BEST Inc. Announces Unaudited First Quarter 2020 Financial Results

HANGZHOU, China, May 28, 2020 /PRNewswire/ -- BEST Inc. (NYSE: BEST) ("BEST" or the "Company"), a leading integrated smart supply chain solutions and logistics services provider in China, today announced its unaudited financial results for the quarter ended March 31, 2020. The Company's results were adversely impacted by operational disruptions caused by the COVID-19 pandemic.

Johnny Chou, Founder, Chairman and Chief Executive Officer of BEST, commented, "In the first quarter of 2020, amid the COVID-19 pandemic, we focused our efforts on three key priorities: ensuring the health and safety of our employees and customers, rapidly resuming operations, and committing our resources to the global fight against COVID-19. These efforts could not have been accomplished without the extraordinary efforts of our employees, franchisees, suppliers and partners. As we entered the second quarter, all of our business lines had swiftly returned to normal operations, and I am pleased to report that the demand for our integrated supply chain and logistics services are robust as consumer purchasing habits have shifted deeper online. Our fundamentals are strong with continued high growth in e-commerce, a laser-sharp focus on increased operational efficiencies, and our plans to streamline sales and marketing in addition to general and administrative functions, all of which can drive improved profitability in 2020.  

Strategically, we continued to optimize our logistics networks during the quarter by further improving route planning and automation, integrating our comprehensive solutions to create revenue and cost synergies, and enhancing overall quality of service.  In addition, we are exploring ways to sharpen our strategic focus, with one potential option being the spin-off of certain business units that are in early stages of development with the intent of moving the company to profitability while allowing those units to independently raise capital for future growth," concluded Mr. Chou.

Gloria Fan, BEST's Chief Financial Officer, commented, "While the COVID-19 outbreak brought many unique challenges to our business, we are witnessing a strong recovery and rebound. In the first quarter, however, our Net Loss widened as parcel and freight volume along with associated costs were negatively impacted by prolonged work stoppages and travel restrictions. Despite these factors, our balance sheet remains strong with cash and cash equivalents, restricted cash, and short-term investments totaling over RMB4.2 billion at the end of the quarter. As the impact from the pandemic subsides, we are confident in the long-term operating profitability of our core logistics and supply chain businesses."

FINANCIAL HIGHLIGHTS

For the Quarter Ended March 31, 2020:

• Revenue was RMB5,465.5 million (US$771.9 million), a decrease of 20.5% year-over-year ("YoY"). The decrease was primarily due to disruptions in our business from the COVID-19 pandemic and the passing through of a temporary government waiver of highway toll fees to our customers through downward price adjustments.
• Gross Loss was RMB176.6 million (US$24.9 million), compared to gross profit of RMB292.7 million in the same period of 2019. The decrease was primarily due to loss of revenue and extra costs incurred due to the pandemic. Gross Margin was negative 3.2%, a decrease of 7.5 percentage points YoY.
• Net Loss was RMB750.8 million (US$106.0 million), compared to Net Loss of RMB233.4 million in the same period of 2019. Non-GAAP Net Loss⁽¹⁾⁽²⁾ was RMB712.1 million (US$100.6 million), compared to non-GAAP Net Loss of RMB208.4 million in the same period of 2019.
• Diluted EPS⁽³⁾ was negative RMB1.91 (US$0.27), compared to negative RMB0.60 in the same period of 2019. Non-GAAP diluted EPS⁽³⁾⁽⁴⁾ was negative RMB1.81 (US$0.26), compared to negative RMB0.53 in the same period of 2019.
• EBITDA⁽³⁾⁽⁵⁾ was negative RMB616.5 million (US$87.1 million), compared to negative RMB101.1 in the same period of 2019. Adjusted EBITDA⁽³⁾⁽⁶⁾ was negative RMB580.3 million (US$82.0 million), compared to negative RMB79.1 in the same period of 2019.

