BEST Inc.
Q3 2018 Earnings Call Transcript

Published: 9 Nov 2018

[Operator:]

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to BEST Inc.'s Third Quarter 2018 Earnings Conference Call. [Operator Instructions]. This conference call is being recorded. I would now like to turn the call over to Mr. George Chow, Chief Strategy and Investment Officer of BEST Inc. George, please go ahead.

[George Chow:]

Thank you, Operator. Hello, everyone, and welcome to BEST Inc.'s Third Quarter 2018 Earnings Conference Call. With us today are Johnny Chou, our Chairman and CEO; and Alice Guo, our Chief Accounting Officer and Senior Vice President of Finance. For today's agenda, Johnny will give a brief overview of our business and operational highlights. Then Alice will explain the details of our financial results. Following the prepared remarks, you may ask your questions. Please note this call is also being webcasted with an investor presentation on our IR website at ir.best-inc.com. A replay of this call will be available on our IR website later today. Now let me quickly remind you of our safe harbor statement. 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 we'll use on this call are expressed on a non-GAAP basis, such as EBITDA, adjusted EBITDA and non-GAAP net loss. Our GAAP results and a reconciliation of GAAP to non-GAAP measures can be found in our earnings press release. Finally, please note that unless otherwise stated, all the figures mentioned in this conference call are in RMB. Now I would like to turn the call over to Johnny Chou, Chairman and CEO of our company. Johnny, please go ahead.

[Johnny Chou:]

