iQIYI, Inc.

Thank you for standing by and welcome to the ITE third quarter 2023 earnings conference call. All participants are in a 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 Chao Yu, investor relations director of ITE. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining ITE's third quarter 2023 earnings conference call. The company's results were released earlier 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. Jun Wang, our CFO, Mr. Xiaohui Wang, our CCO, chief content officer, Mr. Wenfeng Liu, our CTO, Mr. Yu Qiao Duan, Senior Vice President of our Membership Business, and Mr. Xianghua Yang, Senior Vice President of Movies and Overseas Business. Mr. Gong will give a brief overview of companies' business operations and highlights, followed by Jun, who will go through the financials. After the prepared remarks, the management team will participate 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 and are 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. I will now pass on to Mr. Gong. Please go ahead.

Hello, everyone. Thank you for joining us today. Our focus... Our focus... Our focus of... Our focus of the quarter remained firmly on generating high-quality growth, achieving strong results in both revenues and profits. Our total revenues grew 7% year-on-year, while profit performance was far more remarkable. Growth, profit, and non-gap operating profit had annual growth of 23% and 71% respectively. The impressive financial results demonstrate the strength of our robust operating leverage, anchored by our exceptional content, which serves as our core competitive advantage. ITE is a signature brand for top-tier content, According to enlightened data, we have been leading the industry in drama wheelchair for seven consecutive quarters. Our original dramas remained as a key driver for content supply and revenue contribution. Meanwhile, a diverse of high-quality titles premiered were highly acclaimed by users. Notably, the law firm's casebook, Yuanhua Law, was the 10th drama in our history to break the 10,000 popularity index. During the quarter, membership services revenue grew by 19% annually, mainly driven by a 12% annual increase in hours. Two key factors contributed. to the revenue growth firstly in part by the high appeal of our inclusive content. We have reduced the discounts provided for membership purchases while direct and the channel sales. Our content is compelling enough to drive purchasing decisions in its own. Secondly, we have upgraded our member benefits and authorities, resulting in increased viral perception among our members and a boosted membership retention rate. The enhanced member benefits encompass a wide range of upgrades, for example, optimizing the viewing experience from mobile devices to large-screen TVs. members can now enjoy content in selling 4K, 8K, and even indulge in proprietary exotic masks to enjoy filter quality, audio, visual, The audio experience is equally enhanced, with a shift from ordinary stereo sound to the immersive and captivating private career, industry-leading high-Q humeral sound. And our members' quirks don't stop there. We go beyond the online realm. extending our offering to exciting offline experiences, such as inclusive concerts. These upgrades have transformed entertainment, providing users a diversified, personalized, and immersive entertainment experience. We are very pleased to see users' appreciation for our content and services translate into our goals. Alongside membership services, advertising revenue was our second growth driving during the quarter. Our premium content and enhanced marketing capability drove up advertising revenue by 34% annually and 12% sequentially. Both brand ads and performance ads booked annually and sequentially growth. Entering into Q4, we are cautiously monitoring the microenvironment impact on the advertising market. We will upgrade our marketing capabilities to weather potential challenges as we continue to seek out new growth opportunities in the future. Now, let's dive deeper into the performance of our core business segments, starting with membership services. In the third quarter, membership services revenue exceeded RMB 5 billion for the second time in our history, representing a strong annual increase of 19%, driven primarily by arm worlds. We would like to reiterate that the primary goal for membership services is to drive long-term sustainable revenue growth. Membership revenue is driven by three components, namely subscriber lifetime and subscriber base. Subscriber lifetime are all current key focus in driving the long-term economic value of membership services. In the third quarter, Arm reached RMB 1.54% annually and 5% sequentially. The average daily subscriber increased by 6%. percent annually to 107.5 million. The current arm level in our views is still very affordable compared with the price of other consumer products. We will continue to drive sustainable arm growth over the long term backed by several factors. As we just mentioned, membership purchase decisions are increasingly being made based on content and member benefits rather than discounts. Very importantly, our ability in consistently delivering high-quality premium content will be further improved. Second, our member experience offers comparing value for the many. We will continue enhancing our offering with new value-added services that increase members' value perception and willingness to pay, such as express