Q2 2020 Trip.com Group Ltd Earnings Call

On the whole prices remain significantly reduced on a year-over-year basis, but the Gap has narrowed most by months our team quickly identified early shift in consumer demands and adapted product and marketing strategies accordingly to suit a prevailing preference for short or activities in recent months. We have observed positive year-over-year growth of more than 20% for short for travel reservation walk across accommodations attractions and the car rental services.

we

Strengthened our relationship with suppliers, especially high-end Hotel Partners the number of the hotels designating us as their preferred distributor increase by more than 10% sequentially from the first quarter over the past months our high-end hotel reservation reach double-digit growth year-over-year. We also affirmed Market leadership in the transportation segment during the month of August our domestic cricket team reservation achieve the Positive year-over-year Growth meaningfully outpacing the industry at a time where overall China domestic flight passenger volume was stung 15 to 20% compared to the last year's level.

Exchange mentioned we have adopted live stream as an Innovative name of directly engaging with customers, which has allowed us to accurately capture demand among our mid to high-end customer base to date product sold through this channel have been priced at an average of R&B 1200 and more than 60% of customers made repeat purchases throughout one more live stream sessions.

In the second quarter corporate travel also so strong recovery momentum as business trips resumed for package tour. It was off restricted throughout the second quarter. However, we were glad to see that the restriction on the domestic group towards were lifted engine next on the international business.

Overseas Market hit the button in April and green shoots of recovery have since been observed in many regions customer has started to travel domestically and hotel reservation have shown initial signs of recovery in order to further stimulate phone number interest. We initiated trouble on campaign and extended our trouble Revival incentives to overseas Market. We reinforce relationship with Global Partners to attack to offer attractive deals leveraging our successful live stream experience in China. We localize this model for targeted International markets, which earned us both market share and Customer Loyalty against the current backdrop of table.

and the volatility

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addition will utilize the business down time to refine our internal capability. For example, our chatbot has improved its efficiency month to 3 x compared to last year's level outbound travel has remained minimal things the initial outbreak in College due to health care concerns along with limited supply and demand. However, we are glad to see the relaxation to cross-border life controls coming into effect on the basis of prudent evaluation.

Despite an even pace of recovery across our international business. We remain optimistic about the long-term growth prospects long, wait encouraged by the global efforts in the development of the back of the vaccine and medical treatment and look forward to the resumption of trouble activities worldwide.

Operationally we further adapted the company to suit the challenging environment through the comprehensive scrutiny of each month expense categories and re-examination of efficiency owing to our largely flexible cost and expense structure and efficient operational management or total costs and expenses decreased by around a 50% year-over-year in the second quarter. We continue to take necessary measures to ensure that our organizations remain lean and efficient while proactively preparing to capture the opportunities during the recovery. The first half of 2020 has been challenging for the travel industry. I would like to thank all of our staff wage.

Game for their dedication throughout this unprecedented.

As we have said before our talented employees are our most available assets. We are committed to ensuring that trip. Group remains an inclusive and attractive workplace where our employees can reach their full potential.

Oh take into consideration of the development of the past few months. We're encouraged by the pace of the recovery in China and look forward to seeing more of our business segments returning to positive growth in the near future in view of recent progress made by medical community that an indication of reopening the borders around the world. We are optimistic about the trajectory towards the incremental recovery for our overseas and off the streets.

With that I will now.

Trying to call to Cindy for the second quarter of 2020 recorded net revenue of Thursday. We presenting a 64% decrease from the same. In 2019 less revenue for the second quarter of 2028 decreased by 33% from the previous quarter the performance reflects a strong recovery of our China domestic business offset a decline of our International businesses accommodation reservation revenue for the second quarter of 2020 with R&B 1.36, representing a 63% increase from the same period in 2019 and a 9% increase from the previous quarter.

Sequential increase of accommodation reservation revenues was mainly driven by the strong recovery momentum of domestic Market of setting declines wage International markets.

Transportation ticketing revenue for the second quarter of 2020 was R&B 1.2 billion representing a 66% decrease from the same period in 2019 and a 52% decrease from the previous quarter.

A sequential decrease of Transportation ticketing revenues from the first quarter of 2020 was mainly due to the significant decline in International System off revenues from China domestic Transportation revenues increased modestly from the previous quarter.

