Q3 2023 111 Inc Earnings Call
Okay.
Yeah.
[music].
Hello, everyone and thank you for joining 111 conference call today.
Speaker 1: Hello everyone, and thank you for joining 111's conference call today.
Speaker 1: On the call today from the company are Dr. Gong Yu, co-founder and executive chairman, Mr. Dune Ling Liu, co-founder, chairman and CEO , Mr. Lu Chen, CFO and 111's major site subsidiary. And Mr. Harvey-
On the call today from the company are Dr. Gong Yu co founder and executive Chairman Mr. Joon Lee.
Co founder Chairman and CEO.
Mr. Luke Chen CFO and 111 major center subsidiary.
And Mr. Harvey balls B O L.
As a reminder, today's conference call is being broadcast live via webcast.
Speaker 1: As a reminder, today's conference call is being broadcast live. See you, web.
Speaker 1: The company's earnings press release was distributed earlier today, and together with the earnings presentation are available on the company's IR website.
The company's earnings press release, but just jumping it earlier today and together with the earnings presentation are available on the company's IR website.
Speaker 1: Before the conference call gets started, let me remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Before the conference call get started let me remind you that this call may contain forward looking statements made under the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
Such statements are based upon management's current expectation and current market and operating conditions.
Speaker 1: Such statements are based upon management, current expectations, and current market and operating conditions.
Late to events that involve known and unknown risks.
Uncertainties and other factors.
All of which would cause actual results to differ materially.
Speaker 1: For more information about these risks, please refer to the company's filings with the SES.
For more information about these risks please refer to the company's filings with the S E T.
111 does not undertake any obligation to update any forward looking statements as a result of new information future events or otherwise.
Speaker 1: 1-1-1 does not undertake any obligation to update any for the statement as a result of new information, future events, or otherwise, except as required under a click of the law.
As required under applicable law.
Speaker 1: Please note that all numbers are in RMB, and all comparisons refer to year-over-year comparisons, unless otherwise stated.
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 our comparative financial performance on a year over year basis.
Speaker 1: Please also refer to the earnings press release for detailed information to comparative financial performance on a year over year basis.
Speaker 1: With that, I will turn the call over to Bon 11, CEO , Mr. June Ling Liu.
With that I will turn the call over to 111 CEO Mr. Li.
Speaker 2: Good morning and good evening. Thank you for joining our FIT quarter 2023 earnings call.
Hey, good morning, and good evening. Thank you for joining our third quarter 2023 earnings call.
The information we will be discussing is also available in the slides that were posted earlier today on the company's website.
I encourage you to download the presentation as well as the earnings reports from our Investor Relations website at IR Dot one by one.
Dot com don't see them.
Speaker 2: I will start by offering an overview of the body economy landscape followed by a comprehensive examination of our recent operation achievements.
I will start by offering an overview of the barbell economy landscape followed by a comprehensive examination.
Our recent operational achievements.
Speaker 2: Furthermore, I will discuss our ongoing dedication to advancing industrial digitization, risking revenue, strengthening our upstream supply capabilities, improving operational efficiency, and outlining our future strategic direction.
Furthermore, I will discuss our ongoing dedication to advancing industrial digitization boosting revenue strengthening our upstream supply capabilities, improving operational efficiency and outlining our future strategic direction.
Speaker 2: Afterwards, our Chief Financial Officer, Mr. Luke Chan, will deliver an indexed analysis of our financial results, ensuring a comprehensive understanding of our company's financial health.
Afterwards, our Chief Financial Officer, Mr. Luke Chen with deliberate in depth analysis of our financial results, ensuring a comprehensive understanding of our company's financial health.
Speaker 2: Now let me start with the macro situation in our industry.
Now, let me start with the macro situation in our industry.
Speaker 2: While the hospital distribution market in China experienced a modest year-on-year contraction of two to five percent in 2022, the out-of-hospital pharmaceutical distribution market has witnessed a striking and a continuous upsurge.
While the hospital distribution market in China experienced a modest year on year contraction of 2%.
To 5% in 'twenty two.
Out of the hospital pharmaceutical distribution market.
Witnessed is striking and the continuous upsurge.
A detailed analysis by Frost <unk> Sullivan highlights this robust growth was eating escalation.
Speaker 2: A detailed analysis by Frost and Sullivan highlights this robust growth, revealing an escalation from 371.6 billion yuan in 2018 to a remarkable 639.7 billion yuan by 2022.
871, 6 billion you got in Tennessee 18, so.
A remarkable three $639 7 billion by 2022.
Speaker 2: marking a compound annual growth rate of 14.5 percent.
Marking a compound annual growth rate.
5%.
Speaker 2: This impressive expression is not merely a short term phenomenon, but is projected to maintain its momentum.
This impressive expression needs.
Not mainly aesop term phenomenon.
Projected to maintain its momentum.
Speaker 2: Forecasts suggest the market will soar to an estimated 1 trillion yuan by 2027.
Forecast suggest the market saw some estimated one trillion by.
By 2027.
Speaker 2: sustaining a vigorous CAGR of 9.6%.
Sustaining a vigorous CAGR of nine 6%.
This exponential growth indicates a paradigm shift in China's health care market dynamics with the out of hospital sector poised to command almost half over the health care market share by <unk> 26.
Speaker 2: This contribution amounting to nearly 50% is set to become a cornerstone in shaping the overall healthcare landscape in China, reflecting a significant shift in consumer preferences and a healthcare delivery model.
Contribution amounting to nearly 50% is set to become a cornerstone in shaping the overall health care landscape in China, reflecting a significant shift in consumer preferences, and the health care delivery model.
However, in the third quarter of Teletubbies, right, maybe pharmaceutical industry and the Ottawa Hospital market.
Speaker 2: However, in the third quarter of 2023, the pharmaceutical industry in the out of hospital market face challenges.
