Q3 2021 BEST Inc Earnings Call
Okay.
Good morning, and good evening, ladies and gentlemen.
Thank you for standing by and welcome to Best incorporated third quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode.
Owing the managements prepared.
Paired remarks, there will be a Q&A session.
With us today are Johnny Chou, Best incorporated Chairman and CEO, and Gloria fan Chief Financial Officer.
For today's agenda, Johnny will be giving a brief overview of our business and operational highlights.
Then Gloria will explain the details our financial.
Resolved.
Following the prepared remarks, you may ask your question.
Please note. This call is also being webcast on Best Inc. IR website at IR Dot Best Dash, Inc. Dot com.
A replay of this call will be available after the call and investors presentation is also available.
On the IR website.
Before it begins I will read the safe Harbor statement on behalf of best incorporate it.
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 others, 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 reconciliation of GAAP to non-GAAP measures can be found in best incorporate its earnings press release.
Finally, please note.
Unless otherwise stated all.
All the figures mentioned during this conference call are in RMB.
Now I would like to turn the call over to Johnny Chou, Chairman and CEO of Best incorporated Johnny. Please go ahead.
Thank you operator.
Hello, everyone and thank you for joining bats third quarter earnings call today.
In the third quarter, we remained dedicated to realigning the company around our core competencies.
Unlocking value for our shareholders.
First talk about our recent transaction with change Express China.
On October 29, we announced the agreement to sell our expressed.
Breast delivery business in China to Jan cheap.
And evaluation of $6 8 billion RMB.
This decision after a very thorough evaluation of various alternatives as you must be you're all aware the express market in China has been exceeding our competitive with both.
Leading players and the new entrants are aggressive in their pricing strategies.
The situation has been further compounded by the COVID-19 pandemic.
Against this backdrop, we strove to enhance our express network stability.
And also this quarter.
As well as optimize.
<unk> the product mix for customers.
These efforts led to concrete improvements.
Improvements in our network and services person not taking the business out of lossmaking.
This transaction enables us to focus on our core supply chain competencies.
So asset.
On our strategic roadmap.
Allowing us to allocate resources more efficiently towards our integrated supply chain logistics freight and our global supply chain and logistics services.
Next I would take about key developments in our operational performance.
During the third quarter.
With respect to express.
We continue to improve operating efficiency and enhance customer experience.
This upgrade is sort of quantity in the third quarter of 2021 parcel volume decreased by 10, 9% year over year to one to.
One bidding.
Amidst the competitive landscape.
This margin contracted by seven six percentage points due to a decline in ASP per parcel of 12%.
Year over year, partially offset by a decreasing every cost.
So of pipeline, 5% year over year.
Due to our cost reduction measure despite the higher oil prices and rising labor costs.
Best freight continued to grow it.
It is e-commerce related transaction.
Reduce costs and invest in network expansion and so this quarter the improvement.
However, due to a traditionally low season in the third quarter and macroeconomic gross effective by pandemic.
Fraser volume decreased by one 5% year over year in the third quarter of 2021.
With E Commerce volume accounting for 24% of total up four.
Five percentage points year over year.
Cost per tonne decreased by one 3% year over year, despite higher oil prices and rising labor costs.
Thanks to our free teams dedicated cost control however.
However, the gross margin was a negative five four.
4% in the quarter six seven percentage points lower year over year, primarily due to the ASP decline.
Seven 5% year over year.
Moving to best supply chain management.
In the third quarter of 2021, we.
We remain focused.
Project was higher margins and the clients with strong credit profiles well.
What spending our franchisees cloud OFC network in planning and implementing cost reduction measures.
It's gross margin was three 6% in the quarter.
26%.
Our percentage of your points lower year over year.
We realized one off charges or is it truly clothing offer lower module cost.
The total number of orders fulfilled by Carl OFC increased by one 4% year over year to.
$103 6 million.
The third quarter of 2021.
Which the total number of orders fulfilled by franchised Carlo OFC increased by 27, 1% year over year to six to 8 million.
The number of franchise at OFC is increased by one 7% year over year to 350.
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That's global maintained its robust growth in southeast Asia was improve the margins.
Spiked to continue the impact from COVID-19.
Parcel volume in South East Asia increased by 78, 7% to.
It was $37 one many in so Paulo.
Then in 'twenty one.
With particular strength in Thailand, and Malaysia in Cambodia, where parcel volume increase.
123% 933, 2% and a 254, 5% year over year, respectively.
Good robust gross margin rose by four point.
