Tuniu Corp (TOUR) 2015 Q4 法說會逐字稿

Good morning, and welcome to Tuniu Corporation fourth-quarter 2015 earnings conference call. (Operator Instructions). Please note this conference is being recorded. I would now like to turn the conference over to Maria Xin. Ms. Xin, please go ahead.

Thank you, and welcome to our 2015 fourth-quarter and full-year earnings conference call. Joining me on the call today are Dunde Yu, Co-Founder, Chairman and Chief Executive Officer; Haifeng Yan, Co-Founder, President and Chief Operating Officer; and Conor Yang, Chief Financial Officer.

For today's agenda, management will discuss business updates of recent highlights and financial performance for the fourth quarter of 2015 and the full year of 2015.

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 in this conference call are in renminbi. I would now like to turn the call over to our Co-Founder and Chief Executive Officer, Dunde Yu.

Thanks, Maria. Good day, everyone. Welcome to our 2015 fourth-quarter and full-year earnings conference call. We are pleased with the achievements that Tuniu has accomplished this year. The number of package tour trips that we have sold during 2015 increased 104% year over year to more than 4.4m, while net revenues increased more than 116% year over year.

For the fourth quarter 2015, net revenues and gross bookings increased by 104% and 102%, year over year, respectively, outpacing our industry peers. Notably, Tuniu also rapidly extended its market share in the fast-growing leisure travel market during 2015. We were able to accumulate additional market share through ongoing execution of strategic initiatives and the commitments to diversifying high-quality leisure products to our customers.

In recent months, external events such as the tragic events in Paris have negatively impacted some of our popular destinations and have caused a temporary shock to certain regions. While the events have negatively impacted these regions, but given Tuniu's diversified offerings of products, our customers were able to find alternative products and packages in China and nearby countries. We believe that although these external events can cause an impact to our operations in the short term, the overreaching involving consumption pattern in China will outweigh these external factors and support our long-term growth.

Now, I will go through some of our key strategic initiatives that we continue to focus on in order to develop our long-term competitiveness. These include continuing our regional expansion, diversifying our product offerings, strengthening our direct procurement capabilities and enhancing our technology.

I would like to first give an update on the development of our regional expansion plan, which continues to progress in line with our expectations. During 2015, we achieved significant progress in terms of regional expansion, as the number of regional centers has grown from 75 at the end of 2014 to the current 170.

The increased regional coverage has strengthened our presence in lower-tier cities. These investments in regional centers continue to pay off as the regions covered by new regional centers that we opened during 2014 and 2015 contributed 16.3% of our gross booking in 2015, up from less than 1% in 2013. We are confident that these regional centers will continue to help Tuniu strengthen its regional customer acquisition capabilities and drive our business development.

Starting from the second half of 2015, we established a between of destination-based service centers at popular destinations throughout the world in places such as the Maldives, Belize and Japan. These service centers will facilitate Tuniu in a number of ways. Tuniu will now be able to offer the travelers a wide range of low-[cost] destination services with improved quality and [decisions]. Additionally, we will be able to source high quality and competitively priced destination-based products that are only accessible locally.

By combining our initiatives in departure cities and destination-based service centers, our offline capabilities are stronger than ever. We will be able to enhance the customer experience throughout the trip and provide higher-quality services to our travelers.

Now, I would like to give an update on the development of our travel-related services that [synergizes] with our core business. New products, such as hotel booking, air ticketing and online financial services provide our customers with additional capacity for customization during their trips. This diversified product offering of complementary services strengthens our competitive advantage in leisure travel and sets us apart from our peers.

For our air ticketing and hotel booking services, we continued to make excellent progress during the fourth quarter, as we achieved synergy with our leisure travel business. In early 2016, we introduced an open platform model for both our air ticketing and hotel booking services in order to enrich the diversification of their offerings.

Additionally, we launched air ticket plus X and hotel plus X initiatives that bundle air tickets or hotel with other offerings, such as local tours, destination-based services toward tourist attraction tickets and Wi-Fi services.

Air ticketing and hotel booking continued to expand their coverage of offerings. They're sold as a fundamental component that promotes our package tours to destinations that are generally within a six-hour flight radius from the departure city.

