Ladies and gentlemen, good day and welcome to Full Truck Alliance’s Third Quarter 2021 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.

Thank you. 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 FTA’s senior management are Mr. Hui Zhang, our Founder, Chairman and CEO; and Mr. Simon Cai, our CFO. Management will begin with prepared remarks and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. In addition, a webcast replay of this call will be available on our Investor Relations website at ir.fulltruckalliance.com. I will now turn the call over to our Founder, Chairman and CEO, Mr. Zhang. Please go ahead, sir.

Hello, everyone. Thank you for participating in our 2021 third quarter conference call today. First, I’d like to give you an update on the cybersecurity review of our Yunmanman and Huochebang apps. The investigation is still ongoing and we are fully cooperating with the Cybersecurity Review Office to facilitate a smooth review process as we strive to minimize the impact on our business growth. We firmly believe that an optimized regulatory environment is both, necessary and beneficial for the long-term healthy development of the industry. To this end, we have established a comprehensive data and network security protection system internally. We welcome the strengthening of data security regulations and freight platform supervision, and we will spare no efforts to promote the healthy and sustainable development of the road transportation industry as well as the protection of truckers’ interest. Now, turning to our third quarter earnings results. Despite the absence of new external user growth, the current COVID-19-related disruptions and extreme weather conditions in part of China, our team has set high goals and vigorously executed our operational strategies to drive solid growth in the third quarter. Our total GTV rose to RMB 67.3 billion during the quarter, an increase of 48.8% compared with the prior year period. Also, we witnessed a significant increase in the number of fulfilled orders, up to 78.4% year-over-year to 35.3 million, as well as a 32.2% year-over-year increase in average shipper NAUs to 1.61 million. Our total net revenue reach RMB 1.24 billion, an increase of 68.9% year-over-year. And the non-GAAP measures, our adjusted net loss in the third quarter of 2021 was on RMB 4.7 million. Overall, we are pleased with our financial and operational achievements. Our revenue is rising as we enhance our monetization capability, and continuous improvement in our key operating metrics illustrate the sustainability of our business model and our robust overall growth. As we move forward, we will continue to sharpen our technological edge, broaden our logistics network and provide our new and existing users with superior products and services, making FTA, the go-to-platform for shippers’ and truckers’ logistic needs. We will embrace President Xi’s latest guidance with respect to the digital economy and promote deep integration between digital technology and the real economy as we fully leverage our data analytics capabilities and rich application scenarios to empower the transformation of conventional industries. At the same time, we will prioritize our social responsibility, meet with integrity and give back to society. Whether it be through our public welfare foundation, disaster relief efforts, or pandemic support, our goal is to spread positivity and be a source of inspiration to the world around us. With that, I will now turn the call over to our CFO, Simon Cai, he will elaborate more on some initiatives taken during the quarter and go over our operational and financial results in more detail. Please go ahead, Simon.

Thank you, Mr. Zhang, and hello, everyone. We are glad to have delivered another quarter of strong operational international results. I would now like to walk you through some details of our third quarter operations, beginning with our platform. We continue to grow our logistics network, and we are excited to see our platform’s positive network effects develop and intensify. Fulfillment rates were up 10 percentage points to 27%, compared with 17% in the prior year period. Additionally, we reduced average transaction time by 29% year-over-year from 21 minutes to 15 minutes in September. This improvement was mainly attributable to greater matching efficiency, supported by our extended data capabilities, and relentless focus on user experience. While we encountered supply and demand imbalances in certain regions due to the suspension of new user registration and the COVID-related disruptions, which slowed the sequential growth of GTV, we do not believe these short-term fluctuations will affect our long-term business development. Going forward, we aim to utilize our advanced big data technology to generate more structured data, improve order entry standardization and refine data analysis. We also believe the rollout of our recommendation-driven model will take our matching efficiency and user experience to a new level. Moving on to our users. Given the suspension of new user registration this quarter, increasing both, user engagement and retention of existing users became our top priority. These efforts yielded further improvement in two important metrics, average shipper MAUs grew more than 30% year-over-year to 1.6 million during the third quarter, while average trucker MAUs remained stable with 3.5 million active truckers fulfilled shipments on our platform in the past 12 months. Our already high shipper and trucker retention rates remained steady. 12-month retention rate of paying shippers as next month’s retention rate of truckers who responded to…

Thank you. We will now begin the question-and-answer session. Our first question comes from Charlie Chen with China Renaissance. Please go ahead.

Thanks management for taking my questions. I have two questions here. The first one is regarding the fulfilled GTV. We can see you have achieved a very strong year-on-year growth, but on quarter-on-quarter basis, it’s slightly declined in first quarter. So, can you share with us what is the rationale and driver behind it? And what is the momentum or trend in the fourth quarter? And my second question is regarding the users. So, we would like to know what is the user composition as well as the user activeness in the third quarter. Is there any major changes compared to previous quarters? Thank you very much.

