Prepared remarks
Ladies and gentlemen, good day, and welcome to ZKH Group Limited Second Quarter 2026 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Daecy Xu, Head of Investor Relations. Please go ahead, ma'am.
Good morning, and welcome to ZKH Second Quarter 2026 Earnings Conference Call. With me are Mr. Eric Chen, our Founder, Chairman and CEO; Mr. Jerry Wang, our CFO; and Mr. David Liu, our CTO. Eric will begin with an overview of our quarterly performance and business strategy, followed by Jerry, who will review our financial highlights. After the prepared remarks, we will open the call for Q&A, and David will join us for the Q&A session. Today's discussion may include forward-looking statements. Related factors are described in our today's press release, and we'll also discuss certain non-GAAP financial measures for comparison purposes 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.
Hello, everyone. Thank you for joining ZKH Second Quarter 2026 Earnings Call. Building on the strong start to the year, our business gained further momentum in the second quarter, extending the growth trajectory that we reached in the fourth quarter of last year. Both GMV and revenue grew year-over-year for a third consecutive quarter, posting their fastest growth in recent quarters. Growth was broad-based across our key industries and core customer segments, further reinforcing our foundation for sustained growth. As our business continues to scale, the quality of growth and profitability improved in tandem. Gross profit grew faster than GMV in the quarter, lifting gross margin both year-over-year and sequentially. Supported by greater economies of scale, a more favorable customer and product mix, and steady gains in operating efficiency, we achieved quarterly operating profitability for the first time. Adjusted net income also delivered a significant turnaround, reversing from a loss in the same period last year. These results reinforce the steady improvement in our fundamentals and demonstrate that our strategic initiatives and capability building efforts are translating more quickly into operating results. Based on current business trends, we expect GMV growth to accelerate further in the second half of the year, with profitability improving more meaningfully. Next, let me walk you through some of the business highlights in the quarter. Starting with GMV. Second quarter GMV grew by 19% year-over-year while GMV on the ZKH platform increased by 23%, accelerating further from the first quarter. Based on current trends, we expect GMV growth to pick up further in the third quarter. Multiple customer segments drove growth in tandem this quarter, creating a more balanced growth profile. Regional SME customers maintained the strong momentum that began in the fourth quarter of last year, with GMV up 30% year-over-year, reflecting continued improvement in our coverage of and service capabilities for the SME market. The SME market offers significant growth potential. Demand is fragmented, procurement needs are diverse, and gross margins are higher. Rapid expansion in this segment not only adds momentum to our overall growth but also improves our customer mix and overall gross margin. Meanwhile, our business with central SOEs and industry key accounts remained solid, delivering double-digit GMV growth year-over-year. Notably, following adjustments last year, GMV from state-owned enterprises, including centrally administered SOEs, returned to growth of more than 20% year-over-year this quarter. Performance was also strong across key industries. Our specialized product and service capabilities built over years of serving a wide range of industrial use cases are increasingly translating into strong results. Steel and nonferrous metals led the way with GMV doubling year-over-year. Communications and electronics, fine chemicals and pharmaceuticals, and utilities also delivered strong growth with GMV in each sector increasing by more than 30% year-over-year. While we continue to deepen our domestic business, our overseas expansion accelerated further from the first quarter, with first half GMV increasing more than tenfold year-over-year. During the quarter, we continued to advance our international business on two fronts: supporting Chinese manufacturers as they expand globally and deepening localized operations in key overseas markets. On the first front, we provide Chinese manufacturers expanding overseas with one-stop MRO solutions, spanning coordinated product sourcing in China and abroad, compliance support and local fulfillment. On the second front, we continued to build out our localized operations starting with MRO use cases in warehousing and supply chains where our business model has been validated. Our Northsky private label products also gained traction through online channels, primarily Amazon, with categories such as material handling forklifts and industrial fans delivering encouraging sales and earning strong customer recognition. We also established a dual sourcing system for key product categories with sources in China and overseas, further strengthening the resilience of our international supply chain. As these initiatives take hold, our overseas business is moving beyond early market exploration into a new stage in which capability building and business expansion are advancing in parallel with an increasingly