111, Inc. — FY2023 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2023. This annual report provides full-year results, not standalone 2023 Q4 financial results. Financial statements are prepared under U.S. GAAP; reporting currency is RMB. U.S. dollar figures are convenience translations.
Business context
111, Inc. is a Cayman Islands holding company whose operations are primarily in China. It operates online retail and wholesale pharmacies, an internet hospital and related digital healthcare and supply-chain services. Its business is overwhelmingly B2B pharmaceutical distribution: B2B product revenue was 96.9% of FY2023 revenue. The former VIE arrangements were terminated in February 2022 and the former VIEs became subsidiaries.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | RMB14.948bn (US$2.105bn) | RMB13.517bn |
| Operating loss | RMB350.1m | RMB371.0m |
| Net loss | RMB353.4m (US$49.8m) | RMB376.1m |
| Operating cash flow | Use of RMB447.2m | Use of RMB23.2m |
| Cash and cash equivalents | RMB603.5m | RMB673.7m |
| Short-term investments | RMB50.1m | RMB205.9m |
| Short-term borrowings | RMB338.1m | RMB179.0m |
- Revenue increased 10.6%. B2B product revenue rose 11.5% to RMB14.484bn; B2C product revenue fell 12.3% to RMB358.0m, reflecting a shift of resources toward B2B. Service revenue declined 6.2% to RMB106.2m.
- Cost of products sold was RMB14.099bn. Revenue less product cost was approximately RMB849m, or 5.7% of revenue, versus approximately RMB840m, or 6.2%, in 2022. This is before fulfillment and other operating expenses. B2B segment profit rose 3.5% to RMB769.6m; B2C segment profit fell 17.7% to RMB79.4m.
- Operating expenses totaled RMB15.298bn. Fulfillment expense was RMB400.5m (2.7% of revenue), selling and marketing RMB448.4m (3.0%), general and administrative RMB224.2m (1.5%), and technology RMB124.3m (0.8%). Share-based compensation was RMB226.2m, including expense recognized upon cancellation of the 1 Pharmacy Technology employee incentive plan.
- Basic and diluted loss per ordinary share was RMB2.33. The company reported accumulated deficit of RMB3.819bn and total shareholders’ deficit of RMB594.7m at year-end.
- Cash, cash equivalents and restricted cash totaled RMB623.5m at year-end; restricted cash was RMB20.0m. Including short-term investments, these balances totaled RMB673.7m. Working capital was RMB188.3m. Current liabilities were RMB2.745bn, including accounts payable of RMB1.589bn.
- Operating cash outflow increased to RMB447.2m, partly reflecting decreases in accounts payable (RMB176.7m) and accrued expenses and other current liabilities (RMB230.0m). Investing activities provided RMB151.7m, mainly from maturities and sales of short-term investments; financing activities provided RMB206.0m.
- Short-term borrowings were RMB338.1m, all due within one year; the filing reported RMB281.9m of undrawn credit facilities. Additional short-term financing included reverse factoring liabilities of RMB98.1m and factoring borrowings of RMB40.4m, both included in accrued expenses and other current liabilities.
Material changes and unusual items
- Net loss narrowed from RMB376.1m to RMB353.4m, while operating loss narrowed from RMB371.0m to RMB350.1m. The loss remains substantial and operating cash flow deteriorated.
- The carrying amount of redeemable non-controlling interests was RMB870.8m at year-end; RMB240.5m was reclassified to current liabilities after redemption rights were exercised. The arrangements relate to investors in 1 Pharmacy Technology and its proposed STAR Market listing, which was not completed by the contractual deadline.
- As of the report date, some investors had agreed to rescheduled repayments, while RMB205m of principal and RMB41.8m of accrued interest were redeemable; a further RMB229.8m principal and RMB49.9m accrued interest could become redeemable within one year if holders exercised their rights. The company was negotiating with investors and faced arbitration with one investor over approximately RMB36.1m.
- The founders’ proposed take-private transaction was withdrawn on February 27, 2024. Management was still pursuing rescheduling of redemption obligations and additional financing.
- The company recorded RMB226.2m of share-based compensation in 2023. A cancellation of the subsidiary employee ownership plan led to recognition of remaining compensation expense.
Outlook, risks and contingencies
Management expects to fund near-term working-capital needs and capital expenditures from available cash, short-term investments and anticipated operating cash flows, and is pursuing margin expansion, cost reductions and additional credit facilities. No specific revenue or earnings guidance is provided. The auditor’s report and financial statement notes state that recurring losses, negative operating cash flows and potential cash redemptions raise substantial doubt about the company’s ability to continue as a going concern. Management believes its plans mitigate the concern, but the statements contain no adjustments for the outcome of this uncertainty.
- Key risks include redemption demands and the ability to refinance or obtain additional capital; continued operating losses and cash burn; intense competition and pricing pressure; inventory, supplier and delivery risks; and evolving Chinese pharmaceutical, internet, cybersecurity, data privacy and overseas-listing regulation.
- Cash and assets held in China may be subject to restrictions on cross-border transfer; PRC subsidiaries have paid no dividends to the parent. The company does not expect to pay dividends in the near future.
- The issuer is a Cayman Islands holding company, and investors hold shares in the parent rather than direct interests in the PRC operating subsidiaries. Class B shares carry 15 votes per share; founders held all outstanding Class B shares as of March 31, 2024.
- The company stated that its internal control over financial reporting was effective at December 31, 2023, and the auditor issued an unqualified opinion on the financial statements and internal controls. The auditor identified B2B revenue occurrence as a critical audit matter because of the revenue’s scale and automated processing.
Most important facts for investors to verify
- Current status and timing of 1 Pharmacy Technology investor redemptions, including signed rescheduling agreements, remaining amounts due and the RMB36.1m arbitration.
- Whether operating cash flow improves and the company can meet short-term borrowings, supplier-financing obligations and other current liabilities.
- Cash availability by jurisdiction and any practical or regulatory constraints on moving PRC cash offshore.
- Whether B2B growth and segment profitability can offset continued contraction in B2C and service revenue, while sustaining margins after fulfillment costs.
- Developments in PRC regulatory approvals and filings, data and cybersecurity rules, and PCAOB access relevant to continued U.S. trading.