Q3 2024 111 Inc Earnings Call
Hello, everyone and thank you for joining <unk> conference call today.
On the call today from the company I talk to them you co founder and executive Chairman, Mr. John Laing Lou.
Co founder Chairman and CEO, Mr. Luke Chen C. S. I of 111 made a subsidiary and Mr. Hobby Wang C III.
Speaker Change: As a reminder, today's conference call is being broadcast live via webcast. The company's earnings press release was distributed earlier today and together with the earnings presentation are available on the company's IR website.
Speaker Change: Before the conference Colgate started lever them, 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.
Speaker Change: Statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known and unknown risks uncertainties and other factors all of which can cause actual results to differ materially.
Speaker Change: For more information about these risks please refer to the company's filings with the S E C.
Speaker Change: 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.
Speaker Change: Please note that all numbers are in our M basis, and all comparisons refer to year over year comparisons unless otherwise stated.
Speaker Change: Please also refer to the earnings press release for detailed information of the comparative financial performance on a year over year basis.
Speaker Change: Okay.
Speaker Change: With that I will turn the call over to 111 C are Mr. John Laing Lu. Please go ahead.
Speaker Change: Good morning, and good evening everyone. Thank.
Speaker Change: Thank you for joining our call.
Speaker Change: Uh huh.
Speaker Change: The information that will be discussing is also available in the slides posted earlier today on the company's website.
Speaker Change: I encourage everyone to download the presentation as well as the earnings report.
Speaker Change: The relations website.
Speaker Change: Uh huh.
Speaker Change: One more one dot com does.
Speaker Change: Chinas challenging macroeconomic environment continues to have an impact on our entire industry.
Speaker Change: In both the upstream and downstream segments.
Speaker Change: While challenges that inevitable, we still achieved a stellar performance.
Speaker Change: Pending operational.
Speaker Change: For three consecutive quarters.
Speaker Change: This achievement is primarily driven by our ongoing enhancements and operational efficiencies, which have helped us navigate the unfavorable environment.
Speaker Change: In today's call I will provide.
Speaker Change: Over to you.
Speaker Change: Situations facing our industry as well as the long term outlook and the opportunities ahead.
Speaker Change: With all key financial highlights.
Speaker Change: I'll also discuss how we are leveraging new technologies to strengthen operations our supply side initiatives.
Speaker Change: Recent.
Speaker Change: Finally, I will outline our future growth strategy before handing over to our CFO, Mr. Luke Chen who will provide a detailed analysis of our financial performance.
Luke Chen: On the macroeconomic side.
Luke Chen: In light of weak consumer.
Luke Chen: Sales growth in the retail goods has slowed in China.
Luke Chen: Our industry is also experiencing closest household spending on health care.
Luke Chen: According to data from the National Bureau of Statistics per capita health care expenditures growth rates declined 11%.
Luke Chen: From a year earlier for the first nine months.
Luke Chen: Additionally, our downstream pharmacies are facing ongoing health care reforms, including adjustments to individual medical accounts and the gradual implementation of coordinated outpatient benefits alongside.
Luke Chen: The regulatory oversight.
While these reforms are designed to drive long term development of the industry the salt.
Luke Chen: It's challenging.
An aggressive expansion of pharmacy was skewed by optimism during the pandemic.
Luke Chen: While the total number of stores has increased.
Luke Chen: Market growth has not kept pace as evidenced by a two 2% decrease in China's retail pharmacy sales from the first nine months of plenty plenty full.
Speaker Change: According to Jim Collins IC.
Speaker Change: I see the data.
Speaker Change: This is Pete.
Speaker Change: Led to reduced post solid revenues and intensify the competition among pharmacies.
Speaker Change: Many large chain pharmacies are now grappling with significant declines in net profit, while independent pharmacies with their limited resources under even greater pressure.
Speaker Change: For instance, <unk>, Tom O Y X T cells reported in 94% year over year decline in Q3 net income attributable to ordinary shareholders, followed by a 68% decrease Tien.
Speaker Change: Tien Tsin downhole.
Speaker Change: J J, China, drugstore, 37% zinc or L. B X pharmacy chain.
Speaker Change: It's only 2%.
Speaker Change: Boston the pharmaceutical group.
Speaker Change: Against this backdrop it is more critical than ever for digital transformation in this industry, which presents a box.
Speaker Change: Ross.
Speaker Change: Pharmacists must navigate the subdued consumer sentiment.
Speaker Change: Our growth in household healthcare spending and the shift in patient behavior, while addressing cost pressures alongside operational efficiencies.
Speaker Change: Looking ahead, there needs to be more.