clear path forward. The progress we achieved across our businesses was underpinned by the continued strengthening of our core capabilities. During the quarter, we remained focused on three areas central to our long-term competitiveness: products, fulfillment and AI. Starting with products, we continue to deepen our presence in specialized high-barrier MRO categories and strengthen collaboration with leading manufacturers. These efforts enhanced the depth of our services in specialized categories and further differentiated our offerings. During the quarter, GMV from electrical automation customers grew 160% year-over-year driven by our strategy of focusing on key product categories and high-potential industries. To address customers' end-to-end needs across control, safety, sensing and connectivity for intelligent production lines, we deepened our offerings in sensors, PLCs, industrial safety, industrial IoT and robotics, forming a comprehensive automation product portfolio. At the industry level, we positioned ourselves early in three sectors with high automation intensity: new energy, semiconductors, and communications and electronics. This enabled us to capture growing demand arising from capacity expansion and intelligent product line upgrades. Growth among semiconductor customers was particularly strong with GMV up more than 100-fold year-over-year. We also expanded our collaboration with Intel in edge control, jointly advancing visual inspection and industrial control product solutions as we cultivate our next growth curve beyond control, safety and sensing. Meanwhile, our private label business is an important driver of both competitive differentiation and profitability. During the quarter, we added more than 700 private label SKUs, driving private label GMV growth up more than 25% year-over-year and lifting private label product share of total GMV to approximately 10%. In addition to contributing incremental revenue, this also improved our overall gross margin. As we broaden the portfolio, we are also building out end-to-end capabilities from product development through testing and validation. Our in-house testing system now covers multiple core product lines with rigorous validation across performance, safety, compliance and reliability. These capabilities further improve product development efficiencies and quality consistency, providing strong support for scaling our private label business. Turning to fulfillment. We continue to optimize our multi-tiered warehousing and distribution network while enhancing supply capabilities and customer experience in specialized MRO categories. During the quarter, we completed the build-out of a dedicated hazardous materials warehouse in Cangzhou, Hebei Province, further strengthening our compliance, storage and supply assurance capabilities for hazardous chemicals. As of quarter end, our nationwide fulfillment network comprised more than 30 distribution centers, 109 transit warehouses, more than 200 company-operated delivery vehicles and more than 6,000 EVM smart vending machines deployed at customer production sites. This integrated network strengthens our end-to-end fulfillment capabilities from regional inventory deployment and last-mile delivery to on-site on-demand product access. As we expanded our network coverage, we also improved warehouse operations and transportation scheduling, further improving operating leverage. In the quarter, fulfillment expenses as a percentage of net revenues declined to 3.7% from 4.2% a year ago. We also made solid progress on the AI and digitalization front, guided by our goal of building industry-leading full-stack AI capabilities for industrial supplies. We continue to strengthen our technology stack and expand AI adoption across customer-facing and internal use cases. These efforts are accelerating the conversion of our extensive industry data and technological expertise into tangible customer value and operating results. A key milestone this quarter was the June launch of Domino, our industrial supplies big data engine powered by more than 1 billion product parameters. Domino features automated data labeling, self-learning and end-to-end traceability. This provides customers with a high-quality data foundation for MRO data governance, model training and intelligent applications. Through this platform, we are further unlocking the value of MRO data and enabling it to evolve from an internal resource to industry infrastructure that can be offered externally. Building on this foundation, we continued to expand the use cases for our Linglong MRO industry-specific foundation model and its suite of AI agents, integrating AI more deeply into customers' business processes. Today, solutions such as AI Materials Manager, Linglong Huisou, Linglong Huiyan and AI marketplace are already deployed across manufacturing, chemicals, ports and automotive, covering key workflows such as materials data governance, product search and selection, enterprise knowledge management and collaboration, and warehouse item recognition. Notably, AI Materials Manager has served more than 8,600 customers and has been implemented in more than 15 cases involving state-owned enterprises, including centrally administered SOEs. To date, it has processed more than 24 million rows of materials data, helping customers streamline materials management and reduce