BEST Inc. (NYSE:BEST) Q1 2023 Earnings Call Transcript May 30, 2023

Operator: Good morning, good afternoon, good evening. Welcome to the BEST Inc. First Quarter 2023 Results Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to the Mr. Johnny Chou, CEO. Please go ahead.

Johnny Chou: Thank you, Operator. Hello, everyone, and thank you for joining BEST’s first quarter 2023 earnings call today. We delivered an exceptionally strong Q1 2023, demonstrating financial improvements across our business despite the seasonally slow first quarter and lingering effects of COVID. The Group’s bottom line has improved significantly by narrowing the net loss by 32.2% compared to Q1 2022, with BEST Supply Chain Management delivering net profit in the quarter, and the BEST Freight reaching profitability in February and March. BEST Global has also turned a corner, delivering an improved financial and operational results compared with Q4 2022. In addition, both Supply Chain Management and Freight’s Q1 operating cash flows were positive, and we expect both business units to maintain this momentum and achieve positive cash flow for the year.

Now, let’s review each of our business units in more detail. For BEST Freight, we have seen a strong recovering trend in consumer consumption post COVID pandemic, and demand for freight services has increased. BEST Freight’s commitment to service quality and operational excellence in the past 18 months are clearly paying off, and we have vastly improved our capabilities in order to meet increased market demand. Freight’s volume for the first quarter increased by 5.1% year-over-year, while April’s volume surged to 20.3%. Freight’s gross loss for the quarter narrowed by 96.4% and its net loss also improved by 53.6% year-over-year in Q1. As service quality remains the cornerstone our Freight services, our focus moving forward will be on further improving our core competencies in the market.

First, we will continue to develop digital transformation to improve our operating efficiency and ability to provide our key customers with high-quality services. Second, we will continue to synergize with BEST’s Supply Chain Management by leveraging our massive Supply Chain Management’s key customer base to capitalize additional business opportunities. Third, (ph) develop and leverage fulfillment franchisees to further enhance our service network. Posting profitability in February and March, BEST Freight’s momentum is ongoing, and the volume continue to improve. Looking ahead, we expect these differentiated drivers will improve Freight’s profitability and generate positive cash flow through the rest of the year. Moving on to the BEST Supply Chain Management, as many enterprises are developing into multiple sales channels to expand their market coverage and look to optimize their supply chain management capability the meet the growing market, the demand for third-party integrated logistics services with higher-level service capabilities is escalating.

BEST Supply Chain Management’s superb service quality, technical know-how, and digital transformation capabilities place us in a strong position to capture these growing opportunities. In the first quarter, BEST Supply Chain Management’s revenue increased by 7.7%, and the gross margin increased by 3.7 percentage point year-over-year. Our customer base grew as well, with the addition of 32 new key accounts and the 36 new (ph) wins in the first quarter. As Supply Chain Management remains the center of our synergistic logistics ecosystem, we have been focusing heavily on the digital transformation to improve our operating efficiency and enhance system interconnectivities with our customers. These capabilities differentiate our market offerings and bring us additional competitive advantage.

At the same time, we are continuing to develop and accelerate our franchised fulfillment capabilities to broaden our network and service capabilities even further. With this in mind, we expect Supply Chain Management to remain profitable throughout 2023, with significant gross margin improvement, while generating positive cash flow for the year. Finally, let’s move to BEST Global. Post COVID, economy of Southeast Asia recovered rapidly and the volume of its e-commerce business surged. The growth of cross-border activities between China and the Southeast Asia also accelerated, and China is the number one trade partner with Association of Southeast Asian Nations. With our adjusted business strategy and realigned organization, BEST Global is now more resilient and in a strong position to take on this growing opportunity.

The volume of our cross-border business increased in Q1 by approximately 60% quarter-over-quarter serviced by our robust cross-border capabilities and our coverage for small and medium-sized enterprises in Q1 increased by approximately 15%. We believe we have weathered the worst of the COVID fallout. The steps we have taken in our Global business unit to enhance our service capabilities have borne fruit with recurring positive volumes and an increasing number of new key accounts. While following our adjusted business strategy, place us on the right path, more is needed to fully recognize improvements in Global’s financial results. What this looks like for Global in 2023 is volume growth throughout the year and gross margin breakeven in certain countries by yearend.

