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Edited Transcript of TOUR earnings conference call or presentation 9-Apr-20 12:00pm GMT

·16 min read

Q4 2019 Tuniu Corp Earnings Call Nanjing Apr 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Tuniu Corp earnings conference call or presentation Thursday, April 9, 2020 at 12:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Donald Yu Tuniu Corporation - Founder, Chairman & CEO * Mary Chen Tuniu Corporation - IR Director * Maria Xin Tuniu Corporation - CFO ================================================================================ Conference Call Participants ================================================================================ * Yulin Xi - Private Investor ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Hello, and thank you for standing by for Tuniu's 2019 Fourth Quarter and Full Year Earnings Conference call. (Operator Instructions) 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 Chen. -------------------------------------------------------------------------------- Mary Chen, Tuniu Corporation - IR Director [2] -------------------------------------------------------------------------------- Thank you, and welcome to our 2019 Fourth Quarter and Full Year Earnings Conference Call. Joining me on the call today are Donald Yu, Tuniu's Founder, Chairman and Chief Executive Officer; and Maria Xin, Chief Financial Officer. For today's agenda, management will discuss business updates, operation highlights and financial performance for the fourth quarter and fiscal year 2019. 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, 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. -------------------------------------------------------------------------------- Donald Yu, Tuniu Corporation - Founder, Chairman & CEO [3] -------------------------------------------------------------------------------- Thank you, Mary. Good day, everyone. Welcome to our 2019 Fourth Quarter and Full Year Earnings Conference Call. Looking back to 2019, it was a year marked by external events and -- that negatively impacted a number of short-haul destinations, such as Hong Kong; and long-haul destinations, such as the United States. The decline in these destinations counteracted growth in destinations such as Australia and New Zealand, resulting in a flat year-over-year growth in net revenues in 2019. At the start of 2020, we were seeing strong growth across most destinations. From the beginning of 2020 to the beginning of the Chinese New Year, Tuniu achieved 20% growth year-over-year in terms of overall GMV and 40% growth in terms of packaged tour GMV. Despite a strong start to 2020, the outbreak of the COVID-19 during Chinese New Year has since then significantly impacted our business. I will first give a brief update on the status of the company following the outbreak of COVID-19. As most people are aware, the 2020 Chinese New Year has been a challenging period for the travel industry and Tuniu. Consumer industries across China have taken a major hit following the social distancing restrictions that were placed in order to reduce the spread of the virus. The leisure travel industry took the hardest hit of them all, as travel restrictions were implemented across China to contain the spread. In early 2020, China's travel industry's regulator prohibited the sale of various packaged tour products. Tuniu terminated the selling of most packaged tour products and refunded or altered previously purchased packages with travel dates following the outbreak. Given the rapidly changing development, we will continue to closely monitor the situation and adjust accordingly. From a historical perspective, outbreaks that are met with fast and effective countermeasures only result in a temporary shock to the industry. Despite the short-term restrictions, we believe Chinese consumers' demand for travel continues to grow. The current restrictions on travel will further build up travel demand in addition to the natural increases. We are positive on the long-term outlook of China's travel industry. Once COVID-19 is contained, we believe travel will be one of the fastest recovering industries. Where there is a challenge, there is also an opportunity. We have revised our core strategies in service, products and (inaudible) the impact from COVID-19 as well as to capture the potential opportunities. I will now go over these strategies in greater detail. First, I would like to talk about service, which is the most important part during this special time. For both our customers and our partners, we displayed industry-leading service capabilities. In order to guarantee our customer experience, we refunded or altered all travel products affected by the COVID-19, and assisted traveling customers with return logistics. Following the initial outbreak, there was a surge in customer inquiries with call volume increasing tenfold during the period. Tuniu's professional and dedicated customer service representatives worked tirelessly to reassure customers and to help them modify their trips. Niu Tour implemented additional safety measures across the board in order to guarantee the safety of our customers. Tuniu's tour guides were given special training on increasing healthy awareness requiring them (inaudible) of accommodations, transportations and dining. Tuniu's 34 local tour operators across China all implemented additional safety precautions at outbreak in order to protect our customers. In 2019, Tuniu continued implementing its S2B2C strategy, diversifying its sales channel through B2B distribution and social marketing. We achieved strong results during the year, as GMV of Difeng Cloud increased over 40% year-over-year during the fourth quarter of 2019. Next, I would like to talk about our products. Our years of relationships with other parties in the supply chain and the previous investment in the development of our own supply chain were crucial to helping us minimize our losses during the outbreak. Innovative new forms of products such as Tuniu's dynamic packaging system, self-operated local tour operators and destination-based tours are all more flexible than traditional products and are more closely integrated with our systems. These products were more easily booked and altered according to the needs of customers, allowing for higher efficiency during the outbreak when changes were frequently made. Niu Tour and our local tour operators remain committed to their focus on quality. Because Tuniu is fully in control of the quality of these products, we were able to quickly adapt these products to market conditions and (inaudible) a safe