NYSE:ZKH ZKH Group Q1 2025 Earnings Report $2.84 -0.08 (-2.60%) Closing price 05/30/2025 03:48 PM EasternExtended Trading$2.93 +0.08 (+2.88%) As of 05/30/2025 04:01 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. ProfileEarnings HistoryForecast ZKH Group EPS ResultsActual EPSN/AConsensus EPS -$0.33Beat/MissN/AOne Year Ago EPSN/AZKH Group Revenue ResultsActual RevenueN/AExpected Revenue$1.85 billionBeat/MissN/AYoY Revenue GrowthN/AZKH Group Announcement DetailsQuarterQ1 2025Date5/20/2025TimeBefore Market OpensConference Call DateTuesday, May 20, 2025Conference Call Time8:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (6-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by ZKH Group Q1 2025 Earnings Call TranscriptProvided by QuartrMay 20, 2025 ShareLink copied to clipboard.PresentationSkip to Participants Operator00:00:00Ladies and gentlemen, good day, and welcome to ZKH Group Limited's First Quarter twenty twenty five Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jin Li, Head of Investor Relations. Please go ahead. Jin LiHead of Investor Relations at ZKH Group00:00:20Thank you, operator. Thank you, everyone, and welcome to our call today. Joining us today are Mr. Eric Chen, our Founder, Chairman and Chief Executive Officer and Ms. Max Lai, our Chief Financial Officer. Jin LiHead of Investor Relations at ZKH Group00:00:36Before turning the call over to Eric, I'd like to briefly review our Safe Harbor provisions. Please note that the comments made during today's call represent management's views as of today and may include forward looking statements. Please refer to our latest Safe Harbor statement in the earnings release on our IR website. We will also discuss certain non GAAP financial measures for comparison purpose only. Please refer to the earnings release for definitions of these made years and a reconciliation of GAAP to non GAAP results. Jin LiHead of Investor Relations at ZKH Group00:01:21With that, I will now turn the call over to Eric. Eric, please go ahead. Long ChenFounder, Chairman & CEO at ZKH Group00:02:23Hello, everyone. Thank you for joining our first quarter twenty twenty five earnings conference call for ZKH. In the first quarter, our platforms continued to gain momentum with the total number of customers exceeding 60,000, representing a 30.3% year over year increase. Sales to industry key accounts and regional SME customers both achieved double digit growth. However, sales to state owned enterprise or SOE and central SOE customers declined significantly year over year in the first quarter, mainly due to the high comparison base last year and a result of our business optimization initiatives since the second half of twenty twenty four. Long ChenFounder, Chairman & CEO at ZKH Group00:03:14Consequently, our first quarter revenue reached RMB1.94 billion, representing a 4% increase year over year. Regarding margins, our operating loss was approximately million and our net loss was around RMB66 million, representing meaningful improvements of 37.726.6% year over year respectively. Despite the negative impact seasonal impact from the Chinese New Year in January and February, We were able to achieve single month profitability in March. We would like to emphasize that this achievement was reached despite investments in our U. S. Long ChenFounder, Chairman & CEO at ZKH Group00:05:07Operations and in the absence of government subsidies in the first quarter of this year and like the same period last year. This demonstrates that the profitability of our domestic business continues to strengthen at the operational level. Additionally, our cash flow remains resilient and shows continued improvement. Net cash outflow from operating activities was RMB97 million in the first quarter compared to an outflow of RMB220 million in the same period last year. This continued improvement underscores our strong financial resilience. Long ChenFounder, Chairman & CEO at ZKH Group00:06:45Now let's shift our focus to our domestic and global business performance in the first quarter along with our platform developments and advancements in the use of AI technologies. In the first quarter, we delivered solid high quality growth both domestically and globally. Starting with our domestic business. Our dual platform strategy aims to meet diverse customer demands. The ZKH platform serves mid to large sized enterprise customers, while the GBB platform caters to micro and small businesses through an e commerce model. Long ChenFounder, Chairman & CEO at ZKH Group00:08:50The ZKH platform experienced strong growth in both sales and customer numbers from our industry key accounts. GMV from these key accounts increased by 19.7% year over year with over 20% growth in sectors such as new energy vehicles, electricals, telecommunications and electronics and pharmaceuticals. This success is the result of our targeted efforts to curate and manage industry specific and customer specific product pools, leveraging AI to gain deeper insights into customer needs and provide tailored product selection and recommendations, which also help to increase our wallet share. As enterprise procurement continues to shift online and as we expand our coverage to more Ka customers, sub factories and enhance our cross selling capabilities across production lines, We remain confident that our sales to industry key accounts will maintain strong growth momentum. For regional SME customers, our region based service and grid based staffing strategies yielded positive outcomes. Long ChenFounder, Chairman & CEO at ZKH Group00:10:53In the first quarter, both sales and customer numbers from regional SME customers on the ZKH platform recorded double digit growth. Notably sales in several regions including Guangdong, Zhejiang and Fujian provinces as well as Beijing each posted more than 20% year over year growth. This strong performance was attributable to our enhanced local services for regional customers as well as accelerated factory coverage, market reach and customer acquisition. For SOE and central SOE customers, our sales declined significantly year over year in the first quarter, mainly due to the high comparison base in the same period last year and the result of our business optimization initiatives since the second half of last year. As we mentioned during our last earnings call, we have completed these business adjustments and the impact has gradually tapered off. Long ChenFounder, Chairman & CEO at ZKH Group00:12:42Our SOE and central SOE business have entered a stabilization phase in the first quarter. We remain confident that building on our supply chain advantages and the proven value we deliver to customers, our SOE and central SOE business will regain growth momentum in the second half of this year. Regarding gross margin, driven by our optimized procurement costs and rapid GMV growth from our high margin private label products, both the