111, Inc. Q1 FY2023 Earnings Call

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. 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 overview 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 medication procurement, offering convenience and accessibility to patients. China's commitment to digitizing the healthcare sector during the pandemic has not only improved efficiency but also paved the way for innovative healthcare solutions and improved patient outcomes. I'm pleased to report that leveraging these transformative trends in the healthcare industry, 111, as a prominent healthcare technology company in China, has experienced solid growth and improved all of our operating metrics. With a focus on digital healthcare solutions, 111 has capitalized on the rising demand for digital medical service platforms for both B2C and B2B customers. Through our robust technological infrastructure and strategic partnerships, 111 has effectively connected patients with pharmacies, healthcare professionals, pharmaceutical companies, and other healthcare service providers. Our growth trajectory showcases the immense potential of digitization in revolutionizing healthcare delivery and improving overall patient experiences in China. During the first quarter of 2023, the company rose to the challenge and achieved RMB 3.7 billion in revenues, an increase of 23.9% year-over-year, marking the 19th consecutive quarter of year-over-year growth since our IPO. I'm also pleased to report that our gross profit reached RMB 236 million, representing a margin growth rate of 22.7% year-over-year. Our B2B business remains the key driver of revenue growth. In Q1, B2B revenue increased by 24.9%, representing a year-over-year increase to RMB 211 million. The hard-earned margin growth is the result of our consistent adherence to 111's customer-centric philosophy and our strong determination to create value for our customers. Meanwhile, we are thrilled to share this exciting news with our stakeholders that our non-GAAP operating profit has finally turned positive compared to a loss from operations as a percentage of net revenues of 2.4% in 2022, reaching our goal of quarterly breakeven at the non-GAAP operating income level. With hard work and dedication, we are now seeing the fruits of our labor and the progress towards achieving our financial goals. This milestone reflects our company's focus on efficiency and cost management and our commitment to delivering value to our customers. We believe there will be plenty of challenges lying ahead and there will be ups and downs in our business, but we will work tirelessly to create more value for our customers and shareholders. Now allow me to take a moment to discuss the progress we have made on our operations. Let me start from our supply side. We have successfully enhanced our partnership with upstream pharmaceutical partners by promoting mutual understanding, upgrading cooperation levels, enhancing supply chain efficiency, and bolstering our comprehensive digital capabilities. As our business continues to expand and as we position ourselves as an effective commercialization partner, we will continue to offer value-added services to pharmaceutical enterprises. At present, we assist hundreds of pharmaceutical companies in drug commercialization, digital marketing, and market insight. For example, on our B2C platform, in addition to the successful launch of Hua Medicine stores at HuaTangNing, Sanofi's Allegra is available on 111, marking its first online nationwide release on the platform. This medication is indicated for the treatment of seasonal allergic rhinitis and chronic idiopathic urticaria in individuals aged 12 and above. The introduction of Allegra in China and its availability on 111 not only improves accessibility for patients but also provides a better medication experience through professional guidance from healthcare professionals and pharmacists. I personally experienced severe allergic symptoms during the spring season, and taking traditional antihistamine drugs often left me feeling excessively drowsy, hindering my ability to work effectively. However, with the introduction of this medication on our platform, I, as a patient, have been able to enjoy the convenience of accessing online doctor consultations and having the medication delivered right to my doorstep. This experience has been nothing short of wonderful, especially when compared to the hassle of visiting a physical hospital, enduring the registration process, and waiting in long queues before finally seeing a doctor and obtaining a prescription. To exacerbate matters, there is no guarantee that the hospital stocks the specific drug I require. Knowing that there are countless individuals across the country facing similar issues, I'm thrilled that they too can now benefit from 111's digital healthcare platform. Meanwhile, on our B2B platform, through our partnerships with downstream pharmacies, we can deliver digital value to upstream pharmaceutical companies with our newly developed digital tool, Telescope. Telescope serves as a lens for pharmaceutical companies, allowing them to gain real-time insights and a comprehensive view of their drug sales and pricing dynamics. By leveraging advanced data analytics and market insights, Telescope enables these companies to analyze sales patterns, identify pricing opportunities, and make data-driven decisions to optimize their strategies. With Telescope, pharmaceutical companies can assess the performance of their products in real-time, identify market trends, and adjust their marketing campaigns accordingly. This invaluable tool not only provides a clear understanding of the market landscape but also assists in forecasting demand, refining pricing strategies, and ultimately maximizing sales and profitability. On the other end, we are deeply committed to empowering downstream pharmacies in a digital way, offering comprehensive support across all aspects of pharmacy operations. Our solutions not only provide cost-effective medical product options with satisfactory services that help them streamline processes and enhance operational efficiency. Through our network and partnerships, we negotiate competitive pricing and favorable terms with suppliers, allowing pharmacies to access products at lower costs. Additionally, leveraging technology such as automated ordering systems and efficient logistics, we ensure timely delivery and reduced operational expenses for pharmacies. By offering cost-effective products and efficient services, we enable pharmacists to deliver value to their customers and maintain their competitiveness in the market. Particularly, by the end of the first quarter, our 1 Health virtual franchise model enables around 20,000 pharmacies to provide superior products and services to their customers. All participating pharmacies can use our platform to better manage their product selection, procurement, and inventory management as well as to access our distribution tools through our digital SaaS services, including Smart Sourcing, Digital Marketing, O2O, and CRM. Thirdly, operational efficiency remains a continuous focus in our strategic imperatives. With the growing scale of business and enhanced technological capabilities, 111's operational efficiency continues to improve. We're glad to see that revenue and gross profit have both increased, whereas, as a percentage of net revenue, the sales and marketing expenses in Q1 were down to 2.41% from 3.85%. General and administrative expenses were down to 1.12% from 1.61%, and technology expenses were down to 0.68% from 1.13% in the same quarter last year. The total amount of sales and marketing expenses, general and administrative expenses, and technology expenses year-over-year has been reduced by 22.3%, 13.9%, and 35.1%, respectively. We have made significant efforts to enhance management efficiency through various measures. Firstly, we have implemented a strategic reduction of redundant staff, carefully optimizing workforce allocation while leveraging technology to automate certain tasks. Secondly, we have upgraded our standard operating procedures and streamlined management processes to eliminate redundancies and enhance productivity. Additionally, we have prioritized better corporate governance practices, fostering a culture of accountability and transparency across the organization. Lastly, we have made substantial investments in technology solutions that improve operational efficiency, such as advanced analytics, robotic process automation, and digital platforms. These continued efforts are aimed at driving efficiency, reducing costs, and ultimately delivering enhanced value to our stakeholders. To further improve operational efficiency, we will keep on focusing on implementing our strategy, flattening our organizational structure, and improving the work efficiency of our employees through multiple operational tools. Regarding logistics, our fulfillment costs have decreased significantly, thanks to our upgraded self-owned warehouse operations and joint venture warehouses. By investing in our infrastructure and technology, we