111, Inc. Q1 FY2023 earnings call

• Macro environment: China's economy had a solid start in Q1 2023 with GDP growth, and the healthcare industry underwent digitization. - Operational performance: Revenue grew 23.9% Y-o-Y to RMB 3.7 billion, gross profit reached RMB 236.2 million. Non-GAAP operating profit turned positive. - Supply side: Enhanced partnerships with upstream pharmaceutical partners, improved supply chain efficiency. - Operational efficiency: Sales, general and administrative, and technology expenses reduced year-over-year. Implemented measures like redundant staff reduction, SOP upgrades, and technology investments. - Future initiatives: Align product assortment with customer needs, reduce procurement cost, competitive intelligent pricing, invest in smart supply chain, drive operational efficiency, build 1 Health project, and commit to digitization.

In the first quarter of 2023, the company achieved revenues of RMB 3.7 billion, a year-over-year increase of 23.9%. The B2B business was the key driver of revenue growth, with B2B revenue increasing 24.9% to RMB 3.6 billion year-over-year. The B2C segment revenue was RMB 112.9 million, a year-over-year increase of 0.1%. The gross profit reached RMB 236.2 million, with the B2B segment gross profit increasing 26% to RMB 211 million. The B2C segment gross margin improved from 21.6% to 22.3%.

• Achieved non-GAAP operating income in Q1, no longer burning cash at operation level. - Cash position as of March 31, 2023, was RMB 878.8 million in cash and cash equivalents, restricted cash, and short-term investment. - Certain PRC investors have rights to require redemption of equity, but some have agreed not to exercise until June 2024, and company believes it has sufficient capital to fulfill obligations even if all exercise rights.

• Certain PRC investors are entitled to require redemption of equity up to RMB 1.01 billion if key subsidiary's listing not completed by June 30, 2023. However, company is proactively working with investors and believes it has sufficient resources to meet obligations.

Q: What are the profit drivers for the year 2023 after achieving a profit in the first quarter? And what is the company's operational focus going forward?

A: Junling Liu mentioned drivers include continuing revenue and margin growth, cost down initiatives, operational efficiency improvements, digitization efforts, and private label momentum. Operational focus is value creation, building a customer-centric management system, and building a stronger supply base.

Q: How should we think about the company's top line growth in the next few quarters and what are the key drivers, especially for B2B business? And can you share more details on the digital marketing tool Telescope?

A: Haihui Wang said top line growth will come from upgrading supply chain, partnering with more pharmaceutical companies, and enhancing digital marketing platform. Telescope serves as a tool for pharmaceutical companies to gain real-time product sales and pricing insights, using data analytics to optimize strategies.

Q: How was the cash flow situation in the first quarter for the company? And what's the current cash position? And what are the company's plans for its OEM product in the future?

A: Junling Liu said non-GAAP operating income in Q1 means no longer burning cash operationally, cash and cash equivalents were RMB 878 million. Yang Chen mentioned working with pharmaceutical companies on OEM products, with over 70 private label SKUs launched and more in pipeline.