Recently, we have also taken significant strides in our last-mile transportation offerings. During the first quarter of 2016, Tuniu launched a fast-ticketing and car-rental channels. These new offerings provide our travelers with the most comprehensive transportation solution during their trips.

We continued to make investments in these travel-related services, because they complement our[core leisure travel business well. In the future, we believe these initiatives will reach scale to make contributions to our profitability and become part of our core competitive advantage within the industry.

For the direct procurement, Tuniu continues to gather and consolidate resources throughout the travel supply chain. During the fourth quarter, Tuniu's direct procurement has reached 30% of our gross booking. As we continue to increase direct procurement and utilize localized procurement strategies, we have been able to achieve [centralization] across all of our products and services to ensure quality control for our customers.

Lastly, I want to touch on mobile and technologies. In the fourth quarter of 2015, mobile contribution remained strong. Mobile conversion rate continues to be on the rise, as we optimize our mobile app with additional product offerings, so that our customers can have an improved user experience.

Additionally, as we continue to diversify our product offerings and increase our offline capabilities, Tuniu has been making continuous strides in enhancing our back-end systems. The enhancement in our system allows for improved automation and allows us to efficiently scale.

2015 has been a year filled with new milestones. Our progress in regional expansion, direct procurement, complementary travel-related services and mobile technology continues to pave way for our future growth.

I will now turn the call over to Conor Yang, our CFO, for the financial highlights.

Thank you, Dunde. Hello, everyone. I'll now walk you through our fourth-quarter and full-year 2015 financial results in greater detail. Please note that all the monetary amounts are in RMB, unless otherwise stated. You can find US dollar equivalents of the numbers in our earnings release.

Fourth-quarter 2015 results, starting from the fourth-quarter 2015 that the package tour gross bookings for the quarter increased by 102.1% year over year to RMB2.7b, including 65.7% from outbound tours. For fourth quarter, net revenues were RMB1.9b, representing 104.1% year-over-year growth.

Revenues from organized tours, substantially all of which are recognized on a gross basis, were up 101.4% year over year, to RMB1.8b, and accounted for 95.2% of our total net revenues for the quarter. The increase was primarily due to the rapid growth in demand for the travel to certain international destinations, such as Japan, Australia, New Zealand, North America and for domestic tours.

The number of trips or organized tours, excluding local tours, increased by 122.9% year over year to over 429,000, and the number of trips of local tours increased by 44.8% year over year to over 362,000.

Revenues from self-guided tours, which are recognized on a net basis, were up 82.4% year over year to RMB52.2m and accounted for 2.8% of our total net revenues. The increase was primarily due to the growth in travel to domestic destinations, certain islands in Japan. The number of trips for self-guided tours increased by 174.7% year over year to over 319,000 in the fourth quarter of 2015.

Other revenues, which are recognized on a net basis, were up 434.3% year over year to RMB47.3m, primarily due to a rise in service fee received from insurance companies, revenue from tourist attraction tickets, online financial service and other travel-related products.

Gross margin for the fourth quarter in 2015 was 4.2%, compared to 6.6% in the same period in 2014. The decline in gross margin was primarily due to Tuniu's competitive pricing strategy and higher costs associated with a new regional service center expansion.

Operating expenses for the fourth quarter of 2015 were RMB641.1m, up 169.3% year over year, excluding share-based compensation and amortization of acquired intangible assets.

The non-GAAP operating expenses were RMB581.9m, representing a year-over-year increase of 156.2%.

Research and product development expenses for the fourth quarter of 2015 were RMB106m, up 173.8% year over year. The increase was primarily due to investment for the implementation of additional product categories, such as online financial services, accommodation reservation and transportation ticketing, increase in direct procurement-related personnel and regional service centers, improvement of online technology and the rise in technology and product development personnel-related expenses.

Sales and marketing expenses for the fourth quarter of 2015 were RMB394.8m, up 175.9% year over year. The increase was primarily due to branding campaigns and advertisements for our mobile business development, expansion of our VIP customer service center and amortization and acquired intangible assets from the previously announced transaction with JD.com.

