iQIYI, Inc.

Thank you all for standing by and welcome to the ITE first quarter 2022 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question at that time, you will need to press star one on your telephone. I would now like to hand the conference over to IR director, Mrs. Chang Yu. Thank you. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining ITE's first quarter 2022 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. Tian 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 Service Business, and our Mr. Xianghua Yang, 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, 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. 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 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. Gong. Please go ahead.

Hello, everyone. We recorded quarterly non-GAAP operating profit for the very first time. This demonstrates the effectiveness of our new strategy and execution. Last quarter, we announced that our goals for this year are to reach non-GAAP operating breakeven for the full year of 2022, and to reach quarterly non-GAAP operating breakeven as early as possible. I'm very pleased to see our performance exceeded our goals. What are the driving forces on our path to profit? I will name four. First, the preeminent content, the debut of new content such as top-notch dramas solidified our market leadership and lead to healthy growth of both subscriber base and arms. The influence of these new dramas was further elevated through our creative content marketing strategy. Meanwhile, the library content also played a crucial role. We used effective operations to drive traffic to our extensive library content and enhance the user's dignity. refine our operations on content scheduling and promotion. Thirdly, increasing operation efficiency, which means delivering superior services based on an effective cost and expense control. Lastly, driving our sales performance through various initiatives to boost our monetization, our membership, and ourselves. With these four aspects, profitability is a natural result. Therefore, we believe the performance in the first quarter is replicable as we continue to execute this operational methodology in the future quarters. On premium content, we are confident about our future pipeline. On efficiency management, we will continue to focus on driving efficiency by leveraging the power of technology while maintaining the current lean corporate structure. By using the same methodologies, we will continue to achieve desired results in the future. Now let's go through the performance of our business segments in the first quarter of 2022. Let's start with memberships. For the first quarter, we continued to deliver a solid membership performance. Membership revenue was RMB 4.5 billion, up 4% annually and 9% sequentially. The average daily number of total subscribing members for Q1 was 101.4 million, a net addition of 4.4 million from the previous quarter. A monthly arm was RMB 14.69 during the quarter, up 8% annually and 4% sequentially. Q1 was the fifth consecutive quarter that we achieved 8% or above annual growth. Our premium new content and our extensive library content were the main drivers behind our positive performance. Our values for memberships, for members translate into high higher member acquisition, retention, and arm. We expect to see solid membership revenue growth on year-over-year basis for the quarters down the road. Content is king. Among the new releases during the first quarter, a lifelong journey, Ren Shijian, under the skin, Liezui Tujian, Life is a long, quiet river. Xinju, we are the out-putters, we are the out-performers. A lifelong journey becomes a blockbuster acclaimed by the whole nation, loved by the audience across all age groups and backgrounds. It tells a story of China's transformation in the past 50 years from the perspective of ordinary people. We are happy to see a lifelong journey was able to achieve world of month popularity, social value, and commercial success. It also shows our deep understanding of the industry and the ability to balance our social obligation and user appetite. Under the scheme is a detective drama focusing on social issues. It has become a dark house in the market with very high user-sickness. Life is a long, quiet river. An original drama that portrayed the daily life and the stories of Shanghai urban families also performed very well in terms of traffic and revenue. Its popularity index exceeded 9,200 MSPs. In addition, we are also seeing some of the long-term effect of premium content as they continue to generate solid view shape after serials. One of the key strategies with popular IPs is serializing production, the original live comedy, Vocation of Love Season 2, Jia Zhi Nuo Yang Yang Er, is an example of multi-season approach in which we develop new plot lines for additional seasons of our popular content. The drama Shining for One Thing, Yi Shan Yi Shan Liang Qing Xing, also become a dark house and set a new record for revenue sharing drama on our platform. To better connect with users, we also created a distinctive brand for our featured vertical content categories, namely ITCelta. In the first quarter, we launched our third vertical content filter, laugh-on filter, focusing on comedy in general. Two titles were launched in Q1, and the third title to be released soon. These comedies are good leisure and entertainment tries, and provide users a new outlet to relieve daily pressures. Now, with Meet the Shelter, Sweet Home Shelter, and Love Home Shelter, our platform successfully covered the three most loved genres by all co-users, namely suspense, romance, and comedy. Going forward, we will