BEST Inc

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Best Inc's first quarter 2021 earnings conference. At this time, all participants are in 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 the 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 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 of which are beyond 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 results 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 are in RMB. Now I would like to turn the call over to Johnny Chow, Chairman and CEO of Best Inc. Johnny, please go ahead.

Thank you, Operator. Good morning and good evening, everyone. Welcome and thank you for joining our earnings call. Our first quarter results reflected a mix of both the progress brought about by our November 2020 strategic refocusing plan and the ongoing challenges we are still facing. Our execution of the strategic refocusing plan delivered substantial improvement in freight, supply chain management, and global. as reflected in their top-line growth, along with strong growth margin expansion. We continue to solidify our leading position in the freight market while refocusing our efforts on high-margin accounts for supply chain management. We also gained ground in the Southeast Asian market through global, despite the COVID-19 pandemic. Next, let me go over our quarterly results and the recent developments. For Express, we continue to focus on optimizing product structure, improving network stability and flexibility, as well as enhancing service quality and customer experiences during the first quarter. While the results from these actions are not fully visible from our financial results, we believe they have improved the underlying fundamentals of our network and we will further accelerate our actions to target a return to profitability later in the year. During the quarter, parcel volume increased by 33.6% year-over-year and gross margin contracted by 3.2 percentage points due to a decline in ASG per parcel of 17.6% year-over-year partially offset by a decrease in average cost per parcel of 15.1% year-over-year. While our strategies are on the right track, the rapidly evolving competitive landscape requires us to quicken the pace of our action. Our accelerated measures will focus on networking stability and the service qualities by optimizing the structure of product, customers, and franchisee partners in order to create a clear path to sustainable profitability. Freight, once again, delivered a strong quarter with a higher than industry average growth rate and improving profitability. We continue to emphasize the e-commerce aspect of the freight services. solidify its leadership position and brand recognition, and improve operating efficiency. Freight volume increased by 81% year-over-year in the first quarter of 2021. Average cost per ton and ASP per ton decreased by 20.6% year-over-year and 5.4% year-over-year, respectively. For freight, in addition, our efforts to enhance service quality have produced tangible results. In March, we ranked first in the China Index among all franchise trade networks. Looking ahead, we will keep investing in our network, focusing on service quality and enhancing customer satisfaction while maintaining its strong cash flow generation capabilities. Moving to best supply chain management. The total numbers of orders fulfilled by self-operated and franchised cloud OFCs in Q1 have increased by 11.2% and 30.6% year-over-year, respectively. The Q1 gross margin for supply chain management was 5.4%, compared with 0.8% in the same period of 2020. benefiting from the discontinuation of legacy low margin accounts, as well as improved operating efficiencies. Going forward, we will leverage our express and free operations and target our customer acquisition efforts on leading customer brands, which not only bring incremental business opportunities, but also helps us to strengthen our brand awareness We will also promote value-added services in terms of solutions and management systems. Moreover, cross-border business is another key area that we mainly target on. We have now operated three warehouses in Yiwu, Shenzhen, and Guangzhou, connecting our express networks in Southeast Asia and China. As our strategic refocusing plan firmly took its role, we will remain focused on quality growth and profitability and deliver further improvement in our supply chain business in the second half of the year. Best Global continued to expand both cross-border services and in Southeast Asia Express market with especially strong margin improvement. In the first quarter of 2021, Hustle volume in Southeast Asia increased by 249% year-over-year to $30.8 million. Global growth margin significantly improved by 22.2 percentage points year-over-year due to a better economics of scale. SU Cargo continues to scale its full trucking brokerage model as of March 31, 2021. the number of registered drivers on the Ucago mobile apps increased by 66.2% year over year to 348,000. In the first quarter of 2021, the total number of transactions on the trucking brokerage platform increased by 65.4% year over year to 186,000. In summary, Although we expected the turnaround of spreads to take approximately six to nine months, we have a solid, clear strategic direction targeting sustainable development supported by the attractive growth perspectives of e-commerce and the unique value proposition of our integrated smart supply chain solutions and logistics services. We are fully dedicated to positioning our company to long-term success. I would like to turn the call over to our CFO, Gloria, to walk you through our first quarter financials. Go ahead, Gloria.