One one percentage points year over year, primarily driven by our growing economic of scale on the.
The ping the by our enriched cross border service.
And the solutions as well as our expanded network in the region.
Going forwards.
Our strengthened the balance sheet.
We will be equipped to increase investment in automation and systems to enhance our services.
As a pioneer of integral small supply chain.
And the largest service provider, we will be well positioned to so companies.
Seek to further improve the operating efficiency.
And to accelerate the supply chain digital transformation.
For supply chain management.
Advantages at the higher reputation of our services for apparel and the fast moving consumer goods industry.
We continue to expand it in higher gross margin industry.
Such as auto parts in the Pharmaceuticals, we also continue to invest in infrastructures, such as the warehouses and fulfillment centers network and delivery system to further improve customer experience.
We are optimistic that the supply chain and logistics will achieve.
Profitability in 2022.
For freight will continue to solidify our position as an industry leader by further enhancing freight business for capabilities serving customers in the E Commerce space, where the pricing is more attractive.
And the leveraging synergies with our.
Our supply chain management.
We also expect the freight to be profitable for the full year of 2022.
As E Commerce penetration deepens in Southeast Asia, and China Asian Cross border trades grow at a double digit rate.
Global will continue to be.
The growth driver for our company, we will promote further utilization of our strong supply chain management capabilities and provide smart logistics solutions for both local and cross border operations in Southeast Asia.
In conclusion.
<unk> around.
On the wall that has brought to light the vital importance of smart supply chain solutions and largest services for every business.
Looking forward, we will continue to strategically developed and explore synergies among our business units to create value.
We are confident that our streamlined re alignment and the focus is on our core strengths will enable us to capture enormous opportunities that lie before us.
Now I would like to turn the call over to our CFO Gloria.
For further review of our second.
Solid quarter.
A nine shows.
Thank you, Johnny and Hello to everyone.
Revenue for the third quarter was $6 8 billion RMB, a decrease of 14, 6% year over year as the macro economics and the market dynamics weighs on the volume.
And the average selling price for express and freight.
However, best global excelled in the quarter, maintaining a strong growth despite the pandemic the lingering effects and the worldwide logistics and shipping disruptions.
The strategic transaction with Dan He expressed China well.
Significantly improve our liquidity and provide us with financial flexibility to reduce leverage and increase investment laying a solid foundation for us to return to profitability and establish our growth trajectory.
Our balance of cash cash equivalents this Disney cash and short term investments.
<unk> were $3 4 billion RMB at the end of the third quarter.
Now, let me walk you through our financial results in the third quarter, but 2021.
Within the intense pricing environment, our gross loss for Q3 was 505 million RMB compared to 58.
Point 5 million RMB in the same quarter of 2020.
Gross margin was negative seven 4%.
I'm here to a negative 0.7%.
Adjusted EBITDA for continuing operations for Q3 was negative 481 million RMB compared to negative 260.
$9 5 million RMB in the same period of last year.
Next moving onto key financial highlights for all business units a year over year basis.
Express revenue decreased by 21, 7% to 4 billion RMB in the third quarter of 2021, primarily due to a 12%.
Year over year decrease in ASP per parcel and up 10, 9% year over year decrease in parcel volume.
Adjusted EBITDA for Best Express was negative 348.5 million RMB compared to a negative $187 7 million RMB for the same period last.
Last year.
For best Frank We continue our effort to grow is e-commerce related to the business and invest in network expansion to improve service quality excuse me revenue decreased by 9% year over year to $1 4 billion RMB, primarily due to a one 5% year over.
The decrease in freight volume and a 7.5% decreasing as per ton adjusted EBITDA for best Spring was negative 144 million RMB compared to negative 37 million RMB for the same period last year.
Chelsea revenue for best supply chain management be crude.
11, 5% year over year to 400.6 million RMB adjusted EBITDA was negative 16 million RMB compared to negative $26 7 million RMB for the same period of last year.
Q3 revenue for bats, global increased by 38, 1% year over year.
Two $298 3 million RMB driven by the sustained the growth momentum in parcel volumes in southeast Asia.
Adjusted EBIT for best Global was negative 61.8 million RMB compared to negative $6 7 million RMB for the same period of last year.
Q.
Three revenue for your cargo and the capital groups in other segments.
Increased by 6% year over year to 767 million RMB adjusted EBIT for others was negative 17 eight.
$8 5 million RMB compared to a negative $26 7 million RMB for the same period.
So last year.
Our operating expenses, excluding share based compensation total to $455 5 million RMB or six 7% off the revenue.