continue to explore other content genres and IT shelters that bring targeted and diversified experiences to users. In summary, we attract users through streaming new releases and retain users through our extensive and diversified library content. We employ various operational initiatives to increase user loyalty and brand awareness. All of this will contribute to our solid base of subscribers and lay a good foundation for future growth. We are pleased to see the value we have provided to our users was widely recognized, which translated to great monetization capability. Moving on to content, after explaining how we achieved our first quarter success, next, how do we replicate our success in the future? We focus on a systematic approach in building our content business from production to operations. Our goal is under the promise of Materia IT's overall competitiveness and leadership, which means we will acquire the most appropriate content with optimal ROI. maximize monetization with reasonable number of titles. As we continue to enhance our in-house production capabilities, enrich our premium content inventory, and refine our content operations, we will be able to expand our advantage as an integrated platform and improve our overall efficiency across various aspects. including content production, content scaling, and promotion. Meanwhile, we utilize technology to further improve our production capability and increase our efficiency. Investment in content is our biggest organizational focus. We make it the key Achieving our goal of optimizing cost and efficiency, we have placed strategic control over the full content production process. From script development, pre-production, to shorting and post-production, we also emphasize efficiency in content production, content release, and the funding utilization. As for our content reserve, we have dedicated ourselves in building our original content offering and enhancing production capability in the past few years. We have established one of the largest and the most professional team of producers in the industry. We also want to highlight that despite the recent resurgence of the COVID in some regions in China. We are relatively comfortable with our content reserve, especially in the core drama category, as we have a diversified pipeline of dramas for this year. Benefited from our solid reserve of original content and the experiences gained from operating under COVID in the past two years. Therefore, we currently expect to see limited impact from COVID in our future drama pipelines. Looking ahead to the second quarter and the full year 2022, our key focus is to improve the overall content quality. We will continue to introduce premium content to our users, increase the quality of our offering and leverage the platform's advantage to build IT content ecosystem. Meanwhile, we will both enforce our brand awareness, so making multi-season production for our launch areas and utilize our successful sales model to enforce our advantage in some vertical genres. Benefiting from our rich content reserve, we will be able to launch a series of titles in the second quarter. For drummers, the key titles we have released in Q2 include Left Light, My Sensitive Princess, The Wind Flows from Feng Xie Lu Xi and Daybreaker, A Ye Xing Zhe, all have been well received by users. For the rest of the second quarter, key dramas to be released include highly anticipated original titles, Love Never Lost, Ren Sheng Guo Ru Fu Jian, and Ordinary Way, Greatness, Jing Cha Rong Yu, The Lord of Losers, Po Shi Jing Ying, the third drama, and Laugh-On Theater will also be premiered. For this year's Speed on Theater, five new series will be launched. For variety shows, we will launch the second season for last year's hit show, The Detective Adventures. For animation and children's content, we will continue to launch new titles multi-season strategy, also we have prepared a rich and diversified slate of premium content for this year's summer season, covering all major genres that target different user cohorts. We continue to produce and release or in the movie to enrich our company ecosystem. Men on the Edge was released in theaters on April 15, and its cumulative box office was surpassed RMB 130 million. On April 1, we upgraded the online film distribution collaboration model with our partners. The revenue sharing model is now based on the user viewing time instead of views in the past. Promotional profits will be allocated based on the audience participation and content performance, such as viewing time, membership conversion rates, and user views. The new model enables high-quality films to stand out and may significantly improve our operational efficiency, providing a win-win solution for both producers and our platform. Now, I'd like to quickly talk about our progress in IP development. Premium content also translates into additional monetization opportunities As we continue to push our strategy of building our IP franchise and increasing monetization comparability, in last December, we launched the first title of the IT Chinese Historic City Universe franchise, Fengxi Luoyang. We have signed with over 20 partners to franchise this popular IP in various formats, such as twice. jewelry, apparel, food, and beverages. Moving on to advertising. For Q1, the total advertising revenue declined both annually and sequentially due to the current micro-havings. The software ad demand negatively impacted our brand ad business to some extent. Despite the challenging micro-environment, premium content contributed to drawing strong attraction from advertisers. For example, Lifelong Journey and Life is a Long, Quiet River both had very good