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spk04: Hello, ladies and gentlemen. Thank you for standing by for Li Zhiying's third quarter 2021 earnings conference call. At this time, all participants are in the listen-only mode. After management's remarks, there will be a question and answer session. Today's conference call is being recorded. I will now turn the call over to your host, Effie Kang, Head of Capital Markets for the company. Please go ahead.
spk02: Thank you very much. Hello everyone and welcome to Li Zhi Inc's third quarter 2021 earnings conference call. We released our financial and operating results via newswire services earlier today and they are available online. Participants on today's call will include our founder and CEO, Mr. Marco Lai, and our COO, Mr. Zhe Longli, and our acting CFO, Ms. Chen Fanglu. Management will begin with prepared remarks, and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. In addition, our enhanced highlights presentation and the webcast replay of this conference call will be available on the IR section of our website at ir.linzhi.fm. Before we continue, please note that today's discussions will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements typically contain words such as may, will, expect, target, estimate, intend, believe, potential, continue, or other similar expressions. Forward-looking statements involving heavy risks and uncertainties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, many of which factors are beyond our control. The company, its affiliates, advisors, representatives, and underwriters do not undertake any obligation to update this forward-looking information, except as required under the applicable law. Please also note that Li Zhi's earnings press release and this conference call include discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. Please refer to Li Zhi's uninspired release for reconciliation of unaudited non-GAAP measures to unaudited GAAP measures. I will now turn the call over to our founder and CEO, Mr. Marco Lai. Please go ahead.
spk06: Hello, everyone. Thank you for joining us today. I will share our third quarter business overview and future development strategy. Then our CEO, Mr. Zerlong Li, will provide more details on the operation of each business line. Overall, in the third quarter of 2021, Yizhi continues to strive to build a competitive global audio and video ecosystem. In the third quarter, the overall mobile end average number of active users is 58,900,000, and the average total number of paid users is 48,500,000. Our experience with users is the core. The construction of a deepening community ecosystem We strive to promote the growth of the scale of audio and video entertainment business, strengthen the establishment and growth of user relationships, and set up for the growth of business. We are very happy to see that in the third quarter, the average number of monthly and monthly users of audio and video entertainment business has increased by 21% to 9,170,000. In terms of commercialization, we set the target of commercialization of audio and video entertainment business With the effective operation strategy of the team, our income in the third quarter increased by 40% to 5.05 billion yuan. The total total income in the first three quarters of 2021 has exceeded our total income in the whole year of 2020. While revenue growth, our overall net profit rate has also continued to increase to 30% compared to the same period last year,
spk02: Overall, LiZhi continues to strive to build a competitive global audio ecosystem in the third quarter of 2021. Total average mobile MAUs reached 58.9 million, and average monthly paying users was 485,000 in the third quarter. We remain focused on improving user experience and fostering our audio-centric community ecosystem to increase audio entertainment user base, strengthen user connections and stickiness, and support our sustainable growth. We are delighted to see the audio entertainment average mobile MAUs grew by 21% year-over-year to 9.17 million. As we prioritize unlocking commercialization potential presented in audio entertainment business coupled with the effective execution of our operational strategy, Our third quarter revenue grew by 40% year-over-year to RMB 505 million, pushing our total revenues for the first nine months of 2021 to surpass the revenues for the full year of 2020. In addition to revenue growth, we are pleased with the continued expansion of our overall growth margin, which grew to 30%, up 500 basis points year-over-year.