gross margin of our product sales model or 1P and the take rate of our marketplace model or 3P on the ZKH platform improved significantly. This marked the fifth consecutive quarter of year over year improvement in both gross margin and take rate, highlighting our team's strong execution in cost reduction and efficiency enhancement. In the first quarter, the GMV of our private label products exceeded RMB190 million, an increase of approximately 40% year over year. Long ChenFounder, Chairman & CEO at ZKH Group00:16:03Now let's turn to the GBB platform. Our strategic partnership with Tmall has been fruitful. Since our partnership began in the fourth quarter of last year, GBB has operated eight stores on Tmall as of the March. We expect that the total number of stores will reach 24 by the end of this year. In the first quarter, this business segment on Tmall achieved a quarter over quarter sales growth of over 260%. Long ChenFounder, Chairman & CEO at ZKH Group00:16:39Customer growth on GBB platform also accelerated with over 24,000 customers, up 73% year over year benefiting from our strengthened Tmall partnership. As we expanded our store footprint on Tmall to reach more SME and micro businesses and focused on high margin MRO categories. Our gross margins for GBB platform improved significantly in the first quarter. With more stores lined up to launch and start operations on Tmall this year, we expect maintaining strong growth momentum in our Tmall business across sales, customer base and gross margin, thereby driving the overall growth of the GBB platform. Overall, the Chinese MRO market is vast and highly fragmented with online penetration still at a relatively modest level. Long ChenFounder, Chairman & CEO at ZKH Group00:18:59We believe China's MRO market offers extensive potential to propel both scale and profitability growth. As for our global expansion, The United States has been our first destination. Our U. S. Subsidiary NorthSky and our U. Long ChenFounder, Chairman & CEO at ZKH Group00:19:19S. Standalone website officially launched in December. We have implemented a localization strategy in The U. S. Market, leveraging our supply chain strengths, offering selected high value for money products and utilizing innovative technologies to establish a strong presence. Long ChenFounder, Chairman & CEO at ZKH Group00:19:43By the March, the NorthSky platform had launched over 500 SKUs across categories such as personal protective equipment or PPE, hand tools, power tools, packaging and HVAC systems. Notably, our power tools, hand tools and PPE categories have steadily risen in Google search rankings. In the first quarter, both revenue and customer numbers doubled month over month. In the second half of the year, we plan to launch a mobile app version of our U. S. Long ChenFounder, Chairman & CEO at ZKH Group00:21:17Standalone website, while scaling our SKU portfolio beyond 1,500 items to further enhance product coverage and customer experience. Our goal is to provide the world's best MRO offerings across global markets. We have actively initiated global supplier recruitment efforts and thus far have secured an array of high quality suppliers in Southeast Asia, allowing us to flexibly choose sourcing locations based on business needs. As we continue to expand our SKU portfolio, strengthen supply chain capabilities, enhance user experience and foster user mindshare. We believe we are well positioned to accelerate our U. Long ChenFounder, Chairman & CEO at ZKH Group00:22:11S. Business growth in the second half of the year. Moving on to AI technology development and applications. We possess a specialized database of industrial supplies covering 17,000,000 SKUs and over a billion industrial product parameters. Leveraging our deep industry expertise and our self developed large language model for industrial supplies. Long ChenFounder, Chairman & CEO at ZKH Group00:24:06Our goal is to build an end to end matrix of AI tools tailored to the industrial supplies vertical with integrated capabilities for delivering tangible outcomes. Over the past two years, we have successfully developed and deployed more than 10 AI powered applications to improve our internal operational efficiency and enhance customer service capabilities. To illustrate advancements in our operational efficiency, take the order processing scenario as an example. Previously customer service teams manually entered each order into our system. To optimize this, we have developed the AI smart workbench, which seamlessly combines natural language processing with our ERP platform. Long ChenFounder, Chairman & CEO at ZKH Group00:25:01This innovation enables order creation via simple conversational commands, greatly boosting both efficiency and accuracy. With the implementation of this AI smart workbench, our customer service team has achieved a 60.4% quarter over quarter increase in the average number of orders processed per team member in the first quarter. On the customer service capabilities front, one notable example is the material standardization and management scenario. Using AI technologies, our AI material management agent can rapidly structure and standardize complex and diverse material descriptions from customers and suppliers. It then generates standardized catalog parameters enabling one to one item coding. Long ChenFounder, Chairman & CEO at ZKH Group00:27:39What previously required several days of work by multiple team members can now be completed in just a few hours, drastically reducing material sorting and management costs, while also improving accuracy. Another example of our enhanced customer service capabilities is the product selection and recommendation scenario. Our AI product recommendation agent deeply analyzes MRO use cases to glean precise insights into customer procurement needs and enables automated management of customer specific product pools. This has significantly improved the efficiency and accuracy of product selection and recommendation. Since its launch in September 2024, our AI product recommendation agent has analyzed procurement needs and managed product pools for over 200 customers, driving over RMB34 million in revenue growth. Long ChenFounder, Chairman & CEO at ZKH Group00:28:49This year, we plan to scale up our AI product recommendation agent to cover 14,000 customers targeting even greater business growth. Looking ahead, despite external challenges and uncertainties, we believe the VKH has entered a new phase of long term sustainable growth underpinned by two years of organizational strengthening and core competency solidification. We are now well positioned to drive forward with a dual focus on both domestic and international markets, powered by AI and product innovation and anchored in our industry leading expertise in the MRO sector. Now, I'll turn the call over to our CFO, Max Lai to present our financial results. Thank