ZKH Group (ZKH) Q3 2025 earnings call transcript

Good morning and welcome to our third quarter earnings conference call. With me are Mr. Eric Chen, our founder, chairman, and CEO, and Max Lai, our CFO. These discussions may include forward-looking statements. Related factors are described in our today's press release. And we will also discuss certain non-GAAP financial measures for comparison purpose only. Please refer to the earnings release for definitions of these measures. and a reconciliation of gap to non-gap results.

With that, I will turn the call over to Eric. Eric, please go ahead.

Welcome to the third季度 of the year-to-end. In the community's rights, we see the four years of the year-to-day growth and change. We have seen the latest data in the third季度 in the third季度. 1. The customer's customers over 7,000 more. The new year-to-date is a new year. 2. The customer's customers and the customer's customers over 7,000 more. 3. The revenue continue to increase. Hello, everyone. Thank you for joining the third quarter 2025 earnings conference call for ZKH Group.

In the third quarter, thanks to our team's concerted efforts, we are pleased to see signs of stabilization and recovery in our business following nearly four quarters of proactive business optimization and adjustment. In the third quarter, the number of transacting customers exceeded 70,000, reaching a new quarterly high and strengthening the foundation for future growth. Both GMB and the number of transacting customers among industry key accounts and regional SME customers continue to grow year over year.

The company's gross margin continued its upward trend. In the last three months, the company's GMV income and money is a total of the year's total. In the sales level, the sales price is a total of 3,700 million dollars, and the sales price is a total of 5,200 million dollars, and the sales price is over 40%. 跟去年同比来看呢 日行订单也有20%以上的增长 我们相信在未来的工作日日行订单将继续保持提升 根据以上趋势来看 基本可以确定我们已经重回增长的轨道 As a result, our third quarter GMV, revenue and gross profit, largely recovered to their prior year levels. From an order flow perspective, average weekday order value rose from approximately RMB 37 million in July to approximately RMB 52 million November to date, representing an improvement of over 40%. Compared to the previous year, this level has also grown by about 20%.

We expect this positive momentum in average weekday order value to continue through the remainder of the year. Taken together, these advancements underscore that we are firmly back on a growth trajectory. In the third quarter, our total operating expenses were down by 14% year-over-year to approximately RMB 420 million.

同比大幅下降约78% 经调整净亏损率收载是0.6% 并且我们在9月份再次实现了单月盈费平衡 我们有信心四季度将实现季度的有利 In the third quarter, the three months of the company has achieved a 1 million dollar profit. The only amount of profit is to increase the amount of profit and profit. The amount of profit is increased by the amount of profit and profit. The amount of profit is increased by the amount of profit and profit.

Overall, our profitability meaningfully improved during the quarter. quarter. Operating loss, net loss, and adjusted net loss all narrowed significantly. Our adjusted net loss was down by approximately 78% year over year to just RMB 14 million. Our adjusted net loss margin also improved to 0.6%. Moreover, we once again achieved monthly break-even in September and we are on track to deliver quarterly profitability in the fourth quarter.

In terms of cash flow, we generated net cash of approximately RMB 100 million from operating activities for the third quarter, primarily driven by the substantial narrowing of losses and continued optimization of working capital management, including accounts receivable and accounts payable. Thank you. We will be the development of the development of the innovation and AI technology. 根据不同产品线的要求 制定对应的策略 有些产品线会聚焦精选 有些产品线侧重于 补习品类和供应商 三季度 我们在化学试剂 机加工 传动等品类 共新增超过230万个 可受的HQ 公司可受HQ总数量 已经超过1900万个 同时 新增超过1200家供应商 以原厂供应商为主 以进一步补充我们的产品丰富度 绵固我们作为一战式采购平台的核心优势 Our business development is underpinned by the ongoing advancement, refinement and application of our product capabilities and AI technologies. In the third quarter, we continue to make strides in both areas, propelling business growth while enhancing operational efficiency.

