Tuniu Corp (TOUR) 2020 Q4 法說會逐字稿

Hello, and thank you for standing by for Tuniu's 2020 Fourth Quarter and Full Year Earnings Conference Call. (Operator Instructions) Today's conference is being recorded. (Operator Instructions)

I would now like to turn the meeting over to your host for today's conference call, Director of Investor Relations, Mary.

Thank you, Andrew. And welcome to our 2020 fourth quarter and full year earnings conference call. Joining me on the call today are Donald Yu, Tuniu's Founder, Chairman and Chief Executive Officer; and an Anqiang Chen, Tuniu's Financial Controller.

For today's agenda, management will discuss business updates, operation highlights and financial performance for the fourth quarter and fiscal year 2020.

Before we continue, I refer you to our safe harbor statement in 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 2020 fourth quarter and full year earnings conference call. First, I would like to provide a brief review of the China travel market in 2020.

2020 was a challenging year for the tourism industry, both in China and globally, due to the impact of the COVID-19 pandemic. While the travel industry has begun to gradually recover, and we are optimistic about the future, we did experience a period of stagnation last year. Fortunately, Tuniu's years of experience in the industry have allowed us to accumulate a large number of high-quality business partners and loyal customers, along with the diverse product portfolio and strong customer service team, all of which helped us to get through the most challenging times.

Also, our flexible operating model allow us to efficiently, effectively respond to changes in customer demand during and after the COVID-19 outbreak through adjustment to our business focus, product strategy and staffing. Upon the outbreak of COVID-19 in January last year, our first priority was to guarantee the safety and the interest of our customers. We quickly assisted traveling customers with their return logistics, while refunding or adjusting previously purchased packages for customers who hadn't started their trips yet.

During the academic, our direct loss related to customer refunds totaled more than RMB 100 million. Thanks to our timely response. However, we have been rewarded with the long-term support and trust of many loyal customers who have greatly contributed to the recovery of Tuniu's business. I am pleased to see that our GMV contribution from repeat customers reached a new high last year.

In response to the changing external environment, we've also made various adjustments to our business operations and corporate structure, including optimizing our teams and repositioning our key staff. We've also adopted tighter cost control measures since start break of the pandemic, resulting in a 20% year-over-year decrease in total operating expenses for 2020.

Excluding the provisions for receivable recorded in the fourth quarter, our yearly operating expenses declined over 50% year-over-year. When the provincial travel market reopened in April, we leveraged our flexible transportation plus destination-based tour model to launch a number of tour products to traveling -- for traveling to destinations of nearby cities. Since then, we have seen the progressive recovery of our business, starting from local tours and self-driving tours.

With a gradual recovery of business, we have found that customer demand for safer and more personalized products is increasing. In particular, our customized tour GMV in the third quarter increased by 8x compared with the second quarter.

When inter-province tours were resumed in July, the [rate] or pent up demand greatly accelerated the recovery of the domestic travel market. Under the strong recovery momentum of the industry, our business continued to improve. According to our data, package tour GMV was up over 200% in the second half of July compared to the first half of the month. In addition, our operating cash flow turned positive in the third quarter of 2020.

With the resumption in nationwide travel, we have seen customer requirements for product quality also increased. In response, we upgraded the data Tuniu tool, our own branded products launched in 2009 (sic) [2019]. With the goal of providing high-quality package tours that meet ever rising standards of China's travelers.

Our upgraded new tool products feature more strict resource selection and have higher standards for clean and safe travel conditions, such as enhanced safety protocols and individually served meal options. We also launched more small and medium-sized package tours as well as private family tours which have proven to be quite popular.

Looking to 2021, we will continue to invest in our product innovation, quality improvement and technology and our integrated business model. First, we continue to be guided by our customer-first principle and our commitment to develop domestic travel products. We will continue to increase our investment in product upgrades to ensure we always have a compelling and differentiated product offerings for customers.

To design more targeted products for different customer groups, we did an in-depth content and analysis of our customer needs, which provide us with insight to create a more accurate product strategy. We found that even in the (inaudible) growth customers can be further narrowed down based on their needs into more distinct customer growth. Based on this insight, we are focused on developing tailored products for specific groups in order to capture more overall market share.

Secondly, we will continue to improve the quality of both our products and services. Higher quality means higher customer satisfaction, which drives a higher repurchase rate and additional value into the company. We reached the standards of our product launch, again, after the outbreak of the pandemic.

In 2019, a product with a satisfaction rate of 80% could be launched on our website and apps. And last year, we reached the standard to 85%. We'll apply a stricter product selection process and further reach this standard to 90% this year.

In addition Tuniu has to date established more than 30 self-operated local tour operators in China to provide high-quality destination service for our customers. Currently, over 97% customers are satisfied with our self-operated local tour products. And we are trying to achieve 0 complaints this year.