General and administrative expenses were RMB146.6m in the fourth quarter of 2015, up RMB147.5% year over year. The increase was primarily due to an increase in the headcount of our administrative personnel, as a result of our business expansion, such as the regional service center expansion and product category expansion.

Net loss attributable to ordinary shareholders was RMB547m in the fourth quarter of 2015. Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses and amortization of acquired intangible assets, were RMB487.3m in the fourth quarter of 2015.

As of December 31, 2015, the Company has cash and cash equivalents, restricted cash and short-term investments of RMB3.7b. In the fourth quarter, cash conversion cycle was negative 31 days, compared to negative 44 days in the corresponding period last year. Capital expenditures for the fourth quarter of this year were RMB53.6m.

Now, moving to our full-year 2015 results, package tours gross booking for 2015 increased by 114.6% year over year to RMB10.6b, including 65.1% from outbound tours. Organized tours accounted for 71.7% of the overall gross booking in 2015.

In 2015, net revenues were RMB7.6b, representing 116.3% year-over-year growth. Revenues from organized tours, substantially all of which are recognized on a gross basis, were RMB7.4b in 2015, representing a 114.4% increase in 2014. The increase was primarily due to the rapid growth in demand for travel to certain international destinations, such as Europe, Southeast Asia, Japan and North America and for domestic tours.

The number of trips for organized tours, excluding local tours, increased by 129.4% to 1.63m, up from 712,000 in 2014. And the number of trips of local tours increased by 58.4% to over 1.7m, up from more than 1.07m in 2014.

Revenues from self-guided tours, which are recognized on a net basis, were 194.2m in the full year of 2015, representing a 108.5% increase from previous year. The increase in revenues was primarily due to the growth in travel to domestic destinations, certain islands and Japan. The number of trips for self-guided tours increased by 181.6% to 1.114m, up from 395,000 in 2014.

Other revenues, which are recognized on a net basis, were 127.7m in the full-year 2015, representing a 334.2% increase from 2014. The increase was primarily due to a rise in service fee received from insurance companies, revenue from tourist attraction tickets and other travel-related products.

Gross margin was 4.8% in 2015, compared to 6.4% in 2014. The decline in gross margin was primarily due to Tuniu's competitive pricing strategy and the higher cost associated with newly opened original service centers.

Operating expenses were RMB1.8b in 2015, representing a 161.1% increase from 2014. Excluding share-based compensation and amortization of acquired intangible assets, the non-GAAP operating expenses were RMB1.7b in 2015, up from 158% in the previous year. Research and product development expenses were RMB298.2m in 2015, up 184.3% from 2014. The increase was primarily due to investment for the implementation of additional product categories and initiatives, the increase in direct procurement-related personnel and regional service centers and improvement of our online technology and rising technology and product development personnel-related expenses.

Sales and marketing expenses were RMB1.2b in 2015, up 165.8% from 2014. The increase was primarily due to branding campaigns and enticement for our mobile business development and amortization of acquired intangible assets from previously announced transactions JD.com.

General and administrative expenses were RMB385.4m in 2015, up 130.8% from 2014. The increase was primarily due to an increase in the headcount of our administrative personnel as a result of our business expansion, such as regional service center expansion and product category expansion.

Net loss attributable to the ordinary shareholders was RMB1.5b in 2015. Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses and amortization of acquired intangible assets, was RMB1.3b in 2015. In 2015, the cash conversion cycle was negative 30 days, compared to negative 34 days in 2014.

Capital expenditures for 2015 were RMB130.6m.

First-quarter 2016 outlook, now, let me provide a top-line guidance for the first quarter of 2016. Tuniu currently expects to generate revenues in the range of RMB1.9b to RMB2b of net revenues, which represents 58% to 63% growth year over year.

Please note that this forecast represents 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. Operator?

(Operator Instructions). David Jin, Goldman Sachs.

Hi. Good evening, management. Thanks for taking my questions. My question is regarding your first-quarter guidance, as it looks a bit soft on both year-on-year and sequential growth perspectives. Would you please elaborate more on your guidance? Is it because of general travel industry slowdown, intensifying competition or any specific geographic reasons? Then, I will have a follow up. Thanks.

