Hello, everyone, and thank you for joining 111's Conference Call Today. On the call today from the company are Dr. Gang Yu, Co-Founder and Executive Chairman; Mr. Junling Liu, Co-Founder, Chairman and CEO; Mr. Luke Chen, CFO of 111's Major Subsidiary; and Mr. Haihui Wang, COO. [Operator Instructions] The company's earnings press release was distributed earlier today and together with the earnings presentation are available on the company's IR website. Before the conference call gets started, let me remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such 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 would cause actual results to differ materially. For more information about these risks, please refer to the company's filings with the SEC. 111 does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise expected as required under applicable rules. Please note that all numbers are in RMB, and all comparisons refer to year-over-year comparisons, unless otherwise stated. Please also refer to the earnings press release for detailed information on the comparative financial performance on a year-over-year basis. With that, I'll now turn the call over to 111's CEO, Mr. Junling Liu. Please go ahead.

Thank you for joining our first quarter 2023 earnings call. The information that we'll be discussing here is also provided in the slides earlier today on the company's website. I encourage you to download the presentation along with the earnings report at ir.111.com.cn. I'll begin by providing an overview of the macro environment, followed by a review of our recent operational performance. Additionally, I will comment on our continued commitment to industrial digitization, driving revenue and margin growth, fortifying upstream supply capabilities, enhancing operational efficiency and outlining our future strategies. Subsequently, our CFO, Mr. Luke Chen, will present a detailed [indiscernible] of our financial results, ensuring a thorough understanding of our organization's financial standing. As many of you are aware, in the first quarter of 2023, China's economy achieved a solid start. It was reported that the GDP reached RMB 28.5 trillion, growing by 4.5% compared to the same period last year. The economic recovery remained positive as the effect of various policies gradually became evident, both online and offline economic activities resumed. The medicine market in both B2B and B2B segments also experienced aligned growth with China's economy in Q1 of 2023. Meanwhile, through the COVID-19 pandemic, China has undergone a transformative phase in its healthcare industry, embracing digitization and achieving remarkable progress. The adoption of electronic medical records has streamlined data management, enhancing efficiency and accuracy. Telemedicine services have expanded, enabling remote consultations and bridging the gap in healthcare access, particularly in rural areas. Online pharmacies and e-commerce platforms have revolutionized the medication procurement offering convenience and accessibility to patients. China's commitment to digitizing the healthcare sector during the pandemic has not only improved the efficiency, but also paved the way for innovative healthcare solutions and improved patient outcomes. I'm pleased to report that leveraging these transformative trends…

Thank you, Junling, and good morning, evening, everyone. Moving to the financials; my prepared remarks will focus on a few key business and financial highlights. You can refer to the details of the first quarter 2023 results from slide 15 to 18 in Section 2 of our presentation. Again, all comparisons are year-over-year and all numbers are in RMB, unless otherwise stated. Let's start with the first quarter results. For the quarter, we partially benefited from the lifting of COVID-related restrictions since December last year. Our top line and gross segment profit continued to grow. Total net revenues for the quarter grew 24% to RMB 3.7 billion, and gross segment profit for the quarter grew 23% to RMB 236.2 million. Top line growth for the quarter was mainly attributed to our B2B segment revenue growth at 25% to RMB 3.6 billion. The gross segment profit for B2B segment has increased by 26%, with gross segment margin kept stable at 5.9%, which reflected our ability to steadily expand our business scale and our margin. Our B2C segment revenue increased 0.1% to RMB 112.9 million, with gross segment margin improved from 21.6% to 22.3%. Total operating expenses for the quarter decreased 12% to RMB 257.9 million. As a percentage of net revenue, total operating expenses for the quarter was down to 7% from 9.9% as we continue to enhance our operating leverage and optimize our operational efficiency. Procurement expenses as a percentage of net revenue for the quarter was down to 2.8% from 3.2% in the same quarter of last year. Sales and marketing expenses as a percentage of net revenue for the quarter was 2.4%, down from 3.9% in the same quarter of last year. General and administrative expenses as a percentage of net revenue accounted for 1.1%, down from 1.6%…

[Operator Instructions] Your first question comes from Xipeng Feng from CICC.

Congratulations on the company progress. And well, I have 3 questions. My first question is what are the profit drivers for the year 2023 after achieving a profit in the first quarter? And my second question is what will be the company's operational focus going forward. Last but not least, when we see that the company has just established a strategic cooperation with domestic Internet Enterprise Tencent. Do you please share some more colors on this project?