have been able to optimize our supply chain processes and achieve greater efficiency. These efforts have allowed us to deliver our products to customers faster and more accurately while also lowering our fulfillment cost to 2.78% from 3.1% as a percentage of net revenue. We will continue to prioritize these initiatives as we seek to provide the best possible customer experience and remain competitive in the market. It is also worth noting that we have further sharpened our focus to operate on the principles of value creation, being customer-centric, and strengthening our supply base across the organization. As part of our organizational change initiative, we have established an in-house advisory department dedicated to driving strategic improvements across multiple disciplines. This department plays a pivotal role in analyzing customers' needs, enabling us to refine our product assortment to better align with market demand. By closely monitoring market trends and leveraging customer insights, we can intelligently adjust pricing to ensure competitiveness while maximizing profitability. Additionally, the advisory department works towards optimizing internal resource allocation, streamlining processes, and enhancing operational efficiency. Through those efforts, we aim to continually improve our ability to meet customer expectations, achieve optimal pricing strategies, and drive efficient allocation of resources across the organization. Digitizing the healthcare industry has been our goal since our inception. Under China's 14th 5-year plan for National Economic and Social Development, the digital economy has been elevated to a vital position and is expected to enter a period of rapid expansion through 2025. We see this as a tremendous opportunity to leverage digital technology and reconstruct the value chain in the healthcare industry. To achieve this, we have built a world-class technology platform that is already transforming China's healthcare industry. We have built an industry-leading smart supply chain platform that is uniquely tailored to optimize our digitization model and an unrivaled national sales network providing comprehensive coverage and a sophisticated multichannel digital platform that serves a diverse array of stakeholders in this massive market. This has made us an attractive commercialization partner, as evidenced by our growing number of partnerships with pharmaceutical companies and other entities designed to serve many players in the healthcare industry, including pharmaceutical companies, pharmacies, doctors, and patients. We feel very proud of the ecosystem we have built to date, and it will enable us to scale our business to the next level. Now let me spend a moment to talk about our future initiatives. One, align our product assortment and structure with customers' needs. We are committed to enhancing the customer experience by optimizing our product assortment in accordance with customers' needs. Through diligent efforts and the utilization of information collected from various channels, including customer feedback, market research, and data analytics, we will continuously optimize our product offerings. Leveraging the insights obtained from these sources, the company ensures that the right products are regularly available to meet the diverse demands of customers. This approach not only enables us to deliver tailored solutions but also allows for an exceptional and customized procurement experience. 2, reduce procurement cost. Direct sourcing from pharmaceutical companies has been highly effective in lowering the cost of products. We now source from over 500 globally renowned and domestic pharmaceutical companies, and we will continue to deepen our strategic relationship with our existing partners and secure new partnerships. In the meantime, many new metrics have been set to drive our procurement team to perform better in the cost-saving campaign. This will provide us with a wide range of drug selections at lower costs. 3, be competitive with intelligent pricing. At the Digital Medicine platform, especially in the B2B area, we are dedicated to continuously improving our market position by optimizing our pricing strategy through an intelligent pricing system. By leveraging advanced algorithms and better analysis, we meticulously evaluate market dynamics, competitive pricing, customer demand, and other relevant factors to determine the most competitive and profitable pricing for our products. This approach allows us to strike a balance between affordability for our customers and profitability for our business. By adopting this intelligent pricing system, we aim to gain a larger market share by attracting new customers, retaining existing ones, and establishing ourselves as a trusted and cost-effective partner in the pharmaceutical industry. 4, invest in Smart Supply Chain. We are committed to optimizing our supply chain to ensure efficient procurement, storage, and delivery processes. By establishing strong partnerships with pharmaceutical companies, we can source high-quality products directly from them, enabling us to streamline the supply chain and minimize delays. Furthermore, we are implementing a mixed model approach, combining direct sales and a consignment business to optimize warehouse operations by strategically managing inventory levels and helping sell large quantities of partners' consignment stock. To ensure continuity of supply, our dedicated continuity of supply department focuses on optimizing procurement practices, reallocating resources when necessary, and maintaining optimal storage levels to meet the demand and ensure the availability of products in a healthy condition. By implementing these measures, we aim to reduce costs and deliver exceptional service to our customers. 5, relentlessly drive operational efficiency. Our commitment to driving operational efficiency is steadfast, and we're implementing strategic measures to achieve this goal. By prudently reducing labor costs with technological supplements, we aim to optimize our workforce while maintaining productivity levels. Additionally, we're actively engaging in negotiations with third-party vendors and logistics suppliers to secure competitive rates, optimizing our logistics network, enabling us to streamline our supply chain and minimize costs. We have ground sales teams across the country to cover over 440,000 pharmacies. Productivity from each sales rep will be vitally important to our business. Detailed measures and metrics are reviewed each month to ensure continuous improvement. Furthermore, we recognize the critical importance of improving management skills and decision-making qualities, as these factors directly impact our operational effectiveness. Through focused efforts in these areas, we are confident that we can reduce overall operational expenses to a minimum level, ensuring sustainable growth and success. We founded the company without so many resources and connections. Therefore, our survival depends on making ourselves efficient and also making our partners more efficient. This will be our most important competitive advantage. With the scale of our business continues to grow, our leverage will grow as well. We aspire to be the most efficient operator in the industry. Sixth, keep building the 1 Health project for further growth. We will continue to actively engage pharmaceutical companies and pharmacies within the digital framework of the 1 Health project, utilizing a systematic approach to achieve beneficial outcomes. By cultivating strong partnerships and collaboration, we strive to attract more pharmaceutical companies and pharmacists to join our program, expanding the network and generating additional opportunities for growth. Through comprehensive market analysis, tailored marketing strategies, and data-driven insights, we work closely with our partners to optimize their product offerings, enhance sales performance, and drive profitability. The 1 Health Network has reached 20,000 stores, and we expect more to join this digital franchise. 7, committing to digitization. We're committed to consistently investing in digitization as we firmly believe that it will yield long-term benefits. By embracing digital advancements, we can optimize our processes, enhance efficiency, and unlock new opportunities for innovation. Through the strategic allocation of resources to research and development, we can stay at the forefront of technological advancements and drive groundbreaking solutions that meet the evolving needs of our customers. By prioritizing digitization and nurturing a culture of innovation, we ensure that our organization remains agile, competitive, and well-positioned for sustained growth in the ever-evolving landscape of the healthcare industry. To sum up, in the phase of post-COVID opportunities, 111 aims to position itself at the forefront of the healthcare industry, driving positive change and delivering superior services in the evolving post-pandemic landscape. We wish to thank all investors who have supported us. Now, I will hand the call to Mr. Luke Chen to walk through our financial results.

