Hello and thank you for standing by for Tuniu's 2019 Third 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.

Thank you and welcome to our 2019 Third 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 third 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 third quarter earnings conference call. We had a solid quarter of performance during the third quarter of 2019 with net revenues recovering to a positive growth, while achieving non-GAAP profitability. Packaged tours revenues increased by 18% year-over-year as the number of our key regions such as Japan, Australia and New Zealand continues to grow. We are also seeing improvements in Maldives as it continues to make a recovery. For the third consecutive year, we are able to achieve non-GAAP profitability during our peak season in the third quarter. We expect this trend to continue going forward at a greater scale as we further increase our efficiency and achieve greater economies of scale in retailing and procurement. We revolve our 30 days around the developments of our S2B2C model. Tuniu’s established brand and supply chain allow us to quickly scale this model. With Tuniu’s brand we can more efficiently develop our distribution channels and strengthen our supply chain. Additionally, our B2B and social distribution further lowered our branded user acquisition cost and increased our repurchase frequency, making our distribution more stable. Ultimately, we aim to create a S2B2C model that connects supply and demand through our online channels, offline, retail store distribution, social marketing and B2B distribution. As consumer demand for higher-quality products shifts upwards in accordance with increasing purchasing power, it is crucial for Tuniu to increase our standards. Our emphasis on the continual improvement of our product, service and technology will be key to increasing user satisfaction rating, which in turn means higher repurchase rate and pricing power for Tuniu. On the product front, our Niu Tour brand continues to grow rapidly. As a percentage of our packaged tour GMV, Niu Tour contributed to approximately 25% of our packaged…

Thank you, Donald. Hello, everyone. Now I will walk you through our third 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 equivalents of the numbers in our earnings release. Starting from the third quarter of 2019, net revenues were RMB552.5 million representing 12% year-over-year increase. Revenues from packaged tours were up 18% year-over-year to RMB747.1 million and accounted for 88% of our total net revenues for the quarter. The increase was primarily due to the growth of organized tours. Other revenues were down 19% year-over-year to RMB105.4 million and accounted for 12% of total net revenues. The decrease was primarily due to the decline in revenues generated from financial services and service fees received from insurance companies. Gross profit was down 3% year-over-year to RMB380.5 million for the third quarter of 2019. Operating expenses for the third quarter of 2019 were RMB433.3 million, up 11% year-over-year, excluding share-based compensation and amortization of acquired intangible assets. Non-GAAP operating expenses were RMB385.7 million, representing a year-over-year increase of 13%. Research and product development expenses for the third quarter of 2019 were RMB84.3 million, down 18% year-over-year. The decrease was primarily due to the improvement 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 for the third quarter of 2019 were RMB240 million, up 15% year-over-year. The increase was primarily due to the expansion of our offline retail stores. General and administrative expenses for the third quarter of 2019 were RMB138.5 million, up 13% 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 RMB13.5 million in the third quarter of 2019. Non-GAAP net income attributable to ordinary shareholders which excludes share-based compensation expenses and amortization of acquired intangible assets was RMB38.2 million in the third quarter of 2019. As of September 30, 2019, the company had cash and cash equivalents, restricted cash and short-term investments of RMB2.2 billion. In the third quarter, cash and cash conversion cycle was negative 28 days compared to negative 22 days in the corresponding period last year. Capital expenditures for the third quarter of this year was RMB32.1 million. Tuniu currently expects to generate RMB438.2 million to RMB461.8 million of net revenues for the fourth quarter of 2019, which represents 2% to 7% year-over-year decrease. Please note that this forecast reflects Tuniu's 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?

We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Elaine Hei [ph] who’s a private investor.

Hi, management. Thanks for taking my question. I was wondering if you can share more details on the destination breakdown for this quarter and which destinations drove the recovery of packaged tour revenues? Thanks. And later I will have a follow-up question.

Hi. Thank you for your questions. As you know, our packaged tour revenues grew 18% year-over-year making a solid recovery. In terms of the key drivers for the recovery, destinations such as Japan, Australia and New Zealand all posted double-digit growth. Also, the Maldives was another important destination with GMV and especially our take rates improving. The headwind from the economic slowdown and lower demand for a number of other airlines destinations such as Mauritius, which a number of the Chinese travelers, declined during the quarter, roughly 40%. Hong Kong and Thailand regions both declined during the quarter as well. For your questions about the destination breakdown, domestic tour contributed Tuniu about 35% during this quarter and at the same level – same period last year; Europe 20%, Japan 12%, Southeast Asia 10%, Maldives and other islands better, about 10%; Middle East, Africa about less than 5%. Thank you.

