Ladies and gentlemen, good day and welcome to Full Truck Alliance's Second Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference call over to Mao Mao, Head of Investor Relations. Please go ahead.

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. 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 statements, 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. Joining us today on the call from FDA's senior management are Mr. Hui Zhang, our Founder, Chairman and Chief Executive Officer; and Mr. Simon Cai, our Chief Financial Officer. 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 conference call will be available on FTA's Investor Relations website at ir.fulltruckalliance.com. I'll now turn the call over to our Founder, Chairman and CEO Mr. Zhang. Please go ahead sir.

Hello everyone, and thank you for participating in the Full Truck Alliance inaugural earnings conference call today on June 22, 2021. FTA successfully listed on the New York Stock Exchange marking the start of our new journey as a public company. On behalf of FTA's employees and myself. I'd like to extend our sincerest gratitude and appreciation to all our long-term and new shareholders for their unwavering support. I believe many of you are joining us today not only to hear about our second quarter earnings results and achievement, but also to learn more about our response to the regulatory developments that occurred in early July. We wanted to assure you that we have attached great importance to the cybersecurity review initiated by Cybersecurity Review Office or CRO of the Cyberspace Administration of China and have cooperated full day with CRO during the review process. In addition, we also conducted a comprehensive self-examination of any potential cybersecurity risks, and are committed to continuously improving our cybersecurity system and technological capabilities. New user registration for our Yunmanman and Huochebang apps remain suspend in China, but the apps are operating normally for existing users. In line with our commitments to safeguard national security and public interest. We will bear no effort to fulfill our corporate and social responsibilities and actively promote the implementation of relevant cybersecurity policies. Now turning to our second quarter earnings results. As we present our results for the first time as a public company. We are pleased to report a solid second quarter performance positioning us for a promising year. Our total net revenues doubled from the same period last year to RMB1.12 billion. We continue to prove our platform's ability to generate profit on non-GAAP basis, as we adjusted net income reached RMB99.5 million compared with a…

Thank you. I'd like to provide a brief overview of our second quarter 2021 financial results. Before I get started, I'd like to clarify that all financial numbers presented today are in RMB amount and all percentage changes referred to year-over-year changes unless otherwise noted. As Mr. Zhang stated our total net revenues many consisting of revenues from freight matching services and value-added services or RMB1,118.8 million in the second quarter of 2021 representing an increase of 100.9% from RMB556.9 million a year-ago, primarily attributable to an increase in revenues from freight matching services. Revenues from freight matching services in the second quarter of 2021 were RMB937.6 million, representing an increase of 109.8% or RMB446.9 million in the same period last year. As part of our freight matching services, we generate service fees from freight brokerage models, membership fees from listing model and commission from online transaction services. revenues from freight brokerage service in the second quarter of this year were RMB601.3 million increased by 88.6% from RMB318.9 million in the same period last year, primarily due to significant increase in transaction activities amid a substantial recovery in both transportation in China post the COVID but partially offset by a decrease in our average fee rate to attract more users to use our service. Revenues from freight listing service in the second quarter of 2021 were RMB175.4 million, up 37% from RMB128 million a year-ago, primarily due to an increase in total paying members and increased shipper demand for our services as our business continue to expand. We started monetizing online transaction services by collecting commissions from truckers on selected types of shipping orders from three cities in August last year. In the second quarter of this year, we collected commissions in a total of 50 cities, and our total…

Ladies and gentlemen, we will now begin the question-and-answer session. Our first question today comes from Ronald Keung from Goldman Sachs. Please go ahead with your question.

Thank you, management. I have two questions. First is, could you share what is the latest progress in your closed loop model and advancing in that in the second quarter of 2021. What is the fulfillment rate? And how do we plan to further improve its fulfillment rate into the future? And my second question would be given the recent extreme weather, there were floods, typhoons, and the recent outbreak of COVID and particularly in Nanjing has that affected the business volumes and operations of the business and our third quarter revenue guidance. Thank you, Peter Hui Zhang.