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 the B2B segment has increased by 26%, with the 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 by 0.1% to RMB 112.9 million, with the gross segment margin improved from 21.6% to 22.3%. Total operating expenses for the quarter decreased by 12% to RMB 257.9 million. As a percentage of net revenue, total operating expenses for the quarter were 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 were 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 were 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% in the same quarter of last year. Technology expenses accounted for 0.7% of net revenue, down from 1.3% in the same quarter of last year. As a result, income from operations was RMB 2.5 million compared to a non-GAAP loss from operations of RMB 72.4 million in the same quarter of last year. Non-GAAP net loss attributable to ordinary shareholders was RMB 7.6 million compared to a loss of RMB 80.6 million in the same quarter of last year. As a percentage of net revenues, non-GAAP net loss attributable to ordinary shareholders decreased to 0.2% in the quarter from 2.7% in the same quarter of last year. As you can see, we are improving our financial performance quarter-by-quarter. For the first time, we have achieved non-GAAP operating income on a quarterly basis. Please refer to slide 19 to 23 of the Appendix section for selected financial statements. A quick note on our cash position as of March 31, 2023, we had cash and cash equivalents, restricted cash and short-term investments of RMB 878.8 million. As previously disclosed, if our key subsidiary, when the pharmacy technology proposed listing on the stock market, was not completed before June 30, 2023, certain PRC investors will be entitled to require us to redeem all or part of their equity for an amount up to RMB 1.01 billion. As of today, certain investors have agreed not to exercise their rights before June 30, 2024, to redeem their investment totaling RMB 726 million. We are proactively working with the remaining investors, but in case all of such investors choose to exercise their redemption rights, we do not believe such redemption would affect our business and the prospects, as we expect to have sufficient capital resources to fulfill such redemption obligations. This concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session.

