Full Truck Alliance Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 7, 2024

There are 7 speakers on the call.

Operator

Ladies and gentlemen, good day and welcome to Full Truck Alliance's 4th Quarter and Fiscal Year 2023 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ma Ma, 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 of liability as established by the U. S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain 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 FTA'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 looking 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 earlier today.

Speaker 1

Joining us today on the call from FTA's senior management are Mr. Hui Zhang, our Founder, Chairman and CEO and Mr. Simon Tai, 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 ir. Fulljumpalliance.com. I will now turn the call over to our Founder, Chairman and CEO, Mr. Zhang. Please go ahead, sir.

Speaker 2

Sir.

Speaker 1

Hello, everyone. Thank you for joining us today on our Q4 fiscal year of 2023 earnings conference call. We are thrilled to report another quarter of stellar results for the Q4 of 2023, closing out the year on a strong note. Despite the challenges and opportunities present in the external environment, we have adeptly navigated the prevailing trend of efficiency enhancement and cost reduction in the freight industry. By embracing the digital transformation of China's road freight sector, we have positioned ourselves as the leader in online digital and intelligent logistics solutions, effectively replacing traditional offline logistics with our core cost saving advantage.

Speaker 1

Through continuous enhancements to our product features and operating efficiency, we successfully deepened our penetration among direct shippers. We are committed to becoming the preferred shipping gateway for tens of millions of small and medium sized shippers, empowering enterprises with greater logistics competitiveness and improved profitability. In the Q4, we witnessed steady improvements across key operational matrix spending user base, product operations, transportation capacity supply and one stop services. Our average shipper MAUs reached an all time high of 2,240,000, representing nearly 19% year over year growth. Notably, the scale of direct shippers continued to increase during the Q4 with their proportion of fulfilled orders surpassing 45% for the first time, reflecting a significant shift towards more efficient and cost effective online channels.

Speaker 1

For product operations, we further refined and streamlined the shipping and efficient fulfillment product features for new direct shippers, facilitating their onboarding and driving robust growth. With respect to trucker supply, we upgraded our tiered trucker rating system, consistently optimizing transaction efficiency through incentive driven offerings and precise matching, while continuously expanding the supply of truckers and adding user stickiness. Additionally, for our one stop service, our better added services such as freight brokerage service, credit solutions and insurance, energy services and ETC saw continued penetration, synergizing with our transportation business to enhance user satisfaction and stickiness. These achievements further boosted our network effect growth momentum, catalyzing the growth risk market shift from traditional offline models to an innovative, efficient and digitalized future. Our strong business growth translated into exceptional financial performance with revenues growing by 25.3 percent year over year to RMB2.41 billion in the 4th quarter.

Speaker 1

Non GAAP adjusted net income increased by 64.4 percent year over year to RMB733 1,000,000. Going forward, we remain committed to optimizing our revenue mix and enhancing monetization efficiency to create greater value for our shareholders. In February 2024, the 4th meeting of the Central Commission for Financial and Economic Affairs emphasized the importance of effectively reducing logistics costs throughout society. As logistics serve as the backbone of the real economy, it continues to garner increased attention and support. Within this strategic landscape, by leveraging digitalized logistics offerings, we are confident in leveraging digital logistics to further enhance logistics efficiency and reduce costs, creating greater value for both the industry and our users.

Speaker 1

Thank you. Let me pass the call over to our CFO, Simon, who will provide an update on our 4th quarter's business progress and financial results.

Speaker 2

Thank you, Mr. Zhang, and thanks, everyone, for making the time to join our earnings conference call today. I will now provide an overview of our operational highlights and financial performance for the Q4 of 2023. We concluded the year with strong operational and financial results in the Q1. Our fulfilled orders experienced a remarkable 40.4 percent year over year growth, driving quarterly average daily fulfilled orders to an all time high.

