Q2 2023 111 Inc Earnings Call
Hello, everyone and thank you for joining 111 conference call.
On the call today from the company are character Gong Yu co founder and executive Chairman.
Doctor generally low co founder Chairman and CEO , Dr. Lee Chen CEO of 111 major subsidiaries and Dr. Harvey Wang yellow and.
As a reminder, today's conference call being broadcast live via webcast.
Company's earnings press release.
Distributed earlier today.
Together with the earnings that are available on the company's IR website.
Before the conference call get started let me remind you that this call may contain forward looking statements.
Safe Harbor provision.
Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known and unknown risks.
Certainties and other factors all of which would cause actual.
Results could differ materially for more.
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.
As a result of new information future events or otherwise, except as required under applicable law. Please note that all numbers are RMB and all comparisons refer to year over year comparison.
Unless otherwise stated please also refer to the earnings press release.
Information.
Paradise financial performance on a year over year basis with this I will turn the call over to 111, CEO Patrick any though.
Good evening and good morning.
Thank you for joining our second quarter 2023 earnings call.
The information that we'll be discussing yeah. He's also provided in the slides that have been posted earlier today on the company's website.
I encourage you to download the presentation along with the earnings report at IR Docs, one of my main dotcom Dot fan.
I will begin by providing an overview of the macro environment, followed by a review of our recent operational performance.
Additionally, I will comment on our continued commitment so industrial digitization.
Driving our revenue fortifying upstream supply capabilities enhancing.
<unk> efficiency and outlining our future strategies.
Our CFO Mr. Luke Chen will present, a detailed analysis of our financial results.
Following a thorough understanding of our organization's financial standing.
Now, let me start with the macro situation in our industry.
In the second quarter of 'twenty to 'twenty three the pharmaceutical retail market faced some challenges.
According to statistics.
Q2 sales of retail pharmacies in 2023 reached 225.13 billion RMB.
Marking a decline of $6 eight 2% compared to Q1 'twenty two 'twenty three.
And a year on year, a decrease of 752% compared to Q2 of 22.
Looking at the broader picture.
Although the total sales volume of Q2 was somewhat more conservative we feel lucky to be in the REIT sector.
Despite the economic challenges presenting pets to the pharmaceutical retail market the.
The industry remains optimistic about the future, hoping for a steady rebound in the coming quarters.
Amit the sweeping changes and initiatives the 'twenty to 'twenty three.
It's evident that the governments policies remain staunchly supported of the digital evolution and the rejuvenation of the health care and pharmaceutical sectors.
Specifically.
But nowadays on further improving the integration of designated retail pharmacies into outpatient unified management issued by the National Medical Insurance administration on the skull as a pivotal shift towards honey, saying digital avenues to streamline the movement.
Prescription drugs.
Moreover.
The strategic guidance from the opinions on future deepening reform to promote the healthy development of the rural Medical and health system jointly released by the General office, the CPC Central Committee.
And the general office of the State Council.
<unk> is a holistic vision.
This vision is not just about strengthening the Google health care, but also about leveraging digital innovation.
Resource allocation and the service delivery in these regions.
The ambitious.
The ambition is highlighted in the 14th five year plan, particularly the cultivation of large digital integrated pharmaceutical wholesale retail enterprises with revenue in the hundreds of billions of RMB further reiterate this maintenance.
Together these policy initiatives on the skull, a future where digital transformation is central to the continuous progression and inhibition of the industry.
Despite the decline in a specific industry.
I'm delighted to announce that my mom on being a leading health care.
Today in China has the same consistent expansion.
Second quarter of 2023 represents our 10th straight.
Straight quarter of year over year growth following our appeal.
Concentrating on digital health offerings, but my mom has ceased the growing need for online medical service platforms patrons of both individual customers and businesses.
By harnessing, our strong technological foundation, and forming pivotal alliances, but in my mind has successfully bridged the gap between patients and pharmacies medical experts dropped manufacturers and other health care related services.
All upward growth trend on the skulls and Imogen impact of digital advancements in transforming healthcare provision in it.
So on patient experiences throughout China.
In the second quarter 'twenty to 'twenty three the company definitely navigated challenges registering $3 5 billion RMB in revenues.
14, 5% year over year search.
It's also gratifying to share that our overall gross profit saw an eight 3% year over year growth with a beat with east, Texas profit rising by 11, 6% year over year.
Regrettably will have to absorb some of the excess inventory remaining from the height of the pandemic, which impacted all potential gross profit.
I hope it will be operations continue to be the primary contributor to our revenue enhancement.
During Q2, the Beatles sectors revenue hit 3.39 billion RMB, which is a 15, 5% year over year growth and the gross profit rose to $888 6 million RMB, marking an 11, 6% year it'll be upswing.
In comparison, our total operating expenses stood at $249 3 million RMB.
A decrease from 271.7 million RMB in the corresponding quarter of the previous year.
When looked at as a percentage of net revenues operating expenses decreased from eight 9% last year to seven 2% at least yeah.