In the fourth quarter, GMV of self-operated local tour products accounted for nearly 1/4 of the GMV of packaged tour products, with a higher take rates than products purchased by third parties. In 2021, we will further expand our self-operated local tour products and develop the role our self-operated local tour operators to support Tuniu's organized tours as well as customized tours, private family tours and other travelers and destinations.

In terms of customer services, we will work to provide more personalized customer service and targeted products to improve overall customer experience. We will increasingly look at the full customer life cycle and use the most suitable marketing tools for specific customer growth.

Thirdly, Tuniu has built a strong IT support system to improve our internal efficiency -- operational efficiency and reduced operational costs. Today, we are looking to introduce more advanced technologies, so as to support each section of our business from supply chain management, product design to customer service. For example, we have leveraged new technologies to establish more accurate customer portfolio and tour guide information database to support our product design, customer services, and marketing efforts.

Also by developing more intelligent product recommendations and customer response systems, we will offer our employees more opportunities to create value through their work. Tuniu has been making great efforts for over 10 years to develop a vertically integrated business model. We are focused on the integration of supply chain, production and sales channels, and implemented a direct procurement strategy in order to directly acquire destination resources at a favorable price. We've also established our own local tour operators to directly serve our customers at destinations.

Going to our direct procurement and local tour operators, we are able to produce our own products and help upgrade many of them to the mass premium level. On the sales side, we've developed our sales network, including both online and off line channels, loyalty programs, B2B distribution as well as popular channels such as social marketing and live streaming shows.

With the development of our own supply chain, production system and sales network, we are able to penetrate to every part of the supply chain and provide full services to both our customers and suppliers. By shortening the supply chain, we are able to have better control over products and service quality, higher internal efficiency and better profit margins. Moreover, we are flexible to collaborate with business partners in each part of the supply chain to provide better product and services to our customers.

Overall, 2020 was full of instabilities and challenges, but we have always remained optimistic about the prospect of China and the global travel industry. At present, the development and the rollout of COVID-19 vaccines has made significant progress which brings us more confidence in the recovery of the industry.

We look forward to developing more high-quality products to better serve our customers and position Tuniu to take advantage of the emerging opportunities in China's vast tourism market.

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 fourth quarter and fiscal year 2020 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 equivalents of the numbers in our earnings release.

Starting from the fourth quarter of 2020. Net revenues were RMB 118.7 million, representing a year-over-year decrease of 74% from 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 76% year-over-year to RMB 83.1 million and accounted for 70% over total net revenues for the quarter. The decrease was primarily due to the decline in travel to international destinations, impacted by the outbreak and spread COVID-19. Other revenues were down 67% year-over-year to RMB 35.6 million and accounted for 30% of our net revenues. The decrease was primarily due to the decline in service fees received from insurance companies and revenues generated from financial services.

Gross margin was 40% in the fourth quarter of 2020 compared to a gross margin of 48% in the fourth quarter of 2019. Operating expenses for the fourth quarter of 2020 were RMB 960.1 million, up 48% year-over-year. Excluding share-based compensation expenses, among addition of acquired intangible assets and the impairment of our acquired intangible assets, non-GAAP operating expenses were RMB 924.3 million, representing a year-over-year increase of 60%.

Research and product development expenses for the fourth quarter of 2020 were RMB 12.8 million, down 84% year-over-year. The decrease was primarily due to the decrease in research and product development, personnel-related expenses. Sales and marketing expenses for the fourth quarter of 2020 were RMB 113.2 million, down 53% year-over-year. The decrease was primarily due to the decrease in sales and marketing personnel-related expenses.

General and administrative expenses for the fourth quarter of 2020 were RMB 844.8 million, up 147% year-over-year. The increase was primarily due to the provision provided for receivables with amount of RMB 0.8 billion recorded due to the COVID-19.

Net loss attributable to ordinary shareholders was RMB 901.9 million in the fourth quarter of 2020. Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses, amortization of acquired intangible assets and the impairment of acquired intangible assets, was RMB 865.6 million in the fourth quarter of 2020.

As of December 31, 2020. the company has cash and cash equivalents, restricted cash and short-term investments of RMB 1.6 billion. Capital expenditures for the fourth quarter of 2020 was RMB 6.7 million.

Now moving to full year 2020 results. In 2020, net revenues were RMB 450.3 million, representing 80% year-over-year decrease. The decrease was primarily due to the negative impact brought by the outbreak and spread of COVID-19.

Revenues from packaged tours were down 84% year-over-year to RMB 302.4 million and accounted for 67% of our total net revenues in 2020. The decrease was primarily due to the suspension of sale of packaged tours impacted by the outbreak and spread of COVID-19.

Other revenues were down 63% year-over-year to RMB 147.9 million and accounted for 33% of our total net revenues in 2020. The decrease was primarily due to the decline in commissions received from other travel-related products and service fees received from insurance companies, impacted by the outbreak and spread of COVID-19 as well as revenues generated from financial services.

Gross margin was 47% in 2020, which was in line with the gross margin in 2019. Operating expenses were RMB 1.6 billion in 2020, down 20% year-over-year. Excluding share-based compensation expenses, amortization of acquired intangible assets and impairment of acquired intangible assets, non-GAAP operating expenses were RMB 1.5 billion, representing a year-over-year decrease of 16%.

