiment rose to 108 million RMB, an increase of 27% year over year.

It will be segment margin improved to five 5% from 12, 4% in the same quarter last year.

We also improved a bit youll see segment margin to 22, 4% from 19, 7% in the same quarter last year.

We will continue reducing procurement cost as well as optimizing product assortments and our structure.

We were able to leverage our digital capabilities to deliver more value added services to our partners.

The market continues to show strong demand for our diverse service offerings.

Our value added services to include marketplace vendor services. Please.

Please little marketing supply chain management.

Medical consultation E prescription services patient education drug commercialization tools et cetera.

Even during the pandemic our service revenue reached $32 $5 7 million RMB, representing a growth of 34% over the same quarter of last year.

As our business continues to expand and as we position ourselves as an effective commercialization partner we will.

To offer value added services to pharmacies in our pharmaceutical companies.

In addition, we continued to enhance our operational efficiency and as a result total operating expenses as a percentage of net revenues decreased to eight 4% in this quarter from 10, 2% in the same quarter last year.

Sales and marketing expenses.

We're down to three 2% from three 9%.

General and administrative expenses were down to one part focus in from one 6%.

And technology expenses were down <unk>, 9% from nine 7% in the same quarter last year.

We expect this momentum to continue as we scale, while we will continue to focus on delivering superior services to our customers.

Yeah.

Although the current macroeconomic 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'm pleased to report that our non-GAAP loss from operations was narrowed to one 5% of net revenues as compared to four 1% in the same quarter last year.

We're getting closer and closer to profitability.

Yes.

We're also pleased to see that our operating cash flow and overall cash flow in the black for the quarter, which is a major milestone in Nevada business.

As of Q2, 2022 or more lines of virtual pharmacy network reached approximately 413000 pharmacies covering more than 70% of the total number of pharmacies in China.

As of September our code 10 service has deployed in over 270 cities over 80% of which can complete orders within 48 hours.

This capability has provided convenience for rural consumers in particular.

In order to continuously improve gross profit would have carried out platinum product program at present more than 400 pharmaceutical companies at over 1000 Skus have become part of this program.

The revenue beat will be high margin products in this quarter has increased by 16% year on year and contribute it.

<unk>, 9% increase to the overall <unk> gross profit.

Yeah.

I'm pleased to update the progress we have made on our private label initiative.

As our network of pharmacies continues to grow and it's time, we should introduce some private label products.

Not only will this help our pharmacy customers to improve their gross margin, but this helps with our own margin as well.

We partnered with some pharmaceutical manufacturers to build a suite of products which include medicines.

<unk> supplements medical devices et cetera.

So far we have already developed three brands, which are a strength will come from.

One Joe on over 919, Skus launched already in production schedule targeting specific market segments.

Although this part of the business is still at its infancy stage and no conclusions can be drawn yet we believe these.

Proprietary products will significantly increase our gross profit and <unk>.

Hence downstream customer stickiness.

Yeah.

As we deepened our relationship with upstream pharmaceutical companies, we were able to help them to improve their digital marketing efficiency and drug commercialization efforts now let me provide a couple of examples.

Since the recent launch in China by Abbvie.

Innovative drug <unk>.

Which successfully completed clinical trials in China and abroad, and as China's only approved targeted oral drug.

Tommy Tommy titles.

The majors will actively participate at the launch of the medicine, leveraging our patient management platform. We now offer a full lifecycle closed loop services for the drug covering online plus offline consultation and post diagnosis consultation and a refill service.

Which is that simply help patients control disease progression.

In addition will help patients improve.

Medication compliance and effect similar reduce dropout rates.

We are also providing full time carrying medical professionals to respond to patients questions online in a timely manner.

Within the span of one month will have served patients and 16 provinces.

Also in November one medicine rolled out all of that be it.

Our first in class.

Cockiness activator in China, providing type two diabetes patients with a new treatment option.

With a strategic partner and its national rollout of the drop.

Leveraging our advantages in the smart supply chain capabilities and digital platform will be able to assist on medicine in its launch of the drug across all channels.

We have also enhanced the accessibility of the new drop through reservation registration by medical professionals and a full lifecycle patient management, thus, providing more patients with convenience to access new therapeutic treatments.

The launch was so successful that inventory was depleted.

Depleted so fast that climb medicine is scrambling to increase its capacity of manufacturing to cope with the supply shortage.

Looking ahead.

We will continue to pursue with enormous market opportunities from the digital transformation of the healthcare market in China.

Which given the country's sparse population provides us with opportunity to connect millions of people in lower tier cities via direct PDC platform and a broad network of pharmacies.

In order to bridge the gap in consumer access we will focus on strengthening every facet of our SBC model.

Lansing scrap strategic plan to expedite business expansion.

On the infrastructure side will keep improving the AI and data processing capability.

Capability of our technology.

<unk> power to handle higher volumes with greater predictability.

Our technology platform today can access point of sales data of over 10000 pharmacies of those Skus we're commercializing.

We believe this network of pharmacies and the number of Skus will commercialize will grow at a fast pace in the near future.

With this we will be able to provide retail pharmacies greater control and cost efficiency to drive their store sales growth and at the same time further deepen the share of wallet among our existing retail pharmacy customers.

The platform has enhanced the capability will also allow us to actually deploy more digital modules and the features which will connect to more upstream supplies and the result in better sales and margins for our pharmacy customers.

On the supply side the services, we provide to pharmaceutical companies in support of their commercialization efforts helped deepen our relationships with them.

Allowing us to source, an even wider selection of medications.

Health related products for our pharmacy customers.

And the benefit and consumers.

These commercialization of services also represents a major growth opportunity for us.

Globally and in China medical innovations have been happening at an unprecedented rate.

As more and more new medications end devices come onto the market competition becomes increasingly intense.

100 ones support during a product launch kind of improve our company's market position and increase the likelihood of a successful launch.

Ultimately.

Our integrated online and offline platform is a win win for all.

As we help to transform the health care system for the better we believe that there are significant opportunities for us in the age of the industrial Internet. So expedites the digital transformation of health care system in China.

We're working relentlessly to strengthen this model and pursue growth opportunities post COVID-19.

Operationally, our priorities will be delivering revenue and margin growth.

<unk> supply network.

And the reduce procurement cost.

To improve operational efficiency, optimizing fulfillment cost and broadening our service offerings.

We have come a long way since our IPO in 2018.

From a new Kid on the block fully years ago will have now established ourselves as one of the major players in the digital health care services industry.

As we continue to expand the coverage of pharmacies and broadening our drug suppliers networks, plus our advanced digital capabilities, a supply chain infrastructure, we're uniquely positioned to create value for all our partners in the value chain.

101 was certified by the Chinese Ministry of Science and technology at the National High Tech Enterprise Okay.

We've also recently awarded apprised of National E Commerce demonstration in surprise by the China Ministry of Commerce.

Our remote consultation and chronic disease prescription refill service platform has also been selected as a case study in digital solutions for economic control and production resumption by the Shanghai Pudong, New area of Science and Technology Commission.

We're very proud that our efforts have earned us such distinction and are committed to continuous innovation and implementation.

Moreover, we will have received critical acclaim from local governments hospitals specialists and patients for our online hospital services and a continuous support for Tibetans living in Kansas City, Southern Province for how debate disease control.

All of the ESG Iqos Carryout core values, and we will firmly fulfill our social responsibilities as we have done in the past.