Highlighting our sustained growth in operational efficiency.
Operational losses.
With $41 4 million RMB down from 17, nine 8 million RMB.
During the same period last year.
Represented as a percentage of net revenue operational losses shrank from 2.6% the previous year to 1.2% this year.
non-GAAP loss from operations was $17 2 million RMB.
<unk> to $52 8 million RMB in the same quarter of last year.
As a percentage of net revenue non-GAAP loss from operations decreased to 0.5% from one 7% in the same quarter of last year.
Our commitment remains to persevere in all the journey towards comprehensive profitability.
Allow me a brief pause to highlight the strides we've taken in our operations.
The second quarter has been marked by our emphasis on further digitization and enhancement of management paving the way for even greater returns on these investments in the future.
In June one by one.
Tencent has entered into a strategic partnership.
Hence the accessibility of online pharmaceutical services.
My mom, one signed a strategic cooperation agreement with Ensign health, both parties will collaborate and jointly explore in the areas of pharmaceutical services pharmaceutical digital marketing.
Online medical intelligence services aiming to jointly establish a pharmaceutical class Internet digital upgrades industry paradigm.
According to the Corporation agreement Tencent will leverage its technological advantages and cloud computing big data artificial intelligence and it's profound reach and connection abilities in the consumer internet sector to assist with my mom one in the digital construction and upgrades of <unk>.
Smart pharmacy retail data centers and intelligent pharmaceutical sales software.
At the same time, we will jointly explore new digital scenarios in pharmaceutical sales integration of smart pharmaceutical sales software services and solutions improve the pharmaceutical sales efficiency and eight pharmaceutical companies in their digital transformation.
This is a significant step forward and one of them.
Digitization strategy.
Motorola in July one on wine was listed on the Shanghai Exchange acts.
Salaries in the transformation of the pharmaceutical industry.
But in my mind needs among the earliest domestic surprises to into the digital health care industry.
Currently on this.
Hi, Bill pay exchange. It has completed the listing of its one my mind information brain series of products, which can play a role in dropped slowed trafficking.
I Ain't dropped below tracking e-commerce drop initial information entry and compliance determination fault E Commerce pharmaceuticals.
Well my Mind's Master data in the pharmaceutical industry includes more than 720000 men product data.
And $1 2 million main company data covering 99, 6% of the pharmaceutical market.
At present.
Inflammation brain series products listed on the Shanghai Exchange data exchange already cover its pharmaceutical Master data why my wind will make full use of the data accumulated internally and collected externally to build AI model in the pharmaceutical industry continuously enhancing the value and.
Application of capabilities of the data.
My one times to continue listening multi type products on the data exchange to meet the industry's continuous development and innovation needs empowering digital transformation over the entire pharmaceutical industry through the Shanghai exchange.
Okay.
We established a more digitized collaboration with drug supplies within its ecosystem and empower the transformation that pharmaceutical supply by my one has launched a sitting over kind of the data supply chain product in July during the 13th anniversary celebration of buying online.
Digital linkage when together by month, because it was supply chain summit was held in Shanghai.
Well my one will continue to refine its digital supply chain management system strengthen its technological advantage and the strategic focus by my one supply chain upgrade is to create a digital supply chain driven by digital technology synchronizing, the entire chain and the Lincoln upstream and downstream collab.
<unk>.
Through the integration of multiple modules, such as supply procurement storage distribution and sales with the aid of digital product modules.
Like the wheel of when that file and Clinton My main aims to facilitate the spec to data and information flow.
We will forge strong collaborations with the pharmaceutical companies industry partners and pharmacists to provide seamless care for our customers.
And a remarkable testament to buy more ones advanced digital capabilities. The Ministry of Commerce has burst out upon the company's title of e-commerce demonstration in surprise.
This accolade is not common distinction.
Only 132 enterprises across the nation have been graced with this recognition.
The announcement.
This quarter speaks volumes about Lamar mines competence and emerging prominence in the E Commerce Arena.
Parallel to this noteworthy achievement.
One has intensified its bonds with upstream pharmaceutical partners.
This depends alliance is more than mere collaborations.
Evolution of mutual understanding that is reshaping they come to us of the pharmaceutical digital space. This concerted effort crystallize. Its one of my buddies commitment. So amplifying its all encompassing digital expertise ensuring that eight maintains.
Paul front of technological evolution in the sector.
This quarter witnessed the initial launch of additional groundbreaking drugs on our digital platform building on a prior achievements with the spin partners such as why medicine at San Jose.
You want a general move.
Introduce the true state of the art asthma medications.
And Gordon and aiming that <unk>.
Exclusively by my one digital platform.
These products are not just new interest.
But it took mice global pioneering combined formulations dedicated to advancing asthma treatments in Doran is currently the only approved simple inhalation formulation for asthma patients in China, feeling that therapeutic gap.
With their availability on all online platform. These two drugs kind of rapidly reach the outpatient market.