you, everyone. Chun Chiu LaiChief Financial Officer at ZKH Group00:30:33Thank you, Eric, and thanks, everyone, for making time to join our earnings call today. I'm pleased to share our financial performance for the last quarter, which reflects a solid start to the year, characterized by resilient revenue growth, improving profitability and significant enhancement in our operating cash flow. In the past quarter, our total GMV reached RMB2.17 billion. While this modest decline, it is largely due to a high comparison base from last year, which included FOE and central FOE customers' low margin business with extended credit terms that we have seen optimized. When excluding these factors, our underlying GMV maintained robust double digit year over year growth. Chun Chiu LaiChief Financial Officer at ZKH Group00:31:20Notably, we are seeing strong growth in sectors such as new energy vehicles, electronics, telecommunications and pharmaceuticals. Total net revenues rose 4% year over year to RMB1.9 billion, primarily driven by high single digit year over year increase in product sales revenue. As anticipated, marketplace revenue declined due to the prior year's high comparison base as mentioned above. This solid top line performance underscores the enduring strength of our product offering, enhanced supply chain capabilities and growing customer engagement. Looking ahead, we expect the impact of last year's base to continue to diminish in the next quarters, positioning us for sustained top line growth. Chun Chiu LaiChief Financial Officer at ZKH Group00:32:13Simultaneously, we are committed to improving operational efficiency, driving elevated business quality and profitability through targeted strategic initiatives, including organizational refinement and AI driven product innovation. Regarding margins, our gross profit margin slightly decreased to 17.2% from 18% in the prior year period, primarily due to lower revenue contributions from our marketplace model. However, on a GMV basis, our gross profit margin continues to trend upward. Gross profit margin from our product sales model improved with increases of 58 basis points to 16.6% on ZK platform and 67.5 basis points to 6.2% on GPB platform. And marketplace take rate increased by 235.9 basis points year over year to 14%. Chun Chiu LaiChief Financial Officer at ZKH Group00:33:18These gains reflect the effectiveness of our strategic business optimization, improved the procurement efficiency and a greater contribution from high margin private label products. Turning to cost efficiency. Our operating expenses decreased by 10.9% year over year to RMB412.9 million, reflecting reduction across all major expense categories. Notably, this improvement was achieved despite incurring approximately RMB10 million in U. S. Chun Chiu LaiChief Financial Officer at ZKH Group00:33:53Related expenses, which were absent in the last year. This demonstrates our continued commitment to cost discipline and operational efficiency for our domestic operations, driven by streamlined organizational structure and enhanced workforce productivity. As a percentage of total revenue, operating expenses decreased to 21.3%, down from 24.9% year over year. Excluding share based compensation, this ratio improved to 20.5% from 22.4% in the prior year period. Breaking it down further, fulfillment expenses were RMB93.3 million, up 4.3% year over year decrease, primarily due to reduced employee benefits and warehouse rental costs. Chun Chiu LaiChief Financial Officer at ZKH Group00:34:50Sales and marketing expenses declined by 16.6% to million, primarily attributable to lower employee benefits and travel related spending. R and D expenses remained stable at RMB39.6 million, down slightly by 0.6% year over year, and savings in employee benefits were offset by increased spending on technology and information services. General and administrative expenses were RMB143.2 million, down 11.8% year over year, mainly reflecting lower share based compensation, partially offset by higher employee benefits. It is worth noting that our G and A expenses also include employee benefits for product life personnel as well as other product life related costs, which supports the development and enhancement of our product competitiveness. As a result, our profit our profitability metrics showed significant improvement. Chun Chiu LaiChief Financial Officer at ZKH Group00:36:05Loss from operations narrowed to RMB18.8 million from RMB129.6 million, with margins improving to 4.2% from 7%. This reflects a substantial enhancement in our operating level profitability. We also delivered meaningful improvement in operating cash flow with outflow reduced to RMB97.1 million compared to RMB224.3 million in the prior year period. This reduction is testament to our narrowed losses and effective working capital management bolstered by improved capital utilization and operational execution. In summary, the above mentioned results validate the strength of our strategy and effectiveness of the execution. Chun Chiu LaiChief Financial Officer at ZKH Group00:37:01We are progressing towards our 2025 goals with discipline and strategic focus, supported by enhancements in business quality and steady margin improvement. We believe that as we expand our product portfolio, deepen supply chain integration and implement AI technologies across our operations, we are well positioned to enhance our market penetration and accelerate global expansion, delivering long term value for our customers, merchants, partners and shareholders. Thank you for your attention. I look forward to your questions. Operator, will you go ahead? Operator00:38:39The first question comes from Leo Chang with Deutsche Bank. Please go ahead. Leo ChiangEquity Research Analyst at Deutsche Bank00:39:14I'll translate myself. So I have two questions. My first question is that could management share what are the impacts from tariffs on your domestic and The U. S. Business respected and the majors taken by the company? Leo ChiangEquity Research Analyst at Deutsche Bank00:39:32My second question is that, is there a timeline for entering new markets beyond The U. S. Such as Europeans? Thank you. Moderator00:41:21Thank you very much for that question. Moderator00:41:23I think that U. S. Tariffs, when it comes to our overseas business, is not really a negative piece of news. It is to some in some sense, it's actually a tailwind for us to expand our U. S. Moderator00:41:35Business. We believe all of the changes in the market and in the prices offer new opportunities for us. Specifically, there's two things. Firstly, The U. S. Moderator00:41:46Does not produce MROs themselves. They primarily need to import from geographies like China and Southeast Asia. And in order to tackle potential changes, we had already prepared a lot of suppliers or built up this reserve of suppliers way back when from ex China