Hello, ladies and gentlemen. Thank you for standing by for 111, Inc. first quarter 2020 conference call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question-and-answer session. As a reminder, today's conference call is being recorded.I would like to turn the meeting over to your host for today's call, Ms. Monica Mu, Investor Relations Director. Please proceed, Monica.

Thank you operator. Hello everyone and thank you for joining us today for 111's first quarter 2020 conference call. On the 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. Haihui Wang, Co-COO, Mr. Barry Zhu, Co-COO, Ms. Monica Mu, Investor Relations Director and Mr. Alex Liu, Finance Director.As a reminder, today's conference call is being broadcast live via webcast. In addition, a replay will be available on our website following the call. The company's earnings press release was distributed earlier today and together with our earnings presentation, are available on the company's IR website at ir.111.com.cn.Before we get started, let me remind you that this call may contain forward-looking statements 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 could cause actual results to differ materially. For more information about these risks, please refer to the company's filings with the SEC. 111 does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.Please note that all numbers are in RMB and all comparisons refer to year-over-year, unless otherwise stated. Please also refer to our earnings press release for detailed information of our comparative financial performance on a year-over-year basis.With that, I will turn the call over to our CEO, Junling Liu.

Thank you, everyone, for joining our first quarter 2020 earnings call.A few words on the pandemic before I move on to the earnings. The world is facing a global health crisis as the pandemic continues to evolve rapidly and has created uncertainties and disruptions affecting the lives of millions of people. We would like to express our gratitude to the frontline healthcare professionals around the world selflessly caring for those who are sick. Our thoughts are with you and with those who have been affected. We have been playing an active role in the pandemic relief efforts since the outbreak and will continue to support the global community to the best of our ability. I am very proud of how our leadership team and our staff have mobilized and united to ensure the safety of each other while continuing to serve our customers, partners and the support communities in China and around the world at this time of great need.Let's begin. I will start my remarks with a recap of our mission and the growth strategy and overview of the company's business and operational performance and then pass the call to our CFO Luke for a detailed financial review and our guidance for second quarter. We will then open the call for Q&As.Please turn to slide four of section one. As we entered 2020, we have a growth strategy to continuously executing our mission of digitally connecting patients with drugs and healthcare services. Our goal is to tie all of our businesses together and bring focus to our organization in service of our customers and partners to the millions and millions we serve, particularly patients with chronic diseases, we are structured around meeting their needs. Our commitment to them is this, that we will strive to provide what we they need to keep them well in the most convenient, affordable and dependable way, either in person, online or web app to home. We will deliver to our end consumers a broad range of products and services from medical consultations to prescription drugs and from health and wellness products to tools from onetime fix to lifecycle chronic disease management from offline to online and the support services that help them better manage their conditions.There are four facets in our growth strategy. One, capitalize on the enormous market opportunity from building China's largest virtual pharmacy network of over 260,000 drugstores with a coverage of over 50% of the country and over 60% of the Tier 3 to 6 cities. This expansive network allows us to serve millions and millions of chronic disease patients in the country. The strategic placement of our fulfillment centers across China gives us the operational flexibility to effectively respond to a crisis like this pandemic as we ramp up and down our various centers to meet the constantly evolving needs of the different parts of the country. And we have a deep sourcing capability, which includes 214 direct sourcing relationships. We are able to provide one of the richest selections of medications and choices to consumers even if they are in the far-flung corners of the country. These pharmacies badly need a business model upgrade and we are determined to advance their business with digital transformation and help them to build a store that suits today's consumer needs with service modules such as access to online doctors, patient engagement and appropriate assortment management based on big data.Two, build omni-channel drug commercialization capabilities to establish 111 as the partner of choice for pharmaceutical companies. With the success of 4+7 initiative, VBP all volume-based purchase is being rolled out across the country. These initiatives urge the majority of the pharmaceutical companies to focus on innovative drugs and as a result, it is becoming the fastest growing