We wish to thank all the investors who have supported us all along.

I will now hand, the call to Mr. Luke Chen to walk through our financial results. Thank you.

Sure.

Thank you Dan and good morning, everyone.

Moving to the financials.

And her remarks will focus on a few key business and financial highlights.

You can refer to the details of the third quarter 2022 results from slide 11% to 14 in section two of our presentation.

Again, all comparisons are year over year, and all numbers are RMB unless otherwise stated.

Let's start with the third quarter results.

Third quarter had it been very challenging for our business due to the negative impact from Covid lockdowns in many cities and provinces.

We haven't tried our very best to work with local governments as.

As well as largest companies to fulfill our customers' patient orders as these medicines are badly needed.

Total revenues net revenues for the quarter grow 0.1% to 335 billion and the total gross profit for the quarter grew at 2% to 212 million and a gross margin improved from 5% to 6%.

<unk> segment was the major contributor for total gross profit and a margin improvement.

<unk> revenue grew at 8% to $3 25.

Cross segment profit for <unk> increased 27% with gross secondary market upfront for 4% to five 5%.

This was attributable to our optimization of selection portfolio and a competitive pricing.

We have also focused our sales are higher margin products and launched private label product, which much better margin.

Our <unk> segment revenue decreased 20% to $100 million.

<unk> segment margin improve from 90 <unk>.

19, 7% to 22.

4%.

Total operating expenses for the quarter were down 17% to $283 million.

Percentage on that revenue total operating expenses for the quarter was down to eight 4% from 10, 2%, which reflected continuous improvement in our operational efficiency.

Fulfillment expenses as a percentage of net revenue for the quarter was around 3%.

Comparable to the same quarter last year.

And our marketing expenses for 108 million, representing a decrease of 18% year over year.

As a percentage of net revenues sales and marketing expenses for the quarter was three 2% down from three 9% in the same quarter of last year.

We believe this trend will continue as we further built up our scale and improve our sales team efficiency.

General and administrative expenses were 46 million, representing a decrease of 13% year over year.

As a percentage of net revenues G&A expenses accounted for one 4% down from one 6% in the second quarter of last year.

Which was attributable to our continuous optimization of our supporting functions.

Technology expenses accounted for 9% of net revenue down from one 7% in the same quarter of last year, we completed a major tech developed programs.

And we believe that at current spending.

We felt it appropriate amount.

Investment in technology.

As a result.

non-GAAP loss from operations narrowed to $48 7 million compared to $135 9 million in the same quarter of last year.

As a percentage of net revenues non-GAAP loss from operations decreased to one 5% in the quarter from four 1% in the same quarter of last year.

And then GAAP net loss attributable to ordinary shareholders was $64 9 million compared to <unk>.

$13 million in the same quarter of last year.

As a percentage of net revenues.

And then GAAP net loss attributed to ordinary shareholders decreased to one 9% in the quarter from six 4% in the same quarter of last year.

And so you can see we are in.

Improving our financial performance quarter by quarter.

We're getting very closer to profitability.

We are also very pleased to report that we have achieved positive operating cash flow and overall cash flow for the quarter.

Please refer to slide 15 to 19 of the appendix section for selected financial statements.

And a quick note.

Our cash position as of September 32022, we had cash and cash equivalents receipt of cash and short term investments.

RMB 866 million.

This concludes our prepared remarks.

You.

Operator, we are now ready to begin the Q&A session.

Thank you.

Wish to ask a question.

Okay.

And wait for your name to be announced.

If you wish to cancel your request please press star two.

To be honest speaker phone please pick up the handset to ask your question. Your first question comes from Cassie Chen with CIBC. Please go ahead.

Oh hi.

Yes.

Thank you.

Taking my question and congratulations on your progress.

Total well first of all is that looking forward our military.

Well, well well beneath the comparable operational focus and the second one is that as long as our gross margin.

Thank you think theres enough continuously.

And Larry I appreciate it.

The key factors behind the rigor and.

Hi.

Its credibility.

Okay.

Yes.

To take the first question sorry, I was on mute I.

Apologize Kathy so thank you for your question I'll answer the first question.

Yes.

So looking ahead.

Look at all.

Priorities.

I'd say the following.

But we're going to focus on.

Fine.

On growth.

Okay.

The supply network, we're going to reduce procurement cost.

And we will focus on improving operational efficiency.

And.

In terms of our sales and marketing logistics G&A et cetera.

And.

Also want to grow services.

And.

The last point I want to make a start.

We're going to continue to really invest in innovation.

There is a lot we can do with the asset that we have built so far.

And we're going to continue to exploit our technology capabilities to deliver value.

For both the upstream and downstream customers.

Thank you.

Okay.

Yes.

Javier let's take your second question.

Regarding the <unk>.

And yes, youre right, our <unk> gross profit increased 27% year over year.

This improvement came from our continuous effort to reduce our procurement costs.

Jamie just mentioned.

Through our direct sourcing from pharmaceutical companies et cetera, and also <unk>.

Our efforts to optimize our product assortment and our cost structure.

Regarding your question after this.

Inability.

Uh huh.

When we can expect the overall economy and environment gets better.

Yeah.

We will further tighten our partnership with pharmaceutical companies and we will call that more rooms to promote our digital marketing capability. So I believe the piece of the profit the gross profit improvement channel will continue.

Thank you Kathy.

Well ladies.

Okay.

Thank you.

Next question comes from Lauren tie with HSBC.

H SBC. Please go ahead.

Hi, Thanks.

Taking my question congratulations on your solid results, especially our positive operating cash flow.

No.

This brings me to my first question about cost control.

Sure more details on Watson John too.

<unk> costs and can these matters are this trend sustained going forward when macro environment.

<unk> better we may need to increase investment.

Yes.

And for my second question I want to ask about your outlook for next year of China gradually easing corvette control measures.

With Impac.

Impact our business. Thank you.

Yes, Lauren I'll take your first question regarding.

The cost control.

Yes, it is very encouraging to see that.

As a result of our continuous ever.

We have seen.

We enhance our operational efficiency.

And our total operating expenses.

<unk> Creek, 284% from 10, 2% of Q3 last year.

And this is actually.

Every single.

Women's we are doing our best.

Sales of marketing expenses decreased from strain climbed 9% three 2%.

And our technology expenses and also our G&A decreased from one, 7% and 1% to 6% to 9% and one 4% respectively.

Yeah.

When the overall.

Earnings getting better definitely that would be even better news for us and when the overall economy and environment getting better.

We definitely expect this momentum to continue.

At that time, the demand of our customers will be relief.

And increased.

And.

Our volume growth and we will definitely see.

Scale.

Thank you.

Yeah, Lauren let me just answer your second question about it.

Okay.

We're all anticipating that they Kobe zero policies will be.

Behind us will relax and we saw some encouraging developments recently.

But that still.

Unknown.

Because different partner.

<unk>.

Provinces have different implementation.

Approaches and as.

As we speak some of our warehouses are still under Lockdown and we cannot sit goes out we cannot replenish inventory.

So.

There is also the latest developments starting from today.

A lot of those drugs were not allowed to sell online any more especially those.

Rx drugs.

And.

And also every customer has to register.

Real name.

There is going to be a verification process.

Fortunately for us that.

We more focused on the <unk> and that's the majority of our business. So the impact to US is a lot smaller than the rest of the other guys in the industry. So.

