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spk00: Hello, ladies and gentlemen. Thank you for standing by for the Liz High Inc.' 's fourth quarter and fiscal year 2021 earnings conference call. At this time, all participants are in a 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 fourth quarter and fiscal year 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, our COO, Mr. Zilong Li, and our acting CFO, Ms. Chen Fanglu. Mr. Li and Ms. Lu 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, an Ernest Highlights presentation and a webcast replay of this conference call will be available on the IR section of our website at ir.lich.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 technically contain words such as may, will, expect, target, estimate, intend, believe, potential, continue, or other similar expressions. Forward-looking statements involve inherent 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 these just earnings prep fees and this conference call include discussions of unaudited gap financial measures, as well as unaudited non-gap financial measures. Please refer to LIZI's earnings press release for a reconciliation of unaudited non-GAAP measures to unaudited GAAP measures. I will now turn the call over to our COO, Mr. Zilong Li. Please go ahead.
spk04: Hello, everyone. Thank you for attending LIZI's 4th quarter and full-year performance conference in 2021. First of all, on behalf of LIZI's management team, I would like to express my sincere gratitude to all the shareholders and investors who have supported us. 2021 is a year of continuous progress, firm implementation of strategic plans, and rapid growth. In the midst of continuous expansion of global influence, we have deeply optimized the combination of diversified products and enhanced the development of innovative technologies
spk02: Hello everyone and thank you for joining our fourth quarter and full year 2021 earnings conference call. First of all, on behalf of the Li Zhi management team, I would like to express my deep gratitude to our shareholders and investors who have supported us. Throughout 2021, we made continuous progress and a successful implementation of our strategic plan, achieving rapid growth. While continuously expanding our global footprint, we elevated our efforts to optimize our diversified product portfolio, strengthen the development of our core technologies, pursue efficiency, and maximize value with more refined operational strategies. As a result, we continue to achieve key goals on our journey toward building a sustainable audio ecosystem.
spk04: In the fourth quarter of 2021, LiZi continued to grow steadily. We continuously enrich the audio and video ecosystem, strengthen user relationships, to promote the continuous growth of commercialization development and business. The effective operation strategy is that in the fourth quarter, the total number of unpaid users in the month increased by 18% to 49.73 million. The quarter's revenue rose again by 33% and reached RMB5.6 billion. While the revenue scale maintained a high growth, The quarterly interest rate has increased by 400 points, reaching 32%. In addition, our profit capacity has also been further strengthened, and for the first time, we have achieved a net profit of 8.92 million yuan at the GAAP level, which is 2.37 times the net profit at the energy level.
spk02: In the fourth quarter of 2021, LiZhi maintained its steady growth. We continuously heightened our efforts to enrich the audio-centric ecosystem, strengthen user connections and engagement, and advance commercialization initiatives, all of which lay the solid foundation for our sustainable growth. Thanks to the effective execution of our operational strategy, Average monthly paying users in the fourth quarter increased by 18% year-over-year to 497.3 thousand, and fourth quarter revenue hit a new record high of RMB 560 million, representing a year-over-year increase of 33%. In addition to strong revenue growth, we are also encouraged by the continued expansion of our growth margin. which grew to 32% in the quarter, up 400 basis points year-over-year. In addition, we further improved our profitability. Notably, we turned profitable for the first time on a GAAP basis in the fourth quarter, reporting a net income of RMB 8.92 million in addition to a non-GAAP net income of RMB 18.25 million, increasing 2.37 times year-over-year. 2021年
spk04: Successful strategic implementation boosted the annual income growth by 41%, reaching RMB2.1 billion. The annual net profit increased to 29%, which increased by 400 points in 2020. At the same time, we are also happy to see that domestic business achieved a business-level profit in 2021. In 2021, our successful commercialization strategy execution fueled full-year revenue growth of 41% to RMB 2.1 billion. The full-year growth margin grew to 29%, an increase of 400 basis points compared with 2020.
