Operator:

Ladies and gentlemen, good day, and welcome to ZKH Group Limited's Fourth Quarter and Fiscal Year 2025 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, ma'am. Jin Li: Good morning, and welcome to ZKH's Fourth Quarter and Full Year 2025 Earnings Conference Call. With me are Mr. Eric Chen, our Founder, Chairman and CEO; and Mr. Max Lai, our CFO. Today's discussion 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 GAAP to non-GAAP results. With that, I will turn the call over to Eric. Eric, please go ahead. Long Chen: [Interpreted] Hello, everyone. Thank you for joining our fourth quarter and full year 2025 earnings conference call. Throughout 2025, we advanced our strategic optimization efforts while strengthening core capabilities across product offerings and technological innovation. As these initiatives took hold, we began to see clear signs of stabilization and recovery in the second half of the year. Both GMV and revenue largely recovered to prior year levels in the third quarter, then accelerated into solid year-over-year growth in the fourth quarter. At the same time, our earnings quality continued to strengthen. We successfully returned to profitability in the fourth quarter. With an adjusted net profit of RMB 14.8 million and achieved half year breakeven for the first time. Our cash flow profile also strengthened meaningfully. We recorded positive operating cash flow in both the fourth quarter and full year 2025, further enhancing the resilience and flexibility of our financial position. These results signal that we have moved past the transitional effects of strategic optimization and entered a healthier, more resilient phase of development. Now let me walk you through some of the business highlights in the fourth quarter. At a fundamental level, our growth foundation has continued to strengthen. In the fourth quarter, overall GMV grew 8.5% year-over-year and approximately 11% sequentially. Based on order pipeline and shipment trends, we expect year-over-year GMV growth to accelerate into double digits in the first quarter this year. A key driver of our GMV growth was the continued expansion and deepening of our customer base. In the fourth quarter, the number of transacting customers approached 74,000, representing a year-over-year increase of 60%, the fastest quarterly growth in recent years. By customer segment, GMV from both key accounts and SME customers on our ZKH platform maintained year-over-year growth during the quarter. Among key accounts, we have now covered over 680 of China's top 1,000 manufacturers with several core industry verticals delivering particularly strong momentum, specifically GMV from customers in electrical equipment manufacturing, chemicals, steel and nonferrous metals as well as transportation increased by more than 20% year-over-year. Notably, certain SOE customers previously affected by strategic optimization showed clear recovery with GMV returning to year-over-year growth and expanding by over 20% sequentially. Among SME customers, growth momentum remained strong with GMV increasing by more than 20% year-over-year in the fourth quarter. This growth was primarily driven by the continued expansion of our regional service network, the strengthening of our digital marketing capabilities and the broader application of AI tools that enhance customer identification, demand matching and conversion efficiency. Beyond reinforcing our growth trajectory, rapid SME expansion also contributes positively to our margin profile. As this segment continues to scale, we believe it will become an increasingly meaningful driver of both our overall growth and margin expansion. Internationally, we made encouraging progress. Sequentially, GMV from this business grew by approximately 50%, while the number of customers grew by around 20%. At the same time, our fulfillment network continued to expand and now covers 17 countries. Looking ahead to 2026, we will advance our international strategy by deepening localized service capabilities and further expanding our global footprint. Underpinning this customer and market expansion is the systematic bolstering of our supply side infrastructure. During the quarter, we enhanced our platform ecosystem across product assortment, brands, supplier partnerships and fulfillment network. These efforts reinforced our product competitiveness and fulfillment capabilities, enabling us to deliver a truly one-stop procurement solution while supporting profitability improvement over time. Starting with product assortment. We continued to strengthen our category capabilities by building long-term competitiveness in scenario-driven and standardized solutions. By the end of 2025, the number of SKUs on our platform had expanded to 23 million, up 33% from the end of 2024. This growth was primarily concentrated in highly specialized MRO categories such as factory automation, chemical reagents and instrumentation. From a product mix perspective, we further deepened our presence in technically demanding high-entry barrier MRO segments such as spare parts, industrial chemicals as well as processing and manufacturing components. In the