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spk02: Good day, ladies and gentlemen. Thank you for standing by and welcome to the Blue Cities Third Quarter 2021 Earnings Conference Call. Currently, all participants are in listen-only mode. Later, we'll conduct a question and answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now, I will turn the call over to Leah Wu, IR Manager for the company. Ms. Wu, please proceed.
spk04: Thank you, operator. Hello, everyone. Welcome to Blue City's third quarter 2021 earnings conference call. Joining us today are Mr. Bao Linma, our chief executive officer, Mr. Alfred Yin, our chief strategy officer, and Mr. Jun Chengsheng, our acting chief financial officer. We released the results earlier today. The press release is available on the company's IR website, as well as from Newswire services. A replay of this call will also be available in a few hours on the company's IR website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligations to update any forward-looking statement, except as required under applicable law. Please note that during today's call, management will also discuss certain non-GAAP financial matters for comparison purpose only. Our GAAP results and the reconsolidation of GAAP to non-GAAP matter can be found in our earnings press release. Also, please note that unless otherwise stated, all figures mentioned during conference call are in Chinese RMK. With that, let me now take our call. to our CEO, Mr. Ma. He will speak in Chinese first, and I will then interpret his remarks in English. After that, our CFO, Mr. Ying, will take over to discuss our growth strategies. Then our acting CFO, Mr. Sun, will provide details on our financial highlights. Please go ahead, Mr. Ma.
spk05: Thank you, Xiaoli. Hello, everyone. Thank you for attending the financial phone call meeting of the third quarter of the 2021 Lanqiu Brothers.
spk04: Thank you and hello everyone. Thank you all for joining our earnings conference call today.
spk05: In the third quarter, we continue to exaggerate our growth strategy, enrich our product offerings, optimize operations, and enhance our user experience.
spk04: We also further improve the company's revenue structure. As a result, we made multiple stages of solid progress across our strategic priorities.
spk05: 社交产品MAU达到750万,同比增长19.3%, 付费用户同比增长57.1%, 特别是会员服务和荷尔健康业务再次取得强劲增长。 Total MAU of Blue Cities apps reached 7.5 million, up 19.3% year-over-year, along with 57.1% increase in our paying users. Particularly, our membership services and health services
spk04: maintain strong momentum with 93.1% and 136.8% year-over-year revenue growth respectively. These results fully demonstrated that our strategies of diversifying our revenue structure as well as creating a new growth engine for the company have started to bear fruit.
spk05: During the quarter, we continued to accelerate our product innovation and optimize our operations to provide our users with a more efficient way to get connected and enjoy entertainment content.
spk04: Some features have already gained popularity among our users. For example, the revenue from one chatroom, which we introduced last year, has gained a two-digit growth on a month-to-month basis.
spk05: At the same time, Brody has also started to explore the flow of offline consumption scenarios, including trying to connect online and offline traffic in an active way.
spk04: While we have introduced a great variety of offerings on the online space, we are also in initial stage of exploring how to get more offline traffic. For example, we plan to launch a feature enabling our users to post or share offline activity information. We will also aggregate information of LGTBQ-friendly offline spaces to give our users more offline spending choices.
spk05: FANCA through improved algorithmic matching efficiency, increased the probability of matching success, and improved the user's double-digit number of drawings and online usage time. At the same time, FANCA's who-sees-me function directly boosted the member pay rate, and the overall member pay rate of the product exceeded 20%.
spk04: 在运营上,我们尝试推出笔记功能,以进一步丰富社区内容,让LGBT人群成为吃穿住行的消费先锋。 With Fincast, in the third quarter, by improving algorithm, we saw increases in user success rate, conversation frequency, as well as the time spent on the app. Besides, Fincast's full visitor list we rolled out last quarter further boasts the paying ratio of Fincast membership services. to more than 30%. Meanwhile, we roll out a feature on Finca through which users can share travel blogs, lifestyle stories, and reviews of restaurants and products. It will further enrich our content offerings and provide our community members with greater spending choices, which will enable them to lead the trend of people's daily necessities.