As a professional one-stop MRO procurement service platform, the breadth and depth of our product offerings are fundamental to our growth. We strategically operate 32 product lines, each with a tailored approach. Some product lines are highly specialized with an emphasis on curation, while others prioritize expanding product variety and supplier base. In the third quarter, we added over 2.3 million sellable SKUs across categories such as chemical reagents, machining, and transmission, bringing our total sellable SKUs to more than 19 million. We also onboarded over 1,200 new suppliers, primarily OEMs, further enriching our product offerings and solidifying our core advantage as a one-stop procurement platform.

Our private label products are a key strategic initiative to provide our customers with high value for money offerings. enhancing our overall product competitiveness. In the third quarter, we launched over 600 new private label SKUs, spanning categories such as security-related products, personal protective equipment, tools, and material handling and storage products. The GMV of our private label products maintained double-digit growth, outpacing the company's overall growth rate.

Looking ahead, we plan to steadily increase our private label products contribution to total GMV from around 8% today to approximately 30%.

。 and the efficiency of the operating system to strengthen our competition. In three季度, our waste-to-date GMEA will increase the same growth of the GMEA.

as key differentiators and value drivers that set us apart from our competitors For product lines where we have distinct advantages, such as our chemical product line of industrial lubricants and adhesives, We have developed a robust and reliable supply chain comprised of 13 specialized chemical warehouses, three of which are dedicated to hazardous materials, and an in-house fleet for distribution and delivery. We will continue to enhance our integrated capabilities from product selection to last-mile delivery and on-site service, further reinforcing our competitive moat. In the third quarter, our chemical product line achieved double-digit year-over-year GMV growth.

In the AI realm, we are continuing to advance our AI infrastructure across both the data and application layers, focusing on intelligent business processes and data governance to systematically improve our sales and operational efficiency. We have already deeply integrated AI across various business scenarios, including material cataloging and management, product recommendation, sales conversion, data standardization, and workflow automation. AI has emerged as an increasingly important driver of cost reduction, efficiency improvement, business growth, R&D productivity, and data asset enhancement.

The company is a master of AI engineering field of AI. The company in the company in AI engineering field of the company's AI engineering field has been very important.

The company's company's core of AI engineering field. AI technology is a technology team. We are able to make a more efficient way of creating a new enterprise. We are able to make a more efficient way of the organization's marketing field. 減少跨系统人工操作 显著提升流程处理效率 与平台协同能力和人员效率 以人均订单量为口径 三季度 客户人效同比提升42% 采供人效提升52% At the opening of the 8th China International Import Expo in November, we officially launched Expert Lin Loan, our proprietary AI large model and intelligent agent suite, specifically designed and developed for the MRO industry vertical. Expert Lin Loan marked a significant milestone for ZKH in empowering the entire MRO supply chain with AI. Our AI Smart Workbench, one of Expertlingon's core applications, enables automation across 45 business process scenarios, such as creating orders or issuing invoices with a single prompt.

It has significantly reduced cross-system manual operations and enhanced process efficiency, platform-wide synergy, and workforce productivity. Measured by order volume processed per employee, in the third quarter, our customer service productivity increased by 42% year-over-year, while procurement productivity increased by 52%. AI also became our customers' needs, and the key to the key to the core of AI. Through AI technology, we have made more accurate and accurate product. We have made a better way to the previous year, and we have made more accurate and more efficient products. In a variety of things, AI also has been able to perform the year-end. 例如,传统需三小时处理的300行客户寻驾单,通过AI结合专家经验,仅需30秒即可完成,准确率达98%。 年初以来我们通过引入AI工具优化定品模型与系统规则使平台自动定品率有年初的11%提升至30% 这不仅显示显著降低了人工介入更提升了商品上线效率以客户需求匹配精度 In the future, we will continue to develop a digital-led, digital-led, digital-led, and digital-led.

This will increase the customer's business. recommendation accuracy, generating over RMB 100 million in new incremental sales revenue since its launch in the fourth quarter of 2024 through the end of the third quarter this year. Our AI tools also excel in complex business scenarios. For example, processing a 300-line customer inquiry traditionally takes three hours. By combining AI with expert experience, this task can now be completed in 30 seconds with 98% accuracy. Since the start of the year, we have utilized AI to optimize our product classification models and system rules, boosting the platform's automated product classification rate from 11% to 31%. This not only reduces manual intervention, but also increases product onboarding efficiency and improves the accuracy of matching customer needs.

