Maria Xin - Head, IR and Strategic Investment Donald Yu - Co-Founder, Chairman and CEO Alex Yan - Co-Founder, President and COO Conor Yang - CFO.

Natalie Wu - CICC Maria Minli - Deutsche Bank Tian Hou - T.H. Capital Evan Zhou - Credit Suisse Group.

Hello and thank you for standing by for Tuniu’s 2017 First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only-mode. After management’s prepared remarks, there will be a question-and-answer session.

I will turn the meeting over to your host for today’s conference call, Head of Investor Relations and Strategic Investment, Maria. .

Thank you. And welcome to our 2017 first quarter 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 will discuss business update, operational highlights and financial performance for the first quarter of 2017. 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 discussion 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 in this conference call are in RMB.

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

Thank you, Maria. Good day everyone. Welcome to our 2017 first quarter earnings conference call. We are pleased to report a strong first quarter to start off 2017. Our net revenue increased by over 60% year-over-year while gross profit increased by over 170%, year-over-year.

Also, during the quarter, we further improved our number one positions in online leisure travel market in China. Our focus on improving operational efficiency and realizing economies of scale has helped us significantly reduce our net loss, both on an absolute basis and as a percentage of revenue.

As we continue to improve our gross margin while controlling costs, our path to profitability becomes increasingly clearly. China’s leisure travel market continued to grow at a healthy pace during the first quarter of 2017.

The growth rate of the travel industry continued to outpace the growth of the overall economy and idea of travel becomes increasingly widespread in China’s household and developed as a habit. We are seeing solid growth across all top demographics as each generation of traveler is finding their own customized style of travel.

Young adult generations are travelling more and more with friends and co-workers, while older generations are traveling more frequently with their families.

Based on third-party reports, Tuniu continued to lead the online travel market in China during the first quarter of 2017 with the market share of approximately 27%, consistently outpacing the growth rate of our industry peers as well as the overall growth of the industry.

Starting in the second half of 2016, we have made several improvements to the efficiency of our business. We are pleased with the progress we have made during the past quarters. Significant improvement to step of our operation has contributed to higher margins and better control of our expenses.

Additional improvements will continue to be implemented throughout 2017 to further strengthen our efficiency and support growth. Now, I would like to give an update on our key strategies for 2017 in greater detail. In 2017, Tuniu will primarily focus on its core operation and innovation.

Starting with customer service, we have a number of exciting features that will be fully implemented this year, with the goal to further improve customer experience. Our core initiative to improving customer experience on Tuniu will be the newly implemented one-stop consultant feature.

This feature will further streamline our customer service by carrying our customers with one dedicated customer service representative whenever they book and travel with Tuniu.

The customer service representative will be in charge of helping the customer plan and book their trip and resolve questions that we may raise people during and after their trip.

This will greatly enhance the customer experience as it allows our customer service to closely work with our customer during a period of generally two to four weeks, creating a more personal life experience for our customer.

Our one-stop customer service feature will also dramatically reduce the average time required to help with each booking as the customer service representative will be fully aware of the customer’s expectations while handling customer inquiries.

Next, I’d like to talk about our strategy for improving the level of customer vision [ph] and the quality of our travel products. One of our key initiatives this year is the fragmentation and the restructuring of travel resources. We will break down every travel product with most granular element; our system will then recognize each element.

Our system will then reorganize these elements into bookable products and allow the customers to be able to fully customize in terms of every perspective.

For example, for services that were previously only available to technical pool of products, we can now break down the individual elements such as the bus ride to a tour site or staff [ph] service in hotel and fit it into fully customized suite.

This feature will greatly enhance the level of customization for our customers and help them assemble their preferred trip. This will also lead the utilization rate of our products resources by making each element bookable and will give customers the ability to book various complementary services with higher price transparency.

On the product design and procurement side, Tuniu has also been making strong progress. While our packaged tour products formed at destinations continue to gain traction with our customers, we will also continue to make improvements to our direct procurement capabilities.

Previously, we direct our -- direct procurement allowed us to directly procure products from local tour operators and bundle it together with transportation and accommodation. Now, we are taking a further step in enhancing our direct procurement by acting as the local tour operator.

