Tuniu Corp Q3 FY2022 Earnings Call

Thank you and welcome to our 2022 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, operation highlights, and financial performance for the third quarter of 2022. 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 2022 earnings conference call. In the beginning of this quarter, Tuniu’s business rebounded as China’s travel industry showed a strong recovery with more effective control over COVID-19 and the arrival of the peak summer season. While more recent pandemic outbreaks since August have impacted location and travel plans, Tuniu's net revenues increased over 100% and revenues from packaged tours increased over 300% in the third quarter, compared to the second quarter. Since 2020, both the overall tourism industry and the company have been impacted by uncertainties in the external environment. Despite these challenges, we have remained focused on customer demand and providing high-quality products and services, as well as continuing to roll out cost control measures to strengthen our resiliency in the face of risk. Meanwhile, we have constantly upgraded our product design, customer service, and marketing tools to meet customer demand in the post-pandemic time as we seek new growth opportunities. Turning now to our products, Tuniu's integrated production, supply, and marketing model is the foundation of our ability to provide customers with high-quality products. Firstly, we are stricter with our supply chain selection. Following the pandemic outbreak, our service quality might be particularly impacted by industry changes, including the withdrawal of some of our suppliers from the market. To counter this, we have reorganized our supply chain and strengthened our supplier evaluation and extraction process. And with direct procurement advantages from our self-operated local tour operators at destinations, we have reliable resources to continue providing products with industry-leading satisfaction rates. Secondly, we have streamlined our product SKUs and focused our production efforts on key technicians to leverage the advantages of scale and focus towards creating more popular travel products. During the summer peak season, our new tour products team and self-operated local tour operators will focus on popular destinations and roles such as Xinjiang, Yunnan, and Guangdong. In the third quarter, the transaction volume in Yunnan and Guangdong province both exceeded 100% compared to last year. For some of the long-tail destinations and products, we collaborated with our partners on operations while strictly reviewing product quality. In terms of product innovation, we continued to seize the opportunities in rural tourism, developing village tour products, village B&Bs, and popular live streaming shows featuring agricultural products. In addition to attracting customers, this innovative product offering helped promote the development of local economies. In addition to exploring new product introductions for the post-pandemic era, including self-operated B&B products, our products in Xinjiang have been operating for more than a year with gross operating profit exceeding 50% in the third quarter. We will continue to expand our self-operated B&B products to other regions. These asset-light products are usually located near popular tourist cities and primarily attract guests for weekend locations and local tours. Live streaming shows, plus short videos have proven to be one of the most popular promotional models in the outdoor and tourism industry now. Tuniu combines this new media with the company's existing membership and community channels and creates a new channel for customer acquisition. Our new media marketing covers a number of mainstream media platforms, and we launched self-live streaming shows covering multiple regions and travel preferences, leveraging our different experiences in the tourism industry. One of Tuniu’s live streaming shows on Douyin in Eastern China has long been among the top 3 lifestyle services live streaming shows in the region in terms of GMV, with several of our live streaming shows exceeding RMB10 million in sales in October. In addition, we are also cooperating with external clients such as local cultural and tourism bureaus, scenic spots, hotels, and restaurants to install new business models and directions. Regarding our service, Tuniu's customer-first principle has always guided our approach to providing high-quality, flexible services for customers. And especially during the post-pandemic era, guest safety has become more important than ever. During the peak season, our self-operated local tour operator staff will personally visit the scenic routes before the arrival of our guests to eliminate any potential safety hazard brought by heavy tourist traffic, ensuring our guests a comfortable and enjoyable travel experience. In terms of product booking, we offer many products that allow online booking with options to confirm at a later date, providing greater peace of mind amidst pandemic uncertainties. For all customers who purchased our self-operated product, we provide reservation services on their behalf, so they do not need to make reservations with hotels or scenic spots themselves. For those customers who have purchased their products but have not yet booked a trip, Tuniu's customer service team will reach out to remind them to book in a timely manner to avoid overlap. Customer service will also notify customers about the latest special offers. In terms of technology, we leverage the efficiency and flexibility of technology to improve our internal operations and processing efficiency. By leveraging digitalization and AI technology, we are able to cover daily tasks with automated process flow, such as order processing and online confirmation options for departure dates at a later time. This allows us to free up capacity for more creative works like complicated booking requests and key product R&D. With the end of this summer peak season and the impact of the recent recurring pandemic outbreak, the travel industry is temporarily facing pressure. As a company with deeper experience in tourism, Tuniu is resilient and able to weather the current challenges. Also, we are confident that our product and customer service capabilities will position us to benefit when the industry rebounds. 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 third quarter of 2022 financial results in greater detail. Please note that all the monetary amounts are in RMB unless otherwise stated. You can find the U.S. dollar equivalent of the numbers in our earnings release. For the third quarter of 2022, net revenues were 77.9 million, representing a year-over-year decrease of 32% from the corresponding period in 2021. The decrease was primarily due to the negative impact brought by the resurgence and spread of COVID-19. Revenues from packaged tours were down 54% year-over-year to 41.4 million and accounted for 53% of our total net revenues for the quarter. The decrease was primarily due to the resurgence of COVID-19 in certain regions in China. Other revenues were up 52% year-over-year to 36.4 million and accounted for 47% of total net revenues. The increase was primarily due to the rise in commission fees received from other travel-related products. Gross margin was 58% in the third quarter of 2022, compared to a gross margin of 35% in the third quarter of 2021. Operating expenses for the third quarter of 2022 were 59.3 million, down 38% year-over-year. Excluding share-based compensation expenses and amortization of acquired intangible assets, non-GAAP operating expenses were 57.4 million, representing a year-over-year decrease of 37%. Research and product development expenses for the third quarter of 2022 were 9.7 million, down 38% year-over-year. The decrease was primarily due to the reduction in research and product development personnel-related expenses. Sales and marketing expenses for the third quarter of 2022 were 26.5 million, down 36% year-over-year. The decrease was mainly due to the reduction in promotional expenses. General and administrative expenses for the third quarter of 2022 were 24.3 million, down 41% year-over-year. The decrease was primarily due to the reduction in general and administrative personnel-related expenses. Net loss attributable to ordinary shareholders was RMB22 million in the third quarter of 2022. Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses and amortization of acquired intangible assets, was 20.1 million in the third quarter of 2022. As of September 2022, the company had cash and cash equivalents, restricted cash, and short-term investments of 949.6 million. Capital expenditures for the third quarter of 2022 were 1 million. For the fourth quarter of 2022, the company forecasts generating 26.5 million to 30.8 million of net revenues, which represents a 58% to 68% decrease year-over-year. Please note that the forecast will be flat to our current and preliminary view on the industry and its operations, which is 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, operator. Hi, management. Under the continuous influence of COVID-19 around China, the overall tourism industry is faced with challenges and uncertainties, so what is your company's current solution and future strategic plan? Thank you.