Moving forward, we'll continue to develop our self-service, AI-driven procurement agent to speed up responses and further elevate customer experience.

and the ability to continue to improve technology. We believe that AI is not only a tool, but also a key component of the hardware and equipment environment.

Our expert Lin Long Large Model is also empowering upgrades across our R&D system. Our R&D teams have widely adopted AI coding tools, with over 15% of our code now being generated by AI, significantly improving development efficiency.

Looking ahead, the expert Linglong large model will remain at the core of our AI development, driving deeper technological empowerment across our product, supply chain, and last-mile delivery capabilities. We believe that AI is more than a tool. It is a key force reshaping the MRO supply chain ecosystem.

and the investors create a long-term drive. Next, let's take a look at our CFO Max Line to introduce our business earnings. Thank you.

advancing our development goals of product excellence, AI-driven growth, and profitability improvement, delivering long-term value to our customers and shareholders. Now I turn the call over to our CFO, Max Lai, to present our financial results.

Thank you, everyone. Thank you, Eric, and thanks, everyone, for making time to join our earnings call today. I am pleased to work you through our robust financial performance, driven by revenue recovery, enhanced probability metrics, and possible operating cash flows. Let me begin with the top line. Both GMV and revenues return to approximately last year's levels, with GMV down 2.3% year-over-year to RMB 2.62 billion and total revenues up 2.1% to RMB 2.33 billion.

This performance indicates that the happiness from our business optimization initiatives has largely cycled through, providing greater visibility for renewed top-line growth in the quarters ahead. Notably, the number of transacting customers exceeds 70,000, reaching a new quarterly high, and private-label GMV grew 16.7% year-over-year, outpacing the overall business and reaching 8.2% of total GMV.

Turning to business quality, our growth margin remained healthy at 16.8% compared with 17% a year ago. On a GAV basis, our growth margin continues to improve, expanding by 41.5 basis points year-over-year to 14.9%. Specifically, growth margin for our product sales 1P model increased by 11 basis points to 16 percentage on executive platform and 223 basis points to 16 percentage on the executive platform and 223 basis points to 70 to 7 percent on the GBP platform. Additionally, we take our take rate of marketplace model rose by 47.5 basis points to 13.5 percent year over year. These gains were mainly driven by our for optimized procurement costs and a high contribution from our private label products, which typically deliver high margins.

On operational efficiency, our discipline focused on streaming line cost and enhancing productivity continue to yield tangible results. Fulfillment operating expenses decreased 14.4% year-over-year to R&B 493.8 million, representing 18.1% of net revenue, a significant improvement from 21.6% in a prior year period. Breaking this down, fulfillment expenses were R&B 90.4 million, down 9.8% year-over-year, expecting lower employee benefits and warehouse rental costs.

Sales and marketing expenses declined 13.2% to R&B 145.9 million, primarily driven by lower employee benefits and travel expenses. R&D expenses decreased 19% to R&B 40.3 million, mainly attributable to lower employee benefits.

And general and administration expenses were R&B $145.8 million, down 17% year-over-year, driven by lower employee benefits expenses and lower credit loss allowances.

Efficiency gains underpin's margin improvements and a substantial reduction in losses. Operating loss narrowed 69.3% to RMB 32.3 million, with margin improving to negative 1.4% from negative 4.6%. Non-GAAP EBITDA improved to a loss of RMB 8.5 million from RMB 62.8 million, with margin improving to negative 0.4% from negative 2.8%. Adjusted net loss narrows to R&B 14.1 million from R&B 66.2 million and margin improves to negative 0.6% from negative 2.9%. As of 30 September 2025, our cash position remains strong at R&B 1.9 billion. Net cash generated from operating activity was R&B 105.5 million, compared with net cash used in operating activity of R&B 160.5 million in the same period of 2024.

To conclude, our first quarter results demonstrate clear signs of stabilization and recovery, underpinned by a more balanced customer mix, a higher margin product portfolio, driven by private labor growth, and our structural efficiency gain from AI-enabled process optimization and strengthen supply chain capabilities.