spk05: In overseas markets, we are leading in most Southeast Asian countries. With the strong network effect, we began to cut our marketing expenses for advertising in this quarter and transformed our strategic priorities
spk04: on optimizing product and operations.
spk05: Privacy is of most importance for the LGBTQ community.
spk04: and we are always committed to providing a safe and secure environment for our members from different cultural backgrounds and societies. In this quarter, we introduced a series of new features on BlueD both domestic and international versions to better protect user identity and privacy. The new protective measures include automatic safety and security reminder during members' personal chat, prohibiting screen chapters and screen recordings during live streaming and video calls.
spk05: In terms of health, we officially launched the male health consumer brand, Heer Health. This is another important milestone in the Heer Health business. Currently, Heer Health has launched six core products. In terms of user feedback, our products are very suitable for community users' use experience. In the future, we will also try to break through the vertical crowd
spk04: The past marked another milestone for Hey Health as we launched Mr. Her on November 5th, a consumer health brand providing male personal and sexual health care products. Currently, Mr. Her provides six core customer-friendly products in decreed and convenient packaging. and got great feedback from the community. Mr. Help plans to provide more products and services to expand our consumer base to all male customers.
spk05: HIV has also stepped closer to our goal of a 100-CD express delivery services. We will see another 30%
spk04: quarter-over-quarter growth of Blue Box Otters in the third quarter of 2021. As HIV prevention is a vital part of our commitment to covering the needs of our overall men's health, this growth shows us just how important it is for this community. We are proud to gradually develop HayHealth into a comprehensive online-offline platform covering all aspects of men's health needs. And we aim to further enhance our products and services to create more values for the community.
spk05: In terms of social responsibility, this quarter, the company has launched a series of public services activities. During World Mental Health Day, Blue D and famous Mexican actor Paula Marin jointly launched a public service initiative for diversity of color and produced and released World Mental Health Day theme videos
spk04: Our commitment to corporate social responsibility is also proven by the charitable activities conducted this quarter. On the World Mental Health Day on October 10th, we collaborated with a Mexican actor, Polo Moran. He is openly gay for video to provide visibility of different subgroups of the LGBTQ communities. We also donated to the organizations dedicated to the well-being of marginalized groups. In this quarter, because of the COVID-19 and headwinds in the macro environment, we suffered from some setbacks from our live streaming business. But I would like to emphasize that by continuously improving our products, increasing users' willingness to pay, and improving our revenue structure, We are confident that we will see a robust growth in revenue as well as profit in the near future. Now let me turn the call over to our CFO, Alfred, who will discuss about our growth strategies.
spk08: Thank you, Mr. Ma, and thank you, everyone, for joining our call today. As Mr. Ma just mentioned, our business stays on the right track towards our long-term goal. This quarter, as we continue to focus on customizing our product portfolio and diversifying our revenue stream, we are pleased to see increased revenue contribution from our membership services and health-related products and services. The revenue from membership and HEALTH as percentage of total revenue was 13% and 8% respectively, comparing with 6% and 3% in the same period of last year. Furthermore, in addition to pursuing our top-line growth, we are still in the process to reassess our business model in order to balance between revenue growth and profitability. In the third quarter of 2021, we implemented measures for cost control to improve our operating efficiency. For example, our overseas advertising and promotion expenses decreased 25.4% on a sequential basis as we targeted our overseas business onto countries and regions with higher ROI and organically acquire users through means such as words of mouth and activities. We are looking for long-term sustainable growth in the future. and see considerable potential for increased monetization as our product and service offerings continue to grow. Looking ahead, we will remain committed to executing our growth strategies with a focus on reaching our product offerings and optimizing our services. We will also stay true our mission with continued efforts of raising awareness of health and HIV prevention. In the quarter, we discontinued the operation of LAS2, which contribute less than 1% of our total revenue in the past quarters. Lesbian users behalf differently from male users with a lower willingness to pay for online social networking services. Going forward, we will continue to focus on growing our core business to serve the well-being of the LGBTQ community. We believe we are on the right direction towards our next stage of growth with the soundness of our strategies and the strong Now, let me turn the call to our acting CFO, Juncheng Sun, who will provide details on our financial performance.
