iQIYI, Inc.

Good day and thank you for standing by. Welcome to the IGE third quarter 2021 earnings conference call. At this time, all participants are listen-only mode. After speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference has been recorded. If you require any further assistance, please press star zero. I would now like to have the conference OT speaker today, Ms. Chang Yu, IR Director of Company, please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining ITE's third 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, Chief Content Officer, Mr. Wenfeng Liu, our CTO, Chief Technology Officer, and Mr. Xianghua Yang, Senior Vice President of our membership business. 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 guidance. After their prepared remarks, Xiao Hui, Wen Feng, and Xiang Hua will join Mr. Gong and Xiao Dong 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 U.S. 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 not limited to, those outlined in our public filing with the SEC. ITE does not undertake any obligation to update any forward-looking statement except as required under applicable law. With that, I will now turn the call over to Mr. Gong. Please go ahead.

Hello, everyone. Thank you for joining us today. In the third quarter, we faced a lot of volatility as we negatived it. Through a particular challenge operating environment, we experienced uncertainty in terms of content scattering, which resulted in softer than expected top-line performance. Despite the short-term volatility, we are delighted to see encouraging signs of crossing multiple operating metrics. Our leading market position remains intact as we continue to rank number one in various user metrics according to third-party data. We firmly believe there are a couple of eternal truths when it comes to entertainment. The first is that audiences constantly demand high-quality entertainment content, such as movies and dramas. And the second is that creators have infinite potential to develop excellent material. With this market dynamics in mind, we think we have tremendous space for growth and development. During the quarter, we continue to enhance the production capabilities of our original content, explore new genres to diversify into and expand our user base by refining our products and the overall user experience. Meanwhile, we have been driving the industrialization of video production to improve the efficiency of our operations. We believe all of these developments will enable us to navigate through the short-term challenge. And we are on the right path to achieve long-term success. Now, let's go through the performance of our business segments in the full quarter. Let's start the membership. During the quarter, our membership services revenue grow both annually and sequentially. Our core strategy is to cater to the demands of specific user segments with diversified content and continuously improve membership, improve member benefits that enhance the member experience and drive new member sign-ups and user retention. At the same time, we are focused on raising up and improving the long-term monetization of our membership business by developing innovative new business models, adjusting our price points, eliminating ineffective discounts, and pushing soon other operations initiatives. However, as I mentioned earlier, the uncertainty of our content gathering caused fluctuation in terms of subscriber numbers. In the future, we will continue to enhance our library of content across different genres and strengths, our ability to withstand risks related to content schedule. In the third quarter, membership services revenue grew by 8% year over year, mainly due to the success of key drummers such as One and Only, Zhou Sheng Ru Gu, and Forever and Ever, Yi Sheng Yi Shi, which were launched in the third quarter, as well as the continued interest in dramas launched at the end of the second quarter, such as My Dear Garden, An Sheng Tou Rong Bing, and the Rebel, Pan Ni Zhe. As of September 30, the total number of subscribers was 103.6 million. The sequential fluctuation was mainly due to delays in the release of some highly anticipated content. Meanwhile, the major content that we did release in the third quarter was less diversified in terms of genres. Despite the soft performance, We are happy to see that subscriber growth on TV devices and from overseas has maintained a good momentum. We believe that higher conversion of users on TV devices and the continued expansion of our overseas user base will be a significant driver of future subscriber growth. On the other hand, recorded both annual and sequentially growth. As the annual growth rate of 10% was mainly due to the successful price adjustment that rolled out last November, we expect the arc of our membership business will continue to improve going forward driven by our content and our multiple operating initiatives The member experience is one of the most important subjects that we focus on. On October 4th, we proactively canceled the paid-at-once view model ahead of PRs. This should further help improve the member experience and thus support subscriber growth and retention. and lay a solid foundation for the long-term monetization of our platform. In addition, we continue to enhance member benefits. Our platform will cooperate with top industry partners. In terms of new services and the new business model, one of our key focuses is to promote the development of cloud cinema. primarily across three content categories. Stereoarchical films distributed via PVOD model. Premium films only distributed