Thank you, Johnny, and hello to everyone. In the first quarter of 2021, our revenue reached 6.5 billion RMB, increasing 30% year-over-year, while our net loss was 604 million RMB. As our initiatives for Express take time to materialize as a bottom line. Our focus today continues to be on cost reductions across the entire organization, including unit cost structure optimization for Express and Freight, as well as the streamlining of SGMA expenses. As we navigate through the current environment, we are making various strategic evaluations and are prepared to take appropriate actions to strengthen our balance sheet and the liquidity in support of our strategically focusing plan. In particular, we are looking at the financing options in relation to certain of our business units, and we will provide details of necessary or appropriate if any definitive step is taken. We continue to maintain a healthy combined balance of cash, cash equivalents, restricted cash, and short-term investment of 4 billion RMB. What's more encouraging, freight, supply chain management, cargo and capital segments achieved positive operating cash flow during the first quarter, which was the traditional slack season. And our operating cash flow from all segments improved significantly for the same period of 2020. I will now provide a brief review of our first quarter 2021 financial results. Given the limited time on today's call, I will be presenting some abbreviated financial highlights. I encourage you to read through our press release issues earlier today for further details. With the intense pricing environment, our gross profit for Q1 was negative 193 million RMB compared to negative 238 million RMB in the same quarter of 2020. Gross margin percentage was negative 3% compared to negative 4.8% in the same quarter of 2020. Adjusted EBITDA for continuing operations for Q1 was negative 397 million RMB compared to negative 503 million RMB of the same period of 2020. Next, moving on to key financial highlights for our business units. On a year-over-year basis, BEST expressed revenue increased by 10% year-over-year to 3.7 billion RMB in the first quarter of 2021. primarily due to a 33.6% year-over-year increase in parcel volume, partially offset by 17.6% year-over-year decrease in ASP per parcel. Adjusted EBITDA for Best Express was negative 311 million RMB, compared to negative 190 million RMB for the same period of last year. BestRate strengthened its leadership position during the quarter. Its Q1 revenue increased by approximately 71% year-over-year, to 1.2 billion RMB, primarily due to a 81% increase in trade volume. This was partially offset by a 5.4% decrease in ASP per ton. Adjusted EBITDA for batch freight was negative 26 million RMB, compared to negative 185 million RMB for the same period of last year. QI revenue for batch supply chain management increased approximately 10% year-over-year to 448 million RMB, Adjusted EBITDA for supply chain management was 200,000 RMB compared to negative 34 million RMB for the same period of last year. Q1 revenue for Best Global increased by 116% year-over-year to 250 million RMB, primarily due to strong growth in parcel volume in Southeast Asia. Adjusted EBITDA for Best Global was negative 52 million RMB compared to negative 64 million RMB for the same period of last year. We are now grouping new cargo and capital in others segments. Its revenue increased by approximately 119% year-over-year to 911 million RMB. Adjusted EBITDA for others was 3 million RMB compared to negative 15 million RMB for the same period of last year. In terms of operating expenses, we achieved cost savings through operating efficiency improvement. Our operating expenses, excluding share-based compensation, were $441 million, or 6.8% of our revenue, compared with $401 million, or 8% of our revenue, in the same period last year. Next, let's review some major operating expense items. Please note, all of these expenses exclude share-based compensation. Selling, general, and administrative expenses were $390 million RMB, or 6% of the revenue, in the first quarter. compared to 352 million RMB or 7% of the revenue in the same quarter of 2020. The decrease in SGMA expenses as a percentage of revenue was primarily attributable to improve operating efficiency. RMB expenses were 52 million RMB or 0.8% of the revenue in the first quarter compared to 49 million RMB or 1% of the revenue in the same quarter of 2020. Catbacks in the first quarter was 254 million RMB, or 3.9% of the total revenue, compared to 346 million RMB, or 6.9% of total revenue for the same period of 2020. This concludes the first quarter financial overview. Going forward, we will continue to execute on the refocusing plan, align our cost structure with our growth initiatives, and adapt to the evolving competitive market conditions. We are working in earnest on alternative financing options in order to enhance liquidity and the financial flexibility for future growth. With that, we will now open the call to Q&A. Thank you.