Package to tour revenue for the second quarter of 2020 was 113 million representing an 88% decrease from the same period in 2019 and a 75% decrease from the previous quarter.

Cross region and all about Pakistan's products have been restricted list for the entire second quarter only selected product were permitted to operate such as same private stores and attraction tickety which resulted in the significant year-over-year and sequential decline.

Cross region package to product have resumed operations since July and around 80% of our offline stores have now reopened.

Help me travel revenue for the second quarter of 2020 was R&D $162 million representing a 47% off from the same period in 2019 and a 29% increase from the previous quarter.

Revenues from other business declined by 11% year-on-year for the second quarter of 2020 and the 13% from the previous quarter of reflecting of water impact of the pandemic.

Gross margin was 72% for the second quarter of 2020 which decreased 79% for the same period in 2019 and a 74% for the previous quarter.

Sales and marketing expenses for the second quarter of 2020 decreased by 69% to R&D 661 million.

From the same curious in 2019 and decreased by 52% from a previous quarter.

Sequential decline from the first quarter is primarily driven by saving for international markets as well as full quarter impact of domestic wage marketing efficiency improved during the quarter due to both new initiatives in more cost-effective channels such as live streaming as well as improve the traffic conversion for increasing competitiveness of product offerings.

Product development expenses and G&A expenses for the second quarter of 2020 decreased 32% and 37% respectively from the same period in 2019 a significant portion of the expenses can be considered variable costs GM expensive in the first quarter of 2020 included that that provision of R&D 1.2 billion for the increase of receivables mainly due to the refund for reservation cancellations. We paid on behalf of our travel suppliers and increase the credit risk as a result of the covid-19.

Such provision was minimum during the second quarter which caused a significant decrease of 74% in DNA expenses month, excluding share-based compensation charges total non-gaap operating expenses decreased by 52% year-on-year textual generally flexible cost structure efficient operational management.

Excluding share-based compensation charges now get loss from operations was $200 million.

Dilute with Logic for a DS where I am be $0.80 or US dollar $0.11 for the second quarter of 2020.

Excluding share-based compensation charges and fair value changes of equity security Investments now Gap diluted losses for where I am 1.93 are US dollar $0.27 for the second quarter of 2020.

This year the company has settled 215 million and one point 1 billion worth of convertible bonds in May and June 2020 reducing potential diluted ordinary. She account by approximately 3.1 million.

As of June 13th 2020 the balance of cash and cash equivalents restricted cash short-term Investments held to maturity time and financial product was RMB 64.3 billion or u.s. Dollar 9.1 billion.

portable approximately 1.1 billion

Repay convertible bonds do you on July 1st was wiped out by the by the end of the second quarter and was classified under with prepayment and other current assets on the balance sheet.

In addition in July the company issued US Dollars five hundred million work.

He's holding we have in watching which further bolster our capital reserve.

Now turning to the quarter of 2020. We expect to see continued strong recovery from the China domestic business while the international business with Renee under pressure due to the pandemic.

For the third quarter of 2020 the company currently expects net revenue to decrease by 47% to 52% off.

Excluding share-based compensation charges and the the company expects our non-gaap operating income will be between 1.26 billion to 1.3 billion.

This reflect trip.com groups current and preliminary views, which is subject to change.

The increasing uncertainties due to the pandemic further restricted our visibility. We will continue to monitor the market and provide more colors to a doctor in time.

With that we were open that for questions operator, please.

Thank you. If you wish to ask a question, please, press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star to if you off speaker phone, please pick up your handset to ask your question. We ask that you limit your question to one per person. If you wish to ask another question, please rejoin the queue your next question comes from Alex from JPMorgan, please go ahead.

Thank you management for taking my question. My question is about the international side of the business. How does depend Emich change your International strong? And how do you think about the pace of the recovery in album travel restrictions are gradually lifted. Thank you.

Remain constant for the long-term Prospect of Global Travel industry in the short-term. We focused on domestic travel teams continue to strengthen all competencies Decatur into new customer needs in a closed environment including product or service Innovation. Supply relationship has spent and Technology upgrade phone.

As a result, we have gained further market share in the past few months. In addition. We are also taking advantage of international business down time to upgrade overseas platforms.

Example instant messaging tool handles more than 65% of customers requests for brand cryptic, compared to 20% plus tax.