Yes. Thank you, Xipeng Feng. I think I'll take the first 2 questions. And then I think Luke participated in the signing ceremony with Tencent -- maybe you can take that question. So the first question with regards to the margin drivers or profit drivers for the remainder year of 2023. I think there are numerous drivers here, just to name a few. First of all, we're going to continue to grow revenue and margin. And with margin growth, that is going to contribute to our bottom line. And secondly, with scale, we aggressively pursue a cost down initiative from the upstream suppliers and all our people on the ground has [Technical Difficulty] really improved productivity. We have a number of hundreds and hundreds of salespeople on the ground. And we also have many people who are working with suppliers. And of course, detailed plans have laid out for them to improve their productivity, and that's going to be happening on a continuous basis. And I spoke in my script briefly about we're going to improve operational efficiency because this -- to be more efficient is going to help us to deliver better bottom line. And there are also many innovative initiatives and projects in our technological digitization efforts. First of all, we started from ourselves to digitize some of the work we do, and we can also leverage our internal capabilities and extend the same capability to our upstream pharmaceutical partners and also the downstream pharmacies. And of course, when we talk about to build a stronger supplier base, for instance, we have much better product assortment now. And in particular, our private label is really creating great momentum, and we expect that momentum to continue. So there are many, many drivers for us to continue to really drive…

Okay. Let me share the partnership with Tencent. [indiscernible] and the Tencent health view of strategic partnership in jointly providing technology-based services to our customers, including the pharmaceutical companies as well as pharmacies. So we will jointly explore new digital solutions in -- especially in the sales field as well as integration of smart pharmaceutical sales software services solutions aiming to improve the efficiency of pharmaceutical sales and facilitate the digital transformation of the entire industry. So we definitely leverage Tencent technology advantages in cloud computing, Big Data, Artificial Intelligence and the Consumer Internet services to support our intelligence drug store retail, data center and smart pharmaceutical sales software. So those are the major contents of our partnership that we are already in the process of defining joint projects.

Thank Xipeng. I hope that answers your questions.

Your next question comes from [ Loren Kai ] from HSBC.

I have 2 questions. First, I would like to ask about 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 my second question is, can you -- can management share more details on your digital marketing tool, the Telescope? And can you share your current strategies and goals towards digital marketing business?

Okay, Loren. This is Haihui. And let me take your questions. And for your first question regarding the growth; firstly, we will continue to upgrade our supply chain and we will establish the direct and strategic partnership with more domestic and also international pharmaceutical companies, bringing in more and more [ selection ] with lower and lower cost to our downstream customers. And secondary, we will enhance our digital marketing platform. I will talk about that in your second question to help pharmaceutical companies to commercialize their new products to pharmacies, clinics and eventually to patients and customers. So our B2B business is becoming a platform to effectively link pharmaceutical company with both pharmacies, clinics and with all the end users. In 2022, the volume of China pharmacy retail has exceeded RMB 600 billion. It is a big, big market. We believe that we have enough room to further expand our business volume of course with a healthy market. And on your second question regarding our digital marketing tool the Telescope. Telescope actually serves as a lens for pharmaceutical companies. Actually, when I sit in the office in Shanghai or Beijing, they are able this tool, Telescope allows them to gain the more direct and comprehensive view of their product sales and also their pricing dynamics real-time. By leveraging advanced data analytics and also market insights this tool enables pharmaceutical companies to analyze sales patterns and also to identify pricing opportunities also to make adjustments and make data-driven decisions to optimize their strategies. With this tool pharmaceutical company can access the performance of their products in real-time. Currently it is T+2 -- T+2 days and identify market trends and adjust their marketing campaign accordingly. These tools not only provide a clearer understanding of the market landscape, but also assist in forecasting demand, refining pricing strategies and also maximizing their sales and profitability. Thank you, Loren. Hope I answer your questions.

Yes, that's very clear and congratulations for attending profitable this quarter.

Your next question comes from Zoe Bian from Citi.

May I check how much of the growth of your topline growth in the first quarter came from COVID-19-related products. And yes, and we also know you have taken many measures to reduce cost. What's your latest guidance on breakeven.

I will take the first question. Definitely, the COVID-19-related products, especially in December last year and also this January this year has becoming so popular in this country. Definitely, it brings some of the upside in our business. But from a percentage wise, it's still not that big. So overall, I think in these, from March this year, launched COVID-19-related [indiscernible] becoming much, much more -- the trend has been decreased. So everything has gone back to normal from March.

Yes. With regards to driving cost down and reducing operational expenditure -- if you look at our cost base, we have 3 buckets of expenses, right? So first of all, is our fulfillment and secondly is our sales. And thirdly, it's the G&A. Given that we founded the company on the basis of being efficient because we don't have that much resources or connections. And obviously, we must be a very efficient operator. And if you look at the last few quarters, our cost to fulfill has steadily coming down, and we believe there is still so much we can do to bring down -- to further bring down the fulfillment cost. And with regards to the sales, if you look at our detailed financial report today is about 2.4% in Q1. And we believe that the percentage of expenditure on sales is going to be further reduced, and our internal goal is actually 2% within this year. And of course, in the meantime, we'll also use our technology to make our head office more efficient to really automate a lot of those work, especially with AI's availability, and our tech team is aggressively looking into it and many projects actually are on trial right now, and we should expect that the G&A cost is going to go down. And obviously, you're asking about the breakthrough event, just let me give you this picture, right? So even at our current scale, which is RMB 13.5 billion last year and would be RMB 3.7 billion in the first quarter we believe if we -- like we -- our total OpEx is 6.3% in Q1, considering during the Chinese New Year we are really paying our people with paying rental, we're paying all those expenses. You've got to shut down the operation…

Your next question comes from [ Kevin Wang ], Private Investor.