In the second quarter, our closed loop model was further enhanced and our fulfillment rate continued to increase reaching approximately 30%. Just remarkable improvement was mainly attributable to both our deep understanding of both supply and demand and the steady improvements in our matching efficiencies. So going forward, we will continue to generate more structured data through our advanced big data technology, improve the standardization of order entry and requirements of data analysis. We're also launching a recommendation based model to constantly improve the demands and efficiency and enhance user experience. We expect the overall rate on our platforms to continue increasing over the next few years. So since late July, the typhoons and floods have impacted our road transportation in some areas, including Hunan and some cities of Changzhou as well as Shanghai, the extreme weather had an impact on our business in some areas in the third quarter, but given the short duration of the extreme conditions, our business in related areas have gradually recovered after the disaster. And we believe that extreme weather will not significantly impact our overall business and the financial performance in the third quarter. Speaking of the pandemic impact, in the third quarter based on our current assessments, our business in some areas of Changzhou, Hunan - and the Hunan province has been affected as the pandemic it's ongoing, we will continue to monitor the impact on our business. And things to operate, our employees from Nanjing office have been working from home and have been able to function efficiently with the support of our internal communication tools. I'll talk one it's running smoothly at the moment and all business departments are progressing as expected with no disruption to daily operations. So in keeping with our commitment to prioritize employees, health and welfare, we encourage employees to work from home and come back to the office when the pandemic is over.

Understood. Thank you, management. Take care.

Our next question comes from Wang from Morgan Stanley. Please go ahead with your question.

I have two questions. First is what's the impact of the ongoing cybersecurity review on our user growth? What are the measures we have adopted to improve our user retention and increasing the engagement level of the existing users where - when you are not able to bring in the new users? And the second question is that, do you see any impact on the transaction flow and trackers retention in the pilot city things that commission model would have put in place in the second quarter. And what is the rollout plan for your commission model in the second half of this year and where the tight any regulatory environment impact your take rate. And what's the outlook for the take rate for the second half of this year. Thank you.

Regarding first question on the cybersecurity review, yes, that the suspension of the new user registration for our Yunmanman and Huochebang apps in China has an impact on the business. And the extent of the impact depends on how long does essentially well that, while there will be no direct impacts on the existing users of FTA's mobile app. With the reviews during progress, we will continue to monitor and evaluate the impact on our overall GTV and the revenue in the second half of the year. And given the uncertainty around the real timeline, we are now adopting some operational initiatives to boost the activity of the existing users, which many include activating and stimulating certain users through targeted marketing, enhancing the user experience of the registered users by streamlining the delivery process, et cetera. We believe the impact of the cybersecurity review on how business growth is temporary. And our overall business strategy will not be affected in long run. In terms of the transaction commission, during the second quarter, we collected commissions of RMB168.9 million in 60 cities and the commissions GTV as a percentage of total GTV continues to increase from a prior quarter. In terms of the key operating indicators, we see our business growing steady in the 60 cities with the truckers next month retention region around 9%, this signal truckers willingness to pay a commission reflecting the recognition of our value for both shippers and truckers and injecting competence into our nationwide rollout in the future. And compared with the intermediary fees charged by middleman, we believe our mid commission is idle. We are committed to not infringing truckers' best interests, and we provide these truckers with a series of additional limits through the closed loop transaction. We believe this added value provided by our platform is recognized by the truckers. FDA has been paying close attention to the relevant regulatory guidelines, and we believe our current commission rate is in line with the regulatory requirements are in keeping with the regulatory requirements with the continuous enhancement of the value of our platform and service. We see there is still room for further improvement of intake rate. And we will continue to communicate with regulators conduct self-examination periodically and embrace the changing regulatory environment.

