111 Inc (YI) Q3 2020 Earnings Name Transcript

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111 Inc (NASDAQ:YI)
Q3 2020 Earnings Name
Nov 20, 2020, 7:30 p.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Contributors

Ready Remarks:

Operator

Please go forward, Ms. Monica.

Monica MuInvestor Relations Director

Thanks, operator. Good day, everybody, and thanks for becoming a member of us as we speak for 111 Third Quarter 2020 Convention Name.

On the decision as we speak from 111 are Dr. Gang Yu, Co-Founder and Govt Chairman; Mr. Junling Liu, Co-Founder, Chairman and CEO; Mr. Luke Chen, CFO of our main subsidiary; Mr. Harvey Wang, Co-COO; Mr. Barry Zhu, Co-COO; Ms. Monica Mu, Investor Relations Director; and Mr. Alex Liu, Finance Director.

As a reminder, as we speak’s convention name is being broadcast reside by way of webcast. As well as, a replay will probably be out there on our web site following the decision. The Firm’s earnings press launch was distributed earlier as we speak, and along with our earnings presentation can be found on the Firm’s IR web site at ir.111.com.cn

Earlier than we get began let me remind you that this name might comprise forward-looking statements made beneath the Protected Harbor provisions of the Personal Securities Litigation Reform Act of 1995. Such statements are primarily based upon administration’s present expectations and the present market and working circumstances and so they relate to occasions that contain recognized and unknown dangers, uncertainties and different components, all of which might trigger precise outcomes to vary materially. For extra details about these dangers, please seek advice from the Firm’s filings with the SEC. 111 doesn’t undertake any obligation to replace any forward-looking statements on account of new data, future occasions or in any other case, besides as required beneath relevant regulation.

Please notice that every one numbers are in RMB and all comparisons seek advice from year-over-year comparisons except in any other case said. Please additionally seek advice from our earnings press launch for detailed data of our comparative monetary efficiency on a year-over-year foundation.

With that I’ll flip the decision over to our CEO, Mr. Junling Liu.

Junling LiuCo-Founder, Chairman, and Chief Govt Officer

Good morning and good night everybody. Thanks for becoming a member of our 2020 third quarter earnings name.

Because the COVID-19 pandemic continues to make headlines globally, I would like to begin on this matter to supply some context to this name. As a lot of the world see the resurgence of coronavirus instances and the continued financial downturn because of this, China has been one of many few vivid spots with the pandemic efficiently beneath management and the economic system is beginning to choose up.

Along with being one thing to be celebrated in its personal proper, the financial restoration in China has additionally created a optimistic surroundings for our operations. Nonetheless, as an organization and a rustic, we proceed to remain vigilant for any new wave of infections. I need to thank the employees of 111 for his or her diligent dedication to assembly the wants of our clients and customers and all healthcare staff and the scientists for his or her unwavering willpower on this lengthy battle towards the pandemic.

And earlier than diving into the numbers, a few company information I would prefer to replace you on.

Firstly, Mr. Luke Chen, till lately CFO of 111 has been appointed CFO of Yao Fang Data Expertise in Shanghai, the 111’s subsidiary getting ready for itemizing on Shanghai Inventory Trade’s STAR board. We thank Luke for his work, setting a robust monetary basis for 111 and imagine that in his new place, he’ll information Yao Fang to a robust progress trajectory and profitable IPO. Within the meantime, along with my position as CEO, I’ll step in as performing CFO alongside Luke through the transition till a brand new CFO is appointed.

Secondly, on September 24, 111 hosted our third annual China On-line Healthcare Summit and Partnership Convention, which attracted round 600 visitors globally, together with executives from main pharmaceutical and healthcare firms, medical consultants, authorities leaders and funding establishments. This convention paved individuals the chance to debate the varied challenges going through the healthcare trade in China in addition to the improvements been developed to deal with these challenges. 111 was capable of take this chance to showcase our omni-channel platform that’s reworking the healthcare trade by digitally connecting sufferers with medication and our healthcare companies.

Throughout the convention, we additionally introduced a number of strategic partnership agreements, together with the pharmaceutical firms, Bayer Healthcare, Novartis China, Xiangxue Pharmaceutical and Huluwa Pharmaceutical, in addition to with insurance coverage firm Shanghai Uniondrug. These partnerships will leverage every firm’s experience to advance innovation by partnerships. These partnerships will leverage every firm’s experience to advance innovation and thru 111’s omni-channel platform, customers will have the ability to conveniently entry top quality healthcare merchandise at a time and in a way that matches into their busy schedules. I’ll present extra element shortly.

Shifting on to our Q3 earnings outcomes. The agenda as we speak will cowl an outline of the Firm’s enterprise and operational efficiency, which you’ll find in Part 1 of the deck. We are going to then evaluate the Firm’s monetary efficiency in Part 2. We are going to finish with steerage for This fall earlier than opening the decision for Q&As.

Let’s start. We’re happy to report that we’ve got delivered one other quarter of stellar progress. As you possibly can see from Slide 4, that is the eighth consecutive quarter of income progress since our IPO, the place we’ve got been persistently delivering close to or above three-digit — triple-digit progress.

