Ladies and gentlemen, good day and welcome to Full Truck Alliance's First Quarter 2023 Earnings Conference Call. Today's conference 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 this forward-looking information, 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 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 today on our first quarter of 2023 earnings conference call. We are pleased to deliver another strong quarter of growth to kick-off 2023, boosted by China’s economic rebound as the pandemic subsided.

In particular, we experienced a sizable pick-up in activity following the Spring Festival in January.

The improved user activity among truckers and shippers and sustainable growth across our businesses further accelerated our monetization efficiency in the first quarter, illustrating the unique appeal of our business model, while paving the way for our rapid business expansion and achievement of our long-term strategic goals.

[Foreign Language] Now, a detailed look at our first quarter performance. Our peak daily fulfilled orders and active user numbers jumped to an historic high during the quarter.

The number of fulfilled orders and the average shipper MAU reached 30.3 million and 1.75 million, respectively, up by 20.5% and 23.3% year-over-year, with an increasing contribution from high-quality direct shippers. Beyond that, both our top line and bottom line once again beat market expectations in the first quarter.

Our total net revenues grew by 27.7% year-over-year to RMB1.7 billion, and under non-GAAP measures, our adjusted net income surged by 171.4% year-over-year to RMB514.8 million in the first quarter.

[Foreign Language] Given that users’ rights and interests are always one of the company’s top priorities, we made significant efforts to further develop our user rating systems and strengthen our hierarchical mechanism to improve user experience during the quarter.

Going forward, we will continue to accelerate the implementation of our operational strategies, which we believe will boost order matching efficiency and create more revenue for quality truckers while simultaneously enhancing our user stickiness.

[Foreign Language] Looking at the rest of the year, we plan to implement more active user acquisition strategies, consistently reinforce, and enrich our products and services for direct shippers, and bolster the activity and stickiness of our users on the platform, positioning the company to advance our long-term growth in both user scale and freight volume.

At the same time, we are prioritizing the expansion of our platform’s scale advantages, refining its operational process, and harnessing its core competitiveness in terms of freight matching, freight capacity allocation, and freight rate management, with the goal of creating greater value for users and building a healthy and stable ecosystem for our platform.

[Foreign Language] Next, I’d like to provide an update on our share repurchase program. Pursuant to our US$500 million share repurchase program announced in March 2023, as of May 21, 2023, we had repurchased approximately 5.6 million ADS in aggregate for approximately US$37.4 million from the open market.

Even in the current sluggish capital market environment, we are optimistic about the company’s long-term vision and development strategy, and will continue to reward our shareholders through share buybacks. [Foreign Language] Lastly, earlier today, we announced a change to our Board. Mr.

Wenjian Dai resigned from his position as a member of the company’s Board of Directors for personal reasons. Mr. Langbo Guo, our former Chief Strategy Officer, was appointed as a new director to fill the vacancy, and was simultaneously promoted to President of the company. Mr.

Guo will assume greater responsibilities in certain of our middle and back-office functions and business operations. Ms. Guizhen Ma, our current director of the Board, will take over Mr. Dai’s previous responsibilities as a member of our compensation committee. We would like to express our most sincere gratitude to Mr.

Dai for his invaluable contribution to FTA over the years and look forward to Mr. Guo adding great value in his new position. Thank you, everyone. With that, I will turn the call over to our CFO, Simon to elaborate further on more progress for the quarter and go over our operational and financial results in more detail. Simon, please go ahead..

Thank you, Mr. Zhang, and hello to all of you. I would like to thank everyone for joining us today on our first quarter 2023 earnings call. I will start with operational highlights and then provide a brief overview of our key financials. Our fulfilled orders grew by 20.5% year-over-year in the first quarter, outpacing our expectations.

Breaking down the monthly data, if we exclude the low demand during the Chinese New Year period, our platform’s order volume showed a steady upward trend month-over-month. It is worth mentioning that our order volume increased by more than 30% for the month of March, marking a record high.

