Tuniu Corp Q2 FY2022 Earnings Call

Thank you, operator. And welcome to our 2022 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 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 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 2022 earnings conference call. During the second quarter, particularly in April and May, tourism was impacted by the most severe resurgence of COVID-19 since the initial outbreak in 2020. However, in June, we saw a rapid recovery as outbreaks were better controlled. The industry also benefited from variable policies, such as more relaxed travel restrictions. The enthusiasm for travel among the public remained high with demand increasing since the first half of the year. Tuniu’s total travel GMV growth exceeded 100% month-over-month during June and July, despite the setback in the second quarter. With the peak travel season starting in July, booking volume for several popular destinations increased significantly, with Tuniu’s booking volume doubling in July compared to the previous month. By keeping our focus on providing high quality products and services during times of external challenges, we are able to weather industry downturns and recover quickly during the rebound. In terms of our product, our core self-operated product continues to offer a high level of standard services to meet diverse customer demands. Since it was first launched over a decade ago, Tuniu's production ecosystem has developed its own operating processes and standards for product design, resource selection, customer service, and evaluation. Tuniu’s high quality products are the key to our high customer retention rate, with the contribution of our repeat customers to overall GMV remaining at over 70% since the pandemic started. Leveraging Tuniu’s high quality products and the reputation we aim to develop more popular products to meet the high market demand during the peak seasons. Taking one of our products designed for Xinjiang as an example, we increased the number of tour groups to meet the high demand in July, with sales of the product exceeding RMB3 million in a single month. In terms of product innovation, during the second quarter, we continued to explore village tour products as customer demand continues to diversify. In addition to traditional tours, experiential tours have become more popular and help to provide opportunities for the high quality development of village tourism. Tuniu also collaborates with several village tourism projects on operation and management, in addition to their product development and promotion by leveraging our advantages and funds in the industrial chain. Tuniu’s self-operated B&B in Changqing has been experiencing an increase in occupancy since it opened last May, with revenue growth of over 200% year-on-year in both June and July of this year. We will continue to explore rural tourism and B&B with an asset-light model in order to support the utilization and the development of the local tourism industry and enrich Tuniu’s product offerings for our guests. Live streaming shows are becoming increasingly popular in customers’ daily lives, and are now a key channel for Tuniu’s sales promotions and customer acquisitions. Tuniu features different types of live streaming shows focused on product sales and introduction of various destinations, as well as recommendations for destination-based activities and products such as camping equipment. As a company, we have deep experience in tourism, and Tuniu has clear advantages in producing tourism-related live streaming shows. In April, we launched a live streaming show on Douyin that ranked at the top of the hotel and travel category in Eastern China in May and June, with total GMV of the live streaming show exceeding RMB8 million in June. As one of our core competencies, Tuniu is committed to focusing on customer demand and providing high quality service despite the changes in the external environment. Under the current COVID-19 control measures, Tuniu launched additional services including speed reforms up to 24 hours before departure day, and new click beta testing in some of our organizer tour products. Our guests can receive a full refund for local tour operator services up to 24 hours before their departure day, providing a worry-free guarantee. The new click beta testing services are offered to the guests throughout the tours at the destination, with assistance from our staff to provide a better travel experience. Our customer service team and local staff at destinations aim to provide a full cycle service network to ensure that our guests enjoy their trip. In terms of technology, we continue to improve efficiency and quality through digitalization, optimizing our internal operations and external customer experience. For internal operations, we have further automated our inventory management and product launching processes, and display and maintenance to reduce labor costs. In terms of enhancing customer experience, we are leveraging AI technology to replace some of the simple manual customer service tasks, such as the reception of guests on their first visit and recommendations for products and live streaming shows, further reducing the burden on manual customer service and improving the response speed for customer service requests. Guests who purchase our advanced booking products can complete their order confirmation online, which is both faster and more convenient. Tuniu will continue to provide technical support to internal departments, including our product and customer service teams, to further improve their efficiency and quality of daily work. In conclusion, despite the recent pandemic outbreak, domestic tourism is set to continue benefiting from positive trends and increasing travel demand, and we remain optimistic about the long-term development of the industry. In order to consolidate and expand our customer base and create greater value for our customers, we will remain committed to developing high quality products and services, while observing the momentum of the industry rebound to serve more guests. I now turn the call over to Anqiang Chen, our Financial Controller for the financial highlights.

