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Edited Transcript of BEST.N earnings conference call or presentation 13-Aug-19 11:30am GMT

Q2 2019 BEST Inc Earnings Call

Aug 20, 2019 (Thomson StreetEvents) -- Edited Transcript of BEST Inc earnings conference call or presentation Tuesday, August 13, 2019 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Shao-Ning Chou

BEST Inc. - Chairman & CEO

* Xiaojie Pan

BEST Inc. - Principal Accounting Officer, Financial Controller & Director of Finance

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Conference Call Participants

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* Baoying Zhai

Citigroup Inc, Research Division - VP & Head of the Hong Kong and China Transport

* David Griffith Ross

Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics

* Eric Zong

Macquarie Research - Senior Associates Analyst

* Scott Andrew Schneeberger

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

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Presentation

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Operator [1]

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Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to BEST Inc.'s Second Quarter 2019 Earnings Conference Call. (Operator Instructions)

With us today are Johnny Chou, BEST Inc.'s Chairman and CEO; and Jenny Pan, Principal Accounting Officer. For today's agenda, Johnny will give a brief overview of business and operational highlights. Then Jenny will explain the details of financial results. Following the prepared remarks, you may ask your questions.

Please note this conference is being recorded. Please also note this call is 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 statement 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 Inc.'s earnings press release.

Finally, please note that unless otherwise stated all 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 Inc. Johnny, please go ahead.

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Shao-Ning Chou, BEST Inc. - Chairman & CEO [2]

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Thank you, operator. Good morning and good evening, everyone. Welcome, and thank you for joining our 2019 second quarter earnings call. BEST integrated supply chain and logistics networks continue to execute its strategy and deliver strong results despite competitive market dynamics and ongoing industry consolidation. I'm pleased to report we achieved positive non-GAAP net income first time in the second quarter. Our core segments of Express, Freight and Supply Chain management continue to gain market shares, reduce costs and improve operating efficiency, while our Store+ segment continued to optimize its operation to reduce losses. UCargo and Global delivered tremendous growth and are contributing to future growth of the company.

The overall macro environment validates our business strategies in a long-term, forward-looking approach. In the second quarter of 2019, we continue to see accelerating demand for supply chain solutions and logistics services and further industry consolidation. They are driven by, one, growth in domestic consumption; increase in disposable income and consumer spending in low-tier cities; further online penetration of larger consumer goods, such as furnitures and home appliances; intensified competition; technology adoption to support the digital economy; growth in cross-border commerce; and economic expansion in Southeast Asia; favorable government policies supporting the logistics industry. BEST technology-enabled integrated service platforms and strong execution capability position us well to capitalize on these vast opportunities and succeed in a competitive market environment.

Now let me share some business highlights with you. BEST Express continued to benefit from strong industry volume growth. For the quarter, it gained market shares by achieving above-market growth while reduced the costs and expenses significantly.

Parcel volume exceeded RMB 1.9 billion, an increase of 49% year-over-year, which is 1.72x of industry-wide growth. Market share increased to 12.2% from 10.5% in the same period of 2018. Due to the intense competition in the second quarter, ASP, including last-mile fees, decreased by 12.5% year-over-year. The decrease in ASP was offset by decreasing costs and operating expenses as we continue to optimize Express network and invest in technology to improve operating efficiency. Cost per parcel decreased by 11.6% year-over-year highlighted by significant improvement in transportation and the labor costs. Although gross profit per parcel decreased by 1 percentage points year-over-year, EBIT per parcel was not impacted due to a significant operating leverage and the proactive expense management. We do expect the pricing pressure to ease in the second half as we're approaching to peak season.

BEST Freight, our leading nationwide less-than-truckload platform, continued to expand its last-mile coverage footprint. The total number of franchisee-operated service stations increased by 55% year-over-year to over 17,000 from 11,000 in the same period of 2018. The expanded last-mile service coverage positions us well to serve increased demand for e-commerce and to see very large item transactions. For the quarter, freight volume exceeded 1.73 million tonnes, an increase of 26.6% year-over-year, significantly higher than industry average. Gross profit margin increased by 1.2 percentage points year-over-year to 6.4%, as we will continue to optimize the network, improve operating efficiencies to drive down cost.

