JD Logistics Inc
HKEX:2618
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JD Logistics Inc
Earnings Call Analysis
Q3-2023 Analysis
JD Logistics Inc
The company has achieved significant progress in developing its Global Smart Supply Chain Network. By the end of the third quarter of 2023, nearly 90 bonded warehouses, international direct distribution warehouses, and overseas warehouses across the globe substantiate its international logistics capabilities. Notably, customized services in integrated supply chain (ISC) management have significantly fast-tracked fulfillment speeds, leading to improved consumer satisfaction. This has catalyzed the expansion of partnerships in numerous countries across North America and Europe.
A key strategic move for the company was the announcement of its partnership with Geopost, aiming to develop shipping solutions between China and Europe. This partnership has fortified their ISC logistics across Europe and promises future enhancement of fulfillment efficiency. Building on these overseas relationships will be crucial for the company to establish a stronger foothold in international markets and raise entry barriers for competitors.
Revenues have been on an upward trajectory, with the firm posting a solid growth of 16.5% year-over-year in the third quarter of 2023. A diversified customer base — inclusive of JD Group ISC and external customers — has contributed to this growth. Specifically, external customer revenue jumped by 20.0%, while JD Group ISC revenue saw an 8.4% uplift. Additionally, a notable 88.7% surge in non-IFRS net profit indicates the strongest third-quarter profitability since the company's listing. Average revenue per customer also marked a significant rise of 22.7%, showcasing sustained customer value delivery.
The company's gross margin has improved to 7.9%, reflective of prudent cost control and business scale expansion. However, cost of revenue increased by 15.8% primarily due to integrating Deppon Logistics. Employee benefit expenses also rose, influenced by front-line operational staff increase, necessary to enhance service quality. Despite this, rental costs as a percentage of total revenue fell slightly due to economies of scale, indicating efficient resource utilization alongside business growth.
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Ladies and gentlemen, good day. Thank you for standing by. Welcome to JD Logistics Third Quarter 2023 Results Conference Call. [Operator Instructions] I will welcome Mr. Mao Jun, Head of Investment Relations. Please, go.
Thank you, operator. Good day, ladies and gentlemen. Welcome to the Third Quarter 2023 Conference Call. Joining us today are our Executive Director and CEO, Mr. Hu Wei; and CFO, Mr. Wu Hao.
Before we start, we would like to remind you that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ materially from those mentioned in today's announcement and this discussion. The company does not undertake any obligation to update this forward-looking information except as required by law. During today's call, management will also discuss certain non-IFRS financial measures for comparison purposes only. For definition of non-IFRS financial measures and the reconciliation of IFRS to non-IFRS financial results, please refer to the announcement of financial information and business highlights for the 3 months ended September 30, 2023, issued earlier today.
For today's call, management will read the prepared remarks in Chinese, and we will only be accepting questions in Chinese during the question-and-answer session. A third-party interpreter will provide simultaneous interpretation in English on a separate line for the duration of the call. Please note that English translation is for convenience purposes only. In case of any discrepancy, management statements in the original language will prevail.
I'd like to turn the call over to Mr. Hu Wei, please go ahead, sir.
Dear investors and analysts, welcome to JD Logistics’ third quarter 2023 earnings call. I am Hu Wei, CEO of JD Logistics. Thank you for joining us today. In the third quarter of 2023, the consumer market showed a stable recovery trend as the macroeconomic environment in China continued to rebound. Leveraging our comprehensive network coverage, in-depth industry insights, and ever-strengthening digital and intelligence capabilities. We continued to deliver trusted integrated supply chain, ISC, solutions to our customers, [ enabling ] the industry-leading customer experience.