I hope that.

This is the first step.

Two.

Post COVID-19 restriction kind of containment measure and.

Of course, if we look at a broad picture.

We are in the multi trillion dollar market.

To quote some numbers in 2021 last year the market is eight trillion.

It is widely anticipated that by 2030.

This market is going to hit 16 trillion.

That is more than two trillion.

And I know there is an offset a few.

<unk>.

Early on we might.

<unk> speech.

There is a lot of tailwind for us as well and I think the biggest.

Tailwind is really the.

Transformation.

Digital digitization in the industry.

<unk>.

We are already playing a major role and will continue to play.

And more important role in the future.

And in terms of expectation im going to expect.

Very good quality growth for the company both of them.

Topline.

In the past few years, we focused more on the <unk>.

Revenue growth in <unk>.

Obviously, we needed that we needed that scale with the customer to know us too.

Experience the services, we deliver to them.

But in the future.

I would like to see in addition to a top line growth.

We also want to see a better margin growth and also the improvement in our bottom line.

I hope that answers your question Laura.

Yes.

That's very helpful. Thank you.

Thank you. Your next question comes from Zoe Bank with Citi.

Go ahead.

Hi, Good evening management.

I have one question here.

May I ask what the update of the potential privatization.

Yes.

Sorry, the potential.

Corporate presentation.

Maybe let me answer this question on this one.

No.

The process is still ongoing.

And as we disclosed that we.

The company has formed a special committee.

To walk on the proposal and the special Committee has recruited.

Legal and financial advisors.

Also the company will make.

Public.

The breadth and the information regarding the privatization.

Bye Bye Special Committee. So now it's within the hands of the Special Committee and.

And we would just close when we advised by them according to SEC rules.

That's the latest alright.

Sure. Thank you very much.

Yes.

Yes.

Thank you.

Next question comes from Gerald Hastie, who is a private investor.

Go ahead.

Hello, Congratulations on your performance this quarter.

I'm gratified to see that the operating cash flow and overall cash flow where in the black for the quarter.

I believe it is a major milestone for the company.

Do you plan to continue this trend going forward.

Sure.

Yes, we are pleased to see the positive operating cash flow and overall cash flow for the quarter.

Mainly attributed to our efforts to continuously reduce the operating loss.

As far as we can improve continue to improve our working capital.

<unk>.

Our average accounts payable, it's about like 40% 45 days and our inventory average turnover, it's like 25 days.

So thats give us.

A good operating cash flow, we have very strong confidence.

When we continue.

Continue to leverage our scale to build up scale and improve our margin.

And then getting closer to operating profitability. So the overall cash flow will be continue to be positive.

So and we bought a confidence on that.

If you don't mind, if you may ask a second question.

How will your company achieved.

Digital revenue and gross profit growth, especially in light of the Covid situation then.

Possibly third quarter economic uncertainties.

Okay.

Yeah, maybe let me.

I'll try to answer that question.

First of all you mentioned about this.

Overall environment.

With COVID-19.

<unk> zero policy.

It does cause a lot of disruption to our business our fulfillment centers cannot operate.

As usual.

Couldn't really replenish inventory and <unk>.

Some of the.

Fulfillment centers were locked down and we were not able to deliver orders out.

And there are many owners guests.

<unk> stuck in transit because you don't know, which city was locked down and some of the cities actually.

Logistical hubs.

And I think.

Under such circumstances really proves the quality of our team and.

It's extraordinary and a festival, we established a emergency response committee and.

This committee.

Lots to the management of the logistic problems and all the necessary measures that need to be taken and they.

There are decisions that need to be made in the daily meeting with management for instance.

The assembled with a majority of the work is stay in a dormitory near the warehouse and some of the Dmitry <unk> get locked down.

And then on the such situations then we'll need to quickly figure out how we can.

Do our best to keep the operation going so.

And we made a decision that.

All our office people.

Went to the warehouse.

To help with.

Hey.

Starting to help with packaging and really trying to deliver.

The orders out and also our GR team is excellent.

They managed to work with various governments to guests a special delivery fleet permit and.

We will have to work with.

Different provincial governments.

To make sure that the.

The goods can.

Really cross provinces.

Although the.

The extraordinary circumstances, we're still deliver 22% margin growth. This is also related to our strategy like what we did was we optimized our assortment, we optimized our pricing and we reduced the procurement cost.

Also use our technology.

Two.

Really.

Provide.

Our hold a selection a whole rich selection of products at a very competitive pricing.

The pandemic is still pretty.

Pretty serious right now and.

And we still anticipate a lot of negative impact it's going to be assumed but we have every confidence that we will overcome those challenges and I will continue to deliver growth in the future.

Thank you Jonathan.

Thank you for your answer and I do look forward to.

New York report next quarter with great anticipation. So good luck going forward. Thank.

Thank you.

Yeah.

Thank you. Your next question comes from Taylor, Zhang who is a private investor. Please go ahead.

Thank you for the chance to raise questions are first of all congratulations to you all for the Seventeens continues gross constantly I have two questions regarding the technology R&D progress and also the private label products.

I would like to know.

Is there any progress in technology R&D in the past season, and what our future Fmc's will there be and second is the private label products.

It's a good way to raise the margin and.

What will they will be for the next quarter and the coming year.

Yeah.

Thanks, Phoenix, Let me take the first question regarding our technology.

We are continuously making very significant resource investment in technology.

Innovation as you'll know that we've set our vision and applying digital technology to seamlessly connect.

With micro services. So you can see.

Everything through digital technology.

Can you also mentioned that beyond the virus.

Our systems too.

For example, small.

Our sourcing system to manage our assortment will build hawkeye system to improve the efficiency of our field teams and also there are sophisticated supply chain management systems based on the authorization models and algorithms.

Those all of those.

Help us to speed up our inventory turn.

Improve our supply chain efficiency and reduce our fulfillment cost as you can see that resolves.

Industry It is through our margin improvement.

This.

I also believe exemplifies.

Exemplified by.

Various recognitions.

Nationally some locally can you mentioned that as well.

Certified by the Chinese Ministry of Science and technology as a national High Tech Enterprise also we were awarded.

Price of National E Commerce demonstration enterprise by China, China Ministry of Commerce. So these are national recognition, which are very very significant also will have some recognition.

Patients.

By the local government Shanghai.

Total government with a very prominent.

All of this recognition and the effort we're putting.

Regarding our second half.

OEM.

Yes.

Actually this is silly.

Excited.

Uh huh.

Today, we have launch about 99 after years of our private label products.

Of this <unk> has been well accepted by our customers.

Especially loss.

Small in India chance or individual PW thought.

So actually.

In China.

Big chance of private label products have contributed.

About 10% with 90% of the GMB and above 30% to 40% off their module.

Well all of DW customers dose individuals thoughts towards small chance.

Not able to have their own brand.

Yeah.

The volume is there.

They also.

Many many opportunities for this market and when we launched our private label to help them compete with those big ones in the market.

And they are already.

Private label <unk> in our pipeline.

Semi in production et cetera.

So we expect to see a fast increasing volume.

In this project in the coming quarters.

Thanks, I hope I answer your.

Question.

Thank you.

Okay.

Thank you.

Next question comes from Tom Craig patient Stern investment.

Go ahead.

Thank you this is Tom chronic patients.

