Corpay Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 22, 2023

There are 5 speakers on the call.

Operator

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.

Speaker 1

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 liability as established by the U. S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to further risks and uncertainties, assumptions and other factors.

Speaker 1

Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and discussion. A general discussion of the risk factors that could affect FDA's business and financial results is included in certain filings of the company with the SEC. The company does not undertake any obligation to update this forward information, except as required by law. During today's call, management will also discuss certain non GAAP financial measures for comparison purposes only. For a definition of non GAAP financial measures And a reconciliation of GAAP to non GAAP financial results, please see the earnings release issued today.

Speaker 1

Joining us today on the call from FDA's senior management are Mr. Huizhou, our Founder, Chairman and CEO and Mr. Simon Cai, our CFO. Management will begin with prepared remarks and the call will conclude with a Q and A session. As a reminder, this conference is being recorded.

Speaker 1

In addition, a webcast replay of this call will be available on FDA's Investor Relations website at ida.fu truckalliance.com. Hello, everyone. Thank you for joining us today on our Q1 of 2023 earnings conference call. We are pleased to deliver another strong quarter of growth to kick off 2023 boosted by China's economic rebound as the pandemic subsided. In particular, we experienced a sizable pickup in activity following the spring festival in January.

Speaker 1

The improved user activity among illustrating the unique appeal of our business model, while paving the way for our rapid business Now a detailed look at our Q1 performance. Our peak daily fulfilled orders and active user numbers Jumped to any historical high during the quarter. The number of profuse orders and average ticket MAU reached $30,300,000 $1,750,000 respectively, up by 20.5% and 23.3% year over year with an increasing contribution from high quality direct shipping. Beyond that, both our top line and bottom line once again beat market expectations Our total net revenue grew by 27.7 percent year over year to RMB1.7 billion. And as a non GAAP measures, Our adjusted net income surged by 171.4 percent over the year to RMB514.8 million Given that users' rights and interests are always one of the company's top priority, we made significant efforts to further develop Our user rating system has strengthened our hierarchical mechanism to improve user experience during the quarter.

Speaker 1

Going forward, we will continue to accelerate the implementation of our personal strategy, which we believe will boost Looking at the rest of the year, we plan to implement more active user acquisition strategy, The expansion of our platform still expanded, refining its operational process and harnessing its core competitiveness in terms of freight matching, Next, I'd like to provide an update on our share repurchase program pursuant to our US500 $1,000,000 share repurchase announced earlier this year. As of May 21, 2023, We had repurchased approximately 5,600,000 ADS in aggregate for approximately US37.4 million dollars from the Even in the current sluggish capital market environment, we are optimistic about the company's long term vision and the development strategy, And we'll continue to reward our shareholders through share buyback. Lastly, earlier today, we have announced a change to our Board. Mr. Wenjian Zai resigned from his our middle and back office functions and business operations.

Speaker 1

Ms. Huizhen Ma, our current Director of the Board, I'll take over Mr. Tsai's previous responsibility as a member of our compensation committee. We would like to Thank you, everyone. With that, I will turn the call over to our CFO, Simon.

Speaker 1

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.

Speaker 2

Thank you, Mr. Zhang, and hello to all of you. I would like to thank everyone for joining us today On our Q1 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 Q1, 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.

Speaker 2

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 Let me dig into the details. Transportation costs Truckers decreased during the quarter as the pandemic impact eased and impediments to transportation were eliminated. On top of that, the assumption of new user registration over the past 6 months has largely alleviated the shortage of truckers we observed last year. Thanks to our effective new initiatives and product optimizations designed to enhance user experience As well as new user acquisitions, our user retention rate and engagement level continue to improve.