The first quarter, there are a few things, that since the IS attacked in Paris and several terrorist events happened in Turkey, Egypt fourth quarter last year that has a pretty big impact in our business. As you know that Europe used to be the largest region of our overall business, and when that happened, we incur a cancellation.

Q1, the spring festival typically is the peak season for Chinese people to go to Europe, so as a result, that has translated to a pretty big impact in our first quarter, and yes, the Chinese economy slowdown is remaining to be seen. We believe that first quarter in particular associates with these events, and I think going forward, we have seen slow recovery from this regional at the current stage.

I see. Thank you, Conor. I want to follow up if that essentially you think that the first quarter is a bit unique. So since we have already passed two months, can you elaborate more on the travel trends year to date and how you think the full-year growth will look like? Thank you very much.

(Interpreted). After the Chinese New Year up to now, we have seen a pretty good recovery from Europe and other reasons, and we believe that the leisure travel industry in China still has a very robust growth trend, and we think that for the whole year, we still think that we can be able to achieve a higher growth rate than the industry overall.

Thank you very much.

Natalie Wu, CICC.

Hi. Good evening, management. Thanks for taking my question. Just a quick follow up on the first question. You mentioned that first-quarter weakness is majorly related to the Europe, so just wondering how much revenue contribution from Europe currently to Tuniu and can we see a year-on-year growth rate with reacceleration in the rest of 2016?

Europe used to be about 14% of our total GMV. And when that terrorist event -- terrorist event happened, from the beginning of this year, we have seen even negative growth from Europe for our business as a period of time. And then, after the New Year, after like a few months, we start to grow -- gradually recover. That's the trend.

We believe that as we continue to expand into more regional departing cities, as we continue to have more direct procurement to enhance our overall product offering quality and pricing, we believe that Europe should gradually recover to gain the top post of our overall GMV again in the future.

And other regions, yes, when that happened, overall, you have this kind of psychological effect going to travel abroad, but we believe that the overall leisure travel trend is still very robust in China, and in our plan that we want to remain a high growth rate in 2016.

Great, thank you. I have a second question, if I may. Can management share some color on the gross profit margin strategy in 2016? Will the Company still maintain a low-price, low-margin strategy to expand market share, or will you just increase the gross profit margin a little bit? Thank you.

I think that overall for 2015, the overall gross margin of about 4.8% for the year, for 2016, as we continue to conduct our strategy that further integration in the whole value chain, continue to do more direct procurement and also this year, we're going to expand into many popular destinations to do more direct procurement in the local level that's in the destination level, therefore that overall we believe that our gross margin should improve from previous year right now.

And so far, the competitive environment, as we've seen in the market, has actually -- it's not as bad as we have seen last year. So I think that overall, for this year, the gross margin profile should look better than previous years.

So just to confirm, we will see the gross profit margin to improve in 2016 and revenue growth to reaccelerate in the rest of 2016, right?

We think that the first quarter is slowed down, but the rest of the year, at least so far, we have seen that growth momentum has already gradually recovered from the beginning of the first half of this quarter. And as I said, that as we continue to do more direct procurement, so we'll overall enhance our margin.

And also, we have expanded our product categories into many areas, such as like hotel booking, air ticketing, buses and the train ticketing and also the related issuance products. Therefore, these will all eventually contribute to the overall gross margin.

Great. Very helpful. Thank you.

Tian Hou, TH Capital.

Yes. Good evening, management. I have a couple questions. One is that you did announce that the Hainan Travel Group investment has been complete, and I wonder what's the plan going forward? What do you guys plan to do together? How can you benefit from Hainan investment, beyond just money? So that's the first question. I have a couple more after you answer that.

(Interpreted). Yes, with Hainan airline, I think the biggest benefit will come out from their air-ticketing resources that we have already started the deeper cooperation with Hainan Airline and its associated airline companies, not only on the charter -- not only on the group ticketing, but as well as the individual air ticketing purchase from Hainan. And many popular destinations, we can either have a charter flight or secure more group tickets, inventory from Hainan Airline.