spk02: We are also delighted to see that our domestic business achieved operational profitability in fiscal 2021, reaffirming our competitive advantage in the online audio space while establishing a solid foundation for our future growth.
spk04: From the second half of 2021, we have made some adjustments to the product operation strategy and market promotion strategy. to sell core products that are more likely to transform, through detailed operation and promotion, to expand the core user group, and at the same time, to continuously enhance user experience and increase user participation. In the first quarter, we held a series of platform activities representing annual events, effectively invoking the creative passion of content creators, and attracted more content creators to participate in the creation and interaction, which increased the participation of users and enhanced the community atmosphere. We are very happy to see that in the fourth quarter, the average number of active users in the audio and video entertainment business continues to grow to 9.4 million. The growth pattern of paid user size and income has shown a steady growth. This has further highlighted our commercialization potential.
spk02: 在未来,我们会继续挖掘音频 娱乐业务的商业化潜力,提升商业化效率,以实现整体业务的持续增长。 In terms of audio entertainment, in the second half of 2021, we adjusted our operational and marketing strategy to harness our resources and efforts to target core content categories with greater monetization potential. Through our fine-tuned operation management and marketing strategies, we continuously expanded our most active user groups while improving user experience and increasing user engagement. In the fourth quarter of 2021, we organized and hosted a series of events and activities accentuated by the Leech Annual Voice Gala, unleashing the creativity and enthusiasm of our content creators, attracting more medium to long-tail creators to engage in creating and interacting on the platform, which in turn increases user engagement and boosts community connectivity. We were pleased to see that the average MAU of our audio entertainment business continued to expand to 9.4 million in the fourth quarter, with both the paying user base and revenue maintaining a robust growth momentum, further ramping up our commercialization capabilities. In the future, we will continue to expand the commercialization potential of our outdoor entertainment business, remain steadfast in our efforts to enhance our commercialization efficiency and ultimately deliver overall growth over the long term.
spk04: In the fourth quarter, we continued to optimize the functionality of global social products, including the addition of YouTube SDK. Through product innovation, the user is more active, and the user is more flexible and interactive. In December, the market for each user has grown by 68% in the same period as last year. The number of friends has also continued to grow, only 14 times in the same period as last year. The total download volume of TIA has also reached nearly 20 million times. Recently, the new version of TIA has also been successfully launched. On the basis of overall visual design and upgrade, we have fully optimized the usability and usability of the product, and launched the open-source function of real-time interaction group space. This function only helps users to build more convenient and more efficient line connections. to expand a more active online community. Users can immediately switch to the multi-person real-time cloud interaction space for more convenient real-time cloud communication, and through text, images, screen sharing, YouTube SDK, and other media functions, to carry out a rich multi-person real-time interaction. In addition, the new version of TIA supports the privacy and publicization of two scenarios, Users can interact online with friends and acquaintances in private groups. At the same time, we will also use users' preferences to recommend public group spaces to help users expand their online social networks. In the future, we will also introduce more offline organizations, such as KOLO, to further enrich TIA's diversified interest community.
spk02: In the fourth quarter, we continue to optimize product features and functions of our global social product tier, including adding access to the YouTube SDK. We remain focused on boosting user engagement through product innovation for the improving user sickness and active interaction rate. In December, the average time spent daily in real-time voice room per user increased by 68% year-over-year. and the number of pairs of friends' connections continued to grow, and in December 2021, existing 14-fold increase compared with December 2020. In addition, by the end of 2021, the cumulative downloads of TIA reached close to 20 million, Recently, we rolled out a brand new version of TIA. In addition to optimizing user interface design, we further improved the product versatility and the usability for the upgraded version. Notably, we launched an innovative feature referred to real-time interactive group space. This new feature is designed to help users from online connections more easily and efficiently, as well as build their online community more engaging. More specifically, only one click is needed for users to switch to the multi-user real-time interactive space via the novel group space, which enables faster and more efficient real-time voice communication. Through voice, text, image, screen sharing, YouTube SDK, and other multimedia functions, users can have a richer set of real-time group interactions. In addition, this new version of TIA is able to support both private and public group interaction spaces, enabling users to connect with their acquaintances and friends through private group space. In the meantime, public group spaces on TIA can be recommended and discovered based on user preferences, which may help users enrich their online social network. Next, we are also planning to entice more offline groups and KOLs to join TIA and create vibrant, diverse interest-based communities.
