BEST Inc

Good day and welcome to the best in fourth quarter 2022 result conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to run the conference over to the Chairman and CEO, Jonny Chow. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining FAST's fourth quarter and full year 2022 earnings call today. 2022 was a challenging year. The COVID-19 pandemic and its related controls seriously impacted general economy, and this was very particularly hard for the logistics industry. When China lifted its restrictions in the fourth quarter, many of our employees, partners, and customers tested positive COVID, and our operation was severely disrupted. However, under such difficult environment, we prevailed. Bad supply chain management beat our internal 2022 budget, increasing its gross margin by 6.3 percentage points year over year in the fourth quarter. while Best Trade annual loss narrowed by 28.5% compared with 2021. Best Global also started its recovery and growth at the end of the year. After lifting of COVID pandemic rate controls, we have seen a rapid recovery in general economy and our multiple business lines. We are confident to deliver a strong growth and financial results in 2023. In addition, our board has authorized an up to 20 million shares repurchase program. Now let's take a closer look at each of our business units. For Best Trade, we focus heavily on digital transformation, cost reductions, and quality improvement. As a result, our operating efficiency and service quality has significantly improved. For the fourth quarter of 2022, despite a decrease of 7.6% in total volume, freight's gross margin improved by approximately 200 million RMB, and its net loss narrowed by 69.3% compared with Q4 2021. For the full year, freight's volume decreased by 6.1%, but narrowed its net loss by 28.5% year-over-year. Looking ahead, service quality remains our number one priority. While continuing to improve freight service quality through digital transformations, we are putting a strong emphasis on the synergy between Best Global and supply chain management to further reduce our costs and maximize our growth opportunities. We anticipate Best Freight return to profitability in the second quarter of 2023, and generate positive cash flow throughout the year. Moving on to best supply chain management. Supply chain management's technical know-how and the superb service capabilities helped us weather the storm. Despite restrictions and shutdowns from COVID resurgence throughout the year, best supply chain management went above and beyond to make sure we provided our customers with top quality services. Customers quickly recognized our efforts and we were rewarded with additional business. In the second half of 2022, we added 64 new key account customers. Supply chain management's revenue increased by 2.7% and 0.4% for the first quarter and full year of 2022, respectively. compared with the same period of 2021. Its growth margin improved by 6.3 percentage points to 4.4 percent in Q4 2022 and for the full year. Supply chain management's growth margin improved by 2 percentage points to 6.1. The distribution volume for supply chain management also increased by 82.1 percent for the first quarter. Supply management remains the center of BEST's synergetic logistic ecosystem. By further optimizing its account structures and realizing additional operating efficiencies, we expect BEST supply chain management to be profitable by the second quarter of 2023 and to generate positive cash flow throughout the year. Finally, let's take a look at BEST Global. Southeast Asia's market environment was extremely challenging over the past year. On top of the COVID restrictions in cross-border activities, relaxed pandemic control policies shifted consumptions to offline from the online. And some of the major e-commerce platforms reduced their reliances on third-party logistics services, creating additional challenges for our global business. As the board opened up in Q4, we immediately adjusted our strategy and realigned our organization in response to the evolving South Asian market. Notably, we greatly elevated our organization's capabilities, widened our network coverage. We also used our IT know-how to improve our infrastructure and operating capabilities and significantly improved our service quality. As part of our own go-to-market strategy, we have been expanding small and medium-sized enterprise coverage to diversify our customer base. The revenue contribution from those customers grew by 13 percentage points to 42.2% in Q4 2022. In addition, We are accelerating our B2B2C and cross-border business to provide additional product offerings. We believe this strategic direction will usher in global's fast recovery and prompt growth for a much improved growth margin and a better cash flow for Best Global in 2023. In summary, we believe with the ending of COVID pandemic control, the worst is now behind us. During 2022, our focus on digital transformation, service quality, and the customer satisfaction improvement and cost reduction significantly improved our operating efficiency and increased the customer satisfaction. Bethnal is in a strong position for fast recovery and growth in both our top and the bottom lines. We now expect both our freight and supply chain management business to reach profitability in the second quarter of 2023, with each business unit generating positive cash flow and strong profitability growth throughout the year. Best Global has also proven resilient, and we are seeing promising recurring trends. We expect Best Global to grow its top line by 40% in 2023. with strong improvements to profitability and cash flow. With that, I would like to turn the call over to our CFO, Gloria, for further review of our fourth quarter financials. Go ahead, Gloria.

