Tuniu Corp Q2 FY2023 Earnings Call

Good day, and welcome to the Tuniu ‘23 Q2 Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mary Chen, Investor Relations Director. Please go ahead.

Thank you, and welcome to our 2023 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, operational highlights, and financial performance for the second 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 its most directly comparable GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this 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 2023 earnings conference call. In the second quarter, Tuniu’s business experienced a rapid recovery and delivered robust results, building on the strong momentum we saw in the first quarter. Our net revenues exceeded our previous guidance, growing by 170% year-over-year for the quarter, with revenues from packaged tours growing even faster at 632% year-over-year. In this quarter, we achieved our first operating profit since Tuniu's listing and the first net income since the pandemic outbreak, both on a GAAP and non-GAAP basis. By leveraging Tuniu’s advantages in products, supply chain, and sales channels, we have continuously increased our profitability. We also focused on improving operational efficiency through technology tools. During the quarter, our gross margin improved to 65%, up from 45% during the same period last year. Additionally, we have maintained positive operating cash flow for two consecutive quarters. The encouraging results from this quarter show that Tuniu is overcoming the negative impact of the pandemic, and we are now one step closer to realizing our goal of sustained growth and long-term profitability. In the second quarter, people's enthusiasm for traveling surged with the warm weather and upcoming holidays. In response to increasing market demand for travel products in terms of both quantity and quality, our strategy has been to focus our in-house offerings on the most popular travel products and to meet diverse customer demands through collaborations with suppliers. To be more specific regarding our in-house products, Tuniu follows strict quality standards for product development and provides industry-leading services for a selection of popular travel destinations and routes. During the quarter, our new tour series launched a large number of routes without planned shopping activities, achieving an impressive 98% customer satisfaction rate. Notably, several classic new tour itineraries in Europe, launched in the second quarter, were nearly fully booked with tours scheduled through September. Regarding profitability, Tuniu leverages our scale advantages to effectively reduce resource procurement costs for our in-house products, and our focus on product differentiation helps minimize the risk of price competition, leading to higher take rates for our in-house products. We also continued to expand our collaborations with a diverse range of suppliers to offer our customers an extended range of long tail products. Customized tours are increasingly popular due to the public's growing demand for higher quality travel experiences. In the second quarter, Tuniu's GMV for customized tours increased by more than 100% compared to the previous quarter. The primary customer base for private customized tours includes middle to upper-class families and our repeat customers, who often travel with friends and family. The tour destinations have expanded from domestic to international markets. Corporate travel hit the peak season during springtime with a noticeable increase in team-building trips and incentive trips organized for companies in first and second-tier cities. Customized tours consistently achieve a higher take rate compared to standard products, mainly due to value-added services. In addition, our self-operated local tour operators also provide services for customized tours, helping to ensure high-quality service and additional profitability. In terms of sales channels, our diverse sales network allows us to reach more customers. One of Tuniu's key competitive advantages lies in our professional team of tour advisors. In the second quarter, we continued to improve the efficiency of our tour advisors through the development of new tech tools, and sales per employee experienced a significant increase year-over-year, surpassing the previous quarter. We remain committed to strengthening our team efforts through destination-based training, both online and offline, to enhance their business capabilities. Our repeat customers consistently show great trust and support for Tuniu, largely due to our membership-based loyalty program, which this year contributed over 70% to the overall GMV. During the first half of this year, total GMV and GMV of packaged tours on our membership days continued to show steady growth each month. During the second quarter, our sales on live streaming channels placed us among the top three nationwide in terms of sales volumes within Douyin's hotel and travel service category. We also continued to collaborate with leading influencers to promote our products. On the supply side, we ranked third nationwide among Tuniu’s travel suppliers, thanks to our team's dedicated efforts. Our live streaming channel achieved a significant milestone by recording its first quarterly profit since its establishment. Our distribution channels, including our B2B platform, offline partner stores, and social marketing tools, also delivered positive results. During this quarter, sales from our B2B platform and offline partner stores achieved triple-digit growth compared to the previous quarter. This distribution strategy helps the company accumulate scale advantages for procurement and reduce inventory pressure. Travel is considered a relatively low-frequency demand compared to daily necessities, but through our B2B distribution approach, we are able to transform this into high-frequency consumption. Offline partner stores allowed our products to reach a broader customer base in lower-tier cities at a relatively low cost while enhancing Tuniu's brand influence. Regarding technology, we've further deployed automation across our operations. For instance, we've implemented automated reviews for product supply chain management. Through automation technology, we have enhanced the company's operational efficiency, helping to lower Tuniu's operating expenses for four consecutive quarters on a year-over-year basis. We will continue to promote automation and digitalization across various work scenarios and processes to increase employee productivity. In the second quarter, we made positive progress on both our top and bottom line, reflecting the effectiveness of Tuniu's integrated business model and our product and service strategy. With the summer peak season approaching, we are well prepared to face any challenges and continue to create greater value for our customers and shareholders. 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 second quarter of 2023 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 second quarter of 2023, net revenue was RMB 100 million, representing a year-over-year increase of 170% from the corresponding period in 2022. The increase was primarily due to the growth of packaged tours as the travel market recovers. Revenues from packaged tours were up 632% year-over-year, amounting to RMB 69.8 million and accounted for 70% of our total net revenues for the quarter. The increase was primarily due to the growth of organized tours. Other revenues rose by 10% year-over-year to RMB 30.2 million, accounting for 30% of our total net revenues, primarily driven by increased service fees from insurance companies. Gross profit for the second quarter of 2023 was RMB 65.4 million, up 296% year-over-year. Operating expenses for the second quarter of 2023 were RMB 48.6 million, down 48% year-over-year, primarily due to the lack of gains on disposals of subsidiaries and goodwill impairment in the second quarter of 2023. A gain on disposals of subsidiaries, recorded in other operating income, amounted to RMB 32.8 million with goodwill impairment of RMB 112.1 million recorded as operating expenses in the second quarter of 2022. Research and product development expenses for the second quarter of 2023 were RMB 13.8 million, down 1% year-over-year, primarily due to decreased amortization of acquired intangible assets. Sales and marketing expenses for the second quarter of 2023 reached RMB 24.9 million, up 2% year-over-year due to increased promotional expenses. General and administrative expenses for the second quarter of 2023 were RMB 21.7 million, down 9% year-over-year, primarily due to reduced general and administrative personnel-related expenses. Net income attributable to ordinary shareholders of Tuniu Corporation was RMB 0.7 million in the second quarter of 2023. Non-GAAP net income, which excluded share-based compensation expenses, impairment losses, and gains from disposals of subsidiaries, was RMB 6 million in the second quarter of 2023. As of June 30, 2023, the company held cash and cash equivalents, restricted cash, and short-term investments totaling RMB 1.1 billion. Cash flow generated from operations for the second quarter of 2023 amounted to RMB 136.9 million. Capital expenditures for the second quarter of 2023 were RMB 6.2 million. For the third quarter of 2023, the company expects to generate net revenues between RMB 163.5 million and RMB 171.3 million, representing a year-over-year increase of 110% to 120%. 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 for listening. We are now ready for your questions.

