Ladies and gentlemen, good day and welcome to Full Truck Alliance's Third Quarter 2023 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, 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 US 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 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. 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 conference 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. Please go ahead, sir.

[Foreign Language] [Interpreted] Hello everyone. Thank you for joining us today on our third quarter of 2023 earnings conference call. Entering the second half of 2023, the YMM app has ushered in the 10th anniversary of its launch. This decade has witnessed the digital transformation of China's road transportation industry, and as a leader in the industry, we have continuously improved our products and services through offline to online migration, digitalization, and intelligentization, gaining trust among our shippers and truckers. We started from scratch and now cover over 300 cities across the country, with more than 100 thousand shipping routes, tens of millions of shipping and receiving locations and over 200 types of cargo from industries and consumer categories. This has gradually formed a robust national network effect and a highly competitive moat. Centered around our core user value proposition of plentiful, fast, quality and value-for-money, we will strive to empower enterprises with greater logistics competitiveness through the building of a one-stop logistics platform for 30 million small and medium-sized enterprises in China. Let me provide an update on our progress in the third quarter. During the quarter, we have steadily improved in five key areas user scale, product operations, supply of truckers, platform ecosystem and user experience. First, regarding user scale, we have reached 2.13 million monthly active shippers, a 15% year-over-year increase, which drove a 27% year-over-year increase in the number of fulfilled orders. Notably, the scale of direct shippers continued to increase, with order volume from 688 members and non-member shippers growing by 32% year-over-year and accounting for 45% of total order volume. Turning to product operation, our entrusted shipment model, a niche product for direct shippers, has effectively attracted new users by addressing their needs through refined pricing algorithms and improved fulfillment services. We are also…

Thank you, Mr. Zhang, and thanks, everyone, for making time to join our earnings call today. I will start with our operational highlights for the third quarter of 2023 and then provide a brief overview of our financial results before the Q&A session. We delivered another record-setting quarter with many operational and financial improvements. Our fulfilled orders increased by 27% year-over-year during the third quarter. On a monthly basis, the average daily fulfilled orders of July to September showed a sustained upward trend, hitting historical highs almost each month. The main drivers of this growth were the ongoing expansion of user scale and dual-end users' increased engagement. Our ability to continuously deliver both topline growth and margin expansion in the past three years in a highly volatile macro environment demonstrates an irreversible trend of online digitalization of the road transportation industry in China. Our average fulfillment rate for the quarter reached 29%, an improvement of more than four percentage points year-over-year. Among them, the average quarterly fulfillment rate of both 688 member and non-member shippers rose to roughly 50%, respectively. With the order contribution from these two types of low and medium- frequency shippers continuing to grow, the overall fulfillment rate of our platform will further increase. Furthermore, we continue to manage and educate users on their order cancellation behavior. For example, as of the third quarter, the trucker's status can be identified based on data collected from trucker punch-ins and trajectories. When a shipper tries to cancel an order that was dispatched, a reminder window will pop up on the app, reducing the chance of the shipper canceling the order by mistake. At the same time, we emphasize the importance of online fulfillment for shippers to accumulate credit, providing reminders when they show the tendency to transact offline and…

We will now begin the question-and-answer session [Operator Instructions] The first question comes from Ronald Keung with Goldman Sachs. Please go ahead.

[Foreign Language] Thank you, Hui Zhang and Simon. In the third quarter, we've seen that the number of fulfilled orders increased quite healthily, 27% year-on-year. What were the key drivers of the growth in fulfilled order? And what do you expect for the trend in the fourth quarter? Thank you.

Thank you, Ronald. In the third quarter, we witnessed sustained growth in order volumes within the full truckload long-haul sector. And this growth can be primarily attributable to two key drivers. First, our growing shipper base and our further optimized product features have led to an increase in usage by our existing users. And this trend stems from the nation-wide shift towards more efficient matching and platform-based solutions and gradually replacing traditional offline models, and users naturally choose to use platform that offer competitive advantages. Additionally, our unique business model and exceptional network effects have also significantly contributed to our order growth. We selected a group -- a sample group of shippers who are active since 2021 and we found that the volume of fulfilled orders for this group of users increased by about 15% year-over-year in the third quarter. This illustrates our platform's resilience and stickiness as well as our strong network effect and extremely high entry barriers we have established in the long-haul growth trade industry. Nation-wide coverage and robust defensive mechanism of our platform created an irreplaceable advantage in the market. Looking forward to the fourth quarter, we anticipate that in line with the continued expansion of our user base, the steady improvement in our user engagement and stickiness coupled with the arrival of the peak freight season and the volume of fulfilled dollars will continue to grow.

Thank you, Simon.

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

[Foreign Language] Thank you, management for taking my question. My question is regarding the shipper MAU. In the third quarter, the average shipper MAU reached 2.13 million, which implies a 15% year-over-year growth and 6.7% quarter-over-quarter growth. What were the primary reason behind this growth? And how can you describe the user structure? What's the expected growth rate for the fourth quarter? Thank you.

Thank you, Eddy. In the third quarter, we witnessed continued rapid growth in the average shipper monthly active user base. And this growth can be attributed to two primary factors. First, our effective user acquisition strategy played a very important role. And through a combination of online promotions and offline on-the-ground field marketing, we have expanded the platform's brand exposure and recognition, effectively attracting more users to join the platform. For online, we have primarily employed methods such as app, store promotions, sponsored content and information feeds and search engine marketing to reach out to potential users. Offline, our field marketing teams and the vehicle sticker have played a substantial role in acquiring new users, especially direct shippers. Secondly, we have continually refined our product features and services, including the introduction of simplified shipping processes and optimization in our lessened truckload services. These measures have significantly improved the conversion rate of new users and increased engagement and loyalty of existing users, making them more inclined to use our platform for shipping. From a user structure perspective, there has been a sustained increase in the proportion of direct shippers. The average shipper miles of direct shippers have experienced nearly 17% year-over-year growth. As we look ahead to the fourth quarter, we will continue to closely monitor changes in user activities and user structural changes. We will strive to execute proactive user acquisition strategies and explore new business and product models to attract more high quality direct shippers.