Our next question comes from William Yen [ph] with Blue Sky Capital.

Hi. Congratulations on the results. I have two questions. The first one is, can you share with us the profitability outlook for the near future? And were you expecting to breakeven next quarter on the upcoming year?

Thank you for your questions. Unfortunately, we don’t give the next year guidance. The third quarter is a peak season for Tuniu. Travel demand and product pricing are both higher during the period. Our ability to generate profit reflects clear economics of scale of our operations. As for the next quarter, it’s generally weaker than this quarter with a soft travel demand. Going forward, we believe our focus on improving our products and services and our technology will be the key to reaching profitability. As Niu Tour, Tuniu’s brand product, continue to scale both its higher gross margins and higher repurchase rate, which allowed us to have a higher financial contribution. On the distribution side, Tuniu’s B2B distribution network will also help us increase our coverage in the low tier cities and enlarge our sales channels. Automation will benefit us in better controlling our expenses. Okay. To comment, we are well positioned to approach the profitability in the future. Thank you.

[Operator Instructions]. Our next question is a follow-up from Elaine Hei.

Hi, management. I have one more question. Can you give a bit more color on the reason for the negative guidance for the next quarter? Thanks.

Thank you for your question. The negative guidance is largely due to the expected decline in the packaged tour revenues as a result of the slowdown of the economics. A number of the key destinations such as Middle East and Africa, the cruise line and some islands such as Mauritius, as we mentioned earlier, continued to experience negative growth in Chinese travelers. These destinations tend to have higher SP [ph] and take rate, so their impact is large in our top line growth. Hong Kong and the United States also continued to experience negative growth due to the internal factors. We expect these internal factors to be temporary. Also, other revenues we expect to continue its decline as we are focused on financial services for the traveler-related factors. Yes, this is our guidance in the next quarter.

[Operator Instructions]. Our next question is a follow-up from William Yen with Blue Sky Capital.

Hi. Can management share with us some key revenue drivers in the strategy for reaching profitability? Thank you.

[Foreign Language] In the past few years we dedicated a large amount of resource into developing our offline retail store network. So currently we are – in terms of our network relatively developed and we have become the largest operator of direct offline retail stores in China. So, right now we are focusing on efficiency. And as these stores increase their efficiency and as we increase the number of stores in terms of store count, we expect the contribution from our offline retail stores to increase as a percentage of our revenues. We also launched our partner model and this will be an important part for us to reach down into the low tier cities. Overall, our offline store distribution channel is relatively developed but we will continue growing in the future. [Foreign Language] Previously, our Niu Tour products or Niu Tour branded products were only exclusively offered on proprietary premium channels. However, we see the demand for high-quality products to be needed across China. So we are opening up our Niu Tour brand to collaborate with all kinds of channels across the industry. We believe this will be an important driver for revenue in the future as well. [Foreign Language] In terms of technology, we have recently opened up our dynamic packaging technology to all of our suppliers and distributors. We’re sharing this technology because it helps them with their efficiency and also it allows them to leverage Tuniu’s already developed supply chain. This helps them – especially the more independent distributors or suppliers to dynamically bundle products together for better efficiency. So we look forward to distributing our technology to all of our partners in order to gain growth for both Tuniu and our partners. [Foreign Language] We are also actively working internally or through investments to find similar products as Niu Tour. We believe there’s a great demand for these products as they are extremely important in the development of the industry. We will closely work together with these independent brand or brands that we develop ourselves to push for the development of the travel retail industry here in China. [Foreign Language] These brands share similarity. They are high quality and relatively different from what the traditional market offering. So there are relatively more unique products. [Foreign Language] By achieving high satisfaction ratings, we are able to try for a higher repurchase rate and we have the ability to independently price these products. Thank you.

[Operator Instructions]. As we have no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Maria for any closing remarks.

Once again, thank you for joining us today. Thank you for your continued support. We are looking forward to speaking with you in the coming months. Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.