Thank you, Johnny, and hello to everyone. 2022 was a tough year. COVID continued to hit the logistics industry particularly hard. Many factors were beyond our control, but we adjusted to the environment and Best has shown solid financial and operational resilience. Best Freight and Supply Chain Management narrowed their fourth quarter net losses by 69.3 percent and 81.3 percent, respectively, on a year-over-year basis, even though our total revenue, excluding BestU cargo and capital, decreased by 15.9 percent for the fourth quarter and then 9.7 percent for the full year of 2022. We continue to maintain a healthy balance sheet. Our cash and cash equivalents, restricted cash, and short-term investments totaled 3.2 billion RMB after we used 1.4 billion during 2022 to repurchase our convertible senior notes due 2024. Now, let me walk you through our key financial results for the fourth quarter and the full year of 2022. Our revenue for the fourth quarter was approximately 2 billion RMB compared with 2.7 billion in the same period of 2021. Revenue for the full year was about 7.7 billion compared with 11.4 billion in previous year. The decrease was primarily due to the wind down of our Chicago business unit and the lower freight and global volume. Fourth quarter and the full year revenue for Chicago were approximately $952,000 and $36 million, compared with $315 million and $2.8 billion in the same period of 2021. Our cost control measures drove improvements in our overall gross margin in 2022. For Q4, gross margin improved to negative 3% compared with negative 8.4% in the same period of 2021. Gross margin for the full year of 2022 was negative 3.4 percent. We also narrowed our net loss from continuing operations in the fourth quarter to 366 million RMB, with a loss of 734 million for the same period of 2021. Net loss from continuing operations for the full year was 1.5 billion RMB, compared with 1.3 billion in previous years. Adjusted EBITDA for continuing operations in Q4 also improved to negative 296.9 million RMB versus negative 635.2 million for the same quarter of 2021. Adjusted EBITDA for continuing operations for the full year was negative 1.2 billion compared with negative 927.2 million in 2021. Next, moving on to key financial highlights for our business units. For best rates, fourth quarter revenue was approximately 1.3 billion RMB, compared with 1.9 billion for the same period of 2021. The decline was primarily attributable to the decreased Yukago revenue. The fourth quarter Yukago revenue decreased by 349 million year-over-year. Growth margin made a significant improvement, up over 10 percentage points to negative 1.3 percent in the fourth quarter from negative 11.7. in the same period of 2021. Adjusted EBITDA for Best Freight was negative 115.5 million RMB compared with negative 423.9 million in Q4 2021. For the full year 2022, revenue for Best Freight was 4.9 billion compared with 8.2 billion in previous year. Excluding your cargo, Freight revenue decreased by 10.7% year-over-year. Gross margin for 2022 was negative 4.6% compared with negative 3.2% of 2021. Adjusted EBITDA for best freight was negative 416.7 million compared with negative 610.8 million in 2021. Revenue for best supply chain management increased by 2.7% year-over-year to 500.6 million RMB. and its gross margin was greatly improved to 4.4 percent for negative 1.9 percent in the same period of 2021. Adjusted EBITDA for supply chain management was negative 5.2 million RMB compared with negative 62.9 million in the same period of previous year. For the full 2022, revenue for best supply chain management was 1.8 billion RMB or 0.4 percent year-over-year increase Growth margin improved by 2.1 percentage point to 6.1% from 4% in 2021. Adjusted EBITDA for supply chain management was 9.6 million, compared with negative 56.3 million in 2021. For best global, Q4 revenue decreased by 40.8% year-over-year to 195.7 million RMB, primarily due to the decreased volume. Its gross margin for the quarter was negative 34.9%, a decrease of 30.1 percentage points year over year. Q4 adjusted EBITDA for Best Global was negative 122.8 million RMB, compared with negative 78.8 million in Q4 2021. For the full year, revenue for Best Global was 916.9 million RMB, compared with 1.2 billion in 2021. Gross margin for the year was negative 18%, compared with negative 5.4% in previous year. The decrease in gross margin was primarily due to lower parcel volume. Adjusted EBITDA for BEX Global was negative 386.4 million, compared with negative 239.8 million in 2021. Our operating expenses, excluding share-based compensation, in the fourth quarter totaled 277.1 million RMB, representing 14% of our total revenue. This compared with $381.4 million, also 14% of the revenue, in the same period of 2021. For the full year of 2022, our operating expenses, excluding share-based compensation, were approximately 1.2 billion RMB, which was flat compared with previous year. For more of our fourth quarter and the full year 2022 financial results, please refer to our earnings press release for further details. In closing, our Q4 results were encouraging. Our efforts in cost reduction, service quality improvement, and business structure optimization are proving effective. Moving forward, in 2023, we believe that our strengthening technology, domestic and global supply chain management, and logistics capabilities will enable us to capture new business opportunities and deliver a strong, profitable growth. in 2023 and beyond. This concludes our financial update. I 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 one on your touchtone phone. If you're 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 than two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Thomas Chong with Jefferies. Please go ahead.

Hi, thank management for taking my questions. I have two questions. So first, would you please provide some color about the Q1 performance of private supply chain and global business units since China reopening, and how should we expect the 2023 outlook? And second, you mentioned that Best Global would achieve profitability in certain countries in 2023. So which countries should we expect? Thank you.

Okay, the first question regarding to freight and the supply chain on the Q1. I assume you're talking about this year. Yeah, Q1 is we're seeing a fast recovery from a general economy as well as our business lines. And as the number we are seeing right now, the Q1, the supply chain management is probably positive. And other than the January, the Chinese New Year impact, freight should be doing really well on February and March as well for the number we have seen daily. So the performance for February for the supply chain management and the freight is ahead of our plan. So that's neat. The second is you were talking about global, and we are seeing some very promising trends in terms of our turnaround in certain countries, particularly in strong in Vietnam, in Malaysia, certain countries we've seen a very promising business growth as well as turnaround in our operating metrics. So that will be my question to you. You want to end?

As a reminder, if you have a question, please press star then one to be joined into the queue. This concludes our question and answer session. I would now like to turn the conference back over to Johnny Chao for any closing remarks.

Thank you for joining our call. We appreciate your support of BEST. 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. Operator?

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