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; Dr. Junling Liu, Co-Founder, Chairman, and CEO; Dr. Luke Chen, CEO of 111’s Major Subsidiary; and Dr. Haihui Wang, COO. As a reminder, today’s conference call is being broadcast live via webcast. 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 under the Safe Harbor Provisions Act. 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, except as required under applicable law. Please note that all numbers are in RMD and all comparisons refer to year-over-year comparison unless otherwise stated. Please also refer to the earnings press release with detailed information of the comparative financial performance on a year-over-year basis. With this, I will turn the call over to 111’s CEO, Dr. Junling Liu.

Good evening and good morning. Thank you for joining our second quarter 2023 earnings call. The information that we’ll be discussing here is also provided in the slides that have been posted 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 will 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, fortifying upstream supply capabilities, enhancing operational efficiency and outlining our future strategies. Subsequently, our CFO, Mr. Luke Chen, will present a detailed analysis of our financial results, ensuring a thorough understanding of our organization’s financial standing. Now let me start with the macro situation in our industry. In the second quarter of 2023, the pharmaceutical retail market faced some challenges. According to statistics, the Q2 sales of retail pharmacies in 2023 reached RMB225.13 billion, marking a decline of 6.82% compared to Q1 of 2023, and a year-on-year decrease of 7.52% compared to Q2 of 2022. Looking at the broader picture, although the total sales volume of Q2 was somewhat more conservative, we feel lucky to be in the right sector. Despite the economic challenges presenting tests to the pharmaceutical retail market, the industry remains optimistic about the future, hoping for a steady rebound in the coming quarters. Amid the sweeping changes and initiatives of 2023, it’s evident that the government’s policies remained staunchly supportive over the digital evolution and the rejuvenation of the healthcare and the pharmaceutical sectors. Specifically, the notice on further improving the integration of designated retail pharmacies into outpatient unified management, issued by the National Medical Insurance Administration, underscores a pivotal shift towards harnessing digital avenues to streamline the movement of prescription drugs. Moreover, the strategic guidance from the opinions on further deepening reform to promote the healthy development of the Rural Medical and Health System jointly released by the General Office of the CPC Central Committee and the General Office of the State Council emphasizes a holistic vision. This vision is not just about strengthening rural healthcare but also about leveraging digital innovation to enhance resource allocation and service delivery in these regions. The ambitious – the ambitions highlighted in the 14th Five-Year Plan, particularly the cultivation of large digital integrated pharmaceutical, wholesale and retail enterprises, with revenue in the hundreds of billions of RMB further reiterate this commitment. Together, these policy initiatives underscore a future where digital transformation is central to the continuous progression and innovation of the industry. Despite some of the decline in our specific industry, I’m delighted to announce that 111, being a leading healthcare tech company in China, has seen consistent expansion. The second quarter of 2023 represents our 20th straight quarter of year-over-year growth following our appeal. Concentrating on digital health offerings, 111 has seized the growing need for online medical service platforms catering to both individual customers and businesses. By harnessing our strong technological foundation, and forming pivotal alliances, 111 has successfully bridged the gap between patients and the pharmacists, medical experts, drug manufacturers and other healthcare-related services. Our upward growth trends underscore this significant impact of digital advancements in transforming healthcare provision and in enhancing patient experiences throughout China. In the second quarter of 2023, the company adeptly navigated challenges registering RMB3.5 billion in revenues, a 14.5% year-over-year surge. It’s also gratifying to share that our overall gross profit saw an 8.3% year-over-year growth, with the B2B sectors’ profit rising by 11.6% year-over-year. Regrettably, we had to absorb some of the excess inventory remaining from the height of the pandemic, which impacted our potential gross profit. Our B2B operations continue to be the primary contributor to our revenue enhancement. During Q2, the B2B sectors’ revenue hit RMB3.39 billion, which is a 15.5% year-over-year growth and the gross profit rose to RMB188.6 million marking an 11.6% year-over-year upswing. In comparison, our total operating expenses stood at RMB249.3 million, a decrease from RMB271.7 million in the corresponding quarter of the previous year. When looked at as a percentage of net revenues, operating expenses dipped from 8.9% last year to 7.2% this year, highlighting our sustained growth in operational efficiency. Operational losses were RMB41.4 million, down from RMB79.8 million during the same period last year. Represented as a percentage of net revenue, operational losses shrunk from 2.6% in the previous year to 1.2% this year. Non-GAAP loss from operations was RMB17.2 million compared to RMB52.8 million in the same quarter of last year. As a percentage of net revenues, non-GAAP loss from operations decreased to 0.5% from 1.7% in the same quarter of last year. Our commitment remains to persevere in our journey towards comprehensive profitability. Allow me a brief pause to highlight the strides we’ve taken in our operations. The second quarter has been marked by our emphasis on further digitization and enhancement of management paving the way for even greater returns on this investment in the future. In June, 111 and Tencent have entered into a strategic partnership to enhance the accessibility of online pharmaceutical services. 