Ladies and gentlemen, thank you for standing by, and welcome to the Atour Lifestyle Holdings First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Alison Zhang, Director of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Good morning and good evening, everyone. Welcome to our first quarter 2024 earnings conference call. Today, we will hear from our Founder, Chairman and CEO, Mr. Wang Haijun, and our Co-CFO, Mr. Wu Jianfeng. Before we continue, please be aware that today's discussion will include forward-looking statements under federal securities laws. These statements are subject to various risks and uncertainties, and actual results may differ significantly from what is stated or implied in our comments today. The company is not obligated to update any forward-looking statements, except as required by applicable laws. Additionally, during this call, our management will discuss certain non-GAAP financial measures solely for comparison purposes. For a clear understanding of these measures and a reconciliation of GAAP to non-GAAP financial results, please refer to the earnings release issued earlier today. Furthermore, a webcast replay of this conference call will be accessible on our website, where a copy of the results presentation is also available. Now, I will turn the call over to Mr. Wang, our CEO.

Thank you, Alison. Hello, everyone, and thank you for joining Atour's first quarter 2024 earnings call today. During the first quarter of 2024, the travel market experienced varying demand trends. While business travel recovered slowly due to macro uncertainties, leisure tourism driven by experiences during holidays and weekends continued to thrive, maintaining the growth momentum from 2023. As a prominent upper midscale hotel brand, Atour is committed to enhancing its experience strategy amidst the changing external environment. By providing outstanding accommodation experiences, we create greater value through our unique deep sleep scenarios. We are also focused on improving our products and services, reinforcing Atour's leading position in the industry. Now, I will share more details about our performance for the first quarter of 2024. Let's start with our hotel business. Our RevPAR reached RMB328 during the first quarter, which is 97.4% of the level from the same period in 2023. We achieved sustainable OCC growth at 101.1% compared to 2023 for the same period, showcasing Atour's strong demand and competitive edge. However, our ADR faced some pressure due to a high comparison base from the explosive demand in both business and leisure travel during the same period in 2023, decreasing by 2.9% year-over-year. Excluding structural impacts like the ramp-up of new hotels, our mature hotels that have been operational for over 18 months showed strong performance this quarter, with their same-hotel RevPAR at 99.7% of 2023's level for the same period, OCC reaching 102%, and ADR at 98.4%, all compared to the same period in 2023. Supported by Atour's growing brand influence, our hotel network continued to expand and achieved high-quality growth in the first quarter. We opened 97 new hotels, bringing our total to 1,302 hotels in operation by the end of the first quarter, a 34.5% increase year-over-year. Notably, our flagship Atour brand reached 1,000 hotels last month, reinforcing our leading position in the upper midscale hotel market. Additionally, franchisees showed strong confidence in the first quarter, leading to an increase in new signings and steady pipeline growth. As of March 31, the number of hotels under development reached 674. Thanks to its unique positioning and significant growth potential, Atour Light 3.0 continued to attract franchisees, with 30 new Atour Light 3.0 hotels signed in the first quarter, making up more than 15% of our total new signings for the period. As of March 31, we had 36 Atour Light 3.0 hotels in operation, with established hotels performing well. Even during the traditional off-season, the RevPAR of Atour Light 3.0 hotels that have been operational for over three months exceeded RMB290 in the first quarter and rose to over RMB300 in April, demonstrating Atour Light's strong competitive advantage in the midscale segment. We expect Atour Light 3.0's operational performance to continue being strong during the upcoming summer holiday season. Building on our ethos of "Life at Ease," we are consistently introducing and refining unique services in Atour Light 3.0 hotels, working to transform each hotel into a cozy retreat within its city. In the first quarter, we launched a new City Guide feature to help guests discover nearby dining, entertainment, and attractions, enhancing their experience at Atour Light 3.0 hotels. Additionally, we introduced special Platinum Privileges for our members, offering exclusive benefits at these hotels. Currently, the comprehensive array of superior services at Atour Light 3.0 distinguishes the brand in the midscale market. Moreover, we expanded Atour Light 3.0's co-branded partnerships. For the post-Chinese New Year return-to-work period and