fourth quarter, we saw over 20% year-over-year GMV growth in several professional categories, including power transmission equipment, instrumentation and chemical reagents. These results further strengthen our moat in the specialty MRO supply market. Our private label product business saw continued expansion in the fourth quarter with the launch of 349 new SKUs. For the full year, private label GMV rose 21% year-over-year, increasing its contribution to total GMV from 6.7% in 2024 to 8.3%. We remain committed to our long-term strategy as we steadily work toward our goal of 30% GMV share. Private label products do more than just provide customers with high-quality alternatives at a compelling value. They are also essential to building customer loyalty, enhancing supply chain control and optimizing our overall product mix. Over time, we expect this business to become a meaningful driver of our margin expansion. Turning to our supplier ecosystem. We had established partnerships with nearly 20,000 suppliers by the end of 2025. Building on this foundation, we also established strategic partnerships with multiple leading brands and industry players on a deeper level, expanding relationships beyond simple transactions into broader collaborations across supply chain, data and market development to build a truly integrated industrial services ecosystem. On the fulfillment front, we further strengthened our warehousing and end-to-end delivery network. Our multi-tier fulfillment infrastructure now comprises 30 distribution centers, over 100 transit warehouses and a self-operated fleet of over 200 delivery vehicles, further enhancing our last-mile delivery capabilities. At the same time, our operational efficiency improved significantly. During the quarter, our through warehouse fulfillment cost declined by around 13% year-over-year, marking this the eighth consecutive quarter of double-digit reductions. Warehouse labor productivity and space utilization at our distribution centers also increased by around 20% year-over-year, bringing our operational efficiency to industry-leading levels. As we continue to optimize our warehouse network and in-warehouse operations, we expect our through warehouse fulfillment cost to improve further this year. While continuing to strengthen our supply side capabilities, we have also been strengthening our AI and digital capabilities to make our value chain more efficient and intelligent. During the quarter, we deepened our AI strategy across 3 layers: data infrastructure, industry-specific models and scenario application. These measures are accelerating the translation of AI innovation into scalable business value creation. At the data layer, we have made significant strides in building our proprietary data foundation through the ZKH Data Dictionary with total data assets expanding to the petabyte level. As AI applications were deployed more broadly across our operations and AI coding tools became increasingly integrated into our R&D workflow total token consumption doubled year-over-year in 2025. Monthly usage now exceeds 80 billion tokens. This reflects the increasing depth of AI inference, broader application scope and greater automation across our platform. Looking ahead, we expect token usage to increase by at least tenfold over the next 2 to 3 years. At the same time, our average cost per million tokens continues to decline on a year-over-year basis. As the depth, specialization and integrity of our data assets continue to improve, our AI capabilities across key operational scenarios have also strengthened significantly. In particular, we're seeing notable performance improvements in areas such as intelligent RFQ processing, precise product identification and pricing optimization. At the model layer, we launched H-Nimble in 2025, the industry's first large language model purpose-built for the MRO sector. The model completed regulatory filing with the Cyberspace Administration of China in September and has since begun scaled deployment. In specialized industrial settings, H-Nimble is already demonstrating clear advantages in handling complex professional MRO scenarios. At the application layer, AI is increasingly embedded into our core business processes, strengthening both our platform capabilities and service efficiency. For customer-facing services, AI is already delivering tangible value across several key operational scenarios. For example, our AI Material Management Agent has helped nearly 10,000 customers organize and standardize more than 15 million lines of material data. Previously, processing 1,000 lines of material data required roughly 15 person days of manual work. Today, AI can complete the same task in roughly 3 minutes. In product selection and recommendation, our AI ProductRecom Agent has improved supply-demand matching and conversion efficiency. In 2025 alone, this agent served more than 30,000 customers and generated over RMB 200 million in sales. Internally, we are accelerating the deployment of our AI Smart Workbench and RPA Digital Workforce at scale, building a more intelligent and highly automated operational infrastructure. By the end of 