LZMH

Business Context and Reporting Period

LZ Technology Holdings Ltd (Nasdaq: LZMH) is a Cayman Islands holding company conducting operations primarily through subsidiaries in the People's Republic of China (PRC). The company operates in three verticals: Smart Community (access control systems), Out-of-Home Advertising, and Local Life services. This Form 20-F covers the fiscal year ended December 31, 2024. The company completed its Initial Public Offering (IPO) on February 28, 2025, listing Class B Ordinary Shares on Nasdaq.

Key Financial Metrics (Year Ended Dec 31, 2024)

Note: USD figures are translated at the rate of $1.00 = RMB 7.2993 as of December 31, 2024.

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased by 44.6% (RMB 254.0 million) year-over-year, driven by a 28.0% increase in Out-of-Home Advertising and a 122.7% surge in Local Life Retail Sales.
• Profitability Turnaround: The company transitioned from a net loss of RMB 6.4 million in 2023 to a net income of RMB 5.8 million in 2024. This was achieved through a 10.2% increase in gross profit and a significant 18.2% reduction in total operating expenses.
• Expense Reduction: Operating expenses decreased by RMB 6.9 million, primarily due to streamlined sales teams, reduced professional service fees (audit/legal), and optimized R&D headcount.
• Cash Flow: Net cash provided by operating activities turned positive at RMB 4.7 million in 2024, compared to an outflow of RMB 16.8 million in 2023.

Guidance, Outlook, and Risks

Outlook & Strategy: Management intends to retain earnings to fund growth rather than pay dividends. Strategic focus includes expanding the Local Life vertical, solidifying industry position in Smart Community, and exploring overseas markets. The company believes existing cash and the proceeds from its recent IPO ($8.28 million gross) are sufficient to fund operations for the next 12 months.

Material Risks & Contingencies:

• Internal Controls: The company identified three material weaknesses in internal controls over financial reporting (insufficient accounting staff, lack of formal reporting policies, and IT general control deficiencies). Management is implementing remediation measures, but effectiveness is not yet guaranteed.
• China Regulatory Environment: As a Cayman holding company with operations in China, the company faces risks related to PRC regulations, including the Holding Foreign Companies Accountable Act (HFCAA), cybersecurity reviews, and restrictions on foreign exchange and dividend repatriation.
• Related Party Transactions: The company relies on related parties for hardware manufacturing (Xiamen Qiushi) and SaaS software infrastructure (Henduoka). Terms may not be comparable to arm's length transactions.
• Customer Concentration: While improved from 2022, the top three customers accounted for 28.5% of revenue in 2024. Loss of major customers could materially impact results.

Investor Verification Checklist

• Internal Control Remediation: Verify the progress of remediation plans for the identified material weaknesses in financial reporting and IT controls.
• Related Party Pricing: Review the terms of agreements with Xiamen Qiushi (hardware) and Henduoka (software) to ensure they are at arm's length.
• Customer Concentration: Monitor the stability of the top three customers (Xiamen Liubentu, Xiamen Yixingge, Yuegang Online) which collectively represent nearly 30% of revenue.
• HFCAA Compliance: Confirm the PCAOB's continued ability to inspect the company's auditor (GGF CPA LTD) to avoid potential delisting risks.
• Dividend Restrictions: Acknowledge that the holding company structure and PRC regulations restrict the ability to repatriate cash for dividends.