111 signed a strategic Cooperation Agreement with Tencent Health. Both parties will collaborate and jointly explore in the areas of pharmacy digital services, pharmaceutical digital marketing and online medical intelligence services aiming to jointly establish a pharmaceutical plus internet digital upgrade industry paradigm. According to the Cooperation Agreement, Tencent will leverage its technological advantages in cloud computing, big data, artificial intelligence and its profound reach and connection abilities in the consumer internet sector to assist 111 in the digital construction and upgrades of smart pharmacy retail, data centers and intelligent pharmaceutical sales software. At the same time, we will jointly explore new digital scenarios in pharmaceutical sales, integration of smart pharmaceutical sales software services and solutions, improve the pharmaceutical sales efficiency and aid pharmaceutical companies in their digital transformation. This is a significant step forward in 111’s digitization strategy. Moreover, in July, 111 was listed on the Shanghai Data Exchange, accelerating the transformation of the pharmaceutical industry. 111 is among the earliest domestic enterprises to enter the digital healthcare industry. Currently, on the Shanghai Data Exchange, it has completed the listing of its 111 information brand series of products, which can play a role in drug flow tracking, e-commerce drug initial information entry and compliance determination for e-commerce pharmaceuticals. 111’s master data in the pharmaceutical industry includes more than 720,000 main product data and 1.2 million main company data, covering 99.6% of the pharmaceutical market. At present, the 111 information brand series products listed on the Shanghai Data Exchange already cover its pharmaceutical master data. 111 will make full use of the data accumulated internally and collected externally to build its AI model in the pharmaceutical industry, continuously enhancing the value and application capabilities of the data. 111 plans to continue listing more data products on the data exchange to meet the industry’s continuous development and innovation needs, empowering digital transformation over the entire pharmaceutical industry through the Shanghai Data Exchange. We established a more digitized collaboration with drug suppliers within its ecosystem and to empower the transformation of pharmaceutical supply, 111 has launched a significant data supply chain product. In July, during the 13th anniversary celebration of 111, the digital linkage went together. 111 Digital Supply Chain Summit was held in Shanghai. 111 will continue to refine its digital supply chain management system, strengthen its technological advantage and the strategic focus of 111’s supply chain upgrade is to create a digital supply chain driven by digital technology, synchronizing the entire chain and linking upstream and downstream collaborations. Through the integration of multiple modules such as supply, procurement, storage, distribution and sales with the aid of digital product modules, like the Wheel of Wind and Fire and the Quentn, 111 aims to facilitate the effective data and information flow. We will forge strong collaborations with the pharmaceutical companies, industry partners and pharmacists to provide seamless care for our customers. In a remarkable testament to 111’s advanced digital capabilities, the Ministry of Commerce has bestowed upon the company’s title of E-commerce Demonstration Enterprise. This accolade is not a common distinction. Only 132 enterprises across the nation have been graced with this recognition. The announcement made this quarter speaks volumes about 111’s competence and its emerging prominence in the e-commerce arena. Parallel to this noteworthy achievement, 111 has intensified its bonds with upstream pharmaceutical partners. This deepened alliance is more than mere collaboration. It’s an evolution of mutual understanding that is reshaping the contours of the pharmaceutical digital space. This contracted effort crystallizes 111’s commitment to amplifying its all-encompassing digital expertise, ensuring that it maintains at the forefront of technological evolution in the sector. This quarter witnessed the initial launch of additional groundbreaking drugs on our digital platform, building on our prior achievements with esteemed partners such as 1 Medicine and Sanofi. Yuan Da Johamu introduced the two state-of-the-art asthma medications, Enzhuorun and Enmingrun, exclusively on 111’s digital platform. These products are not just new entries. The Da Johamu’s global pioneering combined formulation is dedicated to advancing asthma treatment. Enzhuorun is currently the only approved triple inhalation formulation for asthma patients in China, filling a therapeutic gap. With their availability on our online platform, these two drugs can rapidly reach the outpatient market, undeniably offering considerable convenience and superior treatment options for China’s vast asthma patient population. 