Deniable, a offering considerable convenience and a superior treatment options for China's vast asthma patient population.
As our business continues to expand and as we position ourselves as an effective commercialization partner will continue to offer value added services to pharmaceutical companies.
Yes.
Meanwhile, on our B to B platform through our partnerships with downstream pharmacies, we kept delivering digital value to ops from pharmaceutical companies without a newly developed digital tool telescope.
And telescope.
<unk> as a lens for pharmaceutical companies, allowing them to gain a more direct and a comprehensive view of their truck sales on the pricing dynamics of real time.
By leveraging our advanced data analytics and our market insights telescope enables those companies to analyze the stay was patents identified pricing opportunities.
To make data driven decisions to optimize their strategies.
His telescope pharmaceutical companies kind of assess the performance of their products in real time, and identify market trends and adjust their marketing campaigns accordingly.
This thing and valuable tool not only provides a clearer understanding of the market landscape, but also assist and forecasting demand refining pricing strategies, and ultimately maximizing sales and profitability.
On the other hand, we remain dedicated to digitally enabling downstream pharmacies by providing all encompassing support for their operational needs.
Our tailored solutions extend beyond provide affordable medical products and quality services.
They are designed to optimize workflows and boost operational effectiveness.
By tapping into our extensive network and forging a robust partnerships with secure competitive rates and the beneficial tons with providers, ensuring pharmacies benefit from cost savings.
Moreover, through advanced technologies, like automated ordering platforms and streamline logistics with guarantee prompt deliveries, while helping pharmacies cut down on the operational costs.
And cost effective products and efficient services, when labor pharmacists to deliver value to their customers and to maintain their competitiveness in the market.
Particularly by the end of the second quarter, all one health muscle franchise model kept enabling around 20000 small to midsized pharmacies provide superior products and our services to their customers.
All participating pharmacies and use our platform to better manage their product selection procurement and inventory management as well as accessing our distribution tools through our digital SaaS services, including smart sourcing.
So marketing O to O N E R M.
Suddenly, but consistently prioritize enhancing operational efficiency within our strategic planning.
As one of my one's business scales up and technological advancements Flores, our operational efficiency continues its encouraging trajectory.
It's heartening to note that with rising revenues the propulsion of sales and marketing expenses have seen a decline.
Counting for two 6% this quarter as opposed to 333% in the same quarter. The prior yeah general and administrative costs in relation to net revenues stood at one 1% this quarter down from one 3% in the same period last year.
Additionally, our technology related expenses stood at 0.7% this quarter down from 1.1% in the same period last year.
We've taken deliberate steps to boost management efficiency and by my mind first and foremost our approach. So human resource management has been very prudent ensuring optimal workforce distribution and utilizing technology to automate specific functions.
And our next move.
Refined our standard operating procedures and a simplified managerial processes boosting overall productivity.
But the mall a heightened emphasis.
Robust corporate governance has let someone in.
Ingrained ethos of responsibility and openly throughout her team.
Finally, we've channeled significant resources into the solutions like state of the art analytics robotic process automation and innovative digital platforms.
Through these strategic measures objective is clear.
The elevated efficiency.
<unk> expenses and a consistently provide superior value to all our stakeholders.
Before they improve operational efficiency, we will keep on focusing on implementing our strategy flattening, our organizational structure and improving efficiency of our employees through multiple operational tools.
And the rail logistics.
Witnessed a marked reduction in our fulfillment expenses, primarily attributed to the enhancements in our proprietary warehouse operations and the collaborations with joint venture storage facilities.
Terrific never can say investments in both infrastructure and technology.
Holmes, our supply chain mechanisms, resulting in heightened operational efficiency.
Advancements have enabled us to expedite and the refined product deliveries to our customers.
Currently driving down our fulfillment costs, so two 7% from the previous 2.9% relative to net revenue.
Maintaining optimal customer satisfaction and a competitive batch remains at the forefront of our agenda.
Will persist and nurturing these strategic undertakings.
So Europe for yet another quarter.
We've diligently I heard two hour guiding tenants of value creation customer Centricity and fortifying our supply of foundation throughout the organization.
Our recently instituted and House Advisory Department has once again proven its worth by championing strategic advancements across various sectors.
But theyre, all going deep into our customer needs analysis.
[noise] facilitated fine tuning of our product portfolio to resonate more precisely with market inclinations.
By keeping a vigilant eye on evolving market dynamics and capitalizing on a real time customer feedback, we've managed to recalibrate all pricing ensuring both competitive.
And enhanced profit margins.
But the mall. This department has been instrumental in for nursing, all internal resource distribution refining and procedural workflows and boosting overall operational efficiency.
Through these can shut it in Dallas.
Elated to report that would have not only met but often exceeded customer anticipations.
Walsh, the sensible pricing models.
And in short and adapt stewardship.
<unk> is across the board.
Now, let me spend a moment to talk about our future growth initiatives.
One continuing to expand selection for our customers by leveraging patients our partner the stock.
