Tuniu(TOUR) - 2020 Q4 - Annual Report

PART I Item 3. Key Information This section presents key financial data and outlines principal risks, including the severe impact of COVID-19, VIE structure complexities, and potential delisting. A. Selected Financial Data Financial performance significantly deteriorated in 2020, with net revenues dropping 80.3% and net loss widening due to the COVID-19 pandemic. Selected Consolidated Financial Data (2018-2020) | Financial Metric | 2018 (RMB, thousands) | 2019 (RMB, thousands) | 2020 (RMB, thousands) | 2020 (US$, thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | 2,240,149 | 2,280,987 | 450,259 | 69,006 | | Gross Profit | 1,175,127 | 1,080,975 | 213,194 | 32,674 | | Loss from Operations | (348,994) | (870,844) | (1,340,795) | (205,485) | | Net Loss | (199,371) | (729,382) | (1,343,630) | (205,920) | | Net Loss Attributable to Tuniu Corporation | (185,512) | (694,565) | (1,307,956) | (200,453) | | Net cash (used in)/provided by operating activities | 268,089 | (120,461) | (1,313,115) | (201,243) | D. Risk Factors Significant risks include the COVID-19 pandemic's impact, VIE structure uncertainties, potential delisting under the HFCA Act, and PFIC classification. - The COVID-19 pandemic materially and adversely affected business, causing significant decline in travel demand and customer cancellations, with uncertain future impact[23][25] - The company recorded net losses of RMB 199.4 million (2018), RMB 729.4 million (2019), and RMB 1,343.6 million (2020), with no guaranteed future profitability[37] - Operating through a VIE structure to comply with PRC foreign investment restrictions carries substantial risks, including potential non-compliance and severe penalties[107][109][113] - ADSs may be delisted from U.S. exchanges under the HFCA Act if the PCAOB cannot inspect the China-based auditor for three consecutive years[130][131] - The company believes it was a Passive Foreign Investment Company (PFIC) for 2020 and likely for 2021, potentially causing adverse U.S. tax consequences for investors[208][210] Item 4. Information on the Company This section covers Tuniu's history, business operations, corporate structure, and properties, including its IPO, service offerings, and reliance on a VIE structure. A. History and Development of the Company Tuniu, founded in 2006, completed its Nasdaq IPO in 2014 and received significant strategic investments, with JD.com's stake transferred to Caissa Group in 2020. - The company completed its IPO on Nasdaq under the symbol "TOUR" in May 2014[235] - Significant strategic investments include US$148 million (2014), US$500 million (2015), and US$500 million (2016) from partners like JD.com, Ctrip, and HNA Tourism[236][237][238] - In November 2020, Caissa Group acquired all Class A ordinary shares from JD.com affiliates, becoming a major shareholder[238] B. Business Overview Tuniu is a Chinese online leisure travel company offering packaged tours and related services through multi-channel platforms, utilizing its N-Booking system, and operating under PRC regulations. - Primary offerings are packaged tours, including organized tours with pre-arranged itineraries and self-guided tours combining flights and hotels[250][252] - Tuniu uses a multi-channel approach, integrating its online platform (tuniu.com and mobile apps) with an offline network of call centers and retail stores[256][257] - The proprietary N-Booking system is a key supply chain management tool, enabling suppliers to manage products, view real-time inventory, and analyze user behavior[280][281][292] - The company offers financial services to travelers (financing) and suppliers (loans, factoring) to support the travel ecosystem[284] C. Organizational Structure Tuniu operates in China through a VIE structure, Nanjing Tuniu, controlled by contractual arrangements to comply with PRC foreign ownership restrictions, with ownership restructured in February 2021. - The company utilizes a VIE structure, with Nanjing Tuniu holding essential ICP licenses for its website and travel business in China[243][244] - Control over the VIE is maintained through contractual arrangements, including purchase option, equity pledge, voting rights, and cooperation agreements, ensuring economic benefits[406][408][409][411] - In February 2021, Nanjing Tuniu's equity holders were changed to Mr. Dunde Yu and Mr. Anqiang Chen, with new, similar contractual arrangements executed[402] Item 5. Operating and Financial Review and Prospects This section analyzes Tuniu's financial condition and operations, highlighting the severe COVID-19 impact, an 80.3% revenue decrease, and management's actions to alleviate going concern doubts. A. Operating Results Operating results for 2020 show a severe COVID-19 impact, with net revenues decreasing 80.3% and net loss widening to RMB 1.34 billion due to lower tour revenues and increased credit loss provisions. - The COVID-19 pandemic significantly and negatively affected 2020 results, causing sharp declines in travel demand, cancellations, and increased doubtful account