Thank you. We will now begin the question-and-answer session. Our first question comes from Rachel Lee, a private investor. Please go ahead.

Thank you, operator. First of all, congratulations on the excellent performance this quarter. For the second quarter, the revenues have exceeded last quarter's guidance. Which part of your company's business has recovered better than expected, domestic or outbound tourism business? What are their proportions in revenues respectively? Additionally, regarding profitability outlook, do you think profitability will expand in the third quarter?

Thank you for the questions. We had a strong second quarter with packaged tour revenue growing over six times year-over-year. Our total GMV maintained steady growth month-by-month, peaking in June. This year, the summer peak season arrived a bit earlier than before, likely due to the release of pent-up demand. We observed a surge in travel starting from the second half of June, contributing to the positive outcomes in the second quarter. In terms of domestic versus outbound tours, both experienced a faster recovery during the second quarter. Domestic travel accounted for less than 98% of our total GMV while outbound travel accounted for over 10%, increasing from single-digit proportions in the previous quarter. For domestic tours, inter-travel tours contributed the most to our revenues. New tour products, family tours, private tours, and corporate customized tours were main drivers of our revenue growth. Both of our direct and distribution channels grew quickly, with many channels like online platforms, B2B distribution, and live streaming achieving profitability in the second quarter. For outbound tours, following the reopening of more countries announced in March, we launched new SKUs and saw increased bookings. Several European countries added in March became our second largest overseas destination in terms of GMV for the second quarter, increasing over 100 times compared to Q1. We are excited about the new list of opening countries released last week, which contains more popular destinations for Chinese travelers before the pandemic. After this news release, outbound destination searches on the Tuniu platform surged, especially for countries in the new list. We are optimistic about the industry's outlook and are actively working to resume the supply chain as soon as possible. Thus far, we have already launched SKUs for the newly added destinations. Regarding profitability, we are targeting a quarterly profit in the second quarter. The third quarter is the peak season, and we aim for top-line growth of 110% to 120% year-over-year. While we continue to enforce strict cost control measures, we will maintain an increase in our total headcount within 10% year-on-year during the peak season, leveraging technology tools to assist our staff with the increased business. Therefore, we still have room for margin improvement in the first quarter, both on a GAAP and non-GAAP basis. Thank you.

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Mary Chen for any closing remarks.

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.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.