Tuniu Corp Q2 FY2021 Earnings Call

Hello and thank you for joining Tuniu's 2021 Second Quarter Earnings Conference Call. All participants are currently in listen-only mode. Following management's prepared remarks, we will have a question-and-answer session. This conference is being recorded. I will now hand the call over to your host, Director of Investor Relations, Mary.

Thank you. And welcome to our 2021 second quarter earnings conference call. Joining me on the call today are Donald Yu, Tuniu's Founder, Chairman and Chief Executive Officer; and Anqiang Chen, Tuniu's Financial Controller. For today's agenda, management will discuss business updates, operation highlights, and financial performance for the second quarter of 2021. Before we continue, I refer you to our safe harbor statement in the earnings press release, which applies to this call as we will make forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that, unless otherwise stated, all figures mentioned during this conference call are in RMB. I would now like to turn the call over to our Founder, Chairman and Chief Executive Officer; Donald Yu.

Thank you, Mary. Good day, everyone. Welcome to our second quarter 2021 earnings conference call. The overall domestic tourism industry saw a clear trend towards full recovery in the second quarter. Year-on-year, our net revenues increased by 373% with revenue from packaged tours, up by over 900%. This is the first quarter in which we achieved positive growth since the COVID-19 outbreak last year and benefiting from our strict cost control measures, operating expenses decreased by 40% year-over-year and our quarterly loss was the lowest since the pandemic outbreak. In the second quarter, with the epidemic stabilized, the warm weather and holiday further boosted demand for travel. While last year, most people chose to take local tours during the public holiday, this year, the proportion of travelers taking inter-provincial tours has steadily increased. Also, in line with the high standing demand for high-quality tour products, the proportion of consumption of inter-provincial tours has increased compared with the same period last year. We continue to emphasize the development of our core tax tour business with special focus on demand stagnation to continuously upgrade our product and the level of service. This allows us to rapidly recover our business by seizing opportunities during the industry upturn. Our core competitiveness and protective mode is our commitment to providing high-quality products and services to our customers. Based on customer demand, Tuniu's travel rules are designed to satisfy and even exceed customer expectations. Our new tour product designers have more than 5 years of experience in production. Our high-quality products are subject to strict internal procurement and production procedures. All our new products go through logical interviews and training before they are officially on the job. Our products are also impacted by our customers ensuring that they meet their requirements before being launched. The satisfaction rate of our new products has reached 98% before they can be launched, and we are proud that the satisfaction rate for our new tour products has reached 97%. We always strive to upgrade our products through product innovations, creating new destination selections and itineraries to bring fresh travel experiences to customers. In addition, we also focus on selected market segments and customers and launched the same tour products to attract top customer growth. While standard products remain popular with customers, we also see that demand for customized tours is increasing. Due to considerations of travel cities and the overall experience, more tourists are inclined to travel with their families and friends in the form of small group tours, providing the freedom of self-guided tours with the convenience and services of organized tours. Also, amid China's stabilized pandemic situation and economic recovery, we are seeing an increase in demand for customized tours for business travel such as conferences and team-building activities. As a trusted travel service provider with an extensive service network across China, Tuniu is able to offer business clients customized tour travel products with competitive prices and outstanding service. In the second quarter, our customized tours achieved record growth since the pandemic, increasing by more than 200% quarter-over-quarter. Good products require good service. Our self-operated local tour operators play a crucial role in improving customer experience through excellent service. This year, we launched a zero complaint initiative for our local tour operators, with six of our local tour operators maintaining zero complaint records. We will continue to work hard to maintain and achieve this record. Through our efforts, we are pleased to report that in the second quarter, GMV of local tour operator products increased over 200% quarter-over-quarter and the overall satisfaction rate of our local tour operator service reached 98%. Several unexpected events have occurred since the beginning of this year, including regional pandemic outbreaks and natural disasters. Our self-operated local tour operators have become our most powerful supporters during this time. In response to emergency situations, our local tour operators have helped to ensure the safety and well-being of tourists, lives, and property, and that we always provide assistance swiftly. While our local tour staff have faced difficulties, they have successfully carried out their duties, receiving recognition for their responsiveness to our guests. By providing excellent products and services, we have built a large and loyal customer base. Tuniu hosts a member day every month where we launch special products and discounts for our members. In the second quarter, member day sales continuously reached new highs. In July, our member's day single day sales reached RMB 40 million with the transaction volume of packaged tour products increasing 5 times over the same period last year. In terms of technology, we have continued to automate fixed workflows and further replace daily tasks with automated project flows such as order processing and inventory management. To leverage our employees’ efforts and invest in more creative work, we have also strengthened internal information, data, and risk management, and conducted self-audits to ensure technical security and compliance. In July, China experienced several pandemic outbreaks, which may impact summer travel. We remain, however, optimistic about the domestic travel market. Our industry has overcome many challenges since the COVID-19 outbreak last year, and we are confident that we will overcome any temporary difficulties. With the ongoing vaccination rollout and the enhancement of personnel protection measures, domestic tourism should continue to show strong recovery. We will continue to work hard and provide high-quality products and services to meet the demand of our customers. I will now turn the call over to Anqiang, our Financial Controller, for the financial highlights.

