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spk04: Thank you for standing by and welcome to the trip.com 2021 Q3 earnings conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Michelle Key, trip.com IR Director. Please go ahead.
spk03: Thank you, Dorothy. Thank you all. Good morning and good evening. Welcome to CryptoConf 2021 Q3 Earnings Conference Call. Joining me today on the call are Mr. James Lam, Executive Chairman of the Board, Ms. Jen Sam, Chief Executive Officer, and Ms. Cindy Wong, Chief Financial Officer. During this call, we will discuss our future outlook and performance, which are forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in Crypto.com Group's public filings with the Security and Exchange Commission. Crypto.com Group does not undertake any obligation to update any forward-looking statements, except as required under applicable law. James, Jen, and Cindy will share now strategy and business updates, operating highlights, and financial performance for the third quarter of 2021 as well as outlook for the fourth quarter of 2021. After the prepared remarks, we will have a Q&A session. With that, I will turn the call over to James. James, please.
spk09: Thank you, Michelle.
spk07: Thank you, everyone, for joining us on the call today. In the third quarter, we are glad to see the world continue to transition towards normalcy. Thanks to rapid vaccine and are able to do more in destinations. The transatlantic travel markets have seen recovery take shape, and Europe and the United States reopened their borders to fully vaccinated travelers. The EU digital COVID certificate has helped to facilitate free movement and travel within the continent. We're also happy to see many countries have adopted travel-friendly policies to smooth the path for international travel and tourism. will help us build resilience to pandemic challenges. The recent discovery of Omicron variant may have sparked a new round of global concern and once again given rise to all sorts of travel restrictions. Pandemic uncertainty may continue to be an ongoing issue for consumers and the business alike in the next year. Yet we believe that the remaining and the global travel market. China sees any opportunity amidst fast-changing market conditions. On China's domestic markets, we remain focused on fortifying supply chains, but enrich our product offerings to cover more user cases standard. This year, more than 200 million users have viewed our content. Around 3 to 35% of the unique app visitors have developed the habit of browsing our content channel. As a leading one-stop travel platform, our content-to-consumption rate is also higher.
spk09: Business partners can enjoy us monthly
spk07: Business partners can enjoy a monthly conversion rate up to 30%, encouraging them to reinforce our cooperation. On the international front, Asia Pacific and Europe will continue to be our key focuses. In APAC market, our global brand Trip.com has been gaining share in markets such as Hong Kong, Singapore, Japan, and South Korea. With increasing brand awareness and app usage, During the pandemic, Trip.com swiftly adapted to meet different demands and focused on vacation by strengthening local hotel outbreaks. In Europe, all of our brands have been closely collaborating throughout the previous quarters, giving a strong boost to Trip.com's product competitiveness in the region. In the long run,
spk09: strong traffic and strengthening its market presence in Europe. In short, local focus, global vision will continue to be our core strategy in coming years.
spk07: We'll remain focused on strengthening the group's competitiveness and we'll prepare to embrace the global travel revival and tourism boom. We hope to see such inputs start to bear fruit and to be reflected in the performance of business over the next three to five years. With that, I will send the call over to Jane for operational highlights.