spk06: For the next strategic focus of the group, first of all, we will continue to insist on creating a more long-term, more high-quality community environment, providing users with more valuable scenes of content and audio interaction, further enhance the ability to commercialize, and also allow more content creators to grow better within Leeds's audio community. In terms of our strategic priorities in the near future,
spk02: First of all, we'll continue to build a sustainable and high-quality community ecosystem by providing more valuable content and audio-centric interactive scenarios, enhancing our commercialization capability, and supporting more content creators to grow and develop in Li Zhi's audio community. At the current stage, our globalization strategy is to optimize products and ramp up localization teams We strive to meet users' social networking needs in the digital era, capturing more growth opportunities for future prospects. 在多终端布局方面,我们现阶段的策略的重点是围绕产品的优化和技术的创新,强化底层架构的建设,并且和更多的终端的平台建立合作。
spk06: to speed up the market coverage of audio and video products. On the other hand, we will continue to stick to the long-term route of technical renewable energy, and continue to open up many middle-end applications for our self-propelled audio and video technology solution program, Doremi. In addition, we are also further strengthening the development of our self-propelled digital communication technology, our IAM. We hope that through self-propelled technology,
spk02: With respect to our audio roadmap years for multiple devices, at the current stage, product optimization and technology innovation are our main focuses in this area. At the same time, we are strengthening our underlying architecture. In addition, we continue to establish collaborations with more platforms to expand our reach in those. in-car audio market. In addition, we will adhere to the long-term development pathway with technological empowerment and further apply our in-house developed audio technology solution, the Remy system, to more devices. Beyond that, we are stepping up the development of our in-house instant messaging technology, which is the IM technology. We are expecting to provide more tailored technological support to our various products. In conclusion, we have great confidence in our prospects. We will continue to execute our globalization strategy in the next phase. By maximizing Li Zhi's advantages, we are expecting to unlock greater growth potential globally and achieve long-term sustainable development. Thanks, everyone. With that, I will now turn the call over to our COO, Mr. Zerlong Li, who will discuss our business development in more detail.
spk03: Hello, everyone, and thank you for joining us today. Next, I would like to provide more detailed updates of each business line. First of all, in the audio and video entertainment business, we have promoted the long-term development of community ecology as a goal, focusing on the optimization of product functions and focus on key products. In order to further enhance the commercialization ability of the platform, we are actively promoting the detailed operation of products, targeting the target user group of products, and deep focus on the content category with strong commercialization ability. Starting with our audio entertainment business, we aim to foster a sustainable ecosystem across our community
spk02: By pivoting to optimizing product functions and harnessing several key content categories to further amplify our commercialization capabilities and efficiency, we are working to refine our product operations, which involves employing more precise user targeting, focusing heavily on content categories with strong commercialization capabilities, optimizing our marketing strategy and enhancing high-performance channels We believe that taking these important steps now will lay a solid foundation for us to grow our sustainable ecosystem, further improve payee user conversion rate and operational efficiency, and ultimately enable us to achieve a solid long-term growth.
spk03: In terms of globalizing business, TIA is the core position of the online social platform for young people. For young people's diversified interests, and flow of life. Continuous polishing of products has satisfied users' social needs in diversified scenarios. In the third quarter, our overseas focus revolves around the construction of localization teams and the optimization and upgrade of product form and function, and the expansion of more diversified user groups. Pay attention to user experience and user flow, so that the number of users maintains a positive organic growth.
spk02: Moving to our global business, TIA is positioned as a digital social networking platform for young people. We continue to improve and optimize our products to meet their social needs in diverse scenarios based on their different hobbies, interests, and trendy lifestyles. In the third quarter, we concentrated on building a local team for our overseas business development. and upgrading product features and functions to position ourselves among a wide variety of user groups. Our emphasis on user experience and user retention is designed to allow our user base to achieve an organic growth.
