BEST Inc

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Best Inc.' 's fourth quarter and fiscal year 2020 earnings conference. At this time, all participants are in a listen-only mode. Following management's prepared remarks, there will be a Q&A session. With us today are Johnny Chow, Best Inc.' 's chairman and CEO, and Gloria Phan, 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 webcast on Best Inc.' 's IR website at ir.bestinc.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 harbour 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 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 under applicable law. Please also note that certain financial measures that the company uses on this call are expressed on a non-GAAP basis, such as EBITDA, adjusted EBITDA and non-GAAP net loss. The gap result and the reconciliation of gap to non-gap measures can be found in Best Inc's earnings press release. Finally, please note that unless otherwise stated, all the figures mentioned during this conference call is in RMB. I would now like to turn the conference over to Jonny Chow, Chairman and CEO of Best Inc. Jonny, please go ahead.

Thank you, operator. Good morning and good evening, everyone. Welcome and thank you for joining our earnings call. In the fourth quarter of 2020, we executed our strategically focusing plan and turned our business around, aiming at strong industry competition, attesting to our ability to make quick and decisive changes in our strategies and operational practice. We continue to make improvements to all of our business segments and reduce the losses, which put us back on the path to strong growth and profitability. Our express segment on the new management focus on strengthening network stability, optimizing product and cost structure, as well as enhancing service quality. while Frey continued to solidify its industry leadership and returning to profitability. Next, let me go over our quarterly results and recent developments. To express, the new management team executed a strategic refocusing plan announced in November 2020, which resulted in an encouraging recovery, demonstrated by improving parcel unit economics despite a net loss for the quarter due to 20.4% year-over-year drop in SP per parcel, it achieved net profit for the month of December. In particular, the cost per parcel was reduced by 8.4% month-over-month. We also focused on improving network stability by providing support to our franchisor network. Our efforts have strengthened our franchisee network considerably. Our network remained open during the Chinese New Year holiday this year and quickly recovered to its full capacity at the conclusion of the holiday. These initial results have affirmed our strategic direction and bolstered our confidence that we are on the right path for sustainable recovery. We have seen Momentum continued into first quarter with accelerating parcel volume growth and improving cost structure. During the quarter, parcel volume increased by 6% year-over-year, representing market share of 9.5%. Growth margin contracted by 7.2 percentage points due to an ASP decline of 20.4% year-over-year, partially offset by a decrease in average cost per parcel of 14.3% year-over-year. Our freight business continued a strong post-pandemic recovery and delivered a strong quarter with a higher than industry average growth rate by returning to profitability. Growth margin improved to pre-COVID-19 levels as we continue to emphasize the e-commerce aspect of freight services solidified the company's leadership position and brand recognition, and improving operating efficiency. Free volume increased by 25.1% year-over-year in the fourth quarter of 2020. Its gross margin was 5.5%, improved by 4.5 percentage points quarter-over-quarter as pricing continued to rebound. Average cost per ton and AFT both decreased by 13.7 percent. Moving to best supply chain, we targeted quality growth and the probability as we sharpened its focus to higher margin accounts. In the fourth quarter of 2020, its gross margin decreased by 6.3 percentage points year-over-year, primarily due to one-off costs incurred by closing down store-plus related operations. and the pricing pressure associated with certain legacy key account customers, which are in the process of being discontinued. The total number of orders fulfilled by cloud OFCs increased by 11.7% year-over-year to 136.1 million in the fourth quarter of 2020, while total numbers of orders fulfilled by franchised cloud OFCs increased