ZTO Reports Second Quarter 2019 Unaudited Financial Results

3.1 Billion Parcels Expanded Market Share to 19.9%
Adjusted Net Income Increased 25.6% to Reach RMB1.38 Billion 

SHANGHAI, Aug. 16, 2019 /PRNewswire/ -- ZTO Express (Cayman) Inc. (NYSE: ZTO), 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, 2019^[1]. The Company beat market expectations by generating parcel volume growth of 46.8%, 18.5 percentage points higher than the industry average. Market share in terms of parcel volume expanded to 19.9% during the second quarter of 2019. Adjusted net income increased 25.6% to reach RMB1,375.9 million.

Second Quarter 2019 Financial Highlights

• Revenues were RMB5,423.6 million (US$790.0 million), an increase of 29.2% from RMB4,197.9 million in the same period of 2018
• Gross profit was RMB1,768.6 million (US$257.6 million), an increase of 21.4% from RMB1,457.3 million in the same period of 2018
• Net income was RMB 1,365.1 million (US$198.8 million), a decrease of 8.5% from RMB 1,492.2 million in the same period of 2018
• Adjusted EBITDA^[2] was RMB1,962.8 million (US$285.9 million), an increase of 29.1% from RMB1,520.2 million in the same period of 2018
• Adjusted net income^[3] was RMB 1,375.9 million (US$200.4 million), an increase of 25.6% from RMB1,095.7 million in the same period of 2018
• Basic and diluted earnings per American depositary share ("ADS"^[4]) attributable to ordinary shareholders were RMB1.73 (US$0.25), a decrease of 16.4% from RMB2.07 in the same period of 2018
• Adjusted basic and diluted earnings per American depositary share^[5] attributable to ordinary shareholders were RMB1.74 (US$0.25), an increase of 14.5% from RMB1.52 in the same period of 2018
• Net cash provided by operating activities was RMB1,992.8 million (US$290.3 million), compared with RMB1,475.8 million in the same period of 2018

Operational Highlights for Second quarter 2019

• Parcel volume was 3,106.6 million, an increase of 46.8% from 2,115.6 million in the same period of 2018
• Number of pickup/delivery outlets was approximately 30,000 as of June 30, 2019, while the number of direct network partners was approximately 4,650 as of June 30, 2019
• Number of line-haul vehicles was over 5,800 as of June 30, 2019, which included over 4,950 self-owned vehicles and over 850 vehicles owned and operated by Tonglu Tongze Logistics Ltd., a transportation operator that works exclusively for ZTO. Among the 4,950 self-owned vehicles, over 3,150 were high capacity 15-to-17-meter-long trailer trucks compared to over 3,000 as of March 31, 2019
• Number of line-haul routes between sorting hubs was over 2,200 as of June 30, 2019
• Number of sorting hubs was 87 as of June 30, 2019, among which 78 are operated by the Company and the other nine by the Company's network partners

Mr. Meisong Lai, Founder, Chairman and Chief Executive Officer of ZTO, commented "ZTO's market share by parcel volume expanded 2.5 percentage points to 19.9% during the second quarter of 2019. Our consistent strategy has been continuous market expansion based on high quality of services and targeted net earnings. Second quarter's performance reflected the soundness of our overall strategy and solid execution."

Mr. Lai added, "Chinese express delivery industry is likely to maintain steady growth in the near term. While innovations in commerce impacting consumption and manufacturing are changing supply chain management, including logistics, express delivery industry is facing new demands and challenges. To maintain our competitive edge, ZTO must continue to focus on strengthening our core competencies as well as widening our business moat to sustain future growth. In addition to continued improvements in productivity and cost efficiencies, we will further advance our initiatives on industry-leading courier pay and last mile capabilities going forward in order to maintain a healthy growth momentum and be well prepared for the long run."