We dedicate all commitments, so elevate and refine our supply chain model as we navigate the multifaceted pharmaceutical landscape. Our primary focus is to harmonize our first party business J P P business and the marketplaces business seamlessly.
All nominees all of GBP business stands out as one of our priorities this year.
We recognize it's pivotal role in streamlining pharmaceutical distributions and forging solid partnerships.
We're investing resources and efforts into optimizing its operations, ensuring that it not only complements our other business segments, but also emerge as a beacon of operational excellence and efficiency.
Through these endeavors by my my aims to provide the best selection and the best one stop shopping experience in the industry to pharmacy customers.
Two.
Hello, Al first party product range to align with customer preferences.
Our unwavering commitment is to improve the customer journey, while refining our product lineup based on their preferences.
But how does the information from various avenues, such as client feedback industry studies and advanced data analytics, we are constantly fine tune our product selection.
Borrowing from this rich proof of sites.
Drawing from this rich pool of insights, we ensure that our first party inventory caters to the varied needs of our customers.
This strategy not only allows us to provide purchasing solutions, but also ensures we continue to strengthen direct sourcing relationships with upstream with manufacturers.
Three cost.
Costs down on procurement.
Acquiring directly from pharmaceutical firms has significantly slashed style product expenses.
We've established connections with over 500 esteem global and the local pharmaceutical entities and.
And I'll go is to reinforce our life all ties with these current associates. While also fostering new collaborations currently we've implemented numerous benchmarks to propel our procurement team to both enhanced cost saving initiatives.
This strategy and shows that we have a diverse medication assortment at a more affordable cost.
Paul.
Enhancing smart pricing strategy.
Being a prominent digital health care platform, particularly in the B to B segments, we are committed to enhancing our market standing totally fine pricing methodologies basketball intelligent systems.
Encapsule as algorithms and deep data analytics, we are carefully assessing market trends competitors pricing structures customer preferences and other crucial permit parameters set the most strategically viable price points for our offerings.
This method insurers, we cater to both our customer affordability needs and all our businesses profitability goals.
With integration of the smart pricing mechanism, we aspire to expand our market footprint attract fresh customers.
Again, all our loyal base and solidify our reputation as a reliable and economically competitive player in the pharmaceutical domain.
Five elevated efficiency through intelligent supply chain management.
With deeply committed to continuous refining our supply chain to guarantee similar procurement warehousing and distribution processes.
By Celgene robust collaborations with pharmaceutical firms with directly have 10 premium products, allowing us to make the supply chain more slowly and to reduce potential hold ups.
Our specialized continuity of supply team is devoted to enhancing procurement strategies adjusting resources as required and ensuring our stock levels are definitely accolade maintained to fulfill demand while preserving product integrity.
Through these initiatives our goal is to boost operational effectiveness diminish expenses.
Also unparalleled service quality to our customers.
Six.
Unwavering focus on enhancing operational efficiency.
We're unwavering in our pursuit of operational excellence and adopting focused strategies to manifest distributions.
By strategically integrating technology.
We are reshaping our workforce dynamics, ensuring efficiency without compromising on output.
Opinion slate, we are deeply involved in dialogue with external vendors, especially those in logistics to procure the most favorable terms, thereby refining our supply chain and the curtailing overheads.
Equally Paramount is our emphasis on helming management acumen and decision making capabilities given their direct influence on operational palace.
With a particular approach in these domains, we are poised to have substantially curtailed operational costs paving the way for enjoying growth and prosperity.
Kevin pledging to digital transformation.
Our dedication to digital innovation remains steady given its potential for lump sum rewards.
Through the integration of the digital solutions.
Able to refine all methodologies boost operational efficiency and foster avenues for groundbreaking initiatives.
By channeling resources towards research and development would maintain our edge in the ever evolving taxpayer propelling innovations that cater to our customers dynamic requirements.
As we elevate I'll focus on digital strategies and cultivate.
Default of the continuous evolution, we solidify our stance as a nimble competitive entity poised for continuous continuous advancements in the rapidly shifting healthcare domain.
In conclusion, while we faced challenges and successes by my mind remains dedicated to leading the way in the health care sector campaigning transformative initiatives and ensuring excellence in service delivery in the ever changing environment.
We wish to thank all the investors who have supported us.
I'll hand, the call to Mr. Luke Chen to walk through our financial results.
Thank you.
Yeah.
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 2020 Threep itself.
18 to 21 section two of our presentation.
Again, all comparisons are year over year, and all numbers are in RMB unless otherwise stated.
Our top line and the gross profit in the second quarter continued to grow.
Total net revenues for the quarter grew 14% to $3 5 billion and the cross segment profit for the quarter grew 8% to 208 minutes.
Top line growth for the quarter was mainly attributable to our <unk> segment revenue growth at a 15% to $3 4 billion.
The graph segment profit for <unk> segment has increased by 12% with cross segment margin at five 6%.
Our b to C segment revenue decreased 13% to $88 8 million with gross margin at 21, 8%.
