ZTO Express (Cayman) Stock

Good day, and welcome to the ZTO to announce Second Quarter and Half Year 2026 financial results. [Operator Instructions] Please note that this event is being recorded.

I would now like to turn the conference over to Ms. Sophie Li, Company Secretary. Please go ahead. .

Thank you, Chuck. Hello, everyone, and thank you for joining us today. The company's results and investor relations presentation were released earlier today and are available on the company's IR website at ir.zto.com.

On the call today from ZTO are Mr. Meisong Lai, Chairman and Chief Executive Officer; and Mrs. Huiping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Mrs. Yan, who will go through the financials and guidance. They will both be available to answer your questions during the Q&A session that follows.

I remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding this and other risks, uncertainties and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law.

It is now my pleasure to introduce Mr. Meisong Lai. Mr. Lai will read through his prepared remarks in their entirety in Chinese before I translate for him.

[Foreign Language]

Thank you, Chairman. Now let me do the translation first.

[Interpreted] Hello, everyone. Thank you for joining today's conference call. In the second quarter of 2026, the express delivery industry grew 4.2% in volume year-over-year as anti-evolution policies continue to gain traction, competition became increasingly rational and the overall industry pricing and profitability experienced a steady recovery. The industry is fundamentally shifting from its previous singular focus on scale and the price wars towards greater emphasis on value creation, network stability, and tangible benefits for frontline partners. ZTO made solid progress across key operating metrics in the second quarter. Parcel volume reached RMB 10.49 billion, up 6.5% year-over-year. with market share expanding by 0.4 percentage points, entrenching our industry leadership position. Adjusted net income was RMB 3.0 billion up 50.3% year-over-year.

We are affirming the resilience of our profitability. Retail parcel volume grew 47% year-over-year. As our higher value and diversifying value-added service continue to scale up increasing value revenue diversity for our network outlets, while facing temporary cost pressures caused by oil price fluctuations during the quarter. Our end-to-end digitization that intelligent transformation, combined with refined operational execution, enabled us to lower the combined unit cost of transportation and sorting by $0.02 over last year. preserving cost competitiveness that were forged over the years. ZTO's second quarter performance is the outcome of synergies across 5 core aspects, which are productive policy guidance, unwavering long-term strategic focus solidarity and concerted efforts by network-wide partners, continuous increases in operational efficiency and improving product structure.

It also owes much to the hard bone contributions by thousands of [indiscernible] operation operators and frontline delivery workers network-wide. First, regulatory direction remains clear and anti evolution policies were being consistently implemented. ZTO stands firm to safeguard a healthy competitive order balances the interest of headquarters franchisees in frontline practitioners and commit to fostering a sustainable ECO network with equitable shares of benefits for all stakeholders. Second, the company maintains a long-term mindset that discourages permanent short-term scale games and the continuously consolidated foundational strength for its mid- and long-term development.

We regard steady profit increases for network allies, sustained earnings growth for frontline careers and healthy corporate development as our core operating objectives and we continue to deepen our initiatives surrounding 3 key priorities: market share expansion, service quality upgrading and end-to-end cost reduction. Third, the entire network were unified with strategic alignment and increasingly advocate fairness and the transparency in network policy making and implementation. We have an objective view on regional economic disparities and have further streamlined the grassroot feedback by tailoring incentive schemes and support resources to match all its actual operating conditions.

We have further optimized the profit distribution mechanism at the gross level through performance-based remuneration. Hence, steadily elevated the overall profitability and operational stability of the entire network. Fourth, we are extending our know-how for efficiency gains to outlets. We have built a standardized and ongoing operational data analytical system to enable performance visibility and traceability. We continue to enhance loss mile of efficiencies through direct linkages reducing organizational layers and expand profit margins. Fifth, we continue to enhance our tiered high-value business portfolio by penetrating defer into retail parcels and reverse logistics, which optimize the mix between standard e-commerce parcels and value-added services.

This also hedges against the potential single source fluctuations and strengthen the resilience of network profitability. China plus delivery industry is progressing from high quantity competition to high-quality and sustainable development. Focusing on the strategic principle of achieving high-quality service, high-quality market share and low end-to-end costs, ZTO will further offer tasks in the following 5 key areas. First, continue to save for the environment of fair competition. We will adhere to regulatory guidance and take on a leadership role in maintaining industry's overall competitive orders. Second, improved integrated competitiveness in service, market share and cost. On service, we will focus on store-to-door capabilities to build a clearly differentiated brand awareness. Our market share, we will refine customer segmentation, increasing the proportion of small- to medium-sized customers and value-added services.

On cost, we will establish benchmark for comparable outlet and pass through the what and how of efficiency gains to the end lots. Third, improve consistency of managerial capabilities across the network. We will standardize policies and customize improvement plans for loss-making outlets. By pushing down digitalization efforts, we will empower franchisee partners to reduce cost and grow revenue. We will encourage top-performing outlets to scale up and support struggling always in overcoming adversity to foster and network of mutual benefit and shared prosperity. Fourth, deepened digitization, design and implementation. We will roll out hands on training across the network, effectively utilize utilizing tools to narrow gaps in volume cost and service. We will also proactively align the demand and capacity through careful planning.

Fifth, ensure comprehensive safety management and protect the grassroot rights. Regular safety inspections will be conducted to identify and eliminate hazards, enforce accountability at all levels and establish strict compliance boundaries such as safety, labor practice and taxation. We will continue to refine carrier incentive and compensation safeguarding their legitimate rise and interest. Over the past 2 decades, we have overcome adversity and weathered intense competition. We have always been clear minded that scale is merely an outcome and quality is what truly matters. We are committed to our development principle that integrates service quality market share and reasonable profitability.

We practiced our philosophy of shared success, and we firmly believe that the headquarters, ales and couriers are interdependent part of Unity. Only when all parties collectively improve operational efficiency and increase shares of benefit, the entire network can then achieve lasting stability and long-term success, guided by our mission of bringing haves to more people through our services, supported by a solid infrastructure foundation and sound financial strength. We will continue to harness digitization efficiency, maintain and strengthen cohesiveness and the stability of our partner network.

We are confident and capable of achieving steady sustainable growth across the entire network. navigating through industry or economic cycles and creating lasting value for industry participants and our investors.

Now let's invite Ms. Yan to present the financial results and guidance.

Thank you, Chairman Lai and Sophie. Hello to everyone on the call. As I go through our financials, please note that unless specifically mentioned, all numbers quoted are in RMB and percentage changes refer to year-over-year comparisons. Detailed information on our financial performance, unit economics and cash flow are posted on our website, and I'll go through some of the highlights here.

In the second quarter, our long-term profitable growth strategy delivered solid results. Anti-evolution regulatory efforts and our resilient franchise network continued to drive steady market share expansion with industry-leading efficiency. Our parcel volume grew 6.5% to RMB 10.49 billion with a 0.4 point increase in the market share. Total revenue increased 23% to RMB 14.5 billion, while operating income rose 30.4% to RMB 3.23 billion. Adjusted net income grew 50.3% to RMB 3.1 billion, benefiting from a RMB 344.3 million tax refund as our wholly owned subsidiary qualified for a 10% preferential tax rate for tax year 2025.

ASP for our core express delivery rose RMB 0.19 or increased 15.5% and driven by a RMB 0.17 positive impact derived mainly from increased K volume mix, which included higher value reverse logistics and a RMB 0.02 increase from higher average weight per parcel. Total cost of revenue was RMB 10.8 billion, which increased 21.7%. Overall unit costs for the core express delivery business increased 14.6% or $0.12, which includes KA cost increase of $0.14 that was consistent with the strategic increase in KA volume. Despite cost pressures stemming from the rise of oil prices, our combined unit sorting and transportation costs decreased by 3.2% or $0.02, thanks to digitization and lean operations.

Specifically, unit cost of line haul transportation decreased by 3.7% to $0.32, reflecting optimized route planning and enhanced bill rate efficiency. Unit sorting costs decreased to 0.6% to $0.24 benefiting from continued improvements in labor and automation productivity. Gross profit increased 26.8% to RMB 3.7 billion and gross profit margin rate increased by 0.8 points to 25.7%. SG&A expenses, excluding SBC, decreased 10.5% to RMB 555.5 million. SG&A, excluding SBC as a percentage of revenue declined to 3.8%, reflecting strong corporate cost efficiency.

Income from operations increased 30.4% to RMB 3.2 billion and associated margin increased 1.3 points to 22.2%. The Operating cash flow totaled RMB 4.6 billion for the quarter, primarily attributable to higher operating profit, lower financing receivables and interest income realized upon maturities of long-term financial products and favorable terms on sizable fuel payables due for payment in the next quarter. Adjusted EBITDA increased 20% to RMB 4.2 billion. Capital expenditures for the second quarter totaled RMB 952 million, and we anticipate the annual CapEx in 2026 to be around RMB 6 billion.

Now moving on to our guidance. Considering the current economic conditions and anticipated industry parcel volume growth we have updated our full year parcel volume growth guidance to 6% to 10% year-over-year, representing a parcel volume range of RMB 40.83 billion to RMB 42.37 billion. These estimates reflect management's current preliminary view and are subject to change.

Now this concludes our prepared remarks. Operator, please open the line for questions. Thank you.

[Operator Instructions] And the first question will come from Qianlei Fan with Morgan Stanley. Pardon me, we have Mr. Steve Coy with Goldman Sachs as our first questioner.

