111 Inc (YI) 2019 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the 111, Inc.

Fourth Quarter and Fiscal Year 2019 Earnings Conference Call.

(Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Ms. Monica Mu, Investor Relations Director.

Thank you.

Please go ahead, ma'am.

Today, for 111's fourth quarter and fiscal year 2019 earnings conference call.

The company's results were released earlier today and are available on the company's IR website at ir.

111.com.cn.

On call today from 111 are Dr. Gang Yu, Co-Founder and Executive Chairman; Mr. Junling Liu, Co-Founder, Chairman and CEO; Mr. Luke Chen, Chief Financial Officer; Mr. Harvey Wang, Co-COO; Mr. Barry Zhu, Co-COO; and Mr. Alex Liu, Finance Director.

Junling will give an overview of the company's performance and operations followed by Luke, who will discuss financials and guidance.

They will be available to answer your questions during the Q&A session that follows.

I have to remind you that this call may contain forward-looking statements made under the safe harbor provision 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 out 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 statements as a result of new information, future events or otherwise, except as required under applicable law.

This is now my pleasure to introduce Mr. Junling Liu.

Junling, please go ahead.

Thank you, Monica.

Good morning, and good evening, everyone.

Thank you for joining our fourth quarter 2019 earnings call.

The information that we'll be discussing here are also provided in the slides that have been posted earlier today on the company's website, and I would encourage you to download the presentation, along with the earnings report at ir.

111.com.cn.

The fourth quarter capped off a strong year for the company.

As I discuss our results today, I would like also to provide a brief summary of our accomplishments in the last few years as well as our strategy to carry this momentum into a new decade with the goal of transforming China's health care services industry to better serve increasingly complex and demanding schedules of the 21st century.

First, a bit of background on China's health care space.

As many of you are aware, China is home to 1.4 billion people and almost 20% are aged 60 or older.

That percentage is projected to surpass 35% in the next 3 decades, and the growth of China's health care industry is expected to outpace GDP growth for the next decade.

Despite health care being among the largest and the fastest growing markets in China, it is also one of the most fragmented and inefficient sectors.

Fortunately, both the Chinese government and the private industry has recognized the need for better health care infrastructure to support the growing demand, and this has accumulated in wide-sweeping reforms being enacted at the regulatory level as well as increasing inflows of capital from companies trying to capture a piece of the industry that is projected to reach $2.3 trillion by 2030.

For the approximately 345 million people living in the 48 tier 1 and tier 2 cities, they stand to benefit from the significant capital and the resource investments made by numerous companies, including 111 to meet their future health care needs.

However, that leaves over 1 billion people living in tier 3 to 6 cities and countries/villages, or 70% of the population who are aging and are also in need for better access to health care.

At 111, we strive to build a comprehensive health care services platform to meet this growing demand for health care in every city, whether it is Shanghai with its 23 million people or 700,000 in population.

Everyone deserves access to better and more convenient health care that fits within their budget and lifestyle.

Over the last few years, we have focused our efforts on 3 main fronts: growing our network, building and leveraging a smart technology-enabled infrastructure and establishing an omnichannel network to facilitate the commercialization of drugs across China.

In 2019, we continued our persistent efforts in growing the network of pharmacies that we serve.

With over 25,000 pharmacists signed onto our network, in the fourth quarter, we ended the year with over 235,000 pharmacies, surpassing our goal of serving 250,000 pharmacies by the end of 2019.

And this network covers about 50% of the pharmacy market in China, which is a great milestone for us.

The quarterly pharmacy order number reached 366,000, representing an increase over 200% year-over-year.

This commitment to growth propelled our revenue to RMB 1.35 billion in fourth quarter 2019, a 141.8% increase from fourth quarter 2018 and a 21.4% increase from third quarter 2019.

For the fiscal year 2019, our revenue totaled RMB39.5 billion, a 121.3% increase year-over-year.

Further, we have been able to achieve this growth while also making strides in improving our profit margins.

For 2020, we will continue to add providers into our network, particularly in tier 3 to 6 cities, to solidify our leadership position in areas that generally receive fewer investments.