Challenges.
Speaker 2: According to Stunnel Health, total sales revenue in the retail pharmacy market declined compared to Laxia. Primarily attributed to a decline in sales volume.
According to funnel health total sales revenue in the retail pharmacy market declined compared to last year, primarily attributed to a decline in sales volume.
Speaker 2: First of all, in the third quarter, there was more competition among retail pharmacies as they expanded due to relaxed spacing restrictions, which led to a drop in the number of orders per store.
Our festival in the third quarter, there was more competition among retail pharmacies as they expanded due to relax the spacing restrictions, which led to a drop in the number of orders per store.
Second and more importantly.
Speaker 2: that can and, more importantly, the gradual resolution of existing inventory issues for full categories of pharmaceuticals nominating fever-reducing cough suppressing and T-Varro and antibiotics medications has a lead up to slow inventory digestion.
Be glad to resolution of existing inventory issues for full category pharmaceuticals normally CEVA, reducing.
<unk> suppression.
Empty bottle and antibiotics medications hasn't let up slow inventory digestion.
Speaker 2: These inventory challenges had built up over time, especially due to the backdrop of the pandemic at the end of the previous year, that led to constant credit consumer buying behavior in late 2022.
Luke inventory challenges had been top overtime, especially due to the backdrop of the.
Pandemics and the end of the previous year that led to.
Hudson credit consumer buying behavior in late 'twenty two.
Speaker 2: Additionally, the impact of external factors such as global supply chain disruptions and the Anti-Corruption Act continued to influence the pharmaceutical sector, underscoring the importance of agility and preparedness in the industry.
Additionally, the impact of external factors, such as global supply chain disruptions and anti corruption continue.
Continued inflows the pharmaceutical sector on the skull and the importance of agility in our preparedness in the industry.
Despite the challenges in the macro economy as well as retail pharmacy business. We have managed to deliver net revenue growth of nine 5% year over year, reaching $3 7 billion.
Speaker 2: Despite the challenges in the macro economy as well as retail, pharmaceutical business, we have managed to deliver net revenue growth of 9.5% the year-old year reaching 3.7 billion. This represents the 21st consecutive quarter of the year-old year progression for one-on-one since our NASDAQ IPO.
This represents the 21st consecutive quarter of year over year progression for one more month since our NASDAQ IPO.
Although segment profit faces a temporary challenge students of our concerted efforts to digest the inventory of anti Covid related medicines, resulting in a modest five six decrease compared to the same period last year.
Speaker 2: Our worst segment profit face the temporary challenge due to our concerted efforts to digest the inventory of NP COVID-related medicines resulting in a modest 5.6-depress In this round, some patients shouldn't be afraid to hear their comments as well.
Speaker 2: However, our continued efforts to enhance operational efficiency have yielded promising results. As evidenced by the reduction in total operating expenses, added percentage of net revenues to 7.4% this quarter, compared to 8.4% in the same quota of the previous year.
However, our continued efforts to enhance operational efficiency have yielded promising results.
As evidenced by the reduction in total operating expenses as a percentage of net revenues to seven 4% this quarter compared to eight 4% in the same quarter of the previous year.
Speaker 2: More specifically, as one-on-one's business continues to expand and our technological capabilities that man our operational efficiency remains on a positive trajectory. Notably, as revenue has had reason, we have achieved a reduction in the proportion of sales and a marketing expenses, which now account for 2.6% of this quota, compared to 3.2% in the corresponding quota of the previous year.
More specifically as one of my lines business continues to expand.
Our technological capability to step at.
All operational efficiency remains on a positive trajectory, notably as revenues have reason, we'll have achieved a reduction in the proportion of sales and marketing expenses, which now account for two 6% this quarter compared.
Perhaps a three 2% in the corresponding quarter of the previous year.
So the mall.
Speaker 2: Furthermore, the general and administrative costs relative to net revenues have decreased to 1.3% this quarter, down from 1.4% during the same period last year.
General and administrative costs relative to net revenues have decreased to one 3% this quarter down from one 4% during the same period last year.
Speaker 2: Additionally, our technology-related expenses have decreased to 0.7% this quarter, down from 0.9% in the same period last year.
Additionally, our technology related expenses have decreased to 0.7% this quarter down from 0.9% in the same period last year.
Meanwhile, through optimization, all fulfillment costs were reduced from 3% to two 8% relative to net revenues as well.
This positive trend reflects our commitment to prudent financial management.
That's a solid foundation for future growth.
As a result, it's important to note that all operational loss as a percentage of net revenues improved two 2% compared to two 4% in the corresponding quarter of the pie yeah.
non-GAAP.
Operational loss remains stable at one 5% of net revenues consistent with the performance in the third quarter of the previous year on the scoring all commitment.
Efficient management, and our ability to maintain healthy operational margins.
Please allow me in a moment a moment on the skull the progress we've achieved and on operations during this third quarter.
This period has been characterized by our continued focus on advancing with Digitization and improving our management processes laying the groundwork for even more substantial returns on these strategic investments.
Times ahead.
Yeah.
As you May know the previous pharmaceutical industry was plagued by a complex and come up with a multi layered structure.
With inefficiencies and numerous drawbacks.
However in this era.
Jason.
Our innovative approach is ushering in a transformative change.
We're all cutting edge data direct linkage and the digital empowerment initiatives pharmaceutical companies pharmacies and consumers alike are reaping significant benefits, such as better pricing and better operational efficiencies and better visibility and a mutual understanding.
This paradigm shift has brought about the much needed a D intermediation with the industrial supply chain.
Streamlining processes and eliminating unnecessary intermediaries.
Furthermore, on transaction automation has revolutionized the way business is conducted.
[laughter] efficiency, reducing errors.
Intelligent service driven by data driven insights and artificial intelligence is empowering stakeholders with personalized and efficient solutions.