I'd like to ask a question about AI-driven efficiency gains. So I've noticed that the company has deployed 3D Digital Twin and make machine vision technologies at it sorting ups and upgrade voice customer service and network outlets as well as accelerate regional management position making. Could you share rides high-level strategic thinking on digitalization as well as AI as well as your thoughts on the specific use cases in the operational workflows and where it's been implemented.

[Foreign Language]

Thank you, Chairman. And now let me translate for CTO.

[Interpreted] The core value of the AI lives in leveraging data from over 100 million and our mature network operations to continuously optimize network-wide costs. It creates a self-reinforcing loop of lower cost and higher efficiency, building digital technological mode that is not easily replicated. Today, AI runs through the entire chain from pickup to delivery and has translated into tangible gains, specifically as following on the hub side or the superstation side. In transportation, our proprietary intelligent routing and dispatch system now covers 6 most common scenarios. By optimizing routes, it unlocks idle capacity and drives improvements in low rates and shortened transit times. Route coordinated parcel volume grew 120% year-over-year and stranded parcels fell 15%.

In the first half of 2026, the cost saving achieved by AI in transportation accounted for about 10% of the total reduction in transportation costs. In transit, our Smart Park system now covers all transit centers nationwide. Vision monitors operations in real time flags 28 types of anomalies from congestion to [indiscernible]. Working with on-site alerts and 3D visualization dashboards, it closes the loop from detection to resolution. Uploading efficiency rose for unloading efficiency rose 4% and anomaly traceability coverage reached 88.4%.

In management, our proprietary data agent now serves more than 2,000 managers at headquarters and provincial offices, fixing the problem of static reports and after the fact manual data pools, thus cutting the time for routing analysis by more than 90%. Now on the office side, in picking up and delivery, our precision address system now covers more than 250,000 frontline couriers with building-level location accuracy of 99.98%. It supports dispatch applications from order grouping to route optimization, and its accuracy keeps improving as business volumes continue to grow.

On the AI customer service front, more than 90% of merchant inquiries and ticketing are now resolved through AI self-service effectively lowering labor costs. On the consumer side, with AI stepping in earlier, customer satisfaction has risen from 80% to nearly 90%. On the management front, building on the data agent, we now push standardized best practice playbooks to more than 6,000 outlets across our network with a response rate of 88%, narrowing the capability gap across outlets and enabling proven management practice to be replicated in scale. AI has become a core strategic driver for CTO. Looking ahead, we will continue to deepen the integration of AI across our operations. covering technological breakthroughs in converting technical breakthroughs into games in both efficiency and service quality to further solidify our market leadership.

Your next question will come from Qianlei Fan with Morgan Stanley.

Let me translate for myself. Congratulations on a very profit growth in the quarter I have 2 questions. The first question is about the reverse logistics process. It's encouraging to see that the retail parcels have contributed a song as foundation for our profit growth. Just wondering, in terms of daily volume, what -- where are we now? And what's the implied year-on-year growth? Do we have any target towards the peak season of this year and next year.

The second question is about the social insurance. So this -- in this year, we start to hear more discussion about the full social insurance contribution implement patients gradually pushed by regulators. Wondering what's the potential impacts on our costs and operations. Specifically, historically, we have seen that industry-wide cost inflation could be pass through by industry-wide price hikes. Do you think if there are any cost inflation related with this full social insurance contribution the industry has opportunities to pass that cost inflation through?

[Foreign Language]

Thank you very much for your question. Let me translate for Chairman.

[Interpreted] The rapid growth of our retail parcel business, particularly reverse logistic parcels is a key component of ZTO's high-quality strategy in product diversification. It demonstrates our leadership in customer service and quality as well as the stability of our network. In the second quarter, average daily retail parcel volume exceeded RMB 11.87 million, of which return parcels averaged approximately 9.8 million each day. increased approximately 80% year-over-year. Although the price of reverse logistic parcels has declined from the past as market competition continues, we expect per parcel profitability in this business to continue to improve supported by economies of scale and refined cost control.

At present, reverse logistic parcels still generates higher per parcel profit and standardized e-commerce parcels, effectively lifting the company's overall per parcel profitability. Next year, Again, our strategy is very clear. We are seeking high-quality services, high-quality market share and we aim to improve our capability for door-to-door services, and we are focusing closely on the quality of our network earnings as well as our core years income increases. So the reverse parcel volume will continue to be a main driver for our product diversification as well as the profitability gain across the whole network.

[Foreign Language]

Now let me translate in supplemental needed.

[Interpreted] With the critical data sharing system being implemented regulators' plans to advance to a multitiered social security system for flex work arrangements, including express delivery personnel. Together with entire evolution policies, these efforts aim to standardize employment practice, protect frontline workers' rights and interest and drive high-quality industry development, which are consistent with CTO's core belief. The policy adopts an approach of a stepped rollout social insurance contributions are being enforced for personnel with formal employment relationships, whereas occupational injury protection is being expanded for flexible workers.

From the beginning, the company has consistently upheld the core philosophy of shared success placing great importance on protecting the interest of our network partners and frontline workers. In our own workforce management, we have always adhered to industry practice boundaries, steadily improving our employment system and encourage our network partners to provide legitimate rights of the frontline workers. We welcome the regulator's guidance on social security contributions for couriers, addressing and also are actively encouraging and helping our network partners to address challenges for unique flex work arrangements, while the rollout of standardized social security initiatives, will inevitably bring about end-to-end cost increases in the foreseeable future.

Over the long run, complete coverage will strengthen network stability, reduced career turnover and further reinforce a large mile service quality. CTO will continue to stay at the forefront of the industry as it moves toward higher quality development for the long term.

Your next question will come from Aaron Luo with UBS.

Let me translate for myself. The first one is regarding our new full year volume guidance. I'd like to seek a bit more of your insights on the industry's second half growth outlook and our company's strategic plan for the second half. And also on the cost side, do we have any cost guidance for the future? And what is the sensitivity of our cost to oil prices? .

[Foreign Language]

Now let me translate for the first part of the question.

[Interpreted] As the entire evolution policy continued to take effect in the first half of the year, the express delivery industry has undergone a period of adjustment and has gradually shifted away from price-led scale expansion to quality-driven development, leveraging operating efficiency. Looking ahead, the industry's transformation will continue to deepen focusing more on improvements in service quality and operational efficiency. We anticipate the parcel volume growth for the entire industry to be at stable or steady level.

As industry shifts towards high-quality development, the company remains committed to a sustainable long-term mindset rather than seeking short-term scale expansion. For us, the core of high-quality development comes down to increasing profitability of outlet rising income by careers and healthy increasing profit for the company. Strategically, we will continue to focus on these priorities, growing effective market share, building differentiated service capabilities and advancing end-to-end lean operations. While solidifying our leadership in parcel volume, we will place greater emphasis on winning high-quality market share and maintain some profitability, continually shoring up our foundation for competitive growth for medium to long term.

If I may supplement the -- when you asked about the volume and the price, again, we will be watched closely to what the industry's development is, as our goal continues to be growing and expanding our market share leadership.

[Foreign Language]

[Interpreted] The cost performance in the second quarter due to rising fuel prices, which put pressure on transportation cost and impacted per parcel transportation cost by approximately 0.2, thanks to continued implementation of efficiency gain initiatives, which includes Smart tool combined unit transportation costs and sorting costs declined by $0.02. Specifically on the transportation costs, in the second quarter, transportation costs per parcel was $0.32, down $0.01 year-over-year. The rising fuel costs added roughly about $0.02 to cost per parcel.

On the cost reduction front, first, we further implemented digitized smart tools using our proprietary intelligent dispatch system to forecast shipment flows in advance, optimize shift scheduling, we find low capacity structure and route planning in real time while making prudent use of assisted driving system to shorten transit time duration and effectively lower cost. Second, we refined our low rate metrics and assessment mechanism, rolled out tiered loading rate incentives. Third, we continue to strengthen fleet management, consistently refining standardized cost model as we bench -- use it as a benchmark to incentivize our drivers. Fuel cost impact on the transportation cost diesel cost, everybody knows that it rose around 24% in the second quarter, which put pressure on line haul transportation costs.

Looking to the second half, the global environment remains highly uncertain. Unit oil price pullback meaningfully. We expect -- the oil price are not necessarily going to pull back meaningfully. So we expect full oil price continue to weigh on per parcel transportation cost by about $0.01 to $0.02. to counter the fuel price volatility, we are leveraging our opportunities reserve of oil at a lower cost. -- and to offset and then also continue to expand our fleet of natural gas trucks as well as actively exploring the deployment of electrical vehicles that is suitable for express delivery operations. To be exact because the first half and particularly second quarter, weight per parcel has increased. So therefore, really the total cost has increased for transportation. In that sense, we actually achieved more than 10% cost efficiency on transportation.

Sorting costs in the second quarter was RMB 0.24, down $0.01 year-over-year. On the equipment front, we steadily increased level of automation with smart solutions for sorting equipment and also upgrading old equipment through real-time monitoring and early warning we improved equipment utilization. On the labor cost front, we optimized shift scheduling through station-based staffing forecast and recap procedures. So therefore, enforced accountability at the individual level for clear rewards and penalties, thereby improving labor productivity.