sector in the healthcare industry. We have set up a team with the best available talent in the market to work with doctors and hospitals on innovative drugs. One of the outcomes of the pandemic is that both doctors and patients realized how important to be online ready. With our broad consumer reach, vast retail pharmacy network and smart technology enabled omni-channel commercialization system, we are well-positioned to help pharmaceutical companies commercializing their drugs from exploring additional distribution channels, expanding reach, optimizing their sales and marketing functions, enhancing patient services and support programs to introducing new products and ultimately consumers will benefit from having greater access to newer, better medications on market.Three, strengthen our healthcare ecosystem by enabling key stakeholders via cloud-based solutions. Our key stakeholders include doctors, pharmaceutical companies, pharmacies, insurance companies, suppliers and partners. This ecosystem creates the interdependency that brings multidirectional benefits for all our stakeholders resulting in diversified revenue sources for 111, Inc. and highly sticky relationships that raise the barrier of entry for our competitors.Finally, enhance our smart technology and integrated online and offline infrastructures to deliver best-in-class supply chain management services to our customers. Our truly smart system leverages the latest in AI cloud-based solutions and big data to give our pharmacy customers more effective sourcing capability, better inventory management, more optimal assortments and broader market reach, resulting in greater cost efficiency, higher earning potential and enhanced ability to serve our end consumers and fulfill essential orders, even in challenging circumstances. Our smart technology empowers doctors to work with the latest of the drug suppliers to bring the best solutions to patients for better health outcomes. With our best-in-class supply chain management services, consumers all across the country can enjoy the benefit of obtaining their medications at home and having access to the newest available drugs for treatment of their medical conditions.Let's move on to our quarterly performance. For details please refer to slide five to eight for our business performance and slide 14 to 15 for the operational updates. You can find out more about the significant progress we have made in enhancing our competitive advantage from slides nine to 13. We also included the latest regulatory changes in slide16.The strength of our strategy and our ability to execute can be seen from our strong Q1 2020 performance and meet the challenges of an unexpected global pandemic. We generated RMB1.58 billion or $252.5 million in revenue, representing a year-over-year growth rate of 140.3%. Our gross profit increased by 163.3%. Driving these results are our three fast-growing core business segments, B2B, B2C and E-Channel.Our B2B segment serves our 260,000 strong pharmacy network providing best-in-class sales and supply chain management solutions. During the quarter, this segment saw robust revenue growth of 178.4% year-over-year. Underpinning our B2B segment is an online marketplace for healthcare and other wellness products. During the quarter, we were able to leverage our strong relationships with our suppliers and partners to deliver many high demand items that consumers had trouble finding elsewhere. As a result, registered users, site traffic and orders, all increased. For this segment, we achieved revenue of over RMB190 million in the quarter and a year-over-year increase of 17.5%.Due to the dramatic growth in what is now referred to as the E-Channel segment, we will from now on report results from this segment separately. In Q1 2020, this segment grew by 229.7% year-over-year. The E-Channel segment consists of revenue from product sales to other online drug retailers such as Ali Health, JD Health, Ping An Good Doctor and so on. Historically, revenue from these sources had been included in the B2C segment and generally accounted for between 15% to 20% of the segment's revenue.These very strong results were achieved in spite of the challenges posed by COVID-19 and are a testament to the strength of our business model and technology-enabled infrastructure, one that seeks to bring comprehensive convenient healthcare to where the need is greatest. In fact, we believe that our pandemic response tested and bolstered our system. As a result, we efficiently sold and delivered products and made disruptions to the supply chain and delivery system. This robust performance also demonstrates our ability to build a resilient infrastructure and a sticky ecosystem.But we are not resting on our laurels. We will continue to vigorously advance our growth strategy. Towards that end, we have recently appointed Mr. Anfeng Guo as 111's Chief Innovation Officer to ensure that our omni-channel drug commercialization platform continues to evolve to anticipate customer needs and stay ahead of the competition. Anfeng is a respected veteran of the Chinese pharmaceutical industry bringing with him over 20 years of experience in such world leading companies as Pfizer, Bayer, AstraZeneca and Bristol Myers Squibb.And as another demonstration of 111's constant drive forward, on May 8, 2020, we launched the first online diabetes patient management platform in conjunction with Lilly China expanding our