Tuniu Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 21, 2023

There are 5 speakers on the call.

Operator

Hello, and thank you for standing by for 2 News 2023 Third 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.

Operator

I would now like to turn the meeting over to your host for today's conference call, Director of Investor Relations, Mary.

Speaker 1

Thank you, and welcome to our 2023 Q3 earnings conference call. Joining me on the call today are Donald Yu, Tuniu's Founder, Chairman and Chief Executive Officer and Anxiang Chen, Tuniu's Financial Controller. For today's agenda, management will discuss business updates, operation highlights and financial performance for the Q3 of 2023. Before we continue, I refer you to our Safe Harbor statement in the 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.

Speaker 1

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 RMB. I would now like to turn the call over to our Founder, Chairman and Chief Executive Officer, Donald Yu.

Speaker 2

Thank you, Mary. Good day, everyone. Welcome to our Q3 2023 earnings conference call. Sunu delivered a stronger performance in the 3rd quarter as compared to the 2nd quarter. Our top line results continued to recover rapidly with net revenues growing year over year by 129 percent, including a 2 62% increase in revenues from packaged stores.

Speaker 2

Our profitability also improved with gross margin increasing to 64%, up from 58 percent during the same period last year. Our net income continued to increase to over RMB 39,000,000 marking the highest quarterly GAAP net income since our listening. We also maintained a positive operating cash flow for the 3rd quarter for the 3rd consecutive quarter. This indicates that as external challenges gradually diminish the inherent trends of the company are being apparent, bringing us closer to achieving our long term profitability goals. The 3rd quarter is China's peak travel season.

Speaker 2

We have seen a surge in domestic tourism. Additionally, in August, a 3rd batch of countries opened up for outbound tourism, heightened the public interest and infuses them for travel and further accelerated the recovery of outbound travel market. Seating the opportunity presented by the rapid market recovery, we leveraged Tuniu's strengths to achieve rapid business judgment and further consolidate our marketing market position. Influenced by external factors, domestic travel continued to dominate the vacation trip market during the summer. Leveraging our systems in the upstream segments of our industry chain, we were able to secure plentiful supply of products for the peak season.

Speaker 2

For Tuniu's core travel destinations, we leveraged the advantages of centralized procurement to ensure the affordability of our in house products and enhance our price competitiveness. In addition, we deepened our collaborations with suppliers to offer products covering a wider range of destinations and themes for customers. Tuniu remains committed to achieving high quality development while upholding our service quality during both low and peak seasons. For instance, we have proactively incorporated additional roles within our in house new tour products, eliminating planned shopping activities that may affect the customer experience. This drastic move has substantially elevated the overall travel experience for our customers.

Speaker 2

And to ensure service quality during the peak season, we placed special emphasis of refining the detail of the travel experience that can significantly impact the customer satisfaction. For example, we have been deploying dedicated service personnel to popular and more complex destinations to help confirm hotel reservations, verify information about attractions and dining options and assist the customers with any unforeseen issues. As a result, our new 2 of products achieved an impressive 98% customer satisfaction rate during the summer, with several classic travel routes achieving a perfect 100% satisfaction rate. For our suppliers' products, we strictly implement our strategy of eliminating or improving low satisfaction products. Furthermore, Tuniu is committed to convincing customer directly when disputes occur rather than leaving it to guests and the supplier to solve the problem on their own.

Speaker 2

The outbound travel market also continued to recover in the 3rd quarter As more outbound destinations gradually open up, we are further expanding our supply chain and product offerings to meet the growing demand from customers. We actively cooperated with the destination suppliers and leveraged our procurement advantages to accept high quality resources and provide an improved selection of options for our customers. We have also introduced the new tour products featuring long haul international destinations, such as New Zealand, Spain and Portugal, which have gained popularity among our customers. For example, the transaction volume of New Zealand as a standalone destination in the 3rd quarter has recovered and exceeded the levels we saw in 2019. Moreover, as air travel resources are not yet fully restored, international flight departure supports relatively concentrated in certain cities.

