Tuniu Corp Q1 FY2023 Earnings Call

Thank you and welcome to our 2023 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 2023. 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 first quarter 2023 earnings conference call. We are pleased to see that 2023 has kicked off with a robust recovery in China's travel industry and a solid first quarter of positive growth for Tuniu. Our net revenues grew 52% year-over-year for the quarter, with revenues from packaged tours growing 179% year-over-year. Total travel GMV maintained triple-digit growth year-over-year during both April and May. In the first quarter, the improvement in the external environment was accompanied by the release of consumers' pent-up demand for travel. Beyond business travel and family visits, the number of leisure and vacation trips increased significantly. During this year's Labor Day holiday, we saw a threefold growth in our number of trips compared to the previous year. Building on this strong start to the year, we plan to capitalize on the collective capabilities of both upstream and downstream sectors to expedite our business recovery. Additionally, we will continue to enhance internal operations through digitalization, aiming to continuously improve efficiency. In terms of our products, we firmly believe that excellent products serve as a competitive advantage for Tuniu, and we are committed to developing our in-house products. For example, our new tour products targeting the mid to high-end market employ a direct procurement strategy that ensures higher than average standards for accommodations and dining. We closely monitor factors that may impact the customer experience, allowing us to design products that stand out in the market. As a result, we have gained a favorable reputation among customers for high-quality experiences and services. New tour products are not only fueled by Tuniu members but are also popular across channels such as live streaming shows and offline stores by both customers and our valued partners. While we collaborate with a wide range of suppliers to diversify our product offerings and destinations, we always maintain strict supplier selection criteria to ensure our customers receive products of the utmost quality. We are also actively pursuing opportunities in the upstream segment of the industry chain and implementing an asset-light model to operate our own B&B. Our third self-operated B&B successfully commenced operations in Nanjing during the first quarter. During the peak of this Labor Day holiday, both of our B&Bs that were opened during the preceding years were fully booked, while our newly opened B&B also achieved an impressive occupancy rate exceeding 70%. Recognizing the integral role of hotels in destination services, we are committed to further promoting our self-operated B&Bs at a constant and measured pace. Regarding our sales channels, we have successfully built a comprehensive sales network encompassing various dimensions. This includes direct sales and distribution channels, both online and offline. Tailored to the needs of both private and corporate customers and in line with the changes in consumption habits post-pandemic, we have also incorporated emerging channels such as live-streaming shows and social marketing tools to better introduce our products to customers. For over a decade, Tuniu has maintained a dedicated team of experienced travel advisors to offer comprehensive assistance throughout the entire booking process, including travel planning, consultation, and order placement. In 2020, we initiated a strategy to push to integrate automation technology into our sales operations, thereby streamlining certain simple and repetitive tasks through machine-based solutions. This initiative has significantly enhanced the efficiency of our travel advisor team. In the first quarter, as our business rebounded, we witnessed a substantial increase in inquiries and orders. In addition to our team of professional travel advisors, we also have a loyalty program that enables us to provide our members with a more personalized and exclusive customer service experience. Thanks to the dedicated efforts of our membership team, we have successfully cultivated a large base of loyal users who have played a significant role in boosting our transaction volume upon the resumption of travel activities. In the first five months of this year, we achieved record-breaking monthly sales on our membership days, and in May, the transaction value of our membership days exceeded RMB30 million. With the long-term trust our members have developed in our products and services, some of them even opted for higher-priced premium offerings such as polar tour products. Live streaming has emerged as a dynamic sales method in recent years, and through three years of effort, we have successfully established our own live streaming team and developed over 40 live streaming accounts covering multiple areas, ensuring a strong presence on popular media platforms. Currently, our live streaming shows constantly rank among the top performers in sales within Douyin's lifestyle services category. In the first quarter, we expanded our reach to the supply side, and in April, we secured the third position nationwide among Douyin's hotel and travel suppliers rankings. In addition to our own live streaming shows, we are actively collaborating with external influencers to promote our core products. By incorporating an increased share of new tour products in our live product offerings, we are effectively driving sales to enhance brand influence. Through leveraging our own live streaming shows and influencer partnerships, new tour products were live-streamed on the Douyin platform over 300 times in April alone, generating total GMV of over RMB30 million. In addition to our direct sales network, we employ multiple channels to distribute our travel products, including B2B platforms, social marketing tools, and offline stores. This distribution strategy not only allows us to reduce inventory pressure but also gives us more ways to reach our customers. Currently, our distribution focus is primarily on high ASP packaged travel products like those in the Maldives category, as well as single resource offerings such as high-end resorts. This highlights the importance of offering superior products to succeed in the market. Moreover, we extend support to our partners in the form of content, information, and technology to help them better serve customers. In terms of technology, we continue to increase automation and have improved our internal operation efficiency. In the first quarter, our net revenues increased by 52% year-over-year, while total operating expenses decreased by 19% year-over-year. We will continue to leverage technology to reduce costs and increase efficiency. For example, we are taking advantage of dynamic packaging technology to introduce more quality resources to our guests at a better price. While our guests are allowed to create their own packaging products to reduce internal labor costs. Starting this year, we are also leveraging our technology strategy to improve user experience and conversion rates by upgrading our website, app, and WeChat Mini Program. Since our establishment, Tuniu has maintained a strong focus on the leisure and vacation sector, aiming to provide Chinese travelers with more convenient and enjoyable travel experiences. To achieve this goal, we have constantly explored both the upstream and downstream segments of the industry chain, resulting in an innovative business model that integrates product development, supply management, and sales. This unique approach sets us apart from other travel companies and serves as a fundamental advantage for our growth. As an Internet company, we firmly believe in the transformative power of technology. By embracing digital technology, we not only strengthen our own operations but also deliver enhanced benefits to our customers, leveraging our strengths and advantages. We are determined to capitalize on the industry's recovery, positioning our business for a robust rebound and sustainable growth. I'll now turn the call over to Anqiang, our financial controller, for the financial highlights.