Speaker 2

Despite the impact of the adverse weather conditions, 4th quarter order growth again outpaced the overall freight market propelled by sustained scale expansion and increased activity of both shipper and trucker users. We set a new record in fulfillment rate at approximately 32% in the 4th quarter, an increase of more than 8 percentage points year over year and more than 3 percentage points quarter over quarter. From a supply demand perspective, the quarter's increased supply of truckers improved matching efficiency across various transaction types, including negotiated orders, tap and go orders, entrusted shipments and including long haul, full truckload, less than truckload and short haul by distance range. Operationally, we continue to make progress with our tiered trucker operations strategy during the quarter. Initiatives such as our Saving Package 2.0 and truckers deposits helped strengthen our tiered truck rating management and enhance fulfillment quality of truckers, thereby boosting retention among high frequency active truckers.

Speaker 2

In terms of order structure, we sustained the growth momentum direct shippers from the Q3 with direct shippers contributing more than 45% of total fulfilled orders in the 4th quarter. We expect direct shippers order contribution will continue to grow as their penetration increases, leading to additional improvements in our platform's overall order fulfillment efficiency. Regarding our user base, our average shipper MAUs reached a historic high of 2,240,000 in the 4th quarter, up 18.7% year over year and 4.9% sequentially. This increase was primarily driven by rapid growth of our non member low frequency direct shippers. Meanwhile, our 1688 and 688 member shippers activity levels remained essentially stable year over year, given all types of shippers, whether it's professional shipper or direct shipper, have incentives looking for efficient shipping channels to lower their logistics costs.

Speaker 2

We expect this trend to continue with robust growth in our shipper user base through the year of 2024, primarily from low and medium frequency direct shippers. Our platform strong and growing network effect drove parallel growth in both our trucker base and activity during the quarter. For example, the number of active truckers fulfilling orders through our platform over the past 12 months rose to 3,880,000. In addition, we maintained our shipper member 12 months rolling retention rate, as well as our next month's retention of truckers will respond to orders on a sequential basis. In the Q4 of 2023, revenues from our online transaction commission amounted to RMB644.8 million, up 44% year over year.

Speaker 2

This growth was fueled by solid expansion in a number of fulfilled orders and the heightened commission penetration. Our commission model currently covered more than 59% of fulfilled orders and generated an average commission per transaction of RMB 23.7 during the quarter. It is important to note that historically, we did not include revenues from our IntraCity commission model and online transaction commission revenues. Therefore, intracity transactions were also included when calculating our commission penetration, resulting in an underestimation of overall commission model coverage. Moving forward, starting from 2024, we will rename our will rename our transaction commission revenue stream to transaction services, which consists of all monetization from truckers relating to freight matching services, including the revenue generated from our IntraCity business that was previously classified under the freight listing and value added services in order to better reflect the company's latest development status and the business nature of our revenues.

Speaker 2

Next, a brief update on our share repurchase program. From November 20, 2023 to March 6, 2024, we repurchased approximately 7,900,000 ADS shares, totaling approximately US52.7 million dollars Since we announced the program, we have repurchased a total of around 30,700,000 ADS shares from the open market with a total value of approximately US200 million dollars Now, our 2023 4th quarter and year end financial results. In the interest of time, I'll be presenting abbreviated highlights only. We encourage you to refer to our press release issued earlier today for complete details. Total revenues for full year 2023 were RMB8.4 billion, representing a 25.3% increase year over year.

Speaker 2

Net revenues for the 4th quarter were RMB2 point 4,000,000,000, representing a 25.3% increase year over year. Net revenues from freight matching services, including service fees from freight brokerage models, membership fees from listing models and commissions from online transaction services were RMB700048.8 million for the full year of 2023, up 24.6% from 2022, primarily due to the record growth in transaction commissions, as well as growing revenues from our freight brokerage service. Revenues from freight brokerage service reached RMB3.9 billion for 2023, up 16.5 percent year over year. For the 4th quarter, net revenue increased by 19 point 2 percent to RMB1.1 billion, primarily driven by an increase in transaction volume due to robust user demand. Revenue from freight listing service were RMB929.4 million for the full year, up 9% year over year and rose 10.4% year over year in the 4th quarter to reach RMB246.2 million, primarily due to a growing number of total paying members.