Cost reduction targets. We expect our core costs in transit operations to decline by RMB 0.03 for the full year. beyond transient operations, we are putting greater emphasis on end-to-end cost reduction. By leveraging digital tools to strengthen outlet operations, we are confident to improve service quality and reduce overall cost to help with our end-to-end total cost reduction for the entire year. I hope that answers your question.

So I believe this takes us to the bottom of the hour, and we thank everybody for joining us for the call. We look forward to have further conversations with you to share with you our view and on the ground practice as we move forward towards higher quality development and sustainable return for express delivery participants as well as our shareholders. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to the ZTO Express First Quarter 2026 Financial Results Conference Call. [Operator Instructions]. Please note, this event is being recorded.

I would now like to turn the conference over to Sophie Li. Please go ahead.

Thank you, Kelly. Hello, everyone, and thank you for joining us today. The company's results and the Investor Relations presentation were released earlier today and are available on the company's IR website at ir.zto.com.

On the call today from ZTO are Mr. Meisong Lai, Chairman and Chief Executive Officer; and Mrs. Huiping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Ms. Yan, who will go through the financials and guidance. They will both be available to answer your questions during the Q&A session that follows.

I remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and the current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding this and other risks, uncertainties and factors is included in the company's filings with the U.S. Securities and Exchange Commission.

The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under law.

It is now my pleasure to introduce Mr. Meisong Lai. Mr. Lai will read through his prepared remarks in their entirety in Chinese before I translate for him in English.

[Foreign Language]

[Interpreted] Okay. Let me translate first. Hello, everyone. Thank you for joining today's conference call.

In the first quarter of 2026, against the backdrop of steady macroeconomic progress and continued growth in consumer demand. China's trust delivery industry maintained overall growth with parcel volume up 5.8% year-over-year. As anti-evolution policies continue to deepen, pricing steadily recovered competition accelerated to its return to rationality and overall industry operating quality improved significantly, creating favorable conditions for leading enterprises to pursue high-quality development.

During the quarter, we ceased the industry opportunities and delivered strong results across key metrics. Parcel volume reached RMB 9.67 billion, up 13.2% year-over-year, significantly outpacing industry growth with market share expanding by 1.2 percentage points further solidifying our leadership position. Adjusted net income was RMB 2.38 billion, up 5.2% year-over-year.

Excluding nonoperating items, adjusted operating profit increased 22% year-over-year, reflecting improvements in profitability. Our retail parcel volume grew year-over-year.

Product mix continued to optimize. Combined unit cost of transportation and sorting decreased by $0.06 year-over-year.

With digitalization and lean management delivering intangible results, further reinforcing our cost advantage. Our strong first quarter performance was driven by a favorable policy environment, combined with our strategic focus, operating efficiency and product innovation.

First, the continued improvements in the macroeconomic and consumer environment with steady growth in online consumption alongside clear regulatory guidance and effective policy measures provided a solid foundation and strong support for the healthy and sustainable growth of the express delivery industry.

Second, we are firmly aligned with policy direction and have been proactively upheld a healthy industry eco atmosphere. As the industry leader we consistently supported the anti evolution policy to lead in maintaining market order and committed to rational and value-driven competition. working with the broader industry to build a healthy environment.

Third, we state the course on our long-term strategy without pursuing short-term aggressive expansion and remain focused on network health, service improvement and profitability. We continue to strengthen infrastructure, deepen digitalization and enhanced end-to-end management capabilities. continuously building long-term competitiveness.

Fourth, through optimization of transit efficiency through improvements in organization and refined sortation management, we achieved a further reduction in unit costs, converting cost advantages into competitive mode in profitability.

Fifth, we closely checked the market demand and optimize our product mix with focused efforts on higher-value retail parcels, reverse logistics and other differentiated offerings. This drove a structural shift from single channel e-commerce volume towards a more diversified and improved value mix, meaningfully strengthening both profitability and resilience against the business cycles.

Looking ahead, we will continue to prioritize high-quality development, thinking long term and insist upon value creation. Our key priorities for the next phase RF, the following: first, fully implement national policy and industry regulatory requirements continue to lead the industry's anti evolution efforts, safeguard a healthy competitive environment and drive the industry towards high-quality development.

Second, deepen our core business internal strength and capabilities. We will continue to advance cost initiatives for efficiently gain across all fronts. Income timeliness and customer satisfaction, solidify our service reach and enhance brand premium, delivering long-term value through discipline and sound execution.

Third, further integrate the principles of fairness and transparency into network management, continue to optimize network policies and improve network management capabilities, making our policies more equitable, our management more efficient and our network more stable and resilient. At the same time, through digitization best practice or expertise sharing and targeted cultivation, we will help our network partners to reduce costs, improve operational capabilities and profitability, reinforcing the foundation and building a healthy ecosystem of shared success with mutual cross parity.

Fourth, generally protect the rise in the well-being of frontline careers. We will continue to optimize incentive mechanism, strengthen care and recognition, ensure steady income growth for couriers and continuously enhance their sense of fulfillment accomplishment and professional pride, assuring the most essential of our service and operations.

Fifth, continuously enhance shareholder returns, backed by strong profitability and cash flow, we will refine our regular cash dividend and share repurchase mechanism. Optimize our capital return structure and deliver consistent returns to our shareholders.

To all of our investors, our industry is at a critical inflection point transitioning from scale-driven to value-driven development. This consolidation among leading players is apparent, and the value of the industry leaders will continue to be prominent. ZTO will stay committed to high-quality market presence, high-quality service, low end-to-end cost and sound profitability. We will relentlessly deliver on our 3 key commitments, which are steady earnings growth for our network partners. Continuous wage improvement for our careers and healthy longevity for ZTO.

Guided by our long-term value principles, we look forward to moving forward alongside our network partners with confidence in turning in consistently outstanding report cards to the market and our shareholders.

And next, let's invite our CFO, Ms. Yan, to present the financial results and guidance.

Thank you, Chairman, and thank you, Sophie. Hello to everyone on the call. As I go through our financials, please note that unless specifically mentioned, all numbers quoted are in RMB and percentage changes referred to year-over-year comparisons. Detailed information on our financial performance, unit economics and cash flow results are posted on our website, and I'll go through some of the highlights here.

In the first quarter, we continue to adhere to our quarterly first strategy, which is consistent with the regulatory call against involution. As our operating efficiency continues to lead the industry, we achieved increases in both volume and profit. Our parcel volume grew by 13.2% to $9.7 billion with a 1.4 point increase in market presence. Our total revenue increased 22% to RMB 13.3 billion.

Excluding nonoperating factors, such as government subsidies or tax rebates, which fluctuates from quarter-to-quarter throughout the year, our adjusted operating profit increased by 22% to reach RMB 2.6 billion.

Adjusted net income was RMB 2.4 billion, which increased 5.2%.

ASP for our core express delivery rose RMB 0.11 or 8.2%, driven by an RMB 0.18 positive impact from increased KA volume/mix led by higher value reverse logistics, offsetting RMB 0.09 increase in volume incentives. Increase in average parcel weight brought an additional RMB 0.02 lift to our ASP.

Total cost of revenue was RMB 10 billion which increased 22.5%.

Overall unit cost for the core express delivery business increased 8.8% or RMB 0.08, which includes KA cost increase of RMB 0.15 that was consistent with the strategic expansion of our KA volume. The combined unit sorting and transportation costs decreased by 8.8% or RMB 0.06, driven largely by economies of scale. Specifically, unit cost of linehaul transportation decreased 10.5% to RMB 0.37, reflecting optimized route planning and enhanced load efficiency. Unit sorting costs decreased 6.4% to RMB 0.25, thanks to continued improvements in labor and automation productivity.

Gross profit increased 20.3% to RMB 3.2 billion, and gross profit margin rate decreased slightly by 0.3 points to 24.4%. SG&A expenses, excluding SBC, increased 14.9% to RMB 594.5 million. SG&A excluding SBC, as a vantage of revenue declined to 4.5%, reflecting strong corporate cost efficiency.

Income from operations increased 5.8% to RMB 2.5 billion and associated margin rate decreased 2.9 points to 19.2%.

Operating cash flow was RMB 2.8 billion for the quarter, representing an 18% increase.

Adjusted EBITDA increased 6.9% to RMB 3.9 billion.

Capital expenditure for the quarter was totaled RMB 1.8 billion, and we anticipated annual CapEx in 2026 to be around RMB 60 billion.

Now moving on to our guidance. Based on current market and operating conditions, we are maintaining our previous guidance for the year, net parcel volume growth of 10% to 13% year-over-year, representing a parcel volume range of RMB 42.37 billion to RMB 43.52 billion. These estimates reflect management's current preliminary view and are subject to change.

This concludes our prepared remarks. Operator, please open the line for questions. Thank you.

[Operator Instructions] The first question comes from Qianlei Fan with Morgan Stanley.

[Foreign Language] Let me translate for myself. Congratulations on the very strong profit growth, excluding government grants. I have 2 questions. The first question is about unit cost. We have seen a very impressive unit cost reduction in the first quarter this year, and it has been better compared with management's full year target set at the beginning of the year. So I want to discuss what's the key drivers of the cost efficiency gain in the first quarter. Any changes to our full year cost reduction target, specifically, we want to discuss the impacts from diesel price hikes on unit cost going forward?

The same question is about anti evolution. So how has the policy initiatives playing out year-to-date? What's the management's outlook on industry pricing dynamics going forward in the rest of the year? Specifically, I want to understand whether industry price dynamics could fully pass through the potential cost inflation from diesel price hikes.

