BEST Inc (BEST) 2022 Q1 法說會逐字稿

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to BEST Inc.'s First Quarter 2022 Earnings Conference Call. (Operator Instructions) With us today are Johnny Chou, BEST Inc.'s Chairman and CEO; and Gloria Fan, Chief Financial Officer. For today's agenda, Johnny will give a brief overview of business and operational highlights. Then Gloria will explain the details of financial results. Following the prepared remarks, you may ask your questions.

Please note, this call is also being webcasted on BEST Inc.'s IR website at ir.best-inc.com. A replay of this call will be available after the call. An investor presentation is also available on the IR website. Before it begins, I will read the safe harbor statement on behalf of BEST Inc. Today's discussion will contain forward-looking statements. These forward-looking statements are based on management's current expectations. They involve inherent risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the management's control. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or others, except as required by law. Please also note that certain financial measures that the company uses on this call are expressed in a non-GAAP basis, such as EBITDA, adjusted EBITDA, non-GAAP net loss. The GAAP results and reconciliation of GAAP to non-GAAP measures can be found in BEST Inc.'s earnings press release.

Finally, please note that unless otherwise stated, all of the figures mentioned during this conference are in RMB. Now I would like to turn the call over to Johnny Chou, Chairman and CEO of BEST Inc. Johnny, please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining BEST's 2022 first quarter earnings call today. In the first quarter, despite the disruption caused by the COVID-19 pandemic, we continued to serve our customers with operational resilience. BEST Global continued its strong growth momentum and finished the quarter with 25% year-over-year volume increases in Southeast Asia. As we continued with our strategic refocusing program, we are winding down BEST UCargo and Capital business lines to allow us to have a much leaner organization and a lower cost structure.

At the end of Q1, we have a net cash position of RMB 1.5 billion that can fuel our future growth. Now let's take a look at each of our business segments. BEST Freight maintains its industry-leading position and continue to grow its e-commerce ready transactions, contributing 22.2% of total volume for the quarter, up 5.6 percentage points year-over-year. Freight has also been implementing measures to strengthening its network coverage and service quality. This effort have delivered immediate results. In the first quarter, Freight's on-time delivery rates improved by 14 percentage points year-over-year.

In addition, according to the third-party survey, BEST Freight continue to rank among top companies for the freight service quality. BEST Freight's recovery trend after Express handover continue into the first quarter. The Freight volume and net stability has been improved. However, resurgence of the pandemic have significantly impacted the logistics industry and our operations. Some of our main sortation centers and a part of our transportation fleet was restricted due to the pandemic. Freight's first quarter volume decreased by 13.5% year-over-year.

Looking ahead, even though there are uncertainties related to the macro environment and the pandemic, we will continue to focus our efforts on improving Freight's network capabilities and service quality as well as on synergizing to a supply chain management and global for additional business opportunities. We will also continue to use automation to increase operating efficiency and reduce costs. We are confident thereby optimizing these operational fundamentals. We are prepared for future growth and profitability.

Moving on to BEST Supply Chain Management. Supply chain management remains our key differentiators as it empowers our customers with digitized end-to-end logistics solutions. We continue to leverage our expertise and industry reputation to expand and deepening our presence in apparel, fast-moving consumer goods, auto parts and pharmaceuticals industries. In Q1, we have signed on 11 new key customers that will continue to strengthen our industry leadership position and accelerate our growth. During the quarter, we continue to grow our B2B2C fulfillment network, and distribution capabilities while reinforcing the service quality and prioritizing higher margin accounts.

In the first quarter of 2022, our customer satisfaction rate has reached 99%. As a result of discontinuing certain low-margin legacy customers, the total number of orders fulfilled by Cloud OFCs decreased 13% to RMB 87 million, of which the total number of orders fulfilled by franchise Cloud OFCs increased by 2.4% to RMB 54 million year-over-year. Supply chain management is the heart of our cross-segment synergies, which can significantly benefit freight and global key accounts and cross-border business by supporting its customers' transportation and global logistics needs. Among SCM's top customers, more than 20% use our Freight services.

Now let's talk about BEST Global. BEST Global has entered into a new stage of growth. after successfully completing its initial ramp-up phase. Our 2-plus years in Southeast Asia, Global has established strong service and network capabilities for future growth. Global continue to gain market shares in Southeast Asia despite the ongoing pandemic and disruption in its supply chains. The parcel volume reached over RMB 38 million in the first quarter up 25% year-over-year. Parcel volumes in Vietnam, Malaysia and Singapore increased by approximately 68% and 72%, respectively. In addition to the positive development in Southeast Asia, our U.S. business reached a breakeven last year and continued to be profitable in Q1 2022. Going forward, Global will continue building out its information technology and infrastructure to improve quality and operating efficiency.

In Southeast Asia, we will focus on reinforcing network stability and reliability as well as improving franchisees operational capabilities. In addition, we will leverage our supply chain management expertise to establish country-to-country smart logistics solutions for local cross-border and regional operations. This will allow us to provide better product offerings to our customers and continue our high-growth trajectory.