Speaker 2

We have also noticed That this industry's competitive landscape has undergone some major changes due to the pandemic over the past few years. As offline models became inefficient and inaccessible for users during the pandemic, a growing number of truckers and shippers to online transactions and have not looked back. As a result, our market share in the bus FTL transportation market has increased Significantly, the network effects of our leading market position have become more pronounced. Turning to our fume rate, the robust recovery in carrier supply has made it much easier for shippers to find truckers, Usually improving matching efficiency. Our average fulfillment rate for the Q1 reached 28%, In March, the fulfillment rate reached 30%, another historical record for us.

Speaker 2

The reduction in our matching time also reflects matching efficiency improvements. After a year of elevated levels, our median Rate matching time returned to single digit during the Q1, falling to around 8 minutes. Furthermore, in the Q1, The order contribution from our non negotiation based transaction such as Tap and Go in trusted shipping models and others Search to a record high, improving overall matching efficiency. We are very pleased to have achieved a record breaking performance strengthening our confidence in our long term sustainable growth prospects and the resilience of China's macro environment. Now moving on to our users.

Speaker 2

We strategically capitalized on the strong growth momentum on the Q4 last year to further broaden the scale of user base during the Q1, driving our Q1 average shipper MAUs to 1,780,000, up approximately 23% year over year. March average shipper MAUs reached 2,000,000, also an all time high. Expansion of both our 6 AK 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 Q1, the contribution from 6 888 members and non paying members by number of fulfilled orders increased by 5 percentage points year over year, reaching 45%. Notably, our 688 members' average fulfillment rate in the Q1 was close to 50%.

Speaker 2

And going forward, we expect continued improvement in On the trucker side, our average trucker MAUs responding to orders increased by more than 10% year over year in the Q1, with 3,550,000 active truckers fulfilling orders in the past 12 months. Additionally, our 12 month rolling retention rate Our 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, we're also amplifying our offline marketing efforts to our local sales team and attracted a sizable number of new high quality users as a result. We believe 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, Increased 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.

Speaker 2

Now a quick look at our trucker growth system. After a trial period of just over 5 months, the trucker growth program we announced last quarter now covers All truckers on the platform. As part of this program, we introduced priority rights to certain qualified truckers With early access to high quality freight information, our users immediately embraced the new feature, which continues to gain wider recognition on the truckers. Last, let's turn to our online transaction services. Revenue from our commission model reached RMB This robust growth was primarily driven by our sustainable growth in the number of approved orders combined with the increase in commission per order.

Speaker 2

We are 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 average commission per transaction of RMB 22.5. Now I'd like to provide a brief overview of our 2023 Q1 financial results. Our total revenue in the Q1 were RMB1702.3 million, representing an increase of 27 point 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 RMB1397.5 million in the Q1, 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.

Speaker 2

Revenues from freight brokerage service in the Q1 were RMB772.6 million, up 16.6% year over year, primarily attributable to continued growth in freight volume as a result of expanded user Revenues from freight business services in the Q1 were RMB223.9 million, up 13.1% year over year, primarily due to an increase in total paying members. Revenues from transaction commission amounted to RMB421 1,000,000 in the Q1, up 55.3% year over year, primarily driven by an Revenues from value added services in the Q1 were RMB304.8 million, up from 42.4 percent year on year, mainly attributable to an increase in revenues from credit solutions and other value added services. Cost of revenue for the Q1 was RMB849.4 million, compared with RMB683.9 million the same period of last year, the increase was primarily due to an increase in VAT related tax surcharges and other tax These tax related costs net of refunds totaled RMB760 RMB6.4 million, representing an increase of 28.1 percent year over year, primarily due to A continued increase in transaction activities involving our freight brokerage service. Sales and marketing expenses RMB200 1,000,000 in the same period last year. The increase was primarily due to an increase in advertising and marketing expenses for user Acquisitions.