Looking ahead, we expect to capitalize on this momentum through disciplined investment in AI and data capabilities, continuous enhancement of our product and supply chain capabilities, and focused execution while advancing our international expansion. We remain focused on top-right growth, further margin expansion, and loss reduction on our path towards sustainable profitability.

Thank you, and I would like to now open the call for Q&A. Operators, please go ahead. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English.

Again, you may press star than one to ask a question.

更好的降低管理成本 我觉得这也是一个时代发展的机会 那另外一点我觉得呢 中国是全球最大的一个制造业国家 我觉得在中国这样一个基础上呢 应该能够培养出来 非常领先出领先的企业 那不仅能够服务好中国本土的制造业 实际上我们也有机会走向全球 So I believe this JDMRO looking to get listed is a very good thing for ZKH and for the industry at large because it's very good in terms of spreading this idea of doing one-stop purchasing on e-commerce platforms. And it's definitely an opportunity that our times have afforded us. China being the number one manufacturer in the world is actually big enough for leading MRO companies to exist. And these MRO companies can not only serve Chinese manufacturers but also benefit global ones.

In China, there are different types of companies in the market. And even in traditional companies, we can also participate in the market.

I think we're a company of a company of B2B business. Our company's first-time business is to be able to produce the product. The industry of the M2 industry is to produce the product. So our team is in terms of professional professional ML of this company whether it's in a lot of equipment equipment equipment equipment equipment equipment equipment that's another one we we did the time we we did our new center we we did ML of the products we can be more much to the products 测试 选行对比等等这方面的工作 我们希望通过这些专业和技术的提升能进一步的帮助到我们客户 当然在另外一方面我们也在自建我们自营的仓库包括最后一公司的交付 我觉得在未来覆盖全国的甚至能够服务到海外的专业的供链能力 也是我们非常重要的一个核心能力 And in the MRO space, we have seen different kinds of players, including those players traditionally engaged in supplying office supplies.

As VKH, we started out in serving and selling chemicals and industrial-grade MROs. So we specialize in selling steel parts, chemicals, and manufactured goods. And we have built an innovation center in Taichung. This goes to show how we are committed to be deeply involved in integrating our services.

And so in terms of R&D, testing, product selection, and comparison, and we would like to use this specialty of ours to help our customers better. We have also built our own warehouses and last mile delivery capabilities. So this supply chain capability can not only serve the whole of China, but also the rest of the world. Xinlong Xinjiang.

In the market market, the overall market is that the market market 逐渐趋于稳定 那头部领先的企业呢 优势呢实际上是经过这几年的建设呢 实际上是优势逐渐越来越明显 包括我们公司的大量的市场化的中小型的企业的获取 我觉得这都是我们供应链能力提升的一个非常好的一个 证明 所以从这个角度上来讲 那我们政客行将持续专注于我们 and in terms of the competitive landscape, I would say over the years, things have really stabilized. And as leaders in this space, our advantages are becoming increasingly marked. And the fact that we are able to have acquired lots and lots of SMEs goes to show that there has been a great improvement to our supply chain capabilities. So basically, at the end of the day, we are committed and focused on beefing up and enhancing our supply chain capabilities in the MRO space. That was my answer to the question. Thank you.

So this stage, we say it is a question. It is a key to the core of the world's innovation. I think that's a key to the end. So we think that in the past, we've experienced this stage. Now we're in the new phase. Just from the early-to-end of the world's innovation, the key to the core of the world's innovation. We're in the end of the world's innovation. in the new phase of the global economy. So I think that the company has gradually experienced the loss of the potential. The ability has gradually increased, and it will gradually increase the growth. Let me explain this phase. So we got lots of investment and funding along our journey.

As a startup, startups have different phases, right? In early days, we were more focused on the health of our cash flow. So more of the funds were used and spent on infrastructure build-out and the build-out of our core capabilities and the competencies. So we were suffering losses primarily due to these investments that we made in order to beef up our core competencies. But I believe we are entering a new phase now. This is a phase marked by profitability, and we're going to use some of the profits and the standard profits to further build our core competencies.

