Q3 2022 Full Truck Alliance Co Ltd Earnings Call
Ladies and gentlemen, good day and welcome to full truck Alliance's third quarter 2022 earnings conference call.
Today's conference is being recorded at this time I'd like to turn the conference over to bow Mount head of Investor Relations. Please go ahead.
Okay.
Thank you operator. Please note that today's discussion will contain forward looking statements relating to the company's future performance, which are intended to qualify for the safe Harbor from library P. As established by the U S. Private Securities Litigation Reform Act such statements are not guarantees of future performance.
Subject to certain risks and uncertainties assumptions and other factors.
Some of the lift beyond the company's control and could not 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 <unk> business and financial results is included in certain filings the company with the SEC. The company does not undertake any obligation to update this 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 reconsolidation of GAAP to non-GAAP financial results. Please see the earnings release issued earlier today.
Joining us today on a call from Fda's creates management side August carefully Zhang our founder Chairman and CEO and Mr. Simon <unk> our CFO .
Well 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 <unk> Investor Relations website at <unk> Dot full truck Alliance Dot com.
I will now turn the call over to our founder and Chairman and CEO . Mr. Chang. Please go ahead.
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Hello, everyone. Thank you for joining us today on our third quarter 2022 earnings conference call.
Third quarter under the gradual implementation of China's E sure smoking and air freight and logistics policy and the effective pandemic controller, China No transportation industry. So if there is a positive trend. We are pleased with our steady growth and strong financial and operational performance we delivered in it.
As we continue to enhance our capabilities from product development to your technology innovation, while also optimizing user experience and operational efficiency.
All of these improvements have empowered us to navigate the challenging external environment and the highly dynamic market with great agility.
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Amid weak seasonal demand and a strong macro housing our solid third quarter results underscore the sustainability of our business model and our commitment to building and strengthening our industry, leading comparative at looking at our operational performance, whereas the full assumption of new user registration.
In my mind and of course about App, we witnessed the rapid growth of our user base in the third quarter with an increasing number of high court to yoga through a series of effective use application centric. Furthermore, we consistently strengthened and upgraded our products and functionality for direct shipper further enhance.
In both the Apple Goldman rate and retention as a result, our GTA V and the number of field orders grew by five 7% and tiny 0.2% quarter over quarter to RMB 60 to $69 6 billion and $43 5 million respectively.
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Now turning to our financial results. Our total net revenues came in above the upper boundary of our previous topline guidance climbing by 45, 7% year over year to RMB 181 billion alongside our efforts to expand our monetization channels and improved monetization efficiency we continue.
To streamline our operational workflow during the third quarter to enhance our profitability.
<unk> has yielded positive results with non-GAAP adjusted net income reached RMB 493 million compared with a non-GAAP adjusted net loss of RMB, four 7 billion a year ago.
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Building on this momentum we will continue to explore and capitalize on our strengths improving user experience and refining our operational capability, while fulfilling the demand of our growing user base. Additionally, we were trying to boost our existing users engagement and retention rate well also.
Emulating new users user frequency and accelerating their conversion into frequent users synchronizing and increase across existing and incremental business to drive that.
Well, our overall business skill.
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We have also continuously improve our operations to make sure in cookeville compliance with the regulatory requirements. We are not aware of any ongoing government investigation or subject to any administrative penalties to date that would materially affect our business financial position for <unk>.
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Looking ahead China's mode of transportation industry will continue to transform and upgrade digitally afterwards largest digital freight platform, we will focus on leveraging our platform scale enhancing our fixed income capabilities and integrating with us gathered transportation capacity and supply of cars.
Wide body. He can get approach, where you will facilitate the connectivity of the entire logistics network and benefit individual type truckers, while driving the industry's high quality development and creating greater value for all of policyholders.
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With that I will now turn the call over to our CFO Simon Kai He will go over our operational and financial results in more detail some of them. Please go ahead.
Thank you Mr. Jonathan Mama Hello, everyone I will start by sharing some off this quarter its major initiatives and developments and then walk you through our key financials.
