BEST Inc. (NYSE:BEST) Q2 2023 Earnings Call Transcript August 24, 2023
Operator: Good day, and welcome to the BEST Inc. Second Quarter 2023 Results Conference Call. All participants will be in listen only mode [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Johnny Chou, Chairman and CEO. Please go ahead.
Johnny Chou: Thank you, operator. Hello, everyone, and thank you for joining BEST’s second quarter 2023 earnings call today. We are reporting another outperformed quarter achieving both top line growth and bottom line improvements across our business. Our group gross margin turned positive at 4.2% in the second quarter and we narrowed our net loss by 48.7% year-over-year. BEST Freight and the BEST Supply Chain Management each reached non-GAAP profitability and generated positive cash operating cash flow for the quarter. Meanwhile, BEST Global continue to bounce back from the impact of COVID, delivering improved revenue and gross margin with ongoing momentum in cross border volume and revenue on a quarter-over-quarter basis. Now let me review each of our business units in more detail.
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For BEST Freight, China’s economy gradual recovery after COVID, which continue to weigh on the industry’s recovery. With our focus on quality and operating excellences, BEST Freight second quarter volume and revenue grew by 7.2% and 15.2% year-over-year, respectively. We have also made considerable gain with Freight’s gross margin. It reached to 5.3% in Q2 compared with negative 7.8% in the same period a year ago. In addition, Freight achieved profitability for the quarter. As service quality remains the cornerstone of our Freight services, our focus moving forward will be on further improving our core competencies in the market. We will continue to develop digital transformation to improve our operating efficiency and ability to provide our key accounts with high quality services.
In addition, we will continue to synergize with BEST Supply Chain Management to capitalize additional business opportunities. We expect BEST Freight to continue to be profitable in Q3 and Q4 this year with positive operating cash flow for the full year of 2023. Moving on to BEST Supply Chain Management. We continue to benefit from the market’s increased demand for third party integrated logistics services partners with a higher level of service offerings. With our capabilities in technology and integrated services, we are becoming more efficient and further differentiating BEST across market. In the second quarter, revenue from BEST Supply Chain Management increased by 6.7% year-over-year and its gross margin reached to a record high of 10.9%.
Furthermore, we continue to expand our customer base. In Q2, we brought in 36 new key accounts and 33 new tender wins. BEST Supply Chain Management’s robust growth showcases that our strategy to continuously invest in and improve our digital transformation capabilities and drive synergies across our business is working. We are extending our services to cover more market segments and maximizing overlapping opportunities with BEST Global by utilizing our cross border and fulfillment capabilities. We expect BEST Supply Chain Management to generate ongoing profit and positive cash flow for the remaining quarters this year and for full year of 2023. Looking at BEST Global. As we continue optimizing our organizational efficiency and developing our integrated logistics services capabilities in Southeast Asia, we are improving the service quality, network coverage and expanding our reach in cross border opportunities.
On the heels of COVID, BEST Global’s business is showing clear signs of recovery. During the second quarter, our key account business has grown 25% quarter-over-quarter, driven by our robust cross-border capabilities, total volume for our cross border business in the second quarter increased by approximately 54% quarter-over-quarter. We believe the steps we have taken place BEST Global on a firm path to growth and profitability. As we continue to execute on our strategy in the second half of 2023, we expect Global’s parcel volume to continue to increase quarter-over-quarter and its operating margin and the bottom line to show steady improvements for the remainder of the year. In summary, we saw remarkable improvements across our business lines in the second quarter.
Our dedication in delivering best-in-class service quality and digital transformation continue to be our primary focus. In addition, leveraging synergies among our business units differentiates our offerings and gives us clear competitive advantage. We are confident that with this growth momentum, we are able to drive sustainable growth and profitabilities in near future. With that, I would like to turn the call over to our CFO, Gloria, for further review of our second quarter financials. Go ahead, Gloria.
Gloria Fan: Thank you, Johnny, and hello to everyone. As we continue to accelerate the recovery of our business in the second quarter, both BEST Freight and BEST Supply Chain Management delivered robust growth momentum and reached non-GAAP profitability. Our group’s gross margin turned positive and our net loss narrowed by 48.7% year-over-year. In addition, we have significantly reduced our selling, general and administrative expenses by 31.4% year-over-year due to our continuous effort in cost reductions and operating efficiency improvements. Our balance of cash and cash equivalents, restricted cash and short term investments remained strong at RMB3.2 billion at the end of the second quarter. Moving to the details of our financials.
Our total revenue for the second quarter was approximately RMB2.1 billion compared with RMB1.9 billion in the same period of 2022. The increase was primarily due to increased revenue of BEST Freight and the BEST Supply Chain Management. Our ongoing work to improve our organizational efficiency and reduce costs continue to bear fruit. We reported gross profit of RMB88.8 million for the quarter compared with a gross loss of RMB89.3 million in the same period of last year. Accordingly, our gross margin percentage reached 4.2% compared with a negative 4.6% in the same period of last year. Our net loss from continuing operations in the second quarter narrowed by RMB165.7 million to RMB174.4 million from a net loss of RMB340.1 million in the same period of 2022.
Adjusted EBITDA from continuing operations improved in the second quarter to negative RMB124.9 million compared with negative RMB270.3 million for the same period of last year. With that overview, let’s move on to the key financial highlights for our business units. For BEST Freight, second quarter revenue was approximately RMB1.4 billion compared with RMB1.2 billion for the same period of last year. The increase was primarily due to increased freight volume and higher average selling price per ton. Freight’s gross margin percentage was 5.3%, a 13 percentage point improvement from the same period of last year. Adjusted EBITDA for BEST Freight was RMB20.4 million compared with negative RMB34.5 million in Q2 last year. Revenue for BEST Supply Chain Management increased by 6.7% year-over-year in Q2 to RMB481.2 million, and the gross margin improved by 2.7 percentage points to 10.9%.
Excluding the tax advantage of RMB18 million recognized in Q2 last year, adjusted EBITDA for BEST Supply Chain Management improved by RMB13.5 million compared with the same period of last year. For BEST Global, we are gradually recovering from the impact of COVID. Q2 revenue for BEST Global decreased by 0.7% year-over-year to RMB239.4 million, primarily due to the decrease in volume in [Thailand]. Its gross margin percentage was negative 20.2%, a decrease of 5.5 percentage points year-over-year. Q2 adjusted EBITDA for BEST Global was negative RMB100 million compared with negative RMB97.7 million in Q2 last year. Our operating expenses, excluding share based compensation, totaled RMB245.7 million or 11.5% of revenue compared with RMB356.1 million or 18.4% of revenue in the same period of last year.
Our operating expenses decreased by RMB110.4 million, representing a 31% decrease year-over-year. Selling, general and administrative expenses for Q2 were RMB216.6 million or 10.1% of our total revenue, which represented a 31.3% decrease year-over-year due to reduced headcount and bad debt expenses. R&D expenses were RMB29.1 million or 1.4% of the total revenue. This compared with RMB40.9 million or 2.1% of total revenue in Q2 last year. In summary, our stellar second quarter results highlight the effectiveness of our quality focused and technology driven strategies and we believe BEST is on track and stepping firmly on a clear path towards our next stage of growth. For the second half of 2023, we expect BEST Freight and BEST Supply Chain Management to continue delivering profitability and positive operating cash flows.
For BEST Global, we expect a fast recovery of parcel volume and much improved bottom line. This concludes our financial update. We will now open the call to questions. Thank you. 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, and you may now disconnect.
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