111, Inc.

Good day and thank you for standing by. Welcome to the 1-1-1 Inc. third quarter conference call. At this time, all participants are in a listen-only mode. After the speaker's prepared remarks, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Stephen Kilmer. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today for 111 third quarter 2021 conference call. On the call today from 111 are Dr. Gong Yu, co-founder and chief executive, sorry, and executive chairman, Mr. Jingling Liu, co-founder, chairman, and CEO, Mr. Luke Chen, CFO of our major subsidiary, Mr. Harvey Wan, COO, Tiffany Couture, SVP of Investor Relations and Business Development, Carter Hung, Finance Director, and Monica Moo, Investor Relations Director. As a reminder, today's conference call is being broadcast live via webcast. In addition, a replay will be available on our website following the call. The company's earnings press release was distributed earlier today, and together with our earnings presentation are available on the company's IR website at ir.111.com.cn. Before we get started, let me remind you that this call may contain forward-looking statements 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 could 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 statement as a result of new information, future events, or otherwise, except as required under applicable law. Please note that all numbers are in RMB, and all comparisons refer to year-over-year comparisons, unless otherwise stated. Please also refer to our earnings press release for detailed information of our comparative financial performance on a year-over-year basis. With that, I'll now turn the call over to our CEO, Seemley Williams.

Good morning and good evening, everyone. Thank you for joining our 2021 third quarter earnings call. Before delving into performance, I would like to talk briefly about the regulatory environment. Next, I'll give a short summary of our business. For those who are new to our story, I'll then cover our recent operational performance before handing the call over to Luke to discuss the financials. We will conclude our prepared remarks with guidance for Q4 2021, after which we will open up the call for Q&A. We believe that current policies will continue to provide tailwinds to the healthcare industry and to our company. In 2016, President Xi announced the Healthy China 2030 initiative that emphasized public health as a precondition to future economic and social developments. This initiative is based on four core principles. First, put healthcare at the forefront of national development strategy. Second, encourage innovation. Third, develop new methods of care to focus on both prevention and the cure and the combined Chinese and the Western medicine. And fourth, ensure that rural areas of the country are given equal access to health care. In the latest five-year e-commerce development plan, the Ministry of Commerce has once again reinforced the importance of health care as a national priority and provided a blueprint for the future of China's health care industry, including telehealth services such as virtual registration, online consultation, and patient care management. In addition, the government is encouraging the integration of online and offline channels, as well as the development of B2B platforms with solutions that help solve the pain points of the healthcare industry. We are well positioned in the healthcare industry as our platforms are in alignment with the blueprint for the future of China's healthcare system. In addition, recently proposed policies aimed at curbing monopolistic and anti-competitive practices will hinder efforts by large companies to form closed-loop ecosystems that block out competition. Large platforms will become more open, leveling the playing field for all players, including one-on-one. New policies could also unlock new opportunities for one-on-one. For example, a key challenge that new policies seek to tackle is a lack of information symmetry within the healthcare industry, which can lead to healthcare decisions being made when only a portion of a patient's information is available. This push to integrate data between online and offline healthcare businesses as well as new compliance requirements for the certification of doctors and patients on virtual platforms will require innovative solutions, a void that we are well positioned to fill. 111 has been on the mission to transform and advance the healthcare services industry in China by leveraging technology and the power of the internet to connect patients with medicines and healthcare services. Our ecosystem seamlessly integrates supply, demand, and data to provide products and services to patients when and where they need the most. Our value proposition solves a key problem for the healthcare industry where decisions are made with incomplete patient data. Our patient-centric care platform directly connects patients with products and service providers, and is enabled by three unique technology platforms. One pharmacy, which is currently one of the largest online retail pharmacies in China, and it was also one of the first entities to receive an online pharmacy license. One clinic, which provides consumers with a myriad of cost-effective healthcare services, including e-consultations and doctor-patient management services over the web. And One Medicine, a one-stop shop for pharmacies. 111 also uniquely delivers a holistic healthcare platform that integrates medicine with healthcare services, benefits to all parties within the broader healthcare ecosystem of pharmacies, pharmaceutical companies, doctors, healthcare providers, and patients. We are a differentiated company because we offer cohesive online and offline solutions. Unlike traditional B2B players that only distribute products across their service area, our S2B2C model provides tools that enables businesses to achieve their goals. For pharmacies, we can help them operate more efficiently, train employees, expand into online channels, attract and retain customers, and integrate data and service across their online and offline channels. For pharmaceutical companies, we are a commercialization partner that can help sell their products outside of the hospital system while providing services such as data analytics, digital education, and patient feedback. For doctors and patients, we provide a telehealth platform that improves the patient care experience. Our competitive advantage is demonstrated by a vast network of healthcare players. We can connect pharmaceutical companies to over 65% of China's retail pharmacies nationwide, and connect patients to over 20,000 