So, regarding the first question on the GTV trend, we believe the year-over-year growth in GTV this quarter was primarily attributable to an increase in fulfillment rates, which rose nearly 10 percentage points to approximately 27%. We increased our booking rates through a deeper understanding of both, supply and demand, our big data capabilities and the application of algos to refine management accuracy. For example, we further optimized demand matching with our user labeling system and designated order models. Meanwhile, by improving the platform’s one stop service capabilities, we also continued to roll out innovative products and user safeguard measures along with broader coverage to better the users’ diverse need of both user groups. We have also seen a notable year-over-year bias in the proportion of direct shippers due to optimization of our user structure which further enhanced our fulfillment rate. In the third quarter, we have experienced a suspension of user registration, recurring COVID disruptions and extreme weather conditions, which all led to trucker shortage in some regions and impacted our GTV growth during the quarter. These ongoing factors combined with the recent production constraints due to electricity shortage also contribute to the uncertainty in the external environment in the coming quarter. However, we do not believe that these short-term fluctuations will materially impact our long-term goal. We are confident that our ongoing efforts to improve user experience and enhance our closed loop model will result in stronger network effects. Regarding the second question on user trend, there was no significant trend in terms of user composition or user behavior during the quarter. The shippers’ and truckers’ overall activity remained steady and average shipper MAU reached 1.61 million in the quarter. Our platform users are also highly sticky. As of the end of this quarter, the 12-month retention rate for our paying shippers remained stable at around 85%, the same level as last quarter. Turning to our user composition, the proportion of direct shippers on our platform remained stable in the quarter. We expect this ratio to increase steadily as we move forward, especially after new user registration resumes. As we strengthen our powerful network effect, cutting edge data capabilities and intelligent algos, we also enhance matching efficiency and user experience, thereby increasing the shippers’ reliance on our platform. Thank you.

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

Can management share us an update on the progress of commissions in the third quarter, including the penetration and the commission rate? And what is your rollout plying going forward? Thank you.

Thank you. This is Simon Cai. Let me address this question in English directly. We collected commissions totaling RMB 182 million in the third quarter, most of which were attributed to our extended commission penetration. As of the end of September, we collected commissions in 95 cities. The overall commission rate in the quarter remained largely stable versus second quarter. Data and users’ feedback from those 95 cities covered by our commission model indicates that user activity remained high during the quarter, since specifically, truckers’ next month retention rate reached approximately 90% in these regions. Our commission strategy includes diverse commissioning methods tailored to the characteristics of different businesses and regions. The current data indicates that truckers in the commission regions have a relatively high acceptance level for paying commissions as they have already cultivated the habit of paying commissions. In the first quarter, we plan to fairly improve the commission rate while further enhancing our commission penetration. We remain committed to providing additional value added services for our truckers and continually improving product functions and user experience while expanding our commission model.

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

So, we saw that the revenue of the third quarter actually increased by 68.9% year-over-year but the cost actually increased by 140%. So what’s the reason behind it? And will this trend continue into the fourth quarter? So, on November 14 Cybersecurity Review Office actually launched the measures for data security management, it’s a draft. So, will the measures have any impact to the Company and how?

Sure. Thank you. Regarding your first question, the increase of cost of revenue in the third quarter was primarily attributable to an increase in VAT and also related tax surcharges and other costs net of tax results of government, which was mainly driven by an increase in transaction activity of our freight brokerage business. In addition, our labor costs and operational expenses also increased due to business expansion. The reason why cost of revenue grew faster than our revenue this quarter was primarily due to the timing difference between tax reform recognition and revenue recognition. If we exclude revenue from the freight brokerage business, as well as related, the tax costs associated with the business, the adjusted contribution margin of other businesses grew to 81% from roughly 78% in the prior year period. Going forward, we expect the absolute value of cost f revenues will continue to increase as we expand our business. However, those costs as a percentage of revenue are expected to decrease gradually as we improve our operational efficiency and have a large revenue contribution from transaction commissions. To address your second question, we understand the recently launched draft measures for data security management is the refined version of data security law and cybersecurity law with multiple newly added rules. With respect to companies that are listed overseas, the measures required that corporations should submit a data security assessment to the Cybersecurity Review Office on annual basis, in addition to the pre-IPO review. In addition, the measures detail more refined compliance requirements in relation to corporate operations. Although the measures are still in the draft stage for comments, we will closely monitor development and will prepare to fulfill all relevant requirements.

And that does conclude the question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments.

Okay. Thank you once again for joining us today. If you have any further questions, please feel free to contact us at FTA directly or TPG Investor Relations. Our contact information for IR in both, China and U.S. can be found on today’s press release. Have a great day.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.