Tuniu Q4 2023 Earnings Call Transcript

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March 13, 2024

There are 4 speakers on the call.

Operator

Hello and thank you for standing by for Tuniu's 2023 4th Quarter and Full Year Earnings Conference Call. At this time, all participants are in a 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

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 2023 4th quarter and full year earnings conference call. Joining me on the call today are Donald Yu, Tuniu's Founder, Chairman and Chief Executive Officer

Speaker 1

and

Operator

An Tieng Chen, Tuniu's Financial Controller. For today's agenda, management will discuss business updates, operation highlights and financial performance for the Q4 fiscal year 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. Please refer to our earnings release, contains a reconciliation of non GAAP measures to the most directly comparable GAAP measures.

Operator

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 Q4 and full year 2023 earnings conference call. Tuniu delivered a strong performance in the Q4 of 2023, with net revenues growing year over year by 266%, including

Speaker 1

13.77%

Speaker 2

increase in revenues from packaged tours. Gross profit increased by 5 12% year over year, and we achieved non GAAP profitability for the 3rd consecutive quarter. 2023 was a significant year of recovery for the travel industry following the pandemic. With a robust rebound in the domestic travel market, we saw a dramatic increase in travel demand during China's national holidays and summer vacation. Amid the emergence of many popular destinations and attractions.

Speaker 2

In terms of upfront travel, the number of newly opened up destination countries increased from 20 at the beginning of the year to 138 by the end of the Q4. Countries like Thailand and Singapore introduced favorable visa policies, helping to boost the recovery of the outbound travel market. We are pleased with our performance for the full year 2023. Our net revenues increased by 140% year over year. Revenues from packaged tours increased by 3 74%, and gross profit increased by 2 28%.

Speaker 2

We also achieved our 1st full year profitability on a non GAAP basis since the pandemic. With non GAAP net income approaching RMB51 1,000,000, the highest since our listening. In 2023, pent up travel demand was released with relaxation of travel restrictions. However, the tourism supply chain, especially the supply chain relating to the outbound travel market, was impacted during the pandemic. In response, our priority was to recover and rebuild the supply chain to promotely provide products to meet customer demand.

Speaker 2

Leveraging Tuniu's rich experience in the industry and our continuous efforts to maintain relationships during the pandemic, our procurement and product teams have been able to rapidly rebuild our portfolio of products by sourcing high quality resources from hotels, airlines and local tour operators. For example, as one of Tuniu's star destinations, the Maldives was among the 1st batch of countries to open up for outbound travel at last February. As one of our earliest launched outbound travel products, in the Q1 of last year, mail deals towards have already surpassed RMB10 1,000,000 in sales volumes. Tuniu's core competitiveness is our commitment to providing high quality products and services to our customers. Amidst some strong demand post the pandemic, we continue to adhere to our strict standards for product procurement and development and increasingly raise the bar in terms of products and service quality.

Speaker 2

For instance, for our in house neutral products, we require our product personnel to work closely as a destination and actively coordinate with local tour operators on resource procurement, tour guidance management and quality control. Additionally, we conduct quality inspections during organized tours to promptly identify and resolve issues. As a result, the average customer satisfaction rate for our new tool products has been continuously increasing from slightly over 90% to 97% and reached over 98% during the summer of 2023. At the same time, we prioritize the customer experience by addressing pain points during the trips. Beginning last year, new tour introduced the 0 shopping itineraries, ensuring no visits to shopping venues throughout the entire journey, which have been very well received.

Speaker 2

For instance, our 0 shopping tour to Bali was launched in December last year, and nearly 40 tours were conducted as of the end of this February, with a satisfaction rate of 100%. Additionally, since 2023, New Tours has commenced, offering exclusive services, where dedicated service personnel establishes WeChat Group prior to the trip to ensure seamless support throughout the journey. Furthermore, we established more collaborations with suppliers to increase the diversity of our products. To ensure customer satisfaction, we maintain our focus on quality control through implementing strict supplier selection process. The satisfaction rate for product launches has reached 90%.

