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spk06: Ladies and gentlemen, good day and welcome to Full Truck Alliance's fourth quarter and fiscal year 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.
spk04: 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 Formulability as established by the U.S. Private Securities Mitigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainty, 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 business and financial results is included in certain findings of the company with the FDC. 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 Tai, 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.fulltrackalliance.com. I will now turn the call over to our founder, chairman, and CEO, Mr. Zhang. Please go ahead, sir.
spk02: Hello, everyone. Welcome to the 4th quarter of Banbang in 2023. We are very happy that the 4th quarter has given us a brilliant result and set a perfect goal for 2023. In the external environment of the crisis and challenges in 2023, we are facing a big trend in the supply and delivery industry. Hello everyone, thank you for joining us today on our fourth quarter and fiscal year of 2023 earnings conference call.
spk04: We are thrilled to report another quarter of stellar results for the fourth quarter of 2023, closing out the year on a strong note. Despite the challenges and opportunities present in the external environment, we have adeptly navigated the prevailing trend of efficiency enhancement and cost reduction in the freight industry. By embracing the digital transformation of China's road freight sector, we have positioned ourselves as the leader in online digital and intelligent logistics solutions, effectively replacing traditional offline logistics with our core cost-saving advantage. Through continuous enhancements to our product features and operating efficiency, we successfully deepen our penetration among direct shippers. We are committed to becoming the preferred shipping gateway for tens of millions of small and medium-sized shippers empowering enterprises with greater logistics competitiveness and improved profitability.
spk02: In this quarter, our key operating indicators, stable growth, are reflected in the size of users, product operations, supply and demand, and one-time service. In terms of user size, the delivery and delivery group has reached 2.24 million people, which is nearly 19% of the total growth, which is a historical high. This quarter, the number of direct delivery groups In terms of product operation, we have provided new users with advanced delivery and efficient delivery of product functions, effectively reducing the threshold of new users' use, and further promoting the rapid growth of new users. In terms of supply and demand, we have upgraded the actual split operation system, through full-fledged signing and competition matching, and continuous optimization of sales efficiency. The size of the transport and the annual capacity of the driver also continue to improve. In terms of the service of the station, our full-fledged transport, financial insurance, energy, ETC, and other real-estate business penetration rate continues to expand. At the same time, the transportation business has formed a joint effect to jointly improve the annual capacity and satisfaction of the driver. These achievements have further proved our network effect and growth momentum, and continue to push the public transport market from the traditional offline mode to the efficient digitalized new mode.
spk04: In the fourth quarter, we witnessed steady improvements across key operational metrics, spending user base, product operation, transportation capacity supply, and one-stop services. Our average shipper MAUs reached an all-time high of 2.24 million, representing nearly 19% year-over-year growth. Notably, the scale of direct shippers continued to increase during the fourth quarter, with their proportion of fulfilled orders surpassing 45% for the first time, reflecting a significant shift toward more efficient and cost-effective online channels. For product operations, we further refined and streamlined shipping and efficient fulfillment product features for new direct shippers, facilitating their onboarding and driving robust growth. With respect to trucker supply, we upgraded our tiered trucker rating system consistently optimizing transaction efficiency through incentive-driven offering and precise matching, while continuously expanding the supply of trackers and elevating user thickness. Additionally, for our one-stop service, our value-added services such as freight brokerage service, credit solutions, and insurance, energy services, and ETC saw continued penetration, synergizing with our transportation business, to enhance user satisfaction and stickiness. These achievements further boosted our network effect growth momentum, catalyzing the growth rate market shift from traditional offline models to an innovative, efficient, and digitalized future.
spk02: The net profit after adjustment under the same accounting standard of the United States has increased by 64.4%, reaching 7.3 billion yuan. In the future, we will continue to optimize the platform input structure and improve the transformation efficiency to create greater value for shareholders. On February 24, the fourth meeting of the Central Financial Committee emphasized that it is effective to reduce the cost of all social logistics. The production and consumption of logistics links is the foundation of the real-estate economy and will gain more attention and support. In such a large environment, we are confident that through digitalized logistics, we can further promote
spk04: Our strong business growth translated into exceptional financial performance, with revenues growing by 25.3% year-over-year to RMB 2.41 billion in the fourth quarter. Lungap adjusted net income increase by 64.4% year-over-year to RMB 733 million. Going forward, we remain committed to optimizing our revenue mix and enhancing monetization efficiency to create greater value for our shareholders. In February 2024, the fourth meeting of the Central Commission for Financial and Economic Affairs emphasized the importance of effectively reducing logistics costs throughout society. As logistics serve as the backbone of the real economy, it continues to garner increase attention and support. Within this strategic landscape, by leveraging digitalized logistics offerings, we are confident in leveraging digital logistics to further enhance logistics efficiency and reduce cost, creating greater value for both the industry and our users. Thank you. Let me pass the call over to our CFO, Simon, who will provide an update on our fourth quarter's business progress and financial results.
