iQIYI, Inc.

Thank you for standing by and welcome to the IKEE first quarter 2023 earnings conference call. All participants are in the listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Chang Yu. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining IT's first quarter 2023 earnings conference call. The company's results were released today and available on the company's investor relations website at ir.it.com. On the call today are Mr. Lin Feng, our founder, director, and CEO, Mr. Jun Wang, our CFO, Mr. Xiaofeng Wang, our CCO, Chief Content Officer, Mr. Wenfeng Liu, our CTO, Chief Technology Officer, and Mr. Yuxiao Zhang, Senior Vice President of our membership 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, Linfeng, and Yuxiao 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 proper provisions of the U.S. Private Security Litigation Reform Act of 1995. Overlooking statements are subject to risks and uncertainties that may cause the 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. ICC does not undertake any obligation to update any overlooking statements except as required under applicable law. With that, I will now turn the call over to Mr. Fung. Please go ahead.

Hello, everyone. This study, Dissolving Entertainment, is an exceptional knowledge. A strong first quarter entering a new chapter of high-quality growth. Our company's live view, once again, demonstrated its power. The exceptional knowledge exceptional IT original growth, financial performance, and market share reaching new highs. To be specific, IT maintaining its dominant leading position in China, reaching new highs in market share, a long-standing original company strategy, both moved once again the more cost becomes the best performing driver in our industry. In Q1, original content continues to be the main driver of new related and brand new performance and further enforce the brand perfection that IT is a blockbuster powerhouse and significantly improve subscriber savings. Both total annuals and membership solicits' annuals keep quarterly all-time highs. Total annuals recorded double-digit growth both annually and sequentially. In particular, the whole membership solicits' annuals reached a new high of 24% annually and 17% sequentially. The quality of original content drove robust growth in subscriber sales. In Q1, the average saving number of total subscribing members approached 129 million, a corporate net addition of over 17 million. This marked the second consecutive quarter with corporate net addition of over $10 million. As of March 31, the number of subscribing members was $170 million, which reflects the usual seasonality following the Chinese New Year. And it's all past the average end of Q1 performance. Now the gap operating income exceeded RMB $1 billion in Q1. for the 6th consecutive quarter. More importantly, flash cash flow also exceeded R&P 1 billion this quarter, a critical milestone as it steadily becomes more self-sustaining. As we mentioned last quarter, we believe this recent solid result are just the start of a phase of high-quality growth. In Q1, we witnessed the power of premium one-point video and its strong appeal to users. Our ability to produce and deliver high-quality, popular or remote content is of course competent, which is difficult to surpass in the short term. We will continue to evolve to secure our industry leading position in the long run. Currently, our businesses can be classified into three stages, core, growth, and early stage. Our core businesses include membership-based, online advertising services, content distribution, IP accessing, et cetera. Our growth businesses include IT Life, Energy Club. Our early stage businesses include our overseas business and cloud seminar business. Now, let's go through the performance of our business segments in VR, starting with membership services. Both membership services annual and the number of subscribers is record high in Q1. Membership services annual surpassed RMB 5.5 billion, up 24% annually and 17% sequentially. The average data number Daily number of subscribing members reached 138.9 meetings into one. Sequentially, net addition of over 17 meetings, marking the second consecutive quarter with a net addition of over 10 meetings. I would like to reiterate that the goal of membership units is maximizing user experience and in return, tracking and optimizing of network performance. The economics of a membership unit are driven by three factors, namely subscriber base, subscriber lifetime, and arm. We take the dynamic of our membership business based on many factors, including company supply, user demand, and the market environment. This allows us to drive continuous improvement in both membership revenue and user experience. The above-mentioned strategy has helped us build stronger, longer, and broader relationships with our users. We saw further optimization of our membership structure and stronger user engagement into the proportion of annual subscribers increased significantly year-over-year, while the lifetime level and the long-term retention rates also improved. In addition, our membership process into one, we saw strong growth from both subscribers with live stream privilege and IT life, and supported basic subscription package, which targets differentiated user demographics. So what brought the strong growth into one? First, the diversified premium content we released drove new subscribers and improved user retention. Among the strong content offerings, the more cost brought a number of records and a faster-performing