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 details on this project?

Thank you, Xipeng Feng. I will address the first two questions, and Luke can cover the one regarding the signing ceremony with Tencent. For the first question about the margin and profit drivers for the remainder of 2023, there are multiple factors. Firstly, we plan to continue increasing both revenue and margin, which will positively impact our bottom line. Secondly, we are actively pursuing cost reduction initiatives with our upstream suppliers, and our team on the ground is enhancing productivity. We have hundreds of salespeople working directly with suppliers, and we have implemented detailed plans to help boost their productivity continuously. I also touched on improving operational efficiency in my earlier remarks, as this will aid in delivering a stronger bottom line. Additionally, we are engaged in several innovative initiatives related to technological digitization. We are starting from within to digitize our workflows and using our internal capabilities to extend support to our upstream pharmaceutical partners and downstream pharmacies. We are also focused on enhancing our supplier base, particularly with a better product assortment. Our private label offerings are gaining significant traction, and we anticipate this trend will persist. Therefore, there are many factors driving our bottom line improvements. As for our operational focus moving forward, we emphasize three principles: creating value, building a customer-centric management system, and strengthening our supply base. To create value, we make daily decisions based on the value generated for our customers and partners. If a decision does not clearly provide value or is driven solely by internal motives, it takes lower priority. Being customer-centric means we strive to offer a superior experience for our customers, providing them with a diverse selection of medications on our platform.

Okay. Let me share the partnership with Tencent. The partnership involves Tencent and our health initiative for strategic collaboration 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 the sales field and integrate smart pharmaceutical sales software services solutions aiming to improve the efficiency of pharmaceutical sales and facilitate the digital transformation of the entire industry. We will leverage Tencent's technological advantages in cloud computing, big data, artificial intelligence, and consumer internet services to support our intelligent 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 you, Xipeng. I hope that answers your questions.

Your next question comes from Loren Kai from HSBC.

I have two questions. First, can you explain how we should view the company's top-line growth in the upcoming quarters and what the main drivers are, particularly for the B2B sector? Secondly, could management provide more information about your digital marketing tool, Telescope, and share your current strategies and goals for the digital marketing business?