Speaker Change: In service delivery and a strategic adjustments so categories to sustained growth.
Speaker Change: Got it to a transforming market.
Speaker Change: But this digitization and AI applications, such as solutions for retail development.
Speaker Change: As a leader in this digital revolution.
Speaker Change: Are they implemented cutting edge digital technologies to enhance every aspect of our operations from sales and procurement.
Speaker Change: Two customer demand analysis inventory management, and a warehouse allocation and so on.
Speaker Change: We're committed to empowering our upstream and downstream partners without fully digitized operating system further reducing the ongoing cost and increasingly efficiency.
Speaker Change: In addition to the unstoppable trends of digital transformation, we remain optimistic about China's health care market in the long term.
Speaker Change: Please.
The deep International Anticorruption campaign in the health care sector.
Speaker Change: We will foster greater transparency and integrity and hospital procurement is expected to accelerate the shift of sales and prescriptions to retail pharmacies.
This will become a trillion RMB out of hospital pharmaceutical distribution market, which will amount for almost half of the entire distribution market within about three years.
Speaker Change: Our customer focus is on chain pharmacies, and I know without accident piece in the alcohol.
Speaker Change: So market, we are well positioned to capture the significant growth opportunities These shifts springs.
Speaker Change: By offering a comprehensive and cost efficient product range, coupled with an unwavering commitment to customer experience, we aim to increase market share in this sector.
Speaker Change: We had challenges and opportunities co exist.
Second we expect China's large aging population and the rise of the Soo Lee economy to drive significant demand for Heska consumption.
Speaker Change: Given the health care expenditure as a proportion of GDP in China is still lower that in.
Speaker Change: Developed countries the overall upward trend in the pharmaceutical and health care market remains strong in the long run.
Speaker Change: In Q3.
Our commitment to operational efficiency continues to drive significant results.
Speaker Change: <unk> profit from operations for the third consecutive quarter.
Speaker Change: Income from operations in Q3 was $2 4 million RMB compared to an operating loss of $80 4 million RMB in the same quarter last year.
Speaker Change: non-GAAP income from operations was $7 1 million RMB compared to a non-GAAP loss of 54 million RMB in Q3 of the prior yes.
Speaker Change: Yeah.
Speaker Change: This performance improvement underscore the effectiveness of our growth strategies and the resilience of our business model.
Speaker Change: With our systems.
Speaker Change: Positive changes across nearly all business segments.
Speaker Change: Total operating expenses in Q3 were five 8% of net revenues.
160 basis points decrease from the prior year.
Speaker Change: Fulfillment expenses remained steady at two 8% of net revenues.
Yes, yes.
Speaker Change: However, we successfully reduced the general and administrative expenses to 0.4% of net revenues from one 3% a year ago.
Speaker Change: Selling expenses decreased to two 1% of net revenues compared to two 6% in the prior year.
Speaker Change: Technology expenses was <unk>, 5% of net revenues down from zero, 7% a year earlier.
Speaker Change: Excluding share based compensation operating expenses as a percentage of net revenues dropped 100 basis points to five 7%.
Speaker Change: Additionally, we remained positive operating cash flow of 110 RMB for the.
Speaker Change: Third consecutive quarter.
Speaker Change: Our investment in infrastructure and optimal staffing allocation have proven to be effective in navigating the current economic challenges.
Speaker Change: <unk> robust performance.
Speaker Change: We have maintained our focus on areas that foster long term sustainable growth, ensuring that our digital capabilities remain at the forefront of industry standards.
Speaker Change: This quarter.
Speaker Change: Thanks to digital infrastructure consistently deliver exceptional value to our customers with further reductions in technology and staffing expenses.
Speaker Change: These operational.
Speaker Change: Efficiencies have not only allowed us to withstand a competitive market, but I have also supported our ability to adapt and thrive.
Speaker Change: Mist economic uncertainties as well as to prepare us for long term opportunities.
Okay.
Speaker Change: While our revenue remains comparatively smaller than some more established players will continue to boost operational efficiency metrics positioning us competitively.
Speaker Change: We recommend.
Speaker Change: I think the industry benchmark for efficiency with a clear goal of reducing operating cost, even further and improving profitability with more refined and the big operations.
Speaker Change: This steadfast commitment is a cornerstone of our strategy and represents a vital part of our unique competitive advantage.
Those are the savings from our ongoing efficiencies.
Speaker Change: Flexibility and strength, our tile business, while reinforcing our position as a leading health care E Commerce operator.
Speaker Change: They could be reinvested into strategic areas, such as technological innovation market expansion.
Speaker Change: Customer engagement when appropriate.