In the context of a challenging macro environment and the new wave of all nickel clusters, we're glad to have delivered another quarter of solid financial and operational results.
Third quarter average fulfillment rate reached approximately 25% an increase of four percentage points on a sequential basis.
Despite the weak demand in the third quarter, and a particularly hot summer, which diminished truckers willingness to take freight others.
These orders were partially all these factors were partially offset by the gradual easing of the pandemic and the resumption of our communities those registration.
As expected we experienced a surge in both new shipper and trucker members.
Numbers are upon the full resumption of user registration on or even my mother unfortunate perhaps at the end of June .
The third quarter, our average monthly active shippers and monthly active truckers responding to other school by more than 300000.
200000 from the previous quarter, respectively.
Almost all of our newly added.
Three active shippers are low and medium frequency shippers, which include a large number of direct shippers, resulting in further changes to our overall shippers consult composition.
Furthermore, the contribution to G T V and fulfilled orders by low and medium frequency frequency shippers, including 688 members and non members continue to increase over the past eight quarters.
Notably the proportion of orders fulfilled by this shippers cohort has gradually increased from less than 30% two years ago to more than 40% now and we expect this number to continue to expand in the future.
Meanwhile, driven by increasing dependence on a platform users transaction frequency and activity level also improved as evidenced by average quarterly fulfilled.
Human per month per.
Per monthly active shipper, Luckily active truck are fulfilling orders strengthening quarter over quarter.
Thanks to our relentless efforts to improve the quality of our services are continued user growth does not have a diluted impact on our user retention.
On the country. The 12 month retention rate of paying shippers in the next months retention rate of truckers, who responded to shipping orders on our platform. Both remained high at around 85% in the first quarter following the trend of previous quarters.
We have also established a more effective communication channel during this quarter or two we reengage users with registration has failed within the last year, mainly through a combination of many of our phone calls text messages and precise information targeting.
By the end of October we had reacted to reactivate it nearly 2 million, new shippers and truckers failed to registrations, representing a significant rise in the reaction in the we are in the re activation rate.
In the future, we will remain focused on optimizing the user experience, thereby converting and retaining more long term users.
We believe that offering a broader array of effective products and solutions to our <unk>.
Spending an increasingly diverse if the diverse user base.
The key to our sustainable high quality growth to this end, we continue to optimize our platforms ecosystem during the quarter with upgraded functionality designed to tacos should person truckers pain points.
For example, we in house, our Alco model with more frequent updates going from a baby to real time in real time to improve search efficiency and matching the accuracy.
Committed to continuous improvement in operation efficiency.
We focus on our freight matching capabilities, reducing the rate of order cancellation by imposing tighter traffic restriction.
Shippers, who frequently cancel others.
While refining the matching brought wildly finding the matching of truckers was trustworthy shippers and prime others, we extended our data analytical tools to cover more shippers, particularly those using virtual private numbers to place orders.
We were delighted to see a lower order cancellation rate and improvement and improved fulfillment rates, although platform in the first quarter as a result.
Consequently, those ongoing efforts to improve operating efficiency targeting better freight matching are driving an overall enhancement.
And enhance the user experience.
Along with our computer process refinements and product optimizations, we expect to support further improvements in cancellation and fulfillment rates and importantly, reinforce users positive experience on the platform going forward.
During the quarter. We also made several other advancement in user retention and engagement.
Instance, in the third quarter, we introduced our truck the trucker growth program and several pilot areas.
Through which truckers accumulate reward points as a complete transactions.
Both.
The more point they accumulate the higher their priority status with respect to having full access to all their supposed to it on the platform.
The program incentivize this all truckers to increase transaction frequency and improve service quality, creating better user experiences for shippers and raising overall matching efficiency.
Furthermore, we successfully implemented our shipper rating system on a national scale, and that's where we get the assistant in the first quarter.
Our upgrade.
Those truckers to more precisely evaluate shippers behaviors with operating indicators, including number of fulfilled others fulfillment and cancellation rate et cetera.
