Tuniu Corp Q1 FY2022 Earnings Call

Thank you. And welcome to our 2022 first 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 first quarter of 2022. Before we continue, I refer you to our Safe Harbor statement in 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 most directly comparable GAAP measures. Finally, please know 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 first quarter 2022 earnings conference call. From the beginning of this year, we have seen the most severe resurgence of COVID-19 since the initial breakout in 2020. As a company with experience in tourism, Tuniu has been building resilience for coping with short-term industry challenges, and we are confident that the industry will resume its recovery in the near future. During the past quarter, we continued to focus on product innovation and service quality, all of which will help us to remain competitive as we take on new opportunities and challenges. Even as the pandemic resurgence has temporarily halted most travel, the desire to travel remains high among the public. According to a recent study by a domestic mainstream media outlet, travel ranks at the top of the consumption list for consumers aged between 18 to 35 and is within the top three categories for consumers, about 8 out of 10. In order to satisfy our customers' demand for travel while complying with pandemic prevention regulations, we are constantly innovating our products and sales models. In terms of our products, we have focused on developing local tour products for travel within cities and nearby destinations. Leveraging our leading hotel resources, we initiated seasonal product offerings and our hotel plus experience product model, such as winter outdoor activities and team growth picking, to provide more diverse selections of local tour products for customers. We also launched a series of city work educational stay tour products, covering museums, zoos, and public gardens. Our product innovations are designed to mirror market trends. Among these, camping has become more popular. We have recently begun offering high-quality camping experiences and RV camping for young customers and families with children. During the May holiday this year, sales of camping-related travel products saw significant growth. In line with our motto of booking flexible travel, most of Tuniu's products, especially interprovincial tours, have adopted the advanced booking and travel confirmation sales model. Customers can make discounted bookings and alter their departure date with the option to receive a full refund in case of cancellation, which will also help drive strong prospective sales among customers for future travel. Tuniu has fully leveraged live streaming as a key sales channel throughout the COVID-19 outbreak. We have hosted sales shows for our members, focusing on specific regional travel products, as well as multichannel live streaming featuring outdoor travel and destination recommendations in addition to our regular daily product promotions. Tuniu's live streaming shows are also an important channel for collecting customer feedback, aiding us in improving our product offerings. Tuniu steadfastly adheres to our customer-first principle in providing comprehensive services for customers during the COVID-19 pandemic. Our customer service team has been monitoring the pandemic situation and is working closely with our local tour operators to ensure guest safety during travel, providing timely response or exchange services during spikes in resurgence. Our customer service teams communicate with our regular customers on a constant basis, providing tour recommendations, especially for discounted products available for advanced booking. Tuniu has gained a sizable number of loyal customers over the years through our reputation for providing high-quality products and services, and the contribution of our repeat customers to our overall GMV has been increasing since the pandemic began. We will continue to work hard to provide high-quality service for our customers and aid them with future travel plans. Next, I would like to talk about our ESG development. In terms of products, we adhere to our strategy of connecting agriculture through travel. We collaborate with destinations in remote areas for product development and launched customized travel products to provide our guests with authentic local experiences while supporting the development of the local tourism economy. Throughout the pandemic, we have maintained a strong focus on our employees' safety and health. To better support our local employees working in different regions in China, we made proper work arrangements in accordance with regional pandemic prevention and control guidelines, such as working remotely from home and enjoying flexible work shifts. We also implemented regular nucleic acid testing for local staff, especially reception staff at our destinations to ensure the safety and health of our employees and guests. We continue to organize team-building activities during the recent pandemic resurgence and carry out internal training and competitions for our core staff and teams to keep them engaged and motivated. Additionally, we have conducted several recreational activities such as short video contests and outdoor running contests to encourage our employees to stay healthy both physically and mentally. Tuniu also sent volunteers to support the community amidst health prevention efforts. We remain confident about the future of China's travel industry. Although we continue to face many challenges on the road to full recovery, we are encouraged by the recent adjustments to COVID-19 inter-province travel guidance, which has narrowed the restrictions from provinces to cities. While the overall travel demand in China continues to rise despite the pandemic's resurgence, we believe that with the patience and support of our guests and customers, the days of traveling will return soon. I will now turn the call over to Anqiang Chen, our Financial Controller, for the financial highlights.