inventory cost. Internally, we continue to scale AI adoption across our organization and business processes to improve operating efficiency. During the quarter, internal AI applications saved more than 12,000 employee hours and AI-assisted coding accounted for over 70% of our coding activity. We also continue to encourage business teams to participate in AI innovation and the co-development of new use cases. More than 200 employees across 22 departments are now actively involved, bringing AI capabilities into a growing range of business processes. Beyond strengthening our own capabilities, we are also actively contributing to the broader industry ecosystem. In June, we co-hosted the inaugural China Industrial Supplies Summit, CISS, with several national trade associations and industry organizations. As China's first MRO industry summit focused on collaboration and value creation, the event brought together more than 2,000 attendees from over 1,000 companies, including many industry leaders, senior executives and experts from across the value chain. The event set industry records for both attendance and the seniority of its guests. Its success further enhanced ZKH's influence within the industry and provided an important platform for deeper engagement with key stakeholders. Going forward, we will continue to leverage our platform strength to promote knowledge sharing and coordination across the value chain, creating greater long-term value for the industry as a whole. Looking ahead to the second half, we will remain focused on strengthening our core competencies, including enhancing product supply capabilities, improving fulfillment efficiency and building greater organizational strengths. These are the cornerstones of our long-term competitiveness and will lay a solid foundation for sustained growth in business scale and further improvements in profitability. With that, I will turn the call over to our CFO, Jerry Wang, to walk you through our financial results. Thank you.
Okay. Thank you, Eric, and thank you, everyone, for joining our earnings conference call today. Now let me walk you through our financial performance for the second quarter of 2026. Building on a strong start to the year, we delivered continued improvement across key financial metrics in the second quarter. GMV growth accelerated to its fastest pace in the past few quarters, while our gross profit margin expanded even further. As operating leverage became increasingly evident, our profitability also improved significantly. Notably, we achieved operating profitability for the first time, marking an important financial milestone for the company. Together, these results demonstrate our ability to maintain growth momentum while improving operational quality, supported by the increasing benefits of scale and disciplined execution of our strategic priorities. Let's now take a closer look at the second quarter financial performance, starting with GMV and revenue. The growth recovery that began in the second half of last year gained further momentum in the second quarter with GMV and revenue posting accelerated year-over-year growth. GMV increased 18.9% year-over-year to RMB 2.9 billion while net revenues grew 12.8% to RMB 2.4 billion, representing the fastest growth for both metrics in recent quarters. This strong performance was primarily driven by robust growth among SME customers and key accounts across our core industries, along with a continued recovery in business with central SOEs. As GMV growth accelerated, gross profit grew even faster, increasing 20.3% year-over-year from RMB 357 million to RMB 430 million. As a result, gross profit as a percentage of GMV edged up to 14.9% compared with 14.8% in the same period last year and 14.4% in the first quarter of 2026. This improvement reflected the continued optimization of our customer and product mix as well as the increasing GMV contribution from private label offerings. Driven by improved operating leverage and operating efficiency, total operating expenses decreased 0.8% year-over-year to RMB 425 million in the quarter. Operating expenses as a percentage of net revenues improved notably, declining from 19.8% in the same period last year to 17.4%. Breaking it down, fulfillment expenses were RMB 90 million, representing 3.7% of net revenues, down from 4.2% in the same period last year. Sales and marketing expenses were RMB 151 million, representing 6.2% of net revenues, down from 6.9% in the same period last year. R&D expenses were RMB 35 million, representing 1.4% of net revenues, down from 1.9% in the same period last year. General and administrative expenses were RMB 150 million, representing 6.1% of net revenues, down from 6.8% in the same period last year. Looking ahead, we expect GMV and revenue growth to accelerate further in the second half of the year. Combined with our continued focus on operating efficiency, this should drive further improvement in our operating expense ratio and strengthen our operating leverage. On the international front, as we noted previously, overseas expansion remains an important long-term strategic priority for the company. In the first half of this year, international GMV exceeded RMB 95 million, marking a significant step up in scale. As we continue to grow this business, we remain disciplined in managing expenses and focused on return on investments. Going