As we remain focused on creating value for our customers, we achieved high-quality growth in both revenue and profitability. Our total revenue for the third quarter of 2023 reached RMB 41.7 billion, up 16.5% year-over-year. Revenue from external customers for the third quarter was RMB 29.8 billion, a year-over-year increase of 20.0%, and accounting for a larger share at 71.6% of total revenue. In the third quarter of 2023, our profitability reached a new record high for the same period since our listing, with a non-IFRS net profit of RMB 840 million, an 88.7% year-over-year increase. Non-IFRS net profit margin improved by 0.8% point to reach 2.0%. These results reflect our ongoing success in optimizing our business structure and customer mix improving end-to-end operational efficiency and ramping up business operation quality.
JD Logistics operates one of the largest warehouse networks in China, covering almost all counties and districts nationwide. As of September 30, 2023, we operated over 1,600 warehouses with an aggregate gross floor area exceeding 32 million square meters, including warehouse space managed through the Open Warehouse Platform. We have also established 6 logistics networks including warehousing, line-haul transportation and last-mile delivery. This infrastructure enables us to better distribute a diverse range of products for different customers across various areas based on the sales and turnover characteristics of the products. In this manner, our logistics networks have helped our customers optimize inventory deployment, improve inventory turnover, and achieve efficient fulfillment. Take JD Retail as an example. We have managed over 10 million SKUs for JD Retail.
While handling this vast product pool, we have continuously helped JD Retail to reduce inventory turnover days and enhance fulfillment timeliness and consumers’ satisfaction. In the third quarter of 2023, 95% of JD Retail's orders achieved same-day or next-day delivery, covering over 300 cities in China. Our robust infrastructure network and industry-leading technological logistics capabilities, coupled with our in-depth understanding of merchandising and industry insights enable us to deliver compelling fulfillment and service experiences for our customers. We rapidly replicated and expanded our ISC solutions to a wide range of external customers. These customers span various sales channels, both online and offline, with complex distribution scenarios.
They often grapple with challenges such as continuously increasing number of SKUs, seasonal demand fluctuations and unpredictable sales forecasting. Our ISC solutions serve as an effective tool for them in optimizing inventory management and reducing overall operational costs, thereby allowing them to focus on their core businesses. In the third quarter of 2023, our revenue from ISC customers reached RMB 19.6 billion, up 7.5% year-over-year. The growth rate has increased compared with the first two quarters of this year. Notably, revenue from JD Group was RMB 11.8 billion, representing a year-over-year increase of 8.4%. This is mainly due to JD Retail's lowering the threshold of the free shipping services for its first-party business, which boosted our business volume. In addition, revenue from external ISC customers was RMB 8.7 billion (sic) [ RMB 7.8 billion, ] up 6.2% year-over-year.
For the third quarter of 2023, we had approximately 54,000 external ISC customers, an increase of about 2,000 customers quarter-over-quarter. We continued to expand our reach among industry leaders and SMEs in 6 industries, including fast-moving consumer goods, home appliances and home furniture, 3C, apparel, etc. In the third quarter of 2023, the average revenue per customer from external ISC customers reached RMB 143,000, rising by 22.7% year-over-year. This growth reflects our ongoing efforts to expand the breadth and depth of our collaborations with existing customers, thereby increasing our share of customers’ wallet.
In the third quarter, we upgraded our cooperation with Panasonic China. We established the first integrated forward-and-reverse logistics warehouse in Wuxi, China. The warehouse efficiently handles both recycling and inspection for returned products, enabling immediate re-dispatch of qualified products after inspection for re-sale. This effectively shortens the processing time for relevant returned goods and reduces logistics costs through reduced product shipment frequency. Furthermore, we continue to deepen our collaborations with leading new energy vehicle companies at home and abroad, driven by the expansion of our innovative solutions and services in the automotive after-sales spare parts sector.
Our industry-leading solutions and service capabilities continue to gain recognition from both enterprise customers and consumers across various industries. Going forward, we will continue to delve into our core business supported by our ISC services, constantly creating value for our customers through our trusted supply chain services and reinforcing our leadership in the ISC logistics sector.