spk03: On the optimization strategy of the product, we have modified TR's friend status and discovery page, introduced more interactive functions, to guide users to interact and communicate through different tools on the platform. In particular, my friend can use the status function to make it easier for users to find friends with similar status and moods, and to build a friendly relationship on the platform. This will further enhance the online social experience. We are also constantly introducing innovative features, such as small game optimization, screen sharing, and so on. To provide users with a more diversified social way, we have improved the user's sticky and effective interaction rate. We observed that TR new users, good interaction rate, and the human-to-human use market have all made a significant improvement. In September, the average number of daily messages sent by each user increased by 57% compared to June. As part of our product optimization strategy,
spk02: We upgraded Kia App's Friend Status feature and the Discovery Channel. We now offer more interactive features to guide users to adopt different tools for their interactions on the platform. In particular, we launched the My Friends Live Status feature that allows users to find friends in a similar status or mood, which reinforces friendship bonds on the platform and ensures a smoother online social experience. We continue to roll out innovative features to TR apps. Some of these we added recently include newly optimized mini games and screen sharing options, both of which provide more diverse ways for users to interact socially, enhancing the user's thickness and engagement. After these product upgrades were launched, we observed a marked increase in the interaction rate of new TR users with friends. and active in the average time spent per user on TI. In September, the daily average number of messages sent per user grew by 57% compared with June, and users' number of friend pairs was 64% higher than that in June. In the near term, our priority is to continue refining our products to improve these metrics even further. we will be paying close attention to key metrics such as users' activities and interaction levels, while further cultivating user habits and strengthen user relationships on the platform.
spk03: In the third quarter, we continued to focus on the layout of LiZi's brokerage at the vehicle management end, and expanded and deepened the cooperation with the car industry and the car network platform. We also received more official recommendations from the car industry In the third quarter, we also continue to expand LiZhi Podcast's footprint in the in-car audio market by broadening and deepening our collaborations with auto companies and the Internet of Vehicles platform.
spk02: We have also achieved more official recommendations from auto companies. Currently, our strategic focus revolves around product optimization and technology innovation, including auto application functions for the in-car scenarios, such as voice-activated controls, gesture operation, and seamless connectivity.
spk03: We are very happy to strengthen our new technology capabilities. It also helps LiZi播客 to achieve more competitive performance at the car site. For example, we have successfully added Huawei Hongmeng Ecology through technological innovation in the recent period. At the same time, as the first domestic car blogger to launch a car blogger live broadcast platform, LiZi播客 launched a seamless flow function to support cross-screen connection between the mobile phone and the car, providing users with an indefinite blogger live streaming experience. We believe that technology and product innovation are the key to achieving competitive advantages in the audio market. In the future, we will continue to upgrade and optimize our self-proclaimed audio technology solution. In the future, we will continue to upgrade and optimize our self-proclaimed audio technology solution.
spk02: We are pleased that our strong technological capabilities are boosting LiZhi Pocket's competitive performance in the in-car market. For instance, we have recently been integrated into Huawei's HarmonyOS ecosystem through technological innovations. And as the first platform to launch in-car live streaming podcasts, LiZhi Podcast rolled out one-click seamless connectivity feature. It supports cross-screen connection to achieve two-way seamless connectivity between mobile devices and vehicles. Through this technology, we provide uninterrupted live streaming podcast experiences to users. thus becoming the first podcast platform in China that enables two-way seamless connectivity in multiple scenarios. We believe that our technological expertise and product innovation are the key to securing a competitive edge in the in-house audio market. In the future, we will continue to optimize our in-house audio technology solution. Our goal is to accumulate more technological experiences and improve the core technology for multi-devices applications of the podcast platform, while satisfying the differentiated demands of various auto companies and IOV platforms.
spk03: In short, the results and experience we have gained in this field have established a solid foundation for our future development. We look forward to the future growth prospects in the audio and video field,
spk02: In summary, achievements and experience we have gained in the third quarter have set the stage for our future development. We are optimistic about future growth opportunities in the audio industry. We will continue working for long-term success and building a leading globalized audio platform.
spk03: Thanks everyone.
spk02: With that, I will now turn the call over to our Acting CFO, Ms. Chen Fanglu, who will discuss our financial results in more detail.