This better-than-expected performance was mainly attributable to ongoing improvements in user scale and activity. In particular, we noted a significant rebound in truckers’ engagement, which even exceeded pre-pandemic levels. Let me dig into the details.

Transportation costs for truckers decreased during the quarter as the pandemic’s impact eased and impediments to transportation were eliminated. On top of that, the resumption of new user registration over the past six months has largely alleviated the shortage of truckers we observed last year.

Thanks to our effective new initiatives and product optimizations designed to enhance user experience, as well as new user acquisitions, our user retention rate and engagement level continued to improve. We have also noticed that the industry’s competitive landscape has undergone some major changes due to the pandemic over the past two years.

As offline models became inefficient and inaccessible for users during the pandemic, a growing number of truckers and shippers turned to online transactions and have not looked back.

As a result, our market share in the spot FTL transportation market has increased significantly, and the network effects of our leading market position have become more pronounced. Turning to our fulfillment rate. The robust recovery in [carrier supply] [ph] has made it much easier for shippers to find truckers, hugely improving matching efficiency.

Our average fulfillment rate for the first quarter reached 28%, a year-over-year increase of 6 percentage points and a quarter-over-quarter increase of 4 percentage points. In March, the fulfillment rate reached 30%, another historical record for us. The reduction in our matching time also reflects matching efficiency improvement.

After a year of elevated levels, our median freight matching time returned to single digits during the first quarter, falling to about 8 minutes.

Furthermore, in the first quarter, the order contribution from our non-negotiation based transactions, such as tap-and-go, entrusted shipment models and others surged to record highs, improving overall matching efficiency.

We are very pleased to have achieved record-breaking performance amid high macroeconomic uncertainty and a low economic recovery, further strengthening our confidence in our long-term sustainable growth prospects and resilience of China’s macroenvironment. Now, moving on to our users.

We strategically capitalized on the strong growth momentum from the fourth quarter last year to further broaden the scale of our user base during the first quarter, driving our first quarter average shipper MAUs to [1.78 million] [ph], up approximately 23% year-over-year. March average shipper MAUs reached 2 million, also an all-time high.

Expansion of both our 688 member and non-member user bases since the resumption of user acquisition last year has resulted in further optimization of our user composition. In the first quarter, the contribution from 688 members and non-paying members by number of fulfilled orders increased by 5 percentage points year-over-year, reaching 45%.

Notably, our 688 members’ average fulfillment rate in the first quarter was close to 50%. Going forward, we expect continued improvement in our platform’s overall fulfillment rate as order contribution from low to medium frequency shippers increases.

On the trucker side, our average trucker MAUs responding to orders increased by more than 10% year-over-year in the first quarter, with [3.55 million] [ph] active truckers fulfilling orders in the past 12 months.

Additionally, our 12-month rolling retention rate of shipper members and next-month retention of truckers who responded to orders remained high at around 85%.

To further boost our leading position, we promoted our brand and increased our online exposure and recognition via various media such as App stores and short video platforms while also amplifying our offline marketing efforts through our local sales team, and attracted a sizable number of new high-quality users as a result.

We believe China’s huge SME community offers a significant opportunity to add new direct shipper users, particularly 688 members, to our platform.

Accordingly, we plan to invest more resources and explore innovative ways to support our SME development, increase stickiness among our existing users, and appeal to more high-quality direct shippers, with the goal of optimizing our user composition with a greater proportion of 688 members. Now, a quick look at our trucker growth system.

After a trial period of just over five months, the trucker growth program we announced last quarter now covers all truckers on our platform. As part of this program, we introduced priority rights to certain qualified truckers with early access to high-quality freight information.

Our users immediately embraced the new feature, which continues to gain wide recognition of the truckers. Last, let’s turn to our online transaction services. Revenue from our commission model reached RMB401 million this quarter, representing an increase of 55.3% year-over-year.

This robust growth was primarily driven by our sustainable growth in the number of fulfilled orders combined with an increase in commission per order. We are also testing different commission strategies in a small group of selected cities.

