Ladies and gentlemen, good day, and welcome to Full Truck Alliance's Fourth Quarter and Fiscal Year 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 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 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 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 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.

Hello, everyone. Thank you for joining us today on our fourth quarter and fiscal year of 2023 earnings conference call. We are thrilled to report another quarter of stellar results for the fourth quarter of 2023, closing out the year on a strong note. Despite the challenges and opportunities present in the external environment, we have adeptly navigated the prevailing trend of efficiency enhancement and cost reduction in the freight industry. By embracing the digital transformation of China's road freight sector, we have positioned ourselves as the leader in online, digital, and intelligent logistics solutions, effectively replacing traditional off-line logistics with our core cost-saving advantage. Through continuous enhancements to our product features and operating efficiency, we successfully deepened our penetration among direct shippers. We are committed to becoming the preferred shipping gateway for tens of millions of small- and medium-sized shippers, empowering enterprises with greater logistics competitiveness and improved profitability. In the fourth quarter, we witnessed steady improvements across key operational metrics, spanning user base, product operations, transportation capacity supply, and one-stop services. Our average shipper MAUs reached an all-time high of 2.24 million, representing nearly 19% year-over-year growth. Notably, the scale of direct shippers continued to increase during the fourth quarter, with their proportion of fulfilled orders surpassing 45% for the first half, reflecting a significant shift towards more efficient and cost-effective online channels. For product operations, we further refined and streamlined the shipping and efficient fulfillment product features for new direct shippers, facilitating their onboarding and driving robust growth. With respect to truckers' supply, we upgraded our tiered trucker rating system, consistently optimizing transaction efficiency through incentive-driven offerings and precise matching, while continuously expanding the supply of truckers and elevating user stickiness. Additionally, for our one-stop service, our value-added services such as freight brokerage service, credit solutions and…

Thank you, Mr. Zhang, and thanks, everyone, for making the time to join our earnings conference call today. I will now provide an overview of our operational highlights and financial performance for the fourth quarter of 2023. We concluded the year with strong operational and financial results in the fourth quarter. Our fulfilled orders experienced a remarkable 40.4% year-over-year growth, driving quarterly average daily fulfilled orders to an all-time high. Despite the impact of the adverse weather conditions, fourth quarter order growth again outpaced the overall freight market propelled by sustained scale expansion and increased activity of both shipper and trucker users. We set a new record in fulfillment rate at approximately 32% in the fourth quarter, an increase of more than 8 percentage points year-over-year and more than 3 percentage points quarter over quarter. From a supply-demand perspective, the quarter's increased supply of truckers improved matching efficiency across various transaction types, including negotiated orders, tap-and-go orders, entrusted shipments, and including long-haul full truck load, less-than-truck load and short-haul by distance range. Operationally, we continued to make progress with our tiered trucker operations strategy during the quarter. Initiatives such as our "Savings Package 2.0" and truckers' deposits helped strengthen our tiered trucker rating management and enhance the fulfillment quality of truckers, thereby boosting retention among high-frequency active truckers. In terms of order structure, we sustained the growth momentum of direct shippers from the third quarter, with direct shippers contributing more than 45% of total fulfilled orders in the fourth quarter. We expect direct shippers' order contribution will continue to grow as their penetration increases, leading to an additional improvements in our platform's overall order fulfillment efficiency. Regarding our user base, our average shipper MAUs reached a historic high of 2.24 million in the fourth quarter, up 18.7% year-over-year and 4.9%…

[Operator Instructions] The first question today comes from Ronald Keung with Goldman Sachs.

I want to ask about a fulfillment rate that we've seen that the record fulfillment rate of 32% in the fourth quarter. What are the key drivers behind? And with the year-on-year increase and the sequential increase as well, and what is your expectation for fulfillment rate for 2024?