2025, the number of RPA digital employees had exceeded 5,000, already surpassing the size of our full-time workforce and becoming a key pillar of our intelligent operations framework. Over the course of the year, these digital employees helped save nearly 1 million man hours. At the same time, our AI Workbench has significantly reduced the need for manual cross-system operations. This is driving a fundamental shift in our business as we move from high-touch to low-touch workflows. In 2025, the AI Smart Workbench autonomously executed more than 520,000 system operations, delivering substantial productivity gains in process-intensive roles. For example, our productivity in customer service and procurement increased by approximately 45% and 50% year-over-year, respectively, improving labor cost efficiency in these functions. In 2026, we expect the AI Smart Workbench to further enhance the ability of our AI agents to understand and execute increasingly complex business processes. This will continue the evolution of our operating model from a low-touch to a no-touch model, unlocking further operational efficiencies and providing a stronger foundation for our scalable growth. Looking ahead, we will continue to build on our core strengths in products, supply chain and AI. This will further reinforce our long-term competitive advantages as we work to establish ZKH as the trusted infrastructure for industrial MRO procurement. At the same time, we'll focus on improving the quality and efficiency of our core business, enhancing our organic growth drivers and further optimizing our customer mix and cost structure, positioning us to achieve full year profitability in 2026. Now I'll turn the call over to our CFO, Max Lai, to present our financial results. Thank you, everyone. Chun Chiu Lai: Thank you, Eric, and thanks, everyone, for making time to join our earnings call today. I'm pleased to walk you through our financial performance for the fourth quarter and full year 2025. We concluded the year with strong momentum across key financial metrics. In the fourth quarter, we delivered accelerated top line growth, improved operational efficiency and achieved a return to profitability. These results reflect the improvement of our core business fundamentals and the growing benefits of business optimization we've implemented over the past several quarters. Let me begin with our top line performance. In the fourth quarter, we generated a solid year-over-year and sequential growth signaling strengthening momentum in our business and robust market demand. GMV grew by 8.5% year-over-year and 11.3% sequentially to RMB 2.92 billion, while total revenues grew by 7.9% year-over-year and 9.8% sequentially to RMB 2.56 billion. This performance was supported by the continued expansion of our customer base as well as our enhanced product offering and fulfillment capabilities. For the full year, GMV declined by 3.3% year-over-year to RMB 10.1 billion, primarily due to the impact of strategic optimization that continued to weigh on results in the first half of the year. But the company's operational performance showed clear signs of inflection points in the second half of 2025. Total revenues increased by 2.6% year-over-year to RMB 9 billion. Turning to our margin profile. Gross profit margin in the fourth quarter was 15.5% compared with 17.1% in the same period last year, primarily reflecting temporary unfavorable change in product mix. That being said, the underlying drivers of our long-term margin expansion remains well in place. The ongoing growth of our high-margin SME customers and private label products provides a structural tailwind for our margin profile. In addition, our continued progress in procurement efficiency and supply chain capabilities is expected to further support gradual margin improvement over time. For the full year, gross profit margin was 16.4% compared with 17.2% in 2024. The decrease was mainly due to a lower contribution from our marketplace model, which carries 100% gross profit margin under the net revenue recognition basis. However, on a GMV basis, our gross profit margin improved by roughly 15 basis points year-over-year to 14.6%. Notably, gross margin for GBB platform increased by 98.6 basis points year-over-year to 6.5%. Meanwhile, the take rate of marketplace model rose by 57.4 basis points year-over-year to 13.1%, highlighting continued monetization improvement across our platform ecosystem. On operational efficiency, we generated solid operating leverage in the fourth quarter as cost efficiency continued to improve with scale and AI applications. Total operating expenses decreased by 3% year-over-year to RMB 424.6 million and decreased to 16.6% of net revenues compared with 18.5% in the same period last year. For the full year, total operating expenses declined by 8.7% year-over-year, while operating expenses as a percentage of net revenues improved to 18.8% from 21.1%. This operational efficiency gains translated into a meaningful improvement in profitability. In the fourth quarter, operating loss narrowed by 13.4% year-over-year to RMB 28.2 million, with the margin improving to