The model now covers 204 cities and nearly 59% of the transactions fulfilled through us, with an average commission per transaction of RMB22.5. Now, I would like to provide a brief overview of our 2023 first quarter financial results.

Our total net revenues in the first quarter of 2023 were RMB1702.3 million, representing an increase of 27.7% year-over-year, primarily attributable to an increase in revenues from freight matching services.

Revenues from freight matching services, including service fees from freight brokerage models, membership fees from listing models, and commissions from online transaction services, were RMB1,397.5 million in the first quarter, representing an increase of 24.9% year-over-year, primarily due to an increase in revenues from freight brokerage service as well as continued growth in transaction commissions.

Revenues from freight brokerage service in the first quarter were RMB772.6 million, up 16.6% year-over-year, primarily attributable to continued growth in freight volume as a result of expanded user coverage.

Revenues from freight listing service in the first quarter were RMB223.9 million, up 13.1% year-over-year, primarily due to an increase in total paying members.

Revenues from transaction commissions amounted to RMB401 million in the first quarter, up 55.3% year-over-year, primarily driven by an increase of order volume, as well as an uptick in transaction commission per order.

Revenues from value-added services in the first quarter were RMB304.8 million, up 42.4% year-over-year, mainly attributable to an increase in revenues from credit solutions and other value-added services. Cost of revenues in the first quarter was RMB849.4 million, compared with RMB683.9 million in the same period last year.

The increase was primarily due 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 RMB766.4 million, representing an increase of 28.1% year-over-year, primarily due to a continued increase in transaction activities involving our freight brokerage service. Sales and marketing expenses in the first quarter were RMB245.7 million, compared with RMB192 million in the same period last year.

The increase was primarily due to an increase in advertising and marketing expenses for user acquisitions. General and administrative expenses in the first quarter were RMB179.5 million, compared with RMB458.4 million in the same period last year. The decrease was primarily due to lower share-based compensation expenses.

R&D expenses in the first quarter were RMB229.9 million, compared with RMB221.0 million in the same period last year. The increase was primarily due to higher salary and benefits expenses. Overall, the income from operations in the first quarter was RMB165.8 million, compared with a loss of RMB252.0 million in the same period last year.

Net income in the first quarter was RMB411.4 million, compared with a net loss of RMB192 million in the same period last year. Under non-GAAP measures, our adjusted operating income in the first quarter was RMB272.4 million, an increase of 104.4% from RMB133.2 million in the same period last year.

Our adjusted net income for the first quarter was RMB514.8 million, an increase of 171.4% from RMB189.7 million in the same period last year. Basic and diluted net income per ADS were RMB0.38 in the first quarter, compared with basic and diluted net loss per ADS of RMB0.18 in the same period last year.

Non-GAAP adjusted basic and diluted net income per ADS were RMB0.48 in the first quarter, compared with RMB0.17 in the same period last year.

As of March 31, 2023, the company had cash and cash equivalents, restricted cash, short-term investments and long-term deposits of RMB25.8 billion in total, compared with RMB26.3 billion as of December 31, 2022. In the first quarter of 2023, net cash provided in operating activities was RMB86.8 million.

Looking at our business outlook for the second quarter of this year, we expect our total net revenues to be between RMB1.91 billion and RMB2.01 billion, representing a year-over-year growth rate of approximately 14.5% to 20.5%.

These forecasts reflect the company’s current and preliminary views on the market and operational conditions, which are subject to change and cannot be predicted with reasonable accuracy as of the date hereof. That concludes our prepared remarks. We would now like to open the call to Q&A. Operator, please go ahead..

Thank you. [Operator Instructions] Today's first question comes from Ronald Keung with Goldman Sachs. Please go ahead..

[Foreign Language] Thank you management. In the first quarter, we saw fulfilled orders grew over 20% year-on-year, so much faster than broader freight market and the macroeconomic recovery. So, what are the main drivers reasons behind that? And how should we expect the fulfill order growth to trend in the second quarter? Thank you..