spk01: Okay, thank you, Zilong, and hello everyone. First, we are very pleased to see another solid year-over-year revenue growth in the third quarter. Driven by our improved operational strategy, our growth margin grew to 30%, up 500 basis points year-over-year. We believe the audio entertainment ecosystem we've built is fundamental to our long-term growth. Looking ahead, we will continue optimizing our audio entertainment business, enhancing commercialization capabilities, and leverage our technology innovation and expertise, as well as actively exploring the international market in order to achieve sustainable growth. Now I am providing a brief overview of our financial results for the third quarter of 2021. In the third quarter, our total net revenue was RMB 504.8 million, representing an increase of 40% year-over-year, primarily driven by the growth of paying users and enhanced commercialization capabilities of our audio entertainment products. Cost of revenue was only $353.6 million in the third quarter of 2021, representing an increase of 31% year-over-year, mainly attributable to an increase in revenue-assurance fees to our content creators, salary and welfare benefits expenses, and bandwidth costs, which would align with our business growth. Gross profit was only $151.3 million in the third quarter of 2021, representing an increase of 67% year-over-year. And long-gap gross profit was RB 154.5 million in the third quarter of 2021, representing an increase of 68% year-over-year. Gross margin for the third quarter of 2021 increased to 30% from 25% in the third quarter of 2020. and long-gap gross margin for the third quarter of 2021 grew to 31% from 25% in the third quarter of 2020. Our operating expenses increased by 91% year-over-year to RMB 111.3 million in the third quarter of 2021. Research and development expenses were RMB 73.4 million in the third quarter of 2021, representing a year-over-year increase of 32% The increase was primarily due to the increased salary and welfare benefits expenses related to an increase in the number of our research and development staff and average salary. Selling and marketing expenses were RMB 88.2 million in the third quarter of 2021 compared to RMB 27.1 million in the third quarter of 2020. This increase was primarily due to our increased promotion and marketing activities. General and administrative expenses were RMB 29.7 million in the third quarter of 2021, representing a year-over-year increase of 71%. The increase was mainly due to the increase in salary and welfare benefits expenses and other professional service fee. Operating loss was RMB 40.1 million in the third quarter of 2021, compared to RMB 9.6 million in the third quarter of 2020. And long gap operating loss was RMB 30.1 million in the third quarter of 2021 compared to RMB 2.9 million in the third quarter of 2020. Land loss was RMB 37.1 million in the third quarter of 2021 compared to RMB 6.1 million in the third quarter of 2020. And long gap land loss was RMB 27.2 million compared to long gap land income of RMB 0.6 million in the third quarter of 2020. Basic and diluting land loss per ADS were RMB 0.73 in the third quarter of 2021 compared to RMB 0.13 in the third quarter of 2020. And long-gap basic and diluting land loss per ADS were RMB 0.54 in the third quarter of 2021 compared to long-gap basic and diluting land income of RMB 0.01 per ADS in the third quarter of 2020. As of September 30, 2021, we had cash at cash equivalents and restricted cash of RMB 515.9 million. Okay, this concludes all of our prepared remarks today, and we will now open the call to questions. Operator, please go ahead.
spk04: Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question on the phone, please press star 1 and wait for a name to be announced. If you'd like to cancel requests, please press the pound or hash key. For the benefit of all participants on today's call, if you wish to ask your questions to management in Chinese, please immediately repeat your question in English. For the sake of clarity and order, please ask one question at a time. Management will respond, and then feel free to follow up with your next questions. Our first question comes from the line of Vicky Wei of Citi. Please go ahead.
spk00: The morning management, thanks for taking my question. My question is regarding to user spending and user growth. Under the challenging regulation environment and soft macro conditions, what is the impact to lead to user growth and user spending? Thank you.