partnership network with pharmaceutical companies to support in managing their medical conditions.In spite of the consecutive quarters of robust performance since the IPO, many of you would agree that given the dynamic and fluid situation due to the pandemic, it is difficult to predict what might happen to the global economy. However, we believe we have the right strategy, proven track record, leadership experience, resources and partners in place to deliver despite the current environment. We are well-positioned to capitalize on the enormous market opportunities as technology ushers in the new era in healthcare in China. We will continue to focus on executing our growth strategy, driving performance, building and expanding our lead over the competition and maximizing value for our customers, partners and shareholders.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 first quarter 2020, in section two of our presentation from slides 18 to 20. I would like to highlight a few key business and financial metrics and I will focus on year-over-year comparisons. All numbers are in RMB, unless otherwise stated.Let's start with our robust performance for the first quarter. Total net revenues for the quarter grew 140.3% to RMB1.58 billion, which was driven by the robust performance across all of our business segments. Product revenues from our B2B segment were up 178.4% to RMB1.28 billion as compared to RMB460 million in the same quarter last year, mainly due to the increase in the number of pharmacy orders which reached 419,000 with growth rate at 196.4% year-over-year, as well as newly added pharmacies in our network.Product revenues from our B2C segment were up 7.5% to RMB191 million from RMB162 million in the same quarter last year as a result of our continues efforts to engage existing and new users. Product revenues from E-Channel, our new segment, were up 229.7% to RMB99 million from RMB30 million in the same quarter last year. E-Channel segment consists of revenue from product sales to other online drug retailers such as Ali Health, JD Health, Ping An Good Doctor, et cetera.Historically, revenue from these sources had been included in the B2C segment and generally accounted for between 15% to 20% of the revenue in the B2C segment. The growth in the E-Channel segment in the first quarter of 2020, also in line with the overall increase in e-commerce traffic during the national lockdown and previous period has been restated to conform to the current period reportable segments presentation. Service revenue were up 72.1% to RMB7 million from RMB4 million in the same quarter last year due to the increase in commission from our marketplace customers as well as the increase in service revenue of patient education and management from pharmaceutical companies.Overall, our gross profit increased by 163.3% to RMB88 million and the combined gross margin was 5.6%, up from 5.1% a year ago. We are pleased to see that our gross profit has grown much faster than the net revenue growth which demonstrated our ability to improve profitability while building up scale. Compared to the same quarter last year, gross margin in our B2B segment was 2.9%, up from 0.9%. B2C segment was 20.2%, up from 14.3%. The gross margin improvements was directly relating to our improved business scale, our smart pricing and assortment management as well as our sourcing capabilities.Total operating expenses for the quarter were up 44% to RMB201 million. As a percentage of net revenue, total operating expenses for the quarter was down to 12.8% from 21.3% in the same quarter last year as we continue to improve our operating leverage and optimize our operational efficiency. Fulfillment expenses as a percentage of net revenue was 3.5%, as compared to 3.2% in the same quarter last year. Sales and marketing expenses as a percentage of net revenue was 6.1%, down from 11.5% in the same quarter last year. G&A expenses as a percentage of net revenue were 1.9%, down from 4.2% in the same quarter last year. And technology expenses accounted for 1.3% of net revenue, down from 2.3% in the same quarter last year. As a result, non-GAAP net loss attributable to ordinary shareholders for the quarter was RMB109 million, as compared to RMB96 million in the same quarter last year. Non-GAAP net loss attributable to ordinary shareholder for the quarter accounted for 6.9% of net revenue, down from 14.7% in the same quarter last year.As to the guidance for the second quarter of 2020, on slide 22 of section three. The company expects total net revenues to be between RMB1.55 billion and RMB1.68 billion, representing a year-over-year growth of approximately 85% to 100%. The above outlook is based on current market conditions and reflects the company's current and preliminary estimates of the market and operating conditions as well as customer demand, which are subject to change.Please refer to slide 24 and 26 of section four for our selected financial statements. A quick note our cash position. As of March 31, 2020, we had cash and cash equivalents and restricted cash of RMB525 million, compared with RMB697.7 million as of December 31, 2019. Underscoring the confidence in the company's prospects, as of March 31, 2020, the company used an aggregate of $4.9 million and repurchased 998,000 ADS on our $10 million share repurchase program.This concludes our prepared remarks. Thank you. And operator, we are now ready to begin the Q&A session.

