Emphasizing Profitable Growth amidst Consumption Mix-shiftAdjusted Net Income Grew 15.8% to RMB2.2 BillionParcel Volume Increased 13.9% to 7.2 Billion SHANGHAI, May 15, 2024 /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 first quarter ended March 31, 2024[1]. The Company grew parcel volume by 13.9% year over year while maintaining high quality of service and customer satisfaction. Adjusted net income[2] increased 15.8% to reach RMB2.2 billion. Net cash generated from operating activities was RMB2.0 billion. First Quarter 2024 Financial Highlights Revenues were RMB9,960.0 million (US$1,379.4 million), an increase of 10.9% from RMB8,983.2 million in the same period of 2023. Gross profit was RMB3,002.1million (US$415.8million), an increase of 19.0% from RMB2,523.4 million in the same period of 2023. Net income was RMB1,447.7 million (US$200.5 million), a decrease of 13.0% from RMB1,664.8 million in the same period of 2023. Adjusted EBITDA[3] was RMB3,660.4 million (US$507.0 million), an increase of 16.8% from RMB3,133.0 million in the same period of 2023. Adjusted net income was RMB2,224.0 million (US$308.0 million), an increase of 15.8% from RMB1,919.8 million in the same period of 2023. Basic and diluted net earnings per American depositary share ("ADS"[4]) were RMB1.77 (US$0.25) and RMB1.75 (US$0.24), a decrease of 14.5% and 13.8% from RMB2.07 and RMB2.03 in the same period of 2023, respectively. Adjusted basic and diluted earnings per American depositary share attributable to ordinary shareholders[5] were RMB2.74 (US$0.38) and RMB2.68 (US$0.37), an increase of 15.1% and 15.0% from RMB2.38 and RMB2.33 in the same period of 2023, respectively. Net cash provided by operating activities was RMB2,031.0 million (US$281.3 million), compared with RMB2,738.0 million in the same period of 2023. Operational Highlights for First Quarter 2024 Parcel volume was 7,171 million, an increase of 13.9% from 6,297 million in the same period of 2023. Number of pickup/delivery outlets was over 31,000 as of March 31, 2024. Number of direct network partners was over 6,000 as of March 31, 2024. Number of self-owned line-haul vehicles was approximately 10,000 as of March 31, 2024. Out of the approximately 10,000 self-owned trucks, approximately 9,100 were high capacity 15 to 17-meter-long models as of March 31, 2024, compared to approximately 9,500 as of March 31, 2023. Number of line-haul routes between sorting hubs was approximately 3,800 as of March 31, 2024, which is similar to the same period last year Number of sorting hubs was 96 as of March 31, 2024, among which 88 are operated by the Company and 8 by the Company's network partners. (1)   An investor relations presentation accompanies this earnings release and can be found at http://zto.investorroom.com. (2)   Adjusted net income is a non-GAAP financial measure, which is defined as net income before share-based compensation expense and non-recurring items such as gain or loss on disposal of equity investments and subsidiaries and corresponding tax impact which management aims to better represent the underlying business operations. (3)   Adjusted EBITDA is a non-GAAP financial measure, which is defined as net income before depreciation, amortization, interest expenses and income tax expenses, and further adjusted to exclude the shared-based compensation expense and non-recurring items such as the gain on disposal of equity investments and subsidiaries which management aims to better represent the underlying business operations. (4)   One ADS represents one Class A ordinary share. (5)   Adjusted basic and diluted earnings per American depositary share attributable to ordinary shareholders is a non-GAAP financial measure. It is defined as adjusted net income attributable to ordinary shareholders divided by weighted average number of basic and diluted American depositary shares, respectively. Mr. Meisong Lai, Founder, Chairman and Chief Executive Officer of ZTO, commented, "For the first quarter, parcel volume of the express delivery industry increased 25.2% year over year, far exceeded expectations. The boom of live video streaming and social network retailing has helped stimulating consumption and fueled the increase in express delivery volume; On the other hand, however, it has also contributed to an increase in the proportion of low-priced parcels. Meanwhile, price competition intensified further particularly in major output regions. A greater portion of industry parcel volume became less profitable or loss making.  ZTO adhered to the principle of profitable growth and kept  loss-making parcels out of our network. While our volume market share declined over last year, our profit share among industry peers further increased demonstrating the effectiveness of our strategy." Mr. Lai added, "Our consistent strategy is to achieve balanced development in service quality, volume scale and earnings. At the beginning of 2024, we shifted our strategic focus to quality of services. While maintaining a scale-leveraged volume and healthy earnings level, we put greater effort towards the development of differentiated product and services to meet the diverse and personalized needs of customers aimed to enhance ZTO's brand awareness and value recognition. The transformation of Chinese express delivery from high quantity to a combination of quantity plus quality is inevitable. We have prioritized quality of product and services, with the intention of breaking away from homogeneous competition, enhancing