Speaker 2

Revenues from transaction commissions amounted to RMB2.2 billion in 2023, representing a 52.6% increase year over year. For the Q4 last year, net revenues amounted to RMB644.8 million, representing a 44% increase year over year, primarily driven by strong order volume growth as well as higher per order transaction commission. Revenues from value added services were RMB1.4 billion in 2023, representing a 28.8 percent increase year over year. For the 4th quarter, net revenues increased to RMB392.2 million, representing a 27.3 4th quarter cost of revenues was RMB 1.3 4th quarter cost of revenues was RMB1152.3 million, compared with RMB951.8 million in the prior year period. This increase was primarily due to an increase in VAT related tax surcharges and other tax costs and net of tax refund from government authorities.

Speaker 2

These tax related costs net of refund totaled RMB 1015.3 million, representing an increase of 18.4 percent from RMB857.4 million in the same period of 2022, primarily due to the increase due to the continued growth in transaction activities involving our freight brokerage service. Our sales and marketing expenses in the 4th quarter were RMB421 1,000,000 compared with RMB 281.1 million in the prior year period. The increase was primarily due to an increase in advertising and marketing expenses for user acquisitions. General and administrative expenses in the 4th quarter were RMB266 1,000,000 compared with RMB 408.2 million in the prior year period. The decrease was primarily due to lower share based compensation expenses and professional service fees.

Speaker 2

R and D expenses in the 4th quarter were RMB255.3 million, compared with RMB 250.2 million in the prior year period. The increase was primarily due to higher share based compensation expenses and increased investment in technology infrastructure, partially offset by a decrease in salary and benefit expenses. Income from operations in the 4th quarter were RMB250.8 million, compared with loss from operation of RMB5.3 million in the same period of 2022. Net income in the Q4 was RMB588.3 million, an increase of 200.6 percent from RMB195.7 million in the same period of 2022. Under non GAAP measures, our adjusted operating income in the 4th quarter was RMB398.8 million, an increase of 60.6 percent from RMB248.4 million in the same period of 2022.

Speaker 2

Our adjusted net income in the 4th quarter was RMB733 1,000,000, an increase of 64.4 percent from RMB445.8 million in the same period of 2022. Basic and diluted net income per ADS were RMB0.58 in the 4th quarter compared with RMB 0.18 in the same period of 2022. Non GAAP adjusted basic net income per ADS were RMB0 point 7 in the 4th quarter compared with RMB0.42 in the same period of 2022. Non GAAP adjusted diluted net income per ADS were RMB0.69 in the 4th quarter compared with RMB0 point 4 2 in the same period of 2022. As of December 31, 2023, our cash and cash equivalents, restricted cash, short term investments, long term time deposit and wealth management products totaled RMB 27,600,000,000 compared with RMB 26,300,000,000 as of December 31, 2022.

Speaker 2

For our Q1 2024 business outlook, we expect our total net revenues to be between RMB2.11 billion and RMB2.16 billion, representing a year over year growth rate of approximately 23.9% to 27.1%. And this forecast reflects our current and preliminary views on the market operational conditions, which are subject to change and cannot be predicted with reasonable accuracy as of the date hereof. That concludes our prepared remarks. We would now like to open the call to Q and A. Operator, please go ahead.

Operator

The first question today comes from Ronald Keung with Goldman Sachs. Please go ahead.

Speaker 3

Thank you, management, and for the sharing. I want to ask about a fulfillment rate that we've seen the record fulfillment rate of 32% in the 4th quarter. What are the key drivers behind and with the year on year increase and the sequential increase as well? And what is your expectation for fulfillment rate for 2024? Thank you.

Speaker 2

Thank you, Ronald. In this quarter, we have seen a substantial improvement in the freight matching efficiency, which can be attributed to the rapid expansion of our user base on both ends and the scale effects generated as a result. So with more active shippers on the platform, we attract new trucker registrations, ensuring a sufficient supply of transportation capacity to meet the diverse needs of shippers quickly. This dynamic cycle again lead to an influx of newly registered small and medium business owners. Specifically, the significant improvement in fulfillment rates in the Q4 was driven by a number of positive factors.