by 15.1% year-over-year to 67.1 million. The number of franchise OFCs increased by 22.2% year-over-year to 358. That global continued to make strong progress in cross-border and Southeast Asia business in the fourth quarter with strong volume growth and a margin improvement. On a quarter-over-quarter basis, parcel volume in Thailand increased by 25 percent quarter-to-quarter to 12.3 million, while parcel volume in Vietnam increased by 36 percent quarter-over-quarter to 14 million. Its gross margin expanded by 7.4 percentage points year-over-year. In November and December 2020, We expanded our sortation center in Bangkok, Thailand, and established a new flagship sortation center in Ho Chi Minh City, Vietnam. Across Southeast Asia, we now operate 24 express hubs and sortation centers, along with over 1,000 franchise last-mile service stations. Looking ahead, we continue to invest in our network, focusing on market share gain, and parcel volume growth in those countries and to enhance unit economics in order to achieve profitability in the near future. Turning to Best Cargo, UCargo, we continue to scale our full trucking mortgage model to connect more drivers and customers onto its platform while reducing transportation costs for express, freight, and supply chain management. As of December 31, 2020, The number of registered drivers on the Ucargo mobile apps increased by 70.6% year-over-year to 320,000. In the fourth quarter of 2020, the total number of transactions of trucking brokerage platforms increased by 19% year-over-year to 255,000. For Best Store Plus, we have completed the winding down of the Store Plus business as November 15, 2020. Next, let me discuss our strategic plan for 2021. China's solid macroeconomic growth and the booming e-commerce market will lend tremendous support to the logistics and the supply chain industry. We will continue to execute on our refocusing strategy in an effort to drive long-term growth and profitability. For Express, while market expected to remain competitive, we do expect ASG per parcel decline to stabilize. We will continue to focus on sustainable long-term growth and profitability by focusing on optimizing product structure, improving operating efficiency, enhancing service quality, and the customer experience, and again, market share. We are targeting 20% to 25% volume growth for 2021. We also expect to reduce average cost per parcel by 10% for the full year, driven by optimize the product mix, improve the dynamic routing schemes, refine the sorting efficiency, and the investment in last-mile solutions. For fridge, ASP Patent has recovered to pre-COVID level in the first quarter. We are targeting a volume growth of 30% and continue to adopt our strategy of growing e-commerce related transactions, investing in our network, our services, and enhancing customer satisfaction. We will continue to enhance our franchise network capacity by incentivizing existing franchisees to expand customer base and bringing more franchisee partners into our network. We are confident that Frey will deliver both a higher-than-industry growth rate and an increase in profitability, further strengthening its market-leading position in the upcoming year. Supply chain management will focus on quality growth and profitability, and it will be lighter and leaner in 2021. It will continue to grow the company's franchise OFC business focus on key account customers with higher margins and reduce operating expenses. Global provides another pillar for our growth. In addition to further expansion in Southeast Asia, we intend to leverage our domestic international largest networks to capture the fast-growing cross-border opportunities. We are targeting 100% possible volume growth in Southeast Asia and significant margin improvement. In summary, while the company suffered major setbacks due to the pandemic in 2020, we have taken deceptive actions to steer the company back to the path of growth and profitability. We firmly believe the world is behind us and the future is bright. We enter 2021 with optimism, strong momentum, and anticipated strong growth of our business as the year progresses. We're determined to strengthen our market share, optimize core structure, improve service quality and customer experience, and build out a leading integrated smart supply chain and logistics company to deliver sustainable and a powerful future growth. Now I would like to turn the call over to our CFO, Gloria. to walk you through our fourth quarter financials. Go ahead, Ron.