For certain domestic and international products, we have already hired the tour guides, booked the tour buses, and designed the schedule of the trip. We leverage our years of experience and understanding our customer preference to create the most suitable products for each region.

By serving as the local tour operator, we have a stronger control over the quality of our products and improved the price competitiveness of our packages. Lastly, I would like to talk about our technology. Big data analytics continue to be used across our operations.

We have strengthened our usage of big data by pushing products to our customers based on their location and the historical preferences. On the sales and marketing side, we have increased the efficiency of our company campaigns by leveraging our data from previous campaigns to identify channels with high return on investments.

Using this data, we have reallocated our sales and marketing budget to primarily focus on these channels with high returns to maximize our efficiency. Based on our recent performance, we have been successful in maintaining our growth momentum in recent quarters, even while reducing our sales and marketing expenses.

This is a positive for us because it reflects our previous investment into brand has been successful and we are able to leverage that brand as an asset for sustained growth in the future.

Also, in 2017, as we improve and upgrade our internal [indiscernible] systems to increase the level of automation, we will be able to more efficiently grow our business into scale while controlling operation cost. Overall, we will implement new features in customer service, product innovation and technology on Tuniu in 2017.

These features will continue to improve the quality of our products and services, to meet the growing demand for customers. By focusing on our core products and services, we expect to continue strengthening our leading position in the online leisure travel market in China.

I will now turn the call over to Conor Yang, our CFO, for the financial highlights..

Thank you, Donald and hello everyone. Before we begin with the financial highlights, I would like to first go over some changes to our accounting standard. Starting from January 1, 2017, we adopted the new ASC 606 accounting standard by applying a full retrospective method.

Since our role changed from a principal to an agent, under the new standard, substantially all of our revenues from the organized tours, which were previously recognized on a gross basis changed to be recognized on a net basis.

Over the relevant standard change, the timing of our revenue recognition of packaged-tour services from the tour ended to the departing day of the tour.

To increase the comparability of operating results and aid investors to better understand our business performance and operating trends, we have provided the comparison of revenues, cost of revenues and gross profit for the first quarter of 2017 with relevant non-GAAP adjusted data for corresponding periods in 2016 in our earnings release.

Please also note that starting from this quarter, our packaged-tour and other revenues reflect a negative impact of the adoption of VAT tax of approximately 5% to 10%. Now, I’ll walk you through our first quarter 2017 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. Net revenue was RMB456 million, representing 60% year-over-year growth compared to non-GAAP net revenues from the corresponding period in 2017.

Revenues from packaged tours, substantially all of which are recognized on a net basis were up 53% year-over-year on a non-GAAP basis to RMB355 million and accounted for 78% of our total net revenues for the quarter. The increase was primarily due to the growth of organized tours and self-guided tours.

Other revenues were up 52% year-over-year on a non-GAAP basis to RMB100 million and accounted for 22% of our total net revenues. The increase was primarily due to commission fees received from other travel-related products, such as transportation ticketing and accommodation reservation.

Gross profit was up 171% year-over-year on a non-GAAP basis to RMB251.3 million for the first quarter of 2017. That increase in gross profit was primarily due to the economies of scale and optimization of our supply chain management. Operating expenses for the first quarter of 2017 were RMB559.3 million, down 14% year-over-year.

Excluding share-based compensation and amortization of acquired intangible asset, non-GAAP operating expenses were RMB498.5 million, representing a year-over-year decrease of 15%. Research and product development expenses for the first quarter 2017 were RMB159.4 million, up 31% year-over-year.

The increase was primarily due to investment on implementation of additional product categories, such as transportation ticketing, accommodation reservation and financial services, improvement of online technology.

Research and product development expenses as a percentage of net revenues were 35% in the first quarter of 2017, decreasing from 43% as a percentage of non-GAAP net revenues in the corresponding period in 2016. The decrease was primarily due to an increase in our efficiency resulting from economies of scale and implementation of new systems.