spk07: Thank you, Alfred. Now let me go through our financial highlights for the quarter. Before I go into details, please note that our numbers presented are in RMB and are for the third quarter of 2021, unless stated otherwise. All percentage changes are on a year-over-year basis, unless otherwise specified. A detailed analysis is contained in our earning price release, which is available on our website. Our total revenue for Q3 will be $270 million, down 9.3% year-over-year, driven primarily by the decrease in our revenue from live streaming services. In this quarter, our total MAUs grew 19.3% to 7.5 million with a strong growth of 57.1% from our total paying users to reach 776,000. However, the decrease in NRTPU for live streaming services caused the overall reduction in our total revenues. Revenue from overseas operations contributed 13.1% to total revenue, slightly increased from 9.7% in the same period last year. Notably, we also accomplished meaningful progress in diversifying our revenue streams with encouraging year-over-year revenue growth from membership services and a heat health this quarter. Revenue from live streaming services was RMB 194.2 million, representing a year-over-year decrease of 23.9%. The decrease was primarily due to the decrease in the average revenue per paying user for live streaming services as a result of the headwinds in the talent show live streaming industry in China. Revenue from membership services was going to be 35.1 million up 93.1 year-over-year. The increase was primarily due to the significant increase in the number of paying users benefited from diverse membership services on the company's apps. Revenue from advertising were RMB 13.6 million, up 34.2%, with the increase primarily due to our continuous efforts in attracting more advertisers with diverse advertising and marketing solutions as well as improved advertising efficiency. Revenue from merchandise sales of Heat Health reached 22.8 million, up 136.8%. We expect Heat Health to achieve stronger momentum in the coming quarters as the company devotes more resources to expand our health-related offerings. Now moving to our cost. Cost of revenue decreased by 8.3% to RMB 184.9 million. The decrease was primarily due to the decrease of revenue sharing costs, along with the decreased revenue of live streaming services, partially offset by the increased cost of products connected with the growth of e-health, merchandise sales, and the increased staff cost. The gross profit was RMB 85.1 million, down 11.4%. The gross margin was 31.5%, remained flat with 32.3% from the same period of last year. We expect to further accelerate revenue contribution from our membership services to achieve overall margin improvement. Meanwhile, as revenue sharing and commission cost are still the key components in our cost of revenue. We remain committed to actively explore solutions to reduce revenue sharing percentage and implement a more sustainable model for our live streaming services. Operating expenses were RMB 116.7 million and down 33.2% year over year. Sales and marketing expenses were RMB 56.9 million down 1.9%. The decrease was mainly due to the decrease of share-based compensation expenses, partially offset by the increased advertising and promotion expenses and staff cost. Technology and development expenses were 66.2 million, up 31.6%. The increase was mainly due to the increased staff cost in the technology-related department and the content, server, and bandwidth cost, of which was partially offset by the decrease of share-based compensation expenses. G and A expenses were $31.6 million, down 76.1%. The decrease was mainly due to the decrease of share-based compensation expenses, partially offset by the increased staff cost. This quarter, we had impairments of goodwill and intangible assets of Renminbi 6 million, which was due to the termination of last two related business. Net loss was 73.8 million, compared with a net loss of 137.8 million in the same period last year. Projected net loss was Renminbi 62.2 million, compared with adjusted net income of 7.3 million in the same quarter last year. As of September 30, 2021, we had cash and cash equivalents and the term deposits of RMB 370.9 million compared with 611.8 million as of December 31, 2020. Now, moving to our guidance. Given the increasing uncertainty in the talent show live streaming industry, we are not providing specific revenue guidance for the full year 2021. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.