In the Q3 of 2023, our revenue from other customers, primarily including express and freight delivery services, increased by 25.7% year-over-year to RMB 22.1 billion. The revenue growth of our express delivery services has been gaining strong momentum, outperforming the industry's overall performance each quarter since 2021. We effectively harnessed the rapid growth of live streaming e-commerce platforms to drive this momentum, deepening our collaboration with live streaming e-commerce platforms including Kuaishou and Douyin.
Additionally, we continued to optimize our high-quality express delivery services, further facilitating our business development. In late October this year, we further upgraded our express service with 3 service guarantees: “compensation for pick-up delays exceeding one hour,” “compensation for late deliveries,” and “compensation for failing to deliver to the door.” This move marks our continuous commitment to elevating industry service standards.
With the consolidation of Deppon Logistics, our freight delivery services revenue ranks among the top tier in China. We have been steadily enhancing our business and network synergies with Deppon, realizing resource integrations, our cost reductions and operational efficiency enhancements across operation sites and routes. We firmly believe we will continue to unlock greater synergies going forward, enabling us to provide more efficient and high-quality services to our customers.
Guided by our vision of “becoming the world's most trusted supply chain solutions and logistics service provider,” we remain committed to facilitating the global expansion of China manufacturers and brands with our one-stop services. We offer our global customers high-quality efficient and comprehensive ISC solutions. With over a decade of experience in managing inventories of over tens of millions of products as well as supply chain operations throughout China, we are well positioned to replicate these successful practices overseas. To that end, we offer omnichannel inventory management solutions to our overseas customers. Through a combination of our automated technology and operational expertise, our solutions are proven to enhance operational efficiency in overseas warehouses, while elevating overall fulfillment efficiency and end-customers’ experience.
Our customer pool now includes Chinese companies going global as well as local overseas customers, in apparel, home appliances, and 3C industries as well as we increase our presence in the overseas market. Since the end of 2022, we have been providing ISC services for an overseas e-commerce platform primarily specializing in women's’ apparel, with overseas warehousing capabilities as a core. We helped the platform effectively respond to the fluctuations in order volumes resulting from seasonality and promotions, as well as customized packaging requests from end consumers. Our customized ISC services have substantially enhanced fulfillment speed, improving the satisfaction of end consumers. As an endorsement of our capabilities, the e-commerce platform has subsequently extended our partnership to multiple countries in North America and Europe to further facilitate our business expansion globally.
Regarding our network coverage, we continue to firmly execute our Global Smart Supply Chain Network,” which centers on overseas warehousing. As of September 30, 2023, we operated nearly 90 bonded warehouses, international direct distribution warehouses, and overseas warehouses globally, with a total GFA of nearly 900 thousand square meters. Through years of dedicated effort we have successively established overseas warehouses in 15 countries and regions, including the United States, European countries covering Germany, the Netherlands, France, and the United Kingdom, as well as Australia, the Middle East, and Southeast Asia. We have also actively engaged in partnerships with globally recognized logistics companies, enhancing our capabilities in international supply chain logistics.
In the third quarter, we announced a strategic partnership with Geopost, a subsidiary of France's La Poste Groupe, to jointly develop shipping solutions between China and Europe. This partnership strengthened our ISC logistics services across Europe, enhanced our fulfillment efficiency across multiple European countries and empowered global customers with high-quality logistics services. Looking ahead, we will continue leveraging our overseas warehousing network to build cost and efficiency advantages and heighten entry barriers while steadily expanding our cross-border transportation and domestics express delivery services overseas, ultimately achieving seamless, end-to-end ISC capabilities.
Regarding organizational management, we continue optimizing our organizational structure, promoting the decentralization of organizations and stimulating the vitality of frontline operations. This strategy is aimed at enhancing both the quality and efficiency of our operations, while continuously strengthening our core competitiveness. We remained dedicated to undertaking our social responsibilities and sustainability. For the third quarter and the first 9 months of 2023, our total expenditure for human resources, including our own employees and external personnel who work for us, amounted to RMB 20.3 billion and RMB 59.3 billion respectively. Over the years, JD Logistics has continuously promoted various initiatives comprehensively facilitating high-quality employment and consistently creating greater social value.