spk04: The new TIA is an advantageous milestone for us in the product innovation field. In 2022, we will implement a strategy to balance growth and control cost while promoting positive growth. In addition, TR's global headquarters will be established in Singapore in the near future. The headquarters will be the global innovation center of TR and LiZi Group, to assist the development of talent teams and fully support the expansion of LiZi's international business.
spk02: This new TR edition marks another milestone on our product innovation roadmap. In 2022, we will adhere to a balanced growth strategy and driving robust organic growth while maintaining cost of control. Another highlight of our international expansion is that TIA recently officially established its global headquarters in Singapore. The headquarters will serve as the global hub for innovation for TIA as well as the Li Zhi Group to help nurture teams of talent and fully support the expansion of Li Zhi's international business.
spk04: Looking back at 2021, while we are creating new products, we are also actively promoting the development of self-proclaimed technology. We believe that self-proclaimed core technology can provide users with more diverse and differentiated audio and video entertainment and interactive social experiences. It is also our ability to build core advantages in market competition We are very happy to see that the RTC-based in-video streaming technology platform, Dolomy, and the virtual communication platform, Vodax, are continuing to upgrade their products. With the support of customized technology, Dolomy and Vodax help us constantly innovate and enrich the form of product functions to meet the needs of user diversity. to provide a more unique value to users. At the same time, our speech technology also provides support for the multi-faceted layout of products, including compatible multi-channel vehicle operation system and test network platform, supporting the rich application of LIS products in multi-use scenarios. Through audio operation and high-quality audio transmission and other technologies, it improves the user experience in vehicle scenarios, Looking back on 2021, while focusing on product innovation, we also actively advanced the development of our in-house suite of technologies.
spk02: We are convinced that core technologies help us provide users with richer audio entertainment offerings and more interactive social experiences, building a deep mode for our business. We are very pleased to see that our in-house developed RTC real-time audio and video streaming technology solution, Doremi, and the instant voice messaging platform, BoulderX, are continually empowering our product enhancement capabilities. By providing tailored technology solutions, DoReMi and BoulderX collectively allow us to persistently innovate and enrich product features and functions to align with users' diverse needs, ultimately creating unparalleled value for our users. In addition, our in-house suite of technologies also bolsters our multi-device product roadmap, including enhancing compatibility with a variety of lean operating systems and Internet of Vehicle platforms, supporting various applications of Leach products under diverse usage scenarios and improving in-car user experience through voice processing and high-definition audio transmission technologies. In the next phase, we will continue to invest in leading-edge technologies, encompass in-house R&D to strengthen our core technology capabilities and create an industry-leading real-time engagement RTE ecosystem to power the development of our product portfolio.
spk04: In short, in 2021, the stable growth of our multi-faceted business, the continuous improvement of resource technology, and the continuous improvement of organizational construction have set a good start for long-term development. In 2022, we will carry out a steadfast global strategy In summary, in 2021, the robust roles across our diversified businesses
spk02: Advancements in our in-house technologies and the continuous optimization of our organizational system have built a solid base for our long-term development. Moving to 2022, we remain unwavering in our globalization strategy, exploring more regions and territories with diversified product portfolio, leveraging well-established operational experience, and localizing innovation to tap into more commercialization potentials. building an increasingly competitive audio ecosystem, and ultimately creating more value for our shareholders as well as the wider society. Thank you all. 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.
