iQIYI, Inc.

Good day, and thank you for standing by. Welcome to ICV second quarter 2021 earnings conference call. At this time, all participants are in the listen mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. This is to advise that today's conference is being recorded. I would now like to hand the conference over to Ms. Fan Liu, Head of Capital Market of ITE, to read the opening remarks and the safe harbor statement. Please go ahead.

Thank you, Operator. Hello, everyone, and thank you for joining ITE's second quarter 2021 earnings conference call. The company's results were released today and are available on the company's investor relations website at ir.ite.com. On the call today are Mr. Yu Gong, our founder, director, and CEO, Mr. Xiaodong Wang, our CFO, Mr. Xiaohui Wang, our CCO, Trade Content Officer, and Mr. Wenfeng Liu, our CTO, Trade Technology Officer. Mr. Gong will give a brief overview of the company's business operations and highlights, followed by Xiaodong, who will go through the financials and the guidance. After their prepared remarks, Xiaohui and Wenfeng will join Mr. Gong and Xiaodong in the Q&A session. Before we proceed, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include but are not limited to those outlined in our public filings with the ICC. ITE doesn't undertake any obligation to update any forward-looking statements except as required under applicable law. With that, I will now turn the call over to Mr. Gong. Please go ahead.

Hello, everyone. For the second quarter, we maintained favorable momentum from the first quarter. with total revenue approaching the high end of our previous guidance. Our operating law narrowed for the five consecutive quarters on a year-over-year basis due to our effective cost and expense control. During the quarter, we continued to lead the market in multiple operating metrics. According to the third-party data, we ranked at the top of the long need for video industry in terms of mobile MAUs, mobile DAUs, and a total user time span. First, let's start with our membership business. As of June 30, our total number of subscribers reached 106.2 million. This represented 0.9 million net ad sequentially, despite the heightened uncertainty of content launch during the second quarter. Our membership growth was mainly due to three factors. One, our premium content, especially dramas, performed well, which helped to drive the number of subscribers to increase. For example, dramas launched in June including My Dear Garden, Ansheng Kedongbing, The Rainbow, Pan Yizhe, well received by audience. In addition, films such as Defective Chinatown 3 and the book soon The Darkness, also did well. Second, we saw strong membership growth on TV devices as they approach summer vacation. three, we further depended on overseas expansion. Driven by our premium content and efficient operation, we continuously improved the conversion of our subscribers. The number of our overseas subscribers at the end of quarter exceeded one million. Apart from bringing our domestic producer content to the overseas users. We also made books soon in the local original content. For example, we launched our first original career drama serial, My Roommate is a Coming Home, in May, which was remarkable success. In addition, The Sweet Aunt Delta was launched for the first time in overseas market. keeping pace with the domestic success of Delta Scouting Mode and improving the retention of specific user cohorts with a sequence of Jira specific content. The slightly sequential decline of membership services revenue was mainly due to the volatility of subscriber numbers during the quarter. which was mainly attributable to, one, lack of blockbusters to continue the popularity from Q1, which causes the volatility of subscriber numbers, particularly in the first half of Q2. Two, delayed launch of streaming content to the end of Q2. Despite the volatility of our membership services business, our ARP grew nicely. Average monthly ARP saw a high single-digit growth year over year during the quarter, mainly due to the price adjustment we launched in November last year. With more premium and diversified content portfolio to be launched since the second half of the year, We remain confident in our need on the long-term subscribers and our growth. Furthermore, we also expanded new market space for paid online videos. During the quarter, we launched our own cloud cinema brand. The brand includes three major categories. The article movies launched under a pivot mode. isolated online movies and our original movies. The revenue sharing ratio of key world movies to content partners increased to 42%, which is higher than their actual release. By doing this, we hope to explore a new area for growth and establish a new online distribution ecosystem for movies. Moving over to our advertising business, our total advertising revenue increased by 15% year-over-year but declined slightly quarter-of-quarter. The year-over-year growth was mainly attributable to the peak reason for food and beverage advertising partially offset by a decline in revenue due to our content delay. We expect both brand and performance ads to increase in the third quarter due to our ad inventory increase during the summer vacation. Brand ads recorded significant growth year-over-year during the quarter, mainly due to an improvement in our major drummers during the quarter such as A Lot of Dilemmas, Xiao Shu De, The Rainbow, My Dear Garden, and The Sweet Aunt Theater performed well in terms of popularity, word of mouth, and busy views, which helped to drive our client up to the peak level over the past few years. Performance ads. We gained year-over-year growth during the quarter, mainly driven by the contribution of key industries such as internet movies, e-commerce platforms, and internet service apps. We also enhanced our monetization capabilities with our products and technology, which helped to significantly improve our effective CPM. Meanwhile, new resources from Connected TVs and ads alike both performed well. Moving over to content. Although we experienced certain challenges in content scheduling during the second quarter, we maintained our leading position in terms of the total number and review views of top content across categories from drummers and variety shows. to animations and children's content. According to third-party data, video views of our dramas and