Congratulations on your performance in the third quarter I have three questions.

Ron as well services did it constantly provides patients and cold ahead regions and.

Second one is what are the reasons behind shutting non-GAAP net loss from operation as a percentage of net revenue cannot be sustained.

One is what is the status of the company's cash reserves.

Thank you.

Hi, Tom.

Answering your first question.

It's hard it's very hard to provide.

Services for the Covid impacted regions.

We have made a tremendous effort concrete orders difficulties.

As we are.

It is now five of our seven.

Fulfillment centers.

There.

Severity impact lockdowns, while other impact right now.

No.

Our offices.

Headquarter office here Lockdown, almost 80 days.

It was hard.

And even every single day, and we'll have solid quarters last summer.

Two customers every single day.

So we did that.

Since the first day of a pandemic with loan.

Emergency response center.

We have daily calls to resolve problems on the fly.

No we.

Amongst a free consultation online consultation for the patients in those.

<unk> impacted regions as Virginia mentioned us.

Cover customers for.

More than 370 cities.

Sure.

Sure.

100, and more than 400 different types of diseases.

Also we have worked with the government to special licenses.

We've set up.

Some local government to give us dedicated fleet for medical products was up provinces.

Most appeal.

They are robust and dedicated transmission networks to deal with daily disruptions caused by the Covid.

<unk>.

The network consists orders half both partnered with our.

Patent vendors.

Occupies lenders.

No.

<unk> auctions.

So thats one link is broken.

Some of the reasons.

<unk>.

<unk>.

Transfer to the second so through all of those.

They were unable to.

Certainly.

100 per ton.

We also hope to but we got him.

A large volume of large percentage of our business through the pandemic.

And the current guarding second question about the.

Net loss.

Yes, we are seeing that contracting.

Net loss for our operation.

The percentage of our net revenue.

This is a process.

The.

The improvement of our gross profit.

As I, just mentioned about 27% improvement on our gross profit.

Yeah.

This is one hand on the other hand, and also reduce our operating expenses.

Which is.

Eight 4% from 10, 2% of the <unk>.

Same quarter last year.

So the improvement came from.

Dan.

The procurement.

Upgrade.

Our <unk>.

Product assortment.

The renovation of our product assortment and also we launched various tools for example, our new.

Our smart pricing tool.

So all of this has contributed to.

The reduction of expenditure.

So moving forward of course, we will.

We definitely were softer than the trend we will continue our efforts.

On both sides.

And also we expect to see a further improvement in the EMEA.

EMEA future quarters.

Our.

Net loss.

Our profitability.

Thank you.

Yes on the cash position.

We have just closed.

At our earnings release.

September and we.

We have total cash, including restricted cash and short term investments amounted to RMB $860 million.

As we just shared with you that we.

We have reported.

Positive operating cash flow for the quarter and we believe the trend will continue so we have.

<unk> confidence that that this position cash position.

Is sufficient to support our future future operation as well as our growth.

Tom I hope, we answered all your questions.

Thank you.

How quickly can garner.

Yes.

Thank you.

There are no further questions at this time.

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 we will have any interest in visiting 111 in Shanghai, China. Please at the company now.

Thank you for joining us today the call has concluded.

Okay.

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Hello, everyone and thank you for joining <unk> conference call.

Today.

On the call from the company are docked again.

Co founder and executive Chairman.

Mr. John Laing layer.

<unk> chairman and CEO .

Mr. Luke Chen CFO of 111 major.

Subsiding, Mr. Henry Wang CFO , 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 was distributed earlier today together with the earnings presentation are available on the website at <unk> Dot media.

<unk> dot com forward slash MMC forward Slash P.

Forward Slash K P. M S. W E M.

Before the conference call get started let me remind you all that this call may contain forward looking statements made under the safe Harbor provisions of the private Securities Litigation Reform Act of $19 95.

Such statements are based upon management's current expectations and current market and operating conditions and relate to the 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 SEC.

111 does not undertake any obligation to update any forward looking statements.

The result of new information future events or otherwise, except as required under applicable law.

Please note that all numbers are in.

And all comparisons refer to year over year comparisons.

Unless otherwise stated please.

He's also refer to the earnings press release for detailed information of the comparative financial performance on the year over year basis.

With that I will turn the call over to <unk> CEO , Mr. Jon Lange lab.

Good morning, and good evening. Thank you for joining our Q3 2022 earnings call.

What we'll be discussing here is also provided in the slides posted earlier today on the company's website.

I encourage you to download the presentation along with the earnings report at IR Dot one loan one dot com Dot CN.

In today's call I will add some color to some of the latest regulatory development in the healthcare industry and the latest development in Colby policies and how the company rose.

Okay.

[music].

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Yes.

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Okay.

Hello, everyone and thank you for joining <unk> conference call today.

On the call from the company are docked again.

Co founder and executive Chairman.

Mr. Jon Lange <unk> <unk>.

<unk>, Chairman and CEO , Mr. Luke Chen CFO of 111 major subs.

Sorry, Mr. Henry Wang CFO , 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 with distributed earlier today together with the earnings presentation are available on the website at <unk> Dot media.

<unk> dot com forward slash MMC forward Slash P.

Forward Slash K P. M S. W. E P M.

Before the conference call get started let me remind you all that this call may contain forward looking statements made under the safe Harbor provisions of the private Securities Litigation Reform Act of $19 95.

Such statements are based upon management's current expectations and current market and operating conditions and relate to the 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 SEC.

<unk> 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.

And all comparisons refer to year over year comparisons.

Unless otherwise stated.

He's also refer to the earnings press release for detailed information of the comparative financial performance on the year over year basis.

With that I will turn the call over to <unk> CEO , Mr. Jon Lange lab.

Good morning, and good evening. Thank you for joining our Q3 2022 earnings call.

What we'll be discussing here is also provided in the slides posted earlier today on the company's website.

I encourage you to download the presentation along with the earnings report at IR Dot one loan one dot com Dot CN.

In today's call I will add some color to some of the latest regulatory development in the healthcare industry and the latest development in Colby policies and how the company rose to the challenges and opportunities.

I'll also cover our strategies call building growth momentum improving operational efficiency and a strengthening supply chain capabilities that Mr. Luke Chen will walk you through our financial results.

Zero restriction policies being China continue to create tremendous challenges to our business in Q3.

Mostly these are experiencing the rising numbers being set people and consequently, the number of cities that had to lock down increased significantly.

The supply chain in general was severely disrupted and the transportation and other logistics were tightly regulated in epidemic hit areas.

Our biggest challenge was to deliver the goods to our customers and the replenish stock in time.

I'm proud to report that our team truly stood out in dealing with those unprecedented challenges.

They literally have to move mountains to fulfill a badly needed medicine for our customers and patients.

Our online and offline digital platform proved to be highly effective in dealing with the pandemic.

We spent no efforts in meeting patients' demands in epidemic.

For medical consultation that drugs.

We'll have provided free online consultations for customers in over 370 cities and it provided over 3000 medicinal products covering more than 400 diseases in the last few months.

Since the beginning of the COVID-19 pandemic.

Line Hospital, one clinic has been offering free online medical consultation services.

We also provided government approved a dedicated delivery fleet for medical products for some provinces hit by the pandemic.

Even with the approval the fleet had to overcome cross provincial logistics challenges due to different control policies to deliver drugs to patients sustain a mobile field hospitals quarantine hotels and other facilities.