spk05: Thank you, James. Good morning, everyone. I would like to start with a brief overview of our performance in the past quarter and updates on our strategic focuses. In the third quarter, our total net revenue remained stable year over year. and decreased by 9% quarter over quarter, mainly due to natural disasters and new rounds of infections, which affect multiple provinces in China. We are glad to see the world moving ahead in normalizing international tourism. Yet, the road to global recovery is not without ups and downs. The performance of travel markets in major economies has been divergent. The China travel market has been frequently interrupted by the resurgences of COVID cases. It has witnessed a strong recovery in July until natural disasters and the Delta variant emerged to slow it down. Industry-wise, the hotel occupancy rate and air ticket bookings in Q3 were down by around 30% when compared to the pre-COVID 2019 level for market performances. Nevertheless, our domestic hotel business was able to outpace the market performance by 20 to 25%, and our domestic air ticket booking recovery was much higher than the market levels as well. The global market, on the other hand, has been making great progress in returning to normalcy, especially in Europe and United States. Air ticket bookings in these markets made some major strides towards pre-pandemic levels in the past month. While the global flight volume was still below 2019 level, Trip.com's overall international air ticket booking has increased by around 40% quarter over quarter, with air ticket bookings in Europe growing by 170%. Skyscanner also saw air ticket bookings increased by approximately 100% year over year and around 35% quarter over quarter. While COVID-19 pandemic has negatively affected the travel industry, There is no doubt the industry will emerge out from the trenches and come back stronger. We hope to see the travel industry take off in mid-2022 as vaccination levels rise in the key markets and travelers become used to some level of travel restrictions and feel more comfortable booking trips again. Looking beyond 2021, our long-term mission is to pursue the perfect trip for a better world, and it has never changed. As James just mentioned, we will continue to stick to our strategy of local focus, global vision, and focus on the following areas. First, building strong user cases and make traveling part of our daily lives. As the pandemic and resulting health and travel measures make people shy away from long-distance trips, weekend, regional, and staycation travel have become more popular and frequent. In Q3, we were glad to see our intra-province hotel booking grow by approximately 35%. and our local hotel bookings grew by more than 60% compared to the same period pre-COVID in 2019. In order to build strong user cases to attract and motivate users, we collaborated with more than 6,000 high-star hotels to provide value-added hotel packages, which included catering and many other in-hotel services. Such packages contributed around 30% to our sales of these partner hotels. We strive to seize this opportunity to attract young generations and to help users embrace travel as part of their daily lives. In response to addressing the need for inspiration for short haul and the local trips, we continue to make solid progress. in our content strategy. The total amount of content published on our platform increased by 100% year over year. Compared to Q2, our number of KOLs have sequentially increased by 35%. The amount of users who interacted with our content increased by 20%. and the monthly content to transaction conversion rate reached 30% in July. Second, tightening our relationship with business partners by empowering them to optimize customer structure and improve efficiency, not only as an inspiration hub for users. Our content channels also serve as the go-to platform where suppliers are empowered to improve making efficiencies and gain traction with Trip.com Group's high-quality users. As an important part of our content strategy, StarHub aims to help improve suppliers' conversion rate and the info feed to increase their exposure. We have seen the number of the professionally generated content, content exposure, and content GME increases by monthly average of 50% for past consecutive seven months. In order to help expand our partners' customer base, we are also able to pushing forward with multiple co-branded membership programs where users are entitled to benefit from both parties. There are now more than 30 million co-branded members between Trip.com Group and our hotel partners, and this number has grown by about six times since 2019. We also strengthened our partnership with airlines to help them with operating efficiencies and enhance our growth in the first and business class bookings. Third, strengthening the synergy among all brands of our group of trip.com group to increase our market response to global spaces. In strengthening the synergies among our group companies globally, The strengthening of the synergy among our group companies globally has continuously on the go for the past quarters. Leveraging the strong combined brand awareness and the global presence, we're able to establish closer relationship with local suppliers and to fill the Skyscanner and Trip.com with improved competitiveness. enhance product offerings and service reliability. Grasping the opportunity present by the pandemic, we launched a series of value-added services to address our global clientele for user-friendliness and flexibility. We believe these will enable us to better respond to the post-pandemic travelers' evolving demands and further gain market share. A strong local supply chain and bolstered product capabilities will enable Trip.com to better utilize Skyscanner's strong traffic in Europe. Fourth, corporate responsibility. Following up our rural revitalization initiatives, on top of these Trip.com group country retreats, that were already opened in the business in Q2. Two more were opened this quarter. Our facility in annual provinces has now grown into a foundation of our Rural Revitalization Academy, co-created with the local government. Through online and offline channels, we provide local talent with professional training and develop skills and contribute to improved global services quality. On top of the developing rural tourism, the country retreats also help facilitate the sales of local products beyond vicinity as a means to improve local economy and livelihoods. With a strong diverse workforce, Trip.com group also strives to create an inclusive and friendly working environment. We adopt a clear code of conduct to support working mothers and care for pregnant employees. In October, we were happy to receive the Women's Empowerment Principles Award by UN Women China as a recognition of our efforts. in promoting gender equality and female empowerment. The travel industry has proven its resilience over the time, from 9-11 to SARS, and it will definitely weather the storm of COVID-19 as well. With crisis comes opportunity. Remaining agile in the face of the challenge will help us to seize opportunities and come back stronger. and reestablish confidence in travelers and to pursue the perfect trip for a better world as our mission stated. With that, I will now turn the call over to Cindy.
