Earnings Call Transcript - TOUR Q1 2021

Mary Chen, Investor Relations Director

Thank you, Kate, and welcome to our 2021 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, operation highlights and financial performance for the first quarter of 2021. 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.

Donald Yu, Founder, Chairman, and CEO

Thank you, Mary. Good day, everyone. Welcome to our first quarter 2021 earnings conference call. This spring, the domestic tourism industry has been experiencing a rapid recovery. Tuniu also experienced a strong recovery during the April and May holidays. The number of people traveling during the Qingming festival was nearly three times that of the same period last year. Our total travel GMV during the Labor Day holiday was more than four times that of the same period last year. For the first quarter, our operating expenses decreased over 17% year-over-year, and the net loss was narrowed significantly. Based on these encouraging developments, for the second quarter, we anticipate net revenues will grow more than 300% year-over-year, delivering our first period of growth since the COVID-19 outbreak. We see great potential for growth in the travel industry with the release of pent-up tourist travel demand. However, we continue to face new challenges under the ever-changing market environment. Despite the strong demand for travel after enduring pandemic restrictions, customers have become more selective when choosing products, with higher expectations for travel insurances and security, and an increase in new destinations and activities. This drives us to constantly develop innovative new products and enhance our service quality. We are committed to developing high-quality products that satisfy customer demand. Our focus is to maximize customer satisfaction, which will raise the repurchase rate for each product instead of simply creating the highest number of SKUs. Currently, all of Tuniu's new products are required to reach a 90% satisfaction rate for product launch, and we expect to increase this threshold in the future. We are fully leveraging the advantages of our integrated business model to accelerate the development of our own products. By vertically integrating across the industry, we have been able to accumulate rich resources and experience on both the supply and demand side, which has benefited us in the development of our products. Our product committee, composed of colleagues from procurement, products, marketing, and other departments, has been responsible for assessing, developing, and launching our new product offerings. We are continually upgrading products at mature destinations by customizing itineraries based on customer preferences and optimizing features to enhance the travel experience. We utilize the knowledge gained from mature products to develop offerings for new destinations, such as high potential niche destinations in Central and Western China. The proportion of new product offerings in our inventory is constantly increasing. Rich destination services are critical for good travel products. With the domestic travel market growing rapidly, our established network of more than 30 self-operated local tour operators in China is playing an increasingly important role. This year, our self-operated local tour operators began conducting customized tours, and we are seeing this business volume continue to grow. In the fourth quarter, the proportion of our local tour operator transaction volume as a percentage of total package GMV increased to nearly one-third compared to approximately one-quarter in the previous quarter. In the future, Tuniu will continue to expand the volume of our local tour operators to serve more tourists at their destinations. In terms of customer service, we will leverage the expertise of our professional service team to continually optimize the customer experience. We can connect with potential customers through our Tuniu classes and online wish list to promote destinations and increase customer engagement before booking. Tuniu also provides customers with assistance for product selection and travel planning during the reservation process as well as timely feedback follow-ups to strengthen our customer relationships. Technology is the foundation of our products, customer service, and management. In today's tourism industry, the level of digital consumer interaction is relatively high; however, digitalization at the supply level for transportation and tour guides remains low, with much still being done manually. Regarding our supply digitalization, Tuniu began promoting the digitalization of internal operations last year and has automated our business processes. Our existing systems provide our suppliers with functions such as inventory and account management. We will explore further digitalization of supply in the future by leveraging our technology for product development. After more than a decade of operations, Tuniu has become a comprehensive tourism service provider with closed-loop capabilities from R&D to production, destination services, operations, and reservations through vertical integration across the supply chain. We have achieved lower costs, improved efficiency, and meaningful differentiation from our peers. Our integrated service capability and digitalized technology are among our core competencies and are the foundation for improving our revenue and profitability. Although there are still uncertainties in the overseas market due to the pandemic situation, the domestic travel market is growing rapidly. We will continue to develop this market, fully tap into domestic tourism resources, and improve our product development model. The domestic travel market will remain our top priority, and we look forward to the restoration of outbound travel. In the post-pandemic era, Tuniu is actively exploring ways to meet customer demands in today's environment. This will be our main focus now and in the future. I will now turn the call over to Anqiang Chen, our financial controller, for the financial highlights.

