ZTO Reports Second Quarter 2023 Unaudited Financial Results

Expanded Market Share to 23.5% with 7.7 Billion Parcels
Grew Adjusted Net Income 43.9% to Reach RMB2.5 Billion
Annual Volume Guidance Reiterated to Grow 20%-24%

SHANGHAI, Aug. 29, 2023 /PRNewswire/ -- ZTO Express (Cayman) Inc. (NYSE: ZTO and SEHK: 2057), a leading and fast-growing express delivery company in China ("ZTO" or the "Company"), today announced its unaudited financial results for the second quarter ended June 30, 2023^[1]. The Company grew parcel volume by 23.8% year over year and expanded market share to 23.5%. Adjusted net income increased 43.9%^[2] to reach RMB2,531.0 million. Cash generated from operating activities was RMB3,761.6 million.

Second Quarter 2023 Financial Highlights

• Revenues were RMB9,740.3 million (US$1,343.3 million), an increase of 12.5% from RMB8,656.7 million in the same period of 2022.
• Gross profit was RMB3,304.4 million (US$455.7 million), an increase of 50.0% from RMB2,202.8 million in the same period of 2022.
• Net income was RMB2,530.2 million (US$348.9 million), an increase of 43.9% from RMB1,758.7 million in the same period of 2022.
• Adjusted EBITDA^[3] was RMB3,883.9 million (US$535.6 million), an increase of 34.3% from RMB2,892.0 million in the same period of 2022.
• Adjusted net income was RMB2,531.0 million (US$349.0 million), an increase of 43.9% from RMB1,758.7 million in the same period of 2022.
• Basic and diluted net earnings per American depositary share ("ADS"^[4]) were RMB3.14 (US$0.43) and RMB3.07 (US$0.42), an increase of 40.8% and 37.7% from RMB2.23 and RMB2.23 in the same period of 2022, respectively.
• Adjusted basic and diluted earnings per American depositary share attributable to ordinary shareholders^[5] were RMB3.14 (US$0.43) and RMB3.07 (US$0.42), an increase of 40.8% and 37.7% from RMB2.23 and RMB2.23 in the same period of 2022, respectively.
• Net cash provided by operating activities was RMB3,761.6 million (US$518.8 million), compared with RMB3,780.8 million in the same period of 2022.

Operational Highlights for Second Quarter 2023

• Parcel volume was 7,677 million, an increase of 23.8% from 6,203 million in the same period of 2022.
• Number of pickup/delivery outlets was over 31,000 as of June 30, 2023.
• Number of direct network partners was approximately 6,000 as of June 30, 2023.
• Number of self-owned line-haul vehicles was over 10,000 as of June 30, 2023.
• Out of the over 10,000 self-owned trucks, over 9,300 were high capacity 15 to 17-meter-long models as of June 30, 2023, compared to over 9,250 as of June 30, 2022.
• Number of line-haul routes between sorting hubs was approximately 3,800 as of June 30, 2023, compared to approximately 3,700 as of June 30, 2022.
• Number of sorting hubs was 96 as of June 30, 2023, among which 87 are operated by the Company and 9 by the Company's network partners.

Mr. Meisong Lai, Founder, Chairman and Chief Executive Officer of ZTO, commented, "Amidst an overall soft economic environment, we achieved solid performance results in the second quarter. We continued to widen our lead in industry volume, market share and net profit while maintaining high levels of services quality and customer satisfaction. At 23.5% market share for the second quarter, our 7.7 billion parcels brought in 2.5 billion of net income as we firmly execute our consistent corporate strategy and dig deeper on company-wide initiatives that focus on quality of earnings and strength of partner network."

Mr. Lai added, "With near term uncertainties in the marketplace, it is more crucial for us to stay disciplined and stay long-term focused. The nature of our business is not that of a quick sprint, and short-term strategies often generate gains that are not only costly but also unsustainable. Our immediate pricing strategy is either defensive or offensive on a case-by-case basis given strategic considerations. Meanwhile, we are enabling our network partners to direct their financial resources towards ramping up their pickup-delivery capabilities to synch up with our sort-transit network so that the ZTO brand value, particularly associated with timeliness, can be meaningfully differentiated so as to drive long-term pricing power and shareholder value."

Ms. Huiping Yan, Chief Financial Officer of ZTO, commented, "Core express ASP decreased 7.8% as a combined result from mix impact of KA volume decrease, pricing adjustments to attract lighter or smaller packages and volume incentives. Combined unit sorting and transportation cost decreased over 15%, or 12 cents thanks to scale leverage and continued productivity gain through standardization and digitization programs. SG&A as a percentage of revenue remained stable at approximately 5%. Cash flow from operating activities was 3.8 billion, and capital spending outlay was 2.2 billion."