negative 1.1% from negative 1.4%. Non-GAAP EBITDA turned positive at RMB 19.7 million compared with a loss of RMB 13.3 million in the prior year period, with the margin improving by roughly 133 basis points. Most notably, we achieved a non-GAAP adjusted net profit of RMB 14.9 million in the fourth quarter, representing a very significant turnaround from a non-GAAP adjusted net loss of RMB 15 million in the same period last year. For the full year, operating loss narrowed by 37% year-over-year to RMB 213.3 million, with the margin improving to negative 2.4% from negative 3.9% in 2024. Non-GAAP EBITDA improved by 58.9% to negative RMB 79.3 million, with margin improving to negative 0.9% from negative 2.2%. Adjusted net loss narrowed by 46.1% year-over-year to RMB 85.9 million, with margin improving to negative 1% from negative 1.8%. Turning to our balance sheet and cash flow. We maintained a strong and healthy cash position. As of December 31, 2025, our cash and cash equivalents, restricted cash and short-term investments totaled RMB 1.92 billion. This provides us with ample liquidity to support ongoing operations and strategic initiatives. Operating cash flow also improved sequentially. In the fourth quarter, net cash generated from operating activities reached RMB 116.1 million, reflecting improved operating performance and disciplined working capital management. In closing, 2025 marks a year of meaningful financial and operational progress for the company. We strengthened our financial fundamentals, improved operational efficiency and significantly narrowed loss while continuing to invest in capabilities that support long-term growth. As a result, we returned to profitability in the fourth quarter and closed the year with stronger operating leverage, renewed growth momentum. Our operational model today is structurally more resilient, supported by enhanced product and supply chain capabilities, a more disciplined cost base and deeper integration of AI across our operations. Looking ahead, our strategic focus remains clear: continue to drive high-quality growth, expand margins and maintain disciplined execution as we advance towards sustainable profitability. Thank you. I would now like to open the call for Q&A. Operator, please go ahead. Operator: [Operator Instructions] The first question comes from Leo Chiang with Deutsche Bank. Leo Chiang: [Foreign Language] I will translate myself. Congratulations on the robust 4Q results. My question is about gross margin. We noted a decline in the gross margin year-over-year in Q4. Could management please explain the reason behind this? And additionally, will the long-term goal and the trend for improving gross margin be affected? Long Chen: [Interpreted] Thank you very much for that question. So to answer your question, the Q4 changes -- the gross margin changes in Q4 was primarily caused by 2 things. First is the change in product mix. As we know, there have been changes and fluctuation in the commodity prices, and that has led to some customers pulling ahead the purchasing of certain products, for example, wires and cables, right? And wires and cables use copper whose pricing has been rising. And the gross margin for these products tend to be lower, and that have driven down the overall gross margin. And the similar products include things like white oil and stuff like that. Secondly, the percent of -- or SOE customers as a percent of total customers in terms of their business value and volume have increased slightly. But if you look through our gross margin January through March of this year, things have been improving gradually. And of course, because of the war that's ongoing in the Middle East, there's now price hikes regarding oil, petroleum. So suppliers are jacking up their prices. Of course, that needs to be considered as a double-edged sword as even though on the short run, it's going to put some downward pressure on our gross margins. But in the long run, it's going to provide opportunities for more sales and more expansive or expansion opportunities. For the full year, if you look across all of our production lines, our goal is definitely to achieve higher margins by way of lowering costs on 3 different fronts, namely purchasing, private labels and cost optimization regarding certain sectors. And we need to understand that gross margin -- gross profit margins vary from product line to product line. What we care most about is the overall profitability, and we will try to drive that up over time. So that was my answer to this question. Operator: The next question comes from Jin Han with CICC. Jianzhi Wan: [Foreign Language] I will translate myself. The company's private label achieved a 20% growth in this year, increasing share to 8.3%. Could management please introduce the company's growth targets for private label this year? Additionally, as the company sell more private label products, how does the company manage relationship and commutation with nonprivate label suppliers? Long Chen: [Interpreted] Sure. Private labels are extremely important for us. It's an extremely important driver for us. Our target for private labels in 2026 is for it