allowances[420][421] Year-over-Year Operating Results Comparison (2019 vs. 2020) | Metric | 2019 (RMB, millions) | 2020 (RMB, millions) | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenues | 2,281.0 | 450.3 | -80.3% | | Packaged Tours | 1,886.8 | 302.4 | -84.0% | | Other Revenues | 394.2 | 147.9 | -62.5% | | Cost of Revenues | 1,200.0 | 237.1 | -80.2% | | Operating Expenses | 1,951.8 | 1,554.0 | -20.4% | | Net Loss | 729.4 | 1,343.6 | +84.2% | - General and administrative expenses increased by 48.0% in 2020, primarily due to recognizing RMB 829.7 million in expected credit losses for receivables[456] B. Liquidity and Capital Resources Liquidity in 2020 was severely impacted by a RMB 1.31 billion operating cash outflow due to COVID-19, raising going concern doubts, which management believes have been alleviated by liquidity measures. Summary of Cash Flows (2018-2020) | Cash Flow Activity | 2018 (RMB, thousands) | 2019 (RMB, thousands) | 2020 (RMB, thousands) | | :--- | :--- | :--- | :--- | | Net cash provided by/(used in) operating activities | 268,089 | (120,461) | (1,313,115) | | Net cash provided by/(used in) investing activities | 153,992 | (578,134) | 1,159,063 | | Net cash (used in)/provided by financing activities | (145,212) | 485,110 | (209,546) | - As of December 31, 2020, the company held RMB 1.62 billion in cash, cash equivalents, restricted cash, and short-term investments[508] - The COVID-19 pandemic cast substantial doubt on the company's going concern ability, but management believes liquidity actions have alleviated this for the next twelve months[511] F. Contractual Obligations As of December 31, 2020, total contractual obligations were RMB 272.9 million, primarily comprising purchase and operating lease obligations. Contractual Obligations as of December 31, 2020 (RMB, thousands) | Obligation Type | Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating Lease Obligations | 61,569 | 17,817 | 13,926 | 6,474 | 23,352 | | Purchase Obligations | 211,297 | 1,129 | 60,168 | 150,000 | — | | Total | 272,866 | 18,946 | 74,094 | 156,474 | 23,352 | Item 6. Directors, Senior Management and Employees This section details leadership, compensation, board structure, employee count (significantly reduced in 2020), and major share ownership, highlighting the dual-class share structure. A. Directors and Senior Management The company is led by CEO Mr. Dunde Yu, with a board comprising representatives from major shareholders and independent directors, and Mr. Anqiang Chen as Financial Controller. Directors and Executive Officers | Name | Age | Position/Title | | :--- | :--- | :--- | | Dunde Yu | 40 | Founder, Chairman and Chief Executive Officer | | Kun Li | 33 | Director | | Jie Zhu | 40 | Director | | Haifeng Yan | 39 | Independent Director | | Frank Lin | 56 | Independent Director | | Shiwei Zhou | 45 | Independent Director | | Onward Choi | 50 | Independent Director | | Jack Xu | 53 | Independent Director | | Jiangtao Liu | 43 | Independent Director | | Haijin Cheng | 50 | Independent Director | | Anqiang Chen | 45 | Financial Controller | B. Compensation In 2020, executive officers received RMB 3.1 million in cash compensation, and the company uses two share incentive plans for long-term incentives. - In fiscal year 2020, aggregate cash compensation was approximately RMB 3.1 million (US$0.5 million) for executive officers and RMB 0.7 million (US$0.1 million) for non-executive directors[549] - As of February 28, 2021, 3,683,886 options were outstanding under the 2008 Plan, and 12,519,039 options and 65,658 restricted shares under the 2014 Plan[550][555] D. Employees The company's workforce significantly reduced in 2020, decreasing from 6,188 to 2,113 employees, with the largest groups in customer service and R&D. Employee Headcount by Function (as of Dec 31, 2020) | Function | Number of Employees | | :--- | :--- | | Customer service center | 1,117 | | Research and product development | 490 | | Management and administration | 265 | | Sales and marketing | 241 | | Total | 2,113 | - Total employee count significantly decreased from 7,355 (2018) and 6,188 (2019) to 2,113 in 2020[574] E. Share Ownership As of February 28, 2021, share ownership is concentrated, with HNA Tourism and Caissa Group as major holders, and CEO Dunde Yu holding significant voting power through Class B shares. Major Share Ownership and Voting Power (as of Feb 28, 2021) | Shareholder | Share % | Voting Power % | | :--- | :--- | :--- | | Affiliates of HNA Tourism | 27.1% | 19.1% | | Affiliates of Caissa Group | 21.1% | 14.8% | | Dunde Yu (CEO) | 6.0% | 21.8% | | DCM V, L.P. and Affiliates | 8.6% | 6.0% | | Unicorn Riches Limited | 7.4% | 5.2% | Item 7. Major Shareholders and Related Party Transactions This section details transactions with major shareholders like Trip.com, Caissa Group, and HNA Tourism, noting a full provision for expected credit losses on receivables from HNA Tourism in 2020. - The company generated RMB 16.9 million in commission fees from ongoing business with Trip.com in 2020 for hotel and air ticket bookings[602] - In