In addition, we have made persistent efforts to leverage our supply chain infrastructure advantages, industry insights, and technological strengths to promote cost reductions and efficiency enhancements for companies throughout the industry value chain and across their supply chains as well as to promote carbon emission reductions in the upstream and downstream of the industry value chain amid a constantly evolving business environment. Going forward, we will continue to unlock our value as an innovative, real economy-based enterprise.
Thank you. And that's all. I'd like to invite Mr. Wu Hao to discuss the details of financial performance.
Thank you, Mr. Hu Wei. Hello, everyone. This is Wu Hao, the CFO of JD Logistics. I'm so pleased to present JDL's financial performance for the third quarter of 2023.
China's macro-economy continued to recover with a clear upward trend in the third quarter of 2023. JDL achieved high-quality growth in overall revenue and profitability in the quarter. In terms of revenue, we achieved steady and quality growth in revenue from our ISC customers, while for revenue from other customers, we also obtained solid growth from business of express delivery, freight delivery, etc. Through strategies of refined management and operations, as well as network structure and business structure optimization, we have continuously facilitated resource savings and cost savings in all aspects of operation, and achieved a substantial improvement in profitability compared with the same period last year.
In the third quarter of 2023, our non-IFRS net profit was RMB 840 million, up 88.7% significantly year-over-year. Non-IFRS net profit margin was 2.0%, up 0.8% year-over-year. Furthermore, we achieved a year-over-year turnaround with an IFRS net profit of RMB 450 million and IFRS net profit margin of 1.1%. This represents our best third quarter profitability since our listing.
Our total revenue reached RMB 41.66 billion in the third quarter, up 16.5% year-over-year. Notably, revenue from external customers increased by 20.0% year-over-year to RMB 29.84 billion accounting for 71.6% of total revenue, representing a larger proportion compared with the same period of 2022. This clearly reflects our success in steadily expanding our business from external customers.
In the third quarter, revenue from ISC customers totaled RMB 19.61 billion. This included our ISC revenue from JD Group, which amounted to RMB 11.83 billion, up 8.4% year-over-year primarily due to the increase in orders from the JD Retail business in the third quarter. Our revenue from external ISC customers maintained its high-quality growth momentum, up 6.2% year-over-year to RMB 7.78 billion.
Notably, even in the traditional off-season of the industry, the number of our external ISC customers increased quarter-over-quarter in the third quarter driven by our proactive development of our external ISC business as well as the macro economy stabilization and recovery. Meanwhile, we continued to actively broaden and deepen our collaborations with existing customers to create sustained value for their high-quality development. In the third quarter, our average revenue per customer also continuously increased by 22.7% year-over-year to RMB 143,000.
Furthermore, in the third quarter of 2023, our revenue from other customers maintained rapid growth totaling RMB 22.06 billion, up 25.7% year-over-year. This increase was primarily due to our strengthened express and freight delivery capabilities, driven by technological advancement that enhanced overall logistics network efficiency and optimized customer experience. Our ongoing upgrades to our high-quality express and freight delivery service experience also helped us to further expand our business. Specifically, our strategic focus on penetrating deeper into channels such as live streaming e-commerce paid off in the third quarter, with our revenue from express delivery service growing strongly at a rate higher than that of the industry.
In the third quarter, our continued efforts to refine cost controls and optimize business and customer mix, coupled with the effects of economies of scale, led to further improvement in gross margin year-over-year, reaching 7.9%. As our business scale expanded, our cost of revenue in the third quarter was RMB 38.36 billion, up 15.8% year-over-year. The increase also reflected costs from Deppon Logistics’ consolidation, which were reclassified based on our cost and expense standards.
