Maria Xin - IR and Strategic Investment Director Dunde Yu - CO-Founder, Chairman and CEO Conor Yang - CFO.

Ella Ji - Oppenheimer Tian Hou - TH Capital Ida You - CICC Amanda Chen - Morgan Stanley Juan Lin - 86Research Evan Zhou - Credit Suisse.

Hello and thank you for standing by for Tuniu's First Quarter 2015 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. [Operator Instructions].

I would now like to turn the meeting over to your host for today's conference to IR and Strategic Investment Director, Maria..

Thank you and welcome to our first quarter 2015 earnings conference call. Joining me on the call today are Donald Yu, Co-founder, Chairman and Chief Executive Officer; Alex Yan, Co-founder, President and Chief Operating Officer; and Conor Yang, Chief Financial Officer.

For today's agenda management business updates, operations highlight and financial performance for the first quarter 2015. Before we continue, I refer you to our Safe Harbor statement in earnings press release which applies to this call. I believe 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 the figures mentioned during this conference call are in RMB.

I would now like to turn the call over to our Co-founder and Chief Executive Officer, Donald Yu..

Thanks Maria. Good day everyone. Welcome to our first quarter 2015 earnings conference call. I am pleased to report that we delivered exceptional growth in expanding our market share during the first quarter with gross bookings rising by 117% year-over-year.

This is acceleration from the 70% increase in gross bookings as we saw in the fourth quarter of 2014. Our growth continues to be significantly faster than both our peers and overall industry.

This demonstrates the success of our strategy to build the market share by offering a broad portfolio of leisure travel products and industry leading customer service combining with competitive pricing.

We are confident that we will be able to further expand our market share by leveraging our recent strategic partnership with JD.com implementing a three year business expansion plan and continuing our aggressive investments in our business. Now I will provide an update on these key initiatives.

In early May we launched a strategic partnership with JD.com in conjunction with the U.S. dollar 500 million investments from a group venture including JD.com. This investment is a strong testament to our positive outlook within the fast growing industry and will give us the resources to continue expanding our business and accelerating our growth.

As part of the collaboration we will leverage JD.com's strong user traffic, customer base, big data capabilities, financial services and the operational support to further penetrate the [indiscernible] market.

The new capital will also enable us to more aggressively enrich our product portfolio, expand regional service centers, improve user experience, promote our brand and advanced research and development capabilities.

Specifically, over the next three years, we plan to expand our coverage to 1,000 departure cities and to establish 100 service centers at our most popular international travel destinations.

We also aim to establish product development centers in Beijing, Shanghai and Guangzhou to better leverage local resources and to expand our [SQs as] travel destinations to 1 million so that we can provide a more comprehensive services to our customers. To execute our business plan, we need to continue to invest in our future.

In 2015, we will invest in the following strategic areas to strengthen our long-term leadership position, regional expansion within China service capabilities at overseas destinations R&D and the mobile technology and company branding.

First, we remain committed to investing in and expanding our regional service centers throughout China and especially for lower tier cities. Regional expansion will allow us to stay close to local customers, improve our local sorting, strengthen our products generation capabilities and ensure seamless online to off line services.

Also it will enable Tuniu to capture opportunities from local markets with strong growth potential. We are particularly pleased to see strong growth momentum from the 58 cities where we have added new centers since the beginning of 2014.

As regards gross bookings from these cities with new centers already contributed to 12% of the company's total gross bookings in the first quarter, compared to less than 2% a year ago.

Secondly as I noted earlier we have seen tremendous growth in outbound tours, together with this growth we are seeing stronger demand for better services at overseas destination cities that can improve users' travel experience.

To meet this trend we established a new business department dedicated to overseas destination services in order to accelerate our investment in developing new and better products at overseas destinations.

In the next three years we will open over 100 oversea destination service centers in popular destinations, these centers serve as the crucial infrastructure for Tuniu to better understand and meet travelers diverse and the evolving needs.

It will provide services such as car rental, local guides, street tours and dining services to self-guided travelers to address co-operation with local suppliers. Customers will have the flexibility to purchase add-ons when booking package tours or travel related services through our website or app.