Speaker 2

Leveraging the advantages of domestic connecting flights, we not only secured more favorable airfare prices, but also expanded the number of departure cities, enabling customers from a broader range of cities across the country, especially those in lower tier cities to access a wider array of outbound travel products. Tuniu's sales growth could not have been achieved without the dedicated efforts of our customer service team. During the year's peak season, we achieved an increase of 129% in net revenues despite minimal increases in our sales personnel. The success can be attributed to our strategic implementation of system automation throughout the sales process to save on manpower and time on tasks such as product management and order processing. This strategic approach has allowed our customer service team to focus more on communication with customers and as a result secure more orders.

Speaker 2

Tuniu's repeat customer continued to make a strong contribution to overall transaction volume. With reopening our outbound travel, many loyal customers have opted for single destination in-depth travel experiences or products featuring niche destinations. These offerings typically come with a higher average selling price. Some senior travelers prefer to choose high end products such as round of the world cruises. These decisions are largely influenced by their positive past experiences with Tuniu's products and services as well as the ongoing efforts of customer service in maintaining positive customer relationships.

Speaker 2

During the quarter, our live streaming business maintained its leading position within Douyin's hotel and the travel services category. Alongside our ongoing collaboration with over 10,000 experienced external influencers, Tuniu's MCN agency has taken a proactive approach by initiating the training and development of our own emerging influencers. In conjunction with the agencies to strengthen the travel products, supply chain and optional capabilities operational capabilities, we will further promote our travel products. As of now, our MCN agency has successfully incubated over 100 emerging influencers. This has significantly enhanced our capabilities in live streaming shows, allowing us allowing our products to reach more customers.

Speaker 2

We continue to deepen cooperation with our distribution partners during the quarter. The B2B distribution channel has helped us with the sale of inventory products while enhancing the advantage of our centralized procurement strategy. Our offline partner stores contributed to product sales, showcasing Tuniu and expanding the influence of our product brands such as new tool. We will continue to provide our partners with support in terms of products, systems and management, fostering mutually beneficial and cooperation relationship. Looking to technology, we successfully implemented system automation across our sales operation, including marketing, booking and order processing, helping us to reduce internal labor costs.

Speaker 2

In the Q3, our operating expenses amounted to 47% as a percentage of net revenue, down from 76% during the same period last year. As a next step, we plan to further extend our automation capabilities into supply chain management and provide more accessibility to system functions for our suppliers and offline stores. This will empower our partners to be more efficient in managing products, orders and the marketing campaign online. We will also leverage technical tools in further inflow customer experience, creating a more convenient booking experience for our customers. In the Q3, while we achieved a rapid sales growth, our bottom line also improved significantly compared to both the same period last year and the previous quarter.

Speaker 2

We will continue to execute our strategies for business development and internal management. We remain committed to providing high quality products and switch while controlling costs. I'm confident that our efforts to enhance overall efficiency and competitive needs will continue to position Tuniu for long term sustainable growth. I'll now turn the call over to Ai Cheung, our Financial Controller, for the financial highlights.

Speaker 3

Thank you, Donald. Hello, everyone. Now I will walk you through our Q3 of 2023 financial results in greater detail. Please note that all the management and management, unless otherwise stated. You can find the U.

Speaker 3

S. Dollar equivalents of the numbers in our earnings release. For the Q3 of 2023, net revenues were RMB178,200,000, representing a year over year increase of 129% from the corresponding period in 2022. The increase was primarily due to the growth of packaged tours as the travel market recovers. Revenues from PAGITours were up 2 62 percent year over year to RMB 150,100,000 and accounted for 84% of our total net revenues Q1.

Speaker 3

The increase was primarily due to the growth of online tours. Other revenues were down 23% year over year to RMB 28,100,000 and accounted for 16% of total net revenues. The decrease was primarily due to the decrease in commission fees received from other travel related products and revenues generated from financial services. Gross profit for the Q3 of 2023 was RMB114,800,000, up 155 percent year over year. Operating expenses for the Q3 of 2023 were CNY 83,100,000 UP 40 percent year over year.

Speaker 3

Research and product development expenses for the Q3 of 2023 were RMB 18,400,000 up 89% year over year. The increase was primarily due to the increase in research and product development personnel related expenses. Research and product development expenses as a percentage of net revenue were 10%, down from 12% during the same period year. Sales and marketing expenses for the Q3 of 2023 were $39,600,000 up 49% year over year. The increase was primarily due to the increase in promotion expenses.