forward, we expect our international business to turn profitable in the second half of this year. Our faster GMV growth, improving operating efficiency and greater operating leverage drove a significant year-over-year improvement in profitability. In the second quarter, our operating profit, non-GAAP EBITDA and non-GAAP adjusted net profit all turned positive. In particular, non-GAAP EBITDA reached RMB 42 million, compared with negative RMB 39 million in the same period last year, while non-GAAP adjusted net profit reached RMB 39 million compared with negative RMB 37 million a year ago. Turning to our balance sheet. We continued to maintain a solid liquidity position. As of June 30, 2026, cash and cash equivalents, restricted cash and short-term investments totaled RMB 1.7 billion, providing ample financial flexibility to support our day-to-day operations and strategic priorities. Operating cash flow followed a seasonal pattern that is similar to last year, with net outflows in the first half and net inflows in the second half as customer collections accelerate. For the first half of 2026, net cash used in operating activities decreased to RMB 156 million from RMB 208 million in the first half of 2025, reflecting continued improvement in our working capital management. To conclude, the second quarter of 2026 marks an important financial milestone for the company as we achieved positive operating profit for the first time and delivered a significant improvement in non-GAAP adjusted net profit. Based on current trends, we expect to maintain high-teens GMV growth in the second half of the year, while continuing to improve profitability. This should put us in a solid position to achieve our full year business and profitability targets and lay a solid foundation for even stronger performance in 2027. Okay. This concludes our prepared remarks. Thank you. We can now open for Q&A.
Questions and answers
The first question from Jing Yuan with CICC.
We noticed that the company's GMV growth accelerated to around 80% this quarter year-over-year. Could management walk us through the key drivers behind this acceleration and which subsectors, customer segments or product lines are seeing stronger momentum? And what's your outlook for GMV growth in the second half and full year?
Thank you very much for that question. So indeed, we achieved acceleration in our GMV growth in the second quarter 2026 and it's faster than many past quarters. This shows how we are gaining share in this highly fragmented MRO market in China. We can approach this question from three perspectives, namely industries, customers and private labels. Firstly, on industries. We have been continually investing in high-growth industries. The following industries have been growing over 30% in Q2 this year from a GMV perspective: steel and nonferrous metals, primarily nonferrous metals growing at over 100%; utilities grew 57%; fine chemicals and pharmaceuticals grew 37%; food and agricultural products 37%; communications and electronics 35%. We have also been consistently gaining customers from emerging and strategic industries such as semiconductors, robotics and optical communications. Secondly, on our customer mix, I would like to talk about our performance with SME customers. To clarify the definition of an SME customer we referenced, we mean a customer with revenue of over RMB 1 billion — relatively small compared to some large central and local SOEs. A big highlight of Q2 is that GMV for these SMEs grew about 30%. The GMV growth for this segment is outperforming the company's overall GMV growth. We believe this type of customer most directly reflects improvement in our product and service capabilities because these customers are increasingly demanding in their service requirements. As a result, traditional trading companies are being eliminated. Our business is evolving from sales-driven to supply-driven or supply-chain-driven: before we were largely selling whatever customers requested; now, with improved capabilities, we are better positioned to recommend and supply what customers need. That drives significant efficiency and productivity improvements. At the same time, gross margins on SMEs are higher than for larger customers — roughly contributing to margin improvement. These SMEs are usually located in the outskirts of cities, which makes delivery and fulfillment easier. GMV-wise, these SME customers account for about 30% of total GMV, while large customers — key accounts, leading companies and SOEs — account for about 60% of GMV. We expect SME GMV share to continue to rise. Thirdly, on private labels. In Q2, private labels achieved growth of over 25%, outstripping overall growth, and private label GMV share has reached about 10%, moving toward our long-term goal of 30%. Gross margins for private labels are higher than for non-private-label products, typically around 10 percentage points higher. So the rising share of private labels will support overall gross margin improvement. Looking to the second half and the full year, if you look at order trends in July and August, we expect GMV growth for Q3 to be higher than Q2's 18.9% — so it should continue to accelerate. Q4, especially December, is a peak ordering month, and we are confident we can sustain this growth and achieve our overall GMV growth target of 15% to 20% for the year. Thank you.
