Tuniu Corp (TOUR) 2020 Q3 法說會逐字稿

Hello, and thank you for standing by for Tuniu's 2020 Third Quarter 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. Please go ahead.

Thank you, and welcome to our 2020 third 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 third quarter of 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 third quarter earnings conference call. We are glad to see that in the third quarter while operating expenses continued to decline, our net revenue increased more than 200% over the second quarter and generally maintained an upward monthly growth trend through July, August and September. Our operating cash flow also began to turn positive this quarter.

The recovery of the domestic travel industry was evident. According to China's Ministry of Culture and Tourism, a total of 637 million tourists traveled within China during the October National Day holiday, almost returning to 80% of 2019 levels. We are positive on the domestic market, which contributed to the improvement of our business.

And here, I'd like to share our efforts made on sales and products during the quarter. For Tuniu's sales network, dedicated to our customer-first principle, we have built a wide and solid customer base. We have established a unique customer service system in our industry, with tour advisers to guide customers in booking services and dedicated customer service representatives to maintain customer relationships. In addition, we have extended our services to handle customer needs after they reach their destination and have established our own local tour operators.

During the epidemic, our customer service and local tour operators provided timely services for customers, who made great contribution to the recovery of our business in the post-epidemic era. Following the outbreak of COVID-19, we quickly refunded or altered previously purchased packages in order to maintain customer interest and guaranteed experience. Owing to our timely response, we have earned long-term trust and support from our customers. As the domestic travel market resumed, we have been rewarded with a group of loyal customers who have made an important contribution to Tuniu's recovery.

Our social marketing tool, [Taikoo], has also been playing an important role in our sales efforts. In the third quarter, sales generated from Taikoo increased by over 20x compared with the second quarter. This is an innovative sales model that combines the store owners' network of trusted relationships with the ability to significantly increase customer stickiness. With the support of our Taikoo app, owners can more conveniently promote our products and destinations to customers.

In April, Tuniu started hosting live streaming shows on a weekly basis. We have been testing various type of products and different live streaming strategies to determine what works best in terms of product sales. For example, we have launched a series of special priced products during our live stream shows that really sell out quickly after they go online.

We will continue to explore methods to attract new customers. We are now more focused on general-based channels such as high-traffic online platforms, (inaudible) sports and cross-industry cooperation, in order to gradually form a multiple channel network for acquiring new customers.

I would now like to give an update on our products. China has a lot of excellent travel destinations, and we find that more of customer -- much of our consumers' demand for outbound travel can be shifted to the domestic market. Many tourists, who originally planned to travel abroad, did not cut their planned trip budget due to epidemic restrictions. Instead, they have tended to use the same budget for traveling within China. This has created a perfect opportunity to further develop high-quality products and services for domestic travel market.

Tuniu's years of experience in the industry helped guide the rapid recovery of our business. We have been deeply involved in China's leader travel market for more than a decade. Since 2014, we have implemented a direct procurement strategy and cooperated with a number of local tour bureaus. This allowed us to adopt a centralized purchasing strategy to consolidate quality -- quantity advantage and achieve better prices.

In terms of products, Tuniu has continued to innovate and upgrade our products based on customer demand. We have established our Tuniu brand product, New Tour, which is positioned in the market as a high-quality organizing tool and has received a 97% satisfaction rate on average. New Tour product established a series of service standards for improving the customer experience and has become the benchmark for the industry. In order to meet the demand for better and safer products by domestic travelers, we upgraded the service standards of New Tour after the outbreak of the epidemic. We launched a new logo for our New Tour, which aimed to give a fresh image to our customers.

The number of smaller sized package tours and customized tours have continued to grow with consumers becoming increasingly focused on high-quality personalized tourism products. Our customized tour GMV in the third quarter increased by 8x compared with the second quarter.

In addition, we are also paying more attention to integrating current popular trend with a younger generation into our tour products, such as both recommended by online influencers and seasonal hotspots in order to attract more customers. For example, with the coming winter and popularity of local tours, we launched products such as hot spring locations featuring mid- to high-end hot spring hotels and popular B&B.

In terms of service, we have over 30 local tour operators in China providing services for tourists directly. Since the COVID-19 outbreak, we have not closed down any of our local tour operators. And recently, we are establishing new ones in Yunnan. Yunnan has recovered rapidly when domestic market reopened. After we set up the local tour operators, we can better service tourists from Tuniu as well as attract more tourists in the destination.

In terms of product design, we have taken the transportation plus destination-based tour model to the next level as tourists focus more on destination experiences in the post COVID-19 era. We believe that the Hotel + X product model is ideal for destination-based tour products. By segmenting local tour services into more detailed services, including attracting tickets, 1-day or multiple-day tours and other destination-based activities, we are able to identify the best resources to meet customer demand.

Also, we raised the standards of product launch again after the outbreak of the epidemic. In the past, products with 75% or high satisfaction rate could be launched on our website and app. Last year, we reached to 80% and this year to 85%. High-quality services and products have additional values to our customers and help us maintain and attract them.