Next, let's move to the main costs of revenue. First, employee benefit expenses were RMB 13.90 billion in the third quarter of 2023, up 23.9% year-over-year. In addition to Deppon Logistics’ consolidation, this increase was due to the increase in the number of our front-line operational employees from 297,000 at the end of the third quarter of 2022 to 345,000 at the end of the third quarter of 2023. The increase in the number of operational employees was mainly due to the addition of own employees to key operational processes such as last-mile delivery. This was in order to elevate the customer experience, and lead the industry to higher service standards and quality, thereby continuously enhancing JD Logistics’ competitiveness.
In the third quarter, total employee benefit expenses amounted for 33.4% of our total revenue, up 2.0% year-over-year. Outsourcing cost, another important component of our cost of revenue, was RMB 14.62 billion in the third quarter of 2023, up 9.4% year-over-year. It accounted for 35.1% of total revenue for the quarter, down 2.3% year-over-year. The continued optimization of outsourcing cost as a percentage of total revenue was largely driven by improved operational efficiency as well as optimization of our business and customer mix to improve business health.
Third, our total rental cost was RMB 3.14 billion in the third quarter, up 8.8% year-over-year primarily due to an increase in the number and floor areas of our logistics facilities, such as warehouses. As of September 30, 2023, we operated over 1,600 warehouses, including warehouses managed by Deppon Logistics. The aggregate gross floor area of our warehouse network including warehouse space managed through the Open Warehouse Platform, exceeded 32 million square meters. Our total rental cost in the third quarter represented 7.5% of our total revenue, down 0.5% year-over-year. The decrease was primarily attributable to the realization of economies of scale as our business expanded.
Except for those core mentioned costs, depreciation and amortization and vehicle usage costs, such as fuel costs and tolls included in other costs, also rose as a percentage of revenue after consolidation, which was due to Deppon Logistics’ higher costs related to self-owned vehicles as a percentage of its revenue. In terms of the expenses, our operating expenses in the third quarter of 2023 were RMB 3.03 billion growing 14.0% year-over-year and accounting for 7.3% of total revenue, a decline of 0.2% year-over-year. Among them, selling and marketing expenses were RMB 1.35 billion, 3.3% of total revenue, up 0.5% year-over-year.
Selling and marketing expenses accounted for 4.5% of revenue from external customers, an increase of 0.6% year-over-year. The increase was mainly due to the company's moderate investments in key resources to expand market and drive business growth. In the third quarter of 2023, our R&D expenses were RMB 870 million, accounting for 2.1% of total revenue, down 0.1% year-over-year. Because technological innovation has always been our priority, we maintain R&D expenses at a relatively stable level as a percentage of our revenue. This allows us to explore the development and application of pioneering technologies to improve our automation, digitalization and intelligence, boosting our core competencies.
This has laid a solid foundation for us to refine operational management, allocate resources precisely, and empower external partners, thereby facilitating cost reduction and efficiency improvements both internally and for our customers. Our general and administrative expenses were RMB 810 million, accounting for 1.9% of total revenue, a decrease of 0.5% year-over-year, mainly attributable to the decrease in share-based payments.
In terms of profit, we recommend that you consider our non-IFRS measures, which we believe better reflect our core operations. This quarter, in addition to the previously disclosed non-IFRS profit, we are also presenting non-IFRS EBITDA for the first time. Non-IFRS largely excludes factors such as share-based payments, amortization of intangible assets resulting from acquisitions, and fair value changes in financial assets measured at fair value through profit or loss. Non-IFRS EBITDA excludes factors such as depreciation and amortization of right-of-use assets, property and equipment and other intangible assets as well as the impact of finance income, finance costs, and income tax expenses on the top of non-IFRS profit.