Thank you, Ronald. In this quarter, we have seen a substantial improvement in the freight matching efficiency, which can be attributed to the rapid expansion of our user base on both ends and the scale effects generated as a result. So with more active shippers on the platform, we attract new trucker registrations, ensuring a sufficient supply of transportation capacity to meet the diverse needs of shippers quickly. This dynamic cycle again lead to an influx of newly registered small and medium business owners. Specifically, the significant improvement in fulfillment rates in the fourth quarter was driven by a number of positive factors. Firstly, the average trucker daily active user who are responding to orders increased by approximately 13% year-over-year in the quarter, resulting in an increase in effective supply on the trucker side, further balancing the supply and demand and therefore, increasing the probability of successful matches. And secondly, ongoing optimization of the shipper structure also led to an improvement in matching capability. The contribution of fulfilled orders from direct shippers increased by 3 percentage points year-over-year to over 45%, enhancing the overall quality of order listing and the certainty of order fulfillment. Another key factor is the continued improvement of the platform's pricing capabilities. Through big database and measurement, the platform can set reasonable recommended prices that are better aligned with the current market conditions and further increasing the likelihood of transaction completion. And additionally, we have continued to create remarkable value adds to our users during the fulfillment process, such as disputes, resolution and user rating, all of which have also contributed to the increase in fulfillment rates. Looking into the coming year, we will continue to attract more shippers and truckers by utilizing a multilateral market approach to create and match more supply and demand, thereby maintaining a better balance between users on both sides. We also continue to encourage shippers to utilize transaction types such as entrusted shipment and tap-and-go, which more truckers are willing to respond to while consistently optimizing the production function and improving data efficiency to drive even higher fulfillment rates. Also as the users' structure continuously shift towards direct shippers, we also anticipate a further improvement in the fulfillment rate.

The next question comes from Eddy Wang with Morgan Stanley.

My question is regarding the fulfilled orders. We noticed that there is a 40% year-over-year of the fulfillment -- fulfilled orders in the fourth quarter. And for the full year, last year, it was around 33% year-over-year. So this is significantly higher than the growth of the broad logistics market. So what's the major driver behind this strong growth? And what's your expectation for the fulfilled order growth in 2024?

Yes. Thank you, Eddy. Since last year, the online penetration of the freight matching industry has shown very consistent growth. Our platform has maintained strong order volume growth over the past year and mainly benefiting from the continued increase of new shippers, improved activity level of existing users and continued improvement in matching efficiency as a result of operational strategy optimization. In the fourth quarter, we sustained our holistic user acquisition efforts across various channels, including App Store, information streams and SCM, among others. Additionally, our leading network effect brought us a large number of user -- new user registration through natural traffic. As of the end of December, we had an average of around 20,000 new shippers and 10,000 new truckers registering on our platform every day. Looking ahead to the coming year, we will continue to invest in branding and improve user acquisition efficiency by further exploring innovative user acquisition channels, such as increasing offline truck stickers, advertisement and promoting online event programs. At the same time, we will optimize the conversion of registered users to active users through a series of effective operational tools. Also, this quarter brought more than just the growth of long-haul business with our ongoing product functionality and operational efficiency optimizations, the less-than-truckload orders matched through our platform also grew rapidly in the past quarter. We believe that the online penetration rate of LTL remains considerably low at the moment, indicating there is still a huge market opportunity to be unlocked. As we look at into 2024, we will see new opportunities for growth as the trend towards direct shippers and LTL transactions continue to intensify. We anticipate continued high growth in our total fulfillment orders, not solely confined to the FTL market. Additionally, we anticipate making significant strides in new markets such as LTL and capitalizing on emerging opportunities.

The next question comes from Charlie Chen with China Renaissance.

Could you please provide me with an update on freight listing services, specifically the trend in the number of subscribing shipper members during the fourth quarter? It seems that the revenue growth of freight listing has been slower compared to the fast growth of monthly active shippers. Could you please explain the main reason behind the growth rate discrepancy and provide us with an estimate of the expected membership growth for 2024?