BUSINESS HIGHLIGHTS AND STRATEGIC UPDATES⁽⁶⁾

Core Logistics and Supply Chain

The Company's results were adversely impacted by business disruptions caused by the COVID-19 pandemic. Beginning in mid-January, the COVID-19 outbreak resulted in travel restrictions and quarantines in China that negatively affected the Company's operations and caused lower productivity from late January to late March. By the end of March, recovery of the Company's services across China had been completed, including the reopening of all hubs, sortation centers and Cloud order fulfillment centers (OFC), as well as the resumption of all businesses.

Aside from mobilizing its workforces and partners to maintain service and ensure health and safety during the pandemic, the Company's key strategic focuses during the quarter included:

• Optimization of logistics and supply chain network: the Company improved its transportation efficiency for both express and freight by capacity sharing. In addition, the Company continued to enhance automation for its hubs and sortation centers to drive down unit costs.
• Emphasis on synergies across business units: the Company stressed the e-commerce aspect of its transportation service as well as its supply chain management business. This helped the Company to achieve strong business-to-consumer (B2C) order growth during the quarter.
• Improvement of service quality: the Company continued to improve quality of services by enhancing network flexibility, density of last-mile service outlets, and customer experience.

BEST Express - Parcel volume decreased by 1.9% YoY compared to an overall market increase of 3.2 %⁽⁷⁾. While it is the Company's annual practice to shut down the majority of services over the Chinese New Year holiday period to allow franchisees to return home to celebrate, this year's work stoppage was extended by over one month beyond the Chinese New Year holiday period due to the pandemic. Daily volume rebounded in late March as recovery accelerated, partially offsetting declines in February and early March. Despite challenging operating conditions, average cost per parcel decreased by 14.0% YoY.  

BEST Freight - Freight volume decreased by 15.3% YoY in the first quarter of 2020. The decrease was caused by the extended work stoppages after the Chinese New Year holiday period, in addition to deceleration of manufacturing activities and disruption of supply chains that reduced demand for business-to-business freight services. Since late March, when businesses began to return to normal operations in China, freight volume has rebounded sharply with strong demand.

BEST Supply Chain Management - Total number of Business-to-Consumer (B2C) orders fulfilled increased by 34.9% YoY. The increase was due to strong demand for online shopping and strategic shift to grow franchised cloud OFC business. The number of franchised OFCs increased by 28.5% YoY to 302. However, Business-to-Business (B2B) orders decreased due to temporary pandemic-related business closure of our customers.

BEST UCargo - The number of registered drivers on the UCargo mobile app more than tripled YoY to 209,537. Total number of transactions on the trucking brokerage platform decreased by 6.4% YoY due to severe disruptions in supply chains and travel restrictions across China.

BEST Capital - As of March 31, 2020, BEST Capital had provided financing solutions to 11,159 trucks in total, a quarter-over-quarter ("QoQ") increase of 5.0% compared to December 31, 2019.

BEST Store⁺

Demand for Store⁺ services was robust during the pandemic as more membership and franchised stores went online for procurement and fulfillment. Gross margin per order fulfilled continued to improve YoY despite challenging operating conditions as a result of the Company's strategy of focusing on quality of orders. Total number of orders fulfilled decreased by 4.6% YoY due to decline in orders from temporary pandemic-related closure of self-operated WoWo stores. These order declines were offset by increased orders from membership and franchised stores.

BEST Global

Global continued with strong momentum in Southeast Asia. Parcel volume in Thailand increased by 96.3% QoQ to 5.11 million, while parcel volume in Vietnam increased by 46.0% QoQ to 3.73 million in the first quarter of 2020.

Key Operational Metrics

Environmental Social and Governance (ESG) Report

On May 7, 2020, the Company released its second ESG report, which can be accessed via the following link: http://www.best-inc.com/2019ESGReportIIvPUB.pdf.

FINANCIAL RESULTS

For the Quarter Ended March 31, 2020:

Revenue

The following table sets forth a breakdown of revenue by business segment for the periods indicated.