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 companies. Meanwhile, on our B2B platform, through our partnerships with downstream pharmacies, we kept delivering digital value to upstream pharmaceutical companies with our newly developed digital tool Telescope which serves as a lens for pharmaceutical companies, allowing them to gain a more direct and comprehensive view of their drug sales and the pricing dynamics in real time. By leveraging advanced data analytics and market insights, Telescope enables those companies to analyze the sales patterns, identify pricing opportunities and make data-driven decisions to optimize their strategies. With Telescope, the 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 hand, we remain dedicated to digitally enabling downstream pharmacies by providing all-encompassing support for their operational needs. Our tailored solutions extend beyond to provide affordable medical products and quality services designed to optimize workflows and boost operational effectiveness. By tapping into our extensive network and forging robust partnerships, we secure competitive rates and the beneficial terms with providers, ensuring pharmacies benefit from cost savings. Moreover, through advanced technologies like automated ordering platforms and streamlined logistics, we guarantee prompt deliveries while helping pharmacies cut down on their operational costs. By offering cost-effective products and efficient services, we enable pharmacies to deliver value to their customers and maintain their competitiveness in the market. Particularly by the end of the second quarter, our 1 Health virtual franchise model kept enabling around 20,000 small to mid-sized pharmacies that 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 access our distribution tools through our digital SaaS services, including Smart Sourcing, digital marketing, O2O, and CRM. Thirdly, we consistently prioritize enhancing our operational efficiency within our strategic planning. As 111’s business scales up and our technological advancements flourish, our operational efficiency continues its encouraging trajectory. It’s heartening to note that with rising revenues, the proportion of sales and marketing expenses have seen a decline, accounting for 2.6% this quarter as opposed to 3.3% in the same quarter of the prior year. General and administrative costs in relation to net revenues stood at 1.1% this quarter, down from 1.3% in the same period last year. Additionally, our technology-related expenses stood at 0.7% this quarter, down from 1.1% in the same period last year. We have taken deliberate steps to boost management efficiency in 111. First and foremost, our approach to human resource management has been very prudent, ensuring optimal workforce distribution and utilizing technology to automate specific functions. In our next move, we refined our standard operating procedures and simplified managerial processes boosting overall productivity. Furthermore, a heightened emphasis on robust corporate governance has led to an ingrained ethos of responsibility and openness throughout our team. Finally, we’ve channeled significant resources into tech-based solutions like state-of-the-art analytics, robotic process automation, and innovative digital platforms. Through these strategic measures, our objective is clear: to elevate efficiency, curtail expenses and consistently provide superior value to all 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. In the realm of logistics, we have witnessed a marked reduction in our fulfillment expenses, primarily attributed to the enhancements in our proprietary warehouse operations and collaborations with joint venture storage facilities. Through significant investment in both infrastructure and technology, we’ve honed our supply chain mechanisms resulting in heightened operational efficiency. Such advancements have enabled us to expedite and refine product deliveries to our customers, currently driving down our fulfillment cost to 2.7% from 2.9% relative to net revenue. Maintaining optimal customer satisfaction and a competitive edge remains at the forefront of our agenda and we will persist in nurturing these strategic undertakings. For yet another quarter, we’ve diligently adhered to our guiding tenets of value creation, customer centricity and fortifying our supplier foundation throughout the organization. Our recently instituted in-house advisory department has once again proven its worth by championing strategic advancements across various sectors, by delving deep into our customer needs analysis. The facilitated fine-tuning of our product portfolio to resonate more precisely with market inclinations, by keeping a vigilant eye on evolving market dynamics and capitalizing on real-time customer feedback, we’ve managed to recalibrate our pricing, ensuring both competitiveness and enhanced profit margins. Furthermore, this department has been instrumental in financing our internal resource distribution, refining procedural workflows and boosting overall operational efficiency. Through these concerted endeavors, we’re elated to report that we have not only met but often exceeded customer anticipations, forged sensible pricing models and ensured adept stewardship of resources across the board. Now let me spend a moment to talk about our future growth initiatives. One, we continue to expand