With roughly 50% of the pharmacy market across the country already in our network, we are well positioned to begin scaling our operations into public hospitals across China, with a particular focus in the tier 3 to 6 cities where we believe the need for our services is the most acute.

While many companies in China are great at growing, we recognize the need to also build a best-in-class technology-enabled infrastructure to allow us to offer unparalleled services to our network, the pharmacies and the health care partners.

Our fulfillment centers are strategically located for operational efficiency, which enable us to deliver nationwide without blind spots and to 300-plus cities in 31 provinces within 24 hours.

By being a part of our network, pharmacies are able to reduce their inventory turnover, hold less inventories, while still ensuring that they're not depleted of any product in demand.

In addition, by leveraging our scale, pharmacies can place a small or even single product orders for medication that they otherwise will not be able to obtain.

Our sophisticated supply chain is further enhanced by our data and technology capabilities, which we believe will completely revamp the health care industry.

We have launched our smart fulfillment services in operation with our network of pharmacies to collect the purchasing and inventory data that allow us to make customized recommendations, detect trends and forecast demand.

As an example of how our technology is transforming the industry, under the traditional model, pharmacies placed orders via telephone for hundreds of SKUs and often have to manually manage their inventory.

With our Smart Sourcing System, our partner can complete the purchase process in 15 minutes, and our AI and machine-learning powered systems can offer smart recommendations for adjacent products and provide more accurate estimates of the optimal quantity.

Finally, our Smart Supply Chain can provide just-in-time service to alleviate the need for additional storage space.

In 2020, we will continue to build and improve our supply chain and inventory management systems as well as continue to improve our data analysis capabilities.

We plan to continue to develop novel services and tools that will educate and empower our customers and partners to make more informed decisions.

We remain committed to customer satisfaction and providing value-added services to our customers and partners.

Finally, thanks to the hard work of our team to build this network and infrastructure, we have laid the groundwork to provide an omnichannel drug commercialization model.

In 2020, we will continue to invest in resources to allow companies to commercialize their product in China on our platform.

We're the only company in our industry with the capability to provide nationwide omnichannel coverage in China.

Every year, there are new lifesaving or life-changing drugs being approved, and we as pioneers of the online drugstore, coupled with our network of health care providers, are uniquely positioned to ensure that these drugs are delivered to the people in need.

The traditional model of drug mobilizating requires multiple layers of intermediaries before a drug reaches a patient.

Under the 111 omnichannel model, pharmaceutical companies can access all of the health care providers within our network simultaneously, significantly reducing the time and cost for the medications to reach patients.

Imagine a platform that can deliver innovative drugs to a vast pool of patients in every city across China simultaneously, and that is the power of the 111 omnichannel model.

The ability for pharmaceutical companies to reach and educate patients and health care providers on new products and completely transform how medicine is delivered to a patient.

In the past, in order to meet our various health care needs, whether it is doctor appointments or getting a prescription filled, we often had no choice but to tediously fit our schedules around an antiquated health care system.

And today, through the use of technology, our company is transforming the way we access and deliver health care.

Every one of us will require health care at some point in our lives, and 111 is committed to a future where we no longer have to jump through hoops to become healthy.

Instead, health care drug products and services will be delivered to us in a manner that is comfortable and convenient to us and at a time that fits into our busy lives.

Now I also like to take a few minutes to talk about what we have done to help fight the coronavirus disease.

On January 20, 2020, in response to the coronavirus disease outbreak, we established an anti-epidemic command center and each senior executives led their teams to the front lines of the epidemic in Hubei province to provide medical supplies and resources.

All of our employees worked over time in Chinese New Year holiday to meet the needs of the nation.

On January 24, 2020, our Internet hospital was one of the first Internet-based health care companies to offer free online medical consultation to the public in Wuhan, and subsequently, to the entire Hubei province.

It was also among the first to provide free online drug refill services to individuals with chronic conditions across China.

We have worked with both pharmaceutical manufacturers and the logistics companies to ensure our supplies are delivered to those in need, whether in Wuhan, Hubei province, or nationwide.

