Tuniu Q2 2023 Earnings Call Transcript

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August 17, 2023

There are 4 speakers on the call.

Operator

Good day, and welcome to the Tuniu 23 Q2 Conference Call.

Speaker 1

All participants will be in listen only mode.

Operator

After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mary Chen, Investor Relations Director. Please go ahead.

Speaker 2

Thank you, and welcome to our 2023 Second Quarter Earnings Conference Call. Joining me on the call today are Donald Yu, Tuniu's Founder, Chairman and Chief Executive Officer and Anne Changsheng, Tuniu's Financial Controller. For today's agenda, management will discuss business updates, operational highlights and financial performance for the Q2 of 2023. Before we continue, I refer you to our Safe Harbor statements 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 2

Please refer to our earnings release, which contains a reconciliation of non GAAP measures to its most directly comparable GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this call are in RMB. I would now like to turn the call over to our Founder, Chairman and Chief Executive Officer, Donald Xu.

Speaker 1

Thank you, Mary. Good day, everyone. Welcome to our Q2 2023 earnings conference call. In the Q2, Tuniu's business experienced a rapid recovery and delivered robust results. Building on the strong momentum we saw in the Q1.

Speaker 1

Our net revenues beat our previous guidance, growing by 170% year over year for the quarter, with revenues from packaged tours growing even faster at 632% year over year. In this year in this quarter, we achieved our 1st operating profit since Tuniu's listing and the 1st net income since the pandemic outbreak, both on GAAP and non GAAP basis. By leveraging Tuniu's advantages in products, supply chain and sales channels, we have been able to continuously increase our profitability. We also focused on improving internal operation, operational efficiency through the implementation of our technology tools. During the quarter, our gross margin improved to 65%, up from 45% during the same period last year.

Speaker 1

Additionally, we have maintained positive operating cash flow for 2 consecutive quarters. The encouraging results from this quarter domestic that Tuniu is overcoming the negative impact of the pandemic and we are now one step closer to realize our goal of the same growth and long term profitability. In the Q2, we will resume for challenging search with the warm weather and upcoming holidays. In response to the increased net profit demand for travel products in terms of both quantity and quality, Our strategy has been to focus our in house offerings on the most popular travel products and to meet diverse customer amounts through collaborations with suppliers. To be more specific regarding our in house products, we follow strict quality standards for product development and provides industry leading services for a selection of public travel destinations and the roles.

Speaker 1

During the quarter, our new tour areas launched a large number of roads, lounge and shopping activities. Resulting in an impressive 98% customer satisfaction rate. Notably, several classic new tour itineraries in Europe, which were launched in the second quarter, were nearly fully booked with tours scheduled through September. Regarding profitably, we have reached our scale advantages to effectively reduce the resource procurement costs for our in house products. And our focus on product differentiation helped to minimize the risk of price competition, leading to higher interest rates for our in house products.

Speaker 1

We also continue to expand our collaborations with a diverse range of suppliers to offer our customers and extending the range of long term products. Customized tours are increasingly popular due to the public's growing demand for higher quality travel experiences. In the Q2, we used GMV for customized tools to simplify more than 100% compared to the previous quarter. The primary customer base for product customized stores is the middle to upper class as well as our repeat customers who often travel with their luggage and the freight. And the tour destinations have expanded from domestic to international markets.

Speaker 1

Corporate Travel Insurance is 60 season during springtime with a notable increase in our sales increase and incentive increase optimized for companies in 1st and the second tier cities. Customized tours can confidently achieve a higher take rate compared to standard products mainly due to value added services. In addition, our self operated local tour operators also provide spaces for customized tours helping to ensure high quality service and additional profitability. In terms of sales channels, our diverse sales network allow us to reach more customers. 102 new key competitive advantages lies in our professional team of tour advisors.