Ms. Huiping Yan, Chief Financial Officer of ZTO, added, "ZTO's performance adds to our confidence in our ability to deliver on our corporate strategy. Year-over-year ASP decline for the quarter was more than previously planned, however, it was kept level with the market, and we achieved higher volume increase as well as targeted earnings growth through scale leverage and effective resource planning. Combined sorting hub and line-haul transportation costs per parcel declined 8.6% year over year, and corporate SG&A, excluding share-based compensation, was 5.4% of total revenues compared to that of 5.7% last year. Adjusted net income rose 25.6% to RMB1.38 billion, and cash from operating activities rose 35.0% to RMB1.99 billion."

Second Quarter 2019 Financial Results

Revenues were RMB5,423.6 million (US$790.0 million), an increase of 29.2% from RMB4,197.9 million in the same period of 2018. Revenue from express delivery services increased by 30.0% compared to the same period of 2018, mainly driven by a 46.8% increase in parcel volume and partially offset by a 11.3% decrease in unit price per parcel largely for incremental volume incentives in response to competition. Revenue from freight forwarding services increased 16.0% when compared to the same period of 2018. The increase in revenue from sales of accessories was in-line with the increase in the sale of thermal paper used for the printing of digital waybills. Other revenues are mainly associated with financing services and advertising services.

Total cost of revenues was RMB3,665.1 million (US$ 532.4million), an increase of 33.4% from RMB2,740.7 million in the same period last year.

• Line haul transportation cost was RMB1,695.9 million (US$247.0 million), an increase of 33.3% from RMB1,272.3 million in the same period last year. Higher usage of self-owned fleet with increasing number of higher-capacity trailer trucks, improved line-haul route planning and better load rate enhanced the transportation cost leverage
• Sorting hub operating cost was RMB953.9 million (US$139.0 million), an increase of 35.9% or RMB 251.9 million from RMB702.0 million in the same period last year. Of this increase: (i) RMB178.5 million (US$26.0 million) was associated with sorting hub labor costs, the headcount of sorting hub workers increased 18.6% year over year, which was much slower than the parcel volume increase; and (ii) RMB50.1 million (US$7.3 million) came from depreciation costs associated with the newly installed automated sorting equipment. As of June 30, 2019, 155 sets of automated sorting equipment have been put into use, compared to 64 sets as of June 30, 2018
• Cost of accessories was RMB156.4 million (US$22.8 million), an increase of 24.4% from RMB125.7 million in the same period last year. The increase was in line with the increase in the sale of accessories for thermal paper
• Other costs were RMB503.7 million (US$73.4 million), an increase of RMB151.3 million (US$22.0 million) compared to the same period last year, which mainly resulted from (i) an increase of RMB117.7 million (US$17.2 million) in dispatching costs associated with serving enterprise customers, (ii) an increase of RMB47.7 million (US$6.9 million) in expenses related to IT and technology development and (iii) a decrease of RMB 5.5 million (US$0.8 million) in tax surcharges

Gross Profit was RMB1,768.6 million (US$257.6 million), an increase of 21.4% from RMB1,457.3million in the same period last year. Gross margin rate decreased to 32.6% from 34.7% year over year, which resulted from combined effects of increase in volume incentives, parcel volume increase, and cost productivity gains.

Total Operating Expenses were RMB275.8 million (US$40.2 million), compared to RMB268.4 million in the same period last year.

• Selling, general and administrative expenses were RMB305.4 million (US$44.5 million), compared to RMB269.2 million in the same period last year. The increase was mainly due to an increase in salaries and accrued bonuses from RMB132.4 million (US$19.3 million) to RMB177.7 million (US$25.9 million). Selling, general and administrative expenses, excluding share-based compensation expense accounted for 5.4% of total revenues compared to 5.7% during the same period last year
• Other operating income, net was RMB29.5 million (US$4.3 million) for the quarter. Other operating income mainly consisted of government subsidies and tax rebates of RMB24.6 million (US$3.6 million) received in the second quarter of 2019

Income from operations was RMB1,492.7 million (US$217.4 million), an increase of 25.6% from RMB1,188.8 million for the same period last year. Operating margin rate decreased by 0.8 percentage point to 27.5% year over year while the gross margin rate decreased by 2.1 percentage points. This reflects sound corporate cost control and healthy scale leverage.   