Speaker 2

General and administrative expenses in the Q1 were RMB179 point 5,000,000,000 compared with RMB458.4 million in the same period last year. The decrease was primarily due to lower share based R and D expenses in the Q1 were RMB229.9 million, compared with RMB221,000,000 in the same period last year. The increase was primarily due to higher salary and benefit expenses. Overall, the income from operations in the Q1 was RMB165.8 million, Compared with a loss of RMB252.8 million in the same period last year, net income in the first quarter was Under non GAAP measures, our adjusted operating income in the Q1 was RMB272.4 million, an increase of 104.4 percent from RMB133.2 million in the same period last year. Our adjusted net income for the Q1 was RMB514.8 million, an increase of 171.4 percent from RMB189.7 million in the same period last year.

Speaker 2

Basic and diluted net income per ADS were RMB0.38 in the Q1 compared with Basic and diluted net loss per ADS of RMB0.18 in the same period last year. Non GAAP adjusted basic and diluted net income per ADS were RMB0.48 in the first quarter, compared with RMB0.17 in the same period last year. As of March 31, 2023, the of RMB25.8 billion in total, compared with RMB26.3 billion as of December 31 last year. In the Q1 of 2023, net cash provided in operating activities was RMB86.8 million. Looking at our business outlook for the Q2 this year, We expect our total revenues to be between RMB1.91 billion and RMB2.01 billion, representing a year over year growth rate of approximately 14.5% to 20.5%.

Speaker 2

These forecasts This reflects the company's current and preliminary views on the market and operational conditions, which are subject to change and cannot be predicted with reasonable accuracy as That concludes our prepared remarks. We would now like to open the call to Q and A. Operator, please go ahead.

Operator

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.

Speaker 3

Thank you, management. In the Q1, we saw that fulfilled orders grew over 20% year on year, so much faster than Broad freight market and the macroeconomic recovery. So what are the main drivers, reasons behind that? And how should we expect

Speaker 2

Thank you, Ronald. I'll address All the remainder Q and A is in English directly. Overall, I think we are very pleased to see our platforms create others We believe that rapid growth mainly came from our increase to market share in the FDA market As we have consolidated our market leading position in the online print matching services, the strong growth of Order volume in the Q1 was primarily due to 2 factors. 1st, the pandemic impact largely eased In the Q1 in truckers, travel was no longer restricted. And second, perhaps more importantly, we have that a considerable number of users have migrated from offline to online.

Speaker 2

Through our user interviews, we have learned That's in the current market condition, truckers and shippers in the BOSS FTL transmission market Both prefer to transact online, in other words, compared with offline matching, the market share of online print 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 this to Internally, since mid last year, our continued efforts to user acquisition have Also being paid off. Our new users are mostly small to medium frequency shippers or typically direct Shippers and who contributes high quality orders. In the Q1, roughly 48% of the continued orders came from those low to medium frequency shippers. This number increased from roughly 40% about a year ago, and we expect that number to keep rising.

Speaker 2

In addition, we continue to enhance our management capabilities and the algorithm. For example, during The Q1, we improved the platform shipment, origin and destination address infrastructure And broadened the overall coverage of Accuray address down to street numbers Truckers' willingness to take orders as well as our fulfillment capability and reduce potential disputes. When we look into the 2nd quarter, we expect a number of field orders to maintain

Speaker 3

Thank you, management.

Operator

Thank you. And our next question today comes from Julu Li with CICC. Please go ahead.

Speaker 1

The 28% fulfillment rate in the Q1 marks a significant increase both year over year and quarter over quarter.

Speaker 2

Thank you. The improvement in fulfillment rate in the Q1 was mainly attributable to the change in supply and Starting this year, the impact of insufficient trucker supply, which is a bit headache for our shipper users over the past 2 years, have been substantially alleviated. With more truckers available, it becomes The optimization of user composition also contributes to the increase in fulfillment rate. Ever since we resumed Our user acquisitions during the middle of last year, the proportion of direct shippers has continued to rise both in terms of Monthly active users and also other contribution. Most of our low and medium frequency shippers are direct shippers With the fulfillment rate close to 50%.

Speaker 2

Therefore, the continuously increased contribution from direct shippers We will further drive fulfillment rate growth. Looking into Q2, we expect that the With the increased proportion of direct shippers and further expansion of FTA's market share in the spot FTL transportation market,

Speaker 1

Thank you. That's very helpful.