Thank you. The number of shipper members remain largely stable in the fourth quarter with approximately 790,000 existing subscribing members as of December, a steady increase from last quarter end. Our shipper members have demonstrated strong retention and engagement with a 12-month rolling retention rate of over 80% since 2023. The recent membership growth has been primarily driven by 2 factors. Firstly, we have already achieved a high penetration rate among professional shippers, and we expect the number of shipper members from this segment to remain relatively stable in the future. Secondly, we have observed a majority of the new shippers are low and medium frequency users, and the number of orders included in our 688 memberships exceeded their needs. But in response, our operation team is actively formulating product strategies and exploring the development of packages that are more suitable for low-frequency direct shippers. In addition, although direct shipper members contribute less revenue from ARPU perspective, their specific characters, such as willing to accept higher freight rates and demonstrate a better fulfillment rates provide us with a greater potential for cross-selling with online transaction services and value-added products. So in the long run, direct shippers will not only serve as the primary catalyst for future freight listing revenue growth will also present growth opportunities across other segments of our business.

The next question comes from Jiulu Li with CICC.

Okay. My first question is about the commission strategies. So what are the overall commission strategy for 2024? And in particular, what is your plan for commission rate and commission coverage improvement in 2024?

Thank you, Jiulu. The substantial increase in our commission revenue in the past quarter was fueled by the rapid growth rate of the platform's overall orders. The number of commission orders rose by 41% year-over-year and nearly 10% from the third quarter. From an operational level, this quarter, we will continue to prioritize growth in users and order volume rather than just expanding to additional cities under the commission model. By the end of 2023, our commission model has been successfully rolled out in 204 cities. In the meantime, we have also stress test higher commission parameters in randomly selected cities and verified its viability. So entering into 2024, we will remain -- we will maintain our prudent approach for our transaction service business. In addition, we will continue to enhance the value of our transaction services to users through ongoing product functionality improvements. For instance, we recently launched our [indiscernible] Saving Package 2.0 product for truckers, which include various privileges and protection features for those who subscribed. And truckers who purchased the Saving Package 2.0, will also receive discounts on future commissions as well as the bonus order points, which they can redeem for additional benefits such as expedited deposit refunds. From a long-term perspective, we believe that our current commission rates are very conservative and there is still ample room to boost our commission revenues in the future. Looking ahead into 2024 as the platform's network effects strengthens and users' reliance on our platform deepens, we expect that year-over-year commission revenue growth will remain strong and potentially surpassing the growth rate that we achieved in the past year.

My second question is that non-GAAP sales and marketing expenses increased by 50.6% year-over-year in the fourth quarter, outpacing revenue growth for the same period. What are the main reasons for the high growth in sales and marketing expenses in the quarter? How do you expect the sales and marketing expenses to trend in 2024?

Thank you. The high growth rate of non-GAAP sales and marketing expenses in the fourth quarter was primarily due to the increase of investments in marketing to acquire new users, both through online and off-line channels as well as our brand promotion to increase our brand awareness. Online, we mainly advertise through app stores, information streams, and search engine marketing, among other venues. And offline, we primarily acquire users through truck stickers and advertising and our field marketing teams. Moving into the coming year, we will continue to employ a very active user acquisition strategy to grow our user base and optimize our user structure. Our overall user acquisition strategy will continue to attract shippers and truckers to our platform via a combination of online and offline channels, driving expansion in our logistics network. We expect to increase our user acquisition efforts in comparison with last year. In the longer run, we anticipate a continued increase in sales and marketing expenses aligned with the expansion of new business ventures. However, as our revenue quickly scale up and especially as we optimize commission penetration and improve -- further improved operating leverage, sales and marketing expenses will gradually decline as a percentage of total net revenues.

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

Again, thank you, everyone, 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 good day. Bye-bye.

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