Our ability to act quickly and effectively alleviated pressure on overburdened hospitals and helped to curtail the further spread of COVID-19 by allowing people with chronic illnesses to obtain medical care without visiting a hospital.

In addition, we donated 100,000 protective masks and delivered to Wuhan under the rain on Chinese New Year's eve.

We also launched a channel featuring real-time information about COVID-19 with news updates and advice from medical professionals on containing the virus and preventing infection.

Finally, we're offering a Medical Supply Assurance Service to help businesses protect their employees as they begin to resume their operations and recover from the impact of the epidemic.

I'm really proud of what our company and our employees have done to help Wuhan and the country to fight this coronavirus disease.

And with that, I will hand the call to Luke to walk through our financial results.

Thank you.

Thank you, Junling.

Moving to the financials, you can see the details for the fourth quarter and the fiscal year 2019 in Section 5 of our presentation on Slides 23 to 25.

I would like to highlight a few key business in the financial matrix and our focus on year-over-year comparisons.

All numbers are in RMB unless otherwise stated.

Let's start with our robust performance for the fourth quarter.

Total net revenues for the quarter grew 141.8% to CNY 1.35 billion, which was close to our full year revenue in fiscal year 2018.

Product revenue from our B2B segment were up 247.5% to CNY 1.15 billion as compared to CNY 330.2 million in the same quarter last year as a result of fast expansion of our pharmacy network and increasing pharmacies' order number and the size.

Total revenues from our B2C segment decreased by 13% to CNY 194 million from CNY 223 million in the same quarter last year as we continue to focus on higher-margin customers.

Compared to the same quarter last year, gross margin in our B2C segment was up 11.6%, up from 7.6% and a 1.2% in our B2B segment from 5%.

The improvement in both segments was primarily due to an improving cost structure and the pricing strategy.

Overall, gross profit increased by 83.8% to CNY 42.5 million and the combined gross margin was 3.2%, which is lower as compared to 4.1% a year ago as a result of dilution effect from the fast expansion of our B2B segment with a relatively lower margin.

Total operating expenses for the quarter were up 35.6% to CNY 210.6 million.

However, I would like to particularly highlight that as a percentage of net revenue, total operating expenses for the quarter was down to 15.6% from 27.9% in the same quarter last year.

As a matter of fact, we have continued to improve our operating leverage.

Fulfillment expenses as a percentage of net revenue was 3.6%, down from 4% in the same quarter last year.

Sales and marketing expenses as a percentage of net revenue was 7.6%, down from 14% in the same quarter of last year.

G&A expenses as a percentage of net revenue were 2.6%, down from 6.1% in the same quarter last year, and R&D expenses accounted for 1.5% of net revenue, down from 3.7% in the same quarter last year.

As a result, non-GAAP net loss attributable to ordinary shareholders for the quarter was CNY 143.7 million, up from CNY 109.6 million in the same quarter last year.

Non-GAAP net loss attributable to ordinary shareholders for the quarter accounted for 10.7% of net revenue, down from 19.7% in the same quarter of last year.

I will now quickly run through a few key full year 2019 financial results.

Further detail can be found in earnings release.

All comparisons are to full year 2018.

Net revenue were CNY 3.95 billion, up 121.3% from CNY 1.79 billion.

Product revenues from B2B segment increased 243.2% to CNY 3.17 billion from CNY 922.8 million.

Product revenues from B2C segment decreased by 9.9% to CNY 763.3 million from CNY 847.5 million.

Along with the robust top line growth, we have also made improvements in gross profit and margin in both B2B and B2C segments.

Compared to last year, gross margin in our B2C segment was 14.3%, up from 9.5%; and 1.1% in our B2B segment, up from 0.9%.

Overall gross profit increased by 58.4% to CNY 165 million, and the combined gross margin was 4.2%, which was lower as compared with 5.8% a year ago as a result, again, of dilution effects from the fast expansion of our B2B segment, which has relatively lower margin.

For full year 2019, total operating expenses were up 30.5% to CNY 658.7 million.

As a percentage of net revenue, total operating expenses was 16.7%, down from 28.3% last year.

Although we have spent 30% more than last year, we achieved 121.3% revenue growth.