[Foreign Language]

[Interpreted] Now, let me help translate the Chairman's answer. First question is relating to our cost. In the first quarter, on go through the results, but the fact that this cost performance improvements was primarily driven by the implementation of improved automation and which further enabled by our digitized solution such as the intelligent tools and refined the management process and all these led to our continuous improvements in the core metrics, including vehicle low rates and per capita efficiency.

In terms of transportation costs, Chairman further elaborated. First, we widened the implementation of digitization tools, which optimize transportation capacity, structure and route design so as to effectively lower transportation costs, while shortening the end-to-end transit duration time.

Second, we refined low rate metrics and measurement mechanism by setting reasonable loading standards and adopted precise growth volume measurements. We also implemented tier incentives for low rates, which correlated with volume levels, hence, fully leveraged economies of scale so as to improve overall loading efficiency.

Third, we continuously improved fleet management by establishing refined standardized cost model for vehicle operations and maintenance as benchmark for our drivers, thereby lowering operating and maintenance costs continuously.

In terms of sorting cost, on 1 hand, we continue to invest in automated equipment that is armed with digitized solutioning at our sorting hubs, utilizing real-time monitoring and upgrading old equipment to improve operational efficiency in facility automation level while controlling costs.

On the other hand, we have reviewed our workforce deployment and enhanced individual accountability by a clear reward and reprimand mechanism hereby boosting per capita productivity.

In terms of our cost reduction targets, we expect the core transit related costs to further decrease for the full year beyond transit centers, we will place greater emphasis on end-to-end cost reduction. This year, we will focus heavily on network optimization, further empowering our outlets and enhancing their operational capabilities as well. We will continue to encourage our lists to install automated equipment deploy unmanned vehicles and promote direct link models to continuously reduce last mile cost. This entire end-to-end cost focus will further improve our own sourcing and transit related costs as well, because it's all integrated and interrelated.

As far as the impact on the fuel prices due to the tension in the Middle East, domestic CECL prices increased significantly in March. However, as international tension continue to be managed. Price will -- price has somewhat declined in late April.

Overall, the price recovery driven by the entire evolution policies has largely offset the impact of high fuel costs and certain provinces have absorbed rising diesel costs through fuel surcharges. Therefore, oil price volatility is expected to have limited impact on our total network-wide cost in the second quarter.

Now for the question relating to anti evolution. Since the Chinese New Year, the entire elution policy has been consistently implemented and the effects are meaningful, particularly in major high-volume regions. Meanwhile, enforcement has been progressively tightened in certain provinces where implementation had previously lagged.

As the policy continues to take effect, the volume of low-priced parcel has continued to shrink, driving a further recovery in price level and effectively restoring the level of interest of both outlets and couriers, benefiting from this improving competitive environment, the company has achieved simultaneous growth in volume and pricing with restoration of market share.

As the industry leader, ZTO remains committed to closely stay closely aligned with the government's entire evolution initiatives. We will continue our balanced development strategy that prioritizes service quality while effectively safeguarding the rights and interest of our last-mile network. We are confident that with productive regulatory guidance, the industry will develop in a healthier manner, more orderly competition and also pricing level will be stable overall.

Your next question comes from Steve [indiscernible] with Goldman Sachs.

[Foreign Language] I would like to add the questions on AI. So video was an early mover in large-scale adoption of electronic radios and automated sorting in the past, which established a first mover advantage. So I want to ask in the AI era, how do you consolidate and expand this technology leadership? And could you share what initiatives have already been implemented as well as logo how AI will empower the very status of the express delivery value chain going forward?

[Foreign Language]

[Interpreted] Thank you for your question. Our core strategy is to continuously deepen integration of our AI technology across the entire network including transition from cost reduction and efficiency enhancements to operational empowerment. The tangible results achieved to date are primarily reflected in 3 areas: one, sorting operations, the combined -- the combination of 3D Digital Twins and machine vision technology has been deployed across around 25 or so sorting centers, reducing the assorting rate by over 60% while significantly lowering labor costs; two, customer service our AI-powered customer service system now automatically process over 70% of end-to-end service tickets, all agents such as an auto cover more than 80% of daily business inquiries from network outlets.

In the first quarter, the rate of customer service escalations to human agents was further reduced by 5 percentage points; three, last mile dispatch, leveraging our proprietary high-precision mapping data we have applied AI in scenarios such as last mile post site selection and delivery route optimization. This has helped large network outlets reduced short-distance transportation costs by 20%.

In the retail parcels business, our AI system now supports the clear dispatch of tens of millions of daily orders.

In an era of large language models, we are advancing their evolution of implementation by -- from execution tools to operational decision-making partners. Our smart data inquiry system has been deployed across various domains including customer analytics, route planning, e-commerce platform service index, monitoring, operational performance analysis, service quality assessment and inbound cost management for network offices. As a result, the time required for operational decision-making at the regional management level has been shortened from several days to just hours.

Looking ahead, we will continue to build a multi-agent architecture and enables the system to autonomously provide optimization recommendations across various operational functions.

Within the next 6 months, we plan to complete the upgrade of our voice customer service AI, which will be deployed across nearly 6,000 network outlets nationwide.

In summary, AI technology and its implementation has become a core strategy prioritized for ZTO. We will continue to translate technological advancements into cost and time efficiency advantages, further solidifying our leadership position and generate long-term value for our shareholders.

Your next question comes from Aaron Lou with UBS.

[Foreign Language] Let me translate myself I have 2 of them. First, we have observed that industry growth has decelerated against the backdrop of the entire evolution trend. But could you please kindly share your latest outlook on industry growth expectations and whether the competitive landscape is experiencing accelerated divergence. Second, regarding our retail parcel business, could you provide an update on its current development status and the peso profit level at this stage?

[Foreign Language]

[Interpreted] Thank you for your question. Your first question relates to the industry growth and competitive landscape. So as the anti evolution policy continues to advance low-priced competition is gradually diminishing. The industry is shifting from extensive scale-driven expansion to higher-quality development based on operational efficiency. Following a period of adjustment, the industry's growth trajectory has become a more pragmatic with the focus shift from more here parcel volume growth to sustainable growth driven by synergistic improvements across scale, profitability and service quality. The nature of competition in the express delivery industry involves a comprehensive context of service quality, cost advantage and network capability.

As the industry transitions towards higher quality development, market share is expected to further consolidate among top players. And the competitive landscape is becoming even more polarized. The competitive focus has shifted from price-driven to relying on comprehensive strength. ZTO is committed to pursuing both volume and quality growth.

On 1 hand, we will solidify our leading position in parcel volume while sustaining our brand premium, which is based on service reach and stability. On the other hand, we will further strengthen our cost advantage and widen the service quality gap versus peers. This will drive concurrent gains in both market share and operating efficiency, enforcing our leading position in the industry.

Your second question relating to our retail parcel businesses. The rapid development of our retail parcel business specifically the reverse logistic parcels is an outcome of our volume quality balanced strategy and our commitment to build a tiered product portfolio amid the industry's high-quality development. In Q1, average daily retail parcel volume reached approximately 9.7 million, which indicates a meaningful growth rate.

In the second quarter, our reverse logistics parcel volume further increased with our average daily volume exceeding 9.4 million. Although the price of reverse logistics parcel has slightly declined due to competition. The unit cost has continued to optimize through economies of scale and refined cost management. Currently, the unit profit contribution of reverse logistics parcel remains higher than that of our traditional e-commerce parcels.

Your next question comes from Mujin Lin with CITIC Securities.

[Foreign Language] So first of all, thank you for picking up. And I guess my question will go with the legislation of the protective right delivery workers in the end. So as we can see that the regulation of the protecting the rise of delivery workers, it's been like gradually implemented in a place like Guangdong and Shandong so much support. So how should we envision the pace of the social security promotion? And if it is gradually implemented in the second half of the year, would there be any guidance regarding to the quantitative impact on the cost of the entire network.

[Foreign Language]

[Interpreted] Thank you very much for your question. I will translate in content for Chairman's answer. Since the establishment of our shared success philosophy and practice, we placed a high priority on the rights and interests of our network partners and for line careers. We believe that the implementation of security coverage is aligned with the objective of entire evolution policy as both aimed to Safeguard frontline workers' interest and promote healthy industry development. We welcome the early implementation of social security policies. In the short term, the rollout of these policies may lead to an increase in per parcel cost. However, from a long-term perspective, is establishing a more stable and secured employment system will enhance network cohesiveness, reduce workforce turnover and further solidify the quality of our last mile services.

As an industry leader, ZTO will continue to lead by example, to promote the sector's compliant, high-quality development.

Going forward, if more specific social security implementation measures are introduced, we will proactively respond to the government call and fully support policy implementation.

As we have been previously communicating that our -- on our consolidated group, our client level with the social security is much higher. And yes, indeed, at the outlet level, there are various different practices. So the major impact perhaps will come from the network partners, and we will be supportive in helping our network partner to become compliant and also help them reducing cost as what we are currently implementing is indeed will generating results to help them coping with any additional cost increases coming from the social security policies implementation. I hope that answers your question.

This concludes our question-and-answer session. I would like to turn the conference back over to Huiping Yan for any closing remarks.