The fundamental driver of our business growth lies in the establishment of a positive feedback loop that seamlessly integrates technology Tor supply chain demand and operations.
Our success is rooted in the ability to harness the power of technology to enhance our demand services, ensuring that we can efficiently meet customer needs and preferences.
Simultaneously, we leverage technology to optimize our supply services, ensuring a timely and cost effective delivery of goods and services.
The synergy between these aspects of our business is further amplified by technology, driven operational upgrades, enabling us to operate with precision and agility.
That's in our pursuit of operational excellence.
Have harnessed the power of technology to elevate our end to end supply chain Digitization efforts.
As alternative species in quality and operational efficiency.
For a full digital management system, we've achieved comprehensive real time data management.
During the 24 hour access to critical insights.
Our multis section and a multi angle automatic analysis of business information further empowers us to make data driven decisions swiftly.
Our P I S, which is the intelligent pricing system.
These big data models for automatic price adjustments streamlining processes and improving accuracy.
Additionally, our smart supply chain feature.
Features innovations like stopped relocations systems, intelligent punches and inquiries and the logistics truck optimization collectively transforming our supply chain operations.
Efficiency gains across the board.
Second our commitment to technological innovation has.
Given rise to a comprehensive platform that.
Subs as a game changer in the realm of category and the processing of management.
Australia closer collaboration between pharmaceutical companies on the retailers.
With English cutting edge ecosystem, all pharmaceutical enterprise services introduced a transformative approach to data analysis.
Our telescope product allows for the precise visualization.
Distribution stature says across a network of OLED 20000 endpoint nationwide.
Alphas inside full market penetration analytics spanning 30 fault provinces and the 600 plus cities, while also providing a clear year long overview of sales data trends.
Complementing our.
Our J B P merchant services are a testament to the operational efficiency.
The transaction processes.
Significantly reducing stopped to shelf times from hours to me in minutes and streamlining replenishment athletes in the same kind of in the same fashion.
In addition, all M P. Much in services empower retailers with invaluable tools for success.
Sales of visualization is made accessible to legends.
Inquiries data thousands of times stealing my mobile terminals, enabling them to make data driven decisions efficiently.
In essence, the comprehensive platform redefines, how pharmaceutical companies and the retailers to interact and operate offering a dynamic and technology driven solution.
So, it's essentially efficiency and transparency throughout the supply chain.
But our strategic integration of technology and demand analysis places a strong emphasis on a significant upgrade of the main Bali.
Through intelligence demand analysis.
Amplified by the dynamic Borgwarner catalog, we continuously update our understanding of customer demand by leveraging both company and industry data.
It greatly greatly.
Greatly enhances our assortment decisions, giving power to top thematic foods and tailoring offerings regionally to meet the unique demands.
Furthermore, our smart sales initiative powered by the Eagle eye tool.
As customer engagement and transformed marketing methods for increased efficiency.
In parallel, we empower and optimize pharmacy operations by analyzing customer segments, providing probably the main service guidance for B to B to C success.
Can maintain ace saltwater system.
Offering cloud prescription services deploying the pharmacy operation analysis Board and the language in the pharmacy CRM among other innovations.
This holistic approach not only I can define pharmacy needs with precision, but also equips pharmacy operations with the tools needed to thrive in a dynamic market landscape.
Through our unwavering commitment to innovation and the successful implementation of the aforementioned initiatives.
We would have done it widespread recognition cooperation opportunities and received prestigious awards from industry authorities and organizations.
To name a few.
The strategic partnership formed between Tencent and US in June has set the stage for robust collaboration aimed at enhancing accessibility of online and pharmaceutical services.
As a result of this collaboration suite and they work and infrastructure work was carried out during the third quarter laying a solid foundation for a more streamlined and efficient operation.
This is a strategic cooperation agreement sealed with Tencent health span areas, such as pharmacy digital services pharmaceutical digital marketing and online medical intelligence services with the overarching objective of establishing a pharmaceutical plus internet digital upgrade.
Industry paradigm.
Leveraging tencent its technological prowess in cloud computing big data artificial intelligence and its extensive reach in the consumer Internet sector. This partnership is interim instrumental in bolstering my mom was digital infrastructure.
Smart pharmacy retail capabilities.
We anticipate that as we enter the fourth quarter tangible outcomes from this partnership including improved pharmaceutical sales efficiency and a substantial support for pharmaceutical companies in their digital transformation journey.
This strategic move represents a pivotal step forward full blown my mind Digitization strategy on the scoring our unwavering commitment to innovation and growth.
Meanwhile, on August 8th Administrated Commerce of China announced on its official website. The list of ecommerce demonstration enterprises, among which my mom and my Inc. Was included as fine a total of 132 enterprises nationwide was selected.
Only 13 enterprises from Shanghai, including one woman, Inc, well honored with this recognition.
On August 11th well ordered.
Honored to have all case on leveraging Digitization for pharmaceutical food channel commercialization selected for their country twenty-three supply chain management services on the manufacturing integration category within the false China industrial product online trading festival.
Well my mother has payload.
Digital solutions for food channel pharmaceutical commercialization for our pharmaceutical firms.
Through services like warehousing marketing distribution after sale support and patient management, we have enhanced the marketing accessibility of high quality medicine products benefiting a broader patient base.
Apparently we can.
Continued upgrade our own digital capabilities, improving efficiency and service levels, while breaking down inflammation barriers across the pharmaceutical supply chain.
The Huntington the Polish Digitization will empower stakeholders throughout the pharmaceutical ecosystem driving industry optimization.
And the creation of greater societal value.
Also in August one of my one was recognized as one of the top 10 pharmaceutical retail e-commerce platforms and plenty plenty three received the prestigious C. P E O Gold Award.
16th China pharmaceutical ecology conference.