markets, especially Southeast Asia. And now because of that preparation, we are able to source accordingly based on business needs. So that's very important for us. Moderator00:42:18And this also goes to show that in the MRO business as an intermediary or as a channel or marketplace, when there's uncertainties in the market, we can actually become more proactive and take more initiative and have more flexibility. So The U. S. Is our first step in our overseas in our foray into overseas markets, and we currently have 500 SKUs available there. More will be coming soon. Moderator00:44:43And with these SKUs being available, we can use this as a base to sell into other geographies like Europe and Canada. Starting second half of this year, we will start our business in Europe and we are already in the preparatory phase for that. And when it comes to the European market, there's two aspects. One is online, the other is offline. So for online, we will be able to cover the entire Europe by selling via e commerce. Moderator00:45:14And with offline, we will be focusing on two countries, Germany and Hungary. So basically, some Chinese companies are already they already have a presence in those countries and we will first serve those Chinese customers of ours there in those countries. And Germany already has a very advanced MRO business. And in terms of other geographies, Southeast Asia, we started our business in Southeast Asia. Our Thailand our company in Thailand has finished registration and started operations. Moderator00:45:52And as was said before in other earnings calls, Southeast Asia in the short term, we will be serving Chinese companies that have set up a footprint there first. That was actually my answer to your question. Moderator00:46:24Thank you. Operator00:46:25Mr. Chang, is there a follow-up to your question? Moderator00:46:35No, that was the answer to the question said Mr. Chen. Operator00:46:42Thank you. The next question comes from Xiaodan Zhang with CICC. Please go ahead. Xiaodan ZhangEquity Research Analyst at China International Capital Corporation (CICC)00:47:05So thanks for taking my questions. And could you please share some updates on this year's product strategy, including the key product categories to be developed as well as your private label brands? Thank you. Moderator00:49:25We currently have 32 product lines standing across five categories and they are spare parts, chemicals, processing manufacturing, general consumables and administrative materials. 2025, we'll be focusing on existing lines while adding more categories and SKUs. As an MRO company, we will be focusing on industrial grade MRO products, including spare parts, chemicals, processing and manufacturing pieces. And we will also particularly strengthen the development of our private labels this year. When it comes to private labels for us, it's not just about product selection. Moderator00:50:09In a lot of cases, we will be proactively engaged in the R design side of things to enhance our absolute competitiveness in China. And also at the same time, these private labels will serve as a strong support for our overseas business development. And also this year, particularly, we'll be focusing on chemicals and processing and manufacturing. Chemicals are traditionally our forte and we will further enhance its development. Thank you. Operator00:50:50Xiaodong, is there a follow-up to your question? Does that answer Xiaodan ZhangEquity Research Analyst at China International Capital Corporation (CICC)00:50:55your further questions. Thank you. Operator00:50:58Thank you. Xiaodan ZhangEquity Research Analyst at China International Capital Corporation (CICC)00:50:58Yes. Thank you. Operator00:51:00The next question comes from Ella Ji with China Renaissance. Please go ahead. Ella JiMD & Head - TMT Research at China Renaissance00:51:19So my question is, if management can share with us some updates regarding the company's business and the financial outlook for the upcoming quarters? Thank you. Moderator00:52:57So for Q1, we achieved our planned targets. We actually slightly outperformed our targets. And like was mentioned earlier, our adjustment and optimization when it comes to the business with SOEs and central SOEs is pretty much finished. So we foresee for the next three quarters, things will start to gradually accelerate. And for Q2 through Q4, especially for Q3 and Q4, we hope to achieve double digit growth for GMV. Moderator00:53:31Profitability wise, we believe Q2 will see single quarter breakeven. Q3 and Q4 will see positive profitability. And for the entire year 2025, GMV will be positive year over year. And the domestic business will see positive profitability. And as for the entire group, so domestic plus overseas business, things will break even for the entire year 2025. Moderator00:54:02That was my answer. Thank you. Operator00:54:11And that concludes the question and answer session. I would like to turn the conference back over to management for any additional or closing comments. Jin LiHead of Investor Relations at ZKH Group00:54:23Thank you once again for joining us today. You can find the webcast of today's call on ir.vcash.com. If you have any further questions, please feel free to contact us. Our contact information can be found in today's press release. Thank you and have a great day. Operator00:54:44The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.Read moreParticipantsExecutivesJin LiHead of Investor RelationsLong ChenFounder, Chairman & CEOChun Chiu LaiChief Financial OfficerAnalystsLeo ChiangEquity Research Analyst at Deutsche BankModeratorXiaodan ZhangEquity Research Analyst at China International Capital Corporation (CICC)Ella JiMD & Head - TMT Research at China RenaissancePowered by Key Takeaways In Q1 the company served over 60,000 customers (up 30.3% YoY), generated RMB1.94 billion in revenue (up 4% YoY) and narrowed its operating loss by 37.7% and net loss by 26.6% despite seasonal headwinds. On its domestic ZKH platform, GMV from industry key accounts rose 19.7% YoY and regional SME sales grew over 20% in major provinces, while SOE volumes stabilized following optimization measures. Through its GBB–Tmall partnership the company launched eight stores (targeting 24 by year-end), delivered over 260% QoQ sales growth and grew GBB customers by 73% YoY with improved gross margins. Its U.S. subsidiary NorthSky, launched in December, now offers 500 SKUs and doubled both revenue and customer counts month-over-month, with plans to expand to 1,500+ SKUs, launch a mobile app and enter Europe in H2. The firm has deployed over 10 AI applications—such as an AI smart workbench that boosted order processing efficiency by 60% QoQ and an AI recommendation agent that generated RMB34 million in incremental revenue. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallZKH Group Q1 202500:00 / 00:00Speed:1x1.25x1.5x2xTranscript SectionsPresentationParticipants Earnings DocumentsSlide DeckPress Release(6-K) ZKH Group Earnings HeadlinesQ1 2025 ZKH Group Ltd Earnings CallMay 21, 2025 | finance.yahoo.comZKH Group Ltd (ZKH) Q1 2025 Earnings Call Highlights: Strong Customer Growth and Improved Cash ...May 21, 2025 | finance.yahoo.comTrump Knows Exactly What He's DoingREVEALED: $194 Trillion Trump Market Pattern Trump fires off a tweet and stocks tank… He gives a speech and the markets soar… Now, a new Trump executive order is set to set off a wave worth a potential $194 trillion in the markets. And Wall Street insider Larry Benedict says it could hand investors who missed out on Trump’s first term a second chance.June 1, 2025 | Brownstone Research (Ad)ZKH Group Limited Reports Q1 2025 Financial ResultsMay 21, 2025 | tipranks.comZKH Group Shares Slide as Q1 Loss Deepens Despite Modest Revenue GrowthMay 20, 2025 | msn.comZKH Group Reports Q1 2025 Financial Results with Strategic Growth FocusMay 20, 2025 | tipranks.comSee More ZKH Group Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like ZKH Group? Sign up for Earnings360's daily newsletter to receive timely earnings updates on ZKH Group and other key companies, straight to your email. Email Address About ZKH GroupZKH Group (NYSE:ZKH) develops and operates a maintenance, repair, and operating (MRO) products trading and service platform that offers spare parts, chemicals, manufacturing parts, general consumables, and office supplies in the People's Republic of China. The company provides MRO procurement and management services; digitalized MRO procurement solutions; and logistics and warehousing services. It also engages in the production and sale of intelligent warehousing equipment. ZKH Group Limited was founded in 1998 and is based in Shanghai, the People's Republic of China.View ZKH Group ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles e.l.f. 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PresentationSkip to Participants Operator00:00:00Ladies and gentlemen, good day, and welcome to ZKH Group Limited's First Quarter twenty twenty five Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jin Li, Head of Investor Relations. Please go ahead. Jin LiHead of Investor Relations at ZKH Group00:00:20Thank you, operator. Thank you, everyone, and welcome to our call today. Joining us today are Mr. Eric Chen, our Founder, Chairman and Chief Executive Officer and Ms. Max Lai, our Chief Financial Officer. Jin LiHead of Investor Relations at ZKH Group00:00:36Before turning the call over to Eric, I'd like to briefly review our Safe Harbor provisions. Please note that the comments made during today's call represent management's views as of today and may include forward looking statements. Please refer to our latest Safe Harbor statement in the earnings release on our IR website. We will also discuss certain non GAAP financial measures for comparison purpose only. Please refer to the earnings release for definitions of these made years and a reconciliation of GAAP to non GAAP results. Jin LiHead of Investor Relations at ZKH Group00:01:21With that, I will now turn the call over to Eric. Eric, please go ahead. Long ChenFounder, Chairman & CEO at ZKH Group00:02:23Hello, everyone. Thank you for joining our first quarter twenty twenty five earnings conference call for ZKH. In the first quarter, our platforms continued to gain momentum with the total number of customers exceeding 60,000, representing a 30.3% year over year increase. Sales to industry key accounts and regional SME customers both achieved double digit growth. However, sales to state owned enterprise or SOE and central SOE customers declined significantly year over year in the first quarter, mainly due to the high comparison base last year and a result of our business optimization initiatives since the second half of twenty twenty four. Long ChenFounder, Chairman & CEO at ZKH Group00:03:14Consequently, our first quarter revenue reached RMB1.94 billion, representing a 4% increase year over year. Regarding margins, our operating loss was approximately million and our net loss was around RMB66 million, representing meaningful improvements of 37.726.6% year over year respectively. Despite the negative impact seasonal impact from the Chinese New Year in January and February, We were able to achieve single month profitability in March. We would like to emphasize that this achievement was reached despite investments in our U. S. Long ChenFounder, Chairman & CEO at ZKH Group00:05:07Operations and in the absence of government subsidies in the first quarter of this year and like the same period last year. This demonstrates that the profitability of our domestic business continues to strengthen at the operational level. Additionally, our cash flow remains resilient and shows continued improvement. Net cash outflow from operating activities was RMB97 million in the first quarter compared to an outflow of RMB220 million in the same period last year. This continued improvement underscores our strong financial resilience. Long ChenFounder, Chairman & CEO at ZKH Group00:06:45Now let's shift our focus to our domestic and global business performance in the first quarter along with our platform developments and advancements in the use of AI technologies. In the first quarter, we delivered solid high quality growth both domestically and globally. Starting with our domestic business. Our dual platform strategy aims to meet diverse customer demands. The ZKH platform serves mid to large sized enterprise customers, while the GBB platform caters to micro and small businesses through an e commerce model. Long ChenFounder, Chairman & CEO at ZKH Group00:08:50The ZKH platform experienced strong growth in both sales and customer numbers from our industry key accounts. GMV from these key accounts increased by 19.7% year over year with over 20% growth in sectors such as new energy vehicles, electricals, telecommunications and electronics and pharmaceuticals. This success is the result of our targeted efforts to curate and manage industry specific and customer specific product pools, leveraging AI to gain deeper insights into customer needs and provide tailored product selection and recommendations, which also help to increase our wallet share. As enterprise procurement continues to shift online and as we expand our coverage to more Ka customers, sub factories and enhance our cross selling capabilities across production lines, We remain confident that our sales to industry key accounts will maintain strong growth momentum. For regional SME customers, our region based service and grid based staffing strategies yielded positive outcomes. Long ChenFounder, Chairman & CEO at ZKH Group00:10:53In the first quarter, both sales and customer numbers from regional SME customers on the ZKH platform recorded double digit growth. Notably sales in several regions including Guangdong, Zhejiang