The last few weeks so the number of infected people in quite a few provinces is rising sharply and the lockdown followed.

A few allow fulfillment centers are under lockdown right now, which is very disruptive to our business.

We believe that COVID-19 will continue to create challenges to us in the near future, but I have very strong faith in our team and believe we will be able to serve customers without utmost efforts as we have done in the last few quarters.

Okay.

Please allow me to take a moment to briefly with the latest regulatory developments.

As you know China just finished its 20th National Congress of the Communist Party in October .

One of the very important themes is its focus on construction of a healthy China.

Which includes enhancing management of major chronic diseases, and boosting preliminary disease control capabilities and improving treatment and health management.

Opening remarks from the 20th National Party Congress provided us a direction on where China's health care industry and may be heading over the next few years.

The following initiatives will create great regulatory tailwind for the industry.

One encouraging innovation.

The government is supportive of domestic innovation with intention to bring in new and better therapies to China in the world.

The initiative will provide a better environment to allow China to act as a global innovation hub in the space of innovation drugs.

This will mean that there will be more opportunities for <unk> to launch and commercialize new drugs with its integrated digital platform.

So strengthening infrastructure for preventative chronic infectious diseases.

Importance of early diagnosis early treatment and early rehabilitation was stress from the remarks.

And the government pledged an increase in funding for routine health screening chronic disease management infectious disease control and the mental disease treatments.

We anticipate the digital technologies can play a key role in the areas of disease prevention chronic disease management and in the containment of infectious diseases.

Three <unk>.

<unk> TCM traditional Chinese medicine.

In recent years, the government has set TCM as a strategic priority and has issued plenty of supportive policies, including relatively less priced compared to other type of drugs in the government run by BP, where many drugs had to drop prices sharply not to mention encouraged.

Modernization and are practicing at the TCM.

Significant assets have also been made to promote the standardization of Rx TCM granular.

Which should improve safety and efficacy as a market penetration increases.

The policies are already having an effect in the market as we have seen a gradual pickup in our sales of PCM.

Full focusing more on the youth and elderly care.

The birth rate falling for the sixth year in a row in 2021, the government implemented policies to boost the birth rate such as the third child policy tax deductions longer maternity leave enhanced the medical insurance housing subsidies and additional financial support for the third child.

I'm happy to report that some of our private label products.

Specifically targeting infants and children.

As we broaden our portfolio, we should have a range of products for use in elderly.

In addition, the state Council announced 20 prevention and control measures to further optimize the COVID-19 response, under which China will rollout and implement precise reasonable and efficient.

Control measures.

Public needs.

Although it's early days.

Have been various implementation approaches in different provinces and cities.

Even obvious deviation from the announced controlled measures taking place with <unk>.

This is a very positive move.

In fact yesterday, we saw media coking senior officials.

That would be decreasing toxicity, the only krohn, there and the increasing vaccination rates and.

The accumulated experience of outbreak control and prevention, China's pandemic containment faces new stage and mission.

This potential indicates an adjustment of the current COVID-19 measures.

One of the major capital cities, Guangzhou was saying yesterday that the city has adjusted the designation of risk levels and the pandemic containment measures to a varying extent in OLED 11 districts.

We very much welcome the new developments in the fight against COVID-19, and look forward to the time when the pandemic is behind China business can operate as usual.

Despite the economic downturn and material adverse impact on the offline retail sector in general in the third quarter, we managed moderate growth in revenue and a solid growth in gross margin.

All of that revenue.

Third quarter increased by zero, 1% year over year to $3 3 billion RMB, while our gross segment profit increased by 22% year over year.

Our efforts to improve our margin profile continued to deliver positive results during the quarter.

Overall gross segment margin as a percentage of net revenues improved to 6% from 5% in the same quarter of last year.

Given the circumstances. This heartburn margin growth is quite an accomplishment.

This achievement came from optimized product assortments, and smart pricing as well as improved efficiency and technical capabilities.

Yeah.

Our <unk> business remains the key contributor of our revenue growth, which reached 325 billion RMB gross profit about B to B segment rose to 108 million RMB, an increase of 27% year over year.

<unk> segment margin improved to five 5% from 12, 4% in the same quarter last year.

We also improved the <unk> segment margin to 22, 4% from 19, 7% in the same quarter last year.

We will continue reducing procurement cost as well as optimizing our product assortment and our structure.

We were able to leverage our digital capabilities.

Labor more value added services to our partners.

The market continues to show strong demand for our diverse service offerings.

Our value added services to include marketplace lender services.

Please little marketing supply chain management online medical consultation E prescription services patient education drug commercialization tools et cetera.

Even during the pandemic our service revenue reached $32 $5 7 million RMB, representing a growth of 34% over the same quarter of last year.

As our business continues to expand and as we position ourselves as a respect to commercialization partner, we will continue to offer value added services to pharmacies in our pharmaceutical companies.

In addition, we continued to enhance our operational efficiency and as a result total operating expenses as a percentage of net revenues decreased to eight 4% in this quarter from 10, 2% in the same quarter last year.

Sales and marketing expenses.

We're down to three 2% from three 9%.

General and administrative expenses were down to one 4% from one 6%.

And technology expenses were down 209% from nine 7% in the same quarter last year.

We expect this momentum to continue as we scale, while we'll continue to focus on delivering superior services to our customers.

Okay.

Although the current macroeconomic 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'm pleased to report that our non-GAAP loss from operations was narrowed to one 5% of net revenues as compared to four 1% in the same quarter last year.

We're getting closer and closer to profitability.

We're also pleased to see that our operating cash flow and overall cash flow will in the black for the quarter, which is a major milestone of our business.

As of Q2 2020 to 100 lines virtual pharmacy network reached approximately 413000 policies covering more than 70% of the total number of pharmacies in China.

As of September our code 10 service has deployed in over 270 cities over 80% of which can complete orders within 48 hours.

This capability has provided convenience for rural consumers in particular.

In order to continuously improve gross profit would have carried out platinum product program at present more than 400 pharmaceutical companies at over 1000 Skus have become part of this program.

The revenue beat will be high margin products in this quarter has increased by 16% year on year and contributed <unk>, 9% increase to the overall <unk> gross profit.

Yeah.

I'm pleased to update the progress we have made on our private label initiative.

As our network of pharmacies continues to grow and it's time, we should introduce some private label products.

Not only will this help our pharmacy customers to improve their gross margin, but this helps with our own margin as well.

We partnered with some pharmaceutical manufacturers to build a suite of products which include medicines.

Supplements medical devices et cetera.

So far we have already developed three brands, which are our strength will come from Neil.

One goal and over 919, Skus launched already in production schedule targeting specific market segments.

Although this part of the business is still at its infancy stage and no conclusions can be drawn yet.

These.

Proprietary products will significantly increase our gross profit and <unk>.

Hence downstream customer stickiness.

As we deepened our relationship with upstream pharmaceutical companies, we were able to help them to improve their digital marketing efficiency and drug commercialization efforts now that.

We provide a couple of examples.

Since the recent launch in China by Abbvie.

Innovative drug Repetitively.

Which successfully completed clinical trials in China and abroad, and it's China's only approved targeted oral drug.

Hey, dummy titles for teenagers.

Actively participate at the launch of the medicine, leveraging our patient management platform. We now offer a full lifecycle closed loop services for the drug covering online plus offline consultation and post diagnosis consultation and a refill service, which.