Technologically we continue to invest and system development models and algorithms and data applications.
Speaker Change: Our core competitiveness in Digitization.
Speaker Change: Consequently, we have made multiple advancements by applying digital technology.
Speaker Change: Technologies that are strategically positioned us for continued success.
Speaker Change: Without because high but they'd be platform and an inventory sharing with technology, we seamlessly integrate it.
Speaker Change: With upstream suppliers to form a unified comprehensive stock pool that has significantly bolstered stock volume and availability.
Speaker Change: These advancements has enriched the product selection of additional 23000, new skus.
The result, our supply capacity has been strengthened in Charlotte.
Speaker Change: To meet customer demand to more effectively and efficiently.
Speaker Change: We also utilize the supply chain optimization and smart pricing tools for the PCC online retail segment, so enriched product offerings.
Speaker Change: To market demands.
Speaker Change: This resulted in a 100% increase in product categories and <unk>.
Record high customer conversion rate of over 13%.
Speaker Change: This progress highlights the significant impact of a data driven decision, making and then a platform innovation.
Speaker Change: Within the challenging retail environment.
Speaker Change: Moreover.
Speaker Change: We made outstanding progress in applying AI driven solutions, particularly in the Chinese herbal medicine sector.
Speaker Change: Training and refining algorithms and models for specification of exploration.
Chris the recognition accuracy, along with AI model from 77% to an impressive 98.18% through multiple iterations.
Speaker Change: The accuracy rate of countries matching herbal medicine has similarly improved rising from 43% to 96%.
Speaker Change: Our competitive edge guests shop, food by optimizing inventory management and enhancing product offerings.
Speaker Change: I'll focus on continuous technological innovation is a strategically important as it supports our mission to build a resilient efficient and the cost of borrowing business for adapting to evolving industry needs.
Speaker Change: By integrating advanced digital technologies.
Speaker Change: Solutions, we are laying the groundwork for future growth.
Speaker Change: Ourselves better navigate future market challenges.
Speaker Change: That's built into our supply chain management.
Speaker Change: We're setting industry benchmark and supply chain excellence consistently innovating in procurement warehousing and order fulfillment so elevate efficiency.
Speaker Change: All expansion.
Speaker Change: That work is pivotal.
Providing streamlined logistics services.
Speaker Change: Yes, both internal and external operations at a lower cost.
Speaker Change: During Q3, these cross fulfillment center transfer tranches.
Speaker Change: Model enabled and extended proxy proprietary network that connects all five neighborhood.
Speaker Change: Across east Central South North and the South.
Speaker Change: Alphabet China.
Speaker Change: This development is setting the stage for a comprehensive national network enriched with first mile and last mile services to ensure a seamless and so and the supply chain control.
Speaker Change: I want to highlight that on the component pharmaceutical logistics network. We added eight new transportation routes in Q3, bringing the total to 28 on.
Speaker Change: The network also increased its external customer base by 12, reaching 16.7% rise from Q2.
This project achieved the cost savings of more than 5.3 RMB David.
Speaker Change: That's the component network scales and integrated last mile services will have witnessed a decrease in logistics and delivery expenses.
Speaker Change: When combined with optimized.
Speaker Change: Labor.
Speaker Change: That gives them at a warehousing. These efforts have driven an 8% year over year reduction in fulfillment costs to 277 million RMB in the first three quarters.
Speaker Change: Moreover to drive future growth and coordinate with our strategy for the nationwide.
Speaker Change: We also strengthened our supply chain infrastructure.
Speaker Change: We completed the Guangzhou fulfillment center relocation project in Q3, which is projected to yield monthly cost savings of 800000 RMB.
Speaker Change: We're also expanding our hospital synthesis nationwide.
Speaker Change: With four new facilities in Wuhan Guangzhou and.
Speaker Change: The Chicago.
Speaker Change: Amplifying our existing supply capabilities.
Speaker Change: These centers, notably cut delivery times for local customers by up to two days reinforcing our ability to cover all of us.
Cities within 24 hours at a nationwide within 72 hours.
Speaker Change: With each new center.
Speaker Change: Juice local fulfillment costs as much as 20% providing clear strategic advantages.
Speaker Change: The expansion is also a month.
Speaker Change: Upgrades in our product assortment with the Guangdong Center, adding 5000, new Skus.
Speaker Change: Now our network encompasses 15 fulfillment centers five.
Speaker Change: Centers Act as a central hub supporting deeper penetration into tier three to six days were over 60% of law pharmacy customers base.
Speaker Change: <unk>.