doctors with expertise in chronic diseases such as diabetes, neurology, dermatology, et cetera. Moving on to recent performance, we had another strong quarter with net revenue increasing 42% year-over-year to 3.3 billion RMB, marking the 13th consecutive quarter of year-over-year growth since our IPO. The B2B segment remains the core part of our revenue and continues to deliver impressive results, accounting for 3.2 billion RMB of total revenue, up 46% year-over-year. The market continues to show strong demand for our diverse portfolio of service offerings. And overall service revenue grew 106% year-over-year, with B2B service revenues totaling 16.1 million RMB, representing a 336% year-over-year increase. Non-GAAP net loss as a percentage of net revenues decreased from 4.1% in the third quarter of 2020 to 3.8% in this quarter. Net loss for Q3 2021 was primarily attributed to an increase in R&D and technology expenses and expenses attributed to the expansion of our fulfillment center capacity. We expect these expenses to grow at a slower pace going forward. Revenue for the B2C segment totaled 124 million RMB. a 23% decrease from Q3 2020. The B2C segment remains an important pillar of our patient-centric mission. We are pivoting the B2C towards profitable and positive margin contribution. To that end, we saw a managed revenue slowdown in the last few quarters. We will continue to invest in new initiatives in our B2C business segment, and we will report on this further going forward. In addition to strong top-line growth, our gross margins grew twice as fast as our revenue in the third quarter. Gross margins grew by 85% year-over-year, and as a percentage revenue, our gross margins improved to 5%. We're especially pleased with the margin improvement for our core business, which grew 145% from Q3 2020. As a percentage of revenue, the gross margins for the B2B segment grew from 3.6% in Q1 to 3.8% in Q2 to 4.4% in Q3. As mentioned in our Q2 call, we are laser-focused on margin improvement, and this is just the beginning. As our business continues to grow, we will realize further benefits from the economies of scale such as steeper discounts and cross-selling our technology and service offerings. We will also continue to optimize product categories, improve supply chain, and increase efficiency. For example, using our proprietary technology, we have identified areas of pricing inefficiency and made the appropriate adjustments. We have also improved our product selection as compared to last quarter. We almost tripled the number of SKUs for products with higher margin profiles, and we will strive to double that number over the next 12 months. In addition, the expansion of our service offerings will generate margin-attractive revenue. Our efforts should allow us to double our margins, putting us on a clear path to profitability. As the healthcare industry in China maintains its path towards digitization, it is important that we continue to invest in a robust technology infrastructure for our 111 platform. To support this requirement, our technology expenses in Q3 totaled 56 million RMB, a 155% increase year-over-year. On quarter-over-quarter basis, technology expenses increased at a much more modest pace of 6%. We continue to improve upon our smart supply chain infrastructure, and in order to meet the growing demand for our products and services, we have more than doubled our fulfillment capacity since the beginning of the year. The additional capacity will position us for future growth by increasing the number of businesses selling products through our platform and growing the number of partnerships with businesses looking to commercialize in China. In the third quarter, we expanded the number of direct sourcing partnerships with domestic and global pharmaceutical companies to over 400, up 33% from a year prior. Today, there are over 5,000 pharmaceutical companies globally, and we will look to form partnerships with at least 20% of these companies. 111 is an attractive partner for pharmaceutical companies because we can help them establish and manage an out-of-hospital channel that connects them with the majority of the retail pharmacies. Our value as a commercialization partner will continue to increase as we grow. enabling us to offer even more services to companies commercializing their products in China. We launched our One Health membership program in Q2, and I'm pleased to report that it continues to gain strong momentum with our customers. The One Health membership program allows members pay an annual fee to unlock exclusive benefits And in the third quarter, we have over 11,000 participating stores, exceeding our internal target of 10,000. With this program, we have also seen an increase in purchases amongst participating stores who are not only attracted to our vast selection and competitive prices, but also in having access to the valuable tools we offer to help them better manage their businesses. Currently, Over 2,000 stores are using our proprietary systems to help them manage inventory, optimize their procurement and product selection, improve customer experience through our CRM system, and provide product education to their customers and employees. Going forward, we will build upon the early momentum this program has achieved and continue to offer new products and technology solutions to help pharmacies improve their operations and build more robust businesses. Before I conclude, I want to spend a moment and touch on our ESG efforts. To date, we have provided approximately 400,000 free online consultations, including to patients in Henan province faced with severe flooding conditions. and we have partnered with local hospitals to provide medical services for underserved populations. We have also continued to support areas experiencing COVID outbreaks through PPE donations. As a company committed to helping people living healthier lives, ESG is very much embedded in our core values, and going forward, we will continue to support our community and help realize our collective goal of a healthy China. Beyond these highlights, we'll continue to strengthen our team, develop new technology, and improve our capabilities as our business grows. We're confident, going into the balance over the year, that our leading position in the healthcare services sector, along with industry tailwinds, position 111 well for continued growth as we transform medical services in China and ultimately deliver excellent value to our shareholders. Finally, I would like to thank our shareholders for their continuing support. With that, I will hand the call to Luke to walk through our financial results. Thanks.