Ladies and gentlemen, good day, and welcome to Full Track Alliance's First Quarter 2022 Earnings Conference Call. Today's conference call is being recorded. At this time I would like to turn the conference over to Mao Mao, Head of Investor Relations. Please go ahead..

Thank you, operator. Please note that today's discussion will contain forward-looking statements relating to the company's future performance, which are intended to qualify for the Safe Harbor from liability as established by the U.S. Private Securities Litigation Reform Act.

Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and discussion.

A general discussion of the risk factors that could affect FTA's business and financial results is included in certain filings of the company with the SEC. The company does not undertake any obligation to update these forward-looking statements, except as required by law.

During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. Joining us today on the call from FTA's senior management side are Mr.

Hui Zhang, our Founder, Chairman, and CEO; and Mr. Simon Cai, our CFO. Management will begin with prepared remarks and the call will conclude with a Q&A Session. As a reminder, this conference is being recorded. In addition, a webcast replay of this call will be available on FTA’s Investor Relations website at ir.fulltruckalliance.com.

I will now turn the call over to our Founder, Chairman, and CEO, Mr. Zhang. Please go ahead sir..

[Foreign Language] Hello everyone. Thank you for joining us on our first quarter of 2022 earnings conference call.

[Foreign Language] Our growth momentum continues in the first quarter of 2022 with another quarter of solid financial and operational performance, despite typically slower seasonal demand, as well as challenges arising from the industry wide transportation resources shortage and disrupted network operations in certain areas of China due to the pandemic and dynamic zero COVID policies.

Our GTV reached RMB53.6 billion representing year-over-year growth of 4.2% and the number of fulfilled orders grew 13.6% year-over-year to RMB25.2 million. In absence of new external user growth we still witness stable user activity trends in the first quarter, meaning attributable to higher user retention rates and right engagement levels.

[Foreign Language] Our continuous improvement in the matrix was again demonstrated by solid foundation of our business and the ability to mitigate the impact of external events.

As a result of this progress, we grew our total net revenue to RMB1.33 billion in the first quarter 53.7% higher than prior year period and beating the high end of our previous guidance, which was projected at RRM1.09 billion. While we grew our top line, we also improved our profitability.

Under the non-GAAP measures our adjusted net income increased by 68.0% to RMB189.7 million in the first quarter. [Foreign Language] Overall, we are pleased with our first quarter financial and operational achievements.

Looking forward, we believe that we will remain focused on increasing user frequency by fine-tuning our freight matching and fulfillment process and re-activating dormant users through targeted marketing activities.

Propelled by these efforts, as well as the outstanding value proposition of our products and services, we are confident that our user growth will graduate resume following the successful completion of the pending data security review.

[Foreign Language] Despite the recent lockdown short term impact on our business and the industry at large, the overall trend in China's logistics industry remained robust in the medium- to long-term.

The industry movement towards digitalization and the accelerated introduction of policies that support organization are working strongly in our favor as they pioneer a digital standardized and smart logistics infrastructure across the value chain.

Capitalizing on this momentum, we will cultivate our technological edge, explore new business models and strengthen our monetization system as we further unleash the great potential of our ever-growing, secure yet efficient nationwide logistics network and create value for all of our stakeholders.

[Foreign Language] With that I will now turn the call over to our over our CFO, Simon, to go over our operational and financial results in more detail. Simon, please go ahead..

Thank you, Mr. Zhang, and hello everyone. Let's take a look at our first quarter operations. The first quarter is traditionally the low season for the road transportation industry.

This, in addition to the continued suspension of our new user registration and the recent COVID resurgence and lockdown in some major cities created incremental headwinds for the entire logistics industry and brought short term uncertainties and challenges to our business.

However, in light of the NDRC decision to relax restrictions and facilitate the full resumption of logistics operation, we saw a gradual resumption of business operations and sings of recovery in transaction broadly in the past month. And we believe that the current negative impact of the COVID will be short list.

