Q2 2023 Full Truck Alliance Co Ltd Earnings Call
We will continue to optimize our operational strategies, strengthen our transportation capacity management, and provide incentives and support to high quality truckers for that engagement.
Speaker 1: Ladies and gentlemen, good day and welcome to Full Truck Alliance's second quarter 2023 earnings conference call.
Speaker 1: Today's conference is being recorded.
Speaker 2: At this time, I would like to turn the conference over to Mao Mao, Head of Investor Relations. Please go ahead. Thank you, operator. Please note that this discussion will contain four looking statements relating to the company's future performance, which are intended to qualify for the safe harbor from liability as established by the U.S. Private Securities Dedication Reform Act. Such statements are not guaranteed of future performance and are subject to certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and discussion. A general discussion of the risk factors...
Thank you. Thank you. And our next question today comes from Charlie Chen at China Renaissance. Please go ahead.
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Can you please provide some update on the progress of SHPR membership?
Speaker 2: that could affect FTA's business and financial results is included in certain findings of the company with SEC. The company does not undertake any obligation to update this following information except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only.
in the second quarter which has very robust growth. And what are the main reasons for this growth? And also, how do we envision the growth of member users and membership revenue in the future? Thank you.
Thank you, Charlie. Since our new user registration only resumed last year, we have been consistently attracting more shipper users, particularly those direct shippers, to join our platform.
Speaker 2: for a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial measures out, please see the earnings release issued earlier today.
Speaker 2: Joining us today on the call from FTA Senior Management are Mr. Hui Zhang, our Founder, Chairman and CEO , and Mr. Samon Tai, our CFO . Management will begin with prepared remarks and the call will conclude with a Q&A session.
Through a combination of online branding efforts, multi-channel promotions and offline campaigns, we have successfully converted a portion of these accumulated new users into new shipper members. Simultaneously, our existing shipper members show high retention rates and stickiness.
Speaker 2: As a reminder, this conference is being recorded. In addition, a webcast replay of this call will be available on FDA's investor relations website at IR.Photocalliance.com. I will now turn the call over to our founder, chairman and CEO , Mr. John Fiskelhagen.
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and feels healthy growth in both user members and other volume. Monetization through membership fees comes as a secondary benefit. The majority of our new shipper users are direct clients characterized by their high engagement, low frequency, and higher service expectation compared to professional shippers. As a result, our membership conversion strategy focuses on optimizing user experience and providing value-added services that appeal to direct clients, such as priority matching, expedited shipping, and discounts on freight insurance to incentivize new shipper users to become members.
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Speaker 2: Hello everyone, thank you for joining us today on our second quarter 2023 earnings conference call. In the second quarter, we continued accelerating the industry's digital and intelligent evolution while maintaining our vision, user-centric, value-oriented to fortify our business and boost our market share gains.
In the future, we will continue to refine our user acquisition and membership conversion strategies. We believe that China's extensive community of small and medium-sized enterprises will contribute to our potential use of pool and thus further increasing the number of SHPR members.
Speaker 2: These efforts have considerably paid off by solidifying our market leading position and giving us the ability to make a series of important advancements.
From a monetization standpoint, there's still room for improvement in membership conversion rates. Taking into account the impact of new user subsidies, we anticipate a single digit year over year increase in membership fee revenue for this year. Thank you. logical an emphasize
Speaker 2: During the quarter, our intense focus on the long-haul full truck load business enabled us to further enhance this segment's market penetration. Centered around our core value proposition of better, faster, and more economical shipping, we assisted enterprises to reduce logistic costs and improve efficiency.
Our next question today comes from Brian Gong at Citigroup. Please go ahead.
I have a question on our margin. Our course margin for some quarter improved significantly already to 53% from 45% a year ago and also from 50% from last year.
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Thank you. Thank you, Boyin. On a year-over-year basis, the improvement in our growth margin primarily stems from the ongoing optimization of our revenue structure.