spk01: Thank you, Mr. Zhang, and thanks, everyone, for making the time to join our earnings conference call today. I will now provide an overview of our operational highlights and financial performance for the fourth quarter of 2023. We concluded the year with strong operational and financial results in the fourth quarter. Our fulfilled orders experienced a remarkable 40.4% year-over-year growth, driving quarterly average daily fulfilled orders to an all-time high. Despite the impact of the adverse weather conditions, fourth quarter order growth again outpaced the overall freight market, propelled by sustained scale expansion and increased activity of both shipper and trucker users. We set a new record in fulfillment rate at approximately 32% in the fourth quarter, an increase of more than eight percentage points year over year, and more than three percentage points quarter over quarter. From a supply-demand perspective, the quarter's increased supply of truckers, improved matching efficiency, across various transaction types, including negotiated orders, tap and go orders, entrusted shipments, and including long haul, full truckload, less than truckload, and short haul by distance range. Operationally, we continue to make progress with our tiered trucker operations strategy during the quarter. Initiatives such as our saving package 2.0 and truckers deposits helped strengthen our tiered truck rating management and enhanced fulfillment quality of truckers, thereby boosting retention among high-frequency active truckers. In terms of order structure, we sustained the growth momentum of direct shippers from the third quarter, with direct shippers contributing more than 45% of total fulfilled orders in the fourth quarter. We expect direct shippers' order contribution will continue to grow as their penetration increases, leading to additional improvements in our platform's overall order fulfillment efficiency. Regarding our user base, our average shipper MAUs reached a historic high of 2.24 million in the fourth quarter, up 18.7% year-over-year and 4.9% sequentially. This increase was primarily driven by rapid growth of our non-member, low-frequency direct shippers. Meanwhile, our 1688 and 688 member shippers' activity levels remained essentially stable year over year, given all types of shippers, whether it's professional shipper or direct shipper, have incentives looking for efficient shipping channels to lower their logistics costs. We expect this trend to continue with robust growth in our shipper user base through the year of 2024, primarily from low and medium frequency direct shippers. Our platform's strong and growing network effect drove parallel growth in both our trucker base and activity during the quarter. For example, the number of active truckers fulfilling orders through our platform over the past 12 months rose to $3.88 million. In addition, we've maintained our shipper member 12 months rolling retention rate, as well as our next month's retention of truckers who responded to orders on a sequential basis. In the fourth quarter of 2023, revenues from our online transaction commission amounted to RMB $644.8 million, up 44% year over year. This growth was fueled by the solid expansion in the number of fulfilled orders and the heightened commission penetration. Our commission model currently covered more than 59% of fulfilled orders and generated an average commission per transaction of RMB 23.7 during the quarter. It is important to note that historically we did not include revenues from our InterCity commission model in online transaction commission revenues Therefore, intra-city transactions were also included when calculating our commission penetration, resulting in an underestimation of overall commission model coverage. Moving forward, starting from 2024, we will rename our transaction commission revenue stream to transaction services, which consists of all monetization from truckers relating to freight matching services, including the revenue generated from our interest city business that was previously classified under the freight listing and value added services in order to better reflect the company's latest development status and the business nature of our revenues. Next, a brief update on our share repurchase program. From November 20th, 2023 to March the 6th, 2024, we repurchased approximately 7.9 million ADS shares totaling approximately US$52.7 million. Since we announced the program, we have repurchased a total of around 30.7 million ADS shares from the open market with a total value of approximately US$200 million. Now, our 2023 fourth quarter and year-end financial results. In the interest of time, I'll be presenting abbreviated highlights only We encourage you to refer to our press release issued earlier today for complete details. Total revenues for full year 2023 were RMB 8.4 billion, representing a 25.3% increase year over year. Net revenues for the fourth quarter were RMB 2.4 billion, representing a 25.3% increase year over year. Net revenues from