Core Logistics and Supply Chain

• Express Service Revenue decreased by 21.1% YoY to RMB3,366.7 million (US$475.5 million) from RMB4,268.0 million, primarily due to a 19.6% YoY decrease in average selling price (ASP) per parcel and a 1.9% YoY decrease in parcel volume. The decrease in ASP is attributable to competitive market dynamics and the pass-through of a temporary government waiver of highway toll fees to customers.
• Freight Service Revenue decreased by 30.8% YoY to RMB683.5 million (US$96.5 million) from RMB987.9 million, primarily due to a 15.3% YoY decrease in freight volume, and the pass-through of a temporary government waiver of highway toll fees to customers which contributed to a 18.3% YoY decrease in ASP per tonne.
• Supply Chain Management Service Revenue decreased by 23.8% YoY to RMB407.6 million (US$57.6 million) from RMB534.6 million, primarily due to pandemic-related decrease in B2B service revenue.
• BEST UCargo Revenue decreased by 13.7% YoY to RMB380.5 million (US$53.7 million) from RMB441.2 million, due to decreases in the number of transactions on the trucking brokerage platform.
• BEST Capital Revenue increased by 0.2% YoY to RMB48.5 million (US$6.8 million) from RMB48.4 million.

BEST Store⁺ - Revenue decreased by 16.4% YoY to RMB462.8 million (US$65.4 million) from RMB553.5 million, primarily due to a decrease in revenue from self-operated WoWo,  membership and franchised stores due to temporary store closures during the pandemic.

BEST Global - Revenue increased by 182.8% YoY to RMB115.8 million (US$16.4 million) from RMB40.9 million, primarily due to strong growth in parcel volumes in Thailand and Vietnam.

Cost of Revenue

The following table sets forth a breakdown of cost of revenue by business segment for the periods indicated.

Cost of Revenue was RMB5,642.1 million (US$796.8 million) or 103.2% of revenue in the quarter ended March 31, 2020, compared to RMB6,581.9 million or 95.7% of revenue in the same quarter of 2019. The increase of 7.5 percentage points in cost of revenue as a percentage of revenue was primarily attributable to the decrease in revenue and additional costs incurred due to the pandemic.

• Express Service Average Cost per Parcel decreased by 14.0%, primarily attributable to lower last-mile, transportation, and labor costs, offset by a temporary increase in fixed costs per parcel due to the pandemic.
• Freight Service Average Cost per Tonne increased by 1.0% YoY, primarily due to a temporary increase in costs per tonne caused by the pandemic, offset by a temporary government waiver of highway toll fees.

Gross Loss was RMB176.6 million (US$24.9 million), compared to gross profit of RMB292.7 million in the same quarter of 2019; Gross Margin was negative 3.2%, compared to positive 4.3% in the same quarter of 2019.

Operating Expenses

The following table sets forth a breakdown of operating expenses and adjusted operating expenses by category for the periods indicated.

Adjusted Selling, General and Administrative Expenses were RMB485.3 million (US$68.5 million) or 8.9% of revenue in the quarter ended March 31, 2020, compared to RMB460.8 million or 6.7% of revenue in the same quarter of 2019. The increase in adjusted selling, general and administrative expenses was primarily attributable to an one-time increase in bad-debt provision of approximately RMB27 million resulting from adopting ASC 326 Estimate Credit Loss, and additional investment of approximately RMB10 million in Global operations, partially offset by the decrease of SG&A expenses from our core logistics and supply chain businesses.

Adjusted Research and Development Expenses were RMB59.0 million (US$8.3 million) or 1.1% of revenue in the quarter ended March 31, 2020, compared to RMB51.8 million, or 0.8% of revenue in the same quarter of 2019. The increase in adjusted research and development expenses was primarily attributable to the hiring of additional IT professionals.

Share-based Compensation ("SBC") Expenses included in the cost and expense items above in the quarter ended March 31, 2020 were RMB36.2 million (US$5.1 million), compared to RMB22.0 million in the same quarter of 2019. In the first quarter of 2020, approximately RMB0.6 million (US$0.09 million) was allocated to cost of revenue, RMB2.8 million (US$0.4 million) was allocated to selling expenses, RMB31.5 million (US$4.4 million) was allocated to general and administrative expenses, and RMB1.4 million (US$0.2 million) was allocated to research and development expenses.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA was negative RMB580.3 million (US$82.0 million), compared to negative RMB79.1 million in the quarter ended March 31, 2019. Adjusted EBITDA Margin was negative 10.6%, compared to negative 1.2% in the quarter ended March 31, 2019.

