BEST Inc. (NYSE:BEST) Q3 2022 Earnings Call Transcript November 16, 2022
Operator: Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to BEST Inc.’s Third Quarter 2022 Earnings Conference. Following management’s prepared remarks, there will be a Q&A session. With us today are Johnny Chou, BEST Inc.’s Chairman and CEO and Gloria Fan, 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 Johnny Chou, Chairman and CEO of BEST Inc. Johnny, please go ahead.
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Johnny Chou: Thank you, operator. Hello, everyone and thank you for joining BEST’s third quarter earnings call today. The ongoing COVID-19 pandemic continued to impact the economy in China and Southeast Asia, weighing heavily on the logistics industry. Amid the challenging landscape, we delivered good progress in the seasonally slow third quarter. BEST Freight’s 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 increased by 15.2% and net loss narrowed by 64.3% year-over-year. We continued 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 result units. Best Freight 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 gross loss has narrowed by RMB70.4 million compared with 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-related 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% year-over-year. The revenue from automobile accessory industry contributed approximately 18% of the total revenue for the quarter. The gross margin has also improved significantly to 7.2%, which was a 3.5 percentage point improvement from the same quarter last year as our cost reduction initiative bore fruits. 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 market in Southeast Asia remained 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 off-line, which negatively impact the e-commerce logistics industry. Meanwhile, some major e-commerce platforms have more relied on their own logistics capabilities and gradually reduced their reliances on third-party logistics services. As a result, Global’s 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% and 45.2%, respectively, year-over-year as we continue our efforts in expanding franchisee network and improving service quality. Due to this shift in the Southeast Asia market, we have been refocusing ourselves expanding small and medium enterprise coverage to deliver €“ 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 area so we are more diversified to engage long-term growth and profitability. With these facts in mind, we expect Freight and 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.
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Gloria Fan: 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 UCargo 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 RMB209 million on selling assets in the third quarter of last year, we significantly narrowed our non-GAAP net loss by 16% or RMB69.3 million year-over-year. Our balance sheet remained healthy. After paying RMB746.5 million to repurchase existing convertible senior notes due 2024 our cash and cash equivalents, restricted cash and short-term investments totaled RMB3.3 billion. Our net cash position was RMB1.1 billion 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 RMB2 billion compared with RMB2.8 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 RMB432,000 compared with RMB730 million in Q3 last year. Gross margin was negative 1.9% compared with negative 3.9% last year. Driven by our effective cost control measures from past few quarters, our gross loss reduced by approximately RMB70 million from the same quarter of 2021. BEST Freight’s gross 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 RMB378.9 million compared with RMB191.6 million for the same period of last year.
Adjusted EBITDA for continuing operation was negative RMB320 million compared with negative RMB148.4 million for the same quarter of last year. Next, moving on to key financial highlights for our business units. For BEST Freight, its third quarter revenue was approximately RMB1.3 billion compared with RMB2.1 billion for the same period of last year. The decline was primarily attributable to the decreased UCargo revenue of approximately RMB730 million. Excluding UCargo, Freight’s revenue decreased by 2.4% year-over-year. Freight’s gross margin was negative 3%, 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 RMB116.8 million compared with negative RMB195.5 million in Q3 last year.
Q3 revenue for BEST Supply Chain Management increased by 15.2% year-over-year to RMB461.5 million, 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 RMB25,000 compared with negative RMB16 million in the same period of last year. For BEST Global, Q3 revenue decreased by 29.1% year-over-year to RMB211.3 million, 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 RMB102.5 million compared with negative RMB61.8 million in Q3 last year.
Our operating expenses, excluding share-based compensation, in the third quarter totaled RMB298.9 million, representing 14.7% of our total revenue, compared with RMB290.3 million or 10.3% of total revenue in the same quarter last year. Selling, general and administrative expenses were RMB260.5 million, 12.8% of our total revenue, compared with RMB250.1 million or 8.9% of the total revenue in the second quarter of last year, primarily due to additional expenses related to wind down of BEST Capital. R&D expenses were RMB38.4 million, 1.9% of our total revenue, compared with RMB40.2 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 strength in 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?
Operator:
Johnny Chou: Thank you, operator. 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.