[Operator Instructions]. Your first question comes from the line of Bingyu Chen from Citi. Please ask your question.

Hi. Thanks for taking my question. And congratulations on the strong fulfillment. This is Bingyu from Citi. My first question is about what's the impact around COVID-19 to the whole industry and to the company. We have seen tremendous effort you have made during the pandemic and with the strong -- my second question is about the Lilly cooperation on the online diabetes patient management platform. Are we expecting more cooperation going forward? And I curious about your follow-up strategy on the chronic disease management? Thanks.

Thank you. I think the situation is such that we hope the pandemic is going to end soon. But that we actually fully anticipate it is going to stay with us for longer than we wanted. And our company is extremely vigilant about the uncertainties it's going to bring. And it is our view that during the uncertainties there is actually more opportunities than risks for us, mainly because of the infrastructure we have built out will really enable us to deliver the badly needed products and the services to the needy, as evidenced during the worst times of the crisis a couple months ago. And we also anticipate that COVID-19 will forever change the landscape of healthcare in China. I think it is a catalyst for some of the profound changes for pretty much all the stakeholders in the industry. I believe that the transformation and digitization of the industry is going to accelerate at an unprecedented pace. And fortunately, we have built out layers of advantages to benefit from it. And I think I will ask Gang to address the Eli Lilly partnership question.

Okay. Sure. Let me address that question. So certainly, the specialized hospital for chronic disease is a very innovative idea we conceived end of last year. And in February, had a very good discussion with Eli Lilly's global CEO, David Ricks and received his very warm support. And certainly, with the two teams working very closely together and with our strong execution, we have that platform launched in April 30. And we already started receiving orders by now. And certainly this is very interesting and a very innovative idea.We will use this platform to conduct lifecycle management for diabetes patients. We realize that the three major chronic disease types in China-more than 100 million in population. So we have to manage them separately. So we had this idea of have specialized hospital for each disease type. So certainly, it's through this platform we will conduct lifecycle management for diabetes patient. We will link the patients with doctors, use our entire system to provide patients various contents and treatment of the disease, the new drug launches, properties and exercised criticality for drug compliance.And at the time of refill, we remind the patient for the refill. So we will also use this platform for digital prescription. Certainly, this concept and this model would be expanded to manage many other chronic disease types.Hope that answers your question.

Well, thank you so much.

Your next question comes from the line of Sherry Yin from JPMorgan. Please ask your question.

Thank you for taking my question. Congratulations on delivering another big quarter result. This is Sherry from JPMorgan. I have two questions here. So the first question is about our E-Channel segment disclosure which you started this quarter. Could you elaborate more about how we are collaborating with the other e-commerce platforms like Ali Health and JD Health? And what's our growth and margin expectation on this E-Channel business? The second question maybe a more broader one about our strategic plan in the future. As we have heard many other platform company are talking about constructing a closed ecosystem, a broader ecosystem. So we know 111 has done very well with our existing business model. So what do see as the potential future expansion direction for us? That's the two for me. Thank you very much.