Anqiang Chen, Financial Controller

Thank you, Donald. Hello, everyone. Now I'll walk you through our first quarter of 2021 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 first quarter of 2021, net revenues were RMB77.4 million, representing a year-over-year decrease of 56% for the corresponding period in 2020. The decrease was primarily due to the negative impact brought by the outbreak and spread of COVID-19. Revenues from packaged tours were down 62% year-over-year to RMB45.4 million and accounted for 59% of our total net revenues for the quarter. The decline was primarily due to reduced travel to international destinations, impacted by the outbreak and spread of COVID-19. Other revenues were down 40% year-over-year to RMB32 million and accounted for 41% of our total net revenues. The decrease was primarily due to a decline in revenues generated from financial services. Gross profit for the first quarter of 2021 was RMB28.7 million, down 69% year-over-year. Operating expenses for the first quarter of 2021 were RMB83.5 million, down 73% year-over-year. Excluding share-based compensation expenses, amortization of acquired intangible assets, and impairment of acquired intangible assets, non-GAAP operating expenses were RMB79.5 million, representing a year-over-year decrease of 71%. Research and product development expenses for the first quarter of 2021 were RMB11.8 million, down 77% year-over-year. The decrease was primarily due to a reduction in research and product development personnel-related expenses. Sales and marketing expenses for the first quarter of 2021 were RMB35.4 million, down 72% year-over-year. This decrease was primarily due to decreased sales and marketing personnel-related expenses and amortization of acquired intangible assets. General and administrative expenses for the first quarter of 2021 were RMB44.7 million, down 67% year-over-year. The decrease was primarily due to a reduction in general and administrative personnel-related expenses and allowances for doubtful accounts. Net loss attributable to ordinary shareholders was RMB39.5 million in the first quarter of 2021. Non-GAAP net loss attributable to ordinary shareholders, excluding share-based compensation expenses, amortization of acquired intangible assets, and impairment of acquired intangible assets, was RMB35.4 million in the first quarter of 2021. As of March 31, 2020, the company had cash and cash equivalents, restricted cash, and short-term investments totaling RMB1.3 billion. Capital expenditures for the first quarter of 2021 were RMB7.7 million. For the second quarter of 2021, the company expects to generate RMB142.9 million to RMB149.7 million in net revenues, which represents a 320% to 340% increase year-over-year. Please note that this forecast reflects 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.

Operator, Operator

Our first question is from Emilie Zhao, a private investor.

Unidentified Analyst, Analyst

Congratulations on the strong recovery of the second quarter. Would you please give us more color on the performance in this quarter and the future quarters? What is your strategy for the coming six seasons?

Donald Yu, Founder, Chairman, and CEO

Thank you for the questions. First, let me give some updates on our recent performance. Despite the outbreaks of the virus during the winter season, we see the travel industry rebound rapidly since spring arrived when the virus is well controlled in China. Our booking transaction volume in March increased over 190% compared to February. The pent-up travel demand surged in April and May holidays, particularly. The sales volume of our membership base in April reached a new high since the outbreak of COVID-19, contributing to the GMV growth of over 400% year-over-year during the Labor Day holiday. Overall, we are positive about the domestic travel market in the second quarter and the coming summer, as high school graduates will be the first group of potential travelers in spring, followed by families with children in July and August. The summer holiday is always peak season for the travel industry, especially for leisure travel. Since international travel remains limited, the domestic travel market offers more opportunities than before. However, this also brings new challenges, as customers are more demanding in the post-pandemic era. Apart from quality and safety issues, customized itineraries and new destinations are preferable to traditional products. The booking GMV of our customized tours in March increased over eight times quarter-over-quarter, marking the highest since last October. In response, we launched products customized for the summer holidays, such as travel to the Falkland Islands and New Zealand, as well as customized tours for one or two families. As for destination services, as orders increase during the peak season, our local tour operators are ensuring the supply of destination resources and tour guides to maintain high satisfaction rates for our services. On one hand, we continue the '0 campaign' trial at seven of our local tour operators, and we’re trying to pace the record during the peak season. On the other hand, we are providing value-added services to our customers; for example, some of our tour guides have learned photography and have taken photos for customers during their tours, which has been highly appreciated. Overall, we will continue to focus on product development and services, as these are our competitive advantages and build long-term trust with customers. By integrating the supply chain, we can offer closed-loop services from product development, booking, and destination services. Throughout this integration process, our customers will enjoy high-quality products and services, giving Tuniu the chance to improve its revenue and profit. Moreover, we have many more opportunities to cooperate with our partners throughout the supply chain. We will maintain our integrated model and strive to bring more value to our customers, shareholders, and business partners. Thank you.

Operator, Operator

At this time, we have no more questions, so this concludes our question-and-answer session. I would like to turn the conference back over to Mary Chen for closing remarks.

Mary Chen, Investor Relations Director

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.

Operator, Operator

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