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Tuniu Corporation (TOUR -2.40%)
Q1 2020 Earnings Call
Jun 10, 2020, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Hello, and thank you for standing by for Tuniu's 2020 first quarter earnings conference call. At this time, all participants are in 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 -- Investor Relations Director
Thank you, Kate, and welcome to our 2020 first 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 first quarter of 2020.
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 Dunde Yu -- Founder, Chairman and Chief Executive Officer
Thank you, Mary. Good day, everyone. Welcome to our 2020 first quarter earnings conference call. I would like -- I would first like to give a brief update on the travel market in China, following the outbreak of COVID-19 earlier in this year. China's domestic travel market continues to trend positively as the market continues to make its recovery. Based on the official statistics released by the China Tourism Academy, the number of tourists traveled during China's 2020 Labor Day holiday on May 1st were over 150 million.
In terms of China's outbound travel market, we continue to see challenges in the foreseeable future as other countries deal with COVID-19 with varying degrees of progress. The recovery of the outbound market will dependent on other countries' recovery progress in the second half of 2020. Currently, China has removed restrictions on inter-province tourist activities but have yet to remove -- have not yet to remove [Phonetic] restrictions on inter-province and outbound tours. Given the current market conditions and regulations, we are focused on capturing the recovery of domestic travel, while closely monitoring the outbound market.
With the outbound market still restricted, a portion of our existing demand for outbound travel has converted into local and domestic products due to accumulating demands. Currently, local and domestic travel products are cost-efficient as tourist attractions use lower prices to attract customers.
Because local and domestic travel products will be a main source of our revenue in this year, we will leverage our existing advantages in direct procurement products, extensive network of local tour operators and the industry-leading service quality to capture the recovery in market. As of the end of April, we offered [Phonetic] over 20,000 SKUs of local tour and road trip products. We are also seeing a record increase in inquiries for these products with the number of trips booked increasing by more than 80% in May on a month-on-month basis. We expect the recovery trends to continue for domestic tours going forward.
I will now go over our strategies in products and sales network in greater detail. First, I would like to talk about our product offering in the current market conditions. In 2012, Tuniu first launched its destination-based tour group products. Over the years, we have perfected the model and have been utilizing it across China. Our destination-based tour group products can be scaled more easily compared to traditional products where travels are required to assemble at the departure city. Additionally, destination-based products are more flexible in terms of transportation. We have leveraged our expertise in the destination-based products model for local products, giving our customers more choices for their trips. We plan to replicate the success of the destination-based model to long haul domestic tours once the limitations are lifted.
Our current product offerings of local products are mostly new tour products. These products offer the full experience to our customers. Our dedication to service quality and customer experience remains a priority during these special times. Tuniu's local tour operator continues to serve a vital role in our commitment to service quality by direct servicing our customers and by procuring high-quality local resources. Our local tour operator network will also be instrumental in having Tuniu capture the recovery in demand once domestic travel limitation is fully removed.
During the recovery period following the outbreak of COVID-19, customers continue to be cautious of the environment. We have created more personalized tours for these customers with additional safety measures. These products allow two or more people to have their own personalized tour with a dedicated tour guide. Compared to traditional organized tour, these personalized tours are more flexible compared to tailored tours. They are more cost-efficient.
Road trip tours are another popular product type during the current conditions. These products package together attraction ticketing with hotel booking in the current market environment where both tourist attractions and hotels are seeking to attract customers through discounted price. Road trip tours are especially cost-efficient and are able to meet the demand of both mid-end and high-end customers.
Parents wanting to take their children to travel in [Phonetic] a major customer group for road trip tours. Given that the current products on market are unable to fully [Phonetic] cover the needs of these customers, we will put increased emphasis on creating better products and services for these parents.
Tuniu has always been a company that puts our customers first. Although the current market conditions continue to be challenging, we have found products such as the destination-based products, personalized tours and road trip tours to be suitable products for our customers now. Going forward, we will continue to innovate new types of products for different customer segments in order to offer a better customer experience.
Now, I would like to talk about our sales network during the current conditions. Since Tuniu's inception, our high-quality products and services have helped us accumulate a loyal group of customers. We launched [Indecipherable], our social marketing tool, in early 2019 in order to reach more customers and social circles. With COVID-19, our social marketing tool serves as a safe way for our customer service representatives to reach and engage with both new and existing customers. A number of our suppliers and partners utilize the Tuniu's social marketing tool to offer local specialty products and other non-travel products. Going forward, we look to increase utilization rate of [Indecipherable] for our partners and to reach more customers across China.
Live streaming has become a new channel in our sales network recently. We initially tested out live streaming two years ago in order to provide customers more information on potential destinations. As live streaming sales capabilities become increasingly developed, on April 15, we held our first live streaming session aimed to selling products. I personally attended these sessions once every week, together with our product manager, customer representative or our tour guide. These sessions are interactive, and customers are able to quickly learn about certain destinations and easily book the product during the broadcast. We continue to see success in these streaming sessions, and we will continue to offer discounted and limited quantity products to viewers. In the future, we will test out more types of streaming contents to engage with users.