Thank you, Donald. Hello, everyone. Now I'll walk you through our first quarter of 2022 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 the earnings release. For the first quarter of 2022, net revenues were RMB41.5 million, representing a year-over-year decrease of 46% from the corresponding period in 2021. This decrease is primarily due to the negative impact from the outbreak and spread of COVID-19. Revenues from package tours were down 68% year-over-year to RMB14.4 million, accounting for 35% of our total net revenues for the quarter. This decrease was primarily due to the resurgence of COVID-19 in certain regions of China. Other revenues were down 15% year-over-year to RMB27.1 million and accounted for 65% of our total net revenues. This decrease was primarily due to the reduction in fees for advertising services provided to tourism boards and bureaus. Gross profit for the first quarter of 2022 was RMB15.8 million, down 45% year-over-year. Operating expenses for the first quarter of 2022 were RMB68.6 million, down 18% year-over-year. Excluding share-based compensation expenses and amortization of acquired intangible assets, non-GAAP operating expenses were RMB65.5 million, representing a year-over-year decrease of 18%. Research and product development expenses for the first quarter of 2022 were RMB16.2 million, up 37% year-over-year. The increase was primarily due to higher personnel-related expenses in research and product development. Sales and marketing expenses for the first quarter of 2022 were RMB29.8 million, down 16% year-over-year. The decrease was primarily due to lower promotional expenses. General and administrative expenses for the first quarter of 2022 were RMB27.7 million, down 38% year-over-year. The decrease was primarily due to lesser general and administrative personnel-related expenses and allowances for doubtful accounts. The net loss attributable to ordinary shareholders was RMB40.4 million in the first quarter of 2022. Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses and amortization of acquired intangible assets, was RMB37.2 million in the first quarter of 2022. As of March 31, 2022, the company had cash and cash equivalents, restricted cash, and short-term investments of RMB929.5 million. Capital expenditures for the first quarter of 2022 were RMB2.1 million. For the second quarter of 2022, the company expects to generate RMB32.2 million to RMB40.2 million of net revenue, which represents a 75% to 80% decrease year-over-year. Please note that these forecasts reflect Tuniu's current and preliminary review of the industry and its operations, which are subject to change, particularly due to the uncertainties brought about by the impact of COVID-19. Thank you for listening. We are now ready for your questions.

Thank you. Hello, my name is Grace. I have a question for management. As we know, the tourism industry is currently faced with challenges because of the severe resurgence of COVID-19 in the past few months. Given these circumstances, how do you view the future development of the tourism industry and what strategic measures will the company take in the second half of the year to deal with the pandemic risks? Will there be any changes compared to the past? Thank you.

Thank you for the question. We are facing the most severe rebound of the pandemic since the first quarter of 2020. The current round of outbreaks has negatively affected the domestic travel market, as well as our revenues in the first half of the year. However, we are pleased to see that with the number of infections gradually declining recently, domestic travel restrictions are tending to be eased. During the recent Dragon Boat Festival, our number of trips doubled compared with the Spring Festival. The market may maintain momentum for recovery in the coming summer and National Day holiday, provided that the pandemic is under control. In the long term, we believe the industry will continue to grow despite the pandemic's impact, as tourism demand has not decreased but has been temporarily pent-up. This is demonstrated by the increasing popularity of retail campaigns since the spring. To capture the pent-up demand and reduce uncertainties presented by the pandemic, we are committed to providing products that are innovative and flexible. On one side, our product design follows the concept of parental tourism, adding more personalized interactive activities for people to enjoy during their travels. On the other side, our product sales adopt advanced booking and travel confirmation models. People are free to book any products at any time. If their trips are delayed or canceled, they can choose a later departure date or receive a refund. In terms of services, we continuously adhere to our customer-first principle and provide comprehensive services to our customers. Group services help us retain customers. It's crucial to care about customers, especially when the market is challenging. Our customer service team remains in close contact with regular customers during the pandemic, reinforcing customer loyalty by providing them with travel-related updates. Therefore, Tuniu is likely to be their first choice when they plan to travel. Additionally, the pandemic has brought changes to the travel industry, and we are also exploring new opportunities. For example, we have further developed rural tourism, capturing both the concept of tourism and the momentum of local travel. Our local team traveled across the country to identify destinations that combine unique amenities and local activities. We partner with big technicians and design special products for them. Based on our experience in the travel industry and our understanding of our customers, we aim to attract more clients and enhance local tourism economies. Furthermore, we have launched new business initiatives to diversify our offerings. In general, we will continue to uphold Tuniu's core competitiveness in this challenging environment while seeking potential growth opportunities.

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. Have a good day.