Speaker 2

And we have introduced a new measurement term where products receiving highly negative reviews are promptly removed from our offerings. We also handle customer complaints about the supplier products in the same way as our in house products. That is to say we prioritize problem resolution and director compensation, pitching customers on behalf of suppliers. Additionally, we provide maximum assistance to our partners by granting them access to our inventory management systems to improve their efficiency. We also offer support and advice for product development and the improvement for our partners, collectively striving to provide customers with more and better products.

Speaker 2

Looking now to our sales efforts. As you know, our professional customer service team has always been one of 2 new core advantages. After the pandemic, we didn't directly expand customer service staff in the face of increased demand. Instead, we utilize automation technology to help our customer service teams improve efficiency. We also focus on talent development, particularly for overseas destinations to help our staff become more familiar with destinations and products and enhance work efficiency and service quality.

Speaker 2

In 2023, the number of our customer service staff increased by over 50% year over year, while our net revenues increased by 140%. In addition to individual customers, we also serve corporate clients, offering services such as growth travel for companies and the personnel travel for corporate employees. In the 4th quarter, with the arrival of the year end season, company annual meetings, team building activities and incentive vacation trips become increasingly popular, leading to the small peak in corporate clients' travel demand. In the Q4 of 2023, the GMV from corporate clients increased by over 40% compared to the previous quarter. Cloud streaming emerged as a new sales channel for us following the pandemic.

Speaker 2

In 2023, the total payment volume from O2 News live streaming channels exceeded RMB 1,000,000,000. And our live streaming channels also achieved profitability for the full year. On the supply side, we received the Douyin Annual Star Merchants, a recognition based on comprehensive evaluation of business volume and product quality. Additionally, we established our own MCN agency to further develop and promote our accumulated live streaming capabilities and experiences. We have secured partnerships with more than 100 external influencers with a total fan base exceeding 4,000,000.

Speaker 2

Moreover, in response to market demand this year, we will further strengthen the sales and promotion of our outbound travel products as well as high quality in house products such as new tour. We are a live streaming channel. Also, we continue to enhance the application of system automation in live streaming activities, such as online product verification to lower cost and improve live streaming channel profitability. In 2023, we also strengthened our offline channels by establishing more offline stores. We opened more than 150 offline stores, primarily located in 2nd and third tier cities as well as provincial capitals.

Speaker 2

This stores expand the sales channels for our in house products and help to promote the 2 new brands. We will continue to establish and develop our offline stores this year. In terms of technology, we are committed to leveraging towards to replace simple, repetitive manual labor to liberate our employees to participate in more complex and accretive work, thereby enhancing our overall operational efficiency. In 2023, we have completed the application of system automation across various sales process, such as marketing, booking and order processing and have started to integrate it into supply chain management. We are sharing the benefits brought by automation in inventory, pricing and marketing management with our partners.

Speaker 2

This year, we will also focus on the application of technology in production and services, such as utilizing dynamic packaging systems to generate self guided tools that enrich our product offerings. In conclusion, the travel industry saw substantial recovery last year, and the positive growth momentum continued into the beginning of 2024. The spring festival travel boom this year was remarkable. We remain optimistic optimistic about the development of the travel market this year, especially with the resumption of flight, relaxation of visa policies and the further enhanced supply chain, which still offers significant growth opportunities for the outbound travel market. Outbound travel is 102 news core advantages, and we will seize the opportunity to provide more and better products and achieve further revenue recovery.

Speaker 2

At the same time, we will continue to implement our strict cost control measures to enhance our profitability. I'll now turn the call over to Anxiang Chen, our Financial Controller, for the financial highlights.

Speaker 1

Thank you, Donald. Hello, everyone. Now I will walk you through our Q4 and fiscal year 20 23 financial results in greater detail. Please note that all the monetary amount are in RMB unless otherwise stated. You can find the U.

