ZTO Reports Second Quarter 2017 Unaudited Financial Results

SHANGHAI, Aug. 22, 2017 /PRNewswire/ -- ZTO Express (Cayman) Inc. (NYSE: ZTO) ("ZTO" or the "Company"), a leading and fast-growing express delivery company in China, today announced its unaudited financial results for the second quarter ended June 30, 2017¹.

Second Quarter 2017 Financial Highlights

• Revenues were RMB2,971.4 million (US$438.3 million), an increase of 29.9% from the same period of 2016.
• Gross profit was RMB1,123.9 million (US$165.8 million), an increase of 35.8% from RMB827.8 million in the same period of 2016.
• Net income was RMB716.9 million (US$105.8 million), an increase of 68.4% from RMB425.8 million in the same period of 2016.
• Adjusted EBITDA² was RMB1,104.6 million (US$162.9 million), an increase of 46.6% from RMB753.7 million in the same period of 2016.
• Adjusted net income³ was RMB730.4 million (US$107.7 million), an increase of 43.5% from RMB509.2 million in the same period of 2016.
• Basic and diluted earnings per American depositary share ("ADS"⁴) were RMB1.00(US$0.15), an increase of 40% from RMB0.60 in the same period of 2016.
• Net cash provided by operating activities was RMB903.2 million (US$133.2 million), compared with RMB278.5 million in the same period of 2016.

Second Quarter 2017 Operational Highlights

• Parcel volume in the second quarter of 2017 was 1,493 million, an increase of 37.6% from 1,085 million in the same period of 2016.
• Number of pickup/delivery outlets was approximately 28,000 as of June 30, 2017.
• Number of network partners was over 9,300, which included over 3,700 direct network partners and over 5,600 indirect network partners as of June 30, 2017.
• Number of line-haul vehicles was over 4,380 as of June 30, 2017, which included around 3,190 self-owned vehicles and around 1,190 vehicles owned and operated by Tonglu Tongze Logistics Ltd., a transportation operator that works exclusively for ZTO.
• Number of self-owned trucks increased to around 3,190 as of June 30, 2017 from 3,000 as of March 31, 2017. Among the self-owned trucks, over 1,260 were high capacity 15-17 meter long models as of June 30, 2017, compared to over 1,200 as of March 31, 2017.
• Number of line-haul routes between sorting hubs was over 1,780 as of June 30, 2017.
• Number of sorting hubs was 77 as of June 30, 2017, among which 71 are operated by the Company and 6 by the Company's network partners.

"Our business continued to gain growth momentum with parcel volume growth again exceeding the industry average," commented Mr. Meisong Lai, founder and Chief Executive Officer. "Our parcel volume grew by 37.6% year-over-year during the quarter, well above the increase of 30.7% for the industry overall during the same period. Our market share continued to expand as well, underlining just how effective our strategy of balancing growth with service quality and profitability is in strengthening our industry-leading position and aligning the interest of our network partners with ZTO. We continued to optimize parcel mix during the quarter by focusing more on more profitable parcels to improve efficiency and lower unit cost. This resulted in lower average revenue per parcel as parcel weight fell, but our margins continued to expand thanks to our economies of scale and the various cost cutting measures we have been implementing, all without affecting the high quality service we are known for. According to data published by the PRC State Post Bureau, ZTO once again received one of the highest scores for customer satisfaction among the major express delivery companies in China during the quarter. We are increasingly benefiting from our economies of scale and lower unit operating costs. We continue to strengthen our cost leadership position by improving operational efficiency with more automated sorting equipment, putting more of our self-owned fleet on the road instead of outsourced transportation, and increasing the use of digital waybills. These measures contributed to a decrease in cost of revenue per parcel to RMB1.24 during the quarter from RMB1.34 in the same period last year."   

"Our financial performance during the quarter demonstrates how we are benefiting from larger economies of scale and our cost cutting measures," commented Mr. James Guo, Chief Financial Officer of ZTO. "This is especially evident with the expansion of our margins. Our gross margin, operating margin, net margin and non-GAAP net margin expanded to 37.8%, 31.0%, 24.1% and 24.6%, respectively, compared to 36.2%, 26.3%, 18.6% and 22.3%, respectively, during the same period last year."  