peak interview season, we collaborated with a fashion brand to create the Suit Up Station event, providing convenient suit rental services to our guests. This initiative not only boosted Atour Light's brand visibility but also catered to the needs of young business travelers, enriching their experience and further establishing the essence of the Atour signature experience. Moving now to our retail business. Retail maintained its strong performance in the first quarter, with quarterly GMV increasing by 277% year-over-year to RMB495 million. Sales from online channels continued to thrive, making up over 90% of the total GMV in this period. Atour's deep sleep products continued to gain significant market recognition. We are committed to understanding deep sleep scenarios, pinpointing customers' sleep challenges, and consistently developing and launching new products. By expanding our product categories, we aim to offer customers improved solutions for an optimal deep sleep experience. Following the success of popular products like the Deep Sleep Pillow PRO and the Deep Sleep Temperature Control Quilt, we utilized our proprietary product development process to explore customers' fundamental needs for lightweight bedding during the summer. On March 10th, we introduced the Deep Sleep Lightweight Comforter, made from imported breathable and moisture-wicking fibers, which promotes efficient heat dissipation and a natural sense of coolness. To enhance the deep sleep experience with superior comfort, our one-piece comforter is reversible with distinct materials on each side. One side features cooling fabrics while the other offers a cozy texture similar to human skin, allowing customers to easily switch between cooling and warmth. The integrated cover design ensures that the comforter is machine washable and can be dried at low temperatures, providing customers with a hassle-free deep sleep experience. Since its launch, the Deep Sleep Lightweight Comforter has received widespread acclaim, surpassing RMB10 million in GMV just 21 days post-release and maintaining strong growth. In April, it became the best-selling comforter on both Douyin and JD.com and ranked among the top 10 on Tmall. The surge in sales of our Deep Sleep Lightweight Comforter is further evidence of Atour's deep understanding of deep sleep and our effective product research and development capabilities. We are dedicated to improving customers' sleep experiences and are focused on creating innovative solutions to enhance recognition of the Atour Planet Deep Sleep series. Transitioning to our membership business. Our strong brand recognition, along with our high-quality products and services, has encouraged more customers to join the ACARD membership program, resulting in rapid growth of our membership base. As of March 31, the number of registered individual members rose by 86% year-over-year, exceeding 71 million. Additionally, our CRS channel saw consistent growth in the first quarter, accounting for 65.1% of total room nights sold, which is up 2.6 percentage points compared to the same period last year. We have also continued to integrate both accommodation and retail members, strengthening the foundation of our comprehensive ACARD membership ecosystem. We plan to provide multi-scenario membership points and benefits, attracting customers from various situations into the unified ACARD membership system. We will also explore innovative product and service development. Together, these initiatives will enhance the membership experience for our customers while improving ACARD's brand recognition, ultimately fostering a virtuous cycle and creating greater synergies between our accommodation and retail businesses. Meanwhile, we will utilize our expanding customer insights to offer more personalized product recommendations and tailored offline accommodation experiences, thereby reinforcing Atour's unique advantages. Last but not least, I am delighted to announce that Atour has published its inaugural ESG report. Please turn to Slide 14. As a leader in providing a quality lifestyle and an advocate for the Chinese experience, Atour consistently pursues win-win outcomes for the environment, our industry, and society as a whole by integrating ESG best practices across our business operations. In 2023, we further enhanced our ESG governance to help build warm connections between people as well as between people and nature. We strove to establish an efficient, orderly, and responsible management mechanism and foster mutual growth among Atour, our employees, franchisees, and partners. Through a broad array of charitable projects, eco-friendly operational upgrades, diversity and inclusion initiatives, and green development efforts, we upheld our original aspirations while assuming our corporate social responsibility. Moving forward, we will holistically deepen our commitment to ESG, augmenting our contributions to society and the industry's sustainable development. Now, I will turn the call over to our Co-CFO, Mr. Wu Jianfeng, to discuss our financial results.

