Here’s the entire text of the prepared remarks from eLong’s (ticker: LONG) Q3 2005 conference call. The Q&A is here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.
Justin Tang, Chairman and Chief Executive Officer
Derek Palaschuk, Chief Financial Officer
Raymond Huang, IR Manager
William Bao Bean, Deutsche Bank Hong Kong
Kit Lu, GoldmanSachs Hong Kong,
Michael Milman, Soleil Securities,
Robert Rosner, Analyst
Good morning and good evening to all sites; welcome to the eLong Third Quarter Results Conference Call.
For the duration of the presentation, all lines will be placed in listen-only mode. Operator Instructions As reminder, this call is being recorded for replay purposes at the request of eLong. If you have any objections, you may wish to disconnect at this time.
I’d like to hand this call over now to Mr. Raymond Huang, and I will be standing by for the Q&A session. You may begin; thank you.
Raymond Huang, IR Manager
Hello everyone; thank you for joining eLong’s 2005 Third Quarter Conference Call. Today Justin Tang, our Chairman and CEO will make some remarks abut the quarter followed by Derek Palaschuk, our CFO who will provide greater detail on our financial results. Following their prepared remarks Justin and Derek will be available to take your questions.
Before management’s presentation, please allow me to read our Safe Harbor Statement. During this conference call, representatives of the Company will make forward-looking statement. These statements are based upon management’s current view and expectations with respect to future events and are not a guarantee of future performance. Furthermore, these statements are, by their nature, subject to a number of risks and uncertainties that could cause actual performance and results to differ materially from those discussed in the forward-looking statements as a result of a number of factors.
eLong undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise. Please refer to eLong’s filings with the SEC, including its Form 20F as well as risk factors described in our Form 6-K which will be filed with the SEC in connection with our press release and this conference call.
For discussion of these important factors that could affect future results, our press release and this call include discussions of some non-GAAP financial information as well as some GAAP financial measures. Our release contains a reconciliation of the non-GAAP measures as well as GAAP measures and is available on the Investor Relations section of the eLong website at www.elong.net. We urge you to have a copy of our release on hand as we proceed with the remainder of this call.
I will now turn the call over to eLong’s Chairman and CEO Justin Tang. Justin?
Justin Tang, Chairman and Chief Executive Officer
Hello everyone; thank you for being on the call. We are pleased to report another solid performance I our top line for the third quarter with health growth in our hotel bookings and a strong uptake in our air ticketing revenue. Our overall revenue grew strongly year-over-year and quarter-over-quarter as we continue to acquire new customers and add more product inventory.
Total revenues increased 56% year-over-year and 15% sequentially to RMB59.4 million with both hotel and air-ticketing revenue lines growing at a healthy rate.
With the steady growth of the Chinese economy, and an increase in the user population on the Internet, we believe that eLong has excellent opportunities in China’s high-fragmented travel market.
Let me just take a moment now to review with you the third quarter progress we made in our hotel and air businesses. On the hotel side, the strength of our hotel product was confirmed by the healthy 15% sequential and the 42% year-over-year hotel revenue growth to RMB42.7 million. During the third quarter, we continued to expand both our domestic and international hotel inventory. By third quarter end, we offered our consumers a wide choice of hotel room at discount rates in almost 3,000 hotels in 280 cities across China, which was up from 2,800 hotels in 230 cities at the end of the second quarter of 2005. This is evidence of our continued effort to provide better products and services to the customers.
In the third quarter, we also extended our guarantee allotment with hotels. Guarantee allotment allows us to improve customer services by confirming availability of rooms to our customer on a timely basis. In September, the percentage of booking with guarantee allotment was 60% as compared to almost zero at the beginning of the year. Clearly our customers strong appreciate our guarantee allotment services. We intend to continue to extend these services.
With respect to air services, our air ticketing revenue grew to RMB7.5 million or 121% year-over-year and 50% sequentially during the second quarter of 2005. Air tickets sold reached a record high in the third quarter as a result of our efforts to improve the bookings as we improve our cooperation with airline partners.
Air ticketing represents a 13% of total revenue in the third quarter as compared with 9% in the same period one year ago as we continue to diversify for our lodging revenue base. At the end of the third quarter, our users were able to book air tickets in 54 cities across China; we will continue to invest in our air infrastructure. We believe that eLong is the strongest air travel brand in China and we strive to further strengthen through our sales and marketing efforts.
During the quarter, we were able to continually expand our customer base by adding nearly 81,000 new customers as compared to 57,000 customers in the corresponding period a year ago, and 65,000 customers in the previous quarter. At the end of September, we had 683,000 cumulative customers. We will continue to invest in customer acquisition in our brand.
We are very pleased to announce a recent addition to our Executive Team via Andy Clayton as Vice President of Air and Ken Guo who is our Vice President of Human Resources. Mr. Clayton has previously served as Vice President of Orient Hom and as an Operations Controller of B&Q China. Mr. Guo has previously served as Human Resource Director of Infineo Technologies in Suzhou and TNT Post Group China. Earlier in the quarter we welcomed to our team the founder of Fortune Trip, Hai Wu as Vice President of sales. Hai Wu brings extensive airline travel experience to the table.
On July 7 we completed the acquisition of Fortune Trip Hotel Consolidator. We look forward to strengthening our business on further through the synergy created by this acquisition.
We also entered into a separate 3-year strategic advertising corporation agreement with Internet portal SINA whereby eLong becomes SINA’s exclusive hotel booking partner in the PRC upon the closing of the acquisition. As part of our agreement, we will operate our co-branded online hotel booking channel with SINA and we will receive advertising placements on SINA’s website, including SINA’s travel channel. We are particularly pleased with this strategic deal which we believe will further strengthen our travel product, service offering and a marketing power in the Chinese market where we now have airline distribution agreements with 3 top Internet portals, SINA, Sohu and Yahoo! China.