Non-GAAP internet loss as a share of internet income continued to slender from roughly 10% in Q3 2019 to 4% this quarter, displaying momentum towards profitability. Internet income elevated 113% to achieve RMB2.36 billion, whereas gross revenue rose 90% to RMB90 million. We imagine the sturdy efficiency is a robust validation of the profitable execution of our multifaceted progress technique to perform our mission.

We have now made strong progress enhancing our digital capabilities, our cloud-based options within the areas of affected person administration, doctor-patient interplay, schooling for docs, sufferers and pharmacists and different associated companies acquired glorious response from our clients. Our sensible provide chain administration is making our operation increasingly more environment friendly.

The omni-channel drug commercialization platform is laying strong basis for our future progress in considered one of China’s quickest rising industries. Over the previous couple of quarters, we made a big progress in strengthening the infrastructure of our digital healthcare platform that brings collectively key stakeholders within the healthcare ecosystem, retail pharmacies, on-line platform companions, docs, insurance coverage firms and the pharmaceutical firms to the advantage of all.

For our retail pharmacy clients, a part of our 300,000 sturdy community and the biggest in China, our sensible sourcing system, machine-learning and cloud-based options translate into efficient sourcing, higher stock administration, optimum product assortment, and a broader market attain, leading to higher price effectivity, greater earnings potential and an enhanced capability to serve our finish customers.

For docs, our sensible expertise places the facility of the most recent medical improvements of their arms to attain higher well being outcomes for his or her sufferers. For sufferers, our holistic illness administration platform provides them entry to one of the best docs throughout the nation, follow-up consultations, illness schooling supplies, medicine guides and the advantages of acquiring medicines at dwelling by our e-prescription service.

The opposite vital a part of the infrastructure is the digital pharmacy community that we’ve got been working onerous to construct over the past three years. This phase of the enterprise is displaying notably sturdy progress. The retail pharmacy sector continues to be extremely fragmented and dominated by household run storefronts. We see an unlimited alternative to allow these enterprise house owners with higher provide chain and expertise options.

We have now aggressively grown this community over the past three years, which surpassed the 300,000 retail pharmacies as of the reporting date, representing a 43% improve from the third quarter of 2019 and over half of all retail pharmacies in China. Having achieved our objective of constructing the biggest digital pharmacy community in China, we is not going to be offering the variety of retail pharmacies in our future earnings stories.

One other validation of our technique is to extend additional strategic partnerships, primarily based on the worth we have demonstrated. For pharmaceutical firms, 111’s sensible provide chain administration and cloud-enabled digital instruments along with the advertising and marketing and affected person assist companies we offer, assist them achieve entry to a wider buyer base and at a decrease price.

In return, not solely will we earn charges for our companies, but additionally achieve one thing way more worthwhile. Our pharmaceutical firm clients are selecting us as their commercialization associate to realize extra attain and a greater effectivity. For our community of retail pharmacy and different healthcare enterprise clients, which means they achieve the broader portfolio of each modern and the generic and pharmaceutical merchandise at higher pricing, which in flip translate into a better demand for his or her merchandise, extra sticky in customers, improve the ARPU and improved margin.

For 111, it goes with out saying that when our clients do nicely, we do nicely. As efficiency for the retail pharmacies in our community improves, we at 111 see the corresponding improve in product gross sales, revenues, charges and the shopper loyalty. Earlier I offered a preview of fine information round strategic partnerships. On this quarter we made glorious progress in increasing the variety of strategic companions to over 300, up 100% over the identical interval final yr.

Past pharmaceutical firm, we’ve got developed partnerships with insurance coverage firms, enabling us to additional improve the digital healthcare worth chain. Within the quarter, we have added one other insurance coverage associate, Shanghai Uniondrug. This partnership will give us the facility to supply to customers higher entry to healthcare and pharmaceutical merchandise at decrease costs. As well as, customers may also achieve instruments and our supporting companies which can be customized to their wants and that emphasize preventative somewhat than healing care.

All these partnerships taken collectively, enable us to leverage our omni-channel digital platform to higher combine all key stakeholders of the healthcare ecosystem, drug producers, retailers, insurance coverage firms and finish customers. The top result’s an ecosystem the place stakeholders rely upon and profit from one another, making a virtuous circle of excessive med companies, sticky clients and a higher profitability for all, together with us at 111. And the winner of all this are the top customers who profit from enhanced care at decrease prices and finally higher well being.

Now let’s spend a couple of minutes on our enterprise efficiency. Our enterprise spun-out [Phonetic] by our newest the outcomes. For our B2B phase, the best space of power was the rise of virtually 300% in variety of orders in addition to the revenues from our base of present clients versus incremental gross sales from new clients who lately joined the community within the third quarter. Income this quarter grew by 134% to RMB2.2 billion and gross revenue grew by 344% to RMB58 million. Income from present clients have been up 38.9% quarter-over-quarter and newly added clients contributed 12.5% of the expansion quarter-over-quarter.

