iQIYI, Inc.

Good day and thank you for standing by. Welcome to iQIYI fourth quarter and fiscal year 2021 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your first speaker today, Ms. Chang Yu, IR Director of the company, to read the opening remarks and the safe harbor statement. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining IT's fourth quarter and fiscal year 2021 earnings conference call. The company's results were released today and are available on the company's investor relations website at ir.ic.com. On the call today are Mr. Yu Gong, our founder, director, and CEO, Mr. Jun Wang, our CFO, Mr. Xia Hui Wang, our CCO, Chief Content Officer, Mr. Wenfeng Liu, our CTO, Chief Technology Officer, Ms. Vivian Wang, our CMO, Chief Marketing Officer, Mr. Youqiao Duan, Senior Vice President of our Membership Business, and Mr. Xiang Haiyang, Senior Vice President of Movies and Overseas Business. Mr. Gong will give a brief overview of the company's business operations and highlights, followed by Jun, who will go through the financials. After the prepared remarks, Xiaohui, Wenfeng, Vivian, Youqiao, and Xianghua will join Mr. Gong and Jun 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. Previous 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 filings 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. Ghosn. Please go ahead.

Hello, everyone. Thank you for joining us today. 2021 was a unique year for IT. One year ago, we shared with investors in our shareholder letter that IT delivered. It's called Melio by producing and distributing premium entertainment content. My heroic husband, Fengqi Luoyang, and who is the mother? Who is the murderer? just to name a few. And we continue to rank number one in various user metrics, according to third-party data. Today, we would like to shareholders to recognize that IT is leading the opening of a new chapter in Chinese long-form video industry, which involves a number of structural changes structural changes. The market competition shifts from quality to quality. The operational priority shifts from market share to business efficiency. Everyone within the industry is now taking a more balanced approach that results in higher business efficiency. profitability and positive social impacts. These changes are positive. These changes are the consensus of industry leaders, including IT, and they will help the entire industry to achieve sustainable growth in the long term. These structural changes also brought near-term benefits resulting in a healthy fourth quarter for IT. For instance, we proactively dropped projects that generated low ROI and had limited value creation. Meanwhile, we are more disciplined when investing in the non-core business and initiatives with long payback periods. Our organization becomes slimmer and nimbler. We are more focused on our core business than ever, resulting in significant improvement in cost structure and operating efficiency. The initial results have been very encouraging. In the first quarter of 2021, the non-GAAP operating loss, a key measure for our business performance, decreased significantly by 45% annually and 52% sequentially, exceeding our expectations. The benefits from these changes will extend beyond Q4. We expect the non-GAAP operating laws to be further narrowed significantly in the first quarter of 2022. Our goal is to reach operating breakeven for the full year of 2022 on the non-GAAP basis. and we hope to reach quarterly non-GAAP operating break even as soon as possible. We believe that we are in the right direction in reaching our goal. We will continue to increase our operating efficiency and improve the quality of our diversified content portfolio through content innovation, production refinement, industrialization of video production and diversified monetization methods. We firmly believe premium long-form video content is one of the core needs of human beings. execution of our short-term strategy and the rich experience we have accumulated in the industry, we will continue to produce and deliver more high-quality and diversified premium content to expand our member and user base over the long term. Now, let's go through the performance of business segments in the first quarter and the full year of 2021. Let's start with memberships. Our core business strategy remains focused on the three aspects that drive membership service growth. First, increasing average revenue per membership as known as ARM. Second, improving retention of paying members And the third, continue attracting new members and reconverting in active members. In the first quarter, our membership revenue grew by 7% annually, and the full year, 2021 membership revenue grew slightly from last year, mainly driven by our improvement. For the first quarter, monthly arm was RMB 14.16, up 14% annually and 4% sequentially. The improvement of ARM was mainly attributable to more premium services provided for our users. The success of our initiatives operate in innovative operating initiatives and efficient promotion efforts and the successful price adjustment that we roll out in November 2020. For example, we launched many innovative marketing campaigns for a number of high anticipated content launched in December, such as Our original drama series, Feng Qi Luo Yang, and Who is the Murderer? from Mr. Seltzer bring inclusive perks to our members. Benefiting from the success of last year's Mr. Seltzer, the membership revenue of Who is the Murderer? recorded historical highs among all Mr. Seltzer dramas. During the first two months of the quarter, we have faced great uncertainty in content gathering, and many key titles were delayed towards the end of the quarter. The average daily number of total subscribing members for the first quarter was 97 million, compared to 102.7 million for Q4 2020. and 104.7 million for Q3 2021. As we launched many premium titles since December, the current number of subscribers is now back at ideal level. Despite the sequential fluctuation in average daily subscribers for the quarter. We are happy to see that subscriber growth on large screen devices