spk02: Yes, thank you. As a reminder, to ask a question, you will need to press star and the number one on your telephone. To withdraw your question, please press the pound or hash key. please stand by while we compile the Q&A roster. Once again, please press star 1 on your telephones. Once again, please press star 1 on your telephones. Our first question is from the line of Laura Champin of Loop Capital. Please go ahead. Line is open.
spk01: Good morning. Thank you for taking my question. Could you outline for us what the key factors are that are negatively impacting the live streaming business and give us a sense of when you think that business might return to growth? Thank you.
spk08: Hi, Rora. This is Alfred. Yeah, for the live streaming business in China, it's become more and more competitive. Especially some companies, they actually give the live streamer high revenue shares. And these high revenue shares might cause different or severe competition in the market. What we are doing is that we are implementing several measures to improve our live streaming business. For example, we help some less well-known live streamers, give them some training to help them to attract more audiences. Also, we will introduce or develop some features such as such as game of patience features to keep users engaged. We expect to see some more concrete results in early 2022.
spk01: And just as a follow-on question, you mentioned that the market has gotten competitive for performers recently. But I think in your prepared comments, you also mentioned you think you can raise the cut that Blue City takes. How would that work?
spk08: We try to introduce more of the product offering, try to increase the content for the live streaming. And as I mentioned earlier, we will try to help those less well-known live streamer to give them some trainings and help them to attract more audience. And also because for those live streamer doing the live streaming with a blue app, because of our users, they have a stronger stickiness in our products. So we think due to this nature of our users, we will be able to improve the live streaming business over the next few months.
spk01: Got it. Thank you.
spk02: Thank you. Our next question is from the line of Tim Moore of SACS, Small Capital Research. Please go ahead.
spk03: Yes, thank you. Your press release mentioned progress on eHealth, and I know you mentioned the six products have been launched for Mr. Herb. I was just wondering maybe if you can provide us with more color and details on how you're building that awareness and getting it out there and also how you're kind of maybe going to you know, open it up to all males, all men.
spk08: Okay. We actually are planning quite a few marketing activities to increase the awareness of the brand. Right now, we We increased the awareness of the brand mainly within our Blue App products. We also have the plan to open the third-party online store to sell the products. I think in the near term, the sales from the customers through our Blue App will be more than enough to generate significant revenue. But in the mid to long term, we will try to sell the products to other customers outside of the blue users.
spk03: Good, good. The other question I had was, what are your plans to do with your net cash? It looks like you have something equivalent to 58 million US dollars. It's 65% of your market capitalization. Do you have any plans to spend that or do more acquisitions or reinvest anything?
spk08: We still focus on our core business. For our cash positions, although it is quite enough for our operation for the next... at least for the next three years. We won't use the cash for other purposes other than the core business because as we mentioned earlier, we have the heat house business and we just launched the new brand name and we need the cash to expand our operations. So for our cash position, that will be mainly used for our core business.
spk03: Great. Thank you. And lastly, are there any new features or benefits that you think that you are adding to live stream, besides training some of the less experienced live streamers, that would maybe make you more competitive in the space against some of the peers that are offering higher revenue shares? I'm just wondering if you're putting anything in there that's really going to make you more differentiated.
spk08: One example is the GAN features, GAN-related features. For example, like PK among the live streamers. That is the one. And then some features that... If the users are the first time to buy for the service, we might have some discount for that to try to attract more users to pay for the service, to pay for the live streaming services.
spk03: Great. Thank you, and that is it for my questions.
spk02: Thank you. Our next question is from the line of Ethan Yu of First Choice Group Incorporated. Please go ahead.
spk06: Hi, good evening. Thanks for taking my question. I would like to ask what measures we will take to increase the interest rate in the future. The second question, as the analyst mentioned, is about our company's new brand, HELL. What is our company's plan and expectations? HELL Health has a strong growth in the third quarter. How much do we expect HELL Health to contribute to the company's income next year? I will quickly translate for myself. My first question is that it seems the company's growth margin was under pressure in Q3. What initiatives are you doing to improve it? And my second question is regarding your plan and expectations for the newly launched brand next year. Also, the sales growth of T Health was continuously to be strong in Q3. What is the company's expectation for the sales contribution from eHealth next year? Thank you, and I may have a follow-up one later. Thank you.
