Tuniu Corporation (TOUR) Earnings Call Transcript & Summary

Good day, and welcome to the Tuniu '23 Q2 Conference Call. [Operator Instructions] Please note 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, and welcome to our 2023 second 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, operational highlights and financial performance for the second quarter of 2023. Before we continue, I refer you to our safe harbor statements in the earnings press release, which applies to this call as we will make forward-looking statements. Although 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 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 second quarter 2023 earnings conference call. In the second quarter, Tuniu's business experienced a rapid recovery and delivered robust results, building on the strong momentum we saw in the first quarter. Our net revenues beat our previous guidance, growing by 170% year-over-year for the quarter with revenues from packaged tours growing even faster at 632% year-over-year. In this year -- in this quarter, we achieved our first operating profit since Tuniu's listing and the first net income since the pandemic outbreak, both on GAAP and non-GAAP basis. By leveraging Tuniu's advantages in product, pricing and sales channels, we have been able to continuously increase our profitability. We also focused on improving internal operational efficiencies through the implementation of our technology tools. During the quarter, our gross margin improved to 65%, up from 45% during the same period last year. Additionally, we have maintained positive operating cash flow for two consecutive quarters. The encouraging results from this quarter, [ domestic ] Tuniu is overcoming the negative impact of the pandemic, and we are now one step closer to realize our goal of sustained growth and long-term profitability. In the second quarter, people's enthusiasm for traveling [indiscernible] with a warm weather and upcoming holidays. In response to the increase in mass market demand for travel products in terms of both, quantity and quality, our strategy has been to focus our in-house offerings on the most popular travel products and to meet diverse customer demand through collaborations with suppliers. To be more specific regarding our in-house products, Tuniu follows strict quality standards for product development and provide industry-leading services for a selection of popular travel destinations and routes. During the quarter, our new tour series launched a large number of routes [ without ] planned shopping activities, resulting in an impressive 98% customer satisfaction rate. Notably, several traffic-neutral itineraries in Europe which were launched in the second quarter were nearly fully booked with tours scheduled through September. Regarding profitability, Tuniu leverages our scale advantages to effectively reduce the resource procurement costs for our in-house products. And our focus on product differentiation helps minimize the risk of price competition, leading to higher take rates for our in-house products. We also continue to expand our collaborations with a diverse range of suppliers to offer our customers an extended range of our long-tail products. Customized tours are increasingly popular due to the public's growing demand for higher-quality travel experiences. In the second quarter, Tuniu's [ category ] for customized tours increased by more than 100% compared to the previous quarter. The primary customer base for private customized tours in the middle to upper class as well as our repeat customers, who often travel with their family and friends. And the tour destinations have expanded from domestic to international markets. Corporate travel [indiscernible] peak season during springtime with a notable increase in of team-building trips and incentive trips organized for companies in first and second-tier cities. Customized tours constantly achieve a higher take rate compared to standard products, mainly due to value-added services. In addition, our self-operated local tour operators also provide services for customizing tours, helping to ensure high-quality service and additional profitability. In terms of sales channels, our diverse sales network allow us to reach more customers. One of Tuniu's key competitive advantages lie in providing our professional team of tour adviser. In the second quarter, we continued to improve the efficiency of our tour advisers through developing new tech tools. And the sales per employee experienced a significant increase year-over-year, surpassing the previous quarter. We remain committed to strengthening our team-building efforts through destination-based training, both, online and offline, to our staff to enhance their business capabilities. And we are seeing that new staff are able to become more productive with the help of our training and technology tools. Our repeat customers have competently showed great trust and support for Tuniu, largely due to our membership-based loyalty program. This year, the contribution of our regular customers to the overall GMV remained at over 70%. During the first half of this year, the total GMV and GMV of packaged tours [ stood ] on our membership day every month maintained steady growth. During the second quarter, our sales on live streaming channels experienced constant monthly growth. Several of our key live streaming accounts ranked among the top 3 nation-wide in terms of sales volumes within [indiscernible] hotel and travel service category. We also continue to collaborate with leading influencers [indiscernible] businesses to promote our products. On the price side, [indiscernible] we ranked the third place nationwide amongst the unique travel suppliers. Thanks to the team's dedicated efforts, our live streaming channel achieved a significant milestone by recording its first quarterly profit since its establishment. Our distribution channels, including our B2B platform, offline partner stores and social marketing tools also delivered positive results. During this quarter, sales from our B2B platform and offline partner stores achieved triple-digit growth compared to the previous quarter. The distribution strategy helped the company accumulate scale advantages for the procurement side and reduce our inventory pressure. Travel is considered a relatively low frequency consumption demand compared to [ delay ] necessary case. But through our B2B distribution approach, we are able to transform it into high-frequency consumption. Offline partner stores helped our products to reach a broader customer base and in low-tier cities at a relatively low cost, while it has [indiscernible] Tuniu brand's influence. Regarding technology, we have further deployed automation across our operations. For example, we implemented automated tools for product reviewing, supply chain management. So automation technology will further enhance the company's operational efficiency, helping to lower Tuniu's operating expenses for [indiscernible] quarters on a year-over-year basis. We will continue to promote automation and digitalization across various work scenarios and processes to increase the employee productivity. In the second quarter, we made positive progress on both, our top and bottom line, reflecting the effective needs of Tuniu's integrated business model and the product and the service strategy, we have always adhered to. With the summer peak season approaching, we are well prepared to face any challenges and continue to create return value for our customers and shareholders. I will now turn the call over to Anqiang, our Financial Controller, for the financial highlights.