Speaker 2

Firstly, the average trucker daily active user who are responding to orders increased by approximately 13% year over year in the quarter, resulting in an increase in effective supply on the trucker side. Further, balancing the supply and demand and therefore increasing the probability of successful matches. And secondly, ongoing optimization of the shipper structure also led to an improvement in matching capability. The contribution of fulfilled orders from direct shippers increased by 3 percentage points year over year to over 45%, in housing the overall quality of order listing and the certainty of order fulfillment. Another key factor is continued improvement of the platform's pricing capabilities.

Speaker 2

Through big database and measurement, the platform can set reasonable recommended prices that are better aligned with the current market conditions and further increasing the likelihood of transaction completion. And additionally, we have continued to create remarkable value adds to our users during the fulfillment process, such as disputes resolution and user rating, all of which have also contributed to the increase in fulfillment rates. Looking into the coming year, we will continue to attract more shippers and truckers by utilizing a multilateral market approach to create and match more supply and demand, thereby maintaining a better balance between users on both sides. We also continue to encourage shippers to utilize transaction types such as entrusted shipment and tap and go, which more truckers are willing to respond to, while consistently optimizing the product function and improving data efficiency to drive even higher fulfillment rates. Also, as the user structure continuously shift towards direct shippers, we also anticipated further improvement in the fulfillment rate.

Speaker 2

Thank you.

Speaker 3

Thank you.

Operator

The next question comes from Eddie Wang with Morgan Stanley. Please go ahead.

Speaker 4

Thank you, management, for taking my question. My question is regarding the fulfilled orders. We noticed that there's a 40% year over year of the fulfilled orders in the Q4. And for the full year, last year, it's around 33% year over year. So this is significantly higher than the growth of the broad logistic market.

Speaker 4

So what's the major driver behind this strong growth? And what's your expectation for the fulfilled order growth in 2024? Thank you.

Speaker 2

Thank you, Eddie. Since last year, the online penetration of the freight matching industry has shown very consistent growth. Our platform has maintained strong order volume growth over the past year and mainly benefiting from the continued increase of new shippers, improved activity level of existing users and continued improvement in matching efficiency as a result of operational strategy optimization. In the Q4, we sustained our holistic user acquisition efforts across various channels, including App Store, information streams and SEM among others. Additionally, our leading network effects brought us a large number of user, new user registration through natural traffic.

Speaker 2

As of the end of December, we had an average of around 20,000 new shippers and 10,000 new truckers registering on our platform every day. Looking ahead to the coming year, we will continue to invest in branding and improve user acquisitions, and improve user acquisition efficiency by further exploring innovative user acquisition channels such as increasing offline truck stickers, advertisements and promoting online mini programs. At the same time, we will optimize the conversion of registered users to active users through a series of effective operational tools. Also this quarter brought more than just the growth of long haul business with our ongoing product functionality and operational efficiency optimizations, the less than truckload orders matched through our platform also grew rapidly in the past quarter. We believe that the online penetration rate of LTL remains considerably low at the moment, indicating there's still huge market opportunity to be unlocked.

Speaker 2

As we look ahead into 2024, we will see new opportunities for growth as the trend toward direct shippers and LTL transactions continue to intensify. We anticipate continued high growth in our total fulfillment orders, not solely confined to the FTL market. Additionally, we anticipate making significant strides in new markets such as LTL and capitalizing on emerging opportunities. Thank you.

Operator

The next question comes from Charlie Chen with China Renaissance. Please go ahead.

Speaker 5

Could you please provide me with an update on site listing services, specifically the trend in the number of subscribing shipper members during the Q4. It seems that the revenue growth of freight listing has been slower compared to the fast growth of monthly active shippers. Could you please explain the main reason behind the growth rate discrepancy and provide us with an estimate of the expected membership growth for 2024? Thank you.