Thanks, everybody, for joining us for the call again today, and we have generated positive results and performance going forward are continuously relying on our strategy of a balanced approach with quality first and scale and volume improvements with reasonable level of profit that is equitably shared among our brand participants. So going forward, we look forward to speaking with you again, and. Thanks again for your support and attention.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day and welcome to the ZTO Express Fourth Quarter and Fiscal Year 2025 Financial Results Conference Call. [Operator Instructions] Please also note today's event is being recorded.

I would now like to turn the conference over to Sophie Li, Head of Capital Markets. Please go ahead.

Thank you, Rocco. Hello, everyone, and thank you for joining us today. The company's results and the Investor Relations presentation were released earlier today and are available on the company's IR website at ir.zto.com.

On the call today from ZTO are Mr. Meisong Lai, Chairman and Chief Executive Officer; and Mrs. Huiping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Mrs. Yan, who will go through the financials and guidance. They will both be available to answer your questions during the Q&A session that follows.

I remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations in our current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding this and other risks, uncertainties and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law.

It is now my pleasure to introduce Mr. Meisong Lai. Mr. Lai will read through his prepared remarks in their entirety in Chinese before I translate for him in English. [Foreign Language]

[Foreign Language]

[Interpreted] Thank you, Chairman Lai. Please allow me to translate first. Hello, everyone. Thank you for joining today's conference call. In the fourth quarter of 2025, the express delivery industry's overall parcel volume grew moderately by 5% year-over-year. ZTO maintained its industry-leading service quality during the quarter. with parcel volume reaching RMB 1.56 billion, an increase of 9.2% over last year, and our market share expanded by 0.8 percentage points. At the same time, we achieved an adjusted net income of RMB 2.69 billion.

ZTO continued to lead the industry in both scale and profitability. For the full year of 2025, China's express delivery industry achieved a steady growth of 13.6% with volume reaching the 200 billion milestone. In the third quarter, relevant government agencies formerly advocated against evolution and promoting the protection of grassroots interest. During the industry towards healthy and sustainable development. As a result, overall pricing stabilized and recovered, and the industry accelerated its transition toward a new stage of development focused on both quantity and quality.

In 2025, ZTO achieved an annual pass volume of RMB 38.5 billion, maintaining a steady market share year-over-year. During this critical phase of industry transformation, ZTO stayed committed to our high-quality development strategy. continuously enhanced differentiated product offering and service capability. Facing intense competition, ZTO actively responded to the government's call and to lead in maintaining a healthy industry order. Leveraging our robust infrastructure, data-driven operations and management capabilities, we successfully safeguarded our competitive advantages in quality, scale and profitability.

Our annual retail parcel volume grew by 46% year-over-year, significantly outpacing the overall growth of e-commerce parcels. In the fourth quarter, daily retail volume reached close to 10 million parcels. This product mix optimization has enhanced the brand recognition and affinity while providing strong support for core revenue growth and alleviating the impact from volume-based subsidies. At the same time, we continue to strengthen standardized operations in coordination across our transit segments, improving both operational efficiency and service time learning. Our combined unit cost for transportation and sorting decreased by RMB 0.06 for the full year.

And with a stable SG&A structure, our annual adjusted net income reached RMB 9.5 billion. Entering 2026, the express delivery industry is further reaching a consensus on high-quality development. supported by stable macroeconomic foundations and the ongoing efforts against evolution. Naturally, market uncertainties remain and the transition towards quality growth requires deeper cultivation. ZTO will shoulder its responsibility by adhering to strategies for healthy and sustainable development. We will focus on transit and last mile capability building, continue to optimize the fairness and transparency of network policies and protect the trust and confidence.

Our priorities for the next stage are as follows: first, up home service quality to reinforce brand advantages. Staying results-oriented while focusing on execution. We will integrate public and platform service indicators into performance evaluation. With accountability of fine to specific position individuals and behaviors. By targeting specific weak links and continuously optimizing our product mix, we will enhance our service capability and the differentiation to expand our brand in food.

Second, keeping efforts for cost reduction and operational efficiency to solidify cost leadership. Centered around better integration from end to end. We will accelerate the implementation of direct linkage model. We will establish standardized, visualized and comparable benchmarks. And by prescribing cost reduction targets to every last mile segment and leveraging fluctuation monitoring to unlock potential. We will achieve optimal cost efficiency across transit and delivery.

Third, optimize network policies and the incentive mechanisms, focus on steady volume growth and improved cost efficiency. We will rely on detailed analysis for regions with lacking market share to enhance the efficiency of cost sharing mechanisms and ensure more precise deployment of resources.

Fourth, safeguard fairness to ensure network stability, secure rights and obligation of our partners while balancing profit distribution, strictly implementing better pay for better results and survival of the pits while ensuring reasonable income for outlets and careers. We will empower high-quality alleys and provide support in governing underperformers to protect a win-win ecosystem.

China's express delivery industry remains positive, and the competition will steadily become more rational as the leading enterprises continue to turn to intrinsic value the industry landscape will further bifurcate and the concentration will increase. ZTO remains committed to its long-term strategy of integrating service quality market share and a reasonable profit.

As the industry shifts from scale expansion to include value preparation, we must lead the way in prioritizing both quantity and quality. Only by expanding diversified and differentiated products, reinforcing our infrastructure foundation, harness the productivity of digital operations, unlocking the potential of end-to-end cost reduction and prioritizing the long-term trust and the stability of our franchise network can we seize opportunities and navigate through cycles.

For over 20 years, being our best has been the constant for ZTO amidst all changes, building on our shared success philosophy, we will take pragmatic actions to fulfill our mission of bringing happiness to more people. We will continue to lead in this new journey of high-quality development. creating sustainable and long-term value for the ZTO community.

Now just invite Ms. Yan to present the financial results and guidance.

Thank you, Chairman, and thank you, Sophie. Hello to everyone on the call. As I go through our financials, please note that unless specifically mentioned, all numbers quoted are in RMB and percentage changes refer to year-over-year comparison. Again, detailed financial information and performances, unit economics and cash flow are already posted on our website, and I'll only go to some of the highlights here.

In the fourth quarter, benefiting from the government's call against evolution, we prioritized service quality and core competency to drive sustainable growth. Our parcel volume grew 9.2% to RMB 10.6 billion in Q4 and 13.3% to RMB 38.5 billion for the full year. Total revenue increased 12.3% to RMB 14.5 billion in Q4 and increased 10.9% to RMB 49.1 billion for the year.

Income from operations was RMB 3.2 billion and RMB 0.5 billion or decreased 7.6% and 11% for the fourth quarter and the year, respectively. As our corporate spending remained stable and efficient we achieved adjusted net income of RMB 2.7 billion and RMB 9.5 billion for the fourth quarter and full year, respectively.

ASP for our core express delivery business increased by 2.9% or RMB 0.03 in Q4. This was primarily driven by a RMB 0.15 positive contribution from an improved mix in KA volume specifically, our volume higher value -- sorry, our higher-value reverse logistics services, counter offsetting RMB 0.11 in higher volume incentives? For the full year, ASP decreased slightly by 1.7% or RMB 0.03. This reflects a RMB 0.16 gain from higher retail volume offset by a RMB 0.15 impact from volume incentives and a RMB 0.03 decrease due to lower average weight per parcel.

Total cost of revenue was RMB 10.8 billion for Q4 and RMB 36.8 billion for the year, which increased 18.2%. And for Q4 and 20.5% for the full year. From a unit perspective, while the core express delivery unit cost rose RMB 0.08 to RMB 1 in Q4 and RMB 0.07 to RMB 0.04 for the year. KA cost was the main driver of the increase, which was partially offset by transit cost productivity. The combined unit cost for sorting and transportation decreased by 4.5% or RMB 0.04 in Q4 and 8.8% or RMB 0.06 for the year, driven by economies of scale and our ongoing productivity initiatives.

Specifically, unit cost of line haul transportation decreased 7.5% to RMB 0.37 in Q4 and 12.2% to RMB 0.36 for the year reflecting optimized route planning and enhanced load efficiencies. Unit sorting costs remained steady at RMB 0.26 in Q4 and decreased 3.7% to RMB 0.26 for the full year.

Automation continues to drive labor efficiency through -- will partially offset by the ramp-up and upgrade costs of new and existing facilities. Unit KA costs increased by RMB 0.13, which is consistent with the strategy. strategic expansion of our KA volume.

Gross profit declined 2.1% to RMB 3.7 billion for Q4 and 10.5% to 10.3 billion for 2025. Gross profit margin rate decreased 3.7 points to 25.4% for the quarter and 6 points to 25% for the year.

SG&A, excluding SBC, decreased 1.3% to RMB 641 million for Q4, an increase 1.6% to RMB 2.4 billion for the year. SG&A expenses, excluding SBC as a percentage of revenue declined to 4.4% for the quarter and 4.9% for the year, reflecting strong corporate cost efficiency.

Income from operations decreased 7.6% to RMB 3.2 billion for Q4 and decreased 11.1% to RMB 10.5 billion for the year. Associated margin dropped 4.7 points to 22% and 5.3 points to 21.3% for the year. Operating cash flow surged 50.6% to RMB 4.2 billion in Q4 and reached RMB 12 billion for the year, excluding the RMB 850 million onetime franchise deposit refunds under the new business policy in Q4 last year, our cash flow from operations remains robust. Capital expenditures for the year totaled RMB 6.1 billion.

Now moving on to our business outlook. Based on current market conditions, we anticipated our parcel volume for 2026 to grow in the range of 10% to 13% year-over-year. This growth rate implies an annual parcel volume between RMB 42.37 billion and RMB 43.52 billion. We are committed to growing our volume faster than the industry average for the year.