First, the pandemic's impact largely eased in the first quarter and truckers travel was no longer restrictive. And second, perhaps more importantly, we have observed that a considerable number of users have migrated from offline to online.

Throughout user interviews, we have learned that in the current market condition, truckers and shippers in the spot FTL [transportation market] [ph] both refer to transact online.

In other words, compared with offline matching, the market share of online freight matching has significantly increased as the market leader in the online freight matching services, we obviously benefit the most from this trend and we expect it to continue going forward.

Internally, since mid-last year, our continued efforts in user acquisition have also been paid off. Our new users are mostly small-to-medium frequency shippers who are typically direct shippers and who contribute high quality orders.

In the first quarter, roughly 48% of the fulfilled orders came from those low-to-medium frequency shippers and this number increased from roughly 40% about a year ago and we expect that number to keep rising. In addition, we continue to enhance our matching capabilities and the algorithm.

For example, during the first quarter, we improved the platform shipment, origin and destination address infrastructure and broadens the overall coverage of accurate address down to street numbers. That boost truckers willingness to take orders, as well as our fulfillment capabilities and reduced potential disputes.

When we look into second quarter, we expect the number of fulfilled orders to maintain the rapid growth momentum and we expect the number of fulfilled orders to increase about 40% in the second quarter and the year..

Thank you management..

Thank you. And our next question today comes from Jiulu Li with CICC. Please go ahead..

[Foreign Language] The 28% fulfillment rate in the first quarter marks a significant increase both year-over-year and quarter-over-quarter, what are the main reasons behind the increase and what's your fulfillment rate target for the second quarter? Thanks..

Thank you. The improvement in fulfillment rate in the first quarter was mainly attributable to the change in supply and demand dynamics.

Starting this year, the impact of insufficient trucker supply, which is a bit headache for our shipper users over the past two years have been substantially alleviated with more truckers available, it becomes easier for our shippers to find a match, and without increasing the overall fulfillment rate.

The optimization of user composition also contributes to the increase of fulfillment rate. Ever since we resumed our user acquisitions during the middle of last year, the proportion of direct shippers has continued to rise, both in terms of monthly active users and also other contribution.

Most of our low and medium frequency shippers are direct shippers with a fulfillment rate close to 50%. Therefore to continuously increase contribution from direct shippers will further drive fulfillment rate growth.

Looking into second quarter, we expect that the increased proportion of direct shippers and further expansion of FDA's market share in the spot FTL transportation market, the fulfillment rate will continue to grow building our first quarter's momentum..

That’s very helpful..

Thank you. And our next question today comes from Charlie Chen at China Renaissance. Please go ahead..

[Foreign Language] In the first quarter, the growth of revenue from freight brokerage business slowed, compared with previous quarters, what are the main reasons for that? And also could you please share some color on the operational strategies for your flat brokerage business? Also have you witnessed any changes in tax refund policies recently? Thank you..

Thank you. The freight brokerage service we provided to shippers, mainly with first two situations where the platform enters into shipping contracts with shippers. And others are fulfilled by truckers matched by the platform on an entrusted basis or truckers designated by shippers themselves.

We assume the role of freight brokerage and provides VAT invoices. Beyond that, the platform also offers shippers protection against truckers demand for fee increases and delays, as well as cargo damages to certain extent. Upon the fulfillment of the orders, the shippers pay service fees to us.

The service fees we charge for freight brokerage services are based on the percentage of shipping fees, which was approximately 6% for the first quarter, also one of the highest in the industry.

We regard the freight brokerage as the business lines are in [indiscernible] users stickiness, the strategic significance lies in increasing to dependence and frequency of shippers on the FDA platform. Our data also shows that shippers who use freight brokerage service tend to ship more frequently.

And currently there's a huge demand for this service from shippers, while the user penetration is relatively low and leaving plenty room for adjustment. Going forward, we encourage freight brokerage users to post more matching orders and thus increasing the overall profit contribution after versus rather simply focus on increasing the revenue scale.