For our B2C phase, this quarter noticed a slight decline, income and gross revenue, down by 5.2% and a 6.3% year-over-year to RMB161 million and a RMB32 million, respectively. The lower right here is pushed primarily by our resolution to focus our efforts on initiatives that may ship essentially the most worth to the Firm and our shareholders. And these efforts already yielding solely encouraging outcomes. We’re assured that we are going to quickly be again on the expansion observe once more earlier than — as a result of we’re in a singular place to ship superior healthcare to our finish customers at aggressive costs

One instance is our affected person administration platform, which gives customers entry to one of the best docs across the nation for outpatient care, no matter the place they reside. Mixed with our retail pharmacy community, sufferers can have their prescriptions crammed and delivered to them conveniently and effectively, together with tens of 1000’s of different well being and wellness merchandise out there on 111’s platform.

In opposition to the backdrop of favorable authorities insurance policies towards digitization, we imagine we’re in an enviable place to reap the benefits of the immense healthcare wants of the nation. As we strengthen our infrastructure to assist pharmaceutical firms market their merchandise, we’re enhancing our sensible provide chain and its effectivity, bettering our doctor-patient digital platform and offering higher care and instruments for sufferers to attain extra favorable well being outcomes.

Wanting towards to the final quarter of the yr, we are going to keep centered on narrowing internet loss and furthering what we have accomplished nicely, growing gross sales from our present base of consumers, whereas gaining new ones, enhancing stickiness and increasing and deepening strategic partnerships. With the restoration of the Chinese language economic system, we imagine that the technique and execution which have enabled us to construct a number one digital healthcare platform on this nation may also enable us to reap the benefits of the immense alternatives introduced by the Chinese language market.

We have now confirmed the facility of our ecosystem and we are going to work tirelessly within the subsequent quarter and past to extend its worth and to drive progress, persevering with the ascend to delivering sustainable and a long-term profitability to our shareholders.

With that I’ll hand the decision to Luke to stroll by our monetary outcomes. Thanks, Luke.

Luke ChenChief Monetary Officer

Thanks, Junling. Shifting to the monetary part on Slide 12, you possibly can see the main points of the third quarter 2020 outcomes from Slide 13 to 15 of our presentation. I wish to spotlight just a few key enterprise and the monetary metrics and our concentrate on year-over-year comparisons, all numbers are in RMB except in any other case said.

Our whole internet income for the quarter grew 113% to RMB2.36 billion which exceeded prime finish of our steerage vary. Our B2B phase income grew 134% to RMB2.2 billion. Income contribution from E-Channel, which beforehand disclosed as a separate phase was now integrated into B2B phase this quarter. The sturdy progress in B2B phase was attributed to sturdy progress from our present clients in addition to the newly added clients in our community.

Our B2C phase, income was down 5.2% to RMB161 million, primarily on account of a restructure of our B2C enterprise as we decreased our funding in third-party platform. Our B2B gross margin was 2.6%, up from 1.4%, whereas B2C gross margin remained secure round 20%. The advance in gross margin of our B2B enterprise mirrored our capability to proceed to enhance the margins by sustaining triple-digit prime line progress. Total, our gross revenue quantity grew by 90% to RMB90 million, and the mixed gross margin was 3.8%, in comparison with 4.3% a yr in the past, which primarily because of the dilution impact from the fast enlargement of our B2B enterprise with a decrease margin.

Whole working bills for the quarter have been up 28.2% to RMB212 million. As a share of internet income, whole working bills for the quarter was right down to 9% from 14.9% as we continued to enhance our working leverage and optimize our working effectivity. Success bills as a share of internet income for the quarter was 2.5%, down from 2.8% in the identical quarter final yr.

Gross sales and the advertising and marketing bills as a share of internet income for the quarter was 4.4%, down from 7.9% in the identical quarter of final yr. G&A bills decreased 10.8% in comparison with the identical quarter final yr and as a share of internet income for the quarter was 1.2% and down from 2.9% in the identical quarter final yr.

Expertise bills quantity elevated 49.4% this quarter as in comparison with identical quarter final yr, which accounted for 0.9% of internet income, down from 1.3% in the identical quarter final yr. In consequence non-GAAP internet loss attributable to bizarre shareholders for the quarter, narrowed to RMB94 million as in comparison with RMB110 million in the identical quarter final yr, which accounted for 4% of internet income, down from 9.9%.

[Indecipherable] steerage for the fourth quarter of 2020 on Slide 17. The Firm count on whole internet income to be between RMB2.44 billion and RMB2.56 billion, representing a year-over-year progress of roughly 81% to 90%. The above outlook relies on the present market circumstances and mirror the Firm’s present and preliminary estimates of the market and working circumstances, in addition to buyer demand, that are topic to vary. Please seek advice from Slide 19 to 21 of the appendix part for our chosen monetary statements.

A fast notice on our money place. As of September 30th, 2020, we had money and money equivalents, restricted money and short-term investments totaled RMB1.2 billion in comparison with RMB697 million as of December 31st, 2019. And we achieved optimistic money movement from working actions which amounted to RMB25 million for the quarter. And in addition we achieved optimistic money flows from working actions for the interval year-to-date.

This concludes our ready remarks. Thanks. Operator, we at the moment are prepared to start the Q&A session.

Questions and Solutions:

Operator

Thanks, sir. [Operator Instructions] We have now the primary query from the road of Sherry Yin. Please ask your query.

Sherry YinJPMorgan — Analyst

Thanks for taking my query. That is Sherry from JPMorgan. Congratulations on sturdy third quarter outcomes. I’ve three questions as we speak.

