Tuniu Corporation (TOUR) Q3 2023 Earnings Call
Tuniu Corporation (NASDAQ:TOUR) Q3 2023 Results Conference Call November 21, 2023 8:00 AM ET
Company Participants
Mary Chen - Director, Investor Relations
Donald Yu - Founder, Chairman and Chief Executive Officer
Anqiang Chen - Financial Controller
Operator
Hello, and thank you for standing by for Tuniu’s 2023 Third Quarter 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.
Mary Chen
Thank you. And welcome to our 2023 third quarter 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 third quarter 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. 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 are RMB. I would now like to turn the call over to our Founder, Chairman and Chief Executive Officer, Donald Yu.
Donald Yu
Thank you, Mary. Good day, everyone. Welcome to our third quarter 2023 earnings conference call. Tuniu delivered a stronger performance in the third quarter as compared to the second quarter, our top line results continued to recover rapidly with net revenues growing year-over-year by 129%, including 262% increase in revenues from packaged tours. Our profitability also improved with gross margin increasing to 64%, up from 58% during the same period last year. Our net income continued to increase to over RMB39 million, marking the highest quarterly GAAP net income since our listing. We also maintained a positive operating cash flow for the third consecutive quarter. This indicates that as external challenges gradually diminished the inherent strength of the company are being apparent, bringing us closer to achieving our long term profitability goals. The third quarter is China's fixed travel season. We have seen a surge in domestic tourism. Additionally, in August, a third batch of countries opened up for outbound tourism heightened the public increase and enthusiasm for travel and further accelerated the recovery of outbound travel market. Leading the opportunity presented by the rapid market recovery, we leveraged Tuniu’s strengths to achieve rapid business development and further consolidate our market position. Influenced by external factors, domestic travel continue to dominate the vacation trip market during the summer, by leveraging our strenght in the upstream segments of our industry chain, we were able to secure a plentiful supply of products for the peak season.
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 developments, while upholding our service quality during both low and peak season. For instance, we have proactively incorporated additional roles within our in-house new tool products, eliminating planned shopping activities that affect the customer experience. This trajectory move has substantially elevated the overall travel experience for our customers. And to ensure service quality during the peak season, we placed special emphasis on 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 customers with any unforeseen issues. As a result, our new tour products achieved an impressive 98% customer satisfaction rate during the summer. With several classic travel roads 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.
The outbound travel market also continued to recover in the third 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 leverage our procurement advantage 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 our New Zealand as a stand-alone destination in the third quarter has recovered and exceeded the levels we saw in 2019. Moreover, as air travel resources are not yet fully restored, international flight departures ports are relatively concentrated in certain cities. 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. Tuniu's repeat customer continued to make a strong contribution to overall transaction volume. With the reopening of outbound travel many loyal customers have opted for single destination in-depth travel experiences of products for Tuniu’s niche destinations. These offerings typically come with a higher average selling price. Some senior travelers prefer to choose high-end products such as around 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. During the quarter, our live streaming business maintained its leading position within Tuniu’s hotel and travel services category. Alongside our ongoing collaboration with over 10,000 experienced external influencers, Tuniu's MCN agency has taken proactive approach by initiating the training and the development of our own emerging influencers. In conjunction with the agency’s strengthened 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 our products to reach more customers. We continued 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 difference of our products, brands such as [indiscernible]. We will continue to provide our partners with sports in terms of products, systems and management, fostering mutually beneficial and cooperation relationship. Looking to technology. We successfully implemented the system automation across our sales operation including marketing, booking and order processing, helping us to reduce internal labor costs. In the third quarter, our operating expenses amounted to 47% as a percentage of net revenue, down from [17.6%] during the same period last year. As the next step, we plan to further extend our automation capabilities into supply chain management and provide more accessibility to [seek] options for our suppliers and offline stores. This will empower our partners to be more efficient in managing product orders and marketing campaigns online. We will also leverage technical tools and further improve customer experience, creating a more convenient booking experience for our customers. In the third quarter, 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. We will continue to execute our strategies for business development and internal management. We remain committed to providing high quality products and service 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 will now turn the call over to Anqiang, our Financial Controller, for the financial highlights.
