Mary Chen - Investor Relations Director Donald Dunde Yu - Co-Founder, Chairman and Chief Executive Officer Maria Yi Xin - Chief Financial Officer.

Vicky Wu - ICBC International.

Hello, and thank you for standing by for Tuniu’s 2018 First Quarter Earnings 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. 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 Chen..

Thank you, and welcome to our 2018 first quarter earnings conference call. Joining me on the call today are Donald Yu, Co-Founder, Chairman and Chief Executive Officer; and Maria Xin, Chief Financial Officer. For today’s agenda, management will discuss business updates, operational highlights and financial performance for the first quarter of 2018.

Before we continue, I refer you to our safe harbor statements in 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 Co-Founder, Chairman and Chief Executive Officer, Donald Yu..

Thank you, Mary. Good day, everyone. Welcome to our 2018 first quarter earnings conference call. During the first quarter of 2018, we continue to execute our cost strategy to lay the foundation for better Tuniu with stronger sales and service networks in both departure and destination ticket.

Despite being negatively impacted by external factors in destinations such as Maldives, South Korea and Bali, our packaged tour revenues increased by 13% year-over-year. We continue to see strong recovery in Europe with revenues growing by more than 88% year-over-year during the quarter.

Other regions also continue to grow organically, for example, revenues with Australia and New Zealand grew more than 30% year-over-year. We continue to narrow our losses through a number of key strategies.

For our sales network, our offline retail stores continue to help Tuniu attract new users and efficiently and effectively lower user acquisition costs. Our stores utilizes the new retail model concept, allowing our offline customers to have an online experience with price transparency and full customer cost.

During the first quarter of 2018, users acquired through our retail stores contributed more than 10% of our packaged tour GMV. For our service network, we also made strong progress. We’ve been taking our local tour operator model to more locations as we launched seven more local tour operators recently.

We continue to make strides in the optimization of our expense structure. In the past, Tuniu primarily focused on branding promotions to the general public in order to establish our brand.

Now that Tuniu is the household name among Chinese consumers, we have shifted our promotions to channel-based marketing, targeting specific demographics through to customize campaigns. This also contributed to the lowering of our user acquisition cost.

We believe there is still room for additional expense optimization to be unlocked in the next few quarters, which will ultimately maximize shareholder value in future. Now I would like to give an update on our strategies in the – in greater detail. I’ll first start with our sales network.

Since our founding in 2006, Tuniu has primarily focused on departure cities. We have prioritized creating a network connection all of the departure cities across China to centralized user travel platform.

As of the end of the first quarter of 2018, Tuniu has 420 departure cities throughout China, providing comprehensive products and services to all of China. Over the years, we have successfully accumulated a large customer base and developed a brand capable of efficiently acquiring new users.

Today, our sales network has been more [indiscernible] consisting of our online website, mobile app, offline stores, loyalty program, B2B distribution and GMV. For online – for offline retail stores, we opened 51 new stores recently.

We continue to fine-tune our offline retail stores to further enhance customer experience and increase user commercial reach. Data have also shown that these offline retail stores are highly efficient in helping us expand to lower tier cities due to the lower user acquisition cost of these stores.

We expect our increased offline presence will continue to help Tuniu lower its blended user acquisition cost and help us reach more customers, especially in lower tiered cities. As of the end of the first quarter, we have more than 60 million members in our loyalty program.

For our existing members, our loyalty program provides an efficient channel for us to more frequently engage with our customers. By offering loyalty service and various travel perks, we are seeing higher levels of business to the Tuniu once the customer enters our loyalty program.

During the first quarter, repeat customers contributed to more than 68% [ph] of our GMV. By continuing to improve our customers – customer service, we expect to continue increasing our commercial reach of both repeat customers and the newly acquired customers. Our other distribution channel also continue to quickly grow.

During the first quarter of 2018, GMV from our TMC channel increased more than 200% year-over-year, while our B2B distribution channel grow more than 50% year-over-year.