maintain good momentum. The user time spent on TV devices continues to increase, showing the appreciation of content distribution while big screen is growing. This trend presents as a greater monetization potential on big screens. In the future, we will continue to improve the acquisition and retention of paying subscribers from refined operations strategies. At the same time, the penetration into large screens will be another driving force to the continuous growth of our business. Moving on to overseas business, our overseas business made great progress. With user base and revenue achieved significant growth year over year, the influence of our overseas platform continues to increase, bringing a wider recognition of Eastern culture amongst overseas users. First, the user base recorded explosive growth and the average DAU in 2021 tripled from last year, we saw the best growth momentum in Thailand with annual growth of nearly 700%. Meanwhile, the growth rate in many other regions exceeded 100%, such as countries in the Southeast Asia, the US, Korea, and Australia. Second, the overall revenue growth of the overseas platform was also encouraging. Membership revenue grew by over 40% sequentially in the first quarter and over 80% for the full year. Advertising revenue grew by about 10% sequentially in the first quarter and over 100% for the full year. Thirdly, continuous releases of skit titles successfully won recognition from overseas users, driving a rapid increase in the ability to continuously expand our user base. During the year, a wide variety of Chinese mainland content, such as original and licensed dramas and original variety shows, achieved top trend, ranking in 14 countries, including Malaysia, Thailand, Japan, Korea, and the US. Lastly, we continue to improve our platform capabilities and expand cooperation with local partners. We launched our app. on Amazon Fire TV and local TV in North America, and also on many TV devices such as Samsung, Hisense, and LG TV. During the year, we also launched an overseas ad platform to expand our cooperation with overseas brand advertisers and agencies. In the future, we will continue to focus on expanding the scale of our user base and revenue by leveraging the premium content on IT main app and the continuous improvement of operation efficiency. We are striving to maximize our monetization capability for our overseas platform. Moving on to advertising. The advertising revenue decreased 10% year over year during the quarter, mainly due to the decline in brand ads. The decline in brand ads was mainly attributable to, first, the lack of kid content, both for the drummers and where it shows in the first two months of Q4. Second, weak overall macro environment. Despite the decline in brand ads, we are pleased to see that ad revenue from the Mr. Seattle doubled in 2021, highlighting the success and importance of our vertical Seattle model strategy. For 2022, we are targeting to secure more key accounts and increase their revenue contribution driven by continuous content innovation and development sequels to our success titles. Revenue from performance has achieved steady growth both annually and sequentially during the quarter. ITLite was a major driving force. The operating metrics of ITLite increased significantly. the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity of the specificity content. We experienced turbulence and faced many uncertainties that directly impacted content launch during the year and especially in the first two months of the first quarter. As we gained a deeper understanding of the latest industry policies, we are able to better comprehend the boundaries of content production and scaling. that we proactively managed the process and increased our resilience related to content scaling uncertainty. We launched many premium content towards the end of the first quarter. Optimization of the overall content cost is the most aspect of our recent operational strategy. For the first quarter, The content-related cost ratio continued to improve. This ratio, as we introduced in the last call, effectively reflects the operating efficiency of the content we invested in. So far, the ratio has improved over 20% annually for the first quarter, as the number of low performing titles decreased both annually and sequentially. Meanwhile, we have utilized our intelligent production technology to increase our data analytical and forecasting capabilities, which in return increased our content success rate. We believe we have a team of content professionals that have the best industry know-how. By executing the aforementioned initiatives, the overall quality of our content team will further be improved. Now let's go through the key titles during the quarter and in 2021. During the quarter, we ranked number one for the number of new dramas launched in the industry according to enlightened , and we maintain the leading position in terms of market share for variety shows, cartoons, and animation. For the full year 2021, our market share of movies, dramas, variety shows, cartoons, and animations all ranked number one, and the number of new dramas launched was the highest in the industry. For drummers, we focused on enriching and diversifying our IP monetization capabilities. For example, we are building the IT Chinese Hierarch City Universe franchise, developing content which is based on the traditional Chinese culture, showcasing the history of rich Chinese culture to the global user. through diversified original production. We debuted our first work on the franchise, the original TV drama Fengqi Luoyang, which generated immediate buzz among viewers. The popularity index of Fengqi Luoyang broke 9,000 on the second day of launch, becoming one of the top ranking hit drummers that achieved such high index scores on our platform. In the future, we anticipate to develop a series of productions under the same concept to expand the franchise. For the second season of Mr. Theater, a number of titles were debuted in the first quarter, further enhancing enforced as brand influence among viewers. The monetization