Tuniu Corporation (NASDAQ:TOUR) Q4 2023 Earnings Call Transcript

Tuniu Corporation (NASDAQ:TOUR) Q4 2023 Earnings Call Transcript March 13, 2024

Tuniu Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello and thank you for standing by for Tuniu’s 2023 Fourth 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. I would now like to turn the meeting over to your host for today’s conference call, Director of Investor Relations, Mary.

Mary Chen: Thank you, and welcome to our 2023 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 Anqiang Chen, Tuniu’s Financial Controller. For today’s agenda, management will discuss business updates, operation highlights and financial performance for the fourth quarter and 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, 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.

Donald Dunde Yu: Thank you, Mary. Good day, everyone. Welcome to our fourth quarter and full year 2023 earnings conference call. Tuniu delivered a strong performance in the fourth quarter of 2023, with net revenues growing year-over-year by 266%, including a 1377% increase in revenues from package tours. Gross profit increased by 512% year-over-year, and we achieved non-GAAP profitability for the third 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. Amidst the emergence of many popular destinations and attractions. In terms of outbound 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 fourth quarter.

Countries like Thailand and Singapore introduced favourable visa policy, 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 package tours increased by 374% and gross profit increased by 228%. We also achieved our first full-year profitability on a non-GAAP basis since the pandemic, with non-GAAP net income approaching RMB51 million. The highest since our listing. In 2023, pent-up travel demand was released with the relaxation of travel restrictions. [Technical Difficulty] 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 remotely provide products to meet customer demand.

Now leading 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 first batch of countries to open up for outbound travel as last February. As one of our earliest launched outbound travel products, in the first quarter of last year, Maldives tours have already surpassed RMB10 million in sales volumes. Tuniu’s core competitiveness is our commitment to providing high-quality products and services to our customers. Amidst the strong demand post-pandemic, we continue to adhere to our strict standards for product procurement and development, and increasingly reached the bar in terms of product and service quality.

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

For instance, our zero 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 tour has commenced offering exclusive services, where dedicated service personnel establishes a WeChat group prior to the trip to ensure seamless support throughout the journey. Furthermore, we established more collaboration 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 19%. And we have introduced a new mechanism where products receiving highly negative reviews are permanently removed from our offerings.

We also handle customer complaints about supplier products in the same way as our in-house products. That is to see we prioritized problem resolution and direct compensation to 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 improvement for our partners, collectively striving to provide customers with more and better products. Looking now to our sales efforts. As you know, our professional customer service team has always been one of Tuniu’s 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. In 2023, the number of our customer service staff increased by over 50% year-over-year, while our net revenue increased by 140%. In addition to individual customers, we also serve corporate clients, offering services such as growth travel for companies and personnel travel for corporate employees. In the fourth quarter, with the arrival of the year-end season, company annual meetings, team building activities, and incentive vacation trips becoming increasingly popular, leading to the small pick in corporate clients travel demand.

In the fourth quarter of 2023, the GMV from corporate clients increased by over 40% compared to the previous quarter. Live streaming emerged as a new sales channel for us following the pandemic. In 2023, the total payment volume from all Tuniu’s live streaming channels exceeded RMB1 billion. And our live streaming channels also achieved profitability for the full year. On the supply side, we received the Douyin annual star merchant, 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 million.

Moreover, in response to markets 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 via live streaming channels. 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 second and third tier cities, as well as 12 provincial capitals. These stores expand the sales channels for our in-house products and help to promote the Tuniu brands. We will continue to establish and develop our offline stores this year.

In terms of technology, we are committed to leveraging tours to replace simple, repetitive manual labor to liberate our employees to participate in more complex and creative work, thereby enhancing our overall operational efficiency. In 2023, we have completed the application of system automation across various sales processes, 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. 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 tours 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 about the development of the travel market this year, especially with the resumption of flights, relaxation of visa policies, and further enhance the supply chain, which still offers significant growth opportunities for the outbound travel market. Outbound travel is one of Tuniu’s core advantages, and we will seize the opportunity to provide more and better products and achieve further revenue recovery. At the same time, we will continue to implement our strict cost control measures to enhance our profitability. I will now turn the call over to Anqiang Chen, our Financial Controller, for the financial highlights.

Anqiang Chen: Thank you, Donald. Hello, everyone. Now I will walk you through our fourth quarter and fiscal year 2023 financial results in greater detail. Please note that all the monetary amounts are in RMB unless otherwise stated. You can find the US dollar equivalent of the numbers in our earnings release. Starting from the fourth quarter of 2023, net revenues were RMB99.9 million in the fourth quarter 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 package tours and the travel market recovers. Revenues from package tours were up 1377% year-over-year to RMB73.4 million and accounted for 73% of total net revenues for the quarter.

