BEST Inc. Announces Unaudited Third Quarter 2017 Financial Results

HANGZHOU, China, Nov. 16, 2017 — BEST Inc. (NYSE: BSTI) (“BEST” or the “Company”), a leading Smart Supply Chain service provider in China, today announced its unaudited financial results for the quarter ended September 30, 2017.

“The rise of middle class, emergence of New Retail, and consumption upgrade in lower tier cities in China, together with increasing cross-border activities present huge market opportunities for us,” said Johnny Chou, BEST Inc.'s Chairman and Chief Executive Officer. “We are the only player with leading market positions across supply chain management, express and freight delivery, and last-mile services in China, and we have achieved the fastest growth among major players across multiple service lines, creating a significant competitive advantage. Going forward, we will continue to invest in people, technology and business innovation, and focus on executing our strategy to expand market shares, as well as enhance operational efficiency to achieve quality growth and create long term value for our shareholders and ecosystem.”

“We delivered a very strong September quarter. Total revenue increased by 133.9% year-over-year, led by robust growth in all segments,” said Alice Guo, BEST Inc.'s Chief Accounting Officer and Vice President of Finance. “We enjoyed significant margin expansion in this quarter, benefiting from economies of scale, continuous network optimization, increased operational efficiency and business synergies across our platform. Our gross profit margin improved by 7.6 percentage points YoY to 3.8%. Looking ahead, we aim to continue delivering solid top-line growth while improving our margins.”

THIRD QUARTER 2017 FINANCIAL HIGHLIGHTS

  • Total revenue was RMB5,354.4 million (US$804.8 million), an increase of 133.9% year-over-year (“YoY”).
    • Supply Chain Management Service revenue increased by 28.3% YoY to RMB386.2 million (US$58.1 million).
    • Express Service revenue increased by 147.6% YoY to RMB3,265.7 million (US$490.8 million).
    • Freight Service revenue increased by 100.0% YoY to RMB874.4 million (US$131.4 million).
    • Store+ Service revenue increased by 244.0% YoY to RMB767.9 million (US$115.4 million).
  • Gross profit was RMB201.7 million (US$30.3 million), or gross margin of 3.8%, compared to gross loss of RMB88.1 million, or gross margin of negative 3.8%, in the same period of 2016.
  • Net loss was RMB466.6 million (US$70.1 million), compared to RMB321.3 million in the same period of 2016.
  • Non-GAAP net loss (1) (2) was RMB183.8 million (US$27.6 million), compared to RMB321.3 million in the same period of 2016.
  • EBITDA (3) was negative RMB366.3 million (negative US$55.1 million), compared to negative RMB265.9 million in the same period of 2016.
  • Adjusted EBITDA (4) was negative RMB85.6 million (negative US$12.9 million), compared to negative RMB265.9 million in the same period of 2016.
  • Net cash generated from operating activities was RMB108.7 million (US$16.3 million), compared to net cash used in operating activities of RMB89.7 million in the same period of 2016.
  • Capital expenditures (“CAPEX”) was RMB175.6 million (US$26.4 million), or 3.3% of total revenue, compared to CAPEX of RMB128.9 million, or 5.6% of total revenue, in the same period of 2016.

THIRD QUARTER 2017 BUSINESS SEGMENT HIGHLIGHTS

BEST Supply Chain Management

  • The number of orders fulfilled by self-operated Cloud Order Fulfillment Centers (“OFCs”) increased by 55.0% YoY to 32.5 million and the number of orders fulfilled by franchised Cloud OFCs increased by 31.8% YoY to 10.5 million.
  • Opened five new self-operated Cloud OFCs and the number of franchised Cloud OFCs increased to 231 from 215 as of June 30, 2017.
  • Further strengthened partnership with Cainiao Smart Logistics Network Limited (“Cainiao”) and Alibaba Group Holding Limited (“Alibaba”); added over 180,000 square meters of OFC space to further enhance customer experience and to meet the rising demands for Singles' Day promotion in November.