Total operating expenses for the quarter decreased 8% to $249 3 million.
As a percentage of net revenue total operating expenses for the quarter were down to seven 2% from eight 9% as we continue to enhance our operating leverage and optimize our operation efficiency.
Fulfillment expenses as a percentage of net revenues for the quarter was down to two 7% from two 9% in the same quarter of last year.
Sales and marketing expenses as a percentage of net revenue for the quarter was two 6% down from three 3% in the same quarter of last year.
General and administrative expenses as a percentage of net revenues accounted for one 1% down from the one 3% in the same quarter of last year.
Technology expenses accounted for <unk>, 7% of net revenue down from 1.1% in the same quarter last year.
As a result.
non-GAAP loss from operations narrowed to $17 2 million.
Compared to $52 8 million in the same quarter of last year.
As a percentage of net revenue non-GAAP loss from operations decreased 2.5% in the quarter from one 7% in the.
The same quarter of last year.
non-GAAP net loss attributable to ordinary shareholders was RMB 330.
<unk> 3 million compared to RMB six to $8 3 million in the same quarter of last year.
As a percentage of net revenues.
GAAP net loss attributable to ordinary shareholders decreased to 0.9% in the quarter from two 2% in the second part of last year.
Please refer to slide 22 to 26 of the appendix section for selected financial statements.
And a quick note our cash position as of June 32033, we had cash and cash equivalents restricted cash and short term investment.
RMB $735 8 billion.
As previous disclosed.
If all key subsidiary one pharmacy technologist proposed listing all star market, but not competed before June 32033, So does piazzi investors will be entitled to require us to redeem all or part of their equity for an amount up to 1 billion and an 85 billion.
That's up to date certainly the masters have agreed not to exercise their rights before June 30, 'twenty 'twenty four to redeem debt investments.
Which totaled seven 728 million.
And the street investors have decided to exercise their right to redeem their investment totally.
127 minutes.
We are also proactively working with the remaining Vasquez.
But in case.
All such you guys, who choose to exercise their redemption rights.
We do not believe such redemption would affect our business and our prospectus as we expect it to have sufficient capital resources to fulfill such redemption obligations.
This concludes Oh proposed remarks.
Thank you.
Operator, we are now ready to begin the Q&A session.
Thank you.
If you wish to ask a question. Please press Star then one on your telephone and wait for your name to be announced.
If you wish to cancel your request. Please press Star then two if you're on a speakerphone. Please pick up the handset ask your question.
Our first question today comes from shot Taxane with TICC. Please go ahead.
Oh, Hi, this is Tom Thank you for taking my questions and congratulations.
Company for bass.
I have two questions actually.
First question is about policy.
The amount of changes in the downstream.
Right.
Nationally.
Medical insurance coverage.
Pharmacies.
So what kind of impact.
That this policy have on the industry and one of them a lot and this is my first question.
Thank you for the question yeah. So.
Obviously youll notice we noticed.
There is suddenly a pretty big change.
In our.
General populations medical insurance, so for those people, who do not understand the Chinese Medicare system.
So anybody's our Medicare system is divided into two accounts one account, it's called the personnel account and now the rig count has caught the unified accounts and the.
The recent.
Change in the policies that you.
Used to be majority of the money is deposited into the personal account.
Now it's robust majority of the money in the account has been distributed to the unified accounts, which means.
<unk> I'm not able to spend.
Their own discretion as before.
Our understanding of the implications.
Is such that festival.
More and more pharmacies will be included in the group of pharmacies that can provide reimbursement services to customers and those numbers will grow.
We anticipate that majority of the pharmacies will be entitled to.
So it provides the reimbursement services to their customers.
Number two.
They are consumers personal account.
Is the reduced so their ticket size will be somewhat reduced this will also impact the pharmacy.
Those are the negative.
Impacts to pharmacies and to a certain degree to us, but we actually take this as a tremendous opportunity because what this will do is to drive a lot of traffic.
Two pharmacies and because more and more pharmacies will be joining.
The.
The group that can do the reimbursement services and therefore.
Therefore.
They need to purchase more drugs, they need to purchase more medicines.
Furthermore, they have the opportunity to up sell their products and services. So this is clearly it's going to drive those pharmacies to enrich their offerings are.
They will have to introduce more categories and are in the mall services. So.
Our understanding from the government is not there is a clear trend that.
The government is intending to separate consultation from drug sales.
Which was.
The fundamental problem of the Chinese health care system and.
It is not a use of reform as we understand that we.
We are very encouraged to see the government's determination to.
Head towards this correction, which will be great news.
The pharmacy sector and not not necessarily the best news for the hospitals and I hope that answers your question.
Okay. Thanks for this year and my last question is about financials.
The operating expense ratio of 111 has been decreasing.
I just wonder what is the main reason behind this trend and continue to decrease in the future or what's the breakeven point of the company.
Yes, that's a great question and obviously you know what drives.
The operating expenditure expenditure just to.