Empowering them to make more comprehensive evaluation of the quality of other postings.
After six months of pilot operations are in coast shipper rating system has been widely recognized by shippers and truckers, leading to a five 8% drop in the complaint rate against shippers in the eight 5% drop in the overall order cancellation rate.
Finally, our online transaction service continue to deliver sustainable growth with a 114, 1% year over year increase to RMB $390 2 million in revenue largely attributable to the continued ramp up of commission transaction volume.
This quarter, we continue to expand our commission model to additional cities, which raised the commission penetration rate to above 50%.
As a result of the increasing scale of this commission model or online transaction surveys has gradually become the foundation of our overall increase in revenue.
In summary, thanks to our thanks to our optimized products and user composition of third quarter.
<unk> reflected the solid progress we continue to extend our capitalizing on our core competitive.
Strengthened our industry, leading position over the long term looking ahead, we will remain committed to elevating the quality of our products and services, we're finding our highly efficient operations and protecting users' rights and interest sparing no efforts to create more value for all of our users investors.
Stakeholders.
Now I'd like to provide a brief overview of our third quarter financial results.
The limit limited time for today's call I'll be presenting some abbreviated financial highlights.
We encourage you to read through our press release issued earlier today for further details.
Our total net revenues in the third quarter were RMB, one 8 million, representing an increase of 45, 7% year over year, primarily attributable to an increase in revenues from freight matching services.
Revenues from <unk>.
Revenues from freight matching services, including service fees from freight brokerage models membership fees from lithium models and commission from online transaction services were RMB, one 5 billion in the first quarter, representing an increase of 39, 5% year over year, primarily attributable to an increase in <unk>.
Revenue from our freight brokerage services.
As well as rapid growth in transaction commissions.
Revenues from freight brokerage service in the third quarter were RMB $904 1 million, representing an increase of 31, 2% year over year, primarily driven by continued growth in transaction volume as a result of improved user penetrate penetration.
Revenue from freight listing service.
Third quarter were RMB $219 7 million up two 8% year over year are primarily attributable to an increase in total pay numbers paying members.
Revenue from value added services in the third quarter.
Revenue from our citizens.
Simpson our services in the third quarter were RMB $294 5 million, an increase of 88, 2% year over year, mainly attributable to increased revenues from credit solutions.
Cost of revenues in the quarter was RMB 953.0 million compare compared with RMB $842 1 million in the same period of 2021. The increase was primarily attributable to an increasing b a T related tax surcharges and.
Other tax costs and net of tax refund from government authorities. These tax related costs. The cost net of refunds totaled $866 7 million, representing an increase of 12, 7% from RMB $768 9 million in the same period.
Last year, primarily due to an increase in transaction activities involving our freight brokerage service.
Sales and marketing expenses in the third quarter or RMB, $232 9 million compared with 196 million in the same period last year.
The increase was primarily due to an increase in salary and benefits expenses, driven by higher sales and marketing head count.
General and administrative expenses in the third quarter were RMB $206 6 million compared with RMB 192 million.
Million.
In the same period last year. The increase was primarily due to an increase in professional service fees as well as an increase in salary and benefits expenses driven by higher G&A head counts.
R&D expenses in the quarter were RMB, $226 6 million compared with RMB $202 9 million in the same period last year.
The increase was primarily due to an increase in salary and benefits expenses driven by higher R&D head count.
Income from operations in the third quarter was RMB $149 7 million compared with a loss from operation of RMB $201 7 million in the same period last year net income in the third quarter was RMB $395 5 million compared with <unk>.
Net loss of 178 treatment and in the same period last year.
The non-GAAP measures or adjusted operating income in the third quarter was RMB $242 8 million compared with a with an adjusted operating loss of $81 1 million in the same period last year.
Our adjusted net income for the third quarter was RMB 493.0 minute compared with adjusted net loss of RMB $4 7 million in the same period last year.
Basic and diluted net income per ads were RMB 0.37 in the third quarter compared with basic and diluted net loss of loss net loss per ads of RMB one.