selection for our customers by leveraging patient – our partners’ stock. We dedicate our commitment to elevate and refine our supply chain model. As we navigate the multifaceted pharmaceutical landscape, our primary focus is to harmonize our first-party business, JDP business, and the marketplace business seamlessly. Among these, our JDP business stands out as one of our priorities this year. We recognize its pivotal role in streamlining pharmaceutical distributions and in forging solid partnerships. Since we’re investing resources and efforts into optimizing its operations, ensuring that it not only complements our other business segments but also emerges as a beacon of operational excellence and efficiency. Through these endeavors, 111 aims to provide the best selection and the best one-stop shopping experience in the industry to pharmacy customers. Two, we tailor our first-party product range to align with customer preferences. Our unwavering commitment is to improve the customer journey by refining our product lineup based on their preferences. By harnessing information from various avenues such as client feedback, industry studies, and advanced data analytics, we constantly fine-tune our product selection. Growing from this rich pool of insights, we ensure that our first-party inventory caters to the varied needs of our customers. This strategy not only allows us to provide purchasing solutions but also ensures we continue to strengthen direct sourcing relationships with upstream manufacturers. Three, cost down on procurement. Acquiring directly from pharmaceutical firms has significantly slashed our product expenses. We’ve established connections with over 500 esteemed global and local pharmaceutical entities. Our goal is to reinforce our ties with these current associates while fostering new collaborations. Currently, we’ve implemented numerous benchmarks to propel our procurement team towards enhanced cost-saving initiatives. This strategy ensures that we have a diverse medication assortment at a more affordable cost. Four, enhancing smart pricing strategy. Being a prominent digital healthcare platform, particularly in the B2B segment, we are committed to enhancing our market standing through refined pricing methodologies backed by intelligent systems. Using cutting-edge algorithms and deep data analytics, we carefully assess market trends, competitors’ pricing structures, customer preferences and other crucial parameters to set the most strategically viable price points for our offerings. This method ensures we cater to both our customers’ affordability needs and our business’ profitability goals. With the integration of this smart pricing mechanism, we aspire to expand our market footprint, attract fresh customers, retain our loyal base and solidify our reputation as a reliable and economically competitive player in the pharmaceutical domain. Five, elevate efficiency through intelligent supply chain management. We’re deeply committed to continuously refining our supply chain to guarantee seamless procurement, warehousing and distribution processes. By forging robust collaborations with pharmaceutical firms, we directly obtain premium products, allowing us to make the supply chain more fluid and reduce potential holdups. Our specialized continuity of supply team is devoted to enhancing procurement strategies, adjusting resources as required and ensuring stock levels are maintained to fulfill demand while preserving product integrity. Through these initiatives, our goal is to boost operational effectiveness, diminish expenses and offer unparalleled service quality to our customers. Six, unwavering focus on enhancing operational efficiency. We are unwavering in our pursuit of operational excellence and are adopting focused strategies to manifest this vision. By strategically integrating technology, we are reshaping our workforce dynamics, ensuring efficiency without compromising on output. Simultaneously, we are deeply involved in dialogue with external vendors, especially those in logistics to procure the most favorable terms, thereby refining our supply chain while curtailing overheads. Equally paramount is our emphasis on honing management acumen and decision-making capabilities given their direct influence on operational powers. With the prudent approach in these domains, we are poised to substantially curtail operational costs, paving the way for enduring growth and prosperity. Seven, pledging to digital transformation. Our dedication to digital innovation remains steady, given its potential for long-term rewards. Through the integration of digital solutions, we’re able to refine our methodologies, both through operational efficiency and foster avenues for groundbreaking initiatives. By channeling resources towards research and development, we maintain our edge in the ever-evolving landscape, propelling innovations that cater to our customers’ dynamic requirements. As we elevate our focus on digital strategies and cultivate an ethos of continuous evolution, we solidify our stance as a nimble, competitive entity poised for continuous advancements in a rapidly shifting healthcare domain. In conclusion, while we have faced challenges and successes, 111 remains dedicated to leading the way in the healthcare sector, campaigning transformative initiatives and ensuring excellence in service delivery in the ever-changing environment. We wish to thank all the investors who have supported us. Now I will hand the call to Mr. Luke Chen to walk through our financial results. Thank you.