Thanks, George. Hello, everyone, and thank you all for joining our 2018 third quarter earnings call today. We continued to experience strong growth in the quarter, which, combined with our focus on execution, delivered strong results. BEST continues to benefit greatly from demand for our integrated supply chain services and solutions. As a result, e-commerce and New Retail growth and a further industry consolidation. During the third quarter, we continued to focus on our strategic priorities, including improving service quality, driving further operating efficiencies and synergies across our businesses, as well as expanding the depth and the breadth of our services offerings to deliver quality growth. As a result of that sharp focus and execution, our total revenue reached RMB7.2 billion, an increase of 34% year-over-year; gross profit was RMB390 million, an increase of 93% year-over-year; gross profit margin improved 1.6 percentage points to 5.4% year-on-year. We continued to - we achieved positive EBITDA for a second consecutive quarter. EBITDA was RMB55 million and adjusted EBITDA was RMB1 million. Now let me discuss more - some of our business highlights. As discussed in the previous earnings call, our strategic priority for BEST Express in 2018 are to further improve operating efficiency, enhance service quality and gain market share. We believe our advantages in service quality, seamless integration and a sharp execution allow us to achieve long-term growth strategy and remain above the highly competitive environment. Our results reflect successful execution of our strategy. In the quarter, parcel volume increased by 36% year-on-year, approximately 1.4x of industry-wide growth rate of 26%. Our market share increased to 10.8% from 10% in the same period of 2017. Leveraging the critical scale and network coverage BEST Express had achieved, we continued to improve operating efficiency through network optimization and technology application. Total number of hubs and sortation centers were reduced by 24% year-on-year to 117. We added eight high-speed automated sorting lines and 226 dimension and weight scanning systems in this quarter. Digital waybill usage increased up to 99%. As a result, gross profit per parcel increased by 22% year-on-year to RMB0.16. BEST Freight continued to deliver outstanding performance in the third quarter. Freight volume grew by 24% year-on-year, significantly higher than industry-wide growth. Similar to BEST Express, as volume grows, we continue to optimize our freight network, increase operating efficiency and reduce cost. The total number of hubs and sortation centers were reduced by 10% year-on-year to 120. As a result, gross profit margin increased significantly by 9.6 percentage points year-on-year from negative 5% to a positive 4.6%. To enhance end user experience, we expanded a large amount of service coverage extensively, increasing the total number of franchised last-mile service stations by 54% year-on-year to nearly 12,000 from over 7,000. Going forward, we are confident that economics of scale, network optimization, customer service focus as well as increasing demand from e-commerce and our New Retail-related transactions will continue to drive BEST Freight growth and margin expansion. BEST Supply Chain Management continued to win new customers and grew its franchised Cloud OFC business. In the third quarter, we added 49 new corporate customers. The total number of orders fulfilled by Cloud OFCs increased 31% year-over-year to 57 million, of which the number of orders fulfilled by franchised cloud OFCs increased significantly by 81% year-on-year to 19 million. Gross margin was reduced by 3.4 percentage points primarily due to the ramp-up from certain units under larger projects and additional costs associated with temporary resources prepared for 4Q promotion period. Leveraging our core competencies in B2B2C, Supply Chain Management and technology application, we continued to invest in and grow BEST Store+ platform. The total number of store orders fulfilled increased by 17% year-over-year to 935,000. We continued to expand footprint of membership stores. The number of membership stores reached 415,000, representing a year-over-year increase of 19%. As mentioned in our previous earnings call, our strategy this year is to focus on growing the scales of branded stores, accelerating its integration with the BEST Express, BEST Supply Chain and BEST Cloud with a goal of building out last-mile service networks and reaching more end consumers to offer more services. As of September 30, total number of brand-new stores reached over 1,300, representing a year-over-year increase of 258%. In keeping with our strategic focus on long-term efficiency, weed continue to deepen engagement with those stores to optimize merchandise selection and product offerings to minimize losses, which also resulted in slower top line growth. Store+ development has reached a key stage as it has achieved a critical scale, which allow us to invest and move forward on to the next phase of building the last-mile B2C platform and services. We are very excited with this business and are in the process of evolving business and launching new product and service, which I will share with you as they develop. Other service revenue increased almost fivefold in the third quarter to RMB361 million, primarily driven by significant growth of UCargo. In the third quarter, revenue generated from external customers on UCargo platform increased significantly to RMB257 million. The total number of transactions increased threefold year-over-year to over 135,000. As of September 30, 2018, the number of registered sales agents increased 69% year-over-year to over 4,200 and the number of registered trucks increased 61% year-over-year to over 241,000. The fast growth of UCargo demonstrate our commitment in investing in smart and efficient transportation solutions and the power of our integrated platform and ecosystem. We expected [Technical Difficulty] significantly in coming quarters. BEST Capital, our financing operation to our ever-growing ecosystem, deepened and expanded its strategic cooperation with multiple car manufacturers to leverage their resources and network to expand its financing offering and solutions to transportation service providers. As of September 30, it has provided a leasing service to over 6,000 trucks, a year-over-year increase of 19%. We see tremendous synergy between UCargo platform and BEST Capital in terms of aftermarket and financing services. As we scale up UCargo business, we'll create significant additional revenue opportunities for BEST Capital as well. BEST Global continued to expand its presence in regions outside of Mainland China. As of September 30, BEST Global reached 15 countries and regions, including new coverage in India and Indonesia through partners. BEST Global is a key growth area for us as we continue to roll out services and solutions in Southeast Asia and North America to support the dynamic growth in e-commerce. Overall, we are pleased to see continued strong momentum in the third quarter with loss driven by significant progress in executing against our key strategic priorities. Despite competitive market conditions, our growth continued to outpace the market, thanks to our superior platform that is better equipped to capture the opportunities created by the trend towards digital e-commerce, BEST's platform and its robust technology and nationwide service networks, enriches the lives of customers by making possible an omnichannel shopping experiences and empowers businesses by providing one-stop total supply chain solutions. In the age of artificial intelligence and digital economy, we are confident that our investments in business model and technology innovation will drive us to become a leading global smart supply chain and logistics company. With that, I will turn it over to Alice, our Chief Accounting Officer and Senior Vice President of Finance. Go ahead, Alice.

[Alice Guo:]