These metrics exclude items that we believe are not indicative of our core operating performance to facilitate investors and other users of financial information to understand and evaluate our results of core operations. In the third quarter of 2023, our non-IFRS net profit was RMB 840 million, up significantly 88.7% year-over-year. Non-IFRS net profit margin was 2.0%, up 0.8% year-over-year, primarily attributable to the year-over-year increase in gross margin. Non-IFRS EBITDA for the third quarter was RMB 3.83 billion, an increase of 24.0% year-over-year, with a Non-IFRS EBITDA margin of 9.2%, representing a year-over-year improvement of 0.6%.
We also continued to monitor our cash reserves and cash flow to maintain healthy, sufficient capital to support our business development and meet our operational needs. In the third quarter, we saw a year-over-year improvement in our free cash flow, as net operating cash inflow under IFRS continued to improve year-over-year and our capital expenditure, both in absolute amount and as a percentage of revenue, decreased year-over-year. We will steadily and effectively deploy capital according to our business development pace and needs to enhance our capabilities in the medium to long term and constantly improve our network deployment and operational efficiency.
Finally, I would like to express our heartfelt thanks to our shareholders for their enduring support and trust in JD Logistics. Going forward, we will continue to focus on building our core competencies in the ISC business and improving our competitive advantages. We will strive to further expand and penetrate the external market and continuously enhance operational quality and efficiency to achieve sustainable development. At the same time, we will continue to optimize costs and operational efficiency through technological innovation and refined operational management, further improving our profitability, creating greater value for our shareholders.
Thank you. That concludes my prepared remarks. Now we can start the Q&A session.
Thank you, Mr. Wu Hao. That is the prepared remarks. We'd like now to open the call to your questions. Please start the Q&A session. We're ready. Thank you. Now let's start.
[Operator Instructions] The first question from Goldman Sachs. So please start your question.
Thank you, Mr. Hu for your kind remarks. Thank you for sharing with us with your good form on the profitability. I want to ask you about internal supply chain. So is that from the JD Retail, you have the 3 of the logistics fees, you mean that it is starting from the August. So can you give me more contribution in the Q3? The JD More, JD Retail, the 3 of logistical fee services. Can you say more about the differences of the JD Retail and the JD Internal supply chains? I want to know more information about this. And for the next few quarters, do you have any forecast on the 3 of the logistics fees services? This is my first question.
The second question about international opportunities. You are talking about the supply chain opportunities, and you want to enter the international market. So I want to check with you the proportion or the ratio of the international supply chain business or in the midterm and in the long run, do you have any forecast on the potential growth momentum?
Thank you very much for this question. I want to share with you the ISC in the internal business, as you have observed starting from August of 2023, we have playing down, lowering down the 3 of logistics fee services. And this has given us a boost to improving the internal profit and revenue. The pricing mechanism is not well changed compared to what we did. We are conducting the standard service as well as the service offering. In the long run, JD Retail has always been our main partner. It is also one of our largest clients. We will follow the strategies of JD Retail as well as the business requirements to make adjustments. That is how we could upgrade our services and offer better services. We're also going to offer responsiveness as well as timely services. We could also -- we will treat all the customers in a better way. We also want to stipulate higher standards to serve our customers to improve our competencies.
For the second question, if I'm correct, you want to understand our deployment of ISC in the overseas market and what is the strategy at present? The international warehouses are the hub for us to expand all specifications. We want to create a global transportation network serving different brands. This is a general strategy, and we will also collect the requirements from the local overseas clients. That is the general direction for us to move forward, and we will continue to work with our cost controls as well as optimization of the operation to improve our core competitiveness, and we want to lower down the barrier -- we want to build up the industrial barriers to fight against the competitors. The ISC is one of our core competencies. That is something we could duplicate in the overseas market.
The clients are the core thing we want to -- core parties we want to serve, and that is the direction we would go. We also want to use the mature business model to help our overseas service. We want to improve our quality as we always do. Of course, in the long run, we will extend our footprint on the cross border transportation and delivery. We are also going to improve our [ local capacities. ] That is also one direction we will focus on. We want to improve the [indiscernible] and comprehensive services even to our international clients.