spk06: 谢谢Vicky,这个问题我来回答。 现阶段的监管的环境是区域比较严格, 但从长远的角度来讲, It is beneficial for the development of the entire industry, including more standardized content and operating mechanisms. For our mature operating services, it is more advantageous. At the product and operating level, we are also monitoring and monitoring policy changes. I will translate for Marco. The recent regulatory environment is getting tightened, but we think it's beneficial to the long-term development of the entire industry. Even more standardized digital content
spk02: and operation mechanisms. Especially for mature companies like us, we gain more advantages. In terms of products and operations, we are also actively monitoring the regulatory policy changes and earnestly optimizing and adjusting our products. These efforts enable us to meet compliance requirements while also providing better services for our users.
spk06: Secondly, from the point of view of user consumption, in the third quarter, the overall consumption of users on our platform has slightly decreased. However, this factor is also due to the influence of various factors in our operation strategy adjustment. In this quarter, we began to focus on some categories that are more likely to convert to pay. In terms of user spending, in the third quarter, the overall user spending on our platforms decreased slightly, which was affected by some factors,
spk02: including the optimization of our operational strategy. In the third quarter, we began to focus more on the content categories with higher potential for monetization and reduced the investment on those pre-recorded content with relatively lower long-term commercialization potential. And we focused more on the content categories with longer-term commercialization potential.
spk06: In the short term, the relevant adjustment and optimization may have a stage-based impact on some performance indicators, including the overall user size. But from a long-term perspective, we believe that through more detailed operation and promotion, we can maintain the user's stable consumption level while promoting the improvement of the number of paid users, and further promote the growth of income size.
spk02: In the short term, these adjustments may have temporary effects on certain user metrics, such as the overall user base. But in the long run, we are confident in further increasing the paying user base through more precise operational and marketing strategies while maintaining a stable user spending level. And we are confident it may further foster the top-line growth and improve the operational efficiency.
spk06: Thank you.
spk02: This is my answer. Thank you.
spk04: Thank you for the questions. Next questions will come from the line of Vincent Yu of Needham & Co. Please go ahead.
spk05: Thank you, Mr. Lai, Mr. Li, and Mr. Chen for accepting my question. I actually have three questions. The first question is about the strategy for improving the payout rate. You mentioned some things about user influence. I hope you can talk more about it. The second question is about our overseas business. How do we look at its growth and income contribution in 2022? The third question is that we are now seeing this in the case of user scale increase and decrease. Can you share more about what we have done in the product section and the operation section? And then as far as this result is concerned, and then how we are going to predict the trend of 2022. And at the same time, we see that it seems that the cost of dividing to the host seems to be a little reduced. I would like to talk about this management level in a convenient way. Thank you, management, for taking my question. I have three questions. The first question is about can management share insights on our strategy on improving user-paying ratio? And the second question is in terms of our overseas business. What's our current focus on product optimization? And how should we expect the growth and the revenue contribution from this business in 2022? And the third question, as we have seen a weakness on user base, user base roles, can management share more details on what we have done on product change size and the content size causing such results? And what we should expect the trend in 2022? Also, we are seeing some, looks like we are seeing the revenue sharing to broadcasters has been declining. And what we have done, and can you share more information on that on the end as well. Thank you.
spk03: We will focus on audio and video entertainment. Through diversification activities, we will improve the participation of users in audio and video entertainment projects, including reducing the threshold of activity participation, focusing on the strong connection between the streamer and the user, and promoting the relationship between the user and the streamer. Therefore, we have promoted a paid hospital for more users. I will translate for Mr. Zerlong Li.
spk02: With respect to the growth of paying ratio, we have actually two strategic priorities in the next stage. First of all, at the operating strategy level, we will focus on our audio entertainment business and improve user engagement through diverse promotional activities, including lowering the participation threshold of events and activities and enhancing ties between users and hosts. As for pre-recorded segment, we will further sort out and exploit the court categories with strong monetization potential, and better attract content creators and users to interact in audio entertainment segment, so as to improve the user engagement and paying user conversion rate.