Adjusted EBITDA and Adjusted EBITDA Margin by Segment

The following table sets forth a breakdown of adjusted EBITDA and adjusted EBITDA margin for the three months ended March 31, 2020 by segment.

Core Logistics and Supply Chain - Adjusted EBITDA was negative RMB423.3 million (US$59.8 million), compared to RMB123.0 million in the quarter ended March 31, 2019. Adjusted EBITDA Margin was negative 8.7%, compared to 2.0% in the quarter ended March 31, 2019.

Store⁺ - Adjusted EBITDA was negative RMB77.7 million (US$11.0 million), compared to negative RMB74.5 million in the quarter ended March 31, 2019. Adjusted EBITDA Margin was negative 16.8% compared to negative 13.5% in the quarter ended March 31, 2019.

Global - Adjusted EBITDA was negative RMB64.4 million (US$9.1 million), compared to negative RMB22.4 million in the quarter ended March 31, 2019. Adjusted EBITDA Margin was negative 55.6% compared to negative 54.8% in the quarter ended March 31, 2019.  

Net Loss and Non-GAAP Net Loss

Net Loss in the quarter ended March 31, 2020 was RMB750.8 million (US$106.0 million), compared to Net Loss of RMB233.4 million in the same period of 2019. Excluding the impact of SBC expenses and amortization of intangible assets resulting from business acquisitions, non-GAAP Net Loss in the quarter ended March 31, 2020 was RMB712.1 million (US$100.6 million), compared to non-GAAP Net Loss of RMB208.4 million in the same quarter of 2019.

The following table sets forth a breakdown of non-GAAP net income/loss for the three months ended March 31, 2020 by segment.

Diluted EPS and non-GAAP diluted EPS

Diluted EPS in first quarter of 2020 was negative RMB1.91, based on a weighted average of 389.8 million diluted shares outstanding during the quarter. This compared to negative RMB0.60 on a weighted average of 387.6 million diluted shares outstanding in the same period of 2019. Excluding SBC expenses and amortization of intangible assets resulting from business acquisitions and fair value change of equity investment, non-GAAP diluted EPS in first quarter 2020 was negative RMB1.81, compared to negative RMB0.53 in the same period of 2020. A reconciliation of non-GAAP diluted EPS to diluted EPS is included at the end of this results announcement.

Cash and Cash Equivalents, Restricted Cash and Short-term Investments

As of March 31, 2020, cash and cash equivalents, restricted cash and short-term investments were RMB4,236.1 million (US$598.3 million), compared to RMB5,014.8 million as of December 31, 2019.

Net Cash Used in Operating Activities

Net cash used in operating activities was RMB1,293.5 million (US$182.7 million), compared to RMB205.6 million in the same period of 2019. The increase in net cash used in operating activities was mainly due to the increase in net loss of RMB517.4 million (US$73.1 million), which was mainly attributable to decreases in parcel and freight volume and extra costs due to prolonged work stoppages and travel restrictions as a result of the COVID-19 pandemic, as well as the increase from change in accounts and note payables of RMB681.6 million (US$96.3 million), partially offset by the decrease from change in accounts receivables and due from related parties in the aggregate amount of RMB97.7 million (US$13.8 million), both of which were primarily attributable to the temporary slow-down in core logistics and supply chain business caused by COVID 19 pandemic.  

Capital Expenditures ("CAPEX")

CAPEX was RMB345.9 million (US$48.9 million), or 6.3% of total revenue in the quarter ended March 31, 2020, compared to CAPEX of RMB206.2 million, or 3.0% of total revenue, in the same period of 2019. The increase in CAPEX was primarily due to planned upgrades of automation systems in major hubs, sortation centers, and Cloud OFCs, which included investments in high-speed automated sorting lines, dimension and weight scanning systems.