Speaker Change: So further enhance return service, we have adopted a collaborative approach for faster fulfillment center expansion.
Speaker Change: By transforming existing warehouses into full fledged fulfillment centers with hundreds.
Speaker Change: And Hughes allows people to digitize the systems and processes.
Speaker Change: Cop setup time by 70%.
Speaker Change: Our newly adopted franchise model, which provides 111 with a share of gross merchandise value presents a highly effective margin friendly solution for reaching remote regions.
Speaker Change: <unk> plans to expand its fulfillment centers footprint by adding at least five more centers over the next year.
Speaker Change: Furthermore.
Speaker Change: As we review this quarter's achievements I would like to highlight some significant owners that underscore our operational strength and a strong business inflows and the regional markets along with our continued technological advancements.
Speaker Change: In September our southwest operations Center, Chongqing <unk> pharmaceutical co Ltd was named among the top hundred subject to industry surprises in <unk> for the second consecutive year.
In October our Central China Operation Center, Hubei <unk> Pharmaceutical Co Ltd was included in the top 100 private enterprises in one list for the second consecutive year.
Speaker Change: In October our South China Operation Center, Guangdong <unk> pharmaceutical co Ltd owns it.
Place on the $20 on a full pop 100 private enterprises in Guangdong and it was also named among the top 50 profit service enterprises in Guangdong ought to be plentiful.
Speaker Change: We greatly appreciate legislation from local markets and the industry and I believe these acknowledgements will enhance our credibility as we continue to expand our footprint and are driving innovation in the health care E Commerce space.
Speaker Change: Last but not least I'd like to outline.
Speaker Change: As for revenue margin and profit levels.
Speaker Change: One by one all business approach emphasizes providing customers with the most comprehensive selection of pharmaceutical products at attractive prices for greater customer engagement.
Speaker Change: Through leveraging data.
Speaker Change: And our market research.
Can't efficiently refine our product portfolio to align with customer preferences, while maintaining competitive pricing by utilizing intelligent digital tools.
We're also committed to enhancing our cooperation with pharmaceutical companies.
By expanding these collaborations we aim to diversify our range of medicines on our digitally empowered platform increasing sales.
Speaker Change: Neutral growth, especially across lower tier cities.
Speaker Change: Our robust digital marketing network to go to this strategy, enabling pharmaceutical companies keurig and showcase their product offerings more effectively.
We will also utilize poverty multiple initiatives to raise brand awareness and expand previously underserved markets.
Speaker Change: Throughout platform pharmaceutical companies access to valuable insights strengthen their product selection and efficiently scale their operations.
Speaker Change: For us as we provide optimized product portfolio and to sell more products, we will see an improvement in our overall profitability.
Speaker Change: Mobile web.
We're prioritizing investments can solve JBT platform.
Speaker Change: This unique model has proven highly effective in engaging with new partners and offering a broader range of products showcasing its powerful value proposition.
Speaker Change: By refining the platforms are satisfied partner needs and extending its reach and we expect to cultivate a multi partner base and unlock expanded sales opportunities.
As we continue to enhance and scale of the platform. We believe this model will solidify our competitive position and evolved into a stronger growth and profitability.
Speaker Change: We remain focused on enhancing operational efficiency supported by ongoing investments in leading technologies that streamline the processes.
<unk> waste and boost productivity.
Speaker Change: Oh yeah.
Speaker Change: On a full scale digitization is critical to maintaining industry, leading efficiency, improving customer engagement and a false springs development of new products and services.
Speaker Change: These efforts are designed to reinforce our market leadership and our stimulated fresh both avenues.
Speaker Change: Digital transformation is pivotal to our future.
Speaker Change: The 100% about internal systems now digitized, we have enhanced the financial outcomes, while positioning ourselves as a transformative leader empowering the industry.
Our full spectrum technological ecosystem supports internal processes and extend its benefits to upstream and downstream customers offering them access to the state of the digital solutions and specialized expertise.
Speaker Change: Looking ahead, we will amplify our commitment to.
Speaker Change: By integrating emerging technologies into our operations to create more seamless more efficient customer experience.
Speaker Change: With that I'll hand, the call Mr. Luke Chen to walk through our financial results. Thank you.
Luke Chen: Thank you Jamie and good morning.
Speaker Change: Everyone.
Speaker Change: Moving to our financial performance.
Speaker Change: My prepared remarks, we're focused on a few key business and financial highlights.
Speaker Change: For details on our third quarter 2024 results. Please refer to slide 17 to 20 in section two of our presentation.
Speaker Change: All comparisons are year over year, and all numbers are in RMB unless otherwise stated.
Let's start with the third quarter results.