spk03: Thanks, Jane. Good morning, everyone. For the third quarter of 2021, Trip.com Group reported net revenue of RMB 5.3 billion representing a 2% decrease year-over-year and 9% decrease quarter-over-quarter, primarily due to the influence of natural disasters and new rounds of pandemic outbreaks in multiple regions of China. Accommodation reservation revenue for the third quarter of 2021 was RMB 2.2 billion. representing an 11% decrease year over year and an 11% decrease quarter over quarter, recovering to 53% of the 2019 level. This is a net result of a steady growth in July, offsetted by the disruption of natural disasters and resurgence of COVID cases spreading over multiple provinces beginning at the end of July. Our China domestic hotel bookings have seen high single-digit growth year-over-year, while ADR and blended tick rates are both affected by the depressed demand. Transportation ticketing revenue for the third quarter of 2021 was RMB 1.8 billion, representing a 5% decrease year-over-year and a 12% decrease quarter over quarter, recovering to 49% of the 2019 level, among which domestic transportation's recovery momentum was disrupted by natural disasters and resurgence of COVID cases in summer, while international air ticket bookings increased by approximately 40% when compared to the previous quarter mainly contributed by the recovery in Europe. Packaged tour revenue for the third quarter of 2021 was RMB 392 million, representing a 20% increase year-over-year and a 7% increase quarter-over-quarter, recovering to 24% of the 2019 level. This was contributed by an increase of leisure travel demand in July before the new round of pandemic outbreak. Corporate travel revenue for the third quarter of 2021 was RMB 338 million, representing a 20% increase year-over-year and a 13% decrease quarter-over-quarter, slightly higher than 2019 level. This segment continues to gain momentum as a result of the expanding user base and improving cross-selling from transportation to accommodation. Growth margin was 77% for the third quarter of 2021, decreasing from 79% in the previous quarter, mainly due to reduced top-line recovery interrupted by new wave of infections. Excluding share-based compensation charges, our adjusted operating expenses decreased by 32 percent compared to the same period in 2019. Adjusted product development expenses for the third quarter increased by 20 percent from the same period in 2020 and increased by 2 percent from the previous quarter, mainly reflecting the general increase in salary of product development personnel. We continued to run lean and maintain a stable headcount in the team. It is a saving of 19% when compared to the same period in 2019. Adjusted sales and marketing expenses for the third quarter decreased by 10% from the previous quarter as we swiftly adapt to the changing market conditions and followed a more prudent spending protocol in response to the uncertainty brought about by the pandemic. This reflects a saving of 49% when compared to the same period in 2019. Adjusted G&A expenses for the third quarter decreased by 5% from the previous quarter. It also increased by 83% year over year, primarily due to a reversal of bad debt provision in the third quarter of 2020 for the company's travel suppliers. And it is a saving of 20% when compared to the same period in 2019. Adjusted EBITDA for the sub-quarter was RMB 537 million compared to RMB 916 million in previous quarter. Adjusted EBITDA margin was 10% for the sub-quarter compared to 16% in the previous quarter. Diluted loss per ordinary share and per ADS were RMB 1.32, or US dollar 20 cents, for the third quarter, excluding share-based compensation charges and fair value changes of equity securities investments and exchangeable senior notes. Non-GAAP diluted earning per ordinary share and per ADS were RMB 81 cents, or US dollar 13 cents for the third quarter. As of September 30th, 2021, the balance of cash and cash equivalents, restricted cash, short-term investment, how to maturity time deposit and financial product was RMB 67.6 billion or US dollar 10.5 billion. We redeemed early US dollar $500 million of the 2025 Booking and Hill House notes in the quarter and another US dollar $500 million of the same convertible notes in December, reducing a potential dilution of 14.6 million ordinary shares. Turning to the fourth quarter of 2021, we would like to share some color of our business. In China, during the National Day holiday, our domestic hotel reservation reached a double digit growth during the beginning of the holiday, while transportation reservations closed to the pre-COVID level. Multiple rounds of COVID cases that began in mid-October and spread to more than 20 provinces largely impact the entire China domestic travel industry. In November, the industry-level hotel occupancy rate was down by 30 to 40 percent, and air ticket passengers down 50 to 60 percent. Both compared with the same period in 2019, Trip.com group was also affected, but we continue to lead market performance by at least 10% to 20%. Outbound travel remain rather muted in current conditions. While outside of China, the recovery momentum in Europe and the U.S. continues to carry over to October with increased freight segment benefiting from the relaxation of travel restrictions and vaccine rollouts. The path to global recovery is set, but not without ups and downs. We will continue to be adaptive and responsive to changing market conditions. and be flexible and agile to seize opportunities to create value for our users and partners. With that, operator, please open the line for questions.