Looking ahead, we believe the activities of supply chain and the logistics business will pick up quickly in China and Southeast Asia as the pandemic ease. Information technology driven and integrated supply chain and logistics solutions will be in high demand to support such growth. BEST's strength in technology, domestic international end-to-end supply chain and logistics capabilities as well as our broader customer base in China, coupled with strong cash position will allow us to capture this growth opportunity and on the path to profitability.

Now I would like to turn the call over to our CFO, Gloria, for further review of our first quarter financials. Go ahead, Gloria.

Thank you, Johnny, and hello to everyone. Our first quarter revenue, excluding UCargo and Capital declined by 4.6% year-over-year. The pandemic has created various bottlenecks that significantly challenged the logistics industry. Our Q1 performance is a testament to our strong business resilience. Our balance of cash and cash equivalents, restricted cash and short-term investments were approximately RMB 5.3 billion at the end of the first quarter of 2022. Supported by our robust balance sheet, our emphasis on service quality and operational efficiency will strengthen our core competencies in freight, integrated supply chain management, global logistics solutions, positioning ourselves for future recovery and building a solid foundation for sustainable growth and profitability.

Now let me walk you through our financial results for the first quarter of 2022. Our revenue for the first quarter was RMB 1.8 billion compared with RMB 2.8 billion last year. The decrease is primarily due to the winding down of our UCargo business units. UCargo's Q1 2022 revenue were approximately $19 million compared with RMB 869 million in the same quarter of 2021. Due to the rising oil price and additional cost resulted from the pandemic, our gross loss for Q1 was RMB 76.8 million compared to a gross profit of RMB 51.7 million for the same quarter of 2021.

Gross margin was negative 4.3% compared to positive 1.9% last year. Net loss from continuing operations for the first quarter was RMB 379.9 million compared to RMB 191.2 million last year. Adjusted EBITDA for continuing operations was negative RMB 294.6 million compared to negative RMB 98.5 million for the same quarter of 2021.

Next, moving on to key financial highlights for our business units. For BEST Freight, we remained focused on expanding its e-commerce-related business and improving our service quality. As we are winding down UCargo business, its financial results are now consolidated into Freight business segments. In the first quarter, Freight's service revenue was approximately RMB 1.1 billion, compared to RMB 2 billion for the same period of last year, primarily driven by the decreased UCargo revenue of approximately RMB 849 million.

Excluding UCargo, Freight's revenue decreased by 8.6% year-over-year, primarily due to a 13.5% decrease in Freight volume, partially offset by a 4.5% of ASP increase. This gross margin was negative 7.1%, 7.7 percentage points lower year-over-year due to higher oil prices and additional cost resulted from the pandemic.

Adjusted EBITDA for BEST Freight was negative RMB 149.9 million compared to negative RMB 32.9 million last year. Q1 revenue for BEST supply chain management decreased by 8.6% year-over-year to RMB 409 million, primarily due to discontinuation of certain low-margin legacy accounts. Gross margin was 4.3%, 1.1 percentage points lower year-over-year, primarily due to lockdowns of certain warehouses resulted from the pandemic. Adjusted EBITDA for supply chain management was negative RMB 8.5 million compared to RMB 167,000 in the same period of 2021.

For BEST Global, Q1 revenue increased by 7.3% year-over-year to RMB 269.7 million, driven by solid parcel volume growth in Southeast Asia. Its gross margin was negative 6.3%, decreased by 0.4%, primarily due to higher fuel price and additional costs associated with the pandemic, partially mitigated by its increased volume. Q1 adjusted EBITDA for BEST Global was negative RMB 63.4 million compared to negative RMB 51.9 million last year.

Our operating expenses, excluding share-based compensation, totaled RMB 267.5 million or 14.8% of revenue compared with RMB 262.9 million or 9.4% of revenue in the same period of last year.

Selling, general and administrative expenses for continued operations were RMB 235.7 million or 13% of the revenue in the first quarter, compared to RMB 224.7 million or 8.1% of the revenue in the same quarter of 2021, mainly due to additional expenses associated with winding down the capital business line. R&D expenses for continuing operations were RMB 31.9 million or 1.8% of the revenue, compared to RMB 38.1 million or 1.3% of revenue in the same quarter of last year.

Now turning to our outlook. Due to the uncertainties relating to the COVID-19 pandemic and its recovery. The company's previous guidance will no longer be in effect. However, we see a high demand in technology-driven integrated supply chain and logistics solutions in China and globally. We are excited about our business prospects and have full confidence in our ability to emerge stronger from the market challenges and deliver long-term benefits to our stakeholders.

With that, we will now open the call to questions. Thank you. Operator?

(Operator Instructions) As there are no questions, this concludes our question-and-answer session. I would like to turn the conference back to Gloria Fan for any closing remarks.

Okay. Thank you, operator. Thank you, everybody, for participating in today's earnings call. If you have any additional questions, please contact our Investor Relations team. Okay. Thank you, everybody.

Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.