Research and product development expenses were RMB 100.5 million in 2020, down 67% year-over-year. The decrease was primarily due to the decrease in research and product development, personnel-related expenses. Thus the marketing expenses were RMB 372 million in 2020, down 60% year-over-year. The decrease was primarily due to the decrease in sales and marketing personnel-related expenses and promotional expenses.

General and administrative expenses were RMB 1.1 billion in 2020, up 48% year-over-year. The increase was primarily due to the provisions provided for receivables with amount of RMB 0.8 billion recorded due to COVID-19.

Net loss attributable to ordinary shareholders was RMB 1.3 billion in 2020. Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses amongst of acquired intangible assets and the impairment of acquired intangible assets, was RMB 1.2 billion in 2020. Capital expenditures were RMB 28.3 million in 2020.

Tuniu's business has been significantly and negatively impacted by outbreak and spread of COVID-19 since January 2020. As a result of continued influence by COVID-19, for the first quarter of 2021, the company expects to generate RMB 60.9 million to RMB 69.6 million to net revenues, which represents 60% to 69 -- 65% decrease 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, particularly as to the uncertainties brought up by the impact of COVID-19.

Thank you for listening. We are now ready for your questions. Operator?

(Operator Instructions) The first question comes from Amy Zhao, a private investor.

I've got 2 questions. The first is regarding your 2020 financial results. What's the reason for the increased loss in the fourth quarter? How did it impact your cash flow?

My second question is about your 2021 outlook. What is your view on recovery of the industry in 2021? How do you plan to expand your business in the post-epidemic era?

Thank you for the question. First, let me explain the increased losses. We reviewed our accounts throughout slowly in the year-end and recorded approximately RMB 800 million impairment charges in the G&A expenses, including refunds to customers that we paid on behalf of our travel suppliers and the increased credit risk as a result of the COVID-19 as well as impairment on some financial products.

Excluding these noncash expenses, our G&A expenses for the fourth quarter and full year 2020 both declined a lot, and our net loss also narrowed down on a year-over-year basis. As of December 31, our cash balance was RMB 1.6 billion, which is in line with the last quarter and will be sufficient to support our future business operations.

Secondly, although there were industry headwinds such as small outbreaks in the winter and tightened travel restrictions during the Spring Festival we always see pent-up demands for traveling and expect a strong momentum of recovery for domestic tours. In fact, the bookings after the spring festival keeps increasing according to our data. Also recently, it was announced that the Labor Day holiday for 2021 will be a 5-day holiday which may further stimulate the domestic travel market.

For outbound travel, also it doesn't recover so far, we are optimistic about its long-term growth. We won't miss the opportunities of its recovery in the future. Currently, our focus is still on domestic tours. This year, we will continue to focus on product innovation, quality improvement and technology under our integrated business model. We continue to increase our investment in product upgrades to ensure we always have a compelling and differentiated product offers -- offerings for customers.

Recently, we did in-depth research on our customer needs in order to guide our production. Based on the insights we got from research apart from mass market products, we'll develop more tailored products for more distinct customer growth. Moreover, we have been working in China's domestic travel market for over 10 years and have reached experience and a large customer base in many popular destinations such as Hainan and Yunnan we will further expand our advantages in these definitions, featuring them as the basis of our [star tour] products.

Secondly, we will further improve the quality of both our products and services. We continue to reach the standard of product launched since 2019. And this year, we took the satisfaction rate of 90% for product launch. So far, we have over 30 self-operated local tour operators in China and plan to open more this year. These local tour operators not only help us better serve sell our customers, but also help with promotions and acquisition of customers as definitions.

Our local tour operators also always have a high satisfaction rate among our customers. However, we are pursuing several complaints regarding our tour operator services. Currently, we have got 7 destinations in China as a trial, where we are trying to achieve 0 complaints of our local tour operator services.

In terms of customer service, we are focused on developing long-term relations with our customers through our customer service teams. Repeat customers' contributions reached a new high last year. We'll continue to provide high-quality service to our customers in order to capture the recovery momentum of domestic travel at present and outbound travel in the future.

Thirdly, about technology is the basis of our production, service and internal management. This year, we adopt digitalized management systems so as to raise the internal efficiency and [0 menu] cost.

Lastly, I want to talk about our vertically integrated business model, which differentiated Tuniu from our peers. We always focus on integration with supply chain, where we established our own local tour operators, direct procurement team, product design teams as well as customer service teams. By shortening the supply chain, we are able to have better control over product and service quality, higher internal efficiency and better profit margins.

In addition, we are open to cooperate with our business partners, such as suppliers at destination, B2B and B2C distributors. Together, we could provide differentiated products and compelling services to our customers.

(Operator Instructions)

We are now approaching the end of the conference call. I will now turn the call over to Tuniu's Director of Investor Relations, Mary, for 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.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.