Thank you, Johnny. Hello, everyone. We are very pleased to announce that we delivered another solid quarter. Our revenue increased by 34% year-over-year to RMB7.2 billion with our business showing strong growth momentum. For the second consecutive quarter, BEST had generated a positive EBITDA and adjusted EBITDA. EBITDA was RMB54 million and adjusted EBITDA was RMB1 million compared to negative RMB66 million and a negative RMB86 million, respectively, in the same quarter of 2017. Adjusted EBITDA margin improved by 1.6 percentage points. Moreover, net loss was RMB51 million, a decrease of 89.1% year-over-year and the non-GAAP net loss was RMB101 million, a decrease of 45% year-over-year. Non-GAAP net margin improved by 2 percentage points. We recorded RMB39 million, up RMB79 million in Other income due to gains from our investment in an AI solutions provider. Reconciliation of non-GAAP measures to comparable GAAP measures and the relevant adjustments can be found in our earnings press release. Now let's take a look at our third quarter financial performance. On a year-over-year basis, BEST Express revenue increased by 33.4% to RMB4.4 billion primarily due to a 35.7% increase in customer volume. Gross profit increased by 66% to RMB218 million. As Johnny just mentioned, our continuous focus on service quality and network stability allowed us to [indiscernible] competition, and average value per parcel decreasing by 1.7% to RMB3.18. Average cost per parcel decreased by 2.7% to RMB3.02 primarily due to improved economies of scale from volume growth and enhanced operating efficiency from ongoing platform optimization, network planning and technology execution. As a result, our gross profit per parcel increased by 22.3%. BEST Freight revenue increased by 25% to RMB1.1 billion primarily due to our 23.5% increase in freight volume. Average cost per tonne decreased by 8% due to improved economies of scale from volume growth and the enhanced operating efficiency from ongoing platform optimization and network planning. BEST Freight has achieved positive gross profit for two quarters in a row. Gross profit margin increased significantly by 9.6 percentage points to positive 4.6% compared to negative 5% in the same quarter of 2017. BEST Supply Chain revenue increased by 27.3% to RMB492 million primarily due to a 31.4% increase in the number of orders fulfilled by our Cloud OFCs. Gross profit decreased by 31.4% to RMB20 million, and the gross profit margin decreased by 3.4 percentage points to 4% primarily due to onboarding of large projects, leading to upfront costs for leased equipment and labels, additional costs associated with temporary resources prepared for 4Q promotion period as well as overall industry pricing pressure. In the third quarter, we continued to invest in BEST Store+ to further enhance our presence and our control over the [indiscernible] operation. BEST Store+ revenue increased by 15.3% to RMB886 million primarily due to a 17.2% increase in the number of store orders fulfilled in connection with the ongoing expansion of our Store+ network. We maintained the gross margin to around 8% despite the strong competition by using data analysis, better supply chain and the logistic planning and the optimization of merchandise for sale. Our Other service lines, including BEST UCargo, BEST Capital and BEST Global, continued their strong growth momentum during the third quarter of 2018. Revenue from those service lines increased about 500% to RMB361 million. This significant revenue growth was primarily due to the increase in UCargo's revenue generated from external customers. It was also due to a 51.1% year-over-year increase in the number of trucks financed by BEST Capital and BEST Global's ongoing business expansion. Gross profit increased by 45.9% to RMB31 million. Of the major operating expense items or excluding share-based compensation expenses, selling expenses as a percentage of revenue decreased by 0.4 percentage points to 3.3% from the same quarter of 2017. This improvement was primarily due to enhanced operating leverage across business units. General and administrative expenses as a percentage of revenue increased by 0.2 percentage points to 3.4% primarily due to investments in the growth of the company's operations. Research and development expenses as a percentage of revenue remained at 0.6%. Net cash generated from operating activities was RMB86 million compared to RMB33 million in the same quarter of 2017. Our cash and cash equivalents, restricted cash and short-term investment were RMB3.9 billion or USD 570 million as of September 30, 2018, compared to RMB4.3 billion as of June 30, 2018. The decrease is primarily due to CapEx and an investment activities, partially offset by positive cash flow from operations. We continue to invest heavily in technology and automation. In the third quarter 2018, our CapEx was RMB412 million or 5.7% of total revenue compared to RMB176 million or 3.3% of total revenue in the same quarter of 2017. As we explained, most of the CapEx this year is to upgrade the automation system in major hubs and sortation centers including investments in high-speed automated sorting lines and dimension and weight scanning system. We believe our operational efficiency will be further improved in the long run due to those investments. As we enter fourth quarter peak season, we will continue to include our strategy of strong top line growth and operational efficiency enhancement to drive market expansion. Finally, I would like to discuss our financial guidance. For the fourth quarter of 2018, we expect revenue to be between RMB7.9 billion and RMB8.1 billion. As a result, our fiscal - full fiscal year 2018 guidance to be between RMB26.8 billion and RMB27 billion. With that, we will now open the call to Q&A. Thank you.