Our top-line and gross segment profit in the second quarter continued to grow. Total net revenues for the quarter grew 14% to RMB3.5 billion, and gross segment profit for the quarter grew 8% to RMB208 million. Top-line growth for the quarter was mainly attributable to our B2B segment revenue growth at 15% to RMB3.4 billion. The gross segment profit for the B2B segment has increased by 12%, with gross segment margin at 5.6%. Our B2C segment revenue decreased 13% to RMB88.8 million with gross segment margin at 21.8%. Total operating expenses for the quarter decreased 8% to RMB249.3 million. As a percentage of net revenue, total operating expenses for the quarter were down to 7.2% from 8.9% as we continue to enhance our operating leverage and optimize our operational efficiency. Fulfillment expenses as a percentage of net revenue for the quarter was down to 2.7% from 2.9% in the same quarter of last year. Sales and marketing expenses as a percentage of net revenue for the quarter was 2.6%, down from 3.3% in the same quarter of last year. General and administrative expenses as a percentage of net revenues accounted for 1.1%, down from 1.3% in the same quarter of last year. Technology expenses accounted for 0.7% of net revenue, down from 1.1% in the same quarter last year. As a result, non-GAAP loss from operations narrowed to RMB17.2 million compared to RMB52.8 million in the same quarter of last year. As a percentage of net revenue, non-GAAP loss from operations decreased to 0.5% in the quarter from 1.7% in the same quarter of last year. Non-GAAP net loss attributable to ordinary shareholders was RMB33 million compared to RMB68.3 million in the same quarter of last year. As a percentage of net revenues, non-GAAP net loss attributable to ordinary shareholders decreased to 0.9% in the quarter from 2.2% in the same quarter of last year. Please refer to Slide 22 to 26 of the appendix section for selected financial statements. And a quick note on our cash position. As of June 30, 2023, we had cash and cash equivalents, restricted cash, and short-term investment of RMB735.8 million. As previously disclosed, if our key subsidiary, 1 pharmacy technology’s proposed listing on the stock market were 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 RMB1.85 billion. As of today, certain investors have agreed not to exercise their rights before June 30, 2024, to redeem their investments, which totaled RMB728 million and the three investors have decided to exercise their right to redeem their investment totaling RMB127 million. We are also proactively working with the remaining investors, but in case all of those investors choose to exercise their redemption rights, we do not believe such redemption will affect our business and prospects as we expect it to have sufficient capital resources to fulfill such redemption obligations. This concludes our proposed remarks. Thank you. Operator, we are now ready to begin the Q&A session.