Which is that simply help patients control disease progression.

In addition, we will help patients improve.

Medication compliance and effect singular reduce dropout rates.

We also provided full ton carrying medical professionals to respond to patients questions online in a timely manner.

Within the span of one month will have served patients and 16 provinces.

Also in November <unk> medicine rolled out all of that.

Our first in class, we will call kinase activator in China, providing type two diabetes patients with a new treatment option.

With a strategic partner and its national rollout of the drop.

Leveraging our advantages in the smart supply chain capabilities and digital platform will be able to assist on medicine in its launch of the drug across all channels.

We have also enhanced the accessibility of the new drop through reservation registration by medical professionals and a full lifecycle patient management, thus, providing more patients with convenience to access new therapeutic treatments.

The launch was so successful that inventory was depleted.

Depleted so fast that climb medicine is scrambling to increase its capacity of manufacturing to cope with the supply shortage.

Looking ahead.

We will continue to pursue the enormous market opportunities from the digital transformation of the healthcare market in China.

Which given the country's sparse population provides us with opportunity to connect millions of people in lower tier cities.

Directly to <unk> platform, and our broad network of pharmacies.

In order to bridge the gap in consumer access we will focus on strengthening every facet of our Este b to C model and advancing our strategic plan to expedite business expenses.

On the infrastructure side, we will keep improving the AI and data processing capability.

Capability of our technology.

<unk> power to handle higher volumes with greater predictability.

Our technology platform today can access point of sales data of over 10000 pharmacies of those Skus we're commercializing.

We believe this network of pharmacies and the number of Skus will commercialized will will grow at a fast pace in the near future.

With this we will be able to provide retail pharmacies greater control and our cost efficiency to drive their store sales growth and at the same time further deepen the share of wallet among our existing retail pharmacy customers.

The platform's enhanced capability will also allow us to actually deploy more digital modules and the features which will connect to more upstream supplies and result in better sales and margins for our pharmacy customers.

On the supply side the services, we provide to pharmaceutical companies in support of their commercialization efforts.

<unk> deepened our relationships with them.

In us to source, an even wider selection of medications and health related products for our pharmacy customers in.

And the benefit and consumers.

This commercialization of services also represents a major growth opportunity for us.

Globally and in China medical innovations have been happening at an unprecedented rate.

As more and more new medications end devices come onto the market competition becomes increasingly intense.

One more lines support during a product launch kind of improve our company's market position and increase the likelihood of a successful launch.

Ultimately.

Our integrated online and offline platform is a win win for all.

As we help to transform the health care system for the better we believe that there are significant opportunities for us in the age of the industrial Internet. So expedites the digital transformation of health care system in China.

Bill worked relentlessly to strengthen this model and pursuing growth opportunities post COVID-19.

Operationally, our priorities will be delivering revenue and margin growth.

Threatening supply network.

And the reduce procurement cost continue to improve operational efficiency, optimizing fulfillment cost and broadening our service offerings.

We have come a long way since our IPO in 2018.

From a new Kid on the block fully years ago will have now established ourselves as one of the major players in the digital healthcare service industry.

As we continue to expand the coverage of pharmacies and broadening our drug suppliers networks, plus our advanced digital capabilities, a supply chain infrastructure, we're uniquely positioned to create value for all our partners in the value chain.

101 was certified by the Chinese Ministry of Science and technology at the National High Tech Enterprise Okay.

We will also recently awarded a prize National E Commerce demonstration enterprise by the China Ministry of Commerce.

Our remote consultation and chronic disease prescription refill service platform has also been selected as a case study in digital solutions for economic control and production resumption by the Shanghai It put a whole new area of science and Technology Commission.

We're very proud that our efforts have earned us such distinction commit.

Committed to continuous innovation and implementation.

Moreover, we will have received critical acclaim from local governments hospitals specialists and patients for our online hospital services and a continuous support for Tibetans living in Kansas City Succumb Province.

Hi to date disease control.

All of the ESG Iqos Carryout core values.

We'll firmly fulfill our social responsibilities as we have done in the past.

We wish to thank all the investors who have supported us all along.

I'll now hand, the call to Mr. Luke Chen to walk through our financial results. Thank you.

Okay.

Thank you, Jamie and good morning, everyone.

Moving to the financials.

My prepared remarks will focus on a few key business and financial highlights.

Refer to the details of the third quarter of 2022 results from slide <unk>.

11% to 14 in section two of our presentation.

Again, all comparisons are year over year, and all numbers are RMB unless otherwise stated.

Let's start with the third quarter results.

Third quarter had it been very challenging for our business due to the negative impact from Covid lockdowns in many cities and provinces.

We haven't tried our very best to work with local governance.

As well as largest companies to fulfill our customer patient orders as these medicines are badly needed.

Total revenues net revenues for the quarter grow 0.1% to 335 billion and the total gross profit for the quarter grew at 2% to 212 <unk>.

And our gross margin improved from 5% to 6%.

<unk> segment was the major contributor for total gross profit and margin improvement.

<unk> segment revenue grew <unk> eight.

8% to $3 25.

While gross profit for <unk> increased by 27% with growth secondary market upfront for 4% to five 5%.

This was attributable to our optimization of selection portfolio and a competitive pricing.

We have also focused our sales are higher margin products and launched private label product, which much better margin.

Our <unk> segment revenue decreased 20% to 100 million with gross segment margin improve from 90 719, 7% to 22, 4%.

<unk>.

Total operating expenses for the quarter were down 17% to $283 million.

<unk> net revenue total operating expenses for the quarter was down to eight 4% from 10, 2%, which reflected continued improvement in our operational efficiency.

Fulfillment expenses as a percentage of net revenue for the quarter was around 3%.

Parallel to the same quarter last year sales.

Sales and marketing expenses for 108 million, representing a decrease of 18% year over year.

As a percentage of net revenues sales and marketing expenses for the quarter was three 2% down from three 9% in the same quarter of last year.

We believe this trend will continue as we further built up our scale and improve our sales team efficiency.

General and administrative expenses were 46 million, representing a decrease of 13% year over year.

As a percentage of net revenues G&A expenses accounted for one 4% down from one 6% in the same quarter of last year.

Which was attributable to our continuous optimization of our supporting functions.

Technology expenses accounted for steel.

Percent of net revenue down from one 7% in the same quarter of last year, we completed a major tech developed programs.

And we believe that at current spending.

We felt it appropriate amount.

Investment in technology.

As a result.

non-GAAP loss from operations narrowed to $48 7 million compared to $135 9 million in the same quarter of last year.

As a percentage of net revenues and then GAAP loss from operations decreased to one 5% in the quarter from four 1% in the same quarter of last year.

non-GAAP net loss attributable to ordinary shareholders was $64 9 million compared to 200.

$13 million in the same quarter of last year.

As a percentage of net revenues.

And then GAAP net loss attributed to ordinary shareholders decreased to one 9% in the quarter from six 4% in the same quarter of last year.

As you can see we are improving our financial performance quarter by quarter.

We're getting very closer to profitability.

We're also very pleased to report that we have achieved positive operating cash flow and overall cash flow for the quarter.

Please refer to slide 15 to 19 of the appendix section for selected financial statements.

And a quick note.

Our cash position as of September 32002, we had cash and cash equivalents receipt of cash and short term investments.