Speaker 1

In the Q2, we continue to improve the efficiency of our tour advisors through developing new tech tools. And the sales employee experience a significant increase year over year, surpassing the previous quarter. We remain committed to strengthening our team building efforts through definition based training, both online and offline to our staff to enhance their business capabilities. And we have seen that new staff are able to become more productive with the help of our training and technology tools. Our repeat customers have competently showed great trust and support for Tuniu.

Speaker 1

Lastly, due to our membership based loyalty program, This year, the contribution of our regular customers to the overall GMV remained at over 70%. During the first half of this year, the total GMV and GMV of packaged tours stood on our membership days every month making steady growth. During the Q2, our sales on live streaming channels experienced constant monthly growth. Several of our key live streaming accounts ranked among the top 3 nationwide in terms of sales volumes within the hotel and travel service category. We also continued to collaborate with leading influencers and agencies to promote our products.

Speaker 1

On the slide side, in Dreams, we ranked the 3rd place nationwide among the world flyers. Thanks to the team's dedicated efforts, our live streaming channel achieved a significant milestone by recording its 1st quarterly profit since its establishment. Our distribution channels, including our B2B platform, offline partner stores and social marketing tools, also delivered positive results. During this quarter, sales from our B2B platform and offline partner sales achieved triple digit growth compared to the previous quarter. The distribution strategy after the company accumulates scale advantages for the procurement side and reduce our inventory pressure.

Speaker 1

The tower is considered necessary fees. Through our B2B distribution approach, we are able to transform it into high frequency consumption. Off line customer stores have our products to reach a broader customer base and in lower tier cities at a relatively low cost, while it has introduced brand difference. Regarding technology, we have further deployed automation across our operations. For example, we implemented automated tools for products reviewing its supply chain management.

Speaker 1

So automation technology will further enhance the company's operational efficiency, helping to lower Tuniu's operating expenses for 4 consecutive quarters on a year over year basis. We will continue to promote automation and digitalization across various work scenarios and processes to increase employee productivity. In the Q2, we made positive progress on both our top and bottom line reflecting the effectiveness of Tuniu's integrated business model and the product and the service strategy we have always adhered to. With this summer peak season approaching, we are well prepared to fix any challenges and continue to create greater value for our customers and shareholders. I'll now turn the call over to Anqiang, our Financial Controller for the financial highlights.

Speaker 1

Thank you, Donna. Hello, everyone. Now I will walk you through our Q2 of 2023 financial results in greater detail. Please note that all the monetary amounts are in RMB unless otherwise stated. You can find the U.

Speaker 1

S. Dollar equivalent of the numbers in our earnings release. For the Q2 of 2023, net revenue was $100,000,000 representing a year over year increase of 170% from the corresponding periods in 2022. This increase was primarily due to the growth of packaged tours as the travel market recovers. Revenue from packaged tours were up 6 32% year over year to RMB69.8 million and accounted for 70% of our total net revenue for the quarter.

Speaker 1

The increase was primarily due to the growth of revenue net total. Other revenues were up 10% year over year to $30,200,000 and accounted for 30% of our total net revenues. This increase was primarily due to the increase in service fees received from insurance companies. Gross profit for the Q2 of 2023 was RMB65,400,000, up 2 96 percent year over year. Operating expenses for the Q2 of 2023 were RMB48,600,000, down 43% year over year.

Speaker 1

The decrease was primarily due to the that the company did not incur hand on disposals of subsidiaries and the impairment of goodwill in the Q2 of 2023. Beyond disposals of subsidiaries, which was recorded in other operating income in the amount of RMB32.6 million and impairment of goodwill in the amount of RMB112.1 million were incurred as operating expenses in the Q2 of 2022. Business and product development expenses for the Q2 of 2023 were RMB 13,800,000, down 1% year over year. The decrease was primarily due to the decrease in amortization of acquired intangible assets. Total marketing expenses for the Q2 of 2023 were $24,900,000 up 2% year over year.