Second Quarter 2017 Financial Results

Revenues were RMB2,971.4 million (US$438.3 million), an increase of 29.9% from RMB2,286.6 million in the same period of 2016. The increase was mainly driven by an increase in parcel volume as a result of overall market growth and an increase in the Company's market share in terms of parcel volume. The Company's parcel volume grew to 1,493 million during the second quarter of 2017, an increase of 37.6% from 1,085 million in the same period of 2016.

Total cost of revenues were RMB1,847.5 million (US$272.5 million), an increase of 26.6% from RMB1,458.8 million in the same period last year. The increase was primarily a result of increases in line-haul transportation costs, sorting hub operating costs, cost of accessories sold, and other costs, which were partially offset by a decrease in waybill material cost due to the increased use of digital waybills by the Company's end customers which bear lower costs than paper waybills.

• Line haul transportation cost was RMB1,062.5 million (US$156.7 million), an increase of 29.2% from RMB822.6 million in the same period last year. The increase was mainly due to an increase of RMB206.8 million (US$30.5 million) in costs associated with the Company's self-owned fleet which includes fuel, tolls, drivers' compensation, depreciation and maintenance expenses, and an increase of RMB62.6 million (US$9.2 million) in outsourced transportation costs. Line haul transportation cost increased at a lower rate than parcel volume as the Company continues to optimize parcel mix by focusing more on profitable parcels. As a percentage of revenues, line haul transportation cost accounted for 35.8%, a decrease from 36.0% in the same period last year, mainly due to (i) economies of scale, (ii) increased use of self-owned, more cost-efficient, higher capacity trailer trucks in place of third-party trucks and outsourced transportation, and (iii) increased truck utilization through optimized route planning and increased back-haul transportation.
                                                                                    
• Sorting hub operating cost was RMB527.9 million (US$77.9 million), an increase of 16.6% from RMB452.7 million in the same period last year. The increase was mainly due to (i) increased labor costs of RMB22.7 million (US$3.3 million) as a result of an increase in headcount; (ii) an RMB30.7 million (US$4.5 million) increase in depreciation and amortization costs, and (iii) an increase of RMB11.4 million (US$1.7 million) in rental and related utilities costs. As a percentage of revenues, sorting hub operating cost accounted for 17.8%, a decrease from 19.8% in the same period last year, mainly due to economies of scale and improved operating efficiency as a result of the increased use of automation in the Company's sorting facilities.
                                                                               
• Cost of accessories was RMB83.7 million (US$12.3 million), an increase of 16.0% from RMB72.1 million in the same period last year. The increase was in line with growth in the Company's revenue from the sale of accessories to its network partners, which includes thermal paper for digital waybill printing, portable bar code readers, and ZTO-branded packaging materials and uniforms. As a percentage of revenues, cost of accessories accounted for 2.8%, a decrease from 3.1% in the same period last year.
                                                                                                  
• Other costs were RMB173.5 million (US$25.6 million), an increase of 55.7% from RMB111.4 million in the same period last year, primarily due to an increase in dispatching costs associated with serving enterprise customers, which were partially offset by a decrease in costs associated with the increased use of digital waybills.

Gross Profit was RMB1,123.9 million (US$165.8 million), an increase of 35.8% from RMB827.8 million in the same period last year. Gross margin increased to 37.8% from 36.2% in the same period last year, mainly attributable to the decrease in line-haul transportation cost and sorting hub cost.

Total Operating Expenses were RMB202.6 million (US$29.9 million), a decrease of 10.2% from RMB225.7 million in the same period last year.

• Selling, general and administrative expenses were RMB202.7 million (US$29.9 million), a decrease of 7.1% from RMB218.1 million in the same period last year. The decrease was mainly due to a decrease in share-based compensation expenses from RMB83.4 million in the second quarter of 2016 to RMB13.5 million in the second quarter of 2017. The decrease in share-based compensation expenses was partially offset by an increase in other employee compensation expenses including accrual of cost saving incentives and bonuses of RMB49.4 million, and a provision for bad debt expense of RMB7.0 million in the second quarter of 2017. As a percentage of revenue, selling, general and administrative expenses accounted for 6.8%, compared to 9.5% during the same period last year, primarily due to reduced share-based compensation expenses and higher operating leverage.

Income from operations was RMB921.3 million (US$135.9 million), an increase of 53.0% from RMB602.1 million in the same period last year. Operating margin increased to 31.0% from 26.3% in the same period last year, primarily due to increases in economies of scale and continuous improvement in operating efficiency.

