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spk01: 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.
spk07: Thank you, operator. Please note that today's discussion will contain four working statements relating to the company's future performance, which are intended to qualify for the state-powered formulability as established by the U.S. private security litigation format. Such statements are not guaranteed of future performance and are subject to further 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 preceding discussion. A general discussion of the risk factors that could affect FTA's business and financial results included in 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 for comparison purposes only. For a definition of non-GAAP financial measures and a reconsideration of GAAP to non-GAAP financial results, Please see the earnings release or issues related dates. Joining us today on the call from FDA's Senior Management are Mr. Hui Zhang, our founder, chairman, and CEO, and Mr. Simon Tsai, our CFO. 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 from FDA's Investor Relations website at I got the food truck alliance.com. I will now turn it over to our founder chairman and CEO, Mr. Zhang. Please go ahead.
spk04: Hello, everyone. I'm Zhang Hun. Welcome to the first quarter of 2023. Since the beginning of 2023, the economy has been gradually recovering from the decline of the epidemic. We are very happy to have achieved another strong record growth in the opening of 2023. Especially after the Spring Festival in January, the number of users on our platform has increased sharply. The activity of users on both ends has also continued to increase. The continuous expansion of each and every block has accelerated and improved our convenience. It once again recognizes the advantages of our business model. Hello everyone, thank you for joining us today on our first quarter of 2023 earnings conference call.
spk07: We are pleased to deliver another strong quarter of growth to kick off 2023, hosted by China's economic rebound as the pandemic subsided. In particular, we experienced a sizable pickup in activity following the Spring Festival in January. The 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.
spk04: Let's take a look at the performance of Yijidou in detail. Yijidou's daily sales volume and active users are the highest in the history of Yijidou since its peak. Yijidou's retail sales volume has increased by 20.5% in Yijidou, reaching 30.3 million. Yijidou's average sales revenue has also reached 1.75 million, which has increased by 23.3% in Yijidou. Among them, the positive customer contribution rate is constantly increasing. Now, a detailed look at our first quarter performance, our peak daily fulfilled orders,
spk07: and active user numbers jumped to an historical high during the quarter. The number of profuse 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 third quarter. Our total net revenue grew by 27.7% year-over-year to RMB 1.7 billion, and under non-GAAP measures, our adjusted net income surged by 171.4% year-over-year to RMB 514.8 million in the first quarter.
spk04: Even that users' rights and interests are always one of the company's top priorities,
spk07: we made significant efforts to further develop our user rating system 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 significance.
spk04: In the future, we will continue to implement positive pull-in strategies, not only for direct products and services, but also to strengthen the activity and connectivity of platform users, and to further promote the continuous growth of user size and platform transaction volume. At the same time, we will work hard to expand the advantage of platform size, and to refine the operation process. In terms of the core competitiveness of transport management and transport management, it will bring greater value to users and create a healthy and stable platform environment.
spk07: 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 platforms, positioning the company to advance our long-term growth in both user skills and trade volume. At the same time, we are prioritizing the expansion of our platform's skill 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.
spk04: Next, I would like to introduce our stock repurchase process. We announced the public market repurchase plan in March this year. By May 21, we have repurchased a total of 5.6 million shares of ADS. Next, I'd like to provide an update on our Shared Purchase Program. Pursuant to our US$500 million Shared Purchase announced earlier this year, as of May 21 and 23,
spk07: we had repurchased approximately 5.6 million AES in aggregate for approximately 37.4 million U.S. dollars 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 buyback.
spk04: Finally, I would like to announce to the members of the board The director of the company, Mr. Dai Wenjian, is the director of the company for personal reasons. Mr. Guo Langbo, the head of the original group, will be the new director of the group and the new president of the group. He will take on more of the management responsibilities of the group's logistics and business operations. The director of the group, Ma Huizhen, will also take on the responsibilities of the new members of the committee before Dai Wenjian. We are very grateful to Mr. Dai Wenjian for his contributions to the two groups in the past few days. We also look forward to Mr. Guo Langbo's participation Luckily, earlier today, we announced a change to our board.
spk07: Mr. Wenjian Dai resigned from his position as a member of the company's board of directors for personal reasons. Mr. Langfeng 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 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. Tsai's previous responsibilities as a member of our Compensation Committee. We would like to express our most sincere gratitude to Mr. Tsai 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'll turn the call over to our faithful 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.