capability for the Mr. Seltzer Cereals has become an important growth driver for our membership service. WhoisModer generated the highest membership revenue among all titles. The success also attracted more advertising budget to our platform. and demonstrated great flexibility in working with advertisers under the vertical model. Two, for variety shows, we continue to explore new genres and received praise from both industry professionals and audiences. For Q4, our original production, the Super Sketch Show maintain solid number one in user time spent for the variety genres. Three, for films, we continue to build our cloud cinema during the quarter, aiming to further expand the monetization possibility and establishing a new online ecosystem for film distribution. For example, Pan, of our original films were only released online with our P-Volt model, and the initial success was encouraging. In 2021, we launched a total of nine films under the P-Volt model, among which our original film, Northeastern Brother, Dong Bei Yang Ge was released in Q form and was the second best performing PVOG film of the year. increasingly increases the supply of premium content and gives talented content creators better exposure, thus achieving a win-win result for both filmmakers and our platform. For cartoons and animation, we also achieved a substantial success in the first quarter. We introduced animation Fengqi Luoyang, Shenji Shaomian, a project basing the IT Chinese historic CTA universe from China, and a good example that demonstrates our diversified IP monetization strategy. Its popularity index broke four within 13 hours of its launch, topping the chat on our platform. Looking into 2021 for drummers, we will continue to improve the quality of our content and portfolio, especially for our premium original production and build competitive barriers for our content ecosystem. The key is enforcing brand awareness, explore the brand value of vertical content, and extend the content lifecycle by producing multi-season drummers and shelf serials under the vertical shelter model. We will continue to pursue achievements with our IT Chinese the historic city universe franchise. We now have three vertical shelters that provide differentiated content and services to our users, namely the suspense and mystery themed Mr. Shelter, the romance themed Sweetheart Shelter, and our new launched comedy themed We recently launched a lifelong journey on January 28th, our first key drama for the year. And it has maintained a leading position in terms of effective viewership according to the latest enlightened data. we will maintain our leadership position in these genres and focus on the categories that we have rich experience with, such as mysterious style competition games, comedy, music, and romance. And we will further innovate and develop shows in sports and performance competitions to meet the latest user demands. Three, for films, we will upgrade the number of projects, scales, and genres of original films as compared to 2021. We anticipated to have six to nine self-article releases of our original films. Four, for cartoons and animations, we will continue to cultivate and develop our IPs making self-realized productions. For example, our original cartoon, it's the first original Chinese animation broadcasted in Nickelodeon TV channel. It has become an instant hit and it's already under multi-season development. Next, moving on to products and services. In the first quarter, IT Light achieved outstanding performance across various operating methods. In particular, a peak DAU reached 5 million during the period. IT Light helps us in penetrating into low-tier cities, and we have observing low user overlap between ITLite and our main app, and such overlap continues to decline. The consumption of library content is much higher on ITLite, showing different user behaviors between these two apps. As for our interest-based community, Suike, continued to improve and enrich our content ecosystem. For the full year 2021, Suike contributed about 17% user time span. Our platform interest-based video constitutes as one of the very important components of our content ecosystem. Since the cost of the content on Suike is relatively low, it gives all cost pressure to some extent. In addition, traffic generated by Suike contributed to the growth of the performance as inventory, driving revenue growth. We hope the user-generated short-form videos will attract attention and drive consumption of respective long-form videos, creating a closed loop for our online video ecosystem. Special events in Q4. During the quarter, we optimized the organizational structure and created a flatter organization structure that helped us to bring more focus back to our core business and increase the efficiency of our operations. As a result, there was a non-recurring severance cost recorded in the first quarter. By optimizing the organization structure, we have assembled a more elite team which enables us to better focus on our core business and improve operational efficiency. To summarize, we have seen initial positive effects from our cost optimization and organization alignment. Despite the turbulence in the past year, We still maintain our market leadership while dramatically improving our business performances. We will keep enriching and improving the quality of our diversified content portfolio, refine operations of our vertical content sales model, improving the efficiency of content investment, and cultivating a content ecosystem that grows our community culture. In addition, we aim to continue increasing our penetration in different geographies and user cohorts through IT light. Large screens and overseas business initiatives. As a result, our fundamentals will continue to improve again. Our goal is to reach non-GAAP operating breakeven for the full year of 2022 and to reach quarterly non-GAAP operating breakeven as soon as possible. We have strong confidence and are looking forward to bringing Erwan a better and a healthier IT in 2022. I will hand over to Mr. Jun Wang to go through our financials.