Donald Yu - Founder, Chairman, Chief Executive Officer Maria Xin - Chief Financial Officer Mary Chen - Director of Investor Relations

Hello and thank you for standing by for Tuniu's, 2019 Second Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] 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.

Thank you, Andrew and welcome to our 2019 Second Quarter 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 second quarter of 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.

Thank you, Mary. Good day, everyone. Welcome to our 2019 second quarter earnings conference call. During the quarter we remain focused on improving our products, strengthening our supply chain and expanding our distribution channels. Tuniu’s long term competitive advantage is now clearer and more defined than ever. On the product side we offer a complete suite of top selling New Tour products that captures the involving demands of Chinese travelers. These products have a higher user satisfaction rating and the potentially higher margins. We also continue to innovate new products in accordance to market demand in order to drive a new customer appreciation. Tuniu’s offline retail stores were another driving during the quarter. Our networks of stores continue to be an efficient channel of acquiring new customers. Offline retail stores contributed to approximately 22% of our packaged tour GMV during the quarter compared to 13% during the same period last year. In terms of the user experience, our offline stores complement our online customer service to give our customers a complete booking experience. In the second half of 2019, Tuniu has continued to expand the reach of this offline retail stores network with an increased emphasis on efficiency of our existing stores, balancing between scale and the profitability. Under our S2B2C model, we leveraged our well know and established brand asset in order to achieve growth though our distribution changes and profits through our supply chain. Historically Tuniu’s B2C changes such as our mobile application, tour advisors and our offline retail stores were our main distribution channels. Over the years our distribution channels now takes on the more benefit form. Our S2B2C distribution such as Difeng and social e-commerce continue to gain traction. This helps Tuniu evolve from a B2C centric channel into a multi-channel distribution, allowing Tuniu to reach…

Thank you, Donald. Hello everyone. Now I will walk you through our second quarter 2019 financial results in greater detail. Please note that all the monetary amounts are in RMB, unless otherwise stated. You can find the U.S. dollar equivalent of the numbers in our earnings release. Starting from the second quarter of 2019, net revenues were RMB520.3 million representing 1% year-over-year decrease. Revenues from packaged tours was down 2% year-over-year to RMB429.5 million and accounted for 83% 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 up 4% year-over-year to RMB90.8 million and accounted for 17% for the total net revenue. The increase was primarily due to a raise in commission fees received from certain travel-related products. Gross profit was down 10% year-over-year to RMB233 million for the second quarter of 2019. Operating expenses for the second quarter of 2019 were RMB432.2 million, up 16% year-over-year. Excluding share-based compensation and amortization of our acquired intangible assets, non-GAAP operating expenses were RMB382.5 million, representing a year-over-year increase of 23%. Research and product development expenses for the second quarter of 2019 were RMB80.2 million up 4% year-over-year .The increase was primarily due to an increase in research and product development personnel related expenses. Sales and marketing expenses for the second quarter of 2019 were RMB224.6 million, up 29% year-over-year. The increase was primarily due to expansion of our offline retail stores and our strengthened promotional campaigns on certain marketing channels. General and administrative expenses for the second quarter of 2019 were RMB134.4 million, up 4% year-over-year. The increase was primarily due to an increase in general and administrative personnel related expenses. Net loss attributable to ordinary shareholders was RMB168.0 million in the second quarter of 2019. Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses and amortization of acquired intangible assets, was RMB116.4 million in the second quarter of 2019. As of June 30, 2019, the company had cash and cash equivalents, restricted cash and short-term investments of RMB2.0 billion. Cash flow generated from operations for the second quarter of 2019 were RMB235 million. In the second quarter, cash conversion cycle was negative 34 days compared to negative 27 days in the corresponding period of last year. Capital expenditures for the second quarter of this year was RMB28 million. Tuniu currently expect to generate RMB763.1 million to RMB801.3 million of net revenues for the third quarter of 2019, which represents 0% to 5% year-over-year increase. Please note that all the forecast reflects Tuniu's current and the preliminary view of the industry and its operations which is subject to change. Thank you for listening. We are now ready for your questions. Operator.

Hi management. Thank you for taking my questions. I have two questions. First, can management share with us the revenue breakdown by destinations for this quarter? The second question, what is the reason for the increase in expenses during this quarter? Are you expecting the increase in expenses to be trend going forward? Thanks.

Thank you for your questions. In terms of the destinations, we are continuing to see an effect by the one area of external events such as service tax and internal trade tensions. According to the official travel, this peak phase, we are seeing declines in Chinese travelers in a number of destinations. Now in terms of the gross booking breakdown for this quarter, domestic tours contributed to nearly about 30% and the U.S. contributed 20%; Japan and South Korea together 10%; South East Asia 10%; and the islands and both the Maldives together 10% and Americas about 5%. So to answer your second question about the expenses during this quarter, to start on the second half last year, we opened a lot of new off-line stores. Compared to the same period last year, we have more than 300 off-line stores opened during the second half 2018. So this is a result of the expenses increased in this year compared to the same period last year. But in the second half of this year, so this increase will be reduced. So going forward, we will continue to optimize our off-line store efficiency and increase our employees, average employees ourselves in the off-line store and unlock two new profitability potential. Thank you.

Thank you.

[Operator Instructions] The next question comes from William Yen of Blue Sky Capital. Please go ahead.

Thanks management. You mentioned the S2B2C [ph] in your opening remarks. Can you elaborate it a bit, how it’s different from our previous strategy? Thanks. Donald Yu [Interpreted]: This is the first time that we mentioned S2B2C model. So in the past few years we have been focusing on diversifying our sales channels and we are able to effectively lower our user acquisition costs and this can be seen through our financials. Previously Tuniu has primarily focused on B2C distribution, however as we’ve really scaled the marginal user acquisition costs also increased rather significantly. So in the past few years we've been trying to diversify our channels and one of the ways we really focused on raising the amount of repeat customers and their repurchases on Tuniu’s as well as we started opening a number of off-line retail stores in order to really diversify our channels. As we really diversify our sales channels, we were trying to leverage ways to acquire new users through other means. For our overall company we are trying to control the user acquisition costs to a suitable amount, as well as we are trying to minimize our loss while also balancing growth. So our off-line stores grow in scale. We have accumulated a number – a rather large amount of experience in operating these off-line stores. So we are seeing a number of our off-line stores are breaking-even and a certain amount are rather profitable. These stores are generally located in the first and second tier cities. So overall we are very confident in the health and state of these off-line retail stores. So on the supply chain side, Tuniu has always focused on penetrating deeper into the supply chain. We started our New Tour products 10 years ago, so we have a lot of…

Thank you. It’s very helpful.

[Operator Instructions] We are now approaching the end of the conference call. I will now turn the call over to Tuniu’s CFO, Maria Xin 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. Thank you.

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