For BEST Supply Chain Management, our strategy to focus on FMCG and the fashion apparel segment, is paying dividends as we continued adding new customers while growing franchise Cloud OFC businesses. The total number of orders fulfilled increased by 42% year-on-year to 86.7 million of which the total number of orders fulfilled by franchise Cloud OFCs increased by 79% to over 36 million. As of June 30, total GFAs of Cloud OFCs increased by 7 -- 19% year-over-year to 2.84 million square meters of which over 1.2 million square meters were operated by franchisees.

Gross profit margin improved by 1.1 percentage points to [aid our business] by growing the number of higher-quality franchise-backed labor stores while improving order qualities of membership stores. As a result, total number of all orders fulfilled decreased by about 13.2%, while revenue decreased by 1%, while gross profit margin improved by 2.5 percentage points year-over-year to 10.5%. EBITDA losses also reduced by RMB 15 million compared to the same period of 2018. Total number of branded stores, including franchise and self-operated stores, increased by over 315% year-over-year to over 3,100 as of June 30 of which the number of franchise BEST-Neighbor stores increased to 2,751 from 476 in the same period of last year.

Number of orders fulfilled for branded stores exceeded 214,000, accounting for almost 20% of total number of orders fulfilled. This represents a 13 percentage point increase from the same period last year. We are in the midst of conducting a strategic review of the Store+ business to fine-tune its model. We'll tell you more about it as we restructure the business.

UCargo, our truckload solid brokerage platform, continued to grow rapidly. The number of external transactions on the UCargo platform increased by 266,000 -- 266% year-over-year to over 94,000. The number of registered agents on the UCargo platform increased over 22% year-over-year to over 4,800, and the number of registered trucks increased by about 33% year-over-year to nearly 295,000 as of June 30.

In the second quarter, revenue generated from external customers increased significantly to RMB 521.8 million, which accounted for 5.9% of our total revenue. We are confident that with our leading technology infrastructure, transaction, transportation, operations expertise and favorable (inaudible), UCargo platform is well positioned to capture the enormous opportunities in China's truckload market and become the leader of the industry.

BEST Global continue to expand its cross-border largest businesses, enduring its presence in Southeast Asia. As of June 30, BEST Global sold in 18 countries and regions outside of Mainland China. We continue to grow operations in Southeast Asia.

Our Thailand Express and fulfillment business is growing rapidly, and we are ready to launch Vietnam nationwide Express services. We will continue to look for opportunities to invest and expand our services and networks in Southeast Asia.

Best Capital continues to provide financial solutions to our ecosystem participants and to contribute to improved overall operating efficiencies in our network. Overall, we delivered excellent results in this quarter. Looking ahead, we are focused on executing our strategy of solid revenue growth, market share gain, cost structure improvements, quality of services, profitability and investing in the future. I'm more confident than ever that our technology-enabled integrated supply chain and logistics platform is the right formula for long-term success.

With that, I will turn it over to Jenny, our Principal Accounting Officer. Jenny, go ahead.

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Xiaojie Pan, BEST Inc. - Principal Accounting Officer, Financial Controller & Director of Finance [3]

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Thank you, Johnny. Hello, everyone. We had a strong second quarter. Company's revenue was RMB 8.8 billion, representing a year-over-year increase of 31%. Revenue, excluding stock of business, increased by 35 year-over-year, which led to continued strong growth momentum of our core business. We also see solid bottom line improvements in this quarter. We recorded positive non-GAAP net income of RMB 6.5 million compared to a net loss of RMB 56 million for the same period of last year. Non-GAAP net income, excluding Store+ business, was RMB 107 million. Adjusted EBITDA was RMB 148 million, a (inaudible) 256% year-over-year. Adjusted EBITDA, excluding Store+ business, was RMB 247 million. Non-GAAP net loss for Store+ business was RMB 125 million. The company also recorded positive operating cash flow of RMB 334 million for the quarter and positive operating cash flow of RMB 128.7 million for the first 6 months of 2019 compared to net RMB 178.1 million for the same period of last year. Reconciliation of the non-GAAP measures to comparable GAAP measures and the relevant adjustments can be found in our earnings press release.