In terms of recovery so far encouraged to see Regional in the selected border opening and resumption will travel in certain markets. The hotel will receive recovery believe the pandemic has created a unique opportunity for us to extend leadership and key to National and outbound markets leveraging a strong China domestic rebound enjoying lessons for recovering a Home Market will emerge stronger and more competitive player. Once the international markets open up.

Thank you. Your next question comes from Thomas, please go ahead.

Hi, good morning friends management for taking my questions given that we are already the end of September. Can you come in about how we should think about the mobile home during the national holiday season and kill people and on the other hand. Can you also provide a break time of the Q3 Revenue guidance office? Thank you.

Okay. So for the national holiday the early booking data for the national holiday is encouraged and the prices in some top destination either exceeded five-year level, but given the short booking windows. We expect mainstream orders will come in the following month in terms of the breakdown of the Q3 guidance live a lie. We expect our total revenue to decrease 4702 52% in Q3, which reflects sixty-plus percent improvement from the previous quarter mainly driven by contractual recovery of China domestic travel activities. We expect to revenue for accommodation reservations to decrease $42 45% young year, China.

Tell reservations you made full recovery in the past month while price is still under pressure International Hotel Revenue remain at very low level compared to twenty to twenty-five percent contribution in Q3 last year on the transportation reservation revenues. We expect the revenue wage continue to decrease 50 to 55% year-on-year our automatic air ticketing reservations achieve the Positive Growth since August month. However, the album and overseas business remain largely subdued given the continued covet spread after the initial wave which contributed above also a total transportation Revenue in Q3 last year.

We expect to our revenue for package to tour business to decrease eighty-two 85% Yes, the domestic package tour business picked up a gradually led by local activities and customize the tour packages. However, the international package to our business have not yet restarted due to travel restrictions off which accounted for more than half of our total package total revenue in Q3 last year with the continuous recovery of the whole business sectors in domestic travel marketing domestic China Market, we expect to revenue for corporate travel business to decrease 22.55% Yeah. Yes. Thank you.

Thank you. Your next question comes from Benny Wong from HSBC, please go ahead.

Hi the evening management all good morning management. Thank you for taking my question here. So my first question is actually on the domestic side because I think that one of the very back of the comments he has made in your your remark. Was that the registration for China domestic hotel and flight because to a full recovery in suspension by doing office. So I'm just wondering that we are looking at some of the industry data domestic are going to be covered up to 85% of like last year's level. So just want to see how long does the comment that comes out. That's the first question and then if we looking at some of the new slow, they also say that 60 will also be providing some of the tracks coupons right to push the, you know, especially in the upcoming holidays four 1806 in terms of like, you know, kind of like a person kind of like a coupon so

Just wanted to see how would that impact our margin? And I guess you're all look for the domestic recovery. Okay?

Thanks Penny. First of all, looking to the market growth. We have seen on the air ticket. The market has recovered somewhere between 80 to 85% However, our team has been an excellent job gaining the market share the growth for the past month has been double-digit the extra percentage representing the additional customers who are survey are in this challenging Market. Secondly, we are all using different methods to Target at the customers that can generate positive Ally in a long-term. So the travel coupons is very much in line with our expectation. We evaluate our market share game as well as the Ally and making sure all the campaigns with dead.

Achieve are both on the target as well as the market share gains. So far the live stream campaign coupled with the vaccination partner incentives plus our team's efforts make a good investment to gain market share in a new area and certainly on the outbound business office. I think the album business we have seen certain countries have established a Green Lane such as Korea Singapore Etc. So far it's still in the testing stage. However, if the scientists in the medical field makes breakthrough in vaccines, we should expect to these green leaves will be fully utilized which can be very good pioneering program leading towards more opening for cross-border Club.

However at this stage the cross-border travel volume still is minimum. Thank you Denise.

Thank you. Your next question comes from Gregory's L from Barclays, please. Go ahead.

All right, man, Thanks for taking my question. So my question is about the hotel Market competition. So especially the high-end Hotel. Have you seen any kind of competitive or more aggressively expanding to the high-end market and also with the current hotel Pickwick level compared to last year. Thank you.