Over the years of dedicated work in the pharmaceutical and medical sectors has transformed us from a traditional e-commerce platform into a digital health Cat integrated service platform.
We'll have similar to the integrated online and offline services to create an ecosystem connecting hospitals pharmaceutical companies pharmacies patients stopped as a mall offering end to end services.
Covering medicine, plus health care payments with I'll call technological capabilities industry, leading integrated online and offline intelligent supply chain platforms and a multichannel digital systems, we will empower stakeholders throughout the healthcare industry.
Great new value.
Patients with more convenient and a high quality health care products and services and are continuously hence efficiency through supply chain optimization.
<unk> team to digital transformation and upgrading of the health care and pharmaceutical industry.
In September.
Oh, one moment technology team achieved a significant milestone by securing three patents.
Highlighting our commitment to innovation in the health care sector.
The first patent pertains to a cutting edge.
Victims system full pharmacy operations.
This innovative system Leverages advanced data analytics and machine learning techniques to forecast the various aspects of pharmacy management, including inventory optimization patient demand trends and the resource allocation.
By harnessing the power of predictive analytics, we aim to enhance the efficiency and the responsiveness of our pharmacy operations.
Following that patients receive the medications when they need them.
The second patent is related to a system for estimating the advantages of specific pharmaceutical products. This system employees.
Sophisticated algorithms to analyze a range of factors such as clinical efficacy.
Cost effectiveness and a patient outcomes to determine the superior attributes of certain medications.
Accurately identifying high value pharmaceuticals will come back to a guide both health care professionals and patients toward making informed decisions regarding treatment options.
I'll first patents it depends to a low code platform development method and system.
In the context of pharmaceutical distribution and the retail business.
Technology kind of sick significantly simplified allocation development processes, leading to improved operational efficiency and adaptability.
Allows for the rapid creation of customized applications tailored to specific needs.
Enhancing the various aspects of the pharmaceutical supply chain, including inventory management order processing and customer engagement.
It's innovation holds great promise it.
For optimizing pharmaceutical distribution, and our retail operations, making them more agile and responsive to market dynamics and the regulatory changes.
These patents on the skull, our continuous efforts to drive innovation in the health care industry.
Not only a testament to our commitment to delivering services to patients and our health care providers, but also highlights our dedication to staying at the forefront of technological advancements in the field.
These systems will play a pivotal role in improving the overall health care experience for individuals and it contributes to the broader transformation of the health care landscape.
In October.
Without profound understanding of Digitization and the Internet health care sector.
Although honored to receive the 'twenty to 'twenty three China Digital breakthrough practice award from the China Management model 50, plus for them.
This prestigious award recognizes our owners all outstanding achievements in corporate digital transformation.
The selection criteria prioritize lump sum value stakeholder interests and continuous innovation across all business operations internal management and collaborative efforts alone the industrial value chain.
Through digital capabilities will have ensured nationwide access to essential medicines empowered patients with knowledge about innovative drugs reduce the medication costs improved cost effectiveness for patients and a continued so addressing health care accessibility and affordability.
Two challenges.
To sum up for Q3 would have remained steadfast in our commitment to the core principles of value creation customer centricity and the strengthening of our supply relations across the organization.
Building on the success of our recent.
It's established Inhouse Advisory Department from the previous quarter, we're pleased to report even more significant strides in this quarter.
Dedicated team has continued to drive strategic advancements across the various sectors with a deep focus on customer needs analysis.
Through the through their assets, we have fine tuned our product portfolio to align even more precisely with market trends and preferences.
By diligently monitoring P bombing market dynamics and leveraging real time.
Customer feedback, we'll have successfully recalibrated, our pricing strategies Motorola the departments contributions extend to refining internal resource allocation streamlining procedural workflows.
Hence our overall operational efficiency.
As a result of these control efforts.
Delighted to announce that this quarter, we'll have consistently met and ultimate exceeded customer expectations.
Women to sustainable pricing models, Adam intend at that resource management across the organization.
Now, let me spend a moment to talk about all future growth initiatives.
One.
Gross GBP business sentiment to significantly significantly increased selection and enhance customer experience.
Next quarter, we will continue to allocate resources to strengthen our <unk> business, which is the consignment model.
That's a cornerstone of the operational excellence center efficiency.
Through this approach, we aim to rapidly incentivize and increasing number of vendors to place their products within all of our houses, resulting in a seamless alignment with customer demands.
The GBP model enables us to take full control of a logistics offering a superior customer experience compared to the N P model.
We understand that precision is paramount.
We will leverage market data and analytics to guide and to refine our strategies continue Wally.
Moreover, our commitment extends.
Building, a mutually beneficial ecosystem.
Fostering strong partnerships with both upstream and.
And downstream pharmacies.
This collaborative approach will not only enhance our competitiveness, but also contribute to the overall growth and success of all stakeholders within our supply chain network.
You too.
Deepen the strategic relations with upstream pharmaceutical customers.
We will keep a strategically allocating part first party resources to sharpen our focus on critical areas that warrant dedicated attentions.
As direct source from pharmaceutical companies and the sourcing of high margin products.
By doing so we aim to optimize our efforts on our resources in these key domains, ensuring that we can efficiently meet the specific demands of our customers and strengthen our partnerships with pharmaceutical manufacturers.
Laura I'll croak.
Human tasks.
This is strategic approach allows us to further enhance the quality and variety of our offerings, while maintaining a keen eye on cost effectiveness and our profitability.
The mall this collaborative effort among all first party resources J B P and marketplace segments will complement each other as to logistically.
Creating a comprehensive and a well rounded approach to serve our customers effectively and efficiently.
Great.
Through the customer experience upgrades.
We are committed to leveraging AI driven platform models to deliver better outcomes for our customers and drive business growth for all stakeholders.