We remain confident in our past to long-term growth as we broaden our efforts to enhance our technological advantages and accelerate the industry's digital transformation. Our first quarter results are broadest testament to the strength and stability of our platform.

Our average fulfillment rate reached approximately 22% in the quarter, representing only a slight year-over-year decline due to the short term truck shortage in some regions.

Furthermore, during the first quarter, both our average shipper MAUs and average trucker MAUs who fulfill shipping orders or respond to orders on our platform remain stable with about 3.5 million active truckers fulfilling shipments in the past 12 months.

We also witnessed an increase in the number of paying shippers as a larger number of non-paying shippers, active being enrolled in the shipper membership program as a result of as a result of improved perception of the value created by FTA’s platform.

More importantly, we maintain our shipper and trucker retention rates, including both 12 months retention of paying shippers and next month's retention of truckers who responded to shipping orders on a platform at a high level of approximately 85%. Improving our logistics ecosystem and customer satisfaction remain our top priorities.

As we move forward, we aim to offer a broader range of efficient and user-friendly products and services to streamline logistics transactions while increasing user activity and stickiness. Turning now to our entrusted shipment program, we first introduced the program in Gucci in June last year, and have now applied this model to the entire country.

Current data shows the project is running smoothly since this program largely serves direct shippers, mainly consisting of SMEs and shippers of this type tend to have higher standard of service demand and user stickiness. Its fulfilment rate is significantly higher than that of negotiated and other type of transactions.

We believe that penetration will continue to increase as we upgrade the program's service experience. Furthermore, the program creates additional monetization opportunities and provides growth rooms for our transaction commission while also playing a critical role in our user composition optimization strategy.

That brings us to our online transaction service, which also utilizes a commission model in certain cities. Revenue from its commission model increased by 202% year-over-year reaching RMB258.2 million in the first quarter.

This growth was primarily driven by our extended commission coverage of 195 cities as of March 2022, which raised the commission penetration rate by roughly 20 percentage points year-over-year to nearly 49%.

Operating data and user feedback from these commission cities reflect a high level of user adaption with truckers next month's retention rate of 85%. The commission model is now shaping up to be a major growth engine for our platform as this proportion of total revenue continues to rise.

Building on our previous success, we remain devoted to enhancing trucker's user experience while fostering their paying habits as we plan to prudently increase the commission rate as well as extend commission model coverage.

A stable and fast forwarding user base is critical to our success to nurture the solid foundation of trust and loyalty we have built. We continuously optimize product functions, improve platform governance, and invest significant resources in customer experience enhancement during our utmost to protect user's interest.

With respect to upgrades to our platform ecosystem, governance in February we commenced implementing our shipper rating system in Jiangsu, Shandong and Hubei Provinces. We expect to expand it on a national scale in future quarters.

The goal is to guide shippers to form good trading habits and encourage them to operate in a standardized and trustworthy manner. Shippers can increase their rating by appealing to best practice guidance and settling payments online. Our shipper rating system has already positively impacted the fulfillment rate in those provinces.

Survey data suggests that 66.6% [ph] of shippers have taken the initiative to raise their rating scores since the systems launch. Going forward we will further refine the system based on our user feedback.

Additionally, in response to the widespread COVID recurrences we added a pandemic prevention reference function on the trucker side of the platform, enabling instant checking of pandemic prevention policies in regions where cargo will be loaded and unloaded.

This feature allows truckers to review relevant local requirement before responding to shipping orders and ensuring smooth shipments to the extent possible. We also unveiled a function to remind shippers to factor in few price fluctuations when setting freight fee allowing shippers and truckers to communicate efficiently.

These features ensure efficient other matching, while protecting truckers rights and interest. To further come back the pandemic, we rolled out an anti-pandemic consistent function on the platform in early May. This new function prioritized displays and recommendations of relevance anti-pandemic products to truckers.

It helps better direct more pandemic relief related traffic to shippers and facilitates trouble-free transportation channels for daily necessities in the effective areas.

