JD Health International Inc. (OTCPK:JDHIF) Q2 2022 Earnings Conference Call August 23, 2022 9:30 PM ET Corporate Participants Enlin Jin - Chief Executive Officer Cao Dong - Chief Financial Officer Conference Call Participants Justin Kwok - Goldman Sachs Unidentified Company Representative Good day ladies and gentlemen, thank you for standing by. Welcome to the JD Health International 2022 Interim Results Conference Call. This is [indiscernible] from investor relations team at JD Health. Joining us today are ...

Financial Performance - Total revenue for 2021 reached RMB 30,682.27 million, a 58% increase from RMB 19,382.57 million in 2020[5] - Gross profit for 2021 was RMB 7,197.28 million, up 46% from RMB 4,917.30 million in 2020[5] - The company reported a net loss of RMB 1,072.82 million for 2021, compared to a net loss of RMB 17,234.90 million in 2020, indicating a significant reduction in losses[5] - Non-IFRS profit for 2021 was RMB 1,402.10 million, a substantial increase from RMB 732.12 million in 2020[5] - Revenue increased by 58.3% from RMB 19.4 billion in 2020 to RMB 30.7 billion in 2021, driven by a rise in active user numbers and online penetration of pharmaceutical sales[37] - Service revenue rose by 72.7% from RMB 2.6 billion in 2020 to RMB 4.5 billion in 2021, attributed to an increase in digital marketing service fees and commissions from third-party merchants[38] Assets and Liabilities - Total assets increased to RMB 48,002.22 million in 2021, up from RMB 43,994.55 million in 2020[6] - The total liabilities increased to RMB 8,147.63 million in 2021, up from RMB 4,743.20 million in 2020, indicating increased leverage[6] - Current assets amounted to RMB 45,705.48 million in 2021, compared to RMB 42,704.77 million in 2020, reflecting strong liquidity[6] - The equity attributable to owners of the company rose to RMB 39,853.39 million in 2021, compared to RMB 39,250.84 million in 2020[6] Operational Efficiency and Strategy - The company is focused on enhancing its operational efficiency and improving profitability in the coming years[7] - The company plans to continue expanding its market presence and investing in new technologies and products[7] - The company aims to create long-term sustainable value for shareholders and society by focusing on quality growth and universal healthcare[9] - The company is committed to integrating digital economy with the physical economy in the healthcare sector, promoting high-quality development[18] Healthcare Services and Innovations - In 2021, the company focused on enhancing its "retail pharmacy + healthcare services" ecosystem, aligning with national policies to promote the rapid development of the "Internet + healthcare" sector[8] - The company aims to become the "chief health steward" for the nation, emphasizing user health needs and integrating online and offline healthcare services[9] - The company established a comprehensive drug safety system covering the entire process of medication, exceeding industry standards, and formed the "JD Health Internet Medical Expert Committee" to enhance service quality[15] - The company made significant advancements in its pharmaceutical supply chain and healthcare services, including innovations in chronic disease medication follow-up and strategic partnerships with renowned pharmaceutical companies[12] - The company provided efficient healthcare consultation services to millions of users by connecting quality medical resources and integrating various health services[12] User Engagement and Growth - Annual active user count reached 123.3 million, an increase of 3.36 million compared to 2020[19] - Daily consultation volume exceeded 190,000, indicating a rapid growth in healthcare service capabilities[19] - The company aims to enhance user growth and engagement through supply chain improvements and technology investments[101] Research and Development - R&D expenses increased by 46.6% from RMB 609.1 million in 2020 to RMB 892.9 million in 2021, accounting for 2.9% of revenue, down from 3.1% in 2020[43] - Approximately 30% of the net proceeds is expected to be used for research and development, focusing on digital infrastructure and AI-assisted services[102] Corporate Governance and Leadership - JD.com is committed to maintaining high standards of corporate governance and financial transparency through its independent board members and audit committees[77][79] - The management team has a strong background in finance and operations, with key members holding advanced degrees from prestigious institutions[75][76][78] - 徐雷 has been appointed as CEO of JD.com since April 2022, leading the company's daily operations and driving its strategic transformation towards mobile[73] Related Party Transactions - The company has established ongoing related party transactions with JD.com and its affiliates during the reporting period[178] - The company paid JD.com a transaction amount of RMB 1,271,666 thousand under