[Operator:]

[Operator Instructions]. And the first question comes from Ronald Keung with Goldman Sachs.

[Ronald Keung:]

Just a few questions, if I can. So firstly, we've seen some macro slowdown, some of the companies that we cover talking about slower growth. So I wonder, are you seeing any macro-driven - any slowdown in the business in the recent - for example, the past month or so? And is that sort of reflected in your revenue guidance for the fourth quarter, looking at 20% to - sort of low 20s to mid-20s growth at this point? My second question would be on Store. We've seen the evolving strategy where you're now moving more towards the branded stores WOWO. So can you share just this - any store targets there? Any revenue margin targets and outlook for this segment? And if we have - if we exclude Store, is it fair to say that BEST is already above breakeven, I mean, in the third quarter we exclude Store? So two questions for now.

[Johnny Chou:]

Okay, Ronald, it's Johnny. First of all, macro slowdown, we're still seeing - as I mentioned in my report, we're still seeing a fairly strong growth, both in the - or across all our business line. So if you look at our third quarter results, our parcel growth was about 35-some percentage. Actually, the government Post Bureau also announced it was about 26 points - 26-some percent. So it's kind of in part what our estimate in the beginning of the year. So on the parcel side, we still see a very strong e-commerce, online driven. On the freight side, we still grew about 40 - 23.5 or 24 percentage points, which is similar to Q1 and Q2. So each quarter, it seems like a - we do see also a good demand on the e-commerce-driven large volumes of the freight shipment. So on the macro side, we don't see a big slowdown or any kind of impact on our business line. So you mentioned about the fourth quarter guidance of 20-ish. So actually, we are still kind of forecasting about 30%-or-so growth on the fourth quarter. And also, on the fully - Store business which you had mentioned about, we do - in order to - we do change some strategy, right. The previous strategy is more about forward - a generic B2B mom-and-pop shop type of services. And starting second quarter this year, we are starting - doing more branded store. Branded store probably have much more control of the shipment in terms of pulse system usage, in terms of the higher per order on transactions, in terms of margin, et cetera. So we are doing much more expansion into the branded store front. So that will help us to - even though the growth rate will slow down slightly in the number of the order being shipped, but in fact, the quality of the shipment is much more healthier and also more predictable and hopefully will drive for longer margin. So towards that question, you were also asking about margin expansions on the Store business. We do see Store business as kind of the efficiency is coming out. So quarter-by-quarter, we should see a - less of a loss onto the business. In fact, you said if we take this out completely, the Store, the rest of the business should be positive. So Store is - itself will be - right now is a major investment we have onto our business. So without that, the whole Store business should be all positive. And that's my answer.

[Operator:]

And the next question comes from Scott Schneeberger with Oppenheimer.

[Daniel Hultberg:]

Excuse me. This is Daniel on for Scott. Can we talk about freight margins and how you think about that going forward? And if you can elaborate on how e-commerce-related transactions and network optimization and technology is contributing?

[Johnny Chou:]

Okay. Freight traditionally is more towards a factory to manufacture - to manufacturing. So that's towards e-commerce-related shipments. But as you see, more and more big items like the refrigerators or this like big items, the sofa or furnitures being sold on the line. So we see a tremendous need for different services. So in order to keep up a higher growth rate, I think that we purposely moved towards more of e-commerce. Of course, we're not saying that we're not doing the factory-related shipment, manufacture-related shipment but also more towards e-commerce. So e-commerce has several characteristics for freight. Number one is that the pricing are typically a little bit higher. So you know it's per kilogram or per tonnage income actually are higher than a more bulkier and heavier product. And second is that they require a much more broader coverage areas. So to a large competitors in the freight business, which they don't have a kind of full coverage in non - blind spots coverage, it's more difficult to do. So that gives us more advantage that we - since we have spent the last 3, 4 years covering the whole country with these services. And so the margin should be gradually improved. The - right now, as we mentioned in the call, that the market is also competitive in a sense that it's also like the parcel business. It's started getting integration, right - integrated. There are more and more integrations into the fewer players now. So I think that in the next couple years, we'll have - see volume growth in e-commerce side as well as margin expansion. However, pricing is also very competitive.