We will continue to make infrastructure investments to support rapid revenue growth and expect to further improve operational efficiency and effectiveness.

Non-GAAP net loss attributable to ordinary shareholders for the year was CNY 434.3 million and accounted for 11% of net revenue, down from 18.4% as compared with last year.

Our cash position, as of December 31, 2019, we had cash and cash equivalents, restricted cash and a short-term investment of CNY 697.7 million compared with CNY 1.1065 billion as of December 31, 2018.

Update on the share repurchase.

Under the share repurchase program announced in August 14, 2019, the company used an aggregate of USD 3.26 million and repurchased 742,931 ADS.

As to the guidance, for the first quarter 2020, the company expect total net revenue to be between RMB 1.4 billion and RMB 1.48 billion, representing a year-over-year growth of approximately 113.5% to 125.7%.

The above outlook is based on the current market conditions and reflects the company's current and the preliminary estimates of the market and operating conditions as well as customer demand, which are subject to change.

This concludes our prepared remarks.

Thank you.

Operator, we are now ready to begin the Q&A session.

(Operator Instructions) We have the first question from the line of Cherry Yin from JPMorgan.

This is Cherry from JPMorgan.

I have 2 questions here, one is about our industry trend and the other is about our new initiative in the hospital market.

So the first question I want to ask about, like, how would you expect the recent coronavirus outbreak and the recent policy changes to reshape the -- China's drug retail market?

And more specifically, for our large number of off-line pharmacy clients, how do you see the transformation or upgrade trend for them?

And my second question is that we know that one of our new initiative around the end of last year is building up the team to break into the hospital market.

Could you share more color about the latest progress and our long-term plan on this?

Yes.

Thank you, Erin, for the -- Cherry, for the question.

So first of all, the effect of this virus, I think we've seen a different phenomenon over the last, let's say, over a decade or so time.

That is really the boom of e-commerce in retail, and I believe that this outbreak now has become a pandemic, it's really a catalyst to reshape the health care industry.

And my anticipation is that the health care is going to go through the similar transformation like the Chinese retail has gone through.

And we will be seeing that customers will move to online, and I also believe that the integrated online/off-line platform will be a must.

And I would also see that the government will be pushing to both the direction of the Internet plus, and we have seen so much evidence in the last month or so.

Obviously, that's a good question on what we do with the customers we acquired and how do we leverage that situation.

Really, we have many projects that are ongoing, and the main one, we have a drug welfare program, where we could enable the consumers to enjoy a much bigger discount.

And if they purchased a membership from us, and not only they can benefit themselves, but also if 1 person buys, the whole family will benefit from that.

And of course, we have a very effective CRM program.

And of course, our model is built around doing drug commercialization and in doing so, we will be able to accumulate individual consumers.

And because we do have a life cycle health management system in place whereby we could provide the patient education, the drug compliance management, the online retail with constant engagement with the customer.

Now therefore, we'll be able to retain the customers we acquired during the epidemic.

And you referred to how we are doing in the public hospital space.

This is a new asset.

We started not long ago, but we have already seen some pleasing progress.

First of all, we've had a few drugs, which we worked with doctors from public hospitals and those doctors actually can issue prescription and we can deliver the drugs to patients, and that's really encouraging.

We see that -- especially for new drugs, hospital access has become a real issue, and our model is going to be able to solve a lot of their problems.

And we also launched a project called (foreign language) in Chinese, and obviously, in spite of the recent epidemic, most of the public hospitals, the doctors whom we want to work with, actually they have pretty much shut down.

Despite of the situation, we've already seen revenue booked.

That is very, very encouraging.

Cherry, I hope that answered your question.

Yes, that's very helpful.

I think just now, Cherry, you also asked a question about off-line pharmacy.

I would like to add on some points here.

So for China off-line pharmacy, as Junling just mentioned, they are pretty fragmented.

Among the 480,000 pharmacies, about 50% of them are individual pharmacy, which means it's basically a pop and mom store.

So we all know that there must be a transformation in this industry.

So as 111, we have set up a program called Be Healthy Together.