Now I would like to discuss key financial highlights during this quarter. On a year-to-year basis, Express revenue increased by 30% to RMB 5.4 billion primarily due to a 49% increase in parcel volumes. As Johnny mentioned, the decrease in ASP was largely offset by a decrease in cost and operating expenses as we continue to optimize network and invest in technology applications to improve operating efficiency. Revenue per parcel decreased by 12.5% to RMB 2.86 per parcel. Cost per parcel decreased by 11.6% to RMB 2.73 per parcel of which transportation costs decreased by 17.7% year-over-year to RMB 0.71 per parcel. Labor costs decreased by 31.5% to RMB 0.23 per parcel. Lease costs decreased by 15% to RMB 0.09 per parcel. Other costs decreased by 32.2 -- 25.2% to RMB 0.14 per parcel. Last-mile delivery cost only decreased by 2.1% to RMB 1.55 per parcel in order to maintain service [content] and network stability.

Gross profit increased to RMB 244 million, representing an increase of 6.7% year-over-year.

Freight revenue increased by 27% year-over-year to RMB 1.3 billion primarily due to a 26.6% increase in freight volume. Unit economics continue to improve driven by economics of skill, network planning and product optimization.

Revenue per tonne increased by 0.2% year-over-year to RMB 755 per tonne, while cost per tonne decreased by 1.1% to RMB 706.5 per tonne of which transportation costs decreased by 8% to RMB 351, labor costs decreased by 7% to RMB 94, lease costs increased by 1.5% to RMB 55 and other costs increased by 10% to RMB 45.

Gross profit margin was 6.4%, representing an increase of 1.2 percentage points compared to the same period of last year. Gross profit increased by 55% year-over-year to RMB 83 million for the quarter.

Supply Chain Management revenue increased by 20% year-over-year to RMB 599 million primarily due to a 40% increase in order fulfilled by our Cloud OFCs. Gross profit margin increased by 1 percentage point year-over-year to 8 point (inaudible). And gross profit increased by 36% year-over-year to RMB 52 million.

Store+ revenue decreased 1% year-over-year to RMB 791 million. Revenue slowdown is due to a decrease in total number of orders fulfilled for membership stores from our ongoing efforts to improve order quantity. Gross profit increased to RMB 83 million from RMB 64 million year-over-year, while gross profit margin improved by 2.5 percentage points year-over-year to 10.5%.

Our other service line, BEST UCargo, BEST Capital and the BEST Global, continued their strong growth momentum and are becoming important contributors. Revenue from those service lines increased significantly by 183% year-over-year to RMB 647 million primarily due to the lesser growth of UCargo platform.

Revenue generated from [terminal] customers on the UCargo platform increased significantly to RMB 132 million. Gross profit from other service lines increased by 74% year-over-year to RMB 57 million. [Of] the major operating expense items are excluding share-based compensation expense compared to the same period of 2018. Selling expense as a percentage of revenue decreased by 0.6 percentage points to 2.4%. General and administrative expense as a percentage of revenue decreased by 0.4 percentage points to 3.2%. Research and development expenses as a percentage of revenue remained flat. Excluding Store+ business, the selling, general and administrative expense plus R&D expense are excluding share-based compensation expense as well -- the percentage of revenue of -- excluding Store+ revenue was at 4.6%.

Net cash generated from operating activities was RMB 334 million compared to RMB 432 million in the same quarter of 2018. The decrease was due to the seasonal cash flow cycle, which was offset over the 6-month period. Net cash generated from operating activities for the first 6 months in 2019 was RMB 128.7 million compared to negative RMB 178.1 million for the same period in 2018, an improvement of RMB 306.8 million.

Cash and cash equivalents, restricted cash and short-term investments in total were RMB 4 billion as of June 30, 2019, compared to RMB 3.9 billion as of March 31, 2019.

CapEx in the second quarter was RMB 380.9 million, USD 55.5 million, or 4.3% of total revenue compared to RMB 230.3 million or 3.4% of total revenue in the same period of 2018. The increase in CapEx was primarily due to the upgrade of automation system in major hubs and in location centers.

Now let's revisit our 2019 financial outlook. Based on current market conditions and operations, we maintain our full year 2019 revenue guidance to be in the range of RMB 36.5 billion to RMB 37.2 billion. This represents the management current and our previously expectation, which is subject to change.

With that, we will now open the call to Q&A. Thank you. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Today's first question comes from Scott Schneeberger of Oppenheimer.

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Scott Andrew Schneeberger, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [2]

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I guess if we could just start out in the Express segment, please. Could you address revenue per parcel going forward? Johnny, what you expect in the back half of the year? And then obviously, correspondingly, how you're going to be managing your expenses to offset?