Ms. Yan added, "ZTO is focused on profitable growth and our track records have been consistent in that regards. We have established a clear leadership in all three aspects of our strategic focus, that is, service quality, volume and market share, and net profit. We have strong financial resources, staying power and a healthy partner network. In times of macro-economic uncertainties, and facing digressive competitive behaviors in the industry, we are even more diligent and disciplined to carry out appropriate actions. We are reiterating our 2023 volume growth guidance of 20% to 24%. More importantly, we are keeping our eyes on the future in strengthening long-term competitive edge, because the vast opportunities ahead will favor those who are well-prepared."

Total Revenues were RMB9,740.3 million (US$1,343.3 million), an increase of 12.5% from RMB8,656.7 million in the same period of 2022. Revenue from the core express delivery business increased by 14.1% compared to the same period of 2022, as a combined result of a 23.8% increase in parcel volume and a 7.8% decrease in parcel unit price. KA revenue (includes delivery fees) from direct sales organizations, established to serve core express KA customers, decreased 40.1% through either reengagement of partner outlets who can serve just as well or rationalization due to loss-making. Revenue from freight forwarding services decreased by 27.6% compared to the same period of 2022 due to shrinking cross border e-commerce demand and declining pricing. Revenue from sales of accessories, largely consisted of sales of thermal paper used for digital waybills' printing, increased by 33.8% in line with parcel volume growth. Other revenues were mainly derived from financing services.

Total cost of revenues was RMB6,435.9 million (US$887.6 million), a decrease of 0.3% from RMB6,453.9 million in the same period last year.

Line haul transportation cost was RMB3,199.8 million (US$441.3 million), an increase of 5.6% from RMB3,029.9 million in the same period last year. The unit transportation cost decreased 14.7% or 7 cents mainly attributable to better economies of scale, optimized line-haul route planning and decreased fuel price. There were approximately 50 more self-owned high-capacity vehicles in operation compared to the same period last year which helped to improve operating efficiencies.

Sorting hub operating cost was RMB1,934.7 million (US$266.8 million), an increase of 2.3% from RMB1,891.4 million in the same period last year. The increase primarily consisted of (i) RMB47.1 million (US$6.5 million) increase in labor-associated costs, a net result of wage increases partially offset by automation-driven efficiency improvement and (ii) RMB35.4 million (US$4.9 million) increase in depreciation and amortization costs associated with automation equipment and other facilities, partially offset by (iii) RMB39.2 million (US$5.4 million) decrease in utilities. With standardization in operating procedures, improved performance evaluation system, the unit sorting cost decreased 17.4% or 5 cents. As of June 30, 2023, 460 sets of automated sorting equipment were in service, compared to 431 sets as of June 30, 2022 which enhanced overall sorting operational efficiencies.

Cost of accessories sold was RMB126.7 million (US$17.5 million), increased 5.7% compared with RMB119.9 million in the same period last year.

Other costs were RMB952.4 million (US$131.3 million), a decrease of 13.9% from RMB1,105.6 million in the same period last year. The decrease mainly consisted of (i) RMB258.2 million (US$35.6 million) decrease in dispatching costs serving enterprise customers, (ii) increase of RMB79.1 million (US$10.9 million) in information technology and related costs, and (iii) increase of RMB23.6 million (US$3.3 million) in Tax surcharge.

Gross Profit was RMB3,304.4 million (US$455.7 million), increased 50.0% from RMB2,202.8 million in the same period last year as a combined result of increased revenues and cost productivity gain. Gross margin rate improved to 33.9% from 25.4% for the same period last year.

Total Operating Expenses were RMB425.7 million (US$58.7 million), compared to RMB217.3 million in the same period last year.

Selling, general and administrative expenses were RMB504.6 million (US$69.6 million), increased by 10.4% from RMB456.9 million in the same period last year, mainly due to the increases of compensation and benefits.

Other operating income, net was RMB79.0 million (US$10.9 million), compared to RMB239.6 million in the same period last year. Other operating income mainly consisted of (i) government subsidies and tax rebates of RMB68.0 million (US$9.4 million), (ii) RMB41.9 million (US$5.8 million) of VAT super deduction, (iii) RMB39.1 million (US$5.4 million) of rental income, partially offset by (iv) RMB70.0 million (US$9.7million) loss from machinery and equipment, due to the upgrading of automated sorting equipment.