Okay. As Junling just mentioned earlier before, the E-Channel segment consists of revenue from product sales to other online drug retailers such as Ali Health, JD Health, Ping An Good Doctor and so on. Historically, revenue from this project has been included in the B2C family and generally accounted for between 15% to 20% of B2C business.To elaborate this business model, we can look back at page 13 in the deck. In the last part, there are the pharmaceutical companies we have signed exclusive contracts with them. We are delivering some well-designed services to these partners including for example, inventory management systems, pricing and intelligence systems and so on. Other services, we provide, you can refer to the bottom part of the slide. And on the right part of the same slide, as you can see, we have expanded almost all the main online drug retailer in China.Also, I would also like to discuss record growth in the segment. First, the epidemic contributed to our record growth in quarter one. Then more and more pharmaceutical companies are willing to authorize as E-Channel. Some of them are even exclusive partners. Last, but not the least, we are also further meeting the need of our E-Channel customers and enhance their order quickly and accurately to improve wallet share and ARPU. So that's a snapshot of our E-Channel business strategy.

Yes. I will address the question about the strategy moving forward. As I said during my remarks that really, we laid out a mission and we have the four pillars to really execute that mission. And if I put things into very simple concept here, we really have two-folded strategy.One is to build this omni-channel drug commercialization platform because we are in a very unique position in the B2C. We are the pioneers in terms of B2B in the pharmacy space. We really have already taken up more than 60% of the overall market. And obviously, we just recently hired Mr. Anfeng Guo to onboard. And he will be running the doctors and hospitals channel and focusing on innovative drugs. And that is the first fold.The second fold is, through that omni-channel, that is really unique in the marketplace. We are the only one with that capability, we believe and we are going to strengthen that. And by doing that, we are going to accumulate many consumers, many patients. And we are going to help those patients to do the lifetime disease management and chronic disease management is an ongoing problem and this country never had such infrastructure in the past.And now that with this pandemic, with the infrastructure we have built out, we are able to really service those patients. And as we calculate, each of the patients we acquire, we should have on average 20 years to service them. So our approach came from really connecting the patients with drugs because there would lots and lots of drugs available in the market and those drugs need to find patients and those patients need to find the latest and most effective drugs as well. And if we are able to really build a barrier there, we believe that is going to be the best defense moving forward. Thank you Sherry.

Thank you very much. That's very clear.

[Operator Instructions]. Your next question comes from the line of Rachel from HSBC. Please ask your question.

Hi. Thanks for taking my question and congratulations for a really strong pick up of go forward 2020. I actually have two questions. One is regarding your margin change. We noticed that our B2C business gross margin has expanded quite significantly in the first quarter compared to the same quarter last year. Now it has expanded to 2.9%, if I don't remember wrongly. So can you elaborate a little bit more about what drives such a meaningful margin expansion? And the other question is regarding your fulfillment cost. Actually fulfillment cost ratio expanded by 30 bips year-on-year. But as to my understanding, as you are growing bigger, the fulfillment cost ratio should come down. So can you may be help us to understand why the fulfillment cost ratio is increasing? And also, can you explain what constitute your fulfillment cost? I mean is there a potential for future cost saving as the business size grows bigger? This is my first question. And the second question is regarding your strategy acquisitions. [Indiscernible], I think 111 kept on its strategy to service standalone pharmacy but now we are talking more about connecting the patients with drugs and healthcare systems. Does that mean that we are ending our strategy that we will be focused on clients? Or can you elaborate a little more about that? Yes, that is the second, yes. That's my second question.

Rachel, this is Haihui. I think you have two question, but in the last part, I am not very clear. What I heard is, first of all, it is about our B2B margin improvement. You want to see the insight. And the other one is about logistic fulfillment cost. And are these the two questions you are asking? Or was there anything else because in the last part, we can hardly hear you.

Sorry. The last one is actually about our strategy because we kept, I am talking about our B2B motto, that is to provide a better added service to pharmacy, to standalone pharmacy. But now we are also talking about connecting patients with drugs and healthcare services. So does that mean we are actually shifting our strategy from a more B2B model to a more B2C model? That's the second question.

