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Q1 2023 Earnings Conference Call
spk00: 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.
spk08: Thank you, operator. Please note that today's discussion will contain full working statements relating to the company's future performance, which are intended to qualify for the safe harbor from last year's financial stability as established by the US private security litigation format. Such statements are not guaranteed of future performance and are subject to further 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 FT8's business and financial security results included the certain findings of the company with the FTC. The company does not undertake any obligation to update this form of information except as required by law. During today's call, management will also discuss certain non-GAAP financial measures or comparisons of the following. For a definition of non-GAAP financial measures and a reconsideration of GAAP to non-GAAP financial results, please see the earnings release issues earlier today. Joining us today on the call from FT8's senior management are Mr. Hui Zhang, our founder, chairman and CEO, and Mr. Simon Tsai, our CEO. Management will begin with prepared remarks and the call will conclude with the Q&A session. As a reminder, this conference is being recorded. In addition, a webcast replay of this call will be available on FT8's investor relations website at .footworkalliance.com. I will now turn the call over to our founder, chairman and CEO, Mr. Zhang. Please go ahead.
spk05: Hello, everyone. I am Zhang Hui. I welcome everyone to the first quarter of 2023 to attend the Man Bang business call. Since the beginning of 2023, the economy has been gradually recovering from the impact of the We are very happy that the beginning of 2023 has achieved a strong record of growth, especially after the Spring Festival in January, the number of users on our platform has been very strong. The double-point user activity has also continued to increase. The continuous expansion of each business platform has accelerated and improved our ability to adapt and once again confirmed the advantages of our business model. It has also reached a solid foundation for the rapid development and long-term development of our platform business in 2023. I am very happy that the beginning of 2023 has achieved a solid foundation.
spk08: 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 pick up 2023, boosted by China's economic rebound as the dynamics have slided. In particular, we experienced a sizable pickup in activity following the Spring Festival in January. We improved user activity among truckers and shippers and sustainable growth across our business. 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 for our long-term strategic growth.
spk05: Let's take a look at the performance of the first quarter. The daily volume of orders and active users of our platform have improved the history of travel creation since the peak of the first quarter. The third quarter of the first quarter of the platform's travel month increased by .5% in the first quarter, reaching 300,000. In the first quarter, our shipping goods, average monthly goods, also reached 175,000, with a total of .3% increase, with an increasing rate of direct contributions. At the same time, our revenue and profits in the first quarter exceeded our expectations. The total revenue reached 1.7 billion yuan, which increased by .7% in the same period last year. The net profit after the first quarter adjustment under the non-US customs accounting standard reached 5.1 billion yuan, with a total of 171.4%.
spk08: Now, a detailed look at our first quarter performance. Our peak daily forfield orders and active user numbers jumped to an historical high during the quarter. The number of forfield orders and the average shipping MAU reached 30.3 million and 1.75 million, respectively, up by .5% and .3% in the year, with an increasing contribution from high-quality direct shipping. Beyond that, both our top line and bottom line once again beat market expectations in the first quarter. Our total net revenue grew by .7% the over year to R&B 1.7 billion, and under non-GAAP measures, our adjusted net income surged by .4% the over year to R&B 514.8 million in the first quarter.
spk05: As one of our main tasks, we continue to add to the management of the construction and processing of the two systems, and strengthen the distribution of shipping power, to further improve the user experience. In the future, we will continue to promote a series of related transport strategies. We believe that these measures will help the high-quality drivers to find and improve the users' profits more efficiently, and will also help to strengthen the connection between the users and the platform.
spk08: 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 system, and strengthen our hierarchical mechanism to improve users' experience during the quarter. Going forward, we will continue to accelerate the implementation of our operational strategies, which we believe will boost all their matching efficiency and create more revenue for quality truckers, while simultaneously enhancing our user sickness. 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 effectiveness of our users on the platform, positioning the company to advance our life-changing business model, and to further downturn the growth in both user skills and freight volume. At the same time, we are prioritizing the expansion of our platform's fuel 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.
spk05: Next, I will introduce our stock purchase progress. We announced the public market repurchase plan in March this year. We have repurchased an total of 5.6 million shares of ADS by May 21, worth $37.7 million. In the current relatively low capital market environment, we maintain confidence in the company's long-term vision and development strategy, and will continue to promote repurchase in the way of repurchase.