My first query is in regards to the enterprise technique updates. We noticed many encouraging partnerships that 111 has established over previous few months. May you give us a enterprise technique revisit, if any main change.

And my second query is particularly for Dr. Yu. We all know that Dr. Yu was key administration in Amazon’s worldwide provide chain operation. Because the market is the lately turning plenty of consideration to Amazon’s large transfer marching into on-line pharmacy trade. May you assist us on this and the key distinction between China and U.S. on-line pharmacy market.

And my final query is in regards to the final week’s NNPA announcement of the net drug regulation change. May you share extra coloration about these regulatory updates implication to 111’s enterprise operation and competitors panorama. That is all my query. Thanks.

Junling LiuCo-Founder, Chairman, and Chief Govt Officer

Thanks, Sherry. I am going to tackle the primary query after which let as much as Yu to proceed.

In regards to the future technique, to start with — so this yr I imagine we are going to ship nicely over $Eight billion in income and we will probably be very near profitability. Nonetheless, we nonetheless need to run this enterprise as a start-up, we’ve got laid out our mission, which is to digitally join medication with sufferers and healthcare companies. So carrying out that mission, I would like to make use of three key phrases.

The primary key phrase I need to use is digitization. I believe all people would agree that this trade is comparatively backward in China, in terms of digitization. We had 111 investing very closely on doctor-patient interplay platform, so we are able to transfer docs and sufferers to the digital world. We’re additionally digitally monitoring the entire worth chain from the purpose when the drug leaves the manufacturing facility, all the way in which to the sufferers. It is also superb to understand how a lot enthusiasm on digital advertising and marketing, together with affected person schooling, physician schooling, pharmacist schooling, and so on. And I couldn’t have imagined that the reside solid from two of our inside stuff on our app can generate over RMB10 million in gross sales inside two hours.

And the subsequent key phrase I need to use is infrastructure. Primarily, we’re laying the infrastructure for the subsequent technology of healthcare supply in China. We have been capable of attain customers instantly by our [Indecipherable] by our 300,000 plus pharmacy community after which by docs. One can perceive this because the B2C, the B2B2C and the B2D2C utilizing our provide chain, our cloud-based options, our large information, all a part of this infrastructure.

And the third key phrase I would like to make use of is commercialization. Our view of the longer term is that the pharmaceutical and the bio-tech firms are going to face fairly robust competitors with the BVP implementation majority of the pharmaceutical firms are going to concentrate on modern medication. As everyone knows lately within the Hong Kong and Shanghai Inventory Exchanges, there have been many new biotech firms that bought listed.

And I believe will take no lengthy [Phonetic] all — nicely, not all, perhaps most of these newly listed firms are going to face challenges in commercialization except their medication get accepted. So that is an space the place we’ve got been investing fairly closely. Our omni-channel commercialization platform will probably be an awesome — will probably be in an awesome place to assist them. So let me recap the three key phrases, digitization, infrastructure and the commercialization. So that is actually the technique we’re implementing and people are the areas we’re investing.

So, I am going to go on the subsequent inquiries to Dr. Yu.

Gang YuCo-Founder and Govt Chairman

Thanks, Sherry for asking the query. So let me reply your second one that you simply talked about about Amazon’s latest launch of their on-line drug retailer gross sales. I believe that Amazon began in early 2003 and 2004, after I was serving, I believe in reality for Amazon, the product firm referred to as Drugstore.com. However for this a few years that class has not been growing as quick as different classes.

I believe in China, it is extra aggressive by way of acceptance on-line, physician session on-line, drug buy, I believe on account of a number of causes. One is that the huge penetration of cellular gadgets and extra on-line e-commerce clients, I believe we’re definitely in an awesome market and likewise the coverage by the Chinese language authorities is extra — additionally vast open. Simply as you understand that latest coverage permitting on-line prescription drug gross sales and permitting on-line session, physician session being lined by medical insurance coverage and extra encouragement of on-line healthcare. I believe this all actually facilitated the expansion of China’s on-line well being trade.

And the second query, you talked about in regards to the final week’s new…

Junling LiuCo-Founder, Chairman, and Chief Govt Officer

Third query.

Gang YuCo-Founder and Govt Chairman

The third query, proper. It’s primarily retention of suggestions. And actually, we participated in the entire dialogue with the Chinese language authorities and we gave them our suggestions. I really feel this can be a actually a really optimistic to the entire trade and likewise very optimistic to us. The entire tune of the insurance policies that will probably be extra open to on-line healthcare and positively by — may have extra rigorous, extra scientific monitoring, administration and the management of the standard. So definitely these insurance policies will enable the businesses which can be extra compliant, which can be extra clear and have a better effectivity to service. I believe it’s a nice — I believe we’re definitely in an awesome trade to be in and that is — so, positively we really feel that every one these new insurance policies, all these change, all very optimistic to us.

Sherry YinJPMorgan — Analyst

Sure. That is very clear and useful. Thanks.

Operator

We have now the subsequent query from the road of Bingyu Chen. Please ask your query.

Bingyu ChenCitigroup — Analyst

Thanks for taking my questions and congratulations on these outcomes. Truly I’ve a number of questions.

To start with, we’ve got seen that the B2C phase is growing quickly and when you see what is the purpose behind and the way will you retain the expansion momentum.