And they have -- also on the other side, that they have lots of license and also the full function on the Internet -- Internet financial service area that we can cooperate with them to further utilize their license and infrastructure on the Internet finance. Thank you.

Got it. The second question is related to what you said in the press release. You will offer open platforms to third-party travel service providers and enable them to provide -- to promote their hotel bookings and air-ticketing offerings. In this regard, I wonder, what's the differentiation between Tuniu's offer and the Ctrip or even [LateOne]. That's number one question.

If you do this, what could be the commission rate and how do you control the quality of the third-party offerings? So that's the question related to this platform.

(Interpreted). Yes, our hotel booking and the air-ticketing services is different than our peers', that most of the OTA, their air ticketing and hotel booking are catering more like commercial travelers, business travelers, rather than leisure travelers.

In Tuniu, that we established these two channels really to serve our leisure travel customer better. For example, that air ticketing, we sell mostly departing from these places to like the more destinations, leisure travel destinations, same as like a hotel, and so we're really focusing on the destinations, hotels and air ticketing, and to ensure that our customer is better served, and especially on the availability of air ticketing and hotels.

Hotels, for example, that we do mostly like prepaid hotels, and also like for air ticketing, we provide a full refund if the customer purchased and eventually there's no ticket available. So we do a lot of function on these two, it's really to facilitate the further monetizing of our traffic flow and to serve our leisure travel customers better, to let them have more choices if they come to booking individually on air ticketing and hotels.

So my last question is, can you provide the breakdowns of the RMB2.7b gross bookings in Q4?

Right. Well, roughly, about -- the split is roughly about 70% for organized tour and about 30% for self-guided tours, if you break down by organized tours and self-guided tours, but if you break down by outbound versus domestic, out of the gross booking, we had probably about -- sorry, 65% for Chinese people travel outbound and the rest in domestic destinations.

Okay. Thanks all my questions. Thank you.

Okay, thanks.

Amanda Chen, Morgan Stanley.

Hi, Dunde, [Alex], Conor and Maria. Thank you for taking my question. I have three questions here, if I may. The first one is regarding 2016, the full-year outlook. I think, Conor, you just mentioned that the macro economy slowdown maybe will impact the outlook a little bit. Can you elaborate more, and what's the full-year outlook, the impact on the full-year outlook?

Well, so far we have seen, as I said earlier, that first quarter, due to those terrorist events in Europe and other places, all have an impact, combined with maybe a bit economy overall situation.

But after New Year, especially right now, coming to last week of February and when you -- the momentum we build in March, it's going to recover. So the full-year impact, still, it's hard to comment right now, but overall, we believe that as we continue to expand our strategy into more departings, we open more regional service centers to tap into the huge market in China, and on the other side, we do better procurement and more direct procurement to ensure a better quality of service to our customers, that I think the overall momentum is still quite strong.

Yes, and I'm sorry that we did not provide a formal number on the full-year guidance.

Sure, okay. Very helpful. And the second one is still regarding the 2016. I know you don't give the specific numbers, but can you give us a rough guidance of your sales and marketing expenses and also the R&D expenses, which actually was up a lot this quarter? So will you continue this trend in 2016? Thank you.

Yes, our overall budget for this year is that you have seen that we have reported a full-year financial and 2015 marketing and product research and G&A. I think that by 2016, our plan is to overall -- all these expenses, as a percentage of revenue, should get better compared to 2015.

Okay. And the third one is regarding your sales guided for. If I read the numbers correctly, I think the revenue generated from each trade actually declined a little bit. Any specific reason behind? Thank you.

Amanda, actually, I don't know which number you're referring to. Our overall self-guided tour includes the Q4 actually as strong as organized tours, similar. And in terms of number of trips, it actually has increased like 170%-something year over year. Are you talking about our ASPs?

Yes, ASP.

Yes, the ASP, yes, exactly. The number of trips outpace the gross booking growth on the self-guided tours. That is because the ASP is a combination of our self-guided tours, like with air ticketing and local tour, as well. So the local self-guided tour, we call it like especially people drive cars, and we sell hotels [first] and attraction tickets as a package. That number has really increased in a very, very high speed.