As the leading online leisure travel company in China, we have developed a comprehensive sales network that allows to efficiently acquire customers through various channels at different departure cities.

With a solid foundation established through our sales network, our next step is to replicate the expansion model to our service network at the destinations. We started our direct procurement in 2014. Since then, we have quickly increased the percentage of direct procurement to more than 48% during the first quarter of 2018.

With direct procurement, we are able to design the itinerary of the trip based on user data to quick strategies and control the quality of the products. However, direct procurement is just the first step in the development of our service network.

Last year, we also launched a number of our own local tour operators at popular destinations, both in China and internationally. As of April 30, 2018, we have local tour operators in 19 domestic and two international destinations.

In most offline tours, the most important component is the tour guide, because of the amount of time we spent with the travelers. By having our own local tour operators, we are able to fully generate – fully guarantee the quality of the tour guides and the service provided by them.

It will further enhances our position in the supply chain and allow us to better control the quality of our products. By having our own local tour operator, we are also able to take a higher percentage of the retail price. We believe our local tour operators, we are able to make meaningful contributions to our financials once it reaches scale.

For international destinations, we have launched a global partnership program aimed at partnering with local tour operator abroad. This program will help us quickly set up our own local tour operators in popular international destinations.

In the future, our local tour operators will be a key component of our service network, as we aim to have 30 domestic local tour operators by the end of 2018.

By combining products with our local tour operators and those that are directly procured by us, Tuniu is able to expand further into the travel supply chain and strengthenour competitive advantage. In addition to organized tours, our sales service network will also provide better products and services to self-guided tour travelers.

We plan to further increase the amount of our content to our mobile destination channels. Within this channel, travelers may find detail information on their destination, including categories such as places to eat and shop, local tours and other destination-based product.

By providing these selections to our customers, we give self-guided tourtravelers the confidence to design a perfect trip. Currently, we already have dedicated destination channels for more than 1,000 destinations across the world. Our destination channels will also help Tuniu acquire customers.

Data have shown an increasingly higher proportion of customers who prefer to book products after they get to the destination. We believe our destination channels will be able to provide the necessary content of these customers to plan their schedule.

We will also work with a variety of business, such as local restaurants and shopping centers to promote Tuniu´s products. In addition to destination-based promotions, we will give you the tour to better share the pictures and itinerary for – of their trips on social media, allowing our users to promote Tuniu’s products within their social circle.

Overall, we believe our service network will greatly supplement our sales network to create an ecosystem differentiating Tuniu from other – from our peers. Lastly, I would like to talk about our other revenues.

Even though our other revenues decreased year-over-year during the quarter due to the decline in revenue from our air ticketing and insurance businesses. The change will only temporarily impact our financials as the core package tour business continues to grow.

We believe the change in product bundling processis a positive step for the travel industry and will have increased user experience in the long run. We are confident that the decline in our other revenues will be temporary.

Overall, we’re seeing a recovery in our growth rate during the second quarter of 2018 and expect that recovery to continue in the upcoming quarters. With China’s rising consumption power, Chinese travelers are demanding better services and experiences.

Many of these demands are still unmet and there continues to be an opportunity for Tuniu to provide products and services consistent with current demand through its service network. So our sales network gives Tuniu the ability to efficiently acquire customers through a variety of channels.

On the other hand, our service network allows us to service our customers through products with our local tour operators our products directly operated by Tuniu. The two networks combined to form an ecosystem that defines Tuniu’s competitive advantage within the online leisure travel market in China.

With our blended user acquisition costs declining from the expansion of our sales networks and the bargaining power increasing from the development of our service network, Tuniu’s operational efficiency will continue to secure in the future. I’ll now turn the call over to Maria Xin, our CFO, for the financial highlights..

Thank you, Donald. Hello, everyone. Now I will walk you through our first quarter 2018 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 first quarter of 2018, net revenues were RMB480.5 million, representing 5.4% year-over-year growth. Revenues from packaged tours, which are mainly recognized on a net basis were up 13% year-over-year to RMB402.7 million and accounted for 84% 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 down 22% year-over-year to RMB77.9 million and accounted for 16% of our total net revenues for the quarter.