Notably, the contribution from commission-based and value-add basis services to total revenue continued to rise, and these two segments tend to have a much higher gross margin compared to that of a fake bookish business.
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and driving the improvement in the company's overall gross margin. In the second quarter, after excluding the impact of freight voltage business, the approximate gross margin increased to 85.6% compared with 84.4% in the same period last year.
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On a quarter over a quarter basis, the change in gross margin is mainly impacted by the time and difference in tax rebates and due to variations in the processing time of tax procedures and different tax rebate policies in various regions.
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This factor could lead to short-term fluctuations in the gross margin. However, it is important to clarify that the timing difference in tax rebates does not affect the company's overall profitability. It simply causes slight variations in the gross margin within a certain timeframe.
Speaker 2: As a result of our hard work and commitment, we achieved several new milestones in the seven quarters in regards to our user skills, both our professional shipper users and direct shippers recorded stellar growth with the average shipper MAU jumping to an historical high during the quarter, growing by 30.5% in over year to choose million.
Speaker 2: The growing number of our high quality drug shippers elevated our overall fulfillment rate. Additionally, we rolled out a series of new product functions, including a streamlined shipping process, standardized entrusted shipment services, a comprehensive truckers rating system, and more efficient order recommendation strategies.
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Speaker 2: as well as strengthened trucker stickiness, driving the number of fluid orders to 40.2 million, an increase of 44.5% year-over-year. On top of our outstanding operational highlights, we achieved strong growth momentum in both our top and bottom lines, which increased.
Thanks for taking my question. I have one question about the recent announcement from several free platform companies about lowering the maximum commission fees or membership fees on business.
Speaker 2: by 23.5% and 170.8% year-over-year, generating revenue of RMB 2062 million and a net-depth adjusted net income of RMB 722.7 million, respectively, surpassing market expectations once again.
What are your views on the impact of this announcement? Thank you.
Speaker 2: However, when looking at the millions of SMEs in China and the trillion RMB logistics sector, our online penetration rate remains relatively low in terms of both user and order scale. Moving forward, along with our expanding market share gains in FGL, we will continue to look at the market share gains in the future.
Thank you. Throughout our whole operation history, we have maintained a very prudent approach and attitude towards commission rates. Our current commission rate is still low and far from reaching any limits.
Speaker 2: We expect to continue to reap additional benefits as we consistently improve both monetization and operational efficiency through digital and intelligent advancements.
The recent regulatory guidelines issued by authorities like Ministry of Transportation can be seen as more of a positive development for our platform. Instead of suppressing commission fees, these regulations are intended to encourage platforms to adopt a more transparent and reasonable process.
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towards providing a stable and sustainable operating environment, enabling us to operate with greater confidence in the future.
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in regards of our business.
The recent adjustments to the maximum commission fee have not had a negative impact on the platform. For instance, the upper limit of commission for our entrusted shipping model has been lowered by roughly 10% from the original RMB, $199 per order.
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Yet it still remains significantly higher than the actual average commission per order we charge at the moment In the future, we will introduce various type types of products and value-added services for shippers thereby diversifying our revenue streams.
Speaker 2: Looking ahead at the second half of the year, we firmly believe that by building on our strategic position as the leading one-stop-free platform, empowered by innovative technologies, we are advantagefully situated to continue creating value for our users and the whole industry.
We believe that by optimizing fee composition and expanding service offerings, the platform economy will embrace more opportunities as well as creating more room for growth.
Speaker 2: With our users at the heart of FDA's growth, we remain committed to our user-oriented value competition, and we continually optimize our services on all fronts while simultaneously elevating users' satisfaction by offering to peer-references and products that better cater to users' needs and preferences.
Additionally, our ecosystem and strategic positioning in the industry provide us with inherent competitive advantages. We will continue to strengthen the development of our ecosystem.
introduce innovative services and solutions to bring greater value to our users. This approach will further drive the development and advancement of the freight transportation industry as a whole.
innovative services and solutions to bring greater value to our users. This approach will further drive the development and advancement of the freight transportation industry as a whole.