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Shao-Ning Chou, BEST Inc. - Chairman & CEO [3]

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Okay. Scott, thank you for the questions. Looking forward, we are at -- somewhat at ease of the ASP pressure. So our expectation of Q3, ASP should be relatively stable as compared with Q2, so probably a slight RMB 0.01 or RMB 0.02 increase. Q4 in general will have a more upwards tick for ASP as to running through a high season -- a peak season. So that's what we are managing. Costs continue to coming down. And actually, we did a great job and [doing] a great job in the first half of the year. Actually, the overall cost has been significantly cut down. If you look at the cost less of last mile, it is actually down 22%. But we can continue to see I think on the third quarter and fourth quarter some of cost reduction there.

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Scott Andrew Schneeberger, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [4]

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Excellent. And then switching up a little bit. I was curious if you could elaborate, please, on your mention of a strategic review of BEST Store?

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Shao-Ning Chou, BEST Inc. - Chairman & CEO [5]

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Right. So, yes. So our purpose of mission for doing a Store+ is really we feel that in a digital economy the last mile becoming more and more important. And it's very inefficient. It's very wasteful and low efficient. So we thought that with the technology and with the Supply Chain solutions we are able to make it more efficient, so save the cost environmentally and everything else and make a consumer a good experience of that experience, et cetera. But it will take some time to continue to grow. So we look at the strategy as to how the next -- we continue -- everyone continue to do this, but is that going to be -- was that -- in a different way to do it such as maybe a separate business or everything else and still on the table. So we're looking at this as a -- basically as options, and we're doing a review on that. But certainly, when we have a decision and approval by the board, then we will more of a -- allowed to let the investors know this. So we're looking at doing -- constructively looking at all the business models and see how can we improve better.

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Operator [6]

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And our next question today comes from Baoying Zhai of Citi.

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Baoying Zhai, Citigroup Inc, Research Division - VP & Head of the Hong Kong and China Transport [7]

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Johnny, I have 3 questions. The first question is still regarding the Express ASP. Actually, the second quarter we are seeing great pressure on the Express ASP. And you mentioned third quarter is relatively stable and with the RMB 0.01 to RMB 0.02 increase versus the second quarter, which means it's about RMB 1.32 to RMB 1.31, right? And this actually equivalent to 17% year-on-year decrease versus the 2 [last for the quarter]. But the decline magnitude actually should it be narrowing than the second quarter? I just want to confirm if my understanding is correct here.

And on separate note, actually, we see you made a successful price hike in July and August. What -- actually, what's the implication here? Will it help our ASP in third quarter? And/or we can see if the savings from the new price hike will be actually used to other regions, so make the ASP decline is still significant but should be better than second quarter. This is the first question regarding the Express ASP.

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Shao-Ning Chou, BEST Inc. - Chairman & CEO [8]

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Okay. So this -- the first question is very similar to the last one from Scott. Yes. So the third quarter, we think the ASP -- and right now, it's at about -- second quarter is about RMB 1.3 -- RMB 1.31, so I think there's going to be relatively stable for the quarter. Maybe have a little bit of uptick, but it's similar.

With EU, yes. You are very informed that actually, the pricing has been eased -- the pricing pressure has been eased. And I think -- I have a very good sense is that as the peak season coming very soon. So I think everybody is actually eased on the pressure. As to this gain is going to be used somewhere else or not, it depends on the market how. We do not have any plan or any -- for now.

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Baoying Zhai, Citigroup Inc, Research Division - VP & Head of the Hong Kong and China Transport [9]

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Okay. So do you think the EU ASP have is actually kind of hold a while for WOWO? Or do you think it's just temporary?

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Shao-Ning Chou, BEST Inc. - Chairman & CEO [10]

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Hopefully, as the peak season -- arriving of the peak season, typically July and August, early August, just a couple of weeks, is the lowest for every year, the potential here. Later part of this month, it start to picking up the -- the orders going to be picking up a little bit. So I -- hopefully that this going to stay for the remaining period of the year.

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Baoying Zhai, Citigroup Inc, Research Division - VP & Head of the Hong Kong and China Transport [11]

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It should be third quarter, right...

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Shao-Ning Chou, BEST Inc. - Chairman & CEO [12]

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But then again, it's just an outlook. No guarantee for that, right.