Anqiang Chen
Thank you, Donald. Hello, everyone. Now I will walk you through our third quarter of 2023 financial results in greater detail. Please note that all the mentioned amounts are in RMB, unless otherwise stated. You can find the US dollar equivalents of the numbers in our earnings release. For the third quarter of 2023, net revenues were 178.2 million, representing a year-over-year increase of 129% from the corresponding period in 2022. The increase was primarily due to the growth of packaged tour and the travel market [recoveries]. Revenue from packaged tours were up 262% year-over-year to 150.1 million and accounted for 84% of our total net revenues for the quarter. The increase was primarily due to the growth of organized tours. Other revenues were down 23% year-over-year to 28.1 million 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 third quarter of 2023 was 114.8 million, up 155% year-over-year. Operating expenses for the third quarter of 2023 were 83.1 million, up 40% year-over-year. Research and product development expenses for the third quarter of 2023 were 18.4 million, 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 last year. Sales and marketing expenses for the third quarter of 2023 were 39.6 million, up 49% 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 22%, down from 34% during the same period last year. General and administrative expenses for the third quarter of 2023 were 27.1 million, 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 39.4 million in the third quarter of 2023. Non-GAAP net income attributable to ordinary shareholders of Tuniu Corporation, which excluded share based compensation expenses and amortization of acquired intangible assets, was 45.8 million in the third quarter of 2023. As of September 30, 2023, the company had cash and cash equivalents, restricted cash and short term investments of 1.2 billion. Cash flow generated from operations for the third quarter of 2023 was 55.1 million. Capital expenditures for the third quarter of 2023 were 1.7 million. For the fourth quarter of 2023, the company expected to generate 87.4 million to 92.9 million of net revenues, which represents a 220% to 240% increase year-over-year. Please note that this forecast reflect Tuniu current 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?
Question-and-Answer Session
Operator
[Operator Instructions] The first question comes from [Alice Lee], a Private Investor.
Unidentified Analyst
First of all, congratulations on this quarter's performance. And for the third quarter, what are the proportions of domestic and outbound tourism in revenues, respectively, could you specify several top tourist destinations? Another question is about the fourth quarter’s outlook. How is the business situation in the fourth quarter so far? And for the fourth quarter and full year 2023, do you think you will continue to achieve profitability.
Donald Yu
Firstly, we saw outbound travel continue to recover at a quick pace during the third quarter. 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 Guangdong provinces were traditional hot destinations during summer vacation. 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 one in the third quarter 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 fourth quarter, our GMV generated during the National Day holiday has more than tripled compared to last year's holiday due to the boost of leisure travels. However, as the fourth quarter is an off-season for tourism travels already fall back after the National Day holiday. Senior citizens are one of our major customer growth during the fourth quarter [Indiscernible] traveling by organized tours. We have time to avoid peak season and are encouraged by favorable price during the low season.
Besides personal travels, corporate customized tours will also increase when its near year end in the form of annual meeting, incentive travel and team building activities. In terms of definitions, Northeast China has already gained popularity this year for its rich resources in ice and snow tourism. Looking for products, including ice exhibition and skiing are rising. For outbound travel warm destinations such as Australia and New Zealand in the Southern Hemisphere as well as Southeast Asia countries are really among the wishlist of Chinese travelers. Also Northern Europe itineraries attract mid to high end travelers due to its unique seasonal sceneries. However, despite the increased numbers of opened 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 fourth quarter and will strictly watch the expenses changes as a percentage of our revenues. In all, we’ll make continued efforts to improve our margins and try to achieve profitable yearly results for 2023.
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.
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. You may now disconnect. Good day.
