Tuniu Corporation

Hello and thank you for standing by for 2NEWS 2021 second quarter 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.

Thank you and welcome to our 2021 second quarter earnings conference call. Joining me on the call today are Donald Yu, 2NEWS founder, chairman, and chief executive officer, and Anqiang Chen, 2NEWS financial controller. For today's agenda, management will discuss business updates, operation highlights, and financial performance for the second quarter of 2021. 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 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 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 2021 earnings conference call. The overall domestic tourism industry saw a clear trend towards full recovery in the second quarter. Year on year, our net revenues increased by 373% with revenues from packaged tools up by over 900%. This is the first quarter in which we achieved positive growth since the COVID-19 outbreak last year. And benefiting from our strict cost control measures, operating expenses decreased by 40% year-over-year. And our quarterly loss was the lowest since the pandemic outbreak. In the second quarter, with the pandemic stabilized, the warm weather and holidays spurred the demand for travel. While last year most people chose to take local tours during the public holidays, this year the proportion of travelers taking inter-provincial tours has steadily increased. Also, in line with the high-end demand for high-quality tour products, The per-person consumption of inter-provincial tools has increased compared with the same period last year. We continue to emphasize the development of our core package, Texas Tool Business, with special focus on demand definitions to continuously upgrade our products and the level of service. This allows us to rapidly recover our business by setting opportunities during industry upswing. Our core competitiveness and protective mode is our commitment to providing the high-quality products and services to our customers. Based on customer demands, 2NEWS travel roads are designed to satisfy and even exceed customer expectations. Our new tool product designers have more than five years of experience in production or ad definitions. Our high-quality products are subject to strict internal procurement and production procedures. Co-guides for new tools would go through multiple interviews and training before they are officially on the job. Our products also have been tested by our customers ensuring that they meet their requirements before being launched. The satisfaction rate of our new products needs to reach 90% before they can be launched. And we are proud that satisfaction rate for our new tool products has reached 97%. We always strive to upgrade our products through product innovations, creating new destination selections, and in itineraries to bring fresh travel experience to customers. In addition, we also focus on selected market segments and customers, and launch themed tool products to attract target customer growth. While standard products remain popular with customers, we also see that demand for customized tours is increasing. Due to considerations of travel safety and overall experience, most tourists are choosing to travel with their families and friends in the form of private tours or small group tours that may take as few as two people, providing the freedom of self-guided tours with the convenience and services of organized tours. Also, amid China's stabilized pandemic 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 travel service provider, With an extensive service network across China, 2NEW is able to offer business clients customized travel products with competitive prices and outstanding service. In the second quarter, our customized tours achieved record growth since the pandemic, with GMV increasing by more than 200% quarter on quarter. Good products require good service. Our self-operated local tour operators play a crucial role in improving customer experience through excellent service. This year, we launched the Zero Complaint initiative for our local tour operators, with six of our local tour operators maintaining Zero Complaint records through Dream. We will continue to work hard to maintain and exceed these records. Through our efforts, we are pleased to report that in the second quarter, GMV of local tour operator products increased over 200% quarter over quarter, and the overall satisfaction rate of our local tour operator service reached 98%. 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 supporting during this time. In response to emergency situations, our local tour operators have helped to ensure the safety of tourists' lives and property. and that they always get home safely. While our local tour staff have faced many unexpected difficulties, they have successfully carried out their duties, receiving recognition and praise from our guests. By providing excellent products and services, we have built a large and loyal customer base. Junio holds a Member's Day every month, where we launch special products and discounts for our members. In the second quarter, Member's Day sales continuously reached new heights. In July, our Member's Day single-day sales exceeded RMB 40 million, with the transaction volume of package tour products increasing five times over the same period last year. In terms of technology, we have continued to automate physical workflows and further replace staff's 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 risk management, and conducted self-audits to ensure technical security and compliance. In July, China experienced several pandemic outbreaks which may impact summer travel. We remain, however, optimistic about the domestic travel tourism market. Our industry has overcome many challenges since the COVID-19 outbreak last year, and we are confident that we will overcome any temporary difficulties. With ongoing vaccination roll-out and the enhancement of personal protection measures, domestic tourism should continue to experience a strong recovery. We will continue to work hard and provide high-quality products and services to meet the demands of our customers. 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 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 radius. For the second quarter of 2021, net revenues were 161 million, representing a year-over-year increase of 373% from the corresponding period in 2020. The increase was primarily due to the growth in revenues from package tours. Revenues from package tours were up 907% year-over-year to $126.5 million 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. year-over-year to $34.5 million 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 service fees received from insurance companies. Cross-profit for the second quarter of 2021 was $69 million, up 792% year-over-year. Operating expenses for the second quarter of 2021 were 95.1 million, down 40% year-over-year. Excluding shell-based composition expenses and amortization of acquired intangible assets, non-GAAP operating expenses were 89.6 million, representing a year-over-year decrease of 36%. Research and product development expenses for the second quarter of 2021 were $13.8 million, down 33% 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 second quarter of 2021 or $44.8 million, down 47% year-over-year. The decrease was primarily due to the decrease in sales and marketing personnel related expenses and the monetization of acquired internal assets. General and administrative expenses for the second quarter of 2020 were $41.5 million, down 32% year-over-year. The decrease was primarily due to the decrease in general and administrative personnel-related expenses. Net loss attributable to ordinary shareholders was $13.1 million in the second quarter of 2021. Non-GAAP net loss attributable to ordinary shareholders, which included shell-based compensation expenses and amortization of acquired intangible assets, was 7.4 million in the second quarter of 2021. As of June 30th, 2021, the company had cash and cash equivalents, restricted cash, and short-term investments of 1.1 billion. Cash flow generated from operations for the second quarter of 2021 was 55.7 million. Capital expenditures for the second quarter of 2021 were 2.9 million. For the third quarter of 2021, the company expects to generate 111.2 million to 123.5 million of net revenues, which represents 0% to 10% decrease year-over-year. Please note that the forecast reflects on the 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-19. Thank you for listening.