Thank you for the question. In the third quarter, the tourism industry rebounded since fewer pandemic cases were reported from late stream until mid-August. Our revenues from packaged tours increased over 300% on a quarter-over-quarter basis. And many A-share listed companies that operated in scenic areas also reported better financial performance than the previous quarter. From these results, we can see, as long as the pandemic is under control, the industry will soon show a strong recovery. We have always built our market strategy and company resilience despite the uncertainties and difficulties. First of all, we will continue to focus on the domestic leisure travel market where we have over 10 years of experience and to provide high-quality products and services under our integrated model. These are our core competitive advantages. Although our revenues are temporarily impacted by external factors, we are positive about the long-term growth driven by user demand. Apart from focusing on our core business, we also seek development and breakthroughs in new business areas. Currently, facing the continuous resurgence of COVID-19, we take every chance for development with the pandemic stability in mind. The release of pent-up demand will drive the growth of our revenues as the epidemic situation improves, provided that our products and services are compelling enough to attract customers. It requires us to keep improving our products and services based on the shifting trends in customer preferences. For example, in the post-pandemic era, travelers tend to favor personalized and non-standard products, while B&B-plus scenic areas would be a suitable solution for them, being safe and beneficial for small-scale travels. Besides providing such products, we will also run a few B&Bs ourselves. During the summer vacation, our B&B in Xinjiang provided value-added services such as amenities for families with children and options for leisure travelers, contributing to an increase in occupancy rates. Live-streaming is another area where we've invested during the post-pandemic time. We started live streaming shows about introduction of destinations years ago and began selling travel products through these platforms since 2020. Now we have dozens of live streaming shows covering major media platforms, some of which have already achieved over RMB10 million in sales volume. We continue to develop more shows aimed at reaching the 10 million benchmark. We expand our product category from packaged tours and travel-related products to travel equipment, agricultural products, food and drinks, and recreational focuses. On the supply side, in addition to selling our own products, we also source from third-party suppliers. Moreover, we are qualified suppliers on many media platforms that can distribute our travel products to other sellers. We are open to collaboration with any partners on live-streaming shows and wish to explore additional development opportunities. Finally, after the announcement of adjusted pandemic travel measures and updates on inter-provincial travel restrictions in November, we see the enthusiasm for travel among the public has increased. The number of visits to our platform and product searches are both on the rise. Although the market still needs time to respond, we are well-positioned for a new rebound of recovery.

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.