drama, which generated the highest membership revenue during the new release window. drummers, dash apps, and . Every day and night, under the microscope, and the ,, they are all well received by users. Second, we continue to refine our membership business operations, increasing members presentation with enhanced advantages. For example, we improved subscribers' convention and monetization efficiency through sophisticated user analytics. Common and the narrowest marketing initiatives and in-depth research into user flow strategies. In addition, We upgraded our membership center, introducing various high-quality benefits, which drove a significant increase in member benefit consumption in Q1. Looking forward to 2023, we will continue to focus on driving high-quality growth and to pursue further growth in granular subscribers and on. Moving on to content. During the quarter, our content methodology remained highly effective and off-brand image as a diversified and high-quality premium content protocol reached a new height. Not only Our market share of drama reached a new high. We remain number one in terms of effective legal deals for both overall drama and inclusive drama categories for the fifth consecutive quarter. Our regional content continues to account for the majority of drama supply and revenue. original content accounted for 70% of the key drummers we released in Q1, the highest in our history. The drumming contribution ratio of original content also reached a new high. As a factor for drumming drummers in IT history, the know-how to compute was a two-megabit value. for multiple key metrics that are generated. IT journals have become a major source of company supply for domestic TV networks, including CCTV and the following channels with whom we have built long-term partnerships. We are the player industry leader in this area. In Q1 alone, we distributed around 20 premium drummers to CCTV and calling show central TV stations, including the knockouts, early at night, and multiple. Also, volume and the value of distributed content reached a record high. The knock-off also becomes the highest-rated show over the past 30 years on the major domestic-primer channel, CCTV8. As an online media entertainment service provider, our goal is to systematically increase the piece ratio of our streaming content. Our long-term Commitment to original content enables us with structural advantage in the industry. For years, we have successfully built three strong pillars that support our training content offering, namely, optimize the content production intelligence, strong operating and technical capabilities, and top talents. These capabilities will empower us to steadily grow the world of high-quality content to further enrich our premium content offering. For content production, we've actually improved our internet-led visual content production capability through our sophisticated content management mechanism and content production tools. We believe this creates effective competitive barriers that are difficult for others to defeat. For content management mechanisms, we have established an efficient and comprehensive mechanism running through the whole process from product incubation to assessment, production, promotion, operation, and distribution. For company production tools, we have built in-house developed systems to support industrialized visual production based on AI, big data, and cloud computing. So these methods can further improve our company's production and operational efficiency. and a new standard for the Chinese video industry. With respect to industry talent, we have a compelling creative culture and talent composition mechanism that is highly valued and appreciated by in-house talent and industry content partners. Our approach is reflected in two aspects. First, in addition to providing competitive economic incentives, we give creators sufficient freedom, allowing them to take initiative and unlock their creativity within our discipline framework. Second, we have always been committed to encourage fresh young talents in addition to work with well-known and experienced creators. They also nurture young and emerging talents and help them develop their potential. In 2023, we will continue to launch Diversified Content Across All Genres for Drummers in Q2. Echo, Wei Xiang, directed by famous Chinese director Hong Xiaogang. In 13 years, I've been on Shenzhen and then on New South Wales. And the injurious one, Yin Xiangzhuang, Yin Xiangzhuang has generated some awards of mine, also starting from Q2. A number of key company drummers will be released. including storage of cleaning pallets, and remodeling. The largest casebook, Lianhua Low, best-teamed Changlong Du and W7X, Shi Shi Jixiang. The diverse line-ups of dramas in other categories will also be released. A number of original variety shows will also be launched in Q2, including both the training season of gig shows and the debut of new titles. In addition to the already out, The Lady in the Land, Ha Ha Ha Ha Ha Zui, Yes, I Do It, 4, The Detective Adventure Zui, Please also participate in the launch of flagship titles such as The Life of China 2020. Looking ahead, we plan to increase our investment in the agricultural industry with the gradual recovery of the advertising market. Please also anticipate to see new related in other categories, including original children cartoon, food pamphlets, maps, summits, and the locals, and the original animation, the garden legend, and the IOC. Moving on to advertising, we are pleased to see that advertising revenue