Earnings Call: Q1 2021

Jun 3, 2021

Earnings release

Good morning, and welcome to Tuniu First Quarter 2021 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Mary Chen, Investor Relations Director. Please go ahead. 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 An Tieng Chen, Tuniu's Financial Controller. For today's agenda, management will discuss business updates, operation highlights and financial performance for the Q1 of 2021. Before we continue, I refer you to our Safe Harbor statement in the earnings press release, which apply 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 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 Q1 2021 earnings conference call. This spring, the domestic tourism industry has been accelerating a record recovery. Tuniu also experienced a strong recovery during the April and May holidays. The number of people traveling during the Qiming festival was nearly 3 times that of the same period last year. And our total travel GMV during the Labor Day holiday was more than 4 times that of the same period last year. Also for the Q1, our operating expenses decreased over 70% year over year and the net loss was narrowed significantly. Based on these encouraging trends, for the second quarter, we anticipate net revenues will grow more than 300% year over year, delivering the 1st period of growth since the COVID-nineteen 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 the pandemic restrictions, customers have become more demanding when selecting products with higher expectation for travel experiences and security and increased increase in new destinations and activities. This drives us to constantly develop innovative new products and enhance our service quality. We always committed to develop high quality products that satisfy customers' demand. Our focus is to maximize customer satisfaction so as to refresh rate rates for each product instead of creating the highest number of SKUs. Currently, all of Tuniu's new products are required to reach 90% satisfaction rate for product launch and we are expecting to increase this threshold in the future. We are fully leveraging and launching our integrated business model to accelerate the development of our own products. Biographically integrating across the industry, we have been able to accumulate rich resources and experience on both the supply and the demand side, which has benefited us in the development of our own products. Working under our integrated product development or IPD model, our product committee composed our colleagues from procurement, product, marketing and other departments has been responsible for assessing, developing and launching our new product offerings. We continue to upgrade products at mature definitions by customizing itineraries based on customer preferences and upgrading features to optimize the travel experience. Overall, we utilize the knowledge of games from mature products to develop products based in 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. Great destination services are one of the key components of good travel products. With the domestic travel market grew rapidly, our established network of more than 30 self operated local tour operators in China are playing an increasing important role. This year, our self operated local tour operators also began to conduct customized tour and we are seeing this business volume continue to increase. Many of our new products are served by our self operated local tour operators. In the Q1, the proportion of our local tour operator transaction volume as a percentage of total package to our GMV increased to nearly 1 third compared to approximately 1 fourth in the previous quarter. In the future, we will continue to expand the volume of our local tour operators to sell more tourists at their destinations. In terms of customer service, we will continue to leverage the expertise of our professional service team to continually optimize customer experience. We can connect with potential customers through our 2 new classes and online wish list to promote definitions and across and a road customer interest before booking. Also, Sunu provides customers with assistance for product selection and the travel planning during the reservation process as well as timely post trade follow-up to collect feedback and strengthen out the customer relationship. 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 is relatively low at the sky level. We're arranging transportation and tour guides, much of which is still done manually. In terms of our digitalization of the Slide 10, Tuniu started to promote the digitalization of internal operations since last year and has automated our business work in processes. Our existing systems are providing our suppliers with such functions as inventory and account management. We will further explore the digitalization of the slides in the future, such as resource allocation and supporting product development by leveraging our technology. After more than a decade in operations, Tuniu has become a comprehensive tourism service provider with close group capabilities from R and D to production in destination services, operations and resolutions by vertically integrating across the supply chain. We have achieved a lower cost, improved efficiency and meaningful differentiation from our peers. Our integrated service capability and digitalized technology among our core competencies and the foundations for further 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 the domestic travel 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 eventual restoration of outbound travel. In the post pandemic era, China's entire tourism industry, including Tuniu, is actively exploring how to meet the demands of customers in today's new environment. This will be our main focus for now and for the future. I will now turn the call to Anxiang Shen, our Financial Controller, for the financial