spk08: Next, I'd like to provide an update on our share repurchase program. As one to our $500 million share repurchase announced earlier this year, as of May 21, 2023, we had repurchased approximately 5.6 million ADS in aggregate for approximately $37.4 million from the open market. Even in the current luggage 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.
spk05: Luckily, earlier today, we announced a chance to our board. Mr. Wenjian Dai resigned from his position. He is now the CEO of the company, and will be the CEO of the company's new board of directors. We are very grateful to Mr. Wenjian for his contribution to the company. We are also looking forward to seeing Mr. Guo's new position in the company. Next, I will introduce Mr. Zhang Yicheng, who will be our next speaker.
spk08: Luckily, earlier today, we announced a chance 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 the new director to fill the vacancy, and was simultaneously promoted to president of the company. Mr. Guo will assume greater responsibility 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 composition 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 greater value to his new position. Thank you, everyone. With that, I will turn the call over to our head board, Simon. He will elaborate further on our progress for the quarter, and go over our operational and financial results in more detail. Simon, please go ahead.
spk02: Thank you, Mr. Zhang, and hello to all of you. I would like to thank everyone for joining us today on our first quarter of 2023 earnings call. I will start with operational highlights, and then provide a brief overview of our key financials. Our fulfilled orders grew by .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 improvement in users' skills and activity. In particular, we noticed 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 initiative and product optimization designed to enhance user experience, as well as new user acquisitions, our user retention rate and engagement level continue to improve. We have also noted that this 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 above-FTA transportation market has increased significantly, and the network effects of our leading market position have become more pronounced. Turning to our fulfillment rate, a robust recovery in carrier supply 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 -over-year increase of 6% points, and a -over-quarter increase of 4% points. In March, the fulfillment rate reached 30%, another historical record for us. The reduction in our matching time also reflects matching efficiency improvements. After a year of elevated levels, our median freight matching time returned to single digits during the first quarter, falling to around 8 minutes. Furthermore, in the first quarter, the other contributions from our -negotiation-based transactions, such as -and-go, in-trucks, shipping models, and others, surged to a record high, improving overall matching efficiency. We are very pleased to have achieved the record-breaking performance amid high macroeconomic uncertainty and a low economic recovery, further strengthening our confidence in our long-term sustainable growth prospects and the resilience of China's macro environment. Now moving on to our users, we strategically catalyzed our strong growth momentum on 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, up approximately 23% -over-year. March average shipper MAUs reached 2 million, also an all-time high. Extension of both our 688 members 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 -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 other contributions from low to medium frequency shippers increase. On the trucker side, our average trucker MAUs responding to orders increased by more than 10% -over-year in the first quarter, with 3.5 million active truckers fulfilling orders in the past 12 months. Additionally, our 12-month rolling retention rate of shipper members and next month's 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. The Chinese 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 sickness among our existing users, and appeal to more high-quality direct shippers with the goal of optimizing our user composition with a great 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 the 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 from the truckers. Now let's turn to our online transaction services. Revenue from our commission model reached R&D 401 million this quarter, representing an increase of .3% -over-year. This robust growth was primarily driven by our sustainable growth in a number of approved orders combined with an increase in commission per order. We're also testing different commission strategies in a small group of selected cities. The model now covers 204 cities and nearly 59% of the transactions profiled through us, with average commission per transaction of R&D 22.5. Now I'd like to provide a brief overview of our 2023 first quarter financial results. Our total revenue in the first quarter was R&D ,702.3 million, representing an increase of .7% -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 commission from online transaction services were R&D ,397.5 million in the first quarter, representing an increase of .9% -over-year, primarily due to an increase in revenues from freight brokerage services as well as continuous growth in transaction commissions. Revenues from freight brokerage services in the first quarter were R&D 772.6 million, up .6% -over-year, primarily attributable to continuous growth in freight volume as a result of expanded user coverage. Revenues from freight listing services in the first quarter were R&D 223.9 million, up .1% -over-year, primarily due to an increase in total paying numbers. Revenues from transaction commissions amounted to 401 million in the first quarter, up .3% -over-year, primarily driven by an increase of order volume as well as an uptick in transaction commissions for orders. Revenues from value added services in the first quarter were R&D 4.8 million, up .4% -over-year. Mainly attributable to an increase in revenues from credit solutions and other value added services. The cost of revenues in the first quarter was