spk04: Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. In the interest of time, we please ask that you limit to one question per person. Your first question comes from Thomas Chong from Jefferies. Please go ahead.
spk08: Hi, James, Jane, Cindy. Good morning. Thanks for taking my questions. Can you share some color about the company's plan for the international business? How do you think about the pace of recovery in outbound travel as the restrictions are lifted? Thank you.
spk07: In the recent months, many countries have adopted border reopening plans to relax travel restrictions. More and more people are back on the road and travel further. Though some countries have tightened the restrictions Recently, due to the atomic variant, the temporary turbulence will not change the ultimate trend of travel recovery. Under normal conditions, we may see China gradually relax inbound and outbound travel policies in the second half of 2022. The process reopening is expected to begin with mainland China reconnecting with Hong Kong, and then conditional openings with other international markets. The pace and range are largely depending on the vaccination rate and the pandemic control capability in related markets. We'll continue to enhance our product and service competitiveness in the domestic market and fully prepared for the recovery of international markets. In the past two years, Trip.com Group has demonstrated its resilience by leading the industry recovery despite COVID headwinds, making us a stronger company. We believe that our local focus global vision strategy will drive our sustainable growth in the long run.
spk04: Thank you. Your next question comes from James Lee from Mizuho. Please go ahead.
spk01: Great. Thanks for taking my questions. Two quick ones here. Hi, Jane. How should we think about maybe the travel activity heading to Chinese New Year, that being first? And second, for I think outbound travel to Hong Kong, any early read that you're seeing on consumer demand and behavior there? Thank you.
spk05: Sure. Thanks, James. The opening up of Macau really provide a very good leading indicator for further consideration of Hong Kong. So we were just in Macau holding our global partnership meeting and the control of the virus over there is being conducted very well. So that provides everyone in the travel industry some experience as to what will happen if Hong Kong opens up. So we are very much looking forward to a very good control of the virus in Hong Kong continuously. And with that condition, there might be a good consideration for opening up of Hong Kong. And that also connects to our plan for the Chinese New Year. Historically, Hong Kong is a very popular travel destination for Chinese New Year as people try to go visit different cities and doing some shopping in Hong Kong. So hopefully there will be enough supporting evidence as to the well-controlled environment, both in mainland China and in Hong Kong, which gave us the support to further consideration of opening up Hong Kong in addition to Macau. Thank you.
spk01: Great. Thank you.
spk05: Thank you.
spk04: Thank you. Your next question comes from Brian Gong from Citi. Please go ahead.
spk00: Thanks James, Jane, Cindy and Michelle for taking my question. So my question is about domestic travel expectations. So how does management see the travel performance outlook in first quarter 2021 and next year? For first quarter next year with some local government right now encouraging people not to travel across regions and Winter Olympics in March, should we still expect domestic performance to be dragged by travel restriction? And also with a low base in the second half of this year, should we see a more normalized year-on-year growth in the second half next year for domestic market? Thank you.