The increase was primarily due to the growth of online tours. Other revenues were up 19% year-over-year to RMB26.6 million 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 fourth quarter of 2023 was RMB74.6 million, up 512% year-over-year. Operating expenses for the fourth quarter of 2023 were RMB198 million, up 509% year-over-year. The increase was primarily due to the impairment of goodwill of RMB114.7 million recorded in the fourth quarter of 2023. Research and product development expenses for the fourth quarter of 2023 were RMB10.4 million, 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% during the same period last year. Sales and marketing expenses for the fourth quarter of 2023 were RMB33.2 million, up 45% year-over-year. The increase was primarily due to the increase in promotion expenses. Sales and marketing expenses as a percentage of net revenues were 33% down from 84% during the same period last year. General and administrative expenses for the fourth quarter of 2023 were RMB42.1 million, up 27% year-over-year. The increase was primarily due to the impairment of property and equipment, net recorded in the fourth quarter of 2023. General and administrative expenses as a percentage of net revenues were 42%, down from 121% during the same period last year.

Net loss attributable to ordinary shareholders of Tuniu Corporation was RMB132.3 million in the fourth quarter 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 RMB6.2 million in the first quarter of 2023. As of December 31st, 2023, the company had cash and cash equivalents, restricted cash and short-term investments of RMB1.2 billion. Capital expenditures for the fourth quarter of 2023 were RMB1.3 million. Now moving to full year 2023 results. In 2023, net revenues were RMB441.3 million, representing a 140% year over year increase. The increase was primarily due to the growth of package tours as the travel market recovers.

Revenues from package tours were up 374% year-over-year to RMB333.4 million 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 RMB107.9 million and accounted for 24% of our total net revenues in 2023. The decrease was primarily due to the decrease in revenues generated from financial services. Gross profit was RMB293.7 million in 2023, up 228% year-over-year. Operating expenses were RMB395.6 million in 2023, up 32% year-over-year. Research and product development expenses were RMB57 million in 2023, up 12% 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 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 promotion 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 RMB113.2 million in 2023, up 4% year-over-year. 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 revenues were 26% in 2023, decreasing from 59% of the previous year. Net loss attributable to ordinary shareholders of Tuniu Corporation was RMB99.3 million 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 RMB52.6 million in 2023. Cash flow generated from operations for 2023 was RMB253.3 million. Capital expenditures were RMB10.2 million in 2023. For the first quarter of 2024, Tuniu expects to generate RMB101.1 million to RMB107.4 million of net revenues, which represents a 60% to 70% increase year-over-year compared with net revenues in the corresponding period in 2023. Please note that this forecast reflects Tuniu’s currents 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?

Operator: The question-and-answer session of this conference call will start in a moment. [Operator Instructions] And our first question comes from Rita Lee, a Private Investor. Please go ahead.

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Q&A Session

Rita Lee: Thank you, operator. Hi, management. First of all, congratulations on achieving a profitable year. Generally speaking, the financial performance is good, but for the fourth quarter, we see a GAAP net loss. Could you please specify the core causes? And another question is about this year’s outlook. Can you share any strategic plan in both business and finance? Thank you.

Donald Dunde Yu: Thank you for the questions. For the fourth quarter last year, we achieved a non-GAAP profitability for the third consecutive quarter. It’s also the first time since our listing that we achieved profitability in the fourth quarter, which is off-season. Well, on a GAAP basis, we still incur net loss this quarter. The main difference between GAAP and non-GAAP results is that we recorded over RMB100 million of goodwill impairment in the GAAP results. This is a financial treatment based on an asset required by US 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. 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 US$10 million 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 say Tuniu high-quality in-house products are our protective mode and differentiate Tuniu from platform OTAs. Moreover, for Tuniu brand products such as new tour, we have the pricing power, so new tours contributes steadily to both our revenues and profits. This year, we will continue to increase both SKUs and revenue contribution of new tours.

For example, we will develop more small group and the private group tours in new tour series, catering for current demand trends. These tours usually contain two to eight people and are more flexible than traditional organized tours. For example, customers in the same group may choose different airlines and even hotels. And the price of these tours is lower than customized tours. These tours are fueled by young people and families. Secondly, we will continue to expand our sales channels such as live streaming and offline stores. These channels are good complement to traditional online channels, such as app and website. Live streaming is popular among young people, while offline stores can better serve 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 supply in 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. 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 funding or bundling to any air tickets, which simplifies the booking process, making the experience at Tuniu more convenient and enjoyable. We also restarted our special offer air ticket channel, providing discount tickets for our customers. For hotels, we will increase the level of direct procurement to enhance the competitive needs of our hotels.

In terms of financial performance, in the first quarter, we expect a 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 will also continue to increase our profitability and increase more value to our shareholders. Thank you.

Operator: [Operator Instructions] 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.

Mary Chen: 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.