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spk02: Hello, and thank you for standing by for TUNEW's 2020 Fourth Quarter and Full Year Earnings Conference Call. At this time, all participants are in 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.
spk01: Thank you, Andrew. And welcome to our 2020 Fourth Quarter and the Full Year Earnings Conference Call. Joining me on the call today are Donald Yu, Juneau's Thunder Chairman and Chief Executive Officer, and Anqiang Chen, Juneau's Financial Controller. For today's agenda, management will discuss business updates, operation highlights, and financial performance for the fourth quarter and fiscal year 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 our 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&B. I would now like to turn the call over to our founder, chairman, and chief executive officer, Donald Yu.
spk04: Thank you, Mary. Good day, everyone. Welcome to our 2020 fourth quarter and four-year earnings conference call. First, I would like to provide a brief review of the China travel market in 2020. 2020 was a challenging year for the tourism industry both in China and globally due to the impact of the COVID-19 epidemic. While the travel industry has begun to gradually recover, and we are optimistic about the future. We did experience a period of stagnation last year. Fortunately, two new years of experience in the industry have allowed us to accumulate a large number of high-quality business partners and loyal customers. Along with the device, product portfolio, and strong customer service team, all of which help us to get through the most challenging times. Also, our flexible operating model allows us to efficiently, effectively respond to changes in customer demand during and after the COVID-19 outbreak through adjustment to our business focus, product strategy, and staffing. Upon the outbreak of COVID-19 in January last year, Our first priority was to guarantee the safety and the interest of our customers. We quickly assisted traveling customers with their return logistics while refunding or adjusting previously purchased packages for customers who hadn't started their trips yet. During the epidemic, our direct loss related to customer refunds totaled more than RMB 100 million. Thanks to our timely response, however, we've been rewarded with the long-term support and trust of many loyal customers who have greatly contributed to the recovery of 2NEWS business. I am pleased to see that our GMV contribution from repeat customers reached a new high last year. In response to the changing external environment, We've also made various adjustments to our business operations and corporate structure, including optimizing all our teams and repositioning our key staff. We've also adopted tighter cost control measures since the outbreak of the pandemic, resulting in a 20% year-over-year decrease in total operating expenses for 2020. Excluding the previsions for receivables recorded in the fourth quarter, our yearly operating expenses declined over 50% year-over-year. When the provincial travel market reopened in April, we leveraged our flexible transportation plus destination-based tour model to launch a number of tour products for traveling to destinations or nearby cities. Since then, we have seen the progressive recovery of our business starting from local tools and self-driving tools. With the gradual recovery of business, we have found that customer demand for safer and more personalized products is increasing. In particular, our customized tour GMV in the third quarter increased by eight times compared with the second quarter. When inter-province tours were resumed in July, the release of pent-up demand greatly accelerated the recovery of the domestic travel market. Under the strong recovery momentum of the industry, our business continued to improve. According to our data, package tour GMV was up over 200% in the second half of July compared to the first half of the month. In addition, our operating cash flow turned positive in the third quarter of 2020. With the resumption in nationwide travel, we have seen customer requirements for product quality also increase. In response, we upgraded the data to new tour our own branded product launched in 2009 with the goal of providing high-quality packaged tools that meet the ever-right standards of China's travelers. Our upgraded new tool products feature more strict resource selection and have higher standards for clean and safe travel conditions, such as enhanced safety protocols and individually served meal options. We also launched small and medium-sized package tours, as well as private family tours, which have proven to be quite popular. Looking to 2021, we'll continue to invest in our product innovation, quality improvement, and technology and our integrated business model. First, we continue to be guided by our customer-first principle and our commitment to develop domestic travel products. We will continue to increase our investment in product upgrades to ensure we always have compelling and differentiated product offerings for customers. To design more targeted products for different customer groups, We design in-depth content and analysis of our customer needs, which provide us with insight to create a more accurate product strategy. We found that even in the target groups, customers can be further narrowed down based on their needs into more distinct customer groups. Based on this insight, we will focus on developing tailored products for specific groups in order to capture more overall market share. Secondly, we will continue to improve the quality of both our products and services. Higher quality means higher customer satisfaction, which drives a higher repurchase rate and additional value to the company. We reached the standards of product launch again after the outbreak of the pandemic. In 2019, A product with a satisfaction rate of 80% could be launched on our website and app. And last year, we reached the standard to 85%. We'll apply a stricter product selection process and further reach this standard to 90% this year. In addition, 2NEW has, to date, established more than 30 self-operated local tour operators in China to provide high-quality destination service for our customers. Currently, over 97% of customers are satisfied with our self-operated local tool products, and we are trying to achieve zero complaints this year. In the fourth quarter, GMV of self-operated local tool products accounted for nearly a quarter of the GMV of packaged tool products. with a higher tick rate than products purchased by third parties. In 2021, we will further expand our self-operated local tour products and develop the role of self-operated local tour operators to support tour news, organized tours, as well as customized tours, private family tours, and other travelers at destinations. In terms of customer services, we will work to provide more personalized customer service and targeted products to improve overall customer experience. We will increasingly look at the full customer lifecycle and use the most suitable marketing tools for specific customer growth. Thirdly, 2NEW has built a strong IT support system to improve our internal operational efficiency and reduce operation costs. Today we are looking to introduce more advanced technologies so as to support each section of our business from supply chain management, product design, to customer service. For example, we have leveraged new technologies to establish a more accurate customer portfolio and tool guide information database to support our product design, customer services, and