November 2020, JD.com transferred its stake to Caissa Group, and the exclusive business cooperation agreement with JD.com expired in August 2020[604][605] - Due to HNA Group's financial difficulties, Tuniu provided a full allowance for expected credit losses totaling RMB 557.6 million on outstanding balances from HNA Tourism affiliates as of year-end 2020[607][609][610] Item 8. Financial Information This section confirms consolidated financial statements are in Item 18, notes no material legal proceedings, and states the company's policy to retain earnings for business expansion without near-term dividends. - The company is not currently a party to any material legal or administrative proceedings[613] - The company has no plan to declare or pay dividends in the near future, intending to retain funds for business operations and expansion[615] Item 10. Additional Information This section details corporate governance, including a dual-class share structure, and taxation implications for Cayman Islands, PRC, and U.S. investors, reiterating PFIC risk. - The company has a dual-class share structure, with Class B ordinary shares carrying ten votes compared to one vote for Class A shares, and are convertible to Class A[624][626] - As a Cayman Islands exempted company, corporate governance differs from U.S. standards, for example, not requiring an annual general meeting[637] - For U.S. federal income tax purposes, the company believes it was a PFIC for 2020 and likely for 2021, potentially leading to adverse tax consequences for U.S. Holders[674][682] Item 11. Quantitative and Qualitative Disclosures about Market Risk Primary market risks include interest rate, foreign exchange, and inflation, with significant foreign exchange risk due to RMB-denominated business and USD-traded ADSs. - The company's primary market risk is foreign exchange risk, as RMB-denominated business and USD-traded ADSs make investment value sensitive to exchange rate fluctuations[693][694] - As of December 31, 2020, the company held RMB 1.62 billion in RMB-denominated cash and short-term investments, and US$247.9 million in USD-denominated equivalents[696] PART II Item 15. Controls and Procedures Management and the independent auditor concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020. - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[703] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020, based on the COSO 2013 framework[705] Item 16. Other Information This section covers governance, audit committee, code of ethics, principal accountant fees, a US$10 million share repurchase program, and home country governance practices as a foreign private issuer. Principal Accountant Fees (PricewaterhouseCoopers Zhong Tian LLP) | Fee Category | 2019 (US$) | 2020 (US$) | | :--- | :--- | :--- | | Audit fees | 1,507,154 | 1,535,879 | | Audit-related fees | 92,018 | — | | All other fees | — | — | - In September 2020, the board authorized a share repurchase program for up to US$10 million, repurchasing 53,518 ADSs for approximately US$56,000 in 2020[713][715] - As a foreign private issuer, the company follows Cayman Islands home country practice instead of certain Nasdaq rules, including shareholder approval for private placements and annual meetings[718] PART III Item 18. Financial Statements This section presents the company's audited consolidated financial statements for 2018-2020, prepared under U.S. GAAP, with an unqualified auditor's opinion and detailed notes. Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers Zhong Tian LLP issued an unqualified opinion on financial statements and internal controls, highlighting going concern, goodwill, and non-financial asset impairment as Critical Audit Matters. - The auditor issued an unqualified opinion on both consolidated financial statements and internal control over financial reporting as of December 31, 2020[734] - The audit report identified three Critical Audit Matters: going concern assessment, goodwill impairment assessment, and non-financial assets impairment assessment, all requiring significant judgment[741][744][747] Notes to the Consolidated Financial Statements The notes detail accounting policies, including going concern, VIE consolidation, revenue recognition (agent vs. principal), share-based compensation, and breakdowns of balance sheet items and related party transactions. - Financial statements were prepared on a going concern basis, with management concluding that liquidity plans alleviated substantial doubt caused by COVID-19 for the next twelve months[772] - Revenue from most tours is recognized on a net basis (agent), while revenue is recognized on a gross basis (principal) for arrangements with substantive inventory risk or self-operated local tour businesses[850][852][853][854] - The company adopted new accounting standards for credit losses (ASC 326) on January 1, 2020, resulting in a RMB 19.4 million decrease to retained earnings[819] - Share-based compensation expense was RMB 68.7 million (2018), RMB 61.7 million (2019), and RMB 20.5 million (2020)[974]