BEST Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 30, 2023

There are 3 speakers on the call.

Operator

Good morning, good afternoon, and good evening. Welcome to the BEST Incorporation First Quarter 20 24 Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded.

Operator

I would now like to turn the conference over to Mr. Johnny Cho, CEO. Please go ahead.

Speaker 1

Thank you, operator. Hello, everyone, and thank you for joining BEST's Q1 2023 earnings call today. We delivered an exceptionally strong Q1 2023, demonstrating financial improvements across our business, Despite the seasonally slow first quarter 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 the best supply chain management delivering net profit in the quarter and the best freight reaching profitability in February March. Global has also turned a corner, delivering improved financial and operational results compared with Q4 20 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.

Speaker 1

For Best Freight, we have seen a stronger recovery in trend in consumer consumption post COVID pandemic and demand for freight services is increasing. Best Freight's commitment to service quality and operational excellence In the past 18 months, a credit paying off and we have vastly improved our capabilities in order to meet increased market demand. Freight volume for the Q1 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 a Cornerstone our freight services. Our focus moving forward will be on further improving our core competencies in the market.

Speaker 1

First, we will continue to develop digital transformation to improve our operating efficiency and ability to provide our key customers with high quality services. 2nd, we will continue to synergize with best Supply Chain Management by leveraging our massive supply chain management's key account customer base to capitalize additional business opportunities. 3rd, we will be developed and leveraged fulfillment franchisee To further enhance our service network, posting profitability in February March, Best Freight momentum is ongoing And the volume continues to improve. Looking ahead, we expect these differentiated drivers will improve rates of profitability and generate positive cash flow throughout 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 to meet the growing market.

Speaker 1

The demand for 3rd party integrated larger service partners 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 Q1, Best Supply Chain Management's revenue increased by 7.7% and the gross margin increased by 3.7 percentage points year over year. Our customer base grew as well with the addition of 32 new key accounts and 36 New Tender Wins in the Q1. As Supply Chain Management remains the center Of our Synergetic Logistics Ecosystem, we have been focusing heavily on the digital transformation to improve our operating efficiency and enhance the system interconnectivity with our customers.

Speaker 1

These capabilities differentiate our market offerings and bring us additional competitive advantage. At the same time, We are continuing to develop and accelerate our franchiser fulfillment capabilities to broaden our network and service capabilities even further. With this in mind, we expect the 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, economic of the Southeast Asia recovered rapidly And the volume as e commerce business surged.

Speaker 1

The growth of cross border activities between China and Southeast Asia Also accelerated and China is the number one trade partner with Association of Southeast Asia Nations. With adjusted business strategy and reliant 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 enterprise 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 through with recovering parcel volumes and an increasing number of new key accounts.

Speaker 1

While following our adjusted business strategy places on the right path, more execution time 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 year end. In conclusion, We have seen clear upward trends in the Q1 across our business lines and achieved sustainable profit improvements In 2 of our 3 core businesses, we are off to a good start and are very optimistic about the best ability to demonstrate continued recovery and growth in 2023. We will continue to focus on our 3rd 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.

Speaker 1

With that, I would like to turn the call over to our CEO, Gloria, for further review of our Q1 financials.

Speaker 2

Thank you, Johnny, and hello to everyone. We commenced 2023 on a strong note, Improving our bottom line by narrowing total net loss from continuing operations by 32.2% and started a great momentum for growth and profitability. Best Supply Chain Management achieved profitability in the Q1 and Best Brake was profitable in February March. Both business units are recovering quickly and growing. We expect this growing trend throughout 2023.

Speaker 2

BEST Global is also picking up steam in the Southeast Asia markets, particularly with its cross border activities showing a 60% growth compared with last quarter. This demonstrated the best strong recovery capability and the effectiveness of our reorganization and cost control measures. Our balance sheet remains healthy with a net cash position of RMB1 1,000,000,000 at the end of March, and we expect both Best Freight and the Supply Chain Management will generate positive cash flow throughout the year. Reviewing our financial results for the Q1, 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 a continued impact from COVID.

Speaker 2

Our cost control measures are improving our improved by 3.8% compared with the same quarter last year. The continued discipline of tightening our expenses and improving our operating efficiency further narrowed our net loss from continuing operations in the Q1 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 negative294,600,000 for the same quarter last year. With that overview, Now let's move on to key financial highlights for our business unit. For Best Freight, 1st quarter revenue was approximately RMB1.05 billion compared with RMB1.09 billion for the same period of last year.

Speaker 2

The decline was primarily due to the wind down of the Chicago business line. Freight gross margin was negative 0.3%, a 6.8 percentage point 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 Adjusted EBITDA for BEST Supply Chain Management was RMB9.8 million compared with negative RMB8.5 million in the same period of 2022. For Vax Global, Q1 revenue decreased by 26.7% year over year to to RMB197 1,000,000, primarily due to the decrease in volumes in Thailand and Vietnam.

Speaker 2

Its gross margin was 90% or 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 1,000,000 compared with negative RMB63.4 million in Q1 last year. Our operating expenses, excluding share based compensation, totaled RMB264.3 million or 15.4 percent 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 RMB 36 RMB9000000 included in the Q1's operating expenses.

Speaker 2

Excluding such one off charge, Our operating expenses decreased by RMB40 1,000,000 year over year. Selling, general and administrative expenses for Q1 were RMB199 point RMB1000000 or 11.6 percent of our total revenue, excluding the $36,900,000 one off charge. The Q1 SG and A expenses, excluding one off charge, decreased by 15.8% compared with the same period of last year due to the reduction of headcount. R and D expenses were RMB 27.7 1,000,000 or 1.6 percent of our total revenue compared with 31,900,000 or 1.8 Percent 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.

Speaker 2

Our operations are more efficient and we are prudently managing our costs. Looking forward, industry wide recovery trends bodes well for us and we are well positioned to grow our business on a sturdier base. Our dedication to quality and efficiency have 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 the logistics of profitability. This concludes our financial update.

Speaker 2

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

Operator

Thank you. We will now begin the question and answer At this time, we will now pause for a brief moment to assemble our roster. Thank you. There are no questions at this time. I'll now turn the conference back to Mr.

Operator

Sherou for closing remarks.

Speaker 1

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.

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