Full Truck Alliance Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 21, 2024

There are 7 speakers on the call.

Operator

Ladies and gentlemen, good day and welcome to Full Truck Alliance's Second Quarter 2024 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 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 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 its 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 side 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 FTA's Investor Relations website at ir. Botoxalliance.com. I will now turn the call over to our Founder, Chairman and CEO, Mr. Zhang. Please go ahead.

Speaker 1

Hello, everyone. Thank you for joining us today on our Q2 2024 earnings conference call. Despite the complex and volatile macro environment, we continue to advance the digitalization of the logistics industry in the first half of twenty twenty four, empowering enterprises to enhance their logistics competitiveness. Amidst the broader industry trend of cost reduction and efficiency enhancements, we leveraged our dual ad platform fuel effect to deliver exceptional cost effectiveness and transaction efficiency to our users, driving the company's growth flywheel. Our fulfilled orders in the first half of twenty twenty four grew by 25% year over year, significantly outpacing the single digit growth in the overall fleet market.

Speaker 1

This exceptional performance demonstrated that our digital and intelligent logistics model is steadily replacing traditional offline solutions, including equipment truckers and contracted shipments. Since the Q2, our key operational initiatives have been highly effective, particularly in terms of shipper user acquisition, enhancing the trucker supply ecosystem and boosting monetization efficiency. We are committed to becoming the one stop shipping platform for 30,000,000 small and medium sized shippers, focusing on acquiring high quality users through various channels. In the Q2, our average daily count of shippers fulfilled the initial transaction reaching a new record high. Additionally, we further improved new shippers' user experience through refined operational strategies designed to enhance their transaction frequency and conversion efficiency after their first shipments.

Speaker 1

As a result, our average shipper MAUs reached 2,650,000, an increase of 32.8% year over year. On the trucker side, we focused on a combination of strategies, including premium cargo bidding, tiered trucker ready system and trucker credit scores, all of which leverage traffic distribution and benefit allocation to promote healthy capacity growth on the platform. Thanks to the increase in high quality transportation capacity, our fulfillment rate climbed to a record high of 33.7% in the quarter, up nearly 3 point 4 percentage points year over year. As for monetization, our rapid revenue growth in the quarter validated the platform's immense monetization potential. These accomplishments highlight the irreplaceable value that FTA provides to both truckers and shippers.

Speaker 1

This quarter's solid operational performance resulted in another set of strong financial results, once again exceeding market expectations. Our total net revenues in the quarter reached RMB2764 1,000,000, up 34.1% year over year. Among them, transaction service revenues grew by 63% year over year and accounted for more than 30 4% of our total revenues, becoming a new growth engine as we continue to optimize our revenue structure. Capitalizing on our revenue optimization and operating leverage, we also steadily improved our profits. Non GAAP adjusted operating income and adjusted net income increased by 55.1 percent and 34.2 percent year over year to RMB699 1,000,000 and RMB971 1,000,000 respectively.

Speaker 1

This July, the 3rd preliminary session of the 20 Central Committee of the Community's Party of China reiterated the importance of cultivating new quality productive force and reducing logistics costs across society. As a representative of intelligent productive force in the logistics industry, FDA continues to invest in digitalization and intelligent infrastructure construction, while actively promoting the development of new energy transportation capacity. In the first half of twenty twenty four, the number of freight orders fulfilled by our electronic vehicles increased by 100% year over year and contributed nearly 20% of total order volume. Looking ahead, we are confident that we will continue to meet the logistics industry in cost reduction and efficiency improvement through digitization, intelligence, and green practice, creating greater value for all of our users and society as a whole. Thank you, everyone.

Speaker 1

Let me pass the call over to our CFO, Simon, who will provide an update on our Q2 business progress and financial results.

Speaker 2

Thank you, Mr. Zhang, and thanks, everyone, for making time to join our earnings call today. I will now provide an overview of our operational and financial results for the Q2 of 2024. Despite macroeconomic challenges and pressure from extreme weather conditions, such as prolonged heavy rains that impacted shipments during the quarter. We maintained robust overall order growth on our platform driven by an expanding shipper user base and higher fulfillment efficiency fueled by our enhanced network effect.

Speaker 2

Our fulfilled orders increased by 22% year over year to 49,100,000 in the 2nd quarter. Building on last quarter's momentum, our fulfillment rate also continued to rise in the 2nd quarter, reaching approximately 33.7%, over 3 percentage points year over year. With the number of small and medium sized direct shippers growing faster than our 1688 member shippers, our shipper structure continued to improve, leading to an enhanced overall order structure. In the Q2, the order contribution from our 688 member shippers and non member shippers climbed to 48%, breaking the record set last quarter. In addition, higher fulfillment rates among our 688 member and non member shippers drove the improvement in our overall fulfillment rate.