Thank you, Donald. Hello, everyone. Now I will walk you through our first quarter of 2023 financial results in greater detail. Please note that all monetary amounts are in RMB, unless otherwise stated. You can find the US dollar equivalents of the numbers in our earnings release. For the first quarter of 2023, net revenues were RMB63.2 million, representing a year-over-year increase of 52% from the corresponding period in 2022. The increase was primarily due to the growth in revenues from packaged tours. Revenues from packaged tours were up 179% year-over-year to RMB40.1 million and accounted for 64% of our total net revenues for the quarter. The increase was primarily due to the growth of organized tours. Other revenues were down 15% year-over-year to RMB23.1 million and accounted for 36% of our total net revenues. The decrease was primarily due to the decrease in commission fees received from other travel-related products and the revenues generated from financial services. Gross profit for the first quarter of 2023 was RMB38.9 million, up 146% year-over-year. Operating expenses for the first quarter of 2023 were RMB55.9 million, down 19% year-over-year. Research and product development expenses for the first quarter of 2023 were RMB14.3 million, down 11% year-over-year. The decrease was primarily due to the drop in research and product development personnel-related expenses. Sales and marketing expenses for the first quarter of 2023 were RMB20 million, down 33% year-over-year. The decrease was primarily due to the decrease in sales and marketing personnel-related expenses. General and administrative expenses for the first quarter of 2023 were RMB22.3 million, down 19% 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 RMB7 million in the first quarter of 2023. Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses and amortization of acquired intangible assets, was RMB5.4 million in the first quarter of 2023. As of March 30, 2023, the company had cash and cash equivalents, restricted cash, and short-term investments of RMB960.2 million. Cash flow generated from operations for the first quarter of 2023 was RMB11.6 million. Capital expenditures for the first quarter of 2023 were RMB1 million. For the second quarter of 2023, the company expects to generate RMB88.7 million to RMB92.4 million of net revenues, which represents a 140% to 150% increase 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.

Thank you, Operator. Hi, management. I have some questions for you. Firstly, how is the recent recovery of your domestic and outbound business? And what is the proportion of outbound tourism in your revenues from packaged tours? And what are the top destinations? And my second question is regarding profitability outlook. The gross profit margin increase and net loss decreased in the first quarter. What are the drivers for the margin improvement? What is the margin trend in the following quarters? Is it feasible to achieve profitability this year or even in a single quarter? Thank you.

Thank you for the questions. Firstly, we see the enthusiasm for travel continues to rise in the second quarter. We expect our net revenues to increase about 140% to 150% year-over-year in the second quarter and revenues from packaged tours to grow at a higher rate. Domestic tours currently contribute to the majority of our revenues. Compared to last year, long-distance travel is gaining popularity this year. Bookings of some destinations in Xinjiang and Northwest China have reached or even surpassed 2019 levels. For traditional hot destinations such as Yunnan and Hainan, we target the mid to high-end market with products focusing on visiting and experiencing. For example, we have launched certain new tour itineraries with zero shopping trying to provide clients enjoyment of pure travel. Outbound tours accounted for a single-digit percentage of our packaged tour revenues in the first quarter, and the proportion will continue to grow in the second quarter. The popularity of overseas destinations may depend on various factors apart from tourist preference, such as airline capacity and the complexity of visa applications. In the first quarter, our top overseas destination is the Maldives, followed by Southeast Asia, the Middle East, and Africa, which soared since March. In May, we launched our first new tour product to Europe after the pandemic. For Europe, we expect it to be a promising destination in the second half of the year. For the second question, yes, we expect our gross margin to remain at a higher level than the previous year. That comes from two parts. First, as our business gets back on track after the pandemic, our revenues will gradually recover. In particular, we will leverage brand assets to expand the sales of our self-operated products, which have a higher take rate compared to other channels. For example, new tours, our own branded product, is welcomed by our partners at channels such as offline stores and live streaming because it's a differentiated product with a trusted brand and a high satisfaction rate. Second, we will continue to control the cost of sales through digitalization. We use automation technology to replace our staff in simple and repetitive tasks and assist them in competitive work, so that our revenues may increase faster than headcount as our business recovers. In the first quarter, our operating cash flow turned positive, and we will try to maintain that trend in the following quarters. We are also trying our best to narrow the loss in the hope of achieving non-GAAP profitability for a single quarter of this year, probably in the third quarter. 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.