Thirdly we will enhance our investment in research and development as well as mobile technology. By making long term investments we enhance our management systems of procurement, inventory and the pricing. We can improve our supply chain management in order to increase our overall efficiency.

Our mobile segment is rapidly developing as more customers are booking through our mobile channel. In the first quarter mobile platforms contributed to over 70% of total online traffic and 55% of total orders up from 60% and 45% respectively in the previous quarter.

Mobile orders accounted for 70% of attraction ticket, 50% of local tour and 85% our train tickets in the first quarter. Going forward we will make ongoing investments on our mobile to improve the user experience and increase customer [stickiness]. In terms of branding we understand that our two new brands is one of our most important assets.

In the first quarter we invested in the comprehensive staff or branding initiative through both online and offline channels. In the future we will continue to invest in marketing and advertising to ensure that consumers recognize and adopt our brand.

We are confident that these four areas of long term strategic investments will drive the expansion of our market share and position Tuniu as the number one online leader travel provider in China in the years to come. I'll now turn the call over to Conor Yang our CFO for the financial highlights..

Thank you Donald, hello everyone. We are pleased to deliver a strong quarter with net revenue exceeding both our guidance and market expectation. As we continue to gain market share within the rapidly growing in China leisure travel market. I will now walk you through our first quarter 2015 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.

Starting from the first quarter of 2015 the gross bookings including organized tours and self-guided tours for the first quarter increased by 116.9% year-by-year to 1.9 billion, including 72.2% from outbound tours. Organized tours accounted for 65.8% of the overall gross bookings in this quarter.

For the first quarter net revenues were 1248.2 million representing 115.9 year-over-year growth. Revenues from organized tours, substantially all of which are recognized on a gross basis were up 116.8% year-over-year to 1,201.4 million and accounted for 96.2% of our total net revenues for the quarter.

The increase was primarily due to the rapid growth in demand for travel in certain international destinations such as Europe, North America, South Korea and Japan, and for domestic tours.

The number of trips for organized tour excluding local tours increased by 154.8% year-over-year to over 259,000 and the number of trips of local tour increased by 77.7% year-over-year to over 200,000.

Revenues from self-guided tours, which are recognized on a net basis were up 77.3% year-over-year to 40.4 million and accounted for 3.2% of our total net revenues.

The increase was primarily due to the growth in travel to Maldives, South Korea, certain islands and domestic destinations, the number of trips for self-guided tours increased by 200% year-over-year to over 199,000 in the first quarter of 2015.

Other revenues which are recognized after net basis were up 105.2% year-over-year to 11.2 million primarily due to an increasing revenues from tourist attraction tickets and service fees received from insurance companies and revenues from visa applications and certain new businesses such as service fees associated with the air tickets and train tickets.

Gross margins for the first quarter 2015 was 4.1% compared to a 7.3% same quarter in 2014. The decline in gross margin was primarily due to Tuniu's investment in pricing and higher costs associated with the newly-opened regional service centers, new product lines and newly-added second and third tier departing cities.

Operating expenses for the first quarter of 2015 were 293.8 million, up 170% year-over-year excluding share-based compensation non-GAAP, operating expenses were 281.1 million representing a year-over-year increase of 158.3%. Research and product development expenses for the first quarter of 2015 were 43.5 million, up 156.3% year-over-year.

The increase was primarily due to investments and new product offerings and mobile related initiatives and the increase of technology and product development personnel related expenses. Sales and marketing expenses for the first quarter of 2015 were 189.7 million, up 158.1% year-over-year.

The increase was primarily due to branding enhanced campaigns and advertisements related to our mobile business expansion. General and administrative expenses were 62 million in the first quarter of 2015, up 214.2% year-over-year.

The increase was primarily due to an increase in the headcount of our administrative and regional personnel as a result of our business expansion and an increase in the professional service fees associated with being a public company. Net loss attributable to ordinary shareholders was 233.1 million in the first quarter of 2015.