Our first question today comes from Xipeng Feng with CICC. Please go ahead.

Hi, this is Xipeng from CICC. Thank you for taking my questions. Congratulations on the company progress. Well, I have two questions actually. And my first question is about policy. There have been many changes in the downstream industry recently, such as national unified medical insurance coverage on retailing pharmacies. So what kind of impact does this policy have on the industry and 111? And this is my first question. Thanks.

Hi, Xipeng, thank you for the question. So obviously, you noticed and we noticed there is suddenly a pretty big change in our general population’s medical insurance. For those who do not understand the Chinese Medicare system, it’s divided into two accounts: the personal account and the unified account. The recent change in the policies was that the majority of the money was deposited into the personal account, and now it’s reversed, meaning customers are not able to spend at their own discretion as before. Our understanding of the implications is such that, first, more pharmacies will be included in the group that can provide reimbursement services to customers. We anticipate that a majority of pharmacies will be entitled to provide reimbursement services. Secondly, the consumers’ personal account is reduced, which will also impact the pharmacy. These are the negative impacts to pharmacies and to a certain degree to us. But we actually take this as a tremendous opportunity because what this will do is drive a lot of traffic to pharmacies, and they will need to purchase more drugs and offer more services. Our understanding from the government is that there is a clear trend towards separating consultation from drug sales, which has been a fundamental issue in the Chinese healthcare system. While this is not an easy reform, we are encouraged to see the government’s determination to head in this direction, which will be great news for the pharmacy sector and not necessarily the hospitals. I hope that answers your question, Xipeng.

Okay, thanks for the sharing. And my last question is about financials. As we noticed, the operating expense ratio of 111 has been decreasing. I just wonder what is the main reason behind this trend and will it continue to decrease in the future, or what’s the breakeven point of the company? Thanks.

Yes. That’s a great question, Xipeng. What drives the operating expenditures is just a few areas. We focused on revenue and margin growth. As revenue increases, expenses as a percentage of that revenue will go down. Another factor is our relentless drive for operational efficiency. Your question is, will this continue? Absolutely. Not only will it continue, but I believe it will get even better. As for the breakeven point, our current projection indicates that once our revenue hits RMB20 billion, and our margin stays at 6%, we should be a very profitable business. Thank you.

Okay, that’s very clear and helpful. Thanks for the sharing, and congratulations again on the company’s progress.

The next question comes from Jessie Lu with HSBC. Please go ahead.

Thank you for taking my question. And congratulations on a very solid quarter. I have two questions. The first question is actually regarding competitive landscape. As Junling has mentioned, due to recent regulatory changes, we have seen a greater emphasis on the out-of-hospital channel, including the pharmacies. At the same time, a lot of players have mentioned they want to enter this specific sector. So I want to get your thoughts on the evolving competitive landscape for the sector going forward. And in terms of competitive advantage, what advantage does 111 have as compared with other players in the market? Thank you.

Yes. Any attractive business will attract a lot of competitors, and China is an extremely competitive market. However, we feel pretty good about where we are. Our biggest competitors are traditional players who have taken the majority of the share over the past few decades. Our advantage is very clear: we are a digital player covering our end customers, not just a distributor. Our digital capabilities give us the edge, especially regarding operational efficiency. Our operational expenses stand at 6.3% currently, and as we grow to RMB20 billion, we expect that to drop to the sub-5% range. We established ourselves as the leading digital player over a decade ago, and we believe our operational efficiency will hold up against future competitors.

Thank you. That is all very clear. Actually, my second question is also on digital capability. I noticed you have started a partnership with Tencent. You mentioned you will be making full use of medical data to develop your own AI large language model. I just wonder if management can share more color on this sense. Will you be self-developing or also working with Tencent and what products can we look for? Thank you.

Thank you, Jessie. Let me take that question. First of all, the partnership with Tencent is progressing well. Several projects have been defined and are being carried out by both teams. The value of the partnership is clear; Tencent has strong technology and computing power, while we offer the application platform and customer base. We aim to support the digitization and upgrade our smart pharmacy retail data center and pharmaceutical sales software. Advanced technologies such as DSO priming, cloud rendering, credit pharmaceutical retail showcases, and management cockpit for 111 will be used. Regarding AI applications, we are focused on specific applications in the healthcare industry rather than developing large language models.

I see. That’s very clear. Thank you so much for your answer, and congratulations again on the solid results. Thank you.

The next question comes from Steven Lin, an individual investor. Please go ahead.

Thank you, management for the presentation. I have two questions. First, could you please elaborate on the Quentn software and the Telescope’s application and its impact? Second, how should I think about 111’s top-line growth in the next few quarters and what are the key drivers? Thank you.

I will take the first one, and Haihui will take the second one. Let me talk about the digital products you mentioned, like Quentn and Telescope. These are all digital products we developed to serve our customers. For instance, Telescope is a SaaS service for pharmaceutical companies. It helps them monitor the entire supply chain, providing transparency over product flow through distribution and retail channels in various regions, including customer profiles, inventory turns, and repurchase rates. Quentn also assists our JDP and marketplace partners in more efficient procurement and logistics, contributing to remarkable growth in GMV for these partners, which is over 40% higher than our overall growth.

