Tuniu Corporation

Hello, and thank you for standing by for Tuneo's 2022 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.

Thank you, and welcome to our 2022 Fourth Quarter and Full Year 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 fourth quarter and fiscal year 2022. 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 Wu.

Thank you, Mary. Good day, everyone. Welcome to our fourth quarter and four-year 2022 earnings conference call. In late 2022, the recovery of China's travel industry saw increased momentum due to the optimization of pandemic prevention and control measures, as well as the lifting of travel restrictions. As a result, 2 News GMV nearly doubled in December 2022 compared to November. China's domestic travel sector has kicked off 2023 with continued rapid growth, while the outbound travel market has started to recover. with a gradual reopening of Macau, Hong Kong, and some overseas destinations. We are pleased to recall that in January and February of 2023, Tuneo's booking GMV for package tours both increased over 100 year-on-year. Despite the significant impact of the three-year-long COVID-19 pandemic, China's tourism industry and Tuneo have both domesticated remarkable resilience. Despite the unfavorable external environment, we have managed to overcome various challenges and difficulties while leveraging the opportunities presented by the crisis. We have successfully upgraded our products and services while enhancing the company's capabilities and potential. In terms of products, 2NEW always adheres to placing the highest priority on meeting the demands of our customers. The pandemic has led to higher customer expectations for quality travel experience. Guests now expect better food and accommodations, more flexible itineraries, and personalized activities. These changes in demand have promoted 2NEW to upgrade our traditional packaged products. We have shifted our market positioning to a higher-end model, which we call Max Premium products, and have implemented a strict quality control process for both our self-operated products and the choice of suppliers. During COVID-19, the satisfaction rate for our newly launched products reached 90%. Additionally, we have introduced a new mechanism to immediately take down products that receive extremely satisfactory ratings for further development. Moreover, leveraging our deep experience in supply chain, products, and local tour operators, 2NEW has launched several unique and differentiated travel products. For example, our new tour is a high-quality practice tour product featuring a photography-themed tree that employs well-trained photography tour guides to take photos for guests during their trips. The photos are then shared with customers in addition to the standard hospitality services. Another aspect of the train towards higher-end tourism product is the rise of small group and customized tools. Small group tools consisting of 10 people or less are increasingly popular as the better fulfill the increased demand for travel quality and safety in the post-pandemic era. With this model, groups of friends or families can form small group tools for better travel experience while enjoying discounted organized tour prices. In addition, customized tours are gaining popularity among guests due to their flexibility and personalization and have expanded from organized tours to self-guided tours. We have also seen that a considerable number of guests on self-guided tours will also book individual travel products that are customized for the towards and recommended by 2NEW. In January of this year, the GMV of customized tour booking increased by more than 150% year on year. In terms of services, 2NEW has always prioritized customer satisfaction above all. Following the outbreak of COVID-19, our product and customer services team has been available around the clock to provide timely refunds and exchange services for customers. And our tour guides have continued to work closely with local tour operators to ensure guest safety during travels. Since 2020, 2 new direct losses related to customer cancellations and booking modifications have totaled over 100 million RMB due to the pandemic. and we have advanced another 100 million RMB in refunds to our customers. During the pandemic, we implemented a full-cycle service guarantee, including emergency planning before travel, regular prevention and control measures during travel, and collecting post-travel feedback. We also keep close contact with our regular customers by sharing short videos and live streaming shows to introduce destinations and promote strong relationships and enthusiasm for travel. Our high-quality services help customers feel safe and secure throughout their travel experiences and have earned us their favor and trust. As the travel industry began to recover this year, 2NEWS member state transaction volume in January and February increased by 8 times and 6 times respectively year-on-year. 2NEWS continues to achieve cost reduction and greater efficiency through digitalization and use of technology. On the supply chain side, we employ digital systems to process simple orders and perform product maintenance. We are also in the process of developing a system to automatically respond to customer inquiries to further improve efficiency and customer experience. In terms of sales, we are leveraging digital technology for order processing and intelligent marketing campaigns. By leveraging technology, our product, customer service, and marketing staff are more efficient and have greater capacity to handle increasingly complex matters. 