Now on to our shareholder returns. The Board has approved a semi cash dividend of USD 0.39 per ASD in accordance with the established 40% payout ratio. In addition, having substantially completed our previous USD 2 billion program, and the Board has authorized a new 24-month $1.5 billion share buyback program effective through March 2028.

Finally, we are pleased to announce an enhanced shareholder return program, starting from 2026 company targets and aggregate annual return ratio of no less than 50% of our adjusted income for the previous fiscal year. comprising both cash dividends and share buyback. This enhancement reflects our commitment to optimize capital allocation and delivering consistent long-term value to our shareholders.

This concludes our prepared remarks. Operator, please open the line for questions.

[Operator Instructions] And today's first question comes from Qianlei Fan with Morgan Stanley.

[Foreign Language] Let me translate for myself. I have 2 questions. The first question is about antievolution. After the Chinese New Year, we have seen lots of news the anti evolution dynamics everywhere in China. So is there any new updates on the anti-evolution initiatives? How do you expect the sustainability of such anti-pollution driven type hikes. What's your take on the attitude from the regulatory towards anti evolution? And what's your expectation on the potential pricing trends for the rest of the year? .

The second question is about industry growth outlook and competition landscape. So taking into consideration of potential price hikes anti-evolution what's your expectation on the full year industry growth outlook? And was this outlook, what's your expectation on the industry competition landscape and market share dynamics?

[Foreign Language]

[Interpreted] Thank you very much for your question. I'll translate for the Chairman here. Since the introduction of the anti-evolution policy in the third quarter last year, the industry's competitive landscape has steadily improved. Parcel prices have recovered and the focus has turned towards safeguarding the interest of frontline people such as the outlet and couriers. Following the spring festival, the policy has remained in effect. And with its continued enforcement the industry is well positioned to sustain quarterly competition above the cost line.

As one of the key players in the industry, we're are not only participants but also must take on the leadership role. ZTO's strategy is well aligned with government's effort to combat involution. seeking a balanced development that prioritizes service quality, effectively protect the right interest of outlets and couriers and promote a healthy, orderly competitive environment for the industry.

Now for the second question, first, the sector's growth. the scale or the parcel volume of China's express delivery industry has approached RMB 200 billion 2025, which established a significantly large base. And with the implementation of the anti-evolution policy, express delivery prices have steadily recovered and low-priced parcel volumes have gradually decreased. It is reasonable to expect a gradual deceleration of the industry growth. And the sector is likely to transit from a volume-driven model to a new phase focused on high-quality development.

Note that the Postal Bureau has estimated a 8% growth for 2026 and ZTO has given a guidance of growth between 10% to 13%, which certainly implies the development faster than the industry average.

On the competitive landscape, as the macroeconomic condition continues to improve and express delivery industry move towards higher quality development market man will naturally gravitate towards and become increasingly concentrated among companies that prioritize service and operational efficiencies. Leading enterprises, leveraging their superior service capabilities and well-established infrastructure networks are better positioned to further consolidate the market. Driven by policy guidance and reinforced by industry self-regulation. The trend of bifurcation is expected to further fostering a healthier and more orderly competitive landscape. I hope that answers your question.

And our next question today comes from [ Stephen Cu ] with Goldman Sachs.

[Foreign Language] I have 2 questions. My first question is under the anti-involution scheme. What is the 2026 priority for your company? Is it market share profit or network governance? And also, does the RMB 200 million fund that you dedicated to support your frontline employee as well as your network signal more support for your partners?

My second question is, given the January to February GMV growth industry-wide has been faster than the volume growth and which has been the first time since 2023. So is this mix driven or structural? And could the competition shift to quality or just only the improvement?

[Foreign Language]

[Interpreted] Thank you very much for your question. ZTO remained steadfast in our fundamental approach of integrating service quality market share and a reasonable level of profit, which serves as our core strategy revolved on our resolve to navigate cycles and seize long-term opportunities.

Entering 2026, supported by stable macroeconomic fundamentals, the industry-wide consensus against involution continues to solidify. ZTO will respond to the national call by taking the lead in maintaining a steady and rational industry competitive order, driving an accelerated transition of our operational focus from scale expansion towards a value proposition centered on both quality and quantity.

We clearly recognize that the restoration and stability of our franchise networks ecosystem in terms of their trust and hope are the cornerstone of high-quality development and across the entire network with a strategic significance that far away short-term financial gain. Therefore, our current strategic focus is on continuously optimizing the fairness and transparency of our network policies to effectively safeguard the reasonable and rightfully so the level of income of our grassroot partners and frontline couriers.

The recent launch of RMB 200 million special service incentive fund is indeed intended specifically for the fact that we are putting quality as the priority. This is a concrete demonstration of our shared success philosophy and our pragmatic actions to provide targeted support to higher quality outlets while empowering frontline employees. This initiative aims to stimulate the networks intrinsic motivation by optimizing profit-sharing mechanism, reinforcing our brand advantage while building a win-win ecosystem for the entire network.

The RMB 200 million is going to be allocated and distributed across the whole end-to-end operations from pickup to delivery. The goal is to very specifically further expand our recognition of shared success as well as our effective approach to allocate interest among all the stakeholders, including the small micro operators of our business, which are the key foundation of our long-term success.

Now your second question, the turnaround in average order value in early 2026 confirms that the industry is undergoing a transformation from lower price volume tracing to value restoration. This shift is fundamentally driven by the stabilization of macro fundamentals and the deepening consensus against involution which has accelerated the exit of loss-making low-price volume.

We firmly believe that irrational price competition creates no incremental value for either e-commerce platforms or express delivery operators. Current market dynamics represent a structural upgrade in competition moving from price-driven to quality driven. This evolution provides a solid foundation for sustainable price improvements across the whole industry.

ZTO remains committed to our tripart strategy and our focus on high-quality customer services has yield clear results. In 2025, and our retail parcel volume surged 46% year-over-year with daily volume approaching 10 million in Q4. Looking ahead, we will continue to leverage our leading cost advantage and superior services to lead the industry through this quantity to quality cycle increase long-term value. Thank you for your question.

And our next question comes from Aaron Luo with UBS.

[Foreign Language] So let me translate myself. And I have 2 questions. One is about our recent insurance of convertible bonds in early February. So just would like to understand a bit more of our major considerations behind our recent insurance and more importantly, at what pace should we expect for the share buybacks to proceed? The second question is about AI, which has been continued to be a very hot topic among investors. So just curious about what are the major applications of AI and even large models at our company?

Can I just go straight to English? Yes. The convertible bond in February 2026, the company issued $1.5 billion 5-year convertible bond we launched it during a window where we can take advantage of our low-cost financing tool during a period where the company's market value was underassessed. The proceeds with a net amount of about USD 1.4 billion is intended solely for company's share buyback. And this issuance is intended to effectively enhance earnings per share, which we did. And hence, improve our shareholder value and protect interest and optimize our company's capital structure.

The pace of buyback is that the repair purchase program is processing very efficiently. We have completed our previous -- we have completed the $600 million in total. It's approximately $600 million in total share buyback on the issuance day as well as during the subsequent trading window. For the remaining $800 million, we plan to complete the repurchase over the next year in line with market -- take in consideration with the market price fluctuations, so at a reasonable price range. we will put in programs to consistently doing the buyback in order to strengthen our shareholder returns.

And the new shareholder return plan, you didn't ask that question, but I think I'll just take this opportunity to provide some insights. We established a consistent and integrated shareholder return system. And this is going to be a combined dividend and buyback mechanism, which is out of the total, no less than 50% of the adjusted net profit from prior year.

Now your question on the AI -- on the second question.

[Foreign Language]

[Interpreted] Let me help translate. ZTO has steadfastly advance its digital transformation in recent years as well as driving further and deeper integration of AI technology across the entire Express delivery chain to achieve a fundamental change from experience driven to data-driven operations.

First, Our focus on AI empowerment across the entire chain is on reducing cost and increasing efficiency. We find management at the sorting end, we are promoting the application of 3D digital twins and computer vision technologies which have now been implemented in 25 of our super sorting centers. This system enables remote monitoring and automatic anomaly alerts helping sorting centers and outlets reduce missorting rates by over 50% -- by 60%, while improving operational precision, it has also significantly lowered labor cost.

On the customer service side, the intelligent service center is leveraging the AI-powered customer service system so that they are able to automatically handle over 70% of end-to-end work orders and enable merchants to deliver -- to directly connect with last-mile couriers that are in progress or after sales support. Meanwhile, indigent assistants such as Ask Xiaotong and Tracking Assistant covers over 80% of routine businesses ingress at the outlet level significantly reduced customer service costs at the outlet level as well as headquarters.

On the last mile, dispatching side. It becomes more precise now with the AI technology implementation. We are able to leverage our in-house high-precision mapping data we are able to have a deeply applied scenarios such as outlet site selection and delivery route planning, which is time dynamic. This has not only empowered large-scale outlets to reduce short-haul transportation cost by over 20%, but also enabled precise order allocation and intelligent dispatch for tens millions of orders per day during peak retail parcel collection period.

On the second part, we not only -- on the second part about the large modeling, we are driving the involution from execution tools to have it become more of a business partner for an AI agent scenario. In the past, AI is primarily was primarily focused on replacing repetitive labor, but large models are now transforming our business operation structures and cycles. Currently, we are focusing on 2 key areas: one, deep business analysis at both the headquarters and regional level, we leverage AI-driven inquiries for data mining.