Speaker 2

Thank you. The number of shipper members remain largely stable in the 4th quarter with approximately 790,000 existing subscribing members as of December, a steady increase from last quarter end. Our shipper members have demonstrated strong retention and engagement with 12 months rolling retention rate of over 80% since 2023. The recent membership growth has been primarily driven by 2 factors. Firstly, we have already achieved a high penetration rate among professional shippers and we expect the number of shipper members from this segment to remain relatively stable in the future.

Speaker 2

Secondly, we have observed majority of the new shippers are low and medium frequency users and the number of orders included in our 688 memberships exceeded their needs. In response, our operation teams is actively formulating product strategies and exploring the development of packages that are more suitable for low frequency direct shippers. In addition, although direct shipper members contribute less revenue from ARPU perspective, There are specific characters such as willing to accept higher freight rates and demonstrate a better fulfillment rate, provide us with a greater potential for cross selling with online transaction services and value added products. So in the long run, direct shippers will not only serve as the primary catalyst for future freight listing revenue growth, but we'll also present growth opportunities across other segments of our business.

Operator

The next question comes from Jilu Li with CICC. Please go ahead.

Speaker 6

Okay. My first question is about the commission strategies. So what are the overall commission strategy for 2024? And in particular, what is your plan for commission rate and commission coverage improvement in 2024?

Speaker 2

Thank you, Jialu. The substantial increase in our commission revenue in the past quarter was fueled by the rapid growth rate of the platform's overall will continue to prioritize growth in users and other volume rather than just expanding to additional cities under the commission model. By the end of 2023, our commission model had been successfully rolled out in 2 0 4 cities. In the meantime, we have also stress test higher commission parameters in randomly selected cities and verify the viability. So entering to 2024, we will remain we will maintain our prudent approach for our transaction service business.

Speaker 2

In addition, we will continue to enhance the value of our transaction services to users through ongoing product functionality improvements. For instance, we recently launched our Shen Qing Bao RDM Link Saving Package 2.0 product for truckers, which includes various privileges and protection features for those who subscribed. And truckers who purchased the saving package 2.0 will also receive discounts on future commissions as well as bonus order points, which they can redeem for additional benefits such as expedited deposit refunds. From From a long term perspective, we believe that our current commission rates are very conservative and that there is still ample room to boost our commission revenues in the Looking ahead into 2024, as the platform's network effects strengthens and users' reliance on our platform deepens, we expect that year over year commission revenue growth will remain strong and potentially surpassing the growth rate that we achieved in the past year.

Speaker 6

My second question is that non GAAP sales and marketing expenses increased by 50.6 percent year over year in the Q4, outpacing revenue growth for the same period. What are the main reasons for the high growth in sales and marketing expenses in the quarter, how do you expect the sales and marketing expenses to trend in 2024?

Speaker 2

Thank you. The high growth rate of non GAAP sales and marketing expenses in Q4 was primarily due to the increase of investment in marketing to acquire new users both through online and offline channels, as well as our brand promotion to increase our brand awareness. Online, we mainly advertise through app stores, information streams and search engine marketing, among other values. In offline, we primarily acquire users through truck stickers and advertising and our field marketing teams. Moving to the coming year, we will continue to employ a very active user acquisition strategy to grow our user base and optimize our user structure.

Speaker 2

Our overall user acquisition strategy will continue to attract shippers and truckers to our platform via a combination of online and offline channels, driving expansion in our logistics network. We expect to increase our user acquisition efforts in comparison with last year. In the longer run, we anticipate a continued increase in sales and marketing expenses aligned with the expansion of new business ventures. However, as our revenue quickly scale up and especially as we optimize commission penetration and further improved operating leverage, sales and marketing expenses will gradually decline as a percentage of total net revenues.

Operator

This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Speaker 1

Again, thank you, everyone, for joining us today. If you have any further questions, please feel free to contact us at Fort Collins directly or TPG Investor Relations. Our contact information for IR in both China and the U. S. Can be found in today's press release.

Speaker 1

Have a good day. Bye bye.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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