2NEW's operating expense decreased near 60% year-on-year for the fourth quarter of 2022, benefiting from our digital transformation. During the pandemic, 2NEW also explored new directions in our business development in response to market trends while maintaining our core competencies. For example, live streaming shows have gradually become a part of people's daily lives. In 2020, TuneIn started our own live streaming shows and we have since developed over 40 accounts on several mainstream media platforms, creating our own effective marketing metrics. Numerating over 10 years of professional tourism and frontline sales experience, our live streaming team has achieved positive results for both sales and supply of travel products. In January, two new live streaming shows on Douyin in eastern China ranked as the top hotel and travel live streaming shows in the region, and second in China. Several of our single live streaming shows featuring hotels or scenic spots exceeded 10 million in January. and we ranked as the top outbound travel product supplier on Douyin in January. Furthermore, we have collaborated with a well-known domestic medicine company to jointly launch travel products, with the total GMV of each live streaming show exceeding 10 million. Additionally, China's rural revitalization strategy has gained significant attention in recent years and is regarded as a crucial aspect of the country's future economy development. In line with guests' preference for experiential tourism following the pandemic, 2NEW has ventured into rural tourism by adopting an asset-light model to operate the B&B around urban areas. During 2023 Spring Festival, the occupancy rate of our Tianjin B&B doubled year-over-year, and the overall occupancy rate of our Chengdu Hotel reached nearly 90%. Moving forward, we plan to expand our destination options to more locations and experiment with self-run as the tourism industry continues to recover. After three years of the pandemic, the tourism industry is finally seeing a full recovery along with new opportunities and challenges. In 2023, Tuneo will focus on leisure travel as our core market while remaining committed to our overall business recovery. For domestic travel, we will further refine our management process, leverage Intune's brand advantages and increase our profitability. For outbound travel, we will actively rebuild our supply chain and team and restore products and services for destinations that have reopened. We are committed to ensuring the safety and travel experience of tourists and we will remain focused on providing timely and responsive service during unexpected situations. In our internal operations, we will continue to strictly monitor costs, improve per capita output, and create greater value for our customers and shareholders. I will now turn the call over to Anqiang, our financial controller for the financial pilot. Thank you, Donald. Hello, everyone. Now I will walk you through our fourth quarter and fiscal year 2022 financial results in greater detail. Please note that all the monetary amounts are in RMB, unless otherwise stated. You can find the US dollar equivalents of the numbers in our earnings release. Starting from the fourth quarter of 2022, net revenue were 27 in the fourth quarter of 2022, representing a year-over-year decrease of 63% from the corresponding period in 2021. The decrease was primarily due to the negative impact brought by the outbreak and spread of COVID-19. Revenues from packet tours were down 88% year-over-year to $5 million. and accounted for 18% of our total net revenues for the quarter. The decrease was primarily due to the decisions of COVID-19 in certain regions in China. Other revenues were down 27% year over year to 22.4 million and accounted for 82% of our total net revenues. The decrease was primarily due to the decrease in the fees for advertising services provided to Toys and Bolts and bureaus. The gross margin was 45% in the fourth quarter of 2022, compared to a gross margin of 47% in the fourth quarter of 2021. Operating expenses for the fourth quarter of 2022 were $32.5 million, down 58% year-over-year. Gain-owned disposals of subsidiaries which was allocated to operating expenses was $32.2 million in the fourth quarter of 2022. Research and product development expenses for the fourth quarter of 2022 were $10.9 million, down 19% 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 2022 were 22.9 million, down 20% year-over-year. The decrease was primarily due to the decrease in promotion expenses and sales and marketing personnel-related expenses. General and administrative expenses for the fourth quarter of 2022 were $33.1 million, down 29% year-over-year. The decrease was primarily due to the decrease in general and administrative personnel-related expenses and allowance for expected private losses. Net loss attributable to ordinary shareholders was $4.4 million in the fourth quarter of 2022. Non-GAAP net loss attributable to ordinary shareholders, which excluded shell-based compensation expenses, amortization of acquired intangible assets, and the gain on disposals of subsidiaries was $34.2 million in the fourth quarter of 2022. As of December 30th, 2022, the company had cash and cash equivalents, restricted cash and short-term investments of $922.3 million. Capital expenditures for the fourth quarter of 2022 were $1.1 million. Now, moving to four-year 2022 results. In 2022, net revenues were $183.6 million, representing 57% 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 growth were down 77% year-over-year to $70.3 million and accounted for 38% of total net revenues in 2022. The decrease was primarily due to the resurgence of COVID-19 in certain regions in China. Other revenues were down 6% year-over-year to $113.3 million and accounted for 62% of our total net revenues in 2022. The decrease was primarily due to the decrease in the fees for advertising services provided to toys and boards and bureaus. Gross margin was 49% in 2022, compared to a gross margin of 40% in 2021. Operating expenses were $299.8 million in 2022, down 15% year-over-year. Empowerment of Goodwill offset by gain-on-disposals of subsidiaries, which were allocated to operating expenses were 47.2 million in 2022. Research and product development expenses were 50.8 million in 2022, down 7% year-over-year. The decrease was primarily due to the decrease in research and product development personnel-related expenses. Sales and marketing expenses were 103.6 million in 2022, down 31% year-over-year. The decrease was primarily due to the decrease in promotion expenses and sales and marketing personnel related expenses. General and administrative expenses were 108.9 million in 2022, down 37% year-over-year. The decrease was primarily due to the decrease in general and administrative personnel related expenses and allowance for expected credit losses. Net loss attributable to ordinary shareholders was 193.4 million in 2022. Non-debt net loss attributable to ordinary shareholders, which included share-based compensation expenses, a motivation of acquiring tangible assets, gain on disposals of subsidiaries, and the environment of goodwill, was $134.1 million in 2022. Capital expenditures were $4.4 million in 2022. For the first quarter of 2023, Tenure exactly generated $60.1 million to $64.3 million of net revenues, which represents a 45% to 55% increase year-over-year compared with net revenues in the corresponding period in 2022. Please note that this forecast reflects on your current and 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?