I'm here with $466 1 million RMB or five 8% of the revenue in the same period of last year.
Now, let's take a look at some major operating expense items for the third quarter. Please note all of these expenses exclude the share based compensation.
Selling general and administrative expenses for continuing operations were 396.
Playing formula RMB or five 8% of the revenue in the third quarter.
Compared to a 423.3 million RMB or five 3% of the revenue in the same quarter of 2020.
R&D expenses for continuing operations were $59 1 million RMB or.
<unk>, 0.9% of revenue compared to 42.8 million RMB or 0.5% of revenue in the same quarter of last year.
Capex in the third quarter with $116 9 million RMB or one 7% of total revenue compared to $484.
Soon the RMB or six 1% with revenue in the same period of last year.
This concludes the third quarter financial overview.
We believe our recent transaction with JMP will open a new chapter for our company. This allows us to be kind of linear and the focus on leveraging our technology stack.
To deliver sustainable and profitable long term growth.
We will continue to explore innovate and invent create.
Creative supply chain base logistic solutions, helping our customers achieve success as the industry move into the digital era with that we.
We will now open the call to questions. Thank you.
The reader.
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 youre using a speakerphone please pick up your handset before pressing the keys.
Is it any time.
To 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.
The first question comes from Thomas Chong with Jefferies. Please go ahead.
Hi, Good morning management.
But the King my questions I.
I have a question regarding our 2022 outlook what.
What it brings to our business segments.
With regard to flight, our supply chain and global but how should we think about the competitive landscape.
For different segments.
In the region and our competitive edge and how we stand out from the competition and achieve other TPI.
Just a highlight and they got to the policy from the deal or how should we think about.
Thank you.
Okay Thomas.
Your first question is regarding 2022 global and supply chain saw some landscape and the competitive.
Cause that escape and as well as all of our vintages.
Vintages.
Now first of all let's.
Just talking a bit more about global.
Global basic because it's driven very.
First rows into them off the.
Southeast Asia E Commerce penetration.
And also a fast growth in a cross border between China and Southeast Asia.
In the India.
Trade.
And both of these we have a significant advantage first of all in.
In the local market in each countries.
We have spent few years already we have been engaging in network development.
And the beautiful or the <unk>.
Cost structure.
In.
In Thailand, I believe we do have about close to nine sorting centers and hubs in Vietnam was about 10 in Malaysia, we have done about seven or eight.
So Singapore and Cambodia. So these are the infrastructure we have been.
Continue to invest.
Invest and in beauty in the past couple of years, our second what at the we had a build a bear to cover the network.
In all these countries we have a almost.
Almost kind of complete 100% of coverage into the T.
So.
Especially in Thailand and Vietnam.
Elisa.
The early entry markets.
Third is that the cross.
Cross border, we leverage our supply chain.
This supply chain capability and also the network, both freight and express in China.
Recent Cherry for example.
We had helped one of the major manufacturers in China.
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<unk> logistics services in multiple.
<unk> Oh.
Some countries for both the director director trade with the last mile delivery.
Murray warehousing a cross border.
Et cetera that are both of those services. So we continue to see a multiple.
Many of larger.
The China based companies I wanted to entry to the southeast Asia requires needs a.
And trend.
Our house last mile delivery, both in Oh bulky.
Bulky items as well as seen in our parcel services into the market. So I think that gives us a very large advantages in terms of developing these markets are back.
The supply chain, we have being pioneers in supply chain.
Services in China.
More than 10 years ago. So we the first one if you really rolled out a digital <unk> services in China on the supply chain.
In the past we have done many.
Successful clients based on the macro development, we have been more more choosy and selective into our customer base.
In terms of the in the industry as apparel and fast consumer goods and you say area would concentrate recently, we pick up some pharmaceutical.
Yeah Triple vehicle.
D D D parts and services.
So the so on the on the supply chain side, we see a quite a strong demand.
<unk> see a full service integrated services in the market place. So we will focus.
On these markets, our supply chain and a global.
Into the 2022, along with the freight and they actually have quite a synergy.
Because a lot of the.
The supply chain customers Poeschel acquires a.
Freight services.
Deliver to door delivery to the stores to their distributors resellers as well as some of these.
Companies are customers, who aspiration to to global expansion, so that will be our.
2000, 2020 to look for a global supply chain I think is both.
Our growing fear.
Very good.
Future as well as we have a very good competitive advantage on that.
Regarding your second question about use of cash after the deal.
The exit from the China Express market, we did.
The cash will be better used.