[Operator:]

Oh, I'm sorry. And the next question comes from David Ross with Stifel.

[David Ross:]

I guess could you continue on the chat about the China market? Although most of your business is domestic China, have you seen any impact from the U.S. or Chinese tariffs?

[Johnny Chou:]

Okay. Yes, we do see somewhat of a - as Alice has said, vast majority of our business is domestic China, but we do have a lot of cross-border shipment especially to North America, to U.S. I mean, we do see some slowdown in a sense. Fortunately, the exposure there was not that big. So our global side, we will see a little bit impacts on the trade front and shipment front. And otherwise, domestically, we still - I think we still enjoy a fairly healthy and strong growth.

[David Ross:]

And how would you describe the current competitive landscape versus a year ago? Is it getting competitive again on the pricing side? Are there more players, fewer players, more rational, less rational?

[Johnny Chou:]

Okay. The competitive landscape is in generally three things, right. One is that consolidation is happening. So you're seeing more and more volume consolidating to a top few players. For Express, it's all being big consolidation into Top 5 players. And also, we're seeing the trend into the - in the Freight side, consolidation, even though the Freight is probably lagging Express probably 2 or 3 years out. So it's - Freight is probably 2 or 3 years ago express. But we do see a consolidation in higher-level competitor amongst top few players. On the supply chain side, same thing. We see consolidation happening. A lot of traditionally - traditional 3PL company which in the space doing the B2B fulfillment order stuff, they are kind of gradually losing out. But - so also the - on the fulfillment side, we also see the supply chain side also concentrated integration happening. So in general, I think e-commerce is still growing rapidly. The consolidation on the - each of the subfield that we are playing. And the pricing is competitive. But as the consolidation of the players are getting more and more happening, I think the pricing eventually will - pressure will eventually ease a little bit.

[Operator:]

And the next question comes from Eric Zong with Macquarie.

[Eric Zong:]

First of all, I would like to ask if you can - so if you can share with us the unit of cost per tonne for Express delivery business. So maybe you'll share with us in the second quarter. And the second question is on Supply Chain Management business. So I saw - we saw the GP margin has been weak in the sort of quarter declined by 3.5 percentage points year-on-year. So I just wonder, what's the reason behind the - this margin trend? Yes.

[Johnny Chou:]

Okay. Okay, Eric. Your first question on the Express parcel breaking down. Our parcel, basically it's - the revenue is about RMB3.18, which includes - including the Express - the last-mile delivery. So we did raise the last-mile delivery rate to about $1.59. So basically as a per-parcel revenue side, it was down about 3% year-over-year. So last year, it was about RMB3.23. This year, it's about RMB3.18. So it was RMB0.05 less. However, the delivery side, our last-mile cost increased by about RMB0.18. So we do give up more on the last-mile side. Transportation was down. We reduced about 5% from about RMB0.90 per parcel down to about RMB0.86, which was - we're further driving down these costs. Labor cost is down about 39% from RMB0.43 down to about RMB0.26. It's primarily due to the automation and reduction of the sorting center and everything. These costs are down about 14%. So from RMB0.12 to about RMB0.11. Remember, we don't really build them and build that ourselves. We most - all lease. So it's down about 14%. Other cost, which including the amortization of the fixed assets and everything else, so down about 13%, about - so about - go from RMB0.23 to about RMB0.20. So as a result, we are really seeing a big reduction in cost, as I mentioned, 5% on transportation, 39% on labor and 14% on the lease, 13% and 13%, but also increased the last-mile delivery cost by about 12%. Net result is that our gross profit has increased about 22 percentage from last year, which is around from RMB.013 per parcel to - up to about RMB0.16 per parcel. So that's your first question on the unit cost side. On the SCM side, the Supply Chain side, the margins are somewhat lower, I guess a little bit lower than what we had forecasted. The sense is that first of all, this year we have put a lot of automation in the system. And also, we have 200,000 additional space that come into the - in the third quarter coming to the fourth quarter. So we really have a large amount of leasable space which we want to fulfill for the first quarter in anticipation of our large customers' needs. Also, we assigned multiple - 40 to 50 major accounts for first quarter. So basically, we need to ramp up things - the third quarter, I'm sorry. Third quarter and fourth quarter, we signed about - the multiple large, yes, 48 customers. They're required to buy material, equip the warehouses, getting more people online, et cetera. So that does give us a little more overhead on that. So we should us ease on this front as the fourth quarter go into full swing and this space is going to be all utilized. And I think going to our next couple quarter, we should see a utilization increase and also the margin improved.