Thank you. The question and answer 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 one on your touchtone phone. And if you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. Again, that's star, then one. Our first question is from Alice Lee, a private investor. Please go ahead.

Thank you, operator. Hello, management. With the recovery of tourism industry, How is the company's business doing so far? Could you please share any figures during the Spring Festival and any updates on the recovery progress and plan of outbound tourism this year? Thank you.

Thank you for the question. We've seen a decent recovery of our business since the first quarter this year as the market rose up. The domestic tourism market has fully opened, while overseas destinations start to reopen step by step. So far, we've seen an increase of 45 to 55 of our net revenues in the first quarter of 2023 on a year-over-year basis. This spring festival, although going home was the main purpose for travel, Leader travel also surged compared to the past few years. According to our performance, transaction volume of packet tours during this Spring Festival surpassed both 2021 and 2022 levels, growing at triple-digit rates. Inter-provincial travel in the form of organized tours and outbound travel in the form of self-guided tours both increased this year. Outbound leader travel products and services are our core strengths. Although OSE's travel was restricted for the past three years, we kept in touch with major suppliers. While travel restrictions were lifted, we can immediately resume our OSE business. For example, the Maldives. 2NEW has the leading position in China travelers to Maldives. After the reopening of outbound travel, the Maldives quickly attracted the customer popularity and become our top overseas destination in terms of GMV so far. In one of our live streaming shows, the sales volume of the product of Lily Beach, one of the islands in Maldives, reached over 10 million RMB. Besides Maldives, Thailand, Singapore, and New Zealand are also popular destinations. In general, outbound tours recover in a more rapid pace than domestic tours currently. With the increase of cross-border flights and the possible reopening of more overseas destinations later this year, the outbound tours will continue its robust growth momentum. To catch this growth opportunity, firstly, we will rebuild the overseas product teams We have arranged the experience staff at key positions to quickly relaunch products. We will also organize the in-house training for overseas destinations provided by both the company and our suppliers. Going forward, we will continue to resume our overseas direct procurement and destination service teams step by step. Secondly, we are working on the resumption of overseas supply chain. After the three-year we need to reactivate existing suppliers and to cooperate with new partners so that we can timely provide high-quality products to our customers. Currently, we have over 400 SQs or OSS tools, and the number keeps growing at a steady pace, for we give priority to products' quality over quantity. Thirdly, we are remain focus on services to ensure safety and travel experiences of our customers. The conditions of overseas destinations are more complex than before the pandemic. For example, different destinations may have different epidemic prevention and control measures. We need to put more efforts to provide the customer with the same or even better travel experiences than before the pandemic. In the world, We are excited about the reopening of the travel market and have rolled up our sleeves. We will leverage our advantages in the outbound travel market to grow our business at a reasonable rate. Thank you.

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 Nia, Director of Investor Relations, and Mary for closing remarks.

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.

Thank you for participation in today's call. This concludes the presentation. You may now disconnect.