advertising performance. The drama Lifelong Journey itself attracted 25 advertisers to our platform. For Q1, The sequential growth of our performance ad business was benefited by our growth in ad inventory, but partially offset by the weak microenvironment. IT light was contributing to the increase in ad inventory. As monthly average, DAOs reached 5 million in Q1 and surpassed 5 million starting in April. given the major manifestation methods for IT light, its performance as it effectively supplemented our ad inventory and mitigated the adverse impact of the macro environment. In Q1, we upgraded our ad placement platform, which was widely adopted by advertisers. The new version is more user-friendly and increased monetization efficiency by nearly 20% compared to the previous version. The upgraded ad placement platform helped advertisers to cover more ad slots, get more exposure for their products, and improve ROI by leveraging smart algorithms. Moving on to technology. Technology is fundamental to support our development. We continue to use AI technology to improve content production efficiency and promote the industrialization of online video industry. Technology helps us to optimize cost, promote information security and copyright protection, and improve the entertainment experience of users. In the first quarter, our proprietary AI-dubbing technology IQ dubbing was widely used in our film offerings. For our movie channel, more than 20 foreign movies used this technology to complete dubbing in Mandarin before launching on our platform, saving costs while increasing revenues for both new and elaborate films. was also used in our overseas business. For example, we launched a new field in Thailand using IQ dubbing that received a very strong user feedback and generated strong revenue performance. AI dubbing is effective in optimizing costs and driving revenue for long-tail content. The technology also safeguards our system architecture and provides data security and enables anti-piracy protection of our platform. In the culture of proprietary digital rights management solution completed in the Funcom Security Audit which is recognized worldwide as an intense measure of solution ability to protect premium content. So far, we are the only domestic streaming platform in mainland China that has completed such certification reflecting our strong ability in digital media security protection. Moving on to new business, we are also exploring growth opportunities from new business initiatives, we are delighted to see a continuous strong momentum for our overseas business and IT light. For our overseas business, driven by our continued efforts in enhanced products and user experience, the membership revenue and the advertising revenue for our overseas business both recorded solid annual growth during the first quarter. iQ-Lite is a great supplement to our main iQ app and continues to achieve strong performance across various operating metrics in the quarter. ITLite is mainly focused on the performance head monetization model, which is significantly different from the subscription center monetization model of our main app. Overall, the user demographics, monetization model, and content consumption behaviors on ITLite are largely different from our main app. The user overlap between ITLite and the main app further declined in the quarter. The DAU overlap was only around 4% in March. Meanwhile, we observed that the consumption of library content on ITLite was significantly higher than the main app, largely enhanced the realization of long-term We believe ITLite was ample potential for growth in both user scale and monetization abilities. In summary, Q1 was a brief strong quarter for the company. We delivered what we had promised, reaching non-GAF operating profit earlier than anticipated. outstanding execution, professionalism, and strong unity of everyone within IT. The encouraging first quarter results also demonstrated that the long-form video industry can generate sustainable operating profits. We have a clear value proposition for our users. Not only that, we offer the latest premium content available in the market. We also have an extensive and diversified content library that our user can find his or her favorite. This value proposition is unique, and the happiness we offer to users far exceeds exceeds the price we demand. Looking forward, the pandemic situation in Shanghai and Beijing do create additional challenges, and the time for full recovery remains unknown as of today, which could impact our Q2 performance. Regardless, we still strive to deliver another quarter of non-GAAP operating breakeven after the first quarter's success. We would like to wrap up by thanking all our stakeholders, including our shareholders, business partners, and employees who share our belief in the positive prospect of long-term revenue. We understand that many of our stakeholders follow our business development closely and pay close attention on areas such as whether blockbuster content can be delivered every quarter, or if our business would be impacted by some short-term market headwinds. Honestly, we would not worry about What will change? We focus on what will not change in the next five years or ten years. And we will invest heavily into these areas to meet user demands. That is, processing a collection of highly differential premium content and a highly effective platform that delivers sustainable value to our users. Meanwhile, we will continue to seek new opportunities from innovation and expand our values in the ever-changing market. With that, I'll hand over to Wang Jun to go through our financials. 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