[Operator:]

And the next question comes from Hans Chung with KeyBanc Capital Markets.

[Hans Chung:]

Johnny, George and Alice, so a question regarding the Express gross margin in the quarter. So do we - I know you have investment in automation, in a sorting center. And then - so do we see any like near-term impact in these? And - because I suppose we still need to rent out the automation line. And then I don't know what's the utilization rate now. And then when should we start to see the full benefit from the automation in the sorting center going forward?

[Johnny Chou:]

Okay. So the sorting automation is - we have continued to invest heavily on this automation. So in fact, our total number of our employees in the net - the holding company, the holdco group, we actually have less people now during the last quarter - last year. Same period last year, we actually have more people than this year. So we are increasing about number of - on sortation - by automated sortation by about - to now to about 29% already. So you now - 29% of our parcels are now - is automated and quarter by quarter will be increasing. So the capacity we are putting is not just for fourth quarter this year. Every year, we will put in a lot of capacity, giving a growth of 30-some percent, 35%, 36% that - the volume growth that we enjoyed this year. So we're not just putting the equivalent for today, we are putting the equivalents for future increasing in volumes. So typically, a new system put in place, we anticipate able to carry 3 to 5 years of the future usages. So the more we put in today, that should be able to support in 3 to 5 years, over long period of time. Yes. So example, in Suzhou, we're putting about - over RMB100 million of equipments in Suzhou. As - net result is that we combined about 6 sorting centers nearby into one, nearby like a Nantong, Wuxi. So market - or these separate sorting centers are essentially all combined to one. That will give us a much more efficiency in terms of the labor cost, reduce the transportation cost or tuck in between each sorting centers and get - in that sense, we can - our plan is for five years' usages. So in other words, the capacity could be quadruple or 3x or 4x of what it was - today's volume. So we're putting a system. It's really not just for today, that, yes, we'll go through the - so we'll have a huge volume but also for the next year's Q1, Q2, Q3 until - and the year after. So the question - to answer the question is that we do invest in these centers every year to - timing for 3 to 5 years out of raw usages.

[Hans Chung:]

And so just one follow-up. Just regarding the 4Q guidance, so what's the assumption for the costs of Express volume for the fourth quarter?

[Johnny Chou:]

I cannot specifically say what's the volume. But I think we are going to see a strong growth on the fourth quarter. So far, we have seen last quarter it was about 36%, okay. So Q4 should be slightly higher than that. I cannot give you a specific, exact number. But as of now, we see a very strong growth.

[Operator:]

And the next question comes from Cherry Leung with Bernstein.

[Cherry Leung:]

Johnny, George and Alice, if you don't mind, can I ask two questions about the outlook of the business? In the next quarter, do you - what is your projection on the overall profitability of the company? Is there any chance that it will - the company will turn into profitable? And the second question is about the guidance of revenue, that in the second quarter, we noted a guidance of a full year revenue of around RMB27 billion. Would you want to keep this - but you intend to keep this guidance for the rest of the year? Or is there any changes to the forecast?

[Johnny Chou:]

Okay. So the - your first question is about the profitability towards the fourth quarter. We're still very focused on executing our priority plans, which is the customer focusing and also efficiency driven as well as driven that. So - and when you have a - driving for a higher - high top line growth and, same time, drive efficiency and the bottom line, yes, so we are still driving for the breakeven on fourth quarter. On the revenue side, on the net side, on the revenue side, yes, we still maintain the same guidelines as we had done on last call. We said about - anywhere from RMB26.8 billion to RMB27 billion. We still maintain the same guideline.

[Cherry Leung:]

Sure. And can I ask a follow-up question? I think...

[Johnny Chou:]

Sure, Cherry, sure. Go ahead, please. Go ahead, Cherry.

[Cherry Leung:]

I think next quarter, do we see that the - how do we see the price competition? The macro environment is changing because we have seen that delivery fee has increased for the major delivery - mass delivery companies. And do you think that the next quarter in terms of our revenue per parcel in Express - what would be the trend? Is it going to trend down or trend up versus last quarter?