I want to add a few more words. The internal client sales increase is due to the readjustment of internal business, and we are seeing a year-over-year increase. By quarter 3, we are seeing the minimal impact of the reconstructuring of other companies.
Next question. We want to see next question.
Thank you for briefing the remarks and other questions. The first question is the macroeconomic situation. My question is when there is a lot of uncertainties in the macro economy, what is your forecast on the 2024? That's my first question.
For the second question, about the clients, the number of clients in Q3 store a steady growth. My question is in the upcoming quarters and the revenue increase potential, are you going to focus on the number of clients or the ARPC? If you are focusing ARPC, would you set up a KPI to target each of the clients?
The first question first, about future forecast. For the logistics industry, we have to be focusing on several key points. The cost effectiveness, the customer experiences, those are the 2 pillars we have to focus on, the quality of the services, the quality of the -- the responsiveness of the service, the ultimate time precision, those are the points we have to remember. Right now, according to what we have, we will improve our pillars on that side.
As you mentioned and as we mentioned, we are focused on the 6 major industries to create new value, will go deeper and penetrate more in the market, such as the fresh fruit. We will continue and satisfy the specific requirements of the 3 industries. That is the key thing we are going to work on. That is what we could do better on the ISC service. That is how we can help more clients to address their pain points and reduce sales costs. At the end of the day, we'd help them to enjoy better experiences.
In the upcoming years, we are going to reduce cost in a continuous manner and improving the efficiency, such as resource optimization, the optimization of the network as well as precise and refined management. Those are the tools we are continuing to reduce the cost of the operation, improving the application of the better technologies. We want to serve better our clients, and we also want to meet our own internal growth momentum. Thank you.
For the ISC question about the growth momentum, ISC refers to be better and closer relations with our clients. It's more than sending an EV package. It's not about handing the package to a third party. The number of clients is one of the key KPIs. However, at the end of last year, we are seeing some adjustment of the business. The number of clients were on the decline; however, in Q3, we are seeing a quarter-to-quarter growth in terms of number of the clients. And after the adjustment of the business, we are seeing new growth curve. By 2024 we expect to see year-over-year growth on the number of clients.
The ISC ARPC is showcasing the depth of collaboration with declines. We are one -- we want to do more for optimizing the client's wallet. We want to improve the health, the quality of the clients, and that is something we have already been accomplished. As ARPC goes up, the quarter-to-quarter growth and in upcoming years, we are going to see the year-over-year growth, which means that ISC revenue will boost.
Next question.
[indiscernible] from Citic.
Thank you very much for your prepared remarks. Congratulations. Thank you for showing us your wonderful performance. My question is about profitability. In Q3, the gross margin, the net profits are improving significantly. So I want to ask a question about the future prospects in Q4. What's your take on Q4? We believe that Q4 is a good business reason and what kind of outcomes you are expecting? And by the end of the year, do you have more forecast. And in the long run, what is the forecast of the profit and gross margin?
In Q3, we see a great improvement on the profit and margin. We took a lot of measures such as better operation, the customer quality, the structure of the business. The service capacities, good capacities of these customers serving help us do grab some high-profit markets in the supply chain, in the procurement. And in operation, we did a lot of things in Q4. Q4 is a hot season for the industry. The profitability would go up year-over-year or it would go steadily as we see. We believe that Q4 could create year-over-year growth looking to the future. For the logistics industry, the market competition is very fierce. We can maintain a very healthy margin level.
If you could also help the company to improve the market proportion. That is a good starting point. And it is also the right direction for us to move on. In 2024, even looking to the future, we will provide a good and positive return to investors; however, we are not going to pursue extreme profit increase. That is not going to hurt our business. We just want to maintain a healthy and stable return while maintaining long-term opportunity to improve our market share.
Due to time sake, we are going to conclude our Q&A session. Now we are going to welcome Mao Jun to conclude this session.
Thank you for your joining us today. If you have more questions, please contact our IR team directly. Thank you for staying with us.