BEST Inc

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Best Inc.' 's third quarter 2022 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 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.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 statements as a result of new information, future events or otherwise, 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 Inc.' 's earnings press release. Finally, please note that unless otherwise stated, all the figures mentioned during the conference are in RMB. Now I'd like to turn the call over to Jonny Chow, Chairman and CEO of Best Inc. Jonny, please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining Best's third quarter earnings call today. The ongoing COVID-19 pandemic continues to impact the economy in China and Southeast Asia, weighing heavily on the logistics industry. Amid the challenging landscape, which delivered good progress in the seasonally slow third quarter. Best phrase, growth momentum picked up, showing a volume increase of 4.1% year-over-year. Best supply chain management delivered strong results, both top and bottom lines, with revenue increase by 15.2% and net loss narrowed by 64.3% year-over-year. We continue to face challenges in Best Global due to the economic slowdown paired with market shift from online to offline as the pandemic-related controls were lifted in Southeast Asia. Now let's take a look at each of our business units. Best Free continued its operational optimization to improve quality and to further reduce costs to mitigate the impact of COVID-19. For the third quarter, the freight volume recorded a 4.1% increase year-over-year and a 13.7% increase quarter-over-quarter. Growth momentum from best freight e-commerce business also continued, which was accounted for 21.1% of the total volume. Freight's growth loss has narrowed by 70.4 million RMB compared with the same quarter last year as we continue to improve our efficiency and reduce costs. Moving ahead, we will see further recovery of our freight volume going into Q4, except that COVID-19 pandemic-grade controls may create obstacles and uncertainties in our volume growth. In the long term, we will continue our focuses on synergizing freight and best supply chain management and the best global for additional business opportunities to sustain its future growth and profitability. Now let's take a look at best supply chain management. As we continue to develop into new market segments with better unit economics, SCM's Q3 revenue increased by 15.2 percent year-over-year. The revenue from automobile accessory industry contributed approximately 18 percent of the total revenue for the quarter. The gross margin has also improved significantly to 7.2 percent, which was a 3.5 percentage point improvement from the same quarter last year as our cost reduction initiative for foods. Best Supply Chain Management remains our key differentiators. It empowers our customers with the digitized end-to-end logistics solutions. It's also the center of Best ecosystem synergy as SCM provides the global and the transportation services for our existing key account customers. Moving on to Best Global. The markets in Southeast Asia remain challenging in the third quarter. Along with relaxed COVID-19 control measures in the region, there was a noticeable shift in consumer consumption from online to offline, which negatively impacted e-commerce logistic industry. Meanwhile, some major e-commerce platforms have more relied on their own largest capacity capabilities, and gradually reduced their reliance on third-party larger services. As a result, global total parcel volume decreased by 27.1% year-over-year to $27 million in the third quarter. However, the parcel volumes in Vietnam and Singapore increased by 34.4% and 23.5% and revenue increased by 42.3 percent and 45.2 percent, respectively, year over year, as we continue our efforts in expanding franchisee network and improving service quality. Due to this shift in Southeast Asia market, we have been refocusing ourselves expanding small and medium enterprise coverage to diversify our customer base in Southeast Asia. In addition, we will accelerate our B2B2C and cross-border business to provide additional product offerings. We are confident that this strategic direction will come to fruit with time, and we target a sustainable long-term growth of Best Global. In summary, although the macroeconomic and the logistics industry are still under pressure, Our efforts in cost reduction and service quality improvement across our business lines have helped us weather the storm. Best freight and best supply chain management business are on their way to recover as the market recovers. At the same time, we are accelerating developing our supply chain management and freight capabilities in Southeast Asia, so we are more diversified to engage long-term growth and profitability. With these facts in mind, we expect freight and the SCM to reach profitability next year and Best Global to return to its growth trajectory in the next couple of quarters. Now I'd like to turn the call over to our CFO, Gloria, for further review of our third quarter financials.