Okay. I will take the first two and Junling will cover the last one. For the first question regarding B2B margin improvement, I will conclude with three key words. First is sourcing. Second one is assortment. And the third one is technology. For our sourcing side, we have mentioned that we are continuing to strengthening our partnership with most pharmaceutical companies. For example, our direct sourcing relationships which helped us to lower down our COGS and improve gross margin in the past quarter.Secondly, from the assortment side, the ARPU and selection with our pharmacy customers are also increasing which means we are paying more and more products including more and more high margin, higher margin products to our customers.And for our technology side, as our CFO Luke just mentioned, our smart pricing system also helped us to continuously optimizing our pricing and also help us to balance the sales and profit. So all this three concludes the increase of our B2B margins.And from the logistic fulfillment cost, this is a very good question. With the volume growth and scaling effect, we are reducing our fulfillment cost in 2019. But as you have already mentioned, in Q1 2020 there is a minor increase. Although we did expand our fulfillment centers to provide a better logistic experience, but I think the main reason for this minor increase is because of the epidemic in China. During the epidemic, our delivery cost, labor cost and transportation cost has increased significantly. And especially there is Chinese New Year which affects our fulfillment cost.The good news is that as the epidemic is much stable in China, these logistic costs have reduced to normal level and we are expecting to see logistic efficiency improvement trend coming back soon, okay.

Okay. Thank you.

Okay. So let me address your last question. I mean, there are many ways and different angles to look at a business and obviously you could look at the business from an angle of B2C or another angle is from B2B. The other angle could be B2B2C. There are a lot of industry jargons and so on. But if you look at what is happening today in the market, I want to state two facts.Right now, China has more than 300 million chronic patients. The other fact is that with the 4+7 policies and the bulk purchase program rolling out across the country, that really urged majority of the pharmaceutical companies focusing on innovative drugs. And as I said before, obviously those drugs need to find the patients. And also, the patients need to find the best available drugs in the market. And if we leave aside, those industry jargons aside, B2C or B2B, we are really in the business of connecting patients with those drugs and much needed healthcare services. So that is really the way we look at our business and how we really want to move the company towards Phase 2.And obviously, we have already built many layers of competitive advantage when it comes to having drugs available on our platform and also having patients available on our platform. We believe we have a real shot at being the leader in providing a platform for those drugs to be commercialized. And in the meantime, we can help the patients to find the drugs digitally.I hope that answered your questions.

Okay. Thank you guys. Very clear. Thank you. That's my questions.

Your next question comes from the line of Chris Lui from Jefferies. Please ask your question.

Hi guys. Thank you for taking my question. I have two questions. The first one would be on opportunities and risk. So over the next 12 to 24 months, what are the opportunities and risks throughout your value chain? And what are we doing to monetize the opportunities or to avoid the risk? So that's the first question. The second question would be on your revenues. Can you give us color on organic growth versus inorganic growth? And from organic growth, how much was the ASP impacted? Thank you.

Opportunities and risks, yes, I have the opportunities and risk. I really struggled to hear clearly the second question, Yes. Do you mind repeating the second question please?

Yes. So yes, the second question would be on the organic growth versus inorganic growth from your different business segments. Yes. And the first question is just opportunity and risk over the next 12 to 24 months.

Got it. So you are referring to[AUDIO GAP]

Yes.

So let me assume that's the question. So yes, with regards to the opportunities and risks, really I already laid out, I think the biggest opportunity is going to be the COVID-19 became a catalyst and that is going to really --[AUDIO GAP]The whole offline process to online is going to be a tremendous opportunity. And also with the latest regulatory changes on the generic drugs, majority of the profit disappeared and the pharma companies will have to find better ways to make money in the biggest consumer market in the world. And therefore they have to focus on innovative drugs, right. So those are the biggest opportunities we see. Therefore we laid out a mission to connect patients with drugs and medical services. And also we want to build a omni-channel strategy or omni-channel platform for the drugs to be commercialized.And when it comes to risks, I think there are all kinds of risks. Those include the regulatory risks, the geopolitical risks and so on. But we believe the biggest risks for us would be probably competitive risks. And when it comes to competitive risks, we have been very careful navigating our path. And obviously we laid out our mission and that is vastly different from any of the competitors out there in the market. And if we look at where we want to build our competitive advantage, that is really around our second to none smart supply chain capabilities. And we believe really the best defense is to stay on the offense. And if we continue to execute our strategy, that will be the best mitigation of risks.With regards to your second question on organic growth versus inorganic growth, obviously that is always on the card. That is always on the table. Whilst we are growing the business organically, we are always on the lookout, other potential opportunities to help us to grow even faster. Thank you.