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Baoying Zhai, Citigroup Inc, Research Division - VP & Head of the Hong Kong and China Transport [13]

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Okay. Yes. Understood. And my second question is on the Freight. Actually, Freight is doing very well. ASP increased and market share increased [was] ultimate for the Freight business. And is the successful Freight experience could be used for our Express?

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Shao-Ning Chou, BEST Inc. - Chairman & CEO [14]

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Yes. So Freight, we are enjoying a very good strong growth as well as top line and bottom line. So margin continue to improve, costs continue going down. So we're really having a good run on the Freight side. That's partially because we have done Freight (inaudible) somewhat time earlier than the -- some of our other players, unlike Express. So Express we're getting to the market somewhat late. So we're actually doing a catch-up game. We -- I remember when time we getting to this -- when we started doing Express business, our volumes about 1/10. Our competitors at 10x, so 20x bigger than our volume. Our market share was less than 1% in -- back to the -- 2010 when we start this. But after that 9 years, we're doing a catch-up game, right? Every quarter, we've been doing catch-up. So now we're very close. So at least not 10x, but maybe a couple of 20, 30, 40 percentage points to the top. But on the Freight side, it is a completely different story, right, because we're always in a fairly good leading position. So, yes. So we can learn from the Freight is that how managing the Freight network. Actually, the 2 networks are very similar except one is larger parcels and larger merchandise, and the other is just small parcel. Yes. So that's what I going to say. I think Freight is doing well, and we're enjoying the early move, the investment did earlier, and we kind of enjoy it for Freight. Express, we're was doing a really big catch-up from (inaudible).

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Baoying Zhai, Citigroup Inc, Research Division - VP & Head of the Hong Kong and China Transport [15]

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So what's the outlook for Freight -- but what's the outlook for Freight here because Freight is also has some very intensive competition right now, right? So -- but we still managed to increase our ASP as well as our max shares. So what's the outlook here?

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Shao-Ning Chou, BEST Inc. - Chairman & CEO [16]

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Yes. So Freight I think -- Freight unlike -- the Freight business is unlike Express, right? Express is a small parcel. So when the volume goes up, you can increase the automation and a lot of equipments to automate it, and you can really handle a huge amount of orders. The Freight side is more of -- still a more traditional man-handling because of the heavier, use forklift and stuff like that. Though we are -- right now, we are doing automation on some of these sort of things as to see how we can help Freight to improve the operation efficiency and lower the cost. But Freight and other assets that compete is still different -- in the operation side different from the Express side. So going forward, I think we're still going to gain the market share in the Freight side, and costs still going to be gradually coming down. And the profitability that we think is going to continue to improve sooner quarter-by-quarter.

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Baoying Zhai, Citigroup Inc, Research Division - VP & Head of the Hong Kong and China Transport [17]

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Okay. And my last question is regarding the Alibaba's potential controlling over IPO. What do you think -- what's the implications to the industry competition and [the scale]? As we all know, when Alibaba -- actually among them, Alibaba has the highest shareholding in that. So we'll back to further cooperate with Alibaba going forward? And especially in terms of the Store+ refinancing, it is on the way there already -- on schedule already?

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Shao-Ning Chou, BEST Inc. - Chairman & CEO [18]

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Yes, yes. As being announced in the media, yes, Alibaba is putting more investment into the IPO. Everyone knows about that. I would think that competitive -- in a competitive landscape, as Alibaba invests in (inaudible), in FTO and YTO and CTO as well, I think the competitive landscape is not going to be changing drastically, continue to going to be able to -- every company is going to do their best to improve the efficiency and the service quality.

So as for Store+, as I had mentioned earlier to Scott, that we are looking at all of possibility to how to continue to bring the value to the last mile and meanwhile also reduce the losses to the group. And hopefully, we'll -- if you look at all our group, right now, the Store+ is the biggest drive into our performance. So we are doing some research -- operational review on that.

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Operator [19]

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(Operator Instructions) Today's next question comes from David Ross of Stifel.

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David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics [20]

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First question is just on I guess the competition over there. You talked about expanding into other markets, that Thailand is going well and into Vietnam. As you expand into those other markets, are you finding less competition than in China? Or is there a significant competition you have to compete against once you arrive in a new territory?