Chen Dong-Chin Ji-Shu. That we're going to be able to do this. Now that we are profitable, one thing that is clear is we are having an increasingly strong operating leverage. Specifically, our expense ratio keeps dropping while our fulfillment growth margin keeps rising. and our profitability is getting better, and this is very much in line with our original plan for our development.

冲冲 李训 那总结一下, 回顾一下过去四年的我们的财务的业绩, 有时候2021年, 这一年我们就亏损了9.1个亿, 有大量的投资。 那2022年的亏损是6.3个亿, 23 years is 2.9 million 24 years is 1.6 million Now, this year, we will be able to increase the total loss of the year And in the fourth year, we have the confidence to achieve the total loss of the year Please, please In terms of specific profits and losses 21, we made a loss of 910 million RMB due to the loss and loss of investments that we made. 2022, we made a loss of 630 million RMB. 23, losses were 290 million RMB. 24, 160 million. 25, we saw losses greatly narrowed. And in Q4, we are very likely to turn a profit. 请进去 这方面的能力 另外一方面呢 有关于核心能力的建设 对未来核心竞争力建设的这方面的投资呢 我们要在盈利保证盈利的前提下 照样就要持续的推进 包括产品的研发 包括数据化和AI的研发 包括海外市场的几个方面 也就是确保什么呢 一方面要确保盈利的可持续 并且盈利的能力逐渐增强 In the other hand, we need to ensure that the growth of the long-term growth will be able to continue to grow.

That's what I'm going to answer to this question. to control of expenses. So we will continue to improve our efficiency and control our expenses, as well as enhancing our capabilities of customer acquisition. We will also keep investing in our core competencies while ensuring profitability. So these core competencies include R&D when it comes to AI, R&D when it comes to product capabilities, and our overseas business expansion.

So we will not only make sure that our profitability is sustainable, but also we will enhance it while ensuring long-term growth. Thank you.

All right. In the US trade, we have two different parts. One is to support Chinese companies. We know that we're in the world of development in the world of development. We need to do this service. This is a part. Another part is we plan to make the American world in the world of the world. We plan to make the world of the world of development.

Over the past year, we will have a different way of the world of the world. First, in the short-term, we will be more focused on the world of the world. 中国企业出海的服务 这方面和投入也比较有限 业务确定性也比较高 这三季度我们已经完成多家中国客户 在泰国 马来西亚 印尼 墨西哥等当地工厂的 爱贸采购的交付 并完成这些国家的产品的认证 包括清官等等这一方面 所以这是一点更加重视中国企业的出海 那欧美市场呢 因为欧美市场我们判断是一个 比较中长期的市场 那产品呢进入 包括欧洲的市场 希望说 大量的认证啊等等这方面 准备的工作 它不是短时间能 或者快速生长 那我们这个策略就是 適当的 控制一下在欧美的这个投入 那控制的逻辑就是 什么呢 我们海外的业务 明年的规划就是 Let me quickly translate the question first.

Answer. Overall, when it comes to going abroad, there's two parts. One is serving Chinese companies as they go abroad, as there's lots and lots of Chinese companies that are currently taking their business globally. Also, we're going to develop business in the U. S. mainland and Europe. We're actually already actively doing that. But after a period of testing things out, we have made some adjustments as well. So firstly, we still highly value Chinese companies going abroad, and because investments there on our part are pretty limited, and the certainty of this business is very high. So in Q3, for example, we have already finished the MRO purchasing and delivery for some of our customers, for quite a few Chinese customers rather, in Thailand, Malaysia, Indonesia, and Mexico for their local factories.

And we have finished things like product certification, customer clearance, et cetera. As for our business in the U. S. , we believe that's going to be a mid- to long-term play because it's going to take longer time in terms of product prep, getting to the market. So we have decided to control our investment pace and cadence in the U. S. And overall, we believe our overseas business will achieve break-even in the whole of 2026.

So that was actually all of my answers to this question. Thank you.

Thank you once again for joining us today. You can find the webcast of today's call on ir. zkh. 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.