Non-GAAP net loss attributable to ordinary shareholders which excluded share-based compensation expenses was 220.2 million in the first quarter of 2015. As of March 31, 2015, Company has cash and cash equivalents, restricted cash and short-term investments of 1.9 billion.

Cash flow generated from operations from the first quarter of 2015 was 19.5 million. In the first quarter, cash conversion cycle was negative 28 days compared to the negative 42 days in the corresponding period last year. Capital expenditures for the first quarter of this year were 10.5 million.

Now let me provide top line guidance for the second quarter of 2015, as Donald mentioned earlier in this call, we are confident about the outlook for the second quarter of 2015 and expect the trend of accelerated growth in our top line to continue, as our investment in regional expansion, product offering and marketing initiatives started to pay off.

Tuniu currently expects to generate revenue in the range of RMB1,396.9 million to RMB1,432.7 million in the second quarter of 2015, representing a 95% to 100% year-over-year increase. 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.

Now we are ready for your questions.

Operator?.

The first question comes from Ella Ji with Oppenheimer. Please go ahead..

Good evening. Congratulations on a strong quarter. Two questions. First, I am not sure if I missed it in your prepared remarks.

What is the total percentage coming from direct procurement in this quarter and would you reiterate your target by end of 2015? And secondarily, could you share with us how much does repeat customers represent within your total orders in 1Q? Thank you..

Okay, thank you Ella. The direct procurement percentage at the current level is around 20% and our target is like within three years' time will increase to like 50% of our total procurement from direct procurement and the other 50% will still be working with suppliers.

In terms of the repeated orders, our current level in this quarter, we generated about 37% from the old customers. So the rest of 63% generated from new customers. And we have seen the ratio from old customers continue to increase.

A year ago that was kind of slightly below 30 and as we continue our effort in the customer retention program, that ratio has increase to current level by about 37% even considering the growth rate of this quarter as the highest among the last many quarters, the old customer repeat ratio is still very high. Thank you..

The next question comes from Tian Hou with TH Capital. Please go ahead..

Hi, Conor and congratulations on the good quarter. And so for your three year plan and you are talking about establish like 100 service centers and 1,000 departure cities and it's very how to say exciting target.

So would you like to share some specific under those targets? For example, what is the average growth rate or CAGR for your gross booking and the number of trips and the net revenues for the three years, each year, and how many headcounts you expect increase? And also, you are going to develop the centers in Beijing, Shanghai and Guangzhou, and I wonder what's exactly the functions of those centers? That's my question..

Okay, yes.

Just answer the second part of the question that as we continue to grow we found as necessary for [tenant] recruitment that are based in Beijing, Shanghai and Guangzhou, these major cities and that is also that the most important purpose for that is really to set up a direct procurement center as many tenants they are actually working in these places.

So by setting up the regional service expanding the size of Beijing, Shanghai and Guangzhou will be very, very helpful for us to recruit tenants as well as for the setting up of the direct procurement center and to beef up our product offering.

In terms of the setting up 100 service center in the destination cities and 1,000 departing cities in three year time, we believe that this will be extremely helpful for our topline.

For example the regional service center we set up last year really contribute as Dunde 12% of our total [GMB] for the first quarter this year and we believe by expanding to like a large number of, as we just mentioned, definitely will be very, very helpful for our business expansion and yes, on the other side, I am sorry that we cannot provide guidance for the whole year and next two years.

But we believe at current level we are at 100% something and by expanding more definitely will be helpful for our overall CAGR..

How many people you are going to hire? How many additional [indiscernible] accounts are you going to have in each year time?.

Right this year is the -- we invested a lot in the regional service center and currently our -- as we continue to expand we'll be going to like a smallest cities.

The overall the gross rate of the headcounts for this year and next will be kind of as we continuing to investment, you might not see much of a leverage of that, but give like year later that the headcount increased should be less than the top line growth rate increase on year-over-year basis, so that's kind of the current plan..

The next comes from the Ida You with CICC. Please go ahead..