RMB 866 million.

This concludes our prepared remarks thank.

Thank you.

Operator, we are now ready to begin the Q&A session.

Thank you if you wish to ask a question.

One on your telephone.

And wait for your name to P&L.

If you wish to cancel your request please press star two.

It could be honest speakerphone, please pick up the handset to ask your question. Your first question comes from Cassie Chen with CIBC. Please go ahead.

Okay.

Sure.

Hi.

Thank you.

Taking my question and congratulations on your progress.

I have two questions in total.

First one is that looking forward I'm answering all will be well well will be the companys operation of Barclays.

The second one is that as long as our gross margin.

Ill.

We'll be building out continuously.

And Larry associated with.

The key factors behind the rigor and hydropower.

Portability.

Yes.

Okay.

Yes.

Thanks, Jimmy.

Are you going to take the first question sorry, I was on mute apologize.

Apologize Kathy so thank you for your question I will answer the first question.

Yes.

So looking ahead.

Look at all.

Priorities.

I'd say the following.

So we're going to focus on.

Fine.

On growth.

So youre going to.

Okay.

The supply network, we're going to reduce procurement cost.

And we will focus on improving operational efficiency.

And.

In terms of our sales and marketing the logistics, the G&A et cetera.

And.

Also want to grow services.

<unk>.

Last one out to make a start.

We're going to continue.

We're really investing innovation.

There's a lot we can do with the asset that we have built so far.

We're going to continue to exploit our technology capabilities to deliver value.

For both the upstream and downstream customers.

Thank you.

Okay.

Yes.

As Javier let's take your second question.

Regarding the <unk>.

And yes, you are right our <unk> gross profit increased 27% year over year.

This improvement came from our continuous effort to reduce our procurement costs.

Jamie just mentioned.

Through our direct sourcing from pharmaceutical companies et cetera.

Also.

Our efforts to optimize our product assortment and our cost structure.

Regarding your question of sustainability.

When we can expect the overall economy and.

Environment gets better.

Yeah.

We will further tighten our partnership with pharmaceutical companies and we will get more rooms to promote our digital marketing capability.

I believe that beef will be profit.

Profit improvement churn will continue.

Thank you Kathy.

Well ladies.

Okay.

Thank you your.

Your next question comes from Lauren tie with HSBC.

SBC. Please go ahead.

Hi, Thanks for taking my question congratulations on your solid results, especially our positive operating cash flow.

No.

This brings me to my first question about cost control.

Sure more details on Watson Zhang.

Contain costs and can these mergers are this trend sustain going forward when macro environment.

<unk> better and we may need to increase investment for growth.

And for my second question I wanted to ask about your outlook for next year.

China gradually closing.

Covid control measures.

With <unk> impact our business. Thank you.

Yes, Laura and I will take your first question regarding.

The cost control.

And yes, it is very encouraging to see that.

As a result of our continuous ever.

We have seen.

We enhance our operational efficiency.

Our total operating expenses.

<unk> Creek two.

Eight 4% from 10, 2% of Q3 last year.

And this is.

Great.

Every single element is we are doing our best.

Our sales and marketing expenses decreased from straight climbed 9% or three 2%.

And our technology expenses and also our G&A decreased from one, 7% and one 6% to 9% and one 4% respectively.

Sure.

The overall.

Earnings getting better definitely that would be even better news for us.

When the overall economy environment getting better.

We definitely expect this momentum to continue.

At that time, the demand of our customers will be relief and increased.

Our volume growth.

I definitely see scale.

Thank you.

Yeah, Lauren let me just answer your second question about it.

We're all anticipating that they colby zero policies will be behind.

Behind us will relax and we saw some encouraging developments recently.

Still.

Unknown.

Because different public.

<unk>.

Provinces have different implementation.

Approaches and.

As we speak some of our warehouses are still under Lockdown and we cannot sit goes out we cannot replenish inventory.

So.

There is also the latest developments starting from today.

A lot of those drugs were not allowed to sell online anymore, especially those.

Rx drugs and.

And also every customer has to register.

Real name.

There is going to be a verification process.

Fortunately for us that.

We more focused on the <unk> and that's the majority of our business. So the impact to US is a lot smaller than the rest of the other guys in the industry. So.

I hope that.

This is the first step.

So a.

Post Covid restriction.

Containment measure.

Sure.

Cost.

Look at a broad picture.

We are in a multi trillion dollar market.

To quote some numbers in 2021 last year the market is a trailing U N and <unk>.

It is widely anticipated that by 2030.

This market is going to hit 16 trillion.

That is more than two trillion.

And I know there is an offset a few.

<unk>.

Early on we might.

<unk> speech.

There is a lot of tailwind for us as well and I think the biggest.

Tailwind is really.

Transformation.

Digital digitization in the industry.

<unk>.

We are already playing a major role and will continue to play.

And more important role in the future.

And in terms of expectations.

Im going to expect.

Good quality growth for the company both of them.

The top line.

In the past few years, we focused more on the Rev.

Revenue growth and obviously, we needed that we needed that scale, we made at the customer to know us too.

Experience the services, we deliver to them.

But in the future.

I'd like to see in addition to a top line growth.

We also want to see a better margin growth and also the improvement in our bottom line.

I hope that answers your question Lauren.

Thank you.

That's very helpful. Thank you.

Thank you. Your next question comes from Zoe Bank with Citi. Please go ahead.

Hi, Good evening management Zoe from.

I have one question here.

May I ask what the update of the potential privatization.

Sorry, the potential.

One of the presentation.

Yes.

Maybe let me ask there is always a question on this one.

No.

The process is still ongoing.

And as we disclosed that we.

The company has formed a special committee.

To walk on the proposal and the special Committee has recruited the legal and financial advisors.

Also the company will make.

Public.

Relevant information regarding the privatization.

Bye Bye Special Committee. So now its we think the hands of the special Committee and.

And we would just close when we buy them according to to SEC rules.

Alright.

Sure. Thank you very much.

Sure.

Thank you very much.

Question comes from Gerald Hastie, who is a private investor. Please go ahead.

Hello, Congratulations on your performance this quarter.

I'm gratified to see that the operating cash flow and overall cash flow we are in the black for the quarter.

Which I believe it is a major milestone for the company.

How do you plan to continue this trend going forward.

Okay.

Yes, we are pleased to see the positive operating cash flow and overall cash flow for the quarter.

Mainly attributed to our efforts to to continuously reduce the operating loss.

As well.

Improve continue to improve our working capital.

Efficiency.

Our average accounts payable is about.

Like 40% 45 days and our inventory average turn it over to slide 25 days.

So thats give us.

A good operating cash flow, we have pretty strong confidence.

When we.

Continue to leverage our scale to build up scale and improve our margin.

And then getting closer to operating profitability. So the overall cash flow will be continue to be positive.

And we bought a confidence on that.

If you don't mind, if you may ask your second question.

Hi, Joe.

Sure Anthony achieve.

Double digit revenue and gross profit growth, especially in light of the Covid situation then.

Possibly.

Third quarter economic uncertainties.

Okay.

Yes, maybe let me.

I'll try to answer that question.

First of all you mentioned about this.

Overall environment.

The COVID-19.

<unk> zero policy.

It does cause.

A lot of disruption to our business our fulfillment centers kind of operates.

As usual.

Couldnt really replenish inventory and <unk>.

Some of the.