spk03: Okay, thank you, Zilong, and hello, everyone. Our strong financial performance in the fourth quarter and in Festival 2021 exemplifies the company's successful execution of our strategy in meeting growing user demand for audio-based entertainment and social networking. Benefiting from the continuous fine-tuning of our operations and optimization of the cost structure, our gross margin in the fourth quarter had a record high at 32%. up 400 basis points year-over-year, also adding up to a 400 basis points increase in the full-year gross margin. In the fourth quarter, we achieved a net income of RMB 8.9 million, as the non-government income increased by 237% to RMB 18.3 million, while encouraged by the robust growth in our audio entertainment business. As our efficient and effective commercialization strategy As we further enroll our global expansion plans in 2022, we will remain our intense focus on providing innovative and valuable products and services to our users while building a more competitive audio ecosystem. Now, I'm providing a brief overview of our financial results for the fourth quarter of 2021. First, in the fourth quarter, our total net revenues were unbeaten, $516.3 million. representing an increase of 33% year-over-year, primarily driven by the increase in the number of average monthly paid users as the average amount of users spending our audio entertainment products. Cost of revenue was RMB 378.4 million in the fourth quarter of 2021, representing an increase of 26% year-over-year, mainly attributable to an increase in revenue-sharing fees to our content creators, salary and welfare benefits expenses, and benefits costs as we expanded our business. Gross profit was RMB 181.9 million in the fourth quarter of 2021, representing an increase of 53% year-over-year. Long-gap gross profit was RMB 184.4 million in the fourth quarter of 2021, representing an increase of 50% year-over-year. Gross margin for the fourth quarter of 2021 increased to 32% from 28% in the fourth quarter of 2020. Long gap gross margin for the fourth quarter of 2021 grew to 33% from 29% in the fourth quarter of 2020. Operating expenses increased by 41% year over year to RMB 176.6 million in the fourth quarter of 2021. Research and development expenses were RMB 73.5 million in the fourth quarter of 2021, representing a year-over-year increase of 30%. The increase was mainly due to the increase in salary and welfare benefits expenses, related to the increase in the number of our research and development staff and their average salary. Selling and marketing expenses were RMB 17.9 million in the fourth quarter of 2021, representing an increase of 46% year-over-year. The increase was attributable to the increase in the marketing expenses to promote the company's audio entertainment products, the promotional expenses for our international business, and the higher salary and welfare benefits expenses. General and administrative expenses were RMB 38.2 million in the fourth quarter of 2021, representing a year-over-year increase of 59%. The increase was mainly due to the increased sanitary and welfare benefits expenses, rental expenses, and other general and administrative expenses. Operating income was RMB 5.4 million in the fourth quarter of 2021 compared to a loss of RMB 6.4 million in the fourth quarter of 2020. The long-term operating income was RMB 14.7 million in the fourth quarter of 2021 compared to RMB 4.9 million in the fourth quarter of 2020. Land income was RMB 8.9 million in the fourth quarter of 2021, compared to land loss of RMB 5.8 million in the fourth quarter of 2020. And land gap land income was RMB 18.3 million, representing a year-over-year increase of 237%. Basin and diluting land income per ADS were RMB 70 cents in the fourth quarter of 2021, compared to basin and diluting land loss per ADS of RMB 13 cents in the fourth quarter of 2020. Long-gap base and diluted net income per AS were RMB 36 cents in the fourth quarter of 2021 compared to RMB 12 cents in the fourth quarter of 2020. As of December 31, 2021, we had a cash-at-cash equivalent and a restricted cash of RMB 537 for the formula. Okay, this concludes all of our prepared remarks today, and I will now turn the call to questions. Operator, please go ahead.
spk00: For the benefit of all participants on today's call, if you wish to ask your question 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 question. And your first question comes from the line of Vincent Yu from Needham and Company. Please ask your question.