spk05: Yeah, so what we have seen for the domestic travel is 4S. By saying 4S, we have seen people are paying more attention to safety. So we encourage our suppliers to make sure they have very good safety measures, such as providing hand sanitizers, masks to our travelers. The second S is people prefer to travel with much smaller groups. rather than big groups. So normally our customized tool is selling very well. Our customers prefer to hire a car and a tour guide with a family van to take their family around. The third S is with a much short booking window. Because of the virus control, a lot of time we will get notifications from different destinations. So the booking window we have seen is much shorter. And the last one of the four S is short distance. So what we have seen is people prefer to travel nearby their hometown. anywhere within the 300 kilo becomes the radiance people feel more comfortable to travel to. And also we have seen young generation prefer to travel much more. So we have seen the young spenders who were born in 90s and Generation Z trouble quite a lot. So these are the trends we have seen so far. Again, I think a lot of it will be depending on how well the virus is being controlled during the first quarter and the second quarter. However, these demands are not disappearing. From our data of the search, customers' pent-up demand is accumulating and very strong. Just as what we saw in May holiday this year, the surge of the demand is very strong. So we are very hopeful that the vaccination rate will be continuously increasing. The measures of the virus control will prove to be effective, and then gradually the market will So your assessment, the second half of 2022, will be stronger than the first half. We very much hope so. Thank you.
spk04: Thank you. Your next question comes from Ronald Kyung from Goldman Sachs. Please go ahead.
spk06: Thank you. Thank you, James, James, Cindy, and Michelle. My question is more on if the recent travel patterns that we saw in recent months last for longer. And with Omicron and government's dynamic zero COVID strategies, then how does management see the trajectory for domestic and international travel in 2022 if the recent trends last for longer? And how will we plan our costs accordingly and implications to either cash flows or margins in the next one to two years? Thank you.
spk03: Thank you. Yeah. Thank you, Ron. Our margin is actually decided by both the top line as well as the cost of control. On the top line, on the revenue side, of course, we are in the travel industry, so our performance will be pretty much decided by the industry growth. However, as always, we will do our best to continuously outpace the industry growth, for example, In the third quarter this year, we outpaced 10 to 20% at least for different segments compared with the industry growth in the travel industry. On the cost side, we will continuously, to weather the COVID, to weather the storm, we have to have a very disciplined cost policies, cost structures. to weather the storm. Firstly, we have a very strong cash position. At the end of the Q3, we have about 10.5 billion U.S. dollars in the cash balance, which probably is the best, one of the best in the travel industry. Secondly, on the cost side, our total adjusted cost and operating expenses actually decreased by more than 35% in Q3 compared with the before COVID level, thanks to our very largely flexible cost and expenses structure, and as well as efficient operating management. During the past few quarters, we streamlined streamlined our operation across different business lines in addition to certain adjustment related to the COVID. And in addition, our improvements on the content cross-selling and technology have further lifted our marketing efficiencies. In terms of the cost trend going forward, We will expect a very modest increase in the personnel expenses only on our international markets. And for the domestic market, we expect our total headcount will be pretty much stable, especially for our core businesses. but we need to add some investment just to capture the pent-up demand that has already been seen in the international market, especially in the Europe market. On the sales marketing expenses, we will continuously to adopt an ROI-driven strategy, and we will have a very disciplined policies in terms of sales and marketing spendings, both for the domestic China market as well as for the international market. Thank you.
spk04: Thank you. Once again, if you'd like to ask a question, please press star 1 on your telephone. Your next question comes from Alex Yao from JP Morgan. Please go ahead.
spk10: Hi, good morning, management. Thank you for taking my question. I have a question on the investment activities. So in light of the potential reopening in China and also more regions and the markets in the rest of the world, are you guys contemplating any additional and new investment activity to capture those reopening opportunities? Thank you.
spk05: Yes, so thanks, Alex. In terms of investment strategy, historically, we're very disciplined. There are three principles we adhere to. First of all, it needs to be very closely related to our core competence. And secondly, we need to really look for the companies that is number one or number two in their verticals. And thirdly, the valuation needs to be very reasonable. So historically, we are very, very selective and very careful in terms of our investment. However, in terms of our organic investments in our core competence for the long-term investment, such as technology and services and products, we're taking advantage of this slow season to make sure we focus on the projects which we're strengthening our competitiveness in the long term. So with limited resources, we're also prioritizing our internal projects to make sure we give the priority for the projects which will extend our competence in the long run. Thank you.
spk04: Thank you. There are no further questions at this time. I'll now hand back for closing remarks.
spk03: you thank you everyone for joining us today you can find a transcript and webcast of today's call on investors.trip.com we look forward to speaking with you on our fourth quarter 2021 earnings call thank you and have a good day thank you very much thank you thank you that does conclude our conference for today thank you for participating you may now disconnect
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