product mix, improving profitability of our network partners and couriers, and creating strong moat for ZTO's long term viability and value preposition." Ms. Huiping Yan, Chief Financial Officer of ZTO, commented, "Our core express ASP decreased 2.5% or 4 cents, which was well below industry level. Combined unit sorting and transportation cost decreased 6 cents as our standardization and digitization initiatives continued to generate positive results despite softer volume. SG&A cost structure remained stable and efficient. Our adjusted net income for the quarter increased 15.8% to 2.2 billion. Cash flow from operating activities was 2.0 billion, and capital spending outlay was 1.7 billion for the quarter." Ms. Yan added, "We believe that the Chinese economic conditions will improve over time and express delivery industry's long term growth prospect is intact. Our focus on development of differentiated product and service will ensure our enterprise value creation and longevity. We anticipate that the industry growth for the year to be between 15-20%, and we are prepared to allow a necessary level of retreat in market share while avoiding meaningless losses. The Company maintains its previous volume growth guidance for the year to be in the range of 15%-18%, or 34.73billion to 35.64 billion parcels." First Quarter 2024 Unaudited Financial Results  Three Months Ended March 31, 2023 2024 RMB % RMB US$ % (in thousands, except percentages) Express delivery services 8,388,743 93.4 9,240,172 1,279,749 92.8 Freight forwarding services 192,725 2.1 202,747 28,080 2.0 Sale of accessories 368,838 4.1 485,062 67,180 4.9 Others 32,933 0.4 32,025 4,436 0.3 Total revenues 8,983,239 100.0 9,960,006 1,379,445 100.0 Total Revenues were RMB9,960.0 million (US$1,379.4 million), an increase of 10.9% from RMB8,983.2 million in the same period of 2023. Revenue from the core express delivery business increased by 11.0% compared to the same period of 2023, as a net result of a 13.9% increase in parcel volume and a 2.5% decrease in parcel unit price. KA revenue including delivery fees from direct sales organizations, established to serve core express KA customers, decreased by 7.1% as a result of mix shift towards higher-value customers. Revenue from freight forwarding services increased by 5.2% compared to the same period of 2023. Revenue from sales of accessories, largely consisted of sales of thermal paper used for digital waybills' printing, increased by 31.5%. Other revenues were mainly derived from financing services. Three Months Ended March 31, 2023 2024 % of % of RMB revenues RMB US$ revenues (in thousands, except percentages) Line-haul transportation cost 3,181,820 35.4 3,371,493 466,946 33.9 Sorting hub operating cost 2,013,371 22.4 2,168,201 300,292 21.8 Freight forwarding cost 182,972 2.0 188,382 26,091 1.9 Cost of accessories sold 107,428 1.2 133,047 18,427 1.3 Other costs 974,240 10.9 1,096,798 151,905 11.0 Total cost of revenues 6,459,831 71.9 6,957,921 963,661 69.9 Total cost of revenues was RMB6,957.9 million (US$963.7 million), an increase of 7.7% from RMB6,459.8 million in the same period last year. Line haul transportation cost was RMB3,371.5 million (US$466.9 million), an increase of 6.0% from RMB3,181.8 million in the same period last year. The unit transportation cost decreased 7.0% or 4 cents mainly attributable to better economies of scale, optimized line-haul route planning and improved load rate. Sorting hub operating cost was RMB2,168.2 million (US$300.3 million), an increase of 7.7% from RMB2,013.4 million in the same period of last year. The increase primarily consisted of (i) RMB81.1 million (US$11.2 million) increase in depreciation and amortization costs associated with automation equipment and other facilities, and (ii) RMB68.7million (US$9.5 million) increase in labor-associated costs, a net result of wage increases partially offset by automation-driven efficiency improvements. With standardization in operating procedures, effective performance evaluation system, the unit sorting cost decreased by 5.4% or 2 cents. As of March 31, 2024, there were 461 sets of automated sorting equipment in service, compared to 454 sets as of March 31, 2023, which enhanced overall sorting efficiencies. Cost of accessories sold was RMB133.0 million (US$18.4 million), increased by 23.8% compared with RMB107.4 million in the same period last year.  Other costs were RMB1,096.8 million (US$151.9 million), an increase of 12.6% from RMB974.2 million in the same period last year. The increase was mainly driven by RMB124.3 million (US$17.2 million) increase in costs associated with serving higher-value enterprise customers, level of which is consistent with related revenue increases. Gross Profit was RMB3,002.1 million (US$415.8 million), increased by 19.0% from RMB2,523.4 million in the same period last year as a combined result of revenue growth and cost productivity gain. Gross margin rate improved to 30.1% from 28.1% in the same period last year. Total Operating Expenses were RMB735.4 million (US$101.8 million), compared to RMB573.0 million in the same period last year. Selling, general and administrative expenses were RMB896.6 million (US$124.2 million), increased by 14.0% from RMB786.6 million in the same period last year. The increase primarily consisted of (i) RMB40.4 million (US$5.6 million) increase in compensation and benefit expenses, and (ii) RMB37.3 million (US$5.2 million) provisional loss related to a collection against certain