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

So I have two questions here and thanks for your time to take my questions. The first is regarding the new initiatives that the company has taken, which is the intracity and also LTL business, how's the progress in the second quarter? And how is the investment going forward? Will there be more investments? And also, how do you position this to new business in your service portfolio? And my second question is, how is the recent trends of the competition landscape in the full truckloads business, especially since second quarter? Thank you very much.

Okay, regarding first question on our new initiative. In the second quarter, the progress in the intracity and LTL business was in line with what we expected, both still in the trial period in more areas. We will only consider extending the coverage after carefully testing the economic model. And we believe we'll continue our investments in the next two to three years. We entered the intracity and LTL field aiming - meaning to build a one stop logistics service platform to meet that diversified needs for our existing shippers. In terms of the competitive advantage, compared with LTL and interested in shipments, we believe that FTL shipments have higher requirements in terms of automating trucker management monitoring of the whole fulfillment process, as well as offering of value-added service. And we believe that we have accumulated rich experience in capital collaboration and entered this new business areas with a significant competitive edge. At the same time, the LTL and intracity segments are highly overlapped and correlated with FTL, which helps save additional user acquisition costs. Therefore, from the client coverage and operating efficiency perspective, we believe it's a natural extension of from our existing FTR business. In terms of the competitive landscape of the industry since second quarter, we have not seen any significant changes yet. We are a leading worldwide digital freight platform and a pioneer in the FTL market. In terms of GTV, we are the largest digital freight platform in the world. And our business maintains strong momentum in the second quarter. Since the earliest freight listing service, we have deepened our roots in digitization. As of now, our platform covers more than 70% of the heavy duty and medium duty truckers in China. The China's road calculation market is larger than 6 trillion in 2020, while the penetration of digital freight platform was only 4%. And FTL shipments rely on the nationwide network, it is highly complex and dynamic arbitration of millions of shipments, it is difficult to replicate and form a natural barrier of entry for us. Our platform has a clear competitive edge. We don't see any potential substitutes for a competitor players in the market for us at present while our real competitors are appointment truckers from the offline model. Going forward, we will continue to enhance our platform capability to bring more value to both shippers and truckers while rapidly replacing the traditional offline appointment trucker model and increasing the online penetration. But overall, the low transformation market is massive. Yet the current penetration is still very low. So, we don't think the emergence of any potential competitors will change the existing industry landscape. And with the gradual improvement of our closed loop model, we believe the online transaction fulfillment rate will further increase and the network effect of our platform will become more evident. With our continuous efforts, we are confident to further augment the penetration rate of digital freight platform in the future.

Thank you very much.

Our next question comes from Xin Yang from CICC. Please go ahead with your question.

So my question is about the cybersecurity review. So what I said this cybersecurity review will cover and how was the company's data security protection system? And how long will the cybersecurity review take? In your view what should be done or rectified the order to successfully complete a review? Thank you.

So the main purpose of the review is to prevent national data security risk and safeguard national security and public interest. We have established, a comprehensive data and network security protection system in terms of structure technology, and also internal processes. So based on our preliminary self-assessment, we have not found any situation or issues that may lead to direct removal of our forming apps. We will also cooperate with regular regulatory authorities to review and maintain close communication with them to minimize the impact on company's business. Given their - give there's no precedent to follow the review, the actual review period and work or rectifications that needs to be done will depend on regulators actual timetable. We'll fully cooperate with regulators to complete the review as soon as possible. And in future, we'll continue to improve our internal operations systems and safeguard the security of our own data and network. Meanwhile, we are committed to continually improving our cybersecurity systems and technology capabilities under the guidance of the authorities.

Thank you.

Thank you.

And ladies and gentlemen, with that we'll conclude today's question-and-answer session. I'd like to turn the conference call back over to Mao Mao for any closing remarks.

Thank you 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. Have a good day.

Ladies and gentlemen, that does conclude today's conference call. We thank you for joining you may now disconnect your lines.