Through the implementation of advanced algorithms all AI system is designed to identify the best bobbins for customers and trying to save money, while enjoying a wide array of choices.
Simultaneously. This technology has 13 self learning capabilities I don't know, we will continuously improve our crude for customers. This approach fosters a balanced ecosystem, where our customers benefit from cost savings windows gain increased visibility on our business opportunities.
And the overall demand off of food with the best supply.
By embracing AI driven solutions, we're taking significant strides to bolt reshaping the supply and demand that each and for our industry.
Paul.
Employing AI tools for pricing.
We are embracing AI as a pivotal tool to shape, our pricing strategies for both first party business and I'll, let J B P. M P partners to navigate all marketplaces effectively.
With the aid of AI algorithms, we can make they've been driven decisions that ensure competitive pricing for our products and services.
This technology allows us to fine tune our procurement processes.
Did you find the most cost effective sources and channels.
Additionally, our AI driven approach extends its benefit to our partners assisting them in understanding kind of capitalizing on the dynamic traffic within our ecosystem, while making informed pricing choices.
The harnessing the power of AI, where not only enhancing our own operations, but also equipping all partners with the tools they need to thrive in our marketplace.
Five.
We link this commitment to enhancing operational efficiency.
We're dedicated to achieving operational excellence through our strategic blend of technology integration and a workforce optimization.
Our ongoing dialogues with external vendors, particularly in logistics aim to secure favorable times that streamline our supply chain and reduce overhead costs.
Additionally, we prioritize.
The refinement of management skills and decision, making capabilities recognizing their direct impact on operational palace.
By meticulously addressing these areas, we are positioned to significantly reduce operational costs opening on the path to sustained growth and prosperity.
Six.
Organizational optimization to drive better business results.
We're embarking on a comprehensive organized organizational upgrades. So that's we're aligning ourselves with the evolving business landscape and the new challenges it presents.
As part of this initiative with strategically restructuring all team to ensure there at all and are responsive to market dynamics.
This restructuring will evolve.
We will involve optimizing our staff distribution, leveraging the talent and the right Roes and fostering a culture of innovation and adaptability.
By embracing this challenge with these changes we aim to create a more nimble and efficient organization that is well equipped to tackle the challenges of the future, while delivering exceptional value to our customers and partners.
Seven pledging to digital transformation.
All unwavering commitment to digital transformation is poised to EU substantial dividends, particularly in the upcoming Q4.
Through the seamless integration of digital solutions, we're refining all methodologies and enhancing operational efficiency setting the stage for groundbreaking initiatives.
Although in our cooperation with Tencent is expected to bear fruits.
Moving toward digital Palace. Furthermore, we anticipate obtaining another patents in Q4 further strengthening our position as a major all in a competitive entity.
Is it right into defined I'll focus on digital strategies.
Foster a culture of continuous.
Sure.
We are well positioned for sustained growth in the rapidly evolving health care landscape.
In closing despite the hunters and tribes.
In my mind remains steadfast in its commitment to spear heading advancements in the health care sector.
We're continuing to champion transformative transformative initiatives and uphold a commitment to excellence and service delivery within the dynamic landscape, allowing industry.
We extend our sincere gratitude to all the investors will have steadfastly supported us throughout our journey.
I will now pass the call to Mr. Luke Chen.
We provide a comprehensive overview.
All of our financial results. Thank you.
Yeah.
Thank you Julie and good morning or evening everyone.
Moving to the financials.
My prepared remarks, we're focused on a few key business MSR mutual highlights.
You can refer to the details of the third quarter contemplating Sweden Johnson from Slide 22 to 25 in section two of our presentation.
Again, all comparisons are year over year, and all numbers are in RMB unless otherwise stated.
Despite the challenges in the macro economy as far as the retail pharmacy business.
Total net revenues for the quarter grew nine 5% to $3 7 billion.
Which was mainly attributed to our <unk> segment gross revenue rose at 10, 1%.
As we made efforts to digest, the inventory or corporate relate to Madison's Cross segment profit for the quarter decreased five 6% at 296 million Cross segment margin was down from 6% to five 2% for the quarter.
We have been consistently improving our operating efficiency.
And have gained positive results.
Our total operating expenses for the quarter decreased four 1% to 271 billion.
As a percentage of net revenue total operating expenses this quarter was down to seven 4%.
Eight 4%.
Fulfillment expenses as a percentage of net revenue for the quarter were down to two 8% from 3% 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 2% in the same quarter of last year.
General and administrative expenses as a percentage of net revenues accounted for one 3% down from one 4% in the same quarter of last year.
Technology expenses accounted for <unk>, 7% of net revenue down from nine 0.9% in the same quarter of last year.
As a result.
non-GAAP loss from operations was 54 million compared to $48 7 million in the same quarter of last year.
As a percentage of net revenues and then get loss from operations accounted for one 5% in the quarter, which was same as last year.
GAAP net loss attributable to ordinary shareholders was $66 9 million compared to six point.
<unk> 9 million in the same quarter of last year.
As a percentage of that revenue non-GAAP net loss attributable to ordinary shareholders decreased to one 8% in this quarter from one 9% in the same quarter of last year.
Please refer to slide 26 to 30 of the appendix section for select your financial statements.
And a quick note on our cash position.
September 32023, we had cash and cash equivalents restricted cash and short term investments of $876 6 million.
At the date of this earnings release, we have the total outstanding amount of $1 1 billion, which has been included in the balance of redeemable noncontrolling interests and accrued expenses and other current liabilities.
To a group of investors of one pharmacy technology.
Pursuant to that equity investment made in 2020 as previous disclosed.
As of the data is earning release, we have received the redemption request from certain all such investors for total redemption amount of RMB <unk> 2 billion in accordance with the terms of their initial investment in wound pharmacy technology.
We are currently in the process of negotiating with these investors and other relevant stakeholders regarding the repayment and all restructuring up such redemption obligations.