freight matching services, including service fees from freight brokerage models, membership fees from listing models, and commissions from online transaction services were RMB $7,048.8 million for the full year of 2023, up 24.6% from 2022, primarily due to the rapid growth in transaction commissions as well as growing revenues from our freight brokerage service. Revenues from freight brokerage service reached RMB 3.9 billion for 2023, up 16.5% year-over-year. For the fourth quarter, net revenue increased by 19.2% to RMB 1.1 billion, primarily driven by an increase in transaction volume due to robust user demand. Revenue from freight listing service for RMB 929.4 million for the full year, up 9% year-over-year, and rose 10.4% year-over-year in the fourth quarter to reach RMB 246.2 million, primarily due to a growing number of total paying members. Revenues from transaction commissions amounted to RMB 2.2 billion in 2023, representing a 52.6% increase year-over-year. For the fourth quarter last year, net revenues amounted to RMB $644.8 million, representing a 44% increase year-over-year, primarily driven by strong order volume growth as well as higher per-order transaction commission. Revenues from battery-added services were RMB $1.4 billion in 2023, representing a 28.8% increase year-over-year. For the fourth quarter, net revenues increased to $392.2 million, representing a 27.3% increase year-over-year, mainly attributable to an increase in revenues from credit solutions and other value-added services. Fourth quarter cost of revenues was RMB 1,152.3 million compared with RMB 951.8 million in the prior year period. This increase was primarily due to an increase in VAT-related tax surcharges and other tax costs and net-off tax refunds from government authorities. These tax-related causes net-off refunds totaled RMB and $15.3 million representing an increase of 18.4% from RMB $857.4 million in the same period of 2022, primarily due to the continued growth in transaction activities involving our freight brokerage service. Our sales and marketing expenses in the fourth quarter were RMB $421 million compared with RMB 281.1 million in the prior year period. The increase was primarily due to an increase in advertising and marketing expenses for user acquisitions. General and administrative expenses in the fourth quarter were RMB 266 million compared with RMB 408.2 million in the prior year period. The decrease was primarily due to lower share-based compensation expenses and professional service fees. R&D expenses in the fourth quarter were RMB 255.3 million compared with RMB 250.2 million in the prior year period. The increase was primarily due to higher share-based compensation expenses and increased investment in technology infrastructure partially offset by a decrease in salary and benefit expenses. Income from operations in the fourth quarter were RMB $250.8 million compared with the loss from operation of RMB $5.3 million in the same period of 2022. Net income in the fourth quarter was RMB $588.3 million, an increase of 200.6% from RMB $195 in the same period of 2022. Under non-GAAP measures, our adjusted operating income in the fourth quarter was RMB 398.8 million, an increase of 60.6% from RMB 248.4 million in the same period of 2022. Our adjusted net income in the fourth quarter was RMB 733 million, an increase of 64.4% from RMB 445.8 million in the same period of 2022. Basic and diluted net income per ADS were RMB 0.58 in the fourth quarter compared with RMB 0.18 in the same period of 2022. Non-GAAP adjusted basic net income per ADS were RMB 0.7 in the fourth quarter compared with RMB 0.42 in the same period of 2022. Non-GAAP adjusted diluted net income per ADS were RMB 0.69 in the fourth quarter compared with RMB 0.42 in the same period of 2022. As of December 31st, 2023, our cash and cash equivalents, restricted cash, short-term investments, long-term time deposits, and wealth management products totaled RMB 27.6 billion compared with RMB 26.3 billion as of December 31st, 2022. For our first quarter 2024 business outlook, we expect our total net revenues to be between RMB 2.11 billion and RMB 2.16 billion. representing a year-over-year growth rate of approximately 23.9% to 27.1%. And this forecast reflects our 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.
spk06: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. At this time, we will pause momentarily to assemble our roster. The first question today comes from Ronald Keung with Goldman Sachs. Please go ahead.
spk07: Thank you, Chairman Zhang, for sharing with us. I would like to ask about the four-year interest rate. We see that it has reached a new high of 32%. The same rate has also increased by 8%. Thank you, management, for the sharing. I want to ask about a fulfillment rate. We've seen the record fulfillment rate of 32% in the fourth quarter. What are the key drivers behind? with the year-on-year increase and the sequential increase as well, and what is your expectation for fulfillment rate for 2024? Thank you.