Sales and marketing expenses for the first quarter of 2017 were RMB253.8 million, down 34% year-over-year. Sales and marketing expenses as a percentage of net revenues were 56% in the first quarter of 2017, decreasing from 135% as a percentage of non-GAAP net revenues in the corresponding period in 2016.

The decrease was primarily due to the decline in brand promotions and preference for marketing channels with higher ROI. General and administrative expenses were RMB155.3 million in the first quarter of 2017, up 5% year-over-year.

The increase was primarily due to the increase in associated expenses as a result of our business and product category expansion. And general and administrative expenses as a percentage of net revenue were 33% in the first quarter of 2017, decreasing from 51% as a percentage of non-GAAP net revenues in the corresponding period in 2016.

The decrease was primarily due to the increase in the efficiency resulting from economies of scale and optimization of administrative personnel. Net loss attributable to ordinary shareholders was RMB288.2 million in the first quarter of 2017.

Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses and amortization of acquired intangible assets, was RMB227.1 million in the first quarter of 2017. As of March 31, 2017, Company had cash and cash equivalents, restricted cash and short-term investments of RMB4.2 billion.

In the first quarter, excluding the impact of prepayment to HNA Tourism, cash conversion cycle was negative 20 days compared to negative 26 days in the corresponding period last year. Capital expenditure for the first quarter of this year was RMB14.7 million. Second quarter 2017 outlook.

Now, let me provide the top line guidance for the second quarter of 2017. For the first quarter of 2017, Tuniu expects to generate RMB442.7 million to RMB457.6 million of net revenues, which represents 48% to 53% growth year-over-year compared to non-GAAP net revenues in the corresponding period in 2016.

Please note that this forecast reflects Tuniu’s current and preliminary view of 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. And the first questioner today is Natalie Wu with CICC. Please go ahead with your question. .

Hi. Good evening, management. Thanks for taking my question. So, my question is regarding the GMV growth. So, can management give us some color on the GMV growth in the first quarter of 2017 and also expectation for GMV growth packaged tour and self-guided tour this year.

What kind of the scale do you expect your ticketing and hotel business of GMV can grow into this year and also for next year? And one more follow-up question is that given that you have already reduced a lot of sales and marketing expenses especially those offline branding related sales and marketing expenses.

Is there any kind of side effect you have been witnessed in terms of user activeness as well as new customer acquisitions? Thank you..

Well, our overall GMV this quarter grew about -- above 30% overall and we cannot separate the packaged tour and everything since a lot of our clients actually, they are using our air ticketing and hotel booking for their leisure travel. So that’s the kind of situation for this first quarter.

And our focus really -- our top priority is really to break even -- in the near term while we hope that we -- as we demonstrate, we continue to increase the gross margin and decrease the operating expenses. And hopefully that as first quarter demonstrated, actually we have [indiscernible].

And this will be our priority that creates a clear path to probability and we want to achieve it, company that being profitable for next year, do our best. So therefore that our focus will be, priority-wise what we continue to like decrease expenses -- increase operating expenses efficiency as well increase the gross margin.

And we don’t really provide guidance on future GMV. Thank you..

Another question is regarding the sales and marketing reduction. So, obviously, you have a cut the sales and marketing expense very significantly.

Just wondering, if there any kind of the side effect you have witnessed during the past month?.

Yes, right. We have invest [indiscernible] the last two and half years, and now, it’s time for us to leverage these investments. As we’ve demonstrated that our top line growth rate is very strong. And we’ll spend [ph] a lot of effort to increase customer repeated ratio. Our old customer repeated ratio continued to increase this quarter to about 59%.

So, we decreased actual dollar of marketing expenses, but in fact that our customers continue to come back, increasing more. And as a percentage of the net revenue, we can see that marketing expenses dropped a lot from previous year. And we expect this trend will continue. Thank you..

And our next questioner today is going to be Alvin Jiang with Deutsche Bank. Please go ahead with your question..

Hi, management. This is Maria asking on behalf of Alvin. So, we have two questions here. The first one is about margin. So, for 1Q, especially for the gross margin, we just wonder, what’s the main driver of the margin improvement and also can management share their margin outlook for 2Q and for the full year, 2017.