Just a few a few buckets of few areas right. So so you know what we've done in the past basically focused on revenue and margin growth and you know a.
Once the revenues is bigger and obviously as a percentage of expenses.
They were going to go down.
The other thing we did is really we will relentlessly driving operational efficiency and your question is will this continue absolutely.
It will continue not only one of them.
They continue.
I believe.
It will even get better.
And as to breakeven point.
Our current projection is not a onetime revenue kind of hit 20 billion.
And our margin stays at 6%, which would be a very profitable business.
Yeah.
Okay, that's very clear and helpful. For this year me and congratulations with gains of the company progress.
Thank you.
The next question comes from Jessica Li with HSBC. Please go ahead.
Thank you for taking my question and congratulations.
<unk>, a very solid quarter, so I have two questions.
The first question is actually regarding competitive landscape.
I have mentioned because of the visa regulation changes, we have seen more emphasize on the out of hospital channel encoding.
At the same time, we do see a lot of the players mentioned they want to enter into this.
No specifics that I wanted to get your thoughts on the evolving competitive landscape for the fact that going forward in terms of competitive landscape.
Alright, Assam.
That's what our competitive advantage. That's one has come out with other players in the market.
Thank you.
Yes, so you know.
Obviously.
Any attractive business will attract a lot of competitors here in China, It's a extremely competitive market.
But we.
We feel pretty good about where we are if.
If you look around the competitive landscape I think our biggest competitor will have to be those traditional players because they take a majority of the share.
Over the past few decades and.
But all the advantage is very very clear we are a digital player and Furthermore, we actually cover our end customers, we are not simply a distributor and our digital.
Those capabilities would suddenly gave us.
H, especially when it comes to <unk>.
Operational efficiency.
As you can tell our.
Our size in this industry is not that big yet.
<unk>.
We even at this size we already operate at.
A.
A pretty efficient way.
Six 3% of total Opex at current rates and the leased by tons of billing.
By 20 billion size, we should operate in the five or even sub five range of of opec's.
And there are newcomers.
We believe there'll be even more newcomers and.
Very fortunate to enter this space.
10 years ago, we've already established ourselves as the leading digital player and even with that.
They are real.
Reasonable sized competitors.
We do a far better job than anybody in the industry. When it comes to the small to medium chain pharmacies, so that that's our bread and butter and and moving forward of course, we will continue to invest in our digital capabilities and we believe digital capabilities our capabilities can.
Drive really operational.
Efficiency and if we compare to new competitors.
Oh competitive competitors even.
Potential future competitors.
A clear competitive advantage, it's going to be our operational efficiency.
Thank you.
Thank you that is all very clear actually my second question is also on the digital capability I noticed you have started a partnership with Tencent and at the same time.
Imagine you'll be making full use of the medical data and to develop your own a large language model just wonder if management can share more color on this sense what will you be yourself developing also work with Tencent and what kind of product Kelly Lucky for thank you.
Okay. Thank you Jessie let me take that question first of all at the partnership with Tencent sees in the various some progress you know several projects have been defined.
In the carried out by both teams.
And certainly the marriage or the value of the partnership is very clear we have very complementary strengths right. Tencent has a very strong diesel technology and computing power and the we have all we offer.
The application platform.
All of the scenarios and use cases and also we have their customer base. So certainly you know that these are very complementary.
We owe a certainty.
Hope to create.
Value together.
These projects basically where leverage tends at a kind of all your strength in our cloud computing big data and artificial yeah, you mentioned.
Well I said expertise.
Consumer Internet services.
Basically we will try to support the Digitization and upgrade our smartest pharmacy retail data center pharmaceutical sales self tour.
We're also.
You use.
Advanced technologies, such as our T cell teaming cloud rendering to create the pumps to hold veto showcases.
Measurement cockpit for Formula one.
<unk> for AI applications.
Certainly these were.
I'll use a lot of AI technologies in the background.
And we're not going to devote.
Large language models, you know well we are focused on.
Specific.
Applications.
<unk> care industry.
I see that's very clear. Thank you so much for you all.
And congratulations on the solid results. Thank you.
Okay.
The next question comes from Stephen Lynch with an individual investor. Please go ahead.
Thank you man entertainment for the presentation I have two cross changed first could you. Please talk more about quintet haswell and it tastes golf's application the impact.
And how should I think about Willow less top line growth in the next few quarters and what are the key driver.
<unk>.
We are taking the first one the Harvey would take several months. So let me talk about a few.
Few.
Product diesel products, you mentioned like Crimp home Imation Honeywell.
Pepsico social Okay. These are all digital products, we'd be up to serve all customers. Okay. For example telescope you said fast service to pharmaceutical companies.
Basically it's used to help them monitor the entire supply chain, making the supply chain complete transparency.
And you.
Oh <unk>.
<unk>, there a product flow through various distribution and retail channels in various regions.
And the customer profile behavior, that's why it's the imager turns.
And a repurchase rate central all those data are made transparent two pumps to companies.