spk03: On the other hand, in terms of the strategy, We chose products with strong commercialization potential, optimized the product promotion model and submitted some materials, and carried out a more precise customer acquisition to attract a group of users with better payability and payability to increase the size of the payable users. We believe that this strategy can help us achieve an overall increase in payability from a long-term perspective.
spk02: On the other hand, in terms of the marketing strategy, we will also focus on categories with higher commercialization potential and optimizing the promotional model and materials. We will execute on precise user acquisition strategy to reach core user groups with strong willingness and ability to pay, so as to increase the overall paying user base. we are confident that these tactics could effectively improve our overall paying ratio.
spk03: We also noticed that after the product is modified and introduced with more innovative features, the user's use of time and participation is significantly improved. So in the short term, we will continue to build our products in a multidimensional way. We will focus on user interaction, use of time and other core indicators, and set a better foundation for our long-term.
spk02: The second question is about the overseas business expansion. So our current focus revolves around user experience as we constantly optimize the product functions and features to meet users' social demands, driving the organic user growth. Also, we have experienced a marked increase in the user time spent and the user engagement following the launch of new product integration including the launch of more innovative functions. In the near term, we will continue to optimize multiple aspects of our products and our features, and pay close attention to key metrics such as users' interaction levels and time spent to lay a more solid foundation for the long-term growth.
spk03: In the future, we will gradually try to commercialize In the future, we will test the waters with respect to the commercialization step by step at an appropriate timing.
spk02: We expect that the overall revenue growth in the short term will be mainly driven by the auto entertainment business, but in the longer term, with a growing user base and a stronger network effect, we believe the overseas business expansion could bring us more commercialization potential and build our second curve. 回到第三个问题,我们整体的一个用户规模,
spk03: In the third quarter, we made some adjustments to the content of our domestic business, such as the content of the roadblock module. We made some adjustments to the content of our domestic business, In terms of the selection of products, we have made an improvement. In terms of purchasing and selling, we have chosen products that are more potential for commercialization. As for the ability of the streaming module for commercialization, it is weak, and in the long run, it is a low product category in the business of audio and video entertainment. Our resources are limited.
spk02: For the third question is about the slowing growth on the user-based side. So for that, it's mainly because of our optimized strategies in the third quarter. So we made strategic adjustments to our content operations in the domestic business pre-recorded content segments. Accordingly, we choose to optimize our promotional strategy targeting the content with more commercialization opportunities. And we also reduce the marketing expenditures and the investments related to the pre-recorded content categories with lower commercialization capabilities. And less relevant to the auto entertainment business, it did have like certain impact from the overall user base in the short term.
spk03: 明年呢,我们在营收层面的增长, 主要还是以音频娱乐业务的商业化为核心。 第三季度虽然整体用户规模同比增速缓慢了, 但是呢,音频娱乐业务的MAU同比实现了21%的增长。
spk02: In the next year, the commercialization of our audio entertainment business will continue to be the primary driver of our top-line growth. In the third quarter, although the total user growth slowed down from last year, our audio entertainment MAUs grew by 21% year over year. which provides growth potential for the commercialization of our auto entertainment business.
spk03: In summary, in China, we will combine more focused operation strategies and refined promotion strategies to improve the share price as a goal to promote revenue growth. In addition, with the development of overseas businesses, we believe that in the future,
spk02: We believe that with our adjusted operating strategy and refined promotional model, we are targeting to improve the paying ratio to foster the top-line growth. In addition, with the development of overseas business, we believe that the digital social networking business could also bring us more growth opportunities. Thank you. That concludes my answer.
spk04: Thank you for the questions. As there are no further questions now, I would like to turn the call back over to the company for closing remarks.
spk02: Thank you once again for joining us today. If you have further questions, please feel free to contact Li Zhi's Investor Relations through the contact information provided on our website, at ir.leach.fm or the PMT Group investor relations. Thank you.
spk04: This concludes the conference call. You may now disconnect your lines. Thank you.
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