spk05: Thank you, management, for taking my question. I have two questions. The first question is on the profitability. I do see that in our Q4 we have become profitable in terms of gap net income. So what's our view for the profitability in 2022 and our mid- to long-term prospects for the profitability? My second question is, can management elaborate more on the paying rate improvements? Thank you.
spk02: Okay, thank you, Vincent, from Eden. Firstly, I will translate the questions. The first question from Eden. Okay, thank you. I'm Michael. Let me answer these two questions.
spk07: First question is whether we will be able to achieve profit and medium-term prospects this year. We are very happy that in the fourth quarter of 2021, we achieved the original profit at the GAAP level. The net profit at the non-GAAP level also achieved a major improvement. This is due to our uh uh uh I will translate for Marco.
spk02: So the first question from Vincent from Medium is about the profitability and our long-term expectations for the profitability. We are delighted to see that for the first time, we achieved profitable on a gap basis and substantially increased our non-GAAP net income in the fourth quarter of 2021, which is mainly due to our effective execution of our strategies on the cost reduction and efficiency enhancement. As of the profit forecast for the full year of 2022, in terms of top line, we will continue to expand the user base increase the number of paying users and the users' spending levels in the audio entertainment segment in order to unleash the commercialization potential of the audio entertainment business.
spk07: At the same time, we are also planning to explore different markets to dig up some new business opportunities to provide more driving force for the overall growth of the society. In the meantime, we also plan to explore more markets and develop new commercialization models and drive the overall revenue growth.
spk02: For different quarters of the year, there may be fluctuations caused by factors such as festivals and holidays, but we expect that the overall revenue will maintain a solid growth momentum in the year.
spk07: We hope to continue to implement such a strategy and gain profit at the operating level. For internationalized business, we will insist on a strategy that balances growth, controls the size of investment, and pursues the maximization of operating efficiency. At the same time, we also pay attention to the network effect of this product and the growth of users themselves. In terms of operating expenses, we'll dynamically adjust the resources and location according to the programs made during each phase. For the domestic business, we'll further implement strategies to control costs
spk02: and enhance efficiency in order to achieve profitability at the operating level. For the international business, we'll adopt a strategy of balance the growth while controlling the investment size, maximizing the operational efficiency, establishing a network effect for our product, and achieving organic growth in our user numbers. Overall, we are confident we will further narrow our losses in 2022. and build a solid foundation for us to achieve our needs to long-term profitability targets.
spk07: For the medium-long term, we hope to further promote the diversification of revenue, including opening up new markets and providing new products. We will gradually increase the revenue size of overseas businesses, provide more sales for overall revenue growth, For mid- to long-term growth, we hope to further diversify our revenue, including developing new markets
spk02: and incubating new products to gradually increase the income from the international business to boost the overall revenue growth. Meanwhile, we will continue to optimize the cost structure, improve operating efficiency, reduce the overall expense ratio, and promote business growth with the goal of achieving overall profitability in the mid to long term. This concludes with Marco's answers.
spk07: The next question is about the payout rate, right? Yes. Okay. In the fourth quarter of 2021, our monthly payout rate achieved an equal growth of 18%, reaching nearly 500,000. At the same time, the revenue of the quarter also created a new high. This is mainly due to the fact that we are the center of the audio and video entertainment business, and we promote diversified operating activities. The first step is to enhance the creativity and enthusiasm of the creators, and thus stimulate the participation of users and effectively promote the transfer of paid users. On the other hand, In the fourth quarter of 2021, we achieved an 18% EOV increase in the average monthly paying user base.
spk02: to 500,000, while our quarterly revenue hit a new record high. This is mostly due to two reasons. First of all, we focused on the audio entertainment business and launched diverse promotional activities to further trigger the creativity and enthusiasm of our content creators in order to boost the user participation and effectively promote the paying user conversion. On the other hand, on the marketing strategy front, we focused more on the core content categories to acquire customer accuracy. By strengthening ties between the users and the content creators and leveraging the advantages of audio, we can consolidate user connection and engagement to promote the conversion of the paying users.