This tool not only generates reports as needed, but also uncovers hidden patterns within the complex customer quality and cost data that management can have previously overlooked effectively so that we can embed technology into the heart of our lean management system and also for problem identification and problem solving.

Second, high precision business forecasting. We are introducing a general-purpose time-sensitive forecasting, modeled to upgrade our existing forecast system. This model can learn from vast patterns across industries based on our huge database historically as well as ongoing and quickly adapt to new scenarios, enabling more gradual and timely parcel volume forecast and providing robust data support for our operations, including the capacity planning, the route planning so that we are able to maximize intelligence to drive operational efficiencies. That is the answer to your second question.

Thank you. That concludes our question-and-answer session. I'd like to turn the conference back over to the company for closing remarks.

Thank you, everyone, again for joining us. As the Chairman had pointed out that the industry is entering into a stable growth and we are committed to grow our volume faster than the industry average. And our tripart strategy and corporate directives are intact, and we are focused on building our infrastructure capability or enhancing our ability with technology as well as helping ensure the fairness of our network policy to further enhance the trust and fairness across our network so that we have a sustainable long-term business, creating value for our stakeholders, including shareholders.

This concludes our meeting today. Thank you again. We look forward to talking with you offline. Thank you.

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Good day, and welcome to the ZTO to announce Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note, today's event is being recorded.

I would now like to turn the conference over to Sophie Li, Secretary for the company.

Thank you, operator. Hello, everyone, and thank you for joining us today. The company's results and the Investor Relations presentation were released earlier today and are available on the company's IR website at ir.zto.com. On the call today from CEO are Mr. Meisong Lai, Chairman and Chief Executive Officer; and Ms. Huiping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Ms. Yan, who will go through the financials and guidance. They will both be available to answer your questions during the Q&A session that follows.

I remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding this and other risks, uncertainties and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law.

It's now my pleasure to introduce Mr. Meisong Lai. Mr. Lai will read through his prepared remarks in their entirety in Chinese before I translate for him in English. [Foreign Language]

[Foreign Language] .

[Interpreted] Hello, everyone. Thank you for joining today's conference call. China express delivery industry experienced steady growth during the third quarter of 2025. while maintaining its industry-leading service quality, ZTO grew its parcel volume by 9.8% year-over-year to reach 9.57 billion parcels. Our adjusted net income was RMB 2.51 billion, which rose 5% over the same period last year.

During the quarter, government advocated for grassroots against evolution and promoted more orderly competition by curbing unreasonable low-price practices. As a result, the overall pricing level across express delivery industry stabilized and began to recover. Adhering to our balanced approach to quality first to growth strategy, ZTO rose to the higher standards for model enterprises and reinforce the principal design to achieve coordinated development with both high volume and high quality. We encourage our network partners to reduce costs and increase income by strengthening last manicured delivery capabilities to become the preferred choice of last-mile market.

ZTO's retail parcel volume maintained strong growth momentum and grew close to 50% year-on-year. Through optimizing the pickup model and the refined lean process management, we enhanced both service quality and cost efficiency. For transit efficiency, ZTO continued to advance the application of smart technology in transforming standardized cost control mechanism, implementing more effective resource allocation and the performance metrics. The combined unit cost of transportation and sorting decreased by RMB 0.05 year-on-year.

Entering the fourth quarter, overall industry volume growth exhibited some moderation. While uncertainties and short-term challenges in the macroeconomic recovery still expect. The long-term prospects for the express delivery and logistics industry remains positive. We will stay focused on enhancing our product and service capabilities.

In the next phase, we will prioritize the following 5 areas of work. First, at home service quality as our lifeline, establish a comprehensive end-to-end quality management service system with integrated baton service indicators for performance evaluations, assign clear responsibilities and capabilities, ensuring continued service leadership. Second, deepen last mile capability build-out, expense upgrades of sorting capabilities at [ Alis ], further implement direct linkage and incorporate local commercial opportunities, hence reduce delivery costs and enhanced last-mile profitability through a higher retail parcel mix.

Third, optimize network policies and incentivized mechanisms, while ensuring steady volume growth enhanced policy transparency and fairness, implement relevant incentive mechanism to cultivate intrinsic motivation. Fourth, advanced end-to-end cost efficiency and synergy leverage cutting-edge technologies and digitization tools to optimize route planning with appropriate match to transit capacity more certificate planned for capital investment and utilization and improved ordination across all stages of operations. help network partners to continuously improve their operational efficiency, reduce last mile pickup and delivery costs and achieve higher earnings.

Fifth, safeguard fairness and grass rooting, improved communication and governance promptly address gene concern and results will issue protect legitimate rights and the interest of all and careers and maintain trust and confidence in our brand. The express delivery industry is currently undergoing a strategic shift from prioritizing high volume towards development in both quantity and quality.

Against today's macroeconomic backdrop, the increasing proportion of low-priced parcel presents unique new challenges for top-tier enterprises like ZTO. Facing this structural change retail stakehold in prioritizing quality of services and winning through efficiency. So continuous product upgrades and refine the process management. We navigated a complex market environment, upheld high quality of service standards and scaled up within reasonable earnings parameters.

In the meantime, our network partners that baptized by fierce price competition are actively innovating and forging last-mile capability and business model with more diverse revenue. Better operational efficiency, with higher confidence in the success of operations, the advertising network is becoming even more resilient. Competition is an inevitable growth phase for majority of.

Looking ahead, we firmly believe that by leveraging the best potential of solid growth foundation and vibrance of China's economy, ZTO can apatite our unique culture, rely on our robust infrastructure and with our strong operational capabilities and sound financial strength, we are able to seize opportunities in the ongoing development of the express delivery and the largest industry. Together with all our partners, we can create greater value and bring evening to more people through our products and services.

Next, let's invite Ms. Yan to present the financial results and guidance.

Thank you, Chairman Lai, and thank you, Sophie. Hello to everyone on the call. As I go through our financials, please note that and as specifically mentioned, all numbers quoted are in RMB and percentage changes refer to year-over-year comparisons. Detailed financial and performance information, unit economics and cash flow are posted on our website, and I'll go through some of the highlights here.

In the third quarter, in alignment with government's appeal against Evolution, we reaffirmed our focus on quality enhancing our core competencies to advance high-quality development. Our parcel volume reached RMB 9.6 billion, which grew 9.8%. Adjusted net income increased 5% to RMB 2.5 billion.

ASP for core express delivery business increased 1.7% or RMB 0.02, and the breakdown are the following: RMB 0.18 positive contribution from increase in KA volume mainly comprised of headquarter contracted reverse logistics products and services. This growth was partially offset by a RMB 0.02 decrease due to lower average weight per parcel and a RMB 0.14 reduction from higher volume incentives.

Total revenue increased 11.1% to RMB 11.9 billion as a combined result of volume and price increase. Total cost of revenue was RMB 8.9 billion, which increased 21.4% as a blended result of significant increase in costs associated with none-commerce volume relative to the rate of decrease in cost for e-commerce volume.

From the overall unit cost perspective, core express delivery business increased RMB 0.09 to RMB 0.91. Combined unit cost of sorting and transportation decreased 7.7% or RMB 0.05 for the quarter, benefiting from economies of scale and various productivity initiatives. Specifically, unit costs for line haul transportation decreased 11.5% to RMB 0.34, thanks to enhanced route planning in conjunction with optimizing fleet operations.

Unit sorting costs remained stable at RMB 0.25 due to improved labor efficiency through automation, offset by higher cost from new facilities that commenced operations in the quarter. Unit KA costs increased RMB 0.14 and which is in line with KA volume growth.

Gross profit decreased 11.4% to RMB 3 billion, and gross margin rate dropped 6.3 points to 24.9%. SG&A excluding SBC grew 16.2% to RMB 633 million, SG&A expenses excluding SBC as a percentage of revenue slightly climbed to 5.3% compared to 5% in the previous quarter last year -- same quarter last year, primarily due to higher depreciation and amortization expenses.

Income from operations decreased 15.4% to RMB 2.4 billion and associated margin dropped 6.3%, point to 20.3%. Operating cash flow was RMB 3.2 billion for the quarter, representing a 3.2% increase.

Adjusted EBITDA decreased 4.2% to RMB 3.6 billion. Capital expenditures for Q3 totaled RMB 1.2 billion, and we anticipate our annual CapEx expenses in 2025 to be RMB 5.5 billion to RMB 6 billion.

Now moving on to our guidance. With visibility into the final quarter of the year, we are adjusting down the annual volume guidance to be in the range of 38.2 billion to 38.7 billion parcels, representing a year-over-year growth of 12.3% to 13.8%. Volume is critical to a scale leveraged business and partner network stability is the foundation for sustainable long-term growth of our company.

As macro environment continues to evolve and industry dynamics shift towards more orderly competition. We are confident in our ability to execute the overall corporate strategy as well as tackling challenges in the near term.

This concludes our prepared remarks. Operator, please open the line for questions.

[Operator Instructions] And our first question today comes from Ronald Keung with Goldman Sachs.

[Interpreted] 2 questions. One is about the industry structure and outlook. Given that we've seen growth convergence and pricing have stabilized temporarily, but how should we think of the year ahead and the long-term market structure as we are still in a relatively fragmented industry landscape?