This concludes our prepared remarks thank.
Thank you.
Operator, we are now ready to begin the Q&A session.
Yeah.
Thank you.
Wanted to ask a question.
Today's press Star 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 were on a speaker phone please pick up the handset to ask your question.
Again Thats star one.
At this time, we are apart from entirely to assemble our roster.
The first question today comes from she paying thing, let's see I D. C. Please go ahead.
Hi, Thank you for taking my questions and congratulations on the company's progress.
I have two questions actually.
My first question is about Mentos and Sweden. Okay is the operating expense ratio of one one has been crazy. So what is the main reason behind this trained and will that continue to decrease in the future.
And my second question is about the business and just as you mentioned before.
Could you please discuss a little bit more about the progress has been made redfin Tonight in the company's investment in technology and that's my question.
Yeah.
Okay Super. Thank you think of a question I will take your first one regarding the operating expenses.
And in the previous year, we have to continuously putting all the effort to have our operating operational efficiency and as we just announced the overall grading prices has been reduced to seven 4% this quarter.
Compared to a eight 4% Q3 last year.
So within the key a key component of the operating expenses.
The sales and marketing.
<unk> reduced to two 6%.
This quarter compared to Street Party took a stand up last Q3.
And our G&A has decreased to.
One street, the third prong at one 4%.
Technology related expenses.
Decreased two 7%.
Down from and give our ninth last Q3.
Furthermore, our fulfillment cost per lead deals from.
350%, who are two 8%.
So you can see.
Yeah.
Mr. Houghton elements of operating efficiency and reduction of our costs occur all functions across our organization.
And we believe with the with the increase of our sales volume.
And also maybe presentation of a new AI technology in our daily operations.
We will continue to see a reduction are all areas.
Our operating.
Thank you.
Let me take the second question.
Okay.
A lot of technology investment, Okay, I would say that our our technology our investment in technology has achieved a remarkable progress lately EMEA demonstrated they threw a few data points.
Is that a company has to be awarded the 13th China Diesel Management Excellence Award.
The second is that our our company has been honored with a title of the best data innovation benchmark case, the second China data elements annual worse.
We were awarded the specifically in the field of medical industry Master data applications.
Our opinion.
As mentioned that AR will have recently acquired three new patents.
And we also have made progress in AI applications. For example, 80% felt both internal and external customer service inquiries are handled by AI algorithms.
They are powered by internal moms space.
And by your foundation for open platform in.
Enabling efficient on TVT based Iot customer support services.
I hope this answers the question about technology investment.
That's very clear and helpful and thanks for sharing and congratulations again on the company's progress. Thank you.
The next question comes from Kevin Tom and individual Investor. Please go ahead.
Good evening. Thank you for the Shanghai. My question is how does the company maintained a 20.
Active quarter of E Y O y growth fixed NASDAQ IPO and we'll get growth continues especially.
That's the level achieved in the last quarter of the previous year. Thank you.
Yeah.
Thank you Kevin.
Let me think I think.
There are a few.
Things would be right to achieved consecutive quarters of year over year growth.
Festival, the culture of the company is always focusing on customer experience.
Our decision making.
As always centered around customer experience some of the projects when they assess.
We need to figure out what kind of.
Improvement that's going on.
Brain to customer experience.
And secondly, what have always.
I had a strategy to festival.
In infrastructure and secondly.
Dividends will scale with.
With the infrastructure and scale, we'll be able to achieve a.
Profitability.
And obviously, that's a yielding results.
Uh huh.
Sure.
The other contributing factor to the.
Continuous growth is really our technology.
As I mentioned, we were awarded.
Another three patents last quarter.
That says a lot about our continuous focus and I remind you when we are such a P O.
Back in 2018.
Back then our revenue was less than 1 billion. It was 900 million something.
Of course at all this year or last year, we achieved 13 5 billion this year.
We anticipate.
In the neighborhood of 15 billion. So we have absolutely come.
Come a long way.
We look forward to a.
We are reporting a even better results in future quarters. Thank.
Thank you Kevin.
Thank you and congrats again.
Yeah.
The next question comes from Tom Curran with cornerstone investments. Please go ahead.
Yeah.
I mean this is Paul congratulations for your last quarter's performance I have two questions.
First there's often suffer with adjusting and mobilizing the best local then Gucci in the market how will want one thing and I'll be going to market environments, not just both promising and the long term, but increasingly competitive specifically was jumping modules will the company take to enhance the breadth and depth of coloration with upstream and downstream customers.
And my second question is what are the key drivers behind the decrease in core segment profits this quarter in the heartland warm or was it just these issues. Thank you.
Yeah.
Yeah, Tom I think as.
As you mentioned Oh, there's a huge backlog.
Across the whole industry because of the Covid related.
A medicine and you.
You know the whole industry suffered in the second quarter in the third quarter.
We're very pleased to report.
We have normalized our inventory.
And obviously moving forward you mentioned about competition all view has always been a.
Whether you like it or not.
Competition will always be there so we're not as well embraced it so.
They should take a very positive view competition should be good for us because that's going to force us to really focus on our customer experience focusing on the value creation.
You know as I mentioned in my script.
I think let me just highlight.
Highlights that in time we.
We will be really focusing on the expansion of Holly J P. P business and the first party business on the supply side.
This will mean that we're going to have a strategy of both a centralized approach and a decentralized approach so.
By way of being centralized that means we're going to have a dedicated teams focusing on the big pharmaceutical companies aware of the need to build really direct sourcing, where we really need to source high margin products and and also oh really securing supply.
Hi, I'm, a better pricing. So we have made tremendous progress over the years and we're going to continue to focus on that so this is the centralized approach. The other approach to complement block is the.
With decent realized that means we're going to really leverage the market forces.