marketing efforts. Also, by developing more intelligent product recommendations and customer response systems, we will offer our employees more opportunities to create value through their work. Tuning has been making great efforts for over 10 years to develop a vertically integrated business model. We have focused on the integration of supply chain, production, and sales channels and implemented a direct procurement strategy in order to directly acquire destination resources at a favorable price. We've also established our own local tour operators to directly serve our customers at destinations. Owing to our direct procurement and local tour operators, we are able to produce our own products and help upgrade many of them to the mass premium level. On the sales side, we developed our sales network, including both online and offline channels, loyalty programs, B2B distribution, as well as popular channels such as social marketing and live streaming shows. With the development of our own supply chain, production system, and sales network, we are able to penetrate to every part of the supply chain and provide full services to both our customers and suppliers. By shortening the supply chain, we are able to have better control over product and service quality, higher internal efficiency, and better profit margins. Moreover, we are flexible to collaborate with business partners in each part of the supply chain to provide better products and services to our customers. Overall, 2020 was full of instabilities and challenges, but we have always remained optimistic about the prospects of China and the global travel industry. At present, the development and rollout of COVID-19 vaccines has made significant progress which brings us more confidence in the recovery of the industry. We look forward to developing more high-quality products to better serve our customers and position 2NEW to take advantage of the emerging opportunities in China's vast tourism market. I will now turn the call over to Anqiang Chen, our financial controller, for the financial highlights.
spk03: Thank you, Donald. Hello, everyone. Now I will walk you through our fourth quarter and fiscal year 2020 financial results in greater detail. Please note that all the monetary amounts are in RMB, unless otherwise stated. You can find the US dollar equivalent of the numbers in our earnings release. Starting from the fourth quarter of 2020, net revenues were 118.7 million, representing a year-over-year decrease of 74% from the corresponding period in 2020. The decrease was primarily due to the negative impact brought by the outbreak and spread of COVID-19. Revenues from package tours were down 76% year-over-year to 83.1 million and accounted for 70% of our total net revenue 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 67% year-over-year to $35.6 million and accounted for 30% of our notary news. The decrease was primarily due to the decline in service fees received from insurance companies and revenues generated from financial services. Growth margin was 40% in the fourth quarter of 2020, compared to a growth margin of 48% in the fourth quarter of 2019. Operating expenses for the fourth quarter of 2020 were $960.1 million, up 48% year-over-year, excluding share-based compensation expenses amortization of acquired intangible assets and the empowerment of acquired intangible assets, non-GAAP operating expenses were $924.3 million, representing a year-over-year increase of 60%. Research and product development expenses for the fourth quarter of 2020 were $12.8 million, down 84% 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 fourth quarter of 2020 were 113.2 million, down 53% year over year. The decrease was primarily due to the decrease in sales and marketing personnel related expenses. General and administrative expenses for the fourth quarter of 2020 were $844.8 million, up 147% year-over-year. The increase was primarily due to the provision provided for receivables with amounts of $0.8 billion recorded due to COVID-19. Net loss of crypto to ordinary shareholders was $901.9 million in the fourth quarter of 2020. Non-GAAP net loss attributable to ordinary shareholders, which excludes share-based compensation expenses, amortization of acquired intangible assets, and the employment of acquired intangible assets, was $865.6 million in the fourth quarter of 2020. As of December 31, 2020, The company had cash and cash equivalents, restricted cash and short-term investments of $1.6 billion. Capital expenditures for the fourth quarter of 2020 were $6.7 million. Now moving to full-year 2020 results. In 2020, net revenues were $450.3 million. representing 80% year-over-year decrease. The decrease was primarily due to the negative impact brought by the outbreak and spread of COVID-19. Revenues from package tours were down 84% year-over-year to $302.4 million and accounted for 67% of total net revenues in 2020. The decrease was primarily due to the suspension of sale of package tours impacted by the outbreak and spread of COVID-19. Other revenues were down 63% year-over-year to $147.9 million and accounted for 33% of our total net revenues in 2020. The decrease was primarily due to the decline in commissions received from other travel-related products and service fees received from insurance companies impacted by the outbreak and spread of COVID-19, as well as revenues generated from financial services. Gross margin was 47% in 2020, which was in line with the gross margin in 2019. Operating expenses were $1.6 billion in 2020, down 20% year-over-year. Excluding shell-based composition expenses, amortization of acquired intangible assets and the employment of acquired intangible assets, non-GAAP operating expenses were $1.5 billion, representing a year-over-year decrease of 16%. Research and product development expenses were $100.5 million in 2020, down 67% year-over-year. The decrease was primarily due to the decrease in research and product development personnel related expenses. Sales and marketing expenses were $372 million in 2020, down 60% year-over-year. The decrease was primarily due to the decrease in sales and marketing personnel related expenses and promotion expenses. General and administrative expenses were $1.1 billion in 2020, up 48% year over year. The increase was primarily due to the provision provided for receivables with amounts of $0.8 billion recorded due to the COVID-19. Net loss attributable to ordinary shareholders was $1.3 billion in 2020. Non-debt net loss attributable to ordinary shareholders, which excluded shell-based compensation expenses amongst lesion of acquired intangible assets and the empowerment of acquired intangible assets, was $1.2 billion in 2020. Capital expenditures were $28.3 million in 2020. 2NEWS business has been significantly at negative impact by outbreak and spread of COVID-19 since January 2020. As a result of continued influence by COVID-19, for the first quarter of 2021, the company expect to generate $60.9 million to $69.6 million to net revenues, which represents 60% to 65% decrease year-over-year. Please note that these forecasts refer to new current and preliminary view on the industry and its operations, which is subject to change, particularly as to the uncertainties brought up by the impact of COVID-19. Thank you for listening. We are now ready for your questions. Operator,
spk02: The question and answer session of this conference call will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. To ask a question, you may press star then 1 on your touchtone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Amy Zhao, a private investor. Please go ahead.