spk05: uh, uh, More than 24%. From our overall income and expenditure structure, from our internal analysis, you should be able to see that it is mainly because of the continued loss overseas. So overseas, we will further enhance its commercialization efficiency and at the same time reduce its investment cost. In addition, we will further optimize the cost of broadening and the cost of human resources. Maybe all the optimization work we are doing now should be in Q4 and next year's
spk08: For the improvement of the margin, what we are trying to do is that first, we will increase the revenue contribution from our high margins of business. For example, the membership services. and health-related business. With the better revenue structures, we expect to get a better GPM. That's the first point. The second point is that for our overseas business, we also implement the expense control. As we mentioned earlier, the advertising and the promotion expenses was down nearly 25% on a sequential basis, and we will continue to do so over the next few quarters. So you will see a much better operating efficiency, especially in year 2022. The third point is that we will also try to improve our technology-related expenses, especially related to the bandwidth. You might already see the high expenses related to tech, but some of the tech expenses are pretty much one-off. So going forward, especially next year, we will see a better expense saving in the tech area. So with all this, we think we will have a better GP margins and probably have a better OP margin as well.
spk05: Okay, let me answer your second question about Mr. He. Mr. He's introduction is actually something we have been planning for a long time. When we first established a platform like He's Health, we had already planned This kind of free brand of this kind of OEM is launched because our positioning and health positioning is to provide all men's health services, including our plan is to be able to expand from the health services of the male group to the health services of the male group. from a single drug of AIDS, to more fields of health care, drug sale, online consultation, and offline transformation. So Mr. He's introduction is actually in line with the positioning of our platform, as well as our plan to break through the ceiling of the population and break through the ceiling of the individual. And we also found that in terms of both men's health, fast-selling products, health products, etc. This kind of brand, exclusive brand, and better user experience brand, this kind of huge market demand. So we seriously studied the characteristics of this male crowd, and then launched a related brand. It is actually a very wide market space, such an opportunity, and its horsepower is also a very high product and such a commercial model. So we hope that through Mr. He's introduction, we can enter more health areas and more male people. From the current six products on the line, they are still extremely popular. Of course, we are still in the early stages of polishing the team and polishing the products. I think in the future, we will have more actions in this area. Of course, we have always given internal positioning, which is to hope that Mr. He and He's Health can become China's HEMS+. Okay.
spk08: When we started the heat health business back in 2019, we already got quite a thorough plan for this business. Meaning that at that time, we already planned to do the OEM business, the so-called the consumer brand business. So when you see our heat health ready business, that actually was developed step by step, stage by stages. So for the first stage, you already see the online medical medication business. The second stage is that we launched the Mr. Her, the consumer brand. And the Mr. Her, the reason we launched the Mr. Her consumer brand is that We know our users' needs very well, and we know that there will be a strong demand from our users for this kind of consumer products. So that's why we decided to launch the Mr. He's brand. And during the initial stage, the brand has six products. For the second stage next year, we will try to expand the product line of the Mr. He. And because we think that this will get a popularity among our users, we think that Mr. He's product should have quite a significant contribution to the heat health business in the future. 好,我再补充几句。 大家可能看到我们的Q3实际上的这个
spk05: China China China China Actually, it all proves the strategy of the company that we hope to express to the secondary market. Lanchen Brothers is not a live broadcast company. It is a community-based service that provides users with a full life cycle. So in the future, next year, you will see that our income structure will become more diverse and more reasonable. Then we can improve the ratio of members' income and the scale of health income. Let the company's income structure In addition, we will explore more commercial methods and income channels in the future. I don't know if it's convenient to reveal, for example, we may have some layout in terms of live streaming delivery, and there are some other layout in other aspects. We all hope to provide more, in addition to social entertainment, in addition to health services, there may be more commercial services. Okay, as you already see that we have a strong sales growth from the membership business and also strong sales growth from health-related business.