Speaker Change: Total net revenues were RMB.
Speaker Change: 6 billion.
Speaker Change: The remaining relatively flat compared to the same quarter of last year.
Speaker Change: Gross profit for the quarter grew 10, 5% to $210 6 million.
Speaker Change: Total operating expenses for the quarter decreased 23, 2% to $28 2 million.
Speaker Change: As a percentage of net revenues total operating expenses for the quarter were down two 8% from seven 4% as we continued to enhancing our operating leverage and optimize our operational efficiency.
Speaker Change: Specifically fulfillment expenses remained steady at two 8% of net revenues.
Speaker Change: In line with the previous year.
Speaker Change: Marketing expenses as a percentage of net revenue for the quarter were two 1% down from two 6% in the same quarter of last year.
Speaker Change: General and administrative expenses accounted for 0.4% on net revenues down from one 3% in the same quarter of last year.
Speaker Change: Technology expenses amounted to <unk>, 5% of net revenue down from <unk>, 7% in the same quarter of last year.
Speaker Change: As a result.
Speaker Change: Income from operations, while I M B $2 4 million compared to a loss from operations of RMB 18 4 million.
Speaker Change: Same quarter of last year.
Speaker Change: non-GAAP income from operations was RMB, seven 1 billion compared to a non-GAAP loss from operations of RMB 54 million in the same quarter of last year.
non-GAAP net loss attributable to ordinary shareholders was $12 4 million compared to $66 9 million in the same quarter last year.
Speaker Change: As a percentage of net revenues.
Speaker Change: Net loss attributable to ordinary shareholders accounted for 0.3% in the quarter down from one 8% in the same quarter of last year.
Speaker Change: As you can see we are improving our financial performance quarter by quarter.
Speaker Change: <unk> maintained operating profit for the third consecutive quarter.
Speaker Change: Please refer to slide 21 to 25 of the appendix section for selected financial statements.
Speaker Change: A quick note on our cash position as of September 32024, we had a cash and cash equivalents restricted cash and short term investments of RMB $614 4 million.
Speaker Change: And we are pleased to report positive operating cash flow for the three consecutive quarters.
Speaker Change: To date the company has total outstanding amount of RMB, One 1 billion, which has been included in the balance of redeemable noncontrolling interest and the accrued expenses and other current liabilities or to a group of investors.
Speaker Change: Acknowledged pursuant to the equity investment made in 2020 as previously disclosed.
Well, one we see redemption request from certain of such investors in accordance with the terms of their initial investments in one pharmacy technology.
Speaker Change: Following communication negotiation the company has reached agreements and all commitment letters with investors, representing approximately 90% of total amount to be scheduled repayments.
Speaker Change: Logging for phase III payments as extended periods, if the holders exercise their research.
Speaker Change: Right.
Speaker Change: To come in May has paid a portion of the repurchase funds upon signing the agreements.
Speaker Change: Additionally, the company is on.
Speaker Change: Following discussions with investors.
Speaker Change: Who hold is holding the remaining approximately 10% of the total amount.
This concludes our prepared remarks thank.
Speaker Change: Thank you operator, we are now ready to begin the Q&A session.
Speaker Change: Thank you Becky.
Speaker Change: If you wanted to ask a question. Please press star one on your telephone keypad and wait for your name to be announced if.
Speaker Change: If you wish to cancel your request please press star two.
Speaker Change: If you're on a speaker phone please pick up the handset to ask your question.
Speaker Change: Yeah.
Speaker Change: Your first question comes from Jason <unk> with HSBC. Please go ahead.
Speaker Change: Okay.
Okay.
Speaker Change: Thank you for taking my question. This is Jeffrey from HSBC first of all I want to congratulations on delivering a very resilient results. Despite the challenging macro environment.
Speaker Change: I have two questions. The first one on Opex I noticed that for Opex as a percentage of revenue is around five 8% to 6% over the past three quarters. I was wondering going forward is there room for this ratio to further come down and what measures you are planning to do to drive that.
Speaker Change: For the improvement and Opex optimization. The second question is on ships in margin and.
Speaker Change: Despite overall revenue has been flat year on year, we saw improvement for gross margin gross margin can you.
Speaker Change: You send the factors driving that thank you.
Speaker Change: Jessie Thank you for the questions.
Speaker Change: With regards to the question about Opex.
Speaker Change: The short answer is yes.
Speaker Change: Yes.
Speaker Change: We will continue to reduce the.
Speaker Change: <unk>.
Speaker Change: The expenditure in operating our business and we will see.
Speaker Change: C mall in the mall.
Speaker Change: Impressive.