Thank you, Johnny, and hello to everyone. We concluded a challenging 2020 with a fourth quarter focusing on strategic initiatives. We took decisive action to realign our business to adapt to the evolving competitive market conditions, as well as set a solid foundation for future growth. Our revenue for continued operations affected by the challenging pricing environment and the wind down of StorePlus during the fourth quarter was 9.3 billion RMB. As part of a refocusing strategy, we identified and executed additional measures to manage our costs, expenses, and liquidity. In the fourth quarter, we generated a net operating cash flow of 347 million RMB while maintaining a healthy combined balance of cash, cash equivalent, restricted cash, and short-term investments of 4.5 billion RMB. I will now provide a brief review of fourth quarter 2020 financial results. Please note, we only started to execute our refocusing strategy after mid-November, which has brought encouraging initial results across the segments. But there was little of that reflected in our overall fourth quarter financials. Given the limited time on today's call, I will be presenting some abbreviated financial I encourage you to read through our price release issue earlier today for further details. With the intense pricing environment, our gross profit for continuous operations was 50 million RMB compared to 562 million RMB in the same quarter of 2019. Gross margin was 0.5% compared to 5.5% in Q4 2019. Adjusted EBITDA for continued operations was negative 288 million RMB compared to 259 million RMB of Q4 2019. Next, moving on to key financial highlights for our business units. On a year-over-year basis, Beth Express revenue decreased by 15.6% year-over-year to 5.8 billion RMB in the fourth quarter of 2020. primarily due to a 20.4% year-over-year decrease in ASP per parcel, partially offset by 6% year-over-year increase in parcel volume. The decrease in ASP is primarily attributable to competitive market dynamics. Adjusted EBITDA for Best Express was negative 158 million RMB, compared to 338 million RMB for the same period of last year. As Joni mentioned, it achieved net profit in December. giving early signal on the effectiveness of our turnaround measures. Best Freight strengthened its leadership position during the quarter. Its Q4 revenue increased by 4.2% year-over-year to 1.6 billion RMB, primarily due to a 25% year-over-year increase in freight volume. This was partially offset by a 16.7% year-over-year decrease in ASP per tonne. Adjusted EBITDA for best phrase was 32 million RMB compared to 33 million RMB for the same period of last year. Q4 revenue for best supply chain management decreased by 10.9% year over year to 542 million RMB due to pricing pressure associated with a few legacy key account customers, which are in the process of being discontinued. Adjusted EBITDA for best supply chain management was negative 67 million RMB compared to negative 58 million RMB for the same period of last year. BEX Chicago's Q4 revenue increased by 5.4% year-over-year to 950 million RMB. Adjusted EBITDA for BEX Chicago was negative 35 million RMB compared to negative 14 million RMB last year. Q4 revenue for BEX Global increased by 87.1% year-over-year to 253 million RMB primarily due to strong growth in parcel volume in Southeast Asia. Adjusted EBITDA for Best Global was negative 55 million RMB compared to negative 59 million RMB for the same period of last year. We are now reporting Store Plus in discontinued operations. Next, let's review some major operating expense items of Fourth Quarter. Please note, all of these expenses exclude share-based compensation. Selling General and administrative expenses for continued operations was 475 million RMB, or 5% of the revenue in the fourth quarter, compared to 374 million RMB, or 3.7% of the revenue in the same quarter of 2019. The increase in SGMA expenses was primarily attributable to additional accrued provisions for certain trade receivables as part of our customer's credit were affected by the pandemic and the losses of disposal of fixed assets due to upgrades of express equipment. RMB expenses for continued operations was flat compared to the same quarter of 2019, which was 52 million RMB. CAVX in the fourth quarter was 331 million RMB, or 3.6% of total revenue, compared to 388 million RMB, or 3.8% of the revenue for the same period of last year. For more of our 2020 full year financial results, please refer to our earnings release for further details. And now for our business outlook. Based on current market conditions and current operations, we expect our revenue of full year of 2021 to be between 34 to 36 billion RMB. This represents management's current and the preliminary expectation, which is subject to change. Our CAVX is expected to be 1 billion RMB for 2021 as we anticipate the recovery and the future growth of our business. Looking forward, the combination of cost reduction, cash flow management, and the optimization of resource allocation remains a top priority within our segment operations and at the corporate level. As we progress into 2021, we will remain focused on improving our capital structure enhancing our balance sheet and cash flow to support companies' future growth. This concludes the fourth quarter financial update. Now we are opening the call to Q&A. Thank you.