Thank you, Donald. Hello, everyone. Now I'll walk you through our second quarter of 2021 financial results in greater detail. Please note that all the monetary amounts are in RMB, unless otherwise stated. You can find the US dollar equivalence of the numbers in our earnings release. For the second quarter of 2021, net revenues were RMB 161 million, representing a year-over-year increase of 373% from the corresponding period in 2020. The increase was primarily due to the growth in revenues from packaged tours. Revenues from packaged tours were up 907% year-over-year to RMB 126.5 million and accounted for 79% of our total net revenues for the quarter. The increase was primarily due to the growth in demand for domestic tours. Other revenues were up 61% year-over-year to RMB 34.5 million and accounted for 21% of our total net revenue. The increase was primarily due to a rise in commission fees received from other travel-related products and service fees received from insurance companies. Gross profit for the second quarter of 2021 was RMB 69 million, up 792% year-over-year. Operating expenses for the second quarter of 2021 were RMB 95.1 million, down 40% year-over-year. Excluding share-based compensation expenses and amortization of acquired intangible assets, non-GAAP operating expenses were RMB 89.6 million, representing a year-over-year decrease of 36%. Research and product development expenses for the second quarter of 2021 were RMB 13.8 million, down 33% year-over-year. The decrease was primarily due to the decrease in research and product development personnel-related expenses. Sales and marketing expenses for the second quarter of 2021 were RMB 44.8 million, down 47% year-over-year. The decrease was primarily due to the decrease in sales and marketing personnel-related expenses and amortization of acquired intangible assets. General and administrative expenses for the second quarter of 2021 were RMB 41.5 million, down 32% year-over-year. The decrease was primarily due to the decrease in general and administrative personnel-related expenses. Net loss attributable to shareholders was RMB 13.1 million in the second quarter of 2021. Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses and amortization of acquired intangible assets, was RMB 7.4 million in the second quarter of 2021. As of June 30, 2021, the Company had cash and cash equivalents, restricted cash, and short-term investments of RMB 1.1 billion. Cash flow generated from operations for the second quarter of 2021 was RMB 55.7 million. Capital expenditures for the second quarter of 2021 were RMB 2.9 million. For the third quarter of 2021, the company expects to generate RMB 111.2 million to RMB 123.5 million of net revenues, which represents a 0% to 10% decrease year-over-year. Please note that the forecast reflects Tuniu's current and preliminary view on the industry and its operations, which is subject to change, particularly because of uncertainties brought by the impact of COVID-19. Thank you for listening. We are now ready for your questions.

Thank you. We can now take the first question from Tina Bide, a private investor. Please go ahead.

Thank you. This is Tina Bide speaking. Hi, management. Congratulations on the strong recovery of the second quarter. Would you please share with us your core destinations? And my second question is regarding the recent coronavirus outbreak in several cities across China, how does it impact your performance in the third quarter? And what is your view towards the mid to long-term development of the travel industry? Thank you.

Thank you for the question. In the second quarter, the external environment was very positive for the recovery of the travel industry. In fact, we reported sales strengthening ever since the resumption of inter-province travel in last July. We've adapted the four life-cycle customer management method to gain and retain customers. Also, our tour advisers are receiving more training such as on destination knowledge and customized services to enhance their serviceability. Aside from traditional online channels, we will also provide our sales staff with new channels such as the Taiko app, our social media, and live streaming shows. As a result, our revenues, especially the revenues from packaged tours grew significantly during the quarter. In terms of the packaged tour GMV, our best destinations in culture were Hainan, one of the most popular leisure travel destinations in China, followed by Shanghai and Guangdong, both of which have famous theme parks and are good for families with children. Following were Guangzhou and Sichuan, bolstered by short holidays during the quarter. Other destinations included popular sites in Yunnan and Xinjiang. Regarding your second question, yes, the recent COVID-19 outbreaks in several cities across China had a negative impact on the travel industry during the peak season. In fact, the travel market showed rapid growth due to the summer vacation before the outbreak in late July. Our tours generally in July increased both year-over-year and quarter-over-quarter. However, considering the safety issues, some provinces have ceased inter-province travel since mid-July. Therefore, we expect net revenue for the third quarter to align with the same period last year or decrease up to 10% year-over-year. After the outbreak of the virus in July, our first priority was to ensure the safety and interests of our customers, including processing refunds and rescheduling their trips. We also upgraded our destination service, providing customers with new, clean COVID-19 testing options. Our employees, both at headquarters and in destinations, worked in shifts around the clock to assist our customers with any emergencies and to try to facilitate their travels in a safer way. For products, we launched itineraries that do not have fixed departure dates, allowing customers to book at favorable prices and depart in two or three months, when the external environment improves or when they have received the vaccine. This economical and flexible product has been well-received by all customers, especially the younger generation. Overall, we remain positive about the industry; demand is ever-present, despite the short-term slump during January and February, we experienced a record rebound since March. With the pandemic being under control, the market will continue to improve.

It appears that there are no further questions at this time. I would now like to turn the call back over to Mary Chen for any additional or closing remarks.

Once again, thank you for joining us today. Please don't hesitate to contact us if you have any further questions. Thank you for your continued support, and we look forward to speaking with you in the coming months.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.