This program is an enabling program to use 111 technology for these off-line pharmacies to set up their cloud pharmacy services and their cloud clinics services and cloud inventory services, and when we launched this program, that is late last year, and it has been very, very popular during this season, especially during the epidemic.

Because, as we all know, the consumer or the patient, they are not able to go to pharmacy physically.

So basically, we believe the coronavirus is expediting the transformation of this online pharmacy.

This transformation I'm referring to are traditional pharmacy to a future pharmacy.

Yes, Cherry, I hope this answered your question.

Yes, very clear.

We have the next question from the line of Xipeng Feng from CICC.

I have 3 little questions for management.

Well the first one is, as we noted that some traditional pharmaceutical distribution companies are also considering to evolve their business in B2B.

So how is your company to compete with those traditional distribution giants once they started to evolve online business?

And the second question is, what's the company's main operation goal for 2020 fiscal year?

Or which part or segment is the company going to invest the core resources to?

And my last question is about insurance.

So could you please share some more information on the cooperation with commercial insurance?

Yes, Xipeng, can you repeat the second question again, please?

I had some trouble hearing you.

Okay.

My second question is, I just wonder what's the company's main operation goal for 2020 in the full year?

And which part is the company going to invest your core resources to?

Yes.

So yes, no doubt, and we will be surprised if the traditional players do not think about moving into online.

And as far as our competitive advantage in that space is, really, I would say, in a few key areas.

First of all, the technology and our cloud-based technology platform, I believe we have a huge edge over the traditional distributors.

And the second advantage is really, I think, the talent base is different.

I mean we are the natives of the online players, and I think for a typical traditional player to really move online, they have far more challenges in terms of the talent base.

And of course, most of it is online -- or most of the traditional players in China, they're typically state-owned enterprises.

And when it comes to governance, we don't have -- or we don't have to deal with the red tape to get things done.

And obviously, we believe we're much, much more efficient.

And when it comes to decision-making and so on, we will be much more flexible.

We will be much more willing to take risks and embrace their fears and I don't believe the state-owned traditional players have the kind of flexibility that we do.

And the last but not least, we are always viewed either a B2C or B2B player, but we're not.

We are an integrated online plus off-line platform and what we do is we actually do drug commercialization with omnichannel.

When I refer to omnichannel, if you think about traditionally all in pharmaceutical company go-to-market is they had a drug approved, and of course, they're going to hire a whole bunch of our medical reps, and they're going to work with tier 3 hospitals or the tertiary hospitals in tier 1, tier 2 cities and some really large pharmacy chains.

And the rest is really doing tier distribution, and that is their whole model.

And if you look at what we could do to help the upstream pharmaceutical companies, and obviously, what they did not have where we could add complementary value is really, first of all, we have the [trusted] and [large] brand of (inaudible) right?

And that is direct to B2C, direct them to be what we have.

And as you can tell, we already have a formidable coverage across the country in the pharmacies, clinics and private hospitals.

And as we spoke over the last half an hour or so, in 2020, we will be making investments into the hospitals -- the public hospitals in tier 3, tier 6 cities.

And If we could provide the complementary value of the B2C, the pharmacy, the clinics, the private hospitals and also the drug market of the tier 3 to tier 6 cities, this is not something a traditional distributor can do.

And our value proposition is very, very different from a traditional distributor can do.

And obviously, you also asked about the 2020 investments and so on.

What is our goal in that area?

Obviously, first of all, we need to continue to scale our business, and we need to improve our operational efficiency.

And whilst we are scaling up our top line, we're scaling down on all of the lines on the expenditure side, be it G&A, be it fulfillment, be it sales and marketing, et cetera.

And we're also going to improve margin to improve the bottom line, too.

And the majority of the investment is going to be pooled into really on how we can perfect our omnichannel capability.

And we have a special focus on tier 3 to 6 cities where we believe the needs of our service is much more acute, and the value is going to be very, very complementary to the capabilities of the pharmaceutical companies.

Thank you.

We have the next question from the line of Bingyu Chen from Citi.

Congratulations on your first pharmacy coverage expansion.

So my questions are, during the virus outbreak, could you please share more about your efforts on collaboration with your clients or suppliers to ensure your quality services?