spk01: Thank you, Ronald. In this quarter, we have seen a substantial improvement in the freight matching efficiency, which can be attributed to the rapid expansion of our user base on both ends and the scale effects generated as a result. So with more active shippers on the platform, we attract new trucker registration, ensuring a sufficient supply of transportation capacity to meet the diverse needs of shippers quickly. This dynamic cycle again lead to an influx of newly registered small and medium business owners. Specifically, the significant improvement in fulfillment rates in fourth quarter was driven by a number of positive factors. Firstly, the average trucker daily active user who were responding to orders increased by approximately 13% year-over-year in the quarter, resulting in an increase in effective supply on the trucker side, further balancing the supply and demand, and therefore increasing the probability of successful matches. And secondly, ongoing optimization of the shipper structure also led to an improvement in matching capability. The contribution of fulfilled orders from direct shippers increased by three percentage points year-over-year to over 45%, enhancing the overall quality of order listing and the certainty of order fulfillment. Another key factor is the continued improvement of the platform's pricing capabilities. Through big database and measurement, the platform can set reasonable recommended prices that are better aligned with the current market conditions, and further increasing the likelihood of transaction completion. And additionally, we have continued to create remarkable value adds to our users through the fulfillment process, such as disputes resolution and user rating, all of which have also contributed to the increase in fulfillment rates. Looking into the coming year, we will continue to attract more shippers and truckers by utilizing a multilateral market approach. to create and match more supply and demand, thereby maintaining a better balance between users on both sides. We also continue to encourage shippers to utilize transaction types such as entrusted shipment and tap and go, which more truckers are willing to respond to, while consistently optimizing the product function and improving data efficiency to drive even higher fulfillment rates. Also, as the user structure continuously shift towards direct shippers, we also anticipated further improvement in the fulfillment rate. Thank you.
spk07: Thank you.
spk06: The next question comes from Eddie Wang with Morgan Stanley. Please go ahead.
spk00: Good evening, Chairman Zhang and Chairman Simon. First of all, congratulations on the very strong performance. My question is about the growth of the four-week contract order. I see that the growth of the four-week contract order is still very strong, 40% year-over-year, and the year-over-year growth is also 33%. This is much faster than the increase of the entire supply chain. So I just want to ask, what are the main factors behind the growth of our platform's contract order? And what is our forecast for the growth of the entire contract order in 2024? I will translate it myself. Thank you, management, for taking my question. My question is regarding the fulfilled orders. We noticed that there's a 40% year-over-year of the fulfilled orders in the fourth quarter. And for the full year, last year, it was around 33% year-over-year. So this is significantly higher than the growth of the broad logistic market. So what's the major driver behind this strong growth? What's your expectation for field order volume growth in 2024? Thank you.
spk01: Thank you, Eddie. Since last year, the online penetration of the freight matching industry has shown very consistent growth. Our platform has maintained strong order volume growth over the past year, and mainly benefiting from the continued increase of new shippers improved activity level of existing users and continued improvement in matching efficiency as a result of operational strategy optimization. In the fourth quarter, we sustained our holistic user acquisition efforts across various channels, including App Store, information streams, and SEM, among others. Additionally, our leading network effect brought us a large number of new user registration through natural traffic. As of the end of December, we had an average of around 20,000 new shippers and 10,000 new truckers registering on our platform every day. Looking ahead to the coming year, we will continue to invest in branding and improve user acquisition efficiency by further exploring innovative user acquisition channels such as increasing offline truck stickers, advertisements, and promoting online mini-programs. At the same time, we'll optimize the conversion of registered users to active users through a series of effective operational tools. Also, this quarter brought more than just the growth of long-haul business. With our ongoing product functionality and operational efficiency optimizations, the less than truckload orders matched through our platform also grew rapidly in the past quarter. We believe that the online penetration rate of LTL remains considerably low at the moment, indicating there's still huge market opportunity to be unlocked. As we look into 2024, we will see new opportunities for growth as the trend toward direct shippers and LTL transactions continue to intensify. We anticipate continued high growth in our total fulfillment orders, not solely confined to the FTL market. Additionally, we anticipate making significant strides in new markets such as LTL and capitalizing on emerging opportunities. Thank you.
spk00: Thank you.
spk06: The next question comes from Charlie Chen with China Renaissance. Please go ahead.
spk03: Thank you for giving me this opportunity to ask a question. I would like to know about the progress in member service. We would like to see the trend of the number of members in the fourth quarter. We see that the growth of the revenue of the member fee is relatively slow. What is the main reason for the gap in the middle? Could you please provide me with an update on freight listing services, specifically the trend in the number of subscribing shipper members during the fourth quarter? It seems that the revenue growth of freight listing has been slower compared to the fast growth of monthly active shippers. Could you please explain the main reason behind the growth rate discrepancy? and provide us with an estimate of the expected membership growth for 2024. Thank you.