spk06: Thank you, Mr. Zhang, and hello to all of you. I'd 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 improvement in user skills 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 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 bulk 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 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 six percentage points, and a quarter-over-quarter increase of four 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 digit during the first quarter. falling to around eight minutes. Furthermore, in the first quarter, the order contribution from our non-negotiation-based transaction, such as tap and go in trusted shipping models and others, surged to a record high, improving overall matching efficiency. We're 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 capitalized on the 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% 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 five percentage points year-over-year, reaching 45%. Notably, our 688 members' average fulfillment rate in the first quarter was close to 50%. And going forward, we expect continued improvement in our platform's overall fulfillment rate as other contributions 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 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. 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 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 embrace 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 RMB 401 million this quarter, representing an increase of 65.3% year-over-year. This robust growth was primarily driven by our sustainable growth in the 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 fulfilled through us, with an average commission per transaction of RMB 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 RMB 1,702.3 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 commission from online transaction services were RMB 1,397.5 million in the first quarter, representing an increase of 24.9% year-over-year, primarily due to an increase in revenue from freight brokerage service as well as continuous growth in transaction commissions. Revenues from freight brokerage service in the first quarter were on the 772.6 million, up 16.6% year-over-year, primarily attributable to continuous growth in freight volume as a result of extended user coverage. Revenues from trade listing services in the first quarter were on the 223.9 million, up 13.1% year-over-year, primarily due to an increase in total paying members. Revenues from transaction commission amounted to 401 million in the first quarter, up 55.3% year-over-year, primarily driven by an increase order volume as well as an uptick in transaction commission for orders. Revenue from value added services in the first quarter were RMB 304.8 million, up 42.4% year-on-year, mainly attributable to an increase in revenues from credit solutions and other value added services. Cost of revenues in the first quarter was RMB 849.4 million, compared with RMB $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 taxes net of tax refunds from government authorities. These tax-related taxes net of refunds totaled RMB $766.4 million, representing an increase of 28.1% year-over-year, primarily due to a continued increase in transaction activities involving our freight brokerage service. Those marketing expenses in the first quarter were RMB 245.7 million compared with RMB 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 RMB 179.5 million compared with RMB 458.4 million in the same period last year. The decrease was primarily due to lower share-based compensation expenses. RMB expenses in the first quarter were RMB 229.9 million compared with RMB 221.0 million in the same period last year. The increase was primarily due to higher salary and benefit expenses. Overall, the income from operations in the first quarter was RMB 165.8 million, compared with a loss of RMB 262.6 million in the same period last year. Net income in the first quarter was RMB 411.4 million, compared with a net loss of RMB 192 million in the same period last year. Under non-GAAP measures, our adjusted operating income in the first quarter was RMB 272.4 million, an increase of 104.4% from RMB 133.2 million in the same period last year. Our adjusted net income for the first quarter was RMB 514.8 million, an increase of 171.4%, from RMB 189.7 million in the same period last year. Basic and diluted net income per ADS were RMB 0.38 in the first quarter, compared with basic and diluted net loss per ADS of RMB 0.18 in the same period last year. Long-gap adjusted basic and diluted net income per ADS were RMB 0.48 in the first quarter, compared with RMB 0.17 in the same period last year. As of March 31, 2023, the company had cash and cash equivalent, restricted cash, short-term investments, and long-term deposits of RMB 25.8 billion in total, compared with RMB 26.3 billion as of December 31 last year. In the first quarter of 2023, net cash provided in operating activities was RMB 86.8 million. Looking at our business outlook for the second quarter this year, we expect our total revenues to be between RMB 1.91 billion and RMB 2.01 billion, representing a year-over-year growth rate of approximately 14.5% 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 visible accuracy as of the taking place. That concludes our prepared remarks. We would now like to open the call to Q&A. Operator, please go ahead.
spk01: 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 King with Goldman Sachs. Please go ahead.
spk02: Thank you, Chairman Jiang, Simon, and the management. I would like to ask about the increase in the number of orders for the first quarter, which is more than 20%. This increase is close to the recovery speed of the stock market and the macroeconomic economy. I would like to know what are the main reasons for the movement. What do we expect the change in the number of orders for the second quarter to look like? Thank you, management. In the first quarter, we saw that fulfilled orders grew over 20% year-on-year, so much faster than the broader 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.