And second is in regards to the revenue facet as a result of we see there’s a gross margin improve in B2B phase and it elevated success prices. And would please tell us the way you managed to attain that.

And the third query is about, perhaps you please share extra coloration on the elevated variety of orders. Thanks.

Harvey WangCo-Chief Working Officer

Okay. That is Harvey. I’d take these three query relating to the B2B progress and B2B margin in addition to the order quantity improve. So, to start with for B2B progress, on one hand our B2B buyer facet is growing which has exceeded 300,000 representing about 60% of our China whole market. And however, the income of our present clients can also be growing quickly.

The expansion is principally coming from our power and functionality on digital advertising and marketing. For instance, we provide a complete resolution to pharmaceutical firms to commercialize their medication by 111 digital advertising and marketing instruments. We additionally allow our B2B clients with cloud-based digital companies akin to cloud pharmacy companies, cloud clinic, cloud stock in addition to cloud CRM.

And internally we additionally develop two instruments, one name Hawkeye and the opposite referred to as Turbo to make use of large information web expertise to construct up a mechanism for our gross sales pressure, to accumulate extra clients, activate present clients and enhance BAU, enhance income, particularly within the lower-tier cities which contribute to a serious a part of our B2B enterprise. These digital advertising and marketing expertise and instruments assist us to enhance our gross sales pressure effectivity.

Then on the margin facet, I believe there are three purpose how can we preserve good margin bettering pattern, in the meantime, we additionally preserve three-digit progress fee.

To start with, and simply now Junling simply talked about, we’re increasingly more direct sourcing from pharmaceutical firms. Secondly, we launched our PIS that’s Value Intelligence System to construct a wise pricing mechanism to enhance revenue whereas with none detrimental affect to our gross sales progress and enlargement. Third purpose, we additionally carry in additional greater margin SKU prior to now quarter, which assist pharmaceutical firms to advertise the gross sales of those SKU by our digital advertising and marketing platform and in the meantime bringing in additional margin. And I hope I’ve answered your query.

Nicely, I believe the third query relating to the B2B order quantity. Sure, it is a good seize on the large improve in our B2B order quantity. I believe firstly prior to now quarter, we’ve got elevated our SKU choice by our new provide chain mannequin and SKU choice has elevated a number of occasions. We imagine the choice is a very powerful component of buyer expertise.

And secondly by steady innovation on our provide chain expertise and provide chain community, we’ve got managed to enhance our operational effectivity and decrease our success prices to 2.5% as Luke simply highlighted. We have now returned our saving on success price to our clients by decrease the free delivery threshold, and which enhance our buyer shopping for frequency and likewise enhance our order quantity and enhance their ARPU, internet income.

Okay. Is it clear or some other follow-up query?

Bingyu ChenCitigroup — Analyst

Sure. It is very clear and thanks to your reply. And I’ve no different questions. Thanks.

Harvey WangCo-Chief Working Officer

Thanks.

Operator

We have now subsequent query from the road of Rachel Yang. Please ask your questions.

Rachel YangHSBC — Analyst

Okay, thanks. Hello, first congratulations for such a robust third quarter end result. That is Rachel from HSBC. I even have 4 questions.

The primary one is in your digital healthcare platform. So might you please share with us the latest progress and achievement for that platform. And what is the plan for subsequent yr? And since the net medicine market is kind of aggressive these days with many web big leaping into that. So how do you suppose over expertise or over facility behind might differentiate us from these web giants? That is the primary query on the digital platform.

The second is in your clouding service. So, what’s that? And do you cost the stand-alone pharmacies for the clouding service you might be offering them. That is quantity two.

The third query is your logistic techniques. We learn from the PPT that you’ve a logistic system that is protecting all of the province and you’ve got the aptitude to achieve or — you have got the aptitude for a 24-hour supply in over 300 cities. So how that functionality is in comparison with different on-line medicine gamers.

Final one is in your monetary entrance. So we all know that we’re already at some money movement optimistic and I assume subsequent yr we might eagerly reaching the full prime line of RMB10 billion. So how far do you suppose we’re from financially break-even.

So these are the 4 questions.

Junling LiuCo-Founder, Chairman, and Chief Govt Officer

Thanks. I am going to take the primary query then. If I understood you appropriately, it is about our digital options, proper? So actually on the coronary heart of our digital platform is the doctor-patient interplay platform. And along with that we additionally digitally observe the drug movement from manufacturing facility to sufferers. Up to now, plenty of these transactions truly taking place in offline.

And the opposite functionality we’ve got constructed out over the previous couple of years is actually digital advertising and marketing, which we’ve got seen an large progress. And naturally our sensible sourcing significantly serving to these pharmacies once they place orders. Up to now, they use a sheet of paper and so they work out what SKUs they should replenish, after which they’ll spend half a day to name completely different suppliers. With our digital software, which is known as the digital — our sensible sourcing, they will full their procurement inside, for example, 5 minutes as a substitute of half a day.

