Tuniu Corp Q3 FY2021 Earnings Call

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

Thank you, Larry. And welcome to our 2021 third 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, operational highlights, and financial performance for the third 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 third quarter 2021 earnings conference call. While the recovery of the overall tourism industry experienced setbacks in the third quarter due to their resurgence of COVID-19 and natural disasters, our revenues from packaged tours continue to increase. Following the pandemic's resurgence in August, Tuniu’s performance improved during September and October. Operating expenses decreased year-on-year for the third consecutive quarter, and our net loss continues to narrow compared to the same period of last year. During the pandemic era, Tuniu has adhered to our customer-first principle, providing safe and comfortable travel experiences, as well as refund and exchange guarantees. Our refund and exchange class rate reached the highest level of the year following the COVID-19 resurgence in July. From July 20 to August 20, we refunded over eighty-five thousand orders, and total refunds for packaged tours were over RMB one hundred and twenty million. In addition to our extended refund and exchange guarantees for high-risk areas, we absorbed some of the losses for customers who had to cancel trips due to pandemic control matters. Throughout this outbreak of COVID-19 in 2021, we have provided coverage for customer losses totaling over RMB one hundred million, thanks to our timely and effective services. We have gained the long-term support and trust of our many loyal customers. In fact, the contribution of our repeat customers to our transaction volume has remained stable at over seventy-five percent every quarter since 2020. In October, during our members day, single-day sales exceeded RMB ten million, and the transaction volume of our packaged tour products increased thirty percent quarter-on-quarter. The high quality and trustworthy corporate image we have established has played a large role in attracting new customers. While ensuring that we maintain the highest standard of service quality, we will continue to focus our energies on product development. We consistently work to upgrade our products based on customers' evolving demands, and the main trend we observe is smaller premium packaging tours. Travelers are increasingly demanding adventures, wellness-related services, alongside traditional tours, and Tuniu’s status in tons of facilities and services is growing as well. During the National Day holidays this year, more than half of all our total COVID-19 bookings were six or less. According to our booking data, Tuniu’s years of experience in the industry have allowed us to build a mature product and service network covering various points of departure. However, the development of destination-based products and services still has enormous room for growth. The design and development of Tuniu’s packaged tour products have always revolved around the destinations. Our new tour product designers all have more than five years of experience in destination design. We have dedicated staff responsible for results equipment and destinations. Since the COVID-19 outbreak, we have further promoted innovation within existing destination roles, developing new definitions and launching multiple implied products such as countryside tours, glamping, and urban light tours in addition to our midstream products to provide more options for customers. In the post-COVID-19 era, self-guided tours have become increasingly popular. To address this, our hotel products model focuses on vaccination hotels with special access around location hotels. Our hotel prospects and product model offer options to meet direct customer demand, such as scenic spot tickets for the market, helicopter tours for premium marketing, and family-friendly enhancement activities. The Hotel plus package product model has also grown in development, and with our direct document advantages, we are able to leverage destination-based resources to provide travelers with more product choices and value for money. In terms of marketing, our approach combines popular online formats, including partnerships to better capture the attention of customers, and livestreaming shows to introduce destinations, encouraging increased orders from users, especially among the younger generation. We have developed several long-term and in-depth premium shows for popular destinations; some of which have achieved strong results, and we look forward to developing this channel further. In terms of vaccination surveys, our self-operated local tour operators are on the frontline actively serving customers. We have been recognized for our continuous efforts to provide high-quality service and have been rewarded with positive feedback from our customers. Our satisfaction rate has reached ninety-eight percent this quarter. Since we launched our direct compliance initiative with our local tour operators this year, in the third quarter, the number of self-operated local tour products increased by over thirty percent year-on-year. Additionally, the proportion of self-operated local tour products increased by ten percent within the GMV of packaged tour products compared to the third quarter of last year. Our self-operated local tour operators have effectively collaborated with our customer service teams within the service cycle network for travelers. In the third quarter, as tourism was affected by bad weather conditions and pandemic disruptions, our tour guides, destination staff, and customer service teams activated our emergency response plan and quickly cooperated with local prevention and control requirements to ensure travel safety. By leveraging our direct business model and transitory technology, we are able to reduce the number of intermediate links in the industrial chain, allowing us to provide more convenient services for authorities during travel, including airport shuttles, distractions, and tour guide options. While the tourism industry has encountered temporary setbacks due to the recent COVID-19 outbreak, our priority has been to meet the pandemic control requirements of each region, ensuring safety and minimizing losses while maintaining a high level of customer satisfaction. Moreover, we will continue to strengthen our product services and technologies to improve the overall in-destination customer experience. I'm confident that our continuous efforts will deliver results.