spk01: Thank you. The number of SHPR members remain largely stable in the fourth quarter with approximately 790,000 existing subscribing members as of December, a steady increase from last quarter end. Our shipper members have demonstrated strong retention and engagement with a 12-month rolling retention rate of over 80% since 2023. The recent membership growth has been primarily driven by two factors. Firstly, we have already achieved a high penetration rate among professional shippers, and we expect a number of shipper members from this segment to remain relatively stable in the future. We have observed a majority of the new shippers are low and medium frequency users, and the number of orders included in our 688 memberships exceeded their needs. In response, our operation team is actively formulating product strategies and exploring the development of packages that are more suitable for low frequency direct shippers. In addition, although direct shipper members contribute less revenue from our perspective, there are specific characters such as willing to accept higher freight rates and demonstrate a better fulfillment rate, provide us with a greater potential for cross-selling with online transaction services and value-added products. So in the long run, direct shippers will not only serve as the primary catalyst for future freight listing revenue growth, but will also present growth opportunities across other segments of our business.
spk06: The next question comes from with CICC. Please go ahead.
spk05: The same. I don't know. I don't know. I don't know. I don't know. I don't know. Okay, my first question is about the commission strategies. So what are the overall commission strategies for 2024? And in particular, what is your plan for commission rate and commission coverage improvement in 2024?
spk01: Thank you, Jielu. The substantial increase in our commission revenue in the past quarter was fueled by the rapid growth rate of the platform's overall orders. The number of commissioned orders rose by 41% year-over-year and nearly 10% from the third quarter. From an operational level, this quarter will continue to prioritize growth in users and order volume rather than just extending to additional cities under the commission model. By the end of 2023, our commission model had been successfully rolled out in 204 cities. In the meantime, we have also stress-tested higher commission parameters in randomly selected cities and verified the viability. Entering into 2024, we will maintain our prudent approach for our transaction service business. In addition, we will continue to enhance the value of our transaction services to users through ongoing product functionality improvement. For instance, we recently launched our Shenqingbao 2.0 Saving Package 2.0 product for truckers, which includes various privileges and protection features for those who subscribed. And truckers who purchase the Saving Package 2.0 will also receive discounts on future commissions as well as bonus order points. which they can redeem for additional benefits such as expedited deposit refunds. From a long-term perspective, we believe that our current commission rates are very conservative and that there is still ample room to boost our commission revenues in the future. Looking ahead into 2024, as the platform's network effects, strengthens, and users' reliance on our platform deepens, we expect that year-over-year commission revenue growth will remain strong and potentially surpassing the growth rate that we achieved in the past year.
spk05: Thank you. My second question is about It's mainly about our cost. We can see that the sales cost of non-GAAP in the fourth quarter is actually 50.6%. In fact, it's higher than the increase in the first three quarters we saw, including more than our income. 那么销售费用在这个季度比较高速增长的原因主要有哪些呢? 以及我们如果往后看2024年该怎么去预测销售费用的变动趋势是怎么样的? 那在这里我也翻一下。 My second question is that non-GAAP sales and marketing expenses increased by 50.6% year-over-year in the fourth quarter, outpacing revenue growth for the same period. what are the main reasons for the high growth in sales and marketing expenses in the quarter? How do you expect the sales and marketing expenses to trend in 2024? Thanks.
spk01: Thank you. The high growth rate of non-GAAP sales and marketing expenses in the fourth quarter was primarily due to the increase of investment in marketing to acquire new users both through online and offline channels, as well as our brand promotion to increase our brand awareness. Online, we mainly advertise through app stores, information streams, and search engine marketing, among other venues. And offline, we primarily acquire users through truck stickers and advertising and our field marketing teams. Moving into the coming year, we will continue to employ a very active user acquisition strategy to grow our user base and optimize our user structure. Our overall user acquisition strategy will continue to attract shippers and truckers to our platform via a combination of online and offline channels driving . In the longer run, we anticipate a continued increase in sales and marketing expenses aligned with the expansion of new business ventures. However, as our revenue quickly scale up, and especially as we optimize commission penetration and further improve the operating leverage, sales and market expenses will gradually decline as a percentage of total net revenues.
spk06: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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