The decrease was primarily due to the decline in revenues generated from financial services, commission fees received from air ticketing and service fees received from the service companies. Gross profit was up 4% year-over-year to RMB262.6 million for the quarter.

The increase was primarily due to the increase in efficiency resulting from the economies of scale. Operating expenses for the first quarter of 2018 was RMB384 million, down 31% year-over-year, excluding share-based compensation and amortization of acquired intangible assets.

Non-GAAP operating expenses were RMB336 million, representing a year-over-year decrease from 33%. Research and product development expenses for the quarter was RMB84 million, down 47% year-over-year.

Research and the product development expenses as a percentage of net revenues were 17% in the first quarter of 2018, decreasing from the 35% in the corresponding period in 2017.

The decrease was primarily due to the increase in efficiency resulting from the economies of scale and the refined management and optimization of research and product development personnel. Sales and marketing expenses for the quarter were RMB186 million, down 27% year-over-year.

Sales and marketing expenses as a percentage of net revenues were 39% in the first quarter of 2018, decreasing from 56% in the corresponding period in 2017. The decrease was primarily due to the optimization of operational expenses structures and the preference for marketing channels with higher ROI.

General and administrative expenses for the quarter were RMB115 million, down 24% year-over-year. General and administrative expenses as a percentage of net revenues were 24% in the first quarter of 2018, decreasing from the 33% in the corresponding period in 2017.

The decrease was primarily due to the increase in efficiency resulting from the economies of scale and the decline in personnel related fees. Net loss attributable to ordinary shareholders was RMB74.7 million in the first quarter of 2018.

Non-GAAP net loss attributable to ordinary shareholders, which exclude share-based compensation expenses and amortization of acquired intangible assets was RMB26.9 million in the first quarter of 2018..

Cash flow generated from operations for the first quarter of this year was RMB14.7 million, compared to a negative cash flow from operations of RMB439.4 million in the corresponding period last year. This was primarily due to the decrease in net loss and the improved management of our working capital.

Capital expenditures for the first quarter of this year were RMB19.9 million. Tuniu currently expect to generate RMB519.9 million to RMB538.3 million of net revenues in the second quarter of 2018, which represent 13% to 17% growth 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. Thank you for listening. We are now ready for your questions.

Operator?.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Vicky Wu of ICBC International. Please go ahead..

Hi, hi management, thank you for taking my questions.

My question is regarding the guidance first and could management give more color on the guidance of the package tour in the 2Q in 2018? And the next question is about the local operator strategy, can management give more color on this strategy this year such as the geographic preference, or the partnerships and of target members and do you consider M&A the strategies in the future? Thanks..

Thank you, Vicky. So let me give more color on the – our guidance in the second quarter. Despite the negative impact of external destinations, certain destinations such as Maldives, Bali, but our package tour revenues continue to grow.

We see the recovering of the growth rates in the second quarter and we expect our package tour revenues may grow around the 30% in the second quarter. For other revenues, because of the impacts by the bundling policy, it will still impact our financial results and the negative growth in the second quarter.

And overall, we believe this short-term and the temporary impacted our financials and the – as we continue to extending our sales services network, we are confident with our long-term goals..

[Foreign Language].

For our local tour operators, we aim to have around approximately 38% within China by the end of this year, and for international local tour operators we plan to have approximately 5%.

So in terms of the future, from a domestic perspective, we believe that approximately 30 local tour operators is probably enough as this covers most of the important destinations throughout in China. So, given that we probably would not increase the number of local tour operators by a significant amount next year.

As for international destination we believe we have still a lot of room to grow and we will push out new destinations throughout the next few years..

[Foreign Language].

So in 2017 our local tour operators, both domestically and internationally served 600,000 trips. We plan to turn that number into 1 million trips in 2018, and by 2019 just on our domestic sites, we plan to have 1 million in trips.