Speaker 3

Sales and marketing expenses as a percentage of net revenues were 22%, down from 34% during the same period last year. General and administrative expenses for the Q3 of 2023 were RMB 27,100,000 up 12% year over year. The increase was primarily due to the increase in share based compensation expenses. General and administrative expenses as a percentage of net revenues were 15%, down from 31% during the same period last year. Net income attributable to ordinary shareholders of Tuniu Corporation was RMB 39 400,000 in the Q3 of 2023.

Speaker 3

Non GAAP net income attributable to ordinary shareholders of Tuniu Corporation, which excluded share based compensation expenses and amortization of acquired intangible assets was RMB 45,800,000 in the Q3 of 2023. As of September 30, 2023, the company had cash and cash equivalents, restricted cash and short term investments of CNY 1,200,000,000. Cash flow generated from operations for the Q3 of 2023 was RMB 55,100,000. Capital expenditures for the Q3 of 2023 were RMB 1,700,000. For the Q4 of 2023, the company expects to generate RMB 87,400,000 to RMB 92,900,000 of net revenues, which represents a 2 20% to 2 40% increase year over year.

Speaker 3

Please note that this forecast reflects to new current and the preliminary review on the industry and its operations, which is subject to change. Thank you for listening. We are now ready for your questions. Operator?

Operator

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. The first question comes from Alice Lee, a Private Investor. Please go ahead.

Speaker 4

Thank you, operator. Hi management. First of all, congratulations on this quarter's performance. And for the Q3, what are the proportions of domestic and outbound tourism in revenues, respectively? Could you specify several top destinations?

Speaker 4

Another question is about the 4th quarter's outlook. How is the business situation in the 4th quarter so far? And for the Q4 and full year 2023, do you think you will continue to achieve profitability? Thanks.

Speaker 2

Thank you for the questions. Firstly, we saw outbound travel continued to recover at a quick pace during the Q3. In terms of GMV, domestic tours contributed to around 80% of our total GMV in this quarter. Outbound tours contributed to another 20% of our total GMV, up from over 10% in the previous quarter. For domestic tours, Yunnan and Henan provinces were traditional hot destinations during summer vacation.

Speaker 2

Also, historic cities such as Beijing, Nanjing and Chengdu, as well as cities with famous theme parks such as Shanghai and Guangzhou were popular among families with children. For outbound destinations, Europe ranked number 1 in the Q3 in terms of GMV, followed by the Maldives and Southeast Asia, Singapore, Spain, New Zealand and the United Arab Emirates were popular countries among Chinese travelers. For the second question, in the Q4, our GMV generated during the National Day holiday has more than tripled compared to last year's holiday. Due to the boost of lira travels, however, as the Q4 is an off season for tourism, travels usually fall back after the National Day holiday. SINA citizens are one of our major customer growth during the Q4, We are already traveling by organized tours.

Speaker 2

We have time to avoid peak season and are encouraged by favorable price during the low season. Beside personal travels, corporate customized tours will also increase when it's near year end in the forms of annual meeting, incentive travel and the team building activities. In terms of definitions, Northeast China has already gained popularity this year for its rich resources in ice and snow tourism. Bookings for products, including ice exhibition and skylines are rising. For outbound travel, warm destinations such as Australia and New Zealand in the Southern Hemisphere as well as some Southeast Asia countries are usually among the wish list of Chinese travelers.

Speaker 2

Also, Northern Europe itineraries attract mid- to high end travelers due to its unique seasonal scenarios. However, despite the increased numbers of open up destinations, we still face headwinds at some destinations, such as environmental issues in Japan and the security problems in Thailand, which could prolong the recovery process of these destinations. For cost control, although the absolute number of some expenses would increase as our business recovers, we continue to adopt stringent cost control measures in the Q4, and we will strictly watch the expenses changes as a percentage of our revenues. In all, we'll make continued efforts to improve our margin and try to achieve profit for yearly results for 2023. Thank

Operator

We are now approaching the end of the conference call. I will now turn the call over to Tuniu's Director of Investor Relations, Mary, for closing remarks.

Speaker 1

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.

Operator

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

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Earnings Conference Call
Tuniu Q3 2023
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