R&D 849.4 million, compared with R&D 683.9 million in the same period of 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 the refunds totaled R&D 766.4 million, representing an increase of .1% -over-year, primarily due to a continued increase in transaction activities involving our freight brokerage service. Those marketing expenses in the first quarter were R&D 245.7 million, compared with R&D 192.0 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 R&D 179.5 million, compared with R&D 458.4 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 R&D 229.9 million, compared with R&D 221.0 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 R&D 165.8 million, compared with a loss of R&D 262.8 million in the same period last year. Net income in the first quarter was R&D 411.4 million, compared with a net loss of R&D 192 million in the same period last year. Under non-GAF measures, our adjusted operating income in the first quarter was R&D 272.4 million, an increase of .4% from R&D 173.2 million in the same period last year. Our adjusted net income for the first quarter was R&D 514.8 million, an increase of .4% from R&D 189.7 million in the same period last year. Basic and diluted net income per ADS were R&D 0.38 in the first quarter, compared with basic and diluted net loss per ADS of R&D 0.18 in the same period last year. Non-GAF adjusted basic and diluted net income per ADS were R&D 0.48 in the first quarter, compared with R&D 0.17 in the same period last year. As of March 31, 2023, the company had cash and cash equivalents, restricted cash, short-term investment, and long-term deposits of R&D 25.8 billion in total, compared with R&D 26.3 billion as of December 31 last year. In the first quarter of 2023, net cash provided in operating activities was R&D 86.8 million. Looking at our business outlook for the second quarter this year, we expect our total revenues to be between R&D 1.91 billion and R&D 2.01 billion, representing a -over-year growth rate of approximately .5% to 20.5%. These forecasts reflect companies' 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 -to-day. That concludes our prepared remarks. We would now like to open the call to Q&A. Operator, please go ahead.
spk00: Thank you. If you would like to ask a question, please press star then 1 on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. 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. Today's first question comes from Ronald Kang with Goldman Sachs. Please go ahead.
spk01: Thank you, management. In the first quarter, we saw that fulfilled orders grew over 20% -on-year, so much faster than broad freight market and the macroeconomic recovery. What are the main drivers' reasons behind that, and how should we expect the fulfilled order growth to trend in the second quarter? Thank you.
spk02: Thank you, Ronas. I will address all the remainder of Q&As in English directly. Overall, I think we are very pleased to see our platforms' freight orders grew much faster than the broader market and the past quarter. We believe that rapid growth mainly came from our increased market share in the FDL market, as we have consolidated our market leading positions in the online freight matching services. The strong growth of other volume in the first quarter was primarily due to two factors. First, the pandemic's impact largely eased in the first quarter, and truckers' travel was no longer restricted. 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 FDL transportation market both prefer 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 last year, our continuous efforts to user acquisition have also been paid off. Our new users are mostly small to medium frequency shippers, or typically direct shippers who contribute high quality orders. In the first quarter, roughly 48% of the procured 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 broadened the overall coverage of accurate address down to street numbers. This boost truckers willingness to take orders as well as our fulfillment capabilities and reduced potential disputes. When we look into the second quarter, we expect the number of procured orders to maintain the rapid growth momentum, and we expect the number of procured orders to increase about 40% in the second quarter of the year.
spk01: Thank you, management.
spk00: Thank you. And our next question today comes from Julu Li with CICC. Please go ahead.
spk06: Thank you, Julu Li, for your question. Congratulations on your performance in the first quarter. The 28% fulfillment rate in the first quarter marks a significant increase both year over year and year over year. What are the main reasons behind the increase and what's your fulfillment rate target for the second quarter? Thanks.
spk02: 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, has been substantially alleviated. With more truckers available, it becomes easier for our shippers to find a match, and thus increasing the overall fulfillment rate. The optimization of user composition also contributes to the increase in the 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 contributions. Most of our low and medium frequency shippers are direct shippers with a fulfillment rate close to 50%. Therefore, the continuously increased 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 FTA's market share in the swap FPL transportation market. The fulfillment rate will continue to grow, building our first quarter's momentum.
spk00: Thank you. Thank you. And our next question today comes from Charlie Chen at China Renaissance. Please go ahead.
spk04: Thank you, Mr. Chen. I have a few questions about the business. First, I would like to ask about the increase in the FTA's transportation economy in the first quarter. It has been a bit slow compared to the previous few quarters. What is the reason for the slowdown? And have there been any updates on the company's strategic positioning and operation strategy? And also about the business, have you noticed any political changes in the tax return? Let me translate. In the first quarter, the growth of revenue from the 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 freight brokerage business? Also, have you witnessed any changes in tax refund policies recently? Thank you.