Your next question comes from the line of Jonas Xu from CFT Capital. Please ask your question.

Thank you for taking my question. First of all, congratulations on the strong performance in the first quarter. My question consists two parts. The first part is that I would like you to elaborate a little more about the company's mission. And in regards to the mission, does 111 have aligned business development plan for the coming year? And the second part is, we have noticed that Ali Health and Ping An Good Doctor has significantly increased their value in the stock market in the first quarter and it seems that their model has been recognized as benefited from the COVID-19 outbreak. Could you share your view on your models versus their models? That's my question. Thank you.

Thank you. Yes. So obviously I would love to repeat the mission we laid out. And that is digitally connecting patients with drugs and the healthcare services. Obviously the reason why we singled out drugs is really, in today's healthcare industry, drugs is still the most incredible business to build upon and especially in China. And obviously, we laid out four facets of strategy that is to really continue to build our leadership in the virtual pharmacy network. We have already taken over more than 50% of the market share. We need to continue to lead in that space.And number two is to really make sure our omni-channel drug commercialization platform is going to be further perfected. And we hired the best talent in the market, Anfeng Guo, onboard and he will be leading the effort in the innovative drugs space.And thirdly, we really want to continue to strengthen our ecosystem by enabling our key stakeholders, the pharmaceutical companies, the insurance companies, the pharmacies, our partners and so on.And finally, of course, we are going to continue to build our supply chain. And our supply chain is leading the industry. And we want to make sure that we want to build the moat around our core of the business. We are going to continue to strengthen the relationships with the upstream pharmaceutical companies. And we are going to continue to optimize our logistic network. We want to make sure that there is absolutely zero blind spot. Wherever our patients are located, we can deliver those drugs at affordable cost to their doorsteps.And I am going to invite Dr. Yu to address your second question.

Okay. Sure. So you mentioned about Ali Health and Ping An Good Doctor and it's great to see that they are recognized by the capital markets. And that really shows the value and the potential of the Internet health industry. So certainly we are happy to see that and directionally we are very similar, although that we are from different routes and our focuses are different. As Junling just mentioned that our mission is to digitally connect patients with drugs and the healthcare services.We are a technology company and our strength are in smart supply chain and cloud-based services. So we believe that we are the hidden gem in this space. And even now with improved liquidity and market value, we are still, I believe, that we are undervalued, but that's not where we focus. We focus on our core competence, our customer experience. We believe that if we execute our strategy and our value will finally be released and recognized.

Good stuff to buy?

Yes.

Okay. Thank you.

Your next question comes from the line of Tony Fan [ph]. Please ask your question.

Hello. I have two questions. One is, why did the stock price and liquidity increase significantly in the first quarter? And my second question is regarding the Holding Foreign Companies Accountable Act that recently passed the Senate. I know that the law would require Chinese companies to establish that they are not controlled by the Chinese government, although I understand that probably isn't the case with 111 however. A company listed in U.S. will then be required to submit an audit that can be reviewed by the PCAOB. And I know that there's some tension with regard to Chinese policy which does not allow Chinese auditors work on being transferred out of country. Does this new law have any impact on 111 going forward? And if so, what kind of impact? And how do you envisage that you will deal with the same?

Let me address the first part of your question and probably Luke will take the second. I just mentioned that, as a general principle, we always under-promise and over-deliver. And as you can see that since our IPO of September 12, 2018, six consecutive quarters, we exceeded the market expectations and our guidance to the market. And also, we show that the value of what we can create and this is also the pandemic show that Internet health can provide tremendous value to the patients. So that's the space we are in. That's probably the reason that we start to be recognized. But I believe, as I mentioned before, that we are still the hidden gem.