And naturally, and I believe one factor we have accomplished one of the best within the trade is actually the Affected person Care Program. I am going to simply offer you some examples, proper. So with the Affected person Care Program, we’ve got a D plus one, D plus seven, T minus seven and T minus 10. Let me simply shortly undergo that. For example, what’s DB, so for example analysis. On the primary day when the affected person bought recognized and I am assuming this can be a chronical affected person, clearly a drug is prescribed and delivered, and naturally our platform will have the ability to use completely different algorithm primarily based on completely different DB varieties

And on day one, after the analysis, we’ll ship out a fabric associated to the illness, the schooling materials. And the D7, we’ll ship out the significance of following on the compliance over the physician’s prescription and so forth. And T means the time they need to be refilling. So T minus, our system goes to mechanically calculate. We will ship out a notice to the affected person to remind he or her, her or him, it is about time to refill. And by T minus zero, on the precise day, whether it is nonetheless not taking place, clearly our pharmacists can observe up with the decision after which attempt to discover out what is going on on.

And the opposite factor we’re very happy with is actually the digital advertising and marketing we’re conducting for pharmaceutical firms, and particularly in terms of affected person schooling, the docs’ schooling, the pharmacist schooling. And primarily we’ve got constructed out a — I do not know find out how to describe this in English, it is [Indecipherable]. It is a matrix of various excessive site visitors media. For example in China, the largest site visitors got here from Doyin, from Toutiao, from WeChat and so forth.

So all of us — we as an organization arrange accounts in all these large site visitors websites and once we run a affected person schooling program, we are able to truly attain a lot, a lot broader viewers and in comparison with a single pharmaceutical firm can do. We’ll offer you an instance. We performed a diabetic schooling, sponsored by Eli Lilly and through the reside session, we had greater than 5 million customers take part after which we truly recorded in that session, total over 10 million folks truly seen that session. That could be a clear benefit over the standard methods with the digital resolution we’ve got and clearly we’ll actually exploit that functionality we’ve got.

I do not know who ought to follow-up the subsequent query.

Gang YuCo-Founder and Govt Chairman

Let me reply. Let me take the query on cloud companies. So we mainly present cloud service techniques, all persistent on ecosystem, together with docs, pharmacies, pharmaceutical firms, insurance coverage firms and so on. So let me simply use pharmacies for example. So we’ll present all through pharmacy. We are going to transfer their pharmacy on-line. So actually improve the protection of their — the protection. Additionally present on-line clinic, so remodel a pharmacy into scientific pharmacies. So we have got improvements that may switch pharmacies sort of bought into our maintain, and attain our docs or pharmacies to mixture and we get a chunk of prescription with a purpose to discover a drug from that drug retailer.

We additionally present on-line stock, in order that — product stock in order that with the big choice cycle. We additionally present cloud CRM, to assist the pharmacy to measure clients. With this fashion, we achieve extra thickening loyalty of the shoppers. Additionally I’ve answered the query on the protection. We talked about that we cowl 300 cities with that. In truth, we cowl greater than 80% of consumers with [indecipherable]. So that you talked about that you simply requested different companies. We really feel that the factor we are able to maintain with the shopper expertise. So our buyer satisfaction proper now could be 99%, and we really feel that we’re happy with that’s going to supply that, buyer satisfaction.

In order that definitely consists of the on-time supply, choice, worth and different buyer companies. We see that because the three metrics that we focus about.

Luke ChenChief Monetary Officer

Yeah, that is Luke. Let me reply the query in regards to the monetary efficiency as nicely money place and our break-even level. We’re very enthusiastic about our achievements in third quarter, particularly on the money place. And as of September 30, 2020, we’ve got whole money at hand amounting to RMB1.2 billion, and we’ve got achieved optimistic money movement from working actions for the quarter in addition to for interval year-to-date.

We imagine that we are going to proceed that pattern and proceed to generate optimistic money movement from our working actions sooner or later quarters. By way of break-even level, we is not going to give any steerage at this stage, as we’re nonetheless within the funding and enlargement mode. We don’t need to lose progress alternative due to our finish to funding. Having stated that, we nonetheless imagine that it was the sturdy prime line progress, enhance the margin profile, in addition to working effectivity, we will additional decrease the online loss as a share of internet income and which can result in profitability within the foreseeable quarters. We hope that we are going to stunning ourselves in addition to in that simply something that within the subsequent yr additionally.

Rachel, hope we reply your questions.

Rachel YangHSBC — Analyst

Thanks. Thanks, Gang Yu and Luke. Only a small follow-up on the supply system. So are you able to share with us the way you’re functionality is in contrast with different on-line medicine gamers.

Gang YuCo-Founder and Govt Chairman

I assumed I answered the query. We really feel that we’re very environment friendly. We cowl greater than 80% of our clients with in-time flawless as we’ve got a really environment friendly success prices, in all probability the bottom one, the bottom within the trade, and we’re nonetheless optimizing our whole provide chain, and all we are able to focus is our buyer expertise.

Rachel YangHSBC — Analyst

Okay. Okay, thanks. Thanks for the clarification. I’ve no different questions. Thanks.

Operator

We have now the subsequent query from the road of Xipeng Feng. Please ask your query.

Xipeng FengChina Worldwide Capital Company Restricted — Analyst

Okay, thanks for the query. And congratulations on the company program. Nicely, truly I’ve — I’ve — simply have one little query. And I’ve seen that many well-known pharmaceutical firms have entered into collaborations. Any strategic partnerships with 111 this quarter? Additionally I believe that such collaboration goes past drug procurement actions and extends to extra points, together with Massive Information, digital advertising and marketing and even model constructing. So my query is what are some great benefits of 111 Inc.? And what you possibly can supply when different pharmaceutical firms select to make cooperation with the corporate. Thanks.

Junling LiuCo-Founder, Chairman, and Chief Govt Officer

Okay. Let me take that query. That is an awesome query. So definitely we’ve got loved increasingly more strategic partnerships with international friends, prime pharmaceutical firms. We really feel that the principle purpose is on the amount. First is that we’re — US public firm and we’ve got excessive compliance and the transparency, and we’ve got additionally very excessive environment friendly provide chain and broad protection and deep penetration, and whereas the aptitude of going omni-channel drug commercialization and likewise loved our scale and our customary breakup expertise as we speak within the trade. And in addition you understand prior to now years we’ve got demonstrated {our capability} of innovation within the digital stability. I believe these are the principle causes that our — lot of pharmaceutical firms are, we’re the popular purchasers.

Xipeng FengChina Worldwide Capital Company Restricted — Analyst

Okay. And that is very useful and congratulations once more on the nice progress for the corporate, thanks.

Junling LiuCo-Founder, Chairman, and Chief Govt Officer

Thanks.

Operator

We have now the subsequent query from the road of Horace Cheng. Please ask your query.

Horace ChengIDEATE Investments — Analyst

Hello, congratulations on the nice outcomes. That is Horace from IDEATE Investments. I’ve three questions for the workforce. The primary query is the important thing distinction between 111 and JD Well being and Ali Well being particularly JD Well being on the B2B facet. That is the primary query. Second query is, your non-GAAP internet loss has continued to slender. Is that this pattern sustainable? Are you able to shed some extra mild on gross margin going ahead?

And in addition the final query is probably can share a bit bit extra progress on the itemizing on STAR Board. Thanks.

Junling LiuCo-Founder, Chairman, and Chief Govt Officer

Thanks, I am going to take the primary query. The distinction between 111 and JD Well being and Ali Well being. I believe our positioning may be very completely different than Ali Well being and JD Well being. To start with, in case you have a look at the naming of the businesses, it is fairly attention-grabbing as a result of JD is looking that enterprise JD Well being, and Ali is looking that enterprise as Ali Well being, and clearly our naming of the corporate is definitely Yao Wang, proper. So we’re extra centered on medication, whereas they’re extra centered on the customers well being. So we’re very — on this site visitors they will collect, however we should place ourselves to very — somewhat in a different way from them, as a result of our measurement can by no means compete towards these large measurement on site visitors.

So we focus way more on drug commercialization. And in case you have a look at our biz mannequin, our digital product and digital options are way more geared towards delivering worth to pharmaceutical firms. And subsequent level I need to make is, nobody trade has the B2C, the B2B, B2C infrastructure that we’ve got. You talked about about JD’s B2B. We’ve not seen a lot. However as we perceive, they’re extra centered on utilizing {the marketplace} to ship worth to the pharmacies, however we truly run that as a first-party enterprise that significantly better in terms of buyer expertise and clearly the infrastructure we’ve got to account is somewhat distinctive and that is our benefit and we need to exploit that to the fullest.

I am going to go on the gross margin query to Luke.

Luke ChenChief Monetary Officer

Yeah, we’re assured that we are going to proceed to slender the loss to — on profitability and we imagine that is sustainable. So within the subsequent coming quarters, we are going to proceed to triple-digit develop our enterprise within the tribute of scale as a result of the dimensions does issues. With that, we are going to construct direct partnership with pharma firms, however we might like to see we’re not solely making income from product gross sales, but additionally making income from the service and the — on the TV enterprise, you already see that we enhance our margin profile from 1.4% to 2.6%, and we see the rationale that truly that the gross margin for the enterprise proceed to enhance, and we imagine that could possibly be as much as 5% even to eight%.

So with the bettering the product combine and a concentrate on these high-margin merchandise. So we imagine that there’s rooms for us to proceed to enhance the gross margin profile, plus the proceed to enhance our working leverage and finally effectivity. So we are going to, as I simply shared with traders that we’re very assured that we are going to proceed to make funding on the chance. However with the dimensions build up, the margin profile enchancment that we are going to see that internet loss — share of internet income proceed to slender and we are going to see the breakeven level coming.

On the our itemizing plans of the subsidiary in China, we’re making progress based on schedule and we are going to disclose it based on SEC guidelines. So I’d encourage you to when the press launch of that we are going to difficulty within the due course based on SEC guidelines. Hope we answered your questions.

Horace ChengIDEATE Investments — Analyst

Sure, thanks very a lot.

Operator

We have now the subsequent query from the road of Chen Gu. Please ask your query.

Chen GuCNCB (Hong Kong) Funding Restricted — Analyst

Sure, are you able to clarify why on the B2C facet, there’s slight lower, each on income and on the margins. So is the margin correlate with — is like the amount essential as you lower it, your revenue margin will decline. Thanks.