Thank you, Haijun. Good morning and good evening, everyone. Now, I would like to present the company's financial performance for the first quarter of 2024. Please turn to Slide 16 of the results presentation. Our net revenues for the first quarter of 2024 grew by 89.7% year-over-year and decreased by 2.5% quarter-over-quarter to RMB1,468 million. The year-over-year increase was driven by robust growth in both the hotel and the retail businesses. The quarter-over-quarter decrease was caused by the decrease in RevPAR, which was RMB328 for the first quarter of 2024 compared with RMB358 for the previous quarter, and also was due to the renovation of one of our leased hotels. Revenue from our manachised hotels for the first quarter of 2024 was RMB836 million, up by 87.1% year-over-year while decreasing 1.8% quarter-over-quarter. The year-over-year increase was primarily fueled by the ongoing expansion of our hotel network and the rapid growth of the supply chain business. The total number of manachised hotels increased to 1,271 as of March 31, 2024, up by 35.9% year-over-year. The quarter-over-quarter change was due to the decrease in RevPAR. RevPAR of our manachised hotels was RMB324 for the first quarter of 2024 compared with RMB353 for the previous quarter. Revenues contributed by our leased hotel for the first quarter of 2024 were RMB168 million, representing a decrease of 10.3% year-over-year and 13.8% quarter-over-quarter. This decline was mostly driven by the renovation of one of our leased hotels into our first Atour 4.0 hotel as well as the decrease in RevPAR. Revenues from our retail business for the first quarter of 2024 were RMB417 million, up by 268.9% year-over-year and 1.1% quarter-over-quarter. These increases were attributable to the widespread recognition of our retail brands and the compelling product offerings as well as improved product development and distribution capabilities. Revenues from other for the first quarter of 2024 were RMB48 million, up by 76.8% year-over-year and 1.7% quarter-over-quarter. The increases were driven by the fast-growing membership business. Now, let's move to cost and expenses. Please turn to Slide 17. Operating costs and expenses for the first quarter of 2024 were RMB1,154 million, including RMB3 million share-based compensation expenses, compared with RMB719 million, including RMB142 million share-based compensation expenses for the same period of 2023. Hotel operating costs for the first quarter of 2024 increased by 73.5% year-over-year and decreased by 9.7% quarter-over-quarter to RMB662 million. The year-over-year increase was mainly due to the increase in variable costs, such as supply chain costs associated with the ongoing expansion of our hotel network. The gross margin of our hotel business was 34.1% for the first quarter of 2024 compared with 39.8% for the same period of 2023. This decrease was attributable to a decreased RevPAR and an increased share of revenue generated by the lower-margin supply chain business. Retail cost for the first quarter of 2024 increased by 235.0% year-over-year and decreased by 11.2% quarter-over-quarter to RMB206 million. The year-over-year increase was associated with the rapid growth of our retail business. The gross margin of our retail business was 50.5% for the first quarter of 2024 compared with 45.5% for the same period of 2023. The increase in gross profit margin of retail business was attributable to an increasing contribution from higher-margin online sales. Now, please turn to Slide 18. Selling and marketing expenses for the first quarter of 2024 were RMB175 million compared to RMB56 million for the same period of 2023. The increase was mainly due to our heightened investment in brand awareness and effective online channel development, along with the growth of our retail business. Selling and marketing expenses represented 11.9% of net revenues for the first quarter of 2024, compared to 7.2% for the same period of 2023. General and administrative expenses for the first quarter of 2024 were RMB77 million, including RMB3 million in share-based compensation expenses, compared to RMB193 million, which included RMB141 million in share-based compensation expenses, for the same period of 2023. Excluding share-based compensation expenses, the increase was primarily driven by rising labor costs. General and administrative expenses, excluding share-based compensation expenses, accounted for 5.0% of revenue for the first quarter of 2024 compared to 6.7% for the same period of 2023. Technology and development expenses for the first quarter of 2024 were RMB24 million compared to RMB17 million for the same period of 2023. The increase was mainly due to heightened investment in technology, systems, and infrastructure to support our expanding hotel network and retail business, as well as to enhance the customer experience. Technology and development expenses accounted for 1.6% of net revenues for the first quarter of 2024 compared to 2.2% for the same period of 2023. Now, please turn to Slide 19. Adjusted net income for the first quarter of 2024 was RMB261 million, up by 63.4% year-over-year. Adjusted net profit margin for the first quarter of 2024 was 17.8%, a decrease of 2.9 percentage points year-over-year. Adjusted EBITDA for the first quarter of 2024 was RMB354 million, up by 53.1% year-over-year. Adjusted EBITDA margin for the first quarter of 2024 was 24.1%, a decrease of 5.8 percentage points year-over-year. The decreases in both margins were primarily due to the decrease in RevPAR and the increased revenue contribution from lower-margin supply chain business as well as organic growth of selling and marketing expenses amid the retail business development. Now, please turn to Slide 20 and 21. Notably, we have maintained a healthy cash position with stable growth momentum. As of March 31, 2024, our cash and cash equivalents totaled RMB3,048 million. Among them, net cash was RMB2,956 million. That concludes our financial highlights for the first quarter of 2024. With that, let's open for Q&A.