package, concerts, and merchandise offers. Finally, we see significant potential to further upgrade existing Gold members to Platinum and Star Diamond membership tiers, which command a higher price yet offer more privileges. Our member privileges and benefits have proven highly attractive and we expect their appearance to remain strong. For example, the express packages is one of the content privileges we have developed for members, which enables subscribers to redeem their member points to unlock early access to finally episodes of hit drama series. This model was applied to two heat drivers in the third quarter, attracting over 10 million participating members, demonstrating the significant value perception attached to this benefit, in line with our strategy to foster deeper connections between our loyal members and our premium content through IP-derived work tips. Cloud concerts are another important component of membership offerings. We held the mysterious Lotus Casebook theme concert, which created immersive excitement Lastly, we have developed a dedicated e-commerce platform for merchandise related to our IPs. Members can use their member points to pay for these goods in full or in part. As discussed repeatedly, Our primary focus is on enhancing member loyalty, retention, and lifetime value through our membership privileges and benefits. Our loyalty program is closely tied to the duration of membership and we strive to improve the service experiment. and value perception, especially for our long-term members. For instance, users who opt to auto-renewal, choose long-term plans, or become premium members are granted elevated benefits, including faster accumulation of member points. that can be redeemed for content-related perks and merchandise. As a result, we observed meaningful year-over-year growth in both the quantity and proportion of annual plan subscription in the third quarter. Moving on to content. Content is our core competitive advantage. IT original drummers continue to be the main driver in terms of content supply and revenue contribution, accounting for over 60% of the key drummers launched in the third quarter. For this year's summer season, our drummer lineup covered diverse genres, such as Asian custom, loyalty, and suspense. The Asian custom detective drama, The Lotterer's Kids Book, became the Duck House hit of the summer. It was our tenth drama to break our 10,000 popularity index score, and the drama's theme concert we held generated over 230 trending search topics and attracted over 320 million likes. We are happy to see the significant long-lasting impact with this series as it continues to dominate the enlightened list even after its series finale. Other hit dramas, such as Asian custom suspense series, My Journey to You, Yun Zhi Yu, In Imperfect Victim, a serial focused on social issues and a criminal suspense serial, The Lost Eleventh Law, Xiao Shi Le Shi Yi Cong, were all well received by audiences and reflected the quality and depth of our drama lineup. For variety shows, to all classic IPs, such as the third season of the Big Bang, and housework talent Jiawu You Dengsheng made strong comebacks. The Big Bang 3 achieved outstanding performance in both advertising and membership revenue. We also launched that world's Innovative new IPs, including our very first variety show and drama crossover, As You Wish, Love You Seven Times, Cultural variety show, Glory is Back Beijing, and a cruising show, Let's Barbecue, which attracted a wide variety of users. On a separate note, we are also making good progress in realizing the commercial potential of our premium IPs. Notably, sales of the Lotus Casebook merchandise exceeded RMB 18 million. We have also introduced merchandise based on our original children's IPs' spending the full range of children's products, including daily life, learning, food, and offline entertainment. Heading into Q4 and next year, we are committed to deliver diversified and high-quality content on a continuous basis. We have a highly anticipated slate of drummers, aside from the already-launched titles such as Romance of the Pianzhongji, Story of Kunming Palace, Nian Runmo, and The Fearless Season 1. We also propelled a stellar drama pipeline to be released. This includes major Asian customer titles, A Journey to Love , and the Chinese Paladin 4 , as well as modern-day theme dramas like Detective China, Chinatown Season 2 , Like a Flowing River Season , and The Lonely Warrior . For a variety show, our pipeline covers a wide range of themes, including our first original physical competition show, the show we never stop, and our hit show, Become a Farmer, where I introduce its first spin-off show, Hi! Young Farmers. We also have an exciting line-up of children's cartoons and animations. For the original children's cartoon, we are going to debut the second half of DELL Squad Season 3, and a brand new title, Mega Miao, Miao Long Zhan Shi. for original animation, The Great Ruler, Da Zhu Zan, and Against the Gods, Ni Tian Xian Shen, are still trending. While new apps such as sci-fi series, The Beast Game, Shen Yuan You Xi, and comics adaption, The Magic Grocery, are set for release. Moving on to advertising business, we are delighted to see accelerated recovery during the third quarter. Total advertising revenue reached RMB 1.7 billion, up 34% annually and 12% sequentially. Revenue from Brand S recorded double-digit growth, both annually and sequentially, driven by several factors. Notably, our