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

May I check how much of the growth of your topline growth in the first quarter came from COVID-19-related products? And we also know you have taken many measures to reduce costs. 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 this January, have become so popular in this country. This has brought some upside in our business. But from a percentage-wise, it's still not that big. So overall, I think in these months, since March this year, the trend has decreased significantly. So everything has gone back to normal from March.

Yes. In terms of reducing costs and operational expenses, our cost structure includes three main categories: fulfillment, sales, and general and administrative (G&A) costs. Since our founding, we have prioritized efficiency due to limited resources and connections, making it essential for us to operate effectively. Over the past few quarters, we have seen a steady decline in fulfillment costs, and we believe there is still significant potential to lower these further. Our sales expenses, as indicated in our financial report, accounted for about 2.4% in Q1. We aim to reduce this percentage further, setting an internal target of 2% within this year. Additionally, we are leveraging technology to enhance efficiency at our head office, automating many tasks with the availability of AI. Our tech team is actively exploring this, with several projects currently in trial, which should lead to a decrease in G&A costs. Regarding our breakeven guidance, we believe that at our current scale, achieving RMB 20 billion in sales will allow us to manage operational expenses around 5%. We anticipate realizing an operational margin of 8% to 9%, suggesting a bottom line close to 5%. Our focus remains on maintaining high efficiency.

Thanks for sharing, and congratulations on a fantastic season, and you make great progress. My question regards ongoing consolidation, mergers, and franchising in the downstream pharmaceutical industry. Along with competitors going for IPO, what does the company perceive as future B2B competition, even as it strengthens its relationship with downstream customers and establishes its own competitive advantage?

That's a very good question. Our major customers are pharmacy chains. For example, in China, the top pharmacy chains we serve make up 95% of them. We believe that consolidation will play in our favor. Our established reputation for strict quality control and a transparent supply chain will help us gain the trust of our B2B customers and pharmaceutical companies. At the same time, as you mentioned, ongoing consolidation and merger franchising will certainly change the whole competitive landscape. In this case, we have to continue to strive for differentiation and innovation. This relates to initiatives such as our Telescope project. We also provide our existing B customers with innovative solutions and services to empower their efficiency and strengthen customer loyalty.

This is Stephanie from Civic Investment, and congratulations on the growing revenues. I have two 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? 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 at the operational level. Additionally, we've been managing cash very carefully in terms of working capital. Our accounts payable date is around 45 days, and our inventory days are about 30 days. This gives us a lot of free cash. We are improving our efficiency and continue to build our scale, which means we are able to negotiate better trading terms with our suppliers. You can see from the cash flow statement that we had negative cash flow for the first quarter, but that's mainly because we received a lot of advances from customers in December when the COVID-related retail restrictions were lifted. A lot of customers paid in advance to us for medicines. But in terms of operations, we were cash positive in the first quarter. At the end of the quarter, the cash and cash equivalents we see, including restricted cash and short-term investments, amounted to RMB 878 million. We believe that we have sufficient cash reserves to support our business expansion.

Regarding the question on OEM, yes, we are working with some leading pharmaceutical companies in China to OEM or private label products. We have several private label registered under 111, catering to our customers including dietary supplements. By Q1 this year, we have already launched more than 70 private label SKUs, and more products are already in our pipeline. Most of these products have been well-received by our downstream customers. As you may know, private label products have become a very important margin contributor for top chain stores in China. For our customers, which are mostly small and medium stores, private labels provide an attractive solution.

Yes, let me take the first question on the going private. Our understanding is that the going private process is still ongoing. The special committee formed by three Independent Directors is still working with the investor group. We will make all necessary disclosures in due course as required by SEC guidelines. That's our response on the going private questions. Dr. Luke can talk about the technology developments.

Okay. Let me take the question on technology and recent developments. Let me just use a few examples. In fact, Junling mentioned the Telescope project, using data intelligence. Our smart sourcing tool is now used by thousands of pharmaceutical companies and chain pharmacies; this utilizes AI tools to help all retail stores source effectively and optimally. We also have an internal tool called the management system, which uses big data for assortment management. A very important part of our growth has come from improved selection and out-of-stock inventory management. Regarding supply chain management, we have 11 warehouses across the country and we transship products among these warehouses to optimize fulfillment costs. Additionally, we have joint venture warehouses to leverage partner resources for improving availability and reducing shipment times to customers.

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 know. Thank you for joining us today. This concludes the call.