BEST Inc

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Best, Inc.' 's second quarter 2021 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 Jonny 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, and Gloria will explain the details of financial results. Following the prepared remarks, you may ask your questions. Please note this call is 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 risk, 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 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 GAAP results and the reconciliation of GAAP to non-GAAP measures can be found in Best Inks earnings press release. Finally, please note that unless otherwise stated, All the figures mentioned during this conference call are in RMB. Now I'd like to turn the call over to Mr. Johnny Chow, Chairman and CEO of Best Inc. Mr. Chow, the floor is yours, sir.

Thank you, Operator. Hello, everyone, and thank you for joining us at the second quarter earnings call today. In the second quarter, we continue to press forward with our strategic refocusing plan and built on the encouraging signs we are seeing in network stability, service quality, and cost reduction while adapting to the competitive industry landscape. Notably, Express continued to make progress in unit cost reduction and witnessed significant network improvement with enhanced service quality. For free business, it continued its industry-leading position and registered a net profit for a quarter with emphasis on our e-commerce capability. Supply chain management achieved profitability by serving high-margin customers, expanding cloud OFCs network supported by smart logistic management for better operating efficiency. Our global business continued its growth momentum with partial volume in Southeast Asia increasing 140.7% year over year, despite a resurgence of the COVID-19 pandemic in the region. Next, I will talk about key developments and our operational performance during the second quarter. For Best Express, we have seen a promising trend in the market benefiting from government's policy on fair market competition. We are optimistic that by committing to our refocusing strategy to optimize product infrastructure, improve network stability and customer satisfaction, we will be able to improve our financial metrics later in the year and build a solid foundation for long-term growth. In the second quarter of 2021, parcel volume increased by 1.2 percent year-over-year to 2.3 billion. Growth margin contracted by 11 percent, 11 percentage points due to a decline in ASP per parcel of 18 percent, partially offset by a decrease in every cost per parcel of 8.5 percent year-over-year. Our efforts in stabilizing our network have been fruitful, evidenced by our low effective complaint ratio, published by State Post Bureau in June. S-PRAE, strengthening its industry leadership through continued operating efficiency, network expansion, and enhanced service quality. S-PRAE returned to bottom line profitability in the second quarter of 2021, the average cost per ton remained relatively steady year over year, despite higher oil prices in the second quarter and the absence of a highway toll subsidy compared to the same period of last year. The freight volume for this quarter increased 9.3% year over year, while the volume attributable to e-commerce growing significantly at 23.1%, contributing 19.2% of the total volume. We will remain focused on the e-commerce market for free services, and we'll continue prioritizing unit cost reduction to position ourselves for long-term profitability. Moving to best supply chain management, in the second quarter of 2021, We remain focused on high margin customers, expanding our cloud OFCs network, and enhancing operating efficiency. In addition, as the pioneer of integrated smart supply chain service provider, we are well positioned to benefit from increasing customers' demand for integrated supply chain and logistic services. to further improve their operating efficiency and cost structure. The total number of orders fulfilled by cloud OFCs increased by 8.2% year-over-year to $120.5 million in the second quarter. And the total number of orders fulfilled for franchised cloud OFCs increased by 36.3% to $73.1 million. The number of franchise OFCs increased by 5.8% year-over-year to 345 in the second quarter of 2021. We have also established multiple warehouses as custom clearing centers partnered with local government in the border cities such as Pingjiang and Kunming to support fast-growing cross-border e-commerce business. in Southeast Asia. Gas Global continued its fast growth momentum in Southeast Asia and has made a significant margin improvement. Parcel volume in Southeast Asia increased by 140.7% year-over-year to 38.8 million, driven by 80% and 195.5% growth in Thailand and Vietnam, respectively. Global's gross margin improved significantly by 7.0 percentage points year-over-year, benefiting from economics of scale fueled by increasing market share and network expansion in the region, as well as utilization of our strong supply chain management capabilities and cross-border logistics solutions by leveraging our express freight and supply chain management expertise. In conclusion, our strategic refocusing plan has delivered promising results in the second quarter, as evidenced by Best Express effective unit cost reduction, Best Freight's return to profitability, Best Supply Chain Management's strong performance, and Best Global's fast-growing business. Looking ahead, Given the supportive industry regulatory environment and continuing the strong e-commerce growth, we are optimistic that our strategic refocusing plan will position us to deliver improved operating and financial results in the coming quarters. Now I would like to turn the call over to our CFO, Gloria, for further review of our second quarter financials. Go ahead, Gloria.