Speaker 2: more digitally empowered platform so that we can proficiently manage our team and achieve a higher level of operational efficiency.
Thank you. And ladies and gentlemen, that concludes the question and answer session. I'd like to turn the conference back over to Mau Mau for any closing remarks.
Speaker 2: Going forward, we are proactively responding to the changing market dynamics as we trouble charge our growth momentum across our platform through cutting-edge innovation. We will also keep an eye out for potential growth opportunities that fit up to one stock business model as well as more effective approaches.
Thank you, operator, and thank you everyone for joining us today. If you have any further questions, please feel free to contact us at Fortrock Alliance directly or TPG in Western Relations. Our contact information for II both China and the U.S. can be found in today's press release.
Speaker 2: to acquire and retain with us. As we further expand our YouTube base and Ramiya scale, we aim to build additional value for our different stakeholders.
Have a great day. Thank you. Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines and have a wonderful day.
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Speaker 2: Thank you everyone. Let me pass the call over to our staple Simon who will share our operational progress and financial results for the quarter.
Speaker 4: Thank you, Mr. Jeong, and thank you to everyone for joining today. First go over our highlights for the second quarter of 2023, followed by a brief overview of our operational and financial results before opening the call to questions.
Speaker 4: For the past quarter, we delivered an impressive year-over-year growth in fulfilled orders of 44.5%.
Speaker 4: Despite challenges of high temperatures and extreme weather in June , there was no clear sign of a slowdown in other volume.
Speaker 4: Our average daily order volume during the quarter surged to a historical high, benefiting from improving dual-end user scale and activities, as well as incomes to matching efficiency.
Speaker 4: In addition, the recovery from the pandemic combined with a series of new structural changes in the industry over the past two years contributed to a larger number of users meeting their shipping needs through online platforms, which is faster, safer and more convenient.
Speaker 4: Building on this momentum, we continue to expand our market share in the quarter.
With the industry continuing to normalize, our average fulfillment rate grew by roughly 10 percentage points year over year and two percentage points quarter over quarter in the second quarter to 30%. It is worth mentioning that the average fulfillment rate is about 10 percent.
of our 688 members exceeded 50% this quarter. This continued improvement in matching efficiency was driven by both sustained growth in due end user scale and the ongoing optimization of shipper composition.
We also successfully improved our products by strategically integrating technologies and using algorithms along with strengthening our efficiency and accuracy of freight machines.
Looking at the transaction types, we're pricing demand from direct shippers. The proportion of non-negotiation based transactions, such as tap and go and entrusted shipment models, continue to increase, reflecting our platform's pricing power and users enhanced reliance.
In regard to our users, we have made remarkable strides in broadening our user base with our average per mouse exceeded 2 million for the first time in history, increasing by 30.5% year over year.
The increase was mainly from 6, 8, 8 members and non-memberschippers, which were up 25% and 40% respectively.
the majority of which are direct chauffeurs.
The continued growth of ShipperMiles year-to-date is mainly driven by the increasing stickiness and activity of existing users as well as effective mean user acquisition strategies.
During the second quarter, as the supply of truckers increased, our average trucker miles responding to orders increased quarter over quarter with 3.78 million active truckers fulfilling orders through FTA over the past 12 months.
This shows that more truckers are choosing our platform for finding cargo rather than relying on offline models of trading.
Meanwhile, our 12 months rolling retention rate of shipper members and next month's retention of truckers who responded to others remain stable quarter over quarter, once again confirming our platform's high user thickness.
Going forward, we will continue to focus on the livelihoods of truckers and shippers.
as well as local industry developments across different regions nationwide for further market penetration by verticals.
We'll also explore and capitalize on the platform's benefits in addition to strengthening our connection with the real economy and SMEs.
By refining our user composition and increasing the fulfillment rate and user retention, we're successfully building a thriving platform ecosystem that generates long-term value.
As Mr. Jones just commented, we have built our foundation by creating value for shippers and truckers.