So therefore, number of trips has increased a lot more than the overall gross booking for self-guided tours that caused the ASP drop because of this kind of different category growth rate. The self-drive trip for -- mobile tour for self-guided tours has increased more quicker than others.

Oh, got it. Thank you. A quick follow up. So your take rate of your air ticketing and hotel business, what's the latest take rate for this open-platform business model?

Sorry, we did not provide a number, but overall as hotel for example, it's not too far away from the industry norm.

Got it. Thank you. Very helpful. Thank you.

Evan Zhou, Credit Suisse.

Hi. Good evening, Dunde, Alex, Conor and Maria. Thank you for taking my questions. First question is regarding the -- our Internet finance product. I think you've given us a pretty decent outlook and a great variety of products in last December's, during the investor conference. I was wondering if you can give us an update on how the progress was going so far? What's kind of the cross-sell ratio that we have as a percentage of total transactions that combines with the finance product? And what do you expect these contributions to ramp up in other revenue line down the road? Thank you.

(Interpreted). Yes, all these revenue contributions is shown in the combination number of the other revenue in the financial statement. So you can see that our other revenue growth rate, year over year, it's over 400%, so it's a very robust growth.

Among the Internet finance at the insurance business is growing fast, and we also -- also, insulation for our customers and also the supply chain financing and the financial product management for our customers. These have experienced a very strong growth momentum, and overall, all the Internet finance contribution to the -- it's already exceeded 1% of our revenue.

And we expect that the -- we started to build a team last year, and we expect that overall the Internet finance itself should achieve like breakeven status for 2016.

Okay, thanks, Dunde, Conor. Second question, regarding the regional expansion -- regional center expansion plan -- I was wondering, I think we are probably at our year two, after we announced a pretty grand plan last year. I think could you maybe give us some more color on how do you think about the progress so far, and is there an update to the total number of centers that we are going to build in the next couple quarters? And should we expect the run rate for the COGS and OpEx to still be ramping up in 2016 or kind of gradually coming down a little bit? Thank you.

(Interpreted). The overall regional service center expansion plan that currently we have 170. Our plan is to expand to about 300 by the end of this year that's in China regional service centers. And the offshore that's mentioned places that we are going to build our team in 15 places in the more popular destinations for this year.

And the CapEx, for example, on these regional service centers was roughly less than RMB0.5m per new center, so this year, we're going to expand additional 130 of those. So it's roughly like a slightly above a RMB50m on the CapEx, together with the first-year expenses for the newly opened regional service center in 2016.

Got it. Thanks, Conor.

(Operator Instructions). Juan Lin, 86Research.

Hi. Good evening, Dunde, Alex, Conor and Maria. Thank you for taking my questions. I have one question related to the take rate of your self-guided tour and package tour, group tour.

I'm wondering, what is the take rate for organized tour and self-guided tour for the fourth quarter, and how does it compare to the third quarter? And going forward, how should we forecast the trend for your take rate in 2016 and beyond? Thank you.

Right, it's about at organized tour at around 5%-something, more or less, 5% to 6%, similar to self-guided tours, about 6%. Yes.

Thank you, Conor. If I may -- sorry.

Slightly below third quarter, yes.

And what is the reason for the sequential decline in the take rate? Because I remember last year fourth quarter, take rate actually improved on the third quarter.

Right, the drop, it's more from the organized tours, especially in the European region. As we explained that when these IS attacks happened in the mid-fourth quarter, and for the rest of the fourth quarter, we have certain inventory that we need to get rid of. Therefore, we decreased the price more aggressively on these regions, and in some instances, we have incurred certain inventory loss, therefore causing the overall margin drop from previous quarters.

I see. So should we assume that the take rate could improve on the current -- from Q4 level since we already [through] the impact from the terror attack in Europe?

Well, if everything goes well, overall as I explained that our plan for 2016, that the gross margin profile should improve somewhat from previous year.

Thank you very much. That's all my questions.

Thank you.

Thank you, and as there are no more questions, I would like to turn the call back over to management for any closing comments.

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

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.