Interest income was RMB39.6 million (US$5.8 million), compared with RMB11.8 million in the same period in 2016, primarily due to the increased amount of cash and bank deposits available for investment since the Company's initial public offering in October 2016.

Interest expense was RMB5.0 million (US$0.7 million), compared with RMB4.7 million in the same period in 2016.

Foreign currency exchange loss, before tax was RMB2.9 million (US$0.4 million), which was mainly due to the depreciation of the U.S. dollar against the Chinese Renminbi.

Net income was RMB716.9 million (US$105.8 million), compared with RMB425.8 million in the same period last year.

Basic and diluted earnings per ADS were RMB1.00(US$0.15), compared with basic and diluted earnings per ADS of RMB0.60 in the same period last year.

Adjusted net income was RMB730.4 million (US$107.7 million), compared with adjusted net income of RMB509.2 million during the same quarter last year.

EBITDA was RMB1,091.1million (US$160.9 million), compared with RMB670.3 million in the same period last year.

Adjusted EBITDA was RMB1,104.6million (US$162.9 million), compared to RMB753.7 million in the same period last year.

Net cash provided by operating activities was RMB903.2million (US$133.2million), compared with 278.5 million in the same period last year, mainly attributable to growth in net income and increased deposits for last-mile delivery fees.

Business Outlook

Based on current market conditions and current operations, revenues for the third quarter of 2017 is expected to be in the range of RMB2.9 billion(US$427.8 million) to RMB3.0 billion (US$442.5 million), representing a 23.2 % to 27.5% increase from the same period of 2016. This represents management's current and preliminary view, which is subject to change.

Company Share Purchase

On May 21, 2017, the Company announced a new share repurchase program whereby ZTO is authorized to repurchase its own Class A ordinary shares in the form of ADSs with an aggregate value of up to US$300 million during the 12-month period thereafter. As of June 30, 2017, the Company has purchased an aggregate of 2,623,414 ADSs at an average purchase price of US$14.33.

The Company believes that the share repurchase program represents ZTO's confidence in its cash flow and the long-term outlook for the express delivery industry in China. ZTO's fast-growing strategy, asset-light business model and solid operations allow the Company to generate strong cash flow. The Company believes that the share repurchase program is consistent with the goal of increasing shareholders' value.

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 RMB6.7793 to US$1.00, the noon buying rate on June 30, 2017 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 adjusted EBITDA and adjusted net income, 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 adjusted EBITDA and adjusted net income 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 adjusted EBITDA and adjusted net income 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.

Adjusted EBITDA and adjusted net income 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 review the historical non-GAAP financial measures to the most directly comparable GAAP measures. Adjusted EBITDA and adjusted net income 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 9:00 PM U.S. Eastern Time on Tuesday, August 22, 2017 (9:00 AM Beijing Time on August 23, 2017).

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

Please dial in ten 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 August 29, 2017:

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) ("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 news release contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include but are not limited to ZTO management quotes and the Company's financial outlook.

These forward-looking statements are not historical facts but instead represent only the Company's belief regarding expected results and events, many of which, by their nature, are inherently uncertain and outside of its control. The Company's actual results and other circumstances may differ, possibly materially, from the anticipated results and events indicated in these forward-looking statements. Announced results for the second quarter of 2017 are preliminary, unaudited and subject to audit adjustment. In addition, the Company may not meet its financial outlook included in this news release and may be unable to grow its business in the manner planned. The Company may also modify its strategy for growth. In addition, there are other risks and uncertainties that could cause the Company's actual results to differ from what it currently anticipates, including those relating to the development of the e-commerce industry in China, its significant reliance on the Alibaba ecosystem, 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. For additional information on these and other important factors that could adversely affect the Company's business, financial condition, results of operations, and prospects, please see its filings with the U.S. Securities and Exchange Commission.

All information provided in this press release and in the attachments is as of the date of the press release. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise, after the date of this release, except as required by law. Such information speaks only as of the date of this release.

For investor and media inquiries, please contact:

ZTO

Ms. Sophie Li
Investor Relations Director
E-mail: ir@zto.com

Christensen

In China
Mr. Christian Arnell
Phone: +86-10-5900-1548
E-mail: carnell@christensenir.com

In US
Mr. Tip Fleming
Phone: +1-917-412-3333
Email: tfleming@Christensenir.com

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SOURCE ZTO Express (Cayman) Inc.