Income from operations was RMB2,878.8 million (US$397.0 million), an increase of 45.0% from RMB1,985.5 million for the same period last year.

Operating margin rate increased to 29.6% from 22.9% in the same period last year.

Interest income was RMB167.1 million (US$23.0 million), compared with RMB118.5 million in the same period last year.

Interest expenses was RMB72.2 million (US$10.0 million), compared with RMB23.1 million in the same period last year.

Gain from fair value changes of financial instruments was RMB51.6 million (US$7.1 million), compared with a loss of RMB13.6 million in the same period last year. Such gain or loss from fair value changes of the financial instruments are determined by selling banks according to market-based estimation of future redemption prices.

Income tax expenses were RMB575.6 million (US$79.4 million) compared to RMB438.2 million in the same period last year. Overall income tax rate decreased by 1.5 percentage points this quarter compared to the same period last year due to a decreased mix of taxable income generated by local operating entities, taxes at the full 25% tax rate, than taxable income from one of the headquarter entities that enjoys a 15% preferential rate given its High and New Technology Enterprise qualification.

Net income was RMB2,530.2 million (US$348.9 million), which increased by 43.9% from RMB1,758.7 million in the same period last year.

Basic and diluted earnings per ADS attributable to ordinary shareholders were RMB3.14 (US$0.43) and RMB3.07 (US$0.42), compared to basic and diluted earnings per ADS of RMB2.23 and RMB2.23 in the same period last year, respectively.

Adjusted basic and diluted earnings per ADS attributable to ordinary shareholders were RMB3.14 (US$0.43) and RMB3.07 (US$0.42), compared with RMB2.23 and RMB2.23 in the same period last year, respectively.

Adjusted net income was RMB2,531.0 million (US$349.0 million), compared with RMB1,758.7 million during the same period last year.

EBITDA^[1] was RMB3,883.1 million (US$535.5 million), compared with RMB2,892.0 million in the same period last year.

Adjusted EBITDA was RMB3,883.9 million (US$535.6 million), compared to RMB2,892.0 million in the same period last year.

Net cash provided by operating activities was RMB3,761.6 million (US$518.8 million), compared with RMB3,780.8 million in the same period last year.

Business Outlook

Based on current market and operating conditions, the Company reiterates that its parcel volume for 2023 is expected to be in the range of 29.27 billion to 30.24 billion, representing a 20% to 24% increase year over year. Further, the Company remains committed to achieve at least 1.5 percentage point increase in volume market share for the entire year. Aforementioned estimates represent management's current and preliminary view, which are subject to change.

Supplemental Information on Zhongrong Trust Product

Through other public announcements, the Company became aware of the delay in repayments by Zhongrong International Trust Co. Ltd. ("Zhongrong Trust") of certain trust products under its management after Zhongrong Trust's second-largest shareholder, Zhongzhi Enterprise Group Co. Ltd., reportedly faced liquidity issues. The Company currently has two outstanding tranches in one of the products managed by Zhongrong Trust. The aggregate principal amount of these two investment tranches is RMB100 million, representing 0.4% of the Company's cash and cash equivalents, short-term and long-term investments as of June 30, 2023. These two tranches are due for redemption on August 24 and November 22, 2023, respectively. The Company has been proactively following up with Zhongrong Trust on the latest status. As of the date of this press release, it remains uncertain whether Zhongrong Trust will be able to make redemption payments upon maturity. The Company will continue to closely follow-up and provide updates to investors of any progress. The Company is prepared to take appropriate actions against Zhongrong Trust to protect its legal rights under the trust agreements and applicable laws and regulations.

Company Share Purchase

On November 14, 2018, the Company announced a share repurchase program whereby ZTO was authorized to repurchase its own Class A ordinary shares in the form of ADSs with an aggregate value of up to US$500 million during an 18-month period thereafter. On March 13, 2021, the board of directors of the Company approved the extension of the active share repurchase program to June 30, 2021. On March 31, 2021, the board of directors has approved changes to the share repurchase program, increasing the aggregate value of shares that may be repurchased from US$500 million to US$1 billion and extending the effective time by two years through June 30, 2023. On November 17, 2022, the board of directors has approved further changes to the share repurchase program, increasing the aggregate value of shares that may be repurchased from US$1 billion to US$1.5 billion and extending the effective time by one year through June 30, 2024. The Company expects to fund the repurchases out of its existing cash balance. As of June 30, 2023, the Company has purchased an aggregate of 38,473,231 ADSs at an average purchase price of US$25.18, including repurchase commissions.