I have two questions here, the first one is, management share with some more colors about the impact to the OTA sector as after [indiscernible] corporation and as you know the [indiscernible] corporate with Expedia dynamic package tour business going forward, so what do you see the impact to Tuniu? The second question is about after the JD's investment in Tuniu and now Tuniu has cash and cash equivalents, I think going forward will reach [indiscernible] [plus 5] billion, so what will company do with those money [except] your three year long-term plan, are you going to do some M&As or do investments in some smaller companies? That's two questions..

Yes, these two companies like Ctrip and eLong especially eLong is more like hotel sectors. In terms of the current ranking that for the hotels sector business in terms of the number of room nights that as Ctrip rank number one followed by [indiscernible] and then in eLong in China.

So by the combination of Ctrip and eLong then China will move up its rank four to three. And these two actually we considered the kind of Ctrip the large investment eLong that's now really impact our business because we are in the leisure travel package tour side that eLong doesn’t have that sector of the business.

In terms of the -- yes, you're right, after JD investment our cash will be more than RMB4 billion. Our investment will continue to be in the area of the departing city, regional service center and the service center on the destination areas. Other than these we mentioned -- we will look for suitable M&A target present on the vertical integration side.

There are many good companies around China. We are evaluating those opportunities were to that as it is feeding our appropriate business strategy..

Okay just one follow-up, [they should] work operate with TDI to dynamic package tour business going forward, so what will that impact Tuniu, do you think Tuniu will together with Ctrip to share of their resources from Expedia or more competitive pressure from this side?.

Expedia, they are dynamic packing they're really catering for like foreign visitors to China or their target actually that it's not the Chinese consumers, they're like offshore business and our businesses -- all our clients actually coming out from departing from China, so definitely it's not overlapping.

And in terms of the sourcing of our air tickets and hotels as many of you just might know that the one that for hotel that the one they sell to OTA business that they sell to travel agencies business as through different type of pie different channel and different pricing and again like air tickets are similar like to when they sell to individual retail customers from OTA side business they're selling to travel agencies business, the industry is a different segment and different pricing.

So even they might work together but we have done seeing that, that's how that will be impacting our business. .

The next question comes from Amanda Chen with Morgan Stanley, please go ahead..

I have three questions here, first is, regarding your self-guided tour it seems that our take rates improved quite nicely this quarter, was up from around 5% last quarter to almost 6% this quarter, so could you please share any special reasons behind, we understand that the direct procurement percentage is increasing but for this very healthy growth do you see any special reason behind, thank you..

All right, in terms of the self-guided tours, as we continue to increase our sight as we continue to do more direct procurement we do see a small improvement from previous quarter, but in terms of the ELB comparison you know overall margin still below that year ago as we mentioned that we're investing in some of the pricing, also that, the regional expansion, personnel expenses also be part of the cost of revenues.

So overall this quarter margin is not below a year ago, but in terms of the take rates you are right. As we continue to have a higher scale of procurement and more direct procurement we think that the overall for a longer term will be helpful for our take rate overall..

Got it, thank you. The second question is a follow up on the three year expansion plan, could you give us more specific guidance on how it will impact our topline and bottom line, especially the bottom line. How should we expect the margin in next three years and will we post on the breakeven point in maybe through 2017 or even later? Thank you..

As you know that before the founding from [indiscernible] and others this time, the first quarter we're able to grow at 117% on a TMV, so as at we see more investment, definitely that we will free up our expansion plan and so that's why we set this three year plan, in terms of the topline as I mentioned earlier we look at the track of the newly setup regional service center we have down last year that has already contributed 12% already and given the fact that we only have 75 regional service centers as of now, if we expand to 1,000 departing cities you can imagine that will be [truly] helpful.

Of course the more and more we expand we'll go to into smaller cities like third tier, even fourth tier cities or fifth tier cities. China is very-very big, a lot of untapped market that we need to penetrate. So I cannot give you a specific number on the topline growth through this expansion but our belief is that will be very-very helpful.