We continue to find opportunities in the current market conditions. However, we continue to expect the impact of COIVD-19 to be long term, as limitations on outbound travel remains in place. With local and inter-province travel demand recovering, we are confident that the market will recover in due time. In the meantime, we will continue to provide high-quality products and services to our customers, while innovating new forms of products based on market demand. We will also work with partners across the industry such as regional travel bureau and our peers to navigate through the current challenges.
I will now turn the call to Anqiang Chen, our Financial Controller, for the financial highlights.
Anqiang Chen -- Financial Controller
Thank you, Donald. Hello, everyone. Now, I will walk you through our first quarter 2020 financial results in greater detail. Please note that all the monetary amounts are in RMB, unless otherwise stated. You can find the US dollar equivalents of the numbers in our earnings release.
For the first quarter of 2020, net revenues were RMB174 million, representing a year-over-year decrease of 62% from the corresponding period in 2019. The decrease was primarily due to the negative impact brought out by the outbreak and spread of COVID-19.
Revenues from packaged tours were down 67% year-over-year to RMB120.2 million and accounted for 69% of our total net revenues for the quarter. The decrease was primarily due to the suspension of sales of packaged tours impacted by the outbreak and spread of COVID-19.
Other revenues were down 41% year-over-year to RMB53.7 million and accounted for 31% of our total net revenues. The decrease was primarily due to the decline in service fees received from insurance companies and revenues generated from financial services.
Gross margin was 53.2% in the first quarter of 2020 compared to a gross margin of 54.9% in the first quarter of 2019.
Operating expenses for the first quarter of 2020 were RMB308 million, down 29% year-over-year. Excluding share-based compensation expenses, amortization of acquired intangible assets and impairment of acquired intangible assets, non-GAAP operating expenses were RMB270.4 million, representing a year-over-year decrease of 28%.
Research and product development expenses for the first quarter of 2020 were RMB51 million, down 36% year-over-year. The decrease was primarily due to the decrease in research and product development personnel related expenses. Sales and marketing expenses for the first quarter of 2020 were RMB124.7 million, down 43% year-over-year. The decrease was primarily due to the decrease in promotion expenses and sales and marketing personnel related expenses. General and administrative expenses for the first quarter of 2020 were RMB133.9 million, down 1% year-over-year. The decrease was primarily due to the decrease in general and administrative personnel related expenses.
Net loss attributable to ordinary shareholders was RMB201.5 million in the first quarter of 2020. Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses, amortization of acquired intangible assets and impairment of acquired intangible assets, was RMB163.7 million in the first quarter of 2020.
As of March 31, 2020, the Company had cash and cash equivalents, restricted cash and short-term investments of RMB2.1 billion. The COVID-19 pandemic had negatively impacted our business operations and cash flows during the first quarter of 2020, which could continue to impact on subsequent period. Based on our liquidity assessment and management actions, we believe that our available cash, cash equivalents and cash generated from future operations and maturity of investments will be sufficient to meet our working capital requirements and capital expenditures in the ordinary course of business for the foreseeable future. Capital expenditures for the first quarter of 2020 were RMB13.5 million.
As a result of continued influence by COVID-19, for the second quarter of 2020, the Company expects to generate RMB20.8 million to RMB72.8 million of net revenues, which represents 86% to 96% 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 to the uncertainties brought about by the impact of COVID-19.
Thank you for listening. We're now ready for your questions. Operator?
Questions and Answers:
Operator
[Operator Instructions] Our first question comes from William Yang [Phonetic] of Bluesky Capital. Please go ahead.
William Yang -- Bluesky Capital -- Analyst
Hi. Management. I just wanted to ask how the Company plans to navigate through the gradual recovery of the market? Thank you.
Donald Dunde Yu -- Founder, Chairman and Chief Executive Officer
Thank you for your question. First, the travel plans that were delayed by the COVID-19 have resulted in an accumulation of demand. A portion of demand for outbound travel that cannot be met in the current state have been converted to domestic and local products. We will leverage this trend to offer better domestic products to customers. Since April, the growth rate in the number of bookings have been trending up.
Now, in terms of how we plan to capture the recovery, we will leverage our experience [Phonetic] in Tuniu-branded products and the established network of over 30 local tour operators to shift our focus to domestic products. Products that have city tours, countryside tours, themed [Phonetic] tours, attraction ticketing and local hotels will be the key segments. Also, to provide our customers with safest conditions, we are also promoting a number of smaller group tours such as tailored and road trip tours.
In the current state of the market, we are also utilizing new forms of distribution such as live streaming and social marketing to stimulate customer interest and to maintain engagement with our existing customers. This way, we will be better placed to capture the recovery in the future.
Lastly, on the financial side, COVID-19 has resulted in losses totaling approximately RMB100 million as we provided coverage on the losses for our customers. As of March 31st, the Company has cash and cash equivalents, restricted cash and short-term investments of RMB2.1 billion. We still have a strong balance sheet and have the capital to maintain our operations during the current challenge and to capture the opportunities once the China's leisure travel market makes its full recovery. Thank you.
Operator
[Operator Instructions] There are no other questions at this time. 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 -- Investor Relations Director
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. Thank you.
Operator
[Operator Closing Remarks]
Duration: 23 minutes
Call participants:
Mary Chen -- Investor Relations Director
Donald Dunde Yu -- Founder, Chairman and Chief Executive Officer
Anqiang Chen -- Financial Controller
William Yang -- Bluesky Capital -- Analyst