via online platform and IT original films. Since 2020, Stereoarchical release of future films have been hit significantly by the COVID-19 The Cloud Cinema model will reduce the reliance of online video platforms on their actual films. Also, it enables users to watch new films soon after their offline release at a price that is cheaper than a traditional movie ticket. maximize the monetization potential of each film. During the third quarter, we released our new life, , under our cloud cinema model. These films fall in different genres, namely comedy, action, and suspense. which helps to satisfy the demands of different user cohorts. In addition, our first original pivot field, Northeastern Brother, Dongbei and Ge, was launched in October and received positive user feedback since its launch. In terms of our thesis expansion, we were able to significantly expand our user base, with DAUs increasing sequentially in a number of Southeast Asia countries. Downloads of the IT app remained on top of the chart across various regions, in rank number one in Thailand, Malaysia, and Vietnam. Unforgettable love and other domestic blockbuster job continued growth of our overseas revenue. We also recently kicked off the development of six overseas original dramas, including four Korean and two Philippine originals. In addition, we continue to expand our cooperation with local partners, including multiple media platform and operators in Malaysia, Thailand, and Singapore. We also launched our ad system side annual cooperation framework agreements with numerous advertisers and successfully expanded a local sponsorship for our theater. Moving on to advertising. During the quarter, our advertising revenue came in soft, mainly due to a drop in brand ad revenue. The decline was mainly due to the delay of key content, including dramas and variety shows. We continually work on developing innovative new variety shows, which we are doing to diversify our content and direct our business from content scouring uncertainty. We are still refining and fine-tuning some of these productions, and it's going to take some time to win over advertisers and simulate their budgets with this new gyrus. The softness of our brand advertising business was also due to the overall challenging microeconomic environment in China. Renewal from performance has increased steadily both year-over-year and sequentially during the quarter. Our ITLite app was the main driver behind this. As opposed to our main app, ITLite mainly focuses on low-tier cities. There is low overlap with our main app, which mainly focuses on brand ads. ITE Lite is expected to be a great complement that drives new growth of our advertising business. The year-over-year growth of performance ads also benefits from, one, an improvement in our monetization capabilities driven by our technology, and two, contribution from key sectors, including internet service and e-commerce. The sequential growth was also partially driven by the growth in our ad inventory during the summer vacation. Looking forward to the fourth quarter, we observed some slowdown in China's overall macro economy, which might negatively impact our advertising business. Nonetheless, we are proactively adapting our jobs to the environment to minimize our potential exposure. Moving over to content, we are experiencing increased uncertainty in terms of content scaling and a prolonged content approval process since our last earnings call. Although we prepared a rich slate of content during the quarter, some of the top drummers and variety shows in our pipeline experienced launch delays. Going forward, to offset these types of risks, we are looking to further expand and enrich diversity of our content portfolio, explore new and different categories, and deepen user awareness of our diversified content offerings, all in an effort to de-risk our business from content-scattering issues in the future. In addition, we actively responded to the guidelines issued by the various government authorities to promote the chaos of entertainment and online media industries. We believe these actions will further resolve long-existing problems in the industry, which should help us to further optimize content cost, eliminate chaos in content production and promotion, and reduce the regional industry competition. Overall, these changes should be beneficial for supporting the healthy development of the industry over the long term. I would also like to highlight our content strategy. Efficiency in content production and operation has always been a primary target that we strive for. And we are now putting even more focus on it. We are proactively taking initiatives to improve the efficiency of our operations and reduce ineffective investments in content by cutting projects that are expected to generate low ROI. The online video industry has rapidly developed over the past decade, and now we have gotten to a point where content is king and efficiency is key. We are happy to see the continued results of our progress to optimize content cost driven by enhanced production capability, disciplined content spending, and improved operations. An important metric we use to track the efficiency of our content spending is the content-related cost ratio. Simply speaking, this metric is calculated by dividing the total cost related to a title by the revenue generated by it. Based on this measurement, we can see the operating efficiency of our overall content in 2021 have improved substantially from last year. We will continue to use this metric as an effective tool in managing the efficiency of our investments in