spk07: In 2021, in addition to our work in the domestic market, In 2022, in addition to continuing to explore the domestic market,
spk02: We are also leveraging our experience to continue to expand our business into more countries and regions through our fine-tuning operations, increase the overall paying user base, raise user spend levels, and drive the top-line growth this year.
spk06: Thank you. Thank you, Marco.
spk00: Your next question comes from the line of Vicky Wei from Citi. Please ask your question.
spk01: Good evening, management. Thanks for taking my questions and congrats on the profitable quarter. Will management share some color about the 2022 growth strategy as well as audio entertainment sector outlook for 2022? Thank you.
spk07: I will translate for Marco.
spk02: We are confident we can continue to scale our growth in the future. With the effective implementation of our globalization strategy, we are expecting the international business to generate incremental growth for our overall user base. Recently, we have focused on the continuous optimization and upgrading of our products, which we believe will effectively increase the user engagement and grow our user base.
spk07: Moving forward we will actively
spk02: and expand into the new market and build a more diversified product portfolio. We are looking to reproduce our successful experience and business models in the domestic audio entertainment sector into other markets and localize operations according to differences of these various markets, ultimately growing and expressing new commercialization potentials. And we have been preparing for this expansion We are expecting our international business user base to achieve strong growth in the mid to long term and contribute to future revenue growth.
spk07: For domestic business, our current focus is to focus on the improvement of the user size at the audio and video entertainment end and to focus on the value transfer of the core user group. In the fourth quarter, we can see that we have achieved a better performance. It also proves that some of the operating strategies are more effective. Next, we will continue to optimize the strategy of K-net, continue to focus on some of the variants with relatively high potential to carry out accurate customers, and further to attract some core user groups with stronger payment capabilities and payment wishes. In terms of our domestic business, we mainly focus on the user-based expansion in the audio entertainment sector and monetization of the core user groups.
spk02: Our excellent performance in the fourth quarter also demonstrated the effectiveness of our operational strategies. We will continue to optimize our marketing strategy and target content categories with greater monetization potential, as well as execute on our precise user acquisition strategy to reach core user groups with strong spending power and a higher willingness to pay. In addition, through optimizing product function, and launching the diversified activities, we can successfully improve user engagement and paying user conversion, thereby driving the top-line growth.
spk07: For Leeds' audio and video entertainment ecosystem, we think this is a version with higher potential for commercialization. In the second half of last year, we began to optimize our marketing strategy. effectively increased the transfer of the cost of audio and video files and drive the growth of income. At the same time, we also optimized the cost structure and further increased the level of profit. Our profit amount achieved 53% of the same growth. In the fourth quarter, we also achieved profit on the second level. From the whole year of 2021, domestic business has actually achieved a decent level of profit.
spk02: Regarding to the outdoor entertainment sector, we think the sector has strong commercialization potential. In the second half of last year, we began to optimize our operational and marketing strategies, which effectively improved the conversion of paying user base. and of the audio entertainment, and in turn drove the revenue growth. At the same time, we also optimized our cost structure to further improve the gross margin, while the gross profit was up 53% year-over-year. In addition, we turned profitable on a gap basis in the fourth quarter, while Li Zhi's domestic business already achieving the operational profitability in 2021.
spk07: In 2022, we will continue to expand
spk02: implement our optimized operational strategies in the audio entertainment sector, expand our most active user groups, and launch the diversified functions in order to promote the conversion of paying users, increase user spend levels, and improve overall revenue and profitability.
spk06: Thank you. Thank you.
spk02: Thank you.
spk00: As there are no further questions now, I'd 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 Leach's investor relations through the contact information provided on our website at ir.leach.fm and the Pianti Group investor relations. Thank you.
spk00: This concludes the conference call you may now disconnect your line. Thank you.
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