And the second question is about the financial service business. So, can management share some updates on that business? Thank you..

Right. Gross margin, let me first talk about the product gross margin. Our take rate continues to increase. There are several major reasons that -- firstly that this year we better managed our inventory.

The first quarter last year, beginning of first, last year, we had a substantial inventory loss from areas such as Europe due to those terrorist attacks. This year, we have a lot better managed on the inventory. And also we continue to increase direct procurement percentage, right now to about 40%.

And more importantly, not only replacing -- direct procurement, not only replace the wholesale packaged hotel, but going to the destination, we also do further integration in many popular areas like currency in about seven largest destinations. We even replace the local tour operators job go more direct to the resources for our overall package.

So that also enhanced the overall profitability of our product. And also, as we mentioned last quarter, that we have enhanced our system. Now, we can price more smartly according to our big data analysis and popularity of each product line.

So, now we have with different product lines, we have different pricing strategies that in fact turning to the higher product gross margin. And also due to economies of scale as we continue to increase more, we get more rebates from our supplier. We have a lower procurement cost.

Also this year that we have in many overseas destinations, we have increased our product sourcing capability in areas, such as Europe, such as Southeast Asia, such as Japan, to further integrate on the value supply chain. So overall, that all increased our take rate currently to about 9% more or loss.

And also that on the cost of revenue side that we continue to enhance the efficiency of our operations and we -- second quarter last year, for example we have a lot more customer related, person [ph] and especially in the regional service center and now we make it more efficient. So, that also has a positive impact on our gross margin.

And talking about our financial product, right? Currently, we continue to do that as part of service to attract more customers to our product in terms of like consumer financing for example. We have this quarter about RMB80 million amount that the customers borrow money from month and then they go for trip.

And supply chain financing, similar amount as the previous year. And we increased our financial product; in the meantime we want to very carefully manage our risk..

Our next question is going to be Tian Hou with T.H. Capital. Please go ahead with your question. .

Good evening, management. Congratulations on good quarter and a lot of improvement from last year. I have several questions. I’m going to go one by one. The first question is about the centers you have. In 2015, 2016, you opened a lot of centers across China as part of your brand expansion on marketing effort.

And I wondered how many do you have now at the end of the year and also next year how many do you intend to keep? That’s my first question. I will follow up with the second, Conor..

[Foreign Language].

The total number of regional service center, we intend to keep a very similar number as last year. But, we kind of modified the function of the regional service center. Originally, that -- these regional service centers were all located in the middle of office building; it does not have the function of a customer acquisition.

And this year, we changed more and more, moving from the office to kind of on the street side to make it more visible for our customers. Therefore, we now enabled -- our regional service centers to have a full function, as we seat doing online function.

So, right now, we have lots of branding investment in the past, but we’re lapping that into our like storefront regional service center.

So, customer can go there to sign and we also assigned a regional service center customer sales pocket, so they will also have the capability to acquire customers and also to serve the customers, not only signing contracts in the middle of a trip or even after the trip.

So, we don’t really spend incremental expenses on that; we just modified the function and currently we found it pretty good return on these changes..

Okay. I have two more questions. The next question is related to your operating expense. I see a significant reduction in R&D and sales and marketing in these two lines, both on year-on-year and even sequential basis.

And I wonder, what’s -- how much room do you have going forward to continue this kind of reduction in the absolute dollar basis? And those reduction, where do they do come from? [Foreign Language].

[Foreign Language].

On the operating expenses side, that’s right. First quarter, we have demonstrated that we were able to increase the efficiency of these expenses to a large extend compared to the first quarter last year.

Having said that we -- actually, the highest expenses for the marketing for example was second quarter last year and we also increased a lot of people to the second quarter of last year.

And as a whole, we started kind of downsizing our staff [ph] on second half of last year and to now and even to second quarter we have more efficient in terms of the personnel expenses and operating expenses.

So, our concern is that we have a good demonstration improving our efficiency first quarter -- we will see that second quarter will even show much more positive impact in terms of the overall operating efficiency increase..

I see. I have the last question, I know both JD and Ctrip are your shareholders and now the personnel from those two companies become the director of the Board. They have been your shareholder for a while. And I really would like to see some kind of synergistic activities between you and them.