Speaker 2

Looking ahead, we are confident there's significant potential to further elevate our fulfillment rate through ongoing product and service upgrades as well as continued refinement to our freight matching services infrastructure. Turning to our user base, we continue to make strong progress with our shipper users in the Q2, as evidenced by our average shipper MAUs reaching 2,650,000, representing an increase of 32.8% year over year and 23.7% quarter over quarter. This quarter's rapid shipper user gain was again attributed to growth among our 688 member shippers and non member shippers who are mostly low and medium frequency direct shippers. As we enter the Q2, we continue to ramp up our new shipper acquisition efforts, leveraging multiple online channels to identify and convert high quality new shippers. In particular, we focused on the onboarding and retention of new users, making every effort to provide an exceptional human experience during their first three trials.

Speaker 2

We expect ongoing growth in our shipper base, thanks to this effective strategy. Furthermore, we achieved consistently robust shipper activity with our shipper member 12 month rolling retention rate remaining above 80% in the second quarter. In addition to our success with shippers, our trucker users have become increasingly dependent on our platform, thanks to the value we bring to the trucker cargo matching process. As of the end of the second quarter, the number of active truckers through FTA over the past 12 months reached 3,980,000, maintaining sequential growth. Additionally, our next month retention of truckers who responded to orders remained above 85%, indicating continued strong user stickiness.

Speaker 2

In the Q2, the average number of quarterly fulfilled orders per active trucker fulfilling orders on our platform reached an all time high, a testament to their continuously increasing wallet share with FTAs. Furthermore, our refinements to our trucker operation strategy are proving effective. During the Q2, we systemically tested and upgraded certain product features to motivate truckers to bid on orders labeled high quality, achieving faster order acceptance rate and optimized fulfillment efficiency. Our approach to high quality order bidding also enabled us to steer truckers toward medium quality orders, giving us greater control over the distribution of all the posting. Going forward, we will delve deeper into the tiered trucker rating system to further improve trucker cargo matching efficiency, which in turn will enhance our overall management of high quality transportation capacity supply.

Speaker 2

Turning to our transaction service in the Q2, revenues from transaction service surged by 63.4% year over year to RMB952 1,000,000, mainly driven by 3 factors: the solid expansion in the number of field orders the increased monetized order penetration ratio and the elevated monetization rate. Truckers' growing reliance on our platform, coupled with the development of trucker payment habits and the rapid expansion of direct shippers, has set the stage for us to accelerate the realization of our commission model's potential. Our 2nd quarter revenues from transaction service covered 81.1% of all fulfilled orders, an increase of approximately 14 percentage points this year points year over year from 67.1 percent order coverage in the prior year period. In the Q2, our monetization amount per order, including transaction commission and trucker membership fee, increased to RMB23.9 from RMB21.6 a year ago. Looking ahead to the second half of the year, we plan to steadily enhance both monetization coverage and monetization rate.

Speaker 2

Before going over our financial results, I would like to provide a brief update on our share repurchase program. Since we announced our 1 year share repurchase program totaling US300 million dollars on March 13, 2024, we have repurchased approximately 3,500,000 ADS shares, totaling approximately US30.7 million dollars Moving on to our 2024 Q2 financial results. Our total net revenues in the 2nd quarter were RMB2764.3 million, representing a 34.1% increase year over year, primarily attributable to an increase in revenues from freight matching services. Net revenues from freight matching services, including service fees from freight brokerage model, membership fees from listing models and commissions from transaction services were RMB328.7 million in the 2nd quarter, representing an increase of 34.4% year over year, primarily due to a significant increase in transaction service and the continued growth in freight brokerage business. Revenues from freight brokerage service in the second quarter were 1,164,800,000, up 22.7% year over year, primarily attributable to an increase in transaction volume due to the continued growth in user demand.

Speaker 2

Revenues from the freight listing service in the Q2 were RMB212.1 million, up 5.6% year over year, primarily due to a growing number of paying members. Revenues from the transaction service in the Q2 were RMB951.9 million, up 63.4% year over year, primarily driven by an increase in order volume, penetration rate and the per order transaction service fee. Revenues from value added services in the Q2 were RMB435.6 million, up 32% year over year. This increase was due to the growing demand from truckers and shippers for credit solutions and other value added services. 2nd quarter cost of revenues was RMB1312.1 million compared with RMB975.3 million in the prior year period.