In conclusion, we believe we are well positioned as one of the leading travel and e-commerce companies to achieve our long-term mission to become the biggest and the most profitable seller of travel in China, we will focus relentlessly on executing our strategy of providing great product and services, developing a precision execution culture of operational effectiveness and of building deep customer relationships. This past quarter has shown we are making tangible progress in achieving this strategic goal This way, we can talk full advantage of exciting opportunities that are offered by China’s strong economic growth and the long-term growth prospect in China’s travel industry.
Let me now turn the call over to Derek Palaschuk, our CFO who will review the financial results
Derek Palaschuk, Chief Financial Officer
Thank you Justin. Let me just give you a quick overview of our third quarter results starting with our income statement. As Justin mentioned, our total revenues for the quarter increased a healthy 56% year-over-year and 15% sequentially to RMB59.4 million. Our travel revenues, which were RMB54.2 million and now comprise 91% of total revenues grew at a healthy rate of 60% year-over-year and 15% sequentially.
Revenue from hotel commissions from the third quarter totaled RMB42.7 million, an increase of 42% from RMB32.2 million year-over-year and an increase of 15% from RMB37.1 million sequentially. The 42% increase from the third quarter of 2004 was primarily due to higher room volume accompanied by higher hotel commission per room night.
Hotel room nights booked through eLong increased to 684,000 in the third quarter, up 28% from 536,000 in the corresponding period a year ago, and up 11% sequentially from 615,000 in the second quarter. One of the wins that we had t his quarter was the improvement in our revenue per room. Hotel commissions per room night were RMB62 in the third quarter of 2005, up 11% from RMB56 in the corresponding period a year and up 3% from RMB60 in the previous quarter.
Our hotel commission rate of 14.7% was up year-over-year from approximately 13% in the corresponding period a year ago and up 110 basis points sequentially from 13.6% in the previous quarter due to better overriding commissions as a result of higher room volume. The third quarter ADR of RMB421 was slightly lower than RMB441 in the previous quarter due to various factors including the summer holidays.
Revenues from air ticketing during the third quarter totaled RMB7.5 million, an increase of 121% from RMB3.4 million year-over-year and an increase of 50% from RMB 5 million sequentially. Volume of air ticket sales continued to grow with 198,000 air tickets sold in the third quarter, more than double the air tickets sold in the corresponding period a year ago and 135,000 sold in the previous quarter.
Commissions earned per air ticket in the third quarter were RMB38 which is RMB1 higher than the previous quarter through an increase in commissions from 4% to 4.3%. The average ticket price in the third quarter of 2005 was RMB939 as compared to RMB891 in the second quarter.
Other travel revenue in the third quarter of 2005 was RMB4 million, an increase from RMB322,000 year-over-year and a decrease of 22% from RMB5.1 million sequentially. The year-over-year increase occurred because the revenues of Ray Time of RMB3.1 million for a company acquired by eLong in November 2004 were not included in the corresponding period a year ago. The sequential decrease in our other travel revenue was the result of a RMB1.5 million decline in Ray Time’s revenues RMB4.6 million in the second quarter of 2005 to RMB3.1 million in the third quarter of 2005. And this was due to the closing of certain unprofitable projects.
On the basis of Ray Time’s financial performance, we took a one-time non-cash write-down of Ray Time’s goodwill and intangibles of RMB17.5 million, which has been included in our third quarter operating expenses. Ray Time’s hotel loyalty program was a new business for eLong; it is not a core business for eLong, and while we are disappointed in Ray Time’s performance it only accounted for 5% of our third quarter revenues.
Our non-travel revenue which was 9% of our total revenue consisted mainly of non-gravel related short-messaging revenue and online advertising on our portal. Gross margins in the third quarter were 80% as compared to 82% in the corresponding period a year ago and 78% in the previous quarter. The sequential increase in gross margins was result of the improved efficiencies in our call center. The year-on-year decrease was due to additional investment in our hotel and air call center, and the increased revenue contribution from our lower gross margin air ticketing business.
Operating expenses for the third quarter, excluding business taxes, write-down of goodwill and intangibles, stock-based compensation and amortization of intangibles was RMB47.8 million, an increase of 70% from RMB28 million year-over-year and an increase of 6% from RMB45 million sequentially. The year-on-year increase was mainly due to continuing investments in service development, sales and marketing, and general and administrative expenses.
Other expenses included RMB23.5 million in unrealized foreign exchange losses on the U.S. dollar denominated net assets due to our recent revaluation of the RMB. Our adjusted income, a non-U.S. GAAP measure was RMB 4.9 million as compared to an adjusted income figure of RMB1.4 million year-over-year and an adjusted income figure of RMB398,000 sequentially.
I’d just like to make one comment on our balance sheet before I conclude with the business outlook. Our cash and cash equivalents balance was U.S. $137 million which included restricted cash and cash equivalents of $9.4 million. We intend to continue to use our cash balance to enhance our organic growth and consider strategic acquisitions.
And finally our business outlook, we expect total revenues for the fourth quarter of 2005 within the range of RMB59 million to RMB62 million, an increase of 46% to 54% from the fourth quarter of 2004. Excluding the impact of the write-down of goodwill and intangibles, we expect an increase in operating loss in the fourth quarter of 2005 compared to the third quarter of 2005 as we continue to invest in our business.
This concludes the financial review and I look forward to any questions you might have. Moderator, if you would now open the call for questions.
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