In conclusion, we have seen clear upward trends in the first quarter across our business lines and achieved sustainable profit improvement in two of our three core businesses. We are off to a get good start and are very optimistic about BEST’s ability to demonstrate continued recovery and growth in 2023. We will continue to focus on our first quarter digital transformation and synergies among our business lines. With our improved and differentiated core competencies, we expect to achieve group level profitability by the end of 2023. With that, I would like to turn the call over to our CFO, Gloria, for further review of our first quarter financials.

Gloria Fan: Thank you, Johnny, and hello to everyone. We commenced 2023 on a strong note, improving our bottom line by narrowing total net loss from continuous operation by 32.2% and started a great momentum for growth and profitability. BEST’s supply chain management achieved profitability in the first quarter, and BEST Freight was profitable in February and March. Both business units are recovering quickly and growing. We expect this growing trend throughout 2023. BEST Global is also picking up steam in the Southeast Asia markets particularly with the cross-border activity showing a 50% growth compared with last quarter. This demonstrated BEST’s strong recovery capability and the effectiveness our reorganization and cost control measures.

Our balance sheet remains healthy with a net cash position of RMB1 billion at the end of March. And we expect both BEST Freight and Supply Chain Management will generate a positive cash flow throughout the year. Reviewing our financial results for the first quarter, total revenue was approximately RMB1.7 billion compared with RMB1.8 billion in the same period of last year. The decline was primarily due to a lower global volume and the continued impact from COVID. Our cost control measures improved our profit making ability and improving narrowed by RMB68.4 million. And the gross margin percentage improved by 3.8% compared with the same quarter last year. The continued discipline of tightening our expenses and improving our operating efficiency further narrow our net loss from continuing operations in the first quarter to RMB257.6 million compared with RMB379.9 million in the same period of last year.

Adjusted EBITDA for continuing operations in Q1 also improved to negative RMB206.8 million compared to negative RMB294.6 million for the same quarter last year. With that overview, now let’s move on to financial highlights for our business units. For BEST Freight, first quarter revenue was approximately RMB1.05 billion compared with RMB1.09 billion for the same period of last year. The decline was primarily due to the wind down of UCargo line. Freight gross margin was negative 0.3%. A 6.8 percentage points improvement from the same period last year. Adjusted EBITDA for BEST Freight was negative RMB59.1 million compared with negative RMB149.9 million in Q1 of last year. Revenue for BEST Supply Chain Management in Q1 increased by 7.7% year-over-year to RMB440.3 million.

And the gross margin improved by 3.9 percentage points to 8.2%, primarily driven by increasing distribution volume and the expansion of our customer base. Adjusted EBITDA for BEST Supply Chain Management was RMB9.8 million compared with negative RMB8.5 million in the same period of 2022. For BEST Global, Q1 revenue decreased by 26.7% year-over-year to RMB197 million, primarily due to the decreasing volume in Thailand and Vietnam. Its gross margin was negative 26.5%, a decrease of 20.2 percentage points year-over-year. The decrease was primarily driven by the lingering impact from COVID and the reduced volume from certain key accounts. Q1 adjusted EBITDA for BEST Global was negative RMB102 million compared with negative RMB63.4 million in Q1 last year.

Our operating expenses, excluding share based compensation totaled RMB264.3 million or 15.4% of the revenue, compared with RMB267.5 million or 14.8% of the revenue in the same period of 2022. There was a one-off charge of RMB36.9 million included in the first quarter’s operating expenses. Excluding such one-off charge, our operating expenses decreased by RMB40 million year-over-year. Selling, general and administrative expenses for Q1 were RMB199.8 million or 11.6% of our total revenue, excluding the RMB36.9 million one-off charge. The Q1 SG&A expenses excluding one-off charge decreased by 15% compared with the same period of last year due to the reduction of headcount. R&D expenses were RMB27.7 million or 1.6% of our total revenue, compared with RMB31.9 million or 1.8% of total revenue in Q1 of last year.

In summary, our Q1 results show the improved health of our business and how we are driving profitability. Our operations are more efficient, and we are prudently managing our costs. Looking forward, industry-wide recovery trend bode well for us, and we are well positioned to grow our business on a sturdier base. Our dedication to quality and efficiency has produced strong results and we believe we have weathered the worst of the COVID impact. Moving through 2023, we will further strengthen our capability in technology and domestic and global supply chain management and logistics to drive growth. BEST is well-prepared and positioned to capture the rising market opportunities and achieve sustainable profitability. This concludes our financial update.

We will now open the call to questions. Thank you. Operator?

Operator:

Johnny Chou: 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.