Speaker Change: Opex numbers, because you know from day, one of the company. Our philosophy has always been to leverage technology to reshape the value chain of the industry and we want to be the leader in operational efficiency.
Speaker Change: So how do we do that I would believe that our warehouse.
In order to become the leader.
Speaker Change: In operational efficiency in the industry and we remain committed to continuing our effort.
From our operations and all optimization across.
All of the business segments is coal and our management's daily work and we'll review those metrics on that on a weekly basis are we call it probably be arm.
Speaker Change: And Oh technology is essential.
Speaker Change: Containing opex and we benefit big time in the past and no doubt, it's going to continue to play a bigger role in the future.
Speaker Change: And in the meantime, we will constantly optimize our organization and our will to stop.
Speaker Change: Stocking.
Speaker Change: We believe in a lot of those expenses coming from people.
Speaker Change: If we could deploy those resources carefully and intelligently can achieve savings and of course innovation.
In all aspects of our business is completed.
Speaker Change: I laid out some examples, especially in our supply chain.
Speaker Change: To give you an illustration.
Speaker Change: You know that that's going to help us to stay competitive you know like in the past we only relies on building those fulfillment centers first party in our house.
Speaker Change: And then obviously nowadays and we have a joint venture or fulfillment centers.
Speaker Change: We also now have a franchise fulfillment centers you know.
Speaker Change: Where the upfront capital outlay are all paid by our partners.
Speaker Change: Whereas we can service partner with our customers even better.
Speaker Change: And produce.
Speaker Change: A better customer service.
Speaker Change: And with regards to your question that's too.
Speaker Change: Margin improvements and you know it obviously.
Speaker Change: There are a few things we are doing and we will continue to do in a festival is the assortment enhancements.
Speaker Change: We have.
Speaker Change: Tunnel tool with call it the.
The borgwarner.
Speaker Change: So broadband.
Speaker Change: Constantly engaged customers needs and ensure that our assortment is constantly optimize that dynamically.
Speaker Change: You know we bought the assortment management is taking care of of course, but the other thing. We do is the category management. Once again this is very important.
Speaker Change: Arjun growth you'll notice that.
Speaker Change: Our margin is growing faster than the revenue.
Speaker Change: Honestly.
They are a money losing categories I know there are also a moneymaking category.
Speaker Change: And to find that in balancing the two.
Speaker Change: I have to really minimize the money, losing categories and maximize the.
Speaker Change: The moneymaking categories.
The other thing of course is really important is to manage our offering and our suppliers.
Speaker Change: Suppliers are our focus.
Speaker Change: Worked really hard to find ways to get better views from the pharmaceutical companies.
Speaker Change: Want to make more investments in this area to have better coverage, especially those medium to small farmers.
Speaker Change: We can get better deals.
Speaker Change: And I hope those answer your question Duffy.
Speaker Change: Yeah very clear thank you very much.
Speaker Change: Okay.
Speaker Change: Your next question comes from Alvin Mall, a private Investor. Please go ahead.
Alvin Mall: Hello, Thank you for taking my questions, it's a wonderful quarter.
Alvin Mall: Actually I have three questions the fair.
Speaker Change: Yeah, so with three consecutive quarters to operate operating profit does the company anticipate achieve.
Speaker Change: Achieving operating profit for the entire year.
Second and supply chain management has always been a key focus for your company, what improvements and efficiency enhancement well made in Q3.
Speaker Change: The last question.
Speaker Change: Could you provide more insights into how the company managed to achieve positive operating cash flow for three consecutive quarters. Thank you.
Speaker Change: All of them I'll take your first question that's a great question about.
Speaker Change: It's going to achieve.
Speaker Change: Profitability for the whole year yeah.
Speaker Change: Yeah, So we're quite optimistic in achieving operational profitability for the whole year. Thank.
Speaker Change: Thank you for that all of the bonds.
Speaker Change: Your next question too to hobby.
Speaker Change: Regarding the supply chain management are you are you are right. He has always been our key focus.
Speaker Change: And.
We actually we we and the industry benchmark in our supply chain management.
Speaker Change: And we continue.
Speaker Change: Sourcing warehousing and like order fulfillment.
Speaker Change: Hum.
Speaker Change: And higher supply chain.
Speaker Change: So in the past quarter in Q3, our order fulfillment costs continued to decrease.
Speaker Change: It dropped.
Speaker Change: Hunger and one 6 million of loss.
Speaker Change: <unk> Q3 to $99 8 million of our at least Q3. So it's a there is a less fading of 162 million.
Speaker Change: And our year to date fulfillment cost.
Fantastic.