In terms of the bottom line, again that, where we invest in regional service center last year and you see that, that has impact on our kind of bottom line, this is the investment phase and as we continue to invest more, yes you might see in a short term also have an impact on the bottom line the tradeoff will be have a higher topline going forward.

So in terms of when will be the breakeven period of time we do not give a specific guidance on that, but as we continue to grow faster and we should be able to see certain leverage start to kick in, that the level of loss ratio will start o kind of improve from next year..

Okay, that's very helpful and the third one is [indiscernible] question, could you please share on the GMV front different tier cities and also from Obon Travels, that's the third question, thank you..

Yes the Obon, this quarter is due to [indiscernible], the first quarter typical especially the Chinese New Year, more people travel abroad so this quarter our Obon have posed a more than 72%, 72% of our overall GMV.

In terms of the GMV coming out from the different departing cities we have seen again that due to our regional expansion those first tier cities percentage from first tier city has decreased compared with one year ago from about 60 plus percent to currently above 50% from Beijing, Shanghai, Guangdong, and Shenzhen, and we expect going forward that the smaller city percentage will continue to increase.

In terms of the destination cities composed of the GMV, we see a very-very strong growth rate from Southeast Asia. So the first quarter of this year, the number one destination actually is Southeast Asia that's composed about 15%, 16% of the total GMV. And followed by like [Maldives] about 13% and then also Japan and Korea also increased quite fast.

From last quarter Japan, Korea probably 8% of GMV this quarter increased to 10%. So the top three areas like Southeast Asia 16%, and [Maldives] 13%, followed by Japan, Korea about 10% and next will be like Europe..

How much from Europe please?.

Europe, slightly below 10% yes..

Your next question comes from Juan Lin of 86Research. Please go ahead..

I have one question regarding the competitive environment. Your takeaway declined sharply by over 2 percentage points over the last quarter. I was just wondering what is the main reason behind the aggressive pricing strategy. Have you seen any improvement in the competitive environment.

And going forward, more importantly, what is the long-term target for your gross margin and the operating margin particularly for your type of business model?.

Right.

This quarter, our pricing actually, [we funnel] the markets, so you will see that the sudden drop on first quarter on the take rate but still, we expect that this year probably, as far as we are seeing that current stage will be gradually improved from the first quarter, that we don’t expect much improvement for this year because we think that this market is very [growing fat] also attracts lots of new entrants into this area and so in this short-term we don’t expect much improvement from the gross margin side.

But given long-term target as we continue to increase the percentage of the direct procurement as we continue to increase our economy of scale between the gross margin of the GMV side should be able to reach about 10% in the longer term target with the operating profit in the longer term probably 2%, 3%. .

The next question comes from Evan Zhou with Credit Suisse. Please go ahead..

Just two quick follow ups. One is on the other revenue. You mentioned in the previous prepared remarks that we have insurance revenue with the component and also some other contribution from the air ticket and hotels, and train tickets.

Can you give us some more color on what's kind of the overall breakdown between these categories and what kind of the growth rate for each category that we can foresee as this quarter the other revenue has been growing pretty well? Thanks..

Yes, the major improvement actually is from the insurance as we continue to -- we [insurance fee] from insurance. As we continue to grow faster and larger in size, our bargain power with the insurance company has increased. So compared with the one year ago we have the repay ratio from insurance companies has increased quite substantially.

Other revenues, major contribution is coming out from the insurance company and in terms of the other new business for example as you know we have newly added like hotel channel, air ticketing channel and the train ticket channel but these are still in the infant stage, we see the growth rate of course is very high because the pace was very small, but in terms of percentage contribution from hotel channel, air ticketing and the train ticketing channel actually is still quite small compared to the overall other revenue.

So the majority contribution is coming out from the insurance field. And of course in terms of the percentage, the tour [indiscernible] tickets is like ranked number two following the insurance commission. .

Got it, thanks. Second question is regarding the sales and marketing spend, I think this quarter we feel kind of pretty aggressive spending more in there.

I was wondering like can we have some more color on the component with the sales marketing, how much is from like the brand marketing spend and what are the other major channels that we have spend incremental to the previous quarters? Thank you..