highlights. Thank you, Donald. Hello, everyone. Now I will walk you through our Q1 of 2021 financial results in greater detail. Please note that open 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 Q1 of 2021, net revenues were RMB 77,400,000, representing a year over year decrease of 56% for the corresponding periods in 2020. The decrease was primarily due to the negative impact brought by the outbreak and spread of COVID-nineteen. Revenues from packaged tours were down 62% year over year to RMB45,400,000 and accounted for 59% 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-nineteen. Other revenues were down 40% year over year to RMB32 1,000,000 and accounted for 41% of our total net revenues. The decrease was primarily due to the decline in revenues generated from financial services. Gross profit for the Q1 of 2021 was RMB28,700,000, down 69% year over year. Operating expenses for the Q1 of 2021 were RMB83.5 million, down 73% year over year. Excluding share based compensation expenses, amortization of acquired intangible assets and the impairment of acquired intangible assets, Non GAAP operating expenses were RMB79,500,000, representing a year over year decrease of 71%. Research and product development expenses for the Q1 of 2021 were RMB11.8 million, down 77% 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 Q1 of 2021 was RMB 35,400,000, down 72 percent year over year. The decrease was primarily due to the decrease in sales and marketing personnel related expenses and amortization of acquired intangible assets. General and administrative expenses for the Q1 of 20 21 were RMB44,700,000, down 67% year over year. The decrease was primarily due to the decrease in general and administrative personnel related expenses and allowance for doubtful accounts. Net loss attributable to ordinary shareholders were RMB39,500,000 in the Q1 of 20 21. Non GAAP net loss attributable to ordinary shareholders, which included share based compensation expenses, amortization of acquired intangible assets and impairment of acquired intangible assets, was RMB 35,400,000 in the Q1 of 2021. As of March 31, 2020, the company had cash and cash equivalents, restricted cash and short term investments of RMB 1,300,000,000. Capital expenditures for the Q1 of 2021 were RMB 7,700,000. Dollars For the Q2 of 2021, the company is debt to generate 142,900,000 to RMB 149,700,000 of net revenues, which represents 320% to 3 40% increase 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 about by the impact of COVID-nineteen. Thank you for listening. We are now ready for your questions. Operator? Now I'll begin the question and answer session. Our first question is from Emily Zales, a Private Investor. Go ahead. Thank you, operator. Hi, management. Congratulations on the strong recovery of the Q2. Would you please give us more color on the performance in this quarter and the future quarters? What is gross jeopardy for the coming peak season? Thank you. Thank you for the questions. First, let me give some updates on our recent performance. Despite the outbreak of virus during the winter season, we see travel industry rebound rapidly since the spring comes when the virus is very well controlled in China. Our booking transaction volume in March increased over 180% compared to February. The pent up travel demands were released in April and May holidays in particular. The sales volume of our membership daily in April reached a new high since the outbreak of 2019, which also contributed to the GMV growth of over 400% year over year in the following Labor Day holiday. In general, we are positive about the domestic travel market in the Q2 as well as the coming summer. When high school graduates will be the 1st group of potential travelers in Queens, followed by the family and with children in July August. The summer holiday is always the peak season for travel industry, especially for leisure travel purpose. Since international travel is still very limited, the domestic travel market has more opportunities than before. However, it also brings new challenges. Customers are more demanding in the post pandemic area. Apart from the quality and safety issues, customized itineraries and new destination are preferred to traditional products. The booking GMV of our customized tours in the March increased over 8 times quarter over quarter and was the highest one since last October. Thus, we launched some products customized for summer holidays, such as travel to funfares and museums, as well as customize the tour for 102 family. In terms of the destination services, as orders are increasing in decreasing, our local tour operators are working on ensuring the supply of destination resources and our tour guide. So as to keep the high satisfaction rate of our services. On one hand, we continue the 0 complaint trial at 7 of our local tour operators and we will try to keep the record during the peak season. On the other hand, we are giving value edge services to our customers. For example, some of our tour guides have learned photography and took photos for customers during the trip. This was highly appreciated by our customers. In general, we will continue to focus on product development and services. For these, our core competitive advantages and bring us the long term trust from customers. As we integrate the supply chain, we could provide closed loop services for our customers from product development, booking to destination services. During the process of integration, our customers will enjoy high quality products and services and Tuniu will have the chance to improve its revenue and profit. Moreover, there remain a lot more opportunities for us to cooperate with our partners throughout the supply chain. We are insist on our integrated model and try to bring more value to our customers, shareholders and the business partners. Thank you. 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.