Especially our J B P partners, you know those commercial vendors can place their inventory into our fulfillment centers and then we can deliver.
Our downstream pharmacy customers.
But having done a really are contributing to a really the selection experience for our customers downstream.
Bye.
<unk> doing first party centralized Ah, it's going to take a much longer time, and it's going to be very cost costly and by leveraging those vendors, it's going to be much faster and much more cost effective.
And we're gonna have a five by the selection for our downstream customers to choose from.
So we're gonna have a separate teams focusing on those different business metrics and we believe that by focusing on both the centralized and decentralized approaches its gonna bring really great benefits will have already said that.
And Ah you know Q3, we had a the backlog cleared.
You know, we feel pretty light and I really look forward to reporting our Q4 results to our investors, including you and Tom Thank you.
Yeah, Colin regarding your second question.
On the.
Gross profit.
Yeah the.
These are the retail pharmacy.
Ah the past Q3 decline that can play in higher China.
So the very part of the reason is.
It's just to mention the existing inventory issue.
Which was sold during the Covid.
Covid restriction.
That's the goal.
For example, a lot of family, including myself, you'll have a quiet time.
For example, like our ibuprofen and some Chinese that's unlike a little watch liberating spectrum at home.
And which are going to be fired.
And this isn't meant to easily across the countries or which leads to a decline there.
Hi, Oh honestly, a retail market.
But despite despite all these challenges we have managed to deliver at that plus.
5% year over year revenue growth.
The use of our growth second coffee actually a temporary challenge.
And regarding the inventory, which we have managed to.
Ralph.
The anti Covid related medicine. So it's a temporary program we have already resolved the inventory issue so going forward and we will go back to our.
<unk> was a much more healthy business.
And the first to reduce our procurement costs and throughout Iraq Saul.
Good thing from both the top pharmaceutical companies.
And also second secondary to optimize our product assortment and structure.
So cool cool.
You guys all are stress or our digital technology, and who promote with our digital platform as well as our thoughts, but it is tool or Australian dollars being customers all at our strategy.
Not a logical healthy.
Is it Oh.
If we are going to see.
A pet her lodging performance moving forward.
Thank you.
Thank you. Thank you.
Yeah.
The next question comes from Jay debut with ARPA growth capital. Please go ahead.
Hi, everyone. This is gino with them.
So congratulations on that success last quarter.
My following question well revolve around the company's future off Nook.
But they talk about the company's thoughts and lay out in the field of artificial intelligence.
And second what will be the company's operational forecast going for one thank you.
Thank you.
Let me see if I can address your question around artificial intelligence.
Thank God I in my script and also stopped to you just mentioned there are a few things worth doing right. So first of all in terms of the customer services, we are adopting a lot of those.
Elements, and we're making a good progress in that in that space.
Secondly, you know when it comes to pricing.
We'll have the intelligent classroom system and AI plays a huge role.
But I want to talk about a.
A very bold approach and we'll have a tunnel project that is underway.
We already having very encouraging results.
No.
As you can tell since the launch of the two P. P.
AI has swept the hole.
Industry and a.
A lot of there are more than 200 launch language models, that's being built in China.
We don't believe that building a large launch language model will fit into our business.
What we do have is the.
12, 13 years accumulation of industry data.
So each day, we have over a million queries over a mean SQL queries on our platform.
We have our first party supply will have all of GBP supply, we have our marketplace supply and honestly for a single customer to really find the best deal.
Is a very challenging task.
Let alone are outside of our platform. They have to do this manually via phone call. So long.
So what we are trying to do is instead of building a large language model, we would like to be a transformer, maybe a mini firm summer it doesn't have to be a full fledged pencil them or we can leverage the established platforms technology to really bring the best deals are to our.
Let's say downstream customers when they have those.
Please.
And.
No.
It's not because we are so good at it just.
Because.
So happened now we have probably the.
A set of industry data.
You know it would be foolish not to really utilizing all of that to bring great results to our customers. So the.
Significance of this project.
And the implication is not only really focused on building a better demand and a supply ecosystem.
And now.
We can be centered around that.
We are really I.
Is the future.
Let's say, we'll have a traditional business we called out.
Let's say the traditional commerce abandoned.
He moved on to e-commerce, but fundamentally that is still on the e-commerce and I accept that.
Your brain most products onto the virtual shelf.
But it's still a one way passive kind of commerce. The transaction is basically a one way traffic. There's nothing much you can do apart from.
They're getting their prices.
With AI capabilities, especially <unk> and our generative.
We can actually have interacted dialogues with the customers.
And especially you know when you have promotions, especially after you accumulated so much states about a particular customer you know they are assortment, you'll know the deficiencies, let's say in their assortment.
So the seasonal changes.
What kind of products they need to.
Let's say they would have inventory to.
Customers demands and so long so when winter comes you know now.
Cough and.
I'll catch on cold and.
Influenza would be critical for pharmacies.
By proactively approaching customers a week.
The precise information, we can bring tremendous value.
It's going to be interactive.
We can absolutely transform the traditional commerce business to a let's say you know.
From E Commerce, probably you know I'm just trying to name it to find the right one to AI commerce.
Which is.
Used to be a one way.
Non interactive to a two way.
Interactive commerce and.
No I'd say, it's still very early stage.
We cannot claim any really results.
We're extremely excited in this area and we will continue to explore and hopefully I can update you in the near future of the.
Progress will make so southern hobby would you talk about the second question.
Data and there's I think the second question already operational focus.
And actually Oh focus has actually remain unchanged.
Two key message why do you calculate era's second our operational efficiency.
So Ali correctly you're inside.
And our first of all we all sort of in house our program for <unk>.
Yeah.
He also mentioned.
Twitter, who continuously update our stock level database.
Uh huh.
No.
And also giving direction for our supply organization.
Oh, it was real time customer demand.