Speaker 1

S. Dollar equivalent of the numbers in our earnings release. Starting from the Q4 of 2023, net revenues were CNY 99,900,000 in the Q4 of 2023, representing a year over year increase of 266% from the corresponding period in 2022. The increase was primarily due to the growth of packaged tours and the travel market recovers. Revenues from packaged tours were up 13.77% year over year to RMB73.4 million and accounted for 73% of total net revenues for the quarter.

Speaker 1

The increase was primarily due to the growth of online tours. Other revenues were up 19% year over year to RMB26,600,000 and accounted for 27% of total net revenues. The increase was primarily due to the growth in commission fees received from other travel related products. Gross profit for the Q4 of 2023 was RMB74,600,000 up 5 12% year over year. Operating expenses for the Q4 of 2023 were RMB198,000,000, up 5 0 9 percent year over year.

Speaker 1

The increase was primarily due to the impairment of goodwill of RMB114,700,000 recorded in the Q4 of 2023. Research and product development expenses for the Q4 of 2023 were $10,400,000 down 5% year over year. The decrease was primarily due to the decrease in research and product development personnel related expenses. Research and product development expenses as a percentage of net revenues were 10%, down from 40 percent during the same period last year. Sales and marketing expenses for the Q4 of 2023 were RMB 33,200,000 up 45% year over year.

Speaker 1

The increase was primarily due to the increase in promotion licenses. Sales and marketing expenses as a percentage of net revenues were 33%, down from 84% during the same period last year. General and administrative agencies for the Q4 of 2023 were $42,100,000 up 27% year over year. The increase was primarily due to the impairment of property and equipment, net recorded in the Q4 of 2023. General and administrative expenses as of net revenues were 42%, down from 121% during the same period last year.

Speaker 1

Net loss attributable to ordinary shareholders of Tuniu Corporation was RMB132,300,000 in the Q4 of 2023. Non GAAP net income attributable to ordinary shareholders of Tuniu Corporation, which excluded share based compensation expenses, amortization of acquired intangible assets, impairment of goodwill and impairment of property and equipment, net was CNY 6 200,000 in the Q4 of 2023. As of December 30, 2023, the company had cash and cash equivalents, restricted cash and short term investments of RMB 1,200,000,000. Capital expenditures for the Q4 of 2023 were RMB 1,300,000. Dollars Now moving to full year 2023 results.

Speaker 1

In 2023, net revenues were RMB441,300,000, representing a 140% year over year increase. The increase was primarily due to the growth of packaged tours as the travel market recovers. Revenues from packaged tours were up 3 74% year over year to RMB333,400,000 and accounted for 76% of our total net revenues in 2023. The increase was primarily due to the growth of organized tours. Other revenues were down 5% year over year to RMB107,900,000 and accounted for 24% of our total net revenues in 2023.

Speaker 1

The decrease was primarily due to the decrease in revenues generated from financial services. Gross profit was $293,700,000 in 2023, up 2.28 percent year over year. Operating expenses were RMB 395,600,000 in 2023, up 32% year over year. Research and product development expenses were $57,000,000 in 2023, up 12% year over year. The increase was primarily due to the increase in research and product development personnel related expenses.

Speaker 1

Research and product development expenses as a percentage of net revenues were 13% in 2023, down from 28% of the previous year. Sales and marketing expenses were RMB117.7 million in 2023, up 14% year over year. The increase was primarily due to the increase in promotional expenses. Sales and marketing expenses as a percentage of net revenues were 27% in 2023, decreasing from 56% of the previous year. General and administrative expenses were $113,200,000 in 2023, up 4% year over year.

Speaker 1

The increase was primarily due to the impairment of property and equipment net recorded in 2023. General and administrative expenses as a percentage of net revenue were 26% in 20 20 decreasing from 59% of the previous year. Net loss attributable to ordinary shareholders of Tuniu Corporation was RMB99,300,000 in 2023. Non GAAP net income attributable to ordinary shareholders of Tuniu Corporation, which excluded share based compensation expenses, amortization of acquired intangible assets, impairment of goodwill and impairment of property and equipment, net was CNY 52,600,000 in 2023. Cash flow generated from operations for 2023 was $253,300,000 Capital expenditures were $10,200,000 in 2023.