The next question comes from Zhuoming Cao with Huatai Securities.
Against the backdrop of the ongoing AI wave, have you observed any incremental changes in purchasing behavior and habits of different customer groups? How will ZKH capture the opportunities? Have AI applications launched previously such as the AI Materials Manager made further progress recently? In addition, what is the latest progress on establishing the AI subsidiary as alluded to earlier?
I'll take this question. We have observed notable changes in customer purchasing behavior as AI applications mature. Three trends stand out. First, customers are changing how they express needs and access procurement services. Historically, MRO procurement relied primarily on keyword searches, catalog filters, or manual requests for quotation. Increasingly, customers are describing requirements directly in natural language — providing equipment models, use cases and technical specifications — and expecting AI systems to clarify their needs, select suitable product models, or recommend the right products. Second, demand for high-quality data is increasing. For AI to participate meaningfully in procurement decisions, product parameters, specifications, alternatives, brands and materials must be sufficiently accurate. High-quality structured and specialized data will become even more important in the era of AI. Third, SMEs are becoming more receptive to self-service and smart procurement. In the past, many procurement services required repeated communication between our sales representatives and customers' procurement teams. In the future, AI may handle a significant portion of standardized work, reducing service costs while improving the customer experience. Regarding AI Materials Manager, it continues to evolve. It has now served more than 8,600 customers, representing year-over-year growth of 93% in customer count, and has begun generating revenue. We are building a competitive moat around our full-stack AI capabilities for MRO products. In October this year, we plan to work with Intel to launch Linglong Huiyan, an industry-leading edge model and solution for industrial vision. We also intend to deepen collaboration with leading domestic chip makers, integrating AI Materials Manager and the Linglong model with their technologies at both the model and agent layers. On the AI subsidiary, we are proceeding according to plan. The primary reason for establishing an independent company is to give the business a more flexible organizational structure, talent model and greater flexibility for future capital activities. At the same time, the subsidiary will maintain deep synergy with ZKH in industrial data, customer use cases and supply chain resources. Our goal is to develop it into a smart infrastructure company serving the industrial sector.
The next question comes from Leo Chiang with Deutsche Bank.
Congrats on the strong results. I have two questions. First, regarding our international business: could management update us on the company's internationalization progress, including GMV contribution, customer expansion and your outlook for future international markets? Second, could management provide an update on the shareholder return plan such as share repurchase program or other related initiatives?
In terms of our international business, growth has been very strong — a tenfold increase compared to the same period last year. For the first half of this year, international GMV was RMB 95 million, and we expect the second half to continue this strong growth. International expansion is part of our long-term strategy, and we will continue to invest. There are two parts to our international business. The first is supporting Chinese businesses as they expand overseas. Based on existing customer relationships, we will win more overseas orders while strengthening last-mile fulfillment capabilities in different regions. The second is localized business, which we are developing primarily in the U.S., including localized operations in Texas. At the same time, our online sales through Amazon are also increasing significantly. We are focused on investment efficiency and will avoid front-loading expenses ahead of business needs. We aim to make the international business profitable in the second half of this year. Regarding shareholder returns, in June 2025 the company authorized a USD 50 million share repurchase program, valid through June 2027. As of the end of Q2 this year, the company had cumulatively repurchased approximately 2.49 million ADSs, representing about USD 7.67 million. We intend to step up the pace of share buybacks. Once our profits scale more meaningfully, we will also consider initiating dividends to shareholders.
And that concludes the question-and-answer session. I would like to turn the conference back over to management for closing remarks.
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.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Portions of this transcript that were marked as interpreted were spoken by an interpreter present on the live call.