Exchange Rate

This announcement contains translation of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the exchange rate of RMB7.2513 to US$1.00, the noon buying rate on June 30, 2023 as set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve Systems.

Use of Non-GAAP Financial Measures

The Company uses EBITDA, adjusted EBITDA, adjusted net income, adjusted net income attributable to ordinary shareholders, and adjusted basic and diluted earnings per American depositary share attributable to ordinary shareholders, each a non-GAAP financial measure, in evaluating ZTO's operating results and for financial and operational decision-making purposes.

Reconciliations of the Company's non-GAAP financial measures to its U.S. GAAP financial measures are shown in tables at the end of this earnings release, which provide more details about the non-GAAP financial measures.

The Company believes that EBITDA, adjusted EBITDA, adjusted net income, adjusted net income attributable to ordinary shareholders and adjusted basic and diluted earnings per American depositary share attributable to ordinary shareholders help identify underlying trends in ZTO's business that could otherwise be distorted by the effect of the expenses and gains that the Company includes in income from operations and net income. The Company believes that EBITDA, adjusted EBITDA, adjusted net income, adjusted net income attributable to ordinary shareholders and adjusted basic and diluted earnings per American depositary share attributable to ordinary shareholders provide useful information about its operating results, enhance the overall understanding of its past performance and future prospects and allow for greater visibility with respect to key metrics used by ZTO's management in its financial and operational decision-making.

EBITDA, adjusted EBITDA, adjusted net income, adjusted net income attributable to ordinary shareholders and adjusted basic and diluted earnings per American depositary share attributable to ordinary shareholders should not be considered in isolation or construed as an alternative to net income or any other measure of performance or as an indicator of the Company's operating performance. Investors are encouraged to compare the historical non-GAAP financial measures to the most directly comparable GAAP measures. EBITDA, adjusted EBITDA, adjusted net income, adjusted net income attributable to ordinary shareholders and adjusted basic and diluted earnings per American depositary share attributable to ordinary shareholders presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to ZTO's data. ZTO encourages investors and others to review the Company's financial information in its entirety and not rely on a single financial measure.

Conference Call Information

ZTO's management team will host an earnings conference call at 8:30 PM U.S. Eastern Time on Tuesday, August 29, 2023 (8:30 AM Beijing Time on August 30, 2023).

Dial-in details for the earnings conference call are as follows:

Please dial in 15 minutes before the call is scheduled to begin and provide the passcode to join the call.

A replay of the conference call may be accessed by phone at the following numbers until September 5, 2023:

Additionally, a live and archived webcast of the conference call will be available at http://zto.investorroom.com.

About ZTO Express (Cayman) Inc.

ZTO Express (Cayman) Inc. (NYSE: ZTO and SEHK:2057) ("ZTO" or the "Company") is a leading and fast-growing express delivery company in China. ZTO provides express delivery service as well as other value-added logistics services through its extensive and reliable nationwide network coverage in China.

ZTO operates a highly scalable network partner model, which the Company believes is best suited to support the significant growth of e-commerce in China. The Company leverages its network partners to provide pickup and last-mile delivery services, while controlling the mission-critical line-haul transportation and sorting network within the express delivery service value chain.

For more information, please visit http://zto.investorroom.com.

Safe Harbor Statement

This announcement contains statements that may constitute "forward-looking" statements pursuant to the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "aims," "future," "intends," "plans," "believes," "estimates," "likely to," and other similar expressions. Among other things, the business outlook and quotations from management in this announcement contain forward-looking statements. ZTO may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the "SEC") and The Stock Exchange of Hong Kong Limited (the "HKEX"), in its interim and annual report to shareholders, in announcements, circulars or other publications made on the website of the HKEX, in press releases and other written materials, and in oral statements made by its officers, directors, or employees to third parties. Statements that are not historical facts, including but not limited to statements about ZTO's beliefs, plans, and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: risks relating to the development of the e-commerce and express delivery industries in China; its significant reliance on certain third-party e-commerce platforms; risks associated with its network partners and their employees and personnel; intense competition which could adversely affect the Company's results of operations and market share; any service disruption of the Company's sorting hubs or the outlets operated by its network partners or its technology system; ZTO's ability to build its brand and withstand negative publicity, or other favorable government policies. Further information regarding these and other risks is included in ZTO's filings with the SEC and the HKEX. All information provided in this announcement is as of the date of this announcement, and ZTO does not undertake any obligation to update any forward-looking statement, except as required under applicable law.