Thank you, Donald. Hello everyone. Now I will walk you through our second quarter 2022 financial results in greater detail. Please note that all monetary amounts are in RMB unless otherwise stated. You can find the U.S. equivalent of the numbers in our earnings release. For the second quarter of 2022, net revenues were RMB37.0 million, representing a year-over-year decrease of 77% from the corresponding period in 2021. The decrease was primarily due to the negative impact brought by the resurgence and spread of COVID-19. Revenue from packaged tours decreased by 92% year-over-year to RMB9.5 million, accounting for 26% of total net revenue for the quarter. This decrease was primarily due to the restrictions of COVID-19 in certain regions in China. Other revenues decreased by 20% year-over-year to RMB27.4 million, accounting for 74% of our total net revenues. This decrease was primarily due to a decline in the fees for advertising services provided to tourism boards and bureaus, and commission fees received from other travel-related products. Gross margin was 45% in the second quarter of 2022, compared to a gross margin of 43% in the second quarter of 2021. Operating expenses for the second quarter of 2022 were RMB139.4 million, up 46% year-over-year. Among these, gains on disposals of subsidiaries, which were recorded in other operating income, were RMB32.8 million. Impairment of goodwill, recorded due to the severe adverse impact of COVID-19 on the Company's business this quarter, with potential continuous impact in subsequent periods, was RMB112.1 million. Excluding share-based compensation expenses, amortization of acquired intangible assets, gains on disposals of subsidiaries, and impairment of goodwill, non-GAAP operating expenses were RMB55.7 million, down 38% year-over-year. Research and product development expenses for the second quarter of 2022 were RMB14 million, up 1% year-over-year. This increase was primarily due to greater expenses related to research and product development personnel. Sales and marketing expenses for the second quarter of 2022 were RMB24.5 million, down 45% year-over-year. The decrease was primarily due to reduced promotion expenses and sales and marketing personnel-related expenses. General and administrative expenses for the second quarter were RMB23.9 million, down 43% year-over-year, primarily due to the decrease in general and administrative personnel-related expenses and the reversal of allowance for doubtful accounts. Net loss attributable to ordinary shareholders was RMB126.5 million in the second quarter of 2022. Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses, amortization of acquired intangible assets, gains on disposals of subsidiaries, and impairment of goodwill, was RMB42.6 million in the second quarter of 2022. As of June 30, 2022, the Company had cash and cash equivalents, restricted cash, and short-term investments totaling RMB1 billion. Capital expenditures for the second quarter of 2022 were RMB0.4 million. For the third quarter of 2022, the Company expects to generate RMB74.5 million to RMB80.2 million in net revenues, representing a 30% to 35% decrease year-over-year. Please note that this forecast reflects Tuniu's current and preliminary view on the industry and its operations, which is subject to change, particularly due to uncertainties brought about by the impact of COVID-19.

Thank you, operator. Hi management. As we can see, the second quarter saw significant increasing losses. Could you specify the causes, and in the context of the recent recovery of the tourism industry, how has your business recovered in recent months, especially during the summer vacation? Thank you.

Thank you for the question. In the past quarter, the travel industry has experienced the hardest time ever since the outbreak of COVID-19 in 2020. The resurgence of the pandemic has prohibited many trips, especially zero travels, which greatly harmed our net revenues and the revenues from packaged tours in particular during the second quarter. In terms of expenses, considering the continued influence of COVID-19 and uncertainty regarding the future market, the company conducted a goodwill impairment assessment and determined to record over RMB100 million of goodwill impairment this quarter. Apart from this impairment, our non-GAAP operating expenses decreased over 30% year-over-year. As summer vacation approaches, the travel market is buoyed by incentives such as relaxed restriction policies, increasing demand, and peak season deferred from the previous quarter; long-distance tours are preferred compared to local tours during summer vacation. According to our data, the average travel duration exceeded three days in July, which was longer than those during the spring festival and May Day holidays. Products for families with children are always popular during summer vacations. Apart from traditional theme parks and seaside trips, we've launched entertainment travel products that promote children's participation and experience during the trips. Additionally, due to the hot weather this year, travelers have increased their demands for enjoying cool and health-related services. In terms of destinations, Yunnan, Hainan, and Xinjiang were the top three destinations in July. We recorded positive GMV growth compared to the same month last year. However, Eastern China, which used to be one of the most popular departure districts, is still on the way to recover due to outbreaks of COVID-19 in the previous quarter. In August, there were outbreaks in some popular destinations, which brought negative impacts on the travel industry in the short term. However, as the scope of travel restrictions was further narrowed, the pressure on the travel market was more moderate than before. Our data indicates that destinations without severe pandemic outbreaks are still seeing growth. For instance, the order amount from Guangdong Province continued to increase in August compared to July. To ensure a good customer experience under current circumstances, we will increase the flexibility of our travel products. Customers may book in advance and later confirm their departure date online, or receive a full refund upon cancellation. For certain products, even if the trip is confirmed, our customers can cancel it and get a full refund for local tour operator services up to 24 hours before their departure date. Despite the current resurgence of the pandemic, looking ahead with the implementation of precise and differentiated strategies in the prevention and control of COVID-19, domestic trips will be smoother and the industry will continue to recover. 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.