And can you share any data related to change of our patient habits, say, for chronic disease patients are more intended to refill their prescriptions online?

Right.

Maybe I can have a go and maybe Barry can provide you perspectives.

Of course, indeed, we have seen a much more attitudes from various levels of local governments, and in fact, we have been approached by a number of governments.

And as we speak, we are discussing in very advanced conversations on a whole series of delivering our services to a particular city.

And we understand the political lives of some of the government officials will be probably changed on how the reforms in his area can be carried forward.

And we do hope this is going to be a new trend.

And as far as the consumers' behavior is concerned, and obviously, we have been really excited about how many more customers are reaching out to (inaudible) government hospitals are pretty much shut down.

For chronic patients, cost savings, their continued care in the, really, crisis times.

And obviously, the capabilities we have built over the years really serves the purpose of providing that sellers to those patients.

I hate to say this, I mean, thanks to the virus, our numbers are actually shaping pretty well.

That's not the way we anticipate it, but that's the fact.

That our customers actually realize the value of the online and off-line player can really help their lives.

And I'll comment just on that and Barry, maybe you have some other points to add.

Yes.

During the epidemic, we collected the following data and information I'm glad to share with you.

First, the number of the -- our active users and the new users on the B2C sides both increased significantly.

Thanks to our global sorting capabilities, we secured a stable supply of majority of our drugs and protective materials.

And essentially, still we met the demand of our users.

As a result, we acquired a large number of users and other during the epidemic.

Second, our app was consistently top 2 downloaded with medial services app in the Apple store.

The number of our app downloads increased by 5x before the epidemic outbreaks.

Okay.

We may disclose more details on our next earnings call.

Thank you.

We have the next question from the line of Dexter Xu from Ambrosia Capital.

A few questions for me.

First of all, can you provide some more clarity on the main drivers for the substantial decrease in operating costs and expenses in 2019?

And how do you expect this to trend?

And then as a follow-up to that question, what are your projections for the company to break -- reach breakeven and if you have any plans to raise more financing in the near future?

And then finally, regarding the coronavirus outbreak, how did you guys handle the challenges with the logistics of getting all the shipments to your users during that time?

Okay.

Thank you.

Probably I would take the first question regarding the operating cost and third question regarding logistics during the virus.

And probably, Luke, talk about breakeven.

And for operating costs, definitely, it's a very good news.

We see compared to 2018, we have a significant reduction.

That is basically, our sales volume increased, so we achieved savings and as well as our continuous upgrade of our supply chain, technology and systems.

However, we are continuing our investment on supply chain, including enhancement of our national logistics network, automation in our fulfillment centers as well as to set up new fulfillment centers to bring our service to a next level.

Talking about our logistics during the coronavirus, as we all know, it is a huge challenge during the coronavirus, not only because of the quarantine in various cities from time to time, but also shortage of labor and transportation services reported during the Chinese New Year last year.

To overcome these challenges, we fully leveraged our logistics network across the country to back up each other.

For example, when our Wuhan fulfillment center was quarantined, our Suzhou or Guangzhou or Tianjin fulfillment center will take over.

So it help us to leverage the entire national live network support each other.

And on the other hand, as we already disclosed, we have a very strong direct sourcing partnership with domestic and international pharmaceutical companies.

This also helped us to reserve enough inventory immediately during the epidemic breakout and also for us to maintain a very stable supply for the past 2 months.

And Luke?

Yes, I think we are -- we can't worry about growth opportunity right now.

As we shared with you in 2019, we spent like 30% more, but we grow revenue 121%.

And so in terms of dollar amount, we incurred maybe CNY 100 million, more loss than last year, but that generates additional CNY 2.2 billion on top line revenue.

So especially during this outbreak, we saw a lot of opportunity.

So I think in 2020, we will continue to be in invest mode, continue to expense rationally in terms of revenue growth.

And of course, we care about our cash flow position.

We already see positive signs in the beginning of the month on the cash flow.

So we don't have a time -- a specific time line on the breakeven.

But we think as we constantly improving, expanding our scale and improving our margin, we will soon -- we will see that we will break even in the future.

