Earnings Call: Q2 2021

Aug 23, 2021

Earnings release

Hello and thank you for standing by for Tuniu's 2021 Second Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference call, Director of Investor Relations, Mary. Thank you, and welcome to our 20 2nd quarter earnings conference call. Joining me on the call today are Donald Lu, Tuniu's Founder, Chairman and Chief Executive Officer and An Tieng Chen, Tuniu's Financial Controller. For today's agenda, management will discuss business updates, operational highlights and financial performance for the Q2 of 2021. Before we continue, I refer you to our Safe Harbor statements 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 R and D. I would now like to turn the call over to our Founder, Chairman and Chief Executive Officer, Donald Zhu. Thank you, Mary. Good day, everyone. Welcome to our Q2 2021 earnings conference call. Overall, domestic tourism industry saw a clear trend towards full recovery in the Q2. Year on year, our net revenues increased by 3.73% with revenue from packaged tours, up by over 900%. This is the 1st quarter in which we achieved positive growth since the COVID-nineteen outbreak last year. And benefiting from our fixed cost control measures, operating expenses decreased by 40% year over year and our quarterly loss was the lowest since the pandemic outbreak. In the Q2, with the pandemic stabilized, the warm weather and holidays versus the demand for travel. While last year, most people choose to take local tours during the public holiday, this year the proportion of travelers taking international tours has led to steadily increase, Also in line with the high spending demand for high quality tour products, the proportion consumption of interproventor tools has increased compared with the same period last year. We continue to exercise the development of our core tax reform business with special focus on demand definition to continuously upgrade our products and the level of service. This allows us to rapidly recover our business by seizing opportunities during industry upstream. Our core competitiveness and the perspective most is our commitment to providing the high quality products and services to our customers. Based on customer demand, Tuniu's travel routes are designed to satisfy and even receive customer interactions. Our new tour of product designers have more than 5 years of experience in production or ad technicians. Our high quality products are subject to strict internal procurement and production procedures. Worldwide for new tools will go through logical interviews and the training before they are officially on the show. Our products also have been tested by our customers ensuring that they meet their requirements before being launched. The satisfaction rate of our new product is to reach 19% before this can be launched, and we are proud that satisfaction rate for our new tour products has reached 97%. We always strive to upgrade our products through product innovations, creating new destination sections and itineraries to bring fresh travel experience to customers. In addition, we also focused on selected market segments and customers and launched same store products to attract targeted customer growth. While standard products remain popular with customers, we also see that the normal customized tools is increasing. Due to considerations of travel safety and the overall experience, most tourists are choosing to travel with their families and playing in the form of priority tours, a small growth tour that we take advantage of as 2 people, providing the freedom of self guided tours with the convenience and services of organized tours. Also amidst China's stabilized economic situation and economic recovery, we are seeing an increase in demand for customized tours for business travel around conferences and team building activities. As an experienced firewall service provider with an extensive service network across China, Tuniu is able to offer business clients customized travel products with competitive prices and outstanding service. In the Q2, our customized stores achieved record growth since the pandemic with GMV increasing by more than 200% quarter on quarter. Those products require good service. Our self operated local store operators play a crucial role in improving customer experience through excellent service. This year, we launched 0 Complaints initiative for our local store operators, with 6 of our local store operators maintaining several complaints records through print. We will continue to work hard to maintain and exceed these records. Through our efforts, we are pleased to report that in the Q2 GMV of local tour operator products increased over 2 Several unexpected events have occurred since the beginning of this year, including regional pandemic outbreak and natural disasters. Our self operated local tour operators have become our most powerful porting during this time. In response to emergency situations, our local tour operators have helped to ensure the safety of tourists, life and the property. And that is always get some get home safely. While our local tour staff have faced many uncertainties difficulties, they have successfully carried out their duties, receiving recognition and the praise from our guests. By providing excellent products and service, we have built a large and loyal customer base. We knew post a member day every month where we launched special products and discounts for our members. In the Q2, Members' Day sales continuously reached new highs. In July, our Members' Day single day sales exceeded RMB40 1,000,000,000 with the transaction volume of packaged tour products increasing 5 times over the same period last year. In terms of technology, we have renewed to automate this workflows and further replace some daily tasks with automated process flow, such as order processing and inventory management. In order to liberate our employees and invest in more creative work, we have also strengthened internal information, data and the risk management and conducted self audit to ensure technical security and compliance. In July, China is selling several M and A outlets which may impact summer travel. We remain, however, optimistic about the domestic travel tourism market. Our industry has overcome many challenges since the COVID-nineteen outbreak last year. And we are confident that we will overcome any temporary difficulties. With ongoing vaccine mission rollouts and the enhancement of personal protection levels, so that's the tourism to continue to be sharing a strong recovery. We will continue to work hard and provide high quality products and services to meet the demand of our customers. I will now turn the call