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Shao-Ning Chou, BEST Inc. - Chairman & CEO [21]

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Actually, in the new territory, of course, there's less competition because there is not a very entrenched market leader in the market yet. And still the markets still -- demand is growing very rapidly. And the need for infrastructure and the service capability is [all need] there. So it remind me like 10 years ago China when this all get started. Yes. So the question is we see a tremendous growth opportunity but yet lack a competitive landscape compared with China.

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David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics [22]

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And then we've talked in the past about labor issues, finding enough people for Express and for Freight in China. What's the update on the labor situation over there?

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Shao-Ning Chou, BEST Inc. - Chairman & CEO [23]

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Our labor situation is for that we are pretty good. We are not shortage of any (inaudible) of any workers both Express and Freight. And part of the reason is because consolidation in the industry that smaller players are getting out of the market. So -- and the -- and second is because the improvement of efficiency by very large investment in automation and technology, et cetera. So actually, we have less people now in Express. Freight probably still not much more than what it was had in the fourth quarter last year. So we are actually not seeing this issue where -- we are not seeing a labor label pressure or anything.

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David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics [24]

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That's good. And then last question is just on inventories, whether it's what you're seeing is the supply chain or in talks with customers, what are they saying about current inventories levels right now? Are they too low, too high, just about right?

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Shao-Ning Chou, BEST Inc. - Chairman & CEO [25]

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In inventory, I don't have exact customers or inventory, but we do manage the warehouses. So I think the movement -- percentage of movement is somewhat slower. Quarter order movement in and out is somewhat slow. I'm talking about per customer basis. So basically, we getting a lot of new customers, but existing customers somewhat are slower movement. That means you can't consider that as a inventory level higher.

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Operator [26]

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And our next question today comes from Eric Zong of Macquarie.

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Eric Zong, Macquarie Research - Senior Associates Analyst [27]

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So I have one question, which is on the bottom line, right? So if we include the Store+ contribution in the second quarter, the ex-store plus non-GAAP net profit are more than double, right? So I'm just wondering -- so I think, I guess, this is driven by a lower loss contribution from the headquarter. So I just wonder, so what's the reason behind such bigger change? And can this improvement sustain into the second half of 2019?

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Shao-Ning Chou, BEST Inc. - Chairman & CEO [28]

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Okay. So you're talking about Store+, the group ex-Store+. So the EBITDA has increased dramatically. That mainly reason is because one is operating scale, right? Because even though our margin is somewhat a little bit lower, on the -- about 0.3% lower. But scale is larger, so you actually have more gross profit. The second is that our operating expenses and G&A actually as a percentage of the sales actually goes down as well. So that contributes significantly to the ex-Store+ business profitability. I don't know, Eric, is that your question? Or I misunderstood your questions?

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Eric Zong, Macquarie Research - Senior Associates Analyst [29]

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So yes, I just have one more follow-up question. So on the G&A costs, you mentioned ratio drop, right? So I just want wonder if that trend is consistent maybe in the third quarter or fourth quarter of the year?

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Shao-Ning Chou, BEST Inc. - Chairman & CEO [30]

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Oh. So you're talking about -- I maybe misunderstood you a bit. You're talking about what? The...

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Eric Zong, Macquarie Research - Senior Associates Analyst [31]

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Yes. So in your guidance maybe your expectation?

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Shao-Ning Chou, BEST Inc. - Chairman & CEO [32]

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To allocate it, right?

Well

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Xiaojie Pan, BEST Inc. - Principal Accounting Officer, Financial Controller & Director of Finance [33]

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(inaudible).

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Shao-Ning Chou, BEST Inc. - Chairman & CEO [34]

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Yes, that's what I said. So basically, we are -- basically we are breaking out the Store+ reporting is mainly have people -- investors and market can clear to see what is really the impact on that. So we basically took the -- and if it can be -- allocated expenses be allocated to a business group and something like myself or the headquarter, and so there. So what you have allocated was reduced and also operating efficiency improved. So the ex-Store+ margin actually improved in the -- so that's why we reported a adjusted EBITDA ex-Store+ of about RMB 289 million, so -- which is significant improvement from the last year.

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Operator [35]

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And thank you ladies and gentlemen. This concludes your question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

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Shao-Ning Chou, BEST Inc. - Chairman & CEO [36]

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So, okay. Thank you for joining our call. And 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 to you soon. Thank you very much.

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Operator [37]

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And thank you. Today's conference has now concluded. And we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.