Thank you, Donald. Hello, everyone. Now, I will walk you through our third quarter of 2021 financial results in greater detail. Please note that all monetary amounts are in RMB unless otherwise stated. You can find the U.S. Dollar equivalents of the numbers in our earnings release. For the third quarter of 2021, net revenues were one hundred fourteen point six million RMB, representing a year-over-year decrease of seven percent from the corresponding period in 2020. The decrease was primarily due to the negative impact caused by the outbreak and spread of COVID-19. Revenues from packaged tours were up five percent year-over-year to ninety point seven million RMB, accounting for seventy-nine percent of our total net revenues for the quarter. The increase was primarily due to the growth in revenues from self-operated products. Other revenues were down thirty-six percent year-over-year to twenty-three point nine million RMB, accounting for twenty-one percent of our total net revenues. The decrease was primarily due to the decline in commissions received from other travel-related products affected by the outbreak and spread of COVID-19. Gross profit for the third quarter of 2021 was thirty point seven million RMB, down thirty-nine percent year-over-year. Operating expenses for the third quarter of 2021 were ninety-six point four million RMB, down twenty-five percent year-over-year, excluding share-based compensation expenses and the amortization of our acquired intangible assets. Non-GAAP operating expenses were ninety point nine million RMB, representing a year-over-year decrease of twenty-three percent. Research and product development expenses for the third quarter of 2021 were fifteen point six million RMB, down three percent 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 third quarter of 2021 were forty-one point seven million RMB, down sixteen percent year-over-year. The decrease was primarily due to the decrease in sales and marketing personnel-related expenses and the amortization of acquired intangible assets. General and administrative expenses for the third quarter of 2021 were forty-one point two million RMB, down forty-one percent year-over-year. The decrease was primarily due to the decrease in general and administrative personnel-related expenses. Net loss attributable to ordinary shareholders was thirty-five point one million RMB in the third quarter of 2021. Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses and amortization of acquired intangible assets, was twenty-nine point four million RMB in the third quarter of 2021. As of September 30, 2021, the company had cash, cash equivalents, restricted cash, and short-term investments of one billion RMB. Capital expenditures for the third quarter of 2021 were two point one million RMB. For the fourth quarter of 2021, the company expects to generate fifty-three point four million RMB to sixty-five point three million RMB in net revenues, which represents a forty-five percent to fifty-five percent 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 with the uncertainties brought by the impact of COVID-19.

Thank you. The question-and-answer session of this conference call will start shortly. Our first question comes from Lucy. Please proceed.

Okay. This is Lucy speaking. Thank you, operator. Hi management. My question is about the impact of the domestic pandemic resurgence on the industry and the company. For the eighth, the current COVID outbreak continues, I would say to you that that’s during festival or even longer. What’s your plan for the winter season? Okay. That’s all. Thanks.

Thank you for the question. There have been outbreaks of COVID-19 from time to time since late July, which have set back the recovery of the industry. Even under negative conditions, our revenues from packaged tours still have positive growth year-on-year. However, the outbreaks have spread to many provinces, and some provinces have suspended interprovincial travel. Thus, we anticipate a year-over-year decrease in our net revenue for the fourth quarter. Nevertheless, the outbreak of the pandemic has also accelerated the upgrading of the travel industry. After the pandemic surge, the demand for better resources and services from customers has led to higher quality products. In response to this demand, we launched the zero complaints initiative with our local tour operators, resulting in the GMV of our local tour operator products doubling in the first three quarters of this year compared to the same period last year. Regarding service, thanks to the mutual efforts from all parties in the entire industry chain, customer refund and exchange processes are becoming quicker and more comprehensive. Although we and our partners may incur some losses, we will take social responsibility and prioritize customer satisfaction. These improvements have paved the way for the entire industry, and we aim to make further advancements in the future. Given the current circumstances, where interprovincial travel is suspended, we have focused on intraprovincial travel. We are leveraging our advantages in the supply chain by offering customers a wider variety of local cost options, including high-quality hotels and local entertainment. Moreover, we are in direct supply of demand from our tour teams, exploring more options for travelers, such as countryside tours and interactive experiences between parents and children, particularly for activities in winter like visits to hot springs. We are targeting nearby hotels to focus on the development of trial products for weekend outings. Although we will continue our livestreaming shows to introduce Tuniu’s offerings to travelers at home, in general, we see a resolution and effort to overcome the pandemic throughout the nation. In spite of the current resurgence of the pandemic, with ongoing vaccination rollouts and enhancements in preventive measures, we are hopeful that the travel industry will continue recovering in the near future. Thank you.

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.