Regarding your second question on growth and the key drivers, the government strategy of separating drug sales from hospital medical treatment is favorable to us, as it shifts sales to the retail market. The total pharmaceutical retail market is substantial, and we expect continued growth in our business volume with healthy margins. Internally, we will upgrade our supply chain and strengthen our direct partnerships with international and domestic partners, which will bring more selection at lower costs to our downstream customers. Additionally, enhancing our digital marketing platform will help pharmaceutical companies commercialize new products to pharmacies, clinics, and patients. We see great potential for growth through our B2B business as it effectively links pharmaceutical companies with pharmacies and end users.

Okay. It’s very clear. I appreciate your answers.

The next question comes from Francis Juan with VSV Capital. Please go ahead.

Hi. This is Francis from VSV Capital. Congrats again on a great quarter. I have got two questions. The first one is, what kind of assistance and impact does your company’s digital capabilities have on the industry? The second one, what will be the company’s operational focus going forward? Thank you.

Thank you, Francis. We define ourselves as a digital enabler in the healthcare industry. We have invested heavily in the digitization of the industry in the areas of supply chain, patient education, medicine availability, patient reach, and health management. Our mission is to leverage digital technology to effectively link patients with healthcare services, and we are on track to realize that. Junling mentioned the listing of our 111 information on the Shanghai Data Exchange; that's a perfect example of our commitment. We maintain a master database covering 99.6% of the pharmaceutical market, which plays an important role in drug flow tracking and compliance for e-commerce pharmaceuticals.

Regarding the operational focus, it would be two areas: one is to grow revenue and margin, and two is to drive operational efficiency. We plan to use JDP to enrich our selections. For our products, we want to align better with customer preferences using the intelligent system we've built, which collects information from various sources to ensure our offerings are precise for customers. Effective pricing systems will also contribute to margin growth, enabling us to operate with sub-6 and sub-5 operating expenditures, which will position us as an industry leader.

Thank you for your sharing; both answers are very clear, and we look forward to hearing more.

The next question comes from Jada Wu with Arbor Group Capital. Please go ahead.

Hi everyone. This is Jada Wu from Arbor Group Capital, and congratulations on the company’s success and growth in Q2. Here, I have got two questions. The first question is, what is a reasonable margin level in the next 3 to 5 years? How can we further expect margin? Thank you.

Well, regarding margin, our strategy aims for a healthy business model, and we are seeing significant margin improvement. We reduce our procurement costs through direct sourcing and are currently partnered with over 500 global and domestic pharmaceutical companies. Additionally, we optimize product assortment to balance our portfolio, focusing on high-velocity, low-margin products alongside healthier ones and developing our own private-label products, which maintain margins of 30% to 40%. These strategies, alongside favorable market changes, position us well for strong margin growth.

Thank you for the answer. We appreciate your further performance. Thank you.

On the cash position, we are pleased to see our non-GAAP operating loss further narrowed for the quarter to 0.5% of net revenue. This indicates we no longer need to burn cash to support our business. Our management of working capital is good; accounts payable and inventory are around 42-45 days and 25-30 days, respectively. As of June, our cash and cash equivalents totaled RMB736 million, which we believe is sufficient to support our expansion.

Thank you, management for the presentation. I have a few questions. First is, what are the company’s plans for its OEM products in the future?

OEM products include private labels we have registered under 111. We have launched 133 private-label SKUs and plan to introduce many more. We find demand for private labels strong among our smaller customers who seek stable market solutions and margins. Our offerings are tailored for their needs, making them attractive choices for these partners.

Thank you for answering. And my next question is, what is the current progress for the company’s privatization?

We understand the process of privatization is ongoing. On July 17th, we announced the expansion of Bayer’s Group. The special committee formed by three independent directors is currently working with the Bayer Group on the privatization proposal. As a public company, we will make all necessary announcements according to SEC disclosure rules.

This concludes our question-and-answer session. In closing, on behalf of the entire 111 management team, I would 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 on the call today. This concludes the call. You may now disconnect.