All right, if you recall, that's a quarter ago in 2014 first quarter we were still a private company so we did not spend much on the branding. So in terms of year-over-year comparison, yes we have invested in branding this quarter, mostly since like second quarter of last year.

So I think going to the second quarter this year you will see the growth rate will not be as much as you have seen so far.

And in terms of the marketing spending, close to 50% of the first quarter spending are for offline, we cover all kind of major satellite TV channels in China and for example like we have advertisement for like I Am a Singer which is ranked number one popular program in China in first quarter and many, many others.

And the other major spending on the marketing is for the mobile application and promotions. We have seen that more and more traffic on mobile site and the percentage of marketing spending on mobile has also increased. So the offline branding campaign as well as the spending on the mobile advertising that's the kind of two major products.

And in terms of the other, like PC online is just regular spending on like SEM, like web directory as we have spent in the past, not much changing on that front. .

The next question comes from [indiscernible]. Please go ahead..

Hi, thanks for taking my questions. So my question is regarding the direct procurement. So can management comment on what's the strategy going forward, how to continue to increase direct procurement contribution but meanwhile also minimizing the interest conflict with the suppliers to maintain good relationship with them? Thank you. .

Right, this year we have set up a few core destinations that we want to emphasize more first is Europe and then followed by like U.S. and then Japan. So in these areas that we will increase the direct procurement percentage more.

And in terms of how is this going to conflict our existing suppliers, actually it's somewhat different, it's very different actually, in terms of the client base, our direct procurement product is catering for like mid to high end customers' need, will have a high standard of like hotel, meals and everything.

So the direct procurement product will be more like mid to high end versus our suppliers, existing suppliers packaged products is more designed for the mass markets. And in terms of how we do the procurement is also different than our suppliers. We will do the direct procurement in terms of our group, our tool will be formed in the destination areas.

So we will gather customers for many, many places that we have a service, regional service center, we'll send them to or fly to their destination and then we form the group in the next phase versus our suppliers they are typically like based in seven destinations, departing cities. So they will form a group in the departing cities.

So that's different methodology than we form the group in the destination places. .

The next question is a follow up from Juan Lin with 86Research. Please go ahead..

Thanks for taking my follow up question.

I am just wondering, by the end of the first quarter, how many service centers have you already achieved and what is the total number of departure service center are you planning to reach by the end of 2015?.

We are prepared for opening more, as you know that we opened a lot in the fourth quarter last year, so as of the first quarter end we have like close to 80, but our plan, this time, we are preparing for opening many more. Our target is at least to increase to about 200 departing cities as regional service center by end of this year.

Before the funding of this -- before this 500 million investment our original target was 125 and now we have revised to close to over 200 departing cities by the end of this year..

The next question is a follow-up from Tian Hou with TH Capital. Please go ahead..

My question is related to your relationship with some offline travel services providers and as you started to do the self-procurement and start to have your own products, do you see any conflict of interest between you and those offline service providers such as the one we saw not long ago and in China some agencies start to have some kind of a protest to Tuniu even though you [indiscernible] agreement, I wonder if such saturation will happen again in the future?.

Due to our rapid expansion of our business of course we have definitely takeaway many businesses of the traditional retail [indiscernible] agencies on the retail side.

So therefore like the few weeks ago you have seen that there are about 16 travel agencies [indiscernible] to us and most of them actually also have a retail outlet therefore there is certain conflict over there. But at the end of the day as we can see that it only takes two days the problem was solved last time.

I think that it will come to a point that both side traditional travel agency will work together more and more with online company like Tuniu will help our supply to sell more product, I mean, that's what they want.

So even though we do direct procurement but as I mentioned earlier for Henry's question that these are -- we have a different segmentation of the customers, our products for more mid to high end versus suppliers for multiple mass market so there is kind of differentiation of our direct procurement product.

So I think the point is as we continue to sell more products for our suppliers, they will definitely see that it's beneficial to work with Tuniu more..

This concludes our question-and-answer session. I would like to turn the conference back over to the management for any 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..