experience. Lastly, I would like to briefly mention our systems. Our dynamic packaging system and various automation procedures were crucial in helping customers make changes during the outbreak. Between January 21 and February 2, our systems made over 500,000 itinerary changes, a volume that is hard to process without the assistance of our systems. Going forward, we will continue to invest in core systems and processes in order to further enhance our supply chain and efficiency. We will separate our development into 3 centralized systems: warehouse, assembly and processing. The warehouse system will consolidate all resources available to Tuniu's centralized system that directly connects to internal and external inventories. The assembly system will give product professionals the tools to utilize the products from the warehouse system to assemble new products. The processing system is the controller managing the automation process. Combining this framework of system design will advance our dynamic packaging capabilities, increase our efficiency and provide better experiences for our customers. We have also been rapidly promoting our social marketing tool as a (inaudible) effective way of reaching our customers during social distancing. Our customer service representatives actively engage with both existing and new customers through this tool in order to prepare for recovery in demand. In the future, our social marketing tool will be a fundamental part of our S2B2C system, helping Tuniu reach more customers with increased efficiency. During COVID-19 outbreak, we have utilized this opportunity to increase technical training for our colleagues through various online courses. Colleagues are encouraged to take additional courses on customer service, sales, marketing and various technical skills during this period. We want our colleagues to be well rested and better trained for the upcoming opportunities once the outbreak is contained. We will focus on improving Tuniu as a company, so we can provide better products and services to our customers. We believe the impact of COVID-19 on the domestic travel will be short term as China's situation is largely contained. We are already seeing a slightly recovery in demand for local tours or short-haul domestic tours. To capture this opportunity, we have been promoting various domestic hotels, local attraction tickets and low-trip products for our customers. Our local tour operators across China are also preparing themselves for an increase in demand for domestic products, and will be crucial for directly accessing local resources. Despite the positive trend for domestic tours, international travel will continue to be limited as various destination countries are restricting travel to control the spread of the COVID-19. As a result, we expect our net revenues to decline significantly during the first quarter of 2020. Because of this decline, we will scale back our expenses and optimize our cash flow in order to maintain a healthy level of cash. COVID-19 is a challenge for both the travel industry and Tuniu. However, we believe Tuniu's position within the travel industry and our active response to the current scenario will allow us to better capture future market opportunities once the travel industry recovers domestically and internationally. I'll now turn the call over to Maria Xin, our CFO, for the financial highlights. -------------------------------------------------------------------------------- Maria Xin, Tuniu Corporation - CFO [4] -------------------------------------------------------------------------------- Thank you, Donald. Hello, everyone. Now I will walk you through our fourth quarter and full year 2019 financial results in greater detail. Please note that all the monetary amounts are RMB, unless otherwise stated. You can find the U.S. dollar equivalent in the -- of numbers in our earnings release. Starting from the fourth quarter of 2019. Net revenues were RMB 451.3 million, representing a year-over-year decrease of 4% from the corresponding period in 2018. Revenues from packaged tours were down 4% year-over-year to RMB 344.3 million and accounted for 76% of our total net revenues for the quarter. The decrease was primarily due to the decline in demand for travel to certain destinations. Other revenues were down 6% year-over-year to RMB 107 million and accounted for 24% of our total net revenues. The decrease was primarily due to the decline in revenues generated from financial service. Gross profit was down 20% year-over-year to RMB 216.7 million for the fourth quarter of 2019. Operating expenses for the fourth quarter of 2019 was RMB 650.9 million, up 74% year-on-year. Excluding share-based compensation expenses, amortization of acquired intangible assets and the impairment of acquired intangible assets, non-GAAP operating expenses were RMB 576.1 million, representing a year-over-year increase of 77%. Research and the product development expenses for the fourth quarter of 2019 were RMB 79 million, up 4% year-on-year. The increase was primarily due to the increase in research and product development personnel-related expenses. Sales and marketing [expense for the fourth quarter of] 2019 were RMB 239.9 million, up 15% year-on-year. The increase was primarily due to the increase in impairment of acquired intangible assets. General and administrative expenses for the fourth quarter of 2019 were RMB 341.5 million, up 183% year-over-year. The increase was primarily due to the increase in some onetime impairment charges and general and administrative [personnel-related expenses]. Net loss attributable to ordinary shareholders was RMB 367.1 million in the fourth quarter of 2019. Non-GAAP net loss attributable to ordinary shareholders, which exclude share-based compensation expenses, amortization of acquired intangible assets and the impairment of acquired intangible assets, were RMB 292.1 million in the fourth quarter of 2019. As of December 31, 2019, the company had cash and cash equivalents, restricted cash and short-term investments of RMB 1.9 billion. Capital expenditures for the fourth quarter of this year were RMB 28 million. Now moving to the full year 2019 results. In 2019, net revenues were RMB 2.3 billion, representing 2% year-over-year increase. Revenues from packaged tours were up 3% year-over-year to RMB 1.9 billion and accounted for 83% of our total net revenues in 2019. The increase was primarily due to the growth of organized tours. Other revenues [decreased 3.7%] year-over-year to RMB 394.2 million and accounted for 17% of our total net revenues in 2019. The decrease was primarily due to the decline in revenues generated