Revenue also decreased.
Speaker Change: So that's a big bank two to six 2%.
Speaker Change: Turning to logistics, we have achieved a sum of the part.
Speaker Change: Boeing program.
Speaker Change: The first is our.
Speaker Change: Our logistics network, we scaled up.
Speaker Change: Human network and also our expanded last mile delivery services.
So in this part.
Speaker Change: Yeah, our Eagle recorder has been reduced from one party three 5% to 131%.
Speaker Change: And secondly on labor and packaging costs no warehouse also passed the optimized.
Speaker Change: Our by streamlining our operational profit.
Speaker Change: In this part of our labor cost reduction.
Speaker Change: Lithia well airplanes.
Speaker Change: We are probably 7% of our total revenue who are the airplane six 8%.
Speaker Change: And also our warehousing costs.
Speaker Change: For example, we just read Okay, I'll, South China warehouse, our warehousing costs.
Speaker Change: The increase from <unk>.
Speaker Change: 071 percent six 3% so it's a it's a reduction by 11, 3%.
Speaker Change: Okay.
And number two we are actually we are ending with.
Speaker Change: Clinton network.
Speaker Change: <unk> provides.
Speaker Change: Professional logistic services.
Speaker Change: Not only into I don't know has grown but also to our external customers.
Speaker Change: In Q3.
Speaker Change: We need pattern established sleep.
Speaker Change: That works for our five major fulfillment center with quite a national fulfillment Center.
Speaker Change: East Central South North.
Speaker Change: And southwest China.
Speaker Change: And we plan to establish Mr National network.
With added first mile and last mile services to our upstream and downstream customers.
Sure.
Speaker Change: Go over with the our.
Our entire supply chain.
Speaker Change: Ramping in Q3, we completed our test that I mentioned are all formed O'neil.
Speaker Change: South China fulfillment center relocation.
Speaker Change: We expect to have a remarkable cost reduction with.
Speaker Change: Patient.
And also we are expanding our French time fulfillment center model national wide.
Speaker Change: In Q3, we opened a new facility Wuhan and Guangzhou.
Speaker Change: Richie.
All of us.
Speaker Change: Human Center operation.
Speaker Change: Q3, and we expect or how do you think we'll have more and more is a new fulfillment center and gets more and more.
Speaker Change: Hello.
And through fall and also early next year. Thank.
Thank you.
Speaker Change: Yes.
Speaker Change: So.
Speaker Change: As you can see we have achieved a GAAP and non-GAAP operating profit for the three quarters.
Speaker Change: It means that we are no longer burning cash for their spend is.
Speaker Change: Instead, we are creating positive cash flows at the operating level for the street consensus.
Speaker Change: Yes.
Speaker Change: We think we are doing the right thing in terms of working capital control.
Speaker Change: We have been very focused on improving the turnover days for inventory in our country, we see accounts payable.
Speaker Change: And we also introduced the third party supply chain finance to many of our pharmacy customers.
Speaker Change: We have also improved the turnover days for accounts receivable.
Are there still room for further improvement.
Speaker Change: I think we are confident that we can do better job in the coming quarters.
Yeah, I hope we Alban.
Speaker Change: So to your questions.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Okay.
Thank you next question Cabozantinib, Robert Sassoon with Wassa Tower Research. Please go ahead.
Speaker Change: Hi, Thanks for taking my questions I have a few of them. So let me start with this one based on the current market environment. How would you assess the Cummins performed the company's performance in the third quarter.
What are your expansion expectations for the market environment in the coming quarters.
Speaker Change: And how do you think those expectations would impact on the developments of the company's beach B and B to C businesses, Let me start with that and I have a few other questions after that.
Speaker Change: Okay. Thanks, Robert I'll I'll take this question.
First of all we're pretty proud of the solid performance given the macro situation in China is it's pretty widely known.
Speaker Change: Both of our upstream and downstream customers are under tremendous pressure.
The entire premise of anti corruption in the.
Hospitals and also it will be a campaign against the Medicare fraud in our pharmacies are area will create a stopped some pains.
Speaker Change: But we are quite optimistic that the industry will be more transparent long term bias.
Speaker Change: We're quite optimistic.
Speaker Change: About the future business that gives you a few reasons first of all with China's demographics, especially the aging population the Medicare needs for actively go up and if we.
Speaker Change: We look at the Big picture and a health care expenditure in China.
7% ish.
Speaker Change: Whereas in the United States is about 20%.
There was a huge headroom for the market to grow.
And the other point I want to make a start.
Speaker Change: Shops on economic challenge.
Speaker Change: False both upstream and downstream.