Fulfillment centers were locked down and we were not able to deliver orders out.

And there are many owners guests.

<unk> stuck in transit because you don't know, which city was locked down and some of the cities actually.

Logistical hubs.

And I think.

Under such circumstances really proves the quality of our team and.

It's extraordinary and a festival, we established a emergency response committee and.

Or at least commit to you.

<unk> to the management of the logistic problems.

All the necessary measures that need to be taken and.

There are decisions that need to be made in the daily meeting with the management.

<unk>.

Assembled with a majority of the work is stay in the Dmitry near the warehouse and the setup of the Dmitry <unk> get locked down.

And then on the such situations then we'll need to quickly figure out how we can.

Do our best to keep the obligation going so in the air.

And we made a decision that says.

All our office people.

Went to the warehouse.

To help with that.

Hey.

Starting to help with packaging and really trying to deliver.

Orders out and also our <unk> team is excellent.

They managed to work with various governments to get to a special delivery fleet permit and.

We will have to work with.

Different provincial governments.

To make sure that the.

The goods can.

Really cross provinces.

Under the.

Extraordinary circumstances with still deliver 22% margin growth. This is also related to our strategy like what we did was we optimized our assortments, we optimized our pricing and we reduced the procurement cost.

We also used our.

Our technology.

To.

Really.

Provide.

Hold the selection a whole rich selection of products at a very competitive pricing.

And.

The pandemic is still.

Pretty serious right now and.

And are we still anticipate a lot of negative impact it's going to be assumed.

Have every confidence that we will overcome those challenges and I will continue to deliver growth in the future.

Thank you Jonathan.

New York before next quarter with great anticipation. So good luck going forward. Thank.

Thank you. Your next question comes from Taylor, Zhang who is a private investor. Please go ahead.

Thank you for the chance to raise questions first of all congratulations to you all for the Seventeens continues gross constantly I have two questions regarding the technology R&D progress and also the private label products.

I would like to know.

Is there any progress in technology R&D in the past season, and what our future at San Please will there be and second is about.

Private label products.

It's a good way to raise the margin and.

What will they will be for the next quarter and the coming year.

Yeah.

Yes.

Thanks, Phoenix, Let me take the first question regarding our technology.

We are continuously making very significant resource investment in technology.

Innovation as you know that we said our vision at applying digital technology to seamlessly connect.

With macro services. So you can see.

Everything through digital technology.

Can you also mentioned that the virus.

Systems two <unk>.

For example to build our smart sourcing system to manage our assortment will build hawkeye system to improve the efficiency of our field.

And also there are some.

<unk> supply chain management systems based on the authorization models and algorithms.

All of those.

US to speed up our inventory turn.

Improve our supply chain efficiency and reduce our fulfillment cost as you can see that resolved.

Industry It is through our margin improvement.

This.

I also believe.

Bye bye.

Various recognitions.

Ashley ammonia some locally.

Mentioned us.

Certified by the Chinese Ministry of Science and technology.

National High Tech enterprise.

Also we were awarded.

Rice of National E Commerce demonstration enterprise by China, China Ministry of Commerce. So these are national recognition, which are very good there.

We also have some recognition as all.

These patients.

By the local government Shanghai.

Pudong government with Veeva.

All of this recognition and the effort we're putting.

Regarding your second question of OEM.

Yes.

Actually this is silly.

Excited.

Today, we have launched about nine.

<unk> of our private label products.

Of these <unk> have been well accepted by our customers.

Especially loss.

Small in India, China, Indonesia, <unk> thought.

So actually.

In China.

Big chance of private label products have contributed.

About 10% to 70% of that.

And about 30% to 40% of their margin.

Well all of BW customers dose individuals thoughts towards March has not.

Not able to have their own brand.

Yeah.

The volume is there.

They also menu.

Many many opportunities for this market.

When we launched our offer our private label to help them compete with those big ones in the market.

And they already.

100 private label Skus in our pipeline.

Semi in production et cetera.

So we expect to see fast increasing volume.

In this project in the coming quarters.

Thanks, I hope I answer your question.

Thank you.

Okay.

Thank you.

Your next question comes from Tom Craig patient Stern investment. Please go ahead.

Thank you this is Tom chronic patients.

And congratulations on your performance in the third quarter.

Three questions. The first one is well services constantly provides patients and colder regions.

The second one is what are the reasons behind shifting non-GAAP net loss from pricing as percentage of net revenue cannot be sustained.

One is what is the status of the Companys cash flow. Thank you.

Hi, Tom.

Answering your first question.

It's hard it's very hard to provide.

<unk> services.

Covid impacted regions.

We have made a tremendous effort concrete order difficulties.

Steve now five of our seven.

Understood.

They are.

Severity impact lockdowns, while other impact right now.

So.

Yes.

Our offices.

Headquarter office here Lockdown, almost 80 days solar was hot.

Every single day, we will have solid orders last summer.

Route to customers every single day.

So what we did.

Since the first day of dynamics with loan.

Emergency response center.

Our daily cost to resolve problems on the fly.

No we.

Amongst a free consultation online consultation for the patients in those.

Impacted regions as Virginia mentioned us.

We cover customers.

More than 370 cities.

Sure.

Yes.

100, and more than 400 different types of diseases.

And also.

First with regards to special licenses.

Okay.

Some local government to give us dedicated fleet for medical products without provinces.

What's the appeal.

They are robust and dedicated transportation networks to deal with maybe disruptions caused by the Covid.

Covid pandemic.

Therefore, because this order half both partnered with our.

Patent vendors.

Marketplace lenders.

Everything to wildfire volume options.

So thats one.

<unk> is broken.

And the reason.

<unk>.

Transfer to the segment.

Through all of those.

Way, we are able to.

Certainly.

100%.

We also hope to.

No large volume of large percentage of our business through the pandemic.

Okay.

Regarding the second question about the.

Net loss.

Yes.

We are seeing the contracting.

Net loss from operation as a percentage of our net revenue.

This is a process.

The.

The improvement of our gross profit.

As I, just mentioned about 27% improvement on our gross profit.

Yes.

This is one hand on the other hand, and also reduce our operating expenses.

Which is.

Eight 4% the strong 10, 2% of the <unk>.

Same quarter last year.

So the improvement came from.

The procurement.

Upgrade.

And our product assortment.

Renovation of our product assortment and also we launched various tools for example, our new.

Our smart pricing tool.

So all of this has contributed to that.

The reduction of expenditure.

So moving forward of course, we will.

We definitely were softer than the trend we will continue our efforts on both sides.

And also we expect to see a further improvement in the.

Near future caught us.

Our.

Net loss.

Our profit period.

Thank you.

Yes on the cash position.

We have just closed.

At our earnings release.

Temporary and we have total cash, including restricted cash and short term investments amounted to RMB $860 million.

As we just shared with you that we.

We have reported.

Positive operating cash flow for the quarter and we believe the trend will continue so we have.

Strong confidence that this position cash position.

Is sufficient.

To support our future future operation.

<unk> growth.

Tom I hope, we answered all your questions.

Okay, how quickly garner thank you.

Yes.

Thank you.

There are no further questions at this time.

In closing on behalf of the entire 111 management team wed like to thank you for your interest and participation in today's call.

If you require any further information we will have any interest in visiting 111 in Shanghai, China. Please at the company now.

Thank you for joining us today the call has concluded.