Since our inception, we have been committed to cracking down on maliciously low-priced shipments and maintaining a fair and normal transaction order in the market.
Recently, the platform has launched a targeted product that utilizes big data and algorithms to predict, identify, analyze, and automatically judge low-priced offers. This has significantly improved truckers' efficiency in fighting cargo.
and enable shippers to dispel their good faster. In addition to addressing control and governance of malicious low prices and other behaviors.
We have also carried out a series of measures on the product functions and are actively guiding the freight rate. For example, when shipper's bid is low, the user page will automatically remind the shipper to increase the price before placing an order. It will also send a reminder of the price increase in case there's no transaction within a certain period of time.
In order to help some of the new shippers offer reasonable prices, the platform will also display around 90 days of similar sources of historical transaction prices for the shippers reference.
Although currently there's an oversupply of truckers, where we still thrive to find the dynamic balance between truckers and shippers through the combination of providing price range control and pricing guidance.
This approach is gradually addressing the industry's pain point of low freight rate.
Before going over the quarter's financial result, I will quickly review the progress of our transaction commission model. We're very delighted to report revenue from online transaction service, searched.
59.6% to RMB 555.2 million.
This is driven by our solid increase in a number of fuel orders and commission per transaction. With our user base and other volume continued to grow, we expanded our commission model coverage. In the second quarter, around...
59% of the transactions will feel through us were closed under our commission model as compared with roughly 53% a year ago. Generating an average commission for transaction of around RMB 23.4.
As we further optimize revenue streams, transaction commission will remain a major growth driver of our revenue.
Now I'd like to provide a brief overview of our 2022-3 second quarter financial results.
Our total net revenues in the second quarter were on the two billion, 62 million, representing an increase of 23.5% year over year. This increase in revenue was primarily attributable to an increase in revenues from freight matching services.
revenues from freight matching services including service fee from freight brokerage models, membership fees from listing models and commissions from online transaction services or RMB 1 billion 731.2 million in the second quarter representing an increase of 22.8
Emerald increase in revenue from flake boat bridge service as well as continued growth in transaction commissions.
A rabbit from freight broker service in the second quarter were on the 948.9 million up 11.6% year over year Primarily attributable to a to continued growth in freight volume as a result of expanded user coverage
Our revenues from freight listing service in the second quarter were RMB 227.1 million, up 7.3% year over year, primarily due to an increase in total paying members.
Revenue from transaction commissions amounted to RME-555.2 million in the second quarter, up 59.6% year-over-year, primarily during by increasing other volume, as well as an improvement in take rates.
Our revenues from Friday, I just service services in the second quarter were on the 330.8 million up 27% year over year, mainly attributable to an increase in revenues from credit solutions and other value, value, I just services.
Cost of revenues in the second quarter was RMB 975.3 million compared with RMB 925.9 million in the same period last year.
The increase was primarily due to an increase in VAT-related tax surcharges and other tax refunds from government authorities.
These text-related costs, not of refund, totaled RMB 870 9.3 million, representing an increase of 4% year over year, primarily due to a continued increase in transaction activities involving our freight brokerage service.
Those are marketing expenses in the second quarter where RB 281.8 million, compared with RB 196.2 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 second quarter were R&B 201.7 million compared with R&B 344.8 million in the same period last year. The decrease was primarily due to a lower share-based compensation expenses.
R&D expenses in the quarter were R&B 220, 3.7 million compared with R&B 216.4 million in the same tier or last year. The increase was primary due to higher salary and benefits expenses. Our income from operations in the second quarter was R&B
was RMB 609 minutes compared with RMB 12.7 minutes in the same carriage last year.
Under non-GAAP measures, our adjusted operating income in the second quarter was RMB 450.7 million, an increase of 113.4% from RMB 211.3 million in the same period last year.
Our adjusted net income in the second quarter was R&B 1122.7 minute and increase of 170.8% from R&B 266.9 million in the same period last year.