With the gradually -- gradual recovery of the domestic travel industry, we are looking forward to the upcoming quarters. We also expect that the outbound travel market may start to open up due to the recent development of an effective COVID vaccine.

Overall, the epidemic has brought us both opportunities and challenges. It has also accelerated the long-term process of upgrading the travel industries products and services. Tuniu's success is rooted in leading the industry with creating products and services trends that address rapidly changing customer demand, and we look forward to more opportunities that lie ahead.

I will now turn the call over to Anqiang Chen, our financial controller, for financial highlights.

Thank you, Donald. Hello, everyone. Now I'll walk you through our third quarter 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.

For the third quarter of 2020, net revenues were RMB 123.5 million, representing a year-over-year decrease of 86% from the corresponding period in 2019. The decrease was primarily due to the negative impact brought by the outbreak and spread of COVID-19. Revenues from packaged tours were down 88% year-over-year to RMB 86.4 million and accounted for 70% of our 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 of COVID-19.

Other revenues were down 65% year-over-year to RMB 37.1 million and accounted for 30% of our total 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 53% in the third quarter of 2020 compared to a gross margin of 45% in the third quarter of 2019. Operating expenses for the third quarter of 2020 were RMB 127.8 million, down 71% year-over-year. Excluding share-based compensation expenses and amortization of acquired intangible assets, non-GAAP operating expenses were RMB 118.2 million, representing a year-over-year decrease of 69%.

Research and product development expenses for the third quarter of 2020 were RMB 16 million, down 75% 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 third quarter of 2020 were RMB 49.9 million, down 79% year-over-year. The decrease was primarily due to the decrease in promotional expenses, and sales and marketing personnel-related expenses.

General and administrative expenses for the third quarter of 2020 were RMB 69.8 million, down 50% 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 RMB 56.9 million in the third quarter of 2020. Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses and amortization of acquired intangible assets, was RMB 57.2 million in the third quarter of 2020.

As of September 30, 2020, the company had cash and cash equivalents, restricted cash and short-term investments of RMB 1.6 billion. Cash flow generated from operations for the third quarter of 2020 was RMB 5.5 million. Capital expenditures for the third quarter of 2020 were RMB 3.5 million.

Tuniu's business has been significantly and negatively impacted by the outbreak and spread of COVID-19 since January 2020, as a result of the continued influence by COVID-19. For the fourth quarter of 2020, the company expects to generate RMB 112.8 million to RMB 135.4 million of net revenues, which represents 70% to 75% 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 upon by the impact of COVID-19.

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

(Operator Instructions) The first question today comes from [TC Wang], a private investor.

Hi, management. Recently, we see news such as a positive COVID-19 vaccine trial data that favored the travel industry. Would you please share with us your view on the recovery of the industry? And what's your strategy to catch the recovery momentum?

Thank you for the question. Yes, it's very encouraging to hear the recent development of effective COVID vaccine in both China and Western countries. That's good news for all human beings. Also, the Chinese authorities recently announced to keep 2021 Labor Day holiday as 5 days long. This news boosted the further recovery of domestic tourism. In fact, we are always confident for the long-term prospects for the travel industry. The domestic market is getting better and better. During the past National Day holiday, both the industry and the company showed a good recovery. Owing to our deep involvement in the leader travel market, solid customer base as well as efforts made by our employees, Tuniu has been among the fastest to recover among China's travel agencies.

In short term, we are still focusing on the domestic travel market, but the outbound travel still remains an uncertainty. On the product side, we always commit to customer first, one of our core values. Our product team are trying to find different itineraries as well as various destination-based activities to satisfy the needs of both organized tour and self-guided tour customers. Our customer representatives and the tour guides are working hard to provide the best service to our customers. On the sales side, we are grateful to our loyal customers as the repeated customer contribution reached new highs in the third quarter.

Our dedication to the improvement of products and services helped us increase the repurchase rate. We reached the standard for product launch again this year so as to meet the customer needs for better and safer products. Taikoo app is one of our new channels of acquiring customers compared to traditional ones. GMV generated from Taikoo app also soared in the third quarter. One of the major advantages of Taikoo is to acquire customers using the store owners' network of trusted relationships. These customers really have higher stickiness.

On the product side, recently, we launched the upgraded Hotel + X product model, which is ideal for the changing needs of domestic travelers in the post-pandemic era. With the core resource hotel, we add different segment resources to form various products. Based on our direct procurement strategy and dynamic packaging system, we were able to find excellent resources and package them at discounted prices.

In terms of outbound travel, although it's currently unavailable, we are positive to the long-term impact. Overseas leisure travel is one of our core strengths. We will maintain the core team and help them train periodically. We are confident that Tuniu will be among the first to recover outbound travel business when travel restrictions are relieved.

(Operator Instructions) As there appears to be no further questions, we are approaching the end of the conference call. I will now turn the call over to Tuniu's Director of Investor Relations, Mary, 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.

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