premium or general content, such as Big Bang Season 3 and Love You Seven Times, attracted stronger advertising demand. Advertising budgets allocated towards variety shows and dramas increased by 67% and 28% year-on-year, respectively. Breaking it down by sector, we saw increased ad budget from food and beverage, while sectors like internet services, transportation, and healthcare also recovered. Revenue from performance ads recorded strong annual revenue growth of over 70%, mainly due to two factors. First, targeted and efficient operations gain a higher budget share from sectors such as Internet, services, e-commerce, and games. Second, the effective use of generative AI-enhanced ad creation and ROI Looking ahead to Q4, we are cautiously monitoring the overall advertising market. We acknowledge that the consumption segment takes time to fully bounce back, creating a lagging effect on brand advertising business. Nevertheless, based on our unparalleled content quality and extensive user profile, we are the go-to platform for advertisers seeking optimal advertising opportunities. For performance ads, we are optimistic on sectors such as Internet services, e-commerce, and shop drummers. and we will continue to fine-tune our algorithms and leverage generative AI to enhance ad creation and maximize efficiency. Moving on to technology and products, our commitment is centered around fostering technology innovation to empower the entertainment ecosystem. creating value for our users and content creators. Firstly, we harness the power of technology to elevate the entertainment experience for our users. And secondly, we empower our content creators by equipping them with the latest tools and resources to improve the quality and efficiency of their creation. Our focus on leveraging AI to enhance the user experience has yielded significant progress. Notably, we have pioneered the use of generative AI in three key search categories, character search, plot search, and actor search. By applying advanced accountants We are now capable of automatically generating video clips and drama highlights. This cutting-edge technology has been implemented across hundreds of core dramas on our platform, greatly improving search accuracy. accuracy and user engagement. Users directed to a drama through AI platforms spend an average of 40% more time viewing the content. One more exciting user experience optimization is the introduction of Karaoke mode in Big Bang 3. This innovative and interactive feature seamlessly integrates some lyrics into the on-screen display during band performance sessions, allowing viewers to sing along and creating a more immersive experience. With meaningful viewers, engagement and the time span increased by users activating this feature in terms of content production and operation we are promoting the application of generative ai in various user cases during the rapid technology development of the video industry now the role of generative ai is involving from a male-embedded to a co-pilot made in every phase of workflow. By leveraging this transformative technology, we empower creators in every aspect of their work, from planning and development to production and the promotion of content. This approach not only enhance efficiency but also unlock new potentials. We are seeing great initial results. For example, we use generative AI producing low-cost, high-quality posters and videos to showcase our content. We have applied this technology in promoting our key programs such as testing Chengfengdu, the Big Bang season 3, etc. In addition, we are expanding the reach and influence of us by using generative AI. Finally, for our business performance in regions outside of mainland China, our premium content continues to win acclaim from overseas users and draws steady growth in overseas membership revenue. In the third quarter, membership revenue in Japan, Korea, the US, and Hong Kong all increased by over 50% annually. The solid performance was driven by the rising influence of our high-quality CPOP powered by a number of popular the total viewing time for C drummers on our overseas platform increased by 23% annually and 33% sequentially in the quarter. My journey to you, Yun Zhiyu, achieved the highest revenue on our overseas platform during its broadcasting period. Meanwhile, the Lauter's Casebooks Popularity in extended beyond mainland China at the top of all overseas platforms in both total video view and viewing time in the third quarter and remarked number one in total video views in Southeast Asia, East Asia and the North American market. For the first quarter, we will continue to drive high quality growth in addition to enhancing platform cooperation and channel expansion. We are dedicated to bolster our content pipeline to capitalize on the strong momentum of Chinese drama we are introducing. localized drivers in Thailand, Malaysia, and Taiwan to further expand our influence. In summary, we have accomplished strong results in the third quarter, with emphasis on delivering high-quality growth. As we look ahead, our dedication to enhancing user experience, competitive edge in original content, maximizing member value and harnessing the power of advanced AI technology remains steadfast. Going into next year, we will cautiously increase investment in both our core and innovative business establish a solid foundation for sustainable long-term growth. Now, let me pass to Wang Jun to go through our financial performance.