Thank you, Johnny, and hello to everyone. Despite the headwinds resulted from COVID-19 pandemic, our third quarter performance was encouraging. Our revenue, excluding best new cargo and capital, decreased by 2.3% year over year, but increased by 5% compared with the second quarter of 2022. If excluding the one-off gain of approximately 209 million RMB on selling assets in the third quarter of last year, we significantly narrowed our non-GAAP net loss by 16%, or 69.3 million RMB year-over-year. Our balance sheet remained healthy after paying 746.5 million RMB to repurchase existing convertible senior notes due 2024. Our cash and cash equivalents, restricted cash and short-term investments, totaled 3.3 billion RMB. Our net cash position was 1.1 billion RMB at the end of the third quarter. Now, let me walk you through our financial results for the third quarter of 2022. Our revenue was 2 billion RMB, compared with 2.8 billion in the same period of last year. The decrease was primarily due to the wind down of our Ucargo business unit. Ucargo's Q3 2022 revenue was approximately 432,000 RMB. compared with 730 million RMB in Q3 last year. Growth margin was negative 1.9%, compared with negative 3.9 last year. Driven by our effective cost control measures from past few quarters, our growth loss reduced by approximately 17 million RMB from the same quarter of 2021. Best phrase, growth loss margin narrowed by 2.3%. while best supply chain management delivered a 7.2% of gross margin, a 3.5% improvement year over year. Net loss from continuing operations for the quarter was 378.9 million RMB, compared with 191.6 million for the same period of last year. Adjusted EBITDA for continuing operations was negative 320 million RMB, compared with negative 148.4 million for the same quarter of last year. Next, moving on to key financial highlights for all business units. For Best Freight, its third quarter revenue was approximately 1.3 billion RMB, compared with 2.1 billion for the same period of last year. The decline was primarily attributable to the decrease in cargo revenue of approximately 730 million RMB. Excluding new cargo, freight revenue decreased by 2.4 percent year-over-year. Freight's gross margin was negative 3 percent, a 2.3 percentage points improvement from the same period of last year due to our improved service quality and effective cost control measures. Adjusted EBITDA for best freight was negative 116.8 million RMB compared with negative 195.5 million RMB in Q3 last year. Q3 revenue for best supply chain management increased by 15.2% year-over-year to 461.5 million RMB, and its gross margin improved by 3.5 percentage points to 7.2%, primarily due to newly signed key account customers with better unit economics, paired with the continuous efforts to discontinue certain low-margin legacy accounts. Adjusted EBITDA for supply chain management was 25,000 RMB, compared with negative 16 million RMB in the same period of last year. For BEF Global, Q3 revenue decreased by 29.1% year-over-year to 211.3 million RMB, primarily due to the decrease in volume and revenue in Thailand and Malaysia. Its gross margin was negative 20.8%, a decrease of 14.1 percentage points. year-over-year. Q3 adjusted EBITDA for Best Global was negative 102.5 million RMB, compared with negative 61.8 million in Q3 last year. Our operating expenses, excluding share-based compensation, in the third quarter totaled 298.9 million RMB, representing 14.7 percent of our total revenue, compared with 290.3 million RMB, or 10.3 percent of total revenue in the same quarter last year. Selling general and administrative expenses were 260.5 million RMB, 12.8 percent of our total revenue, compared with 250.1 million, or 8.9 percent of the total revenue in the same quarter of last year, primarily due to additional expenses related to wind down of best capital. R&D expenses were 38.4 million RMB, 1.9% of our total revenue, compared with $40.2 million and 1.4% of the total revenue in Q3 of last year. To close, we have made good progress in the third quarter of 2022. Our efforts in cost reduction and the service quality improvement across our business units have helped us to deflect the impact of COVID-19-related restrictions. Moving forward, we are confident that our strengthening technology domestic and global supply chain management, and the logistics capabilities will allow us to sustain future growth and create long-term value for our customers and shareholders. With that, we will now open the call to questions. Thank you. Operator?

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Again, if you would like to ask a question, please press star then one. As there are no questions, this concludes our question and answer session. I would like to turn the conference back over to Jonny Chow for any closing remarks.

Thank you, operator. Thank you for joining our call. We appreciate your support of BESS. Please reach out to our investor relations team if you have any further questions. We look forward to speaking with you soon. Thank you very much.

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