Junling LiuCo-Founder, Chairman, and Chief Govt Officer

Yeah. As I defined that in my remarks, actually to offer a aware resolution first to spend money on higher infrastructure to ship longer-term worth for our enterprise. We’re fairly assured that we’ll be again on the expansion observe very quickly. And it is an awesome query in regards to the margin. Clearly it confirmed a decline in margins, however in case you have a look at the share, it’s nonetheless above 20% and that’s inside the — nicely inside the vary in case you examine it to the opposite B2B platforms and we’re pretty OK with that margin share, however transferring ahead, we must always count on enhancements in each on the prime line and likewise the gross margin. Thanks.

Chen GuCNCB (Hong Kong) Funding Restricted — Analyst

Are you able to elaborate in your investing for progress in infrastructure. Is that this on account of extra competitors, particularly from the giants JD or Ali, why you determined to take a position for progress and what you didn’t have earlier than.

Junling LiuCo-Founder, Chairman, and Chief Govt Officer

Yeah, I imply, I believe clearly it is fairly clear on the market. We aren’t going to compete towards the large site visitors gamers and we have to play in a distinct area. Proper. So proper now we spend money on infrastructure — infrastructure is just like the affected person buffer interplay platform. That’s going to assist us buying clients in a way more effectively. And in addition we’re constructing the digital clinics for docs and we’re working with pharmaceutical firms on merchandise the place they historically couldn’t launch within the offline method the place a brand new drug is accepted and once they — the pharmaceutical firm need to introduce that to the hospitals, it’ll take them one yr or extra to entering into the hospital’s procurement checklist and we’re working with plenty of pharmaceutical firms to truly use our digital platform for the medication to be delivered to sufferers if the physician difficulty a prescription even the drug is new.

And we’re partnering with pharmaceutical firms, even with their gross sales reps, their medical reps as nicely. So these are the infrastructures that we are going to be utilizing sooner or later. And we imagine, that is going to generate way more sustainable enterprise each prime line and the underside line, transferring ahead.

Chen GuCNCB (Hong Kong) Funding Restricted — Analyst

Yeah. I in all probability be very ignorant however you understand I am simply pondering if I have been a pharmaceutical firm and I need to do affected person schooling and work together with affected person, after I select like JD or Ali the place I do know there’s important site visitors and people firms our planning or doing the identical factor, you are doing proper now.

Luke ChenChief Monetary Officer

Let me take that query shortly. I believe as you possibly can see that greater than 70% of our gross sales are prescription drug. So clearly, we’re very devoted to extra skilled and prescription merchandise as a substitute of well being consciousness merchandise. So I believe that is the one more reason that pharmaceutical firms actually prefer to what we have accomplished, sometimes to lot of the brand new modern fashions like we lately launched our press launch, we launched a specialised hospitals of diabetes for pores and skin illness and so on. So these are nice examples that we’re taking a look at.

Chen GuCNCB (Hong Kong) Funding Restricted — Analyst

Thanks.

Operator

We have now the subsequent query from the road of Sheng Hui. Please ask your query.

John HuiRays Capital — Analyst

Sure, good night. Thanks for taking the query. It is nice that you simply reached like virtually 60% of all pharmacies in China, however however, it appears to be like like gross sales to every of the pharmacies after which like RMB8000. My query for you is how large you possibly can — you suppose you possibly can go by way of the gross sales to on common pharmacy.

Junling LiuCo-Founder, Chairman, and Chief Govt Officer

Okay. I’ll take your query. I believe though you understand we’re protecting 60%, I believe we nonetheless have the market remains to be very large. We are able to see in yearly, the market measurement of the pharmacy enterprise, it is — they’re 100 occasions of our present quantity. So we imagine that in future, we nonetheless have a really large room for additional develop our enterprise and in the meantime, we even have an enormous alternative to additional enhance our gross revenue. I believe simply the inventory, it is right here — and the ARPU of our — ARPU means the common income per consumer, our buyer — bear in mind if it is particular person pharmacy or it is a pharmacy has each elevated quarter-over-quarter considerably.

Luke ChenChief Monetary Officer

I believe it’s nice information once we bought began. As you possibly can inform, our penetration remains to be pretty low in terms of pockets share. And we are able to completely maintain a fairly excessive progress for for much longer time. Thanks.

John HuiRays Capital — Analyst

Okay, thanks.

Operator

[Operator Instructions]

Junling LiuCo-Founder, Chairman, and Chief Govt Officer

I believe we’re already —

Operator

Right now, I would like handy the decision again to Monica for any closing.

Monica MuInvestor Relations Director

Thanks, operator. In closing, on behalf of the whole 111 administration workforce, we would prefer to thanks to your curiosity and the participation into this name. When you require any additional data, please e mail us and thanks for becoming a member of us as we speak. This concludes the decision.

Operator

[Operator Closing Remarks]

Length: 67 minutes

Name individuals:

Monica MuInvestor Relations Director

Junling LiuCo-Founder, Chairman, and Chief Govt Officer

Luke ChenChief Monetary Officer

Gang YuCo-Founder and Govt Chairman

Harvey WangCo-Chief Working Officer

Sherry YinJPMorgan — Analyst

Bingyu ChenCitigroup — Analyst

Rachel YangHSBC — Analyst

Xipeng FengChina Worldwide Capital Company Restricted — Analyst

Horace ChengIDEATE Investments — Analyst

Chen GuCNCB (Hong Kong) Funding Restricted — Analyst

John HuiRays Capital — Analyst

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