spk00: Thank you, Inspector. Hi, Management. I've got two questions. The first is regarding your 2020 financial results. What's the reason for the increased loss in the fourth quarter? How did it impact your cash flow? My second question is about your 2021 outlook. What is your view on recovery of the industry in 2021, and how do you plan to expand your business in the post-epidemic era? Thank you.
spk04: Thank you for the question. First, let me explain the increased losses. We reviewed our accounts throughout thoroughly in the year and in the year end and recorded approximately 800 million impairment charges in the GMA expenses, including refunds to customers that we paid on behalf of our travel suppliers and the increased credit risk as a result of the COVID-19, as well as impairment on some financial products. Excluding these non-cash expenses, our G&A expenses for the fourth quarter and four-year 2020 both declined a lot, and our net loss also narrowed down on a year-over-year basis. As of December 31, our cash balance was $1.6 billion, which is in line with the last quarter and will be sufficient to support our future business operations. Secondly, although there were Industry headwinds, such as small outbreaks in the winter and tightened travel restrictions during the Spring Festival, we always see pent-up demands for traveling and expect a strong momentum of recovery for domestic tours. In fact, the bookings after the Spring Festival keep increasing according to our data. Also recently, it was announced that the Labor Day holiday for 2021 will be a fine day holiday, which may further stimulate the domestic travel market. For outbound travel, although it doesn't recover so far, we are optimistic about its long-term growth. We won't miss the opportunities of its recovery in the future. Currently, our focus is still on domestic tours. This year, we will continue to focus on product innovation, quality improvement, and technology under our integrated business model. We continue to increase our investment in product upgrades to ensure we always have a compelling and differentiated product offering for customers. Recently, we did in-depth research on our customer needs in order to guide our production. Based on the insights we got from research apart from mass market products, we will develop more tailored products for more distinct customer groups. Moreover, we have been working in China's domestic travel market for over 10 years and have rich experience and a large customer base in many popular destinations such as Hainan and Yunnan. We will further expand our advantages in these destinations featuring them as the basis of our StarTool products. Secondly, we will further improve the quality of both our products and services. We continue to reach the standard of product launch since 2019, and this year we took the satisfaction rate of 90% for product launch. So far we have over 30 self-operated local tool operators in China, and plan to open more this year. These local tour operators not only help us better serve our customers, but also help with promotions and acquisition of customers at the destinations. Our local tour operators also always have a high satisfaction rate among our customers. However, we are pursuing zero complaints regarding our local tour operator services. Currently, we have got seven destinations in China as a trial. where we are trying to achieve zero complaints of our local tour operator services. In terms of customer service, we are focused on developing long-term relations with our customers through our customer service teams. Repeat customers contributions reached a new high last year. We will continue to provide high-quality service to our customers in order to capture the recovery momentum of domestic travel at present. and outbound travel in the future. Thirdly, about technology, it's the basis of our production, service and internal management. This year, we'll adopt digitalized management systems so as to reach the internal efficiency and save many costs. Lastly, I want to talk about our vertically integrated business model. which differentiated 2NEO from our peers. We always focus on integration with supply chain. We established our own local tool operators, direct procurement team, product design team, as well as customer service team. By shortening the supply chain, we are able to have better control over product and service quality, higher internal efficiency, and better profit margins. In addition, we are open to cooperate with our business partners, such as suppliers at the destinations, B2B and B2C distributors. Together, we could provide differentiated products and compelling services to our customers. Thank you.
spk01: Thanks.
spk02: Again, if you have a question, Please press star, then 1. We are now approaching the end of the conference call. I will now turn the call over to Tung Yu's Director of Investor Relations, Mary, for closing remarks.
spk01: 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.
spk02: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.
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