Thank you, Jonny, and hello to everyone. In the second quarter of 2021, our revenue was 7.4 billion RMB compared with 7.8 billion RMB of Q2 2020. The slight decline was driven by lower ASP in expression rate, partially offset by higher volume in both business units. Our net loss narrowed down to 467.5 million RMB compared to first quarter of 2021. benefiting from our effective cost control across business units. As part of our refocusing plan, we continue to improve our balance sheet and streamline our asset base. From the beginning of the year, we have completed approximately 1 billion RMB of financing and asset conversion. In addition, we are working a pipeline of financing and strategic initiatives to further strengthen our balance sheet. The balance of cash, cash equivalents, restricted cash, and short-term investments were 3.4 billion RMB at the end of the second quarter. Our strategic refocusing plan charted a clear path for us to achieve sustainable growth and profitability in the long run. I will now provide a brief review of our Q2 financial results. With an intense market environment, our gross profit for Q2 was negative 144 million RMB compared to 484.5 million RMB in the same quarter of 2020. Growth margin was negative 2% compared to 6.2% in the same quarter of last year. Adjusted EBITDA for continued operations was negative 253 million RMB compared to 225 million RMB in the same period of 2020. Next, moving on to key financial highlights for our core business units. On a year-over-year basis, FAS Express revenue decreased by 17% to 4.3 billion RMB in the second quarter of 2021, primarily due to an 18% decrease in ASP per parcel, partially offset by a 1.2% increase in parcel volume. Adjusted EBITDA for Express was negative 215.6 million RMB compared to 212.4 million RMB for the same period of last year. Fast freight continued its leadership position and returned to profitability during the quarter. Its revenue increased by 2% to 1.4 billion RMB, primarily due to a 9.3% increase in freight volume, partially offset by a 6.5% decrease in AFP per ton. Adjusted EBITDA for freight was 36.6 million RMB, compared to 81.7 million RMB for the same period of last year. Q2 revenue for best supply chain management decreased by 5.9% to 479 million RMBs due to discontinuation of certain low gross margin key accounts. Adjusted EBITDA for supply chain management was 22.4 million RMBs compared to 5.7 million RMBs for the same period of last year. Q2 revenue for best global increased by 63.4% to 314 million RMBs driven by continued growth momentum in parcel volumes in Southeast Asia. Adjusted EBITDA for Pax Global was negative 47.3 million RMB, which was flat compared with Q2 last year. Now, let's take a look at some major operating expense items of the second quarter. Please note, all of these expenses exclude share-based compensation. Selling general and administrative expenses for continued operations were 429 million RMB or 5.8% of revenue compared to 370 million RMB or 4.8% of revenue in the same quarter of 2020. The increase in SGMA expenses was primarily attributable to additional bad debt provision resulted from the pandemic and the absence of certain COVID-19 pandemic-related subsidies that were available in 2020. R&D expenses for continual operations was 58 million RMB or 0.8 percent of revenue compared to 39.5 million or 0.5 percent of revenue in the second quarter of last year. CapEx in the second quarter was 174.5 million RMB or 2.4 percent of total revenue compared to 424 million RMB or 5.5 percent of total revenue in the same period of last year. This concludes the second quarter financial review. And now for our outlook. Due to the competitive market dynamics for express and free, we expect our revenue for the full fiscal year of 2021 to be between $28 billion to $32 billion RMB. This outlook reflects management's current preliminary estimates based on current market and operating conditions, all of which are subject to uncertainty. As we're moving into the second half of the year, we will continue to optimize our cost structure and increase our efficiency. We will also continue our strategic evaluation and are prepared to take appropriate action to strengthen our balance sheet and liquidity in support of our strategic refocusing plan. With that, we will now open the call to questions.