variety shows accounted for nearly 40% and over 30%, respectively of the overall market view shape. Our animation content, including children's cartoons, has had over 40% market share. During the quarter, we launched a series of classic titles. The content perfectly caters to user demand and further serialized the development and innovation of top IPs. To give you some examples, one, for drummers, we launched an inclusive title, The Rainbow, which was a hit among a wide range of users. The drummers topped a number of writing lists since its launch, and will reach 8.3 on average by over 220,000 accounts on Zobar, a widely used user-reading platform. Other inclusive dramas, such as A Love for Dilemmas, My Dear Garden, My Treasure, and others will be received on our platform. A Love for Dilemma also aired on CCTV8 and Dragon TV, which helps to attract a lot of TV audience back to the IT platform. Following the success of the Mixed Shelter, we continue to broaden our content offering via Shelter mode. We are working to meet the diversified needs of users through this new mode, enhancing their user experience while attracting the fans in the niche segment. In May, we launched a three-time theater in which Moonlight, Yuehuang Bianzouqu, and The Day of Becoming You successfully gained popularity and the World of Moth. For variety shows, we continue to innovate new original content across various original title such as The Effective Adventure Mr. Housework Season 3 and Walking Mark for Shangban La Mama were especially hot shows during the quarter 3 for animation a self-produced animation Immortal Demon Species Wanjue Qi Yuan maintained its popularity throughout the culture. Other titles launched include No Time But To Betray Earth, and a self-produced cartoon, The Tales of Boundary Keepers, Bingxue Shouhuzhou. For online movies, in April, we exclusively released the great Yuxue Wumingchun, which up to now is boxed box office is about to break RMB 30 million and well received by audience. For original film, Pretty Soon the Darkness , which was produced by IT Pictures, was released in shelters during the quarter. The cumulative box office has surpassed RMB 400 million so far. It has received great reviews and commercial returns. At the same time, another two movies produced by IT Pictures started shopping in the second quarter, and another four are in post-production and expected to be released soon. In addition, IT Original Films has 14 films under development. For the second half of the year, We have a better pipeline than either the first half of the year or the second half last year in terms of numbers of titles, quality, and genres. Meanwhile, we will continue to push to launch our scheduled content on time. For the second half, key drummers include traditional drummers with regular numbers of episodes, such as Ace Troops, One Heart Will Dream, the Idea City, ,, and the ,, as well as vertical shelter brands, such as Who is the Murderer, Go Panning, ,, and the pavilion in the shelter. For variety shows, we are focusing on developing innovative new content across a number of things, such as the already launched Game of Shark, and new generation hip-hop projects, upgraded version of the rap of China, as well as What's Your Name? and Born to Dance. For animation and children's content, we are expanding our content library. We are also exploring the area of in-house production A couple of exciting titles include the already-released self-produced 3D animation Immortal of the Godless Age, Princess Doremi, and Two-Tank Man 5. In addition, on sports content, after successfully broadcasting the Euro 2020, we will present full competitions of premium leagues for the next four seasons, 2022 FIFA World Cup qualification games in Asia, as well as La Liga and other top spot events. Moving over to technology, advanced technology is the cornerstone of our business. Among the other things, it allows us to continuously develop innovative content, enhance the user experience, and improve operating efficiency. During the quarter, we were pleased to see that IT Slack that targets users in low tier cities has ramped up. The peak AU exceeded 1.3 million, and the average user time span exceeded same metrics on our IT mobile app. The number is at the end of last quarter. In terms of demographics, users on ITLite consist mainly of elder and young people, groups that tend to have more spare time, mainly in low-care cities. In June, the average AU overlap between ITLite and and our main app is around 7%. In addition, we consistently work hard to improve the technology of our recommendation engine so that users are effectively matched with the most appreciated content from our website library. We believe nearly 30% of all VA use while driven by our content library during the second quarter. Recently, we also made progress in industrialization of video production by utilizing our Intelligent Production Toolset. For example, we currently launched the production business Intelligent System PBIF internally. PBIF is a professional a data system for our content production team. As a BI, business intelligence product, designed and developed centering content producers, BI offers producers one-stop data inquiry, acquisition, analysis, and evaluation to support their decision-making. On the first day of our launch, thousands of our producers tried out the system. In the future, BI will widely promoted internally and cover all in-house videos within a year, promoting the industrialization of video production within IT as well as in our partner ecosystem. In general, we are still in the early stage of industrialization of video production. The supply of high quality content, especially of heat vertical content, needs to be amplified. Our core content strategy is to focus on high quality content across selected verticals and providing more premium mass market hits so that we can optimize subscribers penetration and the convention. We admit that there is still a gap between us and our global peers. In the future, leveraging our deep understanding of users, our highly innovative in-house production team, as well as our advanced technologies for industrialization production We believe we are well-positioned to address the company's challenges, narrow the gap with our global peers, and capture the future market opportunities. With that, I'll turn it over to Xiaodong to talk about our financials.