Speaker Change: To be more efficient and our digital capabilities will really enable us to create more value for both our upstream and downstream customers I'll stop at that.
Speaker Change: Alright, Thank you very much for that answer.
Speaker Change: I have a couple of other questions well.
Speaker Change: On the technical side, what could you actually highlight the progress of achievements, but your company has made in the digital capabilities.
Speaker Change: Technology.
Speaker Change: You have been implementing in the third quarter.
Speaker Change: Yeah.
Speaker Change: If I could.
Speaker Change: Sorry, I just want to fill up the second question was about how awesome. It is.
Speaker Change: Can you are allowing the company's expansion plans in terms of product offerings and partnerships within the supply chain ecosystem.
Speaker Change: Yeah.
Speaker Change: Okay Goldman. Thank you I would take these two questions. The first one regarding our digital capability and also.
Speaker Change: I see technology.
Speaker Change: Actually we are not only in the last quarter actually from day, one we have continued to invest.
Speaker Change: Our system, so that none of our models and also daytime Acacia.
Speaker Change: And also you know.
Speaker Change: All of these ever to view, our coal and pet.
Speaker Change: Is it higher.
Digitalization also achieving a.
Quite a number of our result, especially in the past quarter.
Speaker Change: Third.
Speaker Change: Through our J D P backbone and.
Speaker Change: Barry.
Inventory sharing technology.
We link our upstream suppliers are immensely.
Speaker Change: Paul.
Speaker Change: The only five rated stock.
Speaker Change: As a result, we have.
Speaker Change: Eddie.
Speaker Change: 32008.
Speaker Change: And.
Speaker Change: They are related but some.
Speaker Change: Morning.
Speaker Change: To further improve our supply.
Speaker Change: It is.
Speaker Change: And.
Speaker Change: Second achievement is the is in with a big.
Speaker Change: Big data science for Chinese herbal medicine, we have trend apply.
Speaker Change: As always make model.
Specification or recognition.
You know for those the hurdle.
Speaker Change: It's crazy.
Speaker Change: So based on these specification waiting that AI model that has improved.
Speaker Change: Its accuracy for 77% to 98, 2% through market poll.
Speaker Change: Iteration.
Speaker Change: Additionally, accuracy com.
Speaker Change: Content matching polo to herbal medicine hat increased from 43% to 96%.
Speaker Change: And as our upstream and downstream customers. So Chinese herbal medicine is a big part of their business. So.
Speaker Change: Headaches for everyone. So with this new technology, we believe we had really a.
Speaker Change: Helping the entire supply chain to improve our accuracy and efficiency.
Speaker Change: Regarding Uh huh.
Speaker Change: Hmm.
Speaker Change: Because of our product offering.
Speaker Change: High tensile and triple product offering and our supply chain ecosystem. We thought it was a screaming just mentioned are introduced we started from a third party model.
Which offers that.
Spirit.
Speaker Change: But later.
Speaker Change: We realize that it will be a it would be very efficient.
Speaker Change: Our selection offering with a.
Speaker Change: A single first party model alone.
As we can but you'll have to do and it will have to.
Is.
Speaker Change: This upstream.
Great.
Speaker Change: You'll have to go it alone so we innovate and they've reviewed our supply chain.
Speaker Change: Besides our third party model a currency loss.
He always our cooperate with our this upstream pharmaceutical companies.
And how about ADP model for partnerships with Easter weekend installation companies.
And now through that Neal J E T platform and it's a whole new inventory sharing technology, we have organically link upstream merger.
Speaker Change: To fall all are or will be granted stock. So there's there's a this is one a very important part of our expansion plan of our product offerings.
Speaker Change: And I think we'll reach our product selection of additional <unk>.
Speaker Change:
Speaker Change: 3000 U S in a very short period of time.
Is that just what the one more month.
Speaker Change: So we will entirely technology across the country and I believe our product offerings wherever they recruit.
Speaker Change: New level in the coming quarters with opening of nine or more French high or joint venture.
Uh huh.
Speaker Change: Is that J D P platform.
Speaker Change: Is this a new inventory sharing technology.
Robert: Thank you Robert.
Speaker Change: No question.
Speaker Change: Yeah, that's great I'll jump back in.
Speaker Change: Okay.
Speaker Change: Thank you that concludes the question and answer session.
Speaker Change: In closing on behalf of the entire 111 management team, we would like to thank you for your interest and participation in today's call.
Speaker Change: If you require any further information or have any interest in visiting 111 in Shanghai, China plays late the company now I.
Speaker Change: Thank you for joining us today. This concludes the call.
Speaker Change: Okay.
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