supplier. Other operating income was RMB161.3 million (US$22.3 million), compared to RMB213.6 million in the same period last year. Other operating income mainly consisted of (i) RMB118.9 million (US$16.5 million) of government subsidies and tax rebates, and (ii) RMB40.2 million (US$5.6 million) of rental and other income. Income from operations was RMB2,266.7 million (US$313.9 million), an increase of 16.2% from RMB1,950.4 million for the same period last year. Operating margin rate increased to 22.8% from 21.7% in the same period last year. Interest income was RMB245.0 million (US$33.9million), compared with RMB91.9 million in the same period last year. Interest expenses was RMB83.9 million (US$11.6 million), compared with RMB71.7 million in the same period last year. Gain from fair value changes of financial instruments was RMB42.7 million (US$5.9 million), compared with RMB155.6 million in the same period last year. Such gain or loss from fair value changes of the financial instruments are quoted by commercial banks according to market-based estimation of future redemption prices. Impairment of investment in equity investee was RMB478.4million (US$66.3 million). In the first quarter of 2024, Alibaba Group Holding Limited ("Alibaba") initiated a tender offer to purchase all the outstanding shares of Cainiao Smart Logistics Network Limited ("Cainiao"). The offer price to all shares held by the Company was below the carrying amount, hence a RMB478.4million (US$66.3 million) impairment of investment was reported for this accounting period. Income tax expenses were RMB566.3 million (US$78.4 million) compared to RMB455.0 million in the same period last year. Overall income tax rate increased by 6.8 percentage points year over year, mainly due to (i) RMB44.0 million accrual of withholding tax on distributable earnings planned for dividend payment to ZTO Express (Hong Kong) Limited attributable for the first quarter, and (ii) RMB478.4million (US$66.3 million) impairment losses on investment in Cainiao upon a tender offer.  Net income was RMB1,447.7 million (US$200.5 million), which decreased by 13.0% from RMB1,664.8 million in the same period last year. Basic and diluted earnings per ADS attributable to ordinary shareholders were RMB1.77 (US$0.25) and RMB1.75 (US$0.24), compared with basic and diluted earnings per ADS of RMB2.07 and RMB2.03 in the same period last year, respectively. Adjusted basic and diluted earnings per ADS attributable to ordinary shareholders were RMB2.74 (US$0.38) and RMB2.68 (US$0.37), compared with RMB2.38 and RMB2.33 in the same period last year, respectively. Adjusted net income was RMB2,224.0 million (US$308.0 million), compared with RMB1,919.8 million during the same period last year. EBITDA[1] was RMB2,884.1 million (US$399.4 million), compared with RMB2,878.0 million in the same period last year. Adjusted EBITDA was RMB3,660.4 million (US$507.0 million), compared to RMB3,133.0 million in the same period last year. Net cash provided by operating activities was RMB2,031.0 million (US$281.3 million), compared with RMB2,738.0 million in the same period last year. (1)   EBITDA is a non-GAAP financial measure, which is defined as net income before depreciation, amortization, interest expenses and income tax expenses which management aims to better represent the underlying business operations. Business Outlook Based on current market conditions and current operations, the Company reiterates that its parcel volume for 2024 is expected to be in the range of 34.73 billion to 35.64 billion, representing a 15% to 18% increase year over year. Such estimates represent management's current and preliminary view, which are subject to change. Sale of Equity Investment In Cainiao On March 28, 2024, the Company received an offer from Alibaba to purchase all the outstanding shares of Cainiao held by the Company for US$0.62 per share, with an aggregate consideration of approximately US$94.3 million. The cost of the investment is US$54.0 million. The Company has accepted the offer and expects to enter into a share purchase agreement with Alibaba. Upon the completion of the transaction, the Company will cease to hold any equity interest in Cainiao. Appointment of President Mr. Jingxi Zhu, vice president of information technology of the Company, has been appointed as the president of the Company to be primarily responsible for the overall operational executions. Mr. Zhu will continue to oversee technology and information matters of the Company. Mr. Zhu has been the head of information technology of the Company since July 2003 and has served as vice president of information technology since September 2016. Mr. Zhu received an EMBA from Renmin University of China in 2021. Exchange Rate This announcement contains translation of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the exchange rate of RMB7.2203 to US$1, the noon buying rate on March 29, 2024 as set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve Systems. Use of Non-GAAP Financial Measures The Company uses EBITDA, adjusted EBITDA, adjusted net income, adjusted net income attributable to ordinary shareholders, and adjusted basic and diluted earnings per American depositary share attributable to ordinary shareholders, each a non-GAAP financial measure, in evaluating ZTO's operating results and for financial and operational decision-making purposes. Reconciliations of the Company's non-GAAP financial measures to its U.S. GAAP financial measures are shown ...