reached RMB 1.4 billion in July, up 5% year-over-year. For performance ads, revenue grew 75% annually, and its revenue contribution reached a new high, totally high. We successfully acquired a high share of advertising value from key industries. including internet services, e-commerce, and make full use of ad slots to effectively improve monetization. In addition, we optimized our algorithm to strengthen our targeting and improve ad effectiveness. For brand ads, Q1 was soft due to typical season editing. The year-over-year decline was due to their relative high base in Q1 last year, and the ad market aspect was not impacted by the pandemic lockdown in Shanghai, which is a new hub for the domestic advertising market. Despite that, we observe growing pressures among advertencers driven by our premium drummers, variety shows, and diversified ad products. And the launch of a number of variety shows in Q2 would likely drive the recovery of the brand and the business. We are passionate. optimistic towards the overall brand advertising market this year. Consumption is still recurring in the first half of the year. and the chance to see further recovery in the second half overall. We are positive about the long-term development of the brand ad market. Meanwhile, IT's brand influence and user base are highly valued by advertisers. In terms of other factors, we are optimistic about the NMCT factor, which includes food and beverage, travel, domestic cosmetic breath, and smart home appliances and healthcare. Moving on to technology and the products, technical innovation is one of our core values. which is critical in driving video industrialization and improve company production efficiency. For workflow production, the technology has been applied in two of our key original dramas. Filmstacks that adopted this technology for efficiency and reduce the required phone number by one third. The IT data protection management system is a data-driven and high decision-making system that captures every critical moment in the entire content protection process. For example, the system can in just a few minutes. It can also generate estimated content-related cost ratio, a key measure that we use in our original content decision-making and efficient monitoring process. Management can utilize these tools to monitor production process ROI and use of funds and manage the overall production in real time. They continually optimize our products with the aim of bringing the ultimate entertainment experience to every user IT app was opened by the Ministry of Industry and Information Technology for providing user-friendly access, tailored for elderly and disabled. We upgraded IT's thematic search capability to better understand user's search intentions. The search by character feature helps users quickly find videos based on character, providing a highly efficient way to search for videos. We also articulate how generated AI applications build upon large-language models. can improve content production and promotion efficiency in the long-form video industry. Our internal assessment indicates that generative AI technology can be implemented in multi-business scenarios, including streaming, streamlining, script brainstorming, creation and review processes. We have initiated the integration of the regenerating AI technology into our intelligent production system, and we impact the resulting library model-empowered intelligent production system will achieve higher performance and better income by combining Large library model applications with computer vision and audio models, we can gain deeper insight into video content, resulting in significantly improved quality and production efficiency of promotional images and videos for use in advertising and content marketing. Text-to-image and text-to-video applications are also valuable tools for generating pre-visualization during production preparation for use in comic and animation production processes. Next, I'd like to discuss the programs of ITV Light and our overseas business. In Q1, actually attained high quality growth and once again recorded operating profits. For the corresponding basic subscription package, the number of subscribers grew by over 70% sequentially and revenue grew by over 80% sequentially. For the overseas business, driven by the outstanding performance of the training content. The membership revenue achieved a solid growth in the quarter. The membership revenue rose with exceeded 90% annually in general, in regions including the U.S., Hong Kong, Japan, and Mexico. The improved inflows of original Chinese drama continued to grow which has a growth of 54% annually, from the top to the leadership, ranking in multiple markets in Southeast Asia and North America, generating outstanding war of minds and a huge social gap. Coming into Q2, we have a solid pipeline of trading companies, including key Chinese drummers, which will drive the growth in both subscribers, members, and venues. Q1 represents a solid first step into a new stage of high-quality growth. After 13 years of development, our industry leading brand improves. It is deeply embedded in the mindsets of users and industry partners. We are confident about the future prospects of the industry, and as an online leader, our business has strong resilience and promising growth potential. We treasure the trust and the support of our stakeholders, and we will keep pushing ourselves to unleash more potential and achieve high quality growth over the long term. Now, let me pass to Jun, who will go through our financial performance.