At the same time, we are utilizing our platforms, operating matters and subsidies to alleviate pressures on shippers facing serious shortage of transportation capacity in certain areas. By reallocating and deploying surrounding trucker capacity we help complete shipments as efficiently as possible.

Now I'd like to provide a brief overview of our 2022 first quarter financial results. Our total revenue in the first quarter were RMB1.3 billion representing an increase of 53.7% year-over-year primarily attributable to an increase in revenue from freight matching services.

Revenues from freight matching services including service fee from freight brokerage model, membership fees from listing model and commissions from online transaction services were RMB1.1 billion in the first quarter representing an increase of 60.9% year-over-year, primarily attributable to an increase in revenue from freight brokerage service, as well as rapid growth in transaction commissions.

Revenue from freight brokerage service in the quarter were RMB662.4 million, representing an increase of 48.4% year-over-year primarily driven by significant growth in transaction volume.

The revenue from freight listing service in the first quarter were RMB198 million, up 21.2% year-over-year, primarily attributable to an increase in total paying members amid increased shipper demand for our services as our business continued to expand.

Revenue from transaction commissions amounted to RMB258.2 million in the first quarter, an increase of 202% year-over-year, primarily driven by a rapid ramp-up of commissioned GTV penetration.

Revenues from value-added services in the first quarter were RMB214 million, an increase of 24.4% year-over-year, mainly attributable to increased revenues from credit solutions. Cost of revenues in the first quarter was RMB683.9 million, compared with RMB412.8 million in the same period of 2021.

The increase was primarily attributable to an increase in VAT related tax surcharges and other tax costs, net of tax refunds from government authorities.

These tax-related costs net of refunds totaled RMB598.3 million, representing an increase of 65.8% from RMB361 million in the same period last year, primarily due to an increase in transaction activities involving our freight brokerage service.

Sales and marketing expenses in the first quarter were RMB192 million, compared with RMB170.4 million in the same period last year.

The increase was primarily due to an increase in salary and benefits expenses driven by an increase in sales and marketing headcount, partially offset by a decrease in advertising and marketing expenses as well as a decrease in share-based compensation expenses.

G&A expenses in the first quarter were RMB458.4 million, compared with RMB322 million in the same period last year. The increase was primarily due to an increase in salary and benefit expenses driven by higher headcount in general and administrative personnel, and an increase in share-based compensation expenses.

R&D expenses in the first quarter were RMB221 million, compared with RMB138 million in the same period last year. The increase was primarily due to an increase in salary and benefits expenses driven by higher headcount in the R&D personnel.

Loss from operations in the first quarter was RMB252 million, compared with RMB201.9 million in the same period last year. Net loss in the first quarter was RMB192 million, compared with RMB197 million in the same period last year.

Under non-GAAP measures, our adjusted operating income in the first quarter was RMB133.2 million, an increase of 20.3% from RMB110.7 million in the same period last year. Our adjusted non-GAAP net income in the first quarter was RMB189.7 million, an increase of 68% from RMB112.9 million in the same period last year.

Basic and diluted net loss per ADS were RMB0.18 in the first quarter, compared with RMB2.09 in the same period last year. Non-GAAP adjusted basic and diluted net income per ADS were RMB0.17 in the first quarter, compared with non-GAAP adjusted basic and diluted net loss per ADS of RMB0.70 in the same period last year.

As of March 31, 2022, the Company had cash and cash equivalents, restricted cash, and short-term investments of RMB25.3 billion in total, compared with RMB26 billion as of December last year. In the first quarter of 2022, net cash used in operating activities was RMB96.3 million.

Looking at our business outlook for second quarter, we expect our total revenue to be between RMB1.56 billion and RMB1.64 billion representing a year-over-year growth rate of approximately 39.4% to 46.3%, despite the impact of the COVID outbreaks on transaction volume for the period.