So given the scale of our local tour operators, we are one of the largest local tour operators in China in terms of GMV and trips.

So our service network, which is essentially our local tour operators, complement to our sales networks, because our sales networks has the traffic to directly send over to our service network, we are able to quickly and efficiently scale our operations at the destination. So this applies to direct to channel as well.

We’re able to have our source services at destination and meets all of our connections in network and traffic from the departure cities and a click at all at the destination..

[Foreign Language].

So in terms of our service network, it doesn’t necessarily only serve as a local tour operator. It actually – we also encourage our users to share their experiences, their fixtures, their itineraries with their friends and families. So we want to promote users to use their own social circles to push our – to recommend our products.

So this is a very important part, because it gives us additional promotions and gives Tuniu a stronger brand name. And this also spread toward on the high-quality service that we offer at the destination..

[Foreign Language].

Traditionally we acquire users through at the destinations. Most of our promotions are done at the local cities or through our sales network, but we are also going to try more promotions at the destination services. We believe there is still a large opportunity.

Lot of users are bookings their products later in the trip and by promoting more of our products and services and even content at the destination, we believe it’s a positive step for us..

Thank you, thank you management. And can I have a follow-up, a quick follow-up question.

It’s about the take rates in 1Q?.

Yes, we continue to see the take rate, the take rates was increasing in the past quarter, because we are doing more and more direct procurement as we are set up in the service network in the destination, we feel we have room to improve our take rates in the future..

Thank you..

[Operator Instructions] Our next question comes from [Elaine Hee] [ph], a private investor. Please go ahead..

Hello.

This is [Elaine Hee] [indiscernible] Tuniu’s offline sales compared with peer companies such as Dunde Yu and other companies?.

[Foreign Language].

Most of our offline stores are directly operated by Tuniu. Only there are a few number of stores at the destination where we partner with our local partners. So from the departure cities, all our stores are directly operated by Tuniu.

So no matter which channel, the key difference of our offline retail stores is our professional service, we offer a complete O2O service procedure, allowing customers have very professional customer service throughout their booking experience.

And there is another difference of our stores compared to peers is, our stores are very centralized within the cities. We are building out different models to find other efficient ways to cover these cities and to reach out to larger cities as well.

And in terms of efficiency, we are seeing that a number of smaller cities use the offline retail stores are even more efficient and are able to acquire one customer at a lower cost..

[Foreign Language].

We are also testing out a number of retail stores at the destination, however, this is still at its earlier stages. For these destination-based retail stores, we are primarily targeting people who have booked all their products and are already at the destination, so some of the people included are self-guided tourists.

And at these destination stores, we offer a number of services, including hotel booking, car rental and other products and services. So we are seeing that once we service them at destination, a lot of them – a number of them actually comes back to our stores when they come back to their hometown.

So this creates a very strong synergy between departure cities, retail stores and destination-based retail stores. So by having destination-based retail stores, we are able to maximize the lifetime value of customers on our platform..

Hello?.

Hello? Yes, do you have follow-up questions?.

Yes, I have another question. Hello? I noticed there’s a decrease in acquisition cost, especially the sales and marketing expenses.

So may I know how you acquire more customers?.

Yes, there are a number of factors that, of course, that we reduce our new customer acquisition costs. First, our offline stores continued to be in pressure with user. During the first quarter, the user acquired by offline retail stores footprint contributed more than 2% of our packaged tour GMVs.

Another reason is that, we are continuing to diversify our channels. Currently, we have sales network consist of the online website, mobile app, offline stores, multi-programs, the B2B distribution and the TMC.

As mentioned earlier, the channels – new channels are growing very fast during the past quarter, which also help us to lower the average user acquisition cost. And in the past, Tuniu’s marketing dollar more concentrated in the – to build up the trend. Currently, Tuniu’s brand is a home-held brand in China.

So that we utilize our brand assets, and so this also help us continue to lowering our user acquisition costs..

We are now approaching the end of the conference call. I will turn – 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..