Speaker 1

For the Q1 of 2024, Tuniu is set to generate $101,100,000 to $107,400,000 of net revenues, which represents a 60% to 70% increase year over year compared with net revenues in the corresponding period in 2020 3. Please note that this forecast reflects Tuniu's current and preliminary view on the industry and its operations, which is subject

Speaker 2

to change.

Speaker 1

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. And our first question comes from Rita Lee, a Private Investor. Please go ahead.

Speaker 3

Thank you, operator. Hi, management. First of all, congratulations on achieving a profitable year. Generally speaking, the financial performance is good, but for the Q4, we see a GAAP net loss. Could you please specify the core courses?

Speaker 3

And another question is about this year's outlook. Can you share any strategic plan in both business and finance? Thank you.

Speaker 2

Thank you for the questions. For the Q4 last year, we achieved a non GAAP profitability for the 3rd consecutive quarter. It's also the first time since our listing that we achieved profitability in the 4th quarter, which is our off season. Well, on a GAAP basis, we still incurred net loss this quarter. The main difference between GAAP and non GAAP results is that we recorded over RMB100 1,000,000 of goodwill impairment in the GAAP result.

Speaker 2

This is a financial treatment based on assets required by U. S. GAAP. We conducted the assessment at year end, comparing the company's net assets with the market value. When the market value is lower, impairment will be triggered.

Speaker 2

However, given our rapid business recovery, improved profitability as well as positive operating cash flow for the full year, we believe our share price is undervalued. So we proposed a share buyback plan of repurchasing up to US10 $1,000,000 worth of shares on open market, which was approved by our Board. We have faith in the continuous growth of both travel industry and our company, and we want to deliver this confidence to the public while announcing our past year achievements as well as New Year resolutions. Turning to the plans for 2024. Firstly, we will continue to focus on the development of our in house product, C2NEO.

Speaker 2

High quality in house products are our protective mode and differentiate Tuniu platform OTAs. Moreover, for Tuniu brand products, such as new tool, we have the pricing power. So new tools contribute steadily to both our revenues and profits. This year, we have continued to increase both SKUs and revenue contribution of new tools. For example, we have developed more small growth and the private growth tools in new tool series, Catering for current demand trend.

Speaker 2

These tours usually contain 2 to 8 people and are more flexible than traditional open minded tours. For example, customers in the same group may choose different airlines and even hotels. And the price of these tools is lower than customized tools. These tools are fueled by young people and families. Secondly, we will continue to expand our sales channels, such as live streaming and offline stores.

Speaker 2

These channels are good commitment to traditional online channels such as app and website. Live streaming is popular among young people, while offline stores can better sell senior citizens. Furthermore, compared with traditional online channels, live streaming and offline stores provide more interactions between customers and our tour advisors, creating more sales opportunities. So for live streaming, we'll consolidate our position in Douyin at both sales and the supply end this year, introducing more and better products to the market. We are also trying to expand to more platforms such as Little Red Book and Oriental Selection.

Speaker 2

For offline stores, we will continue to explore opportunities in lower tier cities. Lastly, to better serve our customers, we will improve our services for other travel related products, such as air tickets and hotels. For example, we provide no bundling to any air tickets, which simplifies the booking process, making the experience at Tuniu more convenient and enjoyable. We also restart our special offer air ticket channel, providing discounted tickets for our customers. For hotels, we will increase the level of direct procurement to enhance the competitiveness of our hotels.

Speaker 2

In terms of financial performance, in the Q1, we expect 60% to 70% year over year increase in our net revenues. We will try to maintain a higher than industry average growth rate for this year. We are also continuing to increase our profitability and to create more value to our shareholders. Thank you.

Operator

There are no further questions at this time. I will now turn the call over to Tuniu's Director of Investor Relations, Mary, for 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.

Operator

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

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Earnings Conference Call
Tuniu Q4 2023
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