over to Ren Zhang, our Financial Controller for the financial highlights. Thank you, Daniel. Hello, everyone. Now I'll walk you through our Q2 of 2021 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 equivalent of the numbers in our earnings release. For the Q2 of 2021, net revenues were RMB161 1,000,000 representing a year over year increase of 3.73% from the corresponding periods in 2020. The increase was primarily due to the growth in revenues from packaged tours. Revenues from packaged tours were up 907% year over year to RMB126,500,000 and accounted for 79% of our total net revenues for the quarter. The increase was primarily due to the growth in demand for domestic tours. Other revenues were up 61 percent year over year to $34,500,000 and accounted for 21% of our total net revenue. The increase was primarily due to a rise in commission fees received from other related products and the service fees received from insurance companies. Gross profit for the Q2 of 2021 was RMB69 1,000,000 up 792 percent year over year. Operating expenses for the Q2 of 2021 were RMB95,100,000, down 40% year over year. Excluding share based compensation expenses and amortization of acquired intangible assets, non GAAP operating expenses were RMB89.6 million, representing a year over year decrease of 36%. Research and product development expenses for the Q2 of 2021 were RMB13.8 million, down 33% year over year. The decrease was primarily due to the decrease in business and product development personnel related expenses. Sales and marketing expenses for the Q2 of 2021 were RMB44,800,000, down 47% year over year. The decrease was primarily due to the decrease in sales and marketing personnel related expenses and the monetization of our Quarantine process. General and administrative expenses for the Q2 of 2020 were RMB41.5 million, down 32% year on year. The decrease was primarily due to the decrease in general and administrative personnel related expenses. Net loss attributable to ordinary shareholders were RMB 13,100,000 in the Q2 of 2021. Non GAAP net loss attributable to ordinary shareholders, which included share based compensation expenses and amortization of the prior intangible assets, was RMB 7,400,000 in the Q2 of 2021. As of June 30, 2021, the company had cash and cash equivalents, restricted cash and short term investments of RMB1.1 billion. Cash flow generated from operations for Q2 of 2021 was RMB55.7 million. Capital expenditures for the Q2 of 2021 were 2,900,000. For the Q3 of 2021, the company expects to generate RMB111,200,000 to RMB 123,500,000 of net revenues, which represents 0% to 10% decrease year over year. Please note that the forecast reflects an apparent and preliminary view on the industry and its operations, which is subject to change, particularly as to the uncertainties brought about by the impact of COVID-nineteen. Thank you for listening. We are now ready for your questions. Operator? We can now take the first question from Tina Bai, who is a Private Investor. Please go ahead. Thank you. This is Tina Bai speaking and Publisher, her management, Congratulations on the strong recovery of the Q2. Would you please share with us your total destinations? And my second question is regarding the recent coronavirus outbreak in several cities across China. How did this impact your performance in the Q3? And what is your view towards the need to launch of development of the travel industry? Thank you. Thank you for the question. In the Q2, the external environment was very positive for the recovery of travel industry. In fact, we forced sales to improve ever since the redemption of winter problems and travels in last July. We've adopted the 4 lifecycle customer management method to pay and retain customers. Also, our tour advisers did more training such as on destination knowledge and customized services to enhance their serviceability. Apart from traditional online channels, we also provided our sales staff with new channels such as Taike app, our social media and live streaming shows. As a result, our revenues, especially the revenues from packaged tours, grew largely during the quarter. In terms of the package for January, our best destination for the quarter was Tainan, one of the most popular leisure travel destinations in China, followed by Shanghai and Lu Guangdong, both of which have famous theme parks and are built for families with children. And then for Jiangsu and Zhejiang, we are local tours for real and the trips were boosted by short holidays during the quarter. Other destinations included the popular sites in Sichuan, Minha and Xinjiang. For the second question, yes, the recent COVID-nineteen outbreak in several cities across China have negative impact on the travel industry during the peak season. Impact of the travel market showed that is closed due to the summer location before the outbreak in late July. Our total GMV in July increased on both year over year and quarter over quarter basis. However, considering the safety issue, some problems have faced the inter province travel since this slide. Therefore, we expect the net revenue for the Q3 to align with the same period last year or decreased up to 10% year over year. After the outbreak of virus in July, our first priority to ensure the safety and the interest of our customers helping them respond and reschedule their case. We also upgraded our definition service including assist customers with new clean of aided testing. Our employees, both in the headquarter and at destinations, work in shifts around the clock to help our customers with any emergencies and try to send them home earlier and safer. For products, we launched the products without fixed departure stage, which means the customer may book the itinerary now, enjoying the current fareable price and the departure in 2 or 3 months at a time when the external environment gets better or they have a vaccine. The customer only needs to make a second confirmation about the next decoupage date in advance, then we arrange their trips accordingly. We can also cancel the orders at any time with 4th bond, if they change their trip plan, the technological and flexible products will be welcomed by all customers, especially the younger generation. In general, we are still positive about the industry for the demand is always there despite the short term recession during this January February, we've currently record the rebound since March. With the pandemic being under control, the market will get better and better. Thank you. It appears at this time there are no further questions. I'd like to now turn the call back over to Mary Chen for any additional or 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.