spk06: Thank you, Ronald. I'll address all the remainder Q&As in English directly. Overall, I think we're very pleased to see our platform's freight orders grew much faster than the broader market in the past quarter. We believe that rapid growth mainly came from our increased market share in the FDR market as we have consolidated our market weekly position 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. Through our user interviews, we have learned that in the current market condition, truckers and shippers in the FPL 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 mid-last year, our continuous 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 pursued orders came from both low to medium frequency shippers. This number increased from roughly 40% about a year ago. We expect that number to keep rising. In addition, we continue to enhance our matching capabilities and the algorithms. For example, during the first quarter, we improved the platform's shipment origin and destination address infrastructure and broadened the overall coverage of accurate address down to street numbers. This boosts truckers' willingness to take orders, as well as our fulfillment capabilities, and reduced potential disputes. When we look into the second quarter, we expect a number of fulfilled orders to maintain the rapid growth momentum, and we expect a number of fulfilled orders to increase about 40% in the second quarter of the year.
spk02: Thank you, management.
spk01: Thank you. And our next question today comes from Julu Li with CICC. Please go ahead.
spk08: Thank you, Guan Lichen, for your question. Congratulations on your good performance in the first quarter. I have a question about the travel rate. In the first quarter, our overall travel rate reached about 28%. The same rate and the same rate have increased significantly. What is the main reason for this? In the second quarter, what is our travel target in the second quarter? I will translate it here. 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.
spk06: Thank you. The improvement in fulfillment rate in the first quarter is mainly attributable to the change in supply and demand dynamics. Starting this year, the impact of insufficient trucker supply, which is a big 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, without increasing the overall fulfillment rate. The optimization of user composition also contributes to the increase of 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 uses and also other contributions. Most of our low and median 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 spot FPL transportation market, the fulfillment rate will continue to grow building on our first quarter's momentum.
spk08: Thank you. That's very helpful.
spk01: Thank you. And our next question today comes from Charlie Chen at China Renaissance. Please go ahead.
spk05: Thank you, Mr. Chen, for answering my question. I have a few questions about this business. First of all, I would like to ask, in the first quarter, the stock market economy of the stock market is a little slower than in the past few quarters. We would like to ask what is the reason for this slowdown. 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 freight brokerage business? Also, have you witnessed any changes in tax refund policies recently? Thank you.
spk06: 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 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 a 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 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 encounters user 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 straightforward service tend to ship more frequently. Currently, there's a huge demand for this service from shippers, while the user penetration is relatively low, leaving plenty of room for adjustment. Going forward, we will encourage freight brokerage users to post more matching orders and thus increasing the overall profit contribution of their business rather than simply focus on increasing the revenue scale. In all 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 on-demand needs. Regarding the tax refund policy, we have not received any notices from regulators regarding a tax rebate rollback. We have multiple cooperating 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 majority of the tax we contributed, which is consistent with national policy guidance. In the future, as the tax system is upgraded, the local governments 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 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 DAT payment 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.
spk05: Thank you very much.
spk01: Thank you. Our next question today comes from Brian Gong with Citi.
spk03: Please go ahead. Good evening, Mr. Zhang, Simon, and Maomao. Thank you. This is my question. First of all, congratulations on your very good performance. My question is that I would like to ask, in the first quarter, there was a 55% increase 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. They're mounting platforms to lower the setting of excessive commissions. Will this affect IPTA's commission strategy in the future? Thank you.
spk06: Thank you. These are all very important questions. The growth in revenue for 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 platform's real-time order volume to strike a balance among the increase in commission revenue, user activity growth, and business skill improvement. If user base and order intensity continue to rise, we plan to further expand the coverage of commission orders and prudently increase the overall commission rate. Regarding the recent proposal from the Ministry of Transportation for a reduction in excessive commission for transportation 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 to 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 freight platforms. We do not expect the company's operations to be impacted by this proposal.
spk01: Thank you. Thank you. And our next question comes from Cherry Leong with Bernstein. Please go ahead.
spk09: Thank you, Manager Chen, for accepting my question. I have a question about pull-in. I would like to ask about the situation of our pull-in in the first quarter. For example, what are the key points of the pull-in strategy between the customer side and the private side? I'll translate it in English. 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.
spk06: Our overall progress in new 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 brand 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 logistically 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 resumed. On top of online new user acquisition, we also focused on reactivating dormant truck drivers. Leveraging our ongoing capabilities, we identified 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 freight 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 FTA. Looking forward, we will continue to attract more high-quality truckers and shippers sustaining our growth in both user skill and transaction quality on a platform.
spk01: 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.
spk07: Thank you, once again, for joining us today. If you have any further questions, please feel free to contact us at Holtrop Alliance directly for GPG investigations. Our contact information for IR info, China, and U.S. can be found in today's presentation. Have a good day.
spk01: 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.
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