the technology and traffic support service framework agreement[180] - The company paid JD.com RMB 1,712,477 thousand under the logistics service framework agreement, with a suggested annual cap of RMB 2,600,000 thousand[180] Financial Position and Cash Flow - Cash and cash equivalents decreased from RMB 32.3 billion at the end of 2020 to RMB 17.3 billion at the end of 2021[55] - Net cash generated from operating activities was RMB 3.4 billion in 2021, down from RMB 3.7 billion in 2020, primarily due to a loss of RMB 1.1 billion[56] - The company plans to meet liquidity requirements through cash generated from operations and net proceeds from the IPO[55] Employee Compensation and Structure - Total employee compensation and benefits expenses, including share-based payment expenses, amounted to RMB 3.4 billion for the year ended December 31, 2021, representing a year-on-year increase of 238.9% compared to RMB 1 billion for the year ended December 31, 2020[64] - The company had a total of 3,305 employees as of December 31, 2021, with 69.1% in procurement, 10.7% in sales and marketing, and 17.5% in R&D[63]

Financial Performance - Total revenue for the first half of 2021 reached RMB 13.6 billion, representing a year-on-year growth of 55.4%[11] - Revenue increased by 55.4% from RMB 8.8 billion for the six months ended June 30, 2020, to RMB 13.6 billion for the six months ended June 30, 2021[29] - Revenue from pharmaceutical and health products rose by 52.9% from RMB 7.7 billion to RMB 11.8 billion, driven by an increase in active users and online penetration[29] - Service revenue grew by 73.0% from RMB 1.1 billion to RMB 1.9 billion, attributed to an increase in the number of advertisers and third-party merchant sales[29] - Gross profit was RMB 3.3 billion with a gross margin of 24.3%, down from a gross margin of 25.3% in the previous period[31] - The company reported a loss of RMB 454.2 million for the six months ended June 30, 2021, compared to a loss of RMB 5.36 billion in the same period of the previous year[36] - The company reported a net loss of RMB 454,213 thousand for the six months ended June 30, 2021, compared to a net loss of RMB 5,360,915 thousand for the same period in 2020[80] - The company reported financial income of RMB 231,408 thousand for the six months ended June 30, 2021, compared to RMB 60,327 thousand in the same period of 2020[79] User Growth and Engagement - The number of annual active users as of June 30, 2021, reached 10.9 million, an increase of over 1.88 million compared to December 31, 2020[11] - The average daily consultation volume on the platform exceeded 160,000 during the reporting period, indicating strong growth in healthcare service capabilities[11] - The company has over 130,000 doctors and medical experts, covering more than 12,000 hospitals, with an average of over 160,000 online consultations per day as of June 30, 2021[18] - User data indicated an increase in active users to 30 million, up from 24 million in the previous year, representing a growth rate of 25%[157] Strategic Initiatives and Partnerships - The company aims to create a one-stop internet healthcare management platform by continuously deepening its retail pharmacy and online healthcare services[10] - The company established a strategic partnership with major pharmaceutical companies, enhancing its supply chain network and online channel capabilities[13] - The company is committed to leveraging digital technology to support industry upgrades and create more value for all parties in the supply chain[10] - The company is focused on providing accessible, convenient, and affordable healthcare products and services to the public[10] - The company has signed cooperative agreements with multiple medical institutions, enhancing the integration of online and offline medical services[19] - The company has deepened partnerships with upstream brands to enhance cancer early screening services, focusing on high-risk groups for colorectal cancer and collaborating on liver and lung cancer services[21] Operational Efficiency and Innovations - The ongoing digital transformation in the healthcare industry is expanding and refining health products and services[9] - The company is committed to continuous innovation in medical services, leveraging technology to improve user experience and healthcare delivery[23] - The integration of smart medical solutions aims to enhance operational efficiency for hospitals and improve patient management through digitalization[23] - The company is expanding its service capabilities to include smart hardware and health insurance, enhancing chronic disease management through remote monitoring[20] Financial Position and Cash Flow - For the six months ended June 30, 2021, the net cash generated from operating activities was RMB 1,933.9 million, a significant increase from RMB 359.7 million for the same period in 2020, reflecting a year-over-year growth of 437%[42] - The