and Fujian provinces as well as Beijing each posted more than 20% year over year growth. This strong performance was attributable to our enhanced local services for regional customers as well as accelerated factory coverage, market reach and customer acquisition. For SOE and central SOE customers, our sales declined significantly year over year in the first quarter, mainly due to the high comparison base in the same period last year and the result of our business optimization initiatives since the second half of last year. As we mentioned during our last earnings call, we have completed these business adjustments and the impact has gradually tapered off. Long ChenFounder, Chairman & CEO at ZKH Group00:12:42Our SOE and central SOE business have entered a stabilization phase in the first quarter. We remain confident that building on our supply chain advantages and the proven value we deliver to customers, our SOE and central SOE business will regain growth momentum in the second half of this year. Regarding gross margin, driven by our optimized procurement costs and rapid GMV growth from our high margin private label products, both the gross margin of our product sales model or 1P and the take rate of our marketplace model or 3P on the ZKH platform improved significantly. This marked the fifth consecutive quarter of year over year improvement in both gross margin and take rate, highlighting our team's strong execution in cost reduction and efficiency enhancement. In the first quarter, the GMV of our private label products exceeded RMB190 million, an increase of approximately 40% year over year. Long ChenFounder, Chairman & CEO at ZKH Group00:16:03Now let's turn to the GBB platform. Our strategic partnership with Tmall has been fruitful. Since our partnership began in the fourth quarter of last year, GBB has operated eight stores on Tmall as of the March. We expect that the total number of stores will reach 24 by the end of this year. In the first quarter, this business segment on Tmall achieved a quarter over quarter sales growth of over 260%. Long ChenFounder, Chairman & CEO at ZKH Group00:16:39Customer growth on GBB platform also accelerated with over 24,000 customers, up 73% year over year benefiting from our strengthened Tmall partnership. As we expanded our store footprint on Tmall to reach more SME and micro businesses and focused on high margin MRO categories. Our gross margins for GBB platform improved significantly in the first quarter. With more stores lined up to launch and start operations on Tmall this year, we expect maintaining strong growth momentum in our Tmall business across sales, customer base and gross margin, thereby driving the overall growth of the GBB platform. Overall, the Chinese MRO market is vast and highly fragmented with online penetration still at a relatively modest level. Long ChenFounder, Chairman & CEO at ZKH Group00:18:59We believe China's MRO market offers extensive potential to propel both scale and profitability growth. As for our global expansion, The United States has been our first destination. Our U. S. Subsidiary NorthSky and our U. Long ChenFounder, Chairman & CEO at ZKH Group00:19:19S. Standalone website officially launched in December. We have implemented a localization strategy in The U. S. Market, leveraging our supply chain strengths, offering selected high value for money products and utilizing innovative technologies to establish a strong presence. Long ChenFounder, Chairman & CEO at ZKH Group00:19:43By the March, the NorthSky platform had launched over 500 SKUs across categories such as personal protective equipment or PPE, hand tools, power tools, packaging and HVAC systems. Notably, our power tools, hand tools and PPE categories have steadily risen in Google search rankings. In the first quarter, both revenue and customer numbers doubled month over month. In the second half of the year, we plan to launch a mobile app version of our U. S. Long ChenFounder, Chairman & CEO at ZKH Group00:21:17Standalone website, while scaling our SKU portfolio beyond 1,500 items to further enhance product coverage and customer experience. Our goal is to provide the world's best MRO offerings across global markets. We have actively initiated global supplier recruitment efforts and thus far have secured an array of high quality suppliers in Southeast Asia, allowing us to flexibly choose sourcing locations based on business needs. As we continue to expand our SKU portfolio, strengthen supply chain capabilities, enhance user experience and foster user mindshare. We believe we are well positioned to accelerate our U. Long ChenFounder, Chairman & CEO at ZKH Group00:22:11S. Business growth in the second half of the year. Moving on to AI technology development and applications. We possess a specialized database of industrial supplies covering 17,000,000 SKUs and over a billion industrial product parameters. Leveraging our deep industry expertise and our self developed large language model for industrial supplies. Long ChenFounder, Chairman & CEO at ZKH Group00:24:06Our goal is to build an end to end matrix of AI tools tailored to the industrial supplies vertical with integrated capabilities for delivering tangible outcomes. Over the past two years, we have successfully developed and deployed more than 10 AI powered applications to improve our internal operational efficiency and enhance customer service capabilities. To illustrate advancements in our operational efficiency, take the order processing scenario as an example. Previously customer service teams manually entered each order into our system. To optimize this, we have developed the AI smart workbench, which seamlessly combines natural language processing with our ERP platform. Long ChenFounder, Chairman & CEO at ZKH Group00:25:01This innovation enables order creation via simple conversational commands, greatly boosting both efficiency and accuracy. With the implementation of this AI smart workbench, our customer service team has achieved a 60.4% quarter over quarter increase in the average number of orders processed per team member in the first quarter. On the customer service capabilities front, one notable example is the material standardization and management scenario. Using AI technologies, our AI material management agent can rapidly structure and standardize complex and diverse material descriptions from customers and suppliers. It then generates standardized catalog parameters enabling one to one item coding. Long ChenFounder, Chairman & CEO at ZKH Group00:27:39What previously required several days of work by multiple team members can now be completed in just a few hours, drastically reducing material sorting and management costs, while also improving accuracy. Another example of our enhanced customer service capabilities is the product selection and recommendation scenario. Our AI product recommendation agent deeply