Speaker 1

The increase was primarily due to the increase in promotional expenses. General and administrative expenses for the Q2 of 2023 were 21 point 17, down 9% year over year. The decrease was primarily due to the decrease in general and administrative personnel related expenses. Net income attributable to ordinary shareholders of Zhou Nang Corporation was $700,000 in the Q2 of 2023. Non GAAP net income attributable to ordinary shareholders of Tuniu Corporation, which excluded the share based compensation expenses, amortization of acquired intangible assets, and on disposals of subsidiaries and the impairment of goodwill was RMB6 1,000,000 in the Q2 of 2023.

Speaker 1

As of June 30, 2023, the company had cash and cash equivalents, restricted cash and short term investments of $1,100,000,000 Cash flow generated from operations for the Q2 of 2023 was $136,900,000 Capital expenditures for the Q2 of 2023 were $6,200,000 For the Q3 of 2023, the company's expenses generated 160 $3,500,000 to $171,300,000 of net revenue, which represents a 100.10 percent to 120 percent increase year over year. Please note that we forecast the threat to new patterns and the 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?

Operator

Thank you. We will now begin the question and answer session. First question comes from Rachel Lee, a Private Investor. Please go ahead.

Speaker 3

Thank you, operator. First of all, congratulations on the excellent performance this quarter. For the Q2, revenues have exceeded last than just guidance. Which part of your company's business recovers better than expected, domestic or outbound tourism business? What are their proportions in revenues respectively?

Speaker 3

And another question is regarding profitability outlook. From your perspective, do you think profitability will expand in the 3rd quarter? Thank you.

Speaker 1

Thank you for the questions. We had a strong second quarter with packaged revenue growing over 6 times year over year. Our total GMV maintained a steady growth month by month through before to June. And here the summer peak season come a bit earlier than before, probably due to the release of pent up demand in previous years. We saw a little travel sold since the second half of June, which used to happen in early July.

Speaker 1

This also contributed to the positive results of the second quarter. In terms of domestic and outbound tours, both have experienced faster recovery. During the Q2, domestic travel tours accounted for less than 90% of our total GMV up from the tours accounted for over 10%, increasing from a single digit proportion in the previous quarter. For domestic tours, digital province tours contribute the most to our revenues. New tool products, family tools, private and corporate customized tools were among our main revenue drivers.

Speaker 1

Both of our direct and distribution channels robust and many of the channels such as online platform, B2B distribution and live streaming achieved profitability in the Q2. For our sponsored tours, with the company of more countries announced in March, we launched new SKUs and saw increased bookings in the second quarter. For example, as several European countries were included in the March 5th, Europe become our 2nd largest overseas destination in terms of GMV in the second quarter. Some came from bottom of the list with this GMV decreased over 100 times compared to the Q1. We are excited about the new list of opening countries released last week.

Speaker 1

The third list contains much more destinations and some of them were among popular destinations for Chinese travelers before the pandemic. 3rd, after the release of the news, our foreign destination searches onto new platform increased significantly, especially for some countries in the New Year. We are positive for the outlook of the industry and trying our best to resume supply chain as soon as possible. So far, we already have SKUs launched for the newly added destinations. For your second question, regarding the profitability, we have achieved our goal for a quarterly profit in the second quarter.

Speaker 1

The Q3 is the peak season and we are targeting for a top line growth of 110% to 120 percent year over year. While we continue to take freight cost control measures, We will see the increase of our total headcount within 10% year on year during the peak season. The leverage technology tools to assist our staff to handle the increase in business. Thus, we still have room for margin improvement in the 3rd quarter, both on a GAAP and a non GAAP basis. Thank

Operator

There are no more questions in the queue. This concludes our question and answer session. I would like to turn the conference back over to Mary Chen for any closing remarks.

Speaker 2

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

Speaker 1

The conference has now concluded.

Operator

Thank you for attending today's presentation. You may now disconnect.

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