to grow by another 30%. And we started investing in private labels. We doubled down on our investments into private labels last year. And our goal is to drive its share of our GMV to roughly 10% for this year, 2026. As for our relationship with non-private label suppliers, of course, first off, we won't do private labels for all categories. We will look into categories -- we will comb through all categories to identify the ones where we could provide better value by doing private labels on. And for those categories, we will have a private label version of those categories. And if you look across history and globally, whenever a platform grows to a certain -- grew to a certain size, private labels will emerge and some of the categories will shift and migrate towards private labels. And that is a great appeal to the business we are in. So as we scale, both private labels and branded products will coexist and thrive. So I think driving up the share of our private labels as a percent of our GMV is an important strategy for us. As offering certain kind of -- a certain degree of competition against our suppliers will definitely drive up customer satisfaction and create more value for our customers. And customer satisfaction, in my opinion, trumps all the other factors. Operator: Okay. Was there a follow-up? Or was that the answer for the question? Jianzhi Wan: That was the full answer. Operator: The next question comes from Shen Qiang Wang with CITIC. Unknown Analyst: [Foreign Language] I will translate my questions. Could you please introduce the company's most important objectives for this year as well as the growth targets and the strategies for China domestic business? Long Chen: [Interpreted] Sure. The most important objective for us in 2026 is to achieve full year profitability as alluded in the prepared remarks. Meanwhile, we will continue to build out our core competencies to lay a firm groundwork for future development. So there's 3 aspects we will try to push for in order to achieve this two-pronged objective. Firstly, we will continue to create value by digging into our product competencies or to make our products more competitive. So basically to offer better products at lower prices. Secondly, for our medium to large customers, we will continue to dig deeper, revolving their needs so as to drive up their wallet share with us as well as gross profit margins. On the customer front, so aside from serving key accounts well, we will be systematically doing business development with SME customers and expand our base of SME manufacturers. Specifically, we will be focusing on doing online and offline ad campaigns, content marketing and brick-and-mortar off-line promoters kind of thing to expand that coverage. And that's what we're going to focus on this year. And we will also accelerate the expansion of the overseas market, especially when it comes to serving well Chinese manufacturers that are going abroad because this trend is only accelerating, and we will need to take advantage of that very well. Secondly, in order to ensure profitability, we need to, first and foremost, focus on the product side of things. So let me backtrack a little bit. We need to improve the quality of our business, and there's 2 things specifically that we will need to be doing. Firstly, as was alluded to in the prepared remarks, we need to focus on what we believe is the real MROs, what we were referring to as highly specialized MRO products. So specifically, through the synergy between sales and production lines, we will need to improve the quality of our customers. What I mean by that is to turn low gross margin -- gross profit margin customers into higher gross profit margin ones. Secondly, we need to do a good job managing our cash flow and continuously optimize our account receivables and inventory management and maximize our operational efficiency to achieve better quality of operations. Thirdly, we will continue to expand our R&D capabilities and focus on innovation. On the product front, we will be fully leveraging our R&D center in Taicang and have that work in tandem with our production base in Shenzhen to do continuous R&D and testing so as to make our MRO products more competitive. We will also continue to pay attention to the data space and the AI R&D space. We are looking to get more AI products developed and materialized this year so as to achieve a new source of growth. Last but definitely not the least, is team build-out because a strong team, a competent team is essential to our sustainable growth. And we made quite a bit of progress last year, but there's still more room for improvement. So our goal is to build a team with high-quality talent and with a very high morale. And we will also be looking at how we distribute our personnel across different industries and geographies so as to focus our resources on the most profitable and the most efficient areas. So that was all of my -- that was my full answer. Thank you. Operator: And 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 Li: 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. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]