And moreover, the freight brokerage business service involves a number of contractual shipping loggers, which helps us gain a full picture of shippers, completely beyond just on-demand need. Regarding the tax reform policies, we have not received any notices from regulations regarding a tax rebate rollback.

And we have multiple corporate and tax sources and we're taking a flexible approach to adjust tax sources as the market evolves. As we only get partial refund for the VAT and other taxes we pay, the central and local government keeps majority of the tax we contributed, which is consistent with national policy guidance.

In the future, as the tax system has upgraded, the local governments will also welcome us given our strict risk controls and the contribution to the local GDP. This positions us the leading player in the market, setting the bar for other online freight platforms and gradually raising the industry standard.

Furthermore, if there were any extreme case required together with all other freight brokerage players to adjust or otherwise terminate the freight brokerage business, the impact on our overall profit will be minimum as our profit growth contributions comes mainly from our commission business.

And lastly, considering that freight brokerage requires FDA to advance [DAT payments] [ph] on behalf of shippers and to wait for a refund, we will carefully manage its growth rate to reign in the impact on cash flow going forward..

Thank you very much..

Thank you. Our next question today comes from Brian Gong with Citi. Please go ahead..

[Foreign Language] I will translate myself.

In the first quarter revenues from transaction commission surged over 55% year-on-year, may I know what are the key drivers behind that? And also, we noticed that China's Ministry of Transport recently released a work plan, the amounting platforms to lower the signing of excessive commissions, will this affect FDA's commission strategy in the future? Thank you..

Thank you. These are all very important questions. The growth in revenue from transaction commissions in the first quarter was primarily attributable to the robust growth in the platform's overall order volume. Our commission orders increased by roughly 38% year-over-year in the first quarter.

Our business team makes dynamic adjustments to commission rates and penetration based on platforms [real time] [ph] order volumes to strike a balance among the increase in commission revenue, user activity growth, and business scale improvements. The user base and order intensity continue to rise.

We plan to further expand the coverage of commission orders and prudently increased the overall commission rate.

Regarding the recent proposal from the Ministry of Transportation for a reduction in excessive commission for transmission platforms, we understand this is a follow-up [enhancement] [ph] to the operation [indiscernible] policy implemented last year.

This proposal strives to achieve the same goal, mainly to further safeguard the rights and interest of users in a transparent and open environment. Our commission rate is at very low level and in fact significantly lower than other freight platforms. We do not expect the company's operation to be impacted by this proposal..

Thank you..

Thank you. And our next question comes from Cherry Leung with Bernstein. Please go ahead..

[Foreign Language] Can you please provide an update on the progress of your new user acquisition? What are the key focuses of your new user acquisition strategy on the side of shipper and truckload respectively? Thank you very much..

Thank you. In the first quarter, our overall progress in new user acquisition generally met our expectations. We implemented different acquisition strategies targeting shippers and other truckers.

The shipper side, as previously mentioned, we have promoted our brands and platform through various online and offline channels, attracting more high quality direct shippers as a result. As you know, China has over 30 million SMEs who may require FTL shipments. All of whom are our potential shipper customers.

Therefore, we will remain devoted to offering various transportation capacity solutions and meeting shippers involving logistics needs for us to consistently improve our penetration rate amongst those direct shippers.

As for truckers, we already covered most of the heavy duty trucker drivers in China and we are expanding our reach to smaller trucks at the pandemic subside and just transportation activities resumes. On top of online new user acquisition, we also focused on reactivating dormant truck drivers leveraging our ongoing capability.

We identified dormant drivers with the potential to return to our platform and operating incentive to reactivate them.

In addition, we have formed co-operation with offline service areas set-up trucker service stations and temporary service points and provided care packages for truckers to peak freight logistics period to help truckers enjoy short breaks and supply and increase their comfort while traveling.

These amenities enhance truckers the sense of belonging on our platform, while also attracting new truckers to FDA. And looking forward, we continue to attract more high quality truckers and shippers sustaining our growth in both user scale and transaction volume on a platform..

Thank you. 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 the U.S. can be found in today's press release. Have a good day..

Thank you. This 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..