I wonder if there are any upcoming sort of cooperation down the road, that’s my last question..

[Foreign Language].

Actually Ctrip has been our shareholder and then [technical difficulty] and we have a lot of operations with JD and Ctrip. JD for example, our GMV generated from JD channel last year was kind of about 1 to 2% and now has increased to about 5% of our GMV from JD. So we’re happy to see the development.

We expect that we’ll have more effort on this to increase the contribution percentage from JD to do more. Ctrip are still there, the change of the format but are still there on our Board. And the new Board member, Tao Yang, actually, he’s in charge of their packaged tour product area, the leisure travel side.

So with him coming on board, will be more cooperative projects in terms of the product for company. And definitely, he will not have any price war [ph] as some of the competitor in the market, the two companies, Ctrip and us are very friendly, cooperate any time, and we expect that will continue. Thank you..

And our next questioner is going to be Evan Zhou with Credit Suisse Group. Please go ahead with your question..

Hi. Thank you for taking my questions, questions regarding the demand side. Wondering for this year’s outlook, you’re talking about roughly 30% [ph] GMV growth for first quarter.

How should we think about the -- on the demand side, the outbound travel services, like industry [indiscernible] like a big year or a small year and also specifically by definition, can we have an update on the definition mix, also any specific like strength or weaknesses around those regions?.

Right. On the demand, actually, outbound travel for first quarter in terms of GMV has increased to 72% of our total GMV compared to in the past, around 65, more or less. So we have seen pretty good rebound from outbound travel in the area, like in our area -- in our product, like Middle East, Africa or cruise line, Europe even has been long time, U.S.

no growth, but first quarter, we see pretty healthy growth trend from Europe and also in terms of GMV, our Maldives product also has very good increase. And Japan, Korea, even the Korea, the recent diplomatic relationship with China has kind of tensed, but a lot of customers actually switched to Japan.

As a result, we see Japan, Korea combined are still pretty high percentage of our total GMV. And I think that overall environment this quarter is in terms of outbound area, better than -- improving from our previous year. Your voice, I cannot hear very clearly. If I don’t answer your question, please….

Yes, that would be great..

[Operator Instructions] And our next questioner is going to be Juan Lin with 86Research. Please go ahead with your question..

Hi. Thank you management for taking my question. This is Sisi [ph] asking on behalf of Juan Lin. So, I have one question for maybe for Donald. So, in your prepared remarks, you mentioned that one of our strategy this year is to move further upward along the value chain. So, Tuniu, we’re going to see -- going to act as a local tour operator.

So, my question is in the meantime, we will also purchase the inventory from wholesalers. So, does that mean you will create conflict of interest with those wholesalers and how do we look at the relationship with them? And also my follow-up question related to that is, so we’re seeing this, our purchase for direct procurement.

So, what’s the percentage of the direct procurements from wholesaler and what’s the percentage from direct that we tend to -- to go direct tour operator. Thank you. That’s my question. .

[Foreign language].

As of right now, we have mostly that merchant model that the customer -- model that there are two types. One is we buy from a package wholesaler, currently, about 40 -- 60%, and the other one is direct procurement, which is about 40% of our GMV.

And the other type is we just started -- we also provide our channel open to like third-party suppliers, so like the marketplace business model. And we opened all these products to our customers, and customer can write a comment, can have a different score system for these products.

So, the product itself can compete in a healthy way that the better service product will have a higher score, more -- better comment, therefore, it will sell better. I think it’s a healthy competition. Plus, we have 1.7 million SKUs, many, many different kind of products for our customers to select.

At the end of the day, the product with the better service, with better quality will stand out, using our model. So, there isn’t really so called conflict between us and our package wholesaler because our product actually, we have somewhat kind of differentiated. We don’t do exactly the same product.

We will kind of modify maybe different service vendor, different meal system to kind of differentiate ourselves versus wholesalers’ products..

This will conclude our question-and-answer session. I would like to turn the conference back over to Conor Yang, Chief Financial Officer, 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. Bye-bye..

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