analyzes MRO use cases to glean precise insights into customer procurement needs and enables automated management of customer specific product pools. This has significantly improved the efficiency and accuracy of product selection and recommendation. Since its launch in September 2024, our AI product recommendation agent has analyzed procurement needs and managed product pools for over 200 customers, driving over RMB34 million in revenue growth. Long ChenFounder, Chairman & CEO at ZKH Group00:28:49This year, we plan to scale up our AI product recommendation agent to cover 14,000 customers targeting even greater business growth. Looking ahead, despite external challenges and uncertainties, we believe the VKH has entered a new phase of long term sustainable growth underpinned by two years of organizational strengthening and core competency solidification. We are now well positioned to drive forward with a dual focus on both domestic and international markets, powered by AI and product innovation and anchored in our industry leading expertise in the MRO sector. Now, I'll turn the call over to our CFO, Max Lai to present our financial results. Thank you, everyone. Chun Chiu LaiChief Financial Officer at ZKH Group00:30:33Thank you, Eric, and thanks, everyone, for making time to join our earnings call today. I'm pleased to share our financial performance for the last quarter, which reflects a solid start to the year, characterized by resilient revenue growth, improving profitability and significant enhancement in our operating cash flow. In the past quarter, our total GMV reached RMB2.17 billion. While this modest decline, it is largely due to a high comparison base from last year, which included FOE and central FOE customers' low margin business with extended credit terms that we have seen optimized. When excluding these factors, our underlying GMV maintained robust double digit year over year growth. Chun Chiu LaiChief Financial Officer at ZKH Group00:31:20Notably, we are seeing strong growth in sectors such as new energy vehicles, electronics, telecommunications and pharmaceuticals. Total net revenues rose 4% year over year to RMB1.9 billion, primarily driven by high single digit year over year increase in product sales revenue. As anticipated, marketplace revenue declined due to the prior year's high comparison base as mentioned above. This solid top line performance underscores the enduring strength of our product offering, enhanced supply chain capabilities and growing customer engagement. Looking ahead, we expect the impact of last year's base to continue to diminish in the next quarters, positioning us for sustained top line growth. Chun Chiu LaiChief Financial Officer at ZKH Group00:32:13Simultaneously, we are committed to improving operational efficiency, driving elevated business quality and profitability through targeted strategic initiatives, including organizational refinement and AI driven product innovation. Regarding margins, our gross profit margin slightly decreased to 17.2% from 18% in the prior year period, primarily due to lower revenue contributions from our marketplace model. However, on a GMV basis, our gross profit margin continues to trend upward. Gross profit margin from our product sales model improved with increases of 58 basis points to 16.6% on ZK platform and 67.5 basis points to 6.2% on GPB platform. And marketplace take rate increased by 235.9 basis points year over year to 14%. Chun Chiu LaiChief Financial Officer at ZKH Group00:33:18These gains reflect the effectiveness of our strategic business optimization, improved the procurement efficiency and a greater contribution from high margin private label products. Turning to cost efficiency. Our operating expenses decreased by 10.9% year over year to RMB412.9 million, reflecting reduction across all major expense categories. Notably, this improvement was achieved despite incurring approximately RMB10 million in U. S. Chun Chiu LaiChief Financial Officer at ZKH Group00:33:53Related expenses, which were absent in the last year. This demonstrates our continued commitment to cost discipline and operational efficiency for our domestic operations, driven by streamlined organizational structure and enhanced workforce productivity. As a percentage of total revenue, operating expenses decreased to 21.3%, down from 24.9% year over year. Excluding share based compensation, this ratio improved to 20.5% from 22.4% in the prior year period. Breaking it down further, fulfillment expenses were RMB93.3 million, up 4.3% year over year decrease, primarily due to reduced employee benefits and warehouse rental costs. Chun Chiu LaiChief Financial Officer at ZKH Group00:34:50Sales and marketing expenses declined by 16.6% to million, primarily attributable to lower employee benefits and travel related spending. R and D expenses remained stable at RMB39.6 million, down slightly by 0.6% year over year, and savings in employee benefits were offset by increased spending on technology and information services. General and administrative expenses were RMB143.2 million, down 11.8% year over year, mainly reflecting lower share based compensation, partially offset by higher employee benefits. It is worth noting that our G and A expenses also include employee benefits for product life personnel as well as other product life related costs, which supports the development and enhancement of our product competitiveness. As a result, our profit our profitability metrics showed significant improvement. Chun Chiu LaiChief Financial Officer at ZKH Group00:36:05Loss from operations narrowed to RMB18.8 million from RMB129.6 million, with margins improving to 4.2% from 7%. This reflects a substantial enhancement in our operating level profitability. We also delivered meaningful improvement in operating cash flow with outflow reduced to RMB97.1 million compared to RMB224.3 million in the prior year period. This reduction is testament to our narrowed losses and effective working capital management bolstered by improved capital utilization and operational execution. In summary, the above mentioned results validate the strength of our strategy and effectiveness of the execution. Chun Chiu LaiChief Financial Officer at ZKH Group00:37:01We are progressing towards our 2025 goals with discipline and strategic focus, supported by enhancements in business quality and steady margin improvement. We believe that as we expand our product portfolio, deepen supply chain integration and implement AI technologies across our operations, we are well positioned to enhance our market penetration and accelerate global expansion, delivering long term value for our customers, merchants, partners and shareholders. Thank you for your attention. I look forward to your questions. Operator, will you go ahead? Operator00:38:39The first question comes from Leo Chang with Deutsche Bank. Please go ahead. Leo ChiangEquity