These are used to facilitate their decisions in production in.
New product development and channel allocation.
He also mentioned quip home and HUD will these are service a two hour JV.
<unk> are in the marketplace.
<unk>.
They are used to a system more efficient procurement and logistics.
By leveraging these services, we have seen a remarkable growth of DMV.
For these partners are much higher than our overall growth you know like more.
More than 40% higher for these partners so in her.
They help us to reach our selection.
The price competitiveness, so he's a win win.
And regarding your second question on the growth and also the growth drivers I think.
First from industry wide.
As gene just mentioned that the government strategy of separation of job sales.
Hum.
Husky those medical treatment.
Going wrong.
Including recently.
You may be a well.
Although our national wide anti corruption.
Our medical area.
So the.
Execution of the government strategy of separation definitely is there.
Very favorable to us.
Yes.
The separation.
Truck sales fall hospital.
Meaning it will go to.
The retail market.
And the drug sales being hospital is we're talking about.
At one point put ciena in RMB.
So the overall pharmaceutical retail will get benefit.
Uh huh.
And also in currently are first we will continue to upgrade our supply chain.
We established a fuller strengthened though.
Iraq strategy partnership with small anymore.
International and domestic a panelist.
To bring more election, with lower and lower cost to our downstream customers.
Secondly, we will enhance our digital marketing platform to help pharmaceutical companies.
To commercialize their new products to pharmacies, because they make.
Eventually to both patients and customers.
So.
In my view.
Our <unk> business is becoming a platform.
We effectively link pharmaceutical companies with pharmacies clinics, and we see a user.
Last year, the volume of China pharmacies retail has exceeded 600, and then 90 and I.
I mentioned, just now more and more are moving all of our hospitals. So it is a very big market. We believe we have enough room to further expand our business volume with a healthy margin.
Thank you.
Okay, that's very clear.
I appreciate your answer.
Hum.
Yes.
The next question comes from Francis Chang with me yesterday capital. Please go ahead.
Hi, This is Francis from DSP capital, Congrats again on a great quarter.
I've got two questions. The first one is what kind of assistance and impact there's a company's digital capabilities have on the industry.
Second one what will be the company's operational focus going forward. Thank you.
Oh, Thank you Francis.
So let me take the first question, we define ourselves as the diesel enabler in the health care industry.
We have invested heavily in the digitization of the industry the areas of supply chain.
Ah patient education Medis.
Medicine availability.
Patient reach on the Health management, we said our mission.
To leverage our diesel technology effectively link patients with the health care services and we are on target are on track to realize that.
Joining his report bench.
You mentioned the listing of all Wawa information brain of the Shanghai data change that's a perfect example.
So our master data if I'm assuming this rate includes more than 720000 main product data at 1.2 million company data covering 99, 6% of the whole come to market.
So these state our play a very important role in drug flow tracking.
Drug initial information entry on the compliance or ecommerce pumps glucose.
I'm all set.
Frances.
Second question with the.
Operating focus.
I would.
In a very simple language would be two areas one is to grow revenue and margin and.
So it's too.
Where do we drive operational efficiency.
I could elaborate a little bit you know how do we grow as I spoke.
In my script.
And obviously, we're going to use.
J B P. So enrich our selections and for our first party products.
Want to get.
A much better alignment with customers' preferences internally will have been tough.
Intelligence system called Brooklyn.
Which collects.
Information.
From our own internal.
Daily operations and also the intelligence comes from our salespeople on the ground and also from industry.
Industry wide sources and that will ensure that we can have a much better assortments much concise and precise assortment for our customers.
Therefore with that we can provide a one stop shop.
Parents for our customers and in terms of growing margin of call side.
Look about our intelligence our pricing system.
Of course in the past we always use.
You know human to do the pricing and then now with <unk> majority of the pricing and some machines, let the machine learning and we feed the machine we've got all the necessary data and let the machine and make the right choice and it is wrong.
Learn readjust.
And the other thing I mentioned about driving margin needs to really doing cost down.
Of course, we are solidifying our supplier base and our.
Our procurement team has a very clear specific task on reducing the procurement cost.
Pretty much across the board.
We have internal meetings.
On the regular basis at least the weekly so look into those numbers.
When it comes to drive operational efficiency and of course, we have only literally.
Three buckets of expenses monies fulfillment Netherlands.
Sales and marketing and the last one is G&A.
And obviously I spoke a lot about fulfillment.
Fulfillment and we have a really proven.
The effectiveness of our measures and our fulfillment cost.
Down to two 7% versus two 9% and.
Obviously, when it comes to sales and marketing we are doing a fantastic job there.
There are there is a noticeable change in the G&A as well so.
Essentially what we're doing is to really invest in technology, we use technology to become much much more efficient and once we can operate.
You know sub six and sub five operational expenditures, we already have the industry's best.
You look across the board.
I don't see anybody can operate.
At our related.
Operating expenditure today and.
We're not going to stop there we're going to continue to.