spk02: Thank you. The freight brokerage service we provided to shippers mainly refers to situations where the platform enters into shipping contracts with shippers, and orders 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 provide DAT invoices. Beyond that, the platform also offers shippers protection against truckers' demand for fee increases and delays, as well as cargo damages to a certain extent. Upon the fulfillment of the orders, the shippers pay service fees to us. The service fees to charge for freight brokerage services are based on a 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 a business line that in contrast to users' sickness, its strategic significance lies in increasing the dependence and frequency of shippers on the FTA platform. Our data also shows that shippers who use freight brokerage service tend to ship more frequently. Incidentally, there's a huge demand for this service from shippers, while the user penetration is relatively low, leaving plenty room for adjustment. Going forward, we will encourage freight brokerage users to post more matching orders, and thus increasing the overall profit contribution of the business, rather than simply focus on increasing the revenue scale. In more words, the freight brokerage business service involves a number of contractual shipping orders, which helps us gain a full picture of shippers completely beyond just undemanding. Regarding the tax refund policies, we have not received any notices from regulators regarding a tax rebate rollback. We have multiple corporating tax sources, and we're taking a flexible approach to adjust tax sources as the market evolves. Since we only get partial refunds for the VAT and other taxes we pay, the central and local government keeps the majority of the tax we contributed, which is consistent with national policy guidance. In the future, as the tax system is upgraded, the local government will also welcome us, given our strict risk controls and the contribution to the local GDP. This positions us as the leading player in the market, setting the bar for other online freight platforms and gradually raising the industry standards. Furthermore, if there were any extreme cases that require us, together with all other freight brokerage players, to adjust or otherwise terminate the freight brokerage business, the impact on our overall profit will be minimal, as our profit growth contribution comes mainly from our commission business. And lastly, considering that freight brokerage requires FTA to advance VAT payments on behalf of shippers and to wait for a refund, we will carefully manage its growth rate to rein in the impact on cash flow going forward.
spk04: Thank you very much.
spk00: Thank you. Our next question today comes from Brian Gong with Citi. Please go ahead.
spk03: I will translate myself. In the first quarter, revenues from transaction commissions surged over 55% a year. I know what are the key drivers behind that. And also we noticed that China's Ministry of Transport recently released a work plan. They are mounting platforms to lower the setting of excessive commissions. Will this affect FTA's commission strategy in the future? Thank you.
spk02: 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% -over-year in the first quarter. Our business team makes dynamic adjustments to commission rates and penetration based on platforms' real-time order volume to strike a balance among the increase in commission revenue, user activity growth, and business skill improvement. As user base and order intensity continue to rise, we plan to further expand the coverage of commission orders and prudently increase the overall commission rates. Regarding the recent proposal from the Ministry of Transportation for a reduction in excessive commissions for transformation platforms, we understand this is a follow-up enhancement to the Operation Sunshine Policy implemented last year. This proposal strives to achieve the same goal, namely to further safeguard the rights and interests of users in a transparent and open environment. Our commission rate is at a very low level and in fact significantly lower than other trade platforms. We do not expect the company's operations to be impacted by this proposal.
spk00: Thank you. Thank you. And our next question comes from Sherry Leung with Bernstein. Please go ahead.
spk07: 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 Trucker respectively? Thank you very much.
spk02: Our overall progress in user acquisition generally met our expectations. We implemented different acquisition strategies targeting Shippers and also Truckers. The Shipper side, as previously mentioned, we have promoted our brands and platforms 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 so as to consistently improve our penetration rate among 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. As the pandemic subsides and transportation activities resumes, on top of online user acquisition, we also focus on reactivating dormant truck drivers, leveraging our on-go capabilities. We identify dormant drivers with the potential to return to our platform and offer incentives to reactivate them. In addition, we have formed cooperation with offline service areas, set up Trucker service stations and temporary service points and provided care packages for Truckers during peak-frame logistics periods to help Truckers enjoy short breaks and supplies that increase their comfort while traveling. These amenities enhance Truckers' sense of belonging on our platform while also attracting new Truckers to FDA. Looking forward, we continue to attract more high quality Truckers and Shippers, sustaining our growth in both user skill and transaction volume on our platform.
spk00: 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.
spk08: Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Fortress Parliaments directly for GPG investigations. Our contact information for I.I. info, China and the US can be found in today's slides. Have a good day.
spk00: 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