net cash used in investing activities for the six months ended June 30, 2021, was RMB 15,027.4 million, compared to RMB 3,097.1 million in the same period of 2020, indicating a substantial increase in investment outflows[43] - The company reported a decrease in cash and cash equivalents by RMB 13,119.6 million for the six months ended June 30, 2021, compared to a decrease of RMB 1,829.7 million in the same period of 2020[41] - The ending cash and cash equivalents as of June 30, 2021, were RMB 18,980.4 million, a significant increase from RMB 3,200.3 million at the end of June 30, 2020[41] Employee and Compensation - Total employee compensation expenses, including share-based payment expenses, amounted to RMB 1,528.4 million for the six months ended June 30, 2021, representing a 501.6% increase compared to RMB 254.1 million for the same period in 2020[47] - The company had a total of 2,576 full-time employees as of June 30, 2021, with 65.4% in procurement, 11.6% in sales and marketing, and 20.5% in research and development[47] Future Outlook and Growth Potential - The company plans to enhance its business integration with the real economy, focusing on digital rural construction and improving grassroots medical service levels[27] - Future growth potential in the retail pharmacy business is anticipated due to changing consumer habits and accelerated industry digital transformation[27] - The company expects to achieve a revenue growth of 20% for the next fiscal year, driven by new product launches and market expansion strategies[157] - A strategic acquisition of a local logistics firm is anticipated to enhance operational capabilities and reduce delivery times by 30%[157] Governance and Compliance - The audit committee has reviewed the unaudited consolidated financial statements for the six months ending June 30, 2021, ensuring compliance with accounting policies and internal controls[74] - The company has adopted and complied with all applicable provisions of the Corporate Governance Code as of June 30, 2021[72] Market Expansion and Product Development - The company plans to expand its market presence in Southeast Asia, targeting a 10% market share within the next two years[157] - The company has launched a new health management platform, aiming to capture a significant share of the growing health tech market[160] - The company is implementing a new customer loyalty program expected to increase repeat purchases by 20%[157]

Financial Performance - Total revenue for 2020 reached RMB 19,382,568 thousand, a significant increase from RMB 10,842,140 thousand in 2019, representing an increase of approximately 79%[7] - Gross profit for 2020 was RMB 4,917,298 thousand, up from RMB 2,812,272 thousand in 2019, reflecting a growth of about 75%[7] - The company reported a net loss of RMB 17,234,897 thousand for 2020, compared to a net loss of RMB 971,805 thousand in 2019, indicating a substantial increase in losses[7] - Non-IFRS profit for the year was RMB 748,918 thousand, compared to RMB 344,053 thousand in 2019, showing an increase of approximately 118%[7] - Total revenue for 2020 reached RMB 19.4 billion, a significant increase of 78.8% year-on-year[19] - Active user count on the platform grew to 89.8 million, an increase of 33.7 million compared to 2019[19] - Self-operated business revenue reached RMB 16.8 billion, with a year-on-year growth of 77.8%[21] - Revenue increased by 78.8% from RMB 10.8 billion in 2019 to RMB 19.4 billion in 2020, driven by sales of pharmaceutical and health products[36] - Active user growth and increased online penetration contributed to a 85.4% rise in service revenue from RMB 1.4 billion in 2019 to RMB 2.6 billion in 2020[36] Assets and Equity - Total assets as of December 31, 2020, amounted to RMB 43,994,548 thousand, a significant rise from RMB 8,676,677 thousand in 2019[8] - Equity attributable to owners of the company reached RMB 39,250,843 thousand in 2020, compared to a negative equity of RMB 459,031 thousand in 2019[8] User Engagement and Services - The annual active user count reached 89.8 million by December 31, 2020[13] - The company’s online medical consultation platform provided free consultations to over 10 million users by April 30, 2020[11] - The company’s internet hospital achieved an average daily consultation volume exceeding 100,000, which is more than five times the daily volume in 2019[13] - The retail pharmacy now offers over 20 million SKUs and has more than 12,000 third-party merchants on its online platform[13] - The company launched a chronic disease patient assistance platform that helped nearly 20,000 patients with urgent medication needs[11] - The "京东家医" service offers 24/7 health consultations and a range of family doctor services, including appointment scheduling with over 2,700 hospitals[15] Strategic Initiatives and Market Position - The company emphasized its commitment to building a digital-driven health management platform