111, Inc. — FY2022 Form 20-F Summary
Business context and reporting period
This annual report covers the fiscal year ended December 31, 2022, not the fourth quarter alone; quarterly results are not provided in the filing text. 111, Inc. operates a China-focused digital healthcare platform combining online retail and wholesale pharmacies, online consultations and e-prescriptions, and related services. Its U.S.-listed ADSs trade on Nasdaq under YI; each ADS represents two Class A ordinary shares. Financial statements are prepared under U.S. GAAP and reported in RMB.
In February 2022, the company terminated its former VIE contractual arrangements and obtained direct equity ownership in the former VIE entities, which became subsidiaries. The company remains a Cayman Islands holding company whose operations are primarily in China.
Financial and operating performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net revenue | RMB13.52 billion (US$1.96 billion), +8.8% | RMB12.43 billion |
| Operating loss | RMB371.0 million | RMB642.1 million |
| Net loss | RMB376.1 million (US$54.5 million) | RMB621.0 million |
| Net loss margin | 2.8% | 5.0% |
| Net cash used in operating activities | RMB23.2 million | RMB688.8 million |
| Cash and cash equivalents | RMB673.7 million | RMB661.4 million |
| Short-term investments | RMB205.9 million | RMB182.6 million |
B2B product revenue was RMB13.00 billion, up 9.8%, and represented 96.2% of total revenue. B2C product revenue fell 17.0% to RMB408.3 million, which management attributed mainly to shifting resources toward B2B. Service revenue rose 20.2% to RMB113.3 million but remained 0.8% of total revenue. B2B segment profit increased 45.3% to RMB743.5 million; B2C segment profit declined 11.8% to RMB96.5 million. These segment profit measures exclude significant company-wide costs and do not equal consolidated operating profit.
Cost of products sold rose 7.4% to RMB12.68 billion. Fulfillment expenses increased 12.8% to RMB401.4 million as the company expanded warehouse capacity. Selling and marketing expenses declined 10.8% to RMB457.9 million, while general and administrative expenses declined 0.7% to RMB205.6 million and technology expenses declined 26.3% to RMB139.5 million. The filing reports that product cost excludes some direct fulfillment-related costs, so it is not a complete measure of product gross margin. Share-based compensation increased to RMB157.4 million from RMB145.6 million.
Liquidity, cash flow and debt
At year-end, current assets were RMB3.24 billion and current liabilities RMB2.73 billion, implying a current ratio of approximately 1.19. Cash and short-term investments totaled RMB879.5 million; restricted cash was a further RMB43.1 million. Inventory increased to RMB1.50 billion from RMB1.12 billion, while accounts payable rose to RMB1.76 billion from RMB1.35 billion. The company reported total liabilities of RMB2.83 billion and a shareholders’ deficit of RMB408.7 million.
Short-term borrowings were RMB179.0 million, down from RMB259.7 million. The filing also reports RMB64.1 million outstanding under reverse factoring and RMB40.1 million under factoring, both included in accrued expenses and other current liabilities, plus RMB46.5 million in guaranteed customer loans. The company said it had RMB351.0 million of undrawn credit facilities. FY2022 cash flow was RMB47.2 million used in investing activities and RMB22.7 million provided by financing activities. Capital expenditures were RMB31.7 million. Operating lease commitments totaled RMB175.1 million.
Management stated that cash, short-term investments and anticipated operating cash flows were expected to meet working-capital needs and capital expenditures over the next 12 months. However, the financial statements disclosed substantial doubt about the company’s ability to continue as a going concern, primarily because of possible redemption of 1 Pharmacy Technology investors’ interests; management said negotiations, investor undertakings, margin expansion and cost reductions mitigated that doubt.
Material changes, outlook and risks
- Losses narrowed substantially in 2022, and operating cash outflow fell to RMB23.2 million from RMB688.8 million. The company nevertheless remained loss-making and did not achieve positive operating cash flow.
- Investors in 1 Pharmacy Technology could require Yao Wang to redeem interests if a qualifying STAR Market listing was not completed by June 30, 2023, at investment cost plus 6% annual interest. The recorded redeemable non-controlling interest was RMB1.057 billion at year-end. Investors undertook not to exercise rights before June 30, 2024 for RMB584 million of interests and, subject to customary conditions, another RMB114 million. The filing does not establish that all investors waived redemption rights.
- On September 9, 2022, founders and a sponsor proposed a non-binding going-private transaction at US$3.66 per ADS in cash. The board had made no decision as of the report date; completion was uncertain.
- On October 27, 2022, the board approved reducing the exercise price of outstanding options to US$0.01 per share, effective December 31, 2022. This modification generated incremental share-based compensation expense.
- The company expects operating costs and expenses to increase in absolute terms as it expands, while targeting improved margins and cost control. It provided no specific revenue, earnings or cash-flow guidance.
- Key risks include evolving Chinese rules for pharmaceutical sales, internet healthcare, data privacy and cybersecurity; restrictions on cross-border cash transfers; possible additional CSRC filing requirements for future securities offerings; competition and execution risks; and potential redemption-related liquidity pressure. The PCAOB reported it could inspect China-based audit firms in 2022, reducing the immediate HFCAA identification risk, but the company noted future inspection access remained uncertain.
- The company reported no material pending legal proceedings. It had received disciplinary warnings and administrative penalties in the past relating to prescription-drug sales and advertising compliance. It also reported no cybersecurity review or related inquiry from the CAC as of the report date.
Most important facts for investors to verify
- Whether 1 Pharmacy Technology’s listing and redemption provisions were resolved, and the amount of any remaining redemption exposure and available funding.
- Whether the proposed going-private transaction progressed, and the current status and terms relative to the preliminary US$3.66-per-ADS proposal.
- Whether improving losses and operating cash flow can be sustained, given continuing annual losses, rising inventory and the importance of supplier-payment financing.
- How much cash and liquidity is practically available to the Cayman parent after PRC restrictions, restricted cash, and statutory dividend limitations.
- Whether B2B growth and segment profitability translate into consolidated profitability, while B2C revenue declines and service revenue remains small.
- Current compliance with Chinese pharmaceutical, data-protection and overseas-listing rules, and continued PCAOB inspection access.