And Oh, it's a secondary we are setting up an omnichannel supply.
For post election by our GBP marketplace, and ortho and platform management.
And certainly on the customer base.
We love you were allowed to newer technology.
AI.
And for example, like Oh, my supply chain system that makes it a much better and delivery services to our orders to our customers.
The only operationally efficient part.
First of all.
We will continue to promote our J T J D P model.
Our hope will ultimately be the 10th.
Action process.
So to do that to reduce our.
Partly inventory cycle.
And the secondary to better manage our marketplace model.
Paul.
Yeah.
Which consist of several thousands of vendors better serve our customers.
And normally we are launching the new so called version of our by competitors.
At least you also.
How about cool.
Manage our pri.
Real time and much more effectively.
And I think Oh.
Question data.
Thank you.
Okay, all right that's fair.
In fact, it's quite clear and helpful. Thank you.
Okay.
The next question comes from Kathie Lee with FBR capital. Please go ahead.
[laughter].
Okay. Congratulations on the golf and I have two more questions first what are the expected outcomes of the J P. T business expansion and how real is enhance customer experience and operational efficiency.
And regarding to the supply chain management, what actions have been taken to improve its operational efficiency and what the results are expected from this improvement.
Yeah.
Thank you for the question Kathy.
First of all we know that the GBP bids model requires very tight relationship between us.
Our JBC partners.
And then your Leverages the strengths of both.
So with such a strong pie, we're enjoying much faster selection expansion or Fuller service coverage.
You stuck to your use of our smart supply can unless stock shortage. So all these were definitely do you how does how customer experience. In addition, with the you know the same selection. So let me ask you you will be offered by multiple TV partners. So it was a little competition price would be better for our customers.
Regarding operational efficiency.
It improved by.
Two fundamental things why is that well offer.
If I can if I gave it systems two hours of your partners. They have complete visibility transparency of our supply chain second we have been continuously improve our forecasting systems inventory management systems and the P. I S price intelligent systems, Oh Geez, we're here.
The system function that functionality with our partners.
So regarding the supply chain management improvement.
Let me just use a few examples okay.
In our warehousing.
Well you started a go ponder project these projects strengthen our supplier partnerships.
For faster and more reliable inbound deliveries it reached more than 50% reduction in inbound exception rates.
Our wells have a warehouse capacity expansion.
So make more effective use of our existing capacity. So we'll have much better layouts and the improved processes. So we improve our warehouse capacity by six 6%.
<unk> nearly doubled our F Q storage. So about this also in turn reduced our rental cost.
I also have other projects for now.
A more efficient picking pak.
Packing, etc. Okay, Let me mention a couple on inbound logistics part.
So we integrate it.
More than plenty delivery providers.
More cost effective timely data right.
But she is.
Year to date more than 7 million cost reduction.
Degree also.
So we implemented a digital ordering.
Process on this system.
I have a more than 400 suppliers participating.
Increase increasing.
Increasing our procurement team efficiencies, so everyone kind of.
In our procurement team associated cut magazine.
Triple there.
Efficiency.
That means every person for magic three times more skus than before.
Also we have a inventory management system to porno upgrades.
Oh improved our inventory monstering reduce.
Perfect all the stock rate and right now our stock rate dropped to two 6% you know are used to be five or 6%. Okay. Let me just mention that this view are examples.
Kathy.
Yeah.
Thank you for your answer and again congratulations.
The next question comes from Ethan Lam with Iron Harbor Catherine. Please go ahead.
Hello first of all congratulations for your company gross and I have a few questions today on it.
First question is lets companies class voice, only and pulled back from the future.
Oh, yes, alright.
I will take this question and then a couple of the OEM or quite private label registering more than one and we have one.
One dollar for all the trends all customers are winding down or we all are right.
Our loyal core for our individual store customers and also lithia for dietary supplements.
And by Q3 this year, we already launched our country other 43.
But anyway, hey use.
And of course, they are much more skus already ruled on pipeline.
Most of these products have been well accepted by <unk>.
Our downstream pharmacy customer.
And as you May know, our private label products have been.
Very important and key larger revenue.
Revenue contributors are all those are tough.
K a K salt.
So but for our customer which are basically a small media sites.
By chance thoughts are.
Video customers individual calls.
They don't have the luxury of having basically.
Establish their own brand and our brand and our low end brand and a $1 run down or we all et cetera, because they're very attractive solutions for them to improve.
Improving our own module.
Yeah.
No question.
Yes. Thank you.
The next question is that I know as a company started PREPA to visa and seems last season, what is the current progress of the company's Turbotax Asia.
Yeah.
Yeah as you know the company.
Is undergoing the going private process.
To my knowledge the processes ongoing.
Special Committee consisting of independent directors.
Still evaluating the proposal from the buyers group.
And it's for sure they will make rather than to announce.
The FCC rules.
We will book, some pool business and better.
Better serve our customer.
Okay. Thank you and I have another question how is the cash flow situation in the third quarter for the company and what's the current cash position.
Yeah in terms of.
Our cash position.
As of September and we had a cash and cash equivalents restrict cash and short term investments amounted to RMB 876 7 billion.
So we are also very glad that that Oh.
Our operating cash flow and overall cash flow for the quarter.
Positive.
We have confidence that we will continue to operate with very high efficiency in that as well.
We've generated positive cash flow in the future quarters. Thank you.
That's great to hear a central point in history that takes all my questions.
There are no further questions at this time I'll now hand, the call back over to the company for closing remarks.
Well. Thank you all the investors. So this will conclude our call for Q3.
Thank you. Thank you.
In closing on behalf of the entire 111 management team, we'd like to thank you for your interest and participation in today's call.
If you require any further information or have any interest in visiting 111 in Shanghai, China and you got the company now.
Thank you for joining us on the call today. This concludes the call.
Yeah.
Okay.
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