Thank you, Simon.

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

[Foreign Language] In the third quarter, revenue from the freight brokerage service grew by 18.4% year-on-year, maintaining a very strong growth record. How should we understand the current competitive landscape of this freight brokerage industry and the Full Truck Alliance position in this field? Thank you.

Thank you, Charlie. In recent years, the freight industry has faced a series of challenges, particularly the impact of the pandemic. This led to the closure of several small freight brokerage platforms due to insufficient cash flow resulting in a gradual reduction of players in the market. The major players in the industries are now predominantly medium to large-sized national freight platforms. However, these large platforms often provide relatively singular product offering, which users who are highly price sensitive and expect low brand loyalty. And furthermore, such platforms typically have relatively weak freight matching capabilities and suffer from a lack of available orders, making it difficult to attract a large number of truckers. As a result, they primarily rely on invoicing or other services to generate profit. In contrast, FTA leverages its leading position in the industry and the nation-wide network to establish itself as a prominent brand, enhanced freight matching efficiency and lower user acquisition costs and maintain relatively high gross margin compared to competitors. Currently in our freight brokerage service, nearly 50% of orders are completed through platform-assisted freight matching, meaning that shippers who use our freight brokerage service has genuine needs to get a match for stranger truckers. Through cross-selling services such as closed-loop commission and value-added services, FTA has created a diverse and comprehensive product mix and monetization model. This comprehensive advantage has allowed FTA to stand out in a highly competitive market and maintain higher service fees, solidifying its market position. The company's capabilities and business model enables position of high quality freight services to meet user demand and generate sustainable profit.

Thank you, Simon.

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

[Foreign Language] I will translate myself. In the third quarter, membership fee revenue increased by 5.6% year-on-year, which was slower than the other segments. Could management please provide an update on the growth of shipper members in the third quarter? And what operational strategies and measures will be taken in the future to drive the growth of membership fee revenue? Thank you.

Thank you, Brian. Since 2018, we have been monetizing the freight yellow page service through the introduction of membership system. Members enjoy more privileges than non-paying users, including the ability to post orders. Currently, there are two membership tiers. The first tier members paying an annual fee of RMB688, allowing them to post up to 100 orders per year, primarily serving mid-to-low frequency direct shippers. The second tier membership is designed for high frequency shippers who pay an annual fee of RMB1,688, enabling them to post up to 1,688 orders per year. The platform occasionally introduces membership benefits to ensure that members receive additional order posting rights. From an operational synergy perspective for high frequency shippers, FTA has achieved a high level of user penetration compared to the traditional model where shippers had to pay at least RMB10,000 for logistic parks fee, rental fee. FTA has gradually replaced logistics parks and the cost per shipment is reduced to less than RMB1 -- $1 per order. Membership fees are significantly cheaper compared to traditional logistic park booth rental fees for this user segment. FTA mainly monetizes through cross-selling, value-added services and commissions, increasing the revenue scale of our other business. For mid-to-low frequency direct shippers, new shipper users entering the platform are mostly direct shippers. Hence, the number of 688 members has been steadily growing over the past few quarters. And looking at the market size of millions of small and medium-sized business owners in China, there's still considerable growth potential. However, we observed that the number of orders corresponding to 688 members exceed the usage needs of some low frequency users. And based on this, our operation team are actively devising product strategies and attempt to develop packages that are more suitable for low frequency shippers. Additionally, while the ARPU for direct shipper members appears relatively low, their freight rates are higher and they exhibit better fulfillment rates, offering greater monetization potential through commissions and cross-selling value-added services. In the long-term, direct shippers are not only the main driving force for future membership fee growth, but also present opportunities for growth in other business lines.

Thank you.

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

[Foreign Language] Thanks management for taking my questions. We noticed that the penetration rate of the commission model in the third quarter was around 58%, slightly lower than 59% in the previous quarter. So what are the main reasons for this? Thanks.

Thank you. That's a good question. In the past quarter, revenues from commission model reached around RMB600 million, increasing by over 54% year-over-year. This strong growth was primarily due to the overall increase in order volume and continued improvement in commission rates. Operationally, we have been primarily focused on scaling the platform as a whole with no additional city extension or significant adjustment to our commission strategy. Nevertheless, we have conducted stress tests with higher commission rates in certain cities to prepare for potential future increase in commission rates and penetration rates. The penetration rate of a particular transaction type is defined as the number of commissioned orders for the transaction divided by the number of total order volume. At the time of our IPO back in 2021, our short-haul transaction commission business was very small. Hence, it was classified under the value-added services line of our revenue. The transaction commission revenue line does not include short-haul contribution. So when calculating penetration rate, the numerator excludes fulfilled short-haul orders, while the denominator includes both long-haul and short-haul orders. In the past quarter, the penetration rate was approximately 58%, showing a slight decrease compared to the previous quarter, primarily due to the fast increase of short-haul fulfilled orders under our Shengsheng brand. The commission penetration rate for long-haul orders remained stable quarter-over-quarter. Looking ahead, our focus will remain on increasing the penetration rate of our commission model and adjusting commission rates. Both are critical metrics for our core business. We will achieve this through operational optimization and market expansion to ensure sustained rapid growth.

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

Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Full Truck Alliance or TPG Investor Relations. Our contact information for IR in both China and the US can be found in today's press release. Have a good day.

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