[Johnny Chou:]

Yes, so we - I cannot speak for everybody else. But macro side, I think everybody is anticipating a fourth quarter high sell season. So every - most company like ourself have been raising prices. So our Express business, we are rising the - raised the price multiple times already as well as the last-mile delivery fees as well as the service and tailoring fees that we have been raising on that. So the pricing side at the per parcel, you should see an ASP increase and - in fourth quarter. And that will also help to offset some of the additional costs associated with Double 11 peak season, the additional cost and everything else. So net result, I think the fourth quarter, basically the revenue is going to be higher, volumes are going to be higher, The - yes, it's going to be higher and the margin is going to be higher.

[Operator:]

And the next question comes from Calvin Wong with JPMorgan.

[Calvin Wong:]

Just a couple questions from my side. First is just on peak season volumes and especially Double 11. What are we seeing so far? I think there have been some new, well, talking about, and including [indiscernible] talking about expectations of maybe mid-20s type of growth in terms of volume. Just want to see what we've been seeing so far and our expected performance there. And just wanted to follow up on the guidance, the total revenue guidance that we have, because the fourth quarter number sort of implies year-on-year growth of about 21% to 24%. So definitely a bit of a slowdown. We had mentioned Express probably should be doing quite well. So what's really kind of dragging down that overall revenue number in terms of our expectations?

[Johnny Chou:]

Okay. So regarding to the peak season volume, as I mentioned to the - also to Cherry's question is that we have seen a strong demand for fourth quarter volume. In fact, as we speak today, we see the volume on fourth quarter should be higher than the third - on third. On the - on to the full year guidance - guidelines - guidance, we - last year, we really had a pretty good run on third quarter, fourth quarter and the full year. I mean, we - I think the parcel last year, about - third quarter grew about 90-some percent, fourth quarter grew about 77-some percent. So we still maintain a fairly high growth on the fourth quarter, and we're confident that the number we've given guidance is the - is from the last quarter. So the third quarter actually was slightly higher than the - so I think the 20% or 24%, that is something low. But we didn't really calculate what is - I think we can see the fourth quarter number should be higher than that.

[Calvin Wong:]

Understood. And I also want to just quickly ask on UCargo. Does this - we're seeing it's ramping up fairly quickly. Sort of what type of - what are sort of the next steps here for us and with respect to actually better monetization of this particular platform? I just want to get some idea of how we should be thinking about the future trend and developments of this business.

[Johnny Chou:]

Yes. So UCargo actually has been growing significantly. Actually, we have both internal customer and external customers. So the report - the number we reported was orders for the external customer, right. So going forward, you will see it can - still very high growth rate. Right now it's growing about 300%, 400% or 500%-ish. Next year, we're still going to see couple hundred percent of growth. And the business itself should be a profitable growth and itself is - we are not required to burn any money as you - as we could generate the profit into the near future. So we are very optimistic about this business and the future of the outlook.

[George Chow:]

Calvin, this is George. This is George. I just want to add to what Johnny said to your question about - and I think a lot of analysts have raised the similar issues about seemingly, your guidance for the full year, it's - is a little bit more than 20-something percent, that the - a reason being - actually, another reason, other than we grew very fast last year, it's really - it's come down to Store+. So as mentioned, that previously, like we were very aggressively growing the Store+ B2B platform. So the revenue forecast for the business was so high. So if you think the store - and also, as Johnny mentioned that when we are fine-tuning strategy, so in a way much more focused growing the branded Store business. And so comfortable, as you see. The overall revenue growth for Store+ is going to - on the absolute basis, is going to slow down. So as you look at the - you've got to look at the third quarter number. The growth Store+ is only about - and so the - it's about mid-teens. So that's really the main reason. So if you look at - reflected on this, if you look at our Freight business, if you look at our supply chain business, or if you look at the - our Other business, all right, they will definitely grow a lot more than 20-something percent. But having Store business revenue also, that's going to bring down the overall, if you like, the revenue numbers.

[Johnny Chou:]

Calvin, this is Dan. You said 20-some percent growth. You're talking Q4 or talking about full year?

[Calvin Wong:]

Q4, Q4.

[Johnny Chou:]

Oh, Q4. Okay.