Interest income was RMB144.5 million (US$21.0 million), compared with RMB70.7 million in the same period in 2018 primarily due to an increase in the amount of cash and interest-bearing bank deposits. In June 2018, the company received majority portion of the proceeds from the US$1.38 billion strategic investment led by Alibaba.

Foreign currency exchange gain, before tax was RMB22.3million (US$3.2 million) in the second quarter of 2019, resulted from the appreciation of the U.S. dollar against the Chinese renminbi in the second quarter of 2019.

Income tax expenses were RMB288.8 million (US$42.1 million) and the effective income tax rate was 17.4% for the second quarter of 2019. 

Net income was RMB1,365.1 million (US$198.8 million), a decrease of 8.5% from RMB1,492.2 million in the same period last year, which included one-time gains on disposal of equity investees of RMB424.5 million (net of income taxes), mainly composed of the share disposal of Shenzhen Feng Chao Technology Ltd. associated with the Hive Box operations.

Basic and diluted earnings per ADS attributable to ordinary shareholders were RMB1.73 (US$0.25), compared with basic and diluted earnings per ADS attributable to ordinary shareholders of RMB2.07 in the same period last year.

Adjusted basic and diluted earnings per ADS attributable to ordinary shareholders were RMB1.74 (US$0.25), compared with adjusted basic and diluted earnings per ADS attributable to ordinary shareholders of RMB1.52 in the same period last year.

Adjusted net income was RMB1,375.9 million (US$200.4 million), compared with adjusted net income of RMB1,095.7 million during the same period last year.

EBITDA was RMB1,952.0 million (US$284.3 million), compared with RMB2,042.0 million in the same period last year which included one-time gains on disposal of equity investees of RMB549.7 million.

Adjusted EBITDA was RMB1,962.8 million (US$285.9 million), compared to RMB1,520.2 million in the same period last year.

Net cash provided by operating activities was RMB1,992.8 million (US$290.3 million), compared with RMB1,475.8 million in the same period last year.

Business Outlook

The Company makes no changes to its previously stated annual guidance: parcel volume for 2019 is expected to be in the range of 11.51 billion to 11.93 billion, representing a 35% to 40% increase year over year, and the Company's adjusted net income is expected to be in the range of RMB4.8 billion to RMB5.2 billion, representing a 14.3% to 23.8% increase from the same period of 2018. Above estimates are subject to change.

Company Share Purchase

On November 15, 2018, the Company announced a new 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. The Company expects to fund the repurchase out of its existing cash balance. As of June 30, 2019, the Company has purchased an aggregate of 7,549,423 ADSs at an average purchase price of US$17.32, including repurchase commissions.

The Company believes that the share repurchase program represents ZTO's confidence in the overall market opportunities as well as ZTO's solid operating fundamentals and financial strength for sustained profitable growth and value creation for its shareholders. 

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 RMB6.8650 to US$1.00, the noon buying rate on June 28, 2019 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, adjusted net income, 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 adjusted EBITDA, adjusted net income 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 adjusted EBITDA, adjusted net income 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.

Adjusted EBITDA, adjusted net income 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 review the historical non-GAAP financial measures to the most directly comparable GAAP measures. Adjusted EBITDA, adjusted net income 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 9:00 P.M. U.S. Eastern Time on Thursday, August 15, 2019 or 9:00 A.M. Beijing Time on Friday, August 16, 2019.

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 accessible through August 22, 2019 by dialing the following numbers:

A live and archived webcast of the conference call will also be available at the Company's investor relations website 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 the Company's unaudited results for the second quarter of 2019, 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. The financial results to which this news release is related 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 Express
Investor Relations Department
Phone: +86-21-6978 7037
E-mail: ir@zto.com

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