Dexter, I hope we answered your questions.

Yes.

Actually, if I can ask one more.

In terms of the development of the industry, the regulatory environment seems to be very effective -- effectively driving the growth.

In terms of your outlook, what are your -- what is your outlook in terms of the sales of prescription drugs, especially for the development of chronic disease management?

And what are your plans and progress on these fronts?

Actually, during the epidemic outbreak, you can see from national to state government, they have officially announced several policy to encourage chronic disease to be refilled online.

So we are also the first company to launch the -- so far, these refill support to Wuhan, to Hubei as well as to the entire country.

So more and more people, even here today, they beginning to use to get consultations and notice online and also get their medicine through our online 111 1 Drugstore.

So the -- I think it's -- a lot of people know during this coronavirus, a lot of people realized that they have a new, probably you can call it a lifestyle, to enjoy a consultation, refill at home and I think the trend will go on even this epidemic outbreak finish.

I hope I answered your question.

Yes, if I may add...

Yes.

That's a great question, by the way.

Yes, and that's a great question, by the way.

And I want to add a couple of points.

And I think my anticipation is that our prescription drugs is going to have a bigger mix, the following are the reasons.

It's really about the landscape into the future, and if you look at the recent government reforms, including the drug purchase, the 4+7 and so on, you can draw 2 conclusions.

One is really for the generics, the good old times are over.

And obviously, we can still play a role for the pharmaceutical companies even if you actually got delisted.

And obviously, we can help with other channels, such as the pharmacies, the clinics and the private hospitals and so on.

And even if you won the bid, usually, even if you won the bid, you can only operate between 8 provinces maximum.

And obviously, for generics, we can still help them to sell outside of the 8 provinces.

And the other conclusion you could draw is really most of the pharmaceutical companies are focusing more and more on innovation drugs, and we've been talking about our omnichannel.

Obviously, our omnichannel is going to be one of the most important platforms that the pharmaceutical companies can leverage to really commercialize their drugs not only in the tier 1, tier 2 cities' tertiary hospitals, but also to all the other channels that we can provide coverage for.

So therefore, the generics and the innovative drugs, they all -- they're both really prescription drugs.

And therefore, our anticipation is that we're going to have a higher and higher mix of prescriptions over OTC.

Thank you.

We have the next question from the line of [Simon Chang] from (inaudible) Bay Capital.

I just have 2 questions.

So we noticed on the presentation a year-on-year decline of 10% in your B2C business.

Just wondering if you could comment on the dynamics of the B2C business versus B2B going forward.

And then also talk a little about your acquisition costs per paying user for the segment and also the retention rates that you're seeing.

And then the second question is kind of given the interest around the health care sector in China, have you looked at potential M&A opportunities which might help build out your platform more?

For the B2C side, Junling just mentioned, we are the only company with the capacity to provide a national-wide omnichannel coverage, including online and off-line pharmacy clinics, hospitals.

Even though we reach the patient directly through our B2C platform or we reach patients through our B2B partner, they both contribute to our omnichannel.

So under the 111 omnichannel model, a pharmaceutical company can access all of the health care providers within our network at the same time, significantly reducing the time and cost for their medications to reach patients.

We believe it will definitely expedite the transformation of health care industry in China.

And the last question about...

Junling, go ahead.

Sorry, [Harry.] Yes, I was going to jump in for the last question about building the platform a little further, given the rest of the world is suffering from the epidemic.

And obviously, we have been approached by a number of different opportunities, including Middle East, believe or not.

But we keep an eye -- we keep our minds open for now, obviously, but we have our focus really within the China market.

And we have a lot of priorities to execute, and we believe that, that is going to be our focus.

But if the opportunity presents itself, and if it does make sense, we do keep an open mind about it to further expand our platform beyond the geography we're covering right now.

As there are no further questions, I would like to hand the conference back to Ms. Monica Mu for any closing remarks.

Thank you, operator.

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 us in China, please let us know.

Thank you for joining us today.

This concludes the call.

Thank you.

Bye-bye.

Bye-bye.

Thank you.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating.

You may all disconnect now.

Thank you.