For the high-end Hotel market price subsidy has been proved ineffective. We keep focusing on strengthening our core competence, especially in the inventory and the service levels in the past several months our boss live streaming shows and presale channels have health participating hotels increase their awareness and drive incremental violence for both rooms and non room products. We also offer the channels like holidays or fresh sell to help hotels run targeted marketing our market share increased significantly against wage increase the significantly during the pandemic and we are confident that we can continue to Leading the patch birth.

Wait on the hotel remain.

Flat compared with for the pandemic level. Thank you.

Thank you. Your next question comes from Jade Kelly from oppenheim, Ur, please go ahead great management. Thank you for taking my call and very encouraging to see a nice domestic rebound gives us some hope in other parts of the of the world. Just a quick couple quick clarifications or questions. Just when she mentioned hotel reservations. Are you talking about bookings or the number of reservations? And then can you just give us an update on what you're thinking about growing the trip. Com brand as borders reopen close to China. Thank you.

Oh when we talk about hotel, it's the cat basis. So it's taking consideration of the reservation or cancellation. Secondly on the trip. Com friend. I think for the Asian market. We have seen very good control. Hi a lot of countries in Asia. They have demonstrated strong ability to control the outbreak of the virus. So we are hopeful that with the Improvement and stabilization in the control procedures for the virus will be able to gradually utilize the vaccine plus the confidence in the consumers and the able to increase the the outbound business in the Asian market first and in certain Pockets our dog

Rent in certain markets in Asia is also strengthening because of our competitive product offerings and One Stop Shop home that form really offers. Very convenient in the strong platform for these markets to extend our leadership. Thank you. Thank your next question comes from James Lee from Mitsuwa, please go ahead.

Great. Thanks for taking my questions. My first question goes to Jane maybe Jane for you. Help us crystallized and maybe some of the government policies that will continue to age travel. I think last quarter you mentioned, you know, the province of the generals promoting promoting long weekend travels and Hainan Province was designating as free trade zone. You have to talk about in the call the reason approval inter-provincial travels for package tool as wondering are there anything new in the Horizon? I think it's going to be helpful for travel industry and how should we think about these policy in terms of implication heading into October holiday and my question is was Cindy's more on the hotel. Can you be a maybe a little bit more specific? I think last quarter you talk about pricing being down maybe Thirty to forty percent any updates or two and also expectation two three Q. Thanks God.

Thank you.

I would take the first question in terms of the government policy overall as we work with different provinces almost every project are very eager to attract the consumers to their Province. So we work very closely with the government to make sure we highlight the most popular travel destination and make sure everyone comes up with incentives to attract our consumers and our mid to high-end customers am traveling abroad now, they're turning into different provinces to look for new area for exploration. So the government policy is very often talked to providing such as Heinlein really serves as almost Hawaii in China attracting lots of leisure Travelers and wage.

Other regions also attracts a lot of a mid to high-end customers during the golden week holidays. So we will continuously working with each project to make sure we offer the most attractive products to our consumers with very competitive pricing structures wage, which regard to the adrs of the hotel accommodation registration all average Q2 probably still wage, but we know who are impacted by the pandemic so we still see on average in Q2 the ADR decrease the significant however from the end of Q2 and especially most recently with the Dead.

Go travel Market to start it to picking up. Especially the business Travelers document started to pick him up. We saw gradual improvements in the a dr's office for the hotel business. Thank you.

Thank you. Your next question comes from John from th Capital, please go ahead.

Good morning, management. Good guidance on the Q3 bottom line is not easy to to have that kind of a strong button that you set your travel environment. I have two questions. Why is it regarding? You know since we're finishing to 3, so we're looking into the new new quarter, which is killed for. So we're starting a a longer National Day holidays and used to be like seven days. Now this year is like eight days. So a lot of young people who are families, they will place my head. So from the initial bikine, so what do you see, you know people in, you know, like travel within the province or across the province, you know, what is the trans on that? So that is the first one the second one is much more a browser issue result from a Chinese company job.

Who are listed?

Much earlier like Cocina like action that those guys so what they choose to be privatized and eventually to somebody else. So I wonder what the company's thoughts that in terms of Capital Market strategy privatization or you know, double listening in Hong Kong versus our plan. So what do you think he, you know seats or the chip. It's going to do in the future. So that's much more the question for Jim and uh, and and again, thank you God. Thank you. I would take the first question and send you a take the second question regarding the national holiday. We have seen strong the money from our customers because after being locked down in the first quarter and the border is closed a lot of outbound demand is converting to be dead.