We are now ready for your questions. Operator? Thank you.

If you would like to ask a question over the phone lines, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is disabled to allow your signal to reach our equipment. Once again, press star 1 to ask a question. 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. We'll pause for a moment to allow everyone an opportunity to signal for questions. We can now take the first question from Tina who is a private investor. Please go ahead.

Thank you. This is Tina Bai speaking and a publisher, High Management. Congratulations on the strong recovery of the second quarter. Would you please share with us your top destinations? And my second question is regarding the recent coronavirus outbreak in several cities across China. How did this impact your performance in the third quarter? And what is your view towards the need to launch a development

of the travel industry. Thank you.

Thank you for the question.

In the second quarter, the external environment was very positive for the recovery of travel industry. In fact, we've reinforced the sales strength ever since the resumption of inter-province travels in last July. We've adopted the full lifecycle customer management method to gain and retain customers. Also, our tour advisors did more training, such as on destination knowledge and customized services, so as to enhance their service ability. Apart from traditional online channels, we've 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 package tours, grew largely during the quarter. In terms of the package tour GMV, our best destination for the quarter was Hainan, one of the most popular leader travel destinations in China. followed by Shanghai and Guangdong, both of which have famous theme parks and are good for families with children. And then Jiangsu and Zhejiang, where local tours prevailed and trips were boosted by short holidays during the quarter. Other destinations included popular sites in Sichuan, Yunnan, and Xinjiang. For the second question, Yes, the recent COVID-19 outbreaks in several cities across China have a negative impact on the travel industry during the peak season. In fact, the travel market showed rapid growth due to the summer rotation 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 provinces have ceased inter-province travel since last July. Therefore, we expect the net revenue for the third quarter to align with the same period last year or decrease up to 10% year-over-year. After the outbreak of virus in July, our first priority is to ensure the safety and interest of our customers. helping them refund and reschedule their trips. We also upgraded our destination service including assist customers with new clean acid testing. Our employees both in the headquarters 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 launch the products without a fixed departure date, which means the customer may book the itinerary now, enjoying the current available price, and depart in two or three months' time when the external environment gets better or they have vaccines. The customer only needs to make a second confirmation about the exact departure date in advance. then we arrange their trips accordingly. We can also cancel the orders at any time with full refund if they change their trip plans. The economical and flexible product is 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 and February, we've seen the rapid rebound since March.

With the pandemic being under control, the market will get better and better. Thank you. Once again, if you would like to ask a question, please press star one on your telephone keypad now.

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. Good day.