focused on the pharmaceutical and health product supply chain[10] - The COVID-19 pandemic accelerated the growth of the "Internet + Healthcare" sector, leading to increased user engagement and market recognition[10] - The company plans to continue expanding its healthcare services and product offerings to enhance user experience and health management capabilities[10] - The company signed cooperation agreements with several global pharmaceutical companies, including AstraZeneca and Pfizer, to enhance drug service offerings[16] - The company aims to strengthen supply chain capabilities and expand healthcare service offerings in response to the growing health awareness post-COVID-19[17] - By 2030, the Chinese health market is projected to exceed RMB 21 trillion, indicating a strong growth trajectory[17] Operational Efficiency and Cost Management - Operating costs rose by 80.1% from RMB 8 billion in 2019 to RMB 14.5 billion in 2020, aligned with the growth in retail pharmacy business[37] - Fulfillment expenses grew by 70.5% from RMB 1.2 billion in 2019 to RMB 2 billion in 2020, while the percentage of fulfillment expenses to revenue decreased from 10.8% to 10.3%[39] - Sales and marketing expenses surged by 92.3% from RMB 746 million in 2019 to RMB 1.43 billion in 2020, increasing as a percentage of revenue from 6.9% to 7.4%[40] - R&D expenses rose by 80.1% from RMB 338.2 million in 2019 to RMB 609.1 million in 2020, maintaining a consistent percentage of revenue at 3.1%[41] - General and administrative expenses increased by 322.0% from RMB 124.9 million in 2019 to RMB 527.2 million in 2020, with the percentage of these expenses to revenue rising from 1.2% to 2.7%[42] Cash Flow and Financing - Cash and cash equivalents increased to RMB 32.3 billion as of December 31, 2020, up from RMB 5 billion at the end of 2019[48] - Net cash generated from operating activities for 2020 was RMB 3.7 billion, a substantial increase from RMB 409.5 million in 2019[49] - Net cash used in investing activities was RMB 7.8 billion in 2020, compared to RMB 1.4 billion in 2019[51] - Net cash generated from financing activities reached RMB 32 billion in 2020, significantly higher than RMB 6.5 billion in 2019[52] - The company had no outstanding borrowings as of December 31, 2020, indicating a strong capital structure[53] Governance and Compliance - The company emphasizes the importance of compliance and internal audit, with a dedicated Chief Compliance Officer overseeing these functions[67] - The company has a diverse board with members involved in various sectors, including healthcare, law, and education, which may enhance its strategic decision-making[66] - The company has established indemnity provisions for directors, effective as of the year ended December 31, 2020[93] - The independent non-executive directors confirmed that there are no conflicts of interest requiring disclosure between the group and the controlling shareholder[96] - The company has adopted an insider trading policy that is at least as stringent as the standards set out in the Listing Rules Appendix 10[184] Future Outlook and Strategic Plans - The company plans to enhance user growth and engagement through supply chain improvements and diversified delivery options[85] - The company aims to leverage AI, big data, and supply chain capabilities to provide high-quality healthcare products and services, responding to the "Healthy China 2030" initiative[33] - The company is focused on integrating retail pharmacy and healthcare services through its online health management platform, creating a closed-loop service model[34] - The company is likely to pursue new strategies and technologies, as indicated by the diverse expertise of its board members in various fields[69] Related Party Transactions - The independent auditor confirmed that there were no issues regarding the disclosure of related party transactions that were not approved by the board[176] - Independent non-executive directors confirmed that the ongoing related party transactions were conducted in the ordinary course of business and on normal commercial terms[153] - The company has established contractual arrangements to gain effective control over its consolidated affiliated entities due to foreign investment restrictions in certain sectors in China[156] Employee and Leadership Changes - Total employee compensation expenses, including share-based payments, amounted to RMB 1,000.3 million for the year ended December 31, 2020, representing a 267.7% increase compared to RMB 272.0 million for the year ended December 31, 2019[55] - As of December 31, 2020, the total number of full-time employees was 2,099, with 62.2% in procurement, 14.0% in sales and marketing, 21.0% in R&D, and 2.8% in general and administrative roles[55] - The company has seen significant leadership changes, with multiple directors resigning and new appointments made, indicating a potential shift in strategic direction[69]