These forecasts reflect Company's current and preliminary views on the market, operational conditions, and the uncertainties caused by the current COVID outbreaks, including the geographic scope and duration of the outbreaks.

The additional restrictive measures that the governmental authorities may take, and the further impact on the business of shippers, truckers and other ecosystem participants, which are subject to change and cannot be predicted with reasonable accuracy as of the date hereof.

To summarize, we had a solid first quarter marked by steady growth across our primary operation and financial metrics. Our success can be attributed to years of devotion to building a cutting edge digital freight platform, a highly engaged user base and improves monetization capabilities.

We have entered an exciting new era where digitalization transformation is taking shape as we speak. Consequently we will continue to forge ahead with our user centric growth strategy, invest in technologies, improve our top line and focus on driving value for all of our users, investors and shareholders. That concludes our prepared remarks.

We will now like to open the call to Q&A. Operator, please go ahead..

Thank you. [Operator Instructions] The first question today is from Ronald Keung with Goldman Sachs. Please go ahead..

[Foreign Language] Congratulations on the results management. I want to ask about the platforms, fulfill GTV and number of orders maintained year-over-year growth in the first quarter. But it's around – it's a quarter-over-quarter decline compared with the fourth quarter.

So want to hear the reasons, major factors and also how should we think of the second quarter of GTV and order volumes into the second quarter? Thank you..

[Foreign Language] In the first quarter, the platform for GTV and number of orders both maintain the year-over-year growth, mainly benefiting from the sustained increase in our shipments and stronger network sec.

With the enhancement and improvement of product features and user experience we are seeing more and more shippers relying on the FTA platform for shipment, and these users have extremely high retention rate.

In the first quarter the rolling 12-month retention of our paying shippers and next month's retention rate of trackers responding to others both based at around 85%. Such high levels of user business, while new user registration is suspended clearly demonstrated FDA's stable marketing position in the FTA industry..

[Foreign Language] So in terms of the quarter-over-quarter trend, the shipment volume in the first quarter was mainly affected by the following factors. First, first quarter is traditionally the slow season especially during the spring festival when shipment volume is usually at the lowest point in a given year.

And secondly, the suspension of new user registration still affected business in a quarter.

So since mid-to-late March we are seeing the pandemic resurgence resulted in highway closures and traffic controls in some cities which severely impeded trucker's fulfillment capabilities leading to an imbalance of supply and demand with fewer truckers available for shipment..

[Foreign Language] Despite the impact of multiple external factors, we remain committed to enhancing user experience and operating efficiency.

Regarding the algo capability building in the first quarter we improved our product based on various matching, such as sorting and accurate recommendations, addressing certain mismatches between the order placement and shipment capacity and elevating overall matching efficiency.

In terms of operations, our operational team provided guidance to users on resuming work after the spring festival, which increase the shippers and truckers activity level..

[Foreign Language] As for the second quarter, the lingering COVID operates in various regions nationwide resulted in different levels of traffic control, significantly impacting the logistics industry.

Since May – since mid-April we have noticed a gradual recovery of industry logistics and platform capacity but it may take a while before returning to the pre-pandemic levels..

Thank you. Next question please..

Next question today comes from Charlie Chen with China Renaissance. Please go ahead..

[Foreign Language] Thanks management to taking my question. I have some question regarding the commission business.

So first of all, how did commission business progress in the first quarter and also year-to-date including commission penetration and the commission rate? And also were commission business impacted by the pandemic situation? And what is the company's commission plan going forward? Thank you..

Thank you. This is Simon here. I'll address the question in English directly. So our commission's revenue in Q1 reached about RMB258 million, this was largely only to an increase in commission rates.

As of the end of March, we have extended our commission model to 195 cities, but as it said due to the pandemic the average freight matching time increased quarter-over-quarters that's slightly lowering our commission penetration sequentially.

Since the end of last year we have launched tiered commissioning by matching time, which has now been fully adopted in all regions where we operate. To some extent matching time reflects the popularity – so-called popularity of the other placement, and truckers are more receptive to commissions charged for those more popular orders.