Operator

Thank you. And our next question today comes from Charlie Chen at China Renaissance. Please go ahead.

Speaker 4

In the Q1, 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 flat brokerage business? Also, have you witnessed any changes in tax refund policies recently? Thank you.

Speaker 2

Thank you. The free brokerage service we provided to shippers mainly refers to situations where the platform Entries into shipping contracts with shippers and orders are fulfilled by truckers matched by platform on an entrusted basis for 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 delays as well as cargo damages to certain extent. Upon the fulfillment of the orders, the shippers pay service fees to us.

Speaker 2

The service fees we charge for freight brokerage services are based on the percentage of shipping fees, which was approximately 6% For the Q1, also one of the highest in the industry. We regard the freight brokerage As a business line that inhibits user stickiness, its strategic significance lies in increasing the dependence and frequency of shippers on the FDA platform. Our data also shows that shippers who use freight Trade focused 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 room for adjustment. Going forward, we will encourage freight brokerage users to post more matching orders In all words, the freight brokerage business service involves a number of contractual shipping orders, which helps us gain a full picture of shippers' Complete needs beyond just on demand needs.

Speaker 2

Regarding the tax reform policy, We have not received any notices from regulators regarding a tax rebate rollback. We have multiple cooperating tax sources, We're taking a flexible approach to adjust tax sources as the market evolves. As we only get partial refund for VAT and 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 the leading player in the market, setting the bar for other online freight Furthermore, if there were any extreme case require us Together with all other freight brokerage players to adjust or otherwise terminate the freight brokerage business, the impact on our overall profit will be minimal as our profit growth contribution comes mainly from our commission business.

Speaker 2

And lastly, considering that freight brokerage requires FDA 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.

Speaker 4

Thank you very much.

Operator

Thank you. Our next question today comes from Brian Gong with Citi. Please go ahead.

Speaker 2

I will translate myself. In the Q1, Revenues from transaction commissions surged over 55% year on year. 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, the amounting platforms to lower The signing of excessive commissions will this affect FDA's commission strategy in the future? Thank you.

Speaker 2

Thank you. These are all very important questions. The growth in revenue from transaction commissions in the Q1 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 Q1, our business team makes dynamic adjustments to commission rates And penetration based on platforms real time order volume to strike a balance among the increase in commission revenue, user activity growth and business skill improvement. As user base and order intensity continue to rise, we plan to further expand the coverage of commission orders and prudently increased the overall commission rate.

Speaker 2

Regarding the recent proposal from the Ministry of Transportation for a reduction in excessive Commission for Transformation Platform. We understand this is a follow-up enhancement to the operation Sunshine Policy implemented last year. This proposal strives to achieve the same goal, mainly to further safeguard and rise the interest of users In a transparent and open environment, our commission rate is at very low level and in fact significantly lower than other Thank you.

Operator

Thank you. And our next question comes from Sherry Leung with Bernstein. Please go ahead.

Speaker 1

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.

Speaker 2

Thank you. In the Q1, 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 brands and platform through various online and offline channels, Attracting more high quality direct shippers as a result. As you know, China has over 30,000,000 SMEs who may require FTL shipments, all of whom are our potential shipper customers.

Speaker 2

Therefore, we will remain devoted to offering various transportation capacity solutions And meeting shippers involving logistics needs 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 Two smaller trucks as the pandemic supply 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 to repeat freight logistics period to help truckers enjoy short breaks and supply and increase their comfort while traveling, These amenities enhance truckers' sense of belonging on our platform, while also attracting new truckers to FDA. Looking forward, we continue to attract more high quality truckers and shippers, sustaining our growth in both user scale and transaction volume on our platform.

Operator

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.

Speaker 1

Thank you once again for joining us today. If you have any further questions, please feel free to contact us Have a good day.

Operator

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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