Thank you. We will now begin the question-and-answer session. Our first question comes from Sijie Lin at CICC. Please go ahead, Sijie.

I will translate my question to English. Thank you to the management for the quick hotel openings in the first quarter. The 97 new openings almost reached last year's highest quarterly level, and the revenue growth is significant. Will we adjust the full-year opening revenue and profit guidance accordingly? Thank you.

Thank you, Sijie. Let me address your question. While there were some fluctuations in RevPAR across the industry in the first quarter of this year, franchisees still have a strong confidence in the hotel sector. Our signings in the first quarter showed rapid growth, and our pipeline continues to expand, currently totaling 674 projects. In terms of new openings, we launched 97 new hotels in the first quarter, following the trend from the fourth quarter of last year. This year, we aim to reach 2,000 premier hotels by 2025, which means we will emphasize quality as a prerequisite for growth. We are maintaining our target of 360 new openings for the full year and are confident in achieving this goal. Regarding revenue, even with fluctuations in RevPAR, we expect high-quality growth in the group's 2024 revenue. Based on our excellent performance in the first quarter, particularly in our retail segment, we are raising this year's revenue guidance from the previously announced 30% year-on-year growth to a new target of 40% year-on-year, which will keep us leading the industry in growth rates. This is driven by our expanding hotel network and the rapidly growing retail business. On the profit side, the overall RevPAR fluctuations and changes in our revenue structure this year may put some pressure on profit margins. Nevertheless, we will continue to optimize our cost structure and enhance management and operational efficiency, aiming to maintain a relatively stable profit margin. Thank you.

Thank you, Sijie.

Thank you.

Let's take the next question.

Thank you. Our next question comes from the line of Dan Chee from Morgan Stanley. Please ask your question, Dan.

Could management provide the recent blended RevPAR trend for the second quarter, focusing on occupancy and ADR performance? Additionally, what is the company's updated outlook for blended RevPAR for the entire year of 2024? Thank you.

Thank you, Dan. Let me try to answer your questions. Our RevPAR in the first quarter was RMB328, which was down by RMB9 compared to the same period last year. OCC was 73.3%, which is 0.8 percentage points higher than last year. ADR was RMB430, down by RMB13 from the same period last year. For our 843 mature hotels operating for more than 18 months, the same hotel RevPAR performance in the first quarter this year was 99.7%, which is basically unchanged from last year. To separate OCC and ADR performances, last year's concentrated bursts of business and leisure travel drove the price base higher and put more pressure on this year’s prices. Since April, including the Labor Day holiday, we have also seen this situation. According to QTD data, our Q2 RevPAR might experience greater pressure than in Q1. Regarding the forecast for 2024 full year RevPAR, due to multiple factors affecting performance, it is challenging to provide an accurate forecast. From our current perspective, this year's uncertainty exceeds our previous expectations. In this environment, our strategy is to focus on stabilizing our OCC base while also seizing core revenue opportunities.

Thank you, Dan. Next question, please?

Thank you. Our next question comes from the line of Xin Chen from UBS. Please ask your question, Xin.