BEST Express

  • Parcel volume increased by 92.6% YoY to 1,010.5 million, compared to a 28.4% industry-wide YoY growth (5). Express market share (6) increased to 10.0%, compared to 9.4% in the quarter ended June 30, 2017, and 6.7% in the quarter ended September 30, 2016.
  • The Company continued to optimize its express service network. Total number of hubs and sortation centers decreased to 153 from 181 as of June 30, 2017.
  • Driven by significant growth in parcel volume, network optimization, as well as increased operational efficiency resulting from proactive cost-control measures and continuous technology improvements and applications, cost of revenue per parcel, excluding the impact of service scope expansion(7), decreased 29.3% YoY. Gross profit per parcel was RMB0.13 (US$0.02), compared to gross loss per parcel of RMB0.08 in the same period of 2016.

BEST Freight

  • Freight volume increased by 44.7% YoY to 1,194 thousand tonnes.
  • Average revenue per tonne increased by 38.2% YoY due to a greater proportion of long-distance freight volumes in connection with the expansion of the Company's freight network, upward adjustments of service prices in various provinces and cities, and the expansion of the Company's service scope(7).
  • Similar to express service network, the Company continued to optimize its freight service network. Total number of hubs and sortation centers decreased to 133 from 143 as of June 30, 2017.

BEST Store+

  • The Company continued to expand its Store+ network. The number of membership stores increased by 97.5% YoY to 347,682, covering 50 cities in 24 provinces.
  • The number of store orders fulfilled increased by 155.2% YoY to 702,815.
  • The Company fully integrated WOWO after its acquisition in May 2017. WOWO's network and name recognition have further strengthened the Company's market position and accelerated its Store+ network expansion in Southwest China.

(1) Non-GAAP net loss represents net loss plus share-based compensation expense and amortization of intangible assets resulting
from business acquisitions. See the sections entitled “Use of Non-GAAP Financial Measures” and “Reconciliations of Non-GAAP
Measures to the Nearest Comparable GAAP Measures” for more information about the non-GAAP measures referred to within this
results announcement.

(2) In the third quarter of 2017, the Company recorded total share-based compensation expense of RMB280.7 million, of which RMB6.0
million was allocated to cost of revenue, RMB13.2 million was allocated to selling expenses, RMB237.2 million was allocated to
general and administrative expenses, and RMB24.3 million was allocated to research and development expenses.

(3) EBITDA represents net loss plus depreciation, amortization, interest expense and income tax expense and minus interest income.

(4) Adjusted EBITDA represents EBITDA plus share-based compensation expenses.

(5) Based on data published by State Post Bureau of the PRC:

                – For July 2017 data, see State Post Bureau of the PRC Published Post Industry Operation Statistics for July 2017, State
                  Post Bureau of the PRC, August 15, 2017, available in Chinese at
                 
http://www.spb.gov.cn/xw/dtxx_15079/201708/t20170814_1277166.html

                – For August 2017 data, see State Post Bureau of the PRC Published Post Industry Operation Statistics for August 2017,
                  State Post Bureau of the PRC, September 12, 2017, available in Chinese at
                 
http://www.spb.gov.cn/xw/dtxx_15079/201709/t20170912_1306570.html

                – For September 2017 data, see State Post Bureau of the PRC Published Post Industry Operation Statistics for September
                  2017, State Post Bureau of the PRC, October 17, 2017, available in Chinese at 
                
http://www.spb.gov.cn/xw/dtxx_15079/201710/t20171017_1375341.html

(6) Express market share calculated as the Company's parcel volume as a percentage of aggregate national express delivery parcel
volume for the relevant period, based on data published by State Post Bureau of the PRC.

(7) Starting in 2017, the Company revised its arrangements with franchisees and the scope of its service. As a result, the Company
became the principal that is directly responsible for last-mile delivery of all parcels and freight processed through its network, and the
Company is liable to senders for damage to or loss of parcels and freight in connection with last-mile delivery. Therefore, in
consideration of such expanded scope of services and increased responsibilities, the Company increased the fee it charges to pick-
up service stations and incurred additional cost of revenue that were attributable to fees for destination franchised service stations
that the Company engaged for the provision of last-mile delivery service.