from financial services and service fees received from the insurance companies. Gross profit was down 8% year-on-year to RMB 1.1 billion in 2019. Operating expenses were RMB 2 billion in 2019, up 28% year-on-year. Excluding share-based compensation expenses, amortization of acquired intangible assets and the impairment of acquired intangible assets, non-GAAP operating expenses were RMB 1.7 billion, representing a year-over-year increase of 31%. Research and product development expenses were RMB 303.6 million in 2019, down 4% year-over-year. The decrease was primarily due to the increase in efficiency resulting from the increased level of [automation] applied in research and product development activities and optimization of research and product development personnel. Sales and marketing expenses were [RMB 923.3] million in 2019, up 19% year-over-year. The increase was primarily due to the increase in sales and marketing personnel and offline retail store-related expense as well as the impairment of acquired intangible assets. General and administrative expenses were RMB 749.4 million in 2019, up 54% year-over-year. The increase was primarily due to the increase in some onetime impairment charges and general and administrative personnel-related expenses. Net loss attributable to ordinary shareholders was RMB 699.2 million in 2019. Non-GAAP net loss attributable to ordinary shareholders, which exclude share-based compensation expenses, amortization of acquired intangible assets and the impairment of acquired intangible assets was RMB 462.4 million in 2019. In 2019, excluding the impact of prepayment to Hainan Airlines, cash and cash conversion cycle was negative 29 days compared to negative 27 days in corresponding period last year. Capital expenditure were RMB 122.5 million in 2019. Tuniu's business has been significantly impacted by the outbreak and the spread of the COVID-19 since January 2020. The current circumstances and dynamics and the impact of COVID-19 on our business operations cannot be reasonably estimated at this time. And we anticipate this may have material adverse impact on our business, financial position, results from operations and cash flows in 2020. As a result, [for the first] quarter of 2020, the company expects to generate RMB 114.2 million to RMB 159.9 million of net revenues, which represents 65% to 75% decrease year-over-year. Please note that this forecast reflects Tuniu's current and preliminary view on the industry and its operations, which is subject to change, particularly as the uncertainties brought from the impact from COVID-19. Thank you for listening. We are now ready for your questions. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) The first question today comes from [Yulin Xi], a private investor. -------------------------------------------------------------------------------- Yulin Xi, - Private Investor [2] -------------------------------------------------------------------------------- My question is how big is the impact of the COVID-19 on both the company and our industry? And also, are you seeing a sense of a recovery at this moment. -------------------------------------------------------------------------------- Donald Yu, Tuniu Corporation - Founder, Chairman & CEO [3] -------------------------------------------------------------------------------- (Interpreted) The COVID-19 initially broke out during the Chinese New Year. So it was a really tough period. As expected, the impact from the COVID-19 will be -- will bear a significant impact on our first quarter results. But going forward and looking forward, we are seeing a gradual increase in demand in terms of for products, domestic products and local products. We are seeing a rising demand for domestic hotels, local attraction ticketing, road trips products. We believe this is a gradual trend for the recovery for the domestic market. However, the long-haul domestic market is still currently not available. So we are mostly promoting hotels as attraction ticketing packages for local or domestic destinations. International destinations and countries is a bit of a different story. A lot of other international countries are still battling the coronavirus. So we will closely monitor the scenario internationally and act accordingly. In the last 3 to 4 years, we have developed a network of local tour operators operated by Tuniu throughout China. This will be key to capturing the increasing demand for -- rising demand for domestic tours, both short-haul or long-haul. Given that we are one of the largest or the largest tour operator network, we have economy of scale. Our local tour operator network is very high quality. As such, we are able to work with a number of travel -- other travel companies to create or -- high-quality packages for customers throughout China. Also with the recovering of the domestic market, social marketing tool is one of the most important way for us to reach our customers. We have invested in the social marketing tool for the past 1.5 years. And we have developed numerous features on it. Using these tools, we are able to reach our customers and engage with them even during the outbreak of the coronavirus. And another one of our key focuses during this period is the controlling of our expenses. During this period because of the drop off in the revenue, we are trying to reduce our everyday expenses, some of which includes using a rotational program for our colleagues to work. Others include the lowering of the management's salaries to 40% of their previous level. So the whole company is gathering momentum to act in this very special time. And we believe we could get through it. Thank you. -------------------------------------------------------------------------------- Operator [4] -------------------------------------------------------------------------------- (Operator Instructions) At this time, we are not showing any additional questions. We are now approaching the end of the conference call. I will now turn the call over to Tuniu's CFO, Maria Xin, for any closing remarks. -------------------------------------------------------------------------------- Maria Xin, Tuniu Corporation - CFO [5] -------------------------------------------------------------------------------- Once again, thank you for joining us today. Please don't hesitate to contact (inaudible) further questions. Thank you for your continued support, and we look forward to speaking with you in the coming months. Thank you. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day. (Portions of this transcript that are marked (Interpreted) were spoken by an interpreter present on the live call.)