We observed that in the first quarter, even during the off-season, the company's revenue from the two businesses continued to show strong growth. Can you share your expectations for Atour's revenue for the entire year and the anticipated expenditures in the retail business? Additionally, the launch of the Summer Cool Quilt has been quite successful. Could you provide some insights into the follow-up plans for products? Thank you.

Thank you, Chen Xin. I will first discuss the overall retail business and our product planning, and then I'll hand it over to Jianfeng for insights on retail financials. Based on our understanding of users' real sleep needs, our strategy for Atour Planet's Deep Sleep products has been gaining recognition beyond the hotel industry, leading to increased user confidence and strong retail performance. Our research and development capabilities, driven by user needs, have been validated by the impressive performance of our new product this quarter, the Deep Sleep Lightweight Comforter. Throughout this year and into the next quarters, we will maintain our focus on Deep Sleep products and plan to launch the next generation of Deep Sleep pillows and a temperature control quilt in the upcoming quarters. While we expand our sleep category offerings, we will also continue to enhance and reinforce our key advantage categories. Now, Jianfeng, could you provide more details on the retail financials?

Thank you, Chen Xin. In the first quarter, our retail revenue reached RMB417 million, demonstrating strong growth. Based on this performance, we anticipate our retail business will achieve high double-digit year-over-year revenue growth for the entire year. Our retail operations are still rapidly developing, which means we will keep investing to strengthen our foundation for long-term growth, branding, and channels. Regarding the sales expenditures you mentioned, our retail business ran coordinated campaigns and promotions efficiently in the first quarter. The sales expenses may see slight fluctuations in the coming quarters, aligning with our new product launches and branding plans, but we expect them to remain relatively stable throughout the year. With the growth of our retail business, profit margins have been steadily improving. We are confident that the retail segment will generate additional earnings for the group and enhance our ecosystem value. Thank you.

Thank you. Next question, please?

Thank you. The next question comes from Jiawei Liu from Citi. Please ask your question, Jiawei.

I'll translate my question. Can you share the opening goals for Atour Light 3.0 this year? Also, can you provide an update on the progress of the Atour 4.0 hotels? Thanks.

Thank you, Jiawei. Let me address your question. In the first quarter, we signed a total of 30 agreements for Atour Light 3.0, which represents over 15% of our overall new signings. By the end of March, there were 36 Atour Light 3.0 hotels in operation. We anticipate that this number will grow to around 100 by the end of the year. As Haijun mentioned earlier, we emphasize the concept of Life at Ease and are continuously introducing and enhancing unique services at Atour Light 3.0 hotels to better serve young business travelers and earn their loyalty. The Atour Light 3.0 hotels performed remarkably well in the first quarter, typically a slow season. The RevPAR for these hotels in operation for three months surpassed RMB290 in the first quarter and quickly increased to above RMB300 in April, notably exceeding our franchisees' expectations. Additionally, based on operational insights and user feedback from the Atour Light 3.0 hotels in operation, we are gradually fine-tuning the Atour Light 3.0 model to improve user experiences while ensuring sustainable and stable returns for franchisees. Regarding Atour 4.0, since its launch at the end of last year, we have secured over 30 benchmark projects in key city business areas. The opening of the first Atour 4.0 hotel is also well underway and will occur soon. It will be worth the wait. Thank you.

Thank you, Jiawei. And operator, we can take one more question. Thank you.

Thank you. Our final question comes from the line of Lydia Ling from Citi. Please ask your question, Lydia.

Thank you, management. I would like to inquire if there are any plans regarding returns to shareholders. Thank you.

Thank you, Lydia. We have always prioritized and engaged in consistent returns to our shareholders. In August last year, we announced a special dividend. This year, we will continue to evaluate our overall operating performance, cash position, future business development plans, and industry practices to consider increasing shareholder returns, including dividends. We are dedicated to sharing the benefits of our growth with our shareholders. Thank you.

Thank you, Lydia.

Thank you. And that concludes the question-and-answer session. I'd now like to turn the conference back to Alison Zhang for any additional or closing comments.

Thank you all for joining us today. If you have any further questions, please feel free to contact our IR team. We look forward to reconnecting with you next quarter. Thank you, and goodbye.

This concludes today's conference call. Thank you for participating. You may now disconnect.