111, Inc. Q4 FY2023 earnings call

• Industry dynamics: Post-pandemic normalization, shift to digital health, anti-corruption in healthcare reshaping the industry. - Financial performance: Q4 2023 net revenue down 1%, full year 2023 net revenue up 10.6%. Gross segment profit had 1.1% growth. Operating expenses adjusted for share-based compensation showed improvement. - Operational highlights: Focus on operational efficiency through technology integration, supply chain optimization, warehouse improvements, smart sales efforts using tools like Eagle Eye analytics. Achieved 4 new patents, received awards like Shanghai E-commerce Demonstration Enterprise and Shanghai key productive internet service platform, listed on Shanghai Data Exchange with extensive market data.

In Q4 2023, net revenue was RMB4.1 billion, a slight year-over-year decrease of 1%. Gross segment profit decreased by 15.5% compared to the same period in the previous year. For the full year 2023, net revenues reached RMB14.9 billion, a year-over-year growth of 10.6%. The B2B segment revenue grew 11.4% to RMB14.6 billion, while the B2C segment revenue decreased 14.5% to RMB377.4 million. Gross segment profit grew by 1.1% year-over-year. The B2B segment margin was 5.3% and the B2C segment margin was 21%.

• Focus on operational efficiency by investing in technologies and processes to streamline operations. - Offer comprehensive product selection by understanding customer preferences and leveraging data. - Enhance ecosystem with partners like JBP and Marketplace merchants. - Make low pricing a strategic priority, transferring efficiency gains to customers. - Optimize organization structure for agility and adaptability. - Continue digitization across all business factors to drive growth.

• Redemption obligations: Received redemption requests from investors for RMB0.2 billion, currently negotiating repayment and restructuring of these obligations.

Q: About momentum in 2023 revenue and gross profit growth and sustainability.

A: Growth came from adaptability, strategic agility, continuous operational efficiency improvement, expanding product selection, and offering unparalleled services. Sustainability is expected as they continue these efforts.

Q: Company's development strategy for the next few years.

A: Prioritize operational efficiency as key competitive advantage, provide widest product selection, offer best prices, invest in digitization capabilities.

Q: Factors contributing to increase in operational loss as a percentage of net revenues and how to address.

A: Major factors were cancellation of ESOPs for 2024 and 2025, and organization optimization leading to severance pay. Removing these, operational loss improved, and they look forward to 2024 improvements.

Q: Technology progress last year and its help in competitive edge.

A: Invested in AI, big data, supply chain optimization. Examples include Telescope Initiative, 4 new patents, 111 Information Brain listed on Shanghai Data Exchange, digital supply chain products launched, achieving 99% accuracy in models.

Q: Actions in supply chain measurement and warehouse logistics last year to improve efficiency and reduce costs, and potential for improvement.

A: Optimized fulfillment costs, improved workforce efficiency, process re-engineering, rent reduction, launched Golden Partner Service, integrated warehouse-to-warehouse transhipment plus last-mile delivery model. There is still potential for improvement. Awards signify recognition of sustainable, robust, and rapid development in innovation, supply chain, and digital operations, adding value by promoting the company's position and role in industry transformation.

Q: Future plan to further improve growth margin and profitability.

A: Reduce procurement costs by direct sourcing from over 500 pharmaceutical companies, deepen JBP model which is growing well, optimize product assortment and structure using AI and big data, and leverage drug-sales separation in retail markets for more business opportunities.

Q: Impact of buyer group terminating privatization and future capital market plan.

A: Company will continue to be a public company on NASDAQ. Management will conduct more meetings with investors to update on business and focus on growing the business and delivering profitability.