Thanks for sharing and towards a fantastic season, and you make a great progress. My question regarding [indiscernible] oh, sorry, there are some echo. My question is regarding ongoing consolidation mergers and franchising the downstream pharmaceutical industry, along with the competitors going for IPO, what does the company perceives future B2B competition, although the company is strengthening its relationship with downstream customers and establish its own competitive advantage.

That's a very good question. So our major customers are pharmacy chains. For example, in China, the top 1 [indiscernible] were already serving 95 of them. So we believe that the consolidation will play in our favor. So our established reputation very strict quality control and transparent supply chain will help us gain the trust from our B customers and pharmaceutical companies. And at the same time, as you mentioned that the ongoing consolidation merger franchising, certainly will change the whole competitive landscape. So in this case, we have to continue to strive for differentiation and innovation. This is what we have mentioned in the [indiscernible] speech that on our due development, for example we build this project Telescope. This industry is more value and can provide to sponsor companies to help them gain market insights and market their products through our retail channels. Also -- and also mentioned the 1 Health program, we provide to our existing B customers [indiscernible] solutions and services. This industry is how we can empower the efficiency and the customer stickiness. I hope that answers your question.

Your next question comes from [ Stephanie Lee ] from [ Civic Investments ].

This is Stephanie from Civic Investment and congratulations on the growing revenues. And I have 2 questions. The first one is how was the cash flow situation in the first quarter for the company? And what's the current cash position? And the second question is what are the company's plans for its OEM product in the future? Thank you.

Thank you Stephanie for the question. Yes, we have achieved a non-GAAP operating income in the first quarter, which means we're no longer burning cash operation level. It's good news for us. Additionally, we've been managing cash very carefully in terms of working capital. You can see that our accounts payable date is around 45 days. And then our inventory days is about 30 days, 30-plus days. So give us a lot of free cash. We are improving our efficiency and continue to build our scale, which means we are able to negotiate a better trading terms with our suppliers. So if you look at the cash flow statement you will see the negative cash flow for the first quarter, but that's mainly because we received a lot of advance from customers in December when the corporate retail restrictions were lifted. So a lot of customers pay advance to us in order to get medicines. But in terms of operations, in first quarter, we've been cash positive. At the end of quarter end, the cash and cash equivalents we see cash and shorting investment amounted to RMB 878 million. So we believe that we have sufficient cash reserves to support our business expansion. I will leave the second question on OEM.

The question of EMM, yes where we are [indiscernible]. Regarding the question on OEM, yes, we are working with some of the leading pharmaceutical companies in China to OEM or private label products. And there are a couple of private label registered in 111, [indiscernible] our trends to our customers and also from Jan for individual stores, customers and also some more, for example, like lane for dietary supplements and -- by Q1 this year, we already launched more than 70 prime label SKUs. And more and more things are already in our pipeline. Most of these products have been well affected by our downstream customers. And as you may know, private label products have been a very, very important margin contributor for those top chain stores in China. But for our customers, which are most small and medium stores and small and media stores or individual stores they don't have the luxury and capability to establish their own brand. So [indiscernible] become a very attractive solution for them.

Your next question comes from [ Adam Frank ] from [ Grace Capital ].

Here is Adam Frank from Grace Capital. Congrats to our performance in last quarter. And I have 2 questions. But first, what's the current progress of company privatization while second is may ask if the company has any new technological development and supply chain [indiscernible] supply chain process in recent times.

Yes. Let me take the first question on the going private. Our understanding is the going private process is still ongoing. The special committee formed by 3 Independent Directors is still working with the [indiscernible] Group. So we shall make all the necessary disclosures in due course as required by the SEC requirements. That's our answer on the growing private questions. Dr. Luke can talk about technology.

Okay. Let me take the question on technology and tuition new development. Let me just use a few examples. In fact, Junling mentioned, the Telescope -- project Telescope, right, that uses data intelligence. And smart sourcing now used by thousand pharmaceutical companies and chain pharmacies, that uses a lot of AI tools to help all the [indiscernible] stores source effectively and optimally. And we also have an internal tool called the [indiscernible] system, use Big Data, help us assortment management. A very important part of our growth came from our improved selection and out-of-stock inventory management. Regarding supply chain management, let me also give 2 examples. One is the transshipment, right now, we already have 11 warehouses and across the country, we transship products amongst the warehouses to use fulfillment cost. And also, we have Junling mentioned the joint venture warehouses. We mostly -- we leverage partners resources to facilitate our revenue growth at the same time to improve the availability and improve the time -- the shipment time to customers. I hope this answer your question.

There are no further questions at this time. In closing, on behalf of the entire 111 management team, we'd like to thank you for your interest and participation in today's call. If you require any further information or have any interest in visiting 111 in Shanghai, China, please let the company. Thank you for joining us today. This concludes the call.