[Calvin Wong:]

Q4 year-on-year revenue.

[Johnny Chou:]

Oh, okay, okay. Got it, got it. It's Q4, okay. Yes. So full year is still going to be 30-plus on the growth side. So Q4, we basically just had to - the - so in the last quarter earning call - last earning call, we gave a guidance so we'll, again - we'll stick with it. In fact, the current - what are we seeing now, it should be better than this, so.

[Operator:]

And the next question comes from Tian Hou with T.H. Capital.

[Tian Hou:]

The question is related to your Freight business. And I think the Freight business is the second largest businesses of your business lines. So the year-to-year growth rate was decelerated in Q3. So I wonder what's the reason and what's the strategy going forward. So that's one. And also, the second question, is I don't quite understand, what is a branded store? And what's the difference between a branded store and your store before? So that's much more a basic knowledge issue. So I hope I can get some clarification on that. The third question is much more for the business strategy. You have multiple lines of the business. I wonder, how can management have all those energy to focus on every single business line when you're facing competition, every single line - business line project? So what's the strategy on that? That's all my questions.

[Johnny Chou:]

Okay, Tian. First question you had was on the Freight business. In fact, we are continuing to grow the Freight. If you look on the volume side, our Freight business is growing about 25 - 24 percentage quarter-by-quarter. I think we - every quarter, we grew about - Freight volume grow about 24%. So we don't see any kind of a slowdown or seeming slowdown. In fact, we haven't seen talk every quarter. So that's number one. I think if you look at the volume growth we had on Q1 and Q2, it's also about 24%. And actually, we've got - we still see same - similar pattern in Q3 and in Q4. So that's on the Freight side. On the Store+ side, when we say branded, branded meaning that some store is using - the store is using our name. For example, BEST Neighbor. That is branded because basically, the - on your storefront. It has a storefront that's called BEST Neighbor - BEST branded. But membership store is not branded. It's basically Uncle Joe's Grocery. So that's Uncle Joe's. That's a mom-and-pop shop. So these are what's called non-branded. So branded is BEST Neighbor stores or the WOWO stores, and these stores are called branded. Number three, you are absolutely right. I mean, there are many people asking the same question why you have multiple business or how the management focus on that. Because if you look at our business, they're all very integrated and synergetic business. Because all along we said we want to provide consumers and businesses with an online/off-line integrated omnichannel solutions. So not just warehouses, not just parcel. We can do online/off-line, O2O, to home, to the store, return big items, small items. So that's what our customer needs, right, because our customer no longer just step into the store using - to the retailers, to the agents, also to online, to home. So that's our purpose. So we're seeing our many other players, other Express players and also other Freight players and so on and so - on and on. And they also adopted similar kind of strategies, start to develop other business, try to have more synergetic solutions. It's like - I mean, if I said we try to build a smartphone, like an iPhone, right, not just a digital camera, a game machine, communication device, a digital camera, all this, but always to work together. So that's what consumer wants. They can go anywhere, any place and anytime on - and one device and can get what they wanted. Same thing in today's digital economy. Traditional logistics company cannot support a growing need, of consumers' needs and also business needs to be able to support anywhere, anytime, anyplace. So if you have a fragmented services, that means the consumers or the customers wouldn't require to talk to you working with many, many, many different kind of service providers in order to provide a much more needed services to consumers. So from that side, I think we have a very capable management team. We've got each general manager responsible for each of our business units. And we've got a General Manager for Express, general manager for Freight, General Manager for Supply Chains, supported by our technology group, and that's how we manage our day-to-day business.

[George Chow:]

I just want to add one thing to your question about branded and the membership. I mean, by - so the membership, essentially it's a B2B platform. So in the store, they can order from multiple apps, right, so BEST being one of them. The branded stores, so for BEST Neighbor, those are franchise stores, right. So they actually pay us money to basically use our system. So everything is integrated. And they order a big part of their merchandise from us. And then WOWO is just cell phone, 100% on, right. So it's 100% they do all their business through us. So that's the difference.

[Operator:]

And this concludes the question-and-answer session, so I would like to return the call to Johnny Chou for any closing remarks.

[Johnny Chou:]

Okay. Okay, thank you all 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.

[Operator:]

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your line.