Research Analyst at Deutsche Bank00:39:14I'll translate myself. So I have two questions. My first question is that could management share what are the impacts from tariffs on your domestic and The U. S. Business respected and the majors taken by the company? Leo ChiangEquity Research Analyst at Deutsche Bank00:39:32My second question is that, is there a timeline for entering new markets beyond The U. S. Such as Europeans? Thank you. Moderator00:41:21Thank you very much for that question. Moderator00:41:23I think that U. S. Tariffs, when it comes to our overseas business, is not really a negative piece of news. It is to some in some sense, it's actually a tailwind for us to expand our U. S. Moderator00:41:35Business. We believe all of the changes in the market and in the prices offer new opportunities for us. Specifically, there's two things. Firstly, The U. S. Moderator00:41:46Does not produce MROs themselves. They primarily need to import from geographies like China and Southeast Asia. And in order to tackle potential changes, we had already prepared a lot of suppliers or built up this reserve of suppliers way back when from ex China markets, especially Southeast Asia. And now because of that preparation, we are able to source accordingly based on business needs. So that's very important for us. Moderator00:42:18And this also goes to show that in the MRO business as an intermediary or as a channel or marketplace, when there's uncertainties in the market, we can actually become more proactive and take more initiative and have more flexibility. So The U. S. Is our first step in our overseas in our foray into overseas markets, and we currently have 500 SKUs available there. More will be coming soon. Moderator00:44:43And with these SKUs being available, we can use this as a base to sell into other geographies like Europe and Canada. Starting second half of this year, we will start our business in Europe and we are already in the preparatory phase for that. And when it comes to the European market, there's two aspects. One is online, the other is offline. So for online, we will be able to cover the entire Europe by selling via e commerce. Moderator00:45:14And with offline, we will be focusing on two countries, Germany and Hungary. So basically, some Chinese companies are already they already have a presence in those countries and we will first serve those Chinese customers of ours there in those countries. And Germany already has a very advanced MRO business. And in terms of other geographies, Southeast Asia, we started our business in Southeast Asia. Our Thailand our company in Thailand has finished registration and started operations. Moderator00:45:52And as was said before in other earnings calls, Southeast Asia in the short term, we will be serving Chinese companies that have set up a footprint there first. That was actually my answer to your question. Moderator00:46:24Thank you. Operator00:46:25Mr. Chang, is there a follow-up to your question? Moderator00:46:35No, that was the answer to the question said Mr. Chen. Operator00:46:42Thank you. The next question comes from Xiaodan Zhang with CICC. Please go ahead. Xiaodan ZhangEquity Research Analyst at China International Capital Corporation (CICC)00:47:05So thanks for taking my questions. And could you please share some updates on this year's product strategy, including the key product categories to be developed as well as your private label brands? Thank you. Moderator00:49:25We currently have 32 product lines standing across five categories and they are spare parts, chemicals, processing manufacturing, general consumables and administrative materials. 2025, we'll be focusing on existing lines while adding more categories and SKUs. As an MRO company, we will be focusing on industrial grade MRO products, including spare parts, chemicals, processing and manufacturing pieces. And we will also particularly strengthen the development of our private labels this year. When it comes to private labels for us, it's not just about product selection. Moderator00:50:09In a lot of cases, we will be proactively engaged in the R design side of things to enhance our absolute competitiveness in China. And also at the same time, these private labels will serve as a strong support for our overseas business development. And also this year, particularly, we'll be focusing on chemicals and processing and manufacturing. Chemicals are traditionally our forte and we will further enhance its development. Thank you. Operator00:50:50Xiaodong, is there a follow-up to your question? Does that answer Xiaodan ZhangEquity Research Analyst at China International Capital Corporation (CICC)00:50:55your further questions. Thank you. Operator00:50:58Thank you. Xiaodan ZhangEquity Research Analyst at China International Capital Corporation (CICC)00:50:58Yes. Thank you. Operator00:51:00The next question comes from Ella Ji with China Renaissance. Please go ahead. Ella JiMD & Head - TMT Research at China Renaissance00:51:19So my question is, if management can share with us some updates regarding the company's business and the financial outlook for the upcoming quarters? Thank you. Moderator00:52:57So for Q1, we achieved our planned targets. We actually slightly outperformed our targets. And like was mentioned earlier, our adjustment and optimization when it comes to the business with SOEs and central SOEs is pretty much finished. So we foresee for the next three quarters, things will start to gradually accelerate. And for Q2 through Q4, especially for Q3 and Q4, we hope to achieve double digit growth for GMV. Moderator00:53:31Profitability wise, we believe Q2 will see single quarter breakeven. Q3 and Q4 will see positive profitability. And for the entire year 2025, GMV will be positive year over year. And the domestic business will see positive profitability. And as for the entire group, so domestic plus overseas business, things will break even for the entire year 2025. Moderator00:54:02That was my answer. Thank you. Operator00:54:11And that concludes the question and answer session. I would like to turn the conference back over to management for any additional or closing comments. Jin LiHead of Investor Relations at ZKH Group00:54:23Thank you once again for joining us today. You can find the webcast of today's call on ir.vcash.com. If you have any further questions, please feel free to contact us. Our contact information can be found in today's press release. Thank you and have a great day. Operator00:54:44The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.Read moreParticipantsExecutivesJin LiHead of Investor RelationsLong ChenFounder, Chairman & CEOChun Chiu LaiChief Financial OfficerAnalystsLeo ChiangEquity Research Analyst at Deutsche BankModeratorXiaodan ZhangEquity Research Analyst at China International Capital Corporation (CICC)Ella JiMD & Head - TMT Research at China RenaissancePowered by