spk08: With Beta's revenue structures, we expect to see Beta's margins in the future. And also, although right now the live streaming business is the biggest revenue contributor, but we are not positioned ourselves as a live streaming company. So in year 2022, you will be able to see much more better the revenue structures because we will try to develop the other level of business. And for the live streaming business, we will try to, as I mentioned earlier, we'll try to develop more features. Even probably we will... develop some e-commerce related business along with our live streaming business. So that is one area we are considering. So we are still the company which are dedicated to the so-called lifetime, to provide the lifetime service for our users. This mission has not been changed.
spk05: Okay, thank you.
spk08: Thank you.
spk06: Thank you, Mr. Ma. Thank you, Alfred. I would like to ask, Mr. Ma mentioned that the company is going to explore more ways in the future. Can you share some of the current performance of our overseas market, including income growth, MAU, etc., and the strategic changes in the overseas market layout of the company, Thank you. I have a follow-up. Regarding the global market, would you please share more color performance of your overseas market in terms of the total revenue, MAU, or other metrics? Any updates or change with your strategies on overseas expansion? Thank you. 好,謝謝您的問題。
spk05: In fact, overseas, you can see that there are two relatively good performances in our financial report. The first is that the international income is constantly increasing. Its overall income ratio has reached 13.1%, which is a dramatic increase compared to last year. In addition, overseas MAU increases are also very optimistic. In the same period, it has increased by about 3%. From this to this number. in the large-scale market has almost stopped. The main reason is that we think that in many Southeast Asian regions, we have maintained this advantageous position, leading position. It has formed this social network effect. So we don't have to spend huge amounts of money to expand the size of users. If there are more, we have to return to product power and return to this refined operation. So to achieve this long-term, this high-year-old expansion of the size of users, In addition, the second step is to gradually improve our commercial transformation efficiency and transformation strength. In particular, we may have more such actions next year. In overseas live broadcasts, from social live broadcasts to show broadcasts, overseas live broadcasts, uh uh Okay, for overseas business, the MAU for overseas business was
spk08: 2.94 million, which means almost 3 million MAU, versus 2.66 million in the same period last year. So the year-on-year growth for the MAU was 10.5% year-on-year. And also for the sales contributions, as you can see from our release, Overseas business accounted for 13.1%. 13.1% in the so-called early year versus 9.7% in the same period last year. So if you do the calculations, the overseas sales revenue was roughly 35 million versus 28.7 million same period last year. So the year-on-year sales growth was 23%. So you can see that our overseas business continues to grow in the third quarter this year. Even we already implemented some measures for the cost and expense control. So as far as the future strategy is concerned for our overseas business, what we will do is that we will continue to implement the cost measures and cost control measures and expense control measures. The MAU growth will more rely on the so-called organic growth. That is the first one. The second one is that we will try to enhance our monetizations for our overseas business. And we will try to, because especially for our live streaming business overseas, right now our overseas live streaming business is more social network oriented. And in the future probably will be transformed to the so-called talent show oriented business. We believe in this way, this will bring in more sales revenue for overseas business next year. So our target for our target, internal target for our overseas business next year is to try to have this business to become profitable at the bottom line.
spk05: Let me correct the 43.8% data just now. It should be like this. Another additional more information. For the MAU, MAU overseas accounted for 43.8% of the total MAU.
spk08: So, meeting that, the MAU is concerned. Overseas business is already a very significant part of our business.
spk06: Thank you. Great. I have no more questions. Thank you.
spk02: Thank you. Ladies and gentlemen, we have now reached the end of our question and answer session. I would like to hand the conference back to the management for closing remarks. Please continue.
spk07: Thank you, Professor. Thank you all for participating on today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Thank you.
spk02: Thank you. And this concludes today's conference call. Thank you for participating. You now all disconnect.
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