KEY OPERATING METRICS OF MAJOR SERVICE LINES

Three Months Ended

% Change

Sept 30, 2016

Sept 30, 2017

YoY

BEST Supply Chain Management

Number of Orders Fulfilled by Self-operated
Cloud OFCs (in '000)(8)

20,991

32,537

55.0%

Number of orders Fulfilled by Franchised
Cloud OFCs (in '000) (8)

7,980

10,514

31.8%

BEST Express

Parcel Volume (in '000)(8)

524,800

1,010,512

92.6%

BEST Freight

Freight Volume (Tonnage in '000)(8)

825

1,194

44.7%

BEST Store+

Number of Store Orders Fulfilled

275,375

702,815

155.2%

(8) Includes services performed for external customers both directly and indirectly through our other segments.

SUMMARY FINANCIAL RESULTS

Three Months Ended

% Change

(RMB million, except for %)

Sept 30, 2016

Sept 30, 2017

YoY

Revenue

2,289

5,354

133.9%

    Supply Chain Management

301

386

28.3%

    Express

1,319

3,266

147.6%

    Freight

437

874

100.0%

    Store+

223

768

244.0%

    Others(9)

9

60

555.3%

Gross (Loss)/Profit

(88)

202

n/m

Gross (Loss)/Profit Margin

(3.8%)

3.8%

7.6ppts

    Supply Chain Management

         Gross (Loss)/Profit

24

29

19.3%

         Gross (Loss)/Profit Margin

8.0%

7.4%

(0.6ppts)

    Express

         Gross (Loss)/Profit

(39)

131

 n/m

         Gross (Loss)/Profit Margin

(3.0%)

4.0%

7.0ppts

    Freight

         Gross (Loss)/Profit

(65)

(44)

n/m

         Gross (Loss)/Profit Margin

(14.8%)

(5.0%)

9.8ppts

    Store+

         Gross (Loss)/Profit

(7)

65

n/m

         Gross (Loss)/Profit Margin

(3.3%)

8.4%

11.7ppts

    Others(10)

         Gross (Loss)/Profit

(1)

21

n/m

         Gross (Loss)/Profit Margin

(6.5%)

34.9%

41.3ppts

EBITDA

(266)

(366)

n/m

Adjusted EBITDA

(266)

(86)

n/m

Net Loss

(321)

(467)

n/m

Net Loss Margin

(14.0%)

(8.7%)

5.3ppts

Non-GAAP Net Loss

(321)

(184)

n/m

Non-GAAP Net Loss Margin

(14.0%)

(3.4%)

10.6ppts

(9) Others include BEST Global, BEST Capital and BEST UCargo. 

THIRD QUARTER 2017 FINANCIAL RESULTS

Total Revenue in the third quarter of 2017 increased by 133.9% to RMB5,354.4 million (US$804.8 million) from RMB2,289.4 million in the same period of 2016. The increase was primarily attributable to increases in revenue across the various service lines, as discussed below.

  • Supply Chain Management Service Revenue increased by 28.3% to RMB386.2 million (US$58.1 million) in the third quarter of 2017 from RMB301.0 million in the same period of 2016, primarily due to the increase in order fulfillment service revenue. Revenues from order fulfillment service increased by 33.0% to RMB278.7 million (US$41.9 million) in the third quarter of 2017 from RMB209.5 million in the same period of 2016. Such increase was primarily attributable to increasing business volume of existing customers and the addition of new customers.
  • Express Service Revenue increased by 147.6% to RMB3,265.7 million (US$490.8 million) in the third quarter of 2017 from RMB1,318.8 million in the same period of 2016. This increase in revenue was primarily due to the expansion of the Company's service scope to include last-mile delivery services starting in 2017 and a 92.6% YoY increase in parcel volume, as a result of greater demand for express delivery services and increase in the Company's market share. The average revenue per parcel in the third quarter of 2017 increased by 28.6% compared to the same period of 2016, primarily due to the Company's service scope expansion, partially offset by a decrease in average parcel weight.
  • Freight Service Revenue increased by 100.0% to RMB874.4 million (US$131.4 million) in the third quarter of 2017 from RMB437.2 million in the same period of 2016. This increase was the result of greater freight volume which increased by 44.7% and a 38.2% increase in average revenue per tonne, compared to the same period in 2016. The increase in average revenue per tonne was primarily due to a greater proportion of long-distance freight volumes in connection with the expansion of the Company's freight network, the expansion of the Company's service scope to include last-mile delivery services starting in 2017, and upward adjustments of the Company's service prices in various provinces and cities.
  • BEST Store+ Service Revenue increased by 244.0% to RMB767.9 million (US$115.4 million) in the third quarter of 2017 from RMB223.2 million in the same period of 2016, primarily due to an increase in the number of store orders fulfilled in connection with the rapid expansion of the Company's BEST Store+ network as well as the Company's acquisition of WOWO in May 2017. The number of store orders fulfilled increased by 155.2% compared to the same period of 2016. Revenue attributable to WOWO in the third quarter of 2017 was RMB162.7 million (US$24.5 million).
  • Other Service Revenues increased by 555.3% to RMB60.2 million (US$9.1 million) in the third quarter of 2017 from RMB9.2 million in the same period of 2016, primarily due to increased revenue generated from BEST Capital, BEST Global and BEST UCargo.