Speaker 2

The increase was primarily due to an increase in VAT related tax surcharges and other tax costs, net of grants from government authorities. And these tax related costs, net of government grants, totaled RMB1176.3 million, representing an increase of 33.8 percent from RMB879.3 million in the same period of 2023, primarily due to the expansion of transaction activities involving our freight brokerage service. Our sales and marketing expenses in the Q2 were RMB372.3 million, compared with RMB281.8 million in the same period of 2023. The increase was primarily due to an increase in advertising and marketing expenses for user acquisitions, as well as higher salary and benefit expenses. General and administrative expenses in the second quarter were RMB219.2 million, compared with RMB201.7 million in the same period of 2023.

Speaker 2

The increase was primarily due to higher share based compensation expenses. R and D expenses in the Q2 were RMB232.1 million compared with RMB223.7 million in the same period of 2023. The increase was primarily due to higher share based compensation expenses as well as increased investment in technology infrastructure. Income from operations in the 2nd quarter was RMB565.4 million compared with RMB333.8 million in the same period of 2023. Net income in the second quarter was RMB840.5 million, an increase of 38% from RMB609 1,000,000 in the same period of 2023.

Speaker 2

Under non GAAP measures, our adjusted operating income in the 2nd quarter was RMB699 1,000,000, an increase of 55.1 percent from RMB450.7 million in the same period of 2023. Our adjusted net income in the second quarter was RMB970.9 million, an increase of 34.3 percent from RMB722.7 million in the same period of 2023. Basic and diluted net income per ADS were RMB0.79 in the 2nd quarter compared with RMB0.57 in the same period of 2023. Non GAAP adjusted basic net income per ADS was RMB0.92 in the 2nd quarter compared with RMB0.68 in the same period of 2023. Non GAAP adjusted diluted net income per ADS was RMB0.91 in the 2nd quarter compared with RMB0.68 in the same period of 2023.

Speaker 2

As of June 30, 2024, the company had cash and cash equivalents, restricted cash, short term investments, long term time deposits and wealth management products with maturities over 1 year of RMB26.8 billion in total compared with RMB27.6 billion as of December 31, 2023. For our Q3 2024 business outlook, we expect our total revenues to be between RMB2.78 billion and RMB2.82 billion, representing a year over year growth rate of approximately 21.9% to 24.6%. This forecast reflects the company's current and preliminary view on the market and 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.

Speaker 2

Operator, please go ahead.

Operator

We will now begin the question and answer session. Our first question comes from Ronald Keung with Goldman Sachs. Please go ahead.

Speaker 3

Simon, Thank you, management. And we see that the fulfilled order grew around 22% in the second quarter, still much faster than overall freight market, but growth rate has slowed versus the Q1. So what were the factors behind drivers? And based on the trend so far, can you share how do you view order volume growth into the Q3 and for the full year? Thank you.

Speaker 2

Thank you, Ronald. Our robust order volume growth in Q2 was primarily driven by 3 main factors, our expanding shipper user base, product and operational strategy optimization that drove continued improvements in user activity and incremental volume from new business. This was partially offset a little bit by the overall demand weakness in the road freight since Q2 and extreme weather conditions in May June, particularly the prolonged heavy rains in eastern and southern part of China as well as flooding in the south and drought in the north. From a user base perspective, we continue to efficiently acquire users in the Q2. Our average number of monthly active shippers increased by 32.8% year over year to 2.68 65,000,000, extending the Q1's accelerated growth trajectory.

Speaker 2

Our operations team concentrated on all round support of new shippers, which improved user engagement from registration to their 1st shipment posting and fulfillment. For our product and operational strategies, this quarter we focused on increasing the proportion of priced orders from shippers and optimizing premium cargo bidding for for truckers. Encouraging shippers to post price orders has increased truckers' willingness to accept orders, announcing matching efficiency. This was particularly true for professional shippers whose fulfillment rates improved significantly. Notably, the proportion of price orders posting reached 60% in the quarter.

Speaker 2

We also continue refining our premium cargo bidding feature to strengthen truckers' perception of high value orders. This product is designed to reward truckers with access to better orders after completing an average or below average order, which motivates them to stay active and increase their human frequency on the platform. On the new business, the bulk less than truckload and short haul segments continue to grow rapidly and contribute to our business volume. Given the industry trend, volume. Given the industry trend toward LTL and our unique user advantage in this segment, we expect substantial future growth in the LTL business.

Speaker 2

And looking ahead to the coming Q3, despite the ongoing impact of extreme weather and the macro environment, we remain confident that increasing online penetration, driven by user growth and product enhancement will enable us to achieve order volume growth of over 20% for the full year. Thank you. Thank you, Simon.

Operator

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

Speaker 4

My question is regarding the active ship MAU. So in Q2, the monthly active shipper reached 2,650,000, so marking a year over year increase of around 33% and the quarter over quarter growth of 24%. So what were the main driver behind this growth? And is the user structure still trending towards to the direct shippers? Thank you.

Speaker 2

Thank you, Eddie. The 2nd quarter strong user growth momentum was mainly driven by our effective user acquisition strategy. Our ongoing investment in online channels, in branding campaigns and offline truck sticker advertising brought a steady stream of high quality new users to our platform. Additionally, seasonal factors played a role as some shipments delayed during the Chinese New Year holiday were shipped during the busy shipping season in Q2, resulting in higher shipping demand. From a user structure perspective, the proportion of direct shippers continue to rise.

Speaker 2

In Q2, monthly active direct shippers increased by more than 38% year over year and direct shippers contributed approximately 48% of the total fulfilled orders. And similar to previous quarters, the majority of the new shipper users are small to medium sized business owners. We have a higher likelihood of placing and fulfilling orders. They also prioritize timely response and quality transportation services, further boosting fulfillment rates. On the other hand, direct shippers naturally tend to have a lower order frequency than professional shippers.

Speaker 2

To increase new direct shippers' order frequency, we continue to enhance the trucker credit rating system to improve overall service quality and standards. Leveraging our advantages in pricing, matching efficiency and trucker management capabilities, we aim to provide better service than those offline brokers that these users previously relied on. And also we are strengthening our user coverage with a more comprehensive area of services, including the lessened truckload, short haul and PMS systems to cater a wider range of shipping needs for small to medium sized shippers and increase usage frequency. And looking ahead, as we expand as our brand exposure and awareness continue to rise, we expect a growing number of small to medium sized business owners to join our platform, driving sustained auto volume growth in the rest of the year.

Operator

Our next question comes from Julie Lee with CICC. Please go ahead. You may be muted. Julie Li with CICC. Please go ahead.

Operator

Could you provide an update on your purchasing services? What trends have you seen in your member users in Q2 despite the rapid growth in monthly active shippers, the year over year growth in shipper pre listing service revenue is modest? What are the main reasons for the discrepancy?

Speaker 1

Thank you.

Speaker 2

Thank you, Jialou. We're pleased with our year to date shipper member growth rate. As of June, the number of shipper members reached 860,000 compared with 780,000 a year ago. Paying user growth was mostly driven by an increase in the number of new users and enhanced membership operations that have boosted conversions. In Q2, the increase in new paying shipper members came primarily from direct shippers.

Speaker 2

To support this trend, we strategically lowered the payment barrier for new users with occasional free trial membership offers as well as the RMB 288 Mini membership package. Meanwhile, we also increased benefits for existing shipper members. Benefits for our member users include faster truck sourcing access to top rated truckers and free freight insurance, all of which helped convert non member users to members and improve existing members' repurchase rate. Currently, the repurchase rate for shipper members remains above 80%, demonstrating existing members' high reliance and stickiness on our platform. As we continue to improve our freight listing products and refine our operational strategies, we're confident that we will consistently attract more paying members and further increase user retention.

Speaker 2

Thank you.

Operator

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

Speaker 2

How was Trucker Group overall activity in the same quarter? Has the continued increase in commission rate negatively affected the truckers' activity level? And what are our key strategies and priorities for trucker operation currently? Thank you. Thank you, Brian.

Speaker 2

Our average monthly active number of truckers responding to orders remained about 3,000,000 in the 2nd quarter with quarterly growth of more than 8%, ensuring an adequate carrier capacity supply. The number of days that truckers search for freight on our platform and the order fulfillment frequency per active trucker also rose in this quarter. Within our existing tiered trucker rating system, we continue to deepen truckers' reliance on our platform by refining product features across various scenarios. As we mentioned earlier, one of our key projects in the Q2 was the rollout of our premium cargo bidding function. Previously, high quality freight orders on our platform were often refused before many truckers had the chance to bid, leading to a perception that high quality freight sources were in short supply.

Speaker 2

This negatively affected both our matching efficiency and fulfillment rates. With the launch of the premium cargo bidding, our platform now tags and hold high quality freight orders to give more truckers enough time to review and bid on those orders. By extending these orders' exposure time, we built and reinforced the perception that our platform has plenty of good freight orders. And this also creates a fair order bidding environment, which increases trucker user stickiness and improve overall fulfillment rates. In terms of optimizing service scenarios, we have capitalized on the ongoing trend toward LTL shipping and created a dedicated carpool LTL carpool zone to improve trucker efficiency in consolidating the loads.

Speaker 2

In addition to help truckers report empty spaces, we launched our carpool assistant, which enables more accurate identification of carpooling needs and increase its success rate. We're confident with effective and refined operational strategies in place to ensure an overall positive experience for trucker users on the platform and help them increase their income. Thank you.

Operator

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

Speaker 5

Thanks, management, for taking my question. I have only one question regarding the interested shipment. How did the interested shipment business progress in the Q2 of this year? And what is the overall operational strategy for this transaction type in the second half of this year? Thank you.

Speaker 2

Thank you, Charlie. The entrusted shipment business grew rapidly in the Q2 with fulfilled orders accounting for more than 6% of total order volume. This is also a new record high. We see that our pricing strategy optimization was one of the main drivers of this rapid order growth volume growth. By integrating algorithm and additional business logic, we created a more comprehensive and accurate pricing model.

Speaker 2

Effective control of the price premium has entitled both shippers and truckers to enjoy more balanced freight prices, which in turn has stimulated more order matching and fulfillment on both ends. 2nd, the influx of new users also has also led to an increase in trusted shipment orders, which has a lower barrier to entry for posting and a more hands on customer service team. These features are well suited to new shippers' needs, making entrusted shipments their preferred choice. Operationally, we are currently focusing on our tiered trucker rating system to ensure the quality of entrusted shipment transportation. This includes functions like delayed order displays, which shows entrusted shipment orders to quality truckers first and then to medium tier truckers after a delay, ensuring that the platform has sufficient transportation capacity.

Speaker 2

In addition, those risky truckers, such as those who have received serious complaints, are excluded from viewing entrusted shipment orders. As we move through the year, we expect ongoing improvement in product optimization, pricing strategy and user experience among other aspects, all of which contribute to the rapid growth of order fulfillment in the intrastate shipment business. Thank you.

Speaker 5

Thank you.

Operator

Our next question comes from Thomas Chong with Jefferies. Please go ahead.

Speaker 6

Thanks management for taking my question. My question is about LTL less than chocolo business. Can management comment about the order volume growth in the second quarter? And did the management did the industry trend from STL to LTL continue in the second quarter? And how do we position in the sector going forward?

Speaker 6

Thank you.

Speaker 2

Thank you, Thomas. The LTL business alone grew about 47% year over year in the Q2, again outpacing the food truck load. The other contribution of LTL continued to rise from the previous quarter, reaching approximately 28% in the quarter. The relative outperformance of LTL in recent quarters was attributable to several main factors, the general industry shift toward LTL and the increased online platform enhanced product features. First, the recent adjustments in the supply chain structure have led large manufacturers in sectors such as automotive, auto parts and equipment to establish regional warehouses, ultimately boosting shipping frequency and a gradual increase in LTL demand.

Speaker 2

Also in response to economic conditions, small and medium sized enterprises are increasingly using large sized LTL shipping, LTL shipping to reduce inventory and improve turnover efficiency. We find that most of our FTL shippers also require large ticket LTL shipping, meaning there is a significant overlap between these user groups, which minimizes our platform's user acquisition costs. 2nd, the major LTL players in the market are currently offline dedicated route operators, which with very low online penetration. On the shipper side, we have already established a massive direct shipper user base, giving us an inherited advantage in user volume. As enterprise users are typically price sensitive, they tend to save logistics costs whenever possible and our platform's intermediate free model effectively helps shippers reduce costs.

Speaker 2

This quarter, we launched a carpooling zone for our LTL business, enhancing shippers' awareness of low cost carpooling and boosting their cargo consolidation efficiency by precisely identifying their carpooling needs. This initiative improved truckers' income levels and led to an increase in the online penetration rate for our platform's large size LTL business. Looking ahead, we will continue to focus on enhancing carpooling and matching efficiency, user experience and the penetration rates in the LTL business to address increasing user demand. We also believe that the LTL business will continue to play an increasingly important role in our platform's future business development. Thank you.

Operator

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 at Fotramp Alliance directly or GPG Investor Relations. Our contact information for II in both China and the U. S. Can be found in today's press release.

Speaker 1

Have a good day.

Operator

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

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