Our user survey data indicate that overall commission and feedback has been improving since Q1, which is also the main driver behind the continuous increase in commission rate. In addition, we adjust our commission strategy flexibly based on the changes in supply and demand dynamics.

For example, at the end of Q1, we adopted a commission free strategy for freight that were labeled pandemic supplies to ensure the supply of those materials to areas hit by the pandemic is sufficient.

Going forward, we plan to steadily increase the commission rate as well as the commission penetration by improving the overall trade matching efficiency because the commission charged essentially represents our platform's value and services.

We will remain devoted to providing additional value-added services and improving product functions for our truckers, continually enhancing the user experience as we develop our commission business..

Next question comes from Brian Gong with Citi. Please go ahead..

[Foreign Language] I’m now translating myself. Thanks management for taking that questions. My question is related to entrusted shipment program [indiscernible]. Thank you..

Yes, the line was breaking a little bit, but I'll try my best to address your question. So after nearly a year of refinement and functional improvement, as of mid-May this year, we have achieved a nationwide coverage with our entrusted shipment program.

Although there were mounting external challenges, including the COVID outbreaks, suspension of new user registration these all affected shipment volume. The program’s average fulfilment rate is still significantly higher than other type of matching services.

The advantage of the entrusted shipment program lies in its platform lab pricing, which typically results in a higher matching certainty and faster matching. We also sort other placement by prioritizing high quality trucking resources to ensure the service quality.

In addition, we have a dedicated customer service team equipped to provide various services such as scheduling order reviews and manual matching when it's necessary. These value-added services also created additional commissioning opportunities.

Up to now the entrusted shipment program’s commission business has achieved a nationwide coverage with overall program in line with our expectation. The successful launch of the program enable us to further improve our user ecosystem and optimize user composition.

Going forward, we'll continue to optimize our products and services by categorizing our transportation resources to allow more high quality truckers to join the program, enhance service quality, and user experience and increase user stickiness on the platform, eventually raising the overall matching efficiency..

The next question comes from Jiulu Li with CICC, please go ahead..

[Foreign Language] This is Jiulu Li from CICC. And thanks for taking my questions. I have two questions here. The first one, what's the progress of the new business, including LTL and intra-city in first quarter. The second one we have recently noticed that some media reported that FTA will resume new user registration.

Does this mean the cybersecurity review is coming to an end? Thank you..

Thank you. On the first question, first of all, because new user registration has not yet resumed, so we do not extend our intra-city business to more regions in the quarter. For those pilot cities, we have already entered our intra-city business to remain stable over the quarter despite the impact from the pandemic.

Monetization in those cities also progressed smoothly. In Q1 the transaction commission combined with membership fee contributed to a positive growth margin in those cities, proving the sustainability of our business model. Going forward as new user registration resumes, we plan to extend steadily to meet shippers’ one-stop shipping demand.

On LTL currently we are mainly exploring in the dedicated line model. This is a franchise model that integrates offline dedicated line transportation capacities, where the shippers pay and order online with our platform. And we dispatch the orders to franchise dedicated lines responsible to fulfill those orders, as well as the LTL, last mile delivery.

In Q1 the Chinese New Year and the COVID outbreak both impacted the LTL business model. However, as we kept improving our operational efficiency and refining the economic model, the gross margin of the LTL business in those private [indiscernible] is consistently improving.

Regarding your second question, unfortunately, we're not able to comment on any such media post. We will update the market on any material progress through public disclosures. We have been incorporating actively with the Cyber Security Review Office of the CAC throughout the review process.

Going forward, we will continue to work with the CRO to comply with the regulatory requirement and remain committed to protecting our platform’s cyber security by implementing effective measures..

And that concludes the question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments..

Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Full Truck Alliance directly or TPG Investor Relations. Our contact information for IR in both, China and U.S. can be found on today's press release. Have a good day. .

This conference has now concluded. Thank you for attending today's presentation..