Domestic demand so that is very positive. And if our different Province capitalize on these demand it's very positive for our economy. And also it's going to be very positive for the recovery of the travel industry. However, we also have the different schools has adopted them and policies. So for example, some school will advise their parents not to take the kids out of the city of out of their province that off as a result of that if the kids are not allowed to go to a different state or different cities. The parents will not be able to go and them for that might be a little bit negative for the demand. However, we believe that the government will dead.

Very prudent release different policies to encourage the cross province of trouble and therefore these depressed off these these demand will be Unleashed eventually as long as the GDP per capita is renamed. So we're very much hope for that life print a state different schools. Well in a way gradually open up the policy as the control of the virus has been demonstrated very often. So I hope hope for that have crossed Province restrictions well being affected.

We we noticed some recent Maki rumors about the potential privatization in the market, but the the cup it does not have any plan for privatization at this moment. And that's always we are always open minded to evaluate all the possibilities in a capital Market in order to maximize the best interest of our company and shareholders. Thank you.

Thank you. Your next question comes from Ronald from Goldman Sachs, please go ahead.

Thank you, James. James Indian Michelle. I guess my question would be on your kind of significant decline in marketing spend in the second quarter. So I want to hear about your customer acquisition strategies. Um, cuz we've we've seen James doing live stream great sales here. When we look at our peers kind of Leverage some high frequencies local services or through each at home. So we share just how plans and leveraging maybe many programs or even choke on video players and more importantly. Just want to hear do we see any potential Partnerships that you could form Beyond wage, you know a relationship close relationship with I do. Thank you.

Yeah, so on a marketing strategy we are very aggressive. We have two yet. Very prudent. When we evaluate the effectiveness of life. There are a couple of things we're doing first of all our transportation business serves as the most effective marketing channel for us the high-speed Railway have reached many cities in the third year first-year cities and these customers who are using our transportation products will actually be open up for using our hotels and local attraction tickets Etc. So that's the first thing the second thing is in the log. We also have open up online stores in the city center. And these are also great marketing channels for dead.

To promote our friends as well as selling products and thirdly we are also very open to work with all the channels so long I do Ten Cent alley at cetera. All these channels are very we are very open as long as it's a mutually beneficial for our share the customers. We're very open-minded to work with all of them. So we are very aggressive off into the largest cities and maintain our competitiveness in terms of the penetration as as well as the price structure. Thank you.

Thank you. Your next question comes from from Bank of America, please. Go ahead. Good morning James James Cindy. I'm June. Thanks for taking my questions. I have two questions. The first one is actually regarding the high-end Hotel side. Cuz we mentioned in the opening remark, the high-end romantic hotels actually leading the way in a hotel bookings. Just want to understand like for the volume and also the ADR prospective how this compared to the overall domestic hotel and also like for the LoJack Hotel what what recent Trends we have observed. My second question is actually regarding our recently announced future cooperation with JD. Just want to know like what the long-term strategic plan for this cooperation. And what's the progress by now? Thanks a lot.

Thank you for the high-end hotels. Yes, it's this segment is now leading the recovery as I explained earlier. I'll average the adrs in the high-end including all the segments in the accommodations is still depressed or average especially in a month or two. However starting from the end of Q2 moving into the Q3 and especially most recently. We saw gradual recovery Improvement off on the ADR level. Thanks to the strong recovery, especially in the business and high-end Leisure Travel demand in China with regard to the law and hotels as always we will continue to lead the price competitiveness in our targeted market and acquire aggressively acquire new users. They're dead.

very competitive low-end Hotel offerings

Yeah, very positive in our partnership. Again. We are again very open-minded working with our value the Palm to offer our competitive products and make sure it's a win-win partnership which can serve our share the customers and offer the best product and Thursday. This is true. Thank you.

Thank you that does conclude our question-and-answer session at this time. I will now hand back to Michelle for closing remarks.

Thanks to everyone for joining us today. You can find the transcripts and webcast of today's calls are investors. Don't trip. We look forward to speaking with you on our third quarter 2012 earnings call. Thank you and have a good day. Thank you.

Thank you that does conclude our conference for today. Thank you for participating you may now disconnect.