Total Cost of Revenue: The following tables set forth a breakdown of total cost of revenue and share-based compensation expense included in cost of revenue by business segment for the periods indicated. Before the completion of the Company's IPO in September 2017, no share-based compensation expense had been recognized. Upon completion of the IPO, the Company immediately recognized a substantial amount of share-based compensation expense associated with vested share-based awards.

I. Cost of Revenue by Business Segments 

Three Months Ended September 30,

2016

2017

(in '000, Except for %)

RMB

% of Revenue

RMB

US$

% of Revenue

Supply Chain Management

(277,037)

92.0%

(357,675)

(53,759)

92.6%

Express

(1,358,316)

103.0%

(3,134,376)

(471,101)

96.0%

Freight

(501,692)

114.8%

(918,121)

(137,995)

105.0%

Store+

(230,674)

103.3%

(703,311)

(105,709)

91.6%

Others

(9,783)

106.5%

(39,234)

(5,897)

65.1%

Total Cost of Revenue

(2,377,502)

103.8%

(5,152,717)

(774,461)

96.2%

II. Share-based Compensation Expense Included in Cost of Revenue by Business Segments

Three Months Ended September 30,

2016

2017

(in '000, Except for %)

RMB

% of Revenue

RMB

US$

% of Revenue

Supply Chain Management

NA

NA

(1,002)

(151)

0.3%

Express

NA

NA

(3,744)

(563)

0.1%

Freight

NA

NA

(251)

(38)

0.0%

Store+

NA

NA

NA

NA

NA

Others

NA

NA

(1,020)

(153)

0.1%

Total Share-Based
Compensation Expense
Included in Cost of Revenue

 

NA

 

NA

 

(6,017)

 

(904)

 

0.1%

Total Cost of Revenue increased by 116.7% to RMB5,152.7 million (US$774.5 million) in the third quarter of 2017 from RMB2,377.5 million in the same period of 2016. The increase was primarily attributable to increases in cost of revenue across various service lines, as discussed below. As a percentage of total revenue, cost of revenue decreased to 96.2% in the third quarter of 2017 from 103.8% in the same period of 2016.