Thank you, Donald. Hello, everyone. Now I will walk you through our second quarter of 2023 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 second quarter of 2023, net revenue were RMB 100 million, representing a year-over-year increase of 170% from the corresponding period in 2022. The increase was primarily due to the growth of packaged tours as the travel market recovers. Revenues from packaged tours were up 632% year-over-year to RMB 69.8 million and accounted for 70% of our total net revenues for the quarter. The increase was primarily due to the growth of recognized tours. Other revenues were up 10% year-over-year to RMB 30.2 million and accounted for 30% of our total net revenues. The increase was primarily due to the increase in service fees received from insurance companies. Gross profit for the second quarter of 2023 was RMB 65.4 million, up 296% year-over-year. Operating expenses for the second quarter of 2023 were RMB 58.6 million, down 43% year-over-year. The decrease was primarily due to the fact that the company did not incur gain on disposal of subsidiaries and the impairment of goodwill in the second quarter of 2023. Gain on disposals of subsidiaries, which were recorded in other operating income in the amount of RMB 32.8 million and impairment of goodwill in the amount of RMB 112.1 million were incurred as operating expenses in the second quarter of 2022. Research and product development expenses for the second quarter of 2023 were RMB 13.8 million, down 1% year-over-year. The decrease was primarily due to a decrease in amortization of acquired intangible assets. Sales and marketing expenses for the second quarter of 2023 were RMB 24.9 million, up 2% year-over-year. The increase was primarily due to the increase in promotion expenses. General and administrative expenses for the second quarter of 2023 were RMB 21.7 million, down 9% year-over-year. The decrease was primarily due to the decrease in general and administrative personnel-related expenses. Net income attributable to ordinary shareholders of Tuniu Corporation was RMB 0.7 million in the second quarter of 2023. Non-GAAP net income attributable to ordinary shareholders of Tuniu Corporation, which excluded share-based compensation expenses, amortization of acquired intangible assets, gain on disposal of subsidiaries and the impairment of goodwill was RMB 6 million in the second quarter of 2023. As of June 30, 2023, the company had cash and cash equivalents, restricted cash and short-term investments of RMB 1.1 billion. Cash flow generated from operations for the second quarter of 2023 was RMB 136.9 million. Capital expenditures for the second quarter of 2023 were RMB 6.2 million. For the third quarter of 2023, the company has planned to generate RMB 163.5 million to RMB 171.3 million of net revenues which represents 110% to 120% increase year-over-year. Please note that the forecast reflects Tuniu current and the 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] Our first question comes from Rachel Lee, Private Investor.

First of all, congratulations on the excellent performance this quarter. For the second quarter, net revenues have exceeded last quarter's guidance. Which part of the company's business recovers better than expected, domestic or outbound tourism business? What are their proportions in revenues, respectively? And another question is regarding profitability outlook. From your perspective, do you think the profitability will expand in the third quarter?

Thank you for the questions. We had a strong second quarter. We [indiscernible] revenue growing over 6x year-over-year. Our total GMV maintained a steady growth month by month through April to June. This year, the summer peak season come a bit earlier than before, probably due to the release of pent-up demand in previous years. We saw [indiscernible] traveler -- travel since the second half of June, which used to happen in early July. This also contributed to the positive results of the second quarter. In terms of domestic and outbound tours, both have experienced faster recovery. During the second quarter, domestic tours are tours accounted for less than 90% of our total GMV, and outbound tours accounted for over 10%, increasing from a single-digit proportion in the previous quarter. For domestic tours, interprovince tours contribute the most to our revenues. New tour products, family tours, private and corporate customized tours were among our main revenue drivers. Both of our direct and distribution channels are robust, and many of the channels such as online platform, B2B distribution and large streaming achieved profitability in the second quarter. For outbound tours with the reopening of more [ countries ] announced in March, we launched new SKUs and saw increased bookings in the second quarter. For example, as several European countries were included in the March list, Europe become our second largest overseas destination in terms of GMV in the second quarter. Jumping from bottom of the list with its GMV increased over 100x compared to the first quarter. We are excited about the new list of opening [ countries ] released last week. The third list contains much more destinations and some of them were among popular destinations for Chinese travelers before the pandemic. Soon after the release of the news, outbound destination searches on Tuniu platform increased significantly, especially for some countries in the new list. We are positive for the outlook of the industry and trying our best to resume supply chain as fast as possible. So far, we already have SKUs launched for the newly added destinations. For your second question, regarding the feasibility, we'll achieve our goal for our quarterly profit in the second quarter. The third quarter is the peak season, and we are targeting for a top line growth of 110% to 120% year-over-year, while we continue to take strict cost control measures. We will maintain the increase of our total headcount within 10% year-on-year during the peak season, and leverage technology tools to assist our staff to handle the increase in business. Thus, we still have room to -- for margin improvement in the third quarter, both on a GAAP and a non-GAAP basis. Thank you.

[Operator Instructions] There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Mary Chen 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.

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