Basic and diluted net income per ADS were R&B 0.57 in the second quarter, compared with basic and diluted net income per ADS of R&B 0.01 in the same period last year.
Our null gap adjusted basic and diluted net income per ADS or RMB 0.68 in a second quarter compared with RMB 0.25 in the same period last year.
gap adjusted basic and diluted net income per ADS or RMB 0.68 in the second quarter compared with RMB 0.25 in the same period last year.
As of June 30th, the company had cash and cash equivalent, restricted cash, short term investment, and long term investments of RMB 27.4 billion in total, compared with RMB 26.3 billion as of December 31st last year.
In the second quarter of 2023, net cash provided by operating activities was RMB 707.7 minutes.
Well our business outlook for the third quarter this year, we expect our total revenue to be between 2.16 billion and R&B 2.2 billion, representing a year-over-year growth rate approximately 19.2% to 21.6%. This forecast reflects.
our current and preliminary views on the market and operational conditions which are subject to change and cannot be predicted with reasonable accuracy as of the date hereof.
Lastly, I would like to provide a brief update on our short repurchase progress. From May 22nd to August 22nd, we have repurchased approximately 13.8 million ADS shares amounting to approximately 87 million US dollars.
Since the announcement of our repurchase program, we have repurchased a total of around 19.4 million ADS shares from the open market with a total value of approximately 124 million US dollars. In the future, we will continue to utilize prudent repurchase methods to reward our shareholders.
That concludes our prepared remarks. We would now like to open the call to Q&A. Operator, please go ahead.
Thank you. If you would like to ask a question, please press star then 1 on your telephone keypad.
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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 Keung with Goldman Sachs. Please go ahead.
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and at a rate that has been much faster than the overall freight market. So, can you share the reasons behind and how should we anticipate for auto growth into the third quarter? Thank you. Thank you, Ronath. As you know, we are a leading digital freight platform. We continue to gain market share in the full truckload market.
since the beginning of the year, driving the rapid growth of our freight volume, excluding the low base effect from last year's lockdown in the eastern part of China and the impact of the Chinese New Year in the first quarter.
We see the main reason for the substantial year-over-year and quarter-over-quarter growth in other volume in the second quarter as follows.
So first, the fact that we further enhanced our transportation supply was critical in driving the growth in other volumes in the second quarter.
in addition to the removal of last year's travel restrictions.
addition to the removal of last year's travel restrictions. Our operation.
marketing and product team worked extensively on a series of operational activities.
We also refined the rules within the trucker rating system and introduced incentives to enhance the engagement and fulfillment rate of our truckers.
These efforts ensure the transportation capacity and quality resulting in a continuous increase in order volume.
The second point I want to make is the extension of our user base.
Our average shipper mouse, as I said, exceeded 2 million for the first time in history. This is a significant milestone for us.
And this achievement was driven by implementing two key strategies. The first is on user acquisition through targeted promotional campaigns to strengthen our brand awareness. We also continue to gain traction with new users, especially high quality direct shippers. As a result, we saw a continued increase in users' experience.
in order volume and our market share further expanded. The second point for this I want to make is on the product experience improvement.
We remain focused on refining operations and providing customized services, centered around our core value of speed, quality and cost effectiveness.
and further enhancing shippers recognition and dependence on our platform.
These two activities...
resulted in the increasing frequency and activity of our shippers.
Yeah, both the activity and shipping frequency of shippers of various types reached a new level compared with the previous quarter.
Looking ahead to the coming quarter, we maintain an optimistic outlook for the growth in other volumes.
despite the potential impact of extreme weather conditions.
such as typhoons and heavy rainfalls, we noted that the effects are limited in June in terms of duration and the provinces affected in August contribute relatively less to the platform's overall order volume. So we're confident that...
through ongoing enhancement in user operations and services, we'll continue to improve our market share and sustain our position as a market leader.
Thank you.
Thank you. And our next question comes from Eddie Wong with Morgan Stanley . Please go ahead.