  • Cost of Revenue for the Supply Chain Management Services increased by 29.1% to RMB357.7 million (US$53.8 million) in the third quarter of 2017 from RMB277.0 million in the same period of 2016. The increase was primarily due to a 55.0% YoY increase in the number of orders fulfilled by self-operated Cloud OFCs and the addition of new self-operated Cloud OFCs to 95 as of September 30, 2017 from 81 as of September 30, 2016, which resulted in additional lease, transportation and labor costs. Cost of Revenue as a Percentage of Revenue from Supply Chain Management Services increase to 92.6% in the third quarter of 2017 from 92.0% in the same period of 2016, primarily due to the ramp-up of certain self-operated Cloud OFCs and share-based compensation expense.
  • Cost of Revenue for Express Services increased by 130.8% to RMB3,134.4 million (US$471.1 million) in the third quarter of 2017 from RMB1,358.3 million in the same period of 2016. This increase was primarily attributable to an increase in parcel volume, which resulted in higher transportation and labor costs, as well as the expansion of the Company's service scope(10) to include last-mile delivery services starting in 2017. Such service scope expansion resulted in RMB1,282.8 million (US$192.8 million) of cost of revenue attributable to fees for franchisee partners operating the last-mile delivery service stations in the third quarter of 2017. Cost of Revenue as a Percentage of Revenue from Express Services decreased to 96.0% in the third quarter of 2017 from 103.0% in the same period of 2016, primarily due to economies of scale resulting from the significant increase in parcel volume, network optimization, as well as increased operational efficiency resulting from proactive cost-control measures and continuous technology improvements and applications. Cost of Revenue per Parcel for Express Services, excluding the impact of service scope expansion(10), decreased by 29.3% to RMB1.83 (US$0.27) in the third quarter of 2017 from RMB2.59 in the same period of 2016.
  • Cost of Revenue for Freight Services increased by 83.0% to RMB918.2 million (US$138.0 million) in the third quarter of 2017 from RMB501.7 million in the same period of 2016. This increase was primarily attributable to an increase in freight volume, resulting in greater transportation, labor and lease costs, and to a lesser extent, the expansion of the Company's service scope (10) to include last-mile delivery services starting in 2017. Such service scope expansion resulted in RMB145.1 million (US$21.8 million) of cost of revenue attributable to fees for franchisee partners operating the last-mile delivery service stations in the third quarter of 2017. Cost of Revenue as a Percentage of Revenue from Freight Services decreased to 105.0% in the third quarter of 2017 from 114.8% in the same period of 2016, primarily due to economies of scale resulting from the increase in freight volume, network optimization, as well as increased operational efficiency resulting from the proactive cost-control measures and continuous technology improvements and applications. Cost of Revenue per Tonne for Freight Services, excluding the impact of service scope expansion(10), increased by 6.4% to RMB647.2 (US$97.3) in the third quarter of 2017 from RMB608.1 in the same period of 2016.
  • Cost of Revenue for BEST Store+ Services increased by 204.9% to RMB703.3 million (US$105.7 million) in the third quarter of 2017 from RMB230.7 million in the same period of 2016, primarily due to the significant increase in the amount of merchandise sold to membership stores, and the RMB111.6 million (US$16.8 million) in the cost of revenue attributable to WOWO following its acquisition in May 2017. Cost of Revenue as a Percentage of Revenue from BEST Store+ Services decreased to 91.6% in the third quarter of 2017 from 103.3% in the same period of 2016, primarily due to a reduction in average procurement cost driven by the significant increase in merchandise sales to membership stores, as well as direct sales to consumers following the acquisition of WOWO in May 2017.
  • Cost of Revenue for Other Services increased by 301.0% to RMB39.2 million (US$5.9 million) in the third quarter of 2017 from RMB9.8 million in the same period of 2016 in connection with business growth from BEST Capital, BEST Global and BEST UCargo.

Gross Profit was RMB201.7 million (US$30.3 million), compared to gross loss of RMB88.1 million in the same period of 2016. Gross Profit Margin improved to 3.8% from negative 3.8% in the same period of 2016.

Total Operating Expenses: The following tables set forth a breakdown of the Company's total operating expenses and share-based compensation expense included in operating expenses by category for the periods indicated.

(10) Starting in 2017, the Company revised its arrangements with franchisees and the scope of its service. As a result, the Company became the principal that is directly responsible for last-mile delivery of all parcels and freight processed through its network, and the Company is liable to senders for damage to or loss of parcels and freight in connection with last-mile delivery. Therefore, in consideration of such expanded scope of services and increased responsibilities, the Company increased the fee it charges to pick-up service stations and incurred additional cost of revenue that were attributable to fees for destination franchised service stations that the Company engaged for the provision of last-mile delivery service.

I. Operating Expenses by Category 

Three Months Ended September 30,

2016

2017

(in '000, Except for %)

RMB

% of Revenue

RMB

US$

% of Revenue

Selling Expenses

112,428

4.9%

213,547

32,096

4.0%

General and
Administrative Expenses

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About the Author: Carrie Brunner

Carrie Brunner grew up in a small town in northern New Brunswick. She studied chemistry in college, graduated, and married her husband one month later. They were then blessed with two baby boys within the first four years of marriage. Having babies gave their family a desire to return to the old paths – to nourish their family with traditional, homegrown foods; rid their home of toxic chemicals and petroleum products; and give their boys a chance to know a simple, sustainable way of life. They are currently building a homestead from scratch on two little acres in central Texas. There’s a lot to be done to become somewhat self-sufficient, but they are debt-free and get to spend their days living this simple, good life together with their five young children. Carrie writes mostly on provincial stories.
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