One seven in the same period last year.
non-GAAP adjusted basic and diluted net income per ads were RMB <unk>.
Six.
<unk> 46 in the third quarter compared with non-GAAP adjusted basic and diluted net loss per ads of RMB 0.0 in the same period last year.
As of September .
September 30, this year the company the company has.
Has cash and cash equivalents.
<unk> cash and short term investments of RMB $226 8 billion in total compared with RMB 26 points.
Zero billion.
Of December last year for the first quarter of <unk>.
2022, net cash generated by operating activities were RMB $398 3 million.
Looking at our business outlook for the fourth quarter of this year, we expect our total net revenues to be between RMB 179 billion and RMB, one 8 billion, representing a year over year growth rate of approximately 25, 2% to 31.
5%.
I want to emphasize that these forecasts reflect the company's current and preliminary views on the market and operational conditions. The COVID-19 outbreaks are associated with the substantial uncertainties, including the geographic scope and duration of the outbreaks. The additional restrictive measures of the government.
Without these may take and the further impact off the business of shippers truckers and other ecosystem participants all of which are subject to change and cannot be predicted predicted with reasonable accuracy as of the date hereof.
That concludes our prepared remarks.
Like to open the call to Q&A operator. Please go ahead. Thank.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
For the benefit of all participants on today's call. If you wish to ask your question to management in Chinese police immediately repeat your question in English.
This time, we will pause momentarily to assemble our roster.
Our first question comes from Ronald Keung from Goldman Sachs. Please go ahead.
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Could you share some color on the user profile behavior, we've seen any change in the platforms.
Activity.
With the pickup the GTP and or the structure.
Resulted from these new users. Thank you.
Sure.
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So things the resumption of new user registration, both our shipper and trucker user have grown significantly in terms of newly registered the sugar user profile. The majority of them are relatively medium to low frequency can actually occur.
Now the daily average number of new registration have achieved normalized Roes with both new shippers and truckers basically returning to the level before the suspension of registration.
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The contribution from the member and 688 membership parents to CTV and others continue to rise during the quarter. Our number of membership parents also increased.
It has meant to our operational strategy and optimization or free or the protein policy for the members.
Now I want to emphasize that the conversion rate from a new user to a 688 member subscriber is typically higher than that from a new user to a 168 member.
Subscriber mainly because the new users are mostly direct shippers, who tend to ship less frequently while also exhibiting stronger thickness and higher retention.
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As you May know the new uses contribution to do TV and all the volume will accumulate gradually as time goes by let me share with you. Some interesting observations about these new users are typically those newly registered users.
One to two months to long and cultivate new shopping habits on our platform after which their shipping the class and fulfillment capabilities will gradually improve therefore, even though you can feel it in our records will face the contribution of new users to GTP and order volume will not increase in a straight line.
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So typically speaking we noticed that our overall transaction volume as well.
Not over a month being July August and September and the contribution of medium to low frequency shippers G. T V and other volume also increased sequentially. This proved again that blacks your parent reliance on our platform grow overtime laying a solid foundation for us to further refine.
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The next question comes from Violet <unk> from China Renaissance. Please go ahead.
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Thanks management for taking my question. My first question is for Tonight.
So the platform.
<unk> increased year over year in the third quarter, but a number of orders declined on a quarter over quarter basis, which implies a year over year increase in average freight right.
The main reason behind the fluctuation.
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Second question is how do you see the casino GTD and all those trends going forward. Thank you.
Thanks for the question the year over year increase in freight rate was primarily due to an increase in fuel prices in the past year.
If we look at the composition of transportation causes for truckers, we see that few calls.
Our account for the majority at around 40% of the freight rate followed by highway toll fees.
So over the last few quarters, our business has witnessed a supply demand imbalance between Shepperson truckers.
Due to pandemic control measures.
She also which also led to a spike in freight rates during certain periods.
Compared with the the number of a few of the others are overall G. T V along with the average freight rate will fluctuate more in.
In the face of shifting external factors such as.
Fuel prices highway toll fees and the pandemic resurgence so because because of this we believe the volume of our fulfilled orders.
It better reflects our overall operating capabilities and going forward, we will encourage investors to focus more on this metric.
Okay.
Okay.
Our next question comes from Julie Li from C. ICC. Please go ahead.
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That's not what they may if I back that that's for taking my question against the backdrop of a weak macro environment do you see an impact on your overall shipment volume and what is it 10.
What what has changed this quarter in terms of the number of or there are supports it.
Thank you.
Overall, other postings were basically flat on year over year and quarter over quarter basis in the third quarter, we didn't see material negative impact from the changes.
Hum in the macro environment, and notably other posting from building materials related to the real estate sector also remained stable year over year.
Despite rapid growth in ship or M. A U in the third quarter overall other postings remained flat year over year, partially because our newly Reggie.
Registered luxury active active shippers are low and medium frequency shippers and their contribution to other volumes remain relatively small, but they for when they were first onboard it.
Aside from that we have implemented two operational strategies in the first quarter to boost shipping body.
First.
For for for long membership, we lowered the free posting.
10 pulse pay per month two.
Two five posting per month, which promoted conversion of shippers into member to users and improve the user stickiness.
Second is our existing member uses we fine tuned operating.
<unk> shifted our focus from.
Shipment incentives last years to a strict stricter focus on fulfillment incentives this year.
On a monthly basis or all other posting accelerated in September offsetting the impact of hot weather in July and August .
In the long run we believe that the body of shipments will continue to climb as a user base of expense.
Okay.
The next question comes from Cherry Leung from Bernstein. Please go ahead.
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Yeah.
Would you please provide an update on the progress of your.
Action promotions in the quarter.
In terms of penetration how far are we add to our long term goal and what we will do to increase the penetration rate in the future.
And also what is the current commission rates.
And what is our plan to raise our commission rate going forward. Thank you.
Thank you the revenue from transaction commissions amounted to roughly RMB $390 million in the third quarter.
Mostly driven by the year over year increase in transaction volume.
At the same time or other product offerings also stimulated and increasing transaction Commission revenues.
As of the end of September we had launched the commission program in 201 cities, where the commission penetration rate exceeding 50%.
Since the end of last year, we have been building out a tiered commissioning strategy based on matching time.
We developed this strategy mainly to cater to users' needs having observed that users are only willing to pay for service when the platform generates enough about it to make it worthwhile.
Through features like fast match matching.
Hi, other qualities.
In addition, we have seen from historical transaction data that the probabilities of disputes between shippers and truckers is still relatively high.
So.
So our tech and data algorithms, including use of fulfillment.
[noise] ability in dispute judgment.
The important role to that.
And we are allocating more resources to developing such choose to bring more value to our users and our pending hubs.
Overall fulfillment efficiency.
At the same time, we are also exploring new user acquisition initiatives.
And promoting more value added services, such as in trusted shipments and connecting more direct shippers to truckers, which we believe will gradually improve the user ecosystem for both shippers and truckers.
We remain confident that the revenues from transaction commissions will continue to be the main driver.
For our platforms revenue growth and monetization improvements in the future.
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Our next question comes from Brian Gong from Citi. Please go ahead.
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Our assessment for taking my question and congratulations on solid results I've.
<unk> mentioned about our efforts to improve user experience to our support of user growth and enhance engagement.
Instrument to elaborate a bit more on your pro class all of these improvements you know sort of quarter. Thank you.
Sure.
In the third quarter, we continue to increase our focus on user experience.
Each of our business divisions has established a dedicated user experience.
His team.
To assist in our system wise.
This is Bruce.
Optimized use product function as a result of user experience issues internally.
Which have once again improved the user experience as well as our reputation.
As of the end of the third quarter, we have seen a significant decrease in user complaints complaint rates.
Most all of our business segments.
Moving forward, we will keep striving to improve user experience with a particular focus on building a customer service Q&A database.
And standardizing, our operating mcadams and for handling customer service requests.
Okay.
Our next question comes from IV G from Credit Suisse. Please go ahead.
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Thanks management for taking my question I have a question on the Opex spending.
In <unk>, we see this as a marketing increased year over year and just wanted to ask.
And what kind of a focus area of investing and how should we think about the outlook.
Or does it just might be spending on opex into the fourth quarter. Thank you.
Okay.
Yes, our sales and marketing expenses, mainly consist of employee compensation, where we're for expenses and marketing related costs.
On a non-GAAP basis sales and marketing expenses increased year over year, primarily due to the increase in personnel cost.
As a result of increased sales head count.
While the quarter over quarter increase was attributable to a higher marketing expense for news of acquisition seems the normalization of user registration and at the end of June .
Going forward, we expect sales and marketing expenses to continue to rise as we further expand our new businesses. However, that's.
The scale of our platform revenues and operating leverage increase accordingly.
Marketing expenses.
April portion of revenue will gradually decline.
And that concludes the question and answer session I would like to turn the conference back over to Malmo for any additional or closing comments.
Thank you for joining us today, if you have any further questions. Please feel free to contact us at Ford truck, allowing us directly or TPG investor relations, our contact information for IR in both China and U S can be found in today's press release and have a good day.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Speaker 1: shippers and prime orders, we extended our data analytical tools to cover more shippers, particularly those using virtual private numbers to place orders. We were delighted to see a lower order cancellation rate and an improved fulfillment rate on our platform in the third quarter as a result. Consequently, those ongoing efforts to improve operating efficiency, targeting better freight matching are driving an overall enhanced user experience. Along with our continued process, refinement and product optimizations, we expect to support further improvements in cancellation and fulfillment rates and importantly, reinforce the user's positive experience on the platform going forward. During the quarter, we also made several advancements in user retention and engagement. For instance, in the third quarter, we introduced our trucker growth program in several pilot areas through which truckers accumulate reward points as a complete transaction. The more points they accumulate, the higher their priority status with respect to having full access to orders posted on the platform. The program incentivizes all truckers to increase transaction frequency and improve service quality, creating better user experiences for shippers and raising overall matching efficiency. Furthermore, we successfully implemented our shipper rating system on a national scale and iterated the system in the third quarter. Our upgrade enables truckers to more precisely evaluate shippers' behaviors with operating indicators including number of fulfilled orders, fulfillment and cancellation rate, etc., empowering them to make more comprehensive evaluation of the quality of order postings. After six months of pilot operations, our enhanced shipper rating system has been widely recognized by shippers and truckers, leading to a 5.8% drop in the complaint rate against shippers and an 8.5% drop in the overall order cancellation rate. Finally, our online transaction service continues to deliver sustainable growth with a 114.1% year-over-year increase to RMB 390.2 million in revenue, largely attributable to the continued ramp-up of commission transaction volume. This quarter, we continue to expand our commission model to additional cities, which raised the commission penetration rate to above 50%. As a result of the increasing scale of this commission model, our online transaction service has gradually become the foundation of our overall increase in revenue. In summary, thanks to our optimized products and user composition, our third quarter results reflected solid progress. We continue to expand, capitalizing on our core competitiveness to strengthen our industry-leading position over the long term. Looking ahead, we will remain committed to elevating the quality of our products and services, refining our highly efficient operations and protecting users' rights and interests, bearing no efforts to create more value for all of our users, investors and stakeholders. Now I'd like to provide a brief overview of our third quarter financial results. Given the limited time for today's call, I will be presenting some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details. Our total net revenues in the third quarter were RMB 1.8 million, representing an increase of 45.7% year-over-year, primarily attributable to an increase in revenues from freight matching services. Revenues from freight matching services, including service fees from freight voltage models, membership fees from listing models and commissions of online transaction services were RMB 1.5 billion in the third quarter, representing an increase of 39.5% year-over-year, primarily attributable to an increase in revenue from our freight brokerage services as well as rapid growth in transaction commissions. Revenues from freight brokerage services in the third quarter were RMB 904.1 million, representing an increase of 31.2% year-over-year, primarily driven by continued growth in transaction volume as a result of improved user penetration.