Yes. So the U.S. Senate passed a bill that could impact on the Chinese listed companies. Of course, this proposed bill, if signed into law, will potentially have a universal impact on all the Chinese companies listed in the U.S. rather than us individually. So we think we will be, of course, monitoring the development very closely. But in the meantime, we will always focus on our own business and growth to bring values to all shareholders, users and partners and employees.That hopefully will answer your question.

Yes. Thank you.

Your next question comes from the line of Peter Halesworth from Heng Ren. Please ask your question.

Hello. I have three questions. The first two related on the orders from pharmacies. The ratio seems quite low on a quarterly basis and I am just wondering why it seems low in terms of the number of orders per pharmacy? Can you explain what's in a pharmacy order and what the average ticket price is? And then secondly, the operating expenses as a percentage of revenues, what would be a reasonable run rate to expect for this year and on a three-year basis? And finally, we see some Chinese companies are doing well in terms of the R&D for COVID-19 vaccine in China. Wondering if any role for 111 to play in the eventual commercial COVID-19 vaccines in China? Thank you.

Maybe I will just take the first part and the third part and maybe, okay. So if you look at the number of pharmacies we have covered versus the number of orders, it appears to be low. But I want to remind everyone, if you look into our customer base, essentially those are the standalone stores and the small to medium chains. And if you look at a typical chain store, the number of orders, like one order they could cover like 50, 60 stores, right. So that could be misunderstood. So when we look at those numbers, not only do we cover the pharmacies but also the chains as well. So those chains would dilute those numbers and that number could be looked as skewed.And in terms of the revenue, I am not sure, Luke, if you have detailed numbers.

Yes. So on the operating expenses, if you were looking into the operating expense items, we have selling and marketing, G&A and technology expenses, all those when the revenue size continue to increase, you see as a percentage of net revenue continue to go down. It happens ever since the IPO. So you see that in the first quarter, our overall expenses, operating expenses as a percentage of net revenue, going down from 21.3% to 12.8%. We believe we will continue to see that leverage.However, fulfillment cost is very volume-related or revenue-related. And we just explained what the components in fulfillment costs. There's warehousing, handling the people costs as well as the delivery costs from third-party logistics companies. So we believe we are going to continue to lower down, but it's more in relationship with the volume and revenue. So what we try to do is, we want to continue to improve gross margin, especially in the margin net of the human costs so that we are making a profit to support our operating expenses.For this year, we think we will continue to narrow down the net loss quarter-by-quarter. But at this moment, as we just shared with you, there are valuable opportunity in this China market. I think we are still in the investment stage. So we will continue to invest, building up to scale very fast and continue to improve operating leverage.

Yes. That's a great question about the COVID-19 vaccine and potentially the role we could play. And I think today, we have seen great news about this company, I think it is mainly CanSino that's listed in Hong Kong. And I think, the stock would have many, many folds in a very short period of time. That is really encouraging news, although it's only in clinical test and trial period. And obviously we have built out this tremendous network and we absolutely believe our network can be deployed to service the country. And as we speak, we have already deployed on our website a COVID-19 test kit, right. So people can actually get tested and we can direct them to clinics to get the blood drawn and to find if they actually caught the virus, et cetera.Those infrastructure that we have built out will be great. And obviously it is still early stage and we are also actively looking for ways and looking for solutions over the long period of time. But at the moment, we are still focusing on our core business. If there is a vaccine that becomes available and we believe with our direct-to-C model and also our really the biggest pharmacy network across the country and those vaccines can be either delivered to consumers' homes or if it is an injection, we can actually leverage those little pharmacies across the country to have integrated online-offline solution. And hopefully the vaccine is going to become available and we would love to play a role in that space. Thank you.

Thank you. 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 would like to thank you for your interest and participation into this 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.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect.