Ladies and gentlemen, good day, and welcome to Full Truck Alliance's First 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 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. 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 these forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose 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. Joining us today on the call from FTA's senior management side are Mr. Hui Zhang, our Founder, Chairman and CEO; and Mr. Chong Cai, our CFO. Management will begin with prepared remarks, and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. In addition, a webcast replay of this call will be available on FTA's Investor Relations website at ir.fulltruckalliance.com. I will now turn the call over to our Founder, Chairman and CEO, Mr. Zhang.

Entering 2024, we continue to steadfastly promote the digital and intelligent transformation of the logistics industry by enhancing logistics efficiency and reducing costs for tens of millions of small and medium-sized shippers, we empower enterprises with greater logistics competitiveness and improved profitability with our core cost savings value proposition and consistently optimize the product experience, our network effect is growing stronger at both ends that is for both truckers and shippers. This leads to continuous improvements in fulfillment efficiency and further propels our growth flywheel. In the first quarter, we delivered nearly 30% year-over-year growth in fulfilled orders, again, significantly outpacing the single-digit growth of the broader road free market, reflecting the ongoing shift from the traditional off-line solutions of accordance truckers and contracted shipments to innovative digital and intelligent logistics platform. Since the first quarter, we have achieved continued improvements in key operational metrics, as evidenced by our new user growth, high-quality truck supply and enhanced monetization efficiency as we strive to become the one-stop shipping platform for tens of millions of small- and medium-sized shippers, new user acquisition remains a priority. As such, we continue to strengthen awareness of FTA's cost saving benefits for freight shipping. In addition, we refined our operational process for user acquisition and initial fulfillment, adding significant momentum to new user reps. Our average ship MAUs reached $2.14 million, an increase of 22.3% year-over-year. The strong demand from direct shippers continued to drive rapid order growth across our platform with direct shippers contributing to 47% of total fullfilled orders in the quarter. While ensuring an ample supply of truckers, we significantly improved the quality and efficiency of our trucker supply during the quarter through initiatives such as the trucker credit rating and the premium cargo billing functions. At the same time, we saw truckers…

I will start with an overview of our operational highlights and provide an update on our first quarter financial performance. We started the year off well with a solid performance in the first quarter. Our fulfilled orders increased by 29.6% year-over-year to $39.3 million, again, significantly outpacing the single-digit year-over-year growth of the broader road trade market. We attribute this to sustained strong year-over-year order growth to our ongoing user base expansion and matching efficiency improvements. Sequentially, the number of fulfilled orders declined in the first quarter due to the off-season effect of the Chinese New Year in line with previous seasonal patterns. Our fulfillment rates reached all-time high of approximately 33.5% in the first quarter, an increase of nearly six percentage points year-over-year and approximately 1.4 percentage points quarter-over-quarter. This was mainly attributable to contributions from our rapidly growing direct shipper base. Despite a slight shortage of truckers due to the Chinese New Years holiday, our platform's overall order structure continue to improve as the scale of direct shippers expanded. The other contribution from our 688 member shippers and nonmember shippers reached 47%, making a historical high. In addition, user growth on both sides, along with efficiency enhancement driven by platform-wide service upgrades drove an increase in direct shippers fulfillment rate, boosting our first quarter average fulfillment rate to new heights. We're confident that we can sustain this growth momentum as we move through the rest of the year. Turning to our user base. Strong execution of our user acquisition strategies have yielded positive results. Our average shipper MAUs reached $2.14 million in the first quarter, up 22.3% year-over-year but down slightly from the previous quarter due to the Chinese newer holiday. The year-over-year increase was primarily driven by growth among our 688 member shippers and nonmember shippers who…

[Operator Instructions] The first question comes from Eddy Wang with Morgan Stanley.

My question is about the fuel orders. In the first quarter, we see that the corporate order growth was around 30% year-over-year. Once again, surpassing the growth rate of the overall road freight market. What are the key factors driving this sustained growth order volume? Given this trend, I just want to hear your expectation for the order volume growth in the second quarter.

We are very pleased to see our first quarter order volume growth outpacing the industry growth rate of 5% year-over-year by almost 25 percentage points. Considering that the pandemic's impact is gone and the user demand that cut accumulated due to the travel restrictions was fully released by the second quarter of last year. We believe that our sustained growth in other volumes since the beginning of this year is mainly attributable to the ongoing increase in our market share gain in the road freight sector, specifically the strong growth momentum in other volume in the first quarter was driven by three main factors: The continued expansion of user scale at both ends, the increased activity among existing users as a result of our enhanced product features and services and the incremental volume contribution from our new business. In terms of the user scale, the number of shippers continue to grow steadily during the quarter with an average monthly active shippers increased by over 22% year-over-year, showing an accelerated growth trend compared to previous quarters. Since March, the daily number of new shipper registration has continued to increase. Also, as we enhance user acquisition efficiency and also strengthen personalized customer service for new users. We're driving more and faster conversions from new user registration to fulfillment. More importantly, direct shippers being a major contributor to this new user growth, bringing high-quality orders to our platform. Regarding product optimization, we have added multiple new functions on the trucker side using big data analytics, the platform identifies and labels high-quality orders and matches them with truckers via a bidding process. Among the truckers who are qualified to bid and those with higher credit ratings have a better chance of bringing the bid and incentivizing those truckers to stay active on our platform to achieve higher credit ratings. This has created a virtuous cycle within the trucker ecosystem, maybe leading to more effective tiered management of truckers, greater activity among high-quality truckers and ultimately, better fulfillment efficiency. In addition, our new businesses, namely large ticket LTL and interstate services, both of them continue to experience very rapid order volume growth during the quarter, and we believe that the online penetration of these new businesses, particularly the LTL business remain relatively low. Given our unique user advantages in the sector, we see significant growth potential in the LTL sector. Looking ahead to the second quarter, despite the high base effect of post-pandemic reopening in the prior year period, we remain very optimistic about maintaining steady high-quality growth in other volume. We're also confident that the year-over-year growth rate in the second quarter will be in the range of mid-20s.

The next question comes from Jiulu Li with CICC.

The performance rate reached an all-time high of 33.5% in the first quarter, up nearly 6% year-over-year and 1.4% sequentially. What are the key drivers behind this growth? What are your expectations for the fulfillment rate in the coming quarters?

Although the first quarter is typically the off-season due to the Chinese New Year holiday, our platform once again achieved a record fulfillment rate. We believe this success is largely due to our continuous optimization of user structure and dynamic product strategy adjustment. In terms of user structure, the other contribution from direct shippers reached 47% in the first quarter, that's up 3 percentage points year-over-year, while the fulfillment rates of both low and medium frequency direct shippers averaged over 50% in the quarter. Given small- and medium-sized direct shippers, higher fulfillment tendency and favorable pricing, this favorable shift in other mix also boosted our overall fulfillment rate. In addition, our enhanced order distribution strategy also played a role in this quarter as the platform's scale effects increase. For example, we efficiently identified medium to low-quality order posting and ground truckers who responded to those orders, priority access to high-quality orders in their next transactions. We also provided these truckers with monetary incentives such as commission waiver and cash subsidies to encourage them to willingly fulfill orders of all quality levels. Furthermore, for truckers who are not picky about others who are in hard depart, we also slightly increased the exposure rate of long-tail order posting through the recommendation features on our app, ensuring a steady improvement in the overall fulfillment rate of the platform. Looking ahead, we aim to onboard more shippers and truckers and foster greater supply and demand to facilitate more matches and optimize the trucker cargo supply-demand balance. We'll also continue to encourage shippers to use product models like in trusted shipment and tap-and-go, which boast higher trucker acceptance rates and consistently enhance our product features to drive higher fulfillment rates.

The next question comes from Charlie Chen with China Renaissance.

Since last year, the platform's tiered trucker rating system has shown promising initial results with consistent improvements. Could you please elaborate on the key strategies and focuses of trucker operations?

Since the pandemic restrictions were lifted last year. Our transportation capacity supply has remained sufficient. Our monthly active number of truckers who responded to others consistently remained above $3 million in the first quarter. Trucker operations have always been a key focus of our platform. As such, we categorize truckers into three distinct groups based on their user profiles, the active truckers and inactive truckers and implement tailored strategies to each of these groups. For new truckers, our platform guides them to appropriate orders through product optimization, trucker community operations and easier access to high-quality orders for qualified truckers. In addition, we closely monitor new truckers' fulfillment rate in the first three trials. For existing active truckers, we focus mainly on traffic management where we deploy targeted operation for different tiers of truckers, these initiatives have effectively cultivated a mindset for quality transactions among truckers. By leveraging truckers' credit rating and activity metrics, we motivate truckers to increase their transaction frequency, ensuring robust capacity supply across the platform. For those dormant inactive truckers, we proactively offer incentives such as gift packages for returning truckers and compensation coverage for unsatisfactory experience, encouraging them to resume business on the platform. Moving forward, we are confident that our proven and refined operational strategies will continue to deliver rewarding experiences for truckers on our platform and allowing them to maximize their earnings.

The next question comes from Bruce Mi with UBS.

Could you please provide us an update on our user acquisition progress during the first quarter? What is the company's user acquisition strategy for 2024?

The first quarter, as you know, it's typically a slow season in terms of user acquisition. Our user base, however, continued to grow rapidly on both sides in the first quarter of 2024. Currently, average daily new shipper registration exceeded 20,000 or trucker average over 10,000 daily registrations. The strong user growth momentum was primarily driven by our effective user acquisition strategies. Through a combination of online promotions, truck sticker advertising, off-line promotions and branding campaigns, we have meaningfully increased our brand visibility and awareness expanding our platform's user community. Our recently relaunched truck sticker advertising model involving outfitting truck experience with human and branded advertising is one noteworthy example. This promotional campaign has greatly amplified our brand visibility as trucks travel intercity routes and operating in logistic parts. In 2024, we will continue to integrate online and offline user acquisition channels for optimal impact with a focus on online channels. We will allocate over half of our user acquisition budget to online initiatives to reach potential users more efficiently and attract more shippers and truckers propelling the expansion of our logistics service network.

The next question comes from Brian Gong with Citigroup.

In the first quarter, revenues from transaction services or commission revenue surged by 61.5% year-on-year. What are the drivers behind this growth? Are there any adjustments to your commission strategy this year? How should we look at the revenue trend in the coming quarters?

In terms of our other coverage, this quarter, we rolled out the commission model in 30 new cities, scaling up the total commission city count to 234. Additionally, beginning in the first quarter, we further optimized our commission rules. For example, we eliminated the rule of commission decade based on matching duration so that the commissions better reflect other quality. Commissions on high-quality orders are unaffected by matching duration while low-quality orders are labeled as commission-free. As a result, the total monetized order volume surged by nearly 45% year-over-year, increasing the monetized order penetration ratio to approximately 77%. That's up about 8 percentage points year-over-year. In terms of monetization amount per other, the first quarter average amount, including trucker membership fees for intercity services and commission per transaction stood at RMB 22.7. That's an increase of approximately 11% year-over-year on a comparable basis. This increase was primarily attributable to our refined monetization strategies by leveraging big data analytics and identify high-quality order postings and increase their commission rates. We boosted average monetization efficiency per order across the platform without compromising the user experience. Looking ahead, we will continue to optimize our commission strategy and consistently explore high-quality transactions monetization potential to maximize this revenue stream, ensuring robust and long-term advancement of our transaction services, and we believe our platform's current monetization level is still relatively conservative and that there's ample room for us to unlock the further monetization potential.

That concludes the question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments.

Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Full Truck Alliance 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. Have a great day.

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