SHARES OUTSTANDING

As of the date of this press release, the Company had approximately 390.9 million ordinary shares outstanding⁽¹⁰⁾. Each American Depositary Share represents one Class A ordinary share.

FINANCIAL GUIDANCE

BEST continues to evaluate the impact of the COVID-19 pandemic and is therefore unable to provide full-year financial guidance for 2020 at this time. The Company is closely monitoring the situation and plans to provide more information during its second quarter 2020 earnings call based on the most current information it will have at that time.

WEBCAST AND CONFERENCE CALL INFORMATION

The Company will hold a conference call at 9:00pm U.S. Eastern Time on May 27, 2020 (9:00 am Beijing Time on May 28), to discuss its financial results and operating performance for the first quarter of 2020.

Participants may access the call by dialing the following numbers:

A replay of the conference call will be accessible through June 3, 2020 by dialing the following numbers:

Please visit the Company's investor relations website http://ir.best-inc.com/ on May 27, 2020 to view the earnings release prior to the conference call. A live and archived webcast of the conference call and a corporate presentation will be available at the same site.

ABOUT BEST INC.

BEST Inc. (NYSE: BEST) is a leading integrated smart supply chain solutions and logistics services provider in China. Through its proprietary technology platform and extensive networks, BEST offers a comprehensive set of logistics and value-add services, including express and freight delivery, supply chain management and last-mile services, truckload service brokerage, international logistics and financial services. BEST's mission is to empower business and enrich life by leveraging technology and business model innovation to create a smarter, more efficient supply chain. For more information, please visit: http://www.best-inc.com/en/.  

SAFE HARBOR STATEMENT

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the business outlook and quotations from management in this announcement, as well as BEST's strategic and operational plans, contain forward-looking statements. BEST may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the "SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about BEST's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: BEST's goals and strategies; BEST's future business development, results of operations and financial condition; BEST 's ability to maintain and enhance its ecosystem; BEST 's ability to continue to innovate, meet evolving market trends, adapt to changing customer demands and maintain its culture of innovation; fluctuations in general economic and business conditions in China and other countries in which BEST operates, and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in BEST's filings with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and BEST does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

USE OF NON-GAAP FINANCIAL MEASURES

In evaluating its business, BEST considers and uses non-GAAP measures, such as non-GAAP net loss/income, non-GAAP net loss/profit margin, adjusted EBITDA, adjusted EBITDA margin, EBITDA, adjusted selling expenses, adjusted general and administrative expenses, adjusted research and development expenses, and non-GAAP diluted EPS, as supplemental measures in the evaluation of the Company's operating results and in the Company's financial and operational decision-making. The Company believes these non-GAAP financial measures that help identify underlying trends in the Company's business that could otherwise be distorted by the effect of the expenses and gains that the Company includes in loss from operations and net loss. The Company believes that these non-GAAP financial measures provide useful information about its operating results, enhance the overall understanding of its past performance and future prospects and allow for greater visibility with respect to key metrics used by the Company's management in its financial and operational decision-making. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliations of Non-GAAP Measures to the Nearest Comparable GAAP Measures" in the results announcement.

The non-GAAP financial measures are provided as additional information to help investors compare business trends among different reporting periods on a consistent basis and to enhance investors' overall understanding of the Company's current financial performance and prospects for the future. These non-GAAP financial measures should be considered in addition to results prepared in accordance with U.S. GAAP, but should not be considered a substitute for, or superior to, U.S. GAAP results. In addition, the Company's calculation of the non-GAAP financial measures may be different from the calculation used by other companies, and therefore comparability may be limited.

RECONCILIATIONS OF NON-GAAP MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES

The table below sets forth a reconciliation of the Company's net loss to EBITDA, adjusted EBITDA and adjusted EBITDA margin for the periods indicated:

The table below sets forth a reconciliation of the Company's net loss to non-GAAP net loss/income, non-GAAP net loss margin for the periods indicated:

The table below sets forth a reconciliation of the Company's diluted EPS to non-GAAP diluted EPS for the periods indicated:

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