Brain they expenditures down.
Therefore, we cannot actually be a much smaller unprofitable company.
Thank you Francis.
Thank you both answers are very clear and we look forward to hearing more.
The next question comes from Kw Arbor growth capital. Please go ahead.
Hi, everyone.
G that with some other growth capital.
And congratulations on the company's success and the growth in Q2, Yeah I've got two questions. The first question is what is raising up a margin level in the next three to five years.
I'll wait for the expense margin. Thank you.
Yes.
Oh got it.
Imagine our strategy was.
More healthy business model has been working well and we are seeing if they can hit the kind of improvement on our product Marty.
And are there a couple of very niche <unk> going on each area.
One is to reduce our procurement costs.
And that's through direct sourcing from pharmaceutical companies.
And then we now saw strong although 500, a global or domestic.
Big pharmaceutical companies.
And we will continue to strengthen our partnership with them.
And the second one is the second lever is Oh, we can pull if we improve margins is through.
Our product assortment optimization.
Currently.
The annual sales revenue of over <unk>.
Palin R&D.
Also.
With the 400000 pharmacies in our platform we.
Now in a position to balance our portfolio of products.
Bundle with a high velocity, but low margin products.
Together with a healthy one.
And also we are developing our OEM private label products.
The margin percentage is.
As high as <unk> said he percent 240%.
And.
The third one is our.
Yeah.
Digitalization path.
Digital platform for example, the Tedisco.
Jamie just mentioned it provides a very comprehensive solution for pharmaceutical companies.
And low services model.
To get more marketing dollars from <unk>.
Pharmaceutical companies.
And last but nonetheless.
Well on the industrywide.
And as well as the previous question regarding growth in a tough.
About the resolution of our the government strategy on medical services, the separation of medical treatment with the from the drug sales.
And these were pre actual sales to a retail market for hospital.
Well I believe not only sales, but also you were bringing more marketing function to retail market, including patient education, a D O T et cetera, and these marketing function would be a very good profit too long run as we already have.
The very strong capability of digital marketing.
Our b to C or B O S T a C Moore.
Thank you.
Thank you for your theory, a clear and helpful and one more question, how what's the slope.
In the second quarter for the confidence and what is the common cause.
Thank you.
Yes.
Position first of all we are very pleased to see that our non-GAAP operating loss further narrowed for the quarter to 0.5% of net revenue what does that mean it means that we no longer need to burn cash to support our business.
And if you look look into deeper this is a game of good.
Management on the working capitals, and we believe we are.
Doing a good job in operating with high efficiency.
Our accounts payable days is around 42 to 45 days.
Our inventory days is about 25 to 30 days.
Accounts receivable days about seven days.
Would you give us like it acts states.
April .
And while we further build out our business scale, we will be able to negotiate a better trading terms.
Buyers.
As of June and our cash cash equivalent we stood a cash and short term investment.
Amounted to RMB $736 million and we believe that we have sufficient cash reserves to support our business expansion.
Jada.
Thanks for the answer best wishes for your for the couple of months. Thank you.
Thank you.
The next question comes from Ethan Wang with Iron Heartburn capital. Please go ahead.
Hi, I'm used to.
Dan.
Or how about capital.
First of all thank you for.
Having the keurig.
Keurig section today.
I have a few questions. The first is.
Companies parent for its OEM product in the future.
Oh, Okay, Oh, yeah product.
They cover all the private label registered in my one on one Oh, we have one Glenn Zelle is our chance to all customers.
And also fund Joggle Y'all are infill all individual store customers and also.
That was a dumb Allah batteries supplements etcetera.
We call it non media.
And the Q2 this year, we already launched hunger that history.
Private label F P youth.
And also they are much more skewed.
In our <unk> have been in our pipeline.
Most of these products have been well accepted by our customers and as you know a majority of all the customer individual stores or those.
The small to medium.
The 10 stores.
Uh huh.
They don't have the capability to establish their own brand.
However, those.
The top players.
K a retail doors.
Everyone of them has a very strong performance on their own private label, so that that is a.
Very strong demand from our customer follows a private label. So one zelle horns outdoor media has become a very attractive solution for them.
For a very stable market and a very stable margin.
Thank you.
Thank you for answering my next question.
What is the current progress.
Our company's purpose taxation.
Okay.
Yes, we understand the process of prioritization is still ongoing.
As you maybe aware.
July 17th the company announced.
The expansion of the buyers group.
So.
Special Committee formed by three independent directors.
Working with the buyer group on the perfect patient proposal.
It's a public company, we will we shall make <unk> a public announcement. According to FCC takes kosher rules.
Thank you.
Thank you that's all the questions that have to do.
Yes.
This concludes our question and answer session.
In closing on behalf of the entire 111 management team, we'd like to thank you.
Are you interested a partition participation in today's call. If you require any further information or have any interest in visiting one line one.
Hi, China. Please let the company know thank you for joining US today. This concludes the call you may now disconnect.
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