In terms of the for the remaining business, especially in the freight and global supply chain.
The area of multiple area, one is automation and I think that the phrase also been using more and more automation to reduce the labor cost as well as efficiency on the operation side.
Mobile also with how we invest.
Some multi so.
Capital expenditures as well as the expansion to our network and supply chain is thinking we will need a more automation on that so that's one side of it is more automation.
Digitization of the network or somebody.
The R&D development will be.
We further enhanced our digital transformation.
Now as well as some of the expansion through the network.
On the customer acquisition.
Thomas.
Got it very clear thank you.
Okay.
Okay.
As a reminder, if you have a question. Please press Star then one doing joint into the queue.
Next question comes from Ronald Keung with Goldman Sachs. Please go ahead.
Thank you Tony and Gloria.
If your question is the best Express $6 8 billion.
<unk> of.
Consideration you mentioned earlier that it is $3 9 billion in cash just wanted to make sure.
The rest, which is the remaining kind of $2 9 billion or is that kind of in that and would that kind of pass through in that indeed, the best Express entity that will pass through new to AT&T. So we're still getting the whole.
Benefit of the proceeds.
Consideration of Best Express at $6 8 billion RMB and then my second question can we go through some of the freight volume trends. We see is a slight decline in the third quarter or is that something more two due to the COVID-19 situation, we see any improvement.
Went back to at least positive growth in recent.
One or two months and my last question is that you're thinking about your global and cross border or are we thinking of any freight forwarding aspects of business that we could do alongside our global network that is building up.
Okay.
Yes.
Okay. So the first of all on the on the.
The expected transaction.
Yes, so the total consideration of $6 eight enterprise value.
When we say that we would have a cashless reception.
Approximately about three.
Nine the remaining basic is paid on some of the attach.
Some of the the.
Yes, so the carrier.
Working capitals.
The debts and everything else.
So that is the so the basically the on the express.
Company support because they still have some.
Paid a working cap do you won't kept or some of the debts, including.
D D D D.
These are transportation payment and some other payments that we need still need true too to settle so deal with that debt that will be it will be deducted from that six.
This explains basically a clean cash back to the group.
Secondly is about the afraid.
The Fray basically the third quarter is actually a very big powerful based on three things right. One is that.
The pandemic was flaring up somewhere.
Whether or not but basically it will impact our our some of our Hudson.
And and.
We'll beat was closed and also being a.
And a lot of area, we cannot deliver also.
Receiving.
The.
You too.
The goods there was an impact to our.
The volumes are.
Second is as you probably heard in some of the.
Extra city curve and all of the other stuff on there being happening.
They will also have some impact into the into the hour.
Our volume side and third is traditionally third quarters, there's always liked third quarter, especially during the summer time June July August is always a light month.
In the past and also macros pandemic electric.
City, curb and everything else compounded with some of this but we do see a improvement in the fourth quarter already.
I think.
The D D D D yet electricity curve as it has been eased.
But later it recently and also the.
Pandemic.
The COVID-19 is also filling up a little bit but in fact that the October November so far, especially during the past double 11, we see our freight volume has recovered significantly so.
Spending a.
A gradual recovery recovery on the freight side.
And third.
Question, you had on global side.
Freight forwarding.
We are not actively looking into that right now because we just want to focus on.
One is that.
The local network development for local network development like in Thailand.
In Vietnam, we start to combining a.
Express with a freight type of a network so in other words.
In China, if you look at the express the parcel typically up quite small and maybe less than 10 kilo, but in Vietnam, Thailand. We can go up $2 50 to 100 kilowatts.
So that will help us too.
Very competitive market and give us a more service.
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So they will be looking at them more of coverage.
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And secondly, as a cross border will be looking at more of the.
Of course border was a major.
Some of the large COO.
<unk>, China, why don't you expanding into southeast Asia.
And supply chain last mile supply chain.
Warehouses services that we will be.
Terry on the 2022 and next year.
Forwarding, we've been looking at it we'd be talking about it but we don't have a active player.
Plant right now.
Okay got it.
My question is for the Best Express disposal, how are we with the regulatory approval process and our expected completion.
We have filed and are we still waiting for the for the result, I don't have any comments.
Rents on the expected time.
Thank you.
Once again, if you have a question. Please press Star then one to be joining you. The question queue. That's star then one.
Okay.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to Johnny Chou for any closing remarks.
Yes. Thank you Bruce Thank you for joining our call and we appreciate your support of best please reach out to our investor.
Investor Relations team. If you have any further questions. We look forward to speaking to you soon thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.