Second is about integrated opportunities besides the express delivery, what are we doing on the higher end or overall supply chain logistics offerings to provide a more integrated service to your customers?

[Foreign Language]

[Interpreted] Thank you very much for your question. The very first question is really related to the competitive and industry dynamics and where it's going. We believe that the scale and better services as well as higher efficiency, cost effectiveness will lead to greater opportunities. So we have continuously focused on becoming the best of ourselves because the future belongs to the stronger ones.

Looking into the future, we again will continue to focus on now as we look forward. There are several things that we are continuously focusing on. The first one is to strengthen the competitive advantage of our core businesses. And there are 3 perspective of 3 areas that we will be paying attention to. The first one is to strengthen the connectivity or relationship between the outlets, the couriers with our sortation center. It's mainly for allocation of interest allocation of roles and responsibility as well as rewards across these all points with better equity and equality.

The second part is express delivery is mainly serving the 2C consumers we leveraging the installed base will have an opportunity to solve bring solutions for greater logistics market. Currently, we have express delivery, we have LTL business, co-chain in a warehouse cloud operation as well as last-mile outlets. We believe the competitive landscape will shift towards comprehensive capability focused. We will not only serve to see.

We will also serve modern manufacturing, agriculture as well as more specific scenarios such as bringing products and services from factory directly to consumers, bringing agriculture products out of the field directly on to people's dinner table. So for all these specific scenarios, we will participate with higher quality, higher efficiency and this will lead to a differentiated competitive advantage in the future for us.

And our next question today comes from Qianlei Fan with Morgan Stanley.

[Foreign Language] I have 2 questions. The first one is about the anti evolution. So do you have any comments on the anti evolutions potential impacts, specifically on the outlook for market pricing. We have noticed that the company's guidance on volume for the fourth quarter of this year implies a quite wide range of growth look what's the consideration behind this outlook? Specifically, in just mentioned, there are some considerations of term challenges, what's these near-term challenges and what's the outlook for next year?

And my second question is about recent news talking about that regulators had a conversation with ZTO's management on its network management. So is there any details that could be shared? And is there any potential impacts we should be expecting?

[Foreign Language]

[Interpreted] Thank you very much for your question. So sustainability of the entire excessive competition policy, I think it was related to your first question. Since August of this year, the anti evolution policy has been progressively rolled out across most regions nationwide aiming at rational recovery in pricing, and this policy directly addressed the pressure caused by excessive price competition since earlier this year. And it calls for the industry to turn towards orderly competition and healthy development. So we expect this trend to continue and the effort will also continue to take effect.

As the anti evolution guidance continues to take effect, industry overall attention is shifting from high-volume growth focused to combined effort in high-quality development as well as high volume with greater emphasis on service quality and sustainable long-term viability. Once the assessment period concludes we think market rates are expected to stabilize above at least the cost levels, promoting healthier competition.

We also believe that the regulatory focus will continue to advocate high-quality development and disciplined market practice. On one hand, policies will continue to encourage companies to build competitive advantages through innovation, technology, effective managerial skills and services. On the other hand, regulators will remain vigilant into team as needed to seize practices that could harm as through interest or disrupt social stability, protecting sustainable long-term growth.

As an industry leader, ZTO's quality first and balanced development strategy is fully aligned and we are engaged with the regulatory guidance. We view it as a growth opportunity and will take proactive steps to provide model effect for the sector. First, we will continue with investments in automation and digitization to strengthen our operational capabilities. Second, we will pay close attention to constructive feedback from outlets and couriers to strengthen network stability. Third, we will pay strategic focus to benchmark to provide a benchmark effect for higher quality development for the industry.

As to the recent consultation by relevant government agencies. We believe that the recent regulation consultation is consistent with the entire evolution policies as well as our intention. It also is related to certain isolated cases arose from the network complaints. The express delivery industry is shifting from high volume growth. to high-quality development at the same time. And this is the overall guidance with anti evolution policy as well as the specific consultation. It requires all participants, especially ZTO as a leading player in this industry to provide exemplified model effect.

In the short term, we think that these consultation events serve as an important reminder for us as well as, we believe, stress tests for our managerial attention and capabilities. We have taken the feedback constructively and seriously and are treating it as a catalyst for further improvements internally. We have thoroughly reviewed our system in feedback as well as providing greater visibility and timely feedback in addressing specific issues. In the long run, we believe that proactively embracing and leading this high-quality transformation not only is consistent with our regulatory and market expectations, but also builds...

Everybody, this is the conference operator. It appears the speaker line has disconnected. We're going to put the music back on here. We will restart here in just one moment when they dial back in. Thank you, everybody.

[Technical Difficulty]

And pardon me, everyone, this is the operator. We've reconnected to the speaker location. Please proceed with your answer.

Thank you. So I'll rewind just slightly where we got cut off. In the longer term, we believe the proactively embracing and leading the high-quality transformation will not only be consistent with the regulatory intention and the market expectations but also build a more robust and sustainable collaborative model for us to work with all constituents in our industry and in our end-to-end businesses. This will help us attract higher-quality customers and partners, ensuring longer and sustainable growth.

Our next question today comes from [ Tarang Luo ] with UBS.

[Foreign Language] Let me translate for myself. My question is about volume. As we actually noted that the industry has experienced more or less notable, like volume slowdown recently. So just curious about the underlying drivers behind it then more related to the pricing recovered recently? And also, how should we think about the volume growth for next year? And also, any potential changing in competitive landscape of competition dynamics and the volume slowdown going forward?

[Foreign Language]

[Interpreted] Yes, indeed, thank you for your question. We have noticed a low on absent decline or deceleration in the industry. The recent announced October average growth of the industry is low single digit, and that's been not seen for a long period of time. So we think that the recent deceleration in the industry growth is primarily due to the price increase driven by the evolution -- anti-evolution policy. This adjustment where overall logistic price has increased and has a greater impact on low margin and highly price-sensitive e-commerce merchants, resulting in a decline in that segment of the parcel.

Overall, the sector's parcel volume mix is shifted again towards a better structure with higher economics. -- leading express delivery companies with stronger service capabilities and well-established product portfolios are poised to regain their competitive position. In other words, for those that typically gained volume from lower-priced packages will be impacted greater negatively.

Looking ahead to next year, we expect the industry volume growth to perhaps stabilize and most likely to stay around 10%. This sector is shifting away from a single focus on volume growth towards higher quality as well as quantity development. with market resources increasingly gravitate towards service quality and operational efficiency. The future reshaping of the competitive landscape will be driven by ongoing regulatory influence alongside corporate self-discipline and standardized operations, paving the way for a healthier competitive landscape and sustainable long-term growth.

And our next question today comes from [ Lujan Lam ] with [ CTX ] Securities.

[Foreign Language] And I guess my first question will go with cost reduction. So if the anti-evolution policy continues into 2026, considering that the industry CapEx of 2025 would be actually set for a higher growth rate expectation, so would this possibly bring any challenges in our cost reduction is a lower cost growth shown in 2026? And as a result, could we be shed more some lights on the cost improvement in 2026?

And the second question would be regarding to the competition structure. So as we can see that after setting price for some parcels in the major markets for some like in [ Guang Dongyu ] and other province, would it lead to some more focused -- shift of the focus on the price competition from the lower calibrate to the higher one? And I guess that's my question.

[Foreign Language]

[Interpreted] Thank you very much for your question. Yes, ZTO has always been focusing on our cost efficiency in the first development of our company, we -- because of attention -- because of our attention in capacity and infrastructure development, our competitive cost advantage is very apparent. And then as the industry progress, you saw that various other peers have also invested in facilities, equipment as well as transportation capabilities. You saw that our competitive cost advantages across the industry is becoming more close to each other.

We think that the focus now is not just in transit and line haul because out of the 4 segments of the end-to-end services, we have collection as well as delivery. For the total end-to-end cost reduction or cost efficiencies, we have initiated work in, for example, the 3+1 effort so as to continue to improve the cost equation across the whole process. We invested in technology, invested in higher efficiency in matching the capacity as well as the demand for capacity. We have helped our network partners to improve their automation capabilities as well to improve their efficiency allowing, for example, the couriers to have more time in focusing on their delivery work, at the same time, reducing the outlet overall last mile cost.

We do believe that with the existing operational layout, the cost advantage will eventually diminishing. However, with increasing attention to the end-to-end all segments coordination and integration in reducing cost, improve efficiency, not only the transit and sortation segment of our business will continue to lead in cost as well our cost efficiency as well as our network partners will gain advantage in becoming the lowest cost in the last mile as well as the pickup. We so, hence, have high confidence in maintaining our cost leadership going forward.

And then the second part of your question relates to what we will what we have observed going forward in the smaller packages becoming a lesser component of the total volume. So what we do, we will, based on the capacity layout of our whole network appropriately allocate and matching the resources. For example, in the middle and western part of our network, we should be able to gravitate more towards some policies for higher wait. And from an overall perspective, we believe we do have high confidence in managing the policy in addressing the shift in the mix of our volume. Again, we'll continue to focus on our balanced approach in developing volume, scale and a reasonable profit level all under the premises of high quality of products and services going forward.

Apologies. Please proceed.

Yes. We believe this will conclude our call for today. Again, thank you, everybody, for joining us, and we look forward to have further discussions with you offline.

Thank you. This concludes today's conference call. We thank you all for attending. You may now disconnect your lines, and have a wonderful day.