content and operations. For example, one and only, and forever and ever, while two drummers launched this quarter. These two titles were both adapted from the same novel, which created synergies in terms of IP and they are quite innovative in terms of both content creation and the broadcasting models. Also, these two titles are good examples that demonstrate our increased efficiency and in content operation as measured by the content-related cost ratio. The performance of one and only was 13 percentage points improved than last year's drama Love is Sweet , which features the same leading actress and belong in the same genre. We would also like to show some highlights on the performance of our vertical content sales model strategy. We have always been the industry pioneer in terms of content innovation and operation. Our sales model strategy is definitely one of our successful attempts. This model helps us to build a recognition among audiences and advertisers in different genres. in which beneficial for attracting new user and driving up user retention. It offers better ROI as it brings synergies among different titles within the same content genres. And it provides more flexibility in working with advertisers. For example, we observed that The recent broadcast of the pavilion, BaJiaoQing MiWu and the bishop, ChengYuanMeng, boasted the viewership of Mr. Shelter's first season titles. Especially, the recent daily video view and the user time span for the bad kids increased by more than two times since the new season of Mr. Shelter. was launched. Looking forward to the fourth quarter, although we predict that uncertainty will remain in the market, we will continue to execute our diversified content strategy, in addition to the new season of Mr. Shelter, launched in the first quarter. Other key titles include the drama series Fengqi Luo Yang, the variety show Super Sketch Show and Action and animated content such as DL Squad 2 and Princess Doremi. The Super Sketch Show premiered in mid-October. The show was high The show was highly acclaimed by audiences and solid market leadership in variety shows. Moving on to technology. Advanced technology is the foundation of our business and we are constantly developing new technology to improve the user experience, increase user penetration, develop innovative new content formats and enhance content production and the efficiency of our operations. At the same time, technical innovation is key to the industrialization of video production in the industry, and it will be greatly beneficial for improving the probability of success. increasing ROI, simplifying the production management process, reducing production costs, and enhancing the viewing experience. We continue to make progress in terms of user penetration. The user scale of ITLite grew rapidly. Peak DA use increased by nearly two times sequentially, and the user retention and monetization has also improved. In terms of user profile, as I mentioned earlier, H-E-Lite is mainly focused on low-tier cities, so the growth we have seen with this app speaks to our success in penetrating into these regions. In terms of content production and efficiency improvements, we continue to apply AI technology to effectively reduce production costs during the quarter. For example, operating costs can be effectively reduced with our proprietary intelligent translation tools. We have fully replaced manual translation with automated AI translation for B-level drummers in Malaysia going forward. Once we fully adopt this technology for our overseas business, it will save us hundreds of millions of RMB in translation costs in the future. In terms of industrialization of video, we have launched and applied multiple technology and products to our content production. which reduce the production cost, increase efficiency, and improve the user experience. Take our proprietary multi-view capture system as an example. The system significantly shortens the shouting time and the web volume of manual work. It supports the full production process from camera deployment, video shooting, to post-production, make content production more efficient. Other intelligent tools launched include a script superweather, superweather management product, which can be used in the main stage production process. product has been applied to six-page variety shows, including some of the external works in production. Also, a management tool for the post-production editing process has been used by a number of post-production companies in the third quarter, improving transcoding efficiency by 3.7 times In summary, we are proactively adapting ourselves to the current environment. We continue to be a pioneer when it comes to content innovation and operation. Meanwhile, we are seeing a promising growth trajectory for new initiatives such as IT light and overseas business. Our original content, especially our shelter model content, is highly recognized by users and advertisers. We will continue to take the lead in rolling out our technologies and the tools for intelligent production and driving the industrialization for the long-form video production process, which should help to further optimize our operating efficiency. We have evolved